CA Foundation Short Notes Nov 2018

CA Shashank Sharma 6|Page
Shashank@mercurusedu.com
CA foundation: Business Laws
1. Contract Act 1872
Nature of Contract
The law of contract is the foundation of the mercantile law. All business transactions are founded on
the law of contract. The object of law of contract is to introduce certainty & definiteness in business
transactions. It ensures that the expectations created by promises of the parties are fulfilled and
obligations created by agreements are enforced.
 The sources of the law of contracts are the Indian Contract Act, 1872, judicial decisions or
precedents and customs and usages of trade.
 The Contract Act is not exhaustive. It is not the whole law of contracts. There are separate Acts
which deal with contracts relating to negotiable instruments, transfer of property, sale of goods,
partnership, insurance, etc.
Contract:
According to Section 2(h) of the Indian Contract Act, "An Agreement enforceable by law is a
contract". Thus a contract consists of two elements:
a) An agreement
b) Legal obligation i.e.; a duty enforceable by law.
Legal
Contract
Agreement Obligation
All contracts are agreements but all agreements are not contract.
Agreement is the genus of which contract is the species. An Agreement is a wider term than a
contract. It may be a legal agreement (i.e. enforceable by law) or a social agreement (i.e. not
enforceable by law).
Law of Contract deals with only those obligations which arise from an agreement.
The law of contract is essentially the law of obligations. Obligations may arise from numerous
sources such as (a) torts or civil wrong (b) judicial decisions (c) trust (d) decree (e) agreements.
However the law of contract deals only with those obligations which arise from agreements. It
excludes all those obligations which are not contractual in nature.
Essential elements of the valid contract (i.e.; agreement to be enforceable by law):

Section 10 provides "all agreements are contracts if they are made by the free consent of parties
competent to contract for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void".
 An offer or proposal by one party and an acceptance of that offer by another party resulting in
an agreement.
 An intention to create legal relations. (Balfour vs Balfour (1919) 2 KB 571 - Social Agreements do
not create any legal obligations)
 Free consent between the parties.

 The parties to contract are legally capable of contracting.

 The object of the contract is legal and is not opposed to public policy.
 The agreement is supported by consideration.
 The agreement must not have been expressly declared to be void under the Act.
 The terms of the contract are certain.
 The agreement is capable of being performed, i.e. it is not impossible to perform the contract.
 Where agreement is required to be in writing under any law it must be in writing; and where
both writing and registration are required by some Act or Law, the agreement must be in writing
and registered.
A contract is formed by-

 An offer is made by a person (called as offeror or promisor)
 The person to whom it is made accepts the offer (called as promisee)
 An agreement comes into existence
 When all the essential elements as specified in section 10 are present, it becomes a
contract.
Difference between Void and Illegal Agreements:

All illegal agreements are void. But all void agreements are not illegal. The collateral transactions to
illegal agreements are also illegal and hence void. However the collateral transactions to a void
agreement are totally valid if all the essentials of a valid contract are present. Further there may be a
punishment for illegal agreements but a person can not be punished for an agreement which is just
void.
Void Agreements
Illegal
Agreements
Formal & Simple Contracts: English Law also classifies a contract as Formal and Simple Contracts.
Formal Contract
(It is expressed in a particular form and its validity depends on form alone.
Consideration is not necessary and hence in India it is not recognized as a Contract)
Contract of Record Contract Under Seal

(Recorded in a form) (Terms of Contract are written and signed,
Sealed and delivered)
Court’s Judgment Recognizance

(On being recorded it becomes (It is a conditional judgment arising in criminal
a contract of record) proceedings binding a person to be of good behavior)
Simple Contract (or Parol Contract)

(These contracts include all the contracts which are not under seal and they require
the fulfillment of all the essential elements of a valid contract)

KINDS OF CONTRACTS
1. Valid 5. Unenforceable Contract: 7. Express and 8. Executed 9.

6. Illegal or Unlawful Agreement: An illegal agreement is
Contract An unenforceable contract Implied and Unilateral
one, which is contrary to law. According to section 23 an
2. Void is one, which suffers from Contracts Executory and
agreement is illegal if its object or consideration:
Agreement some technical defect. In Contract Bilateral
i) is forbidden by law, or
3. Voidable some cases such contracts Contracts
Contract can be enforced if their ii) is of such a nature that, if permitted, it would defeat
4. Void technical defects are the provisions at any law, or
Contract removed. For example, the iii) is fraudulent, or
defect of understamping iv) involves or implies injury to the person or property of
can be removed by affixing another, or
the right value of stamps. v) the court regards it as immoral or opposed to public
policy. A bilateral
In case of a contract is
An illegal unilateral one in which
agreement may contract, both the
attract punishment only one parties are yet
Valid Void Voidable and prosecution An express An implied An An party has to to perform
Contract: Void under criminal law. their
agreemen contract: An contract is contract is execute executory perform his
A Valid contract: A An agreement respective
t: An agreement created by created by d contract is obligation
contract contract which is collateral obligations at
agreement which is the words of the conduct contract one where and the
is one which ceases to an illegal the time of
not enforceable by the parties, of the is one both the other party
which to be agreement also formation of
enforceabl law at the whether parties or is that has parties are has
contains enforceable becomes illegal. It contract. They
e by law is option of one oral or inferred been still to performed
all the by law is like an infectious are similar to
said to be or more of the written. from perform perform his
essentials becomes disease and is fatal executory
void. [Sec. parties thereto, circumstanc ed by all their obligation
of a valid void when it not only to the contracts and
(2)(g)] but not at the es parties. at the time
contract. ceases to be main contract but are called as
option of the of
It is enforceable. to collateral contracts with
other or others, formation
enforceab [Sec. 2(j)] transactions as executory
is a voidable of contract
le by law. contract. well. or before. consideration.

Offer and Acceptance
An Offer:
"When one person signifies to another his willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other to such act or abstinence he is said to make a proposal."
Legal rules regarding valid offer:

1. An offer may be express or implied
2. An offer may be specific or general. (Carlill vs Carbolic Smoke Ball Co. [1893])
3. An offer must be made with a view to create legal relationship.
4. Offer must be distinguished from an invitation to offer.
5. An offer must be communicated to the offeree. (Lalman Shukla vs Gauri Dutt)
6. The terms of offer must be certain.
7. An offer may be conditional.
8. An offer must not be "negative" in terms.
9. Two identical cross offers do not make a contract.
Standing offer: A standing offer is a continuous offer. It consists of an offer to supply goods as and
when required during a certain period for a certain price.
Cross Offer: When two persons make an offer to each other on similar terms, without having the
knowledge of the offer being made by the other side, it is known as cross offer. Such cross offer does
not amount to acceptance of one's offer by the other and therefore does not constitute a contract.
Counter Offer: It is necessary that the acceptance must match the offer it must be a mirror image of
the offer. If any alteration is made, or anything added, then this will be a counter offer, and will
terminate the offer. A counter offer is an implied rejection of original offer.
An Acceptance:
A contract emerges from the acceptance of an offer. Section 2(b) states that “A proposal when
accepted becomes a promise" and defines 'acceptance' as "When the person to whom the proposal
is made signifies his assent thereto, the proposal is said to be accepted.” Acceptance converts the
offer into a promise and then it is too late to remove it. Acceptance is to offer what a lighted match
is to a train of gunpowder. It produces something which cannot be recalled or undone.
Legal rules regarding a valid acceptance

1. Acceptance must be absolute and unqualified {Sec. 7(1)}
2. Acceptance must be given only by the person to whom the offer is made.
3. Acceptance may be expressed in words, spoken or written or may be given by conduct. (Carlill vs
Carbolic Smoke Ball Co. [1893])
4. Acceptance must be expressed in some usual and reasonable manner. {Sec. 7(2)}
(a) Acceptance in a prescribed manner. If the offeror prescribes a particular method or type of
acceptance, it should be given in that manner.
(b) Acceptance in usual and reasonable manner if the offeror does not prescribe any particular
method of acceptance in that case according to Sec. 7(2), the acceptance must be expressed in
some usual and reasonable manner.
(c) Consequences of not following the prescribed manner: If the offeree fails to follow the
prescribed mode of acceptance, the offeror may accept or reject such acceptance. If the offeror
wants to reject it, he must inform the acceptor within a reasonable time that he is not bound by
acceptance because it is not in the prescribed manner. If he does not inform the offeree, he is
deemed to have accepted the acceptance although it is not in the desired manner.
5. Acceptance must be communicated by the acceptor. (Pawell v Lee [1908])
6. Acceptance must be given within a reasonable time and before the offer lapses and or is revoked.

7. Acceptance must succeed the offer.

8. Rejected offers can be accepted only, if renewed.
9. Acceptance cannot be presumed from silence.
Communication of Offer and Acceptance

When the contracting parties are face to face and negotiate in person there is instantaneous
communication of offer and acceptance. But where services of the post offices are utilized for
communication the following rules as laid down in sections 4 and 5 will apply.
Communication of offer (Sec. 4): The communication of offer is complete when it comes to the
knowledge of the person to whom it is made.
Communication of acceptance (Sec. 4): The communication of acceptance has two aspects viz., as
against the proposer and as against the acceptor. The communication of an acceptance is complete -
(a) as AGAINST THE PROPOSER, when it is put in a course of transmission to him so as to be out of
the power of the acceptor, and
(b) As AGAINST THE ACCEPTOR, WHEN it comes to the knowledge of the proposer i.e., when the
letter of acceptance is received by the proposer.
Revocation of a proposal (Sec. 5): It may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards. It means that offer can be
revoked at any time before the letter of acceptance is posted by the acceptor.
Revocation of an acceptance (Sec. 5): It may be revoked at any time before the communication of
its acceptance is complete as against the acceptor, but not afterwards. It means that an acceptance
can be revoked at any time before the letter of acceptance is actually received by the proposer.
(Revocation of offer valid)

Revocation of Offer 05 07 09 (Revocation of offer is not
valid)
01 (offer made) 06 (Offer is complete)

Offer
Offeror Acceptor
Acceptance
13 (Acceptance is complete for Acceptor) 08 (Acceptance is complete for Offeror)
Revocation of Acceptance
(Revocation of 14 12 (Revocation of
acceptance is acceptance is
not valid) valid)
 Offeror can revoke the offer at anytime before 8th.

 Acceptor can revoke the acceptance anytime before 13th by communicating the revocation
by speedier means.
An offer lapses or comes to an end (Sec. 6):

(a) If the offeror gives notice of revocation to the other party, i.e., expressly withdraws the offer.

(b) By passage of a stipulated time and if no time is stipulated, it lapses by the expiry of a
reasonable time.
(c) By death or insanity of the offeror if the fact of the death or insanity is known to acceptor.
(d) By failure of the acceptor to fulfill a condition precedent to acceptance.
(e) By counter offer. An offer is revoked if a counter offer is made to it a response to an offer which
introduces new terms or conditions is a counter offer.
(f) By rejection: When an offer is rejected it is dead and cannot be revived by its subsequent
acceptance.
Consideration
Consideration
 According to Pollock "Consideration is the price for which the promise of the other is bought".
Consideration is also defined as an ‘element of exchange in a contract’.
 In the English case, Curie v. Misa (1875), consideration was defined as "some right, interest,
profit or benefit accruing to one party, or some forbearance, detriment loss or responsibility
given, suffered or undertaken by the other". In simple words, consideration is ‘a benefit to one
party or a detriment to the other’.
 Section 2(d) of the Contract Act define consideration as follows:
a) "When, at the desire of the promisor,
b) the promisee or any other person
c) has done or abstained from doing, or does or abstains from doing, or promises to do or to
abstain from doing,
d) something,
e) Such act or abstinence or promise is called a consideration for the promise."
Essentials of Valid Consideration
1. Consideration must move at the desire of the promisor. [Durgaprasad vs. Baldev 1880 3 ALL 221]
[Kedarnath vs. Gorie Mohamed (1886) ILR 14 Cal 64] [Abdul Aziz vs Mazum Ali (1914) 36 ALL. 268]
2. Consideration may move from the promisee or any other person. [Chinnayya vs Ramayya, 4 Mad.
137]
3. Consideration may be an act or abstinence.
4. Consideration may be past, present or future.
5. Consideration need not be adequate.
6. Consideration must be real and not illusory: Instances (cases) of good consideration
- Forbearance to sue; - Compromise of disputed claims
- Composition with creditors - To avoid disputes in future
7. Consideration must not be illegal, immoral or opposed to public policy.
8. Consideration must not be a pre-existing duty.
Exception to the rule of “No Consideration no Contract”

The general rule is “an agreement made without consideration is void” (Sec. 25).
However, sec. 25 also mentions some exceptions to the general rule. These exceptions are given
below:
a. Agreement made on account of natural love and affection [Sec. 25(1)]: Enforceable if
- Made on account of natural love and affection
- Between Parties standing in a near relation to each other
- Expressed in writing and
- Registered under the law

b. Agreement to compensate for past voluntary service [Sec. 25(2)]

- Voluntary services - Legally Compellable duty
c. Agreement to pay a time-barred debt [Sec. 25(3)]: Enforceable if
- Made in writing - Signed by the debtor
d. Completed Gift.
e. Contract of Agency.
f. Bailment: No consideration is necessary in case of a gratuitous bailment. [Sec. 148]
g. Remission: Where a person agrees to receives less than what is due to him, such an agreement is
said to be an agreement of remission. No consideration is required for a contract of remission. [Sec.
63]
h. Guarantee: Under the contract of guarantee, no consideration is received by the surety; even then
the contract of guarantee is valid [Sec. 127].
The doctrine of Privity of Contract

According to the doctrine of privity of contract only a party to a contract is entitled to enforce a right
created by the contract. No one is entitled to or bound by the terms of a contract to which he is not
an original party. A third party (stranger to contract) has no locus standing in a contract; he is
debarred from interfering with the contractual rights or obligations of the parties. Only a person
who is a party to a contract can sue on it. The doctrine of privity of contract prevents imposition of
contractual obligations upon a person without his consent.
Difference between the right of a stranger to a contract and of a stranger to the consideration. A
stranger to a contract, i.e., one who is not a party to it, cannot file a suit to enforce it. But a stranger
to the consideration can sue to enforce it provided that he is a party to the contract.
Exceptions - There are certain exceptions to the rule that a stranger to the contract cannot sue upon
it. They are as follows:
1. Beneficiaries in the case of trust. 2. Family settlement 3. Assignee of contract.
4. Provision for marriage or maintenance. 5. Contracts entered into through an agent.
6. Acknowledgement.
Capacity of Parties
Capacity to Contract
An essential ingredient of a valid contract is that the contracting parties must be 'competent to
contract' (Sec. 10). Section 11 lays down that "Every person is competent to contract who is of the
age of majority according to the law to which he is subject, and who is of sound mind and is not
disqualified from contracting by any law to which he is subject." Thus the following persons are
incompetent to contract.
1. Minors 2. Persons of unsound mind 3. Persons disqualified by law from contracting.
Law Relating to Minor's Agreements

Minor's agreements: The law regarding minor's agreements may be summed up as under:
1. An agreement with a minor is void ab-initio. [Mohiri bibi v Dharmodas Ghose (1903) LR 30 Cal
539.]
2. No restitution: A minor cannot be directed to return benefit obtained under a void agreement
(because section 64 & 65 which deal with restitution do not apply to a minor).
However under the Specific Relief Act, 1963 the Court may, however, in certain cases, while ordering
for the cancellation of an instrument, at the instance of a minor, require the minor plaintiff to make
compensation to the other party to the instrument.

Sr. CASE Restitution

1. General Rule X
2. Minor is a Plaintiff √
2. Minor Misleads the other party √
4. Other Party is himself unscrupulous X
5. Other party is aware about the minority X
3. Minor can be a beneficiary.
4. No ratification: Minor’s agreement cannot be ratified by him on attaining the age of majority, as a
void agreement cannot be made valid by subsequent ratification.
5. The rule of estoppel does not apply to a minor. A minor is not estopped (prevented) from pleading
his infancy in order to avoid a contract, even if he has entered into an agreement by falsely
representing that he was of full age.
6. Minor's liability for necessaries: Minor’s property is liable for the necessaries supplied to him.
7. Specific performance: Since an agreement by a minor is absolutely void, the court will never direct
'specific performance' of such an agreement by him.
8. Minor Partner: A minor being incompetent to contract cannot be a partner in a partnership firm,
but under Section 30 of the Indian partnership Act, he can be admitted to the 'benefits of
partnership' by an agreement executed by his guardian on his behalf, with the consent of all the
partners.
9. Minor Agent: A minor can be an agent (Sec. 184).
10. Minor and insolvency: A minor cannot be adjudicated an insolvent, for, he is incapable of
contracting debts. Even for necessaries supplied to him, he is not personally liable, only his property
is liable (Sec. 68)
11. Minor as a shareholder: A minor can become a shareholder of fully paid of shares through
transfer, if he applies for registration of transfer through his guardian
12. Minor’s parents/guardians are not liable to a minor’s creditor for the breach of contract by a
minor.
Persons of Unsound mind

As per Section 11 of the Contract Act, for a valid contract, it is necessary that each party to it must
have a ‘sound mind'.
What is a 'sound mind'? Section 12 of the Contract Act defines the term 'sound mind' as follows. "A
person is said to be of sound mind for the purpose of making a contract, if, at the time when he
makes it, he is capable of understanding it and of forming a rational judgement as to its effects upon
his interest."
According to this Section, therefore, the person entering into the contract must be a person who
understands what he is doing and is able to form a rational judgement as to what he is about to do,
is to his interest or not.
Section 12 further states that:

(i) "A person who is usually of unsound mind, but occasionally of sound mind, may make a contract
when he is of sound mind." Thus a patient in a lunatic asylum, who is at intervals of sound mind,
may contract during those intervals.
(j) "A person who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind." Thus, a sane man, who is delirious from fever, or who is
so drunk that he cannot understand the terms of a contract, or form a rational judgement as to
its effect on his interest, cannot contract whilst such delirium or drunkenness lasts.

Disqualified Persons
The third type of incompetent persons, as per Section 11, are those who are "disqualified from
contracting by any law to which they are subject." These are:
(a) Alien enemies. (b) Foreign sovereigns and ambassadors. (c) Convict.
(d) Insolvent: He cannot deal in the property those vests in the OR/OA.
(e) Joint-stock company and corporation incorporated under a Special Act. (Like LIC, RBI, etc.) A
company/Corporation is an artificial person created by law. It cannot enter into contracts outside
the powers conferred upon it by its Memorandum of Association or by the provisions of its special
Act, as the case may be.
Free Consent
Consent
Section 13; "Two or more persons are said to consent when they agree upon the same thing in the
same sense".
Free consent
Section 14. Lays down that consent is not free if it is caused by
Coercion Undue Influence Fraud Misrepresentation Mistake

Coercion
Coercion is defined by section 15 of the Act as follows: Coercion is the
i) Committing or threatening to commit, any act forbidden by the Indian Penal Code. or
ii) unlawful detaining, or threatening to detain, any property
iii) to the prejudice of any person whatever
iv) With the intention of causing any person to enter into an agreement.
Explanation - It is immaterial whether the Indian Penal code is or is not in force in the place where the
coercion is employed.
Consequences of coercion: A contract brought about by coercion is voidable at the option of the
party whose consent was so caused [Sec. 19].
Undue influence
A contract is said to be induced by undue influence where
(i) One of the parties is in a position to dominate the will of the other and
(ii) He uses the position to obtain an unfair advantage over the other [Sec. 16(1)].
Section 16(2) provides that a person is presumed to be in a position to dominate the will of another
where.
1. Where he holds a real or apparent authority over the other (For ex- master & servant, ITO &
Assessee)
2. Where he stands in a fiduciary relationship to the other.
3. Where a party makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
Burden of Proof [Section 16(3]: If a party is proved to be in a position to dominate the will of another
and the transaction appears to be unconscionable, the burden that the contract was not induced by
undue influence, lies on the party who was in a position to dominate the will of the other.
There is no presumption of existence of a power to dominate the will of another in the following
cases: (a) Landlord and tenant, (b) Creditor and debtor, (c) Husband and wife. It has been held by
judicial decisions that in all these cases, the party alleging undue influence must prove that undue
influence existed.
Effect of Undue Influence
According to Section 19 of the Contract Act, when a contract is induced by undue influence, it is
voidable at the option of the aggrieved party, i.e., the party whose consent is obtained by undue
influence.
According to Section 19 A, any such contract may be set aside by the Court absolutely. However, if
the aggrieved party has received any benefit there under, it may be set aside upon such terms and
conditions as are just in the eyes of the Court.
Misrepresentation
Misrepresentation arises when the representation made is untrue but the person making it believes
it to be true. There is no intention to deceive.
Section 18 of the Contract Act classifies cases of misrepresentation into three groups as follows:
1. Unwarranted Assertion.
2. Breach of duty. "Any breach of duty, without an intent to deceive, which brings an advantage to
the person committing it, by misleading another to his prejudice ".
3. Innocent Mistake.
Consequences of Misrepresentation. In case of misrepresentation the aggrieved party can:
i) avoid the agreement, or
ii) Insist that the contract be performed and that he shall be put in the position in which he
would have been if the representation made had been true.
But if the party whose consent was caused by misrepresentation had the means of discovering the
truth with ordinary diligence, he has no remedy [Sec. 19].
Fraud
Fraud is a false statement or willful concealment of a material fact with an intent to deceive another
party.
Section 17 of the Contract Act states that "Fraud" means and includes any of the following acts:
1. Deliberate False Statement 2. Active Concealment of fact 3. Intentional non-performance
4. Deception: "Any other act fitted to deceive" 5. Fraudulent act or omission: law specially declares
to be fraudulent"
Note: A deceit which does not deceive is no fraud.
Can Silence be Fraudulent?

1. The general rule is that mere silence is not fraud.
2. Silence is fraudulent, "if the circumstances of the case are such that, regard being had to them, it
is the duty of the person keeping silence to speak".
3. Silence is fraudulent where the circumstances are such that "Silence is in itself equivalent to
speech".
Consequences of Fraud: A party who has been induced to enter into an agreement by fraud has the
following remedies open to him [Sec. 19].
1. He can avoid the performance of the contract.
2. He can insist that the contract shall be performed and that he shall be put in the position in
which he would have been if the representation made had been true.
3. The aggrieved party can sue for damages
CA Shashank Sharma 10 | P a g e
Mistake: Mistake may be defined as an erroneous belief concerning something.

Effect of mistake on validity of a contract
Type of mistake Effect
Mistake of Law
Indian Law (Sec. 21) Contract is not voidable if it is caused by a mistake as to any law in
force in India.
Foreign Law (Sec. 21) Mistake of foreign law is treated as mistake of fact.
Mistake of Fact
Bilateral Mistake(Sec. 20) Agreement is void - if (a) both the parties are under mistake (b) the
fact must be essential to the agreement.
Unilateral Mistake (Sec. 22) Contract is not voidable merely because it was caused by unilateral
mistake of one party. But:
(i) if unilateral mistake prevents the formation of consent then the agreement is void.
(ii) If unilateral mistake is caused by fraud, coercion etc. then the agreement is voidable.
Void Agreements
Unlawful Agreements
According to Sec. 23, the consideration or the object of an agreement is unlawful in following cases:
1. If it is forbidden by law.
For example, carrying on money lending business without registration and license under any
Money Lenders Act, trafficking in humans involving sale of a woman
2. If it is of such a nature that, if permitted, it would defeat the provisions of any law.
For example, where A promises B to drop a prosecution which he has instituted against B for
robbery and B promises to restore the value of things taken. The agreement is void, as its object
is unlawful.
3. If it is fraudulent.
For example, A, B, and C entered into an agreement for division among them of gains acquired, or
to be acquired by them fraudulently. The agreement is void, as its object is unlawful.
4. If it involves or implies injury to the person or property of other.
For example, an agreement to assault or beat a person or to deceive him or to publish a libel
against him being injurious to another is void.
5. If the court regards it as immoral.
For example, contracts to let house for gambling purposes or for the purposes of brothel,
contracts facilitating divorce are void on the ground that the object is immoral.
6. If the court regards it as opposed to public policy.
For example, Agreements-
- for trading with the enemy - for stifling prosecution
- of champerty and maintenance - interfering with the course of justice
- for marriage brokerage obligation - tending to create interest against
- for sale of public office, title, - tending to create monopolies
appointments
- not to bid - restraining personal liberty
- in restrain to parental rights - interfering with marital duties
- to influence public servants to act - in restraint of marriage
opposed to their duty
- in restraint of trade - in restraint of legal proceedings
Every agreement of which the object or consideration is unlawful is void.

An agreement in restraint of trade is void. The exceptions to the rule are
A. Statutory Exceptions:
(a) Sale of goodwill (Sec. 27): The seller of the goodwill of a business can be restrained from carrying
on
(1) A similar business
(2) Within specified local limits,
(3) So long as the buyer or his successor in interest carries on a similar business provided
(4) The restraint is reasonable in point of time and place.
(b) Partners’ Agreements (Exceptions given in the Partnership Act)
(i) Partner's competing business: (ii) Rights of outgoing partner: (iii) Partner's similar business on
dissolution:
(iv) An agreement between any partner and the buyer of the firm's goodwill that such partner will
not carry on any business similar to that of the firm within a specified period or within specified local
limits provided the restrictions imposed are reasonable (sec.55(3)Partnership Act)
B. Legal decisions
(i) Trade Combinations: (ii) Negative stipulations in service agreements:
(iii) Sole Selling Agent’s Agreement:
Agreements in restraint of legal proceedings (Sec.28).

Section 28 declares void 3 types of agreements which restraint the parties to the contract to take
recourse to legal proceedings -
I) Agreements which oust jurisdiction of courts in trying the legal dispute.
ii) Agreements which curtail the period of limitation and prescribe a shorter period than that
prescribed by law.
iii) Agreements which provide for forfeiture / waiver / extinguishment of the legal right itself, if no
action is commenced within the period stipulated by the agreement. (Amended by Indian Contract
(Amendment) Act 1996 effective from 8.1.97).
Certain exceptions to the above rule may be noted:

(i) Agreement to refer present disputes to arbitration
(ii) Agreement to refer past & future disputes to arbitration
Agreements the meaning of which is uncertain (Sec. 29): An agreement, the meaning of which is
not certain, is void, but where the meaning thereof is capable of being made certain, the agreement
is valid.
Agreements by way of wager (Sec. 30):

A wager is an agreement by which money is payable by one person to another on the happening or
non-happening of future uncertain event.
EXCEPTIONS: It has been held that the following transactions are not wagers:
(i) Shares. Share market transactions in which there is clear intention to give and take delivery
share.
(ii) Games of skill. Prizes and competitions which are games of skill, e.g. picture puzzles, athletic
competitions etc.
(iii) A statutory exception. An agreement to contribute to the payment of a prize of the value of Rs.
500 or upwards to the winners of a horse race, is valid. This is statutory exception laid down in
sec. 30 of the Contract Act.
(iv) Contract of Insurance. A contract of insurance is not a wagering agreement.
The effects of a wagering agreement: An agreement by way of wager is void. It will not be enforced
by the courts of law. In the State of Maharashtra and of Gujarat wagering agreement are, by a local
stature, not only void but also illegal.
Lottery agreements: The Supreme Court in H Anroj Vs. Government of Tamil Nadu upheld lotteries
with a prior permission of the Government as legal thereby conferring upon the winner of the
lottery a right to receive the prize subject to payment of sales tax.
Speculative transactions: Though wagering transactions are void, speculative transactions are
generally valid. It is, however, sometimes difficult to distinguish between a speculative transaction
and a wagering transaction. A speculative transaction essentially, must have two elements, namely,
(1) mutual intention of the contracting parties to acquire or deliver, as the case may be, the
commodities; and
(2) The undertaking of risk arising from movement in prices. A wager, on the other hand, postulates
only the incurring of risk.
Agreement By Way of Wager

States Maharashtra and Gujarat Other States
Main agreement is- Illegal (and hence Void) Void (but not Illegal)
Collateral to main agreement Illegal (and hence Void) Valid
Contingent and Quasi Contracts

Contingent Contracts: Definition
"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]. Contracts of insurance, indemnity and guarantee are
examples of contingent contract. The performance of contingent contract is due only on the
happening or non-happening in future of some uncertain event collateral to the contract.
Rules regarding contingent contracts: Sections 32 to 36 of the Contract Act contain certain rules
regarding contingent contract, they are summarized below:
Rules regarding contingent contract
1) Dependent on a future uncertain event, enforceable, when that event happens.
2) Dependent on non-happening of an uncertain future event, enforceable, when that event
does not happen.
3) Dependent on the happening of an event within a fixed time, enforceable, if the event
happens within that time.
4) Dependent on the non-happening of an event within a fixed time, enforceable, if the event
does not happen within that time.
5) Dependent on the conduct of a person acting in a particular way, enforceable, if that person
acts in that way.
6) Dependent on an impossible event, is void ab-initio.
Quasi contract
The term ‘Quasi' means ‘as if’ or ‘similar to’. A quasi-contract is similar to a contract. Just like a
contract it also creates legal obligations. But the legal obligations created by quasi contract do not
rest on any agreement but are imposed by law. It is therefore, contractual in law, but not in fact.
A Quasi Contract can be defined as a fictional contractual obligation created by law, in certain
circumstances. (In the absence any mutual agreement between the parties.)
In reality it is not a contract since the essential elements of contract like offer and acceptance, lawful
consideration etc. are not present. It is an obligation which the law creates in the absence of any
agreement.
The Indian Contract Act describes quasi contract as ‘certain relations resembling those created by
contracts'.
Basis of quasi-contract
Quasi contracts are based on principles of equity, justice and good conscience. They aim at
prevention of "unjust enrichment" i.e. no man shall be allowed to enrich himself at the cost of
another.
Another theory regarding the judicial basis of such contract is that it is implied, notional or fictional
contract imputed by law out of equitable considerations.
Types of quasi-contracts
Sections 68 to 72 of the Contract Act deals with five different types of quasi contracts. In each of
these cases there is no real contract between the parties, but due to peculiar circumstances in which
they are placed, the law imposes in each of these cases a contractual liability.
a) Claim for necessaries supplied to persons incapable of contracting (Sec. 68): If necessaries
are supplied to a person who is incapable of contracting, e.g., a minor or a person of unsound
mind, the supplier is entitled to claim their price from the property of such a person.
b) Right to recover money paid for another person (Sec. 69):
A person who has paid a sum of money which another is obliged to pay, is entitled to be
reimbursed by that other person provided the payment has been made by him to protect his own
interest.
c) Obligation of a person enjoying benefits of non-gratuitous act (Sec. 70):
"Where a person lawfully does anything for another person, or delivers anything to him not
intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is
bound to make compensation to the former in respect of, or to restore, the thing so done or
delivered".
It thus follows that for a suit to succeed, the plaintiff must prove:
i) That he had done the act or had delivered the thing lawfully,
ii) That he did not do so gratuitously, and
iii) That the other person enjoyed the benefit.
d) Responsibility of a finder of goods (Sec. 71):
"A person who finds goods belonging to another and takes them into his custody, is subject to the
same responsibility as a bailee."
Conditions
 A person who finds goods and takes possession of it is responsible as a bailee.
 That is, he is liable - to try and find out the true owner and - to take due care of
the property
 Finder is entitled to a lien until paid compensation, but cannot file a suit to recover such
compensation.
 Finder is entitled to possession against all except the true owner.
 When owner declares reward, finder can sue for reward.
 Right of re-sale: If the owner is not found or if he refuses to pay lawful charges, the finder
may sell-
 When the thing is in danger of perishing or losing the greater part of its value.
 When the lawful charges amount to two-thirds of its value.
e) Liability for money paid or thing delivered by mistake or under coercion (Sec. 72):
"A person to whom money has been paid, or anything delivered by mistake or under coercion
must repay or return it"
Performance Contracts
Performance: A contract creates legal obligations. "Performance of a contract" means the carrying
out of these obligations. Each party must perform or offer to perform the promise which he has
made (Sec. 37). There may be an actual performance of an attempted performance. An attempted
performance is also known as an offer to perform or a tender.
Essentials of a valid tender (Offer of Performance): A valid tender or offer of performance must
fulfil the following conditions (Sec. 38):
1. It must be unconditional.
2. It must be made at proper time and place,
3. If the tender relates to delivery of goods, it must give a reasonable opportunity to the promisee
for inspection of goods so that he may be sure that the goods tendered are of contract
description.
4. It must be made by a person who is in a position and is willing to perform the promise.
5. If there are several joint promisees, an offer to any one of them is a valid tender.
6. In case of tender of money, exact amount should be tendered in the legal tender money.
Effect of the refusal of a party to perform the promise wholly (Sec. 39): When a party to a contract
has refused to perform or disables himself from performing his promise in its entirety, the promisee
may put an end to the contract, unless he has signified by his words or conduct, his acquiescence in
its continuance.
A Contract can be performed by (Secs. 40 & 41)

1. Promisor himself- if that was the intention of the parties, i.e. where personal consideration is the
foundation of the contract (Sec. 40).
2. Agent- Where personal consideration is not the foundation of contract, the promisor or his
representatives may employ a competent person to perform the contract (Sec. 40).
3. Legal representatives- In case of death of the promisor, where personal skill is not involved in a
contract, and the legal representatives of a deceased promisor are bound to perform the
contract entered into by him.
4. Joint promisors- When there are more than one promisor.
5. Third person: When a promisee accepts a performance of the promise from a third person, he
cannot afterwards enforce it against the promisor (Sec. 41).
The performance can be demanded by:
- Promisee - Agent - Legal Representative -Joint Promises
When contracts need not be performed?

Sections 62 to 67 of the Contract Act are listed under the heading "Contracts which need not be
performed". The relevant provisions are as follows:
1. If the parties to the contract agree to substitute a new contract for it or to rescind or alter it,
the original contract need not be performed. (Sec. 62).
2. If the promisee dispenses with or remits wholly or in part, the performance of promise made to
him for extends the time for such performance or accepts in satisfaction for it, the contract need
not be performed. (Sec. 63)
3. When a voidable contract is rescinded, the other party need not perform his promise. (Sec. 64)
4. "If the promisee neglects or refuses to afford the promisor reasonable facilities for the
performance of his promise, the promisor is excused by such neglect or refusal as to any non-
performance caused thereby". (Sec. 67).
Devolution of joint liabilities & joint rights (Secs. 42 to 45)

When two or more persons have made a joint promise, then, all such persons during their joint lives,
and, after the death of any of them, his representatives jointly with the survivors and after the death
of the last survivor, the representatives of all jointly, must fulfill the promise. The promisee may
compel any of such joint promisors to perform the whole of the promise. He may even release any
of the joint promisor from performing the promise. However, each promisor may compel
contribution for the same. In case of default of in contribution, the joint promisors must bear the
loss in equal proportion. Further, once the release is granted, the promisee will not be able to file a
suit against the released joint promisor.
Similarly, when a person has made a promise to two or more persons jointly, then, the right to claim
performance rests, as between them with them during their joint lives, and, after the death of any of
them, with the representatives of such deceased person jointly with the survivors, and after the
death of the last survivor, with the representatives of all jointly.
Time and place of performance:

Time and place of performance of a contract are matters to be determined by agreement between
the parties themselves. If there is no such agreement, then provisions of sections 46 to 50 apply.
1. Where no time for performance is specified, the promisor must perform the promise within a
reasonable time (Sec 46).
2. When a promise is to be performed on a certain day, the promisor may perform it at any time
during the usual hours of business on such day and at the place at which the promise ought to be
performed (Sec. 47)
3. If no time and place is fixed for the performance of the promise, the promisor must apply to the
promisee to fix the day and time for performance (Secs. 48 & 49)
4. According to Sec. 50 the performance of any promisee may be made in any manner or at any
time which the promisee prescribes or sanctions.
Time And Place of Performance
Specified Not Specified Specified Not Specified
The Promisor shall apply Promisor shall apply

Performance shall be at for the day and time for the place of
such specified time performance
If fixed If fixed
Fails to ask Fails to ask
Duty of promisee to
If a day is specified fix the place of
then Performance performance
shall be during the Performance
Performance
usual hours of such shall be at a If Fixed Promisee fails
shall be at such
business reasonable time and place is
specified place
Not Important Important
Performance should be Need not

at promisor’s place Perform
Reciprocal promises (Sec. 51 to 54 and 57): According to Sec. 2(f) promises which form the
consideration or part of the consideration for each other, are called reciprocal promises. Such
promises are mutual promises, (a promise for a promise).
Rules regarding performance of reciprocal promises (Sec. 51 to 54):
1 When reciprocal promises have to be simultaneously performed the promisor is not bound to
perform, unless the promisee is ready and willing to perform his promise. (Sec. 51)
2 The reciprocal promises must be performed in the order fixed by the contract. (Sec. 52)
3 If one party prevents the other party from performing his reciprocal promise, the contract
become voidable and the party so prevented can claim compensation. (Sec. 53)
4 Where the nature of reciprocal promises is such that one cannot be performed unless the other
party performs his promise in the first place, then if the latter fails to perform he cannot claim
performance from the other, but must make compensation to the first party for his loss.(Sec. 54)
5 Reciprocal promise to do things legal and also things illegal - The first is a contract, but the latter
is a void agreement. (Sec. 57)
Time as the essence of contract:

The phrase “time as the essence of the contract” means that performance within time is the most
vital condition of the contract. If time is the essence of the contract then the other party can avoid
the contract and if it is not, the other party cannot avoid the contract.
Whether time is of the essence of the contract, depends upon i) The intention of the parties ii)
Nature of the transaction iii) The terms of the contract i.e. if the parties to the contract have
expressly agreed that performance within a limited time was necessary.
Effects of failure to perform a contract within the stipulated time: Sec. 55
1. Where "time is of the essence of the contract" and there is failure to perform within the fixed
time, the contract (or so much of it as remains unperformed) becomes voidable at the option of
the promisee. He may rescind the contract and sue for the breach.
2. Where "time is not of the essence of the contract", failure to perform within the specified time
does not make the contract voidable. It means that in such a case the promisee cannot rescind
the contract and he will have to accept the delayed performance. But he would be entitled to
claim compensation from the promisor for any loss caused to him by the delay. This rule is,
however, subject to the condition that the promisor should not delay the performance beyond a
reasonable time, otherwise the contract will become voidable at the option of the promisee.
3. In case of a contract voidable on account of the promisor's failure to perform his promise
within the agreed time or within a reasonable time, as the case may be, and if the promisee,
instead of rescinding the contract, accepts the delayed performance, he cannot afterwards claim
compensation for any loss caused by the delay, unless, at the time of accepting the delayed
performance, he gives notice to the promisor of his intention to do so.
Appropriation of payments:
Appropriation of payment means the application of payment by a creditor to the discharge of same
particular debt. When money is paid, it must be applied according to the rule of the payer and not
the receiver. Appropriation is a right primarily of the debtor and for his benefit. Section 59 to 61 lays
down 3 rules regarding appropriation of payments.
1. If the debtor indicates (Sec. 59): it should be applied as per debtor’s instructions. If there are
no clear instructions from the debtor but the circumstances of the case imply, then the accepted
payment must be applied accordingly.
2. If the debt to be discharged is not indicated (Sec. 60): If the debtor does not indicate, then the
creditor may apply the payment at his discretion to any lawful debt. He cannot, however, apply
the payment to a disputed or unlawful debt, but he may apply it to a debt which is barred by the
law of limitation.
3. Where the debtor does not intimate and the creditor fails to appropriate (Sec. 61): The
payment shall be applied in discharge of the debts in order of time. If the debts are of the same
date, the payment shall be applied in discharge of each proportionately.
Assignment of contract:
Definition: Assignment means transfer. The rights and liabilities of a party to a contract can be
assigned under certain circumstances. Assignment may occur (i) by act of parties or (ii) by operation
of law.
Distinction between succession and assignment
(i) Succession is caused by an operation of law whereas assignment is the result of a deliberate
action of an interested person.
(ii) Succession transfers to the successor both the rights and the liabilities of the deceased to the
successor. The amount of liability falling on the successor cannot be more than the assets inherited
by him. But, in case of assignment, only that thing gets transferred which is desired by the assignor.
Discharge of Contracts
Methods of termination of contract

When the obligations created by a contract come to an end, the contract is said to be discharged or
terminated. A contract may be discharged or terminated in any of the following ways:
1. Discharge by performance:
2. Discharge by attempted performance:
3. Discharge by mutual agreement: It may occur in any one of the following ways:
 NOVATION: Novation occurs when a new contract is substituted for an existing contract
either between the same parties or between different parties.
 ALTERATION: Alteration of a contract means change in one or more of the terms of a
contract. Alteration is valid if it is done with the consent of all the parties to the contract.
 REMISSION: Remission means acceptance of lesser amount, or lesser degree of performance
than what was contracted for in full discharge of the contract.
 RESCISSION: Rescission occurs when the parties to a contract agree to dissolve the contract.
In the case of rescission only the old contract is cancelled and no new contract comes to
exist in its place. The parties come out of the contract by mutual agreement.
 WAIVER: Waiver means the abandonment of a right. A party to a contract may relinquish
(waive) his rights under the contract. Thereupon the other party is released from his
obligations.
 MERGER: When a superior right and an inferior right coincide and meet in one and the same
person, the inferior right vanishes into the superior right. This is known as merger.
4. Discharge by breach of contract: When a contract is broken by one party the other party or
parties are freed from the obligation of performing the contract. The can also take the remedial
measures to which they are entitled. Breach of contract may arise in two ways:
(i) By actual breach or present breach. (ii) By anticipatory breach:
Actual breach of contract: Actual breach of contract occurs when during the performance of the
contract or at the time when the performance of the contract is due; one party either fails or refuses
to perform his obligations under the contract.
Anticipatory breach of contract (Sec. 39): Anticipatory breach of contract may occur:
 when a party before the time for performance is due announces that he is not going to perform
the contract or
 when a party by his own act disables himself from performing the contract.
5 15 20 30 1000Kgs of Sugar
B S @ Rs. 50 per kg.
Rs. 50 Rs. 55 Rs. 65
Anticipatory Breach (Informs or disables himself) Actual Breach

(Express or Implied)
May consider as discharged May wait till the date of performance

(Cancel & Claim Damages)
Damage = [(55-50)*1000] = Rs. 5000
Performed Impossible to perform Breach
(No Damages) (No Damages) (Can claim Damages)
Damage = [(65-50)*1000] = Rs. 15000
[Frost vs. Knight (1872) LR 7 Ex. 111]
Discharge by operation of law
A contract terminates by operation of law in case of death insolvency, and merger.
-Death -Insolvency -Merger -Lapse of time -Unauthorized material alteration:
Impossibility of performance
Pre-contractual Impossibility: A contract which at the time was entered into was impossible to
perform, is void ab-initio and creates no rights and obligations. Sec. 56 (1) states that "An agreement
to do an act impossible in itself is void”
Post-contractual Impossibility: A contract, which at the time was entered into, was capable of being
performed may subsequently become impossible to perform or unlawful. In such cases the contract
becomes void. This is known as the doctrine of Supervening Impossibility. It is also known as the
Doctrine of Frustration. Frustration occurs where it is established that due to subsequent change in
circumstances, the contract has become impossible to perform or it has been deprived of its
commercial purpose.
IMPOSSIBILITY OF PERFORMANCE
Pre Contractual Impossibility Post Contractual Impossibility
At the time of entering into an agreement Arises after the contract is entered into
(Therefore it is a void agreement) (Subsequent Impossibility or Supervening Impossibility)
(Doctrine of Frustration)
Parties Were Aware Parties were not aware Only Promisor was aware
Contract was valid in the

beginning but becomes void
later
Destruction of Change of Law Failure of Death or Incapacity Outbreak of War

Subject matter Preconditions for personal services
Grounds of Frustration: Supervening impossibility may occur in many ways, some of which are
explained below:
1. Destruction of the subject matter of contract: On the destruction of the subject matter, a
contract is discharged and no party is liable to perform.
2. Change of Law: The performance of a contract may become unlawful by a subsequent change of
law. In such cases, the original contract becomes void.
3. Failure of pre-conditions: When a contract is entered into on the basis of the continued
existence of a certain state of things, the contract is discharged if the state of things changes.
4. Death or incapacity for personal services: Where the personal qualification of a party is the basis
of the contract the contract is discharged in cases of death or personal incapacity.
5. Outbreak of war: A contract entered into during war with an alien enemy is void ab-initio. A
contract entered into before the war commenced between citizens of countries subsequently at
war, remains suspended during the pendency of the war. After the termination of the war, the
contract revives and may be enforced.
Exceptions: Impossibility of performance is, as a rule, not an excuse from performance. Only physical
or legal impossibility will excuse the parties. The performance of the contract should have become
impossible due to any of the circumstances mentioned above. The doctrine of frustration or
supervening impossibility does not apply in the following cases. i.e. in these cases the contract is not
discharged.
1. Difficulty of performance. Difficulty does not excuse performance of contract.
2. Commercial Impossibility. The performance of contract cannot be excused on the ground that it
is not profitable to perform the contract..
3. Strikes, lock-outs, civil disturbances and riots. These events do not terminate contracts unless
there is a clause in the contract providing that in such cases the contract is not be performed or
that the time of performance is to be extended.
5. Failure of one of the objects: When there are several purposes for which a contract is entered
into, failure of one of the objects does not terminate the contract.
Doctrine of frustration when the common object of a contract can no longer be carried out, the
court may declare the contract to be at an end. This is known as the Doctrine of frustration. Grounds
of frustration of contract and supervening impossibility are similar.
The effect of frustration – Frustration automatically discharges a contract from the date of the
frustrating event.
Remedies for breach of contract
I. Rescission of the contract
II. Suit for damages: Damages are the monetary compensation allowed by a court of law to the
aggrieved party for the loss or injury suffered by him. The loss or injury suffered is known as damage.
This is the difference between "Damage" and "Damages". The foundation of modern law of damages
in India is based on the judgement in a case of Hadley vs. Baxendale (1854) 9E. 341, and is
incorporated in Sec. 73 of the Indian Contract Act.
Compensation for loss or damage caused by breach of contract: (Sec. 73)

"When a contract has been broken, the party who suffers by such breach is entitled to receive, from
the party who has broken the contract, compensation for any loss or damage caused to him thereby,
which naturally arose in usual course of things from such breach, or which the parties knew, when
they made the contract to be likely to result from the breach of it."
Such compensation is not to be given for any remote and indirect loss or damage sustained by
reason of the breach".
 Nature: Damages under the Contract Act are not granted by way of punishment. They are
compensatory in nature.
 If there is no damage, damages cannot be claimed.
RULES
1. Ordinary damages are recoverable: Ordinary damages are those which naturally arise in the
usual course of things from such breach. They are the natural and probable consequence of the
breach, which the aggrieved party suffering can recover from the defaulting party.
2. Special damages are recoverable only if the parties knew about them: Apart from ordinary
damages, special damages can also be claimed. Special damages are those which result from a
breach of contract under some special or unusual circumstances which are in the knowledge of
the parties at the time of making the contract.
3. Remote or indirect damages are not recoverable: Damages cannot be claimed for any remote
or indirect loss or damage sustained by reason of the breach. Remote damages are those which
are not reasonably foreseeable.
Nominal damages for no loss suffered: Where the injured party has not in fact suffered any loss by
reason of the breach of a contract, the damages recoverable by him are nominal, i.e., very small. For
example: a rupee or cent.
Vindictive or exemplary damages: Damages for breach of contract are given by way of
compensation for loss suffered, and not by way of punishment for wrong inflicted. Hence,
’vindictive' or ‘exemplary' damages have no place in the law of contract because they are punitive by
nature. But in case of (a) breach of a promise to marry, and (b) dishonour of a cheque by a banker
wrongfully when he possesses sufficient funds to the credit of the customer, the Court may award
exemplary damages.
4. Such damages are also payable in case of breach of a quasi contract too.
5. It is the duty of the injured party to minimize the damage suffered.
6. The injured party is entitled to get the costs of getting the decree for damages from the
defaulter party.
7. Liquidated Damages and Penalty:
 Liquidated Damages: Where the party fixes a genuine pre-estimate of the probable damage, it is
called liquated damages. Liquated damages are pre determined damages agreed at the time of
contract, which are considered reasonable by both the parties. It is a genuine estimate of the
actual loss or damage likely to be suffered by the aggrieved party.
 Penalty: Where the sum fixed before hand for the breach of contract does not bear the
relationship to the actual damage which the aggrieved party is likely to suffer in the event of
actual breach of contract, it is called penalty. Such an amount acts as a deterrent from
committing a breach of contract. It is fixed by way of punishment and as a threat. A penalty will
not be enforced by the Court.
In India, the distinction between liquidated damages and penalty is not recognized. Sec. 74 of the
Contract Act which deals with predetermined damages lays down that if the parties have fixed what
the damages will be, the courts will never allow more. But the court may allow less. A decree is to
be passed only for reasonable compensation, not exceeding the sum named by the parties.
Thus, section 74 makes no distinction between a liquidated damages and penalty and the aggrieved
party is entitled to reasonable compensation not exceeding the amount so named, regardless
whether it is penalty or not.
 Under section 73, the actual loss or damage has to be proved but under section 74, the proof of
actual loss or damage is not essential.
III. Suit for specific performance of the contract

There are cases where the damage or loss suffered cannot be measured in terms of money. The
court, may, in such cases where the ordinary remedy by a claim for damages is not adequate
compensation, direct the defaulting party to perform the contract specifically (Under Sec.12 of the
Specific Relief Act, 1963). Specific performance is an order of the Court directing the defendant to
fulfil his obligations under the contract. Specific performance is a discretionary remedy and is only
available where damages are not an adequate remedy.
IV. Suit for an injunction

‘Injunction' is an order of a court restraining a person from doing a particular act. It is a mode of
securing the specific performance of the negative terms of the contract. To put it differently, where
a party is in breach of a negative term of the contract (i.e., where he is doing something which he
promised not to do), the court may, by issuing an injunction, restrain him from doing what he
promised not do so. Thus ‘injunction' is a preventive relief.
V. Suit for quantum meruit

Quantum Meruit means ‘as much as merits' or ‘as much as deserves or earns'. In legal sense, it
means ‘payment in proportion to the work done'. In other words, quantum meruit means that a
person can recover compensation in proportion to the work done or service rendered by him.
The claim on quantum meruit arises in the following cases:-
1. Where there is breach of the contract
2. When an agreement is discovered to be void
3. When something has been done non-gratuitously
4. When the contract is divisible and the defaulting party performs a part of it
5. When the indivisible contract is performed completely but badly
2. Sale of goods Act 1930
Unit 1. Formation of Contract of sale
What is a Contract of Sec. 4(1) of the Sale of Goods Act defines a contract of sale of goods as -“a
Sale? contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price”.
A contract of sale of goods, like any other contract, results by an offer by
one party and its acceptance by the other. The parties are free to decide
the terms and conditions of performance of their contract. Wherever the
contract is silent, rules provided by the Sale of Goods Act apply to the
relevant issue.
Sale & Agreement to Sale: Where under a contract of sale the property in the goods (i.e. the
Sell ownership) is transferred from the seller to the buyer the contract is called
a sale. Sec 4(3). The transaction is a sale even though the price is payable at
a later date or delivery is to be given in the future, provided the ownership
of the goods is transferred from the seller to the buyer.
Agreement to sell: When the transfer of ownership is to take place at a
future time or subject to some condition to be fulfilled later, the contract is
called an agreement to sell. Sec 4(3).
When an agreement An agreement to sell becomes a sale when the prescribed time elapses or
to sell becomes a the conditions, subject to which the property in the goods is to be
sale? transferred, are fulfilled. Sec. 4(4).
Formalities of A contract of sale is formed by offer and acceptance. There is an offer to
contract of sale (sec 5) sell or buy goods for a price and the acceptance of such an offer.
- The contract shall provide for delivery of goods. Delivery may be
immediate, simultaneous, by instalments or in future.
- The contract shall provide for payment of price. Payment of price may
be immediate, simultaneous, by instalments or in future.
Goods: Subject Matter Goods means-
of Contract of Sale every kind of movable property
Other than actionable claims and money.
and includes - stock and shares, growing crops, grass, and things attached
to or forming part of the land which are agreed to be severed before sale
or under the contract of sale. Section 2 (7).
Actionable claim means a right to a debt or to any beneficial interest in
movable property not in the possession of the claimant, which can be
recovered by a suit or legal action. Money means the legal tender or
currency of the country and It does not include old coins and foreign
currency.
Classification of 1. Existing goods- As per Section 6(1) of the Sale of Goods Act, existing
Goods: goods are those which are owned or possessed by the seller at the time
of contract of sale The existing goods may be of the following kinds:
(a) Specific goods- The goods which are identified and agreed upon at the
time when the contract of sale is made, are called `specific goods’ (Section
2(14). For example, a Videocon washing machine, a specified and finally
decided car or scooter etc.
(b) Ascertained goods- The term àscertained goods’ is not defined in the
Sale of Goods Act but has been judicially interpreted. Ascertained goods
are those goods which are identified in accordance with the agreement
after the contract of sale is made. When out of a large number or large
quantity of unascertained goods, the number or quantity contracted for is
identified and set aside for such contract, such number or quantity is said
to be àscertained goods’.
(c) Unascertained goods- The goods which are not specifically identified
and agreed upon at the time when the contract of sale is made, are called
‘unascertained goods’.
2. Future goods- Those goods which are yet to be manufactured or
produced or acquired by the seller after the making of the contract of sale,
are called `future goods’. Sec 2(6).
3. Contingent goods- As per section 6(2) of the Act, contingent goods are
those goods the acquisition of which by the seller depends upon a
contingency (uncertain event) which may or may not happen.
Effect of Destruction 1. Goods perishing before making the contract (section-7)
or Perishing of Goods: - Where specific goods had perished or become damaged
- before the contract was made
- Without the knowledge of the seller, the contract is void.
2. Goods perishing before sale but after agreement to sell (section 8)
- Where specific goods had perished or became damaged
- without the fault of seller or buyer
- after the agreement to sell is made and before the risk passes to the
buyer
- The contract becomes void.
Price: Price is an essential condition of a contract of sale of goods. According to
Section 2 (10), price is the money consideration for a sale of goods. Money
means legal tender money in circulation. Old and rare coins are not
included in the definition of money.
How is the price of the goods ascertained? Section 9 provides 4 modes of
ascertainment of price. The price in a contract of sale may be -
a) fixed by the contract
b) May be left to be fixed in an agreed manner (such as market price or
fixation of price by a third party).
c) May be determined by the course of dealings between parties. (Such as
manufacturing cost, market price).
A reasonable price (if price cannot be fixed in accordance with the above
provisions.
Consequence of Non- a. The parties may agree to sell and buy goods on the terms that the price
Fixation of Price by is to be fixed by the valuation of a third party. If such third party fails to
Third Party (section make the valuation the contract becomes void.
10) b. However, if the buyer has received and appropriated the goods or any
part thereof, he becomes bound to pay reasonable price.
c. If the third party is prevented from making the valuation by the fault of
the seller or the buyer, the innocent party may maintain suit for
damages against the party in fault.
Stipulations regarding In a contract of sale, stipulations as to time may be of two kinds:
payment of price (sec. - Stipulations relating to time of payment, and
11) - Stipulations not relating to time of payment, for e.g. relating to time of
delivery of goods
Unit 2. Conditions and Warranties

Condition: A condition is a stipulation essential to the main purpose of the contract,
the breach of which gives rise to a right to treat the contract as repudiated.
Sec-12 (2).
Warranty: A warranty is stipulation collateral to the main purpose of the contract, the
breach of which gives rise to claim for damages but not a right to reject the
goods and treat the contract as repudiated - Sec.12 (3).
When a condition can 1. Voluntary waiver of a condition: sec 13(1) Where a contract of sale is
be treated as a subject to a condition to be fulfilled by the seller, the buyer may -
warranty: a. Waive the condition, for example a buyer may accept defective
goods or accept goods beyond stipulated time.
b. Elect to treat a breach of condition as a breach of warranty, i.e.
instead of repudiating the contract he may accept performance
and sue for damages, if he has suffered any. - Sec. 13(1).
2. Compulsory waiver of a condition: sec 13(2) Where a contract of sale
is not severable (i.e. indivisible) and the buyer has accepted the goods
or a part thereof, he cannot repudiate the contract but can only sue for
damages. In such a case, the breach of condition can only be treated as
a breach of warranty, unless there is a contract to the contrary. -Sec.13
(2).
Implied Conditions and Warranties: A stipulation (or term) in a contract of sale of goods may be
Implied conditions: express or implied. Express terms are those which have been
- As to Title (Sec. 14) expressly agreed upon by the parties. Implied terms are those
- As to Description (Sec. 15) which have been enacted in the Sale of Goods Act.
- As to Sample as well as by Section 14 to 17 of the Act contain a list of conditions and
description (Sec. 15) warranties which are implied in a contract for the sale of
- As to Quality or Fitness (Sec. goods, unless the circumstances of the contract are such as to
16(1)) show a different intention. The implied conditions and
- As to Merchantability (Sec. warrants are stated below:
16(2))
- As to Sample (Sec. 17)
- As to Wholesomeness
Implied condition as to title: (sec There is an implied condition on the part of the seller that, in
14) the case of a sale he has the right to sell the goods, and in the
case of an agreement to sell, he will have the right to sell the
goods at the time when the property is to pass.
Implied condition in a sale by Where there is a contract for the sale of goods by description,
description: (Sec 15) there is an implied condition that the goods shall correspond
with the description.
Implied condition in a sale by When goods are sold by sample as well as by description, the
sample as well as by description: goods shall correspond both with the sample and with the
(Sec. 15) description.
Implied condition as to fitness or The general rule is, there is no implied condition as to
quality: Sec.16 (1) quality or fitness for the purpose of the buyer. This is based
on the doctrine of “caveat emptor” that is, let the buyer
beware. It means that while buying the goods, it is the
responsibility of the buyer to check that the goods he is
buying would suit his purpose or not. However, in the
following situation, the responsibility as to fitness of goods
falls upon the seller:
a. where the buyer, expressly or by implication, makes
known to the seller the particular purpose for which
the goods are required,
b. so as to show that the buyer relies on the seller’s skill,
or judgement, and
c. The goods are of a description which it is in the course
of the seller’s business to supply (whether he is the
manufacturer or not, there is an implied condition that
the goods shall be reasonably fit for such purpose.
Sale under patent or trade name. Proviso to section 16(1) lays down that in the case of a
contract for the sale of a specified article under its patent
or other trade name, there is no implied condition as to its
fitness for any particular purpose. It is so because in such a
case the buyer is not relying on the skill and judgement of
the seller but relies on the patent name.
Implied condition as to Where goods are brought by description from a seller who
merchantability: Sec. 16(2) deals in goods of that description, there is an implied
condition that goods shall be of merchantable quality.
Merchantable means that the goods are commercially
saleable and that they are fit for the purpose for which
they are generally used.
Implied condition in a sale by sample: When goods are to be supplied according to a sample
(Sec. 17) agreed upon, the following conditions are implied:
a) The bulk shall correspond with the sample in quality.
b) The buyer shall have a reasonable opportunity of
comparing the goods with the sample.
c) The goods shall be free from any latent defect
Implied warranties In the absence of an agreement to the contrary, the
following warranties are implied in every contract of sale:
1) The buyer must get quiet possession: Sec. 14(b). The
buyer shall have and enjoy quiet possession of the goods.
2) The goods must be free from encumbrance: Sec.14(c).
There is an implied warranty that the goods shall be free
from any charge or encumbrance in favour of a third party
not declared or known to the buyer before or at the time
when the contract is made.
3) Warranty for quality or use by usage of trade: Sec.16
(3). A warranty as to fitness for a particular purpose may
be annexed to a contract of sale by a custom or usage of
trade.
4) Disclosure of dangerous nature of goods: Where the
goods are dangerous in nature and the buyer is ignorant of
the danger, the seller must warn the buyer of the probable
danger. If there is a breach of this warranty, the seller may
be liable in damages.
THE DOCTRINE OF CAVEAT EMPTOR Caveat Emptor is a Latin expression, which means, “Buyers
beware”. The doctrine of caveat emptor means that,
ordinarily, a buyer must buy goods after satisfying himself
of their quality and fitness. If he makes a bad choice he
cannot blame the seller or recover damages from him. This
doctrine is stated in the opening words of section 16:
Subject to the provisions of this Act and of any other law
for the time being in force, there is no implied warranty
or condition as to the quality or fitness for any particular
purpose of goods supplied under a contract of sale .
EXCEPTIONS: The doctrine of caveat emptor does not
apply in the following situations:
1. Fitness as to quality or use. Sec. 16(1)
a) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose
for which the goods are required,
b) so as to show that the buyer relies on the seller’s
skill, or judgement, and
c) the goods are of a description which it is in the
course of the seller’s business to supply (whether
he is the manufacturer or not, there is an implied
condition that the goods shall be reasonably fit for
such purpose .
2. Sale of goods by description. Sec. 16(2)
Where there is a sale of goods by description, there is
an implied condition that the goods are merchantable
that is, fit for particular purpose.
3. Trade usage. Sec 16 (3)
An implied condition of fitness may be annexed to a
contract of sale by usage of trade.
4. Where the seller is guilty of fraud.
Where the seller makes a false representation and
buyer relies on that representation, the doctrine of
caveat emptor will not apply. In such a case the buyer
will be entitled to the goods according to that
representation.
5. Where seller actively conceals a defect:
Where the seller actively conceals a defect in the
goods so that the same could not be discovered on a
reasonable examination, the doctrine of caveat emptor
will not apply. Such a contract will be voidable.
6. Sale by sample
When goods are purchased by sample, the bulk must
correspond with the sample and the buyer must have
reasonable opportunity of inspecting the goods.
Unit 3. Transfer of Ownership from seller to buyer
Transfer of ownership: Sale of goods involves transfer of ownership of property from the
time of transfer seller to the buyer. It is necessary to determine the precise moment of
time at which the ownership of the goods passes from the seller to
the buyer, because of the following reasons:
1. Risk passes with property..
2. Action against third parties. If the goods are damaged by the
action of third parties it is the owner who can take action.
3. What is the effect of insolvency? In case of insolvency of either the
buyer or the seller it is necessary to know whether the goods will
be taken over by the Official Assignee. The answer depends upon
whether the ownership of the goods is with the party who has
become insolvent.
4. Suit for price. Unless the contract provides otherwise, a suit for
price by the seller does not lie unless the property has passed to
the buyer.
When does property in the A. TRANSFER OF PROPERTY IN UNASCERTAINED GOODS
goods pass under the Sale 1. When there is a contract for the sale of unascertained goods,
of Goods Act ? property in the goods is not transferred to the buyer unless and
until the goods are ascertained. (sec. 18).
How goods are ascertained? By valid appropriation: Under Section
23(1), in a contract for the sale of unascertained or future goods by
description, the property in the goods passes to the buyer when the
goods of that description are in a deliverable state are unconditionally
appropriated to the contract, either by the seller with the assent of
the buyer or by the buyer with the assent of the seller.
The following are the essentials of appropriation:
a) The goods should confirm to the description and quality
stated in the contract.
b) The goods must be in a deliverable state.
c) The goods must be unconditionally (as distinguished from an
intention to appropriate) appropriated to the contract either
by delivery to buyer or his agent or the carrier.
d) The appropriation must be
- by seller with the assent of buyer.
- by buyer with the assent of seller.
e) The assent may be expressed or implied.
The assent may be given either before or after appropriation.
B. TRANSFER OF PROPERTY IN ASCERTAINED GOODS

Where there is a contract for the sale of specific or ascertained goods
the property in them is transferred to the buyer at such time as the
parties to the contract intend it to be transferred Sec. 19(1). For the
purpose of ascertaining the intention of the parties regard shall be
had to -
- the terms of the contract,
- the conduct of the parties and
- the circumstances of the case. Sec. 19(2).
It is only when the intention of the parties cannot be judged from
their contract or conduct or other circumstances that the rules laid
down in Sections 20 to 24 apply. Sec. 19(3). These rules are as follows:

a. Specific goods in a deliverable state: Section 20
 in case of an unconditional contract for the sale of specific goods
 in a deliverable state,
 the property in the goods passes to the buyer on making the
contract, and
 it is immaterial whether the time of payment of the price or the
time of delivery of the goods or both is
 postponed.
b. Specific goods to be put in deliverable state: Section 21

 where there is a contract for the sale of specific goods and
 the seller is bound to do something to the goods for the purpose of
putting them into a deliverable state,
 the property in the goods does not pass until such thing is done and
the buyer has the notice thereof.
c. Specific goods to be Weighed or Measured: Section 22
 in a contract for the sale of specific goods in a deliverable state,
 where the seller is bound to weigh, measure, test or do some other
act or thing
 with reference to the goods for the purpose of ascertaining the
price,
 The property does not pass until such act or thing is done and the
buyer has the notice of the same.
C. TRANSFER OF PROPERTY IN SALE BY APPROVAL

When goods are delivered on approval (Sec.24): When goods are
delivered to the buyer on approval or òn sale or return,’ or on other
similar terms, the property therein passes to the buyer :
i) When he signifies his approval or acceptance to the seller or
ii) When the buyer does any other act adopting the transaction,
e.g., pledges the goods or resells them.
iii) When the buyer retains the goods, without giving notice of
rejection, beyond the time fixed for the return of goods, or if no
time has been fixed beyond a reasonable time. In short, the
property passes either by acceptance or by failure to return the
goods within specified or reasonable time.
D. TRANSFER OF PROPERTY WHEN RIGHT OF DISPOSAL IS RESERVED

The object of reserving the right of disposal of goods is to secure that
the price is paid before the property passes to the buyer.
Section 25(1) lays down that –
 in a contract for the sale of specific goods or where goods are
subsequently appropriated to the contract,
– The seller may reserve the right of disposal of the goods until
certain conditions are fulfilled.
– In such a case, even if the goods are delivered to the buyer
himself, or to a carrier or other bailee for transmission to the
buyer, the buyer does not acquire ownership until the
conditions imposed by the seller are satisfied.
Transfer of title by non- A sale is a contract plus a conveyance. As a conveyance it involves
owner or No one can give a transfer of title of goods from the seller to the buyer. If the seller’s
better title than he himself title is defective, the buyer’s title will also be defective. A person can
has only transfer what he has. No one can transfer a better title to the
goods than he himself possesses. This principle is expressed by the
Latin phrase, “Nemo dat quad non habet”, which means”none can
give who does not himself possess’.
Exceptions In each of the following cases, a person who is not an
owner, can give to the transferee a valid title to the goods:
1. Transfer of title by estoppel. (Sec.27)

When the true owner of the goods by his conduct or words or by any
act or omission leads the buyer to believe that the seller is the owner
of the goods or has the authority to sell them, he cannot afterwards
deny the seller’s authority to sell. The buyer in such a case gets a
better title than that of the seller.
2. Sale by a mercantile agent. ( Proviso to Sec.27 )

Sale of goods by a mercantile agent gives a good title to the purchaser
even in cases where the agent acts
beyond his authority, provided the following conditions are satisfied-
i) The agent is in possession of the goods or of a document of title
to the goods.
ii) Such possession is with the consent of the owner.
iii) The agent sells the goods in the ordinary course business.
iv) The purchaser acts in good faith and has no notice that the agent
had no authority to sell.
“Mercantile Agent”- `Mercantile agent’ means an agent having in the

customary course of his business as such agent authority either 1) to
sell goods, or 2) to consign goods for the purpose of sale, or 3) to buy
goods, or 4) to raise money on the security of goods. Sec. 2(9)
Good faith means honestly, whether done negligently or not.
Document of Title to Goods. Sec. 2(4).
A document of title to goods is a document representing goods and is
used
- in the ordinary course of business
- as proof of the ownership, possession or control of goods.
- It authorises the possessor of such document to receive or
transfer the goods represented thereby.
According Sec. 2(4), documents of title to goods includes (a) bill of
lading (b) dock warrant (c) warehouse keeper’s certificate (d)
wharfinger’s certificate (e) railway receipt (R/R), lorry receipt (L/R)
(f) multimodal transport document and (g) delivery order.
3) Sale by one of several joint owners (Sec. 28): Section 28 lays down
three conditions for validating a sale by one of co-owners :-
a) He must be in sole possession by permission of his co-owners.
b) The purchaser acts in good faith i.e. with honesty.
c) The purchaser had no notice at the time of the contract of sale that
the seller had no authority to sell.
4) Sale of goods obtained under a voidable agreement (Sec 29):

When the seller of goods has obtained possession thereof under a
voidable agreement but the agreement has not been rescinded at the
time of sale, the buyer obtains a good title to the goods, provided he
buys them in good faith and without notice of the seller’s defect of
title.
5) Sale by the seller in possession of goods after sale (Sec 30(1)):

Under this exception, a second sale by the seller remaining in
possession of the goods will give a good title to the buyer acting in
good faith and without notice. Three conditions should be fulfilled
under this exception :
a) The seller must continue in possession of the goods or of the
documents of title to the goods as seller. Possession as a hirer or
bailee of the goods from the buyer after delivery of the goods to
him will not do.
b) The goods must have been delivered or transferred to the buyer
or the documents of title must have been transferred to him.
c) Good faith and absence of notice of the previous sale on the part
of the second buyer.
6) Sale by buyer in possession of goods over which the seller has

some rights Sec. 30(2): This exception deals with the case of a sale by
the buyer of goods in which the property has not yet passed to him.
When goods are sold subject to some lien or right of the seller (for
example for unpaid price) the buyer may pledge, or otherwise dispose
of the goods to a third party and give him a good title, provided the
following conditions for sell, are satisfied:
i) The first buyer is in possession of the goods or of the documents
of title to the goods with the consent of the seller.
ii) Transfer is by the buyer or by a mercantile agent acting for him.
iii) The person receiving the same acts in good faith and without
notice of any lien or other right of the original seller.
7) Sale by an unpaid seller: An unpaid seller of goods can, under

certain circumstances, re-sell the goods. The purchaser of such goods
gets a valid title of the goods. Sec. 54.
8) Sale under the Contract Act :

a) A pawnee may sell the goods of pawnor if the latter makes a
default of his dues. The purchaser under such a sale gets a good
title. Se. 176, Contract Act.
b) A finder of goods can sell the goods under certain circumstances.
The purchaser gets a good title. Sec. 169, Contract Act.
Unit 4. Performance of the Contract
Delivery of goods Delivery means voluntary transfer of possession of goods from the seller to
the buyer. It may be i) actual, ii) symbolic, or (iii) constructive
A symbolic delivery takes place when the ‘means of obtaining possession’
is handed over to the buyer. This happens where the goods are bulky and
incapable of actual delivery.
A constructive delivery takes place when goods are delivered to another
person on behalf of buyer, instead of buyer himself. A third party is
authorized by buyer to take delivery on his behalf. Such third party may be
seller himself or carrier or godown keeper.
Constructive delivery takes place in the following cases:
(a) when the seller, who is in possession of the goods, agrees to hold them
on behalf of the buyer;
(b) when the buyer is already in possession of the goods and the seller
agrees to the buyer’s holding the goods as owner;
(c) when the goods are in possession of a third person (e.g. a
warehouseman, a carrier or any other bailee) who acknowledges to hold
them on behalf of the buyer. For instance,
Rules as to delivery 1) Duty to deliver (sec. 31): It is the duty of the seller to deliver the goods.
It is duty of the buyer to accept the goods and to pay for them in
accordance with the terms of the contract of sale.
2) Payment and delivery are concurrent conditions (sec. 32): Unless
otherwise agreed, delivery of the goods and payment of the price are
concurrent conditions.
3) Mode of delivery (sec. 33): Mode of delivery may be actual, symbolic or
constructive.
4) Part delivery (sec. 34):
a) where the part delivery is made in progress of the whole delivery,
then it is treated as a delivery of the whole. And the ownership of
the whole quantity is transferred to the buyer.
b) Where the part delivery is made with the intention of separating it
from the whole, then in is not treated as delivery of the whole.
(since each part of delivery is intended to be treated as separate
delivery) In such a case the ownership of the whole quantity is not
passed to the buyer.
5) Buyer to apply for delivery (sec. 35): Apart from any express contract,
the seller of goods is not bound to deliver them until the buyer applies
for delivery.
6) Place of delivery [sec. 36(1)]: When nothing is agreed upon, the
following rules apply -- a) the goods are to be delivered at the place
where they were lying, at the time of the sale or at the time of the
agreement to sell; b) if the goods are future goods, they should be
delivered at the place of manufacture or production thereof.
7) Time for delivery [sec. 36 (2), 36(4)]: If time is fixed, and the seller is
bound to send the goods to the buyer, he must send them within the
fixed time. If no time is fixed, then the seller must send them within a
reasonable time 36( 2). The demand or tender of delivery must be at a
reasonable hour 36 (4).
8) Goods in possession of third person [sec. 36 (3)]: If the goods are in
possession of a third party, there is no delivery until such third party
acknowledges to the buyer that he holds the goods on his behalf.
9) Expenses of delivery [sec. 36(5)]: Unless otherwise agreed, expenses of
making delivery are borne by the seller and expenses of obtaining
delivery by the buyer.
10) Delivery of wrong quantity (sec. 37): Subject to any usage of trade,
special agreement or course of dealing between parties, the following
rules shall apply when delivery of wrong quantity is made --
a) Short delivery If the seller delivers to the buyer a quantity less than he
contracted to sell, the buyer may

i) reject the goods, or
ii) accept the goods. If he accepts, he shall pay for the accepted
quantity at the rates contracted for.
b) Excess delivery If the seller delivers to the buyer a quantity larger than
he contracted to sell, the buyer may
i) reject the whole, or
ii) accept the whole or
iii) accept the quantity he ordered and reject the rest.
c) Delivery of goods mixed with other goods If the seller delivers to the
buyer goods ordered mixed with goods of a different description, the
buyer may -
i) reject the whole
ii) accept the agreed goods and reject the remaining goods
11) Instalment deliveries (sec. 38): Unless otherwise agreed, the goods are
not to be delivered by instalments. There might be an agreement for
delivery by instalments but the price may be payable either on complete
delivery or on delivery of each instalment. There will be a breach of such
contract in the following cases:
a) If the seller makes no delivery or makes defective delivery, in respect of
one or more instalments; or
b) If the buyer neglects or refuses to take delivery of or pay for, one or
more instalments.
12) Delivery to a carrier or wharfinger (sec. 39): The delivery of goods to a
carrier or a wharfinger in pursuance of a contract of sale, is prima facie
deemed to be delivery of goods to buyer. If the contract of sale specifies
the name of the carrier, the seller must deliver the goods to such named
carrier. If the instructions of the buyer are carried out properly, the risk
is with the buyer. If the instructions of the buyer are not carried out
properly, the goods remain at the risk of the seller during transit.
13) Buyer’s risk for deterioration of goods in transit (sec. 40): Where the
seller agrees to deliver the goods to the buyer at a place other than that
where they are when sold, the merchantable quality of the goods may
be affected due to transit. In such a case any risk of deterioration in the
goods necessarily incident to the course of transit shall be borne by the
buyer, unless otherwise agreed.
14) Buyers Right of Examining the Goods: A buyer cannot be said to have
accepted the goods unless he had an opportunity to examine the goods
and ascertain that they are in conformity with the contract. (sec. 41).
15) ‘Delivery of the goods to the buyer does not mean acceptance of the
goods’. Delivery of goods to the buyer does not amount to acceptance
thereof by the buyer. According to sec. 42 a buyer is deemed to have
accepted the goods -
a) when he intimates to the seller that he has accepted them, or
b) When he does an act in relation to such goods which is inconsistent
with the ownership of the seller. e.g. pledges or resells
c) when, after the lapse of a reasonable time, he retains the goods
without intimating the seller that he has rejected the goods.
16) Buyer not bound to return rejected goods (sec. 43): Where goods are
delivered to the buyer and he refuses to accept them, having the right
so to do, he is not bound to return them to the seller. it is sufficient if he
intimates to the seller that he refuses to accept them. This rule applies
when the rejection is rightful and there is no agreement to the contrary.

17) Liability of buyer for neglecting or refusing delivery of good (sec. 44):
When the property in the goods has passed to the buyer and the seller
is ready and willing to deliver the goods and requests the buyer to take
delivery, but the buyer fails to take delivery within reasonable time, he
is liable to the seller for any loss occasioned by his neglect or refusal to
take delivery, and also for reasonable charge for the care and custody of
the goods.
Unit 5. Rights of Buyer & Rights of Unpaid Seller
Rights of a buyer against A seller may breach the contract in any of the following ways:
the seller for breach of i. He fails to deliver the goods at the time or in the manner called
contract. for in the contract.
ii. He repudiates the contract.
iii. He delivers non-conforming goods and the buyer rightfully
rejects the goods or properly revokes acceptance.
A buyer has the following rights against the seller for breach of
contract under the Sale of Goods Act.
1. Suit for non-delivery (Sec. 57): Where the seller wrongfully
neglects or refuses to deliver the goods to the buyer, the buyer
may sue the seller for damages for non-delivery. This remedy
would be available even if the property has passed to the buyer.
2. Specific performance (Sec. 58): Where property has passed to the
buyer, he also can exercise another right, viz., a right to sue for
specific performance and its limits are regulated by the Specific
Relief Act. In such cases the court may in its discretion grant a
decree ordering the seller to deliver those specific or ascertained
goods which formed the subject-matter of the contract.
3. Breach of Warranty (Sec. 59): Where there is a breach of warranty
by the seller (i.e. defects in the goods delivered) or where the
buyer elects or is compelled to treat any breach of condition on the
part of the seller as a breach of warranty, the buyer has the
following remedies :
a) He may claim a deduction from the price
b) He may refuse to pay the price altogether, if the loss equals the
price.
c) If the loss exceeds the price, he may not only refuse to pay the
price, but also claim the excess. or
d) He may sue the seller for damages for the breach of warranty
in addition to the right to claim diminution or extinction of the
price.
4. Suit for Anticipatory breach (Sec. 60): The buyer has the right to
sue the seller for damages for anticipatory breach of contract
Section 60 lays down that where the seller repudiates the contracts
before the date of delivery, the buyer may either treat the contract
has subsisting and wait till the date of delivery or he may treat the
contract as rescinded and sue for damages for the breach.
5. Suit for interest and recovery of the price (Sec. 61): If the buyer
has already paid the price and the seller fails to deliver the goods,
the buyer is entitled to file a suit for the refund of the price. In such
a suit, the buyer may also claim interest or special damages from
the defaulting seller. In the absence of any other contract to the

contrary, the court may award interest at such rate as it thinks fit
on the amount of price from the date on which the payment was
made.
RIGHTS OF THE UNPAID A) Who is an unpaid seller?
SELLER The seller is deemed to be an unpaid seller under any of the following
circumstances:
a) If the whole of the purchase price is not paid on the due date.
b) If payment is made in the form of a negotiable instrument.(Bill of
exchange or cheque) and the instrument is dishonoured.
B) Unpaid Sellers’ Rights (sec. 46): Rights of an unpaid seller can be
listed as follows.
1. Against the 2. Against the buyer personally
goods - Suit for price,
- Right of Lien, - Suit for damages for non-
- Right of acceptance of delivery
Stoppage in - Suit for damages for
Transit and repudiation of the contract.
- Right of Resale, - Suit for interest or special
damages
I) Right of Lien or Vendor’s Lien (Sec. 47-49): The 'unpaid seller' has a
lien on the goods for the price while he is in possession, until the
payment or tender of the price. A lien is a right to retain possession of
goods until payment of the price. He is entitled to lien in the following
three cases, namely;
i) where goods have been sold without any stipulation as to credit;
i.e. cash sale.
ii) where goods have been sold on credit but the term of credit has
expired; or
iii) where the buyer becomes insolvent.
II) The Right of Stoppage in Transit: (Sec.50-52)
When the buyer of goods becomes insolvent, and the goods are in
course of transit to the buyer, the seller can resume possession of the
goods from the carrier. This is known as the right of stoppage in transit.
The right is exercisable by the seller only if the following conditions are
fulfilled:
I) The seller must be unpaid.
iii) He must have parted with the possession of goods.
iv) The goods must be in transit.
v) The buyer must have become insolvent.
vi) The right is subject to provisions of the Act.
Effect of sub-sale or pledge by the buyer (section 53): The unpaid
seller’s right of lien or stoppage in transit is not affected by any sale or
pledge of the goods made by the buyer.
Exceptions: In the following two cases the unpaid seller’s right of lien
or stoppage in transit is affected by any sale or pledge of the goods
made by the buyer: (i.e., Unpaid seller cannot exercise right of lien or
stoppage in transit.)
a) when the seller assents to such sale or pledge; or
b) when the seller has transferred a document of title to the goods,
who transfers it by way of a sale, pledge or other disposition for
value, to a person who takes it in good faith and for consideration.
III) The Right of Resale (Sec 54)

The unpaid seller who has retained possession of the goods in exercise
of his right of lien or who has resumed possession from the carrier
upon insolvency of the buyer, can resell the goods :
a) If the goods are of a perishable nature, without any notice to the
buyer, and
b) In other cases after notice to the buyer, calling upon him to pay or
tender the price within reasonable time, and upon failure of the
buyer to do so.
Right of Unpaid seller a) Suit for the Price: (sec.55): Where under a contract of sale the
against the buyer property in the goods has passed to the buyer and the buyer
personally. wrongfully neglects or refuses to pay for the goods according to
the terms of the contract, the seller may sue him for the price of
the goods.
b) Suit for damages for non-acceptance (sec. 56): Where the buyer
wrongfully neglects or refuses to accept and pay for the goods, the
seller may sue him for damages for non-acceptance.
c) Suit for damages for repudiation of the contract (sec. 60): Where
the buyer repudiates the contract before the date of delivery, the
seller may either treat the contract as subsisting or wait till the
date of delivery, or he may treat the contract as rescinded and sue
for damages for the breach.
d) Claim for interest and special damages (sec. 61): The seller may
recover interest or special damages in any case where by law
interest or special damages may be recoverable. He may also
recover the money paid where the consideration for the payment
of it has failed.
Unit 6. Auction Sale
Rules of Auction Sale (sec. 1. Sale of goods in lots: Where goods are put up for sale in lots, each
64): lot is prima facie deemed to be the subject of a separate contract
of sale.
2. Completion of Sale: An auction sale is complete when the
auctioneer announces its completion by the fall of the hammer or
in other customary manner, and until then the bidder has the right
to revoke or retract his bid. If before the fall of the hammer the
bidder withdraws, his security amount cannot be forfeited. But if
he does so after the fall of the hammer, it amounts to a breach of
the contract and his security amount will be liable to be forfeited. If
the conditions of sec.20, namely, the goods should be specific and
in a deliverable state, are satisfied, the property in such goods
passes to the buyer at the completion of the contract (by the fall of
the hammer)
3. Seller’s Right to Bid: Unless the auction is notified to be subject to a
right to bid on behalf of the seller, it is not lawful - (i) for the seller
to bid himself or to employ any person to bid at such sale on his
behalf and (ii) for the auctioneer to, knowingly take any bid from
the seller or any such person. Any contravention of this rule
renders the sale as fraudulent.

4. If the seller makes use of pretended bidding to raise the price, the
sale is voidable at the option of the buyer. However, the seller may
expressly reserve the right to bid at the auction and in such case,
the seller or any one person on his behalf may bid at the auction.
5. Reserve Price: - The seller may notify that the auction will be
subject to a reserve or upset price, that is, the price below which
the auctioneer will not sell. In such a case the auctioneer is not
bound to accept the highest bid unless it reaches the reserve price.
6. Knock-out agreement is a form of combination of buyers to prevent
competition among themselves at an auction sale. They agree that
they will not raise the bid against each other and only one of them
will bid of the auction. When the goods have been purchased they
will share the profits. Prima facie, a knock-out agreement is not
illegal.
Upset price – “Upset price” is the Scottish equivalent of “reserved price”.
Damping – It is an unlawful act by which an intending purchaser is prevented from
bidding or raising the price at an auction sale. The damping is usually
done in any of the following ways :
(i) By pointing out defects in the goods put up in an auction sale.
(ii) By taking the intending buyers away from the place of auction by
some other device.
Puffer – A person who is appointed by the seller to raise the price by fictitious
bids.
Incidence of Taxation  Where after a contract has been made but before it has been
(S.64-A) performed, tax revision takes place, the parties would become
entitled to readjust the price of the goods accordingly. Taxes
covered are customs or excise on the goods and any tax payable on
sale or purchase of goods.
 The buyer would have to be pay the increased price if the tax
increases and would be entitled to the benefit of reduction if taxes
are curtailed.
 Thus, the seller may add the increased taxes in the price.
 The effect of the provision can, however, is excluded by an
agreement to the contrary. It is open to the parties to stipulate
anything about the incidence of taxation.
3. Partnership Act 1932
Unit 1. Nature of Partnership
What is Partnership? Section 4 of the Indian Partnership Act, 1932, lays down that “Partnership is
the relation between persons who have agreed to share the profits of a
business carried on by all or any one of them acting for all.”
What are the 1. Association of two or more persons: There must be at least two persons
Essential Elements of to form a partnership. However, Section 11 of the Indian Companies Act,
Partnership? 1956 lays down that: (i) where the firm is carrying on banking business, the
number of partners should not exceed 10, and (ii) where the firm is carrying
on any other business, the number of partners should not exceed 20. If the
number of maximum partners exceeds these limits, the partnership
becomes an illegal association of persons.
2. Agreement between persons: According to Section 5 of Partnership Act,
the relation of partnership arises from contract and not from status.
3. Business: Partnership can be formed only for the purpose of carrying on
some business. Section 2(b) of Partnership Act says that the term
`business’ includes every trade, occupation or profession.
4. Sharing of Profits: The division of profits is an essential condition of the
existence of a partnership.
5. Business carried on by all or any of them acting for all: The underlying or
cardinal principle which governs partnership is the mutual agency
relationship amongst the partners.
The Tests of a True Sec.6 in determining whether a group of persons is or is not a firm or
Partnership: whether a person is or is not a partner in a firm, regard shall be had to the
real relation between the parties, as shown by all relevant facts taken
together.
The relevant factors to be considered for determining whether there is
partnership are the conduct of parties, the mode of doing business, who
controls the property, the mode of keeping accounts, correspondence, and
the manner of distribution of profits. Etc. of the four elements, the third
element, viz., sharing of profits is important but not conclusive. In the
following cases there is no partnership even though there is sharing profits:
a) A creditor taking a share of profits in lieu of interest and part-payment of
principal.
b) An employee getting a share of profits as remuneration.
c) Share of profits given to workers as bonus.
d) Share of profits given to the widow or children of deceased partners as
annuity.
e) Share of profits given to a previous owner of the business as the
consideration for the sale of the goodwill (Explanation 2 to Section 6).
Types of Partners 1. Active partner: An active partner is one who actually participates in the
business of the firm.
2. Dormant or sleeping partner: The dormant or sleeping partner joins the
firm by agreement but do not take any active part in the business. The
liabilities are same as of active partners.
3. Nominal partner: A nominal partner lends his name to the firm.
4. Sub partner: Where a partner agrees to share his profits in the firm with
a third person, that third person is called a sub-partner. Thus a sub-
partner is a transferee of a share of a partner’s interest in a firm.

5. Partner by estoppel or holding out:
The principle of `holding out’ has been recognised by Sec. 28 of the Indian
Partnership Act.
“Anyone who by words spoken or written or by conduct represents himself,
or knowing permits himself to be represented, to be a partner in a firm, is
liable as partner in that firm to anyone who has on the faith of any such
representation given credit to the firm, whether the person representing
himself or represented to be a partner does or does not know that the
representation has reached the person so giving credit”.
Types of Partnership Partnership can be classified as below:
1. Partnership at will (sec. 7)
A partnership is called a partnership at will -
i) When the partnership is not for a fixed period of time and
ii) When no provision is made as to when and how the partnership will come
to an end.
2 Particular partnership: (sec. 8)
A particular partnership is one which is formed for a particular adventure or
a particular undertaking. Such a partnership is usually dissolved on the
completion of the adventure or undertaking.
Partnership Property In the absence of any such agreement, the property of the firm according
(sec. 14 & 15) section 14, means -
i) property originally brought into the common stock of the firm by the
partners,
ii) property acquired in the course of the business with money belonging to
the firm;
iii) the goodwill of the firm.
Application of the property of the firm (sec. 15): Subject to contract between
partners, the property of the firm shall be held and used by the partners
exclusively for the purposes of the business.
Unit 2. Registration of Firm
(Section 58-59) The formalities of registration

Registration : When the Registrar is satisfied that the above provisions have been duly
complied with, he shall record an entry of the statement in the Register of
Firms and then file the statement (sec. 59). He shall then issue under his
hand a certificate of Registration.
Time of registration: There is no provision in the Partnership Act regarding the time of
registration of firm. However, section 69(2) lays down that before any suit
can be filed in Court of Law registration of the firm must have been
effected, otherwise the suit will be dismissed.
Consequences of non- An unregistered firm and the partners thereof suffer from certain
registration.(Sec.69) disabilities.
1. Suit between partners and firm [sec 69(1)]: A partner of an unregistered
firm cannot file a suit (against the firm or any partner thereof) for the
purpose of enforcing a right arising from contract or a right conferred by
the Partnership Act.
2. Suits between firm & third parties [sec 69 (2)]. : No suit can be filed by
or on behalf of an unregistered firm against any third party for the purpose
of enforcing a right arising from a contract, unless the firm is registered and
the persons suing are or have been shown in the Register of Firms as
partners in the Firm.
3. Claims of set-off [sec 69 (3)]: An unregistered firm cannot claim a set -off
in a suit. (`set-off’ means a claim by the defendant which would reduce the
amount of money payable by him to the plaintiff).
Register of firms—a The register of firms is a public document shall be open to inspection by
public document any person on payment of the prescribed fee (Sec. 66). Registrar shall also
furnish to any person on payment of a prescribed fee a copy, certified
under his of any entry or position thereof in the Register of Firms (Sec. 67,).
Register of firms a (Sec. 68) Any statement, intimation notice recorded or noted in the
conclusive evidence Register of Firms, shall, as against any person by whom whose behalf such
statement, intimation or notice was signed, be conclusive of any fact the
stated.
Penalty for furnishing The Act provides a penal imprisonment which may extend to three months
false particulars (Sec. or fine or both to any person liable supplying to the Registrar any
70) : information which he knows to be false or does not believe true.
Unit 3. Relations of Partners
RIGHTS & DUTIES OF The mutual rights & duties of the partners are usually governed by the
PARTNERS (sec 9 to 17 ) agreement between them. Where there is no specific agreement, there
relations to one another are governed by Sec.9 to 17 of the Partnership
Act.
1. Right to take part in the conduct of the business [Sec. 12(a)]
2. Right to be consulted [Sec. 12 (c)]
3. Right of access to books [Sec. 12 (d)]
4. Right to share the profits [Sec.13 (b)]
5. Right to interest on capital [Sec. 13 (c)]
6. Right to interest on advances [Sec. 13 (d)]
7. Right to indemnity [sec. 13 (e)]
8. Right to prevent the introduction of new partner [Sec.31 (1)]
9. Right to retire. [Sec. 32(1)]
10. Right not to be expelled (sec. 33)
11 Right to carry on competing business after retirement [sec.36(1)]
12 Right to dissolve the firm (sec. 43)
Duties of partners 1. General duties of Partners : Section 9 of Partnership Act lays down
that all the partners are bound
i) to carry on the business of the firm to the greatest common
advantage,
ii) to be just and faithful to each other, and
iii) to render to any partner or his legal representative the true accounts
and
iv) to render full information of all things affecting the firm.
2. Duty to indemnify for loss caused by fraud: According to Section 10 of
Partnership Act, every partner shall indemnify (reimburse or pay back)
the firm for any loss caused to it by his fraud in the conduct of the
business of the firm.
3. Duty to attend diligently to his duties [Sec. 12 (b)] :
4. Duty to work without remuneration [Sec. 13(a].
5. Duty to contribute to the losses [(Sec. 13(b)] :
6. Duty to indemnify for wilful neglect [Sec. 13 (f)] :
7. Duty to use firm’s property exclusively by for the firm. (Sec. 15) :
8. Duty to account for personal profits derived [Sec. 16(a)]
9. Duty not to compete with the business of the firm [Sec. 16 (b)] :
10. Not to assign (transfer) his interest in the firm (sec. 29)
RELATIONS OF 1) Partners as Agents (sec 18): Sec. 18 of the Partnership Act provides,
PARTNERS WITH THIRD “Subject to the provisions of this Act, a partner is the agent of the firm for
PARTIES (sec. 18 to 30) the purposes of the business of the firm “.
2) Implied Authority of Partners (sec 19): According to Sec.19 (1) of the
Act, “the act of a partner which is done to carry on, in the usual way
business of the kind carried on by the firm.” is called Implied Authority of
partner.
Limitation on Implied Authority Or Statutory restrictions on implied
authority (Sec. 19 (2) )
Sec. 19(2) contains the list of acts regarding which a partner does not
have an implied authority unless there is usage or custom or contract to
the contrary. Accordingly, a partner cannot;
i) submit a dispute relating to the business of the firm to arbitration;
ii) open a banking account on behalf of the firm in his own name;
iii) compromise or relinquish any claim or portion of a claim by the firm;
iv) withdraw a suit or proceeding filed on behalf of the firm;
v) admit any liability in a suit or proceeding against the firm;
vi) acquire immovable property on behalf of the firm;
vii) transfer immovable property belonging to the firm; of
viii) enter into partnership on behalf of the firm.
A partner can do any of the above thing if
i) he has specific or express authority of the partners or
ii) the usage or custom of trade permits him.
3) Extent of Partner’s Liability (sec 25-27): Every partner is liable jointly
with all the other partners and also severally for all acts of the firm done
while he is a partner.
4) Liability of firm for wrongful acts of partners (sec 26) :
Where, by the wrongful act or omission of a partner (a)acting in the
ordinary course of the business of a firm, or (b) with authority of his
partner, loss or injury is caused to any third party, or any penalty is
incurred, the firm is liable therefore to the same extent as the partner-
sec.26.
5) Liability of firm for misapplication by Partners. (sec 27) : Where - a) a
Partner acting within in his apparent authority receives money or
property from a third party and misapplies it or
b) a firm in the course of its business receives money or property from a
third Party, and the money or property is misapplied by any of the
partners while it is in the custody of the firm, the firm is liable to make
good the loss
6) The law relating to the liability of the estate of a deceased partner :
Section 35 of the Indian Partnership Act provides that “where under a
contract between the partners, the estate of the deceased partner is not
liable for any act of the firm done after his death.”
7) Minor as a partner (sec 30):
A) Position before attaining majority:
i) Rights: a) He has a right to such share of the property and of profits of
the firm as may have been agreed upon.
b) He has also a right to have access to and inspect and copy any of the
accounts, but not books of the firm.(Sec.30.(2) )
c) When he is not given his due share of profit, he has a right to file a suit
for his share of property of the firm. But he can do so only, if he wants to
sever his connection with the firm (Sec.30 (4)).
ii) Liabilities: The liability of the minor partner is confined only to the
extent of his share in the profits and property of the firm. Over and
above this, he is neither personally liable nor is his private estate liable.
B) Position on attaining majority: On attaining majority, the minor
partner has to decide within 6 months whether he shall continue in the
firm or leave it. Within this period he should give a public notice of his
choice;
a) To become, or b) not to become, a partner in the firm. If he fails to
give a public notice he is deemed to have become a partner in the firm
on the expiry of the said six months[Sec.30(5)]
Where he elects to become a partner;

a) He becomes personally liable to third parties for all acts of the firm
done since he was admitted to the benefits of partnership;
b) His share in the property and profits of the firm is the share to which
he was entitled as a minor partner[Sec.30(7)].
Where he elects not to become a partner;

a) His rights & liabilities continue to be those of a minor upto the date of
the public notice;
b) His share is not liable for any acts of the firm done after the date of
the public notice;
c) He is entitled to sue the partners for his share of the property and
profits in the firm[Sec.30(8)]
Unit 4. Reconstitution and Dissolution of a firm
Reconstitution of a Firm The constitution of a firm may be changed by the

1 Introduction of a new partner (sec 31). introduction of a new partner; death, retirement,
insolvency and expulsion of a partner; or by the
2 Retirement of a partner (sec 32).
transfer of a partner’s share to an outsider. All these
3 Expulsion of a partner (sec 33).
are included within the term reconstitution of a firm.
Upon reconstitution, the rights and liabilities of the
4 Insolvency of a partner (sec 34).
incoming and outgoing partners have to be
5 Death of a partner (sec. 35.)
determined.
6 Transfer of interest (sec. 29.)
7 Rights of Outgoing Partner (sec. 36-37).
Introduction of a New A new partner can be introduced only with the consent of all the
Partner.(sec.31) : partners. The incoming partner may, however, assume liability for past
debts by novation that is, by tripartite agreement between a) the
creditor b) the partners and c) the incoming partner.
Retirement of a Partner A partner may retire
(sec.32) : a) with the consent of all the other partners,
b) in accordance with the terms of the agreement of partnership or
c) where the partnership is at will, by giving notice in writing to all the
other partners of his intention to retire.
The retired partner continues to remain liable to third parties for all acts
of the firm until public notice is given of the retirement.

Expulsion of a partner A partner can be expelled only when the following conditions are
(sec.33) : fulfilled:
a) When the contract of partnership contains a provision for expulsion
under stated circumstances.
b) The power to expel is exercised in good faith by the majority of the
partners.
c) The expelled partner has been given notice of the charges against
him and has been given an opportunity to answer the charges.
Insolvency of a partner When the partner of a firm is adjudicated an insolvent, he ceases to be a
(sec.34) : partner from the date on which the order of adjudication was passed by
the court. Whether the firm is thereby dissolved or not depends on the
terms of the agreement between the partners.
Death of Partners Ordinarily the death of partner has the effect of dissolving the firm. But it
(sec.35) : is competent for the partners to agree that the firm will continue to exist
even after the death of partner.
Transfer of interest 1) During the continuance of partnership, such transferee is entitled to
(sec.29) : receive the share of the profits of the transferring partner. However, he
is bound to accept the profits as agreed to by the partners i.e. he cannot
challenge the accounts.
A transferee of a Partner’s share is not entitled:
a) to interfere with the conduct of the business.
b) to require accounts or
c) to inspect books of the firm.
2) On the dissolution of the firm or on the retirement of the transferring

partner, the transferee will be entitled
against the remaining partners:
a) to receive the share of the assets of the firm to which the transferring
partners was entitled; and
b) for the purpose of ascertaining the share, to an account as from the
date of the dissolution.
Rights and liabilities of 1) Right to carry on competing business: (sec 36)
an outgoing partner. 2) Right to share subsequent profit in certain cases: sec 37
A retiring partner is liable for the acts done and debts
incurred before his retirement, but he may be exempted from this
liability in case on an agreement made by him with the third party and
the remaining partners of the reconstituted firm.
If pubic notice is not given, the retiring partner will continue to be liable
to third parties for the acts of the firm even after his retirement.
Dissolution of firm (sec. Dissolution of partnership and dissolution of firm
39 to 55) Dissolution of firm: Dissolution of Partnership:
It involves closing down of the It involves a change in the
business as the partnership relationship amongst the
between all the partners comes to partners due retirement,
an end. expulsion etc., and the business
of the firm does not necessary
come to an end. It leads to
reconstitution of firm
Modes of dissolution of a firm
1. By agreement (sec.40): A firm may be dissolved any time with the
consent of all the partners of the firm. Partnership is created by contract,

it can also be terminated by contract.
2. By Compulsory Dissolution (Sec.41) : A firm is dissolved-
(a) by the adjudication of all the partners or of all the partners but one as
insolvent,or
(b) by the happening of any event which makes the business of the firm
unlawful.
3. Dissolution on the happening of Certain Contingencies (Sec.42) :
Subject to contract between the partners, a firm is dissolved-
(a) if constituted for a fixed term, by the expiry of that term;
(b) if constituted to carry out one or more adventures of undertakings, by
the completion thereof,
(c) by the death of a partner, and
(d) by the adjudication of a partner as an insolvent.
The partnership agreement may provide that the firm will not be
dissolved in any of the aforementioned cases. Such a provision is valid.
4. Dissolution by notice (Sec.43): Where the partnership is at will, the
firm may be dissolved by any partner giving notice in writing to all other
partners of his intention to dissolve the firm. The firm is dissolved as
from the date mentioned in the notice as the date of dissolution, or, if no
date is mentioned, as from the date of communication of the notice.
5. Dissolution by the Court: (Sec.44). At the suit of a partner, the court
may dissolve a firm on any one of the following grounds:
a) Insanity:
b) Permanent incapacity:
c) Guilty conduct:
d) Persistent breach of agreement:
e) Transfer of whole interest:
f) Business cannot be carried on accept at a loss:
g) Just and Equitable clause:
Consequences of dissolution - rights and liabilities of partners
Rights & liabilities of partners on dissolution (Sec.45 to 55) :
When the firm is dissolved, the business of the firm is wound up, the
assets are realised to pay the debts and the surplus, if any is distributed
amongst the partners for the purposes of windup up of the firm, the
partners possess certain rights and are subject to certain liabilities. These
are discussed below.
1) Right to have the business wound up (Sec.46) :
2) Continuing authority of partners for purpose of winding up (Sec.47) :
3) Right to share in personal profits earned after dissolution (Sec.50) :
4) Right to have premium returned on premature dissolution (Sec.51) :
5) Rights where partnership contract is rescinded for fraud or
misrepresentation :(Sec.52)
6) Right to restrain the use of firm name or firm property (Sec.53) :
Sale of goodwill after dissolution (sec. 55) :
1. In settling the accounts of a firm after dissolution, the goodwill shall,
subject to contract between the partners be included in the assets,
and it may be sold either separate or along with other property of
the firm.[Sec.55(1)]
2. The rights of the buyer and seller of the goodwill are as follows:
(a) Seller’s rights: : After the sale of goodwill , the seller i.e., the
partner of the dissolved firm,
(b) may carry on a business competing with that of the buyer of
goodwill, and
(c) may advertise such business. [sec.55(2)].
But subject to agreement between him and the buyer, the seller of
goodwill that is, partners of the dissolved firm may not :
i) use the firm name,
ii) represent themselves as carrying on the business of the old
firm, and
iii) solicit the customers of the old firm. [sec.55(2)]
But any partner of the dissolved firm may make an agreement with the
buyer that such partner will not carry on a business similar to that of the
firm within a specified period or within specified local limits, provided the
restrictions imposed are reasonable.Sec.55(3)
Mode of settlement of account
The partners may lay down their own procedure for the settlement of
accounts after dissolution. In the absence of a prior agreement between
the partners in this regard, the accounts may be settled in accordance
with the provisions provided in sections 48, 49 and 55 of the Indian
Partnership Act which are discussed below:
i) Goodwill shall be included in the assets and it might be sold separately
or along with other property of the firm.
ii) Losses, including deficiencies of capital, shall be paid first out of
profits, next out of capital, and lastly, for the balance, the partners shall
individually subscribe in their profit sharing ratio.
iii) Assets of the firm, including partners’ contributions to make
deficiencies of capital, shall be applied firstly, for paying the debts of the
firm to third parties,
PUBLIC NOTICE (sec. The Partnership Act requires that a public notice must be given in each of
72) the following cases:
a) On minor attaining majority: [Sec.30(5)]
b) Retirement of a partner: [Sec.32(3)]
c) Expulsion of a partner. (Sec.33)
d) Dissolution of the firm: [Section 45(i)]
Mode of the Public According to Sec.72 the Public Notice becomes effective when the
Notice : following steps have been taken:
a) The notice has been published in the Official Gazette,
b) The notice has been published in at least one vernacular newspaper
(i.e. which is published in Indian
language) circulating in the district where the concerned firm has its
place or principal place of business.
c) If the firm is registered, the notice has been sent to the Registrar of
Firms.
4. Limited Liability Partnership
LLP is a form of business entity with limited liability. It has the advantage of company and
partnership. The following are the main features of the LLP:
Body Corporate Separate Legal Entity Perpetual Succession
Absence of Mutual Agency LLP Agreement Artificial Person
Common Seal (Optional) Limited Liability Can be amalgamated/ merged/ etc
Minimum 2 DPs (1DP, Resi) Maximum Unlimited CG has a power to investigate
Foreign LLP can be partner E-filing of Documents Firm/ Pvt Co./ Unlisted Public Co can be
Self Managed Business Profit Motive converted into LLP.
Incorporation of LLP:
1. Reservation of name: Form 1: Name should not be similar to existing co/llp: Suffix LLP
2. Incorporation: Form 2: Details of Partners, DPs, Consent of DP, DPIN
3. LLP Agreement: Form 3: Compulsory: Within 30 days of Incorporation.
5. Companies Act 2013
Basics of Company
COMPANY Sec.2 (20): means a company incorporated under this Act or under any previous
company law. Incorporated association, an artificial person created by law, having a separate
entity, with a perpetual succession & a common seal”.
List Characteristic features: Limited liability, incorporated association, separate legal entity,
separation of ownership & management, common seal (Optional), succession perpetual, separate
property, sue & can be sued, transferable share. Company not a property of shareholders. It’s a
means to an End.
Applies to: Extends to all classes of companies registered under this Act.
a) In case of banking companies, insurance companies, & electric companies – to the extent not
inconsistent with the provisions of their Special Acts.
b) Does not apply to – statutory corporations, Trusts governed by Trust Act 1882, Societies, Clubs &
Professional Associations governed by Societies Registration Act, & Co-operative Societies.
BODY CORPORATE 2(11):

A legal entity identified by a particular name. A separate entity, seal & perpetual succession.
Also called corporation.
“Body corporate “or “corporation” includes a company incorporated outside India but does not
include:
(a) Co-operative society registered under any law relating to co-operative societies; &
(b) Any other body corporate (not being a company as defined in this Act), which the CG may, by OG,
specify.
Note: Every company is a body corporate but not vice versa.
Lifting the Corporate Veil: Looking behind the company as a legal person i.e. disregarding the
corporate entity & paying regard instead to the realities behind the legal form.
Cases:
1. Tax evasion (Sir Dinshaw Maneckjee Petit or CIT v Shree Minakshi Mills)
2. Avoid legal obligation (Jones v. Lipman [1962] 11 ALL ER 442)
3. Enemy character of the company (Daimler Company Ltd. v. Continental Tyre & Rubber Co.
(Great Britain) Ltd. [1916] 2 AC 307.)
4. Avoid welfare legislation (Associated Rubber Industry Ltd. v. Workmen of Associated Rubber
Industry Ltd. [1986] 59 Comp. Case. 134 (SC).)
5. Determining technical competence (New Horizons Ltd. v. UOI (1997) 89 Comp Case 849 (SC))
Kinds of Companies: Each of them can be:

a) Pvt co. b) Public co. a) Limited by shares. b) Limited by guarantee.
c) Unlimited co.
Types of Companies:
i) Associate company: significant influence: 20% (+) TVP.
ii) Company Ltd by guarantee: Contributing assets on winding up.
iii) Company Ltd by shares.
iv) Foreign Companies: company or body corporate- incorporated outside India but place of
business India - by itself or through agent, physically or via electronic mode.
v) Government company: min 51% of paid-up sh. capital is held by: CG, SG or Both. Or Subsidiary of
a Govt. co.
vi) Nidhi companies: incorporated as nidhi - object of cultivating habit of thrift (cost cutting) &
savings amongst its members - receiving deposits from, & lending to, its members only - for their
mutual benefits & which complies with rules prescribed by CG.
vii) unlimited company.
viii) Dormant co: co formed & registered for:

Future project or Hold an asset or intellectual property & or, Inactive company.
no Significant accounting transaction
ix) Private Company 2(68): paid up capital as may be prescribed and which BY ITS ARTICLES:
(a) Restricts the right to Transfer its shares.[(i)right of the existing members to purchase shares of
outgoing members when sold & (ii) Director's powers to refuse to register transfer of shares-
exercised by the directors in good faith & benefit of company.)]
(b) Limits the number of its members to 200. [present & past employees (also members) not taken
into account, Joint holders treated as 1]
(c) Prohibits invitation to public to subscribe for its securities.
x) Public Company 2(71): Formed by at least 7 persons & -

a. is not a private company & or a) allows free transfer of its shares,
b. Min. paid-up capital of as may be prescribed. b) No limit as regards the maximum number of
members.
c. Private company subsidiary of public company. c) Which allows public to purchase its securities.
xi) Small company: whose-

a) Paid-up share capital max. 5 cr lakh (can be prescribed upto 10 cr.), or,
b) Turnover as per P&L for the immediately preceding FY: max. 20 to (can be prescribed upto 100
cr.)
Following cannot be small company:
-public co. -formed under special act -sec. 8 co. -Holding & subsidiary.
xii) Holding & subsidiary Companies: Sec. 2(46) & 2(87)

Holding Company is which controls another company. (Includes anybody-corporate)
Subsidiary Company means the company which is controlled by another company.
Either through composition of BOD or through shareholding in the subsidiary.

- power to appoint freely, majority of BOD. >50% of Total Voting Power.
To calculate 50% exclude: - Debenture provision. - Fiduciary capacity, Trust.

-Ordinary money lending business: shares held as security.
xiii) OPC: Sec. 2(62) - Co. to have 1 person as member.

 Nominee: One Nominee compulsory to be named in MOA.
 Nominee May Withdraw his consent.
 Nominee may be changed (which should not to be considered as alteration of MOA.)
 Intimate: company & registrar any change
 Member: Can be Director.
 Company: Cash flow Statement shall not be a part Of Fin. Statement
 NBFI activity not allowed. Also Sec. 8 Co. not allowed.
 Nominee as well as member shall be.
-Natural person. -Indian res (182 days in preceding Cal. Year) -Major only
*If nominee automatically becomes member than resign from any one OPC within 180 days.
Conversion to: - sec 8 co. not allowed.
- other kind: after 2 yrs from incorp. Or,
- If before 2 years: paid up capital exceed 50 lakh, or turnover exceeds 2 cr.
Provisions of act not applicable:
- Tribunal cannot call meeting. - Related to convening, constituting, conducting meetings.
Passing resolution for businness in:
1) GM: communicated by member to company.
- Entered in minutes book. - signed & dated by member/director.
2) BM: if just 1 director than same as for GM except no need to communicate to company.
- For both such dates deemed to be date of such meeting.
xiv) Public Financial Institutions: Sec. 2(72)

(i) LIC (ii) UTI (iii) IDFC. (iv) Inst. notified in 1956 Act. (v) inst. notified by CG in consultation
with RBI (can be Notified only if established under any Central Act or min. 51% paid-up share capital
of such institution is held / controlled by CG, SG or partly.
Advantages & Privileges of Private Companies & Diff. between private & public company
Formation: 2 member, less formality. Vote: Interested directors can.
Meeting: -2 members PP for quorum Business: -No prospectus.
- less than 21 day notice possible. -start after incorp
Loan: - to directors allowed. Give assistance - buying own share.
-No Intercorporate restrictions. Share issue: -Can reject transfer.
BOD: min.2 Directors, No restriction on remuneration.
Misc: No audit committee. -allot sh. just after incorporation.
Formation of Company
STAGE I: Promotion: process by which a co. brought into existence - by a group of persons
who are called promoters - who conceive the idea, & take steps - later handed over to directors,
often promoters.
Preliminary preparations:
1) Decide Type of company. Private or Public? 2 or 7 subscribers respectively.
2) Name: - not identical with or too nearly resemble.
(Sec. 4) - not Undesirable by CG.
- Emblems and Names (Prevention of Improper Use) Act, 1950 should be kept in view.
- Need not contain object in its name. But if name has object then it shall be main object.
Procedure for availability of name: - application to ROC - electronically, with fee.

- 6 names in order of priority. - ROC to confirm/reject name within 7 days of application.
- Remain available for 20 days (60 days in case of existing companies). Extendable by ROC. (RUN)
Name applied by giving wrong information: registrar may-

If company not incorporated: If company incorporated:
Cancel name, Applicant Liable upto 1 - Direct to change name in 3 month by passing OR.
lakh. - striking off Name from register of companies.
- make a petition for winding up
3) MOA: - charter of company - defines & confines power of co.
- Basic conditions on strength of which company is incorporated
- special care while drafting the object clause.
- if object oriented names: main object to have only that objects.
- following objects/powers are included:
a) making loans, b) borrowing power c) making investments, d) donations, e) amalgamation.
4) AOA: - rules & regulations relating to internal management. - registration of AOA is necessary.
STAGE II- Incorporation: Application to ROC of State. Docs to be submitted electronically. (Sec. 7)
1) MOA/AOA- sign by min subs, & witness.
2) Declaration: by CA, CS, CMA in practice, engaged in formation &
- by person named in articles as director, manager or secretary of company
- that all provisions of act & rules complied with.
3) Declaration: from subscribers & 1st directors that: (Affidavit before amendment)
- never convicted of offence w.r.t. promotion, formation or management of any company,
- or never found guilty of any fraud or
- of any breach of duty to any company under companies Act /law during preceding 5 years &
-that all documents filed with Registrar contain information that is correct & complete & true.
4) Address: for correspondence till its registered office is established
5) Particulars:
-of every subscriber, 1st directors with proof of identity
- of intt. of 1st directors, in other firms or bodies corporate along with their consent to act as
directors
6) Digital signature and DIN: from MCA.
7) COI & CIN.

8) Maintain all documents & COI till dissolution.
9) Penalty: on furnishing false information by person, or Incorporation by false information: u/s
447 (promoter, director, person)
STAGE III- Raising of Capital Stage: -ready for floatation with sufficient capital
- private company - prohibited to invite public -can commence business after Incorporation.
- public company: Issue of a prospectus if public invited.
Sec. 2(69): Promoter:

- named in prospectus or identified in annual returns
- Control (directly or indirectly) over affairs of company (as member or otherwise)
- on whose advice/directions/instructions BOD acts (except advising in professional capacity)
Effect of Fraudulent Registration: (Sec. 7)

 Promoters, 1st directors & persons making declaration: liable u/s 447.
 Tribunal on application may Pass orders for:
- Removal of Name from Register - Alteration, in MOA/AOA, including management
- Unlimited liability of members - winding up
Before such order tribunal to consider: Opportunity of being heard and
Consider the transactions entered, including obligations contracted or payment of any liability.
Registration of a company u/s 8: companies with charitable objects

Benefit - under a license granted by CG, of an association not for profit with limited liability
without adding the word “Limited” or the words “Private Limited” to its name.
Conditions (a) Purpose: promotion of commerce, art, science, sports, education, research,
social welfare, religion, charity, protection of environment
(b) Non-profit: Intends to apply its profits or other income in promoting its objects
and to prohibit payment of any dividend to its members.
- on such conditions and subject to such regulations which are binding on the body to
which the license is granted.
After It enjoys: All privileges & be subject to Any other may convert to sec. 8
registration: obligations of limited companies. company, provided:
Firm may be a member of such company. - they have same restrictions as for Sec.
Shall not Alter MOA/AOA except With 8 co.
previous approval of CG. - Change name to remove ‘Ltd’ ‘Pvt Ltd’.
Once registered can convert to any other - Registar to register & issue new COI.
company.
Sec.8:- If Contravene: Requirements or its Affairs: CG may direct: Company to
company of this section, or Conducted convert its status.
Conditions on which -fraudulently - Every officer in default Liable u/s
license was issued. -Violating Objects of Co 447
-Prejudicial to public - Add “Ltd” or “Pvt Ltd’ .
intt.
Where a Licence is revoked CG may If found in public interest, direct:
1) Company be wound up : If, after satisfaction of 2) Amalgamated with another sec.8 company,
liabilities, any asset left: with similar objects: CG may, provide for: such
- Transferred to another sec.8 company amalgamation ,such constitution, properties,
having similar objects. powers, rights, interest, authorities & privileges
- Be sold & credited to Rehabilitation & & with such liabilities, duties & obligations .
Insolvency Fund.
Memorandum and Articles of Association
Memorandum Of Association: conditions on which co. incorporated.

- the charter - basic document - defines as well as confines the powers
-regulates affairs of co, in relation to the outsiders - open for public at ROC.
- Every person dealing with co. Is presumed to have sufficient knowledge of its contents.
Purpose: 1) inform investor use of money & risk. 2) Inform outsider the range of activities.
FORM: PRINTED, divided in paragraph, signed by min. members, Table- A,B,C,D,E, OF sch.1.
Contents (Clauses): (Sec. 4)

1. NAME: outside every place of business of co. & printed on all documents.
1) in readable, eligible character & language.
2) officer to sign on behalf of co. else personally liable.
3) If changed its name(s) in last 2 years, to keep, along with its name, former name(s).
4) if OPC, mention OPC.
5) ‘Electoral Trust’ allowed for Sec.8, if in accordance with Electoral Trusts Scheme, 2013.
6) If activity is changed and changed activity is not as per its name, shall change its name in
line with its activities within 6 months from change of activities.
2. Situation: State only, exact address to be in 30 days of incorp. & its verification within 30 days of
incorp.
- all communication at RO. -all documents books kept at RO.
3. Liability: limited/ unlimited, Shares/guarantee (contribution)
1) in Assets of company on : wound-up while member or within 1 year he Ceases being member.
2) Expenses of winding-up & adjustment of Rights of contributories.
4. Object: any lawful act or activity or business.
5. Capital: Authorised capital & its division.
6. Subscription: subscribers declare they agree to take up shares stated against their names,
Nominee in OPC.
Note: Subscriber turns member as soon as incorporated.
Statutory requirements of MOA: (a) 7 & 2 subscribers (b) details of subscribers. (c)Witness. (d) each
to subscribe atleast 1 share. (e) mention how many shares one will take.
Doctrine of Ultra Vires: acts done beyond objects stated in memorandum.

Effect: 1) Void Ab initio 2) Injunction 3) Ratification Not possible by SH
4) Directors Personally liable 5) Cannot be Sued/ Sue 6) Secure right on property of co.
Shareholders may regularize an ‘ultra vires act’:
- If ultra vires to: Power of Directors, or, Articles. - within power of company but done irregularly.
Articles of Association
(Sec. 5) AOA Contains bye-laws or rules & regulations regarding Internal management. Defines
Officers’ Powers.
Contract (Sec. 10): Established between company & members & between members.
Schedule I - Tables F, G, H, I & J. Inconsistent with MOA or Act: should not be contained.
Subordinate to ‘Memorandum’.
Difference between MOA & AOA: Power, Ultra-vires, Alteration, Nature (Contents), Scope.
Entrenchment provision: Specified provisions of articles be altered only if conditions or procedures
more restrictive than special resolution, are met.
Shall only be made: either on formation of Company or Amendment in articles if agreed by All
members in private company or Special resolution in Public co.
Give notice to registrar of such provisions
Alteration of AOA : Special resolution. (Sec. 14)

- If Private to public: From date of alteration, cease to be a pvt company.
- Public to private: Requires approval of Tribunal.
- To be Filed with Registrar within 15 days: 1) Altered AOA 2) copy of order of Tribunal 3) copy of
altered articles. (Alteration noted in every copy of articles.)
- Copies to be given to members: within 7 days of request: MOA,AOA, Every agreement & resolution
which are to be filed with ROC.
Limitations to alteration: Minority fraud, Exceed MOA, Bona fide, Approval, Retrospective effect,
Reserve capital, Inconsistent, Enhancing liability, Remove member.
Doctrine of constructive Notice:

- Memorandum & articles when registered with ROC ‘become public documents’.
- Can be inspected on payment of nominal fee.
- Thus persons entering into contract presumed to have read & understood these documents.
- Thus if a person enters into a contract beyond powers of company he cannot, acquire any rights
under contract against company.
Doctrine of Indoor management: (Turquand Rule)

- Allows all those who deal with company to assume that provisions of articles have been observed
by officers.
-Persons dealing with company are not bound to inquire into regularity of internal proceedings.
Doctrine of constructive notice seeks to protect company against outsiders, principle of indoor
management operates to protect outsiders against company.
Exceptions to Doctrine of Indoor Management: (If No Knowledge)

-Forgery (Ruben v Great Fingall Consolidated Ltd)
-Negligence (Anand Biharilal V Dinshaw & Co.)
-Knowledge of irregularity (Howard v Patent Ivory Mfg Co.)
Share and Share Capital
Share is the share capital of a company and includes Stock. [Sec. 2(84)]
Share is movable property. Share and Share certificate shall be serially numbered. It means interest
in the company. It is a bundle of rights and obligations.
Kinds of Share Capital: (Sec. 43)

Equity Share Capital: 1) normal rights. 2) differential rights as to voting/dividend/otherwise.
Preference Share capital: Preference in dividend and repayment in case of winding up. May get
additional share in dividend and assets during winding up.
Classification of Capital:
Nominal Capital
Issued Capital
Subscribed Capital
Called up Capital
Paid up Capital

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CA Shashank Sharma 6|Page

1. Contract Act 1872

Essential elements of the valid contract (i.e.; agreement to be enforceable by law):

CA Shashank Sharma 2|Page

 The parties to contract are legally capable of contracting.

A contract is formed by-

Difference between Void and Illegal Agreements:

Contract of Record Contract Under Seal

Court’s Judgment Recognizance

Simple Contract (or Parol Contract)

CA Shashank Sharma 3|Page

1. Valid 5. Unenforceable Contract: 7. Express and 8. Executed 9.

CA Shashank Sharma 3|Page

Offer and Acceptance

Legal rules regarding valid offer:

Legal rules regarding a valid acceptance

CA Shashank Sharma 4|Page

7. Acceptance must succeed the offer.

Communication of Offer and Acceptance

(Revocation of offer valid)

01 (offer made) 06 (Offer is complete)

13 (Acceptance is complete for Acceptor) 08 (Acceptance is complete for Offeror)

 Offeror can revoke the offer at anytime before 8th.

An offer lapses or comes to an end (Sec. 6):

CA Shashank Sharma 5|Page

Exception to the rule of “No Consideration no Contract”

CA Shashank Sharma 6|Page

b. Agreement to compensate for past voluntary service [Sec. 25(2)]

The doctrine of Privity of Contract

Law Relating to Minor's Agreements

CA Shashank Sharma 7|Page

Sr. CASE Restitution

Persons of Unsound mind

Section 12 further states that:

CA Shashank Sharma 8|Page

Coercion Undue Influence Fraud Misrepresentation Mistake

Can Silence be Fraudulent?

Mistake: Mistake may be defined as an erroneous belief concerning something.

Every agreement of which the object or consideration is unlawful is void.

Agreements in restraint of legal proceedings (Sec.28).

Certain exceptions to the above rule may be noted:

Agreements by way of wager (Sec. 30):

Agreement By Way of Wager

Contingent and Quasi Contracts

A Contract can be performed by (Secs. 40 & 41)

When contracts need not be performed?

Devolution of joint liabilities & joint rights (Secs. 42 to 45)

Time and place of performance:

Time And Place of Performance

Specified Not Specified Specified Not Specified

The Promisor shall apply Promisor shall apply

Performance should be Need not

Time as the essence of contract:

Methods of termination of contract

Anticipatory Breach (Informs or disables himself) Actual Breach

May consider as discharged May wait till the date of performance

Contract was valid in the

Destruction of Change of Law Failure of Death or Incapacity Outbreak of War

Compensation for loss or damage caused by breach of contract: (Sec. 73)

III. Suit for specific performance of the contract

IV. Suit for an injunction

V. Suit for quantum meruit

2. Sale of goods Act 1930