Legal Aspects Of Business Unit - 1 PPTs

1. LEGAL ASPECTS OF BUSINESS
UNIT - I

2. LAW - DEFINITION
Includes all the rules and principles, which regulate our relations with
other individuals and with the state.
•Law is the body of principles recognized and applied by the state in the
administration of justice.

3. LAW OF CONTRACT
 It is that branch of law which determines the
circumstances in which promises made by the parties to a
contract shall be legally binding on them.

4. INDIAN CONTRACT ACT, 1872
Deals with:
 The general principles of the law of contract
 Some of the special contracts (indemnity and guarantee,
bailment and pledge)

5. CONTRACT
A contract is an agreement made between two or more
parties which the law will enforce.
Sec 2 (h ) defines contract as follows:
Contract is an agreement enforceable by law.

6. ELEMENTS OF CONTRACT
 Agreement
 Its enforceability by law.

7. AGREEMENT
Every promise and every set of promises , forming
consideration for each other.
AGREEMENT = OFFER + ACCEPTANCE

8. PROMISE
 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.

9. CONSENSUS AD IDEM
This means that the parties to the agreement must have
agreed about the subject matter of the agreement in the
same sense and at the same time.

10. OBLIGATION
It is a legal tie which imposes upon a definite person or
persons the necessity of doing or abstaining from doing a
definite act or acts.

11. ESSENTIAL ELEMENTS OF VALID
CONTRACT
 Offer and acceptance
 Intention to create legal relationship
 Lawful consideration
 Capacity of parties – competency
 Free and genuine consent
 Lawful object
 Agreement not declared void
 Certainty and possibility of performance
 Legal formalities

12. CLASSIFICATION OF CONTRACTS
 Classification according to validity
 Classification according to formation
 Classification according to performance

13. CLASSIFICATION ACCORDING TO
VALIDITY
 Voidable contract
 Void agreement
 Void contract
 Illegal agreement
 Unenforceable contract

14. CLASSIFICATION ACCORDING TO
FORMATION
 Express contract
 Implied contract
 Quasi-contract
 E-commerce contract

15. CLASSIFICATION ACCORDING TO
PERFORMANCE
 Executed contract
 Executory contract
 Unilateral or one – sided contract
 Bilateral contract

16. VOID AGREEMENTS
A void agreement is one which is not enforceable by
law.
 Agreements the meaning of which is uncertain
 Wager agreements or wager
Following agreements are declared void:
 Agreement by incompetent parties
 Agreements to do impossible acts
 Agreements in restraint of trade
 Agreement in restraint of marriage

17. ESSENTIALS OF A WAGERING
AGREEMENT
 Promise to pay money
 Uncertain event
 Each party must stand to win or lose
 No control over the event
 No other interest in the event

18. PERFORMANCE OF CONTRACT
Performance of a contract takes place when the parties
to the contract fulfill their obligations arising under
the contract within the time and in the manner
prescribed

19. OFFER TO PERFORM
Where a promisor has made an offer of performance to
the promisee, and the offer has not been accepted the
promisor is not responsible for non performance , nor
does he thereby lose his rights under the contract.

20. BY WHOM MUST CONTRACTS BE
PERFORMED?
 Promisor himself
 Agent
 Legal representatives
 Third persons
 Joint promisors

21. WHO CAN DEMAND PERFORMANCE?
It is only the promisee who can demand performance of the
promise under a contract.

22. TIME AND PLACE OF PERFORMANCE
 Where no application is to be made and no item is
specified
 Where time is specified and no application is to be made
 Application for performance on a certain day and place
 Application by the promisor to the promisee to appoint
place
 Performance in manner or at time prescribed or
sanctioned by the promisee

23. RECIPROCAL PROMISES
Promises which form the consideration or part of the
consideration for each other are called reciprocal
promises.
They are classified as follows:
 Mutual and independent
 Conditional and dependent
 Mutual and concurrent

24. RULES REGARDING PERFORMANCE OF
RECIPROCAL PROMISES
 Simultaneous performance of reciprocal promises
 Order of performance of reciprocal promises
 Effect of one party preventing another from performing
promise
 Effect of default as to promise to be performed first
 Reciprocal promise to do things legal an also other
things illegal

25. TIME AS THE ESSENCE OF CONTRACT
It means that the performance of the promise by a party
to the contract is essential within the specified
period, in order to entitle him to enforce performance
from the other party.
 When time is of the essence
 When time is not of the essence

26. APPROPRIATION OF PAYMENTS
 Where the debtor intimates
 Where the debtor does not intimate and the
circumstances are not indicative
 Where the debtor does not intimate and the creditor falls
to appropriate

27. BREACH OF CONTRACT
Breach of contract means breaking of the obligation which
a contract imposes.
It may be:
 Actual breach of contract
 Anticipatory or constructive breach of contract

28. REMEDIES FOR BREACH OF CONTRACT
A remedy is the means given by law for the enforcement of
a right.
When a contract is broken, the injured party has one or
more of the following remedies:
 Rescission of the contract
 Suit for damages
 Suit upon quantum meruit
 Suit for specific performance of the contract
 Suit for injunction.

29. QUASI - CONTRACTS
Under certain circumstances, a person may receive a
benefit to which the law regards another person as
better entitled, or for which the law regards another
person as better entitled , or for which the law
considers he should pay to the other person, even
though there is no contract between the parties.
Such relationships are termed as quasi-contracts.
Law of quasi-contracts is also known as the law of
restitution.

30. KINDS OF QUASI - CONTRACTS
 Supply of necessaries
 Payment by an interested person
 Obligation to pay for non – gratuitous acts
 Responsibility of finder of goods
 Mistake or coercion

31. QUANTUM MERUIT
 Means “as much as earned” or “ as much as is merited”
The claim for quantum meruit arises in the following cases:
 When an agreement is discovered to be void
 When something is done without any intention to do so
gratuitously
 When there is an express or implied contract to render
services but there is no agreement as to remuneration.
 When the completion of the contract has been prevented by
the act of the other party to the contract
 When a contract is divisible

32. SALE OF GOODS ACT , 1930

33. CONTRACT OF SALE OF GOODS
A contract of sale of goods is a contract whereby the seller transfer the
property to goods to the buyer for a price.
A contract of sale may be absolute or conditional.

34. SALE AND AGREEMENT TO SELL
 Where under a contract of sale, the property of goods is
transferred from the seller to the buyer, the contract is
called “sale”, but where the transfer of the property in
the goods is to take place at a future time or subject to
some conditions thereafter to be fulfilled, the contract is
called an “agreement to sell”.

35. ESSENTIALS OF A CONTRACT OF SALE
 Two parties
 Goods
 Price
 Transfer of general property
 Essential elements of a valid contract

36. SALE AND AGREEMENT TO SELL-
DISTINCTION
SALE AGREEMENT TO SELL
TRANSFER OF PROPERTY EXECUTED CONTRACT EXECUTARY CONTRACT
TYPE OF GOODS EXISTING AND SPECIFIC
GOODS ONLY
FUTURE AND
CONTINGENT GOODS
RISK OF LOSS LOSS FALLS ON BUYER LOSS FALLS ON THE
SELLER
CONSEQUENCES OF
BREACH
SELLER CAN SUE FOR THE
PRICE
SELLER CAN SUE FOR
DAMAGES
RIGHT TO RE-SELL SELLER CANNOT RESELL
THE GOODS
RESALE IS POSSIBLE
GENERAL AND
PARTICUALR PROPERTY
CONTRACT PLUS
CONVEYANCE
MERELY A CONTRACT
INSOLVENCY OF BUYER SELLER MUST PAT TO
BUYER
SELLER DOES NOT PART
WITH THE GOODS
INSOLVENCY OF SELLER BUYER CAN RECOVER
GOODS FROM SELLER
BUYER CAN CLAIM
RERATEABLE DIVIDEND

37. HIRE – PURCHASE AGREEMENT
A hire-purchase agreement is a contract whereby the
owner of the goods lets them on hire to another person
called hirer or hire purchaser on payment of rent to be
paid in installments and upon an agreement that when a
certain number of installments are paid, the property in
the goods will pass to the hirer.

38. DISTINCTION BETWEEN SALE AND HIRE-
PURCHASE
SALE HIRE – PURCHASE
OWNERSHIP IS TRANSFERRED
FROM THE SELLER TO THE BUYER
OWNERSHIP IS TRANSFERRED
FROM SELLER TO THE HIRE
PURCHASER
POSITION OF BUYER IS THAT OF
OWNER
POSITION OF HIRE PURCHASER IS
THAT OF BAILEE
BUYER CANNOT TERMINATE THE
CONTRACT
HIRE PURCHASER HAS AN OPTION
TO TERMINATE THE CONTRACT
IF BUYER MAKES THE PAYMENT IN
INSTALLMENTS, AMOUNT PAYABLE
GETS REDUCED
INSTALLMENTS PAID BY THE HIRE-
PURCHASER ARE REGARDED AS
HIRE CHARGES

39. SUBJECT MATTER OF CONTRACT OF
SALE
•Goods form the subject-matter
•Actionable claims and money, are not goods
CLASSIFICATION OF GOODS
•EXISTING GOODS
Specific goods
ascertained goods
Unascertained or generic goods
•FUTURE GOODS
•CONTINGENT GOODS

40. EFFECT OF DESTRUCTION OF GOODS
 Goods perishing before making of contract
 Goods perishing after the agreement to sell but before
the sale is effected

41. THE PRICE
 Ascertainment of price
 Agreement to sell at valuation

42. STIPULATIONS AS TO TIME
 Stipulations relating to time of payment
 Stipulations not relating to time of payment

43. CONDITION
A condition is a stipulation which is essential to the main
purpose of the contract.
Its non-fulfillment upsets the very basis of the contract.

44. WARRANTY
 It is a stipulation which is collateral to the main purpose
of the contract.
 It is not of vital importance as a condition is.

45. CONDITION AND WARRANTY -
DIFFERENCE
CONDITION WARRANTY
DIFFERENCE AS TO
VALUE
ESSENTIAL TO THE
MAIN PURPOSE OF
THE CONTRACT
COLLATERAL TO THE
MAIN PURPOSE OF
THE CONTRACT
DIFFERENCE AS TO
BREACH
IN CASE OF BREACH
THE AGGRIEVED
PARTY CAN
REPUDIATE THE
CONTRACT OF SALE
THE AGGRIEVED
PARTY CAN CLAIM
DAMAGES ONLY
DIFFERENCE AS TO
TREATMENT
BREACH OF
CONDITION IS
TREATED AS BREACH
OF WARRANTY
BREACH OF
WARRANTY CANNOT
BE TREATED AS
BREACH OF
CONDITION

46. IMPLIED CONDITIONS
 Condition as to title
 Sale by description
 Condition as to quality or fitness
 Condition as to merchantability
 Condition implied by custom
 Sale by sample
 Condition as to wholesomeness

47. IMPLIED WARRANTIES
 Warranty of quiet possession
 Warranty of freedom from encumbrances
 Warranty as to quality or fitness by usage of trade
 Warranty to disclose dangerous nature of goods

48. CAVEAT EMPTOR
 This means “let the buyer beware”, i.e., in a contract of
sale of goods the seller is under no duty to reveal
unflattering truths about the goods sold.

49. TRANSFER OF PROPERTY

50. STAGES IN PERFORMANCE OF A
CONTRACT OF SALE OF GOODS
•The transfer of property in the goods
•The transfer of possession of the goods
•The passing of the risk

51. PASSING OF PROPERTY
Rules for ascertaining when the property in goods
passes to the buyer:
 Goods must be ascertained
 Intention of the parties

52. PERFORMANCE OF CONTRACT

53. PERFORMANCE OF CONTRACT
Performance of contract of sale means as regards the seller, delivery of the
goods to the buyer, acceptance of the delivery of the goods and payment for
them, in accordance with the terms of the contract of sale.

54. DELIVERY OF GOODS
It means voluntary transfer of possession of goods
from one person to another.
TYPES OF DELIVERY
 Actual delivery
 Symbolic delivery
 Constructive delivery or delivery by attornment

55. RULES AS TO DELIVERY OF GOODS
 Mode of delivery
 Delivery and payment concurrent conditions
 Effect of part delivery
 Buyer to apply for delivery
 Place of delivery
 Time of delivery
 Goods in possession of third party
 Cost of delivery
 Delivery of wrong quantity
 Installment deliveries
 Delivery to a carrier or wharfinger

56. RIGHTS OF THE BUYER
 Right to have delivery as per contract
 Right to reject the goods
 Right to repudiate
 Right to notice of insurance
 Right to examine
 Rights against the seller for breach of contract
suit for damages
suit for price
Suit for specific performance
Suit for breach warranty

57. DUTIES OF THE BUYER
 Duty to accept the goods and pay for them in
exchange for possession
 Duty to apply for delivery
 Duty to demand delivery at a reasonable hour
 Duty to accept installment delivery and pay for it
 Duty to take risk of deterioration in the course of
transit
 Duty to intimate the seller where he rejects the goods
 Duty to take delivery
 Duty to pay price
 Duty to pay damages for non-acceptance

58. RIGHTS OF AN UNPAID SELLER

59. AN UNPAID SELLER
A seller of goods is deemed to be an unpaid seller when –
• the whole of the price has not been paid or tendered
• a bill of exchange or other negotiable instrument has been received as a
conditional payment, and the condition on which it was received has not
been fulfilled by reason of the dishonor of the instrument or otherwise.

60. RIGHTS OF AN UNPAID SELLER
 Rights of an unpaid seller against the goods
right of lien
right of stoppage in transmit
right of re-sale
 Rights of an unpaid seller against the buyer personally
suit for price
suit for damages for non-acceptance
repudiation of contract before due date
suit for interest

61. REMEDIES FOR BREACH OF CONTRACT
OF SALE
 Seller’s suits
Suit for price
Suit for damages for non-acceptance of the goods
Suit for damages for repudiation of contract by the buyer
before due date
Suit for interest
 Buyer’s suits
suit for damages for non-delivery of the goods
suit for specific performance
suit for breach of warranty
suit for repudiation of contract by the seller before due date
suit for interest

62. NEGOTIABLE INSTRUMENTS
A negotiable instrument is a document which entitles a
person to a sum of money and which is transferable from
one person to another by mere delivery or by indorsement
and delivery

63. CHARACTERISTICS OF NEGOTIABLE
INSTRUMENT
 Freely transferable
 Title of holder free from all defects
 Recovery
 presumptions

64. TYPES OF NEGOTIABLE INSTRUMENTS
 Negotiable by statute – promissory notes, bills of
exchange, cheque
 Negotiable by custom or usage - exchequer bills, bank
notes, debentures, circular notes

65. PROMISSORY NOTE
A promissory note is an instrument in writing
containing an unconditional undertaking, signed by
the maker, to pay a certain sum of money only to, or to
order of, a certain person, or to the bearer of the
instrument

66. ESSENTIAL ELEMENTS OF PROMISSORY
NOTE
 Writing
 Promise to pay
 Definite and unconditional
 Signed by the maker
 Certain parties
 Certain sum of money
 Promise to pay money only
 Bank note or currency note is not a promissory note
 Formalities like number, date, place, consideration
 It may be payable on demand
 It cannot be made payable to bearer on demand

67. BILL OF EXCHANGE
A bill of exchange is an instrument in writing
containing an unconditional order, signed by the
maker, directing a certain person to pay a certain sum
of money only to , or to the order of, a certain person
or to the bearer of the instrument
PARTIES TO THE BILL:
 DRAWER
 DRAWEE
 PAYEE

68. ESSENTIAL ELEMENTS OF BILL OF
EXCHANGE
 It must be in writing
 It must contain an order to pay
 The order must be unconditional
 It requires three parties
 the parties must be certain
 It must be signed by the drawer
 The sum payable must be certain
 It must contain an order to pay money
 It must be affixed with the necessary stamp

69. CHEQUE
A cheque is a bill of exchange drawn upon a
specified banker and payable on demand and it
includes the electronic image of a truncated cheque
and a cheque in the electronic form.

70. CROSSING OF CHEQUES
A crossed cheque is one on which two parallel transverse
lines with or without the words “& Co” are drawn.
TYPES OF CHEQUES:
 open cheques
 crossed cheques

71. TYPES OF CROSSING
 General crossing
 Special crossing
 Restrictive crossing

72. CLASSIFICATION OF NEGOTIABLE
INSTRUMENTS
 Bearer and order instruments
 Inland and foreign instruments
 Instruments payable on demand
 Time instruments

73. PARTIES TO A NEGOTIABLE
INSTRUMENT

74. CAPACITY OF PARTIES
Every person is competent to contract
who is of the age of the majority
according to the law to which he is
subject, and is of sound mind and is
not disqualified from contracting by
any law to which he is subject

75. PARTIES TO A BILL OF EXCHANGE
 Drawer
 Drawee
 Acceptor
 Payee
 Holder
 Indorser
 Indorsee
 Drawee in case of need
 Acceptor for honour

76. PARTIES TO A PROMISSORY NOTE
 Maker
 Payee
 Holder
 Indorser
 Indorsee

77. PARTIES TO A CHEQUE
 Maker
 Drawee
 Payee
 Holder
 Indorser
 Indorsee

78. HOLDER
Any person entitled in his own name
(1) To the possession thereof
(2) To receive or recover the amount due thereon from the
parties thereto.

79. HOLDER IN DUE COURSE
Any person is a holder in due course if he fulfills the
following conditions:
(1) That for consideration he became the possessor or the
payee or indorsee
(2) That he became the holder of the instrument before its
maturity
(3) That he became the holder of the instrument in good
faith

80. PRIVILEGES OF A HOLDER IN DUE
COURSE
 Inchoate stamped instrument
 Liability of prior parties
 Fictitious payee
 Negotiable instrument without consideration
 Conditional delivery
 Instrument cleansed of all defects
 Instrument obtained by unlawful means or for unlawful
consideration
 Every holder is a holder in due course
 Estoppel against denying original validity of instrument
 Estoppel against denying capacity of payee to indorse
 Indorser not permitted to deny the capacity of prior parties

81. LIABILITY OF PARTIES TO NEGOTIABLE
INSTRUMENTS
 Liability of drawer
 Liability of drawee of cheque
 Liability of maker of note and acceptor of bill
 Liability of indorser
 Liability of prior parties to a holder in due course
 General rules regarding liability
 Acceptor’s liability on a forged indorsement
 Acceptor’s liability for a bill in a fictitious name

82. TRANSFER OF NEGOTIABLE INSTRUMENT
 Transfer by negotiation
negotiation by delivery
negotiation by indorsement and delivery
 Transfer by assignment

83. INDORSEMENT
 It means writing on an instrument
 Indorser – person who so signs the instrument
 Indorsee – person to whom the instrument is indorsed

84. DISCHARGE OF A NEGOTIABLE
INSTRUMENT
The term discharge is used in two senses:
(1) Discharge of the instrument
(2) Discharge of one or more of the parties from liability
thereon
An instrument is said to be discharged when all rights
of action under it are completely extinguished and when
it ceases to be negotiable.

85. MODES OF DISCHARGE OF AN
INSTRUMENT
 By payment in due course
 By party primarily liable becoming holder
 By express waiver
 By cancellation
 By discharge as a simple contract

86. DISCHARGE OF A PARTY
 By payment
 By cancellation
 By release
 By allowing drawee more than forty-eight hours
 By non-presentment of cheque
 Cheque payable to order
 Draft drawn by one branch on another
 Parties not consenting discharged by qualified acceptance
 By operation of law
 By material alteration
 Discharge by payment of altered instrument

87. AGENCY

88. AGENT AND PRINICIPAL -
DEFINITION
•An agent is a person employed to do any act for another, or to represent
another in dealings with third persons.
•The person for whom such act is done, or who is so represented is called the
principal.

89. ESSENTIALS OF RELATIONSHIP OF
AGENCY
 Agreement between the principal and the agent
 Intention of the agent to act on behalf of the principal.

90. RULES OF AGENCY
 Whatever a person can do personally, he can do
through an agent
 He who does not act through another does it by
himself

91. CREATION OF AN AGENCY
 By express agreement
 By implied agreement
 By ratification
 By operation of law

92. CLASSIFICATION OF AGENTS
 Special agent
 General agent
 Universal agent
 Commission agent
 Del credere agent

93. DUTIES OF AGENT
 To carry out the work undertaken according to the directions given
by the principal
 To carry out the work with reasonable care, skill and diligence
 To render proper accounts to his principal
 To communicate with the principal in case of difficulty
 Not to deal on his own account
 To pay sums received for the principal
 To protect and preserve the interests of the principal in case of his
death or insolvency
 Not to use information obtained to the course of the agency against
the principal
 Not make secret profits
 Not to set up an adverse title
 Not to put himself in a position where the interest and duty conflict
 Not to delegate authority

94. RIGHTS OF AN AGENT
 Rights of retainer
 Right to receive remuneration
 Right of lien
 Right of indemnification
 Right of compensation
 Right to stoppage in transit

95. DUTIES OF PRINCIPAL
 To indemnify the agent against the consequences of all
lawful acts
 To indemnify the agent against the consequences of acts
done in good faith
 To indemnify agent for injury caused by principal’s
neglect

96. RIGHTS OF PRINCIPAL
 To recover damages
 To obtain an account of secret profits and recover them
and resist a claim
 To resists agent’s claim for indemnity against liability
incurred

97. AGENT’S AUTHORITY
 Actual or real authority
 Ostensible or apparent authority

98. POSITION OF PRINCIPAL AND AGENT IN
RELATION TO THIRD PARTIES
The relationship is discussed under three heads:
 Where the principal is named
 Where the principal is unnamed
 Where the principal is undisclosed

99. NAMED PRINCIPAL
The position of the named principal for the acts of his agent
are as follows:
 Acts of the agent are the acts of the principal
 When the agent exceeds his authority
 Notice given to agent as notice to principal
 Principal inducing belief that agent’s unauthorized acts
were authorized
 Misrepresentation or fraud of agent

100. UNNAMED PRINCIPAL
When an agent contracts as an agent for a principal
but does not disclose his name, the principal is liable for
the contract of the agent, unless there is a trade custom
or a term, express or implied, to the effect which makes
the agent personally liable.

101. UNDISCLOSED PRINCIPAL
 An agent not only conceals the name of the principal but
also the fact that he is an agent.

102. PERSONAL LIABILITY OF AGENT
 When the contract expressly provides
 When the agent acts for a foreign capital
 When he acts for an undisclosed principal
 When he acts for a principal who cannot be sued
 Where he signs a contract in his own name
 Where he acts for a principal not in existence
 Where he is liable for breach of warranty of authority
 Where he receives or pays money by mistake or fraud
 Where his authority is coupled with interest
 Where the trade usage or custom makes him personally liable

103. TERMINATION OF AGENCY
 Termination of agency by act of the parties
agreement
revocation by the principal
revocation by the agent
Termination of agency by operation of law
performance of the contract
expiry of time
death and insanity
destruction of subject matter
principal becoming an alien enemy
dissolution of a company
termination of sub-agent’s authority

104. IRREVOCABLE AGENCY
 When an agency cannot be terminated or put an end to,
it is said to be an irrevocable agency
An agency is irrevocable in the following cases:
 Where the agency is coupled with interest
 Where the agency has incurred a personal liability
 Where the agent has partly exercised the authority