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The
term "contract" is derived from the Latin term "contractum",
which means "drawn together". It is an agreement to do or
not to do an act. It comes into existence from the action
of parties. It creates legal rights and obligations. It
is enforceable by law.
Salmond
defines a contract as "an agreement creating and defining
obligation between the parties". Thus a contract is an agreement
enforceable by law.
Hence
every contract is a legally binding agreement. It consists
of two essential elements, namely, obligation and agreement.
An obligation is a legal tie, which binds the parties together.
It is an undertaking to do or to abstain from doing some
definite act. it may relate to either social or legal matters.
Social obligations are not enforceable. Legal obligations,
which have their source in agreements alone, are enforceable.
Thus, every contract is an obligation but all obligations
may not be contracts.
An
agreement is an accepted proposal. It gives birth to a contract.
It is the basis of a contract. It establishes relationship
between the parties. It is a promise or a set of promises.
It is defined as "every promise or set of promises forming
consideration for each other". It may be social, religious
or legal agreement. An agreement to play cards or to go
to a movie is an example of social agreement. A social agreement
does not create any legal obligation between the parties.
Hence it is not enforceable in a court of law. Religious
and moral agreements are also not enforceable at law.
But
agreements, which give rise to legal obligations, are enforceable
in a court of law and hence they are contracts. For example,
Sunil agrees to sell his car to Sridhar for Rs. 2,00,000.
It is an agreement, which is enforceable in a court of law.
According to Anson "a contract is that form of agreement,
which directly contemplates and creates an obligation".
Thus, all contracts are agreements, but all agreements are
not contracts.
In
next edition let us know about what are essentials of a
valid contract and what are the types of contracts.
To
be continued...
Sandeep
Shenoy,
Advocate,
Mysore.
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