CAREER ACADEMY: Define contract, what are the essentials of a valid contract?
Ans. Introduction: A contract is a legally binding agreement or relationship that exists between two or more parties to do or abstain from doing certain acts. A contract can also be defined as a legally binding exchange of promises between two or more parties that they will enforce. For a contract there must be an offer from one party and its acceptance from the other party with some consideration. Both parties involved must intend to create legal relation on a lawful matter which must be entered into freely and should be possible to perform
Definition: According to Sir Frederick Pollock,
“Every agreement and promise enforceable by law is a contract”
Sec. 2(h) of Contract Act 1872
“An agreement enforceable at law is a contract”
An agreement becomes enforceable by law when it fulfills some conditions. These conditions may be called as the essentials of a valid contract.
According to sec.10
“All agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful consideration with a lawful object, and are not hereby expressly declared to be void”
Following are the essentials of a valid contract in detail.
Two parties, one making an offer and the other accepting it. Acceptance must be unconditional and in the same mode as prescribed and communicated by the offeror. To constitute a valid contract there must be “consensus ad idem”.(same thing in the same sense)
Example: A offer B to sell his car for Rs.500000. B agrees to buy it. This is an offer by A and acceptance by B
Parties must intend to create legal relationship. It arises when parties know that if one of them does not fulfill his part of promise, he shall be liable for the failure of the contract. (Balfour vs Balfour)
Example: Asif offers to sell his phone to Alvi for Rs. 1000. Alvi agrees to buy. It is a contract as it creates legal relationship.
3-Lawfull object: (sec.23 ) The object of the contract must be lawful.
Under section 23, “Every agreement of which the object or consideration is unlawful is void”
The object must not be:
1. Illegal or unlawful,
3. Opposed to public policy.
Object must not be forbidden by law or is of such a nature that if permitted it will defeat the provisions of law, imputes injury to the person or property of another.Example: Hamid agrees to pay Asif Rs.20000 if he kills Ali. The agreement is illegal as the object is unlawful.
4-Free consent (13)
Two or more parties are said to be consent when they are agreed upon the same thing in the same sense. This emphasizes the need of consensus ad idem. Free consent is absent if contract is induced by coercion, misrepresentation, fraud, undue influence etc.
Example: A compels B to enter into a contract on gun point. It is not a valid contract because consent is not free.
5-Capacity of parties: (sec. 11)
Every person is competent to contract if he is of the age of majority, is of sound mind and is not disqualified from contracting by law to which he is subject.
Example: M, a minor agrees to sell his house to B. It is not a valid contract because he is not competent to make a contract.
Consideration is something in return. It is the doing of or abstinence from an act. It is the price paid by one party for the promise of the other. It means that contract is only valid if both the parties get something and give something.
Example: A agrees to sell his car for Rs. 50000 to B. For A the consideration is Rs.500000 and for B consideration is car.
The consideration or object of an agreement is unlawful if….
1-It is forbidden by law,
2-If permitted; it would defeat the provisions of any law,
3-Involes injury to any other person or property,
4-It is fraudulent, or
5-It is opposed to public policy.
7-Agreement is not expressly declared to be void:
A void agreement is not enforceable. It has no legal existence neither it gives rise to any rights or obligations. In order to make a valid contract must not be one of those that are expressly declared to be void.
Examples of void agreements- a- Agreement in restraint of marriage.
b- Agreement in restraint of legal proceedings.
c- Agreement in restraint of trade.
d- Agreement to do impossible acts.
e- Agreement by way of wager.
8-Possibility of performance:
A contract must be possible to perform otherwise it will not be a valid contract.
Section 56 says that “An agreement to do an act impossible in itself is void”.
Example: An agreement to put the life into a dead body is void as it is not possible.
9-Certainty of terms:
The contract must not be uncertain, vague or indefinite. Where the agreement is vague and its meaning can not be understood, it shall be unenforceable.
According to section 29, Agreement, the meaning of which is not certain or capable of being made certain, is void.
Example: A agrees B to sell one ton of oil without informing the kind of oil. The agreement is void because of its uncertainty.
Legal formalities should also be fulfilled regarding
- Attestation etc.
Example: Sale and purchase of land requires registration.
If any of the essential elements is missing the contract is voidable, void, illegal or unenforceable in the eyes of law.