LawofCont

ract
I
ntr
oduct
ion:Thel
awofcont
racti
sthechi
l
dof
commer ce.Itisnotonlythemer chantortr
aderbutev er
y
personwhol i
vesintheor gani
sedsociety,
consciouslyor
unconsciouslyentersint
ocont r
act sf
rom sunriseto
sunset.Whenaper sonbuy sacomput erorhiresat axi,
or
takesacr editcar
df r
om abankorgi v
esloantoanot her
,or
hedoesbooki ngforDJformar riagepart
y,heentersinto
andper f
ormscont r
actsthoughhemaybeunawar eoft his
fact.
Theessenti
alpar
toft hecont
racti
sthatpromisesare
prot
ectedandenforced.
General
ly,
legal
lyenforceabl
e
promisesar
econtracts.
Thelawofcont
racti
smai
nlyconcer
nedwi
tht
hree
questi
ons:
(
1)I
sther
eanagr
eement
?
(2)Canthepar
ti
est
osuchagr
eementenf
orcei
tinacour
t
oflaw?
(
3)Howt
heycanenf
orcei
t?
Thel
awofcont
ractdoesnotl
aydownr i
ght
sandduti
es
whi
chthel
awenforce,
i
tconsi
stsr
atherofanumberof
l
imiti
ngpr i
ncipl
es,subjectt
owhi chthelawwilluphold.
A
personisonlyentitl
edt oenfor
cehi scontr
act
ual r
ighti
na
reasonabl
ewayandt hecourtwill
notsupportanat t
empt
toenforcethem inanunr easonableway .
FORMATI
ONOFCONTRACT:
Whenonepersonmakesanof f
erandt
heotheraccept
s
t
hesame,t
hereari
sesanagreementwhenthisagr
eement
i
senfor
ceabl
ebylawitbecomesacontract
.
Theessenceofacont r
actismeetingofthewi l
l
soft he
parti
es.Theremustbeconsensusadi dem. Thecontr
acti
ng
parti
esmustagr eet othesamet hinginthesame
sense.Theremustbemeet i
ngofthemi ndofthe
parti
es.Themeet i
ngofmi ndsshouldbe
objecti
ve,i
.e.
manifestat
ionofmut ualassent.
Thereis
mut ualandfinal
assentf oranagreementt obebindi
ng
betweent heparti
es
Cont
ractDef
ined:
Ansondefinescontractasanagreementenforceableat
l
awmadebet weent woormor epersons,
bywhichr i
ghts
areacquir
edbyoneormor etoactsorforbear
anceson
thepartofotherorothers.
Sal
mondsdef
ini
ti
onof
'cont
ract
'st
ates-
'
Acont
racti
sanagr
eementcr
eat
inganddef
ini
ng
obl
i
gat
ionsbet
weent
hepar
ti
es'
.
Accordi
ngtoPoll
ock-
'
ever
yagreementandpr
omi
se
enfor
ceabl
eatlawisqcontr
act
'.
Clause(
h)ofsect
ion2i
fthelndi
anCont
ractAct
,1872
defi
nes'
Contr
act'
asunder-
"
Anagr
eementenf
orceabl
ebyl
awi
sacont
ract
."
Thus,t
oarr
iveatacontr
actther
emustbe-(
1)An
agreement
,and(2)Theagr
eementshoul
dbeenfor
ceabl
e
bylaw.
Theremaybesomeagr eementwhichmaynotbe
enfor
ceablebylawandsuchagreement scannotbe
contr
actwithi
nthemeaningofsection2(h)
.Thus,ev
ery
contr
acti
sanagr eementbutever
yagr eementisnot
necessar
il
yacont r
act
.
Agr
eement:
Aspersection2(e)
,"Ev
erypromiseandeverysetof
promises,
formingtheconsi
derati
onforeachother
,isan
agreement"
.
Thusiti
sclearf
rom t
hisdef
ini
ti
ont
hata'
promi
se'
isan
agreement
.Whatisa'promi
se'?
Theanswertot
hisquest
ioni
scont
ainedi
nsect
ion2(
b)
whichdef
inest
heter
m as,"Whent
hepersont
owhom the
proposali
smadesi gni
fieshisassentther
eto,t
he
proposali
ssaidtobeaccept ed.Aproposalwhen
acceptedbecomesapr omi se"
.Anagreementinvolv
es
proposalorof
ferbyonepar tyandacceptanceofthesame
bytheotherpart
y.I
trequiresexist
enceoftwoormor e
personsthati
splur
alit
yofper sons.
Ar eadingofclause(a),(
b),(c)
,(e)
,and(h)ofsection2of
theactshowst hatacontracti
sanagr eementisa
promi se,apromiseisformedbyanaccept anceofa
proposal andtheremustbeapr omisorwhomakest he
proposal andapr omiseewhoaccept sit
.The'proposal
'
appear stobesy nonymoust othewor d'of
ferasused
i
nEngli
shlawl
nEngli
shlaw,onewhomakest hepr
oposal
i
sgeneral
l
ycal
ledt
he'off
eror'andtheper
sontowhom t
he
pr
oposali
smadeiscal
ledthe'off
eree'
.
Thusanagr
eementistheoutcomeoft
woconsent
ing
mindst
hati
sconsensusadidem;
Thus,
Agr
eement=of
fer(
orpr
oposal
)+accept
anceof
off
er
Agr
eement
sEnf
orceabl
ebyLaw:
Whatagr
eementsareenforceablebyLaw?Sect
ion10of
t
helndi
anContr
actAct,
1872l aysdownthecondit
ionsf
or
t
heenfor
ceabl
i
li
ty.
Itpr
ovidest hatal
lagr
eement
sar e
contractsi
ftheyar emadebyt hefr
eeconsentoft he
parti
es,compet enttocontractforalawf
ul consi
derati
on
andwi thalawf ulobject,
andar enother
ebyexpr essl
y
declaredtobev oid.I
fweanal ysethispr
ovision,
wef i
nd
thatthefoll
owingar etheessential
condit
ions,whichmust
besat i
sfi
edforanagr eementtobecomeacont r
act:
(
a)Thepar
ti
esmustbecompet
entt
ocont
ract
;
(
b)Ther
emustbef
reeconsentoft
hepar
ti
es;
(c)Itmustbef
oral
awf
ulconsi
der
ati
onandl
awf
ul
object;
and
(
d)theagr
eementmustnotbeexpessl
ydecl
aredt
obe
v
oid.
Thetwoparti
esent erintoobligationstoeachot her
,i
.e.
,
one
part
yundertakestodoort oabst ainfrom doingsome
defi
nit
eactoractsi nreturnforsomespeci f
icconductor
actonthepartoftheot herpar t
y.Theobligati
onmustbe
suchasisenforceablebyl aw.Inot herwords,itshouldnot
bemer el
yamor al,socialorreli
giousobli
gation.
Theseobl i
gati
onsdonotform agreementsbecausethey
donotcr eat
eanyl egal
dut
ies.I
tmeanst hatt
hepar t
ies
mustintendthatifoneoft
hem failst
operfor
m his
promise,
onewoul dbeanswerableinlawforthatf
ail
ure.
Obl
igat
ion:
Anagr eementt obecomeacont r
actmustgiveri
set oa
l
egal obli
gat i
onorduty
.Anagreementwhichgiverisetoa
socialobligati
oni
snotacontract
.Obli
gati
onisdefinedas
alegaltiewhi chi
mposesuponadef i
nit
epersonor
personst henecessi
tyofdoi
ngorabstaini
ngfrom doinga
defi
niteactoracts.
Consensusadi
dem :
Theessenceofanagr eementi sthemeet ingoftheminds
oftheparti
esinfull
andf i
nalagreement ,
theremust ,
in
fact,
beconsensusadi dem.Bef orether
ecanbean
agreementbetweent wopar ti
est heremustbeconsensus
adidem.Thismeanst hatthepar ti
estotheagr eement
musthav eagreedaboutt hesubj ectmatterofthe
agreementinthesamesenseandatt hesamet i
me.
Example: A,whoownst wohor sesnamedRaj hansand
Hansraji
sselli
nghorseRaj hanst oB.Bt hinksheis
purchasi
nghor seHansr aj
.Therei snoconsensusadi dem
andconsequent l
ynocont ract.
Essent
ialel
ement
sofav
ali
dcont
ract:
Accor di
ngt oSecti
on10, "Allagreementsarecontractsi
f
theyar emadebyt hefreeconsentofpar ti
escompet entto
contract.Foralawful
consi derat
ionandwi thalawful
object,andarenotherebyexpr esslydecl
aredtobev oid"
.
Thef oll
owingessenti
al el
ement smustco- exi
stinorderto
makeav
ali
dcont
ract
.
1)OfferandAcceptance: I
nt hefir
sti
nstance,theparti
es
oughttohavetheint
entiont ocreat
ealegalobligat
ion
betweenthem t
hroughthef orm ofoff
erandaccept ance.
Theyshouldhaveint
entiont oimposedutyont he
promisortof
ulf
il
lthepromi seandbestowar ightont he
promiseetocl
aimitsful
f i
l
lment .I
tmustnotbemer el
ya
moralonebutitmustbel egal.
2)Lawf ulConsider at
ion:Thesecondaspectt olookforis
thepresenceof" lawfulconsiderati
on"whichisan
essentialel
ementofav al
idcontract.Consi
derat
ionisa
techni
cal wordmeani ngt her
ebyqui dproquo, t
hatis,
somet hinginreturn.I
tmustr esultinbenefi
ttoonepar t
y
anddet rimenttotheot herpart
yoradet r
imenttoboth.
Example:Aagreestosel
lhisbookstoBf orRs100,B's
promi
set opayRs100istheconsider
ati
onf orA'
spromise
tosel
lhisbooksandA'spromisetosel
lthebooksisthe
consi
derati
onforB'
spromisetopayRs100.
I
ft het
woessenti
alelementsaret
here, wecansaythat
therei
sacontr
act,whichpri
ma-faciewi l
lhol
dgood,orat
l
eastwecansayt hatther
eisanexistenceofcontr
act,
alt
houghsomemor enecessaryel
ement sofval
i
dit
ymay
bewanting.
3)Capaci t
ytoCont r
act: Thepar ti
estoacont r
actmust
hav ecapacity(legalabil
ity)tomakeav ali
dcont ract
.In
ever ycaseofcont r
act,t
her emustbeassentoft hepar ti
es.
Theassentpr esupposesaf ree,fai
r,andseri
ousexer cise
oft hereasoningf acult
y.If,t
herefore,ei
therofthepar t
ies
toanagr eementi sdeprivedoft heuseofhi s
under standi
ngori fhewer edeemedbyl awnott ohav e
attainedit,t
herecanbenosuchagr eement ,
whi chshall
bindhi m.Sect i
on11oft heIndianCont r
actActspeci fi
es
thatev erypersoni scompet enttocont r
actprovided.
a)i
soft
heageofmaj
ori
tyaccor
dingt
othel
awt
owhi
ch
hei
ssubj
ect
;
b)whoi
sofsoundmi
nd;
and
c)i
snotdisqual
i
fiedf
rom cont
ract
ingbyanyl
awt
owhi
ch
hei
ssubject.
Inotherwor ds(I)ami nor
,(ii
)aper sonofunsoundmi nd( a
personofunsoundmi ndcanent erint
oacont ractdur
ing
hislucidi
ntervals)and( ii
i
)aper sondi squal
ifi
edfrom
contracti
ngbyanyl awt owhi chhei ssubject,f
orexample,
anal i
enenemy , for
eignsov ereignsandaccr edit
ed
representat
ivesofaf orei
gnst ate, i
nsolvent
sandconv ict
s
arenotcompet enttocont ract.
4)Fr
eeConsent:
Theconsentoft
hepar
ti
esmustbe
genuine.Theterm' consent'
meanspar t
iestoacontr
act
mustagr eeupont hesamet hi
ngint hesamesense,i
.e.
,
thereshouldbeconsensusadi dem.Consentissaidtobe
notfreewheni ti
sv iti
atedbycoercion,unduei
nfl
uence,
fraud,misr
epresentationormistake.Insuchcases,t
he
contractbecomesv oi
dableattheopt i
onofthepart
y
whoseconsenti snotf ree.
Exampl e:AthreatenedtoshootBifhe(B)doesnotlend
hi
m Rs.2, 000andBagr eedtoit
.Heretheagreementis
enteredintoundercoerci
onandhencev oi
dableatt
he
optionofB.
5)Lawf ulAgr
eement:Theagreementmustnotbeone,
whichthelawdeclar
est obeei
theril
l
egalorvoi
d.Avoid
agreementisone,whichiswi
thoutanyl
egaleff
ectsil
l
egal
agreementisanagreementexpressl
yori
mpliedl
y
prohibi
tedbylaw.
Example: Agreementisrest
rainedoftrade,marriage,l
egal
proceedingsetcar ev
oidagreements.Thoseagr eement s
prohibi
tedbyt heIndi
anPenal Code,
forexampl e,Threatto
commi tmur derorpubli
shi
ngdef amatoryst
atement sor
agreement s,whichar
eopposedt opublicpoli
cy,areill
egal
i
nnat ure.
6).Possi
bil
it
yofper
formance:Yetanot
heressent
ial
feat
ureofqv al
i
dcontr
acti
sthatitmustbecapabl
eof
perf
ormance.
Sect ion56laysdownthat"Anagreementto
doanactimpossi bleinit
selfi
svoi
d."
Iftheactis
i
mpossiblei
nitself,physi
cal
lyorl
egal
ly,
theagreement
cannotbeenf
or cedatl aw.
Example:
Aagreeswi
thBtodiscovertr
easur
eby
magic.
Theagr
eementisnotenf
orceabl
e.
7).Certainty
:Section29oft hecontractactpr
ov i
dest hat
"
Agreement s,t
hemeani ngofwhichisnotorcapabl eof
beingmadecer tai
n,arevoid.
"Inor
dertogiveri
set oav ali
d
contractthetermsoft heagreementmustnotbev agueor
uncertain.
Itmustbepossi bletoascertai
nthemeani ngof
theagr eement,f
orot herwi
se,i
tcannotbeenforced.
Example:
A,agr
eest osell
B"ahundr
edtonsofoil
"Ther
e
i
snothingwhatevertoshowwhatki
ndofoilwas
i
ntended.
Theagreementisvoi
dforuncer
tai
nty
.
8).Writi
ngandregistrati
on:
Accordingtot heIndian
ContractAct
,acont
r actmaybeor alorinwr i
ti
ng.But8n
cert
ainspeci
alcasesi tl
aysdownt hattheagreement ,
to
bevalid,
mustbeinwr iti
ngor/andregister
ed.
9).
Notexpresslydecl
aredvoi
d:Theagr
eementmustnot
havebeenexpressl
ydeclar
edtobevoi
dundert
heAct.
Ref
erences:
1.
Busi
nessLaw,
M.C.Kuchhal
,
VikasPubl
i
shi
ngHouse
Lt
d,Noi
da(
2014)
.
2.
Busi
nessl
aws,
R.K.
Bangi
a,Al
l
ahabadLawAgency
,(2007)
.
3.Cont
ractandSpeci
fi
cRel
i
efAct
,Dr
.Av
tarSi
ngh,
East
ern
LawCompanyNoi da.
4.Busi
nessRegul
ator
yFramework,
B.N.
Agar
wal
,
Nav
yug
Sahi
tyaSadan,
Lohamandi
,Agr
a.