What is an Agreement and Contract under Indian Contract Act 1872

What is an Agreement and Contract under Indian Contract Act 1872

The Indian Contract Act is one of the oldest laws in the country. It came into force on 1872 on 1st September. It provides rules and guidelines to help in the formation and regulation of the contract in an organized way. This contract Act provides rules to help disputes arising in the contract. 266 sections apply to the whole country except Jammu and Kashmir.

The contract act defines contract under section 2 (h) which means an agreement is enforceable by law.

  • Agreement – it is a promise or set of promises given to the other party which forms consideration for each other.
  • Enforceable by law – when the promises are valid in the court and the parties are held liable to complete their promises then the contract is enforceable by law.
  • Promise – it is defined under section 2 (b) of the Indian Contract Act 1872.

What is an Agreement?

When one party gives a commitment or promise to another party it becomes an agreement. It includes an offer that is made by one person and accepted by another person. When one person offered and the other person accepted the offer it became an agreement. There should be 2 or more than 2 parties for an agreement. Some essential elements should be fulfilled for the agreement.

An essential element for making an agreement

  • Parties – there must be 2 or more than 2 members involved to form an agreement.
  • Offer or proposal – when the proposal is made it should be sent by one party to another. There should be clearly described aspects of the proposal to the other person.
  • Acceptance – there must be acceptance by the person to whom the proposal is made and gives his acceptance of all the terms.
  • Promise – when the proposal is accepted by the other person it becomes an accepted proposal or promise.
  • Consideration – it is a price when the agreement is accepted by the party. For the promise, it is a price made to be paid as a consideration.

Types of agreement

  • Written agreement – when the agreement is made in written form with consideration which is accepted by the parties. They mention some terms and conditions in the written agreement.
  • Oral agreement – when the agreement is made by the gestures of the parties or verbally, it becomes an oral agreement between two parties.

For understanding in a simple way

Offer + Acceptance = Agreement

Agreement/ accepted promise + enforceable by law = Contract

What is a Contract?

All contracts can be an agreement but not all agreements can be contract. When an agreement is enforced by law it becomes a contract. When both parties accept the agreement it turns into a contract and it is enforced by law. It gives rights to all the parties and certain obligations that should be fulfilled by them.

Essential for a valid contract

Section 10 of the Indian Contract Act gives some essential points for a valid contract. For a valid contract, there are some key ingredients which are-

  • Parties – for a valid contract there must be a minimum of 2 parties. One party who makes the offer and the other one to whom the offer has been made and to make it enforceable the proposal should be accepted by the party.
  • Legal obligation – for a valid contract there must be an intention of parties to enter into a legal obligation. Social agreements are not considered a contract because they do not create any legal obligation on parties.
  • Possibility of the act – for a valid contract there must possibility to perform the act. When there is an impossibility for the performance then the contract is not valid.
  • Consent – for a valid contract the parties should give their consent freely without any pressure before entering into a contract. The free consent includes;
  • Coercion,
  • Undue influence,
  • Fraud,
  • Misrepresentation
  • Competency – for a valid contract parties should be competent to enter into a contract. Section 11 of the Indian Contract Act describes who is competent for a valid contract.
  • For competency the party should reach the age of majority
  • Parties should sound mind
  • Prisoners, convicts, foreigners, etc are not competent for a contract according to the Indian Contract Act
  • Consideration – it includes the value of money. For a valid contract, it must include consideration which is some value in return. Under section 23 there is legal consideration that is not forbidden by law
  • Consensus ad idem – when the parties enter into a contract there must be an agreement from both sides for the same item. It is also understood as (the meeting of two minds in the same sense).

Types of contract

  • Valid contract – for a valid contract it should fulfill all the essential points present in it. A valid contract includes all the requirements mentioned by law. It is enforceable by law.
  • Void contract – it is not legal or not enforceable by law. It is enforceable at the moment when it is created. It can also be declared void when one of the parties is not capable of the contract.
  • Voidable contract – under this contract, it started as a valid contract but later on it became voidable due to the incompetency of the other party. There is an option for both parties to reject. If one of the parties is minor or unsound mind etc, the other party can dismiss the contract.

Breach of contract

It means when one of the parties is not following the instructions given under the terms and conditions then it is declared as a breach of contract. It can be resolved if the parties perform the conditions. But if it is not resolved the parties can approach the court for breach of contract.

Condition for breach of contract

There are 3 conditions to breach of contract which are;

  1. When the parties fail to fulfill the conditions mentioned under the terms and conditions.
  2. When the parties fail to deliver the condition at the specified time.
  3. If the party is not able to perform the conditions.

Conclusion

There are different types of agreements that are described under the Indian Contract Act 1872. It is very important for every individual. It helps you to provide your rights which are violated by the other party. When both parties accept the agreement then it turns into a contract. The parties can reach the court if their rights are infringed.

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