Constituents of a Valid Contract

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Constituents of a Valid Contract
Constituents of a Valid Contract. Image source: Supplied

Contract in a layman’s language means an agreement between two or more individuals to share the profits and risks arising from it. There are set rules, regulations and duties which need to be followed by each person in order to complete the purpose of the contract.

Contract can be a written or verbal and both forms are enforceable in nature. But the latter comes with some exceptions. Collateral contract law assignment consists of two major parts, offer and acceptance. Offer is the act of putting forward a proposal to do something or to restrict the other person from doing something. When the other person to whom the offer has been made accepts the same then it becomes a contract.

There are certain basic points which should be present before an offer becomes a contract. The below parts will discuss about the constituents of a valid contract:

  1. Offer and acceptance: When a person in clear terms proposes a point to another and the same is accepted then the offer and acceptance is complete. For e.g. there are two friends, A and B. A wants to sell his motorbike in Rs. 20000 and sends an email; he has made an offer to B as soon as B receives the mail the offer is complete. If B reverts back on the mail with his acceptance that he would send the money within two weeks and it is received by A, the acceptance on part of B is complete resulting to a valid contract. If A realizes that the deal is not profitable, he may at any time cancel the offer but the cancellation should be updated before the mail is received by B and same may be cancelled by B if in case he deems the offer as unprofitable and the same is communicated to A before the mail is received.
  2. Legal Purpose: The purpose of any contract must be lawful in the eyes of the law. Any contract which has been created for an illegal purpose is an invalid contract. Taking the same e.g. If A wants to sell his bike to B knowing that that the bike is a stolen one and if B knows about the fact then he may reject the offer but in case B unknowingly accepts the offer and later on the truth is revealed then the contract becomes null and void. Null and void here means the contract cannot be enforced by any of the parties.
  3. Legal Consideration: Legal purpose and legal consideration are two separate elements and they have different aims. Legal consideration means the benefit that A and B would receive by accepting the offer as mentioned in the last e.g. legal consideration for A would be the amount and for B it would be the motor bike.
  4. Certainty and Completeness: A contract needs to have a clear and complete detail about the offer and acceptance. There should not be a possibility of happening of some event in order to complete the contract. For instance If B in the above e.g. says that he would pay the amount when the market conditions are favorable then there may be uncertainty about the completeness as nobody can confirm a specific date. If the parties are clear, the terms and consideration are clear then an offer and its acceptance would be considered as certain and complete. In the above e.g there are two parties A and B, purpose is to sell a bike in lieu of a specific amount in a specific time period, so here the terms and conditions are clear and complete.
  5. Consent must be free: There should not be a burden on any of the party to make an offer or on the other to accept the offer. Both the parties to the contract should not be forced to enter into a contract. The offer and the acceptance should be made by the person out of his free will. In the above e.g. if A has been made to send the email under the influence of alcohol by any third party then the offer cannot be considered as a binding one and A. A may cancel the offer as and when he comes to know about it. A and B in the e.g. provides their consent out of free will.
  6. Capacity to contract: Parties to a contract must be capable of entering into a valid contract. Capable here means both the parties should be an adult and of sound mind which means they should have attained the age of 18 and are not under the influence of intoxication and has a healthy mind. If one of the parties is a minor and the fact has not been disclosed then it will be an invalid contract or if one of the parties is suffering from dementia. A minor can form a contract through a legal guardian. In the e.g of A and B, both parties are adult so they can enter into a valid contract.
  7. Probability of performance: If an agreement depends upon the happening or not happening of an event then there is a possibility that the agreement may be incomplete. For e.g. as stated before if B has put a condition to pay back the amount when the market conditions are favorable then there is no certainty when exactly the condition would be favorable. There is also a possibility that A would consider a market favorable but the same is not considered by B. When B has stated that he would payback within two weeks so it is clear that A would receive the payment within 2 weeks and the question of probability does not arise.

If a party or an organizations wants to enter into a contract with another both needs to have a clear idea about its terms and conditions. All the constituents stated above needs to be present and in the absence of anyone of it, lead to invalidity of the contract which cannot be questioned.  The parties cannot approach the court to obligate any of the party in order to complete the contract.

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