ASSIGNMENT-1

SUBITTED BY SUBMITTED TO
ASHISH GUPTA MS. POONAM LUTHRA
09/MBA/02 LECTURER (B. LEGISLATION)

ASSIGNMENT ON:

“ALL AGREEMENTS ARE NOT CONTRACT BUT ALL CONTRACTS ARE AGREEMENT.”

SOLUTION:

The law of contract is that branch of law which determines the circumstances in which promise
made by the parties to a contract shall be legally binding on them. All of us enter into a number
of contracts everyday knowingly or unknowingly. Each contract creates some right and duties
upon the contracting parties. Indian contract deals with the enforcement of these rights and
duties upon the parties. Indian Contract Act, 1872 came into effect from 1st September, 1872.

It extends to the whole of India except the state of Jammu and Kashmir.

CONTRACT [SECTION 2(h)]: A contract is “an agreement enforceable by law”.

CONTRACT = AGREEMENT (+) ENFORCEABILITY BY LAW

“All contracts are agreements but all agreements are not contracts”

AGREEMENT [SECTION 2(e)]:

An agreement means, “Every promise or every set of
promises, forming consideration for each other”.

AGREEMENT = PROMISE(S) BY ONE PARTY (+) PROMISE(S) BY THE OTHER PARTY

PROMISE [SECTION 2(b)]: “When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.”

PROMISE = PROPOSAL + ACCEPTANCE

However, promise cannot be one sided. Only a mutual promise forming consideration for each
other is ‘agreement’. - - For example, A agrees to pay Rs 100 to B and B agrees to give him a
book which is priced at Rs 100. This is set of promises which form consideration for each other.
However, if A agrees to pay Rs 100 to B, but B does not promise anything, it is not ‘set of
promises forming consideration for each other’ and hence not an agreement.
PROPOSAL/OFFER [SECTION 2(a)]: A person is said to make a proposal when “he signifies to
another his willingness to do or to abstain from doing anything with a view to obtaining assent
of that other to such act or abstinence”

CONSIDERATION [SECTION 2(d)]: “When, at the desire of the promisor, the promise 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 is called consideration”. In other
words, consideration is something in return.

It should be noted that the term ‘agreement’ as defined in Contract Act requires mutual
consideration. - - Thus, if A invites B to dinner and B agrees to come, it is not an ‘agreement’ as
defined in Contract Act.

Hence on the basis of following following essentials are needed to make all the agreements to
be a contract.

According to Section 10, “All agreements are contracts if they are made by 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”. The essential elements of a valid contract are:

􀂙Agreement: To constitute a contract there must be an agreement. There must be two parties
to an agreement, i.e. one party making an offer (offeror) and the other party accepting the offer
(offeree).

􀂙Intention to create legal relationship: When the two parties enter into an agreement, there
must be an intention by both parties to legally bind the other as a result of such agreement.
Thus, agreements of social or household nature are not contracts.

􀂙Capacity of parties (competence): The parties to the agreement must be capable of entering
into a valid contract. According to Section 11, every person is competent to contract if he or
she,
1. is of the age of majority;
2. is of sound mind; and
3. is not disqualified from contracting by any law to which he is subject.

􀂙Lawful Consideration: An agreement to form a valid contract should be supported by

consideration. Consideration means “something in return” (quid pro quo). It can be cash, kind,
an act or abstinence. It can be past, present or future. However, consideration should be real
and lawful.

􀂙Free consent: To constitute a valid contract there must be free and genuine consent of the
parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue
influence or mistake.
􀂙Lawful object: The object of the agreement must not be illegal or unlawful.
Section 23: According to Section 23, the consideration or object of an agreement is lawful,
unless-
• It is forbidden by law; or
• Is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent;
or
• Involves or implies, injury to the person or property of another; or
• The court regards it as immoral, or opposed to public policy.