mod 1 .1 introduction

7/25/2019 Mod 1 .1 Introduction

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LEGAL ASPECTS OF BUSINESS (LAB)

MODULE 1

INDIAN CONTRACT ACT 1872

AND

SPECIFIC CONTRACTS (SEC 124 TO 238)


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GENERAL PRINCIPLES OF CONTRACT ACT-

INTRODUCTION

Consider the following actions of Abhay:

1.Abhay decided to go to office by his car, rather than by

public transport.

2. He was driving the car on the left side of the road.

3. He stopped at a cross section when the light turned red.While he was waiting for the light to turn green, a

colleague from his office approached him and Abhay gave

him a lift.

4.A special traffic police squad was checking compliance of

automobiles with the pollution standards. Abhay took outa certificate. However, the validity of the certificate had

expired. Abhay was fined Rs. 500, which he had to pay.

Q. How are the above four actions different from each other?


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Definition of Law:

Law includes all the rules and principles which regulate our

relations with other individuals and with the state. Law is the body of principles recognized and applied by the state in

the administration of justice.

- Salmond

That portion of the establishment habit and thought of mankind

which has gained distinct and formal recognition in the shape ofuniform rules backed by the authority and power of the government.

- Woodrow wilson

The law of contract is that branch of law which determines the

circumstances in which promises made by the parties to a contract

shall be legally binding on them.

The contract act came into force on 1 sep. 1872. The act is applicable

to the whole India except for the state of Jammu and Kashmir.


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AGREEMENT AND CONTRACT Definition of contract:

A contract is an agreement made between two or moreparties which the law will enforce.

Sec 2(h) defines contract as an agreement enforceable by

law.

A contract is an agreement, enforceable by law, made

between at least two parties by which rights are acquired byone 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.

- Sir William

Anson Examples of contract:

Taking a seat in a bus/train.

Putting a coin in weighing machine.

Going restaurent and taking snacks. Etc.


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Law of contract createsjus in personamandjus in rem.

Jus in personam:A right against or in respect of a specific person.

Jus in personam is available only against particular persons.

Example: A owes a certain sum of money to B. B has a right to

recover this amount from A. this right can be exercised only by B

and by none else against A.

Jus in rem:A right against or in respect of a thing.

jus in rem is available against the world at large.

Example: X is the owner of a plot of land. He has aright to have a

quiet possession and enjoyment of that land against every

member of the public. Similarly every member of the public is

under an obligation not to disturb Xs possession or enjoyment.


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Definition of Agreement:

An agreement is defined as every promise and every set of

promises, forming consideration for each other [sec 2 (e)].

Definition of promise:

When the person to whom the proposal is made signifies

his assent thereto, the proposal is said to be acceped. A

proposal, when accepted becomes a promise. [sec 2(b)].

The person making the proposal is called Promisor andthe person accepting the proposal is called the Promisee.

Agreement = Offer + Acceptance


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Consensus ad idem: The parties to the agreement must

have agreed about the subject matter of the agreement in

the same sense and at the same time.

Unless there isconsensus ad idem, there can be no

contract.

Example: Ajay, who owns two horses named Rajhans and

Hansraj, is selling horse Rajhans to Vijay. Vijay thinks heis purchasing horse Hansraj. There is noconsensus ad idem

and consequently no contract.


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Definition of Obligation:

A legal tie which imposes upon a definite person or persons

the necessity of doing or abstaining from doing a definite

act or acts.

An agreement which gives rise to a social obligation is nota contract. It must give rise to a legal obligation in order to

become a contract.

Example:

i.Ajay agrees to sell his car to Vijay for Rs. 50,000. the

agreement gives rise to an obligation on the part of Ajayto deliver the car to Vijay and on the part of Vijay to pay

Rs. 50,000 to Ajay. This agreement is a contract.

ii.A invites his friend B to come and stay with him for a

week . B accepts the invitation but when he comes to A, A

cannot accommodate him as his wife had died the daybefore. B cannot claim any compensation from A as the

agreement is a social one.

Contract = Agreement + Enforceability at law


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Distinguish between an agreement and a

contract:

Matter Agreement contract

Meaning Every promise or a set of

promises forming

consideration for each other

is an agreement.

Agreement enforceable by

law is a contract.

One in

another

All agreements are not

contracts.

All contracts are

agreements.

Enforceable

at law

May or may not be

enforceable

Always enforceable by law

Rights to

parties

It does not always grant

right.

It always grants rights.


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ESSENTIAL ELEMENTS OF A VALID CONTRACT

1. Offer and Acceptance

2. Intention to create legal relationship

3. Lawful consideration

consideration: it is an advantage or benefit moving from one party to

the other. In simple words something in return.

4. Capacity of parties competency

5. Free and genuine consent

6. Lawful object

7.Agreement not declared void

8. Certainty and possibility of performance.

9. Legal formalities


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TYPES OF CONTRACT OR CLASSIFICATION

OF CONTRACT

On the basis of

Mode of Formation

On the basis of

Performance

On the basis of

Validity or

Enforceability

Express contract Executed contract Valid contract

Implied contract Executory contract Void contract

Quasi contract Partly executed and

partly executory

Voidable contract

E commerce contract Unilateral contract Illegal agreement

Bilateral contract Unenforceable

contract


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Classification on the basis of mode of

formation:

Express contract: An express contract made by theuse of words spoken or written.

Example: A says to B Will you purchase my bike for

Rs 20,000? B says Yes to A.

Implied contract: An implied contract is one which

is inferred from the acts or conduct of the parties or

course of dealings between them.

Example: Gets into public bus, takes a cup of tea inrestaurant.


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Classification on the basis of mode of formation:

Quasi contract: It is not a real or a true contract in

the sense of law. The quasi contract is created by lawwithout any enforceable agreement. It is not based on

the express or implied intentions of the parties.

Example: T, a tradesman, leaves goods at Cs house

by mistake. C treats the goods as his own. C is boundto pay for the goods.

E commerce contract: An contract is one which is

entered into between two parties via Internet orthrough any other electronic mode.


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Classification on the basis of performance:

Executed Contract: In a contract where both the

parties have performed their obligation, there isremaining nothing to perform.

Example: A sells his car to B for Rs. 1 lakh. A

delivered the car and B paid the price.

Executory Contract: In a contract where both the

parties are yet to perform their obligation.

Example: A sells his car to B. if A is still to deliver the

car and B is yet to pay the price, it is an executory

contract.


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Partly executed and partly executory contract:

one party has already performed his promise and theother party has yet to execute his promise.

Unilateral contract: A contract in which only one

party has to fulfill his obligation at the time of theformation of the contract, the other party having

fulfilled his obligation at the time of the contract or

before the contract comes into existence.

Example: Alap promises to pay Rs. 1000 to anyonewho finds his lost cellphone. Bansi finds and terturn

it to Alap. From the time Bansi found the cell phone,

the contract came into existence. Now Alap has to

perform his promise i.e. the payment of Rs. 1000.


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Bilateral Contract: In a bilateral contract both the

parties have to perform their respective promises.Here, the obligation is outstanding on the part of both

the parties.

Example: A promises to sell his car to B for Rs. 1 lakh

and agrees to deliver the car on the receipt of thepayment by the end of the week. The contract is

bilateral as both the parties have exchanged a promise

to be performed within a stipulated time.


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Classification on the basis of Validity or

Enforceability:

Valid contract: If the contract entered into by theparties and satisfies all the elements of a valid

contract as per the act, it is said to be a valid contract.

Void contract: A contract which ceases to beenforceable by law is known as a void contract. A void

contract is not enforceable by the court.

Example: A contract to import goods from a foreign

country. When a war breaks out between theimporting county and the exporting country, it will

subsequently become void.


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Enforceability:

Voidable contract: when the contract is entered into

without the free consent of party i.e. caused bycoercion, undue influence, misrepresentation of fraud,

it is considered as a voidable contract. By definition: A

voidable contract is enforceable by law at the option of

one or more parties but not at the option of the other

or others.

Example: A promises to sell his car to B for Rs. 20,000.

His consent is obtained by use of force. The contract is

avoidable at the option of A. He may avoid the contract

or elect to be bound by it.


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Distinguish between void and voidable contract:

Matter Void Contract Voidable contract

Definition It means contract which

ceases to be enforceable

It means an agreement

enforceable by law, by oneor more parties.

Nature Valid when made but

subsequently becomes

unenforceable.

It remains as voidable

until cancelled by the

party.

Rights or remedy No legal remedy is available

for the void contract

Aggrieved party has a

remedy to cancel the

contract.

Performance Party cannot demand the

performance of contract

If aggrieved party does

not cancel it within a

reasonable time,

performance can be

demanded.

Reason Contract becomes void due to

change in law or

circumstances.

If consent is not obtained

freely then it is regarded

as a voidable contract.


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Enforceability:

Illegal agreement:An illegal agreement is one which

transgresses some rule of basic public policy or whichis criminal in nature or which is immoral. All illegal

agreements arevoid ab initio.

Example: B borrows Rs. 5000 from A and enters into a

contract with an alien to import prohibited goods. Aknows the purpose of the loan. The transaction

between B and A is collateral to the main agreement.

It is illegal since the main agreement is illegal.

Unenforceable contract: A contract which cannot be

enforced in a court of law because of some technical

defect such as absence of writing or where the remedy

has been barred by lapse of time.


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Distinguish between void and illegal agreement

Matter Void agreemetnt Illegal agreement

What Void agreement is not

prohibited by law.

It is prohibited by

law.

Effect on collateral

transaction

Any agreement which

is collateral to thevoid agreement is

enforceable.

Any agreement or

transaction which iscollateral to illegal

agreement is not

enforceable.

Punishment It is not punishable It is punishable.

Void ab initio May not be void ab

initio.

Always void ab initio.

mod 1 .1 introduction

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