WHAT IS CONTRACT ?
According to Section 2(h) of the Act, the term contract is defined as “an agreement enforceable by law”. On analyzing the definition we find that, the contract is consist of two essential elements:
-an agreement, and
-enforceability by law.
- The term ‘agreement’ given in Section 2(e) of the Act is defined as “every promise and every set of promises, forming the consideration for each other”. Again Section 2(b) defines promise as when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted, becomes a promise”.
Thus we say that, an agreement is the result of the proposal made by one party to the other party and that other party gives his acceptance thereto.
2. Enforceability by law-An agreement to become a contract must give rise to a legal obligation which means a duty enforceable by law.
Thus from above definitions it can be concluded that – Contract=Accepted proposal + Enforceability by law
On elaborating the above, it is obvious that contract comprises of an agreement which is a promise or a set of reciprocal promises, that a promise is the acceptance of a proposal giving rise to a binding contract. And Section 2(h) requires an agreement to be worthy of being enforceable by law before it is called contract. Where parties have made a binding contract, they created rights and obligations between themselves.
Example: A agrees with B to sell car for 2 lacs to B. Here A is under an obligation to give car to B and B has the right to receive the car on payment of 2 lacs and also Bis under an obligation to pay 2 lacs to A and A has a right to receive 2 lacs. So Law of Contract deals with only such legal obligations which has resulted from
agreements. Such obligation must be contractual in nature. However some obligations are
outside the purview of the law of contract,
Example: An obligation to maintain wife and children, an order of the court of law etc. These are status obligations and so out of the scope of the Contract Act. On what conditions does the Indian Contract Act recognize the agreement of the parties
(which contains a promise) as a “contract”? The answer to this question will form the subject
of our discussion in this Unit.