Essentials of Contract

 Meaning of Contract

Contract means when any two or more capable parties place into writing an agreement which contains some obligation which has to executed by the contracting parties, and when such agreement is enforceable by law is known as a contract. Therefore, two elements are essential to constitute agreement i.e. offer and acceptance.  Here enforceable by law means when an agreement has acquired the force of law then only the parties can be sue or be sued. In other words, when any parties violate the contract then for those violations, they may face legal action.

Meaning of Contract according to some Jurists

Pollock- “Every agreement and promise enforceable by law is a contract”.

Salmond- “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”.

Anson- “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’.

Indian Contract Act, 1872

As per section 2(h) of the Indian Contract Act, a contract means “An agreement enforceable by law” or in other words, a contract is an agreement that is enforceable by the law.

An agreement must be valid to become a contract and therefore, the agreement must contain the essentials of section 10 of the Contract Act.

The essential of valid Contract (section 10)

  • Proper offer and proper acceptance: – For a valid contract there must be at least two parties i.e. “promisor” and “promisee” and also the offer and acceptance must be a valid one. The acceptance must be absolute and unconditional.

In the case of Felthouse v. Bindley [1]Court held that silence did not amount to acceptance and an obligation cannot be imposed by another. Any acceptance of an offer must be communicated clearly. 

  • An intention to create the legal relationship: -The agreement must be valid for creating legal obligation among the parties. As in the case of domestic or social agreement, usually, there is no intention to create legal relationship but in commercial or business agreement there is an intention to create legal relationship unless otherwise agreed upon.

In the case of Balfour v Balfour[2], Court held that if agreement is having domestic nature then it is not a contract.

  • Free consent of the parties: –For the purpose of a valid contract, there must be free consent of the parties to the contract. According to section 14, it is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation and mistake.

In the case of Chickam Amiraju v. Chickam Sheshamma[3], the Husband gives a threat that he will commit suicide if they did not execute a release deed in favour of his brother, to his wife and son. The wife and son executed the release deed under the threat given by the husband. It was held that threat to commit suicide amounts to coercion under section 16 of the Act.

Section 17 of the Act lays down the list of Act which amounts to fraud. There is the slightest difference between fraud and misrepresentation, in the first case the person making the statement does not believe that such statement is true and in later one, the person making such statement believes that such statement is true.

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  • The capacity of parties: -The parties must be capable of doing a contract. A contract is not valid if parties are incompetent to contract. As according to section 11 of the act, parties are competent to enter into a contract if they have attended the age of majority according to the Majority Act 1875 and is of sound mind and is not disqualified from contracting by any law subject to.

In the case of Mohori Bibee v. Damodar Ghose[4], In this case, Damodar Ghose the defendant was a minor and the sole owner of his property. His legally appointed guardian was his mother. A moneylender Mr Brahmo Dutt, through his agent Kedar Nath, lent the defendant at 12% interest per year a sum of Rs 20,000. By way of mortgaging the property, the loan was taken by the defendant. On the day on which the deal was made, Damodar Ghoses’s mother notified the appellant that Damodar was a minor, and anyone who enters an agreement with him would do so at his own risk. Kedar Nath claimed that Damodar Ghose had lied about minority on the date of the execution of the deed.
Therefore, Brahmo Dutt’s appeal was dismissed and his request for the return of Rs 10,500 advanced towards him was also rejected as Damodar Ghose’s mother notified the appellant about his minority. It was held that an agreement entered by a minor is void ab initio.

  • Lawful consideration: –For entering into a contract, there must be a valid consideration according to sec-2(d). Consideration means 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 abstain from doing something, such act or abstinence or promise is called a consideration for the promise. Consideration may be made of any kind i.e. past, present, or in future but it must be real.

In the case of Currie v Misa[5] Court defines consideration as “A valuable consideration, in the sense of the law, may consist either of some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss or responsibility, given, suffered or undertaken by the other”. 

  • Lawful object: – for a valid contract, the object must be lawful. Therefore, if the agreement has made which is prohibited by any law time being in force, then that agreement is not valid.
  • Agreements not expressly declared void: – there are some agreements under section 24 to 30 which have been expressly declared void. 

[1] (1862) 11 Cb (NS) 869.

[2] 2 KB 571

[3] 34 Ind Cas 578, (1917) 32 MLJ 494.

[4] (1903) ILR 30 Cal 539 (PC).

[5] (1875) LR 10 Ex. 162.

One thought on “Essentials of Contract

  • Sep 4, 2020 at 6:03 am
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    Dear Sheetal,
    Gone through your Article.Very well documented in very simple language.Your Article gives a clear picture as to meaning,nature and essentials of a Valid Contract.All important materials to make understand about a Valid Contract has been Incorporated in this Article.Leading case laws has been cited.
    Congratulations & Thanks for your Contribution.

    Reply

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