Business Contracts

BUSINESS CONTRACTS Prof. P. GURU PRASAD M.Com. (University of Madras) P.G.D in Foreign Trade Management., (SICC) L .L. B., (Gold Medalist) (Nagarjuna University) Director’s A.R.M Qualified (Vizag) F.T.P Qualified, Domain & Batch Topper, (INC, HQ) M. Phil., (Distinction) (Annamalai University) Senior Finance, Accounting & law Faculty Center Academic Coordinator INC - GUNTUR

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BUSINESS CONTRACTS The daily life of a person is governed by innumerable agreements. The purchase of a bus ticket, a cool drink, or giving a vehicle for repairs, all involve contracts. All these contracts as such create legal rights and obligations

LEGAL ELEMENTS OF CONTRACTS 

A contract is the result of a promise to do a certain thing in exchange for a promise from another person. A contract is said to create a legal bond —vinculum juris. The infringement of such obligations will make the parties liable to the extent of the loss suffered by the aggrieved party for non-performance of the agree act

Social agreements 

Non business, religious or charitable agreements need not be contracts. Casual agreements between friends and family or household agreements are not held as contracts. This can be observed from the following case – BALFOUR Vs BALFOUR

BALFOUR Vs BALFOUR 

Balfour was employed in Ceylon and he promised to send his wife, 40 pounds a month so long as they had to remain separate. The wife owing to her ill health had to stay in England and could not accompany him to Ceylon. Subsequently the husband failed to send the money as agreed. The wife sued for breach of contract. It was held that this agreement was not a contract enforceable in a court of law

The basic concepts of contract 

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A contract irrespective of the content must be a binding agreement, between the parties Contract consists of reciprocal promises that the law will enforce A contract is an agreement between two or more parties, that establishes an enforceable legal relationship

The basic concepts of contract 

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An agreement between two or more parties, which creates an creates an obligation to do or not to do a particular thing. All contracts are agreements, but not all agreements are contracts. Agreements often deal with personal or social matters that cannot be enforced by law In an agreement imposes a legal obligation, it results in an enforceable contract If an agreement imposes merely a social or moral obligation, it is not a contract as

Agreement 

According sec 2 (e) of the act every promise and every set of promises forming the consideration for each other is an agreement “an agreement comes into being only when one party makes a proposal or offer to the other party and that other party signifies his assent thereto. Thus an agreement is an offer coupled with acceptance. There emerge two essentials of an agreement which are 1.Plurality of persons 2.Consensus ad idem

Agreement 

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Plurality of persons :- obviously an agreement is between two or more persons as a person cannot enter into an agreement with himself or with an inanimate object Consensus ad idem :- the promisor and promisee must agree about the same thing in the same sense. The meeting of the minds is called as consensus ad idem.

What is a Contract 

Section 2(h) of the Indian contract,1872 defines a contract as an agreement enforceable by law. Example- A agrees to sell his motor cycle to B for Rs. 5,000. The Agreement gives rise to a legal obligation on the part of A to deliver the motor cycle to B and on the part of B to pay Rs.5,000 to A. The agreement is a contract. If A does not Deliver the motor cycle, then B go to a court of law and file a suit against A for non performance of the promise on the part of A. and vice versa

Essential Elements of Contract 1.Free consent 2. Offer and acceptance 3. Capacity to contract 4. Consideration 5. Lawful Object 6. Certainty and Possibility of Performance 6. Terms of contract should be clear 7. Agreement must not be declared void

1.Free consent  Coercion

sec15  Undue influence sec 16  Fraud-sec 17  Misrepresentation sec18  Mistake sec20-22

2.Capacity of parties 

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A person competent to contract shall be: A major Of sound mind Not disqualified under any existing law in force. Idiots, lunatics, drunkards are not eligible Alien Enemy, Insolvent are not eligible

3. Offer and acceptance 

There must be a lawful offer and a lawful acceptance for a valid contract. 1. It must be expression of the willingness to do or abstain from doing a particular act 2. The willingness must be Communicated to another person 3. It must be communicated with an intention to receive the assent of the other person for such an act or abstinence. (mere enquiry or statement of intention does not amount to an offer)

3.Kinds of Offer 

General or Specific offer- to the whole world or specific to an individual:-

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Carlill Vs Carbolic Smoke

Ball co., Express or Implied offer- law of ESTTOPEL

If D purchases an air ticket and boards a flight to go to Delhi, it is a case of an implied offer. The offer is made by the airlines company to take passengers to scheduled places at scheduled fares 

Positive or Negative offer- Conditional offer

for ex-if C offers to sell his house is positive offer / if C offers not to interfere in B’s business if B agrees to shift his place of business to another locality, it is negative offer 

Counter offer- Hyde Vs Wrench Wrench offered to sell his farm for 1,000 pounds. Hyde

3.ACCEPTANCE 

Acceptance is the next step of an offer. Unless and until an acceptance is communicated to the offeror, it cannot be held as a valid and an effective acceptance. Acceptance takes place only when the Offeree gives his consent to the terms of the offer.

3.Conditions for a valid Acceptance 

It must be made by the offeree. it should be absolute and unqualified. it should be in a prescribed form. it should be within the specified time. Communication of acceptance. Acceptance during the course of negotiations. Acceptance must be positive.

4. Consideration 

Consideration has been defined as the price for which a promise is brought. Consideration itself means some right, interest, profit, or benefit accruing to one party or some forbearance, detriment, loss of responsibility given suffered or undertaken by the other

4.Consideration 

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No right of action arises out of an agreement not supported by consideration “ex nudo pacto non oritur”, means no body would part with any thing unless he gets a proper price, hence, a contract without consideration rises a doubt has to its genuineness. In Misa Vs Currie case, consideration has been defined as the price for which a promise is brought. In other words, the return promised or the quid pro quo for the performance of the contract is consideration

5.Lawful object 

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X lets out his house for Rs.500 to Y for residential purpose. Y intends to run a gambling den in that rented premises for which X does not have any objection. The consideration in this agreement may be lawful but the object is unlawful. Sec 10 requires that both the object and the consideration must be lawful

6.Certainty and possibility of performance 

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A agrees with B to discover treasure by magic. The agreement is void. X already married to C contracts to marry Y ,while polygamy is forbidden by law The sale of liquor is prohibited by law. The sale is void and the price is also irrecoverable.

7.Terms of contract 

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A agrees to sell B 100 tons of oil. The agreement is void for uncertainty. X agrees to sell Y a white horse for Rs.500 or Rs.1000. This agreement is void. Guthing Vs Lynn- A horse was brought for certain price coupled with a promise to give 5 pounds more if the horse proved lucky. It is void for uncertainty

8.Legal formalities 

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A contract which fulfills all the requirements prescribed by sec 10 of the act is a valid contract. A agrees to sell 10 bags of rice to B for Rs.10,000 by the end of May. B accepts. This is a valid contract. These contracts are enforceable by law and are binding on the parties

Classification of contracts 

Enforceability -valid -voidable -void -unenforceable -illegal

Classification of contracts 

Method of formation} -formal -simply Extent of performance} -executed -executory Obligation to perform} -unilateral -bilateral

Types of contracts 

Express contracts

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Implied contracts

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Quasi contracts

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Standard form

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Contingent contracts

Doctrine of Vicarious performance 

Vicarious liability means one person is made liable for the wrongful act of another. For instance a master is responsible for the acts of his servants done in discharge of their duties. This is because servants are usually weaker people and cannot pay compensation to the injured party.

Breach of contract 

May arise in the following ways-: -Refuses to perform the contract -Renders himself disabled to perform the contract -Fails to perform -Impossible to perform by his conduct or action

Conditions to the offer 

-It must be unconditional -It must be made at proper time and place -If the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing at the thing offered is the same thing ,which the promisor is bound by his promise to deliver

Doctrine of Substantial performance 

For instance if the builder has acted in good faith and has completed the job in substantial compliance with the contract, he can enforce the contract and collect the contract price even though he was not fully completed the work

VOID AGREEMENTS 

An agreement not enforceable by law is said to be void. A contract my be void-“ ab initio”. For instance the consent of the party is not free then the contract is void from the beginning. The following are the examples of void agreements.

Void Agreements 

-Agreement by Incompetent parties - Agreement by mutual mistakes of fact material to the agreement -Agreements with unlawful consideration or object, immoral ,opposed to public policy -Agreements unlawful in part -Agreements without consideration -Agreements in restraint of marriage -Agreements with are uncertain and ambiguous

Immoral Agreements 

Illicit Cohabitation Concubinage Sexual Immorality Interfere with marital relations perform the acts against good morals Forbidden by law Fraudulent Oppose to public policy

Incompetent persons 

Minor Unsound mind Disqualified by law Idiot Lunatic Drunkard Alien Enemy Insolvent Convict

MINOR 

Generally, an infant is legally considered to lack the capacity of comprehension regarding the implications of contracts and hence they cannot enter into contracts until they reach the age of majority. They are not bound by agreements unless they are meant for supply of necessities. Every person is a minor who has not completed 18 years of age according to section 3 of the Indian majority act,1875.

MINOR 

The following two situations stand as an exception to the age of majority, where majority is attained at the age of 21 years and not 18 years. 1.every minor for whose person or property or both a guardian has been appointed under the guardians and wards act 1890. 2.Every minor whose property is under the superintendence of any court of ward before he attains 18 years of age. However the age of majority shall be determined according to the law to which the minor is subject to----

The effects of Minor's agreement 

No Estoppel Against A Minor Doctrine Of Restitution Does Not Apply Against a Minor No Ratification On Attaining Majority No Liability For A Minor In Contract Or Tort arising Out Of Contract. Contract Beneficial To Minor Contract Of Marriage Contract Of Service Position of Parents Or Guardian Surety For A Minor. Minor As An Agent Specific Performance

Exceptions to the Rule of Consideration 

Consideration is a must for a valid contract to ensue. However the rule of ex nudo pacto non oritur (an agreement made without consideration is void) has the following exceptions. Love and affection Voluntary services Time barred debt Gift Agency Charitable subscription

Limitations to free consent 

Free consent means agreeing upon the same thing in the same sense. The following is the exception Promissory Estoppelscase- Hughes Vs Metropolitan Railway Co., The conflict between the tenant and owner of the building for repair the premises-6 months time

Remedies for Breach of Contract  

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Suit for Rescission –Formal cancellation Suit for Injunction- Refrain from doing an Act Suit for Specific Performance-Doing exactly, intended Suit for Damages- Monetary compensation Penalty by Courts- Default penalty Suit for Quantum Meruit-As much as he deserves (demand market price for labor& materials)

Suit for Damages

General Damages-The Losses that naturally and directly Arises out of the breach of contract in usual course

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Special Damages-Arises in peculiar situation and quite apart from the usual course of things (implied)

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Exemplary or Vindictive Damages-Breach of

promise to marry, Unjustified dishonor of cheques by banks (Mental agony, loss of reputation, loss of money, Emotional hurt ) 

Nominal Damages-The breach of contract does not arise any loss. (Technical damages)(1rupee)