What are the essentials of a valid contract?
A valid contract is an agreement the law can enforce. Section 10 of the Indian Contract Act, 1872, requires free consent, parties who are competent to contract, a lawful consideration, and a lawful object.
What is an agreement?
Section 2(e) says an agreement is every promise, and every set of promises, forming the consideration for each other. One person makes an offer. The other person accepts it. Section 2(h) says an agreement enforceable by law is a contract. An agreement that the law will not enforce is void. A firm is itself created by agreement, which is set out on the partnership page.
What does section 10 require?
The parties must be competent. Section 11 says a person is competent who is of the age of majority, of sound mind, and not disqualified by a law. Consent must be free. Section 14 says consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake. The consideration and the object must be lawful. Section 23 says they are not lawful when they are forbidden by law, or when they defeat the provisions of any law, or when they are fraudulent, or when they involve injury to the person or property of another, or when the court regards them as immoral or opposed to public policy.
Is consideration always required?
Section 25 says an agreement without consideration is void. Three promises are saved. A written and registered agreement made out of natural love and affection between parties standing in a near relation is saved. A promise to compensate a person who has already voluntarily done something for the promisor is saved. A written promise to pay a debt that a limitation law has barred is saved. A commercial deal does not fall into those three cases, so it needs consideration.
Which headings are only drafting?
The names and addresses of the parties, the scope of work, termination, confidentiality, and indemnity are headings a commercial contract usually contains. The Act does not list them as the tests of validity. A document can carry every one of those headings and still fail section 10. The contract is tested when the parties disagree, so the consideration and the object need to be stated in words a reader can apply.
Frequently asked questions
Four questions cover a signature, a family promise, a confidentiality clause, and a gift.
Is a signed document always a contract?
No. A signature does not cure a missing consent, an incompetent party, an unlawful object, or a want of consideration outside the exceptions in section 25.
Is a family promise a contract?
Not when the promise was made as a social or domestic arrangement, with no intention that a court would enforce it.
Does a confidentiality clause make the contract valid?
No. Confidentiality, indemnity, scope, and termination are usual commercial headings. They are not the tests in section 10.
Can an agreement without consideration survive?
Only in the cases section 25 saves: a written and registered promise out of natural love and affection, a promise to compensate a past voluntary act, or a written promise to pay a time-barred debt.
Sources
The tests are in the Indian Contract Act, 1872. Section 2 defines an agreement and a contract. Section 10 states when an agreement is a contract. Section 25 states when a promise without consideration is void.