corporate legal environment

CORPORATE LEGAL ENVIRONMENT – MBA 302

Corporate Legal Environment – Syllabus

Section 1.• Law of Contract: Definition, Offer and

Acceptance, Consideration, Capacity of Parties, Free Consent, Legality of Object, Performance and Discharge of Contract and Remedies for Breach of Contract. Introduction to the concept of Agent and Different types of Mercantile Agents.

• Law of Insurance: Fundamentals Elements of Insurance.


Section II• Negotiable Instrument: Bill of

Exchange, promissory Note, Cheque and Rules regarding the Crossing of Cheques. Dishonor of Cheques and Liability of banker and drawer.

• Sale of Goods Act: Meaning, formation of Contract, Meaning of condition and warranties, Difference between Transfer of


• Of Property and possession. Right of a unpaid seller.

Section III• Basic Features of Law relating to

Carriers (Air Road and Shipping)• Company Law – Characteristic of

Company, Difference between Company and Partnership Firm, Kinds for formation of Co.


• Meeting and Winding up by Court.• Taxation : Constitutional frame work

of Taxation. Direct and Indirect Taxes. Basic features of Central Excise , Customs and State Sales Tax .

CORPORATE LEGAL ENVIRONMENT (MB-302) 2007Time : 03 Hours Maximum Marks : 75

1) Section - A is compulsory.2) Attempt any Nine questions from Section - B

Section-AQ1) [15 × 2 = 30]a) Is a person bound by the terms printed on a ticket issued to him andwhich he has not read?b) Discuss how far agreements in restraint of trade are enforceable in India.c) Discuss the effect of supervening impossibility on the performance ofcontract.d) Explain Exemplary damages.e) Define Novation.f) What do you understand by implied warranty of quiet possession.g) What is meant by caveat emptor?h) When goods are deemed to be in transit?i) Explain Holder in due course.j) What are the presumptions in respect of negotiable instrument?k) Differentiate between Reinsurance and Double insurance.l) Distinction between common carrier and private carrier.m) What is meant by statutory company?n) When First Annual General meeting is Convened in case of company?o) Differentiate between Direct and Indirect Laxes

Section-B[9 × 5 = 45]

•Q2) What tests would you apply to ascertain an agreement is a contract or not?Q3) Does a threat to commit suicide amount to coercion? What is its effect?Q4) What is meant by Marking and Crossing of a Cheque? Explain differenttypes of crossing.Q5) What is meant by dishonour by Non-acceptance and dishonour by Nonpayment?Q6) “Once the possession of goods lost Right of lien is also lost.” Explain.Q7) Explain contract of sale. State its essential characteristics.Q8) What is a right of subrogation? Does the principle of subrogation applyonly to property Insurance?Q9) Discuss the liabilities of a common carrier in India.Q10) “A company is distinct from its members.” Justify.Q11) “Certificate of incorporation is said to be an conclusive evidence of existenceof company.” Explain.Q12) “Statutory meeting is to be convened once during the life time of acompany.” Explain.Q13) Discuss the main features of central excise.

Why Should a MBA Student Study Business Law

• 1. To make a student aware about law • 2. Law is helpful in maintaining business in

legal ways. • 3.To have secured business. • 4. To make us aware of the legal issues

involving businesses and how to deal with them

Introduction:

Business Law are essential for the students of Management to understand the legal rules and aspects of business. Just like any other study even Business Management is incomplete without a proper study of its laws. Any form of business needs legal sanction. Therefore, it is imperative that a Manager understands the various ways in which businesses can be organised. This subject introduces some of the common forms of business organisation, including some forms unique in India like the Joint Hindu Undivided family firm. Different types of organsiations like Sole Ownership Company ( A Single Owner driven Company) Partnership Firms, Private Limited Companies and Public Limited Company.

For Proper working of the society there must exist a Code of Conduct. As you all know in the ancient times the society was not organised. The rights of the individuals were not recognized. Gradually the State evolved and the state came into being. As we all know to regulate the state, there should be a specific Code of Conduct, which should be followed by every one. As a result law evolved as a system of right and obligation including all the rules and principles which regulate our relations with other persons and with the state.

Branches of Law:

Civil Mercantile Law Law Criminal International Law Law Industrial Constitutional Law Law

These rules and regulatiuons took the form of statues. To enforce the law and to resolve the conflicts arising there from, courts of law were set up by the state. Laws were made to govern almost every walk of life. You all must know that:Criminal Laws were made to control criminal activities in the Society like Indian Penal Code, which details which activities are considered criminal and what will be the punishment for committing a crime. Like Wise:Mercantile Law was evolved to govern and regulate trade and commerce. Hence the term Mercantile Law can be defined as that branch of Law, which comprises laws concerning Trade, Industry and Commerce. It is an ever growing branch with the changing circumstances of trade and Commerce.

Now the question arises as to what are the sources of Mercantile Law in India. The answer is The Indian Statutes on Mercantile Law.

The Main Sources of Mercantile Law are as under:

The Indian Mercantile Law is Mainly based upon the English Mercantile Law. However necessary modifications haave been made to provide for the local customs or usage of trade as necessitated by the peculiar conditions prevailing in India. The Indian Mercantile Law was sourced from the following heads:

-English Mercantile Law-Precedents (i.e. past judicial devisions)-Local customs and usage-Indian Statute Law (i.e. Acts of Indian Legislature)

English Mercantile Law:This is the main source of the Indian Mercantile Law. As a matter of fact the Indian Mercantile Law is largely based on English Mercantile Law. Thus to know more about Indian Mercantile Law, we should be able to know the Main source of English Mercantile Law. English Mercantile Law was sourced from the following:

Common LawPrinciples of EqjuityLaw Merchant of Law MercatoriaBritish Statute Law (Acts of British Legislature)

Common Law:

The terms Common Law is used to denote the case law based on English Customs, usage and traditions which were developed over centuries by the English Court. It is also know as unwritten Law, as these laws is not contained in the Act of the legislature.

Principles of Equity:Under this branch of English law it was based on the principles of equity, justice and good conscience. It is also unwritten law and developed separately from the above common law. This law was developed taking into account some deficiencies in the above Common Law and Harsh working of Common Law.

Law of Merchant of law Mercatoria:This branch of law was developed in the 14th and 15th centruies and was a separate law governing the commercial transactions of the merchants and traders. Intiatially this law was not recognised by the courts, but later on in the beginning of seventeeth Century, the Kings court that is common Law court starting to recognised the rules of law of Merchant which became a part of common law. The traders established their own tribunals consisting mainly of merchants themselves. The rule pronounced by these tribunals became the law till it was accepted and recognised by the common court of law.

In England, the Parliament is the supreme Legistative Body and can pass any laws that suits the requirements of the time. From the above we can understand that Biritsh Mercantile Law is the main source of Indian Mercantile Law. Apart from the above, Still there some more additional sources of the Indian Mercantile Law. Which are as under:

Precedents (Past Judicial Decisions of Courts)

The past judicial decisions of courts are the important source of the Law.

Local Customs and Usages:

The customs and usage of particular trade are an important source of Indian Mercantile Law. They play an important role in regulating the business dealings between the merchants of that trade, even under this law it acts as a binding force on the parties. However even though these law are binding on the parties it should also must satisfy certain requirement such as Certain / Reasonable / Definate / consistent with the law and uniformly accepted in the oridinary course of Business.

Now the Question arise as to what are the sources of Mercantile Law in the India. The answer is The Indian statutes on mercantile Law English / foreigh law precedents (previous judgements of the courts)

The Prime legislation is the Indian Contract Act 1872, but it is not exhaustive to deal with all kinds of contracts. In addition to this there are Sales of Goods Act 1930, The Indian partnership Act 1932, The Negotiable Instrument Act 1881 etc where ever the Indian Contract Act is silent the Indian courts apply the law of English Common Law.

It is interesting to note that there is no English Contract Act in form of statute. Sometimes there are no provisions, which can answer a particular question of law, in such cases the court will look into the previous decisions on similar matters to find a relevant law.

Customs and usage of a trade play an important role in the business dealings of the trade. Now it is more than a century that the mercantile law are governing trade and commerce. The law of contract is the foundation upon which the superstructure of modern business is built.

It is common knowledge that in business transactions quite often promises are made at one time and the performance follows later.

To summarise the Sources of Mercantile Law and to further eleborate the Mercantile Law.

The subject of Mercantile Law is very vast and unlimited. But if we see it from our Syllabus point of view, we find that the subject matter can be divided into the following heads:

•Law relating to Contracts.

•Law relating to Sales of Goods

•Law relating to Partnership

•Law relating to Negotiable Instrument

•Law relating to arbitration.

•Law relating to insolvency

•Law relating to Carriage of Goods

•Law relating to Insurance.

The Indian Contract Act 1872• Meaning and Nature of Contract:• The Law of Contract consitites the most

Important branch of Mercantile or Commercial Law. If affects everybody, more so trade, commerce and industry. It may be also said that Contract is the foundation of the Civilised world.

• The Law relating to contract governed by the Indian Contract Act 1872

Scheme of the Act• The Indian Contract act is divided into two main groups.• General principles of Law of Contract (Section 1 to 75)• Specific kinds of contracts viz ….• Contract of Indemnity and Guarantee (Sec 124 -147)• Contracts of Bailments and Pledge (Sec 148 – 181)• Contract of Agency (Sec 183 -238)

Before 1930 the act also contained provisions relating to contracts of sale of goods and Partnership Sec 76-123

Definition of Contract:

According to Section 2 (h) of the Indian Contract Act – An Agreement enforceable by law is a contract. A contract therefore is an agreement the object of which is to create a legal obligation i.e. a duty enforceable by law.

From the above definition you will find out that I have highlighted two elements – a) An Agreement and 2) Legal Obligations i.e. duty enforceable by law.

Agreement: As per Section 2 (e) “ Every promise and every set of promises, forming the consideration for each other is an agreement.

What is a promise? Section 2(b) defines the term promise as: “When a person to whom the proposal is made signifies his assent there to the proposal is said to be accepted.

A proposal when accepted becomes a promise “ An agreement , therefore comes into existence only when one party makes a proposal or offer to the other party and that party signifies his assent (i.e. gives his acceptance) In short an agreement is the sum total of offer and acceptance.

The following characteristics of an agreement become evident.a)At least two personsb)Consensus-as-idem.

There must be two persons to make an agreement because one person cannot enter into an agreement with himself.

Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time

Legal Obligation.As stated above, an agreement to become a contract must give rise to legal obligation i.e. duty enforceable by Law. If an agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. “All contracts are agreements but all agreement are not contracts”

The essential elements of a valid contract are as follows:

Offer and acceptance

Intention to create legal relations

An agreement to dine at a Friends house is not a contract and agreements between husband and wise also lack the intention to create legal relationship and thus do not result in contract

Try to work out the solutions for the following cases:

a)M promises his wife to get her a necklace if she will sing a song. N sang a song M did not bring the necklace for her.

b)The defendant was a civil servant in Srilanka. He and his wise were enjoying leave in England. When the defedant was due to return to srilanka his wife could not accompany him because of health. The defendant agreed to send her $ 30 a month as Maintenance expenses during the time they were forced to live apart. She sued for breach of this agreement

Answer:

a)N cannot bring an action in a court to enforce the agreement as it lacked the intention to create legale relation.

b) Her action was dismissed on the ground that no legal relations had been contemplated and therefore there was no contract (Balfour v Balfour)

Agreement of moral, religious or social nature e.g a promise to lunch together at a friends house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences.

Summary of Class 1

• - What is Mercantile Law – Formation of Mercantile Law, How was it formed. The Sources of Mercantile Law in India.

• English Mercantile Law – Common Law,• Principles of equity – Law of Merchant /

Merchanto. Indian Statute Act.• The Indian Contract Act – Meaning and

nature.

Summary of 1 class

What is a contractSec 2 (h)

Agreement enforceable by law

Is a contract

Agreement / LegalAgreement – 2(e)

ObligationPromise(2(b)consideration

2 characteristics ofValid contract

-2 persons-Consensus as idem

Valid ContractOffer and Acceptance

Intention to create legal

Obligation

It would be appropriate to point out that the Law of contract deals only with such legal obligations which arises from agreements, obligations which are not contractual in nature are outside the purview of the law of Contract.

After knowing the above points, we must further know which must be satisfied for the contract to be valid.

Essential Elements of Valid Contract:A contract has been defined in Sec 2 (h) as “ an agreement enforceable by law” To be enforceable by law an agreement must possess the elements of a valid contract as contained in Section 10,29 and 56.According to Sec 10, all agreements are contracts if they are made with free consent of the parties, competent to contract for a lawful consideration with a lawful object are not expressly declared by the Act as Void

Lawful consideration: The third essential elements of a valid contract is the presence of consideration. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it give something and gets something. The Something given or obtained is the price for the promise and is called consideration .

Capacity of Parties: The parties must be competent to contract. But the question that arises now is that what parties are competent and what are not. The contracting parties must be of the age of majority and of sound mind and must not be disqualified by any law to which they are subject (sec.11). If any of the parties to the agreement suffers form minority, lunacy, idiocy, drunkenness etc. The agreement is not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate (sec 68).

Free consent: Free consent of all the parties to an agreement is another essential element. This concept has two aspects.(1) consent should be made and (2) it should be free of any pressure or misunderstanding. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense (sec. 13). There is absence of ‘free consent,’ if the agreement is induced by (i)coercion, (ii) undue influence, (iii) fraud, (iv) mis-representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (sec. 20)

Lawful object: For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law or a contract for committing a murder is a void contract and unenforceable by law.

Writing and registration:

According to the Indian contract Act, a contract to be valid, must be in writing and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered to make the agreement enforceable by law which must be observed.

Certainty:-

Section 29 of the contract Act provides that “ Agreements, the meaning of which is not certain or capable of being made certain, are void.” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced Illustation. A, agrees to sell B “ a hundred ton of oil” there is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainly.

Possibility of performance:

Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that “An agreement to do an act impossible in itself is void”. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law. Illustration: A agrees with B, to discover treasure by magic. The agreement is not enforceable.

Not expressly declared void:

The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements that have been expressly declared to be void. For example, an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under sections 26, 27 and 30 respectively. Before dealing with the various essentials of a valid contract one by one in detail, it will be appropriate to discuss the ‘kinds of contracts’. First, because we shall be using the terms like ‘voidable contract’, ‘void contract’, ‘void agreement’, etc. very often in the course of our discussion.

Summary:At the end of this chapter you should be able to understand :

The Meaning of Law.The Main Sources of Mercantile LawMeaning of Contract -

Defination - Elements – An Agreement / Legal Obligations,

•Essential Elements of Contract:•Lawful Consideration •Capacitiy of parties•Free consent•Law ful object•Certainty•Possibility of perfor•mance•Not expressly declared void.

Questions

1. Comment that the all contracts are agreements but all agreements are not contract.2. What are the essential elements of a valid contract?3. A invites B to see a picture with him. B accepts the offer. A purchase a ticket for B and waits for him outside the cinema hall. B does not turn up has A any cause of action against B. [Hint: No]4. A agrees with B to murder C for Rs. 10,000. Is this a valid contract? [Hint: No]5. X agrees to pay Y Rs. 1000 if Y writes 100 pages for him in one minute. Is it a valid contract? [Hint: No]6. State whether there is any valid contract in the following cases?7. (i) X boards a DTC bus at Mayur Vihar for Shalimar Bagh.(ii) X and Y agree to go for fishing (iii) X buys an evening paper(iv) X a minor borrows Rs. 5000 from Yand agreed torepay back the same within a week.

Chapter No 2KINDS OF CONTRACT

The following are the different kinds of contract.

Valid Contract

Voidable Contract

Unenforceable contract

Illegal or Unlawful contract.

VALID CONTRACT:

Section 2(i) it is an agreement enforceable by law, an agreement becomes enforceable by law when all the essential elements of a valid contract as were enumerated in the last lesson are present. If one or more of these elements is / are missing the contract is either void, voidable, illegal or uneforceable.

CLASSIFICATION OF CONTRACTS

VALIDITY FORMATION PERFORMANCE

1. Valid Contracts 1. Express Contract 1. Executed Contract

2. Void Contract and 2. Implied Contract 2. Executary Contract Void Agreement 3. Constructive or 3. Unilateral Contract3. Voidable Contract Quasi Contract 4. Bilateral Contract4. Illegal Agreement5. Unenforceable Agreement

OFFER AND ACCEPTANCEThe four basic elements of a contract as Offer , Acceptance, consideration and contractual capacity.

As seen earlier a contract must be a lawful offer by one Party and a lawful acceptance of the offer by the other party,

OFFER

- Inception of every Contract- Definite Proposal- Unqualified Acceptance- Concluded Contract

DEFINITIONSec. 2(a) :A person is said to have made a proposal, when he “signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of the that other to such Act or Abstinence.”

Essential Elements of Offer / Proposal: - One Person Signifies to another. - The Expression of willingness to do or to abstain from doing some thing must must be another person. Thus a casual enquiry “ do you intend to sell your motorcycle?” is not a ‘proposal’. Similarly, a mere statement of intention” I may sell my motorcycle if I can get Rs. 14,000 for it” is not a ‘proposal’. But if M says to N, “ will you buy my motorcycle fro Rs. 14,000,” or “ I am willing to sell my motorcycle to you for Rs. 14,000”, we have a ‘proposal’ as it has been made with the object of obtaining the assent of N.

The person making the ‘proposal’ or ‘offer’ is called the ‘promisor’ or ‘ offeror’, the person to whom the offer is made is called the ‘offeree’, and the person accepting the offer is called the ‘promisee’ or ‘acceptor’

Legal Rules Regarding a Valid Offer A valid offer must be in conformity with the following rules:

An offer may be’ express’ or ‘implied’. An offer may be made either by words or by conduct. An offer which is expressed by words, spoken or written is called an ‘express offer’ and the one which is inferred form the conduct of a person or the circumstances of the case is called an ‘implied offer

Thus stepping into a taxi and consuming eatables at a restaurant both create implied promise to pay for benefits employed.

I will give a few more illustrations in this regard.

(a) M says to N that he is willing to sell his motorcycle to him for Rs. 20,000. this is an express offer. (b) X writes to Y he offers to sell his house to him for Rs. 80,000. there is an express offer

(a) The Delhi Transport Corporation runs omnibuses on different routes to carry passengers at the scheduled fare. This is an implied offer by the D.T.C. (b) A shoe shiner starts shining some one’s shoes, without being asked to do so, in such circumstances that any reasonable man could guess that he expects to be paid for this, he makes an implied offer.

The second essential of a valid offer is intention.

An offer must contemplate to give rise to legal consequences and be capable of creating legal relations. If the offer does not intend to give rise to legal consequences, it is not a valid offer in the eyes of law

The terms of the offer must be certain and not loose or vague. The terms of the offer must be certain and not vague (sec 29). Mangham L.J. has rightly observed: “ unless all the material terms of the contract are agreed, there is no binding obligation.” Thus an agreement to agree in future is not a contract, because the terms of agreement are uncertain as they are yet to be settled.

An invitation to offer is not an offer. An offer must be distinguished form an ‘invitation to receive offer’ or as it is sometimes expressed in judicial language an ‘invitation to treat.’ In the case of an ‘invitation to offer’ the person sending out the invitation does not make an offer but only invites the other party to make an offer. His object is merely to circulate information that he is willing to deal with anybody who, on such information, is willing to open negotiations with him. Such invitations for offers are therefore not offers

An offer may be a ‘specific’ or ‘general’. There are two kinds of offers - general and specific. The specific order is made to a specific person, while a general offer is made to the world or public at large.

An offer must be communicated to the offeree. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made (Secn 4). An offer is effective only when it is communicated to the offeree. Until the offer is made known to the offeree, there can be no acceptance and no contract.

Cross offers – when two parties make identical offers to each other, in ignorance of each other’s offer, the offers are cross offers. Such offers do not constitute acceptance of one’s offer by the other and as such there is no completed agreement

You all must be thinking about the contracts which are entered into a by large number of people at the same time. These are called standard form contracts we have already discussed them in brief but now I would like to take up a few examples of such contracts

Communication of special terms (Standard Form Contracts) Regarding the communication of the special terms of the contract as contained in a ticket, receipt, or, ‘standard form documents’, the more important rules adopted by the courts are as follows.

If the acceptor or the promisee had no knowledge of special terms. Before or at the time of the contract, they are not binding upon the acceptor.

If the acceptor or the promisee had the knowledge or may be presumed to have the knowledge; because a reasonably sufficient notice has been given to him by suitable words on the document; of special terms, before or at the time of the contract, the terms are binding upon the acceptor whether he has read them or not is immaterial. The leading case on the point is Parker vs. South Eastern Railway co.

Indian Contract Act 1872

Contract - Agreement between 2 or more persons which law willEnforce.

Essentials: 2 or more parties Offer and Acceptance – one has to offer and other has to Accept Identity of Minds – Agreed upon the Subject Matter Consideration – Something in return –every contract must be supported by Consideration Capacity – Competent parties to contract Free Consent – Free from flaw, not caused by coercion / Undue influence Lawful Consideration – The consideration must be lawful Legality of Object – recognized and approved by society.

Classification of Contract:I According to Validity – Contract based on agreement – all essentials Are present. If any one is missing then it is void able/ void/ illegal and Unenforceable.

Void able Contract – Enforceable at the option of one or more of partiesEg: A promises to sell his house to B for Rs.2lakhs. His consent was Obtained by force. The contract is void able at the option of A.

Void Contract – A contract which is not enforceable by law – A contractEntered with minor.

Illegal Agreement: Criminal in nature, which is immoral

Unenforceable Contract – Cannot be enforced in court of law becauseOf technical defect – Eg – Time barred, Lapse of time.

II According to Formation:

Express Contract – Terms expressly agreed – by words spoken/ writtenAt the time of formation of contract.

Implied Contract – Conduct of Parties – A lunch taken in a hotel, it is Implied that bill will be paid.

III According to Formation • Executed Contract – Both Parties have performed their obligations

• Executory Contract – Both parties are yet to perform their obligations

• Unilateral contract – One has fulfilled his obligation, other is yet to do his act.

• Bilateral – Similar to Executory Contract.

Offer and Acceptance:The person making the proposal is referred as “Proposor” or “Offeror”The Person accepting the offer - “Offeree” or “acceptor”

Legal rules relating to Offer: u/s 2(a):• It must be definite – definite terms or capable pf being definite• It must be distinguished from Quotation or invitation to offer• Must give rise to legal consequences• Can be made to the individual or entire world• An offer is different from tender.• An offer must be communicated to the offeree.

Acceptance u/s 2(b)

Person to whom the proposal is made signifies his assent thereto, the Proposal is said to be accepted.

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