What is Contract in Law – A Complete Guide

Briefly, a contract is just an enforceable promise under the law. Either doing something or not doing something can be promised. The term "contract" as used in law refers to a number of elements, including the need for the consent of two or more parties, whether the agreement is oral or written, etc. Let us first address the question of "What is Contract in Law" before moving on to the definition and other pertinent information. 

Let's understand the word Contract in the Context of Indian Contract Act

The contract between two or more parties is made under the Indian Contract Act. It is said as an important law that governs and supervises every business whenever there is a contract. We'll learn what a contract in the further sections.

We'll examine the definition of a contract in Indian Contract Act, 1872. Also, we will define the meaning according to the Act. We will unravel all the details of the Contract Act in today’s learning. Let's start by comprehending what a contract is.

1) Contract

The section 2(h) of the Indian Contract Act, 1872, explains that a contract is an agreement between two or more parties which is enforceable by law. To put it differently, we can say that an agreement which is enforced by the law might be considered a contract.

There are two main components to this definition: "agreement" and "enforceable by law." Hence, we must define and clarify these two key components of the concept of a contract in order to comprehend it in the context of The Indian Contract Act, 1872.

2) Agreement

The term ‘Agreement’ can be defined as an acceptation of mutual assent by two or more parties towards each another. In other words, it can be said a meeting of the minds with same intention which is made in the form of offer and acceptance.

3) Promise

The word "promise" in this context is defined by the Act in section 2(b) as follows: when a person shows his/her assent to the proposal, we can say that the proposal is accepted and when a proposal is approved, it becomes a promise.

Put differently, an agreement is a commitment that has been accepted by all parties that are either concerned to the agreement or impacted by it. According to this definition, the following actions must be taken in order to form or construct a contract:

• The definition calls for an individual to whom a specific proposition is addressed.
• The individual or parties involved in step one must be able to comprehend a proposal in its entirety.
• "Showing assent" denotes that the individual has carefully read and comprehended the idea before accepting or agreeing with it.
• The status of the "proposal" becomes "accepted proposal" when the "person" accepts it.
• "Accepted proposal" turns into a promise. Be aware that the proposal is not a promise. The proposal needs to be approved to become a promise.

In other words, we can say that “Agreement = Offer + Acceptance” as per the above information above.

4) Enforceable By Law

Now let's comprehend this portion of the Act's definition. Let's say you and a friend decide to sell a bike for 50,000. Is there a contract available for this? If you proceed as described in the preceding section, you will contend that the promise becomes agreement as soon as you and your companion agree on it. But the agreement must be enforced by law in order for it to qualify as a contract under the Act's definition.

Thus, we may state that an agreement must result in or give birth to legal duties in order for it to become a Contract under the Act. In essence, it needs to fall inside the purview of the law. In summary, a contract is agreement that is accepted and enforceable by law.

Difference between Agreement and Contract

In this section, we will discuss the key differences between an agreement and a contract. Hence, we have listed the difference below.

Types of Contract in Law

Different aspects need to be taken into account while getting into a contract. For example, if a contract is in written form, it is Express Contract. Similarly, there are four other types of contracts based on the formation of the contract.

Types of Contract Based on Formation

We observed some significant features of both an agreement and a contract. We also observed that contracts that lack specific aspects are invalid. For instance, if a lease is not registered, it is invalid.

These kinds of criteria enable us to categorize contracts as per the parameters or circumstances that give rise to the agreements or contracts. There are four different kind of contracts based on how they are formed. They are mentioned in the list below.

• Express Contract - The Section 9 of the Act states that any proposal, or acceptance of promise are in made in words, then the promise is the express contract. This implies that, as long as the other party accepts it, a proposition or commitment that is made by putting the conditions in writing or verbally is considered an express contract. The terms related to express contract are unambiguously expressed either in writing or orally. Therefore, the primary feature of this form of contract is its explicit expression of the terms. Let’s take an example, Person made an offer to sell a bike to Person B for Rs. 10,000 in a text message sent from his phone. Calling the first person, person B accepts the conditions of the promise. Given that the terms have been made explicit both in writing and orally, this is an express contract. Keep in mind that the conversations may be written or totally spoken.
• Implied Contracts -An Implied Contract is termed as a legally-binding duty that results from the conduct, deeds, or circumstances and enforceable. Let's say a driver of a rickshaw starts driving after you get in. You provide the driver your address so he knows where to drop you off. When he stops, you give him your money. This is a contract, as you can see, but were any of the stipulations discussed orally and in writing with the driver? No, there was an implied contract because your actions suggested what was intended.
• Quasi-Contract - Since no agreements are established between any of the parties, they are not contracts in that scenario. Actually, until a judge orders otherwise, there is no contract. To understand what we mean when we refer to a quasi-contract, let's first look at an example. Your account may unintentionally receive a large payment from a bank. Currently, you and the bank do not have a written, verbal, or other type of agreement, but the money is not yours. You are required to return the said money even if you are not willing to. A quasi-contract will be created when the bank approaches the court and the judge orders the money to be returned. Thus, we may see that a quasi-contract is created by a court order rather than being agreed to by the two parties. The quasi-contract is typically made to prevent one party from unfairly taking advantage of the other.
• E-Contract - An E-contract is created using electronic tools and technologies. Electronic mail, testing, phones, digital signatures, and other tools are a few examples of electronic methods and gadgets. They can also be referred to as EDI contracts, Cyber contracts, or contracts for EDI. The conditions of the agreement are stated electronically or inferred from user behavior.

Types of Contracts – Based on Validity

The void agreements and voidable contracts are discussed in Chapter 2 of the Indian Contract Act, 1872. In this section, we have discussed different contracts types based on validity.

• Valid Contracts - A valid contract is an expressed or written agreement between two or more parties in order to offer a product or service.
• Void Contract - A void contract said to be a type of contract which is not enforced by a law, from when it was created. In a legal term, it is treated as it is never created and also cannot be enforced by a law in the court.
  Let’s take an example: In exchange for a 10,000 rupee loan, a promises to pay back B 10,000 rupees in three years. In two years, A dies from natural causes. But as the agreed terms cannot be enforced the contract is worthless and not valid yet.
• Voidable Contract -Section 2(i) of the Act classify voidable contract as a type of contract which is enforceable by law. Let’s have an example to understand voidable contract clearly.
  Let’s say that Ram consents to give Shyam a sum of Rs. 50,000 in exchange for a unique chair. The only issue is that Shyam is a minor and cannot legally engage into a contract; hence this would be a legitimate agreement.
  Therefore, this agreement is enforceable from Ram’s perspective but voidable by Shyam’s perspective. Shyam may have the option to accept or reject the terms after he becomes a major, which makes the contract voidable.
  A valid contract is one that can be voidable. A voidable contract requires the consent of at least one party to be enforceable against them. The other party is free to accept or reject the conditions of the agreement and is not obligated to do so. The agreement is null and invalid if they chose to repudiate it.
• Illegal Contract - Illegal contract is a type of law that violates the law and made with illegal purposes. A particular contract is said to be illegal if the formation or performances of parties engaged in an illegal activity.
  For example, Mark consents to sell narcotics to David. Such type of contract is illegal even if it meets all the requirements that are required to be a legal contract. The law declares the illegal transactions to be invalid. The Section 2(g) of the Act states that a particular agreement is deemed void if it is not enforceable by law.
  Contracts that are unlawful or invalid cannot be enforced in court. Contracts that are illegal are void ab initio (from the beginning). They are also subject to legal penalties due to the illegal contracts' criminal aspects. In a court of law, all parties found to have consented to an illegal promise.
• Unenforceable Contracts - Unenforceable contracts are voidable by law because of technical reasons. No parties care subjected to enforcement of contract. Let’s understand this with a scenario; Manson consents to sell 50 kg of rice for 5,000/- to Carter. However, the crops were lost in the states because of flood. In that scenario, neither Manson not Carter uses this particular contract as leverage.

A Comprehensive Exploration of Contracts under the Indian Contract Act of 1872

In conclusion, understanding the concept of a contract in law involves delving into its numerous dimensions, as elucidated through the Indian Contract Act, 1872. A contract, defined in section 2(h) of the Act, is generally a type of agreement enforced by using law. This calls for a thorough comprehension of key components along with “agreement” and “enforceable by regulation.”

The Act meticulously defines “agreement” as encompassing promises, a set of promises, and “enforceable by law” emphasizes the need for legal duties and compliance with the law. Further exploration into the forms of contracts based on formation, like implied, express, quasi, and e-contracts, unveils the diversity within contractual relationships.

Additionally, analyzing contracts based on validity, together with valid, illegal, void, voidable, and unenforceable contracts, provides a comprehensive understanding of the legal landscape surrounding agreements. The study of contracts in law is a multifaceted exploration into the intricacies of binding promises and their legal implications, important for everybody navigating the complexities of enterprise transactions or agreements.

References

• https://www.law.cornell.edu/wex/contract
• https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/what-is-a-contract/
• https://kirasystems.com/learn/what-is-an-unenforceable-contract/
• https://www.vedantu.com/commerce/types-of-contracts-based-on-validity
• https://www.ezylegal.in/blogs/what-is-section-9-of-the-indian-contract-act