DSE-1: BUSINESS LAW

Unit – I
Nature and source of business law - Law of Contract - Nature of
contract – Essentials of Contract - Effect of Void, Voidable, Valid, Illegal,
Unlawful Agreements - Contingent contract – remedies for breach of
contract – quasi contract

What is law?
An official rule of a country or state that says what people may or may not do.

Introduction of business law:

Business law, also known as commercial law, encompasses the legal rules and
regulations that govern business and commercial transactions. It covers a wide range of
topics, including:

1. Contracts: Rules for forming, enforcing, and interpreting agreements between

parties.
2. Corporate Governance: Regulations related to the formation, operation, and
dissolution of corporations, including the roles and responsibilities of directors and
officers.
3. Employment Law: Standards governing the relationship between employers and
employees, including hiring practices, wages, discrimination, and termination.
4. Intellectual Property: Protection of inventions, trademarks, copyrights, and trade
secrets.
5. Consumer Protection: Laws that protect consumers from unfair practices and ensure
product safety.
6. Antitrust Law: Regulations designed to promote competition and prevent
monopolies.
7. Bankruptcy: Processes and laws related to business insolvency and debt relief.
 8. Real Estate: Laws concerning the sale, lease, and use of property.

Define business law.

What is contract?
A contract is an agreement between two parties that creates an obligation to perform
(or not perform) a particular duty.

Nature of contract:

1). Contract –

As per the terms of Section 2(h) of Indian Contract Act, 1872 Defines contract as ” An
Agreement Enforceable by Law “CONTRACT = ACCEPTED PROPOSAL/AGREEMENT +
ENFORCEABILITY BY LAW .

2). Agreement –

As per the terms of Section 2(e) of Indian Contract Act , 1872 defines Agreement as ”
Every promises or every set of promises forming the consideration from each other ” .
3). promise –

As per the terms of the Section 2(b) of The Indian Contract Act , 1872 ” The promise
” is defined as ” When the person to whom the proposal is made Signifies his assent thereto ;
The proposal is said to be accepted . ” proposal when accepted becomes a promise ” .

4). Enforceability by Law – ”

An agreement to become a contract must give rise to the legal obligations which means duly
enforceability by law ” .

5). Section 10 of Indian Contract Act , 1872 –

As per the terms of Section 10 of the Indian Contract Act , 1872 defines as ” All agreements
are contracts if they are made by the free consent ; parties competent to the contract having
lawful consideration and lawful object and not expressly declared as a void ” .

6). Free Consent –

“When two or more person’s agree upon the same thing at a same sense”. known as Free
Consent ( section 13) .

7). Valid Contracts –

Valid contracts are the contracts which are binding and enforceable by law. containing all the
essential elements of a valid contracts .

8). Void Contracts –

As per the terms of the Section 2(j) of the Indian Contract Act , 1872. ” Where a contract ceases
to be enforceable by law , becomes void when ceases to be enforceable . Void contracts are the
one which cannot enforced by the law ” .

9). Voidable contracts –

As per the terms of Section 2(i) of the Indian Contract Act , 1872 defines as “When a contract
is Voidable at the option of one or more parties not at the option other or others parties known
as Voidable Contracts .

10). Illegal Agreements –

Illegal Agreements are the agreement which are unlawful in nature” which is prohibited by law
. and collateral to these agreements are always null and void .
11). Unenforceable contracts – When a contract is in a good substance but due to technical
defect i.e. Absence in writing , time barred Acts , Known as Unenforceable contracts which
can be enforceable by law .

12). Express Contracts –

Express contracts are the contracts when made by words , or by writing known as
“Express Contracts”. when an offer/ proposal or Acceptance is made by words or by in writing
the promise is said to be express .

13). Implied Contracts –

Implied contracts are the contracts which are made by implications , or by an Act or
Conduct of the parties is known as Implied Contracts .

14). Quasi Contracts –

Quasi Contracts are the contracts imposed by the law ; where the party having no
intention to perform the contract ; but due to legal obligations , they have to performed their
obligations . If any party receive any benefit thereof ; under the contract must repay or return
to the real owner “.

15). E.com Contracts –

E-com contracts are the contracts between the parties through electronic form of data .
also known as EDI contracts , Cyber click contracts , and Execute contracts.

16). Executed Contracts

– Executed contracts are the contracts when both of the parties have done their
obligations under the contract known as Executed Contracts .

17). Executory contracts –

Executory contracts are the contracts which is outstanding by one or more one parties
known as “Executory Contracts”. these contracts are of two types ;- 1. Unilateral Contracts 2.
Bilateral Contracts

18). Void Agreements –

As per the terms of section 2(g) of the Indian Contract Act, 1872 “Void Agreements”
is define as ” An agreement not enforceable by law ” becomes void .
19). Offer –

As per the Section 2(a) defines offer as “When a person signifies his assent thereto with
an view to obtaining the assent of that other of an act or abstinence ” .

20). Acceptance –

As per the terms of Section 2(b) of the Indian Contract Act, 1872 defines Acceptance
as ” When the person to whom the proposal is made signifies his assent thereto ; the proposal
is said to be accepted . it becomes a promise ” .

The essentials of a contract

1. Offer: One party must make a clear, definite, and unequivocal offer to another party.
This offer must outline the terms and conditions of the agreement.
2. Acceptance: The other party must accept the offer exactly as it was made. Any
deviation from the terms of the offer constitutes a counteroffer, not an acceptance.
3. Consideration: There must be something of value exchanged between the parties.
This can be money, goods, services, or a promise to act or refrain from acting in a
certain way. Consideration ensures that each party is giving something in return for
what they are receiving.
4. Mutual Assent: Both parties must have a mutual understanding and agreement on the
terms of the contract. This is often evidenced by the act of signing a written
agreement or verbally agreeing to the terms.
5. Capacity: Both parties must have the legal capacity to enter into a contract. This
means they must be of legal age (typically 18 or older), mentally competent, and not
under duress or undue influence.
6. Legality: The contract's subject matter must be legal. Contracts involving illegal
activities or those that contravene public policy are not enforceable.
7. Intent to Create Legal Relations: The parties must intend that their agreement
creates legal obligations. This is often presumed in business transactions but must be
explicit in social or domestic agreements.
8. Written Form (when required): While many contracts can be oral, some types of
agreements must be in writing to be enforceable, such as contracts for the sale of real
estate or contracts that cannot be performed within a year.
 Essential of valid offer:

An "essential valid offer" generally refers to an offer in a contractual context that meets all
the necessary criteria to be considered legally binding and enforceable. Here’s a breakdown
of what typically makes an offer valid:

1. Clear and Definite Terms: The offer must be clear enough that all parties understand
what is being proposed. This includes details like the price, quantity, and any other
essential terms.
2. Mutual Assent: Both parties must agree to the terms of the offer. This is often
demonstrated through an acceptance of the offer.
3. Consideration: There must be something of value exchanged between the parties.
This could be money, services, or goods. Both sides need to offer something for the
contract to be valid.
4. Legal Capacity: The parties involved must have the legal capacity to enter into a
contract. This means they must be of legal age and mentally competent.
5. Legality: The subject matter of the offer must be legal. An offer to perform an illegal
act cannot be considered valid.
6. Intent to Create Legal Relations: The offer must be made with the intention of
creating a legal obligation. This means it should not be a mere social or informal
promise.

Difference between void contract and voidable contract

What is a void contract?

A void contract, as the name suggests, is a contract that is unenforceable from the outset. It
lacks legality and cannot be upheld by the law. Such contracts are considered null and void -
as if they never existed in the first place.

There can be specific situations in which a contract may be classified as void:

 Illegal activity – if a contract requires one or both parties to engage in illegal activities,
it’s automatically void (for example, a contract to sell stolen goods)
 Lack of capacity – when one of the contracting parties does not possess the legal
capacity to enter into a contract, the contract is void (a common example is when a
party is a minor, as minors cannot enter into legally binding contracts)
 Death of a party – if one of the parties to the contract passes away before the contract
is fulfilled, the contract may become void.
 Impossible to perform – if it becomes impossible to perform the terms of the contract
because of unforeseen circumstances, depending on the situation, the contract may be
considered void
What is a voidable contract?
A voidable contract is a formal agreement between two parties that may be rendered
unenforceable for various legal reasons. These reasons include:

 Failure to disclose material facts – if one or both parties fail to disclose a material fact
relevant to the contract, it can render the contract voidable (for example, if a seller
deliberately conceals known defects in a product they’re selling, the buyer may have
the right to void the contract)
 Mistake, misrepresentation or fraud – a voidable contract may result from a mutual
mistake, misrepresentation or fraud (if a party is induced into the contract through false
information or deception, they may have the right to void the contract)
 Undue influence or duress – contracts entered into under undue influence or duress
are voidable (if one party exerts excessive pressure or influence on the other, it may
invalidate the contract)
 Unconscionable terms – contracts with terms that are considered unconscionable,
meaning they’re unreasonably one-sided or unfair, may be voidable
 Breach of contract – a breach of contract can lead to a contract becoming voidable if
the innocent party uses it as a means of ending the contract

Examples of void and voidable contracts

To better understand these concepts, let's explore some real-world examples:

Void contract example

Imagine a business contract in which one party agrees to supply illegal materials. This
contract is void from the start because it involves illegal activity and is therefore unenforceable.

Voidable contract example

Imagine a situation where a small business owner signs a lease for a commercial unit,
only to later discover that the landlord failed to disclose significant structural issues with the
unit (which they knew about and the tenant had asked about during the initial
enquiry).Depending on the circumstances, the tenant may have the option to void the lease
because of the landlord's failure to disclose material facts and (in doing so) misrepresenting the
condition of the unit.
Illustration:- A contracts to pay to B Rs. 20,000 if B’s house is burnt. This is a
contingent Contract.

Essentials of Contingent Contracts

1] Depends on happening or non-happening of a certain event

The contract is contingent on the happening or the non-happening of a certain

event. These said events can be precedent or subsequent, this will not matter. Say
for example Peter promises to pay John Rs 5,000 if the Rajdhani Express reaches
Delhi on time. This is a contingent event.

2] The event is collateral to the contract

It is important that the event is not a part of the contract. It cannot be the
performance promised or a consideration for a promise.Peter enters into a contract
with John and promises to deliver 5 television sets to him. John promises to pay
him Rs 75,000 upon delivery. This is NOT a contingent contract since John’s
obligation depends on the event which is a part of the contract (delivery of TV sets)
and not a collateral event.
3] The event should not be a mere will of the promisor

The event cannot be a wish of the promisor. Say for example Peter promises
to pay John Rs 5,000 if Argentina wins the FIFA World Cup provided he wants to.
This is NOT a contingent contract. Actually, this is not a contract at all.Peter
promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on August 30, 2018.
This is a contingent contract. Going to Dubai can be within John’s will but is not
merely his will.

4] The event should be uncertain

If the event is sure to happen, then the contract is due to be performed. This is not a
contingent contract. The event should be uncertain. Peter promises to pay John Rs
500 if it rains in Mumbai in the month of July 2018. This is not a contingent contract
because in July rains are almost a certainty in Mumbai.

What Is a Breach of Contract?

A breach of contract occurs when one party fails to fulfill its

obligations as outlined in the contract. That could include something
relatively minor, such as being a couple of days late on a payment,
or something more serious.

Breach of Contract Examples

Just as there are myriad types of contracts and contractual terms, the
types of breaches that can occur are numerous and varied. Common
examples of Breach of Contract include:

 The failure of a party to make payments as required by the contract: A

tenant stops paying their rent.
 The failure to perform a task, or the alleged untimeliness of
performance: A painter starts painting an office building but does not
finish the job by the agreed upon completion date.
 Poor performance, which can lead to allegations of contract violations: A
marketing company promises to get a furniture company on page one of
Google but instead gets them on page five.
What are Common Types of Breach of Contract?

Not all contract breaches are the same. There are 6 types of Breach of
Contract. They have different severity and business impact.

1. Minor Breach: A minor breach occurs when someone doesn't fully meet
a minor promise in the contract, like being a few days late on a
delivery. These breaches typically don't lead to severe
consequences.
2. Material Breach: A material breach occurs when someone fails to fulfill
a significant promise in the contract, like not delivering the product at
all. Material breaches can lead to more serious consequences and
may give the non-breaching party the right to terminate the contract.
3. Actual Breach: An actual breach occurs when a party doesn't fulfill their
obligation by the agreed-upon date. This breach may vary in severity
depending on the importance of the obligation and how late it was
fulfilled.
4. Anticipatory Breach: An anticipatory breach occurs when a
party signals they won't be able to fulfill their obligation before the agreed-
upon date. In this case, the non-breaching party may have the option
to terminate the contract or seek remedies before the breach
occurs.
5. Repudiatory Breach: A repudiatory breach occurs when a breach is so
significant that it gives the innocent party the right to refuse the terms of the
contract altogether. This type of breach is severe and often leads to
contract termination and legal action.
6. Mutual Breach: A mutual breach occurs when both parties agree to
breach the contract, typically due to a mutual understanding that the
original agreement is no longer viable or beneficial. In these cases,
both parties may agree on new terms or dissolve the contract
altogether.

Remedies for the Breach of Contract

Suit for Rescission
if one party breaches the contract, then the other party need not oblige to the contract.
The contract stands cancelled if the aggrieved party cancels it. The aggrieved party can file for
the damages. Generally, the suit for the damages accompanies the cancellation of the contract
by the aggrieved party. This suit is for obtaining the damages of the breach.
Suit for Injunction
A restraint order from the court is an injunction. The court has the power to restrain a
person from doing a certain act. If the defendant does something that he should not perform,
then the aggrieved party can file a suit for injunction. This shall be temporary or permanent.
Suit for Specific Performance
A remedy which is given by the court to both parties to perform according to the
contract. This is one of the most common suits. The aggrieved party will not receive adequate
relief of the monetary compensation.
Suit for Quantum Meruit
Quantum Meruit for contracts means the reasonable value of services. If a person hires
someone and the contract is incomplete or un-performable, then the employer can sue the
defendant for the services and the value of improvements made. The law states that the
employer has to pay the employee an amount that he deserves for his services. If the employee
is under an express contract for a specific amount, then he cannot abandon the contract and suit
for the Quantum Meruit.
Suit for Damages
General Damages or Ordinary Damages: The damages that come naturally through a breach.
The aggrieved party must prove the damages and also the amount of the damages in the suit.
Liquidated Damages and Penalty: Some contract addresses the issue of breaching its
consequences and also its penalty. If such a contract breaks then the party causing the breach
should pay the stipulated amount mentioned in the contract to the other party. The amount is
reasonable compensation, and it should not exceed the amount given in the contract. The parties
should not have obstacles to make provisions of the liquidated damages.
Special Damages: The aggrieved party must prove the special loses to claim the special
damages.
Exemplary or Vindictive Damages: This claim is for the mental suffering or emotional
suffering, such suffering can also be due to the breach. Generally, the court takes care of such
damages.
Nominal Damages: A remedy is provided for the breach, which was not there in the actual. It
gives a small remedy, and it is more technical than the actual.

Quasi contract

A quasi-contract, also known as an implied-in-law contract, is a legal construct used to

enforce fairness and prevent unjust enrichment when no formal agreement exists between
parties. It’s not a true contract but rather a legal mechanism designed to remedy situations
where one party benefits at the expense of another without a formal agreement.
Features of quasi contract:

1. No Formal Agreement: Unlike actual contracts where parties agree to terms explicitly,
quasi-contracts arise when there’s no formal agreement, but the law sees it as fair to
impose an obligation.
2. Unjust Enrichment: The key element is that one party has been unjustly enriched at
the expense of another. For instance, if someone receives a benefit they didn’t pay for,
and it would be unfair for them to retain that benefit without compensating the other
party, a quasi-contract might be applied.
3. Court Intervention: Courts impose quasi-contracts to ensure fairness. They determine
that one party should compensate the other as if there were a contract in place.
4. Examples: Common scenarios include situations where someone receives emergency
medical treatment and later needs to pay for it, or if a contractor accidentally improves
someone’s property, and the property owner benefits from that improvement.

What is a Contingent Contract?

A contract can be entered into by parties for the performance or non-
performance of an action or an event
In a contingent contract, the performance of the promisor is dependent
on the fulfillment of certain conditions. These contracts create an obligation on
the promisor only if the conditions collateral to the contract are met.

A contingent contract is a type of agreement in which the performance or obligations of the

contract depend on the occurrence or non-occurrence of a specific event. Here are the key
characteristics of a contingent contract:

1. Conditionality: The terms of the contract are contingent upon a particular event
happening or not happening. If the event occurs, the contract becomes enforceable; if
it does not, the contract may become void.
2. Future Event: The event that triggers the contract must be uncertain and occur in the
future. This event could be a specific act, a circumstance, or a condition.
3. Performance Based on the Event: The obligations of the parties involved in the
contract depend on the outcome of the specified event. Until the event occurs, the
parties are not obligated to perform.
4. Enforceability: If the contingent event takes place, the contract becomes enforceable
and the parties are bound to fulfill their obligations as outlined in the contract.
5. Voidability: If the contingent event does not occur, the contract is generally considered
void and unenforceable. This means that the parties have no obligation to perform under
the contract.
6. Certainty of Terms: Despite being contingent on an event, the terms of the contract
must be clear and certain. The contract should specify how performance is to be carried
out once the event occurs.
7. Legality: The contingent event and the terms of the contract must be legal. A contract
contingent on an illegal event or activity is not enforceable.
 8. Risk Allocation: Contingent contracts often allocate risk between the parties, as the
performance of the contract depends on the occurrence of an uncertain event. This can
be a way to manage risks in various business transactions.

For example, a contract for the sale of goods might stipulate that the sale will only go through
if a certain shipment of goods arrives by a specific date. If the shipment does not arrive, the
contract is not enforceable.

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