Essential elements of a valid contract
According to Section 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, are not expressly declared by the Act to be void, and, where necessary, satisfy the requirements of any law as to writing or attestation or registration.
1. Offer and acceptance:
There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in an agreement. The adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto.
2. Intention to create legal relations:
There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract.
An agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts.
3. Lawful consideration:
The third essential element of a valid contract is the presence of ‘consideration’. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something.
The something given or obtained is the price for the promise and is called ‘consideration’. Subject to certain exceptions, gratuitous promises are not enforceable at law.
The ‘consideration’ may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be past, present or future. But only those considerations are valid which are ‘lawful’.
4. Capacity of parties:
The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of law. In order to be competent to contract the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject (Sec. 11).
If any of the parties to the agreement suffers from minority, lunacy, idiocy, drunkenness, etc., the agreement is not enforceable at law.
5. Free consent:
Free consent of all the parties to an agreement is another essential element of a valid contract. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense (Sec. 13).
There is absence of free consent’ if the agreement is induced by
(i) coercion, (Sec. 15)
(ii) undue influence, (Sec. 16)
(iii) fraud, (Sec,17)
(iv) misrepresentation, (Sec. 18) or
(v) mistake (Sec. 20,21,22)
(Sec.14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc.
The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the Act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (Sec. 20).
6. Lawful object:
For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or property of another (Sec. 23).
If the object is unlawful for one or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law.
7. Writing and registration:
According to the Indian Contract Act, a contract may be oral or in writing. But in certain special cases it lays down that the agreement, to be valid, must be in writing or/and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered (Sec. 25).
Similarly, certain other Acts also require writing or and registration to make the agreement enforceable by law which must be observed.
Thus, (i) an arbitration agreement must be in writing as per the Arbitration and Conciliation Act, 1996; (ii) an agreement for a sale of immovable property must be in writing and registered under the Transfer of Property Act, 1882 before they can be legally enforced.
Section 29 of the Contract Act provides that “Agreements, the meaning of which is not certain or capable of being made certain, are void.” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced.
A agrees to sell B “a hundred tons of oil.” There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.
9. Possibility of performance:
Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that “An agreement to do an act impossible in itself is void”. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.
A, agrees with B to discover treasure by magic. The agreement is not enforceable.
10. Not expressly declared void:
The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements which have been expressly declared to be void.
For example, an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under Sections 26, 27 and 30 respectively.
Before dealing with the various essentials of a valid contract one by one in detail, it will be appropriate to discuss the ‘kinds of contracts’, first, because we shall be using the terms like ‘voidable contract’, ‘void contract’, ‘void agreement’, etc., very often in the course of our discussion.