Legal Question in Business Law in India

Re: minimum guarantee

The contract terms need to be perused to ascertain meaning of the term minimum gurantee

Re: minimum guarantee

Essential Ingredients of a contract - As per Contract Act,

an agreement enforceable by law is a contract. [section 2(h)]. Hence, we have to understand first what is ‘agreement’.

Every promise and every set of promises, forming the consideration for each other, is an agreement. [section 2(e)]. - - A person makes a proposal (offer). When it is accepted by other, it becomes a promise. However, promise cannot be one sided. Only a mutual promise forming consideration for each other is ‘agreement’. - - For example, A agrees to pay Rs 100 to B and B agrees to give him a book which is priced at Rs 100. This is set of promises which form consideration for each other. However, if A agrees to pay Rs 100 to B, but B does not promise anything, it is not ‘set of promises forming consideration for each other’ and hence not an agreement.

It should be noted that the term ‘agreement’ as defined in Contract Act requires mutual consideration. - - Thus, if A invites B to dinner and B agrees to come, it is not an ‘agreement’ as defined in Contract Act.

Meaning of ‘Proposal’ - 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. [section 2(a)].- - Thus, a ‘proposal’ can be to do a positive act or abstinence from act (i.e. negative act). [English Act uses the word ‘offer’, while Indian Contract Act uses the word ‘proposal’. Generally, both words are used inter-changeably. This is not technically correct, as the word ‘offer’ is not used in Contract Act].

Meaning of ‘Promise’ - When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A pro­posal, when accepted, becomes a promise. [section 2(b)]. - - Thus, when a proposal (offer) is accepted, it becomes a ‘promise’. As is clear from the definition, only person to whom proposal is made can signify his assent. Other person cannot accept a proposal.

Promisor and promisee - The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”. [section 2(c)].

Reciprocal promises - Promises which form the consideration or part of the consideration for each other are called reciprocal promises. [section 2(f)].

Consideration for promise – The definition of ‘agreement’ itself states that the mutual promises should form consideration of each other. Thus, ‘consideration’ is essential for an agreement. A promise without consideration is not ‘agreement’ and hence naturally, it is not a ‘contract’.

Re: minimum guarantee

The definition can be explained to you better after reading the document.