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Transcript of tax and legal
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Slide 1
Legal & Tax Aspects of Business
Slide 2
THE INDIAN CONTRACT ACT, 1872 Law in its legal sense means those principles &rules that
govern ®ulate social conduct & the observance of which
can be enforced in courts.
Law is a rule of civil conduct, prescribed by the supreme
power of a State, commanding what is right &prohibiting
what is wrong.
- Blackstone
Law is the body of principles recognised &applied by the
State in the administration of justice.
- Salmond
Slide 3
Need For Law
Justice
Continuity &Uniformity
Impartiality
Rule of Law
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Slide 4
Definition of Contract An agreement which creates legal obligations is a contract.
The obligation is an under taking to do or abstain from doing
some definite act or acts.
Section 2(h) of the Indian Contract Act 1872 definescontract
as follows:
An agreement enforceable by law is an contract.
-An Agreement
-Enforceable by law.
Slide 5 Section 2(e) of the Indian Contract Act defines an agreement as :
Every promise &every set of promises, forming consideration foreach other, is an agreement.
Section 2(b) of the Indian Contract Act defines apromiseas :
A proposal when accepted, becomes a promise.
Thus, an agreement is an accepted proposal.
Consensus ad idemmeans identity of mind.
Agreement=Offer+Acceptance
* In social, domestic, moral or religious agreements, the usual
presumption is that the parties do not intend to create legal
obligations ; so they dont form part of law of contract.
Slide 6
Features Of Indian Contract Act, 1872
Enforcement of the Act:
- 1 september 1872
-not retrospective
-applies to whole of India except Jammu &Kashmir
Lays Down the Principles, not the Rights &Duties of the
Parties:
-formation, novation, alteration, performance &discharge ofcontract
-principles within which parties are free to make their own
terms &conditions of a contract subject to provisions of the
law of the land.
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Slide 7 Act is not Complete &Exhaustive:
-it does not incorporate law relating to all kinds of contracts. Eg. Sale
of Goods, Partnerships, Negotiable Instruments, Insurance
Creates Right in Personam:
-The Right in Personamor Jus in Personammeans a right against a
particular person or persons.
-The right in Remor Jus in Remimplies a right available to a person
against the whole world.
* The rights created by a contract are purely personal in nature &only
enforceable by action against the party in default.
Slide 8
Essential Features Of A Valid Contract Offer & Acceptance
Intention to Create Legal Relations
(Balfour Vs Balfour 1919)
Lawful Consideration
Capacity of Part ies
Free & Genuine Consent
Lawful Object
Agreement not declared Void
Certainity & Possibility of Performance
Legal Formalities
Slide 9
CLASSIFICATION OF CONTRACTS
Accordi ng to According to Accordi ng to
Enforceabil it y Formati on Perf ormance
(l egal validit y) (mode of creation)
-Valid Contract -Express Contract -Executed Contract
-Void agreement -Implied Contract -Executory Contract
-Void Contract -Quasi Contract -Unilateral Contract
-Voidable Contract -Bilateral Contract
-Illegal agreement
-Unenforceable Contract
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Slide 10
Classification Acc. To Legal Validity
Valid Contract: A contract which satisfies all the legal requirements
laid down in sec. 10 of the act, is known as a valid contract. Void Agreement: An agreement not enforceable by law is said to be
void.
Void Contract: A contract which is enforceable by law at the time itwas made, but later on if it becomes legally unenforceable due tosome reasons.
Voidable Contract: An agreement which is enforceable by law at theoption of one or more of the parties thereon, but not at the optionof the other or others, is a voidable contract.
Slide 11 Illegal Agreement: An agreement is illegal &void if its object or
consideration is:
-is forbidden by law
-is of such nature that,if permitted, it would defeat the provisions of
any law
-is fraudulent
-involves or implies injury to the person or property of another
-the court regards it as immoral, or opposed to public policy (Sec.23)
Unenforceable Contract:These cannot be enforced in a court of law
because of some technical defects.
Slide 12
Classification Acc. To Formation Express Contract: When the proposal or acceptance of any
promise is made in words(spoken or written), the promise is
said to be express.
Implied Contract: When the proposal or acceptance of any
promise is made otherwise than in words, the promise is saidto be implied.
Quasi Contracts: It is an obligation which the law creates in the
absence of any agreement.
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Slide 13
Classification Acc. To Performance Executed Contract: When both the parties have completely
performed their respective obligations, under the contract.
Executory Contract: In this contract the obligations of theparties are to be performed at a later time.
Unilateral Contract: In this one party has to fulfil hisobligations, whereas the other party has already performedhis obligations. Also known as unilateral, one sided contractor contract with executed consideration.
Bilateral Contract: In this the obligation on the part of both theparties to the contract are outstanding at the time offormation of the contract.
Slide 14
Offer & AcceptanceOffer or Proposal: Acc. to Sec. 2 (a) of the Indian ContractAct When one person signifies to another his willingness todo or abstain from doing anything with a view to obtainingthe assent of that other to such act or abstinence, he is said tomake a proposal.
- The person making the proposal or offer is calledproposer,offerororpromisor.
- The person to whom the offer or proposal is made is calledproposeeorofferee.
- When the offeree accepts the offer, he is calledpromiseeoracceptor.
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Slide 15
How An Offer is Made
An offer may be express or implied.
An offer may be general or specific.
An offer may be cross offer or counter-offer or standing offer
Slide 16 Essential & Legal Rules For a Valid
Offer The offer must be communicated to the other party.
(Lalman ShuklaVs Gauri Dutt 1913)
The terms of the offer must be definite &clear.
The offer must be capable of creating legal relationship.
(Balfour Vs. Balfour 1919)
The offer must be made with a view to obtain acceptance.
(Harris Vs. Nickerson 1873)
An offer may be positive or negative.
The offer should not contain any term the non-compliance ofwhich amounts to acceptance.
Slide 17
Special terms &conditions of the offer be communicated.
(Henderson Vs. Stevenson 1875)
(Parker Vs. South Eastern Railway Co. 1877)
Two identical cross-offers do not result in a contract.
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Slide 18
Acceptance
Sec. 2(b) defines acceptance as When one person to whom
the proposal is made signifies his assent thereto, the proposal
is said to be accepted.
An offer can be accepted only by the person or persons forwhom the offer is intended.
(Boulton Vs. Jones 1857)
Slide 19 Essential & Legal Rules For a Valid
Acceptance Acceptance must be absolute &unqualified.
Acceptance must be communicated to the offeror.
(Mere mental acceptance is no acceptance)
The acceptance must be in the prescribed manner.
The acceptance must be in response to offer.
The acceptance must be by the offeree.
The acceptance must be given before the offer lapses or is
revoked.
Acceptance may be express or implied.
Slide 20
Revocation of An Offer By notice
By lapse of time
After expiry of reasonable time
By death or insanity
By non-fulfillment of conditions
By counter-offer
By rejection by offeree
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Slide 24 No Consideration No Contract -Exceptions
Agreement on account of natural love &affection.
Compensation for past voluntary service.
Promise to pay a time-barred debt.
Contract of agency Completed gift.
Remission.
Contract of guarantee
Contract of gratuitous bailment.
Slide 25
Capacity to Contract Sec.11 of the Indian contract Act :
Every person is competent to contract who is of the age of the
majority according to the law to which he is subject, &who
is of sound mind, &is not disqualified from contracting by
any law to which he is subject.
Hence, exceptions are:
-Minors
-Persons of Unsound Mind
-Persons disqualified by any law to which they are subject.
Slide 26
Minor Sec 3 of the Indian Majority Act 1875 defines A minor is a
person who has not completed 18 years of age.
Minors Agreement:
-An agreement with a minor is void ab-initio.(Mohiri Bibiv.DharmodasGhose1903)
-He can be a promisee or beneficiary.
-His agreement cannot be ratified by him on attaining the age of
majority.-If he has received any benefit under a void agreement, he
cannot be asked to compensate or pay for it.
-He can always plead minority
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Slide 27
There can be no specific performance of the agreements entered
into by him as they are void ab initio.
He cannot enter into a contract of partnership.
He cannot be adjudged insolvent.
He is liable for necessaries.
He can be an agent.
His parents/ guardian are/ is not liable for the contract entered
into by him.
A minor is liable in tort.
Slide 28 There can be no specific performance of the agreements entered
into by him as they are void ab initio.
He cannot enter into a contract of partnership.
He cannot be adjudged insolvent.
He is liable for necessaries supplied or necessary services
rendered to him or anyone whom he is legally bound to support.
He can be an agent.
His parents/ guardian are/ is not liable for the contract entered
into by him even though the contract is for the supply of
necessaries to the minor.
A minor is liable in tort(civil wrong).
Slide 29
Persons of Unsound Mind Sec.12 lays down a test of soundness of mind. It read as
follows:
A person is said to be of sound mind for the purpose ofmaking a contract if, at the time when he makes it, he iscapable of understanding it & of forming a rational
judgement as to its effect upon his interests.
*A person who is usually of unsound mind, but occasionally ofsound mind, may make a contract when he is of sound mind.
* A person who is usually of sound mind, but occasionally ofunsound mind, may not make a contract when he is ofunsound mind.
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Slide 30 Persons of unsound mind:
-Lunatics
-Idiots
-Drunken or intoxicated persons.
*Agreements entered into by persons of unsound mind are void. Buthowever they are liable for necessaries supplied to them or to
anyone whom they are legally bound to support.
Slide 31
Persons Disqualified By Law Alien Enemies
Foreign Sovereigns &Ambassadors
Convicts
Insolvents
Professional Persons (England)
Corporations &Companies
Slide 32
Free Consent Two or more persons are said to consent when they agree
upon the same thing in the same sense. (Sec 13)
Acc to Sec 14 consent is said to be free when it is not caused
by:
-Coercion
-Undue Influence
-Fraud
-Misrepresentation
-Mistake
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Slide 33
Coercion: Consent is said to be caused by coercion when it is
obtained by:
-Committing or threatening to commit any act forbidden by the
Indian Penal Code,1860.
-Unlawful detaining or threatening to detain any property.
* When contract to an agreement is caused by coercion, the
agreement is a contract voidable at the option of the party whose
consent was so caused .
Slide 34
Undue I nfluence:
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 &uses
that position to obtain an unfair advantage over the other.
- Authority, Fiduciary Relation, Mental Capacity
*When contract to an agreement is obtained by undue influence,
the agreement is a contract voidable at the option of the party
whose consent was so obtained .
Slide 35 Misrepresentation: It is a false statement which the person
making it honestly believes to be t rue or which he does not knowto be false. It also includes non-disclosure of a material fact or factswithout any intent to deceive the other party.
It must be false, but the person who made it honestly believes it tobe true.
It must relate to the material facts of the contract
It must have been made without any intention to deceive the otherparty.
The other party must have believed in it &acted upon It must induce the other party to make a contract.
It must have been made before conclusion of contract
It may be caused by representing half truth
It must subsequently become false.
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Slide 36
When contract to an agreement is caused by
misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused .
The aggrieved party may
Avoid or rescind
Accept the contract but insist that he shall be placed in the
position in which the would have been if the representation
made had been true.(Sec 19)
Slide 37
Fraud
Acc to Sec 17 fraudmeans &includes any of the following actscommitted by a party to a contract, or with hisconnivance(intentional active), or by his agent with intent todeceive or to induce a person to enter into a contract:
-the suggestion that a fact is true when it is not true &the personmaking the suggestion does not believe it to be true.
-the active concealment of a fact by a person having knowledge orbelief of the fact
-a promise made without any intention of performing it.
-any other act fitted to deceive.
-any such act or omission as the law specially declares to befraudulent.
Slide 38
There must be false representation
It must relate to material fact
Made before conclusion of contract with intention to deceive.
Statement made with knowledge of its falsity.
Other party induced to act upon representation.
Other party must have relied upon representation
Other party must have suffered some loss acting onrepresentation.
When contract to an agreement is caused by fraud, the agreementis a contract voidable at the option of the party whose consent wasso caused .
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Slide 39
Mistake
Mistake may be defined as an incorrect belief which leads one
party to misunderstand the other.
Sec 20 lays down that, where both the parties to an
agreement are under a mistake as to a matter of fact essential
to the agreement, the agreement is void. Mistake of law of the land
Mistake of Foreign Law
Slide 40
Discharge of Contracts When the rights &obligations arising out of a contract are
extinguished, the contract is said to be discharged orterminated. Thus the discharge means that the parties are nomore liable under the contract.
Various Modes Of Discharge
-By Performance
-By Agreement
-By Impossibility of Performance
-By Lapse of Time
-By Operation of Law
-By Breach of Contract
Slide 41
Discharge by Performance of Contract
By Actual Performance
By attempted Performance
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Slide 42By Agreement
Novation
Rescission
Alteration
Remission
Waiver
Accord &Satisfaction
Merger
Slide 43By Impossibility of Performance
Initial Impossibility (at beginning) Subsequent Impossibility
-destruction of subject matter
-death or per sonal incapacity
Change of law
Declaration of war
Failure of pre-condition
Slide 44By Lapse of Time
If the contract is not performed &if no action is taken by the
promiseein the Court of Law within the specified period, he
is debarred from enforcing the contract.
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Slide 45By Operation of Law
UnauthorisedMaterial Alteration
Death
Insolvency
Merger
Slide 46By Breach of Contract
Actual Breach of Contract- at the time when the performance is due
-during the performance of the contract
Anticipatory Breach of Contract