1. By-Sakshi Saxena
NTA NET COMMERCE-08
Paper-2
LEGAL ASPECTS OF BUSINESS
(As per new syllabus)
June 2019
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2. Syllabus
Indian Contract Act, 1972
Special Contracts
Sales of Goods Act,1930
Negotiable Instrument Act, 1881
The Companies Act,2013
Limited Liability Partnership
Competition Act,2002
The Information Technology Act, 2000
The RTI Act,2005
Intellectual Property Rights
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3. INDIAN CONTRACT ACT,1872
Every business or commercial transaction basically starts from an
agreement between two or more persons or parties. It codifies the main
principles of contract and as such, it is the legal foundation of all
transaction relating to contracts. Following important points should be
noted so far as the Indian Contract Act of 1872 is concerned.
It is applicable to all over the India.
There are 238 sections in this act.
It came into the force on 1 September 1872
It basically deals with the general principles of the law of contracts
and with certain special contracts such as contracts of indemnity and
guarantee, contract of agency.
It does not deal with the contracts relating to sale of goods,
partnership, negotiable instruments, bills of lading, insurance,
railways etc.
Section 1 to 75 of the Indian Contract Act is generally applicable to
all the contracts.
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4. Meaning of Contract & Agreement
Contract-
The term contract has been defined in Sec2(h) of the Indian
Contract Act,1872. It seems defined the contract as an
agreement enforceable by law. An Agreement enforceable by law
is a contract [Section 2 (h)]. Merely an agreement is not a
contract but its enforceability at law together constitute. Thus,
Contract = Agreement + its enforceability at law
Agreement-
Every promise and every set of Promises, forming the
consideration for each other is an agreement. [Section 2 (e)].
Thus, Agreement= Offer + its acceptance.
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5. Difference between “Contract” and “Agreement”
Agreement Contract
Every promise and every set of
Promises, forming the consideration
for each other is an agreement.
[Section 2 (e)]. In other words an
offer and its acceptance together
constitute an agreement. Thus,
Agreement = Offer + its acceptance
An Agreement enforceable by law is a
contract [Section 2 (h)]. Merely an
agreement is not a contract but its
enforceability at law together
constitute. Thus, Contract =
Agreement + its enforceability at law.
For Constituting an agreement, a
promise or sets or promises forming
consideration for each other are
required.
An agreement becomes a contract
only when agreement fulfill the legal
conditions of a contract, example,
formation of legal relationship, free
consent, lawful object etc.
It is not necessary that every
agreement must create legal
obligation because all agreements do
not go to constitute contracts. Every
contract necessarily creates a legal
obligation because every contract is
basically an agreement.
It is not necessary that every
agreement must create legal
obligation because all agreements do
not go to constitute contracts. Every
contract necessarily creates a legal
obligation because every contract is
basically an agreement.
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6. Section 10 of the Act provides for some
more elements which are essential in order
to constitute a valid contract. It reads as
follows: “All agreements are contracts if
they are made by free consent of parties,
competent to contract, for a lawful
consideration and with a lawful object and
are not hereby expressly declared to be
void.”
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7. Capacity of Parties
Sec11 of the Indian Contract Act,1872 provides the
requirement for the competence of the parties to
the contract.
“Every person is competent to contract ,who is age
of
Majority
Sound Mind
Person should not be disqualified from contracting
by any law to which he is subject. “
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8. Disqualifications-
1. Minor Person
2. Unsound Mind
3. Disqualifies by Law
4. Alien Enemy
5. Voidable
6. Insolvent
7. Convict undergoing imprisonment
8. Void agreement
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9. Free Consent
It means an act of assenting to an offer.
According to section 13, “Two or more persons
are said to consent when they agree upon the
same thing in the same thing in same sense.”
Thus, consent involves identity of minds in
respect of the subject matter of the contract.
In English Law, this is called ‘consensus-ad-
idem’.
Effect of Absence of consent: When there is no
consent at all, the agreement is void ab-initio,
i.e., it is not enforceable at the option of either
part
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10. It is one of the essential elements of a valid
contract as it is evidenced by section 10 which
provides that all agreements are contracts if
they are made by the free consent of the
parties according to section 14, consent is said
to be free when it is not caused by-
(a) Coercion,
(b) Undueinfluence
(c) Fraud,
(d) Misrepresentation,
(e) Mistake
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11. Example: X has one Maruti car and one fiat car.
He wants to sell fiat car. Y does not know that X
has two cars. Y offers to buy X’s Maruti car Rs.
50,000. X accepts the offer thinking it to be an
offer for his Fiat car. Here, there is no identity
of mind in respect of the subject of the subject
matter. Hence there is no consent at all and the
agreement is void ab-initio.
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12. Discharge of a Contract
The duties under a contract are discharged when there is a legally
binding termination of such duty by a Voluntary Act of the parties or by
operation of law. Among the ways to discharge a contractual duty are
impossibility or impracticability to perform personal services because of
death or illness; or impossibility caused by the other party.
However a contract may be discharged in a number of ways like :
• By Performance
• By Exemption from Performance
• By Non-acceptance of Tender
• By Breach of Contract
• By Frustration of Contract
• By Mutual Consent
• By Remission or Waiver
• By Accord and Satisfaction
• By Neglect of Promise to provide Facility
• By Operation of Law
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13. Breach of Contract
Breach of Contract means committing a default in performance. If
the promisor in a contract fails or neglects or refuses to perform
the contract, there is a breach of contract committed by non-
performance.
In short, A contract terminates by breach of contract. Breach of
contract may arise in two ways:
(a) Anticipatory breach, and
(b) Actual breach.
Anticipatory Breach of Contract - Anticipatory breach of
contract occurs, when a party repudiates it before
the timefixed for performance has arrived or when a party by
his own act disables himself from performing the contract.
Example -A contracts to marry B. Before the agreed date of
marriage he married C. B is entitled to sue A for breach of promise.
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14. Actual Breach of Contract
Actual Breach occurs when a party fails to
perform his/her promise on the due date of
performance. It takes place only on the day
when the performance is due and not before it.
Thus Actual Breach is caused actually at the
time of performance when the promisor does
not perform.
For instance, A Promises to sell his car to B on a
certain date for a certain price. However, A
does not sell his car on the specified date.
It means that there is an actual breach of
contract causedby A.
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15. Legal Remedies for Breach of Contracts
1. Rescission of the Contract- When a breach of Contract is committed
by one party, the other party may sue to treat the contract as rescinded.
In such a case, the aggrieved party is freed from all his obligations under
the contract.
Example -A promises B to supply 100 bags of rice on a certain date and B
promises to pay the price on receipt of the goods. A does not deliver the
goods on the appointed day, B need not pay the price.
2. Quantum Meruit- The phrase ‘Quantum Meruit’ means as much as is
merited’ (earned). The normal rule of law is that unless a party has
performed his promise in its entirely, it cannot claim performance from
the other. To this rule, however, there are certain exceptions on the basis
of ‘Quantum Meruit’. A right to sue on a ‘quantum meruit’ arises where a
contract, partly performed by one party, has become discharged by the
breach of the other party.
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