Essential of contract, Valid Contracts

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 Law of Contract: Meaning and Essentials of a Valid Contract

The law of contracts in India, as defined under the Indian Contract Act, 1872, encompasses agreements enforceable by law, creating personal rights and obligations. Section 2(h) of the Act defines a contract as “An agreement enforceable by law.” Further, Section 2(e) defines an agreement as ‘every promise and every set of promises, forming consideration for each other’.

Essentials of a Valid Contract:

  • Offer and Acceptance:
    • A valid contract requires a lawful offer by one party and lawful acceptance of the same by the other party. The offer and acceptance must be clear, definite, and aimed at creating legal relations.
    • Example: A offers to sell his bicycle to B for Rs. 2000. If B accepts this offer, there is acceptance, forming an agreement.
  • Legal Relationship:
    • The parties must intend to create a legal relationship. Social or domestic agreements do not qualify as contracts because they do not intend to create legal obligations.
    • Example: A father promising to pay his son Rs. 500 as pocket money is a social agreement and does not create a legal relationship. Conversely, A offering to sell his watch to B for Rs. 200 creates a contract as it establishes legal relations.
  • Lawful Consideration:
    • Consideration refers to something of value exchanged between the parties. It must be lawful, meaning it should not involve illegal, immoral, or fraudulent activities.
    • Example: A agrees to sell his house to B for Rs. 10 lakhs. The consideration (Rs. 10 lakhs) for A’s promise to sell the house is lawful. However, A promising to pay B Rs. 5000 to beat C is unlawful consideration.
  • Capacity of Parties:
    • Parties must have the legal capacity to contract, meaning they must be of the age of majority, of sound mind, and not disqualified by any law.
    • Example: A person of unsound mind entering into a contract to sell his house is not competent to contract, rendering the agreement void. Conversely, a 20-year-old promising to sell his car is competent to contract.
  • Free Consent:
    • Consent must be free and not obtained through coercion, undue influence, fraud, misrepresentation, or mistake.
    • Example: If A compels B to enter into a contract at gunpoint, the consent is not free, making the contract invalid.
  • Lawful Object:
    • The object of the contract must be lawful. It should not be illegal, immoral, or against public policy.
    • Example: A promise to pay B Rs. 5000 if B harms C is illegal and void due to its unlawful object.
  • Writing and Registration:
    • While contracts can be oral or written, certain contracts must be in writing and registered as required by law.
    • Example: A verbal promise to sell a book for Rs. 200 is valid, but a verbal agreement to sell a house is not, as it requires written form and registration.
  • Certainty:
    • Terms of the agreement must be clear and certain. Vague or ambiguous terms make the contract void.
    • Example: A agreeing to sell 20 books to B without specifying which books is void due to uncertainty.
  • Possibility of Performance:
    • The terms of the contract must be capable of being performed. If the act is impossible, the contract is void.
    • Example: A agreement to discover treasure by magic is void as it is impossible to perform.
  • Not Expressly Declared Void:The contract must not be of a type expressly declared void by the Indian Contract Act.
  • Example: An agreement in restraint of trade or an agreement by way of wager is expressly declared void. A promise to close a business against payment is void as it restrains trade.

Understanding these essentials helps ensure that the contracts formed are valid and enforceable by law, protecting the interests of all parties involved.