Business Law

Business Law

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 BusinessFactors Constituting the Business

Environment

Meaning & Nature of Law

What is Law? ( Legally Accepted Ways)Law to ; A Citizen A Lawyer A Legislator A Judge “A set of rules derived by the State to regulate the conduct of

its people, recognized by the State and enforced by it on its people termed as Law”

“Business Law represents all those legal rules which are connected with Trade, Industry & Commerce”

Nature of Law -- Changing (Non Static) Objective – Establishing Order

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”

Classifications of Law

Public Law / Private Law Criminal Law / Civil Law Substantive Law / Procedural Law International Law / Municipal Law Public International Law / Pvt. Int. Law

Sources of Business Law

English Mercantile Law Business Customs & Usages Statute Law Judicial Decisions of Higher Courts / System

of Precedents

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”

Nature of Indian Contract Act, 1872

Provides for remedies against failure The conditions under which remedies are available Ensures realization of reasonable expectation of

the parties Not as exhaustive act (deals with the general

principles of law of contract and some special contracts only)

Doesn’t lay down limits & duties rather create limiting principles

The act is neither the whole law agreements nor whole law of obligations

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

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

What is a Contract ?

An Agreement Enforceable by lawMade between atleast two partiesBy which rights are acquired by one, &Obligations are created on the part of

anotherAnd on failure, the other party has a remedy.

AGREEMENT & ENFORCEABILITY

Every promise and very set of promises

forming consideration for each other.

Enforce by law“All agreements are

not contracts, but all contracts are agreements”

Essential Elements of a Valid Contract

Offer & Acceptance Intention to create a legal relationship Lawful consideration – (advantage/benefits moving to

& from - between the two parties) Capacity (Competency) of Parties – (age/sound

mind/not disqualified to enter) Free & Genuine consent of the parties – (undue

influence, fraud, misrepresentation may cause absence of free consent)

Lawful Objects Must not have been expressly declared Void Certainty & possibility of performance Legal Formalities

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-Executed Consideration /Bilateral – Executory Consideration)

Offer & Acceptance

“A person is said to have made an offer/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 that other to such act or abstinence” – Section 2 (a)

Offerer/Proposer/Promisor Offeree/Proposee/Promisee/Acceptor

Offer - Legal Rules

Offer must be such that is capable to be accepted in law and gives rise to legal relationship

Terms of offer must be definite, unambiguous and 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

Offer must be made with a view to obtaining the ascent

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

Acceptance & Legal Rules

Acceptance is the act of assenting by the Offeree 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

Revocation or Lapse of Offer

By Communication of Revocation Death of insanity of either party before

acceptance By lapse of time (if not accepted within the

prescribed time) Non fulfillment of specific condition If a counter offer is made If the acceptance is not according to the

prescribed mode and the Offeree is informed Revocation & Rejection

Consideration

When A promises to do ‘something’ A must get ‘something’ in return – this something is known as ‘consideration’ (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

already bound to do It must not be illegal / immoral Stranger to the Contract

Contract without Consideration (Exceptions)

Love & Affection [Sec 25 (1)] -- A registered agreement between near relatives based on natural love & affection is enforceable.

Compensation 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

Capacity to Contract

As per Sec. 10 an agreement becomes a contract if it is entered into between the parties competent to contract.

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

a) Minorsb) Persons of unsound mindc) Persons disqualified by from

contracting Alien Enemies / Corporations / Insolvent /

Convicts

Free Consent

Sec. 13 “two or more persons are said to be consented when they agree upon the same thing in the same sense”

A consent is said to be free when it is not 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

Legality of Object

Sec 23 declares that object & consideration of a contract should be lawful

Consideration & object could be unlawful:-a) If it is forbidden by lawb) If it is of such a nature that, if permitted, it would defeat the provisions of any lawc) If it is fraudulentd) If it involves or implies injury to the person or property of anothere) If the court regards it as immoralf) If the agreement opposed to public policy

Void Agreements

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

Agreements by incompetent parties-(Sec11) Agreements made under a mutual mistake of fact

(Sec 20) Agreements, the consideration or object of which

is unlawful (Sec 24) Agreements made without consideration (Sec 25) Agreements, meaning of which is uncertain (Sec

29) Agreements to do impossible acts (Sec 56)

Contingent Contracts

Contract may be Absolute OR Contingent Absolute contract is one in which the promisor

binds himself to performance in any event unconditionally

A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen (Sec 31)

3 essential characteristics of Contingent. Contract; Its performance depends upon happening or non-happening of

some event in future The event must be uncertain The event must be collateral, i.e. incidental to the contract

Performance of Contract

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

By whom the contract must be performed; Promisor himself, Agent, Legal Rep., Third Person,

Joint Promisors. Devolution of joint liabilities (Sec 42 to 44) (When 2

or more Promisors have made the promise, they are known as the joint promisors)

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 may claim contribution, sharing of loss arising from default of one (43 para 1,2,3)

Discharge of Contract

Discharge of contact means termination of the contractual relationship between the parties. A contract may be discharged by;

Performance Agreement of Consent Impossibility Lapse of time Operation of law Breach of contract

Remedies for Breach of Contract

A remedy is the means given by law for the enforcement of right

When a there is breach of contract, the injured party has one or more of the following remedies;

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

Quasi Contracts

Law of Quasi Contract – 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 of

any agreement. Sec. 68 -72 deals with following kinds of quasi-

contractual obligations; Supply of necessaries Payment by an interested person Obligation to pay for non-gratuitous Responsibilities of finder of goods Mistake or Coersion Quantum meruit >> ‘as much as erned’ Compensation for failure to discharge obligation created

by quasi contracts

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 promisor himself, or by the conduct of any other person, is called a ‘contract of indemnity’. (sec 124)

Promisor >> indemnifier & the promisee >> indemnity holder

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

Rights of indemnifier (the act is silent)

Guarantee

(Sec. 126)A contract of guarantee of a contract to perform

the promise or discharge the liability of a third person in case of 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 impliedEssential 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)

Contract of Indemnity v/s Contract of Guarantee

CoI

Two parties Liability is Primary Only one Contract Indemnifier not to act on

the request Of indemnified

Liability arises only in case of as Contingency

CoG

Three Parties Liability is Secondary Total three contracts Surety to give

guarantee upon debtor’s request

Debt/duty already exists the performance of which has been guaranteed by the surety

A few features

Nature of surety’s liability (coextensive/limitation)

Kinds of guarantee (specific / continuing) Revocation of Continuing Guarantee

(notice/death etc.) Discharge of Surety (surety’s liability ends) (revocation/creditor’s conduct/invalidation)

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 the purpose is accomplished be returned or disposed off as per the directions given by the person delivering them. One who delivers called ‘Bailor’ and to whom delivered called ‘Bailee’. -- (sec. 148)

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

Duties of Bailor (disclose known faults/bear extraordinary expenses of the bailee/receive back the goods/indemnify bailee in case of premature termination)

Contd…

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 (sec 170) Only those goods Against which

services have been rendered ii) General Lien (sec 171)All the goods which are in possession (bankers/attorneys)

Pledge

Bailment of goods as security for payment of a debt for performance of a promise is called ‘pledge’; in this 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 is

for a purpose of any kind In case of default, pawnee may sell the pledged

goods, bailee may either retain the goods or sue for his charges

In case of pledge, the pawnee cannot use the goods pledged, in case bailment bailee may do so if the contract so provides

Contract of Agency

Ch. X (sec. 182-238) of Indian Contract Act 1872An Agent is a person employed to do any act for

another, or to represent another in dealings with third person(s) --- [sec. 182]

Person who represent called “Agent” Person who is represented called “Principal”Essentials of Agency Relationship;Agreement btn. Principal and the Agent (no

consideration is necessary to create agency) &Intention of the Agent to act on behalf of the

Principal

A few features

Creation of an Agency: Express Agreement/ImpliedAgreement/Ratification

Duties of Agent :to carry out work undertaken as per instructions/to carry out work with reasonable care,skill & dilligence/to render accounts to the Principal/not to deal on his own account/to pay sums received for the principal/to protect & preserve interest of the principal in case of his death or insolvency/not to use the information obtained in the course of agency against the principal/not to make secret/not to delegate authority

Sale of Goods Act 1930

Chapter VII of the Indian Contracts Act 1872 (contained the provisions earlier)

Sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.[sec. 4 (1)]. Sale & Agreement to SellEssentials of Contract of Sale (Two parties-Buyer & Seller, Goods, Price, Transfer of Property, Essential elements of a valid contract)Sale & Hire Purchase AgreementSale & barter or exchangeSale & bailmentPrice here means the money consideration for a sale of goods [sec 2 (10)]Earnest (some tangible thing as a token)

Negotiable Instrument Act 1881

A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. [sec 13]

A few Characteristics;freely transferable, title of holder free

from all defects, recovery Types; i) negotiable by statute(promissory notes, bill of

exchange and cheques)ii) negotiable by custom or usage (Bankers draft or

pay order, hundis, delivery orders and railway receipt for goods)

Notes, Bills and cheques

A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money nly to or to the order of cerain person, or to the bearer of the insturment [sec 4]

Elements (Writing, promise to pay, definite & unconditional, signed by the maker, signed by the maker, certain parties, certain sum of money, promise to pay money only, bank note or currency note is not a promissory note-as those are money itself, formalities like number, date, place etc.)

A bill of exchange is an instrument in writing containing and unconditional order, signed by the

Contd….

maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument [sec 5]

Parties to the bill - three (drawer, drawee, payee)

Elements (writing, contain an order to pay, order must be unditional, requires 3 parties, sum payable must be certain)

A cheque is a bill of exchange drawn upon a specified banker and payable on demand [sec 6]

Dishonour of a Negotiable Instrument

A bill may dishonoured by non-acceptance(since only bill required acceptance) or by non payment. A promissory note or a cheque are dishonoured by non payment only. (sec 91 & 92)

When a negotiable instrument is dishonoured either by non-acceptance or non-payment, the holder of the instrument must give notice to all concerned.(sec 93)

Notice of dishonour could be oral or written and must be sent within a reasonable time.

A drawer of dishonoured cheque shall be deemed to have committed an offence. For which without prejudice to any other provision of this act, be punished with imprisonment for a term which may extend to one year OR with a fine which extend to twice the amount of the cheque OR with both

The Consumer Protection Act, 1986

The act seeks to provide better protection to consumers’s rights. Such as rights to;

Be protected against mktg. of products hazardous to life & property

Be informed about the qlty, qty, ptency, purity, standard and price of products against unfair trade practices

Be assured access to products at competitive prices Be heard and to be assured that the consumers’

interest will receive due consideration Seek redressal against unfair trade practices Consumer education The act provides for establishment of quasi-judicial

machinery at district, state & centre level for speedy & simple addressel.

Disputes Redressal Agencies

Consumer Disputes Redressal Forum (The Disctrict Forum) ---- [sec 10 to 15]

A person who is, or has been, or is qualified to be a District Judge, shall be its President

Two other members of proven track record (one of whom shall be woman)

Term of office (5 yrs or 65 yrs of age whichever is earlier)

Jurisdiction : To entertain complaints where the value of the products and the compensation, if any, claimed do not exceed Rs. 500,000/-

Consumer Disputes Redressal Commission

The State Commission [Sec 16 to 19] A person who is or has been a Judge of a High

Court, shall be its President >>State Govt. appoints under consultation with CJ of HC

Term is 5 yrs or 67 yrs of age, whichever is earlier Jurisdiction: 1. >5 lac but not more than 20 lac,

2.Appeals against the order of District Forum National Commission [Sec 20 to 23] A person who is or has been a Judge of Supreme

Court, shall be its President>>Central Govt. appoints under consultation of CJ of SC

Term 5 yrs or 70 yrs of age, whichever is earlier Appeal against National Commission can be done in

SC within 30 days

MRTP Act 1969

The act aims at; Preventing concentration of economic power Prohibiting monopolistic trade practices Prohibiting restrictive/unfair trade practices Constitution of MRTP Commission: Sec 5 of the Act requires Central Govt. to

constitute a commission (MRTPC) act mgmt. The commission will have a Chairman & min. 2

or max. 8 members Term is 5 yrs, can be reappointed for 2nd term

only OR 65 yrs of age whichever is earlier

Powers of MRTPC

Powers Of a Civil Court To enquiry and pass final order To make enquiry & express opinion To grant temporary injunction To award compensation To enforce orders of MRTPC To investigate whether the orders are being

implemented To punish for contempt To regulate the procedure

The Patent Act 1957

The act describes the procedure for grant of patent and protect his rights against infringement

Application for Patents: A patent application can be made by-i. Any person claiming to be the true and first inventor of the

inventionii. Any person being the assignee of the above person The legal rep. of any deceased person, who immediately

before his death was entitled to make such an application The Specification [sec 10]: A description of the invention is

called the specification. Examination of Applications Exclusive Marketing Rights (Application & Grant) Opposition to Grant of Patent (within 4 mnths of ad) Working of Patents

The Copyright Act, 1957

The govt. has established a copy right office under the control of Registrar of Copyrights.

The govt. has also constituted a Copyright Board. The registrar of copyrights is the Secretary of the Board. The board shall be deemed to be a civil court.

The board will have a Chairman, who is or has been a Judge of a HC or is qualified to be a Judge of a HC.

The copyright subsists in; a)original, literary, dramatic, musical and artistic works; b)cinematograph films and c) sound recordings

Meaning of Copyright

Contd…

Registration of Copyright [sec 44-50] Infringement of Copyright [sec 51] Civil Remedies for Infringement [sec 55]

The Companies Act, 1956

An artificial person – has no body, no soul A voluntary association of persons It is not seen in physical form, but it exists and is not

fictitious entity A separate legal entity, a limited liability, can be

created & put to an end only by law It has its nationality and residence but is not a cityzen Company v/s Partnership Chartered/Statutory/Registered Co. Private & Public Limited Cos. Formation of Co. (Name approval/submission of docs.) Certification of Incorporation The Promoter

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