LEGAL SYSTEMS FOR
BUSINESS
MBA - 1 Semester
SYLLABUS
MODULE - 1
Classification of Law, Natural Justice, History of Indian Judicial system,
Indian Contract Act 1872: Definition (Sec 2); Essential elements of a
contract: Offer, acceptance, Competency to enter into contracts (Sec 11
&12); Consent- free consent, coercion, undue influence, fraud,
misrepresentation, mistake (Sec 13-23); Legality of object & consideration;
Types of contracts; Performance of contracts; Void agreement (Sec 24-30);
Quasi contracts, Discharge of contracts; Consequences of breach of
contract (Sec 73-75) Bailment(S.148 - S.171 & S.180. Salient features of
E-Contract Formation, E-Contracts, and Types.
Introduction:
The term ‘law’ denotes different kinds of rules and principles. Law is an
instrument which regulates human conduct or behaviour.
Meaning of Law:
The term law has been derived from the Latin term ‘Legam’ which means the
body of rules.
Definitions
1. According to Salmond, “the law may be defined as body of principles,
recognised and applied by the State in the administration of justice”.
2. According to Austin: Austin defined law as a command of sovereign
backed by sanction.
3. According to H.L.A. Hart: He defined law as a system of rules- the primary
and secondary rules.
Nature of Law
1. Law is a body of rules
2. Law is for the guidance or conduct of persons - Both human and artificial
3. Law is imposed
4. Law is enforced by the executive
5. Content of Law
6. Two basic ideas involved in the Law
● To maintain some social order
● To compel members of the group
7. Law is made to serve some purpose
● Social
● Economic
● Political
SOURCES OF LAW
1) Primary Sources
● Custom.
● Precedent
● Legislation
● Personal Laws
2) Secondary Sources
● Justice, Equity and Good Conscience
● English Laws
1) Primary - Very firstly derived
● Custom - Custom with sanction ( Obligatory must)
- Custom without sanction ( Non-obligatory)
a. Legal Custom
- Local Custom & General Custom
( Local custom related with particular group &
A country as a whole)
b. Conventional Custom
- It is because of agreement and not because of legal
authority.
● Precedent
Judge made laws. Same set of pattern cases guiding future
cases
Kinds
a. Declaratory Precedents - It is a mere application of already
existing laws
b. Original Precedents - Creates and applies a new rule of law
c. Persuasive Precedents - Non Obligatory but will be considered
d. Absolutely Authoritative Precedents - They are obligatory must
follow whether they approve it or not.( Highy court follow the
decision of supreme court)
e. Conditionally Authoritative Precedents - Obligatory but can be
disregarded in certain circumstances.
● Legislation
Written Laws that are made by the parliament
legislative assembly.
a. Supreme Legislation - Proceeds from the sovereign power
in the state. Legislation making laws.
b. Subordinate Legislation - Authority other than the
sovereign power
● Personal Laws ( Religious Laws)
Where there is no custom or statutory law
Eg: Hindu laws( sama vedha, yachur vedha)
Muslim laws ( Holy Quran)
2) Secondary - Indirectly derived
1. Justice, equity and good science
Can apply when there is no personal Laws,
customs or statutory laws. They use just and fair judgement.
2. Source of English Laws
● Common Law - Evolved by decision of judges based on primary
sources
● Mercantile Law - Business related
● Principle of equity - They are neither customs or written Laws
● Statute Law - Legislations
INDIAN CONTRACT ACT, 1872
Law of Contract
According to section 2(h) a contract is defined as "an agreement
enforceable by law". This makes it clear that a contract should have two
elements. There should be (1) an agreement, and (2) the agreement
should be enforceable by law.
Further, the expression 'promise' appearing in the definition of agreement
is also defined. "A proposal when accepted becomes a promise Sec.2 (b).
The expression proposal is defined as follows. "When one person signifies
to another his willingness to do or to abstain from doing something with a
view to obtaining the assent of that other to such act or abstinence, he is
said to make a proposal". Sec. 2 (a).
Definition
Essential Elements of a Valid Contract
1. Agreement
One person makes a valid proposal and the other person accept it
2. Intention to Create Leagal Relations
The agreement should be attached by leagal consequences and create a
leagal obligations
3. Lawful Consideration
Something in return
4. Capacity of the Parties
Contracting parties must be the age of majority and of sound mind and
must not be disqualified by any law
5. Free and Genuine Consent
The parties must give their consent with a free mind and not caused by
Corecion, Undue influence, Misrepresentation, Fraud or Mistake
6. Lawful Object
The object must be lawful and not be fraudulent, illegal, immoral or
opposed to public policy
7. Certainty
The terms of the agreement must not be vague or uncertain
8. Writing and Registration
An agreement may be oral or in writing
9. Possibility of Performance
The terms of the agreement must be capable of performance if it is
impossible the it will be void
10. Agreement not declared void
The agreement must not have been expressly declared to be void under the
Act The contract act specifies certain types of agreements as void ;
A) An agreement in restraint of marriage
B) An agreement in restraint of trade
C) Wagering agreements
Types of Contracts
1. On the Basis of Enforceability
a) Valid Contract
An agreement enforceable at law
b). Void Contract
Where a contract was originally valid later becomes void
c) Void Agreement
An agreement not enforceable by law
d). Voidable Contract
An agreement which is enforceable by law at the option of one or more of
parties but not at the option of other or others
e). Illegal Contracts
Which is criminal in nature or which is immoral or opposed to public policy
f). Unenforceable Contracts
Is one which cannot be enforced in a court of law because of its technical
defects
2. On the Basis of Formation
a) Express Contracts
Where the terms are communicated in words spoken or written
b) Implied Contracts
When the terms of the contract are to be understood from the conduct
of the Parties or course of dealing between them
c) Quasi Contacts
This is not a contract, In some circumstances law itself create certain
relationships which resembles those created by contracts
3. On the Basis of Performance
a) Executed Contracts
Both the parties have performed their respective obligations under a
contract
b) Executory Contract
Which something remains to be done by the parties
4. On the Basis of Obligation
a) Unilateral Contract
Which only one party makes a promise, eg: Reward
b) Bilateral Contract
Which each of the parties to the contract makes a promise or
promises to the other party
Offer
Offer is a proposal by one party to another to enter
into a legally binding agreement with him. A proposal
is an expression of will or intention. The word
proposal is synonymous with the English word 'offer'.
For example, R tells S, "I am willing to sell my machine
for ₹9,000; Are you ready to buy?" This is a clear offer
from R to S.
DEFINITION
According to Indian Contract Act, 1872 “Offer” is
define under
Section 2(a) : “When one person signifies to another
his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that
other to such act or abstinence, he is said to make a
Proposal”.
Offeror/Promisor and Offeree/Promisee [Section
2(c)]
The person who makes the offer/proposal is called
an 'offeror/promisor' and the person to whom the
offer/proposal is made is called the
'offeree/promisee'.
Essentials of a Valid Offer
1. It must be intend to create legal relations
2. The terms of the offer must be definite and certain
3. Offer must be communicated to the offerree
4. An offer is different from a statement of intention or invitation
5. Special conditions atteched to an offer must be communicated
6. An offer may be general or specific
7. Offer must be made with a view to obtaining the assent of the other
party
8. An offer may be conditional
9. Offer should not contain a term, the non-compliance of which would
amount to acceptance
Kinds of Offer
1. Standing Offer: Continuous supply of certain articles at certain
rate over a period
2. Counter Offer: Rejection of the original offer and making a new
one
3. Cross Offers: Two parties make identical offers to each other in
ignorance of each other's offer
ACCEPTANCE
Acceptance means giving consent to an offer by the offeree.
When an acceptance is given, the offeree is giving his
consent to be bound by se not to the terms of the offer.
Definition
According to Section 2(b) of the Indian Contract Act, 1872,
"A proposal is said to be accepted when the person to whom
the proposal is made signifies his assent thereto. A proposal
when accepted becomes a promise".
For example, A offers to sell his car to B for 1,00,000.
B agrees to buy the car for 1,00,000. B's act is an
acceptance of A's offer.
Essentials of a Valid Acceptance
1. Acceptance must be absolute and unqualified
2. Acceptance must be communicated to the offerror
3. Acceptance must be made within a reasonable time
4. It must be according to the mode prescribed
5. The acceptor must be aware of the proposal at the
time of the acceptance
6. Acceptance must be given before the offer lapses
7. Acceptance cannot be implied from silence
Consideration
The term 'consideration' is one of the vital elements to uphold
a contract; an agreement made without consideration is a null
and void contract. Consideration is the price agreed to be paid
by the promisee for the obligation of the promisor.
Section 2(d) defines consideration as follows: "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 abstinence or promise is called a
consideration for the promise".
Essentials of a Valid Consideration
1. Consideration must be provided at the desire of the promisor
2. Consideration may move from the promisee or any other person
3. Consideration may be an act, abstinence or forbearance or a return
promise
4. Consideration may be past, present or future
5. Consideration need not be adequate
6. Consideration must be real and not illusory
7. Consideration must be something which the promisor is not already
bound to do
8. Consideration must not be illegal, immoral or opposed to public policy
PERFORMANCE OF CONTRACTS
Performance of Contracts
The performance of a contract is the carrying out of
promises made by the parties. It can be done in
several ways, including through action or inaction. For
a contract to be valid, both parties must perform their
obligations as laid out in the contract as agreed.