Amity Business School

MBA (M&S), Semester II

Legal Aspects of Business
Dr. Anshu Yadav

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• 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 Valid

Promises 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 Legal Enforceability

Promise or
set of Lawful Where Rights and
Promise Consideration Obligations in a
contract are
Offer enforceable in the eyes
Acceptance
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 11
contract.”
 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
1. Offer must be capable of creating the legal relation
2. Offer must be certain, definite and not vague
3. Offer may be express or implied
4. Offer must be distinguished from an invitation to offer
5. Offer may be specific or general
6. 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
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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 Minor’s 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 minor’s guardian

Person’s disqualified form entering into

contract
• Alien enemy
• Foreign sovereigns and ambassadors 22
 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 On the basis

On the basis
of of
of
Enforceability Creation
Execution
• Void • Expressed
• Executed
• Voidable • Written
• Executory
• Illegal • oral
• Implied
• E-Contract

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 On the basis of Enforceability
VOID CONTRACT A contract which ceases to be enforceable by law becomes void
[SEC. 2(j)] when it ceases to be enforceable.
VOID AGREEMENT An agreement which is not enforceable by law is said to be
[SEC. 2(g)] 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
[SEC. 2(i)] more of the parties, but not at the option of the other (s) is a
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 An unenforceable contract is one which is good in substance
CONTRACT 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 ‘B’’s shop by
mistake, then it is ‘B’’s duty to return the goods or to
compensate the price.
In fact, these contracts depends principle of doctrine of
unjust enrichment.
E- one, which is entered into between two parties via internet. 31
CONTRACT
 On the basis of Execution

Executed An executed contract is a contract in which both the parties

Contract 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 An Executory contract is the contract which is to be
Contract 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
 Mutual consent or agreement
Novation 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
ANTICIPATORY BREACH OF
CONTRACT
• When the promisor
refuses altogether to
perform his promise and
signifies his unwillingness,
even before the time of
performance has arrived,
it is called Anticipatory
Breach.
ACTUAL BREACH OF
CONTRACT
• Where the promisor
refuses to perform
promise on the scheduled
date. When one of the
parties breaks the contract
by refusing to perform the
promise when it falls due,
it is Actual Breach.
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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 didn’t suffer real damage

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