In simple terms, a contract means when two parties put into writing an agreement which contains certain obligations (promises) which are to be performed by such parties, and when such written agreement becomes enforceable by law, it becomes a Contract. Enforceable by law means when the agreement has acquired the force of law only for those who are a party to it and a violation of those obligations would attract legal action, including repudiation of the entire contract.
Contract Act defines a Contract as “An agreement which is enforceable by Law”. An Agreement is a settlement between two parties, which contains obligations or promises which both parties need to fulfil. When such an agreement is made binding by Law it becomes a Contract.
Therefore, an agreement consists of reciprocal Promises which are to be performed by parties to the contract. Promises are reciprocal when both parties have to perform something for the other.
Contract = Agreement + Enforceability
Essentials of a valid contract
Section 10 states conditions which are required for a contract to be valid.
- Offer: Firstly, there must be an offer from either party, without an Offer a contract cannot arise. However, in some cases, this principle could not be applied. For instance, Mulla talks about a situation in which offer and acceptance could not be traced, for instance, a commercial agreement reached after multiple rounds of negotiations.
- Acceptance of the offer: Secondly, the Offer must be accepted and accepted by the person to whom it was intended. So, an offer by A to B has to be accepted by B only.
Acceptance in ad-idem: Thirdly, though acceptance is important, there must be “Consensus ad-idem”. Consensus ad-idem means meeting of minds. It means that parties to the contract should aParties must be competent to contract, under the laws they are subjected to i.e., they must be legally capable to contract
- Consideration, for the performance of promises there must be a consideration. something given for performance of promise from both parties to the contract.
Further, the objective and consideration of the contract must be lawful.
- Free consent, according to section 10 of contract act” agreements are contracts if they are made by free consent” It means that contract must be entered into out of parties own volition and without being forced, or deceived into.
- There must be an intention to enter into a legal relationship.
- Certainty, Contract must be certain and not ambiguous and vague. (Section 29)
- A contract must not be expressly declared void. (Section 10 of Contract Act)
accept the terms of the contract in the “same sense”. Thus, parties to the contract must have the same understanding of the terms of the contract.
These are the most basic and elementary principles of a contract, which are to be fulfilled, however there may be other conditions which may be laid down by a special law, or for specific types of contract.