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Amity School of Business: Bba, Iii Semester Business Law Maninder Jeet and Nidhi Gupta
Amity School of Business: Bba, Iii Semester Business Law Maninder Jeet and Nidhi Gupta
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WHAT IS A CONTRACT?
Section 2(h)-An agreement enforceable by law is a contract. Thus for the formation of a contract there must be an agreement the agreement should be enforceable by law
The definition of Contract u/s2(h) emphasis an agreement Consensus-ad-idem Rights & duties enforceable by law Exceptions social & domestic Agreements Contract = Agreement + Enforceability at Law All contracts are agreements but all agreements are not contracts
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ESSENTIAL ELEMENTS OF A VALID CONRACT 1. 2. 3. 4. 5. 6. 7. 8. Offer and its acceptance Free consent of both parties Mutual and lawful consideration for agreement It should be enforceable by law- intention should be to create legal relationship. Parties should be competent to contract Object should be lawful Certainty and possibility of performance Contract should not have been declared as void under Contract Act or any other law
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CLASSIFICATION OF CONTRACT Contracts may be classified according to their I. Validity. II. Formation. III. Performance.
I. a. b. c. d.
ContdII. a. b. III. a. b. c. d. According to formation: Express contract. Implied contract. According to performance: Executed contract. Executory contract. Unilateral contract. Bilateral contract
Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. An offer is an indication by one person ("offerer") to another ("offeree") of the offerer's willingness to contract on certain terms without further negotiations. A contract is then formed if there is express or implied agreement. A contract is said to come into existence when acceptance of an offer has been communicated to the offerer by the offeree. For the formation of a contract the process of proposal or offer by one party and the acceptance thereof by the other is necessary. This generally involves the process of negotiation where the parties apply their minds make offer and acceptance and create a contract. When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal or offer.
Rules of Offer
Offer must create legal relationship. Offer must be definite & certain. Offer must be communicated. Offer must be made with a view to obtaining the assent. Offer should not contain a term the noncompliance of which may be assumed to amount to acceptance. A statement of price is not an offer.
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Acceptance
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Rules of acceptance
It must be absolute and unqualified. The acceptance must be communicated. Carlill v. Carbolic Smoke Ball Co An offer can only be accepted by the offeree, that is, the person to whom the offer is made. An offeree is not bound if another person accepts the offer on his behalf without his authorization. It must be according to the mode prescribed and must be given within a reasonable time. Silence cannot be construed as acceptance. Felthouse v. Bindley
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A person who is of the age of majority according to the law to which he is subject is of sound mind ? A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests. is not disqualified from contracting by any law to which he is subject is competent to contract. Therefore a minor is not competent to contract and an agreement by a minor is void ab initio. He can not ratify an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time had any legal validity). The following persons are therefore incompetent to contract Minors Persons of unsound mind Persons disqualified by law to which they are subject
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An agreement with or by a minor is void Can be a promissee or a beneficiary NO ratification of agreement on the age of majority There can be no claim for compensation from a minor Minor can always plead minority Liability - for necessities, the item contracted for must be necessary for minors existence, the value must be up to that of the current standard of living or financial/social status (not excessive in value), -for tort or a civil wrong. Can act as a agent Cannot be a partner in a firm or adjudged insolvent
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The extent of an artificial person's capacity depends on the law of the place of incorporation and the enabling provisions included in the constitutive documents of incorporation. The general rule is that anything not included in the corporation's capacity is unenforceable by the corporation, but the rights and interests of innocent third parties dealing with the corporations are usually protected.
When a business entity becomes insolvent, an administrator, receiver, or other similar legal functionary may be appointed to determine whether the entity shall continue to trade or be sold so that the creditors may receive all or a proportion of the money owing to them. During this time, the capacity of the entity is limited so that its liabilities are not increased unreasonably and to the detriment of the existing creditors.
Insolvency
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Consideration
Consideration is a central concept in the Indian contract act: It is value paid for a promise or the inducement, price or motive that causes a party to enter into an agreement or contract. Consideration is needed for a valid contract. An example; If you sign a contract with a man, agreeing to buy his car for an amount of money, his consideration is the car, which he promises to give to you. Your consideration is the money that you pay for the car. However, a contract saying that he would give you his car for nothing would not be valid per se, because you aren't giving him any consideration.
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LAWFUL OBJECT
Object or consideration is unlawful if (1) It is forbidden by law, (2) Is of such a nature if permitted it would defeat the provisions of any law, (3) It is fraudulent, (4) The court regards it immoral, (5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.
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Void agreements
Void agreements - An agreement not enforceable by law is said to be void. [section 2(g)]. - - Note that it is not void contract, as an agreement which is not enforceable by law does not become contract at all. Following are void agreements . Agreement by incompetent party (section 11) Both parties under mistake of fact (section 20) Unlawful object or consideration (section 24) Agreement without consideration (section 25) Agreement in restraint of marriage (section 26) Agreement in restraint of trade (section 27) Agreement in restraint of legal proceedings (section 28) Uncertain agreement (section 29) Wagering agreement (section 30) Agreement to do an impossible Act (section 56).
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Tender of performance. Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for nonperformance, nor does he thereby lose his rights under the contract.
Effect of refusal of party to perform promise wholly. When a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct.
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If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contain in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representative may employ a competent person to perform it.
Effect of accepting performance from this person When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. Devolution of joint liabilities Sec. 42-44 When two or more person have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor the representatives of all jointly, must fulfill the promise.
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Discharge of contract
BY PERFORMANCE BY MUTUAL CONSENT LAPSE OF TIME OPERATION OF LAW IMPOSSIBILITY OF PERFORMANCE BREACH OF CONTRACT
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BREACH OF CONTRACT
The parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the Act, or any other law. Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract. In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. Non-performance of the duty undertaken by a party in a contract amounts to breach of contract, for which he can be made liable.
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REMEDIES
When a party to the contract makes a breach of contract, there are five possible alternatives available to the other party.
Rescind the contract Sue for damages Specific performance Quantum meruit Injunction
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DAMAGES: Types of damages/compensation areOrdinary- includes direct loss incurred by the party. Special- Damages under special circumstances or indirect loss Exemplary- Are a kind of punishment as in case of cheque dishonour Nominal- Very small in amount given only to recognise the right of party. SPECIFIC PERFORMANCE Specific performance means actual execution of the contract as agreed between the parties. When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or When the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.
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