You are on page 1of 3


2(h) A contract is an agreement enforceable by law. A

contract consists of two components or elements:-
1. Agreement
2. Its enforceability by law.
To put it mathematically, a contract is equivalent agreement
plus its enforceability by law.
How to make an agreement.
An agreement takes place when one person makes a
Proposal to another person and that other person accepts such
In other words, an accepted proposal becomes an agreement
under the law. To put it mathematically, Agreement is equivalent to
proposal plus acceptance.
S(10) “All agreements are contracts, if they are made by the
free consent of the parties, who are competent to contract, for a
lawful consideration and with lawful object and which are not
declared to be void.”
Essentials or conditions for entering into a contract.
S10 lays down the following conditions and if these
conditions are satisfied then each and every agreement becomes a
1. In order to enter into a contract there must be a proposal by
one person and such proposal must be accepted by another
person. In other words, the law pre-supposes that, there
must be at least 2 persons to enter into a contract.
2. There must be an intention between the parties to create
legal obligation between them. Any agreement which creates
Social, Moral or Political Obligation cannot become a
3. The parties who enter in to a contract must be competent,
capable or able to contract. Every person is competent to
contract (a) if he is a Major (b) if he is a person of sound
mind (c) he is not disqualified by any other law from entering
into a contract.
4. Whenever parties enter into a contract one of the condition is
that the consent of a person is free. Under the Indian Contact
Act, there is a consent when both the parties agrees in the
same sense. Under the Indian Contract Act, the consent is not
free if it is obtained by coercion, undue influence, fraud,
misrepresentation or mistake. If the consent is not free such
agreement are not binding on the parties.
5. There must be a lawful consideration between the parties
when they enter in to contract, Every contract must be
supported by some consideration. An agreement without
consideration is absolutely to be void. Consideration means
“Quid pro Quo” i.e. something in return. In every contract
both the parties gets something in return and that something
in return is a consideration for the parties.
6. The Object of a contract must be lawful, Object means the
reason or the purpose for which a contract is entered into. An
object is not lawful if it is illegal, immoral and opposed to
public policy. Such agreements are absolutely bad in law and
they do not create any legal obligation between the parties.
7. The agreement must not be such which is expressly declared
to be void by law. Following agreements are void in law:-
a. An agreement in restraint of marriage.
b. An agreement in restraint of legal trade and profession
c. An agreement in restraint of legal proceedings.
d. An wagering agreement.
e. An agreement which are uncertain.
f. An agreement which is impossible to perform physically or
g. Whenever the law requires that the contract should fulfilled
certain formalities then such formalities must be complied
with by the parties of the contract for example.
If the law requires that a contract should be in writing
it should be stamped, it should be registered etc. Then
the parties must complied with such formalities
otherwise an agreement is never converted into a
contract . It will remain only a agreement.
Question: - What are the essentials of a contract (OR)
Discuss “All Contracts are agreements but all
agreements are not contract”

Proposal: - Sec2 (h) defines proposal as_

“When one person signifies to another, his willingness to do
or abstain from doing anything, with a view to obtain the assent of
such other person, then to such act or abstinence, he is said to have
made a proposal.”
In a simple language, a proposal means to do something or
not to do something. A proposal may be expressed or implied. A
proposal is expressed when it is made in writing or it is made
orally. A proposal is implied when it is inferred (presume) fDrp,
the conduct of the parties.
A proposal may be specific or general. A

1.Name clause Every memorandum has an object clause an object
clause is usually divided into 3 parts
The main object means the purpose of reason for which a company
is formed. Apart from the main object a company may also pursued
ancillary or other object of the company. A company can pursue
ancillary or other object as long as it is pursued the main objects. A
company can never give up its main object. A company can not
carry on any other activity which is not permitted by object clause.
If the company carries out any such activity then such activity is
known as ultra virus (beyond power) and any such activity then
such activities is not binding on the company.

Liability:- A company contains a liability clause which shows that

the liability of the member is limited either by shares or by
guarantee under the company law the liability of the member of the
share holder is never unlimited and it is restricted either by
guarantee or by the shares.
Share capital:- Every company which has got a share capital must
mentioned the amount of share capital with which the company is
registered. These share capital are also known nominal or working
capital of the company. The chare capital is divided into small
portions which are known as shares of the company. In other
words when the share holders by the share of the company they
buy the share capital of the company. A company which is limited
by the guarantee does not have share capital.
Subscription clause: In case of a private company at least two
persons and in case of a public limited company at least 7 persons
must subscribe their signature to the memorandum