Feb

Essential Elements of Valid Contract

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Indian Contract Act, 1872 Section 10 states that all agreements are contracts if they are made by
the free consent of both the parties competent to contract, for a lawful consideration and with a
lawful object and are not hereby expressly declared to be void. Thus, an agreement must possess
certain elements in order to constitute or form a contract.
Here are the essential elements of a valid contract:
a) There must be an agreement : An agreement is very essential condition of a contract. Every
promise and every set of promises forming the consideration for each other, is an agreement. At
least there must be two parties to an agreement, one party makes a proposal and the other accepts
or rejects the same. If the other party rejects no question of entering into a contract arises. A
proposal from the side of the party making it do or abstain from doing a particular act and its
acceptance by the other party are the two essential conditions of an agreement. The
proposal/offer as well as acceptance should be definite. The acceptance of the proposal must also
be in the mode prescribed and it must be communicated to the offerer. The intention of making
an agreement should be to create legal relationship with clear and certain terms. An agreement
not enforceable by law is said to be void under section 2(g) of Indian Contract Act. Whereas an
agreement enforceable by law is a contract under section 2(h) of Indian Contract Act. An
agreement which is enforceable by law at the option of one or more of the parties thereto, but not
at the option of the other is a voidable contract under section 2(i) of Indian Contract Act.
b) There should be an intention to create a legal relationship : If there is no intention to create
any legal relationship, the contract is not valid. Agreements of religious, social and moral nature
do not reflect legal relations.
c) Parties to a contract must be competent : There must be at least two parties for every
contract and parties to a valid contract must be competent. Every person who is of the age of
majority according to law to which he is subject, and who is of sound mind and who is not
disqualified from contracting by any law to which he is subject is competent to contract under
section 11 of Indian Contract Act, 1872.
d) Lawful Consideration : Consideration is an act done or to be done at the request of the
promisor by the promisee or by any other person. For a valid contract, such consideration must
be lawful. Consideration is really an essence of a bargain. The agreement is enforceable legally
only when both the parties to it give something and receive something in return. Consideration
need not be necessarily in cash or kind, but it can be even abstinence or refraining from doing
something or promise to do or not to do something.
e) There should be free consent of parties to the agreement : For the purpose of creating a
valid contract the consent of the parties of the agreement must be free. Under section 13 of
Indian Contract Act the term consent is defined as ” that two or more persons are said to have
consent when they agree upon the same thing in the same sense. Thus the parties to an agreement
must be of the same mind upon the same subject. The consent is said to be free when it is not
caused by Coercion(section15), Undue influence(section 16), Fraud(section 17),
Misrepresentation(section18) and Mistake(section20, 21 & 22) under Indian Contract Act, 1872.
f) Legal or lawful object : The object of the agreement must be legal. The agreement to be
entered into must relate to a thing which must not be contrary to the provisions of any law in
existence.
g) Agreement not expressly declared void by law : The agreement to be entered into must not
have been expressly declared void by law in force in the country like agreement in restraint of
marriage under section 26, agreement in restraint of trade under section 27, agreement in
restraint of proceedings under section 28, agreements having uncertain meaning under section 29
and wagering agreement under section 30 of Indian Contract Act, 1872.
h) Compliance with legal Formalities : It is not necessary that a contract must be in writing. It
can be made by word of mouth. However, in the interest of the parties to a contract, it should be
in writing. There are certain formalities to be complied with in order to make an agreement
legally enforceable like certain documents are required to be stamped properly, certain
documents are required to be registered and in such cases the contract must be in writing.
i) Certainty and Possibility of Performance :
a) Certainty of Performance: Section 29 of Indian Contract Act states that “agreements, the
meaning of which is not certain or capable of being made certain are void”. For example Mr. A
agrees to sell Mr. B some Oranges but there nothing is said about type of , quantity and quality
of Oranges therefore such agreements are void, for a valid contract the agreement to be made
must be certain. If it is vague it cannot be enforced by law. Even an agreement to agree in future
is not a contract. There is also no contract if a material is not settled or not implied by law and
the document contains no machinery to ascertain it.
b) Possibility of Performance : Section 56 of Indian Contract act states that an agreement to do
an act impossible is itself void. Even a contract to do an act which after the contract is entered
into becomes impossible or by reason of some even which the promisor could not prevent,
becomes void when the said act becomes unlawful or impossible. Thus an agreement must be
such of nature that it becomes capable of being performed.