What is a Contract

Welcome to www.rkstrainings.com. Here I wish to share my knowledge and experience on Contracts with prospective readersI wish to do this by writing series of blog post based on my understanding on the subject. I request your participation and believe that your valuable comments on posts could bring further enrichment to the subject.

This being the first post, so, let us starts the journey by discussing the meaning and definition of the term Contract. We all know about contracts and dealing with the same on day-to-day basis in our work life. However, we cannot enjoy the subsequent posts without briefly touching it again

What is a Contract – Meaning and Definition

Contract is an agreement between two or more parties which the law will enforce. As per section 2(h) of Indian Contract Act, 1872 an agreement enforceable by law is a contract.

In view of the above, an agreement is a contract only when: promises between the parties creates a legally binding, and; the agreed terms are recognized by law for enforcement.  Agreements which does not give rise to legal obligation are not contracts

Accordingly, the term Contract has two elements as mentioned below;

1. An agreement between the parties and

2. Parties are legally bound for their promises under the agreement

Contract = [Agreement] + [enforceability by law]

Valid, Void and Voidable Contracts

Intention of the parties to enter into a legally binding relationship is a pre-requisite for the Court of Law to enforce any agreement. In the event parties desire not to seek the intervention of court for eventual disputes, such agreement becomes invalid and un-enforceable. Therefore, depending upon whether an agreement could be legally enforced or not, there are three kinds of agreements: Void, Valid & Voidable

As per section 2(g) of Indian Contract Act, an agreement not enforceable by law is said to be Void. However, agreements which are enforceable by law are called Valid Contracts. As per section 2(i) of the Act, an agreement which is enforced by law at the option of one or more parties, but, not at the option of other or others, is a voidable contract

Agreement of rights and obligations 

Contract is an agreement creating rights and obligations between the parties. Right of one party becomes the obligation of other and vice versa. In supply or service Contracts, one party provides goods or services and other party pay the agreed price. Receiving goods or services is the right of buyer and getting payment a right of supplier. Similarly, supplying goods or services as agreed is the obligation of supplier and making payment is the obligation of the buyer

Whether Contract must be in writing

As a general rule it is not necessary for a contract to be in writing. Verbal contracts are also recognized by law. However, this general rule shall not apply to those contracts which must be in writing as per prevailing laws and regulations

As per Chapter II of Sale of Goods Act, 1930, a contract of sale of goods may be made in writing or by the words of mouth, or partly in writing and partly by words of mouth

However, as per the prevailing industry practice, contracts are mostly made in writing. Further, contracts are signed by the concerned parties. This is necessary to keep a record of mutual agreements. And, such records could be used as a proof for an eventual dispute at later stage. Moreover, this is important because for commercial transactions, the dealing person may change over time. Therefore, in the absence of signed agreement, it would be difficult to ascertain what has been agreed by the parties

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