BUSINESS LAW

Introduction /Meaning
This involves two terms Business & LAW .
Business law means law relating to the
business world. Business has to be regulated
according to the Law of the land.
The Term BUSINESS may be understood as
the organised efforts of enterprises to supply
to consumers with goods & services and to
earn profit in the process. It is a broad
term which includes varied activities like .

Contd meaning of BL
Production, promotion, wholesaling,
retailing,
Transportation,distribution, warehousing,
financing, insurance,consultancies, etc.
LAW denotes rules & principles,either
enforced by an authority or self imposed by
members of a society, to control and
regulate peoples behaviour with a view to
securing justice,peaceful living & social
security

ContdMeaning of
Business Law
LAW is a specified code of conduct which
should be followed by each and everybody
in the state.
Business Law
refers to the principles and regulations
established by a Govt. and applicable to
people, whether in the form of legislation
or of customs and policies recognized and
enforced by judicious decision concerning
business, trade,Industry & commerce

Business law Introduction

contd
Business Law was evolved to govern
& regulate business, trade, Industry
& Commerce.
Business Law in General includes,
laws relating to contracts,sales of
goods, partnership,
companies,Negotiable Instruments,
insurance,insolvency, carriage of
goods etc.

Sources of Business Law

The Important Sources of
Business Law:
(1).Legislation
(2) Custom
(3) Case Law
(4) Natural Law
(5) English Law.

 1. Legislation is the common source of

law. Both parliament and state
assemblies have enacted a number of
legislations that cover various aspects of
business.
2. Custom : A substantial part of Business
law is customary.& not based on science
or technology. A custom when accepted
by court & incorporated in judicial
interpretations becomes law.

Contd sources of Business

Law
Case law case law ,popularly called
precedent by lawyers in judgment of
superior court including a point of law or
principles which necessitates its adoption
and adherence in subsequent case
involving the same point.
Natural law Natural Justice is another
source of Law. E.g. No man can be
punished TWICE for the crime is a guiding
principle for any legislation.

 English Law our business laws are

largely based on English Acts
applicable in England.
DHARMA : this fact is ignored that
the main source of Law is
dharmain ancient period. Even
today the main spirit behind every
law is dharma
(justice
nyayya???)

LAW OF CONTRACT
Law of contract is the most important
and basic part of Mercantile law.
Definition of Law of Contract
Law of contract determine the
circumstances in which a promise or
an agreement shall be legally
binding on the person making it.

The Indian Contract Act

1872
The Indian contract Act is the most important
piece of legislation affecting business. Prior
to this there was English common law.
This Indian Contract Act 1872 applies to
whole of India except the state of Jammu &
Kashmir., This Act came into force on 1-91872.
Definition Of a Contract:
Every agreement and promise enforceable
at Law is contract.

Definition of Contract as per the

Act
According to Section 2(h) of the Act, Contract is an
agreement enforceable at law. This crisp definition
has two important components which constitute the
basis for a contract.:
1) The existence of an agreement and (2) its
enforceability at law.
An agreement is defined as every promise and every
set of promises ,forming consideration for each other
(Section 2(e) .
A promise is defined thus : when the person to whom
the proposal is made signifies his assent there to , the
proposal is said to be accepted.

Contd agreement
A proposal(offer) when accepted becomes a
promise.
So an agreement is an accepted proposal.
There must be one party to OFFER a proposal
and another to ACCEPT the proposal.
Agreement= Offer+ Acceptance
Offer + Acceptance = Contract.
An agreement becomes enforceable when it gives
rise to a legal obligation.
i.e obligation must be LEGAL Not Social or
religious.

Contd. Agreement Vs
Contract
The main difference between LEGAL
& SOCIAL Obligation is that the
former involves money values but
the latter does NOT.
Enforceability of agreement is
another requisite of a contract.
So All Contracts are Agreements but
All agreements are not contract.

Essentials of VALID
Contract.
As per Section 10, all agreements are contracts
if they are made by the free consent of the
parties, who are COMPETENT to Contract.
Essentials of A VALID Contract.
1)Offer & Acceptance( offerer & Offeree) lawful
offer and lawful AcceptanceOffer and
acceptance together constitute an Agreement.
2)Free consent((the parties must have agreed up
on the same thing in the same sense (consensus
ad idem in English law) Identity of
Mind(uniformity)

Contd Essentials of A VALID

contract.
3)Contractual Capacity(competent)( the parties should have
attained the age of majority,of sound mind,and not disqualified
from contracting by any law )
4)Lawful consideration( something taken for something in
return) Consideration is the price for which the promise of another
is bought Consideration is known as quid pro-quo.means
some thing in return The legal maxim is Ex nudo pacto non
oritur actiomeans out of bare agreement no action arises
5)Lawful object(should not be forbidden by law/immoral or
opposed to public policy, not fraudulent, should not injurious to
the person or property of other., not immoral.
6) Plurality of persons: There must be at least two persons or
two groups of persons to form a Contract. There must also be
PRIVITY( knowledge) of contract between the parties.

Contd.Essentials of Valid
contract
6) Not expressly declared VOID(restraint of trade,
restraint of marriage,wagering agreement,)
7) possibility of Performance(should NOT be
impossible to perform)
(a)Pre-contractual Impossibility( void ab initio) to bring
honey from moon for honey moon
(b) Post-contractual Impossibility( doctrine of frustration)
8)Certainty of terms (Not VAGUE Terms)
9)Intention to create legal relationship.
10) Legal formalities( whether oral /written) but in
writing is better (Registration)Stamping , requirement of
witness etc.

Right-in-personam & Right-in- rem

Right-in-personam means right against a
particular person.( i.e. Against a particular
person only)
On the contrary , a Right-in-rem means rights
against whole world.
A contract create right in- personam only..
For E.g . Mr. X takes a sum of loan of Rs.1000
from Y. Y has the right to recover this amount
only from Mr.X and not from any body or from
the world . The right of Y against X is a
personal right.

A right- in rem ( A right against

the World)
Mr. Alex purchased a house from Mr.
Allwyn.
Now Alex is the owner of the house
and there fore Alex has the right of
quiet possession and enjoyment
against the whole world and not
against Allwyn ONLY.
LAW OF CONTRACT DOES NOT CREAT A
RIGHT-IN-REM, BUT IT CREATE ONLY
A RIGHT-IN PERSONAM

Classification of Contract (Types of

Contract)
Contracts can be classified on the basis
of three criteria:
A) Formation
B) Validity/ or enforceability
C) Performance
On the basis of formation Contracts can
be classified into :
1. Express contract (2) Implied
Contract(3) Quasi Contract

Classification of Contracts
A.
Formation
Express
Contract
Implied
Contract
Quasi
Contract

B.Validity/enf C.Perform
orceability
ance
Valid Contract Executed
Contract
Void Contract
Executary
Contract(un
ilateral)
Void agreement Bilateral
Contract
Voidable

Contd types of Contract.

1. Express Contract : In an express contract , the terms
are made clear in wrting Or Orally at the time of entering in
to agreement.In this contract the proposal and
acceptance are made in words.
2. Implied contract : In this type of contract the proposal
and acceptance is made otherwise than in words. In
implied contract ,neither party will use words of promise or
explict words indicating that a contract is formed.
3. Quasi Contract (constructive contracts) This is a
contract in which there is no intention on either side to make
a contract, but the Law imposes a contract. In such a
contract rights and obligations arise not by any agreement
between the parties
but by operation of law. For Example

Examples ---quasi Contract

A)The finder of lost goods is under obligation to
find out the true owner & return the goods.
B) when some articles are delivered to a wrong
addressee , the wrong addressee(the
receiver) is under obligation either to pay for
them or return them
C) person paying money owed by another.
Law recognises this obligation as a contract
though there is no explicit agreement between
the giver and receiver of the benefit.
Supplier of necessities to minor, lunatics,

Contd classification of
Contract.
Valid Contract. An agreement enforceable at law is a
valid contract. An agreement becomes a contract when
all the essentials of a valid contract ,as laid down in
section 10 are fulfilled.
Void contracts. An agreement which is enforceable
when entered in to but which has become void due to
supervening impossibility of performance .E.g. a
contract between citizen of two countries is valid
contract during peace but if war breaks out
between the two countries the agreement will
become void contract.
The law will not enforce such a contract, nor can it be
made valid by the parties.

Contd type of Contracts

Void Agreement According Section 2(g), an agreement which is NOT
enforceable by law by either of parties is void.No legal rights or
obligation can arise out of void agreement .it is Void ab initio
i.e .from its inception it is void
Voidable Contract. According to section2(i)an agreement which is
enforceable by law at the option of one or more of the parties but not at
the option of the other or others is a voidable contract.
Note that the word used here isContract and not agreement. This is
the result of absence of Free consent in the contract. This is because
the rights and duties are created and the contract is valid until the option
of to avoid it is exercised by the person whose consent to the agreement
was not free but was obtained by coercion , undue influence, fraud or
,misrepresentation
A voidable contract is one that can be set aside at the option of one
of the parties to the contract. The party who can rescind the contract is
the aggrieved .The other party who causes wrong cannot set aside the
contract.

Voidable Contd
The other party who induced the
consent can not take advantage of
his own fraud because he who
comes into Equity(i.e before law)
must be with clean hands. Thus
voidable contract is valid and
enforceable until it is repudiated by
the party entitled to avoid it.

Distinction between Void Contract &

Void Agreement
An agreement not enforceable at law is a void agreement .
In the case of void agreement no contract comes into
existance.(an agreement with a minor is Void) Or an
agreement which illegal is VOID Agreement.Void ab initio.
But incase of a void contract , a contract come in to
existance, but subsequently, ceases to be enforceable by
law.
An agreement which is void never matures into a
contract.
An agreement which becomes illegal in the course of
performance is a case of void contract.( war broke out)
where as an agreement which is null and void ab initio is a
case of Void agreement.
( void from its very inception)

Distinction between voidable

contract and void agreement
1.Legal Effects. A Void agreement from the very
beginning has no legal effects. A voidable contract is one
which one of the parties may affirm or reject at his option.
It is valid and enforceable till it is repudiated or rescinded.
2.Curability.The defect in the case of voidable Contract is
curable and may be Condoned. But void agreement is
void ab initio and its defects are incurable.
3.Compensation Since void agreement is unenforceable
at law there does not arise any question of compensation
on account of the non-performance of the agreement. But
incase of a voidable contract, a person is entitled to
compensation for loss or damages suffered by him on
account of the non-performance of the contract.

Unenforceable Contract (but

valid)
This contract is otherwise valid, but
can not be enforced because of some
technical defect like absence of written
form,or absence of proper stamp, or
not registered etc. such contracts
will not be enforced by the courts until
and unless the defect is rectified.

(C.)Classification on the basis of

Performance
1.Executed contract
is one where both the
parties have performed their obligation or
carried out the terms of the contracts. Or it is
a completed contract.
2. Executory contract. Where the contract
is yet to be performed either wholly or partially
or one or both the parties have yet to perform
their obligations, the contract is executory.
An Executory contract may be (a)
UNILATERAL CONTRACT or (b) BILATERAL
CONTRACT

Unilateral & Bilateral

Contracts
A Unilateral Contract is one in which one
party has discharged his obligation either
before or at the time of entering in to a
contract.
A Bilateral Contract is one where a
promise on one side is exchanged for a
promise on the part of other party.( i.e. both
the parties have to perform their obligation)
i.e. Executory contract.These are also known
as contracts with executory consideration.

Legality of Object &

Consideration
According to section 23 of the Indian Contract Act, an agreement
of which the object or consideration is unlawful is viod
Lawful means permitted by law
The consideration or the object of an agreement is unlawful :
A) if it is forbidden by law
B) if it is such that if allowed, it would defeat the provision of the
law
C) if it is fraudulent,
D) if it causes injury to a person or his property
E) if it is immoral in nature
F) if the court regards it as opposed to public policy
In each of these cases the consideration or object of an
agreement is unlawful.

Contd Legality of the Object/

consideration
In some cases both Object and
consideration may be the same., but
they are normally distinct.
The word Object means purpose or
design. The consideration refers to the
benefit accruing to each party in a contract.
In some cases consideration for an
agreement may be lawful, but the object
for which the agreement was entered may
be unlawful.

Meaning of some of the requirements

of lawful Object & consideration

1. forbidden by law :
An act or undertaking is forbidden by law:A) when it is punishable under criminal law of the country
B) when it is prohibited by special legislations or
regulations made by a competent authority.
2. if it defeat any law. Some times the consideration
for an agreement may not be directly forbidden by law, but
if permitted ,may defeat the provisions of any law.
Example. As estate is sold for arrears of revenue under
the provisions of an Act of the legislature by which the
defaulter is prohibited from purchasing the estate .B, up on
an understanding with A ,becomes the purchaser , and
agrees to convey the estate to A up on receiving from him

Legality of object Contd..

the price which B has paid. The agreement is
void,as it renders the transaction,in effect a
purchaser by the defaulter and so defeat the
object of the law.(Mohan lal VS. Udai Narayan)
3. If it is Fraudulant Agreement which are
entered into for promoting fraud are void.
E.g. An agreement to for sale of goods for the
purpose of smuggling them out of the country
is void ,and the price of the goods if sold can
not be recovered.

Contd.
4.If it involves or implies injury to the person
or property
An agreement to pull down
anothers house is unlawful.
5. If the court regard as immoral
Immoral means inconsistent with what is right.
E.g. A advances money to B , a married woman to
enable her to get a divorce from her husband and B
agreed to marry him as soon as she get divorce. It
was held that A is not entitled to recover back the
money as the object was immoral( bai Vijli Vs Nansa
Nagar)

Contd legality of Object

6.if the court regards it as being
opposed to public policy.
This includes any activity that may
harm public safety ,health or morals
or against general welfare this
term may vary case to case.

Agreements Opposed to public

Policy
1. Trading with enemy
2.stifling prosecutions (forceful preventions of cases in
the court of law)
3. maintenance of Champerty.(an Unethical Agreement)
4.Traffic relating to public offices
5.Agreements tending to create interest opposed to
duty
6.Marriage brokerage agreements
7.Agreements tending create monopolies
8.Agreements to influence elections to public offices.
9. Agreement in restraint of personal liberty
10. Agreements interfering with marital duties