Business Law

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BUSINESS LAW

• Dr. ANANDA KUMAR
• Professor
• Department of Mgt. Studies
• Christ College of Engg. Tech.
• Puducherry, India.
• Mobile [phone]
• E-mail searchanandu_at_gmail.com

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UNIT - 1

• Law of Contract Agreement Offer Acceptance
  Consideration Capacity of Contract
  Contingent Contract Quasi Contract
  Performance Discharge Remedies to breach of
  Contract.

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LAW

• According to Salmond, Law is those principles
  applied by the state in the administration of
  justice.
• The term Law denotes the principles and rules
  that govern and regulate social conduct and
  observance of which can be enforced through
  courts.

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Business Law

• Business law refers to those rules and regulation
  which govern the formation and execution of
  business deals made by various people in the
  society.

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Commercial Law

• Commercial law can be defined as the rights and
  obligations of commercial persons who deals with
  commercial transactions in respect of commercial
  property.
• The term commercial person means an individual or
  a partnership or a company carrying on a
  business. It also denotes the aggregate body of
  those legal rules which are connected with trade
  industry and commerce.

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VALID CONTRACT

• A contract is an agreement, enforceable by law,
  made between at least two parties by which rights
  are acquired by one and obligations are created
  on the part of another. If the party, which has
  agreed to do something, fails to do that, then
  the other party has a remedy.
• Section 2(h) of the Act defines a contract as an
  agreement enforceable by law.

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ELEMENTS OF CONTRACT

1. an agreement and
2. its enforceability by law

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AGREEMENT

• Section 2(e) defines an agreement as every
  promise and every set of promises forming
  consideration for each other.

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AGREEMENT

• Agreement Offer Acceptance

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AGREEMENT

• An agreement may be social agreement or a legal
  agreement. A social or domestic agreement does
  not give rise to contractual obligation and is
  not enforceable in the court of law.
• It is only those agreements which are enforceable
  in the court are contracts.

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KINDS OF AGREEMENTS

• 1. Social Agreements
• 2. Valid Agreements
• 3. Void Agreements
• 4. Voidable Agreements
• 5. Unenforceable Agreement
• 6. illegal Agreement
• 7. Agreements to agree in future

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1. SOCIAL AGREEMENT

• They are of social nature and do not enjoy the
  benefits of law. They are not enforceable and
  cannot be called contracts. An agreement to
  attend a marriage or to see a movie are the
  examples of social agreements.

• Example
• A invites B to a dinner and B accepts the
  invitation. It is a social agreement. This does
  not give rise to contractual obligation, if A
  disappoints B on the appointed day.

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2. VALID AGREEMENT

• It is the sum of (i) an agreement and (ii) an
  intention to create legal obligation.
  Obligations require the parties must do or
  abstain from doing something. However, such an
  act or abstinence may relate to social or legal
  matters. It is a valid agreement which is
  enforceable at law.

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3. VOID AGREEMENT

• It is an agreement which is not enforceable by
  law. (i) An agreement made without consideration
  is void. For example, A promises for no
  consideration, to give to B Rs.5,000/- This
  contract is void. (ii) An agreement, the
  consideration of which is unlawful is void.
  (iii) An agreement is restraint of marriage of
  any person, other than a minor is void, etc.

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4. VOIDABLE AGREEMENT
It is an agreement 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.

• Example
• A promises to sell his house to B for Rs.2
  lakhs. A obtained Bs consent by exercising
  fraud on the latter. The contract is voidable at
  the option of B.

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• While a void contract is not at all enforceable
  by law, a voidable agreement is unenforceable
  only when the party entitles to the option,
  avoids the contract.

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5. UNENFORCEABLE AGREEMENT
Unenforceable agreements are those which cannot
be enforced in a court of law, by the reason of a
technical defect in procedural matters.

• Example
• A borrows Rs. 10,000 from B and makes a
  promissory note and a one rupee stamp is pasted
  on the pronote. The agreement though complete is
  unenforceable because of the technical defect
  i.e., promissory note being understamped.

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5. ILLEGAL AGREEMENT
Illegal agreement are those which are opposed to
the provisions of law or public morals. The
effects of an illegal agreement is that it makes
the transaction between the immediate parties
void and also render the collateral transactions
void.

• Example
• A borrows Rs. 10,000/- from B for
  manufacturing bombs. Manufacture of bomb is
  illegal. So, if A enters into contract with
  any person for manufacture of bombs, that
  contract becomes void. B also cannot recover
  money, if he knows the purpose of the loan taken
  by A. If he does not know the purpose, he can
  recover the amount from A.

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5. AGREEMENTS TO AGREE IN FUTURE
An agreement to agree in future is a
contradiction. It is absurd to state that a man
enters into an agreement till of the contracts
are settled. Until the terms are settled, he is
free to retire from the bargain. Moreover, there
can be no binding contract unless all the
material conditions of contract have been agreed
upon. Thus agreement to agree in future is not a
contract.
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CONCLUSION

• All contracts are agreements but all agreements
  are not contracts

Contract Agreement Enforceability by law
Agreement Offer Acceptance
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ESSENTIALS FOR FORMATION OF VALID CONTRACT

• 1. Consensus-ad-idem or Identify of minds
• 2. Consideration
• 3. Capacity
• 4. Free consent
• 5. The consideration must be lawful
• 6. The object of the contract must be lawful
• 7. Agreement not declared void.
• 8. Certainty Possibility of performance
• 9. Legal formalities

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1. Consensus-ad-idem

• The parties to contract must have agreed about
  the subject matter of the contract at the same
  time and in the same sense.
• Example A has two houses, one at Delhi and
  the other at Mumbai. He has offered to sell one
  to B. B accepts thinking to purchase the
  house at Mumbai, while A, when he offers, has
  in his mind to dispose of the house at Delhi.
  There is no consensus-ad-idem.

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2. Consideration

• Contract without consideration is void
• It means something in return. Every contract
  must be supported by consideration. The
  agreement is legally enforceable only when both
  the parties give something and get something in
  return. A promise to do something, getting
  nothing in return, is usually not enforceable by
  law.
• Example
• A agrees to sell his house to B for
  Rs.50,000. Here for As promise, the
  consideration is the price and for B the
  consideration is the house.

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3. Capacity

• The parties to the agreement must be capable of
  entering into a valid contract. Every person is
  competent to contract if he (a) is of the age of
  majority, (b) is of sound mind, and (c) is not
  disqualified from contracting by any law to which
  he is subject (Sec. 11 and 12).
• For example, a contract by a minor, lunatic,
  idiot or drunkard is void.

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4. Free Consent

• It is essential to the creation of every contract
  that there must be a free and genuine consent of
  the parties to the agreements. The consent of
  the parties is said to be free when they are of
  the same mind on all the material terms of the
  contract.

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5. The consideration must be lawful

• The agreement to be enforceable by law must be
  supported by consideration. The agreement is
  legally enforceable only when both the parties
  give something and get something in return.
• Example A promises to pay Rs.500/- to B,
  in consideration of B murdering C. The
  consideration is illegal.

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6. The object of the contract must be lawful

• The object of the agreement must be lawful. In
  other words, it must not be (a) illegal, (b)
  immoral, or (c) opposed to public policy (Sec.
  23). If an agreement suffers from any legal
  flaw, it would not be enforceable by law.
• Example
• A promises to pay Rs.500/- for letting Bs
  house for running a brothel. The object is
  illegal. Hence, the contract is void.

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8. Certainty Possibility of performance

• The agreement must be certain and not vague or
  indefinite (Sec.29). If it is vague and it is
  not possible to ascertain its meaning, it cannot
  be enforced.
• Example A agrees to sell to B a 100 tons of
  oil. There is nothing whatever to show what
  kind of oil was intended. The agreement is void
  for uncertainty.

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9. Legal Formalities

• A contract may be made by words spoken or
  written. As regards the legal effects, there is
  no difference between a contract in writing and a
  contract made by word of mouth. It is, however,
  in the interest of the parties that the contract
  should be in written.

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CLASSIFICATION or TYPES OF CONTRACTS

1. Classification according to Validity Valid
   Invalid
2. Classification according to formation
3. Classification on the basis of obligation to
   perform
4. Classification on the basis of execution

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CLASSIFICATION or TYPES OF CONTRACTS

• Classification according to Validity Valid
  Invalid
• a. Void contract
• b. Void agreement
• c. Voidable contract
• d. Illegal contract
• Classification according to formation
• a. Formal Contract
• b. Express contract
• c. Implied Contract
• d. Quasi Contract

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CLASSIFICATION or TYPES OF CONTRACTS

• 3. Classification on the basis of obligation to
  perform
• a. Unilateral contract
• b. Bilateral Contract
• 4. Classification on the basis of execution
• a. Executed Contract
• b. Executory Contract

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a. Void Contract

• A contract which ceases to be enforceable by la
  becomes void when it ceases to be enforceable
  Sec. (2j). It is valid when it is entered into,
  but something happens subsequent to the formation
  of the contract which makes it void.

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b. Void Agreement

• An agreement not enforceable by law is said to be
  void Sec. 2 (g). A void agreement does not
  create any legal rights or obligations.
• Example An agreement with a minor or an
  agreement without consideration.

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c. Voidable Contract

• An agreement 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, is a
  voidable contract Sec. 2 (i). This happens
  when the essential element of free consent in a
  contract is missing.
• Example A promises to sell his car to B for Rs.
  2,000. His consent is obtained by use of force.
  The contract is voidable at the option of A. He
  may avoid the contract.

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d. Illegal Contract.

• A contract is illegal if it involves the
  transgression of some rules of basic public
  policy and is criminal in nature and where it is
  based on immoral. All illegal agreements are
  void but all void agreements or contracts are not
  necessarily illegal.
• Example B borrows Rs.5,000 from A and enters
  into a contract with an alien to import
  prohibited goods. A knows of the purpose of the
  loan. The transaction between B and A is
  collateral to the main agreement. It is illegal
  since the main agreement is illegal.

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a. Formal Contract

• A formal contract is one to which the law gives
  special effect because of the formalities or the
  special language used in creating it.
• The best example of formal contracts are
  negotiable instruments, such as cheques. A
  negotiable instrument has legal characteristic
  that differ from those of ordinary contracts.

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b. Express Contract

• If the terms of a contract are expressly agreed
  upon (whether by words spoken or written) at the
  time of the formation of the contract, the
  contract is said to be an express contract. Where
  the offer or acceptance of any promise is made is
  words, the promise is said to be express (Sec.
  9). An express promise results in an express
  contract.

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c. Implied Contract

• An implied contract is one which is inferred from
  the acts or conduct of the parties or course of
  dealings between them. It is not the result of
  any express promise or promises by the parties
  but of their particular acts. It may also result
  from a continuing course o conduct of the
  parties. Where the proposal or acceptance of any
  promise is made otherwise than in words the
  promise is said to be implied (Sec. 9). An
  implied promise results in an implied contract.

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c. Implied Contract

• For example A enters a hotel, takes coffee and
  pays the bill. Here, offer and acceptance are
  inferred from the conduct of the parties. In the
  same way, where a person enters a public bus, or
  obtains a ticket from an automatic teller
  machine, there is an implied contract.

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d. Quasi Contract

• A quasi-contract is not a contract at all. A
  contract is intentionally entered into by the
  parties. A quasi-contract, on the other hand is
  created by law. It resembles a contract in that
  a legal obligation is imposed on a party who is
  required to perform it.
• For example 1 A pays the amount by mistake to
  B. B should refund the amount to A.
• For example 2 T, a tradesman, leaves goods at
  Cs house by mistake. C treats the goods as his
  own. C is bound to pay T for the goods.

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a. Unilateral or One-sided Contract

• A unilateral contract is one in which only one
  party has to fulfill his obligation at the time o
  the formation of the contract, the other party
  having fulfilled his obligation at the time of
  the contract or before the contract come into
  existence.
• For example, A permits a railway coolie to
  carry his luggage and place it in a carriage. A
  contract comes into existence as soon as the
  luggage is placed in the carriage. But by that
  time the coolie has already performed his
  obligation. Now only A has to fulfill his
  obligation, i.e., pay the reasonable charges to
  the coolie.

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b. Bilateral Contract

• A bilateral contract is one in which the
  obligations on the part of both the parties to
  the contract are outstanding at the time of the
  formation of the contract. In this sense,
  bilateral contracts are similar to executory
  contracts.
• For example, X agrees to sell 100 bags of paddy
  after 30 days to Y and Y agrees to pay for them
  after their delivery.

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a. Executed Contract

• This is also called as unilateral contract in
  which one party to the contract has performed his
  part at the time of the contract and an
  obligation is outstanding only against the other.
• Example 1 A has paid Rs.5 to B in
  consideration of which, B promised to delivery a
  book to A. Bs part to delivery the book is
  outstanding which A has performed his part. This
  is an executed contract.
• Example 2 A sells a TV set to B for Rs.20,000.
  B pays the price and A hands over TV set to B.

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b. Executory contract

• An executory contract is one in which both the
  parties have not yet performed their obligations.
  This is also called as bilateral contract, in
  which both the obligations are outstanding.
• Example 1 A promise to pay Rs.5 to B, in
  consideration of Bs promise to deliver a book.
  Both the promises are outstanding. This is
  called executory contract.

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Void Agreements under the Indian Contract Act

• Agreement with or by incompetent person (Sec. 11)
• Agreement made under a bilateral mistake of fact
  material to the agreement (Sec. 20)
• Agreements of which the consideration or object
  are unlawful in full or in part (Sec.23) (Sec.24)
• Agreements made without consideration (Sec.25)
• Agreement in restraint of marriage (Sec.26)
• Agreement in restraint of trade (Sec.28)

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Void Agreements under the Indian Contract Act

• Agreement in restraint of legal proceedings
  (Sec.28)
• Agreement the meaning of which is uncertain (Sec.
  29)
• Agreement to do impossible acts (Sec.56)

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Void Agreement Voidable Contract

• 1. A void agreement is without any legal effect
  and hence cannot be enforced by either party.

• A Voidable contract can be enforced by the party
  at whose option it is voidable.

2. A void agreement is unenforceable from the
very beginning.
It become unenforceable only when the party at
whose option the contract is voidable rescinds it.
3. The question of compensation in the event of
non-performance of a void agreement does not
arise, as it is unenforceable from the very
beginning.
Under a voidable contract any person who has
received any benefit must compensate or restore
it to the other party.
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Void Agreement Voidable Contract

• 4. If the agreement is void on account of the
  object or consideration being illegal or
  unlawful, the collateral agreement will also
  become void

• A voidable contract does not affect collateral
  transaction.

5. Third party cannot acquire any right or title
from a person claiming title under a void
contract.
Third party can acquire a valid title from a
person claiming title under a voidable contract
provided that title has been acquired by the
third party before the contract is set aside by
the person entitled to do so
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Void Agreement Illegal Agreement

• 1. The word void is used in broader sense, it
  includes illegal aspects. All void agreements are
  not necessarily illegal

• Illegal as a word is used in narrow sense, it
  does not include void. All illegal agreements
  are void.

2. Void agreements are not illegal until they are
proved to be illegal.
Illegal agreements remains so from the very
beginning.
An illegal agreement vitiates not only primary
transactions but also collateral transactions.
3. A void agreement does not involve collateral
transactions.
4. Void agreements are not always punishable.
Illegal agreements are always punishable.
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FORMATION OF A CONTRACT

• 1. Offer and acceptance (Sec.2-9)
• 2. Consideration (Sec.2(d),23-25, 185)
• 3. Competency to contract (Sec.10-12)
• 4. Free consent (Sec. 15-18)
• 5. Lawful object (Sec.23-24)

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Offer / Proposal

• An offer is a proposal by one party to another to
  enter into a legally binding agreement with him.
  The person making the offer is known as the
  offeror, proposer or promiser and the person to
  whom it is made is called the offeree or
  promisee.

Example A offers to sell his motor cycle to B
for Rs. 3,000. B agrees to pay A Rs.3,000 for
the motor cycle. Here A is called the offeror or
promisor and B the offeree or promisee.
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ESSENTIALS FOR A VALID OFFER

• Terms of the offer must be definite and certain.
• Offer must be communicated.
• Offer must be made to another person. A person
  cannot make an offer to himself.
• The expression of willingness must be made with
  a view to create legal obligations.
• The offer may be express or implied.
• The offer may be positive or negative.
• An offer may be conditional.

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Modes of making an offer (or) Different kinds of
Offer

• 1. Express offer
• 2. Implied offer
• 3. Specific offer
• 4. General offer

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• 1. Express offer It means an offer made by
  words (whether written or oral). The written
  offer can be made by letters telegrams, telex
  messages, advertisements, etc. The oral offer
  can be made either in person or over telephone.
• 2. Implied offer An offer made without
  using words is called implied offer. It is
  derived from the conduct of the parties.
  However, silence of a party can, in no case,
  amounts to offer by conduct.

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• 3. Specific offer An offer addressed to
  a particular person with an intention of entering
  into a contract only with that particular person,
  is called specific offer. A specific offer can
  be accepted only by that particular person.
• 4. General offer The offer made to the public
  at large is a general offer. In the case of
  general offer any one of the public can accept
  it. A contract will arise only with that
  particular person who accepted the offer.

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Acceptance Sec. 2(b)

• Acceptance is an expression by the offeree of his
  willingness to be bound by the terms of the
  offer. When the person to whom the proposal is
  made signifies his assent thereto, the proposal
  is said to be accepted.
• Example A offers to sell his horse to B for
  Rs.500. B accepts the offer to purchase the horse
  for Rs.500. This is acceptance.

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Essentials or Legal rules of Valid Acceptance

• Acceptance must be absolute and unconditional.
• Acceptance must be the person to whom the offer
  in made.
• Acceptance made after the knowledge of the offer
  is valid.
• Acceptance must be communicated.
• Acceptance must be communicated by the mode
  prescribed by the offeror.

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• Acceptance must be made within reasonable time.
• Acceptance may be express or implied silence
  cannot be prescribed as the mode of acceptance.
• Acceptance must be accepted before rejection
  unless the offer is renewed.
• Acceptance must be made before the offer lapses.

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Consideration

• One of the essential elements for a valid
  contract is the presence of lawful consideration
  in the agreement. In other words, an agreement
  without consideration is null and void. Such an
  agreement is not enforceable by law. According
  to Section 25, an agreement made without
  consideration is void.
• Example A agrees to sell his house to B for
  Rs.50,000. Here for As promise, the
  consideration is the price and for B the
  consideration is the house.

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Legal Rules regarding Consideration

• Consideration must move at the desire of the
  promiser and therefore an act done by the
  promisee at the desire of a third party is not a
  consideration.
• Consideration may move either from the promisee
  or any other person.
• Consideration need not be adequate. How much
  consideration or payment must there be for a
  contract to be valid, is always the lookout of
  the promisor.

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Legal Rules regarding Consideration

• Consideration must be real and not illusory. The
  consideration becomes illusory when the act of
  forming consideration is legally or physically
  impossible or is uncertain.
• Consideration must be legal. Illegal
  consideration renders a contract void.
• A consideration may be present, past or future.
• Stranger to consideration can also enforce the
  contract.

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Competency / Capacity to Contract

• The parties who enter into a contract must have
  the capacity to do so. Capacity here means
  competence of the parties to enter into a valid
  contract. According to Sec.10, an agreement
  becomes a contract if it is entered into between
  the parties who are competent to contract.
• Minors,
• Persons of unsound mind, and
• Persons disqualified by any law to which they are
  subject

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Free Consent

• Consent (Sec.13). Two or more persons are said
  to consent when they agree upon the same thing in
  the same sense.
• Free Consent (Sec.14). Consent is said to be
  free when it is not caused by
• (1) Coercion Sec.15
• (2) Fraud Sec. 16
• (3) Undue influence Sec. 17
• (4) Misrepresentation Sec. 18
• (5) Mistake Sec. 20,21 and 22

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Free Consent

• Example A is forced to sign a promissory note
  at the point of pistol. In this case A knows he
  is signing but his consent is not free. The
  contract in this case is voidable at his option.

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(1) Coercion

• According to the Indian Contract Act, coercion is
  the committing or threatening to commit any act
  forbidden by the Indian Penal Code. It also
  includes the unlawful detaining or threatening to
  detain any property, to the prejudice of any
  person whatsoever.
• The intention of the aforesaid act is to force
  the other party to enter into an agreement. For
  example, A compels B to sell his house a half
  the market price at the point of a gun. A has
  employed coercion.

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(2) Undue Influence

• Sometimes a party is compelled to enter into an
  agreement against his will as a result of unfair
  persuasion by the other party. This happens when
  a special kind of relationship exists between the
  parties such that one party is in a position to
  exercise undue influence over the other.

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(3) Fraud

• Section 17 of the Indian Contract Act states that
  fraud means and includes following acts
  committed by a party to a contract, or with his
  connivance, or by his agent, with intent to
  deceive another party thereto or his agent, or to
  induce him to enter into the contract.

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(4) Misrepresentation

• Misrepresentation is a false statement which the
  person making it honestly believes to be true or
  which he does not know to be false. It means
  representation of a statement of fact which is
  not true. Based upon the intention of the
  misrepresentation it may be classified into (i)
  innocent misrepresentation (ii) willful
  misrepresentation (fraud), (iii) negligent
  misrepresentation, it is voidable at the option
  of that party.

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(5) Mistake

• Mistake may be defined as an erroneous belief
  about something. It may be a mistake of law or a
  mistake of fact.
• Example A agrees to buy from B a certain house.
  It turns out that the house had been destroyed by
  fire before the time of the bargain though
  neither party was aware of the fact. The
  agreement is void as there is a mistake on the
  part of the parties about the existence of the
  subject matter.

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Questions

• Distinction between Void Agreement and Voidable
  Contract.
• Differences between void agreement and illegal
  agreement.
• Difference between coercion and undue influence.
• Distinction between Misrepresentation and Fraud.

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Lawful Object

• The last requirement for formation of a valid
  contract is that the object of the contract must
  be lawful. Object means the purpose of the
  contract. If the object of a contract is against
  the law of the land, the contract is unlawful or
  simply void.

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Contingent Contract

• A contingent contract is a contract to do or
  not to do something, if some event, collateral to
  such contract, does or does not happen (Sec.31).
  Where, for example, goods are sent on approval,
  the contract is a contingent contract depending
  on the act of the buyer to accept or reject the
  goods.
• Example A contracts to pay Rs.10,000 if Bs
  house is burnt. This is a contingent contract.

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Characteristics Contingent Contract

1. Its performance depends upon the happening or
   non-happening in future of some event. It is
   this dependence on a future event which
   distinguishes a contingent contract from other
   contracts.
2. The event must be uncertain. If the event is
   bound to happen, and the contract has got to be
   performed in any case it is not a contingent
   contract.
3. The event must be collateral, i.e., incidental to
   the contract.

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Case 1

• A is an employee of B Co. After leaving the
  service, he agrees with B Co. that he shall not
  employ himself in any similar concern within a
  distance of 700 miles of the town. Is this
  restraint valid?

Case 2
A borrows Rs.500 from B to purchase certain
smuggled goods from C. Can B recover the amount
from A if he (a) knows of As purpose for which
he borrows money (b) does not know of As purpose?
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Case 3

• A grants lease of certain premises at Calcutta to
  B for one year, knowing that the premises will be
  used for the purpose of (a) prostitution, or (b)
  installing machinery for minting base coins, at a
  monthly rental of Rs.500. B does not pay the
  rent. Can A recover the rent?

Case 4
X promises to drop prosecution which he has
instituted against R for robbery and R promises
to restore the value of things taken. Can X
enforce this promise? If so, give reasons.
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Case 5

• G pays Rs.500 to A, a civil servant employed in a
  government department, in consideration of As
  promise that a government contract which is at
  the disposal of his department will be placed
  with G. Before this can be done, A is
  transferred to another department. G now wishes
  to reclaim from A Rs.500 paid to him. Will G
  succeed?

Case 6
A promises to pay Rs.500 to B who is an intended
witness in a suit against A in consideration of
Bs absconding himself at the trail. B absconds
but fails to get the money. Can he recover?
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Performance of Contracts

• Performance of a contract takes place when the
  parties to the contract fulfil their obligations
  arising under the contract within the time and in
  the manner prescribed. Sec. 37 (para 1) lays
  down that the parties to a contract must either
  perform or offer to perform, their respective
  promises, unless such performance is dispensed
  with or excused.

79
Essentials of Performance of Contracts

• Parties must perform or offer to perform their
  obligations themselves.
• In the event of the death of a promisor, his
  representative are under a duty to execute such
  promise. The legal representatives, however, are
  not obliged to perform the contract where
  performance requires personal skills and
  qualities.
• The parties or their representatives need not
  perform their obligations where such performance
  is dispensed with or excused under the provisions
  of the Indian Contract Act or any other law,
  e.g., an insolvent is not required to pay his
  debts and a minor need not perform his promise.

80
Assignment of Contracts

• Assignment means transfer. When a party to a
  contract transfer his right, title and interest
  in the contract to another person or persons, he
  is said to assign the contract. Assignment of a
  contract can take place by (i) operation of law
  or (ii) an act of parties. The example of
  assignment by operation of law is by insolvency
  or death of the party to the contract.

81
Discharge by Performance

• Discharge of contract means termination of the
  contractual relationship between the parties. A
  contract is said to be discharged when it ceases
  to operate, i.e., when the rights and obligations
  created by it come to an end. A contract may be
  discharged
• 1. By performance
• 2. By agreement or consent
• 3. By impossibilities
• 4. By lapse of time
• 5. By operation of law
• 6. By breach of contract

82
1. Discharge by Performance

• Discharge by performance takes place when the
  parties to a contract fulfil their obligations
  arising under the contract within the time and in
  the manner prescribed. In such a case, the
  parties are discharged and the contract comes to
  an end. But if only one party performs the
  promise, he alone is discharged. Such a party
  gets a right of action against the other party
  who is guilty of breach.

83
2. Discharge by Agreement or Consent

• The rights and obligations created by an
  agreement can be discharged without their
  performance by means of another agreement between
  the parties which provides for the extinguishment
  of the earlier rights and obligations. The
  parties may agree to terminate the existence of
  the contract by any of the following ways.

84
3. Discharge by Impossibility or Performance

• If an agreement contains an undertaking to
  perform an impossibility, is void ab initio.
  According to Sec.56, impossibility of performance
  may fall into either of the following categories.
• Impossibility existing at the time of agreement.
• Impossibility arising subsequent to the
  formation of contract.

85
4. Discharge by Lapse of time

• The Limitation Act, 1963 provides that a contract
  should be performed within a specified period.
  Such a period is called period of limitation. If
  the contract is not performed, and if no legal
  action is taken by the promise within the period
  of limitation, he is deprived of his remedy at
  law. In otherwords, the contract in such a case
  is terminated.

86
5. Discharge by Operation of Law

• A contract may be discharged independently of the
  wishes of the parties, (i.e.,) by operation of
  law. This includes discharge
• By death
• By Merger
• By insolvency
• By unauthorized alteration of the terms of a
  written agreement
• By rights and liabilities becoming vested in the
  same person.

87
6. Discharge by Breach of Contract

• Breach of contract means, breaking of the
  obligation which a contract imposes. It occurs
  when a party to the contract without lawful
  excuse does not fulfil his contractual
  obligations or by his own act makes it impossible
  that he should perform his obligation under it.
  It confers a right of action for damages on the
  injured party.

88
Breach of Contract

• A breach of contract occurs where a party to a
  contract fails to perform, precisely and exactly,
  his obligations under the contract. This can take
  various forms for example, the failure to supply
  goods or perform a service as agreed.
• In other word, Violation of any of the
  agreed-upon terms and conditions of a binding
  contract. This breach could be anything from a
  late payment to a more serious violation, such as
  failure to deliver a promised asset. A contract
  is binding and will hold weight if taken to
  court however, proof of the violation is
  imperative.

89
Remedies for Breach of Contract

• A contract gives rise to correlative rights and
  obligations. A right would be of no value if
  there were no remedy to enforce that right in the
  Law Court in the event of its infringement or
  breach of contract. A remedy is the means given
  by law for the enforcement of a right.
• When a contract is broken, the injured party
  (ie., the party who is not in breach) has one or
  more of the following remedies
• 1. Rescission of the contract
• 2. Suit for damages
• 3. Suit upon quantum meruit
• 4. Suit for specific performance of the contract
• 5. Suit for injunction

90
1. Rescission of the contract

• When a contract is broken by one party, the other
  party may sue to treat the contract as rescinded
  and refuse further performance. In such a case,
  he is absolved of all his obligations under the
  contract.
• Example A promises B to supply 10 bags of heat
  on a certain day. B agrees to pay the price
  after the receipt of the goods. A does not
  supply the goods. B is discharged from liability
  to pay the price.

91
2. Suit for damages

• The word damages means compensation in money
  which the party who suffers by a breach of
  contract is entitled to receive from the party
  who has broken the contract. The fundamental
  principle underlying damages is not punishment
  but compensation.

92
3. Suit upon quantum meruit

• Quantum Meruit literally means as much as
  earned or as much as merited. When a person
  has done some work under a contract, and the
  other party repudiates the contract, or some
  event happens which makes the further performance
  of the contract impossible, then the party who
  has performed the work can claim remuneration for
  the work he has already done.

93
4. Suit for specific performance of the contract

• In certain cases of breach of a contract, damages
  are not an adequate remedy. The court may, in
  such cases, direct the party in breach to carry
  out his promise according to the terms of the
  contract.

94
5. Suit for Injunction

• Where a party is in breach of a negative term of
  contract (i.e., where he is doing something which
  he promised not to do) the court may, by issuing
  an order, restrain him from doing what he
  promised not to do. Such an order of the court
  is known as an injunction.

95
Quasi-Contracts

• A quasi-contract has been defined as a situation
  in which law imposes upon one person on grounds
  of natural justice, an obligation similar to that
  which arises from a true contract although no
  contract, express or implied has in fact been
  entered into by them. A contract is
  intentionally entered into by the parties. A
  quasi-contract, on the other hand is created by
  law. It resembles a contract in that a legal
  obligation is imposed on a party who is required
  to perform it.
• For example 1 A pays the amount by mistake to
  B. B should refund the amount to A.
• For example 2 A delivers goods to B
  mistaking him to be C. B must reject goods
  or pay for them if he accepts delivery of the
  goods, as law imposes an obligation upon him to
  pay.

96
UNIT 2

• Partnership Sale of Goods Law of Insurance.

97
Define a Sale

• The word Sale as used in the Sale of Goods Act
  means the transfer of ownership of goods by the
  seller to the buyer in exchange for a price paid
  or promised. Price is the consideration for sale
  of the goods

98
Meaning of Goods

• Section 2(7) defines goods as every kind of
  movable property other than actionable claims and
  money. An actionable claim means a debt or a
  claim for money which a person may have against
  another and which he may recover by suit (Eg.
  Promissory note). Money means legal tender
  money. Except these two, all other types of
  movable property are goods under the Act.

99
Classification/Types of Goods

• 1. Existing Goods
• 2. Future Goods
• 3. Contingent Goods

100
1. Existing Goods

• These are the goods which are owned and possessed
  by the seller at the time of sale. Only existing
  goods can be the subject-matter of a sale.

101
2. Future Goods

• These are the goods which a seller does not
  possess at the time of the contract but which
  will be manufactured, or produced, or acquired by
  him after the making of the contract of sale
  Sec. 2 (6). A contract of present sale of
  future goods, though expressed as an actual sale,
  purports to operate as an agreement to sell the
  goods and not a sale Sec. 6(3). This is
  because the ownership of a thing cannot be
  transferred before that thing comes into
  existence.

102
3. Contingent Goods

• According to Section 6(2) contingent goods are
  the goods the acquisition of which by the seller
  depends upon a contingency which may or may not
  happen. Contingent goods come within the class
  of future goods.
• Example A agrees to sell specific goods in a
  particular ship to B to be delivered on the
  arrival of the ship. If the ship arrives but
  with no such goods on board, the seller is not
  liable, for the contract is to deliver the goods
  should they arrive.

103
Contract of Sale

• Section.4 defines a contract of sales as a
  contract whereby the seller transfer or agrees to
  transfer the property in goods to the buyer for a
  price.
• The term Contract of Sale includes an actual
  sale as an agreement to sell. It may be absolute
  or conditional. It may be between one part-owner
  and another. When the property in the goods is
  transferred, the contract is called a sale.
  The contract is called an agreement to sell,
  when the transfer of property is to take place at
  a future time or subject to fulfillment of some
  condition.

104
Essentials of a Contract of Sale

1. There must be two distinct parties i.e., a seller
   and a buyer.
2. They must be competent to contract.
3. The subject matter of the sale must be a movable
   property.
4. The consideration for the sale must be money.
   However, it may be partly in money and party in
   goods. But it should not be wholly goods.
5. It must fulfill all the essentials of a valid
   contract.
6. No particular form is necessary to effect a sale.
   It may be express or implied.

105
Condition Warranty

• Condition A condition is a term which is
  essential to the main purpose of the contract and
  hence is the foundation of the contract. It goes
  to the root of the contract. Its non-fulfilment
  upsets the very basis of the contract.
• It is defined by Fletcher Moulton L.J. in Wallis
  v. Prati, as an obligation which goes so
  directly to the substance of the contract, or in
  other words, is so essential to its very nature
  that its non performance may fairly be considered
  by the other party as a substantial failure to
  perform the contract at all.

106
Condition Warranty

• Warranty A warranty is a term which is
  collateral to the main purpose of the contract
  and hence is only a subsidiary promise. The
  breach of warranty does not give right to the
  aggrieved party to treat the contract as void but
  entitles him to claim damage only. In the
  absence of contract to the contrary time of
  delivery of goods is treated as condition and for
  payment of price, as warranty.

107
Performance of Sales Contracts

• Performance of a sales contract is concerned with
  duties of the seller and buyer in sales
  contracts. It is the duty of the seller to
  deliver the goods and of the buyer to accept and
  pay for them, in accordance with the terms of
  sales contracts.

108
Duties of the seller and buyer in Sales Contracts

• The seller shall be ready and willing to give
  possession of the goods to the buyer in exchange
  of the price.
• The buyer must pay the price of the goods
  according to the terms of the contract.
• If the buyer wrongfully refuses to accept
  delivery must pay compensation to the seller.
• Under certain circumstances the buyer is liable
  to pay interest on the unpaid price.

109
Unpaid Seller

• A seller of goods is an unpaid seller when (i)
  the whole of the price has not been paid or
  tendered (ii) a bill of exchange or other
  negotiable instrument has been received as
  conditional payment and the condition on which it
  was received has not been fulfilled by reason of
  the dishonour of the instrument or otherwise.
  The term seller includes any person who is in the
  position of a seller, e.g., an agent of the
  seller to whom a bill of lading has been
  endorsed, or a consignee or agent who has paid
  for the goods or is responsible for the price.

110
Rights of an Unpaid Seller against Goods
Rights of an unpaid seller
Rights Against the Goods
Rights Against the Buyer

• When property in goods has passed
• Right of lien
• Stoppage in transit
• Right of re-sale

1. Suit for price
2. Suit for damages
3. Right to repudiate the contract
4. Suit for interest

• When property in goods has not passed
• Withholding delivery
• Stoppage in transit
• Re-sale

111
Partnership

• Partnership is the relation between persons who
  have agreed to share the profits of a business
  carried on by all or any of them acting for all.
  The law of partnership is contained in the Indian
  Partnership Act, 1932, which came into force on
  1st October, 1932.

112
Characteristics of Partnership

1. Association of two or more persons
2. Agreement
3. Business
4. Sharing of profits
5. Mutual agency

113
Relations of Partners to one another

• The relations of the partners of a firm to one
  another are usually governed by the agreement
  among them. Such an agreement may be expressed
  or may be implied from the course of dealings
  among them. It may be varied by consent of all
  of them, and such consent may be expressed or may
  be implied by a course of dealing Sec. 11 (1).
  Where there is no specific agreement or where the
  agreement is silent on a certain point, the
  relations of partners to one another as regards
  their rights and duties are governed by Secs. 9
  to 17 of the Partnership Act.

114
Rights of a partner

1. Right to take part in business
2. Right to be consulted
3. Right of access to accounts
4. Right to share in profits
5. Right to interest on capital
6. Right to interest on advances
7. Right to be indemnified
8. Right to the use of partnership property
9. No liability before joining
10. No new partner to be introduced

115
Duties of a partner

1. To carry on business to the greatest common
   advantage
2. To observe faith
3. To indemnify for fraud
4. Not to claim remuneration
5. To share losses
6. To hold and use property of the firm exclusively
   for the firm
7. To account for personal profits
8. To act within authority
9. Not to assign his rights

116
Minor Partner

• According to Sec.11 of the Indian Contract Act,
  an agreement by or with a minor is void. As
  such, he is incapable of entering into a contract
  of partnership. But with the consent of all the
  partners for the time being, a minor may be
  admitted to the benefits of partnership Sec. 30
  (1). This provision is based on the rule that a
  minor cannot be a promisor, but he can be a
  promise or a beneficiary. It should, however, he
  noted that a new partnership cannot be formed
  with a minor partner. Also, there cannot be
  partnership cannot be formed with a minor
  partner.

117
Contract of Insurance

• A contract of insurance is a contract by which a
  person, in consideration of a sum of money,
  undertakes to make good the loss of another
  against a specified risk, e.g. fire, or to
  compensate him or his estate on happening of a
  specified event, e.g., accident or death.

118
Kinds of Insurance

• 1. Life Insurance In this case a certain
  fixed amount becomes payable on the death of the
  assured or on the expiry of a certain fixed
  period, whichever is earlier.
• 2. Fire Insurance It covers losses caused by
  fire.
• 3. Marine Insurance It covers all marine
  losses, that is to say, the losses incidental to
  marine adventure.

119
Kinds of Insurance

• 4. Personal accident insurance In this case,
  the amount payable is a compensation for any
  personal injury caused to the assured.

120
Fundamental Elements of Insurance

1. Utmost good faith
2. Indemnity
3. Insurable interest
4. Risk must attach
5. Mitigation of loss
6. Contribution
7. Subrogation
8. Period of insurance

121
Premium

• Premium is the consideration paid by the assured
  to the insurer for the risk undertaken by the
  insurer. It may be in cash or kind. But usually
  it is in the form of cash. It is determined by
  the insurer by taking into account the average of
  losses and the contributions (in the form of
  premiums) that he receives. Besides taking into
  account the special circumstances affecting risk
  in a particular case, the insurer also keeps a
  margins for his overhead and other expenses and
  profit.

122
Unit - 3
Negotiable Instruments Notes, Bills, Cheque
Crossing Endorsement Holder in due Course
Contract of Agency.
123
Negotiable Instrument
A negotiable instrument is a written document
which entitles a person to a certain sum of money
and this right to receive money is negotiable
(transferable) from one person to another. As
such, these instruments are used in commercial
and noncommercial transactions to meet financial
obligations. The law pertaining to these is
contained in the Negotiable Instruments Act, 1881.
124
Essential features or Characteristics of
Negotiable Instruments

• The property in it passes either by mere delivery
  or by endorsement and delivery.
• The holder in due course is not affected by the
  defect in the title of his transferor or any
  previous party.
• The holder in due course, can sue in his own
  name. He need not give notice to the debtor that
  he has become the holder.
• He is not affected by certain defects like fraud
  to which he is not a party.

125
Essential features or Characteristics of
Negotiable Instruments

• Consideration is presumed to have passed.
• It is convenient method of discharging payments.
• A negotiable instrument is a written document and
  may be drawn by pencil, ink or could be
  type-written.

126
Different Kinds of Negotiable Instruments

• Promissory note
• Bill of Exchange
• Cheque
• Pay order
• Demand draft
• Railway receipt
• Delivery warrants
• Debentures
• Railway bonds payable to bearer etc.

127
Promissory Note
Sec. 4 of the Act defines it as an instrument in
writing (not being a bank or a currency note)
containing an unconditional undertaking signed by
the marker, to pay a certain sum of money only
to, or to the order of a certain person, or to
the bearer of the instrument. The promissory
note is in short called as pronote.
128
Essentials of a valid promissory note

1. Writing
2. Promise to Pay
3. The promise must be certain and unconditional
4. It must be signed and delivered by the maker
5. The amount must be certain
6. The amount promised must be Indian currency
7. Parties must be certain
8. Legal Formalities

129
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130
Bill of Exchange
Section. 5 of the Negotiable Instruments Act
defines it 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 to the bearer of the
instrument. The person who makes or draws the
bill is called drawer. The person on whom it is
drawn is called drawee who becomes an acceptor on
acceptance of the bill. The person to whom the
amount is payable is called the payee.
131
Essentials of bill of exchange

• It must be in writing.
• It must contain an order to pay.
• The order must be unconditional
• It requires three parties i.e., drawer, drawee
  and payee.
• It must be signed by the drawer.
• The sum payable must be certain.
• The sum payable must be in legal tender money in
  India.
• The formalities relating to date, place and
  consideration, though usually found on bills, are
  not essential in law.
• A bill as originally drawn cannot be made payable
  to bearer on demand.
• It must be stamped according to the Stamp Act
  1940.

132
(No Transcript)
133
Promissory note Bill of exchange
1. There are two parties in a promissory note.
They are the maker and payee.
1. In a bill of exchange there are three parties,
the drawer, the drawee and the payee.
2. In a bill of exchange the drawee is the debtor
and the drawer is the creditor who directs the
drawee to pay.
2. The maker of pronote is the debtor and he
undertakes to pay the amount.
3. The maker and the payee cannot be the same
person.
3. The drawer and drawee may be the same person.
So also drawer and payee may also be the same
person.
4. Pronote contains an unconditional promise to
pay.
4. A bill contains an unconditional order to pay.
134
Promissory note Bill of exchange
5. The liability of a maker of note is primary
and absolute.
5. The liability of the drawer of a bill is
secondary and conditional.
6. A bill payable after sight or after certain
period must be accepted by the drawee. It cannot
be presented for payment before it has been
accepted.
6. Pronote is signed by the maker who is liable
to pay. Hence there is no need for acceptance of
the note.
7. In a note the maker stands in direct
relationship with payee.
7. In a bill of exchange, after acceptance, the
drawer stands in direct relation with drawee and
not the payee.
135
Cheque

• Cheque is a special kind of bill of exchange.
  Sec.6 defines it as follows, A Cheque is a bill
  of exchange drawn on a specified banker and
  expressed to be payable on demand. By this it is
  clear that Cheque is a species of bill of
  exchange. But all bill of exchanges are not
  cheques. In addition to the essentials of a bill
  of exchange, the Cheque should satisfy the
  following conditions.
• It is always drawn on a specified banker.
• It is always payable on demand.

136
Bill of Exchange
Cheque
1. In a bill the drawee may be any person
including bankers.
1. In a Cheque the drawee is always a banker.
2. A bill requires acceptance from the drawee
before he is asked to pay.
2. A Cheque is always payable on demand.
3. A bill may be payable on demand, after sight,
or after the expiry of certain period.
3. A Cheque is always payable on demand.
4. In case of dishonor of a bill protest is
advisable.
4. Protest for dishonor is not necessary.
5. The drawee is not entitled to any special
statutory protection.
5. Special statutory protection is available to
the drawee banker.
137
Bill of Exchange
Cheque
6. No such grace time is allowed.
6. Three days of grace is allowed or payment to a
bill not expressed to be payable on demand.
7. A bill has to be stamped according to the
Stamp Act.
7. Stamping is not necessary in the case of
cheque.
8. Notice of dishonor is necessary.
8. Notice of dishonor is not necessary.
9. No crossing is allowed.
9. Cheque may be crossed.
10. Payment of a Cheque can be stopped.
10. Payment of a bill cannot be stopped or
countermanded.
138
Acceptance
A bill of exchange is said to be accepted when
the drawee puts his signature on it, thereby
acknowledging his liability under the bill. The
usual mode of acceptance is writing the word
accepted across the bill and signing under it.
The signature may be put anywhere, on the face of
the bill or on the back of it.
139
Negotiation
Section 14 of the Negotiable Instruments Act lays
down that when a promissory note, bill of
exchange or cheque is transferred to any person,
so as to constitute that person the holder
thereof, the instrument is said to be
negotiated. An instrument can be transferred
either by negotiation or by assignment of the
instrument as an ordinary chose-in-action.
140
Indorsement
The act of a payee, drawee, accommodation
indorser, or holder of a bill, note, check, or
other negotiable instrument, in writing his name
upon the back of the same, with or without
further or qualifying words, whereby the property
in the same is assigned and transferred to
another. That which is so written upon the back
of a negotiable instrument. One who writes his
name upon a negotiable instrument, otherwise than
as a maker or acceptor, and delivers it. With
his name thereon to another person in called an
in-dorser, and his act is called indorsement.
141
Kinds of Indorsements

• Blank Indorsement
• Special Indorsement
• Conditional Indorsement
• San recourse
• Sans Frais
• Faculative Indorsement
• Contingent Indorsement
• 4. Restrictive Indorsement
• 5. Partial Indorsement

142
1. Blank Indorsement
When the signature of the indorser is written
without any direction to whom or to whose order
the instrument is to be payable, it is called
blank indorsement or general indorsement. By
blank indorsement the instrument become payable
to the bearer.
143
2. Special Indorsement
When the indorsement specifies that the amount
must be paid to a specified person i.e., indorsee
or the order of a specified person, it is called
special indorsement. A blank indorsement can
easily be converted into a special indorsement.
The holder can write a