Freedom of Contract and Sanctity of contract are the dominant ideology. Parties should be as free as possible to make agreements on their own terms without the interference of the courts or parliament and their agreement should be respected upheld and enforced by the court”
Although the dominant ideology is freedom between the parties to make an agreement, but there freedom is regulated by law of contract. An agreement becomes a contract only when it can be enforced through court of law. Here is the some limitation of freedom of contract. This limitation can be explained by the essential elements of contract. All of which must be present. If any of them is absent, an agreement does not become a contract.
A contract is an agreement between two or more competent persons, having for its purpose a legal object, where each of the persons acts in a certain manner or promises to act or to refrain from acting in such a manner.
“This proportion is own opinion and taken from internet.”
1.0 Definition of a Contract:
A contract is an agreement which is enforceable by law. The object of the Law of contract is to introduce definiteness in commercial and other transactions. A contract consists of two elements: (i) An agreement (ii) The agreement should be enforceable by law. An agreement is an offer and its acceptance. An agreement which can be enforceable by law must have some essential elements. According to Section 10 “All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void” As per the above section, a contract must have the following elements.
· Intention to create legal relationship
· Lawful object
· Agreement not expressly declared void
· Proper offer and it s acceptance
· Free Consent
· Capacity of parties to contract
· Certainty of meaning
· Possibility of performance
· Lawful consideration
· Legal formalities
1.1 Intention to create legal relationship:
The parties entering into a contract must have an intention to create a legal relationship, if there is no intention to create a legal relationship that agreement cannot be treated as a valid contract. Generally there is no intention to create a legal relationship in social and domestic agreements. Invitation for lunch does not create a legal relationship. Certain agreements and obligation between father and daughter, mother and son and husband and wife does not create a legal relationship.
1.2 Lawful Object:
The objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract. A rent out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract.
1.3 Agreement not expressly declared void:
Section 24 to 30 specifies certain types of agreement which have been expressly declared void. For example Restraint of marriage which has been expressly declared void under Section 26. Some of the agreements which have been expressly declared void are agreement in restraint of legal proceedings, agreement in restraint of trade, agreement in restraint of marriage and agreement by way of wager.
1.4 Proper offer and it s acceptance:
To create a valid contract, there must be two or more parties. One who makes the offer and the other who accepts the offer? One person cannot make an offer and accept it. There must be at least two persons. Also the offer must be clear and properly communicated to the other party.
1.5 Free Consent:
According to section 14, consent is said to be free when it is not caused by (i) coercion, (ii) undue influence (iii) fraud, (iv) misrepresentation, or (v) mistake. If the contract made by any of the above four reason, at the option of the aggrieved party it could be treated as a void contract. An agreement can be treated as a valid contract when the consent of the parties is free and not under any undue influence, fear or pressure etc. The consent of the parties must be genuine and free consent.
1.6 Capacity of parties to contract:
Parties entering into an agreement must be competent and capable of entering into a contract. If “A” agrees to sell a Government property to B and B agrees to buy that property, it could not treated as a valid agreement as A is not authorized or owner of the property. If any of the party is not competent or capable of entering into the agreement, that agreement cannot be treated as a valid contract.
1.7 Certainty of meaning:
Wording of the agreement must be clear and not uncertain or vague. Suppose John agrees to sell 500 tons of oil to Mathew. But, what kind of oil is not mentioned clearly. So on the ground of uncertainty, this agreement stands void. If the meaning of the agreement can be made certain by the circumstances, it could be treated as a valid contract.
1.8 Possibility of performance:
As per section 56, if the act is impossible of performance, physically or legally, the agreement cannot be enforced by law. There must be possibility of performance of the agreement.
1.9 Lawful consideration:
An agreement must be supported by a consideration of something in return. That is, the agreement must be supported by some type of service or goods in return of money or goods. An agreement is valid only when the acts are legal. Illegal works like killing another for money, or immoral works or illegal acts are cannot be treated as a valid agreement. So, illegal works will not come under the contract act.
1.10 Legal formalities:
The contract act does not insist that the agreement must be in writing, it could be oral. But, in some cases the law strictly insists that the agreement must be in writing like agreement to sell immovable property must be in writing and should be registered under the Transfer of Property Act, 1882. These agreements are valid only when they fulfill the formalities like writing, registration, signing by the both the parties are completed. If these legal formalities are not completed, it cannot be treated as a valid contract.
“Essential element of contract and some proportion of contract are taken from internet and objective of the contract are taken from 26th addition Business Law book of which is written by Arun Kumar Sen and Jitendra Mitra.”
2.0 The Nature of Contracts:
The law of contracts forms the oldest branch of the law relating to transactions. In one form or another, it has existed from the beginning of organized and primitive societies. Just as the safety of persons and/or property depends upon the rule of criminal law, so the security and stability of the business world are dependent upon the law of contracts.
With our philosophy of personal liberty, the law of contracts is one of the main structural supports with the right to acquire and dispose of property. A contract in the modern sense has been defined as “an agreement containing a promise enforceable in law.”
Contracts are classified according to the following characteristics:
· Formal or simple.
· Executed or executory.
· Express or implied (in law or in fact).
· Bilateral or unilateral.
· Valid, voidable, or unenforceable.
“This proportion is taken from internet and Business Law, common Law and industrial Law book.”
3. 0 Freedom of Contract:
A contract is a binding agreement between two or more parties that usually results in some type of performance. Without doubt, trade and commerce could not thrive if freely made agreements were not normally carried out. Contract can be viewed as a method in which men bargaining with one another can 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, to a certain degree, predict, control, and stabilize the future.
Contracts allow people to incur reciprocal responsibilities and commitments, to make promises others can rely on, to remove some uncertainty from life, and to establish reasonable expectations for future actions. Right of an adult to make a legally binding mutual agreement with one or more other persons, without governmental interference as to what type of obligations he or she can take upon himself or herself.
4. 0 Freedom to Contract Promotes Progress:
Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing. The freedom to contract is the underpinning of laissez-faire economics and is a cornerstone of free market libertarianism.
In order to be invaluable to businessmen and other members of a free society, the contract must be a tool of virtually unlimited adaptability. To achieve this, the legal system must minimize the formality necessary for contractual transactions. It can do this by permitting freedom as to the form and content of contractual arrangements. Legislators and judges should refrain from substituting their own judgments in cases where they believe there is unequal bargaining power or where they think that certain contracts are not in the “public interest.” Contract sanctity is paramount. Such a free contract system encourages dynamic processes and technological achievements by permitting entrepreneurs to quickly and flexibly experiment with new ways of satisfying wants.
“This proportion is taken from internet.”
(According to philosophy and policy),
Freedom of contract is an ideologically charged notion which may attract strongly-held political beliefs but which eludes the interest of the lawyer in his everyday work for the most part. So the Constitutional Court used abstract theoretical arguments, but these were deduced from more general theorems of a certain constitutional dogmatic and couldn’t reflect, by their nature, to questions raised in the theoretical literature on contract law.
Premise: if two parties are to be observed entering into a voluntary private exchange, the presumption must be that both feel the exchange is likely to make them better off, otherwise they would not have entered into it.” First, it is a “check on opportunism in non-simultaneous exchanges by ensuring that the first mover, in terms of performance, does not run the risk of defection, rather than co-operation, by the second mover.” Second, it reduces transaction costs. Third, it provides “a set of default or background rules where the terms of a contract are incomplete”. Forth, it distinguishes welfare-enhancing and welfare-reducing exchanges.
There are also political justifications for the primacy of private ordering, which are based on individual autonomy (negative liberty) “as a paramount social value”. These liberal theories see the law of contracts as a guarantee of individual autonomy.
“According to question of philosophy and policy.”
6. 0 Some reasons for limiting freedom of contract:
The main reasons for limiting freedom of contract are –
Commodification: Even in societies committed to political and economic liberalism, there is room for debate about the scope of the market. For example, banning prostitution may eliminate an income-earning option of poor women. The other concept, domino effect refers to an effect counterbalancing the former, that “market rhetoric and manifestations may change and pervert the terms of discourse in which members of the community engage with one another”.
Externalities: Externalities mean imposition of costs (negative) or benefits (positive) from a particular exchange transaction on non-consenting third parties. Positive externalities pose incentive problems (lead to suboptimal quantity of the good in question). Negative externalities are more important and serious.
Coercion: The seemingly simple question of what constitutes voluntary consent to a transaction is a serious conceptual problem. Suppose that there is full information, no cognitive deficiencies and the contract is complete. The question is then, whether the constrained choice of a party renders his consent involuntary.
Symmetric information imperfections: Symmetric information imperfections correspond to the domain of contract doctrines relating to frustration, contract modification and mutual mistake.
“This proportion is taken from internet and Business law Book.”
7. 0 Sanctity of Contract:
The sanctity of contract means giving recognition to the contractual framework with appropriate legislation. For example, the procurement of public services is governed by various tendering acts / procurement laws. These laws provided sanctity to contract.
“This proportion is taken from internet.”
8.0 Social Contract:
The political and bureaucratic tyrants in America operate on the basis that the a “Social Contract” under public policy is in full force and effect. In political philosophy, the “social contract” is a crucial theory that lawyers and judges are trained by. The social contract is not a pledge of the ruled to obey the ruler, but is supposed to be an agreement of individuals to subordinate their judgment, rights, and powers to the needs of their community as a whole. The sovereign power doesn’t lie in the ruler, but in the general will of the community.
When an apparent consent, not real or free, is obtained, there are five remedies that exist within the common law of contracts. The remedies are:
· Undue influence;
“This proportion is taken from internet and environmental rules.”
9.0 Void Contract:
According to sec 2(g) an agreement which is not enforceable at law is void contract.
Features of Void Contract:
Following are features of void contract
· Not enforceable by Law
· No legal rights
· No obligation on any party
· Nature of Contract
· No compensation
“This proportion is taken from internet.”
10. Why are the courts so reluctant to (be seen to) interfere in contracts:
Particularly with regards to large companies and firms, they should be allowed to contract how they like and what they like without the courts imposing what they believe to be the best option.
This suggests that the courts do as little as is necessary to make commercial sense of contracts without interfering more than they should. It could be argued that interfering beyond what is needed would be putting a spanner in the works as it may affect the achievement of the intentions of the parties.
Some examples- The court has never given it to subjective intention of the parties, meaning of words in a contract no matter how honestly the parties intended them to be, has to be interpreted objectively to ensure certainty in law. Contract for illegal purposes and against public policy are void in law. Trivial breach will not be a breach of condition no matter how much the parties have intended it at the time of contract.
On the other hand, if a representation is important to the person making the statement, the court will give effect to it as a term of contract, a breach of which is a breach of contract. Time is of the essence will be upheld to give certainly in law.
“This proportion is taken from internet.”
For entering into make a contract or agreement by the parties, based on own terms and conditions without the interferences court or parliament, must be consider essential element of contract, social contract and features of void contract. An agreement which fulfills all the essential elements is enforceable by law and is called a contract. From this it follows that, every contract is an agreement but all agreements are not contracts. Every contract gives rise to certain legal obligations or duties on the part of the contracting parities. The legal obligations are enforced by the courts. The Indian Contract Act contains rules regarding each of the elements mentioned above. Contract is a legally binding agreement between two or more persons by which rights are acquired by one or more to act or for bear one the part of others. A void contract is not enforceable at law; while voidable a contract is enforceable at the option of one party.
· Reference Book:
-Commercial Law and Industrial Law, Common Law, Business Law
– Arun Kumar Sen and Jitendra Mitra