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Essential Elements of a Contract

Learn about the essential elements of a contract, including agreement, intention to create legal relationship, lawful consideration, capacity of parties, free and genuine consent, and enforceability by law.

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Essential Elements of a Contract

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  1. Contract And It’s Essential Elements Prof. Sunil Ikharkar

  2. What is Contract ? • An agreement enforceable by law is a contract [Section 2 (h)] • An agreement, the object of which is to create an obligation is a contract. When an agreement compels another to do something, or not to do something, it is a Contract

  3. What is Contract ? • Contract = Agreement + Enforceability • It is a combination of agreement and enforceability • The test to distinguish between an agreement & contract is • “whether it is enforceable by law”

  4. What is Contract ? • “A contract is an agreement enforceable by law, made between two or more person by which rights are acquired by one or more to the acts done or forborne on the part of the other or others. It is that form of agreement which directly contemplates and create an obligation” • An agreement is a wider concept than a contract • An agreement which is enforceable by law is a contract • Every promise and every set of promises, forming the consideration for each other, is an agreement

  5. What is Contract ? • An agreement in order to become contract must give rise to legal obligation • It is therefore rightly said that • “ Every contract is an agreement but every agreement is not necessarily a contract ”

  6. Essential elements of a Contract • Agreement • Intention to create legal relationship • Lawful Consideration • Capacity of parties • Free and genuine consent • An agreement must not be expressly declared to be void Research Design: Prof. Sunil Ikharkar

  7. Essential elements of a Contract • Writing and registration • Certainty • Possibility of performance • Enforceable by law

  8. Agreement • Agreement = Offer + Acceptance • Two or more persons i.e. offeror and offeree • Consensus-ad-idem

  9. Intention to create legal relationship • NO legal relation- No Contract • Agreements of social or domestic nature are not contracts as it do not create legal relationship • Balfour Vs Balfore (husband & wife) • Rose and Frand Co. Vs Crompton Brothers Research Design: Prof. Sunil Ikharkar

  10. Lawful Consideration • An agreement in order to be enforceable by law must be supported by the consideration (something in lie of) by both the parties • Consideration need not necessarily be in cash or kind, it may be an act or abstinence, promise to do or not to do something • Consideration may be past, present or future but it must be real, definite, lawful, and of some value Research Design: Prof. Sunil Ikharkar

  11. Capacity of parties • The parties to a contract must be capable to enter into a valid contract • According to section 11, every person is competent to contract if he • Is of the age of majority • Is of sound mind (lunacy, idiocy, drunkenness) and • Is not disqualified from contracting by any law to which he is subject Research Design: Prof. Sunil Ikharkar

  12. Free and genuine consent • The consent of the parties is said to be free when they agree upon the same thing in the same sense • The parties are said to have a identity of mind or agreed on the same thing in the same sense when all the terms of the consent are put in the form of an offer or proposal by one party and the other party says “YES” to it • There is absence of free consent if the agreement is induced by COERSION, UNDUE INFLUENCE, FRAUD, MISREPRESENTATION, MISTAKE etc. (section 14)

  13. An agreement must not be expressly declared to be void • Void agreements are not enforceable by law as they are opposed to public policy like • Agreements in restraint of trade • Agreements in restraint of marriage • Agreements in restraint of legal proceedings

  14. Writing and registration • Oral contracts are valid contracts, however the contract must be in writing and registered if so required by law for example • Gift, mortgage, sale, lease under the Transfer of Property Act 1882 • Memorandum and association of a company under Companies Act 1956 • No particular form of writing is required to constitute a contract, intention of the parties to enter into a contract and to give effect to it must be manifest in it in order to constitute a valid contract

  15. Certainty • The terms of the contract should be clear, the contract must not be vague • Contract which are vague cannot be enforced • Such contracts can be avoided by showing that there is ambiguity

  16. Possibility of performance • The contract must be capable of being performed • For example , a promise to share with B 50 % of treasure, if B creates the treasure by magic • Such agreements are incapable of performance and therefore void. Research Design: Prof. Sunil Ikharkar

  17. Enforceable by law • Contract in order to be valid must be enforceable by law • If it is enforceable by law it is contract otherwise it is an agreement

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