Definition of Contract and An Explanation of Contract Elements

A contract is an agreement between two or more persons creating rights & duties and which is enforceable by law.

Definition of Contract according to different personals

According to Pollock

“Every agreement and promise enforceable at law is a contract”

According to Salmond

“A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”

According to Sir William Anson

“A legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearance on the parts of others”

Elements of the contract

There are the following elements of the contract.

Agreement

We can define the agreement when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when it is accepted becomes a promise. Thus, an agreement is a promise or set of promises. A promise comes into existence when one party makes a proposal or offer to other party and that promises must form consideration to each other.

The following are the characteristics of the agreements

Plurality of persons: there must be two or more persons to make an agreement because one person cannot enter into an agreement with himself.

Consensus ad idem: it means that both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time. The term consensus means identity of minds. Unless there is consensus ad idem, there can be no contract.

There are two types of agreements

Social Agreements: these agreements are social in nature and do not enjoy the benefits of law. These agreements are not enforceable because they do not create legal obligation. In such agreements the parties do not intend to create legal relationship.

Legal Agreement: these are the contracts because they create legal obligation between the parties. In these agreements the parties intend to create legal relationship. In business agreements it is presumed that the parties intend to create leagal relationship so all business agreements are contracts.

Enforceability

Enforceability is the second requirement of contract. An agreement is enforceable if it is recognized by court. In order to be enforceable by law, the agreement must create legal obligation between the parties. If an agreement does not create legal obligation, it is not a contract.

Essential Elements of a Valid Contract

The essential elements of the contract are as under:

Offer and Acceptance

For an agreement there must be a lawful offer by one party and lawful acceptance of that offer from the other party. The term lawful means that the offer and acceptance must satisfy the requirements of the contract Act. The offer must be made with the intention of creating legal relations, otherwise there will be no agreement.

Legal Relationship

The parties to an agreement must create legal relationship. It arises when parties know that if one of them does not fulfill his part of promise, he shell be liable for the failure of the contract. Agreements of a social or domestic nature do not create legal relations and so cannot give rise to a contract. It is presumed in commercial agreement that parties intend to create legal relations.

Lawful Consideration

The third essential of a valid contract is the consideration. Consideration means something in return. It may be some benefit to the other party. It is the price paid by one party for the promise of the other. An agreement is enforceable only when both the parties get something and give something. The something given or obtained is called consideration. Only those considerations are valid which are lawful

Free Consent

It is another essential of a valid contract. it conveys a meaning to the parties that both the parties to the contact have agreed upon the same thing in the same sense. For a valid contract, it is necessary that the consent of parties to the contract must be free. a consent is said to e free when it is not obtained by coercion, under influence, fraud, misrepresentation or mistake.

Lawful Object

it is also necessary that agreement should be made for a lawful purpose and the objective for which the parties is making an agreement must not be fraudulent, illegal, immoral, opposed to public policy, imply injury to the person or property of other. Every agreement, of which the object or consideration is unlawful, is illegal and therefore void.

Writing and Registration

a contract may be oral or written, it is always in the interest of the parties that the contract should be in writing because it is easy to prove in the court. a verbal agreement is as good as written agreement. it is essential for the validity of a contract that it is must be in writing, signed and witnesses by the witnesses and registered if required by the law.The contract of sale, mortgage, or gift of immovable property must be in writing and registered

Certainty of Terms

the meaning of the agreement should be certain or capable of being made certain if the meaning of the contract is not certain then the agreement would be void. The terms of agreement must be clear, complete a certain. If the terms of the agreement are uncertain, it cannot be enforceable by a court of law.

Possibility of Performance

The valid contract must be capable of being performed. An agreement that is relating to perform any act that is impossible in nature is void. incase if the act is legally or physically impossible to perform, the agreement cannot be enforced at law. thus where the goods being the subject matter of the contract are damaged without the fault of any party, the contract cannot be enforced.

Not Expressly Declared Void

An agreement must not be one of those, which have been expressly declared to be void by the Act. An agreement in restraint of trade and an agreement of wager have been expressly declared void.

Kinds of Contract

The contract can be divided according to enforceability, formation and performance.

According to Enforceability

On the basis of enforceability the contract can be divided into following categories.

Valid Contract

A valid contract is an agreement enforceable by law. we can say an agreement is a valid contract when all the essential elements of the contract is fulfilled.

Void Contract

a contract is called void which cannot be enforced by law. when a contract is made but after its formation it becomes void due to impossibility of performance, subsequent illegality, rejection of a voidable contract & when depending event become impossible.

Voidable Contract

when an agreement is enforceable by law at the option of one of the parties to agreement, but not at the option of the other party of the contract, is called voidable contract.

Unenforceable Contract

it is a contract that is not enforceable in the court of law due to some technical defects like absence of writing, registration of the contract, stamp missing or due to some other defects

Illegal Agreement

When the performance of any act forbidden by the law, such agreement are called illegal contract. such agreement can never be consider as contract.

According to Formation

According to formation a contract can be divided into three kinds.

Express Contract

An agreement is called express when it is made by words. so we can say that a promise made in words is called an express Contract.

Implied Contract

Implied contract is which that is made other than words. an implied promise results in implied contract. when a person, without being requested provides his services under some circumstances with the expectation that he will be paid and the other person, knowing such circumstances, accept the benefit of those services.

According to Performance

According to performance there are the following types of contract.

Executed Contract

Executed contract means when both the parties have completely performed their obligation. means that nothing is left to be done by all the parties under the contract.

Unilateral Contract

Under this contract only one party makes a commitment. under this only one party is bound to perform while the other party choose to be bound by it.

Bilateral Contract

Under this when a contract is made all the parties to the contract is bound to perform. under this all the parties have to perform their obligation.

Offers

It is first essential of a valid contract. An agreement is made when one party made an offer and the other party accepts it. we can say that when one person signifies his willingness to do something to the other person or to abstain from doing something, with a point to obtain the assent of the other person such act is called proposal. the person making an offer is called offeror.

Example M says to N that he will sell his phone to him for $50. it is an express offer.

Invitations to treat

invitation to treat is an expression of wiliness to negotiable. under this an individual is not bound until it is accepted by the individual to whom it is addressed. It includes the terms like display of goods, auction advertisement and the invitation for tenders

Acceptance/counter offer

Proposal is accepted incase when a person to whom the offer is made signifies his assent to accept the same proposal. Without the acceptance of the proposal no agreement came into existence. In order to make a valid acceptance it should b given by the offeree, it must be absolute, it should be communicated through prescribed manner &it should be communicated to the offeror. In case where there is a condition in his acceptance it is called counter offer. as a result of counter offer there will be no contract until the counter offer is accepted by the other party.

Example A asks to B to reply of his offer by telegram but B send reply by letter. A may reject such acceptance

Consideration

Consideration is the price for which the promise of the other party is bought and the promise gives the value is enforceable. it is done when the desire of one party the other party done something or abstained from doing something or the other party does or abstains from doing, or it abstain from doing something, such act or abstinence or promise is called consideration for the promise

Example: A agrees to sell his house for $ 2000 to B. A’s promise to sell the house is consideration for B. B’s promise to pay is the consideration for A

The rights of third parties

According to the law rule a third party could not enforce the terms of a contract, as well as the third party could not perform against the promisor only if in the contract specifically mentioned in the contract as some authorized to do so.

Capacity

An agreement is enforceable only if it is made by parties who posses contractual capacity. From capacity of parties we means that the parties entering into an agreement they must be competent to contract. The parties to the agreement must be of the majority and the sound mind and must not disqualified from contracting by any law to which they are subject.

Example: A person of unsound mind agrees to sell his house to S for $ 1000. it is not a valid contract because he is not competent to contract

Standard form Contract

It is a contract made between two parties that does not allow for negotiation. it means that they only have the option of take it or leave it.

Example a salesperson of a firm is given a contract by a salesperson. the individual had the option to take it or leave it.

Tenancy Agreements

When premises are let, it is always best to do so with a legally valid and clearly written agreement between the parties. Furthermore, it is a legal requirement for the landlord to provide a written statement of the main terms of a tenancy agreement if requested by the tenant.

For the landlord, a tenancy agreement allows them to secure certain legal undertakings from the tenants. Commonly, that they will not damage the property during the tenancy and will leave the premises promptly and in good order and repair at the end of the tenancy. For the tenant, it allows piece of mind that their occupation of the premises will be peaceful and without interruption, so long as they act within their agreement. Additionally, a good tenancy agreement will make clear all the obligations of both parties, so that should something go wrong during the tenancy, both parties know their respective responsibilities and duties, thereby resolving potential disputes before they occur.

There are the following tenancy agreements

Assured Short hold Tenancy: These agreements are common type of letting contracts in England. The time Period for these contract vary from six month to twelve months, although it can be extended.

Assured Tenancy: This type of contract is used for more time spam here both the parties are seeking to enter into an agreement that can run for many years. unless there is a breach of contract by either party.

House & Flat Share (Lodgers): These type of tenancy agreements suits for the people those wish to rent only a room in their property.

Holiday Letting Agreement: These type of agreements are simple in nature, and these are used to let a accommodation for the holidays. The house property is used for a shorter period of time i.e. for few week or a month

Offer & Acceptance

It is the most important element if a contract that there must be an offer for the agreement and the other party accept it. it is not necessary the that offer and acceptance must be in oral or written form. Implied is one in which some of the conditions of the contract is not expressed in words. Taking the example of by searching a house for rent, tenant had agreed that he will pay the rental amount to landlord. Incase if the tenant refuse to pay then he had breached a contract. an offer must be clear and definite. incase the terms of the offer are not definite then it cannot be called a valid offer. a proposal

Importance of Offer and Acceptance in Tenancy Agreement

The most important function of the agreement is that the tenancy agreement proclaim the duties, responsibilities and the rights of the tenant and the landlord. all the parties knows the limit in regards to the tenancy, In case of absence of the tenancy agreement both the parties won’t be able to understand their limits. for example the tenant may start making changes in the house according to his own liking and convenience, and those changes are not liked by the landlord. From the landlord point of view he may start encroaching upon the privacy of the tenant. So we can say that it is very important that the rights and obligations of all the parties under the contract must be laid down so that it became convenient to establish who is wrong. The agreement should contain all the clauses and should be signed before the tenant.

Court Case: Madam Justice L. J. Smith of the Court of Queen’s Bench of Alberta dealt with a review on appeal of a decision made against a landlord by the Alberta Human Rights & Citizenship Commission. The Commission determined that the landlord had “raised the rent” of the tenant for no other reason than to “get rid of them”. The landlord was found to have discriminated against the tenant on the basis of the tenant’s income, and the Justice did not disturb the decision by the Alberta Human Rights & Citizenship Commission.

Court Case Corlis v. St. Croix, 2002 ABPC 19  A decision of Provincial Court Judge A. H. LeFever. This case was primarily concerned with whether a purported “inspection” by the landlord in the absence of the tenant, on the grounds advanced by the landlord that the tenant had abandoned the place. The Judge ruled that the landlord did not make reasonable efforts to contact the tenant to arrange the inspection.

Contents of Tenancy Agreement

Although contracts will differ on such aspects as the property types and rental prices there will be a few details that are common to all. These should include:

The names and addresses of tenant and landlord.

The property address that is being let.

The Date of entry to the property.

The termination date.

The rental amount and frequency of payment.

The amount of deposit.

Type of tenancy, for example short term or assured tenancy.

Details of notice needed to quit the property.

Importance of Intention and Consideration in Tenancy Agreement

Under the United Kingdom law considering the consideration is not enough to create a legal binding to the other party to the contract, the parties to the contract must also have intention to create a legal relationship among them. In other situation the law readily implies the intention due to the nature of the dealing among the parties. The absence of consideration is usually indicative of the intention to create a legal relationship between the contracting parties. The intention to create a legal relationship is an essential feature of the contract and the existence of the intention will depends on the nature of the contract and forms the contract and the contracting parties. In determining whether parties to the contract have created legal relations, the court will look at the intention of the parties.

Court Case Cracknell v. Jeffrey, 2001 ABPC 11 :A decision of Provincial Court Judge J.N. LeGrandeur. In this case, the landlord claimed a “late payment fee” of $5.00 per day for 30 days, on unpaid rent ($150.00). The Judge carefully examined the law relating to “legitimate pre-estimate of liquidated damages” and “penalties”, and came to the conclusion that, in this instance, the so-called “late payment fee” was in law a “penalty”, and as such would not be allowed by the Court. In summary, the Judge said, [15] whether the sum claimed is a penalty or a genuine pre-estimate of damage is a question of law to be decided upon consideration of the whole agreement. (Reimer v. Rosen, [1919] 1 WWR 429, Man.C.A.) Although the parties to a contract may always try to make a pre-determination as to damages, should the contract be breached, this must always yield to judicial approval of its reasonableness in the circumstances. (See: H.F.Clarke Ltd. v. Thermidaire Corporation Ltd., (1975) 54 DLR (3d) 385 per Laskin, CJC at 393) That approach is consistent with the principle that an injured party is entitled to be compensated and made whole, but not bettered by a damage award.

Importance of the contracting parties having the appropriate legal capacity

An agreement is enforceable only if it is made by parties who posses contractual capacity. From capacity of parties we means that the parties entering into an agreement they must be competent to contract. The parties to the agreement must be of the majority and the sound mind and must not disqualified from contracting by any law to which they are subject. We can say that capacity means the ability to understand the terms and conditions of the contract. It is one of the essential of a valid contract that all the parties must have capacity to enter into a contract. It is importance to remember that the legal capacity is situational and depends upon the proposed act. For example a client who is signing a loan application can be lucid and have legal capacity at that time but may not be having legal capacity after some time. Failure to understand that an older adult lacks the legal capacity would results in a Varity of consequences for rental/mortgage organization. Including loss of funds, any advances made to the person as well as negative impact on the all the tenancy agencies. So it is very important for the parties to know that the other person entering into the contract have the legal capacity to enter into the agreement. For all these reasons it is imperative that parties to contract remember the other person entering into the agreement must have legal capacity.