An agreement is regarded as a contract enforceable by law when it fulfils certain condition


  1. 1. Introduction
  2. 2. Origin and scope
  3. 3. Contracts
  4. 4. Agreement
  5. 5. Is the Agreement a Contract
  6. 6. An agreement is regarded as a contract enforceable by law when it fulfils certain condition

6.1.  Offer and Acceptance

6.2.  Intention to create legal relationship

6.3.  Lawful consideration

6.4.  Capacity of parties

6.5.  Free consent

6.6.  Legality of the object

6.7.  Certainty

6.8.  Possibility of performance

6.9.  Void agreement

6.10.        Writing, registration and legal formalities

  1. 7. Formation
  2. Affirmative defenses
  3. 9. Freedom to contract and Hurley v. Eddingfield

10. Contractual terms

10.1.        Boilerplate

10.2.        Classification of term

10.3.        Status as a term

10.4.        Implied terms

10.4.1.  Terms implied in fact

10.4.2.  Terms implied in law                    Common law                    Statute law

10.4.3.  Coercive vs. voluntary contractive exchanges

11. Setting aside the contract

11.1.        Misrepresentation

11.2.        Other contract

11.3.        By country

12. Conclusion

13.  Reference

14. External links

  1. 1. Introduction:

The law of contract deals with agreements which can be enforced through courts    of law.

The law of contracts is the most important part of commercial law because every commercial transaction starts from an agreement between two or more persons.

According to salmond a contract is “an agreement creating and defining obligations between the parties.” According to Sir William Anson, “a contract is an agreement enforceable at law mad 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.”
If landscape contracting business or nursery is involved in a business agreement, one of the first things to determine is whether the promise or agreement at issue will be considered an enforceable contract under the law. While contracts usually involve promises to do something (or refrain from doing something), not all promises are contracts. How does the law determine which promises are enforceable contracts and which are not?

  1. 2. Origin and scope

Contract law is based on the principle expressed in the Latin phrase pacta sunt servanda, which is usually translated “agreements to be kept” but more literally means “pacts must be kept”.[1]

Contract law can be classified, as is habitual in civil law systems, as part of a general law of obligations, along with tort, unjust enrichment, and restitution.

As a means of economic ordering, contract relies on the notion of consensual exchange and has been extensively discussed in broader economic, sociological, and anthropological terms (see “Contractual theory” below). In American English, the term extends beyond the legal meaning to encompass a broader category of agreements.[2]

This article mainly concerns the common law. Such jurisdictions usually retain a high degree of freedom of contract, with parties largely at liberty to set their own terms. This is in contrast to the civil law, which typically applies certain overarching principles to disputes arising out of contract, as in the French Civil Code.

However, contract is a form of economic ordering common throughout the world, and different rules apply in jurisdictions applying civil law (derived from Roman law principles), Islamic law, socialist legal systems, and customary or local law.

  1. ^ Hans Wehberg, Pacta Sunt Servanda, The American Journal of International Law, Vol. 53, No. 4 (Oct., 1959), p.775.; Principle of Sanctity of contracts

2. ^ 2008 Merriam-Webster online dictionary

3.  What is a Contract?
Generally, a contract is an agreement between two or more persons to do a particular act or abstain from doing a particular act.  By entering in to a contract, it creates legal obligation between the parties.  It also provides certain rights to the parties to do a particular task.  Different authors defined a contact in various ways.  Let us see some of them.
1.  Every agreement and promise enforceable at law is a contract – Sir Fredrick Pollock
2.  A contract is an agreement, creating and defining the obligation between parties – Salmond.
3.  A contract is an agreement enforceable at law made between two or more persons by whom rights are acquired by one or more to acts or forbearances on the part of others. – Sir William Anson. The Indian Contact Act is closely related to the Pollock’s definition

Ans the Section 2(h) of the Act clearly states that “an agreement enforceable by law is a contract.” From the above definitions we can understand that a contract essentially consists of two elements.  They are
1.  An Agreement
2.  Its enforceability by law.
4.0. Agreement
Section 2(e) of the Indian Contract Act defines Agreement as “Every promise and every set of promises forming the consideration for each other.”  From this we can understand that the promise means a proposal or offer which has been accepted.   Let me explain it with an example:  John offers to sell his Car for Rs. 275000/- to Peter.   Peter accepts this offer.  Now this offer to sell and acceptance to purchase can be treated as an agreement between John and Peter.  That means this agreement consists of an offer by one party and its acceptance by the other.
Offer + Acceptance = Agreement.

From the above, it is clear that there must me at lest two parties are necessary to form an agreement.  One is the with an offer and the other is there to accept that offer.  Another aspect of an agreement is that identity of minds.  Difference in opinion should not be there.  Both must agree for the deal and there must be identity of the minds in respect of the subject matter.  Suppose John two houses, one situated in Delhi and the other in Bangalore.  He offers to sell his Bangalore house to Peter.  But Peter under the impression that he is buying the Delhi house.  Here the identity of mind is not there.  In the mind of John and Porter are different houses.  So there is no agreement.

5.0. Is the Agreement a Contract?

Courts look at a number of factors to determine whether an agreement should be enforced. The court must initially determine whether the agreement constitutes a contract or not. In order for an agreement to be considered a valid contract, it must satisfy certain requirements. One party must make an offer and the other party must accept it. There must be a bargain for exchange of promises, meaning that something of value must be given in return for a promise. In addition, the terms of a contract must be sufficiently definite for a court to enforce them.

6.0. An agreement becomes as a contract enforceable by law when it fulfils certain condition. These conditions, which may be called the essential elements of a contract, are explained below.

  1. 1. Offer and Acceptance: there must be a lawful offer by one party and a lawful acceptance of the offer by the other party or parties. The adjective “lawful” implies that the offer and acceptance must conform to the rules laid down in the Indian contract act regarding offer and acceptance.(see.2)
  2. 2. Intention to create legal relationship: there must be an intention (among the parties) that the agreement shall result in or create legal relations.(see.3)
  3. 3. Lawful consideration: subject to certain exceptions, an agreement is legally enforceable only when each of the parties to it gives something and gets something. An agreement to do something for nothing is usually not enforceable by law.(see.4)
  4. 4. Capacity of parties: the parties to an agreement must be legally capable of entering into an agreement; otherwise it cannot be enforced by a court of law. Want of capacity arises from minority, lunacy, idiocy, drunkenness, and similar other factors.(see.6)
  5. 5. Free consent: in order to be enforceable, an agreement must be based on the free consent of all the parties. There is absence of genuine consent if the agreement is induced by coercion, undue influence, mistake, misrepresentation, and fraud.(see.7)
  6. 6. Legality of the object: the object for which the agreement has been entered into must not be illegal, or immoral or opposed to public policy.(see.8)
  7. 7. Certainty: the agreement must not be vague. It must be possible to ascertain the meaning of the agreement, for otherwise it cannot be enforced.(see.8)
  8. 8. Possibility of performance: the agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced.(see.8)
  9. 9. Void agreement: an agreement so made must not have been expressly declared to be void. Under Indian contract act there are five categories of agreements which are expressly declared to be void. They are

Sec 26:  agreement in restraint of marriage.
Sec 27: agreement in restraint of trade.
Sec 28: agreement against legal proceedings.

Sec 29: agreement that is uncertain
Sec 30: agreement by way of wager.

10. Writing, registration and legal formalities: an oral contract is a perfectly good contract, except in those cases where writing and/or registration is required by some statute.

Book name – Commercial law (including company law) and industrial law, business law, edited and revised by prof. SAKTI MUKHERJEE, ARUN KUMAR SEN, JITENDRA KUMAR MITRA,Ch-01, the essential elements of contract, page enforceable by law

7.0. Formation

In addition to the elements of a contract:

  • a party must have capacity to contract;
  • the purpose of the contract must be lawful;
  • the form of the contract must be legal;
  • the parties must intend to create a legal relationship; and
  • the parties must consent.

As a result, there are a variety of affirmative defenses that a party may assert to avoid his obligation.

8.0. Affirmative defenses

Vitiating factors constituting defences to purported contract formation include:

Such defenses operate to determine whether a purported contract is either (1) void or (2) voidable. Void contracts cannot be ratified by either party. Voidable contracts can be ratified.

9.0. Freedom to contract and Hurley v. Eddingfield

In most systems of law, parties have freedom to choose whether or not they wish to enter into a contract, absent superseding duties. In American law, one early case exemplifying this proposition is Hurley v. Eddingfield (1901), in which the Supreme Court of Indiana ruled in favor of a physician who voluntarily decided not to help a patient whom the physician had treated on past occasions, despite the lack of other available medical assistance and the patient’s subsequent death.[19]

In addition, for some contracts formalities must be complied with under legislation sometimes called a statute of frauds (especially transactions in real property or for relatively large cash amounts).

10.0. Contractual terms

Main article: Contractual term

A contractual term is “[a]ny provision forming part of a contract”.[35] Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal weight as they are peripheral to the objectives of the contract.

10.1. Boilerplate

As discussed in Tina L. Stark’s Negotiating and Drafting Contract Boilerplate, when lawyers refer to a “boilerplate” provision, they are referring to any standardized, “one size fits all” contract provision. But lawyers also use the term in a more narrow context to refer to certain provisions that appear at the end of the contract. Typically, these provisions tell the parties how to govern their relationship and administer the contract. Although often thought to be of secondary importance, these provisions have significant business and legal consequences.[36] Common provisions include the governing law provision, venue, assignment and delegation provisions, waiver of jury trial provisions, notice provisions, and force majeure provisions.[37]

10.2. Classification of term

It is an objective matter of fact whether a term goes to the root of a contract. By way of illustration, an actress’ obligation to perform the opening night of a theatrical production is a condition,[39] whereas a singer’s obligation to perform during the first three days of rehearsal is a warranty.[40]

Statute may also declare a term or nature of term to be a condition or warranty; for example the Sale of Goods Act 1979 s15A[41] provides that terms as to title, description, quality and sample (as described in the Act) are conditions save in certain defined circumstances.

  • Innominate term. Lord Diplock, in Hong Kong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd,[42] created the concept of an innominate term, breach of which may or not go to the root of the contract depending upon the nature of the breach. Breach of these terms, as with all terms, will give rise to damages. Whether or not it repudiates the contract depends upon whether legal benefit of the contract has been removed from the innocent party. Megaw LJ, in 1970, preferred the legal certainty of using the classic categories of condition or warranty.[43] This was interpreted by the House of Lords as merely restricting its application in Reardon Smith Line Ltd. v Hansen-Tangen.[44]

10.3. Status as a term

Status as a term is important as a party can only take legal action for the non fulfillment of a term as opposed to representations or mere puffery. Legally speaking, only statements that amount to a term create contractual obligations. There are various factor that a court may take into account in determining the nature of a statement. In particular, the importance apparently placed on the statement by the parties at the time the contract is made is likely to be significant. In Bannerman v. White[45] it was held a term of a contract for sale and purchase of hops that they had not been treated with sulphur, since the buyer made very explicit his unwillingness to accept hops so treated, saying that he had no use for them. The relative knowledge of the parties may also be a factor, as in Bissett v. Wilkinson[46] in which a statement that farmland being sold would carry 2000 sheep if worked by one team was held merely a representation (it was also only an opinion and therefore not actionable as misrepresentation). The reason this was not a term was that the seller had no basis for making the statement, as the buyer knew, and the buyer was prepared to rely on his own and his son’s knowledge of farming.

10.4. Implied terms

A term may either be express or implied. An express term is stated by the parties during negotiation or written in a contractual document. Implied terms are not stated but nevertheless form a provision of the contract.

10.4.1. Terms implied in fact

Terms may be implied due to the facts of the proceedings by which the contract was formed. In the Australian case of BP Refinery Westernport v. Shire of Hastings[47] the UK Privy Council proposed a five stage test to determine situations where the facts of a case may imply terms (this only applies to formal contracts in Australia).[48] However, the English Court of Appeal sounded a note of caution with regard to the BP case in Philips Electronique Grand Public SA v. British Sky Broadcasting Ltd[49] in which the Master of the Rolls described the test as “almost misleading” in its simplicity.[50] The classic tests have been the “business efficacy test” and the “officious bystander test”. The first of these was proposed by Lord Justice Bowen in The Moorcock.[51] This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied – the bare minimum to achieve this goal. The officious bystander test derives its name from the judgment of Lord Justice Mackinnon in Shirlaw v. Southern Foundries (1926) Ltd[52] but the test actually originates in the judgment of Lord Justice Scrutton in Reigate v. Union Manufacturing Co (Ramsbottom) Ltd[53] This test is that a term can only be implied in fact if it is such a term that had an “officious bystander” listening to the contract negotiations suggested that they should include this term the parties would “dismiss him with a common ‘Oh of course!'”. It is at least questionable whether this is truly a separate test or just a description of how one might go about arriving at a decision on the basis of the business efficacy test.

Some jurisdictions, notably Australia, Israel and India, imply a term of good faith into contracts. A final way in which terms may be implied due to fact is through a previous course of dealing or common trade practice. The Uniform Commercial Code of the United States also imposes an implied covenant of good faith and fair dealing in performance and enforcement of contracts covered by the Code, which cannot be derogated from.

10.4.2. Terms implied in law

These are terms that have been implied into standardized relationships. Instances of this are quite numerous, especially in employment contracts and shipping contracts. Common law

  • Liverpool City Council v. Irwin[54] established a term to be implied into all contracts between tenant and landlord in multi-storey blocks that the landlord is obliged to take reasonable care to keep the common areas in a reasonable state of repair.

These terms will be implied into all contracts of the same nature as a matter of law. Statute law

The rules by which many contracts are governed are provided in specialized statutes that deal with particular subjects. Most countries, for example, have statutes which deal directly with sale of goods, lease transactions, and trade practices. For example, most American states have adopted Article 2 of the Uniform Commercial Code, which regulates contracts for the sale of goods. The most important legislation implying terms under United Kingdom law are the Sale of Goods Act 1979, the Consumer Protection (Distance Selling) Regulations 2000 and the Supply of Goods and Services Act 1982 which imply terms into all contracts whereby goods are sold or services provided.

10.4.3. Coercive vs. voluntary contractive exchanges

There are a few ways of determining whether a contract has been coerced or is voluntary:

  • Moral consideration: Objective consideration of right or wrong outside of the objective cause, or the perceived cause. Example: X (event) occurs everyday at 5 pm. X is wrong. Anything that avoids X is good; allowing X, even if all parties agree, is bad.
  • Phenomenological consideration – what models did the participants have which influenced the perception of what was to occur or what had occurred. Example: I observe X, Y (events) every day at 5 pm. I contract against X. Today I did / did not see Y occur.
  • Statistical consideration – did the participants have a statistical prediction, likelihood of an event occurring which is covered by the contract. Example: X (event) happens every day at 5 pm; I enter a contract to avoid X. X does or does not occur.

18.^ Journal of the American Medical Association, Vol. 36. (April 20, 1901). p. 1140.19.^ [1968] 1 WLR 1204

34.^ Martin, E [ed] & Law, J [ed], Oxford Dictionary of Law, ed6 (2006, London: OUP).35.^ Jamie Wodetzki, “Boilerplate that Bites: The Arbitration Clause”, 2006.36.^ Tina L. Stark, Negotiating and Drafting Contract Boilerplate, (ALM Publishing 2003, pp.5-7). ISBN 978-1-58852-105-7.37.^ Not to be confused with a product warranty, which is always referred to as a ‘guarantee’ in law.38.^ Poussard v. Spiers and Pond (1876) 1 QBD 410.39.^ Bettini v. Gye (1876) 1 QBD 183.40.^ As added by the Sale of Goods Act 1994 s4 (1).41.^ [1962] 1 All ER 474.42.^ Maredelanto Compania Naviera SA v Bergbau-Handel GmbH. The Mihalis Angelos [1970] 3 All ER 125.43.^ [1976] 3 All ER 570.44.^ (1861) 10 CBNS 844.45.^ [1927] AC 177.46.^ (1977) 180 CLR 266.47.^ Byrne and Frew v. Australian Airlines Ltd (1995) 185 CLR 410.48.^ [1995] EMLR 472.49.^ [1995] EMLR 472 at 481.50.^ (1889) 14 PD 64.51.^ [1939] 2 KB 206.52.^ [1918] 1 KB 592.53.^ [1976] 2 WLR 562.54.^ Gordon v Selico (1986) 18 HLR 219

  1. 11. Setting aside the contract

There can be four different ways in which contracts can be set aside. A contract may be deemed ‘void‘, ‘voidable‘, ‘unenforceable’ or ‘ineffective’. Voidness implies that a contract never came into existence. Void ability implies that one or both parties may declare a contract ineffective at their wish. Unenforceability implies that neither party may have recourse to a court for a remedy. Ineffectiveness implies that the contract terminates by order of a court where a public body has failed to satisfy public procurement law. To rescind is to set aside or unmake a contract.

11.1. Misrepresentation

Main article: Misrepresentation

Misrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

There are two types of misrepresentation in contract law, fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party in question knew they were creating a contract. If the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void. Fraud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Misrepresentation of a material fact (if the party knew the truth, that party would not have entered into the contract) makes a contract voidable.

According to Gordon v Selico[55] it is possible to make a misrepresentation either by words or by conduct, although not everything said or done is capable of constituting a misrepresentation. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation.

Both an order for specific performance and an injunction are discretionary remedies, originating for the most part in equity. Neither is available as of right and in most jurisdictions and most circumstances a court will not normally order specific performance. A contract for the sale of real property is a notable exception. In most jurisdictions, the sale of real property is enforceable by specific performance. Even in this case the defenses to an action in equity (such as laches, the bona fide purchaser rule, or unclean hands) may act as a bar to specific performance.

Related to orders for specific performance, an injunction may be requested when the contract prohibits a certain action. Action for injunction would prohibit the person from performing the act specified in the contract.

11.2. Other contract

Online contracts, which are easily made, are usually valid on a smaller scale for a period of one to three months, while on a larger scale can last about five years. As with all things legal, especially in regards to the ever-evolving Internet, general rules like length of validity have many exceptions. All cases are evaluated on their own merits, and those merits are defined by the facts presented in each instance. It is up to the owner of the site to do what it can to guarantee enforceability of its contracts. Though 90% of people sign online contracts before reading the content[citation needed], E-signature laws have made the electronic contract and signature as legally valid as a paper contract. It has been estimated that roughly one hundred and ten electronic contracts are signed every second.

11.3. By country

^ Introduction to Securities Arbitration – an Overview from the online leader in securities law news, information and commentary

12.0. Conclusion:

The elements mentioned above must all be present. If any one of them is absent, the agreement does not become a contract. An agreement which fulfils all the essential elements is enforceable by law and is called a contract. From this is follows that, every contract is an agreement but all agreement are not contract.

13. References

  • Ewan McKendrick, Contract Law – Text, Cases and Materials (2005) Oxford University Press ISBN 0-19-927480-0
  • P.S. Atiyah, The Rise and Fall of Freedom of Contract (1979) Clarendon Press ISBN 0-19-825342-7
  • Randy E. Barnett, Contracts (2003) Aspen Publishers ISBN 0-7355-6535-2
  • Scott Fruehwald, “Reciprocal Altruism as the Basis for Contract,” 47 University of Louisville Law Review 489 (2009).

14. External links

Look up contract in Wiktionary, the free dictionary.
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