ESSENTIALS OF A VALID CONTRACT

ESSENTIALS OF A VALID CONTRACT

INTRODUCTION

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An  agreement enforceable by law”. In other words, we can say that a contract is anything that is an agreement and enforceable by the law of the land. In a contract, there minimum two parties are involved. The parties should follow the terms and conditions which are mentioned in the contract deed which they have signed and in case of any breach, the aggrieved party can approach the court for remedies. The contract deed showcases the right and liabilities of parties involved in the contract. In India, contract laws are governed by the Indian contract act, 1872. It defines various laws related to the contract and all the parties who intend to create a contract should abide by the Indian contract act, 1872. Indian contract act, 1872 defines the conditions for a valid contract. Those are as follows:

1.   Offer

2.   Acceptance

3.   Consideration

4.   Intention to create legal relations

5.   Certainty

6.   Capacity

OFFER

    This is an important ingredient for a valid contract. There should be an offer from one party to one or more parties. The one who makes the offer is known as the ‘offerer’ and the one who receives the offer is called as ‘offeree’. When an offer is being made, the other party or person should know what is being offered and what the person or party who made the offer expects to have in return. It is the same when anybody goes on a holiday, stays at a hotel and so on. For example, a family has made an arrangement with a tour agency to have a holiday in Hong Kong for a few days. The tour agency would make a contract by making forms to the family which would have to be filling up. The family member who fills up the form would have to be clear with the rules and regulations were given by the tour agency company. Once it is filled up, the contract has been made between the family and the tour agency.

ACCEPTANCE

There should be an acceptance of the offer. If one party makes an offer, the other party has to accept it for making it enforceable. If the other party accepts the offer, he is bound by the terms and conditions of the contract and in case of a breach, he will be prosecuted. The contract is void if there is no acceptance and acceptance is an important ingredient for making a contract valid and enforceable. That acceptance can be either orally or in writing depends upon the type of contract and if there is any specific mention of the type of acceptance, it should be done in that way for making it enforceable.

CONSIDERATION

For a contract to be enforceable and valid there should be some consideration for the contract. Consideration means anything giving in return. An agreement without consideration is a bare promise and exnudo pacto non aritio actio, i.e., cannot be held to binding on the parties. When a customer goes to the supermarket and buys a packet of biscuits, he pays money in return and that amounts to consideration. It is not necessary that money should be a consideration always. Promise to do something in return also a consideration and in case of a breach, the aggrieved party can move legally to enforce it.

INTENTION TO CREATE LEGAL RELATIONS

The parties in a contract should have an intention to create a legal relation. If there is no such intention, that won’t amount to a valid contract. For instance, the promise of a mother to her child does not amount to a contract because there is no such intention between the parties to create such legal relations among them. Agreement in social or household nature is not a contract as there is no such intention to create a legal relation. It is important that both parties should have an intention to create legal relations.

CERTAINTY

 Certainty is an important ingredient in a valid contract. There should be certainty in the terms and regulations of the contract and there should not be any ambiguity. In case of any ambiguity, that will be considered invalid. If a particular clause in the contract conveys two different meanings and it is difficult to identify the intention of the parties, it will be considered void. For instance, if a guest wants to stay in a hotel, he has to book the hotel in advance by stating all the required details such as the date he is going to stay, the room type, number of inmates, number of days he needs the room etc. If the adequate information is not there and thereby creates confusion, makes the contract void. 

CAPACITY

Section 11 of the Indian contract act, 1872 defines the parties' competent to a contract. A party competent to contract means the party who is eligible to involve in a contract. Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject. In India according to The Majority Act of 1875, every person in India shall attain the age of majority on the completion of 18 years and not before. That means a person is competent to contract when he attains the age of 18. A person not attained the age of 18 is known as a minor. A contract made with a minor is void and not binding on any party. Minor can’t be sued for the breach of the contract as the contract itself is void. Even though the minor is not competent to contract, he can be a beneficiary in a contract. Minor always get the benefit of a minor. Even though he misrepresents his age and becomes a part of any contract, he is not liable for any breach as the contract is void. According to Section 12 of the Indian Contract Act, 1872, for the purpose of entering into a contract, a person is said to be of sound mind if he is capable of understanding the contract and being able to assess its effects upon his interests. Contract with an unsound person is void. Apart from these, any person who is not competent to contract because of any laws for the time being in force can’t involve in any contract. The reasons for disqualification can include political status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien enemies, convicts, insolvents, etc.

CONCLUSION

It is very important to understand what makes a contract valid before the law. There are some ingredients that are vital for making a contract valid and those who are part of any void contract suffer a lot as it makes the contract invalid before the law and they suffer all the losses. A void contract is a contract that isn't legally enforceable; starting from the time it was created. While both a void and voidable contract are null, a void contract cannot be ratified. In a legal sense, a void contract is treated as if it was never created and becomes unenforceable in court.

REFERENCE

 1.    Indian Contract Act, 1872, Bare act

2.    Mulla, The Indian Contract Act, Anirudh Wadhwa ed., 15th ed., 2015, LexisNexis