The Basic Requirements To Form A Valid Contract

What are the requirements for a contractual agreement to be valid? In today’s article, we will briefly share just that.

There must be an “offer” by the offeror

Section 2(a) of the Contracts Act refers to the term “offer” as a proposal. Regardless, an offer is a term used to signify party A (an offeror) willingness/ intention to perform a certain obligation or to abstain from performing a certain act in exchange for something in return from party B (the offeree). Simply put, an offer is the willingness of the offeror to enter into a legally binding contract with the offeree, and is also the first step in creating a legally binding contract between both parties. 

The offer must be communicated to the offeree and the offeree must know of it before the law will consider the offer as a valid offer.

There must be an “acceptance” of the offer by the offeree

Acceptance, as the name suggests, is when the offeree agrees to what was offered by the offeror. In this regard:

1. The acceptance must be absolute and unqualified (essentially, let your yes be yes and no be no);
2. It must be communicated to the offeror, either via writing, orally or by conduct i.e. the offeror must be aware of the fact that the offeree has accepted the offer (silence does not amount to acceptance!). The only exception is when the acceptance was communicated via mail (provided that it was agreed by both parties beforehand that the method of communication is via mail)- in such a scenario, the acceptance was deemed to be communicated once the mail is posted. 

The offer was not terminated/ revoked by the offeror

When can the offeror revoke/ terminate his offer?

1. When the offer is rejected (such as the act of counter-offering) by the other offeree;
2. When the offer was not accepted by the offeree within the time stipulated in the offer; or if no time is prescribed, by the lapse of a reasonable time. What is a reasonable time is dependent on the facts and circumstances of each case.
3. When the offer was not accepted in the manner prescribed by the offer.
4. Where the offeree fails to fulfill the condition precedent that comes with accepting the offer.
5. When the offeror dies/ suffers from a mental disorder.
6. When the offer was communicated to the offeree before the offeree accepted the offer.

Both parties have provided “consideration”

If an offer is a term used to signify an offeror willingness/ intention to perform a certain obligation or to abstain from performing a certain act in exchange for something in return from the offeree, a consideration is therefore the “something” that is mentioned beforehand that offerees is giving/ exchanging for the offeror’s offer. It could be in monetary form, an act, or an abstention from doing an act.

In this regard, a consideration:

1. Need not be adequate. However, a: the inadequacy of the consideration may be taken into account by the court in determining whether the consent of the parties is obtained freely in entering the contract, and b: if the consideration is so grossly inadequate and there is fraud or undue advantage taken by one party, the parties will not be allowed to enforce the contract.
2. Can be provided for by a third party.
3. Past consideration (i.e. consideration that was given before the offer was accepted) can be considered a valid consideration as well, provided that the consideration was given at the desire of the offeror. 
4. A Consideration based on the premise of natural love and affection is considered a valid consideration if:
   1. It is express in writing;
   2. It is registered (as and when required by law);
   3. The parties are in a close relationship with each other (usually applies to family members).
5. If the offeror accepts some other consideration other than what was originally promised, he cannot then turn around and sue the offeree for not performing the original consideration.

Both parties entered the contract on their own free will

If one party to the contract came in with their arms twisted by the other party (caused by coercion, undue influence, fraud, misrepresentation), the innocent party or the party whose arms are twisted will have the option to either continue with the contract, or to rescind it i.e. putting the parties back into their original position, as if they have never entered into the contract. The only exception to this is when the parties entered into the contract by mistake.  We will discuss this in another article.

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