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“All contracts are agreement but all agreements are not contract.

” Explain on the basis of


essential elements of contract.

An agreement is a form of cross reference between parties that may be in written, oral or as
per the consent of the parties forming the consideration for each other. All sort of promises
are agreements. A contract is an agreement which is enforceable by law. It is a legally
binding agreement or relationship that exists between two or more parties to do or not to do
certain acts. It creates a legal obligation to the parties involved in a contract. To form a
contract, there must be an agreement. If agreement is unable to enforce duty obligations, a
contract can’t be formed. Agreement, based on which contract structure is constructed, is the
basis of contract. In order to form a contract, agreement must have following elements. In
absence of any one of these elements refers that no contract is formed out of agreements.

1. Plurality of parties
In absence of parties, contract cannot be considered. There must be atleast two people/
parties to form a contract. It could also be more than two people/ parties. These parties
must have legal relationships. Any single person can make commitments but only legal
compliance can form a contract. Thus legally complied parties can only form a contact
between them.
2. Offer and acceptance
Proposal/offer and its acceptance is required in order to make a contract. They are the
essence of a contract. The offer must be valid as well as acceptance must be valid.
Invitation of offer is no offer. Only the valid offers/ proposals can be considered
important for binding a contract.
3. Intention to create legal relationships
Parties involved in contract have a legal relationship and legal consequences. If any party
fails to bind with the agreement, he/she is liable to legal prosecute. The victim party to the
binding party may claim for the legal remedies in case of failure of the either party.
Obligation is possible only after the creation of legal relation. An agreement without legal
ground is not enforceable. An agreement without intention to create legal relation has not
legal validity to create a contract.
4. Free Consent
It is one of the most essential elements in a valid contract. It is must to create the contract.
Parties may agree on same thing in same sense with same consent. But the consent must
be free from any kind of pressure or compulsion. Consent may not be free, if obtained on
the ground of coercion, threat, undue influence, fraud, misrepresentation and mistake of
law. The contract made without free consent is voidable but must have a valid reason.
5. Capacity to contract/ competency
Anyone can enter into a contract, if he/she is competent. Minors, unsound mind and
disqualified person are considered to be incompetent parties. Parties must be competent to
take decisions logically and mentally sound in order to enter into contract. Incompetent
parties are not considerable as they get easily influenced by other person and the situation
around them.
6. Lawful consideration
Consideration refers to something in return. There is general rule “No Consideration, No
Contract”. Since in a contract one party offers and the other party accepts the offer, it is
the giving and getting something in return. Whatever may be the consideration, it must be
legal, real and lawful which may be in past, present or future.
7. Lawful objectives
A contract should always have legal objective. An objective should not go against any
legal, moral or public policy. If it does then it is not considered lawful. And if a contract
is indulged by such objectives, law cannot be enforced to control the act of involved
parties. The contract will be void from the beginning.
8. Agreement not expressly declared void
Every formal act is prescribed by the law. The contracts which are not according to the
prescribed law, it would be considered void by the law, thus it is not enforceable.
9. Clarity and certainty
Contract must be clear and certain. Clarity and certainty is to be maintained by the
contract to avoid any kind of confusions or loop holes to make excuses not to comply
with the agreement. Contract should not be vague, indefinite or use ambiguous words
while forming contracts. There must be high level of precision and certainty in objective,
terms and conditions of contract.

10. Possibility of performance


Contract should involve only those activities which are possible to perform. Having no
possibility to perform will make the contract invalid. Possibility is the nature of law of
contract. Parties cannot enter into contract with impossible consideration. There must be
possibility of performance what ever mentioned or agreed in a contract.
11. Legal formalities
In order to be enforceable by law, contract need to have proper documentations which
needs to be legally recognized so in case of failure by either party proper compensation
and consideration can be obtained.

Agreement is necessary to form a contract as without agreement a contract cannot have any
base. Contract needs agreement but an agreement does not need to be contract. Agreement
has individual existence without the necessity to be a contract. But contract always require
the agreement between parties to be converted into a contract. Hence, in absence of above
elements agreement are not bounded by law so it is not a contract. Thus it is valid that “All
contracts are agreement but all agreements are not contract.”