Business Law

Business Laws With Aseem Sir
Topic 01-Introduction to Contract
CHAPTER
INDIAN CONTRACT
01
ACT , 1872
1.1 WHAT IS A CONTRACT?

hh Section 2(h) - An agreement enforceable by law is Contract
hh Hence first equation emerges - Contract = Agreement + Enforceability by Law
1.2 WHAT IS AN AGREEMENT?

Section 2(e) - Every promise or every set of promises forming consideration for each other is
an agreement. An ‘agreement’, as per Section 2(e) means when one person exchanges a promise
or a set of promises in consideration of a promise or a set of promises from other, it will form an
Agreement.
Hence a new equation is emerging here-
Agreement = Promise / Set of Promises + Consideration
Hence the equation of contract will be now as follows –
Contract = Promise/Set of Promises + Consideration + Enforceability by Law
1.3 WHAT IS A PROMISE?

Section 2(b) - When the person to whom the proposal is made, signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise.
Explanation
Promise will emerge when one party makes a valid offer/proposal to the other party and other party
gives acceptance on such offer.
Therefore two elements should be taken into consideration for better understanding-
1. There must be more than one party to constitute a valid promise; and
2. There must also be consensus-ad-idem i.e. both parties must agree on the same offer in same
sense and at the same time.
Business Laws- CA Foundation (Part I) 15 Nahata Professional Academy

Ch 01- Indian Contract Act, 1872
Promise = Offer / Proposal + Acceptance

Conclusively a promise is defined, as accepted proposal that means a proposal when accepted
becomes promise.
Hence the equation of contract will be transformed now as follows
Contract = Offer / Proposal + Acceptance + Consideration + Enforceability by Law
1.4 WHAT IS CONSIDERATION?

“Consideration” is defined under section 2(d) of The Indian Contract Act, 1872. Generally
consideration is the price that one party to the contract pays for the promise / performance of
the other party.
1.5 WHAT IS AN OFFER/PROPOSAL?

Section 2(a) - “When one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to
make a proposal.
1.6 WHAT IS AN ACCEPTANCE?

Section 2(b) - “When the person to whom the proposal/offer is made signifies his assent thereto,
the proposal is said to be accepted.”
1.7 WHAT IS ENFORCEABILITY BY LAW?

Section 10 - All agreements are contracts if they are made by the free consent of parties competent
to contract, for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void.
Nahata Professional Academy 16 Business Laws- CA Foundation (Part I)

Let us understand the main elements of enforceability by law-

(1) Free consent
The consent of the parties to the agreement must be free. It should not be obtained by coercion,
Undue Influence, Misrepresentation, Fraud or Mistake. If the consent is obtained by any of these
flaws, then the contract is not valid.
Example
Jaykant Shikhare obtain consent to buy house of Mr. Singham at Gunpointsuch consent is not
considered as free consent. In our original example Mr. Buyer and Mr. Seller are giving
consent to each other to sale or buy the house in Rs.10 lakhs.
(2) Parties competent to contract

The parties to a contract should be competent to enter into a contract.
According to Section 11, every person is competent to contract if he:
I Is of the age of majority;
II Is of sound mind; and
III Is not disqualified from contracting by any other law which he is subject to.
Example
Master Chotu (aged 12 years) enters into contract to sale his Samsung Galaxy to Mr. Motu (aged 28
years). Master Chotu (who is a minor), is one of the party not competent to contract. In Our original
example Mr. Buyer and Mr. Seller are parties competent to contract.
(3) Lawful consideration

Each party to the agreement must give or promise something and receive something in exchange.
Consideration is the price to buy other’s promise. However, this price may or may not be in terms
of money. In absence of consideration the promise will be nudum pactum (a bare promise) and is not
enforceable by law. Moreover, the consideration must be lawful.

Example
Gabber offered Rs 10000 to Jai and Viru in consideration of murder of Thakur.
(4) Lawful object
The object of the agreement must not be illegal or unlawful. It may be noted that a lawful object
is that which is neither fraudulent, forbidden by law, immoral nor opposed to any public policy etc.
If the object is not lawful the contract will be void.
Example
Baccha Yadav and Chedi Singh entered in an agreement with an object to kill Chulbul Pandeyis not
considered is lawful object. In our original example buying and selling of house is lawful object also.
(5) Agreements not declared void or illegal

There are certain agreements which have been expressly declared illegal or void by the law. In such
cases, even if the agreement possesses all the elements of a valid agreement, the agreement will
not be enforceable at law. in commercial ot business transaction there is a usual presumption that
parties intend to create legal obligation
Example:
Under Indian contract act any agreement to wager is void although it fulfills all the above conditions
of section 10 in our original example buying and selling of house is not declared as void by the act.
Hence we can conclude that our original example creates a CONTRACT
LET’S CONCLUDE
Agreements, which do not give rise to contractual obligations, are not contracts.
Example:
Mr. Ranbir invites Miss Katrina for dinner in a restaurant. Miss Katrina accepted the invitation but
did not turn up. Mr. Ranbir cannot claim for special arrangement made for her because this is not
a contract; there being no intention to create legal obligation between two parties. (I.e. it is an
agreement only.)

1.8 DIFFERENCES BETWEEN (A) AGREEMENT AND CONTRACT (B) DIFFERENCE BE-
TWEEN VOID CONTRACT AND VOIDABLE CONTRACT AND (C) DIFFERENCE BE-
TWEEN VOID CONTRACT AND VOID AGREEMENT:
(a) Agreement and Contract
Basis of Difference Agreement Contract
1. Meaning Every promise and every set Agreement enforceable
of promises, forming the by law Agreement + Legal
consideration for each other. enforceability
Offer + Acceptance
2. Scope It’s a wider term including both It is used in a narrow sense with
legal and social agreement. the specification that contract
is only legally enforceable
agreemane
3. Legal obligation It may not create legal An agreement does not always
obligation. grant rights to the
4. Nature All agreement are not All contracts are agreements
(b) Difference between Void Contract and Voidable Contract

1. Meaning A Contract ceases to be An agreement which is
enforceable by law contract enforceable law at the option
becomes void when it ceases of one or more of parties
to be enforceable. To be thereto, but not at the of the
enforceable. other or others, is a Contract.
2. Scope A contract becomes void due A contract becomes a voidable
change in law or change in contract if the consent of a
Circumstances beyond the party was not free.
Contemplation of Parties.

3. Performance A void contract can not be If the aggrieved party does not
performed. (In reasonable time) exercise
his right to avoid the contract,
any party can sue other for
claiming the performance the
contract.
4. Rights A void contract does not grant The party whose consent
any right to any party. was not free has the right to
rescind the contract.
(c) Difference between Void Contract and Void agreement:

1. Scope A void agreement is not An illegal agreement is always
necessarily illegal. void.
2. Nature Not forbidden under law. Are forbidden under law.
3. Punishment Parties are not liable for any Parties to illegal agreements
punishment under the law are liable for punishment.
4.Collateral Agreement It’s not necessary that collateral to illegal agreements
agreements collateral to void are always void.
agreements may also be void.
It may be valid also.

SUMMARY
hh A contract is defined in section 2(h) of the Indian Contract Act, 1872 which consist of Mutual
Promises or agreement enforceable by law.
hh Only those agreements which, contains a promise. needs a free consent of the parties with
adequate consideration and if enforceable by law results in a contract and those which are not
legally enforceable are void agreement.
hh A contract is an agreement enforceable at the option of aggrieved party. For a binding contract
both the parties to the contract must agree upon the same thing in the same sense. Moreover
it should be noted that a Latin word “Nundum Pactum” means a Bare Promise. Further all
contracts are agreements.
hh An Agreement is defined in section 2(e) of the Indian Contract Ad, 1872 according to which
every promise or set of promise forming the consideration for each other is an agreement.
hh A proposal when accepted becomes a lawful promise and becomes an agreement when a lawful
consideration is involved in such Promise. Further All Agreements are Promise.
hh A Promise is defined in section 2(b) of the Indian Contract Act, 1872 according to which when
the person to whom the proposal is made, signifies his assent thereto, the proposal is said to
be accepted. A proposal, when accepted, becomes a promise
hh Section 10 of the Indian Contract Act, 1872 specifies that all agreements are contract if
they are Iliad, by the free concert of the parties competent to contract, for a law full
consideration with a law full object and are not hereby expressly declared as void.
nnn

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Business Laws With Aseem Sir

Topic 01-Introduction to Contract

1.1 WHAT IS A CONTRACT?

1.2 WHAT IS AN AGREEMENT?

1.3 WHAT IS A PROMISE?

Business Laws- CA Foundation (Part I) 15 Nahata Professional Academy

Ch 01- Indian Contract Act, 1872

Promise = Offer / Proposal + Acceptance

1.4 WHAT IS CONSIDERATION?

1.5 WHAT IS AN OFFER/PROPOSAL?

1.6 WHAT IS AN ACCEPTANCE?

1.7 WHAT IS ENFORCEABILITY BY LAW?

Nahata Professional Academy 16 Business Laws- CA Foundation (Part I)

Topic 01-Introduction to Contract

Let us understand the main elements of enforceability by law-

(2) Parties competent to contract

(3) Lawful consideration

Business Laws- CA Foundation (Part I) 17 Nahata Professional Academy

Ch 01- Indian Contract Act, 1872

(5) Agreements not declared void or illegal

Nahata Professional Academy 18 Business Laws- CA Foundation (Part I)

Topic 01-Introduction to Contract

(b) Difference between Void Contract and Voidable Contract

Business Laws- CA Foundation (Part I) 19 Nahata Professional Academy

Ch 01- Indian Contract Act, 1872

(c) Difference between Void Contract and Void agreement:

Nahata Professional Academy 20 Business Laws- CA Foundation (Part I)

Topic 01-Introduction to Contract

Business Laws- CA Foundation (Part I) 21 Nahata Professional Academy

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