1. CONTRACT LAWSIntroduction to Business Laws
Law refers to the principles and regulations established by a government and applicable to people, whether in
the form legislation or of custom and policies recognised and enforced by judicial decision.
Business Law: Business Law is the portion of legal system, which guarantees an orderly conduct of business
affairs and the settlement of legitimate disputes in a just manner.
INDIAN COTRACT ACT-1872
The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement enforceable
A contract is an accepted proposal (agreement) that is fully understood by the law and is legally defined or
enforceable by the law.
This definition has two major elements in it – “agreement” and “enforceable by law”.
In section 2 (e), the Act defines the term agreement as “every promise and every set of promises, forming
the consideration for each other”.
The Act in its section 2(b) defines the term “promise” as, “when the person to whom the proposal is made
signifies his assent thereto, the proposal becomes an accepted proposal. A proposal when accepted becomes a
3. A contract must have two
1)Existence of an agreement and
These are not only the requirement
of a valid contract. There are few
essentials of a valid contract which
laid down in sec10of the Act.
An agreement must have essential
qualities given in the chart.
4. Offer or proposal :
The offer and proposal is defined in sec2(a) of
the Indian contract Act, ‘’when one person
signifies to another his willingness to do or to
abstain from doing anything with a view to
obtain the assent of that other to such act or
abstinence, he is said to make a proposal’’.
An offer may be specific or general.
5. The person making the proposal or
offer is called proposer, offeror or
The person to whom the offer or
proposal is made is called the
propose or offeree.
offer, he is called promise or
6. A specific offer is one which is
made to an ascertained person.
A general offer is one which is
not made to a specific person,
but to the public at large.
7. Intention to create legal relations.
Offer must be definite and certain.
Offer must be communicated to offeree.
Statement of intention and invitation to offer.
Conditional offer to be made known
An offer may be Specific or general.
Two identical cross offer do not result in a contract.
8. Intention to create legal relations
An offer will not become a promise even after it has been accepted unless it has been made with
a view to create legal relations. An offer with social or religious connotation, does not constitute
a valid offer.
Ex: A invited B for dinner and B Failure to attend.
Offer must be definite and certain
The offer must not be ambiguous, uncertain and vague. The terms of the offer must be definite,
unambiguous and certain. If the offer isindefinite or vague, it will not be regarded as offer. Ex: X
purchased a horse from Y and promised to buy another, if the first one proves lucky.
2. A offered to sell his car to B for ₹40000 or ₹45000. this offer cannot be accepted as it is not clear
9. Offer must be communicated to offeree
According to sec4 of the Act “ the communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made”.
Ex: Lalman shukala Vs Gauri Dutt(1913).
G’s nephew had absconded from his home. He sent his servant to search his missing nephew. When the
servant had left, G then announced that anybody who discovered the missing boy would be given the
reward of 500. the servant discovered the missing boy without knowing the reward. When the servant came
to know about the reward he brought on but failed.
A mere statements of intention does not constitute a offer. Similarly an invitation to offer does not
constitute a valid offer. Pricelist, catalogues, advertisements, window display, invitation by a company to
public to subscribe to shares these are the merely statement of intention and hence do not form a valid
Statement of intention and invitation to offer
10. Conditional offer to be made known
If there are special terms or conditions in an offer, these must be brought to the notice of the offeree
at the time of making a proposal. A condition offer lapses when the condition is not accepted by the
An offer may be Specific or general
A specific offer is one which is made to an ascertained person. And
A general offer is one which is not made to a specific
person, but to the public at large.
Two identical cross offer do not result in a contract
When parties make identical offers to each other in ignorance of each others offer, the offers are
said to be cross offers.
A counter offer is a rejection of original offer. It is a new offer which needs acceptance by the
original promisor before a contract is made.
11. An offer terminates when
revoked by notice of
An offer lapses after stipulated
or reasonable time.
A conditional offer terminates
when condition is not
It terminates by not being
accepted in the mode
prescribed or in usual and
An offer lapses on rejection by
counter offer or conditional
It terminates by subsequent
illegality or destruction of
An offer lapses by the death or
insanity of the offeror or
offeree before acceptance.
12. Sec2(b) defines acceptance as ” when one person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted . A proposal when
accepted becomes promise”
16. Capacity to contract is defined in sec 11
of the Indian contract Act as under
“ every person is competent to contract who
is of the age of the majority according to
the law to which he is subject and who is of
sound mind, and is not disqualified from
contracting by any law to
which he is subject”.
In other words all persons are competent to
make contract except the following.
2. Persons of unsound mind
3. Persons disqualified by any law
to which they are subject.
17. The term minor is explained in
section 3 of the Indian Majority
Act1875, as under
“ A minor is a person who has not
completed 18years of age”
In the following two cases, a person
becomes major on completion of 21
1. Where a guardian of a minor
person or property has been
appointed under the Guardians
and wards Act1890, and
2. Where the superintendence of
minor property is assumed by a
court of wards.
19. Can be promise or beneficiary
Agreement entered into by a minor for his or her benefit are valid and enforceable. That means minor can
get all benefits from the contract.
Law acts as a guardian of minor and protect their rights because they don’t possess the capacity to
judge what is good and what is bad for them.
A minor cant be declared insolvent even though there are payable from the properties of the minor.
Agreement void ab initio
Minor cannot be a Surety
A minor cannot be a surety as he is not liable to pay or compensate anything under a contract.
Minor liable for necessaries supplied or necessary services rendered to him or his minor
dependents. That means supplier can claim reimbursement from the property of minor
Liability for necessaries
20. No ratification
The term ratification may be defined as the act of confirming or approving. No ratification implies that an
agreement made by a minor cannot be confirmed by him on attaining majority.
A minor who falsely represents himself to be a major and thereby induces another persons to enter
into an agreement with him, can nevertheless plead minority as a defense in an action on the
The minor is liable for his tort, unless the tort is in reality a breach of contract. The tort must be
separate from and independent of contract.
If minor obtains property or goods by misrepresenting his age, he can be compelled to restore it, if it is
traceable in his possession. This is known as the equitable doctrine of restitution. Where minor sold the
goods or converted them, he cannot be made to pay the value of the goods.
Liability for torts
Doctrine of restitution
21. A person is said to be of sound mind for the purpose of
making a contract if, at the time when he makes it, he
is capable of understanding it and of forming a
rational judgement as to its effect upon his interest.
Persons of unsound mind includes
1.Idiots: An idiot is a person who has completely lost
his mental thinking. Idiocy is a congenital defect
caused by lack of development of the brain.
2.Lunatics: Lunatics is a person whose mental thinking is
disordered due to some mental strain or some
22. Consideration is what a promisor demands as the price for his
Consideration is “which for what” something that a person
gives for something he receives.
Section2(d) of the Indian contract Act defines consideration as follows: “ when at the
desire of the promisor, the promise or any other person has done or abstained from
doing, or does or abstains from doing , or promises to do abstain from doing
something , such act or abstinence or promise is called a consideration for the
24. Section 12 defines consent as “ Two
or more persons are said to consent
when they agree upon the same thing
in the same sense”.
Consent is free if it is not
1. coercion, 2. Undue influence,
3. Fraud, 4. Misrepresentation and
25. The term undue influence means the unfair use of
one’s superior power in order to obtain the
consent of a person who is in a weaker position.
Coercion means forcibly compelling a
person to enter into contract. Coercion
is threat or force used by one party
Coercion against the other for making him to
enter into agreement.
Example: Relationship between police and accused.
Relationship between doctor and patient.
Relationship between Teacher and student.
Relationship between Religious advisor and disciple,
26. According to section 23, “ The consideration or object of an agreement is lawful
If it is forbidden by law; or
Is of such a nature that, if permitted, it would defeat the provisions of any law; or
Is fraudulent; or
Involves or implies injury to the person or property of another; or
The court regards it as immoral, or opposed to public policy. In such cases, the
consideration or object of an agreement is said to be unlawful. Every agreement of
which the object or consideration is unlawful is void.”
27. INTENTION TO CREATE LEGAL RELATIONSHIP
When two parties enter into an agreement, their intention must be to create a legal
relationship between them.
Agreements of social or domestic nature do not contemplate legal relationship.
The object of the contract must be lawful.
It must not be illegal, fraudulent, immoral, or opposed to public policy.
If an agreement suffers from any legal flaw, it would not be enforceable by law.
POSSIBILITY OF PERFORMANCE
The agreement must be to do the act whose performance is possible.
The agreement to do an act whose performance is impossible is not enforceable by law.
28. LEGAL FORMALITIES
Generally, a contract may be oral or in writing.
However, certain contracts are required to be in writing and may even require registration.
Therefore, where law requires an agreement to be put in writing or be registered, the same
must be complied with.
The terms of a contract must not be vague or uncertain.
If an agreement is vague andits meaning cannot be ascertained, it cannot be enforced.