The Role of Law of Contracts in the Business Transactions
- kanvigupta63862
- Apr 22, 2023
- 3 min read
Written by Kanvi Gupta, Student
Introduction
Humans have been trading and doing business for a long time, where the oral discussion about the terms of the agreement was made and was admitted and binding. But people started facing the issues later after the oral agreement. The Law of Contract made provisions regarding written agreement which contained all the terms and conditions which helped individuals to carry on business transactions smoothly.
The Indian Contract Act came in the year 1872, which gave provision for the legal instrument known as Contract. According to Section 2(h), “an agreement enforceable by law is a contract.”
There must be two parties to form a Contract. The proposal is made by the offeror to the offeree. It may be regarding something or to abstain from doing something. The proposal, when accepted, becomes a promise. There is a consideration that needs to be paid in return for doing an act or for abstaining from doing an act. The set of promises or promises forming consideration for each other is known as an Agreement.
Elements of a Valid Contract
If one party breaches the terms of a contract, the other party can move to Court for relief. There are the following essential elements of a valid contract:
Agreement of Parties: There should be at least two parties to form a contract. There should be an agreement regarding the act which has to be done or has to abstain, and also a consideration in return should be there.
Free consent: The parties should have free consent while making the contract. No elements of coercion, misappropriation, unreasonable force, deceit, and error should be there. The parties should have free will to enter into the contract.
Competence: The parties should be competent enough to enter into a contract. The party should be of sound mind and has attained the age of majority. It should not be barred by law from entering into a contract.
Consideration: The price paid in return is the consideration. It should be lawful and sufficient.
Legal objective: The contract should have a lawful objective, or else it will be void ab initio.
Importance of Contract in Business Transactions
Avoids Miscommunication: As the contract contains clear terms and conditions along with duties, responsibilities and accountable authority, etc. Later on, no such dispute between parties can arise as the party, during the time of making the signature, reads all the issues.
Legal Evidence: The contract contains all the relevant details of an agreement between the parties. Later no party can breach or deny such an agreement. It will be legal proof and admissible as evidence in Court.
Confidentiality: A Non-Disclosure Agreement (NDA) is made between the parties where parties agree not to disclose any details of a transaction to any third party. Violating this will be accountable and can bring legal action against the party doing so.
Offers Protection: The contract contains the details regarding tenure and collection of obligations. If any party violates the right of the other, it can get protection from the Contract as it is a legal instrument that contains all such rights and obligations.
Works as a corporate record: The document contains all the relevant details regarding potential comparison purposes, the time limit for completion of any job, the length of the deal and guidance for termination.
The contract helps to restore the loss of trust. A contract protects both employer and employees from each other. The details regarding duties, responsibility, authority, benefits, perks, etc., are all mentioned in the Contract, and neither the employer nor an employee can deny it. Employer cannot refuse to pay, and the employee cannot deny his responsibility.
Similarly, it helps to safeguard the rights and profits of parties when conducting business transactions. No party, after promising, can step back in the future. The supplier will be bounded to supply the materials in the prescribed time, and the purchaser will be bound to complete the payment in a limited time. Any party making a breach will have to pay damages to the other.
Conclusion
The law of Contract is necessary and essential for conducting business transactions. It helps to safeguard the elements of transactions. Both the parties, after discussion and negotiation, form the contract after having mutual consent. All the terms and conditions are mentioned in the Contract, and both parties in the future have to work according to it. No party can deny the details in the future as it will bring a legal suit against it. The Contract is a legal proof and also helps to maintain confidentiality. It protects both parties. Miscommunication and misunderstanding are prevented in the future. Both parties should have free consent while making the agreement, and there should be a lawful object.
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