A contract is a binding agreement between two or more parties that usually results in some type of performance. -explain &illustrate
Every promise and every set of promises, forming the consideration for each other, is an agreement. An agreement enforceable by law is a contract. In a contract there must be -an agreement and the agreement must be enforceable by law.
A contract is a binding agreement between two or more parties that usually results in some type of performance. Without doubt, trade and commerce could not thrive if freely made agreements were not normally carried out. Contract can be viewed as a method in which men bargaining with one another can make sure that their promises will last longer than their changeable states of mind. The law of contract provides a mechanism through which private individuals can, to a certain degree, predict, control, and stabilize the future. Contracts allow people to incur reciprocal responsibilities and commitments, to make promises others can rely on, to remove some uncertainty from life, and to establish reasonable expectations for future actions.
A valid contract is binding upon the parties. It can only be modified or terminated by consent of the parties or if provided for by the law. The parties to a contract must, unless legally excused from performance, perform their respective duties under the contract. A valid unilateral promise or undertaking is binding on the party giving it if that promise or undertaking is intended to be legally binding without acceptance.
2. DEFINITION OF CONTRACT
A contract is an agreement that is enforceable by law. Modern business could not exist without such contracts. Most business transactions involve commitments to furnish goods, services, or real property; these commitments are usually in the form of contracts. Use of the contract in business affairs ensures, to some extent, the performance of an agreement, for a party that breaks a contract may be sued in court for the damages caused by the breach. Sometimes, however, a party that breaks a contract may be persuaded to make an out-of-court settlement, thus saving the expense of legal proceedings.
A contract arises when an offer to make a contract is accepted. An offer contains a promise and a request for something in return. The acceptance consists of an assent by the party to whom the offer is made, showing that the person agrees to the terms offered. The offer may be terminated in a number of ways. For example, the party making the offer may cancel it, or the party to whom the offer is made may reject it. When the party to whom the offer is made responds with a different offer, called a counteroffer, the original offer is terminated. Then the party making the original offer may accept the counteroffer.
3. CLASSIFICATION OF CONTRACT:
“Contracts may be divided into two broad classes:
a) Contracts by deed- A deed is a formal legal document signed, witnessed and delivered to affect a conveyance or transfer of property or to create a legal obligation or contract.
b) Simple contracts- Contracts which are not deeds are known as simple contracts. They are informal contracts and may be made in any way – in writing, orally or they may be implied from conduct.
Another way of classifying contracts is according to whether they are “bilateral” or “unilateral”.
a) Bilateral contracts- A bilateral contract is one where a promise by one party is exchanged for a promise by the other. The exchange of promises is enough to render them both enforceable. Thus in a contract for the sale of goods, the buyer promises to pay the price and the seller promises to deliver the goods.
b) Unilateral contracts- A unilateral contract is one where one party promises to do something in return for an act of the other party, as opposed to a promise, e.g., where X promises a reward to anyone who will find his lost wallet. The essence of the unilateral contract is that only one party, X, is bound to do anything. No one is bound to search for the lost wallet, but if Y, having seen the offer, recovers the wallet and returns it, he/she is entitled to the reward.”
4. SANCTITY OF CONTRACT:
Sanctity of Contract is a general idea that once parties duly enter into a contract, they must honor their obligations under that contract. Whereas, efficient breach theory is that parties should feel free to breach a contract and pay damages, so long as this result is more economically efficient than performing under the contract. There are two contrasting views on the value placed on contracts. One view, referred to as the “sanctity of contract” position, places an extremely high value on the promises set forth in a contract. This is the view of the “promise keepers.” Persons who hold this view believe it is tantamount to unethical or immoral behavior for a party to breach a contract without justification.
5. ESSENTIAL ELEMENTS OF CONTRACT
Agreements and contracts are two different things. It is important to know first what constitutes a contract and what constitutes an agreement. We will then study which agreements are contracts, their distinction different types of agreements and contracts. Essentials Elements of a Valid Contract:
a) Proposal and acceptance- “When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence he is said to make a proposal. The first step towards creating a contract is that one person shall signify or make a proposal or offer to the other, with a view to obtaining the acceptance of that another person to whom the offer is made. A proposal when accepted becomes a promise. When the person to whom the proposal is made signifies his assent thereof the proposal is said to be accepted. A proposal when accepted becomes a promise.”
b) “Consideration – lawful consideration with a lawful object- When at the desire of the promisor the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing something such act or abstinence or promise is called a consideration for the promise. Every contract consists of two parts –
i. Promise, and
ii. Consideration for the promise.
A promise is often made in return for a promise for example a buyer realizes the goods for the price. Price for goods is therefore, consideration here.”
c) “Capacity of parties to contract – competent parties- 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 contacting by any law to which he is subject.”
d) “Free consent- Parties to a contract must give their consent. The parties must be ad idem, for example both the parties must agree upon the same thing in the same sense. Two or more persons are said to consent when they agree upon the same thing in the same sense. Mere consent is not enough. Consent of parties must be free, for example it must not have been obtained (1) coercion, (2) undue influence, (3) fraud, (4) misrepresentation, or (5) mistake.”
e) “An agreement must not be expressly declared to be void- A void agreement is not enforceable by law. It has no legal sanctity. It does not give rise to any rights and obligations.”
f) ”Writing and Registration if so required by law- Oral contract is a valid contact. However the contract must be in writing and registered, if so required by any law, for example, gift, mortgage, sale, lease under the Transfer of Property Act 1882, Memorandum and Articles of Association of a Company under the Indian Companies Act, contracts under sub sections (10 and 3)of section 25 of the Indian Contract Act, etc. Documents specified under section 17of the Indian Registration Act, 1908, are required to be registered. No particular form of writing is required to constitute a contract. Intentions of the parties to enter into a particular contract and to give effect to it must be manifest in it, in order to constitute a valid contract.”
g) “Legal relationship- Agreements which create legal relations or are capable of creating legal relations are contracts, for example, an invitation to a dinner does not create any legal relation and therefore is not a contract.”
h) “Certainty- The terms of a contract should be clear. In other words, the contract must not be vague. Contracts which are vague cannot be enforced.”
i) “Possibility of performance- Contracts based on impossibility of performance are not valid. The contracts must be capable of being performed.”
j) “Enforceable by law- A contract in order to be valid must be enforceable by law which element distinguishes agreement and contract. It is enforceable by law it is contract otherwise it is an agreement. The aggrieved party should be able to obtain relief through law in the event of breach of contract. An agreement can also be inferred from correspondence exchanged between the parties.”
6. TERMINATION OF A CONTRACT
A contract can come to an end when all the responsibilities and obligations that arose under the contract are no longer required. All rights that may have existed do no longer exist when a contract is discharged (ended). A contract may end by the following-
a) Performance- This is the most usual way and there must be complete and exact performance by the parties involved. E.g. a two year work contract between an employer and an employee comes to an end at the end of the two years.
b) Agreement- Both parties agree to end the contract early therefore they are free from any legal obligations. E.g. A premiership player is not scoring enough goals and is under pressure from his fans. He agrees with his clubs decision to release him from his contract.
c) Frustration– Due to unforeseen circumstances, it has been deemed impossible to complete the contract. E.g. the planned Michael Jackson concerts planned to go ahead in London could not take place due to the unforeseen death of the artist.
d) Breach of Contract– A condition has been broken by one of the parties. E.g. A professional footballer fails o turn up for training and is seen partying instead.
7. FREEDON OF CONTRACT:
Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. 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 contractual freedom (liberty) to manifest the autonomy of their will as crucial.
8. NATURE AND CONTRACTUAL OBLIGATION
“The purpose of a contract is to establish the agreement that the parties have made and to fix their rights and duties in accordance with that agreement. The courts must enforce a valid contract as it is made, unless there are grounds that bar its enforcement. Statutes prescribe and restrict the terms of a contract where the general public is affected. The terms of an insurance contract that protect a common carrier are controlled by statute in order to safeguard the public by guaranteeing that there will be financial resources available in the event of an accident. The courts may not create a contract for the parties. When the parties have no express or implied agreement on the essential terms of a contract, there is no contract. Courts are only empowered to enforce contracts, not to write them, for the parties. A contract, in order to be enforceable, must be a valid. The function of the court is to enforce agreements only if they exist and not to create them through the imposition of such terms as the court considers reasonable.” However, the parties obtain less guidance and have to cope with legal uncertainty if they do not know the relevant law well enough.
“It is the policy of the law to encourage the formation of contracts between competent parties for lawful objectives. As a general rule, contracts by competent persons, equitably made, are valid and enforceable. Parties to a contract are bound by the terms to which they have agreed, usually even if the contract appears to be improvident or a bad bargain, as long as it did not result from Fraud, duress, or Undue Influence. The binding force of a contract is based on the fact that it evinces a meeting of minds of two parties in Good Faith. A contract, once formed, does not contemplate a right of a party to reject it. Contracts that were mutually entered into between parties with the capacity to contract are binding obligations and may not be set aside due to the caprice of one party or the other unless a statute provides to the contrary.”
9. CLASSIC CONCEPT OF FREEDOM OF CONTRACT:
“The classic concept of freedom of contract has embraced two ideas, which originated in liberalism: contracts are based on agreement and contracts are the outcome of free choice. The reason why contractual freedom has always been considered so important is that free and voluntary choice in exchange is a major instrument of economic efficiency.” Parties are free to exercise their individual will to vary or to determine the relative importance of a contractual term. There are no provisions on type contractual types with the exception of the contract for sales. This leaves the parties with more freedom in concluding a contract, but also more uncertainty and unpredictability as to its possible legal consequences.
“Most of the general principles of modern contract law developed in the 18th and 19th centuries under the theory of natural law and the philosophy of laissez-faire. The basic idea of this philosophy was that men had an inalienable right to own property and make their own arrangements to buy or sell or deal with such property and that the law should interfere with this right as little as possible. Law was not so concerned with the fairness of the outcome, but was more concerned with enforcing the contractual arrangements of the parties if one party defaulted in the performance of his contractual obligations.”
A contract arises when an offer to make a contract is accepted. An offer contains a promise and a request for something in return. The acceptance consists of an assent by the party to whom the offer is made, showing that the person agrees to the terms offered. The offer may be terminated in a number of ways. For example, the party making the offer may cancel it, or the party to whom the offer is made may reject it. When the party to whom the offer is made responds with a different offer, called a counteroffer, the original offer is terminated. Then the party making the original offer may accept the counteroffer. The Courts will interpret and apply the actual language used, in what is really an exercise of allocation of risk.
1. Atiyah, P. S.: An Introduction to the Law of Contract, 4th Edition, Clarendon Law Series, Clarendon Press Oxford, at p. 7.
2. Sir George Jessel, one of the greatest judges of the time, declared in 1875 that: Printing and Numerical Registering Co v. Sampson (1875) LR 19 Eq at 465.
3. Act no. 40/1964 Coll., the Civil Code, as amended.
4. Act no. 513/1991 Coll., the Commercial Code, as amended.
5. Sala?ová, M.: Nepojmenované smlouvy. Právní rozhledy 7/1996. Praha, at p. 308.
6. Pelikánová, I., a kolektiv: Obchodní právo. 2003. II. díl. 2. p?epracované vydání. ISBN 80-85963-59-0, at p. 167.
7. Section 266 of the Commercial Code.
8. Canada Steamship Lines Ltd. v. The King  A.C. 192 and Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd.  A.C. 576 in the Privy Council; and innumerable cases in the Court of Appeal, culminating in Levison v. Patent Steam Carpet Cleaning Co. Ltd.  Q.B. 69.
9. Gibaud v. Great Eastern Railway Co.  2 K.B. 426 ; Alderslade v Hendon Laundry Ltd.  K.B. 189 and Gillespie Bros. & Co. Ltd. v Roy Bowles Transport Ltd.  Q.B. 400.
 Atiyah, P. S.: An Introduction to the Law of Contract, 4th Edition, Clarendon Law Series, Clarendon Press Oxford, at p. 7.