Essential Elements Of Valid Contract

1) Offer and acceptance

2) Intention to create legal relationship
3) Lawful consideration
4) Capacity of parties
5) Free and genuine consent
6) Lawful object
7) Writing and Registration
8) Certainty and possibility of performance
9) Agreement not declared void
 Offer and Acceptance
• Person making an offer is called as offeror, proposer, or
promisor.
• Person to whom offer is made is called as offeree or promisee.
• Offer is a proposal by one party to another to enter into a
legally binding agreement with the offeror.
• Eg : A says to B, will you purchase my car for Rs. 50,000?
A in this case is making an offer to B as he signifies to B his
willingness to sell his car to B for Rs. 50,000 after obtaining B’s
consent.
 How is an Offer made?

Express words spoken written

Eg :
➢ P advertises in the newspaper offering Rs. 10,000 to anyone who returns
his lost dog.
➢ A says to B will you purchase my house at Mumbai for Rs. 70 lakhs.
There is an express offer.
When an offer is made to the world at large then it is called as
General Offer.
❖ Carlill vs Carbolic Smoke Ball Co. (1893)
Offer can be made to a definite person or when an offer is made
to the world at large it is called as a General Offer.

Offer must be such that it should create legal relationship. A social

invitation even if it is accepted will not create a legal
relationship.
 Carlill vs Carbolic Smoke Balls Co.
Company advertised in several newspapers that
a reward of 100 Euros would be given to any
person who contracted influenza after using
the smoke balls according to its printed
direction.
Mrs. Carlill used the smoke balls according to
the directions of the company but contracted
influenza.
It was held, she could recover the amount as by
using the smoke balls as she had accepted the
offer.
• Aman says to Raju, “ I will sell you a car.”
Aman owns 3 different cars. Is the offer a
definite offer?
 Acceptance
• Contract arises from the acceptance of an
offer.
• When the offeree signifies his assent to the
offer, the offer is said to be accepted.
• Acceptance may be –
➢Express or
➢Implied
 Express Offer & Implied Offer
Express Offer Implied Offer
When it is communicated by It is implied when it is to be
words, spoken or written or by gathered from the surrounding
doing some required act. circumstances or the conduct
of the parties.
Eg: P makes an offer to sell his
flat to R. R accepts the offer. Eg: At auction sale, S is the
highest bidder. The auctioneer
accepts the offer by striking the
hammer on the table.
 Who is eligible to accept the offer?

• Acceptance of a particular offer

• Acceptance of general offer -
(Carlil vs Carbolic Smoke Ball Co.)
 When is communication of offer and
acceptance complete?
Eg: Ram proposes, by a letter, to sell a house to
Shyam at certain price.
The letter is posted on 10th July. It reaches to
Shyam on 12th July.
➢The communication of the offer is complete
when Shyam receives the letter on 12th July.
 Intention to create legal relations
Intention to create legal relations- Parties should create legal obligation and
legal consequences. Agreements of moral, social or domestic nature do
not give rise to legal relations hence not a contract.
Eg: M promised his wife N to get her a saree if she would sing a song. N sang
the song but M did not bring saree for her. N could not bring action in
court to enforce the agreement as it lacked the intention to create legal
obligation.
Balfour VS Balfour
Mr. Balfour was living and enjoying his life with his wife. His wife had health
problem so she could not travel to another state with Mr. Balfour. He
agreed to send her 30Euros every month for her maintenance expenses..
Eventually he did not complete his promise and his wife sued him for breach
of agreement. The court rejected the suit /case as there was no legal
relation and hence not a Contract.
• In commercial agreements an intention to create legal relations is presumed. Hence
an agreement to buy and sell goods intends to create legal relationship, hence it’s a
contract, provided all requisites of valid contract are present.
• Eg: ABC Pvt Ltd entered in an agreement with Company PQR Pvt Ltd by means the
former was appointed as the agent of latter. One of the clause of the agreement
was as follows- ‘’this agreement is not entered into a formal/legal agreement and
shall not be subject to legal jurisdiction in the court.” It was held there was no
intention to create legal relation on the part of parties to agreement and hence
there was no contract.
 Lawful Consideration
• It is one of the essential elements to support a contract, Subject to certain
conditions.
• Consideration means Something in return.
• Consideration means something which is of some value in the eye of
law……It may be some benefit to the plaintiff of detriment to the defendant.
• Section 2(d) defines Consideration.
• Consideration is defined as the price paid by one party for the promise of
another.
• An agreement is legally enforceable by law only when each of parties to it
gives something and gets something. The something given or obtained is the
price for the promise and is called as CONSIDERATION.
• Subject to certain exceptions, gratuitous promises are not enforceable by law.
Eg: A promises B not to file a suit against him if he pays B Rs. 500.
• The consideration may be an act (doing something) or forbearance (not doing
something) or a promise to do or not to do something.
• Consideration may be past, present and future. But only those consideration are
valid which are lawful. Consideration is lawful, unless it is forbidden by law, or
defeats the provisions of law or is fraudulent or implies injury to person or property
of another or is immoral or against public policy.
• Chinnaya vs Ramayya – A an old lady granted/ gifted a property consisting of some
land to her daughter R (defendant) by a gift deed. The deed was registered to the
proper authorities. One of the terms of the deed was that the daughter had to pay
a sum of Rs.653 annually to her uncle C. Later the old lady died, and the defendant
refused to pay the money to C claiming that no consideration had moved from C
her uncle.
• It was held that stranger to consideration may maintain suit. In this case C was
stranger to consideration , but he was NOT Stranger to the Contract and there was
separate contract between R and uncle C. The uncle C could not have sued on basis
of gift deed executed by A in favour of R because he was not a party to it.
 Exceptions to “No Consideration No
Contract”
• Agreement without consideration is void but
subject to the following Exceptions
❑ Love and affection
❑Compensation for voluntary services
 Capacity of Parties
• The parties who enter into a contract must
have the capacity to do so.
• According to section 11 of ICA, 1872 – Every
person is competent to contract who
➢Is age of majority according to law
➢Is of sound mind
➢Is not disqualified from contracting by any law
to which he is subject.
 Minority
• The first rule of law is that the law protects
minors against their own inexperience.
• The second rule of law is that the law should
not cause unnecessary hardship to persons
who deal with minors.
 Minor’s Agreement
• The agreement with or by a minor is VOID AB
INITIO and INOPERATIVE.
Eg : Minor mortgaged his house with a money
lender against a secured loan for Rs 20,000
out of which the money lender i.e. the
mortgagee paid a sum of Rs 8,000.
Subsequently the minor sued for setting aside
the mortgage stating that he was underage
when he executed the mortgage.
• Mohiri Bibi vs Dharmodas Ghose(1903) CAL
539
➢ It was held that the mortgage was Void and
therefore it stand cancelled.
➢The money lender’s request for the repayment
of the amount advanced to the minor as part
of consideration was also rejected.
• Minor can be a promisee or beneficiary .
• Incapacity of minor to enter into a contract
means incapacity to bind himself by a contract.
Eg : M aged 17 years agreed to purchase a
second hand bike for Rs 5,000 from Q. He paid
Rs 200 as advance and agreed to pay the
balance the next day and collect the bike.
When M came with the balance money the next
day Q told him that he had changed his mind
and offered to return the advance.
In this case Q cannot avoid the contract though
M may, if he likes.
 Persons of Unsound Mind
• Lunatics
• Idiots
• Drunken or intoxicated persons

Agreements entered into with the above

persons is Void.
 Other Persons
• Alien enemies
• Insolvents
• Convicts
 Consent & Free Consent
• Consent means acquiescence or act of assenting to
an offer.
• “ Two or more persons agree upon the same thing.”
• Free Consent – Consent is said to be free when it is
NOT caused by –
➢ Coercion (Section 15)
➢ Undue Influence (Section 16)
➢ Fraud (Section 17)
➢ Misrepresentation (Section 18)
➢ Mistake (Subject to Section 20,21,22 read with
Section 14)
 Coercion
• When a person is compelled to enter into a
contract by the use of force by other party or
under a threat then it amounts to coercion.
• Coercion includes fear, physical compulsion
and menace to goods.
• Eg: A threatens to shoot B if he(B) does not
release him(A) from a debt which A owes to B.
B releases A under threat. This release is not
voluntary but under coercion.
 Undue Influence
• One party compelled to enter into an agreement
against his will as a result of unfair persuasion by
other party.
• One party dominates the will of other party.
• Eg: Relation of master and servant or doctor or
patient.
• Eg: A spiritual guru induced his devotee to gift to
him the whole of his property in return of a
promise of salvation of the devotee. Such consent
given by devotee is under undue influence.
 Misrepresentation & Fraud
• A representation when wrongly made with
respect to a ,material fact either innocently or
intentionally, is a misrepresentation.
• Misrepresentation is not only mis statements
of facts but also includes suppression of
material facts.
• Fraud- A false representation made knowingly
or without belief in its truth or recklessly not
caring whether it is true or not and the maker
of such false representation made the other
party to act upon it will amount to fraud.
 Mistake
• Mistake can be – 1. Mistake of law of the
country
2. Mistake of law of foreign country
3. Mistake of fact

1)Unilateral mistake 2) Bilateral mistake

• Mistake of law is no excuse.
 Lawful Object
• For a valid contract it is necessary that parties to an agreement must have
a lawful object.
• The object for which the agreement has been entered into must not
fraudulent or illegal or immoral or opposed to public policy or must not
imply injury to the person or property of another.
• If the object is unlawful for any reason the agreement is null and void.
• Eg: Landlord is giving his property to a person for illegally keeping arms
and weapons, if in future any dispute arises between the landlord and
tenant then the landlord cannot go to court for solving the dispute and
getting justice neither can recover the rent as the objective was unlawful
and illegal.
 Writing and Registration
• According to the Indian Contract Act, 1872 a contract may be an
oral contract or in writing.
• But in certain special cases it lays down that the agreement will
be valid if it is in writing and registered with the proper
authorities(registrar).
• Eg: Leave and License Agreement, Partnership Deed, Transfer of
property, making a gift deed, arbitration agreement, etc….
 Certainty and Possibility of Performance
• Agreements which are not certain or capable of being certain are void.
Eg: Ram agrees to sell his car to Shyam. It is an uncertain statement as which car is
Ram going to sell name of car, colour of car is not mentioned hence it is a
vague statement.
• Possibility of performance of contract is that which is capable of being
performed.
Eg: Billy promises Willy that he will discover treasure by magic for him.
It is Void Agreement as the action is impossible to be performed.
 Agreements not expressly declared VOID
• Certain types of agreements have been expressly declared
Void as per Indian Contract Act.
• Eg: Agreement in restraint of marriage or trade.
 Void Agreements & Void Contracts
• Void Agreements - Certain Agreements have
been expressly declared to be void by the
Indian Contract Act.
• Void Contracts – A contingent contract to do
or not to do something on the happening of
an event becomes void when the event
becomes impossible. A contingent contract is
a contract to do or not to do something, it
depends upon the happening or not
happening of the event.
• When a contract becomes void , the party
who has received the benefit , must restore it
to the other party or must compensate.
Eg: A contracts with B a sum of money when B
marries E. E dies without being married to B.
The contract becomes Void.
Offer & Acceptance Consideration Essentials of
Valid Contract

Remedies for Discharge of Performance of

Breach of Contract Contract
Contract (MODES)

Time Place