This article is written by R.Manmitha, Keshav Memorial College of Law, 3rd Year BA. LLB, during an internship at LeDroit India.
KEYWORDS :
- Agreement
- Contract
- Parties
- Obligations
- Consideration
- Responsibilities
INTRODUCTION:
A Contract is a legally binding agreement between two or more parties, where each party agrees to fulfill certain obligations in exchange for something of value, such as money, goods or services. For a contract to be valid, it must meet certain essential elements.
Contracts are vital part of business and personal transactions, providing a framework for understanding obligations and responsibilities. A valid contract requires a careful consideration.
DEFINITION OF A CONTRACT :
Section 2(h) of the Indian Contract Act, 1872 defines a contract as “an agreement enforceable by law”. This means that in order for an agreement to be considered a contract, it must be legally enforceable. The agreement must meet all the essential elements of a valid contract, such as offer, acceptance, consideration, capacity, intention, and legality and must not be affected by any factors that could make it void or unenforceable.
In Simple terms, a contract means when two parties put into writing and agreement which contains certain Obligations (Promises) which are to be performed by such parties and when such written agreement becomes enforceable by law, it becomes a contract. Enforceable by means when the agreement has acquired the force of law only for those who are a party to it and a violation of those obligations would attract legal action, including repudiation of the entire contract. An agreement consists of reciprocal promises which are to be performed by parties to the contract. Promises are reciprocal when both parties have to perform something for the other.
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 circumstance which a promise shall be legally binding on the person making it.
CONTRACT = AGREEMENT+ ENFORCEABILITY
ILLUSTRATION :
A Contracted with B for purchase of 10 bags of rice of a certain quality for RS. 1,00,000/-. In this case, B’s promise is to provide A with 10 bags of rice with the same quality for which A has contracted and A’s promise is to duly pay B RS. 1,00,000/-. In this case, both have to perform something for the other, thus it is a case of reciprocal promise.
- Charity is not a case of reciprocal promise, because a person doing charity, does not expect anything in return.
ESSENTIALS OF A CONTRACT :
- Offer and Acceptance
- Intention to create legal relations
- Consideration
- Capacity
- Legality
- Certainty
When these six elements are present, a contract evolves from a simple agreement to a binding legal document. But if you lack just one of them, a contract may not be enforceable at all. It’s helpful to have a contract lifecycle management tool or a contract drafting tool that manages all the elements for you.
- OFFER AND ACCEPTANCE :
The First Essential Elements of a Contract is an offer and acceptance. Section 2 (a) of the Indian Contract Act, 1872 defined an offer:
“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.”
In simple terms, An offer is a proposal made by one party (the offeror) to another party (the offeree). The offer must be clear, complete and capable of being accepted. The offer must be definite and certain in its terms.
KEY CONSIDERATIONS
- Specificity : The Offer must be specific and unambiguous, leaving no room for misinterpretation.
- Communication : The Offer must be communicated to the offeree, either verbally or in writing.
- Capacity : The Offeree must have the capacity to accept the offer, which means they must be of legal age and of sound mind.
EXAMPLE : John offers to sell his watch to venu for $1000.
TYPES OF OFFERS :
- Express Offer : A direct and explicit offer
- Implied Offer : An Offer inferred from circumstances or conduct
- General Offer : An Offer made to the public at large.
ACCEPTANCE :
The Offer must be accepted by the other party without any changes to the terms of the offer. Acceptance must be communicated to the offeror. Acceptance is the agreement to the terms of the offer. It just be as follows :
- Unconditional : Acceptance must be absolute and without reservations.
- Timely : Acceptance must be made within the specified timeframe.
- Clear : Acceptance must be clearly communicated to the offeror.
EXAMPLE : John offered to sell his watch to venu and venu accepted the offer made by John.
The most important aspect of acceptance is that the performance of an offer, in ignorance of the said offer is not an acceptance. Therefore an act done, amounting to acceptance, but acceptor being unaware of the offer, it is not a valid acceptance.
In the case of Lalman Shukla v Gauri Dutt (1913), the defendant’s boy went missing, accordingly, his servant-Plaintiff was sent to search for the boy, in the meantime a missing poster was released by the defendant, promising to pay a certain sum, to the person who finds the boy. The servant, unaware of such an offer succeeded to find the boy. Once he discovered that such an offer existed he asked for the consideration, but the same was denied. The court ruled in favour of the Defendant, by holding that Plaintiff was ignorant of offer and thus the performance of the promise does not amount to acceptance.
- INTENTION TO CREATE LEGAL RELATIONS :
Parties must intend to create legal relations for a contract to be valid. This means that the agreement must be more than a social or domestic arrangement. The parties entering into the contract must have the intention to be bound by the terms of the contract.
KEY CONSIDERATIONS
- Genuine Intention : The Parties must have a genuine intention to be bound by the contract.
- Legal Purpose : The agreement must have a legal purpose.
EXAMPLE : A business agreement between two companies.
- CONSIDERATION :
There must be something of value exchanged between the parties. This could be money, goods, or services. Consideration is the benefit that each party receives or suffers as a result of the contract.
KEY CONSIDERATION
- Value : Consideration must be something of value such as money, goods or services.
- Bargained for : Consideration must be bargained for such as negotiated.
- Present : Consideration cannot be of past which means something already done.
TYPES OF CONSIDERATION :
- Executed Consideration : Consideration already performed.
- Executory Consideration : Consideration to be performed in the future.
- CAPACITY :
The parties entering into a contract must have the legal capacity to do so. This means that they must be of a legal age, of sound mind, and not under duress or coercion. The legal age of a person entering into a legally binding agreement should be of and above 18 years of age with a right state of mind.
KEY CONSIDERATIONS
- Age : Parties must be of legal age ( 18 and above ).
- Mental capacity : Parties must be of a sound mind.
- Authority : Parties must have the authority to act.
Minors :
- Contract voidability : Contracts with minors can be voidable.
- Ratification : Minors can ratify contracts upon reaching legal age.
Mental Incapacity :
- Contract Voidability : Contracts with mentally incapacitated persons can be voidable.
- Court Intervention : Courts may intervene to protect incapacitated persons.
- LEGALITY :
The subject matter of the contract must be legal. Contracts that are illegal or contrary to public policy are not valid.
KEY CONSIDERATIONS :
- Illegality : The contracts must not promote illegal activities.
- Public Policy : The contracts must not violate public policy.
TYPES OF ILLEGAL CONTRACTS :
- Contracts against Public Policy : Contracts contrary to public interests.
- Contract to commit crime : Contracts promoting illegal activities.
- CERTAINTY :
The terms of the legally binding agreement between the two parties must be clear, definite, complete, capable and certain.
KEY CONSIDERATIONS :
- Essential Terms : The Contract must specify essential terms for example; price, scope of work etc.
- Ambiguity : The Contract must not contain ambiguous or vague language.
TYPES OF UNCERTAINTY :
- Patent Ambiguity : Obvious Ambiguity.
- Latent Ambiguity : Hidden Ambiguity.
CONCLUSION :
These are the most basic and essential elements of a valid contract, which are to be fulfilled, however there are many other conditions which may be laid down by a special law or for a specific types of contracts for example Intellectual Property Rights (IPR). Contracts are vital part of the business and personal transactions, providing a framework for understanding obligations and responsibilities. A valid contract requires a careful consideration.
REFERENCES :
Indian Contract Act,1872
Section 2(h) of Indian Contract Act, 1872
Every promise and every set of promise forming consideration for each other is an agreement. Section 2 € of contract act.
Lalman Shukla vs Gauri Dutt (1913)
