legal aspects of business 5

8/8/2019 Legal Aspects of Business 5

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Copyright Amity University1

PAN African eNetwork

Project

Course Name : BFIA

Subject Name : LEGAL ASPECTS OF BUSINESS

Semester III

Session-5

Faculty Name : SANTOSH KUMARI


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Copyright Amity University

Agency: An agent is that person who is employed

another, to do or to represent another in

dealings with the third person

Creation of agency:

By need, Clear cut contract

Implied contract

Confirmation

AGENCY


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Condition when agency is terminated:

Termination of agency by law:

Expiry of the period

Destruction of the subject matter

Death of party

Becoming insolvent

Becoming insane


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Completion of target

Principal declared foreign enemy

Termination by conduct of parties

Termination by principal

By agent

Mutual


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BAILMENT

Delivering of goods by one person (bailer) to another(bailee) for some purpose, upon a contract that they

shall, when the purpose is accomplished, be returnedon other wise disposed of, according to the directionof the person delivering them


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Rights of the Bailer:

Receive the goods with profit

Demand the goods back

Revocation

Loss caused by bailee

Combining own goods


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Duties of the Bailor:

Making payment of necessary expenses

Declare fault of goods

Giving delivery of the goods

Damages to the bailee

Payment of extraordinary expenses

Paying remuneration to the bailee


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Rights of Bailee:

Realizing necessary expenses

Realizing the damages

Damages on the non dis-closure of the fault in good

Taking delivery of goods

Receiving payment of extra ordinary expenses

Receiving remuneration from the bailor


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Duties of Bailee:

Not mix goods

Returning the goods Bailed

Giving the goods with profit

Not making unauthorized goods,

Not working against the condition,

Supervising the goods


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Pledge: A bailment of goods as a security for payment of a debt of

performance of a promise is called Pledge. The Bailor in this case is known

as pawnor and the bailee is called pawnee

Right to use: Pawnee does not have any right to use the goods


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Rights of Pawnee: Right ofRetainer

Retainer for subsequent advances

Extraordinary Expenses

Duties:

Reasonable Case

No Unauthorized used

Not to mi

x

Not to do any act in violation of the terms of thecontract

Return the goods Pledge


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Right of Pawnor:

Enfacement of pawnees duties

Defaulting Pawnors right to redeem

Duties:

To compensate Pawnee for extra ordinary expenses

To meet his obligation


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Meaning of unpaid seller:

When the whole of the price has not been paid or

tendered, When a bill of exchange or any othernegotiable instrument has been received as aconditional payment and the condition on which it wasreceived has not been fulfilled by reason of dishonorof the instrument or otherwise


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Doctrine of caveat emptor:

The buyer must be caution us in buying the goods, shouldexamine the goods as to their fitness to the purpose before heactually buy them

Exception to the rule:

Sale by description

Implied condition on warrants

Sale under a trade name

Merchantable quality

Usage of trade


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Rights of an unpaid seller:

Right of lien

Stoppage of goods in transit

Right of re sale

Detain the delivery of goods


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Implied conditions- Condition as to title

Sale by description

Sale by sample

Samples as well as description Fitness of goods and quality

Usage of trade

Condition as to wholesomeness

Implied wa

rranties:

Warranty by quick possession

Goods being free from encumbrance


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Unpaid sellers right against the buyer-

Suit for the price

Suit for damages

Suit for interest


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CONTRACT OF SALE

A contract of sale is a contract where by the sellertransfer or agrees to transfer the property in goods tothe buyer, for a price

Essentials:

Buyer and seller

Goods

Price

Transfer of property

Element of a valid contract

Meaning of agreement to sale:

A contract of sale, the property in goods is to takeplace at a future time or subject to certain condition,it is called to be an agreement to sell


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Meaning of condition warranties:

The stipulations which are quite significant to thecontract of sale and the breach of which is taken asbreach of the contract are known as condition and thestipulation which are not so vital and breach of whichknown as warranties


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Meaning of transfer of ownership:

When the buyer becomes the owner of the goods onlythere the transfer of the ownership of goodsconsidered to have been established

Significance:

Transfer of risk

Right to file suit

Accruing of goods by the liquidation

Meaning of sale by auction:

A sale by auction is a sale among the public, invitingthe price proposal and selling the goods to the personbidding the highest amount for purchasing


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Rules:

Treating the different contracts separately

Right to withdraw the bid bidding by the seller

Craving no recognition

Declaring the prescribed price for sale

Use of pretended bids

Meaning of goods:

Means every kind of movable property other than

actionable claim and money and includes stock andshares growing crops and things attached to orforming part of the land which are agreed to besevered before sale or under the contract of sale


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Classification of goods: Existing goods:

Specified or ascertained goods

Unascertained good

Future goods

Contingent goods

The price of the goods:

Price means the money consideration for a sale ofgoods

Determination of price:

By the contract of sale, By the manner agreed betweenthe parties, Course of dealings Reasonable priceGovernment


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AGREEMENT Sec 2(e )

Every set of promises, forming consideration for eachother

Essentials:

Two parties

competent to contact

Consideration Free consent

Contract: Sec 2(b): enforceable by law

Essentials of a valid contact:

Agreement, Capacity of parties,

Free Consent,

Lawful Consideration,

Lawful Object,

Agreement not expressly declared as void,

Legal formalities


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Type ofContract:

Void

Voidable

Illegal

Un-enforceable Contract

Unilateral

Bilateral

Express

Implied

Executed

Offer: Signifies to another his willingness to do or toabstain from doing anything

Acceptance: expression of consent to offer


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Competence of Parties: Age of majority, Sound

Mind, Not disqualified by any law

Free Consent: Consent is free when it is not causedby the coercion, undue influence, Misrepresentation,Fraud and mistake

Coe

rcion: Use of

Force or threat to enter anagreement

Undue influence: One party is in a position todominate the will of the other person

Mis-representation: the person making the

statement believes the same to be true, contract isvoidable at the option of the party where consent hasbeen to obtained but no such remedy is available ifthe party seeking to avoid the contract had the means

of discovering the truth with ordinary diligence


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Fraud: when a false statement is made with theknowledge that it is false,

Mistake: If one or both of the contracting partiesenter into a contract under somemisunderstanding,

Adequate Consideration: Only requirement oflaw is that there must be consideration, it is notnecessary that it must be sufficient or adequateconsideration,

Lawful

Conside

rations: for making agreementa valid agreement there must be lawful

consideration.


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CONTRACTS EXPRESSLY DECLARED AS VOID

Contracts obstructing the marriages, Contractsobstructing the trade, Contracts obstructing the legalProceeding, Contracts of uncertainty, Contracts ofwager, Contracts for getting the impossible acts done

Contingent Contract: Contracts under which, on the

happening or non happening of any probable event,promise is made for doing or obtaining from doing anyact, there lies a condition in these contracts, hencethese are also known as contracts with condition

Difference between wagering agreement &contingent Contract: A wagering agreement is voidwhereas a contingent contract is valid, wageringagreement consists of reciprocal promises whereas acontingent contract may not contain reciprocalpromises


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By mutual Agreement:-

by novation

by Rescission by Alteration

by Remission

by Lapse of time

by breach of contract


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Remedies available to the aggrievedparty for breach of contract

Right for damages,

Injunction, Specific Performance,

Declaratory Suit,

Kinds ofDamages: Nominal Damages,

General

Specific

Remote & indirect Loss Contract ofIndemnity:A contract by which one

party promises to save the other from loss caused tohim by the conduct of the promiser himself or by theconduct of any other person, is called a contract of

indemnity


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Rights ofIndemnity holder when he iscompelled to pay: All damages which he may becompelled to pay, all costs which he may becompelled to pay, all sums which he may have paid incompromise of any such suit

Contract of Guarantee: Sec 126:A contract ofguarantee is a contract to perform the promise ordischarge the liability of a third person in case of hisdefault.

Kinds of Guarantee:

Specific or simple guarantee,

Continuity Guarantee :A guarantee which extends toa series of transactions, is called a continuingGuarantee


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Revocation ofContinuing Guarantee: By noticeof revocation, By death of surety, By discharge ofsurety in various circumstances

Discharge of surety from Liability:

By Revocation:

Notice by surety

Death of surety

Novation

By Conduct of the creditor: Variance i.e.; charge in terms on the contract

Discharge of principal debtor

Loss of security


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By Invalidation of contract of Guarantee:

Misrepresentation

Guarantee obtained by concealment

Failure Co-surety to join a surety


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Rights of the Surety:

Rights against the principal debtor:Right of subrogation

Right of indemnity

Right Against the creditor:Right to securitiesRight to claim set-off

Right against the Co-sureties:Equal ContributionLiability of co-sureties bond in different sumsR

ight to share benefits of securities


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Introduction

What is business?

(Business is as old as civilization. Over the

period of time it has gained enormous power

over customers/employees/shareholders)

Environment of Business

Factors Constituting the Business

Environment


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Meaning & Nature of Law

What is Law? ( Legally Accepted Ways)Law to ;

a) A Citizen

b) A Lawyer

c) A Legislatord) A Judge

A set of rules derived by the State to regulate the conduct ofits people, recognized by the State and enforced by it on itspeople termed as Law

Business Law represents all those legal rules which areconnected with Trade, Industry &Commerce

Nature of Law -- Changing (Non Static)

O

bjective EstablishingO

rder


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Characteristics of Law

A body of rules For the guidance and conduct of persons

Imposed

Enforced by the executive

Presupposes a State

Contents are non-static

Develop Social Order & Compel Social

Member to remain in order Serves Social/Political/Economic purpose

Law & Morality

ignorantia juris non excusat


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Classifications of Law

Public Law / Private Law

C

riminal Law /C

ivil Law Substantive Law / Procedural Law

International Law / Municipal Law

Public International Law / Pvt. Int. Law


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Sources of Business Law

English Mercantile Law

Business Customs & Usages Statute Law

Judicial Decisions of HigherCourts /System of Precedents


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Law of Contract

The law of contract is that branch of law

which determines the circumstances in

which promises made by the parties to

a contract shall be legally binding on

them. Its rules define the remedies that

are available in court of law against a

person who fails to perform his/her contract and conditions under which

the remedies are available


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Nature of Indian Contract Act, 1872

Provides for remedies against failure

The conditions under which remedies are available

Ensures realization of reasonable expectation of theparties

Not as exhaustive act (deals with the generalprinciples of law of contract and some specialcontracts only)

Doesnt lay down limits & duties rather createlimiting principles

The act is neither the whole law agreements norwhole law of obligations

jus in rem v/s jus in personem (privity of contract)


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Agreement & Contract

A contract is an agreement made

between two or parties which the law

will enforce - Section 2 (h) Agreement = Offer + Acceptance >>

Promise (Promisee & Promisor)

Consensus ad idem Legal Obligation should be created


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What is a Contract ?

An Agreement

Enforceable by law

Made between atleast two parties

By which rights are acquired by one, &

Obligations are created on the part of

another And on failure, the other party has a remedy.


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AGREEMENT &ENFORCEABILITY

Every promise and

very set of promises

forming

consideration foreach other.

Enforce by law

All agreements are not

contracts, but allcontracts are

agreements


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Classification of Contract

Classification as per Validity(void/voidable/illegal/unforceable)

Void Agreement & Void Contract

Classification as per formation(Express/Implied/Quasi)

Classification as per performance

(Executed/Executory/Unilateral-ExecutedConsideration /Bilateral Executory

Consideration)

Off & A t


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Offer & Acceptance

A person is said to have made anoffer/proposal, when he signifies to

another his willingness to do or not to

do (i.e. abstain from doing) anything,

with a view to obtaining the ascent of thatother to such act or abstinence

Section 2 (a)

Offerer/Proposer/Promisor

Offeree/Proposee/Promisee/Acceptor


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Offer - Legal Rules

O

ffer must be such that is capable to beaccepted in law and gives rise to legalrelationship

Terms of offer must be definite, unambiguousand not loose & vague

Offer must be communicated An offer must be distinguished from

(i) an invitation to make an offer

(ii) declaration of intention to offer

O

ffer must be made with a view to obtainingthe ascent

Offer should not contain a term the non-compliance of which may be assumed toamount to acceptance


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Acceptance & Legal Rules

Acceptance is the act of assenting by theOfferee to the offeror

Acceptance may be express OR implied

Who can accept? (only the Offeree)

Acceptance must be legal & unqualified It must be communicated to the offeror

It must be according to the mode prescribed

It must be given within a reasonable time

Showing intention to fulfil the terms of promise It cannot be implied by silence (mere mental

acceptance is no acceptance)

Must be given before the offer lapses


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Revocation or Lapse ofOffer

By Communication of Revocation

Death of insanity of either party beforeacceptance

By lapse of time (if not accepted within theprescribed time)

Non fulfillment of specific condition

If a counter offer is made

If the acceptance is not according to theprescribed mode and the Offeree is informed

Revocation & Rejection

Completion of Communication


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Completion of Communication

Offer or Acceptance

OFFER : when it comes to

the knowledge of the

Offeree

ACCEPTANCE : (i) Asagainst the offeror : when

putted into course of

transmission (out of

acceptors power)

(ii) As against the acceptor :

when it comes to the

knowledge of the offeror

Revocation ofOffer orAcceptance

(i) As against the

person who makes it --when putted into course

of transmission.

(ii) As against the

person to whom it ismade -- when it comes to

his knowledge


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Consideration

When A promises to do something A must getsomething in return this something is known asconsideration (Affirmative Act / Abstinence / Promise)

It must move at the desire of the promisor

It may move from promisee or any other person It may be act, abstinence, forbearance or promise

It may be past, present, future

Need not be adequate

It must be real and not illusory

It must not be something which the promisor is not alreadybound to do

It must not be illegal / immoral

Stranger to the Contract

Contract without Consideration


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Contract without Consideration

(Exceptions)

Love & Affection [Sec 25 (1)] -- A registeredagreement between near relatives based on natural

love & affection is enforceable.

C

ompensation for Voluntary Services [25(2)]

Promise to pay a time barred debt [25 (3)]

Completed gift [Expl. 1 to Sec. 25]

Agency [Sec. 185]

Charitable subscription


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Capacity to Contract

As per Sec. 10 an agreement becomes acontract if it is entered into between theparties competent to contract.

As Sec. 11 declares following persons tobe incompetent to contract;

a) Minors

b) Persons of unsound mind

c) Persons disqualified by fromcontracting

Alien Enemies / Corporations / Insolvent /

Convicts


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Free Consent

Sec. 13 two or more persons are saidto be consented when they agree uponthe same thing in the same sense

A consent is said to be free when it isnot caused by;

a) coercion sec 15;

b) undue influence sec 16;

c) fraud sec 17;

d) misrepresentation sec 18;

e) mistake sec 20, 21 & 22


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Void Agreements

The following agreements have been expresslydeclared to be void by the Contract Act;

Agreements by incompetent parties-(Sec11)

Agreements made under a mutual mistake of fact (Sec20)

Agreements, the consideration or object of which isunlawful (Sec 24)

Agreements made without consideration (Sec 25)

Agreements, meaning of which is uncertain (Sec 29)

Agreements to do impossible acts (Sec 56)


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f f C


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Performance ofContract

Sec 38 says if a promisor has made an offer to perform as perthe contract and the promisee does not accept that, thepromisor is not responsible for non performance.

By whom the contract must be performed;

Promisor himself, Agent, Legal Rep., Third Person, JointPromisors.

Devolution of joint liabilities (Sec 42 to 44) (When 2 or morePromisors have made the promise, they are known as the jointpromisors)

All of them must fulfil the promise jointly (42),

If not, 43 comes into effect thereby;

liability of joint promisors is joint & several, a joint promisor mayclaim contribution, sharing of loss arising from default of one

(43 para 1,2,3)


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Discharge of Contract

Discharge of contact meanstermination of the contractual

relationship between the parties. A

contract may be discharged by;

a) Performance

b) Agreement ofConsent

c) Impossibility

d) Lapse of time

e) Operation of law

f) Breach of contract


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Remedies for

Breach ofC

ontract A remedy is the means given by law for theenforcement of right

When a there is breach of contract, the

injured party has one or more of thefollowing remedies;

1. Rescission of contract

2. Suit for damages

3. Suit upon quantum meruit4. Suit for specific performance of thecontract

5. Suit for injunction

Quasi Contracts


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Quasi Contracts

Law of QuasiC

ontract Law of Restitution As a matter of fact Quasi Contract is not a contract at all.It is rather created by Law.

It is an obligation which the law creates in the absence ofany agreement.

Sec. 68 -72 deals with following kinds of quasi-contractual obligations;

1. Supply of necessaries

2. Payment by an interested person

3. Obligation to pay for non-gratuitous

4. Responsibilities of finder of goods5. Mistake or Coersion

6. Quantum meruit >> as much as erned

7. Compensation for failure to discharge obligation createdby quasi contracts

Contracts of Indemnity &


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Contracts of Indemnity &

Guarantee Chapter VIII (sec. 124- 147) of Indian Contract Act 1872

covers these provisions

A contract by which one party promises to save the other

from loss caused to him by the conduct fo the promisorhimself, or by the conduct of any other person, is called acontract of indemnity. (sec 124)

Promisor >> indemnifier & the promisee >> indemnity

holder

Rights of indemnity holder when sued (sec 125) (alldamages/all expenses-costs/all sums)

Rights of indemnifier (the act is silent)


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Guarantee

(Sec. 126) A contract of guarantee of a contract to perform thepromise or discharge the liability of a third person in caseof his default.

The person who gives surety

Who defaults principal debtor To whom it is given creditor

It may be oral or written; express or implied

Essential features;

Concurrence/Primary & Secondary liability/Essentials of a

Valid Contract (in case of principal debtor being a minor,the surety is regarded as principal debtor)


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A few features

Nature of suretys liability

(coextensive/limitation)

Kinds of guarantee (specific / continuing)

Revocation of Continuing Guarantee

(notice/death etc.)

Discharge of Surety (suretys liability

ends)

(revocation/creditors conduct/invalidation)

Bailment


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Bailment

Ch. IX (sec 148 - 181) of Indian Contracts Act 1872 Bailment means delivery of goods by one person to another

for some purpose upon a contract, that they shall, when thepurpose is accomplished be returned or disposed off as per thedirections given by the person delivering them. One whodelivers called Bailor and to whom delivered called Bailee.

>>> (sec. 148)

Duties of Bailee (take care of bailed goods/not to makeunauthorise use/exclusive benefits to the bailee/not to mix thebailed goods with his own/to return the goods)

Duties of Bailor (disclose known faults/bear extraordinaryexpenses of the bailee/receive back the goods/indemnify baileein case of premature termination)


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Cntg. >>>Law relating to lien;

Lien means right of a person to retain possession of

some goods until the claims are satisfied. These could

be of two types;

i) Particular Lien & ii) General Lien(sec 170) (sec 171)

Only those goods All the goods which

Against which services are in possession

Have been rendered (bankers/attorneys)

Pledge


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Pledge

Bailment of goods as security for payment of a debtfor performance of a promise is called pledge; inthis case

The bailor is called >> pledger or pawnor

The bailee is called >> pledgee or pawnee(sec 172)

Pledge is bailment of goods as security, bailment isfor a purpose of any kind

In case of default, pawnee may sell the pledgedgoods, bailee may either retain the goods or sue forhis charges

In case of pledge, the pawnee cannot use the goodspledged, in case bailment bailee may do so if the

contract so provides


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Contract of Agency

Ch. X (sec. 182-238) of Indian Contract Act 1872

An Agent is a person employed to do any actfor another, or to represent another indealings with third person(s) --- [sec. 182]

Person who represent called Agent

Person who is represented called Principal

Essentials of Agency Relationship;

1. Agreement btn. Principal and the Agent (noconsideration is necessary to create agency)&

2. Intention of the Agent to act on behalf of thePrincipal

A few features


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A few features

Creation of an Agency(Express Agreement/Implied Agreement/Ratification)

Duties of Agent(to carry out work undertaken as per instructions/to carry

out work with reasonable care,skill & dilligence/to renderaccounts to the Principal/not to deal on his own account/tpay sums received for the principal/to protect & preserveinterest of the principal in case of his death orinsolvency/not to use the information obtained in the

course of agency against the principal/not to makesecret/not to delegate authority


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Sale of Goods Act 1930

Chapter VII of the Indian

Contracts Act 1872 (contained theprovisions earlier)

Sale of goods is a contract whereby the seller transfers oragrees to transfer the property in goods to the buyer for aprice.[sec. 4 (1)].

Sale & Agreement to Sell

Essentials ofContract of Sale (Two parties-Buyer & Seller,Goods, Price, Transfer of Property, Essential elements of avalid contract)

Sale & Hire Purchase Agreement

Sale & barter or exchange

Sale & bailment

Price here means the money consideration for a sale ofgoods [sec 2 (10)]

Earnest (some tangible thing as a token)


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