According to Section 2 (h) of the Indian Contact Act, 1872, "A contract is “an agreement enforceable by law”. A contract therefore, is an agreement the object of which is to create a legal obligation i.e., a duty enforceable by law. From the above definition, we find that a contract essentially consists of two elements: (1) An agreement and (2) Legal obligation i.e., a duty enforceable by law. As per section 2 (e) "Every promise and every set of promises, forming the consideration for each other, is an agreement." Thus it is clear from this definition that a 'promise' is an agreement. Section 2 (b) states that "When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise." An agreement, therefore, comes into existence only when one party makes a proposal or offer to the other party and that other party signifies his assent (i.e., gives his acceptance) thereto. In short, an agreement is the sum total of 'offer' and 'acceptance'. Example, A promises B to sell his horse for Rs. 10,000/-.
The Law of Contract deals with such promises which create legal obligations. This excludes those promises made in common life which may be morally binding but creates no legal binding. Promises which do not give rise to legal obligations are not contracts. For example, if A promises B to attend the dinner and fails to attend then B cannot sue A for the price of non-consumed food. The Law of contract creates obligation between the parties to the contract and not against the whole world. According to Section 10, “All agreements are contracts if they are made by 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”. The essential elements of a valid contract are: 1. At least two person: There must be two or more persons to make an agreement because one person cannot enter into an agreement with himself. 2. Proposal and acceptance: The first step towards creating a contract is that one person shall signify or make proposal or offer to the other, with a view to obtaining the acceptance of that another person to whom the offer is made. A proposal when accepted becomes a promise. 3. Consensus-ad-idem (meeting of minds): To constitute a valid contract, there must be meeting of minds i.e. consensus-ad-idem. The parties should agree to the same thing in the same sense and at the same time. 4. Intention to create legal relationship: When the two parties enter into an agreement, there must be an intention by both parties to legally bind the other as a result of such agreement. Thus, agreements of social or household nature are not contracts. 5. Consideration: Consideration is the most important element of contract. Consideration has been defined as the price paid by one party for the promise of the other. Consideration means “something in return” (quid pro quo). A promise is often made in return for a promise, e.g. a buyer realizes the goods for the price. Therefore price for goods is consideration. The promise for a promise in return is Consideration. An agreement is a contract only if it is made for a lawful consideration and with a lawful object. The consideration or object of an agreement is unlawful if- * it is forbidden by law; or
* is of such a nature that, if permitted it would defeat the provisions of any law; or * is fraudulent; or
* involves or implies injury to the person or property of another; or * is immoral; or is opposed to public policy.
Every agreement of which the object or consideration is unlawful is void. (Section 23) 6. Capacity of parties (competence): The parties to the agreement must be capable of entering into a valid contract. According to Section 11, every person is competent to contract if he or she, * is of the age of majority;
* is of...