All contracts are agreements but all agreements are not contracted. There are certain elements that are necessary to convert an agreement into a contract. First of all, let’s get a crystal clear understanding of the term agreement. When an offer is accepted by the other party for consideration, it forms an agreement. However, the acceptance should be free and absolute and consideration should be valid in the eyes of law. The consideration could be of rupee 1 or 1 lakh, it need not be appropriate, it should be valid only. But before understanding the essential elements of a valid contract that makes it valid, let’s get to the components that make a contract, offer/proposal, acceptance and consideration.
Sec 2(a) of the Contract act, 1872 defines proposal, in simple words, it conveys that when a person tries to know the willingness of others with a view to obtaining the assent of that other, it is called a proposal. It means when party A proposes an idea to act or abstinence, that party wants party B to be in contact with it. The idea is proposed to understand if party B is interested in it or not.
For example, A proposes to sell a house to B at a certain price. A makes an offer here.
Sec 2(b) of the Contract act of 1872 defines acceptance. It says when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Hence, after the proposal when the other party agrees to enter into a contract, acceptance is said to be completed.
For example, the proposal sent by A is sent an affirmation by B.
Sec 2(d) of the Indian contract act 1872 defines consideration. The consideration here is of three kinds, past consideration, present consideration, and future consideration.
Past consideration is available in two circumstances in India. One being, past voluntary service, and the other is past service at the request. In the case of past voluntary services, service has been rendered to one party and that party promises to pay for the past acts. In the case of past service at request, one party requests other parties to help by rendering services in this scenario the help is given with an assumption that they will be paid back. Hence, this is also enforceable.
Present consideration, here, a person is asked to perform a task in return for something of value in the eyes of law. The acts of both parties are done at present. Hence it is enforceable. The major difference between past and present consideration is that, in past consideration, the promise is made after an act is done and in present consideration, the act is done on the basis of the promise made.
Future consideration is the exchange of a promise for a promise, both acts are to be done in the future, and as soon as the promises are exchanged the contract is executed.
Now, let’s come to the definition of contracts and they’re essential.
Contracts act of 1872, section 10 defines what a contract is, and I quote,
“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.”
Essential elements of a valid contract
Consent is said to be established when two or more persons agree upon the same thing in the same sense, there should be a meeting of the minds. There are scenarios where people talk but they are not communicating as they both are referring to different things while doing so, if in any case, this type of conversation takes place between two parties to contract. Their agreement will be invalid and will never convert into a contract. There always should be free consent. Read more about Free Consent under Indian Contract Act, 1872.
COMPETENT TO CONTRACT
There are three main components in order to declare a person competent to contract. Every person is said to be competent when he attains the age of majority. This age as per the constitution is declared to be 18 years or more. The contract with the minors, i.e. below the age of 18 is considered to be void from the beginning.
The next component is that person should be of sound mind. Sound mind, here means that the person should be able to understand the consequences of his actions or his contract at the time of making a contract by agreeing on all the provisions. The person who is intermittent with the unsound mind can make a contract when he is of sound mind as at that time he is in the right bent of mind while agreeing to any contract.
The last component is that he should not be disqualified from the contract by any law to which he is subject. It means that the person should not have committed any offence which has disbarred him from making a contract with anyone.
The next step towards a valid contract is a requirement of lawful consideration. All the contracts or agreements are deemed to be valid until and,
- It is forbidden by law, or
- If allowed to exist it would make things illegal or
- Is done with the dishonest intention for any ulterior motive, or
- It injures a person or property, or
- The court declares it immoral or opposed to public policy.
If any one of these points is applicable the contract is automatically deemed void.
The provisions for the lawful object are the same as that of lawful consideration.
All the components are essential elements of a valid contract. An agreement turns into a convert major because of lawful consideration and a lawful object. Consent and competency are the other two important issues. Hence, in order to enter into a valid contract, an offer that is accepted on the basis of consideration that is lawful with a lawful object is to be executed. And in this process, the parties should be competent and enter with free consent.