MS EDUCONZ PVT. LTD. LAW& AUDIT
What is Law?
Law means a ‘set of rules’ which governs our behaviours and relating in a civilized society. So
there is no need of Law in a uncivilized society.
Why Should One Know Law?
One should know the law to which he is subject because ignorance of law is no excuse.
Sources of Mercantile Law in India
English Indian Status Judicial Customs and
Mercantile Law Decisions Usages
STUDY NOTE – 1 : INDIAN CONTRACT ACT, 1872
Section 1:- Commencement and applicability:-
Short Title Extent and commencement
The Indian Applicable to First day of
contract Act whole Indian September
1872 except the state 1872(1st Sept.
of Jammu & 1872)
Kashmir
¾ Prior to this English law of contract was followed in India.
¾ It has XI chapter.
¾ Law of contract creates jus in personem and not in jus in rem.
¾ The Indian Contract Act consists of the following two parts:
(a) General principals of the Law of Contract.
(b) Special kinds of contracts.
¾ The general principals of the Law of Contract are contained in Sections 1 to 75 of the
Indian Contract Act. These principles apply to all kinds of contracts irrespective of their
nature.
¾ Special contracts are contained in Sections 124 to 238 of the Indian Contract Act. These
special contracts are Indemnity, Guarantee, Bailment, pledge and Agency.
Note: In our discussion on this part of the book, unless otherwise stated, the sections mentioned
are those of the Indian Contract Act, 1872.
Contracts as Defined by Eminent Jurists
1. “Every agreement and promise enforceable at law is a contract.” – Pollock
2. “A Contract is an agreement between two or more persons which is intended to be
enforceable at law and is contracted by the acceptance by one party of an offer made to
him by the other party to do or abstain from doing some act.” – Halsbury
3. “A contract is an agreement creating and defining obligation between the parties” –
Salmond
SUJEET JHA 1 9213188188
,MS EDUCONZ PVT. LTD. LAW& AUDIT
DEFINITIONS (Sec 2)
1. Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the
assent of that other person either to such act or abstinence, he is said to make a
proposal.
2. Acceptance 2(b):- When the person to whom the proposal is made, signifies his
assent there to , the proposal is said to be accepted.
3. Promise 2(b) :- A Proposal when accepted becomes a promise. In simple words,
when an offer is accepted it becomes promise.
4. Promisor and promise 2(c) :- When the proposal is accepted, the person making the
proposal is called as promisor and the person accepting the proposal is called as
promisee.
5. Consideration 2(d):- When at the desire of the promisor, the promisee or any other
person has done or abstained from doing something or does or abstains from doing
something or promises to do or abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.
Price paid by the one party for the promise of the other Technical word meaning QUID-
PRO-QUO i.e. something in return.
6. Agreement 2(e) :- Every promise and set of promises forming the consideration for
each other. In short, agreement = offer + acceptance.
7. Contract 2(h) :- An agreement enforceable by Law is a contract.
8. Void agreement 2(g):- An agreement not enforceable by law is void.
9. Voidable contract 2(i):- An agreement is a voidable contract if it is enforceable by Law
at the option of one or more of the parties there to (i.e. the aggrieved party), and it is
not enforceable by Law at the option of the other or others.
10. Void contract :- A contract which ceases to be enforceable by Law becomes void
when it ceases to be enforceable.
SUJEET JHA 2 9213188188
,MS EDUCONZ PVT. LTD. LAW& AUDIT
ESSENTIALS OF A VALID CONTRACT
“All agreements are contracts, if they are made –
¾ by free consent of the parties, competent to contract,
¾ for a lawful consideration and
¾ with a lawful object, and
¾ not hereby expressly declared to be void.” - Sec.10.
ESSENTIALS OF VALID CONTRACT
Offer + acceptance = Promise
+
consideration
=
Agreement
+
enforceability By Law
Contract
1. Proper offer and proper acceptance with intention to create legal relationship.
Cases;- A and B agree to go to a movie on coming Sunday. A does not turn in resulting
in loss of B’s time B cannot claim any damages from B since the agreement to watch a
movie is a domestic agreement which does not result in a contract.
¾ In case of social agreement there is no intention to create legal relationship and
there the is no contract (Balfour v. Balfour)
¾ In case of commercial agreements, the law presume that the parties had the
intention to create legal relations.
¾ [an agreement of a purely domestic or social nature is not a contract ]
2. Lawful consideration :- consideration must not be unlawful, immoral or opposed to
the public policy.
3. Capacity:- The parties to a contract must have capacity (legal ability) to make valid
contract.
Section 11:- of the Indian contract Act specify that every person is competent to
contract provided.
(i) Is of the age of majority according to the Law which he is subject, and
(ii) Who is of sound mind and
(iii) Is not disqualified from contracting by any law to which he is subject.
¾ Person of unsound mind can enter into a contract during his lucid interval.
¾ An alien enemy, foreign sovereigns and accredited representative of a foreign
state. Insolvents and convicts are not competent to contract.
4. Free consent :- consent of the parties must be genuine consent means agreed upon
samething in the same sense i.e. there should be consensus – ad – idem. A consent is
SUJEET JHA 3 9213188188
, MS EDUCONZ PVT. LTD. LAW& AUDIT
said to be free when it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
5. Lawful object
• The object of agreement should be lawful and legal.
• Two persons cannot enter into an agreement to do a criminal act.
• Consideration or object of an agreement is unlawful if it
(a) is forbidden by law; or
(b) is of such nature that, if permitted, would defeat the provisions of any
law; or
(c) is fraudulent; or
(d) Involves or implies, injury to person or property of another; or
(e) Court regards it as immoral, or opposed to public policy.
6. Possibility of performance:
• The terms of the agreement should be capable of performance.
• An agreements to do act, impossible in itself cannot be enforced.
Example : A agrees to B to discover treasure by magic. The agreement is void because
the act in itself is impossible to be performed from the very beginning.
7. The terms of the agreements are certain or are capable of being made certain [29]
Example : A agreed to pay Rs.5 lakh to B for ultra-modern decoration of his drawing
room. The agreement is void because the meaning of the term “ ultra – modern” is not
certain.
8. Not declared Void
• The agreement should be such that it should be capable or being enforced by law.
• Certain agreements have been expressly declared illegal or void by the law.
9. Necessary legal formalities
• A contract may be oral or in writing.
• Where a particular type of contract is required by law to be in writing and
registered, it must comply with necessary formalities as to writing, registration
and attestation.
• If legal formalities are not carried out then the contract is not enforceable by law.
Example : A promise to pay a time. Barred debt must be in writing.
Agreement is a wider term than contract where as all contracts are agreements. All
agreements are not contracts.
All Contracts are Agreements, but all Agreements are not Contracts
The various agreements may be classified into two categories:
Agreement not enforceable by law Agreement enforceable by law
Any essential of All essentials of
a valid contract a valid contract
is not available. are available
SUJEET JHA 4 9213188188
What is Law?
Law means a ‘set of rules’ which governs our behaviours and relating in a civilized society. So
there is no need of Law in a uncivilized society.
Why Should One Know Law?
One should know the law to which he is subject because ignorance of law is no excuse.
Sources of Mercantile Law in India
English Indian Status Judicial Customs and
Mercantile Law Decisions Usages
STUDY NOTE – 1 : INDIAN CONTRACT ACT, 1872
Section 1:- Commencement and applicability:-
Short Title Extent and commencement
The Indian Applicable to First day of
contract Act whole Indian September
1872 except the state 1872(1st Sept.
of Jammu & 1872)
Kashmir
¾ Prior to this English law of contract was followed in India.
¾ It has XI chapter.
¾ Law of contract creates jus in personem and not in jus in rem.
¾ The Indian Contract Act consists of the following two parts:
(a) General principals of the Law of Contract.
(b) Special kinds of contracts.
¾ The general principals of the Law of Contract are contained in Sections 1 to 75 of the
Indian Contract Act. These principles apply to all kinds of contracts irrespective of their
nature.
¾ Special contracts are contained in Sections 124 to 238 of the Indian Contract Act. These
special contracts are Indemnity, Guarantee, Bailment, pledge and Agency.
Note: In our discussion on this part of the book, unless otherwise stated, the sections mentioned
are those of the Indian Contract Act, 1872.
Contracts as Defined by Eminent Jurists
1. “Every agreement and promise enforceable at law is a contract.” – Pollock
2. “A Contract is an agreement between two or more persons which is intended to be
enforceable at law and is contracted by the acceptance by one party of an offer made to
him by the other party to do or abstain from doing some act.” – Halsbury
3. “A contract is an agreement creating and defining obligation between the parties” –
Salmond
SUJEET JHA 1 9213188188
,MS EDUCONZ PVT. LTD. LAW& AUDIT
DEFINITIONS (Sec 2)
1. Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the
assent of that other person either to such act or abstinence, he is said to make a
proposal.
2. Acceptance 2(b):- When the person to whom the proposal is made, signifies his
assent there to , the proposal is said to be accepted.
3. Promise 2(b) :- A Proposal when accepted becomes a promise. In simple words,
when an offer is accepted it becomes promise.
4. Promisor and promise 2(c) :- When the proposal is accepted, the person making the
proposal is called as promisor and the person accepting the proposal is called as
promisee.
5. Consideration 2(d):- When at the desire of the promisor, the promisee or any other
person has done or abstained from doing something or does or abstains from doing
something or promises to do or abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.
Price paid by the one party for the promise of the other Technical word meaning QUID-
PRO-QUO i.e. something in return.
6. Agreement 2(e) :- Every promise and set of promises forming the consideration for
each other. In short, agreement = offer + acceptance.
7. Contract 2(h) :- An agreement enforceable by Law is a contract.
8. Void agreement 2(g):- An agreement not enforceable by law is void.
9. Voidable contract 2(i):- An agreement is a voidable contract if it is enforceable by Law
at the option of one or more of the parties there to (i.e. the aggrieved party), and it is
not enforceable by Law at the option of the other or others.
10. Void contract :- A contract which ceases to be enforceable by Law becomes void
when it ceases to be enforceable.
SUJEET JHA 2 9213188188
,MS EDUCONZ PVT. LTD. LAW& AUDIT
ESSENTIALS OF A VALID CONTRACT
“All agreements are contracts, if they are made –
¾ by free consent of the parties, competent to contract,
¾ for a lawful consideration and
¾ with a lawful object, and
¾ not hereby expressly declared to be void.” - Sec.10.
ESSENTIALS OF VALID CONTRACT
Offer + acceptance = Promise
+
consideration
=
Agreement
+
enforceability By Law
Contract
1. Proper offer and proper acceptance with intention to create legal relationship.
Cases;- A and B agree to go to a movie on coming Sunday. A does not turn in resulting
in loss of B’s time B cannot claim any damages from B since the agreement to watch a
movie is a domestic agreement which does not result in a contract.
¾ In case of social agreement there is no intention to create legal relationship and
there the is no contract (Balfour v. Balfour)
¾ In case of commercial agreements, the law presume that the parties had the
intention to create legal relations.
¾ [an agreement of a purely domestic or social nature is not a contract ]
2. Lawful consideration :- consideration must not be unlawful, immoral or opposed to
the public policy.
3. Capacity:- The parties to a contract must have capacity (legal ability) to make valid
contract.
Section 11:- of the Indian contract Act specify that every person is competent to
contract provided.
(i) Is of the age of majority according to the Law which he is subject, and
(ii) Who is of sound mind and
(iii) Is not disqualified from contracting by any law to which he is subject.
¾ Person of unsound mind can enter into a contract during his lucid interval.
¾ An alien enemy, foreign sovereigns and accredited representative of a foreign
state. Insolvents and convicts are not competent to contract.
4. Free consent :- consent of the parties must be genuine consent means agreed upon
samething in the same sense i.e. there should be consensus – ad – idem. A consent is
SUJEET JHA 3 9213188188
, MS EDUCONZ PVT. LTD. LAW& AUDIT
said to be free when it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
5. Lawful object
• The object of agreement should be lawful and legal.
• Two persons cannot enter into an agreement to do a criminal act.
• Consideration or object of an agreement is unlawful if it
(a) is forbidden by law; or
(b) is of such nature that, if permitted, would defeat the provisions of any
law; or
(c) is fraudulent; or
(d) Involves or implies, injury to person or property of another; or
(e) Court regards it as immoral, or opposed to public policy.
6. Possibility of performance:
• The terms of the agreement should be capable of performance.
• An agreements to do act, impossible in itself cannot be enforced.
Example : A agrees to B to discover treasure by magic. The agreement is void because
the act in itself is impossible to be performed from the very beginning.
7. The terms of the agreements are certain or are capable of being made certain [29]
Example : A agreed to pay Rs.5 lakh to B for ultra-modern decoration of his drawing
room. The agreement is void because the meaning of the term “ ultra – modern” is not
certain.
8. Not declared Void
• The agreement should be such that it should be capable or being enforced by law.
• Certain agreements have been expressly declared illegal or void by the law.
9. Necessary legal formalities
• A contract may be oral or in writing.
• Where a particular type of contract is required by law to be in writing and
registered, it must comply with necessary formalities as to writing, registration
and attestation.
• If legal formalities are not carried out then the contract is not enforceable by law.
Example : A promise to pay a time. Barred debt must be in writing.
Agreement is a wider term than contract where as all contracts are agreements. All
agreements are not contracts.
All Contracts are Agreements, but all Agreements are not Contracts
The various agreements may be classified into two categories:
Agreement not enforceable by law Agreement enforceable by law
Any essential of All essentials of
a valid contract a valid contract
is not available. are available
SUJEET JHA 4 9213188188
