Page 7 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

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.

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