Define Contract & Explain the Essentials of a Valid Contract.
Contract: Section 2(h) of the Act defines contract as follows:
An agreement enforceable by law is a contract.
According to Section 2(e) of the Act -
Every promise and every set of promises, forming the consideration for each other, is an agreement.
According to Section 2(b) of the Act -
A proposal, when accepted, becomes a promise.
Section 10 of the Act explains agreements which are contracts in the following words:
All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
Essentials of a Valid Contract:
The essentials of a valid contract are:
(i) Two parties
(ii) Free consent
(iii) Consensus ad idem
(iv) Capacity to contract
(v) Lawful consideration
(vi) Lawful object
(vii) Not expressly declared void
(viii) Possibility of performance
(ix) Certainty
(x) Legal Relationship
(xi) Legal formalities
(i) Two parties:
To constitute a contract, there must be an offer and acceptance. The person who offers or makes an offer is called offeror and the other party who accepts the offer is called offeree or acceptor.
(ii) Free consent:
Consent is said to be free when it is not caused by flaws in consent i.e., coercion as defined in S. 15 or undue influence as defined in S. 16 or fraud as defined in S. 17 or misrepresentation as defined in S. 18 or mistake which is subject to provisions of Ss. 20-22. According to S. 14 of the Act, the consent is said to be free if the agreement is not vitiated by any of the above factors. If there is no free consent, the agreement is a contract voidable at the option of the party whose consent was so caused.
(iii) Consensus ad idem:
Consensus ad idem means identity of minds. For a
contract to be valid, there must exist consensus ad item i.e., both the parties
to the contract must have agreed to or consented to about the subject-matter in
the same sense.
(iv) Capacity to contract:
The parties to the contract must be competent to
contract. According to S. 11 of the Act, any person is competent to contract
provided he is a major according to the law to which he is subject and is of
sound mind and is not disqualified from contracting by any law to which he is
subject.
(v) Lawful consideration:
Consideration means something in return. S. 2(d) of
the act deals with consideration. Consideration means a reasonable equivalent
or other valuable benefit passed on by the promisor to the promisee or by the
transferor to the transferee. When the word consideration is qualified by the
word adequate it makes consideration stronger so as to make it sufficient and
valuable having regard to the facts, circumstances and necessities of the case.
(vi) Lawful object:
A contract to be valid the object for which it has
been entered into must be lawful. According to S. 23 of the Act, a contract the
object of which is opposed to the law of the land may be either unlawful or simply
void depending upon the provisions of the law to which it is opposed.
(vii) Not expressly declared void:
The agreement must not have been expressly declared
to be void as in Ss. 23 to 30 of the Act.
(viii) Possibility of performance:
S. 56 of
the Act deals with performance of a contract. It lays down that - an agreement
to do an act impossible itself is void. Every contract must therefore be
capable of performance as an agreement to do an impossible act of either
physical nature or of a legal nature is void.
An
example of an impossible contract is to construct a building in two days.
(ix) Certainty:
The terms and conditions of the contract shall be
clearly furnished in the agreement without any ambiguity or vagueness i.e., it
should be clear and certain or capable of being made certain, otherwise the
contract is not valid and enforceable.
(x) Legal Relationship:
A contract to be enforceable it must create legal
relationship between the parties to the contract. Mere domestic or social
agreements do not give rise to create legal relationship.
(xi) Legal formalities:
A contract may be oral or in writing according to
the Indian Contract Act. In some cases, it needs to be registered and in some
cases it has to be made in the presence of requisite witnesses.
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