So how many contracts have you entered into, to date? The response may amaze you. Though the prevalence of contracts in the world of commerce is taken as a given, the importance of contracts in everyday life is often overlooked. Almost everything individuals do – from buying a cup of coffee to online shopping to signing onto a phone plan – is regulated by the rules of contract law.
The Indian Contract Act which came into force on the 1st of September,1872 defines a Contract as an agreement that creates an obligation between parties. According to the act, a contract is an agreement enforceable by law[sec-2(h)]. An Agreement is a settlement between two parties, which contains obligations or promises which both parties need to fulfill. When such an agreement is made binding by Law it becomes a Contract. This can be visualized as
Contract = Agreement + Enforceability.
The Indian Contract Act lays down the following as the important conditions for the contract to be valid.
Following are some of those conditions :
- Offer and Acceptance
- Intention to Create Legal Relationship
- Lawful Consideration
- Capacity to Contract
- Free Consent
- Lawful Object
- Legal Formalities
- Not expressly declared void
- OFFER AND ACCEPTANCE: There must be two parties to make a contract. One must make the offer and the second should accept that offer. The rules of the offer and acceptance [sec-2(b)] should stick to the Indian contract act.
Example: There are two parties X and Y in a contract with each other. X offered Rs.92000 for his laptop, Y accepts this offer. Here, X is the promisor and Y is the promisee.[sec-2(c)]
CASE LAW: Lalman Shukla vs Gauri Dutt
- LEGAL RELATIONSHIP: Parties must have an intention to enter into a legal relationship.
Example: Husband promised his wife to buy a diamond set when he receives his next salary. But he refused later for that. The intention to create a legal relationship was absent here. So this cannot be referred to as a contract.
CASE LAW : Balfour vs Balfour
- LAWFUL CONSIDERATION: Consideration refers to something in return. If a promise is made by one party with the absence of an intention to form a legal relationship, then there’s no legal consequence.
Example: A offered B his watch for Rs 950 and B accepted the offer. This is a valid contract as A will get money for his watch. Hence there is a consideration.
CASE : Durgaprasad vs Baldev
4.CAPACITY TO CONTRACT:[sec-11] When the two parties are competent to enter into a contract if: If he is of sound mind [sec-12], He has attained the age of majority, He is not disqualified from contracting by law.
Example: P wanted to sell his farmhouse for Rs 2,00,000 and Q agrees to it. But Q is of 15 years, henceforth it won’t be considered as a valid contract, as he hasn’t attained the age of majority.
CASE: Inder Singh vs Parameshwardhari Singh
5.FREE CONSENT: Two parties are said to be in consent when they agree on the same thing in the same sense. The consent could be said as free if it is not caused by :
- COERCION[sec-15]
- MISTAKE[sec-20,21,22]
- MISREPRESENTATION[sec-18]
- FRAUD [sec-17]
- UNDUE INFLUENCE[sec-16]
Example: A wants to sell his bike to B for Rs 98,000. And he told B that it’s completely in good working condition hiding the faulty parts of the bike. It is not a valid contract as A falsely represented his bike to B.
CASE : Chikkam Ammiraju vs Chikam Sheshama (sec-12)
6.LAWFUL OBJECT: The object of the contract must not be immoral, illegal, or against the policy. Any agreement in which the subject is not lawful is not valid.
Example: X and Y came into an agreement for the trading of drugs. It is not a valid contract as the object of the contract is unlawful.
7.CERTAINTY OF TERMS: The terms of the agreement must be certain and must not be vague.
Example: S wants to sell his bicycle to T but he is not sure of the amount. This is not a valid contract as the amount of the bicycle is not certain.
8.LEGAL FORMALITIES: [sec-9] The agreements can either be oral or written.
- Not Expressly Declared Void:
An agreement must not be one of those, which have been expressly declared to be void by the Act. Section 24-30 explains certain types of agreement, which have been expressly declared to be void. An agreement in restraint of trade and an agreement by way of wager is expressly declared void.
Example: A promise to close his business against the promise of B to pay him Rs.2 lac is a void agreement because it is a restraint of trade.
- Possibility of Performance:
The valid contract must be capable of performance section 56 lays down that. “An agreement to do an act impossible in itself is void.” If the act is legally or physically impossible to perform, the agreement cannot be enforced at law.
Example: A agrees with B to discover treasure by magic, the agreement is not enforceable.
CONCLUSION :
In the day-to-day life of every person, Contracts play an indispensable role. Contracts or agreements between various parties are governed by the Indian Contract Act. The above-given conditions must be fulfilled by the parties for the formation of a contract. There are ample case laws and precedents that explain this topic. So it is important to have all the essential elements which are mentioned above in a contract. These are the most crucial and elementary principles concerning the elements of a particular contract, which if witnessed to be fulfilled, may however be subject to various conditions that are usually laid down by any particular law, or by taking into regard, the specific types of a contract. Only if there are all the main elements in an agreement then it would legally constitute a valid contract. People should take precautions in making a contract to make sure that the parties would be in agreement with the terms made in a contract.
