Essentials of a valid contract
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This document defines the key elements and essentials of a valid contract under Indian law. It discusses that a contract requires two parties, a definite offer and acceptance, consideration, lawful purpose and intent to create legal obligations. It provides examples of case laws that further explain these requirements like there must be intent to create legal binding agreement, consideration must be given with consent of promisor, minor's agreements are void etc. It also defines what makes a contract void or voidable like lack of free consent, illegality of purpose, failure to meet essential elements.
Essentials of a valid contract
- 1. Essentials of a valid Contract Origiin IP Solutions LLP Bangalore
- 2. Contract A contract is a legally binding agreement which recognizes and governs the rights and duties of the parties to the agreement
- 3. • Non-Disclosure Agreement • Technology Transfer Agreement • Software Development Agreement • Agreements with clients, vendors • Shareholding Agreement
- 4. Two Parties • Offer • Acceptance • Definite terms
- 5. Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd • When the goods are displayed either in a show-window or inside the shop and such goods bear price-tags • Whether that amounts to an offer to sell goods at prices mentioned on the price tags. • It was held that display of goods & price tags is just invitation to treat and if a person wants to buy, he makes an offer to buy the goods. • Shopkeeper has the right to accept or reject the same. • The contract would arise only when the offer is accepted.
- 6. Lalman Shukla v. Gauri Dutt • An offer can be accepted only after the same has come to the knowledge of the offeree. • Offer has to be communicated to the offeree in order that the offeree can accept it. • Section 4 of the Indian Contract Act states that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
- 7. • Lalman’s nephew absconded from home. • Servant was sent to search for the missing boy. • After he had left in search of the boy, the Lalman issued handbills announcing a reward of Rs. 501 to anyone who might find out the boy. • Servant who was unaware of this reward, was successful in searching the boy. • When he came to know of the reward,, he brought an action against Lalman to claim this reward. • As servant was ignorant of the offer of reward, his act of bringing the lost boy did not amount to the acceptance of the offer and therefore he was not entitled to claim the reward.
- 8. Consideration Money to be paid by one party to another one
- 9. Durga Prasad v. Baldeo It was held that it is essential that the consideration must have been given at the desire of the promisor, rather than merely voluntarily or at the instance of some third party.
- 10. Intent of legal obligations Both parties shall have intent of entering in a legal obligation.
- 11. Balfour v. Balfour • Husband who was employed on a government job in Ceylon, went to England with his wife on leave. • For health reasons the wife was unable to accompany the husband Ceylon. • The husband promised to pay £300/ month as maintenance to wife for the time she lived apart. • The husband however failed to pay the amount and was eventually sued by his wife. • In the case it was held that the husband was not liable to pay as there was no intention to create a legal relationship between the parties.
- 12. Free consent Coercion, undue influence
- 13. Competency of the parties • Age • Sound mind
- 14. Mohoribibee v Dharmodas Ghose • Any agreement or deed in which minor is party to it or is included in such contact by any way, such deed or agreement shall be declared null and void because such agreement is no agreement in the eyes of law. • But parents and guardians will be liable to repay back the amount when minor or an infant acted with the consent of the his/her parents or his/ her custodians.
- 15. Legality (i) If it is forbidden by law; (ii) If it is against the provisions of any other law; (iii) If it is fraudulent; (iv) If it damages somebody’s person or property; or (v) If it is in the opinion of court, immoral or against the public policy.
- 16. Writing Contract must be in writing
- 17. Void agreement • An agreement with no legal value. • Legally, a void agreement means the contract or agreement is no longer enforceable
- 18. Void agreement • Cannot be executed, such as a street vendor selling the Taj Mahal to a tourist • Were made without consideration • Require breaking the law • Go against current public policy • Include a party that is a minor, intoxicated, or legally insane at the time of signing
- 19. Void agreement • The contract becomes impossible to fulfill due to external circumstances • Laws change since the initial agreement, and the agreement now requires breaking the law • Fulfilling the contract will result in something unlawful • One party failed to disclose key information or provided inaccurate information
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Editor's Notes
- #5: An offer is the beginning of a contract. One party must propose an arrangement to the other, including definite terms. For example, if the proposal is an offer to purchase shirts, it must include quantity, price and a delivery date. When the offer is communicated to the other party, he has the right to accept, reject or amend the offer. If he rejects it, the offer dies. If he amends the offer, the original offer dies and his amendments become a new counteroffer that the other party can accept or reject.
- #9: Consideration is something of value that the parties are contracting to exchange. Generally, one party exchanges money for property or services, but the parties can both exchange property or services, as long as a court would find that each party's consideration has sufficient value.
- #13: Generally, the law assumes that a competent party freely consents to a contract. However, if consent was obtained on the basis of frayed, due to duress or because of the exercise of undue influence, a party's consent is considered involuntary and the contract is void.
- #14: Competence, also called legal capacity, is a party's ability to enter into a contract. The most common reason for incompetence is age. A party must be at least 18 years old to enter into a contract. If a minor signs a contract, she has the right to cancel it. Another reason for incapacity is mental illness. A person incapacitated by a disease or disability, who does not understand the terms of a contract he entered, has the right to rescind his acceptance of an offer, voiding the contract. Lastly, a person under the influence of drugs or alcohol may be considered incompetent if the other party knew or should have known that the person's impairment affected his ability to understand and freely consent to the contract.
- #16: A contract is only enforceable if the activity in the contract is legal. For example, a person cannot contract with someone to commit assault, murder or another criminal act. Additionally, contracts to split lottery winnings in states where gambling is illegal have been delayed unenforceable.
- #17: Not all contracts need to be in writing, but under the Statute of Frauds, certain contracts must be in writing in order to be enforceable. A written contract is required for all transactions involving real estate (i.e., lease or sale of a home), any promises to marry, any agreements to pay a third party's debt and any transaction in which performance cannot be completed within one year of the contract signing.