Contract – Meaning and Nature: The law of contract constitute the most important branch of mercantile or commercial law.
The law relating to contracts is governed by the Indian Contract Act, 1872. This act mostly deals with general principle and rules governing contracts. The act is divisible into 2 parts:
1. Section 1 to 75 – deals with general principle of contract and applies to all contracts irrespective of their nature. 2. Section 124 to 238- deals with certain special kinds of contract.
E.g. Indemnity and guaranty, bailment and pledge, law of agency, etc.
Definition: According to Salmond “a contract is an agreement creating and defining obligation between the parties.” According to Sir Fredrick Pollock “every agreement and promise enforceable by law is called contract.”
According to Section 2(h) “contract is defined as an agreement enforceable by law” On the basis of above definitions following 2 elements are present in a contract:
1. There must be an agreement. 2. The agreement must be enforceable by law.
Therefore we can say that contract is a combination of both agreement and obligation.
Obligation: The term obligation is defined as a legal tie-up which imposes upon a definite person or persons, the necessity of doing or abstains from doing a definite act or acts. It may relate to social or a legal matter. An agreement which give rise to any social obligation is not a contract. The obligation, we can say that, is a legal duty to do or abstain from doing what one has promised to do or abstain from doing. E.g. A & B settled an agreement that A will sell his car to B for Rs 1 lakh. Here A is under an obligation to deliver his car to B and B under an obligation to pay Rs 1 lakh to A.
Consensus Ad Idem: The agreement as defined must be consensual in nature i.e. before there can be an agreement between the two parties, there must be “Consensus Ad Idem” means identity of mind. It