Introduction:

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.

Promise (Sce-2(b):

“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.

Agreement:

 “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

Contract:

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.

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