Define Contract. Explain the essentials of a Valid Contract.
In simple words, a contract is an agreement made between,two or more persons to do or to abstain from doing a particular act. According to Section 2(h) of the Indian Contract Act, 1872, An agreement enforceable by law is a contract. A contract is an agreement, creating and defining the obligation between parties. Every agreement and promise enforceable at law is a contract. A contract is an agreement enforceable at law made between two or more persons by which rights are acquired by one or more to acts or for bearances on the part of others.
On the basis of analysis of the above definitions, a contract must have the following two elements:
- An agreement.
- Its enforce-ability by law.
Section 10 provides for the essential elements for a valid contract, which include:
Proper offer and proper acceptance: There must be atleast two parties in order to create a valid contract, one making the offer and the other accepting it. Such offer and acceptance must be valid. The law has had down specific rules for making the offer and its acceptance, that is, it must be absolute and unconditional.
An intention to create legal relationship: The agreement must be capable of creating legal obligation among the parties. It does not that it is not a contract. As in case of social or domestic agreements the usual presumption is that the parties do not intend to create legal relationship however in commercial or business agreements, the usual presumption is that the parties intend to create legal relationship unless otherwise agreed upon.
Free consent of the parties: It is essential that there must be free and genuine consent of the parties to the contract so as to create a valid contract. According to Section 14, Consent is said to be free when it is not caused by:
- Undue influence.
- Mistake. The contract is voidable at the option of the aggrieved party if the consent is obtained by any of the above four factors.
Capacity of parties: The parties to the contract must be capable of entering into a contract. The contract is not valid if any of the parties in not competent to contract. According to Section 11 of the Act, states that, every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.
Lawful consideration: The agreement must be based on a consideration. Consideration means something in return. In other words, it is the price paid by one party to buy the promise of the other. The consideration may be past, present or future, however it must be real.
Lawful object: An agreement which is made for any act which is prohibited by law is not valid. That is the object of an agreement must be lawful.
Agreements not expressly declared void: Sections 24 to 30 clearly specify certain types of agreements which have been expressly declared void.
Certainty of meaning: The terms of the contract must be certain and unambiguous. As per Section 29 of the Indian Contract Act, agreements the meaning of which is not certain or capable of being made certain are void.
Possibility of performance: The terms of the agreement must be such are capable of performance. According to Section 56, an agreement to do an impossible act is void.
Legal formalities: The agreement must comply with the required formalities as to writing, registration, stamping, etc. so necessary to make it enforceable at law.