What would come to your mind if we talk about Contracts and agreements? Almost all our activities that involve mutual cooperation or sometimes unilateral act can be brought under the purview of contracts. But what is the relation that is being shared between parties will decide the nature of the contract. When it comes to Parents and children, there are legal relations and legal duties which are binding on both parties. There are plenty of such relations that would arise out of contractual agreements. But what is the reason behind two legal persons or natural persons, for that matter, entering into a contract? Whether only parties are enough to make a contract or is there anything that is required to enforce the contract? This article will look into what a contract is as per the legal terms and are essentials of such a contract.
What constitutes a contract?
A contract does not come in one flow. The process of the formation of a contract is like the merging of all rivers to form a sea. It has to have all those essentials to become an absolute contract, failing of which would result in the failure of the contract. Indian Contract act of 1872 is the law that governs contracts in India. This is basically a consolidating act, which means that the provisions of this act shall not affect any other contracts in India unless there is an express provision stating the contrary. In other words, if any provision in this act expressly makes any kind of contract invalid, then such will be invalidated after this enactment.
In order to know how basically a contract is formed, it is important to know certain other things, which collectively make a contract. This has been provided under section 2 of the Indian Contract act, 1872. As per section 2, firstly, there should be a proposal that has to be made by one of the parties to another party. Once the other party knows this proposal and if he or she accepts the same, then it becomes a promise. After this promise, there should be a consideration that has to be accepted between the parties, after which the promise along with consideration would become the agreement. In legal terms, agreements and contracts are not the same. In other words, all contracts are agreements in essence, but not all agreements are contracts. So, what should constitute an agreement to a contract? As per section 2(h), when an agreement is enforced by law, then such would become a contract, which is legally accepted in the eyes of the law. On the other hand, it is clear that any agreement which is not enforceable by law because of its illegal character or any other prohibitions shall not be considered as a contract as per law, and it shall lead to a void contract.
Essential ingredients of contract:
Having seen how a promise gets transformed from a mere promise and agreement to a legally enforceable contract, it is important to know that there are a few important elements that will ensure the contract is legally binding and enforceable in law. In order to know that, section 10 of the Indian contract act should be looked into. It deals with what agreements shall be a contract and states as follows.
“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents”.
From the above section, we can derive to a conclusion the following elements are essential for a valid contract. They are,
- Competent parties,
- Free consent from those parties,
- Presence of lawful consideration,
- The object of agreement is legal,
- Not expressly declared to be void.
Let us look at each element briefly as follows.
- Competent parties
Section 11 of the Indian Contract act, 1872 speaks about the competency of parties entering into a contract. It states that every person who is a major as per the Indian Majority Act (which deals with the age of majority) and who is of sound mind and if that person is not disqualified by any other law of the land, then that person shall be competent to form a contract. An interesting decision that the execution of the contract was held to be not valid if it is done for the benefit of a minor during her minority in the case of Mathai Mathai in 2014.
- Free consent of parties:
Section 14 of the act of 1872 defines what consent is. It is one that is said to be free and not caused by coercion, undue influence, fraud or misappropriation, or even any mistake. This section once again reaffirms the conditions mentioned under section 10 of the act, 1872. If the consent is not free, then the same shall be held to be void or voidable at the option of one of the parties.
- Lawful consideration
Section 2(d) of the contract act speaks about consideration, which is lawful. It defines that when there is an act done or abstained from doing at the desire of the promisor or promisee or any other person, then such would be a consideration for the contract. In the John Tinsen case, the court held that shares sold at a price that is not considered to be valid or minimum nor has no value, and then such should not be a valid consideration in the eyes of the law.
- The object is legal:
Another important element of the contract is the lawfulness of the object and purpose for which it is entered into by the parties. An agreement that is enforceable by law is the contract, and if the agreement is illegal or contrary to any law, then such contract with such object shall not be considered as legal.
- Not expressly void:
Lastly, the contract which is formed should not be a void contract while forming the same. This will again invalidate the contract. If the document is said to have been forged and fabricated, then such will be a void at the beginning of the contract itself.
These are the five main essential elements of a contract as per the Indian Contract act of 1872, and they form the basis for all contracts and agreements entered under all other laws and transactions, etc.
