Essentials of a valid contract under Indian Contract Act 1872

As per section 2(h) of Indian Contract Act, 1872 “an agreement enforceable by law is termed as a contract”.

Therefore promise, consideration and essential elements form a contract.

For example: A and B are two parties. A wanted to sell his microwave to B. So, he offers his microwave to B for Rs. 6,000. B accepts the offer and agrees to pay him the amount.

Essential elements of a contract

1. Offer and acceptance

In order to make a contract there must be two or more parties. Moreover, one party should be the one making an offer and second should be the one accepting the offer. It is necessary that the offer and acceptance are legal. Offer and acceptance should match the rules and regulations laid down in the Indian contract act regarding valid offer and valid acceptance.

For example: - there are two parties C and D which are getting in a contract with each other. C is offering D Rs 2,00,000 for his car. D accepts the offer. Therefore, in this case C is the offeror and D is the offeree.

2. Legal relationship

Parties must have the intension of creating a legal relationship. Mere domestic agreement and social agreements cannot be termed as contracts because there is no intension to create a legal relationship.

For example: husband was in a good mood and then he promises his wife that he will buy her a new necklace when he receives his salary. But later on, he refuses to buy the necklace. Therefore, this is a domestic agreement. There was no intension to create a legal relationship. Hence this cannot be termed as a contract.

Case law: Balfour vs Balfour

Mr. Balfour was a civil engineer who worked for the government as a director of irrigation in Ceylon. He lived there with his wife Mrs. Balfour. Mr. Balfour received few holidays so he went to England with his wife. In England his wife was diagnosed with rheumatic arthritis. So, the doctor told her to stay in England as the weather conditions in Ceylon were good for her. So, after the holidays husband said that he has to leave as he has his work in Ceylon. So, they both decided that Mrs. Balfour will stay in England and Mr. Balfour will stay in Ceylon and Mr. Balfour will pay her 30 pounds per month. Later issues start to arise between their relationships. So Mr. Balfour stops paying his wife. Then the wife files a suit against him. The court therefore passed the judgement that there should be the intension to create legal relationship.

3. Lawful object and consideration

It is a very important essential of a valid contract. Consideration means something in return. If a bare promise is made by one party without an intension to affect legal relations between both the parties then there is no legal consequence and this principle is termed as ex nudo pactonon obitractio. A contract is valid only if there is some consideration. There must be quid pro qua. Quid pro qua means someone gets something in return.

For example: Two parties X and Y are getting in a contract. X offers Y his fan for Rs 500 and Y accept the offer. This is a valid contract because X will get money for his fan. Hence there is consideration.

Two parties U and V decide to get in a contract. U says that he will give his car to V. Therefore, this is not a valid contract. This is not a valid contract because V is not giving something in return to U. Hence there is no consideration in this contract.

4. Capacity of parties

Two parties can get in a contract only if there is capacity of parties which means that parties are capable of entering into a contract. Therefore, the parties must be competent to the contract. A person is competent to enter in a contract if:

• He is of sound mind
• He has attained the age of majority
• He is not disqualified from contracting by law that is want of capacity may arise from minority, idiocy etc. if any of the parties entering in the contract suffers from such disability the agreement is not enforceable by law.

For example: If two parties A and B are entering in a contract. A want to sell his bike for Rs 50,000 and B agrees to it. But B is of 16 years therefore it will not be considered as a valid contract. This is because B is not competent and capable of entering in the contract. This is because he has not attained the age of majority.

5. Free consent

Two parties are said to consent only if they agree upon same thing in the same sense. Therefore, in order to be a valid contract or a contract enforceable by law the consent of both the parties should be free. The consent is free only if the consent is not caused by

• Coercion
• Mistake
• Misrepresentation
• Fraud
• Undue influence

For example: D and E are two parties entering in a contract. D wants to sell his car to E for Rs. 10,00,000. And he told him that his car is in a good working condition whereas some parts of the car are not working. He has falsely represented his car in front of the other party. Therefore, it is not a valid contract.

6. Lawful object

The subject/object of the agreement must be legal. In other words, I would say that the object of the contract must not be illegal, immoral or against the policy. Any agreement in which the subject is not lawful is not valid.

Example: There are two parties A and B. A and B get into an agreement of buying and selling drugs. A sells drugs to B and B pays for the drugs. Therefore, this is not a contract. This is not a valid contract because the object of the contract is not valid.

7. Certainty of terms

The terms of the agreement must not be vague. The words must be certain. Therefore, the court will not enforce the contract in which the terms are uncertain or vague. Therefore, there can never be an agreement to agree in future as there is no contract made to make a contract.

For example: There are two parties L and M. L says he wants to sell his car to M but he is not sure of the amount. Therefore, this contract is not a valid contract because in this situation the amount of the car is not certain.

8. Case law: Gunthing vs lynn

In this case the court said that an agreement is valid only after offer and acceptance. The next requirement is certainty. If the agreement is not certain and lacks this requirement it will not be enforceable.

Possibility of performance: the agreement has to be capable of being performed in order to be valid contract. Let’s take an example: there are two parties X and Y. X says that he will pay Y Rs. 1,000 if he provers that two parallel lines can intersect each other or they can meet. But this is an impossible task to do. So therefore, this is considered as invalid contract.

9. Legal formalities

The agreements can either be oral agreements or written agreements. But there are certain agreements which have to be in a written form. For example: there are two parties B and C. B decide to sell his house to C. Therefore, this has be in a written format.