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The Law of Contract, Agreement, Proposal, acceptance, offer and enforceability

Updated on November 11, 2013

The Law of Contract.

One of the most important part of Mercantile law in India is the Law of Contract.  This law determines the areas covered by the parties who enter in to a contract.  It also provides solution for those who are not able to keep their promise made through the contract.   The Indian Contract Act, 1872 contains the law of contract. It deals with the general principles of law controls  all contracts and  provisions relating to contracts like bailment, indemnity, pledge,  guarantee etc.
Before it contained the special provisions of contract of sale of goods and partnership.  But latter, in 1930 separate Acts like  Sale of Good Act and the Indian Partnership Act  were passed  and separated it from the law of contract. There are separate Acts  which governs the area of contracts related to negotiable instruments, insurance, carriage of goods, etc.

What is a Contract.

Generally, a contract is an agreement between two or more persons to do a particular act or abstain from doing a particular act.  By entering in to a contract, it creates legal obligation between the parties.  It also provides certain rights to the parties to do a particular task.  Different authors defined a contact in various ways.  Let us see some of them.

1.  Every agreement and promise enforceable at law is a contract - Sir Fredrick Pollock

2.  A contract is an agreement, creating and defining the obligation between parties -  Salmond

3.  A contract is an agreement enforceable at law made between two or more persons by which rights are acquired by one or more to acts or forbearances on the part of others. - Sir William Anson.

The Indian Contact Act is closely related to the Pollock's definition ans the Section 2(h) of the  Act clearly states that "an agreement enforceable by law is a contract." From the above definitions we can understand that a contract essentially consists of two elements.  They are

1.  An Agreement
2.  Its enforceability by law.


Section 2(e) of the Indian Contract Act defines  Agreement as "Every promise  and every set of promises forming the consideration for each other."  From this we can understand that the promise means a proposal or offer which has been accepted.   Let me explain it with an example:  John offers to sell his Car for Rs. 275000/- to Peter.   Peter accepts this offer.  Now this offer to sell and acceptance to purchase can be treated as an agreement between John and Peter.  That means this agreement consists of an offer by one party and its acceptance by the other.

Offer + Acceptance = Agreement.

From the above, it is clear that there must me at lest two parties are necessary to form an agreement.  One is the with an offer and the other is there to accept that offer.  Another aspect of an agreement is that identity of minds.  Difference in opinion should not be there.  Both must agree for the deal and there must be identity of the minds in respect of the subject matter.  Suppose John two houses, one situated in Delhi and the other in Bangalore.  He offers to sell his Bangalore house to Peter.  But Peter under the impression that he is buying the Delhi house.  Here the identity of mind is not there.  In the mind of John and Perter are different houses.  So there is no agreement.

Enforceability or legal obligation

To treat an agreement as a contract, it must have legal obligation. If It is not enforcible by the law, we cannot call it a contract. There is no legal obligation for moral, religious or social agreements. An agreement to go to watch Cricket match or eat dinner together does not create a duty enforceable by law. There is no intention to create legal relation and this kind of agreements are of social in nature. Business agreements are created with an intention to create legal obligation with the parties who are entered in to that agreement. Agreement for buying a Car for Rs.275000/- is an agreement with legal obligation and can be enforceable by law. So this kind of agreement can be treated/called as a contract. Breach of contract by either party can be enforced through the court of law provided all the documents of essentials of a valid contracts are present.

It is to be noted that all obligations which are enforceable by law are not automatically regarded as a contract. Wrongful acts, braking of a decree of a court, wife and husband relationship are not regarded as a contract. Therefore, only that obligations which are arising out of an agreement, are concerned with the law of contract.

Essentials of a valid Contract

Meaning and source of Mercantile law


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    • profile image

      Abhishek kumar 

      4 years ago

      Very good for explaining the law students

    • profile image

      kuldeep chamar 

      4 years ago

      it is so good for basic knowledge .

    • profile image


      6 years ago

      thanks so much for the information yopu have provided us with

    • profile image


      6 years ago

      thanx a lot for providing such information which is helpful in our studies n in practical life too...:)

      hope u will give more details abt dis

      n really amazing work u had done 4 students..


    • profile image

      BSL ram prasad 

      6 years ago

      it is very clear and with out any ambguity that we can learn about offer, acceptance and agreement

    • profile image 

      6 years ago

      for a vast knowledge of the world you should visit

      you can get here general knowledge of the world , current news , current event of the up-to -date world.

    • profile image


      7 years ago

      good stuff , helped with my write up

    • kiwi gal profile image

      kiwi gal 

      8 years ago

      Have just finished reading your hubs. Informative all of them. Well written with great research.

    • GPSWorldTraveler profile image


      8 years ago from Washington State, USA

      "Identity of mind" is a wonderful expression which I was not familiar with and in my experience is often overlooked - Thank you for doing the research and expressing your self in this article... just think what a wonderful place this world would be if people spent more energy in exploring "Identitiy of Mind" prior to engaging in contractual activities. Best to you. GPS


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