Detailed Presentation on Essentials of Contract under the Indian Contract Act, 1872 Made By: Edited By: Ayush Patria, Sangam University, Bhilwara Follow us on Instagram: @law_laboratory Website: www.lawlaboratory.in

1. ESSENTIALS OF CONTRACT

2. WHAT IS CONTRACT?
The Indian Contract Act, 1872 defines the term “Contract” under its
section 2 (h) as “An agreement enforceable by Law”. The term contract
is defined as an agreement between two or more parties which has a
binding nature, it creates and defines the duties and obligations of the
parties involved.

3. SECTION 10
• An Agreement, to be enforceable by law, must possess the essential conditions
of a valid contract as mentioned in section10 of the Indian Contract Act, 1872.
• As stated in Section 10 of Indian Contract Act , “all agreements are contract if
they’re made by free consent of parties, competent to contract, for lawful
consideration and with a lawful object and aren’t expressly declared to be void”.

4. ESSENTIALS OF VALID CONTRACT
• Offer and Acceptance
• Intention to Create Legal Relation
• Lawful Consideration
• Competent parties

5. • Free consent
• Lawful Object
• Not Expressly Declared Void
• Possibility of Performance
• Legal Formalities

6. OFFER AND ACCEPTANCE
• In order to make a legitimate contract, there must be willingness of
one party to offer and an acceptance from another party for an
equivalent. The adjective ‘lawful‘ implies that the offer and acceptance
must satisfy the wants of the contract act in relation thereto. The
proposal is defined under section 2(a) of the Contract

7. Act. Section 2(b) of the Act provides that when proposal is accepted
then it becomes a promise.
• Section 2(a), When one person signifies to a different his
willingness to try to to or to abstain from doing anything, with a
view to obtaining the assent of that other to such act or abstinence,
he’s said to form a proposal.

8. • Section 2(b), When the person to whom the proposal is formed
signifies his assent thereto, the proposal is claimed to be
accepted. A proposal, when accepted, becomes a promise.

9. CASE LAWS
• Felthouse vs. Bindley (1862) 11 CB (NS) 869
• It had been held that “An offer cannot impose silent mode of acceptance, it should be
communicated.
• Lalman Shukla vs. Gauri Dutt ( 1913 )40 ALJ 489
• It had been held that ‘The mere knowledge of a proposal doesn’t imply acceptance by the
promises, it should be communicated to bring knowledge about the same to offeror”.

10. INTENTION TO CREATE LEGAL RELATIONS
• There must be a transparent intention among the parties that the
agreement should be attached by legal consequences and make a legal
obligation.
• Agreements of a social or domestic nature don’t contemplate a legal
relationship, and intrinsically, they’re doing not produce to a contract.

11. BALFOUR VS. BALFOUR [1919] 2 KB 571
Mr. Balfour and his wife visited England for a vacation, and his wife became ill and
needed medical attention. They made an agreement that Mrs. Balfour was to remain in
England when the husband returned to Ceylon (Sri Lanka) and Mr Balfour would pay her
£30 month untill she returned. This understanding was made when their relationship was
fine, however relationship latter soured. The court held that, agreement made between
husband and wife are generally contracts as the parties did not legally bind them in an
agreement.

12. LAWFUL CONSIDERATION
• Consistent with Section 2(d), “Consideration is stated as: “When
at the will of the promisor, the promisee or the other person has
done or abstained from doing, or does or abstains from doing, or
promises to do or abstain from doing something, such act or
abstinence or promise is called consideration for the promise”.

13. • An agreement must be carried by a consideration from both the
promisor and promises.
• Consideration must be useful, it are often an act, abstinence or
forebearance or something in return.

14. COMPETENT PARTIES
The parties to an agreement should be capable of Contract. Section 11 of the Contract
Act declares that who are competent to contract, which is as follows –
• Must attain the age of majority i.e. Above 18 years (an agreement with a minor is void
ab initio).
• Person must be of sound mind.
• The person should not be disqualified by law.

15. MOHORI BIBEE V/S DHARMODAS GHOSE(1903) 30
CAL. 539
• Dharmodas Ghose, when he was a minor, mortgaged his
immovable property in favour of Brahmo Dutt, who was a
moneylender to secure a loan of Rs. 20,000. The amount of
money given to him was less than Rs. 20,000. At the time of the

16. transaction the agent, who acted on behalf of the money lender, had the
knowledge that the plaintiff is a minor. Dharmodas mother filed a suit against
the defendant stating that he was a minor when the mortgage was executed by
him and, therefore, mortgage was void and the same should be cancelled.
• Court held, “a minor’s contract is, therefore, void ab initio and wholly invalid.
In the view of the Privy Council, this was also in accordance with the Hindu
Notion of a minor’s incompetence to contract.

17. FREE CONSENT
• Consent means the party agree on the same things in the same sense in
the same manner. Consent is said to be free when it’s not caused by –
• Coercion (Section 15) – Committing any act forbidden by law or
IPC1860 or unlawful detaining of property, or threatening to commit
these acts.

18. • Undue influence (Section 16) – The use by one party to the contract of his
dominant position for obtaining an unfair advantage over the other party.
• Fraud (Section 17) – Sec 17 lists the acts that amount to fraud, which are a
false claim, active concealment, promise without the intention of carrying it
out, any other deceptive act, or any act declared fraudulent.
• In Derry vs. Peek, it had been that representation made with incautious
indifference amount to fraud.

19. • Misrepresentation (Section 18) – When one party causes the opposite party to make a
mistake as to the subject matter of the contract but this is done innocently and not
intentionally.
• Mistake – Mistake’ can be state as any action, decision or observation that produced an
undesired and unintentional result. A Mistake is said to have occurred where parties
intending to do one thing by error do something else.
Types of Mistake –
~~ Mistake of law (Section 21)~~ Mistake of fact (Section 20 & 22)

20. GRIFFITH VS. BRYMER (1903) 19 TLR 434
• Mistake of Fact
At 11am on 24 June 1902, the plaintiff had entered into an oral agreement for the hire
of a room to view the coronation procession on 26 June. A decision to operate on the
King, which rendered the procession impossible, was taken at 10am on 24 June. Wright
J held the contract void. The agreement was made on a missupposition of facts which
went to the whole root of the matter, and the plaintiff was entitled to recover his £100.

21. LAWFUL OBJECT
• The Object i.e. the purpose of the contract or an agreement must
be Lawful to be valid. If the object of the contract is illegal by
statute or common law, the contract will be void and
unenforceable in the courts. The consideration or object of an
agreement is lawful, unless—” it is forbidden by law; or is of

22. such a nature that, if permitted, it would defeat the provisions of any law; or
is fraudulent; or involves or implies, injury to the person or property of
another; or the Court regards it as immoral, or opposed to public policy.
• Example – A promises to obtain for B an employment in the public
service and B promises to pay 1,000 rupees to A. The agreement is void,
as the consideration for it is unlawful.

23. NOT EXPRESSLY DECLARED TO BE VOID
• The agreement though satisfy all the essentials of the valid contract, they must
have not been expressly declared to be void by any law in the country.
Agreement from Section 25 to Section 30 are declared void – agreement
without consideration(S.25),agreement in restraint of marriage (S. 26),
agreement in restraint of trade (S.27), agreements in restraint judicial
proceedings (S.28), an agreement by way wager (S.30).

24. Example :
• A agrees that if B pays him 50,000/- he will not marry such an agreement
is a void agreement.
• A lawyer sells his legal practice to B along with the goodwill. And A agrees
never to practice as a lawyer anywhere in the state for the next 20 years.
This is not a valid agreement since the terms are completely unreasonable.

25. LOWE VS. PEERS (1768) 2 BURR 2225
• The defendant had entered a promise under seal to marry nobody but the promisee,
on penalty of paying her 1000 pounds within three months of marrying anyone else.
• The Court remarked- “that it had been not a promise to marry her, but to not marry
anyone else, and yet she was under no obligation to marry him.” The Court found
the contract void because it was purely restrictive and carried no promise to hold on
either side.

26. Certainty of Meaning
• Consistent with Section 29 of the Indian Contract Act 1872,”Agreement
the meaning of which isn’t certain and capable of being made certain
are void. “. If the essential meaning of the contract isn’t assured,
obviously the contract cannot blow ahead. But if such uncertainty are
often removed, then the contract becomes valid.

27. • Say for instance , A agrees to sell to B 100 kg of fruit. This is a
void contract since what sort of fruit isn’t mentioned. But if A
exclusively sells only oranges then the agreement would be
valid because the meaning would now be sure.

28. POSSIBILITY OF PERFORMANCE
• Possibility of performance means the contract must be possible to finish because
legally binding contracts can’t be undertaken to perform an impossible act.
• Condition of a contract should be capable for performance. If the act is impossible
in itself, physically or legally, it can’t be enforced at law.
• Example – A agrees with B to get treasure by magic, the agreement isn’t
enforceable.

29. LEGAL FORMALITIES
• There are certain legal formalities in connection with some kinds of contracts
which have to be satisfied. These legal formalities are of writing, registration,
etc. Although an agreement can be made by words spoken or written but in
case if it is the requirement of the law that it must be in writing, it should be
in writing otherwise the agreement will not be enforced by the court on the
ground that the contract is not in writing.

30. • For instance, if there’s a contract to transfer immoveable property
from A to B, the agreement must be in writing, it must be registered
and it must be properly stamped. If such an agreement lacks any of
the above mentioned legal formalities, the contract will not be
enforceable. Therefore, the compliance of the statutory formalities
must be ensured to make the agreement legally enforceable.