LEGAL ENVIRONMENT FOR BUSINESS

ASSIGNMENT

GROUP NO – 11

NANDINI SWAMI – 19BSP1650

HEMANT PUNJABI – 19BSP1074

KRUNAL VYAS – 19BSP1368

NIHAL POOJARY – 19BSP1712

AJAY SAVLA – 19BSP0182

AMISHA KANSAL – 19BSP0300

Question 1 :

“All contracts are agreements but all agreements are not contracts.” Describe this statement. 

Solution 1 :

Introduction:
No doubt it is a valid and true statement. Before critically discussing the statement, we must
know the exact and basic meanings of the two terms contract and agreement in the context of
business law. For understanding the meaning, we have to go to the contract act 1872 that is
applicable in subcontinent.

What is contract?
A contract is a legally binding agreement or relationship that exists between two or more
parties to do or abstain from performing certain acts. There must be offer and acceptance for
a contract to be formed. An offer must be backed by acceptance of which there must be
consideration. Both parties involved must intend to create legal relation on a lawful matter
which must be entered into freely and should be possible to perform.

Definition of contract:
According to section 2(h) of the Contract Act 1872: 
“An agreement enforceable by law is a contract.”
A contract therefore, is an agreement the which creates a legal obligation i.e., a duty
enforceable by law.
From the above definition, we find that a contract essentially consists of two elements:
(1) An agreement and (2) Legal obligation i.e., a duty enforceable by law.
Example:
A promises to sell a horse to B for Rs.100,000, and B promises to buy horse at that price.

All contracts are agreements:

For a Contract to be there an agreement is essential; without an agreement, there can be no
contract. As the saying goes, “where there is smoke, there is fire; for without fire, there can
be no smoke”. It could will be said, “where there is contract, there is agreement without an
agreement there can be no contract”. Just as a fire gives birth to smoke, in the same way, an
agreement gives birth to a contract.

What is agreement?
An agreement is a form of cross reference between different parties, which may be written,
oral and lies upon the honour of the parties for its fulfilment rather than being in any way
enforceable. 
As per section 2 (e) of Contract At 1872:
“Every promise and every set of promises, forming the consideration for each other, is an
agreement.” Thus, it is clear from this definition that a ‘promise’ is an agreement.

What is a promise?
The answer to this question is contained in section 2 (b) which defines the term. “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.”
 An agreement, therefore, comes into existence only when one party makes a proposal or
offer to the other party and that other party signifies his assent thereto. 

All agreements are not contracts:

As stated above, an agreement to become a contract must give rise to a legal obligation. If an
agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus, an
agreement is a wider term than a contract.
Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend’s
house or to take a walk together are not contracts because they are not likely to create a duty
enforceable by law for the simple reason that the parties never intended that they should be
attended by legal consequences.
On the other hand, legal agreements are contracts because they create legal relations between
the parties.
Example:
(a) A invites B to dinner. B accepts this invitation but does not attend the dinner. A cannot
sue B for damages. It is social agreement because it does not create legal obligation. So, it is
not a contract.
(b) A promises to sell his car to B for one million. It is legal agreement because it creates
legal obligations between the parties. So, it is a contract.
According to section 10 of the contract act 1872:
“All agreements are contracts if they are made by the free consent of the parties, competent to
contract, for a lawful consideration and with a lawful object and not hereby declared to be
void.”
Thus, an agreement becomes a contract when at least the following conditions are satisfied.
1. Free Consent
2. Competency of The Parties
3. Lawful Consideration
4. Lawful Object

Conclusion:
In a nut shell, an agreement is the basis of a contract and contract is the structure constructed
on this basis. An agreement starts from an offer and ends on consideration while a contract
has to achieve another milestone that is enforceability. Due to this, breach of an agreement
does not give rise to any legal remedy to the aggrieved party while breach of contract
provides legal remedy to the aggrieved party against the guilty party. Thus, we can say that
all contracts are agreements but all agreements are not contracts.
Question 2 :

Define Quasi-Contracts and explain different kinds of Quasi-Contracts

Solution 2 :

What is Quasi- Contract :

An obligation that the law creates in the absence of an agreement between the parties. It is 
invoked by the courts where unjust
enrichmentwhich occurs when a person retains money or benefits that in all fairness belong to 
another, would exist without judicial relief.

A quasi contract is a contract that exists by order of a court, not by agreement of the parties. 
Courts create quasi contracts to avoid the unjust enrichment of a party in a dispute over paym
ent for a good or service. In some cases a party who has suffered a loss in a business relations
hip may not be able to recover for the loss without evidence of a contract or some legally reco
gnized agreement. To avoid this unjust result, courts create a fictitious agreement where no le
gally enforceable agreement exists.

Kind of Quasi-Contract :

(1) SUPPLY OF NECESSITIES {Claim for necessaries supplied to person incapable of

contracting, or on his account}  (Section 68)
If a person, incapable of entering into a contract, or anyone whom he is legally bound to
support, is supplied by another with necessaries suited to his condition in life, the person who
has furnished such supplies is entitled to be reimbursed from the property of such incapable
person.

Example : A supplies B, a lunatic, with necessaries suitable to his condition in life. A is

entitled to be reimbursed from B's property.

(2) PAYMENT BY AN INTERSTED PERSON {Reimbursement of person paying money

due by another, in payment of which he is interested} (section 69)
A person who is interested in the payment of money which another is bound by law to pay,
and who therefore pays it, is entitled to be reimbursed by the other.

Example : B holds land in Bengal, on a lease granted by A, the Zamindar. The revenue
payable by A to the govt. being in the arrears, his land is advertised for sale by the govt.
under the revenue law the consequences of such sale will be annulment of B's lease. B to
prevent the sale and the consequent annulment of his own lease, pays to the government the
sum due from A. A is bound to make good to B the amount so paid.

The conditions of the liability under sec. 69 are:

The plaintiff should be interested in making the payment. It is not necessary that he should
have a legal proprietary interest in the property in respect of which the payment is made.
However, often it is used to determine whether plaintiff was interested. Sec. 69 does not
invite such judicial limitation that a person who has not an interest in the property can be
interested in a payment of that property.
The plaintiff himself should not be bound to pay. He should only be interested in making the
payment in order to protect his own interest.
The defendant should be under legal compulsion to pay.
The plaintiff should have made the payment to another parson and not to himself.

(3) OBLIGATION TO PAY FOR NON-GRATUITOUS ACTS {Obligation of person

enjoying benefit of non-gratuitous act} (Section 70)
When a person lawfully does anything for another person or delivers anything to him, not
intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is
bound to make compensation to the former in respect of, or to restore, the things so done or
delivered.

Example :
1. A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is
bound to pay for them to A.

2.  A village was irrigated by a tank. The government effected certain repairs to the tank for
its preservation and had no intention to do so gratuitously for the zamindars. The zamindars
enjoyed the benefits thereof. Held, they were liable to contribute.

(4) RESPONSIBILITIES OF FINDER OF GOODS (Section 71)

A person, who finds goods to another and takes them into his custody, is subject to the same
responsibilities as a bailee. He is bound to take as much care of the goods as a man of
ordinary prudence would, under similar circumstances, take of his own goods of the same
bulk, quality and value. If he does not, he will be guilty of wrongful conversion of the
property. Till the owner is found out, the property in goods will vest in the finder and he can
retain the goods as his own against the whole world.

Example : F picks up a diamond on the floor on k's shop. He hands it over to K to keep it till
true owner is found out. No one appears to claim it for quite some weeks in spite of the wide
advertisement in the newspapers. F claims the diamond from K Who refuses to return. K is
bound to return the diamond to F who is entitled to retain the diamond against the whole
world except the true owner.

(5) MISTAKE OR COERSION {Liability of person to whom money is paid, or thing

delivered, by mistake or under coercion}  (Section 72)
A person to whom money has been paid, or anything delivered, by mistake or under coercion,
must repay or return it to the person who paid it by mistake or under coercion.
Example :
1. A pays some money to B by mistake. It is really due to C. B must refund the money to A.
C, however, cannot recover the amount from C is no privity of contract between B and C.

2. A railway company refuses to deliver up certain goods to the consignee, except upon the
payment of an illegal charge for carriage. The consignee pays the sum charged in order to
obtain the goods. He is entitled to recovers so much of the charge as is illegally excessive.
Sec. 72 does not draw any distinction between a mistake of fact and mistake of law.

Question 3 :

Discuss doctrine of quantum merit as a remedy for breach of contract.

Solution 3 :

DOCTRINE OF QUANTUM MERUIT

When parties enter into a contract, there is a possibility for the breach of the contract and
breach of a contract can happen due to many reasons. For any breach of a contract to happen,
it is necessary that the remedies should also be made or should be given by any Court. Out of
five remedies which are available to the aggrieved party, one is a suit upon Quantum Meruit.
Quantum Meruit is a Latin phrase which means “what one has earned” or “as much as he has
earned”. In law of contract, this refers to the benefit or enrichment one party receives as a
result of the other party’s actions. Under the law, the theory means that another party has
received an unfair benefit and thus must provide restitution to the party who provided that
benefit. Thus, Quantum Meruit is a theory in the law that requires fairness and
reasonableness. The theory fosters equity of the parties and helps to ensure that if a person
provided a service or a good, that person receives the benefit of the contract. This may
include a physician's emergency aid, legal work when there was no contract, or evaluating the
amount due when outside forces cause a job to be terminated unexpectedly. If a person sues
for payment for services, in such circumstances, the judge or jury will calculate the amount
due based on time and usual rate of pay or the customary charge, based on Quantum Meruit
by implying a contract existed.

CASES IN WHICH QUANTUM MERUIT CLAIM ARISE

The claim of Quantum Meruit arises only when the original contract is discharged. The
various cases in which Quantum Meruit arise are:-

In Case of Void Agreement or Contracts that become Void (Section 65):

When an agreement is discovered to be void, or a contract become void, any person who
received an advantage over the agreement or contract is bound to restore it or make some
compensation to the person or party from whom it is received.
For example, If A contracts with B to play violin for him in his theatre for 10 days. A
performs in B's theatre for 6 days but fails to perform from the 7th day to 10th day due to
illness. B is bond to pay A for those 6 days she performed. Section 65 of the Indian Contract
Act, 1872 talks about the circumstance that where work has been done in the execution of the
contract but later it is discovered that the contract is void or it becomes void. Where a person
enjoys the benefit of a non-gratuitous act (given or received without payment but where the
party was obliged to pay) despite the fact that there is no express agreement between the
parties, then the person who has enjoyed the benefit has to compensate the other party or
restore the thing so delivered.

In Case of Gratuitous Act (Section 70):

The obligation to pay arise if the following three conditions are satisfied-
Things must have been done or delivered lawfully.
The person who had done or delivered the thing must not have intended to so gratuitously.
The person for whom the act is done must have enjoyed the benefit of the act.
For example, David a vendor leaves his goods at Jimmy’s shop by mistake and Jimmy treats
them as his own goods without paying anything. Here Jimmy is bound to pay David for the
goods he left. When the contract is implied or expressed to render services but there is no
agreement with regard to remuneration, in such a case a reasonable remuneration is payable
and what is a reasonable remuneration will be determined by the Court and this reasonable
remuneration is the Quantum Meruit. This concept is explained under Section 70 of the
Indian Contract Act,1872.

In Case of Act preventing the Completion of Contract:

If a party does not complete the contract or the prevent the other party from performing the
contract, the aggrieved party can sue the other party on Quantum Meruit.
For example, Seema was the owner of a music publishing house and she engaged in a
contract with Veer to compose a music series which will be published by the music
publishing house. The first music album was released but before the publication of the second
music album, the music publication house was closed. Here, Veer can claim Quantum
Meruit for the part already published. He is entitled to a claim because he was somehow
prevented by the other party to perform his part and the other party has violated the terms of
the contract by not paying him the amount he deserve Case of Divisible Contract:
The party at default can sue on a Quantum Meruit if the following conditions are satisfied-
The contract must be divisible.
The other party must have enjoyed the benefit of the part which has been performed, although
he had the option of declining it.
For example, Mahesh agreed to construct a house for Kapil for ₹10,00,000 but in midway, he
abandoned the contract after having done the work worth ₹4,00,000. Afterwards, Kapil
somehow got the work completed. Here, Mahesh could not recover anything for the work he
has done, as he was entitled to the payment only on completion of the work which apparently,
he could not do.

In Case of Indivisible Contract performed Completely but Badly:

The party at default may claim the lump sum less deduction for bad work if the following
conditions are satisfied-
The contract should be indivisible.
The contract should be for a lump sum.
The contract should be completely performed.
The contract was performed badly.
For example, Raju agreed to construct a house for Shyam for a lump sum of ₹5,00,000. Raju
did complete the work but Shyam complained of fault in the work done by him. It cost
Shyam another ₹1,00,000 as a remedy to the defect. In this example, Raju could only recover
₹4,00,000 from Shyam by reducing the amount of bad work done.
DOCTRINE OF QUANTUM MERIT IN INDIA

In India, the Legislature in Section 70 of the Indian Contract Act, 1872 provides for the
recovery of compensation in certain cases, where a person lawfully does anything for another
without intending to do so gratuitously, and such other person enjoys the benefit thereof. In
order to come within the principle contained in the section, two essential points have to be
made out: firstly, that the person doing the work did not intend to do it gratuitously, and
secondly, that the other person has received the benefit from the work done. The mere
acceptance of the benefit of another’s work does not give rise to an implied promise to pay
thereof. The work must have been lawfully done with the intention of claiming something in
remuneration, and under Indian law there is also an authority to hold that it is necessary to
give the person who is sought to be made liable, an opportunity to refuse, on the principle
that no man is bound to pay for which he does not had the option of refusing, though it may
be noticed that the decisions are not uniform, and the question is still not free from doubts.
Question 4 :

Explain types of contract on the basis of creation, validity, execution and liability.

Solution 4 :

Types of Contracts on various basis

Contracts On the basis of CREATION

Express Contract
A contract is said to be an express contract, if the terms of a contract are expressly agreed
upon between the parties (either by words spoken or written) at the time of formation of the
contract. An express promise results in express contract. A promise is said to be an express
promise, when the offer or acceptance of any promise is made in words.

Implied Contract
An implied contract is one for which the proposal or acceptance is made otherwise than in
words. Where the proposal or acceptance of any promise is made otherwise than in words,
the promise is known as implied promise. Implied contracts are inferred from the
circumstances of the case and conduct of the parties.

Quasi – Contract
A quasi-contract is one, which is created by law. In the quasi-contract, there is no intention
on either side to make a contract. In a quasi-contract, rights and obligations arise not by an
agreement but by operations of law.

Contracts On the basis of Validity

On this base Contracts can be classified into 5 groups. namely Valid, Void, Voidable, Illegal
and Unenforceable Contracts.

Valid:
The Contracts which are enforceable in a court of law are called Valid Contracts. To attain
Validity the Contract should have certain features like consensus ad idem, Certainty, free
consent, two directional consideration, fulfilment of legal formalities, legal obligations,
lawful object, capacity of parties, possibility of performance, etc
Example: there is a Contract between X and Y and let us assume that their contract has all
those abovesaid features. It is Valid Contract.

Void:
A Contract which is not enforceable in a court of law is called Void Contract. If a Contract is
deficient in any one or more of the above features (Except free consent and legal formalities).
It is called Void Contract.
Example: there is a Contract between X and Y where Y is a minor who has no capacity to
contract. It is Void Contract.
Voidable
:A Contract which is deficient in only free consent, is called Voidable Contract. That means it
Isa Contract which is made under certain pressure either physical or mental. At the option of
suffering party, a voidable contract may become either Valid or Void in future.
For example: there is a Contract between Aand B where B has forcibly made A involved in
the Contract. It is voidable at the option of A.

Illegal
:If the contract has unlawful object it is called Illegal Contract.
Example: There is a contract between X and Z according to which Z has to murder Y for a
consideration of Rs. 10000/- from X. It is illegal contract.

Unenforceable
:A contract which has not properly fulfilled legal formalities is called unenforceable contract.
That means unenforceable contract suffers from some technical defect like insufficient stamp
etc. After rectification of that technical defect, it becomes enforceable or valid contract.
Example: A and B have drafted their agreement on Rs. 10/- stamp where it is to be written
actually on Rs.100/- stamp. It is unenforceable contract.

Void Contracts and Illegal Contracts

All illegal Contracts are void, but all void contracts are not illegal: An illegal Contract
will not be implemented by court. So, illegal contract is Void. A void contract may not be
illegal because its object may be lawful.
The Contracts which are collateral to illegal contract are void, But the contracts which
are collateral to Void contract may be Valid: An illegal makes not only itself Void but also
the contracts connected to it. But a contract collateral to void contract may attain Validity
because object of main contract is lawful.

Contracts On the basis of EXECUTION

Executed Contract
A contract is said to be executed contract when both the parties to contract have performed
their share of obligation.

Executory Contract
An executory contract is one, which is either wholly unperformed, or something remains in
there to be done by both the parties to contract. Sometimes, a contract may be partly executed
and partly executory.

Contracts On the basis of LIABILITY

A contract liability is an entity’s obligation to transfer goods or services to a customer for
which the entity has received consideration from the customer (or the payment is due) but the
transfer has not yet been completed.
Question 5 :

Explore all aspects of contract with minor with relevant case law.

Solution 5 :

The Indian Contract Act, 1872 is important legislation in the field of commercial law in
India. It is basically responsible for regulating contractual relationships and obligations. A
common legal complexity often arises when an agreement with minor parties takes place.
This is problematic because the Act does not permit such agreements outrightly.
Contractual Capacity
Section 11 of the Contract Act, 1872 explains the requirements of competency for entering
into contracts. Individuals or entities can create contracts only if they meet these
requirements. The very first such requirement is that of majority age.
The general rule of contracts is that every person, whether natural or artificial, can enter into
contractual obligations.
Section 11, however, lays down certain exceptions. For example, minors, persons of unsound
mind and those whom the law specifically disqualifies are the exceptions.
The rationale behind Section 11 is that all parties to a contract must be competent to
understand their obligations. Since a mature mind is important for this purpose, the law
prohibits agreement with minor parties.
This is because minors would find it difficult to comprehend and fulfil their obligations.
Hence, the law itself prohibits them from creating contracts.
Agreement with Minor parties
Section 11 states that only persons who have attained majority according to the law are
competent to contract. Therefore, there must be a law that defines the age of majority.
In India, the Indian Majority Act, 1875 declares the age of majority of all persons to be 18
years. If a minor has a guardian or Court of Ward looking after him, his age of majority
becomes 21 years. Hence, any contract with a party below the age of 18 years is invalid as
per the Act.
A very important case that had explained this issue is Mohiri Bibi v. Dharmodas Ghose. In
this case, a minor had borrowed some money from a money-lender by mortgaging his house.
The money-lender moved to take possession of the minor’s house when he defaulted
payment. The court, however, said since an agreement with minor parties is void, the money-
lender could not enforce this contract.
Indian courts have repeatedly used this judgment to abrogate minors from contractual
obligations. Hence, minors cannot enter into agreements unless some legal provisions allow
them.
For example, a minor cannot transfer property as per the Transfer of Property Act. He can,
however, receive property from other persons under a legal contract.
Rules relating to Agreement with Minor Parties

Although, as a general rule, a contract with minors is void, we must keep in mind the
following rules as well:

1) A contract with a minor is void and, hence, no obligations can ever arise on him
thereunder.

2) The minor party cannot ratify the contract upon attaining majority unless a law
specifically allows this.

3) No court can allow specific performance of a contract with minors because it is void
altogether.

4) The Partnership Act also prohibits minors from becoming partners in a firm. They
can, however, receive the benefits of partnership and ratify the same upon attaining
majority.

5) The rule of estoppel under evidence law does not apply to minors under contractual
obligations. In other words, even if a minor forms a contract claiming majority age,
legal obligations cannot arise against him.

6) Parents or guardians of minors can name them in contracts only if it benefits them.
But even in this case, the minor cannot be personally liable.
Question 6 :

What is privity of contract? Explain with the help of case law.

Solution 6 :

Privity of Contract

As per the legal definition of privity of contract:

The doctrine of privity in contract law provides that a contract cannot confer rights or impose
obligations arising under it on any person or agent except the parties to it.

The doctrine of privity of contract means that only those involved in striking a bargain would
have standing to enforce it. In general this is still the case, only parties to a contract may sue
for the breach of a contract, although in recent years the rule of privity has eroded somewhat
and third party beneficiaries have been allowed to recover damages for breaches of contracts
they were not party to. There are two times where third party beneficiaries are allowed to fall
under the contract. The duty owed test looks to see if the third party was agreeing to pay a
debt for the original party. The intent to benefit test looks to see if circumstances indicate that
the promisee intends to give the beneficiary the benefit of the promised performance. Any
defense allowed to parties of the original contract extend to third party beneficiaries. A recent
example is in England, where the Contract (Rights of Third Parties) Act 1999 was introduced.

Indian law is practically same as the English common law. However, under the Indian law
‘consideration may move from the promisee or any other person .’ In the chinnaya vs.
rammayya case, an old lady by a deed of gift, gave over certain properties to her daughter
under the direction that she should pay her aunt a certain sum of money. The same day the
daughter refused to pay her aunt the money on the plea that no consideration has moved from
her aunt to her. It was held that sister of the old lady (aunt) was entitled to maintain the suit as
consideration had move from the old lady, for her sister to the daughter.

The issue any difficulties with consideration moving from the stevedores must be made out.
was explored in New Zealand Shipping Co Ltd v. A M Satterthwaite & Co Ltd [1975] AC
154, where it was held that the stevedores had provided consideration for the benefit of the
exclusion clause by the discharge of goods from the ship.

New Zealand has enacted the Contracts Privity Act 1982, which enables third parties to sue if
they sufficiently identified as beneficiaries by the contract, and in the contract it is expressed
or implied they should be able to enforce this benefit.

In Price v. Easton, where a contract was made for work to be done in exchange for payment
to a third party. When the third party attempted to sue for the payment, he was held to be not
to be in privity to the contract, and as such his claim failed.
Case Law

In Australia, it has been held that third-party beneficiaries may uphold a promise made for its
benefit in a contract to which it is not a party (Trident General Insurance Co Ltd v. MacNeice
Bros Pty Ltd (1988) 165 CLR 107). There were caveats however; the two parties to the
contract are able to vary the terms of the contract as they see fit, unless the third-party has
relied on the promise, and the promisor is subject to any defenses that it would have had, had
the promise been enforced by the promisee.

Exceptions to the Doctrine of Privity of Contract

A stranger or a person who is not a party to a contract can sue on a contract in the following
cases:

 Trust.
 Family Settlement.
 Assignment of a Contract.
 Acknowledgement or Estoppel.
 A covenant running with the land.
 Contract through an agent.

Conclusion

"Privity of contract is an established doctrine of contract law, and should not be lightly
discarded through the process of judicial decree. Wholesale abolition of the doctrine would
result in complex repercussions that exceed the ability of the Courts to anticipate and address.
It is by now a well-established principle that the Courts will not undertake judicial reform of
this magnitude, recognizing instead that the legislature is better placed to appreciate and
accommodate the economic and policy issues involved in introducing sweeping legal reforms
That being said, the corollary principle is equally compelling, which is that in appropriate
circumstances, the Courts must not abdicate their judicial duty to decide on incremental
changes to the common law necessary to address emerging needs and values in society.”