LAW OF CONTRACT
2.1 Meaning, Nature and essentials of a valid Contract
Contract is an agreement which can be enforced through courts of law. It includes agreement between the parties (two or more) having similar intention about the subject-matter. It creates and clearly defines the rights and obligations of the parties thereto.
Contract is very important for commercial transactions, because each transaction requires at least two parties to give effects. However, it is applicable in other walk of life of human being. Contract and law of contract affect every person. We cannot keep ourselves aside from the effects of contract. Each of us enters into contracts every day this way or that way. Our economic, social, political and other needs compel us to enter into contracts with others.
Contract has become of immense importance to human life and modern society especially to the people engaged in trade, commerce and industries.
DEFINITIONS of Contract
There are various definitions of contracts. Some common definitions are:
v INDIAN CONTRACT ACT – 1872, SEC. 2 (h): A Contract is an agreement enforceable by law.
v Contract Act 2056-Sec2 (a): Contract means an agreement enforceable by law concluded between two or more parties to do or not to do something.
v SIR WILLIAM ANSON: A contract is a legally binding agreement made between two or more persons, by which rights are acquired by one or more to acts done or forbearances on the part of the other or others.
v SALMOND: Contract is an agreement creating and defining obligations between two or more parties.
v SIR FREDERIC POLLOCK: Every agreement and promise enforceable at law is a contract.
v LEAK: An agreement as a source of a legal contract imparts that one party shall be bound to some performance which the other shall have a legal right to enforce.
The above definitions envisage into two distinct parts. Firstly, there must be an agreement to be a contract. Agreement means the parties in a contract having same intention, consenting in the same way for the given subject-matter. Secondly, such an agreement must be enforceable by law. It means parties must know the volume, magnitude and nature of obligation.
Concluding the discussion regarding the meaning, nature and definition of contract, we can say that contract is a combination of the two ideas of agreement and obligation. An agreement is the outcome of consenting mind, i.e., "Consensus ad idem" and obligation is the legal duty to do or abstain from doing what one has promised to do or abstain from doing.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
A valid contract must satisfy certain requirements or it must possess certain essentials or essential elements. The Indian Contract Act – 1872 indicates that agreements may not be enforced by law if it does not fulfill certain legal requirements. To be enforceable by law, an agreement must possess certain essential elements, found expressly written. According to sec. 10 of the act, "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 attestation or registration".
Based upon above interpretation, we can determine the essential elements necessary for a valid contract. They are:
1. Offer and Acceptance
2. Legal Relationship
3. Lawful Consideration
4. Competent Parties
5. Free Consent
6. Legality of the object
7. Writing and Registration
8. Certainty
9. Possibility of Performance.
10. Not declared to be void
1. Offer and Acceptance (Agreement)
The prime and basic requirement for a valid contract is Lawful Offer and Lawful Acceptance. For a valid contract, it is necessary that there must be two separate parties. One of them is to offer to another and to whom offer is made must accept the same as was offered. The basic requirement is that offer must be made with intention of performance and acceptance of the same must be given unconditionally. Here, both who puts the offer and who accepts the offer must follow the rules laid down by the existing Contract Law with regard to the process of offer and acceptance.
2. Legal Relationship
There must exists a legal relationship between the parties of the contract which is sufficient to define lawful obligation. Agreement, which fails to create legal relationship, cannot be treated as a contract.
As for example
(a) An agreement to dine at a friend's house is not a contract. There exists no legal relationship.
(b) An agreement between husband and wife also lacks the intention to create legal relationship and thus do not result in a contract. The best example is the case of BALFOUR vs. BALFOUR. Social, religious and domestic agreements may generally not create legal obligations.
3. Lawful Consideration
An agreement is legal which contains lawful consideration. An agreement to be enforceable at court must be supported by lawful consideration.
Consideration means something in return. The contracting parties must get something. Getting something may be some rights, interest, profit, benefit to one party and /or some forbearance, detriment, loss or responsibility to another. Lawful consideration does not mean equivalent, one party may receive less than the value; the important thing is the consent of the parties ready to accept.
4. Competent Parties
The parties in an agreement must be legally competent or capable of entering into agreement. The Indian Contract Act-1872, sec. 11 describes, "Every person is competent to contract if he has attained the age of majority, is of sound mind and is not disqualified from contracting by any law to which he is subject.
Persons declared incompetent are: Minor, lunatic, idiot, drunkard and the persons or institutions declared incompetent by state laws.
5. Free Consent
Another requirement for the validity of a contract is free consent. The agreement must have been made with the free consent of the parties. Sec. 13 of the Indian Contract Act- 1872 describes that consent means- the parties to an agreement must agree on the same thing in the same sense. Independent or free consent must be given.
If agreements are found induced by coercion, undue influence, mistake, fraud and or misrepresentation, they cannot be enforced as a valid contract at the court of law.
6. Legality of the Object
For a valid contract, the object of an agreement must be lawful. It must not be fraudulent, illegal, immoral and / or opposed to public policy.
7. Writing and Registration
To be a contract valid in the eyes of law, an agreement must be in writing (attested and registered) whenever and wherever the relevant law has lain down that it should be so.
Example: For the contract of lease, gift, sale, mortgage of immovable property, negotiable instrument, partnership deed, MOA & AOA( Memorandum and Article of Association) of company and so on, registration is compulsory.
8. Certainty
The agreement must be certain. It must not be vague and uncertain. Certainty means there is possibility of ascertaining the exact meaning of the agreement. If the meaning of an agreement becomes vague and uncertain, then the agreement cannot be enforced and the rights and obligation of the parties cannot be interpreted, quantified and determined.
9. Possibility of Performance
Another element made essential for the validity of contract is possibility of performance. For the validity of contract, an agreement must be capable of being performed.
In other words an agreement to do an impossible thing cannot be enforced at the court of law. Sec. 56 of Indian Contract Act 1872 states that "an agreement to do an act impossible in itself is void".
Law does not recognize what is impossible, impossibility does not create obligation.
10. Not declared to be void
An agreement to be a contract must not be expressly declared void by any existing law. Contract Act 2056, Sec 13, declares that those agreements will be void for contracts which restraint marriage, trade or restraint the legal proceedings against public policy.
Conclusion
Therefore for a contract all the above mentioned elements must be present. In absence of any of them may be the cause of unenforceability of the contract, and hence, it may be treated as void or illegal agreement.
Note: "All contracts are agreements, but all the agreements are not contracts".
"Push yourself no one else is going to do it for you".
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