JuRa’Z -Enhance Your Commerce Skills With Us

BUSINESS REGULATIONS
Notes
The Indian Contract Act 1872

The law relating to contracts in India are contained in the Indian

contract Act, which came into force on the first day of September
1872. The act was moulded on the basis of the principles of contracts
established by English courts of common law and equity.

Definition of Contract

Section 2(h) of the Indian contract Act defines the term contract as
follows:
" An agreement which is enforceable by law is contract"

Contract= agreement+ enforceability of law

Expected Essay: 1

ELEMENTS OF A CONTRACT
1. Agreement

There must be an agreement between the parties of a contract. An

agreement involves a valid offer by one party and a valid acceptance
by the other party. Therefore an agreement = offer + acceptance.

2. Consensus ad idem :
The parties to a contract must agree upon the subject matter of the
contract in the same manner and in the same sense.In other
words,there must be identity of minds among the parties regarding
the subject matter of the contract.

3. Capacity of parties:

There must be at least two parties to every contract. These parties

must have legal capacity to enter into a contract. Every person who
is a major and possesses sound mind is competent to enter into a
contract.

4. Free consent

For the formation of a contract one person must give his consent to
another person. The consent thus obtained must be a free consent. A
consent is said to be free if it is not caused by coercion, undue
influence. fraud, misrepresentation or mistake.

5. Consideration

Consideration is the most important element in a contract.

Consideration means something in return. In every contract each
agreement must be supported by consideration, when one party
agrees to give something (or to give up something) he must be
benefited by the other party. This concept of benefit is called
consideration.

6. Lawful object:

The object of an agreement must be lawful. It must not be illegal or

immoral or opposed to public policy. When the object of a contract is
not lawful, the contract is void.
7. Not declared to be void:

The agreement might not have been expressly declared void by any
law in force in the country. In such cases the agreements cannot be
enforced.

8. Certainty and possibility of performance:

The term of the contract should be certain and precise. They should
not be vague and they should not create any confusion in the minds
of the parties. Similarly the terms of agreement must be capable of
performance. An agreement to do an act which is impossible in itself
cannot be enforced.

9. An intention to create legal relationship:

There should be an intention between the parties to create a legal

relationship. Otherwise there cannot be binding agreement between
them. The agreement should create a legal obligation.

Expected Essay: 2

Classification of Contract:
A) According to validity
Contracts may be classified according to its merits of validity or
enforceability as:

1) Valid contracts
An agreement enforceable at law is a valid contract.

2) Void contracts
A contract coming out from a void agreement is a void contract.
3) Voidable contract
An agreement which is enforceable by law at the opinion of one or
more of the parties there to, but not at the opinion of other or
others is a voidable contract.

4) Unenforceable contract
An unenforceable contract is one which cannot be enforced in a
court of law because of some technical defects such as absence of
writing, time barred, want of stamp etc.

5) Illegal contract
An illegal agreement is one which is criminal in nature or which is
immoral or which is against public policy. This is also known as
unlawful contracts.

B) According to formation

Contracts are classified according to formation as follows:

1) Express contract
These are the contracts, which are entered into between the parties,
by words spoken or written.

2)Implied contract
Contracts which come into being on account of the act or conduct of
the parties and not by their express words, written or spoken are
known as implied contract.

3) Quasi contract
A quasi contract is not a contract at all. It is created by law. That is, in
a quasi contract, there is no intention on either side to make
contract. It is also known as constructive contract.

C) According to performance
On the basis of performance contracts are divided into

1) Executed contracts
If both parties of a contract have performed their respective
obligation, contract is known as executed contracts.

2) Executory contracts
An executory contract is one which both the parties have not yet
performed their obligations either wholly or in which there remains
something to be done on the both sides.

Unilateral contract

A unilateral contract is one which only one party has to fulfil 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 contract comes into existence.

Bilateral contract

A bilateral contract is one which the obligation on the part of both

the parties to the contracts are outstanding at the time of the
contract.

Expected Essay: 3

DISCHARGE OF CONTRACT

Discharge of Contract
Discharge of contract means termination of contractual relationship
between the parties.
When a contract is discharged, all the rights and liabilities of the
contracting parties are extinguished and their relationship comes to
an end.

Various Modes of Discharge

A contract may be discharged in the following ways:
1- By performance of contract
2- By agreement
3- By lapse of time
4- By operation of law
5- By impossibility of performance
6- By committing breach of contract

1- Discharge by performance of contract

When the parties to a contract fulfil their obligations arising under
the contract within the time, and in the manner prescribed, it is
known as discharge by performance.

As per Section 31 of the Contract Act, performance may be classified

as
a) Actual Performance
A party to a contract is said to have actually performed his
promise when he has done what he had undertaken to do.
b) Attempted Performance
 Where a promiser has made an offer of performance to the
promise, and the offer has not been accepted by the promise, it is
called an attempted as tender.

2- Discharge by agreement
As a contract is created by an agreement between two parties, hence
it can be discharged or terminated by mutual agreement or consent
of the parties concerned.
They are as under:
a) Novation
b) Recission
c) Alteration
d) Remission
e) Waiver
f) Merger

a) Novation
The substitution of a new contract in the place of the original
contract is called novation. The new contract discharges the original
contract.
b) Alteration
Alteration means a change in one or more of the terms of contract.
By such alteration the contract is discharged.
c) Recission
Recission means cancellation of the contract. In that case original
contract need not e performed.
d) Remission
Remission means acceptance of a lesser performance than what was
actually due under the contract.
e) Waiver
Waiver means a deliberate abandonment or giving up of a right
which a party is entitled to under a contract, where upon the other
party to the contract released from his obligation.
f) Merger
Merger means merger of two or more rights into one contract. In
such a case, the inferior rights automatically stands discharged.
and liabilities of the contract.
3- By lapse of time
Every contract must be performed within a specified period and it is
called period of limitation. If the contract not performed and the
promisee fails to take any action within the period of limitation, then
the contract is discharged by lapse of time.

4- By operation of Law
A contract is discharged by operation of law in the following cases:

a) Death
A contract which is based upon personal skill and qualification of the
promisor is terminated on the death of the promisor.
b) Insolvency
If a person adjudicated insolvent by a competent court, all his rights
and liabilities are vested with the official receiver and the insolvent is
discharged from all his rights and liabilities of the contract.
c) Material Alteration
If any party makes any material alteration in the terms of the
contract without the approval of the other party, the contract comes
to an end.

d) Merger:
Where an inferior right accruing to a party in a contract merges into
the superior rights accruing to the same party, the earlier contract is
discharged.

5- Discharge by Impossibility of Performance

A contract will be discharged when the performance of contract
becomes impossible. The effects of impossibility of performance may
be of the two types, namely,

a) Initial impossibility: When the impossibility exists at the time of

contract, it is known as initial impossibility. Such impossibility is only
physical impossibility and not a legal impossibility.

Initial impossibility is of following two types:

i) Known impossibility: It is an impossibility which is known to the
parties at the time of making the contract.

ii) Unknown impossibility: It is an impossibility which is not known to

any of the party at the time of making the agreement.

b) Subsequent or supervening impossibility: Supervening

impossibility means impossibility which does not exist at the time of
making the contract but which arises subsequently after the
formation of the contract and which makes the performance of the
contract impossible or illegal.
Doctrine of Frustration:
The concept of supervening impossibilities is known as ‘ doctrine of
frustration’ in the English Law. As the performance of an agreement
becomes impossible or unlawful after its making due to some event,
which is beyond the control of the parties is known as the doctrine of
supervening or subsequent impossibility.

Cases of Supervening or Subsequent impossibility or Frustration

A contract is discharged by supervening impossibility in the following

cases:
a) Destruction of subject matter of contract: If the subject matter of
a contract, subsequent to its formation is destroyed without any
fault of the parties to the contract, the contract is discharged.

b) Death or personal incapacity of the party: A promise requiring

personal skill and ability may become physically incapable of
performance by reason of the death or incapacity of the same
person. Such impossibility discharges the promisor from liability.

c) Change of Law: Contract which was lawful at the time of its

making, but became unlawful later by reason of change in law,
becomes impossible of performance.

d) Declaration of war: When a war is declared after the formation of

a contract, all pending contracts with the residents of enemy country
remains suspended. Such contract may be revived and may be
enforced after the end of the war, at the option of the government.

6- Discharge by Breach of Contract

A contract is said to be discharged by breach of contract if any party

to the contract refuses or fails to perform his part of the contract or
by his act makes it impossible to perform his obligation under the
contract. Breach of contract is of two kinds, namely,

a) Anticipatory breach of contract: When a party to a contract

refuses to perform his part of the contract, before the due date of
performance, it is known as anticipatory or constructive breach
of contract.

b) Actual breach of contract: Actual breach of contract occurs in the

following two ways:
(i) On due date of performance: If a party to a contract fails to
perform his obligation at the specified time, he is liable for its
breach.

(ii) During the course of performance: If during performance of a

contract, a party to it either fails or refuses to perform his obligation,
there is said to be actual breach during performance

Bailment
Bailment means delivery of goods in trust to another for a special
purpose and for limited period.
Essentials / characteristics of bailment
1. Return of goods.
2. Movable goods.
3. No transfer of ownership.
4. Delivery of possession goods.
5. Delivery of goods must be some purpose.
Bailor
The person delivering the goods is called bailor.
Duties of bailor
1. To bear risk.
2. To bear ordinary expenses.
3. To bear extra ordinary expenses.
4. To receive back goods.
5. To indemnify bailee.
Rights of bailor
1. Right to claim damages.
2. Right to file suit.
3. Right to demand return.
4. Right to terminate bailment.
Bailee
The person to whom they are delivered is called the bailee .
Duties of bailee
1. To take reasonable care of the goods.
2. To return the goods.
3. Not mix goods with own goods.
4. No to set up adverse setup.
Rights of bailee
1. Right of lien.
2.Right of claim compensation.
3.Right to interplead.
4. Right to action against third party.
5. Right to enforce bailors’ duty.
Pledge
Pledge is a special type of bailment. In this case goods are delivered
on as a security for a loan.
Pawnor/ pledger
The person who delivers the goods as security for a debt.
Duties of Pawnor
1. Duty to repay loan.
2. Duty to pay expenses in case default.
Right of Pawnor
1. Right to receive increase.
2. Protection as an ordinary debtor.
3. Defaulting pawnor’s right to redeem.
Pawnee/ pledgee
The person to whom the goods are delivered as a security for
payment.
Duties of Pawnee
1. To take reasonable care of goods.
2. To return goods.
3. Not to make unauthorized use.
4. Not to return accretion to the goods.
Rights of Pawnee
1. Right of retainer.
2. Right to extra ordinary expenses.
3. Right in case of any default.
 Difference between bailment and pledge
Basis of distinction Bailment
1. Purpose The bailment can be made
for any purpose.
2. Right to use Bailee can use thew goods
pledged as per terms of
bailment.
3. Right to sell Bailee can either retain
the goods or sue the
bailor for his dues, but he
cannot sell it.
4. Right to property Bailee gets only the
possession of the goods
bailed.
5. Consideration It may or may not exit in
the bailment.
Pledge
The pledge is made for
specific purpose.
Pawnee cannot use the
goods pledged.
Pawnee can sell the
goods pledged after
giving notice to the
pawnor in case of
default by the pawnor.
Pawnee acquires a
special property in the
goods pledged.
In pledge, there is
always consideration.

Consumer
Consumer is a person who purchases goods and services for personal
use for a consideration has been paid.
Rights of consumers
1. Right to be protected.
2. Right to be informed.
3. Right to choose.
4. Right to be heard.
5. Right to consumer education.
6. Right to seek redressal.
7. Right to basic needs.
Consumer protection council
The consumer protection council established at
Central level
State level
District level
Consumer dispute redressal agencies
Consumer dispute redressal agencies have been established at three
different levels
1. District forum
2. State commission
3. National commission
Unfair trade practices
It means any business practices that is deceptive, fraudulent or
causes injury to a consumer.
Restrictive trade practices
RTPs means deceitful or misleading representation of goods and
services.
Compliant
Complaint means a statement that something is unsatisfactory or
unacceptable. It simply means a written allegation.
Agent
A person employed to do any act for another is called agent.
Agency
The relationship between agent and principle is called agency.
Duties of agent
1. Duty to render proper records.
2. Duty to communicate with principal
3. Duty to pay sum received
4. Not to delegate authority
5. Duty to protect and preserve interest
6. Duty to pass information to principal
Rights of an Agent
1. Right to receive Remuneration
2. Right of lein
3. Right to compensation
4. Right of retainer
5 Right to indemnification
Essentials of contract of agency
1. Existence of agreement
2. Competency of the principal
3 Any person may become an agent
4 No consideration is required
Termination of an agency
1) Termination by act of parties
a)By mutual agreement
b)By revocation of authority
c)By renunciation
2) Termination by operation of law
a)Expiry of time
b)Death of an agent or principal
c)Insanity of an agent or principal
d)Insolvency
e)Dissolution
Sub agent
A sub agent is a person who is employed by the original agent and
who act under the control of the original agent.
Substituted agent
A substituted agent is a person who named by the original agent on
the basis of express or implied authority from the principal.

For More details, please watch below link:

https://youtu.be/r-utv7erjgc
https://youtu.be/JM-bJ08uLBg
https://youtu.be/zhMS-lw4wew
https://youtu.be/NMIKBNzlRUE
https://youtu.be/rnH0v3beVic

Prepared by: Rahul Murali

Jubair Majeed