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
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
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.
Contracts are Agreements, but all
Agreements are not Contracts
not enforceable by law - Any essential of a valid contract
is not available.
enforceable by law - All essentials of a valid contract