BUSINESS

LAW
ASSIGNMENT

Q1. Explain the essentials of a valid

contract
with the help of relevant case law
and
examples.
Ans. ESSENTIALS OF A VALID
CONTRACT:According to Sec.10 of INDIAN CONTRACT
ACT, 1872, All agreements are contracts
if they are made by free consent of the
parties, competent to contract, for a
lawful consideration and with a lawful
object, and not hereby expressly declared
by void.
Therefore, a contract must have the
following essential elements:

1. OFFER AND ITS ACCEPTANCE-

Offer must be definite and it should be

accepted unconditionally. It must be
communicated to the person making
the offer.

2. INTENTION TO CREAT LEGAL

RELATIONSHIP-

An agreement should be entered with

an intention to create legal

relationship or obligation. The

agreement should not be social or
religious otherwise it will not create a
legal relationship and will become a
contract.
For example- A invites B to see a
movie together. If B does not reach the
picture hall, A cannot go to the court
to recover his loss i.e. cost of ticket or
scooter charges etc.

3. LAWFUL CONSIDERATION-

An agreement must be supported by

consideration. Consideration means
something in return. Consideration
may be cash or kind.

4. CAPACITY TO CONTRACT-

According to Sec. 11 every person is

competent to contract who is; a major,
of a sound mind and disqualified by
law to enter into contract. It means
that a person entering a contract
should be able to understand a
contract and form a rational
judgement.

5. FREE CONSENT-

Consent means that two persons have

agreed upon the same thing in the
same sense. Consent should not be

obtained by coercion, fraud or undue

influence.
For example- If at knife- point A asks B
to sell his watch, then Bs consent is
not free.

6. LAWFUL OBJECT-

An agreement should be made for a

lawful object. The object of the
agreement should not be fraudulent,
unlawful, immoral or opposed to public
policy.

7. NOT EXPRESSLY DECLARED VOID-

It is corollary of the above rule, i.e.

lawful object. There are large numbers
of agreements which the law has
expressly declared void as these
agreements are not in public interest.
For example- Wagering agreements,
agreements in restraint of trade,
agreements in restraint of marriage,
etc. are not enforceable.

8. POSSIBILITY OF PERFORMANCE-

An agreement must be capable of

performance.
Therefore, an agreement to do an act
impossible
in itself cannot be enforced as it
cannot be
performed.
For example- A agrees to pay Rs. 500
To B provided B runs at a speed of
1000
kilometres per hour. It is impossible
hence, the
Agreement is void.

9. LEGAL FORMALITIES-

Both oral and written agreements are

equally
enforceable. However, where law
specifically
requires an agreement to be in writing
or
registered or attested, then in such a
case the
agreement must be so,
otherwise it shall not be enforceable.

CASE LAWS:
1. ROSE & FRANK CO. V. CROMPTON
BROS. 1925 A.C. 445-

There was an agreement between R

Company and C Company by means of

which the former was appointed as the

agent of the latter. One clause in the
agreement was, This agreement is not
entered into as a formal jurisdiction in the
law courts. Held there was no contract as
there was no intention to create legal
relations.

2. BALFOUR V. BALFOUR K.B. 571-

A promised to pay his wife 30 every month

as a household allowance. Later, the
husband failed to pay the amount. Held, the
wife could not claim as there was no
intention to create legal obligations.