Contract and it’s elements
According to Salmond
“A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”
According to Sir William Anson
“A legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearance on the parts of others”
The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement enforceable by law”
In other words,a contract is anything that is an agreement and enforceable by the law of the land.
This definition has two major elements in it viz – “agreement” and “enforceable by law”.
Agreement
In section 2 (e), the Act defines the term agreement as “every promise and every set of promises, forming the consideration for each other”.
Promise
The Act in its section 2(b) defines the term “promise” here as: “when the person to whom the proposal is made signifies his assent thereto, the proposal becomes an accepted proposal. A proposal when accepted, becomes a promise”.
Agreement
We can define the agreement when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when it is accepted becomes a promise. Thus, an agreement is a promise or set of promises. A promise comes into existence when one party makes a proposal or offer to another party and that promises must form consideration to each other.
The following are the characteristics of the agreements
The difference between contract and agreement
| Contract | Agreement |
| A contract is an agreement that is enforceable by law. | A promise or a number of promises that are not contradicting and are accepted by the parties involved is an agreement. |
| A contract is only legally enforceable. | An agreement must be socially acceptable. It may or may not be enforceable by the law. |
| A contract has to create some legal obligation. | An agreement doesn’t create any legal obligations. |
| All contracts are also agreements. | An agreement may or may not be a contract. |
We can define the agreement when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when it is accepted becomes a promise. Thus, an agreement is a promise or set of promises. A promise comes into existence when one party makes a proposal or offer to another party and that promises must form consideration to each other.
The following are the characteristics of the agreements
Plurality of persons: there must be two or more persons to make an agreement because one person cannot enter into an agreement with himself.
Consensus ad idem: it means that both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time. The term consensus means identity of minds. Unless there is consensus ad idem, there can be no contract.
There are two types of agreements
Social Agreements: these agreements are social in nature and do not enjoy the benefits of law. These agreements are not enforceable because they do not create legal obligation. In such agreements the parties do not intend to create legal relationships.
Legal Agreement: these are the contracts because they create legal obligation between the parties. In these agreements the parties intend to create legal relationship. In business agreements it is presumed that the parties intend to create leagal relationship so all business agreements are contracts.
Enforceability
Enforceability is the second requirement of contract. An agreement is enforceable if it is recognized by court. In order to be enforceable by law, the agreement must create legal obligation between the parties. If an agreement does not create legal obligation, it is not a contract.
Essential Elements of a Valid Contract
The essential elements of the contract are as under
:Agreement: The primary element that creates a contract between parties is an agreement, which is a result of offer and acceptance, that forms consideration for the parties concerned.
The Indian Contract Act, 1872, is a comprehensive legislation that governs contracts in India. Below are some essential elements of the Act along with relevant sections and landmark case laws:
1. Offer and Acceptance
Section 2(a) and 2(b): Defines offer (proposal) and acceptance.
Case Law: Carlill v. Carbolic Smoke Ball Co. (1893) – This case illustrates the concepts of offer and acceptance, particularly in the context of advertisements and unilateral contracts.
2. Intention to Create Legal Relations
Section 10: States that agreements are contracts if they are made with the free consent of parties competent to contract, for a lawful consideration, and with a lawful object.
Case Law: Balfour v. Balfour (1919) – Demonstrates the necessity of an intention to create legal relations in contracts.
3. Lawful Consideration
Section 2(d): Defines consideration as something of value in the eyes of the law, given by the promisee in return for the promise.
Case Law: Currie v. Misa (1875) – Emphasizes that consideration must be something of value in the eyes of the law.
4. Capacity to Contract
Section 11: Specifies that every person is competent to contract provided they are of the age of majority according to the law to which they are subject, and are of sound mind, and are not disqualified from contracting by any law to which they are subject.
Case Law: Mohori Bibee v. Dharmodas Ghose (1903) – Establishes that a contract with a minor is void ab initio.
5. Free Consent
Section 14: Defines free consent as consent not caused by coercion, undue influence, fraud, misrepresentation, or mistake.
Case Law: Ranganayakamma v. Alwar Setti (1889) – Illustrates the concept of coercion and its impact on the validity of a contract.
6. Lawful Object
Section 23: States that the consideration or object of an agreement is lawful unless it is forbidden by law, is of such a nature that if permitted, it would defeat the provisions of any law, is fraudulent, involves or implies injury to the person or property of another, or the court regards it as immoral or opposed to public policy.
Case Law: Gherulal Parakh v. Mahadeodas Maiya (1959) – Deals with the legality of object and consideration.
7. Certainty and Possibility of Performance
Section 29: Agreements, the meaning of which is not certain, or capable of being made certain, are void.
Case Law: Taylor v. Caldwell (1863) – Relates to the doctrine of impossibility and frustration of contract.
8. Contingent Contracts
Section 31: Defines contingent contracts as those dependent on the happening or non-happening of a future uncertain event.
Case Law: N.P. Ramaiah v. M.L. Subbaiah (1966) – Discusses the nature and enforcement of contingent contracts.
9. Performance of Contract
Sections 37 to 67: Cover the performance of contracts, including who must perform, time and place of performance, and the effect of refusal to accept performance.
Case Law: Startup v. Macdonald (1843) – Discusses timely performance and readiness to perform.
10. Breach of Contract and Remedies
Sections 73 to 75: Deal with the consequences of breach, including compensation for loss or damage, compensation for failure to discharge obligations resembling those created by contract, and the obligation of a party who rescinds to restore the benefit received.
Case Law: Hadley v. Baxendale (1854) – Establishes the rule for measuring damages for breach of contract.
11. Quasi-Contracts
Sections 68 to 72: Cover obligations resembling those created by contracts, including the liability of a person who enjoys the benefit of a non-gratuitous act and the liability of a person to whom money is paid, or goods delivered by mistake or under coercion.
Case Law: State of West Bengal v. B.K. Mondal & Sons (1962) – Addresses the concept of quasi-contractual obligations.
These sections and case laws collectively form the backbone of contract law in India, ensuring that contracts are made, performed, and enforced according to legal principles.
CONCLUSION
The Indian Contract Act, 1872, is a foundational piece of legislation that provides a robust framework for the creation, performance, and enforcement of contracts in India. By defining essential elements such as offer and acceptance, consideration, capacity, free consent, lawful object, and performance, the Act ensures that contracts are legally binding and enforceable. Case laws like Carlill v. Carbolic Smoke Ball Co., Mohori Bibee v. Dharmodas Ghose, and Hadley v. Baxendale further illustrate and clarify these principles, aiding in their practical application. This comprehensive legal structure facilitates fair and predictable commercial interactions, fostering trust and stability in economic transactions.
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