THE INDIAN CONTRACT ACT , 1872

CONTRACT
Section 2(h) defines
A contract as “an agreement enforceable by law”
Thus to make a contract there must be –
(i) an agreement
(ii) the agreement should be enforceable by law.

All agreement are not enforceable by law and, therefore, all agreements are not contracts. Some
agreements may be enforceable by law and others not. For example, an agreement to sell a radio
set may be a contract, but an agreement to go to see a movie may be a mere agreement not
enforceable by law. Thus, all agreements are not
contracts. Only those agreements which satisfy the essentials mentioned in section 10 become
contract. However all contracts are agreements.

AGREEMENT
According to section 2(e)
An “agreement” is defined as “every promise and every set of promises
forming the consideration for each other”

Section 2(b)
says “ a proposal when accepted becomes a promise “

Therefore it can be said that an agreement is an accepted proposal. The process of definition
comes down to this : A contract is an agreement ; an agreement is a promise and a promise is an
accepted proposal.

In an agreement there is a promise from both the sides. For example, A promises to deliver his
radio to B and in return B promises to pay a sum of Rs. 500 to A , there is said to be an
agreement between A and B
A promise is a result of an offer (proposal) by one person and its acceptance by the other. For
example, when A makes a proposal to sell his radio to B for Rs. 500 and B accepts this proposal,
there results a promise between the two persons.

Section 2(b) of the Act defines a promise as under :

When the person to whom the proposal is made signifies his assent thereto, the proposal is said
to be accepted. A proposal when accepted, becomes a promise”.

Thus, when there is a proposal from one side and the acceptance of that proposal by the other
side, it results in a promise. This promise from one side to the other is known as an agreement.
The conditions of enforceability are stated in Section 10. According to this section “ 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.”

The essentials needed for a valid contract, therefore, are as under :

The essential elements of a valid contract are as follows:

1. Offer and acceptance. There must be 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. Agreements of
a social or domestic nature do not contemplate legal relations, and as such they do not give rise
to a contract. Agreements between husband and wife also lack the intention to create legal
relationship and thus do not result in contracts.
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’. The ‘consideration’ maybe 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.
4, Capacity of parties. The parties to an agreement must be competent to contract, otherwise it
cannot be enforced by a court of law. In order to be competent to contract the parties must be of
the age of majority and of sound mind and must not be disqualified from contracting by any law
to which they are subject (Sec. 11).
5. Free consent. Free consent of all the parties to an agreement is another essential element of a
valid contract. ‘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) misrepresentation, or (v) -mistake (Sec. 14).
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 not imply
injury to the person or property of another (Sec. 23). If the object is unlawful for one or the other
of the reasons mentioned above the agreement is void.

SUBITTED BY SUBMITTED TO
MS. POONAM LUTHRA
PINKI AHALAWAT H.O.D.(MBA)