Contract Law Series

    Edited by: Vaani Garg


    Contracts are important and the most common legal documents in our personal and business lives. Whether you are buying a car, land for the house, or starting a business you will come across the contract. So, it is always beneficial to know about the basics of contract law which provides the legal framework for the formulation of trade, business, and commercial relations and transactions in which contract is involved. This series will provide comprehensive explanations and analysis of the principles in contract law with further reference to the various cases and judgments which facilitated its development.


    In simple terms, the contract is an agreement between parties creating mutual legal obligations. Contractual relations are between individuals and thereby the law of contracts falls within the voluntarily creating civil obligations. However, the major source of contract law states common law in which court decision provides the basic source material of development of the subject and also assists in keeping up with the recent upgradations. The Indian Contract Act, 1872 based on the principles of English Common Law is the key act regulating the contractual relations in India.

    The term “contract” is defined in Section 2(B) of the Indian Contract Act, 1872, as “an agreement enforceable by law is a contract.”

    Thus, for the formation of contracts there must be two components- (1) An agreement and (2) the agreement should be enforceable by law. In order to understand contract, we need to break up the definition of these terms.

    The agreement is defined in Section 2(e) as ‘every promise and every set of promises forming the consideration for each other.’ Further, section 2(b) of the Act defines a promise as – ‘a proposal, when accepted becomes a promise’. According to section 2(a) ‘When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.’ The person making the proposal is called the ‘promisor’, and the person accepting the proposal is called the ‘promisee’. In other words, an agreement is an affected promise, accepted by all the parties involved in the agreement or affected by it. Acceptance or mutual assent is necessary to ensure a meeting of the minds of the parties involved. Consideration is another pivotal requirement which must be present in an agreement. It is nothing but a price (act or abstinence) that the promisee agrees to pay to the promisor in exchange for the product or service that is being offered.

    So, you might think that if you agree to sell 3 books for Rs.1000 with a friend, would it be deemed as a contract? By following the previously mentioned process, you can argue that after your friend accepted the proposal with consideration, it becomes an agreement. But if we go back to the definition of contract as per the act, the agreement has to be legally enforceable. An agreement must fall within the ambit of the law to be enforced by state or must lead to legal obligation. Parties to the contract must represent their will to enter into legally binding agreement otherwise the contract would not be valid.

    Now, we can say contact is an accepted proposal accommodating certain rights and obligations established and agreed upon by the parties to be regulated by the Indian Contract Act, 1872.

    The first core requirement in the formation of a contract is an offer or proposal. These seemingly simpler terms consist of various complexities in the context of contracts which we would explore in detail in the subsequent part of the series.