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Md.

Lutfar Rahman
Faculty
College of Business Administration

What is contract?
It is mentioned in section

2(h) of the Contract

Act, 1872, that


A binding agreement between two or more
persons that is enforceable by law
This is the simple definition of the term contract
given by the act. So, accordingly it means
that whenever the agreement acquires the
qualification of enforceability by law then it
becomes a contract.

The

agreements may be of two types:


1) Agreement enforceable by law; and
2) Agreements not enforceable by law.
The agreements which are enforceable by
law only those can be the contacts, and
never the others which are not
enforceable by law.
All contracts are agreements, but all
agreements are not contract.

For

a clear idea about a Contract we have


to depend on at least two other definitions,
viz:
1) Agreement
2) Enforceability by law
Definition of agreement: Every promise and
every set of promises forming the
consideration for each other is an
agreement.

What is Consideration?: When at the desire of the


promisor the promisee or any other person has done
or abstained from doing or does or abstain from doing
or promises to do or to abstain from doing something,
such act or abstinence or promise is called a
consideration for the promise.
It is done at the desire of the promisor. So, if it is done
at the desire of any third person that will not be a
consideration. Conversely, if anything is done at the
desire of the promisor, that will be a good
consideration irrespective of the nature of the thing
done, even that may be legal or illegal, adequate or
inadequate.

What

is promise?: A proposal when


accepted becomes a promise.
Promise has two components:
1) Proposal
2) Acceptance
That means first of all a proposal is
necessary and then that must be
accepted to have a promise.

What

is proposal?: When one person signifies


to another his willingness to do or to obtain
from doing anything, with a view to obtaining
the assent of the other to such act or
abstinence, he is said to make a proposal.
Here two constituent sectors of an offer are
found. First, to be an offer, there must be a
signification of ones willingness to another.
Secondly, the signification must be made with
a definite object that, that is intended to have
the consent from the person to whom it is
addressed.

What

is acceptance?: After an offer is


found there must be an acceptance to
reach the stage of promise.
When the person to whom the proposal is
made signifies his assent thereto the
proposal is said to be accepted.

Summery

of Contract:
A contract is constituted by agreement
and enforceability by law, and an
agreement is constituted by promise and
consideration, and a promise is constituted
by offer and acceptance, and
consideration is constituted by the desire
of promisor and act or refrain by the
promisee.

When

does an agreement becomes


enforceable by law?
All agreement 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.

To

be a contract, an agreement must fulfill


the following conditions:
1) The parties must be competent;
2) The consent of parties must be free;
3) There must have lawful consideration;
4) The object must be lawful; and
5) The agreement must not expressly
declared void by law.

The five conditions in the earlier slide are the


further conditions to be satisfied to convert an
agreement into a contract. Accordingly, there may
be an agreement by the incompetent parties
without free consent and it is immaterial whether
the consideration or object is lawful or not. Thus, if
two persons agree to have a transaction the
ultimate object of which is smuggling that will be
nevertheless an agreement though that cannot be
a contract. But that particular agreement cannot be
a contract without satisfying these conditions.

It would be convenient if the above components are


projected through the following diagram:
Contract
Agreement

Promise

Proposal

Agreeable by law

Consideration

Acceptance

Consequence of
parties
Free consent
Object must be lawful
Consideration must be
lawful
Not declared by law as
void.

Express

contract: If the offer and


acceptance of a contract are made in words,
i.e., either expressed orally or in words, the
contract will be deemed to be express one.
As for example: A tells I would like to sell this
car for Tk 3 Lacs and B replies I agree
this is an express contract. Thus express
contract may be of two types:
1) Written contract, and
2) Oral contract

Implied

contract: If the offer and


acceptance of a contract are made
otherwise than in words, it will be treated
as an implied contract. For instance, if a
shoe shiner starts polishing the shoes of
one person and the later permits it
remaining silent knowingly that the first
person is doing so to get a payment in
exchange of this service, it will be treated
by the law as a case of implied contract.

Valid

contract: An agreement enforceable


by law is a contract and this is valid
contract. In other words, the valid contract
is that agreement which fulfils all
requirements of a valid contracts imposed
by the law.
Voidable contract: An agreement which is
enforceable by law at the option of one or
more of the parties thereto, but not at the
option of the other or others.

From earlier slide, it appears that the void ability of a


contract is temporary status. It has to be made
enforceable by law or has to be set aside and both
these are dependent at the option of the parties of
other side. A contract can become voidable for many
reasons if determined by the law. Once a contract
becomes voidable, it acquires a temporary and
transitional status. It has to be either validated or
annulled. The law gives the power of validating it to the
parties one side of the contract, not of the other side.
Law determines at whose option it will be valid in each
particular case considering the nature of that voidable
contract. Thus a contract cannot remain as voidable
forever; rather it has to be valid or void.

contract which cease to be enforceable


by law becomes void when it ceases to be
enforceable.
The definition implies two things to be void
contract:
1) One valid contract is there
2) Then it must cease its enforceability by
law.

An

agreement not enforceable by law is


said to be void.
Thus an agreement, in fact, will either be
enforceable by law or not. If it becomes
enforceable by law it will be a contract and
if failed to be so then it will remain as
agreement and the legal status of the
agreement will be void agreement. And
there are obviously certain criteria set by
law for the enforceability.

There is a similarity between these two terms, void


agreement and void contract, that is, both of these
are not enforceable by law. The only basic
distinction between these two is that a void
contract was valid once upon a time, but a void
agreement was never in a position to be
enforceable by law. In other words, void
agreement implies void ab initio, i.e., void from
very beginning or from its birth, whereas void
contract implies that it is not void in its very
inception rather it was born as valid or enforceable
by law and subsequently it ceased to be
enforceable by law.

The concept of illegal agreement can be inferred from


the relevant laws that it means the agreement which is
illegal. It is worth mentioning here that all illegal
agreements are void agreements but all void
agreements are not illegal, because illegality is one of
the grounds to be void but there may be other reasons
for which an agreement may be void but in that case
that some can not be termed as illegal. Suppose,
entering into an agreement to write 100 standard
pages within five minutes in ones own handwriting is
void agreement, but this is not an illegal agreement.
But, if some how an agreement becomes illegal then
obviously that will be void agreement.

This

is a misnoma, because it creates a


paradoxical situation. A contract implies that it
is enforceable by law. So. Whenever the term
contract is used it cannot bear the term
illegal with it, because that will create selfcontradiction, which will give rise to a
paradox. Because the agreement which is
enforceable by law cannot be termed as
illegal. That is why, illegal agreement is a
correct term but not the illegal contract.

This

is another interesting terminology,


which has not been defined in the Contract
Act, 1872. It means a contract, which
cannot be enforced by the courts of law for
some technical reasons. Suppose, the
right arising out of a time barred contract
may not be enforceable in the courts of law
and such a contract may be termed as
unenforceable contract.

Definition

of Proposal: Proposal is the


starting point from where an agreement
gets life formally which ultimately may take
the shape of a legally binding contract. The
term proposal which is used in
Bangladesh is synonymous with the term
offer used under English law. Section
2(a) of the Contract Act, 1872, while
defining the term proposal says that-

Where

one person signifies to


another his willingness to do or
to obtain from doing something
with a view to obtaining the
assent of that other to such act
or abstinence he is said to
make a proposal.

If we dissect the above mentioned definition then


one may find out the following elements of a
proposal:
1) Signification of ones willingness;
2) Willingness is expressed to another person;
3) The willingness may be affirmative or negative,
i.e., that is either to do something or to abstain
from doing;
4) The said willingness is expressed to other person
with a definite object, that is, the person who
makes it intends to obtain the consent to the
same from the person to whom it is made.

What is an offer? The simplest answer to this


question is that it is a willingness of one person.
But if someone has a willingness in his mind it will
not be sufficient to constitute an offer, rather it
must be expressed to someone else. That
willingness may be to do something or to abstain
from doing something. The last important element
of an offer is relating to the intension of the person
who is making the proposal i.e., proposer, that is
one must make it with the intension of getting the
consent from the other person to whom it is made.
Let us examine the conversation in the next slide.

(A conversation is taking place between A and B


while they were taking tea at fine evening of
autumn sitting in the garden of B)
A: Have you bought another car? I just heard it
from C that you purchased a Lexus car yesterday.
B:Yeah. It is true.
A:But I think the second car will be really useless
for you, one is sufficient.
B: I am thinking to sell my old one.
A: For how much?
B: 5 lacs
A: Thats nice.

Here,

the statement made by B failed to


constitute an offer because of two reasons
- first of all, he was not serious about his
willingness, rather he was merely thinking
like this. Secondly, here B told that he was
thinking to sell the car for a certain price
but it was not intended by his statement
that he made it with a view to obtain the
consent from A in this regard.

Nature of Willingness: It
should be affirmative or
negative i.e., to do
something or to abstain
from doing something

Willingness

Willingness is expressed to
another person. His
expression must be heard by
others to make an offer.

The said willingness is


expressed to other person
with a definite object to
obtain consent from the
person to make an offer.

A proposer must intend to create legal relations


and as such expressed willingness (offer) must be
capable of creating legal relations.
Example: Promise made by A to pay B monthly
allowance for a definite period. But after sometime
A denied to give B the said allowance. B could
not enforce the obligation because nature of
agreement implies no intension to give rise to a
legal obligation and as such there was no offer at
all to be accepted and consequently there was no
contract between A & B. Similarly an invitation to
dine is not an offer.

If

someone invites his friends to have a tea in


his house and if any of the invited guests after
accepting the said invitation misses that tea
party, that person will not be held liable for
breach of contract, thought the host has
already incurred certain expenses in the
preparation of the party, because, these are
purely social relations, where legal obligations
and consequences are never intended, so
there was no offer no acceptance no
contract no breach of contract.

Mere

expression of intension is not


sufficient to constitute an offer, rather that
must be the final decision of his thought
which is made with a definite purpose, i.e.,
to obtain the consent of the person to
whom it is made. Thus if A says to B, I
may sell one of my cars if I can get Tk 3
lacs that is not an offer. If there is no
offer, no question of acceptance and as
such no contract.

For

example A told B, while taking tea, I will


be happy if I can sell my house situated at
Uttara for Tk 1 crore to a university teacher,
B being a university teacher comes forward
with the said money and claims the house.
Bs such performance will not amount to
acceptance, because As statement did not
constitute an offer, since it was a mere
statement of intension expressed to B out of
conversation.

An offer must be definite i.e., any vague or


ambiguous statement is incapable to give birth to a
proposal.
An offer may be made to a specific person or
specific class of persons or even to the world at
large generally. Because the definition of the term
proposal does not restrict that the offer should be
made only to one person rather the law says when
one person signifies to another which implies
that the offer must not be addressed to the offeror
himself, rather to another so it is not a bar in
making an offer even to the whole world at large.

Examples:
1) A says to B to sell his computer to him for
a certain price it is a specific proposal
made to one specific person, B which is
capable to be accepted only by B alone,
and no other person except B can accept
the offer.
2) A makes an offer to sell some computers at
low price and specifically mentions in the
offer that it is made only for the law students
it is an offer made to a specific class of
persons.

Offer

may be expressed or implied. If it is


made by words, written or oral, it becomes
an express offer and if it is made otherwise
than in words, i.e., by conduct it is an
implied offer.
Examples:
1) A tells B I will sell my car to you for Tk
1000 it is an express offer which is made
orally.

2) A sends an e-mail to B offering to sell


his land situated at Gulshan for a certain
price it is also an express offer which is
in the form of writing.
3) A professional shoe shiner when starts
polishing ones shoes in front of the owner
of the shoes, and the owner does not deny.
This is a case of implied offer which is
made by conduct.

Since

ones willingness may be positive or


negative, likewise an offer also may be
positive or negative, because an offer is
nothing but the expression of ones
willingness.
Example:
1) A tells that I will sell my car for Tk 3 lacs it
is a positive offer.
2) A tells B that If you do not go to Coxs Bazar
tomorrow, I will not give C Tk 3 lacs It is a
negative offer.

Offer

may be conditional or unconditional. It is


natural that besides unconditional offers one
can make a proposal subject to some
stipulations also. For Example, If A tells B that
I will sell my car to you if you recruit my
nephew in your company as a manager it is
a conditional offer. In case of a conditional
offer the offeree must fulfill all terms and
conditions of offer in order to accept it.

Offers

must be distinguished from


invitation to treat, because there are many
statements which seem to be offers, but in
fact these are invitation to treat. Simply
speaking, we discussed earlier the
constituent elements of an offer, and if any
statement lacks any of those elements that
may be termed as an invitation to treat.

It is convenient to distinguish between an offer and an


invitation to treat on the basis of two factors.:
1) Nature of the statement; and
2) Intension of the party who is making the statement
In the context of the nature of the statement it is to be
examined whether the said statement satisfies all
requirements of a valid offer, inter alia, final
expression of ones willingness and sufficiently
definite to be capable of acceptance, if the statement
or conduct becomes so satisfactory then it will be an
offer, but if in short of it at any degree then it will be
an invitation to treat, not an offer.

(Case study: Gibson Vs. Manchester City Council)

Auction Sales: It is well established principle


regarding auction sale that the offer is made by the
bidder, i.e., the bid itself is an offer which is to be
accepted by the fall of the hammer of the
auctioneer on his table. There are certain issues
relating to auction sales.
1)The first issue is about the request for bids. Is the
request for bid a definite offer?
2)The second issue is about the nature of
advertisement of an auction sale is it an offer or
invitation for treat? The advertisement of an
auction is generally held to be an invitation to
treat.

3) The next question arises does an


advertisement that specified goods will be
sold by auction on a certain day constitute
a promise to potential bidders that the sale
will actually be held?
4) The third issue is regarding the
advertisement that mentions the sale to be
held without reserve is it a definite offer
to sell to the highest bidder.

Tenders:

The general rule is that an


invitation to tender for a particular project
is an invitation to treat and the person who
submits the tender is deemed by law as an
offeror as the submission of tender is an
offer which in turn is to be accepted by the
person who invites the tender for any
particular project.

Display

of goods: Now a days a fixed price


shops are increasing and being popular
day by day. The issue is whether the
display of goods for sale an offer or
invitation to treat. If goods are exhibited in
a shop-window or inside a shop with a
price attached, does this constitute an offer
to sell at that price? The general English
Law view is in favor of its being treated as
an invitation to treat.

Lord

Parker in Fisher Vs. Bell undoubtedly


decided the issue suggesting that:
It is clear that, according to the ordinary law
of contract, the display of an article with a
price on it in a shop window is merely an
invitation to treat. It is in no sense an offer
for sale, the acceptance of which
constitute a contract.

Advertisements:

The general principle


relating to advertisement is that it is not an
offer, rather an invitation to treat. It is also
the established principle that a circular,
catalogue advertising goods for sale is not
an offer itself, but it is a mere attempt to
induce offers and in this regard Lord
Herschel's observation is worth mentioning
here:

The

transmission of such a price-list does not


amount to an offer to supply an unlimited
quantity of the wine described at the price
named, so that as soon as an order is given,
there is binding contract to supply that
quantity. If it were so, the merchant might find
himself involved in any number of contractual
obligations to supply wine of a particular
description which he could be quite unable to
carry out, his stock of wine of that description
being necessarily limited.

Timetables

and boarding on the bus or train:


The matters of daily life are in most of the
cases become confusing. Such as in case of
boarding on a bus or train there may be four
probable explanations:
1) The bus time table and the running of the
bus are an offer by the bus company which is
accepted by boarding on the bus. This was
the view of Lord Greene that the offer was
made by the bus company and it was
accepted when a passenger puts himself
either on the platform or inside the bus.

2) Alternatively an acceptance takes place


when the passenger asks for a ticket and
pays the fare.
3) The bus time-table is an invitation to treat,
the offer is made by the passenger on
boarding the bus and the acceptance takes
place when the bus conductor accepts the
money and issues the ticket.
4) The bus conductor makes the offer when he
issues the ticket and this offer is accepted by
paying the fare and retaining the ticket.

Section 2(b) of the Contract Act 1872, states that


When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to
be accepted.
We can dissect the definition at least into three
constituent parts:
1) Signification of the assent;
2) Assent is signified by the person to whom the
proposal was made;
3) The term thereto used in this section implies that
the assent must be given to the offer as it is.

By

an analysis of the above definition we can


reach to the following conclusions:
1) A proposal must be accepted by the person
to whom the offer is made. So, if A offers B
to sell his car to him, C can not accept the
offer.
2) If the consent is not signified then there will
not be a valid acceptance. It implies that if
someone keeps the assent in his own mind
then it will not be enough to constitute an
acceptance. So, that assent must be
signified.

3) The term thereto in fact indicates to some


essential conditions of acceptance. It implies
that nothing can be excluded from the offer or
nothing can even be added with the offer. So,
if someone would like to sell his car for a
certain price and the person to whom it is
addressed he accepts the offer adding
another condition that it must be painted
before the delivery of possession it is not a
signification of his assent thereto, i.e., to the
offer as it is and so is not an acceptance in
the eye of law.

Assent must be signified to the proposer. Thus


mere assent of one person in his own mind will
not suffice, rather it must be communicated to
the proper person.
Assent, the centre point of
acceptance.

Who will give the assent?


Assent must be given by the
person to whom the proposal
was made.

Assent to what? Assent must


be given thereto, that means, to
the proposal exactly as it is
made.

In

order to convert a proposal into a promise,


the acceptance must be absolute and
unqualified. So, acceptance with a variation is
no acceptance at all. Absolute and
unqualified these two terms together makes
one thing emphatically clear that acceptance
must be made to the offer as it is made
without any variation in it. In other words,
nothing can be added with the offer or nothing
can be excluded and no part or no term of
offer can be varied to any extent in its
acceptance.
Examples in next slides

Example#1

A: I will sell my car to you for Tk 3 lacs.


B: I agree. But you must paint the car before
giving it to me.
Here Bs statement is not an acceptance,
because it adds one more condition which
did not exist in the offer. Thus it is not an
unqualified acceptance as required by law.

Example

#2:
A: I will sell two cars together for Tk 5 lacs.
B: I agree to purchase any one of it for Tk
2.5 lacs.
Here Bs statement does not constitute a
valid acceptance. Because it is not
absolute one as required by law. It
excluded something from the original offer
and agreed partially, so it is not a valid
acceptance.

Example

#3:
A: I will sell my computer to you for Tk 50
thousands only
B: I agree to accept for Tk 49 thousands
Here also Bs statement is not a valid
acceptance, because it is a statement with
a variation and deviation from the offer.

Every person is competent to contract who is the


age of majority according to the law to which he is
subject, and who is of sound mind, and is not
disqualified from any law to which he is subject.
So, if we dissect the section then we get three
conditions to be fulfilled by a person to be
competent to enter into a contract, that the person
is1) Of the age of majority;
2) Of sound mind; and
3) Not disqualified from contracting by any law to
which he is subject.

Thus

we can express the competency of


parties negatively, that the following persons
cannot enter into a contract:
1) minors;
2) Persons of unsound mind; and
3) Persons disqualified by any law.
Two major things to be done by a person of
sound mind if he has the capability:
1) To understand the contract
2) To form a rational judgment considering its
effect upon his own interests.

Free

consent is an essential element of a


valid contract. It is natural that for an
agreement both parties to it must come to a
common point. For that reason consent has
become an essential element of an
agreement. To constitute a contract even
mere consent is not sufficient, rather the
consent must be free consent according to
the law. First of all, we have to know the
meaning of consent then the criteria to be a
free consent.

Meaning

of consent: Section 13 of the


Contract Act, 1872, says that, two or more
persons are said to consent when they
agree upon the same thing in the same
sense.
Thus, there are two statutory requirements
to be a consent that the consent must be
given:
1) To the same thing, and
2) In the same sense

So, if the parties agree upon different things or in


different senses then this will not be treated as
consent. Of course, the term thing used in the
first requirement means the contents of
agreement.
Meaning of free consent: Section 14 says consent
is said to be free when it is not caused by1) Coercion
2) Undue influence
3) Fraud
4) Misrepresentation
5) Mistake

Consent

is said to be so caused when it


would not have been given but for the
existence of such coercion, undue influence,
fraud, misrepresentation or mistake.
Thus, to be a free consent, that must not be
caused by any of these five elementscoercion, undue influence, fraud,
misrepresentation, and mistake. In other
words, if a consent is given being affected by
any of the above five elements, the consent
will not be treated by the law as a free
consent.

An

Act to define and amend the law


relating to:
1) Promissory Notes
2) Bills of Exchange
3) Cheques.

1)

A negotiable instrument means a


promissory note, bill of exchange or cheque
payable either to order or to bearer.
Explanation (i): A promissory note, bill of
exchange or cheque is payable to order
which is expressed to be so payable or which
is expressed to a particular person, and does
not contain words prohibiting transfer or
indicating an intention that it shall not be
transferable.

Explanation

(ii): A promissory note, bill of


exchange or check is payable to bearer
which is expressed to be so payable or on
which the only or last endorsement is an
endorsement in blank (An endorsement on
commercial paper naming no payee and
so payable to the bearer).

Explanation

(iii): Where a promissory note, bill


of exchange or check, either originally or
endorsement, is expressed to be payable to
the order of a specified person, and not to
him or his order, it is nevertheless payable to
him or his order at his option.
A negotiable instrument may be payable to
two or more payees jointly or it may be made
payable in the alternative to one of two, or
one or some of several payees.

accommodation party means a person who has


signed a negotiable instrument as a maker,
drawer, acceptor or endorser without receiving the
value thereof and for the purpose of lending his
name to some other person;
banker means a person transacting the business
of accepting, for the purpose of lending or
investment, of deposits of money from the public,
repayable on demand or otherwise and with
drawble cheque, draft, order or otherwise, and
includes any Post Office Savings Bank;

bearer

means a person who by negotiation


comes into possession of a negotiable
instrument, which is payable to bearer;
delivery means transfer of possession,
actual or constructive, from one person to
another;
issue means the first delivery of a
promissory note, bill of exchange or cheque
complete in form to a person who takes it as
a holder;

Negotiation: When a promissory note, bill of


exchange or check is transferred to any person, so
as to constitute that person the holder thereof, the
instrument is said to be negotiated.
Endorsement: When the maker or holder of a
negotiable instrument signed the same, otherwise
than as such maker, for the purpose of negotiation,
on the back or face thereof or on a slip of paper
annexed thereto, or so signs for the same purpose
a stamped paper intended to be completed as a
negotiable instrument, he is said to indorse the
same, and is called the endorser.

Endorsement

in Blank and in full: If the


endorser signs his name only, the
endorsement is said to be in blank, and if
he adds a direction to pay the amount
mentioned to, or to the order of, a specified
person, the endorsement is said to be in
full and the person so specified is called
the endorsee of the instrument.

written promise to pay or repay a specified


sum of money at a stated time or on demand.
Also called note of hand.
Written promise to pay, frequently used in
installment loans and commercial loans. A
promissory note is the legal evidence of a
debt, a promissory note may be transferred to
a third party as a Negotiable Instrument. The
holder of a promissory note who wants
payment before the maturity date can
negotiate it by endorsing the note and
presenting it to the payer for payment.

A promissory note is a negotiable instrument, wherein


one party (the maker or issuer) makes an unconditional
promise in writing to pay a determinate sum of money to
the other (the payee), either at a fixed or determinable
future time or on demand of the payee, under specific
terms.
A Promissory note is an instrument in writing (not being
a bank note or a currency note) containing an
unconditional undertaking, signed by the maker, to pay
(on demand or at a fixed or determinable future time) a
certain sum of money only to, or to the order of, a certain
person, or to the bearer of the instrument.

Example:
I,

Jane Monroe, do promise to pay City


Finance Co., the sum of $50,000.
Repayment is to be made in the form of
300 equal payments at 6% interest, or
$322.15 payable on the 1st of each
month, beginning 8/1/2009 until total
debt is satisfied.
Signed Jane Monroe

A signs instruments in the following terms:


I promise to pay B or order Tk 500.
I acknowledge myself to be indebted to B in Tk
1,000 to be paid on demand, for value received.
c) Mr. B, I O U Tk 1,000.
d) I promise to pay B Taka 500 and all other sums
which shall be due to him.
e) I promise to pay B Taka 500, first deducting
there out any money which he may owe me.
f)
I promise to pay B Taka 500 seven days after my
marriage with C.

a)
b)

G)

I promise to pay B Taka 500 on Ds death,


provided D leaves me enough to pay that
sum.
H) I promise to pay B Taka 500 and to deliver
to him my black horse on 1st January next.
The instruments respectively marked (a) and
(b) are promissory notes. The instruments
respectively marked , (d), (e), (f), (g) and (h)
are not promissory notes.

It may assume the form of a promissory note, an


ordinary receipt, a deposit receipt, a memorandum,
an acknowledgement of a debt or a bond. Though
the main purport of all these kinds of instruments is
one and the same, yet a sharp distinction has been
held to exist between:
1) a promissory note and an ordinary receipt;
2) a promissory note and a deposit receipt;
3) a promissory note and a memorandum;
4) a promissory note and an acknowledgement of
a debt;
5) a promissory note and a bond.

The

distinction is of practical considerable


importance in view of the provisions of the
limitation Act which provide periods of
limitation for suits on the basis of such
instruments in different articles and of the
provisions of the Stamp Act which provide for
the fixation of stamps of different value in the
case of different instruments. All this has led
the Legislature to define the expression
promissory note in explicit words.

bill of exchange is an instrument in writing


containing an unconditional order, signed by
the maker, directing a certain person to pay
(on demand or at a fixed or determinable
future time) a certain sum of money only to,
or to the order of, a certain person or to the
bearer of the instrument.

written order directing that a specified sum


of money be paid to a specified person.

Short-term

negotiable financial instrument


consisting of a written order addressed by the
seller of goods to the buyer requiring the
latter to pay a certain sum of money on
demand or at a future time. Bills of exchange
are often used in international transactions,
and the holder of such a bill may redeem it in
cash immediately by selling it to a bank at a
discount. Bills of exchange used in domestic
transactions are sometimes called drafts.

A three-party negotiable instrument in which the first


party, the drawer, presents an order for the payment of
a sum certain on a second party, the drawee, for
payment to a third party, the payee, on demand or at a
fixed future date.
A bill of exchange is distinguishable from a promissory
note, since it does not contain a promise and the
drawer does not expressly pledge to pay it. It is similar
to a note, however, since it is payable either on
demand or at a specific time.
The terms bill of exchange and draft are synonymous;
however, the former is generally used in international
law, whereas the latter is used in the Uniform
Commercial Code.

Bills

of exchange are similar to checks and


promissory notes. They can be drawn by
individuals or banks and are generally
transferable by endorsements. The difference
between a promissory note and a bill of
exchange is that this product is transferable
and can bind one party to pay a third party
that was not involved in its creation. If these
bills are issued by a bank, they can be
referred to as bank drafts. If they are issued
by individuals, they can be referred to as
trade drafts.

bill of exchange is essentially an order


made by one person to another to pay money
to a third person. A bill of exchange requires
in its inception three partiesthe drawer, the
drawee, and the payee. The person who
draws the bill is called the drawer. He gives
the order to pay money to the third party. The
party upon whom the bill is drawn is called
the drawee. He is the person to whom the bill
is addressed and who is ordered to pay.

He becomes an acceptor when he indicates his


willingness to pay the bill. The party in whose favor the
bill is drawn or is payable is called the payee. The
parties need not all be distinct persons. Thus, the
drawer may draw on himself payable to his own order.
A bill of exchange may be endorsed by the payee in
favour of a third party, who may in turn endorse it to a
fourth, and so on indefinitely. The "holder in due
course" may claim the amount of the bill against the
drawee and all previous endorsers, regardless of any
counterclaims that may have disabled the previous
payee or endorser from doing so. This is what is meant
by saying that a bill is negotiable.

In calculating the date at which a promissory note or bill


of exchange, made payable a stated number of months
after date or after sight, or after a certain event, is at
maturity, the period stated shall be held to terminate on
the day of the month which corresponds with the day on
which the instrument is dated, or presented for
acceptance or sight, or noted for non-acceptance, or
pretested for non acceptance, or the event happens, or,
where the instrument is a bill of exchange made payable
a stated number of months after sight and has been
accepted for honor, with the day on which it was so
accepted. If the month in which the period would terminate has no
corresponding day, the period shall be held to terminate on the last
day of such month.

The

expression after sight means, in a


promissory note, after presentment for
sight, and, in a bill of exchange, after
acceptance, or noting for non-acceptance,
or protest for non-acceptance.

A negotiable instrument, dated 29th


January, 1878, is made payable at one month
after date. The instrument is at maturity on
the third day after the 28th February, 1878.
Days of grace: Every promissory note or bill
of exchange which is not expressed to be
payable on demand, at sight or on
presentment is at maturity on the third day
after the day on which it is expressed to be
payable.
A)

A negotiable instrument, dated 30th


August, 1878, is made payable three
months after dated. The instrument is at
maturity on the 3rd December, 1878.
C) A promissory note or bill of exchange,
dated 31st August, 1878, is made payable
three months after date. The instrument is
at maturity on the 3rd December, 1878.
B)

In calculating the date at which a


promissory note or bill of exchange made
payable a certain number of days after
date or after sight or after a certain event is
at maturity, the day of the date, or of
presentment for acceptance or sight, or of
protest for non acceptance, or on which
the event happens, shall be excluded.

When

the day on which a promissory note


or bill of exchange is at maturity is a public
holiday, the instrument shall be deemed to
be due on the next preceding business
day.

Every

person capable of binding himself or of


being bound, by the making, drawing,
acceptance or negotiation of a negotiable
instrument, may so bind himself or be bound
by a duly authorized agent acting in his name,
a general authority to transact business and
to receive and discharge debts does not
confer upon an agent the power of accepting
or endorsing bills of exchange so as to bind
his principal.
An authority to draw bills of exchange does
not of itself import an authority to endorse.

1) Where a person signs a promissory note, bill of


exchange or check without adding to his signature words
indicating that he signs it as an agent for and on behalf of
a principal or in a representative character, he is
personally liable thereon but the mere addition to his
signature of words describing him as an agent or as
filling a representative character does not exempt him
from personal liability.
2) Notwithstanding anything contained in sub- section
(1), any person signing a promissory note, bill of
exchange or check for and on behalf of the principal is
not liable to a person who induces him to sign upon the
belief that the principal alone would be held liable.

Whereas the holder of a negotiable instrument


payable to bearer negotiates it by delivery without
endorsing it, he is called a transferor by delivery.
A transferor by delivery is not liable on the
instrument.
A transferor by delivery who negotiates a
negotiable instrument thereby warrants to his
immediate transferee, being a holder for
consideration, that the instrument is what it
purports to be, that he has a right to transfer it, and
that at the time of transfer he is not aware of any
defect which renders it valueless.

No

person is liable as maker, drawer,


endorser or acceptor of a promissory note,
bill of exchange or check who has not
signed it as such provided that where a
person signs any such instrument in a
trade or assumed name he is liable
thereon as if he has signed it in his own
name.

The drawer of a bill of exchange by drawing it


engages that on due presentation it shall be
accepted and paid according to its tenor, and that
if it be dishonored, he will compensate the holder
or any endorser who is compelled to pay it; and
The drawer of a cheque by drawing it, engages
that in the case of dishonor by the drawee he will
compensate the holder provided that the drawer of
a bill of exchange is not liable thereon until
acceptance in the manner provided by this act.

The

drawee of a check having sufficient


funds of the drawer in his hands properly
applicable to the payment of such check
must pay the check when duly required so
to do, and, in default of such payment,
must compensate the drawer for any loss
or damage caused by such default.

If

a contract of sale provides that payment


is to be made draft or bill drawn on the
buyer, the latter is bound to accept the
draft or bill on tender of the proper
documents. This he must do even though
the goods be lost or destroyed at the time
the draft is presented or the delivery
thereof has become impossible due to war.

The

delivery he is entitled to as against


payment of the contract price is not the goods
contracted for but their symbol represented
by the Bill of Lending or invoice.
Where therefore, there has been un
acceptance of a bill drawn against certain
goods the drawee is bound to pay on due
date. The only defense open to him is that the
documents were not the proper documents or
that they were forged.

No

person except the drawee of a bill of


exchange, or all or some of several
drawees, or a person named therein as a
drawee in case of need, or an acceptor for
honor, can bind himself by an acceptance.

In

the absence of a contract to the contrary,


the endorser of a negotiable instrument, by
endorsing it, engages that on due
presentation it shall be accepted and paid
according to its tenor and that if it be
dishonored he will compensate the holder or
subsequent endorser who is compelled to pay
it for any loss or damage caused to him by
such dishonor.
Every endorser after dishonor is liable as
upon an instrument payable on demand.

Every

prior party to a negotiable


instrument is liable thereon to a holder in
due course until the instrument is duly
satisfied

The

maker of a promissory note or


cheque, the drawer of a bill of exchange
until acceptance, and the acceptor are, in
the absence of a contract to the contrary,
respectively liable thereon as principal
debtors, and the other parties thereto are
liable thereon as sureties for the maker,
drawer or acceptor, as the case may be.

As

between the parties so liable as


sureties, each prior party is, in the absence
of a contract to the contrary, also liable
thereon as a principal debtor in respect of
each subsequent party.

draws a bill payable to his own order on


B who accepts. A afterwards indorses the
bill to C, C in D, and D to E. As between E
and B. B is the principal debtor, and A, C
and D are his sureties. As between E and
A, A is the principal debtor, and C and D
are his sureties. As between E and C, C is
the principal debtor and D is his surety.

When

the holder of a negotiable


instrument, without the consent of the
endorser, destroys or impairs the
endorsers remedy against a prior
party, the endorser is discharged from
liability to the holder to the same
extent as if the instrument had been
paid at maturity.

A is the holder of a bill of exchange made


payable to the order of B, which contains the
following endorsements blanks First endorsement, B
Second Endorsement, Peter Williams.
Third endorsement, Wright & Co.
Fourth endorsement, John Rosario.
This bill A puts in suit against John Rosario and
strike out, without John Rosarios consent,
the inducements by Peter Williams, and
Wright & Co. A is not entitled to recover
anything from John Rosario.

Promissory note
1) It is an unconditional
promise to pay
2) Two parties are involved
here (a) Drawer, (b) Payee
3) The liable person for making
payment signs the note to
pay and hence there is no
need for endorsement
4) Maker of the promissory
note is primarily responsible
to pay
5) There is no need to issue
notice for dishonoring the
promissory note

Bill of Exchange
1) It is an unconditional order to pay
2) Three parties are involved here, (a)
Drawer, (b) Drawee, Payee
3) It needs endorsement in maximum
cases except one or two cases.
4) Here maker is responsible if drawee
dishonors bill of exchange and
abstain from making payment to the
payee.
5) Here notice is issued to dishonor the
bill of exchange. In case of dishonor
and payment held up, responsible
persons to be notified through
Notary Public.

Promissory note

Bill of Exchange

6) For calculation of maturity of bill of


exchange, three days grace period
6) There is no days of grace in
is allowed.
promissory note
7) If bill of exchange is acknowledged
7) If makers of promissory note are
by more than one, then all will be
more than one, they are jointly and
held liable to pay
Individually responsible
8) It may be accepted subject to
8) Promissory note is unconditional
conditions
9) It is made one copy
9) It is made three copies
10) Promissory note is payable as
10) It needs to be submitted for
soon as demanded
payment
11)Probe is not necessary for
11) Probe is necessary after dishonor.
dishonor.
In absence of probe, legal action
12) After dishonor, legal action can
can not be taken
be started without notice.
12) After dishonor of the bill of
exchange, legal action can not be
started without notice.

Law of
Sale of Goods and Hire Purchase

This

act may be called the Sale of Goods


Act, 1930
It extends to the whole of India.
It shall come into force on the first day of
July, 1930

Sec

2(1)-Buyer: means a person who buys


or agrees to buy goods;
Sec 2(2)-Delivery: means voluntary
transfer of possession from one person to
another.
Sec 2(3)-Goods are said to be in a
deliverable state when they are in such
state the buyer would under the contract
be bound to take delivery of them;

Sec 2(4)-Documents of title to goods includes:


1) A bill of lading;
2) Dock warrant;
3) Warehouse-keepers certificate;
4) Railway receipt;
5) Warrant of order for the delivery of goods and any other
document used in the ordinary course of business as
proof of the possession or control of goods, or
authorizing or purporting to authorize, either by
endorsement or by delivery, the possessor of the
document to transfer or receive goods thereby
represented;

Railway

Receipt: A railway receipt is a


document of title, within the definition of
the term in Section 2(4), Sale of Goods
Act, and enables the person mentioned as
consignee to give a valid discharge in
respect of the goods to which it relates.
Hence, a consignee of goods or an endorsee of
a railway receipt though he be an agent of the
consignor has sufficient interest in the goods to
file a suit against the railway.

A legal document between the shipper of a


particular good and the carrier detailing the type,
quantity and destination of the good being
carried. The bill of lading also serves as a receipt
of shipment when the good is delivered to the
predetermined destination. This document must
accompany the shipped goods, no matter the form
of transportation, and must be signed by an
authorized representative from the carrier, shipper
and receiver.

For

example, suppose that a logistics


company must transport gasoline from a plant
in Texas to a gas station in Arizona via heavy
truck. A plant representative and the
driver would sign the bill of lading after the
gas is loaded onto the truck. Once the
gasoline is delivered to the gas station in
Arizona, the truck driver must have the clerk
at the station sign the document as well.

2(6)-Future goods means goods to


be manufactured or produced or acquired
by the seller after the making of the
contract of sale. Where contracts of sale
were finalized at Dhaka and specific goods
were to be manufactured at Tongi in
pursuance of those contracts, it was held
that goods were future goods within the
meaning of Section 2(6);

Sec

2(7)-Goods means every kind of


movable property other than actionable
claims and money and includes:
a) stocks and shares;
b) growing crops;
c) 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;

Sec

Standing

timber is movable property if


under the contract of sale they (the trees)
are to be severed. But the severance must
take place when the timber still vests in the
contracting party. Hence trees which are to
be severed before sale or under the
contract of sale are goods for the
purpose of the sale of goods act.

The

expression goods at all relevant


times standing timber agreed to be
severed before sale or under the contract
of sale.
Bamboos and timber are goods.
Lottery tickets are goods and not
actionable claims within the meaning of
Section 2(7) of the act.

2(8)-A person is said to be insolvent who


has ceased to pay his debts in the ordinary
course of business, or cannot pay his debts as
they become due, whether he has committed an
act of insolvency or not;
Sec 2(9)- mercantile agent means a mercantile
agent having in the customary course of
business as such agent authority either to sell
goods, or to consign goods for the purposes of
sale, or to buy goods, or to raise money on the
security of goods;
Sec.

2(10)-Price means the money


consideration for a sale of goods;
Sec. 2(11)-Property means the general
property in goods, and not merely a
special property;
Sec. 2(12)-Quality of goods includes their
state or condition;
Sec.2(13)-seller means a person who
sells or agrees to sell goods;
Sec.

4.Sale

and agreement to sell:


4(1)A contract of sale of goods is a contract
whereby the seller transfers or agrees to
transfer the property in goods to the
buyer for price. There may be a contract
of sale between one part-owner and
another.
4(2) A contract of sale may be absolute or
conditional.

4(3) Where under a contract of sale the


property in the goods is transferred from
the seller to the buyer, the contract is
called a sale, but where the transfer of the
property in the goods is to take place at a
future time or subject to some condition
thereafter to be fulfilled, the contract is
called an agreement to sell.

4(4)

An agreement to sell becomes a sale


when the time elapses or the conditions
are fulfilled subject to which the property in
the goods is to be transferred.
Sale is defined as: A contract of sale of
goods is a contract whereby the seller
transfers or agrees to transfer the property
in goods to the buyer for a price.

It is contract, i.e. all requirements of


contract must be fulfilled ;
It is of goods;
Transfer of property is required;
Contract is between buyer and seller;
Sale should be for price;
A part owner can sale his part to another
part-owner;
Contract may be absolute or conditional;

contract of sale is made by an offer to


buy or sell goods for a price and the
acceptance of such offer.
The contract may provide for the
immediate delivery of the goods or
immediate payment of the price or both, or
for the delivery or payment by installments,
or that the delivery or payment or both
shall be postponed.

Subject

to the provisions of any law for the


time being in force, a contract of sale may be
made in writing or by word of mouth, or partly
in writing and partly by word of mouth or may
be implied from the conduct of the parties.
[section 5(2)]. Thus, credit sale is also a
sale. - - A verbal contract or contract by
conduct of parties is valid. e.g. putting goods
in basket in super market or taking food in a
hotel.

Two

parties are required for contract. - Buyer means a person who buys or
agrees to buy goods. [section 2(1)].
Seller means a person who sells or
agrees to sell goods. [section 2(13)]. A
part owner can sale his part to another
part-owner. However, if joint owners
distribute property among themselves as
per mutual agreement, it is not sale as
there are no two parties.

Where

under a contract of sale the


property in the goods is transferred from
the seller to the buyer, the contract is
called a sale, but where the transfer of the
property in the goods is to take place at a
future time or subject to some condition
thereafter to be fulfilled, the contract is
called an agreement to sell.

section

4(3)]. An agreement to sell becomes a


sale when the time elapses or the conditions
are fulfilled subject to which the property in
the goods is to be transferred. section 4(4).
The provision that contract of sale includes
agreement to sale is only for the purposes of
rights and liabilities under Sale of Goods Act
and not to determine liability of sales tax,
which arises only when actual sale takes
place.

Property

means the general property in


goods, and not merely a special property.
[section 2(11)]. In laymans terms property
means ownership. General Property
means full ownership. Thus, transfer of
general property is required to constitute
a sale. If goods are given for hire, lease,
hire purchase or pledge, general property
is not transferred and hence it is not a
sale.

Note

that property and possession are


not synonymous. Transfer of possession
does not mean transfer of property. e.g. - if
goods are handed over to transporter or
godown keeper, possession is transferred
but property remains with owner.
Similarly, if goods remain in possession of
seller after sale transaction is over, the
possession is with seller, but property is
with buyer.

Bilateral

Contract: A contract of sale, like


any other contract, is a consensual act
inasmuch as the parties are at liberty to settle
for themselves the terms of their bargain. A
sale has to be bilateral because the property
in goods has to pass from one person to
another. Hence, it is essential that seller and
buyer must be different persons. Because a
person can not buy his own goods.
Case Example next slide

case before the Gujarat High court:


A partnership firm was dissolved and the
surplus assets, including some goods, were
divided among the partners in specie. Sales
tax officer sought to tax this.
Rejecting

the contention of the state, Gujarat


High Court said: They (partners) were
themselves the joint owners of the goods and
they could not be both sellers and buyers.
Moreover, no money consideration was
promised or paid by any partner to the firm as
consideration for the goods allotted to him.

Graff Vs Evans:
The accused was the manager of a club. The club
was not licensed for the sale of intoxicating liquors,
but these were supplied by the manager to the
members at fixed prices.
This was held to be not a sale within the meaning of
licensing Acts. It was merely a distribution of the
liquors among the members, they being the joint
owners of the club. But if the club were an
incorporated body, the result would perhaps have
been different.

Thus where a company passed a resolution


transferring a number of buses to a partnership
consisting a certain persons who were also the
members of the company, this was held to be a sale,
the company being a separate legal person. No one
can sale his goods to himself. A sale contemplates a
seller and a purchaser. If a person revalues his goods
and shows a higher value for them in his books of
accounts, he can not be considered as having sold the
goods and made profits there from. There may be a
contract of sale between one part-owner and another.
Similarly, a partner may sell to the firm and vice versa.
Where a mans goods are sold under an execution, he
may himself buy them.

sale is said to be consensual because it is


necessary that the parties should agree with
their free consent. A forced purchase or
procurement is an acquisition and not a sale.
Where the control order leaves some scope
for consent it may be a sale. Thus, where a
sugar manufacturer is told to sell only a
stated prices and to stated customers, it is a
sale, because the buyers to whom this
privilege is given are still free to buy or not.

A sale is always a consensual transaction. There


must be mutual assent, in the objective sense in
which this expression is always understood in the
law of contract, to all the elements which make up
a sale. The seller must agree to transfer the
property and the buyer to take it, and they must
agree to do so in return for money which is paid
and received as the price of the goods. When the
consent of the parties does not extend so far, or
does not exist at all, there is no sale. Such
transactions or events are sometimes termed as
quasi-contracts of sale or implied contract of sale.

Compulsory

acquisition: Where property is


compulsorily acquired pursuant to an
authority conferred by statute there is no
sale of the property, even though
compensation is payable and its amount
may be fixed by negotiation between the
parties. The expression compulsory
purchase commonly used in this
connection is misleading.

Where drugs or appliances were supplied to a


member of the public under national health service
scheme, whether by a hospital or a pharmacist,
and although for a charge, holding this to be not a
sale.
There is no sale in this case. Sale is a consensual
contract requiring agreement, express or implied.
In the present case there is no need for any
agreement. The patient has a statutory right to
demand the drug on payment. The hospital has a
statutory obligation to supply it on such payment.

And

if the prescription is presented to a


chemist he appears to be bound by his
contract with the appropriate authority to
supply the drug on receipt of such
payment. There is no need for an
agreement between the patient and either
the hospital or the chemist and there is
certainly no room for bargaining.

On

the same reasoning, the supply of electricity,


gas or water by a public authority is not a sale
of such commodities, so that, independently of
any question whether the goods is appropriate,
the Sale of Goods Act does not apply. There is
no contractual obligation on which an action may
be brought against the authority for failure to
make the supply available or to provide a supply
fit for the purpose of the consumer. Whether
such an action will lie under the statute depends
upon its terms. A remedy may also be available in negligence.

Where

wheat was supplied by millers by a


Government Authority (Food Department)
for milling and to sell at prescribed rates, it
was held that ownership rights were not
vested in the millers. They did not become
owners of the material. They were bound
to hand over the profit made on resale of
wheat at increased prices.

The

consideration for a sale of goods must be


money, called the price. Where the property
in goods is transferred for any consideration
other than money that will not be sale, but will
exchange of barter. In other words, where
goods are exchanged for goods, that is not a
sale. But where goods are sold for a definite
sum of price is paid partly in terms of valued
up goods and partly in cash, that is sale. For
example, in Aldridge Vs Johnson.

Fifty-two

bullocks, valued $ 6 a piece, were


exchanged for 100 quarters of barley at $
2 per quarter, the difference to be made up
in cash, the contract was treated as one of
sale.
Similarly, where corn was delivered on
terms that on demand either the price
would be paid or an equal quantity of corn
would be returned, that was held to be
sale.

Where

an old car is returned to the dealer for


a new one and the difference is paid in cash,
that should also be a sale.
Where a petroleum company distributed coins
on special curiosity, but with no money or
intrinsic value, free with every four gallons of
oil, it was not a contract of sale, since the
consideration for the transfer of the coins was
not a money payment, but the undertaking by
the customer to enter a collateral contract to
purchase the appropriate quantity of ESSO
petrol.

Distinguish

between a contract for the sale of


goods and contract for work and services.
a) If a thing to be delivered has individual
existence before delivery as the sole
property of the party who is to deliver it, then
it is a sale, otherwise not;
b) If the main object of the contract is the
transfer from A to B, for a price, of the
property in a thing in which it had no
previous property, then it is a contract of
sale;

c) A contract for sale is a contract whose


main object is the transfer of the property
in and the delivery of the procession of a
chattel (any tangible movable property), as
the chattel to the buyer. Where the main
object of the work undertaken by the
payee of the price is not the transfer of
chattel, the contract is one for work and
labor.

The

test is whether or not the work and labor


bestowed end in anything that can properly
become the subject of sale, neither the
ownership of materials nor the value of the
skill and labor as compared with the value of
materials is conclusive although such matters
may be taken into consideration in
determining , in the circumstances of a
particular case, whether the contract is in
substance one for work and labor or for sale
of a chattel.

lady engaged a dentist to make two sets


of false teeth to be fitted into her mouth.
Before the work could be completed the
lady died. In the doctors action to recover
his charges the contract was held to be
one of sale.
The court emphasized that we should see
the end of the transaction. If the result of a
transaction is the passing of an article for a
price it is a sale.

The

defendant orally commissioned the


plaintiff, an artist, to paint the portrait of a
lady, and subsequently repudiated the
contract before the portrait was completed.
In an action by the plaintiff for the agreed
price, it was held to be a contract of work
and labor. The painter recovered.

The

court said: In such cases the proper


test is to see whether work is of the
essence of the contract. In cases of work
of art, whether in gold, silver, marble or
plaster, where the application of skill and
labor is of the highest description, the
material is of no importance as compared
to labor, the price may be recovered as for
work and labor.

hotel company which provides residence


and food, making a consolidated charge for
both the services and makes no rebate if food
is not taken by a particular customer, does
not make a sale of food. The position is akin
to that of a steamship or airline company
which serves food to passengers. The
decision of the Punjab High Court as already
approved by the Supreme Court, has now
been extended to the service of food in
restaurants also.

The supply of meals, whether to residents or stray


customers, is essentially in the nature of service
and not a transaction of sale. The customers come
here not to buy food and drinks but to find bodily
satisfaction that service of food in the setting of a
restaurant can afford to give. But even so, it has
been held that where a meal is supplied to a
customer in a restaurant there is a sale of goods,
the element of service being subsidiary; but it is
submitted that a meal supplied to a lodger or a
resident hotel guest is part of a contract of
services.

The

subject matter of the contract must be


goods. The expression goods as thus
defined in Section 2(7) of the act:
Goods means every kind of movable
property other than actionable claims (giving
cause for legal action) 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.

Thus

goods include every kind of movable


property other than actionable claims and
money. Things like goodwill, copyright,
trade mark, patent, water, oil, air, gas,
electricity, motor vehicles and ships are all
goods and may be subject of a contract of
sale.
Sale of a lottery tickets has been held to
be sale of goods.

Letting

out advertisement hoardings has


been held to have the effect of handling of
goods for purposes of commercial tax.
Things attached to or forming part of land
may be sold as goods provided they are
agreed to be severed under the contract.
Standing trees may be sold as goods if
they are to be removed within a
reasonable time.

decree can also be sold as goods.


Sugarcane supplied to a sugar factory is
goods within the meaning of sale of goods
act.
Goods also include shares and stock.
Sale of software is a sale of goods.
A contract to supply a program on a disk is
a sale of goods if the supplier is selling the
disk to the buyer.

Hire-purchase

system is a special system of


purchase and sale of goods. Under this
system purchaser pays the price of the goods
in installments. The installments may be
annual, six monthly, quarterly, monthly
fortnightly etc. Under this system the goods
are delivered to the purchaser at the time of
agreement before the payment of installments
but the title on the goods is transferred after
the payment of all installments as per the
hire-purchase agreement.

The special feature of a hire-purchase transaction


is that the payment of every installment is treated
as the payment of hire charges by the purchaser to
the hire vendor till the payment of the last
installment. After the payment of the last
installment, the amount of various installments
paid is appropriated towards the payment of the
price of the goods sold and the ownership or the
goods is transferred to the purchaser. Thus hirepurchase means a transaction where the goods
are sold by vendor to the purchaser under the
following conditions :

The goods will be delivered to the purchaser at the time


of agreement.
The purchaser has a right to use the goods delivered.
The price of the goods will be paid in installments.
Every installment will be treated to be the hire charges of
the goods which is being used by the purchaser.
If all installments are paid as per the terms of agreement
, the title of the goods is transferred by vendor to the
purchaser.
If there is a default in the payment of any of the
installments, the vendor will take away the goods from
the possession of the purchaser without refunding him
any amount received earlier in the form of various
installments.

Usually every hire-purchase agreement shall contain


the following terms:
The cash price of the goods, cash price means the
price at which goods may be purchased against
cash payment.
The hire-purchase price, hire purchase price
means the total amount which is payable by the
hire-purchaser under the agreement.
The date on which the hire-purchase agreement
will commence.
The description of the goods that will be delivered
to the hire-purchaser at the commencement of the
agreement.

The number of installments to be paid by the hirepurchaser along with the amount of each
installment and the date of payment of each
installment.
The down payment (a partial payment made at the
time of purchase, with the balance to be paid later)
if any, the down payment means the amount which
is required to be paid by hire-purchaser to the hire
vendor at the time of commencement of hirepurchase agreement.
The rate interest charged by the hire vendor
(optional).

Hire-purchase is a credit purchase.


The price under hire-purchase system

is paid

in installments.
The goods are delivered in the possession of
the purchaser at the time of commencement
of the agreement.
Hire vendor continues to be the owner of the
goods till the payment of last installment.
The hire-purchaser has a right to use the
goods as a bailer.

The

hire-purchaser has a right to terminate


the agreement at any time in the capacity
of a hirer.
The hire-purchaser becomes the owner of
the goods after the payment of all
installments as per the agreement.
If there is a default in the payment of any
installment, the hire vendor will take away
the goods from the possession of the
purchaser without refunding him any

The

appellant (The party who appeals a


decision of a lower court) company, a
financing firm, carried on the business of
advancing money by entering into hire
purchase agreements with those willing to
buy motor vehicles. The appellant paid the
price to the dealer and the car was handed
over to the hirer. The later paid the price by
monthly installments. He has the option to
determine the agreement at any time by
paying rent up-to-date and returning the
motor vehicle.

The essence of a sale is that the property is


transferred from the seller to the buyer for a price,
whether paid at once or paid later in installments.
On the other hand, a hire purchase agreement, as
its very nature implies, has two aspects. There is
first an aspect of bailment (The act of delivering
goods or personal property to another in trust) of
goods subjected to hire purchase agreement, and
there is next, an element of sale which fructifies (to
make fruitful or productive) when the option to
purchase is exercised by the intending purchaser

Thus

the intending purchaser is known as the


hirer so long as the option to purchase is not
exercised. The essence of the agreement is that
the property in the goods does not pass at the
time of agreement but remains in the intending
seller, and only passes later when the option is
exercised by the intending purchaser.
When the hirer does not have the option to
return, it will be an agreement to buy and not a
hire purchase, even if the price is payable in
installments and the seller has the option, on
default, either to seize the goods or to sue the buyer for the price.

lady hired certain furniture from the plaintiff,


the price to be paid in two installments. The
plaintiff had the right to take back the furniture
if an installment was not paid. Before the last
installment was paid, the lady sold the
furniture to the defendant.
It was held that the defendant had acquired a
good title, the lady being in possession of the
furniture under an agreement to buy. She did
not have the option to return, but was
compelled to buy.

hire purchase agreement confers two


distinct sets of right on the hirer, namely:
The right to use the goods and the option
to purchase.
Both the rights are capable of joint as well
as separate assignment. The hirer may be
prohibited from selling away the goods or
pledging them but he can not be prohibited
from assigning his rights.

The

assignee of such rights becomes a


trustee of the goods for the hirer. It is his
duty to protect the goods and if he allows
the owner to wrongfully seize the goods
and buys them himself from the owner, he
is liable to the hirer for his loss.

Company Law

The history of modern company law in England


began in 1844 when the Joint Stock Companies Act was
passed.
The Act provided for the first time that a company could
be incorporated by registration without obtaining a Royal
Charter or sanction by a special Act of Parliament
The office of the Registrar of Joint Stock Companies was
also created. But the Act denied to the members the
facility of limited liability
Joint Stock Company: A company (usually unincorporated)
which has the capital of its members pooled in a common
fund; transferable shares represent ownership interest;
shareholders are legally liable for all debts of the company

The English Parliament in 1855 passed the


Limited Liability Act providing for limited
liability to the members of a registered
company.
The act of 1844 was superseded by
a comprehensive Act of 1856,which marked the
beginning of a new era in company law in
England
. This Act introduced the modern mode of
creating companies by means of memorandum
and articles of associations.

The

word Company' is an amalgamation


of the Latin word 'Com meaning with or
together" and 'Pains' meaning "bread.
Originally, it referred to a group of
persons who took their meals together. A
company is nothing but a group of
persons who have come together or who
have contributed money for some
common person and who have
incorporated themselves into a distinct
legal entity in the form of a company for
that purpose.

Under the Companies Act, 1956, not more than 10


persons can come together for carrying on
any banking business and not more than 20
persons can come together for carrying on any
other of business, unless the association is
registered under the Companies Act or any other
Indian law. Any association which does not comply
with the above norms is an illegal association.
Therefore, a partnership of more than 10 or 20
members, as the case may be, is an illegal
association unless they registered under the
Companies Act or any other Indian law.

Private Company
means a company which has a minimum paid
up capital of one lakh rupees or such higher paid up capital
as may be prescribed, and by its Articles-(a) restricts the right
to transfer its shares, if any(b) limits the number of its
members to fifty not including
(i) persons who are not in the employment of the
company; (ii) persons who, having been formerly in the
employment of the company, were members of the
company while in that employment ceased , and(c) prohibits
any invitation to the public to subscribe for any shares in,
or debentures of, the company;(d) prohibits any invitation or
acceptance of deposits from persons other than its members,
directors or their relatives.

Public

Company means a company

which
(a) is not a private company;
(b) has a minimum paid up capital of five
lakh rupees/such higher paid up capital, as
may be prescribed;
is a private company which is a
subsidiary of a company which is not a
private company.

1.Minimum Capital in case of Private Company,


minimum Rs.1 lakh and in case of
Public Company, minimum paid
up capital of Rs.5 lakh.
2.Minimum number
Two in case of Private Company and
seven in case of public company.
3.Maximum number
In case of Private Company 50 and there is no
limit incase of Public Co.

4.Number of Directors
[Sec.252]Minimum two in case of Private Co. and
minimum three incase of Public Company.
5.Restriction on appointment of directors
[Sec.266]To become a director of public company,
such persons have to agree to buy qualification shares
and file a copy of consent with the Registrar of
Companies giving their willingness to become director
of public company.
6.Restriction on invitation to subscribe for shares
A public Co. can invite the general public to subscribe
for companys shares but not private company.

7.Transfer[Sec.82]
Public companys shares are transferable but not private
companys shares.
8.Special Privileges:
A private company enjoys some special privileges but not a
public company.
9.Quorum[Sec.174]
If the Articles of Association do not provide for a greater
quorum, then five members personally present is a quorum for
public company. It is two in case of private company.
10.Managerial Remuneration[Sec.198].
Total managerial remuneration cannot exceed 11% of its net p
rofit incase of public company , but there is no such restriction
in case of public company.

Documents to be filed with the Registrar:


1. Memorandum duly signed by the subscriber.
2. The Articles of Association, if any, signed by the
subscribers to the Memorandum of Association. A
pubic company limited by shares need not have its
own Articles of Association.

3.The agreement if any, which the company


proposes to enter with any individual for
appointment as its managing or whole time
director or manager

list of directors who have agreed to


become the first directors of the company(this
applies to a public company limited by
shares) and heir written consent to act
as directors and take up qualification shares.
A declaration stating that all the requirements
of the Companies Act and other formalities
relating to registration have
been complied with.

Such a declaration shall be signed by any of the


following persons;
l. Advocate of High Court or Supreme Court, or
2. A secretary or a Chartered Accountant in whole
practice or engaged in the formation of a company, or
3. A person named in the Articles as
Director, Manager or Secretary of the company, or
4. An attorney or a pleader who is eligible to appear
High Court[Sec33(2)], within 30 days of the date
of incorporation of the company, a notice of the
situation of Registered Office address shall be given to
the Registrar who shall record the same [Sec.146].

Meaning:
It contains

the fundamental conditions upon


which alone the company is allowed to be
incorporated.
It also regulates the external affairs of
the company in relation to outsiders.
Its

purpose is to enable shareholders and


those who deal with the company to
know what its permitted range of activities
are.

1.The

prospective shareholders shall know


the field in, or the purpose for, which their
money is going to be used by the company
and what risk they are undertaking in making
investment.

2.The

outsiders dealing with the company


shall know with certainty as to what the
objects of the company are and as to whether
the contractual relation in to which they
contemplate to enter the company.

MA of a company shall be(a) printed,


(b) divided in to paragraphs numbered
consecutively, &
signed by 7 (2 in case of private co.)
subscribers
Each subscriber shall sign (and add his address,
description and occupation, if any) in the presence
of of at least 1 witness who shall attest the
signature and shall likewise add his address,
description and occupation, if any.

1.Name

Clause
2.Registered Office Address Clause
3.Objects Clause
4.The Capital Clause
5.The Liability Clause
6.The Association Clause

Incorporating benefits
Incorporating has many benefits

for business
owners. That is why incorporating is a crucial
step to make to take your entrepreneurship to
the next level. Main benefits of incorporating
a business are Tax Advantages and Legal
Protection. The main tax advantage is that
the owners get to pay company's expenses
before the taxes. Here's income and resulting
assets schema before and after incorporating

Incorporating

has many benefits for business


owners. That is why incorporating is a crucial
step to make to take your entrepreneurship to
the next level.
Main benefits of incorporating a business
are Tax Advantages and Legal Protection.
The main tax advantage is that the owners
get to pay company's expenses before the
taxes. Here's income and resulting assets
schema before and after incorporating:

Corporations

and LLCs provide limited


liability protection to its owners. Typically
the owners are not personally responsible
for the debts of the business, thus
creditors cannot pursue owners personal
assets - such as a house or a car to pay
business debts.

Other reasons on why incorporate are:


to establish credibility
to extend life of the business beyond the
owner's
to transfer ownership
to raise capital

The

rules regarding the company's internal


affairs are prescribed in this document.
The subscribers signed the company's
articles in front of the witness which are
ultimately delivering to the registrar. These
witnesses also attest the signatures.

The

articles of association of a registered


company are its main constitutional
documents.
Typically a company's articles will contain
regulations covering the following areas,
together with many more minor matters:

Directors

powers and responsibilities,


directors meetings, appointing and removing
directors, directors remuneration, types of
shares, issuing shares, share certificates,
share transfers, paying dividends,
organisation of general meetings, such as
notice of meetings, voting rights and proxies
right to speak, quorum, etc. Most companies'
articles are based on standard documents,
either Table A (companies registered before
1st. October 2009) or the Model Articles (after
that date).

Share

allotments
Share transfers
General meetings
Board meetings
Appointment and removal of directors