*Amity Business SchoolMBA (M&S), Semester IILegal Aspects of BusinessDr. Anshu Yadav

Course Credits: 3

Course ObjectiveThis course aims to develop in the student an understanding of the core principles of the laws that regulate business organisations. Course would develop the independent and individual skills needed for students to take their knowledge further, and to apply it in practice in industry, or business environment. Internal AssessmentMid Term 10 MarksProject 15 Marks

Course Contents

Module I: Commercial Laws Indian Contract Act 1872Sales of Goods Act 1930Negotiable Instruments Act 1882Module II: PartnershipIndian Partnership Act 1932Limited Liability Partnership Act 2008

Module III: Companies Act 2013

Course Contents

Module IV: Consumer Protection Act 1986

Module V: Miscellaneous ThemesIPRIT Act

Purpose of Indian Contract ActThe Act was passed by British India and is based on the principles of English Common Law.It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. It is applicable to the All States of India except the State of Jammu & Kashmir.

History of Indian Contract ActThe Indian Contract Act came into force on 1st September 1872.Before the enactment of the Indian Contract Act, 1872, there was no codified law (Specific law) for contracts in India.The Act originally had 266 Sections. The entire Act was divided into following parts:General Principles of Law of Contract (Sec 1 to 75)Contract relating to Sale of Goods (Sec 76 to 129)Special kinds of Contracts (indemnity, guarantee, bailment & pledge) (Sec 125 to 238)Contracts relating to Partnership (Sec 239 to 266)

MEANING OF CONTRACTCONTRACTAgreementLegal EnforceabilityAccording to Section 2(h) - A contract is an agreement enforceable by law.

MEANING OF AGREEMENTAccording to Section 2(e) - every promise and every set of promises, forming the consideration for each other, is an agreement.AGREEMENTPromise or set of PromisesValid Consideration

PROMISE Sec.2(b)A proposal when accepted becomes a promise. CONSIDERATIONPrice paid by the one party for the promise of the other. Technical word meaning QUID PRO QUO i.e. something in return

MEANING OF PROMISEAccording 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.

PROMISEOffer/ProposalAcceptance

MEANING OF CONTRACTCONTRACTAgreementLegal EnforceabilityWhere Rights and Obligations in a contract are enforceable in the eyes of Court.

Means where parties to the contract have rights to file case in the court.Promise or set of PromiseLawful ConsiderationOfferAcceptance

Rights and ObligationContractual rights and obligations are correlative

Agreements which are not contractRelating to social matterDomestic arrangementBalfour v. Balfour* Agreement Legal Obligation ContractAll the contracts are agreement but all agreements are not contract.

ESSENTIAL ELEMENTS OF A VALID CONTRACT (Section 10)According to Section 10, all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration, with a lawful object, and if they are not expressly declared to be void.

ESSENTIAL ELEMENTS OF A VALID CONTRACTThe essential elements of a valid contract are:Offer and Acceptance: There shall be an offer or proposal by one party and acceptance of that offer by another party resulting in an agreement (consensus ad idem).Intention to create legal relations: There shall be an intention between the parties to create legal relations.Lawful consideration: The agreement is supported by a lawful consideration. Consideration means something in return.Capacity of parties: The parties to the contract shall be legally competent to contract.Free consent: The consent of the parties shall be genuine and free.Legal object: The object of the contract shall be legal and shall not be opposed to public policy.Certain terms: The terms of the contract shall be certain and shall not be vague.Possible performance: The agreement is capable of being performed i.e., it is not impossible of being performed.

Offer or Proposal and AcceptanceSec.2(a), 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 either to such act or abstinence, he is said to make a proposal.

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Rules governing offer

Offer must be capable of creating the legal relationOffer must be certain, definite and not vagueOffer may be express or impliedOffer must be distinguished from an invitation to offerOffer may be specific or generalOffer must be communicated to the person to whom it is madeOffer must be made with a view to obtaining consent of the offereeAn offer should not contain a term the non compliance of which amounts to acceptanceCommunication of Special terms

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LAPSE (Revocation) OF AN OFFER

On expiry of stipulated or reasonable time.By not accepting in mode prescribed.By rejection by the offeree.By death or insanity of the offerer or offeree before acceptance.By revocation by the offeror at any time before acceptance.Revocation of standing offer at any time by giving notice to the offeree.Revocation by non fulfillment of condition precedent to acceptance.By subsequent illegality or destruction of subject matter.

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Rules governing acceptanceAcceptance must be absolute and unqualifiedAcceptance must be communicatedMode and time of AcceptanceAcceptance by conductConditional acceptance operates as rejection of offer*

ConsiderationSec 2(d) consideration is defined as when at the desire of the promisor , or promisee or any other person has done or abstained from doing or does or abstains from doing ,or promises to do or to abstain from doing , something , such an act or absinence or promise is called a consideration for the promise*

Rules governing considerationConsideration must move at the desire of the promisorConsideration may move from the promisee or any other personChinnayya V. RammayyaExecuted, Executory and past considerationConsideration need not be adequate(sec25)Consideration should be real, Must not be unlawful, immoral or opposed to the public policyThere must be mutuality(eg- charity)Should be more than promisee is already bound*

When consideration not necessaryOut of natural love and affectionRajluckhy v. BhoothnathCompensating voluntary actIn case of gift*

Capacity to contractSec11: Every person is competent to contract who is of age of majority according to the law to which he is subject, who is of sound mind and is not disqualified from contracting by any law to which he is subject.An agreement entered into by or with a minor is void ab initioSec 12: 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 forming a rational judgment so as to its effect upon his interests.*

Position of Minors AgreementAn agreement entered into by or with a minor is void ab initioMinor can be beneficiaryMinor can always pleads minorityRatification an attaining majority is not allowedContract by minors guardian

Persons disqualified form entering into contractAlien enemyForeign sovereigns and ambassadors

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Free consent

Sec 13 : Two or more persons are said to have consented when they agree upon something in the same sense (consensus-ad-idem).Sec 14: A consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.*

Coercion: is committing or threatening to commit any act forbidden by 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.Undue Influence: when 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 of the otherFraud: 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 or his agent, or to induce him to enter into the contract

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Misrepresentation: where a person asserts something which is not true though he believes it to be true, his assertion amounts to misrepresentation. Mistake: *

Lawful Consideration Or Object Sec 23: Consideration or object is unlawful if it isForbidden by lawDefeat the provisions of any lawInjury to the person or property of anotherImmoral or opposed to the public policy*

Privity of ContractA stranger to the contract can not sueDunlop Pneumatic Tyre Co. v. Selfridge Ltd.Exceptions

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Types of Contract*On the basis of Enforceability

VoidVoidableIllegal On the basis of Creation Expressed WrittenoralImpliedE-ContractOn the basis of Execution ExecutedExecutory

On the basis of Enforceability

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VOID CONTRACT [SEC. 2(j)]A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.VOID AGREEMENT [SEC. 2(g)]An agreement which is not enforceable by law is said to be void. It is an agreement which cannot be enforced from the date when they were made. It is void ab initio.VOIDABLE CONTRACT [SEC. 2(i)]An agreement, which is enforceable by law at the option of one more of the parties, but not at the option of the other (s) is a voidable contract.For example: - Mr. A, at knife - point, asks B to sell his scooter for Rs. 50. Mr. B gives consent. The agreement is voidable at the option of B, whose consent is not free.UNENFORCEABLE CONTRACTAn unenforceable contract is one which is good in substance but cannot be enforced by law due to some technical defects, such as under stamping, absence of writing, barred by limitation.ILLEGAL CONTRACTA contract which is forbidden by law.For example: - Agreement to commit crime.

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AGREEMENTS EXPRESSLY DECLARED VOIDAgreements by incompetent parties (Sec. 11)Agreements with unlawful object or consideration (Sec. 23)Agreement made under mutual mistake of fact (Sec. 20)Agreements without consideration (Sec. 25)Agreements in restraint of marriage, trade or legal proceedings etc.Agreements to do impossible Acts (Sec. 56) Example:- An agreement to discover treasure by magic is void.

On the basis of Creation*

EXPRESS CONTRACT A contract which is created either by word spoken or written.IMPLIED CONTRACTThe contract which is created otherwise by words spoken or written. Tacit ContractA contract which is inferred from the conduct of the parties is said to be tacit contract.Quasi ContractThese are the contracts, which are created neither by word spoken, nor written, nor by the conducts of the parties, but these are created by the law.For example: - If A leaves his goods at Bs shop by mistake, then it is Bs duty to return the goods or to compensate the price. In fact, these contracts depends principle of doctrine of unjust enrichment.E-CONTRACTone, which is entered into between two parties via internet.

On the basis of Execution

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Executed ContractAn executed contract is a contract in which both the parties have performed their obligation. This is a contract which has been completed.For example:- If A agrees to sell his car to B for Rs. 100000. The contract is said to be executed if A delivers car to B and B pays the price to A.Executory ContractAn Executory contract is the contract which is to be performed in future. Unilateral ContractWhere obligation is pending on the part of one of the parties.

Performance of Contracts: Sec 37The parties to the contract must either perform or offer to perform their respective promises unless such performance is dispensed with or excused under the Indian Contract Act or any other law.

Who must perform:The promisor himselfIf not specified, then agent of promisor can performIn case of death of promisor, his legal representatives must performIn case of contracts involving personal skill, promisor himself should perform not the third personJoint promisors

Tender of Performance : Sec 38If promisor performs his side of the contract and the performance is rejected, the promisor is discharged from further liability and may sue for the breach of contract, if he so wishes.

To be valid, a tender of performance must fulfill following conditions:It must be unconditionalIt must be made at a proper place and time.If it relates to delivery of goods, the promisee must have a reasonable opportunity to check the goods.

Effect of the refusal of the party to perform:Sec 39

When a party to a contract has refused to perform or has disabled himself from performing his promise in entirely, the promisor may put an end to the contract, unless he has signified by words or conduct, his acquiescence in its continuance.

Rights to the aggrieved party:To terminate the contractTo indicate by words or conduct that he is interested in his continuance Rights to clam damages *

Discharge of Contracts:A contract is said to be discharged or terminated when the rights and obligations arising out of a contract are extinguished.

Modes of discharge of contracts: Performance or tender Mutual consent or agreement (by novation, rescission, alteration, waiver) Lapse of time Operation of law Impossibility of performance Breach of contract

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Mutual consent or agreementNovationWhen parties to a contract substitute a new contract for old. On novation, old contract is discharged and consequently it need not to be performed. There may be change in parties.RescissionWhen parties to a contract agree to rescind it, the contract need not be performed. In this case, only old contract is cancelled no new contract is formed.AlterationWhere parties to a contract agrees to alter it, the original contract is rescinded, with theremit that it need not be performed.No change in parties to the contract.Change in terms & conditions of original agreement.WaiverDeliberate abandonment or giving up of a right to which a party is entitled to under a contract,

Discharge of Contracts by impossibility:A contract is deemed to have become impossible of performance and thus void under the following circumstances:

Destruction of the subject matter of the contract. By the death or disablement of the parties. Subsequent illegality. Declaration of war.

Breach of contract*

Remedies for Breach of Contracts:When a contract is broken, the injured party has several courses of action open to him. The injured party may :

Rescind the contract and refuse further performance of contract Sue for damagesSue for specific performanceSue for injunction Sue on quantum meruit

Amity Business SchoolAmity Business School*Amity Business SchoolAll of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties in India.

*Amity Business SchoolAn agreement, therefore, comes into existence when one party makes a proposal or offer to the other party and that other party signifies his assent thereto. In nutshell, an agreement is the sum total of offer and acceptance.*