Foundation of Contract

Section 2 (a) of Contract Act

states, 'Contract' means an
agreement enforceable by law
concluded between two or
more parties for performing or
not performing any work.
 Agreement
• Every promise and every set of promise forming
the consideration for each other.
• Promise is accepted proposal or a proposal when
accepted becomes a promise.
• Thus agreement is an accepted proposal.
• Thus, a contract is an agreement; an agreement is
a promise and a promise is an accepted proposal.
• Therefore, in its ultimate analysis, agreement is
the result of proposal from one side and its
acceptance by the other.
 When agreement becomes contract?
• Agreement is regarded as contract when it is enforceable by
law or an agreement that the law will enforce is a contract.
• Section 2 (a) of Contract Act states, 'Contract' means an
agreement enforceable by law concluded between two or
more parties for performing or not performing any work.
• A contract shall be deemed to have been concluded once the
person to whom a proposal has been presented by another
person communicates his/her consent thereto. (Section 5).
• Section 10 of Indian Contract Act states, ‘ all agreements are
contract it they are made by free consent of parties
competent to contract, for a lawful consideration and with a
lawful object and are not declared expressly to be void by
law’.
• Thus every contract is an agreement but every
agreement is not a contract. An agreement
becomes a contract when the following
conditions are satisfied.
• There are some consideration for it.
• The parties are competent to contract.
• The consent is free.
• The object is lawful.
 Contract as civil obligation
• Contract law confines to the enforcement of
voluntarily created civil obligations. However, it
doesnot cover the whole range of civil obligations
as there are many obligations of civil nature, like
those imposed by law and whose violation may
be actionable under the law.
• The law of contract is also not able to take care of
the whole range of agreements as many of them
do not fulfil the requirements of a contract.
• In addition, there are some agreements which
literally satisfy the requirement of a contract,
such as proposal, acceptance, consideration
etc., but which do not catch its spirit and they
are not enforced because it does not sound to
be reasonable to do so. They are excluded
under the legal device that the parties must
not have intended legal consequences.
 Parties to be autonomous:
• The parties to contract, shall be free to
choose the form and content of contract and
to determine consideration and its quantum,
the terms and conditions of the contract and
the nature of the remedy in the event of its
violation, as well as to determine the
measures for resolving disputes under the
contract.
• Section 4
 Parties Intention to Contract
• The law does not say that offer or its acceptance
should be made with the intention of creating
legal relation.
• However English law emphasises that’ ‘to create
a contract there must be a common intention of
the parties to enter into legal obligation’.
• In the case of Darlymple v Darlymple 1811, ‘the
court said that contract must not be sports of an
idle hour, mere matters of pleasentry and
bandinage, never intended by the parties to have
any serious what effect what woever.
• It is not every loose conversation that is to be turned into a
contract, although the parties may seem to agree.
• Balfour v Balfourch
• Lord Atkin explained ,’There are agreements between
parties which do not result in contract within the meaing of
that term in our law. The ordinary example is where two
parties agree to take a walk together, or where there is an
offer and acceptance of hospitaulity. Nobody would suggest
in ordinary circumstances that these arrangements result in
what we know as contracts and one of the most usual
forms of agreement which do not constitute a contract
appears to be arrangements which are made between
husband and wife. These arrangements do not result in
contract at all even though there may be what would
constitute consideration for the agreement. They are not
contracts because parties did not inted that they shall be
attended by legal consequences.
 Family and social matters
• The intention of the parties is naturally to b e
ascertained from the terms of the agreement and the
surrouding circumstances. It is for the court in each
case to find out whether the parties must have
intended to enter into legal obligations.
• ‘in the case of arrangements regulating social relations
it follows almost as a matter of course that the parties
do not intend legl consequences to follow. In the case
of agreements regulating business relations it equally
follows almost as a matter of course that the parties
intend legal consequences to follow.
 objectivity
• Test is subjective to determine the contractual
intention.
• Lottery case.
• Merrit v Merrit
• Husband promised to transfer the house to the
wife if she take responsibility to take care of the
house and deal with the payment of the
instalment. The wife claimed the promise to be
binding at the time of their seperation.
• The court allowed, considering the objectivity of
the promise.
 Business Matters
• Even in bussiness matters sometime parties
intend to rely on each others ‘good faith and
honour.
• For example, in English case of Rose & Frank
Co v JR Crompton, 1923
• An exhaustive agreement was drawn between one
American and two English firms for their dealings in
paper tissues. The Agreement contained the following
clause:
• ‘This agreement is not entered into as a formal legal
agreement and shall not be subject to a legal
jurisdiction in the law courts either in the US or in
England’
• The agreement was terminated by one of the parties
contrary to its terms. The American firm brought and
action for the breach. It was held that the document
did not constitute a binding contracts as there was no
intention to affect legal relations.
 Parties Consent must be freely
obtained.
• Consent not obtain freely if it involves:
• Coercion
• Undue influence
• Misrepresentation
• fraud
The object of contract must be legal
The contract must be possible to
perform
 Some thing must be exchange
between the contractual parties
(Consideration)
The terms of contract must be clearly
stated.