Essentials of a Valid Contract as per the Indian Contract Act, 1872

atleast two parties essential for a contract

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The following article briefly describes the essentials of a valid contract. An agreement is considered as a contract only upon satisfying the essentials discussed in this article.

 




 

MEANING OF A CONTRACT

In simple terms, a contract means when two parties put into writing an agreement which contains certain obligations (promises) which are to be performed by such parties, and when such written agreement becomes enforceable by law, it becomes a Contract. Enforceable by law means when the agreement has acquired the force of law only for those who are a party to it and a violation of those obligations would attract legal action, including repudiation of the entire contract.

The Indian Contract Act, 1872 defines ‘Contract under Section 2(h) as –

“An agreement which is enforceable by law”

ESSENTIALS OF A VALID CONTRACT

The Indian Contract Act, 1872 itself defines and lists the Essentials of a Contract. Section 10 of the contract enumerates certain points that are essential for valid contracts like free consent, Competency Of the parties, Lawful consideration, etc. The Section states –

All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

So from the above provision, the essentials that can be derived are –

  • An agreement between two or more parties
  • Free Consent of both the parties
  • Parties should be Competent to contract
  • There should be a Lawful Consideration
  • There should be a Lawful Object
  • Agreement should not be expressly declared to be void.

Let us discuss these essentials in detail –

1. Agreement between two or more parties

For the formation of a contract, the fundamental requirement is that of an agreement. An agreement, as defined under Section 2(e) of the Indian Contract Act, 1872, is a set of promise forming consideration for each other, i.e. an agreement is basically promise that two parties make each other and then fulfils it for by performing the promise. Essentials of an agreement include –

  • Two Parties
  • Proposal
  • Promise and reciprocal promise
  • Consideration

So for a formation of a contract, an agreement between at least two parties is essential.

2. Free Consent of the Parties

An agreement between two parties begins with an offer and is said to be complete if it is accepted by both the parties. But for an agreement to be a contract the acceptance by both the parties should be free and voluntary. If consent of both the parties are not free and is obtained by way of coercion, threat or any other forceful way, then such agreements would be voidable and only upon ratification of the threatened party the agreement would form a contract.

 

ILLUSTRATION

Y offers Z to buy his car at Rs.10,00,000/- by putting  Z on the gun-point to complete the transaction. In this case Z’s consent obtained by coercion cannot be treated as free consent.

 

3. Competent to Contract

Competency of being a party to a contract in its literal sense means the eligibility/capacity of the parties to be in a contract. A competent party in a contract is one that is not a minor, a person of unsound mind and is not expressly declared to be bankrupt by law. If an agreement is formed between two parties, one of which is minor, then in that case the agreement would be void and would not form a contract.

 

ILLUSTRATION

A a minor borrowed Rs 8,000/- from B and executed mortgage of his property in favour of the lender. This was not a valid contract because A is not competent to contract. Therefore, the mortgage was not valid and the money advanced to minor could not be recovered.

 

4. Lawful Consideration

Consideration is an act, abstinence or promise that is done or to be done by a party at the desire of the other party, fulfilling a complete agreement. Thereby consideration can be said to be a refectory act/promise/abstinence to a promise. Consideration is not time bound i.e. it can be made in the past, the present or can be made in the future. Now a consideration is an essential of an agreement but a lawful consideration is essential of a contract. As contract gives legal validity to an agreement, it is important that the essentials or what the contract is made up of should be lawful. Thereby a lawful consideration is essential for an agreement to be a contract.

 

5. Lawful Object

Object, here in objective, of an agreement is essential to determine whether it would constitute as a contract. If the objective of an agreement is unlawful then it would not constitute as contract. An agreement will only be a contract if the objective of it is lawful.

 

ILLUSTRATION

Z agrees to pay Rs.50,000 Y while Y agrees to murder X in consideration. In this case the Consideration is an act which is forbidden by law and therefore void.

 

6.Agreement not expressly be declared to be void

If an agreement is expressly declared to be void by the law of land, like agreements restraining subject matters like marriage, trade, legal proceedings or agreements like wager agreement, contingent agreement, ambiguous and uncertain agreements. Such agreements are expressly stated to be void. So an agreement which is of such nature then it would not constitute to be a contract.




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