The word ‘Contract’ is derived from the Latin word 'Contractum', which means to bring together. Hence, we may say that forming an agreement with two or more individuals is referred to as a contract when two or more people agree on the same matter in the same way.

The Indian Contracts Act of 1872 governs contracts in India, and outlines the rules and regulations surrounding contract formation, performance, and enforcement. The act is based on the English common law of contracts, and has been amended several times since its inception. It defines the term “Contract” under its Section 2(h) as “An agreement enforceable by law”. In other words, a contract is an agreement between two or more parties that creates obligations that are enforceable by law. A contract can be either written or oral, and is typically enforced by courts if one party fails to uphold their end of the bargain.

Contracts are a vital part of doing business in India, and understanding the rules and regulations surrounding them is essential for success.

There are two broad types of contracts:

1. Express contract: An express contract is one where the terms of the contract are expressly stated by the parties at the time of formation. This can be done verbally, in writing, or even through conduct. For example, if you purchase a ticket to a concert, you have formed an express contract with the concert promoter. The terms of this contract would be that you agree to pay for the ticket, and in exchange, they agree to allow you into the concert.

2. Implied contract: An implied contract is one where the terms of the contract are not expressly stated, but are instead implied by the actions of the parties. For example, if you go to a restaurant and order a meal, you have formed an implied contract with the restaurant. The terms of this contract would be that you agree to pay for the meal, and in exchange, they agree to provide you with food.

6 elements that must be present for a contract to be valid:

1) OFFER:
An offer is a proposal made by one party to another with the intention of creating a contract. The offer must be clear and unambiguous, and must be communicated to the offeree. The person who makes an offer is called offeror and the person to whom the offer is made is called offeree. The offer may be withdrawn, altered, or canceled at any time before it is accepted. The offeree is free to extend a counter-offer, albeit the offeror is under no obligation to accept the said counter-offer.

2) ACCEPTANCE:
Acceptance is another necessary element for a valid contract. After the offer is made, the offeree has a choice: to accept or decline it. Acceptance is the act of agreeing to the terms of an offer. This acceptance must be clear and unequivocal, and must be communicated to the offeror either verbally or in writing. An acceptance can be canceled at any time before it is communicated but not afterwards.

3) LAWFUL OBJECT & CONSIDERATION:
An agreement must not be illegal, immoral, forbidden by any law or opposed to public policy. For a valid contract, both parties must always have received something of value in exchange for their promises. An agreement without consideration is void. Consideration is something of value that is exchanged by the parties to a contract. It can be money, goods, services, or anything else of value. An important thing to note is that this consideration must be lawful.

4) INTENTION TO CREATE LEGAL RELATIONS:
The parties to a contract must intend for the contract to be legally binding. This intention can be express or implied by the actions of the parties. This means that parties entering into contract are intended and willing to enter into a valid contract by their own will. The parties are thus also ready to accept the consequence arising from breach of such contract.

5) CAPACITY:
The parties to a contract must have the legal capacity to enter into a contract. A minor, lunatic, idiot and a drunken person cannot enter into a valid contract. This means that the parties to the contract must be competent. Section 11 of Indian Contract Act lays the following conditions to specify competency of parties to the contract:

• Parties to contract must have attained the age of majority i.e. 18 years in normal cases and 21 years if guardian is appointed by the Court.
• Parties must be of sound mind while making a contract. A person who is usually of unsound mind, but occasionally of a sound mind can make a contract when he is of sound mind. However, if a person is usually of a sound mind but occasionally of unsound mind cannot make a valid contract when he is of unsound mind.

6) FREE CONSENT:
The parties must enter into an agreement with free consent. Consent will be deemed to be free only if it does not constitute the following elements:

• Coercion: Committing or threatening to commit any act forbidden by law.
• Undue Influence: When a contract is formed because of the dominant position of one party and owing to that position, the other person is unable to reject the contract.
• Fraud: When an act is done to deceive or to induce a person to enter into a contract.
• Misrepresentation: When one of the parties makes a contract by false representation of facts in order to mislead the other.
• Mistake: When a contract is entered into under the mistake of fact by both the parties, it is void. But if a contract is entered into under the mistake of fact by one party, or the mistake of law, it is not voidable.

If all of these elements are present, then a contract is said to be formed. Once a contract is formed, the parties are legally bound to uphold their end of the bargain. If one party fails to do so, the other party can take legal action to enforce the contract.

Understanding the basics of contract law will help you to make informed decisions and avoid potential pitfalls. However, contract law in India is complex, and it is advisable to seek legal advice before entering into any contract to avoid falling prey to loopholes in a contract that may be hard to detect as a lay man.

Our team of legal professionals can assist you in understanding the contract, identifying potential risks and protecting your interests. Let Modi & Zaidi help you navigate through the intricacies of the contract you're looking to enter into today!