Definition and essentials of a valid Contract

In one minute

A contract is an agreement that the law will enforce. Every contract is an agreement, but not every agreement is a contract.

Section 10 of the Indian Contract Act, 1872 gives the test. The parties must give free consent, be competent to contract, and exchange something of lawful value. Their purpose must be lawful, and the law must not declare the agreement void.

This test is the base of every long answer on the formation of a contract. In real life, it tells you whether a court will help you when a promise is broken.

Exam focus

Frequency: Frequently asked
Usually asked as: Both (long answer and short answer)

Legal provision

Section 2(e): "Every promise and every set of promises, forming the consideration for each other, is an agreement."
Section 2(h): "An agreement enforceable by law is a contract."
Section 2(g): "An agreement not enforceable by law is said to be void."
Section 10: "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."
Section 10, second paragraph: the section does not affect any law that requires a contract to be in writing, to be made before witnesses, or to be registered.

Meaning and definition

The Act builds the idea of a contract in four steps. One person makes a proposal (section 2(a)). The other person accepts it, and the proposal becomes a promise (section 2(b)). A promise, or a set of promises that are the price of each other, is an agreement (section 2(e)). An agreement that the law can enforce is a contract (section 2(h)).

"Enforceable by law" means a court will order the other side to perform, or to pay damages. Without that, the promise has only moral force.

The law draws this line for a reason. People make thousands of promises every day. Courts cannot enforce all of them, and they should not enforce unfair or unlawful ones. Section 10 keeps only the serious, fair and lawful promises. This protects the old rule of pacta sunt servanda (agreements must be kept) for the promises that deserve it.

How agreement and contract fit togetherHow to read this: the big box holds every agreement. The green box inside it holds only those the law enforces.

Agreement section 2(e): a promise, or promises that are the price of each other

Contract section 2(h): an agreement enforceable by law

Includes a voidable contract (section 2(i)): enforceable at the option of one party only

Agreement not enforceable by law section 2(g) calls it void

Detailed explanation

Section 10 works as a checklist. A missing item stops the agreement from being a valid contract. Each essential is explained below, with an example.

1. Offer and acceptance

There must be a proposal and an acceptance of it (sections 2(a) and 2(b)). The parties must also agree on the same thing in the same sense. This meeting of minds is called consensus ad idem (section 13).

Example. Anita offers to sell her scooter to Bala for Rs 40,000. Bala says, "I accept." Both mean the same scooter and the same price. The first essential is met.

2. Intention to create legal relations

The parties must mean the agreement to have legal consequences. The Act does not say this in words. Courts require it, and they presume it is missing in social and domestic arrangements. In business deals, courts presume the opposite. The rule is called intention to create legal relations.

Example. Asha invites her friend Bharat to dinner, and he accepts. Neither expects a court case if he stays away, so there is no contract. If a caterer agrees to serve the same dinner for Rs 20,000, the parties do intend legal consequences.

3. Lawful consideration

Each side must give something in return for the other's promise. This something is consideration (section 2(d)). It must be lawful (section 23). An agreement without consideration is void, with three exceptions in section 25.

Example. Meena agrees to sell her flat in Pune to Lata for Rs 40 lakh. Her flat is the consideration for Lata's money, and Lata's money is the consideration for the flat.

4. Competent parties

Section 11 makes a person competent to contract only if three conditions are met. The person must have reached the age of majority under the law that governs them. The person must be of sound mind (section 12). The person must not be disqualified by any law. A minor's agreement is void from the start, which Latin calls void ab initio.

Example. Hari, aged 17, signs a promissory note for Rs 50,000 in favour of a lender. The note is void because Hari is a minor.

5. Free consent

Consent is free when it is not caused by coercion (section 15), undue influence (section 16), fraud (section 17), misrepresentation (section 18) or mistake (sections 20 to 22). If consent is caused by coercion, undue influence, fraud or misrepresentation, the contract is voidable at the option of the person whose consent was affected (sections 19 and 19A). A mistake by both parties about a fact essential to the agreement makes it void (section 20).

Example. A moneylender in a Telangana village threatens to beat Ramesh unless he signs a loan bond. Ramesh signs. His consent is not free, and he can avoid the bond.

6. Lawful object

The object of the agreement must be lawful (section 23). It is unlawful in five cases:

the law forbids it;
it would defeat a law;
it is fraudulent;
it harms another person or property;
the court sees it as immoral or against public policy.

An agreement with an unlawful object is void.

Example. Kiran pays Dev Rs 1 lakh to bribe a licensing officer. The object is forbidden by law, so neither side can enforce it. Kiran cannot sue Dev if the licence does not come.

7. Not expressly declared void

The Act itself declares some agreements void, even when the other essentials are met. Examples are agreements in restraint of marriage (section 26), in restraint of trade (section 27), and agreements void for uncertainty (section 29). So are wagering agreements (section 30) and agreements to do an act impossible in itself (section 56).

Example. Vijay agrees to sell Sita "a hundred tons of oil", with nothing to show what kind of oil. The agreement is void for uncertainty. This is the Act's own illustration to section 29.

8. Writing, witnesses or registration, where a law requires them

Section 10 does not remove any other law that requires writing, witnesses or registration. If such a law applies and the formality is missing, the promise is not enforceable. Section 25(1) is one such law: a promise without consideration, made out of natural love and affection between near relations, must be in writing and registered.

Example. A father promises his daughter Rs 5 lakh out of love and affection, but only by word of mouth. Section 25(1) needs writing and registration, so the daughter cannot enforce the promise.

Is this agreement a valid contract?How to read this: go down the boxes in order. A "No" answer sends you to the result beside or below the box.

1. Is there an offer and an acceptance? sections 2(a), 2(b), 13
No: there is no agreement at all.
2. Do the parties intend legal consequences? case law
No: an agreement only, which a court will not enforce.
3. Are all parties competent? sections 11, 12
No: void, for example a minor's agreement.
4. Is consent free? sections 14 to 22
No: usually voidable (sections 19, 19A). Void if both parties made a mistake of fact (section 20).
5. Are the consideration and the object lawful? sections 23, 25
No: void.
6. Is it free from the Act's own declarations of voidness? sections 24 to 30, 56
No: void.
7. If a law needs writing, witnesses or registration, is it done? section 10, second paragraph
No: not enforceable until the formality is met.
All answers "Yes": a valid contract.

Don't confuse: contract and agreement

Students often think "contract" and "agreement" mean the same, because both involve promises and consideration. They do not. An agreement is the wider idea. A contract is the part of it that the law enforces.

Point	Agreement	Contract
Definition	Promises that are the price of each other (section 2(e))	An agreement enforceable by law (section 2(h))
Enforceable?	Not necessarily	Yes, by a court
Width	Wider: social, moral and legal promises	Narrower: only agreements that meet section 10
Legal duty	May or may not arise	Always arises

Inside the concept. Ravi pays a moving company Rs 5,000 to shift his furniture on Sunday, and the company agrees. All essentials are met. If the company does not turn up, Ravi can claim damages.

Just outside the concept. Ravi tells his friend Suresh, "I will help you shift house on Sunday." Both treat it as a friendly promise. It is an agreement, but not a contract. If Ravi does not come, Suresh cannot sue.

Common mistakes

Writing that "agreement" and "contract" are the same. Always say a contract is an agreement plus enforceability.
Listing only consideration and consent. Section 10 also needs competent parties, a lawful object, and no express declaration of voidness.
Forgetting intention to create legal relations because the Act does not name it. It comes from case law.
Saying a minor's agreement is voidable. It is void.

Apply it

Problem

Asha invites Bharat to dinner at her home in Hyderabad. Bharat accepts but does not come. Asha had bought food worth Rs 2,000. Can she recover her loss from Bharat?

Issue. Is there a contract that Asha can enforce?

Rule. An agreement becomes a contract only if the parties intend legal consequences. Social and domestic arrangements are presumed not to carry that intention, as in Balfour v. Balfour.

Application. An invitation to dinner is a social arrangement. Neither side expected a court to enforce it.

Conclusion. There is an agreement but no contract. Asha cannot recover her loss.

Leading case laws

Balfour v. Balfour (1919)
Facts. A husband promised his wife 30 pounds a month while she stayed in England for her health. The promise was made when he sailed back to Ceylon. The wife later sued on it.

Principle. The parties did not intend legal consequences, so there was no contract.

Why it matters. It is the standard authority for intention to create legal relations.
Carlill v. Carbolic Smoke Ball Co. (1893)
Facts. A company advertised a reward of 100 pounds for anyone who used its smoke ball as directed and still caught influenza. It said 1,000 pounds was deposited at a bank. Mrs Carlill used the ball, caught influenza, and sued.

Principle. The advertisement was not an empty boast. The bank deposit showed a serious intention to be bound.

Why it matters. It shows how courts find intention in a business setting.
Raffles v. Wichelhaus (1864)
Facts. A buyer and a seller agreed on cotton to arrive "ex Peerless" from Bombay. Two ships had that name, and each side meant a different ship.

Principle. On the pleaded facts, the plea of different ships was a good answer to the claim.

Why it matters. It is the classic illustration of the need for consensus ad idem.
Mohori Bibee v. Dharmodas Ghose (1903)
Facts. An infant mortgaged his houses to a moneylender to secure Rs 20,000. The infant then sued to have the mortgage declared void.

Principle. An infant is not competent to contract, so his agreement is not a contract under the Act. The restoration provisions in sections 64 and 65 do not apply.

Why it matters. It fixes the rule that a minor's agreement is void.

How to write this answer in the exam

5-mark answer

Define contract: section 2(h), an agreement enforceable by law.
Quote section 10 in one line.
List the essentials briefly.
Add one example and one case (Balfour v. Balfour or Mohori Bibee v. Dharmodas Ghose).

10-mark answer

Chain of definitions: proposal, promise, agreement, contract.
Section 10 in full.
Each essential with its section and one line of explanation.
Cases: Balfour v. Balfour, Raffles v. Wichelhaus, Mohori Bibee v. Dharmodas Ghose.
A comparison table of agreement and contract.
One-line conclusion: a missing essential makes the agreement void or voidable.

Key points to remember

Contract = agreement + enforceability by law (sections 2(e), 2(h)).
Section 10 lists consent, competence, lawful consideration, lawful object, and no express voidness.
Intention to create legal relations comes from case law, not from the Act.
A minor's agreement is void, not voidable.
Consent caused by coercion, undue influence, fraud or misrepresentation makes the contract voidable.
Where a law demands writing, witnesses or registration, section 10 does not remove that need.

Quick self-test

1. Which section defines "contract", and in what words?

Section 2(h): an agreement enforceable by law.

2. Why is a promise to help a friend move house not a contract?

The parties do not intend legal consequences. It is a social arrangement, so the law does not enforce it (Balfour v. Balfour).

3. What is the legal status of a minor's agreement?

It is void from the start (void ab initio), not voidable (Mohori Bibee v. Dharmodas Ghose).