BUSINESS LAW AND REGULATION

UNIT 1

INDIAN CONTRACT ACT, 1872

Dr. Thulasi Krishna. K, Ph.D.

Dept. of Management Studies, MITS Madanapalle
tkk2007@gmail.com
 MEANING OF LAW

Law is the body of principles recognised and applied by the State in the
administration of justice.

There are various branches of law such as International law,

Constitutional law, Civil law, Criminal law, etc. Every branch of law
regulates and manages a particular field of activity.

The object of law is to ensure order.

In the context of new emerging India, the main object of law is to

establish socio-economic justice.
 MEANING OF BUSINESS LAW

Business law refers to the laws that apply

to business entities, such as partnerships
and corporations.
It is also called as Commercial law or
Mercantile law. Business law is a part of
Civil law, but not a separate branch.
Business law falls into two distinctive
areas: (1) the regulation of commercial
entities by the laws of company,
partnership, agency, and bankruptcy and
(2) the regulation of commercial
transactions by the laws of contract and
related fields.
 SOURCES OF BUSINESS LAW IN INDIA

English Mercantile law

Statutory Law (law laid down in the Acts of Parliament)

The past judicial decisions of courts

Customs and Usages

 INDIAN CONTRACT
ACT 1872
The Indian Contract Act, 1872 is an Act which specifies
and deals with the principles of the Law of Contract.

This Act came into force from the 1st day of September,
1872. It extends to the whole of India except to the State
of Jammu and Kashmir.

This Act describes different stages in the formation of a

contract, its performance, essential elements, breach of
contract and remedies for the breach of contract.
 MEANING AND DEFINITION OF CONTRACT

Sec. 2(h) of Indian Contract Act defines contract

as an agreement enforceable by law. Thus a
contract is an agreement made between two or
more parties which the law will enforce.

The definition of contract consists two elements-

i. An agreement and, ii. Its enforceability by law.

Ex: C makes an agreement with D to sell

him some goods for Rs. 25,000.
 MEANING AND DEFINITION OF AGREEMENT

An agreement is defined u/s 2 (e) as

every promise and every set of
promises, forming consideration for
each other.

When a proposal is accepted, it

becomes a promise.
ESSENTIALS OF A VALID CONTRACT SEC. 10
a. Agreement
b. Legal relationship
[Case: Balfour vs. Mrs. Balfour]
c. Free Consent (Sec. 14)
d. Competency or Capacity of the Parties
e. Lawful Consideration (Sec. 2(d))
f. Lawful Object
g. Agreements not declared Illegal or Void
h. Certainty of Terms (Sec. 29)
i. Possibility of Performance
j. Legal Formalities
 a. Agreement

To constitute a contract, there must be an

agreement.
An agreement is composed of two elements
offer and acceptance.
The party making the offer is known as the
offeror, the party to whom the offer is made is
known as the offeree.
Thus, there are essentially to be two parties to
an agreement. They both must be thinking of
the same thing in the same sense. In other
words, there must be consensus-ad-idem.
Example: X has a bike and expresses his
willingness to Y to sell for Rs. 35,000. Y accepts
this offer. This is an agreement between X and
Y.
 b. Legal relationship

There should be an intention on the part of the parties to the

agreement to create a legal relationship. An agreement of a
purely social or domestic nature is not a contract.

Case: Balfour vs. Mrs. Balfour

A husband agreed to pay Rs. 30,000 to his wife every month while
he was abroad. As he failed to pay the promised amount, his wife
sued him for the recovery of the amount.

Held: She could not recover as it was a social agreement and the
parties did not intend to create any legal relations
 c. Free Consent (Sec. 14)

The consent of the parties to the agreement

must be free and genuine.

The consent of the parties should not be

obtained by misrepresentation, fraud, undue
influence, coercion or mistake.

If the consent is obtained by any of these, then

the contract is not valid.
 d. Competency or Capacity of
the Parties

The parties to a contract should be

competent to enter into a contract.

According to Section 11, every

person is competent to contract if
he (i) is of the age of majority, (ii) is
of sound mind, and (iii) is not
disqualified from contracting by any
law to which he is subject.
 e. Lawful Consideration (Sec. 2(d))

The agreement must be supported by consideration on both sides.

Each party to the agreement must give or promise something and receive
something or a promise in return. Consideration is the price for which the
promise of the other is sought. However, this price need not be in terms of
money.

In case the promise is not supported by consideration, it will not be

enforceable at law. Moreover, the consideration must be real and lawful.

Example: A agrees to sell his car to B for Rs. 2,50,000. Here, Bs promise to
pay Rs. 2,50,000 is the consideration for As promise.
f. Lawful Object

The object of the agreement must be lawful and not

one which the law disapproves.

Example: X lets his flat on hire to Y, a prostitute,

knowing that it would be used for immoral purposes.
Thus, the agreement is void.
g. Agreements not declared Illegal or 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.

Example: Agreements made without

consideration are void; Agreements to do
impossible acts are void; Agreements made
with minors are void.
h. Certainty of Terms (Sec. 29)

The meaning of the agreement must be

certain or capable of being made certain
otherwise the agreement will not be
enforceable at law.

Example: A agrees to give employment to

B with good salary. This agreement is
vague in respect of salary to be paid and
hence it is not enforceable at law.
i. Possibility of Performance

The terms of the agreement should be

capable of performance. An agreement to
do an act impossible in itself cannot be
enforced.

For instance, A agrees with B to discover

treasure by magic. The agreement cannot
be enforced.
j. Legal Formalities

A contract may be oral or in writing.

If, however, a particular type of contract is

required by law to be in writing, it must comply
with the necessary formalities as to writing,
registration and attestation, if necessary.

If these legal formalities are not carried out, then

the contract is not enforceable at law.
 Thank You

-Dr. Thulasi Krishna K