Legal Environment

of Business

Contracts & Other Facts

Consent
• “Two or more persons are said to consent when they agree upon the
same thing in the same sense.”

Free consent
Consent is said to be free when it is not caused by-
• Coercion,
• Undue influence,
• Fraud,
• Misrepresentation,
• Mistake
Distinction between fraud and misrepresentation 
• In misrepresentation there is no intention to deceive. Fraud implies an intention
to deceive;
• If the statement is honest, even though it was wrong, there is only
misrepresentation. If the statement is dishonest it is a case of fraud. So, a
person’s belief is important in distinguishing fraud and misrepresentation.
• In fraud a person may rescind the contract and sue for damages whereas in
misrepresentation a person may only sue for rescind a contract.
Mistakes
• A mistake is an incorrect understanding by one or more parties to a contract
and may be used as grounds to invalidate the agreement. Common law has
identified three different types of mistake in contract: unilateral mistake,
mutual mistake, and common mistake.
Common mistake: A common mistake is where both parties hold the same
mistaken belief of the facts.

Mutual mistake: A mutual mistake is when both parties of a contract are

mistaken as to the terms. Each believes they are contracting to
something different. The court usually tries to uphold such a mistake if
a reasonable interpretation of the terms can be found.

Unilateral mistake: A unilateral mistake is where only one party to a

contract is mistaken as to the terms or subject-matter.
Breech
• Breach of contract is a legal concept in which a binding agreement or bargained-for exchange is
not honored by one or more of the parties to the contract by non-performance or interference
with the other party's performance.
Remedies for breach of contract
• In civil wrong remedies are provided by the court whereas in criminal wrong punishments are
given.
• Remedies are primarily divided into two types-
• Judicial remedies and
• Extra judicial remedies.
• Judicial remedies are provided by the Court where as extra judicial remedies are obtained outside
the purview of the court.
• Judicial remedies can be divided into the following categories-
• Damages/ compensations
• Injunctions: Specific restitution of property
Termination of a Contract 
A contract may be terminated or discharged in any of the following ways:
(i) By performance of the promise or tender;
(ii) By mutual consent canceling the agreement or substituting a new
agreement in place of the old;
(iii) By subsequent impossibility of the performance;
(iv) By operation of Law-i.e. death, insolvency or merger;
(v)By lapse of time;
(vi) By material alteration without the consent of the other parties;
(vii) By breach made by one party.
Capacity of contracts
• The capacity of both natural and artificial persons determines whether
they may make binding amendments to their rights, duties and
obligations, such as getting married or merging, entering into contracts,
making gifts, or writing a valid will. Capacity is an aspect of status and
both are defined by a person's personal law:
• The Majority Act, 1875 states that a person over the age of 18 years is a
major persons.
• The Lunacy Act, 1912 states the situation when a person shall be
declared as a Lunatic.
• The Insolvency Act, 1997 states that a person declared as insolvent may
be barred from entering into a contract.
• For artificial persons, the law of the place of incorporation, the lex
incorporationis for companies is applicable to determine the capacity of
the parties.
• A minor may be share holder of a company or agent but minor’s
agreement is void unless he receives any benefit from the contract.
• “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 interest.
• A person, who is usually of unsound mind, but occasionally of sound
mind, may make a contract when he is of sound mind.
•  A person, who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound mind