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Business Law - Intro & Contract Act-1
Business Law - Intro & Contract Act-1
10
Business &
Corporate
Laws
Introduction
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
10-2
Classification of law
1. Public Law & Private Law
2. Criminal Law & Civil Law
3. Substantive Law & procedural Law
4. International Law & Municipal Law
5. Public International Law & Private International
Law
Classification of law
1. Public Law includes: Constitutional law, Administrative
law, criminal Law, Municipal law , International Law
2. Private Law also referred as Civil law regulates relations
of citizens with one another . It includes: Law of contract,
law of torts, law of property, law of succession, family laws
Classification of law
1. Criminal Law is that part of law which
characterizes certain types of wrong doings
offences against the state , not necessarily violating
any private rights , and punishable by the state
2. Criminal Law is apart of public law , as the society
or public are directly involved.
3. Substantive Law & procedural Law : Provisions
of Substantive Law define rights & duties while
procedural Law provides machinery for enforcing
these rights & duties.
Classification of law
1. International Law is a set of generally accepted
rules & regulations controlling the conduct of
nations, international organizations & individuals
& Municipal Law deals with the relationship
between individuals & their organizations within
a state
2. Public International Law is concerned solely with
the rights & obligations of sovereign states.
3. Private International Law may be defined as rules
voluntarily chosen by a given state for the decision
of cases which have ‘foreign’ element or
complexion
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
10-10
Sources of Law
Primary Sources of Indian law:-
1. Customary law
5. Personal Law
Sources of Law
Secondary sources of Indian law:-
The secondary sources of Indian law are English law
& justice, Equity & Good conscience
English Law:-
1. Main sources of English Law:-
2. Common Law
3. Equity
4. Statute Law
Sources of Law
Secondary sources of Indian law:-
The secondary sources of Indian law are English law
& justice, Equity & Good conscience:
Justice , equity & good conscience are the guiding
forces behind most of the statutes in our country&
the decision of the court:
Justice
Equity
Good Conscience
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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2. proprietary rights
purpose
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Concept of ownership
Concept of Possession
Essential Of Law
There are certain essentials which must be present in
law in order to make it effective. These are :-
1. Predictability
2. Flexibility
01
Contract Act
LAW OF CONTRACT
Origin :
Human being – social- want to live in harmony.
One’s interest bound to clash- so need for
control or regulations
Law most effective instrument of control.
Law is a general rule of external human
action enforced by sovereign political
authority.
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
10-19
CONTRACT ACT
Act not a complete & exhaustive code
regarding all classes of contracts
English principles can be applied to contracts
.
Exapmles-Contract Act
Possibility of Performance:
Agreement should be capable of being
performed, e.g.
Agreement to discover treasure by magic.
Certainty of Terms:
Terms of Agreements should be certain e.g.
Agreement to sell 100 tons of oil is vague
because it does not specify type of oil.
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
10-31
CLASSES OF CONTRACT
CLASSES OF CONTRACT
Void Contract : An agreement not enforceable by law
is said to be void- sec 2(g)
e.g. Agreement not creating legal rights or obligations.
Void means not binding in law
‘Void contract’ implies a useless contract which has no legal
effect at all. Such a contract is nullity , as for there has been no
contract at all
Sec 2(j) defines : ‘A contract which ceases to be enforceable by
law becomes void , when it ceases to be enforceable’
( sec 23 )
Agreements the part of object or consideration of which is
unlawful.( sec 24 )
Agreements made without consideration( sec 25, v )
CLASSES OF CONTRACT
Voidable Contract : An agreement which is enforceable by
law at the option of one or more of the parties there to
but not at the option of the other or others is voidable
contract
A voidable contract is enforceable by law at the option of one
of the parties. Until it is avoided or rescinded by theparty
entitled to do so by excercising his option in that behalf , it is
a valid contract
CLASSES OF CONTRACT
CLASSES OF CONTRACT
CLASSES OF CONTRACT
Illegal Contract : An agreement is illegal when it is against
the law of land.
Illegal means “Contrary to Law’ & the term ‘contract’ means
an agreement enforceable by law ; so illegal contract means
– “An agreement enforceable by law & contrary to law”-
Thus there is an apparent contradiction in terms. Hence an
illegal contract is void ab- initio
An agreement to commit fraud, crime( murder , assault,
robbery etc) or one that is opposed to good morals is illegal
because these type of agreements are against the law of land
All illegal agreements are void , all void agreements need not
be illegal
CLASSES OF CONTRACT
Unenforceable Contract : It is
neither void nor voidable
An unenforceable contract is valid but becomes
unenforceable for certain tech reasons e.g.
( want of proof, expiry of period, absence of writing
or registration)
or where the remedy has been barred by lapse of
time
Ex: An oral arbitration agreement is unenforceable
because the law requires an arbitration agreement to
be in writing .
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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CLASSES OF CONTRACT
Unenforceable Contract : It is
neither void nor voidable
Ex 2: A bill of exchange or promissory note though
valid in itself ,
becomes unenforceable after three years from the
date the bill or note falls due, being time barred
under the limitation act
CONTINGENT CONTRACT
QUASI CONTRACT
Quasi Contracts does not arise by virtue of an agreement ,
express or implied , between the parties but law infers or
recognizes a contract under special circumstances
Ex: Obligation of the finder of lost goods to return them to
the true owner or liability of a person to whom money is paid
under mistake to repay it back can not be said to arise out of
a contract even in its remotest sense ,
as there is neither any offer nor acceptance /consent , but
these are very much covered under quasi contract as per sec
71 & 72 respectively.
A quasi contract is based on the equitable principle that a
person shall not be allowed to retain unjust benefit at the
expense of another ( ref sec 68-72 of contract Act
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
10-46
QUASI CONTRACT
Quasi contract is a situations in which law imposes upon a
person , on grounds of natural justice, an obligation similar
to that which arises from a true contract, although no
contract , express or implied has in fact been entered into by
them
QUASI CONTRACT
QUASI CONTRACT
CONTRACT ACT
LESSON-III
Privity of Contract
A contract is entered by two or more persons
thereby creating rights & obligations for
them, it is a party to the contract who can
enforce his rights as against the other party.
Stranger to a contract can not maintain a suit for a
remedy.
Law entitles those who are parties to the contract to
file suits for exercising their rights. This is known as
‘Privity to Contract’
Law of contracts creates ‘jus in personam ‘ as
distinguished ‘from jus in rem’
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Privity of Contract
Ex: A is indebted to B. A sells certain goods to
C . C gives a promise to A, pay A’s debt to B.
C fails to pay. B has no right to C being a
stranger to the contract between C & A.
In other words C is not in privity with B.
However C is in privity with A
Offer or Proposal
When one person signifies to another his willingness to do or
to abstain from doing any thing with a view to --
obtaining the assent of that person to such act or
absentinence , he is said to make a proposal/offer:
Person making the proposal is called PROMISOR
& person accepting is called PROMISEE
Essential of a valid offer:
An offer may be generic or specific:
According to sec 2 ( a) an offer must be made to a specific person . An
offer may be made to the world at large . But the contract is made only
with the person who accepts & fulfills the condition of the proposal
Offer or Proposal
Essential of a valid offer:
An offer may be express or implied:
Express offer is expressed by words , spoken or written & one which is
inferred from the conduct of a person or circumstances of the case is
implied.
A shoe shiner starts shining shoe without being asked to do so, a person
who allows this work without giving any verbal or written acceptance for
this work has to pay for shoe shining work , because this is an implied
offer.
DTC runs buses on different routes to carry passengers at the scheduled
fares. This is an implied offer by DTC
Ex: An applicant was informed for allotment of shares & deposit the
call money by 31 Dec 09. Deposit of money means giving acceptance. If
money not deposited by 31 Dec 09 then the offer lapses
Acceptance-sec 2(b)
When the person to whom the
proposal is made signifies his
willingness thereto the proposal is
said to be accepted :
By accepting offer:-
Acceptor expresses his willingness to be
bound by the terms & conditions of an
offer.
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Acceptance-sec 2(b)
Termination of an offer-
circumstances
Lapse
Failure to fulfill a condition precedent-
sec 6(3) Offer is terminated by the
failure of the acceptor to fulfill a
condition precedent to acceptance- Offer
to sell car for Rs 1 lakh - buyer( acceptor) to
show driving license ( Condition)
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Contractual Capacity
Doctrine of Restitution-
Minor obtains property or goods by
misrepresenting his age-
He can be compelled to restore it but so long
as same is traceable in his possession.
If Minor has sold goods , he can not be
made to repay value of goods because that
would amount to enforcing a void contract
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Beneficial contracts
Minor is capable of purchasing
immovable property &
may sue to recover the possession
of property by tendering the
purchase money
Beneficial contracts
Minor can be a beneficiary e.g. a
payee, an endorsee or a promisee
under a contract.
A promissory note executed in
favour of a minor is valid & can be
enforced in a court
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Ratification
Minor can not ratify a contract on
attaining majority-
Fresh contract is to be made on
attaining majority – New contract
requires fresh consideration
CONTRACT ACT
Lesson-IV
FRAUD
A false statement made knowingly or
without belief in its truth or
recklessely careless whether it is
true or false is called fraud.
Examples of fraud
Suggestion that a fact is true when it is not true by
one who does not believe it to be true
i.e. a false statement intentially made is a fraud
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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FRAUD
Examples of fraud
Active concealment of a fact by a person who has
knowledge or belief of the fact
Mere non disclosure is not a fraud where there is no
duty to disclose-
Ex- Bank employee dealing with opening of
account does not disclose to manger about the facts
of a client-- commits a fraud
FRAUD
Examples of fraud
A promise made without any intention of performing
it
Any other act fitted to deceive( Human mind is very
fertile & can work out new schemes of fraud)
Any such act or omission as the law specially
declares to be fraudulent
Misrepresentation
Misrepresentation
Ifa representation is false or misleading it is called
misrepresentation
A misrepresentation may be innocent or intentional
Misrepresentation
Positive assertion of the fact
A person received info from untrustworthy source or hear say but
asserted +vely concerning agreement that it is true is said to have
misrepresented the fact
If M –is not embodied in the contract it creates no contractual obligation
unless it turns out to be fraudulent
Breach of duty
Party to the contract has duty to disclose all material facts concerning
subject matter of contract but does not do so,
He is said to be guilty of misrepresentation
Representation may be true at the time of making it , but later it becomes false.
This should also be disclose before the contract is entered into
Misrepresentation
Causing mistake about the subject matter
If a party to an agreement induces the other to commit mistake as to the
nature or quality of the subject matter of the agreement ,
He is guilty of misrepresentation
MISREPRESENTATION FRAUD
Person making false Statement False Statement made by a person
honestly believes it to be true. Who either knows that it is false or
he does not care to know whether it is
true or false
There is no intention to deceive Purpose of fraud is to deceive other
the other party party
M- renders contract voidable at the In case of fraud contract is voidable.
Option of other party Also independent action for damages
can be taken
M- is not an offence under IPC Fraud in certain cases is punishable
hence it is not punishable under IPC
Silence not considered Generally silence not fraud except
MISREPRESENTATION FRAUD
P arties complaining of -M Party making a false statement can
can not avoid contract if he had not say that the other party had means
means to discover truth with to discover the truth with ordinary
MISTAKE
MISTAKE
Mistake refers to misunderstanding or wrong thinking or
wrong belief
Mistake may be mistake of fact (either unilateral or bilateral)
or mistake of law
When both the parties to an agreement are under a mistake as to a
matter of the fact essential to the agreement ,
the agreement is void ( sec -20)- Bilateral Mistake
Mistake
Sec -20- Bilateral Mistake:
Where there is no real correspondence of offer & acceptance , parties are
not really in consensus ad- idem. Therefore there is no agreement at all
Ex-A agrees to buy from B a certain house . It turns out that house has
been destroyed by fire before the time of bargain though neither party
was aware of the fact. The agreement is void- because mistake on the part
of both parties as to existence of the subject matter.
A bilateral mistake may be regarding the subject matter or
the possibility of performing the contract
Mistake as to the existence of subject matter
Two parties may enter into a contract on the assumption that the subject
matter exists at the time of contract, but actually it may have ceased to
exist or has never existed at all . Then the contract becomes void
Mistake as to the identity of subject matter
A mutual mistake as to the identity of subject matter render the contract
void
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Mistake
Sec -20- Bilateral Mistake of facts essential to an
Agreement:
Ex: A agrees to sell B cargo of Ship which is supposed on its way from
London to Mumbai. It turns out that the day before the bargain the ship
conveying cargo has been cast away & goods lost. Neither party was
aware of the fact . Agreement is void
Mistake
Unilateral mistake , where only one party to a
contract is under mistake as to the matter of a fact,
such a contract is not invalid
Where a person due to his own negligence or lack of
reasonable care does not ascertain what he is contracting
about he must bear the consequences.
Ex: A sold rice to be by sample & B thinking that they were old rice ,
purchased them , the rice were new. B can not avoid the contract.
Exceptional cases: unilateral mistake & the
contract/agreement is void
Unilateral Mistake is to the nature of contract
Old illiterate man made to sign bill of exchange by means of false representation
that it was guarantee, Held that the contract was void
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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LAW OF CONTRACT
LESSON -4
Consideration
Consideration means something in return-it is one
of essentials of a valid contract.
Consideration as one of “the recompense given by the party
contracting to the other- Definition given by Blackstone
Consideration is the price for which promise of other is bought & the
promise thus given for value is enforceable- Definition given by Pollack
Definition as per sec 2(d) of Contract Act
When at the desire of promisor the promisee or any other
person has done or abstained from doing something , such
act or abstinence or promise is called a consideration for the
promise
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000
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Consideration
Example : A agrees to sell his motorcycle to B for
Rs 20,000/=
LESSON -V
Privity of Contract
General rule of Law:
A person who is not a party to the contract can not claim any
rights under the contract even though the contract may be
for his benefit.
Such a person is known as stranger to the contract
Exceptions to above rule:
In case of Trust or a charge :
Where a trust is created by a contract, the beneficiary can
enforce his rights which the trust has conferred upon him
even though he is not party to the contract creating the trust.
In the case of acknowledgement or Estoppel:
Privity of Contract
Lawful Object
As per sec 23 : The consideration or object of an agreement is lawful
unless it is forbidden by law ,
or is of such a nature that if permitted it would defeat the provision of
any law
Or is fraudulent
Or involves or implies injury to the person
Or property of another
Or the court regards it as immoral
Or opposed to the public policy
Lawful Object
In the following cases consideration or object of an agreement is
unlawful :-
Forbidden by law : sec 23
Fraudulent:
Lawful Object
In the following cases consideration or object of an agreement is
unlawful :-
Injury to the person or property of another
Immoral:
Lawful Object
In the following cases consideration or object of an agreement is
unlawful :-
Opposed to public policy:
Agreement which are held void on the ground that the
consideration or object is opposed to public policy are as
follows :-
Trading with the enemy
Stifling prosecution
Lawful Object
Opposed to public policy:
Agreement which are held void on the ground that the
consideration or object is opposed to public policy are as
follows :-
Maintenance & Champerty
Lawful Object
Agreement which are held void on the ground that the
consideration or object is opposed to public policy are as
follows :-
Marriage brokerage contracts
Lawful Object
Agreement which are held void on the ground that the
consideration or object is opposed to public policy are as
follows :-
Agreements tend to create an interest against duty
Lawful Object
Agreement which are held void on the ground that the
consideration or object is opposed to public policy are as
follows :-
Agreements restraining personal liberty: