Essentials of a Valid Contract under Indian Contract Act 1872
Essentials of a valid contract under Indian Contract Act, 1872 in Business Law
Course Coordinator-Dr. Rashmi Chawla
• Indian Contract Act prescribes the law relating to contracts in India and is the key act regulating Indian Contract Law.
• Indian Contract Act came into force on 1st of September, 1872.
• It applies to whole of India except Jammu and Kashmir.
• It has 266 sections and the Act is divided into two parts
• Part 1 deals with general principles of Law of Contract
• Part 2 deals with special principles of Law of Contract
Important Definitions
• 1. Offer 2(a): When one 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.
• 2. Acceptance 2(b): When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted.
• 3. Promise 2(b): A Proposal when accepted becomes a promise. In simple words, when an offer is accepted it becomes promise.
• Example-
• Boy- Will you Marry me?
• Girl- Yes
• The proposal given by boy is an example of offer and if the girl accepts , it is an example of acceptance
• 4. Promisor and promisee 2(c): When the proposal is accepted, the person making the proposal is called as promisor and the person accepting the proposal is called as promisee.
• 5. Consideration 2(d): When at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing something such act or abstinence or promise is called a consideration for the promise. Price paid by one party for the promise of the other. Technical word meaning QUID-PRO-QUO i.e. something in return.
• Example- Two persons exchanging goods with one another for a consideration
• 6. Agreement 2(e): Every promise and set of promises forming the consideration for each other. In short , agreement=promise + consideration.}
• 7. Contract 2(h): An agreement enforceable by Law is a contract.
• Therefore, there must be an agreement and it should be enforceable by law.
• Example-Partnership Deed and Sale deed is an agreement enforceable by law . Hence it is a contract
AGREEMENT=OFFER+ ACCEPTANCE
ESSENTIALS
OF A VALID CONTRACT
SECTION 10
In order to become a contract, an agreement must have the following essential elements.
1. There must be an offer and acceptance
2. There must be mutual consent of the parties-Consensus ad idem (Meeting of minds).
3. There must be legal obligations-If an agreement does not create a legal relationship between parties, it is not a contract.
Example-Inviting one to a birthday party is a social agreement. If one does not turn up, no legal enforcement can be done.
4. There must be free consent of the parties-The consent is not free if it is obtained by coercion, undue influence, fraud, misrepresentation and mistake.
5. The parties must be competent to contract-Minors, persons of unsound mind and persons disqualified by law are not competent to enter into contract.
6. There must be lawful object-The object of the contract must not be opposed to law.
For Example-If A and B agree to carry on gambling business and share profits there is an
unlawful object and hence it is not a contract.
7.The terms of the agreement must be certain-If the terms of the agreement are not certain
and clear the agreement does not become a valid contract.
For Example-If A proposes to sell oil to B ,It is not clear that which oil is to be sold.So it is not avalid contract.
8. The performance must not be impossible- The agreement must be possible to perform
otherwise it will not considered as a contract.
For Example- If A offers B that he would bring moon and stars from the sky if he pays him Rs. 5000.This is an impossible act and hence not a contract.
Therefore we can conclude that “All contracts are agreements but all agreements are not contracts.”