ESSENTIAL ELEMENTS OF A VALID CONTRACT

This article has been written by Ananya Shruti, First-year BBA. LL.B student, Symbiosis Law School, Hyderabad.

ABSTRACT –

The Indian Contract Act (ICA), 1872, is a cornerstone of India’s legal framework, regulating contractual relationships and ensuring fairness, predictability, and enforceability in both personal and business dealings. Contracts are the building blocks of social and economic transactions, which can be the best medium of developing trust and cooperation among parties. The article explores the fundamental essentials required for forming a valid contract In addition to providing in-depth analysis, the article is complemented with landmark case laws. A valid contract under the ICA requires the following critical elements: offer and acceptance, lawful consideration, capacity to contract, free consent, and a lawful object. Each of these elements plays a vital role in establishing the enforceability of an agreement. For example, Carlill vs. Carbolic Smoke Ball Company demonstrates how clear offers and acceptance lead to binding obligations. Similarly, Mohri Bibee v. Dharmodas Ghose lays stress on the contractual capacity, especially in the case of minors. Free consent is essential where undue influence rendered the agreement invalid. Also, agreements with unlawful objects are considered unenforceable. Apart from the theoretical argument, ICA has practical relevance in everyday life in such situations as employment contracts, partnership agreements, and property leases. By providing clarity and enforceability, the ICA protects the rights and obligations of parties, supports the resolution of disputes, and reinforces trust in legal and economic systems. This article puts forward the essence of how the Indian Contract Act remains a dynamic tool of ensuring fair dealings in this age of globalization. Through interlinking legal principles to real-life applications and judicial precedents, the Act establishes a basis for economic stability and social cohesion that makes it inalienable to India’s landscape of laws and commerce.

KEYWORDS – Indian Contract Act, 1872.

INTRODUCTION –

The Indian Contract Act, 1872, is the principal legislation governing contracts in India. It lays down the legal framework for the formation, execution, and enforcement of contracts, ensuring clarity and predictability in commercial and personal transactions. It was enacted on 25^th April, 1872 and came into force on 1^st September 1872. Initially, it governed all aspects of contract but was later divided into separate laws. This is defined under Section 1 of the Indian Contract Act, 1872 – Short title, extent and commencement.

• Section 2(e) of the Indian Contract Act, 1872 defines that “Every promise and every set of promises, forming the consideration for each other, is an agreement.”
• Section 2(h) of the Indian Contract Act, 1872 defines contract as an agreement enforceable by law.

WHAT MAKES A CONTRACT VALID?

• Validity of a contract refers to when a contract meets the legal requirements to be recognized and enforceable under the law. In legal terms, A valid contract refers to a contract that is legally binding on all parties and capable of enforcement by a court if necessary.
• For a contract to be valid, it is imperative for the contract to satisfy the essential elements defined under the relevant law – The Indian Contract Act, 1872. These elements ensure that the agreement is lawful, fair, and based on mutual understanding of all the concerned related parties.
• The valid contract topic is justified and explained under Section 10 of the Indian Contract Act, 1872.
• Section 10 talks about what agreements are contracts – “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”[1]

ELEMENTS / KEY FEATURES OF A VALID CONTRACT –

A contract is said to be valid when it meets all the following listed below criteria.

1. Proposal (offer) and Acceptance:

• 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 ascent of that other to such act or abstinence, he is said to make a proposal.”
• Section 2(b) of Indian Contract Act, 1872 says when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.
• Following are some conditions of a valid acceptance –
• Acceptance must be absolute and unqualified, as mentioned in section 7 of the Indian Contract Act, 1872.
• Acceptance is to be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted, as said in Section 7 of the Act.
• Acceptance must be communicated within the decided and prescribed time, however if no time is mentioned, then it should be accepted within any reasonable time.

2. Intention to create legal relationship:

• The pure intention of all the parties related to the contract should be solely to create a legal relationship amongst them.
• No personal, social or unethical relationships constitute to the validity of a contract.
• Any agreement in this case, unless specified otherwise, will not be enforceable by law and are regarded as void.
• Any party to the contract fails to comply with the terms of the agreement, then it will give rise to breach of contract.

3. Objects and considerations, lawful:

• “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 abstain from doing, something, such act or abstinence or promise is called as consideration for the promise” – Section 2(d) of Indian Contract Act, 1872.
• According to section 23, What consideration and objects are lawful, and what not – The consideration or objects of an agreement are lawful, unless –
• It is forbidden by law as mentioned below
• Agreements in restraint of marriage, void – Section 26
• Agreements in restraint of trade, void – Section 27
• Agreements in restraint of legal proceedings, void – Section 28
• Agreements void for uncertainty – Section 29
• Agreements by way of wager, void – Section 30
• Is of such a nature that, if permitted, it would defeat the provisions of any law
• Is fraudulent
• Involves or implies, injury to the person or property of another
• The court regards it as immoral, or opposed to public policy

4. Capacity to contract –

• The parties entering into a contract must have the capacity to contract with each other.
• Section 11 – Who are competent to contract – states that “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.”
• Parties to contract must be of the age of majority that is above 18 years of age.
• Any contract entered into with a minor, is void-ab-initio.
• The person entering into a contract, should be of sound mind.
• As per Section 12 of the Indian Contract Act, 1872, What is a sound mind for the purpose of contracting- “A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests.
• A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.
• A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

5. Free consent –

• Consent, as defined by section 13 of the act – Two or more persons are said to consent when they agree upon the same thing in the same sense.
• A per section 14, Consent is said to be free when it is not caused by –
• Coercion – “Committing, or threatening to commit, any act forbidden by the IPC (45 of 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” – Section 15, Indian Contract Act, 1872.
• Undue Influence – “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” – Section 16.
• Fraud – Section 17 – 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:
• 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.
• Misrepresentation – Section 18 – This means and includes:
• 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.

6. Performance –

• Agreements must be capable of performance, if not, it is said to be void.
• For an agreement to be valid, the terms of the agreement must be clear, certain and capable to perform the contract.
• An agreement to do an impossible act, is said to be void.

LANDMARK CASE LAWS –

1. Balfour vs. Balfour[2]

Facts:

• and Mrs. Balfour, living in Ceylon, Sri Lanka went on a vacation in England.
• During the vacation, Mrs. Balfour fell ill and needed medical assistance. Leading to this she could not travel back to Ceylon with her husband.
• Balfour had work commitments and hence had to fly back to Ceylon.
• Balfour promised his wife to send 30 pounds to her every month as a part of her maintenance and expenses until she recovers fully.
• Balfour, after sometime refused to pay his wife the expense amount.
• Balfour approached the court for the same.

Issues:

• Whether there was an intention to enter into a legal relationship.
• Whether the promise between the two can be termed a contract and made enforceable.

Judgement:

• The court ruled and stated that there was no intention to create a legal relationship from the husband’s side and hence its not a valid agreement.

2. Lalman Shukla vs. Gauri Datt[3]

Facts:

• Gauri Datt’s nephew had absconded from home and defendant had sent out a few servants in search for the nephew. Lalman Shukla was one of them.
• While the servants were away, Gauri Datt had announced that anyone who would find the nephew and get him back would be rewarded Rs. 501.
• Lalman Shukla found the child and brought him back home and in return, was rewarded with only two sovereigns and twenty rupees.
• Lalman, unaware of the Rs. 501 reward, was satisfied with his current reward.
• After a while, when Lalman left the job and found out about the actual reward, he went back to claim it.

Issues:

• Can the act of plaintiff be termed as valid acceptance of the offer made by the defendant?
• Was it a valid contract?

Judgement:

• The judges of the court ruled that the announcement for the reward was made after Lalman had left in search of the nephew. Due to this, there was no valid acceptance from his side.
• Hence the contract stood void as acceptance is necessary for the contract to be valid between the parties.

3. Carlil vs. Carbolic Smoke Ball Company[4]

Facts:

• The carbolic Smoke Ball company made a product called “Smoke ball”.
• The company claimed it to cure influenza and numerous other diseases.
• The company also published advertisements saying that it would pay 10 pounds to anyone who got sick with influenza after having it’s product.
• As per the instructions, Mrs. Carlil tried the product and yet caught influenza.
• Carlil filed a case and claimed the reward.

Issues:

• Whether the offer was accepted?
• Whether it was a valid contract?

Judgements:

• The court held that when a person fulfils the conditions to an offer, it is said to be an acceptance.
• The acceptance was given by Mrs. Carlil while using the product and hence was valid.
• The court rules that it was a valid contract and that rs. Carlil was entitled to receive the claimed amount.

4. Felthouse vs. Bindley

Facts:

• Felthouse offered to buy a horse.
• He wrote a letter to Mr. Bindley stating that he wants to buy his horse and if he does not reply to this letter, he will consider the offer as accepted.
• Bindley, being hung up in work, could not reply to his letter and later refused to sell the horse to Mr. Felthouse.

Issues:

• Whether the offer was accepted?

Judgements:

• The court ruled that silence cannot be considered as an acceptance of an offer.
• Mere silence does not amount to acceptance.
• An acceptance has to be implied or expressed.
• Hence, the contract between the two parties stood void.

5. Harvey vs. Facey[5]

Facts:

• Harvey communicated with Facey through a telegram about a bumper hall pen.
• Harvey wrote – “Will you sell the bumper hall pen? Lowest price?”
• Facey replied to the telegraph stating the price for the pens to be 900 pounds.
• Harvey replied to this stating that he is willing and ready to buy the pen at the said amount.
• Facey later, refuses to sell the pen.

Issues:

• Whether the contract between the two was valid?

Judgements:

• The judge rules that there was never any valid agreement between the two parties.
• The first letter by Harvey was only a request to gather the information about the bumper hall pen, not an offer to be accepted.
• Hence, the case was declared void and closed.

6. Mohori Bibi vs. Dharmodas Ghose [6]

Facts:

• Dharmodas Ghose (minor) mortgaged some of his properties in favor of Brahmo Dutt (money-lender) and received a certain sum of money.
• The whole process was carried out through Kedar Nath(advocate) with no direct involvement of Brahmo Dutt.
• During the execution of the mortgage deed, Dharmodas Ghose was an infant/minor and the fact of his infancy was known to Kedar Nath as the mother of Dharmodas Ghose send a letter informing about the same which was fully acknowledged by Kedar Nath, and yet he continued with the execution of the deed.
• Thereafter the mother of Dharmodas Ghose filed a legal suit for declaring the deed void, as Dharmodas Ghose was a minor.
• A second appeal was made in the High Court.

Issues:

• Whether the contract by a minor be considered void or voidable?
• Whether Dharmodas Ghose is liable for the repayment of the amount received by him?

Judgements:

• After analyzing various relevant provisions of the law, the court came to the following conclusion- that as per section 11 of The Indian Contract Act, 1872 minors are incompetent to contract and any minor’s agreement is absolutely void.
• The court concluded that according to the events of the case where there was full knowledge of the infancy the court did not see any reason to compel the repaymentand interfere with the desecration which was already exercised.

CONCLUSION –

The essential elements of contract law serve as the foundation for creating agreements that are fair, enforceable, and legally binding. By ensuring that agreements meet the criteria of essential elements, the Indian Contract Act, 1872, provides a structured framework for regulating personal and commercial relationships.

In conclusion, the Indian Contract Act continues to play a pivotal role in promoting trust, economic stability, and social harmony by providing clarity and predictability in contractual dealings. It ensures that the cornerstone principles of fairness and justice remain central to the functioning of India’s legal and commercial systems.

[1] Section 10, Indian Contract Act, 1872

[2] Balfour vs. Balfour, (1919) 2 KB 571

[3] Lalman Shukla vs. Gauri Datt, (1913)

[4] Carlil vs. Carbolic Smoke Ball Company, (1892)

[5] Harvey vs. Facey, 1893, AC

[6] Mohori Bibi vs. Dharmodas Ghose, 1903 ILR 30Cal 539 (PC)