Business Law

Prof. Mohana Raje

Prof. Mohana Raje
 Objectives:
 
To familiarize the students with
 
the basic concepts of law,
understand the basic principles of
business law and relate to the
business environment.
 
Prof. Mohana Raje
Reference Material
 
•Business laws – N.D Kapoor
• Business Laws –
K.R.Bhulchandani
•3.Legal Aspects of Business –
Pathak
•4.Business Laws by Avtar Singh.
Prof. Mohana Raje
 Brief outline of course- contents
 
Introduction to Law
 
Contract Act

Introduction to Arbitration & Conciliation

 
Intellectual Property Rights Act
 
Information Technology Act
Competition Act
Consumer Protection Act
Prof. Mohana Raje
 Introduction

• What is business?

• Environment of Business

• Factors Constituting the Business

Environment

Prof. Mohana Raje

 Meaning & Nature of Law
• What is Law?
Law to ;
a) A Citizen
b) A Lawyer
c) A Legislator
d) A Judge

“A set of rules derived by the State to regulate the conduct of

its people, recognized by the State and enforced by it on its
people termed as Law”
“Business Law represents all those legal rules which are
connected with Trade, Industry & Commerce”

Prof. Mohana Raje

 Characteristics of Law
• A body of rules
• For the guidance and conduct of persons
• Imposed
• Enforced by the executive
• Presupposes a State
• Contents are non-static
• Role is to Develop Social Order & to compel
Social Members to remain in order
• Serves Social/Political/Economic and moral
purpose
• “ignorantia juris non excusat”
Prof. Mohana Raje
 Sources of Business Law

• English Mercantile Law

• Business Customs & Usages
• Statute Law
• Judicial Decisions of Higher Courts /
System of Precedents

Prof. Mohana Raje

Types of Business Organizations:

Sole Proprietor
Partnership
LLP
Company - Private Limited and Public
Limited
Joint Hindu Family Business

Prof. Mohana Raje

 Managing a Business
• Promotion
• Client Relationship Management
• Managing your Intellectual Proficiency
• Insurance Marketing and Sales
• Managing your Finance
• Regulatory Requirements
• Distribution
• Managing Human Resources
• Taxes

Prof. Mohana Raje

 Indian Contract act 1872 and Bureau of Indian
Standards

• BIS has adopted the ISO 9000 standards set up by

International Organization for Standardization(ISO)
for quality control. The ISO 9000 series is among
ISO's most widely known standards ever.
• The scheme covers a wide range of industry and
service sectors including engineering, chemicals,
pharmaceutical, cement, ceramics, food, textiles,
automotives, mechanical, metallurgical, electrical,
electronics, aeronautics, hospitals, financial, banking
services, construction, hospitals, wholesale & retail
trade, education& training, hotel, power, printing,
telecommunications, testing laboratories and
information technology.Prof. Mohana Raje
 Law of Contract
“ The law of contract is that branch of law
which determines the circumstances in
which promises made by the parties to
a contract shall be legally binding on
them. Its rules define the remedies that
are available in court of law against a
person who fails to perform his/her
contract and conditions under which
the remedies are available”
Prof. Mohana Raje
 Object of Law of contract
• To avoid litigation

• To establish set of rules for compliance

• To penalize defaulters

Prof. Mohana Raje

Nature of Indian Contract Act, 1872
• Provides for remedies against failure
• The conditions under which remedies are
available
• Not as exhaustive act (deals with the general
principles of law of contract and some special
contracts only)
• Doesn’t lay down limits & duties rather create
limiting principles
• The act is neither the whole law agreements nor
whole law of obligations
• jus in rem v/s jus in personem (privity of
contract)

Prof. Mohana Raje

 Agreement & Contract

• “A contract is an agreement made

between two or parties which the law
will enforce” - Section 2 (h)
• Agreement = Offer + Acceptance >>
Promise (Promisee & Promisor)
• Consensus ad idem
• Legal Obligation should be created

Prof. Mohana Raje

 What is a Contract ?

• An Agreement
• Is enforceable by law
• Made between at least two parties
• By which rights are acquired by one, &
• Obligations are created on the part of
another
• And on failure, the other party has a remedy.

Prof. Mohana Raje

AGREEMENT & ENFORCEABILITY

Every promise and

very set of promises
forming
consideration for
each other
enforced in law.
“All agreements are not
contracts, but all
contracts are
agreements”
Prof. Mohana Raje
 Essential Elements of a Valid
Contract
• Offer & Acceptance
• Intention to create a legal relationship
• Lawful consideration – (advantage/benefits
moving to & from - between the two parties)
• Capacity (Competency) of Parties – (age/sound
mind/not disqualified to enter)
• Free & Genuine consent of the parties –
(undue influence, fraud, misrepresentation,coersion
may cause absence of free consent)
• Lawful Objects
• Must not have been expressly declared Void
• Certainty & possibility of performance

Prof. Mohana Raje

 Classification of Contract as per
Indian Contract Act 1872

• Classification as per Validity (void/

voidable /illegal/ unforceable)
• Void Agreement & Void Contract
• Classification as per formation
(Express/Implied/Quasi)
• Classification as per performance
(Executed/ Executory/Unilateral-Executed
Consideration /Bilateral – Executory
Consideration)
Prof. Mohana Raje
 Offer & Acceptance
• “A person is said to have made an offer/proposal,
when he “signifies to another his willingness “to do”
or “not to do” (i.e. abstain from doing) anything, with
a view to obtaining the ascent of that other to such
act or abstinence”
– Section 2 (a)
Parties to a contract:
Offerer /Proposer /Promisor
Offeree/ Proposee/Promisee/Acceptor

Prof. Mohana Raje

 Offer
• Offer must be such that is capable to be
accepted in law and gives rise to legal
relationship
• Terms of offer must be definite, unambiguous
and not loose & vague
• Offer must be communicated
• An offer must be distinguished from
(i) an invitation to make an offer
(ii) declaration of intention to offer
• Offer must be made with a view to obtaining
the ascent
• Offer should not contain a term the non-
compliance of which may be assumed to
amount to acceptance
Prof. Mohana Raje
 Acceptance
• Acceptance is the act of assenting by the Offeree
to the offeror
• Acceptance may be express OR implied
• Who can accept? (only the Offeree)
• Acceptance must be legal & unqualified
• It must be communicated to the offeror
• It must be according to the mode prescribed
• It must be given within a reasonable time
• Showing intention to fulfill the terms of promise
• It cannot be implied by silence (mere mental
acceptance is no acceptance)
• Must be given before the offer lapses

Prof. Mohana Raje

 Revocation or Lapse of Offer

• By Communication of Revocation
• Death of insanity of either party before
acceptance
• By lapse of time (if not accepted within the
prescribed time)
• Non fulfillment of specific condition
• If a counter offer is made
• If the acceptance is not according to the
prescribed mode and the Offeree is informed
• Revocation & Rejection
Prof. Mohana Raje
Completion of Communication
Offer or Acceptance
OFFER : when it comes to the
knowledge of the Offeree
ACCEPTANCE : (i) As
against the offeror : when
putted into course of
transmission (out of
acceptors’ power)
(ii) As against the acceptor :
when it comes to the
knowledge of the offeror
Prof. Mohana Raje
Revocation of Offer or
Acceptance
(i) As against the
person who makes it --
when putted into course
of transmission.
(ii) As against the
person to whom it is
made -- when it comes to
his knowledge
 Consideration
• When A promises to do ‘something’ A must get
‘something’ in return – this something is known as
‘consideration’ (Affirmative Act / Abstinence / Promise)
• It must move at the desire of the promisor
• It may move from promisee or any other person
• It may be act, abstinence, forbearance or promise
• It may be past, present, future
• Need not be adequate
• It must be real and not illusory
• It must not be something which the promisor is
not already bound to do
• It must not be illegal / immoral
Prof. Mohana Raje
• Stranger to the Contract
Contract without Consideration
(Exceptions)
• Love & Affection [Sec 25 (1)] -- A registered agreement between
near relatives based on natural love & affection is enforceable.

• Compensation for Voluntary Services [25 (2)]

• Promise to pay a time barred debt [25 (3)]

• Completed gift [Expl. 1 to Sec. 25]

• Agency [Sec. 185]

• Charitable subscription
Prof. Mohana Raje
 Capacity to Contract
• As per Sec. 10 an agreement becomes a contract if it is
entered into between the parties competent to contract.
• As Sec. 11 declares following persons to be
incompetent to contract;

a) Minors

b) Persons of unsound mind

c) Persons disqualified by from contracting

Enemies / Corporations / Insolvent / Convicts

Prof. Mohana Raje

 Free Consent
• Sec. 13 “two or more persons are said to be
consented when they agree upon the same
thing in the same sense”
• A consent is said to be free when it is not
caused by;
a) coercion – sec 15;
b) undue influence – sec 16;
c) fraud – sec 17;
d) misrepresentation – sec 18;
e) mistake – sec 20, 21 & 22

Prof. Mohana Raje

 Legality of Object
• Sec 23 declares that object & consideration of a contract should
be lawful

• Consideration & object could be unlawful:-

a) If it is forbidden by law
b) If it is of such a nature that, if permitted, it would defeat the
provisions of any law
c) If it is fraudulent
d) If it involves or implies injury to the person or property of
another
e) If the court regards it as immoral
f) If the agreement opposed to public policy

Prof. Mohana Raje

 Void Agreements
• The following agreements have been expressly
declared to be void by the Contract Act;

• Agreements by incompetent parties-(Sec11)

• Agreements made under a mutual mistake of fact (Sec
20)
• Agreements, the consideration or object of which is
unlawful (Sec 24)
• Agreements made without consideration (Sec 25)
• Agreements, meaning of which is uncertain (Sec 29)
• Agreements to do impossible acts (Sec 56)

Prof. Mohana Raje

 Void Contract
• A contract which ceases to be enforceable by law
becomes void. In other words, an agreement may be
enforceable initially and due to certain circumstances
may become void subsequently. Thus a contract is not
void from its inception.Some of such circumstances
which makes a contract void are:-
• An agreement without lawful consideration becomes void

• A contingent contract to do or not to do something on the

happening of an event becomes void when the event
becomes impossible

• When the party, whose consent is not free, repudiates

the contract,etc. Prof. Mohana Raje
 Contingent Contracts
• Contract may be Absolute OR Contingent
• Absolute contract is one in which the promisor
binds himself to performance in any event
unconditionally
• A contingent contract is a contract to do or not
to do something, if some event, collateral to
such contract, does or does not happen (Sec 31)
• 3 essential characteristics of Contingent.
Contract;
i) Its performance depends upon happening or non-happening of
some event in future
ii) The event must be uncertain
iii) The event must be collateral, i.e. incidental to the contract

Prof. Mohana Raje

 Performance of Contract
• Sec 38 says if a promisor has made an offer to
perform as per the contract and the promisee does
not accept that, the promisor is not responsible for
non performance.
• By whom the contract must be performed;
Promisor himself, Agent, Legal Rep., Third
Person, Joint Promisors.
• Devolution of joint liabilities (Sec 42 to 44) (When 2
or more Promisors have made the promise, they are
known as the joint promisors)
All of them must fulfil the promise jointly (42),
If not, 43 comes into effect thereby;
liability of joint promisors is joint & several, a joint
promisor may claim contribution, sharing of loss
arising from default of one (43 para 1,2,3)
Prof. Mohana Raje
 Discharge of Contract
• Discharge of contact means termination of
the contractual relationship between the
parties. A contract may be discharged by;

a) Performance
b) Agreement of Consent
c) Impossibility
d) Lapse of time
e) Operation of law
f) Breach of contract
Prof. Mohana Raje
 Remedies for
Breach of Contract
• A remedy is the means given by law for the
enforcement of right

• When a there is breach of contract, the injured

party has one or more of the following remedies;

1. Rescission of contract
2. Suit for damages
3. Suit upon quantum merit
4. Suit for specific performance of the contract
5. Suit for injunction

Prof. Mohana Raje

 Quasi Contracts
Law of Quasi Contract – Law of Restitution

• As a matter of fact Quasi Contract is not a contract at all.

It is rather created by Law.
• It is an obligation which the law creates in the absence of
any agreement.
• Sec. 68 -72 deals with following kinds of quasi-
contractual obligations;
1. Supply of necessaries
2. Payment by an interested person
3. Obligation to pay for non-gratuitous
4. Responsibilities of finder of goods
5. Mistake or Coersion
6. Quantum meruit
7. Compensation for failure to discharge obligation created
by quasi contracts
Prof. Mohana Raje
 Contracts of Indemnity &
Guarantee
• Chapter VIII (sec. 124- 147) of Indian Contract Act
1872 covers these provisions
• A contract by which one party promises to save
the other from loss caused to him by the conduct
fo the promisor himself, or by the conduct of any
other person, is called a ‘contract of indemnity’.
(sec 124)
• Promisor >> indemnifier & the promisee >>
indemnity holder
• Rights of indemnity holder when sued (sec 125)
(all damages/all expenses-costs/all sums)
• Rights of indemnifier (the act is silent)
Prof. Mohana Raje
 Guarantee
(Sec. 126)
• A contract of guarantee of a contract to perform
the promise or discharge the liability of a third
person in case of his default.
• The person who gives – ‘surety’
• Who defaults – ‘principal debtor’
• To whom it is given – ‘creditor’
• It may be oral or written; express or implied
• Essential features;
Concurrence/Primary & Secondary
liability/Essentials of a Valid Contract (in case of
principal debtor being a minor, the surety is
regarded as principal debtor)
Prof. Mohana Raje
 A few features
• Nature of surety’s liability
(coextensive/limitation)

• Kinds of guarantee (specific / continuing)

• Revocation of Continuing Guarantee

(notice/death etc.)

• Discharge of Surety (surety’s liability ends)

(revocation/creditor’s conduct/invalidation)

Prof. Mohana Raje