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ASSIGNMENT BOOKLET
Identity No.

C13MB0480001

Learner Name

P.SANTOSH REDDY

Mobile No.

9490096475

Programme

MBA

Group

GENERAL (OPERATIONS MANAGEMENT)

Paper Name (Subject)

302 BUSINESS LAWS

Year/ Semester

: 1

Study Centre

Station

: Hyderabad

Date

: 14.05.14

st

2nd

3rd

4th

Jahnavi Degree and PG College, Narayanguda

P.SANTOSH REDDY
Learner Signature

ASSIGNMENT I
1) An invitation to offer is not an offer-Comment

Answer:
Offer and acceptance analysis is a traditional approach in contract law. The
offer and acceptance formula, developed in the 19th century, identifies a
moment of formation when the parties are of one mind. This classical approach
to contract formation has been weakened by developments in the law of
estoppel, misleading conduct, misrepresentation and unjust enrichment.
Offer: Treitel defines an offer as "an expression of willingness to contract on
certain terms, made with the intention that it shall become binding as soon as it
is accepted by the person to whom it is addressed", the "offeree. An offer is a
statement of the terms on which the offeror is willing to be bound. It is the
present contractual intent to be bound by a contract with definite and certain
terms communicated to the offeree.
The expression of an offer may take different forms, such as a letter, newspaper
advertisement, fax, email and even conduct, as long as it communicates the
basis on which the offeror is prepared to contract.
Whether the two parties have reached agreement on the terms or whether a
valid offer has been made is an issue which is determined by the courts using
criteria known as 'the objective test' which was explained in the leading English
case of Smith v. Hughes.[2] In Smith v. Hughes, the court emphasized that the
important thing in determining whether there has been a valid offer is not the
party's own (subjective) intentions, but how a reasonable person would view the
situation.
Unless the offer included the key terms of the contract, it cannot be the basis of
a binding contract. For example, as a minimum requirement for sale of goods
contracts, a valid offer must include at least the following 4 terms: Delivery date,
price, terms of payment that includes the date of payment and detail
description of the item on offer including a fair description of the condition or
type of service. Unless the minimum requirements are met, an offer of sale is not
classified by the courts as a legal offer but is instead seen as an advertisement.
Invitations to treat: An invitation to treat is not an offer, but an indication of a
person's willingness to negotiate a contract. It's a pre-offer communication. In
Harvey v. Facey, an indication by the owner of property that he or she might be
interested in selling at a certain price, for example, has been regarded as an
invitation to treat. Similarly in Gibson v Manchester City Council[5] the words
"may be prepared to sell" were held to be a notification of price and therefore
not a distinct offer, though in another case concerning the same change of

policy (Manchester City Council underwent a change of political control and

stopped the sale of council houses to their tenants) Storer v. Manchester City
Council, the court held that an agreement was completed by the tenant's
signing and returning the agreement to purchase, as the language of the
agreement had been sufficiently explicit and the signature on behalf of the
council a mere formality to be completed.
The courts have tended to take a consistent approach to the identification of
invitations to treat, as compared with offer and acceptance, in common
transactions. The display of goods for sale, whether in a shop window or on the
shelves of a self-service store, is ordinarily treated as an invitation to treat and
not an offer.
The holding of a public auction will also usually be regarded as an invitation to
treat. Auctions are, however, a special case generally. The rule is that the bidder
is making an offer to buy and the auctioneer accepts this in whatever manner is
customary, usually the fall of the hammer. A bidder may withdraw his or her bid
at any time before the fall of the hammer, but any bid in any event lapses as an
offer on the making of a higher bid, so that if a higher bid is made, then
withdrawn before the fall of the hammer, the auctioneer cannot then purport to
accept the previous highest bid. If an auction is without reserve then, whilst
there is no contract of sale between the owner of the goods and the highest
bidder (because the placing of goods in the auction is an invitation to treat),
there is a collateral contract between the auctioneer and the highest bidder
that the auction will be held without reserve (i.e., that the highest bid, however
low, will be accepted). The U.S. Uniform Commercial Code provides that in an
auction without reserve the goods may not be withdrawn once they have been
put up.
Revocation of offer: An offeror may revoke an offer before it has been
accepted, but the revocation must be communicated to the offeree (although
not necessarily by the offeror). If the offer was made to the entire world, such as
in Carlill's case, the revocation must take a form that is similar to the offer.
However, an offer may not be revoked if it has been encapsulated in an option.
If the offer is one that leads to a unilateral contract, the offer generally cannot
be revoked once the offeree has begun performance.
Test of acceptance: For the acceptance, the essential requirement is that the
parties had each from a subjective perspective engaged in conduct
manifesting their assent. Under this meeting of the minds theory of contract, a
party could resist a claim of breach by proving that he had not intended to be
bound by the agreement, only if it appeared subjectively that he had so
intended. This is unsatisfactory, as one party has no way to know another's
undisclosed intentions. One party can only act upon what the other party
reveals objectively to be his intent. Hence, an actual meeting of the minds is not

required. Indeed, it has been argued that the "meeting of the minds" idea is
entirely a modern error: 19th century judges spoke of "consensus ad idem" which
modern teachers have wrongly translated as meeting of minds but actually
mean "agreement to the [same] thing".
The requirement of an objective perspective is important in cases where a party
claims that an offer was not accepted and seeks to take advantage of the
performance of the other party. Here, we can apply the test of whether a
reasonable bystander (a "fly on the wall") would have perceived that the party
has impliedly accepted the offer by conduct.
=====================================================================

2) Advantages of Private Company

Answer:
A private limited company enjoys the following advantages:
Ease of formation: A private company can be formed by two persons only. It
can start its business immediately after incorporation and is not required to wait
for the certificate of com-mencement of business.
Greater flexibility: A private company is required to perform lesser legal
formalities as compared to a public company. It enjoys special exemptions and
privileges under the company law. Therefore, there is greater elasticity of
operations in a private company.
Corporate Governance:The Securities Exchange Act, along with separate
securities market regulations, requires that certain rules be followed when it
comes to corporate governance within a publicly traded company, such as
how a business is structured. One advantage of being private is that a company
does not need to adhere to these stipulations, and can have more flexibility and
freedom when it comes to how its governance is structured.
Quick decisions: In a private company there are a lesser number of people to
be consulted. Family members, relatives and close friends form a private
company. They can take prompt decisions.
Secrecy: A private company is not required to publish its accounts or file several
docu-ments. Therefore, it is in a better position than a public company to
maintain business secrets.
Continuity of policy: The same persons continue to manage the affairs of a
private company. Relations between them are close and continuity of policy
can be maintained.

Limited Liability: The greatest benefit of private limited companies is limited

liability. Private limited companies, according to Apex, are treated as a single
entity, making the company responsible for all debts. If anything happens to the
company, its members are not personally affected; members are only liable for
unpaid shares. Officers of the company retain their company salaries, they
cannot be made bankrupt and they are free to form a new company, says
Apex. Fraud is the only instance of unprotected liability. Tutor2u explains, If
creditors lose money through director fraud, the directors' personal liability is
without limit.
Tax Advantages: Private limited companies enjoy tax advantages in addition to
limited liability. These companies pay corporation tax on their taxable profits
and tend to be exempt from higher personal income tax rates. Forming a
company instead of continuing as a sole trader or sole proprietor opens the
door to more tax-deductible costs and allowances redeemable against profits.
Personal touch: There is greater personal touch with employees and customers
in a private company. There is also greater incentive to work hard and take
initiative in the manage-ment of business due to little separation between
ownership and management.
Finance and Resources: When more resources or large-scale production is
necessary, forming a private limited company protects the interests of lenders.
With adequate funding, your company can produce goods at a lower cost,
thus increasing profits and customer satisfaction. Furthermore, the future of the
business becomes more secure. DIY Accounting reports private limited
companies tend to retain more funds within the business to meet future
financial commitments, which aids year on year growth compared to sole
proprietors.
Financial Results: Unlike a publicly traded company that allows stockholders to
invest in shares and is required to report financial results every quarter, a private
company is not obligated to reveal financial results at any time to the public,
thus eliminating short-term pressures of meeting shareholder and analyst
expectations. Also, eliminating the need to disclose information can be
advantageous in terms of divulging business details that might put you at a
competitive disadvantage.
Long-Term Planning: Private companies do not have to plan for the short term as
much as publicly traded companies do to satisfy shareholders and keep daily
stock prices up. Eliminating this need to produce stellar quarterly results allows a
private company to focus on long-term growth and manage accordingly. While
businesses can still assess short-term goals, they can spend more time and
research looking at ongoing, long-term objectives "without having to become
obsessed with quarterly results," Bechtel spokesman John Marshall told the San
Francisco Chronicle.

Business Continuity: Private limited companies enjoy permanent succession

because the company is its own legal entity. Shareholders and employees act
as agents of the company, writes, Tutor2u, and therefore, do not effect the
company if they leave. In the event of a death or resignation, the companys
Articles of Association allocate the shares to remaining members.
Discontinuation of the company only occurs through liquidation or similar
means. Guaranteed succession not only benefits members, but secures jobs
and resources for the community.
=====================================================================

3) When does a contract terminate by operation of law?

Answer:
Under contract law, a party's duty to perform under a contract may come to an
end in a number of ways. The law generally does not speak of contracts being
"terminated," rather, parties somehow discharge their duties to perform under
the contract. The most obvious way to discharge one's duty is to fully and
completely perform all contract duties; however, the law also recognizes
numerous other means of discharge. Those contemplating an attempt to
"terminate" a contract should seek legal advice
Absence of employer-employee agreement on termination at 65
Under the Dutch Civil Code, an employment contract terminates by operation
of law upon the expiry of a period prescribed by contract, statute or custom.
Some legal commentators take the position that it is customary for employees to
stop working at the age of 65. In support of this they cite a Supreme Court
decision of 13 January 1995, in which the court held that the rule that an
employment relationship generally terminates by operation of law when the
employee turns 65 is in line with legal doctrine. In contrast, others believe that
this Supreme Court holding means only that a dismissal based upon the
employee reaching the age of 65 is not incompatible with legal doctrine.
In practice, an increasing number of employees continue working after turning
65. However, most employees still stop before that age, although the
government tries in a variety of ways to discourage this. Recently, there has
been talk of increasing the pensionable age under the General Old Age
Pensions Act to 67. This would affect the "objective justification" under the Equal
Employment Opportunities Act for the termination of an employment contract
at the age of 65 since, as noted above, such justification is linked to the
pensionable age under the General Old Age Pensions Act.
Perhaps in anticipation of the above development, the Delft Subdistrict Court
recently decided a case brought by a 65 year old employee whose
employment contract did not provide for automatic termination at that age.
Nor was the employment contract subject to a collective labour agreement.

The employer argued that the employment contract terminated automatically

based solely on the fact that employee had reached the pensionable age. The
subdistrict court disagreed, holding that for the termination to occur
automatically on the alleged ground, additional facts and circumstances
indicating that this was the parties' intention had to be shown. The court did not
explain what such facts and circumstances might entail, but concluded that the
fact that the employee was entitled to a pension upon reaching the age of 65
did not mean that his employment contract terminated automatically at that
age. This conclusion does not follow from a specific statutory provision. The
subdistrict court also held that even if in the past it had been customary for
employment contracts to terminate automatically when the employee reached
the pensionable age, this was no longer true. The court's conclusion was based
in part on the abovementioned discussions regarding the increasing of the
pensionable age under the General Old Age Pensions Act to 67 years and the
social developments of the past several years, whereby retirement at the age of
65 is no longer self-evident.
Existence of employer-employee agreement on termination at 65
If there is an agreement, whether in an individual contract or collective labour
agreement, that the employment contract will terminate automatically when
the employee turns 65, and the employee is in favour of this, a problem will not
arise. This is otherwise if the employee refuses to consent to the termination. The
issue is then whether the employer can invoke the provision in the employment
contract or collective labour agreement often agreed many years earlier
that the contract terminates by operation of law when the employee reaches
the pensionable age.
The Amsterdam Subdistrict Court had to rule on this issue in 2008. The employer
and employee had concluded an employment contract for an indefinite period
which contained a pension-triggered termination clause. The subdistrict court
held that an employment contract must be either for a definite period in
which case it terminates by operation of law at the end of the period or for an
indefinite period in which case it by definition does not terminate by operation
of law. According to the court, this standpoint is incompatible with the view that
an employment contract for an indefinite period can terminate automatically
pursuant to a pension-triggered termination clause agreed in an individual
employment contract or collective labour agreement.
The Amsterdam Subdistrict Court's judgment has not been followed by other
courts. Several subdistrict court judgments rendered in the same year reached
the opposite conclusion i.e. that an employment contract for an indefinite
period can end by operation of law pursuant to a pension-triggered termination
clause in an individual employment contract or collective labour agreement.
Legal commentators have varied in their response to the Amsterdam court's
judgment. However, the possibility cannot be excluded that other courts will
follow it in the future.

Conclusion
Under the Equal Employment Opportunities Act, the termination of an
employment contract upon the employee turning 65 is not viewed as
discrimination but as the result of an objectively justified age-based distinction.
This does not mean, however, that an employment contract for an indefinite
period terminates automatically when an employee turns 65, not even if this is
provided for in the employment contract or collective labour agreement. It is
therefore questionable whether in light of, among other things, the 2008
judgment of the Amsterdam Subdistrict Court an employer can rely on such a
clause.
Employers would be well advised to clearly document any agreement reached
with an employee regarding the termination of his/her employment contract
upon reaching the pensionable age. If an employee has in the past signed an
employment contract containing a pension-triggered termination clause, the
employer should when the employee is approaching the pensionable age
check whether he/she still intends to stop working at 65. If so, it can do no harm
to lay this down in writing again. If the employee indicates that he/she does not
plan to stop working at 65, the employer can, no later than on the employee's
65th birthday, request a dismissal permit from the Industrial Insurance
Administration Office (UWV Werkbedrijf). To date, such a permit has always
been issued (under policy rule 38) in that situation.
An extra advantage of requesting a dismissal permit is that if the employer and
employee nevertheless decide to continue the employment relationship
beyond the employee's 65th birthday, an employment contract for a definite
period can be concluded that will terminate by operation of law at the end of
the agreed period. If the employment contract is continued after the employee
turns 65 without a dismissal permit having been requested or the employment
contract having been rescinded by the competent sub district court, it will in all
cases have to be ended either by obtaining a dismissal permit on grounds other
than the employee having reached the age of 65 year or by filing a request for
rescission with the competent sub district court.
=====================================================================

4) What is meant by Performance of contract?

Answer:
Execution of a contract by which the contracting parties are automatically
discharged (see discharge of contract) of their obligations under it. Although
contracts usually call for full and precise performance, a substantial
performance may be acceptable under certain circumstances, on a pro rata
basis, or on payment of damages for the unfinished or defective performance.

Performance of Contract :It means the fulfillment of legal obligations created under contract by the
promisor and promisee. Contract comes to an end when both the parties
performed the contract properly.
Demand For Performance :Performance is always demanded by the promisee. A third party has no right to
demand performance of the contract. If promisee dies then his legal
representative can demand.
Example :- Mr. Fahad promises Mr. Wahid to pay Rs. 1 lac to Mr. Jhon. In this
case Mr. Wahid is a promisee and he can demand performance. If Mr. Fahad
does not pay to Mr. Jhon then jhoncan not take any action, because he is a
third party. It is Mr. Wahid who can take action. Even at the death of Mr. Wahid
his legal representative can take action.
Who May Perform :A promisor personally or through his agent, legal representative or third person
can fulfill the promise.
In case of joint promises all the promisors jointly fulfill the promise or any one may
be compelled to perform or each promisor may compel for contribution.
RULES REGARDING THE ORDER OF PERFORMANCE OF RECIPROCAL PROMISES :When one party makes a promise in consideration of the similar promise made
by the other party is called reciprocal promise.
1. Rules Regarding The Order of Performance :When performance of the promise of one party depends on the prior
performance of the promise by the other party, the promises are called mutual
and dependent. If first party promisor fails to perform its promise according the
contract, then it cannot claim the performance of the reciprocal promise and
will also compensate the other party.
Example :- Mr. Naveed contracts with Mr. Aslam to construct the house for a
fixed price. According to contract Mr. Aslam had to supply the construction
material. Such construction is being dependent on the supply of material, the
work cannot be started. The loss caused to Mr. Naveed will be compensated by
Mr. Aslam.
2. Mutual &Independent :In this case each party performs his promise independently without waiting the
performance of other party.
3. Mutual and Concurrent :In this case of two promises performed at the same time. The promisor may not
perform his promise unless the promisee is ready to perform his reciprocal
promise.

4. Consequence To Prevent The Performance :In case of reciprocal promises if one party to the contract prevents the other
party the contract becomes voidable at the option of the prevented party.
Prevented party is also entitled to compensation for any loss, which he causes
due to non-performing of contract.
5. Time and Place :It relates with the rules regarding the determination of time and place.
6. Specified Time :If the time and place is prescribed in the contract then it should be performed
at the specified time and place.
7. Reasonable Time :In this case reasonable time depends on the circumstances of each case.
8. Proper Place :In this regard promisor must ask the promisee where he would like the contract
to be performed.
=====================================================================

5) Classes of partners

Answer:
Given the need for more careful analysis before making new partners as a result
of the depressed economy and shrinking profits, it is also timely to give thought
to different classes of partners
1. Non-equity partners:
Current law firm economics have caused partners to consider a two-tier partner
law firm model. Historically, the conventional pyramid structure assumed
partners are on top and associates are on the bottom. This structure was based
on the assumption that an associate produces sufficient income to pay himself
or herself, defray his or her costs and generate a profit for the partners.
Associates were recruited with the expectation that over time, if they remained
with the firm, they would become partners. The up or out philosophy
flourished.
Today, new dynamics to law firm economics have evolved, and the historical
assumptions no longer apply. Law firms are unable to continue to admit as
many equity-holding partners and not dilute the earnings of current partners.
Therefore, to continue to attract, motivate and retain experienced associates
and recent law school graduates, law firms have had to create alternative

approaches to develop, retain and promote associates in a relatively slow

growth environment, while preserving the relative income levels of current
partners.
Given todays current economic conditions and some firms recent slow growth
rate, even excellent contributors may not be able to count on making equity
partner. Therefore, the non-equity partnership structure provides an alternative
approach for those who wish tenure with the firm and can continue to
contribute in a significant way. The non-equity partner position retains people
with strong technical skills and reduces the turnover of attorneys in these
positions who may be hard to replace.
Many firms promote associates to non-equity partners in four to six years, or
longer. After a partner is promoted to the non-equity category, there is an
additional observation period of four to six years, or longer, before considering
his or her candidacy for equity partner. The non-equity partner position is
compensated by a salary with limited upper ranges and may receive bonuses,
based upon origination of business, extraordinary performance, etc.
To the outside world, those who progress to non-equity partner are considered
to be partners. Within the firm, however, the equity/non-equity distinction is
made in terms of voting rights, liability, functions performed and compensation.
Non-equity partners, generally characterized by a guaranteed draw but with
no right to share in the firms profits, may be potentially beneficial in the short
term, issues which can arise relate to the partners desire and expectation that
there will be an opportunity for advancement to equity status. So as not to disincentivize further initiative, clear criteria must be established which identify the
basis for equity status.
2. Contract partners
Contract partners, may be are similarly salaried, perhaps with bonus
arrangements predicated on performance, may be lateral partners, whose
attraction may be an existing book of business or a needed expertise in a
particular field of law. Some firms have trepidation about engaging contract
partners, since they may, without qualification, be inclined to move for more
money, made easier by their not having been inculcated into the firm culture.
3. Part-Time Partners
Many attorneys are concerned about whether/how to advance the careers of
less than full-time lawyers. There are still many law firms who would find it
problematic to consider part-time lawyers for partnership, irrespective of their
age, experience and/or the quality of their performance. The long-held view by
many law firms that a part-time lawyer lacks commitment, coupled with the fact
that part-time work is not often well-defined, results in a perception that less than
a 24/7/365 involvement severely limits advancement and career options.

Adverse Effects of Not Considering Part-time Partners:

Factually, surveys have shown that flexible work arrangements are sought and
considered to be more desirable for women (and some men) lawyers. If women
are not encouraged to balance their family and personal lives with their careers,
there is a far greater likelihood that they will seek other opportunities, resulting in
very expensive attrition.
In todays legal marketplace, by not considering the feasibility of part-time
partners, replacing a seasoned third-year associate will cost hundreds of
thousands of dollars in training and indoctrination. Further, firms face increasing
pressure from clients and lawyers alike to maintain a diverse workplace.
Client relationships may be adversely affected as well, particularly if the
departing lawyer has had positive experiences with the client, and a firm which
is unwilling to address a more heterogeneous work environment will likely not be
attractive to future hires ~ word gets around.
Based upon the authors experience, it is recommended that details of a parttime partnership should be in writing and made known to associates who
identify their need for such consideration on a going-forward basis. This would
clarify: expectation of and commitment to a predetermined number of both
billable and non-billable hours; and base compensation which is consistent in its
comparison to full-time partners, with the difference in required annual hours.
Also, incentivized bonus compensation similarly must be addressed but may be
more subjective in its determination.
Conclusion:
Even though partners in law firms try to instill in their associates the importance of
providing clients with high quality work product in a timely manner, at fees that
are fair to the client and the firm, during these less than profitable times at most
law firms, quality performance is no longer the single most important issue in
deciding whether to promote associates to partner status. During less than
profitable times, the firms economics, available workloads, whether the
practice area can support another partner, the extent to which the associate
can keep himself or herself busy doing profitable work and who else is a
candidate for admission to partnership next year and two or more years down
the road, all play an important role in determining who will become admitted to
partnership in a law firm.

ASSIGNMENT II
6) Define Consideration. An agreement without consideration is
void, are there any exceptions to this rule, if so explain them.

Answer:
Something of value given by both parties to a contract that induces them to
enter into the agreement to exchange mutual performances.
Consideration is an essential element for the formation of a contract. It may
consist of a promise to perform a desired act or a promise to refrain from doing
an act that one is legally entitled to do. In a bilateral contractan agreement
by which both parties exchange mutual promiseseach promise is regarded as
sufficient consideration for the other. In a unilateral contract, an agreement by
which one party makes a promise in exchange for the other's performance, the
performance is consideration for the promise, while the promise is consideration
for the performance.
Consideration must have a value that can be objectively determined. A
promise, for example, to make a gift or a promise of love or affection is not
enforceable because of the subjective nature of the promise.
Traditionally, courts have distinguished between unilateral and bilateral
contracts by determining whether one or both parties provided consideration
and at what point they provided the consideration. Bilateral contracts were said
to bind both parties the minute the parties exchanged promises, as each
promise was deemed sufficient consideration in itself. Unilateral contracts were
said to bind only the promisor and did not bind the promisee unless the
promisee accepted by performing the obligations specified in the promisor's
offer. Until the promisee performed, he or she had provided no consideration
under the law.
Modern courts have de-emphasized the distinction between unilateral and
bilateral contracts. These courts have found that an offer may be accepted
either by a promise to perform or by actual performance. An increasing number
of courts have concluded that the traditional distinction between unilateral and
bilateral contracts fails to significantly advance legal analysis in a growing
number of cases where performance is provided over an extended period of
time.
Most courts would rule that the act of beginning performance under these
circumstances converts a unilateral contract into a bilateral contract, requiring
both parties to fulfill the obligations contemplated by the contract. However,
other courts would analyze the facts of each case so as not to frustrate the

reasonable expectations of the parties. In neither of these cases are the legal
rights of the parties ultimately determined by courts by applying the concepts of
unilateral and bilateral contracts.
In still other jurisdictions, courts have simply expressed a preference for
interpreting contracts as creating bilateral obligations in all cases where no
clear evidence suggests that a unilateral contract was intended. The rule has
been stated that in case of doubt an offer will be presumed to invite the
formation of a bilateral contract by a promise to perform what the offer
requests, rather than the formation of a unilateral contract commencing at the
time of actual performance. The bottom line across most jurisdictions is that as
courts have been confronted by a growing variety of fact patterns involving
complicated contract disputes, courts have turned away from rigidly applying
the concepts of unilateral and bilateral contracts and moved towards a more
ad hoc approach.
Indian Contract Act 1872 in section 2(e) says that every promise and every set of
promises that form a consideration for each other is an agreement. Thus, it is
clear that the formation of consideration for a promise or promises is a key
ground on which a promise becomes an agreement. There cannot be an
agreement if there is no consideration. Section 25 of the act says the same thing
in precise terms and also gives three exceptions when an agreement without
consideration is a valid contract:
Section 25: An agreement without consideration is void unless,
it is in writing and registered and the promise has been made due to natural
love and affection between the parties standing in near relation to each other.
it is a promise to compensate, wholely or in part, a person who has voluntarily
done something for the promisor or something that the promisor was legally
bound to do.
it is a promise to pay for a time barred debt.
Natural Love and Affection
Rajlukhy Debi vs BhootnathMukherji- Court found no evidence of love.
Bhiwa vs Shivram - A person gave half of his property to his brother in order to be
reconciled with him. Court held that it was due to natural love and affection.
Past and Executed Consideration
An act already done can be a valid consideration. However, a past
consideration and an executed consideration must be distinguished. For
example, if A saves B from drowning and if B promises to pay A 50/-, under
English law, B is not bound by the promise because there was no promise when
the act was done. The act of saving is past consideration. On the other hand, if
A promises to pay 50/- to whoever finds his dog and if B finds and produces the

dog, A is bound to pay because the promise existed before the act. This is
called executed consideration.
However, in Indian law, it is said that a promise to compensate a person who
has voluntarily done something for the promisor is binding. Thus, if B saves A from
drowning and if A promises to pay B, then A is bound by the promise.
Further, in the case of a past service on request without any promise to pay, it is
construed that there is an implied promise to pay only the amount of payment is
not fixed. Thus, a promise to pay for a past service upon request is a valid
contract.
Value of the consideration
It is important that the consideration has some value in the eyes of law. If A
promises to B to give his Rolls Royce if B brings it from the garage, the promise is
not binding because the consideration has no value in the eyes of law.
However, if A sells his horse worth 1000/- to B for 10/-, it is a valid consideration
even if it is not adequate provided that the consent was free. Explanation 2 of
section 25 says that inadequate consideration may be considered to be against
free consent. Haigh vs Brooks - A promise to pay for returning a document,
which later on was found to be worthless, was held to be a valid because the
document was considered of some value at the time of the contract.
However, consideration need not be adequate.
De La Bere vs Pearson - A person lost money due to a financial advice given in
a newspaper. The newspaper was held liable because the consideration of
buying the newspaper was of some value even if not adequate.
Debi RadhaRaneevs Ram Dass - Forbearance to sue to sue is a valid
consideration.
Performance of existing duties
In general performance of something that one was already required to do is not
a valid consideration.
Performance of Legal Obligation
For example, a policeman is under legal obligation and performance of his
duties cannot be a valid consideration.
Performance of contractual Obligations
In the case of RamchandraChintaman vs Kalu Raju 1877, a lawyer was promised
to get 100/- more if he wins the case. The promise was held not binding because
the lawyer was already under contractual duty to do his best in the case.
However, a performance of a pre-existing contract with a third party was held a
valid consideration. In the case of Shadwell vs Shadwell, an uncle's promise to

pay his nephew if he married some girl was held valid. This was held by MP HC in
the case of Gopal Co. vs Hazarilal Co AIR 1963.
Promise to pay less than the amount due.
Section 63 of Indian Contract Act says that payment of a smaller sum in
satisfaction of a larger dept is valid if this has been done under an agreement
between the creditors and the debtors. It further gives an illustration that if A
owes B 5000 rs and if B accepts 2000Rs as a satisfaction of the whole amount at
the time and place where 5000 rs were due, the payment of 2000 rs discharges
A of his debt.
=====================================================================

7) What do you mean by capacity of party to a negotiable instrument?

Answer:
Definition of a Negotiable Instrument.
The law relating to negotiable instruments is contained in the Negotiable
Instruments Act, 1881. It is an Act to define and amend the law relating to
promissory notes, bills of exchange and cheques.
The Act does not affect the custom or local usage relating to an instrument
in oriental language i.e., a Hundi.
The term "negotiable instrument" means a document transferable from one
person to another. However the Act has not defined the term. It merely says that
"A .negotiable instrument" means a promissory note, bill of exchange or cheque
payab1e either to order or to bearer. [Section 13(1)]
A negotiable instrument may be defined as "an instrument, the. property in
which is acquired by anyone who takes it bona fide, and for value,
notwithstanding any defect of title in the person from whom he took it, from
which it follows that an instrument cannot be negotiable unless it is such and in
such a state that the true owner could transfer the contract or engagement
contained therein by simple delivery of instrument" (Willis- The Law of Negotiable
Securities, Page 6).
According to this definition the following are the conditions of
negotiability:
(i) The instrument should be freely transferable. An instrument cannot be
negotiable unless it is such and in such state that the true owner could
transfer by simple delivery or endorsement and delivery.
(ii) The person who takes it for value and in good faith is not affected by the
defect in the title of the transferor.
(iii) Such a person can sue upon the instrument in his own name.
Negotiability involves two elements namely, transferability free from equities

and transferability by delivery or endorsement.

But the Act recognizes only three types of instruments viz., ci Promissory Note,
a Bill of. Exchange and a Cheque as negotiable instruments. Howe~er, it does
not mean that other instruments are not negotiable instruments provided that
they satisfy the following conditions of negotiability:
1. The instrument should be freely transferable by the custom of trade.
Transferability may be by (i) delivery or (ii) endorsement and delivery.
2. The person who obtains it in good faith and for consideration gets it free
from
all defects and can sue upon it in his own name.
3. The holder has the right to transfer. The negotiability continues till the
maturity.
Effect of Negotiability
The general principle of law relating to transfer of property is that no one
can pass a better title than he himself has (nemodat quad non-habet). The
exceptions to this general rule arise by virtue of statute or by a custom. A
negotiable instrument is one such exception which is originally a creation of
mercantile custom.
Thus a bona fide transferee of negotiable instrument for consideration
without notice of any defect of title, acquires the instrument free on any
defect, i.e., he acquires a better title than that of the transferor.
Important Characteristics of Negotiable Instruments
Following are the important characteristics of negotiable instruments:
(1) The holder of the instrument is presumed to be the owner of the property
contained in it.
(2) They are freely transferable.
(3) A holder in due course gets the instrument free from all defects of title of
any previous holder.
(4)The holder in due course is entitled to sue on the instrument in his own
name.
(5) The instrument is transferable till maturity and in case of cheques till it
becomes stale (on the expiry of 6 months from the date of issue).
(6) Certain equal presumptions are applicable to all negotiable instruments
unless the contrary is proved.
Kinds of Negotiable Instruments
The Act recognises only three kinds of negotiable instruments under Section
13 but it does not exclude any other negotiable instrument provided the
instrument entitles a person to a sum of money and is transferable by delivery.
Instruments written in oriental languages i.e. hundis are also negotiable
instruments. These instruments are discussed below:

(i) Promissory Notes

A "promissory note" is an instrument in writing (not being a bank note or a
currency note) containing an unconditional undertaking, signed by the maker
to pay a certain sum of money to, or to the order of, a certain person, or only to
bearer of the instrument. (Section 4)
Parties to a Promissory Note:
A promissory note has the following parties:
(a) The maker: the person who makes or executes the note promising to pay
the amount stated therein.
(b) The payee: one to whom the note is payable.
(c) The holder: is either the payee or some other person to whom he may
have endorsed the note.
(d) The endorser.
(e) The endorsee.
Essentials of a Promissory Note:
To be a promissory note, an instrument must possess the following
essentials:
(a) It must be in writing. An oral promise to pay will not do.
(b) It must contain an express promise or clear undertaking to pay. A promise
to pay cannot be inferred. A mere acknowledgement of debt is not s
sufficient. If A writes to B "I owe you (I.O.U.) Rs. 500",there is no promise to
pay and the instrument is not a promissory note.
(c) The promise or undertaking to pay must be unconditional. A promise to
pay "when able", or "as soon as possible", or "after your marriage to I?", is
conditional. But a promise to pay after a specific' time or on the
happening of an event which must happen, is not conditional, e.g. "I
promise to pay Rs. 1,000 ten days after the death of B", is unconditional.
(d) The maker must sign the promissory note in token of an undertaking to
pay to the payee or his order.
(e) The maker must be a certain person, Le., the note must show clearly who
is the person engaging himself to pay.
.
(f) The payee must be certain. The promissory note must contain a promise
to pay to some person or persons ascertained by name or designation or
to their order.
(g) The sum payable must be certain and the amount must. not be capable
of contingent additions or subtractions. If A promises to pay Rs. 100 and
all other sums which shall become due to him, the instrument is not a
promissory note.
(h) Payment must be in legal money of the country. Thus, a promise to pay
Rs. 500 and deliver 10 quintals of rice is not a promissory note.
(i) It must be properly stamped in accordance with the provisions of the
Indian Stamp Act. Each stamp must be duly cancelled by maker's
signature or initials.

(j) It must contain the name of place, number and the date on which it is
Made. However, their omission will not render the instrument invalid, e.g. if
it is undated, it is deemed to be dated on the date of delivery.
Note: A promissory note cannot be made payable or issued to bearer, no
matter whether it is payable on demand or after a certain time
(Section 31 of the RBI Act).
(ii) Bills of Exchange
A "bill of exchange" is an instrument in writing containing an unconditional
order, signed by the maker, directing a certain person to pay a certain sum of
money only to or to the order of, a certain person or to the bearer of the
instrument.
The definition of a bill of exchange is very similar to that of a promissory note and
for most of the cases the rules which apply10 promissory notes are in general
applicable to bills. There are however, certain important points of distinction
between the two. Parties to bills of exchange
The following are parties to a bill of exchange:
(a) The Drawer: the person who draws the bill.
(b) The Drawee: the person on whom the bill is drawn.
(c) The Acceptor: one who accepts the bill. Generally, the drawee is the
acceptor but a stranger may accept it on behalf of the drawee.
(d) The payee: one to whom the sum stated in the bill is payable, either the
draweror any other person may be the payee.
(e) The holder: is either the original payee or any other person to whom, the
payee has endorsed the bill. In case of a bearer bill, the bearer is the holder.
(f) The endorser: when the holder endorses the bill to anyone else he becomes
the endorser.
(g) The endorsee: is the person to whom the bill is endorsed.
(h) Drawee in case of need: Besides the above parties. another person called
the "drawee in case of need", may be introduced at the option of the drawer.
The name of such a person may be inserted either by the drawer or by any
endorser in order that resort may be had to him in case of need, i.e., when the
bill is dishonoured by either non-acceptance or non-payment.
(i) Acceptor for honour: Further, any person may voluntarily become a party to
a bill as acceptor. A person, who on the refusal by the original drawee to
accept the bill or to furnish better security, when demanded by the notary,
accept the bill supra protest in order to safeguard the honour of the drawer or
any endorser, is called the acceptor for honour.
Essentials of a bill of exchange:
(1) It must be in writing.
(2) It must contain an unconditional order to pay money only and not
merely a request
(3) It must be signed by the drawer.

(4) The parties must be certain.

(5) The sum payable must also be certain.
(6) It must comply with other formalities e.g. stamps, date,etc.
=====================================================================

8: What type of documents to be produced at the time of formulation

of company? Discuss the contents of articles of Association.

Answer:
Company formation is the term for the process of incorporation of a business in
the UK. It is also sometimes referred to as company registration. These terms are
both also used when incorporating a business in the Republic of Ireland. Under
UK company law and most international law a company or corporation is
considered to be an entity that is separate from the people who own or
operate the company.
Today the majority of UK companies are formed the same day electronically.
Companies can be created by individuals, specialised agents, solicitors or
accountants. Many solicitors and accountants subcontract incorporation out to
specialised company formation agents. Most agents offer company formation
packages for less than 100. The cost of carrying out paper filing directly with
Companies House is 20. This fee does not include the cost of witnessing
documents or preparation of memorandum & articles of association for the
company which would usually be carried out by a solicitor or accountant.
Forming a company via the paper filing method can take up to 4 weeks.
Paper process:Under section 9 of the Companies Act 2006, those forming a
company must send the following documents, together with the registration fee,
to the Registrar of Companies.
Articles of Association : The Articles of Association (often referred to as just
articles) is the document which sets out the rules for the running of the
company's internal affairs. The company's articles delivered to the Registrar must
be signed by each subscriber in front of a witness who must attest the signature.
In the event that articles are not registered for the new company, model
(default) articles will be registered. These model articles can be chosen to be
adopted in the IN01 form. This new procedure was introduced by the
Companies Act 2006, Section 20.
Form IN01: This contains the intended situation of the Registered Office, (this will
be either in England and Wales, Northern Ireland, Scotland or Wales), the details
of the consenting Secretary and Director(s), details of the subscribers and, in the
case of a company limited by shares, details of the share capital. The form also

includes the Statement of Compliance that the requirements of the Companies

Act have been complied with.
Memorandum of Association: This contains the names and signatures of the
subscribers that wish to form the company and, in the case of a company
limited by shares, a commitment by the subscribers to take at least one share
each. A draft template is available on the Companies House website.
Electronic process: The electronic process can be accessed using compatible
software that works with the Companies House eFiling service and an account
with Companies House. Company formation agents have direct links into
Companies House, to look up the company name, and submit the company.
Different agents have differences in their processes caused by their website and
software implementation. Companies House have a list of company formation
agents that have passed integration testing.
Articles means the articles of association of a company as originally framed or
as altered from time to time in pursuance of any previous companies law of this
act. The articles of association are the rules and regulations of a company
framed for the purpose of internal management of its affairs. It deals with the
rights of the member of the company inter-se. The articles are framed for
carrying out the aims and object of the Memorandum of association. The
articles of association of a company are sub -ordinate to and are controlled by
the memorandum of association. Lord Cairns observed in this regard, The
memorandum is as it were the area beyond which the action of the company
cannot go; inside that area the shareholder may make such regulation for their
own government as they think fit.
It is not obligatory to register articles in the case of a public company limited by
shares. In such a case model articles contained in Table A of schedule I will
apply. However, a private company, a company limited by guaranteed and an
unlimited company must register their articles along with the memorandum.
(section26)
In the case of an unlimited company, the articles shall state the number of the
members, with which the company is to be registered, and if it has a share
capital, the amount of share capital with which it is to be registered. [section
27(1)]
In the case of a company limited by guarantee, the articles shall state the
number of members with which the company is to be registered.
In the case of a private company, articles must contain provisions which are as
given below:
(a) Restrict the right to transfer its shares;

(b) Limit the number of its member to fifty excluding past and the present
employees of the company;
(c) Prohibit any invitation to the public to subscribe for any share in or debenture
of the company.
The articles must be printed and divided into paragraph, numbered
consecutively. The articles must be signed by each subscriber of the
memorandum in the presence of at least one witness who will attest the
signature and likewise add his address, description and occupation, if any.
Contents of articles:
The articles usually contain the following matter:
1. Exclusion wholly or in part of Table A.
2. Adoption of preliminary contracts.
3. Number and value of shares.
4. Allotment of shares.
5. Calls on shares.
6. Lien on shares.
7. Transfer and Transmission of shares.
8. Forfeiture of share.
9. Alteration of capital.
10. Share certificates.
11. Conversion of share into stock.
12. Voting rights and proxies.
13. Meeting.
14. Directors their appointment etc.
15. Borrowing powers.
16. Dividends and reserves.

17. Accounts and audit.

18. Winding up.
Alteration of Articles:
Companies have wide powers to alter their articles. Any restriction on the
exercise of their powers will be invalid. Articles of association may be altered by
a company by passing a special resolution to that effect. The altered articles will
bind the members in the same way as did the original articles. The company
must file with the registrar a copy of the special resolution within one month from
the date of its passing.
Limitations:
The right of alteration of articles is subject to the following conditions:
1. The alteration must not be inconsistent with or go beyond the provisions of the
memorandum.
2. The alteration must not provide for anything which is opposed to the
provisions of the act; for example, articles cannot authorize a company to
purchase its own shares.
3. The alteration of articles must be made in good faith for the benefit of the
company as a whole.
4. The alteration of articles must not constitute a fraud on minority.
5. No member of a company will be bound by any alteration made in the
memorandum or the articles after he become a member which requires him to
take or subscribe for more shares or in any way increases his liability to
contribute to the share capital of or otherwise to pay money to the company,
unless he agrees in writing before or after the alteration is made.
6. No alteration can be made in the articles which has the effect of converting
the public company into a private company unless such alteration has been
approved by the central government.
7. An alteration in the articles which causes a breach of contract with an
outsider will be inoperative.
8. The alteration must not sanction anything which is illegal.

9) Define Promissory note. What are its essential elements?

Answer:
A written, signed, unconditional promise to pay a certain amount of money on
demand at a specified time. A written promise to pay money that is often used
as a means to borrow funds or take out a loan.
The individual who promises to pay is the maker, and the person to whom
payment is promised is called the payee or holder. If signed by the maker, a
promissory note is a negotiable instrument. It contains an unconditional promise
to pay a certain sum to the order of a specifically named person or to bearer
that is, to any individual presenting the note. A promissory note can be either
payable on demand or at a specific time.
Certain types of promissory notes, such as corporate bonds or retail installment
loans, can be sold at a discountan amount below their face value. The notes
can be subsequently redeemed on the date of maturity for the entire face
amount or prior to the due date for an amount less than the face value. The
purchaser of a discounted promissory note often receives interest in addition to
the appreciated difference in the price when the note is held to maturity.
Like most agreements, promissory notes can be tailored to meet your needs.
There are, however, certain essential elements of a promissory note. Be careful if
youre signing (or offering) a promissory note that doesnt meet the following
requirements.
Writing: Promissory notes must be in writing. There is no such thing as a verbal
promissory note. Someone may promise to repay you, but it will be difficult to
prove, and you may not be able to get it enforced in court without a written
record.
For Money : A promissory note is valid only if it is a promise to pay money. A
promise to give property(or both property and money) is not a promissory note.
Payable on Demand or on Specific Date. Many differences among promissory
notes relate to when and how the borrowed amount will be repaid. Although
you are free to negotiate terms that work for your arrangement, your note must
either have an end date or be payable when the lender demands it.
Unconditional: The borrowers payment cannot depend on an event or any
other possibility. It must be unconditional. This means once its written and
signed, the only thing left to happen is repayment. If payment may or may not
happen, the promissory note is not valid.

Specific Amount: The note must indicate a specific amount owed that will be
paid. If the document indicates the payment will be of $10,000 and other
amounts owed, the promissory note is not valid. This does not apply to interest
that may be required by the note. A note that doesnt state exactly how much
interest will be paid over time (i.e., has just an interest rate and not a dollar
amount) it is still valid.
Transferable: A promissory note must state that its either payable to order or
payable to bearer. These phrases mean the amount owed by the borrower
could be payable to some unknown third party in the future. In other words, the
note is transferrable from one person to another.
Signature: The individual that owes the money must sign the note. The lender
may (but doesnt have to) sign it.
=====================================================================

10) How is the contract of sale made? State briefly the necessary
formalities of such a contract with illustration.

Answer:
(1) A contract of sale is made by an offer to buy or sell goods for a price and the
acceptance of such offer. The contract may provide for the immediate delivery
of the goods or immediate payment of the price or both, or for the delivery or
payment by installments, or that the delivery or payment or both shall be
postponed.
(2) Subject to the provisions of any law for the time being in force, a contract of
sale may be made in writing or by word of mouth, or partly in writing and partly
by word of mouth or may be implied from the conduct of the parties.
Similar to a legal contract in that it addresses every aspect of the sale in the
event there are disputes. The buyer and seller should be clearly identified; the
goods or services being sold should be as detailed as possible including product
numbers or specific descriptions of what will be delivered to the buyer; payment
schedule; dates of delivery; shipment method; warranties, expected service
dates and maintenance requirements; replacement and repair policies and
documentation to be included with the goods.
The requisites for formation of a legal contract are an offer, an acceptance,
competent parties who have the legal capacity to contract, lawful subject
matter, mutuality of agreement, consideration, mutuality of obligation, and, if
required under the Statute of Frauds, a writing.

Offer An offer is a promise that is, by its terms, conditional upon an act,
forbearance, or return promise being given in exchange for the promise or its
performance. It is a demonstration of willingness to enter into a bargain, made
so that another party is justified in understanding that his or her assent to the
bargain is invited and will conclude it. Any offer must consist of a statement of
present intent to enter a contract; a definite proposal that is certain in its terms;
and communication of the offer to the identified, prospective offeree. If any of
these elements are missing, there is no offer to form the basis of a contract.
Preliminary negotiations, advertisements, invitations to bid Preliminary
negotiations are clearly distinguished from offers because they contain no
demonstration of present intent to form contractual relations. No contract is
formed when prospective purchasers respond to such terms, as they are merely
invitations or requests for an offer. Unless this interpretation is employed, any
person in a position similar to a seller who advertises goods in any medium would
be liable for numerous contracts when there is usually a limited quantity of
merchandise for sale.An advertisement, price quotation, or catalogue is
customarily viewed as only an invitation to a customer to make an offer and not
as an offer itself. The courts reason that an establishment might not have
sufficient stock to satisfy potential demand and that it would not be reasonable
for a customer to expect to form a binding contract by responding to
advertisements that are intended to make consumers aware of a product for
sale. In addition, the courts have held that an advertisement is an offer for a
unilateral contract that can be revoked at the will of the offeror, the business
enterprise, prior to performance of its terms.
An exception exists, however, to the general rule on advertisements. When the
quantity offered for sale is specified and contains words of promise, such as "first
come, first served," courts enforce the contract where the store refuses to sell
the product when the price is tendered. Where the offer is clear, definite, and
explicit, and no matters remain open for negotiation, acceptance of it
completes the contract. New conditions may not be imposed on the offer after
it has been accepted by the performance of its terms.
An advertisement or request for bids for the sale of particular property or the
erection or construction of a particular structure is merely an invitation for offers
that cannot be accepted by any particular bid. A submitted bid is, however, an
offer, which upon acceptance by the offeree becomes a valid contract.
Mistake in sending offer If an intermediary, such as a telegraph company, errs in
the transmission of an offer, most courts hold that the party who selected that
method of communication is bound by the terms of the erroneous message. The
same rule applies to acceptances. In reaching this result, courts regard the
telegraph company as the agent of the party who selected it. Other courts
justify the rule on business convenience. A few courts rule that if there is an error
in transmission, there is no contract, on the grounds that either the telegraph

company is an Independent Contractor and not the sender's agent, or there

has been no meeting of the minds of the parties. However, an offeree who
knows, or should know, of the mistake in the transmission of an offer may not
take advantage of the known mistake by accepting the offer; he or she will be
bound by the original terms of the offer.
Termination of an offer An offer remains open until the expiration of its specified
time period or, if there is no time limit, until a reasonable time has elapsed. A
reasonable time is determined according to what a reasonable person would
consider sufficient time to accept the offer.
The death or insanity of either party, before an acceptance is communicated,
causes an offer to expire. If the offer has been accepted, the contract is
binding, even if one of the parties dies thereafter. The destruction of the subject
matter of the contract; conditions that render the contract impossible to
perform; or the supervening illegality of the proposed contract results in the
termination of the offer.
When the offeror, either verbally or by conduct, clearly demonstrates that the
offer is no longer open, the offer is considered revoked when learned by the
offeree. Where an offer is made to the general public, it can be revoked by
furnishing public notice of its termination in the same way in which the offer was
publicized.
Irrevocable offers An option is a right that is purchased by a person in order to
have an offer remain open at agreed-upon price and terms, for a specified
time, during which it is irrevocable. It constitutes an exception to the general rule
that an offer may be withdrawn prior to acceptance. The offeror may not
withdraw this offer because that party is bound by the consideration given by
the offeree. The offeree is free, however, to decide whether or not to accept
the offer.
Most courts hold that an offer for a unilateral contract becomes irrevocable as
soon as the offeree starts to perform the requested act, because that action
serves as consideration to prevent revocation of the offer. Where it is doubtful
whether the offer invites an act (as in the case of a unilateral contract) or a
promise (as in the case of a bilateral contract), the presumption is in favor of a
promise, and therefore a bilateral contract arises. If an offer to form a unilateral
contract requires several acts, it is interpreted as inviting acceptance by
completion of the initial act. Performance of the balance constitutes a
condition to the offeror's duty of performance. Where such an offer invites only a
single act, it includes by implication a subsidiary promise to keep the offer open
if the offeree will commence performance. Some courts hold that an offer for a
unilateral contract may be revoked at any time prior to completion of the act
bargained for, even after the offeree has partially performed it.Rejection of an
offer An offer is rejected when the offeror is justified in understanding from the

words or conduct of the offeree that he or she intends not to accept the offer,
or to take it under further advisement. Rejection might come in the form of an
express refusal to accept an offer by a counteroffer, which is a new proposal
that rejects the offer by implication; or by a conditional acceptance that
operates as a counteroffer. The offer may continue, however, if the offeree
expressly states that the counteroffer shall not constitute a rejection of the offer.
If an offer is rejected, the party who made the original offer no longer has any
liability for that offer. The party who rejected the offer may not subsequently, at
his or her own option, convert the same offer into a contract by a subsequent
acceptance. In such a case, the consent of the offeror must be obtained for a
contract to be formed.
Acceptance Acceptance of an offer is an expression of assent to its terms. It
must be made by the offeree in a manner requested or authorized by the
offeror. An acceptance is valid only if the offeree knows of the offer; the offeree
manifests an intention to accept; the acceptance is unequivocal and
unconditional; and the acceptance is manifested according to the terms of the
offer.
The determination of a valid acceptance is governed by whether a promise or
an act by the offeree was the bargained-for response. Since the acceptance of
a unilateral contract requires an act rather than a promise, it is unnecessary to
furnish notice of intended performance unless the offeror requested it. If,
however, the offeree has reason to believe that the offeror will not learn of the
acceptance with reasonable promptness, the duty of the offeror is discharged
unless the offeree makes a reasonable attempt to give notice; the offeror learns
of the performance; or the offer indicates that no notice is required.
In bilateral contracts, the offer is effective when the offeree receives it. The
offeree may accept it until the offeree receives notice of revocation from the
offeror. Thereafter, an offer is revoked. Under the majority rule, which is known as
the "mailbox rule," an acceptance is effective upon dispatch if the offeror
explicitly authorizes that method of acceptance to be employed by the
offeree, even if the acceptance is lost or destroyed in transit.
The majority rule is inapplicable, however, unless the acceptance is properly
addressed and postage prepaid. It has no application to most option contracts,
as acceptance of an option contract is effective only when received by the
offeror.
If the acceptance mode used by the offeree is implicitly authorized by
offeror, such as the selection by the offeree of the same method used by
offeror, who neglected to designate a method of communication,
acceptance is effective upon dispatch if it is correctly addressed and

the
the
an
the

expense of its conveyance is prepaid. As with expressly authorized methods, the

acceptance need not ever reach the offeror in order to form the contract.
In some jurisdictions, the use of a method not expressly or impliedly authorized
by the offeror, even if more rapid in nature, results in a contract only upon
receipt of the acceptance. In most jurisdictions, however, if the acceptance
mode is inherently faster, it is deemed to be an impliedly authorized means, and
acceptance is effective upon dispatch.
If the acceptance is transmitted by an expressly or impliedly authorized method
to the wrong address, it is effective only upon receipt by the offeror. A wrong
address is any address other than that implicitly authorized, even if the offeror
were in a position to receive the acceptance at the substituted address.
An offeror who specifically states that there is no contract until the acceptance
is received is entitled to insist upon the condition of receipt or upon any other
provision concerning the manner and time of acceptance specified.
Rejection of the offer or revocation of conditional acceptance is effective upon
receipt. A late or defective acceptance is treated as a counteroffer, which will
not result in a contract unless the offeror accepts it. If offers cross in the mail,
there will be no binding contract, as an offer may not be accepted if there is no
knowledge of it.
As a general rule, an offer may be accepted only by the offeree or an
authorized agent. If, however, the offer is contained in an option contract, it
may be the subject of an assignment or transfer without the consent of the
offeror, unless the option involves a purchase on credit or expressly prohibits an
assignment.
In contracts that do not involve the sale of goods, acceptance must comply
exactly with the requirements of the offer (this is known as the "mirror-image
rule"), and must omit nothing from the promise or performance requested. An
offer of a prize in a contest, for example, becomes a binding contract when a
contestant successfully complies with the terms of the offer. If a response to an
offer purports to accept it, but adds qualifications or conditions, then it is a
counteroffer and not an acceptance.
Acceptance may be inferred from the offeree's acts, conduct, or silence; but as
a general rule, silence, without more, can never constitute acceptance. The
effect of silence accompanied by Ambiguity must be ascertained from all the
circumstances in the case.
Prior dealings between the parties may create a duty to act. Silence or the
failure to take some action under such circumstances might constitute
acceptance. For example, if the parties have engaged in a series of business

transactions involving the mailing of goods and payment by the recipient, the
recipient will not be permitted to retain an article without paying for it within a
reasonable time, due to their prior dealings. A recipient who does not intend to
accept the goods is under a duty to inform the sender. Silence, where there is a
duty to speak, prevents the offeree from rejecting an offer and the offeror from
claiming that there is no acceptance. If ownership rights are exercised over an
item, this might be deemed an acceptance.
Unsolicited goods At Common Law, the recipient of unsolicited goods in the
mail was not required to accept or to return them, but if the goods were used, a
contract and a concomitant obligation to pay for them were created. Today, in
order to offer protection against unwanted solicitations, some state statutes
have modified the common-law rule by providing that where unsolicited
merchandise is received as part of an offer to sell, the goods are an out-right
gift. The recipient may use the goods and is under no duty to return or pay for
them unless he or she knows that they were sent by mistake.
Agreements to agree An "agreement to agree" is not a contract. This type of
agreement is frequently employed in industries that require long-term contracts
in order to ensure a constant source of supplies and outlet of production. Mutual
manifestations of assent that are, in themselves, sufficient to form a binding
contract are not deprived of operative effect by the mere fact that the parties
agree to prepare a written reproduction of their agreement. In determining
whether, on a given set of facts, there is merely an "agreement to agree" or a
sufficiently binding contract, the courts apply certain rules. If the parties express
their intentioneither to be bound or not bound until a written document is
preparedthen that intention controls. If they have not expressed their
intention, but they exchange promises of a definite performance and agree
upon all essential terms, then the parties have formed a contract even though
the written document is never signed. If the expressions of intention are
incompleteas, for example, if a material term such as quantity has been left to
further negotiationthe parties do not have a contract. The designation of the
material term for further negotiation is interpreted as demonstrating the intention
of the parties not to be bound until a complete agreement has been reached.
Competent Parties A natural person who agrees to a transaction has complete
legal capacity to become liable for duties under the contract unless he or she is
an infant, insane, or intoxicated.
Infants An infant is defined as a person under the age of 18 or 21, depending on
the particular jurisdiction. A contract made by an infant is voidable but is valid
and enforceable until or unless he or she disaffirms it. He or she may avoid the
legal duty to perform the terms of the contract without any liability for breach of
contract. Infants are treated in such a way because public policy deems it
desirable to protect the immature and naive infant from liability for unfair

contracts that he or she is too inexperienced to negotiate on equal terms with

the other party.
Once an infant attains majority (i.e., the age at which a person is no longer
legally considered an infant), he or she must choose either to disaffirm or avoid
the contract, or to ratify or accept it. After reaching the age of majority, a
person implicitly ratifies and becomes bound to perform the contract if he or she
fails to disaffirm it within a reasonable time, which is determined by the
circumstances of the particular case. A person who disaffirms a contract must
return any benefits or consideration received under it that he or she still
possesses. If such benefits have been squandered or destroyed, the person
usually has no legal obligation to recompense the other party. The law imposes
liability on the infant in certain cases, however. Although the contract of an
infant or other person may be voidable, the person still may be liable in quasicontract in order to prevent Unjust Enrichment for the reasonable value of
goods or services furnished if they are necessaries that are reasonably required
for the person's health, comfort, or education.
The majority of courts hold that an infant who willfully misrepresents his or her
age may, nevertheless, exercise the power to avoid the contract. As a general
rule, however, the infant must place the adult party in the status quo ante (i.e.,
his or her position prior to the contract). The jurisdictions are in disagreement in
regard to whether an infant is liable in tort (i.e., a civil wrong other than breach
of contract) for willful misrepresentation of his or her age. This divergence arises
from the rule that a tort action may not be maintained against an infant if it
essentially entails the enforcement of a contract. Some courts regard the action
for fraud that would be commenced against the infant as being based on the
contract. Others rule that the tort is sufficiently independent of the contract so
that the granting of relief would not involve indirect enforcement of the
contract. The other party, however, is able to avoid a contract entered into on
the basis of an infant's fraudulent Misrepresentation with respect to age or other
material facts because he or she is the innocent victim of the infant's fraud.
Mental incapacity When a party does not comprehend the nature and
consequences of the contract when it is formed, he or she is regarded as having
mental incapacity. A distinction must be drawn between those persons who
have been adjudicated incompetent by a court and have had a guardian
appointed, and those mentally incompetent persons who have not been so
adjudicated. A person who has been declared incompetent in a court
proceeding lacks the legal capacity to enter into a contract with another. Such
a person is unable to consent to the contract, as the court has determined that
he or she does not understand the obligations and effects of the contract. A
contract made by such a person is void and without any legal effect. Neither
party may be legally compelled to perform or comply with the terms of the
contract. If there has been no adjudication of insanity, a contract made by a
mentally incapacitated individual is voidable by him or her.

Many contract principles that apply to minors also apply to insane persons.
There is an obligation to recompense the injured party where a voidable
contract is avoided, and to pay for necessaries based upon quasi-contract for
the reasonable value of the goods or services. The incompetent, a guardian, or
a Personal Representative after death may avoid the contract. The
incompetent may ratify a voidable contract only if they recover the capacity to
contract. The right to avoid the contract belongs to the incompetent; the other
party may not avoid the contractual obligation. A contract that is ordinarily
voidable may not be set aside when it is inherently fair to both parties and has
been executed to such an extent that the other party cannot be restored to the
position that they occupied prior to the contract.
Intoxicated persons A contract made by an intoxicated person is voidable.
When a person is inebriated at the time of entering into a contract with another
and subsequently becomes sober and either promises to perform the contract
or fails to disaffirm it within a reasonable time after becoming sober, then that
person has ratified his or her voidable contract and is legally bound to perform.
Subject Matter Any undertaking may be the subject of a contract, provided
that it is not proscribed by law. When a contract is formed in restraint of trade,
courts will not enforce it, because it imposes an illegal and unreasonable
burden on commerce by hindering competition. Contracts that provide for the
commission of a crime or any illegal objective are also void.
Future rights and liabilitiesperforming or refraining from some designated act,
or assuming particular risks or obligationsmay constitute the basis of a
contract. An idea that never assumes concrete form at the time of disclosure,
such as a concept for a short story, even though new and unusual, may not,
however, be the subject of a contract.
A person may not legally contract concerning a right that he or she does not
have. A seller of a home who does not possess clear title to the property may
not promise to convey it without encumbrances. Neither may a seller promise
that property will not be appropriated by Eminent Domain, which is an inherent
power of government that is not subject to restrictions imposed by individuals.
Mutual Agreement There must be an agreement between the parties, or mutual
assent, for a contract to be formed. In order for an agreement to exist, the
parties must have a common intention or a meeting of minds on the terms of
the contract and must subscribe to the same bargain. Aside from certain
statutory exceptions pertaining to the sale of goods, as prescribed by Article 2 of
the Uniform Commercial Code (UCC), if any of the proposed terms is not settled,
or if no method of settlement is provided, then there is no agreement. The
parties may settle one term at a time, but their contract becomes complete
only when they assent to the final term. An agreement is binding if the parties

concur with respect to the essential terms and intend the agreement to be
binding, even though all of the details are not definitely fixed. The quantity of
goods are usually essential terms of the contract that must be agreed upon if
the contract is to be enforced. Exceptions to the rule requiring the terms of an
agreement to be definite and certain are contained in article 2 of the UCC,
which permits the courts to imply reasonably the missing terms if the essential
terms unambiguously demonstrate the mutual agreement of the parties.
Consideration Consideration is a legal detriment that is suffered by the promisee
and that is requested by the promisor in exchange for his or her promise. A valid
contract requires some exchange of consideration. As a general rule, in a
bilateral contract, one promise is valid consideration for the other. In a unilateral
contract, the agreed performance by the offeree furnishes the necessary
consideration and also operates as an acceptance of the offer.
Consideration may consist of a promise; an act other than a promise; a
forbearance from suing on a claim that is the subject of an honest and
reasonable dispute; or the creation, modification, or destruction of a legal
relationship. It signifies that the promisee will relinquish some legal right in the
present, or that he or she will restrict his or her legal freedom of action in the
future as an inducement for the promise of the other party. It is not substantially
concerned with the benefit that accrues to the promisor.
Love and affection are not permissible forms of consideration. A promise to
make a gift contains no consideration because it does not entail a legal benefit
received by the promisor or a legal detriment suffered by the promisee.
Because a promise to give a gift is freely made by the promisor, who is not
subject to any legal duty to do so, the promise is not enforceable unless there is
Promissory Estoppel. Promissory estoppel is a doctrine by which a court enforces
a promise that the promisor reasonably expects will induce action or
forbearance on the part of a promisee, who justifiably relied on the promise and
suffered a substantial detriment as a result. Where a court enforces a promise by
applying this doctrine, promissory estoppel serves as a substitute for the required
consideration.
At common law, courts refused to inquire into the adequacy or fairness of a
bargain, finding that the payment of some price constituted legally sufficient
consideration. If one is seeking to prove mistake, misrepresentation, fraud, or
duressor to assert a similar defensethe inadequacy of the price paid for the
promise might represent significant evidence for such defenses, but the law
does not require adequacy of consideration in order to find an enforceable
contract.
Mutuality of Obligation Where promises constitute the consideration in a
bilateral contract, they must be mutually binding. This concept is known as
mutuality of obligation. If one party's promise does not actually bind him or hers

to some performance or forbearance, it is an illusory promise, and there is no

enforceable contract.
Where the contract provides one party with the right to cancel, there might be
no consideration because of lack of mutuality of obligation. If there is an
absolute and unlimited right to cancel the obligation, the promise by the party
with the right of cancellation is illusory, and the lack of consideration means that
there is no contract. If the power to cancel the contract is restricted in any
manner, the contract is usually considered to be binding. Performance of a void
promise in a defective bilateral contract may render the other promise legally
binding, however. For example, in virtually all states, an oral contract to transfer
title to land is not merely unenforceable, it is absolutely void. (See discussion of
the statute of frauds, below.) A seller who orally promises to transfer land to a
purchaser, for which the purchaser orally promises a designated sum, may sue
the purchaser for the price if the purchaser receives title to the land from the
seller. The purchaser is not relieved of his or her promise to pay, because of the
performance of the void oral promise by the seller.
A promise to perform an act that one is legally bound to do does not qualify as
consideration for another promise.
Past consideration consists of actions that occurred prior to the making of the
contractual promise, without any purpose of inducing a promise in exchange. It
is not valid, because it is not furnished as the bargained-for exchange of the
present promise. There are exceptions to this rule, such as a present promise to
pay a debt that has been discharged in Bankruptcy, which constitutes valid
consideration because it renews a former promise to pay a debt that was
supported by consideration.
Most states do not recognize moral obligation as consideration, as there is no
acceptable method of setting the parameters of moral duty. Some courts will
enforce a moral obligation where there has been a benefit conferred on the
promisor.
Statute of Frauds The statute of frauds was enacted by the English Parliament in
1677 and has since been the law in both England and in the United States in
varying forms. It requires that certain types of contracts be in writing. The
principal characteristic of various state laws modeled after the original statute is
the provision that no suit or action shall be maintained on a contract unless
there is a note or memorandum of its subject matter, terms and conditions, and
the identity of the parties, signed by the party to be charged or obligated under
it or an authorized agent. The purpose of the statute is to prevent the proof of a
nonexistent agreement through fraud or perjury in actions for breach of an
alleged contract.