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Slide 1: V BBM ‘B’ BUSINESS LAW CLASS CONTENTS 1. Introduction to Busin ess La ws 2. Indian Con tra ct A ct, 18 72 3. Patent Act, 1970 4. Trade & Merchandise Marks Act, 1958 5. Copyright Act, 1957 6. Consumer (Protection) Act, 1986 7. Foreign Exchange Management Act, 1999 8. Information Technology Act, 2000 9. Environment Protection Act 10.Competition Act, 2002
Slide 2: Module I. BUSINESS LAWS What is law ? 1. A citizen may think of ‘law’ as a set of rules which he must obey. 2. A lawyer who practices ‘ law’ may think of law as a vocation. 3. A legislator may look at ‘law’ as a something created by him. 4. A judge may think of ‘law’ as a guiding principles to be applied in making decisions.
Slide 3: Law • Law includes all those rules and regulations which regulate our relations with other individuals and with the state.
Slide 4: Definition of Law by Salmond • “ Law is ……………… …the body of principles recognized and applied by the State in the administration of the justice ”.
Slide 5: Object of law • The object of law is order, and the result of order is that men are enabled to lo ok ahead with some so rt of security as to the future .
Slide 6: Need for the knowledge of law • ‘Ignorantia juris non excusat’ is a familiar maxim. This means ignorance of law is not excusable. The law now a days is a matter of great intricacy. As such no sound business man would attempt to solve important legal questions affecting his business interest without expert legal advice.
Slide 7: BUSINESS LAWS • Business laws are those laws which regulate the conduct of the businesses.
Slide 8: Sources of Business Law • • • • • 1.English Mercantile Law 2.The Statute Law 3.The Case Law 4.The Common Law 5.Customs and Usages
Slide 9: Module: II Law of Contract • The law of contract is regulated by Indian Contract Act, 1872 OBJECT OF THE LAW OF CONTRACT The law of contract is that branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. In simple words, the purpose of law of contract is to ensure the realization of reasonable expectation of the parties who enter in to contract.
Slide 10: OBJECT OF LAW OF CONTRACT • According to Sir William Anson, The law of contract is intended to ensure that, ‘what a man has been led to expect shall come to pass, and th at what has been promised to him shall be performed.
Slide 11: ‘JUS IN REM’ & ‘JUS IN PERSONAM’ Law of contract creates, ‘jus in rem’ and ‘jus in personam’. • ‘Jus in rem’ means, right against the world at large. ‘jus in personam’ means, the right against particular persons.
Slide 12: Definition of Contract • Section 2(h) of Indian Contract Act, 1872 defines a contract as …….. “An agreement enforceable by law”. So, a contract is an agreement made between two or more parties which the law will enforce.
Slide 13: CONTRACT • An agreement enfo rceable by law is a contract. Contract = Agr eement + Enforceability Agreement = O ffer + Acceptance An agreement is defined as, “every promise and set of pro mises, forming consideration for each
Slide 14: Definition of Promise • A promise is defined thus: “When the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.” [Section 2(b)]. An agreement is an accepted proposal.
Slide 15: Consensus ad idem • The essence of an agreement is meeting of the minds of the parties.There must in fact, be consensus ad idem. • Eg., A, (owns two horses named Rajhans & Hansraj), is selling horse Rajhans to B. B thinks he is purchasing Hansraj. There is no consensus ad idem consequently no contract.
Slide 16: Obligation • An agreement, to become a contract, must give rise to a legal obligation or duty. • An obligation is a legal tie which imposes upon a definite person or persons the necessity of doing or abstaining from doing a definite act or acts. Ex. A agrees to sell his car to B for Rs.1,00,000/-.The agreement gives rise to an obligation on the part of A to deliver the car to B on the part of B to pay Rs.1,00,000/to A. This agreement is a contract.
Slide 17: Obligation • An agreement whic h gives rise to social obligation is not a contract . • An agreement is a wider term. • An agreement may be a social agreement or a legal agreement. • If A invites B to a dinner and B accepts the invitation, it is a social agreement.
Slide 18: Obligation • A social agreement does not give rise to contractual obligations and is not enforceable in a Court of law. • It is only those agreements which are enforceable in a court of law which are contracts. • A father promises to pay his son Rs.100/- every month as pocket allowance. Later he refuses to pay. The son cannot recover as it is a domestic agreement and there is no intention on the part of the parties to create legal relations.
Slide 19: All contracts are agreements, but all agreements are not necessarily contracts • 1. 2. 3. 4. 5. 6. 7. 8. 9. ESSENTIALS OF A VALID CONTRACT: Offer and Acceptance Intention to create legal relationship Lawful consideration Capacity of parties-Competency Free and genuine consent Lawful object Agreement not declared void Certainty and possibility of performance Legal formalities
Slide 20: ESSENTIALS OF A VALID CONTRACT: 1.Offer and Acceptance: There must be two parties to an agreement, i.e., one party making the offer and the other accepting it . The terms of the offer must be definite and the acceptance of the must be absolute and unconditional. The acceptance must also be according to the mode prescribed.
Slide 21: ESSENTIALS OF A VALID CONTRACT: • 2.Intention to create legal relationship: When two parties enter into an agreement, their intention must be to create legal relationship between them .If there is no intention on the part of the parties, there is no contract between them. E g., A husband promised to pay his wife a house hold allowance of 30 pounds every month .Later the parties separated an the husband failed to pay the amount. The wife sued for the allowance .Held, the agreement such as these were outside the realm of contract altogether [Balfour vs.Balfour,1919].
Slide 22: ESSENTIALS OF A VALID CONTRACT: • 3. Lawful consideration : An agreement to be enforceable by law must be supported by consideration. ‘Consideration’ means advantage or benefit moving from one party to the other . It is the essence of a bargain. In simple words, it means ‘something in return’. A promise to do something and, getting nothing in return is usually not enforceable by law. Consideration need not be in cash or kind. It may be an act or abstinence.
Slide 23: ESSENTIALS OF A VALID CONTRACT: • 4.Capacity of parties-Competency: The parties to the agreement must be capable of entering in to a valid contract. Every person is competent to contract if he, (a) is of the age of majority, (b) is of sound mind, and © is not disqualified from contracting by any law to which he is subject. The flaw in capacity to contract may arise from minority, lunacy, idiocy, drunkenness, etc.
Slide 24: ESSENTIALS OF A VALID CONTRACT: • 5.Free and genuine consent: It is essential to the creation of every contract that there must be free and genuine consent of the parties to the agreement. The parties are said to be of the same mind when they agree about the subject matter of the contract in the same sense and at the same time(Sec.13). There is absence of free consent if the agreement is induced by coercion, undue influence, fraud, misrepresentation, etc. (Sec.14).
Slide 25: ESSENTIALS OF A VALID CONTRACT: • 6.Lawful object: The object of the agreement must be lawful.In other words, it means that the object must not be (a) illegal, (b) immoral, or © opposed to public policy(Sec.23) If an agreement suffers from any legal flaw, it would not be enforceable by law.
Slide 26: ESSENTIALS OF A VALID CONTRACT: 7. Agreement no t declar ed vo id: The agreement must not have been expressly declared void by law in force in the country. A void agreemen t is o ne which is no t enforceable by law.
Slide 27: ESSENTIALS OF A VALID CONTRACT: 8. Certainty and possibility of performance: The agreement must be certain and not vague or indefinite (Sec.29). If it is vague and if it is not possible to ascertain it’s meaning, it cannot be enforced. Ex. ‘A’ agrees to sell to ‘B’ “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void.
Slide 28: ESSENTIALS OF A VALID CONTRACT: • 9.Legal formalities: A contract may be made by words spoken or written. As regards the legal effects, there is no difference between a contract in writing and a contract made by word of mouth. It is however in the interest of the parties that the contract should be in writing. In some other cases, a contract, besides being a written one, has to be registered.
Slide 29: Classification of Contracts Contracts may be classified according to, 1.Validity 2.Formation, and 3.Performance VALIDITY FORMATION PERFORMANCE 1.Voidable Contract [2(i)] 1.Express Contract [9] 1.Executed Contract 2.Void Agreement [2(g)] 2.Implied Contract [9] 2.Executory Contract 3.Void Contract [2(j)] 3.Quasi Contract 3.Unilateral Contract 4.Illegal Agreement 4.Bilateral Contract 5.Unenforceable Contract
Slide 30: 1.Classification according to ‘Validity’ • i] Voidable contract: An agreement which is enforceable by law at the option of one party but not at the option of the other or others is a voidable contract [Sec.2(i)]. The party whose consent is not free may either rescind (avoid or repudiate) the contract, if he so desires, or elect to be bound by it. A voidable contract continues to be valid till it is avoided by the party entitled to do so.
Slide 31: Classification of Contract……… • Example of Voidable Contract: A promises to sell his car to B for Rs 2000. His consent is obtained by use of force.The contract is voidable at the option of A . • He may avoid the contract or elect to be bound by it.
Slide 32: Classification of Contract……… • ii] Void Agreement: An agreement not enforceable by law is said to be void [Sec.2(g)]. • E.g., An agreement with a minor or an agreement without consideration.
Slide 33: Cont’d….. • iii] Void Contract:A contract which ceases to be enforceable by law is a void contract. [2 (j)]. • E.g., A contract to import goods becomes void, when war breaks out between the countries.
Slide 34: Cont’d….. • iv] Illegal Agreement: An illegal agreement is one which transgresses the public policy or which is criminal in nature or which is immoral. • E g.,An agreement to import prohibited goods. All illegal agreements are void but all void agreements are not necessarily illegal.
Slide 35: Cont’d… • ………….Illegal Agreement: • An illegal agreement is not only void as between the parties but has this further effect that even the collateral transactions to it become tainted with illegality. A collateral transaction is one which is subsidiary, incidental or auxiliary to the principal or original contract.
Slide 36: Cont’d…….. • v] Unenforceable Contract: • An unenforceable Contract is one which cannot be enforced in a Court of law because of some technical defect such as absence of writing or where the remedy has been barred by lapse of time. The contract may be carried out by the parties concerned; but in the event of breach or repudiation of such a contract, the aggrieved party will not be entitled to the legal remedies.
Slide 37: 2.Classification according to ‘Formation’ • A contract may be (a) made in writing or by word of mouth, or (b) inferred from the conduct of the parties or circumstances of the cases.These are the modes of formation of contract. • On the basis of ‘ Formation’ Contract can be classified as, (i) Express Contract, (ii) Implied Contract, & (iii) Quasi Contract.
Slide 38: Cont’d……. (i) EXPRESS CONTRACT: If the terms and conditions of contracts are expressly agreed upon (whether words spoken or written) at the time of formation of contract, the contract is said to be ‘Express Contract ’. (ii) IMPLIED CONTRACT: One which is inferred from the acts or conduct of the parties or course of dealings between them. An implied contract is one which is not an express contract.
Slide 39: Contracts ………classified. (iii)QUASI CONTRACT: Strictly speaking Quasi Contract is not a contract at all. A contract is intentionally entered in to by the parties. A quasi contract, on the other hand is created by law. It rests on the ground of equity that, “ a person shall not be allowed to enrich himself unjustly at the expense of another ”.
Slide 40: III. Classification according to ‘Performance’ • (i) Executed Contract (ii) Executory Contract -Unilateral or One-sided Contract -Bilateral Contract
Slide 41: ….. Classification according to ‘Performance’ (I) EXECUTED CONTRACT: ‘Executed’ means that which is done. An executed contract is one in which both the parties have performed their respective obligations. (ii) EXECUTORY CONTRACT: ‘Executory’ means that which remains to be carried in to effect. A contract may be partly executed and partly executory. • ONE-SIDED OR UNILATERAL CONTRACT Performance of only one party is outstanding. • BILATERAL CONTRACT. Performance of both the parties remains outstanding.
Slide 42: CASE 1. • Over a cup of tea in a restaurant, A invites B for a dinner at his house on a Sunday. B hires a taxi and reaches A’s house at the appointed time, but A fails to perform his promise. Can B recover any damage …???
Slide 43: VERDICT OF CASE 1. • No. [Balfour V. Balfour,1919] • A husband promised o pay his wife a household allowance of 30 sterling pounds every month. • Later the parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held, agreement such as these were outside the realm of contract altogether.
Slide 44: CASE 2. • (a) A engages B for a certain work and promises to pay such remuneration shall be fixed by C. B does the work. • (b) A and B promise to marry each other. • (c) A takes a seat in public vehicle. • (d) A invites B for a card party as
Slide 45: VERDICT OF CASE 2. • (a) There is a contract between A and B and A is bound to pay the remuneration as shall be fixed by C. If C does not fix , or refuses to fix the remuneration, A is bound to pay a reasonable remuneration. • (b) There is a contract between A and B • (c) There is a contract between A and B • (D) There is no contract
Slide 46: CASE 3. • A forced B to enter in to a contract at the point of pistol. What remedy is available to B. If he (B) does not want to be bound by the contract ..??
Slide 47: VERDICT OF CASE 3. • He (B) can repudiate the contract as his consent is not free.
Slide 48: CASE 4. • M mows L’s lawn without being asked by L to do so.L watches M do the work but does not attempt to stop him. Is ‘L’ bound to pay any charges to ‘M’ ?
Slide 49: VERDICT OF CASE 4. • Yes, L is bound to pay M a reasonable remuneration.
Slide 50: CASE 5. • C orally offered to pay A, an auto mechanic, Rs 50 for testing a used car which C was about to purchase from D. • A agreed and tested the car. C paid A Rs 50 in cash for his services. Is the agreement between ‘C’ and ‘A’, (a) express or implied,…..??? (b) executed or executory, …??? (c) Valid,void, voidable or unenforceable…???
Slide 51: VERDICT OF CASE 5. The agreement is, • (a) express, • (b)executed, and • (c) valid.
Slide 52: CASE 6. • A promises to pay B Rs.500, if he(B) beats C. B beats C, but A refuses to pay. Can B recover the amount.. ???
Slide 53: VERDICT OF CASE 6. • No as the agreement is illegal.
Slide 54: CASE 7. • D lived as a paying boarder with a family. He agreed with the members of the family to share prize money of a newspaper competition. • The entry sent by D won a prize 750 sterling pounds. He refused to share the amount won. • Can the members of the family recover their share …….???
Slide 55: VERDICT OF CASE 7. • Yes, ‘as there was mutuality in the agreement between the parties’ and the parties had intended to be bound.
Slide 56: OFFER & ACCEPTANCE • An offer is a proposal by one party to another to enter in to a legally binding agreement with him.
Slide 57: Offer [Proposal] 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” [Sec.2(a)]
Slide 58: PROMISOR-PROMISEE • The person making the offer is known as the, offeror, proposer or promisor, and the person to whom it is made is called the, offeree or proposee. When the offeree accepts the offer, he is called the acceptor or promisee [Sec.2(c)].
Slide 59: How an offer is made • E.g., An offer may be made by express words, spoken or written. This is known as Express offer. When A says to B, “will you purchase my house at Meerut for Rs.5,00,000” ?
Slide 60: ……How an offer is made • An offer may be inferred from the conduct of the parties or the circumstances. This is known as Implied Offer. E.g., When a transport company runs a bus on a particular route, there is an implied offer by the transport company to carry passengers for a certain fare.
Slide 61: ‘Specific’ and ‘General’ Offer….. When an offer is made to a particular person, it is called specific offer. E.g. A offers to sell car to B [only] for Rs.1,00,000. When an offer is made to the world at large, it is called general offer. E.g., Mrs Carlill v. Carbolic Smoke Ball Co.[1893].
Slide 62: What constitutes an offer….… • 1.The offer must show an obvious intention on the part of the offeror to be bound by it. Thus, if A jokingly offers B Rs 10 for his typewriter and B knowing that A is not serious, says “I accept”, A’s proposal does not constitute an offer.
Slide 63: What constitutes an offer… • 2.The offeror must make the offer with a view to obtaining the assent of the offeree to such act or abstinence. • 3.The offer m ust be d efinite. • 4.It must be communicated to the offeree.
Slide 64: LEGAL RULES AS TO OFFER • 1.Offer must be such in law is capable of being accepted and giving rise to legal relationship • 2..Terms of offer must be definite, unambiguous and certain not loose and vague.
Slide 65: ……LEGAL RULES AS TO OFFER • 3.An offer must be distinguished from; (i) A declaration of intention and an announcement. (ii) An invitation to make an offer or to do business. Newspaper advertisements are not offers. A recognized exception to this is a general offer of reward to the public.
Slide 66: ……LEGAL RULES AS TO OFFER • 4.Offer must be communicated.. • In Lalman Shukla vs. Gauri Dutt, A sent his servant A in search of missing nephew. Subsequently A issued hand bills offering a reward of Rs.501 to any one who might trace the boy. B brought the boy back. After some time, B was dismissed. He filed a suit claiming the reward. Held, there can be no acceptance without knowledge of the offer. Hence B was not entitled to the reward. [1913] • 5.Offer must be made with a view to obtaining the assent.
Slide 67: Legal rules as to offer…….. • 6.A statement of price is not an offer. • HARVEY Vs. FACEY,[1893] E.g., Three telegrams were exchanged between Harvey and Facey. 1. “Will you sell your Bumper Hall Pen ? Telegraph lowest cash price-answer paid.” [Harvey to Facey] 2. “Lowest price for Bumper Hall Pen 900 pounds.”[Facey to Harvey]
Slide 68: …………..6.A statement of price is not an offer. HARVEY Vs. FACEY,[1893] 3. “We agree to buy Bumper Hall Pen for the sum of 900 pounds asked by you” [Harvey to Facey] Held, there was no concluded contract between Harvey and Facey The first telegram asked two questions; (i) the willingness of the Facey to sell, and (ii) the lowest price. Facey replied only to the second question and gave his lowest price, i.e., he supplied mere information and no offer had been made by him to sell.There could be contract only if he had accepted Harvey’s last telegram.
Slide 69: Special Terms of Contract • Where any special terms are to be included in a contract, there must be duly brought to the notice of the offeree at the time when the proposal is made.
Slide 70: Special Terms of Contract • If it is not done and if the contract is subsequently entered in to, the offeree will not be bound by them. Also these terms should be presented in such a manner that a reasonable man can become aware of them before he enters in to contract.
Slide 71: ……Special Terms of Contract E.g., A hotel put up a notice in a bed room, exempting the proprietor from liability for loss of client’s goods. Held, the notice was not effective as it came to the knowledge of the client only when the contract to take a room had already been entered in to. Olley v. Marlborough Court Ltd., [1949].
Slide 72: Example of Special Terms of Contract • A deposited a bag in the cloak room of a railway station.On the face of the ticket, issued to him, was written “see back”.One of the printed conditions limited the liability of the company for loss of a package to 10 pounds.The bag was lost and P claimed 24.50 pounds, as it’s value. • Held, ‘P’ was bound by the conditions on the back of the ticket even if he had not read them [Parker Vs. S E Rail Co.(1877) ]
Slide 73: Example of Special Terms of Contract • If conditions are printed on the back of a ticket, but there are no words at all on the face of it to draw the attention of the person concerned to those conditions, he is not bound by them; • Example: C hired a deck chair from Muncipal Council.He paid a hire of 2 $ for two sessions of 3 hours .He sat on the chair, it broke and injured him.Held ,Council was liable • [Chapleton Vs. Barry Urban District Council,1940]. • He was given a ticket which he put in his pocket.
Slide 74: Agreement to agree in future, is not a contract. • If the parties have not agreed upon the terms of the contract, but have made an agreement to agree in future, there is no contract. An agreement to be finally settled must comprise all the terms which the parties intend to introduce in to the agreement. E.g., An actress was engaged in a theatrical company for a certain period .One of the terms of the agreement was that if the play was shown in London, she would be engaged at a salary to be mutually agreed upon. Held , there was no contract.
Slide 75: ACCEPTANCE A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by the offeree to an offer . In other words, it is the manifestation by the offeree of his willingness to be bound by the terms of the offer. It is (acceptance) to an offer what a lighted match is to a train of gun powder. It produces something which cannot be recalled, or undone”. This means ‘when the offeree signifies his assent to the offeror, the offer is said to be accepted’.
Slide 76: Acceptance • A proposal when accepted becomes a promise [2(b)]. An acceptance may be express or implied. • It is express when it is communicated by words, spoken or written or by doing some required act. • It is implied when it is to be gathered from the surrounding circumstances of the cases or the conduct of the parties.
Slide 77: Acceptance • Who can accept offer ? Acceptance of a particular offer: When an offer is made to a particular person, it can only be accepted by him alone. If it is accepted by any other person, there is no valid acceptance. The rule of law is clear that if you propose to make a contract with ‘A’, ‘B’ cannot substitute himself for a A ‘ without your consent.
Slide 78: Example of ‘an acceptance of a particular offer’. • Boulton bought a hose pipe business from Brocklehurst. Jones to whom Brocklehurst owed a debt, placed an order with Brcklehurst for the supply of certain goods. Boulton supplied the goods even though the order was not addressed to him. Jones refused to pay Boulton for the goods because he, by entering in to contract with Brocklehurst, intended to set off his debt against Brocklehurst. • Held, the offer was made to Brocklehurst and it was not in the power of Boulton to step in accept and therefore there was no contract . [Boulton Vs. Jones(1857)]. • Under a quasi contract, Boulton can however recover the goods from Jones.
Slide 79: Acceptance of a general offer • When an offer is made to world at large, any persons to whom the offer is made can accept it [Mrs.Carlill Vs.Carbolic Smokeball Co.(1893)]
Slide 80: Legal Rules as to Acceptance The acceptance of an offer is the very essence of a contract. To be legally effective, it must satisfy the following conditions: • 1.It must be absolute and unconditional i.e., it must conform with the offer. • 2.It must be communicated to the offeror • 3.It must be according to the mode prescribed or usual and reasonable mode. • 4.It must be given within a reasonable time.
Slide 81: …..Legal Rules as to Acceptance • 5.It cannot precede an offer. • 6.It must show an intention on the part of the acceptor to fulfill terms of the promise. • 7.must be given by the party or parties to whom the offer is made. • 8.It must be given before the offer lapses or before the offer is withdrawn. • 9.It cannot be implied from silence.
Slide 82: 1. It must be absolute and unconditional i.e., it must conform with the offer. • An acceptance, in order to be binding, must be absolute and unqualified [Sec.7(1)] in respect of all terms of the offer, whether material or immaterial, major or minor. • If the parties are not ad idem on all matters concerning the offer and acceptance, there is no contract. • Examples: • a) ‘A’ made an offer to ‘B’ to purchase a house with possession from 25th July. The offer was followed by an acceptance suggesting possession from 1st August. Held, there was no contract. [ Rutledge Vs .Grant (1828)]
Slide 83: ……….1.It must be absolute and unconditional i.e., it must conform with the offer. • Examples: • b) M offered to sell a piece of land to N at 280 sterling pounds. N accepted and enclosed 80 sterling pounds with a promise to pay the balance by monthly installments of 50 sterling pounds each. Held, there was no contract between M and N, as the acceptance was not unqualified. [Neale Vs. Merret (1930)].
Slide 84: ……….1.It must be absolute and unconditional i.e., it must conform with the offer. • c) N offered to buy J’s horse if warranted quiet in harness. J agreed to the price and warranted the horse in quiet double harness. Held, there was no acceptance. [Jordon Vs.Norton,1838] d) A says to B, I offer to sell my car for Rs.50,000”. B replies, I will purchase it for Rs.45,000”. This is no acceptance and amounts to counter offer.
Slide 85: 2.It must be communicated to the offeror • To conclude a contract between the parties, the acceptance must be communicated in some perceptible form. • A mere resolve or mental determination on the part of the offeree to accept an offer, when there is no external manifestation of the intention of the intention to do so, is not sufficient. [ Bhagwandas Kedia Vs. Giridharilal (1966)]
Slide 86: 2.It must be communicated to the offeror • Examples: • a) ‘A’ tells ‘B’ that, he intends to marry ‘C’. But tells ‘C’ ‘nothing of his intention. There is no contract even if ‘C’ is willing to marry ‘A’. • b) A draft agreement relating to supply of coal was sent to the manager of a railway company for his acceptance. The manager wrote the word “approved” and put the draft in the drawer . Held, there was no contract. [Brogden Vs. Metropolitan Rail Co.(1877)].
Slide 87: 2.It must be communicated to the offeror • ‘F’ offered to buy his nephew’s horse for 30 sterling pounds saying: “If I hear no more about it I shall consider the horse is mine at 30 sterling pounds”. The nephew did not write to ‘F’ at all, but he told his auctioneer who was selling his horses not to sell that particular horse because it had been sold to his uncle. The auctioneer inadvertently sold the horse. Held, ‘F’ had no right of action against the auctioneer as the horse had not been sold to ‘F’, his offer of 30 pounds not having been accepted [Felthouse Vs. Brindley (1862)].
Slide 88: 3.It must be according to the mode prescribed or usual and reasonable mode. • The communication must be according to the mode prescribed [ Sec.7(2)] • Eg. If the Offeror has sought the communication of acceptance from offeree by telephone, it cannot be given by post. • In case, the acceptance is made in a manner other than the mode prescribed but the offeror does not raise any objection within a reasonable time, the acceptance will be binding.
Slide 89: 4. It must be given within a reasonable time • The acceptance to an offer must be given within a reasonable time. If it is not given within a reasonable time, the offer lapses. • In Ramsgate Victoria Hotel Ltd. Vs. Montefiore(1886) M applied for the shares of R Co on 8 th June. But the Company did not intimate about allotment until November. M refused to take shares. Held, the offer was lapsed by unreasonable delay.
Slide 90: 5.It cannot precede an offer. • In a company shares were allotted to a person who had not applied for them. Subsequently when he applied for shares , he was unaware of the previous allotment. The allotment of shares pre vious to application is inv alid.
Slide 91: 6.It must show an intention on the part of the acceptor to fulfill terms of the promise. • If no such intention is present, the acceptance is invalid.
Slide 92: 7.Must be given by the party or parties to whom the offer is made. • • • • Boulton bought a hose pipe business from Brocklehurst. Jones to whom Brocklehurst owed a debt, placed an order with Brcklehurst for the supply of certain goods. Boulton supplied the goods even though the order was not addressed to him. Jones refused to pay Boulton for the goods because he, by entering in to contract with Brocklehurst, intended to set off his debt against Brocklehurst. Held, the offer was made to Brocklehurst and it was not in the power of Boulton to step in accept and therefore there was no contract [ Boulton Vs. Jones (1857)]. • Under a quasi contract, Boulton can however recover the goods from. Jones.
Slide 93: 8.It must be given before the offer lapses or before the offer is withdrawn.
Slide 94: 9.It cannot be implied from silence. • The acceptance of an offer cannot be implied from the silence of the offeree or his failure to answer, unless the offeree has by his previous conduct indicated that his silence means that he accepts. A wrote to B., I offer you my car for Rs.10,000. If I don’t hear from you in seven days , I shall assume that you accept”. B did not reply at all. There is no contract.
Slide 95: Communication of Offer, Acceptance and Revocation • An offer, it’s acceptance and their revocation (withdrawal) to be complete must be communicated. The rules are as follows; Mode of Communication [Sec.3] An offer, acceptance it’s revocation must be communicated by words spoken or written or by conduct. • Installing a weighing machine is an offer, putting a coin in the slot of the machine is an acceptance and switching off of the machine amounts to revocation.
Slide 96: When is communication complete [Sec.4] • Communication of offer: The communication of offer is complete when it comes to the knowledge of the person to whom it is made. E.g., A proposes by a letter, to sell a house to B at a certain price. The letter is posted on 10th July. It reaches B on the 12th July. The communication of offer is complete when B receives the letter i.e., 12th July.
Slide 97: When is communication complete[S.4] • Communication of Acceptance: Communication of acceptance is complete* as against the promisor, when it is put in the course of transmission to him, so as to be out of power of the promisee ; * as against the promisee, when it comes to the knowledge of the promisor. E.g., ‘B’ accepts ‘A’ s proposal, in the above case, by a letter sent by post on 13th instant. The letter reaches ‘A’ on 15th instant. The communication of Acceptance is complete, as against the ‘A’, when the letter is posted, i.e., on 13th, as against ‘B’, when the letter is received by ‘A’, i.e., on 15th.
Slide 98: When is communication complete….. • The communication of revocation is complete -as against the person who makes it, when it is put in to 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(Sec.4)
Slide 99: When is communication complete…… Ex. A proposes, by a letter, to sell his house to B at a certain price .The letter is posted on 15th May. It reaches B on 19th May. A revokes his offer by telegram on 18th May. The telegram reaches B on 20th May. The revocation is complete as against A when the telegram is dispatched i.e., on 18th May. It is complete as against B when he receives it. i.e., on 20th May.
Slide 100: Time for Revocation of Offer and Acceptance (Sec.5) • Time for Revocation of Proposal(Sec.5,para 1) A proposal may be revoked at any time before the communication of it’s acceptance is complete as against the proposer, but not afterwards. Ex. A proposes by a letter sent by post to sell his house to B. The letter is posted on the 1st of the month. B accepts the proposal by a letter sent by post on the 4th. The letter reaches A on the 6th. A may revoke his offer at any time before B posts his letter of acceptance, i.e., on 4th but not afterwards. B may revoke his acceptance at any time before the letter of acceptance reaches A, i.e., on 6th but not afterwards.
Slide 101: OFFER AND ACCEPTANCE:PRACTICAL PROBLEMS 1.Are the following offers valid ? (a) A garment store gave the following advertisement in a newspaper: “Special sale for tomorrow only. Men’s night suits reduced from Rs200 to Rs100.” (b) P says to Q “I will sell you a camera.” P owns three different types of cameras of different prices. (c) An auctioneer displays a refrigerator before a gathering in an auction sale. (d) A advertises in The Statesman that he would pay Rs 200 to any one. who finds and returns his lost dog.
Slide 102: Solution for Case.1 • 1.(a),(b) and (c) there is no offer. • In case of (d) there is a valid offer. Any person can accept it by performing the act with the knowledge of the reward. [Fitch vs. Snedaker]
Slide 103: Case 2. • A tells B in the course of a conversation with him that he will give Rs10,000 to anyone who marries his daughter with his consent. B marries A’s daughter with A’s consent . • Is he entitled to recover the amount ?
Slide 104: Solution for Case.2 • No, as what A tells B is a statement of intention.
Slide 105: Case.3 • A sees a rare book displayed in a shop. • It is labeled “First Edition Rs15.” • A enters the shop and puts Rs 15 on the counter and asks for the book. • seller does not agree to sell that book, says, the real price of the book is Rs 50 and that it had been marked as Rs 15 by mistake. • Is the bookseller bound to sell the book for Rs. 15 ?
Slide 106: Solution for Case.3 • No. • (Pharmaceutical Society of Great Britain Vs. Boots Cash Chemists).
Slide 107: Case.4 • A sent a telegram to B, “will you sell your car? Quote lowest price.” • B sent a reply “ Lowest price Rs 25,000”. • A sent a second telegram to B. • “I agree to buy your car for Rs 25,000”. • B there after refuses to sell. (1) Can A compel B to do so ? (2) Is there a contract between A and B ?.
Slide 108: Solution for Case.4 • (a) No (b) No. ( Harvey vs. Facey)
Slide 109: Case.5 • A sent a letter to B offering to sell his house to B. The next day, A wrote another letter revoking his offer. Meanwhile, B had accepted A’s offer by return of post. • What is B’s remedy, if any, against A: • (a)If A’s letter of revocation reaches B before B’s letter of acceptance reaches A; • (b) If B’s letter of acceptance is lost in the post; • © If B’s letter of acceptance is posted an hour after posting of A’s letter of revocation ?
Slide 110: Solution for Case.5 • In all three cases there is a concluded contract between A and B. I.e., as soon as the letter of acceptance is posted by B.
Slide 111: Case.6 • B offered to sell his house to A for Rs.50,000.A accepted the offer by post. On the next day, A sent a telegram withdrawing the acceptance which reached B before the letter. (a) Is the revocation of acceptance valid ? (b) Would it make any difference if both the letter of communicating acceptance and the telegram communicating revocation of acceptance, reach B at the same time?
Slide 112: Solution for Case. 6 • (a) Yes. • (b) If A opens the telegram first (and this would be normally so in case of rational person) and reads it, the acceptance stands revoked. • If he reopens the letter first and reads it, revocation of acceptance is not possible as the contract has already been concluded.
Slide 113: CONSIDERATION • Consideration is one of the essential elements to support a contract. Subject to certain exceptions,an agreement made without consideration is “nudum pactum” (a nude contract) and is void. • Justice Patterson defines consideration in the following words: “Consideration means something which is of some value in the eye of law…It may be some benefit to the plaintiff or some detriment to the defendant.” [Thomas vs. Thomas(1842)]. • There are two leading cases which explain this point.
Slide 114: Abdul Aziz vs. Masum Ali(1914) • The secretary of a Mosque Committee filed a suit to enforce a a promise which the promisor had made to subscribe Rs.500 to the rebuilding of a mosque. • Held, “the promise was not enforceable because there was no consideration in the sense of benefit” , as “the person who made the promise gained nothing in return for the promise made”, and the secretary of the Committee to whom the promise was made, suffered no detriment as nothing had been done to carry out the repairs. Hence the suit was dismissed.
Slide 115: Kedarnath vs. Gauri Mohammad Calcutta [1886] • The facts of this case were almost similar to those of the previous case, but the secretary in this case incurred a liability on the strength of the promise. Held, the amount could be recovered, as the promise resulted in a sufficient detriment to the secretary. The promise could, however, be enforced only to the extent of the liability(detriment) incurred by the secretary. In this case, the promise, even though it was gratuitous, became enforceable because on the faith of the promise the secretary had incurred a detriment.
Slide 116: [Section 2(d) of Indian Contract Act,1872] Definition of Consideration • “When at the desire of the promisor, promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”
Slide 117: Analysis of Definition of Consideration • (1) An act, i.e., doing of something. In this sense consideration is in an affirmative form. Example: A promises B to guarantee payment of price of the goods which B sells on credit to C. Here selling of goods by B to C is consideration for A’s promise. (2) An abstinence or forbearance, i.e., abstaining or refraining from doing something. In this sense consideration is in a negative form. Example: A promises B not to file a suit against him if he pays him Rs.500.The abstinence of A is the consideration for B’s payment. (3) A return promise. Example: A agrees to sell his horse to B for Rs 1o,ooo. Here B’s promise to pay the sum of Rs.10,000 is the consideration for A ;’s promise to sell the horse, and A’s promise to sell the horse is the consideration for B’s promise to pay the sum of Rs.10,000.
Slide 118: Need for Consideration • The reason why the law enforces only those promises which are made for consideration is that gratuitous or voluntary promises are often made rashly and without due deliberation.
Slide 119: Legal Rules as to Consideration • • • • • • • 1.It must move at the desire of the promisor. 2.It may move from the promisee or any other person. 3.It may be an act, abstinence or a return promise. 4.It may be past, present or future. 5.It need not be adequate. 6.It must be real and not illusory 7.It must be something which the promisor is not already bound to do. • 8.It must not be illegal, immoral or opposed to public policy (Sec.23).
Slide 120: Legal Rules as to Consideration………. • 1. It must move at the desire of the promisor: An act constituting consideration must have been done at the desire or request of the promisor . If it is done at the instance of a third party or without the desire of the promisor , it will not be a good consideration. Example: A saves B’s goods from fire without being asked to do so. A cannot demand payment for his services.
Slide 121: Legal Rules as to Consideration………. • 2.It may move from the promisee or any other person. Consideration may move from promisee or any other person, i.e., even a stranger. This means that , as long as there is consideration for a promise it is immaterial who has furnished it. But the stranger to consideration will be able to sue only if he is a party to the contract.
Slide 122: Legal Rules as to Consideration………. • 2.It may move from the promisee or any other person Example: An old lady, by a deed of gift, made over certain property to her daughter D, under the direction that she should pay her aunt, P (sister of the old lady), a certain sum of money annually. The same day D entered in o an agreement with P to pay her the agreed amount. Later, D refused to pay the amount on the plea that no consideration had moved from P to D. Held, P was entitled to maintain suit as consideration had moved from the old lady, sister of P, to the daughter. [Chinnayya vs. Ramayya (1882)]
Slide 123: Legal Rules as to Consideration………. • 3.It may be an act, abstinence or a return promise. (1)Forbearance to sue: If a person who could sue another for the enforcement of a right agrees not to pursue his claim, this constitutes a good consideration for the promise by the other person. This results in a benefit to the person not sued and a detriment to the person who could sue. Ex: A borrows from B Rs.100 at 20 percent p.a., and fails to pay the amount. When B is about to file a suit, A agrees to pay a higher rate of interest. B, as a result, does not file the suit. This forbearance on the part of B to file a suit is a sufficient consideration and B can enforce the promise by A to pay the higher rate of interest.
Slide 124: Legal Rules as to Consideration………. 3……It may be an act, abstinence or a return promise. (2) Compromise of a disputed claim: Compromise is a kind of forbearance. Originally , the claim should be reasonable and the person claiming should honestly believe that it is a valid claim. He should also act bona fide (in good faith). (3) Composition with creditors: A debtor who is financially embarrassed may call a meeting of his creditors and request them to accept a lesser amount in satisfaction of their debt. If the creditors agree to it, the agreement is binding both upon the debtor and the creditors as this amounts to a compromise of the claims of the creditors.
Slide 125: Legal Rules as to Consideration………. • 4.It may be past, present or future. (1)Past Consideration: When consideration by a party for a present promise was given in the past, i.e., before the date of the promise, it is said to be past consideration. Example: A renders some service to B at latter’s desire. After a month B promises to compensate A for services rendered to him. It is past consideration. A can recover promised amount.
Slide 126: Legal Rules as to Consideration………. • 4.It may be past, present or future. (2) Present or Executed Consideration: When consideration is given simultaneously with promise, i.e., at the time of promise, it is said to be present consideration. In case sale, for example, consideration is present or executed. Example: A receives Rs. 50 in return for which he promises to deliver certain goods to B. The money A receives which he promises to deliver certain goods to B. The money A receives is the present consideration for the promise he makes to deliver the goods.
Slide 127: Legal Rules as to Consideration………. • 4.It may be past, present or future. (3) Future or executory consideration: When consideration from one party to the other is to pass subsequently to the making of the contract, it is future or executory consideration. Example: D promises to deliver certain goods to P after a week; P promises to pay the price after a fortnight. The promise of D is supported by the promise of P. Consideration in this case is future or executory.
Slide 128: Legal Rules as to Consideration………. • 5.It need not be adequate. Consideration, as already explained, means “something in return”. This something in return need not necessarily be equal to “something given”. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the Courts are not concerned as to it’s adequacy, provided it is of some value.
Slide 129: Legal Rules as to Consideration………. • 6.It must be real, and not illusory. Although consideration need not be adequate, it must be real, competent and of some value in the eyes of the law. There is no real consideration in the following cases: (1) Physical Impossibility: A promises to put life in to B’s dead wife should B pay him Rs.500. A’s promise is physically impossible of performance. (2) Legal Impossibility: A owes Rs 100 to B. He promises to pay Rs.20 to C, the servant of B, who in return promises to discharge A from the debt. This is legally impossible because C cannot give discharge for a debt due to B, his master. [Harvey vs. Gibbons, (1675)]
Slide 130: Legal Rules as to Consideration………. • ………….6.It must be real, and not illusory (3) Uncertain consideration: A engages B for doing a certain work and promises to pay a “reasonable” sum. There is no recognized method of ascertaining the “reasonable” remuneration. The promise is unenforceable as consideration is uncertain. (4) Illusory consideration: Two of the crew of a ship deserted it half way through a voyage. The captain thereby promised to divide the salary of the deserters among the rest of the crew if they worked the vessel home.
Slide 131: Legal Rules as to Consideration………. • 7.It must be something which the promisor is not already bound to do. A promise to do what is already bound to do, either by general law or under an existing contract, is not a good consideration for a new promise, since it adds nothing to the pre-existing legal or contractual obligation. Likewise a promise to perform a public duty by a public servant is not a consideration.
Slide 132: Legal Rules as to Consideration………. • 8.It must not be illegal, immoral or opposed to public policy. The consideration given for an agreement must not be unlawful. Where it is unlawful, the Courts do not allow an action on the agreement.
Slide 133: STRANGER TO CONTRACT • It is general rule of law that only parties to a contract may sue and be sued on that contract. This rule is know n as the “Doctrine of privity of contract. ” • Privity of contract means relationship subsisting between the parties who have entered in to contractual obligations. • It implies a mutuality of will and creates a legal bond or tie between the parties to contract.
Slide 134: Two Consequences of the “Doctrine of Privity of Contract” • (1) A person who is not a party to a contract cannot sue upon it even though the contract is for his benefit and he provided consideration. • (2) A contract cannot confer rights or impose obligation arising under it on any person other than the parties to it. Thus, if there is a contract between A and B, C cannot enforce. [Du nlop Pneu m atic T yre Co.Ltd. Vs. Selfridge & Co. Ltd.,( 1915)]
Slide 135: Dunlop Pneumatic Tyre Co.Ltd. Vs. Selfridge & Co.Ltd.,(1915) • S bought tyres from the Dunlop Rubber Co. and sold them to D, a sub-dealer, who agreed with S not to sell below Dunlop’s list price and to pay the Dunlop Co. 5 pounds as damages on every tyre D undersold. D sold two tyres at less than the list price and thereupon the Dunlop Co. sued him for the breach. • Held, the Dunlop Co. could not maintain the suit as it was a stranger to the contract.
Slide 136: Exceptions to the rule “stranger to a contract cannot sue.” • 1.A trust or charge: • A person (called beneficiary) in whose favor a trust or other interest is created can enforce it even though he is not a party to the contract. Example: A agrees to transfer certain properties to be held by T in trust for the benefit of B .B can enforce the agreement (i.e., the trust) even though he is not a party to the agreement [M.K. Rapai Vs. John(1965)]
Slide 137: Exceptions to the rule “stranger to a contract cannot sue.” • 2.Marriage settlement, partition or other family arrangements. Example: Two brothers, on a partition of joint properties, agreed to invest in equal shares a certain sum of money for the maintenance of their mother. Held, she was entitled to require her sons to make the investment. [Shuppu Ammal vs. Subramaniam (1910) Madras High Court.]
Slide 138: Exceptions to the rule “stranger to a contract cannot sue.” • 3.Acknowledgement or estoppel: Where the promisor by his conduct, acknowledges or otherwise constitutes himself as an agent of a third party, a binding obligation is thereby incurred by him towards the third party. Example: ‘A’ receives some money from ‘T’ to be paid over to ‘P’.’ A’ admits of this receipt to ‘P’. ‘P’ can recover the amount from ‘A’ who shall be regarded as the agent of ‘P’.
Slide 139: Exceptions to the rule “stranger to a contract cannot sue.” • 4.Assignment of contract: The assignee of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities between original parties. • 5.Contracts entered in to through an agent: The principal can enforce the contracts entered in to b y his ag ent provided the agent acts within the scope of his authority and in the name of the principal.
Slide 140: “No consideration, no contract” -Exceptions • The general rule is ‘ex nudo pacto non oritur actio’, i.e., an agreement made without consideration is void. Sec.25 and 185 dealt with the exceptions to this rule. In such cases agreements are enforceable even though they are made without consideration. These cases are---
Slide 141: “No consideration, no contract” -Exceptions 1.Love and Affection [Sec.25(1)]: Where an agreement is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between the parties standing in near relation to each other, it is enforceable even if it is without consideration.
Slide 142: Examples: (a) F ,for natural love and affection, promises to give his son, S, Rs.1,000.F puts his promise to S in writing and registers it . There is a contract. (b) By a registered agreement, V on account of natural love and affection for his brother, R, promises to discharge his debt to B. If V does not discharge the debt, R may discharge it and then sue V to recover the amount. [Venkataswamy vs. Ramaswamy, ( 1903)
Slide 143: Nearness of relationship, however does not necessarily imply natural love and affection. • Example: A Hindu husband, after referring to quarrels and disag reement between his wife executed a registered document in favor of his wife agreeing to pay her for maintenance , but no consideration moved from his wife. Held, the agreement was void for want of consideration , as the essential requirement that the agreement is made on account of natural love and affection between the parties was missing. [Rajlukhy vs. Bhoothnath (1900)]
Slide 144: “No consideration, no contract”. -Exceptions • 2.Compensation for voluntary services. [Sec.25(2)] A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promissor, is enforceable, even though without consideration. In simple words, a promise to pay for a past voluntary service is binding. Examples: (a) A finds B’s purse and gives it to him . B promises to give Rs. 50 .This is a contract. (b)A says to B, “ At the risk of your life you saved me from a serious accident. I promise to pay you Rs.1,000.”There is a contract between A and B.
Slide 145: “No consideration, no contract”. -Exceptions • 3. Promise to pay a time barred debt:[Sec.25(3)] A promise by a debtor to pay a time barred debt [Sec.25(3)] A promise by a debtor to pay a time barred debt is enforceable provided it is made in writing and is signed by the debtor or by his agent generally or specially authorized in that behalf. The promise may be to pay the whole or any part of the debt. The debt must be such “ of which the creditor might have enforced payment but for the law for the limitation of suits.”
Slide 146: A contract without consideration is void -Exceptions • A debt is barred by limitation if it remains unpaid or unclaimed for a period of three years. Such a debt becomes legally recoverable. Example: D owes C Rs.1,000 but the debt is barred by the Limitation Act. D signs a written promise to pay C, Rs.500 on account of the debt. This is a contract.
Slide 147: A contract without consideration is void -Exceptions 4. Gift: The rule “ No consideration, no contract” does not apply to completed gifts. According to explanation 1 to Sec.25, nothing in Sec.25 shall affect the validity, as between the donor and donee , of any gift actually made.
Slide 148: A contract without consideration is void -Exceptions • 5.Agency [Sec.185] No cons ideration is necessary to create an agency. • 6.Charitable Subscription: Where the prom isee on the strength of the promise m akes com mitments, i.e., changes his position to his detriment.[ Refer. Kedarnath Vs. Gauri Mohammad].
Slide 149: Consideration: Practical Problems • 1. A promises a subscription of Rs.10,000 to the National Defense Fund. He does not pay. Is there any legal remedy against him?
Slide 150: Answer: Case.1 • No.(Abdul Aziz vs. Masum Ali)