ESSENTIALS OF VALID CONTRACTS

MEANING

When two parties form an agreement1 with each other to complete or fulfil a particular
promise or set of promises or obligations and so that the agreement gains the force of the law,
it takes the form of a contract2. The promises here are all reciprocal promises. Honorary work
or charity would not be considered under the purview of reciprocal promises.

The enforcement of the law, in legal terms, is called ‘enforceable by the law’. And the
limitation on the enforceability of the agreement's law applies only to the parties who have
agreed. This legal sanction provides a remedy for legal action. If one of the parties fails to
fulfil their part of the obligations or promise, the other party seeking legal action may claim
the remedy of repudiation of the contract.

For example, Michael contacts Boris and offers to pay $800 to Boris in order to purchase his
car. Here, Boris promises to provide Michael with his car for which Michael has paid. This
phenomenon becomes a contract. Hence, in essence, contact is an agreement between two or
more parties, which is observed by obligations and duties, enforced by law.

The Indian Contract Act, 1872, governs and regulates contracts, states the procedure
regarding the same. The scope of this Act extends to the country. Under the Indian Contract
Act of 1872, section 2(h) defines a contract as an agreement enforceable by law.

1
Indian Contract Act, 1872, § 2(e)
2
Indian Contract Act, 1872, § 2(h)
ESSENTIALS OF A VALID CONTRACT

A generic agreement has a wider scope than a contract. A contract may come within the
purview of an agreement, but not necessarily vice-versa. For an agreement to become a
contract, it has to fulfil certain conditions. These conditions are known as the essential of a
valid contract. A contract is formed when two parties agree that the law will enforce their
agreement.

Section 10 of the Contract Act, specifies the conditions for this enforceability. A contract is
defined as one that is entered into for consideration, between competent parties, with their
informed consent, and for a lawful purpose.

According to Section 10, the following are the essentials:

 Agreement
 Free Consent of Parties
 Parties’ Competency
 Consideration
 Lawful Object
 Agreements not specifically acknowledged as void

AGREEMENT BETWEEN PARTIES

An accepted promise is called an agreement. Thus, a proposal/offer plus acceptance becomes

In general, an offer3, express or implied4, is the starting point of any contract, without which
no contract can exist. The individual making the offer is the 'offeror', who later after
acceptance becomes a ‘promisor’; and the person to whom this proposal is made is the
‘offeree’, who, after accepting the promise, becomes the ‘promisee’ 5. This offer represents,
offeror’s 'willingness to perform or refrain to perform do or refrain from doing anything. The
offer offered with a view of procuring assent from the offeree to the same.

3
Indian Contract Act, 1872, § 2(a)
4
Indian Contract Act, 1872, § 9
5
Indian Contract Act, 1872, § 2(c)
The offer must be indicated or communicated to the person to whom it is made 6. It is now up
to the offeree to accept7 or reject the offer. Acceptance should be absolute and unqualified
(unconditional) and it can only be done by the person to whom the offer was made in the first
place until the offer subsists. Like the offer, the acceptance must also be communicated
reasonably. Even if the parties decide to withdraw their offer or acceptance, they must
communicate their decision.8 The moment when the offeree accepts the offer and
communicates the same to the offeror, the parties get bound by their promises respectively.
As a result, offer and acceptance must be communicated; otherwise, a contract is not said to
have occurred.9

CONSIDERATION

‘Consideration’ refers to the value given to the performance of a promise. It can be anything
that has value and has been agreed upon by the parties. It should not, however, be illegal,
void, or impossible to do so. Consideration need not necessarily be in terms of money.
Consideration can be defined as when the promisor, the promisee, or another person acts or
abstains from acting, or promises to act or abstain from acting, that act, abstinence, or
promise is referred to as a consideration as given under section 2 (d).

Consideration has been defined as when the promisor, the promisee, or another person acts or
abstains from doing something, or promises to do or refrain from doing something, that act,
abstinence, or promise is referred to as a consideration for the promise as also given under
Section 2(d). Any agreement not including any consideration in the equation is void unless in
the case of some exceptions given by the law.10

Consideration can include future, past or present act11. Past Consideration, where it has
already been given before the performance of a contract on the part of either of the parties.
Present Consideration or Executed Consideration, where it is given right after the contract is
made or executed. And, Future Consideration, where consideration is given after the contract
is being made. The distinction between past consideration and executed consideration is that
the former is an act performed in the absence of a promise, whereas the latter is performed in
response to a positive promise.
6
Indian Contract Act, 1872, § 3
7
Indian Contract Act, 1872, § 2(b)
8
Ibid.
9
Lalman Shukla v Gauri Dutt (1913) 40 ALJ 489.
10
Indian Contract Act, 1872, § 25
11
Pankaj Bhargava v Mohinder Nath, (1991) 1 SCC 556
Consideration must not be illusionary, but rather real (tangible or intangible). Adequacy of
consideration, however, is not necessary. And the assumption of appropriate consideration of
promises is not by the courts, but entirely upon the parties. If a party obtains what he
contracted or and it has some worth, lesser or greater, the courts will not inquire as to whether
it was equivalent to the promise he made in exchange.

Unlike English law12, Indian law does not recognize the privity of consideration. The words
used in Section 2(d) of the definition of Consideration are ‘...promise or any other person...’
which that the person furnishing the consideration is immaterial as long as it is for the
fulfilment of the promise.13

FREE CONSENT

Free consent is defined under Section 14 of the Contract Act. This section states that consent
is not free if it is obtained through coercion 14, undue influence15, fraud16, misrepresentation17,
or mistake, subject to legal provisions18.

When one of the aforementioned circumstances serves as the basis for consent to an
agreement, the agreement becomes voidable at the choice of the person whose permission
was obtained in this manner. A Voidable Contract 19 is where the aggrieved party will get an
option to either validate or reject the contract. If he validates the contract, it becomes binding
on both parties. However, if the cause of consent is a mistake, the contract becomes a void
contract. At the option of either party, a void agreement 20 cannot be enforced. However, there
should be a close and direct connection between the factors, moreover, the consent given
should be an immediate outcome of the factor.

12
Tweddle v. Atkinson ix, Court held that even if it is for the benefit of the plaintiff, consideration shall flow
from the promisee.
13
Chinnaya v. Ramayya ILR (1876-82) 4 Mad 137
14
Indian Contract Act, 1872, § 15
15
Indian Contract Act, 1872, § 16
16
Indian Contract Act, 1872, § 17
17
Indian Contract Act, 1872, § 18
18
Indian Contract Act, 1872, § 20, 21, 22
19
Indian Contract Act, 1872, § 2 (i)
20
Indian Contract Act, 1872, § 2 (g)
If a husband threatens his wife with suicide and coerces her and his son into signing a release
in favour of his brother over certain possessions they claim as theirs,21 their consent, if
provided, will not be free consent. The Court in this case held that the threat of suicide
constituted coercion within the meaning of Section 15 and that the consent document was
thus voidable.

A LEGAL RELATIONSHIP

Unlike English law, which has a well-established principle that to form a contract, the parties
must share an intention to enter into legal obligations 22. The Indian Contract Act, on the other
hand, makes no requirement that an offer or acceptance be made with the goal of forming a
legal relationship. It is still debatable whether "intention to contract" is a necessary condition
for the application of the Indian Contract Act, 1872, in the manner in which it has been
established in England. 23

The most common type of non-contractual agreement appears to be the arrangements made
between a husband and wife. They are not considered as contracts, as the parties had no
intention of any legal consequences arising.24

Objectivity is the test of contractual obligation as opposed to subjectivity. What matters is

COMPETENCY OF PARTIES

The parties' competency includes their age, mental capacity, and legal qualification.
Individuals who have reached the age of majority, i.e., are over the age of 18 years, are of
sound mind,26 and are not excluded from contracting under any applicable legislation are
competent to contract. Otherwise, the contract would be declared null and void.

21
Chikham Amiraju v. Chikham Seshamma, ILR (1918) 41 Mad 33, 36.
22
Rose and Frank Co. v. J. R. Crompton & Bros Ltd, (1923) 2 KB 261 (CA). p. 293
23
CWT v. Abdul Hussain Mulla Muhammad Ali, (1988) 3 SCC 562 at p.569
24
Balfour v. Balfour, (1919) 2 KB 571 at pp. 578-79.
25
Simpkins v. Pays, (1955) 1 WLR 975
26
The Indian Majority Act, 1875, Sec. 3
A contract with an infant or minor is said to be void ab initio. It means void from the very
beginning.27 Furthermore, once a person attains majority, he cannot ratify an agreement made
during his minority.28 A contract entered into for the benefit of a minor can also be a valid
contract. However, where an infant or minors seeks the court's aid in cancelling a contract,
the court may grant relief on the condition that the infant recovers all contract benefits or
adequately compensates the opposing party. This is referred to as the Restitution Doctrine. 29
This is known as the Doctrine of Restitution 30. The doctrine of estoppel, which prevents a
person from breaking a promise, cannot be applied to minors due to their incompetence for a
contract and inability to incur liability.31

Section 12 of the Indian Contract Act, provides an understanding of the soundness of mind
necessary to enter into a contract. A person who is unable of comprehending the costs and
outcome of the views involved in the contract is said to be of unsound mind.32

A person disqualified from a contract under any law in force and to which he is subjected
does not have permission to enter into a contract. 33 Such a person could be an enemy from
another country, a convict, an insolvent person, or a bankrupt person.

LAWFUL OBJECT

If the goal of agreement conflicts with the law of the land, the agreement is void or illegal,
depending on the component of the law it conflicts with. The term 'law' in this context refers
to all laws now in force in India, including Hindu and Islamic laws, as well as unwritten law
concepts.34 Section 23 defines what is an unlawful object and what is not. The word ‘object’
used in the section refers to ‘purpose’ or ‘design’. The object is unlawful, if it is,

1. Prohibited by law
2. Its nature is such that, if allowed, it will defeat the tenets of the law.
3. The contract's purpose is fraudulent.
4. It includes or implies bodily harm or property injury to someone or damage to some
property.
5. It is immoral or contrary to public policy, according to the court.

27
Mohori Bibee v. Dharmodas Ghose (1903) 30 I.A. 114 (P.C)
28
Nazir Ahmad v. Jiwan Das, AIR 1938 Lah 159
29
Jagar Nath Singh v. Lalta Prasad, ILR (1908-10) 21 All 21
30
Specific Relief Act, 1877, § 41
31
Kanhayalal v Girdharilal, (1912) 9 All LJ 103
32
Inder Singh v. Parmeshwardhari Singh AIR 1957 Pat 491
33
Pandya v. Suyog Coop Housing Society Ltd., AIR 2003 NOC 118 (Guj)
34
Gherulal Parakh v Mahadeodas, AIR 1959 SC 781,786: (1959) 2 SCR 406, 417.
A contract involving either of these elements mentioned above shall be unlawful and void
under the meaning of this section. For instance, selling liquor without having a license to do
so is void.35

NOT EXPRESSLY DECLARED VOID

Indian Contract Act, 1872 has expressly declared many contracts void. Section 26 to 30 deals
with these specific classes of contracts declared void by the Act.

The law forbids agreements that limit the freedom of marriage. 36 The restraint is general or
partial, i.e., not marrying at all, not marrying for a set period of time, not marrying a specific
person or group of people, and the agreement is null and void. The only exception provided is
in the case of a minor.37

The freedom of trade and commerce is enshrined in the Indian Constitution 38. So, there is no
way an individual can take away this right from other individuals. Thus, any agreement that
restricts anybody from engaging in a profession, business or legal trade of any type is void to
that extent.39 Similarly, restraint of proceedings agreements40, uncertain agreements41, and
wager agreements42 are void.

These are the general principles and requirements outlined in the Indian Contract Act, 1872,
that must be met in order for a contract to be valid. However, contracts may also be formed in
accordance with the terms of a particular statute.

35
Boistub Churn Naun v. Wooma Churn sen, ILR (1889-90) 16 Cal 436.
36
Indian Contract Act, 1872, § 26
37
Lowe v. Peers, (1768) 4 Burr 2225
38
The Constitution of India, 1950, Art 19(1)(g)
39
Electrosteel Castings Ltd v Saw Pipes Ltd, (2005) 1 CHN 612
40
Indian Contract Act, 1872, § 28; Koeglar v. Coringa Oil Co. Ltd., ILR (1876) 1 Cal 466, 468-69
41
Indian Contract Act, 1872, § 29; Scammell v. Ousto, 1941 AC 251, 268-69
42
Indian Contract Act, 1872, § 30; Carlill v. Carbolic Smoke Ball Co. (1893) 1 QB 256 (CA)