What is a contract?
A contract is an agreement (like deals/bargains) between two parties, at least two people is a basis for forming a foundational contract. It is a promise, that is legally binding between two parties, for which they have an obligation that they need to fulfill in exchange for something that has value. It creates some legal duties and responsibilities on each side. It may be written, oral, or an oral cum written contract but a written contract is the best as if any disagreement arises, then the present documents will help the parties to conclude. The contract has to fulfill certain requirements laid down in the Indian Contract Act, 1872 which are as follow:
- The agreement should be done with free consent;
- Of able parties in the contract;
- must have a lawful consideration;
- And a lawful object;
- And it should not be declared void by the Indian Contract Act.
In sec 2(h) of the Indian Contract Act, it is given that a contract is an agreement that is enforceable by law.
Therefore,
Contract = Argument + Enforceable at law.
An agreement consists of two important factors i.e., offer and acceptance. Offer is an expression of willingness on certain terms, made to become binding as soon the other party accepts it. And acceptance is an expression of unconditional consent to all the terms present in the offer.
E.g.,
When B tells A that, he is willing to buy the piece of land for the said price of six lakh, then this statement made by B is called acceptance.
Therefore,
Agreement = Offer + Acceptance.
Essential elements of a valid contract:
- OFFER
For a contract, an offer is the starting. It is the expression of willingness to a contract. The one who makes an offer is called an offeror and one who accepts it is called an offeree. An offer is a proposal made by the offeror. An offer must be real and firm, it must be not clear. Just like an offer, there is another term called the invitation to offer. It is just a pre-offer, a mere statement. It is just an indication that the individual is ready to receive offers once it is legally binding.
E.g.,
In ‘Gibson v. Manchester City Council (1979)’ the question before the local government was that whether the agreement between the parties gave rise to an enforceable contract. It was made clear in the case that there was no offer made, therefore no presence of a contract.
Section 2(b) of the Indian Contract states that, when the offer made to a person gives his validation, then the offer is said to be accepted.
- THE PRESENCE OF CONSENT
Consent is one of the essential elements of a contract. It has two essential requirements; one is the presence of consent itself and the second being that consent should have been freely given. It means to agree upon the same thing in the same sense, called ‘Consensus ad idem.
E.g.,
A has dog by the name of ‘furious’. A also has a sports car by the same name. A is interested in selling his horse. There is another person, B who loves racing and he is interested in buying the car. So, he negotiates with A and enters into a contract to purchase ‘furious’. It seems like a contract, but A has agreed to sell the horse Furious and B has agreed to buy the racing car Furious. Therefore, there is the absence of Consensus ad idem. It means that there doesn’t exist any contract between them and even in the eyes of the law.
The consent is said to be free when it is not caused by the following:
- Coercion
- Undue influence
- Fraud
- Mistake or,
- Misinterpretation.
- ACCEPTANCE
Acceptance is the consent that both the parties accept on every term, after which the contract becomes binding. The acceptance must be communicated to the offeror, there must be some act of acceptance. Silence would not lead to acceptance. From the following example, it will become clear,
In the case of Felthouse v. Bindley (1862), the negotiation was taking place for the sale of horses. For which Felthouse wrote a letter to his nephew that ‘if I don’t hear about this any more than I will consider the horse mine for thirty pounds’. The nephew didn’t reply. The court determined that there is no acceptance in silence and the horse belongs to Felthouse.
From this, we get to know that if the nephew wanted to enter into the contract, he would have replied and given a clear indication for his acceptance, which he didn’t show.
- VALID CONSIDERATION
Another indispensable for a contract in the presence of valid consideration.
It is a universal necessity of contracts. An agreement without the presence of consideration is void. According to Blackstone. “Consideration is the recompense, given by the party contracting with another.” So basically, consideration means something which is of some value, in the eye of the law. It may be of some benefit to the requesting party and some disbenefit to the responding party. In the words of Pollock, “Consideration is the amount of price for which the promise of another party is brought.” Consideration is used in the sense of ‘Quid Pro Quo’ (Something in return).
E.g.,
A agrees to sell his house to B for three lakhs. So here, the house is a consideration for B and 3 lakh is a consideration for A.
The Indian Contract Act defines consideration as follows:
“When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promise to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”
The consideration must be real, and it should have some value in the eyes of the law. The court would not make a bargain for the parties to a suit, and if a person gets for what is contracted for, then he/she cannot inquire whether it was equivalent or not.
The doctrine of Promissory Estoppel is a unilateral promise from one side and it prompts to induce some action by the other party. The promisee isn’t bound to act but he carries out the desire by the promisor, he can hold the promisor to his promise. It is rarely pleaded and has not removed the need for consideration, it is an equitable doctrine.
- CAPACITY TO CONTRACT
The parties engaging in a contract must be competent. The law, in its knowledge, restricts specific people from binding themselves entering to a contract. The individual’s capacity is determined by whether they have reached the age of majority or not and are mentally capable of understanding the terms mentioned in the contract.
The Indian Contract Act defines the person who is competent to contract by the law:
- Individual who has reached their majority under the law, i.e., 18 years under the Indian law. There are some exceptions to this rule as the minors are also allowed to enter into the contract for meeting their various necessities like food, clothing, and accommodations as well.
- Individuals who are of sound mind, that the person can understand and make a decision and give rational judgments on the terms and conditions of a contract, i.e., they should have the mental capacity.
- Individuals who are not debarred from contracting by the law.
- LAWFUL OBJECT
The object of an agreement must be valid. The object of the agreement is the design for the agreement for which it is being entered into.it is the reason for the agreement. This is different from consideration, sometimes they both may be the same but they also stand distinct and separate. The consideration or object of an agreement is lawful unless-
- It is forbidden by the law or,
- It is of such nature, that if permitted, it would defy the provisions of law or,
- It is fraudulent. (i.e., something done by fraud) or,
- It involves injury to the person or property of another person or,
- And when the court regards it as wrongful or goes anti against public policy.
CONCLUSION
The above-mentioned elements stand as the most basic principles of a contract which are needed to be fulfilled before forming a contract. All these elements taken together constitute a contract that is legally binding between both parties
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