Essentials of a valid contract.

What is a contract? 

A contract is an agreement that can be enforceable by law.   An agreement is  an

offer and its acceptance.  An agreement which can be enforceable by law must
have some essential elements. According to Section 10 "All agreements are
contracts 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 hereby expressly
declared to be void" As per the above section, a contract must have the following
elements.

1.  Intention to create legal relationship.

2.  Lawful object

3.  Agreement not expressly declared void

4.  Proper offer and it s acceptance

5.  Free Consent

6.  Capacity of parties to contract

7.  Certainty of meaning.

8.  Possibility of performance.

9.  Lawful consideration

10.  Legal formalities

Intention to create legal relationship: The parties entering into a contract must

have an intention to create a legal relationship. If  there is no intention to create a
legal relationship, that agreement cannot be treated as a valid contract. Generally
there is no intention to create a legal relationship in social and domestic
agreements. Invitation for lunch does not create a legal relationship. Certain
agreements and obligation between father and daughter, mother and son and
husband and wife does not create a legal relationship. An agreement wherein it is
clearly mentioned that "This agreement is not intended to create formal or legal
agreement and shall not be subject to legal jurisdiction in the law of courts." cannot
be treated as a contract and not valid. 

Lawful Object: The objective of the agreement must be lawful. Any act prohibited
by law will not be valid and such agreements cannot be treated as a valid contract.
A rents out his house for the business of prostitution or for making bomb, the acts
performing there are unlawful. Hence such agreement cannot be treated as a valid
contract. Therefore the consideration as well as the object of the agreement should
be lawful.
Agreement not expressly declared void: Section 24 to 30 specify certain types of
agreement which have been expressly declared void. For example Restraint of
marriage which has been expressly declared void under Section 26. If John
promises to pay $50 to Mary if she does not marry throughout her life and Mary
promise not to marry at all. But this agreement cannot be treated as a valid contract
owing to the fact that, under section 26 restraint of marriage expressly declared
void. Some of the agreement which have been expressly declared void
are agreement in restraint of legal proceedings, agreement in restraint of trade,
agreement in restraint of marriage and agreement by way of wager.

Proper offer and it s acceptance: To create a valid contract, there must be two or
more parties. One who makes the offer and the other who accepts the offer. One
person cannot make an offer and accept it. There must be at least two persons. Also
the offer must be clear and properly communicated to the other party. Similarly
acceptance must be communicated to the other party and the proper and
unconditional acceptance must be communicated to the offerer. Proper offer and
proper acceptance should be there to treat the agreement as a contract which is
enforceable by law.

Free Consent: According to section 14, consent is said to be free when it is not

caused by (i) coercion, (ii) undue influence (iii) fraud, (iv) misrepresentation, or
(v) mistake. If the contract made by any of the above four reason, at the option of
the aggrieved party it could be treated as a void contract. If the agreement induced
by mutual mistake the agreement would stand void or canceled. An agreement can
be treated as a valid contract when the consent of the parties are free and not under
any undue influence, fear or pressure etc. The consent of the parties must be
genuine and free consent.
Capacity of parties to contract: Parties entering into an agreement must be
competent and capable of entering into a contract. If "A" agrees to sell a
Government property to B and B agrees to buy that property, it could not treated as
a valid agreement as A is not authorized or owner of the property. If any of the
party is not competent or capable of entering into the agreement, that agreement
cannot be treated as a valid contract. According to Section 11 of the Act which
says that 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 of sound mind, and is not
disqualified from contracting by any law to which he is subject. So it is clear that
the party must be of sound mind and of age to enter into a valid agreement which
can be treated as a valid contract.

Certainty of meaning: Wording of the agreement must be clear and not uncertain

or vague. Suppose John agrees to sell 500 tones of oil to Mathew. But, what kind
of oil is not mentioned clearly. So on the ground of uncertainty, this agreement
stands void. If the meaning of the agreement can be made certain by the
circumstances, it could be treated as a valid contract. For example, if John and
Mathew are sole trader of coconut oil, the meaning of the agreement can be made
certain by the circumstance and in that case, the agreement can be treated as a valid
contract. According to Section 29 of the Contract Act says that Agreements, the
meaning of which is not certain or capable of being made certain, are void.
Possibility of performance: As per section 56, if the act is impossible of
performance, physically or legally, the agreement cannot be enforced by law.
There must be possibility of performance of the agreement. Impossible agreements
like one claims to run at a speed of 1000km/hour or Jump to a height of 100feet
etc. would not create a valid agreement. All such acts which are impossible of
performance would not create a valid contract and cannot treated as a valid
contract. In essence, there must be possibility of performance must be there to
create a valid contract.

Lawful consideration: An agreement must be supported by a consideration of

something in return. That is, the agreement must be supported by some type of
service or goods in return of money or goods. However, it is not necessary the
price should be always in terms of money. It could be a service or another goods.
Suppose X agrees to buy books from Y for $50. Here the consideration of X is
books and the consideration of Y is $50. It can be a promise to act (doing
something) or forbearance (not doing something). The consideration may be
present, future or can be past. But the consideration must be real. For example If
John agrees to sell his car of $ 50000 to Peter for $20000. This is a valid contract if
John agrees to sell his car not under any influence or force. It can be valid only if
the consideration of John is free. An agreement is valid only when the acts are
legal. Illegal works like killing another for money, or immoral works or illegal acts
are cannot be treated as a valid agreement. So, illegal works will not come under
the contract act.

Legal formalities: The contract act does not insist that the agreement must be in
writing, it could be oral. But, in some cases the law strictly insist that the
agreement must be in writing like agreement to sell immovable property must be in
writing and should be registered under the Transfer of Property Act, 1882. These
agreement are valid only when they fulfill the formalities like writing, registration,
signing by the both the parties are completed. If these legal formalities are not
completed, it cannot be treated as a valid contract.

Most important essentials of a valid contract are mentioned above. These elements
should be present in a contract to make it a valid contract. If any one of them is
missing we cannot treat that agreement as a valid contract.

Sec. 3. Kinds Of Contracts

The broadest division of contracts is into formal and simple contracts. From other
standpoints divisions may be made in order to furnish a terminology indicating the
condition, state, and evidence of the contract.

We will make a classification of contracts at this time in order to get before us a

general view of the subject, and to define in part the terminology hereafter to be
used. To one who is just entering upon the study of the law of contracts, these
terms seem strange and have little significance; yet they should receive careful
consideration at this point for the purposes mentioned. Their discussion will follow
in appropriate place throughout the text.

We may classify or divide contracts as follows:

(1) A classification of contracts in respect to their validity as derived from form or

consideration.
a. Formal contracts, whose distinctive element of validity is form.

1. Contracts of record; a. Judgments.

b. Recognizances.

2. Contracts under seal, or specialties.

b. Simple contracts, whose distinctive element of validity is consideration.

1. Written, but not under seal;

2. Oral contracts;

3. Implied contracts.

(2) A classification in respect to the manner or form of their expression.

a. Express contracts.

1. Formal contracts.

2. Contracts in writing, but not under seal.

3. * Oral contracts.

b. Implied contracts.

(3) A classification indicating state of performance.

a. Executory contracts.

1. Contracts in which one party performs an act for the promise of the other party
thereafter to perform an act (executory on one side, called also unilateral).

2. Contracts consisting in their inception of promise for promise (executory on

both sides, also called bilateral).

b. Executed contracts; or contracts which have been fully performed. It will be

noted that a judgment is classed as a contract. But this is really a fiction, and we
need not further consider it here.1
Example 1. John Doe enters into a written agreement with Richard Roe whereby
John Doe undertakes to sell and Richard Roe to buy a farm for $20,000.00 upon
terms stated. We have in this example a contract which is:

A. Bilateral;

B. Simple;

C. Express;

D. In writing.

If the contract above had the seals of the parties attached to their signatures, it
would be a contract under seal instead of a simple contract.

Example 2. John Doe orders groceries from Richard Roe's store saying nothing
about paying for them and Roe promises to send them over. We have in this
example a contract which is:

A. Bilateral;

B. Simple;

C. Implied as to Doe's promise to pay;

D. Express as to Roe's promise to deliver.

Example 3. John Doe offers a public reward to anyone who will procure certain
information for him. Richard Roe furnishes the information. Here we have an
example of a contract which is accepted by the act as well as thereby performed. It
is a unilateral simple contract. All contracts are two sided and in that sense
bilateral, but the word unilateral signifies a contract in which one side only is
executory.

1. "It is an obligation of this character which is unfortunately styled a contract of

record in English law. The phrase is unfortunate because it suggests that an
obligation springs from agreement, which is really imposed on the parties ab
extra." Anson, Contracts, Knowlton's Am. Ed., p. 7.