Contract: Meaning, Nature & Essentials — When Does an Agreement Become a Contract?
We make promises every day. But does every promise become a contract?
The answer is no. A contract is more than just an agreement between two people. The law recognises an agreement as a contract only when certain essential requirements are fulfilled.
What Is a Contract?
Under Section 2(h) of the Indian Contract Act, 1872, a contract is an agreement enforceable by law.
In simple words:
Contract = Agreement + Legal Enforceability
An agreement becomes a contract when the law recognises it as creating enforceable rights and obligations.
What Is an Agreement?
An agreement is created when one person’s promise or set of promises is accepted by another.
For example, A offers to sell his bicycle to B for ₹5,000 and B agrees to buy it for ₹5,000. This creates an agreement. Whether it becomes a contract depends on whether the legal requirements are satisfied.
Essentials of a Valid Contract
For an agreement to become a valid contract, some basic requirements must be present:
1. Offer and Acceptance
There must be a valid offer by one party and acceptance by the other.
2. Intention to Create Legal Relations
The parties must intend their agreement to have legal consequences. A casual promise between friends, such as promising to meet for lunch, normally does not create a contract.
3. Lawful Consideration
There must generally be consideration, meaning something of value exchanged between the parties.
4. Capacity of Parties
The parties must be legally capable of entering into a contract. For example, a person must generally be of the required age and of sound mind.
5. Free Consent
The parties must agree freely and voluntarily. Consent obtained through coercion, fraud, undue influence or misrepresentation may affect the validity of the contract.
6. Lawful Object
The purpose of the agreement must be lawful. An agreement to do something illegal cannot become a valid contract.
7. The Agreement Must Not Be Declared Void
Certain agreements are specifically treated as void by law and therefore cannot be enforced as contracts.
Agreement vs Contract
This is an important distinction for CLAT.
| Agreement | Contract |
| A broader concept | A legally enforceable agreement |
| May or may not be enforceable | Enforceable by law |
| Every agreement is not a contract | Every valid contract is an agreement |
Remember:
All contracts are agreements, but all agreements are not contracts.
Example
Riya agrees to sell her old laptop to Aman for ₹25,000. Aman agrees to pay the amount, and both parties voluntarily enter into the arrangement. If the essential requirements of a valid contract are satisfied, their agreement can become a legally enforceable contract.
Why Is This Important?
Contract questions often give you a situation where one or more essentials are missing. Your task is not to decide whether the arrangement seems fair. Instead, check whether the legal requirements of a contract are satisfied.
When you see a contract problem, ask:
1. Was there an offer?
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2. Was it accepted?
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3. Was there consideration?
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4. Were the parties competent?
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5. Was consent free?
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6. Was the object lawful?
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7. Is the agreement specifically declared void?
Then apply the principle given in the question.
Practice Question
Principle: An agreement becomes a contract only when it is enforceable by law and the essential requirements of a valid contract are satisfied.
Facts:
Arjun promises his younger brother that he will give him ₹10,000 if he scores the highest marks in his school examination. The brother scores the highest marks, but Arjun refuses to pay, saying that it was only a family promise.
Can the brother legally enforce the promise?
A. Yes, because every promise automatically becomes a contract.
B. Yes, because the brother fulfilled the condition.
C. No, because a family promise may lack the intention to create legal relations.
D. No, because consideration is never required in a contract.
Answer: C
Explanation:
The promise is made in a family setting and may not show an intention to create legal relations. Therefore, merely fulfilling the condition does not automatically make the promise an enforceable contract.
Quick Revision
Contract = Agreement + Legal Enforceability
Remember the essentials:
Offer + Acceptance + Consideration + Capacity + Free Consent + Lawful Object + Not Void
Don’t assume that every promise or agreement is a contract. First check whether the law makes it enforceable.
