business law - intro & contract act-1

8/6/2019 Business Law - Intro & Contract Act-1

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

Business &Corporate

LawsIntroduction

Business &Corporate

LawsIntroduction

1010


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Meaning & Nature of LawMeaning & Nature of Law Law word used in many senses: laws of physics,

math , sciences or say laws football or any othersubject

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 LawMeaning & Nature of Law

Law defined in Oxford English Dictionary:- Law as body of rules whether proceeding from

formal enactment or from custom , which aparticular 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 LawImportant characteristics of Law1. 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 thatorder

2. Law is made to serve some purpose which may besocial, economic, or political:

3. Law may include (i) Moral rules or etiquettes


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Classification oflawClassification oflaw1. Public Law & Private Law

2. Criminal Law & Civil Law

3. Substantive Law & procedural Law

4. International Law & Municipal Law5. Public International Law & Private International

Law


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Classification oflawClassification oflaw1. Criminal Law is that part of law which

characterizes certain types of wrong doingsoffences against the state , not necessarilyviolating any private rights , and punishable bythe state

2. Criminal Law is apart of public law , as thesociety or public are directly involved.

3. Substantive Law & procedural Law : Provisionsof Substantive Law define rights & duties whileprocedural Law provides machinery for enforcingthese rights & duties.


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Sources of LawSources of LawPrimary Sources of Indian law:-

1. Customary law

2. Every custom does not become law

3. Judicial precedents are another important sourceof law

4. Statute- An important source of law

5. Personal Law


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Sources of LawSources of LawSecondary 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 LawSources of LawSecondary sources of Indian law:-

The secondary sources of Indian law are English law

& justice, Equity & Good conscience:

Justice , equity & good conscience are the guidingforces behind most of the statutes in our country&

the decision of the court:

Justice

Equity

Good Conscience


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Basic LegalConceptsBasic LegalConceptsConcept of Legal Entity

Concept of Legal Rights: Different types of rights:-

1. Personal rights,

2. proprietary rights3. 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


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Basic LegalConceptsBasic LegalConceptsConcept 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 LawEssential Of LawThere are certain essentials which must be present in

law in order to make it effective. These are :-

1. Predictability

2. Flexibility3. 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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Contract ActContract Act

0101


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LAW OF CONTRACTLAW OF CONTRACT

LAWS required to regulate conduct ofpeople &to protect theirproperty & contract rights.

Life in general & business in particular need tobe regulated.

Law of contract- Indian contract Act -1872

covered in 75 sectionsObjective oflaw of contract is to introduce

definiteness in commercial & other transactions i.

what has been promised should be performed


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INDIAN CONTRACT- ACT-1872INDIAN CONTRACT- ACT-1872

Origin :

Human being social- want to live in

harmony.

Ones interest bound to clash- so need forcontrol 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 ticketetc.

Forpeople 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 contractsin 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 ofprinciplesrecognized & applied by the state in the

administration of justice.Parts oflaw which deal with rights &

obligations arising out of business transactionsmay be called as Commercial, mercantile orbusiness law.

Forgery & fraud in transactions dealt underCriminal law.


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Definition- Contract-sec 2(h)Definition- Contract-sec 2(h)

An agreement enforceable by law is acontract

To make a contract , there must be :-

An agreement & the agreement must beenforceable by law


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Agreement is defined as every promise &every set ofpromises forming consideration

for each other.A promise is defined as an acceptedproposal.

An agreement is made of a proposal

fromone 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 onlywhen 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 ActExapmles-Contract Act

Airlines sells a ticket to X on 01 jan fromDelhi 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 performanceD gives promise to his son forpocketmoney


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Eessentials of a valid - ContractEessentials of a valid - Contract

Agreement : All contracts are agreements butall agreements need not be contracts.

The agreements that create legal obligationsare contracts.

Agreement is an outcome of offer &

acceptance; call

ed as meeting ofminds ofparties,

Also known as consensus ad idem


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Free Consent: Both the parties should agreeupon same thing without any :-

Coercion, undue influence, misrepresentation,fraud ormistake.

ContractualCapacity: Parties enteringinto contract must have attained the age ofmajority.


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Lawful consideration: Considerationshould be lawful & adequate.

Consideration means something in return forsomething.

Lawful Object: Object orpurpose of anagreement 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 pub

lic po

licy.


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Not expressly declared Void: Certainagreements declared void in the ACT:-

Agreement in restraint ofmarriage, trade,legalproceedings

If any person does agreements which arevoid as per contract act then he can notseek relief from the court .


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Possibility of Performance:Agreement should be capable of beingperformed, 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 vaguebecause 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 inIndia may be oral or written.

If sec 10 states that contract should be inwriting & should be witnessed or should beregistered , the same must be observed

otherwise the agreement can not be enforced.


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CLASSES OF CONTRACTCLASSES OF CONTRACT

On the basis of enforceability contracts may beclassified as follows:

Valid Contract :Contract which satisfies alllegalrequirementprovided under sec 10 ofContract Act. Validcontract must have all essentials elements of a contract asdescribed earlier. If one ormore of these elements are missing

then contract is either void, voidable, i

llega

lor unenforceab

le.

Void Contract : An agreement not enforceable bylaw is said to be void- sec 2(g)

e.g. Agreement not creating legal rights or obligations.


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Void Contract : An agreement not enforceable by lawis 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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Voidable Contract : An agreement which is enforceable bylaw 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 oneof the parties. Until it is avoided or rescinded by thepartyentitled to do so by excercising his option in that behalf , it isa valid contract


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Voidable Contract :As per sec 2(i) Avoidable contract may be repudiated ( i.e.

avoided ) at the will of one or more of theparties, but not by others. Until it isrepudiated it remains valid & binding

It is affected by flaw(e.g. misrepresentation, fraud, coercion,

undue influence)and the presence of any of these defectsenables the aggrieved party to take steps to repudiate thecontract.

It shows that the consent of the party who has discretion torepudiate was not free.


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Voidable Contract :As per sec 2(i) Avoidable contract may be repudiated ( i.e.

avoided ) at the will of one or more of theparties, but not by others. Until it isrepudiated it remains valid & binding

It is affected by flaw(e.g. misrepresentation, fraud, coercion,

undue influence)and the presence of any of these defectsenables the aggrieved party to take steps to repudiate thecontract.

It shows that the consent of the party who has discretion torepudiate was not free.


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EXAMPLE: Voidable Contract

Ex: A man enfeebled by disease or age is induced by Bs influenceover him, as his medical attendant to agree to pay B an unreasonable

amount for his professional services .

A can avoid the contract. As consent is not free; it is affectedby 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 . Cs title shall be a good title.


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Characteristics of a voidable

contract

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 notbound to repudiate it . It may choose to reaffirm it & there bybound by it as well as bind the other party.

The party repudiating the contract is entitled to get damagesfor any loss that it may have suffered .

In case he has received any benefit under the contract , hemust restore it to the person from whom it was received.

Thus aggrieved party has two fold rights


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CLASSES OF CONTRACTCLASSES OF CONTRACTIllegal Contract : An agreement is illegal when it is against

the law of land.

Illegal means Contrary to Law & the term contract meansan 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 anillegal 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 landAll illegal agreements are void , all void agreements need not

be illegal


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Unenforceable Contract : It isneither 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

timeEx: An oral arbitration agreement is unenforceable

because the law requires an arbitration agreement tobe in writing .


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Unenforceable Contract : It isneither void nor voidable

Ex 2: A bill of exchange or promissory note though

valid in itself , becomes unenforceable after three yearsfrom the

date the bill or note falls due, being time barredunder the limitation act


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CONTINGENT CONTRACTCONTINGENT CONTRACT

Contingent Contract: A contingent contractis a contract to do or not to do something , if

some event, collateral to such contract does ordoes not happen.

Ex: A contracts to pay B Rs 10,000/= if Bshouse is burnt. This is a contingent contract.

A contingent contract may be contingentupon (i) happening (ii) or non happening


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ESSENTIALS OF CONTINGENT CONTRACTESSENTIALS OF CONTINGENT CONTRACT

Three essential characteristics of aContingent 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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QUASICONTRACTQUASICONTRACT Quasi Contracts does not arise by virtue of an agreement ,

express or implied , between the parties but law infers orrecognizes 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 paidunder mistake to repay it back can not be said to arise out ofa contract even in its remotest sense ,

as there is neither any offer nor acceptance /consent , butthese 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 theexpense of another ( ref sec 68-72 of contract Act


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QUASICONTRACTQUASICONTRACT

Quasi contract is a situations in which law imposes upon aperson , on grounds of natural justice, an obligation similarto that which arises from a true contract, although no

contract , express or implied has in fact been entered into bythem


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Principle underlying a Quasi Contract is thatno one shall be allowed unjustly to enrich

himself at the expense of another , and theclaim 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. Ysacceptance of goods constitutes an implied promiseto pay. This kind of contract is a tacit contract.


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Ex: X supplies goods to his customer Y who receives& consumes them. Y is bound to pay the price. Ysacceptance of goods constitutes an implied promiseto pay. This kind of contract is a tacit contract.

If goods are delivered by a servant of X to Zmistaking Z for Y , then Z will be bound to paycompensation to X for their value . This is a quasi

contract


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Kind of CONTRACT frompoint of view ofmode

of creation

Kind of CONTRACT frompoint of view ofmode

of creationExpress Contract : Where both the offer & acceptance

constituting an agreement are enforceable at law are madein 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 madeotherwise than in words i.e. by acts & conduct of parties , itis an implied contract.

Ex : A coolie in uniform takes up luggage of B to be carriedout of railway station without being asked by B, & B allowshim 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 frompoint of view extent

of execution

Kind of CONTRACT frompoint of view extent

of executionExecuted Contract : A contract is said to be executed when

both the parties to a contract have completely performedthere share of obligation & nothing remains to be done byeither party under the contract

Ex : Book seller sells a book on cash payment , it is said tobe an executed contract

Executory contract : In this type of contract both theobligations are outstanding , one on either party to thecontract , either wholly or in part at the time of the

formation of the contractEx : T agrees to coach R a student from Ist day of next

month & R agrees to pay Rs 5,000/ - in consideration , thecontract is executory because it is yet to be carried out.


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CONTRACT ACT

LESSON-III


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Privity ofContractPrivity ofContract

A contract is entered by two or more personsthereby creating rights & obligations forthem, 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 asPrivity to Contract

Law of contracts creates jus in personam asdistinguished from jus in rem

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Ex: A is indebted to B. A sells certain goods toC . C gives a promise to A, pay As 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

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Offer or ProposalOffer or Proposal

When one person signifies to another his willingness to do orto 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 calledPROMISOR

& person accepting is calledPROMISEE

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 onlywith the person who accepts & fulfills the condition of the proposal

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Essentials of a valid OfferEssentials of a valid OfferIn 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 anascertained person.

Ex: Co offered by ad that he who contacts epidemic influenza , cold orany disease after taking medicine as per printed directions will be givenan award; one person took medicine & suffered from influenza & wasentitled 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 personwho performs the required condition & as soon as the condition isperformed , offer is closed

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Essentials of a valid OfferEssentials of a valid Offer

An offer should be made within the intention ofcreating 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 ifI can get Rs 2 lakhs for it --It is not a proposal

But ifMsays to N Will you buy my car for Rs2 lakhs or Iam willing to sell my car to you for Rs 2 lakhs .

It is a proposal as it has been made with the intention ofobtaining assent of N

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Offer or ProposalOffer 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 isimplied.

A shoe shiner starts shining shoe without being asked to do so, a personwho allows this work without giving any verbal or written acceptance forthis work has to pay for shoe shining work , because this is an impliedoffer.

DTC runs buses on different routes to carry passengers at the scheduledfares. This is an implied offer by DTC

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Essential of a valid offer:Essential of a valid offer:

An offer must contemplate giving rise to legalconsequences & be capable of creating legalrelations:

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: Mpurchased a horse from N & promised to buy another if firsthorse proved lucky. Mrefused to buy second horse.

N can not enforce the agreement or sue him because the term ofagreement 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. Transmissionof such an offer does not amount to supply of an unlimited quantity ofgoods as soon as an order is given

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An offer must be communicated to the offeree: Doinganything 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 thereward as he was not aware of the offer when it was made.

An offer should not contain a term the noncompliance 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 theofferee does not reply then there is no contract, because no condition ofobligation 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 theoffer. 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/= tonLetters crossed in post but there is no concluded contract between A & Bbecause the offers were simultaneous , each being made in ignorance of

other , hence there is no acceptance of each others offer

Lapses &Revocation of offerAn offer lapses after stipulated or reasonable time

Ex: An applicant was informed for allotment of shares & deposit the callmoney by 31 Dec 09. Deposit of money means giving acceptance. Ifmoney not deposited by 31 Dec 09 then the offer lapses

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Lapses &Revocation of offer 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 theofferee before acceptance-Sec 6(4)

An offer lapses by revocation : an offer is revoked when it isretracted by the offeror. An offer may be revoked, at any timebefore acceptance.

Ex : At an auction A offers highest bid but he withdraws it before fall ofhammer . There is no concluded contract

An offer stands revoked if the offeree fails to fulfill acondition precedent to acceptance ( sec 6(3)

An offer lapses by subsequent illegally or destruction of asubject matter

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Acceptance-sec 2(b)Acceptance-sec 2(b)

When the person to whom theproposal is made signifies hiswillingness thereto the proposal issaid to be accepted :

By accepting offer:-

Acceptor expresses his willingness to bebound by the terms & conditions of anoffer.

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Rules regarding AcceptanceRules 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

recalledAn acceptance turns the offer into a

binding obligation.

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Acceptance-sec 2(b)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

recalledAn acceptance turns the offer into a

binding obligation.

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Rules Regarding AcceptanceRules Regarding Acceptance

An offer can be accepted by theperson to whom it is made or

to a person who has beenauthorized on behalf of the person

to whom the offer has been madeAcceptance should be unconditional &

absolute

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Acceptance should be communicated

By writing, word of mouth or also byconduct

An agreement does not result from a mere

state of mind.

Acceptance should be according tothe prescribed form

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10 67



Acceptance should be communicated

By writing, word of mouth or also byconduct

An agreement does not result from a mere

state of mind.

Acceptance should be according tothe prescribed form-proposer has rightto prescribe the manner of acceptance

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10 68



Acceptance must be provoked by anoffer i.e acceptor must be aware of offer

Acceptance must be given before anoffer lapses or is revoked

Provisional acceptance is noacceptance.- offer may be withdrawnbefore given final acceptance

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10 69



Contract by Post- under English law

Proposer is legally bound by theacceptance effected through postalmedium--

when the latter is prepared,addressed, stamped & mailed eventhough it is delayed or lost in transit

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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 acceptorwhen it comes to the knowledge of the proposer

no acceptance.- offer may be withdrawnbefore given final acceptance

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10 71


Termination of an offer-

circumstances

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- Offerto sell car for Rs 1 lakh - buyer( acceptor) toshow driving license ( Condition)

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Rejection- By rejecting an offer- offerorcan terminate the offer- Giving counter

offer also implies rejecting an offer

Destruction of the subject matter orillegality- If the thing offered is

destroyed or can not be bought &sold due to operation of law the offerit self lapses

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Revocation- Withdrawal of an offer iscalled Revocation

Proposal may be revoked any time bythe proposer before communication of

its acceptance

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ContractualCapacityContractualCapacity

PERSONSNOT COMP ETENT TOCONTRACT

Minors

Persons of unsound mind

Persons disqualified by law to whichthey are subject

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PERSONSNOT COMP ETENT TO

CONTRACT

PERSONSNOT COMP ETENT TO

CONTRACTMinors

18 yrs & above major( Indian majority

Act -1875

Age of majority 21 yrs

If guardian is appointed or propertyunder supervision of court of wards

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Principles GoverningMinors contractPrinciples GoverningMinors contract

Minors are protected by law- their rights& estates are preserved

Shortcomings & negligences are excused

Minors also assisted in pleadings Judges are their counsellors &

law is their guardian

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Effects of Minors AgreementEffects of Minors Agreement

A Minors agreement is void ab initio

No estoppel against minor- Minormade agreement by misrepresenting his age , there isno estoppel against him

No liability in contract or tort

arising out of contractMinor - in law is incapable of giving

consent

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A Minor made agreement by misrepresentinghis age to obtain a contract can not be sued

for deceitContract can not be converted into

Tort

However if Tort is independent ofcontract then it will not absolve minorof his liability

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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.

IfMinor has sold goods , he can not bemade to repay value of goods because thatwould amount to enforcing a void contract


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Effects of Minors AgreementEffects of Minors AgreementBut court will not compel any

restitution by a minor even if minoris a plaintiff,

Where the other party was aware ofthe infancy so that he was notdeceived or where the other partywas unscrupulous in his dealingswith the minor

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Effects of Minors AgreementEffects of Minors AgreementBeneficial contracts

Minors agreement is absolutelyvoid-

confined to cases where minor chargedwith obligations & other party seeks toenforce it

Minor allowed to enforce contract where heis beneficiary & has no obligations

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Beneficial contracts

Minor is capable of purchasingimmovable property &

may sue to recover the possession

of property by tendering thepurchase money

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Beneficial contracts

Minor can be a beneficiary e.g. apayee, an endorsee or a promiseeunder a contract.

A promissory note executed infavour of a minor is valid & can beenforced in a court

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Ratification

Minor can not ratify a contract onattaining majority-

Fresh contract is to be made on

attaining majority New contractrequires fresh consideration

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Liability for Necessities- Sec 68

Minor(Person incapable to contract )liable for necessaries supplied to them

Person who supplies such necessaries tominor is to be reimbursed from the property

of such incapable person i.e. MinorLiability attached to the estate of minor & notpersonal liability( minor can not be put injail)

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Liability for Necessities- Sec 68

Liability is only for necessaries

Necessaries- Food , shelter, clothing etc

To make minors estate liable followingconditions must be satisfied:-

Contract must be for goods necessary forsupport of his life

Minor must not have already sufficient supply

of these necessaries

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Persons of unsoundMindPersons of unsoundMind

A person is said to be of sound mind

if he/she capable of understanding

& Can take rational decisionas to itseffects upon his/her interests

Under Indian Contract Act Agreement of aperson of unsound mind is absolutely void,

A person of unsound mind may make acontract when he was of sound mind( sec-12)

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CONTRACT ACT

Lesson-IV

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FRAUDFRAUD

A false statement made knowingly orwithout belief in its truth or

recklessely careless whether it istrue or false is called fraud.

Examples of fraudSuggestion 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

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Irwin/McGraw-HillThe McGraw-Hill Companies, Inc., 2000

FRAUDFRAUD

Examples of fraudActive 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 noduty to disclose-

Ex- Bank employee dealing with opening of

account does not disclose to manger about the factsof a client-- commits a fraud

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FRAUDFRAUD

Examples of fraudA promise made without any intention of performing

it

Any other act fitted to deceive( Human mind is veryfertile & can work out new schemes of fraud)

Any such act or omission as the law specially

declares to be fraudulent

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MisrepresentationMisrepresentation

Before making contracts partiesmake certain statements forinducing contracts ; are calledrepresentations

Representation is a statement of facts made by one

party to the other party at the time of entering into acontract with an intention of inducing the otherparty to enter into a contract

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If a representation is false or misleading it is calledmisrepresentation

A misrepresentation may be innocent or intentionalInnocent misrepresentation dealt under

sec 18 of contract Act

Intentional misrepresentation is calledFraud- dealt under sec 17 of contractAct

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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 IfMis 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

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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

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MISREPRESENTATION FRAUDMISREPRESENTATION FRAUD

Person making false Statement False Statement made by a personhonestly 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 partyM- 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 IPCSilence not considered Generally silence not fraud except

misrepresentation under where there is duty to speak or the

any circumstances relations between the parties is

fiduciary

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MISREPRESENTATION FRAUDMISREPRESENTATION FRAUD

Parties complaining of -M Party making a false statement cancan 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

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MISTAKE

MISTAKE

Mistake refers to misunderstanding or wrong thinking orwrong 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 amatter of the fact essential to the agreement ,

the agreement is void ( sec -20)- BilateralMistake

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MistakeMistakeSec -20- BilateralMistake: 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 hasbeen 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 ofboth parties as to existence of the subject matter.

A bilateral mistake may be regarding the subject matter orthe 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 subjectmatter exists at the time of contract, but actually it may have ceased toexist 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

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MistakeMistakeSec -20- BilateralMistake of facts essential to anAgreement:

Ex: A agrees to sell B cargo ofShip which is supposed on its way from

London to Mumbai. It turns out that the day before the bargain the shipconveying cargo has been cast away & goods lost. Neither party wasaware of the fact . Agreement is void

A bilateral mistake may be regarding the subject matter as toits(i) existence, (ii) identity (iii) title (iv) Quantity (v) price

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MistakeMistake

Unilateral mistake , where only one party to acontract 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 ofreasonable 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

UnilateralMistake is to the nature of contract

Old illiterate man made to sign bill of exchange by means of false representationthat it was guarantee, Held that the contract was void

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LAW OF CONTRACT

LESSON -4

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ConsiderationConsideration

Consideration means something in return-it is oneof 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 & thepromise 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 , suchact or abstinence or promise is called a consideration for the

promise

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ConsiderationConsideration

Example : A agrees to sell his motorcycle to B forRs 20,000/=

Bs promise to pay Rs 20,000/= is Consideration for A

As promise to deliver motorcycle is Consideration for B

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Rules Governing ConsiderationRules Governing Consideration

Consideration should be furnished at the desire ofthe promiser

Desire may be expressed or implied.Act done at the instance of third party or gratuitously does

not become consideration

Ex: As hose gets fire & B goes & helps to extinguish the fire . B latercan not ask for any payment for his services.

Even spiritual promise or mental satisfaction are not enforceable.

A mere promise is not enough. The promiseemust have done some act or incurred someexpenses on the strength of promise

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As per sec 2(d) Consideration may move frompromisee or from any other person-

As per Indian law Consideration must move from promisee only

However as per doctrine of ConstructiveConsideration other person can be nearly related byblood 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 ofpromisor, brfore making the agreement

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As per English law past Consideration is noconsideration.

Nevertheless , past consideration will support asubsequent promise of the promiser

As per Indian law past Consideration is sufficient tosupport a promise provided it is made at the requestof promiser.

Present Consideration refers to the one furnished at the time of thepromise .

Where both the parties to a contract promise to each other of doing or notdoing something the Consideration on both sides moves to a future date &

is known asFuture Consideration

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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.Howeverconsent by promisor should be given freely. Consideration should be valuable .

Consideration should not be unreal or illusory or of the nature of moralobligation. It should be valuable, though the value of Consideration neednot be the same as the value of the promise which it supports.

Discharging of a preexisting obligation is not Consideration . The lawmay compel a person to do an act . Then the mere doing of such an actcan not become Consideration for anothers promise

However, doing or agreeing to do more than what a person is legallybound amounts to good consideration

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In the same way performing or promising to perform an existingobligation imposed by a previous contract will not form consideration.

Consideration should be certain & lawful

Consideration should not be uncertain or illusory orimpossible- Discovering a treasure by magic can not formConsideration

Exception to the Rule ;No Consideration , NoContract

Agreement made out of natural love & affection: It is valid provided it ismade in writing, is registered & is made between parties standing in nearrelation to each other. Nearness means blood relationship.

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Rules Governing Consideration

Example :

Elder brother on account of natural love &

affection, promised to pay the debt of hisyounger brother.

Agreement was in writing & registered. It was

held to be valid, even though there was no

consideration for the promise

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Rules Governing ConsiderationRules Governing ConsiderationException 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 somethingfor the promisor is valid & enforceable

Ex: A finds Bs purse & gives to him . B promises togive Rs 50/= to him . This is a contract

Sec2(d): services are rendered at the request of thepromisor whereas under section 25(2) services arevoluntary .

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Rules Governing ConsiderationRules Governing ConsiderationVoluntary 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 whenthe act was done

Promisor should be competent to contract at thetime when the act was done

Intention of the Promisor should have been tocompensate the promisee.

Services rendered should not be immoral

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Rules Governing ConsiderationRules Governing ConsiderationA 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 inthat behalf , to pay wholly or part there of a debt of which

the creditor might have enforced payment but for the law of limitations ofsuit is valid & enforceable.

However mere oral promise or acknowledge is not enforceable.

A Completed gift: In the case of a gift actually madenot being an agreement to make a gift , noConsideration is necessary. Donor & donee may notbe near relatives

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Rules Governing ConsiderationRules Governing ConsiderationAgency : No Consideration is necessary to create an Agency.

Remission: No Consideration is necessary for an agreement toreceive less than what it is due

An agreement to extend time for performance of a contract need not besupported 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 promiseetakes definite steps in furtherance of the object & undertakes a liability

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LESSON -V

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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 befor 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 canenforce 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:

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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 noprivity of contract between himself & the promisor

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Exceptions to above rule:In case of Assignment:

When rights under a contract are assigned , the assignee can sue uponthe 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 aHindu family in a partition of a joint Hindu property

or for the marriage expenses of a female member for whose benefit sucha 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 hisauthority can be enforced by his principal.

Then

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Lawful ObjectLawful Object

As per sec 23 : The consideration or object of an agreement is lawfulunless it is forbidden by law ,

or is of such a nature that if permitted it would defeat the provision ofany 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 orconsideration is unlawful is void.

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In the following cases consideration or object of an agreement isunlawful :-

Forbidden by law : sec 23

Defeat the provision of any law:

Fraudulent:

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In the following cases consideration or object of an agreement isunlawful :-

Injury to the person or property of another

Immoral:

Opposed to public policy:


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Opposed to public policy:

Agreement which are held void on the ground that theconsideration or object is opposed to public policy are as

follows :-

Maintenance & Champerty

Interference with the course of justice

Trafficking in public offices

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follows :-

Marriage brokerage contracts

Agreement in restraint of trade

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follows :-

Agreements tend to create an interest against duty

Agreements interfering with parental duties

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follows :-

Agreements restraining personal liberty:

business law - intro & contract act-1

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