Business Law

1. LAW OF CONTRACT
Unit-1

2. What is Law?
 Has different connation
 Citizen think – set of rules , has to be obeyed
 Lawyer – thinks as vocation
 A legislator – thinks law as something he
created
 Judge – thinks law as guiding principle

3. Definition
 According to salmond – law is the body of
principles recognized and applied by the state
in the administration of justice.

4. Mercantile Law
 Body of law that deals with customs and
practices of local and international commerce
 legal code that governs operations of banks
and businesses of all kinds, it covers
agreements, contracts, copyrights, franchising,
insurance, licensing, patents, shipping and
transport, trademarks, etc.

5. Indian Contract Act 1872
 The law relating to contract is governed by the
Indian Contract Act, 1872
 According to Section 2(h) of Indian Contract
Act, an agreement enforceable by law is a
contract
 Indian Contract Act Agreement Enforceable by
Law Offer Acceptance 3 C’s Capacity
Consideration Consent Legal Object Void
Agreement

6. Sections
 The act contained 266 sections in 11 chapters
 1930 provisions relating to “sale of goods” and
in 1932 provisions relating to “partnership” was
replaced , and given as separate act.

7. Provisions of Indian Contract
Act1872
 General principles of the law of contracts and
quasi – contract (section 1 – 75)
 Certain special kinds of contract
1. Indemnity and guarantee (sec 124-147)
2. Bailment and pledge (sec148-181)
3. Agency (sec 182-238)

8. Application of the ACT
 Indian Contract Act 1872 (sec 1-72)came into
force on 1st September 1872.
 Not applicable in Jammu & Kashmir
 Does not deal with branches of law of contract.
 Separate law deals Negotiable Instrument,
transfer of property, sale of goods, partnership
& insurance


9. Contract meaning
 Word contract derived from latin word
“contractum” meaning drawing together
 Contract is exchange of promise
 It is formed by two or more persons
 It is initiated by one party by offering something to
other party
 If other party accepts the offer in full then it
becomes an agreement .
 Agreement fulfils the condition of section 10 , it
becomes the contract.

10. Essential of contract
 Agreement (offer & acceptance )
 Lawful consideration
 free consent
 Writing and registration
 Possibility of performance
 Intention to create legal relations
 Capacity of parties
 Legality of object
 Certainty
 Agreement not declared void

11. Agreement
 “Every promise and every set of promises
forming the consideration for each other is an
agreement.”
 Agreement = Offer + Acceptance
 Contract:- According to section 2(h) of the
Indian contract act, 1872. "An agreement
enforceable by law is a contract”. i.e. Contract
= Agreement + Enforceability by Law
 all contracts are agreements but all
agreements are not necessarily contracts.

12. Essence of an agreement
 The minds of the parties in full and final
agreement
 The parties to the agreement must have
agreed about the subject-matter of the
agreement in the same sense and at the same
time.
 Ex: A, who owns two cars, Maruti Swift &
Honda City, is selling Swift to B. B thinks he is
purchasing Honda City. There is no consensus
ad idem (meeting of mind) & consequently no
contract

13. Difference
 Offer accepted
becomes agreement
 Agreement are illegal or
immoral , no obligation
 Not need to be contract
 Not concluded or a
binding
 Not possible may or
may not
 Contract entered into
agreement and hence
valid contract are
enforceable
 Legal obligation
 All contract are
necessarily agreements
 Contract is concluded
 Enforceable
Agreement Contract

14. Classification of Contracts
1.Validity 2.Formation 3.Performance
1.Voidable Contract
[2(i)]
1.Express Contract 1.Executed Contract
2.Void Agreement
[2(g)]
2.Implied Contract 2.Executory Contract
--Unilateral Contract
-bilateral Contract
3.Void Contract 3.Quasi Contract
4.Illegal Agreement
5.Unenforceable
Contract

15. 1.Classification according to
‘Validity’
 i] Voidable contract: An agreement which is
enforceable
 by law at the option of one party but not at the
option of
 the other or others is a voidable contract
[Sec.2(i)].
 The party whose consent is not free may
either
 rescind (avoid or repudiate) the contract, if he
so
 desires, or elect to be bound by it.
 A voidable contract continues to be valid till it is
avoided
 by the party entitled to do so.

16.  ii] Void Agreement: An agreement not
 enforceable by law is said to be void
[Sec.2(g)].
 – E.g., An agreement with a minor or an
agreement
 without consideration.

17.  iii] Void Contract: A contract which ceases to
be
 enforceable by law is a void contract. [2 (j)].
 – E.g., A contract to import goods becomes
void, when war
 breaks out between the countries.

18.  iv] Illegal Agreement: An illegal agreement is
one
 which transgresses the public policy or which
is
 criminal in nature or which is immoral.
 – E g., An agreement to import prohibited
goods.
 All illegal agreements are void but all void
 agreements are not necessarily illegal.

19.  v] Unenforceable Contract:
 – An unenforceable Contract is one which cannot
be
 enforced in a Court of law because of some
technical
 defect such as absence of writing or where the
remedy has
 been barred by lapse of time.
 The contract may be carried out by the parties
concerned; but in the
 event of breach or repudiation of such a contract,
the aggrieved party
 will not be entitled to the legal remedies.

20. 2.Classification according to
‘Formation’
 On the basis of ‘ Formation’ Contract can
be classified as,
 (i) Express Contract,
 (ii) Implied Contract,
 (iii) Quasi Contract.

21. (i) EXPRESS CONTRACT:
 If the terms and conditions of contracts are
expressly
 agreed upon (whether words spoken or written) at
 the time of formation of contract, the contract is
said
 to be ‘Express Contract ’.
(ii) IMPLIED CONTRACT:
 One which is inferred from the acts or conduct of
the
 parties or course of dealings between them.
 An implied contract is one which is not an express
contract.

22. (iii) QUASI CONTRACT:
 Strictly speaking Quasi Contract is not a
contract at all.
 A contract is intentionally entered in to by the
parties.
 A quasi contract, on the other hand is created
by law.
 It rests on the ground of equity that, “ a person
shall not be allowed to enrich himself unjustly
at the expense of another ”.

23. Absolute contract
 The promiser undertakes to perform the
contract in all events without any condition
according to the terms of the contract to time &
place

24. Contingent contract
 conditional or contingent contract is one in
which a promise is conditional and the contract
shall be performed only on happening or not
happening of some future uncertain event
 A company promises to pay B 10000 if B s
house is burnt

25. Essentials of contingent
contract
 Existence of contingency – happening and non
happening of events
 Collaterality – compensation determined
based on uncertainty
 Uncertanity – subject to risk in future
 Enforceability – cannot be enforced unless
uncertainty has happened .
 Rules – enforcement of contract contingent on
happening of a future uncertain event .

26. Difference between contingent and
wagering contract
Mutual promise Not necessary to be mutual Mutual contract exist in
wagering contract
Sole condition Determination is not sole
condition
Uncertain event is the sole
condition
Void agreement Contingent contract is not void
agreement
Wagering contract is void
Interest of parties Parties are interested in
occurrence and non
occurrence of the events
Parties are not involved in the
occurrence and non occurrence
of the events
Future events Future events are collateral
and incidental to the contract
The future event is the sole
determining factor of the contract

27. Difference between void & voidable
contract
Point of
difference
Void contract Voidable contract
Definition As per sec 2 (J) a contract
which ceases to be enforceable
by law becomes void when it
ceases to be enforceable , so a
contract which cannot be
enforced in a court of law is
known as void contract
As per sec 2(i) voidable contract
is an agreement enforceable
bylaw at the time of option of one
or more of the parties .
Contract which is enforced at the
option of aggrieved party is
voidable contract.
Nature Contract become void on
account of specific violation
Becomes voidable in the option
of aggrieved party
Contract caused by undue
influence , fraud and
misrepresentation
Rights Does not provide any legal
remedy
Can get a right to withdraw the
contract
Indemnity Cannot be enforced indemnity Free consent is obtained by

28. Offer and acceptance
 Offer sec 2(a) – offer is an proposal by one
party to another to enter into a legally binding
agreement with
 Offer is the early steps in formation of a
contract lies in arriving at agreement between
contracting parties by means of offer and
acceptance


29. Rules governing offer
 Offer must be clear definite , complete & final
 It must be communicated to offeree
 Communication can be in oral , written
 Communication can be general or specific

30. Legal rules for offer
 Create legal relation
 Expressed or implied
 Specific or general
 Made with a view to obtain the consent of the
offeree
 Certain , definite & not vague
 Distinct from an invitation to offer
 Must be communicated
 May be conditional
 No term the non compliance of which amounts to
acceptance

31. Classification of offer
 General offer - to public in general
 Special offer –to definite person
 Cross offer – exchange identical offers in
ignorance at the time of each others offer .
 Counter offer – modifications variations in the
terms of original offer
 Standing , open or continuing offer – remain
open for acceptance over a period of time

32. Lapse(comes to an end) of an
offer
 By revocation – offeror revokes the offer before its
acceptance by the offeree.
 By lapse of time – not accepted within the fixed
time
 By death or insanity of the offeror or offeree
 By failure to accept conditions
 By counter offer – amount to rejection of original
offer
 By not accepting the prescribed or usual mode
 By rejection of offer by offeree
 By subsequent illegality or destruction of subject
matter of the offer

33. Communication , acceptance &
revocation of offer (sec3)
 How revocation is made? (sec6)
 Communication of revocation notice to other
party
 By lapse of time
 Failure of acceptor to fulfil a condition
 Death or insanity of the proposer

34. When communication complete
(sec4)
 Communication of offer – complete when it
comes to the knowledge of the person to
whom it is made
 Communication of acceptance -
 Communication of revocation - taking back or
withdrawal

35. Time of revocation of offer and
acceptance (sec 5)
 Time for revocation of proposal – at anytime
before the communication of its acceptance is
complete as against the prosper but not
afterwards
 Time for revocation of acceptance - at any
time before its communication is complete as
against the acceptor , but not afterwards.

36. Capacity of parties to create
contract
 Section 10
 All agreement are contract if they are made by
the parties competent to contract.
 Parties must legally enter the contract
 Minors , incompetent individuals lack
contractual capacity.
 Contract entered by someone who lack
capacity cannot be enforceable .

37. Section 11 Indian contract act
1872
 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 and is
not otherwise disqualified from contracting by
any law to which he is subject .

38. List of incompetent person
 Minor – according to the law
 Mental incompetence - if he is unsound mind
 Status – if he is disqualified from contracting
by any law to which he is subject .

39. Minor
 Who is not a major person above 18
 Who is under 18
 He can become major after completing 18
years
Determining minority :
Sec 11 provides the age of majority of a person
is to be determined “according to the law to
which he is subject”

40.  In case of contract of mercantile law the age of
majority is to be determined by the law of
place where the contract is made.
 In case of contract relating to land , the age of
majority is to determined by the law of the
place where the land is situated

41. Position of minors agreement
 Agreement entered into by a minor is altogether void
 No estoppel against a minor
 Liability of necessaries
 Minor agent
 Contract by minor and adult jointly
 Minor can be beneficiary
 Ratification on attaining majority is not allowed
 Minor partner
 Minor & insolvency
 Position of minors parents
 Minor shareholders

42. Person of unsound mind
 Sec12
 Sound mind is defined as “ a person is said
to be sound mind for the purpose of
making a contract , if at the time when he
makes it , he is capable of understanding it
and of forming a rational judgement as to
its effects upon its interest”.

43.  Usually unsound mind but occasionally of
sound mind can make a contract when he is of
sound mind.
 Patient in lunatic asylum , who is at intervals of
sound mind , may contract during those
intervals.
 A person , who is usually of sound mind but
occasionally of unsound mind , may not make
a contract when he is on unsound mind .

44. Symptoms of unsound mind
 Idiocy – lack of development of brain
 Lunacy or insanity – disease of the brain
 Drunkenness – temporary incapability
 Hypnotism – temporary incapability (person is
under influence of artificial induce sleep)
 Mental decay – old age

45. Persons disqualified by law
 Alien enemies – citizen of foreign countries
 Foreign sovereigns and ambassadors
 Convict – found guilty of crime , during imprisonment
term he cannot enter contract
 Insolvent
 Joint stock company and corporation incorporated
under special act – (LIC, UTI)
 Pardanashin women - avoids contact with outside
world
 Married women – marriage does not affect contract ,
she may sue or sued in her own name in respect of
her separate property

46. Revision
 Question bank
 One words questions