Meaning of a Contract

What is the meaning of contract in law? Generally, in our daily routine, the meaning of a contract is derived from every person entering into the contract, for example, buying books, purchasing groceries or vegetables, purchasing property, etc. This is the primary meaning of the contract. Now, we will discuss the meaning of the contract.

Table of Contents

Sir William Anson defines a contract as “a legally binding agreement made between two (or) more persons by which rights are acquired by one (or) more to acts (or) forbearances on the part of other (or) others.

An agreement between two or more parties that creates mutual legal obligations. A contract can be made in either oral or written form. However, oral contracts are more challenging to enforce and should be avoided, if possible.

Some contracts must be written to be valid, such as contracts that involve a significant amount of money (over Rs. 500). Contracts are part of everyday dealings in all aspects of life. Therefore, it is crucial to understand the rules governing them to ensure you have a valid contract.

These contracts define the rights and liabilities of parties to the contract. The law provisions relating to the contract are covered in the Indian Contract Act, 1872.

The Contract Act came into force on the 1st of September 1872 and it extends to the whole of India except the State of Jammu and Kashmir.

Definitions under the Indian Contract Act

To learn the meaning of the contract we have to go through all the definitions which are related to the contract. By viewing the below picture we will understand the contract's meaning and other related terms.

Hierarchy of Contract, defintions of contract, contract formula,

Definitions

The meaning and definition of contracts are provided under section 2(h) of the Contract Act.

So let’s dig in;

Contract Sec. 2 (h)

The definition of Contract is defined under section 2 (h) as “An agreement enforceable by law is a contract”. This is the meaning and definition of contract law.

In other words, a contract is an agreement and enforceable by the law of the land. This is the law definition of a contract.

Agreement 2(e) + Enforceable by law 2(j) = Contract 2(h).

Enforceable Agreement = Contract

The definition of the contract consists of an agreement and enforceability by law. We have to understand the meaning of agreement and enforceable by law.

Agreement Sec. 2 (e)

In section 2 (e), the Act defines the term agreement as “every promise and every set of promises, forming the consideration for each other”.

Promise 2(b) + Consideration 2(d) =Agreement 2(e).

The agreement is a promise that forms the consideration for each other. Here, we have to define the promise and consideration. But, before that let's understand what is the enforceability of law.

Enforceable By Law Sec. 2 (j)

The enforceable by law is defined under section 2 (j) as, "A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable."

This means any law that applies in India prohibits or ceases to perform the contract then becomes a void contract.

Promise Sec. 2 (b)

The Act in its section 2(b) defines the term “promise” here as: “when the person to whom the proposal is made signifies his assent thereto, the proposal becomes an accepted proposal. A proposal when accepted, becomes a promise”.

Here, by reading the above definition of the promise we can derive that the promise is made up of a proposal and acceptance of that proposal.

Offer 2(a) + Acceptance 2(b) = Promise 2(b)

Before understanding the meaning of offer and acceptance, we will see the definition of consideration.

Consideration Sec. 2 (d)

The term consideration is defined as "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."

Consideration is the most important element of a valid contract because without consideration the contract is null and void.

The parties enter into the contract with a view of getting consideration for it. This is laid down in the Latin maxim 'quid pro quo', which means something in return.

Illustration: Mr. A makes an offer to sell his old bike to Mr. B for Rs. 25,000/-. And, Mr. B agrees on the same. This is a valid contract.

Here, 25,000/- is a consideration for Mr. A and the bike is a consideration for Mr. B

Offer Sec. 2 (a)

The definition of an offer is provided under section 2 (a) as "When one person signifies to another his willingness to do or to abstain from doing anything, to obtain the assent of that other to such act or abstinence, he is said to make a proposal."

Acceptance Sec. 2 (b)

Acceptance is defined as "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted."

Thus, we can summarize it as;

Offer + Acceptance = Promise + Considertion = Agreement + Enforceability by law = Contract

Essential Elements of a Valid Contract

Here we will talk about the 6 essentials of a contract. These 6 essentials of the contract together make the contract valid.

Agreement: The primary element of a contract that creates a contract between two or more parties in an agreement, which is a result of offer and acceptance, that forms consideration for the parties concerned.

Free Consent: The Consent of the parties is another essential element of a contract, which means the parties entering into the contract must agree upon the same thing in the same sense (consensus ad idem). The consent of the parties is said to be free when it should not be caused by coercion, undue influence, fraud, misrepresentation, or mistake.

The capacity of Parties: The capacity of parties to enter into the contract, i.e. he/she has reached the age of maturity and he/she must be of sound mind, and he/she is not disqualified from contracting as per the law like the alien enemy, foreign sovereigns, etc.

Consideration: Consideration implies the price agreed to be paid for the promisor's obligation by the promisee. The consideration must be adequate and lawful.

Lawful object: The object of a valid contract must be lawful.

Not expressly declared as void: The law should not expressly declare as a void contract. For e.g. the contract in restraint of marriage, trade, or legal proceedings.

Other Essential Elements of the Contract

There must be at least two parties to form a valid contract.
The parties entering into the contract must intend to create a legal relationship.
It must be in writing.
There must be a certainty.
The conditions of the parties must be clear.
There should be a possible performance of the contract.

Frequently Asked Questions

What is the exact meaning of a contract?

The meaning of a contract is given under section 2 (h) of the Indian Contract Act, 1872 as “An agreement enforceable by law is a contract”.

Who gave the definition of contract?

Section 2(h) of the Contract Act defines a contract as “An agreement enforceable by law”. Sir William Anson defines a contract as “a legally binding agreement made between two (or) more persons by which rights are acquired by one (or) more to acts (or) forbearances on the part of other (or) others.

What is the meaning of a contract in term?

Contract terms are the different provisions in a contract. Simply put, a contract comprises different provisions or terms that give the contracting parties rights and responsibilities. Contract terms create an obligation on one or all the parties; when a party doesn't comply with a term, there is a breach of contract.

What is the proper meaning of a contract?

A contract is an agreement between two parties that creates an obligation to perform (or not perform) a particular duty.

Conclusion

Meaning of a Contract has been clearly defined under section 2(h) of the Indian Contract Act, 1872 as “An agreement enforceable by law is a contract”. Generally, in our daily routine, the meaning of a contract is derived from every person entering into the contract, for example, buying books, purchasing groceries or vegetables, purchasing property, etc. This is the primary meaning of the contract. Now, we will discuss the meaning of the contract. Sir William Anson defines a contract as “a legally binding agreement made between two (or) more persons by which rights are acquired by one (or) more to acts (or) forbearances on the part of other (or) others.

Referred Books:

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Meaning of a Contract