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  • Tamanna Goyal

Analysis on Contract Law in Business

Tamanna Goyal

IOL, Jiwaji University

Analysis on Contract Law in Business

Introduction:

Contract plays a vital role in a business world by creating a business relationship. Through contract two or more parties are binding themselves and they put an obligation to each other. Contract is a legally binding Agreement if you are binding someone with this legal document then that Party is bound to do it. In the business world contract creates new relationship between the parties as well as extending or ending the future transactions of the existing contract.  

Contracts not only use in the business world but people are also using contract unknowingly in their everyday life. Today, people doing online shopping through various platforms such as Amazon, Flipkart etc. for purchasing the products or items. While doing online shopping, Browse Wrap Contract is there in the form of Terms and Conditions and one need to agree these conditions in order to continue shopping. After clicking on the box of the terms and conditions, people entered into the contract immediately.  


Contract:

Contract is an Agreement between two or more people for to do something or not to do something and which is legally enforceable. The contract may be oral or written. Oral contracts are those type of contract in which both the parties are dealing by an oral communication. These contracts are hardly enforceable by the court of law because there is no evidence or document to prove the existence of the contract between the parties. The contracts which are in writing form is known as written contract. In written contract terms and conditions are specified in which both the parties are agreed upon during the making of the agreement.1

In the case of Alka Bose vs. Parmatma Devi & Ors 2, the Supreme court held that even a sale agreement can be oral and have the same binding value and enforceability, as a written agreement. The agreement should be in tandem with the essentials listed in section 10 of Indian contract Act, 1872 and thus, will have the equal force of evidentiary value, as a written one.

The term “Contract” defined under section 2(h) of Indian contract Act 1872, as “An Agreement enforceable by law”3. It means if the contract fulfils all the essential of the contract, then it can be enforceable by law. The main essentials of the contract are: 

1.      There must be an offer and acceptance, which makes an Acceptance.

2.      There must be a sufficient consideration.

3.      There must be an intention to create a contractual relation.

4.      Parties must be in legal capacity to entering into the contract. 

Today, it is very important to sign a contract first before entering into any business transaction.

The contract not only gives a right to the Party or obeyed the obligation by the Party but also

maintained the contractual relation between the two parties. Contractual relationship is that in what capacity Parties are entering into the Contract. 

For e.g. if two Parties entering into a Rent Agreement then one Party has a capacity of ‘landlord’ and the second party has the capacity of the ‘tenant’. In that case, both the parties establish their relation as a landlord or tenant. So that, establishing a relation between two parties is very necessary to identifying in what capacity both the parties are entering into a Contract.


Consideration:

As we discussed above, for a valid contract there must be a consideration. The consideration is the essence of the Agreement without consideration or a sufficient consideration the contract becomes void and cannot be enforceable in the court of law. The term consideration is defined under section 2(d) of Indian Contract act 1872, as- 

 “When at the desire of the promisor, the promise or any other person has done or abstains from doing, or does or abstains from doing or promises to do or abstains from doing something, such act or abstinence or promise is called consideration”4.  

The considerations can be in the form of monetary, goods and services, exchange of benefits, forbearance etc. we can say that the consideration is the intention of the Contract. If the parties entering into the contract, it means they are promising each other to do or not to do something. For e.g. Party A wants to sell his house worth Rs. 5000000 (Fifty Lakh) and he shows his  intention to sell a house by giving a add on newspaper. After that Party B approaches to the Party A and wants to buy B’s house in Rs. 4000000 (Forty Lakh). Party A agrees to sell his house to Party B for Rs. 4000000 (Forty Lakh) and it is a valid consideration and they agree to enter into the sale Agreement. 

In the contractual relationship, one party puts an obligation in the form of terms and conditions to the other party. It means that either party oblige to each other to do or not to do through the contract by which the other party is legally bound to do or not to do this. These terms and conditions include, payment method, precedent or subsequent condition, timeline to perform the contract etc. It is important element of the contract it makes the contract more specific and also free from ambiguity so that parties can easily perform their part on the contract without any difficulty.


Analysis on Contract Law in Business

Negotiation:

It is a very common thing which people using a lot in their daily life. For e.g. when we are going to market to buy something, then many people doing bargaining with the shopkeeper that is called negotiation.  The term negotiation is widely use in the business world. As we all know contract binds two persons legally, while drafting the contract it is comprising of rights and liabilities of the party involved, negotiations, consequences of non-performance of the contract etc. There are a lot formalities takes place while making the contract. To avoid mistake

and ambiguity throughout the future of the contract, the contractual negotiation must be necessary before entering into any contract. By Pre contractual negotiation such as NDA, MOU etc. persons are minimizing the risk of any future dispute but also contract can be signed in a timely manner without any hassle.


Confidentiality:

While two parties making a contract then they share the information related to their business. They not only share the basic information but also share some confidential information, if that information leaked to the third party, then it may be caused loss or harm to the business. So, that for avoiding this, the parties put a condition of confidentiality Information before making any contractual relationship.  

For e.g if you are hiring an attorney to representing you, then you are creating an attorney client relationship. It is foremost duty of the client to tell everything to his attorney whatever it is, if the client wants to keep it secret some information but it is necessary for the case to tell such information to the attorney, then the attorney shall bound to do this. If the attorney discloses such information to anyone outside the scope of his representation, client get into the trouble.


Breach and Indemnity:

In the contract, if either party makes default in any of the provision of the contract, then it is amount to breach. How can we decide it is a breach or not? It depends on the nature of the contract. While making a contract both the Parties has an intention to fulfil the contract in a specified manner. So that they put all essential terms and conditions which is necessary to execute a contract easily without any hurdle. If any of the party breaches any of the conditions mentioned in the contract by which the other Party suffer loss or damages from such breach then the other party has a right to claim damages from the defaulting party and the defaulting party is bound to make good for such breach. 

If the defaulting party to make such breach in the stipulated time given by the party, then that party has a right to claim damages in the form indemnity. Indemnity means one party compensate the other party for loss or damages which is occurred by himself or through an accident. The defaulting party can indemnify the other party by a liquidated or unliquidated damages. The liquidated damages are those damages in which the parties fix the amount payable in case of breach as damages but unliquidated damages are those damages parties cannot be determined while making the contract.


Conclusion: 

As we discussed above, we know that the contract is very important in the business world for establishing a contractual relationship. At the time of making contract parties need to be decided in what terms and conditions they are entering into the contract for avoiding future disagreements. If the both parties of the contract mention all the essentials into the contract then they minimize the risk of non-performance and both parties can perform their promises easily and it make the life easy of the persons who are dealing with contract in day-to-day life.


References:

1. Definition: Indian Contract Act, 1872

2. Alka Bose vs. Parmatma Devi & Ors [CIVIL APPEAL NO(s). 6197 OF 2000]       

3. Definition: Indian Contract Act, 1872

4. Definition: Indian Contract Act, 1872, bareact


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