Before entering to know about contract, it's essential to know about agreement. What is an agreement? Sec. 2(e) of The India Contract Act,1872, defines the agreement as, " every promise and every set of promises, forming the consideration for each other". OK. Then what is a promise. "when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes promise" [Sec. 2(b)].
Many say that both the agreement and promise is same. But, I feel there is a thin line between the two. Let see!
Proposal/ Offer + Acceptance = Promise
Promise + Consideration = Agreement [or]
Proposal/ Offer + Acceptance + Consideration = Agreement
The consideration element is not spoken in promise. It's just an acceptance for an offer but the return element (quid pro quo) is not dealt. Only after the consideration is dealt, it becomes an agreement. This is my view. OK, then what is a contract?
"An agreement enforceable by law" [Sec. 2(h) of The Contract Act]. This is why I have discussed agreement first.
Let's see what are all the essential elements of a contract. It would be easy to discuss about the elements, if we write the equation for the contract.
Agreement + Legally enforceable = Contract [or]
Proposal / Offer + Acceptance + Consideration + Legally enforceable = Contract.
Let's list out the elements of a contract.
1. Minimum two parties
The person who proposes is offeror and the person to whom the offer is made if offeree. The same person cannot act as an offeror and offeree.
2. The intention must be legal
The intention of the offer must create a legal relationship. Social and domestic nature of offers do not create a legal relationship. Say an agreement between a husband and wife about their personal offers do not create a legal relationship. Though they are legally married they do not create a legal relationship for their domestic causes.
3.Free and genuine consent
Consent refers to acceptance. The consent mus be free from coercion, fraud, undue influence, and misrepresentation. It must be a genuine consent done in a free mind. Then only it becomes a promise.
4. Lawful Consideration
A consideration simply means something in return ( quid pro quo ). A consideration need not to be cash or kind. It can be an act or abstinence or promise to do or not to do something. The legal consideration only makes it an agreement.
5. Offer and acceptance
It's obvious from the definition that there must be an offer and it must be assented to make a promise. The term of the offer must be unconditional and certain. There should not be any ambiguity.
6. Consensus ad idem
The term refers to identity of minds. What does it mean. The subject matter of the offer must be comprehended in the same way by both the parties.
7. Capacity of the parties
The person must be completed 18 years of age only can legally enter into any contract and he must have a sound mind, that means he should not be Lunatics, Idiots, Drunkards, Alien enemies, Foreign sovereigns, convicts, insolvents and he must not be disqualified from being entering into any contract by any law.
8. Lawful Object
The object becomes unlawful if it is made for doing fraudulent, illegal, immoral and opposed to public policy. Some examples for the acts of opposed public policy are trading with an alien enemy, interference with administration, stifling prosecution, maintenance and champerty, agreement to give false evidence, restraint of trade, marriage brokerage contract, agreement in restraint of contract and so on.
9. Legal Obligation
An agreement which creates a moral obligation ( say an agreement to go to dinner or cinema) cannot be taken as a contract. There must be a legal obligation
10. Possibility of performance
The agreement must be capable of performance. It can't be made for humanly impossible things. For an instance, if you enter into an agreement that for 50 dollars, you have to take me to Sun!, it cannot be taken as a contract. Because its humanly impossible to take a human to sun.
11. Legal Formalities
Generally an agreement can be in oral or written. But in some cases, the law requires that the contract must be in writing. In some cases it must be attested by two or some witnesses. In some cases, it not only be in writing but also be stamped and even in cases must be registered. Thus, the statutory requirement also make the contract a valid one.
These are all the essential elements which makes the contract valid.
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