Contract Act1 Business Law

8/13/2019 Contract Act1 Business Law

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AMITY GLOBAL

BUSINESS SCHOOL Chandigarh

WHAT IS LAW-HARMAN MANGAT


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LAW denotes rules and principles established by authority

whether in the form of legislation or self imposed customsapplicable to people.


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DEFINITIONS ACC TO AUSTIN

Law is a rule of conduct imposedand enforced by the sovereign

ACC To SALMOND

Law is the body of principlesrecognized and applied by the statein the administration of justice


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BRANCHES OF LAW PUBLIC LAWS

CRIMINAL LAW

ADMINISTRATIVE LAW CONSTITUTIONAL LAW

LABOUR LAWS

MUNICIPAL LAW

INTERNATIONAL LAW

--PRIVATE LAWS/CIVILLAWS

BUSINESS ORMERCHANTILE LAW

LAW OF PROPERTY

LAW OF SUCCESSION

FAMILY LAWS


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WHAT ARE BUSINESS LAWS?

Business laws deals with rights and obligationsarising out of mercantile transactions among

mercantile persons It denotes the aggregate body of legal rules

connected with trade,industry,commerce.

It relates to law relating to contracts,sale ofgoods,negotiable instruments, partnership,

companies, insurance, carriage ofgoods,insolvency,consumer protection etc.


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INDIAN CONTRACT ACT

1872


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The role of contract law incommercial activity

Most important branch of mercantile law

Contract is the most common legal transaction

The law is about enforcing promises

Common law is the foundation complemented bymodern legislation

Legislation recognises public values and seeks to

impose standards of conduct


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OBJECT OF CONTRACTACT

To ensure that the rights and obligations created

by the contract are honored. That the expectations created by the promises of

the parties to an agreement are fulfilled and thelegal remedies are available to the aggrievedparty against the party failing to perform his partof obligation.


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2 essential elements of contract

-an agreement

-its enforceability at law

Agreement U/S 2(e) every promise forming theconsideration of each other

There should be 2 parties involved in agreement

Agreements are of 2 types

1.un-enforceable

2.Enforceable agreements.


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1.unenforceable agreements-in which an

aggrieved party cannot go to a court and that isleft at the mercy of parties only.

They never become contracts because they aremerely social or domestic arrangements

2.enforceable-here, aggrieved parties have theright to approach a law court to get theagreement enforced and the other party is heldliable either to perform the agreement or face

the consequences.All these agreements which are enforceable at law

are called contracts


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All contracts are agreements but all

agreements are not contracts.

2.Enforceable at law-an agreement tobecome a contract must give rise to a

legal obligation

Eg. going at a dinner to friends place.

Thus, Contract = agreement + enforceabilityat law.


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Essen t ials o f a val id

Con tract (Sec-10) Essentially an agreement (offer+acceptance)

Intention to create legal relationship (Balfour Vs Balfour) Husband andWife--Contract--Temporary Separation--Allowance forMaintenance ofWife--Domestic Arrangement--No resulting Contract.

Involving promises enforceable by a court(More than just a moral obligation)

Lawful Considerationthe cost of each others promise,it must be real andlawful.consideration may take the form of money,goods,promise to marry etc.


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Parties are competent to contract or capacity to contract(eg. minors unsound mind persons)

Lawful object and Terms must be legal and reasonableeg. if 1 hires a house for gambling purpose so ,the object

of the contract is to run a gambling house The object is unlawful if-

It is forbidden by law

It is fraudulentInvolves an injury to the person or property of any other

The court regards it immoral or opposed to public policy


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Possibility of performance-if act isimpossible in itself.. eg. discoveringtreasure by magic

Free consent-Have agreed to same thingin the same sense eg. Selling of a marutibut other thinking he getting a santro

contract not declared void-not declaredvoid by any law in the country


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Class i f icat ion o f Contrac ts Valid Con tract

Void Contract

Voidable Contract

Il legal Con tract

Express and Impl ied Con tract

Quasi Contract

Execu ted and Executory con tracts

Unilateral and B ilateral Con tracts


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Valid Con tract-ag reement en forceable

at law is val id contract

Void Con tract-not en forceab le

Voidable Con tract-an agreement which

is enforceable by law at the opt ion of

one or more of the part ies but not at the

op t ion of the other or o thers is a

vo idable con tract .


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Express and Impl ied Contract-expresscon tract is one which is entered in to by

words which may be ei ther spoken or

wri t ten.

Impl ied-where the proposal and acceptanceis made otherwise than in words.

Quasi Con tract-in which there is no in tent ion

on either side to make a contract bu t the lawimposes a contract . eg founder of the lost

goods is under an ob l igation to f ind ou t he

true owner and return the goods


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Execu ted contract-where both the part ieshave their obl igat ions or carr ied out theterms o f contract

Execu tory con tracts-yet to performed ei ther

who l ly or partial ly Unilateral contract-where one party hasdischarged h is ob l igat ion ei ther before or att ime of enter ing into contract

B i lateral Contracts-where a prom ise on oneside is exchanged for a prom ise on the partof o ther party


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What is an offer

Section-2(a)

When one person signifies to another hiswillingness to do or abstain from doing

anything with a view to obtaining theassent of that other to such act orabstinence,he is said to make an offer


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What are the rules about it(essentials)

An of fer is the opening ambi t in t ransact ion Made by o ffero r to o fferee

Needs to be made wi th intent ion to be bound

Mus t be certain,Def ini te and no t Vague-eg.(taylor vs portington) decorating thehome in the present style

This is a vague statement


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Offer can be made to part icular person or whole wo rld (Carlill VsCarbolic smoke ball Co) The case concerned a flu remedy. Themanufacturer advertised that buyers who found it did not work wouldbe rewarded 100, a considerable amount of money at the time. Thecompany was found to have been bound by its advertisement,because a contract was formed. The essential elements were all

there, held the court of appeal, including an offer, acceptance, andconsideration.

Must be communicated to other party (Lalman Shukla vs gaur iDut t )the kid gets lost and servant found th e kid but no rewardwas given to him as held by the cour t that i t was the duty of theservant to f ind the chi ld

Offer can lapse by passin g of t im e or revoked beforeacceptance


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Reject ion destroy s o f fer

Offer may no t lapse on death o f of feror

An Inv i tat ion to of fer is not an of fereg.

display of goods in a shop w i th pr ice tags

attached is an inv i tat ion to o ffer.

An o ffer may be Cond i t ional. eg -whi le joining

a new job some part of salary m ight bededucted

Counter offer-reject ion o f the orig inal offer

and making a new o ffer.


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ACCEPTANCE SECTION-2(d)

When the person to whom theproposal is made signifies his assent,it is acceptance of the proposal.An

accepted proposal is called a promiseor an agreement.


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Significance of acceptance of

an offer and the rules relating toacceptance

Acceptance is like lighting a fuse it cannot be undone

Acceptance of an offer must be absolute andunconditional

Acceptance must be made within reasonable time(Aapplies for allotment in june but get shares in nov .)

Acceptance must be identical with offer and acc to mode

prescribed (sec 7(2))eg.a wanted to sell the house andwanted to receive the reply in writing at his addressinstead of giving in writing to buy the house, b send aperson to a to let him know that b wants to purchase thehouse.a was bound to b.

Can be accepted only by person to whom offer was made

the offeror


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Acceptance must be communicated

no particular form required

Acceptance may be implied or

expressed

Time of acceptance = time of formationof contract

Acceptance must be given before theoffer lapses and it cannot be implied bysilence


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IMPORTANT CASE LAWS(OFFER & ACCEPTANCE)

Carlill Vs Carbolic smoke ball Co.(1893)

Lalman Shukla Vs Gauri Dutt (1913) Harris Vs Nickerson (1873)[sale was cancelled by N

though he advertised in newspaper and h sued him ashe traveled a long distance to bid for the things readingthe advertisement]

Harvey Vs Facie (1893)[an invitation to offer is not anoffer]

Boulton VS Jones (1857)

Felthouse Vs Bindley(1862)[acceptance must be

communicated]


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COMMUNICATION OFOFFER,ACCEPTANCE COMMUNICATION OF AN OFFER (SECTION-

4)

Communication of proposal is complete assoon as it comes to the knowledge of the

offeree. [EG. A proposes by letter to sell ahouse to b at a certain price. thecommunication of the proposal is completewhen B receives the letter]


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COMMUNICATION OF

ACCEPTANCE

(SECTION-4)

Communication of acceptance iscompletea) As against the proposer when it is put in course of

transmission to him,so as to be out of the power of the

acceptor to withdraw the same

b) As against the acceptor when it comes to the knowledgeof the proposor. [B accepts As proposal by letter sent by

post, hence the communication of acceptance. is complete asagainst A, when the letter is posted ,as against B when theletter is received


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REVOCATION OF OFFER &ACCEPTANCE

(section-5&6) By NOTICE LAPSE OF TIME [a offered to sell a product to b on

Thursday and agreed to give him 3 days time to accept ,baccepted the offer on Monday ,but by that time a had soldthe product. it was held that the offer was lapsed]

NON FULFILLMENT OF CONDITION PRECEDENT [x mayoffer to sell certain goods to y on condition that y pays acertain amount before a certain date. the proposal is

revoked if y fails to pay the requested amount within giventime]

BY DEATH OR INSANITY


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BY COUNTER OFFER [a offers to sell hishouse to b for rs 1000.b replies offering topay rs. 950. a refuses subsequently b writesaccepting the original offer has lapsed]

BY NON ACCEPTANCE OF THE OFFER ACCTO PRESCRIBED MODE

BY SUBSEQUENT ILLEGALITY

Intention to create legal relations and theunderlying presumptions of law for commercialand social relationships


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A contract naturally demands that partiesintend that the agreement beenforceable

Commercial agreements are presumedto be legally binding

Social and domestic agreements are

presumed not to be binding but thatpresumption can be rebutted bycircumstances


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CONSIDERATION-MEANING SECTION-2(d) Defines consideration as

A)When at the desire of the promisor,B)The promisee or any other person

C)Has done or abstained from doing ,or does orabstains from doing,or promises to do or abstainfrom doing,

D)Something, such act or abstinence or promise iscalled a consideration for promise.


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Consideration and its rules Consideration amounts to an exchange ofpromises(It is the price paid for the otherpersons promise) EG.A agrees to sell his horse

to B for rs.1000,here,As promise to sell his horsefor Bs consideration to pay rs.1000

It must move at the desire of the promisor fromthe promisee or any other person [A sees B

drowning and saves his life A cannot demandpayment for his services as its a voluntary act on

his part and B never asked him to do so]Durgaprasad V.Baldeo(1880)


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It may be past, present, or, future [paying aretired person for his learning's is a pastconsideration ,when the consideration is

given simultaneously with the promise iscalled present eg. buying and selling,mutual promise to marry is a future

consideration] It need not be adequate but must be real

and lawful


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It must not be something which thepromisor is already bound to do [eg. Apromising a police officer to pay

money to investigate in a crime ,theagreement was invalid as the policeofficer is already under the duty to do

so by law] Anything valuable to promisor can be

consideration


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NO CONSIDERATION NOCONTRACT

--Exceptions(sec-25)

Every agreement to be enforceable atlaw must be supported by validconsideration. an agreement withoutconsideration is void and isunenforceable except in certain cases

A G O A


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Natural love and affection (section-25(1))an agreement

though made without consideration will be valid if it is inwriting and registered and is made on account of naturallove and affection between parties standing in a nearrelation to each other.

An agreement without consideration will be valid provided-

(1)it is expressed in writing(2)on account of natural love and affection

(3)between parties standing in a near relation to each other

Compensation for services rendered sec- 25(2) A finds Bs purse and gives it to him.b promises to give

A rs 100.this is a contract

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Complemented gifts sec-25 exp-1-transfer ofproperty cannot subsequently demand theproperty back on the ground that there was noconsideration.

Agency sec-185.It is given in section 185 whichsays that no consideration is needed to createan agency.

Guarantee sec-127-a contract of guarantee ismade without consideration

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Privity of contract

Only those who made the contract can derive benefits under it Where a contract is made for the benefit of a third party that person

cannot enforce contract If a third party gets a benefit under a contract, it does not have the

right to go against the parties to the contract beyond its entitlementto a benefit. An example of this occurs when a manufacturer sells aproduct to a distributor and the distributor sells the product to aretailer. The retailer then sells the product to a consumer. There is

no privity of contract between the manufacturer and the consumer

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Capacityof parties (Section-11) Minors (under 18 years of age)

can make contract; problem is to enforce it againstminor

at common law contracts for necessariesnot luxuriesare enforceable. Similarly contracts for beneficialservices, employment or apprenticeship are enforceable

legislation in NSW and South Australia makesenforceable a contract for minors benefit

Corporations

fully capable to make contract

persons contracting with company agents are entitled toassume a ent has authorit to bind com an in contract

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Drunks contracts are prima facie valid

can repudiate if they were incapable and other

party knew that.

Unsound mind (sec-11 &12)

void unless court has not declared them to be of

unsound mind can repudiate if they were incapable and other

party knew that

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Bankrupts

not limited per se

legislation prevents bankrupt from enteringcertain contracts without disclosingbankruptcy

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Minormain provisions

Mohiri bibi Vs Dharamdas ghose(1903)

AgreementVoid abinitio

No ratification

Can be a promisee or a beneficiary

No estoppel against a minor

Minor as a partner & agent

Liability under torts and contract

No specific performance & noinsolvency

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Cannot bind parent or guardian

Joint contract by a minor and adult

Minor as a shareholder Liability for necessities

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PERSONS DISQUALIFIED FROMCONTRACTING

Alien enemies

Foreign sovereigns and ambassadors

Insolvents

Convict

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FREE CONSENT-(SECTION 13-21)

COERCION

UNDUE INFLUENCE VOIDABLE

FRAUDMISREPRESENTATION

MISTAKE VOID

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Coercion(sec 15)

Undueinfluence

misrepresentation

mistake

Fraudulent(sec17) Innocent (sec 18)

Mistake of law(sec21)

Mistake of fact(sec20)

Of the country Of the

foreign Bilateral unilateral

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DEFINITIONS

COERCION(SEC-15)

committing or threatening to commit any act

forbidden by IPC OR unlawfully detaining orthreatening to detain,any property to the prejudice ofany person with the intention of inducing any personto enter into an agreement.

UNDUE INFLUENCE(SEC-16)

A contract is said to be induced by undue influencewhere the relations subsisting between the partiesare such that one of the parties is in the position todominate the will of the other and uses the position

to obtain an unfair advantage over the other

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COERCION(SEC-15) When the person is compelled to enter into a contract by

the use of force by the other party under a thrtcoercionis said to be employed.

Eg.a threatens to shoot B if he does not release him

from Debt which A owes to B.B releases A under thethreat.

Other eg.s ranganayakamma v Alwar Setty(girl wasforced to adopt a kid after her husbands death)

Effect-the contract is voidable at the option of party

Threat to commit suicide also amount to coercion

Duress-nea equivalent term of coercion ,is used inenglish law

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UNDUE INFLUENCE

Section16(2) of IC ActA person is deemed to be in a position to dominate

the will of anotherA) where he holds a real or apparent authority over

the other e.g master servant ,public officer&accused

b) Where he stands fiduciary relationship to theother e.g father son ,guardian ward

c) Where he is mentally or physically ill eithertemporarily or permanently due to age,illness,mentally or bodily distress

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Coercion undue influence Obtaining the

consent-consentobtained bycommitting or

threatening to commitan offense

Physical force is used

May be even used bystranger to thecontract

Here, consent isobtained bydominating the will ofother person

Mental force is used

Can only be used byparty to contract

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FRAUD SECTION -17

MEANS AND INCLUDES ANY OF THE FOLLOWINGACTS;

A false suggestion as to a fact known to be false or not

believed to be true (e.g. a companys prospectus) Active concealment of fact by one having knowledge or

belief of fact(A sold mare to B which had a defectedfoot,and the defect was filled up to defy detection,Bdiscovered the defect and it was held that the agreementcould be avoided by B)

A promise made without any intention of performingit(eg.man marrying wife just as a fraud)

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Any other act fitted to deceive

Any such act or omission as lawspecifically declares to be fraudulent

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MISREPRESENTATION(SECTION-18)

Means false representation made innocently with anhonest belief as to its truth by a party without any

intention to deceive Thus false statement is made willfully or innocently

Fraudulent misrepresentation innocent misrepresentation

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BUSINESS SCHOOL ChandigarhMisrepresentation fraud

It is innocent

The suggestion isbelieved to be true

The aggreived party canrescind the contract orsue for restitution butcannot suit for damages

I truth is discovered the

contract will not beavoided

It is delibrate

Fraud is not believed tobe true

He can also claimdamages

If truth is discovered thecontract is voidable

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MISTAKE SECTION -20 MEANS erroneous belief concerning

something.it means that parties intending to do

one thing have by intentional error donesomething else

Mistake is of two kinds 1. Mistake of fact

2. Mistake of lawMistake of law is of Indian law or foreign law

Mistake may be unilateral or bilateral

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Mistake of fact-a man and a woman madea separation deed under which the managreed to pay a weekly allowance to the

woman under a mistaken assumption thatthey wee lawfully married. it was held thatthe agreement was void as there was

common mistake on a point of fact whichwas material to the existence of theagreement( Galloway v. Galloway)

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BILATERAL MISTAKES Mistake as to subject matter I.e

existence,identity,price,quantity,title,price,

quality Mistake as to possibility of performance I.e

physical impossibility,legal impossibility

UNILATERAL MISTAKE As to nature of contract

As to identity of persons

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Eg.s of bilateral mistakes Existence of Subject matter-there is an

agreement between A and B for the purchase ofa certain horse,but the horse is dead at the time

of the contract.the agreement is void Mistake of identity of subject matter-eg. Of 2

cars maruti and santro

Price-a seller,within the knowledge of B ,the

buyer makes a mistake n writing a figure$1250,the agreement is void

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Unilateral mistakes Mistake as to nature of contract-eg. A blind man

signing a document read over to him wronglywill not bind him. this is because of the fact thatthe mind of the signer does not accompany the

signature, but this rule will not apply to the peronwho can read.

(b) mistakes as to identity of persons-mistake asto the identity of a person may also avoid a

contract, where A intends to contract only with B,but enters into a contract with C believing him tobe B,the contact is vitiated

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LEGALITY OF OBJECT ANDCONSIDERATION

If it is forbidden by law

If it is of such a nature that if permitted it woulddefeat the provisions of law

If it is fraudulent

If it involves injury to any person or property of

another If the court regards it as immoral

If the court regards it as being opposed to publicpolicy

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G O


AGREEMENTS OPPOSED TOPUBLIC POLICY

Trading with enemy

Stifling prosecution

Maintenance and Champerty Traffic relating to public offices

Agreements tending to create interest opposedto duty

Marriage brokerage contracts

Agreements tending to create monopolies

Agreements in restraint of personal liberty

Agreements to influence elections to a public

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VOID AGREEMENTS Agreement made by incompetent parties(sec-11)

Agreement made under mutual mistake of fact(sec-

20)

Agreements, the consideration and object is

unlawful(sec-23-24)

Agreements made without consideration(sec-25) Agreements in restraint to marriage (sec-26)

Agreements in restraint to trade (sec-27)

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Agreements in restraint of legalproceeding(sec-28)

Agreements the meaning of which is

uncertain(sec-29)

Agreements by way of wager(sec-30)

Agreements to do impossible act(sec-56)

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PERFORMANCE ANDDISCHARGE OF CONTRACT

Every contract consists of reciprocal promises

Sec-37 The parties to a contract must either

perform or offer to perform their respectivepromises, unless such performance isdispensed with or excused under the provisionsof this act or of any other law

The parties to a contract however need performtheir promises in case:

1. Such performance is dispensed with or( sec-63)

2. Excused under the provisions of this act,or anyother law sec-56

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OFFER OF PERFORMANCEOR TENDER

When the promisor is willing to perform thecontract and he offers to perform the same, the

promisee has a duty to accept the performanceof the contract.if the offer of performance is notaccepted by the promisee,the promisor cannotbe blamed for non-performance of the contract

Sec-67;-Effect of neglect of promisee to affordpromisor reasonable facilities for perMformance

Sec-38;- Effect of refusal to accept offer ofperformance

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ESSENTIALS OF A VALIDTENDER Must be unconditional

Must be made at proper time and place

The promisee must be given an opportunity to ascertainthat the goods are acc to the contract

If there are number of joint promisees,the offer ofperformance may be made in favour of any of them

Performance on death of a party By whom the contracts should be performed

Joint promisors and the nature of their liability

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DISCHARGE OF CONTRACT By agreement (sec-62,63)

By breach of contract (section-39) By impossibility of performance

initial impossibility

subsequent impossibility By operation of law

By lapse of time

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DISCHARGE BY AGREEMENT Novation

Alteration Rescission

Remission

Waiver Accord and satisfaction

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DISCHARGE BY OPERATIONOF LAW

INSOLVENCY

MERGER ALTERATION

DEATH

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DISCHARGE BYIMPOSSIBILITY OFPERFORMANCE

Destruction of the subject matter Death or personal incapacity

Change of law

Nonexistence or non-occurring of aparticular state of things

Declaration of war

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REMEDIES FOR BREACH OFCONTRACT Cancellation or rescission

Restitution Specific performance

Injunction

Quantum Meruit Damages ;- general or ordinarydamages,special damages,vindictive orexemplary damages,nominal damages

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Part performance Equitable remedy

Overcomes legalism

Puts good conscience ahead of legalism

Allows person who has performed all or part ofcontract to defeat other partys defence thatcontact is unenforceable

Requires three features;

oral agreement

acts done in reliance on that agreement

existence of contract is the only explanation ofthe doing of the act

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AGENCY SECTION-182 OF IC-ACT

An agent is a person employed to do any actfor another or to represent another indealings with third person.The person for

whom such act is done or who is sorepresented,is called the principal

Agent is a connecting link between principal& third person

The agent may be expressly or impliedlyauthorized to do an act on behalf of theprincipal

The courts have to examine the relationshipof a ent and rinci al a ears or not

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KINDS OF AGENTS Auctioneers (open sale or auction)

Factors (possession for sale or on credit)

Broker (connecting link merely negotiateand no possession)

Del credere agent (mercantile agent who

on payment of extra commission,guarantees the performance of thecontract by the third party

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FEATURES OF CREATION OFAGENCY

The principal should be competent to

contract (183) The agent may not be competent to

contract (184)

No consideration is necessary to create anagency (185)

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HOW AGENCY IS CREATED By authority either express or implied (187-188)

Agents authority in case of emergency (189)

By conduct of principal i.e on the basis of law ofestoppel (237)

By ratification of agents act by principal (196-

200) By presumption of agency in husband wife

relationship

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DUTIES OF AGENTS

Duty not to delegate his duties (190)

Duty to follow principals directions (211)

Duty to show proper skill and care (212) Duty to render proper accounts (213)

Duty to communicate with principal(214)

Duty not to deal on his own accounts (215&216)

Duty to pay sums received for principal (217-218)

Duty to protect and preserve the interest ofprincipal

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RIGHTS OF AGENT & DUTIES

OF PRINCIPAL Right to remuneration (219)

Right to retain sums (217&218)

Right of lien on principals property (221)

Right to be indemnified for lawful acts

(222-224) Right to compensation for damages due toprincipals neglect(225)

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PERSONAL LIABILITY OF

AGENT Where agent acts for foreign principal

Where agent acts for undisclosed principal

When the agent acts for a disclosed principal whocannot be sued

When the agents authority is coupled with interest

Where the agent receives or pays money bymistake or fraud

Where the agent signs the negotiable instrument inhis own name

Where the agent exceeds his authority or where thecontract so provides

Where acc to usage or trade agent is personally

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MODES OF TERMINATION OF

AGENCY BY ACT OF

PARTIES

By agreementbetween parties

By revocation of

authority by principal By renunciation by

the agent

BY OPERATION OFLAW

By completion ofbusiness of agency

By death or insanity ofthe principal or agent

By the efflux of time

By insolvency of theprincipal

By the destruction ofthe subject matter

Contract Act1 Business Law

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Transcript of Contract Act1 Business Law