2. CORPORATE LEGAL ENVIRONMENT – MBA 302

8. Introduction: Business Law are essential for the students of Management to understand the legal rules and aspects of business. Just like any other study even Business Management is incomplete without a proper study of its laws. Any form of business needs legal sanction. Therefore, it is imperative that a Manager understands the various ways in which businesses can be organised. This subject introduces some of the common forms of business organisation, including some forms unique in India like the Joint Hindu Undivided family firm. Different types of organsiations like Sole Ownership Company ( A Single Owner driven Company) Partnership Firms, Private Limited Companies and Public Limited Company. For Proper working of the society there must exist a Code of Conduct. As you all know in the ancient times the society was not organised. The rights of the individuals were not recognized. Gradually the State evolved and the state came into being. As we all know to regulate the state, there should be a specific Code of Conduct, which should be followed by every one. As a result law evolved as a system of right and obligation including all the rules and principles which regulate our relations with other persons and with the state.

9. Branches of Law: Civil Mercantile Law Law Criminal International Law Law Industrial Constitutional Law Law These rules and regulatiuons took the form of statues. To enforce the law and to resolve the conflicts arising there from, courts of law were set up by the state. Laws were made to govern almost every walk of life. You all must know that: Criminal Laws were made to control criminal activities in the Society like Indian Penal Code, which details which activities are considered criminal and what will be the punishment for committing a crime. Like Wise: Mercantile Law was evolved to govern and regulate trade and commerce. Hence the term Mercantile Law can be defined as that branch of Law, which comprises laws concerning Trade, Industry and Commerce. It is an ever growing branch with the changing circumstances of trade and Commerce( ITC ) Now the question arises as to what are the sources of Mercantile Law in India. The answer is The Indian Statutes on Mercantile Law.

11. Common Law: The terms Common Law is used to denote the case law based on English Customs, usage and traditions which were developed over centuries by the English Court. It is also know as unwritten Law, as these laws is not contained in the Act of the legislature. Principles of Equity : Under this branch of English law it was based on the principles of equity, justice and good conscience. It is also unwritten law and developed separately from the above common law. This law was developed taking into account some deficiencies in the above Common Law and Harsh working of Common Law. Law of Merchant of law Mercatoria : This branch of law was developed in the 14 th and 15 th centruies and was a separate law governing the commercial transactions of the merchants and traders. Intiatially this law was not recognised by the courts, but later on in the beginning of seventeeth Century, the Kings court that is common Law court starting to recognised the rules of law of Merchant which became a part of common law. The traders established their own tribunals consisting mainly of merchants themselves. The rule pronounced by these tribunals became the law till it was accepted and recognised by the common court of law.

12. In England, the Parliament is the supreme Legistative Body and can pass any laws that suits the requirements of the time. From the above we can understand that Biritsh Mercantile Law is the main source of Indian Mercantile Law. Apart from the above, Still there some more additional sources of the Indian Mercantile Law. Which are as under: Precedents (Past Judicial Decisions of Courts) The past judicial decisions of courts are the important source of the Law. Local Customs and Usages : The customs and usage of particular trade are an important source of Indian Mercantile Law. They play an important role in regulating the business dealings between the merchants of that trade, even under this law it acts as a binding force on the parties. However even though these law are binding on the parties it should also must satisfy certain requirement such as Certain / Reasonable / Definate / consistent with the law and uniformly accepted in the oridinary course of Business.

20. Definition of Contract: According to Section 2 (h) of the Indian Contract Act – An Agreement enforceable by law is a contract. A contract therefore is an agreement the object of which is to create a legal obligation i.e. a duty enforceable by law . From the above definition you will find out that I have highlighted two elements – a) An Agreement and 2) Legal Obligations i.e. duty enforceable by law. Agreement : As per Section 2 (e) “ Every promise and every set of promises, forming the consideration for each other is an agreement. What is a promise? Section 2(b) defines the term promise as: “When a person to whom the proposal is made signifies his assent there to the proposal is said to be accepted.

21. A proposal when accepted becomes a promise “ An agreement , therefore comes into existence only when one party makes a proposal or offer to the other party and that party signifies his assent (i.e. gives his acceptance) In short an agreement is the sum total of offer and acceptance . The following characteristics of an agreement become evident. a)At least two persons b) Consensus-as-idem .(both parties agree to the same subject) There must be two persons to make an agreement because one person cannot enter into an agreement with himself. Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time

22. Legal Obligation . As stated above, an agreement to become a contract must give rise to legal obligation i.e. duty enforceable by Law . If an agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. “ All contracts are agreements but all agreement are not contracts” A very simple example to understand: An agreement to sell a car may be a contract but an agreement to go for lunch may be a mere agreement not enforceable by law. Thus all Agreements are not contracts. Thus an agreement to buy certain specific goods at an agreed price e.g 200 bags of rice at Rs. 100 bags is a contract because it give rise to a duty enforceable by law and in case of default then essential elements of a contract was may by free consent competent to contract for lawful consideration

23. It would be appropriate to point out that the Law of contract deals only with such legal obligations which arises from agreements, obligations which are not contractual in nature are outside the purview of the law of Contract. After knowing the above points, we must further know which must be satisfied for the contract to be valid. Essential Elements of Valid Contract : A contract has been defined in Sec 2 (h) as “ an agreement enforceable by law” To be enforceable by law an agreement must possess the elements of a valid contract as contained in Section 10,29 and 56. According to Sec 10, all agreements are contracts if they are made with free consent of the parties, competent to contract for a lawful consideration with a lawful object are not expressly declared by the Act as Void

26. Answer: a)N cannot bring an action in a court to enforce the agreement as it lacked the intention to create legal relation. b) Her action was dismissed on the ground that no legal relations had been contemplated and therefore there was no contract ( Balfour v Balfour ) Agreement of moral, religious or social nature e.g a promise to lunch together at a friends house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences.

28. Lawful consideration : The third essential elements of a valid contract is the presence of consideration. Consideration has been defined as the price paid by one party for the promise of the other . An agreement is legally enforceable only when each of the parties to it give something and gets something. The Something given or obtained is the price for the promise and is called consideration . However, this price need not be in terms of money. In case the promise is not supported by consideration, the promise will be nudum pactum (a bare promise) and is not enforceable at law. Moreover, the consideration must be real and lawful.

30. Capacity of Parties : The parties must be competent to contract. But the question that arises now is that what parties are competent and what are not. The contracting parties must be of the age of majority and of sound mind and must not be disqualified by any law to which they are subject (sec.11). If any of the parties to the agreement suffers form minority, lunacy, idiocy, drunkenness etc. The agreement is not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate (sec 68).

32. There is absence of ‘free consent,’ if the agreement is induced by (i) coercion, (ii) undue influence , (iii) fraud, (iv) mis-representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (sec. 20)

33. Lawful object: For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or the other of the reasons mentioned above the agreement is void. Example: Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law or a contract for committing a murder is a void contract and unenforceable by law.

34. Writing and registration: According to the Indian contract Act, a contract to be valid, must be in writing and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered to make the agreement enforceable by law which must be observed.

35. Certainty:- Section 29 of the contract Act provides that “ Agreements, the meaning of which is not certain or capable of being made certain, are void.” In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced Illustation. A, agrees to sell B “ a hundred ton of oil” there is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainly.

36. Possibility of performance: Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that “An agreement to do an act impossible in itself is void”. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law. Illustration: A agrees with B, to discover treasure by magic. The agreement is not enforceable.

37. Not expressly declared void: There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable at law. For example, an agreement in restraint (hold Back) of marriage , an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under sections 26, 27 and 30 respectively.

38. Questions

39. 1. Comment that the all contracts are agreements but all agreements are not contract. 2. What are the essential elements of a valid contract? 3. A invites B to see a picture with him. B accepts the offer. A purchase a ticket for B and waits for him outside the cinema hall. B does not turn up has A any cause of action against B. [Hint: No] 4. A agrees with B to murder C for Rs. 10,000. Is this a valid contract? [Hint: No] 5. X agrees to pay Y Rs. 1000 if Y writes 100 pages for him in one minute. Is it a valid contract? [Hint: No] 6. State whether there is any valid contract in the following cases? 7. (i) X boards a DTC bus at Mayur Vihar for Shalimar Bagh. (ii) X and Y agree to go for fishing (iii) X buys an evening paper (iv) X a minor borrows Rs. 5000 from Yand agreed to repay back the same within a week.

40. Classification of Contract: Contracts may be classified in terms of their (1) validity or enforceability, (2) mode of formation, or (3) performance.

41. CLASSIFICATION OF CONTRACTS VALIDITY FORMATION PERFORMANCE 1. Valid Contracts 1. Express Contract 1. Executed Contract 2. Void Contract and 2. Implied Contract 2. Executary Contract Void Agreement 3. Constructive or 3. Unilateral Contract 3. Voidable Contract Quasi Contract 4. Bilateral Contract 4. Illegal Agreement 5. Unenforceable Agreement

61. DEFINITION Sec. 2(a) :A person is said to have made a proposal, when he “signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of the that other to such Act or Abstinence.” Essential Elements of Offer / Proposal: - One Person Signifies to another. - The Expression of willingness to do or to abstain from doing some thing must must be another person. Thus a casual enquiry “ do you intend to sell your motorcycle?” is not a ‘proposal’. Similarly, a mere statement of intention” I may sell my motorcycle if I can get Rs. 14,000 for it” is not a ‘proposal’. But if M says to N, “ will you buy my motorcycle fro Rs. 14,000,” or “ I am willing to sell my motorcycle to you for Rs. 14,000”, we have a ‘proposal’ as it has been made with the object of obtaining the assent of N.

62. The person making the ‘proposal’ or ‘offer’ is called the ‘promisor’ or ‘ offeror’, the person to whom the offer is made is called the ‘offeree’, and the person accepting the offer is called the ‘promisee’ or ‘acceptor’

68. I will give a few more illustrations in this regard. (a) M says to N that he is willing to sell his motorcycle to him for Rs. 20,000. this is an express offer . (b) X writes to Y he offers to sell his house to him for Rs. 80,000. there is an express offer (a) The Delhi Transport Corporation runs omnibuses on different routes to carry passengers at the scheduled fare. This is an implied offer by the D.T.C. (b) A shoe shiner starts shining some one’s shoes, without being asked to do so, in such circumstances that any reasonable man could guess that he expects to be paid for this, he makes an implied offer .