Essentials of valid contract under the indian contract act, 1872

Essentials of valid contract under the Indian Contract Act, 1872

Abstract

Essentials of a valid contract are of such significance that without which the contract is void. In today’s world use of the word, ‘contract’ is quite common and easy. On regular basis, we enter into a contract with friends, family, at work, etc. without knowing all the essentials which are important and necessary for a valid contract. This paper studies all the essentials of a valid contract with the related case laws and illustrations.

Let’s understand the term ‘contract’ in its legal terms –

As per section 2(h) of the Indian Contract Act, 1872 (herein referred to as ICA,1872) An agreement enforceable by law.

Pollock defined ‘contract’ as Every agreement and promise enforceable by law is a contract.

In simple words, Contract = Agreement+ Enforceability.

Now let’s jump into our topic deep.

Introduction to Essentials of Valid Contract

  • Every contract must fulfill the conditions that are ‘Essentials of Valid Contract’ to form a valid contract.
  • Section 10 of the Indian Contract Act, 1872 specifies some conditions which need to be satisfied in the mandate to create a valid contract.
  • The word ‘Agreement’ is also defined under section 2(e) of ICA,1872- Every promise and every set of promises forming consideration for each other is an agreement.

Elements of Valid Contract-

  1. Offer and Acceptance
  2. Lawful Consideration
  3. The Capacity of the person competing for the contract
  4. Consent of the parties
  5. Lawful Object
  6. Certainty of the terms
  7. Possibility of performance
  8. Void agreements
  1. Offer and Acceptance-

There must be an offer from either side of the party, without an offer a contract cannot be made.

There must be an offer from either of the party and acceptance from the other party to whom the offer has been made.

An offer and acceptance which are made to the party and by the party respectively must be ‘Lawful’ this means it should be meeting the requirement of the law.

Section 2(a) of the ICA,1872 defines the word ‘offer’ and section 2(b) defines that when an offer is accepted it becomes a promise, ICA defines an offeror as ‘promisor’ and the person accepting the offer as ‘Promisee’.

When the offer is accepted, and such acceptance has been conveyed, to the offeror, the parties are restricted by their promises.

The most important part of acceptance is communication. Acceptance by the promisee must be communicated to the promisor either by implying or expressing in a reasonable manner or as per the promisor.

Acceptance by the third party is not a valid acceptance unless the promisee has given the authority to such a third person to accept it on his behalf.

Case Law-

In the case of Lalman Shukla V. Gauri Dutt, it was held that mere understanding of the contract does not establish acceptance, it must be communicated well.

Illustrations-

  • X and Y came into a contract where X will supply 100 bales of cotton to Y where Y will pay Rs. 50/- per bale of cotton. Here X and Y have legal intentions to form a valid contract.
  • X invited Y and his family for lunch. Here there are no legal intentions and hence not a valid contract.

2. Lawful Considerations-

Consideration means ‘something in return’.

To make a valid contract enforceable by law it should have lawful consideration.

In other words, Consideration means benefit granted for the fulfillment of a promise.

According to section 25 of ICA,1872 – A contract without consideration is void.

Section 23 of ICA,1872 has also specified unlawful considerations.

Different types of Considerations-

  • Past consideration – when the promisor has accepted consideration before the date of the performance of the contract by any party. E.g.- Prior payment before receiving the parcels.
    • Present Consideration- Also known as executed consideration. Consideration is given at the time of making the contract.
    • Future Consideration – Consideration promised to be given in the future.

Case law-

In the case of Currie v. Misa, the definition of consideration is stated as “A valuable consideration in the perception of the law may comprise of certain rights, interest, profit or benefit accumulating to one gathering or some avoidance disservice, misfortune or duty given, suffered or attempted by other”.

Illustrations-

  • A and B came into a contract that A will supply 10 kgs of sugar where B will pay Rs. 50/- per kg to A. Here B paid Rs. 250/- as advance payment and the rest after the delivery of the goods. Hence the consideration here paid is lawful.

3. The capacity of the person competing to the Contract-

Person (s) entering into the contract must be capable of forming a valid contract that is should be competent to contract.

Every person is capable of entering into the contract if he/she fulfills the criteria given under section 14 of ICA, 1872.

  • These determinants are as follows-
    • A person must attain the age of majority that is 18 years of age. If the contract is done with a minor that a person who is less than the age of 18 years that is with the minor then the contract will have become void i.e., void-ab-initioit was held in the famous case of Mohri bibi V. Dharmodas Ghose.
    • The person must be of sound mind i.e., he/she shouldn’t be of unsound mind.
    • The person entering into the contract must not be disqualified by any law to which he is subject, want of capacity may thus arise from lunacy, drunkenness, minor, etc.

If any party suffers from any disability, then the agreement is not enforceable except in some special cases.

If the contract is made for the benefit of the minor, then the doctrine of estoppel will not be applicable.

The Doctrine of promissory Estoppel

Promissory estoppel is a doctrine that prevents an individual from backpedaling on a promise regardless of whether a lawful agreement doesn’t exist. It expresses that an aggrieved party may recover the damages from a promisor if damages were the consequences of a promise by the promisor, which the receiver of the promise depended on to his resulting inconvenience.

Illustrations-

  • A enters into a contract with C that A will supply 10 Shirts to C provided that C will pay him Rs. 500/- for each shirt. C is 15 years old (minor). Hence the contract is not valid.
  • B enters into a contract with D who is of unsound mind(lunatic), hence the contract is not valid.
  • X enters into a contract with Y who is 22 years old and of sound mind. Hence this contract is valid.

4. Consent of parties-

In simple words, the parties entering the contract should do it voluntarily and not by any external force and factors.

Section 14 of ICA, 1872 states that the parties entering the contract should have free consent that forms the contract valid otherwise, the contract is invalid if the consent of the parties is not free.

These factors are defined by ICA, 1872-

  • Coercion- Section 15 states this term Coercion in the ICA, 1872 which means Committing any act which is forbidden by law defined under Indian Penal Code or unlawful to confine of property, or threatening to commit any such acts. Such an act should be harmful to other persons and also there must be legal action arising out of such action. For example – a person threatens another to do or not do an act, or else the person will kill him. This leads to coercion and is invalid.
    • Undue influence– It is defined under section 15 of ICA, 1872 which means one party uses power or status that is dominant position over the other person and tries to obtain the undue advantage. Example- Principle-agent relationship.
      • Fraud- It is defined under section 17 of the ICA, 1872 which means when one party explains the terms to another person intending to cause damage, with an ill-will, and to take advantage out of it. Presenting the fake statements, false promises to perform or not to perform such acts, hiding the facts, and acts done to deceive the other person. Thus, their acts would end up constituting fraud and deceive the other party. E.g.- Raj sells his Tv to Jay and hiding the fact that Tv is not 100% working. Hence this contract is invalid.
      • Misrepresentation- It is defined under section 18 of ICA, 1872 which means representing the false facts without actually knowing that the facts are untrue or without an intention to deceive the other party or without an intention to take undue advantage of the other party. E.g.- Raj asked jay whether the house which he is selling has any fault or not, jay innocently said no issues whatsoever. After the purchase, the water pipeline in the basement was not working well during the winters and Raj faced a lot of loss because of the damages.
      • Mistake- Section 20 and 21 of ICA, 1872 defines the term Mistake. If any mistake done by either of the party will lead to the contract turn invalid. E.g.- when raj mistakenly sells his property to Sanjay whom raj thought as jay, here the contract with Sanjay is invalid.

5. Lawful object-

An object of an agreement must be lawful.

Any object of an agreement if is illegal or immoral or forbidden by the law results in the formation of an invalid contract.

E.g.- Raj sells illegally the goods which are banned by the Law, where the object is unlawful, hence the agreement is void.

6. Certainty of the Terms

Terms and conditions must be certain of the contract.

There can never be a contract to contract in the Future.

7. Possibility of performance-

An agreement to do an impossible performance is void. Hence the performance in the agreement should be something which can be performed.

E.g.- Raj agrees to pay Rs. 50,000/- if Sanjay proves that parallel lines can meet each other such an agreement is void.

8. Void agreements-

An agreement must not contain anything which results in making the contract void.

ICA, 1872 has declared the following agreements as void-

a) Agreement in restraint to marriage (sec 26)

b) Agreement in restraint to Trade (sec 27)

c) Agreement in restraint to legal proceedings (sec 28)

d) Agreement with uncertain terms (sec 29)

e) Wagering agreements (Sec 30)

9. Conclusion-

A contract must include basic elements to form a valid contract.

For a valid contract, the essentials of the contract must be fulfilled.

There are some important sections of ICA, 1872 as follows-

Section 2(h)

Section 2(e)

Section 2(c)

Section 5

Section 11

Some landmark case law – Mohri Bibi V. Dharmodas Ghose (1903) 30 I.A. 114(P.C)

Some important points to form a contract -a) age of Majority (18 years), b) Sound mind, c) Not barred by law or not disqualified by any law which he/she is subject to.

References-

  1. Section 2(h) Indian Contract Act, 1872

(Indiankanoon.org)

  • Section 2(e) Indian Contract Act,1872

(Indiankanoon.org/doc)

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