1. ESSENTIALS OF A VALID
CONTRACT

2. As per Section 10 of Indian Contract
Act
“All agreements are contracts if they are made by
the free consent of the parties, competent to
contract for a lawful consideration and with a
lawful object and not here by expressly declared
to be void.”
As per this definition following are he essential
elements for a valid contract:

3. 1. PROPOSAL AND ACCEPTANCE
• For the formation of a valid contract it is necessary
that one party should make the offer and the other
party should accept it, as only after the acceptance
contract will come into existence.
• Proposal: As per Section 2 (a) of Indian Contract
Act, “ when a person signifies to another his
willingness to do or abstain from doing something
with a view to obtain the assent of that other to such
act or abstinence , he is said to make a proposal.

4. Essential Elements of Proposal
• There must be two parties
• Willingness to do or not to do something
• Should be a proposal, not merely an intention to
make proposal

5. Legal Rules as to Proposal
• The offer must be made to create legal obligation.
• The terms of proposal must be certain not vague.
• Proposal can be general or specific. (Case: Mrs. Carliee
Vs Carbolic Smoke Ball Company)
• Proposal may be expressed or implied.
• Proposal must be in the form of a request and not an
order.
• The offer must be communicated.
• Proposal must be for possible act.

6. Case: Mrs. Carliee Vs Carbolic Smoke Ball Company
• In this case the Carbolic Smoke Ball Co gave an
advertisement in the newspaper, offering influenza after
using their smoke ball 3 times daily for 2 weeks.
• Believing on the advertisement Mrs. Carliee used the same,
but contracted influenza .
• Mrs. Carliee sued the company and claimed £ 100.
Judgment was in the favor of Mrs. Carliee.

7. Acceptance
• According to Section 2 (h): “when the person to
whom the offer is made signifies his assent thereto,
the offer is said to be accepted”.

8. Essentials for a Valid Acceptance
• Acceptance must be made by the person to whom the
offer is made.
• Acceptance must be in the prescribed manner Sec 7(2)
For example: If the offerer wants the acceptance by e-
mail, then the acceptance must be given via e-mail.
Similarly if any limit is fixed by the offerer for
acceptance, then the acceptance must be given with in
the specified time.
• Rejected offers cannot be accepted until it is renewed:
It is a general rule that an offer once rejected cannot be
accepted, until not presented again.

9. 2. Intention to Create Legal Obligation
• There must be an intention among the parties to
create legal obligation.
• If the intention of the parties is not to create legal
obligation, then it will only remain an agreement
and cannot be a valid contract.

10. 3. Competency or Contractual Capacity of the Parties
• According to Section 10 of Indian Contract Act: “All
those agreements can be enforced by law, which are
made by the person having contractual capacity.”
• According to Section 11: “Every person is competent to
contract who is of the age of majority according to the
law of which he is subjet and who is of sound mind and
is not disqualified from contracting by any law to which
he is subject.”
• As per above definition, following parties are
incompetent to contract:
• Minors
• Persons of unsound Mind
• Persons disqualified by law to which they are subject.

11. MINOR
• Minor is a person who has not attained the age of
Majority according to the law of his country.
• According to Section 3 of Indian Majority
Act: “A minor is a person who has not completed
eighteen years of age.

12. Rules Regarding Contract with a Minor
• An agreement with or by a minor is void and inoperative
ab-initio.
• Contract for Necessities of Life: As per Sec 68 of Indian
Contract Act, if a person enters into a contract for
necessities of life, then the person supplying such
necessities have the right to reimburse the amount from
the property of minor. The necessities basically include
food, clothing, rent of house, educational expenditure etc.
• Minors’ Contract for his Benefit (can be enforced)

13. • Contract by parents or guardian of the minor: If
a minor’s parents or guardian make a contract on the
behalf of the minor and for his benefit, then such
contracts are treated as valid. But if they enter into a
contract for the employment of a minor, then such a
contract will be invalid.
• Minor’s contracts cannot be ratified on his becoming
major.
• Minor as an Agent: According to Sec 182 of Indian
Contract Act, “An agent is a person employed to do an
act for another or represents another in dealing with the
third party.

14. • Minor as a partner: As per Sec 30 of Indian
Partnership Act, A minor can be admitted as a
partner, but such a partner will only share the
profit not the losses, i.e. he cannot be held liable to
share the loss.
• Liability for Minor for Torts: If a minor gets
indulge in a crime such as murder, then he/she can
be held liable just like adults.
• Minor cannot be adjudged Insolvent: A
minor cannot be adjudged insolvent because due to
his incompetency, he cannot be declared insolvent

15. Persons of Unsound Mind
• According to Sec 11, “A person of unsound mind
is incompetent to contract”
• According to Section 12’ “ 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 forming a
rational judgment as to its effects upon his
interests”

17. 4. LAWFUL CONSIDERATION
• Consideration means “Something for Something”
• Consideration is the price for which the promise of
other is bought and a promise given for a lawful
value is enforceable.
• As per Section 25 of Indian Contract Act, “An
agreement without consideration is void”.

18. Essential Elements of Consideration
• Consideration must move at the desire of the
promisor: one of the most important elements of
consideration is that any promise to do something
must be according to the desire of the promisor.
If any act is done voluntarily by the promisee such
act will not be taken as consideration.
• Consideration may be a promise to do or to abstain
from doing something. (Positive nad negative
consideration)

19. • Consideration must be legal: According to Sec
23, For the validity of a contract it is necessary
that the consideration must be legal.
Contracts based on illegal consideration are
considered void.
The consideration is not considered valid or it is
considered as unlawful if:
 It is forbidden by law
It involves any injury to a person
It is against public policy

20. 5. LAWFUL OBJECT
• An agreement can be enforceable by law only when
its objective is lawful.
• If the agreement is having unlawful object, then no
legal contract arises between the parties.
• According to Section 23, “If the object is unlawful
for the reasons mentioned under then the
agreement shall be void:
The object of a contract is forbidden by law.
If it involves injury to the person or property of
another.
If the court regard it as immoral or opposed to
public policy.

21. 6. POSSIBILITY OF PERFORMANCE
• An essential of a valid contract is that it must be
capable of performance.
• According to Section 56 of Indian Contract Act,
“An agreement to do an impossible act is void
ab-initio.”
• There may be two situations, one in which the
act is completely impossible and other situation
may be in which the parties are not aware of that
the act is impossible.

22. 7. COMMUNICATION OF THE CONTRACT
• Both the parties as per Sec 4 of Indian Contract
Act, must communicate to each other about the
offer and acceptance, only then it will be
considered as a valid contract.

23. 8. FREE CONSENT OF PARTIES
• As per Sec 10 of Indian Contract Act, it is
important that the consent of the parties of a
contract must be free.
• According to Section 13 of Indian contract Act,
“Two or more persons are said to consent when
they agree upon the same thing in the same
sense.”
• From the analysis of this definition it is clear
that ‘consent’ is said between two parties, when:
Two or more persons in a contract agree upon a
thing in a contract.
They agree upon the same thing in the same
sense.

24. • This is also called identity of mind. In English law
it is called consensus-ad-idem.
• If the parties to be contracted do not agree upon
the same thing then no contract arises at all.
• According to Section 14 of Indian Contract Act,
consent is said to be free when it is not caused by:
Coercion (Sec 15)
Undue Influence (Sec 16)
Fraud ( Sec 17)
Misrepresentation (Sec 18)
Mistakes (Sec 20 to 22)

25. 9. Agreements Expressly Declared As
Void
• Some agreements are expressly declared as Void from
the side of law, such agreements are void-ab-initio,
such as:
 Agreements made by Incompetent Parties.
Agreements made under Mutual Mistake of Facts.
Agreements with Unlawful Consideration and Object
Agreements without Consideration
Agreements in Restraint of Marriage

26.  Agreements in Restraint of Trade
Exceptions:
Sale of Goodwill
Restraint on Partner
In case of Separation from partnership
 On sale of Goodwill of the firm
 Trade combinations
Agreements of Service
 Agreements in Restraint of Legal Proceedings
 Agreements by way of wager or wagering
Agreements.
Agreements to do Impossible Acts.

27. 10. Legal Formalities- Written and
Registered
• Contracts related to negotiable Instruments.
• Contracts of lease, mortgage etc.
• MOA, AOA
• Insurance etc