BUSINESS LAWS

MODULE - 1Introduction to Contract Law - 1872(6 Hrs.)

Business law is a rule which helps us to regulate and manage our business transactions and activities system. It has direct relation with trade, industry and commerce. e.g. insurance act, contract act, tax act, sale of goods act, agency act etc.Business Law

The Indian Contract Act consists of the following two parts: Enacted byParliament of IndiaDate enacted25 April 1872Date commenced1 September 1872Total sections238 Extent All States of India except the State of Jammu & KashmirINDIAN CONTRACT ACT, 1872

What is a Contract? An agreement which is legally enforceable alone is a contract. Agreements which are not legally enforceable are not contracts but remain as void agreements which are not enforceable at all or as voidable agreements which are enforceable by only one of the parties to the agreement.

All contracts are agreements, But all agreements are not contracts.

OFFER/PROPOSALACCEPTANCEPROMISE

Offer/Proposal sec 2(a) - When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other person either to such act or abstinence, he is said to make a proposal.

Acceptance sec 2(b) - When the person to whom the proposal is made, signifies his assent there to , the proposal is said to be accepted.

Promise sec 2(b) - A Proposal when accepted becomes a promise. In simple words, when an offer is accepted it becomes promise.

Promisor and promise sec 2(c) - When the proposal is accepted, the person making the proposal is called as promisor and the person accepting the proposal is called as promisee.

PROMISECONSIDERATION

AGREEMENT

Consideration sec 2(d) - When at the desire of the promisor, the promisee or any other person has done or abstained from doing something or does or abstains from doing something or promises to do or abstain from doing something, such act or abstinence or promise is called a consideration for the promise. Price paid by the one party for the promise of the other Technical word meaning QUID-PRO-QUO i.e. something in return.

Agreement sec 2(e) - Every promise and set of promises forming the consideration for each other.

Contract sec 2(h) - An agreement enforceable by Law is a contract.

As per Section 10 All agreements are contracts, if they are made by free consent of the parties, competent to contract, for a lawful consideration and with a lawful object, and not hereby expressly declared to be void .ESSENTIALS OF A VALID CONTRACT

ESSENTIAL ELEMENTS OF A VALID CONTRACT Offer and acceptance Legal relationship Consensus - ad-idem Free consent. Capacity or competency of parties Lawful object Lawful consideration Certainty and possibility of performance Agreements not declared to be void Legal formalities

Offer and Acceptance: In order to create a valid contract, there must be an agreement between two parties. An agreement involves a valid offer by one party and valid acceptance of the same by the other party. CASE: BOULTON (vs) JONES.CASE: HARVEY (vs) FACEY.Legal relationship: The parties must intend their agreement to result in legal relations. This means that the parties must intend that if one of them falls to perform his promise, he shall be answerable for that failure in law. Duties and rights should be legal and not merely moral. [an agreement of a purely domestic or social nature is not a contract ] CASE: WEEKS (vs) TYBALD - 1905CASE: BALFOUR (vs) BALFOUR - 1919

Consensus-ad-idem: The minds of both the parties must be ad-idem. In other words, the tow parties must have agreed about the subject matter of the contract at the same time and in the same sense.Free consent (Permission or Willingness): An agreement must have been made by free consent of the parties. consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.CASE: RANGANAYAKAMA (vs) ALWAR SETHI

Capacity : The parties to a contract must have capacity (legal ability) to make valid contract. Section 11:- of the Indian contract Act specify that every person is competent to contract provided. Is of the age of majority according to the Law which he is subject Who is of sound mind and Is not disqualified from contracting by any law to which he is subject.

Lawful object :The object of agreement should be lawful and legal. Consideration or object of an agreement is unlawful if it is forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law; or is fraudulent; or Involves or implies, injury to person or property of another; or Court regards it as immoral, or opposed to public policy.

Lawful consideration : All contracts must be supported by consideration. Consideration means something in return (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful.A consideration must not be unlawful, immoral or opposed to the public policy.Not expressly declared to be void Possibility of performanceNecessary legal formalities A contract may be oral or in writing

ELEMENTS OF A VALID CONTRACTCONSIDERATIONAGREEMENTREALITY OF CONSENTCAPACITYLEGALITYBARGAINED FORACCEPTANCELEGAL DETRIMENT/LAWFULOFFERSUBJECT MATTEROBJECTIVEnot validFRAUDMISREPRESENTATIONDURESSUNDUE INFLUENCEMUTUAL MISTAKE

not validINFANTSMENTALDRUNKARDSCORPORATIONS

WRITINGReview Legal relationshipTwo parties

TYPES OF CONTRACT

ON THE BASIS OF CREATIONExpress Contracts: Where the terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation, the contract is said to be express contract.

Implied Contracts: Implied contracts in contrast come into existence by implication. Most often the implication is by law and or by action.

Tacit Contracts: Tacit contracts are those that are inferred through the conduct of parties.

Quasi Contracts: A quasi contract is created by law. Thus, quasi contracts are strictly not contracts as there is no intention of parties to enter into a contract. It is legal obligation which is imposed on a party who is required to perform it

ON THE BASIS OF VALIDITYValid contract : An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law.

Void contract (2(j) : "A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable". Thus a void contract is one which cannot be enforced by a court of law. Under a mistake of facts [20] Consideration or object of an agreement is unlawful [23] Agreement made without consideration [25] Agreement in restrain of marriage [26] Restraint of trade [27] Restrain legal proceeding [28]. Agreement by wage of wager [30]

Voidable contract Section 2[i] : Defines that an agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contract. Result of coercion, undue influence, fraud and misrepresentation.

Unenforceable contract : Where a contract is good in substance but because of some technical defect cannot be enforced by law is called unenforceable contract. These contracts are neither void nor voidable.Example: Writing registration or stamping.

Illegal contract : Contracts those which are forbidden by law. All illegal contracts are hence void also, because of the illegality of their nature they cannot be enforced by any court of law. In fact even associated contracts cannot be enforced. Contracts which are opposed to public policy or immoral are also illegal.

All illegal agreements are void agreements but all void agreements are not illegal.

ON THE BASIS OF EXECUTION

. Executed contract : An executed contract is one in which both the parties have performed their respective obligation.

Executory contract : An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract.

ON THE BASIS OF LIABILITYUnilateral contract : A unilateral contract is one in which only one party has to perform his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence.

Bilateral contract : A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts are also known as contracts with executory consideration.

PROPOSAL & ACCEPTANCEA proposal or offer is an expression of willingness by one person to another to enter into an agreement on the terms stated by him with an intention to obtain the assent of the other.Features:At least two partiesPositive or NegativeIntention to create legal relationsMust be communicated

Types of OffersOn the basis of mode of making an Offer:Express OfferImplied OfferOn the basis of Offeres:Specific OfferGenaral OfferOn the basis of nature of Offer:Cross OfferCounter OfferStanding Offer

AcceptanceIt is the consent given by the promisee of the proposal and it has the effect of converting the proposal into promise.It is a communication of the intention to be bound by the terms of the offer.

Essentials/Rules of Valid Acceptance:Absolute/UnqualifiedExpress / ImpliedCommunicated to the OfferorPrescribed mannerGiven while offer is in forceMust be from competent personIt must not precede an offer

Capacity to Contract Capacity or competence means legal capacity of parties to enter into a contract . Section 11 declares the following persons to be incompetent to enter into a Contract:MinorsPersons of unsound mindPersons disqualified from contracting by any other law

FREE CONSENT Consent - when two or more persons are said to consent when they agree upon the same thing in the same sense. Free Consent- It is the consent given by the sweet will of the parties and not caused by any form of physical or mental force or any kind of mistake.

Acc. to section 14, consent is said to be free when:

Coercion (section 15)- The following acts or threats of a person with the intention of causing any person to enter into an agrement.Commiting any act forbidden by the I.P.C.Threatening to commit any act forbidden by the I.P.C.Threat to suicide Unlawful detaining to any propertyThreatening to unlawful detaining to any propertyUndue Influence(section 16)-When a dominant party misuses his influence to dominate the will of the weaker party, to get unfair advantage.

Contd...Fraud(section 17)- is the intentional misinterpretation or concealment of material facts of an agreement by a party to or by his agent with an intention to deceive and induce the other party to enter into an agreement.Misinterpretation (section 18)Mistake (section 20,21,22)

INDEMNITY It is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person.INDEMNIFIER: The party who promises to save the other from loss .INDEMNITY: The party who is promised to be saved or protected against loss .

CONTRACT OF GUARANTEE It is a contract to perform the promise or discharge the liability , of a third person in case of his default.

Essentials of a Contract of Guarantee:Three partiesThree contractsCapacity to contractConcurrenceConsiderationFree consent

KINDS OF GUARANTEEON THE BASIS OF PURPOSE:For payment of DebtFor PriceFor Honesty

2. ON THE BASIS OF TRANSACTION:Specific GuaranteeContinuing Guarantee

DISCHARGE OF SURETY FROM LIABILITY:By Revocation:NoticeDeathNovation of Contract

By Conduct of the Creditor:Variation in terms of the contractRelease or discharge of principal debtorLoss of security

By Invalidation of Guarantee:Guarantee obtained by misinterpretationFailure of consideration

BAILMENTBailment is the delivery of goods by one person to another for some purpose , upon a contract that they shall when the purpose is accomplished, be returned or otherwise disposed according to the directions of the person delivering them.Bailor- The person delivering the goodsBailee- The person to whom the goods are delivered under the contract of a bailment is a bailee.

ESSENTIALS OF BAILMENT:ContractGoodsDelivery of goodsPurposeReturn of goods

CLASSIFICATION OF BAILMENTON THE BASIS OF PURPOSE:For depositFor useFor pledgeFor repairFor carriage

ON THE BASIS OF BENEFIT:For bailee's sole benefitFor exclusive benefit of baileeFor mutual benefitForced / Quasi Bailment

ON THE BASIS OF REWARD:Gratuitous BailmentNon - Gratuitous Bailment

TERMINATION OF BAILMENT:Expiry of timeAccomplishment of purposeBreach of warrantyInconsisitent ActDeathDestruction of subject matter

RIGHTS / DUTIES OF BAILORDUTIES:Duty to deliver goodsTo disclose faults in the goodsTo repay expensesTo indemnify in case of premature terminationTo pay remuneration or charges to the bailee

RIGHTS:To claim damagesTo avoid the contractTo require return of goodsTo claim compensation for unauthorized useTo enforce the rightsTo claim increase or profit from the goods

RIGHTS / DUTIES OF BAILEE

RIGHTS:To claim damagesTo claim necessary expnsesRight to be indemnifiedTo deliver goodsTo return goodsTo sue against wrong doers

DUTIES

To take care of the goods bailedTo indemnify in case of negligenceNot to do any act inconsistent with the conditionsNot to make unathorized use of goodsNot to mix the goods with other goods

LIENIt is a right of a person to retain the posession of goods belonging to another until certain demands or claims of the person in posession are satisfied.

AGENCYAn agency is the relation between an agent and his principal created by an express or implied agreement whereby an agent is authorized by his principal to represent him and establish contractual relations with third parties.