Essential Elements of a Valid Contract in Business Law

HAJEE KARUTHA ROWTHER HOWDIA COLLEGE (Autonomous) PG AND RESEARCH DEPARTMENTOF COMMERCE E RESOURCES TOPIC: ESSENTIAL ELEMENTS OF VALID CONTRACT SUBJECT: BUSINESS LAW 1 (17UCRC34) K.RASOOL MYDEEN, ASSISTANT PROFESSOR

Indian Contract Act, 1872 The Indian Contract Act came into force on 1st September 1872. This act extends to the whole of India except the State of Jammu and Kashmir. It contains the general provisions regarding object is to provide justice to the parties entering into a contract. Meaning and Definition of Contract enforceable by law". Section 2 (h) of the Act defines a contract as "an agreement As per this definition, there are three parts to a contract: (a) There must be an agreement. (b) The agreement must be enforceable. (c) To be enforceable, there must be an obligation. Therefore, a contract has been rightly defined by Salmond as, "an agreement creating obligation

Essentials of a Valid Contract Section 10 of the Act provides that, "all agreements all contracts if they are made by the free consent of the parties competent to contract for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void". Thus, the essentials of a valid contract are, 1. OFFER AND ACCEPTANCE There must be identity of minds between the parties to a contract. Such identity of minds between the parties is known only when there is offer and acceptance. In other words, the offer of one party must be accepted by the other in the same sense It is known as consensus-ad-idem. An offer is a proposal by one party to enter into an agreement with another. The terms of the offer must be certain . It should be accepted only by the person to whom it is made.

The acceptance must be absolute and unqualified. In otherwords, the offer must be accepted according to the terms of the offer. Otherwise, it will become a counter offer. For example , A offers to sell a car for Rs. 12,000/-. But B replies to purchase it for Rs. 10,000/-. This is only accounter offer and not an acceptance. The offer and acceptance must be properly communicated by one party to another. 2.LEGAL RELATIONSHIP There should be an intention to create legal relationship .Otherwise, there can not be a binding agreement between the parties The agreements of social and domestic nature will not create legal relations BALFOUR Vs. BALFOUR: It was held that a promise made by a husband to pay 30 to his wife was never intended to been forced by law.

3. FREE CONSENT According of Section 13, "Two or more persons are said to consent when they agree upon the same thing in the same sense". The contract is void if there is no consent. Even if there Is Consent, the consent must be free. Otherwise, the contract is voidable at the option of the party whose consent is not free. A Consent is not said to be free when it is obtained through coercion , undue influence, fraud, misrepresentation or mistake.

4 .CAPACITY OF PARTIES capacity means competence of the parties to enter into valid agreement. According to Section 11, every person is Competent to contract. (i) who is of the age of majority according to the law to which he is subject; and (ii) who is of sound mind; and (iii) who is not disqualified from contracting by any law which he is subject". Thus, it is clear from the above definition that the following persons are not competent to contract: (1) Minors (2) Persons unsound mind like lunatic, idiot and drunkard etc. (3) Persons disqualified by law to which they are subject like foreign alien sovereigns enemies statutory corporations etc.

5 .CONSIDERATION According to Indian Law, a contract made without consideration is void subject to the exceptions. The term consideration means something in return. When a party to an agreement promised to do something, he will get something in return. The something may be benefit to the promisor or a loss or liability to the promise or a loss to both. ABDUL AZIZ Vs. MASUM ALI: A promised B to subscribe Rs. 500/- for the rebuilding of a mosque. But he failed to pay and was sued by B. It was held that the promise was not enforceable as there was no consideration in the form of loss or benefit to the parties.

6. LAWFUL OBJECT One of the requisites of a valid contract. is that the object must be lawful. Section 23 of the Act provides that the consideration or object of an agreement is lawful unless 7. POSSIBILITY OF PERFORMANCE The terms of the agreement must be capable of performance. Any impossibility in its performance cannot be enforced. Example: A contract to walk across the ocean.

8. CERTAINITY The terms of the contract must be certain and not vague. if they are vague , the contract cannot be enforced. SCAMMEL Vs. OUSTEN: O agreed to purchase a motor van from S "on hire purchase terms." Held that there was no contract as the terms were not certain. There is no definite meaning for the words "on hire purchase terms". 9.LEGAL FORMALITIES A contract must be made in writing, eventhough it is allowed by law to be made by words spoken, in the interest of the parties. It is required by law, the documents of contract must be stamped or registered.