Essentials of valid contract

Introduction:

Contract is an essential part of human life. Contract is made between people every day. While renting a house, a book or while selling a car, property, there are some rules that a person has to abide by. If there is loan to pay off the individual has contract with the bank for the repayment. For a contract to be valid there are some conditions that are to be fulfilled. This article tries to cover and explain all of those.

Elements of a contract:

A contract is of many types. What makes an agreement a contract is fulfilment of the following elements. When any agreement between two people satisfies the conditions for a contract that agreement then turns into a legal contract and is legally binding on both the parties. Both the parties then become obliged to do their duty against each other and complete the contract. The elements which make an agreement a contract is provided in Section 10, Indian Contract Act,1872. The Section defines a valid contract as:

“All agreements are contracts if they are made by free consent of parties competent t contracts, for a lawful consideration and with a lawful object, and are not hereby expressly declared as void.”
This section clearly states the important elements of a valid contract. To state them in points following are the essential elements:

  1. Offer and acceptance.
  2. Free consent.
  3. Competent parties.
  4. Lawful consideration.
  5. Lawful object.

Offer and Acceptance:

For any contract to take place, firstly offer has to be made by one party to another and he same offer without any sort of misconception has to be accepted by the other party to whom the contract is been made. For a contract to be a valid, one of the most important things is that there should be no miscommunication about the offer and its acceptance. The offer when accepted becomes an agreement; an agreement to fulfil the needs to the parties to contract.
Offer is a proposal by one party to another party to enter into an agreement. Its is the step of a valid contract. When the other party accepts the proposal the second step is completed. The acceptance has to be communicated to the offeror. Mere silence, generally, cannot be treated as acceptance until it is the mode of acceptance.
During the process of offer and acceptance the most important thing is meeting of mind. The offeree must take and understand the offer as it is given and understood by the offeror. If the offeree has some misconceptions about the offer than such offer and acceptance of such offer is invalid. If he minds of both the parties don’t meet than such offer is not a valid offer.

Free consent:

While accepting the offer the acceptance must be free. Consent is defined in Section 13 of the Act.
“two or more persons are said to consent when they agree upon the same thing in same sense”
When there is meeting of minds and acceptance in communicated, consent is considered to be given. When a person gives consent to any contract, that person is then legally bound to fulfil the clauses of the contract. Section 14 of the same Act states Free Consent to be as follows:
“consent is said to be free when it is not caused by-

1.coercion, as defined in section 15, or

2.undue influence, as defined in section 16, or

3.fraud, as defined in section 17, or

4.misrepresentation, as defined in section 18, or

5.mistake, subject to the provisions of section 20, 21, and 22.”

When the consent given is under no influence or force and by own will it is considered to be as free consent. Such consent is valid and important for a valid contract. When the offeror makes no false representation and there is no mal intention involved in the contract, and consent is communicated for such a contract, then such consent is valid and will make the contract a valid contract.

If there is any mistake on the part of any party in understanding the contract and the consent is given, then such consent is not valid and is voidable at the option of the party by whom the mistake takes place.
In a case where the lady was illiterate and only knew how sign, it was held that the agreement cannot be held valid as there were evidences to show that the lady was explained with the contents of the agreement and hence it was said to be non-binding.

Competent parties:

For a contract to take place there must be two parties, both must be competent. Competent parties are explained in Section 11 of the Act:
“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.”
The age of the parties to contract must be above 18 years. If the age is below 18 than that party will be minor and thus the contract will be “void ab initio”. Such a contract where the party is a minor is said to be a void contract and it is not enforceable by law.
It was held in a leading judgement; power of attorney was executed by a person less than 18 years in age. Executant was not competent to enter into a contract, and it was held that no binding contract came into existence.
The second thing that makes the parties competent is a sound mind. If the party to a contract is of unsound mind that such contract shall be regarded as void. When a lunatic or an unsound person enters into a contract, law declines the contract on the basis that such people don’t understand the clauses of the contract and are not eligible to enter into a contract.
In a judgement, where the sale deed was performed by a lunatic person, the court declared that such sale deed did not confer any right, title and interest.

Lawful consideration:

For any contract to be a valid contract, consideration is must. Any contract is incomplete without consideration. The consideration thus provided must be lawful and not unlawful. If the consideration is unlawful then such a contract is not valid.
The consideration that is provided must not be forbidden by law. If something is considered to be consideration that it must be with the law. The consideration must not be fraudulent. The court must not consider such consideration as immoral and it must be against the morals of the society. If he consideration that is being provided hurts any other person or anyone else’s property, then such contract will be void. Any agreement with unlawful consideration is void by law. Section 23, Indian Contract Act, 1872 explains lawful consideration along with unlawful object.
In a judgement, where an agreement to secure votes in favour of a person to enable such person to be a part of statutory body in consideration of such person agreeing to share power or quit office after specified period is opposed to public policy. This agreement had an unlawful consideration and hence it was not enforceable by law.

Lawful object:

Every contract has an object for the fulfilment of which parties enter into an agreement. When the contract in which parties enter has an unlawful objective, then such contract is not valid. Any contract with unlawful objective is void. The objective for which the contract is made must be lawful. The object which is targeted to achieve must be within the legal arena. An agreement contrary to law is a void agreement.
An agreement was made between parties for the purchase of property, but such agreement resulted in violation of provisions of local laws prohibiting the possession of land in excess limit. It was held by the court that such a contract being for unlawful object is void and cannot be enforced.

Conclusion:

The Indian law in quite clear towards explaining the essential elements of contract. There are ample of precedents and case laws that explain this topic. The Indian Contract Act,1872 clearly states its expectations from the individual as to what terms must be followed to get the protection of the laws. It prescribes us a outline which when followed would give us complete shelter under its laws.
Books referred:

1.Contracts and Specific Relief Act: Dr. Avatar Singh.

2.Textbook on Law of Contracts: Dr. H. K. Shaharay.

AUTHOR:

Avantika Satish Kharade

(Maharashtra National Law University, Aurangabad.)