when does an agreement become a contract?

A contract is an agreement which gives rise to obligations which are recognized by law. Thus, the course of dealings between the contracting parties would be governed by stipulations contained in the agreement which is enforceable if it is not repugnant to law of the land.

Anson- A contract is an agreement enforceable at law made between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of the other or others.

Fredrick Polllock- Every agreement and promises enforceable by law is a contract.

Salmond- Contract is an agreement, creating and defining obligations between the parties.

Section 2(h) of Indian Contract Act 1872 defines-

An agreement enforceable by law is a contract.

Section 10 of Indian Contract Act 1872 defines-

An agreement is a contract when it made for some consideration, between parties who are competent, with their free consent and for a lawful object.

The analysis of above definitions- A contract is an agreement the object of which is to create an obligation i.e. a duty enforceable by law. For example – if there is an agreement between A and B that A will make a furniture for B, and B will pay a Rs 1,000/ to A, the agreement is a contract.

Section 10 defines a valid contract-

1.     All agreements are contract which are made by the-

2.     Free consent of parties.

3.     Competent to contract.

4.     A lawful consideration.

5.     With a lawful object.

Thus every contract is an agreement, but every agreement is not a contract.  An agreement becomes a contract when it fulfills the following conditions:

  1. 1. Consideration.
  2. 2. Competent parties to contract.
  3. 3. Free consent.
  4. 4. Lawful object.

There are some agreements which literally satisfy the requirements of a contract, such as proposal, acceptance, consideration etc. but which do not catch its sprit and they are not enforced because it does not sound to be reasonable to do so.

Constituent Element of Agreement:

  1. Several parties- There must be two or more parties to initiate a contract. Where one who has to discharge the obligation and the other entitled to enforce the obligations.

For example- A borrowed money from a joint account in which A & B are the owner. Here the obligation was not enforceable since A was both the creditor and debtor.

  1. Obligation– Obligation is the prime constituent, where one person agrees to do or obtains from doing a definite act or acts. It is the bond of legal necessity which binds together two or more parties.  It is also necessary the obligation must be definite acts, otherwise there may be uncertainty or indefiniteness about the obligations, and it may be possible that if one has to be under an obligation to do or abstain from doing acts for all the time, it would similar like slavery.
  2. Identity of Mind– Both parties must be agreed on the subject matter at the same time and at the same manner.
  3. Mutual Communication-Law does not go into the mind of the contracting parties but recognizes what is expressed in writing. Till such time there is complete understanding on the terms and there is communications in this respect, there can be no agreement in law.
  4. Legal Relationship-it is also most important there must be some legal relationship than the social relationship.