Essentials of Valid Contract

A contract is an agreement between two or more persons to do or not to do some particular thing, such agreement being enforceable at law. According to section 2 (h) 1872 contract act, It is an agreement enforceable by law

Therefore, is an agreement the object of which is to create an obligation. In other words, It is a combination of two ideas- Agreement and obligation.

Contract = Agreement + Obligation

An agreement creating and defining obligation between the parties

SALMOND

“An agreement as the source of a legal commitment import that one party shall be bound to some performance, which the other shall have a legal right to enforce”.

LEAK

“This undertaking is an agreement enforceable at law made between two or more persons by which rights are acquired by one or more to act or forbearance on the part of the other or others”.

ANSON

Example

If there is an agreement between X and Y, that X will construct a house for Y, and Y will pay rupees 5 Laces to X, the agreement contracts.

The term agreement is wider than the term “Contract”. An agreement may exist without any legal obligation and it covers a variety of transactions that may not be enforceable by law.

All contracts are, therefore, agreements, but all agreements are not necessarily contracts. An agreement can be a contract only when it is enforceable by law.

Difference Between Void & Voidable Contract

Void	Voidable
An Agreement not enforceable by law is said to be void under section 2 (g). Such a contract is not enforceable by either party	An agreement that is enforceable by law at the option of one more of the parties thereto but not at the option of the others is a voidable contract under section 2(i).
A void agreement is null from very beginning	A voidable contract is held to be valid until it is avoided and till that time actions taken under it are entitled to protection in law.
Under this type of contract, no compensation is to be paid due to non-performance.	If a person rightfully revokes a contract, he has the right to receive compensation for loss or damage suffered by him due to the non-performance of the contract
A void contract can be objected to by any person joining this type of agreement	A voidable contract can only be objected to by the option of the person whose consent has been obtained by fraud, coercion, misrepresentation, and undue influence
The collateral agreement will become void in case of the void agreement due to the illegality of the object and consideration	This contract does not affect the collateral contract just as a void agreement.

Examples

If A delivers goods to B under a mistaken belief that B is C and B sells these goods to D, who is a bonafide purchaser, for value without notice, A can recover the goods from D because D purchased the goods from a man who had himself no title under a void contract.

If however, B obtains the goods from A by a fraudulent or misrepresentation and then sells them to D, a bonafide purchaser, A cannot recover the goods from D until A has avoided the contract with B.

Essentials of Valid Contract

Agreement

There should be an agreement between the two parties i.e. purposer and the acceptor. One makes the proposal and others accept it. The proposal and acceptance must be made in accordance with the rules contained in the contract Act.

Example

X Offers to sell his house to Y for Rs.7 laces Y accepts the offer to purchase the house for Rs.7 laces. This is an acceptance by which agreement may be made between the proposer and acceptor

Creation of Legal Relationship

The intention of the agreement must be to create legal relations between the proposer and the acceptor. The agreement must be capable of performing with terms clear and certain.

Example

X offers to sell his car to Y for Rs.3 laces and Y is ready to purchase it at Rs. 3 laces. There is a contract as it creates a legal relationship between X and Y.

Competent to Contract

Every person is not competent to enter into a binding contract. Under section II, the persons who are not competent to contract are those (i) who have attained the age of majority according to the law by which they are governed. (ii) Who are of sound mind, and (iii) who are not disqualified by any law to which they are subject. Minor has no capacity to contract so his agreement is void. He is not liable to perform what he has promised to do under an agreement.

Free Consent

For the validity of an agreement, it is essential that it must have been made with the free consent of the parties. Under Section 13, two or more persons are said to consent when they agree upon the same thing in the same sense. It is when there is consent that the parties are said to be of the same mind. When one party has a different thing in mind or when each understands the thing in a different way, there is no consent by the promise.

Under section 14, consent is said to be free when it is not caused by (1) Coercion (2) Undue influence (3) Fraud (4) Misrepresentation, or (5) mistake as defined in relevant sections. It is an important essential for the validity of a contract. Where there is consent, but not free consent, there is generally a contract voidable at the option of the party whose consent was not free.

Consideration

Consideration is indispensable for every contract. An agreement is invalid if it has been concluded without any consideration. It is an act i.e. past, present, or future done or to be done at the request of the promisor, by the promise, or any other person. For the validity of an agreement, the consideration must be lawful

Example

X agrees to sell his car to Y for Rs.5 laces. Here X’s promise to sell his car is for Y’s consideration to pay Rs.5 laces. Similarly, Y’s promise to pay Rs.5 laces is for X’s consideration to sell his car to Y

Capability of Performance

The contract must be made for definite, certain, and capable performance terms. An agreement, the meaning of which is not certain and clear or capable of being made certain is void.

Example

• X agrees to sell Y a hundred tons of oil. There is nothing to show what kind of oil was intended to sell. The agreement is void of uncertainty
• X agrees to sell to Y five hundred tons of rice at a price to be fixed by Z. There is no uncertainty to void because the price is capable to stay certain.

Not Expressly Declared Void

In order to make a valid contract, an agreement must not be one of those that are expressly declared by law to be void. The agreement that is expressly declared to be void is as follows:

1. Agreements in restraint of Marriage.
2. Agreement in restraint of trade.
3. Agreements by way of a wager.
4. Agreement to do impossible acts.
5. Agreements in restraint of legal proceedings.

Legal Relationship

An agreement is a contract only when it is made with a lawful object. Under section 23, “Every agreement of which the object or consideration is unlawful is void.”

Example

X, Y, and Z enter into an agreement for the division among them of gains acquired, or to be acquired, by them by fraud, the agreement is void as its object is unlawful

Other Legal Requirements

The agreement must be in writing, attested by the witness, and registered. If so required by any provision of law in force in our country. Some agreements such as:

1. Agreements to the transfer of immovable property
2. Agreement to pay a time-barred debt
3. An agreement to refer disputes to an arbitrator for arbitration is such an agreement that must be reduced to writing and registered before they can be legally enforced.