Meaning and nature of contract – (INDIAN CONTRACT ACT ,1872)


“All agreements are contracts, if they are made –
by 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.” – Sec.10.
Offer + acceptance = Promise
+
consideration
=
Agreement
+
enforceability By Law
Contract
A. MEANINNG&NATURE OF CONTRACT
ESSENTIALS OF VALID CONTRACT
1. Proper offer and proper acceptance with intention to create legal relationship.
Cases;- A and B agree to go to a movie on coming Sunday. A does not turn in resulting
in loss of B’s time B cannot claim any damages from B since the agreement to watch a
movie is a domestic agreement which does not result in a contract.
In case of social agreement there is no intention to create legal relationship and
there the is no contract (Balfour v. Balfour)
In case of commercial agreements, the law presume that the parties had the
intention to create legal relations.
[an agreement of a purely domestic or social nature is not a contract ]
2
.
Lawful consideration :- consideration must not be unlawful, immoral or opposed to
the public policy.
3. Capacity:- The parties to a contract must have capacity (legal ability) to make valid
contract.
Section 11:- of the Indian contract Act specify that every person is competent to
contract provided.
(i) Is of the age of majority according to the Law which he is subject, and
(ii) Who is of sound mind and
(iii) Is not disqualified from contracting by any law to which he is subject.
Person of unsound mind can enter into a contract during his lucid interval.
An alien enemy, foreign sovereigns and accredited representative of a foreign
state. Insolvents and convicts are not competent to contract.
4. Free consent :- consent of the parties must be genuine consent means agreed upon
samething in the same sense i.e. there should be consensus – ad – idem. A consent issaid to be free when it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
5. Lawful object
The object of agreement should be lawful and legal.
Two persons cannot enter into an agreement to do a criminal act.
Consideration or object of an agreement is unlawful if it
(a) is forbidden by law; or
(b) is of such nature that, if permitted, would defeat the provisions of any
law; or
(c) is fraudulent; or
(d) Involves or implies, injury to person or property of another; or
(e) Court regards it as immoral, or opposed to public policy.
6. Possibility of performance:
The terms of the agreement should be capable of performance.
An agreements to do act, impossible in itself cannot be enforced.
Example : A agrees to B to discover treasure by magic. The agreement is void because
the act in itself is impossible to be performed from the very beginning.
7. The terms of the agreements are certain or are capable of being made certain [29]
Example : A agreed to pay Rs.5 lakh to B for ultra-modern decoration of his drawing
room. The agreement is void because the meaning of the term “ ultra – modern” is not
certain.
8. Not declared Void
The agreement should be such that it should be capable or being enforced by law.
Certain agreements have been expressly declared illegal or void by the law.
9. Necessary legal formalities
A contract may be oral or in writing.
Where a particular type of contract is required by law to be in writing and
registered, it must comply with necessary formalities as to writing, registration
and attestation.
If legal formalities are not carried out then the contract is not enforceable by law.
Example : A promise to pay a time. Barred debt must be in writing.
Agreement is a wider term than contract where as all contracts are agreements. All
agreements are not contracts.
All Contracts are Agreements, but all Agreements are not Contracts
In short.
Contracts = Agreement + Enforceability by Law
Hence, we can conclude “All contracts are agreement, but all agreements are not contracts.”

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