LEGAL ASPECTS OF BUSINESS

ASSIGNMENT

Submitted by,
Group – 4

Adarsh Shukla –PGP10004

Ankita katiyar-PGP10008
Pooja-PGP10035
Saravana Kumar-PGP10045
Sheersha kk-PGP10048
Unadkat Meet-PGP10061
 LAW OF CONTRACT

Law of contract lays down the legal rules relating to promises: their formation, their
performance and their enforceability, contained in Indian Contract Act, 1872

Indian Contract Act:

1. Act based on English Common law

2. Non exhaustive act as it doesn’t deal with all the branches of the law of contract
3. Separate acts exist to deal contracts relating to negotiable instruments, transfer of
property, insurance etc.
4. Section 2(h):defines the term “contract” as ,’an agreement enforceable by law’
5. Section 2(e):defines agreement as ’every promise and every set of promises forming
consideration for each other’

NOTE:

★ Every agreement is made up of a proposal or offer from one side and its acceptance
by the other
★ Every contract is an agreement but every agreement is not a contract

Conditions:

● Parties have freedom to settle all the terms of their contract

● Must have mutuality as well as meeting of minds(consensus ad idem) of parties
● Contract terms are reasonable and are not opposed to public policy

When does agreement become a contract?

● Should satisfy Section 2(h) and Section 2(e)

An agreement to become a contract should also satisfy these conditions:
● Offer and acceptance i.e. offer from one party and its acceptance by the other
party
● Consent is free and not caused by coercion
● Parties are competent to contract
● Object is lawful
● Must not be expressly declared to be void
● Terms must not be vague and uncertain
● Must be capable of performance
 ● Legal formalities: contract may be written or oral but in certain cases agreement
needs to be in written

Kinds of Contracts

Classificat Enforceability Mode of Creation Point of view of extent Form of contract

ion based of execution
on

Valid contract: Express Contract: Executed contract: Ordinary contract:

Agreement enforceable Where both offer When both the parties Contracts drafted as
by law and acceptance to contract have a per mutual
constituting an completely performed agreements of 2
agreement are their share of parties
made in words obligation and nothing
Types
spoken or written remains to be done

Voidable contract: Implied or Inferred Executory contract:

Agreement enforceable contract: Unwritten When both the parties
by law at the option of that the parties to a contract have to
one or more of the parties presumably still to perform their
thereto, but not at the intended to agree share of obligation
option of the other on
[section 2(i)] 1.Bilateral contracts:
each party is a
Void contract: Contract Constructive or promisor or promisee
which ceases to be quasi-contract:
enforceable by law Recognizes a 2.Unilateral contracts:
contract under only one party has to
Unenforceable contract: certain special perform the obligation
Valid, but not capable of circumstances
being enforced

Illegal or unlawful
contract: Contract that
was made for an illegal
purpose and, violates law
Reasonable Notice:

● Should be contemporaneous with the contract

● Terms of contract should be reasonable
● Fundamental breach of contract: the main obligation of the contract cannot be negative
● Ambiguity to be resolved in favor of weaker party
● Statutory protection: Unfair Contract Terms Act,1977

Formation of an Agreement
Proposal:

 Essential for creating a contract is valid proposal

When does a proposal become valid?

A proposal becomes valid in these conditions:

● Expression of willingness to do/Abstain from doing to obtain other’s assent
● Express or implied offer
● Certainty of offer
● Communication of offer
● General offers
● Cross offers
● Invitation to treat and offer

ACCEPTANCE OF CONTRACT

Section 2(b) defines 'acceptance' as follows: “When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted,
becomes a promise.”
Thus, acceptance is the assent given to a proposal.

Essential Requirements of a Valid Acceptance

Firstly, acceptance should be communicated by the offeree to the offeror.

Secondly, acceptance should be absolute and unqualified.

(I) Communication of acceptance

Acceptance express or implied -Acceptance may be in the form of express words (written or
spoken) or may be signified through conduct (implied or tacit viz, cashing of a cheque).
● Mere silence is no acceptance
 ● In case of general offers acceptance is not needed

Mode of communication – If the offeror prescribes the mode or manner of acceptance, the
acceptance must be made in the mode prescribed
(a) Acceptance by post, etc.
(b) Acceptance by Telephone/ Telex
(c)) Acceptance by Internet

(II) Absolute and Unconditional Acceptance

For a, valid acceptance, there must be an ad idem "concurrence of mind" i.e. agreeing on the
same thing in the same course/ sense and at the same time
● Conditional or Qualified acceptance is no acceptance
It will only be a counter offer, which may be accepted or rejected by the offeror.
● Provisional Acceptance
An acceptance made subject to final approval is called provisional acceptance. It does
not ordinarily bind parties until the final approval is given.
● Tenders
It is not an offer but an invitation to offer. When a tender is approved, it is converted into
a 'standing offer'

REVOCATION

The Contract Act gives both proposer and acceptor the option of revoking their communication,
before a completed contract comes into existence.

Revocation of Proposal

Section (6) lays down the circumstances when an offer lapses i.e. modes of revocation. A
proposal is revoked:
(1) By the communication of notice of revocation by the proposer to the other party,
(2) By the lapse of time prescribed in such proposal for its acceptance, or, if no time is so
prescribed by the lapse of a reasonable time, without communication of the acceptance
(3) By the failure of the acceptor to fulfil a condition precedent to acceptance
(4) By the death or insanity of the proposer

CONSIDERATION

Consideration constitutes the very foundation of the contract. An agreement not supported by
consideration is void (Section 25, Contract Act).
Section 2(d) consideration is defined as follows:

(1) That the act or abstinence, which is to be a consideration for the promise, should be done at
the desire of the promisor,
(2) That it should be done by promisee or any other person,
(3) That the act or abstinence may have been already executed or is in the process of being
done or may still be executory

There are some exception when the contract will not be void without consideration:
● Exception 1. Natural love and affection
● Exception 2. Past voluntary service
● Exception 3. Time-barred debt

Capacity of Parties

'Capacity to Contract', means competency of the parties to enter into a valid contract.
Thus a person is incompetent to contract if he is:
● Minor
● Alien enemy
● Convicts
● Corporation
● Insolvent person.
● Incapacity arising from mental deficiency
● Incapacity arising from unsound mind

Capacity of parties: contracts by a minor

Law protects the minor against his own inexperience and the improper designs of those
advanced in years. Thus a contract where minor is involved is considered as:
● Void
● No ratification possible
● No estoppel against a minor
● Restitution of goods and property acquired fraudulently

Minor and negotiable instruments: A minor can draw, deliver and endorse negotiable
instruments without being liable in following condition:
● Minor as a member of a company
● Position of minor’s parents
● Minor’s Liability
● Minor and guardian
● Minor’s liability to tort
 ● No specific performance

FREE CONSENT

Section (13) defines consent as: “Two or more persons are said to consent when they agree
upon the same thing in the same sense”

A mere consent is not enough for a valid contract

According to Section (14), consent is said to be free when it is not caused by-

(1) coercion (Section 15)

(2) undue influence (Section 16)
(3) fraud (Section 17)
(4) Misrepresentation (Section 18)
(5) mistake, subject to the provisions of Sections (20, 21 and 22)

Coercion

According to Section (15) consent is said to be caused by coercion when it is obtained by

pressure exerted by either of the following techniques-

 Committing or threatening to commit any act forbidden by the Indian Penal Code
 Unlawfully detaining or threatening to detain any property

Undue Influence

Meaning of Undue Influence (Clause 1)- Undue influence is said to be a subtle species of
coercion or fraud whereby mastery is obtained over the victim's mind, by insidious approaches
and seductive artifices.

Relations which involve Domination (Clause 2)- In all cases where there is active trust and
confidence between the parties or the parties who are not on equal footing, it can be said that
one party is able to dominate the will of the other

Presumption of Undue Influence (Clause 3) - Whether a transaction is vitiated on the ground

of undue influence is primarily a question of fact. Section 16(3) does not lay down any rule of
law but lays down a rule of evidence.

Fraud

An agreement to which the consent is caused by fraud is voidable at the option of the party
whose consent was so caused
Distinction between Fraud, Coercion and Undue Influence

Fraud by a stranger to the contract does not affect contract. However, ‘coercion’ as well as
‘undue influence’ by a stranger to a contract affects the contract. While fraud is a civil wrong,
‘coercion’ is a criminal wrong also

Misrepresentation

A contract the consent to which is induced by misrepresentation is voidable at the option of the
deceived party. Misrepresentation means mis-statement of a fact material to the contract

Section (18) includes the following types of misrepresentation:

 Unwarranted statement
 Breach of duty
 Inducing mistake about subject-matter

Mistake

Mistake means an erroneous belief about something. It has not been defined in the Indian
Contract Act. Consent obtained by mistake is also not free consent. Mistake or error makes the
contract void

Mistake may operate upon a contract in two ways:

 it may defeat the consent altogether or

 It may mislead the parties as to the purpose which they contemplated

Void & Voidable contracts

Void contracts are those that are non-enforceable at the option of either party while Voidable
contracts are enforceable at option of one party but not at the option of the others.

Limitation on Freedom of Contract (Illegal, Void and Contingent Contracts)

● For the validity of a contract consideration and object should be lawful

● Parties to a so-called “illegal agreements” are not liable to punishment, unless it is
expressly punishable by law or a amounts to a criminal conspiracy

● Unlawful Agreements

According to Section (23), the consideration or object of an agreement are unlawful if it:

● is forbidden by law
● is of such a nature that it would defeat the provision of law
● is fraudulent
● involves or implies injury to the person or property of another
Distinction between Illegal and Void Agreements (Consequences of Illegal Agreements)

An illegal transaction is one which is actually forbidden by law (Section 23), but a void
agreement may not be forbidden, “the law may merely say that if it is made, the courts will not
enforce it” (Sections 25 to 30). Thus every illegal contract is also void, but a void contract
is not necessarily illegal.

Contingent Contracts (Section 31)

According to Section 31, a “contingent contract” “is a contract to do or not to do

something, if some event, collateral to such contract, does or does not happen”.

The rules governing the enforcement of various kinds of contingent contracts are as follows:

● Contracts contingent on an event happening

● Contracts contingent on the event not happening
● Contracts contingent on the future conduct of a living person
● Contracts contingent on happening of specified event within fixed time
● Contracts contingent on impossible event

QUASI - CONTRACT Sections (66) to (72)

"Certain relations resembling those created by contract"

An obligation of one party to another imposed by law independently of an agreement between

the parties.