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SUBJECT – COMMERCE

SUBJECT CODE – 08

UNIT - IX

9118 888 501

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S. No. Chapter Name 1 Indian Contract Act 1872 2 Special Contracts 3 Sale Of Goods Act 1930 4 Negotiable Instrument Act 1881 5 The companies act 2013 6 Limited Liability Partnership Act 2008 7 THE COMPETITION ACT, 2002 8 The Information Technology Act, 2000 9 Other Important Acts

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CHAPTER- 1

INDIAN CONTRACT ACT 1872

Contract:

Section 2 (h) of Indian Contract Act 1872 defines the contract as “an agreement

enforceable by law”. This definition of contract provides us to essential features of a

contract:

i. An agreement, and

ii. Enforceable by Law

Agreement:

Section 2 (e) of the Indian Contract Act defines the Agreement as “every promise and

every set of promises, forming the consideration for each other”. To understand the

agreement, we need to understand Promise first.

Promise:

Section 2 (b) of the Indian Contract Act defines the promise as “when a person to

whom the proposal is made signifies his assent there to, the proposal is said to be accepted.

Proposal when accepted becomes a promise”. This definition talks about the following

things:

i. Proposal

ii. The person to whom proposal is made

iii. Acceptance of the proposal by that person

Hence, we may infer that an agreement includes a Proposal and Acceptance of the

Proposal; while an agreement for which execution may be ensured by law, becomes a

contract.

Example:

There are two parties „X‟ and „Y‟; X agrees to sell a bike to Y for Rs. 50,000. In this

X is under obligation to give bike to Y for Rs. 50,000, Y has right to receive the bike for Rs.

50000 and also X has right to receive Rs. 50000 and Y is under obligation to pay Rs. 50000.

Difference between Agreement and Contract:

Agreement Contract

There are only two essential elements of

agreement: Offer and Acceptance

Contract is an agreement enforceable by law.

It is wider than contract and includes other than

legal aspects as well.

It is a narrow term as compared to agreement

and covers only legal aspects

There may or may not be legal obligation in

agreement

There is always legal obligation in contract.

All agreements are not contract All contracts are agreements.

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As per Section 10 of Indian Contract Act 1872 the following are the essential

elements of a valid contract:

Agreement

Free Consent

Competency of the parties

Lawful Consideration

Legal Objects

Should not be expressly VOID.

The following are the other essential elements of a valid contract not covered under the Act:

Intention to create legal relationship

Involvement of at least two parties

Necessary legal formalities

Possibility of performance

Certainty of meaning

Types of Contract:

On the basis of

enforceability

On the basis of

Formation

On the basis of

Performance

• Valid Contracts

• Void Contracts

• Voidable Contracts

• Illegal Agreements

• Unenforceable Contracts

• Express Contracts

• Implied Contracts

• Quasi Contracts

• E.Com. Contracts

• Executed Contracts

• Executory Contracts

• Unilateral Contracts

• Bilateral Contracts

Valid Contracts:

An agreement which is binding and enforceable by law is know as valid contract. It

contains all the essential elements of a valid contract.

Void Contracts:

As per Section 2(j) of the act “A contract which ceases to be enforceable by law

becomes void when it ceases to be enforceable”

In other word: “it is a contract which is not enforceable by law.

Voidable Contract:

As per Section 2 (i) of the act “an agreement which is enforceable by law at the

option of one or more parties thereto, but not at the option of the other or others is a voidable

contract”

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Thus, we can state that under certain circumstances at least one party loses the right to get the

contract enforceable by law.

Difference between VOID and VOIDABLE Contract

VOID Contract VOIDABLE Contract

None of the parties are entitled to get it

enforced by the law

At least one party, but not all loses the right

to get the contract enforced by law

A contract becomes void if it becomes

beyond the contemplation of parties due to

change in circumstances or law

A contract becomes Voidable if the consent

of one party was not free.

It can‟t be performed If the aggrieved party fails to sue the other

party within reasonable time, it becomes a

valid contract.

It doesn‟t grant any right to any party. The aggrieved party has right to revoke the

consent.

Illegal Contracts:

Any contract that is forbidden by the law is known as the illegal contract. The parties

to the contract are subject to the provisions of IPC.

Unenforceable Contracts:

A contract which is good in substance but due to some defects like writing of the

contract or registration of the contract, the parties can‟t sue each other is known as

Unenforceable contract.

Express Contracts:

As per section 9 of the act if a proposal or acceptance of any promise is made in

words the promise is said to be expressed.

Implied Contract:

As per the Section 9 of the Act, proposal or acceptance is made otherwise than in

words, the promise is said to be implied.

Quasi Contracts:

When parties to the contract have no intention to enter into the contract but as per the

pertaining circumstances, law imposes a contract upon the parties is known as Quasi

Contract.

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E. Comm. Contracts:

When parties enter into a contract through electronic mode of communication, it is

known as E-Contract or E-Commerce Contract.

Offer/ Proposal:

As per Sec 2(a) of the Indian Contract Act ““when onepersonsignifies to another his

willingness to do or to abstain from doing anything with a view to obtaining the assent of that

other to such act or abstinence, he is said to make a proposal”

Essentials Elements of the Offer

The person making the proposal or oer

is called the ‘promisor’ or

‘offeror’

For a valid oer, the party making it

must express his willingness ‘to do’

or ‘not to do’ something

An oer can be positive as well as

negative

The willingness must be

expressed with a view to obtain

the assent

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Types of Offer:

Elements of a Valid Offer:

1- It must be capable of creating legal relations

2- It must be certain, definite and not vague

3- It must be communicated to the offered

4- It must be made with a view to obtaining the assent of the other party

5- It may be conditional

6- Offer should not contain a term the non compliance of which would amount to acceptance

7- The offer may be either specific or general

8- Offer is Different from a mere statement of intention, an invitation to offer, a mere

communication of information, Casual Equity, A prospectus and Advertisement

9- The offer may be express or implied

10- A statement of price is not an offer

Acceptance:

As per Sec 2(b) of the Act “When the person to whom the proposal is made signifies

his assent thereto, proposal is said to be accepted. The proposal, when accepted, becomes a

promise”

Legal Provisions for a Valid Acceptance:

Acceptance can be given only by the person to whom offer is made

Acceptance must be absolute and unqualified

The acceptance must be communicated

Acceptance must be in the prescribed mode

Acceptance must be given within the specified time limit

Mere silence is not acceptance

Acceptance by conduct/Implied Acceptance

Types of Offers

Who it has been made

Expressed

Implied

To whom is has been

made

General

Specific

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Communication of Offer:

As per Section 4 of the Act, “the communication of offer is complete when it comes to

the knowledge of the person to whom it is made”.

Communication of Acceptance:

Communication by act

Communication of acceptance by „omission‟ to do something

Communication of acceptance by conduct

Consideration:

As per Section 2(d) of the Indian Contract Act, “When at the desire of the promisor,

the promisee or any other person has done or abstained from doing, or does or abstains from

doing or promises to do or abstain from doing something, such an act or abstinence or

promise is called consideration for the promise”.

Elements for Consideration

Consideration must move at the desire of the promisor

Consideration may move from promisee or any other person

Executed and executory consideration

Consideration may be past, present or future

Consideration need not be adequate

Performance of what one is legally bound to perform

Consideration must be real and not illusory

Consideration must not be unlawful, immoral, or opposed to public policy

Validity of an Agreement without Consideration

Natural Love and Affection Sec 25(1)

• It must be made out of natural love and affection between the parties

• Parties must stand in near relationship to each other

• It must be in writing

• It must also be registered under the law

Compensation for past voluntary services Sec 25(2)

• The services should have been rendered voluntarily

• The services must have been rendered for the promisor

• The Promisor must be in existence at the time when services were rendered

• The Promisor must have intended to compensate the promisee

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Promise to pay time barred debt Sec 25(3)

• Where a promise in writing signed by the person making it or by his authorised agent, is

made to pay a debt barred by limitation it is valid without consideration

Agency Sec 185

• no consideration is necessary to create an agency

Completed gift Sec 25

• “nothing in this section shall aect the validity as between the donor and donee, of any gift

actually made"

Bailment Sec 148

Charity

Essential Elements of a Valid Contract

Capacity to Contract:

As per Section 11 of the Act, ““Every person is competent to contract who is of the

age of majority according to the law to which he issubject, and who is of sound mind and is

not disqualified from contracting by any law to which he is subject”.

From the above definition we get the following points to judge the capacity of a person to

enter into a contract:

Age: the person at the time of entering into the contract must have attained the age of

majority. As per provisions of Indian Majority Act 1875 a person attains the age of

majority on completion of 18 years and not before that.

Sound Mind: the person must have a sound mind at the time of entering into contract.

Must not be disqualified by any law to which he is subject: the person must not be

disqualified by any law from entering into the contract.

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Legal Provisions to Minor’s Agreement:

A contract made with or by a minor is void ab-initio

• A minor is not competent to contract and any agreement with or by a minor is void from

the very beginning.

No ratification after attaining majority

• A minor cannot ratify the agreement on attaining majority as the original agreement is

void a initio and a void agreement can never be ratified.

Minor can be a beneficiary or can take benefit out of a contract

• Though a minor is not competent to contract, nothing in the Contract Act prevents him

from making the other party bound to the minor

A minor can always plead minority

• Though a minor is not competent to contract, nothing in the Contract Act prevents him

from making the other party bound to the minor

Liability for necessaries

• The case of necessaries supplied to a minor or to any other person whom such minor is

legally bound to support is governed by section 68 of the Indian Contract Act

No specific performance

• A minor‟s agreement being absolutely void, there can be no question of the specic

performance of such an agreement

Joint contract by minor and adult

• In such a case, the adult will be liable on the contract and not the minor

Person of Sound Mind:

As per section 12 of Indian Contract Act, “a person is said to be of sound mind for

the purposes of making a contract if, at the time when he makes it is capable of

understanding it and of forming a rational judgement 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.

A person who is usually of sound mind, but occasionally of unsound mind, may not

make a contract when he is of unsound mind.

Contract by Disqualified Person:

A person may be declared incompetent to enter into a contract due to political status,

legal status or any order of such kind from the competent authorities, etc. Any contract to

which such person is a party is a void contract.

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Free Consent

Section 13 of the Indian Contract Act defines the consent as “two or more persons

are said to consent when they agree upon the same thing in the same sense.”

Section 14 of the Indian Contract Act defines the Free Consent as

Consent is said to be free when it is not caused by:

1. Coercion, as defined in Section 15; or

2. Undue Influence, as defined in Section 16; or

3. Fraud, as defined in Section 17; or

4. Misrepresentation, as defined in Section 18; or

5. Mistake, subject to the provisions of Section 20, 21 and 22

Coercion:

As per Section 15 of the Act ““Coercion‟ is the committing, or threatening to

commit, any act forbidden by the Indian Penal Code or theunlawful detaining, or threatening

to detain any property, to the prejudice of any person whatever, with theintention of causing

any person to enter into an agreement.”

A consent is considered to be obtained by coercion if any of the following have been found:

Undue Influence:

According to section 16 of the Indian Contract Act, 1872, “A contract is said to be

induced by „undue influence‟ 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 he uses that position to

obtain an unfair advantage over the other”.

Committing or threatening to commit any act forbidden by the India Penal Code; 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.

It is to be noted that is immaterial whether the India Penal Code is or is not in force at the place where the coercion is employed.

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Fraud:

As per Section 17: „Fraud‟ means and includes any of the following acts committed

by a party to a contract, or with his connivance, or by his agent, with an intent to deceive

another party thereto or his agent, or to induce him to enter into the contract:

1- The suggestion, as a fact, of that which is not true, by one who does not believe it to be

true;

2- The active concealment of a fact by one having knowledge or belief of the fact;

3- A promise made without any intention of performing it;

4- Any other act fitted to deceive;

5- Any such act or omission as the law specially declares to be fraudulent.

Essential Elements of Fraud

There must be a representation or assertion and it must be false. However, silence may

amount to fraud or an active concealment may amount to fraud.

The representation must be related to a fact

The representation should be made before the conclusion of the contract with the

intention to induce the other party to act upon it.

The representation or statement should be made with a knowledge of its falsity or without

belief in its truth or recklessly not caring whether it is true or false.

The other party must have been induced to act upon the representation or assertion

The other party must have relied upon the representation and must have been deceived.

The other party acting on the representation must have consequently suffered a loss.

Misrepresentation:

As per Section 18 of the Act Misrepresentation means and includes:

1. The positive assertion, in a manner not warranted by the information of the person

making it, of that which is not true, though he believes it to be true;

A person is deemed to be in position to dominate the will of another

Where he holds a real or apparent authority over the other; or

Where he stands in a fiduciary relationship to the other; or

Where he makes a contract with a person whose mentalcapacity is temporarily or permanently affected byreason of age, illness or mental or bodily distress forexample, an old illiterate person.

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2. Any breach of duty which, without an intent to deceive, gains an advantage to the person

committing it, or any one claiming under him; by misleading another to his prejudice or

to the prejudice of any one claiming under him;

3. Causing, however, innocently, a party to an agreement to make a mistake as to the

substance of the thing which is the subject of the agreement.

Elements of Misrepresentation

Statement of fact, which of false, would constitute misrepresentationif the maker believes it to be true but which is not justified by theinformation he possesses;

When there is a breach of duty by a person without any intention to deceive which brings an advantage to him;

When a party causes, even though done innocently, the other party tothe agreement to make a mistake as to the subject matter.

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Mistakes

Mistakes may be defined as an unintentional and innocent belief that leads the parties

to misunderstand the others.

Classification of Mistakes:

Mistakes

Mistakes of Law

Indian Law

Foreign Law

Mistakes of Facts

Bilateral

Mistakes as to Subject Matter

Quality

Existence

Identity

Title

Price

Quantity

Mistakes as to Possibility of Performance

Legal

Physical

Unilateral

Identity of Person

Character of Writte n

Document

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Discharge of a Contract

When the obligations created by a contract come to an end, it is known as the

discharge of the contract. There are several ways to discharge a contract which are listed

below:

Discharge by Performance

When parties to the contract fulfil their obligations in prescribed manner and time, then

the contract is considered to be discharged. It can be of two types:

By Actual Performacne, or

By Aattempted Performance

Discharge by mutual agreement

Section 62 of the act provide the right to the parties to the contract that they may

substitutde a new contract for it, or to resciend or remit or alter it, the original contract

need not be performed with mutual agreement.

Discharge by Impossibility of performance

It is possible that at the time time of entering inot a contract, performing the obligations,

may seem possible but later due to various reasons it becomes impossible to perform the

obligations. In that condition the contract is consisdered to be discharged.

Discharge by lapse of time

A contract should be performed within a specified period as prescribed by the Limitation

Act, 1963. If it is not performed and if no action is taken by the promisee within the

specified period of limitation, he is deprived of remedy at law.

Impact of MistakesMistake of Law: A mistake of law doesnot render a contract void as one cannottake excuse of ignorance of the law ofhis own country. But if the mistake oflaw is caused through the inducementof another, the contract may beavoided. Mistake of foreign law isexcusable and is treated like a mistakeof fact. Contract may be avoided onsuch mistake

Mistake of fact: Where the contractingparties misunderstood each other andare at cross purposes, there is a bilateralor mutual mistake. Where both theparties to an agreement are under amistake as to a matter of fact essentialto the agreement, the agreement is void.

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Discharge by Operation of law

This is applied in cases such as death of promisee, insovency, etc.

Discharge by breack of contract

Breach of contract may be actual breach of contract on anticipatory breach of contract. If

one party defaults in performing his part of the contract on the due date, he is said to have

commited breach thereof.

Promisee may waive or remit performance of promise

As per Section 63, Every promise may dispense with or remit, wholly or in part, the

performance of the promise made to him, or may extend the time for such performance or

may accept insteead of it may satisfaction which he thinks, fit. In other words, a contract

may be discharged by remission.

Effects of neglect of promise to afford promisor reasonable facilities, for performance

As per Section 67, If any promisee neglects or refuses to afford th promisor reasonable

facilities for the performance of his promise, the promisor is excused by such neglect or

refusal as to any non-performance caused thereby.

Merger of rights

On merger, the inferior rights vanish and are not required to be enforced .

Breach of Contract

When a party to the contract fails to performs his/ her obligations, it is considered to

as breach of the contract. It may arise in two ways:

1. Anticipatory Breach

2. Actual Breach

Anticipatory Breach:

When promisor expressly communicate the promisee about his incapability or

unwillingness to perform the obligations under a rightful contract before the time of

performance has arrived, it is known as anticipatory breach of contract. There are two ways

of Anticipatory Breach of contract:

Expressed in words written or spoken

Implied by the conduct of one of the parties.

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Actual Breach:

Unlike anticipatory breach, it is denial of performing the obligations on scheduled

date as per contract by one of the parties. In this case the other party gets the right of action

against the party that has refused to perform the obligation. This breach may take place either

at the time of performance or during the performance of the contract.

Effect of anticipatory breach

To either treat the contract as “rescinded and sue the otherparty for damages from breach of contract immediatelywithout waiting until the due date of performance;

He may elect not to rescind but to treat the contract as stilloperative, and wait for the time of performance and thenhold the other party responsible for the consequences ofnon-performance. But in this case, he will keep the contractalive for the benefit of the other party as well as his own,and the guilty party, if he so decides on re-consideration,may still perform his part of the contract and can also takeadvantage of any supervening impossibility which mayhave the effect of discharging the contract

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Remedies to Breach of Contract:

Quasi Contract

There must be certain essential elements for a valid contract. But sometimes under

certain circumstances, law implies a promise imposing obligation on one party and gives the

right that is favourable to other even without any offer, acceptance consent or lawful

consideration. Such contracts are known as quasi contracts. These contracts are based on the

principles of Equity, Justice and good conscience.

Remedies

Suit for Damage

General/ Ordinary

Special

Vindictive or Exemplary

Nominal

Damages for detoriation

caused by delay

Pre-Fixed Damages

Rescission of Contract

Suit for Specific Performance

Suit for Injunction

Suit upon Quantum

Meruit

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Cases Deemed as Quasi Contract:

Claim for necessaries supplied to persons incapable of contracting (Section 68)

• If a person, incapable of entering into a contract, or anyone whom he is legally bound to

support, is supplied by another person with necessaries suited to his condition in life, the

person who has furnished such supplies is entitled to be reimbursed from the property of

such incapable person

Payment by an interested person (Section 69)

• A person who is interested in the payment of money which another is bound by law to

pay, and who therefore pays it, is entitled to be reimbursed by the other

Obligation of person enjoying benefits of non-gratuitous act (Section 70)

• where a person lawfully does anything for another person, or delivers anything to him not

intending to do so gratuitously and such other person enjoys the benefit thereof, the latter

is bound to pay compensation to the former in respect of, or to restore, the thing so done

or delivered

Responsibility of finder of goods (Section 71)

• „A person who finds goods belonging to another and takes them into his custody is

subject to same responsibility as if he were a bailee‟.

Money paid by mistake or under coercion (Section 72)

• “A person to whom money has been paid or anything delivered by mistake or under

coercion, must repay or return it”.

Features of Quasi Contracts

In the first place, such a right is always a right to money andgenerally, though not always, to a liquidated sum of money

Secondly, it does not arise from any agreement of the partiesconcerned, but is imposed by the law; and

Thirdly, it is a right which is available not against all the world, butagainst a particular person or persons only, so that in this respect itresembles a contractual right