NAME: SUMIT BEHERA

ROLL: 440
ROOM: 41
COURSE: B.COM [Honours]
SEMESTER: II
SUBJECT: BUSINESS
REGULATORY FRAMEWORK - I
ASSIGNMENT
YEAR: 2009
COLLEGE: ST. XAVIER’S
COLLEGE
[Autonomous
Under C.U]
WHAT IS A CONTRACT?

An agreement enforceable by law is a contract.

Thus for the formation of a contract there must be

1. an agreement
2. the agreement should be enforceable by law

An agreement is defined as every promise and every set of promises forming the
consideration for each other and a promise is an accepted proposal.

A contract is an agreement between two or more persons (individuals, businesses,

organizations or government agencies) to do, or to refrain from doing, a particular
thing in exchange for something of value. Contracts generally can be written, using
formal or informal terms, or entirely verbal. If one side fails to live up to his/her/its
part of the bargain, there's a "breach" and certain remedies for solving the
differences are available. The terms of the contract - the who, what, where, when,
and how of the agreement - define the binding promises of each party to the
contract.

A contract is an agreement between two or more parties to do, not do, or promise something.
Contracts can come in many forms — they can be oral or written, implied or express, and legally
enforceable or not. The strongest contract, in terms of enforceability, has an offer, acceptance,
consideration for the exchange, clearly sets out the terms of the agreement without ambiguity,
and is signed by the involved parties with proper capacity to enter into the contract. Weaker
contracts include verbal agreements or contracts drawn up by parties in direct violation of state
or federal laws. There are numerous aspects related to valid contracts; in fact, an entire course in
law school is often devoted to contract law.

While we tend to think of written contracts when we talk about contracts, the most common type
of contract is actually an oral contract. In fact, we pretty much enter into at least one oral contract
every day. For example, a parent might tell his or her child that they will get a reward if they
behave properly at a certain event. If the child agrees, then you have a type of oral contract —
albeit one that isn't legally binding!
Contracts can be implied or express. That is, the entire contract, or one or more of its terms, can
be implied or express. Typically, when we think of contracts we think of express contracts. For
example, in a contract for a monetary loan, you will likely promise to pay a certain monthly rate
at a certain interest rate until the loan is paid off. In addition, you probably will agree to late
payment fees as well. These terms are explicitly laid out in an express, written contract.

Sometimes, however, a contract term or the entire contract itself is implied. For example, when
you order food at a restaurant you are entering into a implied, oral contract. You and the server
do not explicitly state the offer and acceptance for the steak you ordered with a list price of 32
US Dollars (USD) but that agreement is implied. The basic elements of a contract, namely an
offer, acceptance of the offer, and consideration for the exchange, are all implied.

Offer and acceptance, sometimes also called “meeting of the minds” is a fundamental part to a
contract. Without it, we might bind parties to contracts who did not want or intend to be party to
the contract. Consideration, on the other hand, ensures that something is being exchanged. In
some cases, the law requires that consideration be adequate, that is, a relatively reasonable price,
or nominal, where just a dollar will do. Other times, the requirement of consideration may be
waived in the interest of preventing injustice.

Contracts may be enforceable by law or they may not. The example of the agreement between
the parent and child would not be enforceable by law whereas the agreement for a loan likely
would be enforceable by law. Whether a contract is enforceable by law depends on numerous
factors, the primary factor being whether the parties to contract intended the contract to be
legally binding or legally enforceable.

A contract may not be legally enforceable for a variety of factors. Problems on the face of the
contract can make it void. If one of the parties to the contract has diminished capacity whether it
be due to age or mental condition the contract will most likely be unenforceable. Fraud or
misrepresentation by a party to a contract can void the contract as can contract terms that violate
controlling laws.

ESSENTIALS OF A VALID CONRACT

All agreements are contracts if they are made

a. BY THE FREE CONSENT OF PARTIES competent to contract - Consent is said

to be free if it is not caused by
• Coercion - Consent is said to be caused by coercion when it is obtained
by pressure exerted by either committing or threatening to commit an act
forbidden by the Indian Penal Code or unlawfully detaining or threatening
to detain any property.
• Undue influence - A contract is said to be induced by "undue influence"
where the relation subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.
 • Fraud - Means and includes the following acts done with the intention to
deceive or to induce a person to enter into a contract. (a) the suggestion
that a fact is true when it is not true and the person making the suggestion
does not believe it to be true (b) active concealment of a fact by a person
who has knowledge or belief of the fact, (c) promise made without the
intention of performing it.
• Misrepresentation - When a person positively asserts that a fact is true
when his information does not warrant it to be so, though he believes it to
be true, it is misrepresentation. A breach of duty which brings an
advantage to the person committing it by misleading the other to his
prejudice is also a misrepresentation.
• Mistake - Where both parties to an agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void. An
erroneous opinion as the value of the thing, which forms the subject
matter of the agreement, is not deemed as mistake as to a matter of fact.
Unilateral mistake, i.e. the mistake in the mind of only one party does not
affect the validity of the contract.

b. FOR A LAWFUL CONSIDERATION AND OBJECT -

Consideration or object is unlawful if

(1) It is forbidden by law,
(2) Is of such a nature if permitted it would defeat the provisions of any law,
(3) It is fraudulent,
(4) The court regards it immoral,
(5) The court regards it opposed to public policy. Every agreement of which the
consideration or object is unlawful is void.

c. NOT EXPRESSLY DECLARED TO BE VOID.

TYPES OF CONTRACT
Bilateral v. unilateral contracts
Unilateral contract of adhesion on timekeeping ticket dispensed by vending machine at parking
lot entrance

Contracts may be bilateral or unilateral. The more common of the two, a bilateral contract, is an
agreement in which each of the parties to the contract makes a promise or promises to the other
party. For example, in a contract for the sale of a home, the buyer promises to pay the seller
$200,000 in exchange for the seller's promise to deliver title to the property.
In a unilateral contract, only one party to the contract makes a promise. A typical example is the
reward contract: A promises to pay a reward to B if B finds A's dog. B is not obliged to find A's
dog, but A is obliged to pay the reward to B if B finds the dog. In this example, the finding of the
dog is a condition precedent to A's obligation to pay.

An offer of a unilateral contract may often be made to many people (or 'to the world') by means
of an advertisement. In that situation, acceptance will only occur on satisfaction of the condition
(such as the finding of the offeror's dog). If the condition is something that only one party can
perform, both the offeror and offeree are protected – the offeror is protected because he will only
ever be contractually obliged to one of the many offerees; and the offeree is protected, because if
she does perform the condition, the offeror will be contractually obliged to pay her.

In unilateral contracts, the requirement that acceptance be communicated to the offeror is

waived. The offeree accepts by performing the condition, and the offeree's performance is also
treated as the price, or consideration, for the offeror's promise.

A common type of unilateral contract is the offer of a reward, eg, 'Dog Lost, Answers to Bad
Wolf, £50 reward for safe return'. This is unilateral because although the offeror commits to
paying £50 if the dog is safely returned, nobody is actually contractually committed to finding
and returning the dog.

Courts generally favour bilateral contracts. The general rule in the United States is: "In case of
doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform
what the offer requests or by rendering the performance, as the offeree chooses." Restatement
(Second) of Contracts § 32 (1981) (emphasis added). Here the law attempts to provide some
protection from the risk of revocation in a unilateral contract to the offeree. Note that if the offer
specifically requests performance rather than a promise, a unilateral contract will exist. See
option contracts for more information on protection given to the offeree in a unilateral contract.

Consideration

Making a contract involves an exchange of something of value to each party. Most often, one
person pays money to another, and in return gains a benefit, such as goods or services. Whatever
is given (or paid) is called consideration.

Validity of an agreement with consideration

The presence of consideration is usually the difference between a 'commercial' contract and an
agreement between friends or family members which is not meant to be legally binding. The
presence of consideration indicates an intention that an agreement is legally binding. A one-sided
arrangement in which one person gets a benefit at the other's expense (such as in the giving of a
gift) will not usually be a contract.
However, although the law demands that on each side the price must be of some real value, what
is paid by one need not be comparable in value to what the other party is giving. So there can
still be a contract, for example, where a person leases a house to a friend for a nominal rent. As
long as there is an exchange of some kind the courts will usually enforce the contract.