Freedom of contract & sanctity of contract are the dominant ideologies.

Freedom of contract & sanctity of contract are the dominant ideologies. Parties should be free as possible to make agreements on their own terms without the interference of the courts or parliament & their agreements should be respected, upheld & enforced by court.-explain & evaluate the statements in the parlance of law of Contract.

1. Introduction

[1]Freedom of contract is the dominant ideology of contract law. Parties should be as free as possible to make agreements on their own terms without the interference of the courts or Parliament. Their agreements should be respected, upheld, and enforced by courts. Both Czech and English law consider the principle of parties’ equality and contractual freedom (liberty) to manifest the autonomy of their will as crucial.

Contractual freedom can be construed from two different perspectives. The first is the freedom to enter into a contract. This fundamental freedom is limited in both legal systems by the obligation to contract and by the prohibition to exert any illegitimate pressure. The second is the freedom of the parties to freely negotiate the rules of the contract. This freedom is restrained by virtue of standard business terms, adhesion contracts and, most importantly, legal limits. The justification of such legal limits lies in the fact that the freedom of contract is not a sufficient tool to guarantee fairness, as the parties often have an unequal bargaining position. Consequently, the classic liberal approach to contractual freedom has been modified by concept of material contractual justice.

‘If the “law of contract” were not already entrenched in the traditions of legal education, would anyone organize a course around it, let alone produce books expounding it?’ (Wightman, 1989).The fact that a lawyer can ask such a question would, no doubt, confound laymen. Yet it is true that the scope, the basis, the function and even the very existence of the law of contract are the subject of debate and controversy among academic lawyers. But such questioning seems absurd. After all, we enter into contracts as a regular part of life and generally we experience no difficulty in so doing. A simple case is the purchase of a morning newspaper or the purchase of a bus ticket when traveling to work. What doubt can there possibly be about the existence of such contracts or their basis? But, behind the apparent simplicity of these transactions, there lurks a fierce controversy. In an introductory work of this nature we cannot give full consideration to these great issues of debate. The function of this chapter is simply to identify some of these issues so that the reader can bear them in mind when reading the ensuing chapters and to enable the reader to explore them further in the readings to which I shall make reference

2. What is law of contract?

  • The Law of. Contract deals with agreements which can be enforced through courts of law.
  • The Law of Contract is the most important part of commer­cial law because every commercial transaction starts from an agreement between two or more persons.[2]

2.1 According to Salmond a contract is:

“an agreement creating and defining obligations between the parties” According to Sir William Anson2, “A contract is-an agreement enforceable at law made 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.”[3]

2.2 Definition of Contract

  • Section 2(h) of the Indian Contract Act provides that, “An Agreement enforceable by law is a contract”.
  • Therefore in a contract there must be –

(I) an agreement and

(II) the agreement must be enforceable by law.

  • An agreement comes into existence whenever one or more persons promise to one or others, to do or not to do something,

“Every promise and every set of promises, forming the consid­eration for each other, is an agreement-Sec. 2(e). Some agree­ments cannot be -enforced through the courts of law, e.g., an agreement to play cards or go to a cinema. An agreement, which can be enforced through the courts of law, is called a contract.”[4]

3. 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.

A function of the state, operating mainly through the court system, is to enforce performance by requiring the promisor to fulfill his bargain on penalty of fine or imprisonment or by awarding judgment against him for money damages when, without legal reason, he fails to perform. State compulsion has replaced private force, which was common in earlier time periods. State enforcement in concerns of bargain and promise can be viewed as one of the state’s most important functions behind only peacekeeping and property defense. In essence, a breach of contract is an indirect use offence. [5]

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[6].

3.1 Classic concept of freedom of contract

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.

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.[7]

4. Object & scope

The object of the Law of Contract is to introduce definiteness in commercial and other transactions. How this is done can be illustrated by an example-

X enters into a contract to deliver 10 tons of coal of Y on a certain date. Since such a – contract is enforceable by the courts, Y can plan his activities on the basis of getting the coal on the fixed date. If the contract is broken, Y will get. Damages from the court and will not suffer any loss.[8]

Sir William Anson observes as follows:

“As the law relating to property had its origin in the attempt to ensure that what a man has lawfully acquired he shall retain, so the law of contract is intended to ensure that what a man has been led to expect shall come to pass; and that what has been promised to him shall be performed.”[9]

A good starting point is the scope of the law of contract. Contracts come in different shapes and sizes. Some involve large sums of money, others trivial sums. Some are of long duration, while others are of short duration. The content of contracts varies enormously and may include contracts of sale, hire-purchase, employment and marriage. Nevertheless, we shall not be concerned with all such contracts in this book. Contracts of employment, marriage contracts, hire-purchase contracts, consumer credit contracts, contracts for the sale of goods, contracts for the sale of land, mortgages and leasehold agreements all lie largely outside the scope of this book. Such contracts have all been the subject of distinct regulation and are dealt with in books on employment law, family law, consumer law, commercial law, land law and landlord and tenant law respectively. At this stage you might be forgiven if you asked the question: if this book is not about these contracts, what is it about and what is its value? The answer to the first part of such a question is that this book is concerned with what are called the ‘general principles’ of the law of contract and these general principles are usually derived from the common law (or judge-made law). Treatises on the general principles of the law of contract are of respectable antiquity in England and can be traced back to Pollock (1875) and Anson (1879). This tradition has been maintained today in works such as Treitel (2007), Anson (2002) and Cheshire, Fifoot and Furmston (2007). One might have expected that these treatises would gradually disappear in the light of the publication of books on the contract of employment, the contract of hire purchase, etc which subject the rules relating to such contracts to close examination. Yet, textbooks on the ‘general principles’ of the law of contract have survived and might even be said to have flourished.[10]

The existence of such general principles has, however, been challenged by Professor

Atiyah (1986b) who maintains that these ‘general’ principles ‘remain general only by default, only because they are being superseded by detailed ad hoc rules lacking any principle or by new principles of narrow scope and application’. Atiyah argues that’ there is no such thing as a typical contract at all’. He maintains (1986a) that it is ‘incorrect today to think of contract law as having one central core with clusters of differences around the edges’. He identifies the classical model of contract as being a discrete, two-party, commercial, executory exchange but notes that contracts can be found which depart from each feature of this classical model. Thus, some contracts are not discrete but continuing (landlord and tenant relationships), some are not two-party but multiparty (the contract of membership in a club), some are not commercial but domestic (marriage), some are not executory (unperformed) but executed (fully performed) and finally some do not depend upon exchange, as in the case of an enforceable unilateral gratuitous promise. Atiyah concludes by asserting that we must ‘extricate ourselves from the tendency to see contract as a monolithic phenomenon’. Atiyah uses this argument in support of a wider proposition that contract law is ‘increasingly merging with tort law into a general law of obligations’. But one does not have to agree with Atiyah’s wider proposition to accept the point that the resemblance between different types of contract may be very remote indeed. A contract of employment is, in many respects, radically different from a contract to purchase a chocolate bar. The considerations applicable to a contract between commercial parties of equal bargaining power may be very different from those applicable to a contract between a consumer and a multinational this fragmentation of the legal regulation of contracts has reached a critical stage in the development of English contract law. The crucial question which remains to be answered is: do we have a law of contract or a law of contracts? My own view is that we are moving slowly in the direction of a law of contracts as the ‘general principles’ decline in importance. Given this fragmentation, what is the value of another book on the general principles of contract law? The principal value is that much of the regulatory legislation concerning specific contracts has been built upon the foundation of the common law principles. So it remains important to have an understanding of the general principles before progressing to study the detailed rules which have been applied to particular contracts. The general principles of formation, content, misrepresentation, mistake, illegality, capacity, duress and discharge apply to all contracts, subject to statutory qualification. These principles therefore remain ‘general’, but only ‘by default’.

5. Essential Elements of a Contract

An agreement becomes enforceable by law when it fulfils certain conditions. These conditions, which may be called the Essential Elements of a Contract, are explained below[11].

5.1 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.

5.2 Intention to create Legal Relationship:

  • There must be an intention (among the parties) that the agreement `shall result in or create legal relations.
  • An agreement to dine at a friend’ house is not an agreement intended to create legal relations and 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 the other essential elements are present. (See ch. 3)

5.3 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. The something given or obtained is called consideration. (See ch. 4)
  • The consideration may be; in act (doing something) or forbear­ance (not doing something) or a promise to do or not to do something.
  • Consideration may be past (something already done or not done).
  • It may also be present or future: But only those considerations are valid which are “lawful

5.4 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. If any of the parties to the agreement suffers from any such disability, the agreement is not enforceable by law, except in some special cases.

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 bycoercion, undue influence, mistake, misrepresentation, and fraud.
  • A person guilty of coercion, undue influence etc. cannot enforce the agreement. The other party (the aggrieved party) can enforce it, subject to rules laid down in the Act.

5.6 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.

5.7 Certainty:

  • The agreement must not be vague. It must be possible to ascertain the meaning of the agreement, for otherwise it cannot be enforced.

5.8 Possibility of Performance:

  • The agreement must be capable of being performed.
  • A promise to do an impossible thing cannot be enforc

5.9 void agreements:

  • 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 :
    1. Agreement in restraint, to marriage (Sec. 26)
    2. Agreement in restraint of trade (Sec. 27)
    3. Agreement in restraint of proceedings (Sec. 28)
    4. Agreements having uncertain meaning (Sec. 29}
    5. Wagering agreement. (Sec. 30)

5.10 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.
  • In India writing is required in 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 purview of Section 17 of the registration Act, e.g., mortgage, deeds covering immovable property.
  • The terms of an oral contract are sometimes difficult to prove.
  • Therefore important agreements are usually entered into in writing even in cases where writing is not compulsory

6. Method of Formation

6.1 Express Contract

Express Contract is one which is expressed in words spoken or written. When such a contract is formed, there is no difficulty in understanding the rights and obligations of the parties.

6.2 Implied Contract

The conditions of an implied contract are to be understood from the acts, the conduct of the parties and/or the course of dealing between them.

6.3 Quasi Contract

There are certain dealings which are not contracts strictly, though the parties act as if there is a contract.

The Contract Act specifies the various situations which come within what is called Quasi Contract. (Sections 68-72)[12]

7. The time of Performance

7.1 Executed Contract

There are contracts where the parties perform their obliga­tions immediately, i.e., as soon as the contract is formed

7.2 Executors Contract

In this contract the obligations of the parties are to be performed at a later time.

8. The Parties of the Contract

8.1 Bilateral Contracts

There must be at least two parties to the contract. Therefore all contracts are bilateral or multilateral.

8.2 Unilateral Contract

In certain contracts one party has to fulfill his obligations whereas the other party has already performed his obligations. Such a contract is called unilateral contract[13].

9. Basic conceptual distinctions affecting contractual freedom

9.1 Mandatory rules and individually negotiated clauses

As far as legal systems are concerned, the respective starting points are different. Czech contract law is based on statutory rules. Parties can choose between two main legal regimes for a contract. The first is the more rigid Civil Coderegime, containing a large number of mandatory provisions. The second is the more flexible Commercial Code regime, which is primarily used by business professionals and leaves contractual freedom to the parties. English contract law developed as the result of case law. Statutory regulation limiting parties is sparse. There is no general codification of the law of obligations, unlike in the Czech law, although some duties are imposed on the contractual parties in statutes such as the Sale of Goods Act.

The majority of statutory provisions in Czech law may be freely set aside through the exercise of the free will of the contracting parties and will only take effect when the parties do not stipulate otherwise. Some provisions, however, are binding and may not be diverted from, thus, restricting the parties’ freedom. Similarly, under English law, parties are free to exercise their individual will to vary or to determine the relative importance of a contractual term[14].

9.2 Contractual types and in nominate contracts

Czech law has detailed legislation that regulates contractual types, but parties can divert from a number of their provisions. The advantage of this system is that subsidiary provisions ensure legal predictability. On the other hand, English law allows more flexibility and more freedom in conclusion of a contract. However, the parties obtain less guidance and have to cope with legal uncertainty if they do not know the relevant law well enough.

The various contractual types originated in Roman law. They are outlined in statutes as to the form, terms and denomination, which is why they are called contracts nominate. The existence of in nominate contracts in Czech law is one of the features of contractual freedom.8 If parties conclude such in nominate contracts, they have more flexibility in negotiating mutual duties.However, regardless of the intention of the parties, a contract might fall under the rules of a particular contractual type, if the parties do not assess the legal situation correctly. In English law there are no provisions on type contractual types with the exception of the contract for sales. This leaves the parties with more freedom in concluding a contract, but also more uncertainty and unpredictability as to its possible legal consequences.[15]

9.3 Judicially unenforceable contracts

Another factor indirectly limiting contractual freedom is the fact that courts do not recognize, and therefore do not enforce some agreements, even when they are concluded in accordance with the will of the parties. English law in takes a markedly narrow approach to recognizing the existence of a contract. The test for whether an agreement has been reached is rather objective in English law. It examines what the parties said and did. The justification of such a test is to promote legal certainty. The case law has therefore often failed to recognize that an obligation also arises from what the parties impliedly agreed, and not merely from what they stipulated expressly in a written contract. In Czech law, a subjective test prevails instead, which attempts to ascertain the actual intention of the parties. Hence, the Czech law is perhaps more flexible in this matter, as informal contractual relationships are more likely to be enforced by the courts.

At first glance, Czech law generally seems more restrictive concerning parties’ freedom, but there are areas where it is actually more liberal. For instance, contractual freedom in English law is greatly limited by the doctrine of consideration. It means that a promise becomes binding only if the second party incurs a detriment by reliance upon it and in return is to render a benefit, i.e. his position would be worse off if promise was broken, than if it had not been made. By contrast, under Czech law the paramount pre-requisite of the contract is the definition of the object of the contractual obligation, whereas “the commercial reason” of the contract is less essential.[16]

10. Correctives of contractual justice

10.1 Individual limitations

Although the principle of free choice remains the ultimate basis of the law of contract, there are some situations where public interest overrides this basic principle. Some limitations of contractual freedom are justified on the grounds of public policy. Contracts with a socially unacceptable or offensive content may be held invalid and will not be enforced by courts. In English law, this traditionally includes contracts contrary to good morals (mainly in the sense of sexual immorality), prejudicial to family life, aimed at committing a crime or a civil wrong, prejudicial to the administration of justice, public relations, or those in restraint of trade. Czech law has a more general, universal rule providing that any legal act (including a contract) that by its contents or purpose contravenes the law or good morals is invalid.15

No less important, however, are legal limitations that are justified on the grounds of fairness and designed to promote contractual justice. Both legal systems have developed tools to protect weaker contractual parties by limiting freedom of contract. In English law one such tool is the equitable doctrine of undue influence and economic duress.16 Furthermore, contractual freedom is limited by certain statutes.17

Likewise in Czech law, various mandatory provisions restrain contractual freedom in the name of justice. Contracts are void for example, if they violate or circumvent statutory provisions, good morals, or are voidable if entered into by force, by essential mistake, or duress. The Czech Civil Code also provides, for instance, that anyone who has entered into a contract under pressure and on remarkably unfavorable terms has the right to rescind such an agreement.18 Last but not least in the area of commercial relations contracts contravening the principles of fair business exchange are also voidable.

The line between contractual justice and freedom is not easy to draw and is by no means definitive. Even within one legal system, there are usually various opinions on how extensive the limitation of contractual freedom for reasons of contractual justice should be in a particular area. An illustrative example of this fact is the ongoing discussion about the acceptable degree of limitation of damages in business contracts in Czech law. While it is unacceptable to completely exclude damages, there are different opinions on whether and to what degree damages can be actually limited, since the parties are not allowed to give up on a claim in advance19 and a claim usually does not exist at the point of execution of a contract. Some argue that limiting damages pro future is essentially the same thing as giving them up and therefore unacceptable, while others point out that Czech law expressly allows damages to be excluded in the event of the parties having stipulated a contractual penalty for the breach of a particular duty.20 Since the contractual penalty may be well below the amount of damages that would arise from the breach of such duty, this has practically the same effect as a limitation of damages, since normally damages are not payable alongside contractual fine, so there is no reason why express limitation of damages should not be allowed.21 Both arguments have some merit, but the prevailing opinion leans towards more contractual freedom in business relations and perhaps rightly so. After all, a principle that should be followed in any legal system and not just in contract law is that where the law is unclear, it should be interpreted in a way allowing more freedom and less restriction.[17]

11. How a contract comes to an end?

In one of four ways the agreement is then at an end. The four ways are: A party who is subject to the obligations of a contract may be discharged from that obligation[18]

(a) Performance

(b) Agreement

(c) Breach

(d) Frustration

Each of these methods of discharge is explained below.

(a) Performance

This is the normal method of discharge. Each party fulfils or performs his contractual obligations_ and the agreement is then ended. As a general rule contractual obligations are discharged only by complete and exact performance. Partial performance does not usually suffice; nor does incorrect performance:

The contract was for the supply of tinned fruit from Australia packed in cases of 30 this each. The ship was seriously delayed and presumably the buyers no longer wished to accept deliver”. They argued that the sellers had failed to perform the contract since about half the shipment was packed in cases of 24 tins each there was no evidence that this departure from the terms of the contract affected the market value of the goods.

The other party may prevent performance. In that case the offer (‘tender’) of performance is sufficient discharge. For example, if the buyer will not accept delivery of the contract goods and the seller sues for breach of contract, the seller need only show that he tendered performance by offering to deliver. This will discharge him by performance if he can show that the other party had a reasonable chance to examine whether performance really was tendered – such as whether goods tendered were those ordered. This is because performance only serves as discharge if it is precise. Where the obligation is to pay money, tender of payment must be followed by payment into court to show a continuing willingness to perform.[19]

(a.1) time of performance

If one party fails to perform at the agreed time he may perform the contract later – the contract continues in force, unless prompt performance is an essential condition. In that case the injured party may refuse late performance and treat the contract as discharged by breach

Where time is not of the essence the injured party may claim damages for any loss or expense caused by the delay but must accept late performance

.If the parties expressly agree that `time shall be of the essence’ and so prompt performance is to be a condition that is conclusive and late performance does not discharge obligations. If they make no such express stipulation the following rules apply.

(b) Agreement

A contract may include provision for its own discharge by imposing a condition precedent. This prevents the contract from coming into operation unless the condition is satisfied. Alternatively, it may impose a condition subsequent by which the contract is discharged on the later happening of an event; a simple example of the latter is provision for termination by notice given by one party to the other. Effectively these are contracts whereby discharge may arise through agreement.

(b.2) In any other case the parties may agree to cancel the contract before it has been completed: performed on both sides. But the agreement to cancel is itself a new contract for which consideration must be given (unless it is a contract for release by deed).

(b.3) If there are unperformed obligations of the original contract on both sides (it is an executor, /’ contract); each party provides consideration for his own release by agreeing to release th4 other (bi-lateral discharge).

(b.4) But if one party has completely performed his obligations, his agreement to release the other from his obligations (unilateral discharge) requires consideration, such as payment of z cancellation fee (called accord and satisfaction).

(b.5) If the parties enter into a new contract to replace the unperformed contract, the new contract this called innovation of the old contract – it is replaced by a new one.

(c) Fundamental breach

There is some doubt over the application of this principle to contracts of employment. If the employer dismisses an employee in breach of contract, the latter cannot obtain an order for specific performance by the employer and must accept the dismissal. However, if an employee repudiates his contract, the employer can still enforce against the employee a valid restraint of trade.

Service agreement of a managing director of a company prohibited him from using confidential information about the company’s customers within five years of leaving its employment. He purported to resign before the contract had expired and solicited business on his own account from the company’s customers.[20]

(d) Frustration

If it is impossible to perform the contract when it is made, there is usually no contract at a – it is void and each party is released from performing any obligation after the frustrating event. In addition, the parties are free to negotiate ‘escape clauses’ or force rajeure covering impossibility which arises after the contract has been made. If they fail to do so, they are a general rule, in breach of contract if they find themselves unable to do what they have agree to do: Paradine v Jane 1647.The regions of this principle is modified by the doctrine that in certain circumstances contract may be discharged by frustration. If it appears that the parties assumed that certain underlying conditions would continue, the contract may be frustrated if their assumption prow to be false. An alternative theory of the doctrine of frustration is that the parties should t discharged from their contract if altered circumstances render the contract fundamental different in its nature from the original contract made by the parties. This alternative avoids imputing to the parties assumptions which in fact never occurred to them. They simply did no foresee what would happen. Contracts have been discharged by frustration in the following circumstances.


Sections 62 to 67 of the Contract Act are listed under the heading “Contracts which need not be performed”. The relevant provisions are as follows:

1. If by mutual agreement there is Novation, Rescission or Alteration, the original contract need not be performed[21].

2. The same rule applies in cases of Remission[22].

3. When a voidable contract is rescinded, the other party need not perform his promise[23]

4. If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non­performance caused thereby.” Sec.67. (See *under, “Breach of Contract”, Chapter 11)

Il. under the Law of Contract the following agreements need not be performed:

1. Unlawful consideration and object-Sec. 23 (See p. 77-83)

2. Where the performance is unlawful or illegal-Sec. 56 (See p. 92)

13. Contract’s Legal Relatives

The underpinnings of contract law can be found in the law of torts (i.e., the law of private wrongs), and to a somewhat lesser degree, property law. The law of torts, which is based on the ideas of personal accountability, causation, and negligence, had previously granted remedies for deceit and trespass. Elements similar to deceit and trespass are present in a contract case in which a person attempts to perform some act for another and does it fraudulently or incompetently. Also, the concept of assumpsit, the complete failure to perform what a person had promised to do, was based on an analogy to tort law. In addition, in the still older law of property, we discover the phenomenon of an obligation, created by recorded and sealed deed, recognized in both religious and lay courts. We find here a situation in which a promisor conveys, by deed, a thing of value to the promise.

The corporation logically grew out of the idea of contract. A voluntary association of human beings bound together in order to attain a purpose is the basis for the existence of a corporation. Corporations are an inherent right common to all men and grounded in the principles of freedom of association and freedom to contract. Corporate stockholders, managers, and workers have a common interest in a corporation’s survival and prosperity. The corporation can thus be viewed as a nexus for a set of contracting relationships among these and other individuals.

A corporation involves a set of bilateral and multilateral agreements with parties such as workers, unions, managers, stockholders, customers, bankers, suppliers, retailers, creditors, etc. These individuals enter into contracts with the firm in which they agree to trade value for value. [24]

14. From Status to Contract

Contract law is a key component of a free society. Contracts involve a trade-off of flexibility for security and the voluntary assumption of mutual obligation and commitment. Through contract, a participant in civil society is differentiated from the atomistic individual.

Autonomous human beings have the rational ability and natural right to make their own life choices. A necessary condition of acting autonomously is the possibility of freely making mutually binding agreements. Autonomy thus requires freedom of contract. Better connections between persons can be made by contract, which works to mutual benefit, instead of through coercion, which does not.

Although a contract may appear to be the subordination of one man’s will to another, the former gains more than he gives up, as does the latter. In a free society, the only transactions people engage in are positive-sum ones in which both parties believe they will benefit.

Historically, the rise of contract within Western civilization reflected the disintegration of a status-determined society. Contract became a tool of change and self-determination, an instrument of peace, and the only legitimate means of social integration in a free society. Progress depends on protected property rights and the confidence that contractual obligations will be honored.

Sir Henry Sumner Maine, the nineteenth-century legal historian, wrote that progressive societies exhibit a development from status-bound roles to those founded more and more on contractual freedom. Whereas a status system establishes obligations, conditions, and interrelations by birth, contract regards individuals as free and equal moral agents developing their own bonds with others. In a free society, there is high degree of social mobility and freedom to associate in response to current and expected future needs. Social arrangements are a result of the independent decisions of separate individuals pursuing their own interests, rather than by a central powerful authority such as the state or the Church.

In Western society, with the steady dissolution of castes, social classes, guilds, ethnic cultures, and so on, human resources have become more available to organizers in business and other associations. Organizers compete for the best managerial and non managerial employees, and with the freedom of association present in the era of contracts, it is possible to create successful organizations despite some interference by the state. [25]

15. Conclusion:

Comparing both legal systems supplies no easy answers as to which one has a better balance between contractual freedom and contractual justice. As we see from the above discussion, the two legal systems are not that different in the degree of limitation of contractual freedom, but they often achieve a similar result via different methods. In both systems parties have a large degree of freedom at crucial decision points – to vary 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 in both systems, with minor differences. Ultimately, the question of where to set the right and desirable balance between contractual freedom and contractual justice remains open. It is not easy to draw a clear line between these two elements. That is why the concepts in Czech and English law may be different, but the goal remains the same – to protect the weaker party to a contract and promote contractual justice, while keeping a sufficient degree of contractual freedom to keep the market healthy and running.

  • 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 a11 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 parties. The legal obligations are enforced by the courts.
  • The Indian Contract Act contains rules regarding each of the elements mentioned above. These rules are discussed in the subsequent chapters.


1. Irena Ochmannová – The Tension between Contractual Freedom and Contractual Justice

2. Chapter 1-THE ESSENTIAL ELEMENTS OF CONTRACT (web sight search)

3. by Dr. Edward Younkins, Professor of Accountancy and Business Administration at Wheeling Jesuit University in West Virginia and author of Capitalism and Commerce

4. From Wikipedia, the free encyclopedia

5. Sir William Anson

6. McKendrick Prelims


8. case: Moore v Landauer 1911

9. Case:Thomas Marshall (Exporters) v Guinle 1978

[1] Irena Ochmannová – The Tension between Contractual Freedom and Contractual Justice, page no-1, paragraph no- 1 & 2

[2] Chapter 1-THE ESSENTIAL ELEMENTS OF CONTRACT, page no-1 (web sight search)

[3] Chapter 1-THE ESSENTIAL ELEMENTS OF CONTRACT, page no-1 (web sight search)

[4] Chapter 1-THE ESSENTIAL ELEMENTS OF CONTRACT, page no-2 (web sight search)

[5] by Dr. Edward Younkins

Professor of Accountancy and Business Administration at Wheeling Jesuit University in West Virginia and author of Capitalism and Commerce

[6] From Wikipedia, the free encyclopedia

[7] Irena Ochmannová – The Tension between Contractual Freedom and Contractual Justice 2.1


[9] Sir William Anson

[10] McKendrick Prelims, chapter-1, page no-1

[11] Chapter 1-THE ESSENTIAL ELEMENTS OF CONTRACT, page no-2 (web sight search)

[12] Chapter 1-THE ESSENTIAL ELEMENTS OF CONTRACT, page no-5 (web sight search)

[13] Chapter 1-THE ESSENTIAL ELEMENTS OF CONTRACT, page no-6 (web sight search)

[14] Irena Ochmannová – The Tension between Contractual Freedom and Contractual Justice

[15] Irena Ochmannová – The Tension between Contractual Freedom and Contractual Justice

[16] Irena Ochmannová – The Tension between Contractual Freedom and Contractual Justice

[17] Irena Ochmannová – The Tension between Contractual Freedom and Contractual Justice


[19] case: Moore v Landauer 1911

[20] Case:Thomas Marshall (Exporters) v Guinle 1978

[21] (Sec. 62. See Chapter 11)

[22] (Sec. 63. See Chapter 11)

[23] (Sec. 64. See “Restitution”, Chapter 11)

[24] by Dr. Edward Younkins

Professor of Accountancy and Business Administration at Wheeling Jesuit University in West Virginia and author of Capitalism and Commerce

[25] by Dr. Edward Younkins

Professor of Accountancy and Business Administration at Wheeling Jesuit University in West Virginia and author of Capitalism and Commerce