Contract | Essentials of Valid Contract with Examples?

ESSENTIALS OF VALID CONTRACT

A valid contract is enforceable by law. In a valid contract, all the parties are legally bound to perform the contract. In order to be enforceable, an agreement must possess the essentials of a valid contract given in Section 10.

According to Section 10, "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. Where necessary, the agreement must satisfy the requirements of law regarding writing, attestation or registration." 

The essentials elements of valid contract are explained as follows: 

1. Offer and Acceptance 

An offer is a starting point for a contract. In order to form an agreement, there must be an offer by one party and an acceptance of that offer by the other party. 

Example 

C offers to sell his cycle to B for Rs. 4000. It is an offer. If B accept the offer, there is an acceptance. 

2. Legal Obligations 

The parties to an agreement must create legal obligations. It means that if one party does not fulfill his promise, he shall be liable for breach of contract. It is presumed in commercial agreements that the parties intend to create legal obligations.

Examples

a. C offers to sell his watch to B for Rs. 800. B agrees to buy. It is a contract as it creates legal obligations. 

b. A husband promised to pay his wife an allowance of $30 every month. Later, the parties separated and the husband refused to pay. The wife sued. Held, that the wife could not recover the amount as parties did not want to create legal obligations.  (Belfour vs. Belfour) 

3. Lawful Consideration 

Consideration means something in return. The agreement must be supported by lawful consideration on both sides. Consideration is the price paid by one party for the promise of the other party. An agreement is enforceable only when both the party give and receive something; the something given or received is called consideration.

Examples

a. C agrees to sell his house to B for Rs. 10 lac. Rs. 10 Lac is the consideration for C, and house is the consideration for B. 

b. C promises B to get him a government job and B promises to bribe of Rs. 1 lac. The agreement is void as the consideration is unlawful. 

c. B promises to teach C without charges. It is not a contract because for B there is no consideration. 

4. Capacity of parties 

An agreement is enforceable if it is made by parties who are competent to contract. In order to be competent to contract, it is essentials that the parties must be of the age of majority, of sound mind and not disqualified from contracting by law. An agreement with incompetent person is not a valid contract. 

Examples

a. M, a person of unsound mind, agrees to sell his house to S for Rs. 20 Lac. It is not a valid contract because M is not competent to contract. 

b. C, aged 20, promises to sell his car to B for Rs. 3 lac. It is a valid contract because C is competent to contract. 

c. A, a minor, borrows Rs. 10,000 from B and promises to return it within 6 months. It is not a valid contract as A is not competent to contract. 

5. Free Consent 

For a valid contract, it is essentials that the consent of parties must be free. Consent is free when it is not obtained by coercion, undue influence, fraud, misrepresentation or mistake. If the consent of either of the parties is not free, the agreement cannot become a contract. [Sec. 14]

Example 

a. C compels B to enter into a contract at gunpoint. It is not a valid contract as the consent of B is not free.

b. M, with free consent, promises to sell his cycle to N for Rs. 50000. It is a valid contract 

6. Lawful Object

The agreement must be made for lawful object. The object of agreement is lawful if it is not fraudulent, illegal, immoral, opposed to public policy or involves injury to the person or property of another. Every agreement with unlawful object or consideration is illegal and void. [Sec. 23] 

Example 

a. C promises to pay Rs. 5000 to B, if B beats D. The agreement is illegal as its objects is unlawful. 

b. B hires a house to use for gambling. The object of the agreement is unlawful so agreement is illegal and void. 

7. Writing and Registration 

A contract may be oral or in writing. However, if the contract is in writing, it is easy to prove in court. Where it is necessary that a particular contract must be in writing, signed, stamped, attested by witnesses and registered, it must fulfill all the requirements to become valid. 

Examples

a. X verbally promises to sell his book to Y for Rs. 200. It is a valid contract because the law does not require it to be in writing. 

b. A written agreement was made for sale of immoveable property but it was not signed by the two parties. The court held that no contract existed. (Farzand Ali vs. Khuda Bakhsh) 

8. Certainty of terms

According to Section 29, "Agreements, the meaning of which is not certain or capable of being made certain, are void." The terms of an agreement must be clear, complete and certain. If the terms are uncertain, the agreement is void. 

Examples

a. C promises to sell 20 books to B without specifying their titles. The agreement is void because the terms are not clear. 

b. O agreed to purchase a van from S. The price was to be paid over duration of 2 years. The terms of agreement were not certain about the rate of interest and mode of payment. Held, there was no contract. ( Scammel vs. Ouston) 

9. Possibility of Performance 

A valid contract must be capable of being performed. An agreement to perform an impossible act is void. If the act is legally or physically impossible to perform, the agreement cannot be enforced by law. [Sec. 56]

Example 

a. Agrees with B to discover a treasure by magic. The agreement is not enforceable by law 

b. C agrees with B to put life into B's dead brother. The agreement is void as it is impossible to perform. 

10. Not Expressly Declared Void

The agreement must not be one of those agreements which have been expressly declared to be void by the law. Section 24-30 explain certain agreements which have been expressly declared to be void, e.g. agreement in restraint of trade, agreement by way of wager. 

Example 

a. C promises to close his business if B pays him Rs. 2 Lac. It is a void agreement because it is in restraint of trade. 

b. C promises to pay Rs. 2000 to B if Pakistan wins the final of cricket world cup. The agreement is void being a wagering agreement.