Unit-2 Law Of Contract

Program Semester Subject Code Subject Name Unit number

: MBA : III : MB0051 : Legal Aspects of Business :2

Unit Title
Lecture Number

: Law Of Contract
:1

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Unit-2 Law Of Contract

Lecture Outline
Introduction Meaning and Essentials of a Valid Contract Proposal (or Offer) and Acceptance Capacity to Contract Consent and Consent Free Consideration Activity

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Unit-2 Law Of Contract

Law of Contract
Objectives
Describe the essentials of a valid contract Enumerate the capacity of contract

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Unit-2 Law Of Contract

Introduction
In this unit, you will study about how to enter into the contracts.

Business
Contracts.

is

carried

on

by

entering

into

A contract is an agreement between two or more parties which, if it contains the

elements of a valid legal agreement, is enforceable by law. An exchange of promises with specific legal remedies for breach.

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Unit-2 Law Of Contract

Meaning and Essentials of a Valid Contract

Contract
A contract is an agreement, enforceable by law, made between at least two parties by which rights are acquired by one and obligations are created on the part of another. If the party, which had agreed to do something, fails to do that, then the other party has a remedy.

Example: A Roadways sells a ticket on 1 March to Mike for the journey from Delhi to Kanpur on 10th March. The Roadways is under an obligation to take Mike from Delhi to Kanpur on 10th March. In case the Roadways fails to fulfill its promise, Mike has a remedy against it. Thus, Mike has a right against the Roadways to be taken from Delhi to Kanpur on 10th March. A corresponding duty is imposed on the Roadways. As there is a breach of promise by the promisor, the other party to the contract has a legal remedy.

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Meaning and Essentials of a Valid Contract

Agreement
Sec.2(e) defines an agreement as every promise and every set of promises forming consideration for each other. Promise [Sec 2(b)]- A proposal, when accepted becomes a promise.

Proposal + Acceptance

= Promise

Promise + Consideration = Agreement

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Unit-2 Law Of Contract

Essentials of a Contract
Sec.10: All agreements are contracts, if they are made by free consent of parties,

competent to contract,
for a lawful consideration, and with a lawful object, and are not expressly declared by law to be void.

If one or more essentials of a valid contract are missing, then the contract may be either voidable, void, illegal or unenforceable.

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Classification of Contracts

Classification of contracts according to formation a. Made in writing b. By words spoken

Classifying contracts on the basis of their formation a. Formal Contracts

Classification according to validity

a. Valid b. Voidable c. Void d. Unenforceable

c. Inferred from the conduct of the parties or the circumstances of the case

b. Informal Contracts

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Unit-2 Law Of Contract

Proposal (Or Offer) and Acceptance

Section 2 (a): The offerer or proposer expresses his willingness to do or not to do (i.e., abstain from doing) something with a view to obtain

acceptance of the other party to such act or abstinence.

Modes of Making an Offer

Section 3: An offer can be made by any act or omission of party proposing

by which he intends to communicate such proposal or which has the effect

of communicating it to the other. Types of Offer

Express offer
Implied offer Offer by abstinence

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Proposal (Or Offer) and Acceptance

Acceptance of an Offer
Section 2(b): When the person to whom the offer is made signifies his assent thereto, the offer is said to be accepted. When the acceptance is gathered from the surrounding circumstances or the conduct of the parties, it is called implied acceptance.

Section 4: The communication of an offer is complete when it comes to the knowledge of the person to whom it is made.

Communication of acceptance has two aspects: As against the offer or when it is put into a course of transmission to him so as to be out of the power of the acceptor. As against the acceptor, when it comes to the knowledge of the offer.
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Unit-2 Law Of Contract

Capacity to Contract

Persons who are competent to Contract

Section 11: Every person is competent to contract if he: Is of the age of majority is of sound mind Is not disqualified from contracting by any law to which he is subject

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Consent and Free Consent

Consent
When two or more persons agree upon the same thing in the same sense they are said to consent.

Free Consent
A consent is said to be free when it is not caused by (i) coercion (ii) undue influence (iii) fraud (iv) misrepresentation (v) mistake

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Unit-2 Law Of Contract

Consideration (Sec 2(d), 23-25 and 185)

Consideration is used in the sense of quid pro que, i.e., something in return.

It need not be in terms of money.

It may even be some benefit, right, interest or profit accruing to one party, or some

forbearance, detriment, loss or responsibility

given, suffered or undertaken by the other party.

No consideration, no contract
(Secs.10 and 25)

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Unit-2 Law Of Contract

THANK YOU

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Unit-2 Law Of Contract

Program Semester Subject Code Subject Name Unit number

: MBA :I : MB0051 : Legal Aspects of Business :2

Unit Title
Lecture Number

: Law Of Contract
:2

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Unit-2 Law Of Contract

Lecture Outline
Agreements Declared Void Contingent Contract Quasi Contract Performance of Contracts Different Modes of Discharge of Contracts Remedies For Breach for Contract Freedom To Contract

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Law of Contract
Objectives
Define acceptance Define consent

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Agreement Declared Void (Sec. 26-30 )

Agreements entered into through a mutual mistake of fact between the parties (Sec.20). Agreements, the object or consideration of which is unlawful (Sec.23). Agreements, part of consideration of which is unlawful (Sec.24) Agreements made without consideration (Sec.25).

Other agreements which are declared to be void: Agreements against public policy (Secs.26-28) Agreement in restraint of trade

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Unit-2 Law Of Contract

Contingent Contract (Sec 31-36)

Contingent Contract
Section 31: 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. Example: An insurance company contracts to pay Mr. X Rs 20,000 if Mr. Xs Godown is burnt. This is a contingent contract.

Characteristics of a Contingent Contract

The performance of a contingent contract depends upon happening or non-happening of some future event. The event must be uncertain. The event must be collateral.
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Quasi Contracts
Quasi contract is a situation in which law imposes upon one 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. - Dr. Jenks

Cases which are treated as quasi contracts:

Claim for necessaries supplied to a person incapable of contracting or on his account. Reimbursement to a person paying money due by another in payment of

which he is interested.

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Performance of Contracts
Meaning Performance of contract means the carrying out of obligations under it.

Cases which are treated as quasi contracts

The promise may be performed by promisor himself or his agent or by his legal representative. If there was an intention of the parties that the promise must be performed by the promisor himself, such promise is to be performed by him only. If there is no such intention of the parties, then the promisor may employ a competent person to perform the promise. In case of death of the promisor, the legal representative must perform the promise unless a contrary intention appears from the contract.
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Different Modes of Discharge of Contracts

Discharge of contracts by performance or tender Meaning of mutual consent (Sec.62) Discharge of contracts by impossibility of performance Discharge of a contract by operation of law Discharge of contracts by breach Anticipatory breach of contracts Actual breach of contracts

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Remedies for Breach of Contract

The other party may urge the breaching party to reconsider the breach If it is a contract with a merchant, the other party may get help from consumers associations

The other party may bring the breaching party to an agency for alternative dispute resolution;

The other party may sue for damages; or The other party may sue for other remedies. Damages (Sec.75)- Most common remedy for breach of contracts is suit for damages
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Freedom to Contract

There are certain laws for the protection of the employees, and an employer cannot, therefore, induce his employees to enter into any contract favorable to the employer.

It is a document which is generally printed, containing terms and conditions, with certain blanks to be filled in.

Prepared by the business people. The customer has only to sign it. From his standpoint, the freedom to contract is restricted.

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Unit-2 Law Of Contract

Activity Activity 1
A person proposes his friend by a letter to sell his car at a certain price. The letter is dispatched via post to him. He has not yet received the letter. Is the communication of the offer complete?

Activity 2
X promises to deliver the goods to Y on a certain day on payment of Rs. 11000, X dies before that day. Who must perform the promise under a Contract?

Activity 3
Discuss the term Standard Form contract in the light of day-today transactions in the market and the essentials of the law.
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THANK YOU

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