Business Law - Intro & Contract Act-1

10-1
10
Business &
Corporate
Laws
Introduction
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
10-2
Meaning & Nature of Law

 Law word used in many senses: laws of physics,
math , sciences or say laws football or any other
subject
 Law means any rule of conduct, standard or pattern

to which actions are required to confirm ; if not
confirmed , sanctions are imposed
 When we say laws of a state/country , we use the term ‘law’

in a special & strict sense.

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Meaning & Nature of Law
Law defined in Oxford English Dictionary:-

 Law as body of rules whether proceeding from
formal enactment or from custom , which a
particular state or community recognizes as binding
on its subjects & members.
 Law may also be defined as rule of conduct of
persons ( both natural & artificial ) imposed upon &

enforced among the members of a given state

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Important characteristics of Law

1. Law is a body of Rules
2. Law is for guidance & conduct of persons ( both
natural & artificial)
3. Law is imposed
4. Law is enforced by Executive
5. Law presupposes a state
6. Contents of law keep changing ; it is never static;
law responds to public opinion & changes
accordingly
7. Two basic ideas involved in law are : To maintain
some form of social order in a group
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Important characteristics of Law

1. Two basic ideas involved in law are :
(i) To maintain some form of social order in a
group
(ii) To compel members of the group within that
order
2. Law is made to serve some purpose which may be
social, economic, or political:
3. Law may include (i) Moral rules or etiquettes

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Classification of law
1. Public Law & Private Law
2. Criminal Law & Civil Law
3. Substantive Law & procedural Law
4. International Law & Municipal Law
5. Public International Law & Private International
Law

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1. Public Law includes: Constitutional law, Administrative
law, criminal Law, Municipal law , International Law
2. Private Law also referred as Civil law regulates relations
of citizens with one another . It includes: Law of contract,
law of torts, law of property, law of succession, family laws
3. Civil law refers to law dealing with rights & duties of

persons other than those created in the criminal law.
4. In a civil case , the plaintiff institutes suit against the
defendant for some civil wrong doing allegedly committed
by the defendant ,
5. Whereas criminal law is enforced on behalf of or in the
name of state.

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1. Criminal Law is that part of law which
characterizes certain types of wrong doings
offences against the state , not necessarily violating
any private rights , and punishable by the state
2. Criminal Law is apart of public law , as the society
or public are directly involved.
3. Substantive Law & procedural Law : Provisions
of Substantive Law define rights & duties while
procedural Law provides machinery for enforcing
these rights & duties.

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1. International Law is a set of generally accepted
rules & regulations controlling the conduct of
nations, international organizations & individuals
& Municipal Law deals with the relationship
between individuals & their organizations within
a state
2. Public International Law is concerned solely with
the rights & obligations of sovereign states.
3. Private International Law may be defined as rules
voluntarily chosen by a given state for the decision
of cases which have ‘foreign’ element or
complexion
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Sources of Law
Primary Sources of Indian law:-
1. Customary law
2. Every custom does not become law
3. Judicial precedents are another important source of

law
4. Statute- An important source of law
5. Personal Law

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Sources of Law
Secondary sources of Indian law:-
The secondary sources of Indian law are English law
& justice, Equity & Good conscience
English Law:-
1. Main sources of English Law:-
2. Common Law
3. Equity
4. Statute Law
5. Law merchant or Lex Mercatoria

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Sources of Law
Secondary sources of Indian law:-
The secondary sources of Indian law are English law
& justice, Equity & Good conscience:
Justice , equity & good conscience are the guiding
forces behind most of the statutes in our country&
the decision of the court:
 Justice
 Equity
 Good Conscience
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Basic Legal Concepts

Concept of Legal Entity
Concept of Legal Rights: Different types of rights:-
1. Personal rights,
2. proprietary rights
3. Rights in personam & in Rem
Concept of Property : Different types of property

Tangible & Intangible Property:
Classification of personal Property as Tangible &
intangible Property
Real & Personal Property
Meaning of Chattel
purpose
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Basic Legal Concepts

Concept of Property :
Meaning of Chattel
Property rights are not absolute
Intellectual Property Rights( IPR)
Concept of ownership
Concept of Possession

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Essential Of Law
There are certain essentials which must be present in
law in order to make it effective. These are :-
1. Predictability
2. Flexibility
3. Reasonable application & coverage
Law must be such that one is enabled to predict with

some accuracy the legal consequences of an action

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01
Contract Act

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LAW OF CONTRACT
 LAWS required to regulate conduct of people &

to protect their property & contract rights.
 Life in general & business in particular need to
be regulated.
 Law of contract- Indian contract Act -1872
covered in 75 sections
 Objectiveof law of contract is to introduce
definiteness in commercial & other transactions i.e
what has been promised should be performed
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INDIAN CONTRACT- ACT-1872
 Origin :
 Human being – social- want to live in harmony.
 One’s interest bound to clash- so need for
control or regulations
 Law most effective instrument of control.
 Law is a general rule of external human
action enforced by sovereign political
authority.
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 We enter into contracts everyday:-
 Sale /purchase of shares, plot of land/ flat
 Hiring taxi, purchase of bus/train/airlines ticket
etc.
 For people engaged in business done through contracts,
 Essentials to understands how contracts is made & ended.
 Remedies for breach of contract

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CONTRACT ACT
Act not a complete & exhaustive code
regarding all classes of contracts
English principles can be applied to contracts
in suitable cases by Indian courts if such

principles are not contrary to the provision of
the act.

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 Origin : Law is the body of principles recognized & applied
by the state in the administration of justice.
 Parts of law which deal with rights & obligations arising out
of business transactions may be called as Commercial,
mercantile or business law.
 Forgery & fraud in transactions dealt under Criminal law.
 Law most effective instrument of control.
.

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Definition- Contract-sec 2(h)
 An agreement enforceable by law is a

contract
 To make a contract , there must be :-
 An agreement & the agreement must be
enforceable by law

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 Agreement is defined as every promise &

every set of promises forming consideration
for each other.
 A promise is defined as an accepted
proposal.
 An agreement is made of a proposal from
one side an its acceptance by the other

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 Agreement will become contract-

 If it is enforceable by law.
 An agreement becomes enforceable only
when it is coupled with obligations.
 Obligation is the legal bond , which binds
the parties to a contract.
 Obligations must be legal & not social,
moral or religious obligations.
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Exapmles-Contract Act
 Airlines sells a ticket to ‘X’ on 01 jan from

Delhi to Mumbai. In case airlines fails to
fulfills promise , then X has remedy
 A sells motor cycle for Rs 10,000/= to B
 A invites B for dinner in a restaurant- No
remedy for non performance
 D gives promise to his son for pocket
money

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Eessentials of a valid - Contract
 Agreement : All contracts are agreements but

all agreements need not be contracts.
 The agreements that create legal obligations
are contracts.
 Agreement is an outcome of offer &
acceptance; called as meeting of minds of
parties,
 Also known as ‘consensus ad idem’

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Free Consent: Both the parties should agree

upon same thing without any :-
 Coercion, undue influence, misrepresentation,
fraud or mistake.
 Contractual Capacity: Parties entering
into contract must have attained the age of
majority.

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Lawful consideration: Consideration

should be lawful & adequate.
 Consideration means something in return for
something.
 Lawful Object: Object or purpose of an
agreement should be lawful. It means that :-
 Object should not be forbidden by law: e.g.
injuring some person or his property, immoral
act, fraudulent or against public policy.
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Not expressly declared Void: Certain

agreements declared void in the ACT:-
 Agreement in restraint of marriage, trade,
legal proceedings
 If any person does agreements which are
void as per contract act then he can not
seek relief from the court .

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Possibility of Performance:
 Agreement should be capable of being
performed, e.g.
 Agreement to discover treasure by magic.
Certainty of Terms:
 Terms of Agreements should be certain e.g.
Agreement to sell 100 tons of oil is vague
because it does not specify type of oil.
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Intentions to create legal obligations:

 Agreement to create social, moral or religious
obligations is not valid & can not be enforced.
Legal Formalities: Agreements made in
India may be oral or written.
 If sec 10 states that contract should be in
writing & should be witnessed or should be
registered , the same must be observed
otherwise the agreement can not be enforced.
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CLASSES OF CONTRACT
 On the basis of enforceability contracts may be

classified as follows:
Valid Contract :Contract which satisfies all legal
requirement provided under sec 10 of Contract Act. Valid
contract must have all essentials elements of a contract as
described earlier. If one or more of these elements are missing
then contract is either void, voidable, illegal or unenforceable.
Void Contract : An agreement not enforceable by
law is said to be void- sec 2(g)
 e.g. Agreement not creating legal rights or obligations.
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CLASSES OF CONTRACT
Void Contract : An agreement not enforceable by law
is said to be void- sec 2(g)
 e.g. Agreement not creating legal rights or obligations.
 Void means not binding in law
 ‘Void contract’ implies a useless contract which has no legal
effect at all. Such a contract is nullity , as for there has been no
contract at all
 Sec 2(j) defines : ‘A contract which ceases to be enforceable by
law becomes void , when it ceases to be enforceable’

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Instances of void agreements

 Agreements entered through mutual mistake of facts between
the parties ( sec 20)
 Agreements the object or consideration of which is unlawful.
( sec 23 )
 Agreements the part of object or consideration of which is
unlawful.( sec 24 )
 Agreements made without consideration( sec 25, v )
Agreements in restrain of legal proceedings.( sec 28 )

 Uncertain & Wagering Agreements( sec 30)
 Impossible Agreements( sec 56, xi)
 An Agreements to enter into an agreement in future.

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CLASSES OF CONTRACT
 Voidable Contract : An agreement which is enforceable by
law at the option of one or more of the parties there to
 but not at the option of the other or others is voidable
contract
 A voidable contract is enforceable by law at the option of one
of the parties. Until it is avoided or rescinded by theparty
entitled to do so by excercising his option in that behalf , it is
a valid contract

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CLASSES OF CONTRACT
Voidable Contract : As per sec 2(i) A

voidable contract may be repudiated ( i.e.
avoided ) at the will of one or more of the
parties, but not by others. Until it is
repudiated it remains valid & binding
 It is affected by flaw(e.g. misrepresentation, fraud, coercion,
undue influence)and the presence of any of these defects
enables the aggrieved party to take steps to repudiate the
contract.
 It shows that the consent of the party who has discretion to
repudiate was not free.
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CLASSES OF CONTRACT
Voidable Contract : As per sec 2(i) A

voidable contract may be repudiated ( i.e.
avoided ) at the will of one or more of the
parties, but not by others. Until it is
repudiated it remains valid & binding
 It is affected by flaw(e.g. misrepresentation, fraud, coercion,
undue influence)and the presence of any of these defects
enables the aggrieved party to take steps to repudiate the
contract.
 It shows that the consent of the party who has discretion to
repudiate was not free.
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EXAMPLE: Voidable Contract

 Ex: “A” man enfeebled by disease or age is induced by B’s influence
over him, as his medical attendant to agree to pay B an unreasonable
amount for his professional services .
A can avoid the contract. A’s consent is not free; it is affected
by undue influence employed by ‘B’ A CAN TAKE STEPS
TO SET ASIDE THE CONTRACT
 Ex-2: ‘A’ purchased certain goods from ‘B’ by making a
misrepresentation of certain facts. Later B comes to know about the
misrepresentation of these facts made by A. However ‘B’ does not within
a reasonable time, repudiate the contract. A sells these goods to ‘C’ a
bona fide purchase of value . ‘C’s title shall be a good title.

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Characteristics of a voidable
contract
 It is valid & binding on both the parties till it is avoided by the aggrieved
party.
 It can be avoided by one party & not the other party
 The party at whose option the contract is voidable is not
bound to repudiate it . It may choose to reaffirm it & there by
bound by it as well as bind the other party.
 The party repudiating the contract is entitled to get damages
for any loss that it may have suffered .
 In case he has received any benefit under the contract , he
must restore it to the person from whom it was received.
 Thus aggrieved party has two fold rights
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CLASSES OF CONTRACT
 Illegal Contract : An agreement is illegal when it is against
the law of land.
 Illegal means “Contrary to Law’ & the term ‘contract’ means
an agreement enforceable by law ; so illegal contract means
– “An agreement enforceable by law & contrary to law”-
Thus there is an apparent contradiction in terms. Hence an
illegal contract is void ab- initio
 An agreement to commit fraud, crime( murder , assault,
robbery etc) or one that is opposed to good morals is illegal
because these type of agreements are against the law of land
 All illegal agreements are void , all void agreements need not
be illegal

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CLASSES OF CONTRACT
Unenforceable Contract : It is
neither void nor voidable
 An unenforceable contract is valid but becomes
unenforceable for certain tech reasons e.g.
 ( want of proof, expiry of period, absence of writing
or registration)
 or where the remedy has been barred by lapse of
time
 Ex: An oral arbitration agreement is unenforceable
because the law requires an arbitration agreement to
be in writing .

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CLASSES OF CONTRACT
Unenforceable Contract : It is
neither void nor voidable
 Ex 2: A bill of exchange or promissory note though
valid in itself ,
 becomes unenforceable after three years from the
date the bill or note falls due, being time barred
under the limitation act

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CONTINGENT CONTRACT
 Contingent Contract: A contingent contract

is a contract to do or not to do something , if
some event, collateral to such contract does or
does not happen.
 Ex: A contract’s to pay B Rs 10,000/= if B’s
house is burnt. This is a contingent contract.
A contingent contract may be contingent
upon (i) happening (ii) or non happening

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ESSENTIALS OF CONTINGENT CONTRACT

Three essential characteristics of a
Contingent contract are:-
 Performance of contingent contract depends
on happening or non happening of an event.
 Event must be uncertain
 Event must be collateral, i.e. incidental to the
contract

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QUASI CONTRACT
 Quasi Contracts does not arise by virtue of an agreement ,
express or implied , between the parties but law infers or
recognizes a contract under special circumstances
 Ex: Obligation of the finder of lost goods to return them to
the true owner or liability of a person to whom money is paid
under mistake to repay it back can not be said to arise out of
a contract even in its remotest sense ,
 as there is neither any offer nor acceptance /consent , but
these are very much covered under quasi contract as per sec
71 & 72 respectively.
 A quasi contract is based on the equitable principle that a
person shall not be allowed to retain unjust benefit at the
expense of another ( ref sec 68-72 of contract Act

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QUASI CONTRACT
 Quasi contract is a situations in which law imposes upon a
person , on grounds of natural justice, an obligation similar
to that which arises from a true contract, although no
contract , express or implied has in fact been entered into by
them

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QUASI CONTRACT
 Principle underlying a Quasi Contract is that

no one shall be allowed unjustly to enrich
himself at the expense of another , and the
claim based on a quasi contract is generally
for money.
 Ex: X supplies goods to his customer Y who receives
& consumes them. Y is bound to pay the price. Y’s
acceptance of goods constitutes an implied promise
to pay. This kind of contract is a tacit contract.

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QUASI CONTRACT
 Ex: X supplies goods to his customer Y who receives

& consumes them. Y is bound to pay the price. Y’s
acceptance of goods constitutes an implied promise
to pay. This kind of contract is a tacit contract.
 If goods are delivered by a servant of X to Z
mistaking Z for Y , then Z will be bound to pay
compensation to X for their value . This is a quasi
contract

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Kind of CONTRACT from point of view of
mode of creation
 Express Contract : Where both the offer & acceptance
constituting an agreement are enforceable at law are made
in words spoken or written , it is an Express contract
 Ex : A tells B on telephone that he offers to sell his car for Rs
1 lakh & B accepts the offer . It is an Express contract
 Implied contract : Where both the offer & acceptance
constituting an agreement enforceable at law are made
otherwise than in words i.e. by acts & conduct of parties , it
is an implied contract .
 Ex : A coolie in uniform takes up luggage of ‘B’ to be carried
out of railway station without being asked by B, & B allows
him to do so , then the law implies that B agrees to pay ‘A’
for his services & there is an implied contract.

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Kind of CONTRACT from point of view extent
of execution
 Executed Contract : A contract is said to be executed when
both the parties to a contract have completely performed
there share of obligation & nothing remains to be done by
either party under the contract
 Ex : Book seller sells a book on cash payment , it is said to
be an executed contract
 Executory contract : In this type of contract both the
obligations are outstanding , one on either party to the
contract , either wholly or in part at the time of the
formation of the contract
 Ex : T agrees to coach R a student from Ist day of next
month & R agrees to pay Rs 5,000/ - in consideration , the
contract is executory because it is yet to be carried out.

10-51
CONTRACT ACT
LESSON-III

10-52
Privity of Contract
A contract is entered by two or more persons
thereby creating rights & obligations for
them, it is a party to the contract who can
enforce his rights as against the other party.
 Stranger to a contract can not maintain a suit for a
remedy.
 Law entitles those who are parties to the contract to
file suits for exercising their rights. This is known as
‘Privity to Contract’
 Law of contracts creates ‘jus in personam ‘ as
distinguished ‘from jus in rem’
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Privity of Contract
 Ex: A is indebted to B. A sells certain goods to
C . C gives a promise to A, pay A’s debt to B.
 C fails to pay. B has no right to C being a
stranger to the contract between C & A.
 In other words C is not in privity with B.
However C is in privity with A


10-54
Offer or Proposal
 When one person signifies to another his willingness to do or
to abstain from doing any thing with a view to --
 obtaining the assent of that person to such act or
absentinence , he is said to make a proposal/offer:
 Person making the proposal is called PROMISOR
 & person accepting is called PROMISEE
 Essential of a valid offer:
 An offer may be generic or specific:
 According to sec 2 ( a) an offer must be made to a specific person . An
offer may be made to the world at large . But the contract is made only
with the person who accepts & fulfills the condition of the proposal

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Essentials of a valid Offer

 In the words of ANSON :
 An offer need not be made to an ascertained person , but no
contract can arise until it has been accepted by an
ascertained person.
 Ex: Co offered by ad that he who contacts epidemic influenza , cold or
any disease after taking medicine as per printed directions will be given
an award; one person took medicine & suffered from influenza & was
entitled to recover the promised award.
 In the case of general offer of reward for some information or restoration
of a missing thing , the offer is open for acceptance to only one person
who performs the required condition & as soon as the condition is
performed , offer is closed

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Essentials of a valid Offer
 An offer should be made within the intention of

creating legal obligation.
 Examples
 Do you intend to sell your motorcycle? – It is not a proposal
 Similarly a mere statement of intention :- I may sell my car if
I can get Rs 2 lakhs for it -- It is not a proposal
 But if M says to N “ Will you buy my car for Rs2 lakhs or I
am willing to sell my car to you for Rs 2 lakhs .
 It is a proposal as it has been made with the intention of
obtaining assent of N

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Offer or Proposal
 Essential of a valid offer:
 An offer may be express or implied:
 Express offer is expressed by words , spoken or written & one which is
inferred from the conduct of a person or circumstances of the case is
implied.
 A shoe shiner starts shining shoe without being asked to do so, a person
who allows this work without giving any verbal or written acceptance for
this work has to pay for shoe shining work , because this is an implied
offer.
 DTC runs buses on different routes to carry passengers at the scheduled
fares. This is an implied offer by DTC

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Essential of a valid offer:

 An offer must contemplate giving rise to legal
consequences & be capable of creating legal
relations:
 Ex : offer to a friend for dinner or offer to your spouse to take him/her
for movie is not a valid offer for creating binding agreement / contract
 the terms of an offer must be certain & not loose or vague
 Ex: M purchased a horse from N & promised to buy another if first
horse proved lucky. M refused to buy second horse.
 N can not enforce the agreement or sue him because the term of
agreement is vague & uncertain
 An invitation to offer is not an offer
 EX: catalogues of prices, or display of goods with prices marked on it do
not constitute an offer. These are an invitation for an offer. Transmission
of such an offer does not amount to supply of an unlimited quantity of
goods as soon as an order is given
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 An offer must be communicated to the offeree: Doing
anything in ignorance of the offer can never be treated as its acceptance,
for there was never a consensus of wills. This applies to both specific &
general offers
 Ex : A, without knowing the reward for arrest of a particular criminal ,
catches the criminal & gives info to the Police. A can not recover the
reward as he was not aware of the offer when it was made.
 An offer should not contain a term the non
compliance of which would amount to acceptance
 Ex: An offeror can not say that if acceptance is not communicated up to
a certain date , the offer would be presumed to have been accepted . If
the offeree does not reply then there is no contract, because no condition
of obligation can be imposed on him , on the ground of justice.
 An offer can be made subject to any terms &
conditions. An offeror may attach any terms & conditions to the
offer. He may even prescribe the mode of acceptance.
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 Two identical cross-offer do not make a contract
 Ex : A wrote to b B offering to sell 100 tons of iron at Rs 8,000/== ton .
On the same day B wrote to A buy 100 tons of iron at Rs 8,000/= ton
Letters crossed in post but there is no concluded contract between A & B
because the offers were simultaneous , each being made in ignorance of
other , hence there is no acceptance of each other’s offer
 Lapses & Revocation of offer
 An offer lapses after stipulated or reasonable time
 Ex: An applicant was informed for allotment of shares & deposit the
call money by 31 Dec 09. Deposit of money means giving acceptance. If
money not deposited by 31 Dec 09 then the offer lapses

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Lapses & Revocation of offer

 An offer lapses by not being accepted in the mode
prescribed.
 An offer lapses by rejection i.e. if it has been rejected by offeree.
Rejection may be expressed by words, written or implied
 An offer lapses by the death or insanity of the offeror or the
offeree before acceptance- Sec 6(4)
 An offer lapses by revocation : an offer is revoked when it is
retracted by the offeror. An offer may be revoked, at any
time before acceptance.
 Ex : At an auction ‘A’ offers highest bid but he withdraws it before fall
of hammer . There is no concluded contract
 An offer stands revoked if the offeree fails to fulfill a
condition precedent to acceptance ( sec 6(3)
 An offer lapses by subsequent illegally or destruction of a
subject matter
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Acceptance-sec 2(b)
When the person to whom the
proposal is made signifies his
willingness thereto the proposal is
said to be accepted :
 By accepting offer:-
 Acceptor expresses his willingness to be
bound by the terms & conditions of an
offer.
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Rules regarding Acceptance
An analogy of lighted match stick-

given by Anson
 Acceptance is to an offer what a lighted
match stick is to a gun powder
 It produces something which can not be
recalled
 An acceptance turns the offer into a
binding obligation.
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Acceptance-sec 2(b)
Analogy of lighted match stick-

given by Anson
 Acceptance is to an offer what a lighted
match stick is to a gun powder
 It produces something which can not be
recalled
 An acceptance turns the offer into a
binding obligation.
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Rules Regarding Acceptance
An offer can be accepted by the

person to whom it is made or
 to a person who has been
authorized on behalf of the person
to whom the offer has been made
 Acceptance should be unconditional &
absolute
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 Acceptance should be communicated

By writing, word of mouth or also by
conduct
 An agreement does not result from a mere
state of mind.
 Acceptance should be according to
the prescribed form
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 Acceptance should be communicated

By writing, word of mouth or also by
conduct
 An agreement does not result from a mere
state of mind.
 Acceptance should be according to
the prescribed form- proposer has right
to prescribe the manner of acceptance
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 Acceptance must be provoked by an

offer i.e acceptor must be aware of offer
 Acceptance must be given before an
offer lapses or is revoked
 Provisional acceptance is no
acceptance.- offer may be withdrawn
before given final acceptance
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 Contract by Post- under English law

Proposer is legally bound by the
acceptance effected through postal
medium--
when the latter is prepared,
addressed, stamped & mailed even
though it is delayed or lost in transit
10-70

 Contract by Post- sec 4( Indian law)
 Communication of an acceptance is complete as against the
proposer when it is put in a course of transmission to him so
as to be out of power of the acceptor; as against the acceptor
when it comes to the knowledge of the proposer
no acceptance.- offer may be withdrawn
before given final acceptance

10-71
Termination of an offer-
circumstances
 Lapse
 Failure to fulfill a condition precedent-
sec 6(3) Offer is terminated by the
failure of the acceptor to fulfill a
condition precedent to acceptance- Offer
to sell car for Rs 1 lakh - buyer( acceptor) to
show driving license ( Condition)
10-72
 Rejection- By rejecting an offer- offeror

can terminate the offer- Giving counter
offer also implies rejecting an offer
 Destruction of the subject matter or
illegality- If the thing offered is
destroyed or can not be bought &
sold due to operation of law the offer
it self lapses
10-73
 Revocation- Withdrawal of an offer is

called Revocation
 Proposal may be revoked any time by

the proposer before communication of its
acceptance

10-74
Contractual Capacity
PERSONS NOT COMPETENT TO

CONTRACT
 Minors
 Persons of unsound mind
 Persons disqualified by law to which
they are subject

10-75
PERSONS NOT COMPETENT TO

CONTRACT
Minors
 18 yrs & above – major( Indian majority
Act -1875
 Age of majority 21 yrs –
 If guardian is appointed or property
under supervision of court of wards

10-76
Principles Governing Minor’s

contract
 Minors are protected by law- their rights
& estates are preserved
 Shortcomings & negligences are excused
 Minor’s also assisted in pleadings –
Judges are their counsellors &
 law is their guardian

10-77
Effects of Minor’s Agreement
A Minors agreement is void ab initio

 No estoppel against minor- Minor
made agreement by misrepresenting his age , there is
no estoppel against him
No liability in contract or tort
arising out of contract
 Minor - in law is incapable of giving
consent
10-78

A Minor made agreement by misrepresenting
his age to obtain a contract can not be sued
for deceit
Contract can not be converted into
Tort
 However if Tort is independent of
contract then it will not absolve minor
of his liability
10-79
 Doctrine of Restitution-
 Minor obtains property or goods by
misrepresenting his age-
 He can be compelled to restore it but so long
as same is traceable in his possession.
 If Minor has sold goods , he can not be
made to repay value of goods because that
would amount to enforcing a void contract
10-80

 When a Minor seeks aid of the court for
cancellation of contract- court may grant
relief subject to the condition that
Minor will restore all benefits obtained
under the contract or
make suitable compensation to the other
party
 But court will not compel any restitution by a
minor even if minor is a plaintiff
10-81

But court will not compel any restitution
by a minor even if minor is a plaintiff,
Where the other party was aware of the
infancy so that he was not deceived or
where the other party was unscrupulous
in his dealings with the minor
 Minor - in law is incapable of giving consent

10-82

Beneficial contracts
Minor’s agreement is absolutely
void-
 confined to cases where minor charged
with obligations & other party seeks to
enforce it
 Minor allowed to enforce contract where he
is beneficiary & has no obligations

10-83
Minor is capable of purchasing
immovable property &
 may sue to recover the possession
of property by tendering the
purchase money

10-84
Minor can be a beneficiary e.g. a
payee, an endorsee or a promisee
under a contract.
A promissory note executed in
favour of a minor is valid & can be
enforced in a court
10-85
Ratification
 Minor can not ratify a contract on
attaining majority-
Fresh contract is to be made on
attaining majority – New contract
requires fresh consideration

10-86
Liability for Necessities- Sec 68

 Minor( Person incapable to contract )
liable for necessaries supplied to them
 Person who supplies such necessaries to
minor is to be reimbursed from the property
of such incapable person i.e. Minor
 Liability attached to the estate of minor & not
personal liability( minor can not be put in
jail)
10-87
Liability for Necessities- Sec 68

 Liability is only for necessaries
 Necessaries- Food , shelter, clothing etc
 To make minor’s estate liable following
conditions must be satisfied:-
 Contract must be for goods necessary for
support of his life
 Minor must not have already sufficient supply
of these necessaries
10-88
Persons of unsound Mind
A person is said to be of sound mind

if he/she capable of understanding
& Can take rational decisionas to its
effects upon his/her interests
 Under Indian Contract Act – Agreement of a
person of unsound mind is absolutely void,
 A person of unsound mind may make a
contract when he was of sound mind( sec-12)
©The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-89
CONTRACT ACT
Lesson-IV

10-90
FRAUD
A false statement made knowingly or
without belief in its truth or
recklessely careless whether it is
true or false is called fraud.
Examples of fraud
 Suggestion that a fact is true when it is not true by
one who does not believe it to be true
 i.e. a false statement intentially made is a fraud
10-91
FRAUD
 Active concealment of a fact by a person who has
knowledge or belief of the fact
 Mere non disclosure is not a fraud where there is no
duty to disclose-
 Ex- Bank employee dealing with opening of
account does not disclose to manger about the facts
of a client-- commits a fraud

10-92
FRAUD
A promise made without any intention of performing
it
 Any other act fitted to deceive( Human mind is very
fertile & can work out new schemes of fraud)
 Any such act or omission as the law specially
declares to be fraudulent

10-93
Misrepresentation
Before making contracts – parties

make certain statements for
inducing contracts ; are called
representations
 Representation is a statement of facts made by one
party to the other party at the time of entering into a
contract with an intention of inducing the other
party to enter into a contract
10-94
Misrepresentation
 Ifa representation is false or misleading it is called
misrepresentation
 A misrepresentation may be innocent or intentional
 Innocent misrepresentation dealt under

sec 18 of contract Act
 Intentional misrepresentation is called
Fraud- dealt under sec 17 of contract
Act
10-95
Misrepresentation
 Positive assertion of the fact
 A person received info from untrustworthy source or hear say but
asserted +vely concerning agreement that it is true is said to have
misrepresented the fact
 If M –is not embodied in the contract it creates no contractual obligation
unless it turns out to be fraudulent
 Breach of duty
 Party to the contract has duty to disclose all material facts concerning
subject matter of contract but does not do so,
 He is said to be guilty of misrepresentation
 Representation may be true at the time of making it , but later it becomes false.
This should also be disclose before the contract is entered into

10-96
Misrepresentation
 Causing mistake about the subject matter
 If a party to an agreement induces the other to commit mistake as to the
nature or quality of the subject matter of the agreement ,
He is guilty of misrepresentation

10-97
MISREPRESENTATION FRAUD
 Person making false Statement False Statement made by a person
honestly believes it to be true. Who either knows that it is false or
he does not care to know whether it is
true or false
There is no intention to deceive Purpose of fraud is to deceive other
the other party party
M- renders contract voidable at the In case of fraud contract is voidable.
Option of other party Also independent action for damages
can be taken
M- is not an offence under IPC Fraud in certain cases is punishable
hence it is not punishable under IPC
Silence not considered Generally silence not fraud except
misrepresentation under where there is duty to speak or the

any circumstances
Irwin/McGraw-Hill relations between the parties is
©The McGraw-Hill Companies, Inc., 2000
10-98
MISREPRESENTATION FRAUD
 P arties complaining of -M Party making a false statement can
can not avoid contract if he had not say that the other party had means
means to discover truth with to discover the truth with ordinary
ordinary diligence diligence

10-99
MISTAKE
MISTAKE
 Mistake refers to misunderstanding or wrong thinking or
wrong belief
 Mistake may be mistake of fact (either unilateral or bilateral)
 or mistake of law
 When both the parties to an agreement are under a mistake as to a
matter of the fact essential to the agreement ,
the agreement is void ( sec -20)- Bilateral Mistake

10-100
Mistake
 Sec -20- Bilateral Mistake:
 Where there is no real correspondence of offer & acceptance , parties are
not really in consensus ad- idem. Therefore there is no agreement at all
 Ex-A agrees to buy from B a certain house . It turns out that house has
been destroyed by fire before the time of bargain though neither party
was aware of the fact. The agreement is void- because mistake on the part
of both parties as to existence of the subject matter.
 A bilateral mistake may be regarding the subject matter or
the possibility of performing the contract
 Mistake as to the existence of subject matter
 Two parties may enter into a contract on the assumption that the subject
matter exists at the time of contract, but actually it may have ceased to
exist or has never existed at all . Then the contract becomes void
 Mistake as to the identity of subject matter
A mutual mistake as to the identity of subject matter render the contract
void
10-101
Mistake
 Sec -20- Bilateral Mistake of facts essential to an
Agreement:
 Ex: A agrees to sell B cargo of Ship which is supposed on its way from
London to Mumbai. It turns out that the day before the bargain the ship
conveying cargo has been cast away & goods lost. Neither party was
aware of the fact . Agreement is void
 A bilateral mistake may be regarding the subject matter as to

its(i) existence, (ii) identity (iii) title (iv) Quantity (v) price

10-102
Mistake
 Unilateral mistake , where only one party to a
contract is under mistake as to the matter of a fact,
such a contract is not invalid
 Where a person due to his own negligence or lack of
reasonable care does not ascertain what he is contracting
about he must bear the consequences.
 Ex: A sold rice to be by sample & B thinking that they were old rice ,
purchased them , the rice were new. B can not avoid the contract.
 Exceptional cases: unilateral mistake & the
contract/agreement is void
 Unilateral Mistake is to the nature of contract
 Old illiterate man made to sign bill of exchange by means of false representation
that it was guarantee, Held that the contract was void
10-103
LAW OF CONTRACT
LESSON -4

10-104
Consideration
 Consideration means something in return-it is one
of essentials of a valid contract.
 Consideration as one of “the recompense given by the party
contracting to the other- Definition given by Blackstone
 Consideration is the price for which promise of other is bought & the
promise thus given for value is enforceable- Definition given by Pollack
Definition as per sec 2(d) of Contract Act
 When at the desire of promisor the promisee or any other
person has done or abstained from doing something , such
act or abstinence or promise is called a consideration for the
promise
10-105
Consideration
 Example : A agrees to sell his motorcycle to B for
Rs 20,000/=
 B’s promise to pay Rs 20,000/= is Consideration for A
 A’s promise to deliver motorcycle is Consideration for B

10-106
Rules Governing Consideration

 Consideration should be furnished at the desire of
the promiser –
 Desire may be expressed or implied.
 Act done at the instance of third party or gratuitously does
not become consideration
 Ex: A’s hose gets fire & B goes & helps to extinguish the fire . B later
can not ask for any payment for his services.
 Even spiritual promise or mental satisfaction are not enforceable.
A mere promise is not enough. The promisee
must have done some act or incurred some
expenses on the strength of promise
10-107

 As per sec 2(d) Consideration may move from
promisee or from any other person-
 As per Indian law Consideration must move from
promisee only
 However as per doctrine of Constructive
Consideration other person can be nearly related by
blood to the promisee
 Doctrine of Constructive is no more valid
 Consideration may be past, present or future
 Past Consideration is something done or not done at the request of
promisor, brfore making the agreement
10-108

 As per English law past Consideration is no
consideration.
 Nevertheless , past consideration will support a
subsequent promise of the promiser
 As per Indian law past Consideration is sufficient to
support a promise provided it is made at the request
of promiser.
 Present Consideration refers to the one furnished at the time of the
promise .
 Where both the parties to a contract promise to each other of doing or not
doing something the Consideration on both sides moves to a future date
& is known as Future Consideration
10-109

 Present & Future considerations are also known as Executed &
Executory considerations respectively
 Sec 25 provides that agreement to which consent of the promisor is
given is not void merely because Consideration is inadequate. However
consent by promisor should be given freely.
 Consideration should be valuable .
 Consideration should not be unreal or illusory or of the nature of moral
obligation. It should be valuable, though the value of Consideration need
not be the same as the value of the promise which it supports.
 Discharging of a preexisting obligation is not Consideration . The law
may compel a person to do an act . Then the mere doing of such an act
can not become Consideration for another’s promise
 However, doing or agreeing to do more than what a person is legally
bound amounts to good consideration
10-110

 In the same way performing or promising to perform an existing
obligation imposed by a previous contract will not form consideration.
 Consideration should be certain & lawful
 Consideration should not be uncertain or illusory or
impossible- Discovering a treasure by magic can not form
Consideration
 Exception to the Rule ; No Consideration , No
Contract
 Agreement made out of natural love & affection: It is valid provided it is
made in writing, is registered & is made between parties standing in near
relation to each other. Nearness means blood relationship.

10-111

Example :
Elder brother on account of natural love &
affection, promised to pay the debt of his
younger brother.
Agreement was in writing & registered. It was
held to be valid, even though there was no
consideration for the promise

10-112

 Exception to the Rule ; No Consideration , No
Contract
 Promise to compensate voluntary service –
 As per sec 25 (2) Promise to compensate wholly or
in part a person who has already done something
for the promisor is valid & enforceable
 Ex: A finds B’s purse & gives to him . B promises to
give Rs 50/= to him . This is a contract
 Sec2(d): services are rendered at the request of the
promisor whereas under section 25(2) services are
voluntary .
10-113

 Voluntary act should satisfy following conditions so
as to become an exception: –
 Voluntary act should have been done for the promisor & not for any
body else.
 Promisor must have been existing at the time when
the act was done
 Promisor should be competent to contract at the
time when the act was done
 Intention of the Promisor should have been to
compensate the promisee.
 Services rendered should not be immoral

10-114

A promise to pay time barred debt: –
 Time barred debt i.e. one barred by law of limitation,
can not be recovered .
 As per sec 25 (3): if a Promise is made in writing & signed by the person
to be charged there or by his agent generally or specially authorized in
that behalf , to pay wholly or part there of a debt of which
 the creditor might have enforced payment but for the law of limitations of
suit is valid & enforceable.
 However mere oral promise or acknowledge is not enforceable.
A Completed gift: In the case of a gift actually made
not being an agreement to make a gift , no
Consideration is necessary. Donor & donee may not
be near relatives
10-115

 Agency : No Consideration is necessary to create an Agency.
 Remission: No Consideration is necessary for an agreement to
receive less than what it is due
 An agreement to extend time for performance of a contract need not be
supported by Consideration
 Contribution to Charity:
 A Promise to Contribute to Charity , though gratuitous , would be
enforceable if on the faith of the promised subscription , the promisee
takes definite steps in furtherance of the object & undertakes a liability

10-116
LESSON -V

10-117
Privity of Contract
General rule of Law:
 A person who is not a party to the contract can not claim any
rights under the contract even though the contract may be
for his benefit.
 Such a person is known as stranger to the contract
Exceptions to above rule:
 In case of Trust or a charge :
 Where a trust is created by a contract, the beneficiary can
enforce his rights which the trust has conferred upon him
even though he is not party to the contract creating the trust.
In the case of acknowledgement or Estoppel:

10-118
Privity of Contract
General rule of Law:

 In the case of acknowledgement or Estoppel:
 Where in a contract between two parties, the promisee may be
required to make payment to third party.
 The promisor may acknowledge the payment by conduct or
otherwise to the third party,
 Then the third party can sue the promisor though there is no
privity of contract between himself & the promisor

10-119
Exceptions to above rule:

 In case of Assignment:
 When rights under a contract are assigned , the assignee can sue upon
the contract for the enforcement of his right.
 In the case of family & marriage settlements:
 When provision is made for the maintenance of female members of a
Hindu family in a partition of a joint Hindu property
 or for the marriage expenses of a female member for whose benefit such
a provision is made is entitled to enforce the provision in her favour.
 In the case of Agency :
 A contract entered into by the agent acting within the scope of his
authority can be enforced by his principal.
 Then

10-120
Lawful Object
 As per sec 23 : The consideration or object of an agreement is lawful
unless it is forbidden by law ,
 or is of such a nature that if permitted it would defeat the provision of
any law
 Or is fraudulent
 Or involves or implies injury to the person
 Or property of another
 Or the court regards it as immoral
 Or opposed to the public policy
 Every agreement of which the object or

consideration is unlawful is void.

10-121
Lawful Object
 In the following cases consideration or object of an agreement is
unlawful :-
 Forbidden by law : sec 23
 Defeat the provision of any law:
 Fraudulent:

10-122
Lawful Object
unlawful :-
 Injury to the person or property of another
 Immoral:
 Opposed to public policy:

10-123
Lawful Object
unlawful :-
 Agreement which are held void on the ground that the
consideration or object is opposed to public policy are as
follows :-
 Trading with the enemy
 Stifling prosecution
 Maintenance & Champerty

10-124
Lawful Object
follows :-
 Maintenance & Champerty
 Interference with the course of justice
 Trafficking in public offices

10-125
Lawful Object
follows :-
 Marriage brokerage contracts
 Agreement in restraint of trade

10-126
Lawful Object
follows :-
 Agreements tend to create an interest against duty
 Agreements interfering with parental duties

10-127
Lawful Object
follows :-
 Agreements restraining personal liberty:

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10-1

Meaning & Nature of Law

 Law means any rule of conduct, standard or pattern

 When we say laws of a state/country , we use the term ‘law’

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Meaning & Nature of Law

Law defined in Oxford English Dictionary:-

persons ( both natural & artificial ) imposed upon &

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Important characteristics of Law

Important characteristics of Law

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

3. Civil law refers to law dealing with rights & duties of

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

2. Every custom does not become law

3. Judicial precedents are another important source of

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

5. Law merchant or Lex Mercatoria

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Basic Legal Concepts

3. Rights in personam & in Rem

Concept of Property : Different types of property

Basic Legal Concepts

Intellectual Property Rights( IPR)

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

3. Reasonable application & coverage

Law must be such that one is enabled to predict with

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

 LAWS required to regulate conduct of people &

INDIAN CONTRACT- ACT-1872

INDIAN CONTRACT- ACT-1872

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

in suitable cases by Indian courts if such

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

INDIAN CONTRACT- ACT-1872

 Law most effective instrument of control.

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Definition- Contract-sec 2(h)

 An agreement enforceable by law is a

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Definition- Contract-sec 2(h)

 Agreement is defined as every promise &

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Definition- Contract-sec 2(h)

 Agreement will become contract-

 Airlines sells a ticket to ‘X’ on 01 jan from

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Eessentials of a valid - Contract

 Agreement : All contracts are agreements but

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Eessentials of a valid - Contract

Free Consent: Both the parties should agree

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Eessentials of a valid - Contract

Lawful consideration: Consideration

Eessentials of a valid - Contract

Not expressly declared Void: Certain

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Eessentials of a valid - Contract

Eessentials of a valid - Contract

Intentions to create legal obligations:

Business Law - Intro & Contract Act-1

Business Law - Intro & Contract Act-1