Legal Aspects in Business

What is Law?
Holland: defines Laws as the rules of external human action enforced by the sovereign political authority i.e. the state.
Salmond: Law is the body of principles recongnised and applied by the state in the administration of Justice.

What is Law?

The state regulates the conduct of its people by a set of rules. Such rules of conduct, if recognized by the state and enforced by it on people are termed as Law.

Indian Contract Act. 1872

Indian Contract Act. 1872

What

is Contract?

Sir William Anson- A legally

binding agreement made between two or more persons by which rights are acquired by one or more, to acts or forbearances on the part of the other or others.

Indian Contract Act. 1872

Sir John Salmond- A contract is an agreement creating and defining obligations between parties. Sir Fredick Pollock- Every agreement and promise enforceable at Law. Sec 2(h)- A contract is an agreement enforceable at Law

Contract
An Agreement Its enforceability by Law

Indian Contract Act. 1872

Sec 2(e) defines an agreement as Every promise or every set of promises forming the consideration for each other. Sec 2(b) defines promise as A proposal when accepted, becomes a promise.

Agreement

Agreement

By words, written or spoken

By conduct

Social

Legal

By combination of both

No contractual obligation

Essential Elements of a Valid Contract

Offer and acceptance. Intention to create legal relationship. Balfour V. Balfour (1919) 2 KB. 571 Lawful consideration. Sec 2(d) 23.25. Capacity of parties: Competency Sec 11.12. Free consent. Sec 13.14 Lawful Object. Sec. 23 Agreement not declared Void. Sec. 24 to 30. Certainty of meaning. Sec. 29. Possibility of performance. Sec. 56. Legal Formalities.

Classification of contracts
According to validity/ enforceability According to information According to Performance

1. Valid Contracts. 2. Void contracts

1. Express contracts.

1. Executed Contracts.

3. Void able Contracts

4. Illegal Contracts 5. Unenforceable contracts

2. Tacit/inferred Contracts.
3. Quasi/ implied contracts

2. Executory Contracts

Offer & Acceptance

When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence he is said to make a proposal.sec2(a)

Offer
Express Made in words, spoken or written Implied By Conduct Specific To a particular person or group or persons General To public at large

Offer must be distinguish fromMere declaration of intention e.g. to Auction sale A mere invitation for offers. Tenders price lists, catalogue etc.

Cross offers, standing offers & promise to wait.

Revocation of a proposal(sec-5)
By notice lapse of time Failure of acceptor to fulfill the conditions laid down. By death or insanity.

Acceptance
Sec 2(b) when the person to whom the proposal is made signifies his assent there to the proposal is said to be accepted. A proposal when accepted becomes a contract. Communication may be waived by an offeror. Revocation of acceptance (Sec 5)

Capacity as to Contract

Sec 10- all agreements are contracts, if they are made of a free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.

Capacity as to Contract
Sec 11 Every person is competent to contract who is of the age of majority according to law to which he is subject and who is of sound mind is not disqualified from contracting by any to which he is subject. Hence incapacity to contract may arise from

Minority Mental incompetence Status.

I Minority

Governed by the Indian Majority Act. i.e. 18 years and 21 years in case of guardian is appointed by court of words.

Minors agreement is void & not voidable

Mohari Bibi v/s Dhurmodas Ghose (1903) 30 Cal 1959.
Mortagee of the minors property had filed a suit for the recovery of his mortgaged money. It was held that a minor was incompetent to contract & hence he could not succeed in recovering the money.

Ratification of minors agreement Minors Liability for Necessaries

Minors agreement is void & not voidable

Minors Liability in tort- Jennings v/s Rundall No Estoppel against minor. Specific performance of minors agreement Minor as a partner Minor agent. Minor & Negotiable instrument Insolvent Minors marriage contracts.

Free Consent
Sec 13 Two or more persons are said to consent to consent when they agree upon the same things in the same sense. Consent is said to be free when it is not caused by

Coercion Sec 15 Undue influence- Sec 16 Fraud Sec. 17 Misrepresentation Sec 18 Mistake Sec 20.21.22

Coercion

Sec 15- Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code- 1860, or the unlawful detaining or threatening to detain any property to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

Undue Influence

Sec 16- 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 in a position to obtain an unfair advantage over the other.

Fraud

Sec 17- fraud means & includes any of the following acts committed by a party to a contract, or with his connivance or by his agent with intention to deceive or to induce a person to enter into a contract.

Fraud
The suggestion that a fact is true when it is not true & the person making the suggestion does not believe it to be true. The active concealment of a fact by a person having knowledge or beliefs of a fact. A promise made without intention to perform it. Any other act filled to deceive Any such act or omission as Law specially declares to be fraudulent.

Misrepresentation

Sec 18- Misrepresentation is a false statement which the person making it honestly believes it to be true or which he does not knows to be false.

Mistake
Mistake of Law (Sec. 21) Mistake of fact (Sec. 20)

Of inland laws

Of foreign laws

Of both the parties (bilateral Mistake)

Of only one party (unilateral mistake)

Mistake as to the subject matter regarding

Mistake as to the possibility of performance

Mistake as to the subject matter regarding

Identity

price quantity title

existence

Mistake as to the possibility of performance (Sec 56)

physical

impossibility

Legal possibility

Lawful Object
Sec 23- The objects of an agreement shall be unlawful in the following cases if it is forbidden by law If it is of such a nature, that if permitted would defeat the provision of law; If it is fraudulent, i.e. the object is to cheat the other party If it involves or implies injury to the person or property If the court regards it as immoral or opposed to public policy.

LAWFUL OBJECT

A.B & C enter into an agreement for the division amongst them of goods acquired or to be acquired by them by robbery. The agreement is void as the object is unlawful. An agreement between a landlord & tenant that the tenant would not avail himself of the protection of the Rent Act. is void as though the Rent Act. does not forbid such agreements, it would defeat the provisions of law.

An agreement between the persons to buy shares in a Co. with the object of inducing the public to believe that there is a market for such shares is fraudulent is void. Agreements to commit assault, murder or other physical injury to any person to set fire or otherwise damage some ones property would be void. Where an agreement is made to lot a house for an immoral purpose is void. Opposed to public policy- Very difficult to define. It is regarded as opposed to public if it is of such a nature that tends to prejudice the general welfare of the state, or the interest of public.

 Trading with enemy Stifling prosecution. The principle is you shall not make trade of a felony. Champerty & Maintence

Champerty

It is a bargain whereby one person promises to assist another in receiving the property in consideration of the latter giving a former a share in the property so recovered.

Maintenance

It is an agreement in which a person promise to help another by money or otherwise to continue litigation in which he himself is not interested.

Unlawful Object
Interference with the court of justice. Marriage brokerage contracts. Agreement tending to create interest against duty. Sale of public offices. Agreements tending to create monopolies. Agreement not to bid. Suicide

Consideration
Sec.

2(d): when at the desire of the promisor, the promisee or any other person has done or abstained form doing, or does or abstains from doing, or promises to do or abstain from doing. Something, such act or abstinence or promise is called a consideration for the promise

Consideration

Consideration was defined in Currie v/s Misa (1875) as some right, interest profit or benefit occurring to the one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other Abdul Aziz v/s Masum Ali (1914)36 All 268 Promise was not enforceable for there was no consideration.

Consideration

Kedar Nath v/s Gauri Mohamed (1886) 14 cal 64- Held promise would be enforceable if promisee suffers a detriment or undertakes a liability.

Legal Rules-Consideration
It must move at the desire of promisor Dura Prasad V/s Baldev (1880) 3 All 222. If may move from promisee or any other person. Stranger to the consideration will be able to sue only if he/she is a party to the contract. Chinnaya V/s Ramayya (1882) 4 mad 137.

Legal Rules-Consideration

following are the good considerations for contract Forbearance to sue Compromise of a disputed claim.

Consideration may be past, present or future. It need not be adequate It must be of some value. It must be something which the promisor is not already bound to do. It must be lawful.

Stranger to Contract (Doctrine or Privity of Contract)

A person who is not a party to the contract cannot sue upon it. But following are the exceptions:
A trust or a charge Marriage settlement, partition or other family arrangements. Acknowledgement or estoppel Assignment of a contract- eg. Holder in due course Contracts entered into through an agent. Covenants running with the land.

No Consideration-No Contract

A contract without consideration is Void (Sec 25) Exceptions25(1), 25(2), 25(3)

Void Agreements

Agreements by incompetent parties. (Sec 11) Agreements made under a mutual mistake of fact (Sec 20) Agreements the consideration or object is unlawful. (Sec 23) Agreements the consideration or object is unlawful in part. (Sec 24) Agreements made without consideration. (Sec. 25) Agreements in restraint of marriage. (Sec 26) Agreements in restraint of trade. (Sec 27) Agreements in restraint of legal proceeding (Sec. 28)

Void Agreements
Agreements the meaning of which is uncertain (Sec. 29) Agreements by way of wager. (Sec 30) Agreements contingent on impossible events. (Sec 36) Agreements to do impossible events. (Sec. 56)

Quasi Contracts

These contracts are not contracts but come into existence by a fiction of law. It may become necessary to hold one person to be accountable to another, even without any agreement between them, on the ground that otherwise he would be retaining money or some other benefit which has come into his hands to which the law regards the other person as better entitled or on the ground that without such accountability the other would suffer loss. i.e. to prevent unjust enrichment.

Quasi Contracts

Sec 68- If a person incapable of entering into a contract or any one whom he is legally bound to support is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.

Quasi Contracts

Sec. 69- A person who is interested in the payment of money which another bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other. Faiyazunissa V. Bajrong Bahador Singh. 1927 / (LucK) 275.

Quasi Contracts

Sec 70- Where a person lawfully does anything for another person, or delivers anything to him not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of or to restore the things so done or delivered.

Quasi Contracts

Sec. 71- A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.

Quasi Contracts

Sec 72- a person to whom money has been paid, or anything delivered, by mistake or under coercion must repay or return it.

Contract- Termination/Discharge/ performance

Contracts may be terminated or discharged by one of the following methods By agreements (motivation, accord & satisfaction, waiver, remission, rescission) By fulfillment or Performance By breach Sec. 39 By impossibility Sec. 56

Termination/Discharge Of Contracts
By the destruction of subject matter. By non-existence of a state of things necessary for the performance Death or personal incapacity of the promisor. Change of law Out breach of war.

Supervening Impossibility-N.A
Cases not covered supervening impossibility difficulty in performance Commercial impossibility Impossibility due to behavior of a third person. Strike, lock-outs & civil disturbances. Partial impossibility

By Lapse of time By operation of law. (Death insolvency)

Remedies for Breach of Contract Sec 73

General Damages Special damages Exemplary or vindictive damages.

Remedies for Breach of Contract

Where there is a right, there is a remedy.

Rescission of the contract. Suit for damages Suit upon quantum meruit Suit for specific performance of the contract Suit for injunction.

Suit for Damages Sec 73

Doctrine of Restitution
Hadley V. Baxendale (1854) 9. Ex 341.

1. Damages arising naturallyOrdinary damages

Naturally & directly arose- proximate consequences of breach of contract.

Compensation is not to be given for any remote or indirect loss or damage.

2. Special Damages

Special loss in case of breachdamages for loss of profit.

3. Vindictive or exemplary damages

Breach of promise to marry

Dishonor of a cheque by a banker wrongfully.

4. Nominal Damages

Has not actually suffered

5. Damages

For loss of reputation

6. Damages for inconvenience & discomfort Sec. 74

Liquidated damages & penalty

Sum in specific Payment of Interest.