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Module 1 (B) : Contract: Meaning, Elements and Essentials: 1. What Is A Contract?

The document discusses the meaning and essential elements of a contract under Indian law. It notes that a contract is an agreement that is enforceable by law, whereas not all agreements are contracts. The key elements of a valid contract are an offer and acceptance between competent parties, lawful consideration and object, and mutual consent. Written contracts are preferable to oral contracts as they reduce disputes over terms. Remedies for breach of contract include damages and specific performance. The major stages in forming a contract are negotiation between the parties, agreement on terms, performance of obligations, and potential discharge or breach.

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Jinal Sanghvi
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96 views

Module 1 (B) : Contract: Meaning, Elements and Essentials: 1. What Is A Contract?

The document discusses the meaning and essential elements of a contract under Indian law. It notes that a contract is an agreement that is enforceable by law, whereas not all agreements are contracts. The key elements of a valid contract are an offer and acceptance between competent parties, lawful consideration and object, and mutual consent. Written contracts are preferable to oral contracts as they reduce disputes over terms. Remedies for breach of contract include damages and specific performance. The major stages in forming a contract are negotiation between the parties, agreement on terms, performance of obligations, and potential discharge or breach.

Uploaded by

Jinal Sanghvi
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© © All Rights Reserved
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MODULE 1[B]: CONTRACT: MEANING,

ELEMENTS AND ESSENTIALS


1. WHAT IS A CONTRACT?
 In most simple manner, contracts are generally confused with Agreements.
 However, in true sense of terms, a contract is that agreement, which is enforceable by
Law. This implies that All Contracts are Agreements but not all agreements are
Contracts.
 A contract is nothing but an agreement concluded between two or more persons. A
contract creates and obligation upon the parties to do or omit to do certain acts or
obligations, which are specifically provided in the agreement.
 A legally valid agreement creates legal relationship of rights and duties between the
parties. The purpose of the contract is to enforce these obligations.
 This means that if any of the party fails to perform his/ her part of the work, Contract
provides the power to the other party to go to the court and seek for enforceability or
relevant damages from the breaching party.
 The main task of the Indian Contract Act, is to codify and provide solid recourses for all
the associations related to a contract ranging from entering into a contract to revoking the
same.
 However, the act only provides for a framework of the legal recourses available to the
parties with respect to the nitty gritty of Contracts. The Rights, Duties, Term of
Performance, Manner of Performance, Termination, Revocation, etc are specific details
which are provided by the contracting parties only, based on the nature and purpose of
their contract.

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 In simple terms, a person is free to choose his rights and duties under a contract. He is
free to choose the manner in which the contract is to be enforced. But in choosing any
one or all of the criterions, he is under a constant vigilance of the Act.
 A Contract can either be oral or written. However, Written Contracts are generally
preferred over Oral Contracts because under a Written Contract, there lies minimal scope
of ambiguity.
 The Obligation and the Rights of the Parties along with every other terms, being clearly
mentioned; makes Written Contracts easy to enforce and avoid non- performance.

2. IMPORTANCE OF WRITTEN CONTRACTS IN DAY TO


DAY LIVES
 Written contracts give more scope for deliberation and thought process. It is rather easier
for a party to merely say a “Yes” and later finding the difficulty of rendering the
obligation fulfilled. However, with detailed terms and conditions along with affixing
one’s signature, the parties get sufficient time to deliberate upon the terms of the contract
and then opt for performance. It hence leaves less room to revocation at a later stage
when compared to oral contracts.
 With an oral contract, the parties may have different recollections of what they agreed on
(just as two witnesses to a car accident will disagree over what happened). A written
agreement eliminates disputes over who promised what.
 Some types of contracts must be in writing to be enforced. The Indian Copyright Act,
1957 for example requires a copyright assignment or exclusive license to be in writing.
 If a party has to go to court to enforce a contract or get damages for non- enforcement, a
written contract will any time mean less dispute about the contract’s terms as the burden
of proof lies with the party concerned.

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3. ESSENTIALS OF A VALID CONTRACT

As discussed in the previous section, for a Contract to be valid, it has to pass certain explicit
criterions. The following points describe the essentials of a valid contract:

1. There must be two parties to the contract. An agreement is always between two parties
wherein one makes the proposal and other provides the acceptance.

2. The Parties entering into the contract must be competent by law to enter into the same. That is
to say the parties must be of prescribed age, sound mind and must fulfill other such criterions.

3. The Contract should always be for a Lawful Object and in lieu of a Lawful Consideration. .

4. Consent of both the parties must be free and absolute.

5. The Contract must not be for a purpose that has been declared void by any law.

Thus the following essential terms w.r.t. a valid contract can be summarized as:

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4. DISCHARGE OF A CONTRACT
A Contract may be discharged by any of the following ways:

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A further sub- categorization of some of the above points may be given as:

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5. DIFFERENCE BETWEEN AGREEMENT AND
CONTRACT
A contract is an agreement enforceable by law whereas every promise and every set of promise
forming the consideration for each other is an agreement. All agreements are contracts if they are
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 elements of an agreement are offer and acceptance whereas the elements of a contract are
agreement and its enforceability.

• An agreement may or may not create legal obligations but creation of a legal obligation is a
must in contracts.

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• An agreement may not be binding and hence, may not be enforceable whereas a contract is
binding on both the parties and hence, enforceable.

• An agreement may not result in a contract but a contract should constitute an agreement.

Although the above mentioned differences exist between agreement and contract, the term is
generally interchangeably used.1

Contract is defined under Section 2(h) of the Indian Contract Act as “an agreement enforceable
by law”. According to Section 2(e) an agreement is defined as “every promise and every set of
promises forming the consideration for each other”. A promise is defined as an accepted
proposal as Section 2(b) says “a proposal when accepted becomes a promise.”

6. REMEDIES FOR A BREACH OF CONTRACT

The following remedies are available to the parties in case the other party breaches the contract:

1
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6.1. Suit for Specific Performance:

Specific Performance may be granted under the following grounds.

a. Lack of standard for ascertaining the damages;

b. Where compensation is not adequate relief;

c. Substantial work done by the plaintiff.

The Court cannot grant the remedy of specific performance in the following situations.

a. Where monetary compensation is an adequate relief;

b. Where the Court cannot supervise the actual execution of the work;

c. Where the Contract is for personal services;


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d. Where the Contract is not enforceable by either party against the other.

7. MAJOR PROCESS OF A CONTRACT


It must be noted that all sorts of contracts are unique among themselves. Hence before starting to
draft any of the contractual documents, it is pertinent to get an understanding about its nature.

Nevertheless, irrespective of the type, every contract follows a fixed pattern of process for its
formation, which may be stated as:

7.1. Negotiation

The starting point of any contractual relationship stands to be Negotiations. These negotiations
are then recorded in writing in a prescribed format to give rise to a contract. Negotiation is
continuous dialogue between two or more parties, attempting to reach upon an understanding and
finally resulting into a contract or agreement.

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The aim of contract negotiation is firstly to achieve certainty, to record what is being supplied,
when, in what quantities and to what standard, and what are the consequences of delay or failure
to meet the agreed requirements.

7.1.1. Checklist for a good negotiation

1. Research all pertinent information

2. Contract Negotiation Preparation

3. Define your Position

4. Evaluation

5. Listening to the other side

6. Objecting before the contract is concluded

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