The law relating to contracts in India is contained in the Indian Contract Act, 1872. It extends to the whole of India except the State of Jammu and Kashmir from the first day of September, 1872. The Act deals with the general principles of the law of contract and some special contracts. The first six chapters of the Act deal with general principles of contracts.
Essentials of a Valid Contract
(All Contracts are Agreements but all Agreements are not Contracts). The word contract derived from the Latin term ‘contractum’ which means ‘drawn together’. Section 2(h) of the Indian Contract Act, I872, defined “A contract is an agreement enforceable by law”. “A contract is an agreement made between two or more persons who 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.” Thus- 1) A contract is an agreement made between two or more persons. 2) The agreement should be one enforceable through court of law. Thus there are two elements in a contract-
1) an agreement, and
2) Enforceability by law.
A Contract = An Agreement + Enforceability by law.
Agreement = Offer + Acceptance.
Agreement: When a person communicates to another his willingness to do or to abstain from doing anything with a view to obtaining the assent (consent) of that other, he is said to have made an offer. The person making the offer is known as the offeror. The person to whom the offer is made is called offeree.
Acceptance is an expression by the offeree of his willingness to be bound by the terms of offer. When an offer or proposal is accepted it becomes an agreement. Enforceability by Law: If the agreement is enforceable through court of law, the agreement is a contract. Only an enforceable agreement becomes contract. Section 10 of the Indian Contract Act, 1872 prescribes, “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.” (Void Contract)
1) The agreement should not be a mere social agreement or domestic agreement. Illustration:
(i) A invited his friend B to come and solemnise his marriage. B accepted the invitation, but he could not go to A’s place as agreed. A cannot enforce the agreement because the agreement is only a social agreement. (ii) A’s husband promised her Rs. 100/- as pocket money on every month. Later he refused to pay. Since, it is only a domestic arrangement; the wife cannot recover the money. (Balfour v. Balfour)
2) There should have been intention to create legal obligation. Illustration:
A offered to sell his van to B for Rs. 50,000/- B accepted the proposal and paid Rs. 25,000/-as advance. Here, when A made the proposal and B accepted it, there was intention to create legal obligation on the part of both the A and B. This is an enforceable agreement and thus a contract. (Balfour v. Balfour)
3) There must be consensus ad idem: Consensus ad idem means identity of minds. The parties to a contract must have agreed about the subject matter of the contract in the same sense, at the same time. Without consensus ad idem (identity of minds), there is no enforceable contract. 4) The consent of the parties must be free: If the consent of the parties is not free, the agreement is not enforceable. Consent must be obtained coercion, undue influence, fraud, misrepresentation or mistake. 5) There should be lawful consideration: Consideration means ‘something in return’. The agreement is legally enforceable only were both the parties give something and get something in return. But it must be real and lawful. 6) The parties to the agreement should have Competent to contract (Section l0): Competent means if he a) has attained the age of majority, b) is of sound mind, and
c) he is not disqualified from...