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Transcript of business law - module2
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I f we take care of today;
God wil l take care of tomorrow.
Mahatma Gandhi
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We come to the last limb of Sec. 10 of the
Indian Contract Act, 1872 .
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Void agreements
Sec. 24 : Unlawful consideration / objectunlawful consideration / object,
then agreement = void
Sec. 25 : Agreements without consideration
Agreements without consideration = void, subject to
exceptions provided in Sec.25 itself .
Sec. 26 : Agreements in restraint of marriage
Every agreement in restraint of the marr iage of any personis void.
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Sec. 27 : Agreements in restraint of tradeEvery agreement by which one is restrained from
exercising a lawful profession, trade or business of any
kind, is to that extent void.
However, courts will generally hold a restraint oftrade as legally valid, if such restraint is =
(1)partial, and not total; (2)reasonable; &
(3)is not against public interest
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To illustrate the meaning of restraint of tr ade =
Gujarat Bottling Co. Ltd. v. Coca Cola Ltd
(1995) SC .
Percept DMark (India) Pvt. Ltd. v. Zaheer Khan
(2007) SC .
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The exceptions to general rule of Sec.27 :
(1)The sale of goodwill :
A purchaser / buyer of a business, is entitled to
protect himself against competition per se on the
part of the vendor / seller
(2)Partnership agreements Indian Partnership Act:
Sec. 11 : during continuation of partnership
Sec. 36 : retiring partners
Ss. 54 & 55 : in the event of dissolution of firm
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(3)Trade combinations :
Traders & manufacturers in the same line of
Business may form a combination and agree to
carry on their trade in an organised way. Also
known as hor izontal trading agreements.
Fraser & Co. v. Bombay Ice Mfg. Co. (1904)
(4)Solus dealing agreements :
Manufacturer may appoint sole agent / distributor
for a specified area, and latter may agree not to deal
in the goods of any other manufacturer. Also
known as vertical trading agreements.
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(5)Service agreements :
Service agreements often contain negative termspreventing employees from working elsewhere; or
even, to restrain the transfer of trade secrets.
Employment Bond agreements .
Niranjan Shankar Golikari v. Century Spinning Co.
(1967) SC
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Sec. 28 : Agreements in restraint of legal
proceedings :
Every agreement by which any party thereto isrestr icted absolutely from enforcing hi s r ights under or in
respect of any contr act, by the usual legal proceedings in
the ordinary tr ibunals, or which limits the time within
which he may thus enforce his r ights, is void to thatextent.
Exception 1 & 2: Referring a dispute to arbitration
Sec. 29 : Agreements void for uncertainty :Agreements, the meaning of which is not certain, orcapable of being made certain is void.
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A wager ing agreement is one by which two persons,
holding opposite views with regard to a future uncertain
event, agree to give money or moneys worth upon the
determination or ascertainment of that event.
What kind / type of agreement
are we discussing here?
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Sec. 30 : Agreements by way of wager, void :
Agreements by way of wager are void, and no suit shall be
brought for recover ing anything alleged to be won on any
wager, or entrusted to any person to abide by the result of
any game or other uncertain event on which any wager is
made.
Subhash K. Manwani v. State of MP (2000) MP HC...
.to treat an agreement by way of wager as void, is that the law
discourages people to enter into games of chance and make earning
by trying their luck instead of spending their time, energy and labour
for more frui tful and useful work for themselves, their family andsociety.
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Exceptions to the Rule of Sec. 30 :
(1)Horse racing ;
(2)Prize competitions : The Prize Competitions Act,
1955
(3)contests, where the results are basedpredominantly on skill, rather than on mere chance;
(4)Lotteries sanctioned by specific legislation.
Dr. K. R. Lakshmanan v. State of TN (1996) SC
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Contingent contracts
Sec. 31 of the Indian Contract Act :
A contingent contract is a contract to do or not to do
something, if some event, coll ateral to such contract, does or
does not happen.
Characteristic features of contingent contract :
(1)The existence of a condition precedent which is
to be fulfilled before performance of contract can be
demanded; (2)the condition must relate to a future
event, which may or may not happen; (3)the event is
one which does not form an essential part of the
transaction to which the contract relates, but is only
collateral to it. ( Test Question: Give an Example)
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Performance of Contracts
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Performance of contracts
Who must perform the contract ?
Sec. 37 Contract Act states that the parties to acontract must either perform or offer to perform,
their respective promises under the contract.
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Sec. 40 Contract Act = contracts of
personal service
I f i t appears from the nature of the case that it was theintenti on of the parties to any contract that any promisecontained in i t should be performed by the promisor
himself , such promise must be performed by thepromisor. I n other cases, the promisor or hisrepresentative may employ a competent person toperform it.
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Tender / offer of performance :
Conditions for a valid tender of performance :Sec. 38 Contract Act
(1)it must be unconditional ;
(2)it must be made at the proper time and place ;
(3) it must be to the proper person ;(4)it must be of proper quantity and as to the whole
of the obligation ;
(5)it must give a reasonable opportunity to the
promisee for inspection of the goods or articles.
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Time and place for performance:
Ss. 46 to 50 & 55 Contract Act state the generalprinciples relating to the time and place for
performance of contracts
Sec. 50 states that : where a contract states the time
and place for performance, the parties must perform
accordingly.
Sec. 55 states that the failure to perform on the
specified date / time, would render the contractvoidable at the option of the promisee.
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The combination of Ss. 50 & 55, is to state the
principle : Time is of essence to the contr act.
Time is considered to be the essence of the
contract, in the following cases :
(1)the parties have expressly agreed to treat timeas of essence;
(2) the delay in performance causes loss / injury tothe plaintiff ; or
(3)the nature / necessity of the contract, requiresuch construction / interpretation.
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Ms. Sakshi Tripathi v. Mr. Ronnie Banerjee(2011) Karnataka
26-12-2011 : The Wedding of
Ms. Sakshi .
1pm the story of a catering contract
for the wedding reception .
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Quasi Contracts
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Dear studentsof SI BM 2010-2012 MBA,
Your portions as per Business Law 2010 Syllabus for this
Module end withthe previous Slide No.21. F rom Slide Nos.24 onwards wediscuss new Topics on Contr act Law,
known as QUASI CONTRACTS. & DISCHAGE OF
CONTRACTS.
You may feel free to read and learn the same if you so wish
to enhance your knowledge in this vibrant but out-of-
syllabus Topicson I ndian Contract Law.
Seize and enjoy every moment of good learning !
Sebastian Tharakan
The Businesslawlecturer
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Quasi ContractsChapter Vof the Indian Contract Act
Of certain relations resemblingthose created by contract
Quasi Contracts are those transactions / situations,
which do not actually form contracts between theparties in the strict legal sense, but only creates
certain rights and obligations similar to those
created by a contract. Chapter Vof Indian Contract
Act(through Ss. 68 to 72)recognise the followingtransactions as quasi contracts :
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Sec. 68 : Claim for necessaries supplied to
Person incapable of contracting, or on his account:
I f a person, incapable of enter ing into a contract, or
anyone whom he is legally bound to support, is
supplied by another person with necessaries suited to hiscondition in l i fe, the person who has furnished such
supplies is enti tled to be reimbursed from the property of
such incapable person.
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Sec. 69 : Reimbursement of person paying money
due by another, in payment of which, he is
Interested:
A person who is interested in the payment of money which
another is bound by law to pay, and who therefore pays it,
is enti tled to be reimbursed by the other .
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Sec. 70 : Obligation of person enjoying benefit of
non-gratuitous act:
Where a person lawful ly does anything for another
person, or delivers anything to him, not intending to do so
gratui tously, and such other person enjoys the benefi t
thereof, the latter is bound to make compensation to the
former in respect of, or to restore, the thing so done or
delivered.
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Sec. 71 : Responsibility of finder of lost goods:
A person who finds goods belonging to another , and takes
them into his custody, is subject to the same responsibil i ty
as a bai lee.
Sec. 72 : Liability of person to whom money is paid,
or anything delivered, by mistake or under
coercion:
A person to whom money has been paid, or anything
delivered, by mistake or under coercion, must repay or
return it.
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Discharge of Contracts
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Discharge of contracts
A contract is said to be discharged when theliabilities of the parties thereto come to an end or
are determined. A contract may be discharged in
the following modes :
(1)By performance:
When the parties to contract have completed all
their obligations, and there remains nothing more
to be done under the contract, the contract comesto an end, and is said to be discharged by
performance.
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(2)By impossibility of performance / frustration:
Sec. 56 Contract Act : the Doctr ine of Frustration...
Sec. 56: .. A contr act to do an act which, after the
contract is made, becomes impossible, or, by reason of
some event which the promisor could not prevent,
unlawful, becomes void when the act becomes impossible
or unlawful.
The destruction of substratum of the contractdue to a supervening event This supervening
event must not be the result of any act of parties,
but something beyond their control.
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and the supervening event, will have rendered it
impossible or illegal to perform the contract
The last resort for the lawyers lost cause
Strict construction of rule by Courts
Man Singh v. Khazan Singh (1961) Rajasthan HC
Tsakiroglou & Co. v. Noblee Thorl Gmbh (1962)(UK)
Easun Engg Co. Ltd. v. FACT Ltd. (1991) Madras HC
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Modern commercial contract clauses:
Vis Major Clause
Act of God Clause
Force Majeure Clause
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(3)By mutual agreement Ss. 62 & 63 Contract Act:
Mr. Sudipt Sapan, a reputed builder, enters into an agreement to
build a house for Mr. Praveen Jha. However, afew months afterentering into this constructioncontract, Mr. Sudipt is faced withgravefinancial difficulties, making it impossible for him tocomplete theconstruction project.
Since he is friendly with Mr. Praveen Jha, he makes a requesttoMr. Praveen that he (Mr. Sudipt) may be substitutedwith another
builder: Mr. Amit Chand.
Mr. Praveen agrees to this proposal of substitution of builder.
Explain how the Indian Contract Act will allow the parties to acontract to effect a substitution without adversely affecting thelegal liabilities of the original parties to the original contract.
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Sec. 62: I f the parties to the contract agree to substi tute anew contract for it, or to rescind or alter it, the original
contract need not be performed.
(i)Novation (ii)Rescission
(iii)Alteration must be a mater ial alteration
(iv) By Remission
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Remission:
Sec. 63: Every promisee may dispense with or remi t,
wholly or in part the performance of the promise made to
him, or may extend the time for such performance, or may
accept instead of it any satisfaction which he thinks f i t.
The Doctr ine of accord and satisfaction
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(4)By operation of law:
(i)Material alteration or loss of a written document;(ii)Merger of an inferior contract into a superior
contract;
(iii)Discharge of an insolvent;
(iv)When rights and liabilities under the samecontract become vested in the same person
(5)By breach or non-performance: NEXT MODULE
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