LECTURE NOTES FOR BUSINESS LAWS

UNIT-1: Meaning & Nature of Law

Law of Contract-Definition –Classification of Contracts –essential elements

of a contract - Remedies for Breach of Contract.

INTRODUCTION TO LAW

• As a social being, man comes into contact with people in different capacities

• He comes into contact,

• For example:

1. with a landlord as a tenant

2. with Government as a Taxpayer

3. with customers as a seller and

4. with suppliers as a buyer.

• Inevitable consequence of modern civilization

• In all these associations, he is expected to observe a code or a set of rules.

• The word ‘Law’ is a general term and has different connotations for different people,

e.g.,

1.A citizen may think of Law as a set of rules which he must obey.

2.A Lawyer who practices law may think of Law as a vocation.

3.A legislator may look at law as something Created by him

4.A judge may think as guiding principles to be applied in making decisions

DEFINITION OF LAW

In the words of Salmond,” Law is the body of principles recognized and applied by the state

in the administration of justice.”

Woodrow Wilson has defined law as “that portion of the established habit and thought of

mankind which has gained distinct and formal recognition in the shape of uniform rules

backed by the authority and power of the government.”

• Law is not static

• laws are changed to fit the requirements of the society.

• Law prevailing in a society at any point of time must be in conformity with –

- customs and

-aspirations of its people.

• It is a real phenomenon having a real existence in relation to the facts of human affairs

OBJECT OF LAW

• The object of law is order and the result of order is that men are enabled to look ahead

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with some sort of security as to the future.

• In the context of new emerging India, the main object of law is considered to be “ to

establish socio-economic justice and remove the existence imbalance in the socioeconomic structure.”

• In the pre- independence era, the principal concern of the government was limited to

the maintenance of law and order in the country.

BUT

• The situation has changed now and the fundamental task of broadening the horizons of

the welfare state is being pursued by the legislation covering the entire gamut of social

activity

CONTRACT

DEFINITION OF CONTRACT

It is an agreement made between two or more parties which the law will enforce

Sec. 2(h) Indian Contract Act, 1872 defines a Contract as an agreement enforceable by law

Every agreement and promise enforceable at law is a Contract

An agreement creating and defining obligations between the parties

What is enforceability of an Agreement?

An agreement is defined as “Every promise and every set of promises, forming consideration

for each other”

A promise is defined thus “When the person to whom the proposal is made signifies his

assent thereto, the proposal is said to be accepted.

A proposal, when accepted, becomes a promise

To form an agreement, there must be a proposal or offer by one party and its acceptance by

the other

AGREEMENT = OFFER + ACCEPTANCE

CONSENSUS AD IDEM

The parties to the agreement must have agreed about the subject matter of the agreement in

the same sense and at the same time. Unless there is consensus ad idem, there can be no

contract.

OBLIGATION

It is defined as a legal tie which imposes upon a definite person or persons the necessity of

doing or abstaining from doing a definite act or acts

It may relate to social or legal matters

An agreement which gives rise to social obligation is not a contract

ESSENTIAL ELEMENTS OF VALID CONTRACT

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Offer and acceptance

Intention to create legal relationship

Lawful consideration

Capacity of parties – competency

Free and genuine consent

Lawful object

Agreement not declared void

Certainty and possibility of performance

Legal formalities

Offer and acceptance

There must be two parties to an agreement

One party makes the offer and other party accepts it

The terms of the offer must be definite and the acceptance of the offer must be absolute and
unconditional

The acceptance must be according to the mode prescribed and must be communicated to the

offeror.

Intention to create legal relationship

When two parties enter into an agreement, their intention must be to create legal

relationship between them

If there is no such intention on the part of the parties, there is no contract between them

Agreements of social or domestic nature do not contemplate legal relationship as such

they are not contracts

Case :( Balfour V. Balfour)

• A husband promised to pay his wife a household allowance of $30 every

month. Later the parties separated and the husband failed to pay the

amount. The wife sued for the allowance. Held, agreements such as these

were outside the realm of contract altogether

Lawful consideration

Consideration means an advantage or benefit moving from one party to the other. It is the

essence of a bargain. “something in return”

A promise to do something and getting nothing in return is usually not enforceable by law

Consideration need not necessarily be in cash or kind

It may be an act or abstinence or promise to do or not to do something

It may be past, present or future

It must be real and lawful

Capacity of parties - Competency

The parties to the agreement must be capable of entering into a valid contract

Every person is competent to contract if he

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Is of the age of majority

Is of sound mind and

Free and genuine consent

It is essential to the creation of every contract that there must be free and genuine consent of

the parties to the agreement

The consent of the parties is said to be free when they are of the same mind on all the

material terms of the contract

There is absence of the free consent if the agreement is induced by Coercion, Undue

Influence, Fraud, Misrepresentation etc.,

Lawful object

The object must not be

o Illegal

o Immoral

o Opposed to public policy

If an agreement suffers from any legal flaw, it would not be enforceable by law

Agreement not declared void

The agreement must not have been expressly declared void by law in force in the country

Certainty and possibility of Performance

The agreement must be certain and not vague or indefinite, if not it cannot be enforced

EG : A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to

show what kind of oil was intended. The agreement is void for uncertainty

“Scammel Vs. Ouston” – O agreed to purchase a motor van from S “ on hire

purchase terms”. The hire purchase price was to be paid over two years. Held,

there was no contract as the terms were not certain about the rate of interest and

mode of payment. NO precise meaning could be attributed to the words “on hire

purchase” since there was a wide variety of hire purchase terms.

Legal formalities

A contract may be made by words spoken or written

As regards the legal effects, there is no difference between a contract in writing and a

contract made by word of mouth

The document in which the contract is incorporated is to be stamped

When there is a statutory requirement that a contract should be made in writing or in

the presence of witnesses or registered, the required statutory formalities must be

complied with

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CLASSIFICATION OF LAW

CONTRACTS ACCRODING TO VALIDITY

Voidable contract

– An agreement which is enforceable by law at the option of one or more parties

thereto, but not at the option of the other or others is a voidable contract

• When the consent of a party of a contract is not free the contract is

voidable at his option

• When a party to a contract promises to perform all obligation within a

specified time, any failure on his part to perform his obligation within the

fixed time makes the contract voidable at the option of the promisee

Void agreement

– An agreement not enforceable by law is said to be void

– A void agreement does not create any legal rights or obligations

Void contract

– A contract which ceases to be enforceable by law becomes void when it ceases to

be enforceable

• A contract, when originally entered into, may be valid and binding on the

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parties, it may be subsequently become void

– Eg war or Govt. Order

Illegal agreement
– An illegal agreement is one which transgress (controversy) some rule or basic

public policy or which is criminal in nature or which is immoral. All Illegal

agreements are void but all void agreements are not necessarily illegal

Unenforceable contract

– An unenforceable contract is one which cannot be enforced in court of law

because of some technical defect such as absence or writing etc.,

CLASSIFICATION ACCORIDNG TO FORMATION

Express contract

– If the terms of contract expressly agreed upon at the time of formation of the

contract, the contract is said to be an express contract

Implied contract

– An implied contract is one which is inferred from the acts or conduct of the

parties or course of dealings between them

Quasi contract

– A quasi contract is not a contract at all. A contract is intentionally entered into by

the parties. A quasi contract is created by law. It resembles a contract in that a

legal obligation is imposed on a party who is required to perform it.

• Eg : T a tradesman, leaves goods at C’s house by mistake. C treats the

goods as his own.

• C is bound to pay for the goods

E commerce contract

– The contracts which is entered into between two parties via internet is called E

Commerce Contract

CLASSIFICATION ACCORDING TO PERFORMANCE

Executed contract

– Executed means that which is done. If both the parties have performed their

obligations, they are executed contracts

Executory contract

– Both the parties have yet to perform their obligations

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Unilateral

– When only one party has to fulfill his obligation at the time of the formation of

the contract, the other party having fulfilled his obligation at the time of the

contract or before the contract comes into existence

• A permits a railway coolie to carry his luggage and place it in a carriage.

The contract comes to an end as it places it in carriage. Now it is the

obligation of A to pay the amount’

Bilateral contract

– The obligation on the part of both the parties the contract is outstanding at the

time of formation of the contract. (Executory Contracts)

REMEDIES FOR BREACH OF CONTRACT

WHAT IS A REMEDY?

a remedy is the means given by law for the enforcement of a right.

WHEN A CONTRACT IS BROKEN, THE INJURED PARTY, HAS ONE OR MORE OF THE

FOLLOWING REMEDIES:

Rescission of the contract

Suit for Damages

Suit upon Quantum Meruit

Suit for specific performance of the Contract

Suit for injunction.

RECISSION

When a contract is broken by one party, the other party may sue to treat the contract as rescinded and

refuse further performance. In such a case, he is absolved of all his obligations under the contract.

E.g: A promises B to supply 10 Bags of cement on a certain day. B agrees to pay the price after the

receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.

DAMAGES
Damages are the monetary compensation allowed to the injured party by the court for the loss of injury

suffered by him by the breach of a contract.

OBJECTS OF AWARDING DAMAGES

It is to put the injured party in the same position, so far as money can do it, as if he had not been
injured,

I.e, in the position in which he would have been there been performance and not breach.

This is also known as DOCTRINE OF RESTITUION .

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(RESTITUTIO IN INTEGRUM)

CASE:HADLEY VS BAXENDALE

X’s mill was stopped by the breakdown of a shaft. He delivered the shaft to Y, a common carrier, to be

taken to a manufacturer to copy it and make a new one. X did not make known to Y that delay would

result in loss of profits. By some neglect on the part of Y the delivery of the shaft was delayed in transit

beyond a reasonable time. Held, Y was not liable for loss of profits during the period of delay as the

circumstances communicated to Y did not show that a delay in the delivery of the shaft would entail loss

of profits to the mill.

WHEN A CONTRACT HAS BEEN BROKEN, THE INJURED PARTY IS ENTITLED TO:

Such damages which is naturally arose in the usual course of things from such breach. This

related to ordinary damages arising in the usual course of the things.

Such damages which the parties knew, when they made the contract, to be likely to result from

the breach. This relates to Special damages.

Such Compensation is not to be given for any remote or indirect loss or damage sustained by

reason of the breach; and

Such compensation for damages arising from a breach of contract, the means which existed of

remedying the inconvenience caused by the non-performance of the contract must be taken into

account.

DAMAGES ARISING NATURALLY – ORDINARY DAMAGES

When a contract has been broken, the injured party can recover from the other party such damages as
naturally and directly arose in the usual course of things from the breach.These damages are known as

ordinary damages.

E.g.: A contracts to sell and deliver 50 quintals of Farm wheat to B at Rs.475 per quintal, the price to be

paid at the time of delivery. The price of Wheat rises to Rs. 500 per quintal and A refuses to sell the

Wheat. B can claim damages at the rate of Rs.25 per quintal.

In a contract for the sale of goods, the measure of damages on the breach of a contract is the difference

between the contract price and the market price of such goods on the date of the breach.

If, however, the thing contracted for is not available in the market, the price of the nearest and best

available substitute may be taken into account for calculating damages.

Where the subject matter of a contract is goods specially made to order and which are not marketable,
the

price of the goods is the measure of the damages.

COMPENSATION IS NOT TO BE GIVEN FOR ANY REMOTE OR INDIRECT LOSS OR

DAMAGE

E.g: A contracts to pay a sum of money to B on a specified day. He does not pay the money on that day.

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B in consequence of not receiving money on that day, is unable to pay his debts, and is totally ruined. A
is

not liable to make good to B anything except the principal sum he contracted to pay together with
interest

up to the day of payment.

EFFECT OF NEGLECT BY PROMISEE

If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of
his

promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.

E.g: A contracts with B to repair his house. B neglects or refuses to point out to A the places in which his

house requires repair. A is excused for the non-performance of the contract, if it is caused by such
neglect

or refusal.
DAMAGES IN CONTEMPPLATION OF THE PARTIES

Damages other than those arising form the breach of the contract may be recovered if such damages
may

reasonably be supposed to have been in the contemplation of the both of the parties as the probable
result

of the breach of the contract. Such damages are known as Special Damages,witch cannot be claimed as

the matter of right

SIMPSON VS LONDON & N.W.RAIL.CO.

S sent some specimens of his goods for exhibition at an agricultural show.After the show he entrusted

some of his samples to an agent of the railway company for carriage to another show ground at New

Castle. On the consignment note he wrote “Must, be at New Castle, Monday certain”. Owing, to a
default

on the part of the railway company, the samples arrived late for the show. Held, S could claim damages

for the loss of profit at the show.

VINDICTIVE OR EXEMPLARY DAMAGES

Damages for the breach of a contract are given by way of compensation for loss suffered, and not by
way

punishment for wrong inflicted. Hence, “vindictive” or “exemplary” damages have no place in the law of

contract because they are punitive by nature.

But in case of

(a) Breach of promise to marry and

(b) Dishonor of a cheque by banker wrongfully when he possesses sufficient funds to the credit of the

customer, the Court may award exemplary damages.

NOMINAL DAMAGES

Where the injured party has not in fact suffered any loss by reason of the breach of a contract, the

damages recoverable by him are nominal.

CASE : BRACE VS CALDER

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A firm consisting of four partners employed B for a period of two years. After six months two partners
retired, the business being carried on by the other two. B declined to be employed under the continuing

partners. Held, he was only entitled to nominal damages as he had suffered no loss.

DAMAGES FOR LOSS OF REPUTATION

These are generally not recoverable.

An exception to this rule exists in the case of a banker who wrongfully refuses to honor a customer’s

cheque. IF the customer happens to be a tradesman, he can recover damages in respect of any loss to
his

trade reputation by the breach. And the rule of law is :

THE SMALLER THE AMOUNT OF THE CHEQUE DISHONOURED, THE LARGER THE

AMOUNT OF DAMAGES AWARDED. BUT IF THE CUSTOMER IS NOT A TRADESMAN, HE

CAN RECOVER ONLY NOMINAL DAMAGES.

CASE : ADDIS VS GRAMOPHONE CO LTD

A was wrongfully dismissed in a harsh and humiliating manner by G from his employment. Held,

(a) A could recover a sum representing his wages for the period of notice and the commission which

he would have earned during that period; but

(b) He could not recover anything for his injured feelings or for the loss sustained from the fact that

his dismissal made it more difficult for him to obtain employment.

MITIGATION OF DAMAGES

It is the duty of the injured party to take all reasonable steps to mitigate the loss caused by the breach.

He cannot claim to be compensated by the party in default for loss which he ought reasonably to have

avoided.

That is he cannot claim compensation for loss which is really due not to the breach but due to his own

neglect to mitigate the loss after the breach.

DIFFICULTY OF ASSESSMENT

Although damages which are incapable of assessment cannot be recovered, the fact that they are
difficult

to assess with certainty or precision does not prevent the aggrieved party from recovering them.

The courtmust do its best to estimate the loss and a contingencymay be taken into account.

Case : CHAPLIN VS HICKS

himself was to select twelve out of these fifty. The selected twelve were to be provided theatrical

engagements. C was one of the fifty and by H’s breach of contract she was not present when the final

selection was made. Held, C was entitled to damages although it was difficult to assess them.

Cost of decree

The aggrieved party is entitled, in addition to damages, to get the cost of getting the decree for
damages.

The cost of suit for damages is in the discretion of the court.

LIQUIDATED DAMAGES AND PENALTY

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Liquidated damages represents a sum, fixed or ascertained by the parties in the contract, which is a fair

and genuine pre-estimate of the probable loss that might ensue as a result of the breach, if it takes
place.

A penalty is a sum named in the contract at the time of its formation, which is disproportionate to the

damage likely to accrue as a result of the breach. It is fixed up with a view to secure the performance of

the contract

QUANTUM MERUIT

It means “AS MUCH AS EARNED”

A right to sue on a quantum meruit arises where a contract, partly performed by one party, has become

discharged by the breach of the contract by the other party.

The right is founded not on the original contract which is discharged or is void but on an implied promise

by the other party to pay for what has been done.

SPECIFIC PERFORMANCE

In certain cases, damages are not an adequate remedy. The court may, in such cases, direct the party in

breach to carry out his promise according to the terms of the contract. This is a direct by the court for

Specific Performance of the contract at the suit of the party not in breach.

INJUNCTION

Where a party is in breach of a negative term of a contract, the court may , by issuing an order, restrain
him form doing what he promised not to do. Such an order of the court is known as an “Injunction”.

Case:LUMLEY VS WAGNER

W agreed to sing at L’s theatre, and during a certain period to sing nowhere else. Afterwards W made

contract with Z to sing at another theatre and refused to perform the contract with L. Held, W could be

restrained by injunction form singing for Z.