Business Law Module 2

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Business Law Module 2. Module II: Contract Act, 1872 Essentials of valid contract Offer and acceptance Consideration, Capacity to contract Free consent, discharge of contract - PowerPoint PPT Presentation


Law of ContractsBusiness Law Module 2Module II: Contract Act, 1872 Essentials of valid contractOffer and acceptanceConsideration, Capacity to contractFree consent, discharge of contractBreach of contract; remedy of breach of contract. 1Law of ContractsContract is an agreement enforceable by law. Indian Contract Act 1872.---Agreement = Offer + Acceptance (agreement is an accepted proposal)---Enforceability by lawFeatures of an agreement:---Consensus ad idem---Obligation ---Agreement a wide termsocial agreement not a contractALL CONTRACTS ARE AGREEMENTS BUT ALL AGREEMENTS ARE NOT CONTRACTS.2Law of ContractsEssentials of valid contract:Offer and AcceptanceIntention to create legal relationshipLawful consideration (something in return)Capacity of partiescompetencyFree and genuine consentLawful object (purpose)Agreement not declared void (Sec 24 to 30 and56)** Next slideCertainty and possibility of performanceLegal formalities ( like documentation, registration where necessary, witnessing, statutory compliance )3Law of ContractsAgreements specifically declared void:Agreement by incompetent partiesAgreements under mutual mistake of fact material to the agreement (Sec20)Agreements with unlawful consideration or object (Sec 23)Agreements unlawful in part (Sec 24)Agreements without consideration (Sec 25)Agreements in restraint of marriage (Sec 26)Agreements in restraint of trade (Sec 27)Agreements in restraint of legal proceedings (Sec 28)Agreements which are uncertain and ambiguous (Sec 29)Agreements by way of wager (Sec30)Agreements to do impossible acts (Sec 56)4Law of ContractsLegality of Object: Opposed to Public policyexamplesAgreements of trading with enemyAgreement to commit a crimeAgreement which interfere with administration of justiceAgreement in restraint of legal proceedingsTrafficking in public offices and titlesAgreements tending to create interest opposed to dutyAgreements in restraint of personal libertyAgreement in restraint of marriageMarriage brokerage agreementsAgreements interfering with martial dutiesAgreements to defraud creditorsAgreements in restraint of trade5Law of ContractsOffer and Acceptance Offer: Signifying to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other.Offeror or Proposer or Promisor Vs Offeree, or proposeeWhen the offer is accepted, he becomes ACCEPTOR or promiseeOffer should show a obvious intention to be bound by itOffer should be with an intention to obtain an assent of the otherOffer must be definiteOffer must be communicated.6Law of ContractsOffer and Acceptance Legal rules as to Offer:Offer must be one which is capable of being accepted and giving legal relationshipTerms of offer must be certain and definite and not loose and vagueAn offer is different from a declaration of intention and an announcementAn offer is different from an invitation to make an offerOffer must be communicatedA statement of price is not an offerTender is a definite offer ( person calling a tender is sending an invitation to offer, person submitting tender is making an offer and once tender is accepted, the authority becomes the acceptor7Law of ContractsOffer and Acceptance Acceptance:Giving assent is acceptanceAcceptance can be express or implied. Particular offer must be accepted by the person to whom it is made.Acceptance must be absolute and unqualified (conform with the offer)It must be communicatedIt must be according to the mode accepted or usual and reasonable modeIt must be given within a reasonable timeIt cannot precede an offerIt must show an intention to fulfil the termsIt must be given by the parties to whom the offer is madeIt must be given before lapse of time or before the offer is withdrawnIt cannot be implied by silence.8Law of ContractsCONSIDERATION: (Sec 2(d) ) and Sec 25Ex nudo pacto non oritur actio:- nobody would part with anything unless he gets a proper pricePast ConsiderationExecuted or Present ConsiderationExecutory or Future ConsiderationMust move at the behest of the promisorMay move from the promisee or on the desire of the promisor or from any other personNeed not be adequateMust be real and not illusoryPerformance of an existing legal duty will not constitute consideration.9Law of ContractsCONSIDERATION: (Sec 2(d) ) and Sec 25Exceptions to the rule of consideration:Love and affectionVoluntary servicesTime-barred debtGiftAgencyCharitable subscriptions10Law of ContractsCapacity to ContractINCOMPETENT TO CONTRACTS:Minors (immature mind)Persons of unsound mind Idiot, Lunatic, drunkardPersons disqualified by law-Alien Enemy, Insolvent, Convict11Law of ContractsIncompetent to contracts:---MINORSSec 3 of the Indian Majority Act:- 18 yearsCourt guardianship---21 yearsNo estoppelDoctrine of Restitution does not apply to minorsNo ratification on attaining the majorityNo liability for breach or for tort arising out of contractMinor can be a promiseeContract of marriageContract of service or apprenticeshipPosition of parents or guardianSurety for a minor12Law of ContractsIncompetent to contracts:---MINORSMinor as an agentSpecific performance Can be admitted to the benefits of partnership ( liability limited to his share in the PpNot a debtor under insolvencyCannot be a shareholder in a company (except through lawful guardian)-cannot be liable for payment of call moneyUnder NI Act, he may draw, endorse, deliver and negotiate so as to bind all parties except himselfHe cannot become a Principal or appoint an agent under the contract of Agency13Law of ContractsIncompetent to contracts:-PERSONS OF UNSOUND MINDIf at the time of making a contract, he is not capable of forming a rational judgement as to its effect upon his interests. Mere weakness of mind is not enough.Permanent unsoundness of mindTemporary unsoundness of mindIDIOT: one who is devoid of the ability to thinkLUNATIC: One whose mental power has been damagedDRUNKARD: One is under the influence of intoxicating liquors or drugs equal to that of a lunatic14Law of ContractsIncompetent to contracts:-PERSONS DISQUALIFIED BY LAW:Alien Enemyon the grounds of public policy may hamper the economic interestsInsolventone who is unable to discharge his liabilities. However, after of discharge he is competent to enter into contractsAny other person expressly disqualified from entering into any legal act15Law of ContractsFree consent, CONTRACT- Free Consent Sec 14Consent is said to be free when it is not caused byCoercionUndue InfluenceFraudMisrepresentationMistake16Law of ContractsDischarge of contract:By performance: actual or attemptedBy agreement or consent (novationnew agreement in lieu of the old ones)By impossibility and supervening impossiblity (destruction of the subject matter, non-existence or non-occurrence, death or incapacity for personal service, change of law or outbreak of warBy lapse of timeBy Operation of Law; merger acquisition, insolvency etcBy breach of contract17Law of ContractsRemedies for breach of contractSec 73compensation for loss or damage caused by breach of contractProximate losses not remote/indirect lossesSec 74 compensation for breach of contract where penalty specified-Sec 75: Party who is rightfully rescinding is entitled for compensationSuit for RescissionSuit for injunctionSuit for Specific PerformanceSuit for damagesOrdinary or special. exemplary(vindictive),nominal, damages for loss of reputation; damages for inconvenience and discomfort, mitigation of damages; difficulty of assessment; cost of decree; damages agreed in advance; liquidated damages and penalty:Suit for Quantum Meruit ( as much as earned)Penalty by Courts18