To understand the Indian Contract Act, one must first grasp its core concept: the Contract itself. In layman’s terms, a contract is a promise that the law will enforce. However, in the legal world, the definition is more specific.
1. What is a Contract?
A contract is an agreement between two or more parties that creates a legal obligation. It is the binding force that ensures that if you pay for a product, you receive it, or if you work for a month, you get your salary.
Fundamentally, a contract consists of two elements:
- An Agreement: A mutual understanding or a “meeting of minds” (consensus ad idem).
- Legal Enforceability: The agreement must give rise to a legal duty, not just a moral or social one.
2. Section 2(h) Explained
The Indian Contract Act, 1872, defines a contract in Section 2(h) as:
“An agreement enforceable by law is a contract.”
This short definition can be broken down into a simple equation:
$$\text{Contract} = \text{Agreement} + \text{Enforceability by Law}$$
To fully understand this, we need to look at the two components of this equation:
A. Agreement (Section 2(e))
Section 2(e) defines an agreement as “Every promise and every set of promises, forming the consideration for each other.”
- Essentially, Offer + Acceptance = Agreement.
- However, not every agreement is a contract. You might agree to meet a friend for a movie, but that is a social agreement, not a contract.
B. Enforceable by Law
An agreement is “enforceable by law” if the court can intervene to ensure the parties perform their obligations.
- If an agreement is purely social or domestic (like a promise between husband and wife to go for a walk), it is not enforceable.
- If the agreement is commercial or legal in nature (like selling a car), the law presumes the parties intended to create legal relations.
3. Simple Examples for Understanding
To clarify the difference between a mere agreement and a valid contract, consider the following scenarios:
Example 1: Social Agreement (Not a Contract)
- Scenario: Rahul invites Amit to dinner at his house. Amit accepts the invitation.
- Result: This is an agreement. However, if Amit fails to show up, Rahul cannot sue him in court.
- Reason: The parties did not intend to create a legal relationship. It is a social obligation.
Example 2: Domestic Agreement (Not a Contract)
- Scenario: A father promises his son a new bicycle if he scores 90% in his exams. The son scores 90%, but the father refuses to buy the bike.
- Result: The son cannot take his father to court.
- Reason: Domestic promises are generally presumed not to be legally binding contracts (based on the principle of Balfour v. Balfour).
Example 3: Valid Contract
- Scenario: A accepts an offer from B to sell his car for ₹2 Lakhs.
- Result: This is a Contract.
- Reason: Here, there is a clear offer, acceptance, and consideration (money). If B refuses to sell after agreeing, A can sue B in court because the intent was to create a commercial, legal relationship.
Key Takeaway
“All contracts are agreements, but all agreements are not contracts.”
Only those agreements that satisfy the requirements of Section 10 (competency, free consent, lawful object, etc.) become contracts.