Business Law Module i

  • Published on

  • View

  • Download

Embed Size (px)


  • 8/2/2019 Business Law Module i



    It is a rule of external human action enforced by thesovereign political authority

    Law is the body of principles recognized and applied by

    the state in administration of justice

    Democracy can remain in a society of equals. The

    concept of equality of all persons in the eye of law is

    the basis of what is called Rule of Law

  • 8/2/2019 Business Law Module i


    Business Manager

    A Business Manager is always under Legal


    A practicing manager must know the Business


    A manager is effective in managing the affairs

    of business, only if, he is aware about the laws

    to which he is subject to

  • 8/2/2019 Business Law Module i


    Business laws to which you are subject to as

    managers are : Indian Contract Act, 1872

    Sale of Goods Act, 1930

    Negotiable Instruments Act, 1881

    Companies Act, 1956

    FEMA, Imports & Exports Laws

    Tax Laws

    Labour & Social Security Laws Patents & Trade Mark Laws

    Transfer of Properties Act

    Environmental Laws etc.

  • 8/2/2019 Business Law Module i




  • 8/2/2019 Business Law Module i


    Contract: Inseparable Part of Ones Life


    Buy groceries

    Board a train

    Hire a cabConsult a doctor or solicitor

    Give your any household gadget for repair

    Ever realised!In each of the above and numerous such situations

    you enter into a contractual obligation.

  • 8/2/2019 Business Law Module i


    Contract Defined Under The Act

    An agreement enforceable by law is a contract.

    Section 2(h)

    Agreement: Every promise and every set of promises,forming the consideration for each other.

    A proposal (offer) when accepted becomes a promise.

    Mutuality is the very base of an agreement.

    Legal obligation: To become a contract , an agreementmust be enforceable by law.

  • 8/2/2019 Business Law Module i


    Contract Distinguished From Agreement

    Elements. An agreement consists of an offer and itssubsequent acceptance, whereas a contract is composedof an agreement and its legal enforceability.

    Essence of a legal relationship. An agreement may notcreate legal relationship. Parties entering into a contractessentially have a common intention of entering intolegal obligation.

    Scope. All agreements may not be contracts but all

    contracts are primarily agreements.

    Enforceability by law. A contract is legally enforceable,whereas an agreement is not necessarily so.

  • 8/2/2019 Business Law Module i


    Essentials of Contract(Sec. 10,29,56)

    Offer & Acceptance

    Intention to create legal relation

    Lawful consideration

    Capacities of parties or competence

    Free consent

    Lawful object

    Not expressly declared to be void

    Writing & Registration Legal formalities

    Certainty & Possibility of performance

  • 8/2/2019 Business Law Module i


    Types of Contracts

    voidable and void contracts, contracts

    Executed contracts and executory contracts

    Express contracts and implied contracts

    Unilateral contracts and bilateral contracts

    Quasi contracts

  • 8/2/2019 Business Law Module i


    Difference Between Void and Voidable Contracts



    Point of


    Void contract Voidable contract

    1 Definition A contract, which ceases to be enforceable

    by law, becomes void when it ceases to be

    enforceable [Section 2 (j)].

    A voidable contract is an agreement which is

    enforceable by law at the option of one or more of

    the parties thereto, but not at the option of the

    other(s) [Section 2 (i)].

    2 Nature &


    A void contract is valid and binding upon the

    parties when entered into, but subsequent

    to its formation, it becomes unenforceable

    due to certain reasons.

    A voidable contract is repudiate at the option of the

    aggrieved party. It remains a valid contract until it is

    set aside or rescinded by the party entitled to do so.

    3. Factorsresponsible

    A valid contract may become void due to

    supervening impossibility; change of law; a

    contingent contract due to emergence of an

    uncertain event etc.

    Coercion, undue influence, error, fraud,

    misrepresentation are the main factors responsible

    for rendering a contract voidable.

    4 Enforceability It cannot be enforced byeither party.It may be enforced or set aside at the option of the

    aggrieved party.

  • 8/2/2019 Business Law Module i


    Difference Between Void and Voidable Contracts

    5. Relationship A void contract under no

    circumstances results in a

    voidable contract.

    When a voidable contract is rejected by the

    aggrieved party it results in a void contract.

    6. Rights of third


    A void contract confers no rights or

    legal remedies to the third party.Rights acquired under voidable contract by an

    innocent third party are not wiped out by such

    subsequent avoidance of the contract.7. Compensation In case of void contract question of

    compensation or damages does not

    arise on the non-performance of such


    In case of voidable contract, the party

    rescinding the contract can also claim


    8. Effect of lapse

    of time

    Lapse of reasonable time does not

    render a void contract enforceable. It

    always remains void i.e.,


    If a voidable contract is not rescinded by the

    aggrieved party within reasonable time it may

    become enforceable at the option of the other

    party (i.e, who induced the contract).

  • 8/2/2019 Business Law Module i



    An offer is a medium through which a person

    expresses his intention to enter into a

    contractual obligation against a promise.

    Section 2(a)

  • 8/2/2019 Business Law Module i


    Characteristics of a Valid Offer

    1. Offer can be expressed or implied

    2. Offer can be made to an individual or groupof individuals or public at large.

    3. It must be to create a legal relationship

    4. It must be communicated to Offeree

    5. It can be conditional

    6. Bargaining gives rise to Counter Offer

    7. It must be made to create a legal relationship

  • 8/2/2019 Business Law Module i


    Firm Offer Vs Invitation to Treat

    Examples of Invitations to Treat


    Display of goods for salein shelf

    An invitation for tenders

    Red herring prospectus

    General advertisement ofgoods

  • 8/2/2019 Business Law Module i



    An acceptance is a expression of assent to theterms of the offer.

    When the person to whom the proposal ismade signifies his assent thereto, the proposal

    is said to be accepted. A proposal, whenaccepted, becomes a promise. Section 2(b)

    Acceptance to an offer is what a lighted matchto is to a train of gunpowder.

    Thus, an offer becomes irrevocable upon itsacceptance.

  • 8/2/2019 Business Law Module i


    Legal Rules Governing a Valid Acceptance

    Must be made by the offeree

    Must be unconditional

    Must be communicated to the offeror

    May be in any form, oral or written

    Must be in the mode prescribed by the offeror

    Must be given within a reasonable time, if no

    time limit is set

    Must be given while the offer is in force

  • 8/2/2019 Business Law Module i


    Termination of Offer & Acceptance

    Revocation/withdrawal/cancellation of offer before the

    offeree accepts it

    Failure to fulfil a condition precedent to acceptance

    Death or insanity of either party

    Refusal or counter-offer

    Acceptance differs from the prescribed one

    Subsequent illegality or destruction of subject matter

    Acceptance can be revoked at any time before it is

    communicated to Offeror

  • 8/2/2019 Business Law Module i


    Gourav owned a house at Calcutta. Nibedita offeredto buy that house for Rs.2 lacs and Gouravs agent

    Debendra to whom the offer was given cabled toGourav: Have had offer for the house for Rs.2 lacs.Then the agent got the reply from Gourav: Will not

    accept less than Rs.3 lacs Then Nibedita accepted

    Gouravs price of Rs.3 lacs and confirmed the

    acceptance by a letter to the agent. But Gourav soldthe the house for a higher price to Purnendu.Nibedita then sued Gourav for damages for breach ofcontract. Decide the case

    There was no offer, but an invitation to an offer;

  • 8/2/2019 Business Law Module i


    The Managing Committee of a college in response toProf. Ravi Ranjans application for the post ofprincipal passed a resolution appointing Prof. Ravi tothe post. But this decision was not communicated toProf. Ravi. However Prof. Ravi came to know aboutthis decision from one of the member of theManaging Committee. After waiting for six months,

    Prof. Ravi filed a case against the ManagingCommittee for breach of contract. Decide the case

    Prof. Ravi will not succeed since there were no communicationof the acceptance to him

  • 8/2/2019 Business Law Module i


    Dinesh agrees to pay Rs.5000 if Jagmohan marries

    Aishariya. But Aishariya marries Abhisek. Subsequently

    Abhisek divorced Aishariya and Jagmohan marriedAishariya. Now Jagmohan claims Rs.5000 from Dinesh

    which he refuses. Decide

    Jagmohan will fail. Contract became void on the

    ground of impossibility as soon as Aishariya married


  • 8/2/2019 Business Law Module i


    Priyanka promised to repay a loan of Rs.5000 to

    Manasi by 5 equal installments. She further

    agreed that if she defaults to pay any oneinstallment then the whole amount of Rs.5000

    will become due. Decide?

    It is a void contract since the sum mentioned

    amounts to penalty which is not allowed under

    contract Act

  • 8/2/2019 Business Law Module i


    Chandramuli agrees to buy a certain horsefrom Biswajit. It turns out that the horse was

    dead at the time of bargain, though neither

    party was aware of the fact. Is the agreement


    No the agreement is void . sec. 20(Mistake)

  • 8/2/2019 Business Law Module i


    Prashant promises to obtain for Pritam anemployment in the public service and Pritam

    promises to pay Rs. 1 lac to Prashant. Is this a

    valid contract?

    No, it is void as the consideration is unlawful.

    Sec. 24(unlawful consideration)

  • 8/2/2019 Business Law Module i


    A agrees to pay B a sum of money if B marries

    C. C married D. B is still willing to marry Cwhen D dies. What is the consequence?

    Now marriage of B to C shall be considered

    impossible vide sec. 34. Hence the contract

    is void

  • 8/2/2019 Business Law Module i


    A promise to deliver 50 rice bags at Bswarehouse on 1st January. A brings the

    goods as promised but after the usual

    business hours. Decide

    A has not performed his part of the promise. It is

    voidable at the option of B

  • 8/2/2019 Business Law Module i


    P promised to marry L and L only. P

    further promised to pay L a sum of Rs. 2

    lac in case P broke the promise. P broke

    promise and married X. Can L recover

    the sum promised?

    No. Agreements in restraint ofmarriage is opposed to public policy.

  • 8/2/2019 Business Law Module i


    Aditya, a merchant of Agra, made a contract to despatch 100

    quintals of gur to Akhil at Delhi at a certain price and Akhil paidRs.5000 as earnest money. None of the parties had knowledge

    that gur transport from state to state is prohibited by Govt.

    Aditya owing to such prohibition could not transport the goods.

    Akhil claims damages for non performance as well as refund ofearnest money. Is he entitled to these remedies?

    The agreement is void ab initio. Akhil can claimrefund of earnest money but not damages

  • 8/2/2019 Business Law Module i


    Chapter 3: Consideration

    Consideration is elemental to a contract. Apromise is not binding unless made forsomething in return - consideration. For

    instance the seller of goods undertakes totransfer ownership in the goods for a price tobe paid by the buyer for acquiring theownership.

  • 8/2/2019 Business Law Module i


    Consideration simply means that both the

    contracting parties are bound to give something (of

    value) to each other.

    Thus, the term consideration is used in the sense of

    quid pro quo, meaning thereby something in return.

    It may involve a positive act (i.e., doing something) oran abstinence (i.e., something given up).

    Consideration may be in the form of some right,interest, profit, or benefit accruing to one party, or

    some forbearance, detriment, loss, or responsibility

    given, suffered or undertaken by the other.

  • 8/2/2019 Business Law Module i


    1. A offers to sell his plasma TV set to B for Rs 50,000. B accepts the offer.Here, Bs promise to pay Rs 50,000 is the consideration for As promise to sellthe TV and As promise to sell the TV is the consideration for Bs promise to payRs 50,000.

    2. Xapplies for a loan from Y, who is unwilling to advance the amount, unless Sguarantees the repayment of the loan ifXdefaults and thereupon Yadvancesmoney toX. In this case, the benefit conferred on Xby Yat the surety ofS is asufficient consideration on the part ofYas against the promise ofS to repay theloan. In other words, the detriment which Ymay not suffer by advancing loan to

    Xdue the guarantee ofS is sufficient consideration on the part ofYin respect ofthe promise ofS to repay the loan.

    3.A promises to maintain Bs child, and B promises to payA Rs 1,000 annuallyfor the purpose. Here, the promise of each party is the consideration for thepromise of the other party. (Illustration appended to Section 23)

    4. A promises Y, his debtor, not to file a recovery suit against him on Bsagreeing to repay the amount of loan along with a compound interest @ 12%p.a. within a year. As abstinence is the consideration for Y based on Bspromise to pay.

  • 8/2/2019 Business Law Module i



    1. Simple Contracts must be supported by Consideration

    In the absence of a valid consideration passing between the parties the generalrule is that the agreement they have made will be of no legal effect.

    The existence of a consideration implies that the parties have devoted somereflection to the matter, and seriously desire their promises to have legalconsequences.

    2. Consideration Must Move at the Desire of the Promisor (Promissory Estoppels)

    Whatever is done must be done at the desire or request of the promisor and notvoluntarily or at the desire of a third party.

    For instance, ifA rushes to the rescue ofB whose house has been trapped in fire, itis not a consideration but a voluntary act on the part ofA. He cannot ask B tocompensate him for the services rendered by him as B had never requested him tohelp. However, ifA goes to Bs rescue at the latters express request, this will beregarded as consideration asA did not wish to do the act voluntarily.

  • 8/2/2019 Business Law Module i


    Consideration At Desire Of Third Person Not Valid

    In Durga Prasad vs Baldeo, D the claimant hadconstructed, at his own expense, a market at the instanceof the Collector of the District. The occupants of theshops i.e., shopkeepers in the market promised to pay

    the plaintiff a commission on the articles sold throughtheir shops. Subsequently the shopkeepers refused topay any commission. D sued the shopkeepers againsttheir alleged default. It was held that there was noconsideration because the plaintiff (the promisee) had

    constructed market not at the desire or request of thedefendants (the promisors), but at the desire of a thirdperson (i.e., the Collector) to oblige him and thus, thecontract between D and the shopkeepers was void.

  • 8/2/2019 Business Law Module i


    Rules Governing Consideration

    3. Consideration May Move From the Pro...


View more >