A contract is nothing but a promise which is enforceable by law. A contract exists when there is agreement and enforceability. In India a contract is governed by the Indian Contract Act, 1842. The Indian Contract Act establishes the framework for and validates contracts or agreements between parties. The Contract Act is one of the most important pieces of legislation that governs and oversees all business transactions including a deal or an agreement.
ESSENTIALS OF A VALID CONTRACT
OFFER AND ACCEPTANCE
The ICA states that a proposal i.e. is an offer made by one interested party to another party willing to enter into an agreement. The acceptance of such a proposal is said to form an agreement. Defined under Section 2(a) of the ICA it is defined as “when one party performs the duty to show interest to the other party for the willingness to perform or not perform a particular act and thus to get the acceptance. This interest shown is said to make an offer or a proposal”.
Acceptance however is defined under Section 2(b) of the ICA that states “when an offeror makes an offer to the offeree, and the offeree provides his consent to this offer so made then this consent is known as acceptance”.
In the case of
Example : “X proposes to buy a car from Y for INR 20 lacs (this proposal is also known as an offer) , and Y gives his consent for this offer (this consent provided is known as acceptance) then the offer is said to become a promise”.
COMPETENT PARTIES
Section 11 of the ICA states “that every person is considered to be competent to enter into an agreement, provided the person is of majority age, sound mind and is not disqualified from contracting by any law to which he is subject”.
People considered incompetent to enter into an agreement consist of people who are either minors or are temporarily or permanently suffering with severe mental disabilities. However, people who enter into an agreement under the influence of a drug or alcohol per say are included in this group.
In the case of Ajudhia Prasad V. Chandan Lal “it was observed that the defendants were of an age more than 18 years of age but under 21 years, however there was no evidence of representation from the side of either the defendants or their father Sital Prasad. Thus, the amount was declared irrecoverable under Section 68 of the ICA”.
Example : A was 16 years old when he borrowed money from B. after 2 years B asked A to repay the loan acquired by him thus. However, to this request A refused to pay. Taken to trial it was declared A is not liable to pay B under Section 11 of the ICA.
LAWFUL CONSIDERATION
Section 23 of the ICA states “that any consideration or the purpose of an agreement is considered lawful unless, it is forbidden by law, if allowed would defeat the sole purpose of the law or may amount to fraud, involving injury to body or property in any way, or is regarded as immoral by the court or is in opposition to public policy”[4].
In the case of Udhoo Dass v. Prem Prakash “it was observed that a contract made by free consent and will of parties who are thus competent under the law to contract for a lawful consideration providing a lawful consideration and thus not expressly declared by any law or contract act to be void”.
In the case of Currie v. Missa, “it was held that in the legal sense, a valuable consideration might be a right, interest, forbearance, detriment, loss, or responsibility given, endured, or undertaken by the other party”.
Example: If X agrees to sell his bike to Y for 50,000, here Y’s promise made to X to pay him with 50,000 in exchange of the bike is the consideration.
PRIVITY OF CONSIDERATION
According to this concept, consideration should only come from the promise and the stranger to the contract. This principal is inapplicable in India as the ICA clearly states “the promise, or some other person, at the desire of promisor”
What constitutes valid consideration?
o The consideration should be legal and should not be impossible to perform.
o It may be tangible or intangible hence consideration is just not void because it is inadequate.
o It has to be at the desire of the promisor.
FREE CONSENT
Consent in simple terms means the ‘meeting of minds’ or ‘the agreement between two or more people’. A legally binding contract requires consent and the legal definition of consent under the Indian contract act, 1871 is “when two parties entered into the contract there should agreement upon the same thing in the same manner”. The legal definition puts emphasis on ‘consensus ad idem’ which is nothing but meeting of minds.
Consent is said to be free in a contract when it is not influenced by fraud, misrepresentation, coercion, mistake and undue influence.
Coercion- section 15 of the ICA defines coercion as persuading someone to do something by the use of threats or force.
Undue influence- According tosection 16 “if consent has been obtained by a person who is in a dominant position compared to the other person, then it is undue influence”
Misrepresentation- when there is no intention to deceive the other person and false statements are made, that amounts to misrepresentation.
Fraud- fraud is an act performed to deceive the other person so as to take advantage from them.
Mistake- When both parties make a mistake in the contract due to a factual error, the error is referred to as a bilateral error.
INTENTION TO CREATE LEGAL RELATIONS
Intention should be diligently considered in order to create legal relations as the willingness of both the parties is required so as to accept the legal consequences of having entered into an agreement. It is a given fact that while in social and domestic agreements, the presumption is that the parties do not intend to create a legal relationship but in a commercial agreement, the usual presumption is the fact that the parties intend to create legal relationships.
It is important to mention the case of Balfour v. Balfour which defined ‘intention to create legal relations’. “It was decided that if two persons reached an agreement that would normally form a contract, the same did not have to be true if the parties to the agreement were spouses”.
CONCLUSION
To conclude it would be best to reiterate that no contract is completely valid if its essentials aren’t met. Each one of these above mentioned subjects are termed as essentials due to their nature and importance in every contract. A valid contract can be of any sort however if any of these essentials’ rules are violated they make the contract null and void. These essentials are not only important in a contractual frame of view, however, also protect people whose interests and basic fundamental rights might have been violated for possession of an object or an act that may lead to profitability for any other party.
