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 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. In simple terms, when two or more parties put into writing an agreement and obligations related to it are supposed to be fulfilled by the parties to it, the moment that written agreement is enforceable by law, it becomes a contract.
The expression enforceable by law means getting the legal force to it, after which any violation of that contract by any of the parties would amount to legal remedy. The attributes of a valid contract must be complied with; otherwise, the contract may be declared null and void by the Court.
Essentials of a valid contract
Section 10 of the Indian Contract Act, 1872 incorporates provisions for the essentials of a valid contract. They are:
- Two Parties
- Offer/ Proposal
- Lawful Consideration
- Lawful Object
- Free Consent
- The capacity of the Parties
- Intention to create a legal relationship
- Not expressly declared void
The above-mentioned elements can be explained as:
For a contract to be valid, there must be at least two parties. One cannot sign a contract to himself, and it requires someone else to sign the contract as the other party. Thus, the minimum number of parties to a contract must be two.
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 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 is essential to form a valid contract. An acceptance is made only after the communication of the offer is made to the offeree. Once the offeror extends the offer to the offeree, its acceptance or denial is in his hands. The stage of acceptance is complete when the communication of acceptance reaches out to the offeror. Once the communication to acceptance is complete, the offer is said to be accepted. An offer accepted becomes a promise.
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.
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The object of the contract must be lawful. If the object of the agreement is not lawful, it will not be enforceable by law, and the contract will be considered void. Hence, it is also an essential element of a contract. Section 23 of the Act incorporates what consideration and object amount to lawful. The object is considered lawful unless it is forbidden by law or is of such a nature that the Court considers it immoral or against public policy. Section 24 of the Act enumerates that if any part of one or more part of a single consideration or objects or for several considerations of a single object is unlawful, the agreement is said to be void.
The parties to the contract shall give consent to the contract. The parties' consent must be free from coercion, fraud, undue influence, misrepresentation, and mistakes. The contract is all about the mutual agreement, and if the parties to the contract have a consensus to do or to abstain from doing an act, the parties are said to have consent. In simple terms, the parties to the contract shall agree upon the same thing in the same manner in order to constitute a valid contract.
The capacity of the Parties:
The parties to a contract should be competent to contract 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. The provision as to who is competent to contract has been stipulated under sections 11 and 12 of the Act. There are two attributes of a competent party, i.e., he should understand the terms and conditions of the contract, and he should have the quality of rational judgment to act upon those terms.
Intention to create a legal relationship:
Both the parties must intend to create a legal relationship out of the contract. However, there is no provision enunciating the creation of a legal relationship in the Indian Contract Act, 1872. This is a principle of English Common law to give rise to the contract's legal obligations and legal consequences.
Not expressly declared void:
The agreements must not be that agreement that is expressly declared to be void under the Indian Contract Act, 1872. Sections 26 to 30 of the Act deal with such contract clauses explicitly declared as void. Therefore, for a valid contract, the agreement shall not come within the ambit of the said sections.
These are the basic principles of a contract that must be complied with to make an agreement a valid contract if you found this helpful, head to Rest The Case and read more such informational legal blogs in our Knowledge Bank section.
Author: Shweta Singh