law

SYLLABUS OF BUSINESS LAW FOR IST TERM

• THE CONTRACT ACT, 1872.

• THE CONTRACT ACT,1872 ( SPECIFIC CONTRACTS)

• THE SALE OF GOODS ACT, 1930.

• THE NEGOTIABLE INSTRUMENTS ACT, 1881.

PERSONAL RECORD

Legal aspects are an indispensable part of a successful business environment in any country. They reflect the policy framework and the mind set of the Governmental structure of that country. They ensure that every company is functioning as per the statutory framework of the country. Every enterprise must take into account this legal set up while framing the basic aims and objectives of its company. This is because, it is necessary for efficient and healthy functioning of the organisation and helps it to know about the rights, responsibilities as well as the challenges that it may have to face.In India, the most important law which regulates all aspects relating to a company is the Companies Act,1956. It contains provisions relating to formation of a company, powers and responsibilities of the directors and managers, raising of capital, holding company meetings, maintenance and audit of company accounts, powers of inspection and investigation of company affairs, reconstruction and amalgamation of a company and even winding up of a company.

The Indian Contract Act,1872, is another legislation which regulates all the transactions of a company. It lays down the general principles relating to the formation and enforceability of contracts; rules governing the provisions of an agreement and offer; the various types of contracts including those of indemnity and guarantee, bailment and pledge and agency. It also contains provisions pertaining to breach of a contract.

The other major legislations are:- the Industries (Development and Regulation) Act 1951; Trade Unions Act; the Competition Act, 2002; the Arbitration and Conciliation Act, 1996; the Foreign Exchange Management Act (FEMA),1999; laws relating to intellectual property rights; as well as laws relating to labour welfare.

Indian Business Law

Business laws in India are as old as Barter System. It is not that there were no business laws under the monarchy system, but the timeline of modern business laws in India starts from 1600 A.D. Still traces of these laws can be found today and are exercised in the court of law.

The foundation of the east India Company was the major landmark in the Indian legal history. The company was set up under the British Crown’s charter of 1600.The charter conferred corporate character and juristic personality of the company. It granted power to make laws for its government and to impose such fines and penalties as might be necessary to impose these laws.

Sources of Indian Business Law:

1. English Mercantile Law: Lex mercatoria is the Latin expression for a body of trading principles used by the merchant throughout Europe in the medieval. Meaning literally ‘law merchant’, it evolved as a system of customs and best practice, which was enforced through a system of merchant courts along with main trade routes. It functioned as the international law of commerce.

The English Mercantile law constitutes the foundation on which the superstructure of the Indian Mercantile law has been built.

2. Statutory Law: Statutory law is written law set down by the legislature or other governing authority such as the executive branch of the government in response to the perceive need to clarify the functioning of the government, improve civil order to codify existing law, or for an individual or company to obtain special treatment.

In context to India, all laws are statutory i.e when ‘Bill’ is passed by the Parliament and signed by the President of India; it becomes an ‘Act’ or a ‘Statute’. The bulk of Indian of Indian Mercantile law is a statutory law.

3. Judicial Decisions: The past judicial decisions of courts are important sources of law. Sometimes there is no statutory provision which can answer a legal question raised in a law suit. In such cases the court will look into the previous court decisions on similar matters to find the relevant law.

The precedents set by the higher courts have a binding force on lower courts and the precedents set by the same courts of the same status like High Courts of different states have persuasive value for each other.

4. Customs and Usages: Customs and usages of a trade play an important role in business dealings of that trade. As a matter of fact they have a binding force on the parties, like by the mercantile usage prevailing in the Delhi Iron Market among big merchants, no interest can be charged on the unpaid price for transactions before 1917. To have a binding force, the custom or usage must be certain, reasonable and well known.

THE CONTRACT ACT 1872PROPOSAL(OFFER):- Sec2(a) defines “When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”A promisor ,is the person who makes an offer and is also known as an offeror and the person to whom the proposal is made is known as promisee or offeree.The rules regarding valid proposal or offer are as follows:-(1)The terms of an offer must be definite:- The terms of an offer or proposal must be definite ,certain and free from ambiguity.(2) An offer must create legal relations:- An offer must be made with the sole intention of creating legal relationship.(3) An offer may be express or implied:- An offer, which is made in writing or by spoken words is known as an express offer and an offer, which is implied from the conduct of a person is called an implied offer.(4) An offer to be made to certain category of person:- An offer may be made to a definite person or to some definite class of persons or to the world at large.(5) Difference between an offer and an invitation to offer:-Many statements which appear to be offers, are not really offers but rather merely invitations to offers e.g quotations, catalogue, price-list etc. (6)An offer and an invitation for tenders:-A person who invites tenders for the purchase or sale of goods does not make an offer, but rather invites offers from others.(7) Offer for insurance:- Whether a proposal for insurance amounts to an offer or not, depends upon insurance company.(8)Communication of an offer to an offeree:-To bring an offer to the knowledge of an offeree , all terms of an offer must be communicated to the person or persons, for whom it is made otherwise, no binding contract can come into being.(9) Offer remains open under certain circumstances:- An offer remains open until it has been accepted or rejected or revoked or it has lapsed.

ACCEPTANCE:- Sec2(b) of the Contract Act says “ 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”.RULES REGARDING VALID ACCEPTANCE:-(1)Acceptance from definite persons :- An offer can be accepted only by the person or persons to whom it has been made.(2) Acceptance of an offer must be absolute and unconditional :-Acceptance must be of all terms of the offer. A conditional or partial acceptance amounts to a rejection of an offer.(3)Qualified acceptance is a counter-offer:-An acceptance with a variation in terms, is no acceptance, it is rather a counter-proposal, which may be accepted or rejected by the original proposer.(4)Acceptance must be made within a reasonable time:-If the proposer has prescribed the time limit for acceptance of an offer, it should be given before time expires.(5)Mode of acceptance :-Acceptance must be made in some reasonable manner. It may be made by written words or by spoken words or by doing some act or by the prescribed manner, if any, in which the acceptance of the offer is to be made.(6)Acceptance must be communicated to the offeror:-An acceptance must be communicated to the offeror only and not to his friend or his agent, otherwise no binding contract is created.(7) Mental acceptance is no acceptance at all in law:-A mental resolve to accept an offer does not give rise to a binding contract.(8)Acceptance of an offer is the acceptance of all its terms:-Acceptance of an offer is the acceptance of all the terms, even though the offeree is ignorant of some of the terms of the offer.(9)Acceptance must be communicated before the offer lapses or it is revoked or withdrawn.(10)If the act is done without the knowledge of the offeree, it is no acceptance of the offer.

REVOCATION OF A PROPOSAL:- A proposal is said to be revoked when it is withdrawn in any of the following ways as prescribed under Section 6 of the Contract Act, 1872.

(1)Revocation by communication of a notice of revocation:-A proposal can be revoked by giving a notice of revocation by the proposer to the other party, however, the notice of revocation must be communicated any time before acceptance of the proposal by the offeree is complete as against the proposer.(2)Revocation by lapse of the prescribed time limit:-If the proposer prescribes a limit, within which the proposal must be accepted, the proposal automatically lapses as soon as the prescribed time limit expires.(3)Revocation by lapse of a reasonable time limit:- If the proposer has not prescribed a time limit for acceptance, the proposal lapses after the expiry of a reasonable time.(4)Revocation by failure of a condition , precedent to acceptance:-A proposal lapses when the acceptor fails to fulfill a condition precedent to acceptance, where such a condition has been prescribed by the proposer.(5)Revocation by death or insanity of the proposer or the offeree:- A proposal lapses on the death or by insanity of the proposer or the offeree, if the fact of his death or insanity comes within the knowledge of the acceptor.(6)Revocation of a proposal by a counter-offer:-A proposal is revoked, if a counter-proposal is made to it because it amounts to the rejection or refusal of the original proposal.(7)Revocation of an offer by not being accepted according to the prescribed mode:-If the acceptance is not according to the prescribed mode, the proposal in that case would lapse.(8)Revocation by refusal or rejection of an offer :- An offer once refused or rejected is dead and cannot be revived by its subsequent acceptance by the offeree.AGREEMENT:-Sec2(e) of the Contract Act, 1872 defines an agreement as “ Every promise and every set of promises, forming the consideration for each other, is an agreement.”ESSENTIALS OF A VALID AGREEMENT:- An agreement must satisfy the following requirements:(1)A lawful offer and a lawful acceptance:- There must be a lawful offer by one party or parties and a lawful acceptance of offer by the other party or parties.

(2)An intention to create legal relationship:-The parties entering into an agreement must have clear intention to create legal relationship between them.(3)An agreement for a lawful consideration:-The term consideration means something in return. When both parties to the agreement give something and get something in return, the agreement is enforceable at law.(4)An agreement for a lawful object:-The object of an agreement is lawful unless it is forbidden by law or if permitted, it would defeat the provisions of any law or it is fraudulent or it is immoral or it is opposed to public policy or it involves an injury to another person or the property of another person.(5)Competent parties:- Sec11 lays down that every person is competent at law, to enter into a valid agreement if he is of the age of majority, he is of sound mind and he is not disqualified from entering into a contract by any law to which he is subject.(6)Free consent of the parties:-The consent of the parties is said to be free when they agree upon the same thing, in the same sense, at the same time. There is absence of a free consent, if the agreement is induced by coercion or undue influence or fraud or misrepresentation or mistake.(7)Observance of legal formalities:-If the agreement is in writing, it must comply with the necessary legal formalities, such as writing, registration and attestation, if necessary.(8)The agreement must not have been expressly declared to be avoid:-The agreement must not be one, which is expressly declared by the Contract Act, 1872, to be void.(9)Freedom from vagueness and ambiguity:-The meaning of the terms and conditions of the agreement must be clearly ascertainable. If terms and conditions are not clearly ascertainable, there will be nothing to be enforced.(10)Possibility of performance:-Finally the terms and conditions of the agreement must be capable of performance.TYPES OF AGREEMENT:-All the agreements may be broadly classified into five categories:-(1) Valid Agreements:- A valid agreement is one which is enforceable at law. It is also known as enforceable agreement.(2)Void agreements:- An agreement not enforceable by law is said to be void agreement .A void agreement has no legal existence and therefore cannot create any rights and obligations at all.

(3)Voidable agreement:-A voidable agreement , is one, which is enforceable by law at the option of one or more of the parties thereto but not at the option of the other or others.(4)Unenforceable agreements:- An unforceable agreement is a valid agreement but cannot be enforced by law because of some technical defect. For e.g document is not stamped.(5)Illegal agreements:- An illegal agreement is one which is against the law itself. Agreements opposed to public morals or involving commission of a crime, are illegal and forbidden by law.CONTRACT:- According to Sec2(h) of the Contract Act 1872, “An agreement , enforceable by law, is a contract.” Thus , a contract consists of two essential elements:- an agreement and its enforceability at law.(Essentials of a valid agreement are also the essentials of a valid contract)An agreement + enforceability at law = Contract. KINDS OF CONTRACT

• Valid contracts :-A contract, which satisfies all the essential requirements of a valid contract, is known as a valid contract.

• Void contracts :-A void contract is one, which is not enforceable by either party to it. Such an agreement has no legal effect at all.

• Voidable contracts :- A voidable contract is one, for which, free consent of one of the parties to it is not secured. When consent to an agreement is caused by coercion, fraud, undue influence, misrepresentation or mistake, it becomes a voidable contract.

• Illegal contracts :-An illegal contract is one, the consideration or object, of which is forbidden by law or is fraudulent or defeats the provisions of any statutory law or causes an injury to the person, or is immoral.

• Unenforceable contracts :- Such contracts cannot be enforced at law due to some technical defect. It remains unenforceable till the technical defect is rectified.

• Executed contracts :- An executed contract is one, in which, both the parties have already performed their obligations and there remains nothing to be done.

• Executory contracts :-An executory contract is one, in which, both the parties have to perform their obligations in the future.

• Contingent contracts :- A contingent contract is one, in which the performance of the promise is conditional and the contract shall be performed only on the happening of some future uncertain event.

• Unilateral contracts :-A unilateral contracts is one, in which only one party is required to perform his obligation.

• Bilateral contracts:-A bilateral contract is one, in which, both the parties are required to perform their obligations.

• Express contracts :- An express contract is one which, the terms are stated in writing expressly.

• Implied contracts :-A contract in which the terms of the contract are inferred from the act, conduct or dealings between the parties or from surrounding circumstances is called implied contract.

• Quasi contracts:- Quasi contracts are those relations which resemble contractual relations. It is not a real contract but is implied by law.

• Simple contracts :-All contracts not made under seal are simple contracts.

• Contract under seal:-A contract under seal is made by a deed or speciality.

• Contracts of records :-It is one which is taken on the records of a court.EVERY CONTRACT IS AN AGREEMENT BUT EVERY AGREEMENT IS NOT A CONTRACT

AGREEMENT :- ( 1) Sec2(e) An offer and an acceptance together constitute an agreement.(2)Every promise and every set of promises forming consideration for each other is an agreement.(3)An agreement may or may not , create any legal obligation.(4)An agreement may or may not be having a binding effect. (5)The scope of an agreement wider.(6)Every agreement is not a contract. CONTRACT:- (1) Sec2(h) An agreement and its enforceability at law together constitute a contract.(2)A contract is an agreement, enforceable at law.(3) A contract necessarily creates a legal obligation.(4) A contract has always a binding effect.(5) The scope of a contract is narrower.(6) Every contract is an agreement.

AGREEMENTS AGAINST PUBLIC POLICY Whenever an agreement is harmful to the public welfare an interest, it

would be void as being against public policy. When any agreement conflicts with the morals of the time and contravenes any established interest of the society- political, economical or social, it is void as being against public policy.

• Agreement of trading with enemy:-It is a well settled principle of law that an agreement of trading with an alien enemy unless they are entered into with the special permission of government of India.

• Agreements interfering administration of justice:-An agreement made with the object of interfering the administration of justice is void and inoperative being the object of influencing the judge in any form by entering into agreement to give financial and professional promise to share benefits of litigation.

• Agreement for sale of public offices and titles:-An agreement for the sale or transfer of public offices and titles for monetary consideration is unlawful.

• Agreement creating interest opposed to public policies are void:-If a person enters into an agreement whereby he agrees to do something or not to do something which is against or opposed to his professional or public duty the agreement is deemed to be against public policy.

• Agreements restricting personal freedom:-Agreements which unduly restrict personal freedom of party have been held to be void.

• Agreements interfering with parental rights and duty:-A father and in his absence, the mother is the legal guardian of his or her minor child. Any agreement transferring the right of guardianship is void.

• Agreements for marriage brokerage:- There is a well established custom by which marriage brokers are appointed to find a suitable match. An agreement whereby financial gain is to result to the parents in consideration of giving away of son or daughter in marriage is void.

• Agreements interfering with marital duties:-Agreements which interfere with the performance of marital duties are void.

• Agreements to create monopoly:-Agreements creating monopoly and exclusive rights are void.

• Agreement to waive an immoral act:- An agreement to waive act of immorality or illegal act is void.

• Agreement in restraint of marriage:-An agreement in restraint of marriage of any person other than a minor is void. A party of age of majority are capable of giving free consent.

• Agreement in restraint of lawful trade:-An agreement under which a person is forced against from following a lawful trade, the business, occupation or profession of any kind is to that extend void.

• Agreement between pleaders and clients:- An agreement by which a client agrees to give his pleader in addition to his fees according to his success in the matter, is an agreement against public policy and is void.

• Agreement to defraud creditors:- An agreement to defraud creditors or any revenue authority is opposed public policy and are void.

• Agreement not to bid against one another:- An agreement not to bid against one another is unlawful provided the object of such an agreement is to defraud a third person.

• Agreements of which any part of single consideration or object is void:-Sec 24 lays down that if any part of single consideration for one or more objects or any part of any one of several consideration for a single object is unlawful, the agreement is void.

COMPETENT PARTY:-Sec11 of the Contract Act 1872 lays down “ Every person is competent to contract who is of the age of majority, according to the law to which he is subject, who is of sound mind and is not disqualified from contracting by any law to which he is subject.” According a person is not competent at law to enter into a valid contract under the following three situations:- (1) If he has not attained the age of majority , according to the law to which he is subject.(2) If he is not of sound mind i.e. if he is a lunatic or suffering similar disability.(3)If he is disqualified from contracting by any law to which he is subject. AGREEMENTS BY PERSONS OF UNSOUND MIND A person is said to be of sound mind, if at the time of making a contract(a) is capable of understanding the terms and conditions of the contract and (b) has ability to form a rational judgment as to its effect on his interests. It therefore, follows that if a person lacks both these conditions, he suffers from unsoundness of mind. Sec 12 further states that a person, who is usually of unsound mind, but occasionally of sound mind, may not make a contract when he is of unsound mind. A person, who is usually of sound mind,

may not make a contract when he is of unsound mind. (1)Agreements by Idiots:-An idiot is a person, who is permanently of unsound mind. He can never misunderstand the terms of a contract and form a rational judgment as to its consequences for himself. Hence a contract by an idiot is void. (2)Agreement by a lunatic:-A lunatic is a person who does not possess a sound mind and hence is not competent party to enter into a contract. So such agreements are considered as void. (3)Agreement by drunken person:-A drunken person cannot enter into an agreement as long as he is of unsound mind due to heavy drinking.

(4)Presumption of soundness and unsoundness of mind:-A person who is always presumed to be of sound mind and a person, who is usually of unsound mind, is always presumed to be of unsound mind, unless contrary is proved. AGREEMENTS BY MINORS :-A minor is a person, who has not attained the age of majority according to the law, by which he/ she is governed. According to Sec 3of the Indian MajorityAct,1875, a person becomes a major on completion of 18 years of age. Following are the rules relating to a minor’s contract :- (1)A minor’s agreement is void ab initio and inoperative because a minor has no capacity to contract. A minor cannot bind himself by a contract. (2)A minor, who has entered into a contract , cannot ratify it subsequently on attaining the age of majority because the minor’s agreement is void ab initio. (3)A minor’s property is liable to a person, who supplies necessaries of life to a minor.(4)If a minor misrepresents himself to be a major and induces another person to enter into a contract with him, even then, he can plead minority as a defence in a law suit on the agreement.(5) As a minor is incapable of contracting debts, he cannot be adjudicated insolvent.(6)A minor cannot be a member of a registered company.(7) An agreement by a minor’s guardian or parent for the benefit of the minor is void unless the guardian himself is competent to discharge the obligations, mentioned in the agreement.(8)If a person, jointly with a minor, makes a promise in favour of another person, it is the major and not the minor, who is liable for discharging the obligations under the contract.(9)A transfer or mortgage of a property in favour of a minor, is a void transfer.(10) A contract for personal service by a minor is absolutely void.

AGREEMENTS BY DISQUALIFIED PERSONS:-Apart from minors and persons of unsound mind, there are also persons who are of the age of majority and of sound mind who have been disqualified by law from uncontracting . They are:- (1)Incorporated bodies:- An incorporated body can enter into only those contracts which are permitted by its Memorandum of Association or its Bye Laws.(2)Convicts :- He/She is a person who is undergoing imprisonment by way of punishment. During that period he cannot enter into a contract except with ticket of leave.(3) Alien enemy :- He /She is a foreigner whose country is at war with India. Contracts which were entered before the war, if not performed would get discharged due to operation of law or get suspended. Agreements during war are not permitted. (4) Foreign sovereign:- Foreign sovereign , diplomatic staff enjoy certain immunity and privileges. However, a suit cannot be filed against them in Indian courts without the prior permission of the Central Government.(5) Insolvents :- When a person is declared insolvent, his property vests with the official assignee and he is deprived of his power to deal with the property, to his property. The disqualification will be removed after he is discharged.

QUASI CONTRACT :- No regular offer and acceptance has been made by the parties, even then, there are certain transactions which under the law, resemble those, created by a contract. Such transactions are deemed to be a Quasi contract. Sec 68 to 72 of the Contract Act 1872 deals with five different kinds of quasi-contract :- (1) Supply of necessities to incapable persons :- (Sec68) states, “ if a person incapable of entering into a contract or any one whom he is legally bound to support, is supplied by another person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.” (2) Payment by interested persons:- Sec 69 lays down,“ A person , who is interested in the payment of money, which another is bound by law to pay and who therefore pays it, is entitled to be reimbursed by the other”. (3)Payment for non- gratuitous Act:- Sec70 lays down, “Where a person lawfully does anything for another person or delivers anything to him, not intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of or to restore the thing so done or delivered.”(4)Responsibility of a finder of goods:-Sec 71 lays down, “ A

person, who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.” (5)Payment or delivery by mistake or under coercion:- Sec72 lays down : “ A person, to whom money has been paid or anything delivered, by mistake or under coercion, must repay or return it.” COERCION:- Sec15 of the Contract Act 1872 states, “ Coercion is the committing or threatening to commit any act, forbidden by the Indian Penal Code, or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.” If we analyse the above definition of coercion, we shall discover its following features:- (1) Coercion means committing or threatening to commit any act, which is forbidden by the Indian Penal Code or unlawful detaining or threatening to detain any property.(2) Coercion may proceed from any person including a person, who is not a party to the contract.(3) The act or threat, which constitutes coercion, may be directed against any person and not necessarily against the other party to the agreement.(4) The act or threat must have been actually committed or given with the intention of causing any person to enter into an agreement.(5) It does not matter whether the Indian Penal Code is or is not in operation in the place, where the coercion is employed. UNDUE INFLUENCE :- Sec 16(1) lays down, “ A contract is said to be induced by undue influence where relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.” The above definition reveals the following three elements of undue influence:- (1) One party must be in a position to dominate the mind of the other party to the contract.(2) The dominant party must secure from the contract an unfair advantage.(3) The unfair advantage must spring from the use of that dominant position. For e.g. A pardanishin woman is one who according to the custom of her community, observes the custom of parda i.e. seclusion from contact with people outside her own family. Pardanishin women are peculiarly susceptible to undue influence. Hence, it has been held by Indian Courts that a contract made by or with a pardanishin woman is voidable , at her option, unless the other party to the contract satisfies the Court that the terms of the contract were not only read over and explained to her but that

she also understood their meaning and their implications and effects upon her own interest.

FRAUD :- Sec 17 of the Contract Act states, “ Fraud means and includes any of the following acts, committed by a party to a contract or with his connivance or by his agent, with to include him to enter into the contract: (1)the suggestions , as a fact, of that which is not true by one who does not believe it to be true, (2) the active concealment of the fact by one having knowledge or belief of the fact, (3) a promise made without any intention of performing it, (4) any other act fitted to deceive, (5) any such act or omission as the law specifically declares to be fraudulent. CONSEQUENCES OF FRAUD:- A person, who has been induced to enter into an agreement by fraud has the following three remedies open to him:- (1) The agreement is a contract, voidable at the option of the party, whose consent is so caused. (2) The aggrieved person can insist that the contract shall be performed and that he shall be put in the position in which he would have been, if the representations made had been true.(3) As fraud is a civil wrong, the aggrieved person can sue for damages. MISREPRESENTATION :-The term “ misrepresentation means a false statement, made by a person, who honestly believes it to be true or who does not know it to be false. It also includes non- disclosure of a material fact or facts, without any intent to deceive the other person.”(Sec18) While defining “ misrepresentation” Sec18 of the Contract Act 1872 has classified misrepresentation into three different classes, as under :- (a) Unwarranted positive assertion :- When a person makes a positive assertion that a fact is true, when his information does not warrant it to be so, though he believes it to be true, there is misrepresentation. (b) Breach of duty : Where a person is under a a duty to disclose all materials facts, but does not do so and thereby misleads the other party it constitutes misrepresentation. CONSEQUENCES OF A MISREPRESENTATION:- (1) The agreement is a contract voidable at the option of the party, whose consent is caused by misrepresentation. (2) The aggrieved party may insist that the contract shall be performed and that he shall be put in the position in which he would have been, if the representation made had been true.(3) Finally, there can be no suit for damages.

MISTAKE:- A mistake may be defined as “ an erroneous belief concerning something.” Where both the parties to an agreement and under a mistake as to a matter of fact essential to the agreement, the agreement is void. ESSENTIALS:-( 1) Both parties to the contract must be under a mistake i.e. Bilateral or mutual mistake as to an existing fact, renders the agreement void. If mistake is unilateral, the agreement does not becomes void. (2) Mistake should be one of fact and not of law. (3) Mistake should be essential to the agreement. (4) Erroneous opinion as to the value of the thing which forms at the subject matter of the agreement is not to be deemed a mistake as to a matter of fact .(5) A contract is not voidable because it was caused by a mistake as to any law in force in India. DIFFERENCE BETWEEN CONTINGENT CONTRACT AND WAGERING CONTRACT CONTINGENT CONTRACT:- (1) It is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.(2)The uncertain event is collateral.(3) It is valid agreement unless the agreement is contingent on an impossible event.(4) It may or may not consist of reciprocal promises.(5)The promises are interested in the subject matter of the contract. WAGERING AGREEMENT:- (1) It is a promise to give money or money’s worth upon the determination of an uncertain event.(2) The uncertain event is essential to the contract. (3) It is void.(4) It consists of reciprocal promises. (5) The parties have no other interest in the subject matter of the contract except to winning or losing of the amount. CONSIDERATION :- Sec 2(d) of the Contract Act 1872, “ When , at the desire of the promisor, the promise or any other person (a) has done or abstained from doing or (b) does or abstains from doing or (c) promises to do or to abstain from doing something, such act, abstinence or promise is called a consideration for the promise.” LEGAL RULES AS TO CONSIDERATION:- (1) A consideration must move at the desire of the promisor:- The basic principle, involved in consideration is that an act or forbearance, constituting consideration must have been done at the desire of the promisor. (2)A consideration may be given by the promise or by any other person:-

consideration must move only from the promise or from his agent. If it is given by third person i.e. other than the promise, it is no consideration. (3) A stranger to a contract cannot sue upon it :-A party cannot sue on a contract unless a relationship subsists between the parties, who have entered into contractual obligations. (4) Consideration may be past, present or future:- A past consideration is something already done before the making of an agreement. When the consideration is given simultaneously with the promise, it is said to be the present consideration. When the consideration is promised to be given at a future date, it is said to be future consideration. (5)Consideration need not be adequate :- The law simply provides that a contract should be supported by some consideration and the Courts of law are not concerned as to its adequacy. (6) Consideration must be real and not illusory :- A contract cannot be created on the basis of something for nothing. (7) A Consideration must not be illegal, immoral or opposed to public policy. (8) Performance of existing obligation is no consideration :- The performance of an act by a person, who is already bound by law to perform the same act either as a public duty or under the existing contractual obligation, does not constitute a consideration. AN AGREEMENT WITHOUT A CONSIDERATION IS VALID In India, an agreement made without consideration is void and until the case falls within one of the exceptions, provided in Sec 25 of the Contract Act.(1) An agreement in writing and registered, made out of natural love and affection :When an agreement is made in writing and registered under the law for the time being in force, for the registration of documents and is made out of natural love and affection between parties standing in a near relation to each other, no consideration is required in such a case. (2) A compensation for past voluntary services: A promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do is enforceable at law even though without consideration. (3) A promise to pay a time barred debt:- A promise, made in writing and signed by the debtor or by his agent, who is authorized to sign it , to pay wholly or in part a time barred debt, is enforceable in the Court of law.

(4) Creation of an agency:- No consideration is necessary for giving a person authority to act as an agent. KINDS OF CONSIDERATION ARE (1) PRESENT CONSIDERATION (2) PAST CONSIDERATION (3) FUTURE CONSIDERATION (4) AN UNREAL OR ILLUSORY CONSIDERATION (5) AN UNLAWFUL CONSIDERATION. DISCHARGE OF A CONTRACT :- Discharge of a contract means termination of the contractual relationship between the parties , When the rights and duties, created by a contract, come to an end, the contract is said to be discharged or terminated. A contract may be discharged in any of the following ways :- (1) by performance (2) by mutual agreement (3) by impossibility of performance (4) by lapse of time (5) by operation of law (6) by breach of contract. DISCHARGE OF A CONTRACT BY MUTUAL AGREEMENT:- As a contract springs from the consent or mutual agreement of all parties to it, it can be terminated as well, by the mutual agreement or consent of all parties to it in the following ways :- (1) BY NOVATION :-Novation means forming a new control, in place of the existing one, either between the same parties or between different parties. (2) BY ALTERATION :- Alteration of a contract means change in one or more of the terms of a contract. Alteration is valid only if it is done with the consent of all the parties to the contract. (3)BY REMISSION :- Remission may be defined as the acceptance of a lesser fulfillment of the promise than what was contracted for. (4)BY ACCORD & STATISFACTION :- ‘Accord’ means the promise to accept a smaller sum or a lesser fulfillment, in full satisfaction of the obligation under the old contract. (5) MERGER :-Merger takes place when an inferior right accuring to a party under a contract merges into a superior right accuring to the same party, under the same or some other contract. (6) BY RECISSION: Recission means annulment of a contract which makes it null and void. This is done by a person at whose option the contract is voidable. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE :- Promise to do something impossible to perform the contract is void.

(1)Precontractual impossibility :- When in contract, a person has promised to do something, which at the time of forming the contract is impossible to perform, the contract is void. The fact of impossibility may be known to all the parties to the contract or it may be known only to the promisor. (a) Fact of impossibility known to all the parties. (b) Fact of impossibility known only to the promisor. (c) Fact of impossibility unknown to all the parties. (2) Post contractual impossibility :- A contract to do an act which after the contract is made, becomes impossible or by reason of some event, which the promisor could not prevent unlawful, becomes void when the act becomes impossible or unlawful is known doctrine of frustration or the doctrine of supervening impossibility. Doctrine of supervening impossibility may occur in any of the following ways (a) Destruction of the subject matter. (b) Non- existence of a set of things. (c) Death or personal incapacity of the promisor. (d) Change of law. (e) Outbreak of war. DISCHARGE BY OPERATION OF LAW (1) Performance excused under law :- Where the performance of the contract is dispensed with or excused under this Act or any law. (2)By Death :- Where the performance of contract depends upon personal skill, ability or qualifications the contract stands terminated on the death of the promisor. (3) Insolvency :- Where a person is adjudged as insolvent, he is discharged from all liabilities incurred by him prior to his adjudication. (4) By refusing tender of performance :- Where a promisor has made an offer of performance to the promise and the offer has not been accepted, the promisor is not responsible for non-performance nor does he thereby lose his rights under the contract.(5) Promise failing to afford facilities for performance:- If any promise neglects or refuses to afford the promisor reasonable facilities for the performance of his promise.(6) Third party :- Where a promise accepts performance from a third party, he cannot afterwards enforce it against the promisor.(7)By unauthorized alteration of terms of a written contract :-When a party to the contract makes a material change in the contract without the consent of other party, the other party can avoid the contract. DISCHARGE BY BREACH OF A CONTRACT :- A breach of contract occurs when a party to a contract does not fulfill his obligation or by his own act makes it impossible that he should perform his obligations under it. The breach of contract may arise in two ways : (1)Actual

breach of contract : - It may take place (i)At the time when performance is due, one party fails or refuses to perform his obligations under the contract. (ii) During the performance of contract:- When during the performance of the contract one party fails or refuses to perform his obligations under the contract.(2) Anticipatory Breach of contract :- It occurs when a party to the contract declares his intention of not performance the contract before the performance is due or does some voluntary act which makes performance of the contract impossible, than it is called an anticipatory breach of contract. This may happen by (i)Express repudiation :- When one party expressly renounces his liabilities under the contract before the performance is due. (ii) Implied repudiation :A promisor may before the time for performance arrives , by doing some act , make the performance of his promise impossible. DAMAGES The party who is injured by the breach of a contract may bring an action for damages. Damages means monetary compensation for the loss suffered by the injured party. SUIT FOR DAMAGES The object of awarding damages for the breach of contract is to put the aggrieved party in the same financial position in which he would have been, if the contract had been performed and not broken. The Court does not award damages for all losses, caused by a breach of contract, because some losses are regarded as too remote. There are three rules governing measure of damages. (1) Damages for actual loss in natural and usual way : When a contract has been broken , the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused by him thereby which naturally a rose in the usual course of things from such breach or which the parties knew, when they made the contract , to be likely to result from the breach of the contract.(2) Remoteness of damages :- The compensation is not to be given for any remote and indirect loss or damage sustained by reason of such breach. (3) Remedying inconvenience caused by breach : In estimating the loss or damage , arising from a breach of contract the means which existed of remedying the inconvenience caused by the non- performance of the contract, must be taken into account. SUIT FOR AN INJUNCTION

An injunction is preventive relief. It is an order of the court, directing the other party to do or refrain from doing some act, which is the subject-matter of the contract and which the other party under the contract, is obligated to do or not to do. An injunction may be temporary or perpetual. (1) Temporary Injunction for a specified time:- A temporary injunction is granted provisionally for a specified time , or until the further order of the court. Its object is only to preserve the property in dispute until the final disposal of the case and may be granted at any stage of a suit.(2) Perpetual injunctions by a decree of the court:- A perpetual injunction is of a permanent nature. It can only be granted by a decree of the court on establishing a right by the applicant.CONTINGENT CONTRACT:- Sec 31 defines contingent contract, “ A contract to do or not to do something if some event, collateral to such contract, does or does not happen.” (1) Happening of future uncertain event(Sec32) :- Such contract cannot be enforced unless and until that event has happened. If that event becomes impossible, such a contract becomes void . (2) Non-happening of uncertain future event(Sec33) :- For e.g. A agrees to pay to B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks. (3)When the event is deemed to be impossible(Sec 34):-For e.g. A agrees to B a sum of money if B marries C. But C marries D. The marriage of B to C must now be considered impossible. (4) The happening of an event within a fixed time (Sec 35) :-For e.g. A promises to pay B a sum of money, if a certain ship returns within a year. The contract may be enforced if the ship returns within a year and becomes void if the ship does not return within a year. (5)The non-happening of an event within a fixed time (Sec 35(2)):-A promises to pay to B a sum of money if a certain ship does not return within a year . This contract can be enforced if the ship does not return within a year. (6) An agreement contingent on happening of an impossible event(Sec36):- For e. g A agrees to pay B a sum of Rs 10000/- if B marries C. But C was dead at the time of agreement.

SPECIFIC CONTRACT CONTRACT OF INDEMNITY

Sec 124 defines, “ A contract by which one party promises to save the other from loss, caused to him by the conduct of the promisor himself or by the conduct of any other person.” The person who promises to make good the loss is called the indemnifier and the person whose loss is to be made good is known as the indemnified. ESSENTIALS OF A CONTRACT OF INDEMNITY ARE :-

(1) Actual loss to promisee: Under a contract of indemnity, the promise or the indemnity-holder must have actually suffered a damage or loss before he can hold the promisor liable for the actual loss. (2) An object or a consideration must be lawful :- Finally, the object or consideration of a contract of indemnity must be lawful, otherwise it cannot be enforced. CONTRACT OF GUARANTEE

Sec 126 defines , “ A contract of guarantee as a contract to perform the promise or discharge the liability of a third person in case of the third person’s default.” The person who gives the guarantee is called the surety or the guarantor. The person ,in respect of whose default the guarantee is given is called the Principal Debtor. The person to whom the guarantee is given is called the creditor. ESSENTIALS OF A CONTRACT OF GUARANTEE

(i) Three parties:- A contract of guarantee is characterized by the consent and concurrence of three parties, namely, the principal debtor, the creditor and the guarantor. (2) Consideration for guarantee :- It is not necessary that there should be some benefit to the guarantor himself.

(3) Primary and Secondary liabilities :- The primary liability is always that of the principal debtor. The liability of the guarantor is secondary. It springs into existence only when there is a default by the principal debtor and not otherwise. (4) Guarantor’s distinct promise to be answerable:-There must be a distinct promise, made by the guarantor, to be answerable for the liability of the principal debtor in case of his default. (5) The liability must be legally enforceable. But the debt is time- barred , the guarantor will not be liable.

CONTRACT OF INDEMNITY CONTRACT OF GUARANTEE

• Sec124 defines, “ a contract by (1) Sec126 defines, “ a contract of which a party promises to save the guarantee as a contract to perform the other from loss, caused to him by promise or discharge the liability of a the conduct of any the promisor, third person in case of the third person’s himself or by the conduct of any default.” other person.” (2) There are three contracts :-between (2)There is only one creditor and principal debtor, between contract i.e. a contract between the principal debtor and guarantor ,between indemnifier and the indemnified. Creditor and guarantor. (3)There are two parties to the (3)There are three parties to the contract: contract –the indemnifier and the the creditor, the principal debtor and the indemnified. Guarantor. (4)The liability of the indemnifier (4)The primary liability is that of the to the indemnified is primary and principal debtor and the liability of Independent . Guarantor to the creditor is secondary.

(5)The aim is the reimbursement (5)The aim is the security of the of loss, if any, to the indemnified. Creditor.

(6) The liability of indemnifier (6)There is an existing debt, the comes into being only on the performance of which is guaranteed happening of a contingency. By the guarantor.

BAILMENT

Sec148 defines, “ A bailment is the delivery of the goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, returned or otherwise disposed of according to the directions of the person delivering them.”The person delivering the goods is called the bailor and the person to whom, they are delivered is called the bailee.

ESSENTIALS OF A BAILMENT CONTRACT. (1) Delivery of goods by one person to another :-The soul of bailment lies in the delivery of goods by one person to another for some purpose. Delivery of goods may be either actual or constructive.

(2) A contract of accomplishment of some purpose:- The delivery of goods is made upon an express or implied contract for some definite purpose.

(3) Return of specific goods to the bailor:- The person to whom the goods have been delivered, shall have to return the specific goods to the bailor or to dispose it of according to the directions of the bailor.

(4) A change of possession but not that of ownership :- Bailment involves a change of possession but not of ownership from one party to another.

(5) Bailment is made only of movable goods:- Only movable goods excepting money can be bailed.

(6) Consideration in a contract of bailment:- The consideration is in the shape of money payment either by the bailor or by the bailee.

KINDS OF BAILMENT

(1) BAILMENT FOR SAFE DEPOSIT:- In this case of bailment, goods are bailed by one person with another for safe custody. (e.g. Bank Locker)

(2)BAILMENT BY HIRE FOR USE :- Goods are bailed by one person with another, for the benefit of and the use by the bailee, in return for a payment of money. (e.g. Utensils hired at the time of marriage)

(3) COMMODATUM BAILMENT :- When goods are lent to a friend gratuitously to be used by him, without any charge or consideration is called

commodatum bailment.(e.g. A friend is giving his car to another friend B for genuine cause ) (4) BAILMENT FOR REPAIRS :- Goods may be delivered by one person to another, for repairs , with reward payable to the bailee.(e.g. A mixer given for necessary repairing to the mechanic.)

(5)BAILMENT BY PLEDGE:- When a borrower of money delivers goods to the lender as a security for the payment of amount of the loan and the interest thereon, it is known as a bailment by pledge.(e.g. Silver utensils pledged) (6) BAILMENT FOR CARRIAGE FROM ONE PLACE TO ANOTHER :- In this type of bailment goods are delivered by one person to another , for carriage from one place to another, for reward, payable to the bailee.(E.g. Movers and Packers helping for home shifting )

RIGHTS OF A BAILOR

(1) Bailor’s right to enforce Bailee’s duties:- The bailor has a right to enforce by suit, all the liabilities or duties of the bailee. (2) Bailor’s right to avoid contract :- A contract of bailment is voidable at the option of the bailor, if the bailee does any act with regard of the goods bailed, inconsistent with the conditions of the bailment. (3) Bailor’s right to demand return of goods at any time in gratuitous bailment :- The bailor has a right to demand the return of the goods bailed, at any time, even though he lent them for a specified time or purpose. (4) Bailor’s right to sue a wrong doer:-If a third person wrongfully deprives the bailee of the use of possession of the goods bailed or does them any injury, the bailor or the bailee may bring a suit against a third person for such injury. (5) Bailor’s right to have a share in compensation :- Whatever is obtained, by way of relief or compensation in a suit against wrong doer, shall be divided between the bailor and the bailee, according to their respective interests. DUTIES OF A BAILOR

(1) Bailor’s duty to disclose faults in goods bailed:- It is bailor’s duty to disclose to the bailee all material faults in the goods bailed, of which the bailor is actually aware. Failing which, the bailee is entitled to recover from the bailor compensation for any loss or damage, resulting from the use of the

goods bailed. (2) Bailor’s duty to pay necessary expenses in gratuitous bailments :- Where by the conditions of the bailment, the goods are to be kept or to be carried or to have work done upon them by the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses, incurred by him for the purpose of the bailment.

(3)Bailor’s duty to receive back the goods bailed:-The bailor is to receive back the goods bailed after the expiration of the terms of the bailment.

(4) Bailor’s duty to indemnify the bailee:- The bailor is responsible to the bailee for any loss, which the bailee may sustain by reason of the fact that the bailor was not entitled – to make the bailment or to receive back the goods or to give directions respecting them.

RIGHTS OF A BAILEE

(1)Bailee’s right to enforce bailor’s duties :-The bailee is entitled to enforce, by suit, all the duties and liabilities of the bailor.

(2) Bailee’s right to sue wrong- doers:- If a third person wrongfully deprives the bailee of the use or possession of the goods bailed or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment has been made, bailor or bailee may sue third person. (3) Sharing of relief or compensation, obtained by such suits :- Whatever is obtained, by way of relief or compensation, in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests. (4) Bailee’s particular lien:- Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has a right to retain such goods until he receives due remuneration for the service, he has rendered in respect of them.

DUTIES OF A BAILEE

(1) Bailee’s duty to take reasonable care of the goods bailed:- In all cases of bailment, the bailee is bound to take as much care of the goods, bailed to him

as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quantity and value, as the goods bailed.

(2) Bailee’s liability for making unauthorized use of goods bailed :- If the bailee makes any use of the goods bailed which is not according to the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.

(3)Bailee’s duty to return goods bailed:_ It is the duty, of the bailee to return or deliver according to the bailor’s directions , the goods bailed, without demand, as soon as the time for which they were bailed has been accomplished. (4) Bailee’s responsibility when goods are not duly returned :- If, by the fault of the bailee, the goods are not returned at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time. (5)Bailee is not responsible on re-delivery of goods to bailor without title:- If the bailor has no title to the goods and the bailee in good faith, delivers them back to, according to the direction of the bailor, the bailee is not responsible to the owner in respect of such delivery.

(6) Right of a third person claiming goods bailed:- If a person other than the bailor, claims goods bailed, he may apply to the court to stop the delivery of the goods to the bailor and to decide the title to the goods.

(7) Bailee’s duty not to mix the goods bailed, with his own goods :- The bailee must not mix the goods of the bailor with his own goods.

TERMINATION OF BAILMENT A contract of bailment is terminated in any one of the following ways :- (1)Termination on expiration of the period of bailment:- When the contract of bailment is made for a fixed period, it terminates on the expiration of the period. (2)Termination by realization of the purpose of bailment:-When the contract of bailment is for a specific purpose, it terminates as soon as the purpose is realised.

(3) Termination on death of bailor or bailee :- A gratuitous bailment is terminated by the dead either of the bailor or bailee.

(4) Termination of gratuitous bailment :- A gratuitous bailment can be terminated by the bailor at any time, though it is made for a specified time or purpose . (5) Termination on destruction of the subject-matter of bailment:- A bailment is terminated when subject-matter is destroyed or when it becomes incapable of use for the purpose of the bailment, due to change in its nature.

(6) Termination by inconsistent use of goods by bailee :-If the bailee does any act with regard to the goods bailed, which is inconsistent with the conditions of the bailment, the contract of bailment becomes voidable at the option of the bailor.

PLEDGE OR PAWN

Sec 172 states, “ The bailment of goods as security for payment of a debt or performance of a promise is called ‘ pledge’. The bailor, in this case, is called the ‘pawnor’ or ‘pledger’ and the bailee is called the ‘pawnee’ or ‘pledgee’. To constitute a pledge, following four essentials are :-

(1) Bailment of goods as security:- A pledge is a special kind of bailment of goods as and by way of security for repayment of a debt or for the performance of a promise. (2) Bailment of only movable property :- Only movable goods can be pledged. (3) Actual or constructive delivery of goods pledged :- Transfer of possession is essential to constitute a valid pledge.

(4) Juridical possession of goods pledged :- It is only the person, who is in juridical possession of goods, can make a pledge. Mere physical possession is not enough.

RIGHTS OF A PAWNOR

(1) Defaulting pawnor’s right to redeem :- If time is stipulated for the payment of the debt or performance of the promise, for which the pledge is made and the pawnor makes default in payment of the debt or performance promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them. (2) Pawnor’s right to receive back the goods: The pawnor is entitled to receive back the goods on payment of the debt or performance of the promise.

RIGHTS OF A PAWNEE (1)Pawnee’s right of retainer :- The pawnee may retain the goods pledged not only for payment of the debt or the performance of the promise, but for the interest of the debt and all necessary expenses incurred by him for preserving the goods. (2) Pawnee’s right when pawnor makes default:- If the pawnor makes default in payment of debt or performance of the promise, at the stipulated time, in respect of which the goods were pleged, the pawnee has two alternatives:- (a) The pawnee may bring a suit against the pawnor upon the debt or promise and retain goods pledged as collateral security or (b) The pawnee may sell the thing pledged, on giving the pawnor reasonable notices of the sale. If the proceeds of such sale are less than the amount due in respect of the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

FINDER OF GOODS

A person who finds goods belonging to another and takes them into his custody is known as the finder of goods. The Contract Act confers the following three rights upon a finder of goods:

(1) Right of particular lien :- A finder of goods has the right of a particular lien over the goods for compensation. Hence , he is entitled to retain or detain the goods, found against the true owner until he receives compensation for trouble and expenses, voluntarily incurred by him to preserve the goods and to find out the owner. (2)Right to sue for a specific reward:- Where the owner has offered a specific

reward for the return of goods lost, the finder may sue for such reward and may retain the goods until he receives it.

(3) Right to sell:- Sec 169 confers upon the finder of goods the right to sell the goods found, under the following circumstances :- (a) If the owner cannot be found with reasonable diligence or (b) If found, he refuses to pay, upon demand, the lawful charges of the finder of goods or (c) If the thing found is in danger of perishing or of losing the greater part of its value or (d) If the lawful charges of finder of goods in respect of the thing found, amount to two-thirds of its value.

DUTIES OF FINDER OF GOODS

Sec 71 lays down:- “ A person, who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.” The duties of the finder of goods are :-

(1) The finder of goods must take as much care of the goods found, as a reasonable man of ordinary prudence would take of his own goods of the same bulk, value and quality as the goods bailed.

(2) In spite of his reasonable care, the goods are destroyed, he is not responsible for any loss.

(3) He must not use the goods found for his own purpose.

(4) He must not mix the goods found for his own goods.

(5) He must attempt to find out the true owner of the goods found.

LIEN

A lien may be defined as a right of a person to detain or retain the goods or property, already in his possession, but belonging to another person, until some debt or claim in the person in possession is satisfied. Rightful and continuous possession of goods is essential to the creation of a lien. The Contract Act 1872, deals with two kinds of lien (i) Particular lien (ii) General lien.

PARTICULAR LIEN GENERAL LIEN• A particular lien can be

exercised by any bailee or agent or finder of goods or partner or vendor or seller. Hence it is common to all bailees.

• A general lien can be exercised by bankers, factors, wharfingers, attorneys of a High Court & policy-brokers to retain as a security for a general balance of account.

• A particular lien can be exercised only over the goods, bailed and on which the bailee has performed work in full.

• A general lien can be exercised over all the goods, bailed.

• A particular lien can be exercised only for non-receipt of remuneration due for work done on the goods , bailed.

(3)A general lien can be exercised for non-receipt of any sum due on a general balance of accounts.

CONTRACT OF AGENCY

AN AGENT

Sec 182 lays down that an agent is a person, employed to do an act for another, or, to represent another in dealings with third persons. The person for whom such an act is done or who is so represented is called the principal. An agency, therefore , is an engagement in order to establish a contractual relation, between one person ( principal), who appoints an agent and another third person, with whom the agent contracts for and on behalf of the principal. The following are the three essential elements of an agency:- (a) There must be a contract of agency between two persons.

(b) The contract must be to appoint a person for acting or representing, the principal. (c) The person thus appointed must have a contractual relations with a third person.

THREE MODES OF CREATING AN AGENCY

The relationship of principal and agent may be created by one of the following three ways

(1) By express agreement (2) By implied agreement :- An authority is said to be implied when it is to be inferred from the circumstances of the case and things spoken or written or the ordinary course or dealing may be accounted circumstances of the case.

(3) By ratification :- Where acts are done by one person on behalf of another but without his knowledge or authority , he may elect to disown such acts or to adopt the benefit and liabilities of the contract.

DIFFERENT KINDS OF AGENT There are six different kinds of agents :-

(1) Special agent :- A special , also known as particular or special agent is one, who is appointed to do a single or particular or special act, or to represent his principal in some particular transaction.

(2) General agent:- A general agent is one, who in a recognized business, trade or employment, generally represents his principal. Such an agent has an authority to do all acts, connected with a particular trade, business or employment. (3) Sub-agent :- A sub-agent is a person, who is employed by and is working or acting under the control of , the original agent in the business of the agency. (4) Co- Agent:- When two or more persons are appointed as agents jointly or severally or jointly and severally, they are called Co-agents.

(5) Substituted Agent:- A Substituted agent is a person, who is appointed by the agent according to the express or implied authority of the principal, to act for and on behalf of the principal in the business of the agency.

(6) Mercantile Agents :-Special class of agents is known as the mercantile agents. The different mercantile agents are :-

(1) Broker:- A broker is employed to buy or sell property or to bring about a contractual relation between the buyer and the seller. A broker has no possession of goods or property hence he has no right of lien.

(2)Factors:- A Factor is a mercantile agent, entrusted with the possession of goods for the purpose of selling them in his own name. He can sell the goods in his own name and on credit and can receive a good discharge to the buyer. A Factor has a general lien on the goods of his principal for a general balance of account between him and the principal. (3)Auctioneer:- An Auctioneer is an agent, who is appointed by a seller, for the purpose of selling his goods by public auction, for a reward, usually in the shape of commission. He has no authority to sell the goods by private contract. (4) Commission Agent:- A Commission agent is a person, who secures buyers for a seller of goods and sellers for a buyer of goods and receives, in return for his labour and trouble, a commission on the actual sale price.

(5)Del Credere Agent :- A del credere agent is one ,who, in consideration of an extra remuneration, known as del credere commission guarantees the performance of the contract, as regards the payment is concerned, by the third party. The del credere agent is bound to pay the seller, if buyer turns insolvent. (6)Indenting Agent :- An indenting agent is an agent, who procures a sale or purchase, on behalf of his principal, with a merchant abroad, receiving in return for his labour and trouble, a commission at the rate, mentioned in the indent. (7)Pakka Adatia and Katcha Adatia :- In the Mumbai market, a Pakka Adatia is a person, who guarantees his up-country principal that, on the due date, the delivery of goods shall be given or taken, at the price, at which the order is accepted or differences shall be paid on the due date. A Katcha Adatia is an agent, who, for and on behalf of his up-country principal, enters into a contract with a third party in Mumbai and thereby establishes a contract between the third party and the principal, so that each becomes directly responsible to the other.

AGENT’S RIGHTS AND DUTIES TO HIS PRINCIPAL

AGENT’S RIGHTS :- (1) Right to enforce principal’s duties :-An agent has a right to enforce principal’s duties to him.

(2) Right of Retainer :- An agent may retain , out of the sums received on account of the principal in the business of the agency, all money due to himself

in respect of the advances made of expenses properly incurred by him and also remuneration as may be payable to him for acting as agent.

(3) Right to receive remuneration when due:- An agent has a right to receive his remuneration from the principal when it becomes due to him.

(4)Not entitled to remuneration for misconduct :- An agent , who is guilty of misconduct in the business of agency, is not entitled to any remuneration in respect of that part of the business which he has misconducted.

(5)Right of lien on Principal’s property:- In the absence of any contract , an agent is entitled to retain gods, papers of the principal received by him until he has been accounted for.

(6)Right of indemnification against consequence of lawful acts:- An agent has a right to be indemnified by the principal against the consequences of all lawful acts, done by the agent.

(7)Right of compensation for injury caused by principal’s neglect:- The agent has a right to be compensated for any injury, sustained by him due to neglect or want of skill on the part of the principal.

AGENT’S DUTIES :- (1)Agent’s duty to conduct the principal’s business according to the directions :- An agent is bound to conduct the business of principal according to the directions given by the principal or in the absence of any such directions, according to the custom, which prevails in doing business of the same kind at the place, where the agent conducts such business. (2) Duty to conduct business with skill and diligence :- An agent is bound to conduct the business of he agency with as much skill as is generally possessed by persons engaged in similar business.

(3) Duty to render accounts to his principal: An agent is bound to render proper accounts to his principal on demand. (4)Duty to communicate with the principal in cases of difficulty :- It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communication with his principal and in seeking to obtain his instructions.

(5) Duty not to deal on his own account:- If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal, the principal may repudiate the transactions.

(6)Duty to pay sums, received for principal :- The agent is bound to pay to his principal all sums, received on his account , minus (i) all money due to the agent himself in respect of advances made or (ii) expenses properly incurred by him in conducting such business and (iii) such remuneration as may be payable to him acting as an agent. (7)Duty to protect and preserve the interests of the principal :- When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take all reasonable steps for the protection and preservation of the interests, entrusted to him.

(8)Duty not to use information against the principal :- An agent is duty bound to pass on any information, which he receives in the course of the agency, to his principal. He must not use such information against the interest of his principal.

(9) Duty not to delegate authority :- As a general rule, he cannot lawfully employ another to perform acts.

PRINCIPAL’S RIGHTS AND DUTIES TO HIS AGENT PRINCIPAL’S RIGHTS:- (1) Right to enforce the agent’s duties :- The principal has a right to enforce all the duties of the agent.

(2)Right to recover damages:- Where the principal suffers any loss, the principal is entitled to recover damages accruing as a result from the agent.

(3) Right to recover the secret profits from agent :- The principal has a right to recover secret profits, if any made by his agent out of the agency, without the knowledge and assent of his principal.

(4) Right to resist agent’s claim for indemnity against liability incurred:- The principal has a right to resist the agent’s claim for indemnity against liability incurred by him in a transaction, in which, the agent acted not as the agent but as a principal himself.

(5)Right to revoke agent’s authority :- The principal has a right to revoke his agent’s authority subject to certain conditions.

PRINCIPAL’S DUTIES:- (1) Duty to indemnify his agent against consequences of all lawful acts:- The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of authority conferred upon him.

(2) Duty not liable for criminal acts of his agent:-Where one person employs to do an act which is criminal, the employer is not liable to the agent, to indemnify him against the consequences of that act.

(3) Duty to compensate the agent for injury, caused by the principal’s neglect:- The principal must make compensation to his a agent in respect of injury caused to such agent by the principal’s neglect or want of skill.

(4) Duty to pay agreed commission :- The principal is duty bound to pay the commission or remuneration as agreed to his agent.

(5)Duty to indemnify his agent against consequences of acts done in good faith :- If the agent acts in good faith, the employer is liable to indemnify the agent against the consequences of that act though it causes an injury to the rights of third person.

MODES OF TERMINATION OF AN AGENCY

The contract of agency may be terminated in one of the two ways :- (1) by an act of the parties or (2) by the operation of law.

TERMINATION OF AN AGENCY BY AN ACT OF THE PARTIES

(1)Termination of an agency by an agreement :- The relation between the principal and the agent is usually founded on an agreement and it can be terminated by the same process by which it originated.

(2)Revocation of agent’s authority by the principal :- An agency can be terminated by the principal by revoking his authority which may be expressed or implied to the conduct of the principal, the principal must make

compensation to the agent without sufficient cause and that reasonable notice must be given of such revocation to the agent by the principal.

(3)Renunciation of an agency by an agent:- An agency may be terminated by the agent by renouncing the business of the agency, which may be express or implied, where the reasonable notice must be given of such renunciation to the principal by the agent and the agent must make compensation to the principal for any premature renunciation of the agency without sufficient cause.

TERMINATION OF AN ASGENCY BY AN OPERATION OF LAW

Sec 201 lays down that an agency is terminated in the following ways :-

• Termination by performance of contract.

• By death or insanity of principal or agent.

• By insolvency of either party.

• By expiry of period.

• By destruction of subject-matter.

• By dissolution of the firm.

• By principal becoming an alien enemy.

THE SALE OF GOODS ACT ,1930

DEFINITIONS

(1)BUYER :- Sec2(1) defines a buyer as “ a person who buys or agrees to buy.”

(2)SELLER:- Sec2(13) defines a seller as “ a person who sells or agrees to sell.”

(3)DELIVERY:- Sec2(2) defines delivery as “ voluntary transfer of possession from one person to another.” The transfer of possession may be actual i.e. when physical possession is transferred by one person to another or constructive i.e. when though the actual physical possession is not transformed (e.g. when goods are transferred or sold through some document of title like railway receipt).

(4)DELIVERABLE STATE :- Sec 2(3) defines as “ goods are said to be in a ‘ deliverable state’ when they are in such state that the buyer would under the contract , be bound to take delivery of them.”

(5) QUALITY OF GOODS:- Sec2(12) defines it as state or condition of goods.

(6) PRICE:-Sec2(10) defines “price means the money consideration for a sale of goods.”

(7)PROPERTY:-Sec2(11) defines “ property as the general property in the goods and not merely a special property.”

(8)DOCUMENT OF TITLE OF GOODS:- Sec2(4) defines “ A document of title of goods includes a bill of lading, dock warrant, warehousekeeper’s certificate, railway receipt, warrant or order for the delivery of goods and any other document which is used in the ordinary course of business as a proof of the possession or control of goods or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.”

The following are some examples of documents of title to goods:- (1)BILL OF LADING :- It is a receipt given by the ship owner acknowledging the receipt of goods for carriage. (2)DOCK WARANT:- It is a document issued by a dock owner or wharf owner containing the details of goods and also containing a declaration or certificate by such owner that the goods are held on behalf of the person whose name appears in it or his assignee by endorsement. (3)WAREHOUSEKEEPER’S CERTIFICATE:- A document issued by the owner of the warehouse, certifying that the goods specified in the document are in the warehouse.

(4)WHARFINGER’S CERTIFICATE:- Wharf is a platform alongside the water for loading and unloading a ship. It certifies that the goods specified in it are in the wharf. (5)RAILWAY RECEIPT:- It is a document issued by the railway authorities as the acknowledgement of the receipt of goods. (6)DELIVERY ORDER:- It is also known as warrant or order of delivery of goods. It is an order given by the owner of the goods directing a person, who holds the goods on his behalf, to deliver them to a person named therein.

(9)GOODS:-Sec2(7) defines goods as “ Every kind of movable property other than actionable claims and money and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.”

CLASSIFICATION OF GOODS:-

(1)EXISTING GOODS :- Such goods are those goods which are owned and possessed by the seller at the time of sale. They are further classified into (a)SPECIFIC GOODS:- The goods which have been identified and agreed by the parties. For e.g NOKIA MOBILES. (b)ASCERTAINED GOODS :- The goods which are identified after formation of the contract. (c)UNASCERTAINED GOODS :- The goods which cannot be specifically identified. (2)FUTURE GOODS:- These are goods which are not in existence at the time of contract, but which will be manufactured or produced or acquired by him after the making of contract. (3)CONTINGENT GOODS :- They are also a kind of future gods. The acquisition of such goods by the seller depends upon a contingency, which may or may not happen. CONTRACT OF SALE

Sec4(1) defines sale as, “ A contract of sale of goods is a contract whereby, the seller transfers or agrees to transfer the property or goods to the buyer for a price. There may be a contract of sale between one part owner and another.”

(1)A BILATERAL CONTRACT :- There must be two different persons i.e. the seller and the buyer, because the property in goods has to pass from the seller to the buyer. Moreover the seller and the buyer must be competent at law to contract and it is necessary that both the parties should give their free consent. (2) MONEY CONSIDERATION :- The consideration for the sale of goods must be money called the price. But when the goods are exchanged for goods, it is not a sale, but a barter transaction. (3)TRANSFER OF ONLY MOVABLE GOODS:- The contract of sale of goods must be money called the price. But when the goods are exchanged for goods, it is not a sale, but a barter transaction. (4)TRANSFER GENERAL PROPERTY :- There must be transfer of general property in goods i.e. transfer of ownership and possession of goods from the seller to the buyer. (5)NO PARTICULAR FORM :- A contract of sale may be made in writing or by spoken words or partly in writing and partly by spoken words or may be implied from the conduct of the parties. (6)ABSOLUTE OR CONDITIONAL SALE:- A contract of sale may absolute or conditional. An absolute contract means a contract without any condition. A conditional contract may be a contract with conditions to be performed before or after the contract of sale is made. MODES OF ASCERTAINMENT OF PRICE

Sec 9 lays down the following three modes of ascertainment of the price. The price in a contract of sale of goods may be (i)fixed by the contract itself or (ii) left to be fixed in a manner thereby agreed or (iii) determined in the course of dealing between the parties to the contract. Where the price is not ascertained according to any of the above three modes, the buyer shall pay the seller a reasonable price. Sec 10 says that where the agreement is to sell at valuation, the price shall be determined in the following manner :- (1)Where there is an agreement to sell goods on the terms that the price to be fixed by the valuation of a third party and the valuer fails to make the valuation of price, the agreement is thereby avoided. (2)If certain quantity of goods have been delivered to and already appropriated by the buyer, he shall pay a reasonable price therefore.

(3)Where a valuer is prevented from making a valuation by the f ault of the seller or buyer, the party not in default may maintain a suit for damages against the party at fault.

SALE AGREEMENT TO SELL(1)Sec 4(1) states “ A Contract of sale of goods is a contract whereby, the seller transfers or agrees to transfer the property or goods to the buyer for a price.”

(1)Sec4(3)states “where under a contract of sale the property in the goods is to take place at a future time or subject to some conditions therefore to be fulfilled, the contract is called an agreement to sell.”

(2)It is an executed contract. (2)It is an executory contract.(3)Buyer gets a right to enjoy the goods.

(3)Buyer does not get such right.

(4)Transfer of risk of loss of goods takes place immediately because ownership is transferred.

(4) Transfer of risk of loss of goods does not take place because ownership is not transferred.

(5)In case of destruction of goods, the loss shall be borne by the buyer even though the goods are in the possession of the seller.

(5)In case of destruction of goods, the loss shall be borne by the seller even though the goods are in the possession of the buyer.

(6)Seller can sue the buyer for the price.

(6) Seller can sue the buyer for damages.

(7)Transfer of ownership of goods takes place immediately.

(7)Transfer of ownership of goods takes place at a future place.

(8) Buyer can claim the goods from the official receiver because the ownership of goods has been transferred to the buyer.

(8)Buyer cannot claim the goods but can claim, rateable dividend because the ownership has not been transferred to the buyer.

DOCTRINE OF CAVEAT EMPTOR

The doctrine of Caveat Emptor means that the person who buys goods must keep his eyes open, his mind open and cautious while buying the goods. The buyer must examine them thoroughly. If the goods turn out to be defective, he must take himself for his own folly, in the absence of any misrepresentation or warranty by the seller. Sec 16 of this Act states :- “Subject to the provisions of this Act and any other law for the time being in force, there is no implied warranty or condition as to the quantity or fitness for any particular purpose of goods supplied under a

contract of sale.” For example, certain pigs were sold by auction and no warranty was given by the seller in respect of any fault or error or description. The buyer paid fair price for healthy pigs, but they were ill and one died of typhoid fever. They also infected a few of the buyer’s own pigs. The House of Lords held that sending infected pigs to the market was an offence, but there was no implied condition or warranty that they were sound.

SALE HIRE PURCHASE(1)Sec 4(1) states “ A Contract of sale of goods is a contract whereby, the seller transfers or agrees to transfer the property or goods to the buyer for a price.”

(1)Sec 2(c) 0f the Hire Purchase Act states, “ It means an agreement under which goods are let on hire and the hirer has an option to purchase them in an accordance with the terms of agreement.”

(2)Sale is governed by the Sale of Goods Act, 1930.

(2) Hire purchase Contracts are governed by the Hire Purchase Act,1972

(3)The seller cannot get back the goods sold.

(3)The seller can get back the goods in case of non-payment of any instalment and can also sue for damages.

(4)In a sale , the consideration is the price of goods bought.

(4)The consideration is the rent or hire charges.

(5)The amounts of instalments are appropriated towards the price of goods bought.

(5)The instalments paid are treated as hire charges till the option to purchase the goods is actually exercised.

(6) The position of the buyer is that of a full owner of the goods bought by him.

(6)The position of the hirer is that of a bailee, till he pays all the agreed instalments of the price in full.

(7) There are two parties:- a seller who sells the goods and a buyer who buys the goods.

(7) There are two parties:- the owner who owns the goods and hirer, who hires the goods.

EFFECT OF DESTRUCTION OF GOODS

The effect of destruction of goods may be studied under two headings:- (1)Goods perishing before sale:- According to Sec7 of Sale of Goods Act, if there is a contract for sale of Specific goods sand those goods have perished or become so damaged that they have not remained anywhere near to the agreed description, the contract is void if the seller has no knowledge of perishing of the goods. Thus, the contract of sale shall be void on the perishing of goods, if the following condition are satisfied :- (i)It must be a contract for sale of specific goods, (ii) The goods must have perished before making the contract, (iii) The seller must not be aware of the perishing or damaging.

(2)Goods perishing before sale but after agreement to sell:- Sec 8 of Sale of Goods Act provides that if there is an agreement to sell some specific goods and subsequently those goods are perished or become so damaged that they do not remain anywhere near to the agreed description before the risk passes to the buyer, the agreement becomes void, if there is no fault on the part of the seller or buyer. The agreement to sell becomes void if the following conditions are satisfied :- (i) The contract of sale must be an ‘ agreement to sale’ and not an actual ‘sale’.(ii)The agreement to sell must be for some specific goods.(iii)The goods must perish or becomes ‘sale’. (iv) The goods gets perished or damaged without default on the part of the seller or the buyer.

CONDITIONS AND WARRANTIES

While entering into a contract of sale, both the seller and the buyer make representations or statements with reference to the goods. Such representations or statements differ in character and importance. If the representation forms part of the contract of sale it is called a ‘stipulation’.A stipulation which is crucial to the formation of the contract is known as a ‘condition’ and a stipulation which is of lesser importance is known as ‘warranty’. Sec12(2) defines condition as “ A stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.” It is clear that condition is an important representation in forming of the contract. And if it is not true, the buyer can terminate the contract and claim for the refund of the price or damages. Example :- X buys from Y ghee

advertised as pure ghee. The ghee turned out to be vanaspati .X can return the ghee and claim refund of a price. Sec12(3) defines a warranty as-“ a stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim for damages but not to a right to reject the goods and treat the contract as repudiated.” It is clear that warranty is only a collateral or subsidiary stipulation hence breach of warranty will give a right only to claim damages from the seller but not a right to reject the go.

SALE BY DESCRIPTION

Sec15 lays down that where there is contract for the sale of goods by description, there is an implied condition that the goods shall correspond with description. Goods are sold by description when they are described in the contract and the buyer completely relies on that description. Sale of goods by description may include the following situations:-(a) Where the buyer has never seen the goods and has bought them on the basis of the description, given by the seller.(b) Even where the buyer has seen the goods, it may be a sale by description, if he relies not on what he has seen but on what was described to him and the deviation of the goods from the description is not apparent. Example: There was an auction sale of linen napkins and table-cloths, which were described as “ dating from the seventeenth century”.The buyer bought the set. Subsequently he found the set to be an eighteenth century set. Held, he could reject the set.

SALE BY SAMPLE Sec17(1) defines a sale by sample as under: “A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied to that effect.” A term to that effect is definitely implied where(a) a sample is shown and (b) it is the common intention of the parties that the goods shall correspond with the kind and quality of the sample.

Sec17(2) lays down that there shall be the following three implied conditions in every contract of sale by sample: (a) that the bulk shall correspond with the sample in quality , (b) that the buyer shall have a reasonable opportunity

of comparing the bulk with the sample , (c) that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. Example : A sold to B rubber materials of which samples were shown to B. The material was to be in rolls of particular length and width. The rubber material delivered was of measurements not according to the sample. Held, the goods did not correspond with the sample in quality, as their measurement was a part of their quality, hence the buyer was entitled to reject the goods.

STIPULATIONS AS TO TIME

Sec11 deals with stipulations as to time in a contract of sale, which fall under two categories (1) Stipulations relating to time of payment and (2) Other stipulations relating to time.

(1) Stipulations as to time of payment: Sec 11 lays down “ Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale.” Thus, time of payment is not condition of the contract, unless the parties expressly make it so by their contract. (2)Other stipulations relating to time: Sec11 further lays down: “ whether any other stipulations as to time is of the essence of the contract or not depends on the terms of the contract.” Time is held to be of the essence of the contract in the following cases:

• Where the parties have agreed to treat time as of the essence of the contract.

• Where delay causes an injury.

• Where the courts consider time as of the essence of the contract in the light of the nature and necessity of the contract.

• Where prices are liable to fluctuate.

UNPAID SELLER

Sec45(1) defines an “ unpaid seller’’ as under : The seller of goods is deemed to be an ‘unpaid seller’ (1) When the whole of the price has not been paid or

tendered or (2) When a bill of exchange or any other negotiable instrument such as a cheque or a promissory note, has been received as conditional payment, and condition on which it was received, has not been fulfilled by reason of the dishonor of the instrument or otherwise.” The rights of an unpaid seller, under the Sale of Goods Act, may be classified into two categories: (1) Rights against the goods and (2) Rights against the buyer personally.

RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS.

Where the property in the goods has passed to the buyer under the goods-(1) the right of lien (2) the right of stoppage in transit (3) the right of re-sale.

(1) An Unpaid seller’s right of lien

• Right of lien for price of goods: A lien means to retain possession of the goods until payment of the price. Sec47(1) states “ Subject to the provision of this Act, the unpaid seller of goods , who is in provision of them, is entitled to retain possession of them until payment or tender of the price in the following cases namely: (i) where the goods have been sold without any stipulation as to credit (ii) where the goods have been sold on credit , but the term of credit has expired (iii) where the buyer becomes insolvent.

• Right of lien in case of part delivery: Sec48, “ where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.”

• Termination of lien : Sec 49(1) lays down : “ The unpaid seller of goods loses his lien thereon- (i) where he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer (ii) when the buyer by or his agent lawfully obtains possession of the goods (iii) by waiver thereof.”

(2)An Unpaid Seller’s right of stoppage in transit: (a)Right of stoppage in transit : Sec50 lays down “Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller

who has parted with the possession of the goods, has the right of stopping them in transit, i.e. he may resume possession of the goods as long as they are in the course of transit and may retain them until payment or tender of the price.” (b)Duration of transit :Sec51(1) lays down : “Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee, for the purpose of transmission to the buyer, until the buyer, or his agent on his behalf takes delivery of them from such carrier or other bailee.” (c)How stoppage in transit is effected: Sec52 lays down that the unpaid seller may exercise his right of stoppage in transit in any of the following ways (i) By taking actual possession of the goods or (ii) By giving notice of his claim to the carrier or other bailee in whose possession the goods are. (d) A contract of sale is not rescinded by lien or stoppage in transit: A contract still remains in force and the buyer is entitled to claim the delivery of goods by tendering the price.

(3)An Unpaid Seller’s right of Re-sale : Under Sec54, the unpaid seller has a right to re-sell the goods in the following cases:

(a) Where the unpaid seller has a right exercised his right of lien or stoppage in transit i.e. where the property in the goods has passed to the buyer. (b) Where the goods are of a perishable nature. (c) Where the unpaid seller gives notice to buyer of his intention to re-sell the goods and the buyer does not pay or tender the price within a reasonable time.

RIGHTS OF AN UNPAID SELLER AGAINST THE BUYER PERSONALLY

(1) Unpaid Seller’s right to sue for price: Sec55(1) lays down that where under a contract of sale, the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods, according to the terms of the contract, the seller may sue him for the price of goods. (2)Unpaid Seller’s right to sue for damages for non-acceptance : Sec 56 says that where the buyer wrongfully neglects or refuses to accept the goods and pay for the goods, the seller may sue him for damages for non-acceptance of the goods. (3)Unpaid Seller’s right to sue damages for repudiation of the contract: Sec

60 provides that where buyer repudiates the contract before the due date of delivery, the seller may either treat the contract as subsisting and wait till the due date of delivery, or he may treat the contract as rescinded and sue for damages for the breach. (4)Unpaid Seller’s right to sue for interest: Sec61(2) lays down that in case of breach of a contract on the part of the buyer, while filing a suit for the price, the seller may sue the buyer for interest from the date of the tender of the goods or from the date on which the price was payable.

THE NEGOTIABLE INSTRUMENTS ACT, 1881

NEGOTIABLE INSTRUMENT AND ITS HALL MARKSSec 13 of the Act defines a negotiable instrument as a piece of paper, which entitles a person to a sum of money and which is transferable from person to person by mere delivery or by endorsement and delivery.Sec13(1) says that a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.HALL MARKS OF A NEGOTIABLE INSTRUMENT

• Writing and signature:- According to rules, a negotiable instrument must be in writing and signed by the parties according to the rules.

• Payable by legal tender money of India:- Negotiable Instruments are payable by legal tender money of India.

• Acquisition of Property :- Any person who possesses a negotiable instrument, becomes its owner and is entitled to the sum of money, specified in the instrument.

• Acquisition of Good title :- The transferee of a negotiable instrument, in good faith and for value, acquires a good title to the instrument even if the title of the transferor is defective.

• Payable to order:- A negotiable instrument is payable to order, which is expressed to be so payable or which is expressed to be payable to a particular person.

• Payable to bearer :- A negotiable instrument is payable to the bearer, which is expressed to be so payable.

• Payable to two or more payees :- A negotiable instrument may be made payable to two or more payees jointly or it may be payable to one or two or some of the several payees.

• Unconditional promise or order :- If the instrument is a promissory note, it must contain an unconditional promise to pay.

• Freely transferable :- A negotiable instrument is freely transferable from one person to another by delivery or by endorsement and delivery.

PROMISSORY NOTE Sec 4 defines a promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to the order of a certain, or to the bearer of the instrument.FEATURES OF A PROMISSORY NOTE

• It must be in writing:- A promissory note must be in writing or may be even printed.

• An express promise to pay :- The instrument must contain an express promise to pay i.e. an unconditional undertaking to pay the amount, mentioned on the instrument.

• Unconditional :-An express promise to pay must be unconditional because a conditional instrument is not valid.

• It must be signed by the maker or drawer with free consent, otherwise it is incomplete and is of no effect.

• Both the maker and the payee must be certain and definite persons.• Specific sum :- The sum, payable must be certain and specific,

otherwise it is not a promissory note.• Promise to pay money only :- It must contain a promise to pay money

only and not something else.• Date , Place and Consideration are essential where the amount is

payable at a certain time after date.• The instrument must bear the required stamp according to the Indian

Stamps Act, otherwise it is not admissible as evidence in a Court of Law.

TYPES OF PROMISSORY NOTES • PROMISSORY NOTE PAYABLE ON DEMAND :- In this type the

maker gives an unconditional undertaking to pay a certain sum to the payee on demand.

Rs 5000/- Mumbai 1st AUG,2010 On demand, I promise to Raunak or order the sum of rupees five thousand only with interest @10% p.a. for value received.

To Raunak. ,

(2)PROMISSORY NOTE PAYABLE AFTER DATE In this type, the maker promises, to pat certain money to the payee at a future date.

Rs5000/- Mumbai 1st AUG,2010 Three months after date, I promise to pay Rakesh or bearer or order the sum of rupees five thousand only for value received.

To,Rakesh.

(3)JOINT PROMISSORY NOTESA Joint promissory note, is one which is made by two or more

persons jointly. The liability of makers is joint and collective towards the payee.

Rs5000/- Mumbai 1st AUG,2010 After three months from date, we jointly promise to

pay on to Anil or order the sum of rupees five thousand only for value received.

To, Mr. Anil.

(4)JOINT & SEVERAL PROMISSORY NOTES:It is made by two or more persons jointly and severally, the makers are not only collectively and jointly liable to the payee but they are also separately and individually liable to him.

Rs 5000/- Mumbai 1st AUG,2010

After three months from date, we jointly and severally promise to pay on demand to Rajvansh or order the sum of rupees five thousand only.

To,Rajvansh.

BILLS OF EXCHANGESec 5 defines a Bill of Exchange as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or the bearer of the instrument.FEATURES OF A BILL OF EXCHANGE

• It must be in writing : It must be in writing in any language and in any form.

• Three parties to a bill: There are always three parties to a bill of exchange- Drawer, Drawee and Payee. A person who draws a bill of exchange is known as a ‘drawer’ or ‘maker’. A drawee is a person who

is ordered by the drawer to pay the money to the payee. The payee is a person to whom payment is to be made.

• Signed by the drawer :-The bill must be signed by the drawer.• An Unconditional order to pay : The bill of exchange must contain an

unconditional order by the drawer to the drawee to pay under all circumstances.

• Acceptance :- The holder must present the bill to the drawee for his acceptance.

• Certain sum of money : The sum of money, ordered to be paid must be certain.

• Order to pay money only : The bill must contain an order to pay money only.

• Requires Stamp : Like a promissory note, bill of exchange must bear the required stamp according to the Indian Stamps Act.

KINDS OF BILLS OF EXCHANGE• Bill of exchange payable on demand :A bill of exchange on demand, at

sight or on presentment is known as bill of exchange payable on demand.

• Bill of exchange payable after date : A bill of exchange payable on a specified date in future is known as a bill of exchange payable after date.

• An Inland Bill of exchange :An inland bill of exchange is drawn and made payable in India or drawn in India on an Indian resident but the place of payment may be outside India.

• A Foreign Bill of exchange : A Foreign bill of exchange is drawn in India but is made payable in some other country or drawn upon a resident of a foreign country.

• Accommodation Bill of Exchange : When a bill of exchange is drawn, accepted or endorsed without consideration, it is known as an accommodation bill.

• Bills in sets : Bill of Exchange may be drawn in parts, each part being numbered and containing a provision that it shall continue payable so long as the other parts remain unpaid. All the parts together make s

set , but the whole set constitutes only one bill and is extinguished when on e of the parts, if a separate bill, would be extinguished.

CHEQUE , ITS FEATURES AND TYPESSec 6 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise that on demand. The features of a cheque are as follows :• The drawee of a cheque must be specified banker.• A cheque must be payable on demand.• A cheque does not require stamp.• A cheque must be signed by the drawer according to his specimen

signature with the banker.• Acheque must be dated but not post dated. Usually a cheque is valid for

six months from the date of its issue.• A cheque does not require acceptance at all.There are two types of cheques;(1)Bearer cheque :- When a cheque is drawn payable in cash at the counter of a drawee bank on presentment, it is known as bearer or open cheque.(2)Crossed cheque :- To avoid the risk of cheques being lost or stolen, cheques are crossed. Crossed cheques cannot be encashed at the counter of the drawee banker, these are sent through a bank for collection.CROSSING OF CHEQUECrossing of cheque is drawing two parallel transverse lines on the top left hand corner of the cheque and with or without words written in it. There are three types of crossings :-• General crossing : In this case the payment will be made to the banker

through which it is presented.• Special Crossing :- Where a cheque is crossed by two parallel transverse

and the name of the banker is written it and with or without the words ‘not negotiable’.

• Restrictive Crossing :- Here the cheques are crossed with two parallel transverse and the words ‘A/C payee’ or ‘A/C payee only’ is written within it. In this case the proceeds are to be credited to the account of the payee only.

BANKER JUSTIFIED IN DISHONOURING THE CHEQUE

• Funds are not properly applicable to the payment of the cheque.• Cheque is irregular.• Customer becomes insolvent.• Death , lunacy or insolvency of the customer and the banker has

notice of the same.• Post – dated cheque is presented.• Cheque is presented after a period of six months from the date of

issue.• If the drawer’s signature does not tally with his specimen signature.• If the banker is not holding ‘sufficient funds’ of the drawer unless

the banker has agreed to honour the cheque without sufficient funds.

• If the customer countermands payment and communicates the same to the banker properly.

(10)Holder gives notice to the banker of loss of cheque. (11) If the banker has received an order from the Court of Law. (12) If the cheque is mutilated.

CHEQUE BILL OF EXCHANGE1.Sec 6 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise that on demand.

1.Sec 5 defines a bill of exchange as an instrument in writing containing an unconditional order to pay a certain sum of money only to or to the order of a certain person or the bearer of the instrument.

2.Only a banker can be a drawee. 2.Any one can be drawee, including a banker.

3.A cheque requires no acceptance 3.It must be presented for acceptance.

4.Payable on demand without any days of grace.

4.It is normally entitled to three days of grace after maturity, unless payable on demand.

5.In case of dishonor no notice of dishonor is necessary.

5.Notice of dishonor is to be given to all the parties liable to pay.

6.A cheque may be crossed. 6. Bill of exchange can never be crossed.

7.Cheque requires no stamp. 7.Bill must be properly stamped.8.It can be countermanded by the 8. It cannot be countermanded by the

drawer. drawer.9.It can be drawn as payable to bearer on demand.

9.It cannot be drawn as payable to bearer on demand.

!0. Statutory protection is available to the drawee banker.

10. No such protection is available to the drawee or acceptor.

PROMISSORY NOTE BILL OF EXCHANGE1.Sec 4 defines a promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain, or to the bearer of the instrument.

1.Sec 5 defines a bill of exchange as an instrument in writing containing an unconditional order to pay a certain sum of money only to or to the order of a certain person or the bearer of the instrument.

2.There are two parties- maker and payee.

2.There are three parties – drawer, drawee and payee.

3.No acceptance is necessary. 3. It should be presented to the drawee for acceptance.

4.It contains unconditional promise to pay.

4. It contains an unconditional order to pay.

5.No notice of dishonor is necessary to the maker.

5.Notice of dishonor must be given to all the parties liable on the bill.

6.The maker of the promissory note is primarily and absolutely liable to payee.

6.Maker of bill of exchange is secondarily and conditionally liable to payee.

7.No protest is required. 7.A foreign bill of exchange must be protested for dishonour when such protest is required by the law of the place.

ACCEPTANCE AND ITS KINDSA bill of exchange is said to have been accepted when – (i) the drawee puts his signature on it, thereby acknowledging his liability to pay it at or after maturity and (ii) delivers the same to the holder or gives notice of such signing to the holder or to some person on his behalf.Acceptance may be either absolute or conditional.

• ABSOLUTE ACCEPTANCE : Acceptance is said to be absolute or general, when the drawee accepts liability to pay the amount mentioned in the bill in full, without any condition or limitation.

• CONDITIONAL ACCEPTANCE : An acceptance is said to be qualified or conditional , when the drawee accepts the instrument with some conditions or if he accepts it for a lesser amount or at a particular place.

An acceptance is qualified -• Where it is conditional , declaring the payment to be made to dependent

on the happening of an event therein.• Where it undertakes the payment only of the sum ordered to be paid.• Where no place of payment at a specified on the order, it undertakes the

payment at a time other.• Where it undertakes the payment at a time other than that at which

under the order it would be legally due.PRESENTMENTPresentment means exhibiting the bill to the drawee so that he may see the same and judge whether he shall accept it or not. Sections 61 to 76 of the Act lay down the law regarding presentment. There are two kinds of presentment (i) Presentment for acceptance (ii) Presentment for payment.Presentment for acceptance means presenting the bill to the drawee for acceptance thereof and fixing the date of maturity of the instrument where the bill is payable after sight.RULES AS TO PRESENTMENT FOR ACCEPTANCE

• A bill must be presented before maturity.• It must be presented by a person entitled to demand acceptance.• It must be presented in business hours on a business day.• If the bill is directed to the drawee at a particular place, it must be

presented at that place.• If after reasonable search , drawee cannot be found, the bill is

dishonoured.• If authorized by agreement, presentment through post-office by means

of a registered letter is sufficient.• Drawee is entitled to 48 hours time to consider whether he will accept it

or not.

• If drawee has no known place, presentment may be made to him in person wherever he can be found.

• Presentment may be made to the duly authorized agent of the drawee.Presentment for payment means presenting the instrument to the party liable for payment.RULES AS TO PRESENTMENT FOR PAYMENT

• The instrument must be presented for payment to maker, acceptor or drawee thereof.

• It must be presented by or on behalf of the holder.• If authorized by agreement, by means of a registered letter is sufficient.• Presentment for payment must be made during the ususal hours of

business.• Instruments made payable after date, must be presented for payment at

maturity.• Instruments made payable at a specified place, must be presented for

payment at that place.• If instruments are not payable at any particular place of business or

place of residence, as the case maybe.• Presentment for payment may be duly authorized agent of the drawee,

maker or acceptor, as the case may be.ENDORSEMENT AND ITS KINDSSec 15 defines endorsement as under “ when the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation , on the back or face thereof, or on a slip of paper annexed thereto, intended to be completed as a negotiable instrument, he is said to endorse the same and is called the endorser.”ESSENTIALS OF A VALID ENDORSEMENT :

• Endorsement must be made on back or face of the instrument itself. If no space is left on the instrument, it must be made on a slip of paper, attached to the instrument called allonged.

• It must be signed by the endorser , for the purpose of negotiation.• Endorsement must be completed by the delivery of the instrument.• Endorsement must be genuine and not forged.

KINDS OF ENDORSEMENTS

• Endorsement in blank or general : Sec16 (1) lays down that if the endorser signs only his name on the back or face of the instrument for the purpose of negotiating, the endorsement is said to be “ in blank” or “ general endorsement”.

• Endorsement in full or special endorsement : Sec 16 (1) provides that if the endorser signs his name and adds a direction to pay the amount, mentioned in the instrument to or to the order of, a specified person, the endorsement is to be ‘ in full’.

• Restrictive endorsement : Endorsement is said to be restrictive when it prohibits or restricts the further negotiability of the instrument by express words to that effect in the endorsement.

• Partial endorsement : Nothing on a negotiable instrument is valid for the purposes of negotiation, if such writing purports to transfer only a part of the amount appearing to be due on the instrument.

• Conditional or Qualified endorsement : The endorser of a negotiable instrument may be express words in the endorsement make his own liability or the right of the endorser to receive payment, dependent upon the happening of a specified event, which may or may not happen at all.

• Endorsement Sans Recourse : When the endorser does not want to incur any liability, he can do so by express words “Endorsement Sans Recourse”.

• Facultative endorsement : Where an endorser, by express words , abandon some right or increases his liability under an instrument, the endorsement is known as “ Facultative endorsement”.

MATURITYSec 22 says, “ The maturity of a promissory note or bill of exchange is the date at which it fails due.”In cases where the instrument is payable ‘ on demand’, ‘ at sight’ or ‘ on presentment’ is due for its payment, as soon as it is issued and hence the question of maturity does not arise.All promissory notes and bill of exchange payable ‘ after date’, ‘after sight’ or ‘on the happening of an uncertain event which is bound to happen’ is due on the third day after the date on which it is expressed to be payable.When the day of maturity of the instrument is a public holiday it shall be payable on the preceding business day. And if the day of maturity of the

instrument falls on a holiday declared under this Act , the payment shall become payable on the next business day.NOTINGSec 99 lays down that when a promissory note or a bill of exchange is dishonoured either by non-acceptance or by non-payment, the holder of it may go to a notary public and have the fact of the dishonor noted by him upon the instrument itself or upon a paper attached to the instrument or party upon the instrument and partly upon the paper attached to it.A note made by the notary public, must contain the following particulars :

• The fact of dishonor.• The date of dishonor.• The reasons , if any given for dishonor.• If the instrument has not been expressly dishonoured, the reason why

the holder treats it as dishonoured.• The charges of the notary public.• A reference to his register.• The signature of the notary public or his initials.

PROTESTSec 100 lays down that “ when a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment , the holder may, within a reasonable time, cause such dishonor to be noted and certified by a notary public. Such a certificate is called a Protest.A Protest is a formal certificate, issued by the notary public, certifying the fact of dishonor of the bill of exchange or promissory note and is based on the noting. A Special notarial stamp must be affixed on the certificate of protest and such stamp must be cancelled by the notary public.The contents of Protest are :-

• The name of the person for whom and against whom the instrument has been protested.

• The statement that payment or acceptance or better security as case may be, has been demanded of such person by the notary public, the terms of his answer.

• The place and time of dishonour.• The subscription of the notary public making the protest.

HOLDER AND HOLDER – IN- COURSE

Sec 8 states the holder of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.Therefore a person is the holder of instrument if he

• Is entitled in his own name to the possession of the negotiable instrument and (ii) is entitled to receive or recover the amount due thereon from the parties thereto.

From this it follows;• The holder must have obtained the instrument in a lawful manner,

(ii) the holder must have a right to sue in his own to recover the amount.

“ Holder-in-course means any person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable to order , before the amount mentioned in it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.” Rights of the Holder-in-course:-

• Firstly the instrument should have been acquired in good faith.• He gets a good title even if the instrument is defective.• Every prior party to the instrument is liable to a holder-in-course until

the instrument is duly satisfied.• The holder-in-course can sue in his own name against the prior parties.• The party liable to pay an instrument to holder-in-course cannot plead

that the instrument was lost or that it was obtained from him by means of fraud.

• The acceptor of bill of exchange cannot plead to the holder-in-course that the other parties to the bill were fictitious.

• The endorser cannot plead that the instrument does not bear his signature nor capacity to contract of prior parties.

• The instrument was delivered for a specific purpose, such plead cannot be raised by the p[arties who are liable.

MODES OF DISCHARGE OF AN INSTRUMENTA n instrument is said to be discharged when all the rights of the parties have come to an end, In other words, when the liability of the person primarily

liable comes to an end, the instrument ceases to have any validity. A negotiable instrument may be discharged in any one of the following ways:-

• By discharge as a simple contract : A negotiable instrument may also be discharged in the same way as a contract is discharged.

• By cancellation:- When the holder cancels the name of the acceptor or endorser, with the intention of discharging him and all other parties claiming under such holder, the instrument is discharged.

• By renunciation :-This happens when the holder of the instrument , renounces his right against all the parties to the instrument. It must be made in writing or by handing over the instrument to the party primarily liable.

• By payment in due course :- When the party primarily liable makes the payment in due course to the holder at or after maturity, the instrument gets discharged.Bt the party primarily liable becoming the holder :-When the acceptor of a bill becomes the holder in his own right at or after its maturity , the instrument is discharged.