Not all agreements qualify as contracts. Only those agreements that are legally enforceable are considered contracts. The Contract Act governs those agreements that establish obligations, providing a legal remedy in the event of a breach by one party. Therefore, a contract comprises two essential elements:
- An agreement; and
- A legal obligation, meaning it must be enforceable by law.
However, certain agreements lack enforceability under the law. Such agreements do not create contractual obligations and, consequently, are not classified as contracts.
For instance, consider the following examples:
Example 1: A invites B to dinner at a restaurant, and B accepts the invitation. On the designated day, B arrives at the restaurant only to find that A is either absent or unwilling to engage with him. In this scenario, B has no legal recourse against A. Conversely, if A is present but B fails to show up, A cannot seek a remedy against B.
Example 2: A promises his son a monthly allowance of one hundred Rupees. If A fails to provide this allowance, the son has no legal claim against him.
In these instances, the agreements are not legally enforceable due to the absence of an intention to create legal obligations. They may be regarded as social agreements, which do not result in contracts. Thus, while every contract is an agreement, the term agreement encompasses a broader range than that of a contract.
In legal terminology, a contract is defined as an agreement, but not all agreements qualify as contracts. Additionally, agreements that involve unlawful, immoral, or illegal actions, such as smuggling or murder, are not enforceable by law. Furthermore, certain agreements are explicitly deemed void or unenforceable under the Contract Act, including wagering agreements, agreements made under a mistake, and those based on impossible acts.
Obligations that do not arise from an agreement do not constitute a contract. Examples of such obligations include:
- Torts or civil wrongs;
- Quasi-contracts;
- Court judgments, i.e., Contracts of Records;
- Relationship between husband and wife, trustee and beneficiary, pertains to the responsibilities and obligations inherent in their respective statuses.
These obligations do not arise from a contractual basis; however, they can be enforced in a court of law. As Salmond states, “The law of Contracts is not the entirety of the law governing agreements, nor does it encompass all obligations. It pertains specifically to those agreements that generate obligations, as well as the obligations that originate from such agreements.”
CRUCIAL COMPONENTS OF A VALID CONTRACT
The following components are essential for the formation of a valid contract:
a. Offer and Acceptance: A contract is established when one party makes an offer that is subsequently accepted by another party. The acceptance must be unequivocal and definitive. An offer should be clear, complete, and final, and it must be communicated to the offeree. Once a proposal is accepted, it transforms into a promise or agreement. Both offer and acceptance must reflect ‘consensus ad idem,’ indicating that both parties share a mutual understanding and agreement on the same subject matter.
b. Intention to Create Legal Relationship: The parties involved in a contract must possess the intention to establish a legal relationship. Agreements of a social nature, which do not aim to create such a relationship, do not qualify as contracts. For example, if a father’s failure to provide his daughter with the promised pocket money does not give her the right to sue him, as this arrangement is purely domestic in nature. Consequently, it is evident that agreements lacking legal implications do not constitute contracts.
c. Capacity to Contract: An agreement becomes a contract when it is made between parties who possess the necessary competence to enter into such an agreement. Individuals who are minors, insolvent, or mentally incapacitated are not deemed competent to form a contract.
d. Genuine and Free Consent: The presence of genuine and voluntary consent is a crucial component of a valid contract. An agreement must arise from the free will of the parties involved. If mutual mistakes occur, the contract is rendered void. Additionally, if consent is obtained through coercion or deceit, the contract may be voidable.
e. Lawful Object: The objectives of an agreement must be lawful, meaning they should not be illegal, immoral, or contrary to public policy. An agreement is considered lawful unless explicitly prohibited by law. If the object of a contract is unlawful, the contract is void.
f. Lawful Consideration: Consideration refers to something of value exchanged in a contract. Every contract must be supported by lawful and tangible consideration.
g. Certainty and Possibility of Performance: Agreements that lack clarity or cannot be made certain are deemed void. The terms and conditions of a contract must be clear and unambiguous. Contracts that are uncertain are invalid, and the terms must also be feasible and not require the performance of impossible acts.
h. Legal Formalities: Any legal formalities required for a specific agreement, such as registration or written documentation, must be adhered to. Written documentation is essential for transactions involving the sale, lease, mortgage, or gift of immovable property. Registration is necessary in such instances, and compliance with relevant legal requirements must be strictly observed.
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