The word ‘Contract’ is derived from the Latin term ‘Contractum’ which means “drawn together”. According to Section 2(h) of the Indian Contract Act, "An agreement enforceable by law is a contract .Section 10 of the Indian Contract Act, 1872, says that All agreements are contracts, if they are made by the free consent.
Essentials of a Valid Contract :
Following are the essential elements of a valid Contract.
1) Two or more parties/ persons
2) Identity of Mind
4) Free Consent
6) Lawful object
7) Legal Relationship
8) Possibility of Performance
1)Two or More Parties / Persons:
To constitute a contract, there must be an offer/ proposal and acceptance. 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. When a 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. The person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”.Therefore in every contract, there must be two or more parties/persons at least two parties/persons.
2) Identity of Mind:
To constitute a valid contract there must be Identity of minds between the parties. In simple words both the parties (promisor and promisee) to the contract must have agreed about the subject in the same sense and at the same time. If there is no consensus-ad-idem ( Identity of mind) the contract is null and Void.
‘A’ has two cars BMW and Mercedes. ‘A’ offers to sell ‘BMW’ to ‘B’. But ‘B’ Accepts thinking that it is Mercedes. In this example, there is no consensus-ad-idem (identity of mind) and hence it is not enforceable.
3) Capacity / Competency of the Parties:
To constitute a valid contract, contracting parties must be competent. According to Section 11 of the Indian Contract Act, 1872 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.
That means one who is Major, Sound Mind and not disqualified is competent to enter into a contract.
4) Free Consent:
Free Consent is an essential element for formation of a contract. According to Section 10 of the Indian Contract Act, 1872, All agreements are contracts, if they are made by the free consent. Section 13 and Section 14 of the Indian Contract Act, 1872 defines 'Consent' and 'Free Consent' respectively.
Meaning and Definition of Consent:
The term Consent means "agreed to "or giving acceptance. The parties to the Contract must freely and mutually agree upon the terms of the contract in the same sense and at the same time. There cannot be any agreement unless both the parties it to agree to it. If there is no Consent, Agreement will be void ab initio for want of consent
Section 13 of the Indian Contract Act 1872 defines Consent as " Two or more person are said to consent when they agree upon the same thing in the same sense."
When is a Consent said to be free?
According to Section 10 of the Indian Contract Act, 1872, to constitute a valid contract, parties should enter into the contract with their free Consent. Consent is said to be free when it is not obtained by coercion, or undue influence or fraud or misrepresentation or mistake.
Section 14 of the said act defines 'Free Consent' as Consent is said to be free when it is not caused by -
(1) Coercion (as defined in section 15 of the Indian Contract Act 1872) or
(2) Undue Influence as defined in section 16 of the Indian Contract Act 1872) or
( See...Distinction between Coercion and Undue Influence )
(3) Fraud ( as defined in section 17 of the Indian Contract Act 1872), or
(4) Misrepresentation, as defined in section 18 of the Indian Contract Act 1872, ) or
(5) mistake, subject to the provisions of section 20,21, and 22.
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake
Section 2(i): An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;
Section 2(g): when a consent is caused by mistake, the agreement is void. A void agreement is not enforceable at the option of either party.
According to Section 2(d) of the Indian Contract Act 1872, there are three kinds of Consideration, viz Past, Present and Future Consideration. In English law consideration May be present or future, but not past.
What is Consideration?
Consideration is necessary for the one formation of a contract. It means "something return". It is the price paid for the contract. It must be Lawful.A contract without consideration is void.
Sale of Car. In a contract for a sale of a car is the consideration for one party, while the price is the consideration for the other party.
Definition of Consideration
Section 2(d) of the Indian Contract Act, 1872 defines consideration -
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.
6) Lawful object:
To constitute a valid Contract the object for which it has been entered must be lawful. According to Section 23 of the Indian Contract Act, 1872 the consideration or object 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 or is fraudulent; of involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
(a) A agrees to sell his house to B for 10,000 rupees. Here, B’s promise to pay the sum of 10,000 rupees is the consideration for A’s promise to sell the house and A’s promise to sell the house is the consideration for B’s promise to pay the 10,000 rupees. These are lawful considerations.
(b) A promises to pay B 1,000 rupees at the end of six months, if C, who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here, the promise of each party is the consideration for the promise of the other party, and they are lawful considerations.
(c) Promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is wrecked on a certain voyage. Here, A’s promise is the consideration for B’s payment, and B’s payment is the consideration for A’s promise, and these are lawful considerations.
(d) A promises to maintain B’s child, and B promises to pay A 1,000 rupees yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party. They are lawful considerations.
(e) A, B and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. The agreement is void, as its object is unlawful. (f) A promises to obtain for B an employment in the public service and B promises to pay 1,000 rupees to A. The agreement is void, as the consideration for it is unlawful.
(g) A, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as it implies a fraud by concealment, by A, on his principal.
(h) A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.
(i) A’s estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A, becomes the purchaser, and agrees to convey the estate to An upon receiving from him the price which B has paid. The agreement is void, as it renders the transaction, in effect, a purchase by the defaulter and would so defeat the object of the law.
(j) A, who is B’s mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral. (k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860).
6) Lawful Object -
To constitute a valid contract the object of the contract must be lawful. It must not be against public policy. According to Section 23 of the Indian Contract Act 1872 the object is unlawful which is-
a) Forbidden by law
b) Opposed to public policy
d) Which defeats the provision by any Law
7) Legal Relationship:
Legal Relationship between the parties is one of the essential element to constitute a valid contract. Social or domestic agreements do not give rise to create a legal relationship. Balfour Vs. Balfour is a famous case on this topic, In this case, the defendant (Husband) was a civil servant in Ceylon. When he left for England he promised to Plaintiff (Wife) to send 30 pounds per month. But subsequently he failed and Plaintiff (Wife) filed suit against him. Court held that suit is not maintainable on the ground that it does not give raise to legal consequence.
8) The possibility of Performance:
Possibility of Performance is one of the essential element to constitute a valid contract. If the performance of the Contract is impossible it is void. According to Section 56 of the Indian Contract Act to do an impossible itself void.
Example A Contract to construct a Building within 24 hours. is void.