Business law unit 1

INDIAN CONTRACT ACT 1872
Meaning and Definitions
Agreement enforceable by law.
A contract is an exchange of promise.
According to Salmond, “A contract is an agreement creating and
defining obligation betweens the parties.”
According to Sir Fredrick Pollock, “ Every agreement and
promise enforceable by law is contract.”

Contract
Agreement + Enforceability by law
Agreement
Offer + Acceptance
All Contracts are Agreements, but all Agreements are not
Contract
For Example:-
Shyam invites his friend for dinner, and Ram accepts the
invitation. If Ram fails to turn up for dinner, Shyam cannot
go to the court to claims his loss.

Difference between Agreements and Contracts
Basic Agreement Contract
Constituent An offer when accepted
becomes an agreement
A contract is entered into
by an agreement and
hence valid contracts are
enforce
Creation of Legal
Obligation
When agreement are illegal
the parties are not liable to
perform. An agreement may
or may not be legal
obligation.
A contract necessarily
creates a legal obligation.
One in other Every agreement need not
necessarily contract
All contract are
necessarily agreements.
Binding Agreement is not concluded
or a binding contract
Contract is concluded
and binding on the
concerned parties

Basic Agreement Contract
Enforceability The enforceability depends on
the nature of agreements
It is enforceable under
the provision of the law
of the country
Scope The scope of an agreement is
more comprehensive than
contract, as agreement can be
social agreement, legal
agreement, unlawful
agreements, and domestic
agreement
The scope is limited as
only legal agreements
becomes contracts that
are enforceable.
Nature Agreement may be lawful or
unlawful
Only lawful agreements
become contracts
enforceable in a court of
law.

Essential Elements of Valid Contract
1) Agreement :- (Lawful Offer and Lawful Acceptance)
2) Intention to Create Legal Relationship:- ( attached by legal consequences
and create legal obligation)
3) Lawful Consideration :- (Something return)
4) Capacity of Parties :- ( Sound mind, Age of Majority)
5) Free Consent :-
 Coercion:-
 Undue Influence:-
 Fraud:-
 Misrepresentation:-
 Mistake:-

Essential Elements of Valid Contract
6) Lawful Object :- (must not be fraudulent or illegal or immoral or opposed
public policy or must not imply injury to the person or property of another)
7) Writing and Registration:-
8)Certainty:- (agreement must not be uncertain)
9) Possibility of Performance :- ( an agreement to do an act impossible in itself is
void)
10) Agreement not Declared Void:-

On the Basis of Enforceability
1)Valid Contract :- (Fulfils of all the essential requirements)
2)Void Contract :- ( mistake of fact, consideration or object of an agreement
is unlawful , agreement made without consideration)
3) Void Agreement :- (an agreement not enforceable by law is Void)
4) Voidable Contract :- (Coercion, Undue Influence, Fraud,
Misrepresentation)
5) Illegal Contract :- (commit crime, immoral or opposed public policy)
6) Unenforceable Contract :- (technical defect , absence in writing, barred
by limitations)

On the Basis of Formation
1) Express Contract :- (use of words, spoken or written)
2) Implied Contract :- (by conduct only for example bus)
3) Quasi Contract:- (are strictly not contracts as there is no intention of
parties to enter into a contract. For example finder of lost goods and
actual owner)
1) Executed Contract:- (parties have done their respective work)
2) Executory Contract:- (one or both the parties to the contract have still to
perform their obligation in future)

On the Basis of Obligation
1) Unilateral Contract:- (one sided contract , only one party has to perform
his promise)
2) Bilateral Contract:- (Outstanding on the part of both parties)

Offer and Acceptance
OFFER
“When one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtain the assent of that other to such act
abstinence, he is said to make a proposal”
For Example:-
R tells S, “I am willing to sell my bike for Rs. 20,000; Are you ready to buy? This is a
clear offer from R to S
Offeror/Promisor And Offeree/Promisee

How an Offer is Made
1) Express Offer :-
a) By Words:- (Oral or Written)
b) By Conduct :- (Positive act or Sign)
2) Implied Offer :- (An offer implied from the conduct of the parties or from the
circumstances of the case is known as implied offer.)
For Example (Bus)

Essential Elements of Valid Offer
1)Offer must be Capable of creating Legal Relationship :- (Movie)
2) Offer must be Certain, Definite and Not Vague :-
3) Offer must be Expressed Or Implied:-
4) Offer must be Distinguish from an Invitation to Offer :-
5) Offer may be Specific or General :-
6) Offer must be Communicated :-
7) Offer must be Made with a View to Obtaining the Consent of the Offeree:-
8) Offer must be Conditional :- (Offer may attach any terms and conditions to
the offer he makes.)

Laps of Offer
1) By Revocation :- (Cancel)
2) By laps of time :-
3) By Death or Insanity of the Offeror or Offeree :-
4) By Failure to Accept Condition Precedent :-
5) By Counter Offer :-
6) By not Accepting in the Prescribe Mode or Usual Mode :-
7) By Rejection of Offer by Offeree:-
8) By Subsequent Illegality or Destruction of Subject matter of the offer :-

Acceptance
“A proposal is said to be accepted when the person to whom the proposal is
made signifies his assent thereto.”
Who can Accept an Offer?
1) In case of Specific Offer:-
2) In case of General Offer :-

Essential of Valid Acceptance
1) Absolute and Unqualified or Unconditional :-
2) Within Proper Time:-
3) Must be Communicated:-
4) Must be Given in a proper Mode :-
5) Acceptance must be Given only by the person to whom the offer is made :-
6) Two Identical cross offer cannot from an Agreement or Acceptance must
Succeed the offer :-
7) Offer One Rejected cannot be Accepted :-

Communication, Acceptance and Revocation of Offer
1) Communication of Offer :- (When it comes to the knowledge of the person
to whom it is made.)
2) Communication of Acceptance :- (When it comes to the knowledge of
the proposer)
3) Communication of Revocation :-

Consideration
“Consideration is the value given in return for a promise”
Essential of Valid Consideration
1) Consideration must be at the desire of the promisor.
2) Consideration may move from one person to any other person.
3) Consideration may past, present, or future.
4) Consideration need not adequate, but should be real.
5) It must not be Illegal, Immoral or Opposed to Public Policy.

Exception to the Rule No Consideration No Contract
1) Promise out of Natural Love and Affection:-
2) Compensation for Past Voluntary Service:-
3) Completed Gift:-
4) Remission of Promise :- (Promise to give concession)
5) Contract of Agency :- (Where a person has agreed to act as agent of another
person without any remuneration)
6) Promise of Donation :-

Capacity To Contract
“All agreements are contracts if they are made by the parties competent to
contract”
Who are Competent to contract?
“ Every person is competent to contract who is of the age of majority
according to the law to which is subject, and who is of sound and is not
otherwise disqualified from contracting by any law to which he is subject”
Minor
“A person domiciled in India, who is under 18 years of age is minor”

Person of Unsound Mind
“A person is said to be of sound mind for the purpose of making a contract, if
at the time when he makes it, he is capable of understanding it and of
forming a rational judgment as to its effect upon his interests”
1) Idiocy:- ( No Saneness)
2) Lunacy or Insanity:- (Disease of Brain)
3) Drunkenness :-
4) Hypnotism:-
5) Mental Decay:- (Old age)

Position of Minor’s Agreement
1) Agreement Entered into by a Minor is Altogether Void:-
2) Minor can be Beneficiary:-
3) No Estoppels against a Minor:-
4) Ratification on Attaining Majority is not Allowed:-
5) Liability for Necessaries:- ( Food , cloths, education, goods and service)
6) Minor Partner :- (Benefits of partnership)
7) Minor Agent:- (he cannot be held personally liable for negligence or breach
of duty)
8) Minor and Insolvency:- (cannot be adjudicated as an insolvent)
9) Contract by Minor and Adult Jointly:-
10) Position of Minor’s Parents:- (Parents of a minor are not liable for
agreements made by minor)

Persons Disqualified by Law
1) Alien Enemies :-
2) Foreign Sovereigns and Ambassadors:- (Sanction by Central Government)
3) Convict:-
4) Insolvent:-
5) Joint Stock Company and Corporation Incorporate under a special Act ( LIC,
UTI):- ( Artificial Person)
6) Pardanashin Women :-
7) Married Woman:- (married woman may sue or be sued in her own name in
respect of her separate property)

Free Consent
Consent is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, misrepresentation m, fraud or
mistake.
Coercion :- “Coercion is the committing or threatening to commit any act
forbidden by the Indian Penal Code, or the unlawful detaining or threatening
to detain any property, to the prejudice of any person whatever, with the
intention of causing any force in the place where the coercion is employed.”
Undue Influence :- “A contract is said to be induced by undue influence where
1) The relations subsisting between the parties are such that one of the parties
is in a position to dominate the will of the other
2) He uses the position obtains an unfair advantages over the other.

Fraud :-
“fraud means the act committed by a party to a contract, or with his
involvement or by his agent with intent to deceive another party thereto
or his agent or to induce him to enter into the contract.”
Misrepresentation :-
“ The term Misrepresentation means a false representation of fact made
innocently or non-disclosure of a material fact without any intention to
deceive the other party.
Mistake :-
1) Unilateral Mistake:- only one of the contracting parties is mistaken as to a
matter of fact.
2) Bilateral Mistake :- where the parties to an agreement misunderstood
each other and are at cross purpose.

Mistake of Law:-
1) Mistake of Indian Law:-
2) Mistake of Foreign Law:-
Mistake of Fact :-
1) Unilateral mistake:- Where only one of the contracting parties is mistaken
as to matter of fact, the mistake is a unilateral mistake.
2) Bilateral Mistake:- where the parties to an agreement misunderstood each
other and are at cross purpose, there is a bilateral mistake.
Types of Bilateral Mistake:-
a) Mistake as to existence of subject matter
b) Mistake as to identity of subject matter
c) Mistake as to title of subject matter
d) Mistake as to price of subject matter
e) Mistake as to quantity of subject matter
f) Mistake as to quality of subject matter

Agreement opposed to Public Policy
1) Agreement of Trading with Enemy:-
2) Agreement of Stifling Prosecution:- ( Feel Uncomfortable) (You cannot
convert crime into source of profit)
3) Agreement in the Nature of Maintenance:-
( one party having no interest in suit, Public Litigation)
4) Agreement for the sale/Transfer of Public Office and Titles :- (transfer of
public offices or to obtain public titles are illegal on the ground of public
policy)

5) Agreement Creating Interest against Professional Duty:- ( any agreement
by him , which goes against his duty and brings some personal gain to
him, is Void)
6) Agreement in Restraint of Parental Right:- (agreement which prevent
apparent to exercise his right of guardianship is Void)
7) Agreement is Restraint of Personal Liberty :- ( personal freedom to the
citizen)
8) Agreement Tends in to create Monopoly:-
9) Agreement Interfering with course of Justice:-
10) Marriage Brokerage Contract :-

Legality of Object
“Object means purpose or Design of the contract.”
When Consideration or Object is Unlawful
1) Forbidden by Law:-
2) Defeat the Provision of Law:-
3) Defeat of any Rule for the Time being in Force in India:-
4) Fraudulent:-
5) Injury to the person or property of another:-
6) Immoral:-
7) Agreement Opposed to Public Policy:-

Performance of Contract
“Fulfillment of respective legal obligation created under the contract by both the
parties”
Who may Perform a Contract?
1) Promisor Himself :-
2) Agent:-
3) Representatives:-
4) Third Person:-
5) Joint Promisor:-
Who may Demand Performance?
1) Promisee:-
2) Agent:-
3) Legal Representative:-
4) Third Person:-

Discharge of Contract
Termination of the contractual relationship.
Rights and obligations created by it comes to an end.
Mode of Discharge of Contract
1) By Performance:-
i) Actual Performance:- (each of the parties has done what he had agreed to
do under the agreement)
ii) Attempted Performance:- (promisee refuse to accept)

2) By Mutual Agreement :-
i) Express Consent:-
ii) Implied Consent:-
a) Effect of Novation:- (replace the old contract)
b) Effect of Rescission:- (discharge before the date of performance)
c) Effect of Alteration of contract :- (change in one or more of the material
terms of contract)
d) Remission:- (acceptance by the promise of a lesser (Less) fulfillment of the
promise made)
e) Waiver :- (do not have to obey a particular rule or law)

4) Discharge by Lapse of Time:-
5) Discharge by Operation of Law:-
a) By Death:-
b) By Insolvency:-
c) By Unauthorized Material Alteration:-
d) By the Identity of Promisor and Promisee:- (When promisor becomes
promisee)
6) Discharge of Breach of Contract :-

3) Discharge by Impossibility of Performance:-
i) Initial Impossibility :-
a) If Known to the Parties:- (one party unknown)
b) If Unknown to the parties :- (both parties)
c) If Unknown to the promisor only:-
ii) Supervening Impossibility:-
a) Destruction of Subject Matter:- (crop and Fire)
b) Death or Incapacity Personal Service:- (illness)
c) Declaration of war:-
d) Change of Law:-

Breach of Contract
“When one of the parties to contract, denies to perform the acts or to fulfill
the obligations”
Types of Breach of Contract
1) Anticipatory Breach:-
i) Express:-
ii) Implied:- (by any act)
2) Actual Breach:-
i) On due Date of Performance:- (Failed on fixed time)
ii) During the Course of performance:-

Remedies for Breach of Contract
1) Rescission of Contract :- when a contract is broken by one party, the other
party may treat the contract as it is (cement bags)
2) Suit upon Quantum Meruit:- (claim for the work done under the contract)
3) Suit for Specific Performance:- (carry out his promise)
4) Suit for Injunction :-
5) Suit for Damages:-

Quasi Contract
In case of Quasi Contract, there will be no offer and no acceptance either on
express base or on implied base.
But under certain circumstances Court creates contract between the parties
artificially and thus binds over the parties. Such contracts which are created
by virtue of law are called Quasi Contracts.
Section 68 to 72 of Contract Act read about the situations where court can
create Quasi Contract.
Section 68 - when necessaries are supplied: When one party supplies
necessaries to the other (without request), a quasi contract comes into
force.

• Section 69 - When expenses of one person are paid by the other: When
expenses which are to be paid one party are paid by another party, the
parties are said to be under quasi contract.
A case on this point is Hazarilal Vs Navaranglal. In this case B purchases
A`s agricultural land. On that land cess is in arrears for a longer period
which are actually to be cleared by A, But B pays that amount. Here Court
creates a quasi contract between them under Section 69 and thus
capacitates B to recover that amount from A.
• Section 70 - When one party is benefited by the activity of another
party: When one party Conducts an activity and its benefit is attained by
another party, then also Court can create a quasi Contract.
A Case on this point is Damodar Modaliar Vs Secretary of State for India. In
this case A is resident of a Village. The local government conducts repairs
to the tank situated at A`s village. As a result A gets benefited because the
surrounding lands belong to A. Here Court creates a Quasi Contract and
decides that A has to bear cost of repairs.

• Section 71 - In case of finder of lost goods: Court can create a quasi
contract in case of finder of lost goods.
Related case is Hallius Vs Fowler. In this case B finds a diamond at A`s
shop and hands it over to A, requesting A to send the diamond to true
owner. True owner is not found. When true owner is not found. Finder
gets the title. No one can claim share in it.
• Section 72 - When payment is made by mistake: When ever payment is
made by mistake or goods are delivered by mistake , Court can create a
quasi Contract.
A case on this point is Khaniyalal Vs Sales Tax Officer of the Banaras. In
this case Mr. A pays Sales tax by mistake though he is need not to pay.
Here Court creates a quasi Contract and capacitates A to recover that
amount.

CASE STUDY
“H agrees with G to discover treasure by magic and G agrees to pay Rs. 5000”
“A owns a motor boat for taking people from Mumbai to Goa. The boat is in
the waters at the gateway of India. This is an offer by conduct to take
passengers from Mumbai to Goa. He need not speak or call passengers.”
“M makes an offer to N to sell his bike for Rs. 10,000.”
“A offer to sell his car to B for Rs. 50,000. B agrees to buy the car For Rs.
50,000.
“ X says to Y , I shall kill your son unless you agree to sell your house to me
for 50,000. Y says, All right, I shall sell my house to you for Rs. 50,000 do
not kill my son”

Business law unit 1

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Business law unit 1