01 business law

7/29/2019 01 Business Law

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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.

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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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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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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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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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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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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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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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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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(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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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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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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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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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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