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10
Business & Corporate Laws Introduction
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10-2

Meaning & Nature of Law 

Law word used in many senses: laws of physics, math , sciences or say laws football or any other subject Law means any rule of conduct, standard or pattern
to which actions are required to confirm ; if not confirmed , sanctions are imposed  

When we say laws of a state/country , we use the term µlaw¶ in a special & strict sense.

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10-3

Meaning & Nature of Law
Law defined in Oxford English Dictionary:Law as body of rules whether proceeding from formal enactment or from custom , which a particular state or community recognizes as binding on its subjects & members.  Law may also be defined as rule of conduct of persons ( both natural & artificial ) imposed upon & enforced among the members of a given state 

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10-4

Important characteristics of Law
1. 2.

3. 4. 5. 6.

7.

Law is a body of Rules Law is for guidance & conduct of persons ( both natural & artificial) Law is imposed Law is enforced by Executive Law presupposes a state Contents of law keep changing ; it is never static; law responds to public opinion & changes accordingly Two basic ideas involved in law are : To maintain some form of social order in a group
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10-5

Important characteristics of Law
1. Two basic ideas involved in law are : (i) To maintain some form of social order in a group (ii) To compel members of the group within that order 2. Law is made to serve some purpose which may be social, economic, or political: 3. Law may include (i) Moral rules or etiquettes

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10-6

Classification of law
1. 2. 3. 4. 5.

Public Law & Private Law Criminal Law & Civil Law Substantive Law & procedural Law International Law & Municipal Law Public International Law & Private International Law

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10-7

Classification of law
1. 2.

3.

4.

5.

Public Law includes: Constitutional law, Administrative law, criminal Law, Municipal law , International Law Private Law also referred as Civil law regulates relations of citizens with one another . It includes: Law of contract, law of torts, law of property, law of succession, family laws Civil law refers to law dealing with rights & duties of persons other than those created in the criminal law. In a civil case , the plaintiff institutes suit against the defendant for some civil wrong doing allegedly committed by the defendant , Whereas criminal law is enforced on behalf of or in the name of state.

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10-8

Classification of law
1.

2.

3.

Criminal Law is that part of law which characterizes certain types of wrong doings offences against the state , not necessarily violating any private rights , and punishable by the state Criminal Law is apart of public law , as the society or public are directly involved. Substantive Law & procedural Law : Provisions of Substantive Law define rights & duties while procedural Law provides machinery for enforcing these rights & duties.
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10-9

Classification of law
1.

2.

3.

International Law is a set of generally accepted rules & regulations controlling the conduct of nations, international organizations & individuals & Municipal Law deals with the relationship between individuals & their organizations within a state Public International Law is concerned solely with the rights & obligations of sovereign states. Private International Law may be defined as rules voluntarily chosen by a given state for the decision of cases which have µforeign¶ element or complexion
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10-10

Sources of Law
Primary Sources of Indian law:1. Customary law 2. Every custom does not become law 3. Judicial precedents are another important source of law 4. Statute- An important source of law 5. Personal Law

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10-11

Sources of Law
Secondary sources of Indian law:The secondary sources of Indian law are English law & justice, Equity & Good conscience English Law:1. Main sources of English Law:2. Common Law 3. Equity 4. Statute Law 5. Law merchant or Lex Mercatoria

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10-12

Sources of Law
Secondary sources of Indian law:The secondary sources of Indian law are English law & justice, Equity & Good conscience: Justice , equity & good conscience are the guiding forces behind most of the statutes in our country& the decision of the court:  Justice 

Equity Good Conscience

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10-13

Basic Legal Concepts
Concept of Legal Entity Concept of Legal Rights: Different types of rights:1. Personal rights, 2. proprietary rights 3. Rights in personam & in Rem Concept of Property : Different types of property Tangible & Intangible Property: Classification of personal Property as Tangible & intangible Property Real & Personal Property Meaning of Chattel

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10-14

Basic Legal Concepts
Concept of Property : Meaning of Chattel Property rights are not absolute Intellectual Property Rights( IPR) Concept of ownership Concept of Possession

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10-15

Essential Of Law
There are certain essentials which must be present in law in order to make it effective. These are :1. Predictability 2. Flexibility 3. Reasonable application & coverage Law must be such that one is enabled to predict with some accuracy the legal consequences of an action

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10-16

01
Contract Act

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10-17

LAW OF CONTRACT 
LAWS

required to regulate conduct of people & to protect their property & contract rights.  Life in general & business in particular need to be regulated.  Law of contract- Indian contract Act -1872 covered in 75 sections 
Objective of

law of contract is to introduce definiteness in commercial & other transactions i.e. what has been promised should be performed
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10-18

INDIAN CONTRACT- ACT-1872 
Origin

:  Human being ± social- want to live in harmony.  One¶s interest bound to clash- so need for control or regulations  Law most effective instrument of control.  Law is a general rule of external human action enforced by sovereign political authority.
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10-19

INDIAN CONTRACT- ACT-1872 
We

enter into contracts everyday: Sale /purchase of shares, plot of land/ flat  Hiring taxi, purchase of bus/train/airlines ticket etc.
For people engaged in business done through contracts,  Essentials to understands how contracts is made & ended.  Remedies for breach of contract 

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10-20

CONTRACT ACT 
Act

not a complete & exhaustive code regarding all classes of contracts English principles can be applied to contracts in suitable cases by Indian courts if such principles are not contrary to the provision of the act.

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10-21

INDIAN CONTRACT- ACT-1872 
Origin

: Law is the body of principles recognized & applied by the state in the administration of justice.  Parts of law which deal with rights & obligations arising out of business transactions may be called as Commercial, mercantile or business law.  Forgery & fraud in transactions dealt under Criminal law.
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10-22

Definition- Contract-sec 2(h)
An agreement enforceable by law is a contract  To make a contract , there must be : An agreement & the agreement must be enforceable by law 

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10-23

Definition- Contract-sec 2(h)
Agreement is defined as every promise & every set of promises forming consideration for each other.  A promise is defined as an accepted proposal.  An agreement is made of a proposal from one side an its acceptance by the other 

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10-24

Definition- Contract-sec 2(h)
Agreement will become contract If it is enforceable by law.  An agreement becomes enforceable only when it is coupled with obligations.  Obligation is the legal bond , which binds the parties to a contract.  Obligations must be legal & not social, moral or religious obligations. 

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10-25

Exapmles-Contract Act 
Airlines

sells a ticket to µX¶ on 01 jan from Delhi to Mumbai. In case airlines fails to fulfills promise , then X has remedy  A sells motor cycle for Rs 10,000/= to B  A invites B for dinner in a restaurant- No remedy for non performance  D gives promise to his son for pocket money
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10-26

Eessentials of a valid - Contract 
Agreement

: All contracts are agreements but all agreements need not be contracts.  The agreements that create legal obligations are contracts.  Agreement is an outcome of offer & acceptance; called as meeting of minds of parties,  Also known as µconsensus ad idem¶
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10-27

Eessentials of a valid - Contract 
Free

Consent: Both the parties should agree

upon same thing without any : Coercion, undue influence, misrepresentation, fraud or mistake. 

Contractual Capacity: Parties entering
into contract must have attained the age of majority.

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10-28

Eessentials of a valid - Contract 
Lawful

consideration: Consideration

should be lawful & adequate.  Consideration means something in return for something. 

Lawful Object: Object or purpose of an

agreement should be lawful. It means that : Object should not be forbidden by law: e.g. injuring some person or his property, immoral act, fraudulent or against public policy.
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10-29

Eessentials of a valid - Contract 
Not

expressly declared Void: Certain

agreements declared void in the ACT: Agreement in restraint of marriage, trade, legal proceedings  If any person does agreements which are void as per contract act then he can not seek relief from the court .
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10-30

Eessentials of a valid - Contract 
Possibility 
Agreement

of Performance:

should be capable of being performed, e.g.  Agreement to discover treasure by magic. 
Certainty 
Terms

of Terms:

of Agreements should be certain e.g. Agreement to sell 100 tons of oil is vague because it does not specify type of oil.
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10-31

Eessentials of a valid - Contract 
Intentions 
Agreement

to create legal obligations:

to create social, moral or religious obligations is not valid & can not be enforced. 

Legal

Formalities: Agreements made in

India may be oral or written.  If sec 10 states that contract should be in writing & should be witnessed or should be registered , the same must be observed otherwise the agreement can not be enforced.
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10-32

CLASSES OF CONTRACT 
On

the basis of enforceability contracts may be classified as follows: 

Valid

Contract :Contract which satisfies all legal

requirement provided under sec 10 of Contract Act. Valid contract must have all essentials elements of a contract as described earlier. If one or more of these elements are missing then contract is either void, voidable, illegal or unenforceable. 

Void 

Contract : An agreement not enforceable by
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law is said to be void- sec 2(g) e.g. Agreement not creating legal rights or obligations.

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10-33

CLASSES OF CONTRACT 
Void 
 

Contract : An agreement not enforceable by law 

is said to be void- sec 2(g) e.g. Agreement not creating legal rights or obligations. Void means not binding in law µVoid contract¶ implies a useless contract which has no legal effect at all. Such a contract is nullity , as for there has been no contract at all Sec 2(j) defines : µA contract which ceases to be enforceable by law becomes void , when it ceases to be enforceable¶

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10-34

Instances of void agreements 
Agreements

entered through mutual mistake of facts between the parties ( sec 20)  Agreements the object or consideration of which is unlawful.( sec 23 )  Agreements the part of object or consideration of which is unlawful.( sec 24 )  Agreements made without consideration( sec 25, v ) Agreements in restrain of legal proceedings.( sec 28 )  Uncertain & Wagering Agreements( sec 30)  Impossible Agreements( sec 56, xi)  An Agreements to enter into an agreement in future.
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10-35

CLASSES OF CONTRACT 
 

Voidable Contract : An agreement which is enforceable by law at the option of one or more of the parties there to but not at the option of the other or others is voidable contract A voidable contract is enforceable by law at the option of one of the parties. Until it is avoided or rescinded by theparty entitled to do so by excercising his option in that behalf , it is a valid contract

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10-36

CLASSES OF CONTRACT 
Voidable

Contract : As per sec 2(i) A

voidable contract may be repudiated ( i.e. avoided ) at the will of one or more of the parties, but not by others. Until it is repudiated it remains valid & binding  

It is affected by flaw(e.g. misrepresentation, fraud, coercion, undue influence)and the presence of any of these defects enables the aggrieved party to take steps to repudiate the contract. It shows that the consent of the party who has discretion to repudiate was not free.
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10-37

CLASSES OF CONTRACT 
Voidable

Contract : As per sec 2(i) A

voidable contract may be repudiated ( i.e. avoided ) at the will of one or more of the parties, but not by others. Until it is repudiated it remains valid & binding  

It is affected by flaw(e.g. misrepresentation, fraud, coercion, undue influence)and the presence of any of these defects enables the aggrieved party to take steps to repudiate the contract. It shows that the consent of the party who has discretion to repudiate was not free.
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10-38

EXAMPLE: Voidable Contract 
Ex: ³A´ man enfeebled by disease or age is induced by B¶s influence over him, as his medical attendant to agree to pay B an unreasonable amount for his professional services . 
A

can avoid the contract. A¶s consent is not free; it is affected by undue influence employed by µB¶ A CAN TAKE STEPS TO SET ASIDE THE CONTRACT
Ex-2: µA¶ purchased certain goods from µB¶ by making a misrepresentation of certain facts. Later B comes to know about the misrepresentation of these facts made by A. However µB¶ does not within a reasonable time, repudiate the contract. A sells these goods to µC¶ a bona fide purchase of value . µC¶s title shall be a good title. 

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10-39

Characteristics of a voidable contract 


It is valid & binding on both the parties till it is avoided by the aggrieved party. It can be avoided by one party & not the other party  



The party at whose option the contract is voidable is not bound to repudiate it . It may choose to reaffirm it & there by bound by it as well as bind the other party. The party repudiating the contract is entitled to get damages for any loss that it may have suffered . In case he has received any benefit under the contract , he must restore it to the person from whom it was received. 

Thus
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aggrieved party has two fold rights
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10-40

CLASSES OF CONTRACT 
  

Illegal Contract : An agreement is illegal when it is against the law of land. Illegal means ³Contrary to Law¶ & the term µcontract¶ means an agreement enforceable by law ; so illegal contract means ± ³An agreement enforceable by law & contrary to law´Thus there is an apparent contradiction in terms. Hence an illegal contract is void ab- initio An agreement to commit fraud, crime( murder , assault, robbery etc) or one that is opposed to good morals is illegal because these type of agreements are against the law of land All illegal agreements are void , all void agreements need not be illegal

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10-41

CLASSES OF CONTRACT 
Unenforceable 
An

Contract : It is

neither void nor voidable
unenforceable contract is valid but becomes unenforceable for certain tech reasons e.g.  ( want of proof, expiry of period, absence of writing or registration)  or where the remedy has been barred by lapse of time  Ex: An oral arbitration agreement is unenforceable because the law requires an arbitration agreement to be in writing .
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10-42

CLASSES OF CONTRACT 
Unenforceable 
Ex

Contract : It is

neither void nor voidable
2: A bill of exchange or promissory note though valid in itself ,  becomes unenforceable after three years from the date the bill or note falls due, being time barred under the limitation act

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10-43

CONTINGENT CONTRACT 
Contingent

Contract: A contingent contract is a contract to do or not to do something , if some event, collateral to such contract does or does not happen.  Ex: A contract¶s to pay B Rs 10,000/= if B¶s house is burnt. This is a contingent contract. A contingent contract may be contingent upon (i) happening (ii) or non happening
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10-44

ESSENTIALS OF CONTINGENT CONTRACT

Three essential characteristics of a Contingent contract are:of contingent contract depends on happening or non happening of an event.  Event must be uncertain  Event must be collateral, i.e. incidental to the contract 
Performance

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10-45

QUASI CONTRACT 
  

Quasi Contracts does not arise by virtue of an agreement , express or implied , between the parties but law infers or recognizes a contract under special circumstances Ex: Obligation of the finder of lost goods to return them to the true owner or liability of a person to whom money is paid under mistake to repay it back can not be said to arise out of a contract even in its remotest sense , as there is neither any offer nor acceptance /consent , but these are very much covered under quasi contract as per sec 71 & 72 respectively. A quasi contract is based on the equitable principle that a person shall not be allowed to retain unjust benefit at the expense of another ( ref sec 68-72 of contract Act
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10-46

QUASI CONTRACT 

Quasi contract is a situations in which law imposes upon a person , on grounds of natural justice, an obligation similar to that which arises from a true contract, although no contract , express or implied has in fact been entered into by them

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10-47

QUASI CONTRACT 
Principle

underlying a Quasi Contract is that no one shall be allowed unjustly to enrich himself at the expense of another , and the claim based on a quasi contract is generally for money. 

Ex:

X supplies goods to his customer Y who receives & consumes them. Y is bound to pay the price. Y¶s acceptance of goods constitutes an implied promise to pay. This kind of contract is a tacit contract.
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10-48

QUASI CONTRACT 
Ex:

X supplies goods to his customer Y who receives & consumes them. Y is bound to pay the price. Y¶s acceptance of goods constitutes an implied promise to pay. This kind of contract is a tacit contract.  If goods are delivered by a servant of X to Z mistaking Z for Y , then Z will be bound to pay compensation to X for their value . This is a quasi contract

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10-49

Kind of CONTRACT from point of view of mode of creation  

 

Express Contract : Where both the offer & acceptance constituting an agreement are enforceable at law are made in words spoken or written , it is an Express contract Ex : A tells B on telephone that he offers to sell his car for Rs 1 lakh & B accepts the offer . It is an Express contract Implied contract : Where both the offer & acceptance constituting an agreement enforceable at law are made otherwise than in words i.e. by acts & conduct of parties , it is an implied contract . Ex : A coolie in uniform takes up luggage of µB¶ to be carried out of railway station without being asked by B, & B allows him to do so , then the law implies that B agrees to pay µA¶ for his services & there is an implied contract.
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10-50

Kind of CONTRACT from point of view extent of execution  

 

Executed Contract : A contract is said to be executed when both the parties to a contract have completely performed there share of obligation & nothing remains to be done by either party under the contract Ex : Book seller sells a book on cash payment , it is said to be an executed contract Executory contract : In this type of contract both the obligations are outstanding , one on either party to the contract , either wholly or in part at the time of the formation of the contract Ex : T agrees to coach R a student from Ist day of next month & R agrees to pay Rs 5,000/ - in consideration , the contract is executory because it is yet to be carried out.
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10-51

CONTRACT ACT

LESSON-III

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10-52

Privity of Contract 
A

contract is entered by two or more persons thereby creating rights & obligations for them, it is a party to the contract who can enforce his rights as against the other party.

Stranger to a contract can not maintain a suit for a remedy.  Law entitles those who are parties to the contract to file suits for exercising their rights. This is known as µPrivity to Contract¶  Law of contracts creates µjus in personam µ as distinguished µfrom jus in rem¶ 

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10-53

Privity of Contract 
Ex:

A is indebted to B. A sells certain goods to C . C gives a promise to A, pay A¶s debt to B.  C fails to pay. B has no right to C being a stranger to the contract between C & A.  In other words C is not in privity with B. However C is in privity with A 

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10-54

Offer or Proposal 
  

When one person signifies to another his willingness to do or to abstain from doing any thing with a view to -obtaining the assent of that person to such act or absentinence , he is said to make a proposal/offer: Person making the proposal is called PROMISOR & person accepting is called PROMISEE 

Essential

of a valid offer: 

An offer may be generic or specific:  According to sec 2 ( a) an offer must be made to a specific person . An offer may be made to the world at large . But the contract is made only with the person who accepts & fulfills the condition of the proposal
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10-55

Essentials of a valid Offer 
In

the words of ANSON : 

An offer need not be made to an ascertained person , but no
contract can arise until it has been accepted by an ascertained person.  

Ex: Co offered by ad that he who contacts epidemic influenza , cold or any disease after taking medicine as per printed directions will be given an award; one person took medicine & suffered from influenza & was entitled to recover the promised award. In the case of general offer of reward for some information or restoration of a missing thing , the offer is open for acceptance to only one person who performs the required condition & as soon as the condition is performed , offer is closed

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10-56

Essentials of a valid Offer 
An

offer should be made within the intention of creating legal obligation.  Examples 
Do you intend to sell your motorcycle? ± It is not a proposal 
 

Similarly a mere statement of intention :- I may sell my car if I can get Rs 2 lakhs for it -- It is not a proposal But if M says to N ³ Will you buy my car for Rs2 lakhs or I am willing to sell my car to you for Rs 2 lakhs . It is a proposal as it has been made with the intention of obtaining assent of N
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10-57

Offer or Proposal 
Essential

of a valid offer: 

An offer may be express or implied:  Express offer is expressed by words , spoken or written & one which is inferred from the conduct of a person or circumstances of the case is implied.  A shoe shiner starts shining shoe without being asked to do so, a person who allows this work without giving any verbal or written acceptance for this work has to pay for shoe shining work , because this is an implied offer.  DTC runs buses on different routes to carry passengers at the scheduled fares. This is an implied offer by DTC

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10-58

Essential of a valid offer: 
An

offer must contemplate giving rise to legal consequences & be capable of creating legal relations:
Ex : offer to a friend for dinner or offer to your spouse to take him/her for movie is not a valid offer for creating binding agreement / contract the terms of an offer must be certain & not loose or vague Ex: M purchased a horse from N & promised to buy another if first horse proved lucky. M refused to buy second horse. N can not enforce the agreement or sue him because the term of agreement is vague & uncertain 

   

An invitation to offer is not an offer  EX: catalogues of prices, or display of goods with prices marked on it do not constitute an offer. These are an invitation for an offer. Transmission of such an offer does not amount to supply of an unlimited quantity of goods as soon as an order is given
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10-59

Essential of a valid offer: 
An offer must be communicated to the offeree: Doing anything in ignorance of the offer can never be treated as its acceptance, for there was never a consensus of wills. This applies to both specific & general offers  Ex : A, without knowing the reward for arrest of a particular criminal , catches the criminal & gives info to the Police. A can not recover the reward as he was not aware of the offer when it was made.  

An offer should not contain a term the non compliance of which would amount to acceptance
Ex: An offeror can not say that if acceptance is not communicated up to a certain date , the offer would be presumed to have been accepted . If the offeree does not reply then there is no contract, because no condition of obligation can be imposed on him , on the ground of justice. 

An
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offer can be made subject to any terms & conditions. An offeror may attach any terms & conditions to the
offer. He may even prescribe the mode of acceptance.
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10-60

Essential of a valid offer: 
Two identical cross-offer do not make a contract  Ex : A wrote to b B offering to sell 100 tons of iron at Rs 8,000/== ton . On the same day B wrote to A buy 100 tons of iron at Rs 8,000/= ton Letters crossed in post but there is no concluded contract between A & B because the offers were simultaneous , each being made in ignorance of other , hence there is no acceptance of each other¶s offer 

Lapses & Revocation of offer
An offer lapses after stipulated or reasonable time  

Ex: An applicant was informed for allotment of shares & deposit the call money by 31 Dec 09. Deposit of money means giving acceptance. If money not deposited by 31 Dec 09 then the offer lapses

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10-61

Lapses & Revocation of offer  

An offer lapses by not being accepted in the mode prescribed.
An offer lapses by rejection i.e. if it has been rejected by offeree. Rejection may be expressed by words, written or implied 



An offer lapses by the death or insanity of the offeror or the offeree before acceptance- Sec 6(4) An offer lapses by revocation : an offer is revoked when it is retracted by the offeror. An offer may be revoked, at any time before acceptance.
Ex : At an auction µA¶ offers highest bid but he withdraws it before fall of hammer . There is no concluded contract  



An offer stands revoked if the offeree fails to fulfill a condition precedent to acceptance ( sec 6(3) An offer lapses by subsequent illegally or destruction of a subject matter
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10-62

Acceptance-sec 2(b) 
When

the person to whom the proposal is made signifies his willingness thereto the proposal is said to be accepted : 

By

accepting offer: Acceptor expresses his willingness to be bound by the terms & conditions of an offer.
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10-63

Rules regarding Acceptance 
An 

analogy of lighted match stickgiven by Anson

Acceptance is to an offer what a lighted match stick is to a gun powder  It produces something which can not be recalled 

An acceptance turns the offer into a binding obligation.
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10-64

Acceptance-sec 2(b) 
Analogy 

of lighted match stickgiven by Anson

Acceptance is to an offer what a lighted match stick is to a gun powder  It produces something which can not be recalled 

An acceptance turns the offer into a binding obligation.
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10-65

Rules Regarding Acceptance 
An

offer can be accepted by the person to whom it is made or  to a person who has been authorized on behalf of the person to whom the offer has been made 

Acceptance should be unconditional & absolute
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10-66

Rules Regarding Acceptance 
Acceptance

should be communicated By writing, word of mouth or also by conduct
state of mind. 

An agreement does not result from a mere 

Acceptance should be according to the prescribed form
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10-67

Rules Regarding Acceptance 
Acceptance

should be communicated By writing, word of mouth or also by conduct
state of mind. 

An agreement does not result from a mere 

Acceptance should be according to the prescribed form- proposer has right
to prescribe the manner of acceptance
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10-68

Rules Regarding Acceptance 
Acceptance 

must be provoked by an offer i.e acceptor must be aware of offer

Acceptance must be given before an offer lapses or is revoked  Provisional acceptance is no acceptance.- offer may be withdrawn
before given final acceptance
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Rules Regarding Acceptance 

Contract by Post- under English law

is legally bound by the acceptance effected through postal medium-when the latter is prepared, addressed, stamped & mailed even though it is delayed or lost in transit 
Proposer
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Rules Regarding Acceptance 

Contract by Post- sec 4( Indian law)
proposer when it is put in a course of transmission to him so as to be out of power of the acceptor; as against the acceptor when it comes to the knowledge of the proposer 

Communication of an acceptance is complete as against the 

no

acceptance.- offer may be withdrawn

before given final acceptance

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Termination of an offercircumstances
Lapse  Failure to fulfill a condition precedentsec 6(3) Offer is terminated by the failure of the acceptor to fulfill a condition precedent to acceptance- Offer 

to sell car for Rs 1 lakh - buyer( acceptor) to show driving license ( Condition)
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Rules Regarding Acceptance 

Rejection- By rejecting an offer- offeror can terminate the offer- Giving counter offer also implies rejecting an offer 

Destruction of the subject matter or illegality- If the thing offered is destroyed or can not be bought & sold due to operation of law the offer it self lapses
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Rules Regarding Acceptance 

Revocation- Withdrawal of an offer is called Revocation Proposal may be revoked any time by the proposer before communication of its acceptance 

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Contractual Capacity
PERSONS NOT COMPETENT TO CONTRACT
Minors  Persons of unsound mind  Persons disqualified by law to which they are subject 

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PERSONS NOT COMPETENT TO CONTRACT
Minors  18 yrs & above ± major( Indian majority Act -1875  Age of majority 21 yrs ±  If guardian is appointed or property under supervision of court of wards

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Principles Governing Minor¶s contract
are protected by law- their rights & estates are preserved  Shortcomings & negligences are excused  Minor¶s also assisted in pleadings ± Judges are their counsellors &  law is their guardian 
Minors

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Effects of Minor¶s Agreement 
A 

Minors agreement is void ab initio

Minor made agreement by misrepresenting his age , there is no estoppel against him

No estoppel against minor- 

No

liability in contract or tort arising out of contract
- in law is incapable of giving consent
©The McGraw-Hill Companies, Inc., 2000 

Minor
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Effects of Minor¶s Agreement 
A

Minor made agreement by misrepresenting his age to obtain a contract can not be sued for deceit 

Contract

can not be converted into

Tort 
However

if Tort is independent of contract then it will not absolve minor of his liability
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Effects of Minor¶s Agreement 
Doctrine

of Restitution Minor obtains property or goods by misrepresenting his age He

can be compelled to restore it but so long as same is traceable in his possession.  If Minor has sold goods , he can not be made to repay value of goods because that would amount to enforcing a void contract
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Effects of Minor¶s Agreement 
When

a Minor seeks aid of the court for cancellation of contract- court may grant relief subject to the condition that Minor will restore all benefits obtained under the contract or make suitable compensation to the other party
minor even if minor is a plaintiff 

But court will not compel any restitution by a
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Effects of Minor¶s Agreement But court will not compel any restitution by a minor even if minor is a plaintiff, Where the other party was aware of the infancy so that he was not deceived or where the other party was unscrupulous in his dealings with the minor
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Effects of Minor¶s Agreement Beneficial contracts Minor¶s agreement is absolutely void confined

to cases where minor charged with obligations & other party seeks to enforce it
allowed to enforce contract where he is beneficiary & has no obligations
©The McGraw-Hill Companies, Inc., 2000 

Minor

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Effects of Minor¶s Agreement 
Beneficial

contracts Minor is capable of purchasing immovable property &  may sue to recover the possession of property by tendering the purchase money
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Effects of Minor¶s Agreement 
Beneficial

contracts Minor can be a beneficiary e.g. a payee, an endorsee or a promisee under a contract. A promissory note executed in favour of a minor is valid & can be enforced in a court
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Effects of Minor¶s Agreement 
Ratification

Minor can not ratify a contract on attaining majorityFresh contract is to be made on attaining majority ± New contract requires fresh consideration 

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Effects of Minor¶s Agreement 
Liability for 
Minor( 

Necessities- Sec 68

Person incapable to contract ) liable for necessaries supplied to them

Person who supplies such necessaries to minor is to be reimbursed from the property of such incapable person i.e. Minor  Liability attached to the estate of minor & not personal liability( minor can not be put in jail)
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Effects of Minor¶s Agreement 
Liability for 
Liability 
Necessaries-

Necessities- Sec 68

is only for necessaries

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Food , shelter, clothing etc  To make minor¶s estate liable following conditions must be satisfied: Contract must be for goods necessary for support of his life  Minor must not have already sufficient supply of these necessaries
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Persons of unsound Mind 
A

person is said to be of sound mind if he/she capable of understanding & Can take rational decisionas to its effects upon his/her interests
Under Indian Contract Act ± Agreement of a person of unsound mind is absolutely void,  A person of unsound mind may make a contract when he was of sound mind( sec-12) 

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CONTRACT ACT

Lesson-IV

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FRAUD 
A

false statement made knowingly or without belief in its truth or recklessely careless whether it is true or false is called fraud. Examples of fraud 
Suggestion that

a fact is true when it is not true by one who does not believe it to be true  i.e. a false statement intentially made is a fraud
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FRAUD 
Examples

of fraud 

Active concealment of

a fact by a person who has knowledge or belief of the fact  Mere non disclosure is not a fraud where there is no duty to disclose Ex- Bank employee dealing with opening of account does not disclose to manger about the facts of a client-- commits a fraud

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FRAUD 
Examples 
A

of fraud

promise made without any intention of performing

it  Any other act fitted to deceive( Human mind is very fertile & can work out new schemes of fraud)  Any such act or omission as the law specially declares to be fraudulent

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Misrepresentation 
Before

making contracts ± parties make certain statements for inducing contracts ; are called representations
a statement of facts made by one party to the other party at the time of entering into a contract with an intention of inducing the other party to enter into a contract
©The McGraw-Hill Companies, Inc., 2000 

Representation is

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Misrepresentation 
If

a representation is false or misleading it is called misrepresentation  A misrepresentation may be innocent or intentional 
Innocent

misrepresentation dealt under sec 18 of contract Act  Intentional misrepresentation is called Fraud- dealt under sec 17 of contract Act
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Misrepresentation 
Positive assertion of the fact  A person received info from untrustworthy source or hear say but asserted +vely concerning agreement that it is true is said to have misrepresented the fact  If M ±is not embodied in the contract it creates no contractual obligation unless it turns out to be fraudulent  Breach of duty  Party to the contract has duty to disclose all material facts concerning subject matter of contract but does not do so,  He is said to be guilty of misrepresentation 

Representation may be true at the time of making it , but later it becomes false. This should also be disclose before the contract is entered into

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Misrepresentation 
Causing mistake about the subject matter  If a party to an agreement induces the other to commit mistake as to the nature or quality of the subject matter of the agreement ,

He is guilty of misrepresentation

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MISREPRESENTATION 

FRAUD

False Statement made by a person Who either knows that it is false or he does not care to know whether it is true or false There is no intention to deceive Purpose of fraud is to deceive other the other party party M- renders contract voidable at the In case of fraud contract is voidable. Option of other party Also independent action for damages can be taken M- is not an offence under IPC Fraud in certain cases is punishable hence it is not punishable under IPC Silence not considered Generally silence not fraud except misrepresentation under where there is duty to speak or the any circumstances relations between the parties is fiduciary
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Person making false Statement honestly believes it to be true.

misrepresentation

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MISREPRESENTATION 

FRAUD

P arties complaining of -M Party making a false statement can can not avoid contract if he had not say that the other party had means means to discover truth with to discover the truth with ordinary ordinary diligence diligence

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MISTAKE
MISTAKE  Mistake refers to misunderstanding or wrong thinking or wrong belief 
 

Mistake may be mistake of fact (either unilateral or bilateral) or mistake of law When both the parties to an agreement are under a mistake as to a matter of the fact essential to the agreement , the agreement is void ( sec -20)- Bilateral Mistake

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Mistake 
Sec -20- Bilateral Mistake:  Where there is no real correspondence of offer & acceptance , parties are not really in consensus ad- idem. Therefore there is no agreement at all  Ex-A agrees to buy from B a certain house . It turns out that house has been destroyed by fire before the time of bargain though neither party was aware of the fact. The agreement is void- because mistake on the part of both parties as to existence of the subject matter.  



A bilateral mistake may be regarding the subject matter or the possibility of performing the contract
Mistake as to the existence of subject matter Two parties may enter into a contract on the assumption that the subject matter exists at the time of contract, but actually it may have ceased to exist or has never existed at all . Then the contract becomes void 

Mistake as to the identity of subject matter
©The McGraw-Hill Companies, Inc., 2000

A mutual mistake as to the identity of subject matter render the contract void
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Mistake 
Sec

-20- Bilateral Mistake of facts essential to an Agreement: 

Ex: A agrees to sell B cargo of Ship which is supposed on its way from London to Mumbai. It turns out that the day before the bargain the ship conveying cargo has been cast away & goods lost. Neither party was aware of the fact . Agreement is void 

A bilateral mistake may be regarding the subject matter as to its(i) existence, (ii) identity (iii) title (iv) Quantity (v) price

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Mistake 
Unilateral

mistake , where only one party to a contract is under mistake as to the matter of a fact, such a contract is not invalid
Where a person due to his own negligence or lack of reasonable care does not ascertain what he is contracting about he must bear the consequences.
Ex: A sold rice to be by sample & B thinking that they were old rice , purchased them , the rice were new. B can not avoid the contract.     

Exceptional cases: unilateral mistake & the contract/agreement is void
Unilateral Mistake is to the nature of contract

Old illiterate man made to sign bill of exchange by means of false representation that it was guarantee, Held that the contract was void ©The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill

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LAW OF CONTRACT

LESSON -4

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Consideration 
Consideration means  

something in return-it is one of essentials of a valid contract.
Consideration as one of ³the recompense given by the party contracting to the other- Definition given by Blackstone
Consideration is the price for which promise of other is bought & the promise thus given for value is enforceable- Definition given by Pollack

Definition as per sec 2(d) of Contract Act 

When at the desire of promisor the promisee or any other person has done or abstained from doing something , such act or abstinence or promise is called a consideration for the promise
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Consideration 
Example :

A agrees to sell his motorcycle to B for Rs 20,000/=
B¶s promise to pay Rs 20,000/= is Consideration for A A¶s promise to deliver motorcycle is Consideration for B  

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Rules Governing Consideration 
Consideration

should be furnished at the desire of

the promiser ±  Desire may be expressed or implied.  



Act done at the instance of third party or gratuitously does not become consideration
Ex: A¶s hose gets fire & B goes & helps to extinguish the fire . B later can not ask for any payment for his services. Even spiritual promise or mental satisfaction are not enforceable. 

A

mere promise is not enough. The promisee must have done some act or incurred some expenses on the strength of promise
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Rules Governing Consideration 
As

per sec 2(d) Consideration may move from promisee or from any other person As per Indian law Consideration must move from promisee only  However as per doctrine of Constructive Consideration other person can be nearly related by blood to the promisee  Doctrine of Constructive is no more valid 


Consideration may be past, present or future Past Consideration is something done or not done at the request of promisor, brfore making the agreement
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Rules Governing Consideration 
As

per English law past Consideration is no consideration.  Nevertheless , past consideration will support a subsequent promise of the promiser  As per Indian law past Consideration is sufficient to support a promise provided it is made at the request of promiser. 


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Present Consideration refers to the one furnished at the time of the promise . Where both the parties to a contract promise to each other of doing or not doing something the Consideration on both sides moves to a future date & is known as Future Consideration
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Rules Governing Consideration 


Present & Future considerations are also known as Executed & Executory considerations respectively Sec 25 provides that agreement to which consent of the promisor is given is not void merely because Consideration is inadequate. However

consent by promisor should be given freely. 
  

Consideration should be valuable . Consideration should not be unreal or illusory or of the nature of moral obligation. It should be valuable, though the value of Consideration need not be the same as the value of the promise which it supports. Discharging of a preexisting obligation is not Consideration . The law may compel a person to do an act . Then the mere doing of such an act can not become Consideration for another¶s promise However, doing or agreeing to do more than what a person is legally bound amounts to good consideration
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Rules Governing Consideration 


In the same way performing or promising to perform an existing obligation imposed by a previous contract will not form consideration. Consideration should be certain & lawful 

Consideration should not be uncertain or illusory or impossible- Discovering a treasure by magic can not form
Consideration 

Exception to

the Rule ; No Consideration , No

Contract 

Agreement made out of natural love & affection: It is valid provided it is made in writing, is registered & is made between parties standing in near relation to each other. Nearness means blood relationship.

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Rules Governing Consideration
Example : Elder brother on account of natural love & affection, promised to pay the debt of his younger brother. Agreement was in writing & registered. It was held to be valid, even though there was no consideration for the promise

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Rules Governing Consideration 
Exception to

the Rule ; No Consideration , No

Contract  Promise to compensate voluntary service ±  As per sec 25 (2) Promise to compensate wholly or in part a person who has already done something for the promisor is valid & enforceable  Ex: A finds B¶s purse & gives to him . B promises to give Rs 50/= to him . This is a contract  Sec2(d): services are rendered at the request of the promisor whereas under section 25(2) services are voluntary .
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Rules Governing Consideration 
Voluntary 

act should satisfy following conditions so as to become an exception: ±
Voluntary act should have been done for the promisor & not for any body else.

must have been existing at the time when the act was done  Promisor should be competent to contract at the time when the act was done  Intention of the Promisor should have been to compensate the promisee.  Services rendered should not be immoral 
Promisor
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Rules Governing Consideration 
A

promise to pay time barred debt: ±  Time barred debt i.e. one barred by law of limitation, can not be recovered .  



As per sec 25 (3): if a Promise is made in writing & signed by the person to be charged there or by his agent generally or specially authorized in that behalf , to pay wholly or part there of a debt of which the creditor might have enforced payment but for the law of limitations of suit is valid & enforceable. However mere oral promise or acknowledge is not enforceable. 

A

Completed gift: In the case of a gift actually made not being an agreement to make a gift , no Consideration is necessary. Donor & donee may not be near relatives
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Rules Governing Consideration 
Agency : No Consideration is necessary to create an Agency.  Remission: No Consideration is necessary for an agreement to receive less than what it is due  An agreement to extend time for performance of a contract need not be supported by Consideration  Contribution to Charity:  A Promise to Contribute to Charity , though gratuitous , would be enforceable if on the faith of the promised subscription , the promisee takes definite steps in furtherance of the object & undertakes a liability

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LESSON -V

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Privity of Contract
General rule of Law:  

A person who is not a party to the contract can not claim any rights under the contract even though the contract may be for his benefit. Such a person is known as stranger to the contract In case of Trust or a charge : Where a trust is created by a contract, the beneficiary can enforce his rights which the trust has conferred upon him even though he is not party to the contract creating the trust.

Exceptions to above rule: 


In the case of acknowledgement or Estoppel:
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Privity of Contract
General rule of Law: 
  

In the case of acknowledgement or Estoppel: Where in a contract between two parties, the promisee may be required to make payment to third party. The promisor may acknowledge the payment by conduct or otherwise to the third party, Then the third party can sue the promisor though there is no privity of contract between himself & the promisor

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Privity of Contract
10-119

Exceptions to above rule:  

In case of Assignment:
When rights under a contract are assigned , the assignee can sue upon the contract for the enforcement of his right.  

   

In the case of family & marriage settlements:
When provision is made for the maintenance of female members of a Hindu family in a partition of a joint Hindu property or for the marriage expenses of a female member for whose benefit such a provision is made is entitled to enforce the provision in her favour. In the case of Agency : A contract entered into by the agent acting within the scope of his authority can be enforced by his principal. Then

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Lawful Object 
     

As per sec 23 : The consideration or object of an agreement is lawful unless it is forbidden by law , or is of such a nature that if permitted it would defeat the provision of any law Or is fraudulent Or involves or implies injury to the person Or property of another Or the court regards it as immoral Or opposed to the public policy 

Every agreement of

which the object or consideration is unlawful is void.
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Lawful Object 


In the following cases consideration or object of an agreement is unlawful :Forbidden by law : sec 23 

Defeat the provision of any law: 

Fraudulent:

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Lawful Object 


In the following cases consideration or object of an agreement is unlawful :Injury to the person or property of another 

Immoral: 

Opposed to

public policy:

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Lawful Object 

In the following cases consideration or object of an agreement is unlawful :- 

Opposed to 

public policy: 

Agreement which are held void on the ground that the consideration or object is opposed to public policy are as follows :Trading with the enemy Stifling prosecution  

Maintenance & Champerty
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Lawful Object 
Opposed to 

public policy: 

Agreement which are held void on the ground that the consideration or object is opposed to public policy are as follows :Maintenance & Champerty 

Interference with the course of justice 

Trafficking in public offices
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Lawful Object  

Agreement which are held void on the ground that the consideration or object is opposed to public policy are as follows :Marriage brokerage contracts 

Agreement in restraint of trade

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Lawful Object  

Agreement which are held void on the ground that the consideration or object is opposed to public policy are as follows :Agreements tend to create an interest against duty 

Agreements interfering with parental duties

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Lawful Object  

Agreement which are held void on the ground that the consideration or object is opposed to public policy are as follows :Agreements restraining personal liberty:

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