Definition of Contract

Definition of Contract | section 10 | formation of contract of service

Definition of Contract – Contract is defined in Indian Contract Act, 1872 as

“An agreement enforceable by law”.

According to this definition, two elements are required for formation of a contract.

The first is „agreement‟. Agreement is defined as “every promise and every set of promises forming consideration for each other”.

Promise is defined as “an accepted proposal”.

Thus, either employer or employee makes a proposal which may be accepted by the employee or the employer as the case may be, resulting in a promise and an agreement between both of them.

Such agreement, if enforceable by law according to the Indian Contract Act, 1872 becomes a contract and is binding on the employer as well as the employee or the workman as the case may be.

Section 10 of the Indian Contract Act, 1872 specifies when the agreement acquires the character of enforceability. The section reads as follows:

“All agreements are contracts, if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void”.

Thus, in order there to be a contract, agreement is a pre-requisite. Without agreement, there can never be a contract. However, all agreements are not contracts. Only those agreements which satisfy the following requirements as detailed in Section 10 will become contracts:

a. Agreement
b. Free consent
c. Capacity
d. Consideration
e. Lawful Object
f. Not declared void

Those agreements which do not satisfy any of the remaining five
conditions above stated will not become a contract.

These requirements are common to all contracts irrespective of the subject matter, the parties or monetary value. Contract of service is not an exception.

In general parlance, the contract between an employer and his employee or workman is called “contract of employment”.

However, the expression contract of employment is used to refer to both “contract of service‟ as well as ”contract for services”. The contract of service differs from the contract for services in a significant way. The contract of service is also formed like any other contract.

Formation of the Contract of Service

The formation of a contract of service does not in itself present very great complications. The difficulties associated with formation relate to the formation of particular terms rather than to the question of whether a contract of service has been brought into existence at all.

A purely basic definition of the contract of service is that form of contract for personal service which the courts recognize as expressing the legal relationship of employer and employee, as opposed to the other relationship of employer and independent contractor. It may be written or oral even though generally it is written.

The contract of service may be formed by:-

(a) express written agreement, or

(b) express oral agreement, or

(c) conduct.

No formal requirements normally attach to the making of the contract.
As far as formation by express agreement is concerned, an aspect deserving special attention is the situation where the agreement is for employment to commence at a date later than that of the agreement itself.

In the English case, Hochster v. De La Tour, the issue is whether there can be said to be a contract of service in being before the actual employment has begun. If it is said there is no contract of service in force, the alternative analysis is that there is a contract to enter into a contract of service at a later date.

The distinction is important where consequences are attached to the length of the period of contractual service. It is submitted that there can be said to be a contract of service in being and in force after the initial agreement has been made, but that we should not regard the employee as ’employed under’ that contract until the commencement date fixed for employment there under.

This approach would normally avoid anomalies in calculating periods of contractual service, whilst avoiding over-elaborate concepts of contracts to enter into further contracts.

As far as formation by conduct is concerned, the problems arising are of two types. Firstly, there is the broad problem of how specific terms are to be ascertained when the contract is formed by conduct. It has long been a striking fact that so complex and comprehensive a contract as the contract of service may be concluded by the mere conduct of starting work at the employer’s direction.

However, the difficulties raised by that method of formation relate to the ascertainment of specific terms; there is little difficulty in holding that the contract itself is formed in that informal way. Entering into a contract of service by conduct is a rarest of the rare occurrence.

The other aspect of formation by conduct which requires attention is, truly a problem of formation of the contract itself as opposed to the formation of particular terms of it. The problem is that it is possible to regard the mere conduct of exchanging service for remuneration as not amounting to the formation of a contract of service.

We find examples of refusal to infer a contract of service from conduct in cases where an employee has worked for his employer for a short period after the withdrawal by the employer of the previous terms and conditions of employment and the imposition of new terms.

The mere fact that an employee for a short period accepts wages on the same basis as his wages under his contract with the previous employer is by no means necessarily conclusive evidence that there has been an offer by conduct by the new employer to re-engage the employee on all the terms and conditions of the previous contract, or that the employee has accepted such an offer. Hence it cannot be said to be inconsistent with the existence of the contract of service.

Also Read –

Section 232 of Indian contract act 

Section 28 Indian contract act

Kinds of contracts


Contract and Essential Elements



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