Essential methods of a Valid Contract

According to section 10 “ All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be  void.” The analysis of the provisions of section 10 shows that a valid contract must have certain essential elements. These elements are as given below:

1. Proper offer and acceptance: There must be at least two parties – one making the offer and the other accepting it. Such offer and acceptance must be valid. An offer to be valid must fulfill certain conditions such as it must intend to create legal relations, its terms must be certain and unambiguous, it must be communicated to the person to whom it is made, etc.  An acceptance to be valid must fulfill certain conditions, such as it must be absolute and unqualified, it must be made in the prescribed manner, it must be communicated by an authorized person before the offer lapses.

2. Intention to create legal relationship: There must be an intention among the parties to create a legal relationship. In case of social or domestic agreements, the usual presumption is that the parties do not intend to create legal relationship, but in commercial or business agreements, the usual presumption is that the parties intend to create legal relationship unless otherwise agreed upon.  E.g. X invited Y to a dinner. Y accepted the invitation. It is a social agreement. It X fails to serve dinner to Y, Y cannot go to the courts of law for enforcing the agreement. Similarly, if Y fails to attend the dinner, X cannot go to the court of law for enforcing the agreement.

1. Essential elements of a valid contract: According to section 10 all agreements are contracts if they are made by free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.

a) Proper offer and acceptance: There must be at least two parties one making the offer and other accepting it. Such offer and acceptance must be valid and offered to the valid must fulfill certain conditions. Such as it must intend to create legal relationship, in terms and must be certain and unambiguous, it must be communicated to the person to whom it is made etc and acceptance to be valid must fulfill certain conditions. Such as it must be absolute. It must be made in the prescribed manner; it must be unauthorized person before the offer lapses.

b) Intention to create legal relationship: There must be an intention among the parties to create a legal relationship. In case of social or domestic agreements, the usual presumption is that the parties do not intend to create legal relationship but in commercial in business agreement, the usual presumption is that parties intend to create legal relationship unless otherwise agreed upon.

c)  Free consent: there must be a free consent of the parties to the contract. According to section 14, consent is said to be free when it is not cause by

i) Order influence ii) Fraud iii) mistake iv) misinterpretation

If the consent of the party is not free then not valid contract comes into existence.

d) Capacity of parties: The parties to an agreement must be competent to contract. According to section 11 of ICA 1872 a person is competent to contract who is of the age of majority according to the law to which he is subject and who is of a sound mind and is not disqualified from contract by any law to which he is subject.

e) Lawful consideration: Lawful consideration is that in which both have mutual consideration.

f) Lawful object: When contract include some fraud or some illegal factor then both parties cannot file a suit against each other.

g) Agreement not expressly declared void

h) Certainty of meaning: When terms and conditions are not clearly defined. Both the parties should have clarity of contract.

i) Possibility of performance: Case which is not really possible a contract cannot take place contract cannot come into existence unless until activities are not possible.

j) Legal formalities: Hand written documents, stamps or signatures etc are must for a contract. If legal formalities are not fulfill it will not be considered as a valid contract.

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Legal rules of Acceptance

i) Acceptance must be given only by the person to whom the offer is made: An offer can be accepted only by the person or persons to whom it is made and with whom it imports an intention to contract. It cannot be accepted by another person without the consent of the offer. The rule of law is if you propose to make a contract with them B can’t substitute himself for A without your consent. An offer made to a particular person can be validly accepted by him alone.

ii) Acceptance must be absolute and unqualified: In order to be effective, it must be absolute and unqualified acceptance of all the terms of the offer. Even the slightest deviation from the terms of the offer makes the acceptance. In effect a derivate acceptance is regarded as a counter offer in law. E.g. L offered to M his scooter for Rs. 4000 M accepted the offer and tendered Rs. 3900 cash down, promising to pay the balance of Rs. 100 by the evening. There is no contract, so the acceptance was not absolute and unqualified.

iii) It should be in a reasonable mode: Unless the proposal prescribes the manner in which it is to be accepted. If the offeror prescribes no mode of acceptance the acceptances must be communicated according to some usual and reasonable mode. The usual modes of communication are by spoken or written or by conduct, it is called an implied acceptance. E.g. If the offeror prescribes acceptance by telegram and the offered sends acceptance through a messenger, there is no acceptance of the offer.

iv) Acceptance must be communicated by the acceptor: for an acceptance to the made it should to be made by the offer but also be communicated by, or will the authority of offered to the offeror.

v) Acceptance must be given within a reasonable time and before the offer lapses: Acceptance must be given within the specified time limit , if any and if no time is stipulated, acceptance must be given within a  reasonable time because an coffer cannot be kept open indefinitely.

vi) Acceptance must succeed the offer: Acceptance must be given after receiving the offer. It should not precede the offer. In a company share were allotted to a person who had not applied for them subsequently he applied for shares living unaware of the previous allotment. It was held that the allotment of shares previous to the application was invalid.

vii) Rejected offer can be accepted only, if renewal: offer once rejected can’t be accepted again unless a fresh offer is made.

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Legal rules of Consideration

i) Consideration must move at the desire of the promisor: In order to constitute consideration the act or abstinence forming the consideration for the promise must be done at the desire or request of the promise. Thus an act does or services rendered voluntarily, or at the desire of the third partly, will hot amount of valid consideration so as to support a contract. The logic for this may be found in the worry and expense to which every one might be subjected, if he were obliged to pay for services which he doest not need or require.

ii) Consideration may move from promise or any other person: Consideration need not move from the promise alone but may proceed from third person. Thus as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promise or from any other person. This means that even a stranger to the consideration can be con a contract, provided he is a party to the contract. This is sometimes called as doctrine of constructive consideration.

iii) Consideration may be past, present or future: The words, has done or abstained from doing or does or has abstained from doing or promises to do or to abstained from doing or promises to do or to abstain from doing. Consideration may consist of either something done or not done in the past or done or not done in the present, or promised to be done or not done in the future.

iv) Consideration need to be adequate: It means that consideration is that it must be something to which the law attaches a value. The consideration need not to be adequate to the promise for the validity of an agreement. The law only consists on the presence of consideration and not on the adequacy of it. It leaves the people free to make there own bargains. Which has a tendency to be injurious to the public or against the public good?

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Legal rules related to offer

a) Offer must be communicated: It is true that one cannot make an offer to oneself. The offer should be communicated to the person to whom it is made. It is obvious that a promise cannot give any response to the offer unless it is communicated to him. Communication is must when there it is specific or general offer.

b) Offer may be general or specific person: Even though it is mentioned in the definition of the offer that offer must be made to a specific person but the court is the view that it can be made to a public at large. When offer is made to a specific person then only that person is duly authorized agent has a right to accept it or not. When it is made to a general public them it can be accepted by anyone.

a) Offer must be made to obtain the assent of another: An offer must be made with the motive of obtaining the assent of the other party. A mere statement of intention to make an offer is not an offered.

b) Offer should be clear and specific: It means the terms of offer should be clear, specific and not vague. If the terms are not clearly stated then even through accepted it will not create a valid contract. E.g. A said to B, I will sell you oil at a reasonable price. Since the terms are not clear, hence no contract.

c) Different from imitation to offer: An offer must be distinguished from more imitation to offer sometimes certain actions seems to be an offer but actually are not so. E.g. catalogues and price list.

d) No term the non compliance of which amount to acceptance: An offer should not contain any such term the non compliance of which amounts to acceptance  as one cannot say while making the offer that if the offer is not accepted before a certain date, it will be presumed to have been accepted. E.g. A boy proposes a girl for marriage and said if you don’t reply I assume it to be yes from your side.

e) It should not be in the form of order: An offer should be in the mode of the proposal and not order. Order is imposed on the promise while offer is first to obtain his or her willingness on the subject matter of contracted e.g. A teacher said to student you have to take coaching from me else I will fail you in exam.

f) Counter offer is the rejection of original offer: Counter offer is the rejection of the original offer. Once the counter offer is made at that very moment the original offer loses its significance.

Offer may be express or implied: i) Express offer: An offer in which terms are made clear by both the parties in written or spoken words. ii) Implied offer: It is an offer which is not directly made to the second party but it is the result of circumstances.

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Difference between void agreement and voidable contract

 

Basis of difference	Void agreement	Voidable contract
Void ab-intio	It is void from the very beginning	It is valid when made and continues to remain valid till it is repudiated by the aggrieved party.
Which essential element of contract is missing	It is void because an essential element of a valid contract is missing	It is voidable because the consent of a party is not free.
Enforceability	It cannot be enforced by any party	It continues to be enforceable if the aggrieved party does not repudiate the contract.
Right of third party	Third party does not acquire any rights.	A third party who purchases goods in good faith and for consideration before the contract is repudiated acquires good title of those goods.
Effect of lapse of reasonable time	Even on the expiry of a reasonable time, it can never become a valid contract.	On the expiry of reasonable time, it may be come a valid contract, if the aggrieved party does not repudiate the contract within reasonable time.
Damage	The question of damages does not arise.	The aggrieved party can claim damages.

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Classification of Contracts

Contracts on the basis of creation:

a)       Express contract: Express contract is one which is made by words spoken or written.  Example No. 1: X says to Y, will you buy a car for Rs. 100000? Y says to X, I am ready to buy you car for Rs. 100000. It is an express contract made rally.  Example No. 2: X writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to Y, I am ready to buy you car for Rs. 100000. It is an express contract made in writing.

b)       Implied contract:  An implied contract is one which is made otherwise than by works spoken or written. It is inferred from the conduct of a person or the circumstance of the particular case.  Example:  X, a coolie in uniform picks up the bag of Y to carry it from railway platform to the ------ without being used by Y to do so and Y allow it. In this case there is an implied offer by the coolie and an implied acceptance by the passenger. Now, there is an implied contract between the coolie and the passenger is bound to pay for the services of the coolie.

c)       Quasi or constructive contract: It is a contract in which there is no intention either side to make a contract, but the law imposes contract. In such a contract eights and obligations arise not by any agreement between the practice but by operation of law. e.g where certain  books are delivered to a wrong address the addresses is under an obligation to either pay for them or return them.



Contracts on the basis of execution:

a)         Executed contract: It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract. Example: X offer to sell his car to Y for Rs. 1 lakh, Y accepts X offer. X delivers the car to y and Y pays Rs. 1 lakh to X. it is an executed contract.

b)         Executory contract: It is a contract where both the parties to the contract have still to perform their respective obligations. Example: X offers to sell his car to y for Rs. 1 lakh. Y accepts X offer. It the car has not yet been delivered by X and the price has not yet been paid by Y, it is an Executory contract.

c)         Partly executed and partly executory contract: It is a contract where one of the parties to the contract has fulfilled his obligation and the other party has still to perform his obligation. E.g X offers to sell his car to y for Rs. 1 lakh on a credit of 1 month. Y accepts X offer. X sells the car to Y. here the contract is executed as to X and Executory as to Y.



Contracts on the basis of enforceability:

a)       Valid contract:  A contract which satisfies all the conditions prescribed by law is a valid contract. E.g. X offers to marry y. y accepts X offer. This is a valid contract.

b)       Void Contract: the term void contract is described as under section 2(j) of I.CA, 1872, A contract which cases to be enforceable by law becomes void when it ceases to be enforceable. In other words, a void contract is a contract which is valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason. E.g. X offers to marry Y, Y accepts X offer. Later on Y dies this contract was valid at the time of its formation but became void at the death of Y.

c)       Void Agreement: According to Section 2(g), an agreement not enforceable by law is said to be void. Such agreements are void- ab- initio which means that they are unenforceable right from the time they are made. E.g. in agreement with a minor or a person of unsound mind is void –ab-initio because a mino or a person of unsound mind is incompetent to contract.

d)       Voidable contract: According to section 2(i) of the Indian contract act, 1872, arrangement which is enforceable by law at the option of one or more of the parties thereon but not at the option of the other or other, is a voidable contract. In other words, A voidable contract is one which can be set aside or avoided at the option of the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a valid contract.  For e.g. a contract is treated as voidable at the option of the party whose consent has been obtained under influence or fraud or misinterpretation. E.g. X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment. Here, Y consent has been obtained by coercion and hence this contract is void able at the option of Y the aggrieved party. If Y decides to avoid the contract he will have to return Rs. 1 lakh which he had received from X. If Y does not exercise his option to repudiate the contract within a reasonable time and in the meantime Z purchases that house from X for 1 lakh in good faith. Y can not repudiate the contract.

e)       Illegal Agreement:  An illegal agreement is one the object of which is unlawful. Such an agreement cannot be enforced bylaw. Thus, illegal agreements are always void – ab- initio (i.e. void from the very beginning)e.g. X agrees to y Rs. 1 lakh Y kills Z. Y kill and claims Rs. 1 lakh. Y cannot recover from X because the agreement between X and Y is illegal and also its object is unlawful.

f)        Unenforceable contract: It is contract which is actually valid but cannot be enforced because of some technical defect (such as not in writing, under stamped). Such contracts can be enforced if the technical defect involved is removed.

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Caveat Emptor

The term caveat emptor means “let the buyer beware”. It says that buyer should buy the goods at his own risk and seller is not responsible for any defects in the goods or whether the goods are useful for buyer or not.

·          Buyer should inspect the goods for defects before buying it and it is not the duty of seller.

·          Buyer should insure himself that the goods are according to his requirement

Buyer can not hold the seller responsible and liable for the goods turn out to be defective or do not fulfill his requirements. There is no implied condition or warranty as to quality or fitness for any particular purpose.

Exceptions:

Fraud: - the principle of Caveat Emptor does not protect the seller where he makes a false representation of the goods or purposely hides the defects which could not be found on examination and sales it to the buyer.

Implied condition as to quality and fitness: - When the buyer makes known to the seller about the purpose of buying the goods and he is completely relied upon seller’s skill and judgment. Then it is responsibility of seller to give the goods according to the need of buyer.

Merchantable Quality: - When the goods are purchased by description from a seller, who deals in goods of description only and there is implied condition that goods shall be of merchantable quality. But if buyer examines the goods then there is no implied condition.

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