Meaning and Definition of Contract
According to
Section 2(h) of Indian Contract Act, by “An agreement enforceable by law is a
contract”. Section 2(e) defines an agreement as “Every promise and set of
promises, forming the consideration for each other is an agreement”.
“A contract is an the obligations between parties.'
agreement creating and defining the obligation betbeen parties.”
Salmond
"Every
agreement and promise enforceable at law is a contract".
Sir Fredrick
Pollock
Thus, a contract
consists of two major elements: An agreement and its enforceability by law. To
make a contract, there must be an agreement and the agreement must be
enforceable by law.
Essential Elements of a Valid Contract
 |
| Essential of Valid Contract |
According to
Section 10 of Indian Contract Act, “All agreements are contracts if they are
made by the free consent of parties competent to contract for a lawful
consideration and with a lawful object, and are not hereby expressly declared
to be void”.
Essential elements of a valid contract may be
enumerated as follows:
1. An Agreement: Offer and Acceptance: To create a legal contract, there must be an
agreement. To make an agreement, there must be a lawful offer followed by a
lawful acceptance. Thus, there should be atleast two or more parties.
2. Creating Legal Relationship: The agreement must be made with a view to create
legal obligations between the parties. Agreements of social and domestic nature
are not enforceable at law.
Example- Mr. A
promised to pay a monthly allowance of £ 30 to his wife Mrs. B as long they
remain separate. Later on, he could not keep his promise and his wife sued him
to enforce it. As it is an he him agreement
of domestic nature, it was held that it does not create any legal relationship
and, therefore, Mr. A cannot be compelled to pay the allowance.
3. Contractural Capacity of Parties: All the parties to an agreement must be competent to
contract. According to Section 11, every person is competent to contract if he
:
a.
Is
of the age of majority,
b.
Is
of sound mind, and
c.
Is
not disqualified from contracting by any law to which he is subject.
4. Free Consent: For a valid contract, there must be free consent of the parties.
Section 14 states that a consent is said to be free when it is not caused by:
a.
Coercion
(sec. 15),
b.
Undue
influence (sec. 16),
c.
Fraud
(sec. 17),
d.
Misrepresentation
(sec. 18),
e.
Mistake
(sec. 20, 218, 22).
5. Lawful Consideration: Consideration means something in return. It may be
in cash or in kind. It may be an act or abstinence or a promise. It may be past
or present or future. An agreement without consideration (with some exceptions)
is void.
6. Lawful Object: The object of n agreement must be lawful, A lawful object is an object
which is not:
a.
Illegal,
b.
Immoral,
c.
Opposed
to public policy.
7. Lawful Agreement: An agreement is enforceable by law only when it is lawful. Thus, an
agreement should not be expressly declared as void under any law in force in
the country. Following agreements have been declared as void:
a.
Agreements
in restraint of marriage (Sec. 26),
b.
Agreements
in restraint of trade (Sec. 27),
c.
Agreements
in restraint of legal procedings (Sec. 28),
d.
Agreements
having uncertain meaning (Sec. 29),
e.
Agreements
by way of wager (Sec. 30),
f.
Agreements
contingent on impossible events (Sec. 39),
g.
Agreements
to do impossible acts (Sec. 56).
8. Writing and Registration: Generally, an agreement may be written as well as
oral. Under certain conditions, it must be written and registered. Following
contracts must be written and registered:
a.
A
promise to pay a time barred debt,
b.
Transfer
of immovable property,
c.
Contracts
made without consideration under Section 25(1),
d.
Memorandum
and articles of association,
e.
Negotiable
instruments,
f.
Arbitration
agreements,
g.
Contracts
of insurance,
h.
Transfer
of motor vehicles,
i.
Transfer
of shares in a joint stock company.
Conclusion:
There are two main elements of a contract : There should be an agreement and
the agreement should be enforceable at law. Thus, all contracts are agreements
because no contract can be made unless there is an agreement. On the other
hand, all agreements are not contracts because there may be a large number of
agreements which do not fulfill all the legal requirements and, hence, are not
contracts. Such agreements remain only the agreements. Therefore, the statement
“All contracts are agreements but all agreements are
not contracts” is absolutely correct.
Types of Contract
 |
| Types of Valid Contract |
1. Valid
Contract: A valid contract is one
which fulfills all the essential elements of a valid contract. It is fully
enforceable at law. If a contract lacks any essential element of a valid
contract, it will be either void or voidable or illegal or unenforceable.
Example-A agreed to sell his
cycle to B for Rs. 800. It is a valid contract.
2. Void
Contract: A contract which ceases to
be enforceable at law at a later stage, is called a void contract. It may
become void due to:
a.
Supervening
impossibility
b.
Subsequent
illegality
c.
Repudiation
of a voidable contract
These problems arise subsequent to the formation of contract.
Example- A and B
agreed to start the business of bus operators under contract with D.T.C. In the
mean time, transport authorities cancelled the scheme of contracting private
buses. As a result, the contract between A and B becomes void.
3. Voidable
Contract: According Section 2(i), “An
agreement which is enforceable by law at the option of one or more parties but
not at the option of the other or others, is a voidable contract”. A contract
is voidable if it is caused by coercion or undue influence or fraud or
misrepresentation. Such a contract is voidable at the option of aggrieved
party. He may or may not opt to get it enforced. Such a contract is fully valid
till it is avoided. If it is avoided, it become void.
Example- P
agreed to take a loan from Q at 40% p.a. interest to come out of his urgent
problems. It is voidable contract at the option of P on the ground that rate of
interest is unreasonably high and Q has taken undue advantage of the problem of
P.
4. Illegal
Contract: An illegal contract is a
contract which is against a law enforce in the country or against public policy
or criminal in nature or immoral. Such a contract creates no legal right and
obligation. It is fully null and void. Rather, it may attract some penalties
and prosecution also on the parties.
Example-A and B
agreed to start smuggling business in partnership. Since the smuggling business
is illegal, it is illigal agreement between A and B.
5. Unenforceable
Contract: An unenforceable contract
is a contract which is valid but cannot be enforced because of some technical
defect such as the want of registration, stamp, attestation etc. or time
barred. Such contract can be enforced if its defects are rectified. However, in
some cases, such a contract cannot be enforced even if its technical defects
are rectified.
Example- A
agreed to purchase a house from B for a certain price. They got the agreement
draft written and registered with notary public. Since a contract of the
transfer of immovable property must be written and registered with registrar
only, contract between X and y is unenforceable.
6. Executed
Contract: An executed contract is a
contract which has been completely performed. All the parties have fulfilled
their obligations under the terms of contract. A contract may be executed at
once
Example-Cash
sales in which the purchaser gets goods or services and the seller gets payment
at the time of contract. A contract may be executed in future also e.g., Credit
sales.
7. Executory Contract: An Executory contract is a contract in which one or
both the parties are still under an obligation to fulfill the terms of
contract. Something may be done and something may remain to be done or
everything may remain to be done.
Example - A
agreed to sell his car to B for Rs. 1,00,000 against which B pays Rs. 20,000 in
advance. Here, A is to deliver his car and B is to pay Rs. 80,000 more. This is
an executory contract.
8. Bilateral
Contract: A bilateral contract is a
contract under which the obligation of both the parties are outstanding at the
time of formation of contract.
Example-A agreed
to sell his house to B for Rs. 8,00,000. Here A is to give the possession of
his house and B to pay the amount. This is a bilateral contract.
9. Unilateral
Contract: An unilateral contract is
one under one party has already fulfilled his obligation under the terms of
contract but the obligation of other party is outstanding.
Example: A sold
goods of Rs. 10,000 to B on 30 days terms. Here A has delivered the goods but B
has not yet paid the amount. This is a unilateral contract.
10. Express
Contract: An express contract is one
in which the parties have agreed to the terms of contract by words, spoken or
written.
Example- A
proposes to sell his watch to B for Rs. 1,000 and B gives his consent to it.
This is an express contract.
11. Implied
Contract: An implied contract is one
which is created by the conduct or act of parties and not by words. In such a
contract, there is no express proposal or express consent.
Example- A
boards into a bus to travel from Meerut to
Delhi. Here, A is bound to pay for the ticket and bus operator is bound
to take him to Delhi. This is an Implied contract.
12. Quasi
Contract: A quasi contract is a
contract created by law. Under such a contract, rights and obligations are
imposed by law on both the parties. These contracts are based on the principle
of equity, "None should be allowed to enrich himself unjustly at the
expense of another":
Example- A finds
a purse lying on the road and picks it up. Here, A is legally bound to find out
the owner of purse and return it to him. If he does not get the owner, he is
bound to deposit it in police station. Simultaneously, he is entitled to be
reimbursed for the expenses incurred by him. It is a quasi contract.
