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Legal Aspects of Business

Objective of the Course To provide an opportunity for our Students to be familiar with the Laws , Rules & Regulations with which a Business Manager is Conversant & Conscious

It is a rule of external human action enforced by the sovereign political authority Law is the body of principles recognized and applied by the state in administration of justice Democracy can remain in a society of equals. The concept of equality of all persons in the eye of law is the basis of what is called Rule of Law

Rule of Law
No man is punishable or can be lawfully made to suffer in body or property except for a distinct breach of law established in the ordinary legal manner before the ordinary courts
There must be supremacy of law No one should be punished except for definite breach of law Breach of law must be proved in a duly constituted court of law

- No man is above the law - Law is the result of statutes and judicial decisions , customs & conventions determining the rights of private persons

Sources of Business Law

Principal Sources:
Customs & trade usages Judicial decisions & precedents Statutes or legislations Personal law of parties( Hindu, Mohammedan law)

Sources of Business Law (cont..)

Secondary Sources:
Law of merchants The common law (unwritten law of England Principles of equity(dictates of conscience) The Statute law

Legal Aspects of Business

Law is a need for the society Democracy is described as the rule of the law Law is an imperfect expression of equity Law is made for healthy regulation of a community for correct conduct of life Society needs law & expects the citizens to abide by it

Legal Sensitivity of a Manager

A practicing manager is exposed to
International Laws Institutional Laws Criminal Laws Civil Laws Business Laws

Business Manager
A Business Manager is always under Legal obligations A practicing manager must know the Business laws A manager is effective in managing the affairs of business, only if, he is aware about the laws to which he is subject to

Business laws to which you are subject to as managers are :

Indian Contract Act, 1872 Sale of Goods Act, 1930 Negotiable Instruments Act, 1881 Companies Act, 1956 FEMA, Imports & Exports Laws Tax Laws Labour & Social Security Laws Patents & Trade Mark Laws Transfer of Properties Act Environmental Laws etc .

Law of Contract
What a person has been led to expect shall come to pass That what has been promised to him shall be performed Promises made should be legally binding on the person making it Performance should follow a promise

Law of Contract
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. A promise is made for/or in anticipation of something in return (consideration) If promises are not kept & people go back on their commitments, trade & commerce will be affected Hence the requirement of law and the importance of law

What is a Contract
Law of Contract is not the whole law of agreements, nor it is the whole law of obligations, and those obligations, which have their sources in agreements An agreement enforceable by law is a contract A proposal when accepted becomes a promise Every promise or set of promises forming consideration for each other is an agreement (consensus ad idem). Consensus about the subject matter of the agreement

So, What is a Contract ?

An agreement enforceable by law is a contract Thus elements of Contract are:
Agreement (Offer + Acceptance) Enforceability by Law or legal obligation Every promise or set of promises forming the consideration for each other is an agreement. A proposal when accepted becomes a promise

Legal Obligation
It is the duty enforceable by law Without legal obligation an agreement is not a contract. Therefore, all contracts are agreements but all agreements are not contracts Sec.10 All agreements are contracts if they are made by free consent of the parties, competent to contract, for a lawful consideration, with a lawful object, comply with the legal formalities prescribed and are not expressly declared to be void.

Essentials of Contract
(Sec. 10,29,56)
Offer & Acceptance Intention to create legal relation Lawful consideration Capacities of parties or competence Free consent Lawful object Not expressly declared to be void Writing & Registration Legal formalities Certainty & Possibility of performance

Rules relating to Offer

When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain assent of that other to such act or abstinence, he is said to make a proposal(Offer) Both should be lawful An offer may be- express or implied Offer must be capable of creating legal relations Terms must be certain Invitation to an offer is not an offer

Rules relating to offer

Offer may be specific or general A mere statement of price is not an offer Offer should not contain a term the non-compliance of which would amount to acceptance Two identical cross offers do not make a contract Offer must be communicated to the offeree. Acceptance of offer in ignorance of the offer is no acceptance and does not confer any right on the acceptor

Lapse of an Offer
Offer lapses on expiry of stipulated time or reasonable time By rejection By revocation By death or insanity of the party Illegality or destruction of subject matter By non-fulfillment of condition precedent to acceptance By not accepting the mode of acceptance prescribed by the offerer

Rules relating to Acceptance

Acceptance must be communicated in the manner & mode prescribed It must be made within prescribed time or within reasonable time It must succeed the offer It must be made by the person to whom it is made Acceptance must be absolute & unqualified Acceptance must be expressed in some usual or reasonable manner An offer once rejected can not be accepted again

Communication of Offer & Acceptance Communication of offer is complete when it comes to the knowledge of the offeree to whom it is made Communication of Acceptance is complete:
As against the proposer, when it is put in the course of transmission to him by the acceptor, so as to be out of power of the acceptor As against the acceptor, when it comes to the knowledge of the proposer I.e., when the proposer receives the letter of acceptance

the foundation of all Contracts
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 abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. Consideration must be something of value Must not be illegal, immoral or opposed to public policy No Consideration No Contract

Agreement made on account of natural love & affection Agreement to compensate for past voluntary service Agreement to pay a time barred debt Completed gift Contract of agency Contribution to charity

Capacity of the Parties

Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject Not Capable: Minor (under 18 years of age) Persons of unsound mind (idiocy, lunacy, drunkenness, mental decay, old age, hypnotism) Disqualified by law (Alien enemies, ambassadors, convicts, insolvent)

FREE CONSENT (Sec. 13-22)

Persons are said to consent when they agree upon the same thing in the same sense Consent is said to be free when it is not caused by: Coercion Undue influence Misrepresentation Fraud Mistake

Committing or threatening to commit, any act forbidden by IPC, or unlawful detaining or threatening to detain, any property, to the prejudice of any person, with the intention of causing any person to enter into an agreement It is immaterial whether IPC is or is not in force at the place where coercion is employed Burden of proof lies with the aggrieved party

Undue influence
A contract is said to be influenced by undue influence, where
The relationship subsisting between parties are such that one of the party is in a position to dominate the will of the other & He uses that position to obtain an unfair advantage over the other

It is moral coercion

Undue influence (Cont..)

Apparent authority over the other (Master & Servant; Police Officer & Accused) Fiduciary relations (relation of trust & confidence e.g., father & son, solicitor & client, Promoter & the Company, medical attendant & patient, contract with old illiterate persons) It is presumed to exist However presumption is to be proved in case of
Husband & Wife Grand son & Grand father Mother & daughter Creditor & Debtor Landlord & Tenant

Effect of undue influence

When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. In an action to avoid a contract on the ground of undue influence, the plaintiff has to establish that: The other party was in a position to dominate his will Influence was used to obtain plaintiff s consent The transaction was unreasonable

Positive assertion, in a manner not warranted by the information of person making it, of that which is not true, or Breach of duty which without intent to deceive, gains an advantage to the person committing it, by misleading another Causing however innocently, a party to an agreement as to the substance to the thing, which is the subject matter of the agreement

A representation when wrongly made, innocently, or carelessly, believing it to be true is misrepresentation The aggrieved party can either rescind the contract treating it as voidable or May affirm the contract and insist that he shall be put in a position in which he would have been if representation made had been true Misrepresentation does not entitle the aggrieved party to claim damages by way of interest or for expenses incurred

Following acts committed by a party to a contract, with intent to deceive or to induce another to enter into the contract are fraud: Suggestion that a statement is true when it is not true Active concealment of fact having knowledge Intention to deceive Other party lying on the facts stated, enters into contract and ultimately gets deceived A false statement is not fraud, but false statement with an intention to deceive is fraud

Erroneous belief about something - MISTAKE Mistake can be mistake of law or mistake of fact Mistake of law of the country- no excuse Mistake of law of foreign country & mistake of fact -


Ignorance of law is no excuse, contract can not be avoided But mistake of fact relating to subject matter of the contract is void Bilateral mistake of fact is void ab initio (no consent) Unilateral mistake does not vitiate the contract unless fraud is exercised.

Legality of object
If law forbids it viz., by criminal law or prohibited by special legislation etc. If it is of such nature that if permitted it would defeat the provisions of any law If it is fraudulent If it involves or implies injury to the person or property of another If the court regards it as immoral (sexual immorality, concubinage) or opposed to public policy like agreement for trading with an enemy, agreement to commit crime

Agreements opposed to public policy

Agreements of trading with enemy Agreement to commit crime Agreements that stifle prosecution Agreements in restraint of legal proceedings Agreements for sale of public offices & titles Agreements in restraint of parental rights Agreements in restraint of marriage Marriage brokerage agreements Agreement interfering with marital duties I.e., agreement to marry after death of spouse

Agreements in restraint of trade Agreement to defraud creditors or revenue authorities Agreement restricting personal liberty

Performance of Contract
Fulfillment of the contractual obligations by both the parties Normal & natural mode of discharging or terminating a contract is due performance Sec. 37. Parties to a contract must either perform or offer to perform respective promises unless such performance is dispensed with or excused Sec. 38. Where the promisor has made an offer of performance to the promisee, & the offer has not accepted, the promisor is not responsible for nonperformance nor does he lose his right under the contract, provided, it is unconditional and exactly as per the terms of contract & at proper time & place.

Who can demand Performance,

Promisee can only demand performance & legal representative in case of his death. No third party can demand performance Contract must be performed
By the promisor himself or his agents By the legal representative By a third person In case of joint promises, right to claim performance rests with all the promisees jointly, not with a single promisee, unless contrary intention appears from the contract.

Liability of Joint promisors is joint & several as against the promisee, unless there is a contract to the contrary Performance of contract must be at the specific time & place prescribed. If it is not prescribed , then it must be performed within a reasonable time & at a proper place.

Discharge of Contract
When the rights & obligations arising out of it are extinguished A contract may be discharged:
By performance By agreement or consent(novation, alteration, rescission, remission By impossibility By lapse of time By operation of law(death, insolvency, merger, unauthorized material alteration) By breach of contract ( actual breach or anticipatory breach)

Remedies for breach of contract

In case of breach of contract, the aggrieved party has following remedies:
Rescission of the contract Suit for damages (compensation, damage for loss Suit upon quantum meriut ( as much as earned) Suit for specific performance Suit for injunction

Quasi contracts
Certain relations resembling those created by contracts No person shall be allowed to enrich himself unjustly at the cost of another In equity & good conscience, he should not retain it It is his duty or obligation, in the absence of any contract

Quasi Contracts
Claims for necessaries sec. 68 Payment by an interested person sec.69 Obligations to pay for non-gratuitous act. Sec.70 Responsibility of Finder of lost goods. Sec. 71 Mistake or coercion. Sec. 72