Business Law

What is Law?

In simple terms law means rules.

It is very wide term and includes different set of rules regulating human action which are
externally and conduct of individual in their dealing with other individual and with the
government.

Set of rules alone is not sufficient unless:

1. It is enforceable by the state.

2. The state to enforce law is a sovereign state.

3. It receives due recognition.

4. It attempts achieve some sort of security and uniformity in its application.

Austine says “ A law is a rule of conduct impose and enforce by the sovereign”.

Halland says “Rules of external human action enforced by sovereign”.

law when enacted has to absorb the following principles:

1. It should as far as possible be in conformity with custom of the profile i.e. it should not
offend local custom and usage of society.

2. It should move with the society that is it should be valuable to charges. It should not be
static or rigid piece of legislation. Law therefore is not static. It changes with time
customs and need of the society.

What is Business Law?

I. It is related to industry, trade, commerce.

II. It is related to contracts, sales of goods, partnership negotiation instrument,

companies, co-operative societies.
Indian Contract Act 1872
English common law was applied which created inconvenience because of parties were
Mohammedons and Hindu.

 Some parts from hindu law, mohammedon and English law are taken and
amended.

 It is not an extensive code because besides the sales of goods act and Indian
partnership act, the does not incorporate negotiable instrument act, it define and
ammendes only certain parts of law relating to contracts.

Importance of Law of Contract:

 All contract are based on agreements which are either express or implied.

 The contracts acts deals with such promises which creates legal obligation.

Essential elements of valid contracts:

 Section 2(h) of the Indian contract act defines a contract as an agreement
enforceable by law.

 Section 10 of the act, “All agreements are contracts of they are made by the free
consent of parties, competent to contract for a lawfull consideration and with a
lawfull object and not hereby expressly declared to the void.

Thus the following are the essential elements of valid contracts-

a) Agreement i.e. proposal and exception.

b) Intention to create legal relationship.

c) Free Consent

d) Capacity of Parties.

e) Lawfull consideration.

f) Legal Object.

g) Not expressly clearly void.

h) Certainity.
 i) Possibility of performance.

j) Legal formality.

 All agreement are not contract but all contract are agreement.

Contract must have:

a) An agreement.

b) Enforceable by Law.

The agreements is a wider term then the contract, all agreement need not necessarily
become contract but all contracts shall always be agreements

 All agreements are not contract.

When there is an agreement between the parties it is not necessary that, they
intend to create legal relationship.

Example: “A” invites his friend “B” for watching movie at the theater, “B” agrees
to come on time before show starts. But “A” can not able to manage take any
legal action against “A” become it was social agreement.

 All contracts are agreement- Contracts are agreement enforceable by law.

Agreement can be happen without any legal obligation but contract includes
agreement with has legal obligations.

Capacity to Contract:
An agreement become a contract if it is entered into between the parties who are
competent to contract under section 10. Every person competent to contract :-

I. Who is of age of majority according to the law to which he is subject.

II. Who is of sound mind.

III. Who is not disqualified form contracting by any law to which he is subject.
Contract by Minor:

According to section 3 of the Indian majority act 1875, minor one who has not completed
his 18 years of are.

When authority to handle property of minor is given to its guardian or property is

appointed or minor property is taken over by a court of wards up to completion of 21
years of age.

1) Minor contract is absolutely void: A minor’s agreements being absolutely void

neither nor the other party acquires any right or incurs any liability under the
agreement.

2) Specific performance of a minor’s contract: council has that guardian has no

power to bind a minor by a contract for the purchase of movable property; there
can no specific performance of such a contract.

3) Ratification of Minor’s contract: consenting to a past contract entered into during

minority at a future date attaining majority.

4) False representation by minor (Estoppel):

(Estoppel- Is rule of evidence) A minor can not be stopped by a false

representation as their can be no estoppels against a statue. A minor who falsely
represent himself to be a major and thereby includes.

5) Liability of a third person-

Surety for minor-:

Agreement by minor is void, but an agreement by a guardian an his behalf is

valid, provided it is for his benefit or for legal necessity.

6) Insolvency: - a minor cannot be adjudging insolvent as he is incapable of

contracting.

7) Relinquishment by a minor: - a release by a major of his rights in a property is

absolutely infructurous in law.

Contract By Persons of Unsound Mind: -

I. Contracts by Lunatics: Section 12 of the act defines a person who is of sound

mind. It states that a person is said to be of sound mind for the purpose of
making a contract if, at the time he makes it, he is capable of understanding it
and of forming a rational judgment as to its effect upon his interest.
II. Contracts by drunkards: -contract by a drunken person is absolutely void and
cannot be rectified. In order that a contract by a drunken should be void the
drunken must not be so effective and absolute that no rational judgment can
be formed by the party. He should be incapable of understanding the nature of
the contract and its legal consequences.
 Free Consent
According to the section 13 of the act “two or more persons are said to consent when they
agree upon the same thing in the same sense”.

When both the parties agree parties agree upon the same thing in the same sense, they are
said to be ‘ad-idem’.

Parties consent to the same thing in the same sense is not sufficient. Consent must be
free. Section 14 of the act proceeds to defines “Free consent” as under: -

Consent is said to be free when it is not caused by: -

1. Coercion.

2. Undue influence.

3. Fraud.

4. Misrepresentation.

5. Mistake.

Coercion: -
It is committing, or threatening to commit, any act forbidden by the Indian Penal Code, or
the unlawful detaining or threatening to detain any property to the prejudice of any
person to enter into an agreement.

It is immaterial whether the Indian Penal Code is or is not in force in the place where the
coercion is employed. (Section 15)

When can coercion be established?

Essentials:

1. For an act forbidden by the Indian Penal Code, there must not be merely a threat,
but the act should be such as to be punishable under the Indian Penal Code.

2. Coercion may proceed from anybody, even a person who is not party to the
contact and may be directed against even a member of his household, not a
necessarily the other contracting party.
 3. Coercion includes physical compulsion fear and even menace to goods. Consent
must be caused by unlawfully detaining or threatening to detain any property.

4. The act must have been done or threatened with the intention of causing any
person to enter into an agreement.

5. It does not matter whether the Indian Penal Code is or is not in force in the place
where the coercion is employed.

Undue Influence: -
Under section 16(1) a contract is said to be induced by “undue influence”. Where the
relations subsisting between the parties are such that one of the parties is a in a position to
dominate the will of the other and uses that position to obtain an unfair advantage over
the other.

Presumptions as to undue Influence: -

Section 16(2) of the act provides an answer “a person is deemed to be in position to

dominate the will of anther”-

i. Where he holds a real or apparent authority over the other, or

ii. Where he stands in a fiduciary relation to the other, or

iii. Where he makes a contract with a person whose mental capacity is temporally or
permanently affected by reason of age, illness or mental bodily distress.

Fraud: -
Under Section 17, Fraud means and includes any of the following acts committed by.

a) Party to a contract.

b) With his connivance.

c) By his agent, with intent to deceive another party thereto or his agent or to induce
him to enter into contract-

1. The suggestion, as to a fact of that which is not true by one who does not
believe it to be true.
 2. The active concealment of a fact one having knowledge or belief of the
fact.

3. A promise made without any intention of performing it.

4. Any other act fitted to deceive.

5. Any such act or omission as the law specially declared to be fraudulent

(Section 17).

Misrepresentation:-
Section 18 of the act, it means and includes:-

a. The positive assertion in a manner not warranted by the act of the person making
it, of that which is not true, though he believes it to be true.

b. Any breach of duty which, without intent to deceive, gain an advantage to the
person committing it, or any one claiming under him by misleading another to his
prejudice or to the prejudice of anyone claiming under him.

c. Causing however innocently a party to an agreement to make a mistake as to the

substance of the thing which is the subject matter of the agreement.

Misrepresentation of fact: -

Consent given under misrepresentation of fact is no consent at all and gives the right to
the party whose consent is so caused to avoid the contract.

Misrepresentation of law: -

Misrepresentation of general rules of the law gives no right to avoid a contract. But
misrepresentation of particular right is misrepresentation of fact and therefore, gives right
to the party to avoid the contract.

Mistake: -
Mistake is of two kinds :

i. Mistake of facts
 ii. Mistake of law

Mistake of face: -

Where the both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement the agreement is void.

Types of mistake of fact: -

i. Bilateral or mutual mistake: - both parties are under a mistake as to a matter of

fact.

ii. Unilateral mistake: - only one party is under a mistake as to a matter of fact.

The agreement is void only when both the parties are under a mistake i.e. the mistake is
mutual.

Mistake as to identify of a person: -

Mistake as to identity of the other person will make a contract void when the intention
was to enter into a contract only with a particular person other than the person with whom
the contract has been entered into.

Mistake as to subject matter: -

Where both the parties’ belief in existence of certain state of things which in reality do
not exist, the contract shall be held to be void..

Mistake by law: -

Section 21 of the act provides that a contract is not voidable because it was caused by a
mistake as to any law in force in India, but mistake as to a law not in India has the same
effect as a mistake of fact.
 Bailment
Bailment is derived from French word ‘bailor’ which means to deliver; when a person
delivers his goods to another for some purpose with the condition that the goods will be
returned after the fulfillment of the purpose, the contract is known as bailment.

In bailment the possession of goods is transferred for some time but the ownership is not
transferred. (Section 148)

Bailor :- the person who delivers the goods is called the bailor.

Bailee :- the person to whom the goods are delivered.

Examples:- A lends his book to B to be returned after B’s examination.

Essentials of Bailment :-

1. Delivery of goods (Section 149):- the most important essentials of bailment is the
delivery of goods by one person to another. Delivery should involve change of
possession.

2. Some purpose: - the delivery of goods to constitute bailment must be for some
purpose. Goods delivered by mistake, there is not changed then there is no
bailment.

3. Conditional delivery: - goods are always bailed for some purpose and with the
condition that when the purpose is accomplished.

4. Other essentials :- the contract of bailment like all other contract must have all the
essentials of a valid contract. The consent of the parties must be free.

Kinds of Bailment :-

A. On the basis of remuneration :-

i. Gratuitous Bailment:- when the person delivers his goods

without getting any reward in return, the bailment is known as
gratuitous bailment.
 ii. Bailment for Reward:- when the person delivers the goods to
another for some reward, the bailment is known as bailment for
reward.

B. On the basis of benefits:-

i. Bailment for the bailor:- where a person hands over or delivers his
goods to his friends or neighbor for safe custody for some time, the
bailment is for the benefit of the bailor only.

ii. Bailment for the bailee:- where a person delivers his goods to another
but does not gain anything, the bailment is known as the bailment for
the benefit of the bailee only.

iii. Bailment for mutual benefit:- the bailment under which both the bailor
and bailee gain some benefit is known as a bailment for mutual
benefit.

Duties of a Bailor:-

1. To disclose the faults in the goods (Section 150):- the bailor is under a duty to
disclose to the bailee faults if any in the goods bailed, which may materially
interfere with their use or expose the bailee to extraordinary risks.

If bailment is gratituous, it is the duty of the bailor to disclose to bailee known

facts in the goods bailed.

2. To repay necessary expenses (section 158):- in the case of gratuitous bailment, it

is the duty of the baillor to reimburse the bailor for all the expenses incurred by
the bailee for the purpose. The bailor has no duty to reimburse the bailee for
ordinary expenses not extra ordinary expenses (incurred by bailee due to his
mistake or negligence/default).

3. To identify the bailee:- (Section 159)if the gratuitous bailment is made for a
specified time or purpose and the bailor compels bailee to return the goods before
the expiry of the time, having a right to do so, he has to make goods or lose
suffered by the bailee to such untimely return of goods.

4. Responsibility for lack of title:- (Section 164) the bailor is responsible for bailee
for any lose which the bailee may sustain due to defective title of the bailor to the
goods bailed.
5. To receive back the goods: - it is the right as well as a duty of the bailor to the
bailee to receive back the goods after the expiry of the term or accomplishment of
the purpose of bailment.

Duties of a Bailee: -

1. Duty of reasonable care (Section 151 and 152):- the bailee is under a duty to
take reasonable care of the goods bailed with him. Section 151 provides that a
bailee is under a duty to take as much as care of the goods as a man of
ordinary prudence (sensible & careful) would under similar circumstances
take of his own goods of the same quality and values.

If the bailee takes that much care, he is not responsible for any loss.

According to section 152 there would be special contract between bailor and
bailee by which bailee may agree to take a higher degree of care or agree to
compensate the bailor for any loss of goods.

Cause due to nature is not considered as act of bailee.

2. Duty not to make unauthorized use (section 154):- the bailor is under a duty
not to make the unauthorized use of the goods which bailor has not authorized
him breach of contract of bailment makes the bailee liable for damages.

3. Duty not to mix the bailor’s goods with his own:- a bailor has duty not to mix
the bailor’s goods with his own goods without the consent of the bailor. There
may be three cases of mixing the bailor’s goods:-

a. Selection 155 provides that if the bailee with the consent of the bailor
with his own goods of the same quality but not separable. The
proportionate share of the bailor and bailee is entitled.

b. Section 156 provides that where goods are mixed without the consent
of the bailor and the goods can be separated, the bailor and bailee
shall be entitled to their respective goods.

c. Section 157 provieds that where goods are mixed without the consent
of bailor and they can not be separated; the bailor is entitled to recover
the price of or compensation for this goods.

4. Duty to return the goods (Section 160 & 161):- the bailee is under a duty to
return the goods to the bailor without demand as soon as the time for which
they were bailed has expired or purpose has been accomplished.
 5. Duty to return increase or gain (Section 163): if the bailee gain any increase
has accrued from the goods bailed.

6. Duty not to set up adverse tittle:- the bailee is under a duty not to deny the
bailor’s tittle to the goods.

Rights of a Bailor:-
1. Rights of avoid contract (section 153):- when the roghts of a bailor does anything
inconsistent with the terms of the contract of the bailment, the contract is voidable
at the option of bailor.

2. Right to damages (section 154):- when the bailee makes unauthorized use of
goods, the bailor is entitled to damages for any loss to goods caused by such
unauthorized use.

3. Rights in case of mixing of goods (Section 155, 156, 157):- when the bailee mixes
the bailor’s goods with his own consent, the bailor’s is entitled to a proportionate
share out of such mixture. (section 155).

When goods are separable then bailor shall be entitled to his own goods (section
156).

4. Rights to terminate the bailement at any time :- According to section 159, the
bailor in the cases of gratituous bailment has a right to demand the return of the
goods at any time, even before the expiry of the period or accomplishment of the
purpose.

5. Right to return of goods (section 160):- the bailor has the right to demand return
of goods from bailee of purpose. If bailor refuses to return the goods at that time
then bailor can take action against bailee.

6. Right ti any increase or gain (section 163):- bailor is entitled to any increase or
profit which may accrue from the goods bailed.

Rights of Bailee:-
1. Right to claim damages (section 150):- the bailee is entitled to know the fault in
the goods bailed to him which may interfere with the use of them or expose the
bailee then bailor is responsible for any loss to bailee.
2. Right of necessary expenses (section 158):- bailee incurs necessary expenses to
maintain goods as bailed from bailor, the expenses incurred by them is bailee’s
entitlement to get back those expenses incurred.

3. Right to indemnify (section 159):- bailor has a right to compel bailee for returning
goods bailed to him before expiry of time or purpose, but bailor is responsible for
any loss caused from bailor.

4. Right to compensate (section 164):- the bailee is entitled to be indemnified by the

bailor for any loss suffered due to defective title of the bailor to the goods bailed.

5. Rights to return goods to the co-owner (section 165):- when goods are bailed by
several joint owners, the bailee may return them to any co-owner in the absence
of any agreement to the contrary.

6. Right to return goods in good faith (section 166):- if the goods has no title to the
goods and the bile in goods faith delivers them back to the bailor, the bailee shall
not be responsibility to the owner in respect of such delivery.

7. Right of lien n the goods (section 170 & 171):- Bailor according to the terms of
bailment, exercise his labour and skill on the goods, he has a right to retain such
goods until he receives his remuneration.