Essentials of Formation of Contract
The Two Pillars of Every Contract: Agreement & Enforceability
Every valid contract rests on two fundamental components:
- An agreement between parties
- Enforceability by law
What is a Contract?
A contract is a legally binding agreement between two or more parties that creates enforceable rights and obligations.
Let’s break these down in plain terms. 1. Agreement: The Meeting of Minds
An agreement happens when:
- One party makes an offer (proposal)
- The other party accepts it
- Both parties understand and intend the same thing about the agreement’s subject matter
This mutual understanding is called “consensus ad idem” (Latin for “meeting of the minds”).
Legal Definitions Under Indian Contract Act, 1872
Section 2(b): When the person receiving a proposal accepts it, the proposal becomes a promise.
Section 2(e): An agreement is “every promise or set of promises forming consideration for each other.”
2. Enforceability: What Makes an Agreement Legally Binding?
Not all agreements are contracts—only those enforceable by law.
Types of Agreements Based on Enforceability
| Type | Description |
|---|---|
| Enforceable | Legally valid; courts can uphold it (e.g., a signed employment contract). |
| Unenforceable | Lacks legal validity (e.g., a gambling agreement in India). |
Key Point:
“All contracts are agreements, but not all agreements are contracts.”
For an agreement to become a valid contract, it must pass the enforceability test—meaning courts can step in if one party breaches the terms.
6 Essential Elements of a Valid Contract (Under Section 10)
For an agreement to qualify as a legally binding contract under the Indian Contract Act, 1872, it must have:
- Offer & Acceptance
- Clear proposal + unconditional acceptance.
- Lawful Consideration
- Exchange of something valuable (money, services, etc.).
- Capacity to Contract
- Parties must be legally competent (age 18+, sound mind, not disqualified by law).
- Free Consent
- No coercion, fraud, or misrepresentation.
- Lawful Object
- The purpose must be legal (e.g., you can’t contract for illegal activities).
- Possibility of Performance
- Terms must be realistically achievable.
Example:
If you hire a freelancer to design a website (lawful object) for ₹10,000 (consideration), and both parties agree without pressure (free consent), you’ve got a valid contract.