Introduction
A contract is a formal document accepted by both parties, the promisor and the promisee, and is the foundation stone of any flourishing business. In modern times with the advancement of trade and industry, the importance of a well-documented contract that defines both parties’ rights and obligations to contracts has increased. Because of this, the significance of well-defined and systematic contract law for a country has increased. The country’s law is indispensable to smoothly carry on trade and commerce because it systematically defines the various aspects of a business transaction. But it does not mean that the contract law holds significance only for merchants and people in the business. Every citizen of a country enters into an endless number of contracts such as purchasing commodities like furniture, stationery, etc., and services such as going to the cinema. Because of these reasons, Contract Law holds indispensable significance in both the legal and the economic environment of a nation.
The Concept of Contracts under the Indian Contract Law
An agreement enforceable by law constitutes a valid contract. An agreement consists of reciprocal promises between the two parties. In the case of a contract, each party is legally bound between both parties. Under section 2(h) of the Indian Contract Act, 1872, the term contract has been defined as an agreement enforceable by law. The term agreement has been defined under section 2(e) of the Indian Contract Act, 1872 as “every promise and every set of promises forming consideration for each other becomes an agreement.” An agreement involves a promise from both sides, and when an agreement becomes enforceable under the law, a valid contract arises.
Essentials of a Valid Contract
Under the Indian Contract Act, 1872, section 10 elaborates on the essentials of a valid contract. Section 10 states that 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 expressly at this moment declared void.
The first essential element of a valid contract is the offer and subsequent acceptance to form an agreement. An offer is the manifestation of the promisor’s mind, and an offer can be both positive and negative, that is, to do or not to do something. Towards this offer, consent should be signified and communicated by an act or omission by which the promisee or the party accepting the offer intends to express their consent,
The following essential of a valid contract is the existence of lawful Consideration. Consideration can also be defined as a price for the promise. Justice Patterson gives an important definition of the concept of Consideration. According to Justice Patterson, “Consideration is something that should hold some worth and value in the eyes of the law. It may be of some benefit to the plaintiff or some detriment to the defendant.” In the case of Indian Contract Law and English Contract Law, Consideration as an essential of contract holds unavoidable significance.
The capacity/competency of the parties to a contract is the third essential of a valid contract. In the section of the Indian Contract Act, 1872, the parties must be competent to contract. The competency of the parties to a contract has been further elaborated in section 11 of the Indian Contract Act, 1872. According to section 11, the following persons are incompetent to contract: Persons of unsound mind, minors, and persons ineligible under the law to form a contract.
The fourth essential of a valid contract is the free consent of parties competent to contract. Under the Indian Contract Act, 1872, section 13 defines consent, and section 14 defines free consent. Section 13 states that when two or more people agree/settle upon the same things in the same sense, they are said to consent. This concept of agreeing upon the same things in the same sense is known as ‘consensus ad idem,’ which means meeting minds. Section 14 states that a contract is free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake.
Another essential element of a valid contract is the legality of the object. Under the Indian Contract Act, 1872, section 23 elaborates on the legality of both object and Consideration. Section 23 states that an agreement, the object of which is illegal and contrary to the law of the land, is void. Suppose the Consideration or object is against any provision of law or is immoral or opposed to public policy such as trade with the enemy during war. In that case, agreement by trafficking by the sale of pubic offices, marriage brokerage agreement, etc., then the contract is rendered void.
Another essential of a valid contract is the intention to create a legal relationship. Under Indian Contract law, it has been stated that an offer made to create a legal relationship is a necessary condition to be fulfilled to constitute a valid contract. For instance, a promise to go to the cinema or give a treat is social and is not made to create a legal relationship, and hence, they are not enforceable if breached. Sometimes the parties to the contract may mention that it is not a formal or a legal agreement, whereas the intention can be presumed from their agreement in some situations.
Types of Contracts
There are various contracts depending upon several contracts such as express and implied contracts, unilateral and bilateral contracts, aleatory contracts, fixes price contracts, etc. A unilateral promise can be accepted only by performance. For instance, in finding a lost dog, a reward is given only after finding the lost dog. A bilateral contract, on the other, is the most common form of contract where two parties agree to do or not to do something.
Unconscionable contracts are the contract which is considered skewed in favor of one party. On the other hand, adhesion contracts are a contract that is drafted by a party that has more bargaining power than the other party. Fixed-price contracts are the contracts where the buyer and the seller agree on a fixed to be paid for the project. These types of contracts are also called lump-sum contracts.
Apart from these types, there are various other forms of contract such as voidable contracts, aleatory contracts, social contracts, etc.
Conclusion
A contract is a formal document accepted by both parties, employer and employee, and is the basis of any flourishing business. Every citizen of a country enters into an endless number of contracts such as purchasing commodities like furniture, stationery, etc., and services such as going to the cinema. Because of these reasons, Contract Law holds indispensable significance in both the legal and the economic environment of a nation.
Under section 2(h) of the Indian Contract Act, 1872, the term contract has been defined as an agreement enforceable by law. The term agreement has been defined under section 2(e) of the Indian Contract Act, 1872 as “every promise and every set of promises forming consideration for each other becomes an agreement.” An agreement involves a promise from both sides, and when an agreement becomes enforceable under the law, a valid contract arises.
There are six essentials of a valid contract, namely: offer and its subsequent acceptance, the existence of a lawful consideration, the capacity of the parties to contract, free consent of parties competent to contract, free consent of parties competent to contract, the legality of the object, and the intention to create a legal relationship. In case of absence/non-fulfillment of any one of these essentials, there is no constitution of a valid contract.
