Business is simply commercial activity.
Regulatory means serving or intended to regulate something.
Framework equals a basic structure underlying a system, concept, or text.
Such regulatory requirements are generally met with the help of rules, principles and regulations fixed
by the State that are applicable to citizens also known as LAW.
The branch of legal system which directs business activities is known as Business or Mercantile law.
Hence, the subject involves studying various types of business laws.
Every law in a nation is incorporated in an enactment, known as Act (or statute)
Law is not static. It changes with social changes to suit the new environment of society
An act may be amended from time to time, as deemed necessary, by legislation. In a similar way, some
part of an Act may be removed or even an entire Act may be replaced
Every Act has its jurisdiction, i.e. its area of operation. Certain Indian Acts do not apply to the State of
Jammu and Kashmir by virtue of Article 370 of the Indian Constitution.
Law is associated with rules and regulations
The need to have the knowledge of law is vital
Latin proverb says ignorantia juris non excusat (ignorance of law is no excuse)
It guarantees an orderly conduct of business affairs and the settlement of legitimate disputes in a just
manner
It establishes a set of rules and prescribes conduct that enables us to avoid misunderstandings and injury
in our business relationships
The Indian Contract Act, 1872
The Law of Contract constitutes the most important branch of mercantile or commercial law. It affects
everybody, more so, trade, commerce and industry. It may be said that the contract is the foundation of
the civilized world.
The law relating to contracts in India is contained in Indian Contract Act, 1872. It came into force from
September, 1872. It is applicable to All the States of India except the State of Jammu & Kashmir.
The term 'contract' means, in ordinary sense, any agreement between any two persons.
'Contract' is the most usual method of defining the 'give and take' rights and duties in any transaction.
In case of business there is the ICA, 1872 which defines ‘contract’ as one that becomes enforceable by
law. For business persons, making of contracts with others is a very important process to put into effect
their business plans.
The Indian Contract Act has defined contract in Section 2(h) as “an agreement enforceable by law”.
This definition indicates that a contract essentially consists of two distinct parts.
First, there must be an agreement.
Secondly, such an agreement must be enforceable by law.
An agreement occurs when two minds meet upon a common purpose, i.e. they mean the same thing in
the same sense at the same time. The meeting of the minds is called consensus-ad-idem, i.e., consent to
the matter.
Section 2(e) defines the term ‘agreement’ as “Every promise and every set of promises, forming the
consideration for each other”
What is the meaning of promise? According to Section
2(b) of the Indian Contract Act “when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.”
An agreement, therefore, comes into existence when one party makes a proposal or offer to the other
party and that other party signifies his assent thereto. In nutshell, an agreement is the sum total of offer
and acceptance.
A person makes a proposal (offer). When it is accepted by other, it becomes a promise. However, promise
cannot be one sided. Only a mutual promise forming consideration for each other is ‘agreement’.
In broad sense, therefore, a contract is an exchange of promises by two or more persons, resulting in an
obligation to do or abstain from doing a particular act, where such obligation is recognised and enforced
by law.
Enforceable by law-An agreement to become a contract must give rise to a legal obligation which means
a duty enforceable by law. An obligation is the legal duty to do or abstain from doing what one has
promised to do or abstain from doing.
Agreements which do not become contracts
1) Agreements in which do not intend to create legal relationships are not contracts.
These are:
(a) Agreements relating to social matters: An agreement between two persons to go together to the
cinema, or for a walk, does not create a legal obligation on their part to abide by it. Similarly, if I promise
to buy you a dinner and break that promise, I do not expect to be liable to legal penalties. There cannot
be any offer and acceptance to hospitality.
(b) Domestic arrangements between husband and wife: In Balfour v. Balfour (1919) 2 KB 571, a husband
working in Ceylone, had agreed in writing to pay a housekeeping allowance to his wife living in England.
On receiving information that she was unfaithful to him, he stopped the allowance: Held, he was entitled
to do so. This was a mere domestic arrangement with no intention to create legally binding relations.
Therefore, there was no contract.
2) Agreements missing any of the essential elements as required by Section 10 and definition of
agreement will fail to make it a valid contract.
Three consequences follow from the above discussion.
(i) To constitute a contract, the parties must intend to create legal relationship.
(ii) The law of contract relates to those agreements which create obligations, which are legal (those
obligations which have their source in agreement).
Law of contract is not the whole law of obligations.
Law of contract is not the whole law of agreements.
(iii) All contracts are agreements but all agreements are not contracts.
Essential elements of a valid contract
Point 1-Offer and Acceptance
