BUSINESS LAW

LAW OF CONTRACT Is that branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. Its rules define the remedies that are available in a court of law against a person who fails to perform his contract It specifies conditions under which the remedies are available

THE INDIAN CONTRACT ACT, 1872

THE ACT DEALS WITH The general principles of law of contract (secs. 1 to 75) Special contracts only (secs. 124 to 238) Nature of the law of contract Parties to contact themselves create rights and duties, which the law will uphold Is not the whole law of agreements nor the whole law of obligations Law of contracts creates jus in personam as distinguished from jus in rem

Definition of contract

A contract as an agreement enforceable by lawSec 2(h) Every agreement and promise enforceable at law is contract Pollock An agreement creating and defining obligations between parties Salmond

A contract essentially consists of two elements: Agreement Enforceability by law Agreement and its enforceability An agreement is defined as every promise and every set of promises, forming consideration for each other Sec. 2(e) A promise is defined thus: 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 Sec. 2(b). Agreement = Offer+ Acceptance

Consensus ad idem: The parties to the agreement must have agreed about the subject matter of the agreement in the same sense and at the same time. Obligation: Is a legal tie which imposes upon a definite person or persons the necessity of doing or abstaining from doing a definite act or acts. Legal agreement Therefore Contract= Agreement+ Enforceability at law Thus all contracts are agreements but not agreements are contract

Essential elements of contract (sec 10)

Offer and acceptance Intention to create legal relationship Lawful consideration Capacity of parties- Competency Free and genuine consent Lawful object Agreement not declared void Certainty and possibility of performance Legal formalities

CLASSIFICATION OF CONTRACT
Contract may be classified according their Validity Formation Performance Based on validity: Valid contract

Voidable contract [sec 2(i)]: An agreement enforceable by law at the option of one or more of the parties there to but not at the option of other or others. Not a free consent Not performing within the specified time

Void agreement and Void contract -Void agreement: An agreement not enforceable by law is said to void [sec 2(g)] -Void contract: A contract which ceases to be enforceable by law becomes void contract [sec 2(j)]

Based on Formation: Expressed contract: The terms of a contract are expressly agreed upon (whether by words or written) at the time of formation of the contract. Implied contract: Is one which is inferred from the acts or conducts of the parties or course of dealings between them. Based on Performance:
Executed contract Executory contract

OFFER AND ACCEPTANCE

An offer is a proposal by one party to another to enter into legally binding agreement with him. A person is said to have made a proposal when he 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. [sec 2(a)] The person making the offer is known as offeror, proposer or promisor and the person to whom it is made is called the offeree, acceptor or promisee [sec 2(c)] Specific Offer: When an offer is made to a definite person and only be accepted by the person to whom it is made General Offer: When a offer is made to the world at large [Carlill v. Carbolic Smoke Ball co., (1983)]

Legal rules as to Offer

Offer must be such as in law is capable being accepted and giving rise to legal relationship Term of offer must be definite, unambiguous and certain Offer must be communicated Offer must be made with a view to obtaining the assent Offer must not contain a term of compliance of which may be assumed to amount to acceptance A statement price is not an offer [ Harvey v. Facey (1893)]

ACCEPTANCE

Acceptance is the act of assenting by the offeree to an offer. An offer when accepted becomes a promise [sec. 2(b)]. Acceptance may be expressed or implied.

Legal rules as to Acceptance

It must be absolute and unqualified [sec. 7(1)] It must be communicated to the offeror [sec. 8] It must be according to the mode prescribed or usual and reasonable mode[sec.7(2)] It must be given within the reasonable time It cannot precede an offer It must show an intention on the part of the acceptor to fulfill terms of the promise It must be given by the party or parties to whom the offer is made It must be given before the offer lapses or before the offer is withdrawn It cannot be implied from silence

Communication of offer, Acceptance and Revocation [sec. 3 to 5] Offer, acceptance or revocation may be communicated by words spoken or written or by conduct. [sec. 3] The communication of offer is complete when it comes to the knowledge of the person to whom it is made [sec. 4, para 1] Communication of acceptance is complete [sec. 4, para 2] -as against the proposer when it is put into a course transmission to him, so as to be out of the power of the acceptor; -as against the acceptor when it comes to the knowledge of the proposer

Communication of revocation [sec. 4, para 3] is complete

as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it as against the person to whom it is made, when it comes to his knowledge

Time for revocation of offer and acceptance [sec. 5]

The proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. (sec 5, para 1) The acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. (sec 5, para 2)

Revocation or lapse of offer [sec. 6]

By communication of notice of revocation by the offeror at any time before its acceptance is complete against him [sec 6(1)] By lapse of time [sec 6(2)] By non-fulfilment by the offeree of a condition precedent to acceptance [sec 6(3)] By death or insanity of the offeror provided the offeree comes to know it before acceptance [sec 6(4)] If a counter- offer is made to it If an offer is not accepted according to the prescribed or usual mode [sec 7(2)] If law is changed

CONSIDERATION

Consideration is one of the essentials of management Sec. 2 (d) defines consideration as When at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise

Legal rules as to consideration It must move at the desire of the promisor It may move from the promise or any other person It may be an act, abstinence or forbearance or a return promise It may be past, present or future It need not be adequate It must be real and not illusory It must be something which the promisor is not already bound to do It must not be illegal, immoral or opposed to public policy

STRANGER TO CONTRACT

A stranger to a contract cannot sue Exemption:

A trust or change Marriage settlement, Partition or other family arrangements Acknowledgement or Estoppel Assignment of a contract Contracts entered into through an agent Covenants running with the land

A CONTRACT WITHOUT CONSIDERATION IS VOID (Sec. 25 & 185) Exemptions: Love and affection [Sec 25 (1) ] Compensation for voluntary services [Sec 25 (2) ] Promise to pay a time-barred debt [Sec 25 (3) ] Completed gift Agency (Sec.185)

CAPACITY TO CONTRACT

An agreement becomes a contract becomes a contract if it is entered into between parties who are competent to contract (Sec. 10) Every person is competent to contract (Sec 11) who Is of the age majority according to the law to which he is subject Is of sound mind and Is not disqualified from contracting by any law to which he is subject Thus Sec. 11 declares the following person incompetent to contract
Minor Persons of unsound mind
Persons disqualified by any law to which he is subject

STATUS OF MINOR

Agreement with or by a minor is void and inoperative ab initio He can be a promisee or beneficiary His agreement cannot be ratified by him on attaining the age of majority If he has received any benefit under void agreement he cannot be asked to compensate or pay for it He can always plead minority there can be no specific performance of the agreements entered into by him as they are void ab initio He cannot be adjusted insolvent He is liable for necessaries He can be an agent His parents/guardian/are/is not liable for the contract entered into by him A minor is liable in tort

PERSONS OF UNSOUND MIND (Sec 12)

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 forming a rational judgment as to its effect upon his interest Unsound mind: Lunatics Idiots Drunken or intoxicated person Agreements entered into by persons of unsound mind are void

FREE CONSENT Two or more persons are said to consent when they agree upon the same thing in the same sense (Sec. 13) Free consent: Consent is said to be free when it is not caused by Coercion as defined in Sec 15 Undue influence as defined in Sec 16 Fraud as defined in Sec 17 Misrepresentation as defined in Sec 18 Mistake subject to the provisions of Secs. 20,21and 22 (Sec 14)

COERCION (Sec 15): When a person is compelled to enter into a contract by the use of force by the other party or under a threat Coercion is the committing or threatening to commit, any act forbidden by the IPC 1860 or the unlawful detaining, or threatening to detain any property to the prejudice of any person what ever, with the intention of causing any person enter into contract.

UNDUE INFLUENCE (Sec 16): A contract is said to be induced by undue influence where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other

MISREPRESENTATION AND FRAUD

Misrepresentation (Sec 18): is a false statement which the person making it honestly believes to be true or which he does not know to be false. It also includes non-disclosure of a material fact or facts without any intent to deceive the party. Consequences of misrepresentation: To avoid or rescind the contract: or Accept the contract but insist that he shall be placed in the position in which he would have been if the representation made had been true

Fraud (Sec 17): Means and includes any of the following acts committed by a party to a contract, or with his connivance or by his agent with intent to deceive or to induce a person to enter into contract:

The suggestion that a fact is true when it is not true or does not believe it to be true The active concealment of fact A promise made without any intention of performing it Any other act fitted to deceive Any such act or omission declared to be fraudulent

Consequences of fraud: To avoid or rescind the contract: or Accept the contract but insist that he shall be placed in the position in which he would have been if the representation made had been true Sue for damages

MISTAKE: Erroneous belief about something. It may be mistake of law or mistake of fact. Mistake of law: 1) Mistake of law of the country 2) Mistake of law of foreign country Mistake of fact: 1) a bilateral mistake 2) a unilateral mistake Bilateral mistake: Mistake as to the subject matter- existence, quality, quantity, identity, title, price Mistake as to the possibility of performance

LEGALITY OF OBJECT
Object means purpose or design. When consideration or object is unlawful (Sec 23) If it is forbidden by law If it is of such nature that if permitted, it would defeat the provisions of any law If it is fraudulent If it involves or implies injury to the person or property of another If the court regards it as immoral If it is opposed to public policy Trading with enemy Agreement to commit crime Agreements which interfere with administration of justice Agreement in restraint of legal proceedings Trafficking in public offices and titles Agreement tending to create interest opposed to duty Agreement in restraint of parental rights Agreement restricting personal liberty Agreement in restraint of marriage Agreement in restraint of trade

A void agreement is one which is not enforceable by any law in force in the country Agreement by incompetent persons Agreement made under a mutual mistake of fact Agreement the consideration or object, which is unlawful Agreement the consideration or object, which is unlawful in part Agreement made without the consideration Agreement in restraint of marriage Agreement in restraint of trade Agreement in restraint of legal proceedings Agreement the meaning of which is uncertain Agreement by way of wager Agreements contingent on impossible events Agreement to do impossible acts Reciprocal promises where one part is Illegal

VOID AGREEMENTS

Wagering agreement or Wager

Is an agreement between two parties by which one promises to pay money or moneys worth on the happening of some uncertain event in consideration of the other partys promise to pay if the event does not happen Contingent contract: A contract to do or not to do something, if some event, collateral to such contract, does or does not happen (Sec 31).

PERFORMANCE OF CONTRACT

Performance of a contract takes place when the parties to the contract fulfill their obligations arising under the contract within the time and in the manner prescribed. Sec. 37 (para 1) By whom must contracts be Performed Promisor himself Agent Legal representatives Third persons Joint promisors

DISCHARGE OF CONTRACT
Means termination of the contractual relationship between parties By performance By agreement or consent By impossibility By lapse of time By operation of law By breach of contract By performance: By agreement or consent: Actual performance Attempted performance or tender Novation Rescission Alteration Remission Waiver Merger

Impossibility exists at the time agreement Impossibility arising subsequent to the formation of contract Supervening impossibility: Destruction of subject matter of contract Non- existence or non- occurrence of a particular state of thing Death or incapacity for personal service Change of law or stepping in of a person with statutory authority Out break of war

By impossibility:

By lapse of time: By operation of law: By death By merger By insolvency By unauthorized alteration of the terms of a written agreement By rights and liabilities becoming vested with same person By breach of contract: Actual breach of contract Anticipatory breach of contract

REMEDIES OF BREACH OF CONTRACT

A remedy is the means given by law for the enforcement of a right Rescission of a contract Suit for damages (Ordinary, Special, Nominal, Loss of reputation) Suit upon quantum meruit Suit for specific performance of a contract Suit for injunction

Suit upon quantum meruit: Suit for specific performance of a contract: Suit for injunction: Where a party is in breach of a negative term of a contract (where he is doing something which he has promised not to do), the court may, by issuing order, restrain him from doing what he promised not to do.

QUASI- CONTRACTS

Is also known as the law of restitution It is an obligation created by law in the absence of any agreement Kinds of Quasi- Contracts Supply of necessaries Payment by interested person Obligation to pay for non-gratuitous acts Responsibility of finder of goods Mistake or coercion