Business law and ethics syllabus Unit-1 Indian Contract Act 1872

1. Business Law & Ethics
I unit Contract Act

2. CONTRACT LAW
The term Contract is derived from the Latin
word ‘contracum’ which means ‘drawn
together’. It is an agreement to do or not to
do an act. It comes into existence from the
action of the parties. It creates legal rights and
obligations. It is enforceable by law.

3. DEFINITION OF CONTRACT
“An agreement creating and defining obligations
between the parties”.
- Salmond
“A legally binding agreement between two or
more persons by which rights are acquired by one
or more to acts or forbearances on the part of
the other or others”.
- Sir William Anson
Section 2(h) of the Indian Contract Act 1872
defines a contract as “ an agreement enforceable
by law”.

4. AGREEMENT
According to Sec 2(e) of Indian contract Act
1872 “ Every promise or every set of promises
forming the consideration for each other”.
A promise is defined in Sec 2(b) as “ A
Proposal when accepted becomes a promise”.

5. VALID CONTRACT
Section 10 of the Indian contract Act lays
down the rules as to what agreements are
contracts. “ All agreements are contracts if
they are made by the free consent of the
parties, competent to contract, for a lawful
consideration and with a lawful object and are
not hereby expressly declared to be void”

6. ESSENTIAL ELEMENTS OF A
VALID CONTRACT
Consensus-ad-idem
Legal relationship
Lawful consideration
Lawful Object
Competent parties
Free consent of parties
Certainty of terms
Possibility of Performance
Agreement not expressly declared void
Compliance with the legal formalities

7. Consensus- ad-idem (Section 2a, 2b)
It means identity of minds. There must be two
parties to a contract. The minds of both the
parties to the contract must be ad-idem. In
other words , the two parties must have
agreed about the subject matter of the
contract at the same time and in the same
sense.

8. Legal Relationship (section 2g)
The agreement must create legal relationship
b/w the parties. If there is no intention on the
part of parties to create legal relationship ,
there is no contract. Agreements of a social or
domestic nature do not create legal relations.
Case : Balfour Vs Balfour

9. Lawful Consideration
Consideration means “ some-thing is return” .
In other words , it means “something in
exchange for something”. It is the price for the
promise. Every valid agreement must be
supported by consideration. An agreement
without consideration is void. The
consideration need not necessarily be in cash
or even in kind. It may be past, present or
future. But it must be real and lawful.

10. Lawful object
The object or the purpose of the agreement
must be lawful. It must not be immoral or
illegal or opposed to public policy. If an
agreement suffers from any legal flaw or
defect, it will not be enforceable by law.

11. Capacity of parties
The parties to the contract must be competent
to contract. The parties to the agreement
must be capable of entering into a valid
contract. According to Section 11, every
person is competent to contract if he or she,
- Is of the age of Majority;
- Is of sound mind; and
- Is not disqualified from contracting by any
law to which he is subject.

12. Free Consent (Section 13)
To constitute a valid contract there must be free and
genuine consent of the parties to the contract. It
should not be obtained by
Consent definition 13
Free consent definition 14
Coercion Section 15
Undue influence Section 16
Fraud Section 17
Misrepresentation Section 18
Mistake Section 20, 21 &22

13. Certainty of terms Section 29
The terms of the agreement must precise and
certain and not vague. “ agreement the
meaning of which is not certain or capable of
being made certain are void”.
Ex: A agrees to sell B. “a hundred tones of oil”.
There is nothing what ever to show what kind
of oil was intended. The agreement is void for
uncertainty.

14. Possibility of Performance
The agreement must be capable of being
performed. An agreement to do an impossible
thing or act cannot be enforced by law to do
an impossible act.

15. Agreement not declared void or illegal
Agreements which have been expressly
declared void or illegal by law are not
enforceable at law; hence does not constitute
a valid contract.

16. “All Agreements are not Contract but All
Contracts are Agreements”
“All void Contracts are not an illegal Contracts
but All illegal Contracts are Void”

17. TYPES OF CONTRACTS
On the Basis of
Validity
• Valid Contract
• Void Contract
• Voidable
Contract
• Unenforceable
Contract
• Illegal Contract
On the Basis of
Formation
• Express
Contract
• Implied
Contract
• Quasi Contract
On the Basis of
Performance
• Executed
Contract
• Executory
Contract
• Unilateral
Contract
• Bilateral
Contract

18. Offer
A proposal is an expression of will or intention
to do or not to do something with a view to
get some thing it is also called a offer.
The person making the proposal is called the
“offeror”
The person to whom the proposal is made is
called the “ offeree”

19. Kinds of offer
Express offer: An offer which is expressed by
words, written or spoken is called express
offer.
Implied offer: It means an offer made by
conduct. An offer may be positive negative. It
may be in the form of statement or question.

20. Essentials of Valid offer
- Offer must be capable of creating Legal relations
( Balfour Vs Balfour )
- Term of an offer must be certain
( Taylor Vs Portington)
- Offer may be specific offer or General offer
( Carlill Vs Carbolic smoke ball co;)
- Offer must be communicated to the offeree
( Lalman shukla Vs Gauri Dutt)
- An Invitation to offer is not an offer
- offer must be made with a view to obtaining the assent
- An offer should not contain a term the non-compliance of which would amounts to
acceptance
- offer may be conditional
- General offer is different from tender
- Cross offers

21. Acceptance
Section 2(b) defines acceptance as “ when the
person to whom the proposal is said to be
accepted a proposal when accepted becomes
a promise”

22. Essentials of valid Acceptance
• Acceptance must be absolute and unconditional
• Acceptance must be communicated
• Acceptance must be in the mode prescribed
• Acceptance must be given with in the reasonable time
• Acceptance must be given only by the offeree
• Acceptance must be after an offer
• Acceptance must be given before the offer lapses or its
revocation
• A proposal once rejected can not be accepted unless it
is renewed
• Revocation of acceptance

23. Legal rules of Consideration
• Consideration must move at the desire of the
promisor ( Durga Prasad Vs Baldeo)
• Consideration may move from the promisee or
any ( Chinnayya Vs ramayya)
• Consideration may be past, present or future
• 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

24. General Rules and Exceptions for
Consideration
General Rule : “ A promise without consideration is a gift,
where as the on made for a consideration is a bargain”.
1. Promise made on account of natural love and
affection
2. Promise to compensate for voluntary services
3. written promise to pay a time-barred debt
4. Contract of agency
5. Completed Gifts
6. Remission by the promisee of performance of the
promise
7. Contract under seal

25. Minor
According to the Indian Majority Act 1875 , a Minor is a person who has not
completed 18 years of age, he attains Majority at 21 years.
1. Absolutely void
2. No Ratification is possible
3. No estoppel against a Minor
4. No Restitution for fraud
5. Enforceability of contracts by minor
6. Minor and partnership
7. Minor and agency
8. Minor and negotiable instruments
9. Minor as a member of a company
10 . Minor and insolvency
11. Position of minors parents
12. Minor is liable for necessities

26. Legality of Object
Public policy is that principal of law
which provides that no person can lawfully do
that which is injurious to the public or is
against the interest of the society or the state.

27. Agreements opposed to Public Policy
1. Trading with the enemy
2. Agreements for stifling prosecution
3. Agreements interfering with the course of justice
4. Agreements in restraint of legal proceedings
5. Agreements for improper promotion of litigations
6. Agreement to vary the period of limitation
7. Marriage brokerage contracts
8. Traffic in public offices
9. Agreements restraining personal freedom
10. Agreements restraint of trade

28. Quasi Contracts
A contract is the result of an agreement
enforceable by law. It comes in to existence
from the action of the parties. It creates legal
rights and obligations, but under certain
special circumstances , the law creates and
enforce legal rights and obligations although
the parties have never entered into a contract.
Such obligations imposed by law are known as
“ Quasi –Contracts”

29. 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.

30. Types of Quasi Contracts
1. Claims for necessaries supplied:
Under section 68 contract Act explains where
necessaries are supplied to a person who is
competent to contract or to some one whom he
is legally bound to support, the supplier is
entitled to recover the price from the property
of the competent person . Re-imbursements can
be claimed not only when necessaries are
supplied but also when money has been
advanced for the purchase of necessaries .
Case: Hazarilla vs Nawaraglal

31. 2. Payment by an interested person:
Section 69 provides that a person who is
interested in the payment of money which
another is bound by law to pay, and who
therefore, pays it, is entitled to be reimbursed
by the others.

32. 3. Benefit of non-gratuitous act:
Section 70 provides that the act must have
been done lawfully. It must have been done
by the person not intending to act
gratuitously. The person for whom the act
done must have enjoyed the benefit of that
act.

33. 4. Responsibility of finder of goods:
section 71 defines that a person who finds
goods belonging to another and takes them into
his custody is liable as a bailee. The finder of
goods must try to find out the real owner of the
goods and deliver the goods to him on demand.
He is bound to take as such care of goods found
as a man of ordinary prudance would take of his
own goods under similar circumstance.

34. 5. Money paid by Mistake or under Coercion:
Section 72, a person to whom money has
been paid or anything delivered by mistake or
under coercion must repay or return it. Money
paid under a mistake is recoverable whether
the mistake of fact of law.

35. Remedies For Breach of Contracts
Meaning : Breach means failure of a party to perform
his obligation under a contract.
Breach of contract means a breaking of the obligation
which a contract imposes.
It occurs when a party to the contract without lawful
excuse does not fulfill his contract and obligation or by
his own act makes it impossible that should perform
his obligation under it.
Then the aggrieved party has a right to claim for
damages.
Breach of contract operates as a discharge of contract.

36. Types of Breach of contracts
Breach of contract is of two kinds, namely
a) Actual breach
b) Anticipatory breach
a) Actual breach: It may take place at the time
when the performance is due. Actual breach
contract occurs, when at the time when the
performance is due, one party fails or refuses
to perform his obligation under the contract.

37. B) Anticipatory breach : It occurs when a party
to an Executory contract declares his intention
of not performing the contract before the
performance is due.
By expressly renouncing his obligation under
the contract
By doing some act so that the performance of
his promise becomes impossible

38. Remedies
A remedy is the means given by law for
enforcement of a right. Certain remedies are
available to the injured or aggrieved party on
breach of a contract.
1) Suit for Rescission of the contract:
Rescission means “ the setting aside of the
contract”. When there is a breach of contract
by one party, the other party may sue to treat
the contract as rescinded

39. 2) Suit for Damages: Damages are monetary
compensation allowed to the injured party by the
court for the loss suffered by him because of the
breach of the contract by the other party . The
purpose of the awarding damages for the breach
of a contract is to put he injured party in the
same position so far as money can do it.
3) Suit for Quantum meruit : Quantum meruit
means ‘as much as earned’. A right to sue on a
quantum meruit arises when a contract, partly
performed by one party, has become discharged
by the breach of the contract by the other party.

40. 4) Suit for specific performance: In certain
special cases of breach of contract, damages
are not an adequate remedy. The court may,
in such cases, order specific performance of
the contract. The defaulting party will be
forced to perform the act promised under the
contract. “ The actually carrying out of the
promise by the party in breach, exactly
according to the terms of the contract”.

41. 5. Suit for injunction: An injunction is a
preventive relief. It is an order of the court
restraining a person from doing a particular
act. It is a method of securing the specific
performance of the negative terms of the
contract the court, by issuing injunction
restrains a person from doing what he has
promised not to do. Injunction may be
temporary or permanent. It is a preventive
relief granted at the discretion of the court.

42. THANK YOU