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Essential Elements of Valid Contract

The document discusses the definition and elements of a valid contract according to Indian law. It outlines the requirements for a contract to be valid such as agreement between two parties, lawful consideration, free consent, lawful object and certainty of terms.

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Shivali MD
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35 views

Essential Elements of Valid Contract

The document discusses the definition and elements of a valid contract according to Indian law. It outlines the requirements for a contract to be valid such as agreement between two parties, lawful consideration, free consent, lawful object and certainty of terms.

Uploaded by

Shivali MD
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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SRM COLLEGE OF

MANAGEMENT

LEGAL ASPECTS OF BUISNESS

SUBMITTED BY SUBMITTED TO
SHIVALI MD MR. M ANAND
RA2151003010001 LEGAL ASPECTS OF
. BUISNESS
Definition of Contract
>A contract is defined as an agreement enforceable by law,
according to section 2(h) of the Indian Contract Act, 1872.
Certain conditions need to be fulfilled for an agreement to be
called a valid contract under law. According to Anson, the law
of contract is the field of law that establishes the conditions
under which a promise is legally binding on the person who
makes it.

Elements of Contract
>The two elements of a valid contract
are agreement and enforceability.

1.
Agreement
It is defined under section 2(e) of the Indian Contract Act, 1872,
which says, “Every promise and every set of promises, forming
the consideration for each other, is an agreement.” A proposal
or offer, when accepted, becomes a promise. There must be at
least two parties to form an agreement.

Offer + Acceptance = Agreement

Illustration: A gave a proposal to B to buy his property for Rs.


10 lakh. B accepts the offer. This now becomes an agreement.

2. Enforceable by Law
If an agreement creates any legal obligation on the parties, then
the agreement is said to be enforceable by law. Moral, social
and religious obligations do not form agreements because they
do not create any legal duties.

Illustration: A sell his bike to B for Rs.70,000, but


then B denied to make the payment. A can sue B in the court of
law for breach of contract.

Illustration: Rajat calls Aman to his house and promises to take


him to a movie in the nearby cinema hall. Aman went to Rajat’s
house, but Rajat could not go to a movie due to some urgent
work. Here, Aman cannot sue Rajat even if he has suffered any
damages as Rajat was under social obligation and neither Rajat
nor Aman had any intention to create a legal relationship.

Essentials of a Valid Contract


Section 10 of the Indian Contract Act mentions that all
agreements are contracts if they are made by:-

 Free consent of parties,

 Parties competent to contract,

 For a lawful consideration and with a lawful object, and

 Not expressly declared void.

Expanding the above points, we can say that the essential elements or
necessary conditions of an agreement to become a valid contract are
as follows:-
1. More than one party.
2. Agreement.
3. Intention to create legal relationship.
4. Lawful consideration.
5. Capacity of parties to contract.
6. Free consent.
7. Lawful object.
8. Certainty of meaning.
9. Agreements not expressly declared void.

1.More than one party.


To create a valid contract, there must be two parties, and both
the parties must be major, of sound mind, and not disqualified
by law. A single person cannot constitute a contract.

2. Agreement.
Agreement is necessary to constitute a contract. Offer and
acceptance together make a contract. Any agreement made by
two parties will be legally enforced unless it is declared void by
law.

3. Intention to create a legal relationship.


A contract must be made with the intention to create a legal
relationship. It means that if one of the parties fails to perform
his promise, then that person will be answerable under the law.
Case Law: Balfour vs Balfour
Mr and Mrs Balfour lived in Ceylon, but during holidays they
went to England. Mrs Balfour had developed rheumatic
arthritis, and doctors recommended her to remain in England
because the environment in Ceylon is unsuitable for her health.
Therefore, while leaving, Mr Balfour promised her wife to pay
$30 per month till she comes back to Ceylon. After some time,
Mr Balfour denied paying the money, and Mrs Balfour filed a
suit against him for breach of contract. The court held that Mrs
Balfour was not entitled to any money as there was no intention
to create a legal relationship between the parties, and hence
there was no contract.

4. Lawful consideration.
Consideration means a reasonably equivalent or corresponding
benefit passed on by the promisor to the promisee. It is
something that has value in the eyes of the law.
Consideration must be lawful, i.e., it must not be forbidden by
law, or not be fraudulent or must not involve or imply injury to
the person or property of another. Moreover, it must not be
immoral or opposed to public policy.
Illustration: A promises to obtain employment for B in a
government organisation, for which B promises to pay Rs.
100000 to A. Here consideration is unlawful as it amounts to a
bribe which is forbidden by law.

5. Capacity of parties to contract.


Section 11 of the Indian Contract Act states that a minor,
lunatic, idiot and a drunken person cannot enter into a valid
contract.

6. Free consent.
According to section 14 of the Indian Contract Act, consent is
said to be free when it is not caused by:-

A. Coercion (Section 15) – When a person commits or


threatens another person to commit an act that is forbidden by
law. The agreements made under coercion are voidable, which
can be declared void by an option of any of the parties to the
contract.
B. Undue Influence (Section 16) – When a contract is made
because of the dominant position of one party and due to this
dominant position, the other person cannot deny that contract.
C. Fraud (Section 17) – According to Section 17 of the Indian
Contract Act, when a party contracts with the other party with
the intention to deceive, it amounts to fraud by misleading the
facts.
D. Misrepresentation (Section 18) – It is called
misrepresentation when a contract is made by false
representation of facts or when a party misleads the other by
showing false things and making them look genuine
E. Mistake (Section 20 to 22)
(i) Mistake of fact by both the parties (Section 20) – An
agreement will be considered void if both the parties to an
agreement are under a mistake of fact.
(ii) Mistake of fact by one party (Section 22) – An agreement
will not be considered void if there will be a mistake of fact by
only one party.
(iii) Mistake of law (Section 21) – Mistake of law will not be
considered avoidable if a mistake is caused against any law
force in India. But a mistake as to a law not in force in India will
have the same effect as a mistake of fact.

7. Lawful object.
Section 23 of the Indian Contract Act states that the object of
contract will not be lawful if it is:-
 Illegal.
 Defeats the provisions of law.
 Fraudulent.
 Immoral or opposed to public policy.
 Causes harm to a person or property.
Illustration: A hires a house from B to use it as a gambling
place. Gambling being an illegal act, the contract of hiring is
void.

8. Certainty of meaning.
Section 29 of the Indian Contract Act states that the terms of a
contract must be clear and shall not be uncertain, vague, or
indefinite.

9. Agreements not expressly declared void.


The agreements which are not enforceable by the court of law
will be declared void. They include:-
 Agreement with unlawful consideration and object.
 Agreement having no consideration.
 Agreement in restraint of trade, marriage, legal
proceedings.
 Agreement without certain meaning.
 Wagering agreements.

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