Essentials of a Valid Contract| The Indian Contract Act 1872 Notes|

“All agreements are contracts, if they are made –

• by free consent of the parties, competent to contract,
• for a lawful consideration and
• with a lawful object, and
• not hereby expressly declared to be ” – Sec.10.

ESSENTIALS OF VALID CONTRACT

Offer + acceptance = Promise + consideration = Agreement + enforceability By Law —>Contract

1. Proper offer and proper acceptance with intention to create legal relationship. Cases;- A and B agree to go to a movie on coming Sunday. A does not turn in resulting in loss of B’s time B cannot claim any damages from B since the agreement to watch a movie is a domestic agreement which does not result in a
   • In case of social agreement there is no intention to create legal relationship and there the is no contract (Balfour v. Balfour)
   • In case of commercial agreements, the law presume that the parties had the intention to create legal
   • [an agreement of a purely domestic or social nature is not a contract ]
2. Lawful consideration :- consideration must not be unlawful, immoral or opposed to the public
3. Capacity:- The parties to a contract must have capacity (legal ability) to make valid contract

Section 11:- of the Indian contract Act specify that every person is competent to  contract provided:

• Is of the age of majority according to the Law which he is subject, and
• Who is of sound mind and
• Is not disqualified from contracting by any law to which he is
  • Person of unsound mind can enter into a contract during his lucid interval.
  • An alien enemy, foreign sovereigns and accredited representative of a foreign state. Insolvents and convicts are not competent to contract.

4.  Free consent :- consent of the parties must be genuine consent means agreed upon samething in the same sense i.e. there should be consensus – ad – idem. A consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.

• The object of agreement should be lawful and
• Two persons cannot enter into an agreement to do a criminal
• Consideration or object of an agreement is unlawful if it
  1. is forbidden by law; or
  2. is of such nature that, if permitted, would defeat the provisions of any law; or
  3. is fraudulent; or
  4. Involves or implies, injury to person or property of another; or
  5. Court regards it as immoral, or opposed to public.

6. Possibility of performance:

• The terms of the agreement should be capable of performance
• An agreements to do act, impossible in itself cannot be

Example : A agrees to B to discover treasure by magic. The agreement is void because the act in itself is impossible to be performed from the very beginning.

7. The terms of the agreements are certain or are capable of being made certain [29] Example : A agreed to pay Rs.5 lakh to B for ultra-modern decoration of his drawing room. The agreement is void because the meaning of the term “ ultra – modern” is not certain.

8. Not declared Void
   1. The agreement should be such that it should be capable or being enforced by law.
   2. Certain agreements have been expressly declared illegal or void by the

9. Necessary legal formalities
   • A contract may be oral or in
   • Where a particular type of contract is required by law to be in writing and registered, it must comply with necessary formalities as to writing, registration and attestation.
   • If legal formalities are not carried out then the contract is not enforceable by

Example : A promise to pay a time. Barred debt must be in writing.

Agreement is a wider term than contract where as all contracts are agreements. All agreements are not contracts

All Contracts are Agreements, but all Agreements are not Contracts

The various agreements may be classified into two categories:

1. Agreement not enforceable by law: Any essential of a valid contract is not available.
2. Agreement not enforceable by law: All essentials of a valid contract are available

Conclusion:

Thus we see that an agreement may be or may not be enforceable by law, and so all agreement are not contract. Only those agreements are contracts, which are enforceable by law, In short.

Contracts = Agreement + Enforceability by Law

Hence, we can conclude “All contracts are agreement, but all agreements are not contracts.”

What is the difference between

Basis	Contract	Agreement
Section :	Sec. 2(h)	Sec. 2(e)
Definition :	A contract is an agreement enforceable by law.	Every promise or every set of promises forming consideration for each other is an agreements.
Enforceability :	Every contract is enforceable	Every promise is not enforceable.
Interrelationship:	A contract includes an agreement.	An agreement does not include a contract.
Scope	The scope of a contract is limited, as it includes only commercial agreements.	Its scope is relatively wider, as it includes both social agreement and commercial agreements.
Validity :	Only legal agreements are called contracts.	An agreement may be both legal and illegal.
Legal Obligation:	Every contract contains a legal obligation.	It is not necessary for every agreement to have legal obligation.