Agreement, Contract, and Essential Elements

(a) Agreement, Contract, and the Essential Elements of a Valid Contract

Agreement is defined in Section 2(e) of the Indian Contract Act, 1872 as "every promise

and every set of promises, forming the consideration for each other." In plain language: when

one person makes a proposal and the other accepts it, a promise results; when that promise (or

set of reciprocal promises) is looked at as a whole, it is called an agreement. An agreement, by

itself, need not have any legal consequence at all — a purely social invitation ("come to dinner

on Sunday") is a perfectly good agreement in the ordinary sense of the word, but it creates no

legal obligation.

Contract is defined in Section 2(h) as "an agreement enforceable by law." This is the

single most important definition in the whole unit, because it tells you exactly what turns a

mere agreement into a contract: enforceability by a court of law. Every contract is

necessarily an agreement, but an agreement becomes a contract only once it satisfies the

conditions the law lays down for enforceability.

Essential elements of a valid contract, drawn together from Section 10 ("All agreements

are contracts if they are made by the free consent of parties competent to contract, for a

lawful consideration and with a lawful object, and are not hereby expressly declared to be

void"), are:

1. Offer and acceptance — there must be at least two parties, one making an offer and the other accepting it, resulting in an agreement.
2. Intention to create legal relations — the parties must intend that their agreement will have legal consequences (social and domestic agreements are ordinarily presumed NOT to carry this intention, unless the facts show otherwise).
3. Lawful consideration — each party must give or promise something in return (Section 23 governs what makes a consideration lawful — see sub-topic (g)).
4. Capacity of the parties — both parties must be legally competent to contract (of the age of majority, of sound mind, and not disqualified by any law — see sub-topic (e)).
5. Free consent — the parties must agree on the same thing in the same sense, and that agreement must not be caused by coercion, undue influence, fraud, misrepresentation, or mistake (see sub-topic (f)).
6. Lawful object — the purpose of the agreement must not be forbidden by law, fraudulent, injurious to another's person or property, immoral, or opposed to public policy (see sub-topic (g)).
7. Agreement not expressly declared void — certain classes of agreements are expressly declared void by the Act itself (e.g. agreements in restraint of marriage, trade, or legal …