Laws of Business

7/23/2019 Laws of Business

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Laws of Business

Indian Contract Act, 1872

Definition[edit]

A contract is a legally enforceable agreement between two or more parties with mutual obligations.

The Indian contract Act 1872 !ection 2"h# defines the term contract as an agreement legally

enforceable by law for the formation of a contract there must be an agreement the agreement

should be enforceable by law. 1.There must be a $lawful offer$ and a $lawful acceptance$ of the

offer thus resulting in an agreement.

2.Acceptance 2(b#%& 'hen the person to whom the proposal is made signifies his assent there to

the proposal is said to be accepted.

3.Promise 2(b# %& A (roposal when accepted becomes a promise. In simple words when an offer is

accepted it becomes promise.

4.Promisor and promisee 2(c)%& 'hen the proposal is accepted the person ma)ing the proposal

is called as promisor and the person accepting the proposal is called as promisee.

5.Consideration 2(d)%& 'hen at the desire of the promisor the promisee or any other person has

done or abstained from doing something or does or abstains from doing something such act or

abstinence or promise is called a consideration for the promise. (rice paid by one party for the

promise of the other Technical word meaning *+I,&(-&*+ i.e. something in return.

6.Agreement2"e#:- Ever promise and set o! promises !orming t"e consideration !or eac"

ot"er. #n s"ort$

%.Contract 2(")%& An agreement enforceable by /aw is a contract.

Therefore there must be an agreement and it should be enforceable by law.

&.'oid agreement 2(g)%& An agreement not enforceable by law is 0oid.

.'oidabe contract 2(i)%& An agreement is a 0oidable contract if it is enforceable by /aw at the

option of one or more of the parties there to "i.e. the aggrie0ed party# and it is not enforceable by

/aw at the option of the other or others.

1*.'oid contract 2(+)%& A contract which ceases to be enforceable by /aw becomes 0oid when it

ceases to be enforceable.

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Features of Valid Contract

Features of Valid Contract can be clearly known under the heads Consensus ad

idem, Certainty, Free Consent, Capacity of Parties, Consideration, Legal Formalities,

Lawful Object, Legal Obligations, Possibility of Performance and, Agreements not

declared oid!

Consensus ad idem: Consensus ad idem means identity of minds! "hat means

there should be no di#erence between ways of thinking of o#erer $ o#eree! %oth of

them should understand the same thing in the same way! &n the absence of

consensus ad idem, the contract is not alid!

Example: A has two houses ' one at City A and the other at City %! (e wants

to sell his house situated at City A! )ow he is making an o#er to % to sell

away one of his house to which he gies his acceptance! (ere A is thinking

about house at City A and % has gien acceptance with a iew to purchase

house at City %! (ere is no consensus ad idem!

A case on this point is *a#els Vs +ichelhaus! &n this case there is a contract

between A $ % according to the terms of which A has to supply raw cotton to

% in peerless ship! "here are two ships with the same name! +hile entering

into the contract A thinks about second peerless and % thinks about rst

peerless! (ere court decides that their contract has no consensus ad idem $

hence it is oid!

Certainty:"he wording used in the contract must be certain! -ncertain wording

makes the Contract Void!

*elated case is "aylor Vs Portington! &n this case there is a Contract between

A and % according to which A has to moderni.e his house and % has to join as

tenant! &f the mode of moderni.ation is satisfactory to %! (ere court decides

that their is no Certainty and therefore it is Void!

Free Consent: %oth parties should enter into the Contract with Free Consent! "here

should be no physical pressure /coercion0 or mental pressure /undue in1uence0!

Absence of free consent makes the Contract Voidable! A Voidable Contract may

become either Valid or oid depending upon intention of the su#ering party!

A case on this point is *anganayakamma Vs Alwar 2etty! &n this case % gies

a threatening to A saying that he /%0 will not allow cremation of dead body of

A3s husband, unless A adopts %3s sons! (ere it is decided that there is no free

consent from the side of A! "here it is oidable, at the option of A!

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Capacity of Parties:%oth parties should hae eligibility or 4ualication to enter

into a Contract! 2uch eligibility is called Capacity of Contract! 5inor insolent

person3s, lunatic persons etc hae no capacity to contract!

*elated case is 5ohiribeabee Vs 6harmades 7hosh! &n this case A is a money

lender and % is a minor! A Contract gets formed between them according towhich % has to pledge his property with A to obtain a loan! On that occasion

the minor e8ecutes a deed also saying that money lender has write o# lien on

the pledged property till settlement of debt! "here after the minor sues to get

in his property back without settling the debt! 5oney lender claims that he

has write9o# lien as per the deed! (ere court decides that the deed e8ecuted

by minor is oid and therefore lender has no lien!

Consideration:%oth parties presenting the Contract should get beneted mutually!

Consideration may be in the form of cash or goods or act or abstinence!Consideration need not be ade4uate!

Legal Formalities:Contract may be oral or documentary! &n case where it is oral,

the concept of legal formalities is not applicable! &f the contract is of documentary

nature, all legal formalities like stamp duty etc must be properly fullled! &f legal

formalities are not satised the contract becomes unenforceable!

Example:A and % hae written their agreement on *s! :; according to which > has to

murder ? for a consideration of *s! :;;;;


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Possibility of Performance:&t should be possible to perform the eent agreed in

the contract! &mpossibility makes the contract oid!

Example:A contract to join two parallel lines, has no possibility for

performance and hence such a type of contract is oid!

greement not declared !oid: Certain types of agreements are declared to be

oid by statues! As such agreements are harmful to society and they are named as

Agreement opposed to public policy! Agreements in restraint of trade, Agreements

in restraint of marriage, Agreements in restraint of personnel freedom etc come

under Agreement opposed to public policy!

A case of this occasion is 5adha Vs *ajkumar! &n this case a contract gets

formed between A and % according to which % has to stop his business and

for that A has to pay *s! @;;


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%&press Contracts:"he Contracts where there is e8pression or conersation are

called I8press Contracts! For e8ampleB A has o#ered to sell his house and % has

gien acceptance! &t is I8press Contract!

'mplied Contract:"he Contracts where there is no e8pression are called implied

contracts! 2itting in a %us can be taken as e8ample to implied contract betweenpassenger and owner of the bus!

(uasi Contract:&n case of Guasi Contract there will be no o#er and acceptance so,

Actually there will be no Contractual relations between the partners! 2uch a

Contract which is created by Virtue of law is called Guasi Contract! 2ections JK to

of Contract Act read about the situations where court can create Guasi Contract!

2ec! JKB +hen necessaries are supplied

2ec! J@B +hen e8penses of one person are paid by another person!

2ec! ;B +hen one party is beneted by the actiity of another party!

2ec! :B &n case of nder of lost tools!

2ec! B +hen payment is made by mistake or goods are deliered by

mistake!

Example:A case on this occasion is Chowal Vs Cooper! &n this case A3s husband

becomes no more! 2he is ery poor and therefore not capable of meeting een cost

of cremation! %, one of her relaties, understand3s her position and spends his own

money for cremation! &t is done so without A3s re4uest! Afterwards % claims his

amount from A where A refuses to pay! (ere court applies 2ec! JK and creates aGuasi Contract between them!

"ypes of Contracts on t#e basis of )ature of Consideration

On this base, Contracts are of two types! )amely %ilateral Contracts and -nilateral

Contracts!

*ilateral Contracts:&f considerations in both directions are to be moed after the

contract, it is called %ilateral Contract!

Example:A Contract has got formed between = and ? on :st Man, According to which

= has to delier goods to ? on Drd Man and ? has to pay amount on Drd Man! &t isbilateral contract!

+nilateral Contract:&f considerations is to be moed in one direction only after

the Contract, it is called -nilateral Contract!

Example:A has lost his purse and % is its nder! "here after % searches for A and

hands it oer to A! "hen A o#ers to pay *s! :;;;


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acceptance! (ere, after the Contract consideration moes from A to % only! &t is

-nilateral Contract!

"ypes of Contracts on t#e basis of %&ecution

On this base Contracts can be classied into two groups! namely, I8ecuted and

I8ecutory Contracts! &f performance is completed, it is called e8ecuted contract! &n

case where contractual obligations are to be performed in future, it is called

e8ecutor contract!

"ypes of Contracts On t#e basis of -alidity

On this base Contracts can be classied into N groups! namely Valid, Void, Voidable,

&llegal and -nenforceable Contracts!

-alid:"he Contracts which are enforceable in a court of law are called Valid

Contracts! "o attain Validity the Contract should hae certain features like

consensus ad idem, Certainty, free consent, two directional consideration,fulllment of legal formalities, legal obligations, lawful object, capacity of parties,

possibility of performance, etc!

Example:there is a Contract between = and ? and let us assume that their contract

has all those aboe said features! &t is Valid Contract!

-oid:A Contract which is not enforceable in a court of law is called Void Contract! &f

a Contract is decient in any one or more of the aboe features /I8cept free

consent and legal formalities0! &t is called Void Contract!

Example:there is a Contract between = and ? where ? is a minor who has nocapacity to contract! &t is Void Contract!

-oidable:A Contract which is decient in only free consent, is called Voidable

Contract! "hat means it is a Contract which is made under certain pressure either

physical or mental! At the option of su#ering party, a oidable contract may become

either Valid or Void in future! For e8ampleB there is a Contract between A and %

where % has forcibly made A inoled in the Contract! &t is oidable at the option of

A!

'llegal:&f the contract has unlawful object it is called &llegal Contract!

Example:"here is a contract between = and > according to which > has to murder ?for a consideration of *s! :;;;;


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Example: A and % hae drafted their agreement on *s! :;


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A case on this occasion is 5rs! Cary Lli /Vs0 Carbolic 2moke bal Company! &n

this case Carbolic 2moke bal company is a pharmaceutical company! 6uring

contemporary period of this case a feer called 3&n1uen.a3 is in e8istence!

"his feer arises as a result of rat bite! "his feer is characteri.ed by

propagation from one person to the other! On that occasion the company has

inented capsules to cure in1uen.a! (ere the company makes a general o#ersaying that those capsules can cure in1uen.a ery 4uickly and prior

consumption of their capsules will aoid attack by in1uen.a! &n addition to it

the company says that if any person gets attacked by in1uen.a een after

prior consumption, the company will pay :;; pounds to such person! 5rs!

Cary Lli makes prior consumption $ gets attacked by that feer! Court

decides that general o#er also is alid and hence the company is under

obligation to pay :;; pounds to her!

Oer must be Communicated: O#er attains alidity only after Communication!-n9communicated o#er is not alid!

A case on this point is Lalman /Vs0 7owridutt! &n this case 7owridutt is fond of

children, but he has no children! "herefore he has brought his sister3s son! On

one day, the boy gets missed from the house! Lalman is 7owridutt3s serant!

7owridutt sends Lalman to search for the missed boy! After Laman3s

departure, 7owridutt makes an o#er according to which he will gie a reward

to the person who brings the boy back! "hereafter the boy is found back by

Lalman himself! After sometime Lalman comes to know about the reward and

claims that reward! (ere court decides that Lalman has no knowledge of the

o#er and hence he cannot claim the reward!

Price eclaration/ d!ertisement/ Prospectus etc are not oers: All these

things are only initations to make o#er, but not o#ers! Prospectus is initation to

make o#er, share application is o#er and allotment is acceptance!

*elated case is (are /Vs0 Facie! &n this case A is owner of a pen corner and %

is an ocer! On one day % sends a telegram to A re4uesting to inform the

price of %umper ball pen! A sends "elegram to % saying that price of bumper

ball pen is :; pounds! )ow % gies telegram to A send one pen! Afterwards Agies telegram saying that he has no stock of %umper ball pens! % sues A!

(ere court decides that price declaration is initation to make o#er and

therefore there is no Contract at all between A and %!

Oer s#ould be made wit# a !iew to obtain ascent of t#e ot#er party:&n the

absence of intention to get acceptance the o#er is not alid!

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Oer may be %&pression or 'mplied:&n presence of conersation it is called

e8press o#er and in the absence at conersation it is called implied o#er! %oth types

of o#ers are Valid! &t is well known that &mplied Contract is Valid! On that ground it

can be conformed that implied o#er is Valid o#er!

0eticence leads to acceptance 8 "#is wording sound s#ould not be includedin t#e oer:&n case where o#erer says that 2ilence indicates acceptance, that

o#er is not Valid! As per the rules of Valid acceptance, acceptance must be

communicated! 5ere silence is not sucient!

A related case is Felthour /Vs0 %indley! &n this case A makes an o#er to %

saying that he /A0 wants to purchase %3s property for D; pounds and still says

that %3s reticency indicates acceptance! Court decides that the o#er is not

Valid!

Legal Obligations:O#er must be capable of creating legal relation! "hat means

two directional consideration must be re1ected in the o#er!

A case on this point is %alfour /Vs0 %alfour! &n this case husband o#ers to send

money to his wife at regular interals of time for the purpose of medical

treatment to which she gies acceptance! (ere the o#erer is not willing to get

any consideration from o#eree! (ence it is decided that the o#er as well as

contract are not creating legal relations!

Certainty:"he language used in the o#er must be certain there should be no

element of un9certainty!

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Consideration in Contract

)o Consideration, )o Contract

"o attain Validity and to create legal relations, the Contract should be with two

directional consideration! &n the absence of two directional consideration, it can be

said that there is no contract at all /only 2ocial agreement0! %ut, the following are

situations where Contract attains Validity with one directional consideration!

A#ection based Contracts

Promise to pay time bared debt

Charities

Completed 7ifts

I8tension of "ime

)egotiable &nstruments

Voluntary 2erices

Agency Contracts

ection based Contract: &f the contract is an outcome of a#ection, one

directional consideration is sucient to bring Validity to the Contract!

A case on this point is *aj Lukhy /Vs0 %hoothnadh! &n this case A and % are

husband and wife respectiely! "here are fre4uent clashes and

misunderstandings between them! As a result, on one day, a contract has

formed between them according to which they hae to lie separately and for

%3s lielihood, A has to Contribute amounts to %! -pon breach of Contract by

husband, wife les a suit! (ere only one directional consideration can be

obsered! At the same time it can be conrmed that their Contract is not at

outcome of a#ection! "hus the Contract is held to be Void!

Another case on this point is Venkata 2wamy /Vs0 *anga 2wamy in this case

A and % are brothers! A, as a conse4uence of a#ection on %, Promises to

discharge %3s debts! &n the court it is held that it is a Valid Contract due to

presence of a#ection! 2ame decision is made in poon bee bee /Vs0 Fai.%hiksh and %heema /Vs0 2hiaram!

Promise to pay time bared debt:Limitation Act has specied durations to

perform the Contract! &t is called limitation period! &n case of pro9note limitation

period is three years! After e8piry of three years from the date of Pro9note, the debt

becomes time bared debt! +here creditor cannot proceed legally to recoer the

amount! &f debtor promises to pay time bared debt, then a new Contract gets

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formed between Creditor and debtor, where there will be one directional

consideration only! i!e! From debtor to Creditor only! %ut it is Valid Contract!

C#arities:&n case of Contracts relating to Charities, there will be only one

directional Consideration! 2uch a Contract is at times Valid and at times Void! &f the

party who has to get the amount of charity, comes across any su#ering, then it isValid Contract! &n the absence of loss, the Contract is Void!

A case on this point is edarnadh /Vs0 7horie 5ohammad! &n the case a

Contract gets formed between A and % according to which A has to donate

certain amount to % for construction of a town hall! (aing trust in A3s

promise, % borrows money temporary and commences the construction work!

"hereafter A refuses to pay and % sues! As % has come across laws court

decides that the contract is Valid and hence, he can recoer the amount!

Completed 4ifts:7ifts are of two types namely Promised 7ifts and Completed

7ifts! &n case of Promised 7ift, "he Contract is Void and in case of Completed 7iftsthe Contract is Valid! &f promised gift is not gien, the other party cannot proceed

legally to get that gift! "he person who has handed oer the gift, cannot get it back

by proceeding legally!

%&tension of "ime: &n case where e8tension of time to settle the debt is agreed

between debtor and creditor, A new contract comes into operation! &n such contract

there will be only one directional consideration! %ut it is Valid!

)egotiable 'nstruments:&n case of negotiable instruments, as per the proisions

of )egotiable &nstruments Act :KK:, Consideration will be presumed! 2o a Contract

relating to negotiable instrument attains Validity with one directional consideration!

-oluntary 5er!ices:&n case where a party renders oluntary serice, the contract

which gets formed after such serice, attains Validity with one directional

consideration!

gency Contracts:&n case of Agency Contracts also one directional Consideration

is sucient to bring Validity to the Contract!

Past Consideration is )o Consideration

"he Consideration which had already being passed before formation of Contract is

called Past Consideration!

'ndian Law: According to &ndian law, Consideration may be past, present or future!

2o here past consideration is Valid!

%ngland Law:According to Ingland Law, Consideration must be either present or

future! "hus in Ingland past Consideration is not Valid!

%&ceptions for t#e statement Past Consideration is )o Consideration

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"he following are situations where past consideration also attains Validity in

Ingland!

5er!ice upon re;uest:+hen a 2erice is done upon re4uest of the party, such

serice, though past consideration, attains Validity!

A case on this point is Campleigh /Vs0 %reathwait! &n this case % is sentenced

to death! A is kings relatie! % re4uest3s A to 2ae him from that punishment,

by utili.ing his /A3s0 in1uence at ing! A does so! "hereafter % promises to

gie certain reward to A to which A gies his acceptance! (ere Consideration

from A to % is past Consideration! %ut it is gien Validity and the Contract is

held to be Valid!

Promise to pay time bared debt:&n case of Promise to pay time bared debt the

new Contract formed between Creditor and 6ebtor attains Validity by means of

making the past Consideration Valid!

)egotiable 'nstruments:&n case of negotiable instruments also Ingland law

gies Validity to past Consideration!

Consideration may mo!e from Promisee or any ot#er Person

%ngland Law:According to Ingland law, consideration should moe from promise

only! %ut there is an e8ception where consideration may moe from a person other

than promisee! (ere condition is ' there must be blood relationship between

promisee and that other person!

A case on this point is 6utton /Vs0 Poole!

'ndian Law: According to &ndian law, consideration may moe from promisee or

any other person!

A case is Chinnayya /Vs0 *amayya! &n this case A has a daughter namely %

and a brother namely C! A makes an o#er to % according to which A will

transfer certain property to % and % has to pay annuity to C! "hus a Contract

gets formed in between them! "here after % promises to C to pay annuity!

Afterwards % gets failed in paying annuity to C on the ground that she /%0 has

no Consideration from C! (ere Court decides that consideration is obtained by% from A! "hus it is held that % has to pay annuity to C!

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acceptance! "hereafter A becomes no more and % does not render her /C0

marriage on the ground that he /%0 has no consideration from C! (ere Court

decides that there is blood relation between C and A! % had already obtained

consideration from A in the form of abstinence! "here it is decided that % has

to perform C3s marriage!

Consideration may be Past/ Present or Future:Consideration are of three

types namely Past, Present and Future consideration! "he consideration which is

sent before formation of contract is called past consideration! "he consideration

which gets passed at the time of formation of contract is called Present

Consideration! "he Consideration which is to be passed in future i!e! after the

contract is called Future Consideration! As per &ndian Law three types of

considerations are Valid! %ut as per Ingland law Past Consideration is not alid!

Consideration need not be ade;uate:Consideration of the Contract need not

hae e4ual magnitudes! &n ade4uacy of consideration will not infect Validity of the

Contract!

A case on this point is "homas Vs "homas! &n this case there is a Contract

between A and % according to the terms of which A has to proide his house

to % at a rent of one rupee! Court decides that it is a Valid Contract because

Consideration need not be ade4uate!

Consideration must be Lawful:Presence of unlawful Consideration makes the

Contract illegal and hence Void!

Example:there is a Contract between = and > according to which > has tomurder ? for a Consideration of *s! :;;;; from =! (ere Consideration from >

to = is unlawful and it is illegal contract!

Consideration


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QCR! C sell those goods and has to remit amount to A! On account of e8cessie

work load, C appoints % as its sub9agent, without haing any relationship with

A! As per the agency contract formed between C and %, if % sells goods below

the specied price, % has to pay e pounds per unit to C! "hereafter, % sells

two units below the specied price and also fails to pay ten pounds to C! A

les a suit against % to arrange that amount to C! (ere Court decides that A isa stranger and therefore its suit is not supportable!

%&ceptions to t#e 5tatement =5tranger to Contract cannot sue upon t#e

Contract=

"rust deeds:&n case of trust arrangements, the beneciary, though he is a

stranger to the contract, can le suit in case where trustee comes across breach of

trust!

Example: A has a 2on namely % who is a minor! For the sale of %, A has

e8ecuted a trust deed, appointing C as trustee! (ere A is trust maker, C istrustee and % is beneciary! (ere actually the Contract between A and C! %ut

% can proceed legally if C breaches the trust!

5tranger is aut#ori>ed: +hen stranger is authori.ed by party to the contract,

then stranger3s suit becomes supportable!

?#en c#arge on property is made: &n case where charge is created on property,

stranger can le a suit!

A case on this point is haja 5ohammed /Vs0 (ussend %egum! &n this case %

is A3s 2on and C is %3s wife! A contract gets formed between A and %

according to which A has to proide for C3s betel bo8 e8penses, out of theproceeds which A gets from his property A fails to pay and C sues! Court

decides that C3s suit is supportable though it is stranger3s suit because there

is charge on property!

gency Contract:&n case of agency contract, the principle, though he is a

stranger can le a suit! (ere condition is the contract made by the agent should be

in his capacity as agent!

Family rrangements:&n case of family arrangements the dependent person can

le a suit, though they are strangers!

A case on this point is 2huppa Ammal /Vs0 2ubramanyan! &n this case 2huppa

Ammal has two sons! A contract gets formed between those brothers

according to which each of them has to contribute certain amount for their

mother3s lielihood! "he contract gets breached and 2huppa Ammal les a

suit! (er suit is gien alidity under this e8ception!

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epending upon #appening of an +ncertain e!ent in a &ed period:At

times Contingent Contract may depend upon happening of uncertain eent in a

8ed period! &f such eent happens within 8ed period, the contract is Valid! &f such

eent does not take place with in 8ed period, the contract is oid!

Example:As per the contract formed between A and %, A has to sell goods to%, if the ship comes back within :; days! &f it comes on Kth day /or0 @th day,

the contract is alid and if it comes back on :th day /or0 :Dth day, the

contract is oid!

epending upon non8#appening of an uncertain e!ent in a &ed period: At

times the Contingent Contract may depend upon non9happening of uncertain eent

in a 8ed period then if such eent place within that 8ed period, the contract is

oid and if that eent does not takes place within agreed period, then it is alid!

Example: A has to sell goods to % if the ship does not come back within :;

days! &f it comes on Kth day /or0 @th day, the contract is oid and if it comesback on :th day /or0 :Dth 6ay, the contract is alid!

epending upon an 'mpossible %!ent:2ometimes the Contingent Contract may

depend upon impossible eent! 2uch a type of Contingent Contract is abinitio oid!

Example:there is a contract between A and % where A will pay *s!:;;;;;


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A case on this point is 5ighel Vs 2ulthan of Mohore! &n this case 5s! 5ighel an

Ingland citi.en! 2ulthan of Mohore is a foreign ruler! A marriage agreement

has got formed between them! %ut 2ulthan breaches that agreement! 5ighel

2ues! &t is to be noted that she has led the suit without permission from

2ulthan! 2o her suit is striked o#!

According to &ndian law, &ndian citi.ens can enter into contracts with foreign rulers!

&f that foreign ruler breaches the Contract and &ndian citi.en wants to le a suit,

permission from Central 7oernment is re4uired!

liens:Aliens are foreign people who hae obtained citi.enship in one Country

/other than their own0 in accordance with the Constitutional law! "he Contract made

with aliens become Void when war breaks out, between the two Countries!

A case on this point is 5etropolitan +ater %oard Vs 6ick err and Company! &n

this case 5etropolitan water board is a municipality board! On one occasion,

&t wants to Construct a dam! &n this Connection it enters into a Contract withengineers who are aliens! "he Contract is breached! Afterwards +ar breaks

out between the nations! "hereafter the water board les a suit and Court

decides that their Contract has lost Validity! 2oon after declaration of war!

Con!icts:Conicts means prisoners! 2o long as they are in the Prison, they hae no

capacity to enter into a Contracts! After completion of Period of imprisonment, they

can enter into Contracts! Contract made by them attain Validity when they are

made at the time ticket of leae!

'nsol!ent Persons:&nsolent persons hae no eligibility to enter into Contracts!

"herefore Ocial receier of the insolent person enters into Contracts inConnection with 2ale of insolent persons property!

Professional is;ualication:&n &ndia there is no profession based &ncapacity!

Professional dis4ualication is seen in Ingland! Physicians /doctors0 from *oyal

medical College cannot enter into Contracts with their patients! 2imilarly barristers

cannot enter into Contracts with their clients!


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5ental deciency means lack of mental maturity! 5inor su#er from mental

deciency! According to &ndian law those persons who hae not completed the age

of :K years and in Ingland those who hae not completed : years become minors!

'ncapacity on account of +nsound


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5ale of 4oodwill:&n case where sale of 7oodwill takes place, the person who has

paid for 7oodwill can restrict the other on reasonable base from doing the business

concern!

?it# retiring Partner:At the time of retirement of the partner, the e8istent

partners can restrict the retiring prtners from carrying on the same business!

mong Partners:Partners of a rm may enter into an agreement in restraint of

trade according to which no one of them should carry9on the same business

indiidually! &t is Valid!

t t#e time of dissolution: Partners of a rm can make an agreement in restraint

of trade at time of dissolution of rm according to which no one of them should do

the same business without prior permission from others!

%limination of Competition:An agreement in restraint of trade can be made to

eliminate competition on reasonable basis! &n 5ada Vs *ajkumar the objectie of

their agreement is elimination of competition but it is not on reasonable basis!(ence it is held to be Void!

"rade +nions:A trade -nion may restrict an entrepreneur or an enterprise from

doing certain business for the purpose of labor welfare! &t is Valid but it should be a

registered trade union!

Analysis as per Ingland Law

&n accordance with Ingland law agreement in restraint of trade attain Validity, if it is

reasonable restraint! Absolute restraint is Void!

A case on this point is )ordenfelt Vs 5a8im )ordenfelt 7un Company! &n this

case % purchases A3s gun manufacturing business! "hereafter, by means of

an agreement, % restricts A from carrying on production of guns for a period

of :; years! "his agreement is breached and a suit is led by %! Ingland

Court decides that as restriction is of reasonable nature, it is Valid and %

should not do the same business till e8piry of agreed period!



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Contracts made by 5inors

5inors su#er from mental deciency! "hey hae no Capacity to Contract! According

to &ndian law those persons who hae not completed the age of :K years are minors

and in Ingland 5inority e8tends up to : years!

Contracts made by


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I8ampleB *elated case is Arumugan Vs 6orai 2ingh! &n this case A is a money

lender and % is a minor! A contract of loan gets formed between them before

repayment of loan, % becomes a major and upon money lender3s re4uest, %

e8ecutes another deed in support of debt which is taken during minority!

-pon his failure from A les a 2uit on the basis of second deed which is gien

after attaining majority! Court decides that the 2econd bond also is not Validbecause it is just ratication of 5inor Contract!

stoppe principe is not appicabe to #inors$ "hough there is ery strong

eidence to say that a person is a major, without applying Istoppel principle,

chance will be gien to that person to proe minority!

I8ampleB *elated case is 2adi4 Ali han Vs Maikishore! &n this case A and % are

moneylender and minor respectiely! -pon A3s suggestion, the minor

e8ecutes a deed saying that he /%0 is a major and thus obtains loan!

"hereafter a 2uit is led for recoery! Court decides that the situation is out of

applicability of Istoppel principle and hence a chance is gien to % to proehis minority!

&estitution of fraud$ Law has gien and certain protection to minor! 5inor should

make use of such protection for defense purposes only and not for o#ence

purposes! &f minor fraudulently obtains property, then he is under obligation to

return that property to person concerned! %ut the proision di#ers if it is matter of

money!

I8ampleB A case on this point is Lesly Vs 2heele! &n this case A is a money

lender and % is minor! A minor, coninces the money lender that he is a major

and thus obtains loan! (ere a minor has committed fraud! &t should be notedthat is matter of money! (ence the suit led by money tender for recoery, is

dismissed!

#inor as Partner$ According to the proisions of partnership act , Partnership is

result of agreement! As minor has no capacity to contract he cannot be a partner!

%ut partnership act reads about minor partner! +ith the consent of all other

partners, A minor may be admitted as a part to the benets of the rm and with

limited liability!

#inor as Sare *oder$ Obtaining shares in a Company ' is also a Contract! /&t is

known that prospectus is initation to make o#er, share application is o#er andAllotment is acceptance!0 "herefore minor cannot attain membership in a company!

%ut by obtaining fully paid up shares on the basis of transfer, minor can get share

holder ship in a Company!

#inor as Agent$ A minor can act as an agent according to the proision of law of

agency principle should hae capacity to contract! %ut no emphasis is seen with

regard to agent3s capacity to Contract! +heneer agent enters into a Contract in his

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capacity as agent, &t is implied that the Contract is made by principle himself! 2o

minor can act as an agent!

#inor and +ecessaries$ According to &ndian law also, &f minor Contract is made

for necessaries, &t attains Validity!

I8ampleB *elated case is Polaram Vs Ayubkhan! &n this case A is a law

practitioner and % is a minor! A contract gets formed according to which A has

to safe9guard %3s property for certain consideration from %! Afterwards %

comes across default in paying remuneration to A! Court decides that though

it is minor Contract, it is Valid because it is made for necessaries!

#inor and +egotiabe Instruments$A minor can e8ecute all types of negotiable

&nstruments in his capacity as agent!

#inor and Parents$"o Contracts made by minors, their parents are notanswerable! Other party to the Contract cannot proceed against minor3s parents to

obtain consideration concern!

#inor as beneciar!$ &n a trust arrangement minor can be a beneciary! "hough

he is a stranger to Contract, he can proceed legally against the trustee in case

where trustee comes across breach of trust!

#inor and orts$"he only tort which can be committed by the minor is breach of

Contract for all other torts minor is answerable and punishable



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5istake of Foreign Law!


25/37

J! 5istake as to Price of 2ubject 5atter!

-istence of Subect #atter$(ere both parties think that the 2ubject matter is in

e8istence which is not actually 2uit!

A case on this point is Couterior Vs (astie! &n this case, there is Contract

between A and % according to which A has to sell his corn to % which is

coming in a ship! "hey think that the corn is in e8istence! %ut before their

Contract an incident has taken place! "he Corn has got spoiled and to get rid

of the unbearable smell, Captain of the ship has thrown away the parcels into

the sea! Court decides that it is bilateral mistake and parties can aoid the

Contract! "here is no 4uestion of Compensation!

Identit! of Subect #atter$At times both parties may get confused with regard

to identity of 2ubject matter! 2ince it is bilateral mistake contract can be aoided!

A case on this point is *aTes Vs +ichelhaus! &n this case a contract gets

formed between A and % according to which A has to send his raw cotton to %

in Peerless 2hip! +hile entering into the Contract A thinks about nd Peerless

and % thinks about :st Peerless! (ere mistake as to &dentity of 2ubject 5atter

from both sides can be seen! Court decides that Contract can be aoided and

Compensation need not be paid!

/uait! of Subect #atter$ 2ometimes both parties may get confused with regard

to Guality of 2ubject 5atter!

*elated case is )icholson Vs 2mith! &n this case a Contract gets formed

between A and % according to which A has to sell Charles & )apkins to %! A

gathers some napkins and sells them to %! At that time both parties think that

those )apkins belong to Charles but actually it is not so! "hey belong to ing

7eorge! Court decides that reersal of Considerations can be made! /i!e!

aoiding the Contract!0

/uantit! of Subect #atter$At times both parties may get confused with regard

to 4uantity of 2ubject matter!

*elated case is Co8 Vs Prentice! &n this case there is a Contract between A

and % according to which A has to sell a 2iler bar to % weight of which is to

be = gms! A collects 2iler bar and both of them think that its weight will be =

gms! %ut actually the weight is ? gms! &t is decided that Contract can be

aoided!

ite of Subect #atter$(ere seller thinks that he has title and buyer thinks that

seller has title! %ut actually seller will not hae title!

*elated case is Cooper Vs Phybbs! &n this case a lease agreement gets

formed between A and %! +here A has to proide his sh pond to % on lease!

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%oth of them think that it is A3s pond! %ut actually it belong to %! Court

decides that lease agreement does not operate!

Price of Subect #atter$ At times both parties may get confused with regard to

price of 2ubject!

*elated case is +ebster Vs 6essil! &n this case A Contract gets formed

between A and % according to which A has to sell his property to %, At a price

of UN;


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to return these Ornaments to A! 2ale of goods Act says that seller cannot

pass on a better title that what he himself has!

#istae as to +ature of Contract$ &f only one party is under confusion with

regard to nature of Contract, then also Contract can be aoided!

A case on this point is Faster Vs 5achillon! &n this case A is a gentleman and

he is not good at sight! % is A3s relatie! On one day % brings a bond to A and

asks him to sign, saying that it is 2urety form! %ut it is actually bill of

e8change! %elieing that it is 2urety bond, A signs! (ere mistake can be seen

only from the side of A only! -nder this e8ception Court decides that A can

aoid payment of the bill!



28/37

A case on this point is 5adha Vs *aj kumar! A and % enters into a contract

according to which % has to close down his business for which he would be

paid amount by A! % closes his business but, A fails to pay % the agreed

amount! % sues A for recoery and court decides that it is an agreement in

restraint of trade and hence oid!

Agreements in &estraint of #arriage$"he agreements which create restriction

on marriage are called agreements in restraint of marriage! One person cannot

restrict the other from getting married!

A case on this point is Lowe Vs Peerless! &n this case an agreement gets

formed between A and % according to which A should marry % only and %

should marry A only! &f only one of them breaches the agreement a

compensation of U ;;;


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between them according to which A has to pledge his medical instruments

with % as 2ecurity! %ut A lls9up a wooden bo8 with bricks etc and pledges the

bo8! &t comes under public cheating in accordance with 2ec! E; of &PC! After

coming to know about the fraud % wants to le criminal prosecution against

A! &n the mean while A3s 2on9in9law namely C makes a Compromise and

e8ecutes a deed in support of debt taken by A! "here after % sues C forrecoery Court decides that the Contract which has got formed between %

and C is agreement with regard to Compromise of o#ence and hence oid!

Agreements it regard to sae of Pubic O4ces and ites$"itles and

positions in 7oernment will be gien basing on personal talent! "hat person who

has obtained them cannot transfer them to some other person by means of an

agreement!

A case on this point is 2wamynathan Vs 5uthu 2wamy! &n this case a Contract

gets formed between A and % according to which A has to transfer his

position in got! to % for certain consideration! &t is opposed to Public Policyand hence held to be Void!

Agreements it Aien nem!$ Agreements with aliens are Valid so long as there

are good relations between two Countries! +hen +ar breaks out between the

Countries that Contract becomes opposed to public policy and hence oid!

A case on this point is 5etropolitan +ater board Vs 6ick err And Company!

5etropolitan +ater board wants to construct a dam and enters into a contract

with people who are aliens /other nation engineers0! "he contract is breached

followed by a war in between the two nations! 5etropolitan +ater board les

a case up on breach of contract! %ut, the case loses its alidity since a warbroke out in between the two nations!

Agreements based on 5ribes$+hen eer there is inolement of Crime or

Corruption, 2uch agreement is said to be opposed to public policy!

*elated case is Pandyan Vs *oy! &n this case there is an agreement between A

and % according to which % has to pay *s!:N;;; to A and for that A has to

arrange for admission of A3s 2on to a 5edical College! Court decides that

their agreement is opposed to Public Policy!

Agreements to form #onopo!$ 5onopoly is 2uitable to seeral unfair tradepractices and to e8ploit public! 2o an agreement to create monopoly is harmful to

2ociety!

Agreement to Commit a Crime$ &n case where objectie of the agreement is to

conduct a Crime like murder etc, it becomes opposed to public policy!

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Agreements to 6efraud Creditors$&f debtors form an agreement to defraud their

Creditors, 2uch agreement is opposed to public policy!

Agreements to 6efraud 7o8ernment$ Agreements to eade ta8es etc create

loss to goernment they are opposed to public policy!



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&n case where indirect loss also is Compensated besides loss, it is called 2pecic

6amages! "o get specic damages, concerned special situation must be

communicated!

A case on this point is 2impson Vs London and )orth +estern *ailway

Company! &n this case 5r! A is a farmer he wants to sell his agricultureproducts in an agricultural fair which is going on at a particular place! For the

purpose of transportation, A handoer his agricultural Products to a *ailway

Company! +hile making deliery to the *ailway Company, he gies clear

instructions to the same in connection with transportation, without any delay!

%ut, the *ailway Company makes delay and the goods reach the destination

after closure of fair! A claims Compensation to inconenience which is direct

loss! And also loss of prot which is indirect loss! A3s special situation is

Communicated, Court arranges for specic damages!

)ominal amages

At times, on account of breach of Contract, the other party may not come across

any loss! "hough it is the situation, the other party can le a 2uit! "hen Court

decides a ery little amount of Compensation! &t is called nominal damages!

7enerally this type of damages will be 8ed in case of anticipatory breach!

-indicti!e amages

&t is otherwise known as penalty damages! (ere Contract will be breached by one of

the parties and the other party comes across heay su#ering which cannot

pressured in the form of money! "hen Court decides heay amount as

Compensation! "his type of damages will be decided on the following occasions!

*reac# of marriage agreements and ?rongful dis#onor of C#e;ue by

banAerB

A case on this point is 6aid 2on Vs %arclays %ank! &n this case 5r! A is a book

seller and he is customer of %arclays %ank! On one day he issued a che4ue

amounting to pounds, to one of his Creditors! %ut the %anker dishonors the

che4ue negligently though there is sucient credit to his account! As a result

A3s business as well as personal reputation gets destructed! "here after A

les a 2uit and gets penalty damages amounting to N; pounds, from his

banker!

Li;uidated amages

&t is otherwise known as predetermined damages! "he terms of Contract determine

the amount of Compensation!

A case on this point is 6unlop Pnumatic "yre Company Vs )ew 7arage and

motor Company! &n this case there is a Contract of agency between 6)"

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Company and )75 Company where 6)" Company is Principle and )75

Company is its agent! Per the terms of their Contract if )75 Company sells

goods below the listed Price, )75 Company has to pay e pound per unit

thus sold! "wo units are sold below 2pecied Price! Court arranges for :;

pounds as determined by Contract!



33/37

A case on this point is %arner %ros!Vs )elson! &n this case a contract gets

formed between A and % according to which % has to conduct his dance

programs at A3s theater only for certain period! %ut % breaches the contract

and arranges his programs at other theaters also before e8piry of agreed

period! A3s sues for injunction order! "hen court issues injunction order saying

that % should not conduct his programs at other theaters before e8piry ofagreed period!

&igts to sue for /uantum #eruit$+heneer a party performs the contract

partially and then the other party breaches the contract, 2uit can be led claiming

proportionate remuneration! &t is called suit for 4uantum meruit!

A case on this point is Flanch Vs arlbarn! &n this case A is editor of a

maga.ine and % is a writer! According to their contract % has to supply story

to A3s maga.ine for certain number of weeks for a particular consideration! %

supplies story for some weeks and there after A closes down his maga.ine! %

sue3s for proportionate remuneration and it is allowed by court!

&igts to sue for &ecession of Parties$At times the su#ering party may sue for

recession for contract!

I8ampleB A contract has got formed between A and % on :st Manuary!

According to their contract A has to supply :;; pairs of ready made dresses

to %, on :st April on Kth 5arch strike by transport companies is announced

which will be called o# on Drd April! &t should be noted that A cannot supply

on :st April! %ut % is in need of those dresses only on :st April! (ence % can

sue for recession on contract!



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isc#arge of contract by Performance

As said by 2almond, contract creates obligations to parties! &f both parties perform

their contractual obligations promptly, the contract is said to be discharged by

performance! &t is the ideal method that number of contracts gets terminated in this

way!

isc#arge of contract by *reac#

Failure in performance of contractual obligation is called breach of contract!

6ischarge of contract takes place by breach of contract also! %reach of contract is of

two types! )amelyH

Actual breach and

Anticipatory breach!

&n case where contract is breached by party on the date of performance, it is calledactual breach! &f breach of Contract takes place before data of performance, it is

called anticipatory breach!

isc#arge of contract by 'mpossibility

"he element of impossibility terminate contractual relations! impossibility is of two

types! )amelyH

Pre Contractual impossibility and

Post Contractual impossibility!

&f impossibility has already come into force before the contract itself, it is called Pre9

Contractual impossibility! (ere discharge of Contract takes place soon after

formation of Contract! "he impossibility which comes into force after the contract is

called Post9Contractual &mpossibility! (ere contractual relations will e8ists only up to

occurrence of impossibility!

isc#arge of contract by lapse of time

Limitation act has specied duration to perform di#erent contracts! "he duration

thus specied is called limitation period! 2oon after e8piry of limitation period, the

contract gets discharged!

Example:"here is a contract of loan between A and %! (er limitation period is D

years! After completion of Drd year discharge of contract takes place and debtor '

creditor relationship comes an end! "hus it becomes time bared debt which cannot

be recoered by means of legal proceedings!

isc#arge of contract by Operation of law

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"his can be as followingH

*y eat#:+heneer one of the parties comes across death, contractual relations

will come to an end!

*y 'nsol!ency:+hen one of the parties to the contract becomes insolent, he

forgoes capacity to contract and those contracts which were made by that person

will get discharge!

*y lunacy:+hen one of the parties gets attached by lunacy discharge of contract

takes place!

0ig#t and liability going into t#e #ands of same party:Contract creates right

to one party and liability to the other when right and liability reach the same

person, the result is discharge of contract!

Example:= has drawn a bill on ?! (ere = has right to collect amount on the bill and ?

has liability to pay! "here after = has endorsed the bill to >! +here > has got the

right and liability is with ?! Assume that > has endorsed the bill to ?! )ow right as

well as liability are with ?! "his situation discharges the contract!

isc#arge of contract by greement

"his can be as followingH

*y lterations: +heneer 5aterial alterations in contract are made, then it is said

that old contract has got discharged and a new contract has come into force!

*y 0enewal:At times parties to the contracts may substitute completely new

contract in the place of old contract! )ow the old contract has got discharged!

*y 0ecession:&n case of recession old contract gets discharged and there will be

no formation of new contract!

Example:"here is a contract between A and % according to which A has to supply

:;; pairs of ready made dresses to % on :;th Manuary! +here date of formation of

contractee3s :st Manuary! On nd Manuary A says to % that those dresses hae

become out of fashion and hence not possible to assemble :;; pairs! 2till % says

that though he /%0 supplies :;; pairs by taking a lot of risk, % cannot sell thembecause they are outdated! "hus by mutual understanding, they hae terminated

their contract!



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&n case of Guasi Contract, there will be no o#er and no acceptance either on e8press

base or on implied base! %ut under certain circumstances Court creates contract

between the parties articially and thus binds oer the parties! 2uch contracts

which are created by irtue of law are called Guasi Contracts! 2ection JK to of

Contract Act read about the situations where court can create Guasi Contract!

5ection .7 8 w#en necessaries are supplied:+hen one party supplies

necessaries to the other /without re4uest0, a 4uasi contract comes into force!

A case on this point is Chaal Vs Cooper!

5ection .9 8 ?#en e&penses of one person are paid by t#e ot#er: +hen

e8penses which are to be paid one party are paid by another party, the parties are

said to be under 4uasi contract!

A case on this point is (a.arilal Vs )aaranglal! &n this case % purchases A3s

agricultural land! On that land cess is in arrears for a longer period which areactually to be cleared by A, %ut % pays that amount! (ere Court creates a

4uasi contract between them under

2ection J@ and thus capacitates % to recoer that amount from A!

Another case on this point is 7oindram 7oardhan 6as Vs 2tate of 7ondal!

5ection 6 8 ?#en one party is beneted by t#e acti!ity of anot#er

party: +hen one party Conducts an actiity and its benet is attained by another

party, then also Court can create a 4uasi Contract!

A Case on this point is 6amodar5odaliar Vs 2ecretary of 2tate for &ndia! &n

this case A is resident of a Village! "he local goernment conducts repairs to

the tank situated at A3s illage! As a result A gets beneted because the

surrounding lands belong to A! (ere Court creates a Guasi Contract and

decides that A has to bear cost of repairs!

5ection 61 8 'n case of nder of lost goods: Court can create a 4uasi contract

in case of nder of lost goods!

*elated case is (allius Vs Fowler! &n this case % nds a diamond at A3s shop

and hands it oer to A, re4uesting A to send the diamond to true owner! "rueowner is not found! +hen true owner is not found! Finder gets the title! )o

one can claim share in it! (ere court creates a bailment contract between %

and A and thus capacitates % to get diamond back!

5ection 62 8 ?#en payment is made by mistaAe:+hen eer payment is made

by mistake or goods are deliered by mistake , Court can create a 4uasi Contract!

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A case on this point is haniyalal Vs 2ales "a8 Ocer of the %anaras! &n this

case 5r! A pays 2ales ta8 by mistake though he is need to pay! (ere Court

creates a 4uasi Contract and capacitates A to recoer that amount!


Documents

Laws of Business