Let us first understand what does a contract mean? A contract is written agreement, concerning vital fields like employment, sales, or tenancy, that is intended to be enforceable by law. We believe that the value of contract is not realised when things are hunky-dory, but the moment things go bad it is the contract that protects your interests. Hence it is important to draft a Contract/Agreement professionally so that it protects the interests of all the parties concerned. To draft a legally valid contract which protects the interests of all parties we need to first understand what are the essential elements of a Valid Contract.
1. Offer and Acceptance. In order to create a valid contract, there must be a ‘lawful offer’ by one party and ‘lawful acceptance’ of the same by the other party. Any contract has to have an offer from one party which has to be accepted by other party
2. Intention to Create Legal Relationship. This is stated in the definition of the contract. If the parties do not wish to create a Legal Relationship, there is no necessity of a contract and hence, it is not considered as a contract at all.
3. Lawful Consideration. Consideration is something which is paid by the offering party to the offered party. It may be time, money, knowledge, service etc. Without a Lawful consideration one cannot fight a case in the court.
4. Capacity of parties. The parties to an agreement must be competent to contract. If either of the parties does not have the capacity to contract, the contract is not valid. According the following persons are incompetent to contract. (a) Miners, (b) Persons of unsound mind, and (c) persons disqualified by law to which they are subject.
5. Free Consent. ‘Consent’ means the parties must have agreed upon the same thing in the same sense.
Consent is said to be free when it is not caused by-
- Undue influence
An agreement should be made by the free consent of the parties.
6. Lawful Object. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as an office for an e-Commerce company, the object of the contract is to run an e-Commerce Company.
The Object is said to be unlawful if- (a) it is forbidden by law; (b) it is of such nature that if permitted it would defeat the provision of any law; (c) it is fraudulent; (d) it involves an injury to the person or property of any other; (e) the court regards it as immoral or opposed to public policy.
7. Certainty of Meaning. Agreement the meaning of which is not Certain or capable of being made certain are void. A poorly drafted agreement which is ambiguous in nature is not legally valid.
8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable. Hence all agreements need to be physically and legally enforceable.
9. Not Declared to be void or Illegal.?The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. For example an agreement to form a cartel to curb competition is illegal in India.
10. Legal Formalities. An oral Contract is a perfectly valid contract, except in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.
Now that we have understood the essentials of a Contract, can you draft your own contract? This article like many other Do-it-Yourself templates available on internet to draft a contract is aimed at giving you some knowledge on the legalities involved in drafting a Legal contract. But facts of the every case is unique and we recommend a consultation with a trustworthy Lawyer is required. Only such a lawyer can give you proper advice on proper drafting of a legally valid contract which protects the rights of all the concerned parties.