By Siddharth Dey
Quid pro quo
Or “something for something”; these three words form the bedrock of the Law of Contracts.
It’s analogous to what ‘ubi jus, ibi remedium’ (where there is a right, there is a remedy)” is to Torts, and “actus non facit reum nisi mens sit rea” is to Criminal Law.
The maxim defines contracts perfectly. Contracts generally require that you give something when you receive something – an exchange of sorts. Contract law governs all such transactions or exchanges that occur between two or more persons, called ‘parties’.
Contracts are a part and parcel of the smallest detail around you. Even the fact that almost 7 billion people on planet Earth agree to be governed by a sovereign is because of a form of contract – a social contract (which is slightly different from the Contracts which we will discuss here).
This is because the essence of contracts is that in a peaceful, civilized society, when a person does something which affects another person directly, or affects any interest of that person, there should be a proper agreement in place between the two for the same.
If good fences make great neighbours, then a contract is the best fence. Legally speaking, of course.
Why do we need such a ‘fence’, though?
As you will see below, a contract implies that the parties have accept the terms of agreement. Therefore, having a contract is very important in such a case.
A mere verbal agreement can be vague and have many ambiguities and loopholes. A contract, on the other hand, will be drafted with utmost precision, care and attention to detail.
This is because a contract will serve as a means of resolution when a dispute occurs. Parties can refer to the contract to show the exact terms & conditions which were agreed upon, and how the other party has deviated from/violated those.
So, maybe this particular fence doesn’t make great neighbours, after all!
Contract Law for CLAT
The parts of contract law which we will be discussing relates to:
- How a contract comes into being;
- What constitutes or makes up a contract;
- Who can enter into a contract;
- Which contracts are legal and which are prohibited by law, and;
- When do parties incur legal liability under contract law, among other things.
The formation of a contract starts with one person initiating the exchange by making an ‘offer’. This person is called the ‘offeror’ or the ‘proposer’; the person who is offered to is called the ‘offeree’ or the ‘proposee’.
How is a Contract Formed?
1. Proposal & Promise
Section 2(a) to 2(j) of the Indian Contract Act, 1872 defines most of the things dealing with the formation of contract. It all starts with a ‘proposal’.
Dramatic beginning, you say? This is how Section 2(a) of the Indian Contract Act responds:
“When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”
Thankfully for you, we’re at hand to resolve the drama!
It means – now read carefully here – that:
a) if you want to do something, or not do something,
b) and you make it known to another person
c) because you want that person to agree/accept to you doing or not doing that particular thing
– is what the law defines as ‘proposal’.
So, a proposal is the act of making it known or signifying to the other party about all of the above.
Now, when do you have to signify such a thing to another person? Only when you seek to get that person’s acceptance towards the same; but, why would another person have to agree to what you want to do, or not want to do?
That is because either that person is affected by your actions, or both of you have some form of common interest in whatever happens (i.e., consequence).
Take for instance that, you don’t have to take permission from your friend if you want to sleep on a lazy Sunday afternoon.
However, if you are late in arriving at the multiplex for the first screening of Interstellar, you have to call your friend and request him to wait for 10 more minutes (good luck with that, though!) – by waiting those extra 10 minutes, both of you can walk in together and get adjacent seats (common interest).
Once your friend signifies or makes it known that he agrees to your proposal, the proposal becomes a ‘promise’.
Therefore, proposal + acceptance → promise
Under the Act, a person making the proposal is called the ‘promisor’ and the person accepting the proposal is called ‘promisee’.
2. Offer & Consideration
‘Offer’ is a term that has not been defined under Section 2. It can be understood as – a proposal made with an intention of entering into an agreement is an ‘offer’.
The act, however, defines the word ‘consideration’ – “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”.
a) when the promisee or any other person
b) does or does not do something,
c) or agrees to do or not do something,
d) after accepting the proposal
– the action of the promisee or the other person, or the agreeing to the same, forms the consideration.
A consideration is the quid pro quo part of contract law – the promisee has to do or give something in return for the proposal. Therefore, barring certain exceptions, a contract cannot be formed without consideration.
The concept of consideration can be slightly tricky. This is where ‘offer’ comes into play.
If Xavi wanted to give Paul Rs. 5000/- for Paul’s Nike boots, the Rs. 5000/- is Xavi’s offer. If Paul accepts this offer, and agrees to give his boots to Xavi, that is the consideration for the promise. Simple enough.
[Note: Xavi is, thus, the ‘offeror’, the ‘promisor’, or the ‘proposer’; Paul is the ‘offeree’, the ‘promisee’, or the ‘proposee’.]
Conversely, from Paul’s perspective, the Nike boots are his offer, and the Rs. 5000/-is his consideration.
Thus, the consideration is anything that one party receives from the other party. What is offer for one, is consideration for the other, and vice-versa.
In effect, given that there are normally two parties in a contract, there are two considerations. This makes sense when we look at the definition of agreement given in the Act.
“Every promise and every set of promises, forming the consideration for each other, is an agreement”
Which would mean that Xavi agrees to give Rs. 3000 for the boots, and Paul agrees to give his boots for Rs. 3000. Their respective acceptances are, thus, a set of promises. These set of promises form the consideration for each other.
Seen together, it is an agreement for exchanging the boots for money.
Therefore, offer + consideration → agreement.
Now, to a layman, an agreement seems to have the same meaning as a contract. It is true, but simply for the fact that an agreement is a rudimentary form of a contract.
Meaning, an agreement lacks a couple of things that makes up a contract; therefore, under Contract Law, they are two different things.
The next article on Contracts will deal with the differences between an agreement and a contract.