LAW OF CONTRACT The Law of Contract is that branch of law which determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties. Indian Contract Act, 1872 came into effect from 1st September, 1872. It extends after independence to whole Pakistan and known as “Contract Act, 1872”.
Contract law is based on the principles expressed in Latin phrase; “PACTA SUNT SERVANDA”. The meaning of this phrase is “agreements to be kept”, but more literary means “PACTA” is `must be kept`. Agreement Is an Essential of a Valid Contract 1 – INTRODUCTION A contract is an agreement between two parties that creates an obligation to do or refrain from doing a particular thing. The purpose of a contract is to establish the terms of the agreement by which the parties have fixed their rights and duties. Courts must enforce valid contracts, unless one party has legal grounds to bar enforcement.
According to legal scholar Sir John William Salmond, a contract is “an agreement creating and defining the obligations between two or more parties” 2 – RELEVANT PROVISION Section 3 – 12 of Contract Act, 1872. 3 – INTERPRETATION OF TERMS: AGREEMENT [SECTION 2(e)]: An agreement means, “Every promise or every set of promises, forming consideration for each other”. AGREEMENT = PROMISE(S) BY ONE PARTY (+) PROMISE(S) BY THE OTHER PARTY PROMISE [SECTION 2(b)]: “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. PROMISE = PROPOSAL + ACCEPTANCE PROPOSAL/OFFER [SECTION 2(a)]: A person is said to make a proposal when “he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining assent of that other to such act or abstinence” PROPOSAL = WILLINGNESS TO DO OR ABSTAIN FROM DOING (+) WILLINGNESS’ TO OBTAIN ASSENT OF THE OTHER PARTY TO SUCH ACT OR ABSTINENCE CONTRACT [SECTION 2(h)]: A contract is “an agreement enforceable by law”. Thus, CONTRACT = AGREEMENT (+) ENFORCEABILITY BY LAW “All contracts are agreements but all agreements are not contracts” – All contracts are agreements but all agreements are not contracts: U/S 10 According to Section 10, “All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void”. Contracts and agreements are related in so many significant ways. Contracts mean agreeing on specific matters weather those are national or international aspects of agreements or not. In a broad sense, contract is an agreement between two or more competent parties in which an offer is made and accepted, and each party benefits.
The agreement can be formal, informal, written, oral or just plain understood. Some contracts are required to be in writing in order to be enforced. Examples of a contract are a lease, a promissory note, or a rental agreement. 5 – Essential Elements of a Valid Contract U/S 10: The essential elements of a valid contract can be summed up as follows; Agreement. Certainty of meaning. Consensus-ad-idem (meeting of minds) Intention to create legal relationship. Parties competent to contract. Lawful consideration. Free and genuine consent. Lawful object. Agreements not declared void or illegal.
Certainty and Possibility of performance. Necessary Legal Formalities. Agreement: To constitute a contract there must be an agreement. There must be two parties to an agreement, i. e. one party making an offer (offeror) and the other party accepting the offer (offeree). The terms of the offer must be definite and acceptance must be absolute and unconditional. The acceptance must be according to the mode prescribed and must be communicated to the offeror. Consensus-ad-idem (meeting of minds): To constitute a valid contract, there must be meeting of minds i. e. consensus-ad-idem.
The parties should agree to the same thing in the same sense and at the same time. Intention to create legal relationship: When the two parties enter into an agreement, there must be an intention by both parties to legally bind the other as a result of such agreement. Thus, agreements of social or household nature are not contracts. Capacity of parties (competence): The parties to the agreement must be capable of entering into a valid contract. According to Section 11, every person is competent to contract if he or she, 1. is of the age of majority; 2. is of sound mind; and . is not disqualified from contracting by any law to which he is subject. Lawful Consideration: An agreement to form a valid contract should be supported by consideration. Consideration means “something in return” (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful. Free consent: To constitute a valid contract there must be free and genuine consent of the parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue influence or mistake. Lawful object:
The object of the agreement must not be illegal or unlawful. Section 23: According to Section 23, the consideration or object of an agreement is lawful, unless- • It is forbidden by law; or • Is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; or • Involves or implies, injury to the person or property of another; or • The court regards it as immoral, or opposed to public policy. Agreement not declared void or illegal: Agreements which have been expressly declared void or illegal by law are not enforceable at law; hence does not constitute a valid contract.
Certainty and possibility of performance: The terms of agreement must be certain and not vague. If it is not possible to ascertain the meaning of the agreement, it is not enforceable at law. Also, agreements to do impossible acts cannot be enforced. Legal formalities: A contract may be oral or in writing. If, however, the law requires for a particular contract, it should comply with all the legal formalities as to writing, registration and attestation. 6 – Agreement Is An Essential Of A Valid Contract: To constitute a contract there must be an agreement. 7 – Explanation of the Agreement:
An agreement is composed of two elements—offer and acceptance. The party making the offer is known as the offeror, the party to whom the offer is made is known as the offeree. Thus, there are essentially to be two parties to an agreement. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem (meeting of minds). Example: Thus, where ‘A’ who owns 2 cars x and y wishes to sell car ‘x’ for Rs. 30,000. ‘B’, an acquaintance of ‘A’ does not know that ‘A’ owns car ‘x’ also. He thinks that ‘A’ owns only car ‘y’ and is offering to sell the same for the stated price.
He gives his acceptance to buy the same. There is no contract because the contracting parties have not agreed on the same thing at the same time, ‘A’ offering to sell his car ‘x’ and ‘B’ agreeing to buy car ‘y’. There is no consensus-ad-idem. 8 – Offer is an Essential of an Agreement: An offer is a promise to act or refrain from acting, which is made in exchange for a return promise to do the same. Essential for offer: Must be made with a view to obtain acceptance. Must be made with the intention of creating legal relations. Terms of offer must be definite, unambiguous and certain or capable of being made certain.
It must be distinguished from mere declaration of intention or an invitation to offer. It must be communicated to the offeree. The offer must not contain a term the non-compliance of which may be assumed to amount to acceptance. A tender is an offer as it is in response to an invitation to offer. The Special terms, forming part of the offer, must be duly brought to the notice of the offeree at the time the offer is made. Two identical cross-offers do not make a contract. 9 – Juristic Approach Regarding Proposal: “Proposal merely offers to be bound by a promise”. Winfield) 10 – Acceptance is an Essential of an Agreement: Acceptance is the act of giving consent to the proposal. A proposal when accepted becomes a contract. Acceptance for offer: Acceptance must be absolute and unqualified. It must be communicated. It must be according to the mode prescribed. It must be given within the time specified or within reasonable time. It must be in response to offer. It must be made before the offer lapses. It must be given by the person to whom the offer is made. 11 – Case Law Explanation: Hotchkiss Vs National City Bank Held:
An acceptance is a many friction of assent to the terms made by the offeree, in a manner invited or required by the offer. 12 – Transformation of Proposal into Promise: When the person to whom the proposal s made signifies his assent there to be accepted, a person when accepted becomes a promise. “When the person to whom the proposal s made signifies his assent there to, the proposal is said to be accepted. A proposal, when accepted becomes a promise”. 13 – Differences between Contract and Agreement: “Every promise and every set of promises forming the consideration for each other is an agreement” – Sec 2(e).
It means whenever one or more persons promise to each other to do or not to do something that is an agreement.?? On the other hand according to the contract act 1872 a contract is, “An agreement enforceable by law. ” – Sec 2(h). According to Salmond, “A contract is an agreement creating the defining obligations between the parties”. According to Sir William Arson, “A contract is an agreement enforceable at law made between two and more persons by whom rights are acquired by one or more by to act or forbearance on the part of the others.
Agreement is emerged from willingness of both parties to do or not to do something. As no legal obligation is required here so just any two parties can mutually dispute on any matter. Agreement is emerged this way. But all true contracts begin with an agreement. ———————————————————————— ? An agreement may be legal or illegal. As it is not bound by the law it needs not to follow the rules. ?On the other hand only legally enforceable agreement is contract. So it can never be illegal. ———————————————————————— ?
Agreement may be against of human rights. It will create no problem because the parties will not seek help from the law. A contract can never be against of human rights. ———————————————————————— ? Purpose of an agreement can be illegal. But purpose of a contract can never be illegal. An agreement can be with an impossible matter. As it is not banded by the law people can make agreement on any matter. Contract cannot be with any impossible matter. ———————————————————————— ?
Agreement between two parties does not create any legal obligation or relationship.?? As contract is enforceable by law its obvious purpose is to create a lawful relationship. ———————————————————————— ? An agreement may be expressed or implied. But a contract must be expressed and clear that no ambiguity can occur. ———————————————————————— ? An agreement is not dependent on contract. But a contract is dependent on any agreement. ———————————————————————— ?
There is no obligation to write or register an agreement. Each and every contract must be written and registered. ———————————————————————— ? Any two parties can make an agreement. But the parties of contract must be capable of contracting. ———————————————————————— ? All agreements are not contract. All contracts are agreement. 13 – Conclusion: Contract is an agreement between two or more person creating rights and duties between them and which is enforceable by law.
Pollock defines contract as every agreement and promise enforceable at law is contract. A contract is an agreement creating and stating responsibility between the parties. According to section2b of the contract act, an agreement enforceable by law is contract. So it is clear the contract consist of two elements: • An agreement • The agreement should be enforceable by law. According to section 2e every promise and combination of promises making the consideration for each other is an agreement. It is clear from the definition that promise is an agreement.
Section 2 defines the promise as when any person with the suggestion is made indicate his assent thereto, it means the proposal is accepted. A proposal when accepted becomes a promise. We can say that an agreement is an accepted proposal. The process of definition shows that a contract is an agreement, an agreement is a promise and a promise is an accepted proposal. An agreement therefore comes into existence only when one party makes a proposal or offer to the other and that other signifies his assent thereto. In short every agreement is the result of a proposal from one side and its acceptability by the other.