Essential Elements of the Valid Contract

 Indian Contract Act,1872 was enacted on 25 April,1872. It lays down

all the provisions relating to contracts and governs all the disputes
related contracts in India. This Act is based on the principles of English
Common Law. It is applicable throughout India.

 An Agreement is a promise or set of promises forming consideration for

each other. When this agreement becomes legally enforceable, it is
called a contract.

 Contract is basically an agreement oral or written between two or more

parties which defines rights,duties and obligations which each party has
to perform.

 Agreement + Enforceable = Contract

Definitions Of Contract
 Sir Fredrik Pollock– ‘’Every agreement and promise enforceable by
law is a contract’’.

 Salmond– ‘’A contract is an agreement creating and defining an

obligation between two or more persons by which rights are acquired by
one or more to acts or forbearances on the part of others’’.

 Anson- ‘’The law of contract is that branch of law which determines the

circumstances in which a promise shall be legally binding on the person
making it’’.

Illustration: X enters into a contract with Z to sell his house for Rs.2,50,000. Here, X
has to sell his house and Z has to pay 2,50,000. This is an example of a valid contract.

Essentials Elements of a Valid Contract

Section 10 of the Indian Contract Act,1872 lays down conditions which makes a
contract valid.
Following are some of those conditions :
1. Offer
2. Acceptance
3. Intention to Create Legal Relationship
4. Lawful Object and Lawful Consideration
5. Consideration should not be forbidden by law
6. Capacity to Contract
7. Possibility of Performance
8. Legal Formalities
9. Free consent
  Offer
 The word offer and proposal are often used
interchangeably. Offer is the first step in the formation of a
contract or agreement.

 According to section 2 (A) of the Indian Contract

Act,1872 “When one person signifies to another his
willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal’’

 The person who makes an offer is

called ‘’Offeror’’ or ‘’Promisor’’ and the person to whom
the offer has been made is called Offeree or Promisee.

 Offer must be definite, clear, complete and final. A proposal

when accepted becomes a promise or agreement. Offeror
must communicate his willingness to enter into a contract.
Mere desire or willingness to enter into contract is not
enough. Offer and acceptance must be ‘’consensus ad
idem’’ which means both the party must agree on the same
thing and in the same manner.

 Illustration – Mr. A owns several cars. He enters

into an agreement with Mr. B to sell one of his
cars. He tell Mr. B, Will you buy my car at Rs.
2,00,000/- This is not a valid offer as Mr.A did not
specify the car he is talking about. Here, the offer is
ambigious.

 Acceptance
According to section 2(b) of Indian Contract Act,1872, when a person to whom

an proposal has been made, signifies his assent thereto, Following are

some conditions of a valid Acceptance :

 Acceptance must be absolute and unqualified –

Acceptance must be absolute. There should not be any
conditions attached to acceptance.

 Example: A offers to sell his laptop to B at Rs.

35000/- B replies that he will buy it for Rs. 30000.
This is not a valid acceptance. Here, there is a
condition attached to the acceptance.

 Acceptance must be Communicated – Acceptance must

be communicated to the offeree in the manner prescribed.
A mental acceptance to an offer is not a valid acceptance.
Acceptance must come to the knowledge of the offeror.
  Example: A tells B to communicate his acceptance
to him by a whatsapp message. But, B sends his
acceptance by post. This will be an invalid
acceptance unless B informs A that the acceptance
is not according to the manner prescribed.

 Acceptance must be communicated within a reasonable

time – Acceptance must be communicated within the time
prescribed. If no time period is prescribed, then it must be
given within reasonable time.

 Illustration: Mr. B makes an offer to C to sell his

new car to Mr C and asks him to communicate
acceptance by the end of the week. Mr. C
communicates the acceptance next week. This
acceptance will not be valid because the
acceptance had to be communicated within
prescribed time.

 Illustration – Mr. A wants to sell his smartphone

to Mr. B. He says to Mr B, ‘’Will you buy my
smartphone at Rs.15000/-’’? Here Mr A is making
an ‘’offer’’ so he is an offeror and Mr.B is an’’
offeree’’. If Mr. B accepts the offer, it will be deemed
as acceptance. Mr

Intention to Create Legal Relationship

 The intention of the Parties must be to create a Legal

Relationship between them. Agreement of social or
domestic nature(agreement between spouses, friends or
Children) are not enforceable by law. The parties to the
agreement must make it clear while entering into a contract
that they want to create a legal relationship. If any party to
the contract fails to comply with the terms of the agreement
then it will amount to breach of contract and will give rise
to legal consequences.

 Illustration – A Father promises his son to buy

him a bicycle if he scores 90% in his exam. Later
on, father refuses to buy his son a bicycle even
after scoring 90%. This will not amount to any
breach of contract as there was not international to
create a legal relationship between a father and his
son.

Lawful Object and Lawful Consideration

  Section 2(d) of Indian Contract
Act,1872 defines consideration as ‘’When, at the desire of
the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act
or abstinence or promise is called a consideration for the
promise;’’

 Object and consideration of an agreement must be

lawful. It must not be illegal, immoral, forbidden by any
law or opposed to public policy. Consideration means
something in return.

 For a valid contract, there must always be transfer of

consideration from both sides. Both the parties to
agreement must receive something of value in return of
promise. Consideration is one of the most essential
elements of a contract. Consideration must be lawful. There
cannot be a contract without consideration.

 Any agreement which has unlawful objects or consideration

will be void. According to Section 23 of the Indian
Contract Act,1872. lays down certain consideration that
would make a consideration and object unlawful.

Consideration should not be forbidden by law

 Consideration should not be of such nature, if permitted, it

would defeat the provisions of any law or, is fraudulent.

 If consideration involves or implies injury to the person or

property of another. The Court regards it as immoral or
opposed to public policy.

 Illustration A promises to sell his car to B at

Rs.100000, B promises to pay Rs. 100000 to A.
This is an example of valid consideration.

 X enters into an agreement with Z to sell narcotics

substances in exchange of Rs. 15000/- This is not
a valid agreement because the object of agreement
is unlawful.

Capacity to Contract

 The parties to the contract must be competent.

An agreement with a person who is a minor will be void ab
 initio. Section 11 of Indian Contract Act lays the following
condition to specify competency of parties to the contract.

 Parties to Contract must have attained the age of majority

ie.18 years in normal cases and 21 years if guardian is
appointed by the Court.

 Parties must be of sound mind while making a contract. A

person who is usually of unsound mind, but occasionally of
a sound mind can make a contract when he is of sound
mind. However, if a person is usually of a sound mind but,
occasionally of unsound mind cannot make a valid contract
when he is of unsound mind.

 Parties must not be disqualified from contracting by any

law to which he is subject.

 Illustration: A enters into agreement with B who is

a minor to sell a bike. This is not a valid contract.

Possibility of Performance

 Agreement must be capable of performance. If agreement is

not capable of performance, it is void. In order to make an
agreement valid, the terms of the agreement must be clear,
certain and capable of performance. An agreement to do an
impossible act is void.

 Illustration: A enters into an agreement with B to

bring back C to life who is already dead. This
agreement is void.

Legal Formalities:

According to Indian Contract Act,1872, a contract can be both in oral or in writing.

Contract involving movable property can be made orally but contract involving
immovable property must always be in writing. However, it is advisable that the
contract must always be in writing because it will be easier to prove in the court if any
dispute arises between the parties in future. Contract must be signed and attested by
witness and registered if required by the law.

Illustration: X entered into an oral agreement with Y to sell his bike. This is a valid
agreement.
Free Consent –
The parties must enter into an agreement with free consent. The parties should enter
into an agreement with his own wish and will and not by coercion, undue influence,
fraud, mistake or misrepresentation. Consent will be deemed to be free only if it does
not constitute the following elements;

Coercion:
 Coercion is defined under section 13 of Indian Contract
Act,1872 as “Coercion” is the committing, or threatening to
commit, any act forbidden by the Indian Penal Code
under(45,1860), or the unlawful detaining, or threatening
to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter
into an agreement.

 Illustration: X threatens Z to kill him if he does

not transfer all his money to him. Z transfers all
his money to X to save his own life. This agreement
is not valid as the money was transferred by
coercion.

Undue Influence:
 According to section 16 of the Indian Contract Act,
1872 , ‘’A contract is said to be induced by ‘undue
influence’ where the relations subsisting between the
parties are such that one of the parties is in a position to
dominate the will of the other and uses that position to
obtain an unfair advantage over the other.

 Illustration: A sells his land to B, who is his

employer at a very low price in order to get
promotion. Here, A’s consent was not free and he
was under undue influence of his employer.
Fraud:

Section 17 of Indian Contract Act states that, ’’Fraud’ means and includes any of

the following acts committed by a party to a contract, or with his connivance, or by
his agent, with intent to deceive another party thereto or his agent, or to induce him to
enter into the contract:

 the suggestion, as a fact, of that which is not true, by one who does not
believe it to be true;
 the active concealment of a fact by one having knowledge or belief of
the fact;
 a promise made without any intention of performing it;
 any other act fitted to deceive;
 any such act or omission as the law specially declares to be fraudulent.

 Illustration: A sells his watch to B, claiming that the watch is

original and antique. Later on, B finds out that the watch is not
original and antique.
Misrepresentation:

According to section 18 of Indian Contract Act, 1872 misrepresentation means and

includes:
 the positive assertion, in a manner not warranted by the information of
the person making it, of that which is not true, though he believes it to be
true;
 any breach of duty which, without an intent to deceive, gains an
advantage of the person committing it, or any one claiming under him,
by misleading another to his prejudice, or to the prejudice of any one
claiming under him;
 causing, however innocently, a party to an agreement, to make a mistake
as to the substance of the thing which is the subject of the agreement.
 Illustration: A enters into a contract with B to sell his horse.
B wants a horse that is ideal for racing as he wants to
participate in a horse racing competition. A sells a sick horse
to B by misrepresenting it to be an ideal horse for racing. Later
on, he finds out that the horse is sick and not capable of
running in competition. This amounts to misrepresentation and
this contract is void.

Mistake:

 According to section 20 of Indian Contract Act, 1872, Mistake is

where both the parties to an agreement are under a mistake as to a matter
of fact essential to the agreement. Mistakes can be both unilateral (one
party is under mistake as to matter of fact) and bilateral (both parties to
agreement are under mistake as to matter of fact).

 Illustration: X enters into an agreement with Y to sell German

Shefford. At the time of agreement, the dog was already dead.
Both X and Y was not aware of it. This contract is void due to
mistake of fact.