ESSENTIAL OF ELEMENTS OF CONTRACT

Agreements and contracts are two different things. It is important to know first what constitutes a contract and what constitutes an agreement. We will then study which agreements are contracts, their distinction different types of agreements and contracts. Essentials Elements of a Valid Contract: Different sections of the Indian Contract Act lay down the essential elements of the contract. They are as under: 1. Proposal and acceptance 2. Consideration lawful consideration with a lawful object 3. Capacity of parties to contract competent parties 4. Free consent 5. An agreement must not be expressly declared to be void. 6. Writing and Registration if so required by law 7. Legal relationship 8. Certainty 9. Possibility of performance 10. Enforceable by law. Proposal and Acceptance: When one person signifies to another his willingness to do or 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. The first step towards creating a contract is that one person shall signify or make a proposal or offer to the other, with a view to obtaining the acceptance of that another person to whom the offer is made. A proposal when accepted becomes a promise. When the person to whom the proposal is made signifies his assent thereof the proposal is said to be accepted. A proposal when accepted becomes a promise. 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. Every contract consist of two parts (1) Promise and (2) Consideration for the promise. A promise is often made in return for a promise for example a buyer realizes the goods for the price. Price for goods is therefore, consideration here. Consideration is the cause of the promise. It is the most essential element of the contract. As a general rule, agreement without consideration is void. The promise for a promise in return is consideration. Illustrations:

A agrees to sell his house to B for Rs 10,000. Here As promise to sell his house is for Bs consideration to pay Rs 10,000. Similarly Bs promise to pay Rs 10,000 is for As consideration to sell his house to B. An agreement is a contract, only if it is made for a lawful consideration and with a lawful object. The consideration or object of an agreements is unlawful if (1) it is forbidden by law; or (2) is of such a nature that, if permitted it would defeat the provisions of any laws (3) is fraudulent; or (4) involves or implies injury to the person or property of another (5) the court regards it as immoral or opposed to public policy In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement if which the object or consideration is unlawful is void. Capacity of parties to contract Competent parties: Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contacting by any law to which he is subject. Free Consent: Parties to a contract must give their consent. The parties must be ad idem, for example both the parties must agree upon the same thing in the same sense. Two or more persons are said to consent when they agree upon the same thing in the same sense. Mere consent is not enough. Consent of parties must be free, for example it must not have been obtained (1) coercion, (2) undue influence, (3) fraud, (4) misrepresentation, or (5) mistake. An agreement must not be expressly declared to be void A void agreement is not enforceable by law (Sec 2(g)). It has no legal sanctity. It does not give rise to any rights and obligations. Various agreements are expressly declared void under the Act. Writing and registration: Oral contract is a valid contact. However the contract must be in writing and registered, if so required by any law, for example, gift, mortgage, sale, lease under the Transfer of Property Act 1882, Memorandum and Articles of Association of a Company under the Indian Companies Act, contracts under sub sections (10 and 3) of section 25 of the Indian Contract Act, etc. Documents specified under section 17 of the Indian Registration Act, 1908, are required to be registered. No particular form of writing is required to constitute a contract. Intentions of the parties to enter into a particular contract and to give effect to it must be manifest in it, in order to constitute a valid contract.

Legal relationship: Agreements which create legal relations or are capable of creating legal relations are contracts, for example, an invitation to a dinner does not create any legal relation and therefore is not a contract. Certainty: The terms of a contract should be clear. In other words, the contract must not be vague. Contracts which are vague cannot be enforced. Possibility of performance: Contracts based on impossibility of performance are not valid. The contracts must be capable of being performed. Enforceable by Law: A contract in order to be valid must be enforceable by law which element distinguishes agreement and contract. It is enforceable by law it is contract otherwise it is an agreement. The aggrieved party should be able to obtain relief through law in the event of breach of contract. An agreement can also be inferred from correspondence exchanged between the parties.

Distinction Between A Public Company And a Private Company Following are the main points of difference between a Public Company and a Private Company :1. Minimum Paid-up Capital : A company to be Incorporated as a Private Company must have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a minimum paidup capital of Rs. 5,00,000. 2. Minimum number of members : Minimum number of members required to form a private company is 2, whereas a Public Company requires atleast 7 members.

3. Maximum number of members : Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum number of members in a Public Company. 4. Transerferability of shares : There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association , whereas there is no restriction on the transferability of the shares of a Public company 5 .Issue of Prospectus : A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus. 6. Number of Directors : A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have atleast 3 directors. 7. Consent of the directors : There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have file with the Registrar a consent to act as Director of the company. 8. Qualification shares : The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company .

9. Commencement of Business : A Private Company can commence its business immediately after its incorporation, whereas a Private Company cannot start its business until a Certificate to commencement of business is issued to it. 10. Shares Warrants : A Private Company cannot issue Share Warrants against its fully paid shares, Whereas a Private Company can issue Share Warrants against its fully paid up shares. 11. Further issue of shares : A Private Company need not offer the further issue of shares to its existing share holders, whereas a Public Company has to offer the further issue of shares to its existing share holders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing share holders in the general meeting of the share holders only. 12. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies. 13. Quorum : The quorum in the case of a Private Company is TWO members present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.

14. Managerial remuneration : Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company. 15. Special privileges : A Private Company enjoys some special privileges, which are not available to a Public Company.

COMPANY The word company ordinarily means an association of a number of individuals formed for some common object. When such an association is registered under the Companies Act, it becomes an artificial person with perpetual succession and a common seal. According to section 3 (1) (i) of the companies Act, a company means, A company formed and registered under this Act or a existing company. An existing company means a company formed and registered under any of the previous companies law. The definition given in the companies Act is not exhaustive and does not reveal the true characteristics of a company. Lord Justice Lindley has given a comprehensive definition of a company. According to him, a company is, An association of many person who contribute money or moneys worth to a common stock and employed for a common purpose. The common stock so contributed is denoted in money and is capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. Shares are always transferable although the right to transfer them is often more or less restricted. Characteristic of a Company On being incorporated, a company enjoys certain advantages over other associations. Such advantages are termed as the characteristic of a company and are discussed as under.

1. Perpetual succession. Unlike a nature person a company never dies. It is a entity with a perpetual succession. Its existence is not affected by the death, lunacy and insolvency of its members. A company is an immortal person. Member may come and members may go, but the company continues its operation unless it is wound up. The existence of the company is not affected by the death of all the shareholders even. Thus, where all the members of a company were killed by a bomb, company was deemed to survive. 2. Limited Liability. Limited liability of members is another important characteristic of a company. It is the reason why a great many people invest their money in limited companies. Liability of a member is limited to the face value of shares subscribed to by him. If the share are the fully paid up, his liability is nil. Unlike a partnership concern, where the liability of each partner is unlimited. In an incorporated company the members cannot be asked to pay anything more than what is due on the shares held by them. It may be noted that it is only the members liability for the companys debs which is limited. The company itself, the artificial legal person, is always fully liable and so has unlimited liability. 3. Common seal. As a company is an artificial person it cannot sign its name on a contact. So it functions with the help of a seal. Common seal is used as a substitute for its signature. Every company must have a sale with its name engraved on it. Anything done under an agreement between the company and the third party requires recognition of the company in the form of an official seal unless exempted by the Act. 5. Transferability of shares. The shares of a company are freely transferable and can be sold or purchased in the share market. This is one of the reasons why people prefer to form companies than partnership. Section 82 of the companies Act recognizes the right of transferability of shares and provides that, the share or other interest of any member shall be movable property transferable in the manner provided for in the articles of the company. 6. Capacity to sue and be sued. On incorporation a company acquires a separate and independent legal personality. As a legal person it can sue be sued in its own name.