An agreement, to be enforceable by law, must posses the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section 10, "All agreements are contract if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void." As the details of these essentials form the subject-matter of our subsequent chapters, it is proposed to dismiss them in brief here.
The following are the essential elements of a valid contract :
1. Offer and acceptance:i. Offer: :An offer is an expression of readiness to do something which, if followed by the unconditional acceptance of another person results in a contract. For example, if a company tells you that it will sell you 50 boxes of red wine at the price of $10,000, that company is making you an offer.
If no time limit is specified, an offer is valid for a reasonable length of time before the offeror (the person who makes the offer) can revoke or cancel it. To avoid potential disputes, however, the offeror should specify the deadline for the acceptance of an offer.It is also important to note that the offeror can not take silence as a form of acceptance. This means the offeror cannot say "If I do not hear from you within 10days, then I will assume that you have accepted my offer and will pay for the product".
An offer must be distinguished from an "invitation to treat", which merely invites other people to make offers but is not in itself an offer. Examples of invitations to treat include: invitations to tender, displaying goods on the shelves of a shop, and the advertisement of goods or services in newspapers or on television (unless it is expressly stated that the advertisement is an offer).
Acceptance:
There is no contract unless and until the offer is accepted by the person to whom the offer is addressed(sometimes called "the offeree"). Acceptance is normally made orally or in writing, but if the contract allows that the acceptance and performance of contractual duties are to be carried out simultaneously, then acceptance can also be made by conduct. For example,when a supplier receives your cheque, that supplier may immediately deliver the goods to you without saying or writing anything.
It is recommended that both of the contracting parties clearly specify and agree to the method of acceptance.If the method of acceptance is not specified by the offeror, then the following rules may apply.
Postal Rule – If it is reasonable to use the post for the offer and acceptance process, then the contract is formed at the time of posting the letter of acceptance, even if the letter is lost in the post. Receipt Rule – When an acceptance is sent by fax, it is deemed to be valid when the message is received, even if the offeror does not in fact read the fax immediately. This rule also applies to e-mail messages(see section 17 and section 19 of Transactions Ordinance).
Another important point to note is that a conditional (or partial) acceptance is only a "counter-offer" and does not constitute a valid contract. In other words, if the person to whom the offer is addressed only accepts some of the terms or proposes some new terms, then that person is not accepting the offer but is making a new offer to the other party. In the business world, there may be a series of counter-offers before a final acceptance comes out. In order to create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance' of the same by the other party.
2. Intention to Create Legal Relationship. In case,there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations.
Case :- Balfour vs. Balfour(1919)
It is generally presumed that in a commercial transaction, the contracting parties must have the intention to create a legally binding contract. In other words, if you have signed a contract for business-related activities, then you will be able to sue the other party if that party does not fulfill the contractual provisions, and vice-versa.
This presumption can only be rejected if the parties expressly state that they do not intend to make a legally binding contract. Sometimes you may see the words "subject to contract" printed on a document. These words have the legal meaning that the document is not a contract, and that all of the contents will be bound by a subsequent contract (if the parties sign that contract). A party that is acting “subject to contract”can withdraw from the negotiation at any time before the contract is concluded. In case of dispute, the burden of proof that the intention was to create a binding contract rests on the person who wishes to rely on the contract.
3.Lawful Consideration (benefit given to the other party): Consideration has been defined in various ways.According to Blackstone,"Consideration is recompense given by the party contracting to another." In other words of Pollock, "Consideration is the price for which the promise of the another is brought."consideration is known as quid pro-quo or something in return.
In contract law, consideration means a detriment to the person who made the promise or a benefit conferred on the other party, both of which are measurable in economic terms. Money, goods and services are the most common examples of consideration. You should note that consideration need not be adequate, which means that if the seller or service provider is contracted to sell a product or service at a price that is below the market price, then that seller or provider cannot subsequently go to court to claim the shortfall.
A promise of a gift is not enforceable in law because of the lack of mutual exchange of consideration (the recipient does not have to pay anything in return). An exception to this rule is when a contract is executed ina specific form called a "deed", in which case the recipient may not be required to give consideration to the other party.
4. Capacity of parties (the authority or ability to make contracts):The parties to an agreement must be competent to the contract. If either of the parties does not have the capacity or ability to contract, the contract is notvalid.According to this,the following persons are incompetent to contract.(a) Miners, (b) Persons of unsound mind,and(c) persons disqualified by law to which they are subject.
OR Persons under the age of 18 (called "minors") and lunatics (mentally disordered or intoxicated persons) do not have the capacity to enter into contracts. Any contracts that are made by persons who are lacking in legal capacity are voidable: that is, the party who needs the protection can seek to avoid the contractual liability.
An exception to this rule arises when the parties enter into a contract for "necessaries" (a legal term for"necessities", which means the goods or services that are suitable to the condition of life of a minor and to that minor’s actual requirements at the time of the sale and delivery, such as clothes or food). A minor who fails to pay for "necessaries" can be sued by the seller.
5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense.According to Section 14, Consent is said to be free when it is not caused by-
(1) Coercion, or
(2) Undue influence,or
(3) Fraud, or
(4) Ms-representation, or
(5) Mistake.An agreement should be made by the free consent of the parties.
6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.The Object is said to be unlawful if-
(a) it is forbidden by law;(b) it is of such nature that if permitted it would defeat the provision of any law;(c) it is fraudulent;(d) it involves an injury to the person or property of any other;(e) the court regards it as immoral or opposed to public policy.
7. Certainty of Meaning. According to Section 29,"Agreement the meaning of which is not Certain or capable of being made certain are void."
8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforcedat law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.
9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade,marriage, legal proceedings etc.
10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing,registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments;memorandum and articles of association of a company,etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the agreement does not become a contract.
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