Essential elements of a valid contract


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Business Law: Essential Elements of a Valid contract

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Essential elements of a valid contract

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  2. 2.    Every promise and every set of promises, forming the consideration for each other, is an agreement. {Section 2(e)} A person makes a proposal (Offer). When it is accepted by other, it becomes a promise (Acceptance). Thus, Offer + Acceptance = Promise Only a mutual promise forming consideration for each other is ‘agreement’. Thus, Promise + Consideration = Agreement 2
  3. 3.   “An agreement enforceable by law” is Contract. - Section 2(h) There must be legal relationship.  Agreements of social or domestic nature are not contracts.  Examples:   Invitation to a Birthday party Invitation to a Dinner etc 3
  4. 4.  The promisee is the person receiving the promise from the promisor. The promisee is the person who has been promised something, as opposed to the promisor who makes the promise to someone. Copyright Dipak Parmar August 21, 2009 4
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  6. 6.  1.  Proper offer and its acceptance 2.  Lawful object 3.  Agreement not expressly declared void 4.  Intention to create legal relationship. 5.  Free Consent 6.  Capacity of parties to contract 7.  Certainty of meaning. 8.  Possibility of performance. 9.  Lawful consideration 10. Legal formalities Copyright Dipak Parmar August 21, 2009 6
  7. 7. ESSENTIAL OF A VALID CONTRACT Copyright Dipak Parmar August 21, 2009 7
  8. 8. In order to create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance' of the same by the other party. Copyright Dipak Parmar August 21, 2009 8
  9. 9.  Agreements which create legal relations or are capable of creating legal relations are contracts, for example, an invitation to a dinner does not create any legal relation and therefore is not a contract.  Husband & Wife Agreements The courts consider domestic arrangements between husband and wife to be social agreements and not legally enforceable: Balfour v Balfour.
  10. 10.  When, at the desire of the promisor, the promisee or any other person  has done or abstained from doing (PAST), or  does or abstains from doing (PRESENT), or  promises to do or to abstain from doing, something (FUTURE),   such act or abstinence or promise is called a consideration for the promise. -Section 2 (d) A promise without consideration is not ‘agreement’ 10
  11. 11.  CAPACITY OF PARTIES  The parties to an agreement must be competent to contract. If either of the parties does not have the capacity to contract, the contract is not valid. According the following persons are incompetent to contract. (a) Minors,           (b) Persons of unsound mind, and (c) persons disqualified by law to which they are subject. Copyright Dipak Parmar August 21, 2009 11
  12. 12.  Two or more persons are said to consent when they agree upon the same thing in the same sense. (Section 13)  12
  13. 13. Consent of both parties must be free. Consent is said to be free when it is not caused by (1) coercion, as defined in section 15 (2) undue influence, as defined in section 16 (3) fraud, as defined in section 17 (4) misrepresentation, as defined in section 18 (5) mistake, subject to the provisions of sections 20, 21 and 22. 13
  14. 14. The object for which the contract has been entered into must not be fraudulent or illegal or immoral or opposed to public policies. Copyright Dipak Parmar August 21, 2009 14
  15. 15. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable. Copyright Dipak Parmar August 21, 2009 15
  16. 16. The terms of a contract should be clear. In other words, the contract must not be vague. Contracts which are vague cannot be enforced.
  17. 17. There are Certain agreements which have been expressly declared void by the law. Thus an agreement made by parties should not fall in this category. Copyright Dipak Parmar August 21, 2009 17
  18. 18. Oral contract is a valid contact. However the contract must be in writing and registered, if so required by any law, for example, gift, mortgage, sale, lease under the Transfer of Property Act 1882, Memorandum and Articles of Association of a Company under the Indian Companies Act Copyright Dipak Parmar August 21, 2009 18
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