LEGAL ASPECTS OF BUSINESS

LAW – is the rules and regulations enacted by the Government to protect

people and property.
Eg. Criminal law, Transfer Property Act, Hindu Law, Muslim Law , Business
Law etc….
Ignorance of law is no excuse [Ignorantia juris non-excusat] – means every
citizens of India must know the rules and regulations of our country. There is
no chance to escape from the clutches of law by simply saying ‘ I am ignorant
of law’ . It is essential for all business executives to have a basic knowledge of
at least the main provisions of the respective laws related with their area of
operation. For example: Sales manager of Mahindra must know the basic rules
and regulations of Contract of Sale of Goods Act, Insurance, Law of Contracts
etc…..

Business Law/ Mercantile Law includes the rules and regulations concerning
the business/trade/commerce and industry. It includes Acts like:
Law of Contracts
Sale of Goods Act
Indian Partnership Act
Companies Act
Negotiable Instruments Act
Law of Insurance
Consumer Protection Act
Payment of Bonus Act
Payment of Gratuity Act
Minimum Wages Act
Law of Arbitration etc…
Business Law
Law -…. rules and regulations enacted by the Government to protect people and
property
From Where this Law? By whom? How?........
Basic organs of Government
Legislature – Making laws [Parliament t of India/state legislative assembly].
Parliament is making laws for the country. Eg. GST….. State legislature [Kerala
State legislative assembly – Kerala Abkari /act only for Kerala
state….Arrack……prohibited by Kerala State.]
Executive – They are executing the laws…..Eg….Police department….excise
department….revenue department…..etc….
Judiciary – They are interpreting the existing laws….[courts] What is right …
What is wrong?

So… business laws by our Government……..

SOURCES OF BUSINESS LAW
1. English’s Mercantile law-Indian Business Law is based on British
Mercantile Law… our courts are referring the BML if there is any
ambiguity, lack of express provisions etc….
2. The Statute Law –When a Bill is passed the Parliament, and is signed by
the President, it becomes an Act or Statute. Most of the BL are in the
form of Acts or Statutes….
3. Case Laws or judicial decisions – The judgements by different types of
courts in specific cases are usually quoted as precedents in the subsequent
cases…..for example…the decision by competition commission Vinayan
VS Amma
4. Customs and usages – While deciding cases certain customs and usages
are given consideration by the courts….they are also sources of BL.

UNIT 1
INDIAN CONTRACT ACT 1872
Contract – An agreement enforceable by Law [Section 2h)….
Contract = Agreement + Enforceable by law…..
Agreement = Offer/proposal acceptance
Enforceability = Legal validity….the terms and conditions must be
accepted by law.
Example – Agreement between Mr. Ram and Indus motors for a car sale…./
Agreement between Mohan lal and Joshy……Agreement between Mammootty
and Lal Jose…..Agreement between Mr. Raj and Indian railway [Mumbai –
Delhi]……. Agreement between BCCI and Virat Kholi……….Here all
agreements are accepted by law…..[If there is any problem regarding the
agreement the aggrieved party can go to the court of law and seek remedy]
Example – Agreement between Mr. Khan and Mr. Roshan for killing Mr.
Kiran…Agreement between Mr. A and Mr. B for restraining the marriage of
Ms. C……Agreement between Mr. Kumar [for his son] and a political leader
for a government medical college MBBS seat….Agreement between Mr. X and
Mr. Y regarding the fixing of cricket match between India and Australia………
Agreement between Ms. Y and Mr. Z for bringing gold from Dubai etc……
According to law…….. for constituting a valid contract there are certain
essentials/Legal rules…..
LEGAL RULES / VALID ESSENTIALS
Minimum two parties – First party and second party……..(1)Mr. Khan and (2)
Mr. Kiran
Example 2 –

Offer and Acceptance – Offer by one party and acceptance by the second
party……..
Offer by Indian railway and accepted by Mr.Raj…………..
Example 2

Consideration – means something in return.

Example 1 – X promises to deliver 50 kg sugar to Y and Y promises to pay Rs.
2500 on delivery. In this case X’s consideration Rs. 2500 and Y’s consideration
is 50 kg sugar.
Example: 2

Free consent – thid is also known as consensus-ad-idem. Both the parties agree
the same thing in same sense. A consent is said to be free when it is not cause
by Coercion, Undue influence, Fraud, Mistake and Misrepresentation.
Example 1- X beats and compels him to sell his bike for Rs. 50000. Here the
consent is under coercion….so….no free consent…..no contract.
Example 2-
Intention to create legal relationship – At the time of making the agreement
the parties must have an intention to create legal relationship…..Car
sale…..legal relationship…..Mohan lal and Joshy….. but agreement between
husband and wife for gold ornaments…..agreement between A and B for
dinner…[not valid] not a contract.
Example 2 –

Parties must me competent to contract – Means the legal ability to enter into
contract. Eligible parties are : Major, sound mind and not disqualified by any
law. Not eligible – Minor, unsound mind [alien enemy, insolvent, convict etc]
Example : Agreement between Kholi and RCB…….
But agreement between Davood Ibrahim and Mr. Raj from Mumbai……not
valid [alien enemy]
Example 2..

Lawful object : For a valid contract, the object must be lawful……

Example : Mohan lal and Joshy…..A and B for a car sale…………
But A and B for bringing brown sugar from Mexico……X and Y for restraining
the marriage of a girl….
Example2……………..

Agreements not declared void or illegal – Agreements bust be accepted by

law in force…..sometimes, thee will be some restrictions by the
Government…..
Example – During Kovid some restrictions by Government……Example ……
No food by hotels…[Normally they can sell food items….but this time some
restrictions by Govt…]
Example 2

Agreement must be certain – Agreement must be clear, absolute…..no

ambiguity……
Example –Consideration for Mammootty ….. RS. 25000000/- not around 3
crores….and performance about 3 months…….it must like this performance 80
days….consideration RS. 2500000/….
Example 2 ……

Possibility of performance-The terms and conditions must be possible

perform……
Example - Agreement between Mr. X and college students for a trip to Indian
Military office[Intelligence]…. A trip to Assam Tribal area…[Restricted
place….only for tribal groups]
Example 2 …

Legal formalities –for the enforcement of contract it must satisfy the legal
formalities according to law……[Registration…signature…..stamping etc…]
The agreement must contain with the necessary formalities as to writing,
registering, signature stamping etc.
Example…..Agreement between A and B for a car sale …….
Example 2

CLASSIFICATION OF CONTRACT
Contracts are classified:
 On the basis of creation
 On the basis of performance
 On the basis of enforceability
On the basis of creation
Express contract – Created by words of mouth or written [written or verbal]
Example – E.M Sreedharan and Government of Kerala for Cochin
metro…….Sobhana and Soorya dance festival….[written] Mr. Ram and a Taxi
trip to TVM airport……[by words of mouth]
Example 2……

Implied contract – otherwise than by words of mouth or written…….from the

conduct of the parties involved or else from the circumstances of the particular
case…..
Example – KSRTC and Ms. X ….Kayamkulam bus….transferring 12 rupees
….destination Kayamkulam….over….
Ms. X and ferry man……..
Example 2……………..

On the basis of performance – In terms of the extent or stage of the

execution/completion of the agreed performance….contracts may classified into
:
Executed contract – both the partied fulfilled their respective obligations under
the contract….
Example – Mohan lal performed 90 days and Renji panicker transferred 5 crores
to mohan lal …. Rohit sharma played for Mumbai Indians and Mumbai Indians
transferred 10 crores to Rohit….
Example 2 –
Executory contract –both the parties still to perform their respective
obligations….
Example – Agreement between Sri. Yesudas and MBA 19-21 batch for a
musical program on 31 st May 2021.
Example 2….

Partly executed and partly executory [Unilateral contract]- one of the parties
to the contract performed his part other party still to perform
Mr. Santhosh booked ticket to Coimbatore and transferred RS. 1200/- to
Kallada Travels. He performed his part. Only the Kallada travels remains to
perform their obligation [take Mr. Santhosh to CBE]
Example …..

Bilateral contract……is in the nature of executory contract [both the parties still
to perform….]
Example - Example – Agreement between Sri. Yesudas[Consideration is 5
lakh] and MBA 19-21 batch for a musical program on 31 st May 2021. For this
MBA transferred RS. 5000/-….
Example 2….

On the basis of enforceability – legal validity……

Valid contract – means which satisfied and the legal rules….can enforce in the
courts of law
Example – Mr. A and Indus motors for a car sale….[3 free service…if no free
service ,,,A can file a case against Indus motors]
Example 2

Voidable contracts – is one which can be cancelled at the option of the

aggrieved party.
Example – Mr. A [buyer] Mr. B [seller] .. A car sale …Here the consideration is
4 lakh. For this A transferred Rs.25000 as advance. [contract created] Later,
Mr. A transferred Rs. 350000/- only. This time Mr. B can cancel the contract
[no need to transfer the legal ownership and car to Mr. A]. But..if Mr. B is
satisfied this situation he can execute the contract. ie….at the option of the
aggrieved party contract can be cancelled…
Example 2….

Void contract – it is a contract which was valid when entered into but
subsequently became void [invalid due to reasonable reasons….change of law,
possibility of performance etc.]
Contract between X and Y for onion for one year. As per the agreement X will
provide 1000 kg onion to Y every month…after six months Government of
India banned sale of onion. Only government authority can sell onion …..

void agreements – is a contract or some agreements are void-ab-initio [not

enforceable by law]….not valid from the beginning …
Example – Contract with a minor…….contract for restraining marriage of a
girl……contract for government college seat…
Example 2

Unenforceable contract - - they are contracts which cannot be enforced in a

court of law because some technical defects, lack of signature…
stamping….lack of registration ……etc..
Contract between MBA batch and Star travels for a trip to Mumbai. [but there
was no proof regarding the agreement] .….on 20 th December 2019. On 20 th
December 2019 Star travels refused to perform their part……. Here a contract
is created between MBA and Star travels.. but there is no proof regarding the
contract…….If you file a case you will fail….court will reject the petition..
Example 2

[Illegal agreements or contracts – is considered illegal wherein the

consideration or object is either : forbidden by law/defeats the provisions of
law/fraudulent/it implies any injury to the person or property of the
another/court regards it as immoral or opposed to public policy]
OFFER AND ACCEPTANCE
OFFER / PROPOSAL [Section 2(a)] – “When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the assent of
the other to such act or abstinence, he is said to make a proposal”
This means a person’s willingness to do something or abstain from doing anything.
Parties
Offeror – who makes the offer
Offeree – the person who accepts the offer
How is an offer made – 1. By words 2. By conduct
Example 2- by words –

Example 2-by conduct -

Types
Specific - to a particular person or group of persons.
Example 2 –

General – which is not made to a specific person or group persons but the world at a large..
Example 2 -

REFER CASE LAW – Carlill Vs Carbolic Smoke Ball Company

Valid essentials/legal rules of offer
There must be a willingness from the first party to do something or abstain from doing
anything
At the time making the proposal first party must have an intention to get the consent of the
other party
Proposal must be definite
proposal must be cable of acceptance
express or implied
offer must be communicated to offeree –

[REFER CASE LAW – Lalman Shukla Vs Gauri Dutt]

[Check communication of offer through post]

Specific or general
Lapse of offer/Termination of offer
Means offer comes to an end
Circumstances/Modes
By sending a notice of revocation
By lapse of time
Counter offer
Due to non-fulfilment of conditions
Death or insanity of offeror or offeree

ACCEPTANCE
Section [ 2b)]
“When one person to whom the proposal is made his assent thereto, the proposal or offer is
said be accepted”
The second party is ready to follow the terms and conditions by the first party.
Who can accept the offer
Specific offer – only by that particular person.
General offer – Any one satisfying the terms and conditions of offer
Legal rules/valid essentials
Second party must be ready to follow the terms and conditions by the first party
Must be communicated to the offeror
Must be in accordance with the prescribed mode
Before lapse of time

FREE CONSENT
Section (13)
Free consent means both parties agree the same thing in sense. This is also known
consensus-ad-idem. If there is no free consent…….no valid contract
A consent is said to be free when it is not obtained by:
Coercion
Undue Influence
Fraud
Mistake
Misrepresentation
COERCION [Section 15, 19, and 72] – Forcibly compelling a person to enter into a contract.
Effect –contract is voidable at the option of the aggrieved party.
Example 2

UNDUE INFLUENCE [Section 16 and 19A]

Improper exercise of authority [influence] by one party over the mind of another party and
entering into contract. The following relationships amounts to undue influence…
Doctor –patient
Teacher – student
Guardian – ward
Lawyer – client
Spiritual leader – discipline
Trustee – beneficiary
Husband – wife
Landlord – tenant
Creditor – debtor
Master - servant
Effect - contract is voidable at the option of the aggrieved party
Example 2 –

FRAUD [Section 17 and 18]

Intentional, wilful, misstatements facts by one party and inducing the other party to enter into
a contract. Here intention to deceive the other party
Effect - contract is voidable at the option of the aggrieved party.
Example 2 –

MISREPRESENTATION [Section 18 and 19]

Innocent misstatement of facts by one party and inducing the other party to enter into a
contract. Here, no intention to cheat the other party.
Effect - contract is voidable at the option of the aggrieved party
Example2 –

MISTATE [Section 20]

Incorrect belief about something
Two types
Mistake of fact
Mistake of Law
Mistake of fact
Unilateral
Bilateral
Unilateral mistake – means only one of the parties under mistake.
Effect – Contract is valid
Example 2-

Bilateral mistake – both the parties under mistake.

Effect – contract is void …
Example 2-

CONSIDERATION
[Section 2(d)]
Means……………Something in return / price of the promise
LEGAL RULES/ESENTIALS
Consideration should move be at the desire of the promisor
Consideration may move from any person
Consideration may be past/present/future
Consideration need not be adequate
Consideration must be real not worthless or illusory
Consideration must be lawful
“No consideration no contract” …….that agreement amounts to gift
Example for all points …………………..

LAWFUL CONSIDERATON
Section 23
Consideration and object of an agreement must be lawful. Consideration and object of an
agreement are deemed unlawful in the following cases:
IF it is forbidden by law
If it defeats any provisions of law
If it is fraudulent
If it implies injury to the person or property of another person
If it is immoral
If it is opposed to public policy