Essentials of a valid contract under the Indian Contract Act, 1872
Lakshay Parmar 13 Jan 2020

Essentials of a valid contract under the Indian Contract Act, 1872

Essentials of a valid contract

A contract defined under Section-2(h) of The Contract Act, 1872(hereinafter referred to as “the act”) means “any agreement which is enforceable by law”. Contracts can be written by using formal or informal terms, or could be entirely verbal or spoken.

 According to Salmond, “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more acts or forbearance on the part of others”.


There are certain elements that, when fulfilled, would constitute a valid contract and contrary to that it would be considered null and void depending on the circumstances. Section-10 of “the act” enumerates certain conditions which must be fulfilled in order to constitute a valid contract.


1- Offer and acceptance: There needs to be a lawful offer and acceptance to form a contract. The term 'lawful ' means that, in relation to this, the offer and acceptance must meet the requirements of the contract act. The offer or proposal is defined under section-2(a) of the Contract Act. Section-2(b) of the Act provides that when an offer is accepted then it becomes a promise.

Mere knowledge of the contract does not constitute acceptance, it must be expressed as was held in the case of Lalman Shukla v Gauri Dutt.


2- Intention of creating a legal relationship: There must be a clear intention among the parties that the agreement should be attached by legal consequences and create a legal obligation. What this means are those arrangements which are not enforceable by law, e.g. social or domestic agreements between spouses or friends, which cannot be enforced in a court of law would not constitute contract. Legal relationship will be implied when failure of a said act mentioned in the contract would result in legal consequences.


3- Lawful Consideration: In Currie v. Misa, Justice Lush defined consideration, “A valuable Consideration in the sense of law may consist either in some Rights, Interest, Profit or Benefit accruing to one party or some forbearance detriment, loss or responsibility given, suffered or undertaken by the other”. Consideration means ' something in return ' which means that the parties have to accrue in some form, whether it be profit, rights, interest, etc. or agree to have some form of beneficial "consideration."

Section-25 states that any contract without consideration is void as it is considered the essence of a contract. However under section-23 there are certain considerations that would be unlawful as:

·         They are forbidden by law.

·         It is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent.

·         It involves or implies injury to the person or property of another.

·         The Court regards it as immoral or opposed to public policy.

If even one of these conditions is fulfilled, it will further render the agreement illegal.


4- Parties must be competent to contract: In order to constitute a contract, the parties engaging in the same must be competent to contract. Section 11 of “the act” states the criteria of parties who are competent to contract:

·         The parties must attain the age of majority i.e. 18 years. An agreement with a person who is a minor, will be considered void ab intio(Mohri Bibi v Dharmodas Ghose, 1903)

·         The person must be of sound mind i.e. not an insane person.

·         He/she should be disqualified from the law to engage in a contract.


5- Free consent by the parties: This implies to the fact that parties entering into a contract shall enter with their free will and their decision of engaging should not be influenced by any external factors. Section-14 of “the act” deals with free consent and provide certain factors, if so found, would deem a contract invalid. These factors are-

·     Coercion: Committing any act forbidden by the Indian Penal Code or unlawful detain of property, or threatening to commit these acts.

·    Undue influence: The use of one party’s dominant position to hold an unfair advantage over other party.

·        Fraud: When a party makes presentation of the terms of contract with the intention to cause damage to the other party, it amounts to Fraud.

·         Misrepresentation: False representation of facts

·      Mistake: While engaging in a contract, there should not be any mistake (either of fact or law) from both or either of the parties.


Further, for a contract to be valid in the eyes of law , it shouldn’t be expressly declared void for example agreement without consideration(Section-25), agreement in restraint of marriage(Section-26), agreement in restraint of trade(Section-27), agreements in restraint judicial proceedings(Section-28), an agreement by way wager(Section-30) etc.



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