All agreements are not contracts. Only that agreements which is enforceable at law is a contract. An agreement which is enforceable at law cannot be contract. Thus, the term agreement is more wider in scope than contract. All Contracts are agreements but all agreements are not contracts.
An agreement, to be enforceable by law, must posses the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section 10, "All agreements are contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void." As the details of these essentials form the subject-matter of our subsequent chapters, it is proposed to dismiss them in brief here.
The following are the essential elements of a valid contract :
1. Offer and Acceptance. In order to create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance' of the same by the other party.
2. Intention to Create Legal Relationship. In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations.
Case :- Balfour vs. Balfour(1919)
3.Lawful Consideration. Consideration has been defined in various ways. According to Blackstone,"Consideration is recompense given by the party contracting to another." In other words of Pollock, "Consideration is the price for which the promise of the another is brought."
consideration is known as quid pro-quo or something in return.
4. Capacity of parties. The parties to an agreement must be competent t contract. If either of the parties does not have the capacity to contract, the contract is not valid.
According the following persons are incompetent to contract.
(a) Miners, (b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject.
5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense.
According to Section 14, Consent is said to be free when it is not caused by-
(1) Coercion, or (2) Undue influence, or (3) Fraud, or
(4) Mis-representation, or (5) Mistake.
An agreement should be made by the free consent of the parties.
6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.
The Object is said to be unlawful if-
(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.
7. Certainity of Meaning. According to Section 29,"Agreement the meaning of which is not Certain or capable of being made certain are void."
8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.
9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade, marriage, legal proceedings etc.
10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.
All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the agreement does not become a contract.