What a Contract Is, and Why the Law Enforces a Promise
Chapter One
Syllabus topic 1.1, "INTRODUCTION History and nature of a contractual obligation Contemporary Relevance"
Pages 1 to 4 of 462
In one line
A contract is a promise the law will back you up on.
In the words a student can write in an exam: section 2(h) of the Indian Contract Act 1872 defines a contract as "an agreement enforceable by law". Every contract is therefore made of two things, an agreement and enforceability, and the whole of the first three modules of this paper is the study of what each of those two words requires.
Why the law has this at all
People make promises to each other all day. Almost none of them go to court, and almost none of them should. You promise to meet a friend at six; you do not turn up; nobody sues.
But some promises are different. A builder promises to finish a house by June, and a family sells the flat they were living in on the strength of it. A supplier promises ten tonnes of steel at a fixed price, and a factory turns down other offers because of it. In both cases somebody has arranged their life around another person's word, and has given something up in order to do it.
That is the problem the law of contract exists to solve. If promises of that kind could be broken freely, nobody could plan anything: no one would pay in advance, no one would build to order, no one would extend credit. So the law selects a class of promises and says: these we will enforce. If you break one, the other side can come to court, and the court will make you pay.
The whole difficulty, and the whole subject, is in the selection. Which promises get that backing, and which are left to conscience?
The provision itself
Section 2(h) of the Indian Contract Act 1872 states it in six words:
"An agreement enforceable by law is a contract."
Section 2(e) tells us what an agreement is:
"Every promise and every set of promises, forming the consideration for each other, is an agreement."
And section 2(b) tells us where a promise comes from:
"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."
Broken down: the chain the Act builds
Read those three definitions in order and the Act's design becomes visible. It builds a contract out of smaller parts, one at a time, and each part has its own definition:
- Proposal. One person signifies to another his willingness to do or not do something, wanting that other person's assent to it. Section 2(a).
- Acceptance. The person to whom the proposal was made signifies his assent. Section 2(b).
- Promise. A proposal that has been accepted. Section 2(b) again.
- Consideration. Something done, not done, or promised, at the desire of the promisor. Section 2(d).
- Agreement. Every promise, and every set of promises, forming the consideration for each other. Section 2(e).
- Contract. An agreement that is enforceable by law. Section 2(h).
What a Contract Is, and Why the Law Enforces a Promise
The chain is worth memorising in exactly that order, because it is the skeleton of the entire syllabus. Steps 1 to 3 are Module I. Step 4 and the question of what makes step 6 work are Module II. What happens after a contract exists is Module III.
The two famous shorthand equations follow directly from the chain:
- Agreement = Proposal + Acceptance
- Contract = Agreement + Enforceability
The word that does the work: "enforceable"
A student can recite "an agreement enforceable by law" without ever asking what enforceable means, and then cannot answer the follow-up. It means precisely this: if the promise is broken, the injured party can go to a court and obtain a remedy.
There are three remedies to keep in view from the first day, because the paper ends with them:
- Damages, meaning money to compensate for the loss, under sections 73 to 75. This is the ordinary remedy. See [Compensation for Loss or Damage Caused by Breach].
- Specific performance, meaning an order that the promise actually be carried out, under the Specific Relief Act 1963. See [Specific Performance After 2018: the Rule, Not the Discretion].
- Injunction, meaning an order not to do something, also under that Act. See [Preventive Relief, and the Kinds of Injunction].
So "enforceable by law" is not an abstraction. It is the availability of one of those.
A worked example
Rohan tells his neighbour Meera that he will give her a lift to the station tomorrow morning. Meera cancels the cab she had booked. Rohan sleeps in and Meera misses her train.
Is there a contract? Work the chain.
- Proposal: Rohan signified his willingness to do something, driving her to the station. Section 2(a) is satisfied on its face.
- Acceptance: Meera assented. Section 2(b) is satisfied.
- Promise: so there is a promise.
- Consideration: did Meera do, abstain from doing, or promise anything at Rohan's desire? Cancelling her cab was her own decision, not something Rohan asked for in exchange. Section 2(d) is not satisfied.
- Agreement: section 2(e) requires promises forming the consideration for each other. There is only one promise here and nothing given for it.
- Contract: there is none, so nothing is enforceable, and Meera has no claim.
Now change one fact. Meera says: "If you drive me, I will pay for the fuel." Rohan agrees. Now Meera's promise to pay is given at Rohan's desire, in exchange for his. There is consideration, there is an agreement, and subject to Module II the agreement is a contract.
What a Contract Is, and Why the Law Enforces a Promise
This is the pattern of nearly every problem question in this paper. You are not asked whether the defendant behaved badly. You are asked to walk the chain and find the link that fails.
What it does NOT mean
"All agreements are contracts." No. Section 2(h) makes contract the smaller category. Every contract is an agreement; most agreements are not contracts. Social and domestic arrangements, agreements without consideration, agreements with a minor and agreements to do something unlawful are all agreements, and none of them is a contract.
"A contract must be in writing." No. The Act nowhere requires writing in general. An oral contract is a contract. Writing matters for proof, and for the particular cases where some other statute requires it, such as a sale of immovable property, an arbitration agreement, or section 25's exception for a time-barred debt. Writing is a rule of evidence and of particular statutes, not a general rule of contract.
"A void contract is a kind of contract." The phrase is a contradiction, and the Act is careful about it. Section 2(g) says an agreement not enforceable by law is void, and it calls it an agreement, not a contract. Only section 2(j), a contract which ceases to be enforceable, describes something that was a contract and later became void. The vocabulary is worked through in [Agreement, Contract, and the Difference that Decides Cases].
Limits: what this Act does not touch
Section 1 carries a saving clause that students walk past:
"Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act."
Three things survive the Act, then: other statutes, the usage or custom of a trade, and any incident of a contract that is not inconsistent with the Act. The middle one is the interesting one. A trade custom can supply a term the parties never spoke about, provided it does not contradict the Act.
The Act is also not the whole law of contract in India. Sale of goods, partnership, and negotiable instruments were carved out of it into separate statutes, and the sections that once held them are printed in the bare Act with the single word "Repealed". That history is in the next chapter.
Quick revision
- Contract: an agreement enforceable by law, section 2(h).
- Agreement: every promise and every set of promises forming the consideration for each other, section 2(e).
- Promise: an accepted proposal, section 2(b).
- The chain: proposal, acceptance, promise, consideration, agreement, contract.
- Agreement = proposal + acceptance. Contract = agreement + enforceability.
- Enforceable means a court will give damages, specific performance or an injunction.
- All contracts are agreements; not all agreements are contracts.
- No general requirement of writing.
- Section 1 saves other statutes, trade usage and custom, and consistent incidents of a contract.
What a Contract Is, and Why the Law Enforces a Promise
Test yourself
1. Define a contract, and give the section. An agreement enforceable by law, section 2(h) of the Indian Contract Act 1872.
2. A promises to donate to a charity and does not pay. Is there a contract? Walk the chain. There is a proposal and an acceptance, so there is a promise. The question is consideration under section 2(d): has the charity done, abstained from doing, or promised anything at A's desire? Ordinarily not, so there is an agreement without consideration and no contract. The position changes if the charity undertook liabilities on the strength of the promise, which is the point taken up in [Agreements Without Consideration Are Void, Unless].
3. Distinguish an agreement from a contract in one sentence. An agreement is the meeting of proposal and acceptance supported by consideration; a contract is an agreement to which the law adds enforceability.
4. Is an oral contract valid? Yes. The Act imposes no general requirement of writing. Writing is required only where another statute requires it, and is otherwise a matter of proof.
5. What does section 1 save from the operation of the Act? Any statute not expressly repealed, any usage or custom of trade, and any incident of a contract not inconsistent with the Act.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.