Description
basic legal concepts, classification of law, how legal system affects business.
Legal Environment
Law for Management students?
? (a) (b) (c) (d)
A student must be aware of rights & remedies as well as obligations as: Manager Entrepreneur Director Individual “Ignorantia juris non excusat” or Ignorance of law is no excuse
What is law?
Contrary to laws in Physics/Maths/ Science ,or a game of cricket, law in jurisprudence refers to “the body of rules whether proceeding from formal enactment or from custom which a particular state/community recognizes as binding on its subjects or members”. ? It is a rule of conduct imposed upon and enforced among members of a given state. “In a civilized society, disputes are settled not on the streets using muscle power, but in courts, diligently using judicial precedents /statutes/ customs”.
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Basic legal concepts
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Legal entity: Law applies only to persons & hence persons are the subjects of law. A person is an entity clothed with rights & duties. All human beings are natural persons (tangible & visible) while a Public Limited Company is an artificial person (intangible & invisible) Property includes movable & immovable tangible assets as well as intangibles such as copy right, trade mark or patent right.
Classification of law 1.Public law
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Constitutional law Administrative law Criminal law Municipal law International law
Classification of law 2.Civil law
Law of contract. ? Law of property ? Law of succession ? Family laws. ? Law of tort etc. Criminal law is a type of Public law involving the society at large whereas Civil laws are private in nature. Penalty for criminal law is imprisonment & fines, whereas under civil law, damages are awarded to aggrieved parties.
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What must a student know?
Must be conversant with the Mercantile or Business law which prescribes a set of rules for (1) business persons themselves(2)Business persons & their customers/dealers/suppliers(3) Business persons and the state. Mercantile law is not a separate law but a part of Civil law dealing with: (a) Prevention of concentration of economic power. (b) Foreign exchange Management/regulation (c) Insolvency of business persons (d) Negotiable Instruments (e) Patents/trade marks & copyrights (f) Export/Import regulation (g) Regulation of stock exchange/financial securities (h) Excise/Import/Export duties & Income/wealth tax
Mercantile/Business laws
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Indian contract Act(1872) Sale of Goods Act(1930) Indian Partnership Act(1932) Company Law(1956) MRTP Act 1969 Negotiable Instruments Act(1881) Insurance Act(1938) Indian Copyright Act(1957) Patents Act(1970) amended in 2002 Arbitration & Conciliation Act(1996) Consumer Protection Act(1986) Indian Trade Marks Act(1999) Information Technology Act(2000)
Sources of mercantile law in India
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English mercantile law. Indian statute law. Judicial decisions Customs & usages
Relationship between business & environment
Social And Moral system
Scientific And Technology system
business
Economic system
Political System Including legal
An organization & its stakeholders
How legal systems could affect business
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Kentucky Fried Chicken (KFC) outlet at Bangalore City Corporation. High level of MSG(2%)against accepted level of 1% by PFA Act 1954. Enron-Dhabol power project in Maharashtra. The BJP Govt. had dragged the issue to court, accusing the Congress party for(1) high project cost(2)lack of transparency (3) acceptance of bribes(4)absence of competitive bidding (5)social & environmental issues.
Potential litigation (as individual or corporate)
Litigation that could arise
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Occupants/legal heirs registering criminal case u/s 337,338 & 304 of IPC against the driver of the offending vehicle. Occupants/legal heirs claiming compensation for bodily injuries/death u/s 146 of Motor vehicles Act 1988 against owner (or insurer) of offending vehicle. The owner of the tree registering criminal case u/s 279 of IPC for third party property damages against driver of the offending vehicle. The owner of the tree claiming compensation for third party property damages u/s 146 of Motor vehicles Act 1988 against owner (or insurer) of offending vehicle.
Litigation that could arise-cont’d
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The driver of the vehicle against the owner of offending vehicle for injuries sustained by him in the course & out of employment under Workmen compensation Act 1923. If the accident had resulted from a burst tyre or failed brakes, the tyre manufacturer or vehicle manufacturer could have liability. If a road-side culvert or payment has been damaged, the Public works Dept. could register a criminal case under IPC & claim compensation u/s 146.
Dog bite liability
Potential litigation (individual)
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A landlord/owner/tenant of a house is liable for accidental injuries caused by his/her pet dog on visitors/guests (not trespassers). They become liable for medical expenses, loss of income, pain & suffering, disfigurement/ disabilities etc.
Potential litigation (Corporate)
Chemical Industry
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The dangerous exhaust fumes could cause respiratory disorders amongst public residing in the vicinity or cause occupational disease in workers. The exhaust fumes could cause discoloration in the paint work of buildings in the locality. The fumes could get mixed with water vapor in the atmosphere, causing acid rain which could damage the environment. E.g.: Bhopal gas tragedy
Law of Contracts
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What is a contract? Sec.2(h) of Indian Contact Act 1872 defines Contract as “an agreement enforceable by law made at least between two parties by which rights are acquired by one and obligations are created on the part of the other. If any party fails to do something he has agreed to, then the other has a remedy. Contract=An agreement +enforceability Whether buying milk, boarding a bus, the transactions are contracts.
Agreement & Promise
Sec.2(e) of Indian Contract Act defines agreement as every promise & every set of promises forming consideration for each other” ? Sec.2(b) of the Indian Contract Act defines promise as an offer (or proposal) which has been accepted. or Agreement=Offer (or proposal) + Acceptance of Offer(or proposal) *Illegal & void agreements are unenforceable ab-initio.
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Enforceability
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An agreement is enforceable by law only if it creates legal obligation or the parties to agreement must be bound to perform their promises & in case of default, either must intend to sue the other. In case of social & domestic agreements, the presumption is that parties do not intend to create legal relations.
Classification of contracts (on basis of creation/execution)
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Express Contracts: Contract made by words (spoken or written) Implied Contracts :Made otherwise, than by words and is inferred from the conduct of the person or circumstances of the particular case. Executed contract: Where contracting parties have fulfilled their respective obligations under the contract. Executory contract: Where contracting parties are still to perform respective obligations. Partly Executed & Partly Executory contract: Where one of the contracting parties have fulfilled obligations and the other is still to perform his obligation.
Classification on basis of enforceability
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Valid contract :A contract satisfying all requirements of sec.10 of the Act. Void contract :A contract becomes void when it ceases to be enforceable by law(sec.2(j)of Indian contract Act) Voidable contract :An agreement enforceable by law at the option of one or more parties but not at the option of all contracting parties(sec.2(i) is a voidable contract. It is one which could be set aside or repudiated at the option of the aggrieved party. Unenforceable contract: It is a contract which is actually valid but cannot be enforced due to some technical defect (e.g. Understamping/non registration etc)
Essentials of a Valid Contract (sec 1 to 75)
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Proper Agreement i. e Offer & Proper Acceptance Consensus ad idem Intention to create legal relationship Free consent Capacity to contract Lawful consideration Lawful object Agreement not expressly declared void. Certainty of meaning Possibility of performance Legal formalities “Privity of contract”.
1.Offer & Acceptance
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Offer or proposal is the starting point of a contract. According to Sec.2(a)of Indian contract Act, a person is said to have made an offer (proposal) when he signifies to another, his willingness to do or abstain from doing something with a view to obtaining the assent of that offer to such act or abstinence. The person making the proposal is called the Offerer (promisor) and the person to whom the proposal is made is the Offeree or proposee.
Offer-types
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Express offer Implied offer Specific offer General offer Cross offer Counter offer Standing offer
Legal rules of a valid offer
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Definite, unambiguous & certain Intention to create legal relationship Must be distinguished from a mere declaration of intention to offer Different from an invitation to offer. Proper communication Cannot contain a term, the non-compliance of which may be assumed to amount to acceptance. Must be made with a view to obtain acceptance. Communication of special terms.
Acceptance
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Acceptance means giving consent to the Offer or is a expression by offeree of his willingness to be bound by terms of offer. Sec.2(b)of Indian Contract Act 1872 states that a proposal is said to be accepted when the proposee signifies his assent thereto. A proposal when accepted becomes a promise. Who can accept? Specific Vs General Offers. Express acceptance Vs Implied acceptance
Legal rules for valid acceptance
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Absolute & unqualified .Sec.7(1) Manner of giving acceptance. Sec.7(2) Communication. By whom/To whom Time limit. To be given before lapse of Offer. “Acceptance is to Offer what a lighted match is to a train of Gunpowder”--Anson
Revocation of Offer (Sec.5)
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Could be revoked anytime before communication of acceptance is complete as against the proposer i. e before letter of acceptance is posted by the acceptor. Revocation must move from Offerer or authorized agent & must be expressed. Notice of revocation of a general offer must be given through the same channel by which original offer was made. Offer cannot be revoked even if letter of acceptance is lost/delayed in transit.
Revocation of acceptance(Sec.5)
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Acceptance could be revoked any time before communication of acceptance is complete as against the acceptor, or before letter of acceptance is received by proposer. Simultaneous Letter/telegram for acceptance/revocation? No revocation possible in contracts over Telephone/telex/fax.
Lapse of Offer
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By revocation By lapse of time By death/insanity of Offerer/Offeree Failure to accept condition precedent By Counter offer. By not accepting in prescribed mode. Rejection by Offeree. By subsequent illegality or destruction of subject matter.
Capacity to contract (sec.11)
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Every person who is a major, who is of sound mind and who is not disqualified from contracting by any law to which the person is subject has capacity. Contracts with minors/lunatics void ab-initio. Persons disqualified by law are alien enemies, foreign sovereigns/ambassadors, convicts & insolvents. In case of a company, its contractual capacity is determined by the object clause of its MOA. In case of a statutory Corporation, its contractual capacity is determined by the statute creating it.
Who is a minor?
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Sec.3 of Indian majority Act 1875 defines major as any person: (1) Who has completed 18 years of age in normal cases. (2) Who has completed 21 years where a guardian for the minor or his/her property has been appointed. or Where minor’s property has passed under superintendence of the court of wards.
Agreements by a minor
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Validity (Mohiri Bibee Vs Dharmadas Ghosh) Fraudulent representation of age by minor. (Khan Gul Vs Lakha Singh) Ratification on attaining majority Minor’s agreement jointly with a major. Minor as a partner in a partnership firm. Minor as a shareholder/member of a company: Possible if shares are fully paid up/ AOA do not prohibit. Minor as insolvent. Contract by minor’s guardian? Contract for benefit of a minor & hence can be a promisee on a promisory note or a drawer of bill of exchange. Contract for supply of necessaries. Claim against property. Minor’s liability in tort (Burnard Vs Huggis) & Jennings Vs. Randall
Agreements by persons of unsound mind
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A person is said to be of sound mind (sec.12)if he is capable of (1) Understanding the terms of contract. (2) forming a rational judgement as to its effect upon his interests. A person usually of unsound mind but occasionally of sound mind. Burden of proof that he was of sound mind at the time of contract lies on the person who affirms it. A person usually of sound mind but occasionally unsound. The burden of proving that he was of unsound mind at the time of contract, lies on the person challenging validity of contract. Idiots can never enter into any contract while persons who are drunk cannot contract till such delirium or drunkenness lasts.
Persons disqualified by law
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Alien enemies are citizens of a foreign country which is at war with the Republic of India. They can neither enter into contract nor can they be sued in an Indian court (except by license from Govt.) Foreign sovereigns & Ambassadors can contract & enforce them in our courts but they cannot be sued without Govt. sanction unless they submit themselves to jurisdiction of local courts. Convicts cannot enter into contract during the period of their sentence. They can contract when on parole or after expiry of period of sentence. Insolvents cannot sue/be sued or enter into any contract in respect of his/her property.
Consideration
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Means “something in return” or “quid-pro-quo” consisting of right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Sec.2(d)of Indian Contract Act defines consideration--”when at the desire of the promisor, the promisee does or abstains from doing (applicable to past & future) then such act or abstinence or promise is called consideration. If ”X” promises to deliver goods to “Y” against payment of Rs.1000,then: (1)For X’s promise for delivery, Y’s consideration is payment of Rs.1000. (2)For Y’s promise for payment of Rs.1000,X’s consideration is parting with goods.
Essentials of valid consideration.
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Move at the desire of the promisor. Move from any person. Past/present/future. Of some value. Real & not illusory. Something other than the promisor’s existing obligation. Lawful.
Exceptions
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Since consideration can be also furnished by any person other than promisee, a stranger to consideration can sue, but not a stranger to a contract (absence of privity of contract). E.g.. Dunlop tyre Co. Vs Selfridge & co. Exception in case of Trusts. (Amirullah Vs Central Govt. Beneficiary has the right to sue. Exception for family settlement. (Rakhmanbai Vs.Govind) Exception by acknowledgement. (Surjan Vs. Nanat) Exception in Assignment of contract. (LIC Policies)
Contracts without consideration
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According to sec.10,consideration is one of the essentials of a valid contract & any agreement without consideration is void(sec.25). Gratuitous promises lack consideration & hence are not leally enforceable so long as promisee has not suffered any liability. (Abdul Aziz Vs. Mazum Ali)
Exceptions
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Agreements made on account of natural love & affection.sec.25(1) if expressed in writing, registered under law, made on account of love & affection and if parties are in a near relation to each other. (Rajlakhidevi Vs.Mukerjee) Promise to compensate is valid if: The person to be compensated has done something voluntarily or has done something which the promisor was legally bound to do.
Exceptions
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Promise to pay a time-barred debt.sec.25(3) Such a promise without consideration is valid if (1) it is made in writing(2)signed by debtor/agent & (3) relates to a debt which could not be enforced by a creditor because of limitation. Pestonjee Vs. Bai Meherbai is an exception. Completed gifts (transferred property)
Free Consent
Consent is assenting to offer (sec.13)where two or more persons agree on the same thing in the same sense. The identity of minds is also called consensus-ad-idem. Any agreement without consent is void ab-initio. (Baladevi Vs Majumdar) ? Free consent according to sec.14 is defined as consent not caused by coercion undue influence, fraud, misrepresentation or mistake. (totally void) * Absence of free consent makes a contract voidable at the option of the party whose consent was so caused(sec.19)
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Coercion(sec.15)
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A contract is said to be caused by coercion when it is obtained by : Committing any act forbidden by IPC(1860) Threatening to commit any act forbidden by IPC. Unlawful detaining or threat to detain any property. Coercion may proceed from & be directed against any person, even a stranger. Effect of threat to file suit (not coercion unless false charge) Effect of threat to commit suicide
Examples
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Ranganayakama Vs. Alwar Shetty(1889) Chikam Ammirayu Vs. Chikam Seshamma(1917) Muthiah Chettiar Vs. Koruppen Chetty A threatens to kill B if he does not sell his house to C OR A threatening to kidnap B’ son for not selling his house. Exception: Askari Mirza Vs. Bibi Jai Kishori(1912) “Threat of criminal prosecution”
Effects of coercion(sec.19 & 72)
Option of aggrieved party to avoid contract. ? Obligation of the aggrieved party to restore benefit. ? Obligation of the other party to repay/return. (Burden of proof of having entered into contract by coercion lies on the party intending to avoid the contract)
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Undue influence sec.16(1)
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Undue influence means dominating the will of another person to obtain an undue advantage over the other. It exists where: (a) Relations subsisting between parties are such that one of them is in a position to dominate the will of the other and (b) the dominant party uses that position to obtain an unfair advantage over the other.
Presumption of undue influence.sec16(2)
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Real or apparent authority (parent-child or servant master). Exceptions: Husband-wife, landlord-tenant etc) Fiduciary relationships (doctor-patient or gurudisciple etc) Mental distress Burden of proof: Under sec.16(3), burden of proof that the contract had not been induced by undue influence lies on the person who is in a position to dominate the will of the other. Rebuttal by proving (a) full disclosure of material facts (b) adequate consideration (c) that the other party was in receipt of independent advice. Difference between Coercion & undue influence
Fraud(sec.17)
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Fraud means & includes; Suggestion as to a fact, of that which is untrue by one who does not believe it to be true. Active concealment of a fact by one having knowledge/belief. A promise made without the intention of performing it. Any other fact fitted to deceive. Any act/omission declared by law as fraudulent. Mere silence (unless there is a duty to speak) would not amount to fraud. Duty to speak exists in contracts of “Uberrimae fidei”Insurance/Marriage/partnerships & all fiduciary relationships.
Remedies for fraud(sec.19)
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Suit for rescission to filed within reasonable time. Suit to require the other party to put him in a position in which he would have been if representation was true. Suit for damages for fraud. However such right is lost when(1) Contract is affirmed even after becoming aware of fraud(2)when parties cannot be restored to their original position(3)third parties have acquired rights for consideration & in good faith(4)aggrieved party could have discovered the truth by ordinary diligence.
Misrepresentation(sec.18)
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Means & includes: A positive assertion in a manner not warranted by the information of the person making it, of that which is untrue though he believed it to be true. Breach of duty without intention to deceive gains an advantage to the person committing it, or anyone claiming under him by misleading another to his prejudice. Causing however innocently, a party to an agreement, to make a mistake as to the substance of the thing, which is the subject of the agreement. May be through unwarranted statements, breach of duty or inducing mistake about the subject matter. (Eg. Johnson Vs. Crow)
Remedies
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Right to rescind the contract, subject to exceptions: If after becoming aware of misrepresentation/fraud, it takes a benefit under contact/affirms it. If parties cannot be restored to original position If third parties have acquired rights in subject matter of contract in good faith & for value.
Mistake(Sec.20 & 21)
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It is an erroneous belief about something. It could be a mistake of law (Indian or foreign) Mistake of fact (it could be unilateral or bilateral) Existence/identity/quality/quantity/ title of the subject matter Sec.22---Mistake of identity.
doc_705169568.ppt
basic legal concepts, classification of law, how legal system affects business.
Legal Environment
Law for Management students?
? (a) (b) (c) (d)
A student must be aware of rights & remedies as well as obligations as: Manager Entrepreneur Director Individual “Ignorantia juris non excusat” or Ignorance of law is no excuse
What is law?
Contrary to laws in Physics/Maths/ Science ,or a game of cricket, law in jurisprudence refers to “the body of rules whether proceeding from formal enactment or from custom which a particular state/community recognizes as binding on its subjects or members”. ? It is a rule of conduct imposed upon and enforced among members of a given state. “In a civilized society, disputes are settled not on the streets using muscle power, but in courts, diligently using judicial precedents /statutes/ customs”.
?
Basic legal concepts
?
?
Legal entity: Law applies only to persons & hence persons are the subjects of law. A person is an entity clothed with rights & duties. All human beings are natural persons (tangible & visible) while a Public Limited Company is an artificial person (intangible & invisible) Property includes movable & immovable tangible assets as well as intangibles such as copy right, trade mark or patent right.
Classification of law 1.Public law
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?
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Constitutional law Administrative law Criminal law Municipal law International law
Classification of law 2.Civil law
Law of contract. ? Law of property ? Law of succession ? Family laws. ? Law of tort etc. Criminal law is a type of Public law involving the society at large whereas Civil laws are private in nature. Penalty for criminal law is imprisonment & fines, whereas under civil law, damages are awarded to aggrieved parties.
?
What must a student know?
Must be conversant with the Mercantile or Business law which prescribes a set of rules for (1) business persons themselves(2)Business persons & their customers/dealers/suppliers(3) Business persons and the state. Mercantile law is not a separate law but a part of Civil law dealing with: (a) Prevention of concentration of economic power. (b) Foreign exchange Management/regulation (c) Insolvency of business persons (d) Negotiable Instruments (e) Patents/trade marks & copyrights (f) Export/Import regulation (g) Regulation of stock exchange/financial securities (h) Excise/Import/Export duties & Income/wealth tax
Mercantile/Business laws
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Indian contract Act(1872) Sale of Goods Act(1930) Indian Partnership Act(1932) Company Law(1956) MRTP Act 1969 Negotiable Instruments Act(1881) Insurance Act(1938) Indian Copyright Act(1957) Patents Act(1970) amended in 2002 Arbitration & Conciliation Act(1996) Consumer Protection Act(1986) Indian Trade Marks Act(1999) Information Technology Act(2000)
Sources of mercantile law in India
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?
? ?
English mercantile law. Indian statute law. Judicial decisions Customs & usages
Relationship between business & environment
Social And Moral system
Scientific And Technology system
business
Economic system
Political System Including legal
An organization & its stakeholders
How legal systems could affect business
?
•
Kentucky Fried Chicken (KFC) outlet at Bangalore City Corporation. High level of MSG(2%)against accepted level of 1% by PFA Act 1954. Enron-Dhabol power project in Maharashtra. The BJP Govt. had dragged the issue to court, accusing the Congress party for(1) high project cost(2)lack of transparency (3) acceptance of bribes(4)absence of competitive bidding (5)social & environmental issues.
Potential litigation (as individual or corporate)
Litigation that could arise
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?
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Occupants/legal heirs registering criminal case u/s 337,338 & 304 of IPC against the driver of the offending vehicle. Occupants/legal heirs claiming compensation for bodily injuries/death u/s 146 of Motor vehicles Act 1988 against owner (or insurer) of offending vehicle. The owner of the tree registering criminal case u/s 279 of IPC for third party property damages against driver of the offending vehicle. The owner of the tree claiming compensation for third party property damages u/s 146 of Motor vehicles Act 1988 against owner (or insurer) of offending vehicle.
Litigation that could arise-cont’d
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The driver of the vehicle against the owner of offending vehicle for injuries sustained by him in the course & out of employment under Workmen compensation Act 1923. If the accident had resulted from a burst tyre or failed brakes, the tyre manufacturer or vehicle manufacturer could have liability. If a road-side culvert or payment has been damaged, the Public works Dept. could register a criminal case under IPC & claim compensation u/s 146.
Dog bite liability
Potential litigation (individual)
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A landlord/owner/tenant of a house is liable for accidental injuries caused by his/her pet dog on visitors/guests (not trespassers). They become liable for medical expenses, loss of income, pain & suffering, disfigurement/ disabilities etc.
Potential litigation (Corporate)
Chemical Industry
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The dangerous exhaust fumes could cause respiratory disorders amongst public residing in the vicinity or cause occupational disease in workers. The exhaust fumes could cause discoloration in the paint work of buildings in the locality. The fumes could get mixed with water vapor in the atmosphere, causing acid rain which could damage the environment. E.g.: Bhopal gas tragedy
Law of Contracts
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What is a contract? Sec.2(h) of Indian Contact Act 1872 defines Contract as “an agreement enforceable by law made at least between two parties by which rights are acquired by one and obligations are created on the part of the other. If any party fails to do something he has agreed to, then the other has a remedy. Contract=An agreement +enforceability Whether buying milk, boarding a bus, the transactions are contracts.
Agreement & Promise
Sec.2(e) of Indian Contract Act defines agreement as every promise & every set of promises forming consideration for each other” ? Sec.2(b) of the Indian Contract Act defines promise as an offer (or proposal) which has been accepted. or Agreement=Offer (or proposal) + Acceptance of Offer(or proposal) *Illegal & void agreements are unenforceable ab-initio.
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Enforceability
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An agreement is enforceable by law only if it creates legal obligation or the parties to agreement must be bound to perform their promises & in case of default, either must intend to sue the other. In case of social & domestic agreements, the presumption is that parties do not intend to create legal relations.
Classification of contracts (on basis of creation/execution)
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Express Contracts: Contract made by words (spoken or written) Implied Contracts :Made otherwise, than by words and is inferred from the conduct of the person or circumstances of the particular case. Executed contract: Where contracting parties have fulfilled their respective obligations under the contract. Executory contract: Where contracting parties are still to perform respective obligations. Partly Executed & Partly Executory contract: Where one of the contracting parties have fulfilled obligations and the other is still to perform his obligation.
Classification on basis of enforceability
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Valid contract :A contract satisfying all requirements of sec.10 of the Act. Void contract :A contract becomes void when it ceases to be enforceable by law(sec.2(j)of Indian contract Act) Voidable contract :An agreement enforceable by law at the option of one or more parties but not at the option of all contracting parties(sec.2(i) is a voidable contract. It is one which could be set aside or repudiated at the option of the aggrieved party. Unenforceable contract: It is a contract which is actually valid but cannot be enforced due to some technical defect (e.g. Understamping/non registration etc)
Essentials of a Valid Contract (sec 1 to 75)
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Proper Agreement i. e Offer & Proper Acceptance Consensus ad idem Intention to create legal relationship Free consent Capacity to contract Lawful consideration Lawful object Agreement not expressly declared void. Certainty of meaning Possibility of performance Legal formalities “Privity of contract”.
1.Offer & Acceptance
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Offer or proposal is the starting point of a contract. According to Sec.2(a)of Indian contract Act, a person is said to have made an offer (proposal) when he signifies to another, his willingness to do or abstain from doing something with a view to obtaining the assent of that offer to such act or abstinence. The person making the proposal is called the Offerer (promisor) and the person to whom the proposal is made is the Offeree or proposee.
Offer-types
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Express offer Implied offer Specific offer General offer Cross offer Counter offer Standing offer
Legal rules of a valid offer
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Definite, unambiguous & certain Intention to create legal relationship Must be distinguished from a mere declaration of intention to offer Different from an invitation to offer. Proper communication Cannot contain a term, the non-compliance of which may be assumed to amount to acceptance. Must be made with a view to obtain acceptance. Communication of special terms.
Acceptance
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Acceptance means giving consent to the Offer or is a expression by offeree of his willingness to be bound by terms of offer. Sec.2(b)of Indian Contract Act 1872 states that a proposal is said to be accepted when the proposee signifies his assent thereto. A proposal when accepted becomes a promise. Who can accept? Specific Vs General Offers. Express acceptance Vs Implied acceptance
Legal rules for valid acceptance
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Absolute & unqualified .Sec.7(1) Manner of giving acceptance. Sec.7(2) Communication. By whom/To whom Time limit. To be given before lapse of Offer. “Acceptance is to Offer what a lighted match is to a train of Gunpowder”--Anson
Revocation of Offer (Sec.5)
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Could be revoked anytime before communication of acceptance is complete as against the proposer i. e before letter of acceptance is posted by the acceptor. Revocation must move from Offerer or authorized agent & must be expressed. Notice of revocation of a general offer must be given through the same channel by which original offer was made. Offer cannot be revoked even if letter of acceptance is lost/delayed in transit.
Revocation of acceptance(Sec.5)
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Acceptance could be revoked any time before communication of acceptance is complete as against the acceptor, or before letter of acceptance is received by proposer. Simultaneous Letter/telegram for acceptance/revocation? No revocation possible in contracts over Telephone/telex/fax.
Lapse of Offer
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By revocation By lapse of time By death/insanity of Offerer/Offeree Failure to accept condition precedent By Counter offer. By not accepting in prescribed mode. Rejection by Offeree. By subsequent illegality or destruction of subject matter.
Capacity to contract (sec.11)
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Every person who is a major, who is of sound mind and who is not disqualified from contracting by any law to which the person is subject has capacity. Contracts with minors/lunatics void ab-initio. Persons disqualified by law are alien enemies, foreign sovereigns/ambassadors, convicts & insolvents. In case of a company, its contractual capacity is determined by the object clause of its MOA. In case of a statutory Corporation, its contractual capacity is determined by the statute creating it.
Who is a minor?
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Sec.3 of Indian majority Act 1875 defines major as any person: (1) Who has completed 18 years of age in normal cases. (2) Who has completed 21 years where a guardian for the minor or his/her property has been appointed. or Where minor’s property has passed under superintendence of the court of wards.
Agreements by a minor
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Validity (Mohiri Bibee Vs Dharmadas Ghosh) Fraudulent representation of age by minor. (Khan Gul Vs Lakha Singh) Ratification on attaining majority Minor’s agreement jointly with a major. Minor as a partner in a partnership firm. Minor as a shareholder/member of a company: Possible if shares are fully paid up/ AOA do not prohibit. Minor as insolvent. Contract by minor’s guardian? Contract for benefit of a minor & hence can be a promisee on a promisory note or a drawer of bill of exchange. Contract for supply of necessaries. Claim against property. Minor’s liability in tort (Burnard Vs Huggis) & Jennings Vs. Randall
Agreements by persons of unsound mind
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A person is said to be of sound mind (sec.12)if he is capable of (1) Understanding the terms of contract. (2) forming a rational judgement as to its effect upon his interests. A person usually of unsound mind but occasionally of sound mind. Burden of proof that he was of sound mind at the time of contract lies on the person who affirms it. A person usually of sound mind but occasionally unsound. The burden of proving that he was of unsound mind at the time of contract, lies on the person challenging validity of contract. Idiots can never enter into any contract while persons who are drunk cannot contract till such delirium or drunkenness lasts.
Persons disqualified by law
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Alien enemies are citizens of a foreign country which is at war with the Republic of India. They can neither enter into contract nor can they be sued in an Indian court (except by license from Govt.) Foreign sovereigns & Ambassadors can contract & enforce them in our courts but they cannot be sued without Govt. sanction unless they submit themselves to jurisdiction of local courts. Convicts cannot enter into contract during the period of their sentence. They can contract when on parole or after expiry of period of sentence. Insolvents cannot sue/be sued or enter into any contract in respect of his/her property.
Consideration
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Means “something in return” or “quid-pro-quo” consisting of right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Sec.2(d)of Indian Contract Act defines consideration--”when at the desire of the promisor, the promisee does or abstains from doing (applicable to past & future) then such act or abstinence or promise is called consideration. If ”X” promises to deliver goods to “Y” against payment of Rs.1000,then: (1)For X’s promise for delivery, Y’s consideration is payment of Rs.1000. (2)For Y’s promise for payment of Rs.1000,X’s consideration is parting with goods.
Essentials of valid consideration.
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Move at the desire of the promisor. Move from any person. Past/present/future. Of some value. Real & not illusory. Something other than the promisor’s existing obligation. Lawful.
Exceptions
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Since consideration can be also furnished by any person other than promisee, a stranger to consideration can sue, but not a stranger to a contract (absence of privity of contract). E.g.. Dunlop tyre Co. Vs Selfridge & co. Exception in case of Trusts. (Amirullah Vs Central Govt. Beneficiary has the right to sue. Exception for family settlement. (Rakhmanbai Vs.Govind) Exception by acknowledgement. (Surjan Vs. Nanat) Exception in Assignment of contract. (LIC Policies)
Contracts without consideration
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According to sec.10,consideration is one of the essentials of a valid contract & any agreement without consideration is void(sec.25). Gratuitous promises lack consideration & hence are not leally enforceable so long as promisee has not suffered any liability. (Abdul Aziz Vs. Mazum Ali)
Exceptions
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Agreements made on account of natural love & affection.sec.25(1) if expressed in writing, registered under law, made on account of love & affection and if parties are in a near relation to each other. (Rajlakhidevi Vs.Mukerjee) Promise to compensate is valid if: The person to be compensated has done something voluntarily or has done something which the promisor was legally bound to do.
Exceptions
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Promise to pay a time-barred debt.sec.25(3) Such a promise without consideration is valid if (1) it is made in writing(2)signed by debtor/agent & (3) relates to a debt which could not be enforced by a creditor because of limitation. Pestonjee Vs. Bai Meherbai is an exception. Completed gifts (transferred property)
Free Consent
Consent is assenting to offer (sec.13)where two or more persons agree on the same thing in the same sense. The identity of minds is also called consensus-ad-idem. Any agreement without consent is void ab-initio. (Baladevi Vs Majumdar) ? Free consent according to sec.14 is defined as consent not caused by coercion undue influence, fraud, misrepresentation or mistake. (totally void) * Absence of free consent makes a contract voidable at the option of the party whose consent was so caused(sec.19)
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Coercion(sec.15)
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A contract is said to be caused by coercion when it is obtained by : Committing any act forbidden by IPC(1860) Threatening to commit any act forbidden by IPC. Unlawful detaining or threat to detain any property. Coercion may proceed from & be directed against any person, even a stranger. Effect of threat to file suit (not coercion unless false charge) Effect of threat to commit suicide
Examples
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Ranganayakama Vs. Alwar Shetty(1889) Chikam Ammirayu Vs. Chikam Seshamma(1917) Muthiah Chettiar Vs. Koruppen Chetty A threatens to kill B if he does not sell his house to C OR A threatening to kidnap B’ son for not selling his house. Exception: Askari Mirza Vs. Bibi Jai Kishori(1912) “Threat of criminal prosecution”
Effects of coercion(sec.19 & 72)
Option of aggrieved party to avoid contract. ? Obligation of the aggrieved party to restore benefit. ? Obligation of the other party to repay/return. (Burden of proof of having entered into contract by coercion lies on the party intending to avoid the contract)
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Undue influence sec.16(1)
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Undue influence means dominating the will of another person to obtain an undue advantage over the other. It exists where: (a) Relations subsisting between parties are such that one of them is in a position to dominate the will of the other and (b) the dominant party uses that position to obtain an unfair advantage over the other.
Presumption of undue influence.sec16(2)
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Real or apparent authority (parent-child or servant master). Exceptions: Husband-wife, landlord-tenant etc) Fiduciary relationships (doctor-patient or gurudisciple etc) Mental distress Burden of proof: Under sec.16(3), burden of proof that the contract had not been induced by undue influence lies on the person who is in a position to dominate the will of the other. Rebuttal by proving (a) full disclosure of material facts (b) adequate consideration (c) that the other party was in receipt of independent advice. Difference between Coercion & undue influence
Fraud(sec.17)
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Fraud means & includes; Suggestion as to a fact, of that which is untrue by one who does not believe it to be true. Active concealment of a fact by one having knowledge/belief. A promise made without the intention of performing it. Any other fact fitted to deceive. Any act/omission declared by law as fraudulent. Mere silence (unless there is a duty to speak) would not amount to fraud. Duty to speak exists in contracts of “Uberrimae fidei”Insurance/Marriage/partnerships & all fiduciary relationships.
Remedies for fraud(sec.19)
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Suit for rescission to filed within reasonable time. Suit to require the other party to put him in a position in which he would have been if representation was true. Suit for damages for fraud. However such right is lost when(1) Contract is affirmed even after becoming aware of fraud(2)when parties cannot be restored to their original position(3)third parties have acquired rights for consideration & in good faith(4)aggrieved party could have discovered the truth by ordinary diligence.
Misrepresentation(sec.18)
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Means & includes: A positive assertion in a manner not warranted by the information of the person making it, of that which is untrue though he believed it to be true. Breach of duty without intention to deceive gains an advantage to the person committing it, or anyone claiming under him by misleading another to his prejudice. Causing however innocently, a party to an agreement, to make a mistake as to the substance of the thing, which is the subject of the agreement. May be through unwarranted statements, breach of duty or inducing mistake about the subject matter. (Eg. Johnson Vs. Crow)
Remedies
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Right to rescind the contract, subject to exceptions: If after becoming aware of misrepresentation/fraud, it takes a benefit under contact/affirms it. If parties cannot be restored to original position If third parties have acquired rights in subject matter of contract in good faith & for value.
Mistake(Sec.20 & 21)
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It is an erroneous belief about something. It could be a mistake of law (Indian or foreign) Mistake of fact (it could be unilateral or bilateral) Existence/identity/quality/quantity/ title of the subject matter Sec.22---Mistake of identity.
doc_705169568.ppt