Law of contract - Legal Environment of Business

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The word contract is derived from the Latin word “Contractum” which means “drawn together”. To the layman, the word “contract” probably means “an agreement’ which can be enforced in the court of law.

Text of Law of contract - Legal Environment of Business

  • 1. Law of ContractLegal Environment of Business

2. Prepared ByManu Melwin JoyAssistant ProfessorIlahia School of Management StudiesKerala, India.Phone 9744551114Mail manu_melwinjoy@yahoo.comKindly restrict the use of slides for personal purpose.Please seek permission to reproduce the same in public forms and presentations. 3. ContractThe word contract isderived from the Latinword Contractumwhich means drawntogether. To the layman,the word contractprobably means anagreement which can beenforced in the court oflaw. 4. DefinitionSection 2 (h) of theIndian Contract Actdefines the termcontract as follows: An agreement whichis enforceable at lawis contract. 5. Definition Contract = Agreement + Enforceability at Law 6. ExampleBasil invites Hari to dinner and Hari acceptsthe invitation. It is only a social agreement andnot enforceable in a court of law. So it is not acontract. Basil agrees to sell his house to Harifor Rs 50,000. This is a contract. 7. Definition According toSection 2 of thecontract act, theperson making theproposal is calledthe Promisor andthe personaccepting theproposal is calledpromise. 8. Elements of a contractThe essential elementsof a contract arecontained in thedefinition of contractgiven in section 10 ofcontract Act. 9. Elements of a contract1. Agreement.2. Consensus of Idem.3. Capacity of parties.4. Free consent.5. Consideration.6. Lawful Object.7. Not declared to be void.8. Certainty and possibility ofperformance.9. An intention to create legalrelationship. 10. Elements of a contract Agreement - Theremust be an agreementbetween the parties ofa contract. Anagreement involves avalid offer by one partyand a valid acceptanceby the other party. 11. ExampleSanitha sends a proposal to Julie to purchaseher house for Rs 5 Lakhs and Julie accepts theproposal, then this results into an agreement. 12. Elements of a contract Consensus of Idem The parties to contractmust agree upon thesubject matter of thecontract if the samemanner and in thesame sense. 13. ExampleAdarsh has two houses, one at Trivandrumand another at Kochi. Adarsh expresses hiswillingness to sell on of his houses to Shanu.Adarsh had in his mind house at Trivandrumwhere Shanu had house at Kochi in mind. Sothere is not Consensus Ad Idem. 14. Elements of a contract Capacity of parties Theremust be at least two partiesto every contract. Theseparties must have legalcapacity to enter into acontract. Every person who isa major and possesses soundmind is competent to enterinto a contract. (Minors,Lunatics, drunken personsnot competent). 15. Elements of a contract Free consent For theformation of a contract,one person must give hisconsent to another person.The consent thus obtainedmust be a free consent. Aconsent is said to be free ifit is not caused bycoercion, undue influence,fraud, misrepresentationor mistake. 16. ExampleArun asks Ajas to sign an agreement. Ajasrefuses to do it. So Arun threaten Ajas ofsevere consequences if Ajas is not signing thedocument. So Ajas finally agrees, fearingconsequences. The consent thus shown byAjas is not free. 17. Elements of a contract Consideration Consideration meanssomething in return. In everycontract, each agreementmust be supported byconsideration, when oneparty agrees to givesomething (or give upsomething) he must bebenefited by the other party. 18. ExampleAmal offers to sell his house to Jasir for Rs 4Lakhs. Jasir accepts the proposal. Here, theconsideration for the sale of his house is Rs. 4Lakhs and the consideration of Jasirs paymentof 4 Lakhs is the house. 19. Elements of a contract Lawful Object The objectof an agreement must belawful. It must not beillegal or immoral oropposed to public policy.When an object of acontract is not lawful, thecontract is void. 20. ExampleEldhose promises to pay Aiju Rs 5 Lakhs formurdering Davood Ibrahim. Here the object ofthe contract is to commit murder. It isunlawful and therefore the contract becomesvoid. 21. Elements of a contract Not declared to be void The agreement mightnot have been expressly declared void by any law inforce in the country. In such cases, the agreementcannot be enforced. 22. ExampleA agrees to supply liquor to B, subsequentlyprohibition Act comes into force. Thus allagreement to supply liquor become void,thereafter. Therefore B cannot enforce theagreement which is made before the act comesinto force. The agreement has already becomevoid from the date of prohibition order come intoeffect. 23. Elements of a contract Certainty and possibility ofperformance The term ofcontract should be certainand precise. They shouldnot be vague and theyshould not create anyconfusion in the minds ofthe parties. 24. ExampleSanitha agrees to sell one of her houses. Shehas four houses. Here the terms of agreementis uncertain.A agrees to pay Rs 1 Lakh to B if B brings hisson (who died last year). This is an impossibleact .In both these examples, the agreementvoid. 25. Elements of a contract An intention to createlegal relationship Theagreement should create alegal obligation. Mereinformal promise is not tobe enforced. Socialagreements are not to beenforced as they do notcreate any legal obligation. 26. Agreement All contracts areagreements but allagreements are notcontracts. Every promise and everyset of promises formingconsideration for eachother is an agreement. Agreement = Offer +Acceptance. An agreement notenforceable by law is saidto be void. 27. Definition of contract. Essential elements of contract. Agreement.