Essentials of a Valid Contract

 Essentials of a Valid Contract

Contracts in India are governed under the Indian Contract Act, 1872 and Section 2(h) of the Indian Contract Act defines contract. According to it an agreement enforceable by law is a contract. But this mere definition may not sound good to many people to understand what is a contract. To understand contract and it’s valid essentials there is a step by step process. 

The essentials of a valid contract-

The essentials of a valid contract is given under Section 10 of the Indian Contract Act.” What agreements are contracts” 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 not hereby expressly declared to be void.

The first step towards forming a Valid contract is 

1)Offer – It is defined under section 2(a) of the Indian Contract Act, 1872  which goes as “ When a person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. It is to be noted that the word offer can be substituted with proposal and ultimately both have the same meaning. 

It is the first step towards a valid contract. The person who makes the offer is termed as “ Offeror” and the person to whom the offer has been made is termed as “ Offeree”. Which has been given under section 2(c) of the Act “ the person making the proposal is called the promisor , and the person accepting the person is called the promisee.

But how  a proposal or offer can be made? 

It is mentioned in section 3 of the Indian contract Act. Proposal can be made impliedly or expressly, Implied offer are those offer which are understandable from the conduct of the party. Illustration- A was standing a road and a cab stops thereby and A taken the service of the cab to reach a destination. Here even though A did not made any offer expressly his conduct is sufficient for a valid offer. Express offer are those offers which are made orally or in writing. Illustration- A proposed B asking whether B wants to purchase A’s radio for Rs.500/-.

Some essentials of Offer are as follows:

1. Offer must be clear and specific there shall not arise  any ambiguity in the mind of the Offeree. 

2. Offer can be made impliedly and expressly.

3. An offer can be revoked anytime before it’s acceptance. If the offer has been accepted than the Offeror is legally bound to perform the contract.

4. Offer must be of lawful nature. It is void if it is of any unlawful nature.

In the case of Lalman Shukla Vs. Gauri Datt, the defendant’s nephew absconded from home and defendant asked his servant to search the boy. After the servant has left the defendant announced a sum of Rs.501 for anyone who finds the boy. Later after the boy was found the servant got to know about the offer  and brought an action to get the reward. The action failed and the court held that in order to form a valid contract there must be offer and acceptance of the same. In this case the defendant had not accepted the offer when made. 

The offer should be extinguished from invitation to offer: In simple words invitation to offer is a  scenario where the person does not make an offer but invite others to make an offer. For example: Tender of books , Auction, Advertisements , goods displayed in a store etc.

2) Acceptance- 

Acceptance is defined under Section 2(b) of the Indian Contract Act, when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise.

Essentials of a valid acceptance:

1. Acceptance should always be absolute and unqualified. If the acceptance is done with some conditions then it is not a valid acceptance.

Illustration-Raj offers to Ram that Raj wants to sell his watch at Rs. 600 but Ram agrees to buy the watch but at Ra. 500. Here it is not a valid acceptance.

2. Just like offer the acceptance must be communicated to the Offeror. Mere silence of mental acceptance is not a valid acceptance.

3. Acceptance to an offer must be accepted and communicated within a reasonable time period. Illustration- Rahul offered Shyam to sell his horse at Rs. 50000 and asked to accept to validate the sell within 7 days but Shyam accepted the offer after 7 days. Here it is not a valid acceptance.

In Ram Das Chakrabarti Vs. Cotton Ginning Co. Ltd,

The defendant claimed that the allotment of shares was sent to the plaintiff but the plaintiff denied to receive this. The high court came to the conclusion that the acceptance to it has been completed when it has been dispatched.

3) Legal Relationship-

The intention of the parties should always be to create a legal relationship to validate the agreement. If there is no intention to create a legal relationship then there cannot be a valid contract.

4) Lawful Consideration-

Consideration means something in return which is recognised in the eyes of law. Without consideration, it is not a valid contract and will not be enforceable. Gift is an exception to it.

5. Competent to Contract- 

Competent means capable to enter into a contract. A minor, a person with unsound mind and a person expressly declared disqualified under any law is not competent to enter into a contract.

6.  Free Consent- Free consent means the consent should be free from coercion, misrepresentation, fraud, undue influence, mistake. It is necessary to have a consensus-ad-idem. 

7. Lawful object- An agreement will become a valid Contract if the subject matter and objective behind the contract is lawful.

8. Possibility off performance- If a party to a contract is unable to perform his obligation due to impossibility then it is a void Contract. Thus, the obligation must be possible to perform.