Features of Valid Contract

Features of Valid Contract

Features of Valid Contract can be clearly known under the heads Consensus ad idem, Certainty, Free Consent, Capacity of Parties, Consideration, Legal Formalities, Lawful Object, Legal Obligations, Possibility of Performance and, Agreements not declared void.

Consensus ad idem: Consensus ad idem means identity of minds. That means there should be no difference between ways of thinking of offerer & offeree. Both of them should understand the same thing in the same way. In the absence of consensus ad idem, the contract is not valid.

·                     Example: A has two houses – one at City A and the other at City B. He wants to sell his house situated at City A. Now he is making an offer to B to sell away one of his house to which he gives his acceptance. Here A is thinking about house at City A and B has given acceptance with a view to purchase house at City B. Here is no consensus ad idem.

·                     A case on this point is Raffels Vs Wichelhaus. In this case there is a contract between A & B according to the terms of which A has to supply raw cotton to B in peerless ship. There are two ships with the same name. While entering into the contract A thinks about second peerless and B thinks about first peerless. Here court decides that their contract has no consensus ad idem & hence it is void.

Certainty: The wording used in the contract must be certain. Uncertain wording makes the Contract Void.

·                     Related case is Taylor Vs Portington. In this case there is a Contract between A and B according to which A has to modernize his house and B has to join as tenant. If the mode of modernization is satisfactory to B. Here court decides that their is no Certainty and therefore it is Void.

Free Consent: Both parties should enter into the Contract with Free Consent. There should be no physical pressure (coercion) or mental pressure (undue influence). Absence of free consent makes the Contract Voidable. A Voidable Contract may become either Valid or void depending upon intention of the suffering party.

·                     A case on this point is Ranganayakamma Vs Alwar Setty. In this case B gives a threatening to A saying that he (B) will not allow cremation of dead body of A`s husband, unless A adopts B`s sons. Here it is decided that there is no free consent from the side of A. There it is voidable, at the option of A.

Capacity of Parties: Both parties should have eligibility or qualification to enter into a Contract. Such eligibility is called Capacity of Contract. Minor insolvent person`s, lunatic persons etc have no capacity to contract.

·                     Related case is Mohiribeabee Vs Dharmades Ghosh. In this case A is a money lender and B is a minor. A Contract gets formed between them according to which B has to pledge his property with A to obtain a loan. On that occasion the minor executes a deed also saying that money lender has write off lien on the pledged property till settlement of debt. There after the minor sues to get in his property back without settling the debt. Money lender claims that he has write-off lien as per the deed. Here court decides that the deed executed by minor is void and therefore lender has no lien.

Consideration: Both parties presenting the Contract should get benefited mutually. Consideration may be in the form of cash or goods or act or abstinence. Consideration need not be adequate.

Legal Formalities: Contract may be oral or documentary. In case where it is oral, the concept of legal formalities is not applicable. If the contract is of documentary nature, all legal formalities like stamp duty etc must be properly fulfilled. If legal formalities are not satisfied the contract becomes unenforceable.

·                     Example: A and B have written their agreement on Rs. 10/- stamp where it is to be written actually on Rs. 100/- stamp. It is not Valid Contract.

Lawful Object: To attain validity object of the contract must be lawful. Un-lawful object makes the contract illegal & hence void.

·                     Example: There is a contract between X and Z according to which Z has to murder Y for a consideration of Rs. 10000/- from X. It is unlawful object.

Legal Obligations: To attain validity contract must be capable of creating legal obligations. One directional consideration leads to friendly relations and two directional consideration leads to legal relations.

·                     A case on this point is Balfour Vs Balfour. In this case A and B are husband and wife respectively. As per their contract, husband has to send money to his wife at regular intervals of time for the purpose of medical treatment. Here Court decides that there is only one directional consideration and hence their contract is not creating legal relations. So, their contract is held to be void.

Possibility of Performance: It should be possible to perform the event agreed in the contract. Impossibility makes the contract void.

·                     Example: A contract to join two parallel lines, has no possibility for performance and hence such a type of contract is void.

Agreement not declared void: Certain types of agreements are declared to be void by statues. As such agreements are harmful to society and they are named as Agreement opposed to public policy. Agreements in restraint of trade, Agreements in restraint of marriage, Agreements in restraint of personnel freedom etc come under Agreement opposed to public policy.

·                     A case of this occasion is Madhav Vs Rajkumar. In this case a contract gets formed between A and B according to which B has to stop his business and for that A has to pay Rs. 900/- to B. There-after B stops his business and A fails to pay. B Sue’s for recovery. Court decides that it is agreement in restraint of trade and hence void.

If an agreement satisfies all these features, then it becomes a contract. So All Contracts are agreements, but all agreements are not Contracts.

According to Sec. 10 of Indian Contract Act –All agreements are contracts if they are made by free consent of the parties, competent to contract, with a lawful object, for lawful consideration and are not hereby expressly declared to be void.