BCH 1.

3
BUSINESS LAWS
COURSE OBJECTIVE
To impart basic knowledge of the important business laws relevant for
conduct of general business activities in physical and virtual spaces along
with relevant case laws.

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COURSE CONTENTS

Unit I: The Indian Contract Act, 1872

Contract – meaning, characteristics and kinds, Essentials of valid contract -

Offer and acceptance, consideration, contractual capacity, free consent,
legality of objects. Void agreements. Discharge of contract – modes of
discharge including breach and its remedies.

Unit II: Special Contracts

Quasi – contracts, Contract of Indemnity and Guarantee, Contract of

Bailment and Pledge, Contract of Agency

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Unit III: The Sale of Goods Act, 1930
Contract of sale, meaning and difference between sale and agreement to sell.
Conditions and warranties. Transfer of ownership in goods including sale by
non-owners. Performance of contract of sale. Unpaid seller – meaning and rights
of an unpaid seller against the goods.
Unit IV: The Limited Liability Partnership Act, 2008
Salient Features of LLP, Difference between LLP and Partnership, LLP and
Company LLP Agreement. Nature of LLP, Partners and Designated Partners,
Incorporation Document Incorporation by Registration, Registered office of LLP
and change therein. Change of name, Partners and their Relations. Extent and
limitation of liability of LLP and partners. Whistle blowing. Taxation of LLP.
Conversion into LLP. Winding up and dissolution of LLP. 3
Unit V: The Information Technology Act 2000

Definitions under the Act. Digital signature. Electronic governance.

Attribution, acknowledgement and dispatch of electronic records. Regulation
of certifying authorities. Digital signatures certificates. Duties of subscribers
under the Act. Penalties and adjudication. Offences as per the Act.

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SUGGESTED BOOKS

• RAJNI JAGOTA

• M C KUCHHAL

• SUSHMA ARORA

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• Law is a system of rules created and enforced through social or
governmental institutions to regulate behavior.

• Business Law is a branch of CIVIL LAW.

• Ignorantia juris non excusat

It is a legal principle holding that a person who is unaware of a law

may not escape liability for violating that law merely because one was
unaware of its content.

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BUSINESS LAW

Business law is that portion of the legal system which

guarantees an orderly conduct of business affairs and the
settlement of legitimate disputes in a just manner. It establishes
a set of rules and prescribes conduct to order to avoid
misunderstandings and injury in our business relationships.

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Indian Contract Act 1872

2 parts

• Pa r t I ( Se cti o n 1 to 7 5 ) ( C h a p te r I to VI) – d e a l s w i th g e n e ra l p r i n ciple s o f L a w o f

C o n tra ct.

• Pa r t I I ( Se cti o n 1 2 4 to 2 3 8 ) ( C h a p te r VIII, IX a n d X ) – d e a l s w i th Sp e ci al C o n tra cts

C o n tra cts o f In d e m n ity a n d G u a ra n te e ( Se c 1 2 4 to 1 4 7 )

C o n tra cts o f B a i l men t a n d Pl e d g e ( Sec 1 4 8 to 1 8 1 )

C o n tra cts o f A g e n cy ( Se c 1 8 2 to 2 3 8 )

S e ct i o n 7 6 t o 1 2 3 ( C h a p t er V I I ) r e l a t i n g t o S a l e o f G o o d s w e re r e p ea led i n 1 9 3 0
a n d S a l e o f G o o d s Act 1 9 30 wa s p a s s e d

S e ct i o n 2 3 9 t o 2 6 6 ( C h a p t er X I ) w e re r e p ea led i n 1 9 32 a n d Pa r t nersh i p Act 1 9 3 2

wa s pa s s e d. 11
Indian Contract Act 1872

The Law of Contract is that branch of law which determines the

circumstances in which promises made by the par ties to a contract
shall be legally binding on them. Its rules def ines the remedies that
are available in the cour t of law against a person who fails to
per form his contract, and the conditions under which the remedies
are available. It is the most impor tant branch of business law.

The law of contract in India is contained in the Indian Contract Act,

1872. It is applicable to the whole of India and came into force on
the f irst day of September, 1872.

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 Contract

Section 2(h)

“An Agreement enforceable by Law is a Contract”

Contract = Agreement + Enforceability by Law

Section 2(e)

“Every promise and every set of promises, forming the consideration for
each other, is an Agreement”

Agreement = Offer + Acceptance

“All Contracts are Agreements, but all Agreements are not Contracts”
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 Essentials of a VALID CONTRACT

A c c o r d i ng t o S e c t i o n 1 0 , A l l A g r e e me n ts a r e C o n t ra c ts , i f t h e y a r e m a d e b y t h e F r e e C o n s e nt o f
t h e p a r ti e s C o m p e te n t t o C o n t ra c t, f o r a L a w f ul C o n s i de ra tio n a n d w i t h a L a w f u l O b j e c t a n d a r e
n o t E x p r e s s l y d e c l a r e d a s Vo i d .

• O f f e r a n d A c c e p t a n ce

• I n t e n tio n t o c r e a t e L e g a l r e l a ti o n s ( B A L F OUR v s . B A L F OU R , 1 9 1 9 )

• L a w f ul C o n s i d e ra ti o n ( Q u i d P r o Q u o )

• C a p a c i ty o f Pa r t i e s

• F r e e C o n s e nt ( C o n s e ns us a d - i de m)

• L a w f ul O b j e c t

• A g r e e me nt n o t e x p r e s sl y d e c l a re d a s Vo i d

• C e r ta i nty a n d Po s s i b i l i ty o f Pe r f o r m a nc e

• L e g a l Fo r m a l i ti e s 14
Classification /Kinds of Contracts

F r o m t h e Po i n t o f V i e w o f E n fo r ceab i l i t y

a ) Va l i d C o n t ra ct

b ) Vo i d a b l e C o n t ra ct

c ) Vo i d C o n t ra ct – ( o n a cco u n t o f S u p e r ven i n g Im p o s si b i l i ty a n d
S u b s e q u en t I l l e g a l i t y)

d ) Vo i d Ag r eemen t

e) I l l e g a l Ag r eem en t

“Al l I l l e g a l a g r eem en ts a r e Vo i d b u t a l l vo i d a g r eemen t s a r e n o t I l l e g a l ”

f) U n e n fo rcea b le C o n t ra ct

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Classification /Kinds of Contracts

From the Point of View of Formation / Mode of Creation

a) Express Contract (includes e -contracts)

b) Implied Contract

c) Quasi or Constructive Contract (Section 68 to 72)

From the Point of View of Per formance /Extent of Execution

a) Executed Contract

b) Executory /Bilateral Contract

c) Par tly Executed and Par tly Executory / Unilateral / One Sided
Contract
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UNLAWFUL AND ILLEGAL AGREEMENTS

“EVERY ILLEGAL AGREEMENT IS UNLAWFUL BUT EVERY

UNLAWFUL AGREEMENT IS NOT NECESSARILY ILLEGAL”

Illegal acts are those which involve the commission of a crime or

contain an element of moral turpitude and where the wicked
attribute is reasonably obvious or in some other way, contrary to
public policy.

Unlawful acts are those which are less rigorous in ef fect and involve
a non criminal breach of law.

“An illegal agreement is not only void but the collateral

transactions to it are also tainted with illegality ”
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“Law of Contract is not the whole law of
agreements nor the whole law of obligations”
-Salmond

It is the law of those agreements which creates legal obligations and those
obligations which have their source in agreements.

It excludes from its purview agreements which are social or religious in

nature and all obligations which are not contractual in nature. (Quasi
contracts, penalties or fines imposed in case of tort or civil wrong or court
judgements)

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 OFFER AND ACCEPTANCE

Section 2(a)

“A person is said to have made a proposal, when he signifies 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.”

• The person making the offer is OFFEROR/ PROMISOR or PROPOSER

• The person to whom the offer is made is OFFEREE or PROPOSEE

• When the offeree accepts the offer, he is called ACCEPTOR/ PROMISEE

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• How an OFFER is made?

EXPRESS OFFER and IMPLIED OFFER

• To whom an OFFER is made

SPECIFIC OFFER (made to a specific person or a group of persons)

GENERAL OFFER (made to public at large)

- CARLILL vs CARBOLIC SMOKE BALL COMPANY (1893)

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 LEGAL RULES AS TO OFFER/
ESSENTIALS OF A VALID OFFER
1. O f f e r m u s t b e c a p a b l e o f b e i n g a c c e p t e d a n d g i v i n g r i s e t o l e g a l r e l a t i o n s h i p . ( B a l f o u r v s B a l f o u r,
1919)

2. Te r m s o f o f f e r m u s t b e d e f i n i t e , u n a m b i g u o u s a n d c e r t a i n a n d n o t l o o s e o r va g u e . ( Ta y l o r v s
Po r t i n g t o n , 1 8 5 5 )

3. An offer must be distinguished from

• A d e c l a ra t i o n o f i n t e n t i o n a n d a n a n n o u n c e m e n t

• An invitation to offer

• A casual Enquiry

4. An offer must be communicated. ( Lalman Shukla vs Gauri Dutt, 1913)

5. A n o f f e r m u s t b e m a d e w i t h a v i e w o f o b t a i n i n g t h e a s s e n t o f t h e o t h e r p a r t y.

6. An offer should not contain a term, the non -compliance of which may be assumed to amount to
acceptance.

7. C o m m u n i c a t i o n o f S p e c i a l Te r m s b e f o r e o r a t t h e t i m e o f f o r m a t i o n o f c o n t ra c t .

8. S t a t e m e n t o f P r i c e i s n o t a n o f f e r. ( H a r ve y v s Fa c e y, 1 8 9 3 )
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9. An offer can contain any number of conditions.
Counter Offer and Cross Offer

Counter Offer is a rejection of an Original offer and making a

New offer. A person who make a counter offer and subsequently
changes his mind and wishes to accept the original offer cannot
do so as the first offer lapses and he cannot treat it as still
open.

Cross offer takes place when two parties make identical offers to
each other, in ignorance of each other ’s offers. They shall not
constitute acceptance of one’s offer by the other.

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When does an Offer come to an end? – Lapse
and Revocation of an Offer (Section 6)

1. By communication of notice of revocation by the of feror at any time before

its acceptance is complete as against him
2. By Lapse of Time
3. By Non-fulf ilment of condition by a of feree which is precedent to acceptance
4. By Death or Insanity of the Of feror provided the Of feree comes to know of it
before acceptance
5. If Counter Of fer is made
6. If of fer is not accepted in the prescribed or usual mode
7. Conditional acceptance
8. An of fer lapses by subsequent illegality or destruction of subject matter
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ACCEPTANCE

Section 2(b)

states that “A Proposal when accepted becomes a Promise” and

defines Acceptance as

“When the person to whom the proposal is made signifies his

assent thereto, the proposal is said to be accepted.”

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 LEGAL RULES AS TO ACCEPTANCE/
ESSENTIALS OF A VALID ACCEPTANCE
1. The acceptance must be communicated. (BHAGWAN DAS vs G.LAL, 1966)
(BROGDEN vs METROPOLITAN RAILWAY, 1877)

2. The acceptance must be communicated to the of feror only.

3. The acceptance must be communicated by the of feree only. (POWEL vs LEE, 1908)
4. The acceptance must be Absolute and Unconditional. (Mirror Image Approach to
Contract Formation) (NIHAL CHAND vs AMARNATH, 1926)
5. The acceptance must be in the prescribed manner, as stated in the of fer.
(RAMANBHAI vs GHASIRAM, 1918)
6. The acceptance must be given in the prescribed time or a reasonable time period or
before the of fer lapses or revoked.
7. Acceptance must succeed the of fer.
8. Silence cannot be termed as Acceptance. 25
COMMUNICATION of OFFER, ACCEPTANCE
and REVOCATION
• COMMUNICATION of OFFER (Section 4)

It is complete when it comes to the knowledge of the person to whom it is made.

• COMMUNICATION of ACCEPTANCE (Section 4)

The Communication of acceptance is complete,

As against the Proposer, when it is put in the course of transmission to him so as to be out of the power of the acceptor.

As against the Acceptor, when it comes to the knowledge of the proposer.

• COMMUNICATION of REVOCATION (Section 5)

Section 5 provides that a proposal may be revoked at ay time , before the communication of its acceptance is complete
as against the proposer, but not afterwards.

Similarly, an Acceptance may be revoked at any time before the communication of its acceptance is complete as
against the acceptor, but not afterwards.

Therefore, communication of Revocation is Complete:

• As against the person who makes it, when it is put into the course of transmission to the person to whom it is
made, so as to be out of the power of the person who makes it.

• As against the person to whom it is made, when it comes to his knowledge.

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 Example
• A o f fe r s b y Le t t e r, t o s e l l h i s c a r t o B fo r R s . 2 , 0 0 , 0 0 0 o n 1 s t A u g u s t . B r e c e i v e s t h e l e t t e r o n 3 r d A u g u s t .

• B p u t s t h e l e t t e r o f Ac c e p t a n c e i n p o s t o n 4 t h A u g u s t w h i c h r e a c h e s A o n 6 t h A u g u s t .

• A w r i t e s a l e t t e r o f r e v o c a t i o n o f h i s o f fe r a n d p o s t i t o n 3 r d A u g u s t w h i c h r e a c h e s B o n 5 t h A u g u s t .

• D i s c u s s t h e va l i d i t y o f t h e o f fe r r e v o k e d b y A .

• C o m m u n i c a t i o n o f O f f e r i s c o m p l e t e d o n 3 rd A u g u s t .

• Communication of acceptance is complete

• A s a g a i n s t A ( P r o p o s e r ) – 4 th A u g u s t

• A s a g a i n s t B ( A c c e p t o r ) – 6 th A u g u s t

• T h e o f fe r c a n b e r e v o k e d a t a ny t i m e b e fo r e 4 t h A u g u s t .

• T h e A c c e p t a n c e c a n b e r e v o k e d a t a ny t i m e b e fo r e 6 t h A u g u s t .

• Re v o c a t i o n o f o f f e r i s c o m p l e t e

• A s a g a i n s t A – 3 rd a u g u s t

• A s a g a i n s t B – 5 th A u g u s t
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E-Contracts

Promisor – Originator

Promisee – Addressee

As per IT Act, Communication of proposal and acceptance will be

complete only af ter receipt of acknowledgement by the
concerned parties. The place of conclusion of contract will be
where acknowledgement is received by the acceptor. The place
of receipt of electronic record is the principal place of business
of the addressee.

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Capacity to Contract

According to Section 11, Every person is competent to contract

who is of the age of majority according to the law to which he is
subject, and who is of sound mind and is not disqualified from
contracting by any law to which he is subject.

Minor - A person is said to be a minor if he or she has not

attained the age of majority as per Indian Majority Act.

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Legal Position of a MINOR

1. Agreement made by a Minor is VOID ab -initio.

(MOHORIBIBI vs DHARMODAS GHOSH, 1903)

2. Minor can be a promisee or a Beneficiary under a contract and has a right to

enforce it.

(RAGHAVA CHARIAR vs SRINIVASA, 1916)

(ROSE FERNANDEZ vs JOSEPH GONSALVES, 1924)

3. Rule of Estoppel is not applicable on Minor.

4. Doctrine of Restitution is not applicable on Minor. (LESLIE vs SHEILL, 1914)

5. Agreements for Necessities of Life. (NASH vs INMAN, 1908)

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 Legal Position of a MINOR

6 . Ra ti f ic ation o f M i n o r ’s A g r e e men t i s n o t a l l ow ed . ( IN D RA N RA M A SWAM I v s A N TH IAPPA

C H ET TIAR, 1 9 06 )

7 . L i a b ility o f M i n o r ’s Pa r e n ts o r G u a r d ian s .

8 . A m i n o r ca n n o t b e d e cl a re d a s a n In s o l ven t.

9 . M i n o r a s A g e n t.

1 0. M i n o r ca n n o t b e a s h a r e h old er i n a co m p a ny.

1 1. M i n o r ca n b e a Pa r tn e r in a p a r tn er s hip Fi r m .

1 2. Su r e ty o f a M i n o r.

1 3. M i n o r ’s L i a b ility i n a To r t ( C i v il Wr o n g )

* C h i l d L a b o u r ( Pr o h i bitio n a n d Re g u l a tion ) A men dm en t A ct, 2 0 1 6

* C o n tra cts o f A p p r e ntice s hip

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* M i n o r ’s L i a b ility u n de r JUVE NILE JU STIC E ( C A RE a n d Pr o te ctio n) A ct, 2 0 1 5
 Soundness of Mind

According to Section 12, A person is said to be of Sound Mind for the

purpose of making a contract of at the time when he makes it, he is
capable of understanding it and of forming a rational judgement as to
its ef fect upon his interests.

Forms of Unsound Mind

• Lunacy or Insanity (Disease of Brain)

• Idiocy (Permanent with no inter vals of saneness)

• Drunkard or Intoxicated Person

• Hypnotism

• Mental Decay 32
Legal Disqualifications

• Alien Enemy

• Foreign Sovereign and Ambassadors

• Joint Stock Company /LLP

• Insolvent

• Convict

• Married Woman

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CONSIDERATION

As per Section 2(d)

“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 act or abstinence or promise is called a consideration for
the promise”

It is the price paid to buy the promise of other. An agreement

without consideration is void ab -initio.

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ESSENTIALS OF A VALID CONSIDERATION

1. Consideration must move at the desire of the promisor. (DURGA PRASAD vs.
B ALDEO, 1881)

2. Consideration may move from the promisee or any other person. (CHINAYYA vs.
RAMAYA, 1882)

3. Consideration need not to be contemporaneous with contract i.e., consideration

may be Past, Present or Future.

4. Consideration need not to be Adequate. (Peppercorn Theory of Consideration)

5. Consideration can be Positive or Negative.

6. Consideration must be something of value or having wor th in the eyes of law. It

should not be Physically or Legally impossible, Uncertain /vague and illusor y.
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 EXCEPTIONS To
“No CONSIDERATION No CONTRACT” (SECTION 25)
1 . A g r e e men ts m a d e o n a cco u n t o f N a t u ra l Love a n d Af fe ct i o n . ( Section 2 5 ( 1 ) )
( RA J LAKHI D E VI v s . B H O OTN ATH M UKHE RJEE , 1 9 0 0 )
FOUR CONDITIONS:
• Wr i t t e n f o r m
• Re g i s t e r e d
• Close relation between parties
• O n a c c o u n t o f N a t u ra l L ove a n d A f f e c t i o n

2 . A g r e e men ts to co m p e n s ate f o r Pa s t Vo l u n t a r y S e r vi ces . ( Se cti on 2 5 ( 2 ) )

3 . A g r e e men ts to p ay a T i m e Ba r r ed D e b t . ( m u s t b e i n w r i tin g a n d s i g n e d b y th e
p r o m i s or )

4 . C om p l eted G i f ts

5 . C o n tr i bu tion to C h a r i t y ( K E D ARNATH v s . G A URI M O H A M ME D, 1 8 6 6 )

6 . C o n tra cts o f Ag e n cy

7 . C ontra cts of Ba i l me n t 36
 Doctrine of Privity of Contract

Only par ties to a contract may sue or be sued on that contract. Stranger
to contract does not have a right to sue.

(DUNLOP PNEUMATIC TYRE COMPANY vs SELFRIDGE AND CO., 1915)

Two consequences of the Doctrine:

1. A person who is not a par ty to a contract, cannot sue upon it even

though the contract was for his benef it and he provided consideration.

2. A contract cannot confer rights or impose obligations arising under it

on any person other than the par ties to it.

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Exceptions

1. Where an Express or Implied Trust is created. (Benef iciary, although not

a par ty to the trust but can sue to enforce his /her rights)

2. Family settlement. (VEERAMMA vs. APPAYYA) (ROSE FERNANDEZ vs.

JOSEPH GONSALVES, 1924)

3. Law of Agency (Principal can sue)

4. When the defendant constitute himself as the Agent of the third par ty.
(Acknowledgement)

5. Nominee of the Deceased person.

6. Contract Labourers can sue the Principal Employer.

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FREE CONSENT

Section 13 – “Two or more persons are said to consent when they

agree upon the same thing in the same sense”
CONSENSUS AD -IDEM – Meeting of Minds
Section 14 – Consent is said to be Free when it is not caused by:
1. Coercion (Section 15); or
2. Undue Inf luence (Section 16); or
3. Misrepresentation (Section 18); or
4. Fraud (Section 17); or
5. Mistake
Subject to the provisions of Section 20, 21 and 22. 39
 Consent (Section 13)

Free Consent (Section 14)

Coercion Undue Influence Misrepresentation Fraud Mistake

(Sec 15) (Sec 16) (Sec 18) (Sec 17)

Effect on Contract Effect on Contract

(Sec 19, 19A) (Sec 20, 21 and 22)

Voidable Depending upon the

Contract type of Mistake

Valid Void Voidable

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Coercion (Section 15) – Use of Physical Force

“Coercion is the committing or threatening to commit, any act forbidden by

the Indian Penal Code, or the unlawful detaining or threatening to detain, any
proper ty to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.”
• RANGANAYAKAMMA vs. ALWAR SET TY, 1889
• MUTHIAH vs. MUTHUKARUPAN, 1927
• CHIKAM AMIRAJU vs. CHIKAM SESHAMMA, 1917 (Attempt to Suicide)
Effect of Coercion (Sec 19)
• Contract is VOIDABLE at the option of the aggrieved par ty.
• Burden of proof lies on the par ty who wants to set aside the contract.
• Principal of Restitution under section 64 is applicable. 41
Undue Influence (Section 16) – Use of Mental Force
“A co n tra ct i s s a i d to b e i n d u ce d b y U n d u e In f l ue nce w h e r e , th e r e l a tion s s u b s i s tin g b e tw e e n th e
p a r tie s a r e s u ch th a t o n e o f th e p a r tie s i s i n a p o s i tion to d o m i n ate th e w i l l o f th e o th e r a n d h e u s e s
th a t p o s i tion to o b ta i n a n u n f a ir a d va n ta ge ove r th e o th e r.” ( Se cti o n 1 6 ( 1) )

( S e ct i o n 1 6 ( 2)) - A p e r s on i s s a i d t o b e i n a p o s i t i o n t o d o m i n a t e t h e w i l l o f a n o t h e r:

a ) W h e r e h e h o l d s Re a l o r Ap p a r en t a u t h o r i t y ove r th e o th e r ; o r ( M a s te r - Se r van t, Po l ice O f f icer -

A ccu s e d , In co m e - Tax o f f icer - As s es s ee )

b ) Whe r e he sta nd s i n a F i d u ci a r y Re l a t i on sh i p to th e othe r ; or ( D octor - Patie nt, Fa the r - Son,

Sp i r itual G ur u - De vo tee , Tr u s te e - B en ef icia r y, Te a ch e r - Stud en t)

MA N N U S I N G H v s . U MA DAT PA N D EY, 1 8 9 0

c ) W h e r e h e m a ke s a co n tra ct w i th a p e r s o n w h o s e M e n t a l ca p a ci t y i s t e m p orari l y o r
p e r m a nen t l y a f fe ct ed b y r e a s o n o f A g e , Il l n es s o r m e n ta l o r b o d i ly d is tr es s . ( An o l d i l lite rate
person)

In a b ove s i tu a tio ns , U nd ue In f l ue nce i s p r e s u m e d a n d th e r e i s n o n e e d o f p r ov i ng th e u s e o f U n d u e

i n f lu en ce b y th e p a r ty w h o s e co n s e n t wa s s o ca u s e d .

U n d u e In f l u en ce i s a l s o p r e s u m e d in ca s e o f PA RD ANASHIN ( B U RQ U A) Wo men a n d Il l itera te

w i d o w / lad y f r o m r u ra l a r e a . 42
No Presumption of Undue Inf luence in the following relationships:
a) Creditor and Debtor
b) Landlord and Tenant
c) Husband and Wife
d) Mother and Daughter
e) Grandson and Grandfather

Effect of Undue Influence

• Contract is VOIDABLE at the option of the aggrieved par ty.
• Burden of proof lies on the DOMINANT Par ty, in case of presumption of
Undue Inf luence.
• Principal of Equitable Restitution applies at the discretion of cour t.
(Section 19A)
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Misrepresentation (Section 18) – Wrong representation
made innocently

Representation – Statement of Fact made by one party to another party

either before or at the time of formation of contract, relating to some
matter essential to the formation of the contract, with an intention to
induce the other party to enter into a contract.

A wrongly made representation, if innocently made is Misrepresentation

and if made intentionally to deceive the other party is termed as Fraud.

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Misrepresentation means and include the following:
a) Making a positive statement unknowingly believing it to be true.
b) Breach of duty which brings an advantage to the person
committing it by misleading the other to his prejudice.
c) Causing mistake about the subject matter innocently.

Misrepresentation must relate to Facts material to the contract and

not a mere opinion or hearsay.

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Effects of Misrepresentation

• Contract is VOIDABLE at the option of the aggrieved party.

• The aggrieved party may affirm the contract and insist that he shall be
put in the same position in which he would have been if the
representation made had been true. (Section 19)

However, Misrepresentation does not entitle the aggrieved party to claim

damages by way of interest or otherwise for expenses incurred.

The above remedy is lost, if the party whose consent was caused by
misrepresentation, had the means of discovering the truth with ordinary
diligence.
46
Fraud (Section 17) – Wrong representation made
intentionally

Fraud means and include any of the following acts committed by a

party to a contract:

a) The representation that a fact is True when it is not True by one who
does not believe it to be True. (PEEK vs. GURNEY, 1873)

b) The active or wilful concealment of material fact.

c) A promise made without any intention of performing it.

d) Any other act fitted or designed to deceive.

e) Any such act or omission as the law specially declares to be fraudulent.

47
• The Misled Party must have suffered a loss then only action against fraud
shall arise.

• “A Deceit that does not deceive is not a Fraud”

(SMITH vs. CHANDWICK, 1884)

• Does Silence amount to Fraud? Or Can Silence be Fraudulent?

Mere Silence as to facts likely to affect the willingness of a person to enter into
a contract is not fraud, unless:

a) The circumstances are such that it is the duty of the person keeping silence
to speak (Fiduciary Relationship; Contracts of Insurance; Contracts of
Marriage Engagement; Share Allotment Contracts); or

b) Silence, is in itself, equivalent to Speech.

48
Effects of Fraud

• Contract is VOIDABLE at the option of the aggrieved par ty.

• The Aggrieved par ty can sue for Damages.
• The Aggrieved par ty may ask for Restitution and insist that he shall be put in
the same position in which he would have been if the representation made had
been true. (Section 19)
LOSS of RIGHT of RESCISSION
a) Af f irmation
b) Restitution is not possible
c) Lapse of reasonable time
d) Right of Third Par ties
49
Mistake

• Mistake is “Absence of Consent” as against the case “where consent is not free”.

• Mistake is erroneous belief concerning something. It is misunderstanding or

misapprehension of some fact relating to the agreement.

Mistake

Mistake of Law Mistake of Fact

Mistake of Law Mistake of Law Bilateral Unilateral

of Own Country of Foreign Mistake Mistake
Country 50
Bilateral Mistake
A g r e e men t is Vo i d a b - i n itio p r ov i de d f o l l owin g T h r ee co n d i t i o n s a r e m e t:

a ) B oth the p a r tie s m us t b e u n d e r a M i s ta ke.

b ) M i s ta ke m u s t r e l a te to s o me f a ct a n d n o t j u d g e m en t o r o p i n ion , e tc.

c ) Th e f a ct m u s t b e e s s e n tial to th e a g r e e m en t.

T Y PES O F BI LATER AL MI STAKES :

a ) M i s ta ke a s to th e E X ISTE NC E o f th e s u b j e ct m a tter o f th e a g r e e men t. ( G A L LOWAY v s .

G A L LO WAY, 1 9 1 4 )

b ) M i s ta ke a s to th e TITL E o f th e s u b j e ct m a tte r o f th e a g r e e me nt.

c ) M i s ta ke a s to th e ID E N TITY o f th e s u b j e ct m a tte r o f the a g r e e m en t.

d ) M i s ta ke a s to th e Q U A NTITY o f th e s u b j e ct m a tter o f th e a g r e e men t. ( E A RN E ST B E C K

& C O. v s . K . S. O W SK I & C o., 1 9 2 4 )

e ) M i sta ke a s to the QU A LITY o f th e s u b j e ct m a tte r of the a g r e e m ent.

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Unilateral Mistake
Effect:

a) Valid Contract

b) Voidable Contract

c) Agreement Void ab -initio – In the following two cases:

1. Mistake as to the IDENTITY of the person contracted with, where such

identity is impor tant. (SAID vs. BUT T, 1920)

2. Mistake as to the NATURE and CHARACTER of a WRIT TEN DOCUMENT. (B ALA

DEVI vs. SANTI MAZUMDAR, 1956)

*Party must not be careless in signing in order to claim remedy.

*In the interest of commercial cer tainty, the use of this plea should be strictly
limited. Otherwise, it can cause injustice to third par ties.
52
VOID AGREEMENTS

An agreement not enforceable by law is said to be VOID.

- Void ab initio
- No legal consequences
❖ Some Examples:
- Agreements by a Minor or a person of Unsound Mind (Sec 11)
- Agreements made without Consideration (Sec 25)
- Agreements made under a Bilateral Mistake of Fact material to the
agreement. (Sec 20)
- Agreements for which Consideration or Object is Unlawful (Sec 23)

53
Agreements Expressly declared as VOID by Law

a) Agreements in restraint of Marriage (Sec 26)

b) Agreements in restraint of Trade (Sec 27)

(This Liberty is guaranteed by Article 19 of Constitution as a Fundamental Right)

c) Agreements in restraint of Legal Proceedings (Sec 28)

d) Uncertain Agreements (Sec 29)

e) Wagering Agreements (Sec 30)

f) Agreements Contingent on Impossible Events (Sec 36)

g) Agreements to do Impossible Acts (Sec 56)

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Agreements in restraint of trade - Exceptions

Statutory Provisions Judicial Interpretations

1. Sale of Goodwill (Constraint 1. Trade Combinations (should not create

should be reasonable in point Monopoly and adversely affect the
of time and space) competition)

2. Partner ’s Agreements (as per 2. Solus or Exclusive Dealing Agreements

Partnership Act, 1932) 3. Franchise Agreements
3. Limited Liability Partnership 4. Negative Stipulations in Service
Agreements (Lumley vs Wagner, 1852)

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Agreements in restraint of Legal Proceedings

i. Agreements absolutely restraining legal proceedings.

ii. Agreements limiting or curtailing TIME for a Legal action without regard to
the time allowed by the Limitation Act.

iii. Agreements extinguishing the rights of any party without regard to the time
allowed by the Limitation Act.

Section 28 applies to only ABSOLUTE RESTRICTION on taking legal proceedings,

whereas, if the restriction is PARTIAL, it is Permissible.

(HAKAM SINGH vs. M/S GAMMAN (INDIA) Ltd., 1971)

56
EXCEPTIONS

i. If the parties agree to refer to arbitration for any existing or

likely dispute.

ii. If the parties agree “not to file an Appeal” in a Higher Court.

iii. If the parties select one of the two equally competent courts.

iv. Guarantee agreement of a Bank or a Financial Institution

stipulating a period of not less than one year for
extinguishment of right or discharge of liability of party shall
not be Void.

57
Wagering Agreements (Betting Agreements)

Essentials of a Wagering Agreement:

• Uncer tain Event
• Mutual Chances of Gain or Loss
• Neither par ty has control over the Event
• No other interest in the Event
• Promise to pay Money or Money ’s wor th

*LOT TERIES – Lotter y is regulated by Central Lotteries (Regulation) Act

1998 and Lotter y (Regulation) Rules, 2010 under the above act.

58
Legality of Object and Consideration

Section 23 elaborates what kind of objects and consideration are Unlawful.

1. If it is forbidden by the Criminal Law of the Country/ IPC.
(K.M. KAMATH vs K.P. B ALIGA & CO., 1959)
2. If it is of such nature that, if permitted, it would defeat the provisions of
any law.
3. If it is Fraudulent.
4. If it involves or implies injur y to the person or property of another.
(RAMASRUP vs. B ANSI MANDAR, 1915)
5. If the Cour t regards it as IMMORAL.
(B AI VIJLI vs. NANSA NAGAR, 1885)
59
6 . If th e co u r t r e g a r d s i t a s “ O p p o s ed t o Pu b l i c p o l i cy ”, i .e ., a g a i n s t t h e i n t e rest o f
S o ci e t y.

E xa m p l es :

• Tra d i n g w i th A l ie n E n emy.

• A g r e e men ts i n te r fe ring w i th C o u r s e o f J u s tice .

• A g r e e men ts f o r s ti f ling p r o s e cu tion . ( “ N o O n e ca n b e a l l o we d to m a ke a TRA D E o f FE LO N Y ” )

• C o n tra cts i n th e n a tu r e o f M a i n ten an ce a n d C h a m p e r ty. ( N UTHAKI VE N K ATASWAM I v s .

K AT TANGI REDDY, 1 9 62 )

• Tra f f ickin g i n Pu b l ic O f f ices . ( N .V. P. PA N D IAN v s . M . M . ROY, 1 9 7 9 )

• A g r e e men ts cr e a tin g a n i n te re s t o p p o s e d to d u ty.

• A g r e e ments i n r e stra in t o f Pa r e n tal r ig hts .

• M a r r i ag e B r okerag e a g r e e m en ts . ( VE N K ATAKRISHNA v s . VE N K ATAC HALAN)

• A g r e e men ts ca u s i n g a p p r e ciab le a d ve r s e e f f e ct o n co m p e tition .

• A g r e e ments i n r e stra in t o f Pe r s o n a l L i b e r ty.

• C h a r g i ng o f C a p i tatio n f ee s b y Sch o o l s / Pr es tigio us i n s titu tio ns .

60
Object or Consideration – Unlawful in part

• If Legal and Illegal por tion cannot be separated due to single sum of
money as consideration is Illegal and Void. (Sec 24)

• If Legal par t can be separated from the Illegal par t in reciprocal

promises.

Legal par t – Contract

Illegal par t – Void Agreement (Sec 57)

• In case of an alternative promise, one branch of which is legal and the

other is illegal, the legal branch alone can be enforced. (Sec 58)

• PRINCIPLE OF RESTITUTION is not applicable on Illegal Agreements.

61
QUASI CONTRACTS (Sec 68 to 72)

In some cases, there is no offer, no acceptance, no consent and no intention

of par ties to enter into a contract and still law imposes obligation on one
par ty and also confers rights in favour of the other. Such obligations imposed
by law are referred to as Quasi Contracts. Also, called as Constructive
Contracts.

PRINCIPLE: “NEMO DEBET LOCUPLETARI EX ALIENA JACTURA”

It means that a person shall not be allowed to enrich himself unjustly at the
expense of another.

“DOCTRINE OF UNJUST ENRICHMENT”

Duty, and not a promise or agreement is the basis of such contract.

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Types

1 . C l a i m f o r n e ce ss ari es s u p p l ie d to a p e r s o n i n ca p a ble o f co n tra ctin g o n h i s a cco u n t.

( M i n o r s , Id i o ts , L u n a tics , e tc.) ( Se c 6 8 )

2 . Pay m e n t b y a n In t e rested Pe r so n . ( Se c 6 9 )

Conditions: - In te r e s ted Pa r ty ( Pe r s o n al In te r e s t)

- N o t Vo l u n tar y

- O th e r p a r ty i s b o u n d to p ay

3 . O b l ig atio n o f p e r s o n e n j oy in g th e b e n e f it o f a N o n - G ra t u i to u s Act . ( Se c 7 0 )

C o n di ti o n s : - a ct d o n e l a w f ully i n g o o d f a i th a nd i n p ur sua nce of i m p lied w i she s a nd

n o t o n r e q u e s t.

- a ct d o n e w i th a n i n te n tion to g e t p a i d .

- Th e o th e r p a r ty m u s t h ave e n j oyed th e b e n e f its o f th e a ct.

63
4 . Re s p o ns i bi l ity o f F i n d e r o f L o s t g o o d s . ( “ B a i l e e ” f o r t h e O w n e r) ( S e c 7 1 )

Duties of Finder: - Must try to find the true owner

- must not use the goods

- m u s t t a ke r e a s o n a bl e c a r e o f t h e g o o d s

- must restore the goods to the true owner on

d e m a nd, w h e n h e i s t ra c e d .

Rights of Finder: - c a n r e t a i n t h e p o s s e s s i o n a g a i n s t e ve r ybo d y i n t h e w o r l d

t i l l t h e Tr u e o w n e r i s f o u n d o u t . ( H O L LI N S v s . F O W L ER , 1 8 7 5 )

- c a n r e c ove r a l l e x p e ns e s i n c u r re d f o r p r e s e r vin g t h e g o o d s a n d
f i n d i ng t h e t r u e o w n e r.

- c a n r e c ove r a ny r e wa rd , i f d e c l a r e d b y t h e o w n e r, p r ov i de d h e k n e w
t h e o f f e r b e f o r e f i n di n g t h e g o o d s .

- h a s r i g h t t o s e l l t h e g o o d s i f g o o d s a r e i n d a n g e r o f p e r i shi n g o r
l o s i n g s u b s t a nti a l va l u e o f t h e m O R w h e n t h e l a w f ul c h a r g e s o f t h e
f i n d i ng a m o u n t t o a t l e a s t ( 2 / 3 ) rd o f t h e va l ue o f t h e g o o d s .

5 . L i a bi l ity o f a p e r s o n t o w h o m m o n e y i s p a i d o r g o o d s h a ve b e e n d e l i ve r e d b y M i s t a ke o r
under Coercion (Sec 72)
64
DISCHARGE of CONTRACT

A contract is said to be discharged when the rights and

obligations arising out of the contract come to an end.

A contract can be discharged in any of the following ways:

1. By Performance

2. By Mutual Consent or Agreement

3. By Lapse of Time (“Time is of Essence in a Contract”)

4. By Operation of Law

5. By Subsequent Illegality or Supervening Impossibility

6. By Breach
65
 MODES of DISCHARGE

1. By Performance 2. By Mutual 3. By 4. By Operation 5. By 6. By Breach

Consent or Lapse of of Law Subsequent
Agreement Time Illegality or
Impossibility
Actual Anticipatory
Actual Attempted/
Tender Death Insolvency Merger Unauthorised *HOCHESTER vs.
Material DELA TOUR (1853)
Alteration
*R.B. SHAH vs.
N.GOPAL (1906)
Novation Alteration Rescission Remission Waiver

66
1. By Performance
a ) Act u a l Pe r form a n ce

b ) At t e mp ted Pe r fo rma n ce o r Te nd er

E s s en ti a l s o f a Va l i d Te n der:

i. U n co n d itio nal

ii. M a d e a t p r o p e r ti m e a n d p l a ce

iii. M a d e f o r th e w h o l e o b l i ga tion a n d n o t f o r a p a r t o f th e s a m e .

iv. If te n d e r r e l a te s to d e l iver y o f g o o d s , th e n p r o m is e e m u s t b e g i ve n the ch a n ce to d o

i n s p e ctio n.

v. M a d e b y a p e r s o n co m p e te nt to co n tra ct.

vi. M a d e to a p r op e r p e r s o n i . e . p r o m is e e o r h i s a u thor ised a g e nt.

vii. If th e r e a r e s e ve ra l j o i n t p r o m is e e, th en a n o f f e r to a ny o n e o f th e m i s a Va l i d Te n d e r.

viii.In ca s e o f te n d e r o f m o n e y, e xa ct a m o u n t s h o u l d b e te n d e r ed in th e l e g a l te n d e r m o n e y.

67
2. By Mutual Consent or Agreement (Sec 62 & 63)

a) Novation – occurs when a new contract is substituted for an existing contract

either between the same par ties or between dif ferent par ties, the consideration
mutually being the discharge of the old contract.
b) Alteration – involves change in one or more of the material terms of a contract.
c) Rescission – involves premature discharge of a contract mutually by the par ties by
agreeing not to fulf il their respective share of obligations.
d) Remission – involves acceptance of a lesser sum than what was contracted for or
a lesser fulf ilment of the promise made. (HARI CHAND MADAN GOPAL vs. STATE OF
PUNJAB, 1973)
e) Waiver – means the intentional relinquishment /deliberate abandonment or giving
up of a right.
68
5. By Subsequent Illegality or Supervening Impossibility

Cases Covered: Cases not covered under Supervening

Impossibility:
a) Destruction of the Subject matter.
a) Dif f iculty of Performance
(HOWELL vs. COUPLAND, 1876)
b) Commercial Impossibility
b) Failure of Ultimate Purpose.
“He who agrees to do an Act must do it or
c) Death or personal incapacity of pay damages for not doing it”
promisor.
c) Impossibility due to default by third person
d) Change of Law or Legislative d) Strikes, Lock outs, Riots or Civil
Intervention. disturbance

e) Outbreak of War. e) Failure of one of the several objects

69
 Remedies for Breach of Contract

1. Rescission 2. Suit for 3. Suit upon Quantum 4. Suit for Specific 5. Suit for an
of Contract Damages Meruit Performance Injunction
(SUMPTER vs. HEDGES, 1898) (LUMLEY vs.
WAGNER, 1852)

Ordinary Special Exemplary or Nominal

(HADLEY vs. Vindictive
BAXENDALE, 1854)

*The Basic Principle underlying Damages is not Punishment but Compensation.

*”Compensation must be commensurate with the injury or loss sustained, arising naturally
from the Breach.”
70
*If Actual Loss is not proved, no damages will be awarded.