business law

1. THE INDIAN
CONTRACT ACT, 1872

2. INTRODUCTION
The law relating to contracts in india are
contained in the Indian Contract Act, which came
into force on the first day of september 1872.The
Law of contract is the most important branch of
mercantile Law . The Law of contract is
important not only to businessmen but also to
individuals. It is that branch of law which deals
with agreements or promises, their enforceability,
remedies available for breach of contracts etc.

3. Two parts of Contract Act
The Indian Contract Act may be divided into two
parts:
I Part
Sec.1to75 deals with General principle of contract
II Part
Sec124 to 238 deals with special type of contract such
as
(1) Contract of indemnity and Guarantee
(2) Contract of Bailment and Pledge
(3) Contract of Agency

4. Definition of Contract
The word “contract” is derived from the latin word
“contractum”, which means ‘drawn together’. It denotes
a drawing together the minds of two or more persons to
form a common intention giving rise to an agreement
Section 2 (h) of the Indian Contract Act defines a
contract as “an agreement enforceble by law”
Therefore a contract essentially consist of two elements
(1) An agreement (2) Enforceability at law
Contract =Agreement + Enforceability

5. Cont…
“A contract is an agreement between two or more
persons which is intended to be enforceable at law and is
constituted by the acceptance of one party of an offer
made to him by the other party to do or abstain from
doing some acts”
--Halsbury
Eg. A agrees to to sell his cow to B for Rs 5,000. B accepts
the offer. This is a contracts because it is enforceable in a
court of law.
 A invites B to a dinner and Baccepts the invitation . Here
is an agreement between A and B . But it is not a contract
because it is only a social agreement and not enforceable
in a court of law.

6. Cont…
Right in Personam and Right in Rem
‘Right in Rem’ means a right or in respect of a thing
and ‘rights in personam’ means a right against or in
respect of a person.
In the case of ‘ right in personam’, the contractual
relationship is limited to the parties of the contract
alone.third parties do not come in the picture.
On the other hand, ‘right in rem’ refers to those rights
associated with conveyance or enjoyment of property.

7. Elements of contract
The essential elements of contract are contained
in the definition of contract given in Sec 10 of the
Contract Act. According to Sec 10 “all agreement are
contracts for a lawful consideration and with a lawful
objects and are not hereby expressely declared to be
void.
1. Agreement : there must be an agreement between the
parties of a contract. An agreement involves a valid offer
by one party and a valid acceptance by the other party.
Agreement = Offer + Acceptance

8. Cont…
2. Consensus ad idem: the parties of the contract must agree
upon the subject matter of the contract in the same
manner and in the same sense..
3. Capacity of parties : there must be atleast two parties to
every contract. These parties must have legal capacity to
enter into a contract. Every person who is a major and
possesses sound mind is enter into a contract .
4. Free consent : for the formation of a contract one person
must give his consent to another person. A consent is said
to be free if it is not caused by cercion,undue
influence,fraud,mispresentation or mistake(Sec.14).

9. Cont…
5. Consideration : Consideration is the most important element in
a contract . Consideration means something in returns. In every
contract each agreement must be supported by consideration ,
when one party agrees to give something (or to give up
something) he must be benefited by the other party. This
concept of benefit is called consideration.
6. Lawful object: the object of an agreement must be lawful. It
must not be legally or immoral or opposed to public
policy.when the object of a contract is not lawful, the contract
is void(Sec.23).
7. Not declared to be void: the agreement might not have been
expressly declared void by any law in force in the country. In
such case the agreements cannot be enforced.

10. Cont…
8. Certainty and possibility of performance: the
term of the contract should be certain and
precise.they should not be vague and they should
not create any confusion in the minds of the
parties.similarly the terms of agreement must be
capable of performance.
9. An intention to create legal relationship: there
should be an intention between the parties to
create a legal relatioship.the agreement should
create a legal obligations.

11. Classification of Contract
Contracts can be classified according to
their legal effects as:
(1) Valid contract :an agreement enforceable by law is
called valid contract.
(2) Void contract : a contract coming out from avoid
agreement is avoid contract.
(3) Voidable contract : “an agreement which is enforceable
by law at the opinion of one or more of the parties there
to,but not at the option of the other or the others is
avoidable contract” Sec2(j).

12. Cont…
(4) Unenforceable contract: an unenforceable
contract is one which cannot be enforced in a
court of law because of some technical defects
such as aabsence of writing,time barred ,want of
stamps etc.
(5) Illegal contract: an illegal agreement is one
which is criminal in nature or which is immoral
or which is against public policy. A contract
arising out of an illegal agreement is illegal ab
initio.

13. Offer / (Proposal)
As per Sec.2(a) of the contract Act “when one
person signifies to another his willingness to do or
abstain from doing anything,with a view to obtaining
the assent of that other to such act or abstinence he
is said to make a proposal.’’
The person making the proposal is called the
proposer or offeror and the person accepting the
proposal is called offeree.
Offer is made either by word spokenor by words
written .this is an express offer.
Offer is made by conduct or behaviour. Then it is
an implied offer.

14. Essentials of valid offer
a. An offer must be express or implied
b. An offer may be specific or general
c. The terms of the offer must be definite ,clear,and certain
and not loose and vague
d. An offer must be made with an intention of creating legal
obligations
e. Offer must be communicated to the offeree
f. An offer may be conditional
g. Offer should not contain a term ,tha non compliance of
which would amounts to acceptance
h. Invitation to an offer is not an offer
i. A mere statement of intention is not an offer

15. ACCEPTANCE
Section 2(b) 0f the Contract Act defines,
‘acceptance’ as follows.
“when the person to whom the proposal is made
signifies his assent thereto , the proposal is said
to accepted.”
A proposal when accepted becomes a promise.

16. Essentials of valid Acceptance
1) Acceptance must be absolute and unconditional
2) Acceptance may be express or implied
3) Acceptance must be communicated to the offeror
4) Silence cannot be prescribed as a mode of acceptance
5) Acceptance must be given within the time allowed by the
offeror or within a reasonable time
6) Acceptance must be according to the mode prescribed or
usual and reasonable mode
7) Acceptance must be made only after the offeris made
8) Acceptance must be given by the party or parties to whom
the offer is made

17. Consideration
According to Sec.10 of the contract Act,consideration
is one of the essential elements of a valid
contract.According to sec.25 of the contract Act an
agreement without consideration is void.
Definition
“Consideration is the price for which the promise of
the other is brought and promise thus given for value is
enforceable”
Consideration is defined in sec 2(d) of the indian
contract Act “when at the desire of the promisor ,the
promisee or any other person has done or abstained
from doing or promises to do or abstain from doing
something,such act or abstinence or promise is called a
consideration for the promise.”

18. Essentials and legal rules for a valid Consideration
(1) Consideration must move at the desire of the promisor
(2) Consideration may be given by the promisee or any other
person
(3) Consideration must be lawful
(4) Consideration must be real and not illusory
(5) Consideration must be of some value in the eyes of law
(6) Consideration must not be the performance of existing
duties
(7) Consideration need not be adequate
(8) Consideration may be either positive or negative
(9) Consideration may be past,present or future