Module 1 Part II Business Law

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    Law of Contract

    Prof. Gigimon V.S.

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    Acceptance

    When the person to whom theproposal is made signifies his assent it

    is an acceptance of the proposal.

    Expressed Acceptance made inwords spoken or written

    Implied Acceptance by conduct

    Can be made only by the person towhom its been made

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    Rules Regarding

    Valid AcceptanceAcceptance must be given by the person

    to whom the offer is madeAcceptance must be absolute and

    unqualifiedAcceptance must be in some usual and

    reasonable manner, unless specified Communicated by the acceptorAcceptance must be given with a

    reasonable time, before its lapseAcceptance must succeed the offer Rejected offer can be accepted only if

    renewed

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    Communication of Offer,

    Acceptance and Revocation When the parties are physically

    present and negotiate in person,

    agreement comes into existence

    Sections 4 and 5 of the Contract Actdeals with rules regarding acceptance

    of offer through post and other

    communication modes

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    Rules of Communication

    Communication of Offer complete when

    its reaches the offeree

    Communication of acceptance

    As against the proposer, when it is put in

    course of transmission to him, so as to be out

    of the power of the acceptor to withdraw the

    sameAs against the acceptor when it comes to the

    knowledge of the proposer

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    Rules of Communication

    A proposes by letter to the sell the house to Bfor 10 lakh. B accepts As proposal sent byPost. The communication of the acceptance

    is complete a against A, when the letter isposted, as against B when the letter isreceived by A.

    Communication of Revocation

    As against the person who makes it, when it is putinto a course of transmission

    As against the person to whom it is made, when itcomes to his knowledge

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    CONSIDERATION

    Consideration is the price for which the promise ofother is brought and the promise thus given for valueis enforceable A agrees to sell his house to B for Rs.1 lakh. Here Bs

    promise to pay the sum of Rs.1 Lakh is the consideration

    for As promise to sell the house, and As promise to sell thehouse is the consideration for Bs promise to pay the sumof Rs.1 Lakh

    Sec 2 (d) Indian Contract Act 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 abstain from doing

    Such act or abstinence or promise is called a considerationfor the promise

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    Essentials of a

    Valid Consideration Consideration should move at the desire of the Promisor

    A sees B drowning and saves his life. A cannot demand paymentfor his services as it is a voluntary act on his part and B neverasked his to do so

    Consideration must move from the promisee or any other

    person X, Y and Z enter into an agreement under which X pays Rs.1

    Crore to Y and Y agreed to build a House for Z. Here Z is a partyto the contract but stranger to consideration and can enforce thecontract.

    Consideration may be Past, Present or FuturePast Consideration - consideration for the promise is given before

    Present Consideration - Consideration and Promise isSimultaneous

    Future Consideration - Future or Executory Consideration

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    Essentials of a

    Valid Consideration Consideration need not be adequate

    Consideration must be real

    Consideration must be Lawful

    Consideration must be something

    which the promisor is not already

    bound to do

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    Exception to the Rule

    No Consideration No Contract Agreement made on account of natural love and

    affection A, for natural love and affection, promises to give his

    son B Rs.1000. A puts his promise to B into writingand registers it. This is Contract

    Agreement to compensate for past voluntaryservice A rescued B from drowning in the river, and B,

    appreciating the service that had been rendered,promised to pay Rs.1000 to A. There is a contractbetween A and B.

    Agreement to pay a time-barred debt.

    Completed gift

    Contract of Agency

    Remission by promise, of performance of the

    promise

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    Capacity of Parties

    Competent Persons to contract. (Sec. 10)

    Every person is competent to contract who

    is of the age of majority according t the

    law to which he is subject, and who is of

    sound mind, and is not disqualified form

    contracting by any law to which he is

    subject.

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    Capacity of Parties Minor Sec 3. of Indian Majority Act 1875 A person

    under 18 years of age. Absolutely - Void contracts because their mental faculties

    are not mature

    Beneficial agreements valid

    No ratification at the age of majority

    The rule of estoppel does not apply for minor Specific Performance

    Minor Partner

    Minor agent

    Minor and insolvency

    Contract by minor and adult jointly Surety for a minor

    Position od minors parents

    Minor shareholders

    Minors liability in tort

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    Capacity of Parties

    Person of Unsound mind

    Sec.12 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 judgement as to its effect upon

    its interests.

    Absolutely void and inoperative againsthim.

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    Capacity of Parties

    Disqualified personsAlien Enemies

    Foreign Sovereign and Ambassadors

    Convict

    Insolvent

    Married Women with regard to

    husbands property

    Joint Stock Company and corporation

    incorporated under a specific Act

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    Free Consent

    Sec 13 Two or more persons are saidto consent when they agree upon thesame thing in the same sense.

    Absence of Consent void or voidable

    Consent to be free and caused by Coercion threatening to commit voidable

    contract

    Undue influence (a) one party in a positionto dominate the will of the other (b) Uses theposition to obtain an unfair advantage overthe other voidable contract

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    Free Consent

    Misrepresentation wronglyrepresenting of fact by one party to theother either before or at the time of thecontract with the intention to induce the

    other to enter into the contract voidablecontract Fraud intentionally deceive the other

    person voidable contract or restitution

    Mistake erroneous belief concerningsomething Mistake of law not an excuse

    Mistake of fact bilateral mistake & unilateralmistake

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    Legality of Object &

    Consideration Object and Consideration of agreement

    must be lawful Sec. 23 kinds of consideration and

    objects are lawful

    Forbidden by Law Defeat the provisions of Law Fraudulent Implies or involves injury to the person or

    property Immoral Opposed to Public Policy

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    Void Agreement Sec. 2. (g) An agreement not enforceable by

    law is void. Minor

    Unsound person

    Unlawful Consideration

    Unlawful object

    With consideration

    Impossible events or Acts

    Restraint of marriage

    Restraint of Trade

    Restraint of Legal Proceedings Uncertain Meaning

    Wager Agreement

    Impossible Events

    Impossible Acts

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    Performance of Contract

    A person cannot acquire rights undera contract to which he is not a party

    Promisee can demand the

    performance of Contract ExceptionLegal heirs

    Competent person to perform a

    contract Promisor

    Agent of Promisor

    Legal Representatives

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    Quasi Contracts

    Obligations resembling those created by acontract are imposed by law even though theparties have not entered into contract

    Claims for necessaries supplied to a personincapable of contracting or on his account.

    Reimbursement of person paying money dueby another, in payment of which he isinterested

    Obligation of person enjoying benefit of non-

    gratuitous act. Responsibility of finder of goods

    Liability of person to whom money is paid, orthing delivered by mistake

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    Breach of Contract &

    Remedies Available Breach of Contract is another mode of

    discharge

    When one party fails to perform thecontract

    Anticipatory before the time fixed forperformance Expressly by words spoken or written

    Impliedly by conduct of parties Effects either sue for damages or make the

    party responsible for consequences of nonperformance of contract

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    Breach of Contract &

    Remedies Available Actual Breach When one party fails to perform thecontract on the actual date of the performance of the

    contract

    Injured party is entitled to Rescission of the Contract cancel the contract file suit

    for damages

    Suit for damages Ordinary

    Special

    Exemplary

    Nominal

    Suit upon Quantum Meruit as much as he earned or inproportion to work done

    Suit for Specific Performance

    Suit for injunction

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    Indemnity and Guarantee

    Contract of Indemnity A contract bywhich one party promises to save the

    other from loss caused to him by the

    conduct of the promisor himself or bythe conduct of any other person

    A person who promises to make good

    the loss is called the indemnifierA person whom the loss is to be made

    good is indemnified

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    Indemnity and Guarantee

    Contract of Guarantee A contract toperform the promise, or discharge theliability of a third person in case of hisdefault

    A person who gives the guarantee iscalled a surety

    A person in respect of whose default the

    guarantee is given is called the principaldebtor

    Consideration is important

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    Nature and Extent of

    Suretys Liability The liability of the surety is co-extensive

    with that of the principal debtor unless itis otherwise provided by the contract.

    Extent of Liability

    Surety is liable only on the default of theprincipal debtor

    Liability of surety arises immediately on thedefault of the principal debtor

    Principal debtor need not resort to securitiesbefore suing the surety

    Surety will not be liable for creditor guaranteeby misrepresentation

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    Continuing Guarantee

    When a guarantee is given for a singleor specific debt single or specific

    guarantee

    When a guarantee extends to seriesof distinct or separable transactions

    continuing guarantee

    Revocation of Continuing Guarantee Notice to Creditor by surety

    Death of the surety

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    Discharge of Surety

    Notice of Revocation Death

    Variance of Terms of Contract

    Release by principal debtorArrangement by creditor with principal

    debtor

    Creditors Act or omission impairing

    suretys remedy Loss of security

    Invalidation of contract of Guarantee

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    Problems

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    Problems

    A invites B for a Dinner. B accepts theinvitation. A makes an elaborate

    arrangement but fails to turn up.

    B sues for the loss sustained

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    Answer

    No , A cannot sue B for the loss hehas suffered, because the agreement

    of a social nature and hence lacks the

    intention to create legal relationship. Essentials of a valid contract

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    Problem

    N agrees to pay Rs.100, and inconsideration M agrees to write 100

    pages of report form him in five

    minutes. Is it a valid contract

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    Answer

    No, it is not a valid contract.

    It is a void agreement because an

    agreement to do an act impossible in

    itself is void.

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    Problem

    A aged 15 yrs obtains a loan form B.Can A be asked to repay the money.

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    Answer

    No, A cannot be asked to repay themoney.

    A minors agreement is void abnitio

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    THANK YOU