business laws .docx

**Chapter 1** **The Indian Contract Act, 1872** seeks to regulate the conduct of persons who make contracts. It determines the conditions under which an agreement shall be legally binding on the person making it. It also provides remedies against the person who fails to fulfil his obligations under...

**Chapter 1** **The Indian Contract Act, 1872** seeks to regulate the conduct of persons who make contracts. It determines the conditions under which an agreement shall be legally binding on the person making it. It also provides remedies against the person who fails to fulfil his obligations under a contract. The Act is not exhaustive. **Section 2(h)** of the Indian Contract Act, 1872 **defines a contract** as: "An agreement enforceable by law is a contract." An agreement is a contract if it has a **legally binding obligation** between parties that arise out of an agreement. **Section 2(e)** of the Indian Contract Act, 1872 **defines an agreement**: "every promise and every set of promises forming consideration for each other, is an agreement." An agreement is nothing but an accepted proposal. There must be **consensus ad idem** or 'identity of minds'**. An agreement maybe oral, written or implied by the conduct of the parties.** **An agreement to be a contract must give rise to a legal obligation.** A legal obligation is a duty enforceable by law. So if an agreement that gives rise to a social obligation is not a contract. **Thus, all contracts are agreements but not all agreements are contracts**. **All legal obligations are not contracts. Only those legal obligations that arise out of an agreement are contracts.** **Essential elements of a contract** According to **Section 10** of the Indian Contract Act, 1872: "All agreements are contracts if they are made by **free consent** of **the parties competent to contract**, for a **lawful consideration**, and with a **lawful object** are not hereby expressly declared to be void" 1. **Agreement:** An agreement is an outcome of offer and acceptance. Offer can be subject to many terms and conditions, which should not be vague but certain. The acceptance must be absolute. **Conditional acceptance is no acceptance.** 2. **Intention to create legal relations:** Parties entering into a contract must intend to create legal relations between them. Social, moral, religious and domestic agreements are merely agreements that do not give rise to a contract. Non market transactions entail to no intention to create legal relations. **In the case of business transaction the assumption of creating legal relations is there, thus forming a contract. If parties explicitly state in a business agreement that they intend to create no legal relations, it is a promise binding only in honour and not in law.** 3. **Free consent:** Consent is said to be free if not caused by the four: **coercion**, **misrepresentation** or mistake, **undue influence** and **fraud.** **If consent is obtained by any of the above four, the contract becomes voidable at the option of the party whose consent has been so obtained.** 4. **Contractual capacity(Section 11): Minors, persons of an unsound mind and persons disqualified from contracting by any law to which he is subject are incompetent to form a contract.** 5. **Lawful consideration:** Consideration means compensation for doing or omitting to do an act. Both parties must give something and get something in return. It must be real and valuable in the eyes of the law. 6. **Lawful object(Section 23)** 7. **Not expressly declared void:\ Agreements considered void: restraint of marriage, restraint of trade, restraint of legal proceeding, uncertain agreements, wagering agreements and impossible agreements.** 8. **Certainity of Terms** 9. **Possibility of Performance** 10. **Legal formalities:** If there are any legal formalities required to make the contract enforceable, they should be fulfilled. a. **Valid Contract:** A valid contract is an agreement enforceable by law, which fulfills all essential characteristics of a contract as per section 10 of the Indian contract act, 1872. b. **Voidable Contract:** A contract is voidable if the consent of any of the parties has been obtained by misrepresentation, coercion, undue influence or fraud, the contract is voidable at the option of the aggrieved party i.e whose consent has been obtained so. 1. **Express Contracts:** - **Definition: An express contract is one where the terms are explicitly stated, either orally or in writing, by the parties involved. This means that all essential elements such as offer, acceptance, and consideration are clearly communicated and agreed upon.** - **Example: A written employment agreement specifying job duties, salary, and benefits.** 2. **Implied Contracts:** - **Definition: An implied contract is formed by the behavior or circumstances of the parties rather than explicit words. The terms are inferred from the actions, conduct, or the situation, implying that there is an agreement between the parties.** - **Example: A patient receiving medical treatment in an emergency room implies consent to pay for the services provided.** 3. **Quasi or Constructive Contracts:** - **Definition: A quasi-contract, also known as a constructive contract, is not an actual contract. Instead, it is a legal obligation imposed by a court to prevent unjust enrichment when no formal contract exists. The court enforces this type of contract to ensure fairness and equity.** - **Example: If a person accidentally receives goods meant for someone else and uses them, the court may require them to pay for the goods even though no contract existed between the parties.** - **Formation:** - **Express Contracts are formed through explicit agreement.** - **Implied Contracts arise from the circumstances or conduct of the parties.** - **Quasi Contracts are imposed by law to prevent unjust enrichment, regardless of the parties\' intentions.** - **Communication:** - **Express Contracts involve clear communication.** - **Implied Contracts rely on actions or conduct.** - **Quasi Contracts do not involve mutual consent but are legally enforced.** - **Legal Basis:** - **Express and Implied Contracts are both based on mutual consent.** - **Quasi Contracts are based on equity and preventing unjust enrichment.** **3.On basis of execution** **(a) Executed Contracts:** The contract has been completely executed by both parties. **(b)Executory Contracts:** When both parties are still to perform their obligations of the contract. **(C)** Contracts may sometimes be partly executed or partly executory. **(d) Unilateral Contract:** A one sided contract where the obligation of one party only arises when the other has done their part.\ Most contracts are bilateral contracts, only exception being unilateral contracts.