BASIC THINGS I MUST BE AWARE OF A CONTRACT

A contract is considered a fact of life for any business. Business is an involvement of several interests and rights of one party and casts some obligations on another. The contract works as a safeguard shield for both parties. In simple terms, a contract can be said to be an agreement between two parties that has legal effect.

A contract in a business gives legal identity to the business. In India, the laws related to the contract are governed by the Indian Contract Act, 1872, and Section 2 (h) of the Act defines the term' contract.' The Indian Contract Act, 1872 identifies only those agreements as contracts that are enforceable by law.

The Act lays down the requisites for a valid contract and stipulates provisions for other types of contracts like indemnity, guarantee, bailment, pledge, etc. The attributes of a valid contract must be complied with; otherwise, the contract may be declared null and void by the Court.

Attributes of a Valid Contract

The essentials of a valid contract have been incorporated under section 10 of the Indian Contract Act, 1872. They are:

• Two Parties
• Offer/ Proposal
• Acceptance
• Lawful Consideration
• Lawful Object
• Free Consent
• Competent Parties

The above-mentioned requisites can be elucidated as:

Two Parties:

For a contract to be valid, there must be at least two parties. One cannot sign a contract to himself; it requires someone else to sign the contract as the other party. Thus, the minimum number of parties to a contract must be two.

Offer/ Proposal:

An offer is a step by the offeror to initiate a contract. In an offer, the person making it signifies his willingness to do or abstain the person from doing anything and put his intention to a person he wants to do so-called offeree. Making an offer is the first step in a contract, and in its absence, there will be no contract because if there is no offer, there will be no acceptance and, thus, no agreement.

Acceptance:

Acceptance is essential to form a valid contract. An acceptance is made only after the communication of the offer. Once the offeror extends the offer to the offeree, its acceptance or denial is in his hands.

Lawful Consideration:

The concept of consideration is based on the jurisprudential principle of quid pro quo which means "something for something." A contract without consideration is considered to be void, subject to certain exceptions. However, the consideration must be lawful and reasonable to make an agreement enforceable by law. Thus, consideration is one of the essentials of a contract.

Lawful Object:

The contract must be intended to create a lawful relationship between the parties. If the object of the contract is not lawful, the contract will be considered void. Hence, it is also an essential element of a contract.

Free Consent:

The parties to the contract shall give consent to the contract. The consent of the parties must be free from coercion, fraud, undue influence, misrepresentation, and mistakes. A contract is all about the mutual agreement; if the parties to the contract have consensus to do or to abstain from doing an act, the parties are said to have consent.

Competent Parties:

The parties to a contract should be competent and not disqualified by law to enter into an agreement. A person is said to be competent if he has attained the age of majority and is of sound mind to understand the nature of his interests, rights, and obligations under the contract. Thus, the capacity to contract becomes one of the requisites of a contract.

Some basics YOU should be aware of

• A contract can be in any form; it may be written or verbal. But the written contract gains more legal effect than the oral one. It is easier to show the existence of such a contract in Court. However, in case you sign the contract, it is enforceable in the Court of law whether you have read it or not.
• An agreement in restraint of a person other than a minor is void, and you cannot contract someone restraining his marriage.
• An agreement in restraint of lawful trade, commerce, or business of any person is void. However, the provision is subject to an exception.
• An agreement that does not explicitly mention the meaning of the agreement is void. In simple terms, the agreements with uncertainty are void. You cannot enforce an agreement in the Court of law that is not certain.
• You should not enter into an agreement by means of wager; it is void. Any agreement by wager is void; therefore, no suit to redeem the prize or anything won would be entertained by the Court.
• You should understand the difference between the offer and invitation to offer/treat. The difference between both is based on the intention to start the contract. Offer may be general or specific. However, an invitation to treat is merely an invitation to people to negotiate and make an offer from their side. Thus, the person making the invitation to offer is not in a specific mood to enter into a contract with a particular person.
• In case of breach of a contract, the aggrieved party can claim damages, ask for specific performance, or cancel and restitution the contract.

Read more: THINGS YOU MUST LOOK OUT FOR WHEN REVIEWING A CONTRACT.

Conclusion

A contract is an agreement that is enforceable in the Court. The full-fledged procedure is right from an accepted offer and a lawful consideration of its enforceability under the Indian Contract Act, 1872. The parties to the contract agreement and Act upon a particular thing to create interest for one party and obligation for the other.

The person making an offer is supposed to initiate the motion of contractual procedure, and it ends when the offeror transfers such rights to the offeree. However, it is pertinent to note that it is not only the offeror's duty to look after the steps of the contract so that the rights of the offeree are not abridged. It is two-way traffic, and both parties have to be aware and vigilant about their rights and duties.

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Author: Shweta Singh