Amity Business School

MBA (M&S), Semester II

Legal Aspects of Business
Dr. Anshu Yadav

 Course Credits: 3
Course Objective
This course aims to develop in the student an
understanding of the core principles of the laws
that regulate business organisations. Course
would develop the independent and individual
skills needed for students to take their
knowledge further, and to apply it in practice in
industry, or business environment.
Internal Assessment
Mid Term 10 Marks

Project 15 Marks

Course Contents
Module I: Commercial Laws
Indian Contract Act 1872
Sales of Goods Act 1930
Negotiable Instruments Act 1882
Module II: Partnership
Indian Partnership Act 1932
Limited Liability Partnership Act 2008
Module III: Companies Act 2013

Course Contents
Module IV: Consumer Protection Act 1986
Module V: Miscellaneous Themes
IPR
IT Act

Purpose of Indian Contract

Act
The Act was passed by British India and is based on the
principles of English Common Law.
It determines the circumstances in which promise made
by the parties to a contract shall be legally binding on
them.
It is applicable to the All States of India except the State
of Jammu & Kashmir.

History of Indian Contract Act

The Indian Contract Act came into force on 1st September
1872.
Before the enactment of the Indian Contract Act, 1872,
there was no codified law (Specific law) for contracts in
India.
The Act originally had 266 Sections.
The entire Act was divided into following parts:
General Principles of Law of Contract (Sec 1 to 75)
Contract relating to Sale of Goods (Sec 76 to 129)
Special kinds of Contracts (indemnity, guarantee,
bailment & pledge) (Sec 125 to 238)
Contracts relating to Partnership (Sec 239 to 266)

MEANING OF CONTRACT
According to Section 2(h)
- A contract is an agreement enforceable by law.

CONTRACT
Agreement

Legal Enforceability

MEANING OF AGREEMENT
According to Section 2(e)
- every promise and every set of promises,
forming the consideration for each other, is an
agreement.

AGREEMENT

Promise or set of
Promises

Valid Consideration

PROMISE Sec.2(b) A proposal when accepted becomes a promise.

CONSIDERATION

Price paid by the one party for the promise of the other.
Technical word meaning QUID PRO QUO i.e. something in
return

MEANING OF PROMISE
According to Section 2(b)
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 a promise.

PROMISE
Offer/Proposal

Acceptance

MEANING OF CONTRACT
CONTRACT
Agreement
Promise or
set of
Promise
Offer

Legal Enforceability
Lawful
Consideration

Acceptance

Where Rights and

Obligations in a
contract are
enforceable in the eyes
of Court.
Means where parties to
the contract have rights
to file case in the court.

 Rights and Obligation

Contractual rights and obligations are correlative

Agreements which are not contract

Relating to social matter
Domestic arrangement
Balfour v. Balfour

Agreement

Legal Obligation

Contract

All the contracts are agreement but all agreements are not
contract.

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ESSENTIAL ELEMENTS OF A
VALID CONTRACT (Section 10)
According to Section 10, all agreements are
contracts if they are made
by the free consent of parties
competent to contract,

for a lawful consideration,

with a lawful object, and
if they are not expressly declared to be void.

ESSENTIAL ELEMENTS OF A VALID

CONTRACT
The essential elements of a valid contract are:

Offer and Acceptance: There shall be an offer or proposal by

one party and acceptance of that offer by another party resulting
in an agreement (consensus ad idem).
Intention to create legal relations: There shall be an intention
between the parties to create legal relations.
Lawful consideration: The agreement is supported by a lawful
consideration. Consideration means something in return.
Capacity of parties: The parties to the contract shall be legally
competent to contract.
Free consent: The consent of the parties shall be genuine and
free.
Legal object: The object of the contract shall be legal and shall
not be opposed to public policy.
Certain terms: The terms of the contract shall be certain and
shall not be vague.
Possible performance: The agreement is capable of being
performed i.e., it is not impossible of being performed.

Offer or Proposal and

Acceptance
Sec.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 that either to
such act or abstinence, he is said to make a
proposal.

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Rules governing offer

Offer must be capable of creating the legal relation
Offer must be certain, definite and not vague
Offer may be express or implied
Offer must be distinguished from an invitation to offer
Offer may be specific or general
Offer must be communicated to the person to whom it is
made
7. Offer must be made with a view to obtaining consent of
the offeree
8. An offer should not contain a term the non compliance of
which amounts to acceptance
9. Communication of Special terms
1.
2.
3.
4.
5.
6.

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LAPSE (Revocation) OF AN
OFFER

On expiry of stipulated or reasonable time.

By not accepting in mode prescribed.
By rejection by the offeree.
By death or insanity of the offerer or offeree before
acceptance.
By revocation by the offeror at any time before acceptance.
Revocation of standing offer at any time by giving notice to
the offeree.
Revocation by non fulfillment of condition precedent to
acceptance.
By subsequent illegality or destruction of subject matter.
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Rules governing acceptance

Acceptance must be absolute and
unqualified
Acceptance must be communicated
Mode and time of Acceptance
Acceptance by conduct
Conditional acceptance operates as
rejection of offer

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Consideration
Sec 2(d)
consideration is defined as when at the
desire of the promisor , or 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 an act or absinence or promise is
called a consideration for the promise
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Rules governing consideration

Consideration must move at the desire of the
promisor
Consideration may move from the promisee or
any other person
Chinnayya V. Rammayya

Executed, Executory and past consideration

Consideration need not be adequate(sec25)
Consideration should be real, Must not be
unlawful, immoral or opposed to the public policy
There must be mutuality(eg- charity)
Should be more than promisee is already bound
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When consideration not

necessary
Out of natural love and affection
Rajluckhy v. Bhoothnath

Compensating voluntary act

In case of gift

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Capacity to contract
Sec11: Every person is competent to contract who
is of age of majority according to the law to
which he is subject, who is of sound mind and is
not disqualified from contracting by any law to
which he is subject.
An agreement entered into by or with a minor is void ab initio

Sec 12: 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 of forming a rational judgment so as to its
effect upon his interests.
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Position of Minors Agreement

An agreement entered into by or with a minor is void
ab initio
Minor can be beneficiary
Minor can always pleads minority
Ratification an attaining majority is not allowed
Contract by minors guardian
Persons disqualified form entering into contract
Alien enemy
Foreign sovereigns and ambassadors
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Free consent
Sec 13 : Two or more persons are said to
have consented when they agree upon
something in the same sense
(consensus-ad-idem).
Sec 14: A consent is said to be free
when it is not caused by coercion, undue
influence, fraud, misrepresentation or
mistake.
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 Coercion: is committing or threatening to commit any act

forbidden by Indian Penal Code, or the unlawful detaining
or threatening to detain any property, to the prejudice of
any person whatever, with the intention of causing any
person to enter into an agreement.
Undue Influence: when the relations subsisting between
the parties are such that one of the parties is in a position
to dominate the will of the other and uses that position to
obtain an unfair advantage of the other
Fraud: Fraud means and includes any of the following acts
committed by a party to a contract or with his connivance
or by his agent with intent to deceive another party thereto
or his agent, or to induce him to enter into the contract
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 Misrepresentation: Mistake:

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Lawful Consideration Or Object

Sec 23: Consideration or object is unlawful if it is
Forbidden by law
Defeat the provisions of any law
Injury to the person or property of another
Immoral or opposed to the public policy

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Privity of Contract
A stranger to the contract can not sue
Dunlop Pneumatic Tyre Co. v. Selfridge Ltd.

Exceptions

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Types of Contract
On the basis
of
Enforceability
Void
Voidable
Illegal

On the basis
of
Creation
Expressed
Written
oral
Implied
E-Contract

On the basis
of
Execution
Executed
Executory

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On the basis of Enforceability

VOID CONTRACT [SEC.
2(j)]
VOID AGREEMENT
[SEC. 2(g)]

A contract which ceases to be enforceable by law becomes void

when it ceases to be enforceable.
An agreement which is not enforceable by law is said to be
void. It is an agreement which cannot be enforced from the date
when they were made. It is void ab initio.

VOIDABLE CONTRACT An agreement, which is enforceable by law at the option of one

more of the parties, but not at the option of the other (s) is a
[SEC. 2(i)]
voidable contract.
For example: - Mr. A, at knife - point, asks B to sell his scooter
for Rs. 50. Mr. B gives consent. The agreement is voidable at
the option of B, whose consent is not free.
UNENFORCEABLE
CONTRACT

An unenforceable contract is one which is good in substance

but cannot be enforced by law due to some technical defects,
such as under stamping, absence of writing, barred by
limitation.

ILLEGAL CONTRACT

A contract which is forbidden by law.

For example: - Agreement to commit crime.
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1. AGREEMENTS EXPRESSLY DECLARED VOID

Agreements by incompetent parties (Sec. 11)
Agreements with unlawful object or consideration
(Sec. 23)
Agreement made under mutual mistake of fact (Sec.
20)
Agreements without consideration (Sec. 25)
Agreements in restraint of marriage, trade or legal
proceedings etc.
Agreements to do impossible Acts (Sec. 56)
Example:- An agreement to discover treasure by
magic is void.
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On the basis of Creation

EXPRESS
A contract which is created either by word spoken or written.
CONTRACT
IMPLIED
The contract which is created otherwise by words spoken or written.
CONTRACT

Tacit
A contract which is inferred from the conduct of the parties
Contract is said to be tacit contract.
Quasi These are the contracts, which are created neither by
Contract word spoken, nor written, nor by the conducts of the
parties, but these are created by the law.
For example: - If A leaves his goods at Bs shop by
mistake, then it is Bs duty to return the goods or to
compensate the price.
In fact, these contracts depends principle of doctrine of
unjust enrichment.

Eone, which is entered into between two parties via internet.

CONTRACT

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On the basis of Execution

Executed
Contract

An executed contract is a contract in which both the parties

have performed their obligation. This is a contract which has
been completed.
For example:- If A agrees to sell his car to B for Rs. 100000.
The contract is said to be executed if A delivers car to B and
B pays the price to A.

Executory
Contract

An Executory contract is the contract which is to be performed

in future.

Unilateral

Where obligation is pending on the part of one of the parties.

Contract

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Performance of Contracts: Sec 37

The parties to the contract must either perform or offer to
perform their respective promises unless such performance
is dispensed with or excused under the Indian Contract Act
or any other law.
Who must perform:
i. The promisor himself
ii. If not specified, then agent of promisor can perform
iii. In case of death of promisor, his legal representatives must
perform
iv. In case of contracts involving personal skill, promisor himself
should perform not the third person
v. Joint promisors

Tender of Performance : Sec 38

If promisor performs his side of the contract and the
performance is rejected, the promisor is discharged from
further liability and may sue for the breach of contract, if he
so wishes.
To be valid, a tender of performance must fulfill
following conditions:
i. It must be unconditional
ii. It must be made at a proper place and time.
iii. If it relates to delivery of goods, the promisee must
have a reasonable opportunity to check the goods.

Effect of the refusal of the party to perform:Sec 39

When a party to a contract has refused to perform or has disabled
himself from performing his promise in entirely, the promisor may
put an end to the contract, unless he has signified by words or
conduct, his acquiescence in its continuance.

Rights to the aggrieved party:

To terminate the contract
To indicate by words or conduct that he is interested in his
continuance
Rights to clam damages

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Discharge of Contracts:
A contract is said to be discharged or terminated when the
rights and obligations arising out of a contract are
extinguished.
Modes of discharge of contracts:
Performance or tender
Mutual consent or agreement (by novation, rescission,
alteration, waiver)
Lapse of time
Operation of law
Impossibility of performance
Breach of contract

Novation

Mutual consent or agreement

When parties to a contract substitute a new contract for old.
On novation, old contract is discharged and consequently it
need not to be performed. There may be change in parties.

Rescission

When parties to a contract agree to rescind it, the contract

need not be performed. In this case, only old contract is
cancelled no new contract is formed.

Alteration

Where parties to a contract agrees to alter it, the original

contract is rescinded, with the remit that it need not be
performed.
No change in parties to the contract.
Change in terms & conditions of original
agreement.

Waiver

Deliberate abandonment or giving up of a right to which a

party is entitled to under a contract,
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Discharge of Contracts by impossibility:

A contract is deemed to have become impossible of
performance and thus void under the following
circumstances:
a. Destruction of the subject matter of the contract.
b. By the death or disablement of the parties.
c. Subsequent illegality.
d. Declaration of war.

Breach of contract

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Remedies for Breach of Contracts:

When a contract is broken, the injured party has several
courses of action open to him. The injured party may :
i. Rescind the contract and refuse further performance of
contract
ii. Sue for damages
iii.Sue for specific performance
iv.Sue for injunction
v. Sue on quantum meruit

Damages
Ordinary: arises naturally in normal course
of business
Special: when party to contract receives a
notice of special circumstances
Vindictive: awarded to punish the
defendants
Nominal: when there is breach of contract
but plaintiff didnt suffer real damage
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