business law - module2

8/10/2019 business law - module2

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I f we take care of today;

God wil l take care of tomorrow.

Mahatma Gandhi


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We come to the last limb of Sec. 10 of the

Indian Contract Act, 1872 .

copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer


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Void agreements

Sec. 24 : Unlawful consideration / objectunlawful consideration / object,

then agreement = void

Sec. 25 : Agreements without consideration

Agreements without consideration = void, subject to

exceptions provided in Sec.25 itself .

Sec. 26 : Agreements in restraint of marriage

Every agreement in restraint of the marr iage of any personis void.



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Sec. 27 : Agreements in restraint of tradeEvery agreement by which one is restrained from

exercising a lawful profession, trade or business of any

kind, is to that extent void.

However, courts will generally hold a restraint oftrade as legally valid, if such restraint is =

(1)partial, and not total; (2)reasonable; &

(3)is not against public interest

Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer


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To illustrate the meaning of restraint of tr ade =

Gujarat Bottling Co. Ltd. v. Coca Cola Ltd

(1995) SC .

Percept DMark (India) Pvt. Ltd. v. Zaheer Khan

(2007) SC .



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The exceptions to general rule of Sec.27 :

(1)The sale of goodwill :

A purchaser / buyer of a business, is entitled to

protect himself against competition per se on the

part of the vendor / seller

(2)Partnership agreements Indian Partnership Act:

Sec. 11 : during continuation of partnership

Sec. 36 : retiring partners

Ss. 54 & 55 : in the event of dissolution of firm



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(3)Trade combinations :

Traders & manufacturers in the same line of

Business may form a combination and agree to

carry on their trade in an organised way. Also

known as hor izontal trading agreements.

Fraser & Co. v. Bombay Ice Mfg. Co. (1904)

(4)Solus dealing agreements :

Manufacturer may appoint sole agent / distributor

for a specified area, and latter may agree not to deal

in the goods of any other manufacturer. Also

known as vertical trading agreements.

Copyright 2010, Sebastian Tharakan, The Businesslawlecturer


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(5)Service agreements :

Service agreements often contain negative termspreventing employees from working elsewhere; or

even, to restrain the transfer of trade secrets.

Employment Bond agreements .

Niranjan Shankar Golikari v. Century Spinning Co.

(1967) SC



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Sec. 28 : Agreements in restraint of legal

proceedings :

Every agreement by which any party thereto isrestr icted absolutely from enforcing hi s r ights under or in

respect of any contr act, by the usual legal proceedings in

the ordinary tr ibunals, or which limits the time within

which he may thus enforce his r ights, is void to thatextent.

Exception 1 & 2: Referring a dispute to arbitration

Sec. 29 : Agreements void for uncertainty :Agreements, the meaning of which is not certain, orcapable of being made certain is void.

Sebastian Tharakan, The Businesslawlecturer


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A wager ing agreement is one by which two persons,

holding opposite views with regard to a future uncertain

event, agree to give money or moneys worth upon the

determination or ascertainment of that event.

What kind / type of agreement

are we discussing here?



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Sec. 30 : Agreements by way of wager, void :

Agreements by way of wager are void, and no suit shall be

brought for recover ing anything alleged to be won on any

wager, or entrusted to any person to abide by the result of

any game or other uncertain event on which any wager is

made.

Subhash K. Manwani v. State of MP (2000) MP HC...

.to treat an agreement by way of wager as void, is that the law

discourages people to enter into games of chance and make earning

by trying their luck instead of spending their time, energy and labour

for more frui tful and useful work for themselves, their family andsociety.



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Exceptions to the Rule of Sec. 30 :

(1)Horse racing ;

(2)Prize competitions : The Prize Competitions Act,

1955

(3)contests, where the results are basedpredominantly on skill, rather than on mere chance;

(4)Lotteries sanctioned by specific legislation.

Dr. K. R. Lakshmanan v. State of TN (1996) SC



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Contingent contracts

Sec. 31 of the Indian Contract Act :

A contingent contract is a contract to do or not to do

something, if some event, coll ateral to such contract, does or

does not happen.

Characteristic features of contingent contract :

(1)The existence of a condition precedent which is

to be fulfilled before performance of contract can be

demanded; (2)the condition must relate to a future

event, which may or may not happen; (3)the event is

one which does not form an essential part of the

transaction to which the contract relates, but is only

collateral to it. ( Test Question: Give an Example)


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Performance of Contracts


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Performance of contracts

Who must perform the contract ?

Sec. 37 Contract Act states that the parties to acontract must either perform or offer to perform,

their respective promises under the contract.



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Sec. 40 Contract Act = contracts of

personal service

I f i t appears from the nature of the case that it was theintenti on of the parties to any contract that any promisecontained in i t should be performed by the promisor

himself , such promise must be performed by thepromisor. I n other cases, the promisor or hisrepresentative may employ a competent person toperform it.



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Tender / offer of performance :

Conditions for a valid tender of performance :Sec. 38 Contract Act

(1)it must be unconditional ;

(2)it must be made at the proper time and place ;

(3) it must be to the proper person ;(4)it must be of proper quantity and as to the whole

of the obligation ;

(5)it must give a reasonable opportunity to the

promisee for inspection of the goods or articles.

Sebastian Tharakan, The Businesslawlecturer


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Time and place for performance:

Ss. 46 to 50 & 55 Contract Act state the generalprinciples relating to the time and place for

performance of contracts

Sec. 50 states that : where a contract states the time

and place for performance, the parties must perform

accordingly.

Sec. 55 states that the failure to perform on the

specified date / time, would render the contractvoidable at the option of the promisee.



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The combination of Ss. 50 & 55, is to state the

principle : Time is of essence to the contr act.

Time is considered to be the essence of the

contract, in the following cases :

(1)the parties have expressly agreed to treat timeas of essence;

(2) the delay in performance causes loss / injury tothe plaintiff ; or

(3)the nature / necessity of the contract, requiresuch construction / interpretation.



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Ms. Sakshi Tripathi v. Mr. Ronnie Banerjee(2011) Karnataka

26-12-2011 : The Wedding of

Ms. Sakshi .

1pm the story of a catering contract

for the wedding reception .



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Quasi Contracts


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Dear studentsof SI BM 2010-2012 MBA,

Your portions as per Business Law 2010 Syllabus for this

Module end withthe previous Slide No.21. F rom Slide Nos.24 onwards wediscuss new Topics on Contr act Law,

known as QUASI CONTRACTS. & DISCHAGE OF

CONTRACTS.

You may feel free to read and learn the same if you so wish

to enhance your knowledge in this vibrant but out-of-

syllabus Topicson I ndian Contract Law.

Seize and enjoy every moment of good learning !

Sebastian Tharakan

The Businesslawlecturer


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Quasi ContractsChapter Vof the Indian Contract Act

Of certain relations resemblingthose created by contract

Quasi Contracts are those transactions / situations,

which do not actually form contracts between theparties in the strict legal sense, but only creates

certain rights and obligations similar to those

created by a contract. Chapter Vof Indian Contract

Act(through Ss. 68 to 72)recognise the followingtransactions as quasi contracts :



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Sec. 68 : Claim for necessaries supplied to

Person incapable of contracting, or on his account:

I f a person, incapable of enter ing into a contract, or

anyone whom he is legally bound to support, is

supplied by another person with necessaries suited to hiscondition in l i fe, the person who has furnished such

supplies is enti tled to be reimbursed from the property of

such incapable person.



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Sec. 69 : Reimbursement of person paying money

due by another, in payment of which, he is

Interested:

A person who is interested in the payment of money which

another is bound by law to pay, and who therefore pays it,

is enti tled to be reimbursed by the other .



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Sec. 70 : Obligation of person enjoying benefit of

non-gratuitous act:

Where a person lawful ly does anything for another

person, or delivers anything to him, not intending to do so

gratui tously, and such other person enjoys the benefi t

thereof, the latter is bound to make compensation to the

former in respect of, or to restore, the thing so done or

delivered.



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Sec. 71 : Responsibility of finder of lost goods:

A person who finds goods belonging to another , and takes

them into his custody, is subject to the same responsibil i ty

as a bai lee.

Sec. 72 : Liability of person to whom money is paid,

or anything delivered, by mistake or under

coercion:

A person to whom money has been paid, or anything

delivered, by mistake or under coercion, must repay or

return it.



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Discharge of Contracts


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Discharge of contracts

A contract is said to be discharged when theliabilities of the parties thereto come to an end or

are determined. A contract may be discharged in

the following modes :

(1)By performance:

When the parties to contract have completed all

their obligations, and there remains nothing more

to be done under the contract, the contract comesto an end, and is said to be discharged by

performance.


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(2)By impossibility of performance / frustration:

Sec. 56 Contract Act : the Doctr ine of Frustration...

Sec. 56: .. A contr act to do an act which, after the

contract is made, becomes impossible, or, by reason of

some event which the promisor could not prevent,

unlawful, becomes void when the act becomes impossible

or unlawful.

The destruction of substratum of the contractdue to a supervening event This supervening

event must not be the result of any act of parties,

but something beyond their control.


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and the supervening event, will have rendered it

impossible or illegal to perform the contract

The last resort for the lawyers lost cause

Strict construction of rule by Courts

Man Singh v. Khazan Singh (1961) Rajasthan HC

Tsakiroglou & Co. v. Noblee Thorl Gmbh (1962)(UK)

Easun Engg Co. Ltd. v. FACT Ltd. (1991) Madras HC

Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer


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Modern commercial contract clauses:

Vis Major Clause

Act of God Clause

Force Majeure Clause

Copyright 2010 reserved with: Sebastian Tharakan, The Businesslawlecturer


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(3)By mutual agreement Ss. 62 & 63 Contract Act:

Mr. Sudipt Sapan, a reputed builder, enters into an agreement to

build a house for Mr. Praveen Jha. However, afew months afterentering into this constructioncontract, Mr. Sudipt is faced withgravefinancial difficulties, making it impossible for him tocomplete theconstruction project.

Since he is friendly with Mr. Praveen Jha, he makes a requesttoMr. Praveen that he (Mr. Sudipt) may be substitutedwith another

builder: Mr. Amit Chand.

Mr. Praveen agrees to this proposal of substitution of builder.

Explain how the Indian Contract Act will allow the parties to acontract to effect a substitution without adversely affecting thelegal liabilities of the original parties to the original contract.



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Sec. 62: I f the parties to the contract agree to substi tute anew contract for it, or to rescind or alter it, the original

contract need not be performed.

(i)Novation (ii)Rescission

(iii)Alteration must be a mater ial alteration

(iv) By Remission



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Remission:

Sec. 63: Every promisee may dispense with or remi t,

wholly or in part the performance of the promise made to

him, or may extend the time for such performance, or may

accept instead of it any satisfaction which he thinks f i t.

The Doctr ine of accord and satisfaction



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(4)By operation of law:

(i)Material alteration or loss of a written document;(ii)Merger of an inferior contract into a superior

contract;

(iii)Discharge of an insolvent;

(iv)When rights and liabilities under the samecontract become vested in the same person

(5)By breach or non-performance: NEXT MODULE


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business law - module2

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