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MB 0051

MB 0051

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Published by Sneha Jena

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Categories:Types, Business/Law
Published by: Sneha Jena on Mar 01, 2013
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Master of Business Administration - Semester 3
MB 0051: “Legal Aspects of Business
(4 credits)
(Book ID: B1207)
1. “All agreements are not contracts, but all contracts are agreements”. Comment.
A contract is an agreement, enforceable by law, made between at least two parties by whichrights are acquired by one and obligations are created on the part of another. If the party,which had agreed to do something, fails to do that, then the other party has a remedy.
Airlines sells a ticket on 1 January to
for the journey from Mumbai toBangalore on 10 January. The Airlines is under an obligation to take
from Mumbai toBangalore on 10 January. In case the Airlines fails to fulfil its promise,
has a remedy againstit.Thus,
has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January.A corresponding duty is imposed on the Airlines. As there is a breach of promise by thepromisor (the Airlines), the other party to the contract (i.e.,
) has a legal remedy.
(e) defines an agreement as “every promise and every set of promises formingconsideration for each other”. In this context, the word ‘promise’ is defined by Sec.2
(b). In acontract there are at least two parties. One of them makes a proposal (or an offer) to theother, to do something, with a view to obtaining the assent of that other to such act. Whenthe person to whom the proposal is made signifies his assent thereto, the proposal is said tobe accepted. A proposal, when accepted becomes a promise (Sec.2 (b)).
Enforceability by law:
The agreement must be such which is enforceable by law so as tobecome a contract. Thus, there are certain agreements which do not become contracts asthis element of enforceability by law is absent.
Essentials of a contract
Sec.10 provides that all agreements are contracts, if they are made by free consent of parties, competent to contract, for a lawful consideration, and with a lawful object, and arenot expressly declared by law to be void. To constitute a contract, there must be anagreement between two or more than two parties. No one can enter into a contract withhimself. An agreement is composed of two elements
offer or proposal by one party andacceptance thereof by the other party.
Effect of absence of one or more essential elements of a valid contract:
If one or moreessentials of a valid contract are missing, then the contract may be either voidable, void,illegal or unenforceable.
Classification of contracts
 Contracts may be classified as follows:
Classification of contracts according to formation:
A contract may be (a) Made in writing (b)By words spoken and (c) Inferred from the conduct of the parties or the circumstances of thecase.
Formal and informal contracts:
This is another way of classifying contracts on the basis of their formation. A formal contract is one to which the law gives special effect because of theformalities or the special language used in creating it. The best example of formal contractsis negotiable instruments, such as cheques. Informal contracts are those for which the lawdoes not require a particular set of formalities or special language.
Classification according to validity:
Contracts may be classified according to their validity as(i) Valid, (ii) Voidable, (iii) Void, (iv) Unenforceable.A contract to constitute a valid contract must have all the essential elements discussedearlier. If one or more of these elements are missing, the contract is either voidable, void,illegal or unenforceable. As per Sec.2 (i) A voidable contract is one which may be repudiated(i.e., avoided) at the will of one or more of the parties, but not by others.A valid and true statement. Before we can critically examine the statement, it is necessary tounderstand the meaning of agreement and contract. According to section 2(a) "everypromise on every set of promises forming the consideration for each other an agreement.It is fact an agreement is a proposal and its acceptance, by which two or more person orparties promises to do abstain from doing an act. But a contract according to section 2(h) of the Indian Contract Act, "An agreement enforceable by law is a contract. It is clear thesedefinitions that the three elements of a contract are(a) Agreement Contractual Obligation(b) Enforceability by Law.For Example: X invites his friend to tea and the latter accepts the invitation. This is a socialagreement not a contract because it does not imply any legal obligation.We can say that (a) All contracts are agreements, (b) But all agreements are not contracts.
(A) All Contracts are Agreements
For a Contract to be there an agreement is essential; without an agreement, there can be nocontract. As the saying goes, "where there is smoke, there is fire; for without fire, there canbe no smoke". It could will be said, "Where there is contract, there is agreement without anagreement there can be no contract". Just as a fire gives birth to smoke, in the same way, anagreement gives birth to a contract.
Another essential element of a contract is the legal obligation for the parties to the contract,there are many agreements that do not entail any legal obligations. As such, theseagreements cannot be called contracts.
For Example:
A gives his car to B for repair and B asks for Rs. 200 for the repair works. A agrees to pay theprice and B agrees to repair the car. The agreement imposes an obligation on both. The thirdelement of a contract is that the agreement must be enforceable by Law. If one party fails tokeep his promise, the other has the right to go the court and force the defaulter to keep hispromises. There are other elements are:1. Offer and acceptance,2. Legal obligation,3. Lawful consideration,4. Valid object,5. Agreement not being declared void by Law,6. Free consent,7. Agreement being written and registered,8. Capacity to contract,9. Possibility of performance from what has been discussed. It is clear that all contracts areagreements.All Agreements are not Contracts:An agreement is termed a contract only when it is enforceable by law. All agreements arenot necessarily legally enforceable. It can rightly be said that an agreement has a muchwider scope than a contract. For example that agreements are not legally binding are aninvitation to dinner or to go for a walk and its acceptance. These are agreements notcontracts.An agreement does not necessarily imply a legal obligation on the parties to the agreement.It is import here to clarify what exactly is an obligation. Obligation is a legal tie whichimposes upon a person or persons the necessity of doing or abstaining from doing definiteact or acts.An agreement need not necessarily be within the framework of law and be legallyenforceable. If it is, then it is a contract. A promises B to do physical harm to C whom, thelatter does not like and B promises to pay A Rs. 1000 to do that, it cannot be termed as acontract because such an act would be against the law. Any agreement of which the objector consideration is unlawful is void and cannot be called a contract.It would be clear from what has been said so far that an agreement has a much wider scopethan a contract. An Agreement implies fulfilling some agreed condition. It does notnecessarily imply that the stipulated conditions conform to the law and are enforceable by

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