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THE INDIAN CONTRACT ACT, 1872
CHAPTER-1 NATURE OF CONTRACT
1. DEFINITIONS
A. CONTRACT Sec.2(h) An agreement enforceable by law.
B. AGREEMENT Sec.2(e) Every promise and every set of promises forming consideration for
each other.
C. ENFORCEABILIT B
LA!
An agreement which creates legal obligation on the part of parties.
D. PROMISE Sec.2(") A proposal when accepted becomes a promise.
E. CONSIDERATION Price paid by the one party for the promise of the other. Tech#$c%&
'* +e%#$# UID PRO UO/ $.e. 0+eh$# $# e#
2. ESSENTIAL ELEMENTS OF A 3ALID CONTRACTSECTION 14
AllAee+e#0 are contracts
if they are made by the5ee c#0e#
of the 6%$e0 c+6ee# c#%c
for a &%'5& c#0$*e%$# and with a &%'5& "ecand
are# hee" e96e00& *ec&%e* "e :$*.
ESSENTIAL ELEMENTS OF A 3ALID CONTRACT
1. AGREEE!" #n order to constit$te a valid contract% there m$st be an agreement
between the parties. "o form an agreement% there sho$ld beproper offer
by one and its proper acceptance by the other.
&. 'REE C(!)E!" C#0e#means agreed $pon same thing in the same sense i.e. there
sho$ld be c#0e#00-%*-$*e+.
A c#0e# is said to be 5ee when it is# ca$sed by coercion% $nd$e
infl$ence% fra$d% misrepresentation or mista*e.
E9%+6&e; - A+ threatened to shoot ,B+ if he -B does not sell his ho$se
to him Rs. &//// and ,B+ agreed to it. 0ere the agreement is entered
into $nder coercion and hence voidable at the option of ,B+.
. C(PE"E!C2(' "0E PAR"#E) Parties m$st have the capacity to enter into a contract otherwise thecontract is not valid.
!h $0 c+6ee# c#%c !h $0 $#c+6ee# c#%c
a3or inor
Person of )o$nd mind Person of 4nso$nd ind
Person not dis5$alified by law from
contracting
Person dis5$alified by law from
contracting
6. 7A8'47
C(!)#DERA"#(!
Consideration m$st not be $nlawf$l% immoral or opposed to the p$blic
policy.
E9%+6&e0;U#&%'5&; -A agrees to sell narcotics to B for a s$m 5Rs. 1/////. "his
agreement is not valid beca$se the consideration is $nlawf$l.
I++%&; -An agreement for letting a ho$se to a prostit$te for carrying
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on her vocation there.
O660e* he 6"&$c 6&$c; - "rading with enemy% Agreement in
restraint of marriage% trade% legal proceedings etc.
7A8'47 (B9EC" (b3ect means the p$rpose or design. "he ob3ect of the agreement m$st
be lawf$l.
E9%+6&e;- ,A+ and ,B+ ma*e an agreement for sm$ggling o$t some
goods from #ndia to another co$ntry. "his agreement cannot be enforced
in the co$rt beca$se the ob3ect is $nlawf$l.
!(" E:PRE))72
DEC7ARED ;(#D
An agreement sho$ld not be one which is e
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=.
>3OID >IMPLIED >E?ECUTOR
>3OIDABLE >E- C#%c >BILATERAL
>UNENFORCEABLE >UNILATERAL
>ILLIGAL
A. ON THE BASIS OF ENFORCEABILIT
1. 3ALID CONTRACT A contract which contains all the essential elements.
2. 3OID CONTRACT
@SEC. 2()
A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable.
=.3OID AGREEMENT
@SEC. 2()
An agreement which is not enforceable by law is said to be void. #t
is an agreement which cannot be enforced from the date when they
were made. #t is :$* %" $#$$.
.3OIDABLE
CONTRACT
@SEC. 2($)
An agreement% which is enforceable by law at the option of one
more of the parties% b$t not at the option of the other -s is a voidable
contract.
F e9%+6&e; -r. A% at *nife > point% as*s B to sell his scooter for
Rs. ?/. r. B gives consent. "he agreement is voidable at the option
of B% whose consent is not free.
. UNENFORCEABLE
CONTRACT
An $nenforceable contract is one which is good in s$bstance b$t
cannot be enforced by law d$e to some technical defects% s$ch as
$nder stamping% absence of writing% barred by limitation.
. ILLEGAL
CONTRACT
A contract which is forbidden by law.
F e9%+6&e; - Agreement to commit crime.
B. CLASSIFICATION ON THE BASIS OF CREATION
1. E:PRE))
C(!"RAC"
A contract which is created either by word spo*en or written.
F e9%+6&e; -#f ,A+ of Agra offers to sell his car for Rs. 1?//// to ,B+ of Delhi
by a letter and ,B+ accepts the offer by writing a letter. "h$s the contract between
,A+ and ,B+ is said to be an e
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B. $asi
Contracts
"hese are the contracts% which are created neither by word spo*en%
nor written% nor by the cond$cts of the parties% b$t these are created
by the law.
F e9%+6&e; -#f ,A+ leaves his goods at ,B++s shop by mista*e%
then it is ,B++s d$ty to ret$rn the goods or to compensate the price.
I# 5%c, he0e c#%c0 *e6e#*0 6# he 6$#c$6&e h% #"*
'$&& "e %&&'e* "ec+e $ch % he e96e#0e 5 he he0.Th$0 6$#c$6&e $0 #'# %0 doctrine of unjust enrichment.
1. E>C(!"RAC" An e>contract is one% which is entered into between two parties via internet.
C. CLASSIFICATION ON THE BASIS OF BASIS OF E?ECUTION
1. E9ece*
C#%c
An edivided as follows=
%. C#%c
5 Rec*
-i *+e# 5 C;- #t is an obligation imposed by the co$rt $pon one or
more persons in favo$r of the others.
-ii Rec#$%#ce;>#t is a written ac*nowledgement of a debt d$e to state. #t is
met in connection with criminal proceedings.
". C#%c
#*e Se%&
#t is a contract which derives its binding force from its form alone. #t is also *nown
as deed or specialty contract.
CHAPTER-2 OFFER ACCEPTANCE
1.)PROPOSAL @Sec 2(%);-
8hen one person signifiesto another
his willingness
to do orto abstainfrom doinganything
with a view to obtaining the assent of that
either to s$ch act or abstinence%
he is said to ma*e a proposal.
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E9%+6&e ;- A tells B % # want to marry. "his does not amo$nt to offer b$t it is a mere
e
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E9%+6&e;- Goods are sold in a shop $nder ,self service+ system. C$stomer
select the goods in the shop and ta*e them to the cashier for payment of
price. Cashier ref$ses to accept the payment. 0eld that c$stomer cannot
bo$nd the shop*eeper for delivery of goods.
(Ph%+%ce$c%& Sc$e 5 Ge% B$%$# :. B0 C%0h Che+$00
L*. )
?. (ffer may bespecific or general
)pecific (ffer An offer made to a definite person is called )pecificoffer. A specific offer can be accepted only by the
person to whom it is made.
General (ffer An offer which is made to the p$blic at large. Anyone
having *nowledge of the offer can accept this offer by
complying with the terms of the offer.
E9%+6&e;- A company advertised in several newspapers
that a reward of 1// wo$ld be given to any person who
contracted infl$enFa after $sing the smo*e balls of the
company according to its printed directions. Carlill $sed
the smo*e balls according to the directions of thecompany b$t contracted infl$enFa. 0eld that she co$ld
recover the amo$nt as by $sing the smo*e balls she had
accepted the offer.( C%&$&& 3. C%"&$c S+e B%&&
C.18
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1/. Comm$nication
of )pecial terms
E9%+6&e;- P deposited his bags in the cloa*room at the railway station.
(n the face of receipt% the words JSee "%cKwere printed. (ne of the
conditions printed on the bac* was the liability of the railway company
shall be limited to 1/ for any pac*age.
P+s bag was lost. 0e claimed the act$al val$e of bag amo$nting to &6.
0eld that P cannot recover the amo$nt more than 1/ since the railway
company had ta*en all the reasonable steps to ens$re that conditions
printed on bac* printed were bro$ght to the *nowledge of P. ( P%e :.S.E. R%$& C.)
2. TPES OF OFFER
A. General offer An offer made to the p$blic at large. Anyone can accept this offer by
doing the desired act .
B. )pecific offer An offer made to a definite person or a gro$p of persons. )$ch offer can
be accepted only by the specified person to whom it is made.
C. Cross offers 8hen two parties e
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LEGAL RULES AS TO 3ALID ACCEPTANCE
Acce6%#ce +0 "e
%"0&e %#*
#%&$5$e*
(fferee sho$ld be assented to all terms K conditions of the offer. A
5$alified acceptance amo$nts to co$nter offer.
Acce6%#ce +0 "ec++#$c%e*
ere mental acceptance is not acceptance. Acceptance cannot be madein ignorance of the offer. ere silence is not acceptance.
Acce6%#ce !h+ Acceptance m$st be comm$nicated to the offeror i.e. the person who
made the offer.
M*e 5 Acce6%#ce Acceptance m$st be in the mode prescribed in the proposal. #f no mode
prescribed in the proposal% the acceptance m$st be according to some
$s$al and reasonable mode.
T$+e 5 Acce6%#ce Acceptance m$st be given within specified time limits given in the
offer. #n case no time is specified in the offer% offer m$st be acceptedwithin reasonable time and before the offer lapses.
E9%+6&e;> A person applied for shares in a company in 3$ne. 0e
cannot be bo$nd by the allotment made late in !ovember since delay
of months in acceptance of application for shares was $nreasonable.
(R%+0%e 3$c$% He&0 :. M#e5$e )
Acce6%#ce "
c#*c
By performance of an act intended by the proposer.
!h c%# %cce6
S6ec$5$c 55e A )pecific offer can be accepted only by the person to whom it ismade.
Ge#e%& 55e A general offer can be accepted by anyone having *nowledge of the
offer by complying with the terms of the offer.
.) AN ACCEPTANCE TO OFFER IS !HAT A LIGHTED MATCH TO A TRAIN OF
GUNPO!DER
According toS$ !$&&$%+ A#0#%An acceptance to offer is what a lighted match to a train of
g$npowder.
(ffer is compared to a train of g$npowder. Acceptance is compared to a lighted match.
8hen a lighted match is applied to a train of g$npowder% an e
-a As against the
Proposer
8hen it is p$t into the co$rse of transmission
to him so as to be o$t of power of the
acceptor to withdraw the same .
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-b As against the
Acceptor
8hen it comes to the *nowledge of the
proposer.
7. RE3OCATION OF OFFER ACCEPTANCE ( Sec$# )
The c++#$c%$# 5 e:c%$# $0 c+6&ee-
-a As against the person
who ma*es it
8hen it is p$t into the co$rse of transmission to the person to
whom it is made so as to be o$t of power of the person who
ma*es it.
-b As against the person
to whom it is made8hen it comes to his *nowledge.
TIME FOR RE3OCATION ( Sec$# )
Revocation of (fferAn offer can be revo*ed at any time before the comm$nication
of acceptance is complete as against the proposer.
Revocation of AcceptanceAn acceptance can be revo*ed at any time before the
comm$nication of acceptance is complete as against the offeree.
CHAPTER-= CONSIDERATION
1.) CONSIDERATION ; - JUID PRO UOK i.e. something in ret$rn. Consideration is the
price agreed to be paid by the promisee for the obligation of the promisor.
8hen% at the desire of the promisor%
the promisee or any other person
has done or abstained from doing or
does or abstains from doing or
promise to do or to abstain from doing
something%
s$ch act or abstinence or promise is called consideration for the promise. @Sec$# 2(*)
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2. LEGAL REUIREMENTS REGARDING CONSIDERATI(!
A. Consideration m$st
move at the desire of
the promisor
Consideration m$st move at the desire or re5$est of the promisor. Any act
done at the desire of a third party is not consideration.
E9%+6&e;- D constr$cted a mar*et at the desire of the collector of the
district. B% a shop*eeper of the mar*et promised to pay commission to D
on the sales effected by him. 7ater on B denies to pay the promised
amo$nt. D filed a s$it in the co$rt for the recovery of the amo$nt.
"he co$rt held that D cannot recover the amo$nt from B beca$se D has
constr$cted the mar*et at the desire of the collector % not at the desire of
the promisor i.e. B. ( D% P%0%* 3. B%&*e )
B. Consideration may
move from the
promisee or any other
person
Consideration may move from the promisee or any other person who is
not a party to the contract. "h$s% hee c%# "e % 0%#e %
c#0$*e%$#.
E9%+6&e;- A% by a deed of gift transferred certain property to her da$ghter
with the direction that da$ghter sho$ld pay an ann$ity to her sister .
"he da$ghter e
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E9%+6&e;-Promise to pay money to a witness.
0. Consideration m$st not be $nlawf$l% immoral or opposed to the p$blic policy
2.) A THIRD PART ORA STRANGER TO A CONTRACT CANNOT SUE
A stranger to a contract means a person who is not a party to the contract. "here is a privity of
contract between the parties. "herefore only a party to the contract can enforce its rights $nder the
contract.E?CEPTIONS;-
$. T0 I# c%0e 5 0, % "e#e5$c$% c%# 0e 6# he c#%c.
E9%+6&e;- 0 s$ed her father in law L to recover Rs 1?/// being the
arrears of allowance payable to her by L. L $nder an agreement made
between L and 0+s father% in consideration of 0+s marriage to L+s son
D. 0eld that she can recover the amo$nt beca$se she is a beneficiary
$nder the contract. (h'%% Mh%++%* 3. H00%$#$ Be+)
$$. F%+$&
Se&e+e#
#n case of family settlement% if the terms of settlement are red$ced into
writing% members who were not originally party to the contract can also
s$e $pon it.$$$. M%$%e
C#%c0
A female member can enforce a provision for marriage e
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E9%+6&e;- : finds 2+s p$rse and gives it to him. 2 promises to give : Rs 1///. "his is a valid
contract.
($$$) P+$0e 6% $+e "%e* *e" Sec$# 2 (=)
A promise to pay% wholly or in part a debt which is barred by law of limitation can be
enforced if it is =>
#n writing and
)igned by the person ma*ing it or his a$thoriFed agent.($:) Ae#c
According to Sec$# 18 of the #ndian Contract Act% no consideration is necessary to
create an agency.
(:) C+6&ee* G$50
Gifts do not re5$ire any consideration. ( E96&%#%$# 1 Sec$# 2)
(:$) Ch%$
A promise to contrib$te to charity% tho$gh grat$ito$s% wo$ld be enforceable% if on the
faith of the promised s$bscription% the promisee ta*es definite steps in f$rtherance of
the ob3ect and $nderta*es a liability% to the e
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C. PERSONS DISUALIFIED B LA!
Alien enemy An Alien enemy is a person who is a citiFen of a foreign co$ntry
which is at war with #ndia.
Contracts d$ring
the war
An alien enemy cannot enter into contract d$ring the period of war
e
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inor can always
pleads minority
#f a minor by fra$d$lently representing his age enters into contract% still
minor can ta*e the shelter of minority.
E9%+6&e;- A% a minor by fra$d$lently representing himself to be a
ma3or% ind$ce B to lend him Rs.&///. 0e ref$sed to repay it and B s$ed
him for the money. 0eld that the contract was void and A was not liable
to repay the amo$nt d$e.
HAN GUL 3. LAHA SINGH
7ahore 0igh Co$rt held that where the contract is set aside the status quo ante sho$ld be restored
and the co$rt may direct the minor% on e5$itable gro$nds% to restore the money or property to the
other party. "h$s% in s$ch cases% if money co$ld be traced% the co$rt wo$ld% on e5$itable gro$nds%
as* the minor for restit$tion.
Sec$#0 =4 %#* == 5 he S6ec$5$c Re&$e5 Ac, 1ab>initio and therefore% validity cannot begiven to it later on.
E9%+6&e; ,A+% a minor ma*es a promissory note in favo$r of ,B+. (n
attaining ma3ority% he ma*es o$t a fresh promissory note in lie$ of old
one. !either the original% nor the fresh promissory note is valid.
Contract by minor+s
g$ardian
A contract may be entered into on behalf of a minor by his g$ardian or
manager of his estate. #n s$ch a case the contract can be enforced by or
against the minor provided that the contract
-a is within the scope of the a$thority of the g$ardian or manager% and
-b is for the benefit of the minor.
7iability for
necessaries
!o personal liability of minor b$t minor+s property is liable.
#n order to entitled a s$pplier to be reimb$rsed from the minor+s estate%
following conditions m$st be satisfied=>
A. Goods m$st be necessaries for that partic$lar minor having regard
to his condition in life.
B. "he minor m$st be in need of those goods both at the time of sale
and delivery. N%0h :. I#+%#(1
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2.) FREE CONSENT (Sec$# 1)
A c#0e# $0 0%$* "e 5ee 'he# $ $0 not c%0e* " coercion, $nd$e infl$ence% fra$d%
misrepresentation mista*e.
=.) ELEMENTS 3ITIATING FREE CONSENT
-a Coercion
-)ection 1?
Coercion is committing or threatening to commit any act forbidden by #ndian
Penal Code% or the $nlawf$l detaining or threatening to detain any property%
to the pre3$dice of any person whatever% with the intention of ca$sing any person
to enter into an agreement.
"hreat to commit s$icide amo$nts to coercion.
"he agreement ind$ced by coercion is voidable.
A person to whom money has been paid or anything delivered $nder
coercion% m$st repay or ret$rn it.
(") 4nd$e
#nfl$ence
-)ection 1=
A contract is said to be ind$ced by $nd$e infl$ence when the relations s$bsisting
between the parties are s$ch that one of the parties is in a position to dominate the
will of the other and $ses that position to obtain an $nfair advantage of the other.
A person is deemed to be in a position to dominate the will of the other% when he
holds a$thority real or apparent over the other% or when he stands in a fid$ciaryrelation to the other.
E9%+6&e= > -a 'ather and son -b )olicitor and Client
-c "r$stee and Beneficiary -d Doctor and Patient% etc.
A contract which is ind$ced by $nd$e infl$ence is :$*%"&e.
(c) 'ra$d
-)ection 1H
'ra$d means and incl$des any of the following acts committed by a party to a
contract or with his c##$:%#ceor by his agent with intent to deceive another
party thereto or his agent% or to ind$ce him to enter into the contract=
the s$ggestion as to fact of that which is not tr$e by one who does not
believe it to be tr$e.
the active concealment of a fact by one having *nowledge or belief of thefact.
a promise made witho$t any intention of performing it.
any other act fitted to deceive.
any s$ch act or omission as to law specially declared to be fra$d$lent.
A contract ind$ced by fra$d is :$*%"&e.
> #s mere silence amo$nts to fra$d N
Ans= > !o% ere silence as to facts li*ely to affect the willingness of a person to enter into a
contract is no fra$d.
E1. 8here it is d$ty of the person to spea*.
&. 8here silence itself e5$ivalent to speech.
(*) isrepresentation where a person asserts something which is not tr$e tho$gh he believes it
to be tr$e% his assertion amo$nts to misrepresentation.
-e
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CHAPTER- LA!FUL CONSIDERATION OBECT
1. LA!FUL CONSIDERATION OR OBECT @Sec$# 2=
Consideration or ob3ect is#&%'5&if it is= >
A. 'orbidden by law Acts forbidden by law are those which are p$nishable $nder any stat$te as
well as those prohibited by reg$lation or orders made in e
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another another.
E9%+6&e;- An agreement to print a boo* in violation of another+s
copyright is void.
E9%+6&e;>A borrowed Rs. 1/// from B. A e
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S6ec&%$:e %#0%c$#0 %e e#e%&& :%&$*E&e+e#0=>
$t$al intention of contracting parties to ac5$ire or deliver the commodities.
"he $nderta*ing or ris* arising from movement in prices.
AGREEMENTS OPPOSED TO THE PUBLIC POLIC
"hese are the agreements which are against the moral laws of the society and contravenes any
established interest of society. 'ollowing agreements are opposed to the p$blic policy=>
-a "rading with enemy Any trade with person owing allegiance to a Government at
war with #ndia witho$t the license of the Government of
#ndia is void% as the ob3ect is opposed to p$blic policy.
-b )tifling prosec$tion An agreement to stifle prosec$tion tends to be a
preservation or an ab$se of 3$sticeQ therefore% s$ch an
agreement is void. "he principle is that one sho$ld not ma*e
a trade of felony -crime.(ne sho$ld not convert a crime intointo a so$rce of profit.
Compromise of p$blic offence is illegal.
"o drop $ncompo$ndable offence witho$t
permission of co$rt.
E9%+6&e;- A Lnew that B has committed a crime. 0e
obtains a promise from B to pay him Rs. &//// in
consideration of not e
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agreement is void.
-g)ale of p$blic office Bribe for appointment in a p$blic office as it interfere
with the appointment of a person best 5$alified for the
service of p$blic.
An agreement to pay money to a p$blic servant in orderto ind$ce him to retire from his office so that another
person may sec$re the appointment is void.
An agreement to proc$re a p$blic recognition li*e Padma
;ibh$shan for reward is void.
-hAgreements for creation of
monopolies void
Agreements having their ob3ect the establishment of
monopolies are opposed to the p$blic policy and hence void.
#t is also hit by R"P Act.
E9%+6&e;- A local body granted a monopoly to A to sell
vegetables in a partic$lar locality. 0eld that the agreementwas void.
-i Agreement in restraint of
marriage
Every agreement in restraint of marriage of any person%
he h%# % +$#, is void (Sec. 2).
E9%+6&e;-A promised to marry no one else e
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#f any of them dies% his legal representatives m$st% 3ointly with the
s$rviving promisors% f$lfill the promise. #f all of them dies% the legal
representatives of all of them m$st f$lfill the promise 3ointly (Sec.2).
. EFFECT OF REFUSAL TO ACCEPT OFFER OF PERFORMANCE @ Sec$# =8
8hen the promisor has made an offer of performance to the promisee% and the offer has not been
accepted then the promisor is not responsible for non>performance% nor does he thereby lose his
rights $nder the contract.
C#*$$#0; -
#t m$st be#c#*$$#%&.
#t m$st be made at66e $+e %#* 6&%ce. #f the offer is to deliver %#h$# to the promisee% promisee m$st have e%0#%"&e
66#$ chec he *0.
A# 55e #e 5 he 0e:e%& 6+$0ee0 '$&& h%:e 0%+e &e%& c#0ee#ce0 %0 %#
55e %&& 5 he+.
6. EFFECT OF REFUSAL OF PART TO PERFORM PROMISE @Sec$# =
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!o time specified for performance of promise% promise m$st be performed within
reasonable time.
#f promise is to be performed on a specified date b$t ho$r is not mentioned% the promisor
may perform it any time d$ring the $s$al ho$rs of b$siness% on s$ch day .
Delivery m$st be made at the $s$al place of b$siness.
8hen no place is fi
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for any loss ca$sed by delay.
B$t it m$st be remembered that even where the time is not essential it m$st be performed
within a reasonable time otherwise it becomes voidable at the option of the promisee.
8here time is essential% promisor fails to perform within time K promisee accept the
performance% he cannot claim compensation for non>performance at time agreed $nless
notice of intention to claim compensation is given.
11.
11. APPROPRIATION OF PAMENTS
Appropriation
by Debtor
Appropriation of payment where debt to be discharged is indicated by debtor%
payment% if accepted% m$st be applied accordingly.
L%$# +%9$+
$ic*5$id soivit$r% sovit$r sec$nd$m mod$m solventis.
Appropriation
by Creditor
Appropriation of payment where debt to be discharged is not indicated by debtor%
creditor is entitled to appropriate it to the debt first in time.
Appropriation
by "ime
8here neither party appropriates %Payment shall be applied in discharge of the
debts in order of time% where they are time barred or not.
#f debts are e5$al standing% the payment shall be applied in discharge of eachproportionately.
1&. CONTRACTS !HICH NEED NOT BE PERFORMED
1. N:%$# 8hen parties to a contract s$bstit$te a #e' c#%c 5 &*. (n
novation% old contract is discharged and conse5$ently it need not to
be performed. "here may be change in parties.
2. Re0c$00$# 8hen parties to a contract agree to rescind it% the contract need not
be performed. #n this case% only &* c#%c $0 c%#ce&&e* # #e'
c#%c $0 5+e*.
=. A&e%$# 8here parties to a contract agrees %&eit% the original contract isrescinded% with the remit that it need not be performed.
!o change in parties to the
contract.
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Change in terms K conditions
of original agreement.
. !%$:e Re+$ 5
6e5+%#ce " 6+$0e
Promisee can dispense with performance witho$t consideration and
witho$t a new contract or may e
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CHAPTER-< BREACH OF CONTRACT
1. BREACH OF CONTRACT
$. N+%&
D%+%e0
Compensation for any loss or damage which arises nat$rally in the normal co$rse
of events. (rdinary damages are calc$lated by meas$ring the difference between
the contract price and mar*et price on the date of breach.
$$. S6ec$%&
D%+%e0
8here party to a contract receives a #$ce 5 06ec$%& c$c+0%#ce0 affecting the
contract% he will also liable for special damages.
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=. HO! TO CALCULATE THE DAMAGE
Breach by b$yer Damage S Contract price > ar*et price at the date of breach
Breach by seller Damage S ar*et price at the date of Breach > Contract price
. REMEDIES FOR BREACH OF CONTRACT
($) Re0c$00$# 5
C#%c Discharge from his own obligations
Entitled to compensation for damages s$ffered
($$) S$ 6#
%#+ Me$
%#+ Me$As m$ch as is earned (r According to the 5$antity of
wor* done8hen the person has beg$n the wor* and before he co$ld complete it% the other party terminates the
contract or does something which ma*e it impossible for the other party to complete the contract% he
can claim for the wor* done $nder contract.
0e may also recover the val$e of wor* done when f$rther performance of contract become
impossible.
S$ 5 %#+ Me$ %$0e $# hee c%0e0;
A. 8or* done and accepted $nder void contract.
B. Act done or something delivered non>grat$ito$sly% the person who en3oys the benefit m$st pay
for it.
C. Divisible Contract= > (ne part performed K ref$ses to perform other part. Party in defa$lt mays$e other party who has en3oyed the benefit of past performance.
($$$) S$ 5
06ec$5$c
6e5+%#ce
8here damages are not an ade5$ate remedy in case of breach of contract% the
co$rt may in its discretion on a s$it for specific performance direct party in
breach% to carry o$t his promise according to the terms of contract.
($:) S$ 5
I##c$#
8here a party to a contract is negativating the terms of contract% the co$rt may
>be iss$ing an $##c$# *e/restrain him from doing what he promised not
to do.
CHAPTER-14 CONTINGENT UASI CONTRACTMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
1. CONTINGENT CONTRACT @Sec$# =1
Contingent contract is a contract to do or not to do something% if some event colletral to s$ch
contract% does or does not happen.
E.g. O Contract of #ns$rance
2. ESSENTIAL ELEMENTS OF A CONTINGENT CONTRACT
"he performance of a contingent contract is made dependent $pon happening or non>happening
of some event.
Event on which performance is made to depend% is an event colletral to the contract i.e.it does not
form part of reciprocal promises which constit$te the contract."he contingent event sho$ld not be the mere will of the promisor.
E.g. O A promise to pay Rs. 1/%///% if he so chose% is not a contingent contract.
($:)N+$#%&
D%+%e0
"hese damages are awarded where the plaintiff has proved that there has been
breach of contract b$t he has not in fact s$ffered any real damage.
"hese damages are awarded 3$st to establish right to decree for breach of contract.
"he amo$nt may be a r$pee or even 1/ paise. Amo$nt of damages depends $pon
loss of credit K rep$tation s$ffered on that Ac
-v D%+%e0 5*ee$%$#
*0 c%0e* "
*e&%
Damages can be recovered from the carrier even witho$t notice.Deterioration not only implies physical damages b$t also loss of special
opport$nity for sale.
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=. RULES RELATING TO ENFORCEMENT
Contract contingent $pon
happening of an event
-)ection &
8here a contingent contract is made to do or not to do anything if
$ncertain f$t$re event happens% it cannot be enforced by law $nless
and $ntil that event has happened. #f event becomes impossible s$ch
contracts become void.
Contract contingent $pon
non>happening of an event
-)ection
8here a contingent contract is made to do or not to do anything if
any $ncertain f$t$re event does not happen it can be enforced only
the happening of that event becomes impossible and not before. #f
s$ch event becomes happened% s$ch contracts become void.
Contract contingent $pon
f$t$re cond$ct of a living
person -)ection 6
Event shall have considered to become impossible when s$ch person
does anything which renders it impossible that he sho$ld act within
any definite time or other than $nder f$rther contingencies.
Contract contingent $pon
specified event happeningwithin fi
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e#$# he "e#e5$ 5
##-%$0 %c
delivers anything to him.
-b Nintending to do so%$0& and
-c Sch he 6e0# e#0 he "e#e5$ thereof% the latter is bo$nd to
ma*e compensation to the former in respect of% or to restore% the
things so done or delivered.
Re06#0$"$&$ 5
F$#*e 5 *0
A person who finds goods belonging to another and ta*es them into his
c$stody is s$b3ect to same responsibility as a "%$&ee.
T "o ta*e proper care
T !ot $se it for personal p$rposes
T Restore it to tr$e owner% if owner is traced
L$%"$&$ 5 +#e
6%$* h$# *e&$:ee*
" +$0%e #*e
cec$#
A person to whom money has been paid or anything delivered by
mista*e or $nder coercion m$st repay or ret$rn it.
7. !%e$# Aee+e# C#$#e# C#%c
1. #t is a promise to give money or
money+s worth $pon the determination or
ascertainment of an $ncertain event.
#t is a contract to do or not to do something if
some event collateral to s$ch contract does or
does not happen.
&. #n a wagering agreement the
$ncertain event is the sole determining
factor.
#n a contingent contract% the event is only
colletral.
. #t is essentially of a contingent nat$re. #t may not be of wagering nat$re.
6. ;oid ;alid
?. Parties have no other interested in the
s$b3ect matter of the agreement e
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INDIAN PARTNERSHIP ACT , 1
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=. TRUE TEST OF PARTNERSHIP
Sh%$# 5 65$0 $0 # he e e0 5 6%#e0h$6. )haring of profits with the
following persons does not ma*e them partner=O A money lender or
A servant -manager of a firm or agent as his rem$neration or
8idow or child of a deceased partner or
A previo$s owner of part of the b$siness as the consideration for the sale of goodwill or
share thereof.
E
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Board of Directors.
I. M%9$++ #. 5
+e+"e0h$6
'irm
Ban*ing 1/
(rdinary &/
Company
Private 7td. ?/
P$blic 7td.
J. M$#$++ #.5Me+"e0h$6 'irm & Private Co. > &P$blic Co. > H
1/. Re&%$# Ac #ndian Partnership Act% 1J& Companies Act% 1J?
11. Re$0%$# ;ol$ntarily Comp$lsory
1&. A*$ !o legal necessity 7egal re5$irement $nder
Companies Act.
. PARTNERSHIP 30. CLUB
CLUB
A c&" is an association of persons formed with the ob3ect # 5 e%#$# 65$0 b$t 5
6+$#some "e#e5$c$%& 660e0s$ch as improvement of health or providing recreation
for the members etc.
. P%#e0h$6 :0. C&"
B%0$0 P%#e0h$6 C&"
1. (b3ective "o earn profits. "o promote some beneficial p$rpose.
&. Agency A partner is an agent of other
partners as well as firm.
A member of a cl$b is not an agent of other
members or cl$b.
. Property A partner is having an interest in
property of the firm.
A member of a cl$b has no interest in
property of the cl$b.
. PARTNERSHIP 30. HINDU UNDI3IDED FAMIL
S. N. B%0$0 P%#e0h$6 HUF
1. Creation By agreement By stat$s means by birth in the
0ind$ family.
&. Death Death of a partner ordinary leads
to dissol$tion of partnership.
Death of a member does not affect
family b$siness.
. anagement Partners Larta
6. 7iability 4nlimited Larta4nlimited
(therfamily
members
(nly to the e
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benefits of the partnership with
the consent of all partners.
7. PARTNERSHIP 30. CO-O!NERSHIP
S.N. B%0$0 P%#e0h$6 C-'#e0h$6
1. Creation By contract By agreement or
(peration of law
&. )haring of
profits K losses
2es !o%
not necessary
. Agency Partners are agents of each other A coowner is not an agent of other coowner.
6. "ransfer of
shares
A partner can transfer his share
only with the consent of all other
partners
A co>owner may transfer his interest or rights in
property witho$t the consent of other coowners.
?. B$siness "here m$st be a b$siness. #t may e
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0is share is not liable after the date of p$blic notice.
#f he elects to become a partner then no p$blic notice is re5$ired to be given.
#f he elects not to become a partner then p$blic notice is re5$ired to be given.
#f he fails to give p$blic notice within months% he shall be deemed to be partner of
the firm on e
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2.
(%) PARTNERSHIP AT !ILL (") PARTICULAR PARTNERSHIP
8here no provision is made by contract between
the partners for the d$ration of their partnership or
for the determination of their
partnership %Partnership is at will
A person may become a partner with another
person in partic$lar advent$re or $nderta*ing.
)$ch partnership is called Jparticular
partnership
=. D4TIES OF PARTNERS
D c% # he "0$#e00of the firm to the greatest common advantage.
D %cc# 5 65$0earned O
A. 'rom any transaction of the firm or B. 'rom the $se of firm+s property or
C. B$siness connection of the firm or D. 'irm+s name.
D # c% # c+6e$# "0$#e00to that of partnership firm.
A. #f carries on% m$st acco$nt for and
pay the firm all profits made.
B. 'irm will not be liable for any loss
arising $nder competing b$siness.
D "e 0 %#* 5%$h5& e%ch he.
D e#*e e %cc#0and f$ll information of all things affecting the firm toany partner or his legal representatives.
D $#*e+#$5 he 5$+ for any damage ca$sed to it by reason of his 5%* in
cond$ct of firm+s b$siness.
D %e#* *$&$e#& h$0 *$e0relating to cond$ct of firm+s b$siness.
D# c&%$+ e+#e%$#;- Rem$neration may be allowed to wor*ing partners
provided there is specific agreement to that effect.
D c#$"e e%&& the &00s$stained by the firm% $nless otherwise agreed.
D $#*e+#$5the 5$+for any loss ca$sed to it by '$&&5& #e&ecin the cond$ct
of b$siness of the firm.
. IMPLIED AUTHORIT OF A PARTNER
Ah$ means capacity of the partner to bind the firm% this capacity may be=
E< ress a$thorit B e< ress a reement between the
P%#e0h$6 %
'$&&
(") P%$c&%P%#e0h$6
T6e0 5 P%#e0h$6
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IMPLIED AUTHORIT
An act of a partner done in a $s$al way for the b$siness of the firm binds the firm provided the
act is done in the name or any manner e
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CHAPTER- = REGISTRATION AND DISSOLUTION OF A FIRM
1. REGISTRATION OF A FIRM
M*e 5 e55ec$# Re$0%$#
By post By hand delivery
"o the registrar of the area in which any place of b$siness of a firm is sit$ated or proposed
to be sit$ated.
A statement in 6e0c$"e* 5+along with 6e0c$"e* 5eestating O
!ame of the firm
Principal place of b$siness
!ames of other places of b$siness
Date of 3oining of each partner
!ame in f$ll and permanent addresses of partners K
D$ration of the firm
)igned by all the partners or their agents specially a$thoriFed for this p$rpose.
Re$0%$# 'he# c+6&ee 8hen registrar is satisfied that all the provisions related
to registration have been d$ly complied with% he shall record an entry of the statement in a
register called the register of firms and shall file the statement. "hen he shall iss$e a
certificate of registration.
0owever% registration is deemed to be complete as soon as an application in prescribed
form with prescribed fees and necessary details concerning the partic$lar of partnership isdelivered to the registrar.
. IS REGISTRATION OF FIRMS/ COMPULSOR
A#0. !o% Registration of firms is not comp$lsory. B$t as a conse5$ence of non>registration%
following disabilities are to be faced by partnership firms O
DISABILITIES
1. N 0$ %%$#0
h$* 6%
"he firm or any other person on its behalf cannot bring an action
against a third party for breach of contract entered into by him.
2. N 0e 55 5
+e h%# R0.144
#f an action is bro$ght against the firm by a third party% then neither
the firm nor partner can claim any set off for a val$e more than Rs.
1// in a s$it.=. N %c$# %%$#0
5$+
A partner of an $nregistered firm cannot bring legal action against the
firm or any other partner.
B 0ch % 6e0# +% 0e 5
o Dissol$tion of firm or
o 'or acco$nts and realiFation of his share in the firm+s property where the firm is dissolved.
Ne N#-e$0%$# 5 % 5$+ *e0 # %55ec he $h 5 h$* 6%$e0 %%$#0 he 5$+
$0 6%#e0.
2. DISSOLUTION OF FIRM
Dissol$tion of firm means discontin$ation of the 9$ral relation e
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a. By insolvency of all the partners.
b. 8hen b$siness of the firm becoming $nlawf$l.
c. By noticef dissol$tion by a partner where partnership is a will.
d. )$b3ect to the agreement between the partners% on happening of following
contingencies O
Effl$< of time
Completion of vent$re
Death of a partner
#nsolvency of a partner
e. By intervention of co$rt O
Partner becoming of $nso$nd mind
Permanent incapacity of a partner
iscond$ct of a partner affecting the b$siness
8illf$l or persistent breaches of agreement by a partner
"ransfer or sale of whole interest by a partner
#mprobability of b$siness being carried on save at a loss
(n other e5$itable gro$nd for dissol$tion as co$rt may satisfies
=. CONSEUENCES OF DISSOLUTION
(%) C#$#
$# &$%"$&$ #$&
6"&$c #$ce
#nspite of dissol$tion of the firm% partners contin$e to be liable for any
act done by any of them% which wo$ld have been an act of the firm if
done before the dissol$tion% #$& 6"&$c #$ce $0 $:e# of the
dissol$tion.
(") R$h0
e#5ce '$#*$#
6
(n dissol$tion of partnership% any partner or his representative shall
have right% against other partners O
"o have property of the firm applied in payment of the debts
of the firm and "o have the s$rpl$s distrib$ted among the partners or their
representatives according to their respective rights.
(c) Ah
$ 5 6%#e0
%5e *$00&$#
"he a$thority of a partner to bind the firm K other m$t$al rights and
obligations contin$e O
8hich are necessary to wind $p the firm.
"o complete the $nfinished transactions pending at the date of
dissol$tion.
(*) Se&e+
e# 5 P%#e0h$6AQc/0
i. 7osses incl$ding deficiencies of capital are to be
paid O
-i ($t of profits% then
-ii ($t of capital% then
-iii By partners individ$ally in their profit sharing ratio
ii. Assets of the firm Contrib$tions by partners on
Ac of deficiencies of capital
m$st be applied in following order=O
-i "o pay debts of o$tsiders then
-ii "o pay partner+s loan then
-iii "o pay partner+s capital then
-iv Balance will be shared in profit sharing ratio
. Pe0#%& 65$0
e%#e* %5e
*$00&$#
and till the firm is wo$nd $p% partners m$st Ac for% the profits from
carrying on b$siness of the firm% to the other partners.
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. Re# 5
6e+$+ #
6%#e0h$6/0
6e+%e
*$00&$#
(Sec$# 1)
#n case of dissol$tion of partnership earlier than the period fi
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"o sell goods or
"o consign goods for the p$rpose of sale or
"o b$y goods or
"o raise money on the sec$rity of the goods..
P6e @Sec 2 ($$)
#t means Ge#e%& 66e -Right of ownership in goods and # merely 06ec$%&
66e.
I#0&:e# @Sec 2 (8)
A person is said to be insolvent when he ce%0e* 6% his debts in the ordinary co$rse
of b$siness c%## 6% his debts as they become d$e whether he has committed an act
of insolvency or not.
C#%c 5 0%&e @ Sec. (1)
A contract of sale is a c#%c whereby the 0e&&e %#05e0 -sale %ee0 %#05e
-agreement to sell 66e -ownership in *0 to the"e for a6$ce.
E00e#$%&0=
At least two parties )$b3ect matter of contract m$st be Goods
Price in money only -not in *ind sho$ld be paid or promised.
"ransfer of ownership in goods
A contract of sale m$st be absol$te or conditional.
(ther essentials of a valid contract.
2. SALE 30. AGREEMENT TO SELL
S. NO. BASIS SALE AGREEMENT TO SALE
1.
&.
.
6.
?.
Property in goods
Ris*
"ype
)$e for Price
7oss of destr$ction
Breach by )eller
"ransfer
"ransfer
E
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. "a< "a< is levied at the time
of contract.
"a< is not leviable $nless it event$ally
ripens into sale
. S%&e :. B%$&+e#
BAILMENT
A bailment is the delivery of goods for some specific p$rpose $nder a contract on the condition
that the same goods to be ret$rned to the bailer or are to be disposed off according to directions ofthe bailer.
SALE 30. BAILMENT
S.NO BASIS SALE BAILMENT
1. "ransfer of
ownership
2es !o
(nly transfer of possession
&. Ret$rn of goods Ret$rn of goods in contract of sale
not possible.
Bailee m$st ret$rn the goods to the bailor
on accomplishment of the p$rpose for
which the bailment was made.
. Consideration Consideration price money only Consideration may be grat$ito$s or non
grat$ito$s.
. SALE 30. CONTRACT FOR !OR AND LABOUR
. M*e0 5 5+$# c#%c 5 0%&e
Thee +% "e;-
#mmediate delivery of goods or
#mmediate payment of price b$t delivery at the some f$t$re date or
#mmediate delivery of goods and immediate payment of price or
Delivery or payment or both are to be made in instalments or
Delivery or payment or both are to be made at some f$t$re date.
7. De0c$# 5 0"ec +%e 5 c#%c ( Sec. 7 8 )=>-a Goods not e
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As regard time for payment of price% $nless a different intention appears from the contract%
stip$lation as regard this is not deemed to be essence of the contract of sale.
B$t delivery of goods m$st be made witho$t delay. )tip$lations as to time of delivery are
$s$ally the essence of contract.
CHAPTER-2 CONDITIONS !ARRANTIES
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM1. C#*$$# A condition is a stip$lation e00e#$%& he +%$# 660e 5 c#%c% the
breach of which gives the $h e6*$%e he c#%c K c&%$+ *%+%e0.
2. !%%# A warranty is a stip$lation c&&%e%& he +%$# 660e 5 c#%c the
breach of which gives rise to a c&%$+ 5 *%+%e0 b$t # to a $h eec he *0
and treat the contract as rep$diated.
=. DISTINCTION BET!EEN CONDITION AND !ARRANT
CONDITION !ARRANT
1. Essential to the main p$rpose
of contract.
1. Collateral to the main p$rpose of contract.
&. Aggrieved party can rep$diate
the contract or claim damages or both in
case of breach of condition.
&. Aggrieved party can claim only damages in case
of breach of warranty.
. A breach of condition may be
treated as breach of warranty.
. A breach of warranty cannot be treated as breach
of condition.
. !HEN A CONDITION MA BE TREATED AS !ARRANT
-i 8hen b$yer altogether waives the performance of the condition.
-ii 8here b$yer elects to treat the breach of condition as one of warranty. 0e
may only claim damages instead of rep$diating the contract.-iii Contract is non>severable% the b$yer has accepted either the whole goods or
any part thereof.
-iv 8here f$lfillment of any condition or warranty is e
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C#*$$# " 0%+6&e %0
'e&& %0 *e0c$6$#B$l* m$st correspond with sample K description
C#*$$# %0 %&$
5$#e00
!o implied condition as to 5$ality or fitness of the goods soldfor any partic$lar p$rpose. Condition as to reasonable fitness of goods for a partic$lar
p$rpose is implied if the b$yer had made *nown to the seller the p$rpose
of his p$rchase and relied $pon the s*ill K 3$dgment of the seller to
select the best goods and seller has ordinarily dealing in those goods.
C#*$$# %0
'h&e0+e#e00
#n case of eatables K provisions% in addition to merchantable 5$ality%
goods shall be wholesome.
IMPLIED !ARRANTIES
1. 8arra
nty as to $ndist$rbed
possession
B$yer shall have K en3oy 5$ite possession of goods.
&. arrant
y as to non>e
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1. PASSING OF PROPERT (PASSING OF O!NERSHIP)
R&e0;
($) !o transfer of property to the b$yer% $nless K $ntil goods are ascertained.
($$) 8here there is a contract of sale of specific or ascertained goods% property passesto the b$yer at the time when parties intend to pass it.
($$$) 8here there is an $nconditional contract for the sale of specific goods in a
deliverable state% property in goods passes to the b$yer when the contract is made. -)ec. &/.
"he property shall not pass when the goods are made in deliverable state b$t shall pass only
when the b$yer has notice of it. -)ec. &1
($:) 8here the goods are in deliverable state% b$t the seller is bo$nd to weigh%
meas$re% test or to do same act or thing for the p$rpose of ascertaining price% the property
does not pass $ntil s$ch act or thing is done. 8hen the seller has done its part the property
passes even if the b$yer has to do something for his own satisfaction. -)ec. &&
(:) U#%0ce%$#e* *0Property passes when
"here is ascertainment of goods K
"here $nconditional appropriation to the contract.
A666$%$# 5 *0 #t involves selection of goods with the intention of $sing them in
performance of contract and with the m$t$al consent of seller K the
b$yer.
(:$) G*0 0e# # %66:%& 0%&e/ 6%e#/
Property passes O
8hen b$yer signifies his approval or acceptances to the seller.
8hen he does any act adopting the transaction K
#f he does not signifies his approval or acceptance to the seller b$t retained the goods beyond a
reasonable time. -)ec. &6
(:$$) S%&e 5 c%0h #& e# Property pass only when the cash is paid for.
(:$$$) C#*$$#%& %666$%$# 8hen the seller reserves the right of disposal $ntil certain
conditions aref$lfilled% the property therein will not pass
to the b$yer till the condition imposed% if any% by the seller
has been f$lfilled.
2. PASSING OF RIS @Sec. 2
JR$0 5&&'0 '#e0h$6K. "he general r$le isJRisk passes with propertyK.
E9ce6$#0
#f there is delay of delivery d$e to fa$lt of seller or b$yer% the goods shall at the ris* of the
party in defa$lt%as regards loss which might not have arises b$t for the defa$lt.
"he d$ties and liabilities of the seller and b$yer as bailee of goods for the other party
remain $naffected even when the ris* has passed generally.
=. TRANSFER OF TITLE @Sec. 27 =4
"he general r$le regarding transfer of title is that the seller cannot transfer to the b$yer of
goods a better title than he himself has. #f the seller is not the owner of the goods% then the
b$yer also will not become the owner i.e.% the title of b$yer shall be the same as that of the
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seller. 7atin ma
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(A) RIGHTS OF UNPAID SELLER AGAINST THE GOODS
($) R$h 5 L$e# (Sec$# 7)
Goods are in possession of seller7ien $ntil the payment or tender of the price of s$ch goods. C%0e0 'hee $h 5 &$e# c%# "e e9ec$0e*;
-a Goods sold witho$t any stip$lation of credit or
-b Goods sold on credit b$t term of credit has esell the goods can be e
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-b Property has not passed to the b$yer.
Price is payable on a partic$lar date irrespective of delivery.
B$yer wrongf$lly neglects or ref$ses to pay price of goods.
($$) S$ 5 *%+%e0 5 ##-%cce6%#ce (Sec$# )
8hen b$yer wrongf$lly neglects or ref$ses to accept and pay for the goods% the seller
may s$e him fordamages for non>acceptance.
($$$) S$ 5 *%+%e0 5 Be%ch (Sec$# 4) 8here the contract is rep$diated by theb$yer before the date of delivery% the seller may treat the contract as rescinded and
s$e for damages for the breach.
($:) S$ 5 $#ee0 8here there is O
)pecific agreement between seller and b$yer as to interest on price of goods from the
date.
(n which payment becomes d$e% the seller may recover the interest from the b$yer.
=. RIGHT OF LIEN 30. RIGHT OF STOPPAGE IN TRANSIT
S.N. RIGHT OF LIEN RIGHT OF STOPPAGE IN TRANSIT
1. #t is a right to retain possession. #t is a right to regain possession
&. )eller sho$ld be in possession of
the goods. )eller sho$ld have parted with the
possession.
Possession sho$ld be with a carrier K
B$yer has not ac5$ired the possession.
. "he right of lien can be e
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U)ection ?JV
-iv )$it for recovery of
price U)ection 1V
"he b$yer has right to recover the money paid to the seller where the
consideration for payment of it has failed.
. AUCTION SALE
#t is a mode of selling property by inviting bids p$blicly and the property is sold to the
highest bidder.
An a$ctioneer is an agent governed by law of agency.
PRO3ISIONS RELATED TO AUCTION SALE
8here goods are p$t for sale in lot% each lot is prima facie deemed to be s$b3ect matter of a
separate contract of sale.
"he sale is complete when a$ctioneer anno$nces its completion=
By fall of hammer or
Any other c$stomary manner.
Any bidder may retract from his bid $ntil anno$ncement is made.
R$h "$*may be e0e:e* e96e00&by or behalf of the seller and where s$ch a right is
e