Professional Documents
Culture Documents
• What is Law ?
• Law means those rules and regulations which are binding on us and there is
a sanction if we do not obey law.
• Law is those rules of conduct recognized by the state and enforced on the
people.
Meaning and Nature of Law
Objects of Law
a) To maintain order
b) To establish socio-economic justices
c) Vehicle of social change
d) Harbinger of social justice.
e) To regulate human conduct
f) To regulate business relations.
g) Promote a welfare state.
Meaning and Nature of Law
• Justice
• Continuity/Uniformity
• Impartiality
• Rule of Law, not rule of Men.
Business Law
• CLASSIFICATION OF CONTRACTS:
• Contracts are classified based on:
– Validity
– Formation
– Performance
CLASSIFICATION BASED ON VALIDITY:
1.Minor
A minor is a person who has not completed eighteen years of
age. But where a guardian has been appointed to a minor under
the Guardians and Wards Act or where a minor
is under the guardianship of the Court of
Wards, he attains majority at the age of
twenty-one. The positions as regards his
agreements is as follows:
Cont……d
1) His agreement is altogether void and inoperative.
2) He can be a promisee or a beneficiary in a contract.
3) His estate is liable for the necessary goods supplied or necessary
services rendered to him or to anyone whom he is legally bound to
support or for money lent to him to buy necessaries.
4) He may enter into contracts of apprenticeship, service, education
and instruction provided these are beneficial to him.
5) He can be an agent.
Cont……d
6) He cannot be a partner. But he can be admitted to the benefits of
an already existing partnership with the consent of the other
partners.
7) If he has received any benefit under a void agreement, he cannot
be asked to compensate or pay for it.
8) The court never orders specific performance of his agreements.
9) He can always plead minority and is not estopped from doing so
even when he enters into an agreement by falsely misrepresenting
his age.
10) He cannot be adjudged insolvent.
2. Persons of unsound mind
Lunatics. A lunatic can enter into a contract
when he is of sound mind.
Idiots. An agreement of an idiot like that of a minor is
altogether void.
Drunken or Intoxicated persons. Their position is similar to
that of lunatics.
These persons, like a minor, are liable for necessaries
supplied to them or their minor dependants.
3. Other persons.
Alten enemies. During the war an Indian
citizen cannot enter into a contract with a
alien enemy. Contracts made before the
war are either suspended or dissolved.
Foreign sovereigns and accredited representatives
of a foreign state. They can enter into contracts and enforce
these contracts in our Courts. But they cannot be sued in our
Courts without the prior sanction of the Central Government.
Corporations. The contractual capacity of a statutory
corporation is limited by the Statute governing it. As regards a
company registered under the Companies Act, 1956, its
contractual capacity is regulated by its Memorandum of
Association and the Companies Act, 1956.
Insolvents. When a debtor is adjudged insolvent he
is deprived of his power to deal in his property divisible
among his creditors.
Convicts. A Convict when undergoing
imprisonment is incapable of entering into a contract.
FREE CONSENT
All agreements are contracts if they are made by the free
consent of the parties. Two or more persons are said to
consent when they agree upon the same thing in the same
sense [Sec. 13.] Consent is said to be free when it is not
caused by
(i) Coercion, or
(ii) Undue influence, or
(iii) Fraud, or
(iv) Misrepresentation, or
(v) Mistake, subject to the provisions of Secs. 20, 21
and 22.
Effect of agreement without free consent.
When consent to an agreement is caused by coercion, fraud,
misrepresentation, or undue influence, the agreement is a
contract voidable at the option of the party whose consent was so
caused [Secs. 19 and 19-A]
COERCION
“Coercion” is the committing or threatening to commit any act
formidden by the Indian Penal Code, 1860 or the unlawful
deaining, or threatening to detain, any property, to
the prejudice of any person whatever, with the
intention of causing any person to enter into an
agreement (Sec. 15).
A threat to commit suicide amounts to coercion.
UNDUE INFLUENCE
A contract is said to be induced by “undue influence” where the
relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other, and uses
that position to obtain an unfair advantage over the other. A
person is deemed to be in a position to dominate the will of
another where he –
Cont……d
(a) Holds real or apparent authority over the other, or
(b) Stands in a fiduciary relation to the other; or
(c) Makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age,
illness or mental or bodily distress. Where a person who
is in a position to dominate the will of another, enters into
a contract with him, and the transaction appears to be
unconscionable, the burden of providing that such contract
was not induced by undue influence lies upon the person
in a position to dominate the will of the other (Sec. 16).
Relationships which raise presumption of undue
influence:
Cont……d
b) Possibility of performance. Mistake of fact may also
relate to
i. Physical, or
ii. Legal, impossibility of performance.
In both these cases, the agreement is void.
2. Mistake of Fact (Cont….d)
(2) Unilateral mistake. Where only one of the parties
is under a mistake as to a matter of fact, the contract is not
voidable [Sec. 22]. There are however two exceptions to
this rule.
(i) Identity of the person contracted with. If A intends to
enter into a contract with B. C cannot give himself any
right in respect of the contract by accepting the offer.
In such a case the contract is void.
(ii) Nature of contract. Where a person is made to enter
into a contract through the inducement of another but
through no fault of his own, there is a
mistake as to the nature of the
contract, and the contract is void.
LEGALITY OF OBJECT
Cont…..d
AGREEMENTS OPPOSED TO PUBLIC POLICY
4. Agreements in restraint of legal proceedings. These include
a) Agreements to oust the jurisdiction of Courts, and
b) Agreements to vary periods of limitation.
5. Agreements for the sale of public offices.
6. Agreements tending to create interest opposed to duty.
7. Agreements in restraint of parental rights.
8. Agreements restricting personal liberty.
9. Agreements in restraint of marriage.
10. Marriage brokerage agreements.
Cont…..d
AGREEMENTS OPPOSED TO PUBLIC POLICY
Wagering agreements.
A wagering agreement is an agreement to pay money or money’s
worth on the happening or non-happening of a specified uncertain
event. Wagering agreements are void in India. In the States of
Maharashtra and Gujarat, however, they have been
declared to be illegal. The collateral transactions to
such wagering agreements in the States of
Maharashtra and Gujarat also become illegal.
In the rest of India, collateral transactions are valid.
Uncertain agreements
Agreements the meaning of which is not certain, or capable of
being made certain, are void.
Restitution
It means return of the benefit received from the plaintiff under a void
contract. The principle of restitution is that the defendant who has
been unjustly enriched at the expense of the plaintiff is required to
make restitution to the plaintiff.
CONTINGENT CONTRACTS
Cont……d
Rules regarding contingent contracts.
3. If a contingent contract contemplates doing of a thing if a
specified event happens within a fixed time, it becomes void if
the event does not happen within that time.
4. If a contingent contract contemplates to do anything if an
impossible event happens, it is void.
PERFORMANCE OF CONTRACT
The parties to a contract must either perform or offer to
perform their respective promises.
1. Discharge by performance.
Discharge of a contract by performance takes place when the
parties to the contract fulfill their obligations arising under the
contract within the time and in the manner prescribed. The
performance may be
(i) actual performance, or
(ii)attempted performance
2. Discharge by agreement or consent.
A contract rests on the agreement of the parties. As it is
agreement which binds them, so by their agreement or consent
they may be discharged. The discharge by consent may be
express or implied. Discharge by implied consent takes place by–
(a) Novation, i.e., when a new contract is substituted for
an existing one, either between the same parties or
between one of the parties and a third party.
(b) Alteration, i.e., when one or more of the terms of the contract
is/are altered by the mutual consent of the parties to the contract.
(c) Rescission, i.e., when all or some of the terms of the contract
are cancelled.
(d) Remission, i.e., acceptance of a lesser fulfillment of the promise
made.
(e) Waiver which means intentional relinquishment or giving up of a
right by a party entitled thereto under a contract.
(f) Merger, i.e., when an inferior right accruing to a
party under a contract merges into a superior right
accruing to the same party under a new contract.
3. Discharge by impossibility.
Impossibility of performance may be-
Initial impossibility. An agreement to do an act
impossible in itself is void.
Supervening impossibility. Impossibility which arises
subsequent to the formation of a contract (which could be
performed at the time when the contract was entered into) is
called subsequent or supervening impossibility.
The cases covered by supervening impossibility include;
(a) Destruction of subject-matter of contract;
(b) Non-existence or non-occurrence of a particular state of
things:
(c) Death or incapacity for personal service;
(d) Change of law or stepping in of a person
with statutory authority;
(e) Outbreak of war.
The contract is discharged in these cases.
The following cases are not covered by supervening impossibility:
(a) Difficulty of performance;
(b) Commercial impossibility;
(c) Failure of a third person on whose work the promisor relied;
(d) Strikes, lock-outs and civil disturbances;
(e) Failure of one of the objects.
The contract is not discharged in these cases.
4. Discharge by lapse of time.
If a contract is not performed within the period of limitation and if
no action is taken by the promisee in a Law Court, the contract
is discharged.
Cont…..d
1) Ordinary damages. These are damages
which actually arise in the usual course of
things from the breach of a contract.
2) Special damages. Damages which may reasonably be
supposed to have been in the contemplation of both the
parties at the time when they made the contract as the
probable result of the breach of it, are known as special
damages and may be recovered.
3) Vindictive or exemplary damages. These damages are
allowed in case of the breach of a contract to marry or
dishonour of a cheque by a banker wrongfully.
5. Injunction.
It is a mode of securing the specific performance of the
negative terms of a contract.
QUASI CONTRACTS
In certain cases the law imposes an obligation and allows an action
to be brought on it as if it arose out of an agreement, though none
was present in fact. Such cases, strictly speaking, are not
contracts, but the law recognises them as “certain relations
resembling those created by contracts”. In English Law, such
relations are called quasi-contracts.
Quasi contracts rest on the ground of equity that a person shall not
be allowed to enrich himself unjustly at the expense of another.
Secs. 68 to 72 deal with the following quasi-contracts:
[1] Claim for necessaries supplied to a person
incapable of contracting or on his account. [Sec. 68].
[2] Reimbursement of a person paying money due by another in
payment of which he is interested [Sec. 69].
[3] Obligation of a person enjoying benefit of a non-gratuitous act
[Sec. 70].
[4] Responsibility of finder of goods [Sec. 71].
[5] Liability of person to whom money is paid or thing delivered by
mistake or under coercion [Sec. 72].
SALE OF GOODS
Contract of sale.
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 [Sec. 4].
Subject-matter of sale.
‘Goods’ form the subject of a contract of sale. They mean every
kind of movable property other than actionable claims
and money, and include 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 [Sec. 2(7)].
Cont…..d
Goods may be:
1. Existing goods, i.e. goods which are owned and
possessed by the seller at the time of sale. These
goods may be specific ascertained or unascertained.
2. Future goods, i.e., goods which the seller does not possess at the
time of the contract and which will be acquired, manufactured or
produced by him at some future date.
3. Contingent goods, i.e. goods the acquisition of which by the
seller depends upon a contingency which may or may not happen.
Price.
The price in a contract of sale must be expressed in money. It
[1] May be fixed by the contract itself, or
[2] may be left to be fixed in an agreed manner, or
[3] may be determined from the course of
dealing between the parties. Where the price is
not determined in accordance with these
provisions, the buyer must pay the seller a
reasonable price [Sec. 9].
CONDITIONS AND WARRANTIES
A stipulation in a contract of sale with reference to goods
which are the subject thereof may be a condition or
a warranty [Sec. 12(1)]. A condition is a stipulation essential to the
main purpose of the contract. Its breach gives a right to the buyer
to treat the contract as repudiated [Sec. 12(2)]. A warranty is a
stipulation collateral to the main purpose of the contract. Its breach
gives rise to a claim for damages but not a right to reject the goods
and treat the contract as repudiated [Sec. 12(3)].
Caveat Emptor.
This means “let the buyer beware”. The doctrine of caveat emptor
does not apply –
[1] In case of implied conditions and warranties;
[2] When the buyer intimates the purpose
the seller and depends upon his skill or judgment;
[3] When there is a usage of trade;
[4] When there is a fraud by the seller.
TRANSFER OF PROPERTY
Cont…..d
3. In the event of insolvency of either the seller or the buyer, the
question whether the Official Receiver or Assignee can take
over the goods or not depends on whether the property in the
goods has passed from the seller to the buyer.
4. The seller can sue for the price, unless otherwise agreed, only
if the goods have become the property of the buyer.
TRANSFER OF PROPERTY
The primary rules for ascertaining when the property
in goods passes to the buyer are as follows:
[1] Where there is a contract for the sale of unascertained
goods, no property in the goods is transferred to the buyer
unless and until the goods are ascertained [Sec. 18].
[2] 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. 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]. Where
the intention of the parties cannot be
ascertained, the following rules shall apply:
Cont…..d
1. Specific goods.
In case of a contract for the sale of specific goods
a) In a deliverable state, if the contract is unconditional,
property passes as soon as the contract is entered into
[Sec. 20].
b) If the seller has to do something to put them in a
deliverable state, property passes only when such
thing is done and notice thereof is given to the buyer
[Sec. 21].
c) In a deliverable state if the seller has to do something
for the purpose of ascertaining the price,
property will pass only when such act
is done and notice thereof is given to the
buyer [Sec. 22].
Cont…..d
2. Unascertained goods.
In case of unascertained or future goods sold by
description, property passes only when goods
according to the description are unconditionally
appropriated to the contract and the buyer is given a notice
thereof. Delivery to a carrier (the seller not reserving right of
disposal, Sec. 25) amounts to an unconditional appropriation
[Sec. 23].
It is the duty of the seller to deliver the goods and of the buyer to
accept and pay for them in accordance with the terms of the
contract of sale.
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
But it must be according to the rules as given below:
Cont…..d
Rules as to delivery.
1. Unless otherwise agreed, delivery of the goods and payment of
the price are concurrent conditions.
2. A delivery of part of the goods, in progress, of the delivery of
whole, amounts to, for the purpose of passing the property in
such goods, as a delivery of the whole.
3. Apart from any express contract, the seller of goods is not
bound to deliver them until the buyer applies for delivery.
Cont…..d
Rules as to delivery.
4. The place of delivery is the place at which they are at the time of
the sale.
5. 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.
6. Where the seller is bound to send the goods to the buyer but no
time for sending them is fixed, they must be sent within a
reasonable time.
Cont…..d
Rules as to delivery.
7. Expenses of making delivery are borne by the
seller and expenses of obtaining delivery by the buyer.
8. If the seller sends to the buyer a larger or a smaller quantity of
goods than he ordered, the buyer may
a) Reject the whole, or
b) Accept the whole, or
c) Accept the quantity he ordered and reject the rest.
9. If the seller delivers, with the goods ordered, goods of a wrong
description, the buyer may accept the goods ordered and reject
the rest or reject the whole.
10.Unless otherwise agreed, the goods are not to
be delivered by installments.
RIGHTS OF AN UNPAID SELLER
A seller of goods is deemed to be an unpaid seller
[1] when the whole of the price has not been paid or tendered;
[2] when a bill of exchange or other negotiable instrument has
been received as a conditional payment, and the condition on
which it was received has not been fulfilled by reason of the
dishonour of the instrument, or otherwise [Sec. 45].
An unpaid seller has the rights –
1. As against the goods.
(1) Right of lien. It is available to the unpaid seller when
a) The goods have been sold without any stipulation
as to credit;
b) The goods have been sold on credit, but the
term of the credit has expired;
c) The buyer becomes insolvent [Sec. 47].
Cont…..d
(2) Right of stoppage in transit. when the buyer of goods
becomes insolvent the unpaid seller who has parted with the
possession of the goods has the right of stopping them in
transit. The seller may resume possession of the goods, as
long as they are in the course of transit and may retain them
until payment or tender of the price [Sec. 50]. The unpaid
seller may exercise this right of stoppage in transit either by
taking actual possession of the goods, or by giving notice of
his claim to the carrier or other bailee in whose possession
the goods are.
Cont…..d
3) Right of re-sale. The unpaid seller can re-sell the goods
(i) Where the goods are of a perishable nature;
(ii) Where he was exercised his right of lien or stoppage in
transit and given notice to the buyer of his intention to re-
sell the goods and where the buyer has not within a
reasonable time paid the price; and
(iii) Where the seller expressly reserves a right of re-sale in
case the buyer should make default [Sec. 54].
Right of withholding delivery.
Where the property in goods has not passed to the
buyer, the unpaid seller has, in addition to his other
remedies, a right of withholding delivery similar
to and co-extensive with his rights to lien and stoppage in transit
where the property has passed to the buyer [Sec. 46 (2)].
AUCTION SALE
A sale by auction is a public sale where different
intending buyers try to outbid each other. The goods
are ultimately sold to the highest bidder. The law
on auction sales is contained in Sec. 64 of the Sale
of Goods Act.