Contract and Essentials of Valid Contract under Indian Contract Act, 1872

Author : Satarupa Ghosh

MEANING OF CONTRACT

The Indian Contract Act frames the contract between two or more parties. A contract can never be framed with one party there should be more than one party under the agreement. Contract law is the most vital law for where ever there has been need to enter into an agreement or a bond.

The definition of a contract is given under Section 2 (h) of the Indian Contract Act, 1872 where it is defined as an agreement which is enforceable by law. In simple terms any agreement which is enforceable by law can be defined as a contract. The definition has two key points which is ‘agreement’ and ‘enforceable’ by law. So, in order to understand the complete definition of contract we need to discuss about this two terms as well.

Agreement is defined under Section 2 (e) of the Indian Contract Act which is defined as  every promise and very set of promises forming the consideration for each other is a contract. Now, the question comes what is a promise?

Section 2(b) of the said Act defines a promise. When simply a proposal is made to a person and, such person accepting on the proposal with his/her full assent is said to be a promise. Simply acceptance of a proposal is a promise. In simple terms proposal need to be accepted by all the people entering into an agreement and such people are affected by so. The definition says that in order to draft agreement of any contract we need follow some steps they are:-

• According to the definition there must be a person to whom the proposal is made.
• The parties in the contract have to be in full capacity to understand the proposals under the agreement.
• The parties under the contract shall agree to all the points under the agreement after understanding all the points which are therein the contract.
• After accepting the proposal the statute of the agreement changes to accepted proposal
• After accepting the proposal it becomes a promise, therefore and accepted proposal is a promise.

A simple agreement cannot be defined as a contract because a contract is an agreement which has to be obliged by law of enforceable under the law which means guided under the provisions of law. Any simple agreement with no enforceability is said to be an agreement.

Hence, now we can say that a contract is not simply an agreement a contract is an agreement where certain proposal are made which need to be accepted or simply certain promises are made and such agreement is enforceable by law.

Differences between agreement and a contract

• Contract

1. A contract is an agreement which is enforceable by law.

2. A contract is legally enforceable.

3. A contract must be under some legal obligations.

4. All contracts are also counted as agreements.

• Agreement

1. No .of promises that are not contradiction and are accepted by the parties are involved in   an agreement.

2. An agreement may not be enforceable by law it can only be socially accepted.

3. Agreements don’t create any legal obligations.

4. Agreement may or may not be a contract.

TYPES OF CONTRACTS

Contracts can be made in many forms each according to its use and purpose. Types of contracts are also made to fulfil the use and purposes of the parties. There are various types of contracts that are as follows:-

• EXPRESSED AND IMPLIED CONTRACT
• UNILATERAL AND BILATERAL CONTRACTS
• UNCONSCIONABLE CONTRACTS
• ADHESION CONTRACTS
• ALEATORY CONTRACT
• OPTION CONTRACTS
• FIXED PRICE CONTRACTS

3.1 EXPRESSED AND IMPLIED CONTRACT

An expressed contract is contract where things and terms on it are expressly written or orally mentioned, here expressly means openly. When people think about a contract this contract is what simply comes in our mind at first.

Implied contract is simply a contract which is based on terms which is relied upon facts, actions and circumstances which should have a mutual intent to form such type of an agreement.  With lack of formal agreement, such contracts may be binding as expressed contract. However, if the parties are in doubt that there was no formal agreement of such contract the court can choose not to enforce such a contract.

3.2 UNILATERAL AND BILATERAL CONTRACTS

Uni means one hence from the name itself we can identify the parties in the contract. Unilateral contract involves one party under the contract. The contract is based on only one party. Sometimes when any reward contract is made, for suppose any person will be rewarded with something if they find any lost goods or property. Such reward contracts r actually unilateral contracts. It is mostly one sided contracts.

Bilateral contracts involve two parties and it is called as two sided contracts. It is commonly the most made contracts.

3.3 UNCONSCIONABLE CONTRACTS

THIS contract are the one which given advantage to the party who has been unfairly treated under any kind of contracts such as breach of contracts, inability to warranty honoured etc.

3.4 ADHESION CONTRACTS

The weaker section under the contract may or may not accept the contract under this type of contract.  It is drafted by a party with good or great deal and more bargaining power by the party. These contracts are often called as take it or leave it contracts.

3.5 ALEATORY CONTRACT

This type of a contract is basically based on an unpredictable events or risks. The perfect example of these types of contracts is insurance contracts where both the party are at risk and such contract is to fulfil unpredictable events.

3.6 OPTION CONTRACTS

Option contracts are the contracts where the party into the contract is allowed to enter into some other contract. Example of such contract can be any real estate contracts.

3.7 FIXED PRICE CONTRACTS

This type of contract is also known as lump sum contract. Fixed price contract are contracts where a buyer and a seller enters in any contract and both agrees upon a fix price to be paid by the seller under a contract.  This type of contract is mainly risky for the seller.

ESSENTIALS OF CONTRACT

There are several aspects of a contract then just agreeing on the terms and conditions and signing a piece of paper only. The essential requirements need to be fulfilled in order to make a contract valid under the law.

The essential elements are:-

• OFFER AND ACCEPTANCE
• CONSIDERATION
• MUTLITY OR INTENTIONS
• LEGALITY
• CAPACITY

4.1 OFFER AND ACCEPTANCE

Offer simply means any value which is presented or offered in front of another party. Such offers can be declined or accepted according to the purpose of the party.

When such and offer is simply accepted it is said to be acceptance of such offer.

Hence, after the fulfilment of these criteria only the parties enter into a valid contract along with fulfilment of other essential elements too.

4.2 CONSIDERATION

Consideration is the basic benefit which the both the parties get after performing the contract. Mostly consideration is money but, consideration can also be rights any interests or any benefits

4.3 MUTUALITY OR INTENTIONS

Mutuality is very important for drafting a valid contract. Meeting of the minds is the most necessary and valid point for a contract. Same as mutuality the parties intentions should also be the same for the enforceability of a contract.

4.4 LEGALITY

Legality means to prevent parties from entering into contract which are unlawful or to prevent parties from framing a unlawful or illegal contracts.

4.5 CAPACITY

Capacity of a person here can be stated as a person’s mental capacity to make the person eligible to enter into a contract. Capacity here can also mean age capacity, bankruptcy and past or present incarceration.

CONCLUSION

In the conclusion we can say that contract is overall an agreement between parties which is more than one party and such agreement has to be legally enforceable by law. The researcher has also tried to cover the various types of contracts and the essential elements which are required to enter into a valid contract.

BIBLIOGRAPHY

• Ashley Camerneiro, The elements of a valid contract, LawDepot (Nov.17,2020, 9:15 PM), https://www.lawdepot.com/blog/the-elements-of-a-valid-contract/

• What is a contract under the Indian Contract Act?, Indian contract Act, 1872: Part –I ( Nov. 17,2020, 6:15 P.M), https://www.toppr.com/guides/business-laws/indian-contract-act–part-i/what-is-a-contract/
• What are the different types of contract? , Upcounsel (Nov.17, 2020, 7:58 PM), https://www.upcounsel.com/what-are-the-different-types-of-contract/