8/10/2019 business law-Module+No.2
1/34
Passion alone can make us
surpass ourselves.
Andre Maillet
Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
2/34
The Law of Contract
I ndian Contract Act, 1872
copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
3/34
The modes of wealth creation :
Wealth ex factum
Wealth ex contractus
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
4/34
The Roman Law concept of contract :
Consensus ad idem. ; Uni ty of minds.
Aggregatio mentium. ; Meeting of minds.
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
5/34
A Test Question! .
Mr. Mihi r Sikka runs away from home. Two dayslater, his father: M r. Sikka Senior places the
advertisement in newspaper: To anyone who f inds my
son and brings him home to me, I shall give reward of
Rs.1 lakh. The next day, Mr. Raghunathan A.,whi le sitting in the rai lway station reading a newspaper,
happens to notice Mr. M ihi r , and through persuasion
and effort, manages to take Mr. Mihi r Sikka home to
his father.
I s there / was there any consensus ad idem here ?
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
6/34
Definition of contract :
Sec. 2(h) of the Indian Contract Act, 1872 :
An agreement enforceable by law, is a contract.
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
7/34
The key word in the definition =
enforceable
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
8/34
Conditions for enforceabil i ty of a contract:
Sec. 10 of Indian Contract Act, 1872 :
All agreements are contracts, if they are made by the free
consent of the parties competent to contr act, for a lawful
consideration and with a lawful object, and are not hereby
expressly declared to be void.
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
9/34
Those vital elements for validity of contract :
(1)The parties to the agreement must be will ing toenter into a legal relation. (Ss. 10, & 13 of the Indian
Contract Act )
(2)The agreement must be entered into by parties /persons who are legally competent / capable to
enter into a contr act that results in legally
enforceable rights, duties and obligations.
(Ss. 10, 11 & 12 of the Indian Contract Act )
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
10/34
(3)The parties must have given their f ree consent
to the terms of the contract. That is, their
consent should be free from: coercion, undue
influence, fraud, misrepresentation or mistake.(Ss. 10, 13 to 22 of the Indian Contract Act )
(4)There must be a valid / lawful consideration
and a valid / lawful object for the agreement.(Ss. 10, 23, 24 & 25 of the Indian Contract Act )
(5)The agreement is not otherwise void.
(Ss. 10, 24 to 30, & other Sections of the Indian
Contract Act )
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
11/34
All contracts are agreements,
but all agreements are not contracts.
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
12/34
A Test Question !
Mr. Nirupam Mandal has deep enemity / animosity towards
Mr. Akash Sarkar , and wants to settle a grudge. He
therefore enters into agreement with M r. Sagnik Brutal
Biswas, offering = I shall pay you Rs.1,000/- if you
break the leg of M r. Akash. Mr. Brutal Biswas agrees and
goes ahead to successful ly complete his mission.Later, he meets M r. Nirupam, states that he has ful f i l led his
part of the agreement and now demands the price: Rs.1,000/-
However, M r. Nirupam refuses to pay the promised money.
Can M r. Brutal Biswas successfully f i le a case
against M r. Ni rupam Mandal to recover the agreed pr ice ?
8/10/2019 business law-Module+No.2
13/34
Formation of contract ;
how is a contract made ?:
Sec. 2(a) : offer / proposal :
When one person signi f ies to another his wil l ingness to do
or to abstain from doing anything, with the view to
obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.
Sec. 2(b) : acceptance of offer / proposal :
When the person to whom the proposal is made, signi f ies
his assent thereto, the proposal is said to be accepted.
8/10/2019 business law-Module+No.2
14/34
Sec. 2(c) : promisor & promisee :
The person making the proposal is called the promisor,
and the person accepting the proposal is called the
promisee.
Sec. 2(d) : consideration :
When at the desire of the promisor, the promisee or anyother person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain f rom
doing, something, such act or abstinence or promise is
cal led a consideration for the promise.
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
15/34
Sec. 2(e) : agreement :
Every promise and every set of promises, forming the
consideration for each other is an agreement.
Sec. 4 : communication, when complete :
The communication of a proposal is complete
when it comes to the knowledge of the person
to whom i t is made .
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
16/34
Sec. 7 : A proposal may prescribe the manner of
acceptance
Sec. 9 : A proposal may be either express orimplied
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
17/34
. the 2ndparagraph to
Sec. 10 of Indian Contract Act, 1872 =
Nothing herein contained shall affect any law in force inI ndia, and not hereby expressly repealed, by which any
contract is required to be made in wr iting or in the
presence of witnesses, or any law relating to the
registration of documents.
8/10/2019 business law-Module+No.2
18/34
Kinds of offers :
(1)Express offer or implied offer
(2)Specific offer or general offer
Carlill v. Carbolic Smoke Ball Co. (1893)
Offer distinguished from
invitation to offer ; invitation to treat :
MacPherson v. Appanna (1951) SC
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
19/34
(3)Standing offers:
B. Anantharajappan v. State of Kerala (2000)
(4) Tenders:
offer to receive offers
Tata Cellular v. Union of India (1996) SC
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
20/34
Other definitions :
Void agreement Sec. 2(g)
An agreement not enforceable by law is said to be void.
Contract Sec. 2(h)An agreement enforceable by law is a contract.
Voidable contract Sec. 2(i)
An agreement which is enforceable by law at the option of
one or more of the parties thereto, but not at the option of
the other or others, is a voidable contract.
8/10/2019 business law-Module+No.2
21/34
Consideration
quid pro quo = something for something
the pri ce for the promise .
the terms of the bargain .
Defined in Sec.2(d) of the Indian Contract Act
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
22/34
Mr. Sebastian Tharakan and family live in adouble-storey house adjacent to the lovely
water front (backwaters) at Thevara
in Cochin city .
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
23/34
The requirement for lawful consideration =
. Sec.23& Sec.10of Indian Contract Act
An agreement without consideration is void. =
. Sec.25of Indian Contract Act
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
24/34
The Exceptionsto the general rule of Sec. 25
When is consideration notnecessary ?
(1) Agreements on account of natural love and
affection.Sec. 25(1)
(2)Compensation for past voluntary service.
Sec. 25(2)
(3)Promise to pay a time-barred debt. Sec. 25(3)
(4)Gifts Sec. 25, Explanation 1
(5)Creation of agency Sec. 185
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
25/34
I l lustration No. 1
The father of M s. Apoorva P. Bhalerao
promises her =
If you obtain the highest mark / top rank in
vibrant subject of Business Law 2010 for
Semester 1, SIBM 2010 MBA Examinations,
I will buy you a diamond earring. .
8/10/2019 business law-Module+No.2
26/34
Ms. Studious Apoorva works hard and succeeds in
obtaining the Top Rank in the Examination. .
She then approaches her father and requests for
his promised reward . However, her father
refuses to fulf i l l his part of the agreement.
Can Ms. Studious Apoorva f i le a case
against her father to recover / to obtain the
promised reward ?
8/10/2019 business law-Module+No.2
27/34
I l lustration No. 2
M r. Decent Sharath Chandra finds a purse
belonging to Ms. Ekta Malhotra. The purse is
fully loaded with cash! .
However, Mr. Decent Sharath resists the urge to
steal a few cur rency notes, and in fact truthful ly
approaches Ms. Ekta and returns the purse
intact. .
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
28/34
Deeply impressed by the honesty of M r. Decent
Sharath, Ms. Ekta offers =
Mr. Sharath, I shall pay you Rs.500
for your honesty.
Wil l this offer make a legally binding contract ?
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
29/34
I l lustration No. 3
Mr. Cunning Ketan Gajanan K., a texti le
manufacturer , approaches Mr. Creative AbhasSr ivastava, a manufacturer of industr ial looms,
for the purchase of a new power loom for his
texti le mi l l. The loom which costs Rs.1,00,000
is supplied, but not paid for. Thus, there is a
breach of contract by M r. Ketan Gajanan.
However, Mr. Abhas does not initiate any
litigation. Five years have gone by.
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
30/34
And five years later, Mr. Abhas is againapproached by M r. Ketan for a new contract
to buy a new power loom. .
Can M r. Abhas Srivastava and M r. KetanGajanan revive the earl ier time-barred debt as
part of the new second contract ?
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
31/34
I l lustration No. 4
On the happy occasion of the Convocation for
the SIBM 2010-2012 MBA Batch, a grateful
student: Ms. Sushma Pamidi, promises to give a
generous donation of Rs.1,00,000 to SIBM for the
purchase of new LCDs.
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
32/34
Ms. Sushma Pamidi also issues a cheque to
SIBMfor the promised donation amount.
However, the cheque bounces / has been returned
on ground of insufficiency of funds in
Ms. Sushma Pamidis account.
Can M s. Sushma Pamidi be made liable
for the promiseddonation?
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
33/34
I l lustration No. 5
Mr. Anil Rakesh Kohli receives an offer to buy a
prime property at Bangalore. However, he is on the
verge of going abroad on an important assignment, and
therefore wil l not be around to sign the contr act.
He therefore wishes to appoint his brother as his
Power of Attorney (agent) to enter / sign the sale
contr act on his behalf .
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer
8/10/2019 business law-Module+No.2
34/34
Would Mr. Ani l Rakesh Kohli be legally required
to pay his brother for agreeing to be
his agent for the sale contract ?
Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer