assignment on leagal aspects of business mb0035

December 24, 2009[

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ASSIGNMENT LEGAL ASPECTS OF

SET 1

1. What are the essentials for a Valid Contract? Describe them in details.

Co ntract:

A contract is an agreement between two or more parties that is intended to be enforceable.

A contract may be created

Orally In writing (including by electronic means or through a website) By inference or conduct or By a combination of all or any of the above

Essential elem ents:

For a binding contract to be formed there must be:

An offer which is accepted and for which valid consideration IS given:

An intention to create a legal relationship: and Certainty of terms.

| PREAPARD BY FAHED JOUDAH AHMED MOHAMMED

December 24, 2009[

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Essentials for a Valid Contract:

All contracts are agreements but all agreements need not be contracts. The

agreements that create legal obligations only are contracts. The validity of an

enforceable agreement depends upon whether the agreement satisfies the essential

requirements laid down in the act. Section 10 lays down that all the agreements are

contracts if they made by the free consent of the parties to contract for a lawful

object and are not hereby expressly declared to be void.

The following are the essentials:

Agreement Free Consent Contractual Capacity Lawful consideration Lawful object Not expressly declared void Possibility of performance Certainty of terms Intension to create legal obligation Legal formalities

Ag reement:

An agreement which is preliminary to every contract is the outcome of offer and

acceptance. An offer to do or not to do a particular act is made by one party and is

accepted by the other to whom the offer is made. Then we say that there is a

meeting of the minds of the parties. Such a position is known as consensus and ad


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idem.

Free Consent:

The parties should agree upon the same thing in the same sense and their consent

should be free from all sorts of pressure. In other words it should not be caused by

coercion, undue influence, misrepresentation, fraud or mistake.

Contractual Capacity:

The parties entering into an agreement must have legal competence. In other

words, they must have attained the age of majority, should be of sound mind and

should not be disqualified under the law of the land. A contract entered into

between the parties having no legal capacity is nullity in the eyes of law.

Lawful consideration:

There must be consideration supporting every contract. Consideration means

something in return for something. It is the price for the promise. An agreement

not supported by consideration becomes a 'nudum pactum'. The consideration

should be lawful and adequate. However, there are certain exceptions to this rule.

Lawful object:

The object or purpose of an agreement must be lawful. It should not be forbidden by law, should not be fraudulent, should not cause injury to the person or property of another, should not be immoral or against public policy.


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Not expressly declared void:

The statue should not declare an agreement void. The act itself declared certain

types of agreements as void. e.g., trade, legal proceedings. In such, the aggrieved

party can't seek any relief from the court of law.

Possibility of performance:

The agreement should be capable of being performed. e.g., Mr. Jhone agrees with

Mr. Davids to discover treasure by magic. Mr. Davids can't seek redressal of the

grievance if Mr. Jhone fails to perform the promise.

Certainty of terms:

The terms of the agreement should be certain. E.g., Mr. Prem agrees to sell 50 tons

of petrol. The agreement is vague as it does not mention the types of petrol agreed

to be sold.

Intension to create legal obligation:

An agreement creating social obligation can't be enforced. Though sec 10 is silent

about this, under English law this happens to be an important ingredient.

Therefore, Indian courts also recognize this ingredient.


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Legal formalities:

Indian contract act deals with a simple contract supported by consideration.

Agreements made in India may be oral or written. However sec. 10 states that

where the statute states that the contract should be in writing and should be

witnesses or should be registered, the same must be observed. Otherwise, the

agreement can't be enforced.

2. What are the rules regarding the acceptance of a proposal. Describe them in details

Acceptance:

When the person to whom the proposal is made signifies his willingness thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise.

By accepting the offer, the acceptor expresses his willingness to be bound by the

terms and conditions of the offer. Regarding an offer and its acceptance, Anson

has given an analogy of a lighted match stick. Acceptance is to an offer what a

lighted match is to train of gun powder. It produces something which can't be

recalled or undone. An acceptance turns the offer into a binding obligation.


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Rules regarding the acceptance of a proposal:

Offer can be accepted only by the person to whom it is made

Acceptance should be unconditional and absolute

Acceptance should be communicated

Acceptance should be according to the prescribed form

Acceptance must be provoked by offer

Acceptance must be given before the offer lapses or is revoked

Provisional Acceptance is no acceptance

The offer only has to accept the offer. In case it is accepted by any other

Person no agreement is formed. However, in case authority is given to

another person to accept the offer on behalf of the person to whom it is

made, it is valid acceptance.

Acceptance should be unconditional and absolute:

The acceptor should be absolute and unconditional. The acceptor should accept the

offer in toto. If it is qualified or conditional, it ceases to be valid. In fact, a

qualified or conditional, it ceases to be valid. In fact, a qualified or conditional

acceptance is nothing but a counter-offer.


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Acceptance should be communicated:

Acceptance is not a mental resolve but some external manifestation. The

acceptance can be communicated in writing or word of mouth or also by conduct.

An agreement does not result from a mere state of mind. In case of bilateral

contracts acceptance must be communicated. The offeror can't force a contract an

offeree by fixing the mode of refusal. Acceptance should be communicated only to

the offeror and not to somebody else.

Acceptance should be according to the prescribed form:

The proposer has the right to prescribe the manner of acceptance. He may require

it to be oral or in writing or to be communicated to him by telephone. He can also

waive his right or may ask the offeree to express acceptance by some gesture.

Once he prescribes the mode of communication later he can't say that it was

insufficient.

In case of deviated acceptance the proposer may insist for the acceptance inthe prescribed manner. He then has to do this within a reasonable time afterCommunication of acceptance to him. Otherwise it will be presumes that theProposer has accepted the deviated acceptance.


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Acceptance must be provoked by offer:

The acceptor must be aware of the offer. Even if he fulfills the conditions

mentioned in the offer. If he is ignorant of the offer itself, he can't give a valid

acceptance.

Acceptance must be given before the offer lapses or is revoked:

Where no time limit has been fixed the acceptor has to accept the offer within such

time. An offer once dead can't be accepted unless there is a fresh offer.

Provisional Acceptance is no acceptance:

Provisional acceptance does not make a binding agreement unless final approval is

given. The offer may be withdrawn before giving final approval. However,

whether an agreement is provisional or final depends upon the intension of the

parties.

No problem arises where there is instantaneous communication of offer andacceptance which is possible when the parties are face to face. But how todetermine the point of time when the contract is complete if the parties are ata distance by each other.

The 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 the power of the

acceptor; as against the acceptor when it comes to the knowledge of the proposer.


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Termination of offer:

Following are under which an offer is terminated

Lapse

Failure to fulfill a condition precedent

Rejection

Destruction of the subject matter or illegality

Revocation

Lapse -An offer lapses because of passage of time, death or insanity of the proposer. Failure to fulfill a condition precedent -An offer is terminated by the failure of the acceptor to fulfill a condition precedent to acceptance. Rejection -By rejecting the offer offeror can terminate an offer. Destruction of the subject matter or illegality -The offer itself lapses. Revocation -The withdrawal of an offer by the offeror is known as revocation.

3. What is the difference between fraud and misrepresentation? What

do you understand by mistake.

Fraud:

A fraud is an intentional deception made for personal gain or to damage another

individual. The specific legal definition varies by legal jurisdiction. Fraud is a


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crime, and is also a civil law violation. Many hoaxes are fraudulent, although

those not made for personal gain are not technically frauds. Defrauding people of

money is presumably the most common type of fraud, but there have also been

many fraudulent "discoveries" in art, archaeology, and science.

Misrepresentation:

Misrepresentation is a contract law concept. It means a false statement of fact

made by one party to another party, which has the effect of inducing that party into

the contract.

For example, under certain circumstances, false statements or promises made by a

seller of goods regarding the quality or nature of the product that the seller has

may constitute misrepresentation. A finding of misrepresentation allows for a

remedy of rescission and sometimes damages depending on the type of

misrepresentation .

Farud Misrepresentation

The false statement is made by the person who knows that it is false.

The very purpose of fraud is to deceive the other party to the contract.

The contract is voidable. Independent action in tort for damages.

Its punishable offence under certain cases

Silence is not fraud except where there is a duty to speak.

The person making the false statement honestly believes it to be true.

There is no intention to deceive the other party when there is Misrepresentation of fact.

The contract voidable at the option of the party whose consent was obtained by misrepresentation.

It's not an offence and hence not


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The party making false statement cannot say that the other party had the means to discover the truth with ordinary diligence.

Punishable.

Under no circumstances can silence be considered as misrepresentation

The party cannot avoid the contract if he had the means to discover the truth with ordinary diligence.

Mistake:

In contract law a mistake is an erroneous belief, at contracting, that certain facts

are true. It may be used as grounds to invalidate the agreement. Common law has

identified two different types of mistake in contract: "unilateral mistake" and

"mutual mistake," sometimes called "common mistake."

Unilateral mistake:

A unilateral mistake is where only one party to a contract is mistaken as to the

terms or subject-matter contained in a contract. This kind of mistake is more

common than other types of mistake. One must first distinguish between

mechanical calculations and business error when looking at unilateral mistake. For

mechanical calculations, a party may be able to set aside the contract on these

grounds provided that the other party does not try to take advantage of the mistake,

or 'snatch up' the offer (involving a bargain that one did not intend to make,

betrayed by an error in arithmetic, or something like that). This will be seen by an

objective standard, or if a reasonable person would be able to know that the


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mistake would not make sense to one of the parties. Unless one of the parties'

snatched up' the one sided offer, courts will otherwise uphold the contract.

Mutual mistake:

A mutual mistake occurs when the parties to a contract are both mistaken but

about the same material fact within their contract. They are at cross purposes. As

such, there is no consensus ad idem, and this overlaps with the objective theory of

contract, and there is no offer and acceptance. Hence the contract is void. Such a

mistake may relate to

Existence of the subject matter Identify of the subject matter I mistake as to the quality of the subject matter Price of the subject matter A false and fundamental assumption

4. What are the different ways in which a contract can be discharged? Describe these ways in details.

Difference ways in which a contract can be discharged:


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Normally the completion of a contract is straightforward as parties carry out their

tasks as required. There are different ways of ending a contract:

1. Discharge by performance 2. Discharge by agreement 3. Discharge by subsequent4. Discharge by lapse of time 5. Discharge by operation of law 6. Discharge by breach of contract

Discharge by performance:

When a contract is duly performed by both the parties, the contract is discharged

or terminated by due performance. But if one party only performs his promise, he

alone is discharged. Such a party gets a right of action against the other party who

is guilty of breach.

Performance may be

Actual performance

Attempted performance or tender

Actual performance:

When each party to a contract fulfills his obligation arising under the contract

within the time and in the manner prescribed, it amounts to actual performance of


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the contract and the contract comes to an end.

Attempted performance or tender:

When the promiser offers to perform to perform his obligation under the contract,

but is unable to do so because the promise does not accept the performance, it is

called 'attempted performance". Thus "tender" is not actual performance but is

only an "offer to perform"

Essentials of a valid offer: A valid tender or offer of performance must fulfill the

following conditions:

It must be unconditional. .. It must be made at proper time and place. .. It must be

of the whole obligation contracted for olla If the tender relates to delivery of

goods, it must give a reasonable

It must be unconditional: | PREAPARD BY FAHED JOUDAH AHMED MOHAMMED

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It must be made at proper time and place: It must be of the whole obligation contracted for: If the tender relates to delivery of goods, it must give a reasonable

opportunity to the promise for inspection of goods

It must be made by a person who is in a position and is willing to

perform the promise.

It must be made to the propel' person

Discharge by agreement:

This occurs when the contract is abandoned, or the terms within it are changed,

and both parties are in agreement over this. Really both parties have provided

consideration for a new contract to end 01' to vary the old one.

Novation Alteration Rescission Remission Waiver

Novation -Novation occurs when a new contract IS substituted for an existing contract, either between the same parties or between different parties, the

consideration mutually being the discharge of the old contract. When the | PREAPARD BY FAHED JOUDAH AHMED MOHAMMED

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parties to a contract agree for novation the original contract is discharged and

need not be performed.

Alteration -Alteration of a contract means change in one or more of the material

terms of a contract. If a material alternation in a written contract is done by mutual

consent, the original contract is discharged by alteration and the new contract in its

altered form takes its place.


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Rescission -A contract may be discharged, before the date of performance, by

agreement between the parties to the effect that it shall no longer bind them. An

agreement of rescission releases the parties from their obligations arising out of

the contract.

Remission -Remission the acceptance of a lesser sum than what was contracted for

or a lesser fulfillment of the promise made. An agreement to extend the time for

the performance of a promise also does not require consideration to support it on

the ground that it is a partial remission of performance.

Waiver -Waiver means the deliberate abandonment or giving up of a right which a

party is entitled to under a contract, whereupon the other party to the contract is

released from his obligation.

Discharge by subsequent:

There is no question of discharge of a contract which is entered into to perform

something that is obviously impossible, because, in such a case there is no contract

to terminate.

A contract will be discharged on the ground of supervening impossibility In the

following cases


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Destruction of subject-matter Failure of ultimate purpose Death 01' personal incapacity of promisor Change of law

De struction of s ubj ec t - matt e r:

When the subject-matter of a contract, subsequent to its formation, IS destroyed,

without the fault of the promisor 01' promise, the contract IS discharged. It is so

only when specific property 01' goods are destroyed which cannot be regained.

Failure ultimate purpose:

Where the ultimate purpose for which the contract was entered into fails, the

contract is discharged, although there is no destruction of any property affected by

the contract and the performance of the contract remains possible.

Death or personal incapacity of promisor:

Where the performance of a contract depends upon the personal skills or

qualification or the existence of a given person, the contract is discharged.


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