Business Law Notes for BBA I Year Complied by Komal SinghNotes
can be download
from---------------------------------www.komalsinghchauhan.webs.comWhat
is lawThe Oxford English Dictionary defines the word Law as the
rule made by authority for the proper regulation of a community or
society or for correct conduct in life. The term law has been
defined by some of the legal scholars in the following words:
A law is a rule of conduct imposed and enforced by the
sovereign. - AustinLaw is the body of principles recognized and
applied by the state in the administration of justice. Salmond
Law is rule of external human actions enforced by Sovereign
Political authority. - Holland
Hence law is a set of rules laying down rights and obligations,
which the state enforces. It includes rules and principles, which
regulate our relations with other individuals and with the
state.
Define contract? Discuss the essential elements of a valid
contract? orThe parties to a contract in a essence make the law for
themselves?orWhat is the nature and the object of contract?
ANSWER -
Meaning Of Contract - The word contract is derived from the
Latin Contractum meaning drawing together. According to the Act, An
Agreement enforceable by law is a contract Some authors have
defined contract in the following words:
"Every agreement and promise enforceable at law is a contract".
- Sir Frederick Pollock"An agreement creating and defining
obligations between the parties".- Salmond"A contract is an
agreement enforceable at law made between two or more persons, by
which rights are acquired by one or more to acts or forbearance's
on the part of the other or others". - Sir William Anson.
In the form of an equation, it can be shown as Contract = An
Agreement + Its Enforceability
Essential Elements Of Valid Contract:
According to section 10, All agreements are contracts if they
are made by the free consent of the parties competent to contract,
for a lawful consideration and with a lawful object and not here by
expressly declared to be void. In order to become a contract an
agreement must have the following essential elements, they are
follows:1) Offer And Acceptance:
To constitute a contract there must be an offer and an
acceptance of that offer.The offer and acceptance should relate to
same thing in the same sense.There must be two (or) more persons to
an agreement because one person cannot enter into an agreement with
himself.
2) Intention To Create Legal Relationship:
The parties must have intention to create legal relationship
among them. Generally, the agreements of social, domestic and
political nature are not a contract. If there is no such intention
to create a legal relationship among the parties, there is no
contract between them.
Facts: A husband promised to pay his wife a household allowance
of Rs 10,000 every month. Later the parties separated and the
husband failed to pay the amount. The wife sued for allowance.
Judgment: Agreements such as there were outside the realm of
contract altogether. Because there is no intention to create legal
relationship among the parties.
3) Free And Genuine Consent:
The consent of the parties to the agreement must be free and
genuine.Free consent is said to be absent, if the agreement is
induced by (a). Coercion, (b). Undue-influence, (c). Fraud, (d).
Mis-representation, (e). Mistake.
4) Lawful Object:
The object of the agreement must be lawful. In other words, it
means the object must not be (a) Illegal, (b) immoral, (c) opposed
to public policy.If an agreement suffers from any legal flaw, it
would not be enforceable by law.
5) Lawful Consideration:
An agreement to be enforceable by law must be supported by
consideration.Consideration means an advantage or benefit moving
from one party to other. In other words something in return.The
agreement is enforceable only when both the parties give something
and get something in return.The consideration must be real and
lawful.
6) Capacity Of Parties: (Competency)
The parties to a contract should be capable of entering into a
valid contract.Every person is competent to contract if (a). He is
the age of majority. (b). He is of sound mind and (c). He is not
dis-qualified from contracting by any law.The flaw in capacity to
contract may arise from minority, lunacy, idiocy, drunkenness,
etc..,
7) Agreement Not To Be Declared Void
The agreements must not have been expressly declared to be void
under section 24 to 30 of the act.Example: Agreements in restraint
of trade, marriages, legal proceedings, etc..,
8) Certainty
The meaning of the agreement must be certain and not be vague
(or) indefinite.If it is vague (or) indefinite it is not possible
to ascertain its meaning.Example: Amar agrees to sell Bharat
hundred tons of oil. This agreement is void on the ground of
uncertainty because it is not clear what kind of oil is intended to
be sold.
9) Possibility Of Performance
The terms of an agreement should be capable of performance.The
agreement to do an act impossible in itself is void and cannot be
enforceable - Section 56Example: X agrees with Y to enclose some
areas between two parallel lines and Y agrees to pay Rs. 1000/- to
X. This agreement is void because it is an agreement to do an
impossible act.
10) Necessary Legal Formalities
According to Indian contract Act, oral (or) written are
perfectly valid.There is no provision for contracting being
written, registered and stamped.But if is required by law, that it
should comply with legal formalities and then it should be complied
with all legal (or) necessary formalities for its
enforceability.
Define contract? Discuss the essential elements of a valid
contract?orThe parties to a contract in a essence make the law for
themselves?or
What is the nature and the object of contract?
Meaning Of Contract - The word contract is derived from the
Latin Contractum meaning drawing together. According to the Act, An
Agreement enforceable by law is a contract
Some authors have defined contract in the following words:
"Every agreement and promise enforceable at law is a contract".
- Sir Frederick Pollock"An agreement creating and defining
obligations between the parties".- Salmond"A contract is an
agreement enforceable at law made between two or more persons, by
which rights are acquired by one or more to acts or forbearance's
on the part of the other or others". - Sir William Anson.
In the form of an equation, it can be shown as Contract = An
Agreement + Its Enforceability
Essential Elements Of Valid Contract:
According to section 10, All agreements are contracts if they
are made by the free consent of the parties competent to contract,
for a lawful consideration and with a lawful object and not here by
expressly declared to be void. In order to become a contract an
agreement must have the following essential elements, they are
follows:
1) Offer And Acceptance:
To constitute a contract there must be an offer and an
acceptance of that offer.The offer and acceptance should relate to
same thing in the same sense.There must be two (or) more persons to
an agreement because one person cannot enter into an agreement with
himself.
2) Intention To Create Legal Relationship:
The parties must have intention to create legal relationship
among them. Generally, the agreements of social, domestic and
political nature are not a contract. If there is no such intention
to create a legal relationship among the parties, there is no
contract between them.
Facts: A husband promised to pay his wife a household allowance
of Rs 10,000 every month. Later the parties separated and the
husband failed to pay the amount. The wife sued for allowance.
Judgment: Agreements such as there were outside the realm of
contract altogether. Because there is no intention to create legal
relationship among the parties.
3) Free And Genuine Consent:The consent of the parties to the
agreement must be free and genuine.Free consent is said to be
absent, if the agreement is induced by (a). Coercion, (b).
Undue-influence, (c). Fraud, (d). Mis-representation, (e).
Mistake.
4) Lawful Object:
The object of the agreement must be lawful. In other words, it
means the object must not be (a) Illegal, (b) immoral, (c) opposed
to public policy.If an agreement suffers from any legal flaw, it
would not be enforceable by law.
5) Lawful Consideration:
An agreement to be enforceable by law must be supported by
consideration.Consideration means an advantage or benefit moving
from one party to other. In other words something in return.The
agreement is enforceable only when both the parties give something
and get something in return.The consideration must be real and
lawful.
6) Capacity Of Parties: (Competency)
The parties to a contract should be capable of entering into a
valid contract.Every person is competent to contract if (a). He is
the age of majority. (b). He is of sound mind and (c). He is not
dis-qualified from contracting by any law.The flaw in capacity to
contract may arise from minority, lunacy, idiocy, drunkenness,
etc..,
7) Agreement Not To Be Declared Void
The agreements must not have been expressly declared to be void
under section 24 to 30 of the act.Example: Agreements in restraint
of trade, marriages, legal proceedings, etc..,
8) Certainty
The meaning of the agreement must be certain and not be vague
(or) indefinite.If it is vague (or) indefinite it is not possible
to ascertain its meaning.Example: Amar agrees to sell Bharat
hundred tons of oil. This agreement is void on the ground of
uncertainty because it is not clear what kind of oil is intended to
be sold.
9) Possibility Of Performance
The terms of an agreement should be capable of performance.The
agreement to do an act impossible in itself is void and cannot be
enforceable - Section 56Example: X agrees with Y to enclose some
areas between two parallel lines and Y agrees to pay Rs. 1000/- to
X. This agreement is void because it is an agreement to do an
impossible act.
10) Necessary Legal Formalities
According to Indian contract Act, oral (or) written are
perfectly valid.There is no provision for contracting being
written, registered and stamped.But if is required by law, that it
should comply with legal formalities and then it should be complied
with all legal (or) necessary formalities for its
enforceability.
All contracts are agreements but all agreements are not
contracts - explain.
All contracts are agreements but all agreements are not
contracts- the statement has two parts.
(a) All contracts are agreement: As per section 2(h) of Indian
contract Act, A contract is an agreement enforceable by law.
Obviously an agreement is a pre requisite (i.e.., essential
elements) for formation of contract. An agreement clubbed with
enforceability by law and several other features (i.e.., free
consent, consideration, etc..,) will create a valid contract.
Therefore, obviously all contracts will be agreements.
(b) All agreements are not contracts: As per section 2(e) of
Indian contract act, An agreement is a promise and every set of
promises, forming consideration for each other. Thus, a lawful
offer and a lawful acceptance create an agreement only. Therefore
all agreements are not contracts.
Conclusion:Contract = Agreement + Enforceability by
law.Agreement = Offer + Acceptance.
Thus, all agreements are contracts but all agreements are not
necessarily contracts.
Offer and Acceptance
Offer Definition:According to section 2(a) of Indian contract
act, 1872, defines offer as when one person signifies to another
his willingness to do (or) to abstain from doing anything with a
view to obtaining the assent of that other-to, such act (or)
abstinence, he his said to make a proposal.
Legal rules (OR) Essential elements of a valid offer /
proposal:
1) Offer must be capable of creating legal relations: A social
invitation, even if it is accepted does not create legal
relationship because it is not so intended to create legal
relationship. Therefore, an offer must be such as would result in a
valid contract when it is accepted.
2) Offer must be certain, definite and not vague: If the terms
of the offer are vague, indefinite, and uncertain, it does not
amount to a lawful offer and its acceptance cannot create any
contractual relationship.
3) Offer must be communicated: An offer is effective only when
it is communicated to the person whom it is made unless an offer is
communicated; there is no acceptance and no contract. An acceptance
of an offer, in ignorance of the offer can never treated as
acceptance and does not create any right on the acceptor.
Example: LALMAN SHUKLA (VS) GAURI DATT. (1913)
4) Offer must be distinguished from an invitation to offer: A
proposer/offer must be distinguished from an invitation to offer.
In the case of invitation to offer, the person sending out the
invitation does not make any offer, but only invites the party to
make an offer. Such invitations for offers are not offers in the
eyes of law and do not become agreement by the acceptance of such
offers.
Example: Pharmaceutical society of great Britain (vs) Boots cash
chemists (1953).
5) Offer may be expressed (or) implied: An offer may be made
either by words (or) by conduct. An offer which is expressed by
words (i.e.., spoken or written) is called an express offer and
offer which is inferred from the conduct of a person (or) the
circumstances of the case is called an implied offer.
6) Offer must be made between the two parties: There must be two
(or) more parties to create a valid offer because one person cannot
make a proposal/offer to him self.
7) Offer may be specific (or) general: An offer is said to be
specific when it is made to a definite person, such an offer is
accepted only by the person to whom it is made. On the other hand
general offer is one which is made to a public at large and maybe
accepted by anyone who fulfills the requisite conditions.
Example: Carilill (vs) Carbolic Ball company (1893).
8) Offer must be made with a view to obtaining the assent: A
offer to do (or) not to do something must be made with a view to
obtaining the assent of the other party addressed and it should not
made merely with a view to disclosing the intention of making an
offer.
9) Offer must not be statement of price: A mere statement of
price is not treated as an offer to sell. Therefore, an offer must
not be a statement of price.
Example: HARVEY (VS) FACEY (1893):
10) Offer should not contain a term the non-compliance of which
may be assumed to amount to acceptance.
Communication of Proposal, Acceptance and Revocation
Communication of a Proposal: The communication of proposal is
complete when it comes to the knowledge of the person to whom it is
made, i.e. when the letter containing the proposal reaches the
propose.
Communication of an Acceptance: The communication of acceptance
is complete at different times for the proposer and acceptor. The
communication of acceptance is complete:
as against the proposer, when it is put in a course of
transmission to him, so as to be out of the power of the acceptor,
i.e. when the letter of acceptance is duly posted.as against the
acceptor, when it comes to the knowledge of the proposer i.e. when
the letter of acceptance is received by the proposer.
Communication of a Revocation: The term revocation means taking
back or withdrawal. The communication of revocation is
complete:
as against the person who makes it, when it is put into a course
of transmission to the person to whom it is made, so as to be out
of the power of the person revoking, i.e. when the letter of
revocation is posted, andas against the person to whom it is made,
when it comes to his knowledge, i.e. when the letter of revocation
is received by him.
Time During Which an Offer or Acceptance can be Revoked: A
proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication
of the acceptance is complete as against the acceptor but not
afterwards.
Lapse and Revocation of ProposalA proposal lapses and becomes
invalid in the following circumstances:
1. An offer lapses after stipulated or reasonable time.2. A
proposal lapses by not being accepted in the mode prescribed, or if
no mode is prescribed, in some usual and reasonable manner.3. A
proposal lapses by rejection by the proposee.4. A proposal lapses
by the death or insanity of the proposer or the proposee before
acceptance.5. A proposal lapses by recovation by the proposer
before acceptance.6. Revocation by non-fulfillment of a condition
precedent to acceptance.7. A proposal lapses by subsequent
illegality or destruction of subject matter.
Define acceptance? Explain the rules regarding a valid
acceptance?
Acceptance Definition:According to section 2(b) of the Indian
contract Act, 1872, defines an acceptance is when the person to
whom the proposal is made signifies is assent thereto, the proposal
is said to be accepted becomes a promise.
On the acceptance of the proposal, the proposer is called the
promisor/offeror and the acceptor is called the
promise/offeree.
Legal rules as to acceptance: A valid acceptance must satisfies
the following rules:-
1) Acceptance must be absolute and unqualified:
An acceptance to be valid it must be absolute and unqualified
and in accordance with the exact terms of the offer.An acceptance
with a variation, slight, is no acceptance, and may amount to a
mere counteroffer (i.e.., original may or may not accept.)
2) Acceptance must be communicated to the offeror:
For a valid acceptance, acceptance must not only be made by the
offeree but it must also be communicated by the offeree to the
offeror.Communication of the acceptance must be expressed or
implied.A mere mental acceptance is no acceptance.
3) Acceptance must be according to the mode prescribed (or)
usual and reasonable manner:If the offeror prescribed a mode of
acceptance, acceptance must given according to the mode
prescribed.If the offeror prescribed no mode of acceptance,
acceptance must given according to some usual and reasonable
mode.If an offer is not accepted according to the prescribed (or)
usual mode. The proposer may within a reasonable time give notice
to the offeree that the acceptance is not according to the mode
prescribed.If the offeror keeps quite he is deemed to have accepted
the acceptance.
4) Acceptance must be given with in a reasonable time:
If any time limit is specified, the acceptance must be given
with in that time.If no time limit is specified, the acceptance
must be given with in a reasonable time.Example: Ramsgate victoria
Hotel Company (vs) Monteflore (1886)
5) It cannot precede an offer:
If the acceptance precedes an offer, it is not a valid
acceptance and does not result in a contract.In other words
acceptance subject to contract is no acceptance.6) Acceptance must
be given by the parties (or) party to whom it is made:An offer can
be accepted only by the person (or) persons to whom it is made.It
cannot be accepted by another person without the consent of the
offeror.Example: Boulton (vs) Jones (1857).
7) It cannot be implied from silence:
Silence does not amount to acceptance.If the offeree does not
respond to offer (or) keeps quite, the offer will lapse after
reasonable time.The offeror cannot compel the offeree to respond
offer (or) to suggest that silence will be equivalent to
acceptance.
8) Acceptance must be expressed (or) implied:
An acceptance may be given either by words (or) by conduct.An
acceptance which is expressed by words (i.e.., spoken or written)
is called expressed acceptance.An acceptance which is inferred by
conduct of the person (or) by circumstances of the case is called
an implied or tacit acceptance.Example: Carilill (vs) Carbolic Ball
company (1893).
9) Acceptance may be given by performing some condition (or) by
accepting some consideration.
10) Acceptance must be made before the offer lapses (or) before
the offer is withdrawn.
Consideration
Define consideration? What are the rules as to
consideration?
Consideration Definition:
Consideration is one of the essential elements of a valid
contract. When a person promises to do something, he must get
something in return. If he does not get something in return, the
contract is, generally, not valid. This something is known as
consideration. In other words, consideration is the price for which
the promise of the other party is bought.
A agrees to sell his house to B for Rs. 5,00,000. Here As
promise to sell his house is for Bs consideration to pay Rs.
5,00,000. Similarly, Bs promise to pay Rs. 5,00,000 is for As
consideration to sell his house to B.
Essentials of a Valid Consideration
a) Consideration Must Move at the Desire of the Promisor: The
act or abstinence forming the Consideration must be done at the
desire or request of the promisor. If it is done at the instance of
the third party or without the desire of the promisor it is not
consideration.
Example - Amar sees Bhushans house on fire and helps in
extinguishing it. Amar cannot demand payment for his services
because Bhushan never asked him to come for help.
b) Consideration May Move from the Promisee or any other Person:
The consideration need not move from the promisee alone but may
proceed from any third person. Thus, as long as there is a
consideration for a promise, it is immaterial who has furnished it.
This means that even a stranger to the consideration can sue on a
contract, provided he is a party to the contract. This is also
called as Doctrine of Constructive Consideration.
c) Consideration may be past, present or future.
d) Consideration Must be Something of Value (The consideration
need not be adequate to the promise but it must be of some value in
the eye of the law).
e) Consideration must be legal.
f) Consideration may be doing something, or abstaining from
doing something (positive, or negative act) or a promise to do
something.
No Consideration No Contract
The general rule is that an agreement made without consideration
is void. But there are a few exceptions to this rule. These
exceptions are as follows:
Agreement Made on Account of Natural Love and Affection: An
agreement made without consideration is enforceable if, it is
Made on account of natural love and affection.Between parties
standing in a near relation to each other.Expressed in
writing.Registered as per law.
Agreement to Compensate for past Voluntary Service: Example - A
finds Bs purse and gives it to B. B promises to give A Rs. 100/-.
This is a Contract.
Agreement to Pay a Time Barred Debt: Where there is an
agreement, made in writing and signed by the debtor or his
authorised agent, to pay wholly or in part a debt barred by the law
of limitation, the agreement is valid even though it is not
supported by any consideration.
Completed Gift: A completed gift does not require consideration
in order to be valid.
Contract of Agency: No consideration is necessary to create an
agency.
Remission by the Promisee, of Performance of the Promise: For
compromising a due debt, i.e. agreeing to accept less than what is
due, no consideration is necessary.
Contribution to Charity: A promise to contribute to charity,
though gratuitous, would be enforceable, if on the faith of the
promised subscription, the promisee takes definite steps in
furtherance of the object and undertakes a liability, to the extent
of liability incurred, not exceeding the promised amount of
subscription.A stranger to a consideration can sue - Are there any
exceptions to this rule?
There is ageneralrule of law is that only the parties to a
contract can sue. In other words, if a person not a party to a
contract, he cannot sue. This rule is known as the Doctrine of
privity of contract. Privity of contract means relationship
subsisting between the parties who have entered into contractual
obligations.
There are two consequences of doctrine of privity of contract
they are follows:
A person who is not a party to a contract cannot sue even if the
contract is for his benefit and he provided consideration. (Or) A
stranger to a contract cannot sue. A contract cannot provide rights
(or) impose obligations arising under it on any person other than
the parties to it. (Or) A stranger to a contract can sue.
Example: Dunlop Pneumatic Tyre Co.Ltd (vs) Selfridge &
Co.Ltd (1915).
Exceptions:
Trust:In trust deed beneficiaries is allowed to sue the trustee
for enforcement of trustees duties even though they are not
contracting party. However, the name of the beneficiary must be
clearly mentioned in the contract. Example: Gandy (vs) Gandy
(1884):
Marriage settlements, partition (or) other family
arrangements:When an agreement is made in connection of marriage
settlements, partitions (or) other family arrangements and a
provision is made for the benefit of a person, he may sue although
he is not a party to the agreement. Example: Daropti (vs) Jaspat
Rai (1905):
Acknowledgement (or) Estoppel:The person, who becomes an agent
of a third party by acknowledgement (or) Estoppel, can be sued by
such third party.
Assignment of contract:Assignment means voluntary transfer of
the rights by a person to another. In such a case an assignee
becomes entitled to sue and enforce the rights which are assigned
to him.
Contracts entered into through an agent:The principal enforce
the contract entered into by his agent provided the agent act
within the scope of his authority and in the name of the
principal.
Covenants running with the land:In case of transfer of immovable
property, the purchaser of land (or) the owner of the land is bound
by certain conditions (or) covenants created by an agreement
affecting the land.
Competency Of Parties
Business Law - Define Minor ? Legal rules regarding an agreement
by a minor ?
Minor Definition:According to section 3, of the Indian majority
act, 1875 A minor is a person who has not completed 18 years of
age. However, minority will continue up to 21 years in case, if
Hon.court has appointed guardian for a minors property.
Legal rules regarding an agreement by a minor:
A minor is incompetent to contract u/s 11 of the
Indiancontactact, 1872. Minors incompetence is not a punishment but
it is a protection given to minors by law. The law becomes the
guardian of minors to protect their rights because their mental
capacity is not well developed. The following are the legal rules
regarding minors agreement are as follows:-
1. An agreement by minor is absolutely void:Where a minor is
charged with obligations and the other contracting party seeks to
enforce these obligations against minor, in such a case the
agreement is deemed as void-ab-initio.
Example: Mohiri Bibi (vs) Dharmodas Ghose (1903).
2. He can be a promisee (or) a Beneficiary:Any agreement which
is some benefit to the minor and under which he is required to bear
no obligation is valid. Thus, a minor can be a beneficiary (or) a
promisee.
3. His agreement cannot be ratified by him an attaining the age
of majority:An agreement by minor is void-ab-initio and therefore
ratification by minor is not allowed. There is a fundamental
principal in law (i.e.., an agreement Void-ab-initio cannot be
validated by subsequent action).
4. If he has received any benefit under a void agreement, he
cannot asked to compensate (or) pay for it:Under section 64 and 65
of the act, provides a minor cannot be ordered to make compensation
for a benefit obtained in a void agreement. Because section 64 and
65, which deals with restitution of benefit.
5. Minor can always plead minority:A minors contract being void,
any money advanced to a minor on apromissory notecannot be
recovered even though a minor procures (or) take aloanby falsely
representing that he is of full age it will not stop him from
pleading his minority in a suit, to recover the amount and the suit
will be dismissed. The rule of estoppel cannot be applied against a
minor.
Example: Leslie (vs) Shiell (1914).
6. There can be no specific performance of the agreement entered
into by him as they are void-ab- initio:A contract entered into, on
behalf of a minor by his parent/guardian (or) the manager of his
estate can be expressly enforced by (or) against the minor, provide
the contract is
With in the authority of the guardian and For the benefit of the
minor.
7. He cannot enter into a contract of partnership:A minor being
incompetent to contract but be a partner of a partnership firm, but
u/s 30 of the Indian partnership Act, provides he can be admitted
for the benefits of a partnership with the consent of all the
partners.
8. He can be an agent:A minor can be an agent. It is so because
the act of the agent is the act of the principal and therefore, the
principal is liable to the third parties for the act of a minor
agent.
9. His parents/guardian is not liable for the contracts entered
into by him:The parents/guardian is not liable for the contract
entered into by minor. The parents can held liable for contracts
for their minor children only when they are acting as agent.
10. A minor is liable in tort ( A civil wrong):Minors are liable
for negligence causing injury (or) damage to the property that does
not belongs to them.
11. A minor is liable for necessaries:Minors estate is liable
for necessaries supplied to minor during minority. Minor does not
personally liable for the supply of necessaries. The necessaries
such asfood, clothing, and shelter etc.., necessaries also include
goods and services.
Business Law - Person Of Unsound Mind & Person Disqualified
By Law
1. Person Of Unsound Mind
According to section 12 of the Indian contract Act, 1872 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 his capable of
understanding it and of forming a rational judgment as to its
effects upon his interests.
Soundness of mind of a person depends on two facts:
1. Ability to understand the contract at the time of making.2.
Ability to form a rational judgment about the effect of the
contract on his interest.
Unsoundness may arise from idiocy, lunacy, drunkenness,
hypnotism, mental decay because of old age and delirium (high
temperature) etc..,
Lunatics:A lunatic is a person who is mentally deranged due to
some mental strain or other personal experience. He suffers from
intermittent intervals of sanity and insanity. He can enter into
contracts during the period when he is of sound mind. Idiots:An
idiot is a person who has completely lost his mental powers. Idiocy
is permanent whereas lunacy denotes periodical insanity with lucid
intervals. An agreement of an idiot is void. Drunken/Intoxicated
Persons:A drunken or intoxicated person suffers from temporary
incapacity to contract, i.e. at the time when he is so drunk or
intoxicated that he is incapable of forming a rational judgement.
The position of a drunken or intoxicated person is similar to that
of a lunatic. Agreements Entered into by Persons of Unsound Mind
are Void:However, there is one exception. Persons of unsound mind
are liable for necessities supplied to them or to anyone whom they
are legally bound to support. But even in such cases, no personal
liability attaches to them. It is only their estate (property)
which is liable.
2. Person Disqualified By Law
Besides minors and persons of unsound mind, there are also other
persons who are disqualified from contracting partially (or)
wholly. So, the contracts by such persons are void. If, by any
provisional legislation, a person is declared disqualified
proprietor, he is not competent to enter into any contract in
respect of the property.
The following persons are disqualified from contracting; Alien
Enemies:An alien (citizen of a foreign state) is a person who is
not a citizen of India. When there is a war between India and
another country, that countrys citizen becomes an alien enemy and
cannot enter into contract. Foreign Sovereigns and Ambassadors:They
can enter into contracts and enforce those contracts in our courts
but they cannot be sued in our courts without the sanction of the
Central Government unless they choose to submit themselves to the
jurisdiction of our courts. Convict:A convict is one who is found
guilty by a court and is undergoing sentence of imprisonment.
During the period of his imprisonment, he is incompetent to
contract and also to sue on contract made before conviction.
Company or Corporation:A company/corporation is an artificial
person created by law. It cannot enter into contract outside the
powers, conferred upon it by its Memorandum of Association (object
clause) or by the provisions of its Special Act. Insolvents:When a
persons debts exceed his assets, he is adjudged insolvent and his
property stands vested in the Official Receiver or Official
Assignee appointed by the court. Such a person cannot enter into
contracts relating to his property.
Free ConsentBusiness Law - Free Consent - (Coercion, Undue
Influence, Fraud, Misrepresentation, Mistake And Their
Essentials)
Meaning of ConsentConsent means an act of assenting to an offer.
Two or more persons are said to consent when theyagree upon the
same thing in the same sense.
Free ConsentConsent is said to be free when it is not caused
by:
a) Coercion, orb) Undue Influence, orc) Fraud, ord)
Misrepresentation, ore) Mistake.
Effect of Absence of Free ConsentWhen there is consent but it is
not free (caused by coercion, undue influence, fraud or
misrepresentation), the contract is voidable, at the option of the
party whose consent was so caused. When consent is caused by
bilateral mistake as to a matter of fact essential to the
agreement, the agreement is void.
1. CoercionCoercion means compelling a person to enter into a
contract under a pressure or a threat. The Act defines Coercion as
follows:
Coercion is the committing or threatening to commit, any act
forbidden by the Indian Penal Code, or the unlawful detaining or
threatening to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into an
agreement.
Example - A Hindu widow was forced to adopt a boy under threat
that her husbands dead body would not be allowed to be removed if
she does not adopt the boy, She adopted the boy.
Essentials of Coercion
Coercion may proceed from any person and it is not necessary
that it must be exercised by a party to the contract. It may be
directed against any person and not necessarily against the other
contracting party. Coercion may be an act causing physical hardship
or unlawful detention of property belonging to another. It may also
include those cases where the party is subjected to mental
agony.
2. Undue Influence
A contract is said to be induced 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 the other, and
uses that position to obtain an unfair advantage over the
other.
3. FraudAccording to the Act, Fraud means and includes any of
the following acts committed by the party to a contract, or with
his connivance, or by his agents, with intent to deceive another
party there to or his agent, or to induce him to enter into the
contract:
a) The suggestion as a fact, of that which is not true, by one
who does not believe it to be true;b) The active concealment of a
fact by one having knowledge or belief of the fact;c) A promise
made without any intention of performing it;d) Any other act fitted
to deceive; ande) Any such act or om-mission as the law specially
declares to be fraudulent.
Essential Elements
a) The fraud must be committed by a party to a contract or by
anyone with his connivance or by his agent.b) There must be a false
representation and it must be made with the knowledge of its
falsehood.c) The representation must relate to a fact.d) The fraud
must have actually deceived the other party.e) The party acting on
the representation must have suffered loss.
4. MisrepresentationThe Act, defines the term misrepresentation,
as follows:a) The positive assertion, in a manner not warranted by
the information to the person making it, of that which is not true,
though he believes it to be true.b) Any breach of duty which,
without an intent to deceive, gains an advantage to the person
committing it, or anyone claiming under him, by misleading another
to his prejudice or to the prejudice of anyone claiming under
him.c) Causing, however innocently, a party to an agreement, to
make a mistake as to the substance of the thing which is the
subject of the agreement.
Essential Elementsa) By a Party to a Contract:The representation
must be made by a party to a contract or by anyone with his
connivance or by his agent.b) False Representation:These must be a
false representation and it must be made without knowledge of its
falsehood.c) Representation as to Fact:The representation must
relate to a fact. In other words, a mere opinion, a statement of
expression or intention does not amount to misrepresentation.d)
Object:The representation must be made with a view to inducing the
other party to enter into contract but without the intention of
deceiving the other party.e) Actually Acted:The other party must
have acted on the faith of the representation.
5. MistakeAccording to section 20,21,22 erroneous belief about
something.
Example - Making mistake in exam Unilateral mistake - if only
one person is under the mistake. Unilateral mistake is valid.
Bilateral Mistake - if both person is under the mistake. Unilateral
mistake is void. Mistake as to Indian law is valid Mistake as to
foreign law is void.
Contingent ContractsBusiness Law - Contingent Contract,
Essentials Of Contingent Contract
Contingent Contract Meaning
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.55 Example - A contracts to indemnify B upto Rs. 20,000
in consideration of B paying Rs. 1,000 annual premium, if Bs
factory is burnt. This is a contingent contract. Contracts
ofinsuranceand contracts of indemnity and guarantee are other
examples of contingent contracts.
Essentials of Contingent Contract
a) Dependence on a Future Event:The performance of a contingent
contract depends upon the happening or non happening of some future
event.b) Collateral Event:The event must be collateral (i.e.
incidental) to the contract.c) Uncertain Event:The event must be
uncertain.
Enforcement Or Rules Regarding Contingent Contracts
a) Enforcement of Contracts Contingent on Happening of a Future
Uncertain Event:Contingent contracts to do or not to d o anything
if an uncertain future event happens can be enforced only when the
event happens.
b) Enforcement of Contracts on the Non-happening of a Future
Uncertain Event:Contingent contracts to do or not to do anything if
an uncertain future event does not happen can be enforced only when
the happening of the event becomes impossible, and not before.
c) Contracts Contingent on Future Conduct of a Living Person:If
the future event on which a contract is contingent is the way in
which a person will act at an unspecified time, the event shall be
considered to become impossible when such person does anything
which renders it impossible that he should so act withinany
definite time, or otherwise than under future contingencies.
d) Contracts Contingent on a Specified Event Happening Within a
Fixed Time:Contracts contingent to do or not to do anything if a
specified uncertain event happens within a fixed time would become
void if, at the expiration of the time fixed, such event does not
happen or if before the time fixed, such event
becomesimpossible.
e) Enforcement of Contingent Contracts on Specified Event not
Happening Within a Fixed Time:Contingent contracts to do or not to
do anything if a specified uncertain event does not hapen within a
fixed time, may be enforced when such event has not happened, or
shall not happen within the time fixed.
f) Agreements Contingent on Impossible Events:Contingent
agreements to do or not to do anything if an impossible event
happens, are void.
Discharge Of Contract
Business Law - Discharge of Contract And Modes Of Discharge Of
Contract
MeaningDischarge of a contract means discontinuation of the
contractual relations between the parties. When the rights and
obligations arising out of a contract are extinguished, the
contract is said to be discharged or terminated.
Mode of DischargeA contract may be discharged in any of the
following ways:
a) Discharge by Performance:A contract can be discharged by
performance, which can be:
Actual -When the parties to the contract perform their promises
in accordance with the terms of the contract. Attempted -When the
promisor has made an offer of performance to the promisee but the
offer has not been accepted by the promisee.
b) Discharge by Mutual Consent or Agreement:Since a contract is
created by mutual agreement, it can also be discharged by mutual
agreement. Discharge by mutual agreement can be done in any of the
following ways:
Novation- Novation means the substitution of a new contract for
the original contract either between the same parties or between
different parties. Rescission- Recission means cancellation of the
contract by any party or all the parties to a contract Alteration-
Alteration means a change in the terms of a contract with the
mutual consent. Alteration discharges the original contract and
creates a new contract. Remission- Remission is the acceptance of a
lesser sum than what was contracted for or a lesser fulfillment of
the promise made. Waiver- Waiver means intentional relinquishment
of a right under the contract.
c) Discharge by Subsequent or Supervening Impossibility or
Illegality:
Cases where the doctrine of supervening impossibility applies
Cases not covered by supervening impossibility -
d) Discharge by Lapse of Time- 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 the
different periods for different contracts , e.g. period of
limitation for exercising right to recover a debt is 3 years.
e) Discharge by Operation of Law:
By death of the promisor. By insolvency. By merger. By
unauthorized material alteration.
f) Discharge by Breach of Contract -A contract is said to be
discharged by breach of contract if any party to the contract
refuses or fails to perform his part of the contract or by his act
makes it impossible to perform his obligation under the contract. A
breach of contract may occur in the following two ways:
Anticipatory breach of contract- It occurs when the party
declares his intention of not performing the contract before the
performance is due. Actual breach of contract -It can occur either
on due date of performance or during the course of performance.
Remedies For Breach Of Contract
Business Law - Meaning of Breach of Contract and Remedies of
Breach of Contract
Meaning of Breach of ContractA breach of contract occurs if any
party refuses or fails to perform his part of the contract or by
his act makes it impossible to perform his obligation under the
contract. In case of breach, the aggrieved party (i.e. the party
not at fault) is relieved from performing his obligation and gets a
right to proceed against the party at fault. Breach of contract may
either be anticipatory or actual.
Remedies of Breach of ContractA remedy is the courses of action
which are available to an aggrieved party for the enforcement of a
right under a contract. The various remedies available are:
a) Rescission of Contract:Rescission means a right not to
perform obligations. Incase of breach of a contract, the promisee
may put an end to the contract. In such a case, the aggrieved party
is discharged from all the obligations under the contract and is
entitled to claim compensation for the damage which he has
sustained because of the non-performance of the contract.
b) Suit for Damages:Damages are monetary compensation allowed
for loss suffered by the aggrieved party due to breach of contract.
Damages may be of five kinds:
Ordinary or General or Compensatory Damages:(i.e. damages
arising naturally from the breach). Special Damages:(i.e. damages
in contemplation of the parties at the time of contract).
Exemplary, Punitive or Vindictive Damages:(i.e. damages which are
in the nature of punishment). Nominal Damages:(i.e. awarded only
for the name sake). Liquidated Damages:means a sum fixed up in
advance, which is a fair and genuine pre-estimate of the probable
loss that is likely to result from the breach.
c) Suit for Specific Performance:Means demanding the courts
direction to the defaulting party to carry out the promise
according to the terms of the contract.
d) Suit for Injunction:Means demanding courts stay order
Injunction means an order of the court which prohibits a person to
do a particular act.
e) Suit for Quantum Meruit: Quantum- Meruit means as much as is
earned. In this suit, claimis made to compensate for the work
already done.
Contract of IndemnityBusiness Law - Contract of Indemnity
Contract of Indemnity
Meaning
The term Indemnity means to make good the loss or to compensate
the party who has suffered some loss. A contract by which one party
promises to save the other from loss caused to him by the conduct
of the promisor himself, or by the conduct of any other person, is
called a contract of indemnity. For example - A and B go into a
shop. B says to the shopkeeper Let A have the goods, I will see you
paid. The contract is one of Indemnity.
PartiesThe person who promises to make good the loss is called
the Indemnifier (promisor), and the person whose loss is to be made
good is called the Indemnified or Indemnity holder (promisee).
Contract of Guarantee
Meaning
A contract of guarantee is a contract to perform the promise or
discharge the liability of a third person in case of his default.
For example - A and B go into a shop. A says to the shopkeeper, C,
Let B have the goods, and if the does not pay, I will. This is a
contract of guarantee.
Parties to a Contract of GuaranteeThere are three parties to a
contract of guarantee.
Principal Debtor:The person in respect of whose default the
guarantee is given is called the principal debtor. In the above
example B is the principal debtor. Creditor:The person to whom the
guarantee is given is called the creditor. C is the creditor in the
above said example. Surety:The person who gives the guarantee is
called the surety A is the surety in the above said example.
Kinds of GuaranteeGuarantee may be classified under the
following two categories:
Specific Guarantee:A guarantee which extends to a single debt or
specific transaction is called a specific guarantee. The liability
of the surety comes to an end when the guaranteed debt is duly
discharged or the promise is duly discharged. Continuing
Guarantee:A guarantee which extends to a series of transactions is
called a continuing guarantee. A suretys liability continues until
the revocation of the guarantee.
Discharge of Surety from Liability
A surety is said to be discharged when his liability as surety
comes to an end. A surety is freed from
his obligation under a contract of guarantee under any of the
following circumstances:
a)Notice of Revocation:A specific guarantee cannot be revoked
once it is acted upon. But a continuing guarantee may at any time,
be revoked by the surety as to future transactions by giving notice
to the creditor.
b)Death of Surety:In case of a continuing guarantee the death of
a surety also discharges him from liability as regards transactions
after his death, unless there is a contract to the contrary.
c)Variance in Terms of Contract:Any variance made without the
suretys consent, in the terms of the contract between the principal
debtor and the creditor, discharges the surety as to transactions
subsequent to the variance.
d)Release or Discharge of Principal Debtor:The surety is
discharged by any contract between the creditor and the principal
debtor, by which the principal debtor is released, or by any act of
omissions of the creditor, the legal consequence of which is the
discharge of the principal debtor.
e)Arrangement by Creditor with Principal Debtor without Suretys
Consent:A contract between the creditor and principal debtor, by
which creditor makes a composition with, or promises to give time
to, or not to sue the principal debtor, discharges the surety,
unless the surety assents to such contract.
f)Creditors Act or Omission Impairing Suretys Eventual Remedy:If
a creditor does any act which is inconsistent with the rights of
the surety, or omits to do any act, which is his duty to the surety
requires him to do, and the eventual remedy of the surety himself
against the principal debtor is thereby impaired, the surety is
discharged.
g)Loss of Security:If the creditor loses (by negligence or
carelessness) or without the consent of the surety, parts with
security given to him, the surety is discharged from liability to
the extent of the value of security.
h)Invalidation of the Contract of Guarantee:(In between the
creditor and the surety) A surety is also discharged from liability
when the contract of guarantee (in between the creditor and the
surety) is invalid. A contract of guarantee is invalid where such a
contract has been obtained by means of misrepresentation or fraud
or keeping silence as to material part of the transaction, by the
creditor or with creditors knowledge or assent. Failure of
co-surety to join a surety also makes the guarantee invalid.
Bailment & Pledge
Business Law - Bailment And Pledge
Meaning of BailmentThe word Bailment is derived from the French
word baillier which means to deliver. According to the Act. A
bailment is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose is
accomplished, be returned or otherwise disposed of according to the
direction of the person delivering them.
The person delivering the goods is called the bailor. The person
to whom the goods are delivered is called the bailee.
Essential Features of BailmentA bailment has the following
characteristic features:
It is the delivery of movable goods. The goods are delivered for
some purpose. Return of specific goods - The goods which form the
subject matter of a bailment must be returned to the bailor or
otherwise disposed of according to the directions of the bailor,
after the accomplishment of purpose or after the expiry of period
of bailment.
Kinds of BailmentBailment may be classified from the point of
view of benefit or reward. The benefit may be exclusiveto the
bailor or bailee or mutual. Bailment on the basis of reward may
be:
1. Gratuitous:Neither the bailor nor the bailee is entitled to
any remuneration i.e.loanof book to a friend, depositing of goods
for safe custody. It is for the exclusive benefit of the bailor or
bailee.2. Non Gratuitous:Here the goods are given for reward,
remuneration or for some consideration, e.g. car let out on hire,
goods given for repairs or tailoring for charges.3. Pawn or
Pledge:Goods delivered to another as a security for money borrowed
is called Pledge.
Bailment, Sale and LicenseIn Sale the ownership is transferred
to the buyer, whereas in the bailment the ownership in goodsis not
transferred. In a contract of License, one party is permitted to
place his goods in the premisesbelonging to other person. Thus in a
contract of license, the goods are not delivered to the
licensor,while in bailment the goods are delivered to the bailee
for safe custody.
Duties of BaileeHis duties are as follows:
a) To take reasonable care of goods delivered to him.b) Not to
make unauthorised use of goods entrusted to him.c) Not to mix goods
bailed with his own goods.d) To return the goods.e) To return
accretions to the goods.f) Not to set up any adverse title.
Duties of BailorHis duties are as follows:
a) To disclose faults / defects in goods bailed.b) To repay
necessary expenses in case of gratuitous bailment.c) To repay any
extra ordinary expenses in case of non-gratuitous bailment.d) To
indemnify bailee.e) To receive back the goods.
Rights of BaileeHis rights are as follows:
a) Enforcement of bailors duties.b) To deliver goods to one of
several joint bailors.c) To deliver goods, in good faith, to bailor
without title.d) Lien - is of two types -generalor particular.
Bailee has particular lien unless the contract provides otherwise.
Particular lien means the right to retain that particular property
in respect of which the charge is due. General lien means the right
to retain all the goods of the other party until all the claims of
the holder against the party are satisfied.
Rights of BailorHis rights are as follows:
a) Enforcement of bailees duties.b) To terminate bailment if the
bailee uses the goods wrongfully.c) To demand return of goods at
any time in case of gratuitous bailment.
Pledge or PawnThe bailment of goods as security for payment of a
debt or performance of a promise is called pledge. The bailor in
this case is called the pawner. The bailee is called the pawnee.84
Pledge is therefor a kind of bailment.
AgencyBusiness Law - Meaning Of Agency, Rights and Duties Of
Agent
Definitions of Agent and PrincipalAn agent is a person employed
to do any act for another or to represent another in dealings with
third persons. The person for whom such act is done, or who is
represented, is called the principal.The contract which creates the
relationship of principal and agent is called an agency. For
example - X appoints Y to buy ten bags of wheat on his behalf, X is
the principal, Y is the agent and the contract between the two is
agency.
General Rules of AgencyThere are two important general rules
regarding agency, viz:
What one person can himself lawfully do, can as well get it done
by any other person. This rule is of course, subject to some
exceptions, e.g. in case of acts required to be performed
personally like marriage. What a person does by another, he does by
himself. In other words the acts of the agent are,for all legal
purposes, the acts of the principal.
Who May Employ an Agent?Any person who is competent to contract
may employ an agent. A minor or a person of unsound mind cannot
employ an agent.
Who May be an Agent?The Act lays down that as between the
principal and third persons any person may become an agent. Thus
even a minor or a person of unsound mind can be appointed as agent,
but in such a case the principal shall be liable.
Creation of AgencyAn agency may be created in any one of the
following ways:
a) Agency by Express Agreement:An agency by express agreement is
created when by spoken or written words an express authority is
given to an agent.
b) Agency by Implied Agreement:Implied agency arises when agency
is inferred from the circumstances of the case, or from the conduct
of the parties on a particular occasion, or from the relationship
between parties.Implied agency includes the following: Agency by
Estopped:Agency by estopped arises where a person by his words or
conduct induces third persons to believe that a certain person is
his agent. The person who induces as such is estopped or prevented
from denying the truth of agency. Agency by Holding Out:This is a
type of agency by estopped. Such agency arises when a person by his
past affirmative and positive conduct leads third person to believe
that person doing some act on his behalf is doing with authority.
Agency by Necessity:Agency by necessity arises under the following
two conditions: 1. There is an actual and definite necessity for
acting on behalf of the principal, and 2. It is impossible to
obtain the consent of the principal.
c) Agency by Ratification:Where acts are done by one person on
behalf of another, but without his knowledge or authority, the
latter may elect to ratify (adopt and accept) or to disown such
acts. If he ratifies them, the same effect will follow as if they
had been performed by his authority.(Section 196) Ratification may
be express or implied in the conduct of person on whose behalf the
acts are done.
d) Agency by Operation of Law:Agency by operation of law is said
to arise where the law treats one person as an agent of
another.
Meaning of Sub AgentA sub-agent is a person employed by, and
acting under the control of, the original agent in the business of
the agency.91 Thus a person employed by an agent is called
sub-agent.
Meaning of Substituted AgentAn agent names or appoints a
substituted agent at the request of the principal and thereafter
drops out altogether from the scene. Such person is an agent of the
principal.
Duties of AgentAn agent has the following duties towards the
principal:
a) To follow principals directions or customs.b) To carry out
the work with reasonable skill and diligence.c) To render
accounts.d) To communicate, in case of difficulty.e) Not to deal on
his own account in the business.f) Not to make any profit out of
his agency except his remuneration.g) On termination of agency by
principals death or insanity to protect and preserve the interests
entrusted to him.h) Not to delegate authority.
Right of AgentAn agent has the following rights against the
principal:
a) To receive remuneration.b) Retainer - out of any sums
received on account of the principal.c) Lien - to retain goods.
Agent has a particular lien unless the contract provides
otherwise.d) To be indemnified against consequences of lawful
acts.e) To be indemnified against consequences of acts done in good
faith.f) To compensation for injuries sustained by him due to
principals neglect or want of skill.g) Stoppage of goods in
transit.
Duties of PrincipalThe duties of principal are indirectly the
rights of an agent.
Rights of PrincipalThe rights of principal are indirectly the
duties of an agent.
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