INSTITUTE OF BUSINESS MANAGEMENT

BUSINESS LAW
Essentials of a contract: Proposal or Offer: Proposal is the initial stage of a contract. Definition1: When one person signifies to another his willingness to do or abstain from doing something with a view to obtaining assent of that other person. Definition2: A proposal is a statement (by one party) of willingness to enter into a contract on stated terms provided that it is accepted by the party to whom it is addressed. Essentials of a proposal: Intention to create legal relationship: The maker of the proposal must intent to enter into contractual relationship. Proposal must be certain (clear): The terms of an offer must be definite and certain. Communication of Proposal: It means that proposal must be communicated to the other party. Kinds of Proposals: 1) Express Proposal: A proposal made by words of mouth or by writing is an express proposal. 2) Implied Proposal: A proposal made neither verbally nor in writing is an implied proposal. It is made by the conduct of the party. A common example is taking goods to the cash counter in a super-market. That is an implied proposal. 3) Specific Proposal: An offer made to an individual or to a specific group of persons. It can only be accepted by the person to whom it is made. 4) General Proposal: An offer may be made to the public at large. It may be accepted by anyone who complies with the terms of the offer. 5) Counter Proposal: A statement (by the offeree) which does not accept all the terms and conditions proposed by the offerer, but which in fact introduces a new terms is a new proposal and it is called a counter proposal. A counter proposal is capable of being accepted or rejected. The legal effect of a counter proposal is that terminates the original proposal. 6) Cross Proposal: Two manifestations of willingness to make the same bargain are said to be cross proposals if the following conditions are fulfilled. I) subject matter of both the offers must be same; ii) terms of both the offers must be same; and iii) they must be made simultaneously. ACCEPTANCE Definition: When the person to whom the proposal is made signifies assent to it, the proposal is said to be accepted. The acceptance should be absolute and unconditional. It is called Mirror Image Rule. Promise, Promiser and Promisee Proposal+ Acceptance= Promise. A proposal when accepted becomes a promise. Promise is an accepted proposal. Promiser: The person making the proposal is called the promise or the one whose proposal is accepted and he becomes bound by his promise. From the desk of Ghulam Murtaza Korai IoBM Page 1

INSTITUTE OF BUSINESS MANAGEMENT

BUSINESS LAW
Promisee: The person accepting the proposal is called the promise. Revocation of Proposal A proposal may be revoked at any time before the communication of the acceptance. Revocation of Acceptance An acceptance may be revoked at any time before the communication of the acceptance. The Postal Rule Where the postal service is used as the means of communication, an acceptance is deemed to be complete as soon as the properly addressed and stamped letter is posted. The contract is concluded on posting the letter even if the letter subsequently fails to reach the proposer. TERMINITATION OF PROPOSAL By revocation By lapse of time i) prescribed time or ii) reasonable time. By death or insanity of proposer By death or insanity of offeree By Rejection By counter proposal By mode of acceptance

1) 2) 3) 4) 5) 6) 7)

INVITATION TO PROPOSAL OFFER An offer is a promise to be bound on particular terms. It may (If it is accepted by an offeree) result in a legally enforceable contract. Acceptance is necessary for the formation of a contract but once the offeree has assented to the terms offered, a contract comes into effect and both parties are bound. The proposer can no longer withdraw his offer nor can the offeree withdraw his acceptance. INVITATION TO TREAT An invitation to treat is simply an expression of willingness to enter into negotiations which it is hoped will lead to the conclusion of a contract at a later date. Example of Common Situations of Invitations to Treat Display of goods for sale The display of goods constitutes an invitation to treat and that the offer is made by the customer when he presents the goods at the cash counter where the offer may be accepted by the shopkeeper. Tenders Tenders an other example of invitation to treat. They occur where someone wishes particular work to be done and issues a statement asking interested parties to submit the terms on which they are willing to carry out the work. The person who invites the tender makes an invitation to treat. The person who submits the tender is the offerer and the other party is at liberty to accept or reject the offer. From the desk of Ghulam Murtaza Korai IoBM Page 2

INSTITUTE OF BUSINESS MANAGEMENT

BUSINESS LAW
Auction Sales The general rule is that an auctioneer (by inviting bids to be made) makes an invitation to treat. The offer is made by the bidder which in turn is accepted when the auctioneer strikes the table with his hammer. The advertisement of an auction-sale is generally an invitation to treat. Certain Statements Which Do Not Amount to Proposal Supply of information A statement of wish CONSIDERATION (Something for something) Consideration is the price by which the promise of the other party is bought. When at the desire of the promise, the promisee who does or abstains from doing something such act or abstinence or promise is called a consideration for the promise (by the promisee to the promisor). FREE CONSENT Consent is said to be free when it is not obtained by means of: Coercion Undue influence Fraud Misrepresentation Mistake a) Coercion : Coercion is the committing or threatening to commit any act forbidden by the Pakistan Penal Code (PPC 1860) or the unlawful detaining or threatening to detain any property to the prejudice of any person with the intention of causing any person enter into an agreement. Effect of Coercion When consent to agreement is caused by coercion, the agreement is a contract voidable at the option of the party whose consent was so caused. Burden or Onus of Proof Burden of proof that the consent for the agreement was obtained by coercion lies on the party intending to avoid the contract. b) Undue influence: A contract is said to be induced by undue influence when the relation between the parties are such that one of them is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. When a person is deemed to be in a position to dominate the will of another? 1. Real authority: Where he holds real or apparent authority over the other. a) officer and his subordinate b) a police officer and an accused c) master and servant 2. Fiduciary Relation: Where he stands in a fiduciary relation to the other. a) spiritual guide and his disciple b) solicitor and client

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INSTITUTE OF BUSINESS MANAGEMENT

BUSINESS LAW
3. Affected mental capacity: Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress. Medical attendant and patient.

Effect of Undue Influence When consent to agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.

Burden or Onus of Proof Burden of proof that the consent for the agreement was obtained by undue influence lies on the party intending to avoid the contract.

c) Fraud: Fraud is intentional. It is an intention to deceive the party on whom it is employed or induced. The induced also enters into a contract. It includes: False Assertion: A false representation of a fact made knowingly or without belief in its truth constitutes fraud. Active Concealment: Active concealment of a fact by one having knowledge or belief of fact is fraud. For example, where a seller sells goods already sold by him to third person. His conduct amounts to active concealment and fraud. Empty Promise: Making a promise without the intention of performing it is a fraud. For example, buying goods under a contract of sale with the intention of not paying the price is fraud.

d) Misrepresentation: It is misstatement but innocent. There is no intention to deceive. When a person makes a positive statement that a fact is true when his information does not warrant it to be so, though he believes it to be true this amounts to misrepresentation. If a party to an agreement induces (however innocently) the other party to make a mistake as to the nature or quality of the subject matter of the agreement, this act also amounts to misrepresentation.

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INSTITUTE OF BUSINESS MANAGEMENT

BUSINESS LAW

Effects: if there is no free consent Voidability of agreement without free consent A contract is voidable at the option of a party whose consent to the contract is obtained by means of: 1. Coercion; or 2. Undue influence; or 3. Fraud; or 4. Misrepresentation.

From the desk of Ghulam Murtaza Korai IoBM

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