“A contract is an agreement that can be enforceable by law”Explain.


Freedom of contract is the dominant ideology of contract law. Parties should be as free as possible to make agreements on their own terms without the interference of the courts or Parliament. Their agreements should be respected, upheld, and enforced by courts. Both Czech and English law consider the principle of parties’ equality and contract action l freedom (liberty) to manifest the autonomy of their will as crucial.

This article examines the conflict between contractual freedom and contractual justice as they have developed in the two different legal systems. Contractual freedom can be construed from two different perspectives. The first is the freedom to enter into a contract. This fundamental freedom is limited in both legal systems by the obligation to contract and by the prohibition to exert any illegitimate pressure. The second is the freedom of the parties to freely negotiate the rules of the contract. This freedom is restrained by virtue of standard business terms, adhesion contracts and, most importantly, legal limits. The justification of such legal limits lies in the fact that the freedom of contract is not a sufficient tool to guarantee fairness, as the parties often have an unequal bargaining position. Consequently, the classic liberal approach to contractual freedom has been modified by concept of material contractual justice.

Valid Contract

Essentials of a valid contract. A contract is an agreement that can be enforceable by law.   An agreement is  an offer and its acceptance.  An agreement which can be enforceable by law must have some essential elements. According to Section 10 “All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void” As per a contract must have the following elements:

  1. Intention to create legal relationship
  2. Lawful Object
  3. Proper offer and it s acceptance
  4. Capacity of parties to contract
  5. Legal formalities
  6. Consideration
  7. Consent[1]

Intention to create legal relationship: The parties entering into a contract must have an intention to create a legal relationship. If  there is no intention to create a legal relationship, that agreement cannot be treated as a valid contract. Generally there is no intention to create a legal relationship in social and domestic agreements. Invitation for lunch does not create a legal relationship. Certain agreements and obligation between father and daughter, mother and son and husband and wife does not create a legal relationship. An agreement wherein it is clearly mentioned that “This agreement is not intended to create formal or legal agreement and shall not be subject to legal jurisdiction in the law of courts.” cannot be treated as a contract and not valid.

Lawful Object: The objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract. A  rents out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract. Therefore the consideration as well as the object of the agreement should be lawful.

Proper offer and it s acceptance: To create a valid contract, there must be two or more parties. One who makes the offer and the other who accepts the offer. One person cannot make an offer and accept it. There must be at least two persons. Also the offer must be clear and properly communicated to the other party. Similarly acceptance must be communicated to the other party and the proper and unconditional acceptance must be communicated to the offered. Proper offer and proper acceptance should be there to treat the agreement as a contract which is enforceable by law.

Capacity of parties to contract: Parties entering into an agreement must be competent and capable of entering into a contract. If “A” agrees to sell a Government property to B and B agrees to buy that property, it could not treated as a valid agreement as A is not authorized or owner of the property. If any of the party is not competent or capable of entering into the agreement, that agreement cannot be treated as a valid contract. According to Section 11 of the Act which says that every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. So it is clear that the party must be of sound mind and of age to enter into a valid agreement which can be treated as a valid contract.

Legal formalities: The contract act does not insist that the agreement must be in writing, it could be oral. But, in some cases the law strictly insist that the agreement must be in writing like agreement to sell immovable property must be in writing and should be registered under the Transfer of Property Act, 1882. These agreement are valid only when they fulfill the formalities like writing, registration, signing by the both the parties are completed. If these legal formalities are not completed, it cannot be treated as a valid contract. etc. Most important essentials of a valid contract are mentioned above. These elements should be present in a contract to make it a valid contract. If any one of them is missing we cannot treat that agreement as a valid contract.

Consideration: Consideration is the price paid for the promise of the other party. The price must be something of value, although it need not be money. Consideration may be some right, interest or benefit going to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party.

So long as consideration exists, the court will not question its adequacy, provided that it is of some value. For example, the promise to pay a peppercorn in return for the lease of a house would be good consideration. Of course, the consideration must not be illegal or impossible to perform. There is an exception to the rule: documents under seal (deeds) do not require consideration for there to be a binding contract. However, since few contracts between people are made in this[2]

Consent: Entering into a contract must involve the elements of free will and proper understanding of what each of the parties is doing. In other words, the consent of each of the parties to a contract must be genuine. Only where the essential element of proper consent has been given is there a contract which is binding upon the parties. The ultimate consequences of establishing that no proper consent was given to enter the contract are matters dealt with when considering remedies for breach of contract (see: Chapter 12*4 Consumer Remedies).

Proper consent may be affected by any of the following matters:

  • mistake;
  • false statements;
  • duress; and
  • undue influence/unconscionability.

way, it is not discussed further in this chapter.


Another example is when a person signs a written document mistakenly believing that it relates to something entirely different from what in fact it does relate to, in this case the person will not be bound by it. This means that if X is told to sign a document which X reasonably believes to be something like a character reference to assist Z to obtain a loan from a finance company, and the document is later discovered to have been a guarantee of the loan contract, then the guarantee will not be binding on X.

A third example is when Y cannot read, due to blindness or illiteracy or other disability. Someone else tells Y what is in the document and Y signs it. The document Y signed is not what Y was told it was. The document Y signed would not be binding on Y.

By contrast, if a person who signs a document believing it to be a contract does not read the terms and conditions that person will be bound by the contract and will not be entitled to plead mistake[3].

Other factors may also be relevant to a successful plea of mistake. For instance, whether or not the defence of mistake will be allowed often depends on whether an innocent third party will be adversely affected by a decision that the contract is non-binding. Again, if the signer was careless and failed to take reasonable precautions, the defence will not be allowed to succeed. For these reasons, it is wise to seek legal advice about whether or not a court would hold the contract binding on these grounds.


There are serious false statements and minor false statements that might be made by parties contracting with each other. Different consequences flow, depending on the seriousness of the false statement made.

False statements might be made where either:

  • the parties come to agree and contract because one of them has been motivated to agree by a statement of fact (something said or written) that is not true. Commonly, these types of statements have not actually been included in the contract itself but were an encouragement to enter into the contract. For this reason, they are viewed as though they were part of the contract; and/or
  • the parties have agreed and there is a contract, but the statements or terms in the contract exist only because one of the parties has made a false statement.

False statements affect the question of whether or not a contract exists. Very serious false statements mean a court would view the contract as void (see: Glossary) and unenforceable. The consequence is that monetary damages sufficient to place the wronged party back to their original position must be paid.

In other (less serious) instances, the court will find the contract valid but the wronged party will be entitled to reject the contract or to treat it as at an end. Here, monetary damages sufficient to place the wronged party in the position they would have been in, had the contract been properly completed, must be paid.

Where a false statement has put the wronged party at a disadvantage or caused some loss, but not enough damage has been done to justify ending the contract, then the contract will be valid and the wronged party will be bound to the contract, but entitled to sufficient monetary damages to make up for the loss suffered as a consequence of the false statement.

The two most important factors considered to determine the level of seriousness at which a false statement will be viewed are as follows.

The false statement: a condition or a warranty

“Conditions” of a contract are so important that without them one or other of the parties would not enter the contract. If a false statement amounts to a condition of the contract, the wronged party is entitled to rescind (see: Glossary) the contract. A court may view the condition so seriously that without it the contract is void; that is, with the false statement taken out of the contract, there is no contract[4].

Less important statements are called “warranties”. Where the false statement amounts to a warranty, the wronged party will only be permitted to receive sufficient monetary damages to make up for any loss suffered; the contract will continue to exist and the parties will continue to be bound by it.

For further details about conditions and warranties, see: The terms of a contract“, below.

There are three types of false statements:

  • fraudulent misrepresentation;
  • innocent misrepresentation; and
  • Negligent misrepresentation.

Fraudulent misrepresentation

To prove fraud, it is necessary to show that the person making the statement knew it was false, had no belief in its truth, or knew it might be false and recklessly went ahead and made it anyway, not caring whether it was true or false. It is very difficult to prove fraud. Once proved, however, the innocent party can rescind the contract, sue for damages for deceit, or both.

Innocent misrepresentation

An innocent misrepresentation will be made where the false statement is made with no intention to deceive. An innocent misrepresentation could nevertheless be a serious false statement (being a condition of the contract), or a breach of warranty. The level of seriousness will be determined by an appraisal of all the circumstances of the contract. If innocent and without negligence, the only available remedy is rescission[5].

Negligent misrepresentation

A negligent misrepresentation will arise where a party to the contract is under a special duty of care to the other party. This special relationship will be held to exist where the person making the false statement claimed to have some special skill not generally possessed by an ordinary member of the community, and where that person was prepared to exercise this special skill on behalf of the person to whom the false statement was made. The wronged party must be able to show that:

  • the person making the false statement could reasonably be expected to foresee that the false statement would be relied upon;
  • in the circumstances it was reasonable to rely on the statement;
  • the statement was made without due care; and
  • the statement was false.

Once again, the level of seriousness of a false statement made in these circumstances can vary. Where there is a serious breach, the innocent party can rescind the contract and recover damages for negligence.


Proper consent may be affected by duress. Duress is held to have occurred where there has been actual or threatened violence either to the other contracting party directly or to their immediate family, near relatives or close associates. The duress may be made by someone acting under the instructions of the party to the contract. The net effect, though, will have been that a party has been forced into the contract by being deprived of their free will to act.

Duress now extends to contracts entered into as a result of threats to a party’s economic well being, that is, a threat to a person’s business or trade. This form of duress is called economic duress.

The consequence of establishing duress is often that the contract is voidable at the election of the wronged party. Where the wronged party elects to have the contract declared void, monetary damages sufficient to place the wronged party in their original position must be paid. Where the wronged party elects to continue with the contract, monetary damages to cover any loss suffered because of the duress must be paid[6].


Proper consent may be affected by undue influence. Undue influence is exercised by taking unfair and improper advantage of the weakness of the other party, to the extent that it cannot be said that that party intended voluntarily to enter into the contract. The main reason for the rule against the use of undue influence is to correct abuses of trust and confidence. It is applied where the parties are in a relationship where one party may be able to exercise considerable influence over the other party.

There are two categories of undue influence.

The first is where no special relationship exists, but the stronger party will have used some fraud or wrongful act expressly to gain an advantage from the weaker party. The weaker party will have to prove that undue influence was actually exerted.

The second is where the parties are in a confidential relationship; most cases of undue influence fall into this category. A confidential relationship exists when one party’s position towards the other’s involves a dependency or trust, in the form of authority or an expectation to give fair and independent advice to the weaker party. Where a confidential relationship is found to exist, a presumption of undue influence will arise. It is then necessary for the stronger party to show that the contract was not the result of any undue influence.

A confidential relationship and the presumption of undue influence can be established in either of two ways.

First, the parties may be in a well recognised special relationship, for example, solicitor and client, doctor and patient, religious or spiritual adviser and devotee.

Second, the confidential relationship, although not falling within any well recognised relationship, is such that the complaining party is able to show that the other party was in a position of influence. For example, it could be the relationship between a bank and its customer, because of a special position of trust that the bank had come to occupy in connection with the conduct of this customer’s affairs. (It has been stressed, however, that in ordinary circumstances no presumption of undue influence arises out of a banker-customer relationship.)

 Conclusion: The law will not enforce all contracts. There are some categories of contract to be wary of. Where a contract is illegal, this may affect its enforceability. Contracts that are illegal by statute will be regulated as to enforceability by the statute; thus the statute will need to be read and interpreted. Contracts absolutely prohibited by statute will be void, whether the parties know of the illegality or not. However, where one party performs an otherwise legal contract in a manner that breaches legislation, the other party, if having no knowledge of the facts giving rise to the illegality, can still enforce the contract or recover damages for breach of it. They may also recover money or other property transferred under the contract.

Contracts made void by statute are treated differently; while they remain valid contracts, the courts will not enforce them. Again, the precise extent of the enforceability of, or the recovery of any money paid under, a void contract will depend on the particular statute.

Certain types of contracts are illegal at common law, because they are contrary to the public good. These include contracts:

  • to commit a crime, a tort or a fraud;
  • which are sexually immoral;
  • which prejudice public safety, including good relations with other states or countries;
  • which prejudice the administration of justice;
  • which tend to promote corruption in public life; and
  • to defraud the revenue.

Illegally formed contracts are generally void and unenforceable by either party at common law. Therefore, property or money transferred cannot be recovered.

Where legally formed contracts are performed in an illegal manner (i.e. the illegal conduct was not an intended or required part of the contract but merely incidental to the way it happened to be performed) then the contract is not void, but:

  • no remedies are available to the guilty party; and
  • the innocent party retains all rights and remedies (provided they did not know the contract was to be performed illegally).

The general rule is that the contract is void only so far as it is contrary to the public good; it is not void entirely. That is, the offending part can be removed provided that the rest of the contract continues to make sense. However, contracts illegal at common law are not “severable”; that is, the “illegal” parts of the contract cannot be removed or severed from the “legal” parts. Money paid or property transferred under a contract that is void at common law may be recoverable because the effect of the contract being void is that there is no contract, so that the parties should be put back to their original position[7].



  1. Ahammed .M ;commercial business law
  2. The book of sima
  3. The Indiana contract act: Mullah
  4. www.wikilipedia.com
  5. www.youcanwin.com

[1] www.youcanwin.com.

[2] [Pollock & mulla by Indian contract page no188 ] http://review.society.cz/index.php?Itemid=2&id=36&option=com_content&task=view

[3] http://labspace.open.ac.uk/mod/oucontent/view.php?id=426564&section=1.5

 [4] The book of sima.

[5] see: Glossary for meaning.

[6] ( http://en.wikipedia.org/wiki/Freedom_of_contract)


[7] The book of India law of contract :mullah and the book of M. Ahammed.