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BUSINESS LAW
Introduction /Meaning

This involves two terms Business & LAW .

Business law means law relating to the business world. Business has to be regulated
according to the Law of the land.

The Term BUSINESS may be understood as the organised efforts of enterprises to

supply to consumers with goods & services and to earn profit in the process. It is a
broad term which includes varied activities like .

Production, promotion, wholesaling, retailing, Transportation,distribution, warehousing,

financing, insurance,consultancies, etc.
LAW denotes rules & principles,either enforced by an authority or self imposed by
members of a society, to control and regulate peoples behaviour with a view to securing
justice,peaceful living & social security

LAW is a specified code of conduct which should be followed by each and everybody
in the state.

Business Law

refers to the principles and regulations established by a Govt. and applicable to people,
whether in the form of legislation or of customs and policies recognized and enforced by
judicious decision concerning business, trade,Industry & commerce

Business Law was evolved to govern & regulate business, trade, Industry &
Commerce.

Business Law in General includes, laws relating to contracts,sales of goods,

partnership, companies,Negotiable Instruments, insurance,insolvency, carriage of goods etc.
Sources of Business Law

The Important Sources of Business Law:

(1).Legislation

(2) Custom

(3) Case Law

(4) Natural Law

(5) English Law.

1. Legislation is the common source of law. Both parliament and state assemblies have enacted a number of
legislations that cover various aspects of business.
2. Custom : A substantial part of Business law is customary.& not based on science or technology. A custom when
accepted by court & incorporated in judicial interpretations becomes law.
1. Case law case law ,popularly called precedent by lawyers in judgment of superior court including a point of law
or principles which necessitates its adoption and adherence in subsequent case involving the same point.
2. Natural law Natural Justice is another source of Law. E.g. No man can be punished TWICE for the crime is a
guiding principle for any legislation.
3. English Law our business laws are largely based on English Acts applicable in England.
4. DHARMA : this fact is ignored that the main source of Law is dharmain ancient period. Even today the main
spirit behind every law is dharma
(justice nyayya???)

LAW OF CONTRACT

Law of contract is the most important and basic part of Mercantile law.

Definition of Law of Contract

Law of contract determine the circumstances in which a promise or an agreement

shall be legally binding on the person making it.

The Indian Contract Act 1872

The Indian contract Act is the most important piece of legislation affecting business.
Prior to this there was English common law.

This Indian Contract Act 1872 applies to whole of India except the state of Jammu &
Kashmir., This Act came into force on 1-9-1872.

Definition Of a Contract:

Every agreement and promise enforceable at Law is contract.

Definition of Contract as per the Act

According to Section 2(h) of the Act, Contract is an agreement enforceable at law. This
crisp definition has two important components which constitute the basis for a contract.:
1) The existence of an agreement and (2) it enforceability at law.
An agreement is defined as every promise and every set of promises ,forming consideration
for each other (Section 2(e) .
A promise is defined thus : when the person to whom the proposal is made signifies his
assent there to , the proposal is said to be accepted.

1.

A proposal(offer) when accepted becomes a promise.

2.

So an agreement is an accepted proposal.

3.

There must be one party to OFFER a proposal and another to ACCEPT the proposal.

4.

Agreement= Offer+ Acceptance

5.

Offer + Acceptance = Contract.

6.

An agreement becomes enforceable when it gives rise to a legal obligation.

7.

i.e obligation must be LEGAL Not Social or religious.

8.

The main difference between LEGAL & SOCIAL Obligation is that the former involves
money values but the latter does NOT.

9.

Enforceability of agreement is another requisite of a contract.

10.

So All Contracts are Agreements but All agreements are not contract.

Essentials of VALID Contract:

As per Section 10, all agreements are contracts if they are made by the free consent
of the parties, who are COMPETENT to Contract.

Essentials of A VALID Contract.

1)Offer & Acceptance( offerer & Offeree) lawful offer and lawful AcceptanceOffer and
acceptance together constitute an Agreement.
2)Free consent((the parties must have agreed up on the same thing in the same sense
(consensus ad idem in English law) Identity of Mind(uniformity)
3)Contractual Capacity(competent)( the parties should have attained the age of
majority,of sound mind,and not disqualified from contracting by any law )
4)Lawful consideration( something taken for something in return) Consideration is the
price for which the promise of another is bought Consideration is known as quid proquo.means some thing in return The legal maxim is Ex nudo pacto non oritur
actiomeans out of bare agreement no action arises
5)Lawful object(should not be forbidden by law/immoral or opposed to public policy, not
fraudulent, should not injurious to the person or property of other., not immoral.
6) Plurality of persons: There must be at least two persons or two groups of persons to
form a Contract. There must also be PRIVITY( knowledge) of contract between the parties.
6) Not expressly declared VOID(restraint of trade, restraint of marriage,wagering
agreement,)
7) possibility of Performance(should NOT be impossible to perform)
(a)Pre-contractual Impossibility( void ab initio) to bring honey from moon for honey moon
(b) Post-contractual Impossibility( doctrine of frustration)

8)Certainty of terms (Not VAGUE Terms)

9)Intention to create legal relationship.
10) Legal formalities( whether oral /written) but in writing is better
(Registration)Stamping , requirement of witness etc.

Right-in-personam & Right-in- rem

Right-in-personam means right against a particular person.( i.e. Against a particular

person only)

On the contrary , a Right-in-rem means rights against whole world.

A contract create right in- personam only..

For E.g . Mr. X takes a sum of loan of Rs.1000 from Y. Y has the right to recover this
amount only from Mr.X and not from any body or from the world . The right of Y against X is
a personal right.

A right- in rem ( A right against the World)

Mr. Alex purchased a house from Mr. Allwyn.

Now Alex is the owner of the house and there fore Alex has the right of quiet
possession and enjoyment against the whole world and not against Allwyn ONLY.
LAW OF CONTRACT DOES NOT CREAT A RIGHT-IN-REM, BUT IT CREATE ONLY A RIGHT-IN
PERSONAM

Classification of Contract (Types of Contract)

Contracts can be classified on the basis of three criteria:

A) Formation

B) Validity/ or enforceability

C) Performance

On the basis of formation Contracts can be classified into :

1. Express contract (2) Implied Contract(3) Quasi Contract

Classification of
Contracts

1. Express Contract : In an express contract , the terms are made clear in wrting
Or Orally at the time of entering in to agreement.In this contract the proposal and
acceptance are made in words.

2. Implied contract : In this type of contract the proposal and acceptance is made
otherwise than in words. In implied contract ,neither party will use words of promise or
explict words indicating that a contract is formed.

3. Quasi Contract (constructive contracts) This is a contract in which there is no

intention on either side to make a contract, but the Law imposes a contract. In such a
contract rights and obligations arise not by any agreement between the parties but by
operation of law. For Example

Examples ---quasi Contract

A)The finder of lost goods is under obligation to find out the true owner & return the goods.
B) when some articles are delivered to a wrong addressee , the wrong addressee(the
receiver) is under obligation either to pay for them or return them

C) person paying money owed by another.

Law recognises this obligation as a contract though there is no explicit agreement

between the giver and receiver of the benefit.
Supplier of necessities to minor, lunatics,.

Valid Contract. An agreement enforceable at law is a valid contract. An agreement

becomes a contract when all the essentials of a valid contract ,as laid down in section 10
are fulfilled.

Void contracts. An agreement which is enforceable when entered in to but which has
become void due to supervening impossibility of performance .E.g. a contract between
citizen of two countries is valid contract during peace but if war breaks out
between the two countries the agreement will become void contract.

The law will not enforce such a contract, nor can it be made valid by the parties.

Void Agreement According Section 2(g), an agreement which is NOT enforceable

by law by either of parties is void.No legal rights or obligation can arise out of void
agreement .it is Void ab initio

i.e .from its inception it is void

Voidable Contract. According to section2(i)an agreement which is enforceable by

law at the option of one or more of the parties but not at the option of the other or others is
a voidable contract.

Note that the word used here isContract and not agreement. This is the result of
absence of Free consent in the contract. This is because the rights and duties are
created and the contract is valid until the option of to avoid it is exercised by the person
whose consent to the agreement was not free but was obtained by coercion , undue
influence, fraud or ,misrepresentation

A voidable contract is one that can be set aside at the option of one of the parties
to the contract. The party who can rescind the contract is the aggrieved .The other party
who causes wrong cannot set aside the contract.

The other party who induced the consent can not take advantage of his own fraud
because he who comes into Equity(i.e before law) must be with clean hands. Thus voidable
contract is valid and enforceable until it is repudiated by the party entitled to avoid it.

Distinction between Void Contract & Void Agreement

An agreement not enforceable at law is a void agreement .

In the case of void agreement no contract comes into existance.(an agreement with a
minor is Void) Or an agreement which illegal is VOID Agreement.Void ab initio.

But incase of a void contract , a contract come in to existance, but subsequently,

ceases to be enforceable by law.
An agreement which is void never matures into a contract.
An agreement which becomes illegal in the course of performance is a case of void
contract.( war broke out)
where as an agreement which is null and void ab initio is a case of Void agreement.
( void from its very inception)

Distinction between voidable contract and void

agreement
1.Legal Effects. A Void agreement from the very beginning has no legal effects. A voidable
contract is one which one of the parties may affirm or reject at his option. It is valid and
enforceable till it is repudiated or rescinded.
2.Curability.The defect in the case of voidable Contract is curable and may be Condoned.
But void agreement is void ab initio and its defects are incurable.
3.Compensation Since void agreement is unenforceable at law there does not arise any
question of compensation on account of the non-performance of the agreement. But incase
of a voidable contract, a person is entitled to compensation for loss or damages suffered by
him on account of the non-performance of the contract.
Unenforceable Contract (but valid)
This contract is otherwise valid, but can not be enforced because of some technical defect
like absence of written form,or absence of proper stamp, or not registered etc. such
contracts will not be enforced by the courts until and unless the defect is rectified.

(C.) Classification on the basis of Performance

1.Executed contract
is one where both the parties have performed their obligation or
carried out the terms of the contracts. Or it is a completed contract.
2. Executory contract. Where the contract is yet to be performed either wholly or
partially or one or both the parties have yet to perform their obligations, the contract is
executory.
An Executory contract may be (a) UNILATERAL CONTRACT or (b) BILATERAL
CONTRACT
Unilateral & Bilateral Contracts

A Unilateral Contract is one in which one party has discharged his obligation
either before or at the time of entering in to a contract.

A Bilateral Contract is one where a promise on one side is exchanged for a promise
on the part of other party.( i.e. both the parties have to perform their obligation) i.e.
Executory contract.These are also known as contracts with executory consideration.

Legality of Object & Consideration

According to section 23 of the Indian Contract Act, an agreement of which the object
or consideration is unlawful is viod

Lawful means permitted by law

The consideration or the object of an agreement is unlawful :

A) if it is forbidden by law
B) if it is such that if allowed, it would defeat the provision of the law
C) if it is fraudulent,
D) if it causes injury to a person or his property
E) if it is immoral in nature
F) if the court regards it as opposed to public policy
In each of these cases the consideration or object of an agreement is unlawful.
Legality of the Object/ consideration

In some cases both Object and consideration may be the same., but they are
normally distinct.

The word Object means purpose or design. The consideration refers to the benefit
accruing to each party in a contract.

In some cases consideration for an agreement may be lawful, but the object for
which the agreement was entered may be unlawful.

Meaning of some of the requirements of lawful Object

& consideration

1. forbidden by law

An act or undertaking is forbidden by law:-

A) when it is punishable under criminal law of the country

B) when it is prohibited by special legislations or regulations made by a competent

authority.

2. if it defeat any law. Some times the consideration for an agreement may not be
directly forbidden by law, but if permitted ,may defeat the provisions of any law.

Example. As estate is sold for arrears of revenue under the provisions of an Act of
the legislature by which the defaulter is prohibited from purchasing the estate .B, up on an
understanding with A ,becomes the purchaser , and agrees to convey the estate to A up on
receiving from him the price which B has paid. The agreement is void,as it renders the
transaction,in effect a purchaser by the defaulter and so defeat the object of the law.(Mohan
lal VS. Udai Narayan)
3. If it is Fraudulant

Agreement which are entered into for promoting fraud are void.

E.g. An agreement to for sale of goods for the purpose of smuggling them out of the country
is void ,and the price of the goods if sold can not be recovered.
4.If it involves or implies injury to the person or property
down anothers house is unlawful.

An agreement to pull

5. If the court regard as immoral Immoral means inconsistent with what is right. E.g. A
advances money to B , a married woman to enable her to get a divorce from her husband
and B agreed to marry him as soon as she get divorce. It was held that A is not entitled to
recover back the money as the object was immoral( bai Vijli Vs Nansa Nagar)
6.if the court regards it as being opposed to public policy.
This includes any activity that may harm public safety ,health or morals or against
general welfare this term may vary case to case.

Agreements Opposed to public Policy

1. Trading with enemy
2.stifling prosecutions (forceful preventions of cases in the court of law)
3. maintenance of Champerty.(an Unethical Agreement)
4.Traffic relating to public offices
5.Agreements tending to create interest opposed to duty
6.Marriage brokerage agreements
7.Agreements tending create monopolies
8.Agreements to influence elections to public offices.
9. Agreement in restraint of personal liberty
10. Agreements interfering with marital duties

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