To be a valid contract an agreement needs various elements. If these elements are not satisfied, law cannot enforce such an agreement.

For example, Sita contract of car selling in rupees 5 lakh is made between two parties. Sita agree to sell his car to Rita for Rs 5 lakh. Car is consideration for Rita and price 5 lakh is the consideration for Sita.

Supreme Court of Nepal has decided about essential elements of contract in some cases; like Supreme Court of Nepal had treated as Contract If there presents proper offer and acceptance. (The case of Tritha Rajkumari Rana vs. Binod Shanker Shrestha)

Followings elements are essential for a valid contract:

Nepal Contract Act 2056 mentions few provisions as an essential element of valid contract.

Plurality of parties:

There must be at least two parties to form a contract. A single person cannot enter into a contract. Two parties, namely offerer and acceptor must be under an agreement for a valid contract.

Proper offer and acceptance:

There must be at least two parties one making the offer and the other accepting it. Offer means if somebody makes proposals to do something or not to do something. Offer and acceptance is most important elements for valid contract. Offer helps to create an agreement. If somebody offers in one way other party accepts it in another way that is not acceptance. Offer and acceptance must be in same way which is mostly called the meeting of the mind. There must be meeting of two minds. The term of offer must be definite and acceptance of the offer also must be absolute and unconditional.

For example, Ram makes an offer for sending to Hari to sell his horse for Rs 10,000/- and Hari agrees to purchases Ram's horse in prescribed offer. Here proposal is offer and consent to purchase is acceptance.

Intention to create legal relationship:

When the two parties enter in to an agreement their intention must be to create legal relationship between them. If there is not such intention of either party of an agreement, there is no contract between them. To constitute a contract legal relationship between or among parties should be seen otherwise remedy of that contract could not be achieved. Agreement of domestic nature will not constitute contract. For an Example,

In a case Balfour vs. Balfour: A husband was employed in a government post in Ceylon. He returned with his wife to England on leave but she was unable to go back to Ceylon with him for her medical reasons. Husband promised orally to make her an allowance of £30 a months until she rejoined him.

Lawful Consideration:

Another essential element of valid contract is the presence of lawful consideration. Consideration has been defined as the price paid by one party for the promise of other. To get something in exchange is consideration. An agreement is legally enforceable only when each of the party gives something and gets something. Consideration has been defined as the price paid by one party for the promise of other. It may be a promise to do or not to do something. But it must be real and law full which may be in past, present and future. Nepal Contract Act has defined consideration as the promise made to do or not to do any work in return of doing or not doing of any work mentioned in the proposal. (Section 2(d) of Nepal Contract Act, 2056)

Free Consent:

Free consent of all the parties to an agreement is another essential element of valid contract. Consent means that the parties must have agreed up on the same thing in the same sense. If the agreement is vitiated by any of the following factors the contract would be voidable and can not be enforced by the party. Other party can reject the contract. (Section 14 of Nepal Contract Act 2956)

  • Coercion;
  • Undue influence;
  • Fraud;
  • Misrepresentation;
  • Mistake etc.

For example, 'X' treatens to beat 'Y' if he does not buy his cycle in rupees, 5000/- to so. Here 'Y's consent is not regarded as free consent because 'Y's acceptance is made due to  treatens.

Capacity of the parties:

The party to an agreement must be competent to enter into an agreement of contract. Otherwise it cannot be enforceable by a court of law. In order to be competent enter into contract the parties must be the age of adult, (According to Nepal contract Act, attained 16 years of age. Section 3.1) sound mind and must not be disqualified by any law to which they are subject. If any of the party suffers from lunacy, idiocy and drunkenness the agreement is not enforceable by law. For example, Ram is years old enter into agreement to sell his house to Shyam; an adult. This contract is void ab initio, that is in operative from the beginning because ram, being a minor.

Lawful Object:

For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered in to an agreement must not be fraudulent, illegal, immoral, or opposed to public policy or must not imply injury to the person or property of another. If the object is unlawful for one or the other of the reasons mentioned above the agreement is void. A contract of such objectives is not enforceable by law. They are void from the beginning. (Section 13 of Nepal Contract Act, 2056) e.g. When a landlord knowingly lets a house to a gambler to carry illegal gambling he can not recover the rent through a court of law.

Written form and registration:

According to the Indian Contract Act, a contract may be oral or in writing. But in certain special cases it lays down that the agreement to be valid must be in written form and registered. But there is no specific provision in Nepal which made that contract should be registered. If parties wish they can registered it but not mandatory.

Certainty and Clarity:

To be a valid contract the objective and obligation of contract must be clear and certain. The term of agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement otherwise it cannot be enforced. (Section 13(g) of Nepal Contract Act 2056)

For example, Ram agrees to sell to Hari 10,000 tons of oil there is nothing whatever to snow what kind oil was intended it may be kerosene oil, it may be sunflower oil and may diesel oil.

Possibility to Performance:

Another essential element of valid contract is that it must be capable of performance. If the act is impossible in itself physically or legally the agreement cannot be enforced by law. Impossible contracts are not valid because performance is most essential elements of valid contract. Any act which should not be done or is non performable does not create legal obligations. (Section 13(i) of Nepal Contract Act, 2056)

For example, Ram contract to change the color of sky with Shyam it is initially impossible to perform by Shyam. So it is void as initio.

Not expressly declared void:

The agreement must not be expressly declared void by any prevailing law of country. If a contract is made contrary to current law is regarded as void. Section 13 of Nepal Contract Act 2056 declares that those types of contract will be void which are clearly as void under the prevailing law.

Legal formalities:

A contract may be made expressly but some contracts are recognized after fulfilling certain legal formalities. Section 88 of Nepal Contract Act, 2056 has the provision that- "in case any current laws prescribes that any specific procedure must be followed for executing any specific contract or that any specific contract must be registered at a government office, a contract signed without fulfilling such formalities shall not be valid. An agreement becomes enforceable by law when all the essential elements of a valid contract are present.

Thus, absence of any of the above said elements is adequate to make the contract invalid.