BUSINESS BUSINESS Legislation Legislation

Reference Book – Reference Book – P.C. Tulsian P.C. Tulsian

LAWLAW

Law means a “set of rules”Law means a “set of rules” Defined as the rules of conduct Defined as the rules of conduct

recognized and enforced by the state recognized and enforced by the state to control and regulate the conduct to control and regulate the conduct of people, to protect their property of people, to protect their property and contractual rights with a view to and contractual rights with a view to securing justice, peaceful living and securing justice, peaceful living and social security.social security.

Mercantile Law or Commercial LawMercantile Law or Commercial Law

M Law deals with the rights and M Law deals with the rights and obligations of mercantile persons obligations of mercantile persons arising out of mercantile transactions arising out of mercantile transactions in respect of mercantile property.in respect of mercantile property.

It includes laws to various contracts, It includes laws to various contracts, partnership, companies, negotiable partnership, companies, negotiable instruments, insurance, carriage of instruments, insurance, carriage of goods, arbitration.goods, arbitration.

Law relating to PartnershipLaw relating to Partnership Law relating to CompaniesLaw relating to Companies Law relating to Negotiable Law relating to Negotiable

InstrumentsInstruments Law relating to InsuranceLaw relating to Insurance

Sources Of Mercantile LawSources Of Mercantile Law

Sources of M Law in India

English Mercantile

Law

Indian Statute

LawJudicial

DecisionsCustoms

And Usages

The Law Of ContractThe Law Of Contract The Law of Contract is contained in the Indian The Law of Contract is contained in the Indian

Contract Act,1872Contract Act,1872• Came into force on the first day of Came into force on the first day of

September,1872September,1872• It extends to the whole of India except the It extends to the whole of India except the

State of Jammu and KashmirState of Jammu and Kashmir• This Act is divided into smaller units, each This Act is divided into smaller units, each

called a section. Sometimes, a section may called a section. Sometimes, a section may have sub sections or clauses too.have sub sections or clauses too.

• Applicable not only to business but also to all Applicable not only to business but also to all day-to-day personal dealings.day-to-day personal dealings.

Meaning Of ContractMeaning Of Contract ““An agreement enforceable by law An agreement enforceable by law

is a contract”.is a contract”. An agreement which can be An agreement which can be

enforced in a court of law is known enforced in a court of law is known as a contract.as a contract.

A contract must have following two A contract must have following two elements-elements-

1.1. An agreement, and An agreement, and 2.2. Enforceability of an agreementEnforceability of an agreement

Contract=Contract= An agreement + Enforceability of An agreement + Enforceability of

an agreementan agreement

An AgreementAn Agreement

Acc to section 2(e) of Indian Contract Acc to section 2(e) of Indian Contract Act,1872Act,1872

““Every promise and every set of Every promise and every set of promises forming the consideration promises forming the consideration for each other is an agreement”.for each other is an agreement”.

““A proposal when accepted, becomes A proposal when accepted, becomes a promise.”a promise.”

MEANING OF ‘PROMISE’ - When the MEANING OF ‘PROMISE’ - When the person to whom the proposal is made person to whom the proposal is made signifies his assent thereto, the proposal signifies his assent thereto, the proposal is said to be accepted. A proposal, when is said to be accepted. A proposal, when accepted, becomes a promise. [section accepted, becomes a promise. [section 2(b)].  - - 2(b)].  - -

Thus, when a proposal (offer) is Thus, when a proposal (offer) is accepted, it becomes a ‘promise’. As is accepted, it becomes a ‘promise’. As is clear from the definition, only person to clear from the definition, only person to whom proposal is made can signify his whom proposal is made can signify his assent. Other person cannot accept a assent. Other person cannot accept a proposal. proposal.

PROMISOR AND PROMISEE - The PROMISOR AND PROMISEE - The person making the proposal is called person making the proposal is called the “promisor”, and the person the “promisor”, and the person accepting the proposal is called the accepting the proposal is called the “promisee”. [section 2(c)]. “promisee”. [section 2(c)].

Agreement = Agreement = Offer (or Proposal) + Acceptance of Offer (or Proposal) + Acceptance of

Offer (or Proposal) Offer (or Proposal)

Enforceability Of AgreementEnforceability Of Agreement An Agreement is said to be An Agreement is said to be

enforceable by law if it creates some enforceable by law if it creates some legal obligation.legal obligation.

A ContractA Contract

Contract

AgreementEnforceability

Of an Agreement

Offer/Proposal

Acceptance of Offer

Legal obligation

Arising out ofAn agreement

The Law of Contract Is Not The Law of Contract Is Not The Whole Law of Agreements.The Whole Law of Agreements.

Type of Type of AgreementAgreement

Law of contract Law of contract Covers or notCovers or not

Agreements Agreements with legal with legal obligationsobligations

YesYes

Agreements Agreements without legal without legal obligationsobligations

NoNo

The Law of Contracts is Not The Law of Contracts is Not Whole Law of ObligationsWhole Law of Obligations

Type of Type of obligationobligation

Law of contract Law of contract covers or notcovers or not

Obligations Obligations which arise out which arise out of agreementsof agreements

YesYes

Obligations Obligations which do not which do not arise out of arise out of agreementsagreements

NoNo

Distinction Between An Agreement Distinction Between An Agreement And ContractAnd Contract

An AgreementAn Agreement Basis-Basis- Offer and its Offer and its

acceptance acceptance Legal Obligation-Legal Obligation- may may

or may not createor may not create One in Other –One in Other – Every Every

agreement need not agreement need not be a contractbe a contract

A ContractA Contract Basis-Basis-Agreement and Agreement and

its enforceabilityits enforceability Legal Obligation –Legal Obligation –

necessary creates the necessary creates the obligationobligation

One in OtherOne in Other – All – All contracts are contracts are necessarily necessarily agreementsagreements

Classification Of ContractsClassification Of Contracts

Basis of classification

Creation Execution Enforce-ability

On the basis of CreationOn the basis of Creation

Express ContractExpress Contract• Made by words - written or oralMade by words - written or oral

Implied ContractImplied Contract• Inferred from the conduct of a person / Inferred from the conduct of a person /

circumstancecircumstance

On the basis of ExecutionOn the basis of Execution

Executed ContractExecuted Contract• Both the parties have fulfilled their Both the parties have fulfilled their

respective obligations respective obligations

Executory ContractExecutory Contract• Both the parties are still to perform their Both the parties are still to perform their

respective obligationsrespective obligations

On the basis of EnforceabilityOn the basis of Enforceability

Valid ContractValid Contract

Void ContractVoid Contract• Valid in the beginning, subsequently Valid in the beginning, subsequently

became voidbecame void

Void Agreement Void Agreement • Void – ab – initioVoid – ab – initio

Voidable ContractVoidable Contract Enforceable by law but can be set aside / Enforceable by law but can be set aside /

repudiated at the option of the aggrieved partyrepudiated at the option of the aggrieved party

Illegal agreementIllegal agreement• Void ab – initioVoid ab – initio

Unenforceable ContractUnenforceable Contract Technical defectTechnical defect

Criteria Void Agreement

Voidable Contract

Void ab initio Form beginning Valid till repudiated by aggrieved party

Deficiency Other Weakness Free consent is missing

Enforceability Not enforceable Enforceable till repudiated

Right of third party

No rights Acquires right in good faith

Damages No Can be claimed

Status after expiry of reasonable time

Void May become valid contract

Distinction b/w void agreement and illegal Distinction b/w void agreement and illegal agreementagreement

Basis Void Agreement

Illegal Agreement

Void/Illegal All may not be illegal

All are void

Effect on collateral agreement

May not become void

Also void

Restoration of benefit received

Restoration in selective cases

No restoration

Essentials of a Valid ContractEssentials of a Valid Contract Section 10Section 10 All agreements are contracts if they All agreements are contracts if they

are made by the free consent of the are made by the free consent of the parties competent to contract, for a parties competent to contract, for a lawful consideration and with a lawful lawful consideration and with a lawful object and are not hereby expressly object and are not hereby expressly declared to be voiddeclared to be void

Elements Elements Proper offer and its proper Proper offer and its proper

acceptanceacceptance

Intention to create legal relationshipIntention to create legal relationship

Free consentFree consent• Section 14 says if consent is not caused Section 14 says if consent is not caused

by fraud, misrepresentation, undue by fraud, misrepresentation, undue influence, and coercion then it is freeinfluence, and coercion then it is free

Capacity to contractCapacity to contract• Not capable – minor, unsound mind, Not capable – minor, unsound mind,

disqualified from any lawdisqualified from any law

Lawful considerationLawful consideration Not forbidden by any law, or does not Not forbidden by any law, or does not

involve injury to the person or property involve injury to the person or property of another or is immoral or is opposed of another or is immoral or is opposed to public policyto public policy

Lawful objectLawful object

Agreement not expressly declared voidAgreement not expressly declared void

Certainty of meaningCertainty of meaning

Possibility of performancePossibility of performance

Legal formalitiesLegal formalities

Offer/ProposalOffer/Proposal

Sec 2(a)Sec 2(a) A person is said to have made the A person is said to have made the

proposal when he signifies to another proposal when he signifies to another his willingness to do or to abstain his willingness to do or to abstain from doing anything with a view to from doing anything with a view to obtaining the assent of that offer to obtaining the assent of that offer to such act or abstinencesuch act or abstinence

Elements Elements Made to another personMade to another person Expression of readiness or Expression of readiness or

willingnesswillingness Made to obtain consent of other Made to obtain consent of other

personperson

How to make an offerHow to make an offer

Expressed offer Expressed offer By words sopken/writtenBy words sopken/written

Implied offerImplied offer• Inferred from conduct/circumstancesInferred from conduct/circumstances

To whom an offer is madeTo whom an offer is made

Specific offerSpecific offer• To specific person/group of persons To specific person/group of persons

General offerGeneral offer• Not to definite person but to the public Not to definite person but to the public

in general in general

Legal rules for valid offer Legal rules for valid offer

Intention to create legal relationshipIntention to create legal relationship

Certain and unambiguous termsCertain and unambiguous terms

Different from a mere declaration of Different from a mere declaration of intentionintention

Different from an invitation to offerDifferent from an invitation to offer

CommunicationCommunication

No term – the non compliance of No term – the non compliance of which amounts to acceptancewhich amounts to acceptance

Communication of special terms or Communication of special terms or standard form of contractsstandard form of contracts

AcceptanceAcceptance

Sec 2(b)Sec 2(b) A proposal is said to be accepted when the A proposal is said to be accepted when the

person to whom the proposal is mad signifies his person to whom the proposal is mad signifies his assent thereto. A proposal when accepted assent thereto. A proposal when accepted becomes a promise . becomes a promise .

Who can acceptWho can accept

In case of general offerIn case of general offer Any one who fulfills conditionsAny one who fulfills conditions

In case of specific offerIn case of specific offer Only by specific person/ authorized Only by specific person/ authorized

personperson

Express acceptance.Express acceptance. By words spoken or writtenBy words spoken or written

Implied acceptanceImplied acceptance Inferred from conduct/ circumstancesInferred from conduct/ circumstances

Legal rules for a valid Legal rules for a valid acceptanceacceptance

Absolute and unqualifiedAbsolute and unqualified Without any reservation, variation or Without any reservation, variation or

conditioncondition

Manner - Usual / reasonable and Manner - Usual / reasonable and prescribedprescribed

CommunicationCommunication• Mere mental determination not sufficientMere mental determination not sufficient

By whomBy whom• By offeree / promisee / aurhorised personBy offeree / promisee / aurhorised person

To whomTo whom• To offererTo offerer

Time limitTime limit• Usual reasonable timeUsual reasonable time• Prescribed timePrescribed time

Before lapse of offerBefore lapse of offer