According to section 2(h) of the Indian Contract Act, 1872, an agreement enforceable by the law is referred as a contract. However, a more detailed definition of a valid contract is provided in section 10 of the Indian Contract Act, 1872. According to section 10 of the Indian Contract Act, 1872 all agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

FORMATION OF A CONTRACT

The formation of a contract can be more easily understood through an equation:-

Proposal + Acceptance = Promise

Promise + Consideration = Agreement

Agreement + Enforceable by the law = Contract

• Proposal- According to section 2(a) of the Indian Contract Act, 1872, when one person signifies to another, his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such an act or abstinence, he is said to make a proposal. Proposal is also called offer in English law.
• Promise- According to section 2(b) of the Indian Contract Act, 1872, 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.
• Consideration- According to section 2(d) of the Indian Contract Act, 1872, when, at the desire of the promisor, the promisee 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 or promise is called a consideration for the promise.
• Agreement- According to section 2(e) of the Indian Contract Act, 1872, every promise and every set of promises, forming the consideration for each other is an agreement.

It is very important to note that all contracts are agreements but all agreements are not contract. This is because agreements may or may not be enforceable by the law but each and every contract requires an agreement for its formation to take place. The question that what agreements are contracts has been dealt in Section 10 of The Indian Contract Act, 1872 stated above.

TYPES OF CONTRACTS

Types of contracts can be divided into two parts-

1. On the basis of enforcement
2. On the basis of creation

1. ON THE BASIS OF ENFORCEMENT

• VALID CONTRACT– The definition of contract is provided in Section 2(h) of the Indian Contract Act, 1872, which states that an agreement enforceable by the law is called a contract. It is also referred to as a valid contract.
• VOIDABLE CONTRACT– The definition of a voidable contract is provided in Section 2(i) of the Indian Contract Act, 1872, which states that an agreement which is enforceable by the law at the option of one or more of the parties thereto, but not at the option of other or others is referred to as a voidable contract.
• VOID CONTRACT– The definition of a voidable contract is provided in Section 2(i) of the Indian Contract Act, 1872, which states that an agreement not enforceable by the law is said be a void contract.
• UNENFORCEABLE CONTRACT– This is a contract which was valid earlier but cannot be enforced by the law due to some technical issues. It could be because of the absence of writing, registration, time barred by the law of limitation or some other issues.

• UNLAWFUL CONTRACT– According to Section 23 of the Indian Contract Act, 1872, the considerations or objects of an agreement are lawful, unless –

1. it is forbidden by the law; or
2. is of such a nature that, if permitted, it would defeat the provisions of any law; or
3. is fraudulent; or
4. involves or implies, injury to the person or property of another; or
5. the court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said be unlawful. Every agreement of which the object or consideration is unlawful is void.

2. ON THE BASIS OF CREATION

• EXPRESS CONTRACT– The first part of Section 9 of the Indian Contract Act, 1872 deals with express contracts, which states that in so far as the proposal or acceptance of any promise is made in words it is called express contract.
• IMPLIED CONTRACT– The second part of Section 9 of the Indian Contract Act, 1872 deals with implied contracts, which states that in so far as the proposal or acceptance of any promise is made otherwise than in words it is called implied contract.

IMPORTANCE OF CONTRACT

• A valid contract between the parties is very important. A valid contract binds the parties to abide by their obligations and thus perform their respective promises in its entirety. A valid contract ensures that the rights and obligations arising out of the contract are honored.
• Due to a rapid increase in commercial transactions, the rate of dependency on contracts and agreements has increased in order to maintain a proper record of all the acts and omissions committed by the party. This is because no one gives any importance to a verbal statement, you need to have some kind of contract in the form of evidence to prove your statement.
• Contracts are also used as a legal tool. This is because a contract legally binds the parties to it and thus enables the party to sue each other or take any other legal action in case of the breach of the contract. Contracts are the proof that an agreement exists between two parties.
• Contracts are also responsible for formalizing the relationship between the parties. This means it consist of all the information that has been agreed upon between the parties.
• Contracts are useful as they reduce the risk of dispute between the parties. This is because there is consensus ad idem [meeting of minds] between the parties regarding all the terms and conditions mentioned in the contract.

REFERENCES

https://www.britannica.com/topic/contract-law

https://www.globalnegotiator.com/international-trade/dictionary/unenforceable-contract/

https://indiankanoon.org/doc/1625889/

https://www.upcounsel.com/difference-between-implied-and-express-contract

https://juro.com/learn/purpose-of-a-contract

https://legalserviceindia.com/legal/article-6733-contracts-and-their-importance.html

https://www.thelegalwatch.in/post/importance-of-contract

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