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Essential Elements Of A Valid Contract [Section 10]


According to section 10, “All agreements are contracts if they are made by 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”. The essential elements of a valid contract are:


To constitute a contract there must be an agreement. There must be two parties to an agreement, i.e. one party making an offer (offeror) and the other party accepting the offer (offeree).

E.g.: A invites B to a tea party and B accepts the invitation.

Intention To Create Legal Relationship:

When the two parties enter into an agreement, there must be an intention by both parties to legally bind the other as a result of such agreement.

E.g.: A offers to purchase B’s house for a sum of Rs.57 Lakhs and B accepts it.

Thus, agreement of social or household nature are not contracts.

E.g.: A invites B to the marriage of his daughter and B accepts the invitation.


Remember That:
In commercial agreement an intention to create legal relation is presumed to be exist unless it is specifically provided that is does not exist.

Agreements of moral, religious or social nature are not contracts because they are not likely to create a duty enforceable by law. Since in this type of agreement parties never intended to bind in to legal consequences.


Capacity Of Parties (Competence)

The parties to the agreement must be capable of entering into a valid contract. According to section 11, every person is competent if he or she,
1. Is of the age of majority;

2. Is of sound mind; and

3. Is not disqualified from contracting by any law to which he is subject.
E.g.: M, a minor mortgages his property to B, major for Rs.20, 000. M can his property back as agreement between M and B is not a valid contract.


Lawful Consideration:

An agreement to form a valid contract should be supported by consideration. Consideration means “something in return” (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful.

E.g.: A agrees to sell his horse to B for Rs.10, 000. A promise to sell horse is the consideration of B’s promise to pay Rs.10, 000 and vice versa.
E.g.: A agrees to sell 100 gms of cocaine to B for a sum of Rs.10 Lakhs.

* Consensus-ad-idem (Meeting of minds): To constitute a valid contract, there must be meeting of minds i.e. consensus-ad-idem. The parties should agree to the same thing in the same sense and at the same time.
E.g.: A agrees to sell his Maruti car for Rs.1 Lakh to B and B agrees to pay for the same car.

* Free consent: To constitute a valid contract there must be free and genuine consent of the parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue influence or mistake.
E.g.: A theatens to Kidnap B’s son unless B sells his land to A for Rs.2 Lakhs. B signed the property papers in the name of A. B’s consent is not free.

* Lawful object: The object of the agreement must not be illegal or unlawful.

Section 23: According to section23, the consideration or object of an agreement is lawful, unless:

  • It is forbidden by law
  • Is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent
  • Involves or implies, injury to the person or property of another
  • The court regards it as immoral, or opposed to public policy

E.g.: A hires B’s house for use as a gambling house, the object of the contract is unlawful.

Agreement Not Declared Void Or Illegal:
Agreements which have been expressly declared void or illegal by law are not enforceable at law; hence does not constitute a valid contract.

Certainty And Possibility Of Performance:

The terms of agreement must be certain and not vague. If it is not possible to ascertain the meaning of the agreement, it is not enforceable at law.

Also, agreements to do impossible acts cannot be enforced.

E.g.: A agrees to sell B hundred tones of oil.
E.g.: A agrees with B to discover the treasure by magic.

Legal Formalities:

There are many contracts which should comply with all the legal formalities
E.g.: A enters into an agreement with DMRC for supply of 1 Lakh bags of cement of them. The parties signed a contract paper for the same.

A Contract May Be Oral Or In Writing:

Oral agreements are equally valid. They are subject to be in the court on the basis of evidence.
.g.: A enters into an oral agreements with B to sell his ship for Rs.5 Lakhs.

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