The Indian Contract Act, 1872, governs the formation and execution of contracts in India. The essential elements of a valid contract under this act are as follows:
- Offer and Acceptance: A contract begins with an offer made by one party (the offeror) to another (the offeree). The offeree must accept the offer without any modifications for the contract to be valid. Acceptance should be communicated unequivocally and must be in accordance with the prescribed mode if any.
- Intention to create legal relations: Both parties must intend to create a legally binding relationship through the contract. Generally, commercial transactions are presumed to have this intention, while social or domestic arrangements often lack this intent.
- Lawful Consideration: Consideration is something of value exchanged between the parties. It can be in the form of money, goods, services, or even a promise. The consideration must be lawful, meaning it cannot involve illegal activities or be against public policy.
- Capacity to Contract: The parties entering into the contract must have the legal capacity to do so. In India, this means that they must be at least 18 years of age, of sound mind, and not disqualified from contracting due to any other law.
- Free Consent: The parties must enter into the contract with their free and genuine consent. Consent is considered free when it is not influenced by factors such as coercion, undue influence, fraud, misrepresentation, or mistake.
- Lawful Object: The purpose of the contract must be lawful, meaning it cannot involve illegal activities or be against public policy.
- Certainty and Possibility of Performance: The terms of the contract must be clear, unambiguous, and capable of being understood. Additionally, the contract's performance must be possible; if the performance is impossible or illegal, the contract is void.
- Legal Formalities: While most contracts can be oral or written, some require specific formalities to be valid, such as being in writing, registered, or executed in the presence of witnesses. For instance, contracts involving immovable property must be in writing and registered.
- Not Expressly Declared Void: The contract must not be declared void under any provision of the Indian Contract Act or any other law. If a contract falls under any of the categories expressly declared void, it cannot be enforced in a court of law.
These elements ensure that a contract is valid, enforceable, and legally binding on both parties. If any of these elements are missing or flawed, the contract may be void, voidable, or unenforceable, depending on the nature of the deficiency.
