What Is A Valid Contract?
For the better functioning of all formal business relations, professionalism must be ensured. A Valid Contract is a significant way to protect your business and eliminate legal liability.
A valid contract consists of the roles, responsibilities, and expectations of all the parties that are involved in the business. A contract can only be valid when all its elements are in place. It is important for both parties to ensure all the essentials of a valid contract have complied.
Importance Of A Valid Contract
A valid contract has its set of guidelines. Only the written ones are taken seriously because a written contract can be enforced in court.
The following are the examples of some commonly used binding contracts –
- Contracts while investing in real estate
- Employment contract – Recruiting new hires
- Purchase/Sale Contract in case of Goods and Services
- Legal contract while doing business investment
Requirements Of A Valid Contract
A Valid Contract is defined as an agreement that can be enforced by law under the Contract Act, 1872. To consider a contract valid, it is essential that it can be enforced by law. All the essential elements should be there in the agreement.
Formation Of A Valid Contract:
According to The Contract Act, 1872 the basic requirement for a valid contract is ‘Agreement’ and ‘Enforceability’.
Agreement
The first and foremost requirement of a valid contract is an agreement. A statement that lists all the promises that are for the consideration of both parties is an agreement. It has the list of Dos and Don’ts of the proposal. Once the proposal made by one party is accepted by the other, it becomes a promise, and hence, the agreement becomes valid.
The following are the requirement of an agreement:
- It must be made between two people i.e the offeror and the offeree. Both these parties should be different individuals, as one cannot enter into an agreement with oneself
- Both the individuals involved in the contract must go through the agreement carefully and meticulously and understand it fully before accepting it
- For an agreement to become a contract, it must generate some sort of legal obligation via contract laws. Hence, the individuals who are in the contract can go to the court of law in case the contract is breached
Enforceability
An agreement must create a legal obligation as per the provision of contract laws. An agreement that does not create any enforceability cannot be called a valid contract.
Essentials Of A Valid Contract
The following are the key essentials of a valid contract:
Offer and Acceptance
The promisor presents the statement which is termed an offer. It enlists the terms as well as responsibilities and roles of the parties in the contract. If the contract is accepted then it ensures that the agreement is examined and acknowledged by both parties. An agreement is considered as a contract once both parties accept the terms of the agreement.
Writing and Registration:
It is essential for a contract to be in writing. Though oral contract can be valid but in case of undue influence, misrepresentation, etc it can be voidable.
Competency of involved parties:
The parties to an agreement must be competent and they must have a legal capacity to do so. A person who has an unsound mind, intoxicated or minor cannot sign the agreement or contract.
Consideration:
In the word of Pollock, “ Consideration is the price for which the promise of the another is brought.” It can be cash, kind, act. The consideration should not be unlawful, against the public policy, and immoral.
Legality:
The contract must follow the law of the land and it should not contradict the public policy. The details mentioned in the contract should abide by the Contract Law.
Mutuality
The parties between whom the contract is signed should know the terms and conditions of the contract. They should agree to the terms. The contract is void if either of the parties does not agree to the terms mentioned in the agreement or contract.
Examples of Valid Contract:
Example 1: Party A agrees to sell Rice crops to Party B. Both parties agree that Party A can cut the crops and take them, once he pays the agreed price. Every kind of movable property is good except for cash and actionable claims.
Example 2: Party A agrees to sell his land at Rampur which is 5 sq. ft. to Party B, for 1 lakh per sq. ft. He will register the land to Party B once the total amount that is promised is paid.
Conclusion
It is very essential to have all the elements in place to ensure the contract is valid. It is always advised to double-check well in advance in order to prevent oneself from getting in any trouble.
