Contract Law

The Law of Contracts is the basis of business law because the bulk of transactions of the people engaged in trade, commerce and industry is based on contracts. In India, the Law of Contracts is contained in the Indian Contract Act,1872. The Act lays down the general principles relating to formation, performance and enforceability of contracts and the rules relating to certain special types of contracts like, Indemnity and Guarantee; Bailment and Pledge, and Agency. The Partnership Act; the Sale of Goods Act; the Negotiable Instruments Act; the Companies Act, though technically belonging to the Law of Contracts, have been covered by separate enactments. However, the general principles of the Contract Law are the basis for all such contracts as well.

The principal features of the Law of Contract are:-

• The parties to the contract make the law for themselves.


• The Act is not exhaustive since it does not take into its purview all the relevant legislations.


• It does not override customs or usages.


• The Law of Contracts is not the whole law of agreements.

As per the Indian Contract Act,1872, a "contract" is an agreement enforceable by law. The agreements not enforceable by law are not contracts. An "agreement" means 'a promise or a set of promises' forming consideration for each other. And a promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an 'offer' and its 'acceptance'.

An "offer" is the starting point in the process of making an agreement. Every agreement begins with one party making an offer to sell something or to provide a service, etc. When one person who desires to create a legal obligation, communicates to another his willingness to do or not to do a thing, with a view to obtaining the consent of that other person towards such an act or abstinence, the person is said to be making a proposal or offer.

An agreement emerges from the acceptance of the offer. "Acceptance" is thus, the second stage of completing a contract. An acceptance is the act of manifestation by the offeree of his assent to the terms of the offer. It signifies the offeree's willingness to be bound by the terms of the proposal communicated to him. To be valid an acceptance must correspond exactly with the terms of the offer, it must be unconditional and absolute and it must be communicated to the offeror.

An "agreement" is a contract if 'it is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void'. The contract must be definite and its purpose should be to create a legal relationship. The parties to a contract must have the legal capacity to make it. According to the Contract Act, " 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 a sound mind, and is not disqualified from contracting by any law to which he is subject". Thus, minors; persons of unsound mind and Persons disqualified from contracting by any law are incompetent to contract.

Essential Elements of a Contract

Minimum two parties :- Atleast two parties are needed to enter into a contact. One party has to make an offer and other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'.

Offer and acceptance :- There must be an 'offer' and an 'acceptance' to the offer, resulting into an agreement. Both offer and acceptance should be lawful.

Legal obligations :- The parties must intend to create a legal obligation.The agreement sought to be enforced should contemplate legal relations between the parties to it.

Lawful consideration:- A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged or a sacrifice which is of value to the other party. This consideration may be past, present or future, but it must be lawful.

Competent parties:- The parties making the contract must be legally competent in the sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a legal nullity.

Free consent:- The contracting parties must give their consent freely. 'Consent' means that the parties must agree about the subject matter of the agreement in the same sense and at the same time. Consent is said to be free if it is not induced by coercion, undue influence, fraud,misrepresentation or mistake. The absence of free consent would affect the legal enforceability of a contract.

Lawful object:- The object of the agreement must be lawful. An agreement is unlawful, if it is:- (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.

Not expressly declared void:- An agreement expressly declared to be void under the Contract Act or under any other law, is not enforceable and is, thus, not a contract. The Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements.

Certainity and possibility of performance:- The terms of a contract must not be vague or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also,the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law.

Legal formalities:- Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration. Therefore, where law requires an agreement to be put in writing or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to be reduced to writing.

Breach of Contract

The remedies available to the aggrieved party, in case of breach of contract by the other party are:-

• Suit for rescission of the contract :- Rescission is the revocation of a contract. When a contract is broken by one party, the other party may sue for rescission and refuse further performance. In such a case, the aggrieved party is absolved of all its obligations under the contract.


• Suit for damages:- the party who is injured by the breach of a contract may bring an action for damages. Damage is the monetary compensation allowed by the court to the aggrieved party for the loss or injury suffered by him as the result of breach by the other party.


• Suit for injunction:- An injunction is an order of the court requiring a person to refrain from doing some act which has been the subject matter of contract. The power to grant injunction is discretionary and it may be granted temporarily or for an indefinite period.


• Suit upon 'Quantum Meruit' :- The term "quantum meruit" means, 'as much as is merited' or 'as much as earned'. A suit of quantum meruit is a claim for the value of the material used or supplied under a contract that has become void on account of breach by the other party. When a contract becomes void, any person who has received any advantages under such contract is bound to restore it, to the person from whom he received it.


• Suit for specific performance:- When the loss suffered by breach of contract cannot be compensated by damages or where there are no standards to ascertain the quantum of damages, the aggrieved party may approach the Court for the grant of a decree for specific performance of the contract. Specific performance is granted when:-
  
  
  • Money is an adequate remedy
  
  
  • It will be inequitable to either party
  
  
  • The contract is of a personal nature
  
  
  • the court cannot supervise its execution

'Earth Hour' to be Observed on March 28 in India

`Earth Hour' will be observed by India as well as by the rest of the world to save energy as well as environment on March 28. The people will be observing the Day by switching off all the lights and electrical appliances for an hour from 8.30 pm to 9.30 pm. This year India, especially Delhi and Mumbai will participate. Lights would be switched off or dimmed at 11 PVR cinemas in Delhi and Mumbai and corporate offices. As per World Wide Fund for Nature (India), this year 50 lakh citizens of 377 cities from 74 nations are participating in this initiative.

Began with one hour switching off lights at Sydney in Australia two years back, the `Earth Hour' was observed in 35 countries last year in an attempt to reduce the carbon footprint. Earth hour is not about a quantitative measure about saving electricity but a powerful symbol for the fact that its possible to take action against climate change. It is to bring about awareness about the increasingly growing problem of climate change and to subsequently make changes in lifestyle that lead to wiser energy use.