Business Law

I Introduction
An introduction – Definition – Objectives of Law - Law: Meaning and its Significance,
Mercantile Law: Meaning, Definition, Nature, Objectives, Sources, Problems of Mercantile Law
II Elements of Contract
Indian Contract Act 1872: Definition of Contract, Essentials of Valid Contract, Classification
of Contract, Offer and Acceptance – Consideration – Capacity of Contract – Free Consent -
Legality of Object – Contingent Contracts – Void Contract
III. Performance Contract
Meaning of Performance, Offer to Perform, Devolution of Joint liabilities & Rights, Time and
Place of Performance, Reciprocal Promises, Assignment of Contracts - Remedies for Breach of
contract - Termination and Discharge of Contract - Quasi Contract
IV.Contract of Indemnity and
Guarantee
Contract of Indemnity and Contract of Guarantee - Extent of Surety’s Liability, Kinds of
Guarantee, Rights of Surety, Discharge of Surety – Bailment and Pledge – Bailment – Concept –
Essentials and Kind - Classification of Bailment’s, Duties and Rights of Bailor and Bailee – Law
of Pledge – Meaning – Essentials of Valid Pledge, Pledge and Lien, Rights of Pawner and
Pawnee.
V. Sale of Goods Act 1930:
Definition of Contract of Sale – Formation - Essentials of Contract of Sale - Conditions and
Warranties - Transfer of Property – Contracts involving Sea Routes - Sale by Non-owners -
Rights and duties of buyer - Rights of an Unpaid Seller

Business Law
UNIT : I Introduction
An introduction –
definition – objectives of law - law: meaning and its significance, mercantile law: meaning,
definition, nature, objectives, sources, problems of mercantile law
Business Law is also known as Commercial law or corporate law, is the body of law that applies
to the rights, relations, and conduct of persons and businesses engaged in commerce,
merchandising, trade, and sales.
the body of rules, whether by convention, agreement, or national or international legislation,
governing the dealings between persons in commercial matters.
the discipline and profession concerned with the customs, practices, and rules of conduct of a
community that are recognized as binding by the community. Enforcement of the body of rules is
through a controlling authority
John Austin's law definition states “Law is the aggregate set of rules set by a man as politically
superior, or sovereign to men, as political subjects.”
OBJECTIVES OF LAW
Justice: One of the primary objectives of law is to uphold and administer justice. This involves
ensuring fairness, equity, and the protection of individual rights. Legal systems strive to resolve
disputes justly and to punish wrongdoing in a manner that is proportionate to the offense.
Order and Stability: The law aims to establish and maintain order within a society. It provides
a framework of rules and regulations that govern behavior, helping to prevent chaos and ensure
predictability. By defining and enforcing rights and obligations, the law contributes to social
stability.
Protection of Rights and Liberties: Law seeks to protect the fundamental rights and liberties of
individuals. This includes safeguarding civil rights, human rights, property rights, and other legal
entitlements. Legal systems often include mechanisms for individuals to seek redress when their
rights are violated.
Social Welfare and Public Interest: Many legal systems aim to promote the well-being and
interests of society as a whole. This involves creating laws and policies that address public
needs, such as public health, safety, and the general welfare. Regulations may be enacted to
protect the environment, consumers, and vulnerable populations.

Significance of law
1. Laws set the standard for acceptable (and unacceptable) behaviors
At its most basic, the law is about mitigating conflict. When creating laws, societies reckon with
what drives conflict. Some things – like murder and theft- are obvious and have been included in
laws stretching back to ancient times.
#2 Laws provide access to justice
If it’s against the law to punch someone in the face, someone who gets punched can do
something about it other than simply swinging back. In a perfect world, justice is equal. It
doesn’t matter who got punched or who did the punching.

#3 Laws keep everyone safe

Laws don’t only respond to injustices and harm. They work to prevent them. Food safety laws
are a prime example. In the past, the food industry was horrendously unregulated. In the 18th and
19th centuries, American food producers went to extreme measures in their quest for profit.
#4 Laws protect the most vulnerable in society
Many laws are specifically designed to protect certain groups of people. Laws like the Civil
Rights Act (the United States) and the Sex Discrimination Act (Australia) make it illegal to
discriminate.
#5 The process of creating laws encourages civil and political engagement
As societies change, laws must change, too. Advancements in technology are a prime example of
why. In recent times, the distribution of sexually explicit images or videos of individuals without
their consent has become a major issue.
6 Laws offers people a variety of career options
As a career, law is varied and versatile. Because there are so many different areas of law, there
are hundreds of job options. Lawyers can specialize in everything from contracts to immigration
to criminal law.
#7 Laws are important to maintain peace
Earlier in this article, we touched on how law is essentially about mitigating conflict. That makes
law essential to maintaining peace. This is because injustice fuels conflict
#8 Laws are important for social progress
We’ve discussed how legal systems should adapt and evolve with the times. If laws remained
stagnant, so would societies. Throughout history, law has been employed as a tool for social
change.
#9 Laws make human rights a reality
Supreme Court Justice Sonia Sotomayor once said, “I firmly believe in the rule of law as the
foundation for all our basic rights.” Basic rights are the human rights that everyone is entitled to
#10 Laws are not always good for society
 The fact that law can be used to harm is the last reason why it’s so important. Laws are not
always beneficial to society or they’re only beneficial to a select group. Governments often use
laws to increase their power and punish critics.
.

mercantile law:
Mercantile Law is a repository of all the Laws included in a company to handle or look after its
commercial activities. It is a generalized term for the entire legal body. All the other acts like the
company act, limitations act, Indian contract act, etc. are subsidiaries of the Mercantile Law. And
the acts are known as Mercantile Law acts.
Meaning
.
Mercantile Law, also known as Commercial Law, governs the commercial activities of the
economy. It is a broad term that encompasses all of the Laws in India that govern commercial
transactions. Such a transaction necessitates a valid agreement between the contract's parties. It
can be explicitly stated or implicitly stated.
, definition & nature,

Commercial law, also known as mercantile law or trade law, is the body of law that applies to
the rights, relations, and conduct of persons and business engaged
in commerce, merchandising, trade, and sales.[1] It is often considered to be a branch of civil
law and deals with issues of both private law and public law
Objectives
1. Defines taxation law – This kind of law gives details and procedures of the business-related tax
system.
2. Defines employee rights and duties – An organization’s employees have some legal rights and
responsibilities towards their employers. The business law notes provide the details of the same.
3. Make business environment friendly – Any business entity becomes a great place to work if
the domain is friendly and has good work culture. This law of a business ensures such an
environment
Sources
1. Law Merchant: The main source of Mercantile Law is the Law merchant. It refers to the
customs and rules that govern traders' and businessmen's dealings and transactions with one
another.
2. Statute Law: Legislation creates Law, which is referred to as statute Law. A statute is a written
formal act of the legislature. It has also evolved into a significant source of Mercantile Law.
3. The Principle of Equity: The principle of equity refers to a set of rules that are not based on
customs or statutory Law. As a result, equity rules were formed based on the basis of conscience
dictates decided in chancery courts.
4. Common Law: Common Law is a set of rules defined by customs, judicial decisions, and old
scholarly works on the subject. It is an unwritten English Law that applies to everyone in the
country. In this context, common law refers to legal principles developed by judges through case
decisions.

1, problems of mercantile law

2. The Business ‘Pre-nup
3. Business contracts
 4 Buzzwords: cyber security, consumer data right, notifiable data breach, digital platform
inquiry
UNIT -II ELEMENTS OF CONTRACT

Indian Contract Act 1872: Definition of Contract, Essentials of Valid Contract,

Classification of Contract, Offer and Acceptance – Consideration – Capacity of Contract –
Free Consent - Legality of Object – Contingent Contracts – Void Contract
Indian Contract Act 1872:
The Indian Contract Act, 1872[1] prescribes the law relating to contracts in India and is the key
act regulating Indian contract law. The Act is based on the principles of English Common Law.
It is applicable to all the states of India. It determines the circumstances in which promises made
by the parties to a contract shall be legally binding. Under Section 2(h), the Indian Contract Act
defines a contract as an agreement enforceable by Law
Definition of Contract
1. John Salmond “the law of contracts is not the whole law of agreements, nor is it the whole law of
obligations, but it deals with those agreements which create obligations and those obligations is
which have their source in agreements”
2. A contract is an agreement that specifies certain legally enforceable rights and obligations
pertaining to two or more parties. A contract typically involves the transfer
of goods, services, money, or a promise to transfer any of those at a future date, and the activities
and intentions of the parties entering into a contract may be referred to as contracting
Essentials of Valid Contract
1. Offer and Acceptance 2. Intention to create legal 3. Lawful Consideration
4. Capacity of parties 5. Free and genuine consent 6. Lawful object
7. Agreement not declared void 8. Certainty and possibility of performance 9. Legal
formalities.
Classification of Contract
Classification according to Validity
1. Valid contract ii) Void contract
2. iii) Voidable contract iv) Unenforceable contract
3. v) Void agreement vi) Illegal agreement
ii) Classification according to formation
1. Express contract ii) Implied contract iii) Quasi contract
iii) Classification according to performance
1. Executed contract II. Executory Contract

Offer and Acceptance

Offer and Acceptance: An agreement is the result of an offer and its acceptance. So, there must
be ‘lawful offer’ and a ‘lawful acceptance’ of the offer. In an agreement there must be atleast two
parties, one of them making the offer and the other accepting it. The offer and acceptance must
satisfy the requirements of the contract Act in relation thereto.
Offer and acceptance:
An offer is a statement or action that indicates a willingness to agree. Acceptance is an
agreement to the terms of an offer by the other party.
An offer must be communicated to the person who is meant to accept it and may be made by
words or conduct. The offer must be communicated to the other party and the other party must
accept the offer.
 The person who makes an offer is called the “offeror” and the person who accepts it is called the
“offeree.” The communication of an offer can be done verbally, in writing, electronically, or by
any other means.
An offer is not valid until the offeree has accepted it. It may be withdrawn before acceptance, but
it cannot cancel.

– Consideration
Consideration constitutes the benefit that you receive from making the contract. In other words,
each person in a contract must promise to do something. Conversely, each person may promise
not to do something. In addition, consideration results in a benefit to each party.
 Consideration has to move as per the desire of the promisor.
 Consideration may move from the promise to another person.
 Consideration might be in the past, present, or future.
 Consideration does not need to be adequate.
 Consideration must be real and not illusory.
 Illegal or immoral acts are not considered.
Example:
Consideration may be thought of as the concept of value offered and accepted by people or
organisations entering into contracts. Anything of value promised by one party to the other when
making a contract can be treated as "consideration": for example, if A contracts to buy a car from
B for $5,000, A's consideration is the promise of $5,000, and B's consideration is the promise of
the car.
Additionally, if A signs a contract with B such that A will paint B's house for $500, A's
consideration is the service of painting B's house, and B's consideration is $500 paid to A.
Further if A signs a contract with B such that A will not repaint his own house in any other
colour than white, and B will pay A $500 per year to keep this deal up, there is also a
consideration. Although A did not promise to affirmatively do anything, A did promise not to do
something that he was allowed to do, and so A did pass consideration. A's consideration to B is
the forbearance in painting his own house in a colour other than white, and B's consideration to
A is $500 per year. Conversely, if A signs a contract to buy a car from B for $0, B's
consideration is still the car, but A is giving no consideration, and so there is no valid contract.
However, if B still gives the title to the car to A, then B cannot take the car back, since, while it
may not be a valid contract, it is a valid gift.
– Capacity of Contract
1. Attaining the Age of 18
A minor does not hold the capacity of holding a contract in business. Any agreement made with
a minor in business is void ab-initio, which means ‘from the beginning’. If any person aged
below 18 years enters into a contract, he cannot ratify the agreement even when he turns 18. This
means that an invalid agreement can never be ratified.

 Minor being a Beneficiary in a Contract.

Even though a minor is prohibited from entering a contract, he can register himself as a
beneficiary of an agreement. Section 30 of the Indian Partnership Act, 1932 mentions that a
minor cannot participate as a partner in the business, but he can enjoy the benefits earned by the
firm.

 A Minor always enjoys the benefits of being a Minor

 A minor gets to enjoy some extra benefits in business. This contractual benefit needs to be
explained in terms of the capacity to contract with examples. For instance, if a minor pretends to
be a major and enters into a contract, he can later plead the minority through some simple
formalities. The rule of estoppel is not applicable to a minor.

 Contract through the means of a Guardian

In some cases, a guardian can enter into a valid business contract on behalf of a minor individual.
Here, the guardian has no right to bind a minor to buy any immovable property under the
contract. However, with proper certification and approval, the minor’s property can be sold when
required.

 Insolvency
According to business law, a minor cannot be declared insolvent at any point in time. Even if the
minor owes some dues to the firm, he will not be held personally liable for it.

 Mutual contract by a Minor and an Adult individual

When a joint contract is signed between a minor and major, it has to be done in the presence of
the minor’s guardian. In such contracts, the liability of the contract is held by the adult.

2. An individual has to be of Sound Mind

Section 12 of the Indian Contract Act (1872) necessitates a person to be of sound mind, have a
complete understanding of the contract terms and conditions, and hold the ability to judge its
impact on his interests.

Here, the capacity of parties to the contract also applies to an individual who is usually of
unsound mind and occasionally in sound mind. However, in this case, the contract has to be
signed when he is in a state of complete soundness. A contract made by an individual of unsound
mind shall be considered as null and void according to capacity law definition.

A person under the influence of any sort of intoxication is considered incapable of entering into a
contract. Such individuals can make a contract only when they are sober and have a complete
understanding of the contractual terms.

3. People Disqualified under Law

Other than minors and people of unsound mind, some individuals might be restricted from
entering into any contract as well. Such individuals do not hold the capacity to contract under
valid business laws. Disqualification under contractual laws could include reasons related to
politics, legal status, etc. This could also happen when a person is a foreign sovereign, national
enemy, convict, or insolvent.

 Alien enemies: people who are having citizenship in countries who don't have cordial
relationships with India or in a war situation are called Alien enemies. People signing the
contract during a war situation is not encouraged and a contract during a peace situation is valid.
 Married women: married women are not allowed to enter a contract regarding their husband’s
property.
 Pardanashin Women: Pardanashin women who will be under influence are not eligible to be
involved in the contract as they cannot understand the contract.
 State Ambassadors: The ambassadors are incompetent to contract.
 Convict Serving Sentence: People who are on Bail or serving their sentence are not allowed to
sign Union of thoughts. It is under the principle of consensus-ad-idem. It is the definition of free
consent.
Free Consent Example
In order to understand more clearly, let us illustrate a case of free consent. Let us assume A and
B are two parties, and 'A' had some financial crisis, so he wants to make a contract. After
knowing all the information and after analyzing the situation, 'B' wants to accept the contract
made by 'A'. Here the contract or agreement is made with the mutual consent of both the parties.
This is nothing but the free consent of the contract.
Consent and Free Consent
 Even though the meaning of both consent and free consent seems to be similar, slight differences
are observed when we go through them in detail. Now we will see the differences between a
contract.
 Patent Officers: People having patent rights are issued by their owners to them. A patent is a
monopoly right given to its owner. Hence patent officers are not allowed to sign the contract.
 Legal professionals: People who work as judges, advocates, public prosecutors are not allowed
to sign a contract related to their connections.

For example, Advocate has taken a case from a Y person, the legal proceedings are going on. So
advocates cannot sign a contract with that person in buying that property.

 Insolvent: The insolvent person is allowed to purchase the property but cannot sell his own
property.
 Company: The company is formed under the law. Different companies are bound by different
laws. Here, the company is considered as an artificial person. The company cannot sign contracts
outside its limits.

4.Capacity contract limited due to Mental Illness

Persons with mental illness or disorders are also having limited capacity to contract irrespective
of age. Some of the instances related to campsity are listed below-

1. Intellectual disability: People with intellectual disability are having an exception for capacity to
contract, it also includes the severity of the disorder.
2. Advanced dementia: People suffering from dementia are exempted from involving or signing
the contract.
3. Hallucinations and visions: People who are in hallucination and visualize things without any
reference are exempted from signing the contract.
4. Affective disorders: People having depressions or bipolar disorder will have frequent mood
changes. So people with these problems are not allowed to be involved in any contract.

– Free Consent
Let us define free consent as a contract based on Section 13 of the Indian contract act 1872 is, the
meaning of free consent is an agreement made between two parties for the same purpose with the
consent and free consent, where it varies and the importances etc. in detail as follows-
Elements:- The elements of consent are limited to a similar purpose as well as the same sense of
mind. On the other hand, the elements of free consent should be free from fraud, coercion, undue
influence, misrepresentations, and other mistakes too.
 Void: The contract will be voidable if there is no consent. In contrast, the voidability of the
contract will be decided by the aggrieved party in the absence of free consent.
Violating Factors of Free Consent
Coercion: when a person unlawfully, threatens or forces a person via some forbidden acts, leads
to coercion
Fraud: Another important factor of free consent is fraud. When a person provides false
assertion, makes any promises in order to deceive a person or plans to get an advantage over the
other party, then the act is considered as fraud.
Misinterpretation: Providing a false assertion or fake representation of the fact to the party or
making unwarranted information to mislead the other party. According to Section 18 of the
Indian law of contract, the misrepresentation is nothing but showing the false information at the
beginning of the contract itself.
Undue influence:
 rustee and beneficiary
 Husband and wife
 Landlord and tenant
 A person whose mental capacity is low
 Old age
 Doctor and patient
 Tender age
 Creditor and debtor
 Real and apparent authority
 Fiduciary relationship
 Parent and child
 Adult child and parent
 Lawyer and client
Mistake: Mistakes can have so many impacts and it causes a lot of issues. It can be mutual or
individual or can be of many types

- Legality of Object
 They are specifically forbidden by law.
 They are fraudulent in nature.
 The nature of the object and the consideration is such that it defeats the purpose of the law.
 They involve injury or harm to a person(s) or property.
 Are considered immoral by the court of law.
 Are against public policy.
orbidden by the Law
An object and/or a consideration prohibited by law are not considered legal and render a contract
void. Unlawful consideration of the object means unlawful acts that are punishable by the law.
The acts disallowed by the appropriate authority by means of their rules and regulations are also
considered for determining the legality. However, if these rules and regulations are not in tandem
with the law, they are not applicable.

Forbidden by law provision renders a contract void but all void contracts may not be illegal.

Fraudulent in Nature
The object and the consideration of the contract must not be fraudulent as then, the contract will
become void.
 Example- A enters into a contract with B where he agrees to pay B if he embezzles money from
C. This is considered a fraudulent object and the contract is not valid.

Defeats the Purpose of the Law

If the purpose of entering into the contract is to go against any provisions of law, the contract
will be deemed void. The contract is void if:
 The object of the contract is to perform an illegal act.
 The object of the contract is explicitly or in an implied manner prohibited by law.
 The completion of the contract is impossible without going against the provisions of the law.
Example - A enters into a contract with B whereby B promises to not pursue legal proceedings
against A if A commits a robbery in B’s house. This contract is against the provisions of the IPC
law.

Involves Injury or Harm to Another Person or Property

The object of the contract must not cause any destruction to property or cause injury to another
person.
Examples:
 Publishing a book on the life of a person without his consent.
 Destruction of a property.
 Violation of licenses.
 Violation of copyrights.
A enters into a contract with B whereby he agrees to pay a sum of money to B if he destroys a
city landmark. This contract does not have a lawful consideration and lawful object and it is not
deemed legal.

Immoral as Per Law

If the object and/or consideration of the contract are considered immoral, the contract will not be
deemed void. Immoral acts are against the reasonable and acceptable general behavior or
personal conduct accepted by society.
Example - A lends money to B on the condition that B will divorce C, and later get married to A.
If B does not divorce C, then A cannot pursue legal proceedings against B to recover the money.
The basic premise of this contract is immoral so it will be deemed void.
Against the Public Policy
A lawful object in business law means that it should not be against public policy. The purpose of
public policy is not to curtail any individual’s rights but to maintain and protect the general
welfare of the community. Let’s see what kind of contracts are considered to be against the
public policy:


– Contingent Contracts
n a contingent contract, the performance of the promisor is dependent on the fulfillment of
certain conditions. These contracts create an obligation on the promisor only if the conditions
collateral to the contract are met.
According to the Indian Contract Act, “If two or more parties enter into a contract to do or not do
something if an event which is collateral to the contract does or does not happen, then it is a
contingent contract.”
 Insurance contracts, indemnity contracts, and guarantee contracts are some examples of
contingent contracts.

Contingent Contract Example: A promises to pay B a sum of 20 thousand rupees if there is

damage to his house from fire. The payment of the amount is contingent on the house being
destroyed by fire. If there is no fire, B cannot claim the amount from A who is not liable to pay
since the fire that was the collateral condition, did not happen.

– Void Contract
Void Contract
The void contract has been defined under section 2(j) of the Indian contracts act, 1872. A void
contract was once a valid contract, but it has become void now due to changes in some of the
original conditions. There is no obligation or rights concept in a void contract and is not
enforceable by either the parties. These contracts are not covered by the law and cannot be made
valid even if both parties consent.

Section 24 to 30 Defines the Following Types of Void Contracts:

 Any agreement in which one party is restricted to enforce their legal rights is a void contract.
These legal rights arise under the contract as per the usual legal proceedings in the ordinary
tribunals.
 Any agreement where there is a limit on the time of enforcing the contract rights
 Agreements that are unlawful in parts
 Agreements in Restraint of Marriage– Any agreement (apart from involving a minor), where
there is restraint in marriage, is a void agreement.
 Agreements in Restraint of Trade– Any agreement which restricts a lawful trade or profession
is considered a void contract.
 Unmeaning agreements
 Wagering or gambling agreements