8th module bgs01

8/12/2019 8th Module Bgs01

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VIIIth Module :BUSINESS LAW CLASS

CONTENTS

1. Introduction to Business Laws2. Indian Contract Act 18723. indian negotiable instrument act 18814. Sale of goods act 1031


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What is law ?1 A citizenmay think of law

as a set of rules which he must obey2 A lawyerwho practices lawmay think of law as avocation3 A legislatormay look at law

as a something created by him4 A judgemay think of lawas a guiding principles to be applied in makingdecisions


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Law

Law includes all those rulesand regulationswhichregulate our relations with

other individuals and with

the state.


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Meaning of law

Law means a set of rules.It may be defined as the rules of conduct

recognized and enforced by the state tocontrol and regulate

the conduct of people,

to protect their property andcontractual rights with a view to

securing justice, peaceful living andsocial security.


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The law is not rigid, it is flexible.Since the value system of society keeps on

changing , the law also keeps changing accordingto the changing requirements of the society.

There are several branches of law such asInternational law, constitutional law, criminal law,civil law etc..

Every branch of law regulates and controls aparticular field of activity.


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Why should one know law

Because ignorance of law is no excuse.Ex : 1

If X is caught traveling in a train without ticket,cannot plead that he was not aware of the ruleregarding the purchase of ticket and therefore, hemay be excused.

Ex : 2If Y is caught driving scooter without driving

license, he cannot plead that he was not aware of

the traffic rule regarding the obtaining of a drivinglicense and therefore, he may be excused.


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Definition of Lawby Salmond

Law is

the body of principles recognized and

applied by the State in theadministration of the justice .


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Object of law

The object of law is order, and

the result of order is that men areenabled to look ahead with somesort of security as to the future


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Need for the knowledge of law Ignorantia juris non excusatis a familiar maxim. This means

ignorance of law is not excusableThe law now a days is a matter of greatintricacy.

As such nosound business manwould attempt tosolve important legal questions affecting hisbusiness interest without expert legaladvice.


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BUSINESS L WSBusiness lawsare those laws which regulatetheconduct of the business.


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Sources of Business Law

1.English Mercantile Law

2.The Statute Law

3.The Common Law (sometimes called as case

law)

4.Customs and Usages


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English MercantileLaw: English laws are theprimary sources of Indian Mercantile Law. Englishlaws are based on customs and usages of

merchants in England.The StatuteLaw: The various Acts passed by

the Indian Legislature are the main sources ofmercantile law in India, e.g. Indian Contract Act,

1872, The Sale of Goods Acts,1930, ThePartnership Act, 1932, The Negotiable Instruments

Act 1881, The Companies Act, 1956.


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The Common Law: This source consistsof all those unwritten legal doctrinesembodying customs and traditions

developed over centuries by the Englishcourts. Thus, the common law is found inthe collected cases of the various courts of

law and is sometimes known as case law.The common law emphasizes precedents.


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Customs and usages: The customs andusages of a trade are also one of thesources of mercantile law in India. These

customs and usages govern the merchantsof a trade in their dealings both each other.Some Acts passed by the Indian Legislature

recognizes the importance of such customsand usages.


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LawofContract

The law of contract is regulated by Indian Contract Act, 1872OBJECT OF THE LAW OF CONTRACT

The law of contract is that branch of law whichdetermines the circumstances in which promises

made by the parties to a contract shall belegally binding on them.

In simple words, the purpose of law of contract is toensure the realization of reasonable expectation ofthe parties who enter in to contract.


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OBJECT OF LAW OF CONTRACT

According to Sir William Anson,The law of contract is intended to ensure

that, what a man has been led to

expect shall come to pass, and thatwhat has been promised to him shallbe performed.


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Section2(h)of Indian Contract Act, 1872defines a contract as ..

An agreement enforceable by law.

So, a contract is an agreement made

between two or more parties which thelaw will enforce.


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CONTRACT

An agreement enforceable by law is acontract.

Contract = Agreement EnforceabilityAgreement = Offer Acceptance

An agreementis defined as,every promise and set of promises,forming consideration for each other[Sec2(e)].


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A promise isdefined thus:

When the person to whom the proposal is

made signifies his assent there to, theproposal is said to be accepted.

A proposal, when accepted, becomes apromise. [Section 2(b)].

An agreement is an accepted proposal.


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Agreement and its types

Legal Agreement

Social Agreement

Domestic Agreement


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Obligation

An agreement, to become a contract, must give rise to alegal obligation or duty.

An obligation is a legal tie which imposes upon a definiteperson or persons the necessity of doing or abstainingfrom doing a definite act or acts.

Ex. A agrees to sell his car to B for Rs.1,00,000/-.Theagreement gives rise to an obligation on the part of A todeliver the car to B on the part of B to pay Rs.1,00,000/- to

A. This is a legal agreement. This agreement is acontract.


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Obligation

An agreement which gives rise to socialobligation is not a contract.

An agreement is a wider term.

An agreement may be a social agreement or alegal agreement.

If A invites B to a dinner and B accepts the

invitation, it is a social agreement.


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Obligation

A social agreement does not give rise to contractualobligations and is not enforceable in a Court of law.

It is only those agreements which are enforceable in acourt of law which are contracts.

A father promises to pay his son Rs.100/- every month aspocket allowance. Later he refuses to pay.

The son cannot recover as it is a domesticagreementand there is no intention on the part of theparties to create legal relations.


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All contracts are agreements, but all agreements arenot necessarily contracts

ESSENTIALS OF A VALID CONTRACT: Sec 2(h) sec(10)1. Offer and Acceptance2. Intention to create legal relationship3. Lawful consideration4. Capacity of parties-Competency5. Free and genuine consent6. Lawful object7. Agreement not declared void8. Certainty and possibility of performance9. Legal formalities


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ESSENTIALS OF A VALID CONTRACT:

1.Offer and Acceptance:There must be two partiesto an

agreement, i.e., one party making the offer

and the other accepting itThe terms of the offer must be definite and

the acceptance of the offer must beabsolute and unconditional.

The acceptance must also be according to themode prescribed.


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2.Intention to create legal relationship:When two parties enter into an agreement, their intentionmust be to create legal relationship between them .Ifthere is no intention on the part of the parties, there is

no contract between them.E g., A husband promised to pay his wife a house holdallowance of 30 pounds every month .Later the partiesseparated and the husband failed to pay the amount.The wife sued for the allowance .

Held, the agreement such as these were outside the realmof contract altogether (Balfour vs.Balfour,1919 s Carbolicsmoke ball Co.v

s Carlill)


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3. Lawful consideration :An agreement to be enforceable by law must besupported by consideration.

Considerationmeans advantage or benefit moving fromone party to the other. It is the essence of a bargain.

In simple words, it means something in return.

A promise to do something and, getting nothing inreturn is usually not enforceable by law.

Consideration need not be in cash or kind.

It may be an act or abstinence.It may be past,present or future.But it must be real

and lawful


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4.Capacity of parties-Competency:The parties to the agreement must be capable ofentering in to a valid contract.Every person is competent to contract if he,(a) is of the age of majority,(b) is of sound mind, and(c) is not disqualified from contracting by any law towhich he is subject.The flaw in capacity to contract may arise from minority,lunacy, idiocy, drunkenness, etc.


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5.Free and genuine consent:It is essential to the creation of every contract that theremust be free and genuine consent of the parties to theagreement.The parties are said to be of the same mind when theyagree about the subject matter of the contract in thesame sense and at the same time(Sec.13).There is absence of free consent if the agreement

is induced by coercion, undue influence, fraud,misrepresentation and mistake(Sec.14).


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6.Lawful object:The object of the agreement must be lawful. In

other words, it means that the object must notbe (a) illegal, (b) immoral, or (c) opposed topublic policy(Sec.23)

If an agreement suffers from any legal flaw, itwould not be enforceable by law.


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7. Agreement not declared void:The agreement must not have been expressly

declared void by law in force in the country

under the provisions of sections 24 to 30 ofthe Indian Contract Act,1872Under these provisions, agreement in restraint of

marriage, agreement in restraint of legal

proceedings, agreement by way of wager

have been expressly declared as void

A void agreement is one which is not enforceableby law.


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8. Certainty and possibility of performance:The agreement must be certain and not vague or indefinite(Sec.29).If it is vague and if it is not possible to ascertain itsmeaning, it cannot be enforced.Ex. Aagrees to sell toBa hundred tons of oil.There is nothing whatever to show what kind of oil was

intended. The agreement is void.


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9.Legal formalities:A contract may be made by words spoken orwritten.As regards the legal effects, there is no difference betweena contract in writing and a contract made by word ofmouth.It is however in the interest of the parties that thecontract should be in writing.In some other cases, a contract, besides being a writtenone, has to be registered.


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Classification

of Contracts

Contracts may be classified according to,1.Validity 2.Formation, and 3.Performance

VALIDITY FORMATION PERFORMANCE1.Voidable Contract [2(i)] 1.Express Contract [9] 1.Executed Contract

2.Void Agreement [2(g)] 2.Implied Contract [9] 2.Executory Contract

3.Void Contract [2(j)] 3.Quasi Contract 3.Unilateral Contract

4.Illegal Agreement 4.Bilateral Contract

5.Unenforceable Contract


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1.Classification according to Validity

i] Voidable contract: An agreement which isenforceable by law at the option of one party butnot at the option of the other or others is avoidable contract [Sec.2(i)].

The party whose consent is not free mayeither rescind (avoid or repudiate) thecontract, if he so desires, or elect to be boundby it.

A voidable contract continues to be valid till it isavoided by the party entitled to do so.


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Classification of Contract

Example of Voidable Contract:Apromisesto sell his car to B for rs. 2000. His consentis obtained by use of force. The contract is

voidable at the option ofA .He may avoid the contract or elect to be bound

by it.


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Example 2: X threatens to kill Y if he does not sell hishouse for rs. 1,00,000 to X. Y sells his house to X andreceives payment.

Here, Ys consent has been obtained by coercion and

hence this contract is voidable at the option of Y, theaggrieved party.

If Y decides to avoid the contract, he will have to returnrs.1,00,000 which he had received from X.

If Y does not exercise his option to repudiate the contractwithin a reasonable timeandin the mean time, Zpurchases that house from X for rs. 1,00,000 in good faith,Y cannot repudiate the contract.


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Classification of Contract

ii] Void Agreement:An agreement notenforceable by law is said to be void[Sec.2(g)].Such agreements are

void-ab-initio which means that they areunenforceable right from the time they aremade

E.g., An agreement with a minor or a personof unsound mind is void-ab-initio because a minoror a person of unsound mind is incompetent tocontract


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Contd..

iii] Void Contract: Acontract which ceasesto be enforceable by law is a void contract.[2 (j)].

A void contract is a contract which was valid when enteredinto but which subsequently became void due toimpossibility of performance, change of law or some otherreason.

E.g., A contract to import goods becomes void,when war breaks out between the countries.


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Contd..

iv] Illegal Agreement:An illegal agreementis one which is unlawful. Such an agreementcannot be enforced by law. Thus, illegal

agreements are always void-ab-initio( i.e.,void from the very beginning)

E g:An agreement to import prohibited goods.


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Example: X agrees to pay Y rs.1,00,000 if Y kills Z andclaims rs.1,00,000. Y cannot recover from X because theagreement between X and Y is illegal as its object isunlawful

Effect on collateral agreements: In case of illegalagreements, even the collateral agreements become void

Example: If in the above example, x borrows rs,1,00,000from W who is aware of the purpose of the loan, the mainagreement between X and Y is illegal and the agreement

between X and W which is collateral to the mainagreement is also void. Hence, W cannot recover themoney from X.


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Contd

.Illegal Agreement:

An illegal agreement is not only void as betweenthe parties but has this further effect that even

the collateral transactions to it become taintedwith illegality.

A collateral transaction is one which issubsidiary, incidental or auxiliary to the principal

or original contract.


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Contd..

v] Unenforceable Contract:

An unenforceable Contract is one which cannot beenforced in a Court of law because of sometechnical defect such as absence of writing orwhere the remedy has been barred by lapse oftime.

The contract may be carried out by the partiesconcerned; but in the event of breach or repudiation of

such a contract, the aggrieved party will not be entitled tothe legal remedies.


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2.Classification according to Formation

A contract may be (a) made in writing or by word ofmouth, or (b) inferred from the conduct of the parties orcircumstances of the cases. These are the modes of

formation of contract.

On the basis of FormationContract can be

classified as,

(i) Express Contract, (ii) Implied Contract, &

(iii) Quasi Contract.


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Contd.

(i) EXPRESS CONTRACT: If the terms andconditions of contracts are expressly agreedupon (whether words spoken or written) at thetime of formation of contract, the contract is

said to be Express Contract .Ex: X says to Y will you buy my car for rs.

1,00,000? Y says to X I am ready to buy yourcar for rs. 1,00,000.

(ii) IMPLIED CONTRACT: One which is inferred fromthe acts or conduct of the parties or course ofdealings between them.

An implied contract is one which is not an expresscontract.


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Ex: A transport company runs buses on differentroutes to carry passengers. This is an impliedacceptance by X. Now, there is an implied contractand X is bound to pay the prescribed fare.

Ex: X, a coolie in uniform picks up the baggage ofY to do so and Y allows it from platform to the taxiwithout being asked by to do so and Y allows it.In this case there is ay the coolie and an impliedacceptance by the passenger. Now, there is an

implied contract between the coolie and thepassenger and the passenger is bound to pay forthe services of the coolie


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Contracts classified.

(iii)QUASI CONTRACT: Strictly speaking QuasiContract is not a contract at all.

A contract is intentionally entered in to by theparties.

A quasi contract, on the other hand is created

by law. It rests on the ground of equity that,a person shall not be allowed to enrichhimself unjustly at the expense of another .


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Ex: A finds some goods belonging to B, it ishis duty to restore them to the rightfulowner. These contracts are based on the

principle of equity, justice and goodconscience.

The Indian Contract Act 1872, has describedthe obligations arising under these contractsas certain relations those created bycontracts


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III. Classification according to Performance

(i) Executed Contract

(ii) Executory Contract

-Unilateral or One-sided Contract

-Bilateral Contract


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.. Classification according to Performance

(I) EXECUTED CONTRACT:Executedmeans that which is done.

An executed contract is one in which both the parties haveperformed their respective obligations.

Ex: X offers to sell his car to Y for rs. 1,00,000. Y accepts xs offer. X

delivers the car to Y and Y pays rs. 1,00,000 to x. It is an executedcontract

(ii) EXECUTORY CONTRACT:

Executorymeans that which remains to be carried in to effect.

It is a contract where both the parties to the contract have still to

perform their respective obligations.Ex: X offers to sell his car to Y for rs.1,00,000. Y accepts Xs offer. If the

car has not yet been delivered by X and the price has not yet beenpaid by Y, it is an executory contract.


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Partly Executed and partly Executory Contract: Itis a contract where one of the parties to thecontract has fulfilled his obligation and the other

party has still to perform his obligation.Ex. X offers to sell his car to Y for rs. 1,00,000 on a

credit of one month. Y accepts Xs offer. X deliversthe car to Y. Here, the contract is executed as to X

and executory as to Y.


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ONE-SIDED OR UNILATERAL CONTRACTPerformance of only one party is outstanding.

BILATERAL CONTRACT.

Performance of both the parties remains outstanding.

LEGAL RULES FOR A VALID


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LEGAL RULES FOR A VALIDOFFER

1.Intention to create legal relationship

2.Certain and unambiguous terms

3.Different from a mere declaration of intention

4.Different from an invitation to offer 5.Communication

6.A statement of price is not an offer

7.No term the Non-compliance of which amountsto Acceptance


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LEGAL RULES AS TO OFFER

1.Offer must be such in law is capableof being accepted and giving rise to

legal relationship.ex:


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Acceptance

Acceptance means giving consent to the offer.

It is an expression by the offeree of his willingnessto be bound by the terms of the offer.

According to sec 2(b) of the Indian ContractAct,1872, A proposal is said to have acceptedwhen the person to whom the proposal is madesignifies his assent thereto. A proposal when

accepted becomes a promise.


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Acceptance

An acceptance may be express or implied.

It is express when it is communicatedby words, spoken or written or by doing

some required act.

It is impliedwhen it is to be gatheredfrom the surrounding circumstances of the

cases or the conduct of the parties.


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Acceptance

Who can accept offer ?

Acceptance of a particular offer: Specific Offer

When an offer is made to a particular person, it can

only be accepted by him alone. If it is accepted byany other person, there is no valid acceptance.

The rule of law is clear that if you propose to

make a contract with A, B cannotsubstitute himself for without your consent.


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Acceptance of a general offer

When an offer is made to worldat large, any persons to whom

the offer is made can accept it[Mrs.Carlill Vs.Carbolic Smokeball Co.(1893)]


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Legal Rules as to Acceptance

The acceptance of an offer is the very essence of acontract. To be legally effective, it must satisfy thefollowing conditions:

1.It must be absolute and unconditional i.e., itmust conform with the offer.

2.It must be communicated to the offeror

3.It must be according to the mode prescribed or

usual and reasonable mode. 4.It must be given within a reasonable time


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..Legal Rules as to Acceptance

5.It cannot precede an offer.

6.It must show an intention on the part ofthe acceptor to fulfill terms of the promise.

7.It must be given by the party or parties towhom the offer is made.

8.It must be given before the offer lapses orbefore the offer is withdrawn.

9.It cannot be implied from silence.

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