Prof. Mohana Raje

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  Law of Contracts, 1872

Introduction to Arbitration & Conciliation Act, 1996 Intellectual Property Rights Laws  Information Technology Act Competition ActConsumer Protection Act

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Introduction

• What is business?

• Environment of Business

• Factors Constituting the Business Environment

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Meaning & Nature of Law• What is Law?

Law to ; a) A Citizenb) A Lawyerc) A Legislatord) 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”

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Sources of Business Law

• English Mercantile Law• Business Customs & Usages• Statute Law• Judicial Decisions of Higher Courts /

System of Precedents

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Types of Business Organizations:

Sole ProprietorPartnershipLLPCompany - Private Limited and Public LimitedJoint Hindu Family Business

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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

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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.

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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”

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Object of Law of contract

• To avoid litigation

• To establish set of rules for compliance

• To penalize defaulters

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Nature of Indian Contract Act, 1872The slides upto ‘Agency’ deal with the 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)

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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

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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.

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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”

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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

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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)

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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

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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

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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

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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

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Completion of CommunicationOffer 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

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

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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• Stranger to the Contract

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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

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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

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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

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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 lawb) If it is of such a nature that, if permitted, it would defeat the provisions of any lawc) If it is fraudulentd) If it involves or implies injury to the person or property of anothere) If the court regards it as immoralf) If the agreement opposed to public policy

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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)

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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.

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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 uncertainiii) The event must be collateral, i.e. incidental to the contract

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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)

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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

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Remedies forBreach 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 contract2. Suit for damages3. Suit upon quantum merit4. Suit for specific performance of the contract5. Suit for injunction

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Quasi ContractsLaw 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 necessaries2. Payment by an interested person3. Obligation to pay for non-gratuitous4. Responsibilities of finder of goods5. Mistake or Coersion6. Quantum meruit 7. Compensation for failure to discharge obligation created

by quasi contracts

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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)

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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)

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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)

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Bailment Ch. IX (sec 148 - 181) of Indian Contracts Act 1872

• ‘Bailment’ means ‘delivery of goods’ by one person to another for some purpose upon a contract, that they shall, when the purpose is accomplished be returned or disposed off as per the directions given by the person delivering them. One who delivers called ‘Bailor’ and to whom delivered called ‘Bailee’. >>> (sec. 148)

• Duties of Bailee (take care of bailed goods/not to make unauthorise use/exclusive benefits to the bailee/not to mix the bailed goods with his own/to return the goods)

• Duties of Bailor (disclose known faults/bear extraordinary expenses of the bailee/receive back the goods/indemnify bailee in case of premature termination)

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Cntg. >>>

Law relating to lien;

Lien means right of a person to retain possession of some goods until the claims are satisfied. These could be of two types;

i) Particular Lien & ii) General Lien

(sec 170) (sec 171)

Only those goods All the goods which

Against which services are in possession

Have been rendered (bankers/attorneys)

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Pledge• Bailment of goods as security for payment

of a debt for performance of a promise is called ‘pledge’; in this case

• The bailor is called >> pledger or pawnor• The bailee is called >> pledgee or pawnee

(sec 172)• Pledge is bailment of goods as security,

bailment is for a purpose of any kind• In case of default, pawnee may sell the

pledged goods, bailee may either retain the goods or sue for his charges

• In case of pledge, the pawnee cannot use the goods pledged, in case bailment bailee may do so if the contract so provides

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Contract of AgencyCh. X (sec. 182-238) of Indian Contract Act 1872• An Agent is a person employed to do any act

for another, or to represent another in dealings with third person(s) --- [sec. 182]

Person who represent called “Agent” Person who is represented called “Principal”• Essentials of Agency Relationship;1. Agreement btn. Principal and the Agent (no

consideration is necessary to create agency) &

2. Intention of the Agent to act on behalf of the Principal

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A few features• Creation of an Agency

(Express Agreement/Implied Agreement/Ratification)

• Duties of Agent (to carry out work undertaken as per instructions/to carry out work with reasonable care,skill & dilligence/to render accounts to the Principal/not to deal on his own account/to pay sums received for the principal/to protect & preserve interest of the principal in case of his death or insolvency/not to use the information obtained in the course of agency against the principal/not to make secret/not to delegate author