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Introduction
Before the year1872, there was no uniform Law of Contract; the courts were guided by
the principle of justice, equity, and good conscience.
The Indian Contract Act came into force on the first day of September 1872,
which codifies the legal principles that govern such ‘contracts’. The Act basically
identifies the ingredients of a legally enforceable valid contract in addition to dealing
with certain special types of contractual relationships like indemnity, guarantee,
bailment, pledge, quasi contracts and contingent contracts etc.

Meaning and Definition of Contract

In layman’s language Contract means an agreement between two persons to do
or not to do a particular act. This means the two parties, which enter into an agreement,
perform certain act or mutually agreed terms and conditions. These casts upon each
other certain duties and responsibilities.
Sir Willian Anson defines Contract as, “A contract is an agreement enforceable
by Law made between two or more persons by whom right are required by one or more
to act or forbearance on the part of the other or others.”
Sir John Salmond defines Contract as, “A contract is an agreement, creating and
defining the obligation between the parties.”
Sir Fredrick Pollock defines contract as, “Every agreement and promise
enforceable at law is a contract.”
Indian Contract Act defines Contract under Section 2(h), which provides that a
contract is an agreement enforceable by law. Thus a contract is an agreement made
between two or more parties, which the law will enforce. This means only those acts
can be treated as contracts which has force of law
The above definitions defines that a contract consists of two elements. They are:
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• An agreement and
• Its enforceability by law

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An agreement: - is defined under Section 2 (e) of Contract Act. Section 2(e) explains
that ‘every promise and set of promise, forming consideration for each other’. When a
proposal is accepted it becomes a promise. Thus an agreement is an accepted
proposal. Therefore, in order to form an agreement there must be a proposal or offer by
one party and acceptance by other that can be treated as an agreement.
In short agreement = a proposal + Acceptance.
Example: - ‘A’ agrees to pay Rs.100 to ‘B’ and ‘B’ agrees to give him a book which is
priced at Rs.100. This is set of promise, which forms consideration for each other.
However, if ‘A’ agree to pay Rs 100 to ‘B’ but ‘B’ does not promise anything, it is
not ‘set of promise forming consideration for each other and hence not an agreement.
Thus the term agreement in Contract Act requires mutual consideration.
Enforceability by law: - An agreement is enforceable under Section 10 of Indian
Contract Act. Section 10 says that the parties to contract must be competent, out of
their free consent and for lawful object and consideration.
According to this section “agreement is a contract which is made for
consideration between parties who are competent, with their free consent and for a
lawful object and are not hereby expressly declared to be void. Any obligation, which is
not enforceable by the law, is not regarded as a contract. Social, moral or religious
agreements do not create any legal obligation.
For a valid contract, parties should have an intention to create legal relationship;
this intention can be inferred from the facts of the case. For example, an agreement to
have a dinner together or to go for a picnic is not a contract because it does not create a
duty enforceable by law. Such agreements are purely of a social nature where there is
no intention to create relationship. Thus all the agreements are not contracts. Only
agreements enforceable by the law is a contract.

Nature of Contract
To understand the nature of contract we will consider its various aspects.

1. Offer and acceptance: In order to constitute a valid contract, there must be

lawful offer and lawful acceptance of that offer. The word offer and proposal are
synonymous and are used interchangeably.
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 Section 2(a) of Indian Contract Act defines proposal as, when one person
signifies to another his willingness to do or to abstain from doing anything with a view to
obtain the assent of that other to such act or abstinence, he is said to make a proposal.
But if a statement is made with any intention of obtaining assent, it is not an offer.
Section 2 (b) clearly says that if statement without any intention to obtain the
assent of the other party there to cannot be termed as proposal. Acceptance is defined
in the Contract Act in Section 2 (b), which says that, when the person to whom the
proposal is made signifies his assent thereto, the proposal is said to be accepted. For
example, ‘A’ offers to sell his book to ‘B’ for Rs. 20 and ‘B’ agrees to buy the Book for
Rs 20. This is an acceptance of ‘A’s offer by ‘B’

2. Intention to create legal obligation: - in the first place there must be an offer
and the said offer must have been accepted. Such offer and acceptance should create
legal obligation between the parties. The rights and duties should be legal and not
merely moral.

In Balfore v. Balfore, a husband promised to pay maintenance allowance every

month to his wife so long as they remain separate. He failed to perform this promise,
and his wife brought an action to enforce it. But she failed to enforce the agreement, as
there was no intention to enter a legally binding contract

3. Competence of the parties: - In order to enter into contract the parties must be
competent. Section 11 of the Contract Act laid down that every person is competent to
contract if, he
• Is of the age of majority
• Is of sound mind and
• Is not disqualified from contracting by any law to which he is subject.

Thus a minor or a person of unsound mind or person disqualified by any other law is
incapable to enter into contract.

4. Free consent: - Another essential element of a valid contract is the free consent
of all parties to an agreement. Free consent means the parties’ agreed upon the same

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thing in same sense. Consent is said to be free when it is not caused by coercion, fraud,
misrepresentation, undue influence and mistake. The parties should offer a free consent
to the agreement.

5. Lawful consideration: - Consideration would generally mean compensation for

doing or omitting to do an act or deed. It is also referred to as quid pro quo viz
something in return for another thing. Such a consideration should be a lawful in order
to enforce in the court.

6 Lawful object: - Object of an agreement is its purpose. The purpose must not be
which the law declares to be either illegal or void. For Example: - Threat to commit
murder or entering into agreement, which is opposed, to public policy are illegal in
nature.

7. Certain meaning: - The meaning of contract must be certain and clear. For
Example, a horse was purchased along with a promise to pay extra money if the horse
proved lucky. The agreement was void, because there was no scale to determine,
whether the horse proved lucky or not.

8. Possibility of performance: - Contract is a bunch of mutual undertaking by two

or more persons to perform their respective part and it includes the obligation to
compensate the other party, if the contract is not discharged as per its items and
conditions, amounts to a breach. Non-performance of contract gives rise to right to be
compensated by the party at guilt. The mutual obligations and terms of contract must
have been respected and taken care of. So the terms and conditions must be such that
their performance must be possible.
Section 56 mentions two kinds of impossibilities, first impossibility existing at the
time of making the contract, For Example, ‘A’ agrees with ‘Y’ to discover a treasure by
magic. Second a contract, which is possible of performance and lawful when made but
the same, becomes impossible or unlawful thereafter.
For Example: - A person agrees to deliver a part of a specific crop of potatoes. The
potatoes were destroyed by a pest, though no fault of the party. The contract is

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discharged. So in agreement where the terms and conditions are impossible to perform,
the contract is void.

Types of Contract

• Validity
• Formation
• Performance

Types of contracts on the bases of validity

• Valid Contract
• Void Contract
• Voidable Contract
• Illegal Contract
• Unenforced Contract

Types of contracts on the bases of formation

• Express Contract
• Implied Contract
• Quasi Contract

Types of contracts on the bases of performance

• Executed Contract
• Executory Contract
• Unilateral Contract
• Bilateral Contract

1. Valid contract: an agreement, which has all the essential elements of a contract.
A valid contract can be enforceable by law

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2. Void Contract: Section 2 (J) states as follows: “A contract which ceases to be
enforceable by law becomes void when it ceased to be enforceable.” Thus a void
contract is one, which cannot be enforced by a court of law. Example agreement without
consideration.

3. Voidable Contract: Section 2(I) defines that 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. Thus, a voidable contract at one, which could be avoided by one of
the parties to the contract at his option. If such a party does not avoid the contract, the
contract remains valid but if it prefers to avoid the contract, then the contract becomes
void. For example when the consent of a party to a contract has been obtained by
coercion, undue influence, the contract is voidable at the option of the party whose
consent has been so obtained.

4. Illegal Contract: illegal contract are those that are forbidden by law. All illegal
contracts are hence void also. Because of the illegality of their nature they cannot be
enforced by any court of law. In fact even associated contracts cannot be enforced.
Contracts, which are opposed to public policy or immoral, are illegal. Similarly contracts
to commit crime like supari contracts are illegal contracts.

Further classification of contract according to the formation is also possible.

1. Express Contract: a contract would express contract if the terms are expressed
by words or in writing. Section 9 of the Act provides that if a proposal or acceptance of
any promise is made in words the promise is said to be express.

2. Implied Contracts: Implied contract come into existence by implication. Most

often the implication is by law and or by action. Section 9 of the Act contemplates such
implied contracts. In contract where proposal or acceptance is made otherwise than in
words, the promise is said to be implied.

Further classification of contract is possible on the basis of their performance. They are:

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1. Executed Contract: the consideration in a given contract could be an act or
forbearance. When the act is done or executed or the forbearance is brought on record,
then the contract is an executed contract.

2. Executory contract: in an Executory contract the consideration is reciprocal

promise or obligation. Such consideration is to be performed in future only and therefore
these contracts are described as Executory contracts.

3. Unilateral Contract: unilateral contract is one-sided contract in which only one

party has to perform his duty or obligation

4. Bilateral contract: A bilateral contract is one where the obligation or promise is

outstanding on the part of both the parties