COURSE NAME- Legal Aspects Of Business

Session No.- 1

By- Asst.Prof. Niji Shajan

 Unit 1 -The Contract Act, 1872

Table of Content

• Essential Elements of Valid Contract

• Types of Contracts
• Contracts of Indemnity & Guarantee
• Contingent Contract
• Quasi Contract
• Discharge of contract
• Breach of contract-Meaning & remedies
• Agency - Creation of Agency
• Agent and Principal (Relationship/rights)
• Types of Agency
 Unit -1 The Contract Act, 1872

Learning Objectives-
• Acquaint with Legal Aspects Of Business, its Characteristic features.
• Know the Essential Elements of Valid Contract, Types of Valid
Contract
• Understand the concepts of Indian Contract Act- 1872
• Nature and Essential of a Contract

• The term “Contract” in ordinary sense means an agreement between two persons.
• The law of contract seeks to regulate the behavior of persons who make contracts, so that any conflict arises
between these persons later may be resolved.
Meaning of Contract:
Sec. 2 (h) defines a contract: “ An agreement enforceable by law is a contract.”
e.g. C makes an agreement with D to sell him some goods for Rs. 25000.
 -B invites a friend S to dinner. He makes elaborate preparations. S fails to turn up for dinner
and all the preparation made by B go waste. Since this was a contract between the parties,
B cannot take S to court for legal action against him for breaking the commitment to come
for the dinner.

• How could it be said that the above was not a contact although it was clearly an
agreement between the two friends?
Essential of Valid Contract
1. An Agreement or offer and acceptance:
-Agreement = Proposal + their acceptance
-Agree. Must made by two person, one is making offer and another is accepting
this offer.
2. Intention to create legal relation
-Court would like to measure the degree of seriousness.
-Not every loose conversation, not any exchange of pleasantries, not a casual social
commitment, consider as a contact.
3.Competentnce of Parties
Everybody is able to make contract except Minor, Person of Unsounded mind,
Person who are disqualified by any other law.

4.Consideration
“Something in Return”
e.g. B promise to S that He will buy his bike for Rs.35000.

5.Free Consent
If the parties make the agree. without any kind of pressure or misguidance, then the
agree. would be the result of Free Consent.
“Consensus ad item” between parties, which means that there must be complete
understanding of each other’s mind between them
.
6.Lawful object and consideration
e.g. I will kill you Mr. if you will give mw 100 bottle wine.
7.Not expressly declared void (Cancelled) agreement
Always void i.e. without legal effect because of their nature.
e.g. Agree. made without consideration Agree. to do impossible act.
Agree. on the meaning of which uncertain etc.
8.Certain Formalities
-Necessary fulfillment of certain formalities for making certain specific types of
contract
-Made in written or in presence of witness.
OFFER AND ACCEPTANCE
• Formation of Agreement required two steps , making of a proposal by one person and
acceptance of this proposal by other.
Agreement= Offer + their acceptance
The Proposal or Offer
Sec. 2 (a) define an offer in these words: “When one person signifies to
another
his willingness to do or to abstain from doing anything,
with a view to obtaining the assent (acceptance) of that other to such act or
abstinence, he is said to make a proposal”
e.g. R tells S : “ I am ready to sell my machine for Rs.9000,are you ready to buy”.
This is clear offer from R to S.
The Acceptance
Sec. 2 (b) “When a person to whom the proposal is made , signifies his
assent thereto, the proposal is said to be acceptance.”
A proposal , when accepted become a promise.
Requirements for Valid Acceptance
1.By a proper person-
-The proper person to accept the offer is the one to whom it is
targeted.
-Offeror cannot be forced to be bound in a contract with a person
with whom he did not want to be involved.

2..Within proper time

Time specified by Offeror.
Consideration
-“Something in Return”
Sec. 2 (d) defines consideration as follow : “When at the desire of the promisor, the promisee
or any other person has done or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act or abstinences or promise
is called a consideration for promise.”
Legal Rules as to Consideration
1.Consideration at the desire of the promisor
e.g. A saves B’s goods from fire without being asked to do so. A can not demand
payment for his service.
2. Consi. from promisee or any other person.
It is immaterial who provides the consideration for a person’s promise so long as
consideration is there.
3. Con. may be past, present or future.
Past Con. : A finds B’s Son and B promises to pay A 10000.
Present Con. : At the time of making promise
Future Con. : A promises to deliver goods to B when the ship arrives and b promises to
pay A Rs 1000 against the receipts of goods. Its future, as both the parties will perform
after the arrival of ship
. Exceptions (Sec. 25)
1.Love and Affection
e.g. A father promises to pay his son 1000 out of affection and love and registers
it. It’s a contract
2.Compensation for voluntary services
e.g. X finds Y’s purse and give it to him. Y promises to give X Rs.
50. This is contract.
Capacity to Contract
‘Capacity’ means Competency of the parties to enter into a valid contract.

Sec.11 declares the following persons to be incompetent to contact:

i. Minor Accordingto Indian Minority Act, 1875., a person who has not
completed his 18th year of age is considered too be minor
ii. Persons of Unsounded Mind
iii. Persons disqualified from any other law
Free Consent
According to Sec. 13 ‘Two or more person are said to consent when they agree upon the same things in the
same sense.’
This mean that there should be perfect identity of mind (consensus ad idem) regarding the
subject-matter of contract.
According to Sec. 14 consent is said to be free when it is not caused by any of the following :
1. Coercion
2. Undue Influence
3. Fraud
4. Misrepresentation
5. Mistake
Undue Influence:
According to Sec. 13 ‘Two or more person are said to consent when they
agree upon the same things in the same sense.’
This mean that there should be perfect identity of mind
(consensus ad idem) regarding the subject-matter of contract.
According to Sec. 14 consent is said to be free when it is not
caused by any of the following :
1. Coercion
2. Undue Influence
3. Fraud
4. Misrepresentation
5. Mistake
 Difference Between Coercion and Undue Influence

1. Mode of Obtaining Consent

- In Coercion ,Consent obtained by threatening to act.
- In U.I. , Consent obtained by using dominating power.
2. Type of Force
-In Coercion, physical force is exercised.
- In U.I. , Moral forced is used.
3. Existence of Relationship
-relationship between the promisor and the promisee is not
necessary.
-Some sort of relationship MUST exist between the two parties
to the contract.
 FRAUD

Fraud means method of misleading a person deliberately to cause in him

a wrong understanding of so as to obtaining that’s person’s consent for a
contact.

E.g. M falsely tells R that the car that he was offering to sell was
once owned by Sachin Tendulkar. This is a fraud against R
committed to obtain his consent to purchase the car.
 MISREPRESENTATION

Misrepresentation is a false representation made innocently

without any intention of deceiving the other party. It may
include two things:
(a) Wrong statement of a material facts not known to be
false
(b) Non-disclosure of the facts where there is a large duty
to disclose without any intention to deceive.
Indian Contract Act 1872
Diff. between Fraud and Misrepresentation
1. Intention:
- In fraud, there is intention to deceive (mislead to somebody).
-In Mis. , there is no intention to deceive.

2. Consequence:
-In Fraud, damage can be available to the affected party for the loss
suffered .
-In Mis. , no such damage are available.
3. Defense:
• -In Fraud, the guilty party does not have any defense in its favor.
• In Mis. , the guilty party have defense in its favor.
 Void Agreement
1. Agreement made by incompetent parties (Sec. 11)
• Everybody is able to make contract except Minor,
• Person of Unsounded mind,
• Person who are disqualified by any other law.
2. the consideration or object of which is unlawful in part. (Sec. 24)
• I will kill you Mr. if you will give me 100 bottle wine.

3. Agree. Made without consideration. (Sec. 25)

4. Agree. in restraint of marriage. (Sec.26)

• Freedom of choice in marriage has been guaranteed to every person who is major in
age.
CONTINGENT CONTRACTS

• There is no offer, no acceptance, no consensus ad idem and in fact neither agreement

nor promise.

• These contact constituted by the Law, and therefore termed as Quasi Contact.

• Contingent contract" defined.-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.

Illustration A contracts to pay B Rs. 10,000 if B's house is burnt. This is a contingent contract
 Kinds of Contracts (Sec. 68 to72)

Classification of Contract

Enforceability Mode of
Extent of
Creation Execution

Express Contr. Implied Cont.

Valid Illegal Void Unenforceable

Executed Executory
25
1. Classification of Contract on the basis of Enforceability:
a. Valid Contract:
Contract which satisfy all the essential elements of a
valid contract as laid down be Section 10.
b. Void Contract:
An agreement may be enforceable at the time when it
was made but later on, due to certain reason, it become void
and unenforceable.
c. Illegal Contract:
All illegal agreement are void but all void agreement are
not necessarily illegal.e.g. An agreement with minor is void
but not illegal.
d. Unenforceable Contract:
Certain contract become void because the law court will
not enforce them due to not fulfillment of certain formalities
2. Classification of Contract on the basis of Mode of Creation
a. Expressed Contract:
Contract is made by words spoken or written.
b. Implied Contract:
Contract which come into being on account of the act of the parties and not by
their express words, written or spoken.
3. Classification of Contract on the basis of Extent of Execution
a. Executed Contract
Where both the parties to the contract have fulfilled their respective obligation,
the contact said to executed.
b. Executory Contract
Where one or both the parties to the contact still to perform certain things
in future or under the terms of the contract something remains to be done, the
contract is termed as an executory contract.
 Video Link

https://www.youtube.com/watch?v=RMjioRyUM5g
 References

• Business Law By N. D. Kapoor.

• Business Law Book By Tulsian
• Elements of Business Law By N D Kapoor
• Business Law By M. C. Kuchhal and Vivek Kuchhal.
• Legal aspects of Business- S.D.Geet
THANK YOU