MODULE- 2 Indian Contract Act, 1872

The Indian Contract Act extends to the whole of India (except the State of Jammu and Kashmir) and it came into force on the first day of September 1872





WHAT IS A CONTRACT?
Section 2(h)-An agreement enforceable by law is a contract.
Thus for the formation of a contract there must be
•an agreement
•the agreement should be enforceable by law


The definition of Contract u/s2(h) emphasis
an agreement enforceable by law
Consensus-ad-idem Exceptions
Rights & duties social & domestic agreements


ESSENTIALS OF A VALID CONRACT
1.Offer and its acceptance
2.Free consent of both parties
3.Mutual and lawful consideration for agreement
4.It should be enforceable by law- intention should be to create legal relationship.
5.Parties should be competent to contract
6.Object should be lawful
7.Certainty and possibility of performance
8. Contract should not have been declared as void under Contract Act or any other law



EXPLANATIONS


1.Offer or Proposal and Acceptance


•Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. An offer is an indication by one person ("offeror") to another ("offeree") of the offeror's willingness to contract on certain terms without further negotiations. A contract is then formed if there is express or implied agreement. A contract is said to come into existence when acceptance of an offer has been communicated to the offeror by the offeree.


• For the formation of a contract the process of proposal or offer by one party and the acceptance thereof by the other is necessary. This generally involves the process of negotiation where the parties apply their minds make offer and acceptance and create a contract.


•When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal or offer.


Rules of Offer

•Offer must create legal relationship.
•Offer must be definite & certain.
•Offer must be communicated.
•Offer must be made with a view to obtaining the assent.
•Offer should not contain a term the non-compliance of which may be assumed to amount to acceptance.
•A statement of price is not an offer.


Acceptance

•When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.


Rules of acceptance

Communication of acceptance

•The acceptance must be communicated. Carlill v. Carbolic Smoke Ball Co
•An offer can only be accepted by the offeree, that is, the person to whom the offer is made.
•An offeree is not bound if another person accepts the offer on his behalf without his authorization.
•It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance.
•If the offer specifies a method of acceptance (such as by post or fax), you must accept it using a method that is no less effective than the method specified.
•Silence cannot be construed as acceptance. Felthouse v. Bindley



Revocation or Lapse of offer

•By communication of notice
•By lapse of time
•By non-fulfillment of a condition
•By death or insanity of the offeror
•If offer is not accepted in usual manner
•Counter offer is made
•If law is changed

Unilateral contract
•The contract in Carlill v. Carbolic Smoke Ball Co was of a kind known as a unilateral contract, one in which the offeree accepts the offer by performing his or her side of the bargain. It can be contrasted with a bilateral contract, where there is an exchange of promises between two parties
Invitations to treat
•An invitation to treat is not an offer, but an indication of a person's willingness to negotiate a contract. In Harvey v. Facey, an indication by the owner of property that he or she might be interested in selling at a certain price, for example, has been regarded as an invitation to treat
Revocation of offer
•An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. If the offer was made to the entire world, such as in Carlill's case, the revocation must take a form that is similar to the offer.If the offer is one that leads to a unilateral contract, then unless there was an ancillary contract entered into that guaranteed that the main contract would not be withdrawn, the contract may be revoked at any time:



WHO CAN ENTER INTO A CONTRACT?

A person who
is of the age of majority according to the law to which he is subject
is of sound mind ? 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 judgement as to its effect upon his interests.
is not disqualified from contracting by any law to which he is subject
is competent to contract.
Therefore a minor is not competent to contract and an agreement by a minor is void ab initio. He can not ratify an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time had any legal validity).


The following persons are therefore incompetent to contract
•Minors
•Persons of unsound mind
•Persons disqualified by law to which they are subject



Minors and Contractual Capacity


•An agreement with or by a minor is void
•Can be a promissee or a beneficiary
•NO ratification of agreement on the age of majority
•There can be no claim for compensation from a minor
•Minor can always plead minority
•Liability - for necessities, the item contracted for must be necessary for minor’s existence, the value must be up to that of the current standard of living or financial/social status (not excessive in value),
-for tort or a civil wrong.
•Can act as a agent
•Cannot be a partner in a firm or adjudged insolvent



Others and Contractual Capacity

•Insanity, mental illness, or mental/medical condition
•Drunkenness/drug abuse
•Bankruptcy
•Enemy aliens and/or terrorists
•Convict
•Foreign sovereigns & accredited representatives of a foreign state
•Business entities


Corporations
–The extent of an artificial person's capacity depends on the law of the place of incorporation and the enabling provisions included in the constitutive documents of incorporation. The general rule is that anything not included in the corporation's capacity is unenforceable by the corporation, but the rights and interests of innocent third parties dealing with the corporations are usually protected.


Insolvency
–When a business entity becomes insolvent, an administrator, receiver, or other similar legal functionary may be appointed to determine whether the entity shall continue to trade or be sold so that the creditors may receive all or a proportion of the money owing to them. During this time, the capacity of the entity is limited so that its liabilities are not increased unreasonably and to the detriment of the existing creditors.



Consideration

•Consideration is a central concept in the Indian contract act:
It is value paid for a promise or the inducement, price or motive that causes a party to enter into an agreement or contract. Consideration is needed for a valid contract.
An example; If you sign a contract with a man, agreeing to buy his car for an amount of money, his consideration is the car, which he promises to give to you. Your consideration is the CAR that you BUY and his consideration is the AMOUNT PAID to him. However, a contract saying that he would give you his car for nothing would not be valid per se, because you aren't giving him any consideration.



Legal Rules for Consideration

1.Moved at the desire of the promisor
2.It may be moved from promisee or any other person
3.It may be an act ,abstinence or forbearance or a return promise
4.It may be past , present or future
5.It need not be adequate
6.It must be real and not illusory
7.It must be something which the promisor is not already bound to do
8.It must not be illegal ,immoral or opposed to public policy



STRANGER TO CONTRACT CANNOT SUE -DOCTRINE OF PRIVITY OF CONTRACT

Only parties to contracts should be able to sue to enforce their rights or claim damages as such. However the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties.
Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty.


Common law exceptions
There are exceptions to DOCTRINE OF PRIVITY OF CONTRACT
These are:

1.Collateral Contracts (between the third party and one of the contracting parties)
2.Trusts (the beneficiary of a trust may sue the trustee to carry out the contract)
3.Land Law (restrictive covenants on land are imposed upon subsequent purchasers if the covenant benefits neighboring land)
4.Agency and the assignment of contractual rights are permitted.
5.Marriage settlement ,partition ,family arrangements.

There are exceptions to -A CONTRACT IS VOID WITHOUT CONSIDERATION
1.Love and affection
2.Compensation for voluntary services
3.Payment for time barred debt
4.Completed gift
5.Charitable subscription


FREE CONSENT IN INDIAN CONTRACT ACT

•“Consent” defined.
U/S13. Two or more persons are said to consent when they agree upon the same thing in the same sense.
•“Free consent” defined.
U/S14. Consent is said to be free when it is not caused by—
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22.

Consent is said to be free if it is not caused by-

•Coercion ? Consent is said to be caused by coercion when it is obtained by pressure exerted by either committing or threatening to commit an act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property.

•Undue influence ? A contract is said to be induced by "undue influence" where the relation 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 over the other.

•Fraud ? Means and includes the following acts done with the intention to deceive or to induce a person to enter into a contract.
(a) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true
(b) active concealment of a fact by a person who has knowledge or belief of the fact,
(c) promise made without the intention of performing it.

•Misrepresentation ? When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, it is misrepresentation. A breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is also a misrepresentation.

•Mistake ? Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as the value of the thing, which forms the subject matter of the agreement, is not deemed as mistake as to a matter of fact. Unilateral mistake, i.e. the mistake in the mind of only one party does not affect the validity of the contract


LAWFUL OBJECT
Object or consideration is unlawful if
(1) It is forbidden by law,
(2) Is of such a nature if permitted it would defeat the provisions of any law,
(3) It is fraudulent,
(4) The court regards it immoral,
(5) The court regards it opposed to public policy.
Every agreement of which the consideration or object is unlawful is void


Void agreements
Void agreements - An agreement not enforceable by law is said to be void. [section 2(g)]. - - Note that it is not ‘void contract’, as an agreement which is not enforceable by law does not become ‘contract’ at all.

Following are void agreements –
• Both parties under mistake of fact (section 20)
• Unlawful object or consideration (section 24)
• Agreement without consideration (section 25)
• Agreement in restraint of marriage (section 26)
• Agreement in restraint of trade (section 27)
• Agreement in restraint of legal proceedings (section 28)
• Uncertain agreement (section 29)
• Wagering agreement (section 29)
• Agreement to do an impossible Act (section 56).



Performance of contract

Obligation of parties to contracts. U/S 37
The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or ex­cused under the provisions of this Act, or of any other law.
•Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.

Tender of performance.
Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract.

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

Person by whom promises is to be performed
If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contain in it should be performed by the promisor himself, such promise must be performed by the promisor.In other cases, the promisor or his representative may employ a competent person to perform it.

Effect of accepting performance from this person
When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

Devolution of joint liabilities
When two or more person have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor the representatives of all jointly, must fulfill the promise.



Discharge of contract
•BY PERFORMANCE
•BY MUTUAL CONSENT
•LAPSE OF TIME
•OPERATION OF LAW
•IMPOSSIBILITY OF PERFORMANCE
•BREACH OF CONTRACT


BREACH OF CONTRACT

•The parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the Act, or any other law.Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract.

•In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. Non-performance of the duty undertaken by a party in a contract amounts to breach of contract, for which he can be made liable.


REMEDIES


When a party to the contract makes a breach of contract, there are five possible alternatives available to the other party.
•Rescind the contract
•Sue for damages
•Specific performance
•Injunction
•Quantum meruit

COMPENSATION IN CASE OF BREACH.
•Compensation for loss or damage caused by breach of contract.
• Compensation for breach of contact where penalty stipulated for.
• Party rightfully rescinding contract entitled to compensation.

SPECIFIC PERFORMANCE
Specific performance means actual execution of the contract as agreed between the parties.
•When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or
•When the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.

Quantum meruit’ means ‘as much as earned’.
A contract may come to end by
* breach of contract
* contract becoming void or
* Voidable contract avoided by party.
In such case, if a party has executed part of contract, he is entitled to get a proportionate amount i.e. ‘as much as earned by him’. This is not by way of ‘damages’ or ‘compensation for loss’. - - The principle is that even when contract comes to a premature end, the party should get amount proportional to the work done/services provided/goods supplied by one party. One party should not get enriched at the cost of others

MODULE 1: BUSINESS AND ITS LEGAL ENVIRONMENT

What is “Law”?

•Law consists of rules that regulate the conduct of individuals, businesses, and other organizations within society. It is intended to protect persons and their property from unwanted interference from others.
•Enforceable rules governing relationships among individuals and between individuals and their society



Functions of the law

•Keeping the peace
•Shaping moral standards
•Promoting social justice
•Maintaining the status quo
•Facilitating orderly change
•Facilitating planning
•Providing a basis of compromise
•Maximizing individual freedom



Basic Sources of Law

• Customs & usages
• Constitution
• Statutes and Ordinances
• Decided cases and Precedents
• Foreign Laws
• Miscellaneous

Administrative Law
Treaties
Executive Orders

•Constitution establishes the structure of the government (legislative, Executive, Judicial )
•A treaty- compact made between two or more nations.
•Statutes- written law enacted by the legislative branches of union and state governments
•Ordinances- law enacted by local government bodies
•An executive order- an order issued by a member of the executive branch of government.
•Administrative Law- legislative and executive branches of union and state governments establish administrative agencies to enforce and interpret statutes enacted by union and state legislatures.
•A judicial decision- decision about an individual case issued by a court

Classification of Law

•Substantive or Procedural Law

•Public and Private Law

•Civil or Criminal Law

EXPLANATIONS

•Substantive law deals with whether the defendant is guilty or liable
•Procedural law deals with the rules of the court under which litigation takes place
•Public Law- involves the govt.- Labor law, securities, criminal law
•Private law involves disputes among citizens- Contract law, torts, corporation law
•Civil law involves mainly private law disputes-contract law, torts, property law
•In criminal law, the state prosecutes a defendant for violating a criminal statute

Doctrine of Stare Decisis

•Stare decisis—Latin for “to stand by the decision”—means adherence to precedent.
•Based on the common law tradition, past court decisions become precedent for deciding future cases.
•Precedent is a rule of law established in a court decision. Lower courts must follow the precedent established by higher courts.
•Judges use precedent (decisions in previous cases) to determine the outcome of a current case
•Functions of stare decisis: efficiency, uniformity, stability, and predictability
•However, some cases are “cases of first impression”

BUSINESS AND ITS LEGAL ENVIRONMENT

•With the growing strength of consumer movements and rising levels of awareness among stakeholders, corporations are realizing that stakeholders and consumers are no longer indifferent to unethical practices like financial irregularities, tax-evasion, poor quality products and services, kick-backs, non-compliance with environmental issues, and hazardous working conditions.Many Indian companies too have recognized the importance of integrity, transparency, and open communications. They believe that the goodwill resulting from adopting and successfully implementing a code of business ethics will, in the long run, translate into economic gains.Today, investors want to ensure that the companies they invest in are not only managed properly, but also have proper corporate governance. They regard corporate governance as a control mechanism that ensures the optimum use of the human, physical and financial resources of an enterprise.
•Companies have now begun to integrate ethics into their corporate cultures and concentrate on putting appropriate corporate governance mechanisms in place.

What is Business ethics?

•Business ethics is a form of applied ethics that examines ethical principles and moral problems that arise in a business environment.
•In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism which is a major branch of philosophy, encompassing right conduct and good life ) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws.
•The improvising of legal ethics in business scenario is called Commercial law (sometimes known as business law)

What is Commercial law ?

Commercial law (sometimes known as business law) is the body of law which governs business and commercial transactions. It is often considered to be a branch of civil law and deals both with issues of private law and public law.
Commercial law includes within its compass such titles as principal and agent; carriage by land and sea; merchant shipping; guarantee; marine, fire, life and accident insurance; bills of exchange and partnership. It can also be understood to regulate corporate contracts, hiring practices, and the manufacture and sales of consumer goods. Many countries have adopted civil codes which contain comprehensive statements of their commercial law.

List of business law topics
•Contracts
•Corporate law
•Intellectual property
•Negotiable instrument
•Property law
•Financial regulation
•Tax law
•Arbitration

What is the importance of studying business law?
the main reasons are given below:
•It is helpful in maintaining business in legal ways as it promotes ethics on the whole.
•To make a student aware of those laws which regulate business and corporate world in a country.
•To resolve business disputes in a legal format.
•To have a better society

BUSINESS LAW

WELCOME BACK.



3 semester BUSINESS LAW

Course Code: BBALW 20301

Course Objective:
The objective of the course is to acquaint the students with the fundamentals of business related laws, which have an important role over smooth conduct of business.

Course Content:

Module I :Legal Environment of Business
Environment of Business, Its importance, Legal environment of business.



ModuleII: Indian Contract Act, 1872
Nature and kinds of Contracts, Concepts related to offer, Acceptance and Consideration, Principles Governing Capacity of Parties and Free Consent, Legality of Objects, Performance and Discharge of Contract, Breach of Contract and its Remedies, Basic Elements of Law Relating to Agency, Guarantee and Pledge.

Module III :Indian Sale of Goods Act, 1930
Sale and Agreement to Sell, Hire Purchase – Pledge – Mortgage –Hypothecation Lease. Goods – Different types of Goods, Passing of Property in Goods, Conditions and Warranties, Doctrine of Caveat emptor, Rights of an unpaid Seller.


Module IV: Negotiable Instruments Act, 1881
Meaning of Negotiability and Definition of Negotiable Instruments, Features, Cheques, Bill of Exchange and Promissory Note, Holder in Due Course, Crossing of Cheques, Endorsement and Dishonour of Cheques.


Module V :Elements of Company Law
Meaning and types of companies, Formation of a company, Memorandum and Articles of Association, Prospectus and Issue of Shares, Share Capital and Shareholders, Company Meetings and Proceedings, Powers and Liabilities of Directors ,meeting ,Managerial Remuneration and Winding up of Company.


Module VI: Consumer Protection Act 1986 and Law of Torts
Need for Consumer Protection – Meaning of Consumer – Different redressal Forums for Consumers, Rights of Consumers, Unfair Trade Practices, and Procedure for Filing Complaints. Meaning of tort, Application of Tortuous Liability in Business Situations