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What Agreements Are Contracts

This Article define us what agreements are contracts and the provision that deal with this in Indian Contract Act, 1872 i.e. Section 10.

This article covers all the essential conditions which are necessary for making an agreement into contract with relevant case laws, rules and illustrations. Essential conditions like There is some consideration for it, the parties are competent to contract, their consent is free, lawful object must be there.

This Article briefly covers section 11 and 12 (competent parties), section 13 (existence of consent) and 14 (free consent), section for coercion, undue influence, fraud, misrepresentation and mistake.

This article covers the difference between Domestic Agreement and Commercial Agreement.

When agreement becomes Contract

An agreement becomes a contract when it is enforceable by law (Section 2(h) of Indian Contract Act). In other words, an agreement that the law will enforce is a contract. The conditions when an agreement will enforce are given in Section 10 of Indian Contract Act, 1872. In this section, an agreement is a contract when it is made for some consideration, between competent parties, with their free consent and for a lawful object.

Section 10 of Indian Contract Act, 1872 deals with the condition of the enforceability of an agreement.

It provides:
“All agreement are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and not hereby expressly declared to be void”.

The second para of section 10 further says-
“Nothing herein contained shall affect any law in force in India and not hereby expressly repealed, by which any contract is requires to be made in writing or in the presence of witnesses, or any law relating to the registration of documents”.

Every contract is an agreement, but every agreement is not a contract.

So, the following conditions must be essential for a valid contract:

  1. There is some consideration for it
  2. The parties are competent to contract.
  3. Existence of consent of parties.
  4. Their consent is free.
  5. Their object is lawful.
  6. The agreement not being expressly declared to be void.

The agreement must be made for some consideration:

Section 2(d) of the Indian Contract Act defines consideration as when at the desire of the promisor, if the promise either does something or abstains from doing something then this act of doing or abstinence is called consideration.
Section 25 of the act declares that an agreement without consideration is void. However, there are certain conditions given under section 25 under which a contract without consideration is treated to be a valid one.

Competent parties:

According to section 11 and 12 of the Act, the following persons are not competent to contract:
  1. Minors (in Mohri bibi v. Dharmodas Ghose it was held that an agreement with a minor is void ab initio);
  2. Persons of sound mind;
  3. Persons disqualified by law.

  1. A patient in a lunatic asylum, who is, at intervals, of sound mind, any contract during those intervals.
  2. A sane man, who is so drunk that he cannot understand the terms of a contract, cannot contract whilst drunkenness lasts.

Free consent:

The parties must have agreed to something in the same sense and the consent of the party must not have been obtained by:

  1. Coercion-(S.15)– An act is forbidden by the penal code.
    (In Chikam Amiraju v. Chickam Seshamma it was held that the threat of suicide amounts to coercion within section 15 of Indian Contract Act).

    Illustrations: A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A, afterwards sues B for breach of contract at Calcutta. A has employed coercion, although his act is not an offence by the law of England.
  2. Undue influence-(S.16)– Influence by which a person is induced to act otherwise than by their own free will or without adequate attention to the consequences.

    Illustrations: Aman, a man enfeebled by disease or age, is induced, by Bharat influence over him as his medical attendant, to agree to pay Bharat an unreasonable sum for his professional services. Bharat employs undue influence.
  3. Fraud-(S.17)– fraud is defined under section 17 of the Indian Contract Act, 1872.
    Illustrations: Aryan sells a horse to Babu which Aryan knows to be unsound. Aryan says nothing to babu about the horse’s unsoundness. This is not a fraud.
  4. Misrepresentation-(S.18)– Fraudulent, negligent, or innocent misstatement, or an incomplete statement, of a material fact.
    Illustrations: A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A’s factory, and thereby induces B to buy the factory.
    This contract is voidable at the option of B
  5. Mistake- Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement the agreement is void.

Lawful object:
For the formation of a Contract, it is very important that the consideration and object of the contract must be lawful.

Consideration or object is said to be unlawful if:

  1. It is forbidden by law
  2. It would defeat the provision of any law;
  3. It is fraudulent;
  4. It involves or implies an injury to the person or property of another;
  5. The court regards it as immoral or against public policy.

The agreement not being expressly declared to be void:

If the agreement is declared void by the Contract Act or by any other law, it is not enforceable.

Difference between Domestic Agreements and Commercial Agreements:

Domestic Agreement

A domestic agreement is one made between two people – usually in a family relationship. it is presumed in domestic agreement cases that there was no intention to create a legally binding agreement and courts are often reluctant to enforce them.

Case deals with Domestic Agreement

In the case of Balfour v Balfour (1919)[1]:
Mr. Balfour and his wife went to England for a vacation, and his wife became ill and needed medical attention. They made an agreement that Mrs. Balfour was to remain behind in England when the husband returned to Ceylon (Sri Lanka) and that Mr. Balfour would pay her £30 a month until he returned. This understanding was made while their relationship was fine.

However, the relationship later soured and the husband stopped making the payments. The wife sought to enforce the agreement. Later the parties separated and were divorced. The wife brought this action for the money her husband had promised to pay to her but had failed to do so.
In this case it was held that the agreement was a purely social and domestic agreement and therefore it was presumed that the parties did not intend to be legally bound.

Commercial Agreement

A commercial agreement is a legally binding contract between parties where both are required to do particular activities or refrain from doing something.
Commercial agreements can be verbal, in writing, or even implied in a formal or informal matter. To breach a commercial agreement, one of the contracting parties fails to perform their part of the agreement.
This is used mostly by people of the business community that includes the corporate sector and retail industry.

A contract is a legally binding agreement that exists between two or more parties to do or not do something. An agreement starts from an offer and ends on consideration but a contract has to achieve another target i.e. enforceability. Due to the breach of the contract legal remedy should be provided to the aggrieved party against the guilty party.

An agreement is a contract when it is made for some consideration, between competent parties, with their free consent and for a lawful object

  1. (1919) 2 KB 571

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