Essentials of a Valid Contract – Definitions, Examples & Case Laws
Updated on August 12, 2025
Introduction
A contract is more than just an agreement—it’s a legally binding pact between two or more parties that creates rights and obligations. Under the Contract Act, 1872, a contract is defined as “an agreement enforceable by law.” Let’s break down the essential elements that make a contract valid.
Understanding these essentials helps students, professionals, and everyday people recognize when promises carry legal weight—and when they don’t.
A contract is simply an agreement between two or more persons to do something. It is a legal relationship consisting of the rights and duties of the contracting parties; a promise or set of promises constituting an agreement between the parties that gives each a legal duty to the other and also the right to seek a remedy for the breach of those duties. The Contract Act 1872 contains the law relating to contracts. It provides the rules relating to commercial transactions and determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. It is a very important branch of mercantile law.
You May Also Find These Helpful
- Consent vs. Free Consent — What’s the Difference? — Explore when consent is considered “free” under the law, and how coercion, mistake, fraud, or undue influence can invalidate it.
- Understanding Consideration in Contract Law — Dive deeper into what counts as valid consideration, and learn when a promise is enforceable or not.
- Offer/Proposal Essentials in Contract Law — Get a breakdown of how an offer must be structured to be valid—and what flaws can derail agreement altogether.
- Acceptance: Legal Definitions and Essentials — Learn the proper way acceptance must be communicated to form a binding agreement.
Meaning and Definition of Contract
A contract is the cornerstone of commercial and legal transactions. It is more than just an agreement—it creates enforceable obligations between parties. Different jurists and legal sources define a contract in slightly different ways, but all agree on its core essence: an agreement recognized by law.
1. Salmond
Salmond defines a contract as “an agreement creating and defining obligations between the parties.” This emphasizes that a contract is not just a mutual understanding—it legally binds the parties to their commitments.
2. William Anson
According to Anson, “A contract is an agreement enforceable at law, made between two or more persons.” This stresses the enforceability aspect—an agreement becomes a contract only when the law recognizes it.
3. Sir Chitty
Sir Chitty states that a contract is “an agreement giving rise to obligations which are enforced or recognized by law.” This points out that contracts create legal duties and corresponding rights.
4. Black’s Law Dictionary
Black’s Law Dictionary defines a contract as “an agreement between two or more persons which creates an obligation to do or not to do a particular thing.” This highlights that contractual obligations can require action or restraint.
5. According to the Contract Act, 1872 (Sec. 2(h))
The Contract Act, 1872, provides the statutory definition: “An agreement enforceable by law is a contract.” This is the most concise definition, drawing a clear line between mere agreements and those that carry legal force.
Relevant Provision
Section 2(h) of the Contract Act 1872 encapsulates the legal meaning of a contract in Pakistan and other jurisdictions that follow similar legal traditions.
Essentials of a Valid Contract
Section 10 of the Contract Act lays down the key requirements that distinguish valid contracts from void or voidable agreements. It states:
“Every agreement is a contract if it is made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void in this Act.”
These essential elements are discussed in detail below.
1. Parties
Every valid contract begins with at least two distinct parties. These parties could be individuals, companies, or even government entities—but they must be legally competent to contract.
Under the Contract Act 1872, a person is competent if they:
- Are of the age of majority (usually 18 years or above).
- Have a sound mind to understand the contract.
- Are not disqualified from contracting by any law.
For example, if a 16-year-old signs a car purchase agreement, it’s not a valid contract because they lack the legal capacity. Similarly, if a person is mentally incapacitated at the time of agreement, the contract will be voidable.
In Mohori Bibee v. Dharmodas Ghose (1903), the Privy Council ruled that an agreement with a minor is void from the beginning. This case remains a cornerstone in contract law regarding capacity.
2. Agreement
An agreement is the heart of every contract. It happens when two parties are on the same page about the same thing, a concept known in law as consensus ad idem—literally, “meeting of the minds.”
If one party thinks they’re buying a “Jaguar” (the animal) and the other thinks they’re selling a “Jaguar” (the luxury car), there is no true agreement.
(a) Offer / Proposal
Section 2(a) of the Contract Act defines a proposal as: “When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”
Think of an offer as an invitation: “I am willing to sell you my car for $5,000.” The moment you make such a statement, intending for the other person to agree, you have made a proposal. Offers must be clear, certain, and communicated.
(b) Acceptance
Section 2(b) states: “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. When the proposal is accepted, it becomes an agreement.”
In simple terms, acceptance is saying “Yes” to the offer—without changing its terms. For example, if someone offers to sell a car for $5,000 and you reply, “I’ll take it for $4,500,” that’s not acceptance, but a counter-offer.
In Hyde v. Wrench (1840), the court held that a counter-offer cancels the original offer, reinforcing the need for clear and unconditional acceptance.
Definition of Agreement
Section 2(e) defines an agreement as: “Every promise or set of promises, forming the consideration for each other, is an agreement.”
This means that an agreement is more than casual conversation—it’s an exchange of promises, each given in return for the other. For example, “I will paint your house if you pay me $500” is an agreement because both sides are promising something in return.
3. Intention to Create Legal Relationship
A fundamental element of a valid contract is that the parties must intend their agreement to have legal consequences. In other words, the law will only enforce promises that are meant to be legally binding.
Social or domestic arrangements—like a promise to go for a walk or meet for dinner—are generally not contracts, because they lack this legal intention. For example, if two friends agree to watch a movie together, and one fails to show up, the other cannot sue for breach of contract.
In Balfour v. Balfour (1919), a husband promised his wife an allowance while working abroad. The court held this was not a contract because it was a domestic arrangement, not intended to create legal obligations.
4. Enforceability by Law
As defined in Section 2(h) of the Contract Act 1872, a contract is “an agreement enforceable by law.” This means that not every agreement becomes a contract—only those that meet the legal requirements outlined in Section 10 of the Act.
For example, if you and your friend agree to bet on a cricket match, that agreement is not enforceable in Pakistan, as betting is prohibited by law. While it may be an agreement, it fails the test of legality and enforceability.
The landmark English case Rose & Frank Co. v. Crompton Bros. (1925) emphasized that only agreements with legal enforceability can be recognized as contracts.
5. Free Consent
Consent lies at the heart of contractual obligations. However, the law distinguishes between mere consent and free consent.
(a) Consent
Section 13 of the Contract Act defines consent as: “Agreement upon the same thing in the same sense.” This is the principle of consensus ad idem—both parties must understand and agree to the same subject matter in the same way.
(b) Free Consent
Section 14 defines free consent as consent not obtained through:
- Coercion
- Fraud
- Misrepresentation
- Mistake
- Undue influence
If consent is tainted by any of the above, the contract becomes voidable at the option of the aggrieved party.
In Bala Devi v. Majumdar (1918) 41 Mad 33, an illiterate woman signed a deed of gift believing it to be an authorization for her nephew to manage her property. The court held there was no real consent as the document’s true nature was never explained to her.
6. Lawful Consideration
Consideration is what each party gives or promises to give in return for the other’s promise—often described as “the price for which the promise of the other is bought” (Pollock). It may be money, goods, services, or even a promise to refrain from doing something.
However, Section 23 of the Contract Act 1872 makes it clear that consideration must be lawful. Consideration is unlawful if:
- It is forbidden by law
- It defeats the provisions of any law
- It is fraudulent
- It causes injury to person or property
- It is against public policy
For instance, paying someone to commit a crime is not lawful consideration. Similarly, agreements involving bribery, illegal gambling, or restraint of marriage are void.
In Currie v. Misa (1875), the court described consideration as some right, interest, profit, or benefit to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.
7. Lawful Object
In contract law, the word “object” refers to the purpose for which the agreement is made. For a contract to be valid, this purpose must be lawful. If the goal of the contract involves something illegal, immoral, or against public policy, it will be void from the outset.
For example, an agreement to smuggle banned goods into a country is void because its object is unlawful. Similarly, a contract to defraud tax authorities is unenforceable.
In Gherulal Parakh v. Mahadeodas Maiya (1959), the Supreme Court of India explained that agreements opposed to public policy are void because they can harm the public good or disrupt the legal system.
8. Capacity of Parties
Section 10 of the Contract Act 1872 states that all agreements are contracts if they are made by parties competent to contract. Section 11 further clarifies that a person is competent if:
- They are of the age of majority according to the law they are subject to
- They have a sound mind
- They are not disqualified from contracting by any applicable law
Incompetence may arise from: (a) Minority, (b) Unsoundness of mind, and (c) Legal disqualification.
For instance, in the landmark case Mohori Bibee v. Dharmodas Ghose (1903), the Privy Council held that an agreement with a minor is void ab initio—from the very beginning.
9. Certainty
A contract must be clear, specific, and free from ambiguity. Section 29 of the Contract Act states that agreements whose meaning is uncertain or cannot be made certain are void.
For example, “I will sell you some of my goods at a fair price” is vague—what goods, and what price? However, “I will sell you 50 kg of rice at Rs. 100 per kg” is certain and enforceable.
In Scammell v. Ouston (1941), the court held that an agreement to buy goods on “hire-purchase terms” was void for uncertainty because the specific terms were never defined.
10. Possibility of Performance
A contract must be capable of being performed. Section 56 of the Contract Act clearly states: “An agreement to do an act impossible in itself is void.”
If performance is physically or legally impossible, the agreement is unenforceable. For example, a contract to bring a dead person back to life is impossible and therefore void. Likewise, promising to deliver goods that are already destroyed is legally impossible.
In Taylor v. Caldwell (1863), a music hall was destroyed by fire before the scheduled concert. The court held the contract was discharged due to impossibility of performance.
11. Not Declared Void
Some agreements are void because the law explicitly declares them so—for example, wagering agreements or certain restraint-of-trade agreements. These contracts have no legal effect, do not create rights or obligations, and cannot be enforced.
Section 30 of the Contract Act, for instance, declares that wagering agreements are void.
12. Legal Formalities
Certain contracts must follow specific legal formalities to be enforceable. These may include being in writing, signed by the parties, registered with a government office, or attested by witnesses.
For example, contracts for the sale of immovable property often require registration under the relevant property laws. Without these formalities, the contract may be unenforceable.
Conclusion
A legally binding contract is an agreement between two or more parties that the law will enforce. For a contract to be valid, it must contain key elements: offer and acceptance, lawful consideration, intention to create legal relations, capacity of parties, lawful object, certainty, and possibility of performance.
If any of these essentials are missing, the contract may be void, voidable, or unenforceable. While oral contracts can sometimes be valid, putting agreements in writing—especially for significant transactions—helps avoid disputes and makes enforcement easier.
Frequently Asked Questions (FAQs) on Essentials of a Valid Contract
1. What is a Contract?
A contract is a legally binding agreement between two or more parties that creates enforceable obligations. It requires essential elements such as offer, acceptance, consideration, and intention to create legal relations.
2. What is a Legal Contract?
A legal contract is an agreement that is enforceable by law, meaning it meets the requirements set out in the Contract Act 1872 or other applicable laws.
3. What are the Essential Elements of a Contract?
The essential elements include: offer and acceptance, lawful consideration, capacity of parties, free consent, lawful object, certainty, and possibility of performance.
4. What is a Contract According to the Contract Act 1872?
Section 2(h) of the Contract Act 1872 defines a contract as “an agreement enforceable by law.”
5. Which Contracts are Enforceable at Law?
Contracts that fulfill all the conditions mentioned in Section 10 of the Contract Act 1872 are enforceable—this includes free consent, lawful consideration, lawful object, and capacity of parties.
6. Discuss the Essentials of a Contract.
The essentials are: offer, acceptance, lawful consideration, lawful object, competent parties, free consent, certainty, possibility of performance, and compliance with legal formalities.
7. Define Contract and Give its Essentials.
A contract is an agreement enforceable by law. Essentials include offer, acceptance, lawful consideration, lawful object, capacity, free consent, certainty, and legal enforceability.
8. “An Agreement Enforceable at Law is a Contract” — Explain.
This statement means that only agreements meeting the legal requirements—such as lawful object, capacity, and consent—are recognized as contracts.
9. Explain the Essentials of a Valid Contract.
A valid contract requires lawful offer, lawful acceptance, consideration, lawful object, free consent, capacity of parties, certainty, and possibility of performance.
10. Essentials of a Valid Contract.
These are the basic conditions without which a contract is void or unenforceable—offer, acceptance, consideration, lawful object, competent parties, consent, and certainty.
11. Can Uncertain Terms Make a Contract Void?
Yes. Under Section 29 of the Contract Act, agreements with uncertain terms that cannot be made certain are void.
12. Essentials and Legal Rules for a Valid Contract.
Legal rules include offer and acceptance, lawful consideration, lawful object, free consent, capacity of parties, certainty, and legal formalities when required.