MEANING OF CONTRACT
In simple terms, a contract means when two or more parties put into writing an agreement which contains certain obligations (promises) which are to be performed by such parties, and when such written agreement becomes enforceable by law, it becomes a Contract.
Enforceable by law means when the agreement has acquired the force of law only for those who are a party to it and a violation of those obligations would attract legal action, including repudiation of the entire contract.
SECTION 2(H) of INDIAN CONTRACT ACT, 1872 defines contract as “AN AGREEMENT ENFORCEABLE BY LAW”. Thus, formation of a contract there must be an agreement, and the agreement should be enforceable by law.
Therefore an agreement consists of reciprocal Promises which are to be performed by parties to the contract. Promises are reciprocal when both parties have to perform something for the other.
NOTE CHARITY IS NOT A CASE OF RECIPROCAL PROMISE, BECAUSE A PERSON DOING CHARITY, DOES NOT EXPECT ANYTHING IN RETURN.
The agreement will create rights and obligations that may be enforced in the courts. The normal method of enforcement is an action for damages for breach of contract, though in some cases the court may order performance by the party in default.
POLLOCK - “Every agreement and promise enforceable by law is a contract”.
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”.
ANSON - “The law of contract is that branch of law which determine the circumstances in which a promise shall be legally binding on the person making it’.
CONTRACT = AGREEMENT + ENFORCEABILITY
ESSENTIAL ELEMENTS OF A CONTRACT
- 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.
- FREE CONSENT: Consent of the parties is another important aspect of a contract, which means the parties entering into the contract, must agree upon the same thing in the same sense. The consent of the parties is said to be free when it is not influenced by coercion, undue influence, fraud, misrepresentation and mistake.
- COMPETENCY : Competency refers to the capacity of the parties to enter into the contract, i.e. he/she has reached the age of maturity, he/she must be of sound mind, and he/she is not disqualified from contracting, as per the law like the alien enemy, foreign sovereigns, etc.
- CONSIDERATION : It implies the price agreed to be paid for the promisor’s obligation by the promisee. It must be adequate and lawful.
- LAWFUL OBJECT : The object for which the contract is created must be lawful, or else it is declared as void.
- NOT EXPRESSLY DECLARED AS VOID : The law should not expressly declare the contract as void, such as contract in restraint of marriage, trade or legal proceedings.
OTHER IMPORTANT ELEMENTS OF THE CONTRACT
- There must be at least two parties to constitute a contract, i.e. one who proposes and another accepts the same.
- The parties entering into the contract must intend to create a legal obligation for one another.
- It must be in writing.
- There must be certainty of meaning. the terms of the parties must be clear to the parties, i.e. the party should not interpret anything wrong, there must be a consensus ad idem.
- There should be a possibility of performing the contract.
So, these are some paramount elements of a contract, without which it cannot be enforced in the court of law.
TYPES OF CONTRACT
- ON THE BASIS OF VALIDITY
- VALID CONTRACT : An agreement which is enforceable by law, is a valid contract.
- VOID CONTRACT : The contract which is no longer enforceable in the court of law is a void one.
- VOIDABLE CONTRACT : A contract in which one of the parties to the contract has a choice to avoid performing his/her part, then it is termed as a voidable contract. When the consent of the party is not free, the contract becomes voidable, at the option of the aggrieved party.
- ILLEGAL CONTRACT : A contract which is forbidden by law is termed as an illegal contract.
- UNENFORCEABLE CONTRACT : The contract whose substance is good, but due to some issues, it is not enforceable, is called an unenforceable contract.
- ON THE BASIS OF FORMATION
- EXPRESS CONTRACT : When the terms of the contract are expressed orally or in writing, it is known as an express contract.
- IMPLIED CONTRACT : The contract which is constituted by implication of law or action, is an implied one.
- QUASI-CONTRACT : These are not a real contract, but are identical to a contract, which is formed out of some circumstances.
- ON THE BASIS OF PERFORMANCE
- EXECUTED CONTRACT : When the contract is performed, it is known as an executed contract.
- EXECUTORY CONTRACT : When the obligation in a contract, is to be performed in future, it is described as an executory contract.
- UNILATERAL CONTRACT
- BILATERAL CONTRACT
To sum up, agreements are termed as a contract, if it comprises all the essential elements that constitute a contract.
PROCESS OF ENTERING INTO A CONTRACT
When an agreement is not backed by any surety of performance, a contract legally bound the parties to abide by its terms and conditions.
A contract is formed in five simple steps, as stated below:
- OFFER : Initially, a proposal is put forward by the offeror (first-party) to the offeree (second party) for beginning a contract. The contractual terms and conditions should be transparent enough.
- ACCEPTANCE : The offeree has an option whether to agree upon the proposal or offer received, or not.
- AGREEMENT : If the offeree accepts the proposal, an agreement is formed with the mutual consent of both the parties.
- LEGAL ENFORCEABILITY : This agreement is then made enforceable by law so that both the parties oblige by the clauses of the contract.
- CONTRACT : This legal agreement finally becomes a contract.