HomeLaw SchoolLaw NotesWhat is Law of Contract - A Easy Guide

What is Law of Contract – A Easy Guide

As a result of increasing complexities of business environment, innumerable contracts are entered into by the parties in the usual course of carrying on their business. ‘Contract’ is the most usual method of defning the rights and duties in a business transaction. This branch of law is different from other branches of law in a very important respect. It does not prescribe so many rights and duties, which the law will protect or enforce; it contains a number of limiting principles subject to which the parties may create rights and duties for themselves. The Indian Contract Act, 1872 codfies the legal principles that govern ‘contracts’. The Act basically identies the ingredients of a legally enforceable valid contract in addition to dealing with certain special type of contractual relationships like indemnity, guarantee, bailment, pledge, quasi contracts, contingent contracts etc.

All agreements are not studied under the Indian Contract Act, 1872, as some of those are not contracts. Only those agreements, which are enforceable by law, are contracts.

This unit refers to the essentials of a legally enforceable agreement or contract. It sets out rules for the offer and acceptance and revocation thereof. It states the circumstances when an agreement is voidable or enforceable by one party only, and when the agreements are void, i.e. not enforceable at all.

A contract is a legally enforceable agreement between two or more parties where each assumes a legal obligation that must be completed. Many aspects of daily life involve contracts, including buying property, applying for a car loan, signing employment-related paperwork, and agreeing to terms and conditions when buying products and services or using computer software.

Legal issues involving contracts arise most often when one party fails to perform the legal obligation it has agreed to do. When a party breaches a contract by failing to perform, the other party can often sue for money damages, or, in some limited cases, can ask the court to force the other party to perform as promised.

How do you form a contract?

A valid contract has four parts:


First, one party must make an offer. They must state the terms that they want the other party to agree to. If the other side agrees to the terms of the offer, the other side may accept it, and the contract is complete.


Accepting another party’s offer makes a contract complete. The party that accepts the offer must accept it on the same terms as the terms of the original offer. They must make sure that the other side knows they accept it.

If they propose different terms, there’s no contract. Instead, their terms are a counteroffer. It’s then up to the first party to accept the counteroffer or propose another counteroffer.


A valid contract requires each party to give something up. That’s called consideration. For example, in the case of an employment contract, one party agrees to give up money, and the other party agrees to give up labor. A contract is a two-way street with each party giving up something to get something else that they want.

Mutual intent to enter into an agreement

To have a valid contract, both parties must intend to be bound by the contract. If a document says that it’s only a statement of intent, the parties may not have a mutual agreement to enter into a contract. Informal agreements between friends often fall into this category.

Typically a promise or an offer of a reward in exchange for certain behavior creates an enforceable contract with the person who undertakes the activity. For example, if someone offers a reward for information that leads to an arrest for a crime, the person who provides the information can seek enforcement of the reward. On the other hand, an advertisement is not a contract without an additional, personalized invitation from the seller for the buyer to buy the good.

A contract can be implied. For example, a person who seeks medical treatment has an implied contract with the doctor who treats them to pay a reasonable charge for services. Likewise, a person who orders dinner at a restaurant has an implied contract to pay for the meal that they order.

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