Essentials of a valid contract

Section 10 of the Indian Contract Act, 1872 provides than all agreements are contracts if they are made by free consent of the parties competent to contract, for a lawful consideration, with a lawful object, and are not hereby expressly declared to be void.

So we would now break down all the necessary conditions required for a valid contract and all the further requirements to fulfil those conditions.

1. Offer and Acceptance:

Section 2(a) and Section 2(b) respectively defines the terms ' offer' and ' acceptance.' A contract necessarily requires at least two parties to the contract. One of them must make an offer to the other and the other must accept the said offer. When the offer made by the first party is accepted by the other party, the contract becomes complete.

2. Legal Relationship:

It is also necessary that the parties to the contract have an intention to constitute a legal relationship. The legal relationship only arises when both the parties are aware that if one of them fails to fulfil his part of the agreement, he would be liable for the failure of the said contract and there would be consequences. If there is no intention to create a legal relationship, there is no contract between the parties.

3. Parties must be competent to Contract:

One of the most essential elements of a valid contract is the capacity or competence of the parties to make a contract. Section 11 of the Indian Contract Act defines that ' Every person is competent to contract who is of the age of majority according to the law to which he is subject to and who is of sound mind and is not disqualified from contracting by any law to which he is subject.'

Thus, the requirements for a party to be competent to contract are:-

  1. The person should be a major (aged 18 years or above);
  2. The person should be of sound mind (capable of understanding the contract and forming a rational judgement);
  3. The person should not be disqualified from contracting.

4. Free Consent of the parties:

The next essential of a valid contract is the free consent of the parties. Under Section 13, ' Two or more parties are said to consent, if they agree upon the same thing in the same sense.'

Further, it is mentioned in Section 14 of the Indian Contract Act that a consent is said to be free when it is not caused by:- â€‹

(a)  Coercion (as defined in Section 15)

Coercion is said to exist when the consent of the person is obtained by:

  • committing, or threatening to commit any act forbidden by the Indian Penal Code, or by
  • unlawful detaining, or threatening to detain, any property, to the prejudice of any person,

with the intention of persuading or, causing any person to enter into an agreement.

(b)  Undue influence (as defined in Section 16)

A contract is said to be formed under ' undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage of the other. Moreover, a person is deemed to be in a position to dominate the will of the other-

  • where he holds a real or apparent authority over the other; or where he stands in a fiduciary relation to the other; or
  • where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental, or bodily distress.
  • where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

(c)  Fraud (as defined in Section 17)

Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:

  • the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;
  • the active concealment of a fact by one having knowledge or belief of the fact;
  • a promise made without any intention of performing it;
  • any other act fitted to deceive
  • any such act or omission as to law specially declared to be fraudulent.

(d)  Misrepresentation (as defined in Section 18)

Misrepresentation means and includes-

  • the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
  • any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him;
  • causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.

(e) Mistake (subject to provisions of Section 20, 21, and 22)

When both parties to a agreement are under a mistake as to an essential fact to the agreement, such agreement is considered void and the Court will declare it a voidable contract if not avoided.

5. Lawful Object and Consideration:

For the validity of the contract, it is essential under Section 10 of the Indian Contract Act, that the consideration and object of the contract are lawful.

According to Section 23 of the Indian Contract Act, the following considerations and objects are not lawful-

  • If it is forbidden by law;
  • If it is against the provisions of any other law;
  • If it is fraudulent;
  • If it damages somebody' s person or property; or 
  • If it is in the opinion of court, immoral, or against the public policy.

Thus, any contract with a consideration or object that fits the above mentioned conditions, will not be a valid contract.

6. Agreement should not be expressly declared void:

For a contract to be a valid contract in the eyes of law, it is necessary that the agreement is not expressly declared void by any law in the country.

Under the following sections of the Indian Contract Act, 1872, the following agreements have been said to be expressly declared void:-

  • Agreements made with the parties having no contractual capacity (Section 11) 
  • Agreement made under a mutual mistake of fact (Section 20)
  • Agreements with unlawful consideration or object (Section 23)
  • Agreements whose consideration or object is unlawful in part (Section 24)
  • Agreements having no consideration (Section 25)
  • Agreements in restraint of marriage (Section 26)
  • Agreements in restraint of trade (Section 27)
  • Agreements in restraint of legal proceedings (Section 28)
  • Agreements, the meaning of which is uncertain (Section 29)
  • Agreements by way of wager (Section 30)
  • Agreements to do impossible acts (Section 56)

 

Vanshika Kapoor 
on 02 August 2018
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