Essentials of a Valid Contract

A contract that is not a valid contract will have many problems for the parties
involved. For this reason, we must be fully aware of the various elements of a
valid contract. In other words, here we shall ponder on all the ramifications of
the definition of the contract as provided by The Indian Contract Act, 1872.

The Indian Contract Act, 1872 itself defines and lists the Essentials of a
Contract either directly or through interpretation through various judgments
of the Indian judiciary. Section 10 of the contract enumerates certain points
that are essential for valid contracts like Free consent, Competency Of the
parties, Lawful consideration, etc.

1] Two Parties

A Valid Contract must involve at least two parties identified by the contact. One of
these parties will make the proposal and the other is the party that shall eventually
accept it. Both the parties must have either what is known as a legal existence e.g.
companies, schools, organizations, etc. or must be natural persons.

For Example: In the case State of Gujarat vs Ramanlal S & Co. – A business
partnership was dissolved and assets were distributed among the partners as per the
settlement. However, all transactions that fall under a contract are liable for taxation by
the office of the State Sales Tax Officer. However, the court held that this transaction
was not a sale because the parties involved were business partners and thus joint
owners. For a sale, we need a buyer (party one) and a seller (party two) which must be
different people.

2] Intent Of Legal Obligations

The parties that are subject to a contract must have clear intentions of creating a legal
relationship between them. What this means is those agreements that are not
enforceable by the law e.g. social or domestic agreements between relatives or
neighbours are not enforceable in a court of law and thus any such agreement can’t
become a valid contract.

3] Case Specific Contracts

Some contracts have special conditions that if not observed would render them invalid
or void. For example, the Contract of Insurance is not a valid contract unless it is in the
written form.

Similarly, in the case of contracts like contracts for immovable properties, registration
of contract is necessary under the law for these to be valid.

4] Certainty of Meaning

Consider this statement “I agree to pay Mr. X a desirable amount for his house at so
and so location”. Is this a valid contract even if all the parties agree to this term? Of
course, it can’t be as “desirable amount” is not well defined and has no certainty of
meaning. Thus we say that a valid contract must have certainty of Meaning.

5] Possibility Of Performance Of an Agreement

Suppose two people decide to get into an agreement where a person A agrees to bring
back the person B’s dead relative back to life. Even when all the parties agree and all
other conditions of a contract are satisfied, this is not valid because bringing someone
back from the dead is an impossible task. Thus the agreement is not possible to be
enforced and the contract is not valid.
6] Free Consent

Consent is crucial for an agreement and thus for a valid contract. If two people reach a
similar agreement in the same sense, they are said to consent to the promise. However,
for a valid contract, we must have free consent which means that the two parties must
have reached consent without either of them being influenced, coerced, misrepresented
or tricked into it. In other words, we say that if the consent of either of the parties is
vitiated knowingly or by mistake, the contract between the parties is no longer valid.

7] Competency Of the Parties

Section 11 of the Indian Contract Act, 1872 is:

“Who are competent to contract — Every person is competent to contract who is (1) of
the age of majority according to the law to which he is subject, and who is (2) of sound
mind and is (3) not disqualified from contracting by any law to which he is subject.”

Let us see these qualifications in detail:

Refers to the fact that the person must be at least 18 years old or more.

Means that the party or the person should be able to fully understand the terms or
promises of the contract at the time of the formulation of the contract.
States that the party should not be disqualified by any other legal ramifications. For
example, if the person is a convict, a foreign sovereign, or an alien enemy, etc., they
may not enter into a contract.

8] Consideration

Quid Pro Quo means ‘something in return’ which means that the parties must accrue in
the form of some profit, rights, interest, etc. or seem to have some form of valuable
“consideration”.

For example, if you decide to sell your watch for Rs. 500 to your friend, then your
promise to give the rights to the watch to your friend is a consideration for your friend.
Also, your friend’s promise to pay Rs. 500 is a consideration for you.

9] Lawful Consideration

In Section 23 of the Act, the unlawful considerations are defined as all those which:

It is forbidden by law.

Is of such a nature that, if permitted, it would defeat the provisions of any law, or is
fraudulent.

Involves or implies, injury to the person or property of another

The Court regards it as immoral or opposed to public policy

These conditions will render the agreement illegal