A valid contact is a legally binding agreement, between two parties, which agreement may be evidenced by writing, words or action Discuss this concept in regard essentials necessary for the formation of a valid contract
1. Introduction :
Now-a-days Law affects every aspect of human life, in its broadest sense. “The word law includes the forces of nature that determine the physical environment in which each individual will live and the moral laws that regulate how the individual must behave when dealing with other people.
Law is the command of the sovereign, which means it has its source in sovereign authority, law is accompanied by sanctions and the command to be a law should compel a course of conduct being a command the law must flow from a determinate person or group of persons with the threat of displeasure if it is not obeyed. Sovereignty is however only a part of the state, so in ultimate sense, law emanates from the state. Thus the term law is used to denote rules of conduct emanated from and enforced by the state. People living in an organized society have to follow certain common rules, otherwise peaceful living is impossible. It is all the physical, moral and governmental form of a legal system.
According to Holland “Law is a rule of external human action enforced by the sovereign political authority” From this definition it follow that there are three essential characteristics of law.
1. Law is a rule relating to the action of human beings.
2. Law attempts to regulate the external action of human being.
3. Law is enforced by the state.
According to salmond “Law is the body of principles recognized and applied by the state in the administration of justice”.
So Law is a general word use by different people to communicate idea and law is a rule prescribed by some authority to regulate human action.
 See Honnold. J. ‘ Buyer’s Right of Rejection: A Study in the Impact of Codification upon a Commercial Problem’ (Mar., 1949), University of Pennsylvania Law Review, Vol. 97, No. 4 pp. 457-481, at 457, footnote 1.
2. Rule of Law :
The rule of law being from the concept if equality of all persons. That means apply the same law over all persons in the state and give all persons equal rights and privileges for the protection of their human liberties.
The rule of law states that “No man is punishable or can be lawfully made to suffer in body or goods except for a distinct breach of law established in the ordinary legal manner before the ordinary courts”.
In other word’s there must be supremacy of law, the breach of law must be proved in a duly constitute court of law. Thus the rule of law implies equal protection of law.
Rule of law also state that “no man is above law”. Every man whatever his rank or condition, is subject to the ordinary law of the state. And amenable to the jurisdiction of ordinary tribunal that means legal right and legal obligation must hold equally as for all citizen.
Finally rule of law is the result of states and judicial decisions determining the rights of private persons. Thus the constitution law of the country follows from the ordinary law of the land.
3. Commercial law and contract :
Now the law of the country related the money object, Example- Inheritance and transfer of property relationship between persons, crimes and their punishment, as well as matters relating to industry, trade and commerce.
The law of contract is the most important part of commercial law because every commercial transaction starts from an agreement between two persons.
Section 2(h) of the Indian contract act provides that “an agreement enforceable by law is a contract”. There fore in a contract there must be an agreement and the agreement must be enforceable by law.
An agreement comes into existence whenever one or more person’s promises, forming the consideration for each other, is an agreement. Some agreements cannot be enforced through the court of law, Example- An agreement to play cards or go to cinema. An agreement, which can be enforce through the court of law is called contract.
According to Salmond “A contract is an agreement creating and defining obligation between the parties”
According to Sir William Anson, “A contract is an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.
The object of the law of contract is to introduce definite in commercial and other transaction. These can be illustrated by an example- X enter into a contract to deliver to toms of coals of Y on a certain date. Since such a contract is enforceable by the court, Y can plan his activities on the basis of getting the coal on the fixed date. If the contract is broken Y will get damages from the court and will not suffer any loss.
Sir William Anson observes as follows, “As the law relation to property had its origin in the attempt to ensure that what a man has lawfully acquired he shall retain, so the law of contract is intended to ensure that what a man has been led to expect shall come to pass, and that what has been promised to his shall be performed”.
4. Contract and Individual competency :
A valid contact is a legally binding agreement, between two parties, which agreement may be evidenced by writing, words or action. Three essential elements must be present here namely-
- An intention to create legal relations.
It is almost invariably the case that the two parties to a contract bring different levels of bargaining power with them. A contract may be made between a large retail company and an individual. For example- In such cases the agreement is likely to be in the form of a standard form contract, prepared by the dominant party and which the other party has no choice but to take or leave.
Generally speaking the law will not wish to restrict or interfere with the ability of contractual parties to decide weather or not to enter into contract and it called the terms “Freedom of contract”. However it will often intervene where one party seeks an unfair advantage as a result of his superior bargaining position.
Such intervention will be made by the courts or by legislation. Thus, for example, the sale of good Act implies terms into a contract which impose obligations on the business seller as to the quality and fitness for purpose of the good he sells. Likewise the consumer credit Act affords the customer protection where he enters into credit agreements. In respect of exchesion
Clauses, in which typically the stronger party seeks to avoid liability, the unfair contract terms Act may result in such a clause being void outright or void if the court considers it to be unreasonable.
5. Relationship between essential elements of contract and Individual competency :
There are certain elements that must be present for a legally binding contract. Now we demonstrated here the relationship between the Individual competency and the essential elements.
5.1 Agreement :
The formation of an agreement is the first part of the making of the contract. Section 2(c) of contract Act 1872 defines agreement as “every promise and every set of promises forming the consideration for each other”. Thus the definition of an agreement divides itself into two elements
Section 2 (b) define a promise as “a proposal when it is accepted”. Here also a promise breaks up into two elements namely
When a person signifies to another his willingness to do or to 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
Thus for the formation of a contract, It is necessary that one part make proposal and other part accept it .
So, here we see that to be a promise it must be accepted by the other party. Which ensure the power conferring rules which enables individuals to enter into agreement of their own choice.
(ii). Consideration :
The law will not enforce a contract unless a contract unless it is made with consideration e.m. for value and the parties treat it as a bargain. Simply it is what each party gives or agrees to give to the other usually payment or a promise to do something in return.
In more legal language, consideration has been define as follows-
A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some for balance detriment, loss or responsibility given, suffered or undertaken by the other (Currie V misa 1875).
An ACT or forbearance of one party, or the promise thereof, is the price for while the promise the promise thus given for value is enforceable,(Dunlop V Selfridges 1915)
So without consideration a contract is not formed and for consideration both party benefit transfer is must which ensure the power of individuals to conferring rules that enable individuals to enter into agreement of their own choice on their own tenms.
5.2 Offer and acceptance :
Offer is an expression of willingness to contract on a specific set of terms, made by the offeror with the intention that, if the offer is accepted, he or she will be bound by a contract. And acceptance is an expression of absolute and unconditional agreement to all the terms set out in the offer. It can be oral on in writing. The acceptance must exactly mirror the original offer made.
To be contract there must be lawful offer by one party and a lawful acceptance of the other party or parties. The objective “lawful” implies that the offer and acceptance must confirm the power conferring rules which enables individuals to enter into agreement of their own choice on their own terms.
5.3 Intention to Create Legal Relationship :
The intention to create legal relationship is the most essential element of a valid contract and it’s completely obvious. So to be a contract there must be an intention (among parties) that the agreement shall result in or create legal relations. An agreement to dine at a friend’s house is not an agreement intended to create legal relations and is not a contract. But an agreement to buy or sell goods or an agreement to marry are agreements intended to create some legal relationship and are therefore contracts provided other essential elements presents. So if both pretties are not legally intended then the contract is not form. And this legal intention gives the individual to that power which enable individuals to enter into agreement of their own choice on their own terms.
5.4 Capacity of Parties :
The parties to an agreement must be legally capable of entering into an agreement; otherwise it cannot be enforced be a court of law. Here want of capacity arises from minority, lunacy, idiocy, drunkenness, and similar other factors, if any of the parties to the agreement suffer from any such disability, the agreement is not enforceable by law, except in some special case. So individual parties capacity is vary much important to make a contract.
5.5 Free consent :
According to Section -10 of the contract ACT all agreements are contacts if they are made by the “free consent” of all the parties of them (agreements), for a lawful consideration will a lawful object and are not expressly declared as void.
Section -13 of the contract ACT define consent as follows “two or more persons are said to consent when they agree upon the something in the same sense.
Section -14 of the contract ACT lay down that consent is not free if it is caused by coercion, undue influence, fraud misrepresentation and mistake.
(a). Coercion :
Coercion defined Section -15 of the contract ACT define coercion as under “coercion is committing or threatening to commit, any Act forbidden by the Bangladesh penal code or the unlawful detaining or threatening to detain, any property to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
(b). Undue influence :
Section -16(c) of the contract Act defines undue influence as “A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to obtain an unfair-advantage over the other .
According to Section 16(2) of the contract Act undue influence is assumed to be in the following causes –
(i). Where one party has an apparent authority over the other or where he is in a fiduciary relationship to the other. Fiduciary relationship exists in cases of father and son, doctor and patient, guardian and ward, solicitor and client etc.
Example : Father give some money to his son when he was minor, When the son came to age father misused his parental influence and obtained from his son a bond for money which was gather than the amount father had advanced . Here father employed undue influence.
(ii).Where one party enter into a contract with a person who is mentally affected because of age , illness or mental or bodily distress, mental capacity may be affected temporary or permanently.
Finely it has been stated under section-19A that a contract is void able at the option of the party who has given consent to an agreement being persuaded by undue influence. The affected person can cancel such agreement completely or if the party so affected his received any benefit by such contract in that case the court can set a side on the basis of terms and condition’s as consider just (so it is prove here). So here it is proved that law is the power conferring rules which enables individuals to enter into agreement of their own choice on their own terms.
When one party induces or instigates another party to enter into contract by giving him a false statement or ascertain about some fact relating to the contract at the time of the contract or before then the statement or assertion is called misrepresentation. A misrepresentation originates from inaccurate representation; of course, inaccuracy is not due the intention of defrauding the other party to the contract. Under section 18 of the contract act misrepresentation may be caused by (a) Unwarranted Assertion (b) Breach of duty and (c) Innocent mistake.
In the consequence of misrepresentation the affected person can avoid the contract and he can get the contract performed and that he shall be put in the position in which he would have been, had the representation been true. But if the person who consented by misrepresentation had the ways of discovering the truth with ordinary diligence in that case he has no remedy (so here also prove that).
According to Section “Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract.
A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury. Fraud is commonly understood as dishonesty calculated for advantage. A person who is dishonest may be called a fraud. In the U.S. legal system, fraud is a specific offense with certain features.
Fraud is most common in the buying or selling of property, including real estate, Personal Property, and intangible property, such as stocks, bonds, and copyrights. State and federal statutes criminalize fraud, but not all cases rise to the level of criminality. Prosecutors have discretion in determining which cases to pursue. Victims may also seek redress in civil court.
Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.
These elements contain nuances that are not all easily proved. First, not all false statements are fraudulent. To be fraudulent, a false statement must relate to a material fact. It should also substantially affect a person’s decision to enter into a contract or pursue a certain course of action. A false statement of fact that does not bear on the disputed transaction will not be considered fraudulent.
Second, the defendant must know that the statement is untrue. A statement of fact that is simply mistaken is not fraudulent. To be fraudulent, a false statement must be made with intent to deceive the victim. This is perhaps the easiest element to prove, once falsity and materiality are proved, because most material false statements are designed to mislead.
Third, the false statement must be made with the intent to deprive the victim of some legal right.
Fourth, the victim’s reliance on the false statement must be reasonable. Reliance on a patently absurd false statement generally will not give rise to fraud; however, people who are especially gullible, superstitious, or ignorant or who are illiterate may recover damages for fraud if the defendant knew and took advantage of their condition.
Finally, the false statement must cause the victim some injury that leaves her or him in a worse position than she or he was in before the fraud.
According to Section 20 “Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void”.
In contract law, a mistake is an erroneous belief, at contracting, that certain facts are true. It can be argued as a defence, and if raised successfully can lead to the agreement in question being found void ab initio or voidable, or alternatively an equitable remedy may be provided by the courts. Common law has identified three different types of mistake in contract: the ‘unilateral mistake’, the ‘mutual mistake’ and the ‘common mistake’. It is important to note the distinction between the ‘common mistake’ and the ‘mutual mistake’.
It is also possible for a contract to be void if there was a mistake in the identity of the contracting party.
5.6 Legality of the Object:
To be a contract the objective for which the agreement has been entered into must not illegal or immortal or opposed to public policy. The object for which the agreement has been entered into must not be illegal or immortal or opposed to public policy.
The object and purpose must be legal for a contract to be legal. If its purpose is illegal because of statue of common law, the contract may be void. If the formation or the performance of a contract is illegal, resulting in a crime and/or tort, or opposing public policy or interest, the contract is usually considered void. For example, any contract that involves purchasing a stolen item or an illegal drug, or involves fraud or harming someone would be considered void.
This legality of object ensure individual to protect themselves from illegal activity which is treated as a power which enable individuals conferring rules which enables individuals to enter into agreement of their own choice on their own terms.
5.7 Certainty :
If the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law. An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things adsorb safety, may cause the entire contract to fail. However, a court will attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract. Courts may also look to external standards, which are either mentioned explicitly in the contractor implied by common practice in a certain field. In addition, the court may also imply a term; if price is excluded, the court may imply a reasonable price, with the exception of land, and second-hand goods, which are unique.
So we can say that certainty the essential elements of contract ensure individual to protect themselves from uncertain activity which is treated as a power which enable individuals conferring rules which enables individuals to enter into agreement of their own choice on their own terms.
5.8 Possibility of Performance:
Possibility of performance means the contract must be possible to complete because legally binding contracts cannot be undertaken to perform an impossible act. This is not to say that an entrepeneur on hiring a contractor is going to be confronted at year’s end by the contractor stating that their sub-contractors had difficulties and there was too much rain in July. No, that does not constitute a barrier to possibility of performance in regards to the contract more likely than not, such a situation would simply be mismanagement or bad luck. Neither of which the court is open to addressing as a get out of jail free card for businesses.
For impossibility of performance there must be no way in living hell that the contract could be achieved for example, you could not legally contract somebody to remove a large stadium in a week if you knew full well that it could not be achieved in less than two weeks due to physical and process constraints. And you cannot contract people to locate and return an item or person that do not exist. The contract must be possible to complete, otherwise the court will not treat it as valid in the eyes of the law.
It is worth noting, were the impossibility of performance to arise following the point the contract is entered into then the contract would be considered frustrated and would usually be discharged. For example, were you to contract somebody to paint the Sydney Harbour Bridge but after the second week there was a disaster that destroyed the bridge well, you can see the dilemma. No bridge, no possibility of performance no contract.
So Possibility of performance the essential elements of contract ensure individual to protect themselves from impossible activity or matter which is treated as a power which enable individuals conferring rules which enables individuals to enter into agreement of their own choice on their own terms.
Our whole economy is based on the freedom of individuals to contract and a system of laws that enforces contracts freely entered into. But a lot of people may not be aware of what are the essential elements required to make an enforceable contract. A contract is an agreement between two or more persons (individuals, businesses, organizations or government agencies) to do, or to refrain from doing, a particular thing in exchange for something in value. Contracts generally can be written, using formal or informal terms, or entirely verbal. Contracts are governed by `law_article`general principals`law_article` and are usually derived from the common law (or judge-made law). The essential elements are the main requirement to fulfill a contract which performs as a set of power-conferring rules that enable parties to enter into an agreement of their own choice on their own agreed terms.
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