Unit 1

Business Law
1
Indian Contract Act, 1872
Syllabus- Business Laws

• Unit-1: Indian Contract Act -1872
• Unit-2: Sales of Goods Act -1930
• Unit-3: Company Act -1956 (2013)
• Unit-4: Consumer Protection Act -1986
• Unit-5: The Right to Information Act -2005

Suggested Books Business
Laws
• Elements of Mercantile Law : N.D. Kapoor
• Business Law : MC Kuchhal & Vivek Kuchhal
• Business Law for Managers: Prof(cmde) P.K. Goel
• Legal Aspects of Business : Daniel Albuquerque
• Business law for management : K.R. Bulchandani

Meaning & Nature of Law

• The term Law has many meaning in common usage:
• Laws of Physics, Mathematics, Science
• Laws of football, games etc
• Laws of medicine ,
• Laws related to nature, health etc
Law means:
• Any rule of conduct , standard or pattern to which actions
are required to conform.
• If these standards are not confirmed to, sanctioned are
imposed for violation of laws/rules.
• When we say laws of a state, We use the term law in a
special & strict sense because it has its source in the
state’s sovereign authority.
Characteristics of Law
• Body of Rules
• Guidance for conduct of People
• Imposed on members
• Enforced by Executives
• Presupposition of State : A state is a territorial division &
the people in the state are subject to a uniform system of
law administered by some authority of the state. Thus the
law presupposes the state.
• Content: The law is a living thing & responds to the public
opinion & changes through out the course of history.
Laws can never be static
Characteristics of Law
• Basic Ideas:Two basic ideas involved in the law are to:-
a) Maintain some form of social order in a group
b) Compel members of the group to be within that order.
c) Rules are made by members of a group so that group
does not wither away.
Purpose of Law-Laws are created for a purpose- Social ,
economic or political. Laws may include:-
a) Moral rules or etiquette, non observance of which may
lead to public ridicule. & chaos.
b) Laws of the land, non observance of which may lead to
arrest , imprisonment ,fines etc.
c) Rules of International law, the non observance of which
may lead to social boycott, trade sanctions, cold war, hot
war, proxy war etc.
Ignorance of Law is no excuse

• Every member of the society is expected to conform to a
set pattern of legal rules
• For this purpose he/she is presumed to know legal rules.
• A person can not take the plea that he/she did not know the rules
• While it may not be feasible to learn & know all the laws of the land,
a person can obtain expert guidance from person who possess legal
knowledge & can have access to books on law & to legal experts.
Therefore the maxim “Ignorantia juris non excusat” places
a burden of gaining knowledge on law on every member
of the society.
In other words ignorance of law is not a good excuse.
Indian Contract
Act, 1872
8
1. Definition of Contract & Essential elements of a contract
2. Offer & Acceptance
3. Consideration
4. Legality of object , Capacity to contract & Free Consent
5. Modes of Discharge
6. Breach & Remedies
9
Business Law
Law of Contract is the basis upon which the

super structure of all business is built.
 The fabric of modern industrial society is woven around
economic relationships.
 The relational integration and determination of mutual

rights and obligations are dependent, to a great extent, on ex
contractum terms.
 Contracts arising out of economic and social relationships.
 Such relations are either contractual or akin to a contract.
 The market functions on the very premise of effective

functioning of contractual relationship.
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1. All contracts are based on Agreements which are either

expressed or implied.
2. Everyone of us enters into a number of contracts every day ,
most of the time without realizing what we are doing from the
point of law.
Examples of contracts
a) Buying milk , bread & many food items, grocery etc
b) Buying movie or Train/Airline ticket.
 In business transactions normally first promises are made

followed by performance.
 If the parties were to go back on their promises without
incurring any liability it would be impossible to carry on any
trade, industry or commerce.
11
Business Law
Why have Law of contract?
1. Law of contract made to lay down rules for:-

 performance & discharge of a contract.
 Specify remedies for the aggrieved party in case of
breach of contract.
 Sir William Anson has observed :-
 The law of contract determines the circumstances
in which promises made by the party to the
contract shall be legally binding on them.
 Law of contract furnishes the basis of other
branches of Business Laws e.g Law of sale of goods,
negotiable instruments act, IPR laws etc
12
Business Law
13
Contract Act
Lesson -2
Contract Act
1. Definition , Meaning of Agreement & Contract
2. Offer & Acceptance
3. Essential Elements of a valid Contract
4. Void Agreements
5. Difference between Illegal Agreement & Void Agreement
15
`The term “Contract” in ordinary sense means an

agreement between two persons.
The law of contract seeks to regulate the behavior

of persons who make contracts, so that any
conflict arises between these persons later may
be resolved.
Meaning of Contract:
Sec. 2 (h) defines a contract: “ An agreement
enforceable by law is a contract.”
e.g. Mohan makes an agreement with Suraj to
sell him some goods for Rs. 25000.
16
Business Law
Meaning of Contract: Sec. 2 (h) defines a contract:
 An agreement enforceable by law,
 made between at least two parties by which,
 rights are acquired by one & obligations are

created on the part of another.
 If the party which had agreed to do something ,

fails to do that, then the other party has a
remedy.
Examples : Mohan buys ticket from an Airline for the journey

from Delhi to Mumbai on 30th Dec to celebrate the New Year
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eve at Mumbai
-
Balbir invites a friend Sohan to dinner. He makes
elaborate preparations. Sohan fails to turn up for
dinner and all the preparation made by Balbir go
waste.
Since this was a social contract between the parties,
B can not take S to court for legal action against him
for breaking the commitment to come for the dinner.
• How could it be said that the above was not a

contract ?
• although it was clearly an agreement between the

two friends?
• Social Agreements do not give rise to legal
consequences.
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An analysis of the definition of contract shows that a

contract must have following two elements :-
1. An agreement &
2. Its enforceability( legal obligation)
 Contract = Agreement + its enforceability
What is an agreement
 Every promise & every set of promises forming the
consideration for each other is an AGREEMENT.
 A proposal when accepted becomes a PROMISE

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 An Agreement consists of two elements-
 Offer or proposal by one party &
 acceptance there of by the other party.
 Agreement = Proposal(offer) + Acceptance of proposal (or

offer)
 The party making the offer or proposal is known as offerer

or proposer; the party to whom the offer is made is known
as offeree. 20
 An analysis of definition of Agreement reveals following

characteristics of an Agreement:-
1. Plularity: There must be two or more than two persons to make
an agreement
2. Consus-ad-idem: Both the parties to an agreement must agree
about the subject matter of the agreement in the same way & at
the same time
What constitutes a contract?
 Often a dispute centers on whether some one has violated a
contract but whether there was a contract in the first place .
 Other disputes centre on whether a change in circumstances
has made the contract unenforceable.
Essentials of Contract.
 Section 10 provides that all agreements are contracts if they are
made by free consent of parties, competent to contract, for a
lawful consideration, & with a lawful object, & are not expressly
declared by law to be void.
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Essentials of Contract.
 The party making the offer or proposal is known as
offerer or proposer; the party to whom the offer is
made is known as offeree.
 When the offeree gives his assent to the offer, then
he is known as ‘Acceptor’.
 At the time of entering into a contact , parties must

be thinking of the same thing(say about the subject
matter of the contract) in the same sense.
 In other words they must have what is known as
consensus ad idem.
 Their mind must meet about the different facets of
the subject matter of the contract.
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Essential of Valid Contract

1.An Agreement involves an offer and acceptance:
a) Agreement = Proposal + their acceptance
b) Agreement : Must made by two person, one is
making offer and another is accepting this offer.
2.Intention to create legal relation
-Court would like to measure the degree of
seriousness.
 Not every loose conversation, not any exchange of
pleasantries, not a casual social commitment,
considered as a contact.
 An agreement of pure social or domestic nature is
not a contract.
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3.Competentnce of Parties
 Everybody is able to make contract except
following:-
1. Minor,
2. Person of Unsounded mind,
3. Person who are disqualified by any other law.
 The flaw in capacity of parties to contract may be

due to minority, lunacy, idiocy, drunkenness or
status.
 If a party to a contract suffers from any of these

flaws, the contract may not be valid .
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4.Consideration
 “Something in Return”
e.g. B promise to S that He will buy his bike for
Rs.35000. Rs 35,000/- is the consideration.
5.Free Consent
 If the parties make the agreement . without any kind
of pressure or misguidance, then the agreement .
would be the result of Free Consent.
 Consent will not be free if it is obtained by
misrepresentation, fraud, undue influence, coercion
or mistake.
 If in a consent any of these flaws is present , the

contract may not be valid
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6.Lawful object and consideration

e.g. I will kill you Mr. if you will not give me 100 gram
of Smack(drug). ( Here object of contract is unlawful)
7.Not expressly declared void (Cancelled) Following

type of agreements are always void i.e. without
legal effect because of their nature.
I. e.g. Agreement made without consideration
II. Agreement to do impossible act.
III. Agreement the meaning of which uncertain etc.
8.Certain Formalities
-Necessary fulfillment of certain formalities for
making certain specific types of contract
-Made in written or in presence of witness.
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Case Law
Example-1
• A invited B for a dinner together
• B accepts the offer. A hires a taxi but B does not turn up.
• A has to pay to restaurant some compensation. for the order of
dinner & also taxi charges.
• Can A recover the cost of taxi & dinner order from B?
Example-2
• V offer to donate Rs. 11000 to hospital. The hospital accept the offer.
V thereafter does not give donation.
• Can it recover the amount from V?
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OFFER
AND
ACCEPTANCE
28
Business Law
OFFER AND ACCEPTANCE

• Formation of Agreement required two
steps ,
making of a proposal by one person and
acceptance of this proposal by other.
• Agreement= Offer + Acceptance
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The Proposal or Offer

Sec. 2 (a) defines an offer in these words:
“When one person signifies to another his
willingness to do
or
to abstain from doing anything,
with a view to obtaining the assent (acceptance)
of that other to such act or abstinence, he is
said to make a proposal”
e.g. Rohan tells Sham : “ I am ready to sell my

machine for Rs.9000,are you ready to buy”.
This is clear offer from Rohan to Sham .
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Requirements for Valid Offer
1.Offer must be express or implied

-Must be made in a manner which leave no doubt
about it.
-Proposal made in words, the promise is said to be
express, and proposal made otherwise than in words, it is
said to be implied.
e.g. B tells S : “Can you repair my computer?” –
Express offer
A street seller of photo-albums quietly extends
a piece before a passer –by who takes it in his possession.-
Implied offer to sell.
2.Offer must intend to create legal relation
3.Offer must be certain and not vague in meaning
Offer must be definite and certain in meaning
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4.Offer may be specific or General
There must be destination of offer.
-If offer is targeted for one specific person, it is called a
specific offer.
-If it is targeted for the whole world at large, it is called
general offer. e.g. Advertisement
5. Offer must be communicated
6.Offer must be distinguished from invitation to offer

e.g. Availability of Books in Book Store being available for
letting out. Display of suit with price tag-
All are example of invitation to offer.
Advertiser may or may not sell this.
e.g. Publishing of Time Table by railways are example of

expression of an intention.
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What is difference between Invitation to Offer and General

Offer?
Invitation to Offer: Aims at taking the customer to the
advertiser to start negotiation.
General Offer: Aims at leading the offeree (to whom offer

made) to the performance of specified condition which
would amount to acceptance of offer.
7.An Offer should not contain a term forcing an action

on Offeree
e.g. B tells S that in case no reply is received from S within

X days , it will be treated as acceptance of his offer.
S is not bound by this offer.
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The Acceptance
Sec. 2 (b) “When a person to whom the proposal is made ,

signifies his assent thereto, the proposal is said to be
accepted.”
A proposal , when accepted become a promise.
Requirements for Valid Acceptance
1.By a proper person-
-The proper person to accept the offer is the one to
whom it is targeted.
-Offeror cannot be forced to be bound in a contract
with a person with whom he did not want to be involved.
2..Within proper time

Time specified by Offeror.
e.g. Advertisement of IPO
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3.Must be absolute and unqualified(total and without

condition)
Offeree should neither add to nor reduce from the
offer anything from his side.
-B offer to sell his Car to S at Rs.20,000. S accept the
offer with the condition that payment shall take after
a month.
This is counter offer from S to B. The
offer from B stand rejected.
4.Must be Communicated
Mental acceptance is no acceptance.
5.Must be given in a proper Mode.

-If Offeror prescribed any mode of acceptance , it must
be adopted by offeree for acceptance. E.g. by fax, by
mail, by registered post etc
e.g. A makes an offer to B and says : “If you accept the

offer, reply by e-mail only.” B send the reply by post.
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6.Accepatnce must succeed the offer
Two identical cross offers can not form an

agreement.
e.g. A sends a letter to B containing an offer.

Almost at the same time, B also sends a latter to A
containing an offer on exactly same lines.
The two offer cross each other during postal journey.

So they called identical cross offer.
Can both of them together form an agreement between A

and B on the logic that they represent a common desire and
common understanding ?
Only two offer are made and there is no acceptance.
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7. Offer once rejected can not be accepted.
B makes an offer to give job to H at Rs. 7000 pm salary.
S says, “No, I want Rs. 8000 pm month.
B refuses.
S says, “ Alright , I will work for Rs.7000”.
B says , “I am not interested in you.”
There is no contract between B and S because B’s initial offer came

in to end with its rejection by S through a counter offer.
Now, it is S’s offer to work for Rs. 7000 which B is rejecting. (Hyde
vs Wrench)
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Communication of Offer, Acceptance and

Revocation
1.Communication of Offer
An offer is said to have been made when it comes to
knowledge of the other person for whom it was
intended.
2. Communication of Acceptance
For Acceptance two steps required:
(i) Offeree transmits his acceptance and
(ii) Message reaches the Offeror.
Brogden Vs Metropolitan railways Co.
i. Communication of acceptance from offeree is binding
upon the Offeror as soon as the latter of acceptance is
posted so as to be beyond the Offeree’s control.
ii. Communication of acceptance from offeree is binding

upon the offeree himself only when it comes to the
knowledge of the Offeror.
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e.g. Mr. X sends a latter of offer to Y on August 5 which

may reach Y on August 10.
Y post his latter of acceptance on August 15 which may

comes to knowledge of X on August 20.
Offer said to be made on = August 10

Offer said to be accepted for Y on = August 15
Offer said to be accepted for X on = August 20
Position of time gap between August 15 to August 20 =

This time is available for Y to withdraw his acceptance.
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3.Communication for Revocation
Sec 5 provide rule about revocation of offer

and acceptance. It states:
“A proposal may be revoked at any time before

the communication of its acceptance is
complete from acceptor as against the
proposer, but not afterward.”
“An acceptance may be revoked at any time

before the communication of the acceptance
is complete as against the acceptor ,but not
afterward.”
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X makes an offer to Y on 5th May, it reach to Y on 10th May.
Y posted of his acceptance to X on 15th May. It reaches to X on
20th May.
X send withdrawal of his offer on 9th May, it reaches to Y on

14th May.
-It will come to effect on 14th May only, even though X send
on 9th May.
It is called revocation of offer.
Y send withdrawal of his acceptance on 17th May , it reaches to

X on 19th May.
-It will come to effect on 19th May only, not on 17th May.
It is called revocation of Acceptance.

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1. X makes an offer to Y on 1th May, it reach to Y on 5th June.

When Offer is completed?
-It is competed only on 5th June.
2. Y posted of his acceptance to X on 10th June. It reaches to X

on 30th June. When acceptance is completed?
- It is completed only on 30th June.
3. X want to withdraw his offer, which is the last date?

-It must be before 10th June, not thereafter.
4. Y want to cancel his acceptance, which is the last date for

cancellation?
-It must be before 30th June, not
thereafter. 42
• Loss of letter of Acceptance in the Postal transit

– Acceptance is complete as against Offeror as soon
as the latter of acceptance is posted. The contract
is completed even if the latter of acceptance lost in
the post.
– But it is important that the latter of acceptance is
correctly addressed, sufficiently stamped and
posted.
• Contract over telephone or telex or oral
communication
– The offeree must make sure that his acceptance is
properly received i.e. heard and understood by the
Offeror.
43
Business Law
When does an offer come to an end?
An offer come to end by either Revocation or lapse and

Rejection of Offer.
A. Revocation or lapse or Withdrawal of Offer (Sec.6)

1.By communication of notice of revocation by Offeror
before its acceptance is completed against him
2. By lapse of time
- X offer Y to sell some goods on 1st May and
agreed to give him three days time to accept. Y
accepted offer on 5th May.
3. By non-fulfillment of condition by offeree

- X offer to sell some goods to Y, if Y give full amount
before certain date.
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4.By death of Offeror
- If offeree accept the offer in ignorance of the
death of Offeror, the acceptance is valid.
5. If counter offer is made
6. If Offer is not accepted according to prescribed

mode
7. If law is change
B. Rejection of Offer by Offeree

1. Express Rejection i.e. by words written or spoken
2.Implied rejection
-when offeree make counter offer
-When offeree make conditional acceptance
-Not following prescribed time
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Case Law
1. A garment store gave the following
advertisement in a newspaper:
2. “Special sale for tomorrow only. Men’s Suits
reduced from Rs. 200 to Rs. 100.”
Is it offer?
3. P says to Q, “I will sell you a camera.”
Is it offer?
4. A advertises in ToI that he would pay Rs. Rs.200
to anyone who finds and return his knowledge.
Is it offer?
5. A offers by a letter to sell his car to B for Rs.
15000. B, at the same time, offer by a letter to
buy A’s car for Rs.15000. The two letters cross
each other in the post.
Is there a contract between A and B? 46
Void Agreement
1. Agreement made by incompetent parties (Sec. 11)
 Everybody is able to make contract except
 Minor,
 Person of Unsounded mind,
 Person who are disqualified by any other law.
2. Agreement. the consideration or object of which is

unlawful in part. (Sec. 24)
 I will kill Mr. X if you will give me 100 bottles
of wine.
3. Agreement. Made without consideration. (Sec. 25)
4. Agreement. in restraint of marriage. (Sec.26)

 Freedom of choice in marriage has been
guaranteed to every person who is major in age.
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5. Agree. in restraint of trade. (Sec. 27)

 X and Y were competitor shopkeeper in a locality in Surat.
Y agreed to pay X , a sum of money if he would close his
business in that locality.
 X did so but Y refused to pay money.
6. Agree. in restraints of legal proceeding. (Sec. 28)
7. Agree. the meaning of which is uncertain. (Sec. 29)
8. Agree by way of wager. (Sec. 30)
9. A agrees with B that if there is a rain on a certain day, A
will pay B Rs. 50. If there is no rain B will pay Rs. 50.
 A bet on horse race.
 X bet on winning or loosing of cricket match.
9. Agree to do impossible act. (Sec. 56)
10. Agreement made under a mutual mistake of the fact.
(Sec. 20)
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 Agreement void where both parties are under mistake as
to matter of fact.
 Where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement,
the agreement is void.
• Explanation.-An erroneous opinion as to the value of the thing which

forms the subject-matter of the agreement is not to be deemed a
mistake as to a matter of fact.
Ex-1
 A agrees to sell to B a specific cargo of goods supposed to be on its
way from England to Bombay.
 It turns out that, before the day of the bargain, the ship conveying
the cargo had been cast away and the goods lost.
 Neither party was aware of the facts. The agreement is void.
Ex-2 :
 A agrees to buy from B a certain horse.
 It turns out that the horse was dead at the time of the bargain,
though neither party was aware of the fact.
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 The agreement is void.
Difference between Illegal Agreement & Void Agreement
1- Prohibited:
• An illegal agreement is prohibited by law.
• A void agreement is not prohibited by law.
2- Punishable:
• An illegal agreement is punishable.
• A void agreement is not punishable.
3- Nature:
• An illegal agreement is also void agreement.
• A void agreement is not illegal agreement.
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Difference between Illegal Agreement & Void Agreement
4- object:
• The object of illegal agreement is illegal.
 The object of void agreement is not illegal.
5- Collateral agreement:
• A collateral agreement to an illegal agreement is not enforceable.
 A collateral agreement to a void agreement is enforceable.
6- Restoration of benefits:
• In illegal agreement the money paid can not be claimed back.
 In void agreement the money received must be returned to the
other party.
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Kinds of Contracts (Sec. 68 to 72)
Classification of Contract
Enforceability Mode of Extent of

Creation Execution
Express Contr. Implied Cont.
Valid Illegal Void Unenforceable
Executed Executory
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1. Classification of Contract on the basis of Enforceability:
a. Valid Contract:
Contract which satisfy all the essential elements of a valid
contract as laid down in Section 10 of Contract Act.
b. Void Contract:
‘Void means not binding in law’ It implies a useless
contract which has no legal effect at all. Section 2(f)
defines a contract which ceases to be enforceable by
law becomes void
An agreement may be enforceable at the time when it was made
but later on, due to certain reason, it become void and
unenforceable.
The reasons which transforms a valid contract into a void
contract are as follow:-
1. Supervening impossibility: A contract becomes impossible
to perform after the formation of contract
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2.Subsequent illegality: A contract also become void

by Subsequent illegality.
Example: Amar agrees to sell 1000Kg of wheat to
Balbir at Rs 2000/- per quintal. Before delivery
the Govt bans private trading in wheat. The
contract becomes void.
c. Voidable Contract:
An agreement which is enforceable by law at the
option of one or more of the parties thereto, but not at the
option of other or others, is a voidable contract.
Example: Amar threatens to harm Balbir if he does not sell his
New Hero Bike to Amar for 5,000/-. Balbir agrees.
The contract has been done by coercion and is voidable at the
option of Balbir( who is the aggrieved party)
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Voidable Contract
Example: Akbar deceives Bashir , falsely representing that 500
quintals of cereals are made annually in his factory & thereby
induces Bashir to buy the factory. The contract has been
signed by fraud & is voidable at the option of Bashir.
c. Illegal Contract:
The word illegal means ‘contrary to law’ & the term
contract means an ‘agreement enforceable by law’
There is apparent contradiction in terms.
Moreover, being of unlawful nature such an
agreement can never attain the status of a
Contract .All illegal agreement are void but all void agreement
are not necessarily illegal.
e.g., An agreement with minor is void but not
illegal.
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d. Unenforceable Contract:
A contract which is valid in itself but is not capable of
being enforced in court of law because of some
technical defects such as:-
 Time barred by law of limitation.
 Absence of some formalities e.g. writing, registration & requisite
stamp.
Example: An oral arbitration agreement is
unenforceable because law requires an arbitration
agreement in writing.
Bill of exchange or promissory note though valid in
itself becomes unenforceable after lapse of three
years from the date the bill or note falls due, being
time barred under the Limitation Act.
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2. Classification of Contract on the basis of Mode of

Creation
a. Expressed Contract:
Contract is made by words spoken or written.
b. Implied Contract:
Contract which come into being on account of the act of the
parties and not by their express words, written or spoken.
3. Classification of Contract on the basis of Extent of
Execution
a. Executed Contract
Where both the parties to the contract have fulfilled
their respective obligation, the contact said to executed.
b. Executory Contract
Where one or both the parties to the contact still to perform
certain things in future or under the terms of the contract
something remains to be done, the contract is termed as an
executory contract.
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Consideration
Meaning of consideration:
 One of the essential elements of a valid contract.
 Consideration is what a promisor demands as the price
of his promise. In the words of Pollock:-
“CONSIDERATION is the price for which the promise of other
is bought, and the promise thus given for value is
enforceable”
Consideration means -“Something in Return”
 This something or consideration need not be in terms of
money.
 This ‘something ‘ may even be some benefit, right ,
interest or profit accruing to one party , or some
forbearance , detriment , loss or responsibility given ,
suffered or undertaken by the other party.
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Consideration
 To the above definition following should be added:-
 “the benefit accruing or the detriment sustained was in
return for a promise given or received.
 Also a promise by one party may be consideration for the
promise of other party
Forbearance means consideration for a promise by the debtor to pay
an added amount.
Leading case : Abdul Aziz V Masum Ali (1914)
 The secretary of a mosque filed a suit to enforce the
promise which the promisor had made to subscribe
Rs500/- to the rebuilding of mosque.
Decision of court: “the promise was not enforceable because
there was no consideration in the sense of benefit’ as
the person who made promise gained nothing in return
for the promise made”
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Consideration
Not doing an act (forbearance) can be consideration,
such as "I will pay you Rs10,000 not to build a road next to my fence."
Sec. 2 (d) defines consideration as follow : “When at the

desire of the promisor, the promisee or any other person
has done or abstained from doing,
or
does or abstains from doing, or promises to do or to
abstain from doing, something,
such act or abstinences or promise is called a
consideration for promise.”
Example: Andrew agrees to sell his motor cycle to Bashir for
Rs 35,000/=
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Rules Regarding Consideration
1.Consideration at the desire of the promisor

e.g. A saves B’s goods from fire without being asked to do
so. A can not demand payment for his service.
 Consideration must move at the desire of the promisor &
therefore an act done by the promisee at the desire of a
third party is not a consideration.
 Ex: Mohan’s house was on fire . Daniel saw it & assisted in
extinguishing the fire.
 Can Daniel ask Mohan to pay him for the work done by
him to put off the fire?
2. Consideration. from promisee or any other person.
 It is immaterial who provides the consideration for a
person’s promise so long as consideration is there.
 In such a situation , the promisee can maintain a suit even
if he is stranger to the consideration , but he must not be
stranger to the contract.
61
Rules Regarding Consideration
3. Consideration ; may be past, present or future.

Past Con. : Amar saves Brijesh’s life. Brijesh promises to
pay Amar Rs10,000/= out of gratitude. The consideration
of Brijesh to pay Amar is a past consideration for
something done before making a promise.
Present Con. : At the time of making promise
Future Con. : A promises to deliver goods to B when the
ship arrives and B promises to pay A Rs 1000 against the
receipts of goods. Its future, as both the parties will
perform after the arrival of ship.
4. Consideration need not be adequate.
 How much consideration or payment must be made for a
contract to be valid , is always the look out of the
promisor.
Ex: Andrew sell his house worth Rs 1 lac for Rs. 10,000 to
Mathew 62
5. Consideration must be real and not illusory. Also it must be

something to which law attaches some value.
Ex: Andrew promise to discover treasure by magic . The
agreement is void, being illusory.
Physical Impossibility
Ex: X promises to put life into Y’s dead wife should Y pay him
Rs. 5 lakhs.
Legal Impossibility
Uncertain Consideration
6. Consideration must be something which promisor not
already bound to pay.
e.g. There was a promise to pay to the Advocate an
additional sum if the case was successful.
7. Consideration must not be illegal, immoral or opposed to
public policy.
63
Performance of Contract
Who can demand performance?
• Promisee
• A person can not acquire rights under a

contract to which he is not a party
EX:
• By whom Contracts is to be performed?
1. By the Promisor himself.
2. By the promisor or his agent
3. By the legal representative
4. Performance by a third person.
64
• Performance of joint Promises: Several joint promisee
make a promise with a single promisee
• or a single promiser makes a promise to pay several joint
promisee
• EX: A,B &C jointly promise to pay D Rs 30000/- or P
promises to pay Rs30,000/- to Q&R
 Who can demand Performance of joint Promises.
 By whom joint promises must be performed
65
• By whom joint Promises can be performed?
1. All promisors must jointly fulfill the promise.

2. Any one or more of the joint promisors may be compelled
to perform.
3. Right of contributions inter-se between joint promisors
4. Sharing of loss by default in contribution.
5. Effect of release of one joint promisor.
66
Time & Place for Performance

 Where prescribed by the promisee
 Where not prescribed by the promisee
 Effects of failure to perform a contract with in the stipulated
time.
67
 Assignment of Contracts means transfer of contractual
rights & obligation to a third party with or without
concurrence.
1. Contracts involving personal skill , taste or credit
2. The obligations(liabilities) under a contract can not be
assigned except with the consent of a promisee, and when
such consent is given it is really a novation resulting in
substitution of liabilities.
3. The rights and benefit under a contract are assignable
unless the contract is of personal in nature, or the rights
are incapable of assignment either under the law or an
agreement between the parties,& the assignee can
demand performance against the other contracting party.68
Discharge of Contract
• A contract is said to be discharged when it ceases to
operate. The rights and obligations created by it comes to
an end.
• A contract may be discharged -
1. By Performance
• Actual performance – doing what the parties intended to do when they
entered in to the contract.
• Attempted performance or tender – It is the legitimate attempt on the
part of the promisor to perform his obligations
2. Tender
• The tender or offer of performance has the same effect as performance
of a promisor . If a promisor tenders performance of his promise but
the other party refuses to accept , the promisor/tenderer stands
discharged of his obligations. 69
2. By Mutual Consent:
 if parties to the contract agree to substitute a new contract for
it , or to rescind it or alter it , the original contract is discharged
 A contract may be terminated by mutual consent in any of the
following six ways:-
Novation: Substitution of a new contract for the original one, either
between the same parties or between different parties, the
consideration mutually being discharge of the old contract.
Ex:
 Amar is indebted to Balbir. Balbir is indebted to Chand.
 By mutual agreement Balbir’s debt to Chand & Balbir’s loan
( credit) to Amar are cancelled.
 Chand accepts Amar as his debtor.
 There is Novation involving change of parties. 70
2. By Mutual Consent:
Rescission : It means cancellation of all or some of the terms of the
contract.
Rescission : It means cancellation of all or some of the terms of the

contract.
Alteration: If the parties mutually are to change certain terms of the
contract, it has the effect of terminating the original contract.
71
Discharge of Contract- By Mutual Consent

Remission : It is the acceptance of a lesser sum than what was
contracted for or a lesser fulfillment of the promise made.
Waiver : It means relinquishment or abandonment of a right. Where

any party waives its right under the contract.
Merger: A contract is said to have been discharged by way of

merger where an inferior right possessed by a person
coincides with a superior right of the same person.
Example:
A, who is holding certain property under a lease, buys it, His
right as a leasee vanish . The rights associated with leasee are
inferior to the right associated with the right of ownership.
72
Breach of contract
 A breach of contract is one party’s failure , without a legal excuse,
to live up to any of its promises under a contract.
 If the promisor has not performed his promise in accordance with
the terms of the contract or
 where the performance is not excused by tender, mutual consent
or impossibility or operation of law ,
 then this amounts to breach of contract on the part of the
promiser..
The breach of contract may arise in following two ways:-
Actual Breach can occur by :-
a)Failure to perform as promised .
b)Making it impossible for the other party to perform (by doing some
act.)
c)If a person does not perform his part of the contract at the stipulate
time , he will be liable for his breach. 73
Breach of contract
Anticipatory Breach
 Anticipatory Breach of contracts occur when a party repudiates it
before the time fixed for performance has arrived
 or when a party by his own act disables himself from performing
the contract.
 Anticipatory Breach is also known as ‘Breach by Repudiation’
Repudiation is clear statement by one party before performance is

due that it can not or will not perform a material part of the contract
obligation.
Ex: Ahmed contracts to supply Bashir with certain articles on 31 Dec
2015. On 25th Dec he informs Bashir that he will not be able to supply
the goods. Bashir is entitled to sue Ahmd for breach of contract.
74
Remedies for Breach of Contract
When the contract is broken, the injured party has one or more of the
following remedies:
Rescission of the contract.
Suit for damages.
Suit for specific performance
Suit upon quantum meruit.
.Suit for injunction.
75
Quasi Contracts
• Sometime a person may receive a benefit which the law regards
another person as better entitled, or for which the law considers he
should pay to the other person, even though there is no contract
between the parties.
• Such relationships are called quasi contracts.
• Because although there is no contract or agreement between the

parties,
• they are put on the same pedestal as though there was a contract
between them.
• This is based on the principles of equity.
76
Kinds of quasi contracts

• Right to recover the price of necessities supplied. [Sec 68]
• Payment by an interested person. [Sec 69]
• Right to recover for non-gratuitous Act. [Sec 70]
• Responsibility of the finder of Goods. [Sec 71]
• When money is paid or things are delivered by mistake or under

coercion. [Sec 72]
77
Quasi Contract
• There is no offer, no acceptance, no consensus ad

idem and in fact neither agreement nor promise.
• These contact constituted by the Law, and therefore

termed as Quasi Contact.
78
Kinds of Quasi Contracts (Sec. 68 to 72)

1. Supply of necessaries
2. Payment by an interested person
3. Obligation to pay for non-gratuitous acts
e.g. Mr. X , a trader, leaves goods at Y’s house by mistake. Y
treats the goods as his own. He is bound to pay for them to X.
4. Responsibility of Finder of Goods
 Mr. X picks up a diamond on the floor of Y’s shop.
 He hands it over to Y to keep it till true owner is found out. No one
appears to claim it for quite some weeks inspite of the wide
advertisement in the newspapers.
 X claims the diamond from Y who refuse to return.
 Y is bound to return the diamond to X who is entitled to retain the
diamond against the whole world except true owner.
79
The finder can sell the goods in the following cases:
 1.When the things found is in danger of perishing

 2.When the owner cannot be found out
 3. When the owner is found out, but he refuse to pay the
lawful charges of the finder
5. Mistake or coercion
e.g. A and B jointly owe Rs. 100 to C. A alone pays the
amount to C. and B not knowing this fact, and pays Rs.
100 to C again. C is bound to pay the amount to B.
80

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Business Law

Syllabus- Business Laws

• Unit-2: Sales of Goods Act -1930

• Unit-3: Company Act -1956 (2013)

• Unit-4: Consumer Protection Act -1986

• Unit-5: The Right to Information Act -2005

• Business Law : MC Kuchhal & Vivek Kuchhal

• Business Law for Managers: Prof(cmde) P.K. Goel

• Legal Aspects of Business : Daniel Albuquerque

• Business law for management : K.R. Bulchandani

Meaning & Nature of Law

Ignorance of Law is no excuse

1. Definition of Contract & Essential elements of a contract

2. Offer & Acceptance

4. Legality of object , Capacity to contract & Free Consent

6. Breach & Remedies

Law of Contract is the basis upon which the

 The relational integration and determination of mutual

 Contracts arising out of economic and social relationships.

 Such relations are either contractual or akin to a contract.

 The market functions on the very premise of effective

1. All contracts are based on Agreements which are either

 In business transactions normally first promises are made

Why have Law of contract?

1. Law of contract made to lay down rules for:-

2. Offer & Acceptance

3. Essential Elements of a valid Contract

5. Difference between Illegal Agreement & Void Agreement

`The term “Contract” in ordinary sense means an

The law of contract seeks to regulate the behavior

Meaning of Contract: Sec. 2 (h) defines a contract:

 An agreement enforceable by law,

 made between at least two parties by which,

 rights are acquired by one & obligations are

 If the party which had agreed to do something ,

Examples : Mohan buys ticket from an Airline for the journey

• How could it be said that the above was not a

• although it was clearly an agreement between the

An analysis of the definition of contract shows that a

2. Its enforceability( legal obligation)

 Contract = Agreement + its enforceability

 A proposal when accepted becomes a PROMISE

 An Agreement consists of two elements-

 Offer or proposal by one party &

 acceptance there of by the other party.

 Agreement = Proposal(offer) + Acceptance of proposal (or

 The party making the offer or proposal is known as offerer

 An analysis of definition of Agreement reveals following

 At the time of entering into a contact , parties must

Essential of Valid Contract

 The flaw in capacity of parties to contract may be

 If a party to a contract suffers from any of these

 If in a consent any of these flaws is present , the

6.Lawful object and consideration

7.Not expressly declared void (Cancelled) Following

• Can it recover the amount from V?

OFFER AND ACCEPTANCE

• Agreement= Offer + Acceptance