UNIT-1

BUSINESS ETHICS

1.1 Introduction:
The term ethics is derived from the Greek word ‘ethos’, which means character.
Ethics is a branch of social sciences, which deals with concepts such as right and
wrong, good and bad, fair and unfair, legal and illegal, moral and immoral, proper
and improper in respect of human actions.

'Business Ethics' refers to the set of moral values or standards or norms which
govern the activities of a businessman.

The set of principles called ethics may be written or unwritten codes or

principles governing a professional or human activity. Business ethics refer to the
socially determined moral principles which should govern business activities.
• Charging fair prices from customers
• Using fair weights for measurement of commodities,
• Giving fair treatment to workers and
• Earning reasonable profits.

Businesses must abide by some basic principles. It should provide quality goods
and services at reasonable prices to their consumers. It must also avoid
adulteration, misleading advertisements, and other unfair malpractices. A business
must also perform other duties such as distributing fair wages, providing good
working conditions, not exploiting the workers, encouraging competition, etc.

Ethics means what is right and what is wrong from Society’s Point of view.
Ex: Charging unjustifiable high price.

Laws mean what is Right and what is Wrong from Law’s point of view.
Ex: charging above MRP (maximum Retail Price)

Value is defined as the principles and ideals, which helps them in making the
judgment of what is more important. Ex: important for individual well being
like self-respect, comfortable life, freedom etc.
1.2 Business Ethics – Definition
There are many definitions of business ethics, but the ones given by Andrew
Crane, Raymond C. Baumhart are considered the most appropriate ones.

According to Crane, "Business ethics is the study of business situations,

activities, and decisions where issues of right and wrong are addressed."

Baumhart defines, "The ethics of business is the ethics of responsibility. The

business man must promise that he will not harm knowingly."

“Business Ethics is primarily concerned with the relationship of business

goals and techniques to specific human needs”.

The concept of business ethics arose in the 1960s as companies became more
aware of a rising consumer-based society that showed concerns regarding the
environment, social causes and corporate responsibility.

Ethics are broadly described in the literature as moral principles about right and
wrong, honourable behavior reflecting values, or standards of conduct. Honesty,
openness, responsiveness, accountability, and fairness are core ethical principles.
Ethics are moral guidelines which govern good behavior.
1.3 IMPORTANCE OF ETHICS IN BUSINESS

1. Consumer satisfaction: Today consumer is the king of market. The consumer

will satisfy only if the business have their own reputed ethics and must be
reasonable.

2. Stop mismanagement: Some corrupt businessmen do business malpractices by

indulging in unfair trade practices like black-marketing, artificial high pricing,
adulteration, cheating in weights and measures, selling of duplicate and harmful
products, hoarding, etc.

3. Good reputation: If ethics are good and well made then it helps in creating
good reputation. As a result, mutual trust and confidence will easily build.

4. Long term suitability: An ethical standard in business helps in creating long

term suitability for business in achieving goals and provide high esteem to their
success.

5. Safeguarding Consumers Rights: The consumer has many rights such as right
to health and safety, right to be informed, right to choose, right to be heard, right to
redress, etc. But many businessmen do not respect and protect these rights.
Business ethics are must to safeguard these rights of the consumers.

6. Increase employee’s role: If well reputation business ethics if make then it

helps the employees to provide it’s best to business development and helps
them in achieving their goals.

7. Develops Good relations: Business ethics are important to develop good and
friendly relations between business and society. This will result in a regular
supply of good quality goods and services at low prices to the society. It will
also result in profits for the businesses thereby resulting in growth of economy.

8. Protecting Employees and Shareholders: Business ethics are required to

protect the interest of employees, shareholders, competitors, dealers, etc. It
protects them from exploitation through unfair trade practices.
9. Smooth functioning: If businesses have ethics then all dealers, clients,
shareholder will contribute their best and feel satisfied. Hence Full
Contribution helps business in smooth functioning.

10. Consumer Movement: Today, the consumers are aware of their rights. Now
they are more organized and hence cannot be cheated easily. They take actions
against those businessmen who indulge in bad business practices. They boycott
poor quality, harmful, high-prices and counterfeit (duplicate) goods.
Therefore, the only way to survive in business is to be honest and fair.

11. Healthy Competition: The business must use business ethics while dealing
with the competitors. They must have healthy competition with the competitors.
They must not do cut-throat competition. Similarly, they must give equal
opportunities to small-scale business.
1.3 Factors affecting the need of Business Ethics:

1. Long term Growth: It means if business need long term Survival and
growth then it must have business ethics to run successful with reasonable profit.

2. Cost and Risk Reduction: It means if business want to reduce risk and cost
then it must sure that there must be optimum utilization of every resources & it
possible only with the help of business ethics.

3. Leadership: It is important for every business to have leadership ethics and it

is only possible if business have their own ethics. As a result, need of business
ethics arises.

4. Vigilance: It is important to be proper vigilance in organization for every work.

If there is proper vigilance, ethical environment must strong.

5. Moral values: It contains that if business wants that their employees must
have known moral values then business also have some moral values i.e. ethics.

6. Formal Organization: Every business with formal rules must have their own
ethics. Hence if business needs to be formal then it must contain their own
ethics for workers.

7. Environment in country: If country have all business with their ethics then a
business without ethics have affected a lot.
1.4 Difference between Ethics and Values
Ethics and values are important in every aspect of life, when we have to make a
choice between two things, wherein ethics determine what is right, values
determine what is important.

Ethics is a code of conduct that helps to differentiate from what is right and wrong.
They occur as a result of mankind’s evolution hence also known as morals.

Some examples of workplace ethics are honesty, integrity, punctuality, and

loyalty. These sets of morals can be adopted by people according to their
professions.

Values are typically principles or standards of behavior. These values help

people to make informed decisions on what is right or wrong.

Values consist of likes, dislikes, perspectives, prejudices, and judgment. They

are known to shape the behavior of an individual.

Basic Terms Ethics Values

Set of morals that determine

the morality of a person. Set of standards and
Ethics refers to rules principles that determine
Meaning provided by an external priority.
source, e.g., codes of e.g. Awareness, being the
conduct in workplaces or best, caring etc.
principles religions.

Values help in determining

They provide the structure
what actions are best to do.
that helps us make a
Value denotes the degree
decision we can be proud
Need of importance of
of in the context of our
something. Values are
societal, family and
‘beliefs’ about ‘what is
personal value structures.
important’.

Professions, organizations Family background, culture,

Influence
and institutes religion, community
Variation According to profession According to individuals

Extent of rightness or Level of importance of our

Determines
wrongness of our actions actions

Differs from person to

Consistency Uniform
person

What does it do? Constrains Motivates

What are they? System of moral principles. Stimuli for thinking.

Honesty, integrity, Likes, dislikes,

Examples
punctuality, and loyalty. perspectives, and judgment
1.5 FEATURES OR CHARACTERISTICS OF BUSINESS ETHICS

To understand business ethics, it is necessary to know it’s important

characteristics. These are:

1) Code of conduct: Business ethics is a code of conduct. It tells what to do

and what not to do for the welfare of the society. All businessmen must
follow this code of conduct.
2) Based on moral and social values: Business ethics is based on moral and
social values. It contains moral and social principles (rules) for doing
business. This includes self-control, consumer protection and welfare,
service to society, fair treatment to social groups, not to exploit others, etc.
3) Gives protection to social groups: Business ethics give protection to
different social groups such as consumers, employees, small businessmen,
government, shareholders, creditors, etc.
4) Provides basic framework: Business ethics provide a basic framework for
doing business. It gives the social cultural, economic, legal and other limits
of business. Business must be conducted within these limits.
5) Voluntary: Business ethics must be voluntary. The businessmen must
accept business ethics on their own. Business ethics must be like self-
discipline. It must not be enforced by law.
6) Requires education and guidance: Businessmen must be given proper
education and guidance before introducing business ethics. The business
must be motive to use business ethics. They must be informed about the
advantages of using business ethics. Trade Associations and Chambers of
Commerce must also play an active role in this matter.
7) Relative term: Business ethics is a relative term. That is, it changes from
one business to another. It also changes from one country to another.
What is considered as good in one country may be taboo in another
country.
8) New concept: Business ethics is a newer concept. It is strictly followed only
in developed countries. It is followed properly in poor and developing
countries.
 Principles of Business Ethics

12 ethical principles in business:

It's essential to understand the underlying principles that drive desired ethical
behavior and how a lack of these moral principles contributes to the downfall of
many otherwise intelligent, talented people and the businesses they represent.
1. Honesty: Ethics executives above all should be honest and worthy of trust.
Ethical executives should be honest and trustful in all their dealings and
should not deliberately mislead or cheat others by misrepresentations,
overstatements, partial truths, selective omissions or any other means.
They are required to supply relevant information and correct
misapprehensions of facts.
2. Integrity: Integrity refers to a wholeness of character demonstrated by
consistency between thoughts, words and actions. Ethical executives should
demonstrate personal integrity by doing what they think is right even
when there is great pressure to do wrong things otherwise. They should be
principled, honorable and upright and should fight for their beliefs.

3. Accountability: Ethical executives should acknowledge and accept personal

accountability for the ethical quality of their decision to their colleagues,
their companies and their communities.

4. Trustworthy & a Promise-Keeper: Ethical executives should be worthy

of trust. They should be trusted for supplying relevant information and
for keeping their promises and commitments.

5. Loyalty: they are loyal to individuals and institutions by support and

devotion to duty and friendship in adversity. They do not exploit a situation
by disclosing information they learned in confidence. They are extremely
careful not to be affected by conflicts of interest. They are extremely loyal to
their companies and work colleagues.

6. Fairness: they are just and fair in all their dealings. They do not use
indecent means to gain an advantage or exploit other people’s mistakes
for their own benefit. They are committed to justice and the equal treatment
of people. They are willing to admit they are wrong.

7. Compassion and Empathy: ethical executives are compassionate,

empathetic, benevolent, kind and caring. They strive to achieve their
business goals and targets in a manner that causes the least harm and the
greatest positive good.
8. Respect: they demonstrate total respect for the human rights, dignity,
interests and privacy of everybody who is affected by their decisions.
They are polite and treat everybody with equal respect and dignity regardless
of nationality, national origin, race or sex.

9. Law abiding: they respect and abide by the laws, regulations and rules
of the marketplace. Law abiding by the executives will motivate the
employees to abide by the code of ethics of the business organization.

10. Committed to Excellence: they aim to perform their duties to the best of
their abilities. They make sure they are prepared and well-informed, and
constantly try to improve in all areas of responsibility.

11.Leadership: they aim to be positive ethical role models. They are aware of
the responsibilities and opportunities of their position of leadership –
they aim to create an environment in which ethical decision-making and
principled reasoning are highly prized.

12. Reputation & Morale: they aim to build and maintain the company’s good
reputation as well as the morale of its workforce. They avoid becoming
involved in conduct that may undermine respect and will take all actions
necessary to prevent the inappropriate conduct of others.
 UNIT-2
ETHICS IN FUNCTIONAL AREAS OF BUSINESS

Many companies organize their employees into functional areas. Departments in a

business organization are structured according to certain functions. The
departments of various organizations will differ depending on the type of business.
Read on to learn what a functional area is, why a company might organize into
functional areas, and descriptions of some common functional groupings.

What are Functional Areas?

Functional areas are teams of employees who have similar skills and expertise. For
example, a company's sales department is a common functional area, and the staff
in this area would all be focused on selling the company's products.

Why would a Company organize by Functional Area?

Companies organize by functional areas for many reasons. First, it's more
efficient to have staff with similar skills grouped together. They can easily
team up on projects requiring their expertise and will have backup expertise if
one staffer is unable to complete their work.
For example, a company is going to set up a new server in their data center and
they'll likely need several different staffers from the information technology
department involved in the project. Since all work in the same functional area, it is
possible for a single manager to assign them all to the project and to make sure the
project is completed on time. Organizing by functional area also allows a manager
with similar skills and expertise to review the work done by the members of the
function. To use the new server example from above, the IT manager who is in
charge of the project will have significant knowledge of the skills being used on
the project and can offer assistance and guidance when needed. Finally, this
organizational scheme makes training and knowledge sharing easier, since
employees working on similar functions work together and can share their
expertise.

What are Common Functional Groupings?

Organizations are built about a group of functions, each of which provides support
for the operations of the business. Functional departments each serve a specific
purpose with an organization to achieve its objectives. Information need is an
individual or group's desire to locate and obtain information to satisfy a
conscious or unconscious need. The information and need in information need are
inseparable interconnection. Information needs are related to, but distinct from
information requirements.
An example is that a need is hunger, the requirement is food. In large
organizations, each of the functional departments may be separate, whereas smaller
organizations may have integrated departments.
Different functional areas of an organization are: Ethical issues in Functional
Areas of Business
1. Ethical Issues in Finance
2. Ethical issues in Human Resource Management
3. Ethical Issues in sales and Marketing

HUMAN RESOURCE: Human resource is the most important asset in the

business. The heart of an organization lies on its people. Without people, the
dayto-day operation of a business would cease to function. The success of a
business relies fully on the hands of the employees working in the company. In
order to achieve the company’s goals and objectives, the company’s Human
Resource Department is responsible in recruiting the right people with the
required skills, qualifications and experience. They’re responsible for
determining the salary and wages of different job positions in the company.
They’re also involved in training employees for their development.

Ethical Issues in Human Resource Management

1. Providing with fair salary and wages
2. Providing good working conditions
3. Satisfaction of security needs and job satisfaction
4. Providing career opportunity for career development
5. Fair and just evaluation of employee’s performance
6. Encourage union and labour relation
7. Enhancement of knowledge capital
MARKETING/PROMOTION: Promotional activities and advertising are the
best ways to communicate with your target customers for them to be able to
know the company’s products and services. Effective marketing and promotional
activities will drive long-term success, profitability and growth in market
shares. This department is responsible for promoting the business to generate sales
and help the company grow. Its function involves creating various marketing
strategy and planning promotional campaigns. They are also responsible for
monitoring competitor’s activities.

Ethics in marketing applies on different parts such as product, pricing, placing,

promotion & Advertising etc.

Ethical Issues in Sales and Marketing

1. Understanding of customers
2. Price fixing, Price skimming & Price discrimination.
3. Fair and adequate information about services within the rules and regulations.
4. True and fair advertisement
5. Correct weights and measures
6. Not supplying injurious products for commercial gain
7. Ensuring stability in pricing

PRODUCTION: It’s vital for business that the products are in good quality and
free from defects. The production department is concerned with manufacturing the
products, where inputs (raw materials) are converted into finished output through a
series of production process. Their function is to ensure that the raw materials are
made into finished product effectively and efficiently and in good quality. This
department should also maintain the optimum inventory level.
Ethical Issues in Production
1. Uses of quality raw materials
2. Production of quality product
3. Minimizing production wastage
4. Effective utilization of productive resources
5. Testing of product before releasing market
ACCOUNTING AND FINANCE: Cash flow is the lifeblood of any business. It
is important to manage the business’ cash outflows and inflows. The company
can’t operate without money. If you can’t handle your money properly, you will
lose control of your business. That is where the accounting and finance department
comes in, which is a part of the organization that manages the company’s money.
This department is responsible for accounting, auditing, planning, and
organizing finances. They’re also responsible in producing the company’s
financial statements.
Ethical Issues in Finance
1. Adoption of proper accounting policies
2. Proper valuation of assets
3. Fair disclosure of relating to financial affairs of organisations
4. Ethical audit practices
5. Not practicing creative accounting
6. Optimum utilization of finance
7. in accounting – window dressing, misleading financial analysis.
3.3 REMEDIES FOR BREACH OF CONTRACT

The Latin maxim ‘Ubi jus, ibi remedium denotes ‘where there is a right,
there is a remedy’. It means failure of a party to perform his or her
obligation under a contract.

Remedies for breach:

A contract, being a fountainhead of a correlative set of rights and
obligations for the parties, would be of no value, if there were no
remedies to enforce the rights arising there under.
The party committing breach of contract is called the ‘guilt party’ and
the other party is called the ‘injured’ or ‘aggrieved’ party.

The case of breach of contract, the aggrieved party would have one or
more, but not all, of the following remedies against the guilty party.

Example: A promises B to deliver 50 bags of cement on a certain day. B

agrees to pay the amount on receipt of the goods. A failed to deliver the
cement on the appointed day. B is discharged from his liability to pay
the price.

Breach of contract may occur in two ways:

● Anticipatory Breach of Contract (section 39): A party declares his
intention of not performing the contract before the performance is due.

Ex: Mr. A agrees to sell his guitar to Mr. B on June 10, 2022, for an
amount of Rs 5000. However, he sells this guitar to Mr. C on June 07,
2022.
● Actual Breach of Contract: A party declares his intention of not
performing the contract on due date of performance or during the
course of performance.
Ex: Mr. A agrees to deliver 100 bags of sugar to Mr. B on 1st February
2022.
On the same day he failed to supply 100 bags of sugar to Mr. B
This is actual breach of contract.
 So, in case of breach of contract, the aggrieved party would have
one or more, remedies against the guilty party.
i. Suit for rescission
ii. Suit for damages
iii. Suit for specific performance
iv. Suit for injunction
v. Suit for quantum meruit

1. Suit for rescission:

It cancels the contract from the beginning, so that it is treated as

never having existed.
This right and duties of the parties under the contract are
retrospectively extinguished.
The breach of contract no doubt discharges the contract, but the
aggrieved party may sometimes need to approach the court to grant
him a formal rescission, i.e. cancellation, of the contract . This will
enable him to be free from his own obligations under the contract.

Ex: A promises B to deliver 50 bags of cement on 1 August 2022. B

agrees to pay the amount on receive of the goods. A fails to deliver the
cement bags on the appointed day. B is discharge from his liability to
pay the price.

2. Suit for Damages

The word ’damages’ means monetary compensation for loss suffered.
Whenever a breach of contract takes place, the remedy of ‘damages’ is
the one that comes to mind immediately as the consequence of breach.

A breach of contract may put the aggrieved party to some

disadvantage or inconvenience or may cause a loss to him. The court
would desire the guilty part to accept responsibility for any such loss
of the aggrieved party and compensate him adequately.
The quantum of damages is determined by the magnitude of loss caused
by breach.
A. General or ordinary damages.
B. Special damages
C. Exemplary or vindictive damages
D. Remote damages.

3. suit for quantum meruit:

The term quantum meruit means ‘as much as earned ‘. It implies a
payment deserved by a person for the reason of actual work done.

Ex: A agrees to deliver 100 bags of cotton to B at a price of 1000 per

bag the cotton.
The bags were to be delivered into installment of 50 each. A deliver the
first installment but fail to supply the second. B must pay for 50 bags.

4. Suit for specific performance:

An equitable relief granted by the court by compelling to perform
his part of contract.
Ex: if A agrees to sell certain shares to B of a specific company which is
limited in number and after the payment made by B,
If A refuses to sell the shares, Then B is entitled to recovery of those
shares.

5. Suit for injunction: In a way, injunction is a mode of securing the

specific performance of the negative terms of a contract. But for the
performance of the positive terms of the contract, the aggrieved party
may seek other remedies like damages.
The court may by issuing an injunction order restrain him from
doing what he promised not to do.

Ex: A is a singer agreed with B to perform at his theatre for 2month on a

condition that during that period he would not perform anywhere.
In this case B could move to the court for grant of injunction restraining
A from performing in other places.
 UNIT-3
Law of Contract

Objectives:
The primary aim of this unit is to enable you to:
✓ Understand the role of Government in regulating the economic and business
activities;
✓ Have adequate insights into the concept of law of contract and its various essential elements;
✓ Explain the performance, discharge and remedies of
breach of contract;

Most of the business transactions are based on promises to be performed at a

later date. These promises whether made by businessmen or by others create
certain rights and obligations and if these rights and obligations are not
enforceable, the business world would be paralyzed. It is with the enforcement
of these promises that the law of contract is concerned. The contract Act does not
lay down the list of obligations that would be enforceable by law but lays down the
rules subject to which rights or duties created by the parties would be enforced.
The parties to the contract can make whatever rules they want, if these rules are not
inconsistent with the provisions of the Act, they would be enforced by courts of
law.

3.1 Definition of Contract

The Indian Contract Act 1872 states the term contract is like an agreement that
creates an obligation between parties.
According to the act, the contract is "an agreement enforceable by law."
The act also lists the essentials of a valid contract directly or through various
judgments’ of the Indian judiciary.
Meaning: Sec.2 (h) “An agreement enforceable by law is a contract.” Therefore, a
contract has two important elements, one is the agreement, and the other is the
obligation which is enforceable by law.

Pollock- “Every agreement and promise enforceable by law is a contract”.

Agreement: Agreement is the outcome of the consensus between the parties who
enter into a contract, i.e., the promise made between them, represents concurrence
of their minds. (Sec.13). these would not be an agreement if the parties do agree
but not on the same thing in the same sense, i.e., consensus is not sufficient. There
has to be consensus ad idem. Sec.2 (e) defines an agreement as “Every promise or
every set of promises forming consideration for each other”. A proposal when
accepted becomes a promise.
Example: A received Rs.10, 000 from B and promises to supply him 10 bags of
rice after 10 days. It is a promise. It shall be a set of promises if a promises to
supply 10 bags of rice after 10 days and B promises to pay him Rs.10, 000 after the
rice is supplied.

Thus, Agreement = Offer + Acceptance.

An agreement with a legal relation is contract.
Consensus –ad-idem= meeting of minds (mutual understanding)

Offer (Proposal): Offer [(proposal) (Sec.2 (a)] “When one person signifies to
another his willingness to do or to forgo from doing anything with a
view to obtaining the assent of the other to such act or abstinence, he is
said to make a proposal”.

Acceptance: Acceptance has been defined u/s (Sec.2 (b)) as “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”.
Example: A lost his Cell Phone and announced that anybody who
brought his cell phone back home would receive Rs.500 as reward. B
heard the announcement and brought the Cell Phone back home. He is
said to have accepted the proposal by doing the act required by A and
hence he can recover the reward.

* Promissory: A person who makes the promise is called the

“Promissory” or “Offeror”.
And the person to whom the proposal is made is known as “Promisee”
or “Offeree”.
‟In case an agreement is a set of promises, then a person becomes a
promissory and promise. Thus if there is an offer, acceptance and
consensus ad idem between the parties, there is an agreement.
However, this agreement does not become a contract unless there is a
corresponding obligation, i.e., enforceability at law.

Obligation (Sec.10): It is the legal duty of a person to carry out what

he has promised to do or not to do. All agreements are contracts if
they are made by the free consent of the parties competent to enter into
contract, for a lawful consideration and with a lawful object and not
hereby expressly declared to be void. Therefore, a person becomes
legally bound to do what he has promised to do only if the following
conditions are fulfilled.

Agreement + Social Obligation =NOT A CONTRACT

Agreement + Legal Obligation = CONTRACT
3.2 Essentials Elements of a Valid Contract:
According to the Indian Contract Act 1872, "Agreements are also
contracts made by the consent of parties, competent to contract to
consider with a lawful object and are not hereby expressly declared to be
void”. Therefore, the contract or the agreement must carry essential
aspects to maintain the normal phase of duties by both parties.
Example:
A & B underwent the contact, where A will purchase 10 bags of cement
for Rs 1, 00,000. B promises to supply the same in the given period and
the quality mentioned. A promise to pay the sum as per the mentioned
method in the contract. In this case, both parties have to perform the act
as per the agreement signed.

Essential Elements of a Valid Contract

To explain the essentials of a valid contract, we bring you with the list
unfolded by the Indian Contract Act 1872-

1) Offer and Acceptance

Generally, the written contract only unfolds when the other party accepts
the offer by one party and is definite in all sense. The offer or
agreement must be clear and complete in all sense. Both parties
should communicate to ensure there is no lapse of the contract act. Both
the offer and acceptance must be "consensus ad idem", meaning,
both parties must comply on the same thing.

2) Free consent, according to section 10 of contract act” agreements are

contracts if they are made by free consent” It means that contract must
be entered into out of parties own volition and without being forced,
or deceived into.
The consent of the parties to the agreement must be free and genuine.
Free consent is said to be absent, if the agreement is induced by
a)coercion, b)undue influence, c)fraud, d)Misinterpretation.
3) Capacity of parties: The capacity of the parties specifies the person
who can and who cannot enter into a contract. Persons with unsound
minds and minors cannot enter into a contract.

4) Intention to create a Legal Relationship

To bind, both parties should have a specific intention that can create a
legal relationship, resulting in an agreement. Agreements in social or
household nature are not contracts because parties do not intend to
build legal relationships.

Example: BALFOUR (vs) BALFOUR (1919)

Facts: A husband promised to pay his wife a household allowance of 30
(pounds) every month.
Later the parties separated and the husband failed to pay the amount.
The wife sued for allowance.
Judgment: Agreements such as there were outside the realm of contract
altogether because there is no intention to create legal relationship
among the parties.

5) Possibility of Performance of Agreement

In this case, suppose two people decide to undergo an agreement where
person A agrees to bring person B’s dead relative back to life, this
will not fall under the legal contract act because bringing back the
deceased person alive is an impossible task. Thus, the agreement does
not stand valid.
The agreement to do an act impossible in itself is void and cannot be
enforceable.
Example:
„A‟ agrees with „B‟, to put life into B‟s dead wife, the agreement is
void it is impossible of performance.

6) Lawful Object:
The object of the agreement must be lawful. In other words, it means the
object must
(a) not be Illegal, (b) immoral or opposed to public policy.
If an agreement suffers from any legal flaw, it would not be enforceable
by law

7) Legal Formalities
In this agreement, if there is any uncertainty and both parties are not
capable of finding the right path, then it is deemed void. As a part of
essentials of a valid consideration, the terms and conditions of the
contract should be concrete. Any contract, which is uncertain in any
sense, can be termed as void. The terms mentioned in the agreement
should be capable of performing specific thoughts.

8) Consideration
Consideration means the moral value given for the performance of
the promise. It should not be only limited to money, but there should be
some value to what has been agreed upon. One of the essentials of
valid consideration is that it should not be adequate, but should carry
some value.
Consideration means “an advantage or benefit” moving from one party
to other. In other words “something in return”.
The agreement is enforceable only when both the parties give
something and get something in return. The consideration must be
real and lawful.

Conclusion
These are the essentials of a valid contract, which needs to be fulfilled
led by the contract act of India. Before getting into any agreement, it is
essential to know what action has led.
 UNIT-4

4.1 Indemnity and guarantee

According to the Section 124 of 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 promissor himself
or by the conduct of any other person is called a contract of indemnity”.

The person who promises to save the other from loss is called indemnifier.

The person whose loss is to be made good is called indemnified or indemnity holder.

Example: indemnity is the insurance contract where the insurance company promises to pay for
the damages suffered by the policyholder, against the premiums.

In indemnity, there are two parties i.e., indemnifier and indemnity holder. There is only one
contract between indemnifier and indemnity holder. The liability of indemnifier is primary.
Indemnity is for reimbursement of loss.

Guarantee: According the Section 126 of Indian Contract Act, 1872 “A contract of guarantee
is a contract to perform the promise or discharge the liability of a third person in case of
his default”.

Ex: A advances a loan of Rs 5000 to B, and C promises to A that if B doesn’t repay the loan, C
will do so. This is a contract of guarantee.

The person who gives the guarantee is called the ‘surety’.

The person in respect of whose default the guarantee is given is called ‘principal debtor’.

The person to whom the guarantee is given is called ‘creditor’.

There are three contracts, one between principal debtor and creditor, second between creditor
and surety and third between surety and principal debtor. The liability of the surety is secondary
and arises only if the principal debtor fails to perform his obligations. This contract of guarantee
is for surety of debt.
Difference between indemnity and guarantee

indemnity guarantee
In indemnity ,there are two parties In guarantee, there are three parties
i.e. indemnifier and indemnity holder i.e. creditor, principal debtor and
surety.
There is only one contract btw There are three contract, one btw
indemnifier and indemnity holder. principal debtor and creditor, second
btw creditor and surety and third btw
surety ad principal debtor.
The liability of indemnifier is primary The liability of the surety is secondary
and arises only if the principal debtor
fails to perform his obligation.
The indemnifier can’t sue the third Surety after discharging the debt can
party for loss in his own name. sue the principal debtor.
Indemnity is for reimbursement of The contract of guarantee is for
loss surety of debt
4.2 Contract of Agency

Definition: Agency can be defined as the relationship between two

persons, wherein a person has the authority to act on behalf of
another, bind him/her into a legal relationship with the third party.
There are two parties in a contract of agency – principal and agent.

Contract of Agency is based on the fact that one person cannot

perform all the transactions and so he can appoint another person to
perform or act on his behalf.

Who is a Principal?
Any person who employs another person to perform an act and who
is being represented by another person in dealing with the third party is
the Principal.

Who is an Agent?
A person employed by the Principal, to act on his behalf, represent him
in the dealings with the third party and also to bring him into a
contractual relationship with the third party, is called an Agent.

In a contract of agency, the agent is not just the bridge between the
principal and the third party, but he can also make the principal
answerable for the acts performed by him. Here it must be noted that
while the agent is acting for the principal, he works in the capacity of
principal.

Characteristics of the Agency

The basic characteristics of the contract of the agency are discussed as
under:
• Legal Binding: The main of this contract of agency is that the principal
is legally bound by the acts performed by the agent.
• Consideration is not mandatory: There is no legal requirement of
consideration, to support the relationship between the principal and
agent.
• Capacity of Principal: One who is legally competent to contract is
eligible to employ an agent, i.e. he should have attained the age of 18
years and of sound mind.
• Authority to contract: Authority to contract is the basic requirement
to become an agent. So a minor can also act as an agent, though he is
not having the capacity, however, he can have the authority to act as
agent.
4.3 SALE OF GOODS ACT 1930
Contract of sale of Goods:
It is a contract where by the seller transfers (OR) agrees to transfer the
property in goods to the buyer for a price.
Sale and Agreement to sell:
In sale of goods, the property in the goods is transferred from the
seller to the buyer immediately then the contract is called sale, but
where the transfer of property in the goods passes only after the seller
has fulfilled certain conditions subsequently is called an agreement
to sell.
Essentials of a contract of sale: The following are the Essential
elements are necessary for contract of sale:
1) There must be at least two parties: there must be two distinct
parties (i.e.., seller and Buyer) to affect a contract of sale and they must
be competent to contract. Section 2(1) defines
„A person who buys (or) agrees to buy goods is called a Buyer‟ and
Section 2(13) defines „A person who sells (or) agrees to sell is called
seller‟.
2) Subject matter must be „Goods‟: There must be some goods, the
property in which is (or) is to be transferred from the seller to the buyer.
The goods which form the subject matter must be movable.

3) Consideration is price: The consideration for the contract of sale,

called price, it must be money. Where there is no consideration, it would
be a gift, and then there is no contract of sale.
Similarly, where goods are sold for a price, which is to be paid
partly in cash and partly in goods then it is considered as contract of
sale.
4) Transfer of general property: There must be a transfer of general
property from the buyer to the seller.
5) Absolute (OR) Qualified: A contract of sale may be absolute or
conditional.
6) Essential elements of a valid contract: All the essentials of a valid
contract must be present in the contract of sale.
4.3.1 Condition and Warranty
In a contract of sale, the subject matter is ‘goods’. There are millions of sale
transactions which occur in the normal course, all around the world. There are
certain provisions which need to be fulfilled because it is demanded by the
contract. These prerequisites can either be a condition and warranty.

The term condition is defined in section 12 (2) of the Indian Sale of Goods, Act
1930 whereas warranty is defined in section 12 (3).

Definition of Condition

Certain terms, obligations, and provisions are imposed by the buyer and seller
while entering into a contract of sale, which needs to be satisfied, which are
commonly known as Conditions.

For example, an insurance contract may require the insurer to pay to rebuild the
customer's home if it is destroyed by fire during the policy period. The fire is a
condition precedent.

• Expressed Condition: The conditions which are clearly defined and

agreed upon by the parties while entering into the contract.
• Implied Condition: The conditions which are not expressly provided, but
as per law, some conditions are supposed to be present at the time
making the contract. However, these conditions can be waived off through
express agreement. Some examples of implied conditions are:
• The condition relating to the title of goods.
• Condition concerning the quality and fitness of the goods.
• Condition as to wholesomeness.
• Sale by sample
• Sale by description.

Definition of Warranty

A warranty is a guarantee given by the seller to the buyer about the quality,
fitness and performance of the product. It is an assurance provided by the
manufacturer to the customer that the said facts about the goods are true and at its
best.
A warranty can be for the lifetime or a limited period. It may be either expressed,
i.e., which is specifically defined or implied, which is not explicitly provided but
arises according to the nature of sale like:

• Disclosure of harmful nature of goods.

• Warranty as to quality and fitness.

EX: There are many examples of warranties depending on the type of product a consumer is
buying. Some examples may include replacing a product such as a mobile phone if it does
not the way it is advertised. A consumer may also receive free repair services where a
product has been damaged during use.
4.4 Performance of a Contract
Meaning: When the Parties of Contract perform their respective
obligations, the object is fulfilled and the Liabilities of the parties
comes to an end it is called Performance of a contract.

Contract may be performed in two ways:-

A) Actual Performance- Actual performance takes place contract
perform their respective promises and nothing remains to be
performed in future by them.

B) Tender of performance- when a party offers performance of his

obligation to the other party it is called a Tender of performance.

When performance of a contract is not required --

A) When performance becomes impossible
B) When a contract is rescinded
C) When agreement becomes unlawful.
 Unit-5

Intellectual Property Rights

What is Intellectual Property?

Intellectual property (IP) refers to creations of the mind, such as
inventions; literary and artistic works; designs; and symbols, names and
images used in commerce.

IP is protected in law by, for example, patents, copyright and trademarks,

which enable people to earn recognition or financial benefit from
what they invent or create. By striking the right balance between the
interests of innovators and the wider public interest, the IP system aims to
foster an environment in which creativity and innovation can flourish.

Protection of IPR allows the innovator, brand owner, patent holder and
copyright holder to benefit from his/her work, labor and investment,
which does not mean monopoly of the intellect. Such rights are set out in
the International Declaration of Human Rights, which provides for the
right to benefit from the protection of the moral and physical interests
resulting from the right holder’s work; literal or artistic product.

To Protect Intellectual Property in India, one can apply to the authority

concerned under the Government of India for protection.
Law: Trademark Act 1999, The Patents (Amendment) Act 2005 effective
from 1st January 2005, Copyright Act 1957.

Need of IPR:
• The original owner must be rewarded
• The society can succeed for progress with the encouragement of
innovation and creativity
• Plays a vital role for accelerating the growth of the economy of
the nation
• Protest inventors and innovators who invest both their money
and energy in developing a new product, process, literary work or
other artistic creation.
• Prevents duplication of work thus saving time and money
• Patents stimulate creativity and impose challenges for
researchers to take their achievements further.
5.2 Types of intellectual property: A) Copyright B) Industrial
Property (Patent, Trade secrets, Trademarks, Industrial designs,
Geographic indications)

1) Copyright
According to the Indian copyright Act 1957, it is a form of IPR concerned
with protecting works of human intellect.
Copy right is the right to “not copy”
Grant legal rights to creators for their original works like writing,
photograph, audio recordings, video, sculptures, architectural works,
computer software, and other creative works like literary and artistic
work.
The rights include
• Right to copy(reproduce) a work
• Right to publicly display or perform the work
• And right to distribute copies of the work to the public

2) Patents
A patent is an exclusive right granted for an invention. Generally
speaking, a patent provides the patent owner with the right to decide how
- or whether - the invention can be used by others. In exchange for this
right, the patent owner makes technical information about the invention
publicly available in the published patent document. The duration of
patent in India is 20 years.

Requirement or condition of patentability:

• Patentable subject matter
• Industrial utility
• Novelty: Quite new
• Non-obvious: human ingenuity, creativity.

3) Trademarks
A trademark is a sign capable of distinguishing the goods or services of
one enterprise from those of other enterprises. Trademarks date back to
ancient times when artisans used to put their signature or "mark" on their
products.
Ex: Word, symbol, Name, Sound, color.
4) Industrial designs
An industrial design constitutes the ornamental or aesthetic aspect of
an article. A design may consist of three-dimensional features, such as
the shape or surface of an article, or of two-dimensional features, such
as patterns, lines or color.

5) Geographical indications
Geographical indications and appellations of origin are signs used on
goods that have a specific geographical origin and possess qualities, a
reputation or characteristics that are essentially attributable to that
place of origin. Most commonly, a geographical indication includes the
name of the place of origin of the goods.
Ex: Darjeeling – Tea, Kohlapuri- Chappal,
Main conditions of GI:
 • Agriculture, Natural, Manufactured
• Produced or Manufactured in a special Area
• Special features and Special Area
• Products, But certain countries -services

6) Trade secrets
Trade secrets are IP rights on confidential information which may be sold
or licensed. The unauthorized acquisition, use or disclosure of such
secret information in a manner contrary to honest commercial practices
by others is regarded as an unfair practice and a violation of the trade
secret protection.
Ex: formula, pattern, process, plan, technology, list of customers.

Ways to keep the information secret:

• To keep the information locked where only the authorized
people have their reach.
• The information can be kept secret through the medium of Non-
disclosure Agreement.
• The electronic information can be kept secret through the medium
of Password, the knowledge of which is to the limited number of
persons.