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Business Law Subject Code: Ccr8C52 Syllabus Unit - I
Business Law Subject Code: Ccr8C52 Syllabus Unit - I
SYLLABUS
UNIT I
LAW OF CONTRACT NATURE- DEFINITIONESSENTIAL ELEMENTS CLASSIFICATION OF
CONTRACT.
UNIT II
OFFER ACCEPTANCE LEGAL RULES
CONSIDERATION CONSENT- FREE CONSENT
COERCION
UNDUE
INFLUENCE
UNIT - I
CONTRACT - NATURE DEFINITION ESSENTIAL ELEMENTS OF
CONTRACT AND CLASSIFICATION OF CONTRACT
Introduction
The law of Contract forms the oldest branch of the law relating to business
transaction. The law of contracts is applicable not the business community but others.
Before going to discuss about the business law. Let us discuss briefly about the law.
Law is a body of rules which is used for regulation the contract of the members of a
society.
Need for Law :
To maintaining of peace recognize the right of other, life cannot be live peacefully and
business cannot be carried out smoothly without law to regulate the conduct of people and
protect their property and contract rights.
Meaning of Law :
Principal and sales that regulate social conduct and the observance of with can be
unforced in counts.
Definition of Law :
Law is a rule of external human action enforced by the sovereign political
authority by Holland.
Law is a rule of civil conduct prescribed by the supreme power of a state
commending what is right and probability what is wrong.
To Control all kinds of activates of people through a set of rules and principals
likewise different set of rules and principals is enforce for different kinds of social
behavior.
There are several branches of law civil law, constitutional law international Law,
Industrial and mercantile Law.
Mercantile Law / Business Law:
Mercantile Law known as commercial law or business law. It is a branch of law
in order to governs and regulates trade and commerce.
Slater says The Phase mercantile Law or commercial law is generally used to
denote that portion of the law which deals with right and obligations arising out of
transactions between mercantile persons.
Mercantile Person :
Mercantile person means one who enter into business transitions, they may be
individual, an association of partnership company.
Source of Mercantile Law :
The Laws used in India mostly derived from British law. But we made some
modifications for the local Usages of trade and commerce.
The Important sources of Mercantile law is as follows :
I.
II.
III.
IV.
Acceptance
As per section 2(b) defines when one person to whom the process is made
signifies his as sent (consent) there to the proposed is said to be acceptance.
Legal formalities :
1.
2.
3.
4.
5.
6.
Valid contract
Void Agreement
Void Contact
Violable contract
Illegal agreement
Unenforceable contract
II.
III.
According to performance :
1. Executed contract
2. Executory contract
3. Unilateral contract
4. Bilateral contract
ii)
iii)
Fraudulent
One who is involve injury to get consent
6. Unenforceable contract
It is a contract which is not enforceable by law, because of same technical defects.
The law requires some formalities to be fulfilled for a void contract. A contract must be in
writing, Registered Properly stamped or to be attested etc.,
If the aforesaid formalities not followed, the contract cannot enforceable by law.
II. According to formation (i.e Mode of creation)
I. Express contract
As per section 9 of the Act, offer or acceptance of promise is made in words. The
promise said to be express.
A writes a letter to B that he offers to sell his car. B reply to A, that he is accept the
offer. It is called as an express contract.
2. Implied Contract:
As per section 9, also says when an offer or acceptance is made otherwise than in
words, the promise is called implied contract.
Example:
X went to a restaurant and take a cup of coffee. He must pay unless otherwise expressed.
3. Quasi Contract
An obligation which the law creates in the absence of any agreement. A person
shall not be allowed to enrich himself unjustly at the expense of another.
Finder of lost goods is under an obligation to find out the true owner return the goods.
III. According to performance
I. Executed contract
If both the parties (i.e. offeror and offeree) perform completely in respect of their
obligation under the contract.
Example: Cash sale Perform simultaneously.
2. Executory Contract:
If the obligation of the parties are to be performed at a later time.
Mr. A agrees to sell bus and delivery made to B. The payment made by B is in the
following months is called executory contract.
3. Unilateral contract:
If the obligation fulfilled by one party at the time of contract such a contract is
called unilateral contract.
It is also called as One saided contract (or) Contract with executed consideration.
Therefore, in the executed contract, the obligation is outstanding only against one of the
parties at the time of contract formation.
4. Bilateral contract :
If the obligation is not executed at the time of contract formation. That is the
obligation on the part of both the parties to the contract are outstanding at the time of
contract.
Bilateral contract is similar to executory contract.
Example :
Mr. X promised to paint Ys house for a sum of Rs.500. It is bilateral contract as
there is exchange of promises and obligations of both the parties are outstanding at the
time of formation of the contract.
IV. Classification of contracts
English law :
1. Formal Contract
2. Simple Contract
1. Formal Contract :
English contract act recognized formal contracts. Validity of these contracts
depends upon their form and they are valid even without consideration.
They are two types
i.
Contract under seal
ii.
Contracts of records
The following contracts should be under seal, otherwise they will not be valid
i.
ii.
iii.
iv.
Contracts of records include the court judgments and recognizes obligations in such cases
arises out of court judgments and not under contracts.
II. Simple contracts:
All contract other than the formal ones are called simple contract or parole
contract. They may be made
i.
Orally ii. In writing iii.Implied by conduct
UNIT II
I. OFFER
Definition of Offer : U/s : 2 (a)
When are person signifies to another his willingness to do or abstain from doing
anything with a view to obtaining the assent of that to act or abstinence, he is said to make
a proposal.
An offer is completed only when it has been communicated to the offer. According
to section 4of the act, the communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made.
AND
CONDITIONS
OF
THE
OFFER
BE
The acceptor may know or may not know about the things, which is offered.
Therefore, in an offer must contain special terms, before or at the term of contract.
VIII. TWO IDENTICAL (OFFER) CROSS OFFER DO NOT RESULT IN A
CONTRACT
When an offer made by each other is called cross offer. Cross offer do not
constitute acceptance of ones offer by the other and as such there is no completed
agreement.
Example :
A offer B to sell a (Hero Honda)
Scooter and B offer A to sell a scooter (Say Splender)
The exchange of things between the parties without any exchange of money value
is called cross offer.
WHEN DOES AN OFFER COME TO AN END?
An offer may come to an end by revocation or lapse, or rejection.
Revocation or lapse of offer
Sec.6 deals with various modes of revocation of offer. According to it, an offer is
revoked
i. By communication of notice of revocation by the offeror at any time before his
acceptance is complete [Sec.6(1)].
ii. By lapse of time, if it is not accepted within the prescribed time; If no time is
prescribed, it lapses by the
expiry of a reasonable time [Sec.6(2)].
iii. By the non-fulfillment by the offeree of a condition precedent to acceptance
[Sec.6(3)].
Example
S, a seller, agrees to sell certain goods subject to the condition that B, the buyer, pays
the agreed price before a certain date. If B fails to pay the price by that date, the offer
stands revoked.
iv. By death or insanity of the offeror, the offeree comes to know of it before
acceptance [Sec.6(4)].
v. If a counter - offer is made to it
When an offer is accepted with some modification in the terms of the offer or with
some other condition not forming part of the offer, such qualified acceptance amounts to
a counter offer.
Example
W offered to sell a farm to H for Rs.1000. H offered Rs.950. W refused the offer.
Subsequently H offered to purchase the farm Rs.1000. Held, there was no contract as H by
offering Rs.950 had rejected the original offer.
vi. If an offer is not accepted according to the prescribed or usual mode
vii. If the law is changed
Rejection of Offer
i. Express Rejection
The offeree may reject the offer expressly i.e., by words, written or spoken.
ii. Implied Rejection
When the offeree makes a counter offer
Where the offeree gives a conditional acceptance
II. ACCEPTANCE
As per section 2(b) defines when one person to whom the process is made
signifies his as sent (consent) there to the proposed is said to be acceptance.
ESSENTIAL AND LEGAL RULES FOR A VALID ACCEPTANCE:
i.
Acceptance must be absolute and unqualified (u/s7(1))
ii.
Acceptance must be communicated to the offeror
iii.
The acceptance must be in the prescribed manner
iv.
The acceptance must be in responsible to offer
v.
The acceptance must be the offer
vi.
The acceptance must be given before the offer lapses or is revoked.
vii.
Acceptance may be expressed or implied.
I. ACCEPTANCE MUST BE ABSOLUTE AND UNQUALIFIED
In order to make legal effect, the acceptance must be absolute and unqualified
acceptance of all the terms of the offer.
Acceptance should not carry any condition. A qualified or a conditional acceptance
is not a acceptance at all. It is only a counter offer. Acceptance gives an end to the original
offer.
II. ACCEPTANCE MUST BE COMMUNICATED TO THE OFFEROR
The acceptance comes to an end when it is communicated to the offeror. It does
not create any legal relationship. A mental acceptance is not a acceptance.
FOR EXAMPLE:
Brogden vs. Metropolitan Railway Co, (1877). An agreement sent to the manager
for supply of coal. The manager offers a seal Approval on the offer letter and kept in to
his table, this is not a acceptance.
Therefore, in this case, the manager office the seal with a intention of sending the letter,
but not sent to the offer the not communication there is no creation of legal relationship
there is no contact.
III. The acceptance Must be in the prescribed Manner :
If the mode of acceptance prescribed by the offeror, the acceptor must follow the
mode. If the acceptor follow the mode, other then the given by the offered that acceptance
may not accept by the offered.
If prescribed time is not given , the acceptance to be communicated within
reasonable time.
IV. The Acceptance must be in Response to offer :
There is no acceptance carried \ out within the offer for example.
A Company contact allot any share within offer ( ie Application) from the public, so
acceptance should follow the offer and not precede it.
V. The Accepted must be by the offence :
An offer must be accepted by the person to whom it is made. A valid contract arts
only when acceptance Powel Vs Lea (1908).
In this case, A applied for a post of Head master, in a school.
The appointing committee select him but 17 it is not communicated to him. At the
same time, a person who is member of the communicated to him. At the same time a
person who is members of the committee. But he has no power (Authorization)
Communicate the selection to Mr. A. Due to this the committee contact the selection. Mr.
A. Make suit against the school,
In court the suit rejected for the information is given by the Unauthorized person.
VI. The acceptance must be given before the offer lapses or revoked :
Acceptance must be given within the specified time any. If the time is not maintained, then
the acceptance must be given within a reasonable time.
Example :
Ramsgate Victoria Gotel Co Vs Montefiore (In 1866)
The defondance (Application) for shares in June and the Allotment is made in
November. Then the applicant refuse to accept the allotment. The company make suit
against him. In court applicant (defendant) says the shave is not allotted within the period
(Reasonable time).
VII. Acceptance may be express or implied :
An acceptance expressed by word written or spoken is called expressed
acceptance. The acceptance is expressed by conduct is called implied contact.
II. Intention to Create Legal Relations :
There must be an intention among the parties to create legal relationship by making
an agreement.
III. Lawful Consideration :
Consideration means the price for permission. The Technical world s Quid Prequo it means something in return. The something may be benefit, right interest and
profit.
Agreement must given something or receive something in return.
For Example :
A offers to B. To Sell the scooter for Rs. 10.000/- B. is accepts it.
X.
Legal formalities :
III. CONSIDERATION
An agreement made without consideration is nudum pactum ( a nude contract) and is
void. When a party to an agreement promises to do something, he must get Something in
Return i.e., Quid pro Quo. It also means something advantage moves from one party to
another.
Example
A agrees to sell his car to B for Rs.10000. Car is the consideration for B and price is
the consideration for A.
Definition
Sec.2(d) defines consideration as follows: When at the desire of the promisor, the
promisee or any other person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing something, such act, abstinence or
promise is called a consideration for the promise.
ESSENTIALS LEGAL RULES AS TO CONSIDERATION
i It must move at the desire of the promisor
- An act constituting consideration must be done at the desire or request of the promisor.
Example
A saves Bs goods from fire without being asked to do so. A can not demand
payment for his services.
ii. It may move from the promise or an other person
It is to be noted here that the stranger to consideration will be able to sue only if he
is a party to the contract.
iii. It may be an act, abstinence or forbearance or a return promise
An Act
- doing something (affirmative form)
An abstinence or forbearance
- Abstaining from doing something (negative form)
Example
A promises B not to file a suit against him if he pays him Rs.500. The abstinence
of A is the consideration for Bs payment.
A return promise
Example
A agrees to sell his horse to B for Rs.10000. Here, Bs promise to Rs.10000 is the
consideration to A; As promise to sell the horse is the consideration to B.
iv. It may be past, present and future
Past Consideration
- Before the date of promise
Present Consideration
- At the time of Promise
Future Consideration
The general rule is Ex nudo non oritur actio i.e, an agreement made without
consideration is void. Sec.25 and 185 dealt with the exceptions to this rule.
i. Love and Affection [Sec.25(1)]
A written and registered agreement based on natural love and affection between
near relatives is enforceable even if it is without consideration [Ram Dass Vs.Krishan
Dev.(1986)].
ii. Compensation for voluntary services [Sec.25(2)]
A promise to pay for a past voluntary service is binding.
Example
A supports Bs infant son. B promises to pay As expenses in so doing. This is a
contract.
iii. Promise to pay a time barred [Sec.25(3)]
A promise by a debtor to pay a time-barred debt, is enforceable that is made in
writing and signed by the debtor. The promise may be to pay whole or part of the debt.
iv. Agency [Sec.185]
No consideration is necessary to create an agency.
v. Completed Gift [Expl.1 to Sec.25]
According to Expl.1 to Sec.25, Nothing in Sec.25 shall affect the validity between
the donor and the donee of any gift actually made
vi. Charitable subscriptions
A. COERCION B. UNDUE INFLUENCE C. MISREPRESENTATION D.
FRAUD AND E.MISTAKE.
Sec. 10 says that all agreements are contracts if they are made by the free consent
of the parties. The consent is to be free and real. The parties to the contract is to be adidem.
Meaning of consent and Free consent (Sec.13 & 14)
Consent
It means acquiescence or act of assenting to an offer. Two or more persons are said
to consent when they agree upon the same thing in the same sense [Sec.13].
Free Consent
- Consent is said to be free when it is caused by
1. Coercion (Sec.15)or
2. Undue influence (Sec.16)
3. Fraud (Sec.17)
4.
5.
Mistake means an erroneous belief about something which may either be mistake
of law or mistake of fact.
i. Mistake of law of the country
It may be a
Mistake of law of the country and
Mistake of law of a foreign country
Mistake of law of the country
The general rule as regards mistake of law of the country is that ignorance of law is no
excuse
Example
A and B enters into a contract on the erroneous belief that a particular debt is barred by
the Indian Law of limitation. The contract is not voidable.
UNIT - III
Discharge by Performance
Actual performance
Attempted performance
I. Discharge by Performance :
Performance means the doing of that which is required by a
contract. Discharge by performance takes place when the parties to
the contract fulfill 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.
It may be two performance: 1. Actual
2. Attempted
1. Actual Performance:
When both the parties perform their promises, the contract is
discharged. Performance should be complete precise and according
to the terms of the agreement.
2. Attempted Performance or Tender:
Tender is not actual performance but is only an offer to perform
the obligation under the contract where the promisor offers to
perform his obligation but the promise refuses to accept the
performance, tender is equivalent to actual performance, except in
case at tender of money.
II.
By Express consent
Novation
Rescission
By implied consent
Attemation
Remission waiver
merger
III.
ii)
c. Alternation :
Alteration of a contract may take place when one or more of the
terms of the contract is/ are altered by the mutual consent of the
parties to the contract. In such is case, the old contract is
discharged.
d. Remission:
Remission means acceptance of less fulfillment of the promise
made, e.g acceptance of a lesser sum than what was contracted for
2. Unknown to
the parties
3. Supervening
impossibility
An execuse
Not on
execuse
a. Destruction of
subject
b. Non-existence of
a state of things
c. Death or incapacity
for personal serious
d. change of law
disturbances
e. outbreak of war
a. Difficulty of
perfoumance
b. commercial
impossibility
c. Failure of a
third party
d. Strides, lockouts
and
civil
e. Failure of one of the
objects
d. Change of law:
When, subsequent to the formation of a contract, change a law
takes place, or the government takes some power under some
ordinance or special Act, as F.eg, the Defence of India Act, so that
the performance of the contract becomes impossible, the contract is
discharged.
e. Outbreak of war:
A contract entered into with an alien enemy during war is
unlawful and therefore impossible of performance contracts entered
into before the outbreak of war are suspended during the war and
may be revived after the war is over.
B. Impossibility of performance:
B. Not an excuse:
Impossibility of performance is, as a rule, not an excuse for
non-performance
1. Difficulty of performance:
A contract is not discharged by the more fact that it has
become more difficult of performance due to some uncounted plated
events or delays.
2. Commercial impossibility:
A contract is not discharged merely because expectation of
higher profits is not realized, or the necessary raw material is
available at a higher price because of the outbreak of war, or there
is a sudden depreciation of currency.
3. Impossibility due to failure of a third person:
Where a contract could not be performed because of the
default by a third person on whose work the promisor rolled, it is
not discharged.
4. Strikes, lock-outs and civil disturbances:Events such as these do not discharge a contract unless the
parties have specifically agreed in this regard at the time of
formation of the contract.
5. Failure of one of the objects:
When a contract is entered into for several objects, the failure
of one of their does not discharge the contract.
IV. Discharge by Lapse of Time
The limitation Act, 1963 days down that a contract should be
performed within a specified period, called period of limitation. If it
is not performed and if no action is taken by the promise within the
period of limitations, he is deprived of his remedy at law. In other
words, we may say that the contract is terminated if the price is not
paid and creditor does not file a suit against the buyer for the
recovery of price within there years, the debt becomes time-barred
and here irrecoverable.
V. Discharge by Operation of Law
Death
Merger
Insolvency
Unauthorised
rights
alteration of
vesturing
in
liabilities
the
same
terms of contract
1. Death:
In contracts involving personal skill or ability the contract is
terminated on death of the promisor. In other contracts, the rights
and liabilities of a decreased person pass on to the legal
representatives of the deceased person.
b. Merger:
Merger takes place when an inferior right accruing to a party
under a contract merges into a superior right acoruing to the same
party under the same or some other contract.
c. Insolvency;
When a person is adjudged insolvent, he is discharged form all
liabilities incurred prior to his adjudication.
d. Unauthorized attraction of the terms of a written agreement:
Where a party to a contract makes any material alteration in
the contract without the consent of the other party the other party
can avoid the contract.
e. Right and liabilities vesting in the same person:
Where the rights and liabilities under a contract vest in the
same person, for eg, when a bill gets into the hands of the acceptor,
the other parties are discharged. This is to avoid clarify of action
VI. Discharge by Breach of contract
Actual
Anticipatory
1. At the time of
The performance
2. During the
2.
By
renunctation
of
the
obligation
performance
This
is
anticipatory
breach
of
contract
by
express
repudiation.
A. VOID AGREEMENT
B. WAGERING AGREEMENTS AND
C. CONTINGENT CONTRACTS
A Void Agreement
- A void agreement is one which is not enforceable by law [Sec.2(g)]. Such an
agreement does not give rise to any legal consequences and void-ab-initio.
Meaning:
According to sec. 2 (9) An agreement not enforceable by law is said to be
void. Thus a void agreement does not give rise to any legal consequences and is
void ab-initic. A void agreement does not create any legal rights and obligations.
The courts will enforce only those agreements which fulfill the conditions of
enforceability as laid down in sec 10 of the Indian Contract Act.
An agreement
though it might have all the essentials of a valid contract must not have been
expressly declared void by any law in force in the country. The contract Act has
specifically declared certain agreements as void.
An agreement can be void because of mistake, lack of consideration, want of
capacity etc. A list of such agreement is given below:
1. Agreements by persons who are not competent to contract (sec 11)
2. Agreements made under a bilateral mistake of fact (sec 20)
3. Agreement with unlawful consideration and object (sec 23)
4. Agreements of which the consideration or object is unlawful in part (sec 24)
5. Agreements without consideration (sec 25)
B Wagering Agreements or Wager (Sec.30)
- A wager is an agreement between two parties by which one promises to pay
money or moneys worth on the happening of some uncertain event in
consideration of the other partys promise to pay if the event does not happen.
Example
A enters an agreement with B that A shall pay B Rs.100 if it rains on Monday and
B shall pay A the same amount if it does not rain on Monday. It is a wagering agreement.
C Contingent Contract
A contract may be
An absolute contract or
A contingent contract
An absolute contract is one in which the promisor binds himself to the performance
in any event without any conditions.
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].
Example
Goods are sent on approval; It is the contingent contract depending on the act of
buyer to accept or reject it.
Basis of Difference
1. Reciprocal
promises
2. Nature
Wagering Agreements
It consists of reciprocal
promises
Contingent in nature
3. Validity
4. Gamble
5. Determining factor
Void
Game of Chance
Future event is the determining
factor.
Contingent Contracts
It may not contain reciprocal
promises
It may not be a wagering in
nature
Valid
Not a game of chance
Future event is only collateral.
Void Agreement
Void Contract
1. A void agreement is one which is not Void contract is one which is valid when
enforceable at law and does not give rise it is entered into, but subsequent to its
to any legal consequence.
formation
it
becomes
unforceable
subsequently
for
such
reasons
as
impossibility or illegality.
legal effect.
useful purpose.
agreements
are
gamble
contracts
are
not
the
contracts
indemnity.
UNIT IV
INDEMNITY AND GUARANTEE
1. Contract of Indemnify
To indemnify means to compensate or make good the loss. The contract of
indemnity is entered into with the object of protecting the promise against
anticipated loss. The contingency upon which the whole contract of indemnity
depends is the happening of loss section (12$) of the Indian Contract Act.
A contract, by which one party promises to save the other from loss caused
to him by the conduct of the promisor himself or by the conduct of any other
person, is called a contract of indemnity.
A contract of indemnity is a contract in which one person. Promises to
protect or compensate the other for the loss suffered by him due to the conduct of
the promisor or any of the person.
Indemnifier:
A person who promises to make good the loss, that is the promisor is called
the indemnifier.
Indemnified:
The person whose loss is to be made good, that is, the promise is called the
indemnity-holder or the person who is indemnified.
The definition of contract of indemnity,
A. Only express promises to indemnify, and
B. Only those cases where the loss arises from the conduct of the promisor
or of any other person.
The selection does not include:
a. Implied promises to indemnify,
b. Cases where loss arises from accidents and events not depending on the
conduct of the promisor or any other person.
sec. 141 of the Indian Contract Act. That is the rights of the promisor are virtually
the same as those of the surety in a contract of guarantee.
5. Contract of Guarantee:
According to sec 126. a contract of guarantee is a contract to perform the
promise or discharge the liability of their person in case of his default.
a. Sec.127 of the act clearly provides that Anything done, or any promise
made, for the benefit of the principal debtor may be a sufficient
consideration to the surety for giving the guarantee.
6. Parties to a contract of guarantee must be competent to contract. However
the incapacity of the principal debtor does not affect the validity of a
contract of guarantee. The creditor and the surety must be competent to
enter into a valid contract.
Comparison between contract of Indemnity and contract of Guarantee:
The following are the points of distinction between the two:
Contract of Indemnity
Contract of Guarantor
1. There are two parties the indemnifier There are three parties the creditor the
and the Indemnity holder.
3. There is only one contract (i.e.) There are three contracts i.e. first
between indemnifier and indemnified.
4. Indemnifier need not act on the Surety gives guarantee on the request of
request of the indemnified.
the surety.
Kinds of Guarantee
Continuing
Guarantee
Revocation of Continuing
Guarantor
1. By Notice
2. By Death of Surety
Kinds of Guarantee:
1. A Guarantee may usually be given for:
2. The repayment of the price of goods sold on credit : and
3. Good conduct or honesty or a person employed with a particular person.
Guarantee may either be retrospective or prospective. The former is given
for an existing debt while the latter is given for some future agreement.
1. Simple or specific Guarantee:
Simple guarantee is one in which guarantee is given for a single specific
debt or transaction. It comes to an end as soon as the liability under that transaction
ends. A specific guarantee once given in irrevocable.
2. Continuing Guarantee:
According to sex 129, A guarantee which extends to a series of transactions
is called a continuing guarantee. It is a gurantee which is given for a series of
transactions of continuing nature.
2. Right of set-off:
On being sued by the creditor the surety can rely on any set-off or counter
claim which the debtors has against the creditor.
3. On payment of the guaranteed debt:
The surety is subrogated to all the rights of the creditor and gets the right to
demand from the creditor at the time of payment all the securities whether they had
been received before, at or after, the creation of the guarantees.
4. Right to equities:
On payment of the guaranteed debt, the surety is entitled to all equities
which the creditor could have enforced not only against the principal debtor
himself, but also against person claiming through him.
5. Right of subrogation:
Where a guaranteed debt has become due and the surety has paid all that he
is liable for, he is invested with all the rights which the creditor had against the
principal debtor (sec. 140).
Rights against principal debtor:
1. Right to be relieved of liability.
2. Right to indemnity.
1. Right to be relieved of liability:
Before the payment has been made, the surety can compel the principal
debtor to relieve him from liability by paying off the debt. But before he can do so,
the debt must be ascertained. Once the principal debtors liability accurse as a fixed
sum, the surety can ask him to exonerate him from that liability.
2. Right of Indemnity:
In every contract of guarantee there is an implied promise by the principal
debtor to indemnity the surety and the surety is entitled to recover from the
principal debtor all payments property made (sec. 145).
3. Rights against co-sureties:
Right of contribution:
When a debt is guaranteed by two or more sureties, they are called cosureties. The co-sureties are liable to contribute, as agreed towards the payment of
the guaranteed debt. When one of the co-sureties makes payment to the creditor, he
has a right to claim contribution applicable here is not founded on contract but on
equity, i.e. there is equality of burden and benefit as between c0-sureties. This rule
is contained in (secs.146 and 147).
1. Co-sureties liable to contribute equally (sec.146).
2. Liability of co-sureties bound in different sums (sec.147).
3. Release of a co-surety (sec.138).
1. Co sureties liable to contribute equally (sec.146)
Where there are two or more co sureties for the same debt or duty and the
principal debtor make a default, the co-sureties. In the absence of any contract to
the commentary, are liable to contribute equally to the extent of the default. This
principle will apply whether their liability is joint or several, and whether their
liability arises under the same or different contract, and whether with or without the
knowledge of each other.
2. Liability of o-sureties bound in difference sums:
Where the co-sureties have agreed to guarantee different sums, they have to
contribute equally subject to the maximum amount guaranteed by each one. The
fact that the sureties are liable jointly or severally under one contract or several
contracts, or without the knowledge of each other is immaterial.
3. Release of a co-surety:
Where there are co-surety a release by the creditor of one of them does not
discharge the other, neigh does it free the surety so released from his responsibility
to the other sureties.
By Revocation:
Revocation by Surety:
A specific guarantee cannot be revoked by the surety if the Liability has
already a continue at any e. Be revoked by the surety as to future transaction by the
revocation to the creation. But the surety remains liable for transactions already
entered into.
Death of Surety:
The death of surety operates in the absence of any contract to the country as
a revocation of a continuing guarantee. So for as regards future transactions. The
deceased sureties entered in to between the creditor and the principal debtor. After
the death of surety even if the creditor has the notice of the death.
Novation:
Novation means substitute and new contract of guarantee for an old one
either between the same parties of between the one of the old parties and a new
party the consideration for the new contract being mutual discharge of the old
contract.
2. By the conduct of the credition:
Variance in terms of contract:
Any variance of made with out the sureties consent in the terms of the
contract between the principal debtor and the creditor discharge the sureties has two
transaction to subsequent.
By Creditor with Principal debtor:
A contract between the creditor and the principal debtor, by which the
creditor makes a composition with, or promises to give time or not to sue, the
principal debtor, discharges the surety, unless the surety assents to such contact.
Loss of Security:
If the creditor losses or without the consent of the surety pacts with security
given to him the sureties discharged from liability to the extend of the value of
security.
3. By invalidation of contract:
Guarantee obtained by Misrepresentation:
Any Guarantee which has been obtained by means of Misrepresentation
made by the creditor or with his knowledge and assent, concerning a material part
of the transaction is invalid.
Guarantee Obtained by Concealment:
Any guarantee which the creditor has obtained by means of keeping silence
as to material circumstances is invalid.
According to benefit
According to consideration
1. Exclusive benefit of
1. Gratuitous bailment
the bailer
2. Exclusive benefit of
the bailee
2. Non-gratuitous bailment or
bailment for reward
3. Mutual benefit of
the bailer and the bailee
Classification of bailment:
Bailment may be classified according to the benefit derived by the parties.
1. Exclusive benefit of the bailer:
As the delivery of some valuable to a neighbour for safe custody without
charge.
2. Exclusive benefit of the bailee:
As the lending of a bicycle to a friend for his use without charge.
3. Mutual benefit of the bailer and the bailee:
As the hiring of a bicycle or giving of a watch for repair. In these case
consideration passes between the bailer and the bailee.
According to consideration:
1. Gratuitous bailment
spite of the bailees reasonable care, goods, are damaged or destroyed in any way,
the bailee is not liable for the loss destruction of deterioration of the things bailed
(sec 151 and 152).
2. Not to make any unauthorized use of goods:
If the bailee uses the goods bailed in a manner which is inconstant with the
terms of the contract he shall be liable for any loss even though he is not guilty of
negligence and even if the damages the result of an accident (sec.154).
3. Not to setup an adverse title:
The bailee must hold the good on behalf of and for the bailer. He cannot do
the right of the bailer to ball the goods and receive them back (sec. 117).
4. To return any accretion to the goods:
In the absence of any contract to the contrary, the bailee is bound to deliver
to the bailer, or according to his directions any increase or profit which may have
accrued
5. To return the goods:
It is the duty of the bailee to return or deliver, according to the bailers
directions, the goods bailed, without demand as soon as the time for which they
were bailed has expired or the purpose for which they were bailed has been
accomplished.
Right of bailer:
1. Enforcement of rights:
The bailer can enforce by suit all the liabilities or duties of the bailee as his
rights.
2. Avoidance of contract:
The bailer can terminate the bailment if the bailee does, with regard to the
goods bailed any act which is in consistent with the terms of the bailment.
3. Return of goods lent gratuitously:
When the goods are lent gratuitously the bailer can demanded their return
whenever he pleases even though he lent them for a specified time or purpose.
Unit v
AGENCY
Agent:
The another person who acts on behalf of a businessman is known as an agent.
The principle:
The person to whom such act is done, or who is so represented is called the
principal.
An agency:
The contract which creates the relationship of principal and agent is called
an agency.
Rules of agency:
Agency axists whenever a person can bind another by acts done on his
behalf. That is when acted upon by the agent, it connects the principal with third
person.
Whatever a person can lawfully do himself he may also do the same through
an agent. In other words, Qui facit per alium facit per se is the principal of
agency, which means He does through another does by himself.
Who can appoint an agent?
According to sec 183, Any person who is of the age of majority according
to the law to which he is subject, and who is of sound mind, may employ an agent.
Who may be an agent:
Sec.184 lays down that As between the principal & third persons any
person may become and agent, but no person who is not of the age of majority and
of sound mind can become an agent.
Agent distinguished from other relations.
Agent
Servant
master.
persons.
employer.
principal.
one master.
principals.
work is to be done.
due.
or wages.
course of employment.
Essentials of Agency:
1. The principal must be competent to enter into a valid contract:
Sec 183 clearly states that any person who is major and of sound mind can
employ on agent. An incompetent person i.e., a minor or lunatic, cannot appoint an
agent because they cannot act act principal.
2. Any person may become an agent:
The agent need not be competent to contract. Even a person having no
contractual capacity. Under (sec .184)
3. There should be an agreement between the principal and the agent:
The agreement may be expressed or implied. Agency depends an
agreement but not necessary on contract has between the principal and third person
only person make become an agent.
4. The agent must act in Representative capacity:
The essence of the matter is that the principal authorized the agent to
represent or act for him in bringing the Principal into contractual relationship with a
third person.
5. According to sec.185 no Consideration is required for the creation of a valid
agency relationship.
Creation of Agency
By express
By implied
By operation By ratification
agreement
Agency by
Agency by
Stopped
holding out
Creation of agency:
of law
Agency by
necessity
4. Agency by ratification:
Ratification means subsequent acceptance by the principal in respect of an
act done by the agent without authority. In other words, ratification means the
subsequent adoption and acceptance of an act originally done without authority or
instructions ratification is an approval of a previous act or contract.
1. The principal must be in existence at the time of contract:Another condition to ratification is that the principal claiming the ratification
must have been in existence on the day the act sought to be ratified was done.
2. The principal must have contractual capacity:
The principal must be competent to contract both at the time of original
contract and at the time of ratification.
General
Special
universal
agent
agent agent
broker
agent
agency
Advocate
insurance agent
solicitor
commercial
non-commercial
agent
agent
guardian
wife
Kinds of agents:
According to the content of their authority, agents may be classified into
three categories & they are:
A. General Agent:
General agent is one who represents the principal in all matters concerning a
particular business Hi is appointed mostly by general police of attorney of a general
agent is continuous until it is terminated.
B. Special Agent:
Special agent is one who is appointed for a particular purpose. He has
limited authority. He represents the principal in some particular transaction.
C. Universal Agent :
A universal agent is on e who is authorized to transect all the business of his
principal of every kind and to do all the acts which the principal can lawfully do
and can delegate.
By nature of work payment; [commercial]
a. Broker;
A broker makes contracts in the name of his principal and not on his own
name. He is primarily employed to negotiate between two parties. He is usually
employed for sale of goods.
b. Factor:
A factor is a mercantile agent to whom the possession of the goods is given
for the purpose of selling the same. He has authority to sell in his own name.
c. Commission agent:
A commission agent is a mercantile agent who buys and sells the goods on
behalf of his principal & receives commission for his labour.
d. Del credere agent:
He is an agent who guarantees the solvency of the buyer. He occupies the
position of a guarantor as well as an agent
Non-Mercantile agent:
They includes advocates, insurance agents, solicitor, guardian, wife etc.
Duties of an agent towards the principal:
An agent has the following duites toward the principal.
1. Duty in conducting principals Business:
Accounting to (sec 190) that an agent cannot delegate his authority or emply
another to perform acts which he has experessly or impliedly undertaken to perform
personally. Ordinarily an agent cannot further delegate the authority .
4. Right of lien:
(sec221) lays down that In the absence of any contract to the contrary, an agent is
entitled to retain goods, papers and there property, whether movable or immovable,
of the principal received by him.
5. Right to be indemnified against consequence of lawful:
(sec. 222) lays down that The employer to an agent is bound to indemnify
him against the consequence of all lawful acts done by such agent in exercise of
the authority conferred upon him.
6. Right to be indemnified against consequence of acts done in good faith:
(sec 223) lays down that where one person employs another to do an act,
and the agent does the act in good faith. The employer is liable to indemnity the
agent against the consequences third person.
7. Right to compensation :
(Sec 225) lays down that The principal must make compensation to his
agent in respect of injury caused to such agent by the principals neglect or want of
skill.
8. To do lawful Acts:
According to (sec 188) An agent having authority to do an act has authority
to do every lawful thing which is necessary in order to do such act.
9. Right of stoppage of goods:
An agent has the right of stoppage of goods in transit if he has bought goods
either with his own money or by incurring a personal liability for the price and the
principal has become insolvent.
Termination of Agency
Agreement
Performance of
the contract
By operation of law
Expiry of
Death of
time
either party
Termination of agency
Sec.201 despises the modes of termination of agency. The section is not
apprehensive. The various modes of termination of agency as mentioned in sec.
201. In certain cases, the agency is irrecoverable.
2. Expiry of time:
When the agent is appointed for a fixed period of time, the agency
comes to an end after the expiry of that time even if the work is not completed.
3. Death and insanity:
When the agent or the principal dies or becomes of unsound mind, the
agency is terminated (sec. 201)
4. Insolvency:
The insolvency of the principal puts an end to the agency (sec.201)
though nothing is mentioned in sec. 201 as regards insolvency of the agent.
5. Destruction of subject matter:
An agency which is created to deal with a certain subject-matter
comes to an end by the destruction of the subject-matter.
UNIT - V
SALE OF GOODS
Meaning:
The sale of goods is the most common of all commercial contracts. A
knowledge of its main principles is of the utmost importance to all classes of the
community. The law relating to it is contained in the sale of goods Act 1930.
Contract of sale of goods:
A contract of sale of goods is a contract where by the seller transfers or
agrees to transfer the property in goods to the buyer for a price. There may be a
contract of sales between one part owner and another [sec. 4(1)]. A contract of
sale may be absolute or conditional [sec. 4(2)].
The term contract of sale is a generic term and includes both a sale and an
agreement to sell.
Sale and agreement to sell:
Where under a contract of sale, the property in the goods is transferred from
Dissolution of a company:
When a company, whether principal or agent, is dissolved the contract of
agency with or by the company automatically comes to an end.
Termination of sub agents authority:
The termination of an agents authority puts an end to the sub agents
authority (sec.210).
ROC = Register of the company
The seller to the buyer, the contract is called a sale, but where the transfer of the
property in the goods is to take place at a future time or subject to some conditions
thereafter to be fulfilled, the contract is called an agreement to sell [sec.4(3)].
Essentials of a contract of sale
1. Two parties:
There must be two distinct parties i.e. a buyer and a seller, to affect a
contract of sale and they must be competent to contract. Buyer means a person
who buys or agrees to buy goods [sec. 2(1)] seller means a person who sells or
agrees to sell goods[sec. 2(13)]. These two terms are complimentary.
2. Goods:
There must be some goods the property in which is or is to be transferred
from the seller to the buyer. The goods which form the subject matter of the
contract of sale must be moveable.
Transfer
property.
2. Type of goods.
3. Risk of loss.
In a sale, if the goods are seller, even though the goods are in
destroyed, the loss falls on the the possession of the buyer.
buyer even though the goods On an agreement to sell if there is a
are in the possession of the breach of contract by the buyer, the
seller.
4. Consequences of In a sale, if the buyer fails to not for the price even though the
breach.
pay the price of the goods or if goods are in the possession of the
there is a breach of contract buyer.
by the buyer. The seller can
due for the price even though In an agreement to sell, in case of
the goods are still in this re-sell, the buyer, who takes the
possession.
5. Right to re sell.
goods
for
consideration
notice
of
the
and
prior
In
General
and
particular property.
7.
Insolvency
buyer.
8.
Insolvency
seller.
of goods.
If
the
seller
becomes