A contract is an agreement enforceable by law. Every contract is an agreement, but every agreement is not a contract. The distinction rests on enforceability: an agreement becomes a contract only when it satisfies the conditions laid down in S.10 of the Indian Contract Act, 1872.
Legal Framework
| Section | Act | Scope |
|---|---|---|
| S.2(h) | Indian Contract Act, 1872 | Defines "contract" as an agreement enforceable by law |
| S.2(e) | Indian Contract Act, 1872 | Defines "agreement" as every promise and set of promises forming consideration for each other |
| S.2(b) | Indian Contract Act, 1872 | Defines "promise": accepted proposal |
| S.10 | Indian Contract Act, 1872 | States what agreements are contracts |
The Six Essentials Under S.10
S.10 provides: "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."
1. Offer and Acceptance. There must be at least two parties: one making an offer, the other accepting it. Without a matching offer and acceptance, there is no agreement at all, and no contract can arise.
Why: Consensus ad idem, meeting of minds, is the foundation of contractual obligation. A court cannot enforce an obligation neither party agreed to.
2. Intention to Create Legal Relations. The parties must intend their agreement to have legal consequences, not merely social or domestic effect.
Why: Without this filter, every dinner invitation or family arrangement would be litigable. Courts presume commercial agreements carry legal intent and domestic agreements do not, unless proven otherwise.
3. Lawful Consideration. Each party must give something in return for the promise received, per S.2(d). Consideration need not be adequate, but it must be real and lawful.
Why: Consideration distinguishes a bargain from a gift. Indian law, unlike English law, permits consideration to move from a third party.
4. Capacity to Contract. Parties must be competent under S.11: of the age of majority, of sound mind, and not disqualified by any law.
Why: The law protects persons who cannot appreciate the consequences of their own promises.
5. Free Consent. Consent must be free under S.14, not caused by coercion, undue influence, fraud, misrepresentation, or mistake.
Why: A promise extracted without genuine agreement is not a true exercise of will and cannot bind the party who never truly consented.
6. Lawful Object and Not Expressly Declared Void. The object and consideration must not be unlawful under S.23, and the agreement must not fall within agreements expressly declared void under S.24 to S.30.
Why: Courts will not lend their machinery to enforce agreements that offend law, morality, or public policy.
Illustrations
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Valid contract: Ramesh agrees to sell his car to Suresh for Rs. 3,00,000. Both are adults of sound mind, the offer and acceptance match, consideration flows both ways, and the object is lawful. This is a valid contract enforceable by either party.
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Agreement but not a contract: Priya invites her neighbour Anjali for dinner and Anjali accepts. There is an agreement, offer and acceptance exist, but no intention to create legal relations. Anjali cannot sue if the dinner is cancelled.
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No contract, capacity absent: A 16-year-old sells his bicycle to a shopkeeper for Rs. 2,000. The agreement is void ab initio under S.11, since a minor lacks capacity. No amount of willingness on either side cures this defect.
Recall Check
- What is the difference between an "agreement" and a "contract" under the Indian Contract Act, 1872?
- List the six essentials under S.10 that convert an agreement into a contract.
- Why does Indian law require both lawful consideration and lawful object separately?
Key Cases
Balfour v. Balfour (1919) Balfour-v-Balfour-1919 Issue: Whether a husband's promise to pay maintenance to his wife during separation was a binding contract. Rule: Domestic and social agreements carry a presumption against intention to create legal relations. Held: No contract existed; agreements between spouses in a domestic setting are not intended to be legally enforceable absent clear contrary evidence.
Distinctions
| Basis | Agreement | Contract |
|---|---|---|
| Definition | Every promise and set of promises forming consideration (S.2(e)) | Agreement enforceable by law (S.2(h)) |
| Enforceability | Not necessarily enforceable | Always enforceable |
| Scope | Wider term | Narrower, subset of agreement |
| Legal consequence | May or may not create obligations | Always creates legal obligation |
Flashcards
Q: What section defines "contract" under the Indian Contract Act, 1872? A: S.2(h): an agreement enforceable by law.
Q: How many essentials does S.10 require for a valid contract? A: Six: offer and acceptance, intention to create legal relations, lawful consideration, capacity, free consent, lawful object.
Q: Does Indian law require consideration to move from the promisee only? A: No. Under Indian law consideration may move from a third party (unlike English law).
Q: What presumption applies to domestic and social agreements regarding intention to create legal relations? A: A presumption against intention to create legal relations, rebuttable by clear evidence (Balfour v Balfour).
Q: Which section lists agreements expressly declared void? A: S.24 to S.30 of the Indian Contract Act, 1872.
Exam Scenario
Anil promises his son Rohan a smartphone if Rohan scores above 90% in his board exams. Rohan scores 92% but Anil refuses to buy the phone. Advise Rohan on his legal position.
Approach: Identify whether this is a domestic promise lacking intention to create legal relations, similar to Balfour v Balfour, or a promise with sufficiently commercial character to rebut that presumption. Apply the six essentials under S.10: offer and acceptance may exist, but intention to create legal relations is the contested essential. Conclude based on whether the facts show a serious bargain-like structure or a purely familial encouragement.