* ‘Capacity or the ability to understand the consequences of a contract by persons of such age prescribed by law & those with sound mind. * ‘Mutual consent’ or agreement on the terms of a contract ‘consideration’, or reward for goods or services rendered. The element that distinguishes a contract from casual agreements is that it is legally binding: The law provides a remedy in the event that the promise is broken. Legally, certain types of contracts should be in writing, while oral contracts are also legally binding in many situations. An oral contract can occur even if not all the terms of a contract are present in the agreement. A contract may be created in the following ways:
* Orally: Example: X makes a phone call to Y & offers to sell his bike. Y accepts X’s proposal & communicates to X his intension to buy the bike, during the same phone call. * In writing: (including by electronic mean or though a website) a contract for sale of immovable property must be in writing, stamped & registered. Contracts, which need registration, or bill of exchange or Promissory Note, must be in writing. Other circumstances when promises to pay a time barred loan, & when a contract is entered into as per the Limitation Act without consideration of natural love & affection. Example: A proposes, by letter to sell a house to B at a certain price. B accepts A’s proposal by a letter sent by post. Types of contracts
On the basis of validity:
1. Valid contract: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law. 2. Void contract & Voidable contract: A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void. -- There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is opposed to "Public Policy" under any contract—than that contract itself cannot be enforced under the law- An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party. Example: A wager is an agreement by which money is payable by one person to another on the happening or non-happening of a future, uncertain event. - A Contracts with B that A shall whitewash B’s house for Rs.100. A is ready & willing to execute the work accordingly, but B prevents him from doing so. The contract becomes voidable at the option of A. 4. Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-abs-initio. “All illegal agreements are void agreements but all void agreements are not illegal.” 5. Enforceable contract & Unenforceable contract: Where a contract is good in substance but because of some technical defect cannot be enforced by law is called unenforceable contract. These contracts are neither void nor voidable. For example, an oral contract to buy land would not be enforceable because the Statue of...