A contract is a legally binding agreement or relationship that exists between two or more parties to do or abstain from performing certain acts
1. A contract is a legally binding agreement or relationship that exists between two or more parties
to do or abstain from performing certain acts. A contract can also be defined as a legally binding
exchange of promises between two or more parties that the law will enforce. For a contract to be
formed an offer made must backed acceptance of which there must be consideration. Both
parties involved must intend to create legal relation on a lawful matter which must be entered
into freely and should be possible to perform.
An agreement is a form of cross reference between different parties, which may be written, oral
and lies upon the honor of the parties for its fulfillment rather than being in any way enforceable.
All contracts are agreement because there must be mutual understanding between two parties
for a contract to be formed. All parties should agree and adhere to the terms and conditions of an
The following cases illustrate ways in which all contracts are agreements;
In the case of invitation to treat, where an invitation to treat is merely an invitation to make an
offer. When a firm's offer is accepted it results into a contract provided other elements of
contracts are accepted.
Considering person A buying a radio on hire purchase from person B who deals with electronics
and its appliances. Both parties must come to an agreement on payment of monthly installment
within specified period of time. Such an agreement result to specialty contract which a contract
Allcontracts are agreement until avoided for example, avoidable contract where one of the
parties can withdraw from it if s/he wishes. This occurs due to minor agreement and
misrepresentation or undue influence. Considering a case where person A make contract with
person B but during the contract period B realizes that he was engaged to perform an agreement
under undue influence.
Definition of contract
According to section 2(h) of the Indian Contract Act: " An agreement enforceable by law is a
contract." A contract therefore, is an agreement the object of which is to create a legal obligation
i.e., a duty enforceable by law.
From the above definition, we find that a contract essentially consists of two elements: (1) An
agreement and (2) Legal obligation i.e., a duty enforceable by law. We shall now examine these
1. Agreement. As per section 2 (e): " Every promise and every set of promises, forming the
consideration for each other, is an agreement." Thus it is clear from this definition that a
'promise' is an agreement. What is a 'promise'? the answer to this question is contained in section
2 (b) which defines the term." When the person to whom the proposal is made signifies his
2. assent thereto the proposal is said to be accepted. A proposal, when accepted, becomes a
An agreement, therefore, comes into existence only when one party makes a proposal or offer to
the other party and that other party signifies his assent (i.e., gives his acceptance) thereto. In
short, an agreement is the sum total of 'offer' and 'acceptance'.
On analyzing the above definition the following characteristics of an agreement become evident:
(a) At least two persons. There must be two or more persons to make an agreement because one
person cannot inter into an agreement with himself.
(b) Consensus-ad-idem. Both the parties to an agreement must agree about the subject matter of
the agreement in the same sense and at the same time.
2. Legal obligation. As stated above, an agreement to become a contract must give rise to a legal
obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty
enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. " All
contracts are agreements but all agreements are not contracts,"
Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend's
house or to take a walk together are not contracts because they are not likely to create a duty
enforceable by law for the simple reason that the parties never intended that they should be
attended by legal consequences
Essential Elements of a Valid Contract
A contract has been defined in section 2(h) as "an agreement enforceable by law." To be
enforceable by law, an agreement must possess the essential elements of a valid contract as
contained in sections 10, 29 and 56. According to section 10, 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, are not expressly declared by the Act to be void, and where necessary,
satisfy the requirements of any law as to writing or attention or registration. As the details of
these essentials form the subject matter of our subsequent chapters, we propose to discuss them
in brief here.
The essential elements of a valid contract are as follows.
1. Offer and acceptance. There must a 'lawful offer' and a 'lawful acceptance' of the offer, thus
resulting in an agreement. The adjective 'lawful' implies that the offer and acceptance must
satisfy the requirements of the contract act in relation thereto.
2. Intention to create legal relations. There must be an intention among the parties that the
agreement should be attached by legal consequences and create legal obligations.
3. Agreements of a social or domestic nature do not contemplate legal relations, and as such they
do not give rise to a contract. An agreement to dine at a friend's house in not an agreement
intended to create legal relations and therefore is not a contract. Agreements between husband
and wife also lack the intention to create legal relationship and thus do not result in contracts.
Try to work out the solution in the following cases and then go to the answer.
3. Lawful consideration. The third essential element of a valid contract is the presence of
'consideration'. Consideration has been defined as the price paid by one party for the promise of
the other. An agreement is legally enforceable only when each of the parties to it gives
something and gets something. The something given or obtained is the price for the promise and
is called 'consideration' subject to certain exceptions; gratuitous promises are not enforceable at
The 'consideration' may be an act (doing something) or forbearance (not doing something) or a
promise to do or not to do something. It may be past, present or future. But only those
considerations are valid which are 'lawful'. The consideration is 'lawful'. unless it is forbidden by
law; or is of such a nature that, if permitted it would defeat The provisions of any law; or is
fraudulent; or involves or implies injury to the person or property of another; or is immoral; or is
opposed to public policy (sec.23).
4. Capacity of parties. The parties to an agreement must be competent to contract. But the
question that arises now is that what parties are competent and what are not. The contracting
parties must be of the age of majority and of sound mind and must not be disqualified by any law
to which they are subject (sec.11). If any of the parties to the agreement suffers form minority,
lunacy, idiocy, drunkenness etc. The agreement is not enforceable at law, except in some special
cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is
entitled to be reimbursed from their estate (sec 68).
5. Free consent. Free consent of all the parties to an agreement is another essential element. This
concept has two aspects.(1) consent should be made and (2) it should be free of any pressure or
misunderstanding. 'Consent' means that the parties must have agreed upon the same thing in the
same sense (sec. 13). There is absence of 'free consent,' if the agreement is induced by
(i)coercion, (ii) undue influence, (iii) fraud, (iv) mis-representation, or (v) mistake (sec. 14). If
the agreement is vitiated by any of the first four factors, the contract would be voidable and
cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the
aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the
act. If the agreement is induced by mutual mistake which is material to the agreement, it would
be void (sec. 20)
6. Lawful object. For the formation of a valid contract it is also necessary that the parties to an
agreement must agree for a lawful object. The object for which the agreement has been entered
into must not be fraudulent or illegal or immoral or opposed to public policy or must mot imply
injury to the person or the other of the reasons mentioned above the agreement is void. Thus,
when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover
4. the rent through a court of law or a contract for committing a murder is a void contract and
unenforceable by law.
7. Writing and registration. According to the Indian contract Act, a contract to be valid, must be
in writing and registered. For example, it requires that an agreement to pay a time barred debt
must be in writing and an agreement to make a gift for natural love and affection must be in
writing and registered to make the agreement enforceable by law which must be observed.
8. Certainty. Section 29 of the contract Act provides that " Agreements, the meaning of which is
not certain or capable of being made certain, are void." In order to give rise to a valid contract
the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the
meaning of the agreement, for otherwise, it cannot be enforced
Illustration. A, agrees to sell B " a hundred ton of oil" there is nothing whatever to show what
kind of oil was intended. The agreement is void for uncertainly.
9. Possibility of performance. Yet another essential feature of a valid contract is that it must be
capable of performance.
Section 56 lays down that "An agreement to do an act impossible in itself is void". If the act is
impossible in itself, physically or legally, the agreement cannot be enforced at law.
Illustration. A agrees with B, to discover treasure by magic. The agreement is not enforceable.
10. Not expressly declared void. The agreement must not have been expressly declared to be
void under the Act. Sections 24-30 specify certain types of agreements that have been expressly
declared to be void. For example, an agreement in restraint of marriage, an agreement in restraint
of trade, and an agreement by way of wager have been expressly declared void under sections
26, 27 and 30 respectively.