What is Contract 

The word contract is derived from the Latin word contractum meaning drawn together. It, therefore, denotes drawing together two or more minds to form a common intention giving rise to an agreement. In simple words, A contract is an agreement between two or more parties that creates obligations that are enforceable by law.  

A contract can be either written or oral, and it can be either implicit or explicit. An implicit contract is one in which the terms of the agreement are not expressly stated, but are instead implied by the actions of the parties. An explicit contract is one in which the terms of the agreement are expressly stated.

 Contracts are typically used in business transactions, but they can also be used in personal transactions. For example, a contract can be used to purchase a car, to buy a house, or to hire someone to do a job. When two parties enter into a contract, they are each bound by the terms of the agreement.

   If one party fails to live up to its obligations, the other party can take legal action to enforce the contract. 

Meaning and Definition of  Contract - 

The term Contract is defined in Section 2(h) of The Indian Contract Act as follows : 

"An agreement enforceable by law is a contract" Thus for the formation of a Contract there must be 

a) Agreement 

b) Enforceable by Law

In other words Contract = Agreement + Enforceable by Law

Agreement - 

Section 2(e) of the Indian Contract Act 1872, defines Agreement as "Every promise and every set of promises, forming the consideration for each other is an agreement. 

In other words Agreement = Promise 


Section 2(b) defines promise, "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"

In other words, Promise = Proposal + Acceptance

So the Definition of Contract can be written by the following steps - 

1. A contract is an Agreement
2. Agreement is a Promise
3. A promise is an Accepted Proposal 

Hence every Agreement is the result of a proposal from one side and its acceptance by the other. 

Enforceable by Law - 

When Agreement becomes a Contract?

     According to Section 10 of The Indian Contract Act, " All Agreements are contracts if they are made by the Free Consent of the Parties competent to contract for a lawful consideration and with a lawful object and not hereby expressly declared to be void. 

Hence it can be said that every contract is an agreement but every agreement is not contract. An agreement becomes contract when the Following Conditions are satisfied. 

1) Free Consent of the Parties 

2) Compentancy of the Parties 

3) Lawful Consideration 

4) Lawful object 

5) Not Declared void by Law

Second part of the definition is enforceable by law that means agreement between the parties must be legal and enforceable.

After an agreement is formed it becomes a contract only when it is enforced by law the conditions of enforceability are stated in Section 10 of the said Act.

After an agreement is formed 

There are four elements that must be present in order for a contract to be valid:

1. Offer: One party makes an offer to another party.
2. Acceptance: The party to whom the offer is made accepts the offer.
3. Consideration: Both parties exchange something of value, such as money, goods, or services

See Also...

 Termination of Agency (Contract of Agency) 


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