Indian Contract Law: Meaning of Contract

You need contracts for many things in your life. The meaning of contract has been defined differently by various thinkers. Sir Frederick Pollock defined contract as “every agreement and promises enforceable at law is a contract.” Does this help you understand what contract laws are about? Probably not. Simply put, when two parties agree to act or omit to act for a common purpose with a common goal for a specific consideration, this is called a contract. In Islamic law, the consent of both the husband and wife are essential to its validity because marriage is considered as a noble social contract between the parties. In business laws, every business relationship is taken forward through contracts. In many spheres of your own life, the meaning of contracts assumes significance such as when you have to sign a rent agreement, a bank guarantee document, a credit card application, a sale deed and so on. All of these are contracts that are enforceable by both parties.

Sir William Anson defined a contract as an “agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others”. This is an apt definition that also explains the meaning and elements of a valid contract.

Here is an example to understand it better. Suppose a garment factory owner needs to buy raw material from a supplier, both the parties enter into an agreement. Such an agreement comprises specific terms and conditions about the time of delivery, price of raw material and so on. This agreement becomes legal upon registration, and becomes a contract.

Indian Contract Law: What is an Agreement?

The Indian contract law states that an agreement is “every promise or every set of promises forming considerations for each other.” Remember, agreement constitutes an offer, acceptance and the involvement/interest of at least two parties. The contract laws in India are governed by the Indian Contract Act, 1872.

Indian Contract Law: Elements of a Valid Contract

An agreement which is not enforced by law is not a valid contract. Section 10 of the Indian Contract Act explains the essentials of a valid contract as given below:

Offer and Acceptance: There must be a proposal and its acceptance creating an agreement. The agreement should create a legal association between the parties.

Intention to Create Legal Relation: The parties should intend to form the agreement legally.

Consensus Ad Idem: Both the participants should agree upon subject of the contract at same time.

Competent Parties: The parties to the contract should be competent to do so as per existing laws. The competent persons should be 18 years or above, should be of sound mind, and should be qualified by law.

Lawful Consideration: Consideration is a vital part of the contract. Consideration is defined as the price that the opposite party pays to buy the promise of the other party.

Free Consent: An agreement should have approval of the parties which should have been obtained by fair means.

Lawful Object: The agreement should be legal, genuine and not fraudulent.

Written and Registered: A contract is considered valid only if it is registered or documented.

Not declared to be Void: If an agreement is expressly declared void under any law in the country, it cannot be considered as a contract.

Certainty of performance: It should be competent to perform. It should not be vague.