Essential Elements of a Valid Contract

A contract has been defined in section 2(h) as “an agreement enforceable by law.” To be enforceable by law, an agreement must possess the essential elements of a valid contract as contained in sections 10, 29 and 56. According to section 10, all agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration, with a lawful object, are not expressly declared by the Act to be void, and where necessary, satisfy the requirements of any law as to writing or attention or registration. As the details of these essentials form the subject matter of our subsequent chapters, we propose to discuss them in brief here.

The essential elements of a valid contract are as follows.

1.                Offer and acceptance. There must a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in an agreement. The adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the contract act in relation thereto.

2.                Intention to create legal relations. There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract. An agreement to dine at a friend’s house in not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts.

Try to work out the solution in the following cases and then go to the answer.

Illustrations.

(a)         M promises his wife N to get her a necklace if she will sing a song. N sang the song M did not bring the necklace for her.

(b)   The defendant was a civil servant in Ceylon. He and his wife were enjoying leave in England. When the defendant was due to return to Ceylon, his wife could not accompany him because of her health. The defendant agreed to send her £ 30 a month as maintenance expenses during the time they were thus forced to live apart. She sued for breach of this agreement.

Answers

(a)         N cannot bring an action in a court to enforce the agreement as it lacked the intention to create legal relations.

(b)   Her action was dismissed on the ground that no legal relations had been contemplated and therefore there

was no contract.(Balfour vs. Balfour)

In commercial agreements an intention to create legal relations is presumed. Thus, an agreement to buy and sell goods intends to create legal relationship hence is a contract, provided other requisites of a valid contract are present. But if the parties are under a legal obligation, even a business agreement does not amount to a contract. The case of Rose & Frank co, vs.

Crompton & Brothers Ltd. Provides a good illustration on the point.

Illustration In the above case R Company entered into an agreement with C Company. By means of which the former was appointed as the agent of the latter. One clause of the agree­ment was as follows. “This arrangement is not entered into as a formal or legal agreement. And shall not be subject to legal jurisdiction in the law courts.” It was held that there was no intention to create legal relations on the part of parties to the agreement and hence there was no contract.

Now let us go to the third essential of a contract i.e.

3.     Lawful consideration. The third essential element of a valid contract is the presence of ‘consideration’. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something. The something given or obtained is the price for the promise and is called ‘consideration’ subject to certain exceptions; gratuitous promises are not enforceable at law.

The ‘consideration’ may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be past, present or future. But only those considerations are valid which are ‘lawful’. The consider­ation is ‘lawful’. unless it is forbidden by law; or is of such a 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 is immoral; or is opposed to public policy (sec.23).

4.                Capacity of parties. The parties to an agreement must be competent to contract. But the question that arises now is that what parties are competent and what are not. The contracting parties must be of the age of majority and of sound mind and must not be disqualified by any law to which they are subject (sec.11). If any of the parties to the agreement suffers form minority, lunacy, idiocy, drunkenness etc. The agreement is not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate (sec 68).

5.                Free consent. Free consent of all the parties to an agreement is another essential element. This concept has two aspects.(1) consent should be made and (2) it should be free of any pressure or misunderstanding. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense (sec. 13). There is absence of ‘free consent,’ if the agreement is induced by (i)coercion, (ii) undue influence, (iii) fraud, (iv) mis-representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (sec. 20)

 

6.                Lawful object. For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must mot imply injury to the person or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law or a contract for committing a murder is a void contract and unenforceable by law.

7.                Writing and registration. According to the Indian contract Act, a contract to be valid, must be in writing and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered to make the agreement enforceable by law which must be observed.

8.                Certainty. Section 29 of the contract Act provides that “ Agreements, the meaning of which is not certain or capable of being made certain, are void.” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced

Illustation. A, agrees to sell B “ a hundred ton of oil” there is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainly.

9.     Possibility of performance. Yet another essential feature of a valid contract is that it 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 impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration. A agrees with B, to discover treasure by magic. The agreement is not enforceable.

10.   Not expressly declared void. The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements that have been expressly declared to be void. For example, an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under sections 26, 27 and 30 respectively.

Before dealing with the various essentials of a valid contract one by one in detail, it will be appropriate to discuss the ‘kinds of contracts’. First, because we shall be using the terms like ‘voidable contract’, ‘void contract’, ‘void agreement’, etc. very often in the course of our discussion.

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