A contract is essentially a legally binding agreement based on a promise.  It is established when there is mutual consent and the power to enforce its terms. The Indian Contract Act of 1842 governs contracts in India. The Act provides the structure and legalises contracts or agreements between parties. It is a crucial statute that regulates and supervises all commercial activities, encompassing deals and agreements.

Essentials of A Valid Contract

• Offer And Acceptance

According to ICA, a proposal is an offer made by one party to another who is prepared to enter into a contract. Accepting such a proposal creates an agreement. According to Section 2(a) of the ICA, it occurs when one party fulfils their obligation to demonstrate an interest in the other party to get their consent to perform or refrain from performing certain conduct. It is stated that this display of interest makes a proposal or an offer.

Section 2(b) of the ICA defines acceptance as “when an offeror makes an offer to the offeree, and the offeree provides his consent to this offer so made”.

• Competent Parties

A person is regarded competent to agree if they are of legal age, of sound mind, and not banned from entering into contracts by any laws they are subject to, as stated in Section 11 of the ICA—those who engage in agreements while under the influence of drugs or alcohol fall under this group.

• Legal Consideration

According to Section 23 of the ICA, any consideration or objective of an agreement is legal unless it is prohibited by law; otherwise, it would negate the legislation’s primary intent or amount to fraud; this includes harm to one’s person or property, as well as actions that are immoral or against public policy.

• Respectful Consideration

This idea states that only the promise and the contract stranger should provide consideration. This rule does not apply in India as the ICA names the promisee or another individual at the promisor’s request.

Which consideration is valid?

• The consideration should be lawful and possible to perform.
• It can be physical or immaterial; thus, consideration is not worthless because it is inadequate.
• The promisor must desire it.

• Free Consent

Consent is the ‘meeting of minds’, ‘consensus ad idem’ or ‘the agreement between two or more people’. According to the Indian Contract Act of 1871, for a contract to be enforceable, both parties must have agreed to the same terms in the same way when they entered into one.

Free consent in a contract is not influenced by fraud, misrepresentation, coercion, mistake, or undue influence.

• Coercion uses force or threats to persuade someone to do anything under Section 15 of the ICA.
• According to Section 16, it is undue influence if consent is sought from someone who is dominant over the other party.
• Misrepresentation occurs when false claims are stated without intent to deceive.
• Fraud is deception to exploit another individual.
• Mistake occurs when both parties commit a factual inaccuracy in the contract.

Intention to Establish Legal Relations

Both parties must agree to accept the legal implications of their agreement. Hence, intention must be carefully addressed while creating legal connections. Social and domestic agreements do not generate legal connections, whereas economic agreements are presumed to do so.