“Law of Contract is professed as a set of power-conferring rules which make possible individuals to enter into agreements”.-illustrate and evaluate
Introduction
A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally. The remedy for breach of contract can be “damages” or compensation of money. In equity, the remedy can be specific performance of the contract or an injunction. Both of these remedies award the party at loss the “benefit of the bargain” or expectation damages, which are greater than mere reliance damages, as in promissory estoppel. The parties may be natural persons or juristic persons. A contract is a legally enforceable promise or undertaking that something will or will not occur. The word promise can be used as a legal synonym for contract, although care is required as a promise may not have the full standing of a contract, as when it is an agreement without consideration.
“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.” From the above definition of promise, it is obvious that an agreement is an accepted proposal. The two elements of an agreement are:
(i) Offer or a proposal; and
(ii) An acceptance of that offer or proposal.
What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy.
Thus, a contract consists of two elements:
(i) An agreement; and
(ii) Legal obligation, i.e., it should be enforceable at law.
However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts.
Examples
(1) An 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 has no remedy against A. In case A is present in the restaurant but B fails to turn-up, then A has no remedy against B.
Before entering into a contract, various statements will often be made by one party in order to encourage or induce the other party to enter into the contract. A dispute may later arise as to which of the statements made should be considered a part, or a term, of the contract, and which should be taken as merely pre-contract talk, and therefore not a part or term of the contract. Parties to a contract are bound only by its terms, not by any peripheral statements that may have been made.
The courts can look at evidence of intention by one or other of the parties that the statement should be part of the contract. For example, the longer the interval is between the making of the statement and the reaching of the final agreement and contract, the less likely it is that the statement will be considered to be a term of the contract.
The fact that the maker of the statement had a special knowledge or skill compared with the other party will make the statement more likely to be a term, where the agreement was subsequently reduced to writing and the statement was not included; it is less likely to be a term.
See Buxani v. Nussbaum, 940 S. W. 2d 350, 352 (Tex App.-San Antonio 1997, no writ); and Hallmark v Hand, 885 S.W.2d 471, 476 (Tex.App.-El
Paso 1994, writ denied): see also McCulley Fine Arts Gallery, Inc. v “X” Partners, 860 S.W.2d 473, 477 (Tex. App. – El Paso, 1993, no writ).
ii See Roark v. Stallworth Oil and Gas Inc., 813 S.W.2d 492,496 (Tex. 1991); and see also Federal Sign v. Texas Southern University, 951 S.W.2d
401,408 (Tex. 1997) rehearing of cause overruled (Oct 02, 1997).
iii Restatement (Second) of Contracts §24 (1981).
iv Restatement (Second) of Contracts §50 (1) (1981).
v United Concrete Pipe Corp. v Spin-Line Co., 430 S.W.2d 360, 364 (Tex. 1968).
vi Antonini v. Harris County Appraisal Dist. 999 S.W.2d 608, 611 (Tex.App.-Houston [14th Dist] 1999, no pet.)
vii Weynand v Weynand, 990 S.W.2d 843, 846 (Tex. App.-Dallas 1999, pet. denied).
viii Copeland v Alsobrook, 3 S.W.2d 598, 604 (Tex. App. – San Antonio 1999, pet. denied).
ix Wiley V. Bertelson, 770 S.W.2d 878,882 (Tex. App.-Texarkana 1989, no writ).
x Gulf Coast Farmers Co-op v. Valley Co-op Oil Mill. 572 S.W.2d 726, 737(Tex. Civ. App. – Corpus Christi 1978, no writ).
ELEMENTS OF A VALID CONTRACT
Agreement
As already mentioned, to constitute a contract there must be an agreement. An agreement is composed of two elements—offer and acceptance. The party making the offer is known as the offeror, the party to whom the offer is made is known as the offeree. Thus, there are essentially to be two parties to an agreement. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem. Thus, where ‘A’ who owns 2 cars x and y wishes to sell car ‘x’ for Rs. 30,000. ‘B’, an acquaintance of ‘A’ does not know that ‘A’ owns car ‘x’ also. He thinks that ‘A’ owns only car ‘y’ and is offering to sell the same for the stated price. He gives his acceptance to buy the same. There is no contract because the contracting parties have not agreed on the same thing at the same time, ‘A’ offering to sell his car ‘x’ and ‘B’ agreeing to buy car ‘y’. There is no consensus-ad-idem.
Intention to create legal relationship
As already mentioned there should be an intention on the part of the parties to the agreement to create a legal relationship. An agreement of a purely social or domestic nature is not a contract. Example:- A husband agreed to pay £30 to his wife every month while he was abroad. As he failed to pay the promised amount, his wife sued him for the recovery of the amount. Held: She could not recover as it was a social agreement and the parties did not intend to create any legal relations [Balfour v. Balfour (1919)2 K.B.571]. However, even in the case of agreements of purely social or domestic nature, there may be intention of the parties to create legal obligations. In that case, the social agreement is intended to have legal consequences and, therefore, becomes a contract. Whether or not such an agreement is intended to have legal consequences will be determined with reference to the facts of the case. In commercial and business agreements the law will presume that the parties entering into agreement intend those agreements to have legal consequences. However, this presumption may be negative by express terms to the contrary. Similarly, in the case of agreements of purely domestic and social nature, the presumption is that they do not give rise to legal consequences. However, this presumption is rebut table by giving evidence to the contrary, i.e., by showing that the intention of the parties was to create legal obligations.
Free and genuine consent
The consent of the parties to the agreement must be free and genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mistake. If the consent is obtained by any of these flaws, then the contract is not valid.
Parties competent to contract
The parties to a contract should be competent to enter into a contract. According to Section 11, every person is competent to contract if he (i) is of the age of majority, (ii) is of Sound mind, and (iii) is not disqualified from contracting by any law to which he is subject. Thus, there may be a flaw in capacity of parties to the contract. The flaw in capacity may be due to minority, lunacy, idiocy, drunkenness or status. If a party to a contract suffers from any of these flaws, the contract is unenforceable except in certain exceptional circumstances.
Lawful consideration
The agreement must be supported by consideration on both sides. Each party to the agreement must give or promise something and receive something or a promise in return. Consideration is the price for which the promise of the other is sought. However, this price need not be in terms of money. In case the promise is not supported by consideration, the promise will be a bare promise and is not enforceable at law. Moreover, the consideration must be real and lawful.
Lawful object
The object of the agreement must be lawful and not one which the law disapproves.
Agreements not declared illegal or void
There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable at law.
Certainty of meaning
The meaning of the agreement must be certain or capable of being made certain otherwise the agreement will not be enforceable at law. For instance, A agrees to sell 10 metres of cloth. There is nothing whatever to show what type of cloth was intended. The agreement is not enforceable for want of certainty of meaning. If, on the other hand, the special description of the cloth is expressly stated, the agreement would be enforceable as there is no uncertainly as to its meaning. However, an agreement to agree is not a concluded.
Possibility of performance
The terms of the agreement should be capable of performance. An agreement to do an act impossible in itself cannot be enforced. For instance, A agrees with B to discover treasure by magic. The agreement cannot be enforced.
Necessary legal formalities
A contract may be oral or in writing. If, however, a particular type of contract is required by law to be in writing, it must comply with the necessary formalities as to writing, registration and attestation, if necessary. If these legal formalities are not carried out, then the contract is not enforceable at law.
See
Runnells v. Firestone 746 S.W.2d 845, 849 (Tex. App. – Houston [14th Dist.] 1988), writ denied per curiam, 870 S.W.2d 240 (Tex. 1988).
Copeland, 3 S.W.3d at 605
T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992).
Komet v. Graves, 40 S.W.3d 596, 602 (Tex. App.-San Antonio 2001, no pet.); Hardin Constr. Group, Inc. v Strictly Painting, Inc. 945 S. W. 2d
308, 313 (Tex App. – San Antonio 1997, orig. proceeding): Texas Oil Co. v. Tenneco Inc., 917 S.W.2d 826, 830 (Tex. App.-Houston [14th Dist.]
1994), rev’d on other grounds sub nom. Morgan Stanley & Co., Inc. v. Texas Oil Co., 958 S.W.2d 178 (Tex. 1997).
T.O. Stanley Boot Co., 847 S.W.2d at 221; Scott v. Ingle Bros. Pac., Inc. 489 S.W. 2d 554, 555 (Tex. 1972); Texas Oil Co, 917 S.W.2d at 830;
Komet, 40 S.W.3d at 602.
Texas Oil Co, 917 S.W.2d at 830.
T.O. Stanley Boot Co. v Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992).
Fort Worth Indep. Sch. Dist. V. City of Fort Worth, 22 S.W.3d 832, 846 (Texas. 2000) (quoting Texas Oil Co. Tenneco Inc., 917 S.W. 2d 826,
830 (Tex. App.-Houston [14th Dist] 1994), rev’d on other grounds, 958 S.W.2d 178 (Tex. 1997)).
T.O. Stanley Boot Co., 847 S.W.2d at 221.
Scott v. Ingle Bros. Pacific., Inc., 489 S.W.2d 554, 555 (Tex. 1972); City of Fort Worth v. Gene Hill Equip. Co., 761 S.W.2d 816, 820 (Texas.App.-
Dallas, 1991).
The teams of a contract
Before entering into a contract, various statements will often be made by one party in order to encourage or induce the other party to enter into the contract. A dispute may later arise as to which of the statements made should be considered a part, or a term, of the contract, and which should be taken as merely pre-contract talk, and therefore not a part or term of the contract. Parties to a contract are bound only by its terms, not by any peripheral statements that may have been made.
The courts can look at evidence of intention by one or other of the parties that the statement should be part of the contract. For example, the longer the interval is between the making of the statement and the reaching of the final agreement and contract, the less likely it is that the statement will be considered to be a term of the contract.
The fact that the maker of the statement had a special knowledge or skill compared with the other party will make the statement more likely to be a term, where the agreement was subsequently reduced to writing and the statement was not included; it is less likely to be a term.
Terms may be conditions or warranties
Contracts will always contain different types of terms (said or written), some more important than others. The more important terms are called “conditions”, the less important terms are called “warranties”.
Conditions are so important that without them one or other of the parties would not enter into the contract. Consequently, to make a condition falsely, or to breach a condition, is viewed so seriously that the wronged party will be entitled to treat the contract as <href=”#id4594224″ title=”Of no legal effect.”>void, <href=”#id4594234″ title=”An agreement (or other act) which either of the parties is entitled to rescind (see: rescission), and which until that happens has full legal effect. There are certain restrictions on the view of what is (and is not) voidable that require advice from a la”>voidable or at least <href=”#id4592686″ title=”Revoked or cancelled.”>rescinded.
Where the term is a <href=”#id4594393″ title=”(1) A minor clause in a contract, the remedy for breach of which is damages for any loss. (2) A promise to repair or replace defective goods.”>warranty, the wronged party will only be able to seek monetary <href=”#id4371698″ title=”A court order for money to be paid as compensation for a loss suffered as a result of a civil wrong or breach of contract.”>damages for any loss suffered. The contract itself will remain binding on both parties.
The court looks at each case on its own merits. In making a decision as to whether a term is a condition or a warranty, the court will consider all the surrounding circumstances, including the seriousness of the consequences if the contract is held to be non-binding, and the intentions of the parties at the time they made the contract.
Just because a term is described in the contract or by the parties as a condition or warranty does not necessarily mean that it will be regarded as such by the court.
The law of contract has been significantly affected by many Acts of Parliament to protect consumers. No longer can the <href=”#id4370972″ title=”The part of English law traditionally based on common custom and being unwritten. Law which is not equity (q.v.), statute (q.v.), ecclesiastical (church), or civil (i.e. Roman).”>common law of contract be looked at to discover all the terms of a contract and whether those terms are conditions or warranties. There are various Acts of Parliament that provide for minimum standards of trade behavior and the standard of quality that the consumer ought to be able to expect.
Exclusion of responsibility terms
It is possible to have a term in the contract which excludes one of the parties from responsibility for something that may go wrong in the performance of the contract or limits that responsibility. It is called an <href=”#id4589267″ title=”A clause in a contract which attempts to exclude or avoid liability (q.v.).”>exclusion clause or an exemption clause. For example, an exclusion from <href=”#id4590660″ title=”Legal responsibility, e.g. for breaking a contract, committing a crime. It may be civil (q.v.) or criminal, and is enforced by civil or criminal courts.”>liability for damage done to the lawn by a builder’s backhoe might be included in a contract between the builder and a home owner who is having an extension built to their home.
The courts have generally taken the view that exclusion clauses are unfair and have tried to limit their application. Courts will generally interpret the exclusion clause against the party trying to rely on it and, at the least, interpret it narrowly.
Where a contract is a document signed by the parties, they will generally be bound by the exclusion clause in it.
Where a contract is an unsigned document e.g. tickets, receipts and dockets, the court will look at what a reasonable person would assume the document to be. Only where a reasonable person would assume the document to be part of the contract between the parties will the exclusion clause in the document be able to be relied on. It must also be shown that the exclusion clause was brought to the notice of the other party. For example, if an automatic ticket machine in a car park had printed on it “issued subject to the conditions displayed in car park” and these conditions, or exclusion clauses, were on a pillar opposite the ticket machine, then this could potentially be held to be unreasonable notice. The driver may then be entitled to <href=”#id4593602″ title=”To take legal action.”>sue despite the exclusion clause in the conditions.
Conclusion
It is left to the parties to determine whether or not the consideration is adequate; only the parties can judge whether or not it is a good bargain. The law only requires that there be sufficient consideration; something of value must be given. The consideration cannot be something given or promised in the past. To be valid, the consideration must be a new promise or some fresh benefit exchanged for the offer. This is subject to the courts refusing to enforce an alleged contract where the consideration is as inadequate as to raise suspicions of fraud or to make the contract unconscionable.
In general then, as long as the basic elements of an offer and acceptance with consideration are present, the parties have a valid and binding contract. There is no requirement that the contract be in writing except in certain special situations such as the sale of land. The problem is that if the verbal exchanges of the parties are to be relied upon, it may prove difficult and in some cases impossible to determine precisely the terms of the contract if there in fact is a contract. If the court cannot with reasonable certainty determine the terms that the parties have agreed to, the court cannot enforce the alleged contract. It is for this reason that it is wiser to have a contract in writing although writing itself is no assurance that the alleged contract is clear and precise.
Reference
Buxani v. Nussbaum, 940 S. W. 2d 350, 352 (Tex App.-San Antonio 1997, no writ); and Hallmark v Hand, 885 S.W.2d 471, 476 (Tex.App.-El
Paso 1994, writ denied): see also McCulley Fine Arts Gallery, Inc. v “X” Partners, 860 S.W.2d 473, 477 (Tex. App. – El Paso, 1993, no writ).
ii See Roark v. Stallworth Oil and Gas Inc., 813 S.W.2d 492,496 (Tex. 1991); and see also Federal Sign v. Texas Southern University, 951 S.W.2d
401,408 (Tex. 1997) rehearing of cause overruled (Oct 02, 1997).
iii Restatement (Second) of Contracts §24 (1981).
iv Restatement (Second) of Contracts §50 (1) (1981).
v United Concrete Pipe Corp. v Spin-Line Co., 430 S.W.2d 360, 364 (Tex. 1968).
vi Antonini v. Harris County Appraisal Dist. 999 S.W.2d 608, 611 (Tex.App.-Houston [14th Dist] 1999, no pet.)
vii Weynand v Weynand, 990 S.W.2d 843, 846 (Tex. App.-Dallas 1999, pet. denied).
viii Copeland v Alsobrook, 3 S.W.2d 598, 604 (Tex. App. – San Antonio 1999, pet. denied).
ix Wiley V. Bertelson, 770 S.W.2d 878,882 (Tex. App.-Texarkana 1989, no writ).
x Gulf Coast Farmers Co-op v. Valley Co-op Oil Mill. 572 S.W.2d 726, 737(Tex. Civ. App. – Corpus Christi 1978, no writ).
Runnells v. Firestone 746 S.W.2d 845, 849 (Tex. App. – Houston [14th Dist.] 1988), writ denied per curiam, 870 S.W.2d 240 (Tex. 1988).
Copeland, 3 S.W.3d at 605
T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992).
Komet v. Graves, 40 S.W.3d 596, 602 (Tex. App.-San Antonio 2001, no pet.); Hardin Constr. Group, Inc. v Strictly Painting, Inc. 945 S. W. 2d
308, 313 (Tex App. – San Antonio 1997, orig. proceeding): Texas Oil Co. v. Tenneco Inc., 917 S.W.2d 826, 830 (Tex. App.-Houston [14th Dist.]
1994), rev’d on other grounds sub nom. Morgan Stanley & Co., Inc. v. Texas Oil Co., 958 S.W.2d 178 (Tex. 1997).
T.O. Stanley Boot Co., 847 S.W.2d at 221; Scott v. Ingle Bros. Pac., Inc. 489 S.W. 2d 554, 555 (Tex. 1972); Texas Oil Co, 917 S.W.2d at 830;
Komet, 40 S.W.3d at 602.
Texas Oil Co, 917 S.W.2d at 830.
T.O. Stanley Boot Co. v Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992).
Fort Worth Indep. Sch. Dist. V. City of Fort Worth, 22 S.W.3d 832, 846 (Texas. 2000) (quoting Texas Oil Co. Tenneco Inc., 917 S.W. 2d 826,
830 (Tex. App.-Houston [14th Dist] 1994), rev’d on other grounds, 958 S.W.2d 178 (Tex. 1997)).
T.O. Stanley Boot Co., 847 S.W.2d at 221.
Scott v. Ingle Bros. Pacific., Inc., 489 S.W.2d 554, 555 (Tex. 1972); City of Fort Worth v. Gene Hill Equip. Co., 761 S.W.2d 816, 820 (Texas.App.-
Dallas, 1991).
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