ASSIGNMENT

ON
LEGAL ASPECT OF BUSINESS

Submitted To – Submitted By-

Mrs. Susmita Das Malik Deepali Jain
MBA Section –‘A’

Oct-2019
Sno. Questions date Remarks
1 Define contract and its essentials. Discuss 10.10.19
in brief the remedies available to an
aggrieved party in case of breach of
contract ?

2 Define contract of bailment and what 10.10.19

are the rights and duties of bailor and
bailee ?
 Introduction
What is a Contract:-
The Contracts or agreements between various parties are framed and validated by
the Indian Contract Act. Contract Act is one of the most central laws that regulates and
oversees all the business wherever a deal or an agreement is to be reached at.
A contract is basically an agreement between two parties creating a legal obligation
for both of them to perform specific acts. Each party is legally bound to perform the
specified duties such as rendering a payment or delivering goods.

Contract Act: Meaning

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as
“An agreement enforceable by law”. In other words, we can say that a contract is
anything that is an agreement and enforceable by the law of the land.
This definition has two major elements in it viz – “agreement” and “enforceable by law”.
So in order to understand a contract in the light of The Indian Contract Act, 1872 we
need to define and explain these two pivots in the definition of a contract.

Agreement
The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section 2
(e), the Act defines the term agreement as “every promise and every set of promises,
forming the consideration for each other”.
Now that we know how the Act defines the term “agreement”, there may be some
ambiguity in the definition of the term promise.

Promise
This ambiguity is removed by the Act itself in its section 2(b) which defines the term
“promise” here as: “when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. Proposal when accepted, becomes a
promise”.

In other words, an agreement is an accepted promise, accepted by all the parties involved
in the agreement or affected by it. This definition thus introduces a flow chart or a
sequence of steps that need to be triggered in order to establish or draft a contract. The
steps may be described as under:
 i. The definition requires a person to whom a certain proposal is made.

ii. The person (parties) in step one have to be in a position to fully understand all
the aspects of a proposal.

iii. “signifies his assent thereto” – means that the person in point one accepts or
agrees with the proposal after having fully understood it.

iv. Once the “person” accepts the proposal, the status of the proposal changes to
“accepted proposal”.

v. “accepted proposal” becomes a promise. Note that the proposal is not a promise.
For the proposal to become a promise, it has to be accepted first.
Thus, in other words, an agreement is obtained from a proposal once the proposal, made
by one or more of the participants affected by the proposal, is accepted by all the parties
addressed by the agreement. To sum up, we can represent the above information below:

Agreement = Offer + Acceptance.

Enforceable by law
Simply put, a contract can be described as a legally binding oral or written agreement
which exchanges any combination of goods, services, money and property.

Definition
A voluntary, deliberate, and legally binding agreement between two or more
competent parties. Contracts are usually written but may be spoken or implied, and
generally have to do with employment, sale or lease, or tenancy.

A contractual relationship is evidenced by (1) an offer, (2) acceptance of the offer, and
a (3) valid (legal and valuable) consideration. Each party to a contract acquires rights
and duties relative to the rights and duties of the other parties. However, while all
parties may expect a fair benefit from the contract (otherwise courts may set it aside as
inequitable) it does not follow that each party will benefit to an equal extent.

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as
“An agreement enforceable by law”. In other words, we can say that a contract is anything
that is an agreement and enforceable by the law of the land.
Difference between contract and
agreement

Legally binding contracts must have essential elements in order to be enforced in

court.

Contract Agreement

A promise or a number of promises that

A contract is an agreement that is are not contradicting and are accepted
enforceable by law. by the parties involved is an agreement.

An agreement must be socially

A contract is only legally enforceable. acceptable. It may or may not be
enforceable by the law.

A contract has to create some legal An agreement doesn’t create any legal
obligation. obligations.

An agreement may or may not be a

All contracts are also agreements.
contract.
1. CRUELITY OF A PARTIES:
The first and foremost requirement to form a contract is two or more person should be
there.A person cannot make a conract with himself ,there must be atleast two persons
or parties One of them is known as promise & the other one is known as offeree or
promisee.
2. Offer and acceptance:
There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in
an agreement. The adjective ‘lawful’ implies that the offer and acceptance must
satisfy the requirements of the Contract Act in relation thereto.

3. Intention to create legal relations

There must be an intention among the parties that the agreement should be attached by
legal consequences and create legal obligations. Agreements of a social or domestic
nature do not contemplate legal relations, and as such they do not give rise to a
contract.

An agreement to done at a friend’s house is not an agreement intended to create legal

relations and therefore is not a contract. Agreements between husband and wife also
lack the intention to create legal relationship and thus do not result in contracts.

4. Contractual Capacity of parties:

The parties to an agreement must be competent to contract; otherwise it cannot be
enforced by a court of law. In order to be competent to contract the parties must be of
the age of majority and of sound mind and must not be disqualified from contracting
by any law to which they are subject (Sec. 11).

If any of the parties to the agreement suffers from minority, lunacy, idiocy,
drunkenness, etc., the agreement is not enforceable at law.

5. Consensus-ad-idem:
The parties to an agreement must have the mutual consent i.e. they must agree upon
the same thing and in the same sense. This means that there must be consensus ad
idem (i.e. meeting of minds).

6. Free consent:

Another essential of a valid contract is the consent of parties, which should be free.
Under Sec. 13, “Two or more parties are said to consent, when they agree upon the
same thing in the same sense.” Under Sec. 14, the consent is said to be free, when it is
not induced by any of the following:- (i) coercion, (ii) misrepresentation, (iii) fraud,
(iv) undue influence, or (v) mistake. Consent is crucial for an agreement and thus for a
valid contract. If two people reach a similar agreement in the same sense, they are said
to consent to the promise.
7.Lawful consideration:
Consideration is known as ‘something in return’. It is also essential for the validity of
a contract. A promise to do something or to give something without anything in return
would not be enforceable at law and, therefore, would not be valid.

Consideration need not be in cash or in kind. A contract without consideration is a

‘wagering contract’ or ‘betting’. Besides, the consideration must also be lawful.

8.Lawful object:
For the formation of a valid contract it is also necessary that the parties to an
agreement must agree for a lawful object. The object for which the agreement has
been entered into must not be fraudulent or illegal or immoral or opposed to public
policy or must not imply injury to the person or property of another (Sec. 23).

If the object is unlawful for one or the other of the reasons mentioned above the
agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to
carry on prostitution, he cannot recover the rent through a court of law.

9. Certainty of meaning:
Section 29 of the Contract Act provides that “Agreements, the meaning of which is
not certain or capable of being made certain, are void.” In order to give rise to a valid
contract the terms of the agreement must not be vague or uncertain. It must be
possible to ascertain the meaning of the agreement, for otherwise, it cannot be
enforced.

10. Possibility of performance:

Yet another essential feature of a valid contract is that it must be capable of
performance. Section 56 lays down that “An agreement to do an act impossible in
itself is void”. If the act is impossible in itself, physically or legally, the agreement
cannot be enforced at law.

11. Compliance of Legal formalities:

The agreement may be oral or in writing. When the agreement is in writing it must
comply with all legal formalities as to attestation, registration. If the agreement does
not comply with the necessary legal formalities, it cannot be enforced by law.

12. Agreement not declared void:

An agreement to become a contract should not be an agreement which has been
expressly declared void by any law in the country, as it would not be enforceable at
law.

Remedies for Breach of Contract

The Indian Contract Act lays out all the provisions for the performance of a contract. It
also contains the provisions in case of breach of contract by either party. Let us take a
detailed look at the available remedies for breach of contract

Recession

Quantum Sue for

Meruit damages
Remidies
for
breach

Sue for
Injunction Specific
performance

When a promise or agreement is broken by any of the parties we call it a breach of

contract. So when either of the parties does not keep their end of the agreement or does
not fulfil their obligation as per the terms of the contract, it is a breach of contract. There
are a few remedies for breach of contract available to the wronged party. Let us take a
look.

1] Recession of Contract
When one of the parties to a contract does not fulfil his obligations, then the other party
can rescind the contract and refuse the performance of his obligations.

As per section 65 of the Indian Contract Act, the party that rescinds the contract must
restore any benefits he got under the said agreement. And section 75 states that the party
that rescinds the contract is entitled to receive damages and/or compensation for such
a recession.
2] Sue for Damages
Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal
course of business.

Such damages will not be payable if the loss is abnormal in nature, i.e. not in the
ordinary course of business. There are two types of damages according to the Act,

 Liquidated Damages: Sometimes the parties to a contract will agree to the amount
payable in case of a breach. This is known as liquidated damages.

 Unliquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.
3] Sue for Specific Performance
This means the party in breach will actually have to carry out his duties according to the
contract. In certain cases, the courts may insist that the party carry out the agreement.

So if any of the parties fails to perform the contract, the court may order them to do so.
This is a decree of specific performance and is granted instead of damages.

For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts
can order B to perform his duties under the contract and sell the land to A.

4] Injunction
An injunction is basically like a decree for specific performance but for a negative
contract. An injunction is a court order restraining a person from doing a particular act.

So a court may grant an injunction to stop a party of a contract from doing something he
promised not to do. In a prohibitory injunction, the court stops the commission of an act
and in a mandatory injunction, it will stop the continuance of an act that is unlawful.

5] Quantum Meruit
Quantum meruit literally translates to “as much is earned”. At times when one party of
the contract is prevented from finishing his performance of the contract by the other
party, he can claim quantum meruit.

So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value
of the work he has already done.