COMMERCIAL & BUSINESS LAW

WHAT IS LAW?

Law consists of rules that regulate the conduct of individuals, businesses, and other organizations within society. Law means any rule of conduct, standard or pattern, to which actions are required to conform.

OBJECTIVES OF LAW
Objectives of law is the creation and protection of legal rights to maintain order in the society. Keeping the peace. Shaping moral standards. Promoting social justice Facilitating orderly change Maximizing individual freedom
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BUSINESS LAWS
Business law is also termed as commercial Law and mercantile law. Business law is generally used to denote that portion of law which deals with rights and obligations arising out of transactions between mercantile persons. It includes following laws: Law of contracts Sales of goods act Partnership act Company law Negotiable instrument act 5 Insurance act

THE LAW OF CONTRACT

A contract is an agreement made between two or more parties which enforceable by law. Sec. 1 the of the Indian Contract Act defines it as An agreement enforceable by law Sec 10 lays down that All agreements are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object and are not hereby expressly declared to be void. All agreements are not contracts but all contracts are agreements.
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ESSENTIALS OF A VALID CONTRACT A valid contact must have the following essentials 1. Two parties 2. Offer and acceptance 3. Identity of Minds 4. Consideration 5. Capacity 6. Free Consent 7. Lawful consideration 8. The objects of the contact must be lawful
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ESSENTIALS OF A VALID CONTRACT (Cont.)

1. Two parties : for a valid contract, there must be two parties 2. Offer and acceptance: There must be an offer and acceptance One party has to make an offer and the other party has to accept it. 3. Identity of Minds: The parties to the contract must have agreed about the subject matter of the contract at the same time and in the same sense. Illustration: A has two houses, one at Dhaka and another at Chittagong. He has offered to sell one to B. B accepts thinking to purchase the house at Chittagong, while A, when he offers, has in his mind to dispose of house at Dhaka. 9

ESSENTIALS OF A VALID CONTRACT (Cont.)

4. Consideration: It means Something in return Every contract must be supported by consideration. Illustration : A offers to sell his watch for Rs. 500 to B and B accepts the offer. Thus Rs. 500 is the consideration for the watch and vice-versa. 5. Capacity; The parties to the contract must be competent to contract. For example a contract by a minor is void 6. Free Consent: The consent of the parties must be free from any flow it must not be caused by a mistake or coercion or undue influence.
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ESSENTIALS OF A VALID CONTRACT (Cont.)

7. Lawful consideration: The consideration to a contract must be lawful Illustration: A promises to pay Rs. 500 to B, in consideration of B murdering C. The consideration is illegal. 8. The objects of the contact must be lawful Illustration: A promises to pay Rs. 500 for letting Bs house for running illegal activities. The objects is illegal. Hence, the contract is void. Thus, the essence of legal contract is that there shall be an agreement between two persons, that one of them shall do something either for the benefit of the other or for his own detriment and that these persons intend that the agreement shall be enforceable at law
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Classification of Contracts

Validity or Enforceability
Valid Contracts Voidable Contracts Void Agreement Void Contracts Unenforceable Contracts Illegal contract

Formation

Performance

Express Contracts Implied Contracts Quasi contracts

Executed Contracts Executory Contracts Bilateral Contracts Unilateral Contracts

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CLASSIFICATION OF CONTRACT(Cont.)
1. According to validity:
a) Valid contract Agreement satisfying all the essentials. b) Voidable contract An agreement which is enforceable by law at the option of one or more of the arties , but not at the option of the other or others, is a voidable contract. Consent of one party is not free. Example : A promises to sell his house to B for Rs. 2,00,000. His consent is obtained by use or force. The contract is voidable at the option of A. He may avoid the contract. C. Void agreements - Void from the very beginning ( lack of 13 one of the essentials)

CLASSIFICATION OF CONTRACT(Cont.)
d) Void contract A valid contract when it was made but subsequently it becomes void Example : A contract entered into by a minor is void. e) Unenforceable contract An unenforceable contract is one which cannot be enforced in a Court of law because of some technical defect, such as absence of writing or where the remedy has been barred by lapse of time. f) Illegal contract An agreement which is forbidden by law or against the policy of law is known as unlawful or illegal agreement. Example: smuggling, murder.
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CLASSIFICATION OF CONTRACT(Cont.)
2. According to formation:
a) Express contract If the terms of a contract are expressly agreed upon whether by words spoken or written at the time of the formation of the contract, the contract is said to be an express contract. b) Implied contract An implied contract is one which is inferred from the acts or conduct of the parties or course of dealings between them. It is not the result of any express promise or promises by the parties but of their particular act. Example: A enters into a hotel and takes lunch. It is an implied contract that he has to pay the cost of lunch after taking it. c) Quasi contract refers to certain transactions which create peculiar obligation. Here no intention of the parties to create legal relationship. It is created by law. Example: Person receiving money or goods belonging to another by mistake or undue influence. Here the person receiving the benefit has an obligation to compensate the person paying the benefit although there is no explicit contract between the giver & the receiver of benefit. 15

CLASSIFICATION OF CONTRACT(Cont.)
3. According to time of performance:
a) Executed contract An executed contract as one in which both the parties have performed their respective obligations. Example: A agrees to supply a watch to B for Rs. 500. When A supplies the watch and B pays the price, the contracts is said to be executed. b) Executory contract An executory contract is one in which both the parties have yet to perform their obligations. Thus in the above example, the contract is executor if A has not yet supplied the watch and B has not paid the price.
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CLASSIFICATION OF CONTRACT(Cont.)
c) Unilateral Contract A unilateral or one-sided contract is one in which only one party has to fulfill his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence. d) Bilateral Contract A bilateral contract is one in which the obligations on the part of both the parties to the contract are outstanding at the time of the formation of the contract. In this sense, bilateral contracts are similar to executor contracts 17

CONTINGENT CONTRACTS
CONTINGENT CONTRACTS: Contingent means that which is dependent on something else. A Contingent Contract is a contract to do or not to do something, if some event collateral to such contract, does or does not happen (Sec. 31). For example, goods are sent on approval the contract is a contingent contract depending on the act of the buyer to accept or reject the goods.

There are three essential characteristics of a contingent contract.

1. Its performance depends upon the happening or non-happening in future of some event. It is this dependence on a future event which distinguishes a contingent contract from other contracts. 2. The event must be uncertain. If the event if bound to happen, and the contract has got to be performed in any case it is not a contingent contract 3. The event must be collateral, i.e. incidental to the contract Example: Contracts of insurance, indemnity and guarantee are the commonest instances of a contingent contract.
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RULES REGARDING CONTINGENT CONTRACTS

RULES REGARDING CONTINGENT CONTRACTS 1. Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. If the event becomes impossible, such contracts become void (Sec. 32) Example: A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void. 2. Where a contingent contract is to be performed if a particular event does not happen, its performance can be enforced when the happening of that event becomes impossible. (Sec. 33) Example: A agrees to pay B a sum of money, if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.
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RULES REGARDING CONTINGENT CONTRACTS(Cont.)

3. If a contract is contingent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, of otherwise than under further contingencies. Example: A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must not be considered impossible, although it is possible that D may die and that C may afterwards marry B. 4. Contingent contracts to do or not to to do anything, if a specified uncertain event happens within a fixed time, become void if the event does not happen or its happening becomes impossible before the expiry of that time. Example: A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year and becomes void if the ship is burnt within the year.
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CAPACITY TO CONTRACT
Capacity To Contract: The parties who enter into a contract must have the capacity to do so Capacity means competence of the parties to enter into a valid contract. According to Sec. 10, an agreement becomes a contract if it is entered into between the parties who are competent to contract. Thus Sec. 11 declares the following person to be incompetent to contract. 1. Minors 2. Persons of unsound mind, and 3. Persons disqualified by any law.
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CAPACITY TO CONTRACT(Cont.)
Incapacity to contract :
(A) Incapacity Arising Out of Mental Deficiency

1. Foreign Ambassadors: They may enter into contracts. But they cannot be sued except with the permission of the Central Government and certified by the Secretary. 2. Alien Enemy: The enemys status is to be determined by the place at residence of the individual, but not by his nationality. If a contract is already entered into before the declaration of war, its performance will be suspended during the period of war and in case the war continues to where period, the contract becomes void on the ground of impossibility of performing contract. 22

CAPACITY TO CONTRACT(Cont.)
3. Convict: He is no competent to contract during the period of sentence. 4. Bankrupt: He cannot enter into contract and bind his property as his property shall be vested in the official receiver when he is adjudged an insolvent. 5. Artificial Person : Corporation: It is a person in the eye of law. It is a legal entity. It can purchase properties enter into contracts, sue and be sued on such contracts. Its contractual capacity is limited. For example, it cannot enter into contract to marry.
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CAPACITY TO CONTRACT(Cont.)
(B) Incapacity Arising From Mental Deficiency
A person is sand to be mentally deficient when (1) he does not attain majority. E.g. a minor or (2) he is of unsound mind. 1. When he does not attain majority: Minor A minor is a person who has not completed 18 years of age. He attain majority on completion of his 21 year in England and 18 year in Bangladesh. A minor cannot enter into a valid contract. 2. When he is of Unsound Mind Section 12 lays down that : A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person who is usually of unsound mind, but occasionally of sound mind may make a contract when he is of sound mind. Illustration: a patient in a lunatic asylum, who is at intervals of sound mind may contract during those intervals.
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EFFECTS OF MINORS AGREEMENT

MINOR : A minor is a person who is not a major. He attains majority on completion of 21 years in England and 18 years in Bangladesh. EFFECTS OF MINORS AGREEMENT: 1. A contract by a minor is void. It cannot be even ratified by him after attaining majority. 2. A contract entered into by a minor by fraudulently misrepresenting his age is void. 3. Minors can have no privilege to cheat men, though law protects them, so that people may not exploit their tender age. So, if a minor receives goods on credit while payment cannot be enforced goods can be recovered, if restitution is possible.
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EFFECTS OF MINORS AGREEMENT(Cont.)

4. The property of the minor is liable for the necessaries supplied to him. Even here, he is not personally liable, but his estate only is liable. 5. While a sale or mortgage by a minor is void, a sale or mortgage in favor of a minor is enforceable by him.

6. A contract by a guardian on behalf of the minor is enforceable by or against the minor, provided the guardian is competent to contract and the contract is beneficial to the minor. But he cannot purchase immovable property without obtaining the consent of the court. 7. Under Sec. 3 of the Partnership Act a minor may be admitted to the benefits of partnership with the consent of all the partners.
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DISCHARGE OF CONTRACT
Discharge of contract means termination of the contractual relationship between the parties. A contract is said to be discharged when the rights and obligations created by it come to an end. A contract may be discharged by following ways: 1. By Performance 2. By Agreement or Consent 3. By impossibility 4. By Lapse of Time 5. By operation of Law 6. By Breach of Contract
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DISCHARGE OF CONTRACT(Cont.)
1. Discharge by Performance Performance means the doing of that which is required by a contract. Discharge by performance takes place when the parties to the contract fulfill then obligations arising under the contract within the time and in the manner prescribed. 2. Discharge by agreement or consent If the parties to a contract agree to substitute a new contract for existing contract then the original contract is discharged and need not be performed. It takes place when a new contract is substituted for an existing one between the same parties. Example: P holds a property under a lease. He later buys the property. His rights as a lessee merge into his rights as an owner.
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DISCHARGE OF CONTRACT(Cont.)
3. Discharge By Impossibility Of Performance If an agreement contains an undertaking to perform an impossibility. A contract is discharged by impossibility of performance in the following cases: a) Destruction of subject-matter of contract: When the subject-matter of a contract, subsequent to its formation, is destroyed without any fault of the parties to the contract, the contract is discharged. Example: C let a music hall to T for a series of concerts on certain days. The hall was accidentally burnt down before the date of the first concert. Held the contract was void. b) Non-existence or Non-occurrence of a particular state of things: Sometimes, a contract is entered into between two parties on the basis of a continued existence or occurrence of a particular state of things. If there is any change in the state of things which ought to have occurred does not occur, the contract is discharged. Example: A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.
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DISCHARGE OF CONTRACT(Cont.)
c) Death or Incapacity for personal service: Where the performance of a contract depends on the personal skill or qualification of a party, contract is discharged on the illness or incapacity or death of that party. The mans life is an implied condition of the contract. Example: An artist undertook to perform at a concert for a certain price. Before she could do so, she was taken seriously ill. Held she was discharged due to illness. d) Change of law: When subsequent to the formation of a contract change of law takes place, and the performance of the contract becomes impossible the contract discharged. Example: D enters into a contract with P on 1st March for supply of imported goods in the month of September, of the same year in June Parliament pass a law that the import of such goods is banned. The contract is discharged. e) Outbreak of war : A contract entered into with an enemy during war is unlawful and therefore impossible for performance. Contracts entered into before the outbreak of war are suspended during the war and may be revived after the war is over.
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DISCHARGE OF CONTRACT(Cont.)
4. Discharge By Lapse Of Time A contract should be performed within a specific period called period of limitation. If it is not performed and if no action is taken by the promise within the period of limitation he is deprived of his remedy at law. For example: the price of goods sold without any stipulation as to credit should be paid within three years of the delivery of the goods. If the price is not paid and creditor does not file a suit against the buyer for the recovery of price within three years the debt becomes time-barred and hence irrecoverable. 5. Discharge By Operation Of Law A contract may be discharged by operation of law. This includes discharge a) By Death: In contracts involving personal skill or ability, the contract is terminated on death of the promissory. b) By Insolvency: When a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication.

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DISCHARGE OF CONTRACT(Cont.)
c) By Authorized Alteration of the terms of a written agreement: Where a party to a contract makes any material alteration in the contract without the consent of the other parts, the other parts can avoid the contract. A material alteration is one which changes in a significant manner the legal identity or character of the contract or the rights and liabilities of the parties to the contract. d) By Rights and Liabilities becoming vested in the same Person: Where the rights and liabilities under a contract vested in the same person. For example: when a bill gets into the hands of the acceptor, the other parties are discharged. 6. Discharge By Breach Of Contract Breach of contract means a breaking of the obligation which a contract imposes. It occurs when a party to the contract without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. It confers a right of action for damages on the injured party.
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