Indian Contact Law talks about creation of contract in business and commercial transactions. In Contract promises are make by two parties are legally binding on them. A contract creates rights and obligations between the parties entering into the contract.
It is very essential and important to contractual agreed on the requirements when two or more parties are working tighter in a business.
What is Contract
Contract is a combination of two important element called agreement and obligation between two parties. When an agreement enforceable by Law, then it is a Contract.
To Creates a contract, both parties should be agreed on the contract on their duties, responsibilities and other aspect as per business requirement and
Requirement for a Contract
- Two Parties
- An Agreement
- Legal Obligation
- Two Parties: To create contract, there are min two parties are required, that is promisor and promisee. The party who makes are proposal is called promisor and the party to whom the proposal is made called the promisee.
Example: Suppose a builder is selling a flat. Then a contract will be created between builder (seller) and buyer. Builder agreed and promise to buyer to sell that Flat at ‘x’ amount as promisor and Buyer also accept and promise to pay ‘x’ Amount to buyer as promisee.
- An Agreement: Agreement is something that doesn’t have any legal obligation. It is like two parties are agree on something mutually but without any legal obligation or action. Agreement is not a contract, because in contract parties are bound to complete the promises but in agreement it can be or cannot be.
Example: Let’s take above example again… a buyer asked to builder to allot one flat. Builder also agreed that he will allot one flat, but this is only an agreement and both parties are doesn’t have any legal obligation for selling or buying the flat. But if builder and buyer agreed on some amount, floor num, flat num etc then they must sign a contract which will have legal obligation.
- Legal Obligation: When two parties agreed and sign a contract then both parties are legal obliged to fulfill their promises and the obligation must be enforceable by Law.
Example: If Builder and buyer agreed on some amount to buy a particular Flat and if they sing a contract that they must fulfill their promises. If anyone party is deny to full fill their promises then other party can take legal action.
What is an Agreement
An agreement is a broader term which can be mutual agreed or understanding between two person or more. It cannot be any legal obligations or bindings. It not required any written document and it can be a word by mouth.
Difference between an Agreement and Contract
| # | Agreement | Contract |
| 1. | Any promise or set of promises which is mutually agreed between person or parties and they are not legal obligation are called agreement.
|
If an Agreement enforceable by Law, then it is a Contract |
| 2 | An Agreement is only required promise and both parties should be agreed. | An agreement become contact if, any legal condition is applying with any Money, Time or particulars |
| 3 | An Agreement is a wider concept than a contract | Contract is very Specific and specie of an agreement. So every Contract is an agreement, but Every Agreement is not necessarily a Contract. |
| 4 | Legal Obligation is not necessary in Agreement | Contract creates Legal Obligation |
| 5 | An agreement can not be concluded or Binding | A contract is always concluding and binding on the parties |
Mandatory requirement of a Valid Contract
Contract should be Valid as per Law and should meet all compliance. Below are some essential element of a valid contract:
- There must be an agreement between two parties: It is very important that to create contract both parties should have mutual agreement and ready to accept the contractual legal obligations.
- Parties must be competent for a contract: Both parties should be competent in terms of required age for that contract, who is sound mind, should not disqualified for any law for that subjected contract, should understand whatever written in contract.
- There should be an Intention: There should be clear intention or requirement to create contract. We can say like that if you need help of Court for any legal support or in case of breach of contract which can cause a loss of money, business etc. then only contract should be valid, else there are no need to contract.
- Free Consent of the parties to the agreement: To create a contract both the parties should be agreed upon the points mentioned in agreement and have free consent for make it legal obligations,
- Contract must be legal: Contract should be Lawful or legal object.
- Compliance with Legal formalities: Contract must be in written with all legal formalities.
Note: There must be more requirement or element for a valid contract, above are few of them only.
FAQ
Q. What is an agreement?
A. An agreement is a broader term which can be mutual agreed or understanding between two person or more.
Q. Is Agreement is Legal document?
A. If Agreement is in written form with Legal obligation with Money etc, then it will be a legal document. Example. Rent Agreement,
Q. What is Contract?
A. Contract is legal document which is enforceable by Law.
Q. What is use of Contract?
A. If a party need help of Court for any legal support or in case of breach of contract which was agreed and contracted between two parties.
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