business law-Module+No.2

8/10/2019 business law-Module+No.2

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Passion alone can make us

surpass ourselves.

Andre Maillet

Sebastian Tharakan, The Businesslawlecturer


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The Law of Contract

I ndian Contract Act, 1872

copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer


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The modes of wealth creation :

Wealth ex factum

Wealth ex contractus

Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer


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The Roman Law concept of contract :

Consensus ad idem. ; Uni ty of minds.

Aggregatio mentium. ; Meeting of minds.



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A Test Question! .

Mr. Mihi r Sikka runs away from home. Two dayslater, his father: M r. Sikka Senior places the

advertisement in newspaper: To anyone who f inds my

son and brings him home to me, I shall give reward of

Rs.1 lakh. The next day, Mr. Raghunathan A.,whi le sitting in the rai lway station reading a newspaper,

happens to notice Mr. M ihi r , and through persuasion

and effort, manages to take Mr. Mihi r Sikka home to

his father.

I s there / was there any consensus ad idem here ?



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Definition of contract :

Sec. 2(h) of the Indian Contract Act, 1872 :

An agreement enforceable by law, is a contract.



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The key word in the definition =

enforceable



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Conditions for enforceabil i ty of a contract:

Sec. 10 of Indian Contract Act, 1872 :

All agreements are contracts, if they are made by the free

consent of the parties competent to contr act, for a lawful

consideration and with a lawful object, and are not hereby

expressly declared to be void.



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Those vital elements for validity of contract :

(1)The parties to the agreement must be will ing toenter into a legal relation. (Ss. 10, & 13 of the Indian

Contract Act )

(2)The agreement must be entered into by parties /persons who are legally competent / capable to

enter into a contr act that results in legally

enforceable rights, duties and obligations.

(Ss. 10, 11 & 12 of the Indian Contract Act )



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(3)The parties must have given their f ree consent

to the terms of the contract. That is, their

consent should be free from: coercion, undue

influence, fraud, misrepresentation or mistake.(Ss. 10, 13 to 22 of the Indian Contract Act )

(4)There must be a valid / lawful consideration

and a valid / lawful object for the agreement.(Ss. 10, 23, 24 & 25 of the Indian Contract Act )

(5)The agreement is not otherwise void.

(Ss. 10, 24 to 30, & other Sections of the Indian

Contract Act )



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All contracts are agreements,

but all agreements are not contracts.



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A Test Question !

Mr. Nirupam Mandal has deep enemity / animosity towards

Mr. Akash Sarkar , and wants to settle a grudge. He

therefore enters into agreement with M r. Sagnik Brutal

Biswas, offering = I shall pay you Rs.1,000/- if you

break the leg of M r. Akash. Mr. Brutal Biswas agrees and

goes ahead to successful ly complete his mission.Later, he meets M r. Nirupam, states that he has ful f i l led his

part of the agreement and now demands the price: Rs.1,000/-

However, M r. Nirupam refuses to pay the promised money.

Can M r. Brutal Biswas successfully f i le a case

against M r. Ni rupam Mandal to recover the agreed pr ice ?


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Formation of contract ;

how is a contract made ?:

Sec. 2(a) : offer / proposal :

When one person signi f ies to another his wil l ingness to do

or to abstain from doing anything, with the view to

obtaining the assent of that other to such act or

abstinence, he is said to make a proposal.

Sec. 2(b) : acceptance of offer / proposal :

When the person to whom the proposal is made, signi f ies

his assent thereto, the proposal is said to be accepted.


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Sec. 2(c) : promisor & promisee :

The person making the proposal is called the promisor,

and the person accepting the proposal is called the

promisee.

Sec. 2(d) : consideration :

When at the desire of the promisor, the promisee or anyother person has done or abstained from doing, or does or

abstains from doing, or promises to do or to abstain f rom

doing, something, such act or abstinence or promise is

cal led a consideration for the promise.



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Sec. 2(e) : agreement :

Every promise and every set of promises, forming the

consideration for each other is an agreement.

Sec. 4 : communication, when complete :

The communication of a proposal is complete

when it comes to the knowledge of the person

to whom i t is made .



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Sec. 7 : A proposal may prescribe the manner of

acceptance

Sec. 9 : A proposal may be either express orimplied



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. the 2ndparagraph to

Sec. 10 of Indian Contract Act, 1872 =

Nothing herein contained shall affect any law in force inI ndia, and not hereby expressly repealed, by which any

contract is required to be made in wr iting or in the

presence of witnesses, or any law relating to the

registration of documents.


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Kinds of offers :

(1)Express offer or implied offer

(2)Specific offer or general offer

Carlill v. Carbolic Smoke Ball Co. (1893)

Offer distinguished from

invitation to offer ; invitation to treat :

MacPherson v. Appanna (1951) SC



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(3)Standing offers:

B. Anantharajappan v. State of Kerala (2000)

(4) Tenders:

offer to receive offers

Tata Cellular v. Union of India (1996) SC



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Other definitions :

Void agreement Sec. 2(g)

An agreement not enforceable by law is said to be void.

Contract Sec. 2(h)An agreement enforceable by law is a contract.

Voidable contract Sec. 2(i)

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.


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Consideration

quid pro quo = something for something

the pri ce for the promise .

the terms of the bargain .

Defined in Sec.2(d) of the Indian Contract Act



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Mr. Sebastian Tharakan and family live in adouble-storey house adjacent to the lovely

water front (backwaters) at Thevara

in Cochin city .



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The requirement for lawful consideration =

. Sec.23& Sec.10of Indian Contract Act

An agreement without consideration is void. =

. Sec.25of Indian Contract Act



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The Exceptionsto the general rule of Sec. 25

When is consideration notnecessary ?

(1) Agreements on account of natural love and

affection.Sec. 25(1)

(2)Compensation for past voluntary service.

Sec. 25(2)

(3)Promise to pay a time-barred debt. Sec. 25(3)

(4)Gifts Sec. 25, Explanation 1

(5)Creation of agency Sec. 185



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I l lustration No. 1

The father of M s. Apoorva P. Bhalerao

promises her =

If you obtain the highest mark / top rank in

vibrant subject of Business Law 2010 for

Semester 1, SIBM 2010 MBA Examinations,

I will buy you a diamond earring. .


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Ms. Studious Apoorva works hard and succeeds in

obtaining the Top Rank in the Examination. .

She then approaches her father and requests for

his promised reward . However, her father

refuses to fulf i l l his part of the agreement.

Can Ms. Studious Apoorva f i le a case

against her father to recover / to obtain the

promised reward ?


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M r. Decent Sharath Chandra finds a purse

belonging to Ms. Ekta Malhotra. The purse is

fully loaded with cash! .

However, Mr. Decent Sharath resists the urge to

steal a few cur rency notes, and in fact truthful ly

approaches Ms. Ekta and returns the purse

intact. .



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Deeply impressed by the honesty of M r. Decent

Sharath, Ms. Ekta offers =

Mr. Sharath, I shall pay you Rs.500

for your honesty.

Wil l this offer make a legally binding contract ?



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Mr. Cunning Ketan Gajanan K., a texti le

manufacturer , approaches Mr. Creative AbhasSr ivastava, a manufacturer of industr ial looms,

for the purchase of a new power loom for his

texti le mi l l. The loom which costs Rs.1,00,000

is supplied, but not paid for. Thus, there is a

breach of contract by M r. Ketan Gajanan.

However, Mr. Abhas does not initiate any

litigation. Five years have gone by.



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And five years later, Mr. Abhas is againapproached by M r. Ketan for a new contract

to buy a new power loom. .

Can M r. Abhas Srivastava and M r. KetanGajanan revive the earl ier time-barred debt as

part of the new second contract ?



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On the happy occasion of the Convocation for

the SIBM 2010-2012 MBA Batch, a grateful

student: Ms. Sushma Pamidi, promises to give a

generous donation of Rs.1,00,000 to SIBM for the

purchase of new LCDs.



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Ms. Sushma Pamidi also issues a cheque to

SIBMfor the promised donation amount.

However, the cheque bounces / has been returned

on ground of insufficiency of funds in

Ms. Sushma Pamidis account.

Can M s. Sushma Pamidi be made liable

for the promiseddonation?



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Mr. Anil Rakesh Kohli receives an offer to buy a

prime property at Bangalore. However, he is on the

verge of going abroad on an important assignment, and

therefore wil l not be around to sign the contr act.

He therefore wishes to appoint his brother as his

Power of Attorney (agent) to enter / sign the sale

contr act on his behalf .



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Would Mr. Ani l Rakesh Kohli be legally required

to pay his brother for agreeing to be

his agent for the sale contract ?


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