A contract, as defined in Section 2(h) of the Indian Contract Act, 1872, is “an agreement enforceable by law.” This means that for an agreement to be legally binding, it must fulfill certain essential elements outlined in the Act. These essentials ensure that the contract is valid and enforceable in a court of law.

1. OFFER (PROPOSAL)

An offer is the initial step in forming a contract. According to Section 2(a) of the Indian Contract Act, 1872, an offer is defined as:

“When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”

The person making the offer is called the “offeror” or “promisor,” and the person to whom the offer is made is the “offeree” or “promisee.” For an offer to be valid, it must be clear, definite, and communicated to the offeree.

2. ACCEPTANCE

Acceptance is the act of assenting to the terms of the offer. Section 2(b) of the Act states:

“When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.”

For acceptance to be valid:

• It must be absolute and unqualified.
• It must be communicated to the offeror.
• It must be in the prescribed mode, if any.

In the case of Hyde v. Wrench (1840), the defendant offered to sell his farm for £1,000. The plaintiff counter-offered £950, which the defendant refused. The plaintiff then sought to accept the original offer of £1,000, but the court held that the counter-offer had nullified the original offer, and thus, there was no contract.

3. INTENTION TO CREATE LEGAL RELATIONSHIP

The parties must intend to enter into a legally binding agreement. Social or domestic agreements are generally presumed not to have such intention. In Balfour v. Balfour [1919] 2 KB 571, a husband’s promise to pay his wife an allowance was held not to be legally enforceable, as it was a domestic arrangement without intent to create legal relations.

4. LAWFUL CONSIDERATION

Consideration refers to something of value exchanged between the parties. Section 2(d) defines consideration as:

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

Consideration must be lawful, real, and not illusory. In Chinnaya v. Ramayya (1882) ILR 4 Mad 137, an old lady gifted property to her daughter, with the stipulation that the daughter pay an annuity to the lady’s brother. The court held that the brother could enforce this agreement, even though he was not a party to the contract, as the consideration moved from the daughter to her mother.

5. CAPACITY TO CONTRACT

Section 11 of the Act specifies who is competent to contract:

• Individuals who have attained the age of majority (18 years in general cases and 21 years if a guardian is appointed).
• Individuals of sound mind at the time of making the contract.
• Individuals not disqualified from contracting by any law to which they are subject.

In Mohori Bibee v. Dharmodas Ghose (1903) ILR 30 Cal 539, the Privy Council held that a contract entered into by a minor is void ab initio, emphasizing the importance of capacity in contract law.

6. FREE CONSENT

Consent is considered free when it is not caused by:

• Coercion (Section 15)
• Undue influence (Section 16)
• Fraud (Section 17)
• Misrepresentation (Section 18)
• Mistake (Sections 20, 21, 22)

If consent is obtained through any of these means, the contract may be voidable at the option of the aggrieved party. For instance, in Lalman Shukla v. Gauri Dutt [1913] 11 All LJ 489, the court held that there was no contract as the plaintiff was unaware of the offer when he performed the act, indicating the necessity of knowledge and free consent in contract formation.

7. LAWFUL OBJECT

The object of the agreement must be lawful. Section 23 states that the consideration or object is unlawful if it:

• Is forbidden by law.
• Is of such a nature that, if permitted, it would defeat the provisions of any law.
• Is fraudulent.
• Involves or implies injury to the person or property of another.
• Is immoral or opposed to public policy.

For example, an agreement to commit a crime or fraud is void.

8. CERTAINTY AND POSSIBILITY OF PERFORMANCE

The terms of the contract must be clear and certain. Agreements with ambiguous terms cannot be enforced. Additionally, the act to be performed must be possible.