BUSINESS LAW

Indian Contract Act 1872

 INDIAN CONTRACT ACT 1872
Contract- Agreement between two or more
persons which the law will enforce.
Essentials
Two or more parties
Offer and acceptance: One has to agree

other has to accept

Identity of minds: Agreed upon the

subject matter with the same sense at the

same subject and on the same time.
 Consideration- Quid Pro Quo means-
something in return- every contract must be
supported by consideration.
 Capacity - Competent to the contract.
 Free consent – Free from flaw, not caused by

coercion and Undue influence.

 Lawful consideration- The consideration

received must be lawful.

 Legality of object – Recognized and approved

by society.
 Possibility Of Performance- It must be possible

to perform.
Classification on the basis of validity
1. Valid: The Contracts which are enforceable in a court are
called valid contracts.
2. Void Contract : A Contract which is not enforceable in a
court of law is called Void Contract. If a Contract is deficient
in any one or more of the above features (Except free
consent and legal formalities). It is called Void Contract.
Example: there is a Contract between X and Y where Y is a
minor who has no capacity to contract. It is Void Contract.
3. Voidable: A Contract which is deficient in only free
consent, is called Voidable Contract. That means it is a
Contract which is made under certain pressure either
physical or mental. At the option of suffering party, a
voidable contract may become either Valid or Void in
future.
For example: there is a Contract between A and B where
B has forcibly made A involved in the Contract. It is
voidable at the option of A.
4. Illegal: If the contract has unlawful object it is called
Illegal Contract.
Example: There is a contract between X and Z
according to which Z has to murder Y for a
consideration of Rs. 10000/- from X. It is illegal contract

5. Unenforceable: A contract which has not properly

fulfilled legal formalities is called unenforceable
contract. That means unenforceable contract suffers
from some technical defect like insufficient stamp etc.
After rectification of that technical defect, it becomes
enforceable or valid contract.

Example: A and B have drafted their agreement on

Rs. 10/- stamp where it is to be written actually on
Rs.100/- stamp. It is unenforceable contract.
 Classification of Contracts according to
execution

 According to the execution of the contracts, contracts

are classified into 2 as
1. Executed Contract, and
2. Executory Contract.
1. Executed Contract
 A contract is said to be executed contract when both

the parties to contract have performed their share of

obligation.
2. Executory Contract
 An executory contract is one, which is either wholly

unperformed, or something remains in there to be

done by both the parties to contract. Sometimes, a
contract may be partly executed and partly executory.
 Classification of Contracts according to formation

 According to the mode of formation of contracts, contracts may be

classified into three namely,
1. Express Contract
A contract is said to be an express contract, if the terms of a contract
are expressly agreed upon between the parties (either by words
spoken or written) at the time of formation of the contract. An
express promise results in express contract. A promise is said to be
an express promise, when the offer or acceptance of any promise is
made in words.
2. Implied Contract
An implied contract is one for which the proposal or acceptance is
made otherwise than in words. Where the proposal or acceptance of
any promise is made otherwise than in words, the promise is known
as implied promise. Implied contracts are inferred from the
circumstances of the case and conduct of the parties.
 For example, when A takes a cup of milk in a hotel, there is an

implied contract.
 3. Quasi – Contract
 A quasi-contract is one, which is created by
law. In the quasi-contract, there is no
intention on either side to make a contract.
In a quasi contract, rights and obligations
arise not by an agreement but by operations
of law.
 For example, where certain letters are
delivered to a wrong addressee, the
addressee is under an obligation to return
the letters.
 Classification of Contracts according to performance

 According to the extent of performance of contracts,

contracts may be classified as
 1. Unilateral Contract
It is also called as one-sided contract. In a unilateral
contract, only one party has to satisfy his obligation
at the time of the formation of it, the other party
having fulfilled his obligation at the time of the
contract or before the contract comes into existence.
 For example, A takes a public auto to go to Mount
Road. A contract comes into existence as soon as A
was dropped in Mount Road. By that time, auto man
has fulfilled his obligation, only A has to fulfill his
obligation i.e. paying the auto- man.
 2. Bilateral Contract
 A contract is said to be a bilateral contract

where the obligations of both the parties to

the contract are pending at the time of
formation of the contract. In this type of
contract, a promise on one side is
exchanged for a promise on the other.
 For example, A promises to stitch a blouse

and promises to pay Rs30. Here A promises

to stitch the blouse and 0 promises to pay.
Thus each party is both a promisor and a
promisee.
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.
 E.g William offers to buy a car from Miley for Rs 10
Lakh. Thus, a specific offer is made to a specific
person, and only Miley can accept the offer.
 (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.
 (v). Cross Offer: -When both the parties involved
makes a similar offer to one another without
knowing the each other’s offer then it is called
Cross offer.
 E.g X sends an e-mail to Y to purchase his car for
$200 while at the same time, Y unknowingly is also
sending an e- mail to X stating his desire to buy
the car at $200.This is the cross offer made where
one party needs to accept the offer of the another.
 (vi). Standing or Open Offer: The offer that is
continuous in nature is the standing offer.
Essential elements of valid
offer
1.It may be express or implied:
An offer may be made either by words or by
conduct. An offer, which is made by words
spoken or written, is called an express offer.
The offer, which is made by the conduct of a
person, is called an implied offer.
Example: M says to N that he will sell his
motorcycle to him for Rs.40,000. It is an
express offer.
2. It must create legal relation:
The offer must be made in order to create legal
relations otherwise, there will be no agreement. If an
offer does into give rise to legal obligations between
the parties it is not a valid offer in the eye of law.
3. It must be definite & clear:
An offer must be definite and clear, if the terms of
an offer are not definite and clear, it cannot be
called a valid offer. If such offer is accepted it cannot
create a binding contract.
Example:
 A has two motorcycles. He offers B to sell one

motorcycle for Rs.27,000. It is not a valid offer

because it is not clear that which motor cycle A
wanted to sell.
4. It is different from invitation to offer:
An offer is different from an invitation to offer. It is also called
invitation to treat or invitation to receive offer. An invitation
to offer looks like offer but legally it is not offer.
Example: Quotations, Catalogues of prices, display of goods
with prices issue of prospectus by companies are examples
of invitation to offer.
 5. It may be specific or general:
When an offer is made to a specified person or group of persons,
it is called specific offer. Such an offer can be accepted only by
the person or persons to whom it is made. A general offer, on
the other hand, is one, which is made to public in general and it
may be accepted by any person who fulfils the conditions
mentioned in it. Both specified and general offers are valid.
 Example: M makes an offer to N to sell his bicycle for Rs.800, it
is a specific offer. In this case, only N can accept it.
6. It must be communicated to the offeree:
An offer is effective only when it is communicated to the offeree. If an
offer is not communicated to the offeree it cannot be accepted. Thus
an offer, which is not communicated, is not a valid offer. It applies to
both specific and general offers
 Example: A without knowing that a reward has been offered for the

arrest of a particular criminal, catches the criminal and informs the

police. A cannot recover the reward as he was not aware of it.

7. It may be subject to any terms & conditions:

 An offeror may attach any terms and conditions to the offer he

makes. He may even prescribe the mode of acceptance. There is no

contract, unless all the terms of the offer are accepted in the mode
prescribed by the offeror. It must be noted that if the offeror asks for
sending the acceptance by telegram and the offeree sends the
acceptance by letter, and the offeror may reject such acceptance.
Example:
A asks B to send the reply of his offer by telegram but B sends reply
by letter, A may reject such acceptance because it is opposed to the
prescribed mode of communication.
 8. It may be subject to any terms &
conditions:
 An offeror may attach any terms and conditions
to the offer he makes. He may even prescribe
the mode of acceptance. There is no contract,
unless all the terms of the offer are accepted in
the mode prescribed by the offeror. It must be
noted that if the offeror asks for sending the
acceptance by telegram and the offeree sends
the acceptance by letter, and the offeror may
reject such acceptance.
 Example: A asks B to send the reply of his offer
by telegram but B sends reply by letter, A may
reject such acceptance because it is opposed to
the prescribed mode of communication.
 9. It must not contain cross offers:
 When two parties make similar offers to each

other, in ignorance of each other’s such offers

are called cross-offers. The acceptance of
cross-offers does not result in complete
agreement.
 Example:

On 23rd December 2007, A wrote B to sell him

100 ton of iron at Rs.10,000 per ton. On the
same day, B wrote to A to buy 100 tons of iron
at Rs.10,000 per ton. There is no contract
between A & B because the offers wee similar
and made in ignorance of the other and so
there is no acceptance of each other’s offer.
Consideration
 Meaning of Consideration :

Consideration is necessary for the one formation of a contract. It means

"something return". It is the price paid for contract. It must be Lawful.A
contract without consideration is void.

Example :

Sale of Car. In a contract for sale of a car is consideration for one party,
while the price is consideration for the other party.

2) Definition of Consideration

(a) Pollock :

According to Pollock Consideration is the price for which the promise of

the offer is brought, and the promise thus given for value is enforceable.
Essential elements of consideration
 Essential elements of Consideration :

i) Consideration must move at the desire of the promisor.

ii) Consideration may move from the promisee or any other

person.

iii) Consideration must be real not illusory.

iv) Consideration may be paste, present or future.

v) It must be Lawful

vi) It must not be immoral or opposed to public policy.

 (i) Consideration must move at the desire of the promisor :

It is the essential that consideration must move at the Desire of the

promisor, but not at the instance of a third party. An act done at the
Desire of a third person will not constitute a good consideration
within the meaning of section 2 (d) of the Indian Contract Act 1872.

(ii) Consideration may move from the promisee or any other

person :

A party who wishes to enforce a contract must be able to show that

he himself has furnished consideration for the promise of the other
party. In English law, consideration must move from promise only.
But in Indian law it may move from promisee to any other person.

(iii) Consideration must be real not illusory :

Consideration must be real and possible. It must not be illusory or

unsubstantial.
 (iv) Consideration may be paste,
present or future : The words used in the
definition under section 2(d) of the Indian
contract Act, clearly state that,
consideration may be past, present or
future.

(v) It must be Lawful :Consideration must

not be illegal it must be Lawful.

(vi) It must not be immoral or opposed

to public policy.: Consideration must not
be immoral for opposed to public policy.
No consideration- No
contract
 No Consideration No Contract:
 A promise without consideration cannot

create a legal obligation. The general rule is

that an agreement made without
consideration is void. This rule is contained
in Section 25 of the Indian Contract Act,
which declares that ‘an agreement made
without consideration is void’.
Exceptions to
consideration
1. Agreement made on account of natural love and
affection [Section 25 (1)]: An agreement without
consideration is enforceable if, it is (i) expressed in
writing and (ii) registered under the law for the time
being in force for the registration of documents, and is
(iii) made on account of natural rove and affection, (iv)
between the parties standing in near relation to each
other. The following conditions must be satisfied
 The agreement is in writing
 It is registered.
 It is made on account of natural love and affection
 It is between parties standing in near relation to each
other
2. Agreement to compensate for past
voluntary services [Section 25 (2)]: An
agreement without consideration is enforceable,
if it is a promise to compensate wholly, or in
part) a person who has already voluntarily done
something for the promiser, or something which
the promiser was legally bound to do.
 In order that a promise to pay for past voluntary

services be binding, the following conditions

must be satisfied :
 The services should have been rendered

voluntarily.
 The services must have been.rendered for the

promiser and not anybody else

3. Agreement to pay time-barred debt [Section
25(3)]: According to this exception, a promise to pay
a time-barred debt wholly or in part is enforceable if
such promise is in writing and signed by the debtor or
his authorized agent. A time barred debt-cannot be
recovered and, therefore, a promise to repay such
debt is without consideration.
 The following conditions must be satisfied for

the application of this exception:

 The promise should be in writing.

 It should be signed by the promiser or his authorized

agent.
 The debt must be time-barred i.e., the limitation

period for the recovery of the debt must have expired

 There must be an express promise to pay. It may be to

pay whole or part of the debt

4. Completed gift: The gift actually made by a
donor and accepted by the done will be valid
even without the consideration. So in case of a
gift actually made, consideration is not
necessary.
5. Contract of agency: Section 185 specifically
states that no consideration is necessary to
create an agency. Thus, when a person is
appointed as an agent, his appointment is valid
even if there is no consideration. Although,
generally, an agent gets remuneration by way
of commission for the services rendered, but no
consideration is immediately necessary at the
time of appointment.
 Various modes of
dischargingcontract
 Various modes of Discharging of
a Contract
Discharge of a contract means termination
of the contractual relations between the
parties to a contract. A contract is said to be
discharged when the rights and obligations
of the parties under the contract come to an
end. Modes of discharge of contract
 Modes of discharge
 A Contract is deemed to be discharged, that is,
concluded and no longer binding, in the following
circumstances:
1. Discharge by performance.

2. Discharge by lapse of time.

3. Discharge by operation of law.

4. Discharge by Impossibility of Performance.

5. Discharge by Accord and Satisfaction.

6. Discharge by breach.
Discharge by performance
 Where both the parties have either carried
out or tendered (attempted) to carry out
their obligations under the contract, is
referred to as discharge of the contract by
performance. Because performance by one
party constitutes the occurrence of a
constructive condition, the other party’s
duty to perform is also triggered, and the
person who has performed has the right to
receive the other party’ s performance. The
overwhelming majority of contracts are
discharged in this way.
a) Novation

 Novation
 The term novation implies the substitution of a
new contract for the original one. This
arrangement may be either with the same
parties or with different parties. For a novation
to be valid and effective, the consent of all the
parties, including the new one(s), if any, is
essential. Moreover, the subsequent or second
agreement must be one capable of enforcement
in law, the consideration for which is the
exchange of promises not to enforce the original
contract.
b) Rescission
 This refers to cancellation of all or some of the material

terms of the contract. If the contracting parties mutually

decide to do so, the respective contractual obligations of the
parties stand terminated.
c) Alteration
 This refers to a change in one or more of the terms of a

contract with the consent of all the contracting parties.

Alteration results in a new contract but parties to it remain
the same. Here the assumption is that both the parties are
to gain a fresh but different benefit from the new
agreement. Remission This means the acceptance (by the
promisee) of a lesser sum than what was contracted for, or
a lesser fulfillment of the promise made.
d) Waiver
 The term waiver implies abandonment or relinquishment of

a right. Where a party deliberately abandons its rights under

the contract, the other party is released of its obligations,
otherwise binding upon it.
Discharge by lapse of time
 A contract stands discharged if not enforced within
a specified period called the ‘period of limitation‘.
The Limitation Act, 1963 prescribes the period of
limitation for various contracts. For instance,
period of limitation for exercising right to recover
an immovable property is twelve years, and right
to recover a debt is three years. Contractual rights
become time barred after the expiry of this
limitation period. Accordingly, if a debt is not
recovered within three years of its payment
becoming due, the debt ceases to be payable and
is discharged by lapse of time
Discharge by Impossibility of Performance

 Sometimes after a contract has been

established, something might occur, though
not at the fault of either party, which can
render the contract impossible to perform, or
illegal, or radically different from that originally
undertaken.
 However, if whatever happens to prevent the
contract from being performed
 has not been caused by either party
 could not have been foreseen, and
 its effect is to destroy the basis of the contract
Discharge of operation of law

 A contract stands discharged by operation

of law in the following circumstances.
 Unauthorized material alteration of a

written document
 A party can treat a contract discharged (i.e.,

from his side) if the other party alters a

term (such as quantity or price) of the
contract without seeking the consent of the
former.
b) Insolvency
 A discharge in bankruptcy will ordinarily bar

enforcement of most of a debtor’s contracts.

c) Merger
 A contract also stands discharged through a

merger that occurs when an inferior right accruing

to party in a contract amalgamates into the
superior right ensuing to the same party. For
instance, A hires a factory premises from B for
some manufacturing activity for a year, but 3
months ahead of the expiry of lease purchases
that very premises. Now since A has become the
owner of the building, his rights associated with
the lease (inferior rights) subsequently merge into
the rights of ownership (superior rights).
 Discharge by Accord and Satisfaction
 To discharge a contract by accord and

satisfaction; the parties must agree to accept

performance that is different from the
performance originally promised. It may be
studied under the following sub-heads.
 Accord

An accord is an executory contract to perform an

act that will satisfy an existing duty. An accord
suspends, but does not discharge, the original
contract.
 Satisfaction

Satisfaction is the performance of the accord,

which discharges the original contractual
obligation.
Remedies for Breach of Contract

 When a promise or agreement is broken by

any of the parties we call it a breach of
contract. So when either of the parties does
not keep their end of the agreement or does
not fulfil their obligation as per the terms of
the contract, it is a breach of contract.
There are a few remedies for breach of
contract available to the wronged party.
Recession of Contract
 When one of the parties to a contract does
not fulfil his obligations, then the other
party can rescind the contract and refuse
the performance of his obligations.
 As per section 65 of the Indian Contract Act,

the party that rescinds the contract must

restore any benefits he got under the said
agreement. And section 75 states that the
party that rescinds the contract is entitled
to receive damages and/or compensation
for such a recession.
2. Sue for Damages
 Section 73 clearly states that the party who

has suffered, since the other party has

broken promises, can claim compensation
for loss or damages caused to them in the
normal course of business.
3. Sue for Specific Performance
 This means the party in breach will actually

have to carry out his duties according to the

contract. In certain cases, the courts may
insist that the party carry out the
agreement.
RIGHT TO INFORMATION ACT 2005
 Right to Information Act has been
implemented by the Government of India to
provide a right to its citizens to ask the relevant
questions to the Government and various public
utility service providers, in a practical manner.
This was done to replace the earlier Freedom
of information Act of 2002. The primary
objective was also to help citizens get faster
service from government agencies, as they can
now ask why is a certain application or a process
being delayed; and mainly to fulfill the aim of a
corruption free India.
 Under the RTI Act, any citizen can seek
information from any public or government
authority (however, it should not pertain to
national security and defense or some personal
information) and the authority is liable to respond
within a period of 30 days to the application.
 Now, the information disclosure in India is
restricted by the Official Secrets Act of
1923 and various other special laws, but many of
these have been relaxed in light of the the RTI act.
 The RTI act also requires all public authorities to
have their records computerised for wide spread
relay, such that requests for information by the
citizens are processed faster because of
information categorisation.
THANK YOU