This article is written by Abhay Kumar Pandey, Student, K.S Saket P.G college, Ayodhya.
“All contracts are agreements but all agreements are not contracts”
The first thing we have to know what is a contract. The definition of a contract is given under section 2(h) of the Indian Contract Act, 1872, as follows:
“An agreement enforceable by law is a contract”.
Similarly, Sir Fredrick Pollock has defined the word “Contract” as follows:-
“Every agreement and promise enforceable at law is a contract”.
Anson has defined ‘contract’ in the following words
“A contract consists of an actionable promise or promises. Every such promise involves two parties, a promisor and a promisee, an expression of the common intention and of expectation as to the act or forbearance promised”.
According to Salmond, “Contract is an agreement creating and defining obligation between parties”.
For example, A promises to sell a mobile phone to B for Rs. 6,000, and B promises to buy a mobile phone at that price.
Form the above definitions, we find that a contract essentially consists of two elements:-
- An agreement;
- Enforceability of that agreement.
As per section 2(e) of the Act:
“Every promise and every set of promises, forming the consideration for each other, is an agreement”. After observing the definition of the agreement it is clear that a ‘promise’ is an agreement.
Section 2(b) of the Indian Contract Act, 1872, defines the term “promise”. It provides: “when one 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”.
Thus, an ‘agreement’ is a bilateral transaction between two or more than two persons which involves proposal or offer by one and acceptance of such proposal by the other. In other words, it requires ‘plurality of persons’ because a single cannot enter into an agreement with himself.
As stated above, an agreement to become a contract must give rise to a legal obligation. If an agreement is not enforceable by law. It is not a contract.
Enforceability of Agreements
Section 10 of the Act deals with the conditions of the enforceability of an agreement. It provides: “All agreements are contracts if they are they made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”.
The second paragraph of section 10 further says-
“Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents”.
Thus, according to section 10 of the Act, the following conditions must also be essential to become a contract valid:-
According to section 11 and 12 of the Act, the following persons are not competent to contract-
- Minors (in Mohri bibi v. Dharmodas Ghose it was held that an agreement with a minor is void ab initio);
- Persons of sound mind;
- Persons disqualified from contracting by any law to which they are subject.
They must have agreed to something in the same sense and the consent of the party must not have been obtained by
- Coercion-(S.15)– An act is forbidden by the penal code.
(In Chikam Amiraju v. Chickam Seshamma it was held that the threat of suicide amounts to coercion within section 15 of Contract Act)
- Undue influence-(S.16)– Influence by which a person is induced to act otherwise than by their own free will or without adequate attention to the consequences.
- Fraud-(S.17)– fraud is defined under section 17 of the Indian Contract Act, 1872.
- Misrepresentation-(S.18)– Fraudulent, negligent, or innocent misstatement, or an incomplete statement, of a material fact.
- Mistake- Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement the agreement is void.
Lawful consideration and lawful object-(S.23)–
For the formation of a Contract, it is very important that the consideration and object of the contract must be lawful. Consideration or object is said to be unlawful if-
- It is forbidden by law;
- It would defeat the provision of any law;
- It is fraudulent;
- It involves or implies an injury to the person or property of another;
- The court regards it as immoral or against public policy.
The agreement must be made for some consideration(S.25)
Section 25 of the act declares that an agreement without consideration is void. However, there are certain conditions enumerated under section 25 under which a contract without consideration is treated to be a valid one.
The agreement must not have been expressly declared to be void
Under the Indian Contract Act, the following agreements are declared void-
Where both the parties to an agreement are under a mistake of fact essential to the agreement[Section 20];
An agreement without consideration[Section 25];
Agreement in restraint of the marriage of any person other than the minor[Section 26];
Agreement in restraint of trade[Section 27];
An agreement is an absolute restraint of judicial proceeding[Section 28];
An agreement the meaning of which is uncertain and incapable of being made certain[Section 29];
Agreement by way of wager[Section 30];
Agreement contingent on impossible events[Section 36];
Agreement to do an act which is impossible in itself or which subsequently becomes impossible without any default of a party[Section 56].
Other legal requirements- An agreement must fulfill the requirements or formalities necessitated by any particular law. An agreement must be in writing, attested and registered, if so required by any law in force in India. Certain agreements, such as:-
- Agreement to pay a time-barred debt;
- Agreement for the transfer of immovable property;
- Agreement to refer the matter to arbitration in case of dispute
Are such agreements which must be reduced to writing and registered.
A contract is a legally binding agreement that exists between two or more parties to do or not do something. An agreement starts from an offer and ends on consideration but a contract has to achieve another target i.e. enforceability. Due to this breach of the contract provide a legal remedy to the aggrieved party against the guilty party. So we can say that all contracts are an agreement but all agreements are not contracts.