Essential Elements of a valid Contract

By | September 24, 2016
Valid contract

A contract comes into existence only when all the terms an conditions have been finalised. All the essential elements must co-exist in order to make a valid contract. According to Section 10, “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

The following essential elements must co-exist in order to make a valid contract:

  1. Proper offer and proper acceptance with the intention to create a legal relationship.
  2. Lawful consideration and lawful object.
  3. Capacity to contract.
  4. Free consent.
  5. Agreements are not declared void or illegal.
  6. A certainty of meaning.
  7. Possibility of the performance of an agreement.
  8. Necessary legal formalities.

Intention to create a legal relationship:

The parties ought to have the intention to create a legal obligation between them through the form of offer and acceptance. They should have the intention to impose a duty on the promisor to fulfil the promise and bestow a right on the promisee to claim its fulfilment. It must not be merely a moral one but it must be legal. If such intention on the part of the parties is lacking at the time of making the contract, there will be no valid contract between them.

Example: A husband agreed to pay to his wife certain amount as maintenance every month while he was abroad. Husband failed to pay the promised amount. Wife sued him for the recovery of the amount. Here in this case wife could not recover as it was a social agreement and the parties did not intend to create any legal relations. (Balfour v. Balfour [(1919) 2 KB 571]

Lawful consideration and Lawful object

This is an essential element of a valid contract. Consideration is a technical word meaning thereby quid pro quo i..e. something in return. It must result in benefit to one party and a detriment to the other party or a detriment to both.

Example 1: A agrees to sell his books to B for Rs. 100, B’s promise to pay Rs. 100 is the consideration for A’s promise to sell his books and A’s promise to sell the books is the consideration for B’s promise to pay Rs. 100.

Also, the object of the agreement must be lawful. It must not be illegal, immoral, or opposed to public policy.

Example 2: ‘A’ promises to drop prosecution instituted against ‘B’ for robbery and ‘B’ promises to restore the value of the things taken. The agreement is void, as its object is unlawful.

If the two essential elements are there we can say that there is a contract which prima-facie will hold good; or at least we can say that there is an existence of a contract, although some more necessary elements of validity may be wanting.

Competent parties

The parties to a contract must have the capacity (legal ability) to make a valid contract. In every case of there must be the assent of the parties. If either of the parties to an agreement is deprived of the use of his understanding or if he is deemed by law not to have attained it, there can be no such agreement which shall bind him. Section 11 of the Indian Contract Act specifies that every person is competent to contract provided,

(a) is of the age of majority according to the law to which he is subject, and

(b) who is of sound mind, and

(c) is not disqualified from contracting by any law to which he is subject.

In other words (a) a minor, (b) a person of unsound mind (a person of unsound mind can enter into a contract during his lucid intervals) and (c) a person disqualified from contracting by any law to which he is subject, e.g. an alien enemy, foreign sovereigns and accredited representatives of a foreign state, insolvents and convicts, are not competent to contract.

Free consent

The consent of the parties must be genuine. The term ‘consent’ means parties to a contract must agree upon the same thing in the same sense. i.e. there should be consensus ad idem. Consent is said to be not free when it is vitiated by coercion, undue influence, fraud, misrepresentation or mistake. In such cases, the contract becomes voidable at the option of the party whose consent is not free.

Example: A threatened to shoot B if he (B) does not lend him Rs. 2,000 and B agreed to it. Here the agreement is entered into under coercion and hence voidable at the option of B.

The agreement not expressly declared void

The agreement must not be one, which the law declares to be either illegal or void. A void agreement is one, which is without any legal effects. An illegal agreement is an agreement expressly or impliedly prohibited by law.

Example: Agreements in restraint of trade, marriage, legal proceedings etc. are void agreements. Those agreements prohibited by the Indian Penal Code e.g. Threats to commit murder or publishing defamatory statements or agreements which are opposed to public policy are illegal in nature.

Certainty of meaning

The agreement must be certain and not vague or indefinite.

Example: A agrees to sell to B a hundred tons of oil. There is nothing certain in order to show what kind of oil was intended for.

Possibility of the performance of an agreement:

The terms of the agreement should be capable of performing. An agreement to do an act impossible in itself cannot be enforced.

Example: A agrees with B to discover treasure by magic. The agreement cannot be enforced as it is not possible to be performed.

Compliance of necessary legal formalities

Wherever a particular type of contract requires by law to be in writing and registered, it must comply with the necessary formalities as to writing, attestation and registration otherwise unenforceable.

Example: Where it requires an agreement to make a gift for natural love and affection, there it must be in writing and registered, to be valid.

By – Mayank Shekhar

Faculty of Law, DU

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