Essential features of a Valid Contract

Valid contract is a legally enforceable agreement that meets all conditions outlined in the Indian Contract Act, 1872. For an agreement to become a valid contract, it must possess certain essential features.

First, there must be a lawful offer and acceptance showing a mutual agreement between the parties. Both must intend to create legal relations, distinguishing contracts from social arrangements. Lawful consideration—something of value exchanged—must also be present.

The parties involved must be competent to contract, meaning they must be of legal age, of sound mind, and not disqualified by law. Additionally, consent must be free and voluntary, not obtained through coercion, fraud, or misrepresentation.

The object of the contract must be lawful, and its terms should be clear, certain, and possible to perform. Furthermore, the agreement must not be declared void by law and should follow necessary legal formalities, where required.

If any of these essential features are missing, the contract may be considered void, voidable, or unenforceable, thus lacking legal effect.

Essential features of a Valid Contract:

1. Offer and Acceptance

A valid contract begins with a lawful offer by one party and a lawful acceptance by another. The offer must express a clear intention to form a contract, and the acceptance must be absolute, unconditional, and mirror the terms of the offer. It should be communicated properly through prescribed or reasonable means. Without proper offer and acceptance, there is no agreement, and hence, no contract. The offer may be specific (to a person) or general (to the public), but acceptance must be made by the person to whom the offer is directed. Additionally, if the acceptance is not communicated, or is delayed, the contract is not valid. A mere expression of interest or negotiation is not a valid offer. Likewise, silence cannot be considered acceptance. The communication of both offer and acceptance must be complete as per Section 4 of the Act. Thus, offer and acceptance form the foundation of a contract and represent the mutual consent of the parties to be legally bound by agreed terms and conditions.

2. Intention to Create Legal Relationship

For an agreement to be enforceable as a contract, the parties must have the intention to create legal relations. This means they must intend that the agreement will have legal consequences and that the law will enforce their rights and obligations. In social, domestic, or personal arrangements—like between family members or friends—this intention is typically absent, making such agreements legally non-binding. For example, a promise to take someone to dinner or gift them money, even if agreed upon, lacks legal enforceability due to the absence of legal intent. In contrast, business or commercial agreements are generally presumed to have this intent unless explicitly stated otherwise. Courts often look at the context and conduct of the parties to determine whether legal intent existed. Without such intent, an agreement, no matter how formal, cannot be enforced as a contract under the law. Therefore, the presence of a clear and mutual intention to enter a legal relationship is a critical feature of a valid and enforceable contract.

3. Lawful Consideration

Consideration is something of value exchanged between the parties to a contract. As per Section 2(d) of the Indian Contract Act, it refers to an act, forbearance, or promise by one party in return for the promise of the other. A contract without consideration is generally void, unless it falls under special exceptions (like agreements made out of love and affection in writing and registered). For consideration to be lawful, it must not be illegal, immoral, fraudulent, or against public policy. Consideration must also be real, meaning it should have some value in the eyes of the law, even if it is nominal. It may be past, present, or future, but it must be provided by the promisee or someone on their behalf. For example, if A agrees to sell a car to B for ₹1 lakh, that ₹1 lakh is the consideration. This exchange of value makes the contract enforceable. A promise without anything in return (gratuitous promise) is not a contract. Thus, lawful consideration is essential to validate a contractual relationship.

4. Capacity of Parties

Under Section 11 of the Indian Contract Act, only persons who are competent to contract can legally enter into binding agreements. A party is said to be competent if they fulfill the following conditions:

• They have attained the age of majority (18 years in India).

• They are of sound mind, meaning they can understand the contract and make rational decisions.

• They are not disqualified from contracting by any law applicable to them (e.g., insolvents, foreign sovereigns under certain conditions).

Contracts with minors or persons of unsound mind are void ab initio (invalid from the beginning). For example, a contract signed by a minor to purchase property is unenforceable. Similarly, contracts with intoxicated persons or those suffering from mental incapacity at the time of agreement are voidable. This requirement ensures that all parties to a contract are fully capable of understanding and fulfilling the legal obligations they are agreeing to. Hence, legal capacity safeguards the fairness and reliability of the contractual process and is essential for the validity of any contract.

5. Free Consent

According to Section 14, a contract is valid only if it is entered into with free consent of all parties. Consent is said to be free when it is not obtained by:

• Coercion (Section 15)

• Undue Influence (Section 16)

• Fraud (Section 17)

• Misrepresentation (Section 18)

• Mistake (Section 20, 21, 22)

If consent is obtained by any of these elements, the contract is either voidable (can be rescinded by the affected party) or void (not legally enforceable). For example, if A forces B to sign a contract under threat, the contract is voidable at B’s option. Likewise, if a party was misled or deceived, they can choose to cancel the contract. Consent must be genuine and voluntary. The principle ensures fairness and protects weaker parties from exploitation. In contracts involving fiduciary relationships (e.g., guardian and ward), undue influence is often presumed. Therefore, ensuring that all parties give free and informed consent is crucial for a contract to be considered legally valid.

6. Lawful Object

The object or purpose of a contract must be lawful. As per Section 23, an agreement is unlawful if:

• It is forbidden by law

• It defeats the provisions of any law

• It is fraudulent

• It involves injury to a person or property

• It is immoral or against public policy

Contracts involving illegal acts, like contracts for smuggling, prostitution, or bribery, are considered void and unenforceable. Even if all other elements of a contract exist—like offer, acceptance, and consideration—the contract will not be valid if the object is unlawful. For instance, an agreement to deliver banned drugs in exchange for money is void. Likewise, contracts involving immoral purposes (e.g., cohabitation contracts in exchange for money) are also invalid in the eyes of the law. The rationale is to ensure that contracts support legal, ethical, and socially acceptable objectives. Thus, a lawful object is a fundamental requirement for a valid and enforceable contract.

7. Certainty and Possibility of Performance

A valid contract must have clear and definite terms. According to Section 29, agreements whose meaning is uncertain or incapable of being made certain are void. Vague promises or ambiguous terms lead to confusion and cannot be enforced. For instance, an agreement to sell “a reasonable quantity” of rice or to pay “a fair amount” without clarification lacks certainty. Moreover, the contract must be capable of performance. If the act promised is impossible, either physically or legally, the contract is void under Section 56. For example, a contract to bring a dead person back to life or to build a house on land that doesn’t exist is not enforceable. Even if both parties are unaware of the impossibility, the contract remains void. Therefore, the terms must be specific, and the performance must be practically and legally feasible. Certainty and possibility ensure that the parties clearly understand their rights and duties, and courts can determine the enforceability of the contract when disputes arise.

8. Agreement Not Expressly Declared Void

A contract must not be of a type that is expressly declared void under the Indian Contract Act. Some examples of void agreements include:

• Agreements in restraint of trade (Section 27)

• Agreements in restraint of legal proceedings (Section 28)

• Agreements with uncertain terms (Section 29)

• Wagering agreements (Section 30)
  These agreements are unenforceable from the beginning. For example, a contract that restricts a person from practicing any profession, trade, or business is void unless it falls under legal exceptions like trade combinations or service bonds with reasonable restrictions. The law also discourages agreements that hinder legal rights or promote gambling. Additionally, agreements based on fraudulent or immoral purposes are also void. This provision ensures that only those agreements that comply with the legal framework and public interest are given recognition as valid contracts. Therefore, to be valid, a contract must not fall under any category that the law declares to be void or against public interest.

9. Legal Formalities

While the Indian Contract Act does not mandate that all contracts must be in writing, certain contracts require specific formalities for validity. For instance:

• Contracts relating to sale of immovable property must be in writing, signed, and registered under the Registration Act, 1908.

• Contracts under the Negotiable Instruments Act, like promissory notes or cheques, must be written.

• Government contracts require written form and proper authorization under Article 299 of the Indian Constitution.

Non-compliance with required legal formalities may render a contract void or unenforceable. In some cases, stamping, notarization, or attestation may also be necessary. Legal formalities ensure authenticity, prevent fraud, and help in proving the contract in case of disputes. Oral contracts are valid for most day-to-day transactions, but they are harder to enforce due to lack of proof. Therefore, understanding when formal requirements apply is critical for ensuring the enforceability and legality of a contract in the appropriate legal context.

10. Mutual Consent

A valid contract requires that both parties have mutual consent, meaning they agree to the same thing in the same sense—commonly referred to as consensus ad idem. If parties misunderstand the terms or have different interpretations of the agreement, no real consent exists, and the contract may be void. For example, if A agrees to buy B’s car, believing it to be a BMW, but B meant to sell a Toyota, the contract lacks mutual consent. Such errors are known as mutual mistakes and void the contract. This principle ensures that the foundation of the contract is built on common understanding. It distinguishes valid agreements from accidental or misunderstood arrangements. The absence of mutual consent may result from mistake, fraud, misrepresentation, or ambiguity. Without mutual understanding of terms and intent, the agreement cannot be enforced. Thus, mutual consent is not just about agreement—it is about agreeing to the same thing in the same way, which is fundamental to the formation of any valid contract.