LEGAL ASPECTS OF

BUSINESS

LAW

Law is a system of rules, usually

enforced through a set of institutions.
It shapes politics, economics and
society in numerous ways and serves
as the foremost social mediator in
relations between people.
Law governs a wide variety of social
activities.

Contract law regulates everything

from buying a bus ticket to trading on
derivatives markets.
Property law defines rights and
obligations related to the transfer and
title of personal and real property.
criminal law offers means by which
the state can prosecute the perpetrator

INDIAN CONTRACT ACT1872

The Indian contract act, 1872 lays

down the law relating to contracts.

CONTRACT

A contract is an exchange of
promises between two or more
parties to do, or refrain from doing,
an act which is enforceable in a
court of law.
It is a binding legal agreement.

AGREEMENT

Every promise or set of promises

forming consideration for each
other.

ESSENTIALS OF A VALID
CONTRACT

AGREEMENT
FREE CONSENT
CONTRACTUAL CAPACITY
LAWFUL CONSIDERATION
LAWFUL OBJECT
NOT EXPRESSLY DECLARED VOID
POSSIBILITY OF PERFORMANCE
CERTAINITY OF TERMS
INTENTION TO CREATE LEGAL OBLIGATION
LEGAL FORMALITIES

CLASSES OF CONTRACTS

Valid Contracts
Void Contracts
Voidable contracts
Illegal contracts
Unenforceable contracts

Valid Contract

It is a contract which satisfies all

the requirements provided for
under sec. 10

Void Contract

A void contract, also known as a

void agreement, is not actually a
contract. A void contract cannot be
enforced by law.
It creates no rights or obligations.

An agreement to carry out an illegal

act is an example of a void contract
or void agreement.
For example, a contract between drug
dealers and buyers is a void contract
simply because the terms of the
contract are illegal.

Voibable Contract

A voidable contract, unlike a void

contract, is a valid contract. At most,
one party to the contract is bound.
For example, depending upon
jurisdiction, a minor has the right to
repudiate certain contracts. Any
contract with a minor is thus a
voidable contract.

If a minor were to enter into a

contract with an adult, the adult
would be bound by the contract,
whereas the minor could choose to
avoid performing the contract.

Illegal Contract

An illegal agreement, under the

common law of contract, is one that
the courts will not enforce because
the purpose of the agreement is to
achieve an illegal end.

Unenforceable Contract

An illegal agreement, under the common

law of contract, is one that the courts will not
enforce because the purpose of the
agreement is to achieve an illegal end.
Which is valid but for certain reasons such as
want of proof, expiry of period within which
enforceable etc it becomes unenforceable.

Offer Or Proposal

When one person signifies to another

his willingness to do or to abstain
anything from doing he is said to
make proposal.

Essentials of a Valid Offer

An offer may be general or specific

An offer should be made with an intention of
creating legal obligation
An offer must be definite and certain
A statement of intention and an invitation to
offer are not offers.
An offer must be communicated to the offeree.
The terms and conditions of offer should also be
communicated
Two identical offers do not make a contract
An offer should not contain any term the noncompliance of which amounts to acceptance

Acceptance

When one person to whom the

proposal is made signifies his
willingness thereto the proposal is
said to be accepted.

Rules Regarding
Acceptance

An offer can be accepted only by the

person to whom it is made.
Acceptance should be unconditional and
absolute.
Acceptance should be communicated
Acceptance should be according to the
prescribe form
Acceptance must be provoked by an offer.

Acceptance must be given before

the offer lapses or is revoked.
Provisional acceptance is no
acceptance.

Contract By Post

Under English Law, the proposer is legally

bound by acceptance effected through
postal medium when the letter is prepared,
addressed, stamped and mailed even
through it is delayed or lost in transit.
Indian law lays down that communication
of acceptance is complete as against the
proposer when it is put in a course of
transmission to him so as to be out of the
acceptor; as against the acceptor when it
comes to the knowledge of proposer.

TERMINATION OF OFFER

Lapse
Failure to fulfill a condition
procedent
Rejection
Destruction of subject matter
revocation

Contractual capacity

Section II lays down that every

person is competent to contract
who is of the age of majority
according to the law to which he is
subject and who is of sound mind
and is not disqualified from
contracting by any law to which he
is subject.

Minor

Minor is a person who has not

attained the age of majority.
Age of 18 years is a major.

Principles governing
minors contracts

No estoppels against minor

No liability in contract or tort
arising out of contract
Doctrine of restitution
Beneficial contracts
Ratification
Liability for necessaries

Free consent

Section 13 of the act defines

consent as two or more persons
are said to consent where they
agree upon the thing in the same
sense.

Coercion
is the committing or
Coercion
threatening to commit any act
forbidden by the Indian Penal code or
the unlawful detaining or threatening
to detain any property.

Undue Influence

Undue influence refers to the

unconscious use of power over
another person, such power being
obtained by virtue of a present or
previously existing dominating
control arising out of relationship
between the parties.

Presumptions as to undue
influence

Parent and child

Guardian and ward
Trustee and beneficiary
Religious advisor and disciple
Doctor and patient
Solicitor and client
Fianc and fiance

Contracts with pardanashin

woman
Unconscionable or catching
bargains

Difference between undue

influence and coercion

In coercion, contract is obtained by

committing or threatening to commit
an act punishable under Indian Penal
code.
In undue influence the consent is
obtained by dominating the will of
other.

Coercion involves physical force

whereas undue influence involves
moral force.
Coercion may proceed from a
stranger and may be directed against
a stranger whereas undue influence
must proceed from a party to the
contract.

The offence may be committed in or

outside India in order to render it
coercion whereas undue influence
may be exercised in India.

Fraud

In the broadest sense, a fraud is a

deception made for personal gain
or to damage another individual.
Fraud is a crime and is also a civil
law violation

Essentials of Fraud

Making a false suggestion.

The active concealment of a fact by a person
who has knowledge or belief of the fact.
A promise made without performing it.
The party acting on the representation
should have been deceived and suffered
damage.
Active concealment of the facts amounts to
fraud.

Silence- whether fraud?

Silence is fraud under two

circumstances:
There is no general duty cast upon a
party to a contract to disclose to the
other party material facts within his
knowledge but are unknown to the
other party.this principle is known as
caveat emptor(let the buyer beware).

When a person is under no duty to

speak, he may become guilty of
the fraud by non-disclosure, if he
voluntarily discloses something
and then stops half the way.

Misrepresentation

It means a false statement of fact

made by one party to another party,
which has the effect of inducing that
party into the contract. For example,
under certain circumstances, false
statements or promises made by a
seller of goods regarding the quality or
nature of the product that the seller
has may constitute misrepresentation.

Essentials of
Misrepresentation

Positive assertion of the fact

Breach of duty
Causing mistake about the subject
matter

Mistake

Mistake refers to mis-understanding

or wrong thinking or wrong belief.
Mistake may be mistake of
fact( unilateral or bilateral)
Mistake of law