ELEMENTS OF CONTRACT

PREPARED BY
PRATIK DASGUPTA ROLL-10202153 SEC-C MBA-1

UNDER THE GUIDANCE OF PROF(DR) P.K.PATTNAIK(V.F) LAB

ELEMENTS OF CONTRACT It is very important for managers to know some Legal Aspect Of Business happening in day to day life.Every day we fall into contract with one another.So it is very important to have a idea about contracts as a manager of an organization.Before coming into elements of contract we should know what is contract.pratikh So what is contract? A contract is an agreement,enforceable by law,made between at least two parties by which rights are acquired by one and obligation are created on the part of another.If the party which had agreed to do something,fails to do that,then the other party has the remedy. As for example-Airlines sells a ticket on 1 January from Mumbai to Bangalore on 10 January.The Airlines is under an obligation to take Mr.mehta from Mumbai to Bangalore on 10 January.In case the Airlines fails to fulfill the promise,Mr.Mehta has a remedy against it.Thus ,Mr.Mehta has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January.A corresponding duty is imposed on the Airlines.As there is a breach of promise by the promisor(The Airlines),the other party to the contract(I.e.,Mr.Mehta)has a legal remedy. Contract essentially consists of two elements: Agreement Enforceability by law. Agreement-Every promise and every set of promise forming consideration for each other according to sec2(e).In a contract there is atleast two parties,one of them makes a proposal (or an offer) to the other,to do something,with a view to obtaining the assent of that other to such act.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.The person making the proposal is called promisorand the person accepting the proposal is called promisee. Enforceability by law-The agreement must be such which is enforceable by law so as to become a contract.Thus,there are certain agreements which do not become contracts as this element of enforceability by law is absent. For example,an agreement to go for a stroll together or for a picnic does not become a contract,and therefore ,neither rights nor obligations are created on the part of the parties to the agreement.Further all legal obligations are not contractual.Only those legal obligations,which have their source in agreement are contractual.Thus a legal obligation not to create a nuisancefor others does not give rise to contract,but nevertheless it is actionable by law. So contract =Agreement+ Legal Obligation

Essentials of contract Our whole economy is based on the freedom of individuals to contract and a system of laws that enforces contracts freely entered into. But a lot of people may not be aware of what are the essential elements required to make an enforceable contract. Recently I was asked if a contract not in writing is binding. We are so accustomed to seeing contracts in writing that many people assume that a contract must be in writing (and lengthy) before it is enforceable. Agreement is essential to any contract. Before there can be a contract, there must be a consensus ad idem: that is, there must be a meeting of the minds.There must be an intention to enter into a legally binding contract. Whether the parties have reached an agreement is determined by an objective standard. What each party believes the other to be agreeing to will not be the determining factor. Rather, would an objective bystander, acting reasonably, looking at all of the facts relevant to the question conclude that the parties had come to an agreement on the essential terms of the contract with the intent to form a legally binding relationship? If so, there is a contract between the party. To form a contract, there are no particular words that must be used by the parties. However, there must be an offer by one side and an acceptance of the offer by the person to whom the offer was made. Without both an offer and an acceptance, there can be no consensus ad idem or a meeting of the minds which is essential to form a contract. An offer is simply a statement or other indication that the individual is prepared to enter into a contract with another on certain terms. The offer must be expressed in a manner capable of acceptance without anything further required of the person receiving the offer other than to indicate acceptance. It must also be clear that the person making the offer is prepared to be bound by the terms if the offer is accepted. If I make the statement to you "I will cut your lawn for Rs.5.00", this is an offer which on acceptance will form a contract. The offer must be more than just an "invitation to treat"; that is, not merely expressing a general intent to enter into a contract and inviting an offer in keeping with the general intent. A good illustration is the display of merchandize at a store with a price tag. The display of the merchandize does not constitute an offer waiting for a customer to walk in and accept the offer. Rather, it is an invitation to treat by the store owner. The offer is made when the customer presents the merchandize to the cashier and tenders the amount of the price. At that point, the merchant is free to accept the offer and sell the item. To illustrate this, lets assume a mischief maker has switched price tags so that the latest cd by the hottest jazz sensation is priced at Rs.5.00. When you take this to the check-out counter, the store is not bound to sell the cd to you for this price. The store owner is perfectly entitled, in law, to say that the item is mislabelled and will not be sold for that price. Acceptance is simply some indication by the person receiving the offer that the offer is accepted. The acceptance must be clear and absolute and without conditions attached. The objective bystander must be able to determine that the offer has been accepted. In response to my offer to cut the lawn, your response "That sounds like a good deal" is not acceptance. If I proceed to cut the lawn as a result, there is no contract. However, if you say words to the effect "we have a deal" or more precisely, "I accept", then there is a binding contract. If I then cut the lawn, I have an enforceable contract under which I could collect the Rs.5.00. The acceptance must be made before the offer has expired. Most offers contain a time limit within which the offer can be accepted. Once the offer has expired, it can not be accepted unless the person making the offer has renewed it. If there is no time limit by which the offer must be accepted, then the law requires the offer be left open for acceptance for a reasonable period of time. What exactly is a reasonable period of time will depend upon the particular circumstances of each case. The offer must be accepted before it is withdrawn. An offer can be withdrawn before acceptance unless one of the terms of the offer is that it will remain open for acceptance

until a specified time. On occasion, the circumstances of the dealings between the parties may be such that the law would impose a term on the parties to keep the offer open for acceptance for a reasonable period of time.

No conditions can be attached to the acceptance and the terms of the offer can not be changed. If conditions are attached or terms are changed, the parties are merely negotiating and may ultimately reach agreement on the terms of the contract. For example, if your response is that you will pay me Rs.5.00 to cut the lawn but I must cut again next month for the same price, there is no contract. You have made a counter offer which I am free to accept or reject. Likewise, the acceptance can not be conditional on some other events.

The contract constitutes a bargain. The acceptance of the offer is the bargain the parties have struck: - an exchange of a promise for a promise or act has been made. It is this consideration that makes the contract binding. Consideration is some benefit or advantage to the person making the offer and a corresponding cost or prejudice to the person accepting the offer. It is left to the parties to determine whether or not the consideration is adequate; only the parties can judge whether or not it is a good bargain. The law only requires that there be sufficient consideration; something of value must be given. The consideration can not be something given or promised in the past. To be valid, the consideration must be a new promise or some fresh benefit exchanged for the offer. This is subject to the courts refusing to enforce an alleged contract where the consideration is so inadequate as to raise suspicions of fraud or to make the contract unconscionable. In general then, as long as the basic elements of an offer and acceptance with consideration are present, the parties have a valid and binding contract. There is no requirement that the contract be in writing except in certain special situations such as the sale of land. The problem is that if the verbal exchanges of the parties are to be relied upon, it may prove difficult and in some cases impossible to determine precisely the terms of the contract if there in fact is a contract. If the court can not with reasonable certainty determine the terms that the parties have agreed to, the court can not enforce the alleged contract. It is for this reason that it is wiser to have a contract in writing although writing itself is no assurance that the alleged contract is clear and precise. There are various types of contract which are on the basis of the following:Enforceability: Valid contract Voidable contract Void contract or agreement Illegal contract Unenforceable agreements

Mode of formation:-

Express contract Implied contract Quasi contract

Performance Executed Executory Uni-lateral Bi lateral

According to Salmond a contract is an agreement creating and defining obligations between the parties. According to Sir William Anson, A contract is an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.

The object of the Law of Contract is to introduce definiteness in commercial and other transactions. How this is done can be illustrated by an example. X enters into a contract to deliver 10 tons of coal of Y on a certain date. Since such a contract is enforceable by the courts, Y can plan his activities on the basis of getting the coal on the fixed date. If the contract is broken, Y will get damages from the court and will not suffer any loss. Sir William Anson observes as follows: As the law relating to property had its origin in the attempt to ensure that what a man has lawfully acquired he shall retain, so the law of contract is intended to ensure that what a man has been led to expect shall come to pass; and that what has been promised to him shall be performed. Agreements and contracts are two different things. It is important to know first what constitutes a contract and what constitutes an agreement. We will then study which agreements are contracts, their distinction different types of agreements and contracts

Now as we have some idea what contract is we should discuss about elements of contract. Agreements and contracts are two different things. It is important to know first what constitutes a contract and what constitutes an agreement. We will then study which agreements are contracts, their distinction different types of agreements and contracts. Essentials Elements of a Valid Contract: Different sections of the Indian Contract Act lay down the essential elements of the contract. They are as under: Proposal and acceptance. Consideration lawful consideration with a lawful object. Capacity of parties to contract competent parties. Free consent. An agreement must not be expressly declared to be void. Writing and Registration if so required by law. Legal relationship. Certainty . Possibility of performance. Enforceable by law. Minimum two parties. Offer and acceptance. Legal obligation. Lawful consideration. Competent parties. Lawful object. Legal formalities Capacity of the Parties to Contract. Intent of the Parties to Contract. Object of the Contract. An Acceptance in strict compliance with the terms of the offer. Legal Purpose/Objective Mutuality of Obligation also known as the meeting of the minds Consideration Competent Parties

Proposal and Acceptance:

When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence he is said to make a proposal. The first step towards creating a contract is that one person shall signify or make a 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.

When the person to whom the proposal is made signifies his assent thereof the proposal is said to be accepted. A proposal when accepted becomes a promise. Consideration: When at the desire of the promisor the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing something such act or abstinence or promise is called a consideration for the promise.

Every contract consist of two parts Promise Consideration A promise is often made in return for a promise for example a buyer realizes the goods for the price. Price for goods is therefore, consideration here. Consideration is the cause of the promise. It is the most essential element of the contract. As a general rule, agreement without consideration is void. The promise for a promise in return is consideration. Illustrations: A agrees to sell his house to B for Rs 10,000. Here As promise to sell his house is for Bs consideration to pay Rs 10,000. Similarly Bs promise to pay Rs 10,000 is for As consideration to sell his house to B. 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 agreements is unlawful if (1) it is forbidden by law; or (2) is of such a nature that, if permitted it would defeat the provisions of any laws (3) is fraudulent; or (4) involves or implies injury to the person or property of another (5) the court regards it as immoral or opposed to public policy In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement if which the object or consideration is unlawful is void. Capacity of parties to contract Competent parties: Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contacting by any law to which he is subject. Free Consent: Parties to a contract must give their consent. The parties must be ad idem, for example both the parties must agree upon the same thing in the same sense. Two or more persons are said to consent when they agree upon the same thing in the same sense. Mere consent is not enough. Consent of parties must be free, for example it must not have been obtained Coercion

undue influence, fraud, misrepresentation mistake

An agreement must not be expressly declared to be void: A void agreement is not enforceable by law (Sec 2(g)). It has no legal sanctity. It does not give rise to any rights and obligations. Various agreements are expressly declared void under the Act. Writing and registration: Oral contract is a valid contact. However the contract must be in writing and registered, if so required by any law, for example, gift, mortgage, sale, lease under the Transfer of Property Act 1882, Memorandum and Articles of Association of a Company under the Indian Companies Act, contracts under sub sections (10 and 3) of section 25 of the Indian Contract Act, etc. Documents specified under section 17 of the Indian Registration Act, 1908, are required to be registered. No particular form of writing is required to constitute a contract. Intentions of the parties to enter into a particular contract and to give effect to it must be manifest in it, in order to constitute a valid contract. Legal relationship: Agreements which create legal relations or are capable of creating legal relations are contracts, for example, an invitation to a dinner does not create any legal relation and therefore is not a contract. But any contract which has been made legally then it will always come into legal relationship. As for ex-Mr.x purchases house from Mr.y and here the contract made by both the parties are made legally so any avoidance of rules one can take strict action. Certainty: The terms of a contract should be clear. In other words, the contract must not be vague. Contracts which are vague cannot be enforced.

Possibility of performance: Contracts based on impossibility of performance are not valid. The contracts must be capable of being performed. Enforceable by Law: A contract in order to be valid must be enforceable by law which element distinguishes agreement and contract. It is enforceable by law it is contract otherwise it is an agreement. The aggrieved party should be able to obtain relief through law in the event of breach of contract. An agreement can also be inferred from correspondence exchanged between the parties. Minimum two parties :- Atleast two parties are needed to enter into a contact. One party has to make an offer and other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'.

While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'. Offer and acceptance :- There must be an 'offer' and an 'acceptance' to the offer, resulting into an agreement. Both offer and acceptance should be lawful. Offer is not only one of the essential elements of a contract but it is the basic building block also.An offer is synonymous with proposal.The offeror or proposer expresses his willingness to do or not to do(abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence.Thus,there may be positive or negative acts which the offeror is willing to do. As for example1)Anna offers to sell her a book to Begum.Anna is making an offer to do something,that is to sell her a book.It is a positive act on the part of the offeror. 2)Amin offers not to file suit against Bedi,if the latter pays Amin the amount of act or abstinence Rs.10000 outstanding.Here the act of Amin is a negative one that is he is offering to abstain from filing a suit. An offer is made with a view to obtaining the assent of the offeree to the proposed act or abstinence.it can be properly understood by the following two examples:1)Anna is making an offer to sell a book with a view to obtaining the assent of Begum. 2)Amin is making an offer to Bedi with a view to obtaining Bedis assent thereto.

Legal obligations :- The parties must intend to create a legal obligation.The agreement sought to be enforced should contemplate legal relations between the parties to it. If there is no legal obligation then there is a chance to grow of mis use of offer or breaking of promises.Legal obligation helps the parties to do work legally and it minimizes the risk of loss for both the parties.

Lawful consideration:- A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged or a sacrifice which is of value to the other party. This consideration may be past, present or future, but it must be lawful.

Competent parties:- The parties making the contract must be legally competent in the sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a legal nullity.

Free consent:- The contracting parties must give their consent freely. 'Consent' means that the parties must agree about the subject matter of the agreement in the same sense and at the same time. Consent is said to be

free if it is not induced by coercion, undue influence, fraud,misrepresentation or mistake. The absence of free consent would affect the legal enforceability of a contract. For a contract to be valid it is not only necessary that the parties consent but also that they consent freely.Where there is a consent but no free consent the contract is voidable at the option of the party whose consent was not free.Thus,free consent is one of the essentials of a valid contract. A consent is said to be free when it is not caused by: Coercion Undue influence Fraud Misrepresentation Mistake

Lawful object:- The object of the agreement must be lawful. An agreement is unlawful, if it is: Illegal Immoral Fraudulent Of a nature that,if permitted,it would defeat the provisions of any law. causes injury to the person or property of another opposed to public policy.

Not expressly declared void:- An agreement expressly declared to be void under the Contract Act or under any other law, is not enforceable and is, thus, not a contract. The Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements. Certainity and possibility of performance:- The terms of a contract must not be vague or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also,the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law. Legal formalities:- Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration. Therefore, where law requires an agreement to be put in writing or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to be reduced to writing. Capacity of the Parties to Contract. The general presumption of the law is that all people have a capacity to contract. A person who is trying to avoid a contract would have to plead his or her lack of capacity to contract against the party who is trying to enforce the contract. For example, he would have to prove that he was a minor, adjudged incompetent or drunk or drugged, and so forth. Often this is the most difficult burdens of proof to overcome due to the presumption of one's ability to contract. Intent of the Parties to Contract. It is a basic requirement to the formation of any contract, be it oral or written, that there has to be a mutual assent or a "meeting of the minds" of the parties on all proposed terms and essential elements of the contract. It has been held by the courts that there can be no contract unless all the

parties involved intended to enter into one. This intent is determined by the outward actions or actual words of the parties and not just their secret intentions or desires. Therefore, mere negotiations to arrive at a mutual agreement or assent to a contract would not be considered an offer and acceptance even thought the parties agree on some of the terms which are being negotiated. Both parties must have intended to enter into the contract and one can not have been misled by the other. That is why fraud or certain mistakes can make a contract voidable.

Object of the Contract. A contract is not enforceable if its object is considered to be illegal or against public policy. In many jurisdictions contracts predicated upon lotteries, dog races, horse races, or other forms of gambling would be considered illegal contracts. Yet in some states these types of contracts are valid. Federal and some state laws make contracts in restraint of trade, price-fixing and monopolies illegal. Therefore, a contract which violates those statutes would be illegal and unenforceable. This is true for drugs and prostitution or any other activity if considered criminal.

Free and genuine consent When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to contract, whose consent was caused by fraud or mispresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put on the position in which he would have been if the representations made had been true. If such consent was caused by misrepreentation or by silence, fraudulent neverthless, is not voidable, if theparty whose consent was so caused had the means of discovering the truth withordinary diligence. A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable. In order to be enforceable, an agreement must be based on the free consent of all the parties. There is absence of genuine consent if the agreement is induced by coercion, undue influence, mistake, misrepresentation, and fraud. A person guilty of coercion, undue influence etc. cannot enforce the agreement. The other party (the aggrieved party) can enforce it, subject to rules laid down in the Act.

For a contract to be valid it is not only necessary that the parties consent but also that they consent freely.Where there is a consent but no free consent the contract is voidable at the option of the party whose consent was not free.Thus,free consent is one of the essentials of a valid contract.

A consent is said to be free when it is not caused by: Coercion Undue influence

 Fraud Misrepresentation Mistake

Parties competent to contract The parties to an agreement must be legally capable of entering into an agreement; otherwise it cannot be enforced by a court of law. Want of capacity arises from minority, lunacy, idiocy, drunkenness, and similar other factors. If any of the parties to the agreement suffers from any such disability, the agreement is not enforceable by law, except in some special cases. A competent person (aged even 1 moment) can enter into a contract with another person (normally but not essentially competent), verbally or in writing. A valid contract (may) bind both the parties under contract for their respective obligations in the contract. Who are competent to contract - Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contacting by any law to which he is subject. Examples: Aged even 1 moment - a private Limited company can enter into a contract the very next moment it gets incorporated (born). A company is a person capable to enter into a contract. An individual is competent for contracts at 18 years and above but the company can do so the very next moment it gets incorporated. A company can safely assume all those contracts undertaken by its promoters even before its actual/legal incorporation, so even before its birth. A contract with a minor individual is void at the option of the minor - means a minor can enforce the contract to his/her benefit and still may not pay anything for it! The other competent party to such contracts becomes helpless. Here that minors' parents/guardians can be made to pay for or on behalf of the minors. Yet competent parties can enter into contracts with minors safely in certain situations.

Lawful consideration A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged or a sacrifice which is of value to the other party. This consideration may be past, present or future, but it must be lawful.

Subject to certain exceptions, an agreement is legally enforceable only when each of the parties to it gives something and gets something. An agreement to do something for nothing is usually not enforceable by law. The something given or obtained is called consideration. The consideration may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. Consideration may be past (something already done or not done). It may also be present or future. But only those considerations are valid which are lawful.

Lawful objective The object for which the agreement has been entered into must not be illegal or immortal or opposed to public policy. The consideration or object of an agreement is lawful, unless -It is forbidden by law; The objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract. A rents out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract.

The object of the agreement must be lawful. An agreement is unlawful, if it is: Illegal Immoral Fraudulent Of a nature that,if permitted,it would defeat the provisions of any law. causes injury to the person or property of another opposed to public policy

Agreements not declared void or illegal

Void Agreements: An agreement so made must not have been expressly declared to be void. Under Indian Contract Act there are five categories of agreements which are expressly declared to be void They are: 1. 2. 3. 4. 5. 6. Agreement in restraint to marriage. Agreement in restraint of trade. Agreement in restraint of proceedings. Agreements having uncertain meaning. Wagering agreement. Writing Registration and Legal Formalities: An oral contract is a perfectly good contract, except in those cases where writing and/or registration is required by some statute. In India writing and/or registration is required by some statute. In India writing is required in cases of lease, gift, sale and mortgage of immovable property: negotiable instruments; memorandum and articles of association of a company etc. Registration is compulsory in cases of documents coming within the purview of Section 17 of the Registration Act, e.g., mortgage deeds covering immovable property. The terms of an oral contract are sometimes difficult to prove. Therefore important agreements are usually entered into writing even in cases where wiring is not compulsory.

An agreement expressly declared to be void under the Contract Act or under any other law, is not enforceable and is, thus, not a contract. If any part of a single consideration for one or more objects, or any one or any part of any one of several consideration of a single object, is unlawful, the agreement is void. Section 24 to 30 specify certain types of agreement which have been expressly declared void. For example Restraint of marriage which has been expressly declared void under Section 26. If John promises to pay $50 to Mary if she does not marry throughout her life and Mary promise not to marry at all. But this agreement cannot be treated as a valid contract owing to the fact that, under section 26 restraint of marriage expressly declared void. Some of the agreement which have been expressly declared void are agreement in restraint of legal proceedings, agreement in restraint of trade, agreement in restraint of marriage and agreement by way of wager.

Certainty of meaning The agreement must not be vague. It must be possible to ascertain the meaning of the agreement, for otherwise it cannot be enforced. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also, the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law. Wording of the agreement must be clear and not uncertain or vague. Suppose John agrees to sell 500 tons of oil to Mathew. But, what kind of oil is not mentioned clearly. So on the ground of uncertainty, this agreement stands void. If the meaning of the agreement can be made certain by the circumstances, it could be treated as a valid contract. For example, if John and Mathew are sole trader of coconut oil, the meaning of the agreement can be made certain by the circumstance and in that case. Possibility of performance

The agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced. If the act is impossible of performance, physically or legally, the agreement cannot be enforced by law. There must be possibility of performance of the agreement. Impossible agreements like one claim to run at a speed of 1000km/hour or Jump to a height of 100feet etc. would not create a valid agreement. All such acts which are impossible of performance would not create a valid contract and cannot treat as a valid contract. In essence, there must be possibility of performance must be there to create a valid contract.

Enforceable by Law: A contract in order to be valid must be enforceable by law which element distinguishes agreement and contract. It is enforceable by law it is contract otherwise it is an agreement. The aggrieved party should be able to obtain relief through law in the event of breach of contract. An agreement can also be inferred from correspondence exchanged between the parties

Legal formalities The contract act does not insist that the agreement must be in writing, it could be oral. But, in some cases the law strictly insist that the agreement must be in writing like agreement to sell immovable property must be in writing and should be registered under the Transfer of Property Act, 1882. These agreement are valid only when they fulfill the formalities like writing, registration, signing by the both the parties are completed. If these legal formalities are not completed, it cannot be treated as a valid contract.

Object of the Contract A contract is not enforceable if its object is considered to be illegal or against public policy. In many jurisdictions contracts predicated upon lotteries, dog races, horse races, or other forms of gambling would be considered illegal contracts. Yet in some states these types of contracts are valid. Federal and some state laws make contracts in restraint of trade, price-fixing and monopolies illegal. Therefore, a contract which violates those statutes would be illegal and unenforceable. This is true for drugs and prostitution or any other activity if considered criminal.

Legal relationship: Agreements which create legal relations or are capable of creating legal relations are contracts, for example, an invitation to a dinner does not create any legal relation and therefore is not a contract. But any contract which has been made legally then it will always come into legal relationship. As for ex-Mr.x purchases house from Mr.y and here the contract made by both the parties are made legally so any avoidance of rules one can take strict action. Conclusion So these are the elements of contract which we have to keep in mind while taking any managerial decisions which every manager while taking decisions have to follow.