Welcome students

• All students of S09 Batch are welcomed for the Third Episode of the MBA Career. You are just a few days away of becoming future Managers of the Corporate World.

• I wish you all Best of Luck for your Third Semister to start with.

• Prof P.S. Gurumurthy• B.Com, LLB, DBM,MBA .

CORPORATE LEGAL ENVIRONMENT – MBA 302

Corporate Legal Environment – Syllabus

• Section 1.• Law of Contract: Definition, Offer and

Acceptance, Consideration, Capacity of Parties, Free Consent, Legality of Object, Performance and Discharge of Contract and Remedies for Breach of Contract. Introduction to the concept of Agent and Different types of Mercantile Agents.

• Law of Insurance: Fundamentals Elements of Insurance.

Corporate Legal Environment – Syllabus

• Section II• Negotiable Instrument: Bill of

Exchange, promissory Note, Cheque and Rules regarding the Crossing of Cheques. Dishonor of Cheques and Liability of banker and drawer.

• Sale of Goods Act: Meaning, formation of Contract, Meaning of condition and warranties, Difference between Transfer of Property and possession.

Corporate Legal Environment – Syllabus

• Right of a unpaid seller.• Section III• Basic Features of Law relating to

Carriers (Air Road and Shipping)• Company Law – Characteristic of

Company, Difference between Company and Partnership Firm, Kinds for formation of Co.

Corporate Legal Environment – Syllabus

• Meeting • Winding up by Court.• Taxation : Constitutional frame work

of Taxation. Direct and Indirect Taxes. Basic features of Central Excise , Customs and State Sales Tax .

Why Should a MBA Student Study Business Law

• 1. To make a student aware about law • 2. Law is helpful in maintaining business

in legal ways. • 3.To have secured business. • 4. To make us aware of the legal issues

involving businesses and how to deal with them

Introduction:

Business Law are essential for the students of Management to understand the legal rules and aspects of business. Just like any other study even Business Management is incomplete without a proper study of its laws. Any form of business needs legal sanction. Therefore, it is imperative that a Manager understands the various ways in which businesses can be organised. This subject introduces some of the common forms of business organisation, including some forms unique in India like the Joint Hindu Undivided family firm. Different types of organsiations like Sole Ownership Company ( A Single Owner driven Company) Partnership Firms, Private Limited Companies and Public Limited Company.

For Proper working of the society there must exist a Code of Conduct. As you all know in the ancient times the society was not organised. The rights of the individuals were not recognized. Gradually the State evolved and the state came into being. As we all know to regulate the state, there should be a specific Code of Conduct, which should be followed by every one. As a result law evolved as a system of right and obligation including all the rules and principles which regulate our relations with other persons and with the state.

Branches of Law:

Civil Mercantile Law Law Criminal International Law Law Industrial Constitutional Law Law

These rules and regulatiuons took the form of statues. To enforce the law and to resolve the conflicts arising there from, courts of law were set up by the state. Laws were made to govern almost every walk of life. You all must know that:Criminal Laws were made to control criminal activities in the Society like Indian Penal Code, which details which activities are considered criminal and what will be the punishment for committing a crime. Like Wise:Mercantile Law was evolved to govern and regulate trade and commerce. Hence the term Mercantile Law can be defined as that branch of Law, which comprises laws concerning Trade, Industry and Commerce. It is an ever growing branch

with the changing circumstances of trade and Commerce(ITC)

Now the question arises as to what are the sources of Mercantile Law in India. The answer is The Indian Statutes on Mercantile Law.

The Main Sources of Mercantile Law are as under:

The Indian Mercantile Law is Mainly based upon the English Mercantile Law. However necessary modifications have been made to provide for the local customs or usage of trade as necessitated by the peculiar conditions prevailing in India. The Indian Mercantile Law was sourced from the following heads:

-English Mercantile Law-Precedents (i.e. past judicial divisions)-Local customs and usage-Indian Statute Law (i.e. Acts of Indian Legislature)

English Mercantile Law:This is the main source of the Indian Mercantile Law. As a matter of fact the Indian Mercantile Law is largely based on English Mercantile Law. Thus to know more about Indian Mercantile Law, we should be able to know the Main source of English Mercantile Law. English Mercantile Law was sourced from the following:

Common LawPrinciples of EqjuityLaw Merchant of Law MercatoriaBritish Statute Law (Acts of British Legislature)

Common Law:

The terms Common Law is used to denote the case law based on English Customs, usage and traditions which were developed over centuries by the English Court. It is also know as unwritten Law, as these laws is not contained in the Act of the legislature.

Principles of Equity:Under this branch of English law it was based on the principles of equity, justice and good conscience. It is also unwritten law and developed separately from the above common law. This law was developed taking into account some deficiencies in the above Common Law and Harsh working of Common Law.

Law of Merchant of law Mercatoria:This branch of law was developed in the 14th and 15th centruies and was a separate law governing the commercial transactions of the merchants and traders. Intiatially this law was not recognised by the courts, but later on in the beginning of seventeeth Century, the Kings court that is common Law court starting to recognised the rules of law of Merchant which became a part of common law. The traders established their own tribunals consisting mainly of merchants themselves. The rule pronounced by these tribunals became the law till it was accepted and recognised by the common court of law.

In England, the Parliament is the supreme Legistative Body and can pass any laws that suits the requirements of the time. From the above we can understand that Biritsh Mercantile Law is the main source of Indian Mercantile Law. Apart from the above, Still there some more additional sources of the Indian Mercantile Law. Which are as under:

Precedents (Past Judicial Decisions of Courts)

The past judicial decisions of courts are the important source of the Law.

Local Customs and Usages:

The customs and usage of particular trade are an important source of Indian Mercantile Law. They play an important role in regulating the business dealings between the merchants of that trade, even under this law it acts as a binding force on the parties. However even though these law are binding on the parties it should also must satisfy certain requirement such as Certain / Reasonable / Definate / consistent with the law and uniformly accepted in the oridinary course of Business.

To summarise the Sources of Mercantile Law and to further eleborate the Mercantile Law.

The subject of Mercantile Law is very vast and unlimited. But if we see it from our Syllabus point of view, we find that the subject matter can be divided into the following heads:

•Law relating to Contracts.

•Law relating to Sales of Goods

•Law relating to Partnership

•Law relating to Negotiable Instrument

•Law relating to arbitration.

•Law relating to insolvency

•Law relating to Carriage of Goods

•Law relating to Insurance.

Unit 1. Law of Contract

• Introduction• Meaning and Essentials of Valid Contract• Offer and Acceptance (Sec 3-9)• Capacity to Contract (Sec 10-12)• Consent and Free Consent• Consideration (Sec 2D, 23-23)• Unlawful Consideration and objects

Unit No 1. Law of Contract

• Agreement Declared Void• Contingent Contracts (Sec 31-36)• Quasi Contract (Sec 68-72)• Performance of Contract (Sec 36-67)• Different Modes of Discharge of Contract• Remedies for Breach of Contract.• Freedom to Contract

Objectives

• To Know the meaning and essentials of a valid Contract.

• To understand the importance of Offer and Acceptance of a contract

• Appreciate the significance of capacity and free Consent of Parties to a Contract.

• To know the meaning of Legality of Object of a Contract

Objectives

• To understand the meaning of Performance and Discharge of Contract.

• To identify the different remedies of for breach of Contract.

The Indian Contract Act 1872

• Meaning and Nature of Contract:• The Law of Contract constitutes the most

Important branch of Mercantile or Commercial Law. It affects everybody, more so trade, commerce and industry. It may be also said that Contract is the foundation of the Civilized world.

• The Law relating to contract governed by the Indian Contract Act 1872

Scheme of the Act• The Indian Contract act is divided into two main groups.• General principles of Law of Contract (Section 1 to 75)• Specific kinds of contracts viz ….• Contract of Indemnity and Guarantee (Sec 124 -147)• Contracts of Bailments and Pledge (Sec 148 – 181)• Contract of Agency (Sec 183 -238)

Before 1930 the act also contained provisions relating to contracts of sale of goods and Partnership Sec 76-123

Definition of Contract:

According to Section 2 (h) of the Indian Contract Act – An Agreement enforceable by law is a contract. A contract therefore is an agreement the object of which is to create a legal obligation i.e. a duty enforceable by law.

From the above definition you will find out that I have highlighted two elements – a) An Agreement and 2) Legal Obligations i.e. duty enforceable by law.

Agreement: As per Section 2 (e) “ Every promise and every set of promises, forming the consideration for each other is an agreement.

What is a promise? Section 2(b) defines the term promise as: “When a person to whom the proposal is made signifies his assent there to the proposal is said to be accepted.

A proposal when accepted becomes a promise “ An agreement , therefore comes into existence only when one party makes a proposal or offer to the other party and that party signifies his assent (i.e. gives his acceptance) In short an agreement is the sum total of offer and acceptance.

The following characteristics of an agreement become evident.

a)At least two persons

b)Consensus-as-idem.(both parties agree to the same subject)

There must be two persons to make an agreement because one person cannot enter into an agreement with himself.

Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time

Legal Obligation.As stated above, an agreement to become a contract must give rise to legal obligation i.e. duty enforceable by Law. If an agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. “All contracts are agreements but all agreement are not contracts”

A very simple example to understand:An agreement to sell a car may be a contract but an agreement to go for lunch may be a mere agreement not enforceable by law. Thus all Agreements are not contracts.Thus an agreement to buy certain specific goods at an agreed price e.g 200 bags of rice at Rs. 100 bags is a contract because it give rise to a duty enforceable by law and in case of default then essential elements of a contract was may by free consent competent to contract for lawful consideration

It would be appropriate to point out that the Law of contract deals only with such legal obligations which arises from agreements, obligations which are not contractual in nature are outside the purview of the law of Contract.

After knowing the above points, we must further know which must be satisfied for the contract to be valid.

Essential Elements of Valid Contract:A contract has been defined in Sec 2 (h) as “ an agreement enforceable by law” To be enforceable by law an agreement must possess the elements of a valid contract as contained in Section 10,29 and 56.According to Sec 10, all agreements are contracts if they are made with free consent of the parties, competent to contract for a lawful consideration with a lawful object are not expressly declared by the Act as Void

Essential Elements of Valid Contract

• Offer and Acceptance:• There must be a Lawful offer and a Lawful

acceptance of the offer, thus resulting in an agreement.

• Intention to Create Legal Relation:• There must an intention among the parties that

the agreement should be attached with legal consequence and create legal Obligations

Try to work out the solutions for the following cases:

a)M promises his wife to get her a necklace if she will sing a song. N sang a song M did not bring the necklace for her.

b)The defendant was a civil servant in Srilanka. He and his wife were enjoying leave in England. When the defendant was due to return to srilanka his wife could not accompany him because of health. The defendant agreed to send her $ 30 a month as Maintenance expenses during the time they were forced to live apart. She sued for breach of this agreement

Answer:

a)N cannot bring an action in a court to enforce the agreement as it lacked the intention to create legal relation.

b) Her action was dismissed on the ground that no legal relations had been contemplated and therefore there was no contract (Balfour v Balfour)

Agreement of moral, religious or social nature e.g a promise to lunch together at a friends house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences.

• R Company entered into an agreement with C Company, By means of which the former was appointed as the agent of the latter. One Clause of the agreement was as follows:

This Agreement is not entered into as a formal or legal agreement and shall not be subject to legal jurisdiction in the Law court.

It was held that there was no intention to create legal relations on the part of parties to the agreement and hence there was no contract.

Lawful consideration:

The third essential elements of a valid contract is the presence of consideration. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it give something and gets something. The Something given or obtained is the price for the promise and is called consideration .

However, this price need not be in terms of money. In case the promise is not supported by consideration, the promise will be nudum pactum (a bare promise) and is not enforceable at law.

Moreover, the consideration must be real and lawful.

Consideration

• The consideration may be an act (doing Something) or forbearance (not doing something) or a promise to do or not to so something. It may be Past, present or future. Only those consideration is lawful unless it is forbidden by law or is of such a nature that if permitted if would defeat.

Capacity of Parties:

The parties must be competent to contract. But the question that arises now is that what parties are competent and what are not.

The contracting parties must be of the age of majority and of sound mind and must not be disqualified by any law to which they are subject (sec.11).

If any of the parties to the agreement suffers form minority, lunacy, idiocy, drunkenness etc.

The agreement is not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate (sec 68).

Free consent: Free consent of all the parties to an agreement is another essential element. This concept has two aspects.(1)consent should be made and (2) It should be free of any pressure or misunderstanding. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense (sec. 13).

There is absence of ‘free consent,’ if the agreement is induced by (i)coercion, (ii) undue influence, (iii) fraud, (iv) mis-representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (sec. 20)

Lawful object: For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or the other of the reasons mentioned above the agreement is void.

Example: Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law or a contract for committing a murder is a void contract and unenforceable by law.

Writing and registration:

According to the Indian contract Act, a contract to be valid, must be in writing and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered to make the agreement enforceable by law which must be observed.

Certainty:-

Section 29 of the contract Act provides that “ Agreements, the meaning of which is not certain or capable of being made certain, are void.” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced Illustation. A, agrees to sell B “ a hundred ton of oil” there is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainly.

Possibility of performance:

Yet another essential feature of a valid contract is that it must be capable of performance.   Section 56 lays down that “An agreement to do an act impossible in itself is void”. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law. Illustration: A agrees with B, to discover treasure by magic. The agreement is not enforceable. 

Not expressly declared void:

There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable at law.

For example, an agreement in restraint(hold Back) of marriage, an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under sections 26, 27 and 30 respectively.

Questions

1. Comment that the all contracts are agreements but all agreements are not contract.2. What are the essential elements of a valid contract?3. A invites B to see a picture with him. B accepts the offer. A purchase a ticket for B and waits for him outside the cinema hall. B does not turn up has A any cause of action against B. [Hint: No]4. A agrees with B to murder C for Rs. 10,000. Is this a valid contract? [Hint: No]5. X agrees to pay Y Rs. 1000 if Y writes 100 pages for him in one minute. Is it a valid contract? [Hint: No]6. State whether there is any valid contract in the following cases?7. (i) X boards a DTC bus at Mayur Vihar for Shalimar Bagh.(ii) X and Y agree to go for fishing (iii) X buys an evening paper(iv) X a minor borrows Rs. 5000 from Yand agreed torepay back the same within a week.

Classification of Contract:

Contracts may be classified in terms of their

(1) validity or enforceability,

(2) mode of formation, or

(3) performance.

 

CLASSIFICATION OF CONTRACTS   

VALIDITY FORMATION PERFORMANCE

1. Valid Contracts 1. Express Contract 1. Executed Contract2. Void Contract and 2. Implied Contract 2. Executary Contract Void Agreement 3. Constructive or 3. Unilateral Contract3. Voidable Contract Quasi Contract 4. Bilateral Contract4. Illegal Agreement5. Unenforceable Agreement

Valid Contract

• According to Sec 2(i) it is an agreement enforceable by law. An agreement becomes enforceable by law when all the essential elements of a valid contract are present.

• If one or more of these elements is/are missing the contract is either void, voidable, illegal or unenforceable.

Voidable Contract

• Sec 2 (i) “ An agreement which is enforceable by law at the option of one or more of the parties there to, but not at the option of the other or others is a voidable contract.

• Example: A threatens to shoot B if he does not sell his new scooter to A for Rs, 2000/- B agrees. The contract has been brought about by coercion and is voidable at the option of B

Voidable Contract

• When a Contract contains reciprocal promises and one party to the Contract prevents the other from performing his promise, then the contract becomes voidable at the option at the Party so prevented.

• Ex. A Contracts with B that A shall whitewash B’s house for Rs. 1000/- A is ready and willing to execute the work accordingly but B prevents him from doing so. The contract becomes voidable at the option of A

Voidable Contract

Ex- X Agrees to Sell and Deliver 10 Bags of Wheat to Y for Rs. 25,000/- within one week. But X does not supply the wheat within the specified time. The contract becomes voidable contract.

Void Contract

• The word Void means not binding by law. Accordingly the term void contract implies a useless contract which has no legal effect at all. Such a contract is a nullity as for there has been no contract at all.

• Sec 2(j) defines that a contract which ceases to be enforceable by law becomes void.

• The reason how valid contract transforms into void contract as as under:

1. Supervening Impossibility

• Sec 56• A Contract becomes void by impossibility of

performance after the formation of the Contract.

• Example:• A and B contract to marry each other. Before

the time fixed for marriage, A goes mad, the contract to marry becomes void.

2. Subsequent illegality

• Sec 56• A contract becomes void by subsequent

illegality. • Example: A agrees to sell B 100 bags of wheat

at Rs. 650 per bag. Before the delivery the Government bans private trading in wheat. The contract becomes void.

3. Repudiation of a valid contract

• A voidable contract becomes void when the party whose consent is not free, repudiates (refuses) the contract.

• Example: M by threatening to murder B’s son, makes b agree to sell his car worth Rs. 30,000 for a sum of Rs. 10000 only. The Contract being the result or coercion is voidable at the option of B

Void Agreement

• An Agreement not enforceable by law is said to be void. Thus a void agreement does not give rise to any legal consequences and is void agreement and does not give rise to any legal consequences and is Void-ab-initio

Illegal agreement

An illegal agreement is one the consideration or object of which

(1) is forbidden by law; or (2) defeats the provisions of any law; or (3) is fraudulent; or (4) involves or implies injury to the person or

property of another; or (5) the court regards it as immoral, or opposed to

public policy.

Illegal agreements

• Examples• (1) A, B and C enter into an agreement for

the division among them of gains acquired or to be acquired, by them by fraud. The agreement is illegal.

• (2) A promises to obtain for B an employment in the public service, and B promises to pay Rs. 1,000 to A. The agreement is illegal.

unenforceable contract

• An unenforceable contract is neither void nor voidable, but it cannot be enforced in the court because it lacks some item of evidence such as writing, registration or stamping. For instance, an agreement which is required to be stamped will be unenforceable if the same is not stamped at all or is under-stamped.

Classification according to mode of formatiom

• In Mode of Formation are divided into• Expressed Contract• Implied Contracts

Express Contracts

• There are different modes of formation of a contract. The terms of a contract may be stated in words (written or spoken). This is an express contract.

• Example: A tells B on telephone that he offers to sell his car for Rs. 20,000 and B in reply informs A he accepts the offer, there is an express contract.

Implied Contract

• Where both the offer and acceptance constituting on agreement enforceable by law are made otherwise than in words i.e. by acts and conduct of the parties it is implied contract.

• A a collie in uniform takes up the luggage of B to be carried out of the railway station without being asked by b, and B allows to do so, Law of implied applies as B accepts a Offer.

Executed contract

• An executed contract is one wholly performed. Nothing remains to be done in terms of the contract.

• Example• A contracts to buy a bicycle from B for cash.

A pays cash. B delivers the bicycle.

executory contract

• An executory contract is one which is wholly unperformed, or in which there remains something further to be done.

• Example• On June 1, A agrees to buy a bicycle from B.

The contract is to be performed on June 15.

OFFER AND ACCEPTANCE

The four basic elements of a contract as1.Offer 2.Acceptance3. consideration and 4.contractual capacity.

As seen earlier a contract must be a lawful offer by one Party and a lawful acceptance of the offer by the other party,

DEFINITION

Sec. 2(a) :A person is said to have made a proposal, when he “signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of the that other to such Act or Abstinence.”

Essential Elements of Offer / Proposal: - One Person Signifies to another. - The Expression of willingness to do or to abstain from doing some thing must must be another person.

Thus a casual enquiry “ do you intend to sell your motorcycle?” is not a ‘proposal’. Similarly, a mere statement of intention” I may sell my motorcycle if I can get Rs. 14,000 for it” is not a ‘proposal’. But if M says to N, “ will you buy my motorcycle fro Rs. 14,000,” or “ I am willing to sell my motorcycle to you for Rs. 14,000”, we have a ‘proposal’ as it has been made with the object of obtaining the assent of N.

The person making the ‘proposal’ or ‘offer’ is called the ‘promisor’ or ‘ offeror’, the person to whom the offer is made is called the ‘offeree’, and the person accepting the offer is called the ‘promisee’ or ‘acceptor’

Modes of making an Offer

• Express Offer• Implied Offer• Offer by Abstinence• Specific and General Offers

• We shall elaborate one by one.

1. Express Offer

• An offer may be made either by words or by conduct. An offer which is expressed by words, spoken or written by letters, Telegrams, Telex Message, Advertisement, Email etc. are called an ‘express offer”

• Eg: A Real Estate Company proposes, by letter, to sell a flat to Rajiv at a certain Price. This is an offer by an act by written words. Express offer.

2. Implied Offer

• It is made by positive acts or signs so that the person acting or making signs means to say or convey something. However Silence of a party, can in no case amount to offer by Conduct.

• Example:

Example of Implied Offer

• A company owns a fleet of Motor boats for taking people from Mumbai to Goa. The boats are in the water at the Gateway of India. This is an offer by conduct to take passengers from Mumbai to Goa. Even if the incharge of the boat does not speak or call, the very fact is that the motor boat is in the water near the Gateway of India signifies Company’s willingness to do an an act with a view to obtaining the assent of the passengers

Offer by Abstinence

• An offer can also be made by a party by omission to do something . This include such conduct or forbearance on one’s part that the other person takes it as his willingness or assent.

I will give a few more illustrations in this regard.

(a) M says to N that he is willing to sell his motorcycle to him for Rs. 20,000. this is an express offer. (b) X writes to Y he offers to sell his house to him for Rs. 80,000. there is an express offer

(a) The Delhi Transport Corporation runs omnibuses on different routes to carry passengers at the scheduled fare. This is an implied offer by the D.T.C. (b) A shoe shiner starts shining some one’s shoes, without being asked to do so, in such circumstances that any reasonable man could guess that he expects to be paid for this, he makes an implied offer.

Exercise

• X purchased a horse from Y and promised to buy another, if the first one proves lucky, X refuses to buy the second Horse.

• A offers to B lavish entertainment, if B does a particular work for hom

• A agrees to sell to B My white Horse for Rs. 500 or Rs. 1000/-

Answer

• Y could not enforce the agreement, it being loose and vague (Taylor vs porting ton)

• A offer does not amount to lawful offer being vague and uncertain.

• There is nothing toshow which of the two prices was to be given, thus it is not a valid offer.

Offers are of two types:1.General Offers.2.Specific Offers.

General Offers are made to public at largeSpecific offers are made for specific order.

Offer – Offeree . Completed only when it comes to the knowledge of offeree.

If offer is not known to offeree –no acceptable – no contract.

Cross offers – when two parties make identical offers to each other, in ignorance of each other’s offer, the offers are cross offers. Such offers do not constitute acceptance of one’s offer by the other and as such there is no completed agreement(at least 3 persons R required;2offeror & 1 offeree)

Offer

• When M makes an offer to N to sell his bicycle for Rs. 200, there is a specific Offer and N alone can accept it.

• A general Offer on the other hand is one which is made to the world at large or to public in general and may be accepted by any person who fulfills the requsite conditions.

• The leading case on the subject of General Offer is Carlill Vs Carbolic Smoke Ball Co.

Case

• Carbolic Smoke Ball Co issued an advt. in which the company offered to pay $100 to any person who contract influenza after having used their Smoke Balls three times daily for two weeks accordingly to the printed directions. Mrs. Carlill on the faith of the Advt bought and used the balls according to the directions, but she nevertheless suffered from Influenza. She sued the Co for reward, the company was held liable to pay.

Acceptance to an Offer

• We have seen that offer the starting point for making an agreement. But if an offer in self does not create any legal relationship. The legal relationship results only when an offer is accepted. This acceptance to an offer is necessary to create legal relationship.

Acceptance

• Sec 2(b) of the Indian Contract Act defines as “When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal when accepted becomes a promise”

• Ex- A offers to sell his car to B for Rs. 90,000/-B accepts this and agrees to buy A’s Car for Rs.90000/-, a binding contract comes into existance between A and B

Essential and Legal Rules for Acceptance.

1. The acceptance must be communicated:• An offer accepted must be communicted to

the offerer.• Ex- A offers to Buy B’s Plot for Rs. 10 lakhs, B

discusses with C his lawyer and agrees to sell . But B does not communicate the acceptance to A. Hence No contract comes into existence between A and B

Essential rules of Acceptance

2. The acceptance must be communicated to the offeror himself:

A valid contract arises only if the acceptance is communicated to the offeror himself. If acceptance is communicated to other person it will not create legal relationship.

Case: Horse auction case (Felthouse V Bindley)

• A offered to purchase B’s horse and wrote a letter saying “If I hear no more about the horse I shall consider the horse mine at $35. No reply was sent. B instructed C an auctioner not to sell the horse as it was already sold to A. By mistake C put the horse for auction and sold. A filed a suit against C on the ground that under the Contract the horse had become his property, but the action failed as he had not communicated his acceptance to B

• 3. The acceptance must be communicated by a person who has the authority to accept.

• 4. The acceptance must be absolute and unqualified.

• 5. The Acceptance must be in prescribed manner.

• 6. The Acceptance must be given in some usual and reasonable manner.

• 7. The acceptance must be time bound