Discuss the two separate parts called freedom of contract and sanctity of contract



Contract comes from Latin “contructus” mean “to work on contract”[1]. 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[2]. Contract agreeing on specific matters weather those are national or international aspect of agreements or not, in a broad sense, contract is in agreement between two or more competent parties in which an offer is made and accepted, and each party benefits. So we can say The law of contract

is perceived as a set of power-conferring rules which enable individuals to enter into agreements of their own choice on their own terms.

 However, this assignment mainly concerns “Freedom of contract and sanctity of Contract are the dominant ideologies. Parties should be as free as possible to make Agreements on their own terms without the interference of the courts or Parliament and their agreements should be respected, upheld and enforced by the courts.” It is open for the parties to use express language to indicate intent to impose legal obligations on each other. Alternatively, this intention can be impliedly from the circumstances [3]. The courts use an objective test in making a determination about the intention of the parties. In making an objective determination of the parties, intention the court looks at the surrounding circumstances and asks if a reasonable person would regard the agreement as intended to be binding. 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.


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 [4].

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.


Sanctity of Contract is a general idea that one 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.


This law derived from previous decisions on cases of similar merits, known as Judge made law. Contract Law is based on Common Law [5]. To be legally enforceable the agreement must comply with common Law requirements for a valid contract Statute Law enacted by parliament and ensure that law will reflect the needs of the community Contract Law has been affected by statute law.

All agreement are contract if there are made by the 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[6].

Obligation of parties to contracts- The parties to a contract must enter perform, or offer to perform, their respective promises, unless such performances is dispensed with or excused under the provision or of any other law[7].

Promises bind the representative of the promises in case of the death of such promises before performance, unless a contrary intention appears from the contract.


A contract therefore, is an agreement the object of which is to create a legal obligation i.e., a duty enforceable by law. “An agreement enforceable by law is a contract [8].” To be enforceable by law, an agreement must possess the essential elements of a valid contract as contained in sections 10, 29 and 56. As the details of these essentials form the subject matter of our subsequent chapters, we propose to discuss them in brief here. The essential elements of a valid contract are [9].

a. Offer and acceptance: There must a ‘lawful offer’ and a ‘lawful acceptance‘ of the offer, thus resulting in an agreement.[10]

b. Intention to create legal relations: There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations.

c. Lawful consideration: The third essential element of a valid contract is the presence of ‘consideration’.[11]

d. Capacity of parties: The parties to an agreement must be competent to contract. But the question that arises now is that what parties are competent and what are not. The contracting parties must be of the age of majority and of sound mind and must not be disqualified by any law to which they are subject[12].

e. Free consent: Free consent of all the parties to an agreement is another essential element. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense [13].

f. Lawful object: For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object [14].

g. Writing and registration: According to the Indian contract Act, a contract to be valid, must be in writing and registered.

h. Certainty: “Agreements, the meaning of which is not certain or capable of being made certain, are void.[15]” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain.

i. Possibility of performance: Yet another essential feature of a valid contract is that it must be capable of performance. “An agreement to do an act impossible in itself is void”[16]

. Not expressly declared void: The agreement must not have been expressly declared to be void [17], specify certain types of agreements that have been expressly declared to be void.

From the above elements, we find that a contract essentially consists of two elements: (1) An agreement and (2) Legal obligation i.e., a duty enforceable by law.

1. Agreement: As per section 2 (e): “Every promise and every set of promises, forming the consideration for each other, is an agreement.” Thus it is clear from this definition that a ‘promise’ is an agreement. What is a ‘promise’? The answer to this question is contained in section 2 (b) which defines the term.” 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.”

2. Legal obligation: As stated above, an agreement to become a contract must give rise to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law. It is not a contract.

Recently it has been accepted that there is a third category, restitution obligations, based on the unjust enrichment of the defendant at the plaintiff’s expense [18]. Contractual liability, reflecting the constitutive function of contract, is generally for failing to make things better[19], liability in tort is generally for action[20] making things worse, and liability in restitution is for unjustly taking or retaining the benefit of the plaintiff’s money or work.


a. Definition

A void contract is one which has no legal effect whatsoever owing to the fact that a transaction which is void is without any legal effect, it I a misuse of terms to call transaction a void contract.[21]

b. Void and illegal contracts distinguished:

A voidable contract takes its full and proper legal effect until it is set aside, while a void contract is a nullity and no right would accrue there under from its commencement [22]. A void contract is one which has no legal effect. An illegal contract, like the void contract has no legal effect as between the immediate parties, but has this further effect that transactions collateral become tainted with legality and become enforceable.


Every agreement and promise enforceable by law is a contract. As noted above, an agreement enforceable by law is a contract. All such agreement which satisfy the conditioned mentioned in section 10 of Indian contract act. Section 10 is as under- “All agreement is contract if there are made by free consent of partiers competent to contract for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”.

For the validity of contract section 10 requires the following essential to satisfy [23].

1-      There should be and agreement between two parties, an agreement arises when    on party makes a proposal or present and the other parties accept the offer.

2-           The parties to the agreement should be proficient to contract.

3-           There should be lawful deliberation and object in respect of the agreement.

4-           There should be consent of the parties, when they enter in to agreement.

5-           The agreement must not be one, which has been declared to be void.


One of the fundamental principles of contract law is that parties to a contract must have an intention to be legally bound [24]. There is a presumption that social, domestic or family agreements are not legally binding as individuals make promises to each other on a regular basis that they would not intend to have legal effect. If parties who are in a familial relationship are contracting in a business context or if a husband and wife enter into an agreement in circumstances in which they are no longer living in harmony. Similarly, if the words used in the contract indicate a legal intention, the presumption that may otherwise have arisen may be rebutted.

A further presumption revolves around the idea that in commercial agreements, it is thought that such intention exists. It is clear that the parties may rebut but it is difficult to prove to the courts that a commercial agreement was not intended to have legal effect. There is a presumption for commercial agreements that parties intend to be legally bound [25].

 On the other hand, many kinds of domestic and social agreements are unenforceable on the basis of public policy, for instance between children and parents. The presumption is that domestic and social agreements are not intended to have legal force [26].

Family, Social and Domestic Agreements: Presumption held that such family, social and domestic agreements held not binding. It is held that close relatives do not usually intend on various arrangements which they make to create legal relations and that they prefer to rely on “family ties of mutual trust and affection”

Commercial Agreements: In commercial agreements the presumption is that parties did intend to be legally bound. In commercial agreements it is rare to conclude that parties did not intend their agreement to be attended by legal consequences. For commercial arrangements, the opposite assumption applies. In commercial dealings it is extremely difficult to evade the obligations of an agreement by claiming that it was never intended to be legally binding [27]. To create this effect, the wording of the agreement must be very clear.[28]

Honour clauses: The “Honour clauses” declares that an agreement is not to be legally binding, with the result that the agreement is “binding in honour only”. They might be used where the parties are prepared to rely on non-legal sanctions [29].

Promotional Puff: The extravagant, non-specific language of the advertiser may fail to satisfy the criteria of a representation of fact. Such language may also fail as the basis itself of contractual obligation for the reason that this was not intended.

Letter of Comfort: Letters of comfort must contain statements of a promissory nature if they are to evidence an intention to create legal relations


Their are some major areas within every contract this are[30] Parties, Effective Date and Terms, Statement of Service (SOS), Pricing, Performance Standards, Warranties, Remedies, Risk Allocation, Boilerplate, Signatures.


A party to a contract is not entitled in a law to cancel a concluded contract unilaterally. Having entered into an agreement, it is open to the defendant to resale from the same on untenable ground as he pleases. Therefore, such a cancellation has no effect in law. Similarly unilateral addition to terms is not permissible [31].


A fundamental principle of Contract law is that the contracting parties must actively intend to enter into an arrangement that creates legal obligations. For common-sense reasons, domestic arrangements are assumed not to create a contract, while commercial arrangements are assumed to create one, unless clearly specified. The law of contract restricts itself to voluntarily created civil obligation. It is not even the whole law of civil obligation. Civil obligations created by the tort or trust law are outside the field of contract because they are not necessary voluntary choices.

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. In American English, the term extends beyond the legal meaning to encompass a broader category of agreements.

Since the contract is a legally binding agreement with the intention to give rise to legal rights and obligations.

– The intention brings the wills of party’s together.
– Meeting of the minds
– The court will look at: – Writing – Spoken Words – Behaviors
– The relevant intention may be expressed or implied.

As we see from the above discussion many statutory rules and also to decide on the relative importance of contractual terms. The legal limitations on this freedom designed to protect weaker parties seem reasonable and at a similar level with minor differences. Ultimately, the question of where to set the right and desirable balance between contractual freedom and sanctity of Contract remains open. That is why the concepts to protect the weaker party to a contract and promote sanctity of Contract, while keeping a sufficient degree of contractual freedom to keep the market healthy and running.


ü  1 Mohammad Haider Ali, A textbook on law of contract by, 1st Edition, page#04, para#2nd

The American Journal of International Law, Vol. 53, No. 4 (Oct., 1959), p.775.;

ü  3 Atiyah, P. S.: An Introduction to the Law of Contract, 4th Edition, Clarendon Law Series

ü      4 Printing and Numerical Registering Co v. Sampson (1875) LR 19 Eq at 465

ü       5  The Law Of Contracts, Noshirvan H.Jhabvala, page#

ü       6   Mohammad Haider Ali, A textbook on law of contract by, 1st Edition, page#33, para#4

ü       7   The contract act 1872, Sec

ü       8   Section 2(h) of the Indian Contract Act

ü       9   www.answers.com

ü    10  The adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the contract act in

ü     11  Consideration has been defined as the price paid by one party for the promise of the other.

ü      12  Act. Section 11 of the contract Act

ü    13  Act. Section 13 of the contract Act

ü    14 The object for which the agreement has been entered into must not be fraudulent or illegal or immoral

ü     16  Act. Section 29 of the contract Act

ü     18   Act. Section 24-30 of the contract Act

ü      19   Beatson, Anson’s Law of Contract (1998) 27th ed. OUP, p.21

ü     20   Not rendering the expected performance

ü    21    Opposed to omission

ü   22    Mohammad Haider Ali, A textbook on law of contract by, 1st Edition, page#09, para#2

ü   23 http:// www.citehr.com/200242-difference-betwen-agreement-contract.htm#axzz17HIJrzRn

ü   24 www.helium.com, Created on: August 21, 2007

ü   25 Unless the parties expressly state that they do not want to be bound, like in heads of agreement

ü     26  www.webmaster.com

ü 27  Edwards vskyways ltd 1964, Esso vcustoms and excise commissioners 1976

ü  28  http://lawiki.org/lawwiki/Intention_to_enter_into_a_legally_binding_agreement 1925

ü 29  such as their ongoing commercial dealings with each other, as an inducement to perform

ü 30  contract components

ü  31 PLD 1976 Karachi 14. PLJ 1976 Kar 58 (DB)