Meaning, Definition, Essential Elements and Classification of Contract

Meaning and Definition of Contract

Today's globalized corporate environment revolves upon the "give and take" principle. In this case, the term "contract" refers to the way that the rights of the business transaction are given and taken. A contract is created when two or more parties agree to do or refrain from performing a certain task that is required by law. But only legally binding labor is referred to as a contract. It is possible to tell the difference between valid, voidable (enforceable by only one party), and valid contracts by studying contracts.

According to section 2 (a) of Nepalese contract act 2056, “Contract is an agreement between two or more than two persons to do or not to do something which can be enforceable by law.”

Although all agreements are not contracts, it is believed that all contracts are an agreement. This is because an agreement can only exist if an offer and an acceptance are present. However, a contract requires both agreement and legal enforceability in it to be valid.

Agreement = Offer/Proposal + Acceptance

Contract = Agreement + Enforceability by law

Essential Elements of a Valid Contract

Offer and acceptance along with legal relationship:

A valid contract requires the presence of an offer, acceptance, and the desire to enter into a legal relationship with the other party. For instance, if a father promises his son $3000 at the end of the month for pocket money but is unable to follow through, the son cannot sue the father because there was never a legal relationship between them; only a social agreement.

Lawful objects and consideration:

Only when a contract is made with legitimate goals can it be considered valid. Drugs and other forbidden items are not subject to contracts. The contract's goal shouldn't be something that would violate the law, be immoral, or be detrimental to public policy. For instance: A contract including unlawful behavior like drug use or prostitution. Contrarily, consideration means "something in return."

As an illustration, X consents to selling Y his car for $2000. In this case, X's promise to sell the car is the consideration for Y's promise to pay the sum of $20,000, and Y's promise to pay the sum of $20,000 is the consideration for X's promise to sell the car. These are legal factors to consider.

Competent parties:

The only individual capable of entering into a contract is one who is of sound mind. In addition, the legislation cannot be used against a child (a person under the age of 18), a lunatic (a person with a disturbed mental state), or an insolvent (a person who is broke and in debt).

For Example:

• A kid named X borrowed Rs. 4,000 from Y and executed a mortgage on his home in the lender's favor. This agreement was null and void because X lacked legal capacity. As a result, the mortgage was invalid and it was impossible to get back the money that had been advanced to the minor.

Free consent:

A contract is deemed voidable if a party enters into it against his or her free will as a result of coercion, undue influence, misrepresentation, error, or fraud. However, the party has the option to request that it be declared void in court. For instance, the contract is voidable if Mr. Folk threatens Mr. Wales with a rifle while demanding that he sell his home. Mr. Wales has the right to sue Mr. Folk in order to void the contract.

Certainty of meaning:

The agreement must be unambiguous and specific. The terms and circumstances of the agreement should be understood by both parties. A chocolate, for instance, will cost $10 according to Mr. Charles' word. His willingness to sell a particular brand of chocolate for $10 is not specified.

Possibility of performance:

The contract only binds actions that can actually be carried out in the real world. A legally enforceable agreement to perform an impractical act cannot be made. For instance, Mr. X claims to use magic to find a diamond jewelry. In this case, the agreement is void because it cannot be enforced by the law.

Necessary legal formalities:

Every agreement must be in writing and registered to be enforceable. It must follow all legal requirements, including those for writing, stamping, and registration, or else it won't be regarded as valid. For instance, Mr. X must follow the written, stamped, and registered legal requirements if he wants to give Miss Y a residence.

Classification of Contract

Legal Effects