Amity Business SchoolMBA, Semester 1Legal Aspects of BusinessMs. Shinu Vig
Amity Business SchoolIndian Contract Act, 1872The Act defines a contract as “an agreement enforceableby law.”Agreement:An agreement is a promise or a set of promises, wherebya person makes an offer to another and it is accepted bythe person to whom it is made.
Amity Business SchoolAgreements which are not contracts:a) Agreements relating to social matters.a) Domestic arrangements betweenhusband and wife.
Amity Business SchoolKinds of contracts:a) According to mode of formation:• Express contracts (oral or written)• Implied contractsa) According to validity:• Valid contracts• Void contracts• Voidable contracts• Void agreements
Amity Business SchoolSection 10 of the Act provides that “all agreements arecontracts if they are made by the free consent of partiescompetent to contract, for a lawful consideration and with alawful object, and are not expressly declared to be void.”Essential elements of a valid contract:• Offer• Acceptance• Lawful consideration• Lawful object• Free consent• Competent parties
Amity Business SchoolOffer:An offer means a proposal. It is made with a view toobtaining the assent of the other party to the proposed actor abstinence.Types of offer:a)Express offer (written on oral) or Implied offerb)General offer or specific offer
Amity Business SchoolEssentials of a Valid Offer:• An offer must be clear and definite.• Offer must be made with a view to obtain acceptancethereto• Offer must be made with the intention of creating legalrelationship• Offer must be communicated to the offeree.
Amity Business SchoolAcceptance:When the person to whom the offer is made signifies hisassent thereto, the offer is said to be accepted.Essentials of valid acceptance:• It must be absolute and unqualified.• It must be communicated to the offeror. It may be expressor implied.• It must be made in the mode prescribed, if any.• It must be made within the time specified, if any.• Mere silence of offeree is not acceptance.
Amity Business SchoolRevocation of Offer:• By the offeror at any time before acceptance.• By death or insanity of the offeror before acceptance.• By death or insanity of the offeree before acceptance.• By rejection.• By not accepting in the mode prescribed.• By counter-offer by the offeree.Revocation of acceptance:Acceptance can be revoked before the communication ofthe acceptance is complete.
Amity Business SchoolConsideration:Consideration is what a promisor demands as the price forhis promise.Essentials of Consideration:• It can move from promisee or any other person.• It need not be in terms of money only.• It need not be adequate.• It must be real and not vague.• It must be lawful.
Amity Business SchoolLawful Object:Object or consideration of an agreement is unlawful if it is:• forbidden by law; or• it is of such nature that if permitted it would defeat theprovisions of law; or• is fraudulent; or• involves or implies injury to the person or property ofanother; or• the Court regards it as immoral or opposed to publicpolicy.Agreements with unlawful consideration or object arevoid.
Amity Business SchoolCapacity to Contract:Every person is competent to contract if he/ shei) is of the age of majorityii) is of sound mindiii) is not disqualified from contracting by any law to whichhe is subject.
Amity Business SchoolFree Consent:The parties should mean the same thing in the same senseand agree voluntarily.Consent is not free when it is caused by:i.Coercionii.Undue influenceiii.Misrepresentationiv.Fraudv.Mistake
Amity Business SchoolCoercion:i.The committing or threatening to commit any actforbidden by the Indian Penal Code orii.The unlawful detaining or threatening to detain anyproperty to the prejudice of any person whatever with theintention to cause any person to enter into any agreement.Consequences of coercion:Agreement caused by coercion is voidable at the option ofthe party whose consent has been so obtained.
Amity Business SchoolUndue influence:A contract is said to be induced by undue influence wherethe relation between the parties are such that one of theparties is in a position to dominate the will of the other anduses that position to obtain unfair advantage over theother.Examples: Master and servant; Solicitor and client; Doctorand patient….etc.Consequences of Undue Influence:Agreement caused by undue influence is voidable at theoption of the party whose consent has been so obtained.
Amity Business SchoolFraud:Fraud is an untrue statement made knowingly or withoutbelief in its truth or recklessly, carelessly, whether it be trueor false with the intent to deceive.Consequences of Fraud:The party aggrieved has following remedies-i. Can avoid the contractii.Can demand performance of the contractiii.Can sue for damages
Amity Business SchoolMisrepresentation:Misrepresentation means a false representation of factmade innocently or non-disclosure of a material withoutany intention to deceive the other party.Consequences of Misrepresentation:The party aggrieved has following remedies-i.Can avoid the contractii.Can demand performance of the contract
Amity Business SchoolMistake:Mistake is an erroneous belief on the part of parties to thecontract concerning something pertaining to the contract.Effect of mistake:Mistake renders the contract void. To be operative so as torender the contract void, the mistake must be:i. of fact and not of law or opinion;ii. the fact must be essential to agreement andiii. must be on part of both the parties.
Amity Business SchoolAgreements declared void:Agreements against public policy- Some of the agreementswhich are against public policy have been declared to bevoid by law. These are:•Trading with enemy•Agreements for sale of public offices and titles•Agreements in restraint of marriage•Agreements in restraint of parental rights•Agreements in restraint of legal proceedings•Agreements in restraint of trade
Amity Business SchoolPerformance of Contracts:The parties to the contract must either perform or offer toperform their respective promises unless such performanceis dispensed with or excused under the Indian Contract Actor any other law.Who must perform:i. The promisor himselfii. If not specified, then agent of promisor can performiii. In case of death of promisor, his legal representatives mustperformiv. In case of contracts involving personal skill, promisor himselfshould perform.
Amity Business SchoolTender of Performance :If promisor performs his side of the contract and theperformance is rejected, the promisor is discharged fromfurther liability and may sue for the breach of contract, if heso wishes.To be valid, a tender must fulfill following conditions:i. It must be unconditionalii. It must be made at a proper place and time.iii. If it relates to delivery of goods, the promiseemust have a reasonable opportunity to checkthe goods.
Amity Business SchoolDischarge of Contracts:A contract is said to be discharged or terminated when therights and obligations arising out of a contract areextinguished.Modes of discharge of contracts:• Performance or tender• Mutual consent or agreement (by novation, rescission,alteration etc.)• Lapse of time• Operation of law• Impossibility of performance• Breach of contract
Amity Business SchoolDischarge of Contracts by impossibility:A contract is deemed to have become impossible ofperformance and thus void under the followingcircumstances:a. Destruction of the subject matter of the contract.b. By the death or disablement of the parties.c. Subsequent illegality.d. Declaration of war.
Amity Business SchoolRemedies for Breach of Contracts:When a contract is broken, the injured party has severalcourses of action open to him. The injured party may :i. Rescind the contract and refuse further performanceof contractii. Sue for damages (Ordinary/ Special damages)(Hadley v. Baxendale)iii. Sue for specific performanceiv. Sue for injunctionv. Sue on quantum meruit
Amity Business SchoolContingent Contracts:A contingent contract is a contract to do or not dosomething, if some event collateral to such contract, doesor does not happen. For example- contract of indemnityand guarantee.Essentials of Contingent Contracts:i.The performance depends upon happening or non-happening of some future event.ii.The event must be uncertain.iii.The event must be collateral to the contract
Amity Business SchoolContract of INDEMNITYA contract by which one party promises to save the otherfrom loss caused to him by the conduct of the promisorhimself, or by the conduct of any other person, is calleda ‘contract of indemnity’.Parties to the contract of indemnity:i. Indemnifier- One who promises to make good the loss.ii. Indemnity-holder- One whose loss is to be made good.
Amity Business SchoolContract of GUARANTEE:A contract of guarantee is a contract to perform a promise ordischarge the liability of a third person in case of his default.Parties to the contract of Guarantee:•Principal Debtor: The person for whom guarantee is given.•Creditor: The person to whom guarantee is given.•Surety: The person who gives the guarantee.
Amity Business SchoolKinds of Guarantee :i. Specific guaranteeii. Continuing guaranteeRevocation of continuing guarantee:• By notice of revocation by the surety.• By the death of the surety.• By discharge of the principal debtor.
Amity Business SchoolContract of BAILMENT:Bailment is a transaction whereby one person delivers goodsto another person for some purpose, upon a contract thatthey are, when the purpose is accomplished, to be returnedor otherwise disposed of according to the directions of theperson delivering them.Parties to contract of bailment:•Bailor: The person who delivers the goods.•Bailee: The person to whom goods are delivered.
Amity Business SchoolDuties of a bailee:• To take reasonable care of the goods.• Not to use the goods in unauthorised manner.• To keep the goods bailed to him separate from his owngoods.• Not to set up an adverse title to the goods.• To return the goods without demand on the expiry of thetime fixed or when purpose is accomplished.• The bailee must return to the bailor any increase, accretionor profits which have accrued from the goods bailed.Duties of a bailor:• To disclose all the known faults in the goods.• To pay any extraordinary expenses incurred by the bailee.•
Amity Business SchoolContract of PLEDGE:Pledge or pawn is a contract whereby an article is depositedwith a lender of money or promisee, as security for therepayment of a loan or performance of a promise.Parties to contract of pledge:•Pledgor: The depositor is called the pledgor.•Pledgee: The person to whom it is deposited is called thepledgee.
Amity Business SchoolRights of a Pledgee:• To retain the goods pledged.• To claim reimbursement of extra-ordinary expenses• To sue pledgor• To sell the goods.Duties of a Pledgee:• To take reasonable care of the goods• To return the goods• To return accretion to the goods• Not to make unauthorized use of goods• Not to mix goods pledged with his own goods
Amity Business SchoolContract of AGENCY:Agent :An agent is a person employed to do any act or torepresent another (his principal) in dealings with thirdpersons.Principal:The person for whom act is done by agent or who isrepresented in dealings with third persons by an agent, iscalled the principal.
Amity Business SchoolCreation of Agency:i. By express authorityi. By implied authority:• By estoppel• By holding out• By necessityiii. By ratificationiii. By operation of law
Amity Business SchoolClassification of Agents:i. On the basis of extent of authority:• General Agents• Special Agentsii. On the basis of nature of work:• Mercantile Agents-Broker, Factor, Auctioneer, Commission Agent,Del-credere Agent• Non Mercantile AgentsBankers and Partners
Amity Business SchoolExtent of Authority of Agents:• In normal circumstances-Depends upon the terms expressed on his appointment ormay be implied by the circumstances of the case.• In case of emergency-He can do all such things which may be necessary toprotect the principal from loss in an emergency and whichhe would do to protect his own property under similarcircumstances.
Amity Business SchoolDuties of Agents:1. To act according to directions or custom of trade.2. To act with reasonable care and skill.3. To render account.4. To communicate with principal and to obtain hisinstruction.5. To disclose all material information.6. Not to disclose confidential information entrusted to him.7. Not to allow his personal interest to conflict with his duty.8. Not to make secret profit.9. To pay sum received for principal.10.Not to delegate his authority.
Amity Business SchoolRights of Agents:1. Right to receive remuneration.2. Right of lien on the goods or property.3. Right to be indemnified against all charges, expenses,liabilities properly incurred in the course of agency.
Amity Business SchoolTermination of Contract of Agency:• By performance of the contract.• By mutual agreement.• By revocation of authority by the principal.• By renunciation of his authority by the agent.• By expiration of the period fixed for the agency.• By death/ becoming of unsound mind of principal oragent.• By insolvency of the principal.