What is Contract? Definitions and Elements - Law of Contract Notes

Law of Contract

The law relating to contracts in Pakistan is contained in the Contract Act, 1872. It extends to the whole of Pakistan and came into force on the ist day of September 1872. It deals with:
 1, General principles governing all types of contracts (Sec. 1-75).
 2. Contracts of REST: Guarantee, Bailment, Pledge, and Agency (Sec. 124238).

Initially, sections 76-123 and sections 239-266 relating to the sale of goods partnership were contained in the Contract Act but were subsequently repealed and a separate Sale of Goods Act, 1930, and a Partnership Act, 1932 came into force.

Definition of Contract

 Some definitions are as follows:

 Pollack: "Every ‘agreement and promise enforceable at law is a contract."

 Salmond: "A contract is an agreement creating and defining obligations between the parties".

 Sir William Anson: “An agreement enforceable by law made peieen two or more persons, by which rights are acquired by one or more to acts or forbearance on the part of other or others.” 

Sec. 2(h) of Contract Act provides “An agreement enforceable by law is a contract.” 

Thus a contract consists of two elements: (a) Agreement (b) Enforceability by law

1. Agreement

Section 2(e) defines agreement as, "Every promise and every set of promises, forming the consideration for each other, is an agreement."

Section 2(b) defines promise as, “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A Proposal, when accepted, becomes a promise."

A promise comes into existence when one party makes a proposal to the other party and that the other party gives consent. Therefore, a contract is an agreement, an agreement is a promise and a promise is an accepted proposal.

2. Enforceability

An agreement is enforceable by law if it is recognized by the court. In order to be enforceable by law, the agreement must create legal obligations between the parties. Thus, the term agreement is wider than a contract. All contracts are agreements but all agreements are not contracts.
Agreements are of two types:

a. Social agreements

 Social agreements are not enforceable by law because they do not create legal obligations between the parties. In social agreements, the parties do not intend to create legal relations.

b. Legal agreements

Legal agreements are enforceable by law because they create’ legal obligations between the parties. In legal agreements, the parties intend to create legal relations. All business. agreements are contracts as there is an intention to create legal obligations.

Examples:

1. A invites B to dinner. B accepts the invitation but does not attend. A cannot sue B for damages. It is a social agreement.
2.  A promises to sell his car to B for Rs. 2 Lac. It is a legal agreement because it creates legal obligations. This agreement is a contract.

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