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A Review on: Essentials Of A Valid Contract

India Contract Act,1872
Contract agreements are governed by the Indian Contract Act of 1872. It is the basic act controlling Indian contract law. The Act is based on English Common Law principles. It applies to all Indian states. It specifies the conditions under which contract parties' commitments become legally binding. Section 2(h) of the Indian Contract Act defines a contract as a legally enforceable agreement.

'The law of contract is that branch of law which determine the circumstances in which a promise shall be legally binding on the person making it'1

Contract
A contract is an agreement reached among both parties involved competent to contract for some consideration enforceable by law which is reached consensus ad idem with a lawful object free of any coercion

Requirements for a Valid Contract
A legitimate contract is a legally binding and enforceable agreement. In a legitimate contract, both parties are legally obligated to carry out the terms of the agreement. The Indian Contract Act of 1872 specifies and identifies the fundamentals of a legal contract through interpretation of numerous Indian judicial rulings. Section 10 of the Contract Act lays out the requirements for legitimate contracts.

A contract is an oral or written agreement between two or more parties outlining the rights, obligations, and obligations that each party must fulfil.

Essentials of a Valid Contract
A legal contract is defined in Section 10 of the Indian Contract Act as an agreement to be a contract if it is concluded with the free consent of the parties who are competent to contract for a lawful consideration with a lawful intent.

Contract = Agreement + Enforceable

The logical interpretation reading this section highlights some key essentials for making of a Valid Contract:
Agreement

When one party offers an offer that the other side accepts, this is referred to as an agreement. Thus, an agreement is a commitment made by two people that creates legal duties between them.

An offer must be accepted to create an agreement which is binding upon both the parties.
Offer and Acceptance
  • Offer
    An offer is made when one person expresses to another his or her readiness to perform or refrain from doing something to acquire the other person's consent to that conduct.

    The terms offer and proposal are used interchangeably. The word "offer" is used in English law, whereas "proposal" is used in Indian law.

    Offer and invitation to make an offer
    'A Valid Contract requires a party to make an offer but there is a bleak line in respect to offer and invitation offer'2

    An invitation to offer is a request to make a proposal to another party and in literal sense an invitation to negotiate whereas an offer is final and is directly accepted but in case of invitation there is a counter offer.
     
  • Acceptance
    It is the assent given to a proposal which effectively converts the proposal into promise. There must be some external manifestation to signify acceptance. This manifestation can be by speech, writing or such act which must be communicated to the offeror.

    Per the Section 7 of the Contract Act, the acceptance must be absolute and unqualified. An acceptance with variation would not amount to acceptance but would vitiate it to a counter- proposal3.

    Following are some conditions of a valid Acceptance:
    • Acceptance must be unconditional and unqualified - Acceptance must be unconditional. Acceptance should not be subject to any conditions.
       
    • Acceptance must be conveyed - Acceptance must be notified to the offeree in accordance with the procedures outlined. A mental acceptance of an offer does not constitute a legitimate acceptance. Acceptance must be made known to the offeror.
       
    • Acceptance must be communicated within a reasonable amount of time - Acceptance must be communicated within the period specified. If no time limit is specified, it must be provided within a reasonable amount of time.

Lawful consideration
'Promises without consideration are not enforced, because they are gratuitous'4

Pollock defined consideration as "the price for a promise." Section 2(d) of the Indian Contract Act defines consideration as an act, promise, or abstain done, to be done, or under execution at the pleasure of the promisor by the promisee.

A contract without consideration is a wager contract, which is expressly prohibited by Section 30 of the Indian Contract Act. Consideration does not have to be substantial, and simple inadequacy of consideration does not render a contract void, as stated in Section 25 of the Indian Contract Act.

Conditions for a proper consideration:
  • The consideration must be at the request of the promisor, not at the request of a third party. For example, legal obligation is not a consideration.
  • Consideration must not be unlawful, null, and invalid, or impossible to carry out.
  • Genuine consideration is required. It may be both tangible and intangible.
  • Consideration can be:
    1. Past consideration:
      Prior to the contract's performance date, consideration received.
       
    2. Present consideration:
      consideration made immediately on the execution of the contract
       
    3. Future consideration:
      Following the conclusion of the contract, the consideration is paid.

In the case of Currie v. Misa, Consideration was defined as:
"a valued Consideration in the sight of law may encompass either specific Rights, Interest, Profit, or Benefit."5

Free consent
Free consent is one of the main criteria of a contract and is defined in Section 14 of the Indian Contract Act, which states that assent is free when it is not produced by any external force which may be:
  • Coercion (Indian Contract Act Section 15)
    Committing a prohibited conduct to persuade someone to get into an arrangement.
     
  • Undue influence (Indian Contract Act Section 16)
    When the relationship between both parties is as that one party can dominate the will of another party to the agreement and uses this advantage achieving an unfair advantage, the contract is assumed to have been entered into under undue influence.
     
  • Fraud (Indian Contract Act Section 17)
    An intentional false statement used to gain an advantage, intentional concealment of a critical truth or a promise made without the purpose to execute, or an act done to fool a person into contractual responsibilities are all instances of fraud.
     
  • Misrepresentation (Indian Contract Act Section 18)
    A false statement made without an intention to deceive
     
  • Mistake (Indian Contract Act Section 20)
    When both parties to a contract make a mistake on a critical aspect of the agreement

    (Mistake and misrepresentation make the contract voidable whereas fraud, coercion, undue influence renders a contract void)

Competency of parties involved
The formation of a Valid Contract requires parties to the contract to be competent as stated under section 10 of the Indian contract act.
Whereas every person is competent within the definition of section 11 of the Indian contract act unless the person:
  • Is a minor (not attained the age of majority as per the law individual is subject to)
  • Is not mentally fit to contract
  • Is not banned from contracting under any law.

Legal relationship
It is essential for the parties to the contract to desire their arrangement to constitute a legal relationship. Legal relationship intends to make the party liable in case of a breach of contract or the failure of the contract.

There is no provision for this idea in Indian contract law, although it was originally stated in English law in the case of Balfour v. Balfour6, where Lord Atkin expressed his views in the judgement that when parties do not intend to be attended by legal consequences. There shall be no contract.

Legal intention is subject to the view of the courts and the facts of the case before the court. If there is no intention to create a legal relationship, there is no contract.

It is of general view that the arrangements made regulating social and family matters do not intend to create legal relation whereas business matters are viewed as having to intend a legal relation. The business matter arrangement can negatively imply to not form a legal relation

In Indian context, there is still an open question as to requirement of "intention to contract" applicable under contract law but the supreme court of India has stated the need for intention to create a legal relationship as an element necessary for contractual agreements.7

Lawful object
The purpose of the contract must be lawful and legal according to the law of the state. According per the Section 23 of the Indian Contract Act, the agreement is valid unless it is specifically:
  • Illegal under the law
  • Defies the provisions of the law
  • Deceptive
  • Opposed to public policy
  • Damages someone property or individual

If any of these are proven in court, the contract will be deemed illegal and hence dissolved under Section 23. Even if only a portion of the contract is illegal, the entire deal is null and invalid.

Certainty
A valid agreement must be formed with reasonable confidence regarding essential terms, failing which the agreement may be invalidated even if all other important aspects are satisfied. Section 29 states that a contract is certain if its words can be interpreted by the promisor in the way they were meant to be interpreted and are not ambiguous or imprecise. The courts should be able to read it sensibly. Certainty is attained when the parties' objectives, protections, expectations, and performance are obvious or objectively demonstrated

Essential elements:
The definition of key essential term is determined by goals that both the parties have agreed upon for themselves. In general, there are two crucial elements regarding this in common law:
  1. consideration of a bargain
  2. price to be paid for the promised obligation.
The term is critical if it is so important and fundamental to the contract that any breach of it will warrant termination.

'To create a binding contract the parties must express their agreement in sufficiently certain terms. What is needed is not absolute certainty but a "reasonable degree" of certainty.'8

Contracts expressly declared void
There are several contracts that are specifically deemed invalid under the Indian contract law. These contracts are defined in sections 26 to 30 of the Indian Contract Act of 1872, which governs such agreements.

Agreements restricting a marriage
(Indian Contract Act Section 26)

Any arrangement that forbids a major (adult) from marrying is invalid. Minors are exempt from this rule. However, if an adult promises not to marry in exchange for a monetary reward, such an agreement is specifically void under the Indian contract law.

Agreements restricting trade, business, and professions (Indian Contract Act Section 27)

An agreement that prohibits any individual from engaging in a trade, practicing a legal profession, or conducting any form of business is expressly invalid. A person's constitutional rights are violated by such an arrangement.

Agreements in restraint of proceedings
(Indian Contract Act Section 28)

An agreement that prohibits one party from asserting his legal rights under a contract through the legal process (courts, arbitration, etc.) is expressly invalid.

Agreements void due to uncertainty
(Indian Contract Act Section 29)

An agreement with an ambiguous meaning is not a genuine agreement; it is invalid. If the basic meaning of the deal is not guaranteed, the deal cannot be carried out. However, if such ambiguity can be eliminated, the contract becomes legal.

Agreement of a wagering contract is void
(Indian Contract Act Section 30)

An agreement of wager is an invalid agreement under the Indian Contract Act. The premise of a wager is that the agreement is subject to the occurrence or non-occurrence of an unforeseeable event. Depending on the result of such an unknown occurrence, each side would either profit or lose money.

Conclusion
These are the most fundamental and fundamental aspects (standard) for the construction of contracts whose requirements must be satisfied before a contract is recognized legitimate. These verify the contract, and without them, the deal is deemed null and invalid. Though these fundamentals are sufficient, there may be unique regulations that need more necessities to legitimize the contract that must be followed.

Statues Referred To:
  • The Indian Contract Act 1872
Books Referred To:
  • Avtar Singh, Indian contract & specific relief (2017).
  • Dinshah Fardunji Mulla & Kaikobad Sorabji Shavaksha, in The Indian contract act (1962).
Articles Referred To:
  1. Alur, S.S. Journal of the Indian Law Institute 29, no. 2 (1987): 280-82. Accessed June 8, 2021. http://www.jstor.org/stable/43951092.
  2. Sakshi Agarwal, Offer and Invitation to Treat - Law Times Journal Law Times Journal (2018), https://lawtimesjournal.in/offer-and-invitation-to-treat/ (Last visited Jun 8, 2021).

Cases Referred To:
  1. Food Corpn. Of India V Ram Kesh Yadav, (2007) 9 SCC 531
  2. Lee v Muggeridge, (1813) 128 ER 599
  3. Currie v. Misa (1875-76) LR 1 App Cas 554
  4. Balfour v. Balfour, (1919) 2 KB 571
  5. CWT. vs Abdul Hussain Mulla Ali, (1988) AIR 1417
  6. Scammell & Nephew v Ouston ,(1941) 1 AC 251

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