BCC 302-Business Law

1. What is a Contract? Classify the types of contracts with suitable examples. Ans. A contract is an agreement reached between two or more persons involving the exchange of some goods or services .There are some key requirements for the establishment of a contract: An offer & an acceptance Capacity or the ability to understand the consequences of a contract by persons of such age prescribed by law & those with sound mind. Mutual consent or agreement on the terms of a contract consideration, or reward for goods or services rendered.

The element that distinguishes a contract from casual agreements is that it is legally binding: The law provides a remedy in the event that the promise is broken. Legally, certain types of contracts should be in writing, while oral contracts are also legally binding in many situations. An oral contract can occur even if not all the terms of a contract are present in the agreement. A contract may be created in the following ways: Orally: Example: X makes a phone call to Y & offers to sell his bike. Y accepts Xs proposal & communicates to X his intension to buy the bike, during the same phone call. In writing: (including by electronic mean or though a website) a contract for sale of immovable property must be in writing, stamped & registered. Contracts, which need registration, or bill of exchange or Promissory Note, must be in writing. Other circumstances when promises to pay a time barred loan, & when a contract is entered into as per the Limitation Act without consideration of natural love & affection.

Example: A proposes, by letter to sell a house to B at a certain price. B accepts As proposal by a letter sent by post. Types of contracts On the basis of validity: 1. Valid contract: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law. 2. Void contract & Voidable contract: A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void. - There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is opposed to "Public Policy" under any contractthan that contract itself cannot be enforced under the law- An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party. Example: A wager is an agreement by which money is payable by one person to another on the happening or non-happening of a future, uncertain event. - A Contracts with B that A shall whitewash Bs house for Rs.100. A is ready & willing to execute the work accordingly, but B prevents him from doing so. The contract becomes voidable at the option of A. 4. Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-absinitio. All illegal agreements are void agreements but all void agreements are not illegal. 5. Enforceable contract & Unenforceable contract: Where a contract is good in substance but because of some technical defect cannot be enforced by law is called unenforceable contract. These contracts are neither void nor

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voidable. For example, an oral contract to buy land would not be enforceable because the Statue of Frauds requires such an agreement to be in writing. Similarly, statues of limitations, which limit the length of time available for legal action, may apply to contracts of certain types & render them unenforceable after a certain period of time.

On the basis of formation: 1. Express contract & implied contract: Where the terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation, the contract is said to be express contract. An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise than in words, promise is said to be implied. Example: A, a tradesman, leaves goods at Bs house by mistake. B treats the goods as his own. He is bound to pay A for them. 3. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly not contracts as there is no intention of parties to enter into a contract. It is legal obligation which is imposed on a party who is required to perform it. A quasi contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another. On the basis of performance: 1. Executed contract: An executed contract is one in which both the parties have performed their respective obligation. 2. Executor contract: An executor contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executor contract. 3. Unilateral contract: A unilateral contract is one in which only one party has to perform his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence. 4. Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts are also known as contracts with executor consideration.

2. Explain the factors involved in the general postal rule. Ans. In recent times, contracts negotiated at a distance tend to be made by communication exchanged through the post administered by the Post Office. Except as stated below, all interactions with respect to the creation of a contract which are sent through the medium of the Post Office have the legal effects formerly outlined. Nevertheless, where such a communication is sent through the medium of the Post Office, there is said to be a common rule that a properly-addressed postal acceptance is complete when the letter of acceptance is posted. Ordinarily, a letter is not 'posted' until it is put in a Post Office letterbox. Therefore, the delivery of a letter to a postman outside the course of his ordinary duties is not a posting of the letter, nor will such a letter be assumed to be in the lawful custody of the Post Office as soon as the postman enters the office. The following consequences are said to follow from this 'postal rule': (1) A postal revocation of an offer only takes effect on receipt, provided that the revocation is communicated, so that an acceptance posted at any time before that receipt prevails; (2) a postal acceptance takes effect on posting even though accidentally lost or delayed in the post; and (3) A postal acceptance of an offer relating to title of goods takes effect in priority to another contract affecting the same subject-matter but made after posting of the first acceptance.

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This examination leaves unanswered, two questions, that is to say, the operative time and effect of a revocation of postal acceptance and of a postal rejection of an offer. What is more, there are special complications which may arise in the case of communications by global telegram and worldwide sales. Contracts over Telephone, Telex, and Fax or by Oral Conversation Telephone, telex and fax are the modern means of trans-communication, and most of the business transactions today are made over telephone, telex, fax, etc. All of these are the means of instantaneous communication. The only difference being that while in case of telephone the messages are oral, in case of telex, or fax, the messages are written. However, in all such cases the rules relating to formation of contracts by oral negotiation shall apply: the contract is complete the moment the acceptance is received by the offerer. When the words of acceptance are spoken over the telephone, they are put into the course of transmission to the offeror so as to be beyond the power of the acceptor. The acceptor cannot recall them. The communication being instantaneous the contract immediately arises. However, no contract can arise unless and until the acceptance of the offer by the offeree is clearly heard and understood by the offeror. Suppose, a person makes an offer over the telephone, and in the middle of the offeree.s reply, the line goes dead, so that the offeror does not hear the words of his acceptance. In that case, there can be no contract at that moment. In contracts over telephone, the question of revocation of acceptance does not arise since the acceptance is conveyed by the offeree and heard by the offeror at the same time. However, the offeror may revoke his offer while the offered has not accepted the offer and he keeps his reply pending.

3. What is a Privity of contract? What are its exceptions? Ans. Privity means a relation between two parties that are accepted by law, example that of blood, lease or services. Fundamentally, the doctrine states that the parties to a contract are the only who can enforce & benefit from the terms of the contract. Privity of contract is one of the most basic rules of the common law of contract & one of the defining tests for the validity of any contract. This doctrine in actually determines who is a party to contract & who may rely upon the rights granted under the contract to sue another. In the deficiency of privity, there is no contract. Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties. Privity of contract occurs only between the parties to the contract, most commonly contract of sale of goods or services. Horizontal privity arises when the benefits from a contract are to be given to a third party. Vertical privity involves a contract between two parties, with an independent contract between one of the parties and another individual or company. If a third party gets a benefit under a contract, it does not have the right to go against the parties to the contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer sells a product to a distributor and the distributor sells the product to a retailer. The retailer then sells the product to a consumer. There is no privity of contract between the manufacturer and the consumer. Exceptions: Common Law Exceptions- There are exceptions to the general rule, allowing rights to third parties and some impositions of obligations. These are:

Collateral Contracts (between the third party and one of the contracting parties) Trusts (the beneficiary of a trust may sue the trustee to carry out the contract) Land Law (restrictive covenants on land are imposed upon subsequent purchasers if the covenant benefits neighbouring land) Agency and the assignment of contractual rights are permitted. Third-party insurance. A third party may claim under an insurance policy made for their benefit, even though that party did not pay the premiums.

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Contracts for the benefit of a group where a contract to supply a service is made in one person's name but is intended to sue at common law if the contract is breached; there is no privity of contract between them and the supplier of the service.

Attempts have been made to evade the doctrine by implying trusts (with varying success), constructing the Law of Property Act 1925 s. 56(1) to read the words "other property" as including contractual rights, and applying the concept of restrictive covenants to property other than real property (without success). Statutory exceptions The Contracts (Rights of Third Parties) Act 1999 now provides some reform for this area of law which has been criticised by judges such as Lord Denning and academics as unfair in places. The act states: 1. - (1) Subject to the provisions of this Act, a person who is not a party to a contract (a "third party") may in his own right enforce a term of the contract if(a) the contract expressly provides that he may, or (b) subject to subsection (2) The term purports to confer a benefit on him. (2) Subsection (1) (b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party. This means that a person who is named in the contract as a person authorised to enforce the contract or a person receiving a benefit from the contract may enforce the contract unless it appears that the parties intended that he may not. The Act enables the aim of the parties to be fully adhered to. Taking the situation in Singh v Singh whereby the only reason why Mr Singh and his nephew contracted was for the benefit of Mrs Singh. Under the Act Mrs Singh would be able to enforce the performance of the contract in her own right. Therefore, the Act realises the intentions of the parties. The law has been welcomed by many as a relief from the strictness of the doctrine, however it may still prove ineffective in professionally drafted documents, as the provisions of this statute may be expressly excluded by the draftsmen.

4. Distinguish between coercion and undue influence. Ans. -Coercion means forcibly compelling a person to enter into a contract in such case the consent is obtained by using force or threat. It is a voidable contract, where the term undue influence means unfair use of ones superior power in order to obtain the consent of the person who is in a weaker position. -coercion is committing or threatening to commit any act forbidden by Indian panel code, or unlawful detaining or threatening to detain any property to the prejudice of any person whatever with the intension of causing any person to enter into an agreement. If the consent is obtained by doing or threatening to do any act which is not allowed in Indian Penal code; if the consent is obtained by unlawful detaining of any property. It is coercion & the contract will be voidable. A contract is said to be induced by undue influence where the relation existing between the party are such that one of the party dominates the other & uses that position to obtain an unfair advantage over the other. Sometimes the party who occupies a superior position may obtain the consent of the other by unfair use of power & position. The existing relation between two persons are such that one has the power to dominate the will of the other The dominating party uses his power of superior position to get unfair advantage over the other. By using such dominant position the party obtains the consent for an agreement.

Examples: Coercion- Paul threatens to kill Ian if he does not agree to sell his car for $10000. The cost of the car is $100,000. Undue influence: Tyler advanced some money to Matt his son when he was a minor. Upon his son attaining majority, Tyler misuses his parental power/influence & gets a bond signed from Matt for a greater amount than a sum due to him.

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Coercion -The Consent is given under the threat of an offense (i.e., committing or threatening to commit an act forbidden by the Indian penal Code or detaining or threatening to detain property unlawfully). -Coercion is mainly of a physical character. It involves mostly use of physical or violent force

Undue Influence -The Consent is given by a person who is so situated in relation to another that the other person is in a position to dominate his will. In other words, consent is given, under moral influence. -Undue influence is of moral character. It involves use of moral force or mental pressure.

5. Identify the brief facts, Judgement and the Principles involved in the following case Law: Mohiribibi vs. Dharmodas Ghose (1903 PC 30 Cal. 539). Ans. Mohori Bibee v. Dharmodas Ghose, 30 Ind App 114 (PC) expressed the view that the contract being one which it was within the competence of the guardian to enter into on the respondent's behalf so as to bind him by it, and being for his benefit, it was binding on him and having regard to all the circumstances in that case, the respondent was the person who most aptly answered the description of "the transferor" in the sense in which those words were used in Section 53 of the Transfer of Property Act. Minors contact is absolutely void: In Mohori Bibee v Dhurmodas Ghose (1903-30 Cal. 539) Privy Council had held that minors contract is void ab initio and not merely voidable. A minors agreement being absolutely void, neither he nor the other party acquires any right or incurs any liability under the agreement. So a minor is neither liable to perform that he has promised too under an agreement nor is he liable to repay money that he has received under it. The principle behind this ruling is, a minor is incapable of judging what is good for him. Even if a minor has received any benefit, he cannot be asked to compensate or pay for it. A minor is incapable of giving promise imposing a legal obligation upon himself. In Mohori Bibee v Dhurmodas Ghose, a minor executed a mortgage for the sum of Rs 20,000 out of which he received Rs 8,000. Minor filed a suit subsequently for setting aside the mortgage. The money lender clamed refund of Rs 8,000 from the minor. It was held that minors contract is altogether void and the money lender therefore cannot recover the amount. A minors contract being absolutely void, he can neither sue nor be sued upon it. Specific performance of a minors contract: As a minors contract is absolutely void, there can be no specific performance of such a contract Even a minor cannot enforce specific performance as there is no mutuality. However, when such a contract is entered into by a guardian on behalf of a minor, for minors benefit it can be specifically enforced by or against the minor. Ratification of a minors contract: Ratification means consenting to a past contact entered into during minority at a future date on attaining majority. It relates back to the date of the making of the contract. Since a minors contract is void, there can be no question of ratifying it as the consideration given during the minority is held to be no consideration at all. It cannot be made valid by a subsequent ratification. A fresh contract can be entered into by a minor on attaining majority with a fresh consideration False representation by minor-Estoppels: A minor cannot be stopped by a false representation as there can be no estoppels against a statute. A minor who falsely represents himself to be a major and thereby induces another person to enter into a contract with him, can plead minority as a defence. The infant is not stopped from setting up infancy. A minor cannot be sued on the ground that he falsely represented that he is of full age thereby induced other persons to enter into a contract because to allow an injured person to sue a minor person, would be giving him a indirect means of enforcing a void contract. However, it has been held by Andhra Pradesh High Court that equity requires a minor who seeks to avoid a contract which he induced the opposite party to enter into with him by a fraudulent misrepresentation as to his age to return the considerations which he received under it and this equitable principle is also fond statutorily embodied in section 39 and 41 of the Specific Relief Act. Therefore, the Court should not grant the relief to the minor without at the same time imposing conditions that he should return what he received under the contract. Example: M aged 15 agreed to purchase a second hand DVD Player for Rs 6000 from S. he paid Rs 1000 as advance & agreed to pay the balance the next day & collect the player. When he came with the money the next day, S told him that he had changed his mind & offered to return the advance. S cannot avoid the contract, though M may if he likes.

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If necessary, a fresh contract may be entered into on attaining majority, which should however, be supported by fresh consideration.

6. Identify the brief facts, Judgement and the Principles involved in the following case Law: Leslie(R) Ltd.Vs.Sheill (1914) 3 KB 607. Ans. Minors can usually be liable under tort law so long as they are old enough to know the nature of what they are doing, but this rule cannot be used as an indirect way of enforcing a contract which would otherwise not be binding on a minor. In Leslie Ltd v Sheill (1914) a minor borrowed money, having lied about his age. The contract for the loan was an unenforceable one. In deliberately misrepresenting his age, the minor committed the tort of deceit, and knowing that he could not sue the minor for breach of contract to recover the money, the moneylender brought an action for damages in tort. The action was unsuccessful because the court held that it was merely an attempt to enforce a contract on which the minor was not liable.

Contracting party would have no remedy. The infant could not be made liable even for torts connected with contracts. In order to mitigate the rigour of the rule, equity provided the doctrine of restitution. The basis of the rule is that infants are no more entitled than adults to gain benefits to themselves by fraud. By the doctrine of restitution the infant will be ordered to restore non-necessary goods to the person whom he has defrauded provided the goods are still in the possession of the infant. However, restitution is subject to important limitations. When the infant obtains goods by fraud and remains in possession of them restitution is possible and permissible. When the infant has parted with the possession restitution becomes impossible. If the infant has obtained a loan of money which he has borrowed by fraud and subsequently spent, restitution becomes impossible. In the words of Lord Summer in Leslie v. Sheill, Restitutions tops where repayment begins. The infant defendant induced the claimant moneylenders to lend him four hundred pounds by fraudulently misrepresenting that he was an adult. When they discovered the true position, the claimants sought to recover their advances. Their claim was brought on the ground that the money had been obtained by means of the defendants fraudulent misrepresentation and in the alternative for money had and received by the defendant to the use of the claimants. The claimants failed in their attempt to recover the four hundred pounds. The court of appeal held that the defendants minority provided him with a good defence to the claims brought. Lord Sumner said: There is no fiduciary relation , the money was paid over in order to be used as the defendant's own and he has so used it and, I suppose, spent it. There is no question of tracing it, no possibility of restoring the very thing got by fraud, nothing but compulsion through a personal judgment to pay an equivalent sum out of his present or future resources, in a word nothing but a judgment in debt to repay the loan. I think this would be nothing but enforcing a void contract. So far as I can find, the Court of Chancery never would have enforced any liability under circumstances like the present, any more than a Court of law would have done so, and I think that no ground can be found for the present judgment, which would be an answer to the Infants' Relief Act. A minor succeeded in getting 400 as loan from a money lender on the faith of his (minor) being an adult. The money lenders attempt to recover the principle and the damages for fraud failed because of the above mentioned doctrine. The money lender failed even under the Quasi-contracts and Doctrine of restitution. So finally they had to really on Equity to restore the money. Rejecting the contention, Lord Sumner said: I think this would be nothing but enforcing a void contract.