lOMoARcPSD|5585317
Business Law Chapter 2
Business Law (University of Dhaka)
Scan to open on Studocu
Studocu is not sponsored or endorsed by any college or university
Downloaded by Atiqul Alam (atiqulalam2004@gmail.com)
lOMoARcPSD|5585317
Law of Contract: The Law of Contract deals with agreements which can be enforced
through Courts of law. Section 2(h) of the Indian Contract Act provides that, “An Agreement
enforceable by law is a Contract”. For example, X agrees to provide 10 tons of coal to Y by a
speci昀椀c date. Because this contract can be enforced by the courts, Y can rely on receiving
the coal as promised. If X fails to ful昀椀ll the contract, Y can seek compensation for any
losses incurred from the court, ensuring that Y is not left at a disadvantage.
The Essential Elements of Contract
1. O昀昀er and Acceptance: There must be a lawful o昀昀er by one party’ and a lawful
acceptance of the o昀昀er by the other party or parties.
2. Intention to create Legal Relationship: ‘There must be an intention (among the
parties) that the agreement shall result in or create legal relations. For example, an
agreement to dine at a friend’s house is not intended to create legal relations and is
not considered a contract. However, agreements such as buying and selling goods
or agreeing to marry are intended to create legal relationships and are therefore
considered contracts, as long as all other necessary elements are present.
3. Lawful Consideration: In order for an agreement to be legally enforceable, each
party must provide something of value, known as consideration. Simply put, both
parties must give and receive something in exchange for the agreement to be valid.
An agreement where one party receives nothing in return is typically not enforceable
by law, except in certain circumstances.
4. Capacity of Parties: For an agreement to be legally enforceable, both parties must
have the legal capacity to enter into it. This means they must be of sound mind and
not a昀昀ected by factors such as minority (being underage), lunacy, idiocy,
drunkenness, or similar conditions. If a party lacks the legal capacity, the agreement
cannot be enforced by a court of law.
5. Free Consent: For an agreement to be legally binding, all parties must give their
consent freely. Genuine consent is absent if the agreement is in昀氀uenced by
coercion, undue in昀氀uence, mistake, misrepresentation, or fraud. If any of these
factors are present, the agreement cannot be enforced, and the party responsible
for coercion, undue in昀氀uence, etc., cannot enforce the agreement.
6. Legality of the Object: The object for which the agreement has been. Entered into.
Must not be illegal, or immoral or opposed to public policy.
7. Certainty: The agreement must not be vague. It must be possible to ascertain the
meaning of the agreement, for otherwise it cannot be enforced.
8. Possibility of Performance: The agreement must be capable of being performed. A
promise to do an impossible thing cannot be enforced.
Downloaded by Atiqul Alam (atiqulalam2004@gmail.com)
lOMoARcPSD|5585317
9. Void agreements are those that are expressly declared to be invalid. Under the
Indian Contract Act, there are 昀椀ve categories of agreements that fall into this void
category:
a. Agreements in restraint of marriage (Section 26)
b. Agreements in restraint of trade (Section 27)
c. Agreements in restraint of legal proceedings (Section 28)
d. Agreements with uncertain meaning (Section 29)
e. Wagering agreements (Section 30)
10. Writing Registration and Legal Formalities: An oral contract is generally valid, except
when speci昀椀c statutes require it to be in writing or registered. In India, writing is
necessary for agreements involving lease, gift, sale, mortgage of immovable
property, negotiable instruments, and the memorandum and articles of association
of a company. Registration is compulsory for documents falling under Section 17 of
the Registration Act, such as mortgage-deeds involving immovable property.
However, proving the terms of an oral contract can sometimes be challenging.
Four Divisions of Contract
1. The Method of Formation of Contract
(a) Express Contract: Express Contract is one which is expressed in words
spoken or written. As an example, if I o昀昀er to sell you my automobile for
$10,000, that’s an example of an express o昀昀er. The parties are clear, The
consideration is clear and the obligations are clear.
(b) Implied Contract: The conditions of an implied contract are understood
from the actions, conduct, and dealings between the parties involved, rather
than explicitly stated in written or verbal agreements. For example, if a
customer enters a restaurant and orders food, for example, an implied
contract is created. The restaurant owner is obligated to serve the food, and
the customer is obligated to pay the prices listed on the menu for it.
(c) Quasi Contract: A quasi contract is a legal concept used to impose
obligations similar to those of a contract even when there is no formal
contract in place. It arises when one party bene昀椀ts unfairly at the expense of
another, and the law steps in to ensure fairness by creating a contractual
relationship. Let’s say you pay for a pizza to be delivered. If that pizza is
Downloaded by Atiqul Alam (atiqulalam2004@gmail.com)
lOMoARcPSD|5585317
delivered to another house, and someone else enjoys your three-topping
special, a quasi contract could be initiated. Now, the pizzeria could be court
ordered to reimburse you for the amount you paid for that pie.
2. The Time of Performance
(a) Executed Contract: There are contracts where the parties perform their
obligations immediately, i.e., as soon as the contract is formed. For example,
Alex goes to the local co昀昀ee shop and buys a cup of co昀昀ee. The barista sells
her the co昀昀ee in exchange for the cash payment.
(b) Executory Contract: In this contract the obligations of the parties are to be
performed at a later time. An apartment lease is an example of an executory
contract. When you sign a lease, you agree to pay rent for a speci昀椀c period.
Until the lease term ends, the contractual obligations remain unful昀椀lled.
3. The Parties of the Contract
(a) Bilateral Contracts: There must be at least two parties to the contract.
Therefore all contracts are bilateral or multilateral. For example, a sales
agreement, such as a car purchase. In this scenario, the buyer agrees to pay
a speci昀椀ed amount for the car, and the seller agrees to transfer the title upon
receiving the payment. Business contracts typically follow this bilateral
structure.
(b) Unilateral Contract: In certain contracts, one party is obligated to ful昀椀ll their
obligations while the other party has already completed theirs. This type of
contract is known as a unilateral contract. An example of a unilateral
contract is an insurance policy contract, which is usually partially unilateral.
In a unilateral contract, the o昀昀eror is the only party with a contractual
obligation.
4. Legality or Validity of the Contract
(a) Valid: An agreement which satis昀椀es all’ the essential elements of a contract,
and which is enforceable through the courts is called valid contract. For
example, you sign to buy a blue house, and the house is blue; thus the
contract is valid.
(b) Void: “An agreement not enforceable by law is said to be void.”- sec. 2(g). A
void agreement has no legal e昀昀ect. It confers no rights on any person and
creates no obligations. For example, a contract between an illegal drug
supplier and a drug dealer is unenforceable from the onset due to the illegal
nature of the agreed upon activity.
(c) Voidable Agreement: . A voidable agreement is one which con be avoided,
i.e., set aside by some of the parties to it. U ,til it is avoided, it is a good
Downloaded by Atiqul Alam (atiqulalam2004@gmail.com)
lOMoARcPSD|5585317
contract. For example, X coerces Y into entering into a contract for the sale of
Y’s house to X This contract can be avoided by Y X cannot enforce the
contract. But t if he so desires, can enforce against X.
(d) Illegal: A contract is illegal if it involves doing something that is a criminal
act or a civil wrong, or against the public good. For example, it is an o昀昀ence
to sell a 昀椀rearm to a person not licensed to hold one, so a contract to sell a
昀椀rearm in these circumstances is illegal.
(e) Unenforceable: The term Unenforceable Agreement is used in English law. It
means an agreement which cannot be enforced in a court of law, one or both
of the parties because of some technical defect, e.g. want of registration or
non-payment of the requisite stamp. For example, if an employer forces an
employee to sign a contract that prevents him or her from taking sick leave, it
would be considered unenforceable.
Downloaded by Atiqul Alam (atiqulalam2004@gmail.com)