SCHOOL OF MANAGEMENT STUDIES
UNIT – I– BUSINESS LAW - SBAA1206
, 1. INDIAN CONTRACT ACT 1872: GENERAL PRINCIPLES OF CONTRACT
Contract Act - Definition, Classification - Essentials of a Contract - Offer and Acceptance -
Consideration - Contractual Capacity - Free Consent - Legality of Object- Void agreements -
Performance of Contract - Modes of Discharge of Contract - Remedies for Breach of
Contract.
INTRODUCTION ABOUT LAW
The rule of conduct imposed by a Govt. to maintain order and fairness is called law;
laws are exacted and backed by authority and power of the state.
THE INDIAN CONTRACT ACT, 1872
The law of contract of India is contains in the Indian Contract Act 1872.This act is
based mainly an English common law. It extends to the whole of India (Except the state of
Jammu & Kashmir) and came into force on the first day of September 1872.
The Act is not exhaustive because, it does not deal with all the Branches of the law of
contract. There are separate set which deal with contracts relating to negotiable instruments,
transfer of properly, state of goods, partnerships, Insurance etc.
Scheme of the Act:
1. General principles of the law of the contract(sec1-75)
2. Specific kinds ofcontracts
a) Contracts of indemnity and guarantee(124-147)
b) Contracts of Bailment & Pledge (sec148-181)
c) Contracts of Agency (sec 182-238)
Definition of contract:
According to sec 2(h) of the Indian Contract Act, An Agreement enforceable by law is a
contract”. So, it is clear that a contract is an agreement made between two or more parties which
the law will enforce.
, There are two elements in the above definition such as
1. An agreement between twoparties
2. Enforceability
Agreement and two parties:
As per sect 2(e): “Every promise and every set of promises, forming consideration for
each other, is an agreement.” Thus, it is clear that the ‘promises’ is an agreement.
As per sec 2(b): “A proposal, if it is accepted becomes a promise”, this means that an
agreement is an accepted proposal. So, an agreement comes into existence only when one
party makes a proposal (or offer) to the other party and the other gives his acceptance there to.
Agreement= offer+ Acceptance
Enforceability:
An agreement, to become a contract, should create legal obligation or duty. If an
agreement is incapable of creating legal duty, it is not a contract.So, agreement of moral,
religious or social nature are not contracts, because they do not create legal obligations between
the parties.
For eg: inviting a friend to dinner, a father promise to his son for a gift etc. are of social
obligations. As these agreements cannot create legal duties, they cannot become contracts. But
in business agreements, it is assumed that the parties concerned create legal duties, hence they
arecontracts.
So, it is clear that an agreement is a wider term than a contract. “All contracts are
agreements but all agreement are not contracts”. To sum up:
Contract = Agreement+ Enforceability
Consensus ad-idem:
The essence of an agreement is the meeting the minds of the parties in all this means that
the parties to the agreement must have agreed about the subject-matter of the agreement in the
same sense and the same time, in other word, there should be consensus ad=idem between the
mind of the parties. Unless there is consensus ad-idem, there should be no contract.
, ESSENTIAL ELEMENT OF VALID CONTRACT:
1. Offer andAcceptance:
There must be a lawful offer and a lawful acceptance of the offer. So, there must be two
parties to an agreement. i.e., one party making the offer and the other party accepting it. The
terms of the offer should be definite and acceptance should be absolute.
2. Intention to create legalrelationship:
Where the two parties, enter into agreement, their intention must be to create legal
relationship between them. If there is no such an intention, there is no contract between them.
Agreements of social, religious or domestic nature cannot make the legal relationship between
the parties.
In case of law of balfour vs. balfour (1919) insisted this point. Balfour vs. balfour
1919:The husband promised to pay his wife a household allowance of ₤30 every month. Later,
the husband failed to pay the amount. The wife sued for the allowance. Held, she could not
recover the amount as the agreement did not create any legal relationship; hence, there was no
contract at all.
But, in business agreements it is assumed that parties concerned create a legal
relationship. Thus, an agreement to buy and sell goods intends to create legal relationship,
there is a contract. But, if the parties have expressly declared their intention not creates any
legal relationship even in the business agreement, such type of agreement cannot become a
contract. The case of Rose & Frank co vs. Corruption Bros, in a good illustration on thepoint.
UNIT – I– BUSINESS LAW - SBAA1206
, 1. INDIAN CONTRACT ACT 1872: GENERAL PRINCIPLES OF CONTRACT
Contract Act - Definition, Classification - Essentials of a Contract - Offer and Acceptance -
Consideration - Contractual Capacity - Free Consent - Legality of Object- Void agreements -
Performance of Contract - Modes of Discharge of Contract - Remedies for Breach of
Contract.
INTRODUCTION ABOUT LAW
The rule of conduct imposed by a Govt. to maintain order and fairness is called law;
laws are exacted and backed by authority and power of the state.
THE INDIAN CONTRACT ACT, 1872
The law of contract of India is contains in the Indian Contract Act 1872.This act is
based mainly an English common law. It extends to the whole of India (Except the state of
Jammu & Kashmir) and came into force on the first day of September 1872.
The Act is not exhaustive because, it does not deal with all the Branches of the law of
contract. There are separate set which deal with contracts relating to negotiable instruments,
transfer of properly, state of goods, partnerships, Insurance etc.
Scheme of the Act:
1. General principles of the law of the contract(sec1-75)
2. Specific kinds ofcontracts
a) Contracts of indemnity and guarantee(124-147)
b) Contracts of Bailment & Pledge (sec148-181)
c) Contracts of Agency (sec 182-238)
Definition of contract:
According to sec 2(h) of the Indian Contract Act, An Agreement enforceable by law is a
contract”. So, it is clear that a contract is an agreement made between two or more parties which
the law will enforce.
, There are two elements in the above definition such as
1. An agreement between twoparties
2. Enforceability
Agreement and two parties:
As per sect 2(e): “Every promise and every set of promises, forming consideration for
each other, is an agreement.” Thus, it is clear that the ‘promises’ is an agreement.
As per sec 2(b): “A proposal, if it is accepted becomes a promise”, this means that an
agreement is an accepted proposal. So, an agreement comes into existence only when one
party makes a proposal (or offer) to the other party and the other gives his acceptance there to.
Agreement= offer+ Acceptance
Enforceability:
An agreement, to become a contract, should create legal obligation or duty. If an
agreement is incapable of creating legal duty, it is not a contract.So, agreement of moral,
religious or social nature are not contracts, because they do not create legal obligations between
the parties.
For eg: inviting a friend to dinner, a father promise to his son for a gift etc. are of social
obligations. As these agreements cannot create legal duties, they cannot become contracts. But
in business agreements, it is assumed that the parties concerned create legal duties, hence they
arecontracts.
So, it is clear that an agreement is a wider term than a contract. “All contracts are
agreements but all agreement are not contracts”. To sum up:
Contract = Agreement+ Enforceability
Consensus ad-idem:
The essence of an agreement is the meeting the minds of the parties in all this means that
the parties to the agreement must have agreed about the subject-matter of the agreement in the
same sense and the same time, in other word, there should be consensus ad=idem between the
mind of the parties. Unless there is consensus ad-idem, there should be no contract.
, ESSENTIAL ELEMENT OF VALID CONTRACT:
1. Offer andAcceptance:
There must be a lawful offer and a lawful acceptance of the offer. So, there must be two
parties to an agreement. i.e., one party making the offer and the other party accepting it. The
terms of the offer should be definite and acceptance should be absolute.
2. Intention to create legalrelationship:
Where the two parties, enter into agreement, their intention must be to create legal
relationship between them. If there is no such an intention, there is no contract between them.
Agreements of social, religious or domestic nature cannot make the legal relationship between
the parties.
In case of law of balfour vs. balfour (1919) insisted this point. Balfour vs. balfour
1919:The husband promised to pay his wife a household allowance of ₤30 every month. Later,
the husband failed to pay the amount. The wife sued for the allowance. Held, she could not
recover the amount as the agreement did not create any legal relationship; hence, there was no
contract at all.
But, in business agreements it is assumed that parties concerned create a legal
relationship. Thus, an agreement to buy and sell goods intends to create legal relationship,
there is a contract. But, if the parties have expressly declared their intention not creates any
legal relationship even in the business agreement, such type of agreement cannot become a
contract. The case of Rose & Frank co vs. Corruption Bros, in a good illustration on thepoint.
