A legally valid (in the eyes of the law) contract is an agreement between two parties, binding themselves in a legal obligation to perform specific acts. Indian Contract Act, 1872, defines the term ‘contract’ as “an agreement enforceable by law between two or more parties to do/abstain from doing something”[i]. Each party is obligated to perform the requisite duty, for instance, rendering a payment or delivering a certain service. A contract is consequential to various transactions, such as sale of goods, provisions for services etc. Contracts can either be unilateral or bilateral, expressed or implied via oral or written.
Constituents of a valid contract
There are two important requisites for the formation of a contract, one being agreement and the other is the enforceability of the agreement.
As stated earlier, an agreement needs to be validly binding in the court of law. The wings of a valid contract can be tabulated as the following:
Consensus Ad Idem or ‘meeting of minds’ is a pre-requisite before the effectuation of a contract. Each party must share a consonance and understanding over the subject matter of the agreement. For instance, if a delivery contract presents the term ‘ship’, the parties must not interpret it to be a sea vessel, which rather mean ‘to deliver’.
Consideration[ii] remains the key and exclusive element, inter alia, in a contract. In order for the contract’s enforceability, each party must exchange this vital element on the same plane. It must be of some value and a benefit which must be bargained for between the parties as it the driving force behind a party entering into a contract.[iii]
Offer and Acceptance
There has to be clear ‘offer’ and ‘acceptance’, clearly communicating the ‘intent’ to be bound by the contract.[iv]The terms submitted must be unambiguous and perspicuous. Invitation to offer doesn’t bind the parties into a contract.[v]
Legal contracts must be entered into by competent parties. Test of sound mind, legal age, unencumbered by intoxication and who are not disqualified from contracting by any law are few measures to ensure the competency of the party.[vi]
Breach of contract
An agreement undergoes through a tunnel before blooming into a contract. They are best thought of in a timeline, where the inception of formation begins with negotiations and witness modifications before a final consensus is reached. There can be certain weak spots in between this process or after the effectuation where the contract can be ‘breached’.
A breach of contract refers to one/both parties failing to perform the terms or duties of the agreement. Non-performance of duties; impossibility to perform, thereby, rendering one party out of the relation; anticipatory breach are some of the types of breaches. It can be partial or full, yielding distinct legal consequences. Section 73 to 75 of the Act[vii] deals exclusively with the consequences of breach of contract.
Remedies available on contract claims
Damages and Specific performance are two ways to avail remedies upon breach of obligations by a party to a contract. While the former is ‘substantial’ in nature, the latter is a ‘specific’ remedy.
When the veracity of a contract is breached, it invites penalty for claims as compensation or damages for which multitude of remedies are available.[viii]Legal remedies include monetary or compensatory damages (reimbursing the damage for economic losses)[ix] or consequential damages (reimbursements for losses indirectly caused but needs to be proved that the other party had the knowledge of the contemplation)[x] or liquidated damages (for the breach explicitly stated in the contract itself).[xi]Equitable remedies compel a party to take actions against the other, designed to correct the breach occurred. Recession (entering into a new contract by scraping the old one)[xii] and reformation (re-wording the current agreement) are two forms of equitable claims.
Specific performance of contract
Granted by the court, specific performance of contract is an equitable relief enforceable against the defendant at the order of the court. It is the pecuniary compensation for failure in carrying out the terms of a contract.[xiii] Specific Relief Act, 1963 intricately deals with the persons who can obtain specific performance of contract.[xiv] The Court can order for a specific performance when either there is no standard for ascertaining the actual damage or when the non-performance of an obligation cannot be mitigated or compensated with monetary value.[xv]
In Bolton v. Mahedeva, the claimant agreed to furnish the defendant’s flat with a specified amount payable by two installments. On the completion of the work, the claimant demanded his fees. However, the defendant refused to pay as he was unsatisfied with some furnishing. It was held that as the claimant has substantially fulfilled his part, he was entitled to the contractually agreed price. In Ritchie v. Atkinson, the claimant, by contract, agreed to carry a cargo of specified quantity of iron. However, he was only able to carry a certain quantity. The defendant argued for non-performance of the full contract and questioned the claimant’s full payment. It was held that the claimant is entitled to payment for the amount he carried.
Contracts are an essential part of every day’s functioning for an individual. It is the fountainhead of sets of rights and obligations correlated to each other. We enter into several agreements, unconsciously, without even realizing the same. Once entered, one needs to make sure to fulfill the object of the agreement. Frustration of the contract will lead to compensatory burden. However, remedies requires more than mere stipulation of breach. It needs to be established firmly.
“The views of the authors are personal“
[i]Indian Contract Act, 1872, § 2(h), No. 9, Acts of Parliament, 1872 (India).
[ii] Indian Contract Act, 1872, § 2(d), No. 9, Acts of Parliament, 1872 (India).
[iii] Currie v. Misa, 1874 LR 10 Ex 153 (Eng.).
[iv]Lalman Shukla v. Gauri Dutt, (1913) 40 ALJ 489 (India).
[v] Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., 1953 1 QB 401 (Eng.).
[vi]Indian Contract Act, 1872, § 11, No. 9, Acts of Parliament, 1872 (India).
[vii]Indian Contract Act, 1872, Chapter VI, No. 9, Acts of Parliament, 1872 (India).
[viii]M.Lachia Setty& Sons Ltd v. Coffee Board Bangalore, AIR 1981 SC 162 (India).
[ix]Indian Contract Act, 1872, § 73, No. 9, Acts of Parliament, 1872 (India).
[xi]Indian Contract Act, 1872, § 74, No. 9, Acts of Parliament, 1872 (India).
[xii]Indian Contract Act, 1872, § 75, No. 9, Acts of Parliament, 1872 (India).
[xiii] Hari Krishna Agarwala v. KC Gupta, (1946) AIR Tr & Coch 93 (India).
[xiv]Specific Relief Act, 1963, § 15, No. 47, Acts of Parliament, 1963 (India).
[xv] Specific Relief Act, 1963, § 10, No. 47, Acts of Parliament, 1963 (India).