THE LAW OF CONTRACT

ESSENTIALS OF A VALID CONTRACT

 ACKNOWLEDGEMENT
I Shishir Raj would like to
thanks my Law of Contract
teacher Ma’am Aishwarya
Pandey for giving such an
interesting topic to
makeassignment on and
providing valuable
guidelines n making of this
assignment.

I would also like to thanks

all the people who have
helped me in making of this
project.. Any suggestions
for improvement are
welcomed.

Thank You
Shishir Raj
 CONTENTS

1) Introduction

2) Essential elements of a valid contract

3) Conclusion

4) Bibliography
 INTRODUCTION
A Contract is a legally binding agreement that exists between two or more parties
to do or abstain from doing something.

According to section 2(h) of the Indian Contract Act,1872, ‘An agreement which is
enforceable by law is a Contract’.

Pollock- “Every agreement and promise enforceable by law is a contract”.

Salmond- “A contract is an agreement creating and defining obligation between

two or

or more persons by which rights are acquired by one or more to acts or

forbearance on the part of others”.

Anson- “The law of contract is that branch of law which determine the
circumstances in which a promise shall be legally binding on the person making
it’.

Now after examining the definitions of contract we can say that-

Contract = Agreement + Enforceability

Illustration- There is an agreement between A and B that A will construct a house

for B, and B will pay Rs. 10 lakhs to A.The agreement between A and B is a
contract because it is enforceable by law.
ESSENTIAL ELEMENTS OF A VALID CONTRACT

What makes a valid contract? A valid contract is enforceable by law and if a contract
is not valid it may lead to obstruction of businesses and unlawful and insincere
dealings. Let us learn about the essential features of a valid contract.

A contract that is not a valid contract will have many problems for the parties
involved. For this reason, we must be fully aware of the various elements of a valid
contract. In other words, here we shall ponder on all the ramifications of the
definition of the contract as provided by The Indian Contract Act, 1872.

The Indian Contract Act, 1872 itself defines and lists the Essentials of a Contract
either directly or through interpretation through various judgments of the Indian
judiciary. Section 10 of the contract enumerates certain points that are essential for
valid contracts like Free consent, Competency Of the parties, Lawful consideration,
etc.

ELEMENTS ARE :

1. Offer and Acceptance

2. Intention to create a Legal relationship
3. Lawful Consideration
4. Competent parties
5. Free consent
6. Lawful Object
7. Not expressly declared void
 1. Offer and Acceptance: There must be a lawful offer and acceptance for
the formation of an agreement. The adjective ‘lawful’ implies that the
offer and acceptance must satisfy the requirements of the contract act in
relation thereto. The offer or proposal is defined under section 2(a) of
the Contract Act. section 2(b) of the Act provides that when an offer is
accepted then it becomes a promise.

Case laws

Felthouse v. Bindley– Felthouse wrote to his nephew offering to buy a horse for
€30 15s on the basis that if he did not hear from his nephew, he considered that
the sale had been agreed upon. The nephew did not reply to the offer but
intended to accept the offer and informed Bindley of this intention.
Bindley had been engaged as an auctioneer to sell farming stock but was
specifically instructed not to sell the horse. Bindley accidently sold the
horse to an innocent third party. Felthouse sued Bindley for the tort of
conversion. In order to succeed in that claim, Felthouse needed to prove
that at the time of the sale the horse belonged to him. In order to succeed
in an action for conversion Felthouse needed to demonstrate that he
owned the horse at the time of the sale; to do this he needed to prove
that there was a contract between himself and his nephew for the sale of
the horse.In this case, it was held that “An offer cannot prescribe silence mode of
acceptance”.

Carlil v. Carbolic Smoke Ball Co. – In this case, a medical firm carbolic smoke ball
company advertised that any person caught influenza after using the medicine of
the company (viz. Carbolic smoke ball), for a specified period, would be 100
pounds. Mrs. C, after using the medicine (as prescribed by the company)
nevertheless caught influenza. It was held that she was entitled to recover 100
pounds because the Company’s advertisement was something more than an
invitation to transact business.
Lalman Shukla v Gauri Dutt – In this case, it was held that ‘The mere knowledge
of an offer does not imply acceptance by the offeree’.

2. Intention to create a legal relationship: There must be a clear intention

among the parties that the agreement should be attached by legal
consequences and create a legal obligation.

Agreements of a social or domestic nature do not contemplate a legal

relationship, and as such, they do not give rise to a contract.

Case Laws.

Balfour v. Balfour– This case involved a husband and wife., the husband promised
his wife that while she was in England, due to illness, he would pay her a
monthly allowance of €30 until she returned to Ceylon (now Sri Lanka).
The parties separated and later divorced. Mr Balfour failed to honour his
agreement. In this case, it was held that if an agreement is domestic in nature
then that agreement is not enforceable by law.

Jones v. Padvattan– Mrs Violet Lalgee Jones made an arrangement with her
daughter, Mrs Ruby Padavatton, under which if the daughter was to give up her
job and travel from Washington DC to England in order to study for the bar
exams, the mother would provide a monthly allowance. The daughter
acted in reliance of the promise. Jones then agreed to purchase a house
for her daughter to live in. The house was large so that extra rooms could
be let to derive an income to be used as her allowance. The daughter
married and did not complete her studies. Padavatton also kept all of the
rent from the letting of the house. Jones then sought possession of the
house. In this case, it was held that domestic agreements are presumed not to be
legally binding unless there is a clear intention.
 3. Lawful Consideration- (Quid Pro Quo)– Third essential element of the
valid contract is a consideration. The term consideration has been
defined under section 2(d) of the act.

Currie v. Misa-- Lizardi & Co. sold a number of bills of exchange to Mr. Misa,
drawn from a banking firm owned by Mr. Currie, and were to be paid on the next
day. However, Lizardi was in substantial debt to Mr. Currie’s bank and was being
pressed for payment. A few days later, upon paying in the cheque, Mr. Mirsa
learned of Lizardi’s stopped payments and outstanding debts, instructing his
bankers not to honour the cheque. The question arose as to whether the cheque
was payable, particularly as to whether the sale of an existing debt formed
sufficient consideration for a negotiable security, so as to render the creditor to
whom it was paid, Mr. Currie, a holder for the value of the cheque..Justice Lush
defined consideration “A valuable Consideration in the sense of law may consist
either in some Rights, Interest, Profit or Benefit accruing to one party or some
forbearance detriment, loss or responsibility given, suffered or undertaken by
the other’.

Section 25 of the Act declares that an agreement without the consideration is

void.

4. Competent parties: Section 11 of the act declares that who are

competent to contract. According to this section the contracting parties

Section 11 of the Act states the criteria of parties competent to

contract, which is as follows:

 Must attain the age of majority ( an agreement with a minor is void ab

initio – Mohri bibi v. Dharmodas Ghose,1903 )
 Person of sound mind-
 The person should not be disqualified by law

5. Free consent- Free consent of the parties is another essential of the

contract. Section 14 of the Act defined the term free consent as follows-
consent is said to be free when it is not caused by –

1. Coercion (S.15)– Committing any act forbidden by The Indian Penal Code
1860 or unlawful detaining of property, or threatening to commit these
acts. Chickam Amiraju v. Chickam Sheshamma – Threat to suicide
amounts to coercion

Chickam Amiraju v. Chickam Sheshamma- Chikkam Seshammas

husband and Ammiraju were brothers. Chikkam ammiraju executed a
mortgage deed in favour of his brother and obtained a certain amount of
money, later he failed to pay the amount to his brother. Due to love and
affection chikkam seshammas husband wanted to release the mortgage
in favour of his brother. Seshamma and her son did not accept this.
Chikkam seshammas husband threatened to commit suicide if they did
not listen to him. Due to such threat they executed the release mortgage
in favour of the brother. Later they claimed the said properties of their
own.
The privy council held that threat of suicide though not punishable is a
act prohibited by the IPC and therefore consent obtained by threat of
suicide comes under coercion and rendered the release deed void.

2. Undue influence (S.16)– The use by one party to the contract of his
dominant position for obtaining an unfair advantage over the other
party.
3. Fraud (S.17)– In Derry v. Peek, It was held that representation made
with reckless indifference amount to fraud.

Derry v. Peek- In the prospectus released by the defendant company, it

was stated that the company was permitted to use trams that were
powered by steam, rather than by horses. In reality, the company did
not possess such a right as this had to be approved by a Board of Trade.
Gaining the approval for such a claim from the Board was considered a
formality in such circumstances and the claim was put forward in the
prospectus with this information in mind. However, the claim of the
 company for this right was later refused by the Board. The individuals
who had purchased a stake in the business, upon reliance on the
statement, brought a claim for deceit against the defendant’s business
after it became liquidated.

4. Misrepresentation (S.18)– It means a false representation.

5. Mistake (S. 20, 21 and 22): there are two types of mistakes i.e. mistake
fact and mistake of law.
6. Lawful object – For the formation of a contract, it is also necessary that
the parties to an agreement must agree to a lawful object. The object
must not be fraudulent or illegal or immoral or against the public policy
or must not imply injury to the person or the other of the reason
mentioned above the agreement is void. if A forces B to sign a contract
for murdering C. This is not a lawful object. Hence, the contract will be
void.
7. Not expressly declared void- An agreement must not be one of those,
Which have been expressly declared to be void.

For example, agreement without consideration(S.25), agreement in restraint of

marriage(S.26), agreement in restraint of trade(S.27), agreements in restraint
judicial proceedings(S.28), an agreement by way wager(S.30) etc.
 CONCLUSION
Contracts play a very important role in the day-to-day life of every person.
Contracts or agreements between various parties are framed and validate by the
Contract Act. So for the formation of a contract, the above-given conditions must
be fulfilled by the parties.
 BIBLIOGRAPHY

www.topper.com

manupatrafast.in

lawteacher.net