Business related Law procedures for managers

Educative, Informative

1. Law of contract (Indian contract Act 1872) An agreement enforceable by law is a contract Agreement Sec 2(e) “ Every promise or every set of promise forming consideration for each other ” Consensus ad idem-parties mean the same thing in the same sense Agreement=offer + acceptance Offer(proposal)Sec 2(a) “ when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal ”

2. Acceptance Sec 2 (b) “ when the person to whom the proposal is made,signifies his assent thereto,the proposal is said to be accepted.A proposal when accepted becomes a promise ” Promisor or offerer-person making the promise Promisee or offeree-the person to whom the proposal is made

3. Obligation Obligation –it is the legal duty to carry out what he has promised to do or not to do. However he is legally bound to do what he has promised to do based on the following 1.Capacity of the parties-minor or incompetent cannot create valid obligation. 2.Free consent-free will not under coercion,fraud,misrepresentation

4. obligation 3.Lawful consideration and Object-there has to be quid pro quo(something has to be given in exchange)Example I give my laptop to my friend without him giving money then it does not form consideration. 4.Intention to create legal relationship-it cannot be based only on social relationship(ex father giving pocket money to son) 5.Possibility of performance example to pay back after 100 years

5. 6.Meaning should be certain-Example I will sell my bike is not sufficient unless registration nos is given. 7.Legal formalities(Sec 25)-Gift Immovable property to be gifted has to be registered. Movable property registration is optional

6. obligation 8.The following are not legally enforceable Restraint of trade Restraint of marriage Therefore law of contract is ONLY part of law of agreement.

7. Offer Acceptance Agreement Contract(agreement with legal oblication )

8. 4 Kinds of contract 1.Valid contract-can be enforced by court of law by either of the parties. 2.Voidable contract Sec 2 ( i ) 3.Void contract[Sec 2(j)] 4.Void agreement

9. 2 type Voidable contract Circumstances in which a contract is voidable are: (A) At the conception Consent caused by fraud (Sec.14, 17 and 19) Consent caused by coercion (Sec. 14, 15 and 19) Consent caused by misrepresentation (Sec. 14, 18 and 19) Consent caused by undue influence (Sec. 14, 16 and 19A) When one party induces another to enter into an agreement the object of which is unlawful though it is not known to the other party. (B) By Subsequent Default Where offer of performance is not accepted (Sec. 38) When one party prevents performance of reciprocal promise (Sec. 53) When a party fails to perform at the time fixed, if time is the essence of the contract (Sec. 55)

10. When can a voidable contract be rescinded(withdrawn) A voidable contract can be rescinded when the person at whose instance the contract is voidable returns or restores any benefit he may have received.

11. 3 rd type Void contract Contract which ceases to be enforceable becomes void.(example if car is destroyed in a flood the contract will become void) Void contract may have been valid at first but void later(as in above example) Void agreement may been void from the time it was made-void ab initio

12. Circumstances making a valid contract into void contract Contingent contract -A contract to do or not do something based on the happening of an uncertain event. when the contingent becomes impossible it becomes void. Repudiation of a voidable contract-when one of the party at whose option the contract is voidable rescinds(withdraws) the contract Subsequent impossibility(Sec 56) Subsequent illegality(Sec 56)

13. Sec 65 says once contract becomes void any advantage received by either party must be restored.

14. Void agreement(from the beginning) Party incompetent No consideration If consideration is unlawful(bike for kg of marijuana) If agreement is do impossible things No consensus ad idem Restraint of marriage Restraint of trade Restraint of legal proceeding Agreement is a bet or wager

15. Invalidating causes If a party to the contract is incompetent to contract (Sec.10, 11 & 12) If the agreement is without consideration (Sec. 10, 25) barring certain exceptions. If the consideration or object is unlawful (Sec. 23) If the meaning of the contract is uncertain (Sec. 29) If the agreement is to do an impossible act (Sec. 56) If both the parties enter into an agreement under a mistake as to the essential matter of fact (Sec. 20). There is no consensus ad idem. If both the parties are under a mistake as to foreign law (Sec. 21) If the agreement is in restraint of marriage of a person other than a minor (Sec. 26) If the agreement is in restraint of trade (Sec. 27) barring certain exceptions. If the agreements is in restraint of legal proceedings (Sec. 28) If the agreement is by way of wager (Sec. 30)

16. Types of contracts Unenforceable-valid but not enforceable technically(stamp not available) Express contract-immediate ,written or oral implied contract Quasi contract -imposed by contract act but not by consensus between parties.(A leaves goods in B’s house by mistake uses the goods, then he is bound to pay)

17. 11 th to 14 th type Executed contract-parties have discharged their rresponsibility.Ex cash sales Executory contract-parties are yet to perform the obligations of the contract. Unlilateral contract-one party to contract has done his part and only the other party has to fulfill his obligation.Bus ticket. Bilateral contract-at time of entering into contract both parties are yet to perform their promise.

18. Rules regarding a lawful offer and acceptance 1.terms of offer must be definite or capable of being made definite 2.the intention must be there to create a legal relationship(either party must be legally obliged to fulfill their contract)Ex A offers to sell TV to B for Rs10000 but tell that breach of promise cannot be legally challenged. In such it is NOT lawful offer. 3.other rules for lawful offer Mere invitation is not valid offer(making an advt is not lawful offer) invitation to offer is not lawful offer

19. Rules to make a lawful offer 4. Offer must be communicated 5.Offer should not contain any term the non compliance of which would amount to acceptance. Example –I shall buy your furniture for Rs10000,if you do not reply it is an indication of acceptance. 6.Offer can be express(oral or written) or implied. 7.Offer can be general or specific. Example it can be to one person or many.

20. Lapse of offer Offer is for stipulated or reasonable time Offer becomes illegal after it s made through change in rules etc. Offerer,offeree dies or becomes insane before accepting offer. Offeree does not accept offer in mode prescribed. Offer lapses by counter offer. Offer revokes his offer before it is accepted.

21. Other terms Tender-standing offer-it is an invitation to offer A proposal once accepted becomes CONTRACT CROSS OFFER-two parties make identical offers to each other without being aware of each others offer. Offer can be made to a specific person OR uncertain person.

22. Rules regarding acceptance Acceptance must be absolute and unconditional Acceptance must be expressed in reasonable manner or in any manner specified in the proposal. Acceptance by performing conditions Acceptance must be done before it is revoked Acceptance must be before the time specified in proposal. If offeree is aware that the offeror made a mistake then his acceptance is not binding on offeror.

23. Communication of offer and acceptance Incase face to face contact is not possible else communication can be made by telephone,letter,advertisements .. Communication of proposal is complete only when it comes to the knowledge of the person to whom it is made. Offer can be revoked at any time before the acceptance is put in course of transmission.

24. Revocation of proposal and acceptance A proposal cannot be revoked once communication is completed. Communication of revocation is complete on the part of when communication is beyond the control of the sender. Communication is complete against the person to whom it is made once it comes to his knowledge.

25. Other terms Agreement to agree in future upon terms to be settled is NOT valid. Consideration(compensation must be lawful) No consideration no contract.

26. Essentials of consideration-based on definition Consideration must move on desire(without force or compulsion) of promisor (person making promise) It may move from promisee or anyone on his behalf. person unrelated cannot sue Consideration may be past,present future Consideration must be real Consideration means act or abstience or promise.

27. Essentials of consideration-based on other provisions Consideration must be lawful and must not involve damage to person or property. Inadequate consideration does not void the contract. Court has to determine if promise was made without force.

28. Exception to rule of consideration Sec(25) Agreement without consideration is enforceable if made of love and affection between related parties and agreement is written and registered. Ex Compensation for voluntary service Contract of agency(Sec 185) Gift already made

29. Exception to rule of consideration On the eve of his marriage Rahul’s father gifted him a house. They went to register the documents, but such agreement was rejected as there was no consideration. Is this correct? Or can Rahul take legal action?

30. Exceptions to rule of consideration Past Voluntary Services If a person has done a voluntary service in the past and the beneficiary promises to pay at a later date, then the contract is binding provided: The service was rendered voluntarily in the past It was rendered to the promisor The promisor was in existence when the voluntary service was done (especially important when the promisor is an organization) The promisor showed his willingness to compensate the voluntary service Example, Peter finds Johns wallet on the road and returns it to him. John is happy to find his lost wallet and promises to pay Peter Rs 2,000. In this case, too, the no consideration no contract rule does not apply. This contract is a valid contract.

31. Exceptions to rule of consideration Promise to pay a Time-Barred Debt If a person makes a promise in writing signed by him or his authorized agent about paying a time-barred debt, then it is valid despite there being no consideration. The promise can be made to pay the debt wholly or in part. Example, Peter owes Rs 100,000 to John. He had borrowed the money 5 years ago. However, he never paid a single rupee back. He signs a written promise to pay Rs 50,000 to John as a final settlement of the loan. In this case, ‘the no consideration no contract’ rule does not apply either. This is a valid contract.

32. Exceptions to rule of consideration Gifts The rule of no consideration no contract does not apply to gifts. Explanation (1) to Section 25 of the Indian Contract Act, 1872 states that the rule of an agreement without consideration being void does not apply to gifts made by a donor and accepted by a donee .

33. Exceptions to rule of consideration Bailment Section 148 of the Indian Contract Act, 1872, defines bailment as the delivery of goods from one person to another for some purpose. This delivery is made upon a contract that post accomplishment of the purpose, the goods will either be returned or disposed of, according to the directions of the person delivering them. No consideration is required to effect a contract of bailment.

34. Exceptions to rule of consideration Charity If a person undertakes a liability on the promise of another to contribute to charity, then the contract is valid. In this case, the no consideration no contract rule does not apply. Example, Peter is the trustee of his town’s charity organization. He wants to build a small pond in the town to enhance greenery and offer the residents a good place to walk around in the evenings. He raises a charity fund where he appeals to people to come ahead and contribute to the cause. Many people come forward as subscribers the fund and agree to pay Peter their share of the amount once he enters into a contract for constructing the pond. After raising half the amount, Peter hires contractors for building the pond. However, 10 people back out at the last moment. Peter files a suit against them for recovery. The Court ordered the 10 people to pay the amount to Peter since he had undertaken a liability based on their promise to pay. Even though there was no consideration, the contract was valid and enforceable by law.

35. Unlawful agreements(Sec 23) Forbidden by law(object or consideration is forbidden by law) Would if permitted be in violation of law If objective is to defraud others Considered immoral implies injury to person or property Opposed to public benefit a. Trading with enemy b. agreement to suppress criminal charge(to avoid prosecution) c.Agreement interfering with court orders(agreement made to influence judges) d.traffic in public offices(appointment to any post in public office is based on monetary compensation. e.marriage brokerage f.agreements opposed to parental rights and duties.(parental duties cannot be parted through agreement) g.Agreements which restrain personal freedom

36. Other unlawful agreements Agreements in restraint of marriage,trade or legal action.

37. Competence to contract Party must be major(18 years) Party must be of sound mind Party must not be disqualified under any other law However minority would extend upto 21 years for following two reasons When guardian to the person/property of a minor is appointed by court. When minor is under court of wards.

38. Rules regarding agreement with minor Agreement is void ab initio Minor can be promisee and promisor cannot avoid the contract. A minor’s agreement cannot be ratified once he/she becomes major. Even if agreement is void any benefit received by minor cannot be called for refund. Rule of estoppel does not apply to minor (estoppel means restraint to change what has been said) A minor acting as an agent cannot be held liable even if other agents are liable.

39. Under partnership act the minor can get benefit with consent of all partners but in case of loss minor is only liable to th extent of his share and no personal property is not liable unlike the other major partners. Minor cannot be called insolvent. Joint agreement-incase party to one agreement is a minor and other person then minor is not liable even if the other partner is liable. Guardianship-an agreement made by minor’s guardian is binding on the minor if it is for his benefit. Minor cannot enforce agreements against his parents.

40. Person of unsound mind Based on following two conditions Capacity to understand Capacity to make a rational judgement . Two types of persons with unsound mind Idiot-lost his mental powers completely Lunatic-illness of the mind for a period of time

41. Other disqualification to enter into contract Enemy Foreign sovereign and their ambassadors Insolvent-loses power to contract over his property Convicts

42. Important terms Coercion(criminal act) committing an act forbidden in IPC with intention of causing person to enter into an agreement threatening to commit an act forbidden in IPC with intention of causing person to enter into an agreement threatening to detain any property with intention of causing person to enter into an agreement

43. 2.Undue influence(unlawful act) one part has dominance over other one party has used the dominance for unfair advantage. Both coercion and undue influence will make a valid agreement into void

44. 3.Fraud Concealment of fact Promise with no intention of fulfilling Mere silence is not fraud Silence is fraud only if it the duty of the person keeping silence to speak. His silence itself means speech

45. Effect of fraud If fraud is the basis of the contract then it becomes a void contract claim for damages

46. Misrepresentation Sec 18 A person may assert as truth which he believes as truth but is in fact not true. No intention to deceive No damages are applicable

47. Mistake Sec 21 Mistake –error in consensus(misunderstanding) Mistake is of two types Mistake of law-contract is not voidable(example ignorance of law is no excuse) Mistake of fact-both parties make mistake of fact the agreement is void. the mistake must be mutual, must relate to fact and be essential.

48. Types of mistakes of fact Bilateral mistake Mistake regarding subject matter Mistake regarding existence of subject matter Mistake regarding quantity Mistake regarding title of subject matter Mistake regarding price Point 2 Mistake regarding possibility of performance

49. Unilateral mistake(even unilateral mistake will make contract voidable) Mistake as to nature of transaction(when one party makes a mistake without any fault on his own)

50. Void agreement Agreements in restraints of marriage Agreements in restraint of trade Agreement in restraint of legal proceedings(uncertain agreements, Agreement by way of wager) THE EXCEPTION IS ARBITRATION AGREEMENTS

51. Contingent Contract Under Section 31 of the  Indian Contract Act, 1872 , contingent contracts are defined as follows: “If two or more parties enter into a contract to do or not do something, if an event which is collateral to the contract does or does not happen, then it is a contingent contract.” Explanation- Contingent contracts, are the ones where the promisor performs his obligation only when certain conditions are met. Example insurance,indemnity and guarantee

52. Example: Peter is a private insurer and enters into a contract with John for fire insurance of John’s house. According to the terms, Peter agrees to pay John an amount of Rs 5 lakh if his house is burnt against an annual premium of Rs 5,000. This is a contingent contract.

53. Rules of contingent contracts Performance cannot be at will and pleasure of promisor. Contingent contracts cannot be enforced until the uncertain future event happens.(Sec 32) contracts on the non happening on the event can be enforced only when the non happening becomes impossibility. Example-Peter promises to pay John Rs 50,000 if the ship named Titanic which leaves on a dangerous mission does not return. This is a contingent contract. This contract is enforceable by law if the ship sinks making its return impossible. On the other hand, if the ship returns, then the contract is void.

54. contingent contracts on the happening or not happening event within fixed time is VALID (Sec 35) Contingent contracts on impossible even is VOID. Example-Peter promises to pay John Rs 50,000 if the sun rises in the west the next morning. 

55. Difference between wagering agreement and contingent contract Contingent agreement is valid but wagering agreement is void. Contingent contract is not based on doctrine of mutuality.(explanation-one mans loss is not others profit) whereas in wagering agreement is a game where only losing and gaining matters. Future uncertain event is collateral whereas uncertain event is the sole determining factor.

56. Example to explain collateral if X agrees to buy goods from Y that will, accordingly, be manufactured by Z, and does so on the strength of Z's assurance as to the high quality of the goods, X and Z may be held to have made a collateral contract consisting of Z's promise of quality given in consideration of X's promise to enter into the main contract with Y.

57. Quasi contract It is obligation or right created by law It is a fictional contract created by law Based on the principle that no one can enrich oneself at the cost of the other. In quasi contract there need not be offer, acceptance and consideration.

58. example Peter and Oliver enter a contract under which Peter agrees to deliver a basket of fruits at Oliver’s residence and Oliver promises to pay Rs 1,500 after consuming all the fruits. However, Peter erroneously delivers a basket of fruits at John’s residence instead of Oliver’s. When John gets home he assumes that the fruit basket is a birthday gift and consumes them. Although there is no contract between Peter and John, the Court treats this as a Quasi-contract and orders John to either return the basket of fruits or pay Peter.

59. Section 68-72 of Indian contract act 1872(five circumstances) Section 68 – Necessaries Supplied to Persons Incapable of Contracting Section 69 – Payment by an Interested Person Example- Peter is a zamindar . He has leased his land to John, a farmer. However, Peter fails to pay the revenue due to the government. After sending notices and not receiving the payment, the government releases an advertisement for sale of the land (which is leased to John). According to the Revenue law, once the land is sold, John’s lease agreement is annulled. John does not want to let go of the land since he has worked hard on the land and it has started yielding good produce. In order to prevent the sale, John pays the government the amount due from Peter. In this scenario, Peter is obligated to repay the said amount to John.

60. 3. Section 70 – Obligation of Person enjoying the benefits of a Non-Gratuitous Act   Explanation-A person delivers something to another without the intention of doing so gratuitously (not out of gratitude)and the other person enjoys the benefits of the act done or goods delivered.

61. 4. Section 71 – Responsibility of Finder of Goods if a person finds goods that belong to someone else and takes them into his custody, then he has to adhere to the following responsibilities: Take care of the goods as a person of regular prudence No right to appropriate the goods Restore the goods to the owner (if found)

62. 5. Section 72 – Money paid by Mistake or Under Coercion Peter misunderstands the terms of the lease and pays municipal tax erroneously. After he realizes his mistake, he approached the municipal authorities for a reimbursement. He is entitled to be reimbursed since he had paid the money by mistake.

63. Lesson 2 performance and discharge of contracts Syllabus-Performance - Discharge - Remedies To Breach Of Contract - Partnership

64. Actual and attempted performance Actual performance -actual performance is when all the parties to a contract do what they had agreed for under the contract Attempted performance or tender it is possible that when the promisor attempts to perform his promise, the promisee refuses to accept it.

65. Conditions for tender(offer)to become legally valid-Sec 38 The promisor must perform his promise unconditionally. Offer must be whole payment or performance. Offer must be made at proper time and place Promisor must be able and willing to fulfill promise Promisee must have reasonable opportunity to see the object of contract. A promise made to any one promisee of several joint promisees has the same legal consequences as an offer to all of them.

66. Discharge of contract 1. Discharge by performance(Sec 57) 2. Discharge by Tender(attempted performance) Promisor makes promise which is not accepted, then Promisor is not responsible for non performance.

67. Discharge of contract 3.Discharge by supervening impossibility is of two types 1.impossibility at time of contract(Sec 56) 2.subsequent or supervening impossibility(Sec 56) Impossibility arises due to any of following Destruction of subject matter War,death,change of law

68. Exceptions to the principle of supervening impossibility IMPOSSIBILITY IS NOT EXCUSE FOR NON PERFORMANCE Following cannot be excused Difficulty of performance increases Commercial impossibility would not discharge a contract. Strikes,lockout,riot Partial impossibility-if contract is for more than one performance then one event turning impossible does not render contract impossible.

69. Consequences of supervening impossibility(makes contract void) Sec 65 discharges both parties from their respective obligations. Party who has received any advantage must restore the same to the other.

70. 4.Discharge by mutual agreement Example: Peter owes Rs 100,000 to John and agrees to repay it within one year. They document the debt under a contract. Subsequently, he loses his job and requests John to accept Rs 75,000 as a final settlement of the loan. John agrees and they make a contract to that effect. This discharges the original contract due to mutual consent. Novation -new contract is substituted for existing contract. Alteration(A asks for 20 blue shirt B accepts but later a changes to red, then old contract comes to end) Rescission-both parties can rescind the offer Remission-if one party accepts less from other party less than the performance promised to him, then he is deemed to have remitted the remaining performance. Waiver-one party releases the other from performance Merger-if one superior right coincides with a inferior right. Example – a lease gets merged with right of ownership.

71. 5.By lapse of time Limitation act provides time limit in which certain rights can be enforced. If time lapses then promisee cannot enforce the promisor. A owes Rs 10,000 to B. The last date for the repayment of the loan has expired and B does not file a suit against A for two years. B loses the right to recover the money back.

72. 6.By operation of law Death-if contract involves skill or ability of the person who is no more Insolvency Material alteration(alteration of agreement by one party without consent of other)

73. 7.By breach of contract Breach is non performance by promisor. The promisee can rescind(withdraw) the contract.

74. Refusal to perform sec 39 When a party to contract has refused to perform then the promisee can end contract unless he signifies that he wants to continue.

75. Who can demand performance Only promisee can demand performance of promise.

76. By whom contract can be performed The promisor himself(Sec 40) Incase of death the representatives of the promisor (Sec 37) Example A and B make a contract for A to deliver goods to B on a certain day. Suppose A dies before that day then is representatives are bound to fulfill promise.

77. Devolution of joint rights and joint liabilities(joint promises) When two or more persons make a promise to others they are known as joint promisors . All promisors are jointly and individually obliged. Example A and B jointly promise to pay C Rs5000.C can collect both individually and jointly.

78. Time and place Reasonable time(sec 46) During usual hours of business(sec 47) Promisee’s duty to apply for performance(when promise is to be performed on a particular day then promisee has to apply to the promisor for performance. Promisor has to apply for a reasonable place for performance in case no place is fixed for the performance. Performance must be in the manner prescribed by promisee (sec 50)

79. Performance of reciprocal promises(sec 51 to 58) Reciprocal promises are those promises where the consideration is part of the performance. it is a promise in exchange for a promise Example shop keeper gives goods and takes money. here each party plays role of both promisor and promisee.

80. Rules for reciprocal performance order of transaction (sec 52)unless specified in the contract will be in order which the nature of transaction requires. performance of promise is dependant upon the other when one party prevents the other from performing the promise(sec 53)then the contract can be void at option of party so prevented. When the promise is partly legal and partly illegal(sec 57)

81. Time of performance When time is the essence of the contract failure to fulfill promise makes contract voidable. If time is NOT the essence of the contract then the contract does not become voidable by the failure to do such thing. Condition for compensation when contract is voidable and goods are accepted. If goods are accepted at any other time other than the time specificied then promisee cannot claim compensation.