Business Law

Business law is a rule which helps us to regulate and manage our

business transactions and activities system. It has direct relation with
trade, industry and commerce. e.g. insurance act, contract act, tax act,
sale of goods act, agency act etc.
 INDIAN CONTRACT ACT, 1872
Enacted by Parliament of India
Date enacted 25 April 1872
Date commenced 1 September 1872
Total sections 238
Extent All States of India except
the State of Jammu & Kashmir

Sections 124 to 238

Sections 1 to 75 of of the Indian
The Indian Contract
the Indian Contract two
ContractAct consists of the following Act. These
parts:
Act. came into force special contracts are
on September 1, Indemnity,
Guarantee,
1872. Bailment, pledge
GENERAL and Agency.
PRINCIPA SPECIAL
LS OF THE KINDS OF
LAW OF CONTRAC
CONTRAC TS
T
 Agreement
According to Section 2(e) an agreement is defined as
“every promise and every set of promises forming the
consideration for each other”.

A promise is defined as an accepted proposal as

Section 2(b) says “ a proposal when accepted
becomes a promise “ Therefore it can be said that
an agreement is an accepted proposal.

In an agreement there is a promise from both the

sides.
For example, A promises to deliver his
radio to B and in return B promises to pay a sum
of Rs. 500 to A , there is said to be an agreement
between A and B.
 PROMISE

AGREEMENT

ACCEPTANCE
Promise sec 2(b) - A Proposal when accepted becomes a promise. In
simple words, when an offer is accepted it becomes promise.

Promisor and promise sec 2(c) - When the proposal is accepted, the
person making the proposal is called as promisor and the person
accepting the proposal is called as promisee.
Consideration sec 2(d) - When at the desire of the promisor, the
promisee or any other person has done or abstained from doing
something or does or abstains from doing something or promises to do
or abstain from doing something, such act or abstinence or promise is
called a consideration for the promise.
Price paid by the one party for the promise of the other Technical word
meaning QUID-PRO-QUO i.e. something in return.
What is a Contract?
According to sec.2(h), a contract is defined as an agreement
enforceable before the law.
1.An agreement
2.The agreement shall be enforceable by law.
3.All agreements are not enforceable by law
4.and therefore, all agreements are not contracts.

“All contracts are agreements, But all agreements are not contracts.”
 Offer, Acceptance, Agreement and Contract
• Offer
– proposal is defined in Section 2(a) as “when one
person will signify to another person his willingness to
do or not do something (abstain) with a view to
obtain the assent of such person to such an act or
abstinence, he is said to make a proposal or an offer.”
• Acceptance
– acceptance in Section 2 (b) as “When the person to
whom the proposal is made signifies his assent
thereto, the offer is said to be accepted. Thus the
proposal when accepted becomes a promise.” An
offer can be revoked before it is accepted.
• Agreement
– An Agreement is a promise between two entities
creating mutual obligations by law. Section 2(e)

• Contract
– A contract is a lawful agreement. In other words, an
agreement enforceable by law is a contract. Section
2(h)
– Contract = Agreement + Legal enforceability
An agreement is regarded as a contract when it is
enforceable by law.
In other words, an agreement that the law will enforce
is a contract.

The conditions of enforceability are stated in

Section 10 According to this section “ all agreements
are contracts if they are made by the free consent of
parties competent to contract, for a lawful
consideration and with a lawful object, and are not
hereby expressly declared to be void.”
AGREEMENT ENFORCEABLE BY LAW CONTRACT

Contract sec 2(h) - A agreement enforceable by Law is a contract.

 PROPOSAL

PROMISE

CONSIDERATION

AGREEMENT

LEGALLY LEGALLY NOT

ENFORCEABLE ENFORCEABLE

CONT VOIDABLE
AGREEME
VOID
RACT NT AGREEMENT
 ESSENTIALS OF A VALID CONTRACT

As per Section 10 “All agreements are contracts, if they

are made – by free consent of the parties, competent to
contract, for a lawful consideration and with a lawful object, and
not hereby expressly declared to be void .”

ENF
ACCE CON AGR ORC CON
OFFE PTA PRO SIDE EEM EABI TRA
R NCE MISE RATI ENT LITY CT
ON BY
LAW
Agreement Legal Obligation

Contract
“All contracts are agreement
but all
agreements are not
contracts.”
CONTRACT = AGREEMENT +
ENFORCIBILITY BEFORE LAW
 Types of contract

On the basis of On the basis of On the basis of On the basis

Enforceability formulation performance of obligation

•Valid contract •Express •Unilateral

•Void contract •Executed
contract contract
•Void •Implied contract
•Bilateral
agreement •Executed
contract contract
•Voidable •Quasi contract
agreement contract
•Illegal contract
 Quasi contract
• Quasi-contracts are based on the principle of
‘No man should grow rich out of another
person’s loss’.
• Features of a Quasi-Contract
– Their origin does not lie in the offer and its
acceptance, that is, in an agreement between the
parties.
– They are rather based on justice, equity, and a good
conscience and on the principles of natural justice.
Quasi Contract is not a contract at all because one or
the other essentials for the formation of contract
are absent. It is an obligation imposed by law
upon a person for the benefit of another even in
the absence of contract. Such obligations imposed
by law constitute as known as Quasi Contract or
Implied Contract.
Definition of Quasi Contract:-
“Quasi Contract is a transaction in which there is
no contract between the parties, the law creates
certain rights & obligations between them which
are similar to those created by contract”
• It does not arise from real contract, it is a contract
imposed by the law on the parties.
 Characteristics of Quasi Contract
• Imposed by Law and does not arise from any
agreement.
• Applied only on special persons in special
circumstances.
• Contracts are not created by the desire of
parties. These are created by law due to
circumstances.
• Arise or come into existence when a party has
obtained a profit from others.
• If a person does not fulfill his obligation, he is
held responsible in the same way as in the case
of breach of actual contract.
 Types of Quasi Contract
• Supply of necessities (Sec.68)
(Right to recover the Price of Necessaries
supplied).
• Payment by an interested person (Sec.69)
• Obligation to pay for non gratuitous act (Sec.70)
• Responsibility of finder of goods (section- 71)
• Right to recover from a person to whom money
is paid or things is delivered by mistake or under
Coercion ( Sec 72)
ESSENTIAL ELEMENTS OF A VALID CONTRACT
1. Offer and acceptance
2. Legal relationship
3. Consensus - ad-idem
4. Free consent.
5. Capacity or competency of parties
6. Lawful object
7. Lawful consideration
8. Certainty and possibility of performance
9. Agreements not declared to be void
10. Legal formalities
1. Offer and Acceptance: In order to create a valid contract, there
must be an agreement between two parties. An agreement involves
a valid offer by one party and valid acceptance of the same by the
other party.
CASE: BOULTON (vs.) JONES.

2.Legal relationship: The parties must intend their agreement to result

in legal relations. This means that the parties must intend that if one of
them fails to perform his promise, he shall be answerable for that failure
in law. Duties and rights should be legal and not merely moral.
[an agreement of a purely domestic or social nature is not a contract .]
3. Consensus-ad-idem: The minds of both the parties must be ad-idem.
In other words, the two parties must have agreed about the subject
matter of the contract at the same time and in the same sense.

4.Free consent (Permission or Willingness): An agreement must have

been made by free consent of the parties. Consent is said to be free
when it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
5.Capacity : The parties to a contract must have capacity (legal ability) to
make valid contract.
Section 11:- of the Indian contract Act specify that every person is
competent to contract provided.
 Is of the age of majority according to the Law which he is subject
 Who is of sound mind and
 Is not disqualified from contracting by any law to which he is subject.

6.Lawful object :The object of agreement should be lawful and legal.

Consideration or object of an agreement is unlawful if it
is forbidden by law; or
is of such nature that, if permitted, would defeat the provisions of any law; or
is fraudulent; or
Involves or implies, injury to person or property of another; or
Court regards it as immoral, or opposed to public policy.
7.Lawful consideration : All contracts must be supported by
consideration. Consideration means “something in return” (quid pro quo).
It can be cash, kind, an act or abstinence. It can be past, present or future.
However, consideration should be real and lawful.
A consideration must not be unlawful, immoral or opposed to the public
policy.

8.Not expressly declared to be void: (Section 24-30)

9.Certanity and Possibility of performance: (Section 29,56)

10. Necessary legal formalities :, According to Indian Contract Act,

A contract may be oral or in writing. But in certain special cases it

lays down that the agreement, to be valid must be in writing/or and

registered.
 Capacity of Parties
• Sec.11 of the Indian Contract Act, 1872
lists down the qualifications which enable a person
in India to enter into contracts-
– A person should have attained the age of majority
– A person should be of sound mind at the time of entering
into a contract.
– A person should not be disqualified under any law to
which he is subject.
• Persons Disqualified by Law
– Alien enemy
– Insolvent
– Foreign sovereign- Diplomats and ambassadors
– Body corporate- A company is an artificial person. The capacity of a
company to enter into a contract is determined by its memorandum
and articles of association.
Essentials of Contract; Valid Contracts
• According to section 10 of the contract act, a
contract is valid if it was entered into by free
consent of the parties.

• Section 14 of the contract act defined free

consent as consent not given under coercion,
undue influence, fraud, misrepresentation and
mistake.
– Coercion (Section 15)
– committing any act forbidden by The Indian Penal
Code 1860 or unlawful detaining of property, or
threatening to commit these acts.
• Undue influence
– According to section 16 if consent has been obtained by a
person who is in a dominant position compared to the other
person, then it is undue influence.
• Fraud
– It means an act done to deceive the other person whether
to get any advantage from the other person or because of
ill-will or enmity towards the other party.
– According to section 17, Fraud can be committed either by
one contracting party or by a 3rd person with the
connivance of any contracting party or by the agent of any
contracting party.
• Misrepresentation
– When false statements are innocently made without the
intention to deceive, then it amounts to misrepresentation.
In misrepresentation, the person making the statement is
innocent and has no intention to deceive the other party.
 Performance of Contracts
• Section 37 of the Contract Act talks about performance. According to the Section, there are two types of
performance which are:
• Actual performance:
Actual performance of the contract means the actual discharge of the liability or obligation which a person has
undertaken to perform and there remains no other task which he is obliged to discharge under the promise. He
is said to have made the actual performance of the promise.

• Attempted performance:
At times when the performance becomes due. The promisor is not able to discharge his obligation or perform
his duty because he is prevented by the promisee in doing so. This situation where the promisor actually
intended to perform his obligation or discharge his duty but is prevented from doing so by an intervening
disability is known as the attempted performance of a promise.

• Attempted performance is also known as Tender. A tender can be of two types:

– Tender of goods and services: The discharge of the contract to deliver goods and services is completed
when the goods are tendered for acceptance in accordance with the terms of contact. If the goods and
services so tendered are not accepted they are to be taken back by the offeror and he is discharged from
his liability.

– Tender of money: where the debtor tenders the money which is to be paid to the creditor but the
creditor refuses to accept the money. The debtor is not discharged from the liability to pay back the
money. Therefore, a tender of money can never result in the discharge of debt.
 Termination of Contract/ Termination of
Agreement
• A Termination Agreement is a legal agreement
that exists between the parties to a contract
which consists of the conditions known for the
termination of the contracts if it should occur.
Termination of Contract relieves the parties
from the contractual liabilities involved in the
contract.
• Before the parties are able to complete all the
contractual obligations stipulated by the
contract, their ability to accomplish the
obligations is cut short.
• Despite the fact that the contractual
obligations to fulfill according to agreement
terms have ended, the parties can still file
claims for restitution under the common law
and if any termination allowances stated in
the agreement.
• Reasons for Terminating a Contract
– Mutual consent
– When one of the parties becomes bankrupt
– Failure of a set precedent or condition
– When a Legal order is passed
 Consequence and Remedies for Breach of Contract.

• A contract can be said to be breached or broken when either of the parties fails or
refuses to perform his obligations, or his promise under the contract
• Therefore, as soon as one party commits a breach of the contract, the law grants to the
other party three remedies. Other party may seek to obtain:
– Damages for the loss sustained, or
• Section 73 of the Indian Contract Act 1872 lays down four important rules
governing the measure of damages.
– A decree for specific performance, or
• According to Section 10 of the Specific Relief Act, 1963, there are seven cases
when specific performance of a contract may be allowed by the Court
– An injunction
• Under Section 36 of Specific Relief Act 1963, an injunction is defined as an
order of a competent court, which:
– Forbids the commission of a threatened wrong,
– Forbids the continuation of a wrong already begun, or
– Commands the restoration of status quo (the former course of things).
 Sale of Goods Act, 1930
Introduction
 The law relating to sale and purchase of goods, prior to
1930 were dealt by the Indian Contract Act, 1872.
 In 1930, Sections 76 to 123 of the Contract Act was
repealed and a separate Act known as the Sale of Goods
Act, 1930 was passed
 This act lays down special provisions governing the contract
of sales of goods .The general law of contract is also
applicable to the contracts for the sale of goods unless they
are inconsistent with the express provisions of the Sale of
Goods Act
 MEANING OF CONTRACT OF SALE
• According to Section 4 of the Act, a contract of
Sale means “a contract where the seller
transfers or agrees to transfer the property in
goods to the buyer for price”
• Contract of Sale may be of two types
CONTRACTOF

SALE

SALE AGREEMENT TO SELL

SALE :

• It is a contract where the ownership in the goods is transferred by seller to the

buyer immediately at the conclusion contract

EXAMPLE: A sells his house to B for Rs. 10,00,000. It is a sale since the
ownership of the house has been transferred from A to B.

AGREEMENT TO SELL :

• It is a contract of sale where the transfer of property in goods is to take place at

a future date or subject to some condition thereafter to be fulfilled.

EXAMPLE: A agreed to buy from B a certain quantity of nitrate of soda. The ship
carrying the nitrate of soda was yet to arrive. This is `an agreement to sale`. In
this case, the ownership of nitrate of soda is to be to transferred to A on the
arrival of the ship containing the specified goods (i.e. nitrate of soda) [Johnson
V McDonald (1842) 9 M & W 600, 60 RR 838]
 ESSENTIALS OF CONTRACT OF SALE
• Two parties: There must be two parties- a buyer and a seller to constitute a
contract of sale.

• Goods: Contract of sale relates to goods i.e., movable property . Transaction

involving purchase and sale of immovable property are out of the purview of
the Sale of Goods Act.

• Transfer of general property: The object of the contract must be the

transfer of general property as distinguished from the special property in the
goods by one person to another. The term ‘general property’ refers to
ownership of goods.

• Price: The consideration for the contract of sale called price must be money.

• Essential elements of a valid contract: All the essential elements of a

valid contract must be present in the contract of sale
 GOODS
Definition:
The subject matter of a contract of a sale must be goods .
According to Section 2(7) the term ‘goods’ means
“every kind of movable property other than actionable
claims and money and includes stock and shares , growing
crops , and things attached to or forming part of the land
which are agreed to be severed before sale or under the
contract of sale”
Types of goods: Specific
Existing
ascertained

Goods Future goods

unascertained
Contingent
1. Existing goods: These are the goods which are owned or
possessed by the seller at the time of sale. Only existing
goods can be the subject of a sale. The existing goods may be-
a) Specific goods: Goods identified and agreed upon at the
time of making of the contract of sale of goods.
b) Ascertained goods: are those goods which can be
separated from bulk.
c) Unascertained or generic goods: are those goods which
are in bulk.
Example: ‘A’ who wants to buy a television set goes to a showroom
where four sets of Janta model of Oscar television are displayed. He
sees the performance of a particular set, which he agrees to buy. The
set so agreed to be bought is a specific set. If after having bought one
set he marks a particular set, the set so marked becomes ascertained.
Till this all is done all sets are unascertained.
2. Future goods: Goods to be manufactured, produced or acquired after making of the
contract are called future goods.

Example: ‘A’ contract, on 1st January, to sell B 50 shares in Reliance Ltd., to be

delivered and paid for on the 1st March of the same year. At the time of making of
the contract, A is not in possession of any shares. The contract is a contract for the
sale of future goods.

3. Contingent goods : Goods, the acquisition of which by the seller ,depends upon an
uncertain contingency are called ‘contingent goods’. They are also a type of future
goods.

Example: ‘A’ agrees to sell 100 units of an article provided the ship which is bringing
them, reaches the port safely. This is an agreement for the sale of contingent goods.
 Performance of Sale of goods
• Delivery- Delivery is the voluntary transfer f possession
from one person to another.
Types of Delivery
• Symbolic delivery- When goods are not physically
delivered but the means of obtaining possession of goods is
delivered to buyers. any symbol is used for delivery.
• Actual delivery- it means actual physical delivery of goods
to the buyers of his authorized agent by the seller or his
authorized agent.
• Constructive delivery- third party is involved in this
delivery. Seller does not delivers the goods directly.
 Condition & Warranty
• Conditions
• A condition is a stipulation essential to the main purpose
of the contract, the breach of which gives the right to
repudiate the contract and to claim damages. (Sec 12
(2))
• Warranty
• A warranty is a stipulation collateral to the main purpose
of the said contract. The breach of warranty gives rise to
a claim for damages. However, it does give a right to
reject the goods or treat the contract as repudiated. (Sec
12(3)).
What are Express and Implied Warranties?

• Most consumer purchases are covered by a

warranty, even when it is not explicitly stated as
such. The two main types are express and
implied warranties. An express warranty is one
that is clearly stated (or "expressed") either
verbally or in writing, while an implied warranty
automatically covers most consumer goods
valued over a certain amount, but only provides
a base level of protection for consumers.
 Unpaid seller and his Rights
UNPAID SELLER:-
Seller :- A person who sells the goods or agrees to sell the goods is called seller.
Unpaid :- It means payment is not made or without payment. In simple words,
"Unpaid seller" means a person who has sold the goods for a price but price has
not been paid to him.
Sales act defines the "unpaid seller" in the following words :
Unpaid Seller Is A Person :-
i. To whom the whole price has not been paid or tendered.
ii. And where a bill of exchange or other negotiable instruments has been accepted by
him as a condition on which it was received has not been fulfilled by reason of
dishonor of the instrument or otherwise.

EXAMPLE: Party A sells a car on cash basis to party B and the price has not
been received yet.
 RIGHTS OF UNPAID SELLER
Rights of unpaid seller

Right against goods Right against the buyer personally

When the property in the Suit for price

goods has been transferred

Right to Lien Suit for damages for non

acceptance
Right of stoppage in
goods in transit
Suit for special damage
Right to resale and interest

When the property in the

goods has not been transferred

Right of withholding delivery 43