business law unit - 2 notes b.com second year. semester - iii
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BusinessLawUnit–2NotesB.com SecondYearSemester–IIIMrs.Aarati
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Q1.Defineconsideration.Explaininbrieftheessentialsofavalidconsiderationwithsuitablecaselaws.
I. Meaningofconsideration-Thelawenforcesonlythosepromiseswhicharemadeforconsideration.Whenonepartypromisestodosomething,itmustgetsomethinginreturn.,“thissomethinginreturn”iscalledasconsideration.Considerationissomethingofvaluewhichthepromiseehasgiven,givesallpromisestogiveinreturnforthepromise.
II. Definitionofconsideration-AccordingtoSec2(d)ofIndianContractAct1872,“whenatthedesireofthepromisor,thepromiseoranyotherpersonhasdoneorabstrainedfrom doing,ordoesorabstrainsfrom doingorpromisestodoorabstrainfrom doing,suchactorabsistinenceorpromiseiscalledaconsiderationforthepromise.”
III. Essentialsofavalidconsideration
a)Considerationshouldbesomethingdesiredbythepromisor-Asperthelegaldefinitionofconsiderationwhenthepromiseoranyotherpersondoessomethingasperthedesireofthepromisoritbecomesaconsideration.
CASELAW-DURGAPRASADVsBALDEO
CASEFACTS-InthiscaseMr.Prasadwasdesiredbyacollectorofdistricttoconstructamarketyardfortheuseofpeopleofthatdistrict.WhenMr.Prasadwasdoingso,atraderMr.BaldeoapproachedMr.Prasadandofferedtopay1%commissiononhissales,ifaconvenientplaceisallottedtohim inthatmarketyard.LaterMr.BaldeostoppedpaymentofcommissionsoMr.Prasadfiledasuitinthecourtoflaw.Thecourtoflawheldthathecannotclaim anycommissionfrom thetraderbecausehehadnotconstructedthemarketyardatthedesireofthetrader.
b)Considerationisveryessentialineverycontract-Considerationisaveryimportantfeatureineverycontract.Apromisecannotbecomeanagreementwithoutconsideration.Anagreementcannotbecomeacontractwithoutalawfulconsideration.Therefore,aruleisconstitutedinlawas“NoconsiderationNocontract.”
CASELAW-ABDULAZIZVsMASOOM ALI
CASEFACTS–InthiscaseMr.Masoom Alipromisedtogiveafundof500
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forrepairsandreconstructionofamosque.Noworkhadbeencarriedoutforrepairsandreconstruction.Thesecretaryofthemosquefiledacaseforfundof500whichwaspromisedbyMr.Masoom Ali.Thecourtheldthatthepromisewasnotenforceablebecausewhomadethepromisedidnotgainanythinginreturnforthepromisehemade.Thesecretaryofthemosquetowhom thepromisewasmadesufferednothing,asnoworkofrepairsorreconstructionhastakenplace.
c)Considerationcanbegivenbythepromiseeorbyanyotherpersons-Asperthelegaldefinition,theconsiderationcanbegiveneitherbythepromiseeorbysomeotherperson,thoughanacceptancecannotbegivenbyathirdparty.Apersonwhogivesconsiderationonbehalfofpromiseeiscalledas“strangertothecontract.”Thisruleoflawisalsoknownas“Doctrineofprivaityofcontract.”
CASELAW-DUNLOPPNEUMATICTYRECO.VsSELFRIDGECO.
CASEFACTS-InthiscaseDunlopCo.suppliedsometyrestoawholesaledealerwithinstructionsthattheyshouldnotsellatapricelessthantheMRP,whichwasfixedbythecompany,otherwise5poundspertyreshouldbepaidasdamagestoDunlopCo.ThewholesaledealersuppliedthetyretotheSelfridgeCo.withthesameinstructions.ButSelfridgeCo.sold2tyresatalesspricethantheMRP.SoDunlopCo.filedasuitfordamages.Thecourtoflawheldthatastrangertocontractcannotenforcethecontractsothecasewasdismissed.
d)Considerationneednotbeadequate-Theconsiderationpayablebythepromiseetothepromisormayormaynotbeequaltowhatthepromisorisdoingforthepromisee.Theadequacyofconsiderationhastobedecidedbythepartiesatthetimeofmakingthecontract.
Forexample-Mr.Aagreestosellhisgoodsworth10,000for1000.Mr.Aconsenttotheagreementwasfreelygiven.
e)Oneconsiderationforoneagreement-Everyagreementshouldhaveonlyoneconsideration,demandingextraconsiderationorsecondconsiderationforthesameagreementbecomesinvalid.
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CASELAW-RAMCHANDRACHINTAMANIVsKALURAJU
CASEFACTS-Inthiscaseanadvocateagreedtocompleteacaseofhisclientforaconsiderationof150.Laterhedemandedextraconsiderationforobtainingthejudgementinashortperiodoftime.Thecourtoflawheldthatthesecondconsiderationcannotbeclaimed.
f) Considerationmaybepositiveornegative-Inthelegaldefinition,“hasdoneorabstrainedfrom doingordoesorabstrainesfrom doingorpromisestodoorabstrainesfrom doing”areused.Thismeansthatdoingsomethingornotdoingsomethingbecomespositiveconsiderationornegativeconsideration.
Forexample-Referunit1
g)Considerationmaybepast,present,future
i) Pastconsideration-Whenthepromisorhasreceivedconsiderationbefore
thedateofpromisetheconsiderationistermedaspastconsideration.
ii)Presentconsideration-Whenthepromisorreceivesconsideration
simultaneouslywiththepromisetheconsiderationistermedaspresentconsideration.
iii)Futureconsideration-Whenthepromisorhastoreceiveconsiderationin
futureforhispromisetheconsiderationistermedasfutureconsideration.
iv)
h)Considerationmaybeinanyform-Considerationmaybeinanyform suchaspaymentofcash,deliveryofgoods,renderingofservices,doingsomething,notdoingsomething,makingaprofit,bearingalossoreventakingupaliability.Butitshouldbesomethingdesiredbythepromisorandalsolawfulasperthelaw.
Q2.ExplainthecapacityofpartiestothecontractunderIndianContractAct.
I. Meaningofcompetentparties-Thecapacitytocontractmeansthecompetence(capability)ofpartiestoenterintoavalidcontract.An
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agreementbetweentwopersonscanbeenforcedinthecourtoflawinbothofthem arecompetenttocontract.ApersonissaidtobemajorbyagesubjecttotheruleofIndianmajorityact1875,soundnessofmindofapersonisdecidedbySec12ofIndianContractAct1872.
II. Definitionofcompetentparties-AccordingtoSec11ofIndianContractAct1872,“everypersoniscompetentwhoisoftheageofthemajorityaccordingtothelawtowhichheissubject,whoisofsoundmindandisnotdisqualifiedfrom contractinganylawtowhichheissubject.”
III. Partiescompetenttocontract-AspertheprovisionofSec11ofIndianContractAct1872,Thefollowingpersonsaresaidtobecompetentparties.
a)Majorbyage-AccordingtoSec5ofIndianContractAct/MajorityAct1875.Apersonwhocompletes18yearsofageiscalledasmajorbyage.
Incaseapersonwhoseparentsarenotaliveandwhoaregroundedbyalegallyappointedguardian,21yearsofageshouldbecompletedtobecomemajorbyage.Thisruleappliestobothmaleandfemale.
b)Personsofsoundmind-Apersonissaidtobeofsoundmindforthepurposeofenteringintocontractifheiscapableofunderstandingthetermsofanagreementatthetimewhenheisenteringintoacontractandheiscapableofframingarationaljudgementabouttheeffectofanagreementonhisowninterest.
c)Personsnotdisqualifiedfrom contracting-Somepersonsaredisqualifiedorprohibitedfrom enteringintoanagreementduringspecifiedperiodoftime,evenafterattainingtheageofmajorityandsoundnessofmind.Alienenemies,insolvenceandconvictscomeunderthiscategory.
IV. Incompetentparties-
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Q3.“Astrangertocontractcangiveorreceivetheconsiderationinacontractbutcannotsue.”Explainwithexceptions.
OR
Explainthedoctrineofprivityofcontract.Giveanaccountonexceptionstothedoctrine.
I. Meaningofstrangertocontract-Itisaruleoflawthatonlypartiestoacontractmaysuitorbesuitedinthatcontract.Thisruleisknownasdoctrineofprivity.Itmeanstherelationshipexistingbetweenpartieswhohaveenteredintocontractualobligations.Thedoctrinesaysthatonlypartiestothecontractcansuitandcanbesuitedagainsteachother.Inotherwords“Astrangertoacontractcannotsueapartyofthecontract.”
CASELAW-DUNLOPPNEUMATICTYRECO.VsSELFRIDGECO.
CASEFACTS-REFERunit1.
II. Exceptionstotheruleofprivityofcontract
i) Trust-Incaseoftrustthebeneficiarymayenforcethecontracteventhoughheisastrangertothecontract,whichiscreatingthetrust,whereabenefitisgiventoapersonbycreatingatrustorchargeinsomepropertyinhisfavor,suchabeneficiarymayenforcethecontracteventhoughheisnotapartytoit.
CASELAW-KHAWAJAMOHD.KHANVsHUSSAINIBEGUM
CASEFACTS-‘D’agreedwithP’sthatPwouldpay500permonthasakharch-i-pandan,ifshemarriesD’ssons.Theallowancewasstoppedaftersometimeafterthecelebrationofmarriage.Psuedherfather-in-lawfor1500asarrearsofallowance.Itwasheldthat‘P’couldrecoverthemoneyeventhoughshewasnotapartytocontract.
ii)Whereprovisionismadeinthepartitionorfamilysettlement-Sometimesanagreementis madeinconnectionwithpartitionorotherfamilyarrangementsandaprovisioninmadeforthebenefitofsomeperson.Insuchcases,apersonforwhosebenefittheprovisionismadeinsuchfamilyarrangements,canenforcetheagreementevenifheisanotapartytothecontract.
CASELAW-SHUPPAAMMALVsSUBRAMANIYAM
CASEFACTS-Inthiscase2brothersinapartitiondeedagreedtopayas300inequalsharetotheirmotherformaintainence.Boththebrotherssubsequentlyrefusedtopaytheamount.Onasuit,itwasheldthatthemothercouldenforce
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thepromiseeventhoughshewasastrangertothecontract.(becauseamothercannotbetreatedasastrangertoherownsons)
iii)Whereprovisionismadeinamarriagesettlement-Aspertheindiantraditionmarriageagreementsaremadebetweentheparentsofbrideandbridegroom orrldersoftheirfamilies.Theagreementisnotmadebetweenthebrideandbridegroom.Therefore,thebrideandbridegroom becomestrangerstotheirownmarriageagreementintheeyesoflawaspertheexistingrule,howeverincaseofbreachofsuchagreementsthebrideorthebridegroom canenforcethecontractbeingthebeneficiaryintheeyesofthelaw.ThisrulewasgivenbyhonourablehighcourtofKeralainthefollowingcase.
CASELAW-ROSEFERNANDEZVsJOSEPHGONGLAVES
CASEFACTS-InthiscasethemarriageagreementwasmadebetweenMr.FernandezthefatherofMissRoseFernandezandMr.JosephGonglavethebridegroom himself.LateronthedeathofMr.Fernandez,Mr.JosephrefusetomarryMs.Rose.SoMs.Rosefiledasuitforpaymentofdamagesforthebreachofthecontract.Thecourtoflawheldthatshecanenforcethecontracteventhoughshewasastrangertothatcontractbecauseshewasthebeneficiaryofthemarriage.
iv)Separateagreementwiththestranger-Whenaseparateagreementisdraftedbetweenthestrangersandthepartyofthecontractempoweringhim toenforcethecontractinthecourtoflaw,hecanenforceit.Separateconsiderationisnotnecessaryforthesecondagreement.Thisrulewaslaiddowninthefollowingcase.
CASELAW-CHINNAYAVsRAMAYA
CASEFACTS-InthiscaseapersontransferredallhispropertytohissonChinnayaandinstructedhim topay1000annuallytoRamaya,theyoungerbrotheroftransferer.ChinnayaalsoagreedtopaythemoneytoRamayabyaseparatewrittenagreement.Buthediscontinuedafterthedeathofhisfather.Thereforethecourtoflawheldthathecanenforcethecontractonthebasisofsecondagreement,eventhoughhewasstrangertothefirstcontract.
Q4.“Anagreementwithoutconsiderationisvoid.”Comment.
OR
“Noconsideration,nocontract.”Explain.
I.Meaningofcontract.
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II.Meaningofconsideration.
III.Theruleof“noconsideration,nocontract.”-Considerationisveryessentialineveryagreement.Novalidcontractcanbecreatedwithoutconsideration.So,theruleismadeas“noconsideration,nocontract.”ThecaseofAbdulAzizVsMasoom Aliandothersexplainstheruleveryclearly.
CASELAW-ABDULAZIZVsMASOOM ALI
CASEFACTS-REFER
IV.Exceptionstothedoctrine-AccordingtoSec25oftheIndianContractAct1872,hasgivenexceptionstothisrulewereavalidcontractcanbemadewithoutconsideration.
a)Naturalloveandaffection-AccordingtoSec25(1),anagreementinwritingwhichisregisteredandisbasedonnaturalloveandaffectionbetweennearrelativesandenforceableevenifthereisnoconsideration.Thefollowingconditionsmustbesatisfiedfortheapplicationofthisexception.
i)Theagreementmustbeinwritingandregistered.
ii)Theagreementmustbebasedonnaturalloveandaffection.
iii)Theagreementmustbebetweenthepartieswhoarenearrelationstoeachother.
CASELAW-RAJLUKHYDABEEVsBHOOTNATH
CASEFACTS-Inthiscase,persontransferredallhispropertyinthenameofhiswifebecauseofsomequarrelsanditwasregistered.Laterhewantedtoavoidtheagreementasthetransferwasmadewithoutconsideration.Thecourtoflawheldthatthetransferbecomesinvalidastherewasnoconsiderationandnonaturalloveandaffectionintheagreement,eventhoughthepartystandsinnearrelationandthetransferwasregistered.
b)Pastvoluntarilyservices-AccordingtoSec25(2),Aservicerenderedbyapersontoanotherwithouthisdemandordesireisknownasvoluntaryservice.Apromisetopayforvoluntaryserviceisbindingeventhoughitiswithoutconsideration.Thefollowingconditionsmustbesatisfiedfortheapplicationofthisexception.
i)Theservicesshouldhavebeenrenderedvoluntarily.
ii)Theservicesshouldhavebeendoneforthepromise.
Forexample-Mr.AfoundMr.B’scycleandgaveittohim.Mr.Bpromisedtogive100toMr.Aasareward.Thisisavalidcontract.
c)Promisetopaytimebarreddebts-AccordingtoSec25(3),apromisetopaytime
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barreddebtsisenforceableifsuchpromiseisinwritingandduelysigned.Thefollowingconditionsmustbesatisfiedfortheapplicationofthisexception.
i)Thepromisetopaymustbedefiniteandexpressed.
ii)Thepromisemustbeinwriting.
iii)Thepromisemustbesignedbythepromisororhisauthorizedagent.
iv)Thedebtmustbetimebarredi.e,.Thelimitationperiodfortherecoveryofdebtmusthaveexpired.
d)Giftactuallymade-AccordingtoSec25,Absenceofconsiderationshallnotaffectthevaliditybetweenthedonoranddoneeofanygiftmade.Therefore,giftsoncemadecannotberecoveredonthegroundsofabsenceofconsideration.
Q5.Discussthecontractenteredwithaminorfrom alegalpointofview?
OR
Explainindetailthespecialrulesregardingminoragreement.
I.Meaningofminor-Aminorisapersonwhohasnotattainedtheageofmajorityforthepurposeofenteringinacontract,theageofmajorityis18years.Thus,aminorisapersonwhoisbelowtheageof18years.Theterm minorisexplainedinSec3ofIndianMajorityAct1875,whichisasfollows;“Aminorisapersonwhohasnotcompleted18yearsofage.”
II. Natureofminor’sagreement-Aminorisnotcompetenttoenterintoavalidcontract.Anagreementwithaminorisvoid-ab-initio.Thecontroversywhetherminorwouldbevoidorvoidableatminorsoptionwasfinallyresolvedin1903bytheprivitycouncilinMohiribibiVsDarmodasGhoshinwhichitwasheldthatminor’sagreementisabsolutelyvoid.
III. Specialneedsregardingminor’sagreement:
1.Agreementwithminorarevoid-ab-initio-Anagreementwithaminorisnotonlyvoidbutitisvoidfrom theverybeginning.Anyagreementwiththeminorcannotbeenforcedinacourtoflaw.Anyamountpaidtotheminorcannotberecordedbecausetheconsiderationgiventoaminorisconsideredasnoconsiderationinlaw.
CASELAW-MOHIRIBIBIVsDHARMODARGHOSH
CASEFACTS-REFER
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2.Minoragreementcannotberatified-Theterm ratificationmaybedefinedasanactofconfirmationorapproving.Thedoctrineofnoratificationimpliesthatanagreementmadebyaminorduringhisminoritycannotberatifiedbyhim onattainingmajority.Thisissobecauseminor’sagreementisvoid-ab-initioandthereforecannotbevalidbyratification.
3.Minorcanpleadminorityatalltimes-Ifaminorenterintoagreementwithamajorpersonbywronglyrepresentinghisageasmajor.Suchagreementalsobecomesvoidbecauseaminorcannotbeheldliableformisrepresentationofhisage.
CASELAW-LESLIEVsSHEILI
CASEFACTS-Inthiscaseaminortookaloanofmajorpersonbyrepresentinghisageasmijor.Thecourtoflawheldthattheamountcannotberecoveredfrom theminoreventhoughhehasmisrepresentedhisage.
4.Minorisnotliableforanyciviltort-Whenaminorcausesalosstoamajorpersonbynotfollowinghisinstructionsorcommittingaciviltorttheminorcannotbeheldliabletopayanydamage.Evenhisparentscannotbeheldliable.
CASELAW-JENNINGSVsRUNDOLL
CASEFACTS-Inthiscaseaminortookaponyonhireatahillstation.Hewasinstructedbytheowneroftheponynottotakeittothetopofthehill,buttheminortookit.Soitfellanddied.Thecourtoflawheldthatthedamagescannotbeclaimedeitherfrom minororfrom hisparentsbecauseminorcannotbeheldliableforciviltort.
5.Agreementmadeforthebenefitsofminorcanbeenforcedbytheminor-Whenanagreementismadebetweenamajorpersonandaminorinwhichtheminorisbeneficiary,itcanbeenforcedbytheminor,butnotbythemajorperson.ThisrulewasgivenbythehonourablehighcourtofKerelatoprotecttheinnocentminorfrom unfairactionofmajor.
CASELAW-ABDULGAFFARVsPYARELAL
CASEFACTS-Inthiscaseamajorpersonpurchasedgoodsoncreditfrom aminorwhowasrunningaprovisionalstoresofhisdiseasedfather.Whenheclaimedtheamountthemajorpersonrefusedtopay.Thecourtoflawheldthatitshouldbepaidtotheminorbecauseheisthebeneficiaryofthatagreement.
6.Minor’spropertyliablefornecessaries-Sometimesapersonsuppliesnecessariestoaminor,insuchcases,thesuppliesofnecessariescanclaim reimbursementfrom thepropertyofminor,butnotpersonallyfrom theminor.
CASELAW-NASHVsINMAN
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CASEFACTS-Inthiscaseaminorpurchased11fancycoatsfrom areadymadegarmentsshoponcredit.Thesellerfiledasuittorecovertheprice.Thecourtoflawheldthateventhoughclothingisnecessariesoflife,fancycoatsarenotnecessariesoflife.Sotheamountcannotbeclaimedfrom aminor.
7.Theminorasapartner-Thepartnershipofpartnersresultsfrom theiragreement(partnershipdeed)aminorbeingincompetenttoenterintoacontractcannotbeapartnerinthefirm.However,hemaybeadmittedonlytothebenefitofthefirm withtheconsentofallotherpartnersaccordingtoSec30(1)oftheIndianPartnershipAct,1932.
8.Theminorasaninsolvent-Aminorcannotbedeclaredasaninsolvent.Thisissobecauseallagreementswithaminorareabsolutelyvoid.Moreover,aminorisnotpersonallyliableforanydebtincurredduringtheperiodofhisminority.
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1.MeaningofAgreementandContract?
MeaningofanAgreement:AnAgreementmeans
communicationbypartiestooneanother,theirintentionto
createrelationship.Thisrequiresaproposalfrom oneside
ofthepartyanditsacceptancebytheotherparty.
MeaningofContract:Arelationshipcreatedbetweentwoor
moreparties/personswiththeirwillingnesstodoornotto
dosomethingandwhichcanbeenforcedinacourtoflawis
knownasacontract.
DefinitionofContract:Accordingtosection2(h)ofIndian
ContractAct,1872.
“Anagreementenforceablebylawisacontract.’’
Anagreementcomesintoexistencewhenonepersons
makesaproposaltodoornottodosomethingtoanother,
andotheracceptsitforaconsiderations,ifthepartiesare
competenttocontractwithfreeconsentandtheobjectare
lawful.
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2.DifferencebetweenAgreementandContract?
a)Meaningofagreement:
Agreement Contract
a)proposal+acceptance
+considerationbecomesan
agreement.
a)agreement+enforceability
oflawbecomesacontract.
b)agreementisafoundation
foracontract.
b)contractisthefinalstage
oftheagreement.
c)allagreementsarenot
contract.
c)allagreementsare
agreements.
d)anagreementbecomesa
contractonlywhen.
d)anagreementwhichisnot
enforceablebylawwillnot
becomecontract.
e)anagreementwillnot
createlegalobligations.
e)acontractcreatelegal
obligationsbetweenthe
parties.
3.DefineContract.ExplaintheessentialsofaValidContract?
I)MeaningofaContract:
II)DefinitionofaContract:
III)EssentialsofaValidContract:
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a)Offer:AccordingtoSection2(a)oftheIndianContract
Act1872,Offermeans“whenonepersonsignifiesto
anotherhiswillingnesstodoorabstainfrom doing
anythingwithaviewtoobtaintheassentofthatother
suchactasabsistence.”
CASELAW :HarveyVsFacey
CASEFACTS:Inthiscaseapersongaveatelegram to
anotheras“willyousellyourbumperhallpen?Quotethecash
prize”.Theotherpersonreplied“Thepriceofbumperhallpen
if$900,”thenthefirstpersongaveanothertelegram as“Iwill
buyitsendthedocuments.”Forthattelegram noreplywas
given.
Thecourtoflawdeclaredthatnoagreementwillcome
intoexistencebetweenthepartiesbecausethepriceQuoted
onrequestwillnotbecomeavalidoffer.
b)Acceptance:Accordingtosection2(b)ofIndianContract
Act,“whenthepersontowhom offerismadesignifieshis
assentthereto,theofferissaidtobeaccepted.
CaseLaw:powelluslee.
CaseFacts:Inthiscaseapersonappearedforan
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interviewforthepostofheadmasterintheschool.Oneof
theboardmemberoftheschooltoldhim thathewas
selectedforthepostofheadmaster.Buttheschool
managementappointedsomeotherpersonforthatpost.
Thecourtoflawheldthatheshouldnottakehis
appointmentascompletedunlesshereceivesanofficial
communicationfrom theschoolauthority.
c)Consideration:Accordingtosection2(d)ofIndian
contractoract1872,“whenthepromisormakesa
proposaltodosomethinghewantsthepromisestodo
somethingforhim ,itisknownasconsiderationinthe
promise.”
CaseLaw:KedarnathvsGhouriMohdandothers.
CaseFact:InthiscaseGhouriMohdandotherspromises
tocontributecertainamountforconstructionoftownhall,
butdidnotdoso.Thesecretaryofthetownhallhas
finishedtheconstructionofthehallbytakingupsome
loan.Thecourtoflawheldthattheamountmustbepaid
byGhouriMohdandothers.
d)CompetentParties:Accordingtosection11ofIndian
ContractAct1872,”Everypersoniscompetenttocontract
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whoisoftheagemajorityaccordingtothelawtowhich
heissubjectandwhoisofsoundmindandisnot
disqualifiedfrom contractingofanylawtowhichheis
subject.
CaseLaw:MohiribibivsDharmodasGhosh.
CaseFact:InthiscaseMohiriBibivs,whoisamoney
lendergavealoantoDharmodaswhoisaminor,after
obtainingapromisernotefrom him.onduedate
DharmodasfailedtorepaybackloanamounttoMohiri
Bibi.SoshefiledacasebutaspertherulesoflawMohiri
cannotrecoverloanamountfrom Dharmodasbecause
anyagreementwithaminorisvoid.
e)FreeConsent:Iftheconsentofthepartiesisnotfree
thennovalidcontractcomesintoexistence.Theconsent
isnotfreewhenitisobtainedbycoercion,undue
influence,fraud,
misrepresentationoffactsandmutualmistakeoffacts.
Accordingtosection13ofIndianContractAct1872.”Two
ormorepersonsaresaidtoconsentwhentheyagree
uponthesamethinginsamesense.”Thisiscalledas
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consensusaditem.
CaseLaw:RanganakkammavsAlwarChetty.
CaseFacts:InthiscaseMrs.Ranganakkammawas
marriedattheageof13yrsandherhusbanddiedwithin
6monthsinanaccidentmr.Alwarwhoisfatherinlawof
mrs.Rangankkammaforcedhertoadoptaboyasasonto
dothefuneralcremationofherhusband.Thedeadbody
ofherhusbandwasstoppedfrom cremationuntilshe
adoptedtheboy.Laterthecourtoflawallowedherto
avoidtheagreementofadoptionofboyonthegroundsof
coercion.
f)LawfulConsiderationandLawfulObject:TheLawful
considerationisthatwhichisneitherfraudulent,forbidden
bylaw,immortalnoropposedtopublicpolicyetc.if
considerationisnotlawfulthennovalidcontractcomes
intoexistence.
Existenceofconsiderationineveryagreementisnot
sufficient,butitmustbealawfulconsideration.Moreover
theobjectoftheagreementshouldalsobelawfulsoalso
toenforceitincourtoflaw.
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g)CreatingLegalObligations:Theagreementsshouldbe
capableofcreatinglegalobligationsbetweentheparties
whichcanbeenforceablebylaw.Onepartyshouldbe
empowertotakelegalactionagainsttheotherparty.Ifthe
otherfailstofulfillhisobligationsundertheagreements.
CaseLaw:BalfourvsBalfour.
CaseFacts:InthiscaseMr.BalfourmovedtoCeylonon
hisjobbutMrs.Balfourbecauseofillhealthhadtostayin
Englandandcouldnotaccompanyhim toCeylon
Mr.Balfourpromisedtosendher30poundspermonth
whilehewasabroad.ButMr.Balfourfailedtopaythat
amount.Mrs.Balfourfiledasuitagainstherhusbandfor
recoveringthesaidamount.Thecourtheldthatitwas
domesticateagreementandthepromisemadebythe
husbandinthecasewasnotintendedtobealegal
obligation.Inthiscasetheintentionnottocreatealegal
obligationwasclearfrom theconductofparties.
Therefore,alltheelementsabovementionedmustbe
presentinordertomakeavalidcontract.So“allcontracts
areagreementsbutallagreementsarenotcontracts.”
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h)Legalformalities:Writtenagreementsshouldbe
properlydraftedonpaperinaproperlanguage.The
agreementshouldbesignedbythepresenceofatleast
twowitnesses.Iftheyinvolveinthetransferofimmovable
property,thenitshouldberegisteredwiththeregisterof
immovableproperties.Theseareknownaslegal
formalities.
4.explaininbrieftheclassificationsofcontractsortypes
ofcontract:
a)Meaningofcontract
b)Definitionofcontract
c)Classificationofcontract
A)Enforceability B)Formation C)Performance
a)Validcontract a)Express
Contract
a)Executed
contract
b)Voidcontract b)Impliedcontractb)Executory
contract
c)Voidcontract c)Quasicontract c)(i)unilateral
contract
d)Voidable
contract
(ii)bilateral
contract
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e)Unenforceable
contract
f)illegal
agreement
[A]Classificationsonthebasisofenforceability:
a)ValidContract:Anagreementsenforceablebylawis
voidcontract.Anagreementbecomesacontractwhenall
theessentialselementsofvalidcontractarefulfilled.If
anyoneelementismissingthencontractisvoidable,void,
illegal/unenforceable.
b)VoidAgreement:Anagreementmaybeenforceableat
thetimewhenitwasmade,butlateronduetosome
reasonsitmaybecomevoidsuchcontractsareknownas
voidcontract.
ForExample:Acontracttoimportgoodsfrom foreign
countriesmaysubsequentlybecomevoidwhenawas
breakoutbetweentheimportingandexportingcountry.
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c)VoidAgreement:Anagreementnotenforceablebylaw
iscalledasvoidagreement.Itis“void-ab-intio”becauseit
isvoidfrom theintialstageitself.Allillegal,immortal
agreementsoragreementswiththeminoragreements
withoutconsiderationaredeclaredasvoidagreements.
d)VoidableContract:Accordingtosection2(i)ofthe
IndianContractAct,1872.”Anagreementwhichis
enforceablebylawattheoptionofoneormoreofthe
partiesthereon,butnotattheoptionofotherorothers,is
avoidablecontract.”
Avoidablecontractisthatwhichcanberescinded(putto
anendorterminated)attheoptionoftheoneofpartiesto
thecontract.Thishappenswhentheelementoffree
consentismissingi.e,thecontractiseffectedbycoercion,
fraud,mistake,undueinfluence,misrepresentation.The
partywhoseconsentisnotfreemayeitheravoidthe
contractormayelecttobeboundbyit.
Acontractisvoidableinthefollowingtwosituationalso:
Situation1:Whenapersonpromisestodosomethingfor
anotherpersonbuttheotherpersonstophim from doing
so,thecontractbecomesvoidableathisoption.
ForExample:mr.Aandmr.Bmadeacontractinwhich
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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mr.Ahastodoworkformr.Bfor$10000mr.Awasready
todotheworkbutmr.Bstopshim from doingso.The
contractisvoidableattheoptionofmr.A,hemayeither
electtobeboundbyitormayrescindthecontract.Ifhe
rescientsthecontract,hecanrecoverfrom mr.B
compensationforlosswhichhewasincurred.
Situation2:whenapersonpromisestoperform an
obligationswithinaspecifiedtime,anyfailureonhispart
toperform withinthattimemakesthecontractvoidableat
theoptionofpromises.
e)UnenforceableContract:Itisonewhichcannotbe
enforcedbylaw,becauseofsometechnicalobjecta
technicaldefectlikeabsenceofawrittenform orabsence
ofproperstamping,registrationattestationetcsuch
contractswillnotbeenforcedbythecourtsuntiland
unlessthedefectisractified.
f)IllegalAgreements:Anillegalagreementisoneinwhich
thepartieshavepromisedtoconductanillegaloran
immoralactivitywhichisopposedtopublicpolicysuchan
agreementisvoid.”Allillegalagreementsarevoid
agreementsbutallvoidagreementsarenotnecessarily
illegal.”Anillegalagreementsisnotonlyvoidbetweenthe
immediatepartiesbuteventhecollateralpartiesbecome
taintedwithillegality.Acollateraltransactionisonewhich
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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isasubsidiarytotheoriginalcontract.
ForExample:Mr.Aborrows$10000from Mr.Bandenter
intothecontractwithaforeignerMr.C,toimport
prohibitedgoods.Mr.Bknowsthepurposeofloanso
transactionbetweenMr.AandMr.Biscollateraltothe
mainagreement.Itisillegalbecausethemainagreement
isillegal.
B)Classificationonthebasisofformation:
a)ExpressContract:Ifthetermsofthecontractare
expresslyagreeduponeitherbywordsspokenorwritten,
thecontractissaidtobeanexpresscontract.However,
Lawprefersthatpartiesshouldenterintoacontractin
writtenform itservesasanevidenceincourtoflaw.
b)ImpliedContract:Animpliedcontractisthatwhichis
notmadeinwords.Suchcontractcomesintoexistence
onofactorconductofpartiesmaygiverisetoimplied
contract.
c)QuasiContract:Asamatteroffact,quasicontractare
notcontractasthereisnointentionofthepartiestoenter
intocontract.Infactitisanobligationswhichthelaw
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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createsintheabsenceofanyagreement.AQuasi
Contractisbasedupontheequitableprinciplethatperson
shallnotbeallowedtoenrichhimselfattheexpenseof
another.
ForExample:Mr.A,atradeleftcertaingoodsatMr.B
housebymistake.Mr.Btreatedthegoodshasowninthis
case,Mr.Bboundtopayforthegoods.
C)Classificationsonthebasisofperformance:
a)ExecutedContract:Executedmeanswhichisalready
done.Anexecutedcontractisoneinwhichboththe
partieshadperformedtheirrespectiveperformance.
ForExample:Mr.AagreestopaintapictureforMr.Bfor
$1000whenMr.ApaintedthepictureandMr.Bpaysforit
thecontractisexecuted.
b)ExecutoryContract:Executorymeansthatwhich
remainstobecarriedoutwhenoneorboththeparties
havetoperform theirobligationsthecontractissaidtobe
executory.
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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i)UnilateralExecutoryContract:Acontractisunilateral
whenonepartyhasperformedhisobligationsanditis
onlytheotherpartywhohastoperform hisobligations.
ii)BilateralExecutoryContract:Acontractisbilateralifthe
iftheperformanceofboththepartiesisoutstanding.
ForExample:Mr.Apromisestopaythepriceondelivery
ofcar.Thecontractisbilateralasboththepartieshave
stilltoperform theirobligations.
5.Explaininbriefthetypesorclassificationsofanoffer?
A]Meaningofoffer:
Anofferorproposalisthestartingpointintheformationof
ancontract.Inanagreementtheirmustbeanofferbyone
partyanditsacceptancebytheotherparty.Theofferwhen
acceptedbecomesanagreement.Thepersonmakingan
offeroraproposaliscalledanofferororanofferor
proposerandthepersontowhom anofferismadeiscalled
offeree.
B]definitionofanoffer:
Accordingtosection2(a)ofIndiancontractact,1872,
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“whenonepersonsignifiestoanotherhiswillingnsstodoor
toabstrainfrom doinganythingwithaviewtoobtainingthe
assetofthatothertosuchactorabstinence.”
C]Classificationofanoffer:
Expressoffer
andimplied
offer
Specificoffer
andgeneral
offer
Positiveoffer
andnegative
offer
Crossoffer
andcounter
offer
a)Expressoffer:anoffermaybemadebywordsspokenor
written.Thisiscalledasexpressoffer.
Forexample:Mr.AoffersMr.B“willyoupurchasehouse
for$100000?”thereisanexpressofferexistinghere.
b)Impliedoffer:anoffermaybeimpliedfrom theconductof
partiesorcircumferencesofthecase.
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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Forexample:whenapublicbusrunsonaparticularroute,
thereisanimpliedoffermadebythebustocarry
passengersforaparticularfare.Theacceptanceofanoffer
iscompletewhenthepassengersboardsthebus.
c)Specificoffer:whenanoffertoaparticularpersonorbody
ofpersonsthenitisaspecificoffer.Aspecificoffer
canusuallyacceptedonlybythepersonorpersonsto
whom itismade.
d)Generaloffer:whenanofferisaddressedtothewhole
worlditiscalledageneraloffer.ageneraloffercanbe
acceptedbyanyone.
CaseLaw:CarllilvsCarbolicsmokeballco.
CaseFacts:acompanyadvertisedinthenewspaperthata
rewardof100poundswouldbegiventoanyperson
whogetsinfluenceafterusingsmokeballs.Mr.Carllil
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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usedthissmokeballsandaftersometimeshewas
affectedwithinfluence.thecourtheldthatMrs.Carllil
couldrecovertheamountof100poundsbythe
companybecauseshehadacceptedthegeneraloffer
givenbythesmokeballcompany.
e)Positiveandnegativeoffer:Anoffermaybetodo
somethingornottodosomething.anoffertodo
somethingisapositiveofferandanoffernottodo
somethingisanegativeoffer.
Forexample:Mr.Aofferstopay$10,000permonthtoMr.B
ifheworksinhiscompanyasatypist.thisisapositive
offer.After2monthswhenMr.Bispreparedtoresign,
Mr.Agaveanotherofferthathewillincreasethesalary
ofMr.Bto12,000.ifhedoeshewillnotresign.thisis
anegativeoffer.ifMr.Bdoesnotresignhisjobthenit
becomeshisacceptancetoMr.A’soffer.
f)Crossoffer:whentwopartiesmakeanidenticalofferto
eachotherinignoranceofeachothers,thistypeof
offeriscalledascrossoffer.insuchacasethecourt
willnotconsideroneofferasavalidofferandtheother
offerasstheacceptance.therefore,thereisno
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contractexistingbetweenthoseparties.
Forexample:Mr.AwritesalettertoMr.Bbygivinganoffer
tosellhishousefor$5,00,000toMr.B,Mr.Balso
writesalettertoMr.AwhichcrossesMr.A‘sletterin
theposttheoffergivenbyMr.BwastobuyMr.A’s
housefor$5,00,000.inthiscaseoffersarecrossed
offersandsothereisnocontract.acontractcanarise
onlywhenanacceptanceisgivenaftertheofferis
made.
g)Counteroffer:whenaproposalismadebyonepartybutit
iscounteredbytheotherparty.anoffercomestoan
endwhentheoffersmakesacounterofferorrejects
theoffer.whereanofferisacceptedwithsome
modificationsintermsoftheofferorwithsomeother
conditionsnotformingpartoftheoffer,suchqualified
acceptanceamountstoacounteroffer.anofferonce
rejectedcannotberevived.
CaseLaw:HydevsWrench
CaseFacts:Inthiscase,Mr.Hydefor10000poundsfor
whichforwhichMr.Hrepliedthathewouldbuythe
house9000poundssoMr.W keptquitewithoutgiving
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anyreply.laterMr.Hagainexpressedhiswillingness
tobuythehousefor10000pounds.Mr.W refusedto
sellhishousetoMr.H.soMr.Hfiledacase,butthe
courtoflawheldthatanofferwhencounteredby
bargainingormodificationsbecomeinvalid.evenifitis
acceptedoffermakingacounteroffernoagreement
comesintoexistence.
Q)Differencebetweenvoidagreementandvoidcontract?
Basisofdistinction Voidagreement Voidcontract
Meaning Itreferstoan
agreementwhichis
enforceablebylaw
andhasnolegal
consequence.
Itimpliesavalid
contractthatcauses
tobeenforceableby
lawbecomesavoid
contractwhenit
lacksenforceability.
Voidabintio Itisvoidbeginning. Itisvalidat
beginningbutlaterit
becomesvoid.
Periodofvalidity Itisnevervalid. Itisvalidtillitdoes
notcausedtobe
enforceable.
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Causes Duetoabsenceof
oneormore
essential.
Duetoimpossibility
ofperformance.
Pre-requisitesof
contract
Whentheagreement
iscreatedallthepre-
requisiteofcontract
butarenotsatisfied
,thusmakingitvoid
.
Whenthecontractis
enteredintoallthe
pre-requisiteof
contractare
satisfiedwhichis
dueto
circumstances
subsequently
becomesvoid.
2)Differencebetweenvoidagreementandvoidable.
Basisof
distinction
Voidagreement Voidablecontract
Void-ab-initio Itisvoidfrom
thebeginning.
Itisvalidwhenit
ismadeand
continuesto
remainvalidtillit
isrepudiatedby
agreedparty.
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EssentialelementItisvoid
becausethe
essential
elementofvalid
contractis
missing.
Itisvoidable
becauseconsent
ofthepartyisnot
free.
Enforceability Itcannotbe
enforcedbyany
party.
Itcontainstobe
enforcedifthe
agreedparty
doesnot
repudiatethe
contract.
Rightof3rdparty Thirdpartydoes
notacquiresany
right.
Athirdpartywho
purchasesgoods
ingoodfaithfor
consideration
beforethe
contractis
repudiate
acquiresgoods
titleofthose
goods.
Damage Thequestionof
damagedoes
notarise.
Theagreedparty
canclaim
damage.
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3)Differencebetweenvoidagreementandillegalagreement.
Basisof
distinction
Voidagreement Illegal
agreement
Meaning Anagreement
whichlackslegal
enforceability.
Anagreement
whosecreation
isforbiddenby
thecourtoflaw
isanillegal
agreement.
Consequences Anagreement
becomesvoid
whenitlosesits
enforceabilityby
law.
Anillegal
agreementis
void-ab-intioi.e.,
voidfrom the
verybeginning.
Prohibitedbylaw No Yes
Scope Wide Narrow
Penalty Partiestovoid
agreementsare
nottableforany
penaltyunderlaw
Partiestoillegal
agreementsare
penalize.
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.
Connected
agreements
Maynot
necessarilybe
voidtheymaybe
validalso.
Allconnected
agreementsare
void.
4)writeashortnoteonsocialagreement?
Meaning:asocialagreementisanagreementwhichisnot
enforcedbythelawandanypromisemadeinthis
agreementisnotintendedtobealegalobligationsas
agreementsofsocialordomesticnaturedonot
contemplatelegalrelations.
Forexample:Mr.AinvitedMr.Btohissonsbirthdayparty
andMr.Bagreedtoattendthepartyontheparticular
day,Mr.BspentRs.500/-astravelexpensesand
reachedtheplacetoattendthepartyandhecomesto
knowthatthepartyhasbeencancelledduetopersonal
reasonsofMr.A.Mr.BfiledasuitagainstMr.Afor
recoveryofRs.500/-whichhespentastravelexpenses.
Thecourtdidnotacceptthecasebecausetheabove
activityisaSocialActivityi.e.,birthdaypartywhichisa
SocialAgreement.
CASELAW :BalfourVsBalfour
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CASEFACTS:Mr.BalfourmovedtoCeylononhisjobbut
Mrs.BalfourhadtostayinEnglandbecauseofherill
health.However,Mr.Balfourpromisedtosend30
poundspermonthwhilehewasaborad.But,Mr.
Balfourfailedtopaytheamountso,Mrs.Balfourfileda
suitagainsther husband for recovering the said
amount.The courtheld thatitwas a domestic
agreementandthatthepromisemadebythehusband
inthiscasewasnotintendedtobealegalobligation
whichwasclearfrom theconductoftheparties.
5)Difference between illegal agreement and unlawful
agreement.
Basis of
distinction
IllegalagreementUnlawful
agreement
Meaning Illegalisdefined
inthecontraryto
or forbidden by
law especially
criminallaw.
Behaviourthatis
notauthorizedby
law ,commission
oforparticipate
inanactivitythat
violates criminal
orcivillaw.
6)Defineoffer.Explaintheessentialsofavalidofferwith
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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caselaw?
i)Meaningofanoffer:
ii)Definitionofanoffer:
iii)Essentialsofavalidoffer:
1)Offershouldbevoluntary:Apersonissaidtomakean
offer,whenhesignifieshiswillingnesstoanothertodo
ortoabstrainfrom doinganything.Hence,ananswer
giventoaquestionorareplygiventoanenquirywill
notbecomeavalidofferoraproposal.
CaseLaw:HarveyvsFacey.
CaseFacts:(Refer)
2)Offershouldbecommunicated:Accordingtosection4of
Indiancontract1872,“Thecommunicationofanoffer
iscompletewhenitcomestotheknowledgeofthe
persontowhom itwasmade.
CaseLaw:LalmanShuklavsGuariDutt.
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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CaseFacts:Inthiscaseatradernephew (4years)had
absconded from hishouse.so thetradersenthis
munim totracehismissingnephew.traderannounced
arewardof$500whoevertracestheboy.thereward
wasannouncedafterthemunim leftin searchofboy.
Munim tracetheboywithouttheknowledgeofreward.
whenthemunim cametoknownaboutthereward,he
broughtanactionagainsttradertorecoverthesame.
thecourtoflawheldthatmunim wasnoteligibleforthe
rewardbecausehetracetheboywithoutreceivingthe
communicationaboutthereward.
3)offer must be made with willingness : The word
‘willingness’isusedinlegaldefinitionofanofferdoes
notconveythemeaningof‘maredesireofapersonto
dosomething’.Itshouldbecoupledwithhiscapacityto
dowhatheisdesiringorproposing.
Forexample:owneample
4)offermaybepositiveornegative:(refer)
5)obtainingtheassentofthepromise:Asperthelegal
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definition,anoffershouldbemadewithaview to
obtainingtheassentoftheothers,thatmeans,the
promisorshouldexpectareplyoracceptanceofthe
promisetotheproposalmadebyhim .
CaseFax:FarinavsFicus
CaseFacts:Inthiscase,apersonwroteacasualletterto
hiswouldbeson–in-law andexpressedhisintention
thathisdaughterwillbecomearealownerofhisall
propertyafterhisdeath,becauseshewastheonly
childhehad.laterhewantedtosellthepropertydueto
certainunforeseencircumstances.itwasobjectedby
wouldbeson-in-law .thecourtoflaw heldthatthis
lettercannotbeconsideredasanofferbecauseitwas
notwrittenwithaview toobtaintheconsentofthe
otherparty.
6)offermustcreatelegalobligations:Agreementswhich
doesnotcreatelegalobligationsbetweentheparties
cannotbeenforcedin thecourtoflaw .thefriendly
proposals,socialproposal,domesticproposalwillnot
createlegalobligations.
CaseLaw:BalfourvsBalfour
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CaseFacts:
7)offermustbedefiniteandcertain:theterm ofanoffer
mustbedefinite,clear,certain.ifthetermsofthe
offer are uncertain ,no contract willcome into
existence.boththepartiesshouldbeclearaboutthe
legalconsequencesarising outofthecontract.for
example:Mr.AofferedtosellMr.bhundredtonsofoil.
butMr.A who is a traderwho is dealing with 10
differenttypesofoil.theofferisuncertainasthereis
nothingtoshowwhatkindofoilisintendedtobesold.
8)Lapseofanoffer:
a)Ifeitherofferororoffereediesbeforeacceptance.
b)Ifitisnotacceptedwithinaspecifiedtimeorreasonable
time,ifnotimeisspecified.
c)Iftheoffereedoesnotmakeavalidacceptance.
d)Anoffercanalsolapsebyrevocation.
Q7.Whatisavalidacceptance?Givelegalrulesregarding
acceptance.
I.Meaningofacceptance–Acceptanceisthesecondstageinthe
formationofacontract.Aproposalbecomesapromiseonly
whenitisproperlyacceptedbythepromise.Everyproposalmay
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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notbeaccepted,thereforeeveryproposalwillnotcreatean
agreement.Acceptedproposalonlywillcreatelegalobligations
betweenthepromisorandpromisee.Anacceptanceisthe
manifestationbytheoffereeofhiswillingnesstobeboundbythe
termsoftheoffer.
II.Definitionofacceptance-AccordingtoSec2(b)of
IndianContractAct1872,“whenthepersontowhom the
proposalismadesignifieshisassentto,proposalissaid
tobeaccepted.Aproposalwhenacceptedbecomesa
promise.”
III.Essentialsofavalidacceptanceorrulesregarding
acceptance-
1)Acceptancemustbeunconditional-Thetermsoftheoffer
mustbeacceptedbytheacceptorwithoutanycondition.
Acceptinganofferwithconditionsamountstocounter
offerandrejectionoftheoriginaloffer.
CASELAW-HYDEVsWRENCH
CASEFACTS-REFER
2)Acceptancemustbecommunicated-Theacceptanceis
completedonlywhenithasbeencommunicatedtothe
offereruntiltheacceptanceiscommunicated,itdoesnot
createalegalrelation.
CASELAW-POWELLVsLEE
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CASEFACTS-REFER
3)Acceptancemaybeexpressedorimplied-Acceptance
canbegiveneitherbywordsspokenorwritten.Such
acceptanceiscalledanexpressedacceptance.Itcanalso
begivenbytheactionsofthepromisee.Itiscalledasan
impliedacceptance.
CASELAW-HARCHARANVsHARBHAJAN
CASEFACTS-Inthiscaseapersonwassittingata
dharmashala,heardanannouncementaboutalostboy.A
rewardof500wasannouncedfortracingtheboy.Hefound
theboyatthedharmashallaandcaughthim.Inthisprocess
hecouldnotheartheaddresssohehandedovertheboyin
thelocalpolicestation.Laterhewenttothataddressto
claim thereward.Thecourtoflawheldthathewaseligible
fortherewardonaccountofimpliedacceptance.
4)Acceptancemustbemadewithinareasonabletime-Ifno
timeisspecified,acceptancemustbegivenwithinthe
reasonabletime.Ifanytimeisspecifiedacceptancemust
begivenwithinthespecifiedtimeonly.
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Forexample-Movieinatheatre.
5)Silenceisnotacceptance-Silenceofapromiseein
respectofaproposalistakenasnon-acceptanceor
rejectionofaproposal.Eventhoughsilenceisconsidered
ashalfacceptanceintheindiantraditionsitisnot
recognizedbylaw.
6)Mentalacceptanceisnoacceptance-Sometimesthe
promisemayacceptaproposalmentallyandinformsitto
anyotherpersonbutnottotheofferorthenitiscalledas
mentalacceptance.Itisinvalidandnoagreementcomes
intoexistencebetweenthepromisorandthepromiseein
suchcases.
CASELAW-FELTHOUSEVsBINDLEY
CASEFACTS-InthiscaseMr.FeltHousewrotealetterto
hisnephewthathewaswillingtobuythenephew’shorse
for30poundsandifhereceivesnocommunicationwithin
3dayshewilldeem itasacceptanceandwillcollectthe
horse.Hisnephewdecidedtosellthehorsetohisuncle
andinstructedhisauctionererMr.Bindleynottosellthe
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horseinauction,buttheauctionerersolditbymistake.
Thecourtoflawheldthattheauctionerercannotbeheld
liablefordamagesbecausenoagreementcameinto
existencebetweentheuncleandhisnephewbecauseof
lackofcommunicationofacceptance.
7)Acceptanceshouldbecommunicatedinareasonable
mode-Sometimesthepromisorprescribesaparticular
modeofcommunicationofacceptance.Insuchcases,
promiseeshouldcommunicatehisacceptanceinthat
particularmodeonly,otherwiseitmayberejectedbythe
promisor.Whennoparticularmodeisprescribed,it
shouldbecommunicatedthroughareasonablemode.
Everymodeofcommunicationrecognizedbythe
governmentofacountryisdeemedtobeareasonable
modeofcommunication.Therefore,acceptancegivenby
postalletters,courierservices,telephoneconversations,
etcbecomesvalidinindia.
CASELAW-NARENDRANATHVsKEDARNATH
CASEFACTS-InthiscaseMr.Kedarnathoffershishouse
tonarendranathforsomeconsiderationandinstructed
him tosendhisacceptanceinwritingthroughapost.But
Mr.Narendranathsentanoralmessagethrougha
messengerthatheiswillingtobuythehouse.But
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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kedarnathsoldhishousetosomeotherpersonand
narendranathfiledasuitonhim forrefusingthe
acceptance.Thecourtoflawheldthathecandoso
becausepromiseedidnotfollowtheprescribedmodeof
communicationofacceptance.
8)Acceptanceshouldbegivenbypromiseeonly-Asperthe
legaldefinition,“thepersontowhom aproposalismade
shouldsignifyhisassent,theretoexpresshisacceptance.”
Thatmeansthepromiseeonlyshouldgivetheacceptance.
Ifitisgivenbyanythirdpartyitbecomesinvalidandno
obligationsiscreatedbetweenthepartiesandno
agreementcomesintoexistence.
Q8.Whendoescommunicationandrevocationofofferand
acceptancecomplete?Explainmodesofrevocationofoffer.
OR
Whendoesthecommunicationofaproposalbecome
complete?Howistheproposalrevoked?
A.Whenthepartiestoacontractarefacetofacethe
acceptanceissaidtobecommunicatedassoonasthe
acceptorgiveshisacceptance.Butthepartiesarenotnear
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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butatdifferentplacesthentheyneedtosendofferand
acceptanceinanymodeofcommunicationlikeletter,
telegram,courieretc.Sec3toSec5ofIndianContractAct
1872,dealswiththerulesrelatingtocommunicationofoffer,
acceptanceandtheirrevocation.
1.Communicationofoffer-AccordingtoSec4,Anofferissaid
tobecommunicatedorcompletedwhenitcomestothe
knowledgeofpersontowhom itismade.Whenofferissent
bypostthentheofferissaidtobecompletedwhentheletter
reachestheofferee.
Forexample-Mr.AnilofHyderabadsendsalettertoMr.
SunilofDelhiofferingtosellhidhousefor18lakhs.The
letterwaspostedon1stFebandthisletterreacheson7th
Feb.Thecommunicationofofferissaidtobecompleteon
7thFeb.
2.Communicationofacceptance-AccordingtoSec4,An
acceptanceissaidtobecommunicatedin2situations.The
firstisfrom thesideoftheofferorandtheotherisfrom the
sideoftheacceptor,(or)Itcanalsobesaidasagainst
offerorandagainstacceptor.
Forexample-(continuationofex1)Mr.Sunilacceptedthis
proposalandsendshisacceptanceon10thFebandMr.Anil
receivesaletteron17thFeb.
(i) (ii)
1ST 7TH
ANIL SUNIL
17th10TH
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againstacceptor againstofferor
i) Againstacceptor-Theacceptanceissaidtobecomplete
againstacceptorwhenitcomestotheknowledgeofthe
offeror.
ii) Againstofferor-Theacceptanceissaidtobecomplete
whentheacceptanceletterisputincourseof
transmissiontotheofferor,sothattheletterisoutof
reachoftheacceptortotakeback.
3.Revocationofoffer-AccordingtoSec5,Revocationmeans
cancellation/takingback/withdrawal.Anoffercanbe
revokedatanytimebeforethecommunicationofits
acceptanceiscompleteasagainstanofferorbutnot
afterwards,whichmeansanoffercanbewithdrawnbefore
theoffereepostshisletterofacceptance,butnotafterwards.
Forexample-(continuationofex1&2)Iftheofferor(Mr.
Anil)wantstorevokehisofferheneedstosendhis
revocationbefore10thFEB.
4.Revocationofacceptance-AccordingtoSec5,An
acceptancecanberevokedatanytimebeforethe
communicationoftheacceptanceiscompleteasagainst
theacceptorbutnotafterwards,whichmeansacceptance
canbewithdrawnbeforeacceptanceletterisreceivedbythe
offeror.
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
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Forexample-(continuationofex1,2&3)IfMr.Sunilwants
torevokehisacceptanceheneedstosendhisletterof
revocationbefore17thFEB,itmustreachMr.Anil.
5.Modesofrevocationofoffer-AccordingtoSec6,
i) Bynoticeofrevocation-Offermayberevokedbya
communicationofanoticeofrevocationbytheofferorto
theotherpartybeforeacceptanceiscompleteagainstthe
offerorhimself.Anoffermadeinwritingmayberevoked
bywordsofmouth.Anoticeofrevocationtobeeffective
mustbecommunicatedtotheofferee.
ii) Bylapseoftime-Anofferwillcometoanendbylapseof
timeprescribedinsuchofferforitsacceptanceasifno
timeisprescribed,bythelapseofreasonabletime.
iii) Bycounteroffer-Anoffercomestoanendwhenthe
offereemakesacounteroffer.Whereanofferisaccepted
withsomemodificationsinthetermsoftheoffer.Such
acceptanceamountstoacounteroffer.
CASELAW-HYDEVsWRENCH
CASEFACTS-REFER
iv) Bydeathorinsanity-Anofferisrevokedbythedeathor
insanityoftheofferorifthefactofhisdeathorinsanity
comestotheknowledgeoftheacceptorbefore
acceptance.
v) Bynon-fulfilmentofconditionprecedent-Aproposalis
revokedwhentheacceptorfailstofulfillacondition
BusinessLawUnit–1NotesB.com SecondYearSemester–IIIMrs.Aarati
Samala
precedenttotheacceptanceoftheproposalwhichwas
conditionaloffer.
Forexample-XmayoffertosellcertaingoodstoYona
conditionthatYpaysacertainamountbeforeacertain
date.TheproposalisrevokedifYfailstopaythe
requestedamountwithingiventime.