What is Law of Contract ?

The Essential Elements of Contract

Object and scope

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 person. According to Salmond, a contract is “an agreement creating and defining obligations between the parties.” According to Sir William Anson, “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 of forbearances on the part of the other or others.

            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 is enforceable 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.

Definition of Contract:

An agreement enforceable by law is a contract. Therefore is a contract there must be (i) an agreement (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.

Essential Elements of 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.

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 objective “lawful” implies that the offer and acceptance must conform to the rules laid in the Indian Contract Act regarding offer and acceptance.

Intention to Create Legal Relationship:

There must be an intention 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. 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.

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. The consideration may be an act (doing something) or forbearance (not doing something) or promise to do or not to do something. Consideration may be past (something already done). It may also be present or future. But only those considerations are valid which are “lawful”.

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.

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. cannot enforce the agreement.

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.

Certainty:

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

Possibility of Performance:

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

Void Agreements:

            An agreement so made must not have been expressly declared to be void. Under Contract Act there are five categories of a

Agreements which are expressly declared to be void.

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.

Finally, 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 all the essential elements is enforceable by law and is called contract. From this follows that,

            “Every contract is an agreement but all agreements are not contract”.

Part- 2 : Offer and Acceptance:

Definition:

Formation of Contract:

All contracts are made by the process of a lawful offer by one party and the lawful acceptance of the offer by the other party.

Proposal: 

An “offer” involves the making of a “proposal”. The term proposal is identified in the contract Act as follows; “When one person signifies to another his willingness to do or to obstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. Sec. 2(a)

Offer:

A proposal is also called an offer. The promisor or the person making the offer is called the offeror. The person to whom the offer is made is called the offeree.

Promise and Acceptance:

When the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. A proposal when accepted becomes a promise. Sec. 2(b)

“The person making the proposal is called the `promisor’ and the person accepting the proposal are called the promisee. Sec. 2(c)