Legal and Regulatory Framework for Business Administration

DBB2101: Legal and Regulatory Framework Manipal University Jaipur (MUJ)
BACHELOR OF BUSINESS
ADMINISTRATION
SEMESTER 3
DBB2101
LEGAL AND REGULATORY
FRAMEWORK
Unit 2: Indian Contract Act, 1872 1

Unit 2
Indian Contract Act, 1872
Table of Contents
SL Fig No / Table / SAQ /

Topic Page No
No Graph Activity
1 - -
Introduction
3
1.1 - -
Objectives
2 Definition and Meaning of a Contract - 1 4
3 Essentials of a Contract - 2
- -
3.1 Offer or proposal
5–9
- -
3.2 Acceptance of proposal
- -
3.3 Revocation of offer
4 - 3 10 – 11
Types of Contracts
5 - 4 12 – 14
Capacity of Parties
6 - 5 15 – 18
Modes of Discharge of a Contract
7 - 6 19 – 20
Remedies for Breach of Contract
8 - - 21 – 22
Summary
9 - - 22
Glossary
10 - - 22
Terminal Questions
11 - - 23 – 24
Answers

1. INTRODUCTION
Contracts are an indispensable part of our lives. We enter into various types of contracts in
our everyday life without realising that we are doing so. Your day may start with a cup of tea.
Where does it come from? When you purchase tea leaves, sugar and milk, or when you buy
a t-shirt, a cake of soap or a music system, you enter into a contract. The Electricity Board
has agreed to provide your house with electricity against the promise of payment by you.
You deposit your money in the bank or take a loan against some predetermined conditions.
All these are forms of contracts that we enter into voluntarily.
Whenever you buy something or enjoy some service you agree to pay a certain amount of
money to the seller or service provider, and the provider agrees to give you that something.
This is the basic principle of a contract.
The Indian Contract Act, 1872 (ICA), which has its source in the usage and practices of
merchants in Europe, is the most important law governing business transactions. This law
codifies how we enter and execute a contract and implement its provisions. It also deals with
the issues of breach of contract.
In this unit you will become familiar with the basic provisions of this law.
1.1 Objectives:
After studying this unit, you should be able to:
❖ Define the essential provisions of a contract
❖ Discuss the modes of discharge of a contract
❖ Explain the remedies for breach of contract

2. DEFINITION AND MEANING OF A CONTRACT

According to the ICA, “an agreement enforceable by law is a contract.” A contract, thus, is an
agreement between two parties to do something or abstain from doing something for each
other subject to certain terms and conditions. The conditions laid down in the contract are
binding and enforceable by law by both the parties. Each party is free to enter into a contract
on any terms as per his/her choice. Thus, a contract has two main elements:
i) An agreement between two parties.
ii) Enforceability of the agreement by a court of law.
The ICA lays down the norms for a contract to be entered into, executed and dealt with in
case it is breached. However, the rights and duties of parties and terms of agreement are
decided by the contracting parties themselves. In case of breach, the courts have the right to
enforce the contract or impose compensation costs or damages on the defaulting party.
ICA came into effect on September 1, 1872. The Act has a wide scope as it provides that no
usage or custom or trade or any incident of contract is affected as long as it is consistent with
the provisions of the Act.
A contract may be oral or in writing. A verbal contract that can be proved is also enforceable.
However, some contracts, especially the ones that require stamping and registration like sale
of immovable property, Bill of Exchange or Promissory Note, Trust Deed, promise to pay a
time barred debt are valid only if they are in writing.
Self-Assessment Questions - 1
State whether the following sentences are true or false:

1. Contracts can be made only by legal persons.
2. A contract is enforceable by law.
3. A valid contract must be in writing.

3. ESSENTIALS OF A CONTRACT
Agreement
According to the ICA, “every promise and every set of promises forming the consideration for
each other is an agreement.”
This implies that a promise or a set of promises made mutually by two parties is an
agreement. For example, A makes a proposal (offer) to B. When B accepts the proposal and
communicates his agreement to A, it becomes a promise.
Promise cannot be one sided. Only a mutual promise forming consideration for each other is
an ‘agreement’. For example, when you go to buy a shirt, you agree to pay a certain amount
to the shopkeeper, and he, in return, agrees to give you the shirt. This is a set of promises
which form consideration for each other. However, if you agree to pay some amount to
someone without him promising to give you anything in return, it is not an agreement.
Following are the essentials of a valid contract:

1. Proper offer and acceptance
Offer or proposal – When one person offers to willingly do or not to do something in order
to get the assent of the other person to do or not to do something in return, he is making a
proposal. Thus, a ‘proposal’ can be to do a positive act or to abstain from doing an act i.e.
negative act.
Acceptance and promise – When the offeror communicates his assent to act as per the
proposal to the proposer, he gives his ‘acceptance’ to the proposal. A proposal, when
accepted, becomes a promise. The proposal can be accepted only by the person to whom it
is made.
The person making the proposal is called the ‘promisor’, and the person accepting the
proposal is called the ‘promisee’.
Communication of offer and acceptance – No offer or acceptance is considered valid

unless it has been communicated to the party concerned. Communication, whether oral or
written, is considered complete only when it is received by the party concerned. An offer of
acceptance made over telephone/ telex/ fax or e-mail is also treated on the same principles.

2. Intention to create a legal relationship – The parties entering into a contract must have
a clear intention to enter into a mutually binding legal relationship. Agreements of social or
domestic nature are not considered to be contractual in nature.
Case: Balfour v. Balfour (1919)

A husband promised to pay his wife a household allowance of 30 pounds every month. Later,
they separated and the husband failed to pay the amount. The wife sued the husband for
breach of contract. It was held that agreements of domestic nature are outside the purview
of law of contracts.
3. Free consent – Both the offer and the acceptance must be made by the concerned parties
of their own free will. Consent obtained through coercion, undue misrepresentation, fraud,
or influence is not valid.
4. Capacity to contract – Every person who has attained the age of majority is competent to
contract provided he/ she is of sound mind and is not disqualified from contracting by any
law to which he is subject.
5. Consideration for promise – The definition of ‘agreement’ clearly states that mutual
promises should form consideration of each other. A promise without consideration is not
an ‘agreement’ and is not considered a ‘contract’.
Consideration: When, at the desire of the promisor, the promisee or any other person who
acts on behalf of the promisee does or abstains from doing or promises to do or to abstain
from doing, something, it is called a ‘consideration’.
6. Lawful object and consideration – The object of the contract and the consideration
should be lawful and must not violate any law.
7. Agreement not declared void – The agreement must not have been declared void under
the ICA. Agreements in restraint of marriage, legal proceedings, trade and wagering
agreements have been declared void under the ICA.
8. Certainty of meaning – The terms of the agreement must be clear, certain and
unambiguous.

9. Possibility of promise – The terms of the contract must have the possibility of
performance. An agreement to do an impossible task is considered void.
10. Legal formalities – The contract must be entered into as per the stipulated legal
formalities.
3.1 Offer or Proposal

According to Section 2 (a) of the ICA, a person is said to have made a proposal when he
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. The person making the
offer is called the ‘promisor’ or ‘offeror’.
A valid offer must have the following elements:

i) Intention to enter into a legal relationship.
ii) Clear, certain and unambiguous terms.
iii) Should not be an invitation to an offer from someone else.
iv) Should be communicated to the person concerned.
v) Must not contain a clause that assumes automatic acceptance.
3.2 Acceptance of Proposal

The ICA states that a proposal is said to be accepted when the offeree signifies his/her assent.
A proposal when accepted becomes a promise. The offeree agrees to be bound by the terms
of the offer by accepting it. Acceptance of offer must fulfil the following conditions:
i) It must be absolute, unqualified and unconditional.
ii) Only the offeree himself or a person authorised by him can accept the offer.
iii) It must be communicated to the offeror within the prescribed or reasonable time
otherwise the offer may lapse.
iv) Acceptance communicated to an unauthorised person is not valid.
v) It must be expressed in some usual and reasonable manner.
vi) It must be made in the manner specified in the offer otherwise the promisor may,
within a reasonable time, insist that it be given in the prescribed manner.
vii) Conditional acceptance or qualified acceptance is no acceptance.

‘Express/ Implied’ and ‘Specific/ General’ offers and acceptances

a. Express / Implied:
i) Express offers and acceptances are made in words, spoken or written. For example,
A offers to sell his house to B for a specified sum either verbally or in writing and
B agrees.
ii) Implied offers and acceptances are offers not made in words but inferred from the
conduct of a party or circumstances of the case. For example, the electricity board
does not send letters to people but the offer to sell electricity is implied.
b. Specific / General:
i) Specific offers and acceptances: A specific offer is made to a particular person or a
group of persons and only he/they are competent to accept the offer. Acceptance
can be made only by the person or a group of persons to whom the offer has been
made.
ii) General Offers: A general offer is made to the world at large and not to a particular
person or a group of persons. A general offer can be accepted by any member of
the general public by fulfilling the terms of the offer.
Case: Carlill v. Carbolic Smoke Ball Company (1892)
A company manufacturing smoke balls advertised in all leading newspapers that a
reward of £100 would be given to any person who contracted influenza in spite of
using the smoke balls of the company as per the printed instructions. One person,
Mrs. Carlill, used the smoke balls as per instructions but contracted influenza. Held,
she is entitled to the reward as by using the smoke balls, she had accepted the
company’s offer.

3.3 Revocation of Offer

An offer may be revoked by the promisor at any time before it has been accepted. However,
once acceptance has been made, the offer cannot be revoked except in the following
circumstances:
i) If acceptance is not made and communicated within the specified time.
ii) Death or insanity of either party.
iii) Non-fulfilment of the conditions of the offer.
iv) A counter (fresh) offer that nullifies the first one.
v) Acceptance not made in the prescribed or usual mode.
vi) Offer contravening legal limits.
Fill in the blanks:

4. Every________ and every_______ forming the _________ for each other is an
agreement.
5. A ‘proposal’ can be to do a __________ act or to abstain from doing an act (i.e.,
_________ act).
6. The person making the proposal is called the _______ and the person accepting
the proposal is called the _________.
7. Acceptance is not considered valid unless it has been ___________ to the
concerned party.

4. TYPES OF CONTRACTS
Contracts can be classified into various types according to three criteria:

1. According to enforceability by law
i) Valid contract: A contract or an agreement between two parties becomes valid
and enforceable by law when it fulfils all the essential elements of a valid contract.
ii) Voidable contract: A contract that can be nullified at the option of a party under
certain circumstances is called a voidable contract.
iii) Void contract: Void means null. A void contract is a contract which has no legal
validity. According to the ICA, ‘a contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable.’
iv) Unenforceable contract: An unenforceable contract is one which is valid in itself,

but is not capable of being enforced in a court of law because of some technical
defect such as absence of writing, registration, requisite stamp etc.
v) Illegal or unlawful contract: A contract which violates the law of the land is
considered void ab-initio (void since the inception).
2. According to the mode of creation

i) Express contract: When both the offer and the acceptance constituting an
agreement enforceable by law are made in spoken or written words, they form
an ‘Express Contract’.
ii) Implied contract: Where both the offer and acceptance constituting an agreement
enforceable by law are made other than in words i.e., by acts and conduct of the
parties, it is an implied contract.
iii) Constructive or Quasi contract: When the law infers or recognises a contract under
certain special circumstances even though the parties have not made an
agreement, express or implied, it is called a Quasi or Constructive Contract.
iv) Wagering and Contingent contract: A wager is a bet. Wagering contract promises
to give money or money’s worth upon the determination of an uncertain event
like a lottery.

A “contingent contract” is a promise to do or not to do something in case of a

contingency. For example, A agrees to pay B Rs. 10,000 if B’s house is burnt.
3. According to the extent of execution

i) Executed contract: When both the parties to a contract have completely performed
their share of obligations, the contract is said to be executed.
ii) Executory contract: A contract is said to be executory when all the obligations and
terms have not yet been fully carried out by either or both the parties to a contract,
but will be carried out in future.
State whether the following are true or false:

8. A valid contract is enforceable by law.
9. A void contract has legal validity.
10. Contracts can be classified only according to mode of creation.

5. CAPACITY OF PARTIES
According to the ICA, the following persons are incompetent to contract:

1. A minor.
2. A person of unsound mind.
3. A person legally disqualified from contracting.
1. Minors
According to the Indian Majority Act ,1875 a person, domiciled in India, who is under 18 years
of age, is a minor.
The law acts as the guardian of minors with the aim of protecting their rights, because their
mental faculties are not mature. An agreement made by a minor is treated as follows:
i) It is considered void ab-initio and hence, inoperative.
Case: Mohiri Bibi V. Dharamadas Ghose
A minor mortgaged his house in favour of a money lender to secure a loan of
Rs.20,000, out of which the minor was paid Rs.8000. Later, the minor sued for setting
aside the mortgage, claiming that he was underage. Held, mortgage was void and
cancelled. Moneylender’s contention that the minor should repay the amount was not
accepted.
ii) A minor can be a beneficiary under a contract provided that he is not required to bear
any obligation.
iii) It cannot be ratified even when he reaches the age of maturity.
iv) The principle of ‘estoppel’ does not apply to a minor. A minor is not estopped from
pleading minority to escape liability.
v) If he gets some benefit by fraudulently misrepresenting his age, the court can direct
him to restore that benefit to the other party.
vi) A person supplying necessities to a minor is entitled to be reimbursed from his/her
property.
vii) A minor cannot enter into a partnership except through his legal guardian and with
the consent of the other partners.

viii) A minor can be an Agent but he cannot be held personally liable for any negligence or
breach of contract.
ix) A minor cannot be declared insolvent, for he is considered legally incapable of
contracting debts.
x) Where an adult stands as a surety for a minor in a contract, the adult is liable under
the contract, not the minor.
xi) The parents of a minor are not liable for agreements made by a minor unless the child
is contracting as their agent.
xii) A minor, being incompetent to contract, cannot be a shareholder of a company except
through his lawful guardian.
2. Persons of unsound mind

According to the ICA, “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
judgment as to its effects upon his interests.”
The person making a contract must be sane and rational enough to know what is good or bad
for him. The following people are not considered to be of sound mind:
i) An idiot who has completely lost his mental faculties.
ii) A lunatic whose mental powers are deranged due to some mental sickness or
abnormality.
iii) A person who is drunk or in a state of intoxication and therefore incapable of making
a contract during such state.
The Act makes the following exceptions:

i) “A person who is usually of unsound mind, but occasionally, of sound mind, may make a
contract when he is of sound mind.” For example, a patient in a lunatic asylum, who is
mentally sound at intervals, may contract during those intervals.
ii) “A person who is usually of sound mind, but occasionally of unsound mind, may not make
a contract when he is of unsound mind.” Thus, a sane man, who is delirious from fever
or is drunk or intoxicated, cannot contract while he is in such delirious, intoxicated or
drunken state.

3. Disqualified persons
ICA disqualifies the following persons from contracting:
i) Alien friend can contract but an alien enemy cannot. It means that a foreigner living
in India can enter into a contract during peace time between his country and India.
But he cannot do so if his country is at war with India.
ii) Foreign ambassadors or diplomats can enter into a contract and can sue others to
enforce the contract but they cannot be sued without obtaining prior sanction of the
Central Government. Thus, they are in a privileged position and are ordinarily
considered incompetent to contract.
iii) A convicted and imprisoned person is incompetent to make a contract or to sue on
contracts made before his conviction. However, he can do so on the expiry of his
sentence.
iv) A person declared insolvent cannot enter into a contract relating to his property.
Fill in the blanks:

11. A contract made by a minor is considered ______________.
12. A person of _______________ mind is incompetent to contract.
13. Alien _________________ can contract but an alien _________________ cannot.
14. _______________________ are in a privileged position and considered incompetent to
contract.

6. MODES OF DISCHARGE OF A CONTRACT
When the rights and obligations arising out of a contract are fulfilled by both the parties, the
contract is said to be discharged or terminated. A contract may be discharged in the following
ways:
1. By performance
A contract may be discharged by performance in the following ways:
i) Actual performance: When each party to a contract fulfils his obligation as per the
stipulations of the contract, it amounts to actual performance and the contract
stands discharged. But if only one party fulfils his promise, he alone is discharged
and gets a right of action against the party guilty of breach.
ii) Attempted performance or tender: When the promisor offers to perform his
obligation under the contract, but is unable to do so because the promisee has not
yet accepted the performance, it is called ‘attempted performance’ or ‘tender.’
In order to be considered legally valid, a tender must:

i) Be unconditional.
ii) Be made at proper time and place.
iii) Refer to the whole obligation and not just a part thereof.
iv) Be made by a person who has the capacity and willingness to perform the promise.
v) Be made to the promisee or his duly authorised agent.
vi) If there are several joint promisees, an offer to any one of them is a valid tender.
vii) In case of tender of money, exact amount should be tendered.
2. By mutual agreement
A contract may be discharged by mutual consent through:
i) Novation: When a new contract is substituted for the original one, the latter stands
discharged.
ii) Rescission: When one or all the parties cancel the contract, it is called rescission.
iii) Alteration: When alterations are made to the original contract with mutual consent
of both the parties, the original contract stands discharged.
iv) Remission: Remission means acceptance by a promisee of a lesser amount, or lesser
degree of performance than what was contracted for.

v) Waiver: Waiver is the willing relinquishment of rights by any one of the parties to
the contract.
3. By subsequent or supervening impossibility or illegality

i) Initial impossibility: If a contract stipulates the performance of an act that is obviously
impossible at the time the contract is made, it is not considered valid.
ii) Subsequent or Supervening impossibility: If the act stipulated in the contract
becomes impossible subsequent to the forming of the contract, it becomes void.
However, supervening impossibility must be beyond the control of the promisor. It
should not be self-induced nor arise due to his negligence.
Case: Howell V. Coupland (1876)
The Defendant agreed to sell a specified quantity of potatoes grown on his farms. The
crop failed largely due to a disease and was not within the Defendant’s control. Held,
contract is discharged.
Discharge is not permissible in case of difficulty of performance, commercial
impossibility, default of a third party, strikes, lockouts and civil disturbances or partial
impossibility. Supervening impossibility is considered valid on the following grounds:
i) Destruction of subject-matter, subsequent to the formation of the contract, without
the fault of either party.
ii) Failure of the ultimate purpose for which the contract was entered into, though the
performance of the contract remains possible.
iii) Death or personal incapacity of the promisor.
iv) Change of law that may render the contract illegal.
v) Outbreak of war between India and another country renders all contracts made
between an Indian and a national of the other country during the time of war, void
and illegal. Contracts entered into before the outbreak of war are suspended during
the war and maybe revived after the war is over, provided they have not already
become time- barred.

4. By lapse of time
The Limitation Act, 1963 states that in case of breach of contract, the suffering party can
initiate legal action within a specified period, called the period of limitation. If he does not
do so, the case becomes time-barred and the contract cannot be enforced.
5. By operation of law
A contract terminates by operation of law in the following cases:
i) Death: The death of the promisor discharges the contract that is of a personal
nature. In other contracts the rights and liabilities of the deceased person pass onto
the legal representatives of the dead man.
ii) Insolvency: When a party of the contract is declared insolvent by law and the court
passes an ’order of discharge’ exonerating the insolvent from liabilities on debts
incurred prior to his being declared insolvent, the contract is discharged.
iii) Merger: Where an inferior right accruing to a person merges with a superior right
vesting in the same person, the contract pertaining to the inferior right stands
automatically discharged.
iv) Unauthorised material alteration: Any alteration made in a written document or
contract by one party without the consent of the other renders the whole contract
void.
6. By breach of contract
When a party to the contract defaults in fulfilling its part of the agreement, the contract
stands breached, and hence, terminated. The aggrieved party has the right to sue for
damages for breach of contract as per law. Breach of contract may be of two kinds:
i) Anticipatory breach of contract occurs when one party declares its intention not to
fulfil its obligations under the contract before the performance is due. It can be of two
types:
a) Express: When one party to the contract communicates his intention not to
perform to the other party, in words, either spoken or written, before the due date
of performance.

b) Implied: When a party implies its unwillingness to perform through its conduct.
Case: Lovelock v. Franklyn
A promised to assign to B all of his interest in a lease for a sum of £140, within 7
years. Before the end of 7 years, he assigned the interest to another person. Held,
this was anticipatory breach by implied repudiation.
ii) Actual breach occurs in the following ways:

a) Breach of contract on the due date of performance occurs when one of the parties
fails to perform as per the terms of the contract at the time fixed for
performance.
b) Breach of contract during the course of performance occurs when a party
performs partially but refuses to complete the performance.
Give the term for:

15. Substitution of the original contract by a new one.
16. Agreement of the promisee to accept lesser fulfilment of the promise.
17. Impossibility of fulfilment of contract subsequent to its formation.

7. REMEDIES FOR BREACH OF CONTRACT
Whenever there is breach of a contract, the aggrieved party becomes entitled to seek
remedies in any one or more of the following ways:
1. Rescission: The aggrieved party may decide not to take any legal action against the guilty
party but they can rescind the contract and need not perform their part of obligations
under the contract.
If the aggrieved party decides to sue the guilty party for damages for breach of contract,
they have to file a suit for rescission. When the court grants rescission, the aggrieved party
is freed from all their obligations under the contract; and becomes entitled to
compensation for damages.
2. Suit for damages: Damages are monetary compensation allowed for the loss suffered by
the aggrieved party as a result of the breach of contract. By granting damages, the court
aims not to punish but to compensate. Damages are not awarded if actual loss cannot be
proved.
Damages are of four kinds:
i) Ordinary damages: These are damages that are awarded for direct consequences
of the breach of contract.
ii) Special damages: Special damages arise because of special or unusual
circumstances affecting the plaintiff. Special damages cannot be claimed as a
matter of right. Such damages must be in contemplation of the parties at the time
when the contract is made.
iii) Exemplary damages: The cardinal principle of damages is to award compensation
to the aggrieved party. However, damages may be awarded with a view to
punishing the guilty party as in the following cases:
a) Breach of a promise to marry which may have caused mental injury to the
aggrieved party.
b) Wrongful dishonour of a cheque by a banker though there are sufficient funds
to the credit of the customer.

iv) Nominal damages: Nominal damages are awarded when the breach has occurred
due to a technical violation and no actual loss has been caused to the aggrieved
party. These are token damages.
v) Damages for inconvenience and discomfort: The aggrieved party can claim damages
for physical discomfort and inconvenience caused due to the breach of contract.
vi) Liquidated damages and penalty: Liquidated damages means a pre-determined
sum fixed at the time of the formation of the contract. It is a fair and genuine pre-
estimate of the probable loss that would be payable in case of a breach of contract.
vii) Penalty is the specified sum which is in excess of the loss likely to be caused due to
breach of contract.
viii) Stipulation for interest: The payment of interest may or may not be in the nature of
penalty. The court adjudicates whether interest is payable or not, and from which
date on a case-to-case basis.
ix) Forfeiture of security deposits: Certain contracts stipulate the forfeiture of security
in case of a breach of contract.
3. Suit for specific performances: The aggrieved party may file a suit to seek the court’s
direction to compel the defaulting party to perform his/her part of the contract.
4. Suit upon quantum meruit: It is a claim for equitable compensation for partial
performance of the contract. ‘Quantum Meruit’ literally means ‘as much as is earned’ or ‘in
proportion to the work done’. A party can claim compensation for the work already done.
5. Suit for an Injunction: ‘Injunction’ is an order from the court directing a party to do a
certain act or to restrain the party from doing a certain act.
State whether the following are true or false:

18. Rescission means the decision of the aggrieved party not to take any action.
19. Ordinary damages arise indirectly due to breach of contract.
20. Vindictive damages are awarded with a view to punish.
21. ‘Quantum Meruit’ means ‘as much as is earned’.

8. SUMMARY
• Contracts are an indispensable part of our lives. We enter into various types of contracts
in our everyday life. Whenever we buy something or enjoy some service we agree to pay
a certain amount of money to the seller or service provider and he agrees to give us that
something. Indian Contract Act, 1872 is the most important law governing contracts.
• An agreement enforceable by law is a contract. ICA provides the framework within
which the contract may be entered into, executed; and also makes provisions for dealing
with breach of the contract.
• A contract becomes valid when there is proper offer and acceptance between the parties
who have the legal capacity to contract. There must be an intention to create a legal
relationship, free consent of the parties, lawful consideration for promise, competent
parties and the object of the contract must be lawful.
• Contracts can be classified according to the following criteria:
i) Enforceability by law: Valid, voidable, void, unenforceable and Illegal or unlawful
contracts.
ii) Mode of Creation: Express, implied, constructive, quasi, wagering or contingent
contracts.
iii) Extent of execution: Executed or executory contracts.
• The parties making an agreement must be legally competent to contract. In India anyone
who is a major, is of sound mind and is not debarred by law is entitled to contract.
• A contract is discharged or terminated when both the parties fulfil their rights and
obligations as per the contract. It may be discharged by performance, mutual agreement,
subsequent or supervening impossibility or illegality, lapse of time, operation of law or
breach of contract.
• When there is breach of a contract, the aggrieved party becomes entitled to seek
redressal through rescission or a suit for damages, specific performance, quantum
meruit or injunction.
In the above sections, we have discussed the general principles relating to the Indian
Contracts Act, 1872. Further, contracts can be classified into several types such as Bailment,
Pledge, Indemnity and Guarantee. These are contracts which are entered into for specific

reasons. For example, indemnity is the type of contract in which “one person promises to
save the other from the loss caused to him by the conduct of the promisor himself or by the
conduct of any other person” (Sec.124 of the Indian Contract Act). Here, one person
undertakes to compensate for the loss suffered by another. Similarly, bailment, pledge and
guarantee are types of contracts which are entered into for specific reasons. However, it is
important to note that for these specific contracts, all the principles relating to general
contracts hold good and there are certain unique conditions which apply to them, over and
above the general principles.
9. GLOSSARY
Ab-initio: From the beginning
Breach: Breaking of a promise or agreement
Contingent: Dependent on uncertain events or circumstances
Damages: Financial compensation for loss or injury
Injunction: Judicial order restraining a person or body from an act
Insolvency: Legally recognised inability to pay debts
Quantum Meruit: In proportion to the work done
Quasi: Apparently/seemingly
Revocation: Withdrawal
Supervening: Interrupting
Voidable: That can be rendered illegal
Void: Invalid, not legally binding
Wagering: Based on betting
10. TERMINAL QUESTIONS

1. Discuss the essentials of a contract.
2. Explain the legal provisions pertaining to ‘Offer’ and ‘Acceptance’.
3. Explain the various types of contracts in detail.
4. Write a detailed note on the capacity of parties to contract.
5. Discuss the ways in which a contract may be discharged.
6. What remedies are available to an aggrieved party in case of a breach of contract?

11. ANSWERS
Self-Assessment Questions:
1. False
2. True
3. False
4. Promise, set of promises, consideration
5. Positive, negative
6. Proposer, propose
7. Communicated
8. True
9. False
10. False
11. Void ab-initio
12. Unsound
13. Friend, enemy
14. Foreign sovereigns and ambassadors
15. Novation
16. Remission
17. Supervening impossibility
18. False
19. False
20. True
21. True

Terminal Questions:
1. A valid contract must fulfil certain essential conditions like proper offer and acceptance,
legal capacity of parties to contract etc. For more details refer to section 3.
2. Offer and acceptance must be made as per the provisions of ICA. (Section 3)
3. Contracts can be classified according to enforceability by law, mode of creation and
extent of execution. For more details refer to section 4.
4. Parties making a contract must have the legal capacity to contract. For more details refer
to section 5.
5. A contract may be terminated or discharged in various ways. For more details refer to
section 6.
6. An aggrieved party can seek redressal in case the other party breaches the contract. For
more details refer to section 7.
References:
• Bedi, Suresh. (2004). Business Environment. Excel Books, New Delhi.
• Tulsian P.C. (2000). Business Law. Tata McGraw-Hill Publishing Company Ltd. New
Delhi.
• Pathak, Akhileshwar. (2007). Legal Aspects of Business. Tata McGraw- Hill Publishing
Company Ltd. New Delhi.

Legal and Regulatory Framework for Business Administration

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Legal and Regulatory Framework for Business Administration

Uploaded by

Copyright:

Available Formats

DBB2101: Legal and Regulatory Framework Manipal University Jaipur (MUJ)

Unit 2: Indian Contract Act, 1872 1

SL Fig No / Table / SAQ /

2 Definition and Meaning of a Contract - 1 4

Unit 2: Indian Contract Act, 1872 2

Unit 2: Indian Contract Act, 1872 3

2. DEFINITION AND MEANING OF A CONTRACT

State whether the following sentences are true or false:

Unit 2: Indian Contract Act, 1872 4

Following are the essentials of a valid contract:

Communication of offer and acceptance – No offer or acceptance is considered valid

Unit 2: Indian Contract Act, 1872 5

Case: Balfour v. Balfour (1919)

Unit 2: Indian Contract Act, 1872 6

3.1 Offer or Proposal

A valid offer must have the following elements:

3.2 Acceptance of Proposal

Unit 2: Indian Contract Act, 1872 7

‘Express/ Implied’ and ‘Specific/ General’ offers and acceptances

Unit 2: Indian Contract Act, 1872 8

3.3 Revocation of Offer

Fill in the blanks:

Unit 2: Indian Contract Act, 1872 9

Contracts can be classified into various types according to three criteria:

iv) Unenforceable contract: An unenforceable contract is one which is valid in itself,

2. According to the mode of creation

Unit 2: Indian Contract Act, 1872 10

A “contingent contract” is a promise to do or not to do something in case of a

3. According to the extent of execution

State whether the following are true or false:

Unit 2: Indian Contract Act, 1872 11

According to the ICA, the following persons are incompetent to contract:

Unit 2: Indian Contract Act, 1872 12

2. Persons of unsound mind

The Act makes the following exceptions:

Unit 2: Indian Contract Act, 1872 13

Fill in the blanks:

Unit 2: Indian Contract Act, 1872 14

6. MODES OF DISCHARGE OF A CONTRACT

In order to be considered legally valid, a tender must:

Unit 2: Indian Contract Act, 1872 15

3. By subsequent or supervening impossibility or illegality

Unit 2: Indian Contract Act, 1872 16

Unit 2: Indian Contract Act, 1872 17

ii) Actual breach occurs in the following ways:

Give the term for:

Unit 2: Indian Contract Act, 1872 18

7. REMEDIES FOR BREACH OF CONTRACT

Damages are of four kinds:

Unit 2: Indian Contract Act, 1872 19

State whether the following are true or false:

Unit 2: Indian Contract Act, 1872 20

Unit 2: Indian Contract Act, 1872 21

10. TERMINAL QUESTIONS

Unit 2: Indian Contract Act, 1872 22

Unit 2: Indian Contract Act, 1872 23

Unit 2: Indian Contract Act, 1872 24

You might also like