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Wednesday, 18 April 2012

1. “All agreements are not contracts, but all contracts are agreements”. Comment.


A contract is an agreement, enforceable by law, made between at least two parties by which rights are acquired by one and obligations are created on the part of another. If the party, which had agreed to do something, fails to do that, then the other party has a remedy.
Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January. In case the Airlines fails to fulfil its promise, X has a remedy against it.
Thus, X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. A corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor (the Airlines), the other party to the contract (i.e., X) has a legal remedy.
Agreement
Sec.2(e) defines an agreement as “every promise and every set of promises forming consideration for each other”. In this context, the word ‘promise’ is defined by Sec.2(b). In a contract there are at least two parties. One of them makes a proposal (or an offer) to the other, to do something, with a view to obtaining the assent of that other to such act. 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 (Sec.2(b)).
Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract. Thus, there are certain agreements which do not become contracts as this element of enforceability by law is absent.
Sec.10 provides that all agreements are contracts, if they are made by free consent of parties, competent to contract, for a lawful consideration, and with a lawful object, and are not expressly declared by law to be void. To constitute a contract, there must be an agreement between two or more than two parties. No one can enter into a contract with himself. An agreement is composed of two elements – offer or proposal by one party and acceptance thereof by the other party.
Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing, then the contract may be either voidable, void, illegal or unenforceable.
Classification of contracts
Contracts may be classified as follows:
Classification of contracts according to formation: A contract may be (a) Made in writing (b) By words spoken and (c) Inferred from the conduct of the parties or the circumstances of the case.

Formal and informal contracts: This is another way of classifying contracts on the basis of their formation. A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it. The best example of formal contracts is negotiable instruments, such as cheques. Informal contracts are those for which the law does not require a particular set of formalities or special language.
Classification according to validity: Contracts may be classified according to their validity as (i) Valid, (ii) Voidable, (iii) Void, 
(iv) Unenforceable. A contract to constitute a valid contract must have all the essential elements discussed earlier. If one or more of these elements are missing, the contract is either voidable, void, illegal or unenforceable. As per Sec.2(i) A voidable contract is one which may be repudiated (i.e., avoided) at the will of one or more of the parties, but not by others.

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