Legal aspects of Business

Minor Test 1

-Preetika Chopra
MBA BS (2020-22)

Ans1. An Agreement: Section 2(e) “Every promise and every set of reciprocal promises forming
the consideration for each other is an agreement.”
An agreement is a promise between two entities creating mutual obligation. These entities
could be two human beings or can even be two partnership firms. Also, all agreements are not
contract but all contracts are agreements. Agreements that are abid by law are called as
contract.
Example: If a girl visits to buy a candy from a shop for Rs.10 and the shopkeeper accepts the
money and gave her candies. Then there is a contract between the Shopkeeper and the girl.
To form an agreement the following ingredients are required:
A. Parties: There should be minimum of two or more parties to form an agreement.
B: Offer/Proposal: Under section 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
to such act or abstinence, he is said to make a proposal.”
C. Acceptance: Under section 2(b) “When the person to whom the proposal is made signifies his
assent for the same thing in the same sense as proposed by the offer”
D. Promise: As per Section 2(b) “When the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a
promise.
A promise is a kind of understanding that a party undertakes to perform. A promise should
have a attention to fulfil it for a promise or set of promises.
E. Consideration: Under section 2(d) It is the price for the promise. It is the return one gets for
his act or omission.
Consideration here means anything that has some value.
A contact: As per Section 2(h) of the Indian Contract Act, 1872, “an agreement enforceable by

law is a contract.” A contract is a lawful agreement.

For an agreement to become a contract there must give rise to a legal obligation and if it is incapable of
doing so, it is not a contract. In simple terms, a contract means when two parties put into writing an
agreement which contains certain obligations (promises) which are to be performed by such parties, and
when such written agreement becomes enforceable by law, it becomes a Contract. Enforceable by law
means when the agreement has acquired the force of law only for those who are a party to it and a
violation of those obligations would attract legal action, including repudiation of the entire contract.

Ans2. Essentials of Valid Contract: Valid Contract: It is an agreement that is enforceable by law under
section 2(h)

i) Agreement : An agreement must be there to constitute a contract. Two elements are

essential to constitute agreement i.e. offer and acceptance. Lawful offer or promise must be
made by an offeror (offer making party) and lawful acceptance of such offer by promise or
acceptor (party for whom such offer is made) constitute an agreement.
ii) Offer: When one person will signify to another person his willingness to do or not do
something (abstain) to obtain the assent of such person to such an act or abstinence, he is said
to make a proposal or an offer.”
In general, terms offer means when one party express his intention to another party to obtain
the consent of another party to do or not to do such act and abstinence. To create a lawful
contract it must be communicated, section 4 of the Act states that when the proposal comes in
the knowledge of a person for whom it is made then such proposal is said to be communicated.
In Carlill v. Carbolic Smoke Balls Company it was held that Mrs. Carlill was entitled to get the
reward as the advertisement constitute a general offer of a unilateral contract by performing
the conditions stated in the offer she had accepted such offer. In Felthouse v. Bindley offer
cannot states silence mode as a mode of acceptance.
iii) Acceptance: In contract, after having offer acceptance should be there by the party to
constitute Agreement. Section 2(b) of the Act defines acceptance when the person to whom
the proposal is made gives his consent such offer, the offer is said to be accepted.
The offer should be accepted unconditionally by the offeree to whom the offer is made, it will
amount to acceptance. When the offer is accepted it becomes a promise and constitutes
agreement.
Acceptance can be in the expressed form or implied form. If the parties are negotiating or
discussing the agreement then it is not said to be accepted. Acceptance must be in a reasonable
amount of time and must be communicated to offeror, mere silence will not amount to
acceptance.
Section 4 of the Act states that when the acceptance is said to be completed. Acceptance is said
to be complete when it came into the knowledge of the offeror. Before the communication of
acceptance is completed the promise can revoke the acceptance but not after the
communication of such acceptance is completed.
Illustration: A wants to sell his house to B for Rs 70 lakhs. B accepts the offer but put forward
his condition that he will buy the house for Rs 50 lakhs, it will not amount to acceptance of the
offer as this acceptance also have the condition. Acceptance must be free from any type of
condition.
In Lalman Shukla v Gauri Dutt, it was held that acceptance must be communicated to offeree
mere knowledge of such acceptance doesn't constitute acceptance. After offering the proposal
acceptance of such proposal constitutes agreement. It is essential for the contract that it must
be an agreement.
iv) Legal relationship
Both the parties must have intention on their part to create a legal relationship. Although
Indian Contract Act does not have any specific provision related to intention to create legal
relationship while offering and accepting the proposal.
Illustration: A agrees to meet his friend B at 9:00 p.m. It is the moral and social duty of A to
meet this agreement and it does not create any legal obligation on B neither there is any legal
relationship between A and B.
Hence, such agreement does not constitute a contract. In Jones v Vernon's Pools Ltd. there was
an agreement which has a clause that the parties involved in this agreement shall not give rise
to any legal relationship but the agreement is binding in honor. It was held that the agreement
did not create any legal relationship between the parties and the agreement was not a
contract. The test of contractual intention is not subjectivity but it is objectivity.
To decide such intention the factor is what a reasonable man would think and what would be
their intention in similar circumstances not what the parties had in their mind. In Balfour v
Balfour the agreement having domestic nature does not constitute a contract.
v) Lawful consideration- There must be a consideration from both the side of the agreement
has to be enforceable by law. Section 2(d) of the Act states that When the promisee upon the
desire of the promisor, do, does or promise to do something or abstained from doing, such act
or abstinence or promise is called a consideration for the promise. Consideration must be
moved according to the desire of promisor and it can be moved from the end of promisor or
any other person i.e. stranger to consideration but such stranger may maintain a suit. In Currie
v Misa court defines consideration as ‘a valuable in sense of the law it may consist either some
right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other part. If the proposal is not supported
with any money such proposal will be nudum pactum (a bare promise) and is not enforceable
by law.
vi) Competent parties- Parties to the agreement must be competent to enter into contact.
According to section 10 of the Act parties to the agreement must be competent, it is one of the
essential elements contracts. Section 11 of the Act defines who are competent to the contract
and states every person who is not minor according to the law to which he subject, who is not
disqualified from contracting, and who is of sound mind can enter into a contract. Section 3 of
the Indian majority Act defines minority as the person who is below eighteen years of age.

In Mohori Bibee v. Damodar Ghose In this case, Damodar Ghose the defendant was a minor and
the sole owner of his property. His legally appointed guardian was his mother. a moneylender
Mr. Brahmo Dutt, through his agent Kedar Nath, lent the defendant at 12% interest per year a
sum of Rs 20,000. By way of mortgaging the property, the loan was taken by the defendant. On
the day on which the deal was made, Damodar Ghose's mother notified the appellant that
Damodar was a minor, and anyone who enters an agreement with him would do so at his own
risk. Kedar Nath claimed that Damodar Ghose had lied about minority on the date of the
execution of the deed.
Therefore, Brahmo Dutt's appeal was dismissed and his request for the return of Rs 10,500
advanced towards him was also rejected as Damodar Ghose's mother notified the appellant
about his minority. It was held that an agreement entered by a minor is void ab initio.
vii) Free consent
For the creation of a contract, both parties must agree to the same thing in the same manner.
Both the party must give their consent in the same thing in the same sense to constitute a valid
contract. It is essential for the contract that parties must consent to the contract and they must
give consent freely.
Section 14 of the Act defines free consent as a consent which is free from coercion, undue
influence, misrepresentation fraud and mistake. Section 15 of the Act define coercion as
commit or threat to commit any act forbidden by the Indian Penal Code, unlawful detaining, of
any property or threat to commit such act, to the force any person with the intention that such
person agrees. undue influence is defined under Section 16 of the Act which says that when
one person uses his position and misuse his power to dominate the other person.
Chickam Amiraju v. Chickam Sheshamma
In case, the Husband gives a threat that he will commit suicide if they did not execute a release
deed in favour of his brother to his wife and son. The wife and son executed the release deed
under the threat given by the husband. It was held that threat to commit suicide amounts to
coercion under section 16 of the Act. Section 17 of the Act lays down the list of Act which
amounts to fraud. There is the slightest difference between fraud and misrepresentation, in the
first case the person making the statement does not believe that such statement is true and in
later one, the person making such statement believes that such statement is true.
viii) Lawful object- The object of the agreement must be lawful and must not violate the law. If
an object or the consideration of an agreement is unlawful then such agreement will not be
enforceable. Section 23 of the Act states that what consideration and object amount to lawful.
The consideration or object of an agreement is considered as lawful unless it is forbidden by
any law, is of such a nature that if permitted it would violate the provisions of any law, is
fraudulent, involves or implies injury to another person or property or the Court considered it
as immoral, or opposed to public policy.
According to Section. 24 of the Act, if any part of one or more part of a single consideration or
objects or for several considerations of a single object, is unlawful, the agreement is said to be
void. Illustration: if A forces B to sign a contract for buying a car from C by kidnapping C's
daughter. This is not a lawful object. Hence, the contract will be void.

Ans3. Kinds of Contracts

1. Void agreements: Under Section 2(g) An agreement not enforceable by law is void eg- an
agreement of a minor (Sections 23 to 30 talk about such agreements).
2. Voidable contracts: Under Section 2(i) An agreement enforceable by law at the option of one
or more of the parties thereto, but not at the option of the other or others eg- when consent
has been obtained by coercion, fraud, misrepresentation or undue influence. If the party
concerned does not avoid it, the agreement is a contract.
3.Adhesion Contracts – These types of contracts are those which are formed by the stronger
party. It is a sort of “Opt for it or do not” contract. The stronger party or the one that has the
bargaining power leaves the other party with a choice whether to accept or reject the contract.
4. Aleatory Contracts – This type of contract involves a mutual agreement that comes into
being after an unexpected occurrence, accident, or a natural calamity. In this type of contract
both the parties have an element of risk. Fire or Car insurances are this type of contract.
5. Bilateral and Unilateral Contracts – Bilateral contracts involve two parties. Both parties are
obliged to one another for performing or abstaining to perform any act. It is also called a two-
sided contract as it involves two way promises.
6. Express Contracts – These contracts are those wherein the terms of the contracts are expressed
clearly whether in written documents or orally.

7.Implied Contracts – There are no oral or written terms in this type of contract. The contracts
are assumed owing to the facts of the parties.
Ans4. A contract is said to be discharged when the object or obligations is fulfilled, the liability of either
party under the contract comes to an end. In other words, discharge of contract means,
termination of a contract between the two parties.

 Discharge by breach of a contract- Breach of contract means failure to perform

contractual obligation by either of the parties without any lawful excuse, the contract
discharged because it is a ground for discharge of a contract
Hence breach is of two kinds, namely:

• Actual Breach: It refers to the failure to perform contractual obligation when performance is due
and during the performance of the contract. In the case of an actual breach, the promisee
retains his right of action for damages.

• Anticipatory Breach: It takes place before the date of actual performance. In this type of breach,
the promisee cannot file a suit for damages. It may take place in two ways: Expressly by words
and Implied by the conduct. When the actual breach happens, he can file a suit for damages

When a contract has been broken, the party who suffers by such breach is entitled to receive from
the party who has broken the contract in a form of compensation for any less or damage caused by
him which naturally arose in the natural course of things from such breach or which the parties
knew when they made the contract.