Page 9 - DCOM103_COMMERCIAL_LAW

Commercial Law

Notes 1.1 Agreement

Section 2(e) defines an agreement as “every promise and every set of promises forming

consideration for each other”. In this context, the word ‘promise’ is defined by S.2(b). In a

contract there are at least two parties. One of them makes a proposal (or an offer) to the other,
to do something, with a view to obtaining the assent of that other to such act. 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 [S.2(b)]. The person making the proposal is called
‘promisor’ and the person accepting the proposal is called the ‘promisee’ [S.2(c)].

Enforceability by law. The agreement must be such which is enforceable by law so as to become
a contract. Thus, there are certain agreements which do not become contracts as this element of
enforceability by law is absent. For example, an agreement to go for a stroll together or for a picnic
does not become a contract, and therefore, neither rights nor obligations are created on the part of the
parties to the agreement. Thus, all agreements are not contracts; but all contracts are agreements.
Further all legal obligations are not contractual. Only those legal obligations which have their
source in an agreement are contractual. Thus, a legal obligation not to create a nuisance for others
does not give rise to a contract; but nevertheless it is actionable by law.
Figure 1.1: Contract = Agreement + Legal Obligation

Agreement Legal
Obligation

Contract

Example: (i) A agrees to sell his motorcycle to B for ` 10,000. The agreement gives rise
to a legal obligation on the part of A to deliver the motorcycle to B and on the part of B to pay
` 10,000 to A. The agreement is a contract. If A does not deliver the motorcycle, then B can go to a
court of law and file a suit against A for non-performance of the promise on the part of A. On the

other hand, if A has already given the delivery of the motorcycle and B refuses to pay the price,

A can go to the court and file a suit against B for non-performance of promise.
(ii) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to
the restaurant. To his utter surprise A is not there or A is there but refuses to entertain B. B shall
have no remedy against A. Similarly, in case A is present in the restaurant but B fails to turn up,
then A shall have no remedy against B.
(iii) A gives a promise to his son to give him a pocket allowance of ` 150 every week. In case A
fails or refuses to give the promised amount, his son has no remedy against A.
In examples (ii) and (iii) above, the promises are not enforceable by law as there was no intention
to create legal obligation. Such agreements are social agreements which do not give rise to legal
consequences. In example (i) the obligation has it source in an agreement and the parties intend
to be bound by the same and therefore it gives rise to a contract.
Necessity of knowing as to what constitutes a contract. It is necessary for us to know as to what
constitutes a contract as it is the key to understanding many legal questions. Very often a dispute

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