The law relating to contract is governed by Indian contract act 1872. Regulation and management of business is governed by contract act. The term contract is derived from the Latin word contractum which means drawn together.
It comes into force from 1st September 1872. It extent to the whole of India except the state Jammu and Kashmir. A contract is the most usual method define the right and duties of a business transaction.
General definition of Contract
A contract is an agreement entered into between two or more persons/parties/organisations subject to certain terms and condition, for a lawful consideration, to do or perform certain things.
Definitions of contract
Here is some important definitions of contract —-
Definition according to Indian contract act, 1872
Section 2(h) of the Indian contract act, 1872 define a contract as ‘‘An agreement enforceable by law’’.
Definition according to Authores
As per Leake, ‘‘an agreement as the source of legal contract import the one party shall be bound to some performance, which the other shall have a legal right to enforce’’.
As per Anson, ‘‘the law of contract is that branch of law which determined the circumstances in which a promise shall be legally binding the person making it’’.
Thus for the formation of contract, there must be-
- An agreement
- The agreement must be enforceable by law
Contract= Agreement + Enforceability
Essential element for a valid ‘Contract’
To constitute a valid Contract there must me two party, the one who called promisor and second the who called Promisee. Section 2(c) of Indian Contract act,1872
Capacity of contract
Party of the Contract must be capable of entering into a contract. It means the person –
- who is a major ( not minor)
- Second is of sound mind
- who is not disqualified
Identity of mind
It means both the party to the contract must have agreed/ consented about the subject in the same manner and same time.
This term defined as something in return. It is a price for a contract. It refers to both of the party of the contract
Section 14 of theact define Free Consent as consent is said to be free. When it is not caused by-
- Undue influence
A contract must be enforceable law only if it creates legal relationship between the parties. Mare domestic or social agreement does not give rise to create legal relationship.
Lawful object or legality of object
It means the subject matter of contract must be lawful or enforceable by law. In other word it should not be-
- Forbidden by law
- Defeated any provision of law
- Causing any injury to person or property of any other person
Term of contract must be certain not vague
Term and conditions of the contract shall be clearly furnished in the agreement without and ambiguity or vagueness.
Possibility of performance
If the performance of the contract is impossible, it is void. Section 56 of the Act defines “an agreement to an act which is impossible is void.
Let’s see some example of Contract
‘A’ and ‘B’ inter entered into an agreement. ‘A’ promised ‘B’ to sell his house for 50000 and ‘B’ accept to purchase it for the said amount of money. It a contract between ‘A’ and ‘B’.
Ram, a showroom dealer promises to deliver a car to shyam for a agreed money of 5 lakhs and in return Shyam promises to pay 5 lakhs to Ram this is an example of valid contract.
As in all the definition of contract we notice the word ‘‘Agreement’’. So we should also discuss the term agreement.
Section 2(e) of the Indian contract act, 1872 define an agreement as ‘‘every promise and every set of promise forming consideration for each other, is an agreement’’.
To constitute an agreement-
- first there must be at least two parties.
- There must be a proposal or offer from one person/party.
- There must be an acceptance from the other person/party.
- The parties to it must have identity of mind.
- The parties must communicate with each other.
- It should not be related to social matter.
Let’s see some example of Agreement
Example 1 ‘A’ offer to sell his land to ‘B’ for a said amount of 1 lakh, ‘B’ accept to purchase this land for the same amount. This is an agreement.
Example 2 ‘Ram’ a merchant intended and offer to sell some goods for a specific price, ‘Mohan’ a dealer in that’s goods express the intention to buy that’s goods and accept the offer. The acceptance of Mohan to purchase that’s create a valid Agreement.
The definition of Agreement mentions the word promise. So let’s discuss what promise is according to Indian contract act, 1872.
According to section 2(a) of the Indian contract act, 1872 ‘‘when a person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal. When this proposal accepted by other party it’s become ‘Promise’
Here is some essential element of a valid Proposal or Offer
- The person making the proposal is called proposer and the person accepting the proposal is called the promise.
- For a valid offer, the person making offer must express his willingness ‘to do’ or abstain to do anything
- It must be capable of creating legal relationship.
- Second It must be certain, definite and not vague.
- It must be communicated to offeree
Lets see the difference between ‘Contract’ and ‘Agreeement’
|Basis of difference||Contract||Agreement|
|Meaning||An Agreement enforceable by law||Every promise and set of promise, forming consideration for each other.|
|Formula||Agreement + Enforceability by law.||Offer+ Acceptance|
|Definition||This is defined in section 2(h) of Indian contract act, 1872.||This is defined in section 2(e) of Indian contract act, 1872.|
|Legal obligation||Contract is enforceable by law||Agreement may or may not be enforceable by law|
|Foundation||It emerges from an Agreement||It emerges from an valid offer and acceptance|
|Nature||Every contract is an agreement.||Every agreement needs not to be a contract.|
|Scope||Contract is a narrow term including only legal Agreements||Agreements is a wider term including both social and legal Agreements|
A agree with B to sell his house for an agreed price of 50 lakhs to B. b give his acceptance to buy this house for the agreed price of 50 lakhs. Is this a valid contract?
Provision– Section 2(h) of Indian contract Act,1872 Define the term Contact as an agreement enforceable by law
An agreement + enforceability
Discussion– in this example an offer to sell his house for an agreed amount of 50 lakhs and B accept the offer to buy that house. This is a valid agreement and can be enforce by the parties of the contract.
Conclusion– Because of the agreement between ‘A’ and ‘B’ is a valid agreement and enforceable by law. Since we can say that this a valid contract.
A husband agreed to provide certain amount as maintenance to his wife while he was in abroad. Husband failed to provide maintenance and her wife sued against his husband to recover that maintenance amount. Can her wife recover that amount?
Provision- when two parties enter into an agreement but they are not intended to create legal relationship, it is not a contract. Mare intention to enter into a social moral or religious agreement cannot be enforced by any of the parties of the contract.
Discussion- Here in the given case, the agreement between husband and wife is an agreement of social, moral or religious. therefore this agreement between husband and wife is valid but not enforceable by law.
Conclusion- Here is this case her wife could not recover any amount from his husband.
Mohan get entered into a contract with Sohan to sell his house to Sohan for an agreed price of 10 Lakhs if Sohan never get die. Is it a valid Contract?
Provision- Agreement contingent on impossible event void- Contingent even to do or not to do anything, if an impossible event happens , are void, Whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. (Section 36 of the Indian contract Act,1872.)
Discussion- In the given case, the agreement between Mohan and Sohan is dependent on and impossible event, which is known by both parties to the agreement.
Conclusion- Because of the agreement between Mohan and Sohan is a void agreement therefor the contract is also void.