Essentials of a Valid Contract

Contract law

Valid Contract ?

According to Section 10:All agreements are contracts if they are made by the free consent of parties, competent to contract, for lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Wherever necessary, the agreements must satisfy the requirements of law regarding writing, attestation or registrationA valid contract is Binding & Enforceable.Parties to valid contract are bound for performance.A valid contract can be enforced by either party.If one party refuses to perform the contract, the other party can enforce it through a court.

Essentials of a Valid Contract at a glance :

Offer and AcceptanceLegal Obligation (Intention to create legal relationship)Capacity of parties to ContractLawful ConsiderationFree consentLawful ObjectPossibility of Performance (Performance to be Possible)Not expressly declared voidCertainty of TermsShould be in writing if required under specific laws.

A person is said to make a proposal or offer when he 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.

An offer must be lawful.Offer/Proposal :

Acceptance :

Acceptance is an act of assenting by the offeree to an offer. It is the manifestation by the offeree of his willingness to be bound by the terms of the offer. Acceptance should be absolute, unqualified, communicated to the offeror, in the mode prescribed, and be made within the reasonable time

Offer and Acceptance :A offers to sell his car to B for Rs.400,000/-. This is an offer. If B accepts this offer, then there is an acceptance.

Consideration:

Consideration is the benefit to the parties.

It is price paid by one party for the promise of the other party.

An agreement is enforceable only when both parties get & give something. The something given or obtained is called Consideration (Consideration must be lawful)

Very simply saying Consideration is the price of the promise (Pollock).

Law defines consideration as When at the desire of the promisor, the promise or any other person has done or abstained form doing, or does or abstains from doing something, such act or abstinence or promise is called a consideration for the promise.

Consideration:

A agrees to sell his house to B for Rs.1,000,000/-. For A Rs.1,000,000/- is consideration and for B the House is the Consideration

A promises B to get him a government job and B promises to pay Rs.100,000/- to A. The agreement is void as the consideration is unlawful.

Legal Obligations :

The parties must be willing to establish a legal relationship or obligation while offering and accepting otherwise , it would not constitute a valid contract, e.g., offers or acceptances made in jest without making the legal obligation in case of defaults shall not be a binding contract.It means that if one of them does not fulfill his part of promise, he shall be liable for breach of the contract

Legal Obligations :

A offers to sell his watch to B for Rs.200/-. B agrees to buy it. It is a valid contract because it creates a legal obligation.A husband promised to pay his wife an allowance of $30 every month. Later the parties separated and the husband refused to pay. The wife sued. It was held that the wife was not entitled as agreement did not create legal obligations (Belfour VS Belfour)

Capacity of Parties (who is competent to contract ?)An agreement is enforceable only if it is made by the parties who are competent to contract.Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject.A contract by a person of unsound mind is void ab-initio

Capacity of Parties (who is competent to contract ?)M, a person of unsound mind agrees to sell his house to S for Rs.200,000/-. It is not a valid contract because M is not competent to contract.A aged 20 years promises to sell his car to B for Rs.300,000/-. It is a valid contract because A is competent to contract.

Free consent

Consent means that the parties must agree upon the same thing in the same sense. For a valid contract, it is necessary that the consent of parties must be free.

Consent is free when it is not obtained by coercion, undue influence, fraud, misrepresentation or mistake.

If consent of either party is not free, the agreement cannot become a contract (Section 14_

A contract is said to be induced by "under influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

Free consent

A compels B to enter into a contract at gunpoint. It is not a valid contract as the consent of B is not free.

Not expressly declared void :For a valid contract, the agreement must not be one of those which have been expressly declared to be void by the law

Under Section 24-30 certain agreements have been declared void, for example, agreement in restraint of marriage and of wager, etc . Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to the extent.Agreements, the meaning of which is not certain, or capable of being made certain, are void.

Not expressly declared void :A promises to close his business on the promise of B to pay him Rs.200,000/- is void agreement because it is in restraint of trade.

A promises to pay Rs.20,000/- to B if Pakistan wins the World Cup Final. The agreement is void being wagering agreement.

Objects should be lawful:It is necessary that agreement should be made for lawful object. The object or consideration of an agreement is lawful, unless it is forbidden by law; or is of such nature that, if permitted it would defeat the provisions of any law. The object of agreement must not be fraudulent, illegal, immoral, oppose to public policy, imply injury to the person or property of another. Every agreement with unlawful object or consideration is illegal and void (Section 23)

Objects should be lawful:

A promises to pay B Rs.20,000/- if B beats C. The agreement is illegal as its object is unlawful.A hires a house to use for gambling. The object of agreement is unlawful, so the agreement is illegal and void.

Possibility of Performance:

For a valid contract, it must be performed. An agreement to do an impossible act is void.If the act is illegal or physically impossible to be performed, the agreement cannot be enforced by law (Section 56)Contracts to perform something impossible like breaking the moon or stars in return of huge amounts are void.

Possibility of Performance: A agrees with B to discover a treasure by magic. Such agreement is not enforceable.A agrees with B to put life into Bs dead cat. The agreement is void as it is impossible to perform it.

Writing and Registration:

A valid contract may be oral or in writing.It is preferable that be in writing because it is easy to prove in court.If required by law, that particular contract must be in writing, signed, attested by witnesses and registered.

Sale and Mortgage of land should be in writing and be registered.

Writing and Registration:

X verbally promises to sell his book to Y for Rs.200/-. It is a valid contract because law does not require it to be in writing.

A verbally promises to sell his house to B. It is not valid contract because the law requires it to be in writing.

Certainty of Terms:

According to Section 29, Agreements, meaning of which is not certain or capable of making certain are void

The terms of an agreement must be clear, complete and certain. If the terms are uncertain, the agreement is void.

Certainty of Terms:

A promises to sell 20 books to B without specifying their titles. The agreement is void because the terms are not clear.

O agree to purchase a van from S. The price was to be paid over two years. It was held that there was no contract as the terms were not certain about the rate of interest and mode of payment (Scammel VS Ouston)