Page 7 - DCOM404_CORPORATE_LEGAL_FRAMEWORK
P. 7

Corporate Legal Framework




                    Notes          Objectives

                                   After studying this unit, you will be able to:

                                        Discuss the meaning of contract and essential of valid contract
                                        Explain the consent and mistake of law
                                        Describe consideration and rules regarding consideration

                                        Discuss the breach of contract
                                   Introduction


                                   As you all know that we enter into contracts every day. Some of these are made consciously, for
                                   example, purchase or sale of a share of a company or a plot of land. Sometimes we do not even
                                   realise that we are making a contract, e.g., hiring a taxi, buying a book, etc. In any case, a contract,
                                   howsoever made, confers legal rights on one party and subjects the other party to some legal
                                   obligation. In the case of people engaged in business, they carry on business by entering into
                                   contracts. Thus, the business executives, corporate counsels, entrepreneurs, and professionals
                                   in different fields deal frequently with contracts. At times, they have to draft one such contract

                                   or scrutinize it or provide inputs to its making or even interpret it. Therefore, it is necessary for
                                   them to know what constitutes a contract. The law relating to contracts is contained in the Indian
                                   Contract Act, 1872. For business executives, contract law is tremendously signifi cant because it
                                   underlies or is related to all major areas of law affecting business.

                                   1.1 Contracts

                                   A contract is an agreement, enforceable by law, made between at least two parties by which
                                   rights are acquired by one and obligations are created on the part of another. If the party, which
                                   had agreed to do something, fails to do that, then the other party has a remedy.


                                          Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to
                                   Bangalore on 10 January. The Airlines is under an obligation to take  X from Mumbai to 10

                                   January. In case the Airlines fail to fulfil its promise, X has a remedy against it. Thus, X has a
                                   right against the Airlines to be taken from Mumbai to Bangalore on 10 January.
                                   A corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor
                                   (the Airlines), the other party to the contract (i.e., X) has a legal remedy.

                                   1.1.1 Offer and Acceptance

                                   Offer is not only one of the essential elements of a contract but it is the basic building block also.
                                   An offer is synonymous with proposal. The offeror or proposer expresses his willingness “to do”
                                   or “not to do” (i.e., abstain from doing) something with a view to obtain acceptance of the other
                                   party to such act or abstinence [s.2(a)]. Thus, there may be ‘positive’ or ‘negative’ acts which the
                                   offeror is willing to do.
                                   The essential of a valid an offer is:

                                   1.   An offer must give rise to legal consequences. In Balfour v/s Balfour, (1919) 2 KB 571, the
                                       husband promised to pay £30 to his wife every month. On his failure to pay, the wife sued
                                       it was held that it did not create legal relationship and hence she could not recover it.
                                   2.   The term of offer must be definite or capable of being made defi nite.

                                   3.   An offer must be distinguished from an invitation to offer.




          2                                LOVELY PROFESSIONAL UNIVERSITY
   2   3   4   5   6   7   8   9   10   11   12