Essentials of a valid contract

In ancient times, we see many kingdoms coming together for their self-motives and signing treaties with each other to protect their interests and territories, etc. but since no supreme authority was there to guard the provisions written in those treaties, violations of it often resulted in a war.

Hopefully, today the condition is far better as we have different organizations at different levels to guard our interests. For example, different organs of the United Nations are there to resolve any international issues between countries, we have Judiciary in almost every country to look after the agreements between parties in case of a violation, and to resolve the issues.

Every country has some or other form of modifications in their contract laws, like Indian contract laws slightly vary from English contract laws.

The effectiveness of modern contracts is guided by various laws known as contract laws and to maintain the legality and enforceability of the contracts, they should follow the provisions and guidelines mentioned in this law. Thus, for a contract to be valid and legally enforceable by law, certain essentials are needed to be there.

The definition of a contract is mentioned in section 2 (h) of the Indian Contract Act 1872, according to which, an agreement enforceable by law is a contract. Not every agreement needs to be a contract. Only those agreements are contract which follows the norms of section 10 of the Indian Contract Act 1872.

Section 10, Indian Contract Act 1872-

Agreements that are a result of Free Consent of parties competent to contract with a lawful consideration and a lawful object are contracts.

It is telling that parties should come into the contract by their own will and not by the influence of some other person. The requirements of parties that are competent to do the contracts are further mentioned in section 11 of the Indian Contract Act, 1872. Now you must be wondering what is meant by a lawful consideration and a lawful object. To explain this let’s take an example:

You go to a grocery store and ask for a notebook. The price of the notebook is 10Rs. You paid the price and bought the notebook.

Now concerning the above example, the notebook you asked for is the object and the price you paid to the shopkeeper for the notebook i.e., 10Rs. is the consideration.

Lawful means something which is not prohibited by the law. Like in the above example, you bought a notebook and a notebook in India is not something that is prohibited to sell or declared illegal by the Indian Law i.e., it is a lawful object. Whereas if you go to buy some opium without any required permission from the government, then the object is unlawful since opium needs a license to sell and needs specific permission to use it for products. Similarly, giving the price money in return to buy something is not illegal in the eyes of law. This brings us to one of the main essentials of a valid contract i.e., consideration.

Consideration-

Lawful consideration is one of the essentials of a valid contract. If your contract is not having lawful consideration then it ceases to be valid. Further, consideration doesn't need to take the form of money only. Consideration can be anything even the efforts made by a party for the promise is considered a valid consideration in some cases. Thus, consideration can be anything, money or some property or some efforts, etc.

Consideration is defined under section 2(d) of the Indian Contract Act 1872. In easy words, according to this section, when a person who is in contract with the promisor has done something according to the desire of the promisor i.e., the man making the promise, then it is called consideration.

Now again referring to the previous example of buying a notebook, the shopkeeper was the person who offered you to buy his notebook i.e., he is the promisor. It was according to his desire that he will sell the notebook in return for its price money. And thus, by paying the price money as desired by the shopkeeper, you gave the consideration.

Taking the case of Durga Prasad v. Baldeo

In this case, a marketplace was constructed by the plaintiff on the orders of the collector. The defendant bought a shop in that market and agreed to pay the plaintiff some commission on the things he will sell. The plaintiff sued the defendant when his commission was not paid according to the contract. Building the market was a consideration in this case.

The court found that since consideration at the desire of the promisor is one the essentials to a contract but in the current case consideration was at the desire of the collector and hence defendant was not liable to pay the commission.

In the above case, the act done by a party has taken the form of consideration i.e., consideration can be anything in return for the promise but it should be at the desire of the promisor to be considered a valid one.

Going further, in section 10 it is also mentioned that parties should be competent to contract.

Parties should be competent to contract

Section 11 of the Indian Contract Act 1872, describes who is the one competent to contract. According to this, every person is competent to contract who is of the age of majority and sound mind and not disqualified by law to do contracts.

Now breaking the section into parts, we see there are three conditions for a person to be competent to contract:

1. Age of Majority

2. Sound mind

3. Not disqualified by law

Age of majority is simply the age at which the person is no more recognized as a minor/child. In India, the age of the majority is 18 years. Since, after the age of 18 years in India, a person in India is recognized as a grown-up and no more considered a child.

A person of sound mind in the law is a person who can understand what is written and can form a rational judgment according to his interests. In simple words, his state of mind should be healthy and he should be well aware of the things happening around him. The person with some kind of mental problem/diseases who does not know what is going on or having some other problems affecting his state of mind and can be influenced by someone, for example, a person who is in coma does not know what is going on and also cannot take decisions on its own as a reasonable man. Such people in the eyes of law are known as persons of unsound minds.

The third point simply means that the person making the contract should not be prohibited by the law to do so. For Example, a minor cannot do a contract i.e., he is disqualified by law to do the contract.

Now to further elucidate this concept, take the famous case of Mohori Bibee v. Dharmodas Ghose

In this case, the plaintiff was a minor when he came into the contract with the defendant. The plaintiff mortgaged his property to the defendant who was a money lender.

The court held that since an agreement with a minor is void, he can not be asked to refund the money he got as a minor while doing the contract.

A void contract means a contract that is not enforceable by the law. In layman's terms, it is not a valid contract as it lacks the essentials of a valid contract and thus, the party in such contracts cannot be asked by the law to obey the provisions of the contract.

So, parties should be competent to do the contract is also one of the main essentials of a valid contract.

Free consent

Our next essential for a valid contract is that the parties should have come into the contract by their own free will i.e., they should not be forced by someone to do the contract.

The law of contracts defines various methods, which could be used to influence a person or to force a person to gain his will and to make him sign the contract. In such a case, the contract becomes voidable and in some cases, it may also become void.

The difference between void and voidable is just that, in voidable contracts the parties can cancel the contract anytime if they find that the other party has used some wrongful methods to make them sign the contract thus, the contract becomes unenforceable. Whereas in void contracts, the contract is unenforceable by the law from the starting onwards.

The different methods mentioned under the law of Contracts in India by which the contract becomes voidable are:

1. Coercion (section 15, ICA, 1872)- It is committing or threatening to commit any act forbidden by the Indian Penal Code or unlawful detaining or threatening to detain any person or property, intending to cause any person to agree.

2. Undue influence (section 16, ICA, 1872)- In this, one of the parties in the contract is at a dominating position and he uses that position to obtain an unfair advantage over the other.

Example: In a contract between a police officer and a shopkeeper, to deliver some goods to the police officer, the position of the police officer is referred to as a dominating one because he can easily influence the will of the shopkeeper by threatening to take legal actions against him if he denies.

3. Fraud (section 17, ICA, 1872)- Any act committed by the party/his agents to deceive the other party or to induce him to sign the contract.

4. Misrepresentation (section 18, ICA, 1872)- If at the time of the contract, the facts provided by the party are not correct but that party does not have any intention to deceive the other party as they are not aware that facts they are providing are wrong. In such a case, it is said that the contract was signed based on facts that were not true i.e., facts were misrepresented to the party signing the contract.

Conclusion

As we see that contracts play an important part to protect our interests and help to provide relief if the other party refuses to carry on his part of the contract, it is very important to ensure that the contract has been drafted appropriately and does not go against the provisions of the contract law. A contract is a basis and the most important thing which can help you grant compensation and relief in case of the breach of its duties by the other party. There are many examples in which the parties were denied compensation as the contract was not valid. So, while making and carrying forward the contract, it is important to take in mind its essentials. Only those contracts are valid which are the result of the free consent of the parties competent to contract. Consent of the parties should not be the result of the wrongful methods mentioned in the law.

References

R K Bangia’s “Contract-I”, “Nature of minor’s agreement”, pg.107, Mohori Bibee v. Dharmodas Ghose.

R K Bangia’s “Contract-I”, “Consideration only at the desire of the promisor”, pg.76, Durga Prasad v. Baldeo.

Bare Act, The Indian Contract Act, 1872.