Contract and its essential elements under the Indian Contract Act

publishing-contractA contract is a voluntary arrangement between two or more parties that is enforceable at law as a binding legal agreement.

As per Halsbury’s Laws of England, “A Contract is an agreement made between two or more persons which is intended to be enforceable at law, and is constituted by the acceptance by one party of an offer made to him by the other party to do or to abstain from doing some act”.

The word ‘contract’ has been defined under section 2(h) of the Indian Contract Act, 1872 as an agreement enforceable by law.

So, a contract is a written or expressed agreement between two parties to provide a product or service. There are essentially six elements of a contract that make it a legal and binding document. In order for a contract to be enforceable, it must contain:

  1. An offer that specifically details exactly what will be provided
  2. Acceptance, which is the agreement by the other party to the offer presented
  3. Consideration, money or something of interest being exchanged between the parties
  4. Capacity of the parties in terms of age and mental ability
  5. The intent of both parties to carry out their promise
  6. Legally enforceable terms and conditions, also called object of the contract

Essential elements of a valid contract

The essential elements of a valid contract are provided under section 10 of the Indian Contract Act. They are as:

Agreement (Offer and Acceptance) – There must be a “lawful offer” and “lawful acceptance” thus resulting in an agreement. The parties must have agreed to the subject-matter in the same sense.

Legal purpose – There must be an intention among the parties that the agreement should be attended to by legal consequences and create legal obligation. Agreements of social or domestic nature do not contemplate legal relations.

Lawful Consideration – Consideration means ‘something in return’. An agreement is legally capable to be enforced only when each of the parties to it gives something and gets something. The consideration should not be unlawful, illegal, immoral or opposed to public policy.

Capacity to contract – Every person who enters into a contract must be competent. In other words, the person should be of the age of majority, should have a sound mind, and must not be disqualified from any law to which they subject.

Consent to contract (Consensus ad idem) – All the parties must have agreed upon the subject matter of the agreement in the same sense. The agreement must not be induced by coercion, fraud misinterpretation or mistake.

Lawful object – The object of the contract must always be lawful otherwise it will be void.

Not expressly declared void – The agreement must not have been expressly declared to be void under the Act. Examples of such agreements are restraint of trade, marriage, legal proceedings and wagering agreements. Such kinds of agreements are not enforceable by law.

Legal formalities – A contract may be oral or in writing according to the Indian Contract Act. In certain special cases the agreement must be in written. In some cases like contracts by companies, selling or buying of shares etc., the contract must be registered.

 

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