ESSENTIALS OF A VALID CONTRACT

ESSENTIALS OF A VALID CONTRACT

Contract law in India is governed by the Indian Contract Act, 1872(ICA) a law developed in the British Era of the Indian state. The law was formulated by the Third Law Commission set up in 1861 under Sir John Romilly. The laws being created and crafted by the British were based on the principles of English common law.

We enter into many agreements on a daily basis that may be implied or explicit. However, certain agreements that fulfill the requirement to be termed as contracts instead of mere agreements. These requirements are the essentials of a valid contract that as and when fulfilled makes a contract and binds the parties involved to the same.

The first essential of a valid contract is proposal. Section 2 (a) of the ICA refers to a proposal as “When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”. However all such attempts in order for gaining assent cannot be seen as a proposal. The exception to this is invitation to treat, this is when a person with an intention to reach a contract does not propose, however gives an invitation for a proposal. For example, goods displayed at a showroom are a mere invitation to treat and it is the willing buyer who by carrying such an item to the counter makes a proposal.

The second essential is for the parties to reach an agreement based on the proposal. Agreement in terms of Indian law is called a promise.  Section 2 (b) of the ICA defines a promise as “ When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when a accepted, becomes a promise” . This essential of a contract is fulfilled as a direct consequence of the party to whom the proposal was made accepting the same unconditionally.

The third essential is the presence of a valid consideration in real form, recognised by the law as reciprocal benefits to both parties of a contract for fulfilling their obligations under a contract. Consideration is defined in Section 2 (d) of the ICA as “  When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise” .

The last and one of the most essential is the intention to create legal relationship any agreement is only a contract if it is enforceable by the law. This issue deals with the issue of enforceability of a contract. Under this any social agreement in order to do something or anything entered without the intention for it to result in a legal relationship is not a contract. For example, a promise to meet with a friend for a movie is not a contract as it is a social agreement and too trivial for the law to adjudicate over.

Hence when all the above mentioned conditions are fulfilled, it results in a valid contract binding both the parties to their obligations in accordance to it.

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