Contract

                                                             What is Contract?

In simple words a proposal when accepted becomes an agreement, and an agreement enforceable by law is a contract. An agreement to be enforceable, it must create some

 obligations. As such a contract is a combination of agreement and obligations created by it. In most of the commercial transactions, each party is both a promisor and promisee, since the contract is formed by mutual promises.

 

Definitions: 

         Sec.2(h) of the Indian Contract Act defines a contract as "an agreement enforceable by law."

         In the words of Justice Salmond, "A contract is an agreement creating and defining obligations between the parties."

         In the words of Sir Frederic Pollock, "Every agreement and promise enforceable at law is a contract."

         It follows from the forgoing definitions that the essence of contract is an agreement and its enforceability by law. Where parties have made a binding contract,

they have created rights and obligations between themselves. In other words , every promise and every set of promises forming consideration for each other is an agreement.

[Sec.2(e)] 

                                Essential of a Valid Contract.

Essential of a valid contract have been stated under Sec2(h) and 10, of the Indian Contract Act, 1872.

 An analysis of these two section reveal the following elements or essential of valid contract :

   1. Two or more parties : A contract to be lawful, there must be at least two parties ; a proposer and a proposee.

   2. Offer and acceptance (An agreement) : Proposal or offer by one party and acceptance of the proposal by another party, resulting an agreement.

   3. Intention to create legal relationship : There must be intention of the parties to create legal relationship between them. If there is no intention on the part of parties at the time of making the contract, there will not be any valid contract between them.

   4. Agreement must be enforceable by law : All legal formalities must have been complied at the time of agreement. If any technical default remains with the agreement, such

      an agreement cannot be enforceable. For example- Any agreement based on arbitration, must be in written according to the law, for enforcement.

   5. There must be contractual capacity of the parties : The parties to the agreement must be capable of contracting. Sec.11 of the Contract Act prohibits following persons from contracting :

                 (a) Minors, (b) Persons of unsound mind, and (c) Persons disqualified for making a contract by law.

   6. Free consent : The consent between the parties should be free and not be married by mistake, undue influence, coercion, fraud or misrepresentation. It is, therefor, essential

      to the creation of every contract that it must be free and genuine. The contract of the parties is said to be free when they are of the same mind on all the material terms of contract.

   7. Lawful consideration : Consideration refers to an advantage or benefit moving from one party to another. In simple words "Something in return". A promise to do something, for getting nothing in return, is usually not enforceable by law. But consideration need not to be adequate.

   8. There must be lawful objective and is not opposed to public policy : The object of agreement must be lawful and should not be illegal, immoral, or opposed to public policy (sec. 23).

      If an agreement suffers from any of these, it would not be enforceable by law. For example ,any agreement made between A and B to deal in Brown Sugar and share the  profit, will be void agreement, the object being unlawful.

   9. The agreement should not be expressly declared void : There are certain agreement which are expressly declared void under various Section of Contract Act; which are as follows :

      (1) Any agreement between persons incompetent to contract.                      (sec.11)        

      (2) Any agreement based on mutual mistake.                                                (sec. 20-22)   

      (3) Any agreement made of unlawful consideration.                                     (sec.23)         

     (4) Any agreement, the consideration of which is partly lawful and partly unlawful; but the lawful  part cannot be separated from the other.                                            (sec.24)       

      (5) Any agreement without consideration.                                                     (sec.25)         

      (6) Any agreement restraints to marriage.                                                      (sec.26)       

      (7) Any agreement restraints trade.                                                                 (sec.27)

      (8) Any agreement restraints to legal proceedings.                                         (sec.28)      

      (9) Any agreement involving uncertainties.                                                    (sec.29)      

      (10) Wagering agreement                                                                                (sec.30)

      (11) Any agreement enforceable on happening of an impossible event.         (sec.36)

      (12) Any agreement to do an impossible act.                                                   (sec.56)         

  10. Compliance of legal formalities (sec.10) : The contract must be in writing, witnessed and registered if any law so requires.