NOTES

Section 10 provides "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".

The essential elements or essentials of a valid contract (or enforceable agreement) are:

1. An offer or proposal by one party and an acceptance of that offer by another party resulting in an agreement.

2. An intention to create legal relations or an intent to have legal consequence.

3. Free consent between the parties.

4. The parties to contract are legally capable of contracting.

5. The object of the contract is legal and is not opposed to public policy.

6. The agreement is supported by consideration.

7. The agreement must not have been expressly declared to be void under the Act.

8. The terms of the contract are certain.

9. The agreement is capable of being performed, i.e. it is not impossible to perform the contract.

10.Where agreement is required to be in writing under any law it must be in writing; and where both writing and registration are required by some Act or Law, the agreement must be in writing and registered.

Offer and acceptance:

There must be a “lawful offer” and a "lawful acceptance" of the offer, thus resulting in an agreement. The adjective lawful implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto.

Intention to create legal relations:

There must be an intention among the parties that the agreements should be attended by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate a contract. An agreement to dine at a friend's house is not an agreement intended to create legal relations and therefore is not a contract.

Balfour Vs Balfour, 1919, 2 KB 571.

Mr. & Mrs. Balfour who were living in Ceylon went to England. Mrs. Balfour fell ill. Mr. Balfour had to come back to Ceylon to join his duties. However he promised to pay 30 pounds per month to his wife. On his failure to pay, Mrs. Balfour sued him for the recovery of the amount. It was held that it was a domestic agreement and the husband never intended to create any legal relations out of it.

In commercial agreements an intention to create legal relations is presumed. Thus, an agreement to buy and sell goods intends to create legal relationship, and hence is a contract, provided other requisites of a valid contract are present.

Lawful consideration:

Consideration means 'something in return.' An agreement is enforceable when each of the parties to it gives something and gets something in return. If A agrees to sell his house to B for ₹ 5 lac, the consideration for A's promise is ₹ 5 Lac and B's promise is a house. Thus consideration is the price paid by one party for the promise of the other. The payment of money is a common form of consideration. But it may also consist of an act, forbearance, and a promise to do or not to do something. Consideration must be real, valuable and lawful.

Capacity of parties:

The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of law. Every person is competent to contract who is (a) of the age of majority, (b) of sound mind and (c) is not disqualified from contracting by any law. (Sec. 11)

Free consent:

The consent of the parties must be free i.e. the parties should enter into contract voluntarily and free will. Section 14 lays down that consent is not free if it is caused by (a) coercion, (b) undue influence, (c) fraud, (d) misrepresentation or (e) mistake.

Lawful object:

The object of the agreement should be lawful. It should be authorised or sanctioned by law. The object of an agreement is unlawful if it is forbidden by law or is fraudulent or is immoral or opposed to public policy. For example a "supari" contract for unlawful recovery of money or a smuggling agreement is unlawful hence unenforceable.

Agreement not expressly declared void:

The Indian Contract Act, 1872, has expressly declared certain agreements to be not enforceable at law, e.g. agreements in restraint of marriage, agreements in restraint of trade, wagering agreements etc. The parties to the agreement should ensure that their agreement do not fall in the category of these void agreements, otherwise the agreement will not be enforceable even if all the other essentials of valid contract are present.

Certainty:

The terms of the contract should be certain and definite and not vague. Section 29 says "Agreements, the meaning of which is not certain or capable of being made certain are void.” For example, A agrees to sell B "a hundred tons of oil". There is nothing whatever to show what kind of oil was intended. The agreement is not enforceable because it is vague and uncertain.

Possibility of performance:

Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that "An agreement to do an act impossible in itself is void." If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law. For example, A agrees with B to discover treasure by magic. The agreement is void due to impossibility.

Writing and registration:

According to the Indian Contract Act, a contract may be oral or in writing. An oral contract is as much enforceable as a written contract. However, if there is a provision in any law prescribing that contracts should be in writing/registered then, this formality of writing and registration should be followed.

For example, in certain special cases the Contract Act prescribes that the contract should be in writing or/and registered. Section 25 of the Contract Act requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered.

Similarly, certain other Acts also require writing or/and registration to make the agreement enforceable by law which must be complied with. Thus (i) an arbitration agreement must be in writing as per the Arbitration Act, 1996, (ii) an agreement for a sale of immovable property must be in writing and registered under the Transfer of Property Act, 1882 before they can be legally enforced, (iii) for example, contract with the Government should be in writing. Article 299, Constitution of India.