Notes

1. BUSINESS LAW
Dr.Sweta Leena Hota
AssistantProfessor
KIIT School of Commerceand Economics
What is Law?
All the rules and principles, which regulate our relations with other individuals and with the
state.
Holland, a jurist, defines ‘la’ as rules of external human action enforced by the sovereign
political authority, i.e. the State.
Salmond, ‘Law is the body of principles recognized and applied by the State in the
administration of justice.’
Woodrow Wilson has defined, “that portion of the established habit and thought of mankind
which has gained distinct and formal recognition in the shape of uniform rules backed by the
authority and power of the government.”
Law has a twofold aspect: is an abstract body of rules and also social machinery for securing
order in the community.
Object of the Law
To establish socio-economic justice and remove the existing imbalance in the socio-economic
structure.
So it is to maintain order; to serve as a vehicle of social change and social justice; to improve the
wellbeing and welfare of the community
Needfor the knowledge of Law
‘Ignorantia juris not excusar’ is a familiar maxim. This means
Ignorance of law is no excuse.
Nature of Business Law
It is that branch of law which is concerned with such matters as are usually the subject of what
may be called mercantile transactions, i.e. it deals with contractual situations and the right and
obligations arising out of mercantile transactions between mercantile persons. (an individual, a
partnership, or a joint stock company)

2. Sources of Mercantile Law
1. English Mercantile Law
Common Law – customs, usages and traditions which were developed over centuries by the
English Courts though unwritten but the principles are applied whenever subsequent disputes
arise.
Equity – is based upon concepts of justice developed by the judges whose decisions became
precedents. These are supplementary to the common Law.
Statute Law – laid down in the Acts of Parliaments. It is superior to an overrides any rule of the
common and equity laws.
Other sources of English Mercantile Law are: law Merchant or Maritime usages – based on
customs and usages prevalent amongst merchants and traders. Roman law and Case Laws – built
on previous judicial decisions.
2. Statute Law: the Contract Act, 1872, the Sale of Goods Act, 1930, the Partnership Act, 1932,
the Companies Act, 1956 are instances of the Statute Law. The law making power in India is
vested in Parliament and the State Legislatures.
3. Judicial decisions and the systemof precedents: Law based upon previous judicial decisions
which have to be followed in similar future cases.
4. Customs and usages: customs and usages established by long use and constantly put into
practice become binding on the parties entering into commercial transactions.
Ex. C.I. & B Syndicate V. Ramachandra, A.I.R. (1968)
When a custom is accepted by a court and is incorporated in a judicial decision, it becomes a
legally recognized custom.
Meaning of Contract
A Contract is an agreement made between two or more parties which the law will enforce.
Sec.2 (h) defines a contract as an agreement enforceable by law. This is complemented by
Pollock’s definition – Every agreement and promise enforceable at law is a contract.
Sir William Anson defines a contract as “ a legally binding agreement between two or more
persons by which rights are acquired by one or more to acts or forbearances (abstaining from
doing something) on the part of the others.”
According to Salmond, a contract is “an agreement creating and defining obligations between the
parties”.

3. A contract essentially consists of two elements.
1. agreement, 2. its enforceability by law.
An agreement is defined as “every promise and every set of promises, forming consideration fro
each other.” [Sec.2 (e)].
A promise is defined thus “When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.”
[sec.2 (b)].
So there must be a proposal or offer by one party and its acceptance by the other.
Agreement = Offer + Acceptance
Consensus ad idem – the subject matter of the agreement in the same sense and at the same time.
Obligation – defined as a legal tie which imposes upon a definite person or persons the necessity
of doing or abstaining from doing a definite act or acts.
Social and legal agreements
ESSENTIAL ELEMENTS OF A VALID CONTRACT
According to Sec. 10: all agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a lawful object and are not
expressly declared to be void.
1. Offer and acceptance
2. Intention to create legal relationship
[ Balfour v. Balfour, (1919)2 K.B.571)]
[Rose & Frank Co. v. Crompton Bros., (1925) A.C. 445]
3. Lawful consideration – to be enforceable by law must be supported by consideration.
Consideration – an advantage or benefit moving from one party to the other.
4. Capacity of parties – competency: (a) is of the age of majority; (b) is of sound mind; © is
not disqualified from contracting by any law to which he is subject (secs. 11&12)
5. Free and genuine consent- no coercion, undue influence, fraud, misrepresentation (sec. 14)
6. Lawful object – must not be illegal, immoral or opposed to public policy.

4. 7. Agreement not declared void – must not be expressly declared void by law in force in the
country.
8. Certainty and possibility of performance – not vague or uncertain (sec.29). [Montreal Gas
Co. v. Vasey, (1900) A.C.595]. A company agreed with V that on the expiration of V’s existing
contract, it would favourable consider an application by V for a renewal of his contract. Held, the
agreement was not intended to bind the company to renew its contract with V and imposed no
obligation on it to review it.
9. Legal formalities – in writing, to be stamped, has to be registered. Therefore a contract should
be made in writing or in the presence of witnesses or registered, the required statutory formalities
must be complied with (sec. 10, para 2).
CLASSIFICATION OF CONTRACTS
1. Classification according to validity
a. Voidable contract: This happens when the essential element of free consent in a contract is
missing.
b. Void agreement and void contract: an agreement with a minor or an agreement without
consideration; when a war breaks out between the importing country and the exporting country.
c. Illegal agreement: transgresses some rule of public policy, criminal in nature, or immoral.
d. Unenforceable contract: cannot be enforced in a Court of law because of some technical
defects such as not written, time bar.
2. Classification according to formation
a. Express contact - if the terms of a contract are expressly agreed
b. Implied contract – is inferred from the acts or conduct of the parties or course of dealings
between them. Ex. A gets into a bus, takes a cup of tea in a restaurant, etc.
c. Quasi-contract – is not a contract at all but is intentionally entered into by the parties. It is
created by law. A legal obligation is imposed on a party who is required to perform it. Example:
T, a tradesman, leaves goods at C’s house by mistake. C treats the goods as his own. C is bound
to pay for the goods.
e. E-commerce contract – is entered into between two parties via internet
3. Classification according to performance
a. Executed contract - one in which both the parties have performed their respective obligations.

5. b. Executory contract - one in which both the parties have yet to perform their obligations. If A
agrees to engage B as his servant from the next month, the contract is executory.
c. Unilateral or one-sided contract – is one in which only one party has yet to perform his
obligation. Ex A permits a railway coolie to carry his luggage and place it in a carriage. A
contract comes into existence as soon as the luggage is placed in the carriage. But by that time
the coolie has already performed his obligation. Now only A has to fulfill his obligation.
d. Bilateral contract – one in which both the parties have yet to perform their obligations. It is
similar to executory contracts.
4. Classification of Contracts in English Law
1. Formal contracts – a. Contracts of record; b. Contracts under seal
2. Simple contracts – contracts which not made under seal
Offer
According to Sec.2: (a), when a person made a proposal, when he signifies to another his
willingness to do or to abstain from doing something.
On the basis of Communication
Express offer - When offer is given to another person either in writing or in oral.
Implied offer - When offer is given to another person neither in writing nor in oral.
On the basis Offeree
Specific offer - When offer is given to a specific person.
General offer - When offer is given to entire world at a large.(Carlill Vs. Carbolic smoke ball
Co.,)
On the basis of Nature
Cross offer - When both the persons are making identical offers to each other in ignorance of
other’s offer.
Counter offer - When both the persons are making offers to each other which are not identical
in ignorance of other’s offer.
Standing offer - An offer which remains continuously enforceable for a certain period of time.
LEGAL RULES AS TO OFFER

6. 1. Offer must be given with an intention to create a legal relationship.(Balfour Vs. Balfour)
Balfour v. Balfour (1919): A was working in Ceylon. During the holidays, he and his wife B
went to England to enjoy the leave. When A was to return to Ceylon, his wife was advised to
remain in England, due to ill health. And A agreed to send his wife `500 p.m. got maintenance
expenses. For some time he sent the amount, but afterwards differences arose between them, and
he stopped payment. The amount of maintenance fell in arrears, and B brought a legal action
against A to recover the amount of arrears. In this case, wife’s (B’s) action to recover the arrears
failed and it was held that such type of family arrangements are not contracts because the parties
did not intend that they shall be attended by legal consequences.
2. Offer must be definite.(Taylor Vs. Portington)
Taylor V. Portington (1855): A offered to take a house on lease for three years at £ 280 p.a. if
the house was “put into thorough repair and drawing rooms handsomely decorated according to
the present style”. Held, the offer was too vague to result in a contractual relation.
A says to B, “I will sell you a car”. A owns three different cars. The offer is not definite.
3. There is a clear cut difference between offer, invitation to offer, invitation to sale. (Harris
Vs. Nickerson)
Harrison V. Nickerson (1873): An auctioneer advertised in a newspaper that a sale of office
furniture would be held. A broker came from a distant place to attend that auction, but all the
furniture was withdrawn. The broker thereupon sued the auctioneer for his loss of time and
expenses. Held, a declaration of intention to do a think did not create a binding contract with
those who acted upon it, so that the broker could not recover.
4. Offer must be communicated. (Fitch Vs. Snedkar)
Fitch v. Snedaker (1868): S offered a reward to anyone who returned his lost dog. F brought the
dog to S without having heard of the offer. Held, F was not entitled to the reward.
Lalman v. Gauri Dutt (1913): S sent his servant L to trace his missing nephew. He then
announced that anybody who traced his nephew would be entitled to a certain reward. L traced
the boy in ignorance of this announcement. Subsequently when he came to know of the reward,
he claimed it. Held, he was not entitled to the reward.
5. Mere statement of price is not an offer.(Harvey Vs. Facey)
Harvey v. Facie (1893): A sent a telegram to B writing “Will you sell us Bumper Hall Pen (Plot
of Land)? Telegraph lowest cash price”. B replied by telegram “lowest price for Bumper Hall
Pen $900.” A sent a telegram stating therein “I agree to purchase Bumper Hall Pen for £ 900
asked by you. Please send us your title deeds.” B refused to sell the plot of land at that price. A

7. brought legal action against B. It was held that B did not make any offer to sell at that price, he
simply answered the question asked by A. the court observed that A asked the following two
questions in his first telegram. (a) Willingness to sell, and (b) lowest price.
B only answered the second questions, and reserved his answer to his willingness to sell.
Therefore, he had made no offer
6. No term of Non-compliance of which amounts to acceptance
A offers by pose to sell his horse to B for `` 2000. He writes, “If you do not reply, I shall assume
you have accepted the offer.” There would be no contract even if B does not reply.
7. Offer must be in view of obtaining the assent
A contract is an agreement and an agreement is a promise and a promise is an accepted
proposal.
TENDER
a. A definite offer to supply specified goods or services; or
b. A standing offer.
When tenders are invited for the supply of specified goods or services, such tender submitted is
an offer. The party inviting tenders may accept any tender he chooses and thus bring about a
binding contract.
Where goods or services are required over a certain period, a trader may invite tenders as a
standing offer which is a continuing offer. The acceptance of a standing offer has the effect that
as and when the goods or services are required.
Case: A railway company invited tenders for certain iron articles which it might require over a
year. W’s tender was accepted. He supplied goods to the railway company for some time under
the orders given by the latter. He refused to execute an order given during the currency of the
tender. Held, W could not refuse to supply goods within the terms of the tender (Great
Northern Rail v. Witham (1873).
Acceptance
In order to have a valid contract there must be both an offer and an acceptance of the offer
Offer + Acceptance = Contract
“Meeting of the Minds”
There must be a meeting of the minds in order to form a contract.

8. Acceptance is defined [sec 2(b)], “when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal when accepted become a promise.
A offers to sell his car to B for ` 90,000. B accepts this and agrees to buy A’s car for ` 90,000. In
this case, a binding contract comes into existence between A and B.
Acceptance express – an auction sale
Acceptance implied – a widow promised to settle some immovable property on her niece if the
niece stayed with her in her residence. The niece stayed with her in her residence till her dealth.
Held, the niece was entitled to the property. )V.Rao & V.Rao (1916)
Acceptance of particular offer
Acceptance of general offer
LEGAL RULES AS TO ACCEPTANCE
1. The acceptance must be absolute and unqualified – the acceptance should be in toto (i.e. of
all the terms of the offer), and without any condition.
A offered to sell his house for `70,000 to B. B wrote a letter stating that he was prepared to buy it
for ` 60,000. This is a counter offer, and not acceptance. Now if B accepts the original offer to
buy the house for `70000, A will not be bound to sell the house, because B’s counter offer has
put an end to the original offer. (Nihal Chand v. Amarnath, AIR 1926)
2. The acceptance must be communicated to the Offeror
A agreed to supply coal to a Railway Company. Agents of both parties met, and a draft
agreement was drawn. Agreement was approved by A, and then sent to manager of the railway
company for his acceptance. The manager approved the draft and put it in the drawer of his table,
and the agreement remained there without final approval being signified. In this case, no valid
contract is concluded between the parties as the acceptance was not communicated. (Brogden v.
Metropolitan Railway 1877)
3. The acceptance must be expressedin some usual & reasonable manner- it is the legal
rule of the acceptance that it must be accepted in the prescribed manner.
A makes an offer to B and says, “If you accept the offer, reply by wire.” B sends the reply by
post. It will be a valid acceptance unless A informs B that the acceptance is not according to the
mode prescribed.
4. The acceptance must be given within a reasonable time

9. On June 8 M offered to take shares in R Company. He received a letter of acceptance on
November 23. He refused to take the shares. Held, M was entitled to refuse as his offer had
lapsed as the reasonable period during which it could be accepted had elapsed (Ramsgate
Victoria Hotel Co. v. Monteflore, 1886)
5. The acceptance cannot precede an offer – if the acceptance precedes an offer, it is not a
valid acceptance and does not result in a contract.
In a company, shares were allotted to a person who has not applied for them. Subsequently when
he applied for shares, he was unaware of the previous allotment. The allotment of shares
previous to the application is invalid.
6. It must show an intention on the part of the acceptor to fulfill terms of the promise
A valid contract can arise only when the acceptance is given with the intention of fulfilling the
terms of the contract. An acceptance which is made jokingly and without any intention of
entering into a contract is invalid and does not create any legal relationship.
7. The acceptance must be given by the party or parties to whom the offer is made
A applied for the post of a headmaster in a school. He was selected by the appointing authorities.
But the decision of his appointment was not communicated to him. One of the members of the
appointing committee informed him of his appointment. But this member was not authorized to
communicate the decision. He communicated the decision in his individual capacity.
Subsequently, the appointing authority cancelled his selection. A brought a legal action for
breach of contract. His action was rejected by the court, and it was observed, that “there must be
notice of acceptance from the contracting party in some way. Information from an unauthorized
person is an insufficient as over hearing from behind the door.”
8. The acceptance must be given before the offer lapses or before the offer is withdrawn
A offered by a letter to sell his horse to B for ` 5000. Subsequently, A withdrew his offer by a
telegram which was also received by B. After the receipt of this telegram, B accepted the offer
by a letter and posted the same. In this case, the acceptance is invalid as it was made after the
effective withdrawal of the offer.
9. The acceptance cannot be presumed from silence
A offered his car to B for `95,000 and wrote that if he did not hear from him (B) within a week,
he would assume that he has accepted offer. No reply was given by B. In this case, no valid
contract is concluded between A and B. (Ref. Harvey v. Facey 1893)
10. The acceptance may be express or implied

10. Example 1: A wrote to B in a letter, “I want to sell my black horse for `15,000”. B replied by a
letter “I am ready and willing to buy your black horse for `155,000”. Here B’s acceptance is
express acceptance as it is made in writing.
Example 2: At an auction sale of a car, A is the highest bidder. The auctioneer accepts the bid
by striking the hammer on the table. It is an implied acceptance. Here, auctioneer’s conduct of
striking the hammer on the table shows that the auctioneer has accepted the highest bid.
Communication of offer and acceptance
Communication of offer – it can be communicated by words, spoken, or written or by conduct.
Completion of communication of offer – it is complete when it comes to the knowledge of the
person to whom it is made (sec.4). It may be noted that an offer, accepted without its complete
knowledge, does not create any legal relations. (Ref. Lalman v. Gauri Datt 1913)
Communication of acceptance
Completion of communication of acceptance
Conclusion of the contract
Contract through Post
Necessary things:
Letter of acceptance, proper address, stamped and posted
The gap of time, between the posting and the delivery of acceptance, the acceptor can revoke
his/her acceptance by a speedier communication.
Contract over Telephone or Telex
Example: Risku made an offer to Kisku over telephone. K accepted the offer, but during his
reply the line went dead, and the acceptance was not heard by A. In this case, there is no contract
at that moment. If B wishes to make a contract, he must wait till the line is clear, and then again
convey his acceptance so that A can hear.
Revocation of Offer – any time before the communication of its acceptance is complete for the
offeror but not afterwards (sec. 5).
Example: A offered, by a letter, to sell his car to B for `2, 00,000. The letter was posted on 15th
March which reached B on 17th March. B accepted the offer and posted his letter of acceptance

11. on 20th March. Here, A became bound by the offer on 20th March. In this case, the offer could
be revoked by A at any time before 20th March.
The rules relating to revocation:
It can be revoked at any time before its acceptance is complete as against the offeror;
It revocation takes effect only when the revocation is communicated to the offeree;
In case where the offeror keeps his offer open for a certain period, he can revoke it before the
expiry of that period only if in the meantime, it has not been accepted.
Revocation of an acceptance
An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards (sec. 5).
The communication of revocation of acceptance should reach the offeror earlier than the
acceptance itself.
Example: Aalu offered by a letter to sell his car to Balu. B accepts the offer by a letter. B may
revoke his acceptance at any time before his letter of acceptance reaches A, and not afterwards.
Lapse of offer
By communication of notice of revocation
By lapse of time
By failure to accept condition precedent
By the death or insanity of the offeror
By counter-offer by the offeree
By not accepting the offer, according to the prescribed or usual mode
By rejection of offer by the offeree
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