Essentials of a Valid Contract
“All agreements are contracts, if they are made among parties – by free consent of the parties, competent to contract, for a lawful consideration and with a lawful object, and not hereby expressly declared to be void.” Sec.10
There must be two parties to an agreement namely one party making the offer and the other party accepting it.
The parties must have the intention to create legal relationship between them. An agreement of Social or domestic nature is not at all a contract.
As per Contract Act under Sec.2 (d) Consideration means something in return. A contract without consideration becomes invalid. It may be in cash or kind or in any form as specified in the act. Consideration must not be unlawful, immoral or opposed to the public policy.
The object of agreement should be lawful and legal. It must not be immoral, illegal or opposed to public policy. Two persons cannot enter into an agreement to do a criminal act.
Consent of the parties must be free and genuine. Consent means agreeing upon same thing in the same sense at the same time
i.e. there should be consensus – ad – idem. Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.
The parties to a contract must have capacity (legal ability) to make valid contract. The Indian contract Act specifies that every person is competent to contract provided he
· is of the age of majority according to the Law which he is subject to, and
· who is of sound mind and
· is not disqualified from contracting by any law to which he is subject to, an alien enemy, foreign sovereigns and accredited representative of a foreign state, insolvents and convicts are not competent to contract.
The agreement should be clear to the parities of the agreement. The agreement must be precise. For example X informs Y “I agree to sell my car”. X has four cars. Here nothing is stated about which car he is going to sell. There is no clarity of terms.
The terms of the agreement should be capable of performance. An agreement to do an act, impossible in itself cannot be enforced. For example A agrees to B to discover a new planet. The agreement is void because the act in itself is impossible to be performed from the very beginning.
The agreement should be such that it should be capable of being enforced by law. Certain agreements have been expressly declared illegal or void by the law.
A contract may be oral or in writing. Where a particular type of contract is required by law to be in writing and registered, it must comply with necessary formalities as to writing, registration and attestation. If legal formalities are not carried out then the contract is not enforceable by law.
For example: A promise to pay a time barred debt must be in writing.
All Contracts are Agreements, but all Agreements are not Contracts
Agreement not enforceable by law - Any essential of a valid contract is not available.
Agreement enforceable by law - All essentials of a valid contract are available