Definition of Contract
Section 2(h) of the Indian Contract Act provides that, “An Agreement enforceable by law is a contract”. Therefore in a contract there must be (1) an agreement and (2) the agreement must be enforceable by law.
An agreement comes into existence whenever one or more persons promise to one or others, to do or not to do something, “Every promise and every set of promises, forming the consideration for each other, is an agreement. Some agreements cannot be enforced thought he courts of law, e.g., an agreement to play cards or go to a cinema. An agreement, which can be enforced through the courts of law, is called contract.
Object and Scope
The Law of Contract deals with agreements which can be enforced through courts of law.
The Law of Contract is the most important part of commercial law because every commercial transaction starts from an agreement between two or more persons.
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.”
The Indian Contract Act of 1872 (Act IX of 1872) lays down certain general rules regarding contracts. The Act is not exhaustive. There are other Acts relating to particular types of contracts e.g. the Negotiable Instruments Act, Transfer of Property Act, etc.
The Contract Act does not affect nay usage or custom of trade, or any incident of any contract not inconsistent with the provisions of the Act.
The Essential Elements of a Contract
An agreement becomes enforceable by law when it fulfils certain conditions. These conditions, which may be called the Essential Elements of a Contract, are explained below.
- Offer and Acceptance: There must be a lawful offer by one part and a lawful acceptance of the offer by the other and acceptance must conform to the rules laid down in the Indian Contract Act regarding offer and acceptance.
- Intentions to create Legal Relationship: There must be an intention (among parties) that the agreement shall result in or create legal relations. An agreement to dine at a friend’s house is not an agreement intended to create legal relations and is not a contract. But an agreement to buy and sell goods or an agreement to marry, are agreements intended to create some legal relationship and are therefore contracts, provided the other essential elements are present.
- Lawful Consideration: 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”.
- Capacity of Parties: 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.
- Free Consent: 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.
- Legality of the Object: The object for which the agreement has been entered into must not be illegal or immortal or opposed to public policy.
- Certainty: The agreement must not be vague. It must be possible to ascertain the meaning of the agreement, for otherwise it cannot be enforced.
- Possibility of Performance: The agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced.
- 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:
- 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.
“All agreements are not contracts, but all contracts are agreements”. Discuss the statement explaining essential elements of a valid contract.