What are the Essentials of a Valid Contract as per the Indian Contract Act,1872?

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What are the Essentials of a Valid Contract as per the Indian Contract Act,1872?

Introduction:

The contract is an agreement. When we need to enter into the contract, we need to know the essentials of a valid contract. In most cases, it must make in written foment. However, an oral agreement is valid too. But when we talk about enforceability, the contract must be in written form.

In the case of State of Gujarat (Commissioner of Sales Tax, Ahmedabad) vs. M/s. Variety Body Builders.(AIR 1976 SC 2108), the supreme court rightly observed that It is well settled that when there is a written contract it will be necessary for the Court to find out therefrom the intention of the parties executing the particular contract. That intention has to be primarily gathered from the terms and conditions.[1].

A similar view was taken in the case of Fort Gloster Industries Ltd. vs. Sethia Mercantile (P) Ltd.(AIR 1971 SC 2289), the supreme court held, Terms of contract required to be in writing cannot be proved otherwise than by offering the document itself in evidence.[2].

In the contract, the party mentions the terms and conditions in the agreement, legally binding to the parties. In simple terms, we can say the contract means when two or more parties come into some obliging or promise which is mentioned in the agreement to do something and according to that make an agreement, which enables the court to result in the judgment on it.

In a business, the contract plays an important role that makes every business smooth and easy. Some essential elements are required to make a valid contract, which you should know before entering the contract.

Definition of contract:

The Indian contract act 1872 specifies the terms of the contract; according to that, an agreement that two or more parties create in writing form with some terms and conditions is called a contract. 

In short, we can say that an agreement created by parties in the same sense can enforceable by law. After considering the contract definition, we should know the essential elements that make a valid contract. These are given below.

According to the Indian contract act, every agreement is a contract made by the party, with free consent and a lawful object and legal consideration; all its essential elements make a valid contract.

Illustration: 

Mr A makes a contract with Mr B to sell his shop for Rs.1,50000. As per a contract, Mr A sells his shop to Mr B and Mr B has to pay Rs.1,50000. We can say this is a valid contract.

Essential elements of a valid contract:

The Indian contract act,1872, explains the following essentials that make a valid contract.

(1) Offer:

To begin a contract, the offer is a significant essential ingredient. A party who wants to enter into the contract must have an offer. Without an offer, the agreement is not performed from another side.

The offer should be valid as per law because another party of the contract can accept a valid offer.

But here one thing you should know that there is a difference between an offer and an advertisement. To the implementation of a valid contract, there must two or more parties are required. When one party made an offer, another one would know what exact offer is made, and if accepted, then the contract will be valid.

(2) Acceptance:

After making a valid offer in the contract, the second essential element that comes to the highlight is acceptance. After considering that the offer is legally valid as per law, the other party can clear himself about the terms and conditions of the contract, and he can accept an offer. 

In the stage of acceptance, a party may accept any method, for example, writing form, orally, etc. As discussed above, a contract must be a wringing form for the evidentiary value of terms and conditions to prove in the court.

Here one thing we should know that any negotiation or discussion is not an acceptance of an offer, this rule is observed in the case of  Dresser Rand S. A. vs. M/s. Bindal Agro Chem Ltd, (AIR 2006 SC 871), The supreme court held It is now well settled that a letter of intent merely indicates a party’s intention to enter into a contract with the other party in the future. A letter of intent is not intended to bind either party ultimately to enter into any contract.[3].

In the case of Jawahar Lal Barman vs. Union of India,( AIR 1962 SC 378), the supreme court observed that an acceptance of an offer must be absolute and unconditional.[4].

  • Key elements of acceptance:

Here are some following elements that are required to know which are given below.

  • The acceptance must be absolute as well unconditional regarding an offer.
  • It should be implied.
  • It should be communicated with the offerer.

(3) Consideration: 

A simple meaning of consideration is that a value is given back to the offerer for making a promise. It will be done when the parties of the agreement agreed with the contract.

It is not necessarily; consideration is given in terms of money. It should be anything which parties of the contract agreed. In sort, consideration is a value regarding the agreement.

If we refer to the provision of section 2(d) of the contract act,1872, there is define that consideration is the act is done by the promisor to the promisee, for doing something in the past, present, or future.

Let’s see some key elements of consideration:

  • Consideration is made by the promisor with his desire and agreed upon for the performance of the contract.
  • Any third party can consider the promisee on behalf; it is a valid consideration in terms of an agreement.
  • Consideration can be count as a, 

1. Past consideration:

That type of consideration is received in the past by the promisor. He can get that before the date of execution or performance of a contract. For example, to receive token money in advance.

2. Present consideration:

The contracting party can receive such a type of consideration with the execution of the contract.

3. Future consideration:

Such a type of consideration the parties will agree on at a future date is called future consideration. For an example of mainly, the building construction contract creates such a kind of contract.

  • Consideration should not be prohibited by law.
  • Any law should not invalidate consideration; if so, that would not count as valid as per law.
  • Consideration should not be against public policy; the court treats such type of consideration as immoral. For example, the consideration should be wrong if it implies cause injury to the person or property of other persons.

(4) Free consent: 

Free Consent is also an essential element of a valid contract. When two persons or parties agree with the simple sense, t called consent to the promise. But here is the foremost important thing is that free consent makes a valid contract.

Consent can not make based on influence, threatened, misrepresentation, or cheating. If the contracting party makes such consent wrongly or by mistake, the contract is not as valid as per the eye of law.

(5) Intend to create a legal relationship: 

Creating a legal relationship is an essential element that offers a valid contract. It is a Starting process to build good relations between two parties in the business; this relation converts into a legally binding agreement. 

The legal relationship between a party to build trust make a  foundation of a valid contract. The party has a specific intention to convert the agreement into a legally binding contract to both parties with the same sense.

(6) Intend to legal obligation:

The legal obligation makes a compelling and valid contract between the parties. Because when parties agree, they have a clear intention to create a legal relationship that is legally binding to the party of the contract that makes surety between them. If one party cannot perform the agreement, the second party can force the court of law.

(7) Competency of contract:

Indian contract act section 11 deals with the capacity of the contract according to that, every person who wants to enter into the contract firstly, he must have an age of majority according to law governing in India. Secondly, he has to be a sound-minded person, and thirdly a person has not been disqualified by any law from entering into the contract, which is the subject matter.

  • Let’s see the above qualification in detail below:

(1) a person who wants to enter into the contract must have 18 years old or more than as per the provision of the Indian majority act in India.

(2) a person must have a sound mind and understand the terms and conditions of the contract when entering into the contract. he can able know about the result and benefit of the contract when creating a contract.

(3) any party of contract should not be declared as a disqualify in India; for example, a convicted person, a foreign sovereign, etc., cannot enter the contract as per the provision of the law.

(8) Lawful Object:

We refer to Section 23 of the contract act 1872, which specifies some criteria of the lawful object according to that,

  • The object not to forbidden by law.
  • The purpose of the contract should not create a basic fraud manner. 
  • The performance of the contract can not to injury or damage to another party of the contract or the property of another person.
  • The court can consider the contract as immoral implied if such a contract creates against public policy.

Conclusion:

The contract is the base of every transaction, there for a party of the agreement want to make it accurate and effective. Because they intend to enter into a contract to make easy and growing of their business, these essential elements help create a valid contract as per law.

Reference:

(1) State of Gujarat (Commissioner of Sales Tax, Ahmedabad) vs. M/s. Variety Body Builders. (AIR 1976 SC 2108).

(2) Fort Gloster Industries Ltd. vs. Sethia Mercantile (P) Ltd.(AIR 1971 SC 2289).

(3) Dresser Rand S. A. vs. M/s. Bindal Agro Chem Ltd, (AIR 2006 SC 871).

(4)  Jawahar Lal Barman vs. Union of India,( AIR 1962 SC 378).

Read also:

Know the Importance of Quasi Contract under the Indian contract act 1872

What is the main difference between a Void Contract and a Voidable Contract under the Contract Act?

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