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Basics Of Contract Law

What is Contract law?

Contracts are the commitments among people to do in exchange for something they get. We can also interpret a contract as a guarantee between two businessmen that they require a legal and verbal coalition. In the case of Contract law, this comes into existence wherein despite exchanging money of any kind they come into a contract where they make an exchange of something at the toll of others.

We should always keep in mind that "All agreements are not contracts but All contracts are agreements." Agreements should satisfy all provisions of the Indian Contract Act, 1872 then only they are known as contracts.

All agreements are not contract but All contracts are agreement
  • Offer + Acceptance = Promise
  • Promise + Consideration = Agreement
  • Agreement + Enforceable = Contract
An Agreement can turn into an agreement just on the off chance that it is legitimately enforceable by law or satisfies the conditions set down under segment 10 of Indian Contract Act,1872. In this way, all agreements are certainly arrangements.

All Agreements are not Contracts in light of the fact that solitary arrangements which satisfy the conditions set down under area 10 of Indian Contract Act,1872 become contracts. It isn't required that every one of the arrangements will fulfill the conditions set down under area 10 of Indian Contract Act,1872.

Let's discuss this with examples
If an agreement has been entered into between Sally and Ramu for a pound of lettuce in exchange for Salon services, Sally cannot retrace herself from stylizing Ramu's stubble. If she does so Ramu can knock on the doors of a court to get the agreement enforced. Before they had entered into this agreement Sally had an option whether she wants to enter into this deal with Ramu or not, but once there has been agreement on both sides the option has transformed into an obligation,

Sally has no option but to stylize Ramu's beard or face the legal consequences of not keeping her part of the deal. If a party refuses or fails to carry out what he or she had pledged in a contract one can resort to a legal remedy but no legal remedy could be taken in case of breaking an agreement. This is the difference between mere agreements and contracts.

In agreements, one can only expect that the other person will follow what he/she has agreed, whereas in a contract the person cannot only expect but also demand what was agreed upon.

Essentials of valid contract under Indian Contract Act

Section 10 of the Indian contract Act has laid down the conditions for a contract to be valid.

Followings are the conditions:
  1. Offer and Acceptance

    The word offer(proposal) is defined under Section -2(a) of the Indian Contract Act, 1872 whereas section 2(b) defines that when an offer is accepted it becomes a promise.
    The three constituents should be fulfilled for a valid agreement-
    An offer is made, consensus-ad-idem and acceptance

    An offer and proposals in many instances are used correspondingly. Offer is the foundation of any contract. When one person signifies to another his willingness to do or to abstinence, from doing anything, to obtain the assent of that other such act or abstinence, he is said to propose. We should also keep this in mind a person making the offer is called the offeror and The person to whom the offer is made is called the offeree.

    Consensus-ad-idem signifies that the offeree should elucidate in which manner the offer is made. He/she should be cleared with an exact sense of what it is going to be.

    An acceptance is made after offering an offer then the offeree has two options just to accept or reject it. The offeree should only accept the order when they are cleared with all statements written in the contract.

    It prevails that all rules and regulations composed on time of offer made and at time of acceptance should be the same.

    Let's illustrate this with an example
    Here's the crockery mart from where Mrs. Sharma orders a 12 cup of the set, 12 glasses, etc, and asks them to deliver. Then the mart manager offer a contract to Mrs. Sharma that he will deliver all the products safely to her house but in case there's any crack or a broken piece comes out then neither they will change nor she can sue them because they bring the goods on order so, they don't have any extra piece to exchange and that's why there is no guarantee in case of customer delivering. Mrs. Sharma learned all the conditions which the shopkeeper wrote on offer and then she accepted also.

    And after a few days when she got her parcel and opened it, 3 mugs and 2 glasses were broken. Now, she cannot sue the shopkeeper for sending those mugs and glasses.

    Landmark case about this acceptance
    Felthouse v. Bindley
    For this situation, the applicant, Mr. Paul Felthouse needed to buy a horse from his nephew, yet the value he offered to pay for the horse was not exactly that his nephew was able to sell it for. The horse, in this manner, was as yet in his ownership. The Uncle conveyed his proposal through a letter, saying,

    On the off chance that I hear not any more about him, I consider the horse mine at 30.15s" The nephew couldn't react to the letter since he was occupied with a sale on his ranch. Even though he asked the salesperson, Mr. Bindley, not to sell the horses, he incidentally did. Mr. Felthouse at that point sued the litigant for a change of his property. The litigant contended that the horse was not Mr. Felthouse's property, as there existed no agreement among him and his nephew at the hour of the bartering because Mr. Felthouse's offer was not acknowledged by his nephew and the nephew's quiet can't be viewed as an Balfourgment of the offer.

    It was held that Mr. Felthouse did not have the ownership of the horse at the time of the auction, which is why he could not sue for conversion, as the offer he made was not accepted.
     
  2. Intent to make legal relationship:

    Let's illustrates this with an example
    Here's a two-person name A (wholesaler) and B (Retailer). They came into an agreement where A promised to give goods to B at the wholesale price but in case A didn't do the same B can sue him.

    On the other hand, if B invites A to his daughter's wedding and A promises that he will show his presence there but then also if he doesn't go then B cannot sue A.

    In the first illustration, A is liable but in second illustration A is not liable because we can observe in case A they share a legal relationship that has legal obligations and he is aware of its fallout. But in illustration 2 there is no lawful connotation which shows that there is no legal relationship and that's why A is not liable.

    Landmark case on intention to make the legal relationship
    Balfour v. Balfour:
    The construct of intention to form legal relationships was understood within the case of Balfour v. Balfour. During this case, the suspect United Nations agency was utilized on a government job in Ceylon, visited England along with his married person. For health reasons the married person was unable to accompany the husband to Ceylon. The husband secured to pay 300/ month as maintenance to the married person for the time she lived apart. The husband did not pay the amount and was eventually sued by his married person.

    In the c, as it was commanded that the husband wasn't prone to pay as there was no intention to form a legal relationship between the parties.
     
  3. Admissible object and Authorized or Consideration

    In the case of a valid contract legal consideration is very much essential. The word 'consideration' means to get something in return for something. Consideration is also something that a person gets an extra privilege, it can be in any kind of money, or according to contract. If there would be no consideration then the contract will be quashed and void.

    Section 2 (d) of the Contract Act 1872 defines a contract as:
    When at the desire of the promissory, the promise or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such an act or abstinence or promise is called a consideration for the promise.

    Let's discuss this with an illustration:
    There's a man named Shiva who comes into consideration where he borrowed Rs. 500000 from Ashish and said he will pay back this money in the coming time to the owner of the Maruti Suzuki showroom when Ashish will buy a Car. This is a valid consideration between Shiva and Ashish.

    In the above illustration, we can observe that all the essentials of consideration are justified and fulfilled.:
    1. This consideration is legal.
    2. All the statements are clear.
    3. This can be in the past, present, or future.
    4. Money borrowed by Ashish but payback to the owner. Thus, this can move from one party to another.
       
    Landmark case on Consideration
    Durga Prasad v. Baldeo:
    In the case it was held that it is essential that the consideration must have been given at the desire of the promisor, rather than merely voluntarily or at the instance of some third party.
     
  4. Potential to Make a Contract

    All the provisions are given in Section 14- of the Indian Contract Act, 1872 should be fulfilled before coming into a contract.
    There are some conditions where a person cannot make a contract which is as follows:
    1. A person should attain adulthood.
    2. Minor cannot make the contract.
    3. He/she should be of sound mind.
    4. A drunk person is not allowed to make a contract.
    5. The person shouldn't be insolvent.
    Hence, if a person is drunk, unsound solvent, or minor, they will not be capable of making any contract. Their contract will be considered invalid.

    Let's discuss more with an illustration
    Illustration 1
    Let's say a girl named Riya (12years old) for whom the contract is made that her father said to make a contract with a person named Ayush that he will sell his property to him and in return whatever money he would have to get spent on Riya's education.

    This is a valid contract. One can say that the minor cannot come into a contract but in this situation, the contract was not made by Riya, it is for Riya that's why it's not void.

    Illustration 2
    A person named Aakash went to a club party last night, where he drank a lot of alcohol. Then he came into a contract with their owner that he would pay Rs. 100000 to their club in return they have to make him as their partner. In this situation, the contract is invalid because a drunk person isn't in a state of mind where he can decide or choose anything correct.

    Mohori Bibee v. Dharmodas Ghose:
    In this case, it was held that an agreement by a minor is void.
     
  5. Potentials for the existence of a contract

    A contract is valid in cases where possible statements take place. Not the situation where there are chances but not sure.

    Let's discuss more with illustrations
    Illustration 1

    The two people named Aman and Sanjeev both came into a contract that Aman will sell his motorcycle to him but not decided at which amount. So in this condition, the contract is Invalid.

    Illustration 2
    The person named Kamal comes into a contract that if Rajesh brings stars from the sky to the earth then this contract is not justified. Because bringing stars to the earth is an impossible task.

    Hence, the Contracts are valid in a situation only when they can be fulfilled.

    Landmark case regarding the frustration of contract
    Krell v. Henry:
    For this situation, the respondent consented to lease a level of the offended party to watch the crowning ordinance of King Edward VII from its overhang. The offended party had guaranteed that the view from the level's gallery will be fulfilling since the parade will be totally apparent from the room. The gatherings related through letters and concurred on a cost of 75 for two days. No place in their composed correspondence did the gatherings notice the crowning ritual function.

    The crowning ritual didn't happen when the level was reserved for, as the thoughtful became sick. The litigant wouldn't pay the entire amount of cash that the gatherings had settled upon, consequently. It was held that it may very well be caused by the conditions encompassing the agreement and what the inferred reason behind the agreement was. Because of the crossing out of the parade, the motivation behind booking the level was disappointing.
     
  6. Proper courtesies

    According to the Indian Contract Act, 1872 the contract can be in both oral and written form. But as advisable the contract should be in written form to avoid any future crisis. If the contract is in written form then the person is bound to do a certain task but there is a risk in the case of an oral contract. Written contracts encompass the signature of both the parties which can be used in court for making the right decision. Otherwise, oral contracts are also valid.

    Let's discuss this with an illustration
    An owner of Maruti Showroom entered into an oral agreement with Aman that he will sell him a car at a 20% discount than that contract is also valid. And in some situations, if they both signed a contract where he wrote the same then that is also a valid agreement.

Conclusion

These are the most fundamental and rudimentary standards of an agreement, which are to be satisfied, anyway there might be different conditions which might be set somewhere near an extraordinary law, or for explicit sorts of agreement. Eg. an agreement managing IPR needs to maintain rules set somewhere around the laws managing IPR.

Reference:
  • Essential elements of a Valid Contract - Indian Contract Act,1872 | Law column
  • Essentials of a valid contract under Indian Contract Act 1872 (lawyersclubindia.com)
  • Essentials of a Valid Contract under The Indian Contract Act (legalbites.in)
  • Importance of Consideration in Contract (legalservicesindia.com)
  • https://www.vakilno1.com/legal-news/important-cases-on-the-law-of-contract-for-entrance-exams.html
Written By:
  1. Harsh Shrivastav (Students of Lloyd Law college Gr. Noida, UP)
  2. Himanshi Chandani (Students of Lloyd Law college Gr. Noida, UP)

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