Legal Aspects of Business Introduction

Semester - I
Logic, Awareness and

Common Sense
Manmohan Vyas - ISBS

Certain Questions to begin with…
Why Law is required ?
What is Law?
Sources of Law?
LAB Syllabus
Legal Aspects of Business –
An Introduction
 Largely based on English common law because of the long period
of British colonial influence.
 Drafting of the Indian Constitution, laws from Ireland, the United

States, Britain, and France were all synthesized to get a refined set
of Indian laws.
 Indian laws also adhere to the United Nation’s guidelines on Human

Rights Law, The Environmental Law, Law On Intellectual
Property.
 Indian civil law is complex, Religion specific laws. There are

separate laws governing Hindus, Muslims, Christians, Sikhs and
followers of other religions Manmohan Vyas - ISBS
CHAPTER - I

The Indian Contract Act,1872
“Branch of Law which determines the

circumstances in which promises made by the
parties to a contract shall be legally binding on
them.”
General principles of law of contract (Sec 1-

75) & Some special contracts (Sec124-238)
The act is not Exhaustive.
Contract - Definition
Sec.2(h) “Contract is an agreement
enforceable by law”
An
Agreement
Contract
Enforceability
By Law

Agreement & Enforceability
Agreement
“ Every promise and every set of promises, forming

consideration for each other” E.g.
Consideration is the respective interest of each of the two parties

under the agreement
Promise
“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 promise.” E.g.
Agreement = Offer + Acceptance

Flow & Relation
Promise
Agreement
Contract
Essential of Agreement
 Consensus ad idem. E.g.....
 Obligation (Legal Tie –Doing or Abstaining)
 Social Agreements – Not enforceable in

court of law
“All contracts are agreement but all

agreements are not contracts”
Essential Elements of Valid Contract
Offer & Acceptance (2 Parties-Terms Definite-absolute &

Unconditional)
Intention to create legal relationship

(Not of Social-Domestic nature E.g. Rose & Frank Co. v. Crompton Bros.)
Lawful consideration (Cash or Kind , Act or
Abstinence )
Capacity of parties (Minor, Unsound mind, Disqualified)

Essentials cont..
 Free Consent ( Induced by Fraud, Coercion,
Misrepresentation etc.)
 Lawful object ( Must not be Illegal, Immoral & Against

Public Policy)
 Agreement not declared void ( Minor - Void ab

initio)
 Certainty & Possibility of Performance

( Treasure , Putting Life )
 Legal formalities ( Stamped , Registered etc.)

Classification of contract
CONTRACTS
VALIDITY FORMATION PERFORMANCE
VALID EXPRESS
EXECUTED
VOIDABLE IMPLIED EXECUTORY
VOID QUASI
Offer and Acceptance
 An Offer is a Proposal by one party to another to
enter into a Legally binding agreement with him.
Proposal :- When a person signifies to another his

willingness to do or to abstain from doing anything,
with a view to obtain the assent of that other to such
act or abstinence.
 Parties :- Offeror , Proposer
Offeree or Proposee
Acceptor or Promisee

Offer And Acceptance cont..
Flow of offer
Offeror Offeree Acceptor
Specific Offer
General Offer
Case -Carlill
vs. Carbolic Smoke Ball Company

Legal Rules As To Offer
 Should give rise to legal Relation
 Terms must be definite, Unambiguous

 An offer is distinguished from –
A declaration of intention (e.g. Advertisement)
An invitation to make offer (e.g. Price tag )
 Offer must be communicated (Lalman..)

Legal Rules As To Offer cont..
 Must be made with a view to obtaining
assent
 Non compliance cannot be assumed as
acceptance
 Statement of price is not an offer ( Harvey v

Facey)
Cross offers are not offers

Acceptance
 Act of assenting by the offeree to an offer.
“It is to an offer what a lighted match is to a

train of gunpowder. It produces something
which cannot be recalled , or undone.”
An offer when accepted, becomes promise
[Sec. 2 (b)].
Acceptance of Particular offer / General Offer.

Legal Rules To Acceptance
Itmust be absolute and must conform with
the offer.
Itmust be communicated to Offeror (mere
resolve or mental determination will not do)
Must be according to mode prescribed or

reasonable mode.
It cannot be implied from silence.

Communication…
Offer, Acceptance or Revocation may be

communicated by words spoken or written or by
conduct.
Communication of Offer – is complete when it

comes to the knowledge of the person to whom it is
made.

Communication..
Communication of Acceptance, is
complete_ _ _
as against the Proposer when it is put into
course of transmission to him, so as to out
of power of the acceptor.
as against the Acceptor when it comes to the

knowledge of the Proposer.

Communication..
 Communication of Revocation, it is
complete _ _ _
as against the person who makes it, when it is

put into the course of transmission to the
person to whom it is made, so as to be out of
the power of the person who makes it;
as against the person to whom it is made,

when it comes to his knowledge. Example..
Loss In Postal Transit
Communication of Acceptance – is complete
as against the Proposer when it is posted.
The contract is complete even if the letter of

acceptance goes astray or is lost through an
accident in the post.
But, in order to bind the offeror, its important

that letter of acceptance is correctly
addressed, stamped and posted.
Contract over Telephone – Oral
Communication
Offeree must make sure that the acceptance is
properly received, i.e. heard and understood
by the offeror. E.g. Aircraft flying overhead.
Contract over Telephone – Middle of the

reply, the line goes dead ( can’t hear words of
acceptance).

Consideration
 Quid Pro Quo – Something In return
 Sec 2{d} – “ When at the desire of the

promisor, the promisee or any other person
has done or abstained from doing, or does or
abstains from doing, or promises to do or to
abstain from doing, something, such act or
abstinence or promise is called
consideration for the promise.”
Legal Rules..
May be Past, Present, Future
Need not be adequate
Must be real, not illusory.
Must be something which the promisor is not

already bound to do.
Must not be illegal, immoral or against Public

policy ( e.g. Promise to get a job in PSU).
Stranger To Contract
Doctrine of Privity of Contract – only the
parties to a contract may sue and be sued
on the contract.
Two Implications of doctrine:-

A Person who is not party – cannot sue.
Contract cannot confer rights or impose
obligation – other than parties.
Exceptions to Rule of Stranger..
A Trust or Charge.
Marriage settlement, Partition or Other
family arrangements.
Acknowledge 0r Estoppel.
Contract through an Agent.
Covenants running with the land.

Contract Without Consideration Is Void -
Exceptions
 Love & Affection – Written & Registered
agreement
 Promise to pay for past voluntary services
 Promise to pay a time barred debt.
 Completed gift
 Creating Agency – no consideration

Capacity To Contract
Sec.11,declares following persons incompetent
Disqualified
Minors Unsound Mind
By Law
Minors
Indian Majority Act,1875,a minor is a person who

has not completed 18 yrs. of age

Minor
Attains majority at the age of 21 yrs
 Guardian appointed under Guardian & Wards
Act,1890
 Superintendence of a minor’s property is assumed
by Court of wards.
Position of minor in agreement

 Void Ab Initio :- Mohiri Bibi v. Dharmodas
Ghose
Position of minors cont..
Can be beneficiary – e.g. recovery of price
after sale.
Cannot be ratified on attaining majority.
Can always plead minority – Fraud by

misrepresenting age
Cannot enter into partnership – but can be
admitted to benefits of already existing
Minor’s liability for necessaries
 Is liable to pay for necessaries supplied to him.
 Property of the minor is liable for meeting the
liability, not personally liable.
 Necessary goods – not restricted to articles to
maintain bare existence, but reasonably
necessary.
 Services rendered – Education, medical Advice,
provision of a funeral etc.

Person of Unsound Mind
“ A person is said to be of sound mind for the
purpose of making a contract if, at the time
when he makes it, he is capable of
understanding it and forming a rational
judgment as to its effects upon his interests.”
Unsound mind – Lunatics , Idiots
Drunken or Intoxicated

Other Persons
Alien enemies
Foreign sovereigns, their diplomatic staff
& representatives – Prior permission
Corporations – Artificial Person , MOA
Insolvents –Official Receiver or Assignee
Convicts

Free Consent
Consent – “ Two or more persons are said to
consent when they agree upon the same
thing in the same sense.”
Consent is free if its not cause by –
Coercion Undue Influence Fraud
Misrepresentation Mistake

Coercion
When a person is compelled to enter into a
contract by the use of force by other party or
under a threat, coercion is said to be employed.
Itis committing or threatening to commit,

any act forbidden by the IPC,1860
Effect - Voidable at the option of aggrieved.

Cont..
Threat to commit suicide :-
“one committing suicide places himself or
herself beyond the reach of law,&
necessarily beyond the reach of any
punishment.”
Sec. 306 of IPC – Punishes abetment of
suicide
Sec. 309 of IPC – Punishes attempt to
suicide.
Undue Influence
Relation b/w the parties is such that one of
the parties is in position to dominate the
will of other & uses that position to obtain
unfair advantage.
E.g. Parent – Children / Doctor – Patient /

Solicitor – Client etc.
Burden of proof – On Plaintiff

Misrepresentation
Representation - A statement of fact…
Representation, when wrongly made, is
misrepresentation.
Innocent or Unintentional –
Misrepresentation
Intentional or Deliberate – Fraud
Consequences – Aggrieved party can
Avoid or Rescind contract
Accept but insist – prior position

Fraud
Falserepresentation – Knowingly or
Recklessly / concealment of material fact
Intention of party making fraudulent

misrepresentation – must be to deceive the
other party.
Fraud means & includes :- Sec. 17
Consequences - Voidable
Mistake
Erroneous belief about something.
Mistake of Facts – Mistake of Law
Mistake of facts:– Bilateral – Unilateral
Bilateral – Both the parties under mistake of facts
 Unilateral – one party / negligence or lack of care –
should bear the consequences. Not allowed as defence
in avoiding a contract.
 Exceptions – Mistake is Fundamental / Root of

Agreement. E.g. Identity of Person / Nature of
Contract (void)
Discharge of Contract
Contract may be discharged by
Performance
Agreement or Consent
Impossibility
Lapse of time ( Time Barred Debt)

Operation of law (Death / Insolvency etc.)
Breach of contract
Continue..
Discharge by performance –
Actual Performance
Attempted Performance or Tender
Discharge by Agreement –
A thing may be destroyed in the same manner
in which it is constituted
Novation – Rescission – Remission - Waiver

Continue..
Discharge by Impossibility of Performance –

Impossibility existing at the time of contract

Impossibility arising subsequently ( Supervening
Impossibility )
* Destruction Of Subject Matter
* Death or incapacity
* Change Of Law

Impossibility of Performance - Not An Excuse. e.g.
Difficulty / Depreciating Currency / Strike
Lockouts
Continue..
Breach Of Contract
Actual breach of contract – At the time of
performance, one party fails or refuses.
If time is not essence, may accept with
damages. Prior notice required.
Anticipatory Breach – Party to Executory
Contract declares intention of non performance.
* Treat The contract as discharged
* Take legal action

Contract of Agency
A person employed to do any act for

another, or to represent another in dealing
with 3rd persons.
Person represented – Principal
Function – to bring principal into
contractual relation with 3rd person
Agent- connecting Link

Rules of Agency
Whatever a person can do personally, he

can do through an agent. Exception..??
He who does an act through another does

it by himself

Creation of Agency
Agency by Express agreement
Agency by Implied Agreement
Agency by Ratification
Agency by Operation of law

Types..
Agency by Implied Agreement – conduct,
situation or relationship.
* Agency by Estopple.
* Agency by Holding out – prior
affirmative act on part of P required to
establish agency subsequently.
* Agency by Necessity – Agent exceeding
authority in Emergency. Husband & Wife
(Pledge credit for necessaries).
Types..
Agency by Ratification – Act on behalf,
without consent or knowledge. Subsequently
accepted.
* Requisitions of valid ratification –

Lawful, P should have Powers, Contractual
Capacity

Delegation of Authority
Delegatus Non Potest Delegare
“A person to whom authority has been given
cannot delegate that authority to another.”
Sub-Agent – Agent of original agent
* Custom of trade
* Nature of work
Relationship – Proper / Not Proper
Appointment
Indemnity & Guarantee
Contract by which one party promises to
save the other from loss caused to him by
the conduct of the promisor himself, or by
the conduct of any other person, is contract
of Indemnity. E.g. A & B - railways
Person promises to make good the loss –
Indemnifier (Promisor).
Person whose loss is made good –
Indemnified (Promisee).

Indemnity & Guarantee
Contract of Guarantee is a contract to

perform the promise, or discharge the
liability, of 3rd person in case of his default.
Person who gives guarantee – Surety
In respect to whose default – Principal
Debtor
Person to whom given - Creditor

Essential Features
Concurrence of all the three parties
Primary Liability other than Surety.
Essential Of Valid Contract.
Writing Not necessary.

Remedies For Breach Of Contract
Rescission of The Contract

Suit For Damages
Suit Upon Quantum Meruit
Suit For Specific Performance
Suit For Injunction

Quasi Contract
A person shall not be allowed to enrich himself
unjustly at the expense of another.
Kinds of Quasi Contract

 Supply Of Necessaries
 Payment By An Interested Person. E.g. Land

Cont..
Obligation To Pay for an act which is not

unwarranted. Lawfully done, intention ,
enjoy benefits
Responsibility Of Finder Of Goods –
Prudence. Can Sell – Perishable , owner not
found, refuse to pay charges etc.
Mistake or Coercion – Money paid/Return

CHAPTER - II

The Sales of Goods
Act,1930

The Sales of Goods Act,1930
Partof The Indian Contract Act,1872
Contract of Sale – is a contract whereby the
seller transfers or agrees to transfer the
property in goods to the buyer for a price
Transfer
Agrees To Transfer
Property In Goods

Essentials of Contract Of Sale
Two parties – Buyer & Seller
Goods – Must be movable. Transfer of
immovable property not regulated by this.
Price – Consideration. Must be in money.
Partly Money – Goods,Possible.
Transfer or Agreement to Transfer
ownership
Essential Elements of valid contract

Sale – Agreement To Sell
Transfer of Property – Executed / Executory

Risk of loss –Irrespective Of Possession
Consequences Of Breach – Sue for Price or
Damages
General & Particular Property – Sale : Contract +
conveyance. Agreement : Pure contract.
Insolvency of Buyer –
Insolvency of Seller -

Sale – Hire Purchase
Home assignment and class discussion

Subject Matter of Sales Contract
Goods
Every Kind of movable property other than
Actionable Claims.
Includes – Stocks & shares, grass & things
attached to or forming part of land agreed to
be severed
Trademark, Copyrights, electricity, water,
gas
Classification of goods
Existing Goods
Specific Ascertained Unascertained
Future goods
Contingent Goods

Conditions & Warranties
Condition – is a stipulation which is
essential to the main purpose of the
contract. Main Root of the Contract. If
Breach – Aggrieved party can repudiate the
contract.
Warranty – is a stipulation which is
collateral to the main purpose of the
contract. If Breach – aggrieved party can only
claim damages.

Breach of condition
When breach of condition treated as
breach of warranty?
Voluntary waiver of condition by buyer or
elect to treat breach of condition as
warranty.
Acceptance of goods by buyer - where
contract is not severable, breach can only be
treated as that of warranty.

Express - Implied Condition & Warranties
Implied Condition
Condition as to Title – seller has/will have right
to sell. e.g. returning car to true owner
Sale by Description – “if you contract to sell
peas, you cant oblige a party to take beans”
Condition as to quality or fitness – Buyer
must examine thoroughly. Exception
* Purpose Disclosed, buyer relied on seller’s
judgement, seller business to sell such goods
Continue..
Conditionas to Merchantability -
Commercially saleable.
Condition as to wholesomeness
Saleby sample – Bulk should correspond to

sample. Reasonable opportunity of
comparing. Goods free from defects (Latent).

Implied Warranties
Warranty of Quite Possession
Warranty of freedom from encumbrance
Warranty to disclose dangerous nature of

goods

Caveat Emptor
“Let the buyer beware”
“It is no part of the seller’s duty to point out defects of
his own goods. Buyer must inspect to find out if they
will suit his purpose.”
Exceptions
False representation by seller
Seller actively conceal the facts

Continue..
Where buyer makes known the purpose
Sale by description – implied condition of

merchantability. But if buyer has examined,
implied condition extends only hidden / latent
defects.
Usage or custom of trade - e.g. Hot water

bottle
Transfer of Property
Property, Possession & Risk
Property – Ownership Of Goods
Possession – Custody or Control of Goods
Risk – Risk Follows Ownership

Passing of Property
Goods must be ascertained – No property
in the goods transfers unless ascertained
Intention Of the parties – If specific
goods , property passes when parties intend
to. For intention – Terms, conduct ,
circumstances
Intention cannot be ascertained :-

Intention Not Specified..
Specific goods - property passes at the time of
contract, provided Deliverable State
Goods not in Deliverable state – Property does not

pass until work done & buyer has notice.
Unascertained Goods:- Does not pass until they are

ascertained. Unconditional Appropriation –
Selection of goods with intention of using them in
performance & with mutual consent.

Sale By Non Owners
“Nemo Dat Quod Non Habet”
“No one can give that which one has not got”
Exceptions:-
Title By Estoppel
Sale by Mercantile Agent – If he has
possession by consent of owner
Sale by one of Joint Owners

Continue..
Sale by person in possession under voidable

contract-seller has acquired by Fraud ,
voidable. Not been rescinded.
Sale by seller in possession after sale.
Sale by unpaid seller

Unpaid Seller
 Right
of Lien - Right to retain possession of
Goods until payment of the price .
 Where goods been sold without stipulation
of credit
 Credit term expired
 Buyer becomes insolvent

Right of stoppage in transit
Right of stoppage in transit – available when

the buyer becomes insolvent and when
goods are in transit.
Carrier may hold goods.
How stoppage – by taking actual

possession , by giving notice to carrier.
Right to Re-sale
Where goods are of perishable nature or
Seller gives notice of his intention and

buyer does not reply.

Auction Sale
Goods are put-up for sale in lot, each lot deemed to
be subject matter of separate contract of sale
Sale is complete when auctioneer announces by
hammer or other customary manner.
Sale notified to be subject to a right to bid on
behalf of the seller
Sale may be notified to be subject to reserved price
If pretended bidding to raise price, its voidable

Unpaid Seller Rights- Chart
Against Goods Against Buyer
Property In Goods Property In Goods

Has passed Has Not Passed
Stoppage In Withhold Stoppage In

Lien Resale Delivery Transit
Transit
Suit For Suit For Repudiation Of Suit For

price Damages Contract Interest

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Semester - I

Logic, Awareness and

Manmohan Vyas - ISBS

Why Law is required ?

 Drafting of the Indian Constitution, laws from Ireland, the United

 Indian laws also adhere to the United Nation’s guidelines on Human

 Indian civil law is complex, Religion specific laws. There are

Manmohan Vyas - ISBS

“Branch of Law which determines the

General principles of law of contract (Sec 1-

Manmohan Vyas - ISBS

“ Every promise and every set of promises, forming

Consideration is the respective interest of each of the two parties

Agreement = Offer + Acceptance

 Obligation (Legal Tie –Doing or Abstaining)

 Social Agreements – Not enforceable in

“All contracts are agreement but all

Offer & Acceptance (2 Parties-Terms Definite-absolute &

Intention to create legal relationship

Capacity of parties (Minor, Unsound mind, Disqualified)

Manmohan Vyas - ISBS

 Lawful object ( Must not be Illegal, Immoral & Against

 Agreement not declared void ( Minor - Void ab

 Certainty & Possibility of Performance

 Legal formalities ( Stamped , Registered etc.)

VALIDITY FORMATION PERFORMANCE

VOIDABLE IMPLIED EXECUTORY

Proposal :- When a person signifies to another his

Manmohan Vyas - ISBS

Offeror Offeree Acceptor

Manmohan Vyas - ISBS

 Terms must be definite, Unambiguous

 Offer must be communicated (Lalman..)

Manmohan Vyas - ISBS

 Statement of price is not an offer ( Harvey v

Cross offers are not offers

“It is to an offer what a lighted match is to a

Acceptance of Particular offer / General Offer.

Must be according to mode prescribed or

It cannot be implied from silence.

Offer, Acceptance or Revocation may be

Communication of Offer – is complete when it

Manmohan Vyas - ISBS

as against the Acceptor when it comes to the

Manmohan Vyas - ISBS

as against the person who makes it, when it is

as against the person to whom it is made,

The contract is complete even if the letter of

But, in order to bind the offeror, its important

Contract over Telephone – Middle of the

Manmohan Vyas - ISBS

 Sec 2{d} – “ When at the desire of the

Must be something which the promisor is not

Must not be illegal, immoral or against Public

Two Implications of doctrine:-

Manmohan Vyas - ISBS

Manmohan Vyas - ISBS

Indian Majority Act,1875,a minor is a person who

Manmohan Vyas - ISBS

Position of minor in agreement

Can always plead minority – Fraud by

Manmohan Vyas - ISBS

Manmohan Vyas - ISBS