“An agreement has to cross certain hurdles before it can transform into a contract” Discuss the essential elements of a Contract
INTRODUCTION
We enter into contracts day after day. Taking a seat in a bus amounts to entering into a contract. When you put a coin in the slot of a weighing machine, you have entered into a contract. You go to a restaurant and take snacks; you have entered into a contract. In such cases, we do not even realize that we are making a contract. In the case of people engaged in trade, commerce and industry, they carry on business by entering into contracts. The law relating to contracts is to be found in the Indian Contract Act, 1872.
WHAT IS A CONTRACT?
Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. Section 2(e) defines agreement as “every promise and every set of promises forming consideration for each other.” Section 2(b) defines promise in these words: “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) Ainvites 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 the there
[1].Goods Act 1979 (SGA) and contract act 1872..
LAW OF
CONTRACTS
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, and then A has no remedy against B.
(2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A. In the above examples promises are not enforceable at law as there was no intention to create legal obligations. Such agreements are social agreements which do not give rise to legal consequences. This shows that an agreement is a broader term than a contract. And, therefore, a contract is an agreement but an agreement is not necessarily a contract.
What obligations are contractual in nature? We have seen above that the law of contracts is not the whole law of agreements. Similarly, all legal obligations are not contractual in nature. A legal obligation having its source in an agreement only will give rise to a contract.
Example
A agrees to sell his motor bicycle to B for Rs. 5,000. The agreement gives rise to a legal obligation on the part of A to deliver the motor bicycle to B and on the part of B to pay Rs. 5,000 to A. The agreement is a contract. If A does not deliver the motor bicycle, then B can go to a court of law and file a suit against A for non-performance of the promise on the part of A. On the other hand, if A has already given the delivery of the motor bicycle and B refuses to make the payment of price, A can go to the court of law and file a suit against B for non-performance of promise. Similarly, agreements to do an unlawful, immoral or illegal act, for example,
[1]Article 47 (1).
[1] See Jafarzadeh, M. ‘Buyer’s Right to Withhold Performance and Termination of Contract.
And the contract Act 1872
ESSENTIAL ELEMENTS OF A VALID CONTRACT
We have seen above that the two elements of a contract are:
(1) An agreement; (2) legal obligation. Section 10 of the Act provides for some more elements which are essential in order to constitute a valid contract. It reads as follows:
“All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.”
Thus, the essential elements of a valid contract can be summed up as follow
1. Agreement.
2. Intention to create legal relationship.
3. Free and genuine consent.
4. Parties competent to contract.
5. Lawful consideration.
6. Lawful object.
7. Agreements not declared void or illegal.
8. Certainty of meaning.
9. Possibility of performance.
10. Necessary Legal Formalities.
These essential elements are explained briefly.
1. 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, 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
2. Intention to create legal relationship
As already mentioned there should be an intention on the part of the parties to the
Law of Contracts agreement to create a legal relationship. An agreement of a purely social or domestic natureis 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.
3. 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.
4. 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.
5. 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.
6. Lawful object
The object of the agreement must be lawful and not one which the law disapproves.
7. 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.
8. 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
9. 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.
Treitel, G. H., (1999) at 732 fn. 28 then p. 698; Bridge, M., (1997) at 162, 163; Atiyah, P. S. & Adams, J., (1995) 2.the contract act 1872
3.court of kings bench.(1677)2 levin 210,83 ER 523
1.2 CLASSIFICATION OF CONTRACTS
Contracts may be classified in terms of their (1) validity or enforceability, (2) mode of
formation, or (3) performance.
1. Classification according to validity or enforceability
Contracts may be classified according to their validity as (i) valid, (ii) voidable, (iii) void contracts or agreements, (iv) illegal, or (v) unenforceable.
A contract to constitute a valid contract must have all the essential elements discussed earlier. If one or more of these elements is/are missing, the contract is voidable, void, illegal or unenforceable.
As per Section 2 (i) avoidable contract is one which may be repudiated at the will of one of the parties, but until it is so repudiated it remains valid and binding. It is affected by a
.
LAW OF
CONTRACTS
The first mode of making offer is known as specific offer and the second is known as a general offer. In case of the specific offer, it may be accepted by that person or group of persons to whom the same has been made.
Example of a general offer and is explained below.
Example
(1) Aoffers to sell his house to B at a certain price. The offer has been made to a definite person, i.e., B. It is only B who can accept it .
Essential requirements of a valid offer
Made certain (Section 29 An offer must have certain essentials in order to constitute it a valid offer. These are:
1. The offer must be made with a view to obtain acceptance [Section 2(a)].
2. The offer must be madewith the intention of creating legal relations.
3. The terms of offer must be definite, unambiguous and certain or capable of being
4. The terms of the offer must not be loose, vague or ambiguous.
Examples
(1) Aoffers to sell to B “a hundred quintals of oil”. There is nothing whatever to show what kind of oil was intended. The offer is not capable of being accepted for want of certainty.
Contract
Here must be a two kind of contract and these are:
1. Bilateral contract
2. Unilateral
Now more details over both these contract:
In the bilateral contract each party takes an obligation, usually promising the other for something.
Example: A promise to sell something and been to buy it.
On the other hand, unilateral contract only one party assumes an obligation under the contract.
Example: promising to give our friend tk100 if he gives up smoking for a year.
[1] Mullis, L.C.A. ‘Termination for Breach of Contract in C.I.F. Contracts under the Vienna Convention and English Law; Is There a Substantial Difference?’ in Lomnicka / Morse ed., Contemporary Issues in Commercial Law (Essays in honor
ACCEPTANCE
The Indian Contract Act, 1872 defines an acceptance as follows:
‘‘When the person to whom the proposal is made signifies his assent thereto, the proposal
Is said to be accepted” [Section 2 (b)].
Thus, acceptance is the act of giving consent to the proposal. A proposal when accepted
Becomes a contract
Essentials of a Valid Acceptance
1. Acceptance must be absolute and unqualified.
2. It must be communicated.
3. It must be according to the mode prescribed.
4. It must be given within the time specified or within reasonable time.
5. It must be in response to offer.
6. It must be made before the offer lapses.
7. It must be given by the person to whom the offer is made.
1.3 CAPACITY OF CONTRACT
We have mentioned earlier that one of the essentials of a valid agreement is that the parties to the contract must be competent to contract.
WHO ARE COMPETENT TO CONTRACT?
Section 11 provides 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.” Thus, incapacity to contract may arise from:
(i) Minority, (ii) mental incompetence, and (iii)
The position of minors’ contracts is summed up as follows:
1. a contract with or by a minor is void and a minor, therefore, cannot, bind himself by a contract. A minor is not competent to contract. In English Law, a minor’scontract, subject to certain exceptions, is only voidable at the option of the minor.
Example
DharmodasGhose, a minor, entered into a contract for borrowing a sum of Rs. 20,000 out of which the lender paid the minor a sum of Rs. 8,000. The minor executed
Articles 25
[1] Articles 47(1); Mullis, A. (1998) at p- 350
[1]Kluwer Law Internationalthttp://www.cisg.law.pace.edu/cisg/biblio/honnold.html.
Consideration:
Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other’s performance, the performance is consideration for the promise, while the promise is consideration for the performance.
Suppose you promise to pay someone $500.00 to paint your house. The promise sounds like an offer to enter a unilateral contract that binds only you until the promisee .
Cross-references of a consideration:
1.Contracts 2.Performance 3.Promise.
West’s Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
Consideration
1) Payment or money. 2) a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration
Types of consideration
1. Present consideration
2. Future consideration
3. Past consideration
What is good consideration?
1. There must be desire of the promisor
2. It must be real
3. Reasonable
4. It not to be a oppose to a public policy
5. From the promise any person
Contract Law: Duty-Imposing or Power-Conferring?
Some theories of contract law characterize it as a private power-conferring rule, others as a duty-imposing one. Hart suggests contract is a legal power:
Legal rules defining the ways in which valid contracts or wills or marriages are made . . . provide individuals with facilities for realizing their wishes, by conferring legal powers upon them to create, by certain specified procedures and subject to certain conditions, structures of rights
3[1]Mamhudekramulhaque, Law of contract,publishedby:law lyceum (Dhanmondi ,Dhaka-1205)2004,p.117
2See Benjamin 8-024
[1]Chuah, J. (2005) the Law of International Trade (3rd Ed), London: Sweet & Maxwell, at p-91.
Conclusion:
After all this discussion we can say that, Consideration is a benefit which must be bargained for between the parties, and is the essential for a party entering into contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration).In contract, one consideration is exchanged to another consideration. Such as –we will pay you 100000 not to build a road next to my fence. Sometimes consideration is nominal, meaning it is stated for form only, such as $10 as consideration for everyone is title, which is used to hide the true amount being paid. Contract may become enforceable or rescindable (undone by by rescission) for failure of consideration when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not made properly. Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contract.
Reference:
1. Copyright © 2009 New York University Law Review.
2. GregoryKlass is Associate Professor, Georgetown University Law Center.
3. This Editorial is based on the following full-length Article: Gregory Klass,
4. Ernest J. Weinrib, Punishment and Disgorgement as Contract Remedies, 78 CHI.-KENT L. REV. 55, 66 (2003).
5. Randy E. Barnett, The Sound of Silence: Default Rules and Contractual Consent, 78 VA. L. REV. 821, 861 (1992).
6. CHARLES FRIED, CONTRACT AS PROMISE: A THEORY OF CONTRACTUAL OBLIGATION 17 (1981).
7. P.S. Atiyah, Contracts, Promises and the Law of Obligations, 94 LAW Q. REV. 193 (1978).
HRT, supra note 1, at 81.
8. Waller v. Brown, 149 S.E. 687, 688 (N.C. 1929).
9. Legal Counsel (Jan. 29, 2000), http://www.usdoj.gov/olc/predirective.htm.
10. Lon L. Fuller, Consideration and Form, 41 COLUM. L. REV. 799, 815 (1941).
Id. at 801.
11. See, e.g., Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641, 645-46 (Cal. 1968) (holding that court may consider extrinsic evidence in determining whether term
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