Definition of Contract

Sociology | Mercantile Law | International Law | International Relations

Contract is defined by Sec. 2(h) as, “An agreement enforceable at law is a contract.”

Thus Contract is composed of:

  1. An agreement, and
  2. That agreement must be enforceable at law

Contract = Agreement + Enforceability

Agreement is defined by Sec. 2(e) as, “Every promise or every set of promises forming the consideration for each other.”

Thus, every contract is an agreement but not vice versa.

Promise is defined by Sec. 2(b) as, “A proposal (offer) when accepted becomes a promise.”.

Hence, it could be concluded that, “An agreement is an accepted proposal.”

Agreement = Proposal + Acceptance

Agreements are of two types:

  1. Social Agreements
  2. Legal Agreements

Social Agreements
Social agreements are social in nature and are not enforceable at law, hence cannot be called contract.

For example, Father promise to pay his son Rs.1000 if he got first position in exams. The son cannot recover the amount if the father refuses to pay.

Legal Agreements
These agreements are enforceable at law. Legal agreements are composed of:

  1. An agreement
  2. An intention to create legal obligations

The ordinary test of legal obligation is that, “When both the parties know that they would be attended by legal consequences if they default.”

Intention to Create Legal Relations
There are agreements which do not result into contract, since the defaulter would not attended by legal consequences.

For example, A invited B at dinner, B came but A did not hosted the dinner. B cannot sue A because there was no intention of the parties to create legal relation (OR Legal obligation).

The intention to create legal relation is known from the terms and conditions of the contract and surrounding circumstances.

Balfour v. Balfour Case
A husband promise to pay his wife, a domestic allowance of $30 per month. Later the parties separated and the husband defaulted the payment, Held, the wife could not recover since there was no intention to create legal relations at the time of entering into the agreement.