Introduction:
We enter into contracts day after day. Taking a seat in a bus amounts to entering into a contract. When you put a coin in the slot of a weighing machine,we have entered into a contract. You go to a restaurant and take snacks, you have entered into a contract. In such cases, we do not even realise that we are making a contract. In the case of people engaged in trade, commerce and industry, they carry on business by entering into contracts. The law relating to contracts is to be found in the Indian Contract Act, 1872.
The law of contracts differs from other branches of law in a very important respect. It does not lay down so many precise rights and duties which the law will protect and enforce; it contains rather a number of limiting principles, subject to which the parties may create rights and duties for themselves, and the law will uphold those rights and duties. Thus, we can say that the parties to a contract, in a sense make the law for themselves. They do not transgress some legal prohibition, they can frame any rules they like in regard to the subject matter of their contract and the law will give effect to their contract.
LAW OF CONTRACT:
The law of contract is to introduce certainty in commercial and other transaction. Anson observes that, “ the law of contract is intended to ensure that what a man has been led to expect shall come to pass; and what has been promised to him shall be performed”.
An agreement enforceable by law is a contract.
In a contract there must be –
1. An agreement and
2. The agreement must be enforceable by law.
An agreement is an arrangement between parties that creates legal obligations between them. Generally an agreement is said to be arrived at when an offer or proposal made by one person is accepted by another, with the intention of creating mutual obligations between them.
The following features are considered to be essential to a contract:
· A minimum of two parties must be needed.
· There has to be a lawful offer and acceptance which results in an agreement.
· There must be intention between the parties to create a legal obligation.
· Consideration must pass: Each party to the agreement must benefit from the agreement.Therefore, each party must give and get something. Consideration need not be immediate. It can be for something done in the past, present or future. In a contract, each party puts the other party under some obligation or extracts some promise from him or her. The exchange given for the obligation or promise is called consideration. It can be in cash or in kind.
· Lawful consideration: Consideration must be lawful. That means the consideration given by one party to another should not be illegal, fraudulent, or opposed to public policy.
· Competent parties: the parties to a contract must be competent to contract. For this they must by 18 years old (must have attained majority).
· They must be of sound mind and should not be disqualified by law from entering into contracts. This means that, lunatics, drunkards, etc. cannot enter into a valid contract except in special cases. Sound mind means being able to make a rational decision as a normal person would be able to do. It also implies that one should not be in a state of intoxication in any manner.
· Free consent: The parties to a contract must agree to enter into a contract freely. This means that they should not be coerced or be under any kind of undue influence, fraud, misrepresentation or mistake while entering into a contract. When consent is given it must specifically relate to the offer. When a person has the capacity to force another to do or not do something and the other person cannot resist that, the first person is said to have undue influence over the second.
· The parties cannot enter into a contract which has terms which are contrary to any law. This means that the contract cannot contain terms which are illegal, fraudulent, immoral or opposed to public policy.
· Not expressly declared void: No law should clearly ban contract of that particular nature.
· Clarity of terms: The terms of the agreement must be clear. If an agreement is unclear it cannot be enforced under law.
· Legal formalities to be complied with: Contracts may be either oral or written. However, certain contracts have to be in writing while some contracts have to be written and registered. For example, a contract to sell property has to be written and registered.
Consideration must pass: Each party to the agreement must benefit from the agreement. Therefore, each party must give and get something. Consideration need not be immediate. It can be for something done in the past, present or future. In a contract, each party puts the other party under some obligation or extracts some promise from him or her. The exchange given for the obligation or promise is called consideration. It can be in cash or in kind.
· Lawful consideration: Consideration must be lawful. That means the consideration given by one party to another should not be illegal, fraudulent, or opposed to public policy.
· The parties cannot enter into a contract which has terms which are contrary to any law. This means that the contract cannot contain terms which are illegal, fraudulent, immoral or opposed to public policy.
AGREEMENT:
An agreement is an arrangement between parties that creates legal obligations between them. Generally an agreement is said to be arrived at when an offer or proposal made by one person is accepted by another, with the intention of creating mutual obligations between them.
There are the various kinds of Void Agreements. Agreements are void when:
I) Condition and objects are unlawful in part or full.
ii) They are without consideration.
iii) They aim at restraining marriage.
iv) They are agreements which try to restrain trade. This means that one party cannot restrain another party from carrying on lawful profession, trade or business of any kind. This is true except when there is a Sale of goodwill i.e. when one person sells the goodwill of his business to another the Buyer may insist on the Seller refraining from carrying on identical or similar business in the locality wherein the Sellers goodwill exists. Goodwill is the benefit, advantage, reputation that is derived out of a business
a) Partners may agree with each other thatthey shall not during the continuance of the firm carryon any business other than that of the firm.
b) They shall not carry business similar to that of business of the firm after its dissolution; and
a retiring partner shall not carryon similar business for a certain period or within certain local limits.
c) Association understanding / Trade combinations: When associations are formed to regulate and promote trade it would not amount to restraint of trade if such regulation and promotion brings about standardized goods, fixed prices and eliminates bad competition.
d) Sole Dealing Agreements for e.g. X appoints Y as his sole agent or distributor for a specified area and Y agrees not to deal with goods of any other manufacturer.
e) Service Agreements: When an employee is restrained from working for another during the contract period by the employer it is a void agreement. The above restraint should however be limited by time and territory.
v) Agreement in restraint of legal proceedings : when one party in an agreement attempts to restrain the other party from enforcing the rights which the other party has by way of legal proceedings in the ordinary tribunals / Courts, the agreement is void. Agreements which limit the time within which the other party may enforce his/her rights or which cancels the rights of a party on the expiry of a specified period will be void to that extent. i.e. to say that the provisions of the contract shall be void but the rest of the contract shall remain.
Duty-Imposing or Power-Conferring Rules
Legal rules defining the ways in which valid contracts or wills or marriages are made provide individuals with facilities for realizing their wishes, by conferring legal powers upon them to create, by certain specified procedures and subject to certain conditions, structures of rights and duties within the coercive framework of the law.
On this picture, the point of contract law is to grant persons the power to modify, within limits, their legal obligations to one another. As Ernest Weinrib puts it, the “contract effects a voluntarily assumed change in the pre-existing legal relationship between the contracting parties . Or in Randy Barnett’s words, to “make a contract a party must explicitly or implicitly manifest an intent to be legally bound.” According to the alternative, duty-imposing picture, contract law is concerned with extralegal wrongs such as breaking a promise, causing reliance harms, or unjustly enriching oneself at the expense of another. Consider, for example, Charles Fried’s claim that “since a contract is first of all a promise, the contract must be kept because a promise must be kept,” or Patrick Atiyah’s arguments that contract law is designed to compensate for reliance-based harms and prevent unjust enrichment. While Fried and Atiyah make very different claims about the point of contract law, they agree that it is meant to impose duties on persons who enter into agreements for consideration.
The answer requires a more general account of the difference between power-conferring and duty-imposing rules and of how we identify a given law as of one or the other type. The function of a duty-imposing law is to give persons subject to it a new reason to act in accordance with the rule in Hart’s words, “whether they wish to or not.” The function of a power-conferring law, by contrast, is to enable persons to determine, within bounds, what the law is or requires. As Joseph Raz puts it, power-conferring laws attach legal consequences to certain acts because “it is desirable to enable people to affect norms and their application in such a way if they desire to do so for this purpose.” These different functions impose different design requirements on duty-imposing and on power-conferring rules.
Consider power-conferring rules. A rule can give legal actors the ability to effect normative change, when they wish, only if it is structured such that those actors commonly satisfy the rule’s requirements because they want the resulting change. More precisely, the distinctive function of laws that create powers entails two features that together distinguish them from laws that impose duties. First, a law that creates powers must be designed in a way that underwrites an expectation of its purposive use an expectation that persons will satisfy the law for the sake of the legal consequences. Second, that expectation must be the law’s reason for attaching those legal consequences to acts of that type. Evidence of this second feature can be found in rules that facilitate or enable the law’s purposive use. To identify whether any given law is power creating, we can look to see whether it exhibits these characteristic features.
All of this is to say that if contract law is a power-conferring law, it is an odd one. Most power-conferring laws employ rules that clearly condition the legal consequences of an action on the actor’s legal purpose. Such laws wear their power-conferring function on their sleeve: Validity conditions that sort for legal purpose anticipate and enable the law’s purposive use. In fact, validity conditions that sort for legal purpose are strong evidence that the law’s only function is to establish a legal power. If a law serves no purpose but to allow persons to effect legal change when they wish, it is not merely senseless but also counterproductive to apply it to acts not done for the sake of their legal consequences. To allow a person’s actions to effect a legal change she neither expects nor wants is not to grant her control over the law but to take it away. Consequently, where a law is meant only to give persons the ability to effect legal change, we should expect it to include validity conditions that sort for legal purpose. By the same token, the presence of conditions of legal validity that sort for legal purpose indicates that this is the law’s sole function.
One way to try to rescue a power-conferring picture of contract is to argue that the consideration requirement is a validity condition of this sort. Thus Lon Fuller’s suggestion that consideration is a “natural formality,” separating out for legal enforcement agreements in which “a legal transaction was intended.” But this is hardly the only, or the most obvious, interpretation of the consideration rule. Fuller himself observed that exchange also marks agreements “of sufficient importance to our social and economic order to justify the expenditure of the time and energy necessary” for enforcement. Other explanations of consideration include the special moral qualities of exchange relationships, doubts about judicial competence to assess when to enforce gratuitous promises, and the argument that the rule is a historical anomaly, a myth created by Holmes and Williston that does not accurately describe how contract law functions. The consideration requirement provides, at best, equivocal support for an interpretation of contract law on the model of most power-conferring laws. More generally, it is simply not obvious that the conditions of contractual validity are designed to sort for legal purpose.
There is, however, another way to understand contract as a legal power, one that suggests an important difference between contract law and most power-conferring laws, and which expands our understanding of normative powers in general. The core thought is that it is possible for a law to anticipate and enable its purposive use without conditioning the legal effect of a person’s actions on evidence of her legal purpose. I suggest reserving the term “power-conferring” for laws that include validity conditions that sort for legal purpose, such as those discussed in the previous paragraphs.
Spondeo.” See W.W. BUCKLAND, A MANUAL OF ROMAN PRIVATE LAW 262–65 (2d ed.
1939) (describing Roman rule). Peter Tiersma explains the stipulatio along these lines (though he maintains that the use of formality is additionally explained by Roman law’s status-based conception of contractual obligations):What the ritualistic language does, therefore, is to set this dialogue apart fromthe ordinary, where any words with the meaning ‘promise’ would suffice. This guarantees that the parties unambiguously realize that they are engaging in something special—a binding transaction. It is virtually impossible that someone could go through this ritual without intending to bind himself.
Peter Meijes Tiersma, Rites of Passage: Legal Ritual in Roman Law and Anthropological
Analogues, 9 J. LEGAL HIST. 3, 17–18 (1988). For fascinating compendia of different types
of legal ceremonies, see Bernard J. Hibbitts, “Coming to Our Senses’’.
POWER-CONFERRING RULES:
The clearest indication that a law is concerned with the purpose with which it is satisfied is that it conditions its satisfaction on indiciaof the actor’s legal purpose. Validity conditions that sort for legal purpose both express a legal expectation that the law will be used instrumentally and further enable such uses. Using the rules of contract law as an example, I distinguish four types of such validity conditions :legal formalities; required nonconventional legal speech acts; legal intent tests; and nonlinguistic proxies for legal purpose. I argue both that the presence of such validity conditions indicates that the law’s sole function is to create a legal power and that the evidence that contract law includes them is equivocal at best. legal consequences approximate to their non-legal and obvious consequences, as in making a contract. It also explains why most legal powers are exercised by acts with only negligible non-normative consequences, like signing, so that there are few reasons for or against doing them apart from their legal or other normative consequences.
see, for example, KENT BACH & ROBERT M. HARNISH, LINGUISTIC COMMUNICATION AND
SPEECH ACTS 120–34 (1979), and P.F. Strawson, Intention and Convention in Speech Acts,
73 PHIL. REV. 439, 441 (1964).
49 Raz, supra note 15, at 81. Fuller described the same dynamic: “[F]orm offers a legal
framework into which the party may fit his actions, or, to change the figure, it offers channels
for the legally effective expression of intention.” Fuller, supra note 1, at 801. “Form
has an obvious relationship to the principle of private autonomy. Where men make laws
1744 NEW YORK UNIVERSITY LAW REVIEW [Vol. 83:1726
Bibliography
Books:
- Thomson J. Harron, Business law. Allyn and Bacon, Inc.1981.
Website
- http://en.wikipedia.org/wiki/Freedom_of_contract
- http://wiki.answers.com/Q/Sanctity_of_contract_mean
- http://definitions.uslegal.com/s/sanctity-of-contract/