Elements of Law

What are the elements which are generally required for the formation of a contract? Discuss with reference to the Contracts Act 1950.

A contract is much more than an agreement between two people. There must be an offer and acceptance, intention to create a legally binding agreement, a consideration, a legal capacity to enter a contract of your own free will, and proper understanding and consent of what is involved.

In the Contract Act 1950, Section 10(1) states that, 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.

A contract is formed when an offer by one party is accepted by the other party. Free consent of parties involved means that the offer must be accepted exactly as offered without conditions. Entering into a contract must involve the elements of free will and proper understanding of what each of the parties is doing. In other words, the consent of each of the parties to a contract must be genuine.

Besides, a contract requires that the parties intend to enter into a legally agreement. This means that, the parties entering into the contract must intend to create legal relations and must understand that the agreement can be enforced by law. Therefore, a contract does not exist simply. There should be a legal agreement exists.

In order for a contract to be binding it must be supported by valuable and lawful consideration. Consideration is the price paid for the promise of the other party. However, it need not be money. Consideration may be some right, interest or benefit going to one party. Of course, the consideration must not be illegal or impossible to perform. However, an agreement made without consideration is valid if it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.

In conclusion, once the agreement is...