BUSINESS LAW

UNIT: 1
INDIAN CONTRACT ACT, 1872

INTRODUCTION TO BUSINESS LAWS/ REGULATIONS:

Meaning and Definition of Business
Human beings are continuously engaged in some activity or other in order to satisfy their
unlimited wants. Every day we come across the word 'business' or 'businessman' directly or indirectly.
Business has become essential part of modern world. Business is an economic activity, which is related with
continuous and regular production and distribution of goods and services for satisfying human wants.
Lewis Henry defines business as, "Human activity directed towards producing or acquiring wealth
through buying and selling of goods."

Meaning and Definition of Law:

The law is a system of rules that a society or government develops in order to deal wi th crime,
business agreements, and social relationships.
Law is a system of rules that are created and enforced through social or governmental
institutions to regulate behavior.
Salmond defines law as the “body or principles recognized and applied by the state in the administration
of justice”.
According to Austin, “Law is a rule of conduct imposed and enforced by the state."

Nature of Law:
Law is the result of continuous effort through a workable set of rules in the society. It is not pure science
based upon unchanging and universal truth. It affects every activity of the individual. The natures of law
are as follows:
1. Justice is an aim of Law- Justice is always provided through law. The law means to provide justice
to people.
2. Create a peaceful and harmonious relation between people living under society-Lewis made for
keeping peace and harmonious relation by providing security.
3. The law is pervasive (spreading or spread throughout)- Every person is presumed to know it.
4. It regulates human activities- It regulates human behavior in three ways: Prohibitory, mandatory and
permissive.
5. Ignorance of law is not excused.
6.It is a set of rules which is set by the state.
7. It regulates the human conduct.
8. It is created and maintained by the state.
9. It has the certain amount of stability, fixity and uniformity.
10. It ensures all the people have specific power and responsibilities.
11.Its violation leads to punishment.

Meaning and definition of “Business Laws”:

Business law, also called commercial law or mercantile law, the body of rules, Commercial law or business
law is the body of law which governs business and commerce and is often considered to be a branch of
civil law and deals both with issues of private law and public law. Commercial law regulates corporate
contracts, hiring practices, and the manufacture and sales of consumer goods.

Business law is also known as commercial law and is that branch of law that deals with the legal rights,
duties, liabilities of parties involved in any kind of business transactions related to commerce, trade, sales
and merchandising. It is a branch of civil law and includes public as well as private law.

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Commercial law or business law deals with legal aspects such as the laws of principal and agent, carriage
by sea or land, laws of indemnity and guarantee, laws of insurance (marine, fire, life, accident insurance),
laws of banking, partnership and much more. Business law is a very broad term by itself and has many
divisions and types of law to be studied under it.

Sources of Business Law

A source of law in its narrow sense means the origins of law, i.e. the binding rules governing human conduct.
More generally, it means any premises of a legal reasoning. Such sources may be international, national,
regional or religious.
Major part of Indian Mercantile Law or Commercial Law is based on English Law
The main sources of Indian Mercantile Law are:
1. English Mercantile Law.
2. Statute Law.
3. Judicial Decisions.
4. Customs and Usage.
5. Expert opinions
6. Commercial treaty and agreements
1. English Mercantile Law
The English law is the most important source of Indian mercantile law. Many rules of English law have been
incorporated into Indian law through statutes and judicial decisions. The sources of English law are:
a. Common Law
This law is known as judge made law. It is based upon customs and practices handed down
from generation to generation. It is the oldest unwritten law.
2. Statute Law
A Bill passed by the parliament and signed by the President becomes a “Statute” or an Act. Most of the
Indian laws are embodied in the various Acts passed by the Central as well as State legislators.
• The Indian contract act 1872
• The sale of goods act 1930
3. Judicial Decisions
Judicial decisions are also called as case laws. They referred to as precedents and are binding on all Courts
having jurisdiction lower to that of the Court, which gave the judgment. The Courts in deciding cases
involving similar points of law also follow them.
4. Customs and Usage
Customs and usage plays an important role in regulating business transactions. A well-recognized
custom or usage can even override the statute law. Most of the business customs and usage have been
already codified and given legal sanctions in India. Some of them have been ratified by the decisions of the
competent Courts of law.
5. Experts opinion
The experts can help us to make good business rules. Our law makers take opinion and guidelines from
the exports before making business rules. If we have good business rules our businessman can managed,
regulate and lead business organization successfully. The experts are the manufactures helping WTO
create good business environment in the business community so experts are considered as a source of
business law.

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CONTRACT LAWS
Indian Contract Act 1872:
Contract Meaning
A contract is a voluntary arrangement between two or more parties that is enforceable by law as a binding
legal agreement.
Contract law concerns the rights and duties that arise from agreements.
A contract is a legally enforceable agreement between two or more parties. It may be oral or written. A
contract is essentially a set of promises. Typically, each party promises to do something for the other in
exchange for a benefit.

Definition of contract
According to Sir John Salmond defines a contract as, “An agreement creating and defining obligations
between two parties.
According to Sir Fredirck Pollock defines, “Every agreement and promise enforceable at law is a
contract”.
The definition of Contract is given under S.2(h) of the Indian Contract Act, of 1872 which provides ‘a
contract is an agreement enforceable by law’. Thus, a contract is an agreement made between two or more
parties which the law will enforce.
According to above definitions it is clear that a contract should consist of two elements
a. Agreement
b. Legal obligation (enforceable by law)
a. Agreement
Agreement is considered to be prime element to form any contract. An agreement is defined u/s 2 (e) as
‘every promise and every set of promises, forming consideration for each other.
When a proposal is accepted it becomes a promise. Thus, an agreement is an accepted proposal.
Therefore, in order to form an agreement there must be a proposal or an offer by one party and its
acceptance by other party.
In short Agreement = Proposal + Acceptance.
b. Legal obligation (enforceable by law)
An agreement to become a contract must give rise to legal obligation. The second part of the definition deals
with enforceability by law. An agreement is enforceable u/s 10 if it is made by competent parties, out of
their free consent and for lawful object and consideration.
Therefore, a Contract = Agreement + Enforceability. Thus, all contracts are agreements but all agreements
are not necessarily contracts.
Every contract involves an agreement between two or more persons but every agreement does not necessarily
result in a contract" - an agreement to become a contract must be accompanied by the legal obligation,
consideration and consensus ad idem.
Example: 1: An agreement between two persons to go to a movie does not create a legal obligation on either
party. It relates to social matters. Here there is no intention to create legal relationship between the parties.

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Essentials elements of a valid Contract with case laws (10 Marks)

1. Plurality of Parties: There must be at least two parties in a contract. Generally they are called
promisor and promisee. 2. Offer and acceptance (Agreement): One party should make offer and other
should accept it according to the conditions of offer.

2. .Offer and Acceptance: Basically, a contract unfolds when an offer by one party is accepted
by the other party. The accepted offer should be without any qualification and be definite. An offer
needs to be clear, definite, complete and final. It should be communicated to the offeree. A
proposal when accepted becomes a promise or agreement. The offer and acceptance must be
‘consensus ad idem’ which means that both the parties must agree on the same thing in the same
sense i.e. identity of wills or uniformity of minds.

3. Intention to Create Legal Relationship: The intention of the parties to a contract must be to create
a legal relationship between them. Agreements of social nature, as they do not contemplate
legal relationship, are not contracts. For instance, if a father fails to give his daughter the
promised pocket money, the daughter cannot sue the father, because it was purely a domestic
arrangement. Thus, it is clear that all agreements, which do not result in legal relations, are not
contracts.
CASE : BALFOUR VIS BALFOUR (1919)(5 Marks).

4. Capacity to Contract: If an agreement is entered between parties who are competent enough to
contract, then the agreement becomes a contract.
CASE : MOHIRIBIBI V/S DHARMODAS GHOSH (1903)(5 Marks)

5. . Genuine and Free Consent: Free consent is another essential element of a valid contract. An
agreement must have been made by free consent of the parties. The contract would be void in
case of mutual mistakes. When consent is obtained by unfair means, the contract would be
voidable.
CASE : RANGANAYAKAMMA V/S ALAWAR CHETTY (1889)

6. Lawful Object: Objectives of an agreement should be lawful. It must not be illegal or immoral
or opposed to public policy. It is lawful unless it is forbidden by law. When the object of a
contract is not lawful, the contract is void.
Eg: Ramamurthy vs. Goppaya: A borrowed Rs. 10000 from B. A entered into an agreement with B,
and agreed that he might recover the amount even after the expiry of limitation period (the period
within which the debt can be legally recovered), and he (A) would not raise any objection as to
limitation. This agreement is void as it defeats the provision of Limitation Act.

7. Lawful Consideration: Something in return is Consideration. In every contract, agreement must be

supported by consideration. It must be lawful and real.
CASE : DURGAPRASAD V/S BALDE0 (1880)

8. Certainty and Possibility of Performance: The agreements, in which the meaning is uncertain
or if the agreement is not capable of being made certain, it is deemed void. T&C of the contract
should always be certain and cannot be vague. Any contracts that are uncertain are considered void.
The terms of the agreement must also be capable of performance and should not enforce
impossible act.
Eg : Mr. O agreed to purchase a motor van from Mr. S on "hire purchase terms. It was held that there
was no contract. Here terms were not certain. There were wide varieties of hire purchase terms. As the
terms were not certain there could not be a contract.

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 Possibilities of performance
Example: A agrees with B to discover treasure by magic, the agreement is not enforceable. A agrees
with B to put life into B’s dead brother. The agreement is void as it is impossible of performance

9. Legal Formalities: Legal formalities if any required for particular agreement such as
registration, writing, they must be followed. Writing is essential in order to affect a sale, lease,
mortgage, gift of immovable property etc. Registration is required in such cases and legal
formalities in the relevant legislation should be strictly followed.
Example:
1. A Verbally promises to sell his book to y for Rs.200 it is a valid contract because the law
does not require it to be in writing.
2. A verbally promises to sell his house to B it is not a valid contract because the law requires
that the contract of immovable property must be in writing.

10. Agreement not declared as void :The agreement must be enforceable by law. It must not be
declared as void by any court of law. Indian Contract Act specifies certain types of agreements which
have been expressly declared to be void. Some of those agreements are-
 An agreement in restraint of marriage
 An agreement in restraint of legal proceedings
 A wagering agreement

Classifications of Contract(Kinds of Contracts):

The contracts may be classified into the following three main categories:
I. Contracts on the basis of Formation (or Mode of Creation):( 5 Marks)
(1) Express Contract
(2) Implied Contract
(3) Quasi Contract
(4) E-Commerce Contract
II. Contracts on the basis of Performance (or Execution):(5 Marks)
(1) Executed Contract
(2) Executory Contract
(3) Partly Executed and Partly Executory Contract
(4) Unilateral Contract
(5) Bilateral Contract.
III. Contracts on the basis of validity (or Enforceability):(5 Marks)
(1) Valid Contract
(2) Void Contract
(3) Voidable Contract
(4) Illegal Agreement
(5) Unenforceable Contract.

I. Contracts on the basis of Formation (or Mode of Creation):

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(1) Express Contract: Express contract is one which is made by words, spoken or written. Section 9 of the
Act read as under: "Insofar as the proposal or acceptance of any promise is made in words, the promise
is said to be express". Thus, a promise made in words is called an express promise and the express promise
results in express contracts.
Ex: A wrote a letter to B that he offers to sell his car for Rs. 90,000 and B replies to A over phone that he
accepts the offer. It is an express contract.

(2) Implied Contract: An implied contract is one which is made otherwise than by words, spoken or
written. It is inferred from the acts or conduct of a person or the circumstances of the particular case.
Ex: A went to a Hotel, and took a cup of coffee. In this case, there is an implied contract that he will pay for
the cup of coffee.

(3)Quasi contract or Constructive contract: It is not at all a contract. It is an obligation which the law
creates in the absence of any agreement.
Ex: A finder of lost goods is under an obligation to find out the true owner and return the goods.

(4) E-Commerce Contract :An E-commerce contract is one which is entered into between two parties via
internet. An e- contract is a contract modelled, executed and enacted by a software system. Computer
programs are used to automate business processes that govern e-contracts.

II. Contracts on the basis of Performance (or Execution):

(1) Executed Contract: It is a contract in which both the parties to the contract have performed their
respective obligations under the contract.
Example: X offers to sell his car to Y for 2,00,000. Y accepts X's offer. X delivers the car to Y and
Y pays 2,00,000 to X. It is an executed contract.

(2) Executory Contract:It is a contract in which both the parties to the contract have still to perform their
respective obligations.
Example: X offers to sell his car to Y for 2,00,000. Y accepts X's offer. If the car has not yet been
delivered by X and the price has not yet been paid by Y, it is an executory contract.

(3) Partly Executed and Partly Executory Contract:It is a contract in which one of the parties to the
contract has performed his obligation and the
other party has still to perform his obligation.
Example: X offers to sell his car to Y for Rs 2,00,000 on a credit of one month. Y accepts X's offer. X
delivers the car to Y Here, the contract is executed as to X and executory as to Y.

(4) Unilateral Contract:A contract in which only one party has yet to discharge its obligation.

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A unilateral contract or one-sided contract is one in which only one party has to fulfil his obligation at the
time of formation of the contract, the other party having fulfilled his obligation at the time of the contract or
before the contract comes into existence.
Example: A promised to pay Rs 500 to anyone who finds his lost dog. B found the dog and returned to A. It
is a unilateral contract which comes into existence when the dog is found. Now, only A has to perform his
obligation by paying Rs 500 to B, because B has already performed his part of obligation by finding the dog.

(5) Bilateral contract: A contract in which both the parties have yet to perform their obligation.A bilateral
contract or two-sided contract is one in which the obligations on the part of both the parties to the contract
are outstanding at the time of the formation of the contract.

Eg. A promised to paint a picture for B, and B promised to pay Rs. 1000 to A. It is a bilateral contract as
there is exchange of promises, and obligations of both the parties are outstanding

III. Contracts on the basis of Validity (or Enforceability):

(1) Valid Contract: A contract which satisfies all the legal requirements laid down in Section 10 of the
Indian Contract Act is known as a valid contract. A valid contract is an agreement which is binding and
enforceable at law.

(2) Void Contract: A void contract is that which is not enforceable by law. "A contract which ceases to be
enforceable by law becomes void when it ceases to be enforceable" [Section 2(1)]. When a contract is
enforceable by law at the time it was made, but later on, it becomes legally unenforceable due to some
reasons, it is called void contract.

(3) Voidable Contract: “An agreement which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others, is a voidable contract" [Section 2 (1)].
Example: A agreed to sell his car to B for 50,000. The consent was obtained by use of force. The contract is
voidable at the option of A. A can put an end to this contract, if he so decides.

(4) Illegal Agreement: An illegal agreement is the one, the object of which is unlawful. Such an agreement
cannot be enforced by law. Such agreements are void ab-initio (i.e. void from the very beginning).
According to Section 23 illegal or unlawful agreement is defined as one whose object is forbidden by law,
immoral and opposed to public policy.
Examples of illegal agreements are: An agreement to commit murder; assault or robbery.

(5) Unenforceable Contract: The unenforceable contracts are those which cannot be enforced in the court
of law because of some technical defects. Such contracts can be enforced if the technical defect is removed.

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OFFER:
Meaning:
Offer is nothing but the “Proposal”. The meaning of these two words is same i.e, signifying the
willingness to do or to abstain from doing any act.
Definition:
According to Section 2(a) of ICA 1872, “When one person signifies to another his willingness to do or to
abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence”.

Essentials of Offer: (10 marks)

1. Offer must be capable of creating legal relations: the intension of the offeror while making the
offer is to create legal relations.
Case : Balfour vs Balfour

2. Offer must be Definite, Certain and non-vague: if the contents of the offer are indefinite,
uncertain and vague, it is not a valid offer. It is essential that the terms of the offer must be clear
and certain, so that the rights and obligations can be exactly fixed.

3. An offer must be distinguished from a mere quotation or an invitation to offer: Generally,

confusion arises between an invitation to offer and valid offer. This confusion should be removed for
understanding the real sense of proposal.
Eg. N advertised in a newspaper about the sale of office furniture on a specified date and time. Mr. H
came from a distant place spending money and time to attend the auction. At that time all the
furniture was withdrawn from sale. H filed a suit for his loss of time and money. But H could not
recover any amount from Mr. N, as it was mere invitation to offer.

4. Offer must be communicated to the offeree: Communication of offer is essential to obtain the
assent of the offeree. If there is no communication of offer, there is no acceptance.
CASE : LALMAN SHUKLA V/S GAURIDUTT (1913)

5. Offer must be made with a view to obtain the assent of the other party: the main purpose of
an offer is to get the assent of the other party. Just expressing a mere intension or making an
enquiry is not sufficient to constitute an offer.

6. Offer should not contain a term, the non-compliance of which may be assumed to amount to
acceptance: Offer should be made only for the purpose of getting the consent and not for any other
purpose.
CASE : FELTHOUSE V/S BINDLEY (1862)

7. Special terms in a contract : To contract contains any special terms. They should be brought to the
notice of the offeree when the proposal is made.
Eg: 1: A transport company accepted goods of Mr. B for being carried without any conditions. Later it
issued a circular to the consigners limiting its liability and held that the consignors were not bound by
this condition. It was not communicated to Mr. B before or at the time of Contract.

8. The offer may be positive or negative: An offer may be to do something or not to do something. An
offer to do something is a positive offer. And an offer not to do something is a negative offer
Eg. 1:A says to B "Will you purchase my house for Rs. 8,00,000". It is an example for positive offer.
Eg. 2: A offers to purchase business of B subject to a condition that the latter should not set up a
competing business. It is negative offer.
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9. The offer may be express or implied: An offer may be express or implied. An offer., which is
expressed in words, written or spoken, is called express offer. An offer, which is inferred from the
conduct of the offerer, is called an implied offer
Eg. A transport company runs buses on a particular route. There e is an implied offer from the
transport company to carry on the route passengers who are prepared to pay the specified fare. The
acceptance of the offer is complete as soon as the passengers board the bus. A passenger who enters
the bus also impliedly promises to pay the prescribed fare.
10. An offer may be made subject to any terms and conditions: An offerer may attach any terms and
conditions to the offer he makes. He may even prescribe the mode of accepting his offer. The offeree
will have to accept all the terms and conditions of the offer.

ACCEPTANCE:
Meaning:
An offer must be communicated to the offeree. If the offeree signifies his/her assent, itis called acceptance.
An accepted proposal is called promise or agreement.
Definition:
According to Section 2(b), “When the person to whom the proposal is made signifies his assent, it is an
acceptance of the proposal. An accepted proposal is called a promise or agreement”.

Essentials of a valid acceptance:(10 Marks)

1.Acceptance must be absolute and unqualified: A valid acceptance should not posses any conditions,
it must be absolute. It is contains any condition is not a valid acceptance.

2. Acceptance must be communicated to the offeror: acceptance must be communicated to

the offeror by the offeree. The mode of communication may be oral or written.
CASE : CARLILL V/S CARBOLIC SMOKE BALL COMPANY :

3. Acceptance must be made with a reasonable time: acceptance must be given with in the time
specified by the offeror. If no time is specified by the offeror, it must be within a reasonable time.
The offeree is required to respond to an offer within the time period specified in the offer. If no specific time
limit is mentioned, the offeree must respond within a reasonable time or before the offer expires or is
withdrawn by the offeror.

For example, if Mr. X offers to buy Mr. Y’s house in July, and Mr. X accepts the offer in December, Mr. X’s
acceptance is considered beyond a reasonable time. Therefore, Mr. X’s refusal to buy the house based on the
delayed acceptance would be justified.

4. Acceptance must be in the mode prescribed by the offeror: Acceptance is to be made in the manner
prescribed or indicated by the offeror. Acceptance given in any other mode than the prescribed one, it may
not be effective. When accepting an offer, the mode of communication should follow the method specified
in the offer. This is one of the essentials of a valid acceptance. If the offer does not mention a specific mode,
acceptance can be communicated normally and reasonably. However, if the mode of acceptance is stated in
the offer and the offeree uses a different mode, the proposer can reject or inform the offeree. If there is no
communication from the offeree, it is considered accepted.

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For example, if Mr Y offers to sell his car to Mr X and specifies that acceptance must be through WhatsApp,
but Mr X sends it via email, it is not considered acceptable. Mr. Y is not obligated to inform Mr. X that the
acceptance was not communicated through the specified mode.

5. Acceptor must be aware of the offer/ cannot be precede an offer: The acceptor must be aware of the
offer before giving consent to it. If the acceptor without knowing the proposal conveys his
acceptance, it is not valid acceptance.

6.Acceptance cannot be implied by silence: Silence of the promise in response to a proposal cannot be
deemed as acceptance.When accepting an offer, the mode of communication should follow the method
specified in the offer. This is one of the essentials of a valid acceptance.
If the offer does not mention a specific mode, acceptance can be communicated normally and reasonably.
However, if the mode of acceptance is stated in the offer and the offeree uses a different mode, the proposer
can reject or inform the offeree. If there is no communication from the offeree, it is considered accepted.

For example, if Mr Y offers to sell his car to Mr X and specifies that acceptance must be through WhatsApp,
but Mr X sends it via email, it is not considered acceptable. Mr. Y is not obligated to inform Mr. X that the
acceptance was not communicated through the specified mode.

7. Acceptance must show an intention on the part of the acceptor to fulfil the terms of the offer: To have
a valid acceptance, the person receiving the offer must have the intention and willingness to fulfil the promise.
Acceptance is invalid if there is no genuine intention to fulfil the promise.

For instance, if Mr. X agrees to sell his horse to Mr. Y for 2 lakh rupees, but it later turns out that Mr. X does
not actually own a horse, the acceptance becomes invalid. This is because Mr X had no intention to fulfil the
promise

8.Acceptance must be given by the party to whom the offer is made: In case of particular offer, acceptance
can be given only by the party to whom the offer is made.

9. Acceptance must be given before the offer lapses or offer is withdrawn: A valid contract can arise only
when the acceptance is given before the offer has lapsed or has been withdrawn.

10. Mental acceptance is not an acceptance : Acceptance must be communicated to the offerer. Mere making
up one’s mind is not enough.

CONSIDERATION
What is Consideration?
Consideration is the benefit that each party receives, or expects to receive, when entering into a
contract. Consideration is often monetary, but it can be a promise to perform a specific act, or a promise to
refrain from doing something.
Section 2(d), 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 or abstain
from doing something, such as an act or abstinence or promise is called consideration for the promise”.

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Essentials of Valid Consideration: (5marks)

-Consideration at the desire of the promisor: Consideration must be given by the promisee at the
desire of the promisor only. A gratuitous service rendered by the promisee without any request or
desire of the promisor is not treated as a valid consideration.
CASE: DURGAPRASAD VS BALDEO

-Consideration may move from promise or any other person: consideration may be given by the
promisee or any other person on his behalf. Under Indian law it is allowed that a strange to the contract
may give consideration.

-Consideration may be past, present or future: When the promisor receives the consideration
before the date of contract, it is said to be past consideration. The consideration received along with
contract is said to be present consideration, if same is received at a future date then it is future consideration.

-Consideration need not be adequate: it is not necessary that the consideration should be adequate to the
promise. But it must be of some value. Law requires some sort of consideration for the promise.
- Consideration must be real: though the consideration need not be adequate but it must be real not
illusory. Consideration is also to be competent.

-Consideration must be lawful: the consideration for an agreement must be lawful. An agreement is void
if it is based on unlawful consideration. The consideration of an agreement is unlawful unless –
a. It is forbidden by law
b. It would defeat the provision of law if it is permitted
c. It is fraudulent and involves or implies injury to a person or property of another.
d. The court regards it immoral or opposed to public policy.

-Consideration must be something which the promisor is not already bound to do: a promise to do what
one is already bound to do either by general law or under an existing contract is not good consideration.

- Consideration must be real and not illusory: consideration must be real, competent and of some value in
the eyes of law.

CAPACITY OF PARTIES
Meaning:
The term capacity to contract means the competency or qualification of the parties to enter into a valid
contract.

Definition:
Section 11 of ICA 1872, deals with the competency of parties and provided that “every person is
competent to contract who is of the age of 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”.
According to Sec 11 the following persons are competent to enter into the contract;
a. Majors
b. The persons who are not disqualified by any law of the land.
c. Sound minded persons
Reasons for incapacity:
1. Incapacity out of mental deficiency
2. Incapacity out of unsound mind
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3. Incapacity arising out of status
a. Alien enemies’ e. Convicts
b. Insolvents f. Corporation
c. Foreign Sovereigns an ambassador. g.Married women
d. Professional persons

Minor
According to section 11 of ICA, a minor is an incompetent person to enter into a contract.
Definition:
Section 3 of Indian Majority Act 1875, defines a minor as “A minor is one who has not completed the age
of his or her 18th year”.
Law relating to contracts of Minors: (10 Marks)

1. An agreement by or with minor is void: In 1903, the privacy council made it perfectly clear that
a contract entered into by or with a minor is void. A contract of minor is nullity and non-
existence from the inception in the eyes of law.

2. No Ratification: Ratification means subsequent approval of an act already done an agreement

with minor is void from the beginning. A minor cannot ratify the agreement even on attaining a
majority ,because a void agreement cannot be ratified.

3. Minor can be promise or beneficiary: where a minor is a promise or beneficiary in a contract it

can be enforced by him. There is no restriction on minor from being beneficiary.

4. No Estoppels against minor: where a minor by innocently misrepresenting his age has induced
the other party to enter into a contract, he can be made liable on that contract.

5. No Specific performance: a minor contract is absolutely void and therefore, there can be question
of specific performance of such a contract.

6. No Insolvency: a minor cannot be declared are insolvent even though they are due payable from the
properties of a minor.

7. Minor as a partner: As a general rule a minor cannot be admitted as a partner in partnership

firm. This is because a partnership comes into existence out of an agreement. Minor cannot be a
party to an agreement according to ICA but he can admit as a partner under section 30 of Indian
Partnership Act, to the benefits of Partnership firm.

8. Minor cannot bind parent or guardian: In the absence of authority express or implied minor is
not capable for binding his parents or guardian even for necessaries.

9. Minor as an agent: Minor can act as an agent but he will not be liable to his principal for his
acts. The principal cannot make the minor liable for any acts good or bad.

10. Joint contract by minor or adult: in this case of a joint contract entered into by a minor a along
with an adult, the adult will be liable on the contract on the contract but not the minor.

11. Minors’ liability for necessaries: Necessaries means the things that are essentially needed by a
minor. They do not include luxuries, costly items and unnecessary articles. The question of
necessary depends on the class of society.
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Free Consent
Meaning of Consent: Sec 13 of ICA 1872, “two or more persons are said to contract when they agree upon
the same thing in the same sense”.
Meaning of Free Consent: Sec 14 of ICA 1872, “Consent is said to be free when it is not caused by
coercion, undue influence, fraud, misrepresentation or mistake”.

COERCION AND OTHER CONSEQUENCES

1. Coercion
Meaning: it means a threat or force used by one party against another for compelling him to enter into an
agreement.
Definition: According Sec 15 of ICA 1872, “Committing or threatening to commit any act forbidden by the
Indian Penal Court (IPC) or the unlawful detaining or threatening to detain by property to the prejudice of
any person, with the intension of causing any person to enter into an agreement” is called coercion.
Essentials that amounts to coercion:
a. Committing any act forbidden by IPC
b. Threatening to commit any act forbidden by the IPC
c. Unlawful retaining of property of another
d. Threatening to detain the property unlawfully.
2. Undue Influence:
Meaning: it is the domination of one person who is having strong mind will over another who is having
weak mind and weak will.
Definition: Sec 16 of ICA 1872, “A contract is said to be influenced by undue influence, where the relations
subsisting between the parties are such that one of the parties is in a position to dominate the will of other
and uses the position, to obtain an unfair advantage over the other”.
Essentials elements of undue influence:
1. Existence of apparent authority
2. Existence of by fiduciary relationship
3. Existence of mental in capacity
4. Existence of unconscionable bargains
5. Burden of proof.
6. Effect of undue influence
3. Fraud
Meaning: fraud is a willful misrepresentation made by a party to a contract with the intension to deceive
the other party. It means a false statement made knowingly without belief in its truth or recklessly
without caring whether it is true or not.
Definition: According to Sec 17 of ICA 1872,
a. A false suggestion as to a fact knows known to be false or not believe to be true.
b. The active concealment of a fact.
c. A promise made without any intention of performing it
d. Doing any such act or making any such omission as the law specifically declares to be fraudulent
e. Doing any other act fitted to deceive.
Essentials of fraud:
1. Fraud must be committed by a party to the contract.
2. There must be false suggestion
3. There was no intention to perform the promise
4. There must be active concealment of the fact
5. Where law specifically declared an act to be fraudulent
6. Any other act fitted to deceive
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7. There must be an intention to deceive and must actively deceive
8. Mere silence is not fraud

4. Misrepresentation
Meaning: the word representation means a statement made by one party to another. This may be added
before or at the time of contract. It may be made with regard to some existence fact or past event which
may materially include the other party to enter into a contract.
Essentials of Misrepresentation:
- Making a positive assertion
- Committing the breach of duty
- Causing a party to make a mistake as to substance
- Innocent intention of the party
5. Mistake
It is a misconception or error. A mistake means that the parties are intending to do one thing but have done
something else. To create a valid contract consensus as idem is necessary. Section 20, 21, 22deals with
mistake;
a. Mistake of law – Section 21
- Mistake of general law
- Mistake of foreign law
- Mistake as to private property rights
b. Mistake of facts – Section 20 & 22
- Bilateral mistake – Sec 20: When both the parties to the contract under a misconception to the facts of
the contract, it is called bilateral mistake.
- Unilateral mistake – Sec 22: A mistake of fact in the mind of one party is called unilateral mistake.

DISCHARGE OF CONTRACT

A contract is said to be discharged when the rights and obligations of contracting parties, arising out of the
contract, come to an end. In other words, the termination of contractual relationship is known as 'discharge
of contract.

Modes of Discharge of Contract(5 Marks)

Following are the modes (or ways) of discharge or termination of contract:

1. By performance
2. By impossibility of performance
3. By mutual agreement or mutual consent
4. By lapse of time
5. By operation of law
6. By breach of contract

1. By performance
When parties to a contract perform their respective obligations under the contract, the contract gets
discharged. Performance should be complete, precise and according to the terms of contract.
A contract can be discharged by performance in any of the following ways:
a) By actual performance
b) Attempted performance (or tender or offer to perform)
a) By actual performance
A contract is said to be discharged by actual performance when the parties to the contract perform their
promises in accordance with the terms of the contract.
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b )Attempted performance or offer of performance or tender
When a party to a contract offers to perform his obligation under the contract at the proper time and place,
but the other party does not accept the offer, there is said to be an attempted performance or offer to perform
or tender.
It discharges the promisor from further performance and entitles him to sue the promisee for the breach of
contract.

2. By impossibility of performance
A contract is discharged if its performance becomes impossible. If an agreement contains an undertaking to
perform impossibility, it is void ab initio (right from the beginning).
The impossibility of performance may be of two types:
a) Initial impossibility
b) Subsequent impossibility

a) Initial impossibility
It is the impossibility which exists at the time of formation of a contract. It is also known as pre- contractual
impossibility or the impossibility existing at the time of agreement. The law lays down that an agreement to
do an act impossible in itself is void.
b) Subsequent impossibility
Impossibility which arises subsequent to the formation of a contract is called subsequent impossibility. It is
also known as post-contractual or supervening impossibility. Sometimes, a contract is quite possible to
perform when it is made. But subsequently, some event happens which renders the performance of the same
contract impossible or unlawful.
Such an impossibility of performing the contract is considered a subsequent impossibility or supervening
impossibility.

3. By mutual agreement or mutual consent

A contract may be discharged by mutual agreement of the concerned parties. Since a contract is created by
mutual agreement, it can also be discharged by mutual agreement or consent.
A contract can be discharged by mutual agreement in any of the following ways:
a) Novation:
Novation means the substitution of a new contract for the original contract.
b) Rescission:
Rescission means cancellation of the contract. It takes place when all or some of the terms of the contract are
cancelled.
c) Alteration:
Alteration means a change in one or more of the material terms of the contract. The alteration is valid when
it is made with the consent of all the parties. Alteration discharges the original Contract and creates a new
contract.
d) Remission:
Remission may be defined as" the acceptance of a lesser fulfilment of the promise made", e.g. "the
acceptance of a lesser sum than what was contracted for, in discharge of the whole of the debt.
e) Waiver:
Waiver means intentional abandonment (relinquishment or giving up) of a right under a contract.
f) Merger:
Merger takes place when an inferior right accruing to a party under a contract merges into a superior right
accruing to the same party either under the same or the other contract. In such cases, the inferior rights
merge into the superior rights.

4. By lapse of time
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A contract is discharged if it is not performed or enforced within a specified period, called period of
limitation. The Limitation Act 1963 has prescribed different periods of limitation for different contracts, e.g.
period of limitation for exercising right to recover a debt is 3 years, and to recover an immovable property is
12 years.

5. By operation of law
A contract is discharged by the operation of law in the following situations:

i. By death: Contracts involving personal skill or ability of the promisor get discharged on his death. In
other contracts, rights and liabilities of a deceased person pass on to the legal representatives of the deceased
person.

ii. By insolvency: When a person is declared insolvent by a court, he is discharged from all the liabilities
incurred by him prior to his adjudication.

iii. By unauthorised alteration of the terms of a written agreement: If a party to a contract makes any
material alteration in the contract without the consent of the other party, the contract becomes voidable at the
option of the other party.

6. By breach of contract
When a party to a contract fails to perform his obligation without a lawful reason, there is breach of contract.
It discharges the contract but the rights are not extinguished. It creates a new right, i.e, right of action for
damages, in favour of the aggrieved party (Injured party).

Breach of contract may be of two kinds:

i. Actual breach of contract: Actual breach of contract takes place when one of the parties to a contract
fails to perform his respective promise when performances is actually due.

ii. Anticipatory or constructive breach of contract: Anticipatory breach of contract occurs when a party to
the contract declares his intention of not performing the contract before the time fixed for its performance.

Breach of contract
What do you mean by breach of contract?
When any party to a contract, whether oral or written, fails to perform any of the contract’s terms, they may
be found in breach of contract. While there are many ways to breach a contract, common failures include
failure to deliver goods or services, failure to fully complete the job, failure to pay on time, or providing
inferior goods or services. In other words, a breach of contract is a broken promise to do or provide
something. To explore this concept, consider the following breach of contract definition.
Definition of Breach of Contract
1. An unjustifiable failure to perform terms of a contract.
2. A violation of contract through failure to perform, or through interference with the performance of the
contractual obligations.

Remedies for breach of contract

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Actual breach of contract takes place at the time when performance is due, one of the parties to the contract
fails to fulfill his obligation under the contract.

When a party to a contract fails or refuses to perform his obligations, there is breach of contract.
Breach of a contract may be committed either by the promisor or by the promisee. The person responsible for
the breach of a contract is called the 'defaulter' and the other person to the contract is called the 'aggrieved' or
the 'injured party'

Remedies for the breach of contract (5Marks)

Remedy is the course of action available to an aggrieved party (injured party) for the enforcement of a right
under a contract. It is the means given by law for the enforcement of a right. Following are the remedies for
the breach of contract:

i) Rescission of the contract

ii) Suit for damages
ii) Quantum Meruit
iv) Suit for specific performance
v) Suit for injunction

i) Rescission of the contract:

Rescission may be defined as the cancellation of the contract. When there is a breach of contract by one party,
the other party (i.e., the aggrieved party) may rescind the contract. On rescission, the aggrieved party need not
perform his promise.

Example: A promises B to supply 10 bags of cement on a certain day. B agrees to pay the price after the
receipt of the goods. A does not supply the goods. B may rescind the contract and is discharged from liability
to pay the price (Need not pay the price).

ii) Suit for damages:

In case of breach of a contract, the injured party is entitled to claim damages. 'Damages' is the monetary
compensation allowed by court to the aggrieved party for the loss or injury suffered by him. Damages are
monetary compensation to be paid by guilty party to the injured party.

Kinds of damages: There are 5 types of damages. They are :( 5Marks)

1. Ordinary damages or general damages:

Ordinary damages are the damages awarded to the injured party to recover the loss arising naturally and
directly in the usual course of contract from the breach of contract.

In a contract for the sale of goods, the measure of ordinary damages is the difference between the contract
price and the market price on the date of breach.

Example: A agrees to sell 100 quintals of wheat to B at Rs. 175 per quintal. As the price of wheat rises to
Rs.180 after the agreement A refuses to deliver. B can claim damages at the rate of Rs.5 per quintal (180-
175).

2. Special damages: Special damages are those resulting from a breach of contract under some special or
unusual circumstances. If there are any special circumstances, which would result in a special loss due to
breach of contract, such special circumstances must be brought to the notice of the other party. If there is a
breach, special damages may be recovered.
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CASE: HANDLEY VS BAXENDALE

3. Exemplary or Vindictive damages:

Exemplary damages are those which are in the nature of punishment. The court may award these damages in
case of:
i. A breach of promise to marry, where damages shall be calculated on the basis of mental injury sustained by
the aggrieved party.
ii. Wrongful dishonor of a cheque by a banker when the customer possesses sufficient funds to the credit of
his account.

4. Nominal damages: An injured party, who has not suffered any loss, can recover nominal damages for
breach of a contract. Normal damages are neither compensatory nor punitive. They are awarded for technical
violation of a legal right though the aggrieved party has not suffered any loss. These damages are only to
acknowledge that the promisee has proved his case and won.

5. Damages for loss of reputation: Damages for loss of reputation in case of breach of a contract are
generally not recoverable. An exception to this rule exists in the case of a banker who wrongfully refuses to
honour a customer's cheque. In case of wrongful dishonor of a cheque, the rule is "the smaller the amount of
the cheque dishonored, the larger will be the amount of damages awarded".
A trader may recover such damages as wrongful dishonor of a cheque shall adversely affect his goodwill but
a non-trader whose cheque is wrongfully dishonored will have to prove the loss of goodwill before claiming
such damages, otherwise he can recover only nominal damages.

iii) Quantum Meruit

Quantum meruit' means 'as much as earned' or 'as much s is merited'. In other words, it means 'payment in
proportion to the amount of work done' or 'reasonable value of work done. When a person has done some
work under a contract, and the other party repudiates the contract, or some event happens which makes the
further performance of the contract impossible, then the party who has performed the work can claim
remuneration for the work he has already done.

iv) Suit for specific performance

Specific performance means the actual carrying out of the contract as agreed. Where damages are not an
adequate remedy for breach of contract, the court may direct the party in breach to carry out his promise
according to the terms of the contract. This is called "specific performance" of the Contract.

v) Suit for injunction

Suit for injunction means demanding court's stay order. Injunction' means an order of the court which
restrains a person from doing a particular act. Where a party to a contract does something which he promised
not to do, the court may issue an order prohibiting him from doing so.

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