Thursday, 12 January 2017

1.

General Companies Law Research

- Differences to focus on:

- ROFO and ROFR
• ROFO: Contractual obligation on the seller to negotiate to sell his asset to the right holder
before offering it to third parties. Generally, a ROFO does not carry an obligation to accept
the offer, but the seller would only sell to third parties if the right holder refuses or if he is
given a better price by third parties ROFO is better than ROFR. The offer is made by the
right holder.

• ROFR: Contractual obligation on a seller to sell the asset to the right holder if he is able to
match the price offered to the seller by third parties. He may sell to third parties only if right
holder is unable to match the price or refuses to buy. Thus, seller may enter into a binding
contract with a third party only upon refusal of the right holder.

• Third parties won’t want to buy an asset with a roar because they don’t want to negotiate the
entire deals after which it still has to be offered to the right holder. They will get it only if he
can’t match their price.

- Types of companies.
• All can be:
- Limited by shares: liability is limited to the amount unpaid only shares held.
- limited by guarantee but having SC: liability extends to guaranteed amount.
- Limited by guarantee w/o SC
- Unlimited with SC.
- Unlimited without SC.
• Public: Minimum 7 members. No maximum, 5 lakh minimum paid up share capital. Has to
have minimum of three directors. More stringent regulation. 3 directors.

• Private: Minimum2 members, Post 2015, maximum 200 (before 50). Minimum Paid up
share capital- 1 lakhs. two directors.

• OPC: 2013 introduced. Only one member. Min. PUSC- 1 lakh. Must nominate a nominee
Director in the MOA/AOA who will become the owner of the OPC in case the promoter
Director is disabled. Annual turnover> 2 crores- must be pvt. ltd. No need AGM. one
director.

• Section 8: Non-profit. Use profits to promote its objects (which are like science, arts,
commerce, etc). No dividends. Need CG consent to alter MoA /AoA
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• Government: at least 51% of PSC is held by CG/SG/CG+SG and a subsidiary of government
company. Section 294-5 on annual reports.

- Associate company and subsidiary:

• A: Significant influence. 20-50% holding or business decisions. Excludes subsidiary.
• S: 51% onwards together with other subsidiaries is okay. Controls composition of board
(appoint/remove) one half. Exemptions: No need to declare beneficial interest. No need to
have pvt. ltd. in name. WOGC- no need to declare dividends out of free reserves in case of
loss.

- Put and Call.

• P: Option to sell a specified amount of a security at a specified price within a specified
period. Exercised when prices go down.

• C: Option to buy a specified amount of a security at a specified price within a specified

period. Exercised when prices go up.

- Drag and Tag.

• Terms, conditions, prices stay the same.
• D: Option to force the other shareholder to sell with you when you sell. Useful for majority
when there are minority shareholders who oppose sale. Because third party may not want to
buy unless they get the whole company- merger/acquisition.

• T: Option to sell when another sells. Useful for minority if majority sells. Greater liquidity-
because easier for majority share holders to negotiate deals than a private equity holder.

- Preference shares and Equity Shares.

• P: Preferential payment of dividend and capital (upon winding up). No voting rights (unless
it affects them- WU or reduction of SC). fixed rate of divided. Can be converted to E.

• E: Ordinary shares, represent part ownership/interest. divided is paid after payment of

liabilities. No divided if they suffer loss. No arrears on dividends. Winding up- paid at the
end. dividend depends on profit. Cannot be converted. Can appoint directors/auditors.

- Types of P:
• Participating Preference Shares: In addition to fixed divided also paid a portion of the profits
of the company.
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• Non-Participating Preference Shares: Pr.
• Convertible Preference Shares: option to convert to equity.
• Non-Convertible Preference Shares
• Cumulative Preference Shares: Pr. they get arrears of dividends.
• Non-Cumulative Preference Shares
• Guaranteed: Guaranteed divided even if there is loss.
• Redeemable: Co. can redeem, only if co. is limited by shares.

- Public Issue, Private Placement and Rights Issue: all securities.

• PI: IPO and FPO- members of general public to get funds. Not just on SE. offer for sale also.
• PP: to select group (PA (listed companies- ICDR governs) and QIP(only to QIBs, also
listed)).

• RI: to existing shareholders on the basis of their shareholding. Generally discounted. Fixed
date. Don’t want to dilute existing shareholder’s stake. listed company.

• BI: to existing shareholders w/o consideration.

• ESOP: to employees at discount or with benefits.
• SE: equity as consideration for IP or know-how.

- Incorporation, registration, commencement.

• I: Act of formation of a SLE. Won’t get sued on personal assets.
• R: registering to be covered under the Act. It is required by law in order to regulate
companies..

• C: Start of business.

- Company. LLP. Partnership. Body Corporate.

• C: SLE. MoA/AoA. Can sue/be sued. 2-200, 7-n. independent ownership of assets. Ds are
agents of the Co. Limited liability.

• P: No SLE. P. deed. Cannot sue/be sued. 2-20. Ps have joint ownership. Ps are agents of
each other and P. J&S- unlimited liability.

• LLP: SLE. LLP Ag. Can sue/be sued. 2-n. Independent ownership. Ps are agents of the LLP.
Limited to contribution.
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- DRHP, RHP, Prospectus, Offer document., Statement in lieu of a prospectus.

• First, DRHP, then SEBI puts on website, offer goes through, public can comment. Sent back
to MBs to alter. The RHP is issued- available to public. It is like authorised version. Then P.
This has no of shares, price of shares etc.

• SLP: Not for a public issue. So only file with registrar- not disclosed to public. Briefer.
Capital raised foreknown sources. No need testate minimums subscription.

- Debt and Equity.

• D: Funds owed by the company - towards others. Low risk, low return. reflects obligation.
Loans, bonds, debentures.

• E: funds owned by the company by issuing shares. high risk high return. reflects
ownership.Shares and stocks.

- Special and ordinary resolution.

• S: 3/4 majority.
• O: Simple majority. Generally decisions taken in OCB.

- Statutory meeting, AGM, EGM: all of shareholders.

• S: first meeting of a public company. Only once. certified by min. 2 Ds. 1-3 months.
• AGM: all companies should have. 18 months from date of incorp. 15 months.
• EGM: other than AGM. 21 one day notice.

- MoA and AoA: SPA<AoA<MoA<Act (unless non-obstante clause)

• M:Fundamental information for incorporation: Object, liability, name, office. UV Acts:
void. Cannot amend retrospectively. Must file with RoC. Amend by SR at AGM and get
approval of CG or tribunal. relation b/w co. and outsiders.

• A:All rules/regulations governing functioning/management. UV Acts: Can mend post fatco

(special resolution- ratifying). Not mandatory for public company limited by shares (Table
A). No need to file with RoC. Amend by SR at AGM. relation b/w company and members
and inter se.

- Shareholder and member:

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• M: name is entered in the register of the company. Must subscribe to the MoA. Companies
w/o share capital have members who are not S.

• S: buys shares in the company, holds share warrant. The representative if a deceased
member is a shareholder.

- Share and stock:

• St: fully paid up shares.Consolidated value of SC.

- Share and Debenture:

• S: Owned funds of a Co., capital of the Co., shareholders are owners, paid dividends,
depends on profit, have voting rights.

• D: Borrowed funds, debt of the Co., debenture holders are creditors, paid interest,
independent of profit, no voting rights.

- Assets and Liabilities.

• A= L+E
• A: property/estate Co. owns and has monetary value. Financial resources. Building, cash,
goodwill.

• L: debts which the Co. owes. Financial obligations. Borrowings, bank overdraft, debentures.

- fixed asset and current asset.

• F: Will not be used up in one accounting period. tangible non-current. Buildings, land,
furniture and fixtures, vehicles.

• C: assets that can be converted to cash in one AP. Cash, accounts receivable inventory,
prepaid expenses, marketable securities. Fund day to day business.

- Fixed and floating charge.

• F: on a specific and ascertainable asset- generally non-current. Legal. first preference. static.
• Fl: on a unascertainable asset, generally non-current. Equitable. second preference. dynamic.

- term loan and working capital.

• WC: finances everyday operations. cover to pay for current assets, wages and all.
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• TL: bank loan, fixed, specified repayment schedule, security is there. Real estate, equipment.

- Current and contingent liabilities:

• CU: Liability is current and existing. Need not be a specific figure but should be capable of
being ascertainable. Taxes.

• CO: Potential liability, may come into existence in the future based on the happening or not
happening of a particular event. Like liability arising out of a lawsuit. Need not be recorded
in balance sheet.

- Concepts:
- Balance Sheet: Shows equity, liabilities, assets.
• net worth= A-L.
- Income Statement: represent financial performance. Revenue, expenses and net profit.
• operating: regular business activities.
• Non-operating: not connected to regular business activities. Sale of investments.
- Cash Flow Statements
• amount of cash and cash equivalents entering and leaving the company.
• it does not include amount of future incoming/outgoing cash.

- Lifting of Corporate Veil: seeing who the members are and holding them liable and not the
company-looking beyond the SLP- because it was not being used for a legitimate purpose.
Evasion of tax. Incorp. by false info., fraudulent app. for removal of co. from RoC and
fraudulent conduct of business during winding up. Members cannot ask for it.

- Benefits Creation of a company.

• more credit worthy.
• perpetual existence.
• tax benefits- corp. tax lesser than income tax.
• Limited liability- personal assets protected.
• Expertise in management.
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- Capacity to contrat.

• CO. does so in its own name. But capacity may be restricted by law or by AoA. 179 and
180. need board resolution to borrow money. Need SR of shareholders to get money beyond
threshold of PSC + free reserves.

- Separate legal entity.

• Separate existence from members. Contracts and holds property in its own name.

- Illegal Association of persons

• 464: require registration under this act or other beyond a certain numeric threshold. currently
50. object of business should be gain. excludes HUF and P and LLP under special acts.

• Rule 10, Companies Misc Rules, 2014. So anything above this, must be incorporated.
• must pay tax, personal liability and court cannot order WU.

- Promoter
• named as such in prospectus/ annual return.
• control- director or shareholder- direct or indirect.
• BoD is accustomed to act per his advice/direction not in a professional capacity.
• Control: appoint/remove majority of BoD or control management/policy decisions.
• Contracts entered into by P can be ratified only post incorporation.
• Fiduciary relationship with the company- must make full disclosures, cannot profit at the
expense of the company.

• Relationship is not contractual because company has yet to be incorporated.

• Duties continue until company raises shares capital and acquires property it was created to
acquire.

• Must have valid contract for promotional expenses.

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- Procedure for Incorporation:

• Application fro availability of name.

• Preparation of MoA/AoA.
• Declaration from the professional.
• Affidavit from the subscribers to the MoA.
• Furnishing verification with RoC.
• Particulars of subscribers, directors, KMP to be filed.
• Power of attorney.
• Certificate of incorporation is conclusive evidence that all the requirement so the Act have
been complied with. Cannot question validity of the registration beyond this.

- Alteration of MoA:

• Special resolution required.

• Name: 13(2).
• Registered office; 13(4) & (7).
• Object: 13(1) & (9).
• Share capital: 62.
• Reorganising Share capital: 230-237.
• Reducing Capital: 66.
• Must be filed with RoC.
• If Co. doesn’t have share capital only members can participate in divisible properties.

- Alteration of AoA:
• Special resolution.
• If characteristics of a pvt. co. are lost becomes public from that day, but vice versa needs
tribunal approval.

• Limitations:
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- cannot contravene MoA
- Bona fide, good for the company.
- Cannot be illegal.
- Cannot compel member to subscribe to more shares.
- No oppression of minority.
- Can be a breach of contract but might need to pay damages.

- Alter Ego: If shareholders. officers, directors act fraudulently or unjustly then they can be held
personally liable, as the alter ego of the company.

- Constructive Notice: All public document pertaining to the company are presumed to be read
and understood by a contracting third party.

- Indoor Management: Third parties are allowed to assume that all procedural requirement
mandated by law.MoA/AoA have been carried out. If not, company cannot escape.

- Ultra Vires: No act UV to MoA can be ratified, all void. UV to AoA- may be ratified otherwise
void.

- Reduction of share capital:

• special resolution + tribunal approval. Interested of public, shareholders, creditors to be
safeguarded.

• Can also try surrender, forfeiture, diminution, redemption of redeemable preference shares,
purchase of shares by member company or buy back all amount to reductio without
requiring tribunal approval.

• When registrar strikes name off register because company isn’t functioning then reduction is
unavoidable.

• Creditors can object to reduction, their consent is required or they should be paid off.
• Surrender- surrender to the company of issued shares.
• forfeiture- forfeit shares which have not been paid up.
• Diminution- Cancellation of unsubscribed shares.
• Buy-back- repurchase of shares- increase value of shares or eliminate threat by shareholders
looking to gain controlling stake.

- CSR: Section 135

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• net worth over 500 or turnover over 1000 or net profit over 500 per fy must constitute a CSR
Board.

• 2% of the net profits over the past three fys should go into it.
• Was not here in 1956.

- Oppression
• Yes SC: at least 100 or 1/10th of the total number of members or member/s holding at least
1/10th of paid up share capital.

• No SC: 1/5th at least.

• It is an alternative to winding up.
• Criteria:
- Affairs of the co. are being conducted in a manner prejudicial to public interest or
oppressive to any members.

- compulsory winding up is the just and equitable justified.

- winding up would unfairly prejudice the petitioners.
- Oppression must be of continuous nature not isolated acts.
- Mismanagement
• Criteria:
- business is conducted in a manner prejudicial to public interest or that of the company or
that change in management or control is likely to cause the same.

- present and continuing.

- Court may rule as it seems fit.

- Types of directors, roles and responsibilities.

• max 15. SR required for more.

• Pub Min: 3, Pvt Min: 2, OPC: 1.
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• One person can have 20 max. But only 10 in the same group.
• Types:
- Residential: at least one D should be 182+ days india resident.
- Independent: not MD, WTD, ND. All public companies have to appoint (PSC: 10cr,
Turnover: 100r, Debt: 50r) at least 2. Cannot be RP. Every listed company 1/3rd has to be
ID. max term: 5 cy. and max 2 consecutive terms. SR required fore reappointment.

- Small shareholder: Listed Co., Only one, 1000 or 1/10th of the SS to elect, SS= nominal
value not more than 20,000. max 3 consecutive years and cannot retire by rotation.

- Woman: any listed or public company with PSC:100cr or turnover 300cr. Only 2013
- Additional: appointed by BoD. any one but guy who didn’t get appointed as D. Term- till
next AGM or date on which it is to be held.

- Alternate: Only hold term as long as the replaced director. vacate when that D returns. D
must be absent for at least 3 months fro india. Same requirements as ID. Can’t be D of
another co.

- Nominee: Appointed by BoD. Nominated by an institution as per law or by Govt.

- Liability under Companies Act

• Director’s liability for 166 (duties) violation- fine 1-5lkh.

- Merger and demerger Procedure.

- Borrowing:
• Ultra Vires: Borrowing beyond AoA limit.
- Void. Cannot be ratified.
- Loan and security cannot be claimed.
- Relief lies in equity not law.
- injunction and recovery, subrogation, suit against directors.
• Intra Vires Borrowing: Directors borrow without authority- 179 and 180.
• If directors had ostensible authority and lender acted in good faith or if transaction was
ratified them Co. liable.
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- How can a foreign entity invest in India?
• FDI: Establishing a direct business interest in a comapny. automatic and approval route
(foreign investment promotion board). Might need sectoral regulator’s approval also. In
equity shares, fully and mandatorily convertible preference shares and fully and mandatorily
convertible debentures. Substantial ling term interest. hit level of investment. MNCs or
FVCs. less liquidity, cannot pull out.

• FPI:Investing in the financial assets of a company. such as stocks or bonds. Short term. no
controlling interest. more liquidity so easily traded. more accessible to individual investos.

- Citizenship:
• Limited view: Member of the community- good citizen, philanthropic and charity. [Partners
and out reach program. Many of the big financial institutions partner with their legal
counsels].

• Equivalent: Same as CSR- economic, legal, ethical and philanthropic. [Magazines give
awards based on this- CRO or Corporate Knights]

• Extended View: Political citizenship. Corporate as citizens, participation in global

governance, administration of individual’s rights. [Uber is part of extra ministerial meetings
in trump administration].

• Citizenship Rights: free speech, tax payment, state protection. It is a legal person in India not
a citizen. Article 19 is applicable. Domicile and its domicile is the place of its registration,
also has nationality and residence.

- Letter of Credit
• Letter from a bank to a seller for the performance of some obligation to the buyer,
upon which it guarantees payment to the seller.

- Bill of Lading

• Shipper and transporter/carrier: Type, quantity, destination of the goods. Must be

signed by the shipper, carrier and the receiver.

• straight-carrier is paid in advance.

• order- carrier is paid after.
• endorsed- title of the goods transferred upon delivery. Can be traded as an
instrument.
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TOPA Research Questions

- Rights of a property holder?

• sale, enjoyment, earn rent, lease, create charge on, alter, gift, possess.
- Ways to alienate property?
• sale, gift, mortgage.
- Sale and Conveyance:
• S: Transfer of legal title of property for consideration.
• C: same but can be on temporary basis such as mortgage, exchange or lease or gift (no
consideration).

- Mortgage.
• Types:
- Simple: no transfer of possession. can sell property on default and appropriate proceeds.
a. Personal liability
b. Possession is not transferred
c. Claim can lie against the Mortgager and the property
d. No claim on the rents/ profits arising out of the land

- Conditional Sale: ostensible sale occurs. Contingent contract. on default it is sale is

absolute. on repayment it is void or it is sold back.

- Usufructuary: possession is delivered, (can be constructive) . all interest and rents can be
kept in lieu of repayment of principal amount or interest. No claim over property itself.

- English: repayment on a scheduled date, up until then absolute transfer.

- Deposit by title deeds: Only in notified states (area of delivery), and titled deeds are
delivered as the security.

- Anomalous: Residuary, none of the above.

• mortgage and charge
- M: Transfer of interest in IMP. Good against subsequent transferee w/o notice. Just
contract. requires registration. For a fixed term.

- C: Gives right of payment out of a particular IMP. Not good against subsequent transferee
w/o notice. Contract and law. Latter does not require registration. Can be in perpetuity.

- Can you create a mortgage on property you don’t own?

• Yes. on interest. leasehold mortgage.
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- lease and license
• Le: Separates ownership and possession. Transfers interest in land. Right of enjoyment of it.
Can prevent trespass. Can assign. Can’t revoke randomly.

• Li: Privilege to use something on the premises. Does not transfer interest. Can’t assign. Can
revoke. Can’t bar trespass.

- Sale and mortgage can be effected against minor but not lease as it has conditions to be
fulfilled like repayment and upkeep etc.

- Easement: Right to use someone else’s property for a specific purpose. Example: right of way,
right to light, right to air space, etc.

• Dominant Heritage: Right over a land which is not owned/possessed by the right holder,
from which he derives benefit.

• Servient Heritage- Actual owner of property over which there is an easement. Cannot object
to dominant owner’s use.

• Criteria:
- Dominant and serviant owner must exist.
- Easement is to the advantage of dominant owner.
- Does not entail transfer when created or surrendered.
- Must be written unless they arise out of custom.
- The dominant owner must take care and preserve the easement.
- Easement is created by grant, prescription or by custom.
• Appruent: runs with the land.
• In Gross: personal easement- does not transfer with the transfer of property.
• Arises out of necessity.

- Hypothecation:
• Using an asset as security while retaining possession but barred from selling it until loan is
repaid.

- Pledge, Hypothecation, Mortgage and Lien:

• P: Movable. Possession transferred. Can sell if not repaid.
• H: Movable. Possession retained. Can seize property if not repaid.
• M: Immovable. Depends on type, generally retained.
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• L: Movable. Possession transferred. Can’t sell if not repaid.

Contracts Research Questions:

- Section 10, criteria for valid contract (ag. enforceable by law)

• Free consent of parties;
• Competence of parties to contract;
• Lawful consideration;
• Lawful object; and
• Not expressly declared void by law.
• Not given under the act but judicially: intent to create legal obligations (intent to contract)
- Unilateral when one party makes a promise and the other has to only forebear.
- Offer:
• auction is an invitation to offer (shows willingness to enter into contract, not binding)-
individual bids are offers.

• to particular individual- special, to world at large- general.

• 29: unascertainable contracts- void.: saying “when I am able to do so”- void. That’s why
betting is void, depends on luck not skill.

• Acceptance:
- Must be unconditional. If conditional it is a counter offer.
- Must be communicated reasonable mode/time unless specified. If it is different than what
is specified the O can choose to let it be.

- Can accept by performance also, no need to communicate.

• Communication:
- O and A only valid upon communication to other.
- O: when it leaves your hand..
- A: when it leaves your hand, completed as against other party. So O can’t be revoked after
A leaves offerer’s hand.

- A can be revoked until A is completed against offerer, so until it reaches other party.
- must be done to party directly or to agent- not to third party.
- Consent
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• consensus ad idem (Void ab initio):
- same thing in the same sense- meeting of minds.
• Mistake (Void):
- mutual mistake of essential fact- Void
- mistake of indian law does not make it void.
- foreign law does make it void.
- unilateral mistake does not make it void.
• 14:Free consent (voidable):
- Coercion: committing/threatening to commit act prohibited by IPC with the intention of
forcing contract. Mere economic duress not enough.

- UI: one party uses his dominant position over the other to obtain an unfair advantage over
him. Real/apparent authority, fiduciary, one party is incapacitated.

- Misrep: Must cause contract entry.

• fraudulent- unwarranted positive assertion of what is untrue
• negligent- breach of duty, no intent but gives advantage by misleading the other party
to their prejudice.

• innocent- causing other party to make a mistake as to substance of subject matter.

- Fraud: must be with connivance and must be with intent to deceive or induce into contract
and must cause such entry into contract.

• stating false facts knowingly.

• actively concealing facts, having knowledge of the same.
• any act to deceive.
• any act law declares fraudulent.
• silence is not fraud unless it is equivalent to speech.
- Insurance and other uberrimae fidei contracts- utmost good faith- must make all
disclosures.

- Consideration:
• At the desire of promisor. Done by promisee or any other person. Can be executed,
executing or executory.

• Need not be adequate. must have value in the eyes of law and create some incremental
change in position.
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• performance of public duty to pre-existing duty doesn’t count.
• not voluntary, at the desire of P.
• Agency no need consideration.
- Capacity:
• 11: Minor (void ab initio)
- Can enforce contracts mad in their favour.
- Cannot incur liability but can acquire title.
- Guardians can enter into contracts in their favour.
- 68: Exception is for necessities. Case to case.
• 12:unsound mind (void ab intio)?
- 68: Exception is for necessities. Case to case.
• disqualified by law (insolvent, or 179, 180, jews in Nazi Germany) (Void)
- Privity
• rights in personem.
• cannot confer rights or impose obligations on a third party.
• benefits can be given. but can’t claim performance or sue.
• Exceptions:
- Covenants running with the land- owner of the land is bound.
- trust of charge: charge or interest is created in favour of someone. Can enforce it.
- Acknowledgement of estoppel: Agrees to make payment to third party. bound.
- promissory estoppel.
• In case of unilateral promise, if the promisee carries out the act desired by the promisor
based on that promise then the promisee can hold promisor to her promise. Estopped from
claiming no consideration.

• Build school, I will contribute 1000. They built based on that promise. He must pay.

- 23: Lawful Object (applies to consideration also)- makes contract illegal and hence void.
• Types:
- should not be forbidden by law.
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- defeat provisions of the law
- fraudulent
- injury to person/property
- immoral
- opposed to public policy.
• Locus poenitentiae: place for repentance- if the consideration (the illegal one) is yet to be
made, party can institute proceedings and recover property/money transferred. As long as
illegality has not been substantially performed.

- Public Policy (void):

• trading with alien enemy
• sale of public offices
• abuse of legal process.
• unconscionable agreements- economic duress.

- Express prohibition in law (void).

• no lawful consideration/objectUF
• restraint of marriage (other than of minor).
• restraint of trade
• restraint of legal proceedings (includes time for filing)
• uncertain and ambiguous
• wager
• 56:impossible acts: compensation if one party knew act was impossible and other did not.
become void from the day the performance becomes impossible. Can further contract to
declare causes of impossibility.

- Restraint of trade (void):

• Exceptions (test of public interest):
- sale of goodwill- not to carry on similar business within specified geographical and
temporal limited (say as long as buyer carries on the business).
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- sale of business- shareholders agree not to invest in competitors for as long as the contract
subsists- valid. Same in JV.

- partnership ac says partners can mutually restrict right to carry on any other business.
- trade agreements, exclusive dealing agreements are valid if reasonable.
- agreement not to serve anybody else for a certain time- valid.
- non-compete after termination of employment- void.
- Non-compete during employment is valid.
- Non-solicitation: valid as it does not restrain employee’s right to trade, it is agreement not
to poach by employers.

- Non-disclosure: valid under trade secrets act

- Wager
• wager under ICA is an agreement to pay money/equivalent when an uncertain event is
ascertained. Not the same as gambling (illegal)- this is just void so ancillary contracts are
enforceable.

• Ancillary contracts not enforceable if contract is illegal.

- Quasi contract- unjust enrichment.

• no actual agreement, based on consent of party. Arises from justice and equity.
- must be enriched by receipt of some benefit.
- enrichment should be at the expense of the other
- retention of enrichment must be unjust
• Examples:
- can’t benefit from an illegal act- can’t inherit after killing dad.
- finder of goods is given the same liability as a bailee- to avoid criminal liability must try
to find true owner.

- performance of contract
• 38:offer to perform: if party offers to perform and shows it is ready and willing, but this is
not accepted then obligation os the party ceases but rights subsist.

- must be made at right time/place.

- must be unconditional
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- other party must be able to ascertain that offerer is ready and willing.
• substantial performance: contract is performed substantially with some deficiency which is
not wilful obligations of the promisor subsists. Right in equity.

• legal heirs/representatives are bound to perform unless personal contract (based on the
individual’s skill/expertise).

• performance by third parties is okay if it is accepted by the promisee.

• performance should be at reasonable time, place and mode.

- Assignment
• Can assign benefits not obligations/liability.
• personal contract- no assignment.
• can contractually restrain right of assignment.

- termination
• performance (complete/substantial/offer to perform)
• frustation
• operation of law (death, insolvency, unilateral material alteration)
• lapse of time (limitation act)
• mutual agreement:
- 62: Novation
• alteration/substitution of existing contract with another partially or wholly. All parties
must consent. previous obligation are discharged.

• consideration of the new contract is discharge of old one.

• parties can change.
- 63: release and remission (test of accord and satisfaction)
• dispense/remit with performance, wholly or in part of the promise made to him or give
extension of time for performance or accept any other satisfaction in place of original
promise.

• Breach
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- anticipatory breach:
• refuses to perform or is disabled from performing promise in entirety.
• Other party can terminate the contract, unless accused by words or action, to the
continuation of the contract.

- time is essence of the contract:

• if parties intended time to be essential, and it is not performed as such, can rescind.
• Commercial contracts- time is presumed as essential.

- Rescission:
• 64: Obligations discharged and rescinding party has to return any benefit received under it.
• 65: if agreement is void due to say frustration then party who gained advantage must
return/compensate.

- Consequences of breach
• specific performance: when monetary compensation is not adequate, when damage cannot
be ascertained, transfer of immovable property, property is of special value./interest,
property is held by D as agent/trustee of P.

• 73: Damages: compensation for loss/damage which arose naturally or parties knew was
likely to result when entering the contract (special damages). Still duty of care of reasonable
man is owed. damage cannot be remote.

• 74: liquidated damages: need not prove actual damage, cannot exceed amount stipulated but
can be lesser- reasonability.

- Types of damages:
• exemplary: to make example of the gravity of the offence- almost never.
• liquidated: Stated in contract- pre stipulated
• unliquidated: stipulated by court- taking into account loss suffered.
• punitive: to punish/deter breaching (fraud)
• nominal: no monetary loss, but suffered legal injury.
- restitution: to be put in the position before the contract happened. equity.
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- Indemnity and guarantee
• I: Bi-party: contract to save promisor from loss caused by his or another’s conduct.
Insurance. Promise to provide compensation for loss.

• G: try-party: contract to perform a promise or discharge a liability upon default of the PD.
Bank guarantee. Promise t give assurance to creditor in lieu for his money.

• How to enforce?
- I: as soon as loss occurs.
- G: upon default.
• liabilities
- I: Sole liability is of indemnifier.
- G: Co-extensive liability of G and PD- but can be contracted out off.

- Partnership
• How formed?
- Agreement to share the profits of a business carried on jointly by all of them.
- agreement to share profit is essential but not to share loss.
- mutual agency with each other and the firm, they are principals to each other also. Bound
by each other’s acts.

• firm is not a juristic person- it is an association of individuals. Suit can be filed against the
name of the firm but is actually suit against all the partners.

• liabilities: personally liable, joint and severally liable.

• mutual rights and duties are given in the deed or are implied. If a partner acts in his one
name and there is nothing to show that her act expressed or implied an interest to bind the
firm. P is individually liable.

• 28: holding out: Anyone who knowingly (orally, by conduct or by writing) represents
himself as a partner shall be liable as such to anyone who on this basis has given credit to the
firm. Regardless of if the pretend P knows this or not. Also, continued use of name of a dead
partner does not make heirs liable.

• Even if partner’s interest is transferred, the transferee cannot interfere with business of the
firm.

• 32: retired partner

- consent, or express agreement or with written notice of intention (PaW).
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- discharged from liability to 3rdP, once public notice of retirement is given.
• 30: minor: cannot be partner but can get benefit of partnership. share property and profits
and inspect accounts. Minor’s share is liable for losses but minor is not personally liable.

• praetorship at will- section 7: no provision in the deed for duration or determination of

partnership.

- Agency
• Authority
- can be express or implied. Act + lawful thing required to do it.
- Emergency: do everything done in ordinary prudence, in her own case. Doc. of Necessity.
ID possible should get P’s instructions.

- Acts done without authority may be ratified, if not, A is solely liable.

- ostensible authority: A does acts w/o authority but P has done something to make 3rdPs
believe that authority exists, P is bound.

- conduct business per instructions or prevalent custom and such skill as generally
possessed and reasonable diligence or make good any loss caused.

• A cannot make deals on his own account during business of agency without P’s consent. P
can repudiate and recover the benefit A got.

• sub-agency:
- P is responsible unless due care was not exercised in appointing SA by A, if SA is
appointed by A for the P, under P’s authority.

- A is responsible to P for SA’s acts done for P. and SA is responsible to A. Exception,

fraud or wilful wrong.

- If A appoints a SA for himself, not under authority of P, no liability of P.

• agent’s lien: to hold on to goods, in lieu of payment. Can contract out.

- Bailment: delivery of goods for some purpose, returned or disposed after purpose is fulfilled or
time period has expired.

• Bailor repays bailee for all expenses incurred for purpose of bailment.
• Bailee is responsible for loss, destruction or damage.
• duty of care: ordinary prudence. not your own.
• If skill/labour is exercised by bailee- right of lien, can be contracted out of.
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- damage and damages?

• damage is loss or harm to person or property.
• Damages is compensation for legal injury. Can be statutory, common law or contractual.

- Lien: possessory security, where goods may be retained in lieu of repayment. Cannot sell
goods though.

• General lien: given under contracts act, particular lien-.

• G: Any property in possession of a person trying to exercise lien over general balance
accounts. Exercised factors, bankers, wharfingers, policy-brokers and high court attorneys,
unless contract to the contrary.

• P: Property on which there is exercise of skill/labour. Baliees.

- pledge: is a bailment of goods as a security for the payment of a debt or performance of a
promise. Possession (actual/constructive) is transferred and a right of lien is attached, so can
sell to appropriate proceeds as repayment.

- hire-purchase and sale

• H:Transfer of ownership only after instalments are paid. 3rdP will not have good title over it.
Can return the good at anytime and obligation to pay ceases. Must be written. Risk stays.

• S: Absolute transfer of ownership, as soon s contract is signed. Can sell to a 3rdP. Obligation
to pay does not cease. Can be oral. Risk passes.

- conditions and warranties and representations and covenants:

• Con: Requirement or event that should be performed before the completion of another
action, generally the execution. Directly related to the object of the contract. Breach-
termination. Violation of a conduction could be violation of warranty.

• W: Assurance given by one party to another. Subsidiary provision. Breach- damages.

• R: statement of fact relied on as the basis for entering the contract, normally before the
contract. If violated contract is void.

• Cov: Promise to do a specific act in the contract. Breach- can rescind. Promise to pay or
convey title.

- caveat emptor- indian and english law.

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- for service, of service.
• of: M&S, vicarious liability.
• for: IC. no VL.

- Rescind and repudiate:

• Res: Right to undo the contract and return to the position before it as entered. Arises out of
defect in the contract (misrep, UI, fraud) or mutual agreement or court order.

• Rep: Indication that contractal obligations will not be performed. Anticipatory breach.

- M&S, E&E, IC, P&A.

• agent- represents P. Acts of agent are acts of P. Only told what to do not how.
• E&E and M&S are same: control and supervision.
• IC: manner of work is determined by him.