Essential Elements | Ingredients | Requisites of a Valid Contract

Synopsis

Essentials of a Valid Contract Under Section 10 of The Indian Contract Act

1. Agreement (Offer and Acceptance)

There must be a lawful offer by one party and a lawful acceptance by another, forming an agreement.

Section 2(a) of The Indian Contract Act defines Proposal (Offer) as:

“When one person 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, he is said to make a proposal.”

Section 2(b) of The Indian Contract Act defines Acceptance as:

“When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a Promise.”

Section 2(e) of The Indian Contract Act defines Agreement as:

“Every promise and every set of promises, forming the consideration for each other, is an agreement.”

Agreement = Offer (Proposal) + Acceptance + Consideration

Example: A offers to sell his motor-bike to B for ₹1,00,000. B accepts the offer. This forms a valid agreement.

2. Free Consent

Two or more persons are said to consent when they agree upon the same thing in the same sense (Section 13 of The Indian Contract Act).

Section 14 of The Indian Contract Act defines Free Consent as:

Consent is said to be free when it is not caused by—

(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22.

Example: A threatens to shoot B if B doesn’t sell his car to A for a very low price. B agrees. B’s consent is not free (it’s caused by coercion), and the contract is voidable at the option of B.

3. Capacity or Competent of Parties to Contract

The parties must be competent to contract. Section 11 of The Indian Contract Act defines consideration as:

“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.”

Example: A contract entered into with a Minor is void ab initio (void from the very beginning).

4. Lawful Consideration and Lawful Object

Section 23 of The Indian Contract Act defines lawful consideration and lawful object and what not:

The object of the contract must be lawful. An consideration or object is unlawful if it:

Section 2(d) of The Indian Contract Act defines consideration as:

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

Consideration is defined as the price paid by one party for the promise of the other (something in return). It must be lawful.

Example:

1) A agrees to sell his book to B for ₹500. B’s payment of ₹500 is the consideration for A’s promise to sell the book. A’s promise to sell the book is the consideration for B’s promise to pay ₹500.

2) A promises to pay B ₹10,000 to smuggle gold. The object is unlawful → the agreement is void.

5. Agreement Not Expressly Declared Void

The agreement must not be one which the Act has expressly declared to be void (Section 10). These include:

Example: A agrees not to marry throughout life. Such agreement is void under Section 26.

6. Intention to Create Legal Relations

The parties must intend that the agreement shall create legal obligations. Social or domestic agreements are not contracts.

Example: A husband promising to give money to his wife for household expenses (as in Balfour v. Balfour) is not a contract because there was no intention to create legal relations.

7. Possibility of Performance

An agreement to do an act impossible in itself is void.

Example: A agrees with B to discover treasure by magic. The agreement is void because it is impossible to perform (Section 56).

8. Certainty of Terms

The terms of the agreement must be clear, definite, and capable of being made certain. If they are vague or indefinite, the agreement is void.

Example: A agrees to sell to B “one hundred tons of oil.” There is nothing to show what kind of oil was intended. The agreement is void for uncertainty (Section 29).

Important Case Law

1. Harvey v. Facey

Facts:

Harvey sent a telegram to Facey asking: “Will you sell us Bumper Hall Pen? Telegraph lowest cash price.” Facey replied: “Lowest price is £900.” Harvey then sent a telegram: “We agree to buy Bumper Hall Pen for £900. Please send details of payment.” Facey did not respond, and Harvey sued for breach of contract, claiming that Facey’s telegram constituted an offer.

Issues:

Whether Facey’s reply stating the lowest price amounted to a valid offer, or was merely information/statement.

Analysis:

Judgment:

The court held that no contract was formed. Facey’s telegram was not an offer, only a response to a request for information. There was no binding contract, so Harvey could not enforce the sale.