unit 1 legal aspects of business

8/3/2019 Unit 1 Legal Aspects of Business

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8 January 20128 January 2012 Quadir MohiuddinQuadir Mohiuddin 11

LEGAL ASPECTS OFLEGAL ASPECTS OFBUSINESSBUSINESS

BYBY

Mohd.Quadir MohiuddinMohd.Quadir MohiuddinFaculty of Business ManagmentFaculty of Business Managment


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LAW OF CONTRACTSLAW OF CONTRACTS..

INDIAN CONTRACT ACTINDIAN CONTRACT ACTThe law relating to contracts is contained inThe law relating to contracts is contained in

the Indian Contract Act 1872.the Indian Contract Act 1872.

The Act lays down the general principlesThe Act lays down the general principlesSubject to which to which the contractingSubject to which to which the contractingparties may create the rights and duties forparties may create the rights and duties forthemselves.themselves.

The general principles are contained inThe general principles are contained in

section 1to275. the Act came in to force insection 1to275. the Act came in to force inseptember,1872.september,1872.


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The Act is not exhaustive It deals withThe Act is not exhaustive It deals with

1)1) The generalThe general principles of the law of contract.principles of the law of contract.

2)2) Some special contract only.Some special contract only.

The act does not deal with law ofThe act does not deal with law of

Partnership, sale of goods, negotiablePartnership, sale of goods, negotiable

instruments Insurance, bill of lading etc.,instruments Insurance, bill of lading etc.,

The Act recognises freedom of contract.The Act recognises freedom of contract.


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CONTRACTCONTRACT & AGREEMENT& AGREEMENTCONTRACTCONTRACT::--

The term contract is derived from theThe term contract is derived from theLatin word contractism which means drawn together.Latin word contractism which means drawn together.It is an agreementIt is an agreement

To do or not to do an act.To do or not to do an act.

According to salmond:According to salmond:

A contract is an agreement creating and definingA contract is an agreement creating and definingobligation between the parties.obligation between the parties.

Sir william Anson defines contract as a legally bindingSir william Anson defines contract as a legally bindingagreement between two or more persons by which rightsagreement between two or more persons by which rights

are acquired by one or others.are acquired by one or others.Section 2(h) of ICA defines a contract as an agreementSection 2(h) of ICA defines a contract as an agreementenforceable by law.enforceable by law.

CONTRACT=AGREEMENT+ENFORCEABILITY.CONTRACT=AGREEMENT+ENFORCEABILITY.


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AGREEMENT:AGREEMENT:-- Sec2(e) of ICA 1872 everySec2(e) of ICA 1872 every

promise (or) every set of promise forming thepromise (or) every set of promise forming theconsideration for each other is an agreement.consideration for each other is an agreement.

AGREEMENT=OFFER+ACCEPTANCEAGREEMENT=OFFER+ACCEPTANCE

Offer after acceptance becomes promiseOffer after acceptance becomes promiseSec2(b)of ICA define promise is proposal whenSec2(b)of ICA define promise is proposal when

accepted become a promiseaccepted become a promise

An Agreement outcome of two consenting minds.An Agreement outcome of two consenting minds.


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BASIS OF CLASSIFICATION OFBASIS OF CLASSIFICATION OF

CONTRACTSCONTRACTS..CLASSIFICATIONCLASSIFICATION

OFOFCONTRACTSCONTRACTS

CREATIONCREATION EXECUTIONEXECUTION ENFORCEABILITYENFORCEABILITY

Express contractExpress contract

Implied contractImplied contract

Quasi contractQuasi contract

ExecutedExecuted

ExecutoryExecutory

validvalid

Partly executedPartly executed

PartlyPartly

ExecutoryExecutory

ValidValid

VoidVoid

VoidableVoidable


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CLASSIFICATION OF CONTRACTSCLASSIFICATION OF CONTRACTS

CREATIONCREATION

EXPRESSCONTRACT:EXPRESSCONTRACT:-- It means made by word spoken orIt means made by word spoken or

written.written.

IMPLIEDCONTRACT:IMPLIEDCONTRACT:-- An implied contract is one which isAn implied contract is one which is

made by one words spoken or writtenmade by one words spoken or written

QUASICONTRACT:QUASICONTRACT:-- It is contract ,which there is no intensionIt is contract ,which there is no intension

either side to make a contract, but the law imposes a contract. Ineither side to make a contract, but the law imposes a contract. In

such a contract right &obligation arise not by any agreementsuch a contract right &obligation arise not by any agreement

between the parties but operation of law.between the parties but operation of law.


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EXECUTIONEXECUTIONEXECUTED:EXECUTED:-- Where both parties to the contract have fulfilledWhere both parties to the contract have fulfilled

their respective obligation under contract.their respective obligation under contract.

EXECUTORYEXECUTORY::-- still to perform their obligationsstill to perform their obligations ..

PARTLYEXECUTED & PARTLYEXECUTORY:PARTLYEXECUTED & PARTLYEXECUTORY:-- One of theOne of theparties to the contract has fulfilled his obligation &other partlyparties to the contract has fulfilled his obligation &other partly

has still to perform his obligation.has still to perform his obligation.ENFORCEABILITYENFORCEABILITY

VALID:VALID:-- Satisfies all the contractSatisfies all the contract

VOID:VOID:-- Sec2(j) of ICA 1872 a void contract is a contract whichSec2(j) of ICA 1872 a void contract is a contract whichis valid when entered but which subsequently become void dueis valid when entered but which subsequently become void dueto impossibility of performance change of law or some otherto impossibility of performance change of law or some otherreason.reason.

VOIDABLE:VOIDABLE:-- which can be set a side or a voided at the option ofwhich can be set a side or a voided at the option ofaggrieved party .Party takes under coersion, fraud,aggrieved party .Party takes under coersion, fraud,misrepresentation ,decision.misrepresentation ,decision.


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ESSENTIAL ELEMENTS OF AESSENTIAL ELEMENTS OF A

VALID CONTRACTVALID CONTRACTESSENTIALS OF VALID CONTRACT:ESSENTIALS OF VALID CONTRACT:-- sec 10 of ICA layssec 10 of ICA laysdown rules as to what agreement are contracts.down rules as to what agreement are contracts.

Proposal Offers Acceptance.Proposal Offers Acceptance.

ConsiderationConsideration lawful consideration with a lawful object.lawful consideration with a lawful object.

Capacity of parties to contract sec11.Capacity of parties to contract sec11.

Free consent sec13.Free consent sec13.

Not declared to be void or illegal.Not declared to be void or illegal.

Writing &registration, if so required.Writing &registration, if so required.

Legal relation.Legal relation.

Certainity.Certainity.

Possibility of performance.Possibility of performance.

Enforceable by law.Enforceable by law.


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OFFEROFFEROFFER:OFFER:-- sec2(a)defines offer as when one person signifies tosec2(a)defines offer as when one person signifies to

another his willingness to do or to abstain from doing anythinganother his willingness to do or to abstain from doing anythingwith a view to obtaining the assent of that other to such act orwith a view to obtaining the assent of that other to such act orabstinence.abstinence.

The person who makes the offer is known as offeror,The person who makes the offer is known as offeror,proposer, &the person to whom the offer is made is called theproposer, &the person to whom the offer is made is called theofferee or acceptorofferee or acceptor

Essentials of a valid offer:Essentials of a valid offer:--

It must be capable of creating legal relations.It must be capable of creating legal relations.It must be certain definite vague.It must be certain definite vague.

It must be communicated to the offers.It must be communicated to the offers.It must be made with a view to obtaining the assent of the otherIt must be made with a view to obtaining the assent of the otherparty.party.

It must be conditional.It must be conditional.An invitation to offer is not an offer.An invitation to offer is not an offer.


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ACCEPTANCEACCEPTANCEACCEPTANCE:ACCEPTANCE:-- Acceptance is an expression either in wordsAcceptance is an expression either in words

spoken or written, it is an express acceptance. An acceptedspoken or written, it is an express acceptance. An acceptedproposal is called a promise or an agreement. An acceptanceproposal is called a promise or an agreement. An acceptancemust be communicated to the offeror in order to complete themust be communicated to the offeror in order to complete theacceptance.acceptance.

Essentials of valid Acceptance:Essentials of valid Acceptance:--

Absolute & unconditional.Absolute & unconditional.Communicated to offer.Communicated to offer.Made within a reasonable time.Made within a reasonable time.It must be according to the mode prescribed or usual orIt must be according to the mode prescribed or usual or

reasonable mode.reasonable mode.

The acceptor must be aware of the proposal at the time ofThe acceptor must be aware of the proposal at the time ofoffer.offer.Accept must be given before the offer lapses or before theAccept must be given before the offer lapses or before the

offer is revoked.offer is revoked.

Acceptance cannot be implied from silence.Acceptance cannot be implied from silence.


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CONSIDERATIONCONSIDERATION

Consideration is very lifeConsideration is very life--blood of every contract.blood of every contract.According to Pollock Consideration is the priceAccording to Pollock Consideration is the price

for which the promise of other is bought and thefor which the promise of other is bought and the

promise thus given for value is enforceablepromise thus given for value is enforceable

Essentials of valid considerationEssentials of valid consideration

Consideration must move at the desire of theConsideration must move at the desire of the

promisorpromisor

It must be past, present or futureIt must be past, present or future

It must be real and lawfulIt must be real and lawful


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CAPACITY OF CONTRACTCAPACITY OF CONTRACT

Capacity to Contract means Competency of theCapacity to Contract means Competency of theparities to enter into a valid contract.parities to enter into a valid contract.

Section 11 of ICA deals with the competencySection 11 of ICA deals with the competencyof parties and provides that every person isof parties and provides that every person iscompetent to contract who is of the age ofcompetent to contract who is of the age ofmajority according to the law to which he ismajority according to the law to which he is

subject, and who is of sound mind and is notsubject, and who is of sound mind and is notdisqualifies from contracting by any law todisqualifies from contracting by any law towhich he is subject.which he is subject.


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Section 11 of ICA declares that the following persons areSection 11 of ICA declares that the following persons are

incompetent to contract:incompetent to contract:

MinorMinor Persons of unsound mindPersons of unsound mind

Persons disqualifies by any law to which they are subjectPersons disqualifies by any law to which they are subject

MINOR : Sec 5 of the Indian Majority Act 1875 defines minorMINOR : Sec 5 of the Indian Majority Act 1875 defines minor

as a person who is not completed eighteen years.as a person who is not completed eighteen years.An agreement with a minor has been held to be viod ab initio.An agreement with a minor has been held to be viod ab initio.

Law protects a minor due to an immature mind and cannot thinkLaw protects a minor due to an immature mind and cannot think

what is good or bad for him.what is good or bad for him.

PERSONS OF UNSOUND MIND have no contractual capacityPERSONS OF UNSOUND MIND have no contractual capacityit means lack of capacity to understand the terms of theit means lack of capacity to understand the terms of the

contract and also lack of understanding to realize the effect ofcontract and also lack of understanding to realize the effect of

the terms of the contract.the terms of the contract.


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Unsound of mind may arise from:Unsound of mind may arise from:

Idiocy: An Idiot is a person with no intervals ofIdiocy: An Idiot is a person with no intervals of

saneness. He is incapable as his mental powers ofsaneness. He is incapable as his mental powers ofunderstanding even ordinary matters are absentunderstanding even ordinary matters are absent

because of lack of development of brain.because of lack of development of brain.

Lunacy of Insanity: it is a disease of the brain. ALunacy of Insanity: it is a disease of the brain. A

lunatic loses the use of his reason due to some mentallunatic loses the use of his reason due to some mental

strain or disease.strain or disease.

Drunkenness : it produce temporary incapacity till theDrunkenness : it produce temporary incapacity till the

man is under the effect of intoxication creatingman is under the effect of intoxication creating

impotence of mind.impotence of mind.

PERSON DISQUALIFIES BY ANY LAW refers toPERSON DISQUALIFIES BY ANY LAW refers to

statutory disqualifications imposed on certain personsstatutory disqualifications imposed on certain persons

in respect of their capacity to contract.in respect of their capacity to contract.


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PERFORMANCEPERFORMANCE OFCONTRACTOFCONTRACT

Performance of Contract means fulfillment ofPerformance of Contract means fulfillment ofthe legal obligation created by a contract.the legal obligation created by a contract.Chp IV of the ICA act deals with performanceChp IV of the ICA act deals with performanceof contracts. Section 37 of the contract Act laysof contracts. Section 37 of the contract Act lays

down that the parties to a contract must eitherdown that the parties to a contract must eitherperformance or perform or offer to performperformance or perform or offer to performtheir respective promises, unless suchtheir respective promises, unless suchperformance is dispensed with or excused underperformance is dispensed with or excused underthe provision of law. The nature of the contractthe provision of law. The nature of the contractdetermines whether it requires actual ordetermines whether it requires actual orattempted performance.attempted performance.


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Attempted performance or offer toAttempted performance or offer to

performanceperformance Sometimes it happensSometimes it happens

that the promisor or offers to performthat the promisor or offers to perform

his obligations under the contract buthis obligations under the contract butthe promisee does not accept. Thisthe promisee does not accept. This

know as attempted performance orknow as attempted performance or

Tender.Tender.


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BY WHOM CONTRACT MUST BEBY WHOM CONTRACT MUST BE

PERFORMEDPERFORMED

1.By the promisor1.By the promisor ::-- A contract may beA contract may beperformed by the promisor, either personallyperformed by the promisor, either personallyor thorough any other competent person.or thorough any other competent person.

2.2. By the agent:By the agent:-- Where personal skill is notWhere personal skill is notnecessary and the work could be done bynecessary and the work could be done byanyone, the promisor or his representative mayanyone, the promisor or his representative may

employ a competent person to perform it. Thusemploy a competent person to perform it. Thusa contract to sell goods can be assigned by thea contract to sell goods can be assigned by theseller to his agent.seller to his agent.


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3.3.By the representative:By the representative:-- In the event of the deathIn the event of the deathof the promisor before performance, theirof the promisor before performance, their

representatives are bound by the promises,representatives are bound by the promises,

unless personal consideration are theunless personal consideration are the

foundation of the contract.foundation of the contract.

4. By the third person:4. By the third person:-- If the promise acceptsIf the promise acceptsperformance of the promise form a third party, there isperformance of the promise form a third party, there is

discharge of the contract. Once the third partydischarge of the contract. Once the third partyperforms the contract, and that is accepted by theperforms the contract, and that is accepted by the

promisee there is an end of the matter and thepromisee there is an end of the matter and the

promisor is thereby discharge.promisor is thereby discharge.


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BREACH OF CONTRACTBREACH OF CONTRACT

Breach means failure or refusal of a party to performBreach means failure or refusal of a party to performhis obligation under a contract without any lawfulhis obligation under a contract without any lawfulexcuse.excuse.

Actual breach:Actual breach:-- It means committed either at the timeIt means committed either at the time

when the performance of the contract is due or duringwhen the performance of the contract is due or duringthe performance of the contract.the performance of the contract.

It is also called present breach.It is also called present breach.

Anticipatory breach:Anticipatory breach:-- A breach of contract occurringA breach of contract occurring

before the due date of performance is known asbefore the due date of performance is known asAnticipatory breach of contract. It is a prematureAnticipatory breach of contract. It is a prematuredestruction of the contract rather than a failure todestruction of the contract rather than a failure toperform it. It is also called Constructive breach.perform it. It is also called Constructive breach.


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REMEDIES FOR BREACH OFREMEDIES FOR BREACH OF

CONTRACT.CONTRACT.

In case of breach of contract the law provides theIn case of breach of contract the law provides the

following remedies to injured or aggrieved party.following remedies to injured or aggrieved party.

Suit for Rescission of the contract.Suit for Rescission of the contract.

Suit for Restitution.Suit for Restitution.

Suit for Specific performance.Suit for Specific performance.

Suit for Damages.Suit for Damages.

Suit upon quantum merit.Suit upon quantum merit.

Suit for Injunction.Suit for Injunction.


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CONTRACTCONTRACT Suit for Rescission of the contract:Suit for Rescission of the contract:--

RescissionRescission meansmeans thethe settingsetting asideaside ofof thethe contractcontract

WhenWhen therethere isis aa breachbreach ofof contractcontract byby oneone party,party, thethe

otherother partyparty maymay suesue toto treattreat thethe contractcontract asas rescindedrescinded..

WhenWhen thethe courtcourt grantsgrants rescission,rescission, thethe aggrievedaggrieved partyparty isis

feedfeed..

ExEx::-- XXpromisepromise toto deliverdeliver 1010 tonstons ofof sugarsugar toto YYonon SeptSept 1515thth

andand YYpromisepromise toto paypay thethe priceprice onon receiptreceipt ofof thethe goodsgoods.. XX diddid notnot

deliverdeliver thethe goodsgoods onon thethe appointedappointed datedate.. YY needneed notnot paypay thethe

priceprice andand hehe treattreat thethe contractcontract asas rescindedrescinded andand maymay alsoalso filefile aa

SuitSuit ofof RescissionRescission andand claimclaim damagedamage..


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CONTRACTCONTRACT

Suit for restitution:Suit for restitution:-- It means return ofIt means return ofbenefits received by one party to the contractbenefits received by one party to the contractfrom the other party under a void contract .from the other party under a void contract .

When a contract becomes void it need not beWhen a contract becomes void it need not beperformed by either party.performed by either party.

Example:Example:-- A pays B RS1000 in considerationA pays B RS1000 in considerationof Bs promising to marry C, As daughter. Cof Bs promising to marry C, As daughter. Cis dead at the time of promise. The agreementis dead at the time of promise. The agreementis void but B must repay As RS1000.is void but B must repay As RS1000.


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CONTRACTCONTRACT

Suit for Specific performanceSuit for Specific performance::-- Under certainUnder certaincircumstances a person aggrieved by the breach of thecircumstances a person aggrieved by the breach of thecontract can file a suit for specific performance i.e.,contract can file a suit for specific performance i.e.,for an order by the court upon the party guilty offor an order by the court upon the party guilty ofbreach of contract directing him to perform what hebreach of contract directing him to perform what he

promised to specific performance means the actualpromised to specific performance means the actualcarrying out of the promise what he promise by thecarrying out of the promise what he promise by theparty breach, exactly according to the term of theparty breach, exactly according to the term of thecontractcontract

In contracts for sale of land, building and rareIn contracts for sale of land, building and rarearticles, courts generally grant for specificarticles, courts generally grant for specificperformance of the contract according to the specificperformance of the contract according to the specificrelief Act 1877.relief Act 1877.


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CONTRACTCONTRACT

Suit for damages:Suit for damages:-- In case of a breach ofIn case of a breach ofcontract; injured party can claim damages for thecontract; injured party can claim damages for thelow caused by breach of contract.low caused by breach of contract.

Damages are a monetary compensation allowed toDamages are a monetary compensation allowed tothe injured party by the lcourt for the loss or injurythe injured party by the lcourt for the loss or injurysuffered by him.suffered by him.When a contract is breached the injured party isWhen a contract is breached the injured party is

entitled to file a suit for damages. The fundamentalentitled to file a suit for damages. The fundamentalprinciple underlying damages is not punishment butprinciple underlying damages is not punishment but

comparation.comparation.Damages are of four types:Damages are of four types:--

1)1) General damages .General damages . 3)3) Vindictive damages .Vindictive damages .2)2) Special damages .Special damages . 4)4) Nominal damagesNominal damages ..


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CONTRACTCONTRACT

Suit upon Quantum meruit :Suit upon Quantum meruit :-- The phraseThe phrase

Quantum meruit means payment inQuantum meruit means payment in

proportion to the amount of work done a rightproportion to the amount of work done a right

to sue on a Quantum meruit arises where ato sue on a Quantum meruit arises where a

contract, party performed by one party, hascontract, party performed by one party, has

become discharged by the contract by the otherbecome discharged by the contract by the other

party.party.


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CONTRACTCONTRACT

Suit for injunction:Suit for injunction:-- An injunction is anAn injunction is an

order of the court directing a personorder of the court directing a person

to do refrain from doing same act,to do refrain from doing same act,which is the subject matter of thewhich is the subject matter of the

contract and which a partycontract and which a party

undertakes to do or not to do.undertakes to do or not to do.


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DISCHARGE OF CONTRACTDISCHARGE OF CONTRACT

Discharge means Termination.Discharge means Termination.Discharge of contract means termination ofDischarge of contract means termination ofcontractual relationship between the parties.contractual relationship between the parties.

A contract is said to be discharge or terminated when theA contract is said to be discharge or terminated when theright and obligation created by it are extinguished.right and obligation created by it are extinguished.

A contract may be discharge in many ways.A contract may be discharge in many ways.

Discharged by performance.Discharged by performance.

Discharged by Breach.Discharged by Breach.

Discharged by Agreement.Discharged by Agreement.

Discharged by Impossibility.Discharged by Impossibility.

Discharged by Operation of law.Discharged by Operation of law.

Discharged by Lapse of time.Discharged by Lapse of time.


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QUASIQUASI --CONTRACTCONTRACTQuasiQuasi Contracts are the contracts, which are not founded onContracts are the contracts, which are not founded on

actual promises, These contracts are created by theactual promises, These contracts are created by thecircumstances , where one person has done something forcircumstances , where one person has done something foranother or paid money on his behalf, and the other personanother or paid money on his behalf, and the other personenjoyed the benefit of the sameenjoyed the benefit of the same

Dr.LENKS defines a Quasi contract as a situation in whichDr.LENKS defines a Quasi contract as a situation in whichlaw imposes upon one person on grounds of natural justicelaw imposes upon one person on grounds of natural justice

an obligation similar to that which arises from a turean obligation similar to that which arises from a turecontract, although no contract express or implied, hascontract, although no contract express or implied, hasinfact been entered into by them.infact been entered into by them.

It is a kind of contract by which one party is boundedIt is a kind of contract by which one party is boundedto pay money in consideration of something done orto pay money in consideration of something done or

suffered by the other party . Though no contractualsuffered by the other party . Though no contractualrelation exist between the parties, law makes out a contractrelation exist between the parties, law makes out a contractfor them and such a contract is calledfor them and such a contract is called QuasiQuasi--ContractContract

Example:Example:-- If A pays a sum of money to B believing him to beIf A pays a sum of money to B believing him to behis creditor, when as a matter of fact he was not , B ishis creditor, when as a matter of fact he was not , B isbound to return the money to A on the assumption that thebound to return the money to A on the assumption that the

above sum given to him was by way of loan.above sum given to him was by way of loan.

unit 1 legal aspects of business

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