Introduction:
A contract is considered as a mutual obligation between two or more parties, based on legal precepts that make a contract mutually binding. A written contract is considered more legally binding than an oral contract. In simple words, a contract is formed when an individual or a group makes an offer/proposal to another individual or a group and them consenting/accepting the given proposal in good faith. While doing so, the offeror must have an intention to create a legal relationship with the accepting party, then this becomes a legally binding contract.[1] In India, the contractual obligations and contract law are governed in legal parameters by the Indian Contract Act 1872. According to Sir John William Salmond, a contract is “an agreement creating and defining the obligations between two or more parties”.[2]
The contractual system is as old as time itself. The contract law was mostly developed for business-based civilization and historically contract law may not be found in non-commercial societies. Ancient societies used individual agreements without legal connotations in different ways, for example through links of kinship or by the dominance of religion. In an economy based on barter, most transactions had expected terms and conditions and also included what is being traded and whom it is being traded to. If problems did arise due to any defects, then these problems were solved through property law rather than through contract law.[3]
The evolution of contract law from the Roman empire to the present scenario has had many developments, flaws, and positive promulgations. As said by Prof. Arthur Mehren, “The rebirth and development of contract law was a part of the economic, political, and intellectual renaissance of western Europe”.[4] Contract law from the west entered India through the British regime, which was then drafted originally by the 3rd Indian Law Commission in the year 1861 in England. The Indian Contract Bill defined laws relating to Contracts, Sale of movable properties, Guarantee, Indemnity, Partnership, agency, bailment, and mostly due to colonial dominance, the bill was made to be used for a considerable period.[5] The Indian Contract Bill 1861 with further amendments was made into the Indian contract act, which came into force on September 1872, and with further amendments, two more acts were established from within the contract act, namely, ‘Sales of goods act 1930‘ ‘Indian Partnership Act 1932’.[6] Even though contract law has been amended, analyzed, and interpreted in different ways in past and present in various societies, the important thing that remains the same as it was before and now is its general principle.
Doctrine of Consideration
The element of consideration helps in the formation of a legally obligated contract. When a group or an individual gets into a contractual agreement, if the prior is getting something and the latter is not getting something from that contractual obligation, then it is considered a void contract, as there should always be a mutual consideration to come into a contract. Even though, there are certain exceptions for this, still a mutual contract is considered a better option in legal terms.[7]
The 13th Century is considered to be a focal point for the evolution of the doctrine of consideration. The breach of contract which is considered modern was not recognized by English law or courts. The only two causes allowed by British courts, based on a contractual basis was: covenant and debt. Both of these were useful to some extent but neither gave a quality remedy for informal promises. But through further legislation, these problems have been lessened.
Considerations for the Performance of a Contract
Consideration also in general means, ‘something in return’, and in Latin terms, it means ‘Quid-Pro-Quo’. An arrangement or agreement which is without consideration is a bare promise and ex nudo pacto non aritio actio, i.e., a contract entered without any consideration cannot be held to binding on the parties. Section 2(d) of the Indian Contract Act, 1872[8] describes what is a consideration in a general term. Section 23 of the Indian Contract Act, 1872[9] also talks about, “what considerations is and the objects which are lawful”. Conventionally, there are two types of contracts, i.e., unilateral and bilateral contracts which determined if groups or individual parties provided consideration and the point of consideration. Unilateral contracts bounded only the offeror and not the accepting party unless the accepting party agreed to the obligations said by the offeror’s terms. Until the accepting party performed the obligation offered by the offeror, he/she had provided no consideration under the law of contract. Bilateral contracts bounded both offeror and the accepting party the minute both parties exchanged promises, as both parties’ promises were considered sufficient in themselves.[10] For example, in an Indian case, Durga Prasad V. Baldeo,[11] the plaintiff constructed some shops with a prior request from the District Collector of a town. Those constructed shops were given for rent for doing business to the other party (defendant). The defendant, considering huge amounts spent by the plaintiff for the construction of the building promised to give 5% commission apart from the rent on things sold through his shop. Due to the failure of the defendant to pay the commission promised to the plaintiff, eventually led the plaintiff to initiate action against the defendant. The court rejected the plaintiff’s motive and action on the grounds that the construction of the shop was done by the desire of the District Collector and hence court concluded that there is no consideration of giving any commission as the contract is void in nature (eg. of Unilateral contract). An example of Bilateral contracts would be, for example, a contract for the sale of the house. The house seller agrees to deliver the title to the house in exchange for the agreed sale price. The house buyer agrees to pay the specified sales price in exchange for the title to the house. This contractual obligation would likely be in writing and signed by both parties.
For the contract of any nature to be legally considered, the courts require three things, an offer that should be valid, an acceptance of that valid offer, and consideration. The doctrine of consideration is what distinguishes a contract from a mere gift.
Should Considerations be Adequate?
Adequacy of the contracts makes them legally binding in the court of law. Generally, when we talk about adequate contracts, it involves a mutual and bilateral exchange that has promised a fair offer in comparison to the promise that has been made in exchange for it. For example, let’s assume, if an offeror promises to sell his car for $88,000 and the accepting party accepts the offer and pays only $1000, this consideration would be deemed inadequate. However, if the accepting party accepts to give him shares or commodities worth $88,000, then it might be considered as an adequate legal contractual obligation. In the Indian context, the contract law emphasizes more on considerations rather than adequacy. It says that consideration may be of value in the eyes of law. For example, A agreed to sell his PlayStation to B, worth Rs.40,000 for Rs.1000 with his consent. This according to the Indian Contract Act 1872 is a valid contract. Explanation 2 to Section 25 of the Indian Contract Act says, “An Agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate, but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.”[12] Illustration (f) to Section 25 explains that “if A agrees to sell a horse worth ` 1,000 for ` 10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.”[13]
Conditions of a Contract
The word “condition” according to Arthur L. Corbin is, “used in the law of property as well as in the law of contracts and it according to him is used with some variations in meaning.”[14] Arthur L. Corbin further says that “In its proper sense the word “condition” means some operative fact after acceptance and before discharge, a fact upon which the rights and duties of the parties depend”.[15] Conditions of a contract are considered an important element of a contractual obligation, as conditions bind an individual or a group to the obligation to perform, at the same time conditions of a contract can also cause the contract to be void or invalid.
Another important thing about the conditions of the contract is that the terms of the said contract should be specified. If the said terms are not specified then the parties who have to perform the obligation may break that contractual agreement. The conditions precedent and subsequent should be clear before entering into a contractual obligation as it may become a problem if either party isn’t clear about these elements.
In general terms, a conditional precedent is a valid fact that must exist before the existence of some legal relationship. Most commonly it is an unconditional duty of performance by an offeror or the secondary duty to pay damages for a breach of such duty of performance.[16] A condition subsequent is also a valid fact that causes the termination of some previous legal obligation. The term is used concerning both primary contractual duties and secondary duties.[17]
Why Conditions in a Contractual Obligation is of the Essence?
In a legal relationship, a contractual relationship must be based on conditions that are already specified to help both parties to have a smooth business without any legal dispute in the future. A condition can bind both offerors and accepting parties with a legal obligation and having a condition helps in the smooth functioning of a business, and they can further render an agreement invalid if anything happens without going into legal suits. Expressing the conditions that do not use specific, definite terms to identify both the agreed-to event and the timing of the event can free a contractor from legal responsibility based on a breach of contract lawsuit.[18]
Conditions for Performances of Contract Vs Considerations for the Performance of the Contract
Conditions and considerations of a contract are important basis while approaching a mutual legal obligation. Consideration is an important element of a legal contract and conditions are what helps in the smooth functioning of business based on a legal obligation. In a Supreme Court case in India, known as Commissioner of Central Excise, Nagpur-I V. Indorama Synthetics (India) Limited[19] the case tries to defines what should be the scope and what should be a performance of the contract in consideration and conditional terminology. The Supreme court says in this case that surrendering of advanced licenses by the buyers and as a result respondent getting the license has nothing to do with Import or Export policy. The Supreme Court says that it was directly a contractual obligation between the parties. The respondent side also made a distinction between ‘condition for sale of goods and consideration for the sale of goods’ and supported their argument by referring to an English court judgment in Thomas v. Thomas[20], analyzing this case accordingly by Chitty on Contracts[21] made a distinction between consideration and motive in contractual obligation. Jurist Patteson, J. repudiated that motive and consideration are not the same things, and he further emphasized that consideration is of value in the eyes of the law. According to Chitty[22] “promise was a desire to obtain consideration and a motive for promising did not amount to consideration unless the commodity or thing exchanged between the party was of some value in the eyes of law. Consideration is the subdivision of motive, so by this, it means that the motive for promising is always a consideration for a promise, but a promise made by a motive is not a consideration by lawful means. Thus, in the Thomas v. Thomas[23] case testator’s desire was based on the motive for the executor’s promise and not part of the consideration. The promise made by the widow to repair and pay was considered as another motive for the executors’ promise and did have considerations for that promise.” Through this judgment, there is also a distinction that can be made between consideration and condition as, the plaintiff’s consideration as a widow was a condition which she entitled to enforce the executor’s promise. Carlill v. Carbolic Smokeball Co.[24] case also lets us know more about the consideration and condition of a contractual obligation, where the claimant gave and considered the defendants promise by using the smoke ball; but the condition afterwards of her catching influenza even after using the said smoke ball can be considered as an entitlement to enforce that promise.
Supreme court in the case M/s. Padia Timber Company(P) Ltd. vs. Board of Trustees of Visakhapatnam Port Trust has also said that “Acceptance of a contract after putting in a new condition is termed as of no acceptance but a counter-proposal, which must be accepted by the offeror before the contractual obligation can be said as concluded between both the parties”[25]
Conclusion
By all these judgments and views by Jurists and courts, we can conclude by saying that Consideration of contract and conditions for the performance of a contract is equally important and are mostly interlinked with some basic assumptions underlying the legal nature of that contract law. The conditions of the contract may or may not change in the near future, but the consideration and the promise based on it remains the same throughout. Both these determinants should be kept in mind while coming into a contractual obligation, this is why most of the contracts are sometimes misinterpreted.
References:
[1] National Council of Educational Research and Training, Cbseacademic, Contract law, (July. 13, 2021, 08:00 PM), Phttp://cbseacademic.nic.in/web_material/doc/Legal_Studies/Legal%20Studies%20Text%20Book%20Class%20XII.pdf, p.37.
[2] Contract law in India, legalserviceindia, (July. 13, 2021, 11:30 PM), http://www.legalserviceindia.com/laws/contracts.htm.
[3] Arthur Taylor Von Mehren, Contract law, Britannica, (July. 13, 2021, 08:15 PM), https://www.britannica.com/topic/contract-law.
[4] Arthur, Loc. cit.
[5] Sagnik Sarkar, Historical evolution of contract law in India, Legal bites, (July. 13, 2021, 09:21 PM), https://www.legalbites.in/historical-evolution-of-contract-law-in-india/.
[6] Ibid.
[7] NATIONAL COUNCIL OF EDUCATIONAL RESEARCH AND TRAINING, supra note 1.
[8] Section 2(d), Indian Contract Act, 1872.
[9] Section 23, Indian Contract Act, 1872.
[10] Consideration, Lawjranks (Jly. 13, 2021), https://law.jrank.org/pages/5587/Consideration.html.
[11] Durga Prasad v. Baldeo and others, (1881) ILR3ALL221.
[12] Section 25, Indian Contract Act, 1872.
[13] Ibid.
[14] Corbin, Arthur L. “Conditions in the Law of Contract.” The Yale Law Journal, vol. 28, no. 8, 1919, pp. 739–768. JSTOR, www.jstor.org/stable/787276. Accessed 14 July 2021.
[15] Ibid.
[16] Corbin, Loc. cit.
[17] Ibid.
[18] Types of conditions in a contract, upcounsel (July. 13, 2021, 11:56 PM), https://www.upcounsel.com/types-of-conditions-in-a-contract.
[19] (2015) SCC Online SC 749.
[20] (1842) 2 QB 851 : 114 ER 330, SCC Online.
[21] 31st Edn., Vol. I.
[22] Ibid.
[23] (1842) 2 QB 851 : 114 ER 330, SCC Online.
[24] (1893) 1 QB 256 : (1891-94) All ER Rep 127 (CA), SCC Online.
[25] Debayan Roy, Acceptance of a contract after putting in a new condition is no acceptance but a counter proposal: Supreme Court, Bar and Bench (July. 14, 2021, 10:15 AM), https://www.barandbench.com/news/litigation/acceptance-of-a-contract-variation-counter-proposal-supreme-court-judgment-vishakapatanam-port-trust.
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