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Law Introduction

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INTRODUCTION

What is Law?

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Meaning & Nature of Law Law word used in many senses: laws of physics,

math , sciences or say laws of football or any other subject

Law means any rule of conduct, standard or pattern to which actions are required to confirm ; if not confirmed , sanctions are imposed

When we say laws of a state/country , we use the term ‘law’ in a special & strict sense.

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Meaning & Nature of Law

Law is the body of principles recognized & applied by the state in the administration of justice.

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INDIAN CONTRACT- ACT-1872 Parts of law which deal with rights &

obligations arising out of business transactions may be called as Commercial, mercantile or business law.

Forgery & fraud in transactions dealt under Criminal law.

Law most effective instrument of control.

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Meaning & Nature of Law

Law defined in Oxford English Dictionary:- Law as body of rules whether proceeding from formal enactment or from custom , which a particular state or community recognizes as binding on its subjects & members. Law may also be defined as rule of conduct of persons ( both natural & artificial ) imposed upon & enforced among the members of a given state

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Important characteristics of Law1. Law is a body of Rules2. Law is for guidance & conduct of persons ( both

natural & artificial)3. Law is imposed4. Law is enforced by Executive5. Law presupposes a state6. Contents of law keep changing ; it is never static;

law responds to public opinion & changes accordingly

7. Two basic ideas involved in law are : To maintain some form of social order in a group

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Indian Contract Act-1872

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INDIAN CONTRACT- ACT-1872

Why we should learn Contract Act?

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INDIAN CONTRACT- ACT-1872

Human being – social- want to live in harmony.

One’s interest bound to clash- so need for control or regulations

Law most effective instrument of control.Law is a general rule of external human

action enforced by sovereign political authority.

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LAW OF CONTRACT

LAWS required to regulate conduct of people & to protect their property & contract rights.

Life in general & business in particular need to be regulated.

Law of contract- Indian contract Act -1872 covered in 75 sections

Objective of law of contract is to introduce definiteness in commercial & other transactions, i.e. what has been promised should be performed .

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INDIAN CONTRACT- ACT-1872 We enter into contracts everyday:-Sale /purchase of shares, plot of land/ flatHiring taxi, purchase of bus/train/airlines ticket

etc. For people engaged in business done through

contracts, Essentials to understands how contracts is made &

ended. Remedies for breach of contract

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CONTRACT ACT

Act not a complete & exhaustive code regarding all classes of contracts

English principles can be applied to contracts in suitable cases by Indian courts if such principles are not contrary to the provision of the act.

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Definition- Contract-sec 2(h)

A contract is an agreement enforceable by law , made between at least by two parties by which rights are acquired by one and obligations are created on the part of another.

If the party ,which had agreed to do something , fails to do that , then the other party has a remedy.

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Definition- Contract-sec 2(h)A contract essentially consists of two elements:-

AgreementAgreement must be enforceable by law

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Definition- Contract-sec 2(h)

Agreement is defined as every promise & every set of promises forming consideration for each other.

A promise is defined as an accepted proposal.

An agreement is made of a proposal from one side an its acceptance by the other

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Definition- Contract-sec 2(h)

Agreement will become contract-If it is enforceable by law.An agreement becomes enforceable only

when it is coupled with obligations.Obligation is the legal bond , which binds

the parties to a contract.Obligations must be legal & not social,

moral or religious obligations.

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Enforceability by Law Agreement which do not become contracts

because these are not enforceable by law.ExamplesAn agreement to go together for walk or

for picnic do not become contract ,Because neither rights nor obligations are

created on the part of parties to the contract.

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Enforceability by Law Mohan lal gives promise to his son that he

will give pocket allowance of Rs1,000/ - per month if he gets 80% marks in 12th final exam.

Ram invites sham for dinner . On appointed day & time Sham does not turn up for dinner. Can Ram sue Sham ?

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Definition- Contract-sec 2(h)

AGREEMENT +LEGAL OBLIGATIONS= CONTRACT

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Examples-Contract Act

Airlines sells a ticket to ‘X’ on 01 jan from Delhi to Mumbai. In case airlines fails to fulfills promise , then X has remedy

A sells motor cycle for Rs 10,000/= to BA invites B for dinner in a restaurant- No

remedy for non performance D gives promise to his son for pocket

money

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Examples-Contract Act

Japanese drug maker Daiichi Sankyo signed share purchase Agreement with Ranbaxy Labs in 2008

Daiichi paid $2.4 billion to buy 34.8% stake of Ranbaxy

US Govt has levied penalty of $500 million on Daiichi(EX-Ranbaxy Labs) for manufacturing & distributing adulterated drugs.

D

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Examples-Contract Act

Daiichi pleaded guilty to felony charges & agreed to pay penalty of $400 million.

Daiichi has accused ex- Ranbaxy promoters of concealing facts about US regulators investigations. Filed suit for payment of penalty – matter under Arbitration

Share purchase Agreement offers multiple layers of protection for sellers( Malvinder Singh –Ex owner of Ranbaxy Labs)

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Eessentials of a valid - Contract

Agreement : All contracts are agreements but all agreements need not be contracts.

The agreements that create legal obligations are contracts.

Agreement is an outcome of offer & acceptance; called as meeting of minds of parties,

Also known as ‘consensus ad idem’

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Eessentials of a valid - Contract

Free Consent: Both the parties should agree upon same thing without any :-

Coercion, undue influence, misrepresentation, fraud or mistake.

Contractual Capacity: Parties entering into contract must have attained the age of majority.

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Eessentials of a valid - Contract Lawful consideration: Consideration

should be lawful & adequate.Consideration means something in return for

something. Lawful Object: Object or purpose of an

agreement should be lawful. It means that :-Object should not be forbidden by law: e.g.

injuring some person or his property, immoral act, fraudulent or against public policy.

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Essentials of a valid - Contract

Not expressly declared Void: Certain agreements declared void in the ACT:-

Agreement in restraint of marriage, trade, legal proceedings

If any person does agreements which are void as per contract act then he can not seek relief from the court .

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Eessentials of a valid - Contract

Possibility of Performance: Agreement should be capable of being

performed, e.g.Agreement to discover treasure by magic.

Certainty of Terms: Terms of Agreements should be certain e.g.

Agreement to sell 100 tons of oil is vague because it does not specify type of oil.

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Essentials of a valid - Contract Intentions to create legal obligations: Agreement to create social, moral or religious

obligations is not valid & can not be enforced.Legal Formalities: Agreements made in

India may be oral or written.If sec 10 states that contract should be in

writing & should be witnessed or should be registered , the same must be observed otherwise the agreement can not be enforced.

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CLASSIFICATIONS OF CONTRACTSContracts may be classified in terms of their :-Mode of FormationPerformanceValidity or Enforceability Classification as per mode of formation.A contract may be (a) made in writing (b) by words

spoken & (c) inferred by the conduct of parties . Accordingly contracts may be defined as :-

Express Contracts Implied Contracts

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Kind of CONTRACT from point of view of mode of creation

Express Contract : Where both the offer & acceptance constituting an agreement are enforceable at law are made in words spoken or written , it is an Express contract

Ex : A tells B on telephone that he offers to sell his car for Rs 1 lakh & B accepts the offer . It is an Express contract

Implied contract : Where both the offer & acceptance constituting an agreement enforceable at law are made otherwise than in words i.e. by acts & conduct of parties , it is an implied contract .

Ex : A coolie in uniform takes up luggage of ‘B’ to be carried out of railway station without being asked by B, & B allows him to do so , then the law implies that B agrees to pay ‘A’ for his services & there is an implied contract.

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Kind of CONTRACT from point of view extent of execution

Executed Contract : A contract is said to be executed when both the parties to a contract have completely performed there share of obligation & nothing remains to be done by either party under the contract

Ex : Book seller sells a book on cash payment , it is said to be an executed contract

Executory contract : In this type of contract both the obligations are outstanding , one on either party to the contract , either wholly or in part at the time of the

formation of the contract Ex : Tirath agrees to coach Rehman a student from Ist day

of next month & R agrees to pay Rs 5,000/ - in consideration , the contract is executory because it is yet to be carried out.

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Contracts & Documents to be in writing & Registered

There are certain contracts & documents which are required to be in writing & are to be signed by the parties there to. Some of these are :-

A lease, gift, mortgage, or sale of immovable property under the Transfer of property Act

A bill of exchange , cheque & promissory note( Under Negotiable instrument act)

A memorandum of association & Articles of Association of a company registered under the Companies Act. An Application for shares in a company. An Application for transfer of shares in a company.

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CLASSFICATION OF CONTRACTSOn the basis of enforceability contracts may be classified as follows:Valid Contract :Contract which satisfies all legal

requirement provided under sec 10 of Contract Act. Valid contract must have all essentials elements of a contract as described earlier. If one or more of these elements are missing then contract is either void, voidable, illegal or unenforceable.

Void Contract : An agreement not enforceable by law is said to be void- sec 2(g)

e.g. Agreement not creating legal rights or obligations.

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CLASSES OF CONTRACTVoid Contract : An agreement not enforceable by law is said to be void- sec 2(g) e.g. Agreement not creating legal rights or obligations. Void means not binding in law ‘Void contract’ implies a useless contract which has no legal effect at all. Such a contract is nullity , as for there has been no contract at all Sec 2(j) defines : ‘A contract which ceases to be enforceable by law becomes void , when it ceases to be enforceable’

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Instances of void agreementsAgreements entered through mutual mistake of

facts between the parties ( sec 20)Agreements the object or consideration of which is

unlawful.( sec 23 ) Agreements the part of object or consideration of

which is unlawful.( sec 24 )Agreements made without consideration( sec 25, v ) Agreements in restrain of legal proceedings( sec 28)

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Instances of void agreementsA contract with an alien enemy is illegal from inception &

therefore void under sec 2(g)Uncertain & Wagering Agreements( sec 30) Impossible Agreements( sec 56, xi) An Agreement to enter into an agreement in future.

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CLASSES OF CONTRACT

Voidable Contract : An agreement which is enforceable by law at the option of one or more of the parties there to

but not at the option of the other or others is voidable contract

A voidable contract is enforceable by law at the option of one of the parties.

Until it is avoided or rescinded by the party entitled to do so by exercising his option in that behalf , it is a valid contract

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CLASSES OF CONTRACTVoidable Contract : As per sec 2(i) A

voidable contract may be repudiated ( i.e. avoided ) at the will of one or more of the parties, but not by others. Until it is repudiated it remains valid & binding

It is affected by flaw(e.g. misrepresentation, fraud, coercion, undue influence)and the presence of any of these defects enables the aggrieved party to take steps to repudiate the contract.

It shows that the consent of the party who has discretion to repudiate was not free.

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EXAMPLE: Voidable Contract

Ex: “A” man enfeebled by disease or age is induced by B’s influence over him, as his medical attendant to agree to pay B an unreasonable amount for his professional services .

A can avoid the contract. A’s consent is not free; it is affected by undue influence employed by ‘B’ A CAN TAKE STEPS TO SET ASIDE THE CONTRACT

Ex-2: ‘A’ purchased certain goods from ‘B’ by making a misrepresentation of certain facts. Later B comes to know about the misrepresentation of these facts made by A. However ‘B’ does not within a reasonable time, repudiate the contract. A sells these goods to ‘C’ a bona fide purchase of value . ‘C’s title shall be a good title.

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Characteristics of a voidable contract

It is valid & binding on both the parties till it is avoided by the aggrieved party.

It can be avoided by one party & not the other party The party at whose option the contract is voidable is not

bound to repudiate it . It may choose to reaffirm it & there by bound by it as well as bind the other party.

The party repudiating the contract is entitled to get damages for any loss that it may have suffered .

In case he has received any benefit under the contract , he must restore it to the person from whom it was received.

Thus aggrieved party has two fold rights

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CLASSES OF CONTRACT Illegal Contract : An agreement is illegal when it is against

the law of land. Illegal means “Contrary to Law’ & the term ‘contract’ means

an agreement enforceable by law ; so illegal contract means – “An agreement not enforceable by law & contrary to law”- Thus there is an apparent contradiction in terms. Hence an illegal contract is void ab- initio

An agreement to commit fraud, crime( murder , assault, robbery etc) or one that is opposed to good morals is illegal because these type of agreements are against the law of land

All illegal agreements are void , all void agreements need not be illegal

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CLASSES OF CONTRACTUnenforceable Contract : It is

neither void nor voidable An unenforceable contract is valid but becomes

unenforceable for certain tech reasons e.g. ( want of proof, expiry of period, absence of writing

or registration) or where the remedy has been barred by lapse of

time Ex: An oral arbitration agreement is unenforceable

because the law requires an arbitration agreement to be in writing .

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CLASSES OF CONTRACTUnenforceable Contract : It is

neither void nor voidable Ex 2: A bill of exchange or promissory note though

valid in itself , becomes unenforceable after three years from the

date the bill or note falls due, being time barred under the limitation act

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CONTINGENT CONTRACT

Contingent Contract: A contingent contract is a contract to do or not to do something , if some event, collateral to such contract does or does not happen.

Ex: A contract’s to pay B Rs 10,000/= if B’s house is burnt. This is a contingent contract. A contingent contract may be contingent upon (i) happening (ii) or non happening of an event.

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ESSENTIALS OF CONTINGENT CONTRACT

Three essential characteristics of a Contingent contract are:-

Performance of contingent contract depends on happening or non happening of an event.

Event must be uncertainEvent must be collateral, i.e. incidental to the

contract

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QUASI CONTRACT Quasi Contracts does not arise by virtue of an agreement ,

express or implied , between the parties but law infers or recognizes a contract under special circumstances

Ex: Obligation of the finder of lost goods to return them to the true owner or liability of a person to whom money is paid under mistake to repay it back can not be said to arise out of a contract even in its remotest sense ,

as there is neither any offer nor acceptance /consent , but these are very much covered under quasi contract as per sec 71 & 72 respectively.

A quasi contract is based on the equitable principle that a person shall not be allowed to retain unjust benefit at the expense of another ( ref sec 68-72 of contract Act

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QUASI CONTRACT

Quasi contract is a situations in which law imposes upon a person , on grounds of natural justice, an obligation similar to that which arises from a true contract, although no contract , express or implied has in fact been entered into by them

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QUASI CONTRACT

Principle underlying a Quasi Contract is that no one shall be allowed unjustly to enrich himself at the expense of another , and the claim based on a quasi contract is generally for money.

Ex: X supplies goods to his customer Y who receives & consumes them. Y is bound to pay the price. Y’s acceptance of goods constitutes an implied promise to pay. This kind of contract is a tacit contract.

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QUASI CONTRACT

Ex: X supplies goods to his customer Y who receives & consumes them. Y is bound to pay the price. Y’s acceptance of goods constitutes an implied promise to pay. This kind of contract is a tacit contract.

If goods are delivered by a servant of X to Z mistaking Z for Y , then Z will be bound to pay compensation to X for their value . This is a quasi contract

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CONTRACT ACT

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