EssEntials of a Valid ContraCt:

a ComprEhEnsiVE study

PAPER NAME: BUSINESS LAWS, ETHICS & GOVERNANCE

PAPER CODE: MB-103

Name: Nidarshana Das
COLLEGE SERIAL NUMBER: 17
COLLEGE ROLL NUMBER:
UNIVERSITY ROLL NUMBER:
COLLEGE NAME: BHARATIYA VIDYA BHAVAN INSTITUTE OF MANAGEMENT SCIENCE, KOLKATA

Name: Nidarshana Das [Date] [Course title]

AT FIRST, I WOULD LIKE TO THANK DR. JHARNA DUTTA MAM OF Business Laws,
Ethics & Governance FOR HER GUIDANCE TO UNDERTAKE THIS PROJECT.
ALSO, I WOULD LIKE TO THANK DR. S. P. MOHAPATRA, PRINCIPAL SIR AND OTHER
FACULTY MEMBERS OF THE INSTITUTE FOR THEIR COOPERATION AND
SUPPORT.

AND SPECIAL THANKS TO BHARATIYA VIDYA BHAVAN INSTITUTE OF

MANAGEMENT SCIENCE, KOLKATA TO GIVE OPPORTUNITY TO STUDY M. B. A.

1
Page
S.I. No. Topics Page number
1. Introduction 3
2. Literature Review 4
3. Objectives of the studies 5-7
4. Research Methodology 8
5. Analysis and Findings 9
6. Conclusions 10

2
Page
The Indian Law relating to contracts is embodied in the Indian Contract Act, 1872. The
Indian Contract Act was enacted in 1872, and it came into force on September 1, 1872.
The Indian Contract Act, 1872 is based mainly on English Common Law which is to a
large extent made-up of judicial precedents. (There being no separate Contract Act in
England). It is the primary source of law regulating contracts in Indian law, as
subsequently amended. It determines the circumstances in which promise made by the
parties to a contract shall be legally binding on them. In the very beginning, the Act
contained 266 Sections in 11 Chapters.

However, in the year 1930, its provisions relating to the 'Sale of Goods' and in the year
1932, the provision relating to 'Partnership' were repealed from this Act on the
promulgation of separate Acts for the same.

The Indian Contract Act, 1872 as on the date contains the following provisions:

1) General principles of the law of contracts and quasi-contracts [Sections 1-75],

2) Certain special kinds of contracts, which are as follows:

i) Indemnity and Guarantee [Section 124-147],

ii) Bailment and Pledge [Section 148-181], and

iii) Agency [Sections 182 to 238].

According to Pollock, “Every agreement and promise enforceable by law is a contract”.

According to Salmond, “A contract is an agreement creating and defining obligations

between the parties”.

According to Sir William Anson, “A contract is a legally binding agreement between two
or more persons by which rights are acquired by one or more to acts or forbearances
(abstaining from doing something) on the part of the others”.
3
Page
1) Tomorrow’s Lawyers: An Introduction to Your Future by Richard Susskind
2) Learning the Law by Glanville Williams
3) Court and Their Judgments by Arun Shourie
4) Sen, A.K. & Mitra, J.K. Commercial Law: including Company law and Industrial
law. World Press.
5) Abbi, R., Bhushan, B. & Kapoor, R. N.D. Kapoor’s Elements of Mercantile Law.
Sultan Chand and Sons.
6) Pathak, Akhileshwar. Legal Aspect of Business. McGraw Hill.
7) Albuquerque, Daniel. Legal Aspect of Business: texts, jurisprudence, & cases.
Oxford University Press.
8) Das, Sujit Kumar & Roy, Pankaj Kumar. Business Regulatory Framework. Oxford
University Press.
9) Pillai, R.S.N. & Bagavathi, V. Business law. S. Chand.
10) Chakraborty, S.K. Values & Ethics for Organizations: theory & practice. Oxford
University Press.
11) Muraleedharan, K.P. & Satheesh, E.K. Fernando's Business Ethics and Corporate
Governance. Pearson Education.

4
Page
Elements of Valid Contract:
A valid contract is enforceable by law. Lack of any element prescribed under section 10
would change legal status of a contract and it may not be permitted to be enforced.
Following essential elements must co-exist in order to make a valid contract:

1) Agreement (Offer and Acceptance): To constitute a contract there must be an

agreement, and for an agreement, there must be a ‘lawful offer’ and a ‘lawful
acceptance’ of the offer. The adjective ‘lawful’ implies that the offer and acceptance
must satisfy the requirements of the Contract Act in relation thereto.

2) Intention to Create Legal Relations: There must be an intention among the

parties that the agreement should be attached by legal consequences and create
legal obligations. Agreements of a social or domestic nature do not contemplate
legal relations and as such they do not give rise to a contract. For example, an
agreement to dine at a friend’s house is not an agreement intended to create legal
relations and therefore is not a contract. Agreements between husband and Wife
also lack the intention to create legal relationship and thus do not result in
contracts.

3) Lawful Consideration: The third essential element of a valid contract is the

presence of consideration. Consideration has been defined as the price paid by
one party for the promise of the other. An agreement is legally enforceable only
when each of the parties to it gives something and gets something. The something
given or obtained is the price for the promise and is called 'consideration'.
For example, A agrees to sell his books to B for 100, B's promise to pay 100 is the
consideration for A's promise to sell his books and A's promise to sell the books is
the consideration for B's promise to pay ₹100.

4) Capacity of Parties: The parties to an agreement must be competent to contract;

otherwise, it cannot be enforced by a court of law. Section 11 of the Indian Contract
Act specifies that every person is competent to contract provided:
i) Is of the age of majority according to the law to which he is subject;

ii) Who is of sound mind; and

iii) Is not disqualified from contracting by any law to which he is subject.

5

In other words, the following persons are not competent to contract:

Page
i) A minor,

ii) A person of unsound mind (such person can enter into a contract during his lucid
intervals), and
iii) A person disqualified from contracting by any law to which he is subject.

5) Free and Genuine Consent [Section 14]: Free consent of all the parties to an
agreement is another essential element of a valid contract. 'Consent' means that
the parties must have agreed upon the same thing in the same sense [Section 13].
There is absence of 'free consent', if the agreement is induced by:

i) Coercion [Section 15],

ii) Undue influence [Section 16],

iii) Fraud [Section 17],

iv) Misrepresentation [Section 18], or

v) Mistake [Sections 20, 21, and 22].

For example, A threatened to shoot B if he (B) does not blend him 2,000 and B agreed to
it. Here, the agreement is entered into under coercion and hence voidable at the option
of B.

6) Lawful Object: For the formation of a valid contract, it is also necessary that the
parties to an agreement must agree for a lawful object. The object for which the
agreement has been entered into must not be fraudulent or illegal or immoral or
opposed to public policy or must not imply injury to the person or property of
another [Section 23]. If the object is unlawful for one or the other of the reasons
mentioned above the agreement is void. For example, when a landlord knowingly
lets a house to a prostitute to carry on prostitution, he cannot recover the rent
through a court of law.

7) Writing and Registration: According to the Indian Contract Act, a contract may
be oral or in writing. But in certain special cases it lays down that the agreement,
to be valid, must be in writing or/and registered.

For example, it requires that an agreement to pay a time-barred debt must be in writing
6

and an) agreement to make a gift for natural love and affection must be in writing and
Page
registered [Section 25]. Similarly, certain other Acts also require writing or/and registration
to make the agreement enforceable by law which must be observed.

8) Certainty: Section 29 of the Contract Act provides that “Agreements, the meaning
of which is not certain or capable of being made certain, are void”. In order to give
rise to a valid contract the terms of the agreement must not be vague or uncertain.
It must be possible to ascertain the meaning of the agreement, for otherwise, it
cannot be enforced.

9) Possibility of Performance or Doctrine of Frustration: Section 56 lays down

that “An agreement to do an act impossible in itself is void”. If the act is impossible
in itself, physically or legally, the agreement cannot be enforced at law. The
doctrine of frustration applies when, after a contract has been entered into, some
supervening event occurs that makes

10) Agreement not Declared Void or Lawful Agreement: The agreement must not
be one, which the law declares to be either illegal or void. A void agreement is one,
which is without any legal effects. Illegal agreement is an agreement expressly or
impliedly prohibited by law.

For example, Agreement in restraint of trade, marriage; legal proceedings, etc., are void
agreements. Those agreements prohibited by the Indian Penal Code, e.g., threat to
commit Murder or publishing defamatory statements or agreements, which are opposed
to public policy, are illegal in nature.

7
Page
A valid contract must meet certain essential elements, including:

 Offer: The initial proposal that outlines the terms of the contract. The offer must
demonstrate an exchange of value, which can be money or a desired action.

 Acceptance: A clear and unambiguous agreement to the terms of the offer.

 Consideration: Something of value exchanged between the parties.

 Capacity: The legal ability and competence of the parties to enter into a contract.

 Legality: The purpose and subject matter of the contract must comply with the law.

 Intention to create legal relations: Both parties must intend for the contract to have
legal consequences.

 Certainty and possibility of performance: The terms of the contract must be clear
and specific enough for the parties to understand their obligations.

 Legal formalities: Some contracts must be in writing to be enforceable.

A contract that doesn't meet these elements is not legally binding and may not be
enforced by the courts

8
Page
A valid contract must include several essential elements, including:

 Intention to create legal relations: Both parties must intend for the contract to have
legal consequences. This can be shown through formal language or inferred from
the parties' conduct.

 Offer and acceptance: A valid offer must be made by one party, and the other party
must validly accept it.

 Consideration: There must be lawful consideration.

 Capacity: The parties must have the capacity to enter into the contract.

 Certainty and possibility of performance: The contract's terms must be clear and
specific, and it must be possible to perform them.

 Legal formalities: Some contracts must be in writing to be enforceable.

 Time frame: Some contracts specify a timeframe for performance.

Other elements of a valid contract include: free consent and lawful objects.

Contracts are governed by the Indian Contract Act of 1872, which provides rules and
regulations for valid contracts and remedies for breach of contract.

9
Page
In fact, the contract is concluded in which one party makes an offer of services or goods
and the other party accepts it (acceptance). The duration of the validity of an offer
depends on how long the other party objectively needs time to examine the offer and
respond to it.

10
Page