Sunday, July 31, 2011

Essential characteristics of a valid contract

Essential characteristics of a valid contract:
1. Offer and acceptance – two parties, one making the offer and other accepting it – offer must be definite – acceptance must be absolute and unconditional – acceptance must be communicated to the offeror.
2. Intention to create legal relationship – intention of parties to the agreement to create legal relationship must – no such intention, no contract – social or domestic agreements do not contemplate legal relationship, as such no contract.
Balfour v Balfour – husband promises to pay household allowance to wife – separated – wife sues for allowance – domestic agreement – no contract.
3. Lawful consideration - both parties give and get something in return – no consideration, no contract - consideration may be past, present or future – in cash or in kind – must be real and lawful.
4. Capacity of parties – must have attained age of majority – of sound mind – not disqualified by any law – so, minor, lunatic, idiot, drunkard, etc not competent to contract.
5. Free and genuine consent – parties are of same mind when they agree about the subject matter in same sense and at the same time – if induced by coercion, undue influence, fraud, misrepresentation, etc, there is no free consent - no contract.
6. Lawful object – object must not be illegal, immoral or opposed to public policy – if any legal flaw, not enforceable by law.
7. Agreement not declared void – must not have been declared void by any law in force.
8. Certainty and possibility of performance – terms must be certain and not vague – not possible to ascertain the meaning, it cannot be enforced – must be capable of being performed – agreement to do impossible act, no contract.
Example: (a) A agrees to sell“100 bales of cloth” to B. There is nothing to indicate. Scammel v Ouston – purchase of motor van on hire purchase – hire purchase price payable over two years - no rate of interest or mode of payment indicated – Held, the word ‘hire purchase’ has not been precisely defined – no contract.
9. Legal formalities: Essential to complete legal formalities to make the agreement binding – e.g. agreement may require payment of stamp duty, require registration, etc.

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