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Definition Of Contract And Essential Elements For Valid Contract

Introduction : In simple terms, a contract means when two parties put into an agreement which can be oral or written in nature, which contains certain obligations( promises)which are to be performed by such parties and when such agreement becomes enforceable by law, it becomes a contract.

A contract is nothing but a promise which is enforceable by law and a contract exists when there is an agreement and enforceability. Contract may seem like an intimidating word to many who who picture in mind complex formal agreements executed by big companies when they hear it. However, contract have been existing since the ancient of times through trade and barter system. Knowingly and unknowingly we enter into contract everyday by our by our, day-to-day activities Whether it's buying ticket to the movies or groceries from the mouth, or paying coolly for carrying our goods in the station. Thus contact has become an integral part of a Commons man's day-to-day life.

In India, a contract is governed by the Indian Contract Act, 1872, which is considered as one of the most important pieces of legislation that governs an overseas all business transaction including a deal or an agreement.

The Indian Contract Act 1872 itself defines and lists the essential elements of a contract either directly or through interpretation of various judgments of the Indian judiciary, which we will discuss below in the censor. But before discussing the element of contract, we would like to draw the attention and highlight the objective nature and meaning of contract.

Objective of Contract: The main objective of the contract is to bind the members and bring their actions under the legal umbrella where the relationship between individuals becomes more formalized and legal and any breach of the rules laid down by the contract has legal implications for which the affected party can knock the doors of judiciary.

Nature. The nature of contract is that it is a branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. It doesn't lay down the duties and responsibilities which the law will enforce, but it consists in a number of limiting principles, object to which the parties may create right and duties for themselves, which will be uploaded by law. In short, discretion is given to the party to choose rights due to the responsibilities obligations subject to the condition that it should be lawfully in nature. Generally, Indian Contract Act 1872 is civil in nature except in the cases of breach of marriage and breach of Czech. Where criminal imposement is done.

Meaning of contract: The term contract is derived from the Latin word 'contractum' which means drawn together. Contract is an agreement to do or not to do an act. In case of contract, the right and obligations of two or more parties are established, made clear, and governed by a legally enforceable agreement. According to Section 2 (f) the Indian Contract Act, 1872, contract is an agreement which is enforceable by law.

John Salmond defines a contract as an agreement creating a.defining obligation between the parties.
Blackstone defines contract" an agreement upon a sufficient consideration to do or not to do a particular thing".

A contract is a contract from the time it is made and not from the time its performance is due. A contract comes into existence on the date on which it is entered between the parties.

Formation of contract. Contract is formed in three steps which is given below:
  • Offer + Acceptance = promise, �Promise + consideration =agreement
  • Agreement + enforceable by law =contract.

Therefore, it can be said that all contracts are agreement, but all agreements are not contract.

Essential Elements: An agreement has to follow certain essential conditions to be enforceable at law, and all those important conditions are called as an essential of a valid contract. According to section 10 of the Indian Contract Act, 1872, all agreements are contract if they are made by the free consent of the parties, competent to contract for a lawful consideration within a lawful object and are not expressly declared as void. Therefore, there are 10 essential conditions which are required for the creation of valid contract, which are mentioned below:

  1. Two or more parties: A minimum of two parties designated by the contract are required for a legal contract, where the offer will be made by one of these parties who can be called as promisor and the other will finally accept the proposal who can be called as promisee. Both parties must be natural people or have a legal existence such as corporation, organization etc.
  2. Proposal and acceptance: There must be at least two parties on making the offer and the other accepting it, and such offer and acceptance must be valid. The terms of the offer must be definite and unambiguous, and it should be certain, as it is said, that when the terms of the contract are not definite, then its acceptance can't create any legal relationship. The acceptance should be made in a reasonable manner and it should be communicated by the offerer to the offerre.
  3. Lawful Object: According to the provisions of section 23 of the Indian Contract Act, 1872, It clearly says that the object of the agreement must be lawful and must not give against the public policy and should not be moral or fraudulent in nature and shouldn't involve injury to any other person or property. For example, A, B and C enter into an agreement for the division of Rupees 5000, which they gained wrongfully by robbing a house. Therefore, the agreement is void because the object of the agreement is not lawful and we have seen. That while entering into agreement, lawful object plays an important role and is considered one of the 10 essential element to be fulfilled.
  4. Lawful Consideration: An agreement must be supported by lawful consideration. Consideration is known as quid pro quo, which means something in return. Contract Act not only requires Consideration, but it prescribes lawful Consideration, which is defined under Section 2(d) of the Indian contract at 1872 and it signifies certain condition to be fulfilled in order to make valid consideration in forming a valid contract. And the act also signifies that consideration may be past, Present or it can be in future, and for the promise, there should be some act, abstinence or promised by the promisee which is constituting consideration.

    In the case of Durga Prasad versus Baldeo, it was stated that consideration given for the promise must be moved by the desire of the promisor and shouldn't be moved by some other person, and the promise given by some other person will not be considered as sufficient consideration to support the promise. Thus, lawful consideration is an essential element for valid contract and a contract without consideration is declared as void under section 25.
  5. Capacity of party: The parties who are entering into contract must be competent to contract, which means that according to section 11 of the Indian Contract Act 1872, every person who has attended the age of majority and the person who is of sound mind and not disqualified by law from contracting to which he is subject, then the person is said to be competent to contract, which means he is capable enough to enter into contract. In the case of Mohori Bibee versus Dharamodas, it was held that contract with minor is void -ab-initio i.e Void from the very beginning as because a minor is incompetent to contract.
  6. Free consent: According to the provision of Section 14 of the Indian contracted 1872 free consent has been defined which says that consent of the party should be free from coercion, undue influence, fraud, misrepresentation and mistake. And it can be said that contract required not only consent but a free consent and if the consent of the parties to the contract are not free, then the contract is not said to be a Valid Contract. For example, A and B are good friends and both major in age. B has some affection for A and forced A to Marry B. Otherwise B will attempt to suicide. So here the contract is not a valid contract as the party entered into the contract without her will under force and therefore the contract shall be declared as void. Here, chikkam versus Seshamma 1917.

    Madras case can be referred where it was held that the threat of committing suicide is amounting to coercion within the meaning of Section 15 of the Indian Contract Act, 1872 and the consent is not set to be free, while the consent is taken by coercion. In the case of Derry versus peek, the court held that when a false representation has been made knowingly or recklessly, whether it's true or false and without belief in its truth, then fraud is said to be proved.
  7. Agreement not declared void: An agreement must have been expressly declared void under the provisions of section 24 to 30 of the Indian Contract Act, 1872. For example, Agreement in restraint of Trade, Marriage, Legal Proceedings, and Agreement by way of wager have been expressly declared as void under the. Act itself.
  8. Possibility of performance: The terms of the agreement must be such as are capable of performance. If the act is impossible in itself, physically or legally, it cannot be enforced at law. According to section 56, an agreement to do an impossible act is void. For example, X agrees with Y to change the flow of river and Y agrees to pay rupees 10,000. Therefore, this agreement is void because it is an agreement to do an impossible act.
  9. Intention to create legal relationship: In Order to determine which agreement are legally binding and have an intention to create legal relationship, the Law draws a distinction between social, moral, domestic and religious agreement and agreement made in a commercial context. Therefore, whenever two parties are entering into an agreement, then there should be an intention of the parties to create a legal relationship between them. It is said that there is no contract between the parties until and unless there is no intention to create a legal relationship. Here Balfour versus Balfour case can be referred where in this case the husband was sued by the wife for not fulfilling the promise he made to his wife and the court held that there being no intention to create legal relationship. Therefore Husband is not liable as the matter under this case comes under the matter of domestic agreement where usually the parties are not having intention to create a legal relationship.
  10. Legal formalities: The agreement must comply with the necessary formalities such as writing, registration, stamping, etc if required in order to make it enforceable by law. An oral contract is a perfectly valid contract, but not in those cases where writing registration is required by some statue.

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