Definition of Contract

According to section 2(h) of the Indian Contract Act: “An agreement enforceable by law
is a contract.” A contract therefore, is an agreement the object of which is to create a legal
obligation i.e., a duty enforceable by law.

From the above definition, we find that a contract essentially consists of two elements: (1)
An agreement and (2) Legal obligation i.e., a duty enforceable by law. We shall now
examine these elements detail.

1. Agreement. As per section 2 (e): “Every promise and every set of promises, forming
the consideration for each other, is an agreement.” Thus it is clear from this definition that
a ‘promise’ is an agreement. What is a ‘promise’? The answer to this question is contained
in section 2 (b) which defines the term.” 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.”

An agreement, therefore, comes into existence only when one party makes a proposal or
offer to the other party and that other party signifies his assent (i.e., gives his acceptance)
thereto. In short, an agreement is the sum total of ‘offer’ and ‘acceptance’.

On analyzing the above definition the following characteristics of an agreement become

evident:

(a) At least two persons. There must be two or more persons to make an agreement
because one person cannot inter into an agreement with himself.

(b) Consensus-ad-idem. Both the parties to an agreement must agree about the subject
matter of the agreement in the same sense and at the same time.

2. Legal obligation. As stated above, an agreement to become a contract must give rise
to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating
a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a
contract. “All contracts are agreements but all agreements are not contracts,”

Agreements of moral, religious or social nature e.g., a promise to lunch together at a

friend’s house or to take a walk together are not contracts because they are not likely to
create a duty enforceable by law for the simple reason that the parties never intended
that they should be attended by legal consequences

Essential Elements of a Valid Contract

A contract has been defined in section 2(h) as “an agreement enforceable by law.” To be
enforceable by law, an agreement must possess the essential elements of a valid contract
as contained in sections 10, 29 and 56. According to section 10, all agreements are
contracts if they are made by the free consent of the parties, competent to contract, for a
lawful consideration, with a lawful object, are not expressly declared by the Act to be void,
and where necessary, satisfy the requirements of any law as to writing or attention or
registration. As the details of these essentials form the subject matter of our subsequent
chapters, we propose to discuss them in brief here.

The essential elements of a valid contract are as follows.

1. Offer and acceptance. There must a ‘lawful offer’ and a ‘lawful acceptance’ of the offer,
thus resulting in an agreement. The adjective ‘lawful’ implies that the offer and acceptance
must satisfy the requirements of the contract act in relation thereto.

2. Intention to create legal relations. There must be an intention among the parties that
the agreement should be attached by legal consequences and create legal obligations.

Agreements of a social or domestic nature do not contemplate legal relations, and as such
they do not give rise to a contract. An agreement to dine at a friend’s house in not an
agreement intended to create legal relations and therefore is not a contract. Agreements
between husband and wife also lack the intention to create legal relationship and thus do
not result in contracts.

Try to work out the solution in the following cases and then go to the answer.

3. Lawful consideration. The third essential element of a valid contract is the presence of
‘consideration’. Consideration has been defined as the price paid by one party for the
promise of the other. An agreement is legally enforceable only when each of the parties
to it gives something and gets something. The something given or obtained is the price
for the promise and is called ‘consideration’ subject to certain exceptions; gratuitous
promises are not enforceable at law.
The ‘consideration’ may be an act (doing something) or forbearance (not doing
something) or a promise to do or not to do something. It may be past, present or future.
But only those considerations are valid which are ‘lawful’. The consideration is ‘lawful’.
unless it is forbidden by law; or is of such a nature that, if permitted it would defeat The
provisions of any law; or is fraudulent; or involves or implies injury to the person or
property of another; or is immoral; or is opposed to public policy (sec.23).

4. Capacity of parties. The parties to an agreement must be competent to contract. But

the question that arises now is that what parties are competent and what are not. The
contracting parties must be of the age of majority and of sound mind and must not be
disqualified by any law to which they are subject (sec.11). If any of the parties to the
agreement suffers from minority, lunacy, idiocy, drunkenness etc. The agreement is not
enforceable at law, except in some special cases e.g., in the case of necessaries supplied
to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate
(sec 68).

5. Free consent. Free consent of all the parties to an agreement is another essential
element. This concept has two aspects. (1) Consent should be made and (2) it should be
free of any pressure or misunderstanding. ‘Consent’ means that the parties must have
agreed upon the same thing in the same sense (sec. 13). There is absence of ‘free consent,’
if the agreement is induced by (I) coercion, (ii) undue influence, (iii) fraud, (IV) miss-
representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four
factors, the contract would be voidable and cannot be enforced by the party guilty of
coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject
the contract or accept it, subject to the rules laid down in the act. If the agreement is
induced by mutual mistake which is material to the agreement, it would be void (sec. 20)

6. Lawful object. For the formation of a valid contract it is also necessary that the parties
to an agreement must agree for a lawful object. The object for which the agreement has
been entered into must not be fraudulent or illegal or immoral or opposed to public policy
or must not imply injury to the person or the other of the seasons mentioned above the
agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry
on prostitution, he cannot recover the rent through a court of law or a contract for
committing a murder is a void contract and unenforceable by law.

7. Writing and registration. According to the Indian contract Act, a contract to be valid,
must be in writing and registered. For example, it requires that an agreement to pay a
time barred debt must be in writing and an agreement to make a gift for natural love and
affection must be in writing and registered to make the agreement enforceable by law
which must be observed.
8. Certainty. Section 29 of the contract Act provides that “Agreements, the meaning of
which is not certain or capable of being made certain, are void.” In order to give rise to a
valid contract the terms of the agreement must not be vague or uncertain. It must be
possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced

Illustration. A, agrees to sell B “a hundred ton of oil” there is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainly.

9. Possibility of performance. Yet another essential feature of a valid contract is that it

must be capable of performance.

Section 56 lays down that “An agreement to do an act impossible in itself is void”. If the
act is impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration. A agrees with B, to discover treasure by magic. The agreement is not

enforceable.

10. Not expressly declared void. The agreement must not have been expressly declared
to be void under the Act. Sections 24-30 specify certain types of agreements that have
been expressly declared to be void. For example, an agreement in restraint of marriage,
an agreement in restraint of trade, and an agreement by way of wager have been expressly
declared void under sections 26, 27 and 30 respectively.