University of South Asia

Assignment on Legal Environment of Business

Submitted by: Md. Sohag Ali
ID: 203-0177-029

Submission on
Fakir Tajul Islam MBA, ITP
Head (In Charge) & Assistant Professor
South Asia School of Business, University of South Asia.
 Answer to the Question no: 01

What is the nature of contract? Explain.

Ans: As per section 2(H) of the Contract Act 1872 “An agreement enforceable by low is a
Contract.

Nature of contract Example

Two Parties: A valid contract must include at least two parties identified by the contact. One of
these parties will propose and the other party will eventually accept it. Both parties should have
legal existence, e.g. must be companies, schools, organizations, etc. or natural persons.
1. Agreement: A contract is initially an agreement when the person to whom the offer is
made indicates his acceptance to it. There is an agreement that is the foundation of a
contract. 
2. Free Consent: The parties must agree on the same thing in the same sense and at the
same time. An agreement without consent is not legally binding. The parties are called
to consent when they agree on the same thing in the same sense; moreover, the parties
to the contract must have free and genuine consent to constitute a valid contract i.e.,
not to be obtained by misrepresentation, fraud, undue influence or mistake. If the
agreement is not free, the contract is void.
3. Intention to create a legal relationship: There should be an intention by both parties to
form a legal relationship and to bind themselves legally as a result of such agreement.
Thus, agreements of a social or domestic nature are not contracts, as the parties do not
intend to have a legal relationship.  For example – where two parties agree to move
together, a legal contract will not amount.
4. Contractual capacity: The parties to the agreement must be able to enter into a valid
contract. According to the Act, every person is capable of entering into a agreement, if
he or she:

 is of the age of majority;

 is of sound mind; and
 is not disqualified from contracting by any law.
5. Consideration: An agreement by an incompetent person is not valid. A valid contract
should be supported by consideration. The idea means “something in return”. It can be
 cash, kind or an act. It can be past, present or future. The idea must be genuine and
valid.
6. No Unlawful Considerations: According to the Act, the consideration of an agreement is
called unlawful if:

 it is prohibited by law,

 it is of such a nature that, if allowed, it will defeat the provisions of any law,

 it is fraudulent,

 it includes or means injury to the property of the person / other, and

 the court considers it immoral.

7. Lawful Consideration: Something in return is a consideration. In each contract, the
agreement must be supported by consideration. It must be valid and genuine.

Answer to the Question no: 02

What is a contract? Explain
Ans: Definition: The term contract is defined as an agreement between two or more parties
which has a binding nature, in essence, the agreement with legal enforceability is said to be a
contract. It creates and defines the duties and obligations of the parties involved.

Contract Explain: A promise enforceable by law. Promise may be to do something or to

refrain from doing something. The making of a contract requires the mutual assent of two or
more persons, one of them ordinarily making an offer and another accepting. If one of the parties
fails to keep the promise, the other is entitled to legal redress. The law of contracts considers
such questions as whether a contract exists, what the meaning of it is, whether a contract has
been broken, and what compensation is due the injured party.

Answer to the Question no: 03

Explain proposal, acceptance, promise & agreement based on the contract
law.

Ans: Proposal: The communication of proposal, the acceptance of proposal and the
revocation of proposals and acceptance, respectively, are deemed to be made by any act or
omission of the party proposing, accepting or revoking, by which he intends to communicated
such proposal, acceptance or revocation, or which has the effect of communicating it (Sec 3)
When a person signifies to another his willingness to do, or to abstain from doing anything, with
a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal. [Sec 2(a)]

Acceptance: when a person to the proposal is made, signifies his assent thereto, the proposal is
said to be accepting.
1. Acceptance must be absolute (sec.7)
2. Acceptance by performing, condition, or receiving consideration (sec.8)

Promise: The parties to a contract must either perform, or offer to perform, their respective
promises, unless such performance is dispensed with or excused under the provision of this Act,
or any other low.
A proposal is said to be accepted when the person to whom the proposal is made signifies his
assent thereto. A proposal when accepted becomes promise. [Sec 2(b)]

Agreement: Is not a contract. This type of agreement is frequently employed in industries that
require long-term contracts in order to ensure a constant source of supplies and outlet of
production. Mutual manifestations of assent that are, in themselves, sufficient to form a binding
contract are not deprived of operative effect by the mere fact that the parties agree to prepare a
written reproduction of their agreement. In determining whether, on a given set of facts, there is
merely an "agreement to agree" or a sufficiently binding contract, the courts apply certain rules.
If the parties express their intention—either to be bound or not bound until a written document is
prepared—then that intention controls. If they have not expressed their intention, but they
exchange promises of a definite performance and agree upon all essential terms, then the parties
have formed a contract even though the written document is never signed. If the expressions of
intention are incomplete—as, for example, if a material term such as quantity has been left to
further negotiation—the parties do not have a contract. The designation of the material term for
further negotiation is interpreted as demonstrating the intention of the parties not to be bound
until a complete agreement has been reached.
 Answer to the Question no: 04
When all agreements may become contracts? Explain.
Ans: As stated above, an agreement to become a contract must give rise to a legal obligation. 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. 
     Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend’s
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
       On the other hand, legal agreements are contracts because they create legal relations
between the parties.
example: a- A invites B to dinner. B accepts this invitation but does not attend the dinner. A
cannot sue B for damages. It is social agreement because it does not create legal obligation. So, it
is not a contract.
b- A promises to sell his car to B for one million. It is legal agreement because it creates legal
obligations between the parties. So it is a contract
According to section 10 of the contract act 1872,
                                                                          “All agreements are contracts if they are made by
the free consent of the parties, competent to contract, for a lawful consideration and with a lawful
object and not hereby declared to be void.”
    Thus an agreement becomes a contract when at least the following conditions are satisfied.
1-free consent
2-competency of the parties
3-lawful consideration
4- lawful object.
All agreements are contract if----
they are made by the free consent of the parties,
competent to contract,
for a lawful consideration and,

with a lawful object,

Answer to the Question no: 05

Explain contracts on basis of formation.
Ans: On basis of Formation
• Express Contract
• Implied contract –
• Quasi Contract
Express Contract and Implied contract –
In so far as the proposal or acceptance of any promise is made in word, the promise is said to be
express. In so far as such proposal or acceptance is mad3e otherwise than in words, the promise
is said to be implied.
Quasi Contract
Quasi contracts are supply of necessaries to a minor and other incapable person. The thing
suppled must come within the category of necessaries as the circumstances. The price to be price
to be paid must be reasonable. The property of incapable person is liable but not personally.
On basis of Performance
 Executed Contract
 Executory Contract On basis of Validity
 Voidable Contracts
 Void agreement
 Void Contract 8
 Valid Contract
 Illegal Agreements
 Unenforceable contract (technical defects)

Answer to the Question no: 06

Explain contracts on basis of performance.

Ans: Basis of Performance
Actual Performance: When a promisor to a contract has fulfilled his obligation in accordance
with the terms of the contract, the promise is said to have been actually performed. Actual
performance gives a discharge to the contract and the liability of the promisor ceases to exist.
Substantial Performance: This is where the work agreed upon is almost finished. The court
then orders that the money must be paid, but deducts the amount needed to correct minor
existing defect. Substantial performance is applicable only if the contract is not an entire contract
and is severable. The rationale behind creating the doctrine of substantial performance is to avoid
the possibility of one party evading his liabilities by claiming that the contract has not been
completely performed.
Partial Performance: This is where one of the parties has performed the contract, but not
completely, and the other side has shown willingness to accept the part performed. Partial
performance may occur where there is shortfall on delivery of goods or where a service is not
fully carried out.
Substantial Performance: t is made on quantum meruit, which literally means as much as is
deserved. So, for example, if half of the work has been completed, half of the negotiated money
would be payable. In case of substantial performance, the party that has performed can recover
the amount appropriate to what has been done under the contract, provided that the contract is
not an entire contract. The price is thus, often payable in such circumstances, and the sum
deducted represents the cost of repairing defective workmanship.
Attempted Performance: When the performance has become due, it is sometimes sufficient if
the promisor offers to perform his obligation under the contract. This offer is known as attempted
performance or more commonly as tender. Thus, tender is an offer of performance, which of
course, complies with the terms of the contract.

Answer to the Question no: 07

Explain contracts on basis of validity

Ans: According to the validity of contracts, they are classified into 5 as discussed below.
1. Valid Contract: An agreement, which is enforceable at law, is said to be a valid contract.
When all the essentials of a valid contract that are laid down in Sec. 10 of the Act are fulfilled, an
agreement becomes a contract.
2. Void Contract: Void contract may be defined as, “a contract, which ceases to be enforceable
by law, becomes void when it ceases to be enforceable. Act may be valid at the time when it was
made, but later it may become void. Act with an alien friend becomes subsequently void when
alien friend becomes alien enemy”.
3. Voidable Contract: It means, a voidable contract is one, which is enforceable at the option of
one of the parties to contract. If the party does not get it enforced, he may rescind it. Such a
contract remains valid unless the party at whose option it is enforceable does not rescind it. In
other words, a voidable contract remains to be good till the party who is entitled to do so avoids
it.
4. Unenforceable Contract: An unenforceable contract is one which cannot be enforced due to
some technical defect such as absence of a proper stamp, absence of a written form, time barred
etc. The parties may carry out such contracts. But in the event of breach or repudiation of the
contract, the aggrieved party will not be entitled to any legal remedy.
5. Illegal Contract: An illegal contract is one which breaks some rule of basic public policy or
which is criminal in nature or immoral. It is void ab initio. Thus, a contract to commit dacoity is
an illegal contract and cannot be enforced at law.

Answer to the Question no: 08

What are the essential elements of contract? Explain.
Ans: essential elements of contract
1.Offer and Acceptance: Basically, a contract unfolds when an offer by one party is accepted by
the other party. The accepted offer should be without any qualification and be definite. An offer
needs to be clear, definite, complete and final. It should be communicated to the offeree
2. Intention to Create legal Relationship: The intention of the parties to a contract must be to
create a legal relationship between them. Agreements of social nature, as they do not
contemplate legal relationship, are not contracts. For instance, if a father fails to give his
daughter the promised pocket money, the daughter cannot sue the father, because it was purely a
domestic arrangement. Thus, it is clear that all agreements, which do not result in legal relations,
are not contracts.
3.Capacity to Contract: f an agreement is entered between parties who are competent enough to
contract, then the agreement becomes a contract.
4.Genuine and Free Consent: Free consent is another essential element of a valid contract. An
agreement must have been made by free consent of the parties. The contract would be void in
case of mutual mistakes. When consent is obtained by unfair means, the contract would be
voidable.
5.Lowful object: Objectives of an agreement should be lawful. It must not be illegal or immoral
or opposed to public policy. It is lawful unless it is forbidden by law. When the object of a
contract is not lawful, the contract is void.
6.Lowful Consideration: Something in return is Consideration. In every contract, agreement
must be supported by consideration. It must be lawful and real.
7.Certainty and Possibility of Performance: he agreements, in which the meaning is uncertain
or if the agreement is not capable of being made certain, it is deemed void. T&C of the contract
should always be certain and cannot be vague. Any contract that are uncertain are considered
void. The terms of the agreement must also be capable of performance and should not enforce
impossible act.
8.Legal Formalities: Legal formalities if any required for particular agreement such as
registration, writing, they must be followed. Writing is essential in order to affect a sale, lease,
mortgage, gift of immovable property etc. Registration is required in such cases and legal
formalities in the relevant legislation should be strictly followed.

Answer to the Question no: 09

What are the common elements of offer? Explain

Ans: It must be made by one person to another person.

• It must be an expression of readiness or willingness to do or to abstain from doing

something.
• It must be made with a view to obtain the 10 consent of that other person.
• Terms of offer must be definite, unambiguous and certain.
• Offer must be communicated.
• Offer not to contain a term the non-compliance of which may amount to acceptance.
• A statement of price is not an offer.
Explain: Subject Matter Any undertaking may be the subject of a contract, provided that it is
not proscribed by law. When a contract is formed in restraint of trade, courts will not enforce it,
because it imposes an illegal and unreasonable burden on commerce by hindering competition.
Contracts that provide for the commission of a crime or any illegal objective are also void .
Mutual Agreement There must be an agreement between the parties, or mutual assent, for a
contract to be formed. In order for an agreement to exist, the parties must have a common
intention or a meeting of minds on the terms of the contract and must subscribe to the same
bargain. Aside from certain statutory exceptions pertaining to the sale of goods.

Answer to the Question no: 10

Discuss the types of offer
Ans: Types of offer:
i). Express offer: – It is an offer that is done through words that can be either oral or written.
The oral offer can be made face to face or via telephone. The written offer can be made via text
messages, advertisements, letters or e-mail.
(ii). Implied Offer: – It is an offer conveyed through acting or signs. But if a party observes a
silence over the offer then that offer cannot be valid.
(iii). Specific Offer: -It is the offer made to a specific person or group of persons and can be
accepted by the same, not anyone else.
(iv). General Offer: -It is the offer made to public at large and not to any particular person. it
can be accepted by anyone by abiding by the terms of it.

Answer to the Question no: 11

Discuss the legal rules as to acceptance

Ans: Legal rules:
1) Acceptance must be obsolete and unqualified:
  An acceptance to be valid it must be obsolete and unqualified and in accordance with the
exact terms of the offer.
 An acceptance with a variation, slight, is no acceptance, and may amount to a mere
counteroffer.
2) Acceptance must be communicated to the offeror:
For a valid acceptance, acceptance must not only be made by the offeree but it must also be
communicated by the offeree to the offeror.
 Communication of the acceptance must be expressed or implied.
 A mere mental acceptance is no acceptance.
3) Acceptance must be according to the mode prescribed (or) usual and reasonable
manner:
 If the offeror prescribed a mode of acceptance, acceptance must give according to the
mode prescribed.
 If the offeror prescribed no mode of acceptance, acceptance must give according to some
usual and reasonable mode.
4) Acceptance must be given within a reasonable time:
 If any time limit is specified, the acceptance must be given with in that time.
 If no time limit is specified, the acceptance must be given within a reasonable time.
5) It cannot precede an offer:
 If the acceptance precedes an offer, it is not a valid acceptance and does not result in a
contract.
 In other words, “acceptance subject to contract” is no acceptance.

6) Acceptance must be given by the parties (or) party to whom it is made:

 An offer can be accepted only by the person (or) persons to whom it is made.
 It cannot be accepted by another person without the consent of the offeror.

7) It cannot be implied from silence:

 Silence does not amount to acceptance.
 If the offeree does not respond to offer (or) keeps quiet, the offer will lapse after
reasonable time
8) Acceptance must be expressed (or) implied:
 An acceptance may be given either by words (or) by conduct.
  An acceptance which is expressed by words (spoken or written) is called ‘expressed
acceptance.

Answer to the Question no: 12

Explain the revocation or lapse of offer based on section 6 of the contract law.

Ans: Revocation how made a proposal is revoked a proposal is revoked

(1) by the communication of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so
prescribed, by the lapse of a reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance.

Answer to the Question no: 13

What is consideration? Explain.

Ans: The special word “consideration” in contract law refers to something that has value in the
eyes of the law.

 is an essential element to make a contract

 must be provided for a contract to be legally binding .
In contract law, it is said that "consideration must move from the promise".
Drawing out the subtlety of this statement:
 If there is "a promise", there must already be a promisor
 The promisor has already made a promise to the promise, which is sufficient to
form a contract (but it's not formed at this point)
 The promise must give something back to the promisor - a promise  
 When the promise promises to do something - gives consideration (and it doesn't
have to be given to the promisor) - a legally binding contract is formed, provided
the other elements have been satisfied .

Types of Consideration:
A promise - consideration - can be:
1. a promise to do something, such as to:
transfer ownership in property, such as intellectual property, a car or house
create an art work
develop software
grant a license to intellectual property rights
pay money
1. a promise to refrain from doing something (known as a restrictive covenant):

 not work with another employer of a particular description for a period of time
after employment ceases.
 not to build property over a specified height
 not take ownership of shares in another business
 a promise to pay money to the other contracting party, or to someone else
Consideration is classified as one of two types:
 executed: when the promise has been performed within the meaning of the contract, or
 executory: when the promise has not been performed.
Capacity to contract
• Every person is competent to contract who-
• Is of the age of majority according to the law to 21 which he is subject.
• Is of sound mind.
• Is not disqualified from contracting by any law to which he is subject. (Sec 11)

Answer to the Question no: 14

Explain the legal rules as to consideration.

1.Consideration must move at the desire of the promisor:
Consideration can be offered by the promise or a third-party only at the request or desire of the
promisor. If an action is initiated at the desire of the third-party, it is not a consideration.
2. Consideration may move from the promise to any other person
If you look at the definition of consideration according to section 2 (d) of the Indian Contract
Act. 1872, it explicitly states the phrase ‘promise or any other person…’ This essentially means
that in India, consideration may move from the promise to any other person. However, it is
important to note that there can be a stranger to consideration but not a stranger to the contract
3. It can be in the past, present or future
3.a Past
Since consideration is the price of a promise, it is normally given to induce the promise.
However, it can be given before the promise is made by the promisor. This is past consideration.
It is important to note that past consideration is not considered for a new promise since it is not
been given in lieu of the promise. According to Indian law passed considerations’ is ‘good
consideration’ if it was given at the desire of the promisor.
3.b Present
If the promise and consideration take place simultaneously then it is present or executed
consideration. An example is Peter goes to a shop, buys a bag of chips and pays for the same on-
spot.
3.c Future
When the consideration for a promise moves after the contract is formed, it is a future or
executor. It is also valid if it depends on the condition.
Peter promises to create architectural plans for John’s new house. John promises to pay Peter an
amount of Rs 50,000 provided the plans are approved by his wife.
4. It must have value in the eyes of the law
While the law allows the parties to decide an ‘adequate’ consideration for them, it must be real
and have value in the eyes of law. While the Court will not consider inadequacy, it will look at it
to determine if the consent was given by the party with free-will or not.
Peter’s wife agrees to withdraw the suit she has filed against him in return for his promise to pay
her a monthly maintenance amount. This is a good consideration and holds value in the eyes of
law.
5. It should be over and above the Promisors’ existing obligations
If the promisor is already obligated either by his promise or law to perform or abstain from a
certain act, then it is not a good consideration for a promise.
Peter receives a summons from the Court to appear before it as a witness for John. John promises
to pay him Rs 10,000 to appear in the Court. This contract is not valid because Peter is obligated
by law to appear in the Court on receiving a summons
6. It cannot be Unlawful
A consideration that is against the law or public policies is not valid.

Answer to the Question no:15

What is the capacity to contract? Explain.
Ans: Contract with Minor: The law protects the minors against their own inexperience and the
possible improper designs of those who are experienced. The Contract Act states that, only a
person who is major can enter into contract. As per Section 3 of the Indian Majority act, 1875, a
minor is a person who is under 18 years of age. An agreement with minor is void and cannot be
ratified by him/her until he/she attains majority. However, a minor can be promise or beneficiary
under a contract and can enter into special types of contracts for necessaries of life.
2.Soundness of Mind: As per section12 of the Contract Act, an individual is of sound mind to
make a contract if the individual is capable of understanding the terms of the contract at the time
of its creation and is capable of making rational judgements in his/her interests. As per the
Act, Lunatics i.e. person deranged because of the personal trauma, individuals who have
completely lost their mental capacity and drunken/intoxicated persons who comes under
influence of any such substances are of unsound mind and do not have capacity to enter into any
contract. While a Lunatic and drunken individual may have lucid intervals but an idiot is such an
individual who does not possess any soundness of mind and all contracts with such persons are
void. Lunatics and Drunker individuals can enter into contract only at the period of their lucidity
but not otherwise.
3. Individuals disqualified by law: As per the contract Act, the following are said to disqualify
from entering into any contract: -
(a). Alien Enemy- Any Individual is not a citizen of India is termed to be Alien and cannot enter
into any contract.
(b). Foreign Sovereign
(c). Corporations- Any company is a different entity (artificial person) created by law. To enter
into any contract, it can enter via its board of directors.
(d). Convicts-Individual are sentence by the law for imprisonment cannot enter into any contract
as per the Act during the imprisonment period. He can enter into contract once his punishment
completes with the sentence expiration.
(e). Insolvents- Insolvents cannot enter into contract until the court passes an order for
Discharge.

Answer to the Question no: 16

When consent is said to be free? Explain.

Ans: Consent when considered “not free”
The parties in a contract might agree upon the same thing in the same sense but mere consent is
not enough, consent must also be free to complete the validity of a contract.
*When there is no consent, there can be no contract at all and the agreement will be considered
void.
*When there is consent but not free consent, the contract is considered voidable at the option of
the party whose free consent was not taken.
According to section 14 of the Indian Contract Act, 1872, consent is said to be free when it is not
caused by-
1)Coercion– According to section 15 of the Indian Contracts Act,1872 coercion is –
1. Committing or threatening to commit any act forbidden by the Indian Penal code.
2. The Unlawful threatening or unlawful detaining of any property to the prejudice of any
person.
-With the intention of causing the other person to enter into an agreement.
It is, however, immaterial whether the Indian Penal Code is or is not in force in the place where
the coercion takes place

2)Undue Influence - When the relations between two parties’ areas such that one of the parties is in a
position to dominate the will of the other party and use that position to gain an unfair advantage over the
other it amounts to undue influence under section 16 of the Indian Contracts Act,1872.

Therefore, any influence with the help of which free and deliberate judgment is excluded is
called undue influence.

3)Fraud – Section 17 clearly states that mere silence does not constitute fraud. But Active
concealment of facts requires efforts to conceal the truth therefore when silence amounts to
active concealment of facts, it amounts to fraud.
4)Misrepresentation- When the relations between two parties’ areas such that one of the parties is in a
position to dominate the will of the other party and use that position to gain an unfair advantage over the
other it amounts to undue influence under section 16 of the Indian Contracts Act,1872.

Therefore, any influence with the help of which free and deliberate judgment is excluded is
called undue influence.

5)Mistake– A mistake under Indian Contract Law is considered to be of two types-

1)Mistake of Fact
2)Mistake of law
1)Mistake of Fact: When there is a misunderstanding of fact by both or one of the parties, it is
considered to be a mistake of fact. The mistake of fact can be of 2 types-
a) Bilateral Mistake: Section 20 says that when both the parties do not agree on the same thing
in the same sense and therefore are under a mistake of fact which is essential to the contract, they
are said to have committed a Bilateral mistake. This contract is said to be void.
b) Unilateral Mistake: Section 22 says that if one person has made a mistake of fact, the
contract will not be void or voidable and will remain a valid contract unless the mistake of fact is
regarding the subject matter of the contract or the identity of the person contracted with
2) Mistake of Law: Section 21 of the Indian Contract Act,1872 is based on the maxim- Ignorant
Juris non-equant which means ignorance of the law is no excuse. Hence it provides that a
contract is not voidable because it was caused by a mistake as to any law.

END