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Semester 2: CORE – IV: BUSINESS LAW
Elements of Contract: Indian Contract Act 1872, Definition of Contract, Essentials of Valid Contract, Classification of Contract, Offer and Acceptance, Consideration, Capacity to Contract, Free Consent, Legality of Object, Contingent Contracts, Void Contract
Elements of Contract
Indian Contract Act 1872
The Indian Contract Act of 1872 is the primary legislation concerning contracts in India. It sets the framework for the formation, execution, and enforcement of contracts.
Definition of Contract
A contract is defined as an agreement enforceable by law. A contractual agreement comprises mutual consent between two or more parties to create obligations that are legally binding.
Essentials of Valid Contract
The essentials for a valid contract include offer and acceptance, consideration, capacity to contract, free consent, and legality of object. If any of these elements are missing, the contract may be deemed void.
Classification of Contract
Contracts can be classified into various categories such as express and implied contracts, unilateral and bilateral contracts, and valid, void, and voidable contracts based on their enforceability.
Offer and Acceptance
An offer is a proposal made by one party to another indicating a willingness to enter into a contract. Acceptance is the unconditional agreement of the other party to the offer. Both must occur for a contract to be formed.
Consideration
Consideration refers to something of value exchanged between the parties. It is essential for a contract to be valid. This can include money, services, or goods.
Capacity to Contract
The parties involved must have the legal capacity to contract, meaning they must be of sound mind, not minors, and not disqualified from contracting under any law.
Free Consent
Consent must be freely given without coercion, undue influence, fraud, misrepresentation, or mistake. A lack of free consent can make a contract voidable.
Legality of Object
The purpose of the contract must be lawful. Contracts with illegal objectives are void and unenforceable.
Contingent Contracts
A contingent contract is one where the performance depends on the occurrence of a specific event. If the event does not occur, the contract is void.
Void Contract
A void contract is one that is not enforceable by law from the moment it is created. Such contracts lack one or more essential elements and cannot be rectified.
Performance of Contract: Meaning of Performance, Offer to Perform, Devolution of Joint liabilities & Rights, Time and Place of Performance, Reciprocal Promises, Assignment of Contracts, Remedies for Breach of contract, Termination and Discharge of Contract, Quasi Contract
Performance of Contract
Meaning of Performance
Performance refers to the execution of the duties required by the contract. It is the primary objective of any contractual agreement and can be fulfilled either by doing what the contract specifies or by abstaining from certain actions.
Offer to Perform
An offer to perform is a formal proposal made by one party to the other, indicating the readiness to execute contractual obligations. This offer can be revoked before acceptance and must be communicated effectively.
Devolution of Joint Liabilities and Rights
In contracts involving joint parties, the responsibilities and rights can devolve to others in specific situations. This ensures that all parties can fulfill obligations even if one party is unable to do so.
Time and Place of Performance
The time and place of performance are critical to fulfilling a contract. Unless specified, performance must occur within a reasonable timeframe and at a location that is convenient and agreed upon by both parties.
Reciprocal Promises
Reciprocal promises are mutual commitments where each party's obligation is dependent on the other. Performance of one promise is often contingent on the prior performance of the other.
Assignment of Contracts
The assignment of contracts allows one party to transfer their rights and obligations to another party. The original party must usually obtain consent from the other party to avoid breaches.
Remedies for Breach of Contract
When a contract is breached, the injured party may seek various remedies, including damages, specific performance, or cancellation. These remedies aim to compensate the aggrieved party for loss.
Termination and Discharge of Contract
Contracts may be terminated or discharged when obligations have been fully performed, or under circumstances like mutual agreement, impossibility of performance, or breach by one party.
Quasi Contract
A quasi contract is not an actual contract but rather an obligation imposed by law to prevent unjust enrichment. It arises in situations where one party benefits at the expense of another, necessitating compensation.
Contract of Indemnity and Guarantee: Contract of Indemnity and Contract of Guarantee, Extent of Surety‘s Liability, Kinds of Guarantee, Rights of Surety, Discharge of Surety
Contract of Indemnity and Guarantee
A contract of indemnity is a promise made by one party to compensate another for loss or damage incurred.
Presence of two parties: the indemnifier and the indemnified.
The indemnity must be for a loss that has already occurred or will occur in the future.
The indemnity must be based on a valid contract.
Insurance policies where the insurer compensates the insured for losses.
Contracts where one party agrees to cover legal expenses for another party.
A contract of guarantee is an agreement wherein one party (the surety) agrees to fulfill the obligations of another party (the principal debtor) in case of default.
Principal Debtor
Creditor
Surety
Specific Guarantee
Continuing Guarantee
The surety's liability is co-extensive with that of the principal debtor unless there are specific provisions for limitation.
Any changes in the contract between the creditor and the principal debtor can affect the surety's liability.
The surety can be discharged from liability if the creditor alters the contract without the surety's consent.
Right of subrogation: The surety has the right to step into the shoes of the creditor after fulfilling the obligation.
Right to indemnity: The surety has the right to recover the amount paid from the principal debtor.
The surety has the right to be informed of any changes in the principal debtor's obligations.
Revocation of guarantee – as per the terms of the contract.
Completion of the guaranteed obligation.
Alteration of the terms of the guarantee contract without consent.
If there is excessive delay in enforcement, the surety may be discharged.
Bailment and Pledge: Bailment Concept, Essentials, Classification of Bailments, Duties and Rights of Bailor and Bailee, Law of Pledge, Essentials of Valid Pledge, Pledge and Lien, Rights of Pawner and Pawnee
Bailment and Pledge
Bailment Concept
Bailment is a legal relationship in which the owner of a tangible personal property (bailor) temporarily transfers possession of the property to another person (bailee) for a specific purpose while retaining ownership. The bailment concludes when the purpose is fulfilled, and the bailee must return the property to the bailor or dispose of it as directed.
Essentials of Bailment
The essentials of bailment include: 1. Parties: There must be a bailor and a bailee. 2. Delivery of Possession: The property must be delivered to the bailee. 3. Purpose: The bailment must be for a specific purpose. 4. Return of Property: The bailee must return the property after the purpose is achieved.
Classification of Bailments
Bailments can be classified based on: 1. Basis of Benefit: a. For the benefit of the bailor (gratuitous). b. For the benefit of the bailee (gratuitous). c. For mutual benefit (consideration). 2. Duration: a. Temporary. b. Permanent.
Duties of Bailor
The duties of the bailor include: 1. Disclosure: Duty to disclose known defects in the property. 2. Compensation: Pay agreed compensation for the bailee's services.
Duties of Bailee
The duties of the bailee include: 1. Care: Exercise reasonable care over the bailed property. 2. Use: Use the property only for the intended purpose. 3. Return: Return the property in its original condition.
Rights of Bailor
The rights of the bailor include: 1. Right to receive the property back. 2. Right to compensation for damages due to the bailee's negligence.
Rights of Bailee
The rights of the bailee include: 1. Right to be indemnified for costs spent on the property. 2. Right to retain the property until paid for services.
Law of Pledge
Pledge is a special type of bailment where goods are transferred as security for a debt or obligation. The pledgor retains ownership, while the pledgee holds possession until the obligation is fulfilled.
Essentials of Valid Pledge
The essentials of a valid pledge include: 1. Delivery of possession of goods. 2. Purpose of securing the debt. 3. Pledgee must have rights to retain possession until the debt is paid.
Pledge and Lien
A pledge creates a possessory interest in the pledged goods, while a lien grants a creditor the right to retain property until the obligation is met. Both confer rights to the creditor.
Rights of Pawner and Pawnee
Rights of the pawner include: 1. Right to redeem the pledged property. 2. Right to receive any surplus from the sale. Rights of the pawnee include: 1. Right to retain possession until the debt is settled. 2. Right to sell the goods if the obligation is not met.
Sale of Goods Act 1930: Definition of Contract of Sale, Formation, Essentials of Contract of Sale, Conditions and Warranties, Transfer of Property, Contracts involving Sea Routes, Sale by Non-owners, Rights and duties of buyer, Rights of an Unpaid Seller
Definition of Contract of Sale
A contract of sale is an agreement between a seller and a buyer where the seller agrees to transfer ownership of goods to the buyer for a monetary consideration known as the price. It is essential to note that a contract of sale involves both the transfer of property and the payment of a price.
Formation of Contract of Sale
The formation of a contract of sale requires an offer, acceptance, consideration, and an intention to create a legal relationship. The parties involved must have the legal capacity to enter into a contract, and the subject matter of the sale must be goods as defined under the Sale of Goods Act.
Essentials of Contract of Sale
The essentials include the following: 1. Buyer and seller must be competent to contract. 2. The goods being sold must be identifiable. 3. The price must be fixed or ascertainable. 4. The contract must be for the sale of goods – whether existing, future, or contingent.
Conditions and Warranties
Conditions are essential stipulations in a contract that affect the validity of the agreement. Breach of a condition allows the aggrieved party to rescind the contract. Warranties are secondary stipulations that do not affect the contract's validity and allow for claims for damages in case of breach.
Transfer of Property
The transfer of property in goods occurs at the time and in the manner agreed upon by the parties. Ownership can be transferred immediately or at a future date, and specific rules govern when property passes between parties.
Contracts Involving Sea Routes
Contracts for the sale of goods transported via sea may also include terms related to shipping, insuring the goods, and handling international law considerations. The charter party and bills of lading play significant roles in these contracts.
Sale by Non-owners
The Sale of Goods Act recognizes certain exceptions where non-owners can sell goods. This can include sales made under a voidable title, sales by mercantile agents, or sales under a statutory authority.
Rights and Duties of Buyer
The buyer has the right to receive the goods as per the contract, inspect them, and demand performance. Responsibilities include paying the price and accepting delivery within specified timeframes.
Rights of an Unpaid Seller
An unpaid seller has the right to retain possession of goods, lien over the goods, and the right to resell them under certain conditions. They can also sue for the price or damages for non-acceptance.
