Legal Aspects of Business

Helps in all BBA,MBA,M.com students.Also helpful in NTA NET-Commerce exam for June 2019

1. By-Sakshi Saxena NTA NET COMMERCE-08 Paper-2 LEGAL ASPECTS OF BUSINESS (As per new syllabus) June 2019 For Hand Written Notes email me [email protected] 1

2. Syllabus Indian Contract Act, 1972 Special Contracts Sales of Goods Act,1930 Negotiable Instrument Act, 1881 The Companies Act,2013 Limited Liability Partnership Competition Act,2002 The Information Technology Act, 2000 The RTI Act,2005 Intellectual Property Rights For Hand Written Notes email me [email protected] 2

3. INDIAN CONTRACT ACT,1872 Every business or commercial transaction basically starts from an agreement between two or more persons or parties. It codifies the main principles of contract and as such, it is the legal foundation of all transaction relating to contracts. Following important points should be noted so far as the Indian Contract Act of 1872 is concerned . It is applicable to all over the India. There are 238 sections in this act. It came into the force on 1 September 1872 It basically deals with the general principles of the law of contracts and with certain special contracts such as contracts of indemnity and guarantee, contract of agency. It does not deal with the contracts relating to sale of goods, partnership, negotiable instruments, bills of lading, insurance, railways etc. Section 1 to 75 of the Indian Contract Act is generally applicable to all the contracts . For Hand Written Notes email me [email protected] 3

4. Meaning of Contract & Agreement Contract- The term contract has been defined in Sec2(h) of the Indian Contract Act,1872. It seems defined the contract as an agreement enforceable by law. An Agreement enforceable by law is a contract [Section 2 (h)]. Merely an agreement is not a contract but its enforceability at law together constitute. Thus, Contract = Agreement + its enforceability at law Agreement- Every promise and every set of Promises, forming the consideration for each other is an agreement. [Section 2 (e)]. Thus, Agreement= Offer + its acceptance . For Hand Written Notes email me [email protected] 4

5. Difference between “Contract” and “Agreement” Agreement Contract Every promise and every set of Promises, forming the consideration for each other is an agreement. [Section 2 (e)]. In other words an offer and its acceptance together constitute an agreement. Thus, Agreement = Offer + its acceptance An Agreement enforceable by law is a contract [Section 2 (h)]. Merely an agreement is not a contract but its enforceability at law together constitute. Thus, Contract = Agreement + its enforceability at law . For Constituting an agreement, a promise or sets or promises forming consideration for each other are required. An agreement becomes a contract only when agreement fulfill the legal conditions of a contract, example, formation of legal relationship, free consent, lawful object etc. It is not necessary that every agreement must create legal obligation because all agreements do not go to constitute contracts. Every contract necessarily creates a legal obligation because every contract is basically an agreement. It is not necessary that every agreement must create legal obligation because all agreements do not go to constitute contracts. Every contract necessarily creates a legal obligation because every contract is basically an agreement. For Hand Written Notes email me [email protected] 5

6. Section 10 of the Act provides for some more elements which are essential in order to constitute a valid contract. It reads as follows: “All agreements are contracts if they are made by 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.” For Hand Written Notes email me [email protected] 6

7. Capacity of Parties Sec11 of the Indian Contract Act,1872 provides the requirement for the competence of the parties to the contract. “ Every person is competent to contract ,who is age of Majority Sound Mind Person should not be disqualified from contracting by any law to which he is subject. “ For Hand Written Notes email me [email protected] 7

8. Disqualifications- Minor Person Unsound Mind Disqualifies by Law Alien Enemy Voidable Insolvent Convict undergoing imprisonment Void agreement For Hand Written Notes email me [email protected] 8

9. Free Consent It means an act of assenting to an offer . According to section 13 , “ Two or more persons are said to consent when they agree upon the same thing in the same thing in same sense .” Thus, consent involves identity of minds in respect of the subject matter of the contract. In English Law, this is called ‘ consensus-ad-idem ’. Effect of Absence of consent: When there is no consent at all, the agreement is void ab -initio, i.e., it is not enforceable at the option of either part For Hand Written Notes email me [email protected] 9

10. It is one of the essential elements of a valid contract as it is evidenced by section 10 which provides that all agreements are contracts if they are made by the free consent of the parties according to section 14, consent is said to be free when it is not caused by- Coercion, Undue influence Fraud, Misrepresentation, Mistake For Hand Written Notes email me [email protected] 10

11. Example : X has one M aruti car and one fiat car. He wants to sell fiat car. Y does not know that X has two cars. Y offers to buy X’s Maruti car Rs . 50,000. X accepts the offer thinking it to be an offer for his Fiat car. Here, there is no identity of mind in respect of the subject of the subject matter. Hence there is no consent at all and the agreement is void ab -initio . For Hand Written Notes email me [email protected] 11

12. Discharge of a Contract The duties under a contract are discharged when there is a legally binding termination of such duty by a Voluntary Act of the parties or by operation of law. Among the ways to discharge a contractual duty are impossibility or impracticability to perform personal services because of death or illness; or impossibility caused by the other party. However a contract may be discharged in a number of ways like : By Performance By Exemption from Performance By Non-acceptance of Tender By Breach of Contract By Frustration of Contract By Mutual Consent By Remission or Waiver By Accord and Satisfaction By Neglect of Promise to provide Facility By Operation of Law For Hand Written Notes email me [email protected] 12

13. Breach of Contract Breach of Contract means committing a default in performance . If the promisor in a contract fails or neglects or refuses to perform the contract, there is a breach of contract committed by non-performance. In short, A contract terminates by breach of contract. Breach of contract may arise in two ways: (a) Anticipatory breach, and ( b) Actual breach. Anticipatory Breach of Contract - Anticipatory breach of contract occurs, 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. Example - A contracts to marry B. Before the agreed date of marriage he married C. B is entitled to sue A for breach of promise . For Hand Written Notes email me [email protected] 13

14. Actual Breach of Contract Actual Breach occurs when a party fails to perform his/her promise on the due date of performance . It takes place only on the day when the performance is due and not before it. Thus Actual Breach is caused actually at the time of performance when the promisor does not perform. For instance, A Promises to sell his car to B on a certain date for a certain price. However, A does not sell his car on the specified date. It means that there is an actual breach of contract caused by A. For Hand Written Notes email me [email protected] 14

15. Legal Remedies for Breach of Contracts 1. Rescission of the Contract- When a breach of Contract is committed by one party, the other party may sue to treat the contract as rescinded. In such a case, the aggrieved party is freed from all his obligations under the contract. Example - A promises B to supply 100 bags of rice on a certain date and B promises to pay the price on receipt of the goods. A does not deliver the goods on the appointed day, B need not pay the price. 2 . Quantum Meruit - The phrase ‘Quantum Meruit ’ means as much as is merited’ (earned). The normal rule of law is that unless a party has performed his promise in its entirely, it cannot claim performance from the other. To this rule, however, there are certain exceptions on the basis of ‘Quantum Meruit ’. 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 other party. For Hand Written Notes email me [email protected] 15