business law.pdf

MBA S1 LEGAL ENVIRONMENT OF BUSINESS LAW Law is a system of rules and principles established by a society or government to regulate behavior and maintain order. These rules are enforced through institutions such as courts and law enforcement agencies. It can be divided into various branches...

MBA S1 LEGAL ENVIRONMENT OF BUSINESS LAW Law is a system of rules and principles established by a society or government to regulate behavior and maintain order. These rules are enforced through institutions such as courts and law enforcement agencies. It can be divided into various branches, including criminal law, civil law, constitutional law, and administrative law, among others. LEGAL SYSTEM A legal system is the framework of rules, institutions, and practices that a society uses to regulate behavior, resolve disputes, and administer justice. Purpose of the Legal System The legal system is designed to resolve disputes, protect rights and freedoms, maintain social order, and uphold justice. It provides mechanisms for enforcing laws and ensuring compliance. Sources of Law: Constitution: The foundational legal document that outlines the structure of government, the rights of individuals, and the limits of governmental power. Legislation: Laws passed by legislative bodies such as parliaments or congresses. Judicial Patterns: Court decisions that interpret laws and can serve as a guide for future cases. Customs and Traditions: Practices that have gained legal recognition over time. Structure of the Legal System Courts: Different levels of courts (e.g., trial courts, appellate courts, supreme courts) that interpret and apply the law. Law Enforcement Agencies: Bodies responsible for enforcing laws, such as the police. Legal Professionals: Judges, lawyers, and other legal practitioners who work within the system to uphold the law The Indian Contract Act of 1872 A comprehensive legislation that lays down the legal framework for the creation, performance, and enforceability of contracts in India. It is one of the oldest and most fundamental laws governing contracts and forms the backbone of Indian commercial law. Definitions Contract: An agreement enforceable by law (Section 2(h)). Agreement: Every promise and every set of promises, forming the consideration for each other (Section 2(e)). Promise: When a proposal is accepted, it becomes a promise (Section 2(b)). Essential Elements of a Valid Contract: Agreement : When One person makes a valid proposal and other person accepts it we cam say that its an agreement Consensus ad idem: Identity of minds between Parties. Agreement with same sense and at same time. (Example New and Old Car) Offer and Acceptance: One party must make an offer, and the other must accept it (Sections 3-9). Lawful Consideration: Something of value must be exchanged between the parties (Section 2(d)). Capacity of Parties: Parties must be competent to contract, meaning they must be of legal age, of sound mind, and not disqualified by law (Section 11). Legal Formalities: An Agreement may be oral and In writing.  Free Consent: Consent must be given freely and not obtained through coercion, undue influence, fraud, misrepresentation, or mistake (Sections 13-19). Lawful Object: The purpose of the contract must be legal and not contrary to public policy (Section 23). Not Declared Void: The agreement must not be explicitly declared void by the Act (Section 10). Nature of Law of Contract “ All contracts are agreements but all agreements are not contract” Classification of Contracts Classification Based on Validity or Enforceability: Valid Contracts: Contracts that meet all the essential elements of a contract and are legally enforceable. Void Contracts: Contracts that are not enforceable by law from the outset, due to illegal or impossible terms. For example, a contract to commit a crime is void. Voidable Contracts: Contracts that are enforceable at the option of one party, but not the other. For example, a contract entered into under force is voidable by the aggrieved party. (Contract with minor) Unenforceable Contracts: Contracts that cannot be enforced in a court of law due to some technical defect, such as lack of proper documentation. However, they are not void. (Example Due to flood) Illegal Contracts: Contracts that involve unlawful activities or are against public policy. These contracts are void and cannot be enforced. Classification Based on Formation: Express Contracts: Contracts where the terms are explicitly stated in words, either written or spoken. For example, a written employment agreement. Implied Contracts: Contracts formed through the conduct or actions of the parties, rather than through written or spoken words. For example, boarding a bus implies a contract to pay the fare.  Quasi-Contracts: Not real contracts but obligations imposed by law to prevent unjust enrichment. For example, if a person accidentally receives money not meant for them, they are obliged to return it. Classification Based on Performance: Executed Contracts: Contracts where both parties have fully performed their contractual obligations. For example, a completed sale where payment has been made and goods delivered. Executory Contracts: Contracts where one or both parties have yet to perform their contractual obligations. For example, a contract to deliver goods at a future date. Unilateral Contracts: Contracts where one party makes a promise, and the other party performs an act in exchange for that promise. The contract is formed when the act is performed. For example, a reward offer for finding a lost pet. Bilateral Contracts: Contracts where both parties exchange mutual promises. Each party is both a promisor and a promisee. For example, a contract for the sale of goods where one party promises to deliver the goods, and the other promises to pay. Classification Based on Nature of Obligation: Contracts of Record: Contracts that are recognized by a court of law and have a special status, such as decisions and recognizances. Simple Contracts: Contracts that are not under seal and can be written, oral, or implied. Most everyday contracts fall under this category. Contracts Under Seal (Specialty Contracts): Formal contracts that are signed, sealed, and delivered, traditionally known as deeds. Classification Based on Purpose: Contracts of Sale: Agreements for the transfer of ownership of goods or property in exchange for money. Contracts of Service: Agreements where one party agrees to perform services for another in exchange for payment. Contracts of Indemnity and Guarantee: Contracts where one party agrees to compensate the other for any loss or damage and where a guarantor assures payment or performance in case the primary party fails. Contracts of Agency: Contracts where one party (the agent) agrees to act on behalf of another party (the principal). Contracts of Bailment: Agreements where one party temporarily transfers possession of goods to another party, with the understanding that the goods will be returned or otherwise disposed of according to the contract's terms. Offer and Acceptance "When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act he is said to make a proposal” Person making the proposal: proposer or offeror Person to whom the proposal is made: offeree Essentials of Valid Offer Must Create legal Relation (Invitation for a dinner? ) Terms of offer should be clear and definite Offer must communicate to offeree Special conditions in offer should communicate Offer may be general or specific Offer must be conditional ( Only if the condition is satisfied) Kinds of Offer Standing Offer: continuous supply of certain articles at certain rate over a definite period. Counter offer : A counter offer is a rejection of original offer and has the effect of making new offer. Cross offer: When two parties make identical offers to each other ,in ignorance of each others offer. Acceptance Giving consent to an offer by the offeree. Types of acceptance Express and implied acceptance : Essentials of Valid Acceptance 1. Acceptance must be absolute and definite : 2. Acceptance must communicated to the offeror: 3. Acceptance must be made with in a reasonable time: 4. Acceptance must be according to mode prescribed : 5. Acceptor should aware about the proposal at the time of acceptance 6. Acceptance cannot be implied from silence When Does an Offer Comes To an end? By notice of Revocation : notice from offeror to offeree By lapse of Time: When time lapse the proposal comes to an end By death and Insanity: By Rejection ,(Counter Offer) By non acceptance of the offer in the prescribed mode: Capacity Of Parties Following persons are incompetent to contract 1. Minor 2. Persons of Unsound Mind 3. Persons Disqualified from contracting by law Minors Person who is not major According to section 3 of Indian majority act 1875 a person who has not completed 18 years of age is a Minor. Exceptional Cases Where a guardian is appointed by the court under the guardians and wards act 1890. A Minor is considered to an immature person and therefore law guards him against his own inexperience and immaturity. Rules Regarding Minors Agreements 1. An agreement with or by a Minor is void. (Section 10) 2. A minor can be a promise or a beneficiary. 3. No Ratification (No approval From the Beginning) 4. No estoppel (No legal Permission) 5. No Insolvency 6. Minor can be an Agent 7. Minor as a partner ( Cannot be partner, but can earn benefits) Persons of Unsound Mind 1.Idiocy. An idiot Person whose mental faculties are not fully developed. A person of arrested Mental Growth. 2. Lunacy. When a person loses his mental balance and faculties due to reason of mental strains , diseases etc. 3. Drunkenness. A person who is under the heavy influence of heavy toxicants is incapable of entering into contract Persons Disqualified by any other law Alien Enemies : Alien means a person who is not a citizen of india. (Declaring War) Insolvent : An insolvent cannot enter into contract as his property is vested with the official Receiver. Foreign Sovereigns and Ambassadors : Corporations: They have separate legal entity. Convicts : A convict is a person who is undergoing imprisonment. Free Consent “Two or more persons are said to be consent when they agree upon the same thing in same sense.” 1. Coercion (Sec 15) 2. Undue influence ( Sec 16) 3. Fraud (Sec 17) 4. Misrepresentation (Sec 18) 5. Mistakes (Sec 20,21,22,) Coercion Committing or threatening to commit any act forbidden by the indian penal code. Agreement consent to which is obtaining by coition is voidable contract. (Option by the party) Undue Influence “The Relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the others and uses that positions to obtain an unfair advantages over the other” Example: Relation between master and servant , advocate and client, Doctor and Patient Etc. Coercion and undue influence Coercion involves the use of physical force while undue influence involves moral pressure. Coercion –may not have relation between the parties, Undue influence the relation between the parties should be such that to dominate the will of the other. Coercion involves the criminal liability whereas undue influence does not involve any criminal liability. Coercion is a void contract and Undue influence is voidable. Fraud “When a false statement is made to another person to induce him to enter into contract and the person making the statements has an intention to deceive the other person it can be termed as fraud.” Elements of Fraud There must be a false representation. The representation must be made with a knowledge that it is false. Must made with the intention to deceive the other party. Misrepresentation “Misrepresentation is a false statement which the person making it honestly believes to be true or which he does not know to be false”. Mistake Mistake may happen related with the subject matter (quality, quantity etc) Unilateral or bilateral Mistakes