Business Law: Essential Elements of a Valid contract

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2. 


Every promise and every set of promises,
forming the consideration for each other,
is an agreement. {Section 2(e)}
A person makes a proposal (Offer). When
it is accepted by other, it becomes a
promise (Acceptance). Thus, Offer +
Acceptance = Promise
Only a mutual promise forming
consideration
for
each
other
is
‘agreement’.
Thus,
Promise
+
Consideration = Agreement
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3. 

“An agreement enforceable by law” is
Contract. - Section 2(h)
There must be legal relationship.
 Agreements
of social or domestic nature are not
contracts.
 Examples:


Invitation to a Birthday party
Invitation to a Dinner etc
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4. 
The promisee is the person receiving the
promise from the promisor. The promisee is
the person who has been promised
something, as opposed to the promisor who
makes the promise to someone.
Copyright Dipak Parmar
August 21, 2009
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6. 
1. Proper offer and its acceptance
2. Lawful object
3. Agreement not expressly declared void
4. Intention to create legal relationship.
5. Free Consent
6. Capacity of parties to contract
7. Certainty of meaning.
8. Possibility of performance.
9. Lawful consideration
10. Legal formalities
Copyright Dipak Parmar
August 21, 2009
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7. ESSENTIAL OF A
VALID CONTRACT
Copyright Dipak Parmar
August 21, 2009
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8. 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.
Copyright Dipak Parmar
August 21, 2009
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9.  Agreements
which create legal relations or are capable of
creating legal relations are contracts, for example, an
invitation to a dinner does not create any legal relation
and therefore is not a contract.
 Husband
& Wife Agreements
The courts consider domestic arrangements between
husband and wife to be social agreements and not legally
enforceable: Balfour v Balfour.

10. 
When, at the desire of the promisor, the
promisee or any other person
 has
done or abstained from doing (PAST), or
 does or abstains from doing (PRESENT), or
 promises to do or to abstain from doing,
something (FUTURE),


such act or abstinence or promise is
called a consideration for the promise.
-Section 2 (d)
A promise without consideration is not
‘agreement’
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11. 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) Minors,
(b) Persons of unsound mind, and
(c) persons disqualified by law to which they
are subject.
Copyright Dipak Parmar
August 21, 2009
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12. 
Two or more persons are said to consent
when they agree upon the same thing in the
same sense. (Section 13)
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13. Consent of both parties must be free.
Consent is said to be free when it is not caused by
(1) coercion, as defined in section 15
(2) undue influence, as defined in section 16
(3) fraud, as defined in section 17
(4) misrepresentation, as defined in section 18
(5) mistake, subject to the provisions of sections
20, 21 and 22.
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14. The object for which the contract has been
entered into must not be fraudulent or
illegal or immoral or opposed to public
policies.
Copyright Dipak Parmar
August 21, 2009
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15. 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.
Copyright Dipak Parmar
August 21, 2009
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16. The terms of a contract should be clear.
In other words, the contract must not
be vague. Contracts which are vague
cannot be enforced.

17. There are Certain agreements which have
been expressly declared void by the law.
Thus an agreement made by parties should
not fall in this category.
Copyright Dipak Parmar
August 21, 2009
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18. Oral contract is a valid contact. However the
contract must be in writing and registered, if
so required by any law, for example, gift,
mortgage, sale, lease under the Transfer of
Property Act 1882, Memorandum and Articles
of Association of a Company under the Indian
Companies Act
Copyright Dipak Parmar
August 21, 2009
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