BUSINESS LAW

Presented
by
Prof. Sanjay
Deshpande
MBA@GIT

Meaning and Nature of Business

Law
Mercantile (Or Business) Law
Meaning and Nature. Business Law may be defined as that branch of law which prescribes a set of
rules for the governance of certain transactions and relations between: (i) business persons
themselves, (ii) business persons and their customers, dealers, suppliers, etc., and (iii) business
persons and the state.
Meaning and Nature of Law

Negotiable instruments,
Patents, trademarks and copyrights,
Actionable claims, factoring and forfeiting,
Import and export regulation,
Regulation of stock exchange and financial securities,
Regulation and development of industries,
Economic offences,
Regulation of foreign contributions, foreign capital,
Excise, import and export duties, tax on income, wealth, etc.

INDIAN CONTRACT ACT ,1872

Section 1 The Act extends to the whole of India

except the State of Jammu and Kashmir; It was

enacted on 25th April 1872 and came into effect on 19-1872.

CONTRACT
A contract is an agreement made between two parties which the
law will enforce,
Pollock's definition: Every agreement and promise enforceable
at law is a contract.
Sir William : A legally binding agreement between two or more
persons by which rights are acquired by one or more to acts or
forbearances (abstaining from something) on the part of others.
Salmond : An agreement creating and defining obligations
between the parties.
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Important Terminologies
I. Contract=Agreement + Enforcement by Law
( All contracts are agreements but not all the agreements
are contracts).
II. Agreement = It may be a social agreement or a legal
agreement . Offer + Acceptance.
III. Obligation = It is defined as a legal tie which imposes
upon a definite person or persons the necessity of doing
or abstaining from doing a definite act or acts.
IV. Consensus ad idem = This means that the parties to the
agreement must have agreed about the subject matter of
the agreement in the same sense and at the same time.
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IMP Terminologies
V. Jus in rem : it means a right against or in respect of
a thing.( a property owner has the right on his
property this is called just in rem )
VI. Jus in personam : right against or in respect of a
person
A owes some money to B, so that B has a right to
recover this amount only against A this is called as jus
in personam.

IMP Terminologies
VII. 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 make a proposal.
Vlll. Promise - When the person to whom the proposal is
made signifies his assent thereto, the proposal is said
to be accepted. A proposal, when accepted, becomes a
promise.

Agreement
Agreement. Section 2(e) defines an agreement as

every promise and every set of promises forming

consideration for each other. In this context, the word
promise is defined by s.2(b). In a contract there are at
least two parties. One of them makes a proposal (or an
offer) to the other, to do something, with a view to
obtaining the assent of that other to such act.

Essential elements of a Valid Contract.

1. Offer & Acceptance.

2. Intention to create legal relationship.
3. Lawful consideration
4. Capacity of parties to contract.
5. Free and genuine Consent.

Essential elements of a Valid Contract.

6 . Lawful object ( Sec 29) the object should not
be Illegal, Immoral, Opposed to public
policy
7. Agreement should not be expressly declared
void.( Sec 24 to Sec 30)
8. Certainty and Possibility of performance.
( Sec 29)
9. Legal formalities(Written form or spoken).
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Classification according to validity

An agreement becomes a contract when all the essential
elements all present.
If one or the more elements of an essential contract are
missing it becomes illegal, void or avoidable or
unenforceable.

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TYPES OF CONTRACT
Contracts

Validity

a.
b.
c.
d.

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Voidable contract
Void contract
Illegal contract
Unenforceable
contract

Formation

a.
b.
c.
d.

Express contract
Implied contract
Quasi contract
E- Commerce

Performance

a. Executed contract
b. Executory contract
c. Unilateral/One
sided contract

Classification according to validity

Voidable Contract A contract is voidable when one of
the parties to the contract have not exercised their
free consent Sec 2 i.
Void contract A contract which ceases to be
Unenforceable by law becomes void as per Sec 2(g).
Illegal contract An illegal agreement is a one which
transgresses some rule of the public policy or which
is immoral or criminal in nature.
Unenforceable contract- an unenforceable contract is one which
cannot be enforced in a court of law because of some technical
defect such as absence of writing or where the remedy has been
barred by the lapse of time.
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Classification according to Formation

A contract may be (a) made in writing or by word of mouth,
or (b) inferred from the conduct of the m parties or the
circumstances of the case.
Expressed contract : If the terms of a contract are expressly
agreed upon( words or written) at the time of formation of
the contract, the contract is said to be an express contract

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Classification according to formation

Implied Contract The terms of a contract are inferred from the
conduct or dealings between the parties. When proposal or
acceptance of any promise is made otherwise than in words,
the promise is said to be implied. Such implied promise leads
to Implied Contract.
Ex: When a person boards a train or a bus.
Quasi Contract Certain relations resemble those created by a
contract. It resembles a contract , that a legal obligation is
imposed on a party who is required to perform it. It rests on
the ground that one party is not permitted to enrich itself
unjustly at the expense of another.
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Classification according to
Performance.
Executed contract Where both the parties have performed their
obligations, it is executed contract.
Executory Contract - Where neither of the parties have
performed their obligations, i.e. both the parties are yet to
perform their promises, the contract is executory.
Unilateral contract- A unilateral or one- sided obligation is one
in which only one party has to fulfill his obligation at the time
of formation as the other party has already fulfilled its
obligation before the contract comes into existence. Such
contracts is also called as contracts with executed
consideration

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Continued
Contingent Contract - It is a contract to do or not to do

something, if some event, collateral to such contract,

does or does not happen.
Specialty Contract It is a contract which is in
writing, signed, sealed & delivered by the parties.

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Waggering Contracts.
It is agreement by mutual promises, each of them
conditional on the happening or not happening of an
unknown event.
All wagers are contingent but all contingent contracts
are not wagers.

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Proposal of offer
The term proposal has been defined in section 2(a) as
follows:
When one person signifies to another his
willingness to do or abstain from doing anything
with a view to obtaining the assent of that other to
such act or abstinence.

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Offer
Proposal and offer are interchangeably used but

technically its not right. English law uses the word

offer, where as the contact law uses proposal
The person making the offer is known as offeror,
proposer , or promisor and the person to whom the
offer is made is called offeree or proposee.
When the person accepts such an offer he is called
promisee or acceptor

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What constitues an OFFER/PROPOSAL

1.
2.
3.
4.
5.
6.
7.

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Offer must be such as in law is capable of being accepted

and giving rise to legal relationship.
Terms of offer must be definite ,unambiguous ,certain not
loose and vague.
The offeror must make the offer with a view to obtain the
asset of the offeree to such act or abstinence.
Must be communicated to the offeree.
Offer must be distinguished from intention, announcement.
Offer must be distinguished from invitation to the offer
Offer should not contain a term of noncompliance which may amount to acceptance

Types of Offer
Implied offer : An offer may also be implied

from the conduct of the parties or the

circumstances of the case.
Expressed offer: When an offer is expressed
in the form of writing or oral representation.
Specific offer: when the offer is mage to a
specific person.
General offer: when an offer is to made to
general public or world at large it is called
as general offer
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OFFER/PROPOSAL
Offer gets terminated by:
Rejection
Lapse of time
Specified Event
Death
Retraction/Withdrawal of Offer
If counter offer is made

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ACCEPTANCE
A proposal when accepted, results in an

agreement. It is only after the acceptance

of the proposal that a contract between the
two parties can arise.
According to Section 2 (b) :
when the
person to whom the proposal is made signifies
his assent thereto, the proposal is said to be
accepted.
A proposal, when
accepted,
becomes a promise.
The person making the proposal does not
become bound thereby until acceptance. As
soon as his proposal is accepted that is known
as promise whereby both the parties become
bound.
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Acceptance
Acceptance may be implied or express .
Implied acceptance can be gathered from the

circumstances or the conduct of the parties.

Expressed acceptance requires more than implied
formation of intention to accept, to give the
evidence of acceptance, It should be overt through
spoken words

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Agreement to agree in future

Agreement to agree in future is not a contract, such
contracts fail to have certainty and conclusive
occurring is not a contract.

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Essentials of a valid acceptance

1.
2.
3.
4.
5.
6.
7.
8.

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It must be absolute & Unqualified

It must be communicated to the Offeror
It must be according to the mode prescribed
It must be given in specified time
It must be in response to the Offer/Must not precede an offer
It must be made before the offer lapses, terminated,
withdrawn or revoked
It must be given to the offeror or his Authorized Agents.
It cannot be implied from the silence.

CONTRACT ACT
COMMUNICATION of Offer, Acceptance &
Revocation thereof.
Offer :The communication of offer is complete
when it comes to the knowledge of the person to
whom it is made.
Acceptance : The communication of Acceptance is
complete :
Against the proposer when it is put into a course of

transmission so as to be out of power of the acceptor

Against the Acceptor when it comes to the knowledge
of the Proposer.
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Communication of offer
An offer when accepted results in a contract. An
offer can be accepted only after the same has come
to the knowledge of the offeree. It means that the
offer has to be communicated to the offeree in order
that the offeree can accept it. According to section 4,
the communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made.

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Acceptance by post
Section 4 of the Act mentions the following rules when the
communication of acceptance is made by post :
1. The communication of acceptance is complete as against the
proposer, when it is put in the course of transmission to him,
so as to be out of the power of the acceptor.
2. The communication of acceptance is complete as against the
acceptor, when it comes to the knowledge of the proposer.
Illustration
B accepts As proposal by a letter sent by post. The
communication of the acceptance is complete, -As against A , when the letter is posted ;
As against B, when the letter is received by A.
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Loss of letter in Transit

If there is a loss of letter in transit despite
addressed stamped and dispatched, The
sender shall not be responsible for any
losses.

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Acceptance by Telephone or telex or oral

communication
A contract by Telephone or telex has the same effect as
an oral agreement entered into between the parties.
But the offeree must make sure that his acceptance is
properly received i.e. heard and understood by the
offeror.
In case the line goes dead during the conversation, the
circumstances does not hold the parties accountable.
However, if the parties intend the have a contract they
need to get through again.

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Consideration
Consideration is a technical term used in the sense of quid pro
quo( i.e. something in return) when a party to an agreement
promises to do something, he must get something in return.
This Something in return is defined as consideration .
A contract made without consideration is
nudum pactum (Null effect) is void.
A valuable consideration in the sense of the law may consist
either in some right, interest, profit or benefit accruing to
one party or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other.

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Need for consideration

The reason why the law enforces
consideration is to ensure mutually
beneficial relationship, dual party benefits .

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Legal rules for consideration

1.
2.
3.
4.
5.
6.
7.
8.
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It must move at the desire of the promisor

It may move from the promisee or any other person.
It may be act, abstinence or forbearance or a return promise.
It may be past , presence of future.
It need not be adequate.
It must be real and not an illusory.
It must be something which the promisor is not already
bound to do.
It must not be illegal, immoral or opposed to public policy

Exceptions to consideration
The following are the exceptions to a contract without
considerations, Sec25 and 185 of IC Act 1872, deal
with exceptions.
1. Love and affection [Sec 25(1)].
2. Compensation to voluntary services[Sec 25(2)].
3. Promise to pay a time-barred debt[ Sec25(3)].
4. Completed gift ( expl. 1 to Sec25) .
5. Agency ( Sec185).
6. Charitable subscription.
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Doctrine of privity of contract

It is general rule of law that only the parties to a contract
may sue and be sued on that contract, this rule is called
as the doctrine of privity of contract or privity of
contract.
There are two consequences of privity of contract.
(1) A person who is not a party to a contract cannot sue
upon it even though the contract is for his benefit and
he has provided consideration.
(2) A contract cannot confer rights or impose obligations
arising under it on any person other than the parties to
it.
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Exceptions to doctrine of privity

1.
2.
3.
4.
5.
6.

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Trust or charge( beneficiary).

Marriage settlement.
Acknowledgement or estoppel.
Assignment of a contract.
Contracts entered through and agent.
Covenants running with the land ( transfer of
immovable property).

Capacity of parties to
Contract.
An agreement becomes a contract if it is entered
between the parties who are competent to Contract.
Every person is Competent to contract
1. Who is of the age of majority according to the law.
2. Who is of sound mind.
3. Who is not disqualified by any law.

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Parties incompetent to contract

Sec. 11 of the Indian contract declares the following persons
are incompetent to contract.
1. Minors,
2. Persons of unsound mind, and
3. Persons disqualified by any law to which they are subject.

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Free Consent
"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.
Consent is said to be so caused when it would not
have been given but for the existence of such coercion,
undue influence, fraud, misrepresentation or mistake.
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Free consent
Meaning of Coercion (Ss. 15 and 72). Coercion is (i) the

committing or threatening to commit any act forbidden by

the Indian Penal Code or (ii) the unlawful detaining.
Meaning of Undue Influence (s.16). Undue influence

consists in the improper exercise of power over the mind of

one of the contracting parties by the other.
Meaning of Misrepresentation (Ss.18-19). Misrepresentation

is also known as simple misrepresentation whereas fraud is

known as fraudulent misrepresentation.
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Meaning of Mistake [Ss.20-21]. Mistake may be

defined as an erroneous belief on the part of the

parties to the contract concerning something
pertaining to the contract.
Meaning and Effect of Unilateral Mistake. There

is a unilateral mistake where only one party to a

contract is under a mistake as to a matter of fact.
Mistake of Law. It may be (i) mistake of law of the

land, or (ii) mistake of foreign law. In the first

case the rule is Ignorantia juris non-excusat.

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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 causing any person to enter into an
agreement.
Eg - A, on board an English ship on the high seas, causes B
to enter into an agreement by an act amounting to
criminal intimidation under the Indian Penal Code.

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Undue influence

A contract is said to be induced by "undue influence

where the relations subsisting between the parties are
such that one of the parties is in a position to dominate the
will of the other and uses that position to obtain an unfair
advantage over the other.
Eg - A had given advance money to his son B during his
minority, upon B's coming of age obtains, by misuse of
parental influence, a bond from B for a greater amount than
the sum due in respect of the advance. Here A employs
undue influence.

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Fraud
"Fraud" means and includes any of the following acts committed by a
party to a contract, or with his connivance, or by his agent, with intent
to deceive another party thereto of his agent, or to induce him to enter
into the contract
1) the suggestion, as a fact, of that which is not true, by one who does
not believe it to be true;
2 )The active concealment of a fact by one
having knowledge or belief of the fact.
3) A promise made without any intention of performing.
4) Any other act fitted to deceive;
5) Any such act or omission as the law specially declares to be
fraudulent.
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Misrepresentation
"Misrepresentation" means and includes
1) The positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true,
though he believes it to be true.
2) any breach, of duty which, without an intent to deceive, gains
an advantage to the person committing it, or any one claiming
under him, by misleading another to his prejudice or to the
prejudice of any one claiming under him.
3) causing, however innocently, a party to an agreement to make a
mistake as to the substance of the thing which is the subject of the
agreement.
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Contingent contract
"Contingent contract" defined
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.

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Waggering Contracts.
It is agreement by mutual promises, each
of them conditional on the happening or
not happenning of an unknown event.
All wagers are contingent but all contingent
contracts are not wagers.

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Quasi Contracts
Quasi Contract is an obligation resembling that created

by a contract.
It is implied Contract.
The essentials of formation of contracts are absent.
There is no agreement at all.

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Types of Quasi Contracts.

Where a person supplies necessaries to a person

incapable of contracting, he is entitled to be

reimbursed from that property of such incapable
person.
A person who is interested in the payment of money
which another is bound by law to pay is entitled to be
reimbursed by other.
A person to whom money is paid by mistake or under
coercion, must repay or return it.

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Continued
When a person lawfully does anything not intending to

do so gratuitously & other person enjoys benefit

thereof, the later is bound to make compensation to the
former.
A person who finds the goods belonging to another is
subject to the same liabilities as a bailee of goods. He
is entitled to retain the goods until he receives the
lawful charges or compensation.

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Legality of object
A contract must not only be based upon the mutual assent of the
parties of competent parties but must also have a lawful object.
When consideration or object is unlawful
1. If it is forbidden by law.
2. if it is of such a nature that, if permitted, it would defeat the
provisions of any law.
3. If it is fraudulent.
4. If it involves or implies injury to the person of property of
another.
5. If the court regards it as immoral.
6. Where the court regards it as opposed to public policy
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Agreements opposed to public policy

1 Agreements of trading with enemy.
2. Agreements to commit a crime.
3. Agreements which interfere with administration of
justice.

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Performance of contract
Contract must either perform, or offer to perform,
their respective promises, unless such
performance' is dispensed with or excused
under the provisions of this Act, or of any other
law.
By whom must the contracts be performed?.
1. Promisor himself.
2. Agent
3. Legal representatives.
4. Third representatives.
5. Joint promiser

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Discharge of Contract.
Discharge means termination of a contract.
The contract may be discharged in any of the following
ways
1. By performance.
2. By death.
3. By refusing tender of performance.
4. By breach of Contract.
5. By impossibility of performance.

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Continued
6. By agreement or by consent.
7. By promisee failing to offer facilities for performance.
8. By operation of law.
9. By unauthorized material alteration of a contract.
10. Discharge by lapse of time.

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Breach of Contract
Breach of contract is non performance of contract.
Remedies for breach of contract to Aggrieved party.
1.
2.
3.
4.
5.

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Rescission of the contract.

Suit for damages.
Suit upon quantum meruit.
Suit for specific performance for contract.
Suit for injunction.

BREACH OF THE CONTRACT

Remedies
Injunction
Temporary (interim)
Permanent

Damages
Nominal
Compensatory
Punitive/Exemplary

Account of Profits
Specific performance (where subject matter is unique and money

will not adequately compensate.)

Declaration
Rectification
Recission/Substitution/Novation

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