Legal Aspects of Management

Indian Contract Act , 1872

1st SESSION
SEMINAR 1
20 .09.2019
Course Code – GM 201

© Amitava Banerjee

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 COPYRIGHT ©
The presentation has been specifically made for students of
MBA course – GM 201 (Batch 2019-21) - Trimester-II
section A, B & C of the institution.

The presentation does not substitute any literature on the

subject but is intended to clarify the basic fundamentals.

No part of this presentation should be copied, reproduced

or distributed in any manner without my explicit prior
permission.

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
Mercantile law – formation of mercantile law?
Is a part of civil law and it governs and regulates the commerce in a
country.
Indian mercantile law is primarily a version of the English law.
English Mercantile Law:
This law is also recognized as 'General Law’
It is an unwritten law based on customs, usages, and precedents.
The law of Contract deals with:
 Circumstances in which the promise made through the parties
becomes a contract
 Common principles of law governing all contracts
 Special provisions relating to contracts like bailment, pledge,
indemnity, guarantee and agency.
JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019
 Session – 1 ICA 1872
Essential elements of a contract
(i) Agreement, i.e., offer and Acceptance : one party making the offer and the other party
accepting it. The terms of the offer must be definite and the acceptance of the offer must be
absolute and unconditional. In other words, offer and acceptance must be both lawful.
(ii)    Intention to create legal relationship : In the absence of such intention, the
agreement cannot be enforced by law.
(iii)  Lawful Consideration: An agreement is legally enforceable only when both the parties
give something and get something in return
(iv)   Competent Parties: age of majority , of sound mind and , not disqualified from
contracting by law to which he is subject
(v)    Free Consent: Free consent does not exist when it is obtained by coercion, undue
influence, fraud, mistake or misrepresentation.
(vi)   Legal Object: It is unlawful if the object is forbidden by law, illegal, immoral or opposed
to public policy
 (vii)  Not expressly declared void by law:
(viii) Certainty and possibility of performance:
(ix)   Compliance with legal formalities:

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 ICA 1872
Classification of a contract
Express contracts
When the terms of a contract are expressly agreed upon (whether by words
spoken or written) at the time of the formation of the contract, the contract
is said to be an express contract.
Example: A writes a letter to B, his offer to sell scooter for Rs 20,000. B
accepts it and replied in a letter.
Implied Contracts
An implied contract is one which is inferred from the acts or conduct of the
parties or course of dealings between them.
In other words, the proposal or acceptance of any promise is made
otherwise than in words, the promise is said to be implied.
Example: A boards a DTC bus. It is implied from his conduct that he has
entered into a contract with DTC to travel in the bus by purchasing a ticket

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 ICA 1872
Classification of a contract……
Quasi Contract
Quasi contract is a legal obligation that has a number of similarities to
a contract but is not exactly the same. A quasi contract arises not from
an agreement, but from a mere relationship that comes about between
individuals. It simply means that the actions of one person have
conferred a benefit on other.
Example: A leaves goods at C’s house by mistake. C treats the goods as
his own. C is bound to pay for the goods.
Contingent Contract
A contingent contract is one in which a promise is conditional and the
contract shall be performed only on the happening of some future
uncertain event.
Example: A contracts to pay B Rs 10,000 if B’s house is burnt
JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019
 Session – 1 ICA 1872
Classification of a contract……
Valid Contract
A contract which satisfies all the legal requirements laid down in section 10 of the Act is
known as a valid contract.
Void Contract
A contract which was valid when it was first entered into but subsequently becomes
unenforceable due to impossibility of performance, change of law or other reason, is called a
void contract
Example: A agrees to pay B a sum of Rs 10,000 after 5 years against a loan of Rs. 8,000. A
dies of natural causes in 4 years. The contract is no longer valid and becomes void due to the
non-enforceability of the agreed terms.
Voidable Contract
“An agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other or others, is a voidable contract.”
Example: A agrees to pay a sum of Rs. 10,000 to a person B for an antique chair. This
contract would be valid, the only problem is that person B is a minor and can’t legally enter a
contract.
JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019
 Session – 1 ICA 1872
Classification of a contract……
Unilateral Contract
A unilateral or one-sided contract is one in which only one party has to fullfil his
obligation at the time of formation of the contract, the other party having fulfilled his
obligation at the time of the contract or before the contract comes into existence.
Such contracts are also known as contracts with executed consideration.
Example: Mr. X permits a coolie to carry his luggage and keep it in the car. A
contract comes into existence as soon as the luggage is kept in the car. But by that
time the coolie has already performed his obligation. Now only Mr. X has to fulfill
his obligation i.e. payment of reasonable charges.
Bilateral Contract
A bilateral contract is one in which the obligations on the part of both the parties to
the contract are outstanding at the time of the formation of the contract. Bilateral
contracts are also known as contracts with executory consideration.
Example: A agrees to engage B as his servant from the next month, the contract is
executory

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
Capacity of Parties - Section 11
(1)If he has attained the age of majority according to the law to
which he is subject.
(2)Who is of sound mind, and
(3)Is not disqualified by any law for the time being in force.
(4)Alien Enemy An alien means a citizen of a foreign country.

(i) Contracts made before the war: These contracts may either be suspended or
dissolved. Contracts will be dissolved if they are against the public policy or
if their performance would help the enemy.
(ii) Contracts made during the war: During the continuance of war, an alien enemy
can neither 'contract with an Indian citizen' nor can he sue in an Indian court. He
can sue in an Indian court only after receiving permission from the central
government

JAIPURIA INSTITUTE OF MANGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
Capacity of Parties - Section 11
5) Convicts
A convict is one who is found guilty and imprisoned. A convict, while
undergoing imprisonment, is incapable of entering into a contract. The
inability, however, comes to an end on the expiry of the sentence.
6) Corporation
A corporation is an artificial person created by law. It has separate
legal existence. It cannot enter into contracts beyond its powers, which
are limited by the Memorandum of Association and the statute.
7) Insolvent person
An insolvent person is incompetent to contract until he obtains a
certificate of discharge.

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
Status of contracts by a minor - void
abinitio
Mohori Bibi vs. Dharmnadas Ghose
A minor executed a mortgage for a sum of Rs.20,000 on which he took an
advance of Rs.8,000. Later on, the minor sought to set aside the mortgage on
the ground of minority.
The mortgagee contended that since a contract with a minor is voidable, the
minor should refund the advance taken by him.
The Privy Council negated the contention and held that a contract with a
minor is void ab-initio.
Being a void contract the minor cannot be asked to refund the advance taken
by him. Otherwise the court will be giving effect to a contract, which never
came into existence.
JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019
 Session – 1 : ICA 1872
Under Section 65, when a contract becomes void or is discovered to be void,
the person who received any advantage shall refund the advantage.
But the Privy Council' held in the above case that Section 65 does not apply to
a minor's contract.
Under Section 33 of the Specific Relief Act, 1963 Court will order, on
equitable considerations for restitution if the minor is still in
possession of the money or things purchased out of it.
The minor shall have no liability if the money or things cannot be
traced out in his hands. Mujhe laga
humari aish
hai ?

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
A. Enforceability of contracts by a minor
A minor cannot be a promisor but he can be a promisee or
beneficiary.
He can enforce contracts, which are beneficial to a minor .
B. A minor can be appointed as an agent.
The principal will be responsible to third parties for the acts
of his minor agent. However the principal cannot hold the minor
agent personally liable for any wrongful acts

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
C.  Minor as a partner
A minor cannot be a partner of a firm. However, he may be admitted to the benefits
of an already existing partnership firm with the unanimous express consent of all
the existing partners. Such an agreement may be entered into by his guardian on
his behalf with the partners.
D. Minor as a member of a company
A minor cannot be a member of a company since he is incompetent to enter into a
contract.
E. Sales in favour of minors
A minor, therefore, in whose favour a deed of sale is executed is competent to sue for
the possession of the property conveyed thereby.
F. Declared as an insolvent
Not declared insolvent even for his necessities of life. Only his property is liable even
for necessities of life and he, personally, is not liable for the same.

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
Persons of unsound mind – Section 12
A person is said to be of sound mind for the purpose of making a
contract if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect
upon his interests.”
A person who is usually of unsound mind, but occasionally of
sound mind, may make a contract when he is of sound mind.
Lunatic:
Agreement with lunatics are void except those made during lucid
intervals and made for necessities of life. However, for necessities
of life, the property of such persons is liable.
There is generally a presumption in favour of sanity.

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
Persons of unsound mind – Burden of proof
A person who alleges unsoundness of mind must prove sufficiently
enough to satisfy his case.
Mere weakness of mind is not sufficient proof
Temporary forgetfulness is not a sufficient
Only proof of loss of memory is not sufficient
If the contract was made by the mentally disordered person during a
lucid interval it will be binding upon him notwithstanding that the other
party had knowledge of his disability.

Drunkards
But where the judgment of one party was, to the knowledge of the
other part, seriously affected by drink, equity will generally refuse
specific performance at the suit of the other.
JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019
 Session – 1 : ICA 1872
Free consent
“Meeting of minds on same thing and same sense”
No free consent
1. Coercion (Section 15) :It is committing, or threatening to commit,
any act forbidden by the Indian Penal Code (XLV of 1860), or the
unlawful detaining or threatening to detain, any property to the
prejudice of any person whatever, with the intention of causing any
person to enter into an agreement.
Burden of Proof: The party avoiding the contract has to prove that
Coercion was exercised upon him and his consent received is not voluntary
or he has not exercised his consent freely.
Coercion need not necessarily be directed by a party to the contract.
It may or may not emanate from a stranger to the contract.
it may be aimed at any person, either a party to the contract or a stranger
to the contract.
JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019
 Session – 1 : ICA 1872
No free consent
2. Undue Influence (S.16)
Where the relations subsisting between the parties are such that one
of the parties is in a position to dominate the will of the other and
uses that position to obtain an unfair advantage over the other.
Person is said to dominate the will of another. (a) where he holds a
real or apparent authority over the other, or where he stands in a
fiduciary relation to the other; or (b)   when he makes a contract
with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness, or mental or bodily distress.
Burden of proof : the burden of proving that such contract was not
induced by undue influence shall lie upon the person in a position to
dominate the will of the other.

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
No free consent
3. Transaction with Parda-nishin women:
A woman who observes complete seclusion due to the prevailing
custom in her community is said to be parda-nishin.
She does not act independently but has to depend upon someone
else for performing her outward duties.
The training, habit and surrounding circumstances are the main
elements to be considered to decide whether a woman is a Parda-
nishin
A woman wearing a Burkha does no make a woman a Pardanishin.

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
No free consent
4. “Fraud” : “Fraud” means and includes any of the following acts
committed by a party to contract or with his connivance, or by his
agent, with intent to deceive another party or his agent, or to
induce him to enter into the contract.
The suggestion, of an untrue fact knowingly
Intentional concealment of facts
Any other act fitted to deceive
Such act / commission legally declared as fraudulent

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
No free consent
5. Misrepresentation ( Sec18 ): “Misrepresentation” means and includes:
(a)   stating something in a positive manner which is untrue under the belief that the
same is true
(b) Unintentional breach of duty giving gains to the person committing it, or any one
claiming under him
(c)   causing, however innocently, a party to an agreement to make a mistake on subject
of the agreement.

Effect of Misrepresentation:
The party being affected by misrepresentation has got the following rights: (1)   He can
avoid or revoke the contract; or
(2)   He can affirm the contract and insist on the misrepresentation to be made good, if
it is possible to do so; or
(3)   He can rely upon the misrepresentation as a defence to an action of the contract.

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
No free consent – limitation to the right of rescission
(a)   If you come to know of mis-representation and even then take
the benefit of the contract or approve the contract; or
(b)   If the parties can not be brought back to their original position
(c)   If the contract cannot be rescinded in full, then it can not be
rescinded at all. Sheffield Nickel Co. vs Dawin (1872, 2 Q.B.D. 215).
(d)   If the aggrieved party has transferred the rights under the
contract to a third party and the third party has acquired these
rights in good faith and for consideration. (Phillips Vs Brroks,
1919, K.B. 243)

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
No free consent
6. Mistake : it can be defined as an erroneous belief about
something.
(1) Mistake as to fact, and
(2) Mistake as to Law.
Sec. 21 of the Act deals with the effect of Mistake as to Law
Mistake of Law is again classified into two- (1)  Mistake as to Indian
Law; (2)  Mistake as to Foreign Law;

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019

 Session – 1 : ICA 1872
Comparison ….
Fraud
Party’s intention is to deceive the other
party and get the benefit from him,
while in Misrepresentation the
Gives two rights to the aggrieved party,
a right to action for damages and also
to avoid the contract
The defendant can not take the plea that
plaintiff had means to discover the
truth
Party defrauding the other can be
prosecuted for cheating under I.P.C.
JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA
Misrepresentation
Party does not have any intention to
deceive. It makes a careless
misstatement of facts of only.
Only one right, to avoid the contract
Defendant is allowed to take this plea in
case of misrepresentation
Such is not the case in
misrepresentation
20-09-2019
 Session – 1 : ICA 1872
Comparison…….

Coercion Undue influence

Coercion is an act punishable under Undue Influence is not a penal act

the Indian Penal Code

Requires physical force Requires moral force

Stranger’s act may account to coercion Undue influence can be exercised only
by one of the parties to the contract.

Coercion gives a right to the effected Court may set aside the contract
party to repudiate the contract absolutely or modify the terms

JAIPURIA INSTITUTE OF MANAGEMENT STUDIES - NOIDA 20-09-2019