Business Law

CA&CMA
Foundation

“Fahad’s Classes”
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 Foundation- Law
CA V/S CMA

TOPIC CA CMA

CONTRACT ACT 1872 15 - 21 (18) 40 MARKS

SALE OF GOODS ACT 1930 12 - 15 (14) 20 MARKS

PARTNERSHIP ACT 1932 12 - 15 (14) -

LLP ACT 2008 3 - 6 (4) -

NEGOTIABLE INSTRUMENT ACT

- 10 MARKS
1881
COMPANIES ACT 2013 9 - 12 (10) -
ETHICS - 30 MARKS
BUSINESS ENGLISH 40 MARKS -
TOTAL MARKS 100 Marks 100 Marks

 CONTRACT ACT
1872
INDIAN CONTRACT ACT 1872

“Fahad’s Classes”
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 Introduction
It came in to force on 1st September
1872

Total 266 sections in this Act

This act is based on English Common

Law

It is applicable to whole of India

(370 article has been removed)

All agreements are not studied

under ICA 1872 but only those
agreements which are enforceable by
law are contracts.
Partnership Act 1932 & Sale of goods
Act 1930 were portion of ICA 1872
then it was separated for the best
Implementation of law

Important Terms & Definitions

Sections Terms & Definition

2(a) Proposal

2(b) Promise

2(c) Promisor &Promisee

2(d) Consideration

2(e) Agreement

2(f) Reciprocal Promise

2(g) Void agreement

2(h) Contract

2(i) Voidable Contract

2(j) Void Contract

 What is proposal ?

Proposal means Offer

Offeror = The person who make offer

Offeree = To whom the offer is made
 “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 to such act or abstinence, he is
said to make a proposal”

Section 2 (a)

• Signifies to another the willing to do or to abstain from doing

• With a view to obtain assent from offeree

 Promise
Section 2(b)

When the offer accepted , it becomes

promise

Promise = Accepted Proposal

Promise = offer + Acceptance
 Promisor &
Promisee
Section 2(c)

Promisor - The offeror is called as

promisor when the offer accepted

Promisee - The offeree is called so

when the offer accepted
 What is
consideration ?
Something in return
“Quid Pro quo”
 –Section 2(d)
“When a promisee has done or not
done at the desire of promisor such
act or abstinence or promise is
called as Consideration.”
 What is
Agreement ?
Agreement = Proposal+Acceptance
(Accepted Proposal)

Agreement = Promise + Consideration

 –Section 2(e)
“Every Promise and every set of
promises forming consideration for
each other is called as Agreement.”

Agreement = Promise
Agreement = promise + consideration

 Section 2(f)

Reciprocal promise
A promise with the consideration is
called as reciprocal promise
Promises which form the consideration
or part of the consideration for each
other are called reciprocal promises.
Reciprocal promises requires both the
parties to the agreement to do
something.
What is Void
agreement
 –Section 2(g)

“An agreement which can not be

enforceable by law”
What is Contract
 –Section 2(h)

“An agreement which can be

enforceable by Law.”
 Contract
=
Agreement + enforceability

 What is voidable
Contract
It can be enforceable by one party but
not by other party
 –Section 2(i)
“An agreement which is enforceable
by law at the option of one or more
of the parties thereto, but not at the
option of the other or others, is a
voidable contract.”
 1.Fraud
2.Misrepresentation
3.Coercion
4.Undue influence

 Section 2( j)

Void Contract
The contract becomes void when it
ceases to be enforceable by law
Difference between void agreement &
void contract
 “The major difference is that the
void agreement is void since it has
been created but void contract will
be valid at the formation .”
Agreement v/s
Contract
All agreements are not contract but all
contracts are agreement
Essential elements
of Valid Contract
 As given by Section 10 of Not given by Section 10 but
Indian Contract Act, 1872 are also considered essential

1.Agreement
1. Two Parties
2.Free consent
2. Intention to create legal
3.Parties are competent relationship

4.Lawful consideration 3.Fulfilment of legal

formalities
5. Lawful object
4.Certainty
6.Not expressly declared to be
void 5. Possibility of performance

If a contact is said to be a valid

contract
It should contain the following
elements

 Free Consent

F Agreement
A
Lawful consideration
L
L Lawful object

Parties are Competent

P
L Legal relationship
A Agreement expressly not declared void
C
Certainty & capacity to perform
E
Enforceability

 Free consent
Section - 14
Consus-ad-idum

Agree upon a same thing in same sense

If a consent is said to be free consent,

there should not be the following
elements

1.Fraud
2.Misrepresentation
3.Coercion
4.Undue influence
5.Mistake

 Agreement must be
Valid

Valid agreement = valid offer + valid

acceptance

Valid agreement = valid promise

 2 COW

Essential elements of a valid offer

2- There must be two parties

Offeror & offeree
C - communication must be done
from offeror to offeree
O - obtain assent from offeree
( with a view to obtain assent
from offeree )
W - willingness to make the offer
 Types of offers

GENERAL OFFER

SPECIFIC OFFER

STANDING OFFER

CROSS OFFER

COUNTER OFFER

“INVITATION TO THE OFFER”

 Legal Rules of Valid offer

CODE C
C - Cross offer does not
conclude a valid offer
O - Offer may be invitation to the
offer or is different from
original offer
D - Definite and not vague
E - Express/implied
C - Create legal relationship

 The Reasons for Lapse of an offer

R Revocation - call off

T Time limit
I Insanity of Contracting Party
In case of personal skill.

C Counter Offer
U Usual Mode of acceptance (If not so)

P Precedent Condition

 Communication of offer &

acceptance

Communication by letter
Anandhu - offeror
Beeran- offeree

A sent an offer to B by letter, the

communication of offer is complete
when it comes to the knowledge of B
(Communication of offer)
 Revocation of offer

Revocation of offer will be valid only when the

letter of revocation received by offeree before
the communication of acceptance is complete
Communication of
acceptance
 The communication of acceptance is
complete when the letter of acceptance
posted in to the post box

“In the point view of offeror”.

When the acceptance comes to the
knowledge of Offeror

The communication of acceptance is

complete

“In the point view of offeree"

 Revocation of acceptance

The revocation of acceptance will be

valid only when the communication of
revocation is done before the
communication of acceptance is
complete
 The Acceptance is said to be valid
acceptance

Legal Rules
S Silence doesn’t amount to acceptance
E Express/implied
T Time limit

C Communication must be done to the offeror

A Absolute
M Mode of acceptance

 CONSIDERATION

SOMETHING IN RETURN

“QUID PRO QUO”

CONSIDERATION MUST BE LAWFUL AND

VALID
LEGAL RULES OF VALID CONSIDERATION

“PARLE”
1.PAST, PRESENT & FUTURE
Consideration may be past present
&future
2.Consideration no need to be
adequate
3.Real but not illusory
4.Lawful
5.Ends with promisor but starts from promisee
at the desire of promisor
 Lawful Object

The objects of parties in contract must

be lawful otherwise the contract will be
void
 Parties are competent

Who can enter in to the contract?

Major

A person of sound mind

Person not disqualified by law

 MAP
Who can NOT enter in to the contract?

MINOR A CONTRACT WITH MINOR IS VOID AB INITIO

A PERSON OF UNSOUND MIND
LUNATIC IDIOT DRUNKARD

PERSON DISQUALIFIED BY LAW

Insolvent
Foreign ambassador (sovereign)
Convict
Statutory body
Alien Enemy

 Legal Relationship

Balfour v/s Balfaour

The agreement will be valid when it is created

with legal relationship

“Social or domestic type of agreements are

not enforceable in court of law and hence
they do not result into contracts”



Agreement expressly not declared to be void

Section 25 to 30
25- An agreement with out consideration
26- An agreement in restraint of marriage
27- An agreement in restraint of trade / profession

28- An agreement in restraint of legal proceedings

29- uncertainty

30- wagering agreement

Certainty/ capable of performance

The means of agreement must be

certain and which is capable to
perform
 Enforceability

If an agreement is said to be
enforceable , it should be written and
registered

Writing & Registration

“TYPES OF CONTRACTS”

Based on Validity

Based on performance

Based on formation
 Based on Validity/Enforceability

1.Valid Contract
2.Void contract
3.Voidable contract
4.Illegal contracts/agreements
5.Unenforceable contract

A contract which can not be enforceable due to technical defects or

clerical mistakes

Unenforceable contract can be enforceable when the technical defects

removed

 Based on performance

Executed contract Executory contract

When the contract or
When the contract or agreement is
agreement is not complete
complete

Unilateral Contract Bilateral Contract

 Based on formation

1.Express Contract
2.Implied Contract
3.Quasi contract
4.E- Contract

• These contracts are created by law but not by the parties

• Section 68 to 72 deal with Quasi Contracts
• There is no need of consent by parties

 Consideration Unit -2

1.Definition
2.Legal rules of valid consideration

3.Ex-nudo pacto non oritur action

4.Doctrine of privity of Contract

 1.Definition
2 (d)
“When a promisee has done or not
done at the desire of promisor such
act or abstinence or promise is
called as Consideration.”

Something in return
Quid pro quo
2.Legal Rules of Valid Consideration

1.consideration may be past , present &

Future
2.No need to be Adequate
3.Real but not illusory
4.Lawful
5.Ends with promisor and starts from
promisee at the desire of promiser

 Types of Consideration

Executed Executory
Consideration Consideration

Present & Future

Past Consideration
Consideration
 3. Ex-nudo pacto non oritur action

An agreement without consideration is void

Section - 25

No consideration No Contract
 Section - 25
“No consideration No Contract”
Exception to this Rule
1.Natural Love & affection
2.Complete Gift
3.Charity
4.Compensation
5.Time Barred debt
6.Formation of Agency
7.Bailment (section 148)

Valid even without the Consideration

 Natural Love & affection

Conditions

1. It must be made out of natural love and affection

between the parties

2. Parties must stand in near relationship to each other

(e.g., husband and wife)

3. It must be in writing

4. It must also be registered under the law

 -Example-

“A husband, by a registered agreement

promised to pay his earnings to his wife.
Held the agreement though without
consideration, was valid “



 Complete Gift

• The rule no consideration no contract

does not apply

•Gifts do not require any consideration




Major Difference between Natural love & Affection and

Complete gift

Natural Love & Affection Complete Gift

It must be written It may be written or oral

No need to be registered
It must also be registered
but create legal
under the law
relationship

Parties must stand in No need of near

near relationship relationship


 4.Doctrine of privity of Contract

“stranger to a contract cannot sue is

known as a “doctrine of privity of
contract”

“Only a person who is party to a

contract can sue on it”
Exceptions to this rule

Even a stranger to a contract may enforce a claim in the following

cases:

•In case of trust

•In case of family settlement
•In case of certain marriage contract
•In case of assignment of contract
•In case of acknowledgement of liability or estoppal
•In case of agency

Other Essential elements of Valid Contract

Unit -3

1.Capacity to Contract

2.Free Consent

3.Lawful Object & Lawful

Consideration

4.Not Expressly Declared void

(Void agreements)

 Capacity to Contract
(Parties are competent)

Section 11, who can enter in to the

contract

I.Major

II.A person of sound mind

III.Person not disqualified by

law

 Status of Minor
Law relating to Minor’s agreement
A contract made with or by a minor is void ab-initio

No ratification after attaining majority

Minor can be a beneficiary or can take benefit out of a contract

A minor can always plead minority

Liability for necessaries

Contract by guardian

No specific performance

No insolvency

Minor can be an agent

Minor cannot bind parent or guardian

Joint contract by minor and adult (In Sain Das vs. Ram Chand )

Surety for a minor

Liability for torts

Minor can be partner in existing partnership

 2.Free consent

Section -15 , coercion

Section -16 , UndueInfluence

Section -17 , Fraud

Section -18 , Misrepresentation

Section -15 , coercion
Following are the essential ingredients of
coercion

- Committing or threatening to commit any act

forbidden by the India Penal Code

- The unlawful detaining or threatening to detain any

property to the prejudice of any person whatever

- With the intention of causing any person to enter into

an agreement

- A threat of committing suicide comes under coercion

Section -16 , UndueInfluence

Following are the essential ingredients of
UndueInfluence

- Near relation between parties

- Position to dominate the will of other

- The object must be to take undue advantage

- Burden of proof

 Following are the essential elements of Fraud

Section -17 , Fraud

- There must be a representation or assertion and it must be

false

- The representation must be related to a fact

- The representation should be made before the conclusion of

the contract with the intention to induce the other party to

act upon it

- The other party must have relied upon the representation and

must have been deceived

- The other party acting on the representation must have

consequently suffered a loss

“Mere silence is not fraud”

Mere silence as to facts likely to affect the
willingness of a person to enter into a
contract is no fraud; but where it is the
duty of a person to speak, or his silence is
equivalent to speech, silence amounts to
fraud
Silence is fraud in the following case

1.Where a person’s duty is to speak

• Fiduciary Relationship
• Contracts of Insurance
• Contracts of marriage
• Contracts of family settlement
• Share Allotment contracts

2.Where the silence itself is equivalent to speech

Note : In case of fraudulent silence, contracts is not voidable if the

party whose consent was so obtained had the means of discovering
the truth with ordinary diligence (Exception to section 19)

 Fraud Misrepresentation

To deceive the other party There is no such intention

by hiding the truth. to deceive the other party

The person making the The person making the

suggestion believes that statement believes it to be
the statement as untrue true, although it is not
The injured party can true
The injured party is
repudiate the contract entitled to repudiate the
and claim damages contract but cannot claim
The party using the the damages.
fraudulent act cannot Party can always plead
secure or protect himself that the injured party had
by saying that the injured the means to discover the
party had means to truth
discover the truth



 Mistake

Mistake may be defined as innocent or

erroneous belief which leads the party to
misunderstand the others

 Mistake

Mistake of Law Mistake of Fact

Mistake of Indian Law

Mistake of Foreign Law

Unilateral Mistake Bilateral Mistake

LEGALITY OF OBJECT AND
CONSIDERATION



The consideration or object of an agreement is
lawful, unless

1.It is forbidden by law; or

2.Is of such a nature that, if permitted, it would defeat the

provisions of any law; or

3. Is fraudulent; or

4.Involves injury to the person or property of another; or

5.The court regards it as immoral; or

6.Opposed to public policy.

Expressly declared Void Agreements

1.Made by incompetent parties (Section 11)

2.Agreement made under Bilateral Mistake
(section20)
3.Agreements the consideration or object of
which is unlawful in parts
4.Agreements made without consideration
5.Agreement in restraint of marriage
6.Agreement in restraint of trade
7.Agreement in restraint of legal proceedings
8.Agreement the meaning of which is uncertain
9.Wagering agreement
10.Agreements to do impossible acts

Agreement in restraint of trade/profession

Note: But an agreement of service by

which an employee binds himself,
during the term of his agreement, not
to compete with his employer is not in
restraint of trade



 Exception to Rule that an Agreement in Restraint of Trade
is Void

Statutory Provisions Judicial Interpretations

Sale of Goodwill Trade Combination

IPA 1932 Service Agreement

LLP ACT 2008 Franchise



 Wagering Agreement

Section - 30

It is an agreement involving payment of a sum of money upon the

determination of an uncertain event

Note: But if one of the parties has control over the event,
the agreement is not a wager

Exception to section 30

Lottery Transaction
Crossed puzzle Games
Horse racing
Chit fund
Contract of insurance
Share market transaction

Essentials of a Wager

1.There must be a promise to pay money or money’s worth.

2.Promise must be conditional on an event happening or
not happening.
3.There must be uncertainty of event.
4.There must be two parties, each party must stand to win
or lose.
5.There must be common intention to bet at the timing of
making such agreement.
6.Parties should have no interest in the event except for
stake

 Contingent Contract
- Section 31

A contract to do or not to do something,

if some event, collateral to such contract,
does or does not happen

Contingent Contract

Contract of life Insurance

Contract of Guarantee

Contract of Indemnity
Essentials of a contingent contract

1.The performance of a contingent contract would depend upon

the happening or non-happening of some event or condition

2.The event referred to is collateral to the contract

( The event should not be part of the contract )

3.The contingent event should not be a mere ‘will’ of the promisor

4.The event must be uncertain




Rules Regarding Contingent contract

Section

-32 Enforcement of contracts contingent on an event happening

-33 Enforcement of contracts contingent on an event not

happening

-34 A contract would cease to be enforceable if it is contingent

upon the conduct of a living person when that living person does
some thing to make the ‘event’ or ‘conduct’ as impossible of
happening

-35 Contingent on happening or non happening of specified

event within the fixed time

-36 Contingent on an impossible event

 Wagering Agreement v/s

Contingent Contract
Wagering Agreement Contingent Contract

It contains reciprocal It may not contain

promise reciprocal promises

It is of a contingent It may not be of wagering

nature nature

Void Valid

Parties have no interest in It is not so in contingent

the subject matter contract

the uncertain event is the

the event is collateral.
core factor

 Quasi Contract

Quasi contracts are based on

principles of equity, justice and
good conscience

Such contracts created by law but not by

the parties


 Section 68
Claim for necessaries supplied to persons incapable of
contracting

Section 69

Payment by an interested person

Section 70
Obligation of person enjoying benefits of non-gratuitous
act

Section 71
Responsibility of finder of lost goods

Section 72
Money paid by mistake or under coercion

Discharge of Contract
Discharge of Contract
Discharge by performance

Discharge by Mutual agreement

Discharge by Impossibility of performance

Discharge by lapse of time

Discharge by operation of law

Discharge by breach of contract

Discharge by performance

Actual Performance

Attempted Performance
Discharge by Mutual Agreement

Novation

Alteration

Remission

Waiver

Recision
Discharge by Impossibility of
performance

Supervening impossibility

Section 56
Discharge by operation of law

By death

Insolvency

Merger

 Breach of Contract

Breach means failure of a party to perform his or her

obligation under a contract

Expressly by words spoken or

written

Impliedly by the conduct of one

of the parties





 Breach of Contract

Actual Breach Anticipatory Breach

An actual breach occurs Anticipatory breach occurs

when one person refuses to
fulfil his or her side of the
bargain on the due date or
performs incompletely
when one party announces,
in advance of the due date
for performance, that he
intends not to fulfil his
side of the bargain
Remedies for breach of contract

Suit for damages

Recession of the contract

Suit for specific performance

Suit for injunction

Suit up on quantum merit