A Valid Contract is a Legal Contract
A contract is considered valid only when it meets all the necessary criteria. If certain factors are not fulfilled, it cannot be recognised as a legal contract. India, being a country governed by laws, places great importance on legal compliance, and having a valid contract increases your chances of proper representation. There are key points to consider before entering into a contract. In this discussion, we will cover the essentials of a valid contract.
What is a Contract?
In a business, a contract or agreement plays a significant role in smooth functioning between two parties. To explain the essentials of a valid contract in simple terms, the contract is a written agreement between two parties, which contains certain obligations and is enforced by the law. Violation of the contract or law can attract legal action by any of the parties, including cancellation of the entire contract. Any individual entering into a written agreement should be knowledgeable enough with the essentials of a contract.
Definition of Contract
The Indian Contract Act 1872 states the term contract is like an agreement that creates an obligation between parties. According to the act, the contract is "an agreement enforceable by law."
The act also lists the essentials of a valid contract directly or through various judgments of the Indian judiciary.
What are the Essentials Elements of a Valid Contract?
According to the Indian Contract Act 1872, "Agreements are also contracts made by the consent of parties, competent to contract to consider with a lawful object and are not hereby expressly declared to be void”. Therefore, the contract or the agreement must carry essential aspects to maintain the normal phase of duties by both parties.
Example:
A and B underwent the contract, where A will purchase 10 bags of cement for Rs 1, 00,000. B promises to supply the same in the given period and the quality mentioned. A promise to pay the sum as per the mentioned method in the contract. In this case, both parties have to perform the act as per the agreement signed.
To explain the essentials of a valid contract, we bring you with the list unfolded by the Indian Contract Act 1872-
Offer and Acceptance
Generally, the written contract only unfolds when the other party accepts the offer by one party and is definite in all sense. The offer or agreement must be clear and complete in all sense. Both parties should communicate to ensure there is no lapse in the contract act. Both the offer and acceptance must be "consensus ad idem", meaning, both parties must comply with the same thing.
Intention to Create a Legal Relationship
To bind, both parties should have a specific intention that can create a legal relationship, resulting in an agreement. Agreements in social or household nature are not contracts because parties do not intend to build legal relationships.
The Intent of Legal Obligations
One of the essential elements of a valid offer is that both parties subject to a contract must be clear with the intentions of creating a legal relationship. This also means that agreements that are not enforceable by the law like agreements between relatives are enforceable in the court of law.
Possibility of Performance of Agreement
In this case, suppose two people decide to undergo an agreement where person A agrees to bring person B’s dead relative back to life, this will not fall under the legal contract act because bringing back the deceased person alive is an impossible task. Thus, the agreement does not stand valid.
Legal Formalities
In this agreement, if there is any uncertainty and both parties are not capable of finding the right path, then it is deemed void. As a part of the essentials of a valid consideration, the terms and conditions of the contract should be concrete. Any contract, which is uncertain in any sense, can be termed as void. The terms mentioned in the agreement should be capable of performing specific thoughts.
Consideration
Consideration means the moral value given for the performance of the promise. It should not be only limited to money, but there should be some value to what has been agreed upon. One of the essentials of valid consideration is that it should not be adequate, but should carry some value.
Some Pointers Under Consideration are:
Consideration is wholly according to the desire of the promisor, which means the review must come from the promisor. Consideration can be either:
Past Consideration
Present Consideration
Future Consideration
Consideration can be tangible, like the performance of the service like teaching and labor.
These are the essentials of a valid contract, which needs to be fulfilled by the contract act of India. Before getting into any agreement, it is essential to know what action has led.
Benefits of the Essentials of a Valid Contract
Clear Understanding: A valid contract makes sure everyone knows their rights and responsibilities, avoiding confusion.
Legal Protection: It protects everyone involved by making sure the terms are legally recognized, and you can take action if someone doesn't follow through.
Enforceability: If the contract is valid, you can go to court if someone breaks it and the court will make sure it’s followed.
Prevents Fraud: A valid contract makes sure everyone agrees to the terms fairly, reducing the risk of dishonesty.
Easy Dispute Resolution: It often has a plan for solving problems if there’s a disagreement, saving time and money.
Key Takeaways: 5 Essentials of a Valid Contract:
There must be a clear offer and acceptance.
Both parties must consent voluntarily without coercion.
Something of value (consideration) must be exchanged.
Both parties must have legal capacity to contract.
The contract's purpose must be legal.
FAQs on Essentials of a Valid Contract
1. What is a contract according to the Indian Contract Act, 1872?
As per Section 2(h) of the Indian Contract Act, 1872, a contract is defined as "an agreement enforceable by law". This means that not all agreements are contracts; only those that create a legal obligation and can be upheld in a court of law qualify as valid contracts.
2. What are the main essentials of a valid contract?
For a contract to be valid under the Indian Contract Act, 1872, it must include the following essential elements:
- Offer and Acceptance: A clear offer by one party and its absolute and unconditional acceptance by the other.
- Intention to Create Legal Relationship: The parties must intend for their agreement to have legal consequences.
- Lawful Consideration: Something of value exchanged between the parties.
- Capacity of Parties: The parties must be legally competent to contract (e.g., not be minors or of unsound mind).
- Free Consent: Consent must be given freely, without coercion, fraud, or misrepresentation.
- Lawful Object: The purpose of the agreement must be legal and not against public policy.
- Certainty of Meaning: The terms of the contract must be clear and not vague.
- Possibility of Performance: The act agreed upon must be possible to perform.
3. What is the importance of 'lawful consideration' in a contract, and must it always be money?
Lawful consideration is crucial as it is the price paid for the promise of the other party. It is the 'something in return' (quid pro quo) that makes the agreement legally binding. No, consideration does not have to be monetary. It can be an act, a forbearance (refraining from an act), or a promise to do or not do something, as long as it has some value in the eyes of the law.
4. What does the term 'consensus ad idem' mean in contract law?
'Consensus ad idem' is a Latin term that means "meeting of the minds". It is a fundamental principle for a valid contract, signifying that both parties have agreed to the same thing in the same sense. Without this mutual understanding and agreement on the terms, there is no valid contract.
5. What is the difference between a void contract and a voidable contract?
A void contract is an agreement that is not enforceable by law from the very beginning (void ab initio), usually because it lacks one of the essential elements, like a lawful object. A voidable contract, however, is a valid contract that can be cancelled or affirmed at the option of one of the parties. This situation arises when consent is not free, such as in cases of coercion or fraud.
6. Why is the 'intention to create a legal relationship' so important for a valid contract?
The intention to create a legal relationship is a vital element because it distinguishes legally binding business agreements from social or domestic arrangements. For example, an offer to sell a car for a specific price is intended to be legally binding. In contrast, a promise to take a friend to dinner is a social agreement with no intention of legal consequences. Without this element, courts would be flooded with disputes over casual promises.
7. How does a lack of 'certainty' in an agreement make it void? Could you give an example?
A lack of certainty makes an agreement void because if the terms are vague or unclear, it is impossible for a court to determine what the parties agreed to and therefore cannot enforce it. The law requires that the terms of a contract be capable of being made certain. For example, if 'A' agrees to sell 'B' "one hundred tons of oil" without specifying the type, quality, or price of the oil, the agreement is void for uncertainty.
8. In what situations might a person's consent not be considered 'free' under the Indian Contract Act, 1872?
Consent is not considered free when it is caused by any of the following factors, making the contract voidable at the option of the aggrieved party:
- Coercion: Forcing someone to enter a contract through threats.
- Undue Influence: Using a dominant position to obtain an unfair advantage over the other party.
- Fraud: Intentionally deceiving the other party to enter the contract.
- Misrepresentation: Providing false information innocently, without intent to deceive.
- Mistake: An erroneous belief about a matter of fact essential to the agreement.
9. What happens if an agreement is made for an act that is impossible to perform?
An agreement to do an act that is impossible in itself is void from the beginning (void ab initio). This falls under the essential element of 'Possibility of Performance'. For instance, an agreement to discover treasure by magic or to bring a dead person back to life cannot be enforced by law because the act itself is impossible to perform.
10. Can an agreement be invalid even if it has a clear offer, acceptance, and consideration?
Yes, absolutely. An agreement can be invalid even with offer, acceptance, and consideration if it fails on other essential elements. For example, if the object or purpose of the agreement is unlawful—such as an agreement to commit a crime—it is void. Similarly, if the parties are not legally competent to contract (e.g., one is a minor), the agreement is not a valid contract. All essentials must be present simultaneously.
