Essentials of a Valid Contract

Contracts are inescapable on the planet. They are not only limited to the corporate or business world yet are available in every individual’s life regardless of their profession.

Accordingly, contracts structure a crucial piece of our lives, and each individual should know about each constituent of an contract and the laws with respect to the subject. We enter ourselves in an Binding contract pretty much consistently likely without knowing it. If an individual is purchasing garments from a shop or taking a taxi or purchases insurance for himself then in these previously mentioned cases, he/she is going into a contract with the particular individual or association.

This article aims to answers questions what is a valid contract? And what are the essential elements of a contract? And the differences between an agreement and a contract.

Agreement

As per section 2(e) of the Indian Contract Act, an agreement is “Each guarantee and each set of guarantees, forming the consideration for one another.” In general terms, an agreement is a set of explanations between at least two parties or more than two parties where they make or tend to make legal obligations for one another.

The following components are important to change over a set of statements into an agreement –

  1. Parties – at least two or more than two individuals or associations are needed to be available in an agreement.

 

  1. Offer/Proposal – According to section 2(a) of the Indian Contract Act, “when an individual means to another his consent for exactly the same thing in a similar sense as proposed by the offeror”. This is called the principle of Consensus ad idem.

 

  1. Acceptance – According to area 2(b) of the Indian Contract Act, “when the individual to whom the proposition is made connotes his consent for exactly the same thing in a similar sense as proposed by the offeror”.

 

  1. promise – According to section 2(b) of the Indian Contract Act, “When a proposition is accepted, it turns into a promise”.

 

  1. consideration – This is the cost paid in return for the promise made by the other party either to complete one act or omitted.

 

Example – When a child goes to a nearby by shop to purchase a sweet which is of ₹2 then the person goes into a agreement with the shopkeeper for the ownership of that sweet. The consideration for the shopkeeper was the cash and for the child, it was the sweet that he/she received in return for the cash.

  • All contracts are agreements, but all agreements are not contracts.

The above statements recognize contracts from agreements as each contract should be included of all the components of an agreement, and the agreements ought to likewise be legally enforceable i.e., in the case of any default by both of the parties the aggrieved party can move towards the court to look for remedies from the party which caused the default.

For example – A (shopkeeper) goes into an agreement with B (distributer) for purchasing a specific amount of products using a credit card and afterward fails to pay for the items delivered then B can sue A in the court of law for breaching the terms and conditions of the agreement.

Hence an agreement becomes a contract when all the conditions stated below are fulfilled:

  1. Free consent of parties: to prove the legal enforceability of the contract, the parties to the contract must give their consent free from coercion.

(Section 15 of the Indian Contract Act)

Undue Influence (section 16 of the Indian Contract Act)

Fraud (section 17 of the Indian Contract Act),

Misrepresentation (section 18 of the Indian Contract Act)

Mistake (section 20,21, and 22 of the Indian Contract Act)

  1. The capacity of the parties of the agreement: the capacity of the party suggests that the parties going into a contract probably accomplished a time of majority, should be of sound mind, and should not be precluded by the law for the purpose of contracting. These conditions are referenced in section 11 and 12 of the Indian Contract Act, 1872.
  1. Lawful consideration and object: According to section 23 of the Indian Contract Act, “the consideration and object of an agreement are lawful unless it is forbidden by law; or is of such nature that if permitted it would defeat the provisions of any law, or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral or opposed to public policy”. Every agreement which fails to comply with the meaning of the terms lawful object and consideration is deemed as unlawful and is declared null and void.

The mentioned factors are the fundamentals to convert over an agreement into a contract and those pre-imperatives are compulsory to be satisfied by the parties associated with the creation and execution of their contract.

Therefore, the distinction between an agreement and a contract can be demonstrated by simple mathematical equations, which are.

Agreement = promises or set of promises along with offer and acceptance + Consideration for the involved parties, while

Contract = Agreement + enforceability of law or legal obligation

The principle of legal obligation was explained in the case of Balfour vs. Balfour, where the wife sued her husband when he failed to pay 30 dollars which he promised to his wife who was residing in England for some medical reasons. Her actions against the husband failed because the Court observed that there was no intention to create a legally binding agreement between the spouses, hence the agreement failed the legal enforceability test and was declared as null and void by the court.

Conclusion

The mentioned components are the basics whereupon each valid contract exists. Any individual or group of individuals or an association who wishes to enter into an contract with some other parties should conform to the requirements mentioned above, and in the event that the contracting parties fails to recognize any of those elements, the agreement can never satisfy its purpose.

Essentials of valid contract

Dhruv Tomar

Lexcliq

 

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