Introduction to Business Law

Soumya V

Law Meaning & Definition

Law: The rules which regulate the relations between individuals and individuals, individuals and society and individuals and government. According to Salmond Law is the body of principles recognised and applied by the state in the administration of justice

Characteristics of law
Law is a body of rules Law is for the guidance or conduct of persons both human and artificial Law is imposed Law is enforced The State Content of law Law is made to serve some social, economic or political purpose

Need for the knowledge of law

Ignorantia juris non excusat

Purpose of law
Justice Continuity and uniformity Impartiality Rule of law

Sources of Indian Law

English law Customs or customary law Judicial decisions or law by precedents Statute law or legislation Personal law of the parties, e.g., Hindu Law, Muhammedan law

Mercantile or Business Law

That branch of law which prescribes a set of rules for the governance of certain transactions and relations between i. Business persons themselves ii. Business persons and their customers, dealers, suppliers etc iii. Business persons and the state

Sources of Indian Business Law

Statutes such as Indian Contract Act 1872, Sale of Goods Act 1930, Indian Partnership Act 1932, The Negotiable Instruments Act 1881, The Insurance Act 1938 etc Common Law Customs and Usages Precedents Justice, equity and good conscience

Indian Contract Act 1872

Introduction
The law relating to contracts is contained in The Indian Contacts Act 1872 which came into force on 1st September 1872. It applies to the whole of India except the state of Jammu and Kashmir. General principles of the law of contract is covered in Sec 1 75 Sec 124 to 238 covers some special contracts viz., bailment, indemnity and guarantee, pledge and agency The Act is not a complete and exhaustive law on all types of contracts Contracts not covered by the Act include those relating to partnership, sale of goods, negotiable instruments, insurance, bill of lading etc

Contract - Definition
Section 2(h) of the Indian Contract Act, 1872: A contract as an agreement enforceable by law Contract consists of essentially two elements: 1. Agreement 2. Its enforceability of law

Agreement
Section 2(e) defines agreement as "every promise and every set of promises, forming the consideration for each other.

Promise
Section 2(b) defines promise as: "when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted, becomes a promise.

Agreement = Offer + Acceptance Consensus ad idem Obligation

All contracts are agreements but all agreements are not contracts.
Agreement is a wide term and contract is a narrower term. Agreement is of two types - Social Agreement - Legal Agreement.

Essential Elements of contract (Sec 10)

All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void..
1. Offer and Acceptance 2. Intention to create a legal relationship 3. Consensus - ad idem 4. Capacity of parties 5. Free consent 6. 7. 8. 9. Lawful Consideration Legality of object Not declared to be void Certainty and possibility of performance 10. Legal formalities

Classification of contracts

1. Classification according to validity

Valid which satisfies all the essential elements of Sec 10 Voidable Void Illegal Unenforceable

Voidable contract
According to section 2(i), 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 or others, is a voidable contract. Voidable when free consent is missing i.e., when the consent of one of the parties to the contract is obtained by coercion, undue influence, misrepresentation or fraud. When one party prevents the other from performing his promise When a party to the contract promises to do a certain thing within a specified time, but fails to do it

Void contract
Section 2(j) defines: A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. A contract when originally entered into may be valid but may subsequently become void due to some reasons which are : Supervening impossibility (sec. 56) Subsequent illegality (sec, 56) Repudiation of a voidable contract. In the case of a contract contingent on the happening of an uncertain future event, if that event becomes impossible

Void agreement
An agreement not enforceable by law is said to be void *sec.2 (g)+. It is void ab-initio.

Unenforceable contract.
An unenforceable contract is one which is valid in itself, but is not capable of being enforced in a court of law because of some technical defect such as absence of writing, registration, requisite stamp, etc., or time barred by the law of limitation.

Illegal or unlawful agreement

Agreement which is contrary to the law It is void ab initio All illegal agreements are void but all void agreements are not illegal

2. Classification according to formation

Express contract Implied contract Constructive or Quasi contract - It rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another. E-Com contracts / Contracts over internet

3. Classification according to performance

Executed contracts - both the parties have performed their respective obligations. Executory contracts - both the parties have yet to perform their obligations.
Unilateral or one-sided Bilateral executory i.e., contracts with executory consideration

Differences between agreement and contract

Enforceability Legal obligation Binding on parties Concept

Differences between void agreement and voidable contract

Legality Time of enforceability Compensation Collateral transactions

OFFER AND ACCEPTANCE

Offer
Section 2 (a) defines offer as when a person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence The person making the offer is known as the offeror, proposer, promisor and the person to whom it is made is called the offeree or proposee. When he accepts the offer, he is called the acceptor or promisee [Sec 2 (c) ]

Types of offer
Express Implied Specific General

Essentials of a valid offer

1. Intention to create legal relationship 2. Terms must be definite and certain
3. An offer must be distinguished from: 1. A declaration of intention and an announcement 2. An invitation to make an offer or do business

4. An offer must be communicated 5. An offer can be specific or general 6. A statement of price is not an offer 7. An offer should not contain a term the non acceptance of which may be assumed to amount to acceptance 8. Offer with special conditions 9. Cross offer Vs. Counter offer

Acceptance
Acceptance is an expression by the offeree of his willingness to be bound by the terms of the offer. It is to an offer what a lighted match is to a train of gun powder

Essentials of a valid acceptance

1. 2. 3. 4. It must be communicated It must be absolute and unqualified It can be express or implied It must be according to the mode prescribed or usual and reasonable mode It must be given within a reasonable time It cannot be implied from silence It cannot precede an offer It must be given before the offer lapses or before the offer is withdrawn It must be given by the party or parties to whom the offer is made

5. 6. 7. 8.
9.

Communication of offer, acceptance and revocation

Mode of communication By Act By Omission

When is communication complete?

Offer - when it comes to the knowledge of the person to whom it is made Acceptance:
As against the proposer when it is put in the course of transmission to him, so as to be out of the power of the acceptor As against the acceptor When it comes to the knowledge of the proposer

Revocation:
As against the person who makes it - when it is put in the course of transmission to him, so as to be out of the power of the person who makes it As against the person to whom it is made - When it comes to his knowledge

Time for revocation of offer and acceptance

Offer May be revoked at any time before the communication of acceptance is complete as against the proposer(i.e., before the communication is posted) Acceptance - May be revoked at any time before the communication of acceptance is complete as against the acceptor (i.e., before the offeror comes to know about the acceptance)

When does an offer comes to an end?

By notice of revocation By lapse of time By non-fulfilment of condition precedent By the non acceptance of the offer according to the prescribed or usual mode An offer lapses by rejection
Express rejection or Implied rejection by making a counter offer or by giving a conditional acceptance

By death or insanity By subsequent illegality

References
N D Kapoor Elements of Mercantile Law Sultan Chand & Sons K Ramachandra, B. Chandrashekhara, Chandrakant Kanakatte - Legal Aspects of Business , Text and Cases - Himalaya Publishing House (1st edition)