The Contract to be enforceable needs to conform to certain essential ingredients.-Discuss the essentials of Contract and in particular the concept of consideration
INTRODUCTION
The mere fact of agreement alone does not make a contract. Both parties to the contract must provide consideration if they wish to sue on the contract. This means that each side must promise to give or do something for the other. (Note: if a contract is made by deed, then consideration is not needed.). The law relating to contracts is to be found in the Indian Contract Act, 1872.
WHAT IS A CONTRACT?
A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally. The remedy for breach of contract can be “damages” or compensation of money. In equity, the remedy can be specific performance of the contract or an injunction. Both of these remedies award the party at loss the “benefit of the bargain”
Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. Section 2(e) defines agreement as “every promise and every set of promises forming consideration for each other.” Section 2(b) defines promise in these words: “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.” From the above definition of promise, it is obvious that an agreement is an accepted proposal. The two elements of an agreement are:
(i) offer or a proposal; and
(ii) an acceptance of that offer or proposal.
Elements:
At common law, the elements of a contract are offer, acceptance, intention to create legal relations, and consideration.
Thus, a contract consists of two elements:
(i) An agreement; and
(ii) Legal obligation, i.e., it should be enforceable at law.
However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts.
Examples
(1) Ainvites B for dinner in a restaurant. B accepts the invitation. On the appointed
Day, B goes to the restaurant. To his utter surprise A is not there. Or A is the there
[1].Goods Act 1979 (SGA) and contract act 1872
^http://legal-dictionary.thefreedictionary.com/promise
^Contract Law, Third Edition, Oxford University Press, North Melbourne
^Hans Wehberg, PactaSuntServanda, The American Journal of International Law, Vol. 53, No. 4 (Oct., 1959), p.775.; Trans-Lex.org Principle of Sanctity of contracts
The Essential Elements of a Contract:
An agreement becomes enforceable by law when it fulfills certain conditions. These conditions, which may be called the Essential Elements of a Contract, are explained below.
1. Offer and Acceptance: There must be a lawful offer by one part and a lawful acceptance of the offer by the other and acceptance must conform to the rules laid down in the Indian Contract Act regarding offer and acceptance.
2. Intentions to create Legal Relationship: There must be an intention (among parties) that the agreement shall result in or create legal relations. An agreement to dine at a friend’s house is not an agreement intended to create legal relations and is not a contract.
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.
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.
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 by coercion, undue influence, mistake, misrepresentation, and fraud. A person guilty of coercion, undue influence etc.
6. Legality of the Object: The object for which the agreement has been entered into must not be illegal or immortal or opposed to public policy.
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.
8. Possibility of Performance: The agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced.
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:
“All agreements are not contracts, but all contracts are agreements”. Discuss the statement explaining essential elements of a valid contract.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
We have seen above that the two elements of a contract are:
(1) An agreement; (2) legal
Thus, the essential elements of a valid contract can be summed up as follow
1. Agreement.
2. Intention to create legal relationship.
3. Free and genuine consent.
4. Parties competent to contract.
5. Lawful consideration.
6. Lawful object.
7. Agreements not declared void or illegal.
8. Certainty of meaning.
9. Possibility of performance.
10. Necessary Legal Formalities.
These essential elements are explained briefly.
1. Agreement
As already mentioned, to constitute a contract there must be an agreement. An agreement is composed of two elements—offer and acceptance.
2. Intention to create legal relationship
As already mentioned there should be an intention on the part of the parties to the law of Contracts agreement to create a legal relationship, an agreement of purely social or domestic natures not a contract.
3. Free and genuine consent
The consent of the parties to the agreement must be free and genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mistake
4. Parties competent to contract
The parties to a contract should be competent to enter into a contract. According to
Section 11, every person is competent to contract if he (i) Is of the age of majority, (ii) is of sound mind, and (iii) is not disqualified from contracting by any law to which he is subject.
5. Lawful consideration
The agreement must be supported by consideration on both sides. Each party to the
Agreement must give or promise something and receive something or a promise in return. Consideration is the price for which the promise of the other is sought. However, this price need not be in terms of money.
6. Lawful object
The object of the agreement must be lawful and not one which the law disapproves.
7. Agreements not declared illegal or void
There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable at law.
8. Certainty of meaning
The meaning of the agreement must be certain or capable of being made certain otherwise the agreement will not be enforceable at law
9. Possibility of performance
The terms of the agreement should be capable of performance. An agreement to do an act impossible in itself cannot be enforced.
10. Necessary legal formalities
A contract may be oral or in writing.
- Wilmot et al, 2009, Contract Law, Third Edition, Oxford University Press, page 34
- ^Restatement (Second) of Contracts<href=”#cite_ref-11″>^ law.com Law Dictionary
Essential requirements of a valid offer
Made certain (Section 29 An offer must have certain essentials in order to constitute it a valid offer. These are:
1. The offer must be made with a view to obtain acceptance [Section 2(a)].
2. The offer must be madewith the intention of creating legal relations.
3. The terms of offer must be definite, unambiguous and certain or capable of being
4. The terms of the offer must not be loose, vague or ambiguous.
.
Contract
Here must be a two kind of contract and these are :
1. Bilateral contract
2. Unilateral
Now more details over both these contract:
In the bilateral contract each party takes an obligation, usually promising the other for something.
Example: A promise to sell something and been to buy it.
On the other hand, unilateral contract only one party assumes an obligation under the contract.
Example: promising to give our friend tk100 if he gives up smoking for a year.
Essentials of a Valid Acceptance
1. Acceptance must be absolute and unqualified.
2. It must be communicated.
3. It must be according to the mode prescribed.
4. It must be given within the time specified or within reasonable time.
5. It must be in response to offer.
6. It must be made before the offer lapses.
7. It must be given by the person to whom the offer is made.
WHO ARE COMPETENT TO CONTRACT?
Section 11 provides that “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.” Thus, incapacity to contract may arise from:
(i) Minority, (ii) mental incompetence, and (iii)
The position of minors’ contracts is summed up as follows:
1. A contract with or by a minor is void and a minor, therefore, cannot, bind himself by a contract. A minor is not competent to contract. In English Law, a minor’scontract, subject to certain exceptions, is only voidable at the option of the minor.
Example
DharmodasGhose, a minor, entered into a contract for borrowing a sum of Rs. 20,000 out of which the lender paid the minor a sum of Rs. 8,000. The minor executed
Articles 2[1] Articles 47(1); Mullis, A. (1998) at p- 350[1]Kluwer Law Internationalthttp://www.cisg.law.pace.edu/cisg/biblio/honnold.html.
Consideration:
Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other’s performance, the performance is consideration for the promise, while the promise is consideration for the performance.
Suppose you promise to pay someone $500.00 to paint your house. The promise sounds like an offer to enter a unilateral contract that binds only you until the promisee .
Cross-references of a consideration:
1.Contracts 2.Performance3.Promise.
West’s Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
Consideration
1) Payment or money. 2) a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration
Types of consideration
1. Present consideration
2. Future consideration
3. Past consideration
RULES GOVERNING CONSIDERATION
1. CONSIDERATION MUST NOT BE PAST
If one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past. The rule is that past consideration is no consideration, so it is not valid and cannot be used to sue on a contract
EXCEPTIONS TO THIS RULE:
(A) PREVIOUS REQUEST
If the promisor has previously asked the other party to provide goods or services, then a promise made after they are provided will be treated as binding.
(B) BUSINESS SITUATIONS
If something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration will be valid.
(C) THE BILLS OF EXCHANGE ACT 1882
Under s 27 (1) it is provided that any antecedent debt or liability is valid consideration for a bill of exchange, For example, A mows B’s lawn and a week later B gives Exchequer for £10. A’s work is valid consideration in exchange for the cheque.
2. CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT BE ADEQUATE
Providing consideration has some value, the courts will not investigate its adequacy. Where consideration is recognized by the law as having some value, it is described as “real” or “sufficient” consideration.
3. CONSIDERATION MUST MOVE FROM THE PROMISEE
The person who wishes to enforce the contract must show that they provided consideration; it is not enough to show that someone else provided consideration. The promisee must show that consideration “moved from” (ie, was provided by) him. The consideration does not have to move to the promisor.
4. FOREBEARANCE TO SUE
If one person has a valid claim against another (in contract or tort) but promises to forbear from enforcing it, that will constitute valid consideration if made in return for a promise by the other to settle the claim.
5. EXISTING PUBLIC DUTY
Sufficient if someone is under a public duty to do a particular task, then agreeing to do that task is not consideration for a contract. If someone exceeds their public duty, then this may be valid consideration.
1. EXISTING CONTRACTUAL DUTY
If someone promises to do something they are already bound to do under a contract, that is not valid consideration.
by Sir Frederick Pollock, approved by Lord Dunedin in Dunlop v Selfridge Ltd [1915] AC 847, is as follows:
. They are legal, which are sufficient to support the contract or illegal, which render it void. As to illegal considerations, see 1 Hov. Supp. to Ves.jr. 295; 2 Hov.Supp. to Ves.jr. 448; 2 Burr.924 1 Bl. Rep. 204. If the, performance be utterly impossible, in fact or in law, the consideration is void. 2 Lev. 161; Yelv.197, and note; 3 Bos.& Pull. 296, n. 14 Johns. R. 381.
The case of Carlill v Carbolic Smoke Ball Company<href=”#cite_note-7″>[8] is an example of a ‘unilateral contract‘
- Lampleigh v Braithwait (1615) Hob 105.
- Re Casey’s Patents [1892] 1 Ch 104.
· The principles in Lampleigh v Braithwait as interpreted in Re Casey’s Patents were applied by the Privy Council in:
· Pao On v Lau Yiu Long [1980] AC 614
- Collins v Godefroy (1831) 1 B & Ad 950.
- Stilk v Myrick (1809) 2 Camp 317.
- Hartley v Ponsonby (1857) 7 E & B 872.
Conclusion:
A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally. The remedy for breach of contract can be “damages” or compensation of money. In equity, the remedy can be specific performance of the contract or an injunction. Both of these remedies award the party at loss the “benefit of the bargain” After all this discussion we can say that, Consideration is a benefit which must be bargained for between the parties, and is the essential for a party entering into contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration).In a contract, one consideration is exchanged to another consideration. Such as –I will pay you 100000 not to build a road next to my fence. Sometimes consideration is nominal, meaning it is stated for form only, such as $10 as consideration for everyone is title, which is used to hide the true amount being paid. Contract may become enforceable or rescindable (undone by by rescission) for failure of consideration when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not made properly
Reference:
Ewan McKendrick, Contract Law – Text, Cases and Materials (2005) Oxford University Press ISBN 0-19-927480-0
P.S. Atiyah, The Rise and Fall of Freedom of Contract (1979) Clarendon Press ISBN 0-19-825342-7
Randy E. Barnett, Contracts (2003) Aspen Publishers ISBN 7355-6525-2
Scott Fruehwald, “Reciprocal Altruism as the Basis for Contract,” 47 University of Louisville Law Review 489
<href=”#cite_ref-3″>^ 2008 Merriam-Webster online dictionary
<href=”#cite_ref-4″>^ (1870-71) LR 6 QB 597<href=”#cite_ref-5″>^ R. Austen-Baker, ‘Gilmore and the Strange Case of the Failure of Contract to Die After All’ (2002) 18 Journal of Contract Law 1
<href=”#cite_ref-6″>^ e.g. Lord Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LQR 433; c.f. § 133 BGB in Germany, where “the actual will of the contracting party, not the literal sense of words, is to be determined”
.Copyright © 2009 New York University Law Review.
.Gregory Klass is Associate Professor, Georgetown University Law Center.
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