Legal Aspects of Business

Unit-I
Introduction
 Introduction of Law
The law is a set of rules, enforceable
by the courts, which regulate the
government of the state and govern
the relationship between the state
and its citizens and between one
citizen and another.
 Indian Constitution
• The Constitution of India is the supreme law of
India.
• It frames fundamental political principles,
procedures, practices, rights, powers, and
duties of the government.
• It imparts constitutional supremacy and not
parliamentary supremacy, as it is not created
by the Parliament but, by a constituent
assembly, and adopted by its people.
Parliament cannot override it.
• The Indian constitution is the world's longest
for a sovereign nation. At its enactment, it
had 395 articles in 22 parts and 8 schedules.
• Seven fundamental rights were originally
provided by the Constitution – the right to
equality, right to freedom, right against
exploitation, right to freedom of
religion, cultural and educational rights, right
to property and right to constitutional
remedies.
Structure of Indian Courts
 Unit-II
Law of Contract
CONTRACT - According to sec.2(h), a
contract is defined as an agreement
enforceable before the law.

AGREEMENT - According to sec.2(e), every

promise or set of promises forming
consideration for each other.

PROMISE - According to sec.2(b), when a

person made a proposal to another to whom
proposal is made, if proposal is assented there
to.
OFFER - According to Sec.2(a), when a person made a proposal, when he signifies to another his willingness to do or to abstain from doing something.

AGREEMENT = OFFER + ACCEPTANCE

CONSENSUS - AD – IDEM-
According to Sec.13, meeting of minds or identity of minds or receiving the same thing in same sense at same time.
Agreement Legal
Obligation

Contract
“All contracts are agreements but all agreements are not contracts.”

CONTRACT = AGREEMENT +
ENFORCIBILITY BEFORE LAW
 Definition of a Contract:
• Legally binding.
• Legally enforceable promise or set
of promises.
• Between two or more competent
parties.
• Law recognizes a duty.
 ELEMENTS OF A CONTRACT
• Founded on an agreement.
– An offer and acceptance on that offer.
• Supported by consideration.
– Something bargained for and given in exchange for
a promise.
• Made by parties having the capacity to
contract.
– The legal ability to contract.
 ELEMENTS OF A CONTRACT
• Based on the parties’ genuine assent.
– Voluntary involvement as a party to the contract.
• Grounded in a legal undertaking.
– Subject matter must be legal.
• Expressed in proper form.
– Written and oral contracts can be binding if rules
are understood and followed.
 CLASSIFICATION 0F CONTRACTS
• Formal vs. Informal Contracts.
• Unilateral vs. Bilateral Contracts.
• Valid, Voidable, Void, and Unenforceable
Contracts.
• Express vs. Implied Contracts.
• Executory vs.Executed Contracts.
• Quasi Contracts vs. Contracts Implied in
Fact.
 CLASSIFICATION OF CONTRACTS
• Formal Versus Informal Contracts.
– Formal Contracts need a seal.
– Informal Contracts are simple and do not
need a seal.
• Unilateral Versus Bilateral Contracts.
– Unilateral Contracts is a promise on one
side only.
– Bilateral Contracts are promises on both
sides.
 CLASSIFICATION OF CONTRACTS
• Valid, Voidable, Void, and Unenforceable
Contracts.
– Valid Contract is legally binding and
enforceable.
– Voidable Contract can be affirmed or rejected
at the option of one or more of the contracting
parties.
– Void Contract can never have any legal effect.
• Unenforceable Contracts will not be given effect
by a court of law.
 CLASSIFICATION OF CONTRACTS
• Express Versus Implied Contracts.
– Express Contracts the parties set forth
their intentions specifically and
definitely in writing or oral.
– Implied Contracts is inferred from the
actions or conduct of the parties.
 CLASSIFICATION OF CONTRACTS
• Executory vs. Executed Contracts
– Executory Contract is when a promise remains
unfulfilled by one party.
– Executed Contract is when the parties have fully
performed the promise.
• Quasi Contracts versus Contracts Implied in Fact
– Quasi Contracts are implied in law.
– Implied in Fact Contracts hold that sufficient
evidence exists for a court to determine that
the parties were meant to contract with each
other.
ESSENTIAL ELEMENTS OF A VALID CONTRACT (Sec.10)
1.Offer & acceptance.
2.Intention to create legal relationship.
3.Consensus - ad - idem.
4.Consideration.
5.Capacity to contract.
6.Free consent.
7.Legality of object.
8.Possibility of performance.
9.Writing & registration.
 Example
Balfour Vs. Balfour

 Mr. Balfour and Mrs. Balfour were husband and wife from Ceylon ( Sri Lanka) and once
they went for a vacation to England in the year 1915
 But unfortunately during the course of vacation, Mrs. Balfour fell ill; she was in urgent
need of medical attention.
 Then they decided and made an agreement that Mr. Balfour would return to Ceylon and
his wife, that is Mrs. Balfour shall stay back until she recovers from her illness.
 They had also decided that during that period of time Mr. Balfour shall pay Mrs. Balfour
30 pounds as maintenance every month until everything falls into place, unless she
recovers and returns back to Ceylon.
 Now this understanding and interpretation was made when their relationship was fine
and there was not any sort of sourness in between them.
 But slowly and gradually their relationship deteriorated which resulted in non- payment
of the amount of maintenance by Mr. Balfour to Mrs. Balfour
 But Mrs. Balfour decided to sought to enforce the agreement and moved to the court.
 Mr. Balfour wrote the letter to his wife suggesting to make their separation permanent.
 And at later point of time they separated legally, that means they were divorced.
 Mrs. Balfour had brought the action against Mr. Balfour for non-payment of the amount
he was supposed to pay in court of law in the year 1918.
 Offer or Proposal
Indian Contract Act 1872, proposal is
defined in Section 2(a) as “when one person
will signify to another person his willingness
to do or not do something (abstain) with a
view to obtain the assent of such person to
such an act or abstinence, he is said to
make a proposal or an offer.”
 Acceptance
According to sec.2(b), when a person made
a proposal to another to whom proposal is
made, if proposal is assented there to, it is
called acceptance.
 Contractual Capacity
Contractual capacity is the ability of a
person to enter into a contract. There are
certain classes of people that are typically
incapable of entering a contract, or
lacking contractual capacity.
 Free Consent
The definition of Free consent is provided
under the Indian Contracts
Act is Consent that is free from Coercion,
Undue Influence, Fraud, Misrepresentation
or Mistake.
 Consideration
When a party to an agreement promises
to do something he must get “something”
in return. This “something” is defined as
consideration.
 Lawful Object
An object or action which is authorized,
approved, and not prohibited by law. The
concept of a lawful object also implies an
ethical quality in that the object under
consideration is not only legal, it is also
ethical and acceptable by society at large.
 Privity of Contract
It is general rule of contract that only
parties to contract can sue & be sued on
that contract . This rule is known as ‘Doctrine
of privity’ i.e relationship between the
parties to contract .
 Contingent Contract
Contingent contracts, are the ones where
the promisor perform his obligation only
when certain conditions are met. The
contracts of insurance, indemnity, and
guarantee are some examples of contingent
contracts.
 Performance of Contract

Performance of contract means the

fulfillment of obligations as per the
provisions by the parties to discharge
the contract
 Discharge of Contract
Discharge of a contract implies termination
of contractual obligations. This is because
when the parties originally entered into
the contract, the rights and duties in terms
of contractual obligations were set up.
Consequently when those rights and duties
are put out then the contract is said to have
been discharged.
 Ways of Discharge of Contract
Discharge by Performance.
Discharge by Mutual Agreement.
Discharge by the Impossibility of
Performance.
Discharge of a Contract by Lapse of Time.
Discharge of a Contract by Operation of Law.
Discharge by Breach of Contract.
Discharge of a Contract by Remission.
 Remedies for Breach
• Actual Breach
• Anticipatory Breach
Remedies:
• Rescission- Cancellation of contract
• Suit upon Quantum merit-acc.to the quantity
of work done- a. when agreement is
discovered to be void; b. when something is
done without intention to do gratuitously
• Suit for Specific Performance.
• Suit for Injunction- to halt
• Suit for Damages- Ordinary, Special,
Vindictive or Exemplary, Nominal
 Unit-III
Special Contracts
 Indemnity
• The term ‘indemnity’ literally means “security or
protection against a loss” or compensation. According
to Section 124 of the Indian Contract Act, 1872 “A
contract by which one party promises to save the
other from loss caused to him by the conduct of the
promisor himself, or by the conduct of any other
person, is called a contract of indemnity.”
• Example: P contracts to indemnify Q against the
consequences of any proceedings which R may take
against Q in respect of a certain sum of money.
 Guarantee
• Contract of Guarantee means a contract to
perform the promises made or discharge the
liabilities of the third person in case of his
failure to discharge such liabilities.
• As per section 126 of Indian Contract Act,
1872, a contract of guarantee has three parties:
• Surety: A surety is a person giving a guarantee in a
contract of guarantee. A person who takes responsibility
to pay a sum of money, perform any duty for another
person in case that person fails to perform such work.
• Principal Debtor: A principal debtor is a person for
whom the guarantee is given in a contract of guarantee.
• Creditor: The person to whom the guarantee is given is
known as the creditor.
For example, Mr. X advances a loan of 25000 to Mr. Y and
Mr. Z promise that in case Mr. Y fails to repay the loan,
then he will repay the same. In this case of a contract of
guarantee, Mr. X is a Creditor, Mr. Y is a principal debtor
and Mr. Z is a Surety.
 Bailment & Pledge
• As per Section 148 of the Act, bailment is the
delivery of goods by one person to another for
some purpose, upon a contract, that the goods
shall, when the purpose is accomplished, be
returned or otherwise disposed of according to
the directions of the person delivering them.
The person delivering the goods is called the
“bailor”. The person to whom they are
delivered is called the “bailee”.
• Where ‘X’ delivers his car for repair to ‘Y’, ‘X’ is the
bailor and ‘Y’ is the bailee.
• X delivers a piece of cloth to Y, a tailor, to be stitched
into a suit. It is contract for bailment.
 Essentials
Contract: express or implied. No consideration is
necessary to create a valid contract of bailment.
Delivery of goods- Bailment is only for moveable goods
and never for immovable goods or money.
i. Actual Delivery: When goods are physically
handed over to the Bailee by the bailor. Eg: delivery of a
car for repair to workshop
ii. Constructive Delivery: Where delivery is made
by doing anything that has the effect of putting goods in
the possession of the Bailee or of any person authorized
to hold them on his behalf. Eg: Delivery of the key of a
car to a workshop dealer for repair of the car.
Purpose: The goods are delivered for some purpose.
The purpose may be express or implied.
Possession: In bailment, possession of goods changes.
Change of possession can happen by physical delivery
or by any action which has the effect of placing the
goods in the possession of Bailee. The change of
possession does not lead to change of ownership.
For example, servants of a master who are in custody of
goods of the master do not become bailees. Similarly,
depositing ornaments in a bank locker is not bailment.
Bailee is obliged to return the goods physically to the
bailor.
 Duties of Bailor
1. Bailor’s duty to disclose faults in goods bailed

2. Duty to pay necessary expenses

3. Duty to indemnify the Bailee for premature

termination

4. Bailor’s responsibility to bailee:

• Indemnify for any loss
• It is the duty of the bailor to receive back the
goods
5. Take reasonable Care of the goods

6. Not to make inconsistent use of goods

7. Not to mix the goods

8. Return the goods

9. Return an accretion from the Goods

10. Not to setup Adverse Title

 Rights of Bailee

• Bailee’s particular lien

• General lien of bankers, attorneys and

policy brokers
 Pledge
The bailment of goods as security for payment of a
debt or performance of a promise is called “pledge”.
The bailor is in this case called the “pawnor”. The
bailee is called the “pawnee”.

For eg.: A lends money to B against the security of

jewellery deposited by B with him i.e. A. This
bailment of jewellery is a pledge as security for
lending the money. B is a pawnor and A is a pawnee.
 Essentials
• There shall be a bailment for security against
payment or performance of the promise,
• The subject matter of pledge is goods,
• Goods pledged for shall be in existence,
• There shall be the delivery of goods from
pledger to pledgee
Taj Mahal Hotel vs United India Insurance Company Ltd. &
Ors
Appellant
Taj Mahal Hotel
Respondent
United India Insurance Company Ltd. & Ors

Facts:
On the date: 01.08.1998, the Respondent No. 2 (Complainant No.2) visited
the Appellant’s hotel in his ‘Maruti Zen’ car at around 11 PM. Upon reaching
the hotel, the car-owner (Respondent No. 2) handed over keys of his car to
the hotel for valet parking, and then went inside the hotel. The car-owner
came out of the hotel at around 1 AM on the same night and was informed by
the security that his car had been driven away by some other person. Upon
enquiry, it was known that during the stay of Respondent No.2 in the hotel,
three boys had come in a separate car, and gone inside the hotel. After
sometime they came out of the hotel and while the valet was bringing their
car to them, one of the boys “Deepak” took the keys of the Respondent’s car
from the desk and then stole it. The security guard tried to stop him but failed
to succeed. Complaint was lodged to the police but the stolen car remained
untraced.
Essential points:
 The car was insured with an insurance company herein
Respondent No.1 (Complainant No. 1).
 The Appellant’s hotel had taken a nonindustrial risk
insurance/liability policy from Respondent No. 3.
 A parking tag was handed over to Respondent No.2 (car-
owner) after the valet parked his car, which read:

“IMPORTANT CONDITION: This vehicle is being

parked at the request of the guest at his own risk and
responsibility in or outside the Hotel premises. In the event
of any loss, theft or damage, the management shall not be
held responsible for the same and the guest shall have no
claim whatsoever against the management.”
Respondent No. 1 (car insurer) settled the insurance claim raised by
Respondent No. 2 (car owner) in respect of the stolen car for ‘Rs.
2,80,000’. Thereafter, Respondent No. 2 executed a Power of Attorney
(‘POA’) and a letter of subrogation in favour of Respondent No. 1.
They both then approached the State Commission by filing a complaint
against the Appellant-Hotel seeking payment of the value of the car and
compensation for deficiency in service.

The State Consumer Disputes Redressal Commission (State

Commission) dismissed the complaint on the ground that an insurance
company acting as a subrogee cannot qualify as a ‘consumer’. Hence,
Respondent No. 1 filed an appeal before the National Commission.

On date 20.09.2010, the National Consumer Disputes Redressal

Commission (National Commission) in appeal remanded the complaint
back to the State Commission, observing that Respondent No. 1 (car
insurer) had locus standi to file the complaint.
In light of this, the State Commission allowed the complaint and
directed the Appellant-hotel to pay Respondent No. 1 a sum of Rs.
2,80,000 (the value of the car) with interest at 12% per annum and Rs.
50,000 as litigation costs. In addition to this, it directed payment of Rs.
1,00,000 to Respondent No. 2 for inconvenience and harassment faced
by him. The State Commission also held that Respondent No. 3 (insurer
of the hotel) would not be liable to indemnify the loss caused to the
Appellant-hotel, as the theft of the car had not been notified to it within
due time.

The Appellant then filed an appeal on the National Commission. The

appeal was then disposed of with the same judgement that the State
Commission gave with a modification from 12% per annum to 9% per
annum.

Thus, this appeal, by special leave, arises out of judgment dated

05.02.2018 passed by National Commission.
 ARGUMENTS

ARGUMENTS OF THE APPELLANT:

The Appellant contended that as the insurer (Complainant No.1) was not a
‘consumer’ and hence the insurer had no stand in the case. He submitted
that the decision of the National Commission is erroneous inasmuch the
principle of ‘infra hospitium’ is not established under Indian law.
The Appellant further argued that there was no bailment as there was never
a contract between the Appellant-hotel and the car owner. There was no
good consideration to form a contract (no fee paid for car parking).
It was also contended that the Appellant was not liable for the loss as the
hotel had already warned Respondent No.2 about the terms of valet parking.
The parking tag clarifies that the hotel would not be liable for any loss,
damage or whatsoever.
ARGUMENTS OF THE RESPONDENT:

Respondents contended that the insurer (Respondent No.1) was eligible

to file a joint complaint with the original consumer in its capacity as
‘subrogee’.
It was further argued that the duty of care owed by 5-star hotels is
higher, and the Appellant must therefore be subject to the highest
standard of insurer liability in case of theft of goods from its premises.
 JUDGEMENT

ISSUE NO. 1:
The following principles were adapted by the court while solving the issue:
A complaint filed by the insurer acting as a subrogee is maintainable if it is
filed by-
• i) The insurer in the name of the assured, wherein the insurer acts as the
attorney holder of the assured; or, ii) the insurer and the assured as co-
complainants.
• The Respondent No. 2 (actual consumer/assured) had executed a POA
and a letter of subrogation in favour of Respondent No. 1 (car insurer).
Thus, the complaint before the State Commission was filed by
Respondent Nos. 1 and 2 as co-complainants. Hence, the Court held that
both the conditions are squarely applicable to this case and the
complaint is maintainable.
ISSUE NO.2:
It was agreed upon that in a scenario where possession of the vehicle is
handed over to a hotel employee for valet parking, it can be said that
‘delivery’ of the vehicle has been made for the purposes of Section 148[
i] and 149[ii] of the Indian Contract Act, 1872. Consequently, a
relationship of bailment was created in the instant case.
The court further contended “It cannot be denied that valet parking
service, even if offered gratuitously, benefits the hotel”. Therefore, in
the instant case, there existed an implied consideration for the contract
of bailment created by virtue of the valet parking service. Thus, the
Appellant-hotel cannot refute the existence of bailment by contending
that its valet parking service was purely complimentary in nature and
that the consumer (bailor) had not paid for the same. Thus, the existence
of bailment was established.
ISSUE NO.3:
The court observed that in a case of theft of a vehicle given for valet
parking, the hotel cannot claim exemption from liability by arguing it was
due to acts of third parties beyond their control, or that they are protected
by an ‘owner’s risk’ clause, prior to fulfilling its burden as required under
Section 151 and 152[iii] of the Indian Contract Act, 1872.
In the instant case, given our finding that the theft of the car of
Respondent No. 2 was a result of the negligence of the Appellant-hotel,
the exemption clause on the parking tag will not exclude the Appellant’s
liability. Hence, the argument of the Appellant-hotel on this count fails.
 Ratio Decidendi
The hotel-owner cannot contract out of liability for its negligence or that of its
servants in respect of a vehicle of its guest in any circumstance. Once possession of
the vehicle is handed to the hotel staff or valet, there is an implied contractual
obligation to return the vehicle in a safe condition upon the direction of the owner.
Even though there was a specific exemption clause, the Appellant cannot exempt
itself from the obligation of section 151 and 152 of the Indian Contract Act, 1872.
The Appellant-hotel would still had to prove that any loss or damage was not on
account of its negligence.
Further, the Court hold that the consumer complaint in consideration is maintainable
as it was filed by the insurer as a subrogee, along with the original owner as a co-
complainant.
Moreover, the rule of prima facie negligence was adopted. It was clear that the
Appellant had not explained why its failure to return the vehicle to Respondent No. 2
was not on account of fault or negligence on its part. Thus, the court ordered that
liability should be affixed on the Appellant-hotel due to want of the requisite care
towards the car bailed to it.
The instant appeal was dismissed accordingly.