Chapter II Business Contracts

 Legal Elements of Contracts

 Remedies for Breach of Contract
 Contracts of Agency
 Contracts of Guarantee
 Contracts of Indemnity
 Letter of Credit Contracts, Employment
Contracts, Special Rights in Contracts,
Documentation of Commercial Contracts
 Legal Elements of Contract
 Contract creates a legal bond.
 Contract consists of reciprocal promises.
 Contract is an agreement between two or
more parties establishing an enforceable
legal relationship.
 Contract is an agreement between the
parties which creates an obligation to do
or not to do a particular thing.
 Agreement enforceable by law is contract
 All contracts are agreement but all
agreements are not contracts.
 Personal and social agreements are not
enforceable by law.
 If an agreement imposes a legal
obligation, it is enforceable contract.
 Therefore, 2 basic requirements of
contract – (1) an agreement (2) legal
enforceability
 Proposal > when accepted becomes >
promise > every promise or set of promises,
forming the consideration for each other is an
agreement > agreement enforceable by law is
contract.
 Agreement is an offer coupled with acceptance.
 Consensus ad idem – both parties agreeing on
same thing in the same sense. Meeting of both’s
minds.
Requirements / essential elements
of valid contract
 Free Consent
 Offer and Acceptance
 Capacity of the Parties to the contract
 Consideration
 Lawful Object
 Certainty and possibility of performance
 Terms of contract should be clear
 Agreement must not be declared void
 Offer and Acceptance
 An Offer is a proposal by one party to another
to enter into a legally binding agreement.
 Offer can be made –
 By express words, spoken or written – e.g.
purchase of house
 Offer implied by conduct – implied offer e.g.
Transport Co. runs bus
 Specific offer, General Offer
Laps or Termination of an Offer
 When the offer is not accepted in the
prescribed mode
 Lapse of time
 By rejection or counter-offer
 By death or insanity of either party to the
contract
 By revocation / termination
 On failure to fulfill condition precedent
 Revocation of Acceptance
 Acceptance of offer may be revoked at
any time before the communication of the
acceptance is complete as against the
acceptor but not afterwards.
 Revocation of acceptance means the
withdrawal of the acceptance to a
proposal by the offeree himself.
 CONSIDERATION
 An agreement without consideration is
void.
 Consideration – when at the desire of the
promisor, the promisee has done or
abstained from doing, or does or abstains
from doing, or promises to do or abstains
from doing, something, such act or
abstinence or promise is called a
consideration. It is exchange in bargain.
 Legal Enforceability
 All contracts are agreements, but all
agreements are not contracts.
 Intention to create legal relations.
 Agreement, to be a contract, must give
rise to a legal obligation between the
parties.
 Classification of Contracts
 |
Based on validity of contract, mode of formation or the extent of performance

Enforceability
Valid
Method of Formation Extent of performance
Voidable
Formal Executed
Void
Simple executory
Unenforceable
illegal
Doctrine of Vicarious Performance
 Vicarious liability means that one person is
made liable for the wrongful act of
another.
 Master/ owner is responsible for the acts
or omission on part of his servant.
 Doctrine of Substantial
Performance
 It is said that the contract is substantially
performed if the actual performance falls
not far short of the required performance.
 The cost of remedying the defect is not
too great in amount, in comparison with
the contract price.
 Performance when “Time is the
Essence of the Contract”
 When the parties to a contract fix the time
for its performance, ordinarily it is
expected that either party will perform his
obligation at the stipulated time.
 Whether the time is the essence of the
contract or not depends upon the
intention of the parties.
 Void Agreements
 Agreement by incompetent parties
 Agreements under mutual mistake of fact
material to the agreement
 Agreement with unlawful consideration or
object (immoral and illegal agreements,
and agreements opposed to public policy)
 Agreements unlawful in part
 Agreement without consideration ---
conted to next slide
 Void Agreements - conted
 Agreements in restraint of trade
/marriage
 Agreements in restraint of legal
proceedings
 Agreements which are uncertain and
ambiguous
 Wagering agreements
 Agreements to do impossible acts
 Contract of Agency
 An ‘agent’ is a person employed to do any
act for another, or to represent another in
dealings with third persons.
 Connecting link between the principal and
third parties.
 Agent has an intention to act on behalf of
principal.
 Introduction to Legal Environment
 Philosophy of Law
 Classification of Law
 Torts
 National Law and International Law
 Justice Delivery System in India
 Objective to learn the Course
 To familiarize with legal environment in
which different business entities operate
 To learn basic relevant legal provisions
 To appreciate impact of legal provisions
on decision making
 To learn various law principles through
case study discussions ( different
groups will be allotted cases for
discussions )
 Module & Caselet (8 Groups of the
Class Students)
1. Intro to Legal Environment – Preventive
Injunction against Potential Nuisance – Case
Law – Kuldip Singh vs Subhash
2. Busi Contracts – Can Advertisements create a
Contract – Case Law – Carlill vs Carbolic
Smoke Ball Company
3. But ….. Minor is an Innocent ! Is a Contract
entered into by /with minor valid ? Case Law –
Mohori Bibee vs Dharmadas
4. Agreement under pressure – Union of
India vs Amarendra Nath
5. Is a Bank Guarantee more than a normal
Guarantee ? National Thermal Power vs
Flowmore Pvt Ltd.
6. Company Law – Salomon vs Salomon &
Co. Ltd. - Are they one and the same ?
7. Do workmen have a stake in their
Company ? National Textile Workers’
Union vs P.R. Ramakrishnan
8. Cyber Law – Harsh Truth in Software
Piracy
 Meaning of Law
 Law means and includes any ordinance,
order, by-law, rule, regulation,
notification, custom or usage having in the
territory of India the force of law.
 Law in force includes Laws passed by
legislature or other competent authority.
 Law is a rule relating to the actions of
human beings.
 Purpose of Law
 To maintain order and secure justice
 To ensure stability and security
 To give freedom to individuals
 Law is an effective instrument for
securing Justice.
 Sources of Law
 Formal sources
 Material sources – Legal sources – statute
law (legislators enacts. Parliament of India
), case law (precedents), customary law
having its source in customs. Theses
sources have binding force.
 Historical sources – no binding force e.g.
literary work, foreign decisions. It has
persuasive force only.
 Classification of Law
 Imperative law as a command
 Scientific laws of nature, operations of
universe.
 Natural/moral law – principles of natural
justice
 Conventional law agreed by persons
 Customary law basing on customs firmly
established. Law of Contracts
 Civil law, criminal law, consumer law
 Torts
 Tort means a breach of duty (other than
under contract) leading to liability for
damages. It is a civil wrong.
 Tortfeasor – person guilty of tort.
 Civil wrong means a breach of legal duty
owed to another.
 Tortious act can be explained in terms of
malfeasance, misfeasance & non-feasance
 Malfeasance
 Malfeasance is the actual commission of
an unlawful act. Doing such an act which
one has legal duty to refrain from doing it.
E.g. Trespass – making unlawful entry
upon land or person or right
 Driving a car without a licence and making
injury to passengers.
 Misfeasance
 Improper performance of a lawful act. It is
an improper conduct in performing an act.
 E.g. – driving a motor car, by a person -
holding a valid licence, at an excessive
speed in congested area of the city where
caution notice is speed not to exceed 15
kmph and driving car at an excessive
speed of 45 kmph and injuring passer-by.
 Non-feasance
 Omission of necessary action.
 Non-performance of an act when one is
under a legal duty to perform it.
 Qualified doctor forgets to perform the
scheduled surgery and patient dies .
Justice delivery system in India
 Indian Judicial Hierarchy
 Supreme Court
 High Court
 Subordinate Courts – Civil Courts, Criminal
Courts
 Tribunals
 Consumer Disputes Redressal Forum