This article has been written by Priyanshi pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

Independence of contract refers to contractual sovereignty. The Contract Act provides independence to contracts or agreements between the competitive parties. The freedom to contract provides a framework of agreements between the parties and also ensures preventive measures to safeguard the parties in case of any breach of the agreement between the parties to contract. Contracts have been termed the core of contract law. Contractual freedom can refer to that independent stage where there will be no restrictions imposed by any party and the agreement that has been made will be impartial in any sort of negotiation. 

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Definition of contract

A contract is a form of agreement that is made between two parties who are competent to each other and is formed for a specific purpose. To fulfil that particular objective, such a contract came into existence as a sort of protection, providing protection to the parties who are entitled to form such a contract and also providing certain remedial features in case of breach of a contract. Therefore, the overall opinions as well as suggestions of the parties have been concluded in the contract with their mutual consent and as a result, parties are bound to follow such a contract. 

Essentials of a valid contract

As an ordinary layman, a contract is something that is made between the two parties in a competition. The parties to a contract have to follow certain essential conditions, such as:

  1. The parties to the contract must be competent.
  2. The parties must have attained the age of majority, i.e., 18 years, as a minor is not allowed to enter into a contract with anyone.
  3. The parties to a contract must be of sound mind; a person with an insane mind is not allowed to frame contracts.
  4. The parties or any person is eligible to enter into any form of contract only when they have not been disqualified by law.

Contractual independence

The Contract Act provides freedom to form contracts without any interference and the contract is free from any undue influence. Freedom of contract refers to a contract or agreement that is free from any influence by another person or from any kind of bias, which sheds light on the essence of contractual freedom by conforming to the dignity of all the individuals and also maintaining liberty among the parties to the contract.

It is crucial to understand the technical meaning of the term contractual freedom, as it represents certain basic needs and requirements that need to be fulfilled to make the contract free from any kind of interference or negotiation. With the dynamic economy, it is an advantage for contract law to provide freedom to contracts, which enhances flexibility of relationship among the parties to agreement and also promotes innovation with efficient techniques to be followed that reflect the uniqueness of the agreement and make it free from any kind of partial and biassed outcomes

Contract implementation

It is one of the crucial concepts in contract law, as every hearing in the court and any kind of documentary between the parties involved in the formation of the contract and its enforcement leads to valuable outcomes. As the topic suggests, it is true to say that the Contract Act provides a predictable and enforced right to form contracts without any undue influence by any other person or to make the contract free from any negotiation that reflects its contractual freedom and forces any form of agreement or contract.

The contracts are formed to provide an overview of the requirements by putting terms and conditions that both parties need to follow, as contracts are the binding source among the parties and it is necessary to follow the obligations provided under any form of contractor agreement that has been signed by the mutual consent of the parties, by providing appropriate relief as necessarily required and by suggesting any further formalities if necessary to be pursued to carry forward any kind of operation for which a contract has been formed. The freedom of contract provides autonomy or symphony, to the parties to respect their integrity, provide them with useful insights into their opinions and preserve their dignity in performing such an agreement.

Merits of contract formation

There are certain merits that define contract formation as a useful and valuable insight, such as:

  • The formation of a contract first provides legal advantage and also ensures the overall protection of the parties to the contract by providing them with clear meanings and avoiding any kind of uncertainty between them.
  • The other merit is that the contract among the parties is legally binding between them and in case of any breach of that agreement, both parties have been put in default for such breach.
  • By signing contracts, the relationship between the parties develops in a better way and also promotes trust and cooperation.
  • Another important advantage that the contract depends on is identifying any kind of risk in advance and protecting the parties in advance from such kinds of uncertainties if they occur in the future.
  • The last but not least advantage of contract formation is providing clear and understandable obligations by mutually deciding by the parties and negotiating on terms that are suitable for all parties to contract.

Demerits of contract formation

Along with the merits, there are certain demerits to contract formation as well. As we have discussed the merits of the contract formation, there are some demerits as well, such as:

  • The first and foremost limitation of contract formation is the abuse of contract formation, which means providing vulnerable opinions or suggestions by the parties to form a contract that is illegal and disturbs the public domain.
  • The other disadvantage is the misrepresentation of a contract, which is void as per law and innocent parties have to face various challenges due to such frauds or errors that occurred while forming a contract.
  • Another factor related to the demerit of contract formation is the unpredictable and unforeseen challenges that every party to a contract may have to face but they cannot be fully corrected in advance before they happen. This means the allocation of risk factors that have been raised due to any circumstances.
  • Another disadvantage of contract formation is that it neglects the essentials of making a contract, which have been discussed above. A minor is not eligible to form a contract with any party; a person of insane mind is not allowed to enter into any form of contract or agreement; or a person who is not completed by law and has been qualified by law is not allowed to enter into any kind of contract or agreement with any other person.

Application of the contractual act

Freedom of contract is a wide concept spread over various sectors. In today’s scenario, the competition is very high and it ranges in difficulty level for every individual who wants to take part in any form of business or industry and wants to spread or grow in the competitive and fluctuating market. For the betterment of the market structure, the contractual free download is very essential to attaining the overall objectives and addressing any form of unpredictable circumstances that may arise in the market. With the introduction of the contract law, it seems like a sort of protection for the parties to the contract. 

As any contract includes basic essentials to be fulfilled to make it a valid contract, it involves an offer or proposal that should be made by one party, and that proposal needs to be accepted by the other party, which is very crucial to be made in any contract to make it a valid one in the eyes of law. After proposal and acceptance, there must also be consideration, which makes a contract complete. Consideration is something in return that is being decided mutually by the parties to make it a valid contract. There are certain clauses under any contract that do not involve any permission but are free to be made and depict contractual freedom as well.

Principle of freedom of contract

The principle of freedom of contract is a fundamental principle of contract law that allows parties to enter into legally binding agreements on their own terms. This principle is based on the idea that individuals should be free to make their own choices and that the government should not interfere with private agreements.

The principle of freedom of contract has several important implications. First, it means that parties are free to choose the terms of their contracts. This includes the type of contract, the subject matter of the contract, the price, and the method of payment. Second, it means that parties are free to negotiate the terms of their contracts. This process of negotiation allows the parties to reach an agreement that is mutually beneficial. Third, it means that parties are free to enforce their contracts. This means that if one party breaches a contract, the other party can take legal action to enforce the contract and obtain a remedy for the breach.

The principle of freedom of contract is not absolute, however. There are certain limits on the parties’ ability to enter into contracts. For example, parties cannot enter into contracts that are illegal, immoral, or against public policy. Additionally, parties cannot enter into contracts that are unconscionable. An unconscionable contract is one that is so one-sided that it is unfair to one of the parties.

The principle of freedom of contract is an important part of the American legal system. It allows individuals to make their own choices and to enter into binding agreements with others. This principle is essential to a free and prosperous society.

Here are some examples of the principle of freedom of contract in action:

  • A buyer and seller agree on the price of a car. The buyer then pays the seller the agreed-upon price and takes possession of the car.
  • A landlord and tenant agree on the terms of a lease. The tenant then pays the landlord the agreed-upon rent and takes possession of the apartment.
  • An employer and employee agree on the terms of an employment contract. The employee then works for the employer and is paid the agreed-upon wage.

These are just a few examples of how the principle of freedom of contract works in practice. This principle is essential to a free and prosperous society.

Public order as a limitation of the freedom of contract

Public order is a fundamental concept in law that refers to the unwritten principles of justice, morality, and social order that are essential for the well-being of society. It is a limitation on the freedom of contract in that it prohibits the enforcement of contracts that are contrary to public order.

There are a number of public policy considerations that can be used to justify the limitation of freedom of contract. These include:

  • The protection of vulnerable people. Public order laws protect vulnerable people from being taken advantage of by unscrupulous parties. For example, laws against usury protect borrowers from being charged excessive interest rates.
  • The preservation of social order. Public order laws help to maintain social order by prohibiting activities that are considered to be harmful to society. For example, laws against prostitution and drug use help to protect communities from the negative effects of these activities.
  • The promotion of economic development. Public order laws can promote economic development by creating a stable and predictable legal environment for businesses. For example, laws that protect intellectual property rights encourage innovation and investment.

The limitation of the freedom of contract is a necessary evil. It is essential for the protection of vulnerable people, the preservation of social order, and the promotion of economic development. However, it is important to strike a balance between the need for public order and the freedom of individuals to enter into contracts.

Here are some examples of contracts that have been held to be void as contrary to public order:

  • Contracts that are illegal. Contracts that are illegal are void from the beginning. For example, a contract to sell illegal drugs is void.
  • Contracts that are immoral. Contracts that are immoral are void from the beginning. For example, a contract to commit adultery is void.
  • Contracts that are against public policy. Contracts that are against public policy are void from the beginning. For example, a contract to restrain trade is void.

The limitation of freedom of contract is a complex and evolving area of law. It is important to seek legal advice if you are considering entering into a contract that may be contrary to public order.

Morality as a limitation of the freedom of contract

Freedom of contract is a fundamental principle of common law that allows parties to enter into legally binding agreements. However, this freedom is not absolute and can be limited by a variety of factors, including morality.

Morality can be defined as the set of principles that govern right and wrong behaviour. These principles can be derived from a variety of sources, such as religion, philosophy, or personal experience. When a contract is found to be immoral, it may be void or unenforceable.

There are a number of reasons why morality can be seen as a limitation on the freedom of contract. First, morality can be used to protect the vulnerable from exploitation. For example, a contract that involves the sale of a child would be considered immoral and void. Second, morality can be used to promote social order. For example, a contract that involves the commission of a crime would be considered immoral and unenforceable.

The tension between freedom of contract and morality has been a subject of debate for centuries. Some argue that the freedom of contract should be absolute and that morality should not be a factor in determining the validity of a contract. Others argue that morality is a necessary limitation on the freedom of contract and that it is important to protect the vulnerable and promote social order.

Ultimately, the question of whether morality should be a limitation on the freedom of contract is a complex one that does not have an easy answer. There are strong arguments on both sides of the issue. However, it is important to remember that the freedom of contract is not absolute and that there are a number of factors that can limit this freedom, including morality.

Here are some additional examples of how morality can limit the freedom of contract:

  • A contract that involves the sale of human organs would be considered immoral and void.
  • A contract that involves the commission of a hate crime would be considered immoral and unenforceable.
  • A contract that involves the exploitation of workers would be considered immoral and void.

These are just a few examples of the many ways in which morality can limit the freedom of contract. It is important to note that the law is constantly evolving and that the interpretation of what is considered to be immoral can change over time. As a result, it is important to consult with an attorney if you have any questions about the legality of a particular contract.

Landmark case law

There are certain case laws that give limelight to the concept of contractual independence by permitting the parties to a contract to act accordingly according to their own terms and conditions defined by their mutual consent. Certain case laws are as follows: 

M/s. Alopi Parshad & Sons Ltd. vs. Union of India (1960)

In the landmark case of M/s. Alopi Parshad & Sons Ltd. vs. Union of India (1960), the Supreme Court of India upheld the contractual independence of government contracts. This judgment has had a profound impact on the legal framework governing government contracts in India.

The case involved a dispute between a private company, M/s. Alopi Parshad & Sons Ltd., and the Union of India over the termination of a contract for the supply of coal. The company had entered into a contract with the government to supply coal for a period of five years. However, the government terminated the contract prematurely, citing unsatisfactory performance by the company.

The company challenged the termination of the contract, arguing that it was arbitrary and violated the principles of natural justice. The Supreme Court, however, upheld the government’s decision, holding that the government had the right to terminate the contract for breach of its terms.

The court’s decision in this case has been widely cited as a precedent for the principle of contractual independence of government contracts. This principle recognizes that government contracts are governed by the same laws of contract as private contracts. However, there are some important differences between government contracts and private contracts.

One of the key differences is that government contracts are often subject to public law considerations, such as the need to ensure transparency and accountability. This means that government contracts may be subject to additional scrutiny and regulation than private contracts.

Another difference is that government contracts are often awarded through a competitive bidding process. This process is designed to ensure that the government obtains the best possible value for its money. However, the competitive bidding process can also be complex and time-consuming.

The principle of contractual independence of government contracts is an important one. It ensures that the government has the flexibility to enter into contracts that are in the best interests of the public. However, it is also important to ensure that government contracts are subject to appropriate scrutiny and regulation.

M/S. Gujarat Bottling Co. Ltd. & Others vs. Coca Cola Company & Others (1995)

Under this landmark judgement, the Supreme Court of India provides freedom to contract by mutually agreeing on the terms and conditions as required by their company to grow and expand in the market.

Satyabrata Ghose vs. Mugneeram Bangur & Co. (1954)

The Supreme Court of India passed a judgement related to the formation of a contract to be freely formatted by the parties to the contract by deciding their own opinions without any undue influence by any other person.

Conclusion

The freedom of contracts or contractual freedom, provides a fair deal between the parties who make a contract for any purpose, which should be free from any restrictions or bias and formed without any limitation. The contracts are formed to shape the legal relationship among the contracting parties by respecting their opinions and making a negotiated agreement which promotes contractual freedom. Therefore, the formation of contracts based upon certain factors, such as mutual understanding, trustworthiness, capability of performing the operations, and stability of work, all together contributes towards a fair legal operation being done among the parties of different sectors of the world.

References

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