Answer
A FORMAL AGREEMENT BETWEEN PEOPLE OR GROUPS
Answer
The Restatement of Contracts (a summary of the prevailing contract laws) defines "contract" as a "promise," the breach of which the law requires a remedy, or the performance of which the law recognizes as a duty.
The formation of a contract requires two essential elements: (1) manifestation of mutual assent (which takes place in the form of offer and acceptance), and (2) consideration (which is a bargained for exchange).
One common misconception is that a contract must ALWAYS be in writing. This is not true (even though it's a good idea, and in some cases it is necessary [see statute of frauds]). A "manifestation of mutual assent" can take many forms.
Another common misconception is that if you agree to something, it's a contract. This is not true either, as all contracts may come from agreements, but not all agreements are contracts. For example, I can agree to give you ten dollars as a gift, but this would not be a contract. Contracts are
legally enforceable agreements, and they require a
bargained for exchange.
According to section 2(h) of Indian contract act, 1872 "An agreement enforceable by law is a contract."
In other words, An agreement which can be enforced in a court of law is known as a contract. OR
contract is an agreement which is enforceable by law.
Agreement + Legal obligation or Enforceable by law = ContractOn analyzing this definition of contract, it appears that a contract must have the following two elements.
An agreement, and
Enforceability of an agreement
What is an agreement?According to section 2(e) of the Indian contract act, 1872 "Every promise and every set of promises forming the consideration for each other is an agreement."
What is promise?According to section 2(b) of the Indian contract act, 1872 "a proposal when accepted, becomes a promise."
Example:X offers to sell his car for Rs.100,000 to Y. Y accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between x and y.
In other words, an agreement consists of an offers by on party an acceptance by the other. In the form of an equation, it can be shown as under.
Agreement
= Offer(proposal) + Acceptance of offer
What is an Enforceability of agreement?An agreement of agreement is said to be enforceable by law if it creates some legal obligation. In other words, the parties to an agreement must be bound to perform their promises and in case of default by either of them, must intend to sue e.g. in case of case of social or domestic agreements, the usual presumption it that the parties do not intend to create legal relations.
Example: X invites his friend Y to a dinner and Y accepts the invitation. If Y fails to turn up for dinner, X cannot go to the court to claim his loss.
In commercial or business agreements the usual presumption is that the parties intend to create legal relations.
Example: X offers to sell his car to Y for Rs. 100,000. Y accepts this offer. Such an agreement between X and Y is a contract because it creates legal obligation. In this agreement, offer X refuses to sell or Y refuses to buy, the other party can file a suit in the court of law for the breach of the contract.