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.

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 Law
Principles of Eqjuity
Law Merchant of Law Mercatoria
British 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 to
repay 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 Contract

2. Void Contract and 2. Implied Contract 2. Executary Contract
Void Agreement 3. Constructive or 3. Unilateral Contract
3. Voidable Contract Quasi Contract 4. Bilateral Contract
4. Illegal Agreement
5. 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.
 Quasi Contract
• Quasi contract – resembles a contract –
however, no express offer or acceptance - legal
obligation on a party who is required to
perform it.
• Example : A leaves his goods at B’s place by
mistake – B consumes the goods as his own – B
is bound to pay for the goods to A as there was
a quasi contract under which B was under a
legal obligation to return A’s goods.
 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.
 Unilateral Contact
• A Unilateral contract is one wherein at the
time of the contract is concluded there is no
obligation to perform on the part of one party
only.
• Ex- A makes payment for bus for his journey
from Mumbai to Pune. He has performed his
promise. It is now for the transporter
company to perform its promise.
 Bilateral Contract
• A Bilateral Contract is one wherein there is an
obligation on the part of both to do or to
refrain from doing a particular thing. It is
similar to Executory contracts.
 OFFER AND ACCEPTANCE

The four basic elements of a

contract as Offer , Acceptance,
consideration and 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.
 Essentials of offer
1. One person signifies to another it must be an
expression of the willingness to do or to
abstain from doing something. According to
section 3 to signify means that the proposal
must be communicated to the other party.
2. The expression of willingness to do or to
abstain form doing some thing must be to
another person. There can be no ‘proposal’
by a person to himself
 Essentails of offer
3 The expression of willingness to do or to
abstain from doing some-thing must be
made with a view to obtaining the assent of
the other person to such act or abstinence.
Offers are of two types:
1.General Offers.
2.Specific Offers.

General Offers are made to public at large

Specific 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
 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.
• Example: A offered to sell his land to B for
50000/- B replied purporting to accept and
enclosed Rs. 10,000 promosing to pay balance
40000/- by EMI of 5000/- B could not enforce
his acceptance was no unqualified.
• 5. The Acceptance must be in prescribed
manner. (letter or telegram)
• 6. The Acceptance must be given in some
usual and reasonable manner.
• 7. The acceptance must be time bound
•Capacity to
Contract
•Consent and
Free Consent
Fraud
Requirements of Fraud
 Misrepresentation
• Sec.18 - false statement – made honestly –
believing it to be true or not knowing it to be
false – includes non-disclosure of material fact
without intent to deceive the other party
• Examples:
 Example
• A offers to sell his horse to B telling him that
the horse is sound. A genuinely believes the
horse to be sound though he has no sufficient
ground for the belief. Later, B finds the horse
to be unsound. The statement made by A is
misrepresentation.
 Requirements of
misrepresentation
1. Must relate to material fact – mere
expression of opinion is not
misrepresentation.
2. Must be wrong – but honestly believed to be
true by the person making it.
3. Must be made before conclusion of contract
– made to induce other party to enter into
the contract.
4. Made with intention that it is acted upon by
other party.
 Requirements of
misrepresentation
5. Must be actually acted upon by other party –
must have induced him to enter into the
contract.
6. Need not be made directly to the plaintiff –
made to third party with the intention of
communicating it to the other party to the
contract is also misrepresentation
 Mistake
• an erroneous belief about something - may
be mistake of law or a mistake of fact.

• Sec.20 – where both parties are under mistake

as to matter of fact essential to the agreement
– the agreement is void.
 Mistake
• Sec.20 will come into play when –
1.both the parties to an agreement are
mistaken;
2.their mistake is as to a matter of fact;
3.the fact about which they are mistaken is
essential to the agreement
 Mistake
• Sec.21 – a contract is not voidable because it
was caused by mistake of law of the country.
However, mistake as to law of a foreign
country is treated as mistake of fact and
makes the contract void.
 Mistake of law
• Mistake of law of the country – (ignorantia juris
non excusat , i.e. ignorance of law is not excuse)
– contract cannot be avoided.
• Example : A and B enter into a contract - on the
erroneous belief that a particular debt is barred
by the Indian Law of Limitation – contract is not
voidable.
• But where person enters into a contract by
making a mistake of law through inducement of
another (whether innocent or otherwise), the
contract is voidable.
 Mistake of law

• Mistake of law of a foreign country - treated

as mistake of fact – contract is void.
 Mistake of fact
• Mistake of fact – may be bilateral or unilateral.
• Bilateral Mistake – both the parties are mistaken as
to a matter of fact essential to the agreement –
agreement is void. The mistake must be mutual.
• Example – A agreed to purchase B’s motor car lying
in B’s garage – Unknown to both, the garage and car
destroyed by fire a day earlier – void agreement.
• Mistake must relate to matter of fact essential to the
agreement – as to what facts are essential to the
agreement depends upon the nature of the promise
in each case.
• Bilateral mistakes can be of following types
1.Mistake as to the subject matter
2.Mistake as to identity of subject-matter
3.Mistake as to quality of subject matter
4.Mistake as to quantity of subject matter
5.Mistake as to title of subject matter
6.Mistake as to price of subject matter
Consideration
1. Must move at the desire of the
Promisor.
 Unlawful
consideration
 Unlawful consideration Sec 23-24
• According to Sec 23 every agreement of which
the object or consideration is unlawful is void,
and the consideration or the object of an
agreement is unlawful in the following cases.
• 1. If it is forbidden by law.-
• When it is punishable by the criminal law of
the country.
 Unlawful consideration
• 2. The defect the provision of any law:
• A let a flat to B at a Rent of Rs. 12,000 a
month, with a view to reduce the Municipal
tax, A made two agreements with B one by
which the rent stated Rs 4500/- other 7500/-
as Services for connection in flat. A could not
recover 7500/- as agreement was made to
defaud the Municipal authority and thus void
 Unlawful consideration
• 3.Where it is fraudulent.
• A being an agent for a landed proprietor
agrees for money without the knowledge of
the principal
Agreement declared void
Contingent
Contract
Contingent
Contract
 Contingent Contracts
• Sec.31: A contract to do or not to do
something, if some event which is collateral to
such contract, does not happen – conditional
one – condition is of uncertain nature – e.g.
contracts of insurance, indemnity and
guarantee.
 Example of Contingent Contract
• Example: A contract to pay a sum of money on
the destruction of a premises by fire is
contingent contract. – however, contract to
pay a sum of money on the expiry of a term or
on the death of a person is not a contingent
contract because these events are of a certain
nature.
 Essentials of contingent contracts
– Performance depends on happening or non
happening in future of an event
– the event must be uncertain.
• The event must be collateral, i.e. incidental, to the
contract
 Rules regarding contingent
contracts
• Contingent contract cannot be enforced until the
collateral event has happened.
• In case contingent contract dependent upon
happening of collateral event, such contract become
void when such event becomes impossible.
• If contingent contract dependent upon non-
happening of collateral event, performance of the
contract can be enforced when the event becomes
impossible.
 Example
• A agrees to pay B a sum of money
• if B marries C –
• C marries D –
• marriage of B to C is now impossible
• although it is possible that D may die
• and C may afterwards marry B.
 Difference between wagering agreement and contingent contract :

Sl. No. Basis Wagering agreement Contingent Contract

1 Reciprocal promises It consist of reciprocal It does not contain

promises.
2 Nature It is essentially of
contingent nature.
3 Void or not It is void.
4 Interest in subject Parties have no other
matter. interest in subject matter
other than to win or lose.
5 Game of chance It is purely a game of
chance.
6 Future event It is the sole determining It is only collateral to the
factor.
reciprocal promises.
It may not be of wagering
nature.
It is valid.
The parties have other
interest also in the subject
matter.
It is not a game of chance,
though is dependent upon
happening or non-
happening of a certain
event.
contract.
 Quasi Contract
• We have seen that a contract is the result of
an agreement enforceable by law. But in some
cases there is no offer, no acceptance, no
consensus ad idem and in fact no intention on
the part of parties to enter into a contract and
still the law, from the conduct and
relationship of the parties, implies a promise
imposing obligation on the one party and
conferring a right in favour of the other
 Quasi Contracts
• In other words under certain special
circumstances obligations resembling those
created by a contract are imposed by law
although the parties have never entered into
a contract. Such obligations imposed by law
are referred to as ‘Quasi-Contracts’