As a result of increasing complexities of business environment, innumerable contracts are entered into by the parties in the usual course of carrying on their business. A binding contract goes beyond more agreement, in that it involves a bargain between the parties. Such, the existence of other elements is also required to allow an agreement to transform into a contract and make it enforceable in law… Mutual assent of the parties is the basis of an agreement.
Most contracts only need to contain two elements to be legally valid: All parties must be in agreement (after an offer has been made by one party and accepted by the other). Something of value must be exchanged — such as cash, services, or goods (or a promise to exchange such an item) for something else of value.
“When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted becomes a promise”
Reciprocal Promise (Sec-2(f):
Promises which form the consideration or part of the consideration for each other are called Reciprocal Promises.
“Every promise and set of promises, forming consideration for each other” is an Agreement. An agreement means a promise. It is created when a person makes an offer to another person and that other person accepts it.
Agreement = Offer + Acceptance
Definition: As per the Indian Contract Act 1872 “An agreement enforceable by law”. Legal Enforceability means creating a legally binding obligation between two parties. The basic elements of a contract are mutual assent, consideration, capacity and legality. In some states, the element of consideration can be satisfies by a valid substitute”.
Contract = Consideration + Enforceable by Law
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Essential Elements of Contract:
1. Intention to create legal relationship: The parties ought to have the intention to create legal obligation between them through the form of offer and acceptance.
2. Free Consent: The consent of the parties must be genuine. The term ‘consent’ means parties to a contract must agree upon the same thing in the same sense.
3. Possibility of performance of an agreement: The term of agreement should be capable of performance. An agreement to do an act impossible in itself cannot be enforced.
4. Lawful Consideration and Lawful Object: The consideration between the parties should be lawful. The term ‘Consideration’ means ‘something in return’.
5. Agreements not declared void or illegal: The agreement must not be one, which the law declares to be either illegal or void. A void agreement is one, which is without any legal effects.
Types of Contract:
1. Valid contract: An agreement which is binding and enforceable is a valid contract.
2. Void contract: It is a contract without any legal effect and cannot be enforced in a court of law.
3. Implied contract: Implied contract is a contract made otherwise than by words spoken or written.
4. Quasi contract: It is not a real contract because it does not result from any intentional agreement.
5. Executed contract: Where all the parties to a contract have performed their obligations under the contract.
6. Executory contract: The reciprocal promises or obligations which serves as consideration is to be performed in future.