Legal Aspects of Business Management

[MBA Batch- 2024-26, Sem- II]

DR. SHIVANGI SINHA

PHD, LLM, BBA LLB
SPECIALIZED IN DISPUTE RESOLUTION & CORPORATE LAW
 Content:- [ Module-2]

1. The Indian Contract Act: Meaning and Formation of Contract,

2. Essentials of Contract Agreement
3. Performance of Contract
4. Discharge of Contract
5. Remedies for breach
6. Laws of agency
7. Partnership including LLP
 1. The Indian Contract Act: Meaning
and Formation of Contract:-
 Indian Contract Act frames and validates the contracts or agreements between
various parties.
 Contract Act is one of the central laws that regulate and oversee all the business
wherever there is a case of a deal or an agreement.
 The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h)
as “An agreement enforceable by law”.
 In other words, we can say that a contract is anything that is an agreement and
enforceable by the law of the land.
 The Indian Contract Act of 1872 has 238 sections after the repeal of sections
related to partnership and the sale of goods. The original act had 266 sections,
divided into 11 chapters.
 Continued:-

The Indian Contract Act is India's main law that regulates contracts. It covers topics
such as:
 Rights of parties
 Essentials of a contract
 Types of contract
 Proposal and acceptance
 Communication of offer and acceptance
 Revocation of offer
The act came into effect on September 1, 1872.
 Continued:-

The key ingredients in a contract and their respective provisions:-

1. There must be offer and acceptance – Section 2(d).
2. There must be a consideration- Section 25.
3. Parties must be competent to contract- Section 11 and 12.
4. There must be free consent of the parties – Section 13 and 22.
5. The object of the contract must be lawful- Section 23 and 30.

When these requirements are not met, the contract will be invalid and could be
rendered void.
 Continued:-

A contract is defined as "An agreement which is enforceable by law" in Section 2(h) of the Indian Contract Act,

1872. The agreement between two or more parties to do or refrain from doing what they decided upon in exchange

for something, that is, a consideration, is what is known as a contract. The intention to establish legal relations is

one of the general principles in the construction of a contract.

 a proposal and acceptance.

 Legitimate Consideration.

 capacity of the parties involved.

 Freedom of Will.

 The contract's goal must be legitimate.

 The agreement must not be void and must also possess the qualities of clarity and the

 potential for performance in order to be legally enforceable.

 Continued:-

 For the contract to be enforceable and have meaning, all of the aforementioned
components must be present.
 An agreement does not become a contract and is not legally binding if any of
these elements are missing. This means that while every agreement is a contract,
not every agreement qualifies as one.
 In accordance with Section 10 of the Constitution, "All agreements are contracts if
they are made by the free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly declared to
be void."
 This implies that if the requirements of a contract are satisfied, then all
agreements are contracts.
2. Essentials of Contract Agreement:-

 What makes a valid contract? A valid contract is enforceable by law and if a contract is
not valid it may lead to obstruction of businesses and unlawful and insincere dealings.
 A contract that is not a valid contract will have many problems for the parties involved.
For this reason, we must be fully aware of the various elements of a valid contract.
 In other words, here we shall ponder on all the ramifications of the definition of the
contract as provided by The Indian Contract Act, 1872.
 The Indian Contract Act, 1872 itself defines and lists the Essentials of a Contract either
directly or through interpretation through various judgments of the Indian judiciary.
 Section 10 of the contract enumerates certain points that are essential for valid contracts
like Free consent, Competency Of the parties, Lawful consideration, etc.
 Continued:-

 1] Two Parties:-
A Valid Contract must involve at least two parties identified by the contact. One of
these parties will make the proposal and the other is the party that shall eventually
accept it. Both the parties must have either what is known as a legal existence e.g.
companies, schools, organizations, etc. or must be natural persons.
 For Example: In the case State of Gujarat vs Ramanlal S & Co. [1984 AIR 161] –
A business partnership was dissolved and assets were distributed among the
partners as per the settlement. However, all transactions that fall under a contract
are liable for taxation by the office of the State Sales Tax Officer. However, the
court held that this transaction was not a sale because the parties involved were
business partners and thus joint owners. For a sale, we need a buyer (party one)
and a seller (party two) which must be different people.
 Continued:-

2] Intent Of Legal Obligations:-

 The parties that are subject to a contract must have clear intentions of creating a legal
relationship between them. What this means is those agreements that are not enforceable
by the law e.g. social or domestic agreements between relatives or neighbors are not
enforceable in a court of law and thus any such agreement cannot become a valid
contract.
3] Case Specific Contracts:-
 Some contracts have special conditions that if not observed would render them invalid or
void. For example, the Contract of Insurance is not a valid contract unless it is in the
written form.
 Similarly, in the case of contracts like contracts for immovable properties, registration of
contract is necessary under the law for these to be valid.
 Continued:-

4] Certainty of Meaning:-
 Consider this statement “I agree to pay Mr. X a desirable amount for his house at
so and so location”. Is this a valid contract even if all the parties agree to this
term? Of course, it can’t be as “desirable amount” is not well defined and has no
certainty of meaning. Thus, we say that a valid contract must have certainty of
Meaning.
5] Possibility Of Performance Of an Agreement:-
 Suppose two people decide to get into an agreement where a person A agrees to
bring back the person B’s dead relative back to life. Even when all the parties
agree and all other conditions of a contract are satisfied, this is not valid because
bringing someone back from the dead is an impossible task. Thus, the agreement
is not possible to be enforced and the contract is not valid.
 Continued:-

6] Free Consent:-
 Consent is crucial for an agreement and thus for a valid contract. If two people reach a similar
agreement in the same sense, they are said to consent to the promise. However, for a valid
contract, we must have free consent which means that the two parties must have reached
consent without either of them being influenced, coerced, misrepresented or tricked into it. In
other words, we say that if the consent of either of the parties is vitiated knowingly or by
mistake, the contract between the parties is no longer valid.
7] Competency Of the Parties:-
 Section 11 of the Indian Contract Act, 1872 is:
 “Who are competent to contract — Every person is competent to contract who is (1) of the
age of majority according to the law to which he is subject, and who is (2) of sound mind and
is (3) not disqualified from contracting by any law to which he is subject.”
 Continued:-

Qualifications in detail:
 refers to the fact that the person must be at least 18 years old or more.
 means that the party or the person should be able to fully understand the terms or promises of the
contract at the time of the formulation of the contract.
 states that the party should not be disqualified by any other legal ramifications. For example, if the
person is a convict, a foreign sovereign, or an alien enemy, etc., they may not enter into a contract.
8] Consideration:-
 Quid Pro Quo means ‘something in return’ which means that the parties must accrue in the form of
some profit, rights, interest, etc. or seem to have some form of valuable “consideration”.
 For example, if you decide to sell your watch for Rs. 500 to your friend, then your promise to give the
rights to the watch to your friend is a consideration for your friend. Also, your friend’s promise to pay
Rs. 500 is a consideration for you.
 Continued:-

9] Lawful Consideration:-
 In Section 23 of the Act, the unlawful considerations are defined as all those
which:
 it is forbidden by law.
 is of such a nature that, if permitted, it would defeat the provisions of any law, or is
fraudulent.
 involves or implies, injury to the person or property of another
 the Court regards it as immoral or opposed to public policy
 These conditions will render the agreement illegal.
 3. Performance of Contract:-

Introduction:-
 The term ‘performance’ in its literal sense means the performance of a task or
action. In its legal sense “performance” means the fulfilment or the completion of
the obligations which they have towards the other party by virtue of the contract
entered by them.
 For example, ‘A’ and ‘B’ enter a contract, the terms of the contract state that A
must deliver a book to B on payment of the consideration of five hundred rupees.
Here, B pays five hundred rupees to A and as stipulated in the contract, A delivers
him the book.
 Continued:-

Definition:-
 According to Section 37 of the Indian Contract Act,1872 “The parties to a contract
must either perform, or offer to perform, their respective promises, unless such
performance is dispensed with or excused under the provisions of the act, or any
other law.
 Promises bind the representatives of the promisors in case of the death of such
promisors before performance, unless a contrary intention appears in the contract.
 Thus, it is the primary duty of each contracting party to either perform or offer to
perform its promise.
 Continued:-

Types of Performance:-
Actual performance
 When a promisor has made an offer of performance to the promisee and the offer
has been accepted by the promisee, it is called an actual promisee. The contractual
obligations are actually performed whereby the liability of a party under the contract
comes to an end.
Attempted performance or tender of performance
 Where the promisor has made an offer of performance to the promisee, and the
offer has not been accepted by the promisee, it is called an attempted performance
[Section 38]. Such refusal to accept offer of performance by promisee discharges
the party from its liability and from its performance.
 Continued:-

Offer of Performance/Tender:-
 The essentials of a valid offer of performance are stated under Section 38 of the
Indian Contract Act, 1872:
 The offer should be unconditional.
 It must be made at a proper time and place so as to allow the party to have a
reasonable time to ascertain that the person who is making the offer to him is
competent to enter into a contract.
 If the offer to the offeree is such as to deliver some goods addressed to the offeree,
then it is the duty of the offeror to provide reasonable time to the offeree in which he
can ascertain that the goods offered to him is the same by which the offeror is
bound under the terms of the contract.
 Continued:-

Rules Regarding Time and Place of Performance of Contract:-

 Time for performance of promise, where no application is to be made and no time is specified
(Section 46 of Indian Contract Act, 1872):
 Where a promisor has to perform his promise without application by the promisee and no time is
specified for performance, the engagement or promise must be performed within a reasonable time.
 Time and place for performance of promise, where time is specified and no application to be made
(Section 47):
 When a promise is to be performed on a certain day without application by the promisee, the
promisor may perform at any time during the usual working hours on such a day.
 Application for performance on a certain day to be at proper time and place (Section 48):
 When a promise is to be performed on a certain day the promisor may undertake to perform it after
the application by the promisee to that effect. In such a case it is the duty of the promisee to apply
for performance at a proper place and time within usual business hours.
 Continued:-

 Place for the performance of promise, where no application to be made and no place fixed for performance
(Section 49):
 When a promise is to be performed without application by the promisee and no place is fixed for the
performance, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the
performance of the promise and perform the promise at such place.
 Performance in manner or at the time prescribed or sanctioned by the promisee(Section 50):
 The performance of any promise may be made in any manner or at any time which the promisee prescribes or
sanctions. A contract can also exist in which the promisor agrees to perform the contract in a manner and at a
place and time prescribed by the promisee.
By Whom must Contracts be Performed?
 Section 40 of the Contract Act, 1872 contains provisions regarding the performance of the contract. The section
provides that if by the terms of the contract it appears that the intention of the parties to the contract was such
that any promise contained in it must essentially be performed by the promisor himself and no other person on
his behalf can perform his promise.
 In all the other contracts the terms of which do not indicate any similar intention then in the absence of the
promisor for the performance of the promise any other competent person can perform the promise on his
behalf.
 Continued:-

Effect of Refusal of Party to Perform Promise:-

 When a party to a contract has refused to perform or disabled himself from performing his promise in its entirety, the
promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its
continuance.
 Promisee– Stranger cannt demand performance of the contract.
 Legal Representative– In case of death of the promisee, the legal representative can demand performance unless a
contrary intention appears from the contract, or the contract is of personal nature.
 Third party– A third party can also demand performance of the contract in some exceptional cases like beneficiary in case
of trust, the person for whose benefit the provision is made in a family arrangement. This is an exception to the doctrine
that a stranger to a contract cannot enforce a contract.
 Joint Promisee- In case of several promises, unless a contrary intention appears from the contract, the following persons
must perform the promise-
 In case all the promisee are alive- All the promisee jointly can demand performance.
 In case of death of any of the joint promisee- Representatives of deceased promisee jointly with the surviving promisee
can demand performance of promise.
 In case of death of all joint promisee- Representatives of all of them jointly can demand performance of the promise.
 Continued:-

Case Laws:-
Basanti Bai vs Sri Prafulla Kumar Routrai (2006):
 The Orissa High Court held that if there is no legal representative then, in that case,
the liability to perform the promise on his behalf would fall upon the person who
acquires interest over the subject matters of the contract through that deceased
party.
M/S Great Eastern Energy v. M/S Jain Irrigation (2010):
 The tender specified the validity period for four months. The Bombay High Court
held that after the expiry of the period of tender, no acceptance could be made. The
forfeiture of the security deposit amount by acceptance of the tender after the expiry
of its validity period and failure of performance by the tenderer was not improper.
 4. Discharge of Contract:-

Introduction:-
• A contract is a legally binding agreement between two or more
parties, where one agrees to do or refrain from doing something in exchange
for consideration.
• Discharge of contract means terminating the contractual relationship between the
two or more parties who entered into the contract previously.
• When the rights, obligations and duties of the parties come to an end it is known
as the discharge of contract.
• Discharge of contract also ceases the legally binding power of the contract.
Therefore, once a contract has been discharged the parties are no more obligated
to each other and the contract becomes void.
 Continued:-

Various modes of Discharge of Contract:-

 Discharge by Performance:

A contract can be discharged by performance, and it is the most common form of discharge of
contract. A contract will be discharged if the duty stated in the contract has been fulfilled by the
parties. If only one person in a contract performs the promise which is mentioned, then he alone is
discharged. There are two types of discharge of a contract by performance.

For example, A and B enter into a contract that A will pay B Rs 1,000 if B delivers a package to C’s
house. B does the agreed part specified in the contract and upon doing it A pays B the amount
mentioned in the contract. Thus, the contract is discharged by performance since both parties
performed the specified task in the contract.
 Continued:-

Actual Performance:
 In this case, both the parties in a contract must perform their promises. Unless the
Indian Contract Act,1872(ICA) or any law at the time being prohibits the parties
from performing their promises. In case either party dies or is unable to fulfil the
promise then the representatives of such party shall be liable to perform the
promise laid down in the contract.
Attempted Performance:
 When the promisor offers to give his performance under the contract, but the
promisee refuses to accept the same, then it amounts to discharge by attempted
performance.
 Continued:-

 Discharge by Mutual Agreement:

• In this case, the parties to a contract do not perform the promise stated in the contract if they arrive at a
mutual agreement. This requires substituting or altering the existing contract with a new one.

• Illustration: ‘P’ owes a certain sum of money to ‘Q’ under a contract, but they arrive at a mutual
agreement that henceforth ‘R’ will pay back the money owed to ‘Q’. This results in a mutual discharge of
the contract between ‘P’ and ‘Q’ and a new contract is formed between ‘R’ and ‘Q’.

 Novation:
• It occurs when a contract is substituted for the old contract between the same or new parties. In order
to enforce novation, the conditions mentioned under Section 62 of the ICA must be followed.
• There must be a valid reason for substituting the contract.

• Consent of all the parties is required.

• The old contract must be substituted before the expiry or breach of the contract.
 Continued:-

 Remission:
• Remission occurs when parties to a contract accept a lesser amount or lesser degree of
performance than what was initially agreed upon in the contract. Section 63 of the act states that a
party may;
• Remit the performance stated wholly or in part.
• Extend the time for performance.
• Accept any other kind of performance apart from the one mentioned in the contract.
 Alteration:
• It means changing one or more contract terms, thereby discharging the old contract and forming a
new one. Alterations to a contract must take place with the consent of all the parties to the contract.
 Rescission:
• Rescission takes place when the parties in the contract agree to dissolve the contract. In this case,
the old contract stands discharged and no new contract is formed.
 Continued:-

 Waiver:
• The term waiver means the abandonment of a right. A party to a contract may have their rights specifically stated
under the contract, which also helps to release the other party from the contract and the contract is discharge.
 Merger:

• When an existing inferior right of a party, in respect of a subject matter, merges into a newly
acquired superior right of the same person, in respect of the same subject matter, then the
previous contract conferring the inferior right stands discharged by the way of merger.
 Discharge by Lapse of Time:

• A contract will be discharged if the performance is not completed within the given time
period. This might also result in a breach of contract. In that case, a person might file a suit
under the court of law stating that his rights have been infringed and also claiming to enforce his
rights.
 Discharge by Operation of Law:

• This mode of discharge of contract does not allow the fulfilment of the promise laid down in the
contract by the provisions of law. Situations such as death, insolvency, merger, etc. do not
enable the fulfilment of the promise, hence it results in the discharge of the contract.
 Continued:-

Discharge by Supervening Impossibility:

• Discharge of a contract by supervening impossibility is a contract that has become impossible or
illegal to perform. In these cases, the contract becomes void. It is also known as the doctrine of
frustration.

• Frustration occurs when it is established that due to subsequent changes in circumstances, the
contract has become impossible to perform or it has been deprived of its commercial purpose. The
ways in which it occurs are mentioned below;
• On the destruction of subject matter, a contract will be discharged, and no party will be held liable.

• If the performance of the promise mentioned in the contract becomes unlawful, then the contract will be
void.

• A contract tends to be discharged on accounts of death or personal incapacity.

• When the circumstances surrounding a contract change then it will be discharged.

 Continued:-

Discharge by Breach:

• When a contract is broken by one party the other party or parties are freed from the obligation of performing
the contract. They can also take the remedial measures to which they are entitled. Breach of contract may
arise in two ways:

• Actual breach of contract: Actual breach of contract occurs when, during the performance of the
contract or at the time when the performance of the contract is due, one party either fails or refuses to
perform his obligations under the contract. The refusal of performance may be express (i.e., by word or
by writing) or implied (i.e., by conduct of the party or by non-action) or abstaining from doing something.

• Anticipatory breach of contract (Sec. 39): Anticipatory breach of contract occurs:

• when a party before the time for performance is due announces that he is not going to perform
the contract or,

• when a party by his own act disables himself from performing the contract.
 Continued:-

Exceptional Cases when a Contract is not Discharged:-

 The doctrine of frustration or supervening impossibility does not apply to the following cases mentioned
below.

• When in any case a situation arises that makes the performance of the certain promise mentioned in the
contract very difficult to be performed, then in that situation, it makes the promise challenging to be fulfilled but
the contract is not discharged.

• Commercial hardships make the contract unprofitable, but it does not discharge a contract.

• Strikes, lockouts, civil disturbances and riots do not discharge the contract unless there is a clause in the
contract specifying that in such event the contract will be terminated.

• A contract is not discharged due to the self-induced incapacity of the parties to a contract.

• In a contract where performance is relied upon by a third party, it will not be discharged due to the failure or
default of the third party.
 Continued:-

 Case Law

• Manohur Koyal v. Thakur Das(1888):

• The defendant failed to pay the agreed upon sum to the plaintiff on the due date stated in the contract.
However, the defendant promised to pay Rs. 400 to the plaintiff and to execute a fresh Kisti Bundi
bond. The plaintiff agreed to this, but the defendant failed to pay that amount consequently, the plaintiff
sued the defendant.

• The Calcutta High Court stated that since the new bond was created after the breach of the original
contract, therefore the contract cannot be discharged by novation but by breach of contract.

• United India Insurance Co. Ltd v. M.K.J. Corporation (1996):

• The Supreme Court held that utmost good faith must be observed by the contracting parties and the
duty of good faith is of a continuing nature even after the completion of the agreement no material
alterations can be made to the contract without the mutual consent of the parties.
 5. Remedies for Breach:-

 The Indian Contract Act lays out all the provisions for the performance of a contract. It also
contains the provisions in case of breach of contract by either party.
 The Latin Maxim “Ubi jus, ibi remedium”, where there is a right, there is remedy.

1] Recession of Contract:-
 When one of the parties to a contract does not fulfil his obligations, then the other party can
rescind the contract and refuse the performance of his obligations.

 As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore
any benefits he got under the said agreement. And section 75 states that the party that
rescinds the contract is entitled to receive damages and/or compensation for such
a recession.
 Continued:-

2] Sue for Damages:-

 Section 73 clearly states that the party who has suffered, since the other party has
broken promises, can claim compensation for loss or damages caused to them in
the normal course of business.
 Such damages will not be payable if the loss is abnormal in nature, i.e. not in the
ordinary course of business. There are two types of damages according to the Act,
 Liquidated Damages: Sometimes the parties to a contract will agree to the amount
payable in case of a breach. This is known as liquidated damages.
 Unliquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.
 Continued:-

3] Sue for Specific Performance:-

 This means the party in breach will actually have to carry out his duties according
to the contract. In certain cases, the courts may insist that the party carry out the
agreement.
 So, if any of the parties fails to perform the contract, the court may order them to
do so. This is a decree of specific performance and is granted instead of
damages.
 For example, A decided to buy a parcel of land from B. B then refuses to sell. The
courts can order B to perform his duties under the contract and sell the land to A.
 Continued:-

4] Injunction:-
 An injunction is basically like a decree for specific performance but for a negative
contract. An injunction is a court order restraining a person from doing a particular
act.
 So, a court may grant an injunction to stop a party of a contract from doing
something he promised not to do. In a prohibitory injunction, the court stops the
commission of an act and in a mandatory injunction, it will stop the continuance of
an act that is unlawful.
 Continued:-

5] Quantum Meruit
 Quantum meruit literally translates to “as much is earned”. At times when one
party of the contract is prevented from finishing his performance of the contract by
the other party, he can claim quantum meruit.

 So, he must be paid a reasonable remuneration for the part of the contract he has
already performed. This could be the remuneration of the services he has
provided or the value of the work he has already done.
 Continued:-

The 1854 English contract law case Hadley v. Baxendale established the principle
that a party breaching a contract is only liable for damages that were reasonably
foreseeable by both parties at the time of the contract:
Fact- The plaintiff, Hadley, owned a corn mill in Gloucester, England, and contracted
with the defendant, Baxendale, to transport a broken crankshaft to a manufacturer for
repair. Due to Baxendale's negligence, the crankshaft was delayed, causing Hadley's
mill to remain closed for five days and resulting in significant losses.
Judgment- The court ruled that Baxendale was not liable for Hadley's losses because
they were too remote. The court established that damages must be foreseeable to be
recoverable, and that Baxendale was not aware of the exact amount of losses Hadley
would incur.
 Continued:-

Principles:-
 The case established two rules for determining remoteness of damages in
contract:
 A breaching party is liable for damages that could reasonably be expected to
occur in the normal course of events.
 If the other party has special knowledge, the breaching party is liable for damages
that could reasonably be expected to occur based on that knowledge.
Impact- The principles of Hadley v. Baxendale have been widely adopted in contract
law, including in India's Contract Act of 1872.
 6. Laws of Agency:-

Define Agency:-
 Section 182. 'Agent' and 'principal' defined.-An agent is a person employed to do any act for another, or to
represent another in dealing with third person. The person for whom such act is done, or who is so represented,
is called the 'principal'.
 The contract which creates the relationship of 'principle' and agent is called an agency. Thus where A appoints B
to buy ten bags of sugar on his behalf, A is the principal', B is the agent and the contract between the two is
agency. If in pursuance of the contract of agency, the agent purchases the bags of sugar from C a wholesale
dealer in sugar on credit, then in the eye of law the 'principal' and the wholesale dealer are brought into direct
contractual relations and the contract of purchase is enforceable both by and against the principal.
 Section 182 of this Act defines an agent as a person employed to do any act for another to represent another in
dealing with third persons.
 Motilal Chanoalal Vaish v. Golden Tobacco Co., AIR 1957 MP 223: The rule as to agency is expressed in the
Maxim 'qui facit per alium, facit per se'. It is founded on a contract either express or implied by which one of the
parties confides to the other management of some business to be transacted in his name on his account and by
which the other assumes to do the business and render an account of it.
 Agency is often created by actual authority given by principal to the agent on principal's ratification of contract
entered into by the agent on his behalf but without authority.
 Continued:-

Creation of Agency:-
 A contract of agency may be express or implied. Consideration is not an essential element in the
agency contract.
Types of an Agency Contract
1. Express Agency:-
 A contract of agency can be made orally or in writing. Example of a written contract of agency is
the Power of Attorney that gives a right to an agency to act on behalf of his principal in
accordance with the terms and conditions therein.
 A power of attorney can be general or giving many powers to the agent or some special powers,
giving authority to the agent for transacting a single act.
2. Implied Agency:-
 Implied agency arises when there is any conduct, the situation of parties or is necessary for the
case.
 Continued:-

a. Agency by Estoppel (Section 237):-

 Estoppel arises when you are precluded from denying the truth of anything which you have
represented as a fact, although it is not a fact.

 Thus, where P allows third parties to believe that A is acting as his authorized agent, he will be
estopped from denying the agency if such third-parties relying on it make a contract with an even
when A had no authority at all.

b. Wife as Agent:-

 Where a husband and wife are living together, we presume that the wife has her husband’s authority
to pledge his credit for the purchase of necessaries of life suitable to their standard of living.
 Continued:-

c. Agency of Necessity (Sections 188 and 189):

 In certain circumstances, a person who has been entrusted with another’s property may
have to incur unauthorized expenses to protect or preserve it. This is called an agency of
necessity.

 For example, a sent a horse by railway. On its arrival at the destination, there was no one to
receive it. The railway company, is bound to take reasonable steps to keep the horse alive,
was an agent of the necessity of A.

 A wife deserted by her husband and thus forced to live separate from him can pledge her
husband’s credit to buy all necessaries of life according to the position of the husband even
against his wishes.
 Continued:-

d. Agency by Ratification (Sections 169-200):

 Where a person not having any authority act as agent, or act beyond its authority,
then the principal is not bound by the contract with the agent in respect of
such authority. But the principal can ratify the agent’s transaction and accept
liability. In this way, an agency by ratification arises.

 This is ex post facto agency— agency arising after the event. By this ratification,
the contract is binding on principal as if the agent had been authorized before.
Ratification will have an effect on the original contract and so the agency will have
effect from the original contract and not on ratification.
 7. Partnership Including LLP:-

 Limited Liability Partnership: The limited liabilities partnership (LLP) form of entity
was introduced in India through the innovative Limited Liabilities Partnership Act
of 2008. This form of entity integrates the features of both traditional partnership
firms and limited liability corporations. A Limited Liabilities Partnership means a
partnership formed and registered under the Limited Liabilities Partnership Act,
2008.
 An LLP is a body corporate which has separate legal entity and perpetual
succession. Its existence, rights or liabilities are not affected by any change in the
partners. It is thought that the LLP form of entity is suitable for small and medium
size businesses and professional enterprises.
 Continued:-

Salient features of LLP as per LLP Act, 2008:

The LLP has the following important features. LLP forms of organizations are governed
by the Limited Liabilities Partnership Act, 2008 and The Indian Partnership Act, 1932 is
not applicable to LLPs.
 LLP is a body corporate and as a result has legal entity separate from that of its
partners.
 LLP has perpetual succession. In other words, LLP’s existence is not affected by
death, bankruptcy, insanity and change in membership.
 Unlike shareholders of company, partners of LLP can directly manage the affairs of
business. In other words, in case of LLP there is no separation between
management and ownership.
 Continued:-

 The liability of LLP is to the extent of its assets. The partners are liable to the
extent of the amount they have agreed to contribute to the LLP.
 A partner cannot be held responsible for the misconduct or negligence of other
partners.
 The minimum number of partners is 2 and there is no maximum limit.
 There shall have at least two designated partners who are individuals and at least
one of them shall be a resident in India.
 A private or unlisted public company and firm can be converted into LLP.
 The winding up of LLP is either voluntary or by the High Court.
 Continued:-
 A limited liability partnership (LLP) is a legal business structure. Professional firms such as
solicitors and accountants often choose to set up as limited liability partnerships, but the structure
can also be a beneficial option for other types of business.
 Limited liability partnerships differ from ‘traditional’ business partnerships, and also from the
limited company structure, and are regulated by various pieces of legislation including the Limited
Liability Partnership Regulations, 2001.
What is the structure of an LLP?
 A limited liability partnership is a separate legal entity from its members (partners), who are only
liable for the amount of money they invest, plus any personal guarantees. The partnership is
incorporated at Companies House, and can only be used by profit-making businesses.
 Partners are required to provide a registered address for the business, and maintain a register of
members. There’s no restriction on the maximum number of partners allowed but there must be
at least two members on incorporation, either individuals or limited companies. It’s also possible
to set up an LLP with one individual and a dormant company.
 Continued:-

Differences between an LLP and other business structures

 Traditional partnerships do not receive the same protection as LLPs, and partners can be held personally liable for debts
incurred by the business if it is not incorporated into a LLP. Additionally, clients engage in business with the partners
individually rather than the partnership as an entity.
 Although limited liability partnerships and limited companies may appear to be similar at first glance, there are significant
differences between the two:
 Companies can be limited by guarantee, meaning non-profit organizations can use the structure. LLPs, on the other hand,
are solely for profit-making businesses.
 One person can set up a limited company and fulfil the role of shareholder and director. A limited liability partnership must
consist of at least two ‘designated’ members who take responsibility for statutory filing and other legal requirements, but
there can be an unlimited number of ‘ordinary’ members.
 Limited companies pay corporation tax but members of limited liability partnerships pay income tax through self-
assessment.
 The internal structure of a limited company is inflexible, whereas that of an LLP can be changed by its members.
 Limited companies can sell shares to secure capital investment, but limited liability partnerships do not have shares.
 Continued:-

What is the Difference Between Partnership & Limited Liability Partnership Firm?
 Partnership and Limited Liability Partnership (LLP) are two different types of business structures with
some distinct differences. Understanding the difference between Partnership & LLP is crucial for
entrepreneurs looking to start a new business or change the form of an existing one.
Partnership Firm
 In the partnership business structure, two or more people own and operate the business together. In
a partnership Firm, the partners share the profits and losses of the company and are personally
liable for its debts and obligations.
Limited Liability Partnership Firm
 On the other hand, a limited liability partnership (LLP) is a type of Partnership where the partners
have limited liability for the debts and obligations of the business. If the company incurs debts or
legal action, the partners' assets are not at risk. LLPs are typically used in professional services such
as accounting, law, and consulting.
 Continued:-

Incorporation of LLP:-
 The LLP form of organization has the benefits of both partnership and company.
As a result, it is the preferred form of organization among the new entrepreneurs.
The Limited Liability partnership (Second Amendment) Rules, 2018 prescribed
new rules and procedure superseding LLP Rules, 2009 for the incorporation of
LLP. Following are the steps for the incorporation of LLP.
 Step 1: To register an LLP all designated partners of the proposed LLP first need
to obtain Designated Partner Identification Number (DPIN). E-Form DIR-3 needs
to be filed in order to obtain DPIN. However, if a director already has Director
Identification Number (DIN) the same can be used as DPIN.
 Continued:-

 Step 2: The second step is to obtain Digital Signature Certificate (DSC) of partners or
designated partners of proposed LLP from any authorized certifying agency.
 Step 3: A new user needs to register by filling New User Registration form through
the website of Ministry of Corporate Affairs, Government of India i.e. [Link].
This will create User Name and Password. On successful registration the system will
give a message that you have been registered successfully.
 Step 4: After successful registration the next step is to select a name of the LLP to be
registered by filing Form 1 and appending digital signatures.
 Step 5: The next step is to file Form 2 “Incorporation Document and Subscriber’s
Statement”.
 Continued:-

 Step 6: Once the form has been approved by the concerned official of the Ministry
of Corporate Affairs, Government of India and after incorporation of LLP, Form-3
needs to be filled within 30 days of incorporation of LLP. Form 3 contains
information regarding LLP Agreement and changes, if any, made therein.
 Landmark Cases:-

1. Balfour v. Balfour (1919)

 Case Summary: In this landmark case, the Court of Appeal (England and Wales)
addressed the issue of whether an agreement between a husband and wife can be
considered a legally binding contract. Mr. Balfour, who was working in Ceylon,
verbally agreed to provide maintenance to his wife while they were separated.
However, when their relationship deteriorated further, Mr. Balfour stopped making
the agreed payments. Mrs. Balfour filed a lawsuit against him, claiming breach of
contract.
 Key Takeaway: The court ruled that agreements made between spouses in a
domestic setting are generally not binding contracts as the parties do not intend to
create legal relations. This case established the principle that for a contract to be
enforceable, the parties must intend to enter into a legally binding agreement.
 Continued:-

2. Lalman Shukla v. Gauri Datt (1913)

 Case Summary: In this case, the Allahabad High Court examined the importance of
knowledge and communication in the formation of a contract. Lalman Shukla, an
employee, was asked by his employer to find his missing nephew. Meanwhile, the
employer published handbills offering a reward for finding the missing boy. Lalman
Shukla found the boy without being aware of the reward and claimed the reward
later. However, the court held that Lalman Shukla was not entitled to the reward as
he was unaware of the offer at the time he found the boy.
 Key Takeaway: The court emphasized that for a contract to be valid, the offeree
must have knowledge of and assent to the proposal. In this case, Lalman Shukla's
act of finding the boy did not amount to acceptance of the offer as he was unaware
of the reward at the time.
 Continued:-

3. Carlill v. Carbolic Smoke Ball Company (1893)

 Case Summary: The Court of Appeal (England and Wales) examined the concept of
offer and acceptance in this case. The Carbolic Smoke Ball Company advertised
that their product could prevent influenza, and they offered a reward of £100 to
anyone who contracted the flu after using their product as directed. Mrs. Carlill
bought and used the smoke ball but still caught the flu. She claimed the reward, but
the company refused to pay. The court held that Mrs. Carlill was entitled to the
reward as she had accepted the offer by performing the required actions.
 Key Takeaway: This case established the principle of unilateral contracts, where an
offer can be accepted by performance rather than formal notification. Mrs. Carlill's
act of using the smoke ball constituted acceptance, and she was entitled to the
reward.
 Continued:-

4. Mohori Bibee v. Dharmodas Ghose (1903)

 Case Summary: In this case, the Privy Council examined the issue of contracts
involving minors. Dharmodas Ghose, a minor, borrowed money from Brahmodutt,
misrepresenting his age and executing a mortgage deed. When the minor
discovered his status, he filed a lawsuit to nullify the mortgage deed. The Privy
Council held that the contract was void as it involved a minor, and the minor was
not liable to repay the borrowed amount.
 Key Takeaway: The case established that contracts made by minors are void from
the beginning, and a minor cannot be held liable for any obligations arising from
such contracts.
 Continued:-

5. Chinnaya v. Ramayya (1882)

 Case Summary: The Madras High Court examined the concept of consideration in
this case. An elderly widow provided funds to her sister, and in return, her sister's
daughter agreed to pay an annuity to the widow. After the widow's death, the
daughter refused to pay the annuity. The court held that the agreement between
the parties constituted a valid contract, and the daughter was obligated to pay the
annuity as promised.
 Key Takeaway: This case emphasized the importance of consideration in a
contract. The court held that the widow's provision of funds constituted good
consideration, and the daughter was bound by her promise to pay the annuity.
 Continued:-

6. Hyde v. Wrench (1840)

 Case Summary: The Rolls Court examined the issue of counteroffers in this case.
Mr. Wrench offered to sell his farm to Mr. Hyde for £1,200, but Mr. Hyde rejected
the offer. Mr. Wrench made a subsequent offer to sell the farm for £1,000, to
which Mr. Hyde responded with a counteroffer of £950. Mr. Wrench rejected the
counteroffer, and Mr. Hyde later attempted to accept the original offer of £1,000.
However, Mr. Wrench refused to sell his farm. The court held that there was no
valid contract between the parties.
 Key Takeaway: This case established the principle that a counteroffer
extinguishes the original offer, and the parties cannot later accept the original offer
after making a counteroffer.
 Continued:-

7. Harvey v. Facey (1893)

 Case Summary: The Judicial Committee of the Privy Council examined the
distinction between an invitation to treat and an offer in this case. Mr. Harvey sent
a telegram to Mr. Facey inquiring about the lowest cash price for the sale of a
property. Mr. Facey responded with the price but did not explicitly offer to sell the
property. Mr. Harvey claimed that there was a contract based on the telegram
exchange. However, the court held that the telegram was merely an indication of
price and did not constitute an offer.
 Key Takeaway: This case clarified that an invitation to treat, such as providing
price information, does not amount to an offer. A contract is formed only when an
offer is made and accepted.
 Continued:-

8. Hadley v. Baxendale (1854)

 Case Summary: The Court of Exchequer examined the issue of consequential
damages in this case. The plaintiff's mill had a broken crankshaft, and the defendant
was responsible for transporting the broken piece for repair. Due to the defendant's
delay in delivering the part, the plaintiff suffered losses in their business. The court
held that the defendant was not liable for the consequential damages as they were
not reasonably foreseeable at the time of contract formation.
 Key Takeaway: This case established the principle that a party can only be liable for
damages that were reasonably foreseeable at the time of contract formation.
Consequential damages that could not have been reasonably anticipated are not
recoverable.
 Continued:-

9. Felthouse v. Bindley (1862)

 Case Summary: The Court of Common Pleas examined the issue of acceptance and
silence in this case. Mr. Felthouse negotiated with his nephew for the purchase of a
horse. However, they could not agree on the price. Mr. Felthouse later sent a letter
stating that if he did not hear back from his nephew, he would consider the horse his
property. The nephew remained silent, and the horse was sold in an auction. Mr.
Felthouse sued the auctioneer, claiming that the horse should not have been sold. The
court held that there was no valid contract between Mr. Felthouse and his nephew as
silence does not constitute acceptance.
 Key Takeaway: This case established the principle that silence or inaction cannot be
considered acceptance of an offer. Acceptance must be communicated explicitly to
create a valid contract.
 Continued:-

10. Durga Prasad v. Baldeo (1880)

 Case Summary: The Allahabad High Court examined the issue of consideration
and promise in this case. The plaintiff demanded that the defendant establish
outlets in his neighborhood, and in return, the defendant agreed to pay the plaintiff
a commission on the goods sold. However, the defendant later refused to pay the
commission. The court held that there was a valid contract between the parties,
and the defendant was obligated to pay the commission as promised.
 Key Takeaway: This case emphasized the importance of consideration in a
contract. The court held that the plaintiff's promise to establish outlets constituted
good consideration, and the defendant was bound by their promise to pay the
commission.
Thank You..!!