NITIKA BACHHAWAT

BUSINESS LAWS

REVISION NOTES

NITIKA BACHHAWAT

BUSINESS LAWS

REVISION NOTES

THE INDIAN CONTRACT ACT, 1872

IN FORCE since 1ST SEPTEMBER 1872

Contract::agreement enforceable by law

Agreement:: Every promise and Every set of promises Forming consideration for each other

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Promise:A proposal when accepted

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Essentials of a valid contract

Not given by Act but areessential

Given by the Act

1. Two parties2. Intention to create a legal

relationship3. Fulfillment of legal

formalities4. Certainty of meaning5. Possibility of performance

1. Offer and acceptance2. Lawful consideration3. Capacity to contract4. Free consent5. Legal object6. Not expressly declared

void

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1. Two parties2. Intention to create a legal

relationship3. Fulfillment of legal

formalities4. Certainty of meaning5. Possibility of performance

1. Offer and acceptance2. Lawful consideration3. Capacity to contract4. Free consent5. Legal object6. Not expressly declared

void

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Types of contractBasis of validity Basis of formation Basis of

performance1. Void2. Voidable3. Illegal4. Unenforceable5. valid

1. Express2. Tacit3. Quasi4. E.com

1. Executed2. Executory3. Unilateral4. Bilateral

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1. Void2. Voidable3. Illegal4. Unenforceable5. valid

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Void Voidable Valid Illegal unenforceable

not enforceableby law

enforceable atthe option ofone party butnot at theoption of other

enforceable atthe option ofboth the parties

void andpunishable

not enforceabledue to technicaldefects

Express Tacit Quasi E com

By words oral orwritten

Inferred by acts ofthe parties

Not a real contractbut looks like acontract implied bylaw

Contract enteredusing electronicmeans

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By words oral orwritten

Inferred by acts ofthe parties

Not a real contractbut looks like acontract implied bylaw

Contract enteredusing electronicmeans

Unilateral Bilateral Executed Executory

One sided contractone havingperformed before orat the time ofcontract

Both the parties areyet to perform

Reciprocal promisesyet to be performed

Performed

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Void Voidable

It is not enforceable by law It is enforceable at the option of theaggrieved party

The contract cannot be performed If the aggrieved party within a reasonabletime does not avoid the contract then hewill have to perform the contract.

The aggrieved party will not have any legalremedies

The aggrieved party will have legalremedies against the other party.

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Void Illegal

It is not punishable by law It is punishable by law

It need not be void ab initio It is always void ab initio

Void need not be illegal Illegal is always void

If the main contract is void the collateral isvalid

Collateral to an illegal agreement isalways void

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Offer :Willingness to do or to abstain from doing something , with a view to obtainthe other’s consent.

Special General Cross Counter Standing

• made to adefinite personor group• accepted bythat person orgroup• the offereeknown to theofferor

• made to theworld at large• anyone maycome forwardact accordinglyand accept theoffer• the offeree isnot known tothe offeror

• identicaloffers• in ignorance• both offerswill lapse• no contractcan arise

• modificationof the originaloffer• original offerwill lapse•Contract canarise ifacceptedwithin thatperiod

• open foracceptanceover a period oftime.

Types of offer:

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• made to adefinite personor group• accepted bythat person orgroup• the offereeknown to theofferor

• made to theworld at large• anyone maycome forwardact accordinglyand accept theoffer• the offeree isnot known tothe offeror

• identicaloffers• in ignorance• both offerswill lapse• no contractcan arise

• modificationof the originaloffer• original offerwill lapse•Contract canarise ifacceptedwithin thatperiod

• open foracceptanceover a period oftime.

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Rules of offer:

1. Must be clear, definite and not vague2. May be express or implied3. Must be communicated4. Cannot be accepted in ignorance5. May be conditional6. Must not contain a term non-compliance of which would amount

to acceptance7. An invitation to offer is not an offer

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Acceptance:When the Offeree signifies his consent thereto

Rules of acceptance :

1. Must be unconditional2. Must be communicated3. Cannot be presumed from silence4. Must be in the specified mode5. Must be within the specified or reasonable time6. May be by conduct

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Communication of Offer

For the Offeror For the Offeree

When he posts theletter

When he receives theletter

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When he posts theletter

When he receives theletter

Communication of offer takes place when it comes to theknowledge of the person to whom it is made

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Communication of Acceptance

As against the Proposer As against the Acceptor

When the Acceptorposts the letter When the letter

reaches the Proposer

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When the Acceptorposts the letter When the letter

reaches the Proposer

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Communication of Rescission

For the personwho makes it

For the person againstwhom it is made

When he posts it When he receives it

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When he posts it When he receives it

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Time of Rescission

Offer Acceptance

If the revocation letter reachesbefore the acceptance letter isposted

If the revocation letterreaches before theacceptance letter reaches

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If the revocation letter reachesbefore the acceptance letter isposted

If the revocation letterreaches before theacceptance letter reaches

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Consideration :• when at the desire of the promisor• the promisee or any other person• has done or abstained from doing, does or abstains from doing orpromises to do or abstain from doing• such an act or abstinence or promise is called promise for theconsideration.

Rules of consideration:

1. Must move at the desire of the Promisor2. May move from the Promisee or any other person3. Maybe Executed or Executory4. May be past ,present or future5. Need not be adequate6. Must be for something which a promisor is not bound to do

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Consideration :• when at the desire of the promisor• the promisee or any other person• has done or abstained from doing, does or abstains from doing orpromises to do or abstain from doing• such an act or abstinence or promise is called promise for theconsideration.

Rules of consideration:

1. Must move at the desire of the Promisor2. May move from the Promisee or any other person3. Maybe Executed or Executory4. May be past ,present or future5. Need not be adequate6. Must be for something which a promisor is not bound to do

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Privity of contract:Only the parties to the contract can sueand be sued third party cannot sue

No consideration no contract:a contract without consideration is void

1. Trust or beneficiary2. Family or marriage settlement3. Assignment4. Estoppel or acknowledgment of

liability5. Covenants running with the land

1. Natural love and affection2. Compensation for past voluntary

service3. Time barred debt4. Agency5. Completed gifts and donations6. Bailment

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1. Trust or beneficiary2. Family or marriage settlement3. Assignment4. Estoppel or acknowledgment of

liability5. Covenants running with the land

1. Natural love and affection2. Compensation for past voluntary

service3. Time barred debt4. Agency5. Completed gifts and donations6. Bailment

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Minor’s agreement:

1. A minors agreement is void2. He can be a beneficiary3. A minor can plead minority. But if his intention is to cheat he will have to

compensate the other party4. The rule of estoppel does not apply on a minor5. A minors act cannot be ratified6. The rule of restitution does not apply on a minor7. A minor can be an agent and not a principal. If he is a principal the agent will be

liable8. Contracts by the guardian of minor is valid if it I beneficial for the minor. If the

court appoints the guardian and he contracts with the sanction of the court allsuch contracts are valid.

9. A minor is never personally liable for the necessaries supplied to him, the liabilityis against his property .

10. A minor is laible for torts other than for breach of contract11. If a minor is one of the joint promisors except him all the other parties shall be

liable

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Minor’s agreement:

1. A minors agreement is void2. He can be a beneficiary3. A minor can plead minority. But if his intention is to cheat he will have to

compensate the other party4. The rule of estoppel does not apply on a minor5. A minors act cannot be ratified6. The rule of restitution does not apply on a minor7. A minor can be an agent and not a principal. If he is a principal the agent will be

liable8. Contracts by the guardian of minor is valid if it I beneficial for the minor. If the

court appoints the guardian and he contracts with the sanction of the court allsuch contracts are valid.

9. A minor is never personally liable for the necessaries supplied to him, the liabilityis against his property .

10. A minor is laible for torts other than for breach of contract11. If a minor is one of the joint promisors except him all the other parties shall be

liable

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Coercion Undue influence Fraud Misrepresentation• Committing orthreatening tocommit an actwhich is a crimeunder the IndianPenal Code.• unlawful detainingor threatening todetain any property• with the intentionof causing the otherparty to contract

• Parties are in sucha relation that• one party is in aposition todominate the will ofanother•Uses that positionto obtain an unfairadvantage over theoher• position todominate will:i. Real and

apparentauthority

ii. Fiduciaryrelation

iii. Mental distressiv. Unconscionable

bargains

• Means andincludes• act done by theparty or with hisconnivance or by hisagent• with an intent todeceive the otherparty or to inducehim to enter into acontract

• the positiveassertion of a factwhich is not truethough he believesit to be true• breach of dutywithout an intentionto deceive gains anadvantage overanother bymisleading another• causing howeverinnocently a party toagreement to makea mistake to thesubstance which isthe subject of theagreement.

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• Committing orthreatening tocommit an actwhich is a crimeunder the IndianPenal Code.• unlawful detainingor threatening todetain any property• with the intentionof causing the otherparty to contract

• Parties are in sucha relation that• one party is in aposition todominate the will ofanother•Uses that positionto obtain an unfairadvantage over theoher• position todominate will:i. Real and

apparentauthority

ii. Fiduciaryrelation

iii. Mental distressiv. Unconscionable

bargains

• Means andincludes• act done by theparty or with hisconnivance or by hisagent• with an intent todeceive the otherparty or to inducehim to enter into acontract

• the positiveassertion of a factwhich is not truethough he believesit to be true• breach of dutywithout an intentionto deceive gains anadvantage overanother bymisleading another• causing howeverinnocently a party toagreement to makea mistake to thesubstance which isthe subject of theagreement.

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The following acts are regarded as fraudi. Stating a wrong fact as trueii. Active concealment of fact (hide the fact)iii. promise made without an intention to performiv. Any at fitted to deceive

Silence is not fraud:Exceptions:1. Duty of the person keeping silent to speak2. Where silence is equivalent to speech

Consequences of coercion, undue influence, fraud andmisrepresentation:

1. The contract is voidable2. Where one party uses fraud or misrepresentation and the other party iif he would

have used his diligence would have come to know the facts the contract is valid3. If one party uses fraud or misrepresentation but the other party was not infact

misled by it he contract is valid,

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The following acts are regarded as fraudi. Stating a wrong fact as trueii. Active concealment of fact (hide the fact)iii. promise made without an intention to performiv. Any at fitted to deceive

Silence is not fraud:Exceptions:1. Duty of the person keeping silent to speak2. Where silence is equivalent to speech

Consequences of coercion, undue influence, fraud andmisrepresentation:

1. The contract is voidable2. Where one party uses fraud or misrepresentation and the other party iif he would

have used his diligence would have come to know the facts the contract is valid3. If one party uses fraud or misrepresentation but the other party was not infact

misled by it he contract is valid,

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Mistake

Bilateral Unilateral Indian law Foreign law

Mistake of subjectmatteri. Quantityii. Qualityiii. Identityiv. Existencev. title

When one party ismistaken about thesubject matter

Ignorantia juris nonexcusat

Is treated as amistake of fact

Mistake of fact Mistake of law

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Mistake of subjectmatteri. Quantityii. Qualityiii. Identityiv. Existencev. title

When one party ismistaken about thesubject matter

Ignorantia juris nonexcusat

Is treated as amistake of fact

VOID VALID VALID VOID

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Lawful object or consideration

1. Consideration or object is forbidden by law2. Consideration or object defeats the provisions of law3. When consideration defeats any rule for the time being in force4. When it is fraudulent5. When consideration involves injury to the person or property of another6. When consideration is immoral7. When consideration is opposed to public policy

i. Trading with enemyii. Stifling prosecutioniii. Maintenance and champertyiv. Interference with the course of justicev. Traffic relating to public offices/ sale of public officesvi. Interest against obligationvii. Marriage brokerage agreementviii. Agreement in restraint of marriageix. Agreement for the creation of monopolyx. Agreement in restraint of tradexi. Agreement in restraint of legal proceedings

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1. Consideration or object is forbidden by law2. Consideration or object defeats the provisions of law3. When consideration defeats any rule for the time being in force4. When it is fraudulent5. When consideration involves injury to the person or property of another6. When consideration is immoral7. When consideration is opposed to public policy

i. Trading with enemyii. Stifling prosecutioniii. Maintenance and champertyiv. Interference with the course of justicev. Traffic relating to public offices/ sale of public officesvi. Interest against obligationvii. Marriage brokerage agreementviii. Agreement in restraint of marriageix. Agreement for the creation of monopolyx. Agreement in restraint of tradexi. Agreement in restraint of legal proceedings

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Agreement expressly declared voidAgreement unlawful in part Agreement which is

uncertainWagering agreement

• if both parts areseparable then the legalpart is valid and the illegalpart is void

•If both the parts are notseparable then thecontract is completely void.

• Even if the parties agreeto such an agreement itshall be void on thegrounds of uncertainty.

• if in an agreement thereis a vague term but thereare means to ascertain thevague term the contract isnot void.

• an agreement to give moneyupon the happening or nonhappening of an uncertainevent.•Both the parties are set to winor lose•The following are notregarded as wager:i. Crossword puzzles and

competitions based onskill and not dependent onthe similarity of answerwith the editors answer

ii. Speculationiii. Horse racing where prize is

500 or moreiv. Chit fundv. Commercial transaction or

share market transactionsvi. Games of skill and athlete

competitionvii. Insurance contracts

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• if both parts areseparable then the legalpart is valid and the illegalpart is void

•If both the parts are notseparable then thecontract is completely void.

• Even if the parties agreeto such an agreement itshall be void on thegrounds of uncertainty.

• if in an agreement thereis a vague term but thereare means to ascertain thevague term the contract isnot void.

• an agreement to give moneyupon the happening or nonhappening of an uncertainevent.•Both the parties are set to winor lose•The following are notregarded as wager:i. Crossword puzzles and

competitions based onskill and not dependent onthe similarity of answerwith the editors answer

ii. Speculationiii. Horse racing where prize is

500 or moreiv. Chit fundv. Commercial transaction or

share market transactionsvi. Games of skill and athlete

competitionvii. Insurance contracts

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Who can perform the contract:

1. The promisor himself2. His agent except in case of contracts of personal skill and confidence3. The legal representatives in the event of death of the parties except in case of

contracts of personal skill and confidence4. Third party5. Joint promisors

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Succession AssignmentInheritance. Transfer of rights

Operation of law Operation of law or by agreement

Both asserts and liabilities are transferredbut liability to the extent of assets

Liabilities are assigned only with theconsent of all the parties concerned

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Time and place of performanceCase Perfomance

No time specified reasonable time

Day specified but no time specified during the business hours

No place fixed duty of the Promisor to ask the Promiseeto fix a reasonable place

Performance on a particular day butPromisor will not perform unless asked bythe Promisee

duty of the Promisor to ask the Promiseeto fix a reasonable place

Performance on a particular day butPromisor will not perform unless asked bythe Promisee

Effect of refusal to accept performance

Where the promisor offers to perform the promise:i. Unconditionallyii. At the proper time and placeiii. The promisee is given an opportunity to examine the

thing whether it is same for which the contract is madeAnd the promisee refuses to accept .Offer to one of the joint promisors shall be deemed to be an

offer to all of them

Promisor isnot liable fornonperformacenor does helose hisrights

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Effect of refusal by a party to performIf one of the parties has refused to perform the contract the other party mayi. Terminate the contract; orii. Indicate by words or conduct about his intention to carry on with the contract.Once he accepts the contract he cannot later cancel the same

Liability of joint promisorsEach of the joint promisor is jointly liable for his share and severally liable for the wholeshare.If any of the joint promisor has performed the whole contract he may compel theothers to contribute to the performance.If any of the joint promisor has performed the whole contract he may compel theothers to contribute to the performance.If any one of the joint promisor makes a default in such contribution or is unable tocontribute then his loss shall be borne by the others in their proportionIf any one of the joint promisor is dead his legal heirs along with the other survivorsshall perform the contract. If all the joint promisors are dead then the legal heirs of allthe joint promisors shall perform the contract.If the promisee releases any of the joint promisor it does result in the release of theother joint promisors and they shall be liable to the promisee. However the releasedpromisor shall be liable to the other joint promisors

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Reciprocal promises1. Promises which are to be performed simulteneously2. Promisor need not perform his promise unless the promisee is ready and willing to

perform his promise3. The order of performance may be fixed either by agreement or by implication

i. By agreement is when the parties fix the order in which the contract shall beperformed. Contract must be performed in the specified order only

ii. The contract may not specify the order but it can implied from the nature ofcontract the order of performance

4. In case of reciprocal promises if one party prevents the other from performing thecontract the party so preventedi. Has no obligation to performii. But has a right to claim the damages

1. Promises which are to be performed simulteneously2. Promisor need not perform his promise unless the promisee is ready and willing to

perform his promise3. The order of performance may be fixed either by agreement or by implication

i. By agreement is when the parties fix the order in which the contract shall beperformed. Contract must be performed in the specified order only

ii. The contract may not specify the order but it can implied from the nature ofcontract the order of performance

4. In case of reciprocal promises if one party prevents the other from performing thecontract the party so preventedi. Has no obligation to performii. But has a right to claim the damages

Appropriation of payment1. Debtor will specify and if the creditor accepts the payment must set off that debt

only.2. If the payment is made on account generally, the creditor may set off any debt.3. If nothing is specified the first debt in order of time and if more then one debt

then in their proportion.

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Time of performanceTime of essence Time not of essence

If the time is of essence and the partyfails to perform the aggrieved party has aright to avoid the contract.

If time is not of essence and party fails toperform within time the contract is valid.The aggrieved party can claim damages

If the party accepts the performance atany time other than fixed for contract thenhe can claim damages only if he givesnotice.

RestitutionRestore the benefits received under a void contract or under a voidable contract on itsbecoming void.

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Discharge of contract1. Performance

i. Actaul – parties have discharged there obligationmii. Attempted - one is ready, other refuses to accept

2. Lapse of time3. Operation of law

i. Deathii. Insolvencyiii. Merger

4. Mutual consenti. Novation: substituting old contract for a new contractii. Rescission: cancellation of the contractiii. Alteration: change in the terms of the contractiv. Remission: acceptance of lesser amount or kind in place of cash

5. Impossibility of performancei. Existing at the time of contract (known to both, unknown to both, known to

one)ii. Supervening impossibility (death of the promisor, destruction of subject

matter, non existence of a particular state of things, outbreak of war, changein law)

6. Breach – non fulfillment of the terms of the contract.i. Actual – on the due date or during the course of performanceii. Anticipatory – prior to the due date

1. Performancei. Actaul – parties have discharged there obligationmii. Attempted - one is ready, other refuses to accept

2. Lapse of time3. Operation of law

i. Deathii. Insolvencyiii. Merger

4. Mutual consenti. Novation: substituting old contract for a new contractii. Rescission: cancellation of the contractiii. Alteration: change in the terms of the contractiv. Remission: acceptance of lesser amount or kind in place of cash

5. Impossibility of performancei. Existing at the time of contract (known to both, unknown to both, known to

one)ii. Supervening impossibility (death of the promisor, destruction of subject

matter, non existence of a particular state of things, outbreak of war, changein law)

6. Breach – non fulfillment of the terms of the contract.i. Actual – on the due date or during the course of performanceii. Anticipatory – prior to the due date 27

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Remedies for breachDamages Sue for

rescissionQuantum

meruitSue for specific

performanceSue for

injunctionOrdinary – claimed as a rightSpecial – claimed only whennotice of special lossVindictive or exemplarydamages – breach ofcontract of marriage andwrongful dishonour ofcustomers chequeNominal – when theaggrieved party does notsuffer any loss on account ofbreachPenalty – very high amountLiquidated – very near to theactual damage

If one partydoes notperform theother maysue forcancelingthe contract

As muchas isearned ormerited

i. Goods haveno substitute;or

ii. Damages arenot anadequaterelief

Has to performthe contract

There is anegativeterm in thecontract andone partybreachesthatnegativeterm

Ordinary – claimed as a rightSpecial – claimed only whennotice of special lossVindictive or exemplarydamages – breach ofcontract of marriage andwrongful dishonour ofcustomers chequeNominal – when theaggrieved party does notsuffer any loss on account ofbreachPenalty – very high amountLiquidated – very near to theactual damage

i. Goods haveno substitute;or

ii. Damages arenot anadequaterelief

Has to performthe contract

There is anegativeterm in thecontract andone partybreachesthatnegativeterm

Rules of damages: (1) Any damage arising in the ordinary course of the contract canbe claimed as a matter of right. (2) Special damages can be claimed only if thespecial circumstances were made known. (3) Remote damages can never beclaimed. (4) Any damage arising under a quasi contract can be claimed. 28

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Contingent contractDependent on thehappening of an

event

Dependent on thenon happening of

an event

Dependendt on athird party

Dependent on animpossible event

If a contingentcontract isdependent on thehappening on anevent it isValid: when theevent happens andBecomes void:when the eventdoes not happen

If a contingentcontract isdependent on thenon happening onan event it isValid: when theevent does nothappen andBecomes void:when the eventhappens or doesnot becomeimpossible

If the third partyacts according tothe contract thecontract shall bevalid

It is void ab initioIf a contingentcontract isdependent on thehappening on anevent it isValid: when theevent happens andBecomes void:when the eventdoes not happen

If a contingentcontract isdependent on thenon happening onan event it isValid: when theevent does nothappen andBecomes void:when the eventhappens or doesnot becomeimpossible

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Quasi contract

Goods delivered by mistake or under coercion: person to whom money has been paidor anything is delivered by mistake or under coercion must repay or return.

claim for necessaries supplied to a minor or to a lunatic’s family: if a person notcapable of contracting is supplied with necessaries or supplied to his family, the personcan recover the value of the necessaries from the person’s property.

Payment by an interested party: A person who makes payment on behalf of another toprotect his interest has a right to recover the amount from the person on whose behalfthe payment was made.

Obligation of a person receiving benefits o a non gratuitous act: if a person does nythigfor another or delivers something not doing so gratuitously then the person who enjoysthe benefit is liable to pay the reasonable charges .

Responsibility of finder of the goods: if a person finds goods belonging to another takesthem in his custody he has the same position as that of the bailee of the goods. Hemust restore the good back to the true owner.

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Goods delivered by mistake or under coercion: person to whom money has been paidor anything is delivered by mistake or under coercion must repay or return.

claim for necessaries supplied to a minor or to a lunatic’s family: if a person notcapable of contracting is supplied with necessaries or supplied to his family, the personcan recover the value of the necessaries from the person’s property.

Payment by an interested party: A person who makes payment on behalf of another toprotect his interest has a right to recover the amount from the person on whose behalfthe payment was made.

Obligation of a person receiving benefits o a non gratuitous act: if a person does nythigfor another or delivers something not doing so gratuitously then the person who enjoysthe benefit is liable to pay the reasonable charges .

Responsibility of finder of the goods: if a person finds goods belonging to another takesthem in his custody he has the same position as that of the bailee of the goods. Hemust restore the good back to the true owner.