What are the essentials of a valid contract?

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Please explain to me the distinction between a contract and an agreement. What are the essentials of a valid contract?

The two words agreement and contract are usually read in similar nature by common man where 2 or more people agree on same thing but they actually have different meanings.  Contract means a formal arrangement between 2 or more party which is by its terms and elements is enforceable by law. An arrangement between 2 or more people which usually is informal and not enforceable by law is an Agreement. Section 2(e) of the Indian Contract Act, 1872 explains every promise and set of promises forming the consideration for each other is an agreement. Section 2(h) states an agreement enforceable by law is said to be a contract.

In M/S A.D. Overseas Vs Smt. Sneh Lata Sharma on (8 October, 2012)Supreme Court has held that one of the essentials for a contract to be valid is that the agreement must not be against the public policy. In Gtl Limited Vs Ifci Ltd. &Ors on(29 August, 2011) Court considered that it is essential to contract of pawn that property pledged has to be actually delivered to the pawnee.

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Contracts are always legally binding and for an agreement to become a contract some conditions has to be fulfilled like:-

  • Offer and acceptance,
  • Intention to create legal relation and
  • Consideration
  • Free consent

First requirement is one party makes an offer and other party accepts it and the contract has to be done in accordance with legal relation. Consideration is when one party offers some value to the opposing party in exchange of receiving something of value to promising party which can be good sin exchange of payment/goods. In these conditions if anyone condition is not met then contract is not legally binding and it cannot be enforced on other party.  Many of the contract are in writing, oral contracts are also binding under law. Every contract must be done by free consent no coercion or force should be used while making a contract. If a person who is not of sound mind is incompetent to contract and cannot make a contract under the Act.

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by Sushma Javare.