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Essential Elements of a Valid Contract

Written by IQRA SALIM ESQ. on
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A contract is an agreement that can be enforced by a one of the parties to it against the other party through a court of law. Thus, when an agreement is backed by law it is said to be a contract. It is essential to understand the basic concepts and elements of a contract as contracts are at the heart of every commercial transaction. When we purchase a loaf of bread from the supermarket, we enter into a contract of sale of the said loaf of bread with the supermarket owner who in turn has a contract of selling the said bread with the manufacturers of the bread. We also enter into a contract with the manufacturer of the bread whereby we can make them liable for any defect or quality/standards lower than the one made known to the consumer or for any other misleading information which resulted in the purchase of the said loaf of bread. Therefore, there may exist a multiple number of contracts behind every commercial transaction that we enter into during our day to day lives.

The contracts entered into in the Emirate of Dubai are governed by the Dubai Contracts Law of 1971 (hereinafter referred to as ‘the law’). This law also has a retrospective effect and therefore also applies to contracts that were entered into prior to the coming into force of the law. This article analyses the law and considers the essential elements that require to be present in a valid contract in accordance with the law.

According to the law, a contract is defined as an agreement that is enforceable by law. Article 12 further elaborates on the same point by describing the terms that may constitute to be a contract. It reads as follows. “It shall be deemed as a contract any agreement made with the consent and election by parties having the capacity to contract against a lawful consideration and for a lawful purpose unless expressly provided hereinafter to be deemed invalid.” Thus the following conclusions about a valid contract are arrived at:

    1. It is an agreement.

    2. The consent of and election by the parties entering into the agreement has to be present.

    3. The parties must have the capacity to enter into a contract.

    4. The presence of lawful consideration is a must.

    5. The contract should be entered into for a lawful purpose.

    6. The contract should not fall into the categories of invalid contracts that are provided by the law.

The first necessity is that of the presence of an agreement, which is defined as a set of promises with consideration. Thus it is a promise to do or to abstain from doing some act in exchange for consideration. The important question to be answered here is how a promise comes into being, the answer to which is through ‘offer’ and ‘acceptance.’ Offer and acceptance’ are the two most important elements of a contract.

OFFER

The law defines the term ‘offer’ as ‘the proposal made by a person to another to do or omit to do any act, purported to obtain the consent of the other party to such act or mission.’ In the above example of a supermarket, the consumer while purchasing the loaf of bread puts forward an offer to purchase the said bread for the price inscribed for the same with an intention to obtain consent of the supermarket to accept the same. It is important to note that the display of goods does not amount to offer but only amounts to the invitation to make an offer.

The offer is said to be complete when it is notified to the other party. It can be withdrawn before the acceptance of the other party but not after the other party accepts the offer.

ACCEPTANCE

‘Acceptance’ is defined by law as ‘the expression of consent by the person to whom the proposal is made, and thereby the proposal becomes accepted. When the proposal is accepted, it shall become a promise.’ Thus in the example of the loaf of bread, when the representative of the supermarket owner at the billing counter accepts your offer to buy the loaf of bread for the said price, the promise is said to have come into existence. As this promise is backed with consideration i.e. the price of the bread, the transaction is an agreement where the supermarket promises to give you the loaf of bread in exchange for the consideration which you provide to the supermarket in the form of the price in exchange of the loaf of bread.

The acceptance is said to be complete when the person offering is notified of the same by making him aware of the same through any means of communication.

CONSIDERATION

The term consideration is defined by law as anything done or omitted to be done, is being done or omitted to be done or shall be done or omitted to be done by the promisee and anything that the promisee arranges to do or omit to do, subject to the provisions of this Law, provided that all is done or omitted to be done as demanded by the promisor. Here the promisee is referred to for the party who accepts the proposal and the promisor is referred to for the party who provides an offer for the proposal.

In the example of the loaf of bread, the promise of providing the loaf of bread is the consideration for the consumer in exchange of the promise by the consumer to pay the price of the loaf of bread which is the consideration for the supermarket for providing the loaf of bread.

One of the most important criteria to appreciate is that the consideration must be lawful and must not be prohibited by the law.

FREE CONSENT OF PARTIES

Consent of the parties is said to be free when the following conditions are satisfied:

    1. Both the parties have full knowledge and complete understanding of the nature of transaction and the facts. The facts of the transaction should not be hidden by anyone of the parties.

    2. There must not exist coercion on any party to enter into the contract.

    3. No party should be under any unlawful and undue influence to enter into the contract.

    4. It should not be a case of fraud or temptation.

    5. There should be no mistake of facts which leads to the entering of the party into the contract.

Contracts entered into without the free consent of one of the parties are revocable by the same party.

CAPACITY OF THE PARTIES

The parties are said to have the capacity to enter into contracts when they have the mental capacity to understand the nature of transactions and the consequences of entering into such transactions.

The criteria for a party to have the capacity to enter into a contract are as follows:

    1. Must be of the age of majority.

    2. Must be of sound mind, he must be sane.

    3. Must not be interdicted from entering into the contract by any other law or by the order of a court of law.

LAWFUL PURPOSE

The purpose of entering into the contract must be lawful, must not be prohibited by law or in contradiction with any of the existing laws. The purpose must not be to defraud another or any such illegal or penalized acts.

INVALID CONTRACTS

Certain agreements are pronounced to be invalid by the law and thus they are not enforceable.

    1. Agreement to prevent marriage.

    2. Agreement to prevent free trading.

    3. Agreement to prevent legal proceedings.

    4. Agreements that are not clear and suffer from ambiguity.

    5. Wagering agreements.

The above enlisted agreements are not enforceable and thus cannot form valid contracts.

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For legal advice regarding the subject, please call +971 4 4221944, or call 800-LAWYER (529937).


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