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Business law


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Business law

  1. 1. INTRODUCTIONNATURE AND SCOPE OF BUSINESS LAW<br />Business comprises all profit seeking activities and enterprises that provide goods and services necessary to an economic system.<br />Law refers to the principles and regulations established by a Government , applicable to people and enforced by judicial decision.<br />
  2. 2. Meaning and Definition<br />Business law is that portion of the legal system which guarantees an orderly conduct of business affairs and the settlement of legitimate disputes in a just manner. It establishes a set of rules and prescribes conduct to order to avoid misunderstandings and injury in our business relationships<br />
  3. 3. Sources of business law<br />Legislations.<br />Customs.<br />Case Law.<br />Natural Law.<br />English Law.<br />
  4. 4. Scope of Business law<br />The Indian Contract Act,1872<br />The Sale of Goods Act,1930<br />The Partnership Act,1932<br />The Negotiable Instruments Act,1881<br />The Companies Act,1956<br />The Patents Act,1970<br />The Trade and Merchandise Marks Act,1958<br />The Consumer Protection Act,1986.<br />
  5. 5. Objectives of Business Law:<br /><ul><li>To enable enforcement of right
  6. 6. To facilitate industrial growth
  7. 7. To achieve social justice
  8. 8. To define the rules</li></ul>Requirements of effective Business law:<br /><ul><li>Rules must be obeyed voluntarily
  9. 9. Rules must be just and reasonable
  10. 10. Rules must be flexible
  11. 11. Rules must be knowable</li></li></ul><li>The Indian Contract Act,1872<br />The Indian Contract Act came into force on 1st September 1872. The Act applies to the whole of India except the state of Jammu and Kashmir.<br />The main objective of the Act is to ensure that the rights and obligations are honored, the expectations created by the promises of parties to an agreement are fulfilled and legal remedies are available to an aggrieved party against the party failing to honor his part of the agreement. <br />
  12. 12. The Indian Contract Act,1872<br />An agreement is defined as every promise and every set of promises forming consideration for each other.[Sec.2(e)]<br />When the person to whom proposal is made signifies his assent, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.[Sec2(b)].<br />
  13. 13. Essentials of a valid contract<br />According to Sec2(h), a contract is an agreement enforceable at law.<br />Essentials:<br /> 1.Offer and Acceptance<br /> 2. Free consent<br /> 3. Contractual capacity<br /> 4. Lawful consideration<br /> 5. Lawful object <br /> 6. Agreement not expressly declared void<br /> 7. Possibility of performance<br /> 8. Certainty of terms<br /> 9. Intention to create legal relationship<br /> 10. Legal formalities.<br />
  14. 14. Classification of Contracts<br />According to validity:<br />1.Valid contract<br />2.Void contract<br />3. Void agreement<br />4.Voidable contract<br />5.Illegal agreement<br />6.Unenforceable contract<br />Note:<br />An agreement not enforceable by law is said to be void.<br />A contract which was valid when first entered into but subsequently becomes unenforceable is called void war breaks out.<br />A voidable contract is one which can be set aside at the option of one of the parties.<br />
  15. 15. Classification of Contracts<br />According to formation:<br />1.Express contract<br />2.Implied contract<br />3.Quasi contract<br />According to Performance:<br />1.Executed contract<br />2.Executory contract<br />3.Unilateral contract<br />4.Bilateral contract<br />
  16. 16. Quasi contract- refers to certain transactions which create peculiar obligations like a)supplier of necessaries to minors, lunatics, married women, b)person paying money owed by another, c) finder of goods,d)person receiving money or goods belonging to another by mistake or under coercion.<br /> Here the person receiving the benefit has an obligation to compensate the person paying the benefit although there is no explicit contract between the giver and the receiver of benefit.<br />
  17. 17. Offer and Acceptance<br />According to Sec 2(a),”when one person signifies to another his willingness to do or abstain from doing anything, with a view to obtain the assent of the other to such act or abstinence, he is said to make a proposal.” <br />Essentials of a valid offer:<br /> 1.Intention to create legal relationship<br /> 2. Definite terms<br /> 3. Statement of intention and invitation to offer.<br /> 4. Offer must be communicated.(LalmanShuklaVs.GauriDutt.(1913).<br />
  18. 18. Offer and Acceptance<br />5. Offer can be specific or general.(CarlillVs.Carbolic smoke ball Co.(1892).<br />6. Offer can be conditional<br />7. Cross offer and counter offer.<br /> When parties make identical offers to each other in ignorance of each others offer, the offers are said to be cross offers. When a new offer is made after the rejection of the original offer, it is called a counter offer.<br />8.Offer should not contain a term, the non-compliance of which would amount to acceptance<br />
  19. 19. Example:<br />A writes to B, “ I offer to sell my house for Rs.8 lacs. If I do not receive a reply by coming Monday , I will assume that you have accepted the offer to buy my house”. <br />If B does not reply there is still no contract.<br />Lapse of an offer : An offer lapses if : a) either offeror or offeree dies before acceptance b) it is not accepted within the specific time or a reasonable time c) the offeree does not make a valid acceptance d) by notice of revocation.<br />
  20. 20. Essentials of a valid acceptance<br />Acceptance must be communicated<br />Acceptance must be absolute and unqualified<br />Acceptance can be express or implied<br />Acceptance by a definite person<br />Acceptance must be through reasonable or prescribed mode<br />Mental acceptance is no acceptance<br />Acceptance must be preceded by offer<br />
  21. 21. Termination of offer<br />By notice of revocation<br />By lapse of time<br />By failure of the acceptor to fulfill a condition precedent to acceptance<br />By failure to accept according to the prescribed mode<br />By death or insanity of the offeror<br />By rejection<br />By subsequent illegality or destruction of subject-matter.<br />
  22. 22. Communication of offer and acceptance<br />Methods:<br />By Act: It includes conduct, words.(written or oral) It can also be through letter, telegram or telephone.<br />By Omission: It includes an abstinence or forbearance on the part of one person.<br />Communication of acceptance not necessary:<br />When there is a prescribed mode and the offeree follows it, b) when the offeror has acted in a certain conduct on the part of the offeree as equivalent to acceptance. <br />
  23. 23. CONSIDERATION<br /> Section 2(d) of Indian Contract Act defines consideration as –<br />When at the desire of the promisor<br />The promisee or any other person<br />Has done or abstained from doing ,or does or abstains from doing , or promises to do or abstain from doing something<br />such act or abstinence or promise is called a consideration for the promise. <br />
  24. 24. Essentials of valid consideration<br />It must move at the desire of the promisor<br /> (Kedarnath Vs. Gorie Mohamed)1886<br />It must move from the promisee or any other person (ChinnayaVs.Ramaya)1882<br />Consideration may be an act or abstinence.<br />It may be past , present or future<br />It need not be adequate-The court can hardly assume the role of setting what should be the appropriate consideration for a promise.<br />
  25. 25. Essentials of valid consideration<br />It must be real and not illusory- a promise by a man to make two parallel lines meet is no good consideration.<br />It must be lawful.The consideration of an agreement is lawful unless - <br /> a)it is forbidden by law. b)fraudulent c) it involves or implies injury to person or property of another d) the court regards it as immoral or opposed to public policy e) it defeats the provision of any law.<br />Discharge of a pre-existing obligation is no consideration.<br />
  26. 26. Exceptions to the rule “no consideration no contract”<br />Natural love and affection<br />Compensation for past voluntary service<br />Time barred debt- but the promise must be in writing and duly signed by the promisor or his authorized agent.<br />Completed gifts<br />Agency-no consideration is required to create an agency<br />Guarantee<br />Remission- no consideration is required for an agreement to receive anything less than what is due.<br />
  27. 27. Contractual Capacity Of Parties<br />“Capacity to contract” means the competence or capability of the parties to enter into a valid contract.<br />Section 11 of the Contract Act says that “every person is competent to contract who is of the age of majority and who is of sound mind and is not disqualified from contracting by any law to which he is subject”<br />
  28. 28. MINOR<br />Minor is a person who has not completed the age of 18 years. <br />However, a minor for whom a guardian has been appointed by the court or when his property is managed by the court of wards, becomes a major only on completing 21 years of age.<br />
  29. 29. Effect of minor’s agreement<br />An agreement with or by a minor is void. A minor is not competent to contract and a contract by minor is void ab initio. (Mohoribibi vs.Dharmodas ghose)1903<br />No ratification. A minor cannot ratify the agreement on attaining majority because a void agreement cannot be ratified.<br />Minor can be a promisee or beneficiary.<br /> Thus in case of goods sold by a minor he is entitled to recover the price from the buyer. He can be a payee in a contract.<br /> (Raghava Chariar Vs.Srinivasa)<br />
  30. 30. Effect of minor’s agreement<br />No estoppel against a minor. A minor can always plead minority and will not be prevented from doing so even when he has entered into a contract falsely representing himself to be a major. <br />Contract by guardian. A contract can be entered into by the guardian or manager of a minor only if a) the contract is within the authority of the guardian or manager b) it is for the benefit of the minor.<br />
  31. 31. Effect of minor’s agreement<br />Liability for torts. Where the tort is directly connected with the contract the minor is not liable, (Mohoribibi Vs.Dharmodas Ghose)but where the tort is independent of the contract, the minor cannot escape his liability.(Burnard v. Haggis.1863) <br />Doctrine of restitution. If an infant has obtained goods or property by misrepresenting his age , he can be compelled to restore it as long as it is traceable in his possession.<br />
  32. 32. Effect of minor’s agreement<br />Beneficial contracts : Agreements entered into by a minor for his/her benefit are valid and enforceable. They are –<br />a) Contracts of marriage- such contracts can be enforced against the other enforcing party at the instance of the minor but the same cannot be enforced against the minor.<br />b) Contracts of apprenticeship- such contract can be made by the guardian on behalf and for the benefit of the minor.(Roberts v. Gray)<br />
  33. 33. Effect of minor’s agreement<br />Minor as an agent- Although a minor is not entitled to employ an agent, he can be an agent for someone else.<br />Minor as a Partner- A minor cannot make a contract of partnership although he may be admitted to its benefits with the consent of all the partners.<br />Minor as a shareholder-A minor cannot be a member of a company because membership arises out of a contract.<br />Insolvency-minor cannot be declared insolvent as he is incapable of entering into valid contract.<br />
  34. 34. Free Consent<br />Coercion: According to Section 15 “Coercion is the committing or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement”<br />Ranganayakamma v. AlwarSetty. (1889).<br />
  35. 35. Undue Influence<br />According to Section 16 “ A contract is said to be induced by undue influence where the relations 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 “<br />Manu Singh V. Umadat Pandey. (1890) <br />Lloyds Bank V.Bundy.(1975)<br />
  36. 36. Distinction between Coercion and Undue Influence<br /> Coercion<br /> Undue Influence<br />Consent is obtained under the threat of offence.<br />It involves the use of physical or violent forces.<br />It attracts the provision of Indian Penal Code (IPC).<br />It may proceed from a stranger to the contract.<br />Consent is obtained by the dominant will of another.<br />It involves the use of moral or mental forces.<br />There is no criminal liability in this case.<br />There must be certain relationship between the parties to the contract.<br />
  37. 37. Misrepresentation<br />Misrepresentation refers to the misstatement of fact material to the contract. <br />According to Section 18 of the Act “Misrepresentation means and includes –<br />1. the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true<br />2. Any breach of duty which, without any intent to deceive, gains an advantage to the person committing it by misleading another to his prejudice<br />
  38. 38. Misrepresentation<br />3. Causing ,however innocently, a party to an agreement, to make a mistake as to the substance of a thing which is the subject matter of the agreement.”<br />Types Of Misrepresentation:<br />Unwarranted Statements-<br />When a party to a contract positively asserts that a particular fact relating to the subject matter of the agreement is true, when his information does not warrant it to be so, he is guilty of misrepresentation.<br />
  39. 39. Misrepresentation<br />Breach of Duty – When a person commits a breach of duty without any intention to deceive the other party, and thereby gains an advantage to himself to the prejudice of the other party, the person committing the breach of duty is said to be guilty of misrepresentation. Oriental Banking Corporation V. John Fleming (1879)<br />
  40. 40. Misrepresentation<br />Inducing mistake about subject-matter : If a party to an agreement induces the other party, although innocently, to commit a mistake as to the nature or quality of the subject-matter of the agreement, he becomes guilty of misrepresentation.<br />Eg: Concealment of information relating to company in prospectus.<br />
  41. 41. FRAUD<br />The other party acted<br />and suffered False The representation representation must relate to a fact<br />Promise with no<br /> intention to <br />perform<br />Active<br /> concealment of fact.<br />Any act which law <br /> considers to be fraud<br />FRAUD<br />
  42. 42. VOID AGREEMENTS<br />Agreement made by incompetent parties.<br />Agreement made under a mutual mistake of fact.<br />Agreement , the consideration or object of which is unlawful.<br />Agreements , the consideration or object of which is unlawful in parts.<br />Agreements made without consideration.<br /> (subject to exceptions to the rule “No Consideration No Contract”).<br />
  43. 43. VOID AGREEMENTS<br />6.Agreements in restraint of marriage- An agreement in restraint of marriage of any person , other than a minor is void. Example:P promised to marry L only and no one else and to pay a definite sum if he married someone else.P married X.<br />7. Agreements in restraint of trade- An agreement restraining a person from exercising a lawful profession, trade or business of any kind is void. However there are two types of exceptions to this rule.<br />
  44. 44. VOID AGREEMENTS<br />Statutory Exceptions:<br />1.Sale of goodwill<br />2.Partnership Act<br />B.Exceptions under the common law:<br />1.Trade combinations. Traders and manufacturers in the same line of business normally form associations to regulate, promote and carry out business in an organized way.<br />2.Exclusive Dealing Agreements<br />3.Restraints on employees.<br />
  45. 45. VOID AGREEMENTS<br />8. Agreements in restraint of legal proceedings- An agreement which prohibits a person from taking judicial proceedings, in respect of any right arising from a contract, is void. <br />9. Agreements the meaning of which is uncertain. Exception: A horse was purchased for a certain price together with a promise to give $5 more if the horse proved lucky.<br />10.Agreements in respect of wager (Sec 30) An agreement becomes a wager when it has the following features:<br />
  46. 46. VOID AGREEMENTS<br />a) Uncertain event<br />b) Mutual chances of gain or loss<br />c) Neither party to have control over the event<br />d) No other interest in the event.<br />Exceptions: a)Horse race b)Crosswords competitions c)Share market transactions d)Chit funds.<br />11.Agreements to do impossible acts. Example: A agrees with B to put life into a dead man,<br /> the agreement is void.<br />
  47. 47. DISCHARGE OF CONTRACT<br />A contract may be discharged in either of the following ways:<br />By performance<br />By agreement<br />By impossibility<br />By bar of limitation<br />By operation of law<br />By breach of contract<br />
  48. 48. Rules relating performance<br />1.Tender of performance- It refers to the offer made by the promisor to the promisee to perform his obligation under the contract. The tender must be : a) unconditional, b)made at a proper time and place<br />2. Party to perform- If the contract requires personal skill of the promisor e.g. painting, singing, then death of the promisor puts an end to the contract. Otherwise the promisor or his representative may employ a competent person to perform the promise.<br />
  49. 49. Rules relating performance<br />3. Time and place of performance- <br />when day is specified then the promisor must perform at ant time during the usual hours of business of such day and place at which the promise ought to be performed.<br />When no time is specified then the promisor must perform his obligation within a reasonable time.<br />The performance of any promise may be in any manner or at any time which the promisee prescribes or sanctions.<br />
  50. 50. Rules relating performance<br />4.Performance of reciprocal promises- when a contract consists of an exchange of promises, they are called reciprocal promises. Sec 54 lays down that where the nature of the reciprocal promises is such that one cannot be performed unless the other party performs his promise first, then if the latter fails to perform, he cannot claim performance from the other, but make compensation to him for his loss.<br />5.Appropriation of payments – It arises when a debtor owes several debts to a creditor and makes a payment insufficient to clear all debts. <br />
  51. 51. Discharge by Agreement<br />It may happen in any of the following ways:<br />1. Novation- When the parties to a contract agree to substitute the existing contract with a new one, it is called novation.<br />2. Remission- It means acceptance of less than what was agreed for.<br />3. Waiver- It means deliberate abandonment of the rights by the parties to a contract.<br />4. Rescission- It takes place when all or some of the terms of the contract are cancelled.<br />5.Merger- It takes place when an inferior right merges into a superior right accruing to the same party under the same or some other contract. <br />
  52. 52. Discharge by Impossibility<br />Impossibility of performance may be –<br />At the time of entering into the contract<br />Subsequent impossibility (also called the doctrine of frustration)<br />Grounds of frustration: <br />Destruction of subject-matter<br />Change of law<br />Non-occurrence of an event<br />Death or incapacity of party<br />Outbreak of war.<br />
  53. 53. Exceptions to doctrine of frustration:<br />1.Difficulty of performance- Unexpected difficulty is no excuse for non performance.<br />2.Commercial impossibility- possibility of lower profits than expected is no justification for non performance of the contract.<br />3.Default of third party-<br />4.Strikes, lock-outs and civil disturbances- These are no excuses unless the parties have specifically agreed in this regard initially.<br />5.Self-induced impossibility- Contract is not discharged by fault of the contracting party.<br />
  54. 54. Exceptions to doctrine of frustration:<br />6.Failure of one of the objects- when there are several purposes for which the contract has been entered into, failure of one of the objects does not discharge the complete contract.<br />EFFECT<br />The doctrine of frustration is also called the doctrine of supervening impossibility.<br />According to Section 56, when the performance of a contract becomes subsequently impossible or illegal, the contract becomes void.<br />
  55. 55. Discharge by Limitation<br />According to The Limitations Act,1963, a contract must be performed within a specific period of time. The specific period is called the period of limitation. Hence if a contract is not performed within the period of limitation, it is terminated. For example prices of goods sold must be paid within 3 years. If the creditor fails to recover within 3 yrs and the debtor is not sued for recovery, the debt will become time-barred and irrecoverable. However the parties can rejuvenate the contract by acknowledgements.<br />
  56. 56. Discharge by operation of law<br />A contract is discharged by the operation of other laws in the following three ways:<br />Death of the promisor- the contract is terminated if contract requires personal skill or ability of the promisor.<br />Insolvency- the rights and liabilities of an insolvent are released and is transferred to an Official Assignee or receiver.<br />Unauthorized alteration- when one of the parties alter any of the terms without the consent of the other party, the contract stands discharged.<br />
  57. 57. Discharge by Breach of contract<br />This is the last way of dissolving the contract. There is a breach when one party repudiates his liability to the contract or conducts himself in such a way as to make him impossible to perform the contract. Breach can be of 2 types:<br />Anticipatory breach- here breach takes place before the promised date of performance.<br />Actual breach- here breach takes place when the performance is due or during the time of performance of the contract.<br />