Legal Aspects

Ref Books: - Business Law by PC Tulsian

? Law by ND Kapoor
Business Law for Management by KR Bulchandani
Contract Act
A contract is an agreement which is enforceable by law.
Contract is entered into by 2 parties: offeror &offeree / promiser & promise.
The offeree has to accept the contract proposed by the offeror for it to become a contract.
The offeror can revoke the offer before acceptance.
The parties must have the capacity to contract: minors, people of unsound mind, those who
have been barred by law, a bankrupt person. (all these cannot)
The consent has to be free. If the contract is not free, it is voidable.
Not free when: coercion, undue influence, fraud, misrepresentation, mistake
Coercion → threatening death or act forbidden by law
→ detaining property
Undue influence → misuse of a dominating position to make someone enter a contract
→ fiduciary relations, person holding legal/ethical relation of trust – misuse
→
Fraud → knowingly making a false statement with the intention to deceive
→ active concealment of a fact that ought to have been revealed
→ promise made without intention of performance
→ hiding known dangers of the task
Misrepresentation → no intention of deceit (contract is voidable)
Mistake → bilateral (both parties make the mistake) – contract is void
→ unilateral (anyone party makes the mistake) – compensation for termination
→ mistake of law (not knowing the law, okay in foreign countries not in India itself)

Types of Offers
→ Specific offer – made to a certain person
→ General offer – made to the world at large (need not have acceptance) (Mrs. Carlyle v/s
Carbonics)
Law of offering
Offer can be revoked before acceptance (Rajendra Kumar Verma v/s Govt. of MP)
The offer has to be communicated (Lal Man Shukla v/s Gauri Dutt)
Law of acceptance
Must accept to convert into contract
Accept conditions
Accept within stipulated time
Consideration – something in return, an agreement without consideration is void
Indian Law – anyone can give consideration (Chinnaya v/s Ramaya)
British Law – only promise can give consideration
Exception → promise to do something out of natural love and affection (blood
relation/marriage)
→ promise to compensate for something done voluntarily in the past
→ promise to pay a debt
Open Offer → offer is open for an indefinite period of time (can be revoked before
acceptance)
Standing Offer → ?
Privity of Contract → Only persons party to the contract can file a case
Exceptions
(Khwaja Mohammed Khan v/s Husieni Begum)
(Tagore commercial corp v/s Narayani Devi)
(Nivah v/s Shiva)
What a contract should and should not have:
Intention to create legal relationship (Merrit v/s Merrit)
Agreement to marriage
Agreement in restrain of trade (is void), exception to this: agreement of goodwill

Wager (betting agreements) Exceptions:

Horse Races, State run lottery, Crossword puzzles
An agreement whose object is illegal or unlawful.
Agreement with an alien enemy (contract with persons from country we’re at war with)

Discharge of Contract
Obligations of parties under contract is over
→ Performance (completion of task)
→ Breach - actual breach
- anticipatory breach (Hochester v/s Dalatur)
Supervining circumstances(Avery v/s Bowden)
→ Impossibility - initial impossibility – impossible when the contract was made (Godman)
- subsequent impossibility – made impossible due to certain events (Knight
v/s Frost)
→ Novation (replacing old contract with new contract)
- same parties, terms altered
- same terms, parties altered
Remedies for Breach of Contract
→ Quantum Merit (as much as) (painter)
→ Damages - proximate damage (actual loss)
- remote damages (actual loss + probable loss)
→ Specific performance and injunction (stay order)
Agent
An agent is a person employed to do any legal act for the principal (Employer)
Types of agents
1. Auctioneer- sells properties of the principal (at auctions/bids)
2. Factor- holds the custody of the principal’s goods (given free hand to trade)
3. Broker- no custody given, negotiates with the buyer on behalf of the principal
(gets commission only if contract is signed)
4. Del credere agent- pays the principal for the goods for extra remuneration
Creation of agency
1. Express/implied- Principal gives written or oral authority
2. Estoppel- allowing someone to act as an agent even when he/she is not an agent
3. By ratification- when a non-agent acts as an agent and the principal ratifies the transaction
and accepts liability (agency is established after the event
4. By necessity- acts as an agent in case of emergency
5. Husband-Wife relationship- Spouse is an agent as long as they are living together
(Debenham vs Mellar)
Duties of the agent
1. Duty to follow instructions/customs: Directions given by the principal. If directions are not
given, follow common customs
2. Duty to reasonable care and skill: failure to do so, loss will be borne by the agent
3. Duty to not delegate: not to delegate his duties to someone else
Exceptions: custom of the area
nature of agency calls for appointment of sub-agent (lawyer)
act does not require personal skill
when the principal express or implied agrees to the appointment of sub-agent
4. Duty to render proper accounts: keep a fair record of all money
5. Duty to pay the sum collected on the principal’s behalf
6. Duty to not do business on his own account
7. Duty to communicate with the principal and get advice/instructions
Rights of the agent
1. Right to remuneration
2. Right to retain sums: if the principal doesn’t pay remuneration the agent may retain sums
3. Right of lien on principal’s property: If the principal doesn’t pay remuneration, agent may
retain property
4. Right to be indemnified: if the agent incurs expenses, he has the right to be indemnified
5. Right to compensation for damage due to principal’s neglect

Performance of Contract
→ If one party dies
The contract is still valid, legal representative of the deceased are bound to the promise
If the contract requires personal skill, the legal representative is not bound to the same
Promisee not giving reasonable facility to the promiser to perform his/her part (Sec 67)
Affect of refusal to accept offer of performance (Sec 68)
The promiser is not responsible of performance because the promisee refused to accept offer
→ Joint promises and nature of their liability (Sec 42, 43, 44 of the Contract Act)
Joint and several- parties are jointly liable and separately. If one party has to pay the whole
amount, that party has the right to recover from other joint promisers
If any one party is unable to pay the whole amount the remaining amount is split between the
remaining 2 parties
Release of one of the joint promiser does not release the others, neither does it release the
released promiser from his/her responsibility to contribute to the other promisees
Affect of death of one joint promiser on the others: the deceased promiser is replaced by
his/her legal representative
Affect of failure to perform the contract in time: when time is of essence – ask for
compensation
→ Performance of Reciprocal Promise (Sec 51-54 of the Contract Act)
When a contract consists of reciprocal promise to be simultaneously performed, no promiser
need perform his/her promise unless the promisee performs the reciprocal performance.
When the order in which reciprocal promises are to be performed is written in the contract it
must be adhered to. However, if the order is not fixed it must follow the nature of the
promises.
If one party prevents the other from performing his/her performance, the contract becomes
voidable and the he/she is entitled to compensation.
Non-performance of the party who is to perform first, disentitles him from claiming
performance from the other party and renders him/her liable to pay to compensation for any
loss suffered.
Reciprocal promise of legal and illegal acts. It depends on whether the legal and illegal
promises can be separated. If yes, the legal one is a contract and the illegal one is voidable.
However, if it cannot be separate, the whole contract is voidable.
Alternate promises in which one branch is legal and the other illegal, the legal branch alone
can be enforced, the other will be void.
UNIT I
Legal terms and Maxims
1. Injuria sine damnum – there is injury but no damage caused (Ashby vs White) (Vote)
2. Damnum sine injuria – there is damage but no injury (English grammar school case)
3. Volenti non fit injuria – If you voluntarily take a risk and are injured in the process, you
have no right to claim damages (Dan vs Hamilton) (Drunk driving lift case) | (airshows)
4. Res judicata – Once a case is decided, another case cannot be filed on the same facts
5. Sine die – adjourn before fixing the next date of hearing
6. Ratio decidendi – basis on which the judgement is passed
7. Quid pro quo – something for something
8. Quantum merit – as much as the merit deserves
9. Caveat emptor – let the buyer be aware
10. Habeas corpus – to produce the person before the court of law
11. Certiorari – higher court calling for records of the case from a lower court in case of any
irregularities
12. Writ of Mandamus – a writ issued by the high court or supreme court ordering govt.
officials or entity to carry out actions within their jurisdiction
13. Writ of prohibition - a writ issued by the high court or supreme court prohibiting any
lower courts from acceding its jurisdiction
14. Writ of quo warranto – issued by SC/HC to prohibit illegal usurpation of public office by
anyone
(10-14 are writs)
15. Quasi-judicial – a non-judicial member holding judicial proceedings
16. Uberrimae fidel - of the utmost good faith
17. Ultravirus – beyond the power/scope
18. Amicus curiae – friend of the court
19. Informa pauperis – in the character or manner of a pauper
20.
Meaning of Law
A system of rules which a particular country or community recognises as regulating the
actions of its members and which it may enforce by the imposition of penalties.

Meaning of Justice
A concern for justice, peace, and genuine respect for all. It relates to fairness, fair play, fair
mindedness, equity, equitableness, even-handedness, egalitarianism, impartiality, lack of
biasness, objectivity, neutrality, lack of prejudice, open mindedness and non-partisanship.
Sources of law
Origin from which rules of human conduct come into existence and derive legal force or
binding characters. It also refers to the precedence, customs, legislations, etc.
Judicial precedent- a judge made law.
Law making process
The process of law-making laws begins with the introduction of a bill in either house of
parliament (Lok Sabha or Rajya Sabha). It can be introduced by either ministers or members.
Laws can be made by both the centre as well as the state. Laws on subjects from the union list
can be made by the parliament only. Laws on subjects from state list can be made by the state
legislature only. Laws from the concurrent list can be made by both the central and state
government. In case of a clash, Central law will prevail.
When a bill is introduced, copies have to given to all members. The members are then given
time to study the proposed bill and the speaker fixes a date for when the bill will be taken up
for consideration. Members who want to participate in the debate need to submit their names
to the speaker. The speaker shortlists the names and calls people to speak. Members put forth
their observations and the member that introduced the bill justifies/defends the bill. The
members can ask for the bill to be referred to the joint select committee of the parliament,
changes suggested by the committee must be incorporated. If the bill is passed, the bill will
go to the President and he/she gives assent.

Overview of Constitution of India

Constitution of India is unitary in character but federal in nature. Defence, security, etc. are
under the union list. The union list signifies the strong centre as it has more and imp subjects
that any state list. All issues affecting the dominance of UL over SL is secured in the COI. In
any conflict between the 2 UL prevails. UL can confer power and impose duties on the state.
There are 15 subjects on the union list on which the parliament has an exclusive power to
levy taxes. 88th amendment added a new subject in the UL called taxes on services. SC has
said the jurisdiction powers with respect to matters of the UL can be enlarged by the
parliament. There were originally 97 subjects in the UL, 3 were removed from the SL and
added to the UL, making it a total 100. The SL has 61 subjects. Earlier it had 66, 5 have been
removed and put in either the concurrent list or UL.
The 42nd Amendment Act of 1976, shifted the below mention 5 subjects from the SL to the
concurrent list:
1. Education
2. Forest
3. Protection of wild animals and birds
5. Weights and measures
5. Administration of justice
Article 249 gives Parliament the power to legislate concerning a subject in the SL in 3 cases:
-When Rajya Sabha passes resolution
-National emergency
-If 2 or more states pass a resolution requesting Parliament to legislate on subjects under state
list

Concurrent List
Earlier, there were only 47 subjects. Then 5 from the SL were added. Now there are 52
subjects.
The concept of concurrent list has been borrowed form the Constitution of Australia. Both the
central and state government can make laws on subjects in the concurrent list. In case of clash
the central government prevails.
Union list (important subjects)
-Defence
-Army
-International relations
-Ports
-Railways
-Highways
-Communication
State list (important subjects)
-Public order
-Police
-Public health and sanitation
-Hospital and dispensaries
-Betting and gambling
Concurrent list (important subjects)
-Education
-Forest
-Labour
-Marriage
-Adoption
-Succession
The Preamble of the Constitution of India states:
We the people of India having solemnly resolved to constitute India into a sovereign, secular,
socialist, democratic republic and to secure to all its citizens justice (social, economic and
political), liberty (of thought, expression, belief, faith and worship), equality (of status and
opportunity) and to promote among them all fraternity assuring the dignity of the individual
and the unity and integrity of the nation; in our constituent assembly this twenty-sixth day of
November,1949 do hereby adopt, enact and give to ourselves this constitution.
(Socialist and secular were added in the 42nd Amendment)

Fundamental rights and directives principles of the State policy

Sale of Goods Act

Goods mean moveable property of any description except actionable claims and money.
Sale is when property of the goods is transferred from the seller to buyer. However, when the
transfer is to happen at a future date it is an agreement to sell.
In a sale the property is transferred whereas in an agreement to sell transfer doesn’t happen.
In sale, in case of loss or damage the loss is borne by the buyer, whereas in agreement to sell
the loss is borne by the seller.
In sale there is a right in person and property (jus in personem and rem) whereas in
agreement to sell there is only right to person.

Condition and Warranty

A condition is a stipulation which is essential for the main purpose of that contract. In case of
breach of condition, it can give rise to repudiation of contract. Short duration
A warranty is a stipulation which is collateral for the main purpose of that contract. In case of
breach of warranty, it can give rise to claim damages. Longer duration
Cases when a condition is treated as a warranty:
The buyer himself waves the condition and treats it as warranty.
The contract is for a bunch of goods (inseparable) the remaining goods are also treated as
warranty.

Implied Condition and Warranty

Although it is not incorporated into the contract, law assumes it is implied.
Warranty as per title- implied warranty that the supplier has good title (stolen TV)
Sale by description- implied condition that goods correspond with the description
Sale by sample- implied condition that bulk of the goods are supplied according to the
sample. The buyer must be given reasonable time to examine. The goods must be free of
defect. (if the contract can be separated the buyer may retain the goods that match sample and
reject the rest) (vs Gregson 1986)
Sale by sample and description- If the sale is by sample as well description it is not sufficient
that bulk of goods correspond with the sample, it must correspond the description as well.
Warranty as to quality or fitness- only under the following circumstances:- where goods are
ordered for specific purpose; when the buyer relies on the seller’s skill or judgement; when
the goods are bought by description from a seller who deals in goods of that description; by
custom or usage of trade
Warranty as to quiet possession free from encumbrance- car with mortgage

When the property and goods are transferred from seller to buyer
1. Goods must be ascertained (identified) (Sec 18)
2. Property passes when intended to be passed (Sec 19)
3. Specific goods in a deliverable state (Sec 20)
4. Specific goods to be put into deliverable state (Sec 21)
5. Specific goods in a deliverable state when the seller has to do anything (like weigh or
measure) in order to ascertain the price (Sec 22)
6. Sale of unascertained goods (Sec 23)
7. Goods sent on approval or sale or return basis (Sec 24) 50th minute
8. Prima face transfers with property, unless otherwise agreed
Rights of Unpaid seller
1. When the property and goods has been passed to the buyer
→ Right of leave- the seller may not supply goods
→ In the case of insolvency of the buyer- right of stoppage in transit
→ After exercising the above rights the seller may now sell to another buyer
2. When the property and goods have not been passed to the buyer
→ Withhold delivery until payment is made
→ File a case for the price of the goods
→ File a case to claim damages
→ Can recover interest from the civil court

Consumer Protection Act 1986

Monopoly and Restrictive Act 19
Competition Act 2002

Who is a consumer?
Any person who buys goods or avails services for a consideration. Consideration may be
fully paid or partially paid or fully promised to be paid or partially promised to be paid.
Anybody who uses the goods and services with the consent of the seller. Legal heir of the
consumer.
Does not include any person who buys goods for resale or commercial purposes or services
for commercial purposes. However, any person who buys goods for commercial use but
exclusively for his livelihood for means of self-employment is a consumer.
(Simco Textiles vs Grees Cotton and Co. Ltd)
(Jain Irrigation System Pvt Ltd vs Nalgonda Anna Patil and others)
(Ramchand Pharmaceuticals Ltd. Vs Dr. Pritam Saha)

What is a complaint?
Complaint means any allegation in writing made by a complainant that an unfair or restricted
trade practice has been adopted by any trader or service provider.
The goods bought or agreed to be bought by him suffer from one or more defects.
If the trader of service provider has charged in excess of a price fixed under the law or the
price displayed on the goods or displayed on the price list or that agreed between the parties.
Goods which will be hazardous in life and safety when used are being offered for sale to the
public.
If the trader could have known by due diligence that the goods offered are unsafe to the
public.
Service which are hazardous to the life and safety of the public are being offered by the
service provider which could have known with due diligence to be against life and safety.

How to file a complaint?

Who can file?
-The consumer to whom the goods are sold or to whom the services are provided
-Any recognised consumer association
-One or more consumer with same interest
Must file a complaint within 2 years of incident
Value of goods and services and the fees charged
value 100000 fees 100
value 1-5 lakhs fees 200
value 5-10 lakhs 400
value 10-20 lakhs 500

Authorities
-District Forum – up to value of 20 lakhs (now has been enhanced to 1 crore)
-State Commission – more than 20 lakhs but less than 1 crore (expanded to 1.10 crores)
-National Commission – more than 1 crore (beyond 1.10 crores)

District Forum
President of the district forum should be a district judge (present or past) or eligible to be a
district judge
2 more members of which 1 female
They should be a graduate in any faculty with minimum age 35 years, 10 years experience in
arts science commerce law economics etc.
Must be persons of high integrity, standing, knowledge and experience.
A hearing must include President + any one member.
Can work up to the age of 65 years.

Deemed to be a civil court

Every proceeding is a civil proceeding
Powers
-Summoning and enforcing attendance of any witness or defendant + issue warrants
-discovery and produce evidence
-receipt of evidence on affidavits

State Commission
3 members
President of the state commission should be a high court judge (present or past) or eligible to
be a high court judge
2 more members of which 1 female
They should be a graduate in any faculty with minimum age 35 years, 10 years experience in
arts science commerce law economics etc.
Must be persons of high integrity, standing, knowledge and experience.
Members are appointed for 5 years at a time
Can work up to the age of 67 years
A member can be disqualified
- if he has been convicted and sent to prison for an offence involving moral impertitude
- if he has been declared an undischarged insolvent (unable to pay debts)
- if he is a person of unsound mind (if so declared by the court)
- if he has been removed or dismissed from the service of the govt. (due to misconduct)

National Commission
Constituted by the central govt.
Consists of 5 members
President is someone who is or has been a judge of the supreme court (CJI must be consulted
before appointing President)
4 more members of which 1 has to be female
They should be a graduate in any faculty with minimum age 35 years, 10 years experience in
arts science commerce law economics etc.
Must be persons of high integrity, standing, knowledge and experience.
Only 50% can be persons having a legal background
Can work up to the age of 70 years