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BUSINESS BUSINESS Legislation Legislation
Reference Book – Reference Book – P.C. Tulsian P.C. Tulsian
LAWLAW
Law means a “set of rules”Law means a “set of rules” Defined as the rules of conduct Defined as the rules of conduct
recognized and enforced by the state recognized and enforced by the state to control and regulate the conduct to control and regulate the conduct of people, to protect their property of people, to protect their property and contractual rights with a view to and contractual rights with a view to securing justice, peaceful living and securing justice, peaceful living and social security.social security.
Mercantile Law or Commercial LawMercantile Law or Commercial Law
M Law deals with the rights and M Law deals with the rights and obligations of mercantile persons obligations of mercantile persons arising out of mercantile transactions arising out of mercantile transactions in respect of mercantile property.in respect of mercantile property.
It includes laws to various contracts, It includes laws to various contracts, partnership, companies, negotiable partnership, companies, negotiable instruments, insurance, carriage of instruments, insurance, carriage of goods, arbitration.goods, arbitration.
Law relating to PartnershipLaw relating to Partnership Law relating to CompaniesLaw relating to Companies Law relating to Negotiable Law relating to Negotiable
InstrumentsInstruments Law relating to InsuranceLaw relating to Insurance
Sources Of Mercantile LawSources Of Mercantile Law
Sources of M Law in India
English Mercantile
Law
Indian Statute
LawJudicial
DecisionsCustoms
And Usages
The Law Of ContractThe Law Of Contract The Law of Contract is contained in the Indian The Law of Contract is contained in the Indian
Contract Act,1872Contract Act,1872• Came into force on the first day of Came into force on the first day of
September,1872September,1872• It extends to the whole of India except the It extends to the whole of India except the
State of Jammu and KashmirState of Jammu and Kashmir• This Act is divided into smaller units, each This Act is divided into smaller units, each
called a section. Sometimes, a section may called a section. Sometimes, a section may have sub sections or clauses too.have sub sections or clauses too.
• Applicable not only to business but also to all Applicable not only to business but also to all day-to-day personal dealings.day-to-day personal dealings.
Meaning Of ContractMeaning Of Contract ““An agreement enforceable by law An agreement enforceable by law
is a contract”.is a contract”. An agreement which can be An agreement which can be
enforced in a court of law is known enforced in a court of law is known as a contract.as a contract.
A contract must have following two A contract must have following two elements-elements-
1.1. An agreement, and An agreement, and 2.2. Enforceability of an agreementEnforceability of an agreement
Contract=Contract= An agreement + Enforceability of An agreement + Enforceability of
an agreementan agreement
An AgreementAn Agreement
Acc to section 2(e) of Indian Contract Acc to section 2(e) of Indian Contract Act,1872Act,1872
““Every promise and every set of Every promise and every set of promises forming the consideration promises forming the consideration for each other is an agreement”.for each other is an agreement”.
““A proposal when accepted, becomes A proposal when accepted, becomes a promise.”a promise.”
MEANING OF ‘PROMISE’ - When the MEANING OF ‘PROMISE’ - When the person to whom the proposal is made person to whom the proposal is made signifies his assent thereto, the proposal signifies his assent thereto, the proposal is said to be accepted. A proposal, when is said to be accepted. A proposal, when accepted, becomes a promise. [section accepted, becomes a promise. [section 2(b)]. - - 2(b)]. - -
Thus, when a proposal (offer) is Thus, when a proposal (offer) is accepted, it becomes a ‘promise’. As is accepted, it becomes a ‘promise’. As is clear from the definition, only person to clear from the definition, only person to whom proposal is made can signify his whom proposal is made can signify his assent. Other person cannot accept a assent. Other person cannot accept a proposal. proposal.
PROMISOR AND PROMISEE - The PROMISOR AND PROMISEE - The person making the proposal is called person making the proposal is called the “promisor”, and the person the “promisor”, and the person accepting the proposal is called the accepting the proposal is called the “promisee”. [section 2(c)]. “promisee”. [section 2(c)].
Agreement = Agreement = Offer (or Proposal) + Acceptance of Offer (or Proposal) + Acceptance of
Offer (or Proposal) Offer (or Proposal)
Enforceability Of AgreementEnforceability Of Agreement An Agreement is said to be An Agreement is said to be
enforceable by law if it creates some enforceable by law if it creates some legal obligation.legal obligation.
A ContractA Contract
Contract
AgreementEnforceability
Of an Agreement
Offer/Proposal
Acceptance of Offer
Legal obligation
Arising out ofAn agreement
The Law of Contract Is Not The Law of Contract Is Not The Whole Law of Agreements.The Whole Law of Agreements.
Type of Type of AgreementAgreement
Law of contract Law of contract Covers or notCovers or not
Agreements Agreements with legal with legal obligationsobligations
YesYes
Agreements Agreements without legal without legal obligationsobligations
NoNo
The Law of Contracts is Not The Law of Contracts is Not Whole Law of ObligationsWhole Law of Obligations
Type of Type of obligationobligation
Law of contract Law of contract covers or notcovers or not
Obligations Obligations which arise out which arise out of agreementsof agreements
YesYes
Obligations Obligations which do not which do not arise out of arise out of agreementsagreements
NoNo
Distinction Between An Agreement Distinction Between An Agreement And ContractAnd Contract
An AgreementAn Agreement Basis-Basis- Offer and its Offer and its
acceptance acceptance Legal Obligation-Legal Obligation- may may
or may not createor may not create One in Other –One in Other – Every Every
agreement need not agreement need not be a contractbe a contract
A ContractA Contract Basis-Basis-Agreement and Agreement and
its enforceabilityits enforceability Legal Obligation –Legal Obligation –
necessary creates the necessary creates the obligationobligation
One in OtherOne in Other – All – All contracts are contracts are necessarily necessarily agreementsagreements
Classification Of ContractsClassification Of Contracts
Basis of classification
Creation Execution Enforce-ability
On the basis of CreationOn the basis of Creation
Express ContractExpress Contract• Made by words - written or oralMade by words - written or oral
Implied ContractImplied Contract• Inferred from the conduct of a person / Inferred from the conduct of a person /
circumstancecircumstance
On the basis of ExecutionOn the basis of Execution
Executed ContractExecuted Contract• Both the parties have fulfilled their Both the parties have fulfilled their
respective obligations respective obligations
Executory ContractExecutory Contract• Both the parties are still to perform their Both the parties are still to perform their
respective obligationsrespective obligations
On the basis of EnforceabilityOn the basis of Enforceability
Valid ContractValid Contract
Void ContractVoid Contract• Valid in the beginning, subsequently Valid in the beginning, subsequently
became voidbecame void
Void Agreement Void Agreement • Void – ab – initioVoid – ab – initio
Voidable ContractVoidable Contract Enforceable by law but can be set aside / Enforceable by law but can be set aside /
repudiated at the option of the aggrieved partyrepudiated at the option of the aggrieved party
Illegal agreementIllegal agreement• Void ab – initioVoid ab – initio
Unenforceable ContractUnenforceable Contract Technical defectTechnical defect
Criteria Void Agreement
Voidable Contract
Void ab initio Form beginning Valid till repudiated by aggrieved party
Deficiency Other Weakness Free consent is missing
Enforceability Not enforceable Enforceable till repudiated
Right of third party
No rights Acquires right in good faith
Damages No Can be claimed
Status after expiry of reasonable time
Void May become valid contract
Distinction b/w void agreement and illegal Distinction b/w void agreement and illegal agreementagreement
Basis Void Agreement
Illegal Agreement
Void/Illegal All may not be illegal
All are void
Effect on collateral agreement
May not become void
Also void
Restoration of benefit received
Restoration in selective cases
No restoration
Essentials of a Valid ContractEssentials of a Valid Contract Section 10Section 10 All agreements are contracts if they All agreements are contracts if they
are made by the free consent of the are made by the free consent of the parties competent to contract, for a parties competent to contract, for a lawful consideration and with a lawful lawful consideration and with a lawful object and are not hereby expressly object and are not hereby expressly declared to be voiddeclared to be void
Elements Elements Proper offer and its proper Proper offer and its proper
acceptanceacceptance
Intention to create legal relationshipIntention to create legal relationship
Free consentFree consent• Section 14 says if consent is not caused Section 14 says if consent is not caused
by fraud, misrepresentation, undue by fraud, misrepresentation, undue influence, and coercion then it is freeinfluence, and coercion then it is free
Capacity to contractCapacity to contract• Not capable – minor, unsound mind, Not capable – minor, unsound mind,
disqualified from any lawdisqualified from any law
Lawful considerationLawful consideration Not forbidden by any law, or does not Not forbidden by any law, or does not
involve injury to the person or property involve injury to the person or property of another or is immoral or is opposed of another or is immoral or is opposed to public policyto public policy
Lawful objectLawful object
Agreement not expressly declared voidAgreement not expressly declared void
Certainty of meaningCertainty of meaning
Possibility of performancePossibility of performance
Legal formalitiesLegal formalities
Offer/ProposalOffer/Proposal
Sec 2(a)Sec 2(a) A person is said to have made the A person is said to have made the
proposal when he signifies to another proposal when he signifies to another his willingness to do or to abstain his willingness to do or to abstain from doing anything with a view to from doing anything with a view to obtaining the assent of that offer to obtaining the assent of that offer to such act or abstinencesuch act or abstinence
Elements Elements Made to another personMade to another person Expression of readiness or Expression of readiness or
willingnesswillingness Made to obtain consent of other Made to obtain consent of other
personperson
How to make an offerHow to make an offer
Expressed offer Expressed offer By words sopken/writtenBy words sopken/written
Implied offerImplied offer• Inferred from conduct/circumstancesInferred from conduct/circumstances
To whom an offer is madeTo whom an offer is made
Specific offerSpecific offer• To specific person/group of persons To specific person/group of persons
General offerGeneral offer• Not to definite person but to the public Not to definite person but to the public
in general in general
Legal rules for valid offer Legal rules for valid offer
Intention to create legal relationshipIntention to create legal relationship
Certain and unambiguous termsCertain and unambiguous terms
Different from a mere declaration of Different from a mere declaration of intentionintention
Different from an invitation to offerDifferent from an invitation to offer
CommunicationCommunication
No term – the non compliance of No term – the non compliance of which amounts to acceptancewhich amounts to acceptance
Communication of special terms or Communication of special terms or standard form of contractsstandard form of contracts
AcceptanceAcceptance
Sec 2(b)Sec 2(b) A proposal is said to be accepted when the A proposal is said to be accepted when the
person to whom the proposal is mad signifies his person to whom the proposal is mad signifies his assent thereto. A proposal when accepted assent thereto. A proposal when accepted becomes a promise . becomes a promise .
Who can acceptWho can accept
In case of general offerIn case of general offer Any one who fulfills conditionsAny one who fulfills conditions
In case of specific offerIn case of specific offer Only by specific person/ authorized Only by specific person/ authorized
personperson
Express acceptance.Express acceptance. By words spoken or writtenBy words spoken or written
Implied acceptanceImplied acceptance Inferred from conduct/ circumstancesInferred from conduct/ circumstances
Legal rules for a valid Legal rules for a valid acceptanceacceptance
Absolute and unqualifiedAbsolute and unqualified Without any reservation, variation or Without any reservation, variation or
conditioncondition
Manner - Usual / reasonable and Manner - Usual / reasonable and prescribedprescribed
CommunicationCommunication• Mere mental determination not sufficientMere mental determination not sufficient
By whomBy whom• By offeree / promisee / aurhorised personBy offeree / promisee / aurhorised person
To whomTo whom• To offererTo offerer
Time limitTime limit• Usual reasonable timeUsual reasonable time• Prescribed timePrescribed time
Before lapse of offerBefore lapse of offer
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