Unit 1: The Indian Contract Act, 1872

• Supreme Court: highest court of appeal; its law is binding on all courts (Article 141); writ jurisdiction under Article 32.

• Business law in India is largely codified: Contract Act 1872, Sale of Goods Act 1930, Partnership Act 1932, Negotiable Instruments Act 1881, Companies Act 2013.

Section 2(h): a contract is an agreement enforceable by law. Section 2(e): every promise and every set of promises forming consideration for each other is an agreement. Hence Contract = Agreement + Enforceability; "all contracts are agreements but all agreements are not contracts" (social, domestic and moral agreements are not).

Quasi-contracts

• Supply of necessaries to a person incapable of contracting (Section 68).
• Payment by an interested person (Section 69).
• Obligation to pay for non-gratuitous act (Section 70).
• Finder of goods (Section 71).
• Money paid or goods delivered by mistake or coercion (Section 72).

• Offer (Section 2(a)): signification of willingness to do or abstain from doing something with a view to obtaining the assent of the other.
• Types: express or implied; specific or general offer (Carlill v. Carbolic Smoke Ball Co., 1893); cross offers; counter offer; standing offer.
• Invitation to offer (price tags, catalogues, tenders, auctions) is not an offer — Pharmaceutical Society v. Boots (1953).
• Rules of acceptance: absolute and unconditional, communicated to the offeror, in the prescribed or usual manner, within reasonable time, by the offeree, before the offer lapses; silence is not acceptance (Felthouse v. Bindley, 1862).

Section 11: every person is competent who is of the age of majority (18), of sound mind (Section 12) and not disqualified by law.

• Minor: agreement is void ab initio (Mohori Bibee v. Dharmodas Ghose, 1903); no ratification on attaining majority; no estoppel; minor can be a beneficiary/promisee; liable for necessaries out of their property (Section 68); can be admitted to the benefits of partnership.
• Unsound mind: contracts during unsoundness void; lucid intervals allowed.
• Disqualified persons: alien enemies, foreign sovereigns, convicts, insolvents.

Consent (Section 13): agreeing upon the same thing in the same sense (consensus ad idem). Free consent (Section 14): not caused by:

Consideration

Section 2(d): when at the desire of the promisor, the promisee or any other person has done or abstained, or does or abstains, or promises to do or abstain from something, such act, abstinence or promise is consideration.

• Must move at the desire of the promisor; may move from the promisee or any other person (Chinnaya v. Ramayya, 1882); may be past, present or future; need not be adequate; must be real and lawful.
• "No consideration, no contract" (Section 25) — exceptions: natural love and affection (written and registered), compensation for past voluntary service, promise to pay a time-barred debt (written and signed), agency (Section 185), gifts actually made.

Legality of object (Sections 23–30)

The object or consideration is unlawful if it is forbidden by law, defeats any law, is fraudulent, injures person or property, or is immoral or opposed to public policy.

• Expressly void agreements: in restraint of marriage (Section 26), restraint of trade (Section 27 — except sale of goodwill), restraint of legal proceedings (Section 28), uncertain agreements (Section 29), wagering agreements (Section 30), agreements to do impossible acts (Section 56).

• Performance: actual performance or tender (offer to perform); by promisor, agent or legal representatives; joint promises — joint and several liability.

Remedies for breach

• Rescission: aggrieved party may cancel the contract (Section 39).
• Damages (Section 73): ordinary (naturally arising), special (if contemplated by both — Hadley v. Baxendale, 1854), exemplary (breach of promise to marry, dishonour of cheque), nominal; remote damages not recoverable; duty to mitigate loss.
• Liquidated damages and penalty (Section 74): reasonable compensation not exceeding the stipulated amount.
• Quantum meruit: payment for work done.
• Specific performance and injunction (Specific Relief Act, 1963).

Agent (Section 182): a person employed to do any act for another or to represent another in dealings with third persons. The person represented is the principal. "What a man does through another, he does himself" (qui facit per alium facit per se).

Kinds of agents

• General and special agents; mercantile agents — factor, broker, auctioneer, commission agent, del credere agent (guarantees payment by buyers); sub-agent and substituted agent.

Duties and rights

• Agent's duties: follow instructions and customs, reasonable skill and diligence, render accounts, not make secret profit, not deal on own account, communicate with principal.
• Agent's rights: remuneration, retainer, lien on principal's property, indemnity.
• Principal's liability: bound by acts within actual or apparent authority; liable for agent's misrepresentation and fraud in the course of business.

Termination of agency (Section 201)

By revocation by principal, renunciation by agent, completion of business, death or insanity, insolvency of principal, expiry of time, destruction of subject matter. Irrevocable agency — where the agent has an interest in the subject matter (Section 202).

• Bailment (Section 148): delivery of goods by one person (bailor) to another (bailee) for some purpose, on contract that they shall be returned or disposed of as directed when the purpose is accomplished. Example: giving a watch for repair, a car for parking.
• Duties of bailee: take reasonable care (Section 151), not make unauthorised use, not mix goods, return goods, return accretions.
• Rights of bailee: compensation for defects, reimbursement of expenses, particular lien (Section 170), sue third parties.
• Duties of bailor: disclose known faults, bear extraordinary expenses.
• Finder of goods is treated as a bailee.
• Pledge (Section 172): bailment of goods as security for payment of a debt or performance of a promise. Pawnor and pawnee.
• Rights of pawnee: retain goods (Section 173), extraordinary expenses, sue the pawnor, sell after reasonable notice if the pawnor defaults (Section 176).

• Contract of indemnity (Section 124): one party promises to save the other from loss caused by the conduct of the promisor or any other person. Parties: indemnifier and indemnity holder. Rights of indemnity holder (Section 125): recover damages, costs of suits, sums paid in compromise.
• Contract of guarantee (Section 126): to perform the promise or discharge the liability of a third person in case of default. Parties: surety, principal debtor, creditor.

Kinds of guarantee

• Specific guarantee (single transaction) and continuing guarantee (series of transactions — Section 129), revocable for future transactions by notice or death of the surety.

Rights of the surety

• Against the principal debtor: subrogation (Section 140), indemnity (Section 145).
• Against the creditor: benefit of securities held by the creditor (Section 141).
• Against co-sureties: contribution in equal shares (Section 146).

Discharge of the surety

By revocation, variation in terms without consent (Section 133), release or discharge of the principal debtor, compounding or giving time to the debtor, loss of security by the creditor's act.