What are the Essentials of a Valid Contract?

What are the Essentials of a Valid Contract?

Date : 01 Apr, 2021

Post By Advocate Milan Laskar

The contract is defined as the promise made between two or more persons in writing and when this promise becomes enforceable by law it is called a contract. When there is a contract between two or more people they become legally bound and they have to perform their part of the contract, and if the contracting party refuses to perform their part they will face legal action taken by the other party against them. There are certain conditions to form a contract. In this blog, we will talk about what is a contract? What is an agreement? What is a valid contract? What is a voidable contract? Essentials of contract. What are the essentials of a valid contract in business law?

Contract and Agreement: 

Promise:- When one person makes an offer to the other person and the other person accepts it becomes a promise or known as a promise.

Section 2(e) of the Indian Contract Act talks about the agreement, it states that when two or more persons promise each other or reciprocal promises made between two or more persons is called agreement.

For example, A promises to B his son that if he will finish his homework on time A will take him to watch a movie. It’s a mere promise which is not enforceable by law therefore it is an agreement.

Section 2(h) of the Indian Contract Act defines a contract as an agreement that is enforceable by law is called a contract.

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Essentials of valid Contract: Section 10 of the Indian Contract Act talks about the essentials of a valid contract. There are certain conditions that are essential for a valid contract are as follows:-

  1. Proposal and Acceptance: A contract is said to be a valid contract when there is an offer or proposal from one party and acceptance by the other party.

  2. Competence: An agreement should be made between the parties who are competent to enter into a contract.

  3. Lawful Consideration and Object: There has to be a contract with a lawful Object and the Consideration for that should also be lawful.

  4. Free Consent: The parties who are entering into the contract should enter with free consent.

  5. Void Contracts: The contract made between the parties should not be declared as void expressly.

The essentials to making a contract under the business law are also the same as in the Indian Contract Act.

Types of Agreement

Valid Contract: An agreement or contract which fulfills all the essentials under section 10 of the Indian Contract Act is called a valid contract.

Void Contract: Section 2(g) of the Indian Contract Act states that the agreements which are not enforceable by law are void contracts.

For example Agreement in restraint of marriage, an agreement like this is an agreement without consideration and expressly mentioned as a void agreement.

Voidable Contract: The contract has to be made at the option of the parties if the contract is enforceable by law and also at the option of the party but the other party avoids it, the valid contract becomes a voidable contract. Also if the contract is not made with free consent is called a voidable contract or unenforceable contract.

Voidable Contract example:- A holds B at gunpoint and makes B sign the papers to enter into a contract to give 40% of the business profit to A. Now B refuses to give the profit is a voidable contract because the contract is not made free consent.

Illegal Contract: Certain agreements are illegal in nature for example the agreement to commit any crime like murder, such contract is rendered as an illegal contract.

Offer and Acceptance

Offer: Section 2(a) of the Indian Contract Act states that if a person shows a willingness to do something or abstain from doing something with a view to seeking approval from the other person is said to make a proposal or offer.

Offer is of 5 types:

  1. Implied offer: Section 9 of the Indian Contract Act talks about the implied offer that if the promise is made or the proposal is made not by words but by expression or conduct is called an implied offer.

  2. Express offer: Section 9 also talks about the express offer, it states that when the promise is made or the offer is made by words is called express offers.

  3. Cross offer: Cross offer described as when the offer is made from both the parties regarding the same thing at the same time are cross offers. For example; A sent a letter to B to sell his bike and at the same time, B wrote a letter offering to buy A’s bike.

  4. General offer: When the offer or proposal is made to the public at large or to the general public is General Offer. For example, there was a case; Carlil v. Carbolic Smoke Ball Co: In this case, the carbolic smoke company has made medicine to prevent influenza, in advertising about this medicine they made a general offer that if someone gets infected by influenza or cold or any disease like cold and cough after taking the medicine then the company will pay a certain sum. The plaintiff took the medicine but still got influenza, she filed the suit against the company. The Court held that the offer that the company made during their advertisement is a general offer and the plaintiff took the medicine relying on it means she accepted the offer. Therefore the plaintiff is entitled to get the reward that was mentioned in the offer.

  5. Standing offer: If the offer or proposal is valid or open for a certain period of time for acceptance such offer is called a standing offer.

  6. Acceptance: Section 2(b) of the Indian Contract Act talks about the acceptance. It states that when one party makes an offer or proposal to the other and another party shows that they agree or approve it is called acceptance.

Essentials of Acceptance:

  1. Offeree should convey the acceptance to the offeror.

  2. The Acceptance made should be unconditional and absolute.

  3. The Acceptance should be in the normal or general manner unless in the contract the manner for acceptance is mentioned.

  4. The offeree should accept the offer while the offer is still open.

Manner of Acceptance:

  1. Acceptance by conduct.

  2. Implied Acceptance.

  3. Acceptance by post.

  4. Acceptance by telephones.

  5. Acceptance by Fax or e-mails.

To make a contract the communication has to be complete. That means the offeror has to communicate with the offeree regarding a proposal and the offeree has to communicate to the offeror regarding his/her acceptance. The contract can only be made only if the communication between the parties should be complete.

Capacity to Contract

  1. The person entering into the contract should have attained the age of the majority that means the person should be of 18 years or above. But in case of necessity, the court may allow the minor to enter into a contract. There was a case: Mohiri Bibee v. Dharmodas Ghose: In this case, the plaintiff was a minor and mortgaged his property to the defendant who lends money. At the time of making the contract, the defendant knows that the plaintiff was a minor still he lends money and made a contract. The plaintiff filed a suit against the defendant saying that plaintiff was a minor at the time of the contract therefore the contract made is void. The court held that the doctrine of estoppel is not applicable because the defendant was aware that the plaintiff was a minor at the time of making the contract.

  2. The person entering into the contract should be of sound mind or at least is of sound mind the moment he/she is entering into the contract.

  3. The person should not be disqualified from contracting under any law.

Lawful Consideration and Lawful Object

Lawful Object: The object for which the parties are entering into the contract should be lawful that means it should not be barred by any law for example the object to kill a person is not lawful and a crime under IPC.

Lawful Consideration: section 2(d) of the Indian Contract Act talks about the Consideration, and Section 23 talks about lawful consideration, when the offeree or promise agree to the terms of offeree or the proposal that does what the offeree or promise wants is called as consideration. And in order to make the contract valid the consideration has to be lawful for example it should not be something that is barred by the law. For example, agree to kill someone.

Free Consent: The contract that is made should be made free consent which is as follows:

  1. Coercion: Section 15 talks about Coercion, it states that if a person commits or threatens to commit any act which is unlawful or forbidden by the Indian Penal Code is called coercion.

  2. Undue Influence: Section 16 states that if one of the contracting persons is at the dominant position and uses this position to influence the other contracting party or the dominating party dominates the will of the other contracting party is called undue influence. The contract made from undue influence is a voidable contract.

  3. Fraud: Fraud is mentioned in Section 17 of the Indian Contract Act, it states that if one of the contracting parties does something to deceive the other or has a bad intention or ill motive in doing the act is called fraud.

  4. Misrepresentation: Section 18 of the Indian Contract Act describes Misrepresentation as to the misstatement or false statement is made by the party without any ill-motive or bad intention is called misrepresentation.

  5. Mistake: If the contracting party makes a contract that is caused by mistake, or that there is a misunderstanding or misapprehension while making the contract or the contract is made by misapprehension is called a mistake.

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Void Agreement

  1. The agreement restrains the people from marriage.

  2. Agreement that restraint the person from doing business or trade.

  3. Agreement that restraint a person from initiating any legal proceeding.

  4. An agreement which becomes void because of uncertainty.

Procedure to make a contract:

  1. The offer must be made to the offeree by the offeror.

  2. The offeror should communicate the offer to the offeree in a rightful manner.

  3. The offeree should accept the offer.

  4. The acceptance must be communicated to the offeror.

  5. The contract must be made in writing and duly signed by both parties.

Conclusion: Hence it is concluded that there are certain conditions that need to be fulfilled to form a valid contract and the essentials of a valid contract is mentioned in section 10 of the Indian Contract Act. If the contract is made without free consent or has unlawful consideration or object should be void or voidable.
Under the guidance of, Advocate Milan Laskar, this article was drafted by Ms. Charu Shrivastava, B.A.LL.B(H), Galgotias University, Greater Noida. U.P.

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