The goal of this article is to walk you through the five basic essential elements of a contract, from offer to legality, so as to ensure that your agreement is legitimate and acceptable. To fully appreciate all the essential elements of a contract, we must first understand the terms ‘The Contract, Agreement and Proposal’ as defined by The Indian Contract Act, 1872. The term "Contract" under Section 2(h) of the Indian Contract Act, 1872 is defined as "An agreement enforceable by law".

We can see from this definition that the two basic essential elements of a valid contract are:
1. An Agreement and
2. Enforceability of this Agreement by Law
Now, as per Section 2 (b), a proposal when accepted, becomes a promise. While as per Section 2(e) every promise and every set of promises, forming the consideration for each other is called an Agreement.

ESSENTIAL ELEMENTS OF A CONTRACT- A LEGAL ANALYSIS

I. OFFER AND ACCEPTANCE: FIRST ESSENTIAL ELEMENTS OF CONTRACT

The term offer/proposal is defined under section 2 (a) of the Indian Contract Act, 1872. An offer in the first place is an expression of the offeror’s willingness to do or to abstain from doing something. Secondly, it should be made with a view to obtaining the assent of the offeree to the purposed act or abstinence. As per the essential elements of a contract, an offer may be communicated by the offeree in any way which has the effect of laying before the offeree the willingness to do or abstain. Thus a valid offer for example, may be given by words of mouth or by writing or even by conduct.

The Acceptance of any offer shall be a clear and certain one. The acceptance works as per the offer, if it is offered in general then anyone can accept it, but if the offer is made to a particular person it shall get accepted by that person only.

In Coffee Board vs CCT, AIR 1988 SC 1487, Hon’ble Apex Court held that “Offer and Acceptance can be spelled out from the conduct of the parties which covers not only their acts but also their omissions.”

II. INTENTION TO CREATE A LEGAL RELATIONSHIP: SECOND ESSENTIAL ELEMENTS OF CONTRACT

Though there is no provision in the Indian Contract Act requiring that an offer or its acceptance should be made with the intention of creating a legal relationship. But in English Law it is a settled principle that “to create a contract there must be a common intention of the parties to enter into legal obligations”.

In Dalrymple vs Darlymple, (1811) 161 ER 665 it was observed by Lord Stowell that “contracts must not be the sports of an idle hour, mere matters of pleasantry and badinage, never intended by the parties to have any serious effect whatsoever”

III. LAWFUL CONSIDERATION (QUID PRO QUO): THIRD ESSENTIAL ELEMENTS OF CONTRACT

The term consideration has been defined under Section 2(d) of Indian Contract Act, 1872. In simple words, consideration cane be understood as “the price of the promise”. As per Blackstone, “Consideration is the recompense given by the arty contracting to the other”

Another simple definition is by Justice Patterson “Consideration means something which is of some value in the eyes of the law… It may be some benefit to the plaintiff or some detriment to the defendant.”

Thus, the consideration must be legal in order to be valid in the eyes of law.

IV. COMPETENT PARTIES: FOURTH ESSENTIAL ELEMENTS OF CONTRACT

Section 11 of the Act states that those who are competent to contract must fulfil the criteria of parties competent to contract, which is as follows:
1. The person should not be disqualified by law
2. Must attain the age of majority
3. Person of sound mind

Contract by Minor:
An Agreement created or made with a minor is no doubt a void agreement, but the property related to that minor is liable for necessaries supplied to him. There is always a case open for a guardian to enter into a valid contract on behalf of the minor, but the minor has no right to allow or give consent of a contract on attaining majority.

Special Note: Though the minor cannot be a partner in the property, he can get admitted to the profits of partnership with the consent of all partners.

Persons of Unsound Mind:
As per this essential element of a contract, the offeror as well as the offeree needs to be of sound mind. People with a disability to think or work mentally and drunkards are not allowed to enter into a contract. The situation of a person of unsound mind is allowed to enter into a valid contract only when he is in a sound state of mind.

V. FREE CONSENT: FIFTH ESSENTIAL ELEMENTS OF CONTRACT

Consent is supposed to be made when the two parties in an agreement agree upon the same thing in the same sense (Section 13).
As per the essential elements of a valid contract, a consent is stated to be a ‘free consent’ when it is not caused by mistake, misrepresentation, undue influence, fraud or coercion. (Section 14) When consent is made by any of the stated elements in the statement above, the contract is voidable at the option of the party whose consent was so caused (Sections 19 and 19A)

1. Coercion: Coercion is committing or threatening to commit any act, forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain any property, to the prejudice of any person to cause any person to agree (Section 15). A contract affected by coercion is voidable at the right of the aggrieved party.
2. Undue Influence: When one party to a contract can dominate the will of the other and uses the position to obtain an unfair advantage, the contract is said to be induced by undue influence. (Section 16). Such a contract is called as voidable, not void.
3. Fraud: A Fraud exists when a false representation has been made knowingly to deceive the other party, or to induce him to enter a contract (Section 17). The contract in the case is voidable.
4. Misrepresentation: This means a misstatement of a material fact made believing it to be true, without intent to deceive the other party (Section 18). The contract will be voidable in this case.
5. Mistake: An agreement is considered as a void agreement when both the parties are at a mistake to a matter of fact to the agreement, the agreement is altogether void.

CONCLUSION

It's highly likely that a contract will fail if any one of the aforementioned essential elements of a contract is missing. Both the substantive and procedural components of a contract are equally important. This means that creating a valid contract and making sure that all terms and conditions are understood by both parties and that they are knowledgeable, competent, and able to engage into a legally binding agreement are essential.