essentialsofavalidcontract-130107004838-phpapp01.ppt

7/27/2019 essentialsofavalidcontract-130107004838-phpapp01.ppt

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ESSENTIALS OF A VALID

CONTRACT


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As per Section 10 of Indian Contract Act

All agreements are contracts if they are made bythe free consent of the parties, competent tocontract for a lawful consideration and with alawful object and not here by expressly declaredto be void.

As per this definition following are he essentialelements for a valid contract:


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1. PROPOSAL AND ACCEPTANCE

For the formation of a valid contract it is necessarythat one party should make the offer and the other

party should accept it, as only after the acceptancecontract will come into existence.

Proposal: As per Section 2 (a) of Indian ContractAct, when a person signifies to another hiswillingness to do or abstain from doing somethingwith a view to obtain the assent of that other to suchact or abstinence , he is said to make a proposal.


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Essential Elements of Proposal

There must be two parties

Willingness to do or not to do something

Should be a proposal, not merely an intention tomake proposal


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Legal Rules as to Proposal

The offer must be made to create legal obligation. The terms of proposal must be certain not vague.

Proposal can be general or specific. (Case: Mrs. CarlieeVs Carbolic Smoke Ball Company)

Proposal may be expressed or implied. Proposal must be in the form of a request and not an

order.

The offer must be communicated.

Proposal must be for possible act.


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Case: Mrs. Carliee Vs Carbolic Smoke Ball Company

In this case the Carbolic Smoke Ball Co gave anadvertisement in the newspaper, offering influenza afterusing their smoke ball 3 times daily for 2 weeks.

Believing on the advertisement Mrs. Carliee used the same,but contracted influenza .

Mrs. Carliee sued the company and claimed 100.

Judgment was in the favor of Mrs. Carliee.


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Acceptance

According to Section 2 (h): when the person to

whom the offer is made signifies his assent thereto,the offer is said to be accepted.


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Essentials for a Valid Acceptance

Acceptance must be made by the person to whom theoffer is made.

Acceptance must be in the prescribed manner Sec 7(2)

For example: If the offerer wants the acceptance by e-mail, then the acceptance must be given via e-mail.Similarly if any limit is fixed by the offerer foracceptance, then the acceptance must be given with inthe specified time.

Rejected offers cannot be accepted until it is renewed:It is a general rule that an offer once rejected cannot beaccepted, until not presented again.


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2. Intention to Create Legal Obligation

There must be an intention among the parties tocreate legal obligation.

If the intention of the parties is not to create legalobligation, then it will only remain an agreementand cannot be a valid contract.


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3. Competency or Contractual Capacity of the Parties

According to Section 10 of Indian Contract Act: Allthose agreements can be enforced by law, which aremade by the person having contractual capacity.

According to Section 11: Every person is competent to

contract who is of the age of majority according to thelaw of which he is subjet and who is of sound mind andis not disqualified from contracting by any law to whichhe is subject.

As per above definition, following parties areincompetent to contract: Minors Persons of unsound Mind

Persons disqualified by law to which they are subject.


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MINOR

Minor is a person who has not attained the age ofMajority according to the law of his country.

According to Section 3 of Indian MajorityAct: A minor is a person who has not completedeighteen years of age.


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Rules Regarding Contract with a Minor

An agreement with or by a minor is void and inoperativeab-initio.

Contract for Necessities of Life: As per Sec 68 of IndianContract Act, if a person enters into a contract for

necessities of life, then the person supplying suchnecessities have the right to reimburse the amount fromthe property of minor. The necessities basically includefood, clothing, rent of house, educational expenditure etc.

Minors Contract for his Benefit (can be enforced)


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Contract by parents or guardian of the minor: Ifa minors parents or guardian make a contract on the

behalf of the minor and for his benefit, then suchcontracts are treated as valid. But if they enter into acontract for the employment of a minor, then such acontract will be invalid.

Minors contracts cannot be ratified on his becomingmajor.

Minor as an Agent: According to Sec 182 of IndianContract Act, An agent is a person employed to do an

act for another or represents another in dealing with thethird party.


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Minor as a partner: As per Sec 30 of Indian

Partnership Act, A minor can be admitted as apartner, but such a partner will only share theprofit not the losses, i.e. he cannot be held liable toshare the loss.

Liability for Minor for Torts: If a minor getsindulge in a crime such as murder, then he/she canbe held liable just like adults.

Minor cannot be adjudged Insolvent: Aminor cannot be adjudged insolvent because due to

his incompetency, he cannot be declared insolvent


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Persons of Unsound Mind

According to Sec 11, Aperson of unsound mindis incompetent to contract

According to Section 12 A person is said to beof sound mind for the purpose of making a

contract, if at the time when he makes it, he iscapable of understanding it and forming arational judgment as to its effects upon hisinterests


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Types of Persons of

Unsound Mind

IDIOT LUNATIC DRUNKEN SENILEPERSON


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4. LAWFUL CONSIDERATION

Consideration means Something for Something Consideration is the price for which the promise of

other is bought and a promise given for a lawfulvalue is enforceable.

As per Section 25 of Indian Contract Act, Anagreement without consideration isvoid.


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Essential Elements of Consideration

Consideration must move at the desire of thepromisor: one of the most important elements ofconsideration is that any promise to do somethingmust be according to the desire of the promisor.

If any act is done voluntarily by the promisee suchact will not be taken as consideration.

Consideration may be a promise to do or to abstain

from doing something. (Positive nad negativeconsideration)


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Consideration must be legal: According to Sec23, For the validity of a contract it is necessarythat the consideration must be legal.

Contracts based on illegal consideration are

considered void.The consideration is not considered valid or it is

considered as unlawful if:

It is forbidden by law

It involves any injury to a person

It is against public policy


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5. LAWFUL OBJECT

An agreement can be enforceable by law only whenits objective is lawful.

If the agreement is having unlawful object, then nolegal contract arises between the parties.

According to Section 23, If the object is unlawfulfor the reasons mentioned under then theagreement shall be void:

The object of a contract is forbidden by law.If it involves injury to the person or property ofanother.

If the court regard it as immoral or opposed to

public policy.


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6. POSSIBILITY OF PERFORMANCE

An essential of a valid contract is that it must becapable of performance.

According to Section 56 of Indian Contract Act,An agreement to do an impossible act is voidab-initio.

There may be two situations, one in which theact is completely impossible and other situationmay be in which the parties are not aware of thatthe act is impossible.


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7. COMMUNICATION OF THE CONTRACT

Both the parties as per Sec 4 of Indian ContractAct, must communicate to each other about theoffer and acceptance, only then it will be

considered as a valid contract.


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8. FREE CONSENT OF PARTIES As per Sec 10 of Indian Contract Act, it is

important that the consent of the parties of acontract must be free.

According to Section 13 of Indian contract Act,

Two or more persons are said to consent whenthey agree upon the same thing in the samesense.

From the analysis of this definition it is clear

that consent is said between two parties, when:Two or more persons in a contract agree upon a

thing in a contract.

They agree upon the same thing in the samesense.


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This is also called identity of mind. In English lawit is called consensus-ad-idem.

If the parties to be contracted do not agree uponthe same thing then no contract arises at all.

According to Section 14 of Indian Contract Act,

consent is said to be free when it is not caused by:Coercion (Sec 15)

Undue Influence (Sec 16)

Fraud ( Sec 17)

Misrepresentation (Sec 18)

Mistakes (Sec 20 to 22)


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9. Agreements Expressly Declared As

Void Some agreements are expressly declared as Void from

the side of law, such agreements are void-ab-initio,such as:

Agreements made by Incompetent Parties.

Agreements made under Mutual Mistake of Facts.

Agreements with Unlawful Consideration and Object

Agreements without ConsiderationAgreements in Restraint of Marriage


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Agreements in Restraint of Trade

Exceptions:Sale of Goodwill

Restraint on Partner

In case of Separation from partnership

On sale of Goodwill of the firm Trade combinations

Agreements of Service

Agreements in Restraint of Legal Proceedings Agreements by way of wager or wagering

Agreements.

Agreements to do Impossible Acts.


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10. Legal Formalities- Written and

Registered

Contracts related to negotiable Instruments.

Contracts of lease, mortgage etc. MOA, AOA

Insurance etc

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