“Discuss the Law of contracts and how it confines itself to the enforcement of voluntarily created civil obligation.”
In the realm of business, each and every moment the people have to involve in some sort of agreement. A more technical form of “Agreement” is “Contract”. A contract is a binding agreement between two or more parties that usually results in some type of performance. Contract is one of the means by which men bargaining with one another to 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 predict, control and stabilize the future. Contracts allow people to enter reciprocal responsibilities and commitments, to make promises others can rely on, to remove some uncertainty and to establish reasonable expectations for future actions.
The law relating to contracts in India is governed by The Indian Contract Act, 1872. The Contract Act does not purport to codify the entire law relating to contracts, the Act specifically preserves any usage or custom of trade or any incident of any contract nor inconsistent with provisions of the Act. This assignment draws attention towards law of contracts and how it confines itself to the enforcement of voluntarily created civil obligation.
Law refers to a set of rules and regulations issued by the supreme authority of a nation and backed by punishments and sanctions. Law mainly has three basic ingredients, which are:
· The source of law is sovereign authority,
· Sanctions accompany law, and
· The command to be law should compel a course of conduct.
As a command the law must flow from a determinate person or a group of persons with the threat of displeasure if it is not obeyed. Sovereignty is only a part of the state. So, ultimately, law emanates from the state. Thus the term law is used to denote rules of conduct emanated from and enforced by the state. According to Holland, law is, “a rule of external human action enforced by the sovereign political authority.”
The human conducts certainly vary from person to person and sometimes can cause unrest situation among society. To ensure peaceful living as well as for progress and development some rules regarding human conduct are necessary. Anson observes as follows:
“The object of Law is Order, and the result of order is that men are enabled to look ahead with some sort of security as to the future. Although human action cannot be reduced to the uniformities of nature, men have yet endeavored to reproduce by Law something approaching to this uniformity”.
So, in short Law is a set of rules and regulations which are introduced by the state in order to ensure security to the people in a society.
Agreement requires the transformation of negotiations into a settled bargain or deal. An agreement comes into existence whenever one or more persons promise to one or others, to do something, “Every promise and every set of promises, forming the consideration for each other, is an agreement”-SEC. 2(e). But it is not necessary for an agreement that it should be enforced by the law. Some agreements cannot be enforced through the courts of law.
A contract is one kind of agreement which binds two or more parties that usually results in some type of performance. Section 2(h) of the Indian Contract Act provides that, “An Agreement enforceable by law is a contract”. This definition leads toward two essential points needed to define a contract; in a contract there must be:
· An agreement, and
· The agreement must be enforced by the law.
Law of Contract
Law of contract is nothing else except the agreements which can be enforced through courts of law. According to Salmond a contract is “an agreement creating and defining obligations between the parties”. Sir William Anson stated that, “A contract is an agreement enforceable at law made between two or more persons, by whom rights are acquired by one of more to acts or forbearances on the part of the other or others”. (Sen and Mitra, 2011)
Essential Elements of Contract
After fulfilling some certain conditions an agreement becomes enforceable by the law. These conditions may be called as the essential elements of a Contract, are explained below:
Offer and Acceptance
To be a contract there must be a lawful offer by one party and a lawful acceptance of the offer by the other party or parties. Here “lawful” means the offer and acceptance must conform to the rules laid down in the Indian Contract Act regarding offer and acceptance.
Intention to create Legal Relationship
The parties should have an intention that the agreement shall result in or create legal relations. For example, an agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract. But an agreement to buy and sell goods or an agreement to marry, are agreements intended to create some legal relationship and are therefore contracts, provided other essential elements are present.
Consideration is an essential element in a contract. Subject to certain exceptions, an agreement is not enforceable unless each party to the agreement gets something. This “something” is known as consideration. The consideration may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be happen that something already done or not done regarding consideration; it may also be present or future. But only those considerations are valid which are “lawful”.
Capacity of Parties
The parties who will be going under an agreement must need to be legally capable of entering into an agreement; otherwise it cannot be enforced by a court of law. Want of capacity factors arises from minority, lunacy, idiocy, drunkenness and similar other factors. If any of the parties to the agreement suffers from any such disability, the agreement is not enforceable by law, except in some cases.
None of the parties of an agreement should not be pressurized or influenced to act in a certain way. 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 pressure, undue influence, mistake, misrepresentation and fraud. A person guilty of coercion, undue influence etc. cannot enforce the agreement. According to the subject to rules laid down in the Act, the aggrieved party can enforce it.
Legality of the Object
The object of an agreement for which the parties are actually entering an agreement should be legal. The object must not be illegal or immoral or opposed to public policy.
The agreements also need to be clearly stated. It must be possible to ascertain the meaning of the agreement for otherwise it cannot be enforced. That means an agreement should not contain such conditions which are not clearly understandable or stated.
Possibility of Performance
The agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced. It will be a contract if the agreement can be performable.
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:
· Agreements in restraint to marriage.
· Agreement in restraint of trade.
· Agreement in restraint of proceedings.
· Agreements having uncertain meaning.
· Wagering agreement.
Written, Registration and Legal Formalities
An oral contract is a perfectly good contract, except those in case where writing and/or registration is required by some statute. In India writing is required in those cases of lease, gift, sale and mortgage of immovable property: negotiable instruments; memorandum and articles of association of a company etc. registration is compulsory in cases of documents coming within the preview of section 17 of the Registration Act. The terms of an oral contract are sometimes difficult to prove. Therefore important agreements are usually entered in writing even in cases where writing is not compulsory.
The above elements must be presented in a contract. With the absence of any of these elements an agreement will not be considered as a contract. Every contract gives rise to certain legal obligations or duties on the part of the contracting parties. The legal obligations are enforced by the courts.
An obligation is something people may not like or even enjoy doing but they do it out of respect or some profound sense of duty. In another way “Obligation” is something by which a person is bound to do certain things, and which arises out of a sense of duty or results from custom, law, etc. It also indicates to the act of binding or obliging oneself by a promise, contract, etc. In its general and most extensive sense, obligation is synonymous with duty. In a more technical meaning, it is a tie which bind us to pay or to do something agreeably to the laws and customs of the country in which the obligation is made. It also indicates the instrument or writing by which the contract is beheld. Two types of obligations are there-
· Perfect obligation: the obligations are those which gives right to another to require us to give one something or not to do something.
· Imperfect Obligation: Imperfect obligations are those which are not binding on us as between man and man, and for the non-performance of which we are accountable to god only; such as charity or gratitude.
The perfect obligations are either neutral or moral. A natural or moral obligation is one which cannot be enforced by action, but which is binding on the party who makes it, in conscience and according to natural justice. As for instance when the action is barred by the act of limitation, a natural obligation is extinguished.
Most of the cases the contractual obligations seem to be voluntary. The elements of the contract confine itself voluntary. In the same time the law of contract gives raises some sort of obligations for the parties involved in a contract. If that is not created then it will not be possible to enforce law and it loses its main feature of contract and will be counted as agreement not contract.
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Sen, A.K. and Mitra, J.K. (2011) Commercial Law including company law and Industrial Law Business Law, Kolkata: World Press Pvt. Ltd.
Bangladesh Contract Act, 1872 (2013), [Online], Available: HYPERLINK “http://www.lawnotes.in/Bangladesh_Contract_Act,_1872” http://www.lawnotes.in/Bangladesh_Contract_Act,_1872 [17 February 2013].
Holland, S.T.E. (2006) The Elements of Jurisprudence, reprint edition, NJ: The Lawbook Exchange, Ltd.
Bagchi, A. (n.d) ‘Voluntariness and Contract Interpretation’.
 Disscuss all the important points of an agreement in the light of law of contract From: http://www.lawyersnjurists.com/articles-reports-journals/law-and-ethics/discuss-important-points-agreement-light-law-contract/
Definition from a Dictionary http://dictionary.reference.com/browse/obligation
Obligation source: http://www.lectlaw.com/def2/o001.htm