What do you understand by Contract? Essential elements of the valid contract - financebrother

Contract – Meaning and Definition

Under Section 2(h) of the Indian Contract Act, 1872, a contract is defined as “an agreement enforceable by law.”

In other words, a contract is a legally binding agreement between two or more individuals or entities that creates enforceable rights and obligations. A contract comes into existence when one party makes an offer and the other party accepts it. This acceptance turns the offer into a promise, and once that promise is backed by legal enforceability, it becomes a contract. Thus, a contract represents a legal obligation that one party must fulfill and the other party is entitled to receive.

                              

Essential Elements of a Contract

Two fundamental conditions must exist for a valid contract:

1. There must be an agreement between the parties, and
2. The agreement must be legally enforceable.

1. Agreement

An agreement forms the foundation of a contract. According to Section 2(e) of the Indian Contract Act, “Every promise and every set of promises forming the consideration for each other is an agreement.”

Further, Section 2(b) explains that when the person to whom a proposal is made gives their assent, the proposal becomes a promise.

Therefore, an agreement requires an offer from one party and its acceptance by another. Since it involves two or more persons, a single person cannot enter into an agreement alone.

Thus,

Agreement = Offer (Proposal) + Acceptance

2. Enforceability by Law
Section 10 of the Act lays down the conditions that make an agreement legally enforceable. It states that “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.”

The section also mentions that agreements must meet any formal legal requirements such as being in writing, attested, or registered, where applicable.

Hence, to be valid, a contract must satisfy the following essentials:

Conditions for a Valid Contract:-

(a) Competent Parties [Sections 11–12]

Only parties who are legally competent can enter into a contract. Competency includes being of the age of majority, of sound mind, and not disqualified under any law.

As per Section 11, the following persons are not competent to contract:

1. Minors,
2. Persons of unsound mind, and
3. Persons disqualified by law.

(b) Free Consent [Sections 13–22]

The consent of both parties must be free and genuine. It is not free if it has been obtained through:

1. Coercion, or
2. Undue influence, or
3. Fraud, or
4. Misrepresentation, or
5. Mistake. 

The parties must agree to the same thing in the same sense (consensus ad idem).

(c) Lawful Consideration and Lawful Object [Section 23]

The purpose and consideration of the agreement must be lawful. It becomes unlawful if:

1. It is prohibited by law,
2. It defeats the purpose of any existing law,
3. It is fraudulent,
4. It causes harm to person or property, or
5. It is immoral or against public policy.

(d) Consideration [Section 25]

A valid contract generally requires consideration — something of value exchanged between the parties. An agreement made without consideration is void unless it falls within specific exceptions under Section 25, such as:

1. Made out of natural love and affection,
2. Made for voluntary services already rendered, or
3. A written promise to pay a time-barred debt.

(e) Not Expressly Declared Void [Sections 24–30, 36, and 56]

Certain agreements are expressly void under the Act, including:

1. Agreements based on a mutual mistake of fact,
2. Agreements without consideration,
3. Agreements restraining marriage (other than of a minor),
4. Agreements restraining trade,
5. Agreements restricting legal proceedings,
6. Uncertain or ambiguous agreements,
7. Wagering agreements,
8. Agreements dependent on impossible events, and
9. Agreements to perform an impossible act.

(f) Legal Formalities

When any law requires an agreement to be in writing, attested, or registered, such formalities must be fulfilled. Examples include:

1. Agreements to pay a time-barred debt,
2. Agreements for the transfer of immovable property, and
3. Arbitration agreements.

Without complying with these legal requirements, such agreements cannot be enforced in a court of law.

Conclusion

To summarize, a contract is a legally binding agreement created through an offer and its acceptance, made with free consent by competent parties, supported by lawful consideration, and aimed at a lawful object. Only when all these essential conditions are satisfied does an agreement become a valid and enforceable contract under the Indian Contract Act, 1872.