business law revised

Business Environment and LawBusiness Environment and Law

Business and its environment Business and its environment Business and its Environment

Business and its EnvironmentBusiness and its Environment

DAVID KEITHDAVID KEITH

““The aggregate of all conditions ,events, and influences that The aggregate of all conditions ,events, and influences that surround and effect it “surround and effect it “

BUSINESS as an enterprise is a part of the society and it has BUSINESS as an enterprise is a part of the society and it has a direct relationship with the policy of the enterprisea direct relationship with the policy of the enterprise

HICKSHICKS

““THE FIRM CAN ADJUST TO THE ENVIRONMENT .OR IF THE FIRM CAN ADJUST TO THE ENVIRONMENT .OR IF IT HAS THE ABILITY .CHANGE THE ENVIRONMENT”IT HAS THE ABILITY .CHANGE THE ENVIRONMENT”

Business and its Business and its EnvironmentEnvironment

Nature of Business - Business may be Nature of Business - Business may be

understood as the organized efforts of understood as the organized efforts of

enterprise to supply consumers with enterprise to supply consumers with

goods and services for a profit.goods and services for a profit.

Businesses vary in size, as measured by Businesses vary in size, as measured by

the number of employees or by sales the number of employees or by sales

volume.volume.


Benefits of a Business Enterprise – Benefits of a Business Enterprise –

Important institution in societyImportant institution in society

For supply of goods and services For supply of goods and services

Creation of job opportunityCreation of job opportunity

Offers better quality of lifeOffers better quality of life

Contributes to the economic growth of Contributes to the economic growth of

the countrythe country

BUSINESS GOALSBUSINESS GOALS

Profit, Growth, Power- Resource, Employee satisfaction & development, Profit, Growth, Power- Resource, Employee satisfaction & development, Quality products & Services, Market Leaders.Quality products & Services, Market Leaders.

BUSINESS GOALSBUSINESS GOALS

Challenging, Joy of Creation, Service to SocietyChallenging, Joy of Creation, Service to Society

Factors Influencing the BusinessFactors Influencing the Business

BUSINESS

Internal Factors Controllable ones

External Factors Uncontrollable Ones

Internal FactorsInternal Factors

Organizational ResourcesOrganizational Resources

Research and Research and

DevelopmentsDevelopments

Technological capabilityTechnological capability

Financial capabilityFinancial capability

Marketing capabilityMarketing capability

Operational capabilityOperational capability

External FactorsExternal Factors

Micro EnvironmentMicro Environment

Macro EnvironmentMacro Environment


Business EthicsBusiness Ethics IT REFERS TO THE RULES PRINCIPLESIT REFERS TO THE RULES PRINCIPLES IT IS CONCERNED WITH TRUTH AND JUSTICEIT IS CONCERNED WITH TRUTH AND JUSTICE

TYPES OF ETHICSTYPES OF ETHICS


Moral ManagementMoral Management – –

Codes of ConductCodes of Conduct

CLARENCE C.WALTON MODEL OF CONDUCTCLARENCE C.WALTON MODEL OF CONDUCT

AUSTRE MODELAUSTRE MODEL

HOUSEHOLD MODELHOUSEHOLD MODEL

VENDOR MODELVENDOR MODEL

INVESTMENT MODELINVESTMENT MODEL

CIVIC MODELCIVIC MODEL

ARISTIC MODELARISTIC MODEL

Guidelines for Ethical BusinessGuidelines for Ethical Business

Obeying the lawObeying the law Tell the TruthTell the Truth Uphold human dignityUphold human dignity Adhere to the golden rule:" Do unto others as you would Adhere to the golden rule:" Do unto others as you would

have others do unto you”have others do unto you” Above all, do no harmAbove all, do no harm Allow Room for participationAllow Room for participation Always Act When You Have ResponsibilityAlways Act When You Have Responsibility

Unethical PracticesUnethical Practices

TO CUSTOMERS-ADULTURATION, TO CUSTOMERS-ADULTURATION,

INJURIOUS PRODUCTS,DUPLICATESINJURIOUS PRODUCTS,DUPLICATES

TO EMPLOYEES-LOW SALRIES,TO EMPLOYEES-LOW SALRIES,

MALPRACTICES,CHILD LABOUR, MALPRACTICES,CHILD LABOUR,

POOR WORKING CONDITIONSPOOR WORKING CONDITIONS

TOWARDS GOVT AND CUSTOMERS- TAX TOWARDS GOVT AND CUSTOMERS- TAX

EVASION,CORUPTION EVASION,CORUPTION

BRIBE,POLLUTION,BRIBE,POLLUTION,

PRICE HIKINGPRICE HIKING

Economic SystemsEconomic Systems

Money – Satisfies Need – Good Life – Help – Money – Satisfies Need – Good Life – Help – Social commitmentsSocial commitments

Economic SystemsEconomic Systems

Free Enterprise EconomyFree Enterprise Economy

Government Controlled EconomyGovernment Controlled Economy

Mixed EconomyMixed Economy

Mixed Capitalistic EconomyMixed Capitalistic Economy

Mixed Socialistic EconomyMixed Socialistic Economy Capitalistic

Democratic

Environment – Business Environment – Business RelationRelation

There is symbolic relationship between There is symbolic relationship between

business and its environment and among the business and its environment and among the

environmental factors.environmental factors.

These environmental forces are dynamic.These environmental forces are dynamic.

A particular business firm, by itself, may not be A particular business firm, by itself, may not be

in a position to change its environment. But in a position to change its environment. But

along with other firms, business will be in a along with other firms, business will be in a

position to mould the environment in its favor.position to mould the environment in its favor.


IMPORTANCE OF ENVIRONMENTAL STUDYIMPORTANCE OF ENVIRONMENTAL STUDY

Development of broad strategies and long-term policies of the Development of broad strategies and long-term policies of the firm.firm.

Development of action plans to deal with technological Development of action plans to deal with technological advancements.advancements.

To foresee the impact of socio-economic changes at the To foresee the impact of socio-economic changes at the national and international levels on the firm’s stability.national and international levels on the firm’s stability.

Analysis of competitor’s strategies and formulation of Analysis of competitor’s strategies and formulation of effective counter measures.effective counter measures.

To keep oneself dynamic.To keep oneself dynamic.


ENVIRONMENTAL ENVIRONMENTAL

ANALYSIS PROCESSANALYSIS PROCESS

ScanningScanning

MonitoringMonitoring

ForecastingForecasting

AssessmentAssessment


CORPORATE GOVERNANCECORPORATE GOVERNANCE

Corporate governance is concerned Corporate governance is concerned

with holding the balance between with holding the balance between

economic and social goals and between economic and social goals and between

individual and communal goals.individual and communal goals.

The aim is to align as nearly as possible The aim is to align as nearly as possible

the interest of individuals, corporations, the interest of individuals, corporations,

and society. - Corporate failuresand society. - Corporate failures

Corporate GovernanceCorporate Governance

RELEVANCE – RELEVANCE –

1991 – Liberalization – transparent and fair business practice.1991 – Liberalization – transparent and fair business practice.

Domestic and Foreign Investors – demanding, influence Domestic and Foreign Investors – demanding, influence

decisions. decisions.

Non-Promoters, small investors – undermined, Subsidiaries.Non-Promoters, small investors – undermined, Subsidiaries.


FOCUS – FOCUS –

Corporate governance is concerned with the Corporate governance is concerned with the

values, vision and visibility.values, vision and visibility.

Corporate management is concerned with the Corporate management is concerned with the

efficiency of the resources use, value addition efficiency of the resources use, value addition

and wealth creation within the broad and wealth creation within the broad

parameters of the corporate philosophy parameters of the corporate philosophy

established by corporate governance.established by corporate governance.


IMPORTANCE – IMPORTANCE –

Markets and investors take notice of well-managed companies, Markets and investors take notice of well-managed companies,

respond positively and reward such companies, with higher respond positively and reward such companies, with higher

valuationsvaluations

Indispensable to Capital markets, investor protection.Indispensable to Capital markets, investor protection.

Prevents insider tradingPrevents insider trading

Insiders abstain from transacting in the securities of the Insiders abstain from transacting in the securities of the

company.company.

Principle of disclose or desistPrinciple of disclose or desist

Compete internationally – improve standard of livingCompete internationally – improve standard of living


PRE-REQUISITES of good GovernancePRE-REQUISITES of good Governance

Clearly defined and adequate structure of Clearly defined and adequate structure of

roles, authority and responsibility.roles, authority and responsibility.

Vision, principles and norms – indicates Vision, principles and norms – indicates

development, set guidelines for development, set guidelines for

performance.performance.

Guiding, monitoring, reporting and Guiding, monitoring, reporting and

control.control.

Corporate Governance Corporate Governance

SOCIAL RESPONSIBILTY – SOCIAL RESPONSIBILTY –

Social responsibility is the obligation of Social responsibility is the obligation of

decision-makers to take actions.decision-makers to take actions.

Whether the issue is significant or not, the Whether the issue is significant or not, the

businessman should keep his social obligation businessman should keep his social obligation

in mind before contemplating any action.in mind before contemplating any action.

There have been several arguments about There have been several arguments about

social responsibility of a business.social responsibility of a business.


ARGUMENTS FOR SOCIAL RESPONSIBILITYARGUMENTS FOR SOCIAL RESPONSIBILITY Respond to the needs and expectations of society.Respond to the needs and expectations of society. Improvement of the social environment.Improvement of the social environment. Discourages additional governmental regulation and Discourages additional governmental regulation and

intervention.intervention. Power accompanied by responsibility.Power accompanied by responsibility. Internal activities have an impact on the external Internal activities have an impact on the external

environment.environment. Protects interests of stockholders.Protects interests of stockholders. Favorable public image.Favorable public image. Resources to solve some of society’s problems.Resources to solve some of society’s problems. Prevent social problems through business involvement than to Prevent social problems through business involvement than to

cure them.cure them.


ARGUMENTS AGAINST SOCIAL ARGUMENTS AGAINST SOCIAL RESPONBILITYRESPONBILITY

Reduces economic efficiency.Reduces economic efficiency. Creates excessive costs for businessCreates excessive costs for business Weakened international balance of paymentsWeakened international balance of payments Increases power and influenceIncreases power and influence Lack the social skills to deal with the problems of Lack the social skills to deal with the problems of

society.society. Not really accountable to society.Not really accountable to society.


Business enterprises areBusiness enterprises are primarily responsible to six major groups:primarily responsible to six major groups: ShareholdersShareholders EmployeesEmployees CustomersCustomers Creditors, suppliers and othersCreditors, suppliers and others Society andSociety and Government.Government.


Case Study – Global Investors meet.Case Study – Global Investors meet.

AnalyzeAnalyze

Business Environment Business Environment and Lawand Law

Business Law Business Law Business Law

What is Law?What is Law?

The word ‘The word ‘Law’ Law’ is a general term and has different connotations for is a general term and has different connotations for

different people.different people.

Citizen – a set of rules he mustCitizen – a set of rules he must obey. obey.

Lawyer – Law as vocation.Lawyer – Law as vocation.

Legislator – Created by him.Legislator – Created by him.

Judge – Guiding principles to be applied in making Judge – Guiding principles to be applied in making

decisions.decisions.

Need for Knowledge of LawNeed for Knowledge of Law

‘‘Ignorantia juris not excusat’Ignorantia juris not excusat’

This means Ignorance of law is not an This means Ignorance of law is not an

excuse.excuse.

Business LawBusiness Law

Business Law is a law relating to business, trade, Business Law is a law relating to business, trade,

industry and commerce. industry and commerce.

It generally includes the law relating to contacts, It generally includes the law relating to contacts,

Sale of goods, Partnership, Companies, Negotiable Sale of goods, Partnership, Companies, Negotiable

Instruments, insurance, Insolvency, Carriage of Instruments, insurance, Insolvency, Carriage of

goods and arbitration. goods and arbitration.

Business LawBusiness Law

Long back there existed Hindu and Muslim law Long back there existed Hindu and Muslim law

Later uniform law was enacted which lately gave birth to Indian contract Later uniform law was enacted which lately gave birth to Indian contract

act 1872act 1872

Most Important sources of Indian Mercantile law are:Most Important sources of Indian Mercantile law are:

English Mercantile LawEnglish Mercantile Law

The statutory lawThe statutory law

Judicial decisions or case lawJudicial decisions or case law

Customs and usagesCustoms and usages

English Law (Mercantile)English Law (Mercantile)

Indian contract law was passed by English people in the Indian contract law was passed by English people in the

year 1872year 1872

It is the foundation on which Mercantile law is built It is the foundation on which Mercantile law is built

Despite various matters (failing) our law makers still take Despite various matters (failing) our law makers still take

purview of English law where some principles are purview of English law where some principles are

expressly dealt within the act there is no room for expressly dealt within the act there is no room for

ambiguityambiguity

Nature of Mercantile LawNature of Mercantile Law

The term ‘Mercantile Law’ is used to denote that branch The term ‘Mercantile Law’ is used to denote that branch

of law which is concerned with such subject which may be of law which is concerned with such subject which may be

called the Mercantile Transactions.called the Mercantile Transactions.

The term ‘Mercantile Law’ is also used to denote the The term ‘Mercantile Law’ is also used to denote the

aggregate body of those legal rules which are connected aggregate body of those legal rules which are connected

with trade, industry and commerce.with trade, industry and commerce.

Source of Business LawSource of Business Law

English Mercantile Law – This is the most English Mercantile Law – This is the most important source of Indian Mercantile Law.important source of Indian Mercantile Law.

Common Law – Based on English customs, usages Common Law – Based on English customs, usages and tradition.and tradition.

Equity – developed separately from common lawEquity – developed separately from common law – – Decisions of the Judges became a precedent.Decisions of the Judges became a precedent.

Statute Law – laws laid down by the act of Statute Law – laws laid down by the act of parliament.parliament.


The Statutory LawThe Statutory Law - Bill passed by parliament and - Bill passed by parliament and

signed by President – it becomes an Act or Statute. This signed by President – it becomes an Act or Statute. This

procedure is called as “Statutory Law.”procedure is called as “Statutory Law.”

What can happen if the consent is not given?What can happen if the consent is not given?

Discuss …………….Discuss …………….


Judicial Law or Case LawJudicial Law or Case Law – Past Judicial – Past Judicial

decisions are important source of law. Some times decisions are important source of law. Some times

the precedents set by higher courts have a binding the precedents set by higher courts have a binding

force on lower courts. force on lower courts.

Whenever there is a silence or ambiguity, the judge has to Whenever there is a silence or ambiguity, the judge has to

decide the case accordingly.decide the case accordingly.


Customs and UsagesCustoms and Usages – Customs and usages established by – Customs and usages established by

long use and constantly put into practice become binding on the long use and constantly put into practice become binding on the parties entering into commercial transactions .parties entering into commercial transactions .

Ancient, reasonable, certain, definite, consistent with other customs and Ancient, reasonable, certain, definite, consistent with other customs and uniformly recognized in ordinary course of business.uniformly recognized in ordinary course of business.

When a custom is accepted by a court and is incorporated in Judicial When a custom is accepted by a court and is incorporated in Judicial decision – Legally recognized custom.decision – Legally recognized custom.

Law of Contract (LOC)Law of Contract (LOC)

Object of Law of Contract – The law of Object of Law of Contract – The law of

contract is that branch of law which contract is that branch of law which

determines the circumstances in which determines the circumstances in which

promises are made by the parties to a promises are made by the parties to a

contract shall be legally binding on them.contract shall be legally binding on them.


‘‘Sir William Anson’ observes in this Sir William Anson’ observes in this

connection that the law of contract is connection that the law of contract is

intended to ensure that what a man has intended to ensure that what a man has

been led to expect shall come to pass, and been led to expect shall come to pass, and

that what has been promised to him shall be that what has been promised to him shall be

performed.performed.


Indian Contract Act, 1872Indian Contract Act, 1872

The law relating to contracts is contained in The law relating to contracts is contained in

the Indian Contract Act of 1872.the Indian Contract Act of 1872.


Nature of contract – Law being a wider subject Nature of contract – Law being a wider subject

touches all walks of life. touches all walks of life.

Holland - Holland -

Law operates to regulate the actions of persons Law operates to regulate the actions of persons

with respect to one another and entire group or with respect to one another and entire group or

society.society.


Definition of Contract – A contract is an Definition of Contract – A contract is an

agreement made between two or more parties agreement made between two or more parties

which the law will enforce. which the law will enforce.

Sec 2(h) defines contract as an agreement Sec 2(h) defines contract as an agreement

enforceable by law.enforceable by law.

Pollock’s definition – “Every agreement and Pollock’s definition – “Every agreement and

promise enforceable at law is a contract.”promise enforceable at law is a contract.”


Law of contract (LOC) is the basic Law of contract (LOC) is the basic

part of Mercantile law. part of Mercantile law.

The Law of contract is concerned of The Law of contract is concerned of

the main question – Is there an the main question – Is there an

agreement? Can the parties to such agreement? Can the parties to such

agreement enforce it in the court of agreement enforce it in the court of

law? How can they enforce it? law? How can they enforce it?


Agreement and its enforceability. Agreement and its enforceability.

Agreement is defined as “every promise and Agreement is defined as “every promise and

every set of promises, forming consideration every set of promises, forming consideration

for each other” {Sec 2(e)}for each other” {Sec 2(e)}


A promise is defined thus: “When the person to A promise is defined thus: “When the person to

whom the proposal is made signifies his assent whom the proposal is made signifies his assent

thereto, the proposal is said to be accepted. A thereto, the proposal is said to be accepted. A

proposal, when accepted, becomes a promise” proposal, when accepted, becomes a promise”

{Sec. 2(b)}{Sec. 2(b)}

Agreement = Offer + Acceptance.Agreement = Offer + Acceptance.

Essential Elements – Valid Essential Elements – Valid ContractContract

Essential elements of a valid contract – Essential elements of a valid contract – Offer and acceptanceOffer and acceptance Intention to create legal relationshipIntention to create legal relationship Lawful considerationLawful consideration Capacity of parties Capacity of parties Free consentFree consent Lawful object Lawful object Certainty of meaningCertainty of meaning Possibility of performancePossibility of performance Not to be void and illegalNot to be void and illegal Legal formalitiesLegal formalities

Offer and Acceptance Offer and Acceptance

Here there should be a Here there should be a

“lawful offer by one party “lawful offer by one party

and lawful acceptance of and lawful acceptance of

the by another party”the by another party” Both of them should and Both of them should and

must confirm to the rules must confirm to the rules laid by the Indian contract laid by the Indian contract actact

Intention for Legal RelationshipIntention for Legal Relationship

Agreements of social or domestic nature do not Agreements of social or domestic nature do not contemplate legal legislationcontemplate legal legislation

In case of no intention on part of parties there will In case of no intention on part of parties there will be no such contractbe no such contract

E.g.; Compton brothers vs. rose Franco, sale and E.g.; Compton brothers vs. rose Franco, sale and purchase of tissue paperpurchase of tissue paper

note: legal document should be formed and signednote: legal document should be formed and signed

Lawful ConsiderationLawful Consideration

It is also called as It is also called as “quidpro-quo”“quidpro-quo”

promises made for nothing are not promises made for nothing are not enforceable under the Indian contract enforceable under the Indian contract act act

consideration may be in the form of consideration may be in the form of money, goods, services, a promise to money, goods, services, a promise to marry,marry,

Consideration may be past, present or Consideration may be past, present or future. But it must be real and lawfulfuture. But it must be real and lawful

Capacity to ContractCapacity to Contract

Sec 11 says the following persons are Sec 11 says the following persons are

competent for contracting:- (a) is of competent for contracting:- (a) is of

the age of majority, (b) is of sound the age of majority, (b) is of sound

mind, and (c) is not disqualified from mind, and (c) is not disqualified from

contracting by any law to which he is contracting by any law to which he is

subject. (Secs 11 and 12)subject. (Secs 11 and 12)

Free ConsentFree Consent

There must be a free and genuine consent of the parties There must be a free and genuine consent of the parties

to the agreement. to the agreement.

This is called “Consensus ad idem.”This is called “Consensus ad idem.”

Sec. 14 says consensus is free when it is not caused by – Sec. 14 says consensus is free when it is not caused by –

Coercion, Undue influence, Fraud, Coercion, Undue influence, Fraud,

Misrepresentations, Mistake.Misrepresentations, Mistake.

Flaw in ConsentFlaw in Consent

Coercion Under InfluenceSec 16

Misrepresentation Mistake

Fradulent/Wilful Sec. 17 Innocent / Unintentional Sec.18

Mistake of Law Sec 21 Mistake of Fact Sec 20

Country Foreign Country Both Parties (Bilateral) One Party (Unilateral)

Mistake as to the subject matter reg

As to the possibility of performing the contract Person contracted Nature of Contract

Exceptions

Physical Impossibility Legal Impossibility

Existence Identity Quality Quantity Title Price

Lawful ObjectLawful Object

The object of the agreement should The object of the agreement should

be lawful. be lawful.

Should not be – Should not be –

Illegal Illegal

ImmoralImmoral

Opposed to public policy (Sec. 23)Opposed to public policy (Sec. 23)

Certainty of MeaningCertainty of Meaning

Sec29 – Sec29 – ““agreements the meaning of which is not certain or agreements the meaning of which is not certain or

capable of being capable of being made certain are void”made certain are void”

the terms of contracts must be the terms of contracts must be precise and certain. It must not be precise and certain. It must not be left vagueleft vague

e.g.:e.g.: Hire –purchase terms Hire –purchase terms

Possibility of PerformancePossibility of Performance

If the act is impossible in itselfIf the act is impossible in itself It could be physically or legally It could be physically or legally Ultimately it cannot be enforced by lawUltimately it cannot be enforced by law

Eg: Eg: discovery of treasure by magicdiscovery of treasure by magic

Not Declared Void or IllegalNot Declared Void or Illegal

The agreements though The agreements though satisfying all the conditions for satisfying all the conditions for the valid contract must not be the valid contract must not be declared void or illegal by any declared void or illegal by any law in force in the countrylaw in force in the country

Sec-24-30Sec-24-30 agreements are agreements are declared void and illegaldeclared void and illegal


Legal formalities – Legal formalities –

A contract may be made by words spoken or written and A contract may be made by words spoken or written and

may be legally valid.may be legally valid.

Where there is a statutory requirement that a contract Where there is a statutory requirement that a contract

should be made in writing or in the presence of a witness should be made in writing or in the presence of a witness

or registered, the required statutory formalities must be or registered, the required statutory formalities must be

complied with (Sec. 10,para 2)complied with (Sec. 10,para 2)


Difference between Agreement and ContractDifference between Agreement and Contract

AgreementAgreement ContractContract

Offer and acceptance form an Offer and acceptance form an

agreementagreement

Agreement and enforceability Agreement and enforceability

constitute a contractconstitute a contract

Agreement may not create any legal Agreement may not create any legal

obligationobligation

A contract is enforced by law A contract is enforced by law

An agreement is wider conceptAn agreement is wider concept A contract enforces legal relationshipA contract enforces legal relationship

Agreement is not bindingAgreement is not binding A contract is bindingA contract is binding

Kinds of Contract Kinds of Contract

Valid agreements-Valid agreements- this kind of agreement is easily this kind of agreement is easily

enforced by lawenforced by law

Void agreements-sec2 (g)Void agreements-sec2 (g) - - this agreement is not this agreement is not

enforced by law enforced by law

eg: eg: Agreement in restraint of trade Agreement in restraint of trade

Agreement in restraint of marriageAgreement in restraint of marriage

Enforceable agreementEnforceable agreement-- an agreement is enforceable an agreement is enforceable

by lawby law

Classification of ContractsClassification of Contracts

Contracts are classified on the basis of…….. Contracts are classified on the basis of……..

ContractsContracts

ValidityFormation

Performance

Valid or EnforceabilityValid or Enforceability

Valid contractsValid contracts Void contractsVoid contracts Void agreementsVoid agreements Voidable contractsVoidable contracts unenforceable contractsunenforceable contracts Illegal agreementsIllegal agreements

Valid Contract Valid Contract

This contract is enforceable at lawThis contract is enforceable at law

It becomes a contract when all legal essentials are metIt becomes a contract when all legal essentials are met

Agreements falling short of legal requirement of Agreements falling short of legal requirement of sec sec

10 10 are valid contractsare valid contracts

e.g.:e.g.: A& B house dealingA& B house dealing

Void Contract Void Contract

An agreement was legally An agreement was legally enforceable when entered into enforceable when entered into but now lost the possibility of but now lost the possibility of performance due various performance due various reasonsreasons

Eg: Citizen of India having Eg: Citizen of India having business deal with Pakistanbusiness deal with Pakistan

Voidable Contract Voidable Contract

it is such a contract which can be set aside at the option of one of the it is such a contract which can be set aside at the option of one of the

parties to the contract. The party who can rescind the contract is the parties to the contract. The party who can rescind the contract is the

aggrieved, the other party who causes the wrong can set aside the aggrieved, the other party who causes the wrong can set aside the

contractcontract

Indemnity and GuaranteeIndemnity and Guarantee

Indemnity -Indemnity - A contract by which one party promises to A contract by which one party promises to

save the other from loss caused to him by the save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of the promisor himself, or by the conduct of any other person is called a conduct of any other person is called a ‘contract of indemnity’ (Sec. 124).‘contract of indemnity’ (Sec. 124).

Discuss……Discuss……

Contract of GuaranteeContract of Guarantee Guarantee - Guarantee - A ‘contract of Guarantee is a contract to perform the A ‘contract of Guarantee is a contract to perform the

promise, or discharge the liability, of a third person in case promise, or discharge the liability, of a third person in case of default’.of default’.

The person who gives the guarantee is called the ‘The person who gives the guarantee is called the ‘suretysurety, , the person in respect of whose default the guarantee is the person in respect of whose default the guarantee is given is called the ‘principal debtor’ and the person to given is called the ‘principal debtor’ and the person to whom the guarantee is given is called the ‘creditor’. whom the guarantee is given is called the ‘creditor’.

Guarantee – Written or Oral (Sec.126)Guarantee – Written or Oral (Sec.126) Types of GuaranteeTypes of Guarantee Specific GuaranteeSpecific Guarantee Continuing GuaranteeContinuing Guarantee

Difference – Indemnity and GuaranteeDifference – Indemnity and Guarantee

Contract of IndemnityContract of Indemnity Contract of GuaranteeContract of GuaranteeTwo parties to contract -Indemnifier Two parties to contract -Indemnifier (Promisor) and the Indemnified (Promisor) and the Indemnified (Promisee).(Promisee).

Three parties to contract – the Creditor, Three parties to contract – the Creditor, the principal debtor and the surety. the principal debtor and the surety.

Liability of the Indemnifier to the Liability of the Indemnifier to the Indemnified is primary and Indemnified is primary and independent.independent.

Liability of the surety to the creditor is Liability of the surety to the creditor is

collateral or secondary.collateral or secondary.

Only one contract Only one contract Three contracts contracts

Not necessary for the Indemnifier to act Not necessary for the Indemnifier to act at the request of the indemnified.at the request of the indemnified.

Surety gives guarantee at the request of Surety gives guarantee at the request of the debtor.the debtor.

Liability on happening of the Liability on happening of the contingencycontingency

Existing debt or duty – performance Existing debt or duty – performance guaranteed by suretyguaranteed by surety

Cannot sue third party – only in case of Cannot sue third party – only in case of an assignment.an assignment.

Surety steps in as creditor – can sue the Surety steps in as creditor – can sue the principal debtorprincipal debtor

Extent of Surety’s LiabilityExtent of Surety’s Liability

It is co-extensive – (Sec. 128) It is co-extensive – (Sec. 128) – The Quantum of obligation – The Quantum of obligation is the same as the principal is the same as the principal debtor, unless there is a debtor, unless there is a contract to the contrary.contract to the contrary.

Surety is liable for what the Surety is liable for what the principal debtor is liable – principal debtor is liable – Liability of the surety cannot Liability of the surety cannot be more nor less than that of be more nor less than that of the principal debtor. the principal debtor.

Rights of SuretyRights of Surety

Surety has rights against Surety has rights against

1.1. The CreditorThe Creditor

2.2. The Principal debtorThe Principal debtor

3.3. The Co-Sureties.The Co-Sureties.

Rights Against CreditorRights Against Creditor

1.1. Before payment of the Guaranteed debtBefore payment of the Guaranteed debt

E.g. In case of Fidelity guarantee, the surety can ask the employer to dismiss E.g. In case of Fidelity guarantee, the surety can ask the employer to dismiss the employee in the event of his proven dishonesty.the employee in the event of his proven dishonesty.

22 Right of Set – Off – Right of Set – Off – Surety can rely on any counter-claim that Surety can rely on any counter-claim that which the debtor has against the creditorwhich the debtor has against the creditor

33 On payment of the guaranteed debt- (Sec. 141) -On payment of the guaranteed debt- (Sec. 141) -Subrogated rights from the creditorSubrogated rights from the creditor

44 Rights to equitiesRights to equities – – Claim to all equities on payment of DebtClaim to all equities on payment of Debt

55 Rights of Subrogation –Rights of Subrogation – (Sec. 140) - (Sec. 140) - The surety steps The surety steps into the shoes of the Creditor on payment of the guaranteed debtinto the shoes of the Creditor on payment of the guaranteed debt

Rights against Principal DebtorRights against Principal Debtor

1.1. Right to be relieved of liabilityRight to be relieved of liability – – The surety can The surety can compel the Principal debtor to relieve him from the liability by paying compel the Principal debtor to relieve him from the liability by paying off the debt.off the debt.

1.1. Right to Indemnity – (Sec. 145) – Right to Indemnity – (Sec. 145) – The surety can The surety can recover the money paid by him from the Principal debtor with interest recover the money paid by him from the Principal debtor with interest any damages. The surety becomes the Principal Debtor. any damages. The surety becomes the Principal Debtor.

Rights against Co- Sureties Rights against Co- Sureties

Right of Contribution – (Sec. 146 and 147) – Right of Contribution – (Sec. 146 and 147) – Equality of burden and benefitEquality of burden and benefit..

1.1. Co – Sureties liable to contribute equally – Co – Sureties liable to contribute equally – (Sec. 146)(Sec. 146)

2.2. Liability of Co – Sureties bound in different Liability of Co – Sureties bound in different sums – (Sec. 147)sums – (Sec. 147)

3.3. Release of a Co – Surety – (Sec. 138)Release of a Co – Surety – (Sec. 138)

Discharge of Surety Discharge of Surety

Discharge of Surety by revocation Discharge of Surety by revocation

(Sec. 130, 131 and 62)(Sec. 130, 131 and 62) Discharge of surety by the conduct of the Discharge of surety by the conduct of the

Creditor Creditor

(Sec. 133 to 139 and Sec. 141)(Sec. 133 to 139 and Sec. 141) Discharge of surety by invalidation of Discharge of surety by invalidation of

contractcontract

(Sec. 142, 143 and 144)(Sec. 142, 143 and 144)

Discharge of Surety by RevocationDischarge of Surety by Revocation

1.1. Revocation by surety by giving notice to creditor Revocation by surety by giving notice to creditor – (Sec. 130) – continuing guarantee may be – (Sec. 130) – continuing guarantee may be revoked. Accrued liability cannot be revoked.revoked. Accrued liability cannot be revoked.

2.2. Revocation by death – (Sec. 131) – estate of Revocation by death – (Sec. 131) – estate of surety not liable in case of his death whether the surety not liable in case of his death whether the creditor has notice of it or not.creditor has notice of it or not.

3.3. Revocation by novation – (Sec. 62) - mutual Revocation by novation – (Sec. 62) - mutual discharge of old contract. The original contract discharge of old contract. The original contract of guarantee in such case comes to an end.of guarantee in such case comes to an end.

Discharge by conduct of CreditorDischarge by conduct of Creditor

1.1. Variance in terms of contract – (Sec. 133)Variance in terms of contract – (Sec. 133)

2.2. Release or discharge of principal debtor – (Sec. 134)Release or discharge of principal debtor – (Sec. 134)

3.3. Compounding by creditor with principal debtor – (Sec. Compounding by creditor with principal debtor – (Sec. 135)135)

4.4. Creditor’s act or omission impairing surety's eventual Creditor’s act or omission impairing surety's eventual remedy – (Sec. 139)remedy – (Sec. 139)

5.5. Loss of Security - (Sec. 141)Loss of Security - (Sec. 141)

Discharge by invalidation of contractDischarge by invalidation of contract

1.1. Guarantee obtained by mis -Guarantee obtained by mis -representation – (Sec. 142)representation – (Sec. 142)

2.2. Guarantee obtained by concealment – Guarantee obtained by concealment – (Sec. 143)(Sec. 143)

3.3. Guarantee on contract that creditor shall Guarantee on contract that creditor shall not act on it until a co surety joins – (Sec. not act on it until a co surety joins – (Sec. 144)144)

4.4. Failure of Consideration Failure of Consideration

Contract of BailmentContract of Bailment

What is contract of bailment?What is contract of bailment? The word bailment is derived from the The word bailment is derived from the

French word ‘bailer’ which means ‘to French word ‘bailer’ which means ‘to deliver Etymologically’deliver Etymologically’

In legal sense it involves change of In legal sense it involves change of possession of goods from one person to possession of goods from one person to another for some specific purpose. another for some specific purpose.

‘‘Bailor’ - ‘Bailee’ concept – Sec. 148Bailor’ - ‘Bailee’ concept – Sec. 148

Classification of BailmentsClassification of Bailments

For exclusive benefit of the BailorFor exclusive benefit of the Bailor For exclusive benefit of the BaileeFor exclusive benefit of the Bailee For the mutual benefit of the Bailor and For the mutual benefit of the Bailor and

the Baileethe Bailee Bailment may also be classified as:Bailment may also be classified as:

1.1. Gratuitous BailmentGratuitous Bailment

2.2. Non-Gratuitous bailment – bailment for Non-Gratuitous bailment – bailment for rewardreward

Duties of the BailorDuties of the Bailor

To disclose known faults – (Sec. 150, Para 1)To disclose known faults – (Sec. 150, Para 1) To bear extraordinary expenses of bailment To bear extraordinary expenses of bailment

– (Sec. 158)– (Sec. 158) To indemnify bailee for loss in case of To indemnify bailee for loss in case of

premature termination of gratuitous premature termination of gratuitous bailment – (Sec. 159)bailment – (Sec. 159)

To receive back the goods To receive back the goods To indemnify the bailee – (Sec. 164)To indemnify the bailee – (Sec. 164)

Duties of BaileeDuties of Bailee To take reasonable care of the goods bailed – (Sec. 152)To take reasonable care of the goods bailed – (Sec. 152)

Not to make any unauthorized use of goods – (Sec. 154)Not to make any unauthorized use of goods – (Sec. 154)

Not to mix the goods bailed with his own goods – (Sec. 155 Not to mix the goods bailed with his own goods – (Sec. 155 & 156)& 156)

Not to set up an adverse title – (Sec. 117 of indian evidence Not to set up an adverse title – (Sec. 117 of indian evidence act)act)

To return any accretion to the goods – (Sec. 163) To return any accretion to the goods – (Sec. 163)

To return the goods – (Sec.161)To return the goods – (Sec.161)

Rights of Bailor Rights of Bailor

Enforcements of rights Enforcements of rights

Avoidance of contract Avoidance of contract

Return of goods lent gratuitouslyReturn of goods lent gratuitously

Compensation from a wrong-doerCompensation from a wrong-doer

Rights of BaileeRights of Bailee Delivery of goods to one of several joint bailors of goodsDelivery of goods to one of several joint bailors of goods

Delivery of goods to bailor without title Delivery of goods to bailor without title

Right to apply to court to stop deliveryRight to apply to court to stop delivery

Right of action against trespassersRight of action against trespassers

Bailee’s lienBailee’s lien

Termination of BailmentTermination of Bailment On the expiry of the periodOn the expiry of the period

On achievement of the objectOn achievement of the object

Inconsistent use of goodsInconsistent use of goods

Destruction of the subject-matterDestruction of the subject-matter

Gratuitous bailmentGratuitous bailment

Death of the bailor or the baileeDeath of the bailor or the bailee

Contract of Agency Contract of Agency Definition – Involvement of third party to run the Definition – Involvement of third party to run the

day-to-day affair of a businessday-to-day affair of a business

The businessman acts as a principal and the third The businessman acts as a principal and the third party as his agent. party as his agent.

An ‘Agent’ is a person employed to do any act for An ‘Agent’ is a person employed to do any act for another, or to represent another in dealings with another, or to represent another in dealings with third persons. third persons.

The person for whom such act is done, or who is so The person for whom such act is done, or who is so represented is called the ‘Principal’.represented is called the ‘Principal’.

Kinds of AgencyKinds of Agency

Agency by express agreementAgency by express agreement

Agency by ratificationAgency by ratification

Agency by implied agreementAgency by implied agreement

1.1. Agency by estoppelAgency by estoppel

2.2. Agency by holding out Agency by holding out

3.3. Agency by necessity Agency by necessity

Classification of AgentsClassification of Agents

General classificationGeneral classification Special AgentsSpecial Agents General AgentsGeneral Agents Universal AgentsUniversal Agents Classification based on nature of workClassification based on nature of work Commercial or Mercantile Agents Commercial or Mercantile Agents BankerBanker Non-mercantile AgentsNon-mercantile Agents

Duties - AgentsDuties - Agents To carry out the workTo carry out the work - - undertaken according to the directions given by the principal.undertaken according to the directions given by the principal. With reasonable care, skill and diligence.With reasonable care, skill and diligence. Render proper accounts to his principal.Render proper accounts to his principal. Communicate with the principal in case of difficulty.Communicate with the principal in case of difficulty. Not to deal on his own account.Not to deal on his own account. Pay sums received for the principal.Pay sums received for the principal. Protect and preserve the interest of the principal – Death or insolvency Protect and preserve the interest of the principal – Death or insolvency Not to use information obtained to the course of the agency against the Not to use information obtained to the course of the agency against the

principal.principal. Not to make secret profit from agency.Not to make secret profit from agency. Not to set up an adverse title.Not to set up an adverse title. Not to put himself in a position where interest and duty conflict.Not to put himself in a position where interest and duty conflict. Not to delegate authority.Not to delegate authority.

Rights - AgentsRights - Agents

Right of retainer.Right of retainer.

Right to receive remuneration.Right to receive remuneration.

Right of lien.Right of lien.

Right of indemnification.Right of indemnification.

Right of compensation.Right of compensation.

Right of stoppage of transit.Right of stoppage of transit.

Duties - PrincipalDuties - Principal

To indemnify the agent against the consequences of all To indemnify the agent against the consequences of all lawful acts (Sec. 222)lawful acts (Sec. 222)

To indemnify the agent against the consequences of acts To indemnify the agent against the consequences of acts done in good faith (Sec. 223 & 224)done in good faith (Sec. 223 & 224)

To indemnify agent for injury caused by principals neglect To indemnify agent for injury caused by principals neglect (Sec. 225)(Sec. 225)

To pay agent the commission or other remuneration To pay agent the commission or other remuneration

agreedagreed. .

Rights - PrincipalRights - Principal

To recover damages.To recover damages.

To obtain an account of secret profits and To obtain an account of secret profits and recover them and resist a claim for recover them and resist a claim for remuneration. remuneration.

To resist agent’s claim for indemnity against To resist agent’s claim for indemnity against any liability incurred.any liability incurred.

Termination of Agency (Sec. 201)Termination of Agency (Sec. 201)

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Sale of Goods Sale of Goods

Law of Sale of Goods - 1930Law of Sale of Goods - 1930 Prior to 1930, the Sale of Goods act is Prior to 1930, the Sale of Goods act is

contained in Chapter VII of Indian contract contained in Chapter VII of Indian contract act.act.

Breach of contract of sale – The measure of Breach of contract of sale – The measure of damage is prescribed in Sec. 73 and Sec. 74 of damage is prescribed in Sec. 73 and Sec. 74 of the contract act.the contract act.

Formation of Contract of SaleFormation of Contract of Sale

A contract of sale of goods is a contract A contract of sale of goods is a contract whereby the seller transfers or agrees to whereby the seller transfers or agrees to transfer the property to goods to the buyer for transfer the property to goods to the buyer for a price.a price.

A contract of sale may be absolute or A contract of sale may be absolute or conditional {Sec. 4(2)}conditional {Sec. 4(2)}

Sale and agreement to sell.{Sec.4(4)}Sale and agreement to sell.{Sec.4(4)}

Essentials of a Contract of SaleEssentials of a Contract of Sale

Two Parties – Buyer and SellerTwo Parties – Buyer and Seller GoodsGoods Price Price Transfer of general property Transfer of general property Essential elements of a valid contractEssential elements of a valid contract

business law revised

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