The Indian Contract Act, 1872 governs the law relating to contracts in India. A Contract is an agreement enforceable by law. However, not every agreement becomes a contract. For an agreement to be legally enforceable, it must fulfill certain essential elements. These are known as the Elements of a valid contract.
Let us understand each element clearly.
Offer and Acceptance
Offer (Proposal)
An offer is when one person expresses willingness to do or not do something, to obtain the assent of the other party.
Example: A offers to sell his laptop to B for ₹20,000.
Acceptance
Acceptance is when the other party agrees to the terms of the offer. Acceptance must be absolute and unconditional.
Example: B accepts A's offer without any changes. A valid agreement is formed.
Key Point: Acceptance must be communicated properly.
Intention to Create Legal Relationship
The parties must intend that their agreement will create legal obligations. Social or domestic agreements are usually not contracts.
Example: A promise to take a friend for dinner is not a contract because there is no legal intention.
Key Point: Business agreements are generally presumed to have legal intent.
Lawful Consideration
Consideration means something in return. Each party must give something (a promise, an act, or a forbearance) for a contract to be valid.
Example: A agrees to sell a bike to B for ₹15,000. ₹15,000 is the consideration for A, and the bike is the consideration for B.
Key Point: The consideration must be lawful and not against public policy.
Capacity of Parties
The parties entering into the contract must be competent, meaning they must:
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Be of the age of majority (18 years and above),
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Be of sound mind,
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Not be disqualified by law.
Example: A contract made by a minor is void.
Key Point: Contracts with minors are not enforceable except in certain situations like contracts for necessaries.
Free Consent
Consent means that both parties must agree upon the same thing in the same sense (consensus ad idem). Consent must be free and not obtained by:
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Coercion
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Undue influence
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Fraud
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Misrepresentation
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Mistake
Example: If A forces B to sell his house at gunpoint, the contract is not valid due to lack of free consent.
Key Point: Any flaw in consent makes the contract voidable.
Lawful Object
The object or purpose of the agreement must be lawful. If the purpose is illegal, immoral, or against public policy, the contract is void.
Example: A contract to smuggle goods is illegal and unenforceable.
Key Point: A lawful object is necessary for a contract to be valid.
Certainty and Possibility of Performance
The terms of the agreement must be clear and definite. If the meaning is uncertain, the agreement is void.
Similarly, the contract must be capable of being performed.
Example:
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Uncertain agreement: A promises to sell "a lot of oil" without specifying quantity.
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Impossible agreement: A agrees to bring a star from the sky. It is impossible and void.
Key Point: Agreements must be clear and achievable.
Not Expressly Declared Void
The agreement must not be of a type that is expressly declared void by the Indian Contract Act.
Examples of void agreements include:
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Agreements in restraint of marriage
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Agreements in restraint of trade
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Wagering agreements
Key Point: Certain agreements are automatically considered void even if they have all other elements.
Conclusion
To summarize, for an agreement to be a valid contract under the Indian Contract Act, 1872, it must include an offer and acceptance, lawful consideration, lawful object, capacity of parties, free consent, intention to create legal relationship, certainty, possibility of performance, and it must not be expressly void.
Understanding these elements is fundamental for both academic study and practical application in business law.