Definition of Contract and Agreement, with
explanation and differentiation. Essentials of Contract
SECTION
2(h) of The Indian Contract Act 1872 defines Contract as “An agreement
enforceable by law”. Thus,
CONTRACT
= AGREEMENT (+) ENFORCEABILITY BY LAW
“All
contracts are agreements but all agreements are not contracts”
AGREEMENT
as per the Act [SECTION 2(e)]: “Every promise or every set of promises, forming
consideration for each other is an agreement”.
An
agreement comes into existence whenever one or more persons promise to one or
other, to do or not to do something. Some agreements could not be enforced
through the court of law. Hence an agreement to play cards or go to a Cinema is
not a contact as it cannot be enforced through the court of law.
What
agreements are contracts? All agreements are not studied under the Indian
Contract Act, as some of them are not contracts. Only those agreements which
are enforceable at law are contracts. The Contract Act is the law of those
agreements which create obligations, and in case of a breach of a promise by
one party to the agreement, the other has a legal remedy.
Thus,
a contract consists of two elements:
(i)
an agreement; and
(ii)
legal obligation, i.e., it should be enforceable at law.
However,
there are some agreements which are not enforceable in a law court. Such agreements
do not give rise to contractual obligations and are not contracts.
Examples
(1)
A invites B for dinner in a restaurant. B accepts the invitation. On the
appointed day, B goes to the restaurant. To his utter surprise A is not there.
Or A is there but refuses to entertain
B. B has no remedy against A. In case A is present in the restaurant but B
fails to turn-up, then A has no remedy against B.
(2)
A gives a promise to his son to give him a pocket allowance of Rupees one
hundred every month. In case A fails or refuses to give his son the promised
amount, his son has no remedy against A.
In
the above examples promises are not enforceable at law as there was no
intention to create legal obligations. Such agreements are social agreements
which do not give rise to legal consequences. This shows that an agreement is a
broader term than a contract.
And,
Therefore,
a contract is an agreement but an agreement is not necessarily a contract.
Essential Elements of a Valid Contract
According to Section 10 of the Act
"All agreements are contracts, if they are made by the free consent of the
parties, competent to contract, for a lawful consideration with a lawful
object, and not hereby expressly to be void."
Essential Elements of a Valid Contract
are:
1. Proper Offer and Acceptance.
There must be a lawful offer made by a party and a lawful acceptance of that
offer made by the other party or parties. The Indian Contact Act 1872 lay down the rules
for making a lawful and valid offer and acceptance
2. Lawful consideration: An
agreement to form a valid contract should be supported by consideration.
Consideration means “something in return” (quid pro quo). It can be cash, kind,
an act or abstinence. It can be past, present or future. However, consideration
should be real and lawful.
3. Competent
to contract or capacity of Party: In order to make a valid contract the
parties to it must be legally capable of entering into a contract. According to section 11 of the Contract Act, a
person is considered to be competent to contract if he satisfies the following
criterion: (a)The person has reached the
age of maturity. (b)The person is of sound mind. (c)The
person is not disqualified from contracting by any law.
4. Free Consent: To
constitute a valid contract there must be free and genuine consent of all the
parties to the contract. It should not be obtained by misrepresentation, fraud,
coercion, undue influence or mistake.
5. Lawful Object and Agreement:
The object of the agreement must not be illegal, unlawful or opposed to public
policy.
6. Agreement not declared void or
illegal: Agreements which have been expressly declared void or illegal
by law are not enforceable at law; hence they do not constitute a valid
contract.
7. Intention To Create Legal
Relationships:- When the two parties enter in to an agreement ,there
must be intention must be to create a legal relationship between them .If there
is no such intention on the part of the parties, there is no contract between
them Agreements of a social or domestic nature do not contemplate legal relationship;
as such they are not contracts.
8. Certainty, Possibility of Performance:
- The language of he agreement should be certain and not vague .The Agreement
must be capable of being performed. An agreement to do an impossible thing
cannot be enforced and it would be declared illegal.
9. Legal Formalities:- Important agreements as per Indian Laws
require to be entered into in writing as oral contact would be difficult to
prove in courts. Certain contacts e.g. lease, gift, sales and mortgage of
property etc., require being in writing and/or registered and /or attested as
per provisions of Indian law. Registration is compulsory for documents coming
in purview of Section 17 of the Registration Act.
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