Introduction to the Law of Contract
INTRODUCTION
The World of commerce is based on reciprocal act and considerations.
Along with these commercial activities, revolves around rights and
liabilities. The Indian Contract Act, 1872 prescribes the law relating to
contracts in India and is the key act regulating enforceable agreements. The
act is based on the principles of English Common Law and is applicable to
all the states of India.
The basis of the rights and liabilities, is the terms of the transaction created
voluntarily between the parties by making legally enforceable agreements.
Before enactment of Indian Contract Act, 1872, the courts in India used to
apply English Common Laws as suited to Indian conditions, customs and
usages. Some difficulties were noticed in using English Common laws.
Accordingly later the courts started deciding cases based on Hindu
Personal laws and Muslim Personal laws. But the same were still not found
fit to address the business complexities.
Accordingly, the Indian Contract Act, 1872 was framed. This act is based
on English Common law, which is to a large extent made up of judicial
precedents.
The law relating to contracts is contained in the Indian Contract Act, 1872. The
Act as originally enacted is divided into four parts:
1. Law relating to general principles of Contract [Section 1-75]
2. Law relating to sale of goods [Section 76-123]- Repealed and the Sale of
Goods Act,1930 originated.
3. Law relating to special contracts [Section 124-238]
4. Law relating to partnership Business- Repealed and The Partnership Act,
1932 was enacted.
1
,Extent and Commencement
It Extends to Whole of India
It came into force on 01/09/1872
Objective of Indian Contract Act
The object is to
Ensure that the rights and obligation arising out of a contract are honored
&
Legal remedies are made available to an aggrieved party against the party
failing to honour his part of agreement.
Q1. All Contracts are Agreements but all Agreements are not Contract.
Comment
Section 2(h) of the Act defines the term contract as “an agreement between two
or more parties enforceable by law.”
An agreement and its enforceability are two essential components of a contract.
If either of these two is missing there is no contract. Agreement has been defined
in section 2(e) as “Every promise and every set of promises forming consideration
for each other.”
According to section 2(b), “When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted and a proposal
when accepted becomes a Promise.
Will all agreements give rise to a contract?
An agreement to become a contract must give rise to a legal obligation.
Agreement can be social obligation or legal obligation. An agreement giving rise
to social obligation is not a contract. That is why it is said that the term agreement
is a wide term it includes both social and legal obligation but only those
agreements which the parties intend to enforce legally culminates into contract.
An agreement is regarded as a contract when it is enforceable by law.
Legal obligations arise to make an agreement, a contract. It means that an
agreement must give rise to legal obligations. There must be an intention to create
2
,legal obligation. In case of agreements regulating business relations it is assumed
that the parties intended legal consequences.
An agreement to form a contract, must satisfy the following conditions
1. An offer and acceptance have to be made
2. There should be a lawful consideration
3. There should be free consent between the parties to a contract.
4. The object of the agreement should be lawful
5. Parties must be competent to contract
6. The contract must be enforceable by law.
Thus, All Contracts are agreement but all agreements are not contract.
Q2. Difference between Agreement and Contract
Basis of Difference Agreement Contract
Meaning Every promise and every Agreement enforceable
set of promises forming by law
the consideration for
Contract=Agreement
each other.
+Legal Enforceability
Therefore it is
Agreement=Offer +
Acceptance
Scope Agreement is a wider Contract is used in
term including both legal narrow sense with the
and social agreement specification that
contract is only legally
enforceable agreement.
Legal Obligation Agreement may not Contract Necessarily
create legal obligation. creates a legal
An agreement does not obligation. A contract
always grant right to the always grants certain
parties rights to every party
3
, Nature All Agreements are not All Contracts are
contracts. Agreements.
Thus,
Contract=Agreement + Enforceable by Law
Agreement=Promise + Consideration
Promise=Offer + Acceptance
Q3. What is a Contract ? State the Essential Elements of a Valid Contract?
Ans. The term contract is defined under section 2(h) of the Indian Contract Act,
1872
as- “an agreement enforceable by law”.
The contract consists of two essential elements:
(i) an agreement and
(ii) its enforceability by law.
Contract = Accepted proposal/Agreement + Enforceability by law In terms of
Section 10 of the Act, “all agreements are contracts if they are made by the free
consent of the parties competent to contract, for a lawful consideration and with
a lawful object and are not expressly declared to be void”.
Essential Elements of a Valid Contract
(1) Two Parties
One cannot contract with himself. A contract involves at lease two parties i.e.
One party who is making the offer and other party accepting it.
A contract may be made by natural persons and by other persons having legal
Existence.
Example: Companies [It is necessary to remember that identity of the parties be
ascertainable.]
Example:
4
INTRODUCTION
The World of commerce is based on reciprocal act and considerations.
Along with these commercial activities, revolves around rights and
liabilities. The Indian Contract Act, 1872 prescribes the law relating to
contracts in India and is the key act regulating enforceable agreements. The
act is based on the principles of English Common Law and is applicable to
all the states of India.
The basis of the rights and liabilities, is the terms of the transaction created
voluntarily between the parties by making legally enforceable agreements.
Before enactment of Indian Contract Act, 1872, the courts in India used to
apply English Common Laws as suited to Indian conditions, customs and
usages. Some difficulties were noticed in using English Common laws.
Accordingly later the courts started deciding cases based on Hindu
Personal laws and Muslim Personal laws. But the same were still not found
fit to address the business complexities.
Accordingly, the Indian Contract Act, 1872 was framed. This act is based
on English Common law, which is to a large extent made up of judicial
precedents.
The law relating to contracts is contained in the Indian Contract Act, 1872. The
Act as originally enacted is divided into four parts:
1. Law relating to general principles of Contract [Section 1-75]
2. Law relating to sale of goods [Section 76-123]- Repealed and the Sale of
Goods Act,1930 originated.
3. Law relating to special contracts [Section 124-238]
4. Law relating to partnership Business- Repealed and The Partnership Act,
1932 was enacted.
1
,Extent and Commencement
It Extends to Whole of India
It came into force on 01/09/1872
Objective of Indian Contract Act
The object is to
Ensure that the rights and obligation arising out of a contract are honored
&
Legal remedies are made available to an aggrieved party against the party
failing to honour his part of agreement.
Q1. All Contracts are Agreements but all Agreements are not Contract.
Comment
Section 2(h) of the Act defines the term contract as “an agreement between two
or more parties enforceable by law.”
An agreement and its enforceability are two essential components of a contract.
If either of these two is missing there is no contract. Agreement has been defined
in section 2(e) as “Every promise and every set of promises forming consideration
for each other.”
According to section 2(b), “When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted and a proposal
when accepted becomes a Promise.
Will all agreements give rise to a contract?
An agreement to become a contract must give rise to a legal obligation.
Agreement can be social obligation or legal obligation. An agreement giving rise
to social obligation is not a contract. That is why it is said that the term agreement
is a wide term it includes both social and legal obligation but only those
agreements which the parties intend to enforce legally culminates into contract.
An agreement is regarded as a contract when it is enforceable by law.
Legal obligations arise to make an agreement, a contract. It means that an
agreement must give rise to legal obligations. There must be an intention to create
2
,legal obligation. In case of agreements regulating business relations it is assumed
that the parties intended legal consequences.
An agreement to form a contract, must satisfy the following conditions
1. An offer and acceptance have to be made
2. There should be a lawful consideration
3. There should be free consent between the parties to a contract.
4. The object of the agreement should be lawful
5. Parties must be competent to contract
6. The contract must be enforceable by law.
Thus, All Contracts are agreement but all agreements are not contract.
Q2. Difference between Agreement and Contract
Basis of Difference Agreement Contract
Meaning Every promise and every Agreement enforceable
set of promises forming by law
the consideration for
Contract=Agreement
each other.
+Legal Enforceability
Therefore it is
Agreement=Offer +
Acceptance
Scope Agreement is a wider Contract is used in
term including both legal narrow sense with the
and social agreement specification that
contract is only legally
enforceable agreement.
Legal Obligation Agreement may not Contract Necessarily
create legal obligation. creates a legal
An agreement does not obligation. A contract
always grant right to the always grants certain
parties rights to every party
3
, Nature All Agreements are not All Contracts are
contracts. Agreements.
Thus,
Contract=Agreement + Enforceable by Law
Agreement=Promise + Consideration
Promise=Offer + Acceptance
Q3. What is a Contract ? State the Essential Elements of a Valid Contract?
Ans. The term contract is defined under section 2(h) of the Indian Contract Act,
1872
as- “an agreement enforceable by law”.
The contract consists of two essential elements:
(i) an agreement and
(ii) its enforceability by law.
Contract = Accepted proposal/Agreement + Enforceability by law In terms of
Section 10 of the Act, “all agreements are contracts if they are made by the free
consent of the parties competent to contract, for a lawful consideration and with
a lawful object and are not expressly declared to be void”.
Essential Elements of a Valid Contract
(1) Two Parties
One cannot contract with himself. A contract involves at lease two parties i.e.
One party who is making the offer and other party accepting it.
A contract may be made by natural persons and by other persons having legal
Existence.
Example: Companies [It is necessary to remember that identity of the parties be
ascertainable.]
Example:
4
