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    COMMERCIAL & BUSINESS LAW

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    WHAT IS LAW?

    Law consists ofrules that regulate the conduct

    of individuals, businesses, and other

    organizations within society.

    Law means any rule of conduct, standard or

    pattern, to which actions are required to

    conform.

    2

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    OBJECTIVES OF LAW

    Objectives of law is the creation and protection

    of legal rights to maintain order in the

    society.

    Keeping the peace.

    Shaping moral standards.

    Promoting social justice Facilitating orderly change

    Maximizing individual freedom

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    BUSINESS LAWS

    Business law is also termed as commercial Law and

    mercantile law.

    Business law is generally used to denote that portion of

    law which deals with rights and obligations arising out of

    transactions between mercantile persons. It includesfollowing laws:

    Law of contracts

    Sales of goods actPartnership act

    Company law

    Negotiable instrument act

    Insurance act5

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    THE LAW OF CONTRACT

    A contract is an agreement made between two ormore parties which enforceable by law.

    Sec. 1 the of the Indian Contract Act defines it as

    An agreement enforceable by lawSec 10 lays down that All agreements are contracts

    if they are made by the free consent of parties

    competent to contract for a lawful consideration andwith a lawful object and are not hereby expressly

    declared to be void.

    All agreements are not contracts but all contracts

    are a reements.7

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    ESSENTIALS OF A VALID CONTRACT

    A valid contact must have the following essentials

    1. Two parties

    2. Offer and acceptance

    3. Identity of Minds

    4. Consideration

    5. Capacity

    6. Free Consent7. Lawful consideration

    8. The objects of the contact must be lawful

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    ESSENTIALS OF A VALID CONTRACT (Cont.)

    1. Two parties : for a valid contract, there must be twoparties

    2. Offer and acceptance: There must be an offer and

    acceptance One party has to make an offer and the other

    party has to accept it.

    3. Identity of Minds: The parties to the contract must have

    agreed about the subject matter of the contract at the

    same time and in the same sense.Illustration: A has two houses, one at Dhaka and another at

    Chittagong. He has offered to sell one to B. B accepts

    thinking to purchase the house at Chittagong, while A, when

    he offers, has in his mind to dispose of house at Dhaka. 9

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    ESSENTIALS OF A VALID CONTRACT (Cont.)

    4. Consideration: It means Something in return Everycontract must be supported by consideration.

    Illustration : A offers to sell his watch for Rs. 500 to B and

    B accepts the offer. Thus Rs. 500 is the consideration for

    the watch and vice-versa.

    5. Capacity; The parties to the contract must be competent

    to contract. For example a contract by a minor is void

    6. Free Consent: The consent of the parties must be freefrom any flow it must not be caused by a mistake or

    coercion or undue influence.

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    ESSENTIALS OF A VALID CONTRACT (Cont.)

    7. Lawful consideration: The consideration to a contract must be

    lawful

    Illustration: A promises to pay Rs. 500 to B, in consideration

    of B murdering C. The consideration is illegal.

    8. The objects of the contact must be lawful

    Illustration: A promises to pay Rs. 500 for letting Bs house for

    running illegal activities. The objects is illegal. Hence, the

    contract is void.

    Thus, the essence of legal contract is that there shall be anagreement between two persons, that one of them shall do

    something either for the benefit of the other or for his own

    detriment and that these persons intend that the agreement

    shall be enforceable at law 11

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    Classification of Contracts

    Validity or

    EnforceabilityPerformanceFormation

    Valid Contracts

    Voidable Contracts

    Void Agreement

    Void Contracts

    Unenforceable

    Contracts

    Illegal contract

    Express Contracts

    Implied Contracts

    Quasi contracts

    Executed Contracts

    Executory Contracts

    Bilateral Contracts

    Unilateral Contracts

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    CLASSIFICATION OF CONTRACT(Cont.)

    1. According to validity:a) Valid contract Agreement satisfying all the essentials.

    b) Voidable contract An agreement which is enforceable by

    law at the option of one or more of the arties , but not atthe option of the other or others, is a voidable contract.

    Consent of one party is not free.

    Example :A promises to sell his house to B for Rs.

    2,00,000. His consent is obtained by use or force. Thecontract is voidable at the option of A. He may avoid the

    contract.

    C. Void agreements - Void from the very beginning ( lack of

    one of the essentials)13

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    CLASSIFICATION OF CONTRACT(Cont.)

    d) Void contract A valid contract when it was made but

    subsequently it becomes void

    Example: A contract entered into by a minor is void.

    e) Unenforceable contract An unenforceable contract is

    one which cannot be enforced in a Court of law becauseof some technical defect, such as absence of writing or

    where the remedy has been barred by lapse of time.

    f) Illegal contract An agreement which is forbidden by law

    or against the policy of law is known as unlawful or illegal

    agreement.

    Example: smuggling, murder.

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    CLASSIFICATION OF CONTRACT(Cont.)

    2. According to formation:a) Express contract If the terms of a contract are expressly agreed upon whetherby words spoken or written at the time of the formation of the contract, the

    contract is said to be an express contract.

    b) Implied contract An implied contract is one which is inferred from the acts or

    conduct of the parties or course of dealings between them. It is not the result ofany express promise or promises by the parties but of their particular act.

    Example: A enters into a hotel and takes lunch. It is an implied contract that he

    has to pay the cost of lunch after taking it.

    c) Quasi contract refers to certain transactions which create peculiar obligation.

    Here no intention of the parties to create legal relationship. It is created by law.Example: Person receiving money or goods belonging to another by mistake or

    undue influence.

    Here the person receiving the benefit has an obligation to compensate the person

    paying the benefit although there is no explicit contract between the giver & the

    receiver of benefit. 15

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    CLASSIFICATION OF CONTRACT(Cont.)

    3. According to time of performance:

    a) Executed contract An executed contract as one inwhich both the parties have performed their respective

    obligations.

    Example: A agrees to supply a watch to B for Rs. 500.

    When A supplies the watch and B pays the price, the

    contracts is said to be executed.

    b) Executory contract An executory contract is one in

    which both the parties have yet to perform theirobligations. Thus in the above example, the contract is

    executor if A has not yet supplied the watch and B has

    not paid the price.16

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    CLASSIFICATION OF CONTRACT(Cont.)

    c) Unilateral Contract

    A unilateral or one-sided contract is one in which 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 orbefore the contract comes into existence.

    d) Bilateral Contract

    A bilateral contract is one in which the obligations on the

    part of both the parties to the contract are outstanding

    at the time of the formation of the contract. In this

    sense, bilateral contracts are similar to executor

    contracts 17

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    CONTINGENT CONTRACTS

    CONTINGENT CONTRACTS:

    Contingent means that which is dependent on something else. A Contingent Contract

    is a contract to do or not to do something, if some event collateral to such contract,

    does or does not happen (Sec. 31).

    For example, goods are sent on approval the contract is a contingent contract

    depending on the act of the buyer to accept or reject the goods.There are three essential characteristics of a contingent contract.

    1. Its performance depends upon the happening or non-happening in future of some

    event. It is this dependence on a future event which distinguishes a contingent

    contract from other contracts.

    2. The event must be uncertain. If the event if bound to happen, and the contract

    has got to be performed in any case it is not a contingent contract

    3. The event must be collateral, i.e. incidental to the contract

    Example: Contracts of insurance, indemnity and guarantee are the commonest

    instances of a contingent contract.18

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    RULES REGARDING CONTINGENT CONTRACTS

    RULES REGARDING CONTINGENT CONTRACTS

    1. Contingent contracts dependent on the happening of an

    uncertain future event cannot be enforced until the event has

    happened. If the event becomes impossible, such contracts

    become void (Sec. 32)

    Example: A contracts to pay B a sum of money when B marries C.

    C dies without being married to B. The contract becomes void.

    2. Where a contingent contract is to be performed if a particular

    event does not happen, its performance can be enforced when

    the happening of that event becomes impossible. (Sec. 33)

    Example:A agrees to pay B a sum of money, if a certain ship does

    not return. The ship is sunk. The contract can be enforced when

    the ship sinks.19

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    RULES REGARDING CONTINGENT CONTRACTS(Cont.)

    3. If a contract is contingent upon how a person will act at an unspecified

    time, the event shall be considered to become impossible when suchperson does anything which renders it impossible that he should so act

    within any definite time, of otherwise than under further contingencies.

    Example:A agrees to pay B a sum of money if B marries C. C marries D. The

    marriage of B to C must not be considered impossible, although it is

    possible that D may die and that C may afterwards marry B.

    4. Contingent contracts to do or not to to do anything, if a specified uncertain

    event happens within a fixed time, become void if the event does not

    happen or its happening becomes impossible before the expiry of that

    time.Example: A promises to pay B a sum of money if a certain ship returns

    within a year. The contract may be enforced if the ship returns within the

    year and becomes void if the ship is burnt within the year.

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    CAPACITY TO CONTRACT

    Capacity To Contract:

    The parties who enter into a contract must have the

    capacity to do so Capacity means competence of the

    parties to enter into a valid contract. According to Sec.

    10, an agreement becomes a contract if it is enteredinto between the parties who are competent to

    contract. Thus Sec. 11 declares the following person

    to be incompetent to contract.1. Minors

    2. Persons of unsound mind, and

    3. Persons disqualified by any law. 21

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    CAPACITY TO CONTRACT(Cont.)

    Incapacity to contract :

    (A) Incapacity Arising Out of Mental Deficiency

    1. Foreign Ambassadors: They may enter into contracts. But

    they cannot be sued except with the permission of the

    Central Government and certified by the Secretary.

    2. Alien Enemy: The enemys status is to be determined by

    the place at residence of the individual, but not by his

    nationality. If a contract is already entered into before the

    declaration of war, its performance will be suspended

    during the period of war and in case the war continues to

    where period, the contract becomes void on the ground

    of impossibility of performing contract. 22

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    CAPACITY TO CONTRACT(Cont.)

    3. Convict: He is no competent to contract during the period

    of sentence.

    4. Bankrupt: He cannot enter into contract and bind his

    property as his property shall be vested in the officialreceiver when he is adjudged an insolvent.

    5. Artificial Person : Corporation: It is a person in the eye of

    law. It is a legal entity. It can purchase properties enter

    into contracts, sue and be sued on such contracts. Itscontractual capacity is limited.

    For example, it cannot enter into contract to marry.

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    CAPACITY TO CONTRACT(Cont.)

    (B) Incapacity Arising From Mental DeficiencyA person is sand to be mentally deficient when (1) he does not attain majority. E.g. a

    minor or (2) he is of unsound mind.

    1. When he does not attain majority: Minor

    A minor is a person who has not completed 18 years of age. He attain majority on

    completion of his 21 year in England and 18 year in Bangladesh. A minor cannot

    enter into a valid contract.

    2. When he is of Unsound Mind

    Section 12 lays down that : A person is said to be of sound mind for the purpose of

    making a contract if at the time when he makes it, he is capable of understanding

    it and of forming a rational judgment as to its effect upon his interests. A person

    who is usually of unsound mind, but occasionally of sound mind may make a

    contract when he is of sound mind.

    Illustration: a patient in a lunatic asylum, who is at intervals of sound mind may

    contract during those intervals.24

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    EFFECTS OF MINORS AGREEMENT

    MINOR : A minor is a person who is not a major. He attainsmajority on completion of 21 years in England and 18 years in

    Bangladesh.

    EFFECTS OFMINORS AGREEMENT:

    1. A contract by a minor is void. It cannot be even ratified by him

    after attaining majority.

    2. A contract entered into by a minor by fraudulently

    misrepresenting his age is void.

    3. Minors can have no privilege to cheat men, though law

    protects them, so that people may not exploit their tender age.

    So, if a minor receives goods on credit while payment cannot

    be enforced goods can be recovered, if restitution is possible.25

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    EFFECTS OF MINORS AGREEMENT(Cont.)

    4. The property of the minor is liable for the necessaries supplied to

    him. Even here, he is not personally liable, but his estate only is

    liable.

    5. While a sale or mortgage by a minor is void, a sale or mortgage in

    favor of a minor is enforceable by him.

    6. A contract by a guardian on behalf of the minor is enforceable by

    or against the minor, provided the guardian is competent to

    contract and the contract is beneficial to the minor. But he cannot

    purchase immovable property without obtaining the consent of

    the court.

    7. Under Sec. 3 of the Partnership Act a minor may be admitted to

    the benefits of partnership with the consent of all the partners.26

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    DISCHARGE OF CONTRACT

    Discharge of contract means termination of the contractual

    relationship between the parties. A contract is said to be

    discharged when the rights and obligations created by it come

    to an end.

    A contract may be discharged by following ways:1. By Performance

    2. By Agreement or Consent

    3. By impossibility

    4. By Lapse of Time

    5. By operation of Law

    6. By Breach of Contract27

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    DISCHARGE OF CONTRACT(Cont.)

    1. Discharge by Performance

    Performance means the doing of that which is required by a contract.

    Discharge by performance takes place when the parties to the contract

    fulfill then obligations arising under the contract within the time and in

    the manner prescribed.

    2. Discharge by agreement or consent

    If the parties to a contract agree to substitute a new contract for existing

    contract then the original contract is discharged and need not be

    performed. It takes place when a new contract is substituted for an

    existing one between the same parties.

    Example: P holds a property under a lease. He later buys the property.

    His rights as a lessee merge into his rights as an owner.

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    DISCHARGE OF CONTRACT(Cont.)

    3. Discharge By Impossibility Of PerformanceIf an agreement contains an undertaking to perform an impossibility.

    A contract is discharged by impossibility of performance in the following cases:

    a) Destruction of subject-matter of contract: When the subject-matter of a contract,

    subsequent to its formation, is destroyed without any fault of the parties to the

    contract, the contract is discharged.

    Example: C let a music hall to T for a series of concerts on certain days. The hall

    was accidentally burnt down before the date of the first concert. Held the contract

    was void.

    b) Non-existence or Non-occurrence of a particular state of things: Sometimes, a

    contract is entered into between two parties on the basis of a continued existenceor occurrence of a particular state of things. If there is any change in the state of

    things which ought to have occurred does not occur, the contract is discharged.

    Example: A and B contract to marry each other. Before the time fixed for the

    marriage, A goes mad. The contract becomes void.

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    DISCHARGE OF CONTRACT(Cont.)

    c) Death or Incapacity for personal service: Where the performance of a contract

    depends on the personal skill or qualification of a party, contract is discharged onthe illness or incapacity or death of that party. The mans life is an implied

    condition of the contract.

    Example: An artist undertook to perform at a concert for a certain price. Before

    she could do so, she was taken seriously ill. Held she was discharged due to illness.

    d) Change of law: When subsequent to the formation of a contract change of lawtakes place, and the performance of the contract becomes impossible the

    contract discharged.

    Example: D enters into a contract with P on 1st March for supply of imported

    goods in the month of September, of the same year in June Parliament pass a law

    that the import of such goods is banned. The contract is discharged.e) Outbreak of war : A contract entered into with an enemy during war is unlawful

    and therefore impossible for performance. Contracts entered into before the

    outbreak of war are suspended during the war and may be revived after the war is

    over.

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    DISCHARGE OF CONTRACT(Cont.)

    4. Discharge By Lapse Of Time

    A contract should be performed within a specific period called period of limitation. If itis not performed and if no action is taken by the promise within the period of

    limitation he is deprived of his remedy at law.

    For example: the price of goods sold without any stipulation as to credit should be paid

    within three years of the delivery of the goods. If the price is not paid and creditor

    does not file a suit against the buyer for the recovery of price within three years thedebt becomes time-barred and hence irrecoverable.

    5. Discharge By Operation Of Law

    A contract may be discharged by operation of law. This includes discharge

    a) By Death: In contracts involving personal skill or ability, the contract is terminated

    on death of the promissory.

    b) By Insolvency: When a person is adjudged insolvent, he is discharged from all

    liabilities incurred prior to his adjudication.

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    DISCHARGE OF CONTRACT(Cont.)

    c) By Authorized Alteration of the terms of a written agreement: Where a party to acontract makes any material alteration in the contract without the consent of the

    other parts, the other parts can avoid the contract. A material alteration is one which

    changes in a significant manner the legal identity or character of the contract or the

    rights and liabilities of the parties to the contract.

    d) By Rights and Liabilities becoming vested in the same Person: Where the rights andliabilities under a contract vested in the same person.

    For example: when a bill gets into the hands of the acceptor, the other parties are

    discharged.

    6. Discharge By Breach Of Contract

    Breach of contract means a breaking of the obligation which a contract imposes. Itoccurs when a party to the contract without lawful excuse does not fulfill his

    contractual obligation or by his own act makes it impossible that he should perform his

    obligation under it. It confers a right of action for damages on the injured party.

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