bba-sem-5-mercantile law-the indian contract act,1872

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Don’t think that ‘TIME’ will change our LIFE, Don’t think that ‘TIME’ will change our LIFE, TIME’ only change The Expiry Dates of the TIME’ only change The Expiry Dates of the ‘OPPORTUNITIES’ !! ‘OPPORTUNITIES’ !!

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Page 1: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Don’t think that ‘TIME’ will change our LIFE, Don’t think that ‘TIME’ will change our LIFE, ‘‘TIME’ only change The Expiry Dates of the TIME’ only change The Expiry Dates of the

‘OPPORTUNITIES’ !! ‘OPPORTUNITIES’ !!

Page 2: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Outline of UNIT Definitions Nature and Essential of contract Classification of contract Offer and Acceptance - Legal rules & Special terms Consideration – definition & Legal Rules Capacity to contract Free consent Legality of object Void Agreement Contingent Contracts – Meaning and Types Performance of Contract Remedies for Breach of Contract Quasi Contract – Meaning and kinds

Page 3: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

IntroductionIntroduction

• ‘Contract’ is the most usual method of defining the ‘give and take’ rights and duties in a business transaction.

• Section 2(h) of the Act defines the term contract

“as an agreement enforceable by law”.

Page 4: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• A contract is an agreement made between two or

more parties which the law will enforce

• “Every agreement and promise enforceable at law is a contract”

• “A legally binding agreement between two or more persons by which rights are acquired by one or more to acts on the part of the other”

Agreement = Offer + AcceptanceContract = Agreement + Enforceability at Law

Page 5: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Which statement is TRUE ???

• All agreements are contract but all contracts are not agreements

• All contracts are agreements but all agreements are not contract

• All agreements are not contract but all contract are agreements

Page 6: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

ESSENTIAL ELEMENTS OF A VALID ESSENTIAL ELEMENTS OF A VALID CONTRACTCONTRACT

• Offer and acceptance• Intention to create legal relationship• Lawful consideration• Capacity of parties- competency• Free and genuine consent• Lawful object• Agreement not declared void • Certainty and possibility of performance• Legal Formalities

Page 7: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

CLASSIFICATION OF CONTRACTSCLASSIFICATION OF CONTRACTS

• Classification according to validity– Voidable contract

– Void Agreement – Void Contract

– Unenforceable Contract

• Classification according to formation– Express contract– Implied contract – Quasi contract– E-commerce contract

Page 8: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• Classification according to performance– Executed contract– Executory contract– One-side Contract

• Classification of contracts in English Law– Formal contract• Contract of record• Contract under seal

– Simple contract

Page 9: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

OFFER & ACCEPTANCEOFFER & ACCEPTANCE

An offer may be made by express words spoken or written

General Offer : An offer made to the public in general and hence anyone can acceptant do the desired act.

Special Offer : When offer is made to a definite person, it is known as specific offer and such offer can be accepted only by that specified person.

Page 10: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

General OfferGeneral Offer

Page 11: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Special Offer Special Offer

Page 12: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Legal Rules as to Offer Legal Rules as to Offer The offer must be capable of creating legal relationThe offer must be certain, definite and unambiguous The offer may be expressed or impliedThe offer must be distinguished from an invitation to

offerAn offer may be specific or generalThe offer must be communicated It must be made with a view to obtaining the assent of

the offereeA statement of price is not an offer

Page 13: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Special terms of offerSpecial terms of offer

These must be brought to the notice of the other party before the acceptance of the offer otherwise the acceptor will not be bound by such terms

The acceptor knows that there are some special terms and his attention is drawn to them, hi is bound by them

Page 14: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

ACCEPTANCEACCEPTANCE

A proposal or offer is said to have been accepted when the person to whom the proposal is made signifies his agree to the proposal to do or not to do something [Section 2 (b)]

Acceptance may be express or implied

Page 15: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Legal rules as to Acceptance Legal rules as to Acceptance It must be absolute and unqualified It must be communicated to the offeror It must be according to prescribed mode It must be given within the prescribed or reasonable

time It must show an intention to fulfil the promise It cannot precede an offer It must be given to specific person It must given before the offer lapse Mental acceptance is no acceptance

Page 16: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Consideration Consideration

When a party to an agreement promises to do something, he must get ‘something’ in return

A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other

Page 17: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Legal Rules as to ConsiderationLegal Rules as to Consideration

it must at the desire of the promisor it may move from the promisee or any other

person it may be an act, abstinence or forbearance or

a return promise it may be past, present or future it need not be adequate it must be real and not illusory

Page 18: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Capacity to contractCapacity to contract

Minors

Persons of unsound mind

Person disqualified by any law to which they are subject

Page 19: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Free ConsentFree Consent

o “All agreements are contracts if they are made by the free consent of parties...”

Consent is said to be free when it is not caused by—

o Coercion as defined in sec.15o Undue influence as defined in Sec.16o Fraud as defined in Sec.17o Misrepresentation as defined in Sec.18o Mistake, Subject to the provision Sec.20,21,22

Page 20: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

COERCIONCOERCION

• ‘’Coercion’’ is the committing or threatening to commit any act forbidden(prohibited) by the Indian Penal Code 1860– A threat to commit suicide amounts to coercion

• There must be intention of causing any person to enter into an agreement

• It involves a criminal act

Page 21: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Undue InfluenceUndue Influence

• Where relations subsisting between the parties are such that one of the parities in a position to dominate the will of the other.

– Parent and child– Trustee and beneficiary– Guardian and ward – Doctor and patient

Page 22: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Misrepresentation & FraudMisrepresentation & Fraud

• Misrepresentation is a false statement which the person making it honestly believes to be true or which he dose not know to be false – It must be a representation of a material fact– It must be made before the conclusion of the

contract with a view to inducing the other party to enter into the contract

– it must be made with any intention to deceive(mislead) the other party

Page 23: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Mistake Mistake • Mistake is erroneous belief about something. It may be a (1)

mistake of law of the country (2) mistake of law of a foreign country

• Mistake of fact may beMistake of fact may be– Bilateral fact • The mistake must be mutual• The mistake must relate to a matter of fact essential to the agreement• Subject-matter, Price-matter, Quantity-matters, Identity of subject-

matter, Title to subject-matter

– Unilateral fact• Identity of the person contract• Nature of contract

Page 24: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

LEGALITY OF OBJECTLEGALITY OF OBJECT

• When consideration or object is unlawful

– If it is forbidden by law– If It defeat the provisions of any law– If it is fraudulent– If it involves or implies injury to the person or

property of another– If the court regard it as immoral

Page 25: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Agreement Opposed to Public Agreement Opposed to Public PolicyPolicy

• Agreement of trading with enemy• Agreement to commit a crime• Agreements in restraint to legal proceedings• Trafficking in public offices and titles• Agreements tending to create interest

opposed to duty• Agreements which interfere with

administration of justice

Page 26: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...

• Agreements in restraint of parental rights• Agreements restricting personal liberty• Agreements in restraint of marriage• Marriage brokerage agreement

Page 27: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Void Agreement Void Agreement • A void agreement is one which is not enforceable by

the law. • Following agreements have been expressly declared

to be void. Agreements by incompetent parties (Sec.11) Agreements made under a mutual mistake of fact (Sec. 20) Agreements the consideration or object of which is

unlawful (Sec. 23) Agreements the consideration or object of which is

unlawful in part (Sec.24)

Page 28: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont..Agreements made without consideration (Sec. 25)Agreements in restraint of marriage (Sec. 26)Agreement in restraint of trade (Sec. 27)Agreement in restraint of legal proceedings (Sec. 28)Agreements the meaning of which is uncertain (Sec.

29)Agreements by way of wager (Sec. 30)Agreements contingent on impossible events (Sec. 36)Agreements to do impossible acts (Sec. 56)

Page 29: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• Agreement the meaning of which is uncertain

ExistenceQuantityQualityPrice

• Wagering agreements or wager (Sec. 30)A wagering agreement is an agreement to pay

money on the happening or non-happening of a specified uncertain event.

Page 30: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• Essentials of a wagering agreement

Promise to pay moneyEach party must stand to win or loseNo control over the eventNo other interest in the event

• Void ContractContract to do or not to do something on the

happening of an event becomes void when event becomes impossible

• Restitution

Page 31: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

CONTINGENT CONTRACTCONTINGENT CONTRACT

• Contingent means that which is dependent on something else

• Essentials of contingent contract

– Its performance depends upon the happening or non-

happening events

– The event must be uncertain

– The event must be deposited

Page 32: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• Rules regarding contingent contract

– Its performed if an uncertain future event happens, it cannot be enforced until the event has happened

– It a contingent contract depends for its performance on doing of an act by the promisor, the contract become void

– If a contingent contract contemplates to do anything within time if an impossible event happens it is void

Page 33: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

PERFORMANCE OF CONTRACT PERFORMANCE OF CONTRACT

• Performance of contract takes place when the parties to the contract fulfil their obligation arising under the contract within time and in the manner prescribed

Page 34: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Offer to Perform (Sec.38)

• It must be unconditional• It must be mad to proper person• it must be by a person who is in a position and

willing to perform the promise• it may be made to one of the several joint

promises– When a party to a contract refuses to perform or

disables himself from performing, his promise in its entirety the promise may put an end of the contract (Sec.39)

Page 35: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Contract which need NOT be performed

• When its performance becomes impossible • When the parties to it agree to substitute a new

contract for it or alter• When the promisee dispenses with , wholly or in

part. The performance of the promisee made to him

• When the person at whose option it is voidable• When it is illegal

Page 36: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

By whom must contracts be performed ??

• Promisor himself

• Agent

• Legal representatives

• Third parties

• Joint Promisors

Page 37: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Devolution of Joint Liabilities & Rights (Sec. 42 to 45)

“Devolution”- Passing over from one person to another

Devolution of Joint Liabilities any one of the joint promisors may be compelled to

performA joint promisor compelled to perform may claim

contributionSharing of loss arising from default Release of Joint promisor

Page 38: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Time and Place of Performance(Sec. 46 to 50)

Where no application is to be made and not time specified

Where time is specified and no application is to be made

Application for performance on a certain day and placeApplication by the promisor to the promisee to appoint

place Performance in manner or at time prescribed or

sanctioned by the promisee

Page 39: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Reciprocal Promises

Mutual and independent

Conditional and dependent

Mutual and concurrent

Page 40: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Rules regarding reciprocal Promises

Real-time performance of reciprocal promises

Order of performance of reciprocal promises

Effect of one party preventing another from

performing promise

Effect of default as to promise to be performed

first

Page 41: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

DISCHARGE OF CONTRACT DISCHARGE OF CONTRACT Discharge of contract means termination of

the contractual relationship between parties A contract may be discharged-

By performanceBy agreement or consentBy impossibility of performanceBy lapse of timeBy operation of lawBy breach of contract

Page 42: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

DISHCHARGE BY PERFORMANCE

Discharge by performance takes place when the parties to the contract fulfil their obligations arising under the contract within the time and the manner prescribed

It may be ACTUAL PERFORMANCE ATTEMPTED PERFORMANCE

Page 43: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

DISCHARGE BY AGREEMENT OR CONSENT

• A contract rests on the agreement of the parties. As its is agreement with binds them, so by their agreement or consent they may be discharged – Novation• When a new contract is substituted for existing one

– Alteration• When one or more of the terms of the contract is/are

altered by the mutual consent of the parties

– Rescission (cancellations)• When all or some of the terms of the contract are cancelled

Page 44: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont..

– Remission• Acceptance of lesser fulfilment of the promise made by

parties – Waiver• Intentional giving up of a rights by a parties entitled thereto

under a contract– Merger• When inferior right accruing to a party under a contract

merges into a superior rights accruing to the same party under new contract

Page 45: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

DISCHARGE BY IMPOSSIBLITY OF PERFORMANCE

• Impossibility existing at the time of agreement – Know to the parties– Unknown to the parties

• Impossibility arising subsequent to the formation of contract

Page 46: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont..

Discharge by supervening impossibility

Destruction of subject-matter of contract Non-existence or non-occurrence of particular

state of things Death or incapacity for personal service Change of law Outbreak of war

Page 47: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont..

Impossibility of performance-not an excuse

Difficulty of performance Commercial impossibility Impossibility due to failure of a third person Strike and lock out Failure of one the objective

Page 48: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

DISCHARGE BY LAPES OF TIME A contract should be performed within a

specified period, called period of limitation.

DISCHARGE BY OPERATION OF LAWo By Deatho By mergero By insolvencyo By unauthorized alteration of the termso By rights and liabilities becoming vested in the same person

Page 49: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

DISCHARGE BY BREACH OF CONTRACT

• Breach of contract means a breaking of the obligation which a contract executes

• Actual breach of contract – At the time when the performance is due– During the performance of the contract

• Anticipatory breach of contract– By expressly renouncing his obligation – By doing of some act so that the performance of his

promise become impossible

Page 50: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Remedies for Breach of Contract Remedies for Breach of Contract

When the contract broken, the injured party (the party who is not in breach) has one or more following remedies

Rescission (Cancellation) of the contractSuit for damagesSuit upon quantum meruitSuit for specific performance of the contractSuit for injuction

Page 51: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• RescissionRescission– When there is breach of a contract by a party, the

injured party may sue to treat the contract as cancel. He is also absolved of all his obligation under the contract.

• Mr. A promise B to supply 10 Parker pens on a certain day. B agree to pay the price after the receipt of the goods. A does not supply the goods. B is discharged from liability to pay money

Page 52: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• DamagesDamages– Damages are monetary compensation awarded to the

injured party by court for the loss or injury suffered by him

– Ordinary damages• Damages which actually arise in the usual course of things

from breach of contract.

– Special damages • Damages which may reasonably be supposed to have been

in the contemplation of the both parties when they made contract.

Page 53: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...• Vindictive or Exemplary Damages – These damages are allowed in case of breach of a

contract to marry or dishonour of a cheque by a banker wrongfully.

• Nominal Damages– Where the injured party has not suffered any loss by

reason of the breach of contract, court may award a very nominal sum of damages.

• Damage of loss of reputation– If the banker wrongly refuse to honour customer’s

cheque

Page 54: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

Cont...

• Damage for inconvenience and discomfort– Damage can be recovered for physical

inconvenience and discomfort. The general rule for damage is that measure of damages is not affected by the motive.

Suit upon quantum meruitSuit for specific performance of the contractSuit for injuction

Page 55: BBA-SEM-5-MERCANTILE LAW-The Indian contract act,1872

QUASI CONTRACT QUASI CONTRACT When ‘’Creation relations resembling those

created by contract’’ in English Law, such relations are called quasi-contract

Supply necessaries (Sec.68)Payment by an interested person (Sec.69)Obligation to pay for non-gratuitous (Sec.70)Responsibility of finder of goods (Sec. 71)Mistake or coercion (Sec. 72)