ASSIGNMENT

LEGAL ASPECTS OF BUSINESS

1.”All agreements are not contracts but all contracts are agreements.” Discuss the statement
explaining the essential elements of a valid contract.

Answer:- It is a valid and true statement. Before we can critically examine the statement, it is
necessary to understand the meaning of agreement and contract.

A contract is a legally binding agreement or relationship that exists between two or more parties to
do or abstain from performing certain acts. A contract can also be defined as a legally binding
exchange of promises between two or more parties that the law will enforce. For a contract to be
formed an offer made must backed acceptance of which there must be consideration. Both parties
involved must intend to create legal relation on a lawful matter which must be entered into freely
and should be possible to perform.

An agreement is a form of cross reference between different parties, which may be written, oral and
lies upon the honor of the parties for its fulfillment rather than being in any way enforceable.
All contracts are agreement because there must be mutual understanding between two parties for a
contract to be formed. All parties should agree and adhere to the terms and conditions of an offer.
The following cases illustrate ways in which all contracts are agreements;
In the case of invitation to treat, where an invitation to treat is merely an invitation to make an offer.
When a firm's offer is accepted it results into a contract provided other elements of contracts are
accepted.

Considering person A buying a radio on hire purchase from person B who deals with electronics and
its appliances. Both parties must come to an agreement on payment of monthly installment within
specified period of time. Such an agreement result to specialty contract which a contract under seal.
Agreement. Every promise and every set of promises, forming the consideration for each other, is an
agreement."
Thus it is clear from this definition that a 'promise' is an agreement. What is a 'promise'? The answer
to this question is which defines the term." When the person to whom the proposal is made
signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted,
becomes a promise."

An agreement, therefore, comes into existence only when one party makes a proposal or offer to
the other party and that other party signifies his assent (i.e., gives his acceptance) thereto. In short,
an agreement is the sum total of 'offer' and 'acceptance'.

On analyzing the above definition the following characteristics of an agreement become evident:

(a) At least two persons:-

There must be two or more persons to make an agreement because one person cannot inter into an
agreement with himself.

(b) Consensus-ad-idem:-
Both the parties to an agreement must agree about the subject matter of the agreement in the
same sense and at the same time.

Legal obligation:-
As stated above, an agreement to become a contract must give rise to a legal obligation i.e., a duty
enforceable by law. If an agreement is incapable of creating a duty enforceable by law. It is not a
contract. Thus an agreement is a wider term than a contract. “All agreements are not contracts but
all contracts are agreements."

Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend's house
or to take a walk together are not contracts because they are not likely to create a duty enforceable
by law for the simple reason that the parties never intended that they should be attended by legal
consequences

Essential Elements of a Valid Contract

A contract has been defined as "an agreement enforceable by law." To be enforceable by law, an
agreement must possess the essential elements of a valid contract. According all agreements are
contracts if they are made by the free consent of the parties, competent to contract, for a lawful
consideration, with a lawful object, are not expressly declared by the Act to be void, and where
necessary, satisfy the requirements of any law as to writing or attention or registration.
The essential elements of a valid contract are as follows.

1. Offer and acceptance.:-

There must a 'lawful offer' and a 'lawful acceptance' of the offer, thus resulting in an agreement. The
adjective 'lawful' implies that the offer and acceptance must satisfy the requirements of the contract
act in relation thereto.

2. Intention to create legal relations:-

There must be an intention among the parties that the agreement should be attached by legal
consequences and create legal obligations.
Agreements of a social or domestic nature do not contemplate legal relations, and as such they do
not give rise to a contract. An agreement to dine at a friend's house in not an agreement intended to
create legal relations and therefore is not a contract. Agreements between husband and wife also
lack the intention to create legal relationship and thus do not result in contracts.

3. Lawful consideration:-

The third essential element of a valid contract is the presence of 'consideration'. Consideration has
been defined as the price paid by one party for the promise of the other. An agreement is legally
enforceable only when each of the parties to it gives something and gets something. The something
given or obtained is the price for the promise and is called 'consideration' subject to certain
exceptions; gratuitous promises are not enforceable at law.

The 'consideration' may be an act (doing something) or forbearance (not doing something) or a
promise to do or not to do something. It may be past, present or future. But only those
considerations are valid which are 'lawful'. The consideration is 'lawful'. unless it is forbidden by law;
or is of such a nature that, if permitted it would defeat The provisions of any law; or is fraudulent; or
involves or implies injury to the person or property of another; or is immoral; or is opposed to public
policy

4. Capacity of parties:-
The parties to an agreement must be competent to contract. But the question that arises now is that
what parties are competent and what are not. The contracting parties must be of the age of majority
and of sound mind and must not be disqualified by any law to which they are subject. If any of the
parties to the agreement suffers from minority, lunacy, idiocy, drunkenness etc. The agreement is
not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a
minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate.

Free consent:-
Free consent of all the parties to an agreement is another essential element. This concept has two
aspects.
(1) Consent should be made and
(2) it should be free of any pressure or misunderstanding. 'Consent' means that the parties must
have agreed upon the same thing in the same sense

5. Lawful object:-

For the formation of a valid contract it is also necessary that the parties to an agreement must agree
for a lawful object. The object for which the agreement has been entered into ------must not be
fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or
the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly
lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of
law or a contract for committing a murder is a void contract and unenforceable by law.

6. Certainty:-

Section 29 of the contract Act provides that “Agreements, the meaning of which is not certain or
capable of being made certain, are void." In order to give rise to a valid contract the terms of the
agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the
agreement, for otherwise, it cannot be enforced.

Illustration. A, agrees to sell B “a hundred ton of oil" there is nothing whatever to show what kind of
oil was intended. The agreement is void for uncertainly. "An agreement to do an act impossible in
itself is void". If the act is impossible in itself, physically or legally, the agreement cannot be enforced
at law. Illustration. A agrees with B, to discover treasure by magic. The agreement is not enforceable.

It would be clear from what has been said so far that an agreement has a much wider scope than a
contract. An Agreement implies fulfilling some agreed condition. It does not necessarily imply that
the stipulated conditions conform to the law and are enforceable by it. It may be said that an
agreement is the genus of which contract is the species. It also makes it clear that all agreements are
not contracts but all contracts are agreements.

2.What is an “offer”? When is it complete? State the rules of a valid offer.

Answer:-

Proposal or Offer

According to the Indian Contract Act 1872, proposal is defined in Section 2 (a) as “when one person
will signify to another person his willingness to do or not do something (abstain) with a view to
obtain the assent of such person to such an act or abstinence, he is said to make a proposal or an
offer.”

An offer and its acceptance, to be valid must be communicated to the other party. The
communication of an offer is complete when it comes to the knowledge of the person to whom it is
made. When an offer is made by post, its communication will be complete when the offeree receives
the letter.

Let us look at some features or essentials of such an offer

The person making the offer/proposal is known as the “promisor” or the “offeror”. And the person
who may accept such an offer will be the “promisee” or the “acceptor”.
The offeror will have to express his willingness to do or abstain from doing an act. Only willingness is
not enough. Or simply a desire to do/not do something will not constitute an offer.
An offer can be positive or negative. It can be a promise to do some act, and can also be a promise
to abstain (not do) some act/service. Both are valid offers.

Classification of Offer
There can be many types of offers based on their nature, timing, intention, etc. Let us take a look at
the classifications of offers.

General Offer
A general offer is one that is made to the public at large. It is not made any specified parties. So any
member of the public can accept the offer and be entitled to the rewards/consideration. Say for
example you put out a reward for solving a puzzle. So if any member of the public can accept the
offer and be entitled to the reward if he finishes the act (solves the puzzle.)

Specific Offer
A specific offer, on the other hand, is only made to specific parties, and so only they can accept the
said offer or proposal. They are also sometimes known as special offers. Like for example, A offers to
sell his horse to B for Rs 5000/-. Then only B can accept such an offer because it is specific to him.

Cross Offer
In certain circumstances, two parties can make a cross offer. This means both make an identical
offer to each other at the exact same time. However, such a cross offer will not amount to
acceptance of the offer in either case.

For example, both A and B send letters to each other offering to sell and buy A’s horse for Rs 5000/-.
This is a cross offer, but it will be considered as acceptable for either of them.

Counter Offer
There may be times when a promise will only accept parts of an offer, and change certain terms of
the offer. This will be a qualified acceptance. He will want changes or modifications in the terms of
the original offer. This is known as a counteroffer. A counteroffer amounts to a rejection of the
original offer.

Rules of a Valid Offer

Here are some of the few essentials that make the offer valid.

1] Offer must create Legal Relations

The offer must lead to a contract that creates legal relations and legal consequences in case of non-
performance. So a social contract which does not create legal relations will not be a valid offer. Say
for example a dinner invitation extended by A to B is not a valid offer.

2] Offer must be Clear, not Vague

The terms of the offer or proposal should be very clear and definite. If the terms are vague or
unclear, it will not amount to a valid offer. Take for example the following offer – A offers to sell B
fruits worth Rs 5000/-. This is not a valid offer since what kinds of fruits or their specific quantities
are not mentioned.

3] Offer must be Communicated to the Offeree

For a proposal to be completed it must be clearly communicated to the offeree. No offeree can
accept the proposal without knowledge of the offer. The famous case study regarding this is Lalman
Shukla v. Gauri Dutt. It makes clear that acceptance in ignorance of the proposal does not amount to
acceptance.

4] Offer may be Conditional

While acceptance cannot be conditional, an offer might be conditional. The offeror can make the
offer subject to any terms or conditions he deems necessary. So A can offer to sell goods to B if he
makes half the payment in advance. Now B can accept these conditions or make a counteroffer.

5] Offer cannot contain a Negative Condition

The non-compliance of any terms of the offer cannot lead to automatic acceptance of the offer.
Hence it cannot say that if acceptance is not communicated by a certain time it will be considered as
accepted. Example: A offers to sell his cow to B for 5000/-. If the offer is not rejected by Monday it
will be considered as accepted. This is not a valid offer.

6] Offer can be Specific or General

As we saw earlier the offer can be to one or more specific parties. Or the offer could be to the public
in general.

7] Offer may be Expressed or Implied

The offeror can make an offer through words or even by his conduct. An offer which is made via
words, whether such words are written or spoken (oral contract) we call it an express contract. And
when an offer is made through the conduct and the actions of the offeror it is an implied contract.

3. Attempt the following problems, giving reasons:-

A] Over a cup of coffee in a restaurant, A invites B to a dinner at his house on a Sunday.

B hires a taxi and reaches A’s house at the appointed time, but A fails to perform his promise.
Can B recover any damages from A?

Answer:- No, B cannot recover the damages from A as both the parties share a social relationship
and there is no intention to create a legal relationship. So, it was just an agreement which is not
enforceable at law.
B] M mows L’s lawn without being asked by L to do so.
L watches M do the work but does not attempt to stop him.
Is L bound to pay any charges to M?

Answer:- Yes, L is bound to pay the remuneration as he didn’t stop him from mowing the ground so
his implied silence is equivalent to speech here.

C} P applied for the principal’s post of a local college, and the Governing Body passed a resolution
appointing him.
After the meeting, a member of the Governing Body privately informed him of the resolution.
The resolution was subsequently rescinded. P claims damages. Will he succeed?

Answer:- No, P cannot succeed in claiming damages because as there was no formal communication
done between P and the Governing Body.