Indian Legal Environment

LEGAL ASPECTS OF
BUSINESS
Prof.(CMDE) P. K.
Goel
Law of Contract
“The law of contract is
intended to ensure that
what a man has been led to
expect shall come to pass;
that what has been
promised to him shall be
07/22/09 Prof.(CMDE) P. K. Goel 2
What is a Contract?
“Every agreement and
promise enforceable at law is
a contract”
-Sir Federick Pollock
“An agreement creating and
defining obligations between
the parties”
-Sir William Anson
“An Agreement enforceable
Contr
act
Agreem Enforceability of an
ent agreement
Offer (or
proposal)
Acceptance Legal obligation
of offer (or arising out of an
proposal agreement
Distinction between an Agreement
and a Contract
An Agreement differs from a contract in the following respects:
Basis of An Agreement A Contract
1) distinctio
What Offer and its Agreement and its
n
constitute acceptance enforceability
constitute an constitute a
2) Creating of agreement
An Agreement contract
A Contract
legal may or may not necessarily creates
obligation create a legal a legal obligation.
obligation.
3) One in Every Agreement All Contacts are
other need not necessarily
necessarily be a agreements.
4) Binding contract
Agreement is not Contact is
concluded or concluded and
07/22/09 binding contracts binding on P.
Prof.(CMDE) the
K. Goel 5
What is an Agreement?
“Every Promise and every

set of Promises, forming the
consideration for each other,
is an Agreement”
-Sec. 2(e) of the Act
a)Offer
b)Acceptance
Characteristics of an
Agreement
- Plurality of Persons
- Consensus – ad – idem

What is a Promise?
“Proposal when accepted,
becomes a promise.”
-Section 2 (b)

“The law of contract is not the
whole law of agreements, nor
is it the whole law of
obligations. It is the law of
those agreements which
create obligations, and those
obligations which have their
Essential elements of a
valid contract
1.Agreement i.e. Offer &
Acceptance.
2.Intention to create legal
relations.
3.Lawful consideration
4.Competence of parties
5.Free Consent
07/22/09 - Coercion - Undue
Prof.(CMDE) P. K. Goel 10
Essential elements of a
valid contract
1.Lawful object
2.Writing & Registration
3.Certainty
4.Possibility of Performance
5.Not Expressly declared
void.
Classification of contracts
1.On the basis of
enforceability
• Valid
• Void
• Voidable
• Unenforceable
• Illegal
2.On the basis of mode of
creation
07/22/09
• Express Prof.(CMDE) P. K. Goel 12
Classification of contracts…
……..
1.On the basis of the extent
of execution
• Executed
• Executory
2.On the basis of form of the

contract
• Formal
What is an Offer
(PROPOSAL)
“When one 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, he is said to
Essentials of a Proposal
1.It must be an EXPRESSION OF
WILLINGNESS to do or to
abstain from doing some thing.
2.The expression must be TO
ANOTHER PERSON.
3.This must be made WITH A
VIEW TO OBTAINING THE
ASSENT OF THE OTHER
Legal Rules Regarding a
Valid Offer
1. Express or Implied
2. Legal consequences, Legal
Relations.
3. Certain.
4. Invitation to offer is no offer.
5. Specific or general
6. Communicated to the offeree
7. Non-compliance of the term-would
amount to acceptance-not valid
Legal Rules Reg. A Valid
Acceptance
1.Acceptance must be given
only by the person to whom
the offer is made.
2.Acceptance must be absolute
& unqualified.
3.Acceptance must be
expressed in some usual &
reasonable manner, unless
Legal Rules Reg. A Valid
Acceptance…
1.Acceptance must be
communicated by the
acceptor.
2.Acceptance must succeed the
offer.
3.Acceptance must be given
within a reasonable time and
before the offer lapses and/or
Consideration
DEFINITION:
“When at the desire of the
promisor, the promisee or any
other person has done or
abstained from doing, or does or
abstains from doing, or promises
to do or abstain from doing,
something, such act or
Consideration……..
Consideration is the “Price
for which a promise is
bought”
-Sir F. Pollock

Essentials of a valid
consideration
1. Consideration must move at the
desire of the promisor.
2. Consideration may move from
the promisee or any other
person.
3. Consideration must be legal
4. It may be past, present or future.
5. It must be ‘Something of value’.
6. Consideration may be a promise
to do something or abstain from
No Consideration Necessary
1.Made on account of natural love
& affection.
2.To compensate for past
voluntary service.
3.Agreement to pay a time
barred debt.
4.Contracts of agency.
5.Completed gifts.
6.Remission of the promisee of
Capacity of Parties
MEANING
“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
Minor’s Agreement
1.Absolutely Void
2.No Ratification
3.No Restitution
4.No Estoppels
5.Minor Beneficiary
6.Minor’s Liability for
Necessities
Minor’s Agreement………..
1.Minor Agent
2.Minor Partner
3.Surety for a Minor
4.Minor as a member of a
company
5.A minor cannot be declared
as an insolvent
6.Minor’s Liability for Tort.
Persons of Unsound
Mind
“A Person is said to be of
sound mind for the purpose
of making a contract, if at
the time when he makes it,
he is capable of
understanding it, and of
Disqualified Person
1.Alien Enemy
2.Foreign Sovereigns &
ambassadors
3.Convict
4.Company or corporation
5.Insolvent
Free Consent
DEFINITION:
“Two or more persons are
said to consent when they
agree upon the same thing
in the same sense”.
Free Consent
Consent is said to be ‘Free’
when it is not caused by:
1)Coercion
2)Undue Influence
3)Fraud
4)Misrepresentation
5)Mistake
Coercion
“Coercion is the committing or
threatening to commit, any
act forbidden by the Indian
Penal Code, or the unlawful
detaining or threatening to
detain, any property, to the
prejudice of any person
whatever with the intention of
Undue Influence
“A contract is said to be
induced by undue influence
where,
1)The relations subsisting
between the parties are
such that one of the
parties is in a position to
dominate the will of the
07/22/09
other, and Prof.(CMDE) P. K. Goel 31
Fraud
“Fraud means & includes any of
the following acts committed by
the party to a contract, or with his
connivance, or by his agent, with
intent to deceive or to induce
another party there to or his
agent, to enter into the contract:

Fraud
a) A suggestion as to a fact of that
which is not true by one who
does not believe it to be true.
b) An active concealment of a fact
by one having knowledge or
belief of the fact.
c) A promise made without any
intention of performing it.
d) Any other act fitted to deceive.
Misrepresentation
Misrepresentation means &
Includes:
a) The positive assertion, in
a manner not warranted by
the information to the
person making it, of that
07/22/09 which is not true, though
Includes:
b) Any breach of duty which,
without an intent to
deceive, gains an
advantage to the person
committing it, or any one
07/22/09 claiming under him, by
Includes:
c) Causing however
innocently, a party to an
agreement, to make a
mistake as to the
substance of the thing
Mistake
MEANING
MEANING
Mistake may be defined as an
erroneous belief concerning
something
Kinds of mistake
1.Mistake of law
• Foreign
• Indian
2.Mistake of fact
07/22/09
• Bilateral Prof.(CMDE) P. K. Goel 37
Legality of object &
consideration
Consideration & objects are
IF unlawful
1)It is forbidden by law
2)It is of such a nature that, if
permitted, it would defeat the
provisions of any law.
3)It is fraudulent
4)It involves or implies injury to
the person or property of
another
5)The court regards it as
07/22/09
immoral Prof.(CMDE) P. K. Goel 38
Expressly declared void
agreements
Agreement
1)In restraint of marriage
2)In restraint of trade
3)In restraint of legal
proceedings
4)The meaning of which is
uncertain
5)By way of wager
Contingent
Contracts
“A contingent contract is a
contract to do or not to do
something, if some event,
collateral to such contract
does or does not happen”
PERFORMANCE OF
WHO CONTRACT
CAN DEMAND
PERFORMANCE?
ONLY THE PROMISEE

By whom contracts must be
performed
1.By the promisor himself
2.By the agent
3.By the legal representatives
4.Performance by a third
person

Discharge of a
contract
Modes of discharge
2.By performance – actual or
attempted.
3.By mutual consent or
agreement.
4.By subsequent or
supervening impossibility or
illegality.
5.By lapse of time
Quasi – Contract
Quasi Contractual obligations
1.Claim for necessaries
supplied to a person
incapable of contracting or
on his account.
2.Reimbursement of person
paying money due by
Quasi Contractual obligations
1.Obligations of person
enjoying benefit of non-
gratuitous act.
2.Responsibility of finder of
goods.
3.Liability of person to whom
Remedies for breach of
contract
1.Rescission of the contract.
2.Suit for damages
3.Suit upon quantum – Meruit
4.Suit for specific
performance of the contract
5.Suit for an injunction.
Indemnity
DEFINITION:
“A contract by which one
party promises to save the
other from loss caused to him
by the conduct of the promisor
himself or by the conduct of
Guarantee
DEFINITION:
“A contract of guarantee is
a contract to perform the
promise, or discharge the
liability of the third person
in case of his default”.
Distinction between Indemnity
& Guarantee
Indemnity Guarantee
 Liability of  Liability of the
the surety is secondary.
Indemnifier is Primary Liability is
 Primary
Indemnifier  of Principal
Surety givesDebtor
acts guarantee at the
independentl request of the
 y
Two parties –  debtor
3 Parties – Creditor,
Indemnifier Principal Debtor and
and Surety.
& Guarantee
Indemnity Guarantee
 In most cases,  There is an
liability of the existing legal
indemnifier arises debt/duty, the
only on the performance of
happening of the which is
 contingency.
The Indemnifier  guaranteed
Can proceedby
cannot sue the third the surety.
against the
party for loss in his Principal Debtor
own name. Can only in his own right.
bring the suit in the
name of the Prof.(CMDE) P. K. Goel
07/22/09 50
& Guarantee
Indemnity Guarantee
 For the  Security of a debt
reimbursement of or good conduct of
loss. The liability of an employee.
the indemnifier There is usually an
arises only on the existing debt or
happening of a duty the
 contingency.
Only one contract  performance
3 Contracts =of A
between the which
& B is
indemnifier and guaranteed by the
= B&C
the indemnified surety.
= A&C
Kinds of Guarantee
a)Specific
b)Continuing
Guarantee

Discharge of Surety from
Liability
1. Notice of Revocation
2. Death of Surety
3. Variance in terms of contract
4. Release or discharge of
Principal Debtor.
5. Arrangement by Creditor with
Principal Debtor without
surety’s consent.
6. Creditor’s act or omission
impairing surety’s eventual
07/22/09
remedy. Prof.(CMDE) P. K. Goel 53
Bailment
DEFINITION:
“A Bailment is the delivery of
goods by one person to
another for some purpose,
upon a contract that they
shall, when the purpose is
accomplished, be returned or
otherwise
07/22/09 disposed of
Essential features of
Bailment
1.Delivery of movable
goods
2.Goods are delivered for
some purpose.
3.Condition of delivery – on
accomplishment of
Duties of Bailee
1.To take reasonable care of
goods delivered to him.
2.Not to make unauthorized
use of goods entrusted to
him.
3.Not to mix goods bailed with
his own goods
4.To Return the goods.
5.To deliver any accretion to
Duties of Bailor
1.To disclose faults in
goods bailed.
2.To repay necessary
expenses in case of
gratuitous bailment.
3.To repay any
extraordinary expenses in
case of non-gratuitous
Rights of Bailee
1.Enforcement of bailor’s
duties.
2.To deliver goods to one of
several joint bailors.
3.To deliver goods in good
faith, to bailor without
title.
Rights of Bailor
1.Enforcement of bailee’s
duties.
2.To terminate bailment if
the bailee uses the goods
wrongfully.
3.To demand return of
goods at any time incase
Agency
DEFINITION:
“An AGENT is a person employed
to do any act for another or to
represent another in dealing with
third persons. The person for
whom such act is done, or who is
represented, is called the
PRINCIPAL”
Creation of Agency
•Agency by Express
Agreement
•Agency by Implied
Agreement
•Agency by Ratification
Duties of Agent
 To follow Principal’s directions or customs.
 To carry out the work with reasonable care,
skill and diligence.
 To render accounts
 To communicate with Principal in case of
difficulty.
 Not to deal on his own account.
 Not to make any profit out of his agency
except his remuneration.
 On termination of agency by Principal’s
07/22/09
death or Insanity to protectProf.(CMDE)
and preserve
P. K. Goel 62
Rights of Agent
 To receive remuneration
 Retainer
 Lien - particular
 To be indemnified against
consequences of Lawful acts
 To be indemnified against
consequences of acts done in goods
faith
 To compensation
Duties of Principal
 To indemnify agents against
consequences of all lawful acts.
 To indemnify agents against
consequences of acts done in
good faith
 To indemnify against the injury
caused by Principal’s neglect.
 To pay the agent for commission
07/22/09or other remuneration agreed.
Rights of Principal
 To recover damages
 To obtain an account of secret
profits and recover them and
resist a claim for
remuneration.
 To resist against agent’s claim
07/22/09
for indemnity against liability
Termination of Agency
By Act of By Operation of Law
Parties Performance of the Contract
Expiry of the time
Agreement
Death of either party
Revocation by Insanity of either party
the Principal
Destruction of the subject matter
Revocation by Principal becoming an alien enem

the Agent Dissolution of Co.
Termination of agents authority
Contract of sale of
Goods
DEFINITION:
“A Contract whereby the seller
transfers or agrees to transfer
the property in goods to the
buyer for a price.”
Sec 4(1) of the Sale of Goods Act
Essential
Characteristics of a
contract of Sale of
1. Two PartiesGoods
2. Transfer of Property
3. Goods
4. Price
5. Includes both a ‘Sale’ and ‘an
Agreement to Sell’
6. No Formalities to be observed
Distinction between
‘Sale’ and ‘Agreement
to Sell’
1. Transfer of property
(ownership)
2. Risk of loss
3. Consequences of Breach
4. Right of Resale
5. Insolvency of buyer before he
pays for goods
6. Insolvency of seller if the buyer
07/22/09 has already paid the price.
Condition
DEFINITION:
“A Condition is a stipulation
essential to the main purpose
of the contract, the breach of
which gives the aggrieved
party a right to repudiate the
Warranty
DEFINITION:
“A warranty is a stipulation
collateral to the main purpose
of the contract, the breach of
which gives the aggrieved
party a right to sue for
Implied Conditions
 As to title
 In a sale by description
 In a sale by sample
 In a sale by sample as well as by
description
 As to fitness or quality
 As to merchantability
 As to wholesomeness
Implied Warranties
 Of quiet possession
 Of freedom from
encumbrances
 Of disclosing the
dangerous nature of goods
Exception to the Doctrine of
Caveat emptor
 In case of misrepresentation by
seller
 In case of concealment of latent
defects by seller.
 In case of sale by description.
 In case of sale by sample.
 In case of sale by description by
sample.
Transfer of Property
 Risk ‘Prima Face’ passes
with property
 Action Against third parties
 Suit for price
 Insolvency of the seller or
Rules regarding transfer
of property
1.In Specific or Ascertained
Goods
 When goods are in a
deliverable state
 When goods have to be put in
a deliverable state
 When goods have to be
measured etc. to ascertain
price Prof.(CMDE) P. K. Goel
07/22/09 76
Meaning of unpaid seller
DEFINITION:
The seller of goods is deemed to be
‘UNPAID SELLER (a) When the whole
of the price has not been paid or
tendered; OR (b) Where a bill of
exchange or other negotiable
instrument has been received as a
conditional payment, I.e. subject to
Characteristics of an
unpaid seller
 He must sell goods on cash
terms and not on credit
 He must be unpaid either
wholly or partly
 He must not refuse to
accept payment when
07/22/09tendered. Prof.(CMDE) P. K. Goel 78
Rights of an unpaid seller
Against the Goods Against the Buyer personally
Where the property Where the property
in the goods has in the goods has
passed [Sec. 46(1)] Not passed
[Sec. 46(2)]
Lien Stoppage Re-sale
(Sec. 47in transit (Sec.54) With holding Stoppage
to 49 (Sec. 50 delivery in transit
to 52
Suit for priceSuit for Repudiation Suit for

(Sec. 55) damages Of contract interest
(Sec. 56) (Sec. 60) (Sec. 61)
Negotiable Instrument
DEFINITION:
“A Negotiable instrument means a
promissory note, bill of exchange or
cheque payable either to order or to
bearer”
-Sec. 13
“ A Negotiable instrument is one the

property in which is acquired by every
person who takes it BONAFIDE and for
value, notwithstanding any defect of
Essential Elements of
a Negotiable Instrument
 In writing
 Signed by the Maker/Drawer
 Promise or order to pay
 Promise/order must be unconditional
 Payment in Money
 For a certain sum
 Payable at a time certain to arrive
 Drawee must be named or described
07/22/09
with reasonable certainty.
Prof.(CMDE) P. K. Goel
81
Promissory Note
Meaning
“A Promissory note is an
instrument in writing (not being a
bank note or currency note)
containing an unconditional
undertaking, signed by the
maker, to pay a certain sum of
Bill of Exchange
Meaning
“A Bill of exchange is an
instrument in writing containing
an unconditional order signed by
the maker, directing a certain
person to pay a certain sum of
money only to, or to the order of,
Cheque
Meaning
“A Cheque is a bill of exchange

drawn on a specified banker and
not expressed to be payable
otherwise than on demand and it
includes the electronic image of a
Cheque – Electronic
Meaning Form
‘A cheque in the electronic form’
means a cheque which contains the
exact mirror image of a paper cheque,
and is generated, written and signed in
a secure system ensuring the minimum
safety standards with the use of digital
signature (with or without biometrics
Truncated Cheque
Meaning
‘A truncated cheque’ means a cheque
which is truncated during the course of
a clearing cycle, either by the clearing
house or by the bank, whether paying
or receiving payment, immediately on
generation of an electronic image for
transmission, substituting the further
Distinction between Bill &
Promissory Note
Note Bill
 Two parties –  3 Parties –Drawer
Maker (Dr) & Drawee & Payee. Two
Payee (Cr) can be OK
 Cannot be  The drawer and payee
made payable or drawee and payee –
to the maker same
 Unconditional  Unconditional order to
promise by the the drawee to pay
maker to pay according to the
drawer’s directions.
Promissory Note…
Note Bill
 Presented for  Payable after sight
payment w/o any must be accepted by
prior acceptance the drawee or some
by the maker one else on his behalf
 The liability of  before
Liabilityitof
can thebedrawer
maker is primary presented.
is secondary &
 & absolute
Maker stands in  conditional
Maker/drawer of an
immediate accepted bill in
relation with the immediate relation
payee with the acceptor &
07/22/09 not the payee.
Promissory Note…
Note Bill
 No need of  Foreign bills must be
protest protested for
dishonor where law
 No notice is  requires
Notice ofitdishonor by
necessary the holder to the
drawer &
intermediate
endorsers

Distinction between A cheque
& B/E
Cheque Bill of Exchange
 Drawn on a Banker  May be drawn on
any person
including a banker
 Payable on demand  Payable on
demand or the
expiry of certain
 Payable to bearer  period
Such a after
B/E isdate
void
on demand-valid of
andsight.
illegal
 Does not require  Such acceptance
acceptance by the is necessary
drawee
Distinction between A cheque
& B/E…….
Cheque Bill of Exchange
 Does not require any  Proper stamp is
stamp necessary
 No days of grace  Three days of
grace on ‘time
 Can be crossed  bills’
Can not be
 Payment can be  crossed
No
countermanded by
 the drawer of
No system  Such a thing is
noting/protest required
Holder
“The holder of a negotiable
instrument means any person
entitled to the possession of
the instrument in his own
name and to receive or
recover the amount due
thereon from the parties liable
Holder in due course
1. He must be a holder.
2. He must be a holder for valuable
consideration.
3. He must have become the holder
of the N/I before its maturity.
4. He must take the N/I complete
and regular on the face of it.
5. He must have become holder in
07/22/09 good faith. Prof.(CMDE) P. K. Goel 93
Privileges of Holder in due
course
 He gets a better title than that of the
transferor.
 Privilege in case of inchoate stamped
instruments.
 Liability of prior parties
 Privilege in case of fictitious bill.
 Privilege when an instrument
delivered conditionally is negotiated.
 Estoppel against denying original
validity of instrument.
Negotiation
DEFINITION
“When a promissory note, bill
of exchange or cheque is
transferred to any person, so
as to constitute that person
the holder thereof, the
instrument
07/22/09 is said to be
Not Negotiable
MEANING
“A person taking a cheque
crossed generally or specially,
bearing in either case the
words ‘Not Negotiable’, shall
not have, and shall not be
capable of giving, a better title
Bouncing of Cheques
 Cheque should have been dishonored
due to ‘insufficiency of funds.’
 Cheque presented within its validity.
 For the discharge of legally
enforceable debt or other liability.
 Notice within 30 days of dishonor.
 Failed to make the payment within 15
days of the receipt of notice.
 A written complaint to a M.M. or 1st
Class J.M. within one month of the
07/22/09
date when the cause of action arose. 97
Prof.(CMDE) P. K. Goel

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LEGAL ASPECTS OF

“Every Promise and every

07/22/09 Prof.(CMDE) P. K. Goel 7

07/22/09 Prof.(CMDE) P. K. Goel 8

2.On the basis of form of the

07/22/09 Prof.(CMDE) P. K. Goel 20

07/22/09 Prof.(CMDE) P. K. Goel 32

ONLY THE PROMISEE

07/22/09 Prof.(CMDE) P. K. Goel 41

07/22/09 Prof.(CMDE) P. K. Goel 42

07/22/09 Prof.(CMDE) P. K. Goel 52

Revocation by Principal becoming an alien enem

Suit for priceSuit for Repudiation Suit for

“ A Negotiable instrument is one the

“A Cheque is a bill of exchange

07/22/09 Prof.(CMDE) P. K. Goel 89

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