Business Law

B-LAW NOTES UNIT-1:- CONTRACT ACT
1Q. Define contract? Discuss the essential elements of a valid contract?
(Or) Law of contract is not the whole of law of agreement nor whole law of enumerating the essentials of a valid contract? (or) The parties to a contract in a essence ma e the law for themselves? (Or) !hat is the nature and the ob"ect of contract?
obligation. Discuss
#ns$ %eaning$ A contract is an agreement made between two (or) more parties which the law will enforce. Definition$ According to section 2(h) of the Indian contract act, 1872. An agreement enforceable b law is a contract. According to &#L%O'D, a contract is An agreement creating and defining obligations between the parties (ssential elements of a valid contract$ According to section 1!, All agreements are contracts if the are made b the free consent of the parties competent to contract, for a lawf"l consideration and with a lawf"l ob#ect and not here b e$pressl declared to be %oid In order to become a contract an agreement m"st ha%e the following essential elements, the are follows&' 1) Offer and acceptance$ (o constit"te a contract there m"st be an offer and an acceptance of that offer. (he offer and acceptance sho"ld relate to same thing in the same sense. (here m"st be two (or) more persons to an agreement beca"se one person cannot enter into an agreement with himself.
)) *ntention to create legal relationship$ (he parties m"st ha%e intention to create legal relationship among them. )enerall , the agreements of social, domestic and political nat"re are not a contract. If there is no s"ch intention to create a legal relationship among the parties, there is no contract between them.
(+ample$ ,#L-O./ (vs) ,#L-O./ (1010) http://www.miteshk.webs.com
B-LAW NOTES
-acts$ A h"sband promised to pa his wife a ho"sehold allowance of * +! (po"nds) e%er month. *ater the parties separated and the h"sband failed to pa the amo"nt. (he wife s"ed for allowance. 1udgment$ Agreements s"ch as there were o"tside the realm of contract altogether. ,eca"se there is no intention to create legal relationship among the parties. 2) -ree and 3enuine consent$ (he consent of the parties to the agreement m"st be free and gen"ine. -ree consent is said to be absent, if the agreement is ind"ced b infl"ence, c)fra"d, d).is'representation, e)mista/e. a)coercion, b)"nd"e
4) Lawful Ob"ect$ (he ob#ect of the agreement m"st be lawf"l. In other words, it means the ob#ect m"st not be (a) Illegal, (b) immoral, (c) opposed to p"blic polic . If an agreement s"ffers from an legal flaw, it wo"ld not be enforceable b law.
5) Lawful 6onsideration$ An agreement to be enforceable b law m"st be s"pported b consideration. 0onsideration means an ad%antage or benefit mo%ing from one part to other. In other words something in ret"rn. (he agreement is enforceable onl when both the parties gi%e something and get something in ret"rn. (he consideration m"st be real and lawf"l.
7) 6apacit8 of parties$ (6ompetenc8) (he parties to a contract sho"ld be capable of entering into a %alid contract. 1%er person is competent to contract if (a). 2e is the age of ma#orit . (b). 2e is of so"nd mind and (c). 2e is not dis'3"alified from contracting b an law. (he flaw in capacit to contract ma arise from minorit , l"nac , idioc , dr"n/enness, etc..,
9) #greement not to be declared void$ (he agreements m"st not ha%e been e$pressl declared to be %oid "4s 25 to +! of the act.
(+ample$ Agreements in restraint of trade, marriages, legal proceedings, etc.., :) 6ertaint8$
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B-LAW NOTES
(he meaning of the agreement m"st be certain and not be %ag"e (or) indefinite. If it is %ag"e (or) indefinite it is not possible to ascertain its meaning.
(+ample$ 6A7 agrees to sell to 6,7 a h"ndred tones of oil. (here is nothing whate%er to show what /ind of a oil intended. (he agreement is %oid for "ncertaint . 0) ;ossibilit8 of performance$ (he terms of an agreement sho"ld be capable of performance. (he agreement to do an act impossible in itself is %oid and cannot be enforceable.
(+ample$ 6A7 agrees with 6,7, to p"t life into ,7s dead wife, the agreement is %oid it is impossible of performance. 1<) 'ecessar8 legal formalities$ According to Indian contract Act, oral (or) written are perfectl %alid. (here is no pro%ision for contracting being written, registered and stamped. ,"t if is re3"ired b law, that it sho"ld compl with legal formalities and then it sho"ld be complied with all legal (or) necessar formalities for its enforceabilit .
)Q. Define offer (O/) proposal? (+plain the legal rules as to a valid offer also discuss the law relating to communication of offer and revocation of offer? #ns$ Definition$ According to section 2(a) of Indian contract act, 1872, defines offer as when one person signifies to another his willingness to do (or) to abstain from doing an thing with a %iew to obtaining the assent of that otherto, s"ch act (or) abstinence, he his said to ma/e a proposal. Legal rules (O/) (ssential elements of a valid offer = proposal$' 1) Offer must be capable of creating legal relations$ A social in%itation, e%en if it is accepted does not create legal relationship beca"se it is not so intended to create legal relationship. (herefore, an offer m"st be s"ch as wo"ld res"lt in a %alid contract when it is accepted. )) Offer must be certain> definite and not vague$ If the terms of the offer are %ag"e, indefinite, and "ncertain, it does not amo"nt to a lawf"l offer and its acceptance cannot create an contract"al relationship.
B-LAW NOTES
2) Offer must be communicated$ An offer is effecti%e onl when it is comm"nicated to the person whom it is made "nless an offer is comm"nicated8 there is no acceptance and no contract. An acceptance of an offer, in ignorance of the offer can ne%er treated as acceptance and does not create an right on the acceptor. (+ample$ L#L%#' &?.@L# (A&) 3#./* D#TT. (1012) -acts$ 697 sent his ser%ant, 6*7 to trace his missing nephew. 2e than anno"nced that an bod wo"ld be entitled to a certain reward. 6*7 traced the bo in ignorance of his anno"ncement. 9"bse3"entl , when he came to /now of his reward, he claimed it. 1udgment$ 2e was not entitled fro the reward. 4) Offer must be distinguished from an invitation to offer$ A proposer4offer m"st be disting"ished from an in%itation to offer. In the case of in%itation to offer, the person sending o"t the in%itation does not ma/e an offer, b"t onl in%ites the part to ma/e an offer. 9"ch in%itations for offers are not offers in the e es of law and do not become agreement b the acceptance of s"ch offers. (+ample$ ;harmaceutical societ8 of great ,ritain (vs) ,oots cash chemists (1052). -acts$ )oods are sold in a shop "nder the 6self ser%ice7 s stem. 0"stomers select goods in the shop and ta/e them to the cashier for pa ment of price. 1udgment$ (he contract, in this case, is made, not when a c"stomer selects the goods, b"t when the cashier accepts the offer to b" and recei%es the price. 5) Offer ma8 be e+pressed (or) implied$ An offer ma be made either b words (or) b cond"ct. An offer which is e$pressed b words (i.e.., spo/en or written) is called an Be+press offerC and offer which is inferred from the cond"ct of a person (or) the circ"mstances of the case is called an Bimplied offerC. 7) Offer must be made between the two parties$ (here m"st be two (or) more parties to create a %alid offer beca"se one person cannot ma/e a proposal4offer to him self. 9) Offer ma8 be specific (or) general$ An offer is said to be specific when it is made to a definite person, s"ch an offer is accepted onl b the person to whom it is made. :n the other hand general offer is one which is made to a p"blic at large and ma be accepted b an one who f"lfills the re3"isite conditions. (+ample$ 6arilill (vs) 6arbolic ,all compan8 (1:02). -acts$ A compan ad%ertised in se%eral newspapers is that a reward of gi%en to an
* 1!!
(po"nds) wo"ld be
person contracted infl"en;a after "sing the smo/e ball according to the printed
B-LAW NOTES
directions. :nce .r.0arilill "sed the smo/e balls according to the directions of the compan b"t contracted infl"en;a. 1udgment$ she co"ld reco%er the amo"nt as b "sing the smo/e balls she accepted the offer. :) Offer must be made with a view to obtaining the assent$ A offer to do (or) not to do something m"st be made with a %iew to obtaining the assent of the other part addressed and it sho"ld not made merl with a %iew to disclosing the intention of ma/ing an offer. 0) Offer must not be statement of price$ A mere statement of price is not treated as an offer to sell. (herefore, an offer m"st not be a statement of price. (+ample$ ?#/A(D (A&) -#6(D (1:02)$ -acts$ (hree telegrams were e$changed between 2ar%e and -ace . !" <ill o" sell "s o"r ,"mper hall pen= (elegram lowest cash price' answer paid. >2ar%e to -ace ?. b" *owest price fro b"mper hall pen
* @!! (po"nds). > -ace
to 2ar%e ? o". > -ace to
c" <e agree to b" ,"mper hall pen for the s"m of 2ar%e ?
* @!! (po"nds) as/ed b
1udgment$ (here was no concl"ded contract between 2ar%e and -ace . ,eca"se, a mere statement of price is not considered as an offer to sell. 1<) :ffer sho"ld not contain a term the non'compliance of which ma be ass"med to amo"nt to acceptance. 6O%%.'*6#T*O' O- O--(/ #'D /(AO6#T*O' O- O--(/$ An offer, its acceptance and their re%ocation (withdrawal) to be complete when it m"st be comm"nicated to the offeree. (he following are the r"les regarding comm"nication of offer and re%ocation of offer& (a) 6ommunication of offer$ i) (he comm"nication of an offer is complete when it comes to the /nowledge of the person to whom it is made. ii) An offer ma be comm"nicated either b words spo/en (or) written (or) it ma be inferred from the cond"ct of the parties. iii) <hen an offer4proposal is made b post, its comm"nication will be complete when the letter containing the proposal reaches the person to whom it is made. (b) /evocation of offer$ A proposal4offer ma be re%o/ed at an time before the comm"nication of its acceptance is complete as against the proposer, b"t not afterwards.
B-LAW NOTES
2Q. !hen does an offer comes to an end? O/ !hen an offer does ma8 be revo ed (or) lapses? O/ /evocation of offer otherwise than b8 communication? #ns$ Definition$ According to section 2(a) of Indian contract act, 1872, defines offer as when one person signifies to another his willingness to do (or) to abstain from doing an thing with a %iew to obtaining the assent of that otherto, s"ch act (or) abstinence, he his said to ma/e a proposal. /evocation (or) lapses of offer$ 9ection 1A, of the Indian contract act, 1872 deals with %ario"s modes of re%ocation of offer. According to it, an offer is re%o/ed4lapses (or) comes to an end "nder following circ"mstances. 1) ,8 communication of notice$ An offeror ma re%o/e his offer at an time before the acceptance b gi%ing a simple notice of re%ocation, which can be either oral (or) written. (+ample$ ?#//*& (A&) '*@(/&O' (1:92). -acts$ An a"ctioneer in a newspaper that a sale of office f"rnit"re wo"ld be held. A bro/er came from a distant place to attend that a"ction, b"t all the f"rnit"re was withdrawn. (he bro/er there "pon s"ed a"ctioneer for his loss of time and e$penses. 1udgment$ A declaration of intention to do a thing did not create a binding contract with those who acted "pon it. 9o, that the bro/er co"ld not reco%er. )) ,8 lapse of reasonable time$ An offer will re%o/e if it is not accepted with in the prescribed4reasonable time. If howe%er, no time is prescribed it lapses b the e$pir of a reasonable time. (+ample$ /amsgate victoria ?otel 6ompan8 (vs) %onteflore (1::7) -acts$ :n B"ne 8th 6.7 offered to ta/e shares in 6C7 0ompan . 2e recei%ed a letter of acceptance on Do%ember 2+rd. he ref"sed to ta/e shares. 1udgment$ 6.7 was entitled to ref"se his offer has lapsed as the reasonable period which it co"ld be accepted and elapsed. 2) ,8 nonEfulfillment of some conditions$ <hen offeror has prescribed some conditions to be f"lfilled and offeree4 acceptor fails to f"lfill the conditions re3"ired to acceptance. In s"ch a case offer will be re%o/ed.
B-LAW NOTES
4) ,8 death (or) insanit8 of the offeror$ (he death of the offeror does not a"tomaticall re%o/e the offer. <hen the death (or) insanit of the offeror pro%ided the offeree comes to /now before its acceptance it will be re%o/ed. :therwise if he accepts an offer in ignorance of the death (or) insanit of the offeror, the acceptance is %alid. 5) ,8 a counter offer$ co"nter offer means when the offeree4acceptor offers to 3"alified acceptance of the offer s"b#ect to modifications and %ariations in the terms of original offer. (herefore co"nter offer amo"nts to re#ection of the original offer. (+ample$ ?8de (vs) !rench (1:4<) -acts$ 6<7 offered to sell a farm to 627 for * 1!!! (po"nds). 627 offered * @E! (po"nds) 6<7 ref"sed the offer. 9"bse3"entl , 627 offered to p"rchase the farm for * 1!!! (po"nds). 1udgment$ (here was no contract as 627 b offering
@E! (ponds) had re#ected the original offer.
,eca"se the co"nter offer to a proposal amo"nts to its re#ection. 7) ,8 change in law$ An offer comes to an end if the law is changed so as to ma/e the contract contemplated b the offer illegal (or) incapable of performance. 9) #n offer is not accepted according to the prescribed (or) usual mode$ If the offer is not accepted according to the prescribed (or) "s"al mode, pro%ides offeror gi%es notice to the offeree with in a reasonable time that the offer is not accepted according to the prescribed4"s"al mode. If the offeror /eeps 3"ite, he is deemed to ha%e accepted the offer. :) , death (or) insanit of the offeree4acceptor. 0) , destr"ction of the s"b#ect matter.
4Q. F#n acceptance to be effective must be communicated to the offerorG. #re there an8 e+ceptions to this rule? (O/) Define acceptance? (+plain the rules regarding a valid acceptance? #ns$ Definition$ According to section 2(b) of the Indian contract Act, 1872, defines an acceptance is when the person to whom the proposal is made signifies is assent thereto, the proposal is said to be accepted becomes a promise. :n the acceptance of the proposal, the proposer is called the promisor4offeror and the acceptor is called the promise4offeree. *egal r"les as to acceptance& A %alid acceptance m"st satisfies the following r"les&' http://www.miteshk.webs.com
B-LAW NOTES
1) #cceptance must be obsolute and unHualified$ An acceptance to be %alid it m"st be obsol"te and "n3"alified and in accordance with the e$act terms of the offer. An acceptance with a %ariation, slight, is no acceptance, and ma amo"nt to a mere co"nter' offer (i.e.., original ma or ma not accept. )) #cceptance must be communicated to the offeror$ -or a %alid acceptance, acceptance m"st not onl be made b the offeree b"t it m"st also be comm"nicated b the offeree to the offeror. 0omm"nication of the acceptance m"st be e$pressed or implied. A mere mental acceptance is no acceptance.
2) #cceptance must be according to the mode prescribed (or) usual and reasonable manner$ If the offeror prescribed a mode of acceptance, acceptance m"st gi%en according to the mode prescribed. If the offeror prescribed no mode of acceptance, acceptance m"st gi%en according to some "s"al and reasonable mode. If an offer is not accepted according to the prescribed (or) "s"al mode. (he proposer ma within a reasonable time gi%e notice to the offeree that the acceptance is not according to the mode prescribed. If the offeror /eeps 3"ite he is deemed to ha%e accepted the acceptance.
4) #cceptance must be given with in a reasonable time$ If an time limit is specified, the acceptance m"st be gi%en with in that time. If no time limit is specified, the acceptance m"st be gi%en with in a reasonable time.
(+ample$ /amsgate victoria ?otel 6ompan8 (vs) %onteflore (1::7) -acts$ :n B"ne 8th 6.7 offered to ta/e shares in 6C7 0ompan . 2e recei%ed a letter of acceptance on Do%ember 2+rd. he ref"sed to ta/e shares. 1udgment$ 6.7 was entitled to ref"se his offer has lapsed as the reasonable period which it co"ld be accepted and elapsed. 5) *t cannot precede an offer$ If the acceptance precedes an offer, it is not a %alid acceptance and does not res"lt in a contract. In other words acceptance s"b#ect to contract is no acceptance.
B-LAW NOTES
7) #cceptance must be given b8 the parties (or) part8 to whom it is made$ An offer can be accepted onl b the person (or) persons to whom it is made. It cannot be accepted b another person witho"t the consent of the offeror.
(+ample$ ,oulton (vs) 1ones (1:59). -acts$ ,o"lton bo"ght a hose'pipe b"siness from ,roc/leh"rst. Bones, to whom ,roc/leh"rst owed a debt, placed an order with ,roc/leh"rst for the s"ppl of certain goods. ,o"lton s"pplied the goods e%en tho"gh the order was not addressed to him. Bones ref"sed to pa ,o"lton for the goods beca"se he, b entering into a contract with ,roc/leh"rst, intended to set off his debt against ,roc/leh"rst. 1udgment$ (he offer was made to the ,roc/leh"rst and it was not in the power of ,o"lton to step in and accept. (herefore there was no contract. 9) *t cannot be implied from silence$ 9ilence does not amo"nt to acceptance. If the offeree does not respond to offer (or) /eeps 3"ite, the offer will lapse after reasonable time. (he offeror cannot compel the offeree to respond offer (or) to s"ggest that silence will be e3"i%alent to acceptance. :) #cceptance must be e+pressed (or) implied$ An acceptance ma be gi%en either b words (or) b cond"ct. An acceptance which is e$pressed b words (i.e.., spo/en or written) is called 6e+pressed acceptanceC. An acceptance which is inferred b cond"ct of the person (or) b circ"mstances of the case is called an Bimplied or tacit acceptanceC. (+ample$ 6arilill (vs) 6arbolic ,all compan8 (1:02). -acts$ A compan ad%ertised in se%eral newspapers is that a reward of * 1!! (ponds) wo"ld be gi%en to an person contracted infl"en;a after "sing the smo/e ball according to the printed directions. :nce .r.0arilill "sed the smo/e balls according to the directions of the compan b"t contracted infl"en;a. 1udgment$ she co"ld reco%er the amo"nt as b "sing the smo/e balls she accepted the offer. 0) Acceptance ma be gi%en b performing some condition (or) b accepting some consideration.
B-LAW NOTES
1<) Acceptance m"st be made before the offer lapses (or) before the offer is withdrawn.
5Q. !rite a short notes on consensusEadEidem. #ns$ (he essence of an agreement is the meeting of the minds of the parties in f"ll and final agreement8 there m"st, be consens"s'ad'idem. (he e$pression agreement as defined in section 2 (e) is essentiall and e$cl"si%el consens"al in nat"re (i.e.., before there can be an agreement between the two parties, there m"st be consens"s'ad'idem). (his means that the parties to the agreement m"st ha%e agreed abo"t the s"b#ect'matter of the agreement in the same sense and at the same time. Fnless there is consens"s'ad'idem, there can be no contract. (+ample$ 6A7 who owns two horses named Ca#hans and 2ansra#. 6A7 selling horse Ca#hans to 6,7. 6,7 thin/s that he is p"rchasing horse 2ansra#. (here is no consens"s'ad'idem, there can be no contract.
7Q. 6ross offer. #ns$ when two (or) more identical offers e$changed between the parties in ignorance at the time of each other7s offer, the offer are called as cross offers. In s"ch a case, the co"rts constr"e one offer as the offer and the other as the acceptance. (h"s a cross offer will not create an contract. (+ample$ 6A7 offers to sell his car to 6,7 for C9.1E!!!4'. 6,7 at the same time, offers b a letter to b" 6A7s car for Cs.1E!!!4'. (he two letters cross each other in the post. In s"ch a case the co"rts constr"e one offer as the offer and the other as the acceptance. (h"s there was no concl"ded contract between 6A7 and 6,7. http://www.miteshk.webs.com
B-LAW NOTES
9Q Distinguish between void contract and voidable contract. #ns$ (he following are the differences between %oid and %oidable contract. (he are follows&' ,ase Definition Aoid contract Aoidable contract
According to section 2(#) a %oid According to section 2(i) a %oidable contract as 6a contract which ceases to contract be enforceable b when it ceases to be enforceable7. is 6an agreement which is law becomes %oid enforceable b law at the option of one or more the parties b"t not at the option of the other or other or others7.
'ature
A %oid contract is %alid when it is made. ,"t binding on the parties it ma s"bse3"entl agreements. become %oid. <e ma
A %oidable contract on the other hand is %oidable at the option of the aggrie%ed part and remains %alid "ntil rescinded b coercion, "nd"e are infl"ence, fra"d, misrepresentation
tal/ of s"ch a contract as %oid him. 0ontract ca"sed b
%oidable. ,"t in case contract is ca"sed b mista/e it is %oid. /ights A %oid contract does not pro%ide an legal remed contract. It ma %oid of into right from contract at all (he aggrie%ed part in a %oidable contract s"ch part rescinds it, the contract become does not rescind the contract with in a reasonable time, the contract remains %alid.
for the parties to the gets a right to rescind the contract. <hen
the beginning. In other words it is not a %oid. In case aggrie%ed part
:Q.6ounter offer. #ns$ when the offeree offers to 3"alified acceptance of the offer s"b#ect to modifications and %ariations in the terms of the original offer, he is said to ha%e made a co"nter offer. 0o"nter offer amo"nts to re#ection of the original offer. In s"ch a case an offer ma be re%o/ed. (+ample$ ?8de (vs) !rench (1:4<)
B-LAW NOTES
-acts$ 6<7 offered to sell a farm to 627 for
1!!! (po"nds). 627 offered
@E! (po"nds) 6<7
ref"sed the offer. 9"bse3"entl , 627 offered to p"rchase the farm for
* 1!!! (po"nds).
1udgment$ (here was no contract as 627 b offering * @E! (po"nds) had re#ected the original offer. ,eca"se the co"nter offer to a proposal amo"nts to its re#ection.
0Q. 6ommunication of offer$ #ns$ An offer, its acceptance and their re%ocation (withdrawal) to be complete when it m"st be
comm"nicated. <hen the contracting parties are face to face and negotiate in person, a contract comes into e$istence the mo%ement the offeree gi%es his absol"te and "n3"alified acceptance to the proposal made b the offeror. (he following are the r"les regarding comm"nication of offer& i) (he comm"nication of an offer is complete when it comes to the /nowledge of the person to whom it is made. ii) An offer ma be comm"nicated either b words spo/en (or) written (or) it ma be inferred from the cond"ct of the parties. iii) <hen an offer4proposal is made b post, its comm"nication will be complete when the letter containing the proposal reaches the person to whom it is made.
1<Q. 6ommunication of acceptance. #ns$ An offer, its acceptance and their re%ocation (withdrawal) to be complete when it m"st be comm"nicated. <hen the contracting parties are face to face and negotiate in person, a contract comes into e$istence the mo%ement the offeree gi%es his absol"te and "n3"alified acceptance to the proposal made b the offeror. (he following are the r"les regarding comm"nication of acceptance&' 1) 0omm"nication of an acceptance is complete&' a) As against the proposer4offeror when it is p"t into the certain co"rse of transmission to him, so as to be o"t of the power of the acceptor.
B-LAW NOTES
b) As against the acceptor, when its comes to /nowledge of the proposer. )) <hen a proposal is accepted b a letter sent b the post the comm"nication of acceptance will be complete&' a) As against the proposer when the letter of acceptance is posted and b) As against the acceptor when the letter reach the proposer.
11Q. 6ommunication of revocation. #ns$ An offer, its acceptance and their re%ocation (withdrawal) to be complete when it m"st be comm"nicated. <hen the contracting parties are face to face and negotiate in person, a contract comes into e$istence the mo%ement the offeree gi%es his absol"te and "n3"alified acceptance to the proposal made b the offeror. (he following are the r"les regarding comm"nication of re%ocation& 1" As against the person who ma/es it, when it p"t into a co"rse of transmission. #" As against the person to whom it is made, when its comes to his /nowledge.
1)Q. *nvitation to ma e an offer. (Or) Offer and invitation to offer. #ns$ If a person ma/es an in%itation to ma/e an offer4proposal, the other person ma/es an
offer4proposal in response. (he offer4proposal ma or ma not be accepted. (+ample$ E (ender notice is an in%itation to ma/e a proposal4offer. (hen the response to a tender notice is an offer and can be in two wa s&' 1) # definite offer$ <hen a tender is s"bmitted, in response to an in%itation for s"ppl of goods and ser%ices in specified 3"antities, in a specific and definite manner, it is a definite offer. 2) # standing offer$ sometimes a tender is s"bmitted, in response to an in%itation for s"ppl of goods and ser%ices in a contin"o"s wa o%er a period of time, s"ch an offer is said to be standing (or) contin"o"s offer. As soon an order is made a contract is created. 12Q. /evocation of offer and acceptance.
B-LAW NOTES
#ns$ /evocation of offer$ A proposal4offer ma be re%o/ed at an time before the comm"nication of its acceptance is complete as against the proposer, b"t not afterwards. /evocation of acceptance$ An acceptance ma be re%o/ed at an time before the
comm"nication of acceptance is complete as against the acceptor, b"t not afterwards. (+ample$ 6A7 ma/es proposal to 6,7 to sell his ho"se at a certain price. (he letter is posted on 1st of the month. 6,7 accepts the proposal b a letter sent b post on 5th. (he letter reaches 6A7 on the Ath. 6A7 ma re%o/e his offer at an time before 6,7 posts his letter of acceptance. (i.e.., on 5 th, b"t not afterwards). 6,7 ma re%o/e his acceptance at an time before the letter of acceptance reaches 6A7. (i.e.., on Ath, b"t not afterwards). 14Q. 6ommunication of offer> acceptance and revocation. (Or) !hen is communication complete? #ns$ An offer, its acceptance and their re%ocation (withdrawal) to be complete when it m"st be comm"nicated. <hen the contracting parties are face to face and negotiate in person, a contract comes into e$istence the mo%ement the offeree gi%es his absol"te and "n3"alified acceptance to the proposal made b the offeror. C"les regarding the comm"nication of offer, acceptance and re%ocation are laid down in section 5, as follows. 6ommunication of offer$ (he following are the r"les regarding comm"nication of offer& 1) (he comm"nication of an offer is complete when it comes to the /nowledge of the person to whom it is made. )) An offer ma be comm"nicated either b words spo/en (or) written (or) it ma be inferred from the cond"ct of the parties. 2) <hen an offer4proposal is made b post, its comm"nication will be complete when the letter containing the proposal reaches the person to whom it is made. (+ample$ 6A7 ma/es proposal to 6,7 to sell his ho"se at a certain price. (he letter is posted on 1! th B"l . It reaches 6,7 on 12th B"l . (he comm"nication of offer is complete when 6,7 recei%es the letter (i.e.., on 12th B"l ).
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6ommunication of acceptance$ (he following are the r"les regarding comm"nication of acceptance&' 1) 0omm"nication of an acceptance is complete&' a) As against the proposer4offeror when it is p"t into the certain co"rse of transmission to him, so as to be o"t of the power of the acceptor. b) As against the acceptor, when its comes to /nowledge of the proposer. )) <hen a proposal is accepted b a letter sent b the post the comm"nication of acceptance will be complete&' a) As against the proposer when the letter of acceptance is posted and b) As against the acceptor when the letter reach the proposer. 6ommunication of revocation$ (he following are the r"les regarding comm"nication of re%ocation& 1) As against the person who ma/es it, when it p"t into a co"rse of transmission. )) As against the person to whom it is made, when its comes to his /nowledge. (+ample$ 6A7 proposes b a letter, to sell a ho"se to 6,7 at a certain price. (he letter is posted on 1E th ma . It reaches 6,7 on 1@th ma . 6A7 re%o/es his offer b telegram on 18th ma . (he telegram reaches 6,7 on 2!th ma . (he re%ocation is complete against 6A7 when the telegram is dispatched (i.e.., in 18th ma ). It is complete as against the 6,7 when he recei%es it (i.e.., on 2!th ma ).
1'I0A (consideration)'+
15Q. Define consideration? !hat are the rules as to consideration? #ns$ %eaning$E 0onsideration is a technical term "sed in the sense of 3"id'pro'3"o (i.e.., some thing in ret"rn). <hen a part to an agreement promises to do something, he m"st get something in ret"rn. (his something is defined as consideration.
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Definition$E According to section 2(d) of the Indian contract Act, 1872, defines consideration as when at the desire of the promisor, the promise (or) an other person has done (or) abstained from doing, (or) does (or) abstains from doing, (or) promises to do (or) to abstain from doing, something, s"ch act (or) abstinence (or) promise is called a consideration for the promise. (+ample$ #bdul #IiI (vs) %asum #li (1014) -acts$ (he secretar of a mos3"e committee filed a s"it to enforce a promise which the promisor had made to s"bscribe Cs.E!!4' for reb"ilding a mos3"e. 1udgment$ 6(he promise was not enforceable beca"se there was no consideration in the sense of benefit7, as 6the person who promised gained nothing in ret"rn for the promise made7, and the secretar of the committee to whom the promise was made, s"ffered no detriment (liabilit ) as nothing had been done to carr o"t the repairs. 2ence the s"it was dismissed. (ssentials of a valid consideration$E (he following are the essentials of a %alid consideration (:C) legal r"les as to consideration. 1. *t ma8 be past> present (or) future$ (he words has done (or) abstained from doing refer to past consideration. (he word does (or) abstains from doing refer to present consideration. 9imilarl the word promises to do (or) to abstain from doing refers to the f"t"re
consideration. (h"s, the consideration ma be past, present (or) f"t"re.
). *t must move at the desire of the promisor$ In order to constit"te a legal consideration, the act (or) abstinence forming the consideration for the promise m"st mo%e at the desire (or) re3"est of the promisor. If it is done at the instance of a third part (or) witho"t the desire of the promisor, it will not be a %alid contract. (+ample$ Durga ;rasad (vs) ,aldeo (1::<)J -acts$ 6,7 spent some mone on the impro%ement of a mar/et at the desire of the collector of the district. In consideration of this 6G7 who was "sing the mar/et promised to pa some mone to 6,7. 1udgment$ (he agreement was %oid being witho"t consideration. 2. *t must not be illegal> immoral (or) not opposed to public polic8$ http://www.miteshk.webs.com
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(he consideration gi%en for an agreement m"st not be "nlawf"l, illegal, immoral and not opposed to p"blic polic . <here it is "nlawf"l, the co"rt will not allow an action on the agreement.
4. *t need not be adeHuate$ 0onsideration need not be an partic"lar %al"e. It need not be appro$imatel e3"al %al"e with the promise for which it is e$changed. ,"t it m"st be something which the law wo"ld regard as ha%ing some %al"e. In other words consideration, as alread e$plained, it means something in ret"rn. (his means something in ret"rn need not be necessaril be an e3"al in %al"e to something gi%en. 5. *t must be real and not illusor8$ 0onsideration m"st not be illegal, impossible (or) ill"sor b"t it m"st be real and of some %al"e in the e es of law. (he following are not real consideration&
(a)Hh sical impossibilit , (b)legal impossibilit , (c)"ncertain consideration, (d) ill"sor consideration. 7. *t must move from the promise (or) an8 other person$ Fnder 1nglish law consideration m"st mo%e from the promisee itself. ,"t, "nder Indian law, consideration mo%e from the promisee (or) an other person (i.e.., e%en a stranger). (his means as long as there is a consideration for a promise, it is immaterial who has f"rnished it. ,"t the stranger to a consideration will be s"e onl if he is a part to the contact. (+ample$ 6hinna8a (vs) /ama88a (1::)). -acts$ An old lad , b a dead of gift, made o%er certain propert to her da"ghter 6G7, "nder the directions that she sho"ld pa her a"nt, 6H7 (sister of old lad ), a certain s"m of mone ann"all . (he same da 6G7 entered into an agreement with 6H7 to pa her the agreed amo"nt later 6G7 ref"sed to pa the amo"nt on the plea that no consideration had mo%ed from 6H7 to 6G7. 1udgment$ 6H7 was entitled to maintain s"it as consideration had mo%ed from the old lad , sister of 6H7, to the da"ghter, 6G7.
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9. *t must be something the promisor is not alread8 bound to do$ A promise to do what one is alread bo"nd to do, either b general law (or) "nder an e$isting contract, is not a good consideration for a new promise, since it adds nothing to the pre'e$isting legal or contract"al obligation. :. *t ma8 be an act> abstinence (or) forbearance (or) a return promise$ consideration ma be an act, abstinence (or) forbearance (or) a ret"rn promise. (h"s it ma be noted that the following are good considerations for a contract. -orbearance to s"e. 0ompromise of a disp"ted claim. 0omposition with creditors.
(K#%;L($' A promise to perform a p"blic d"t b a p"blic ser%ant is not a consideration.
17Q.Define consideration? F# contract not supported b8 consideration is unenforceableG discuss what are it e+ceptionsG. (Or) F# contract without consideration is voidGE Discuss its e+ceptions? (Or) F*nsufficienc8 of consideration immaterialJ but an agreement without consideration is voidG. 6omment. (Or) (+plain the term consideration and state the e+ceptions to the rule F'o consideration> no contractG #ns$ %eaning$E 0onsideration is a technical term "sed in the sense of 3"id'pro'3"o (i.e.., some thing in ret"rn). <hen a part to an agreement promises to do something, he m"st get something in ret"rn. (his something is defined as consideration. Definition$E According to section 2(d) of the Indian contract Act, 1872, defines consideration as when at the desire of the promisor, the promise (or) an other person has done (or) abstained from doing, (or) does (or) abstains from doing, (or) promises to do (or) to abstain from doing, something, s"ch act (or) abstinence (or) promise is called a consideration for the promise. (+ample$ #bdul #IiI (vs) %asum #li (1014)
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-acts$ (he secretar of a mos3"e committee filed a s"it to enforce a promise which the promisor had made to s"bscribe Cs.E!!4' for reb"ilding a mos3"e. 1udgment$6(he promise was not enforceable beca"se there was no consideration in the sense of benefit7, as 6the person who promised gained nothing in ret"rn for the promise made7, and the secretar of the committee to whom the promise was made, s"ffered no detriment (liabilit ) as nothing had been done to carr o"t the repairs. 2ence the s"it was dismissed. Aalidit8 of an agreement without consideration$ (he general r"le is that an agreement made witho"t consideration is %oid. In the following cases, the agreement tho"gh made witho"t consideration, will be %alid and enforceable according to section 2E and 18E are as follows&' 1. 'ature love and affection$ An agreement made witho"t consideration is %alid if it is made o"t of lo%e, nat"re and affection s"ch agreements are enforceable if (he agreement is made in writing and registered. (he agreement m"st be made between the parties standing in near relations to each other and (here m"st be nat"re, lo%e and affection between the parties.
(+ample$ Aen atswam8 (vs) /angaswam8 (10<2)$ -acts$ , a registered agreement, 6I7, on acco"nt of nat"re, lo%e and affection for his brother, 6C7, promises to discharge debt to 6,7. If 6I7 does not discharge the debt. 1udgment$ 6C7 ma discharge it and then s"e 6I7 to reco%er the amo"nt. (herefore it is a %alid agreement. ). 6ompensation for past voluntar8 services$ A promise made witho"t consideration is %alid if, it is a person who has alread done %ol"ntaril done something for the promisor, is enforceable, e%en tho"gh witho"t consideration. In simple words, a promise to pa for a past %ol"ntar ser%ice is binding. 2. ;romise to pa8 TimeE,ared debt$ An agreement to pa a time'bared debt is enforceable if the following conditions are satisfied. (he debt is a time bared debt (he debtor promises to pa the time barred debt. (he promise is made in writing. (he promise is signed b the debtor.
4. 6ompleted gifts$ (he r"le Do consideration J Do contract does not appl to completed gifts. According to section 1 to 2E states nothing in section 2E shall affect the %alidit , as between the donor and donee, of an gift act"all made http://www.miteshk.webs.com
B-LAW NOTES
5. #genc8$ According to section 18E, no consideration is necessar to create an agenc . 7. 6haritable subscription$ <here the promisee on the strength of promise ma/es commitments (i.e.., changes his position to his liabilit 4detriment). (+ample$ @edernath (vs) 3houri %ohammed (1::7). -acts$ 6)7 had agreed to s"bscribe Cs.1!!4' towards the constr"ction of a town hall at 2owrah. (he secretar , 6K7, on the faith of the promise, called fro plans and entr"sted the wor/ to contractors and "ndertoo/ the liabilit to pa them. 1udgment$ (he amo"nt co"ld be reco%ered, as the promise res"lted in a s"fficient detriment to the secretar . 2owe%er, be enforceable onl to the e$tent of the liabilit inc"rred b the secretar . In this case, the promise, e%en tho"gh it was grat"ito"s, became, enforceable beca"se on the faith of promise the secretar had inc"rred a detriment.
19Q.G#ll contracts are agreements but all agreements are not contractsG E e+plain. #ns$ All contracts are agreements b"t all agreements are not contracts' the statement has two parts. (a) #ll contracts are agreement$ As per section 2(h) of Indian contract Act, A contract is an agreement enforceable b law. :b%io"sl an agreement is a pre re3"isite (i.e.., essential elements) for formation of contract. An agreement cl"bbed with enforceabilit b law and se%eral other feat"res (i.e.., free consent, consideration, etc..,) will create a %alid contract. (herefore, ob%io"sl all contracts will be agreements. (b) #ll agreements are not contracts$ As per section 2(e) of Indian contract act, An agreement is a promise and e%er set of promises, forming consideration for each other. (h"s, a lawf"l offer and a lawf"l acceptance create an agreement onl . (herefore all agreements are not contracts. 6onclusion$ 0ontract L Agreement M 1nforceabilit b law. Agreement L :ffer M Acceptance. (h"s, all agreements are contracts b"t all agreements are not necessaril contracts.
1:Q.G# stranger to a consideration can sueG L #re there an8 e+ceptions to this rule? #ns$ *ntroduction$ (here is a general r"le of law is that onl the parties to a contract can s"e. In other words, if a person not a part to a contract, he cannot s"e. (his r"le is /nown as the Goctrine of
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pri%it of contract. Hri%it of contract means relationship s"bsisting between the parties who ha%e entered into contract"al obligations. (here are two conse3"ences of doctrine of pri%it of contract the are follows& 1) A person who is not a part to a contract cannot s"e e%en if the contract is for his benefit and he pro%ided consideration. (:r) A stranger to a contract cannot s"e.
2) A contract cannot pro%ide rights (or) impose obligations arising "nder it on an person other than the parties to it. (:r) A stranger to a contract can s"e. (+ample$ Dunlop ;neumatic T8re 6o.Ltd (vs) &elfridge M 6o.Ltd (1015). -acts$ 697 bo"ght t res from the G"nlop C"bber compan and sold them to 6G7, a s"b'dealer, who agreed with 697 not to sell below G"nlop7s list price and to pa the G"nlop compan G"nlop 0ompan s"ed him for the breach. 1udgment$ (he G"nlop 0ompan co"ld not maintain the s"it as it was a stranger to the contract. (+ceptions$ (he following are the e$ceptions to the r"le that a stranger to a contract cannot s"e&' 1. # trust$ In tr"st deed beneficiaries is allowed to s"e the tr"stee for enforcement of tr"stee7s d"ties e%en tho"gh the are not contracting part . 2owe%er, the name of the beneficiar m"st be clearl mentioned in the contract. (+ample$ 3and8 (vs) 3and8 (1::4)$ -acts$ A h"sband who was separated from his wife e$ec"ted a separation deed b which he promised to pa to the tr"stees all e$penses for the maintenance of his wife. 1udgment$ (his sort of agreement creates a tr"st in fa%o"r of the wife and can be enforced. ). %arriage settlements> partition (or) other famil8 arrangements$ <hen an agreement is made in connection of marriage settlements, partitions (or) other famil arrangements and a pro%ision is made for the benefit of a person, he ma s"e altho"gh he is not a part to the agreement. (+ample$ Daropti (vs) 1aspat /ai (10<5)$
* E (po"nds) as
damages on e%er t re 6G7 "ndersold. 6G7 sold two t res at less than the list price and there "pon, the
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-acts$ 6B7s wife deserted him beca"se of his ill treatment. 6B7 entered into an agreement with his father'in'law to treat her properl (or) else pa her monthl maintenance. 9"bse3"entl , she was again ill'treated and also dri%en o"t. 1udgment$ she was entitled to enforce the promise made b 6B7 to her father. 2. #c nowledgement (or) (stoppel$ (he person, who becomes an agent of a third part ac/nowledgement (or) 1stoppel, can be s"ed b s"ch third part . 4. #ssignment of contract$ Assignment means %ol"ntar transfer of the rights b a person to another. In s"ch a case an assignee becomes entitled to s"e and enforce the rights which are assigned to him. 5. 6ontracts entered into through an agent$ (he principal enforce the contract entered into b his agent pro%ided the agent act within the scope of his a"thorit and in the name of the principal. 7. 6ovenants running with the land$ In case of transfer of immo%able propert , the p"rchaser of land (or) the owner of the land is bo"nd b certain conditions (or) co%enants created b an agreement affecting the land. b
10Q. Define contract? (+plain its inds of contracts? #ns$ %eaning$ A contract is an agreement made between two (or) more parties which the law will enforce. Definition$ According to section 2(h) of the Indian contract act, 1872. An agreement enforceable b law is a contract. According to &#L%O'D, a contract is An agreement creating and defining obligations between the parties @inds of contracts$ E 0ontracts ma be classified according to their (a) %alidit , (b) -ormation, and (c) Herformance. (a)6lassification according to validit8$E 1. # valid contract$ A %alid contract is an agreement which is binding and enforceable. An agreement becomes a contract when all the essential elements (i.e.., offer and acceptance, intention to create legal relationship etc..,) are present, in s"ch a case the contract is said to be %alid.
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). # voidable contract$ An agreement which is enforceable b law at the option of one (or) more parties thereto, b"t not at the option of the other (or) others, is a %oidable contract. (his happens when the essentials elements of a free consent is missing. <hen the consent of a part to a contract is said to be not free, if it is ca"sed b 0oercion, Fnd"e infl"ence, .isrepresentation (or) fra"d, etc.., 2. # void contract$ A %oid contract is reall not a contract at all. (he term %oid means an agreement which is witho"t an legal effect. In other words an agreement not enforceable b law is said to be %oid. 4. *llegal contracts$ 9ome agreements are illegal in themsel%es (e$&' contracts of immoral nat"re, opposed to p"blic polic etc..,) (h"s, All illegal contracts are %oid b"t all %oid contracts are not illegal (e$&' A wagering agreement, tho"gh %oid is not illegal). 5. #n unenforceable contract$ An "nenforceable contract is one which cannot be enforced in a co"rt of law beca"se of some technical defect s"ch as absence of writing (or) where the remed has been barred b lapses of time. (b) 6lassification according to their formation$E 1. (+press contract$ An e$press contract is one, the terms of which are stated in words, spo/en (or) written at the time of the formation of the contract. ). *mplied contract$ An implied contract is one in which the e%idence of the agreement is shown b acts and cond"ct of the parties, b"t not b words, written (or) spo/en. In other words where the offer (or) acceptance of an promise made otherwise then in words, the promise is said to be implied promise (or) implied contract. 2. QuasiEcontract$ In tr"th N"asi'contract is not a contract at all. A 3"asi'contract is acts which are created b law. It does not ha%e an essential elements of a %alid contract. It is not intentionall created b parties b"t it is imposed b law. It is fo"nded "pon the 6principles of nat"ral #"stice, e3"it and fair pla 7. (c) 6lassification according to their performance$ 1. (+ecuted contract$ 1$ec"ted means that which is done. An e$ec"ted contract is one in which both the parties ha%e performed their respecti%e obligation. ). (+ecutor8 contract$ 1$ec"tor means that which remains to be carried into effect. An e$ec"tor contract is one in which the parties ha%e et to perform their obligations. 2. .nilateral (or) oneEsided contract$ in this t pe of contract, one part to a contract has performed his part e%en at the time of its formation and an obligation is o"tstanding onl against the parties.
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4. ,ilateral contract (or) TwoEsided contract$ It is a contract in which the obligations on the part of both the parties to the contract are o"tstanding at the time of the formation of the contract.
1E*6# (capacit8 of parties)E4

)<Q.(+plain the term B%*'O/C? (+plain the legal rules regarding agreement b8 a minor? (Or) !hat is the regal effect of a minorCs misrepresentation of his age while entering into an agreement? #ns$ Definition$ According to section +, of the Indian ma#orit act, 187E 6A minor is a person who has not completed 18 ears of age. 2owe%er, minorit will contin"e "p to 21 ears in case, if 2on.co"rt has appointed g"ardian for a minor7s propert 7.
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Legal rules regarding an agreement b8 a minor$ A minor is incompetent to contract "4s 11of the Indian contact act, 1872. .inor7s incompetence is not a p"nishment b"t it is a protection gi%en to minors b law. (he law becomes the g"ardian of minors to protect their rights beca"se their mental capacit is not well de%eloped. (he following are the legal r"les regarding minor7s agreement are as follows&' 1. #n agreement b8 minor is absolutel8 void$ <here a minor is charged with obligations and the other contracting part see/s to enforce these obligations against minor, in s"ch a case the agreement is deemed as %oid'ab'initio. (+ample$ %ohiri ,ibi (vs) Dharmodas 3hose (10<2). -acts$ A minor mortgaged his ho"se in fa%o"r of mone 'lender to sec"re a loan of Cs.2!!!!4' o"t of which the mortgagee ( Gharmodas )hose a mone lender) paid the minor a s"m of Cs.8!!!4'. 9"bse3"entl , the minor s"ed for setting a side the mortgage, stating that he was "nderage when he e$ec"ted the mortgage. 1udgment$ (he mortgage was %oid and, therefore, it was cancelled. -"rther the mone lender7s re3"est for the repa ment of the amo"nt ad%anced to the minor as part of the consideration for the mortgage was also not accepted. ). ?e can be a promisee (or) a ,eneficiar8$ An agreement which is some benefit to the minor and "nder which he is re3"ired to bear no obligation is %alid. (h"s, a minor can be a beneficiar (or) a promisee. 2. ?is agreement cannot be ratified b8 him an attaining the age of ma"orit8$ An agreement b minor is %oid'ab'initio and therefore ratification b minor is not allowed. (here is a f"ndamental principal in law (i.e.., an agreement Ioid'ab'initio cannot be %alidated b s"bse3"ent action). 4. *f he has received an8 benefit under a void agreement> he cannot as/ed to compensate (or) pa8 for it$ Fnder section A5 and AE of the act, pro%ides a minor cannot be ordered to ma/e compensation for a benefit obtained in a %oid agreement. ,eca"se section A5 and AE, which deals with restit"tion of benefit. 5. %inor can alwa8s plead minorit8$ A minor7s contract being %oid, an mone ad%anced to a minor on a promissor note cannot be reco%ered e%en tho"gh a minor proc"res (or) ta/e a loan b falsel representing that he is of f"ll age it will not stop him from pleading his minorit in a s"it, to reco%er the amo"nt and the s"it will be dismissed. (he r"le of estoppel cannot be applied against a minor. (+ample$ Leslie (vs) &hiell (1014).
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-acts$ 697, a minor, b fra"d"lentl representing himself to be of f"ll age, ind"ced 6*7 to lend him * 5!! (po"nds). 2e ref"sed to repa it and 6*7 s"ed for his mone .
1udgment$ (he contract was %oid and 697 was not liable to repa the amo"nt. 7. There can be no specific performance of the agreement entered into b8 him as the8 are voidE abEinitio$ A contract entered into, on behalf of a minor b his parent4g"ardian (or) the manager of his estate can be e$pressl enforced b (or) against the minor, pro%ide the contract is <ith in the a"thorit of the g"ardian and -or the benefit of the minor.
9. ?e cannot enter into a contract of partnership$ A minor being incompetent to contract b"t be a partner of a partnership firm, b"t "4s +! of the Indian partnership Act, pro%ides he can be admitted for the 6benefits of a partnership7 with the consent of all the partners. :. ?e can be an agent$ A minor can be an agent. It is so beca"se the act of the agent is the act of the principal and therefore, the principal is liable to the third parties for the act of a minor agent. 0. ?is parents=guardian is not liable for the contracts entered into b8 him$ (he parents4g"ardian is not liable for the contract entered into b minor. (he parents can held liable for contracts for their minor children onl when the are acting as agent. 1<. # minor is liable in tort ( # civil wrong)$ .inors are liable for negligence ca"sing in#"r (or) damage to the propert that does not belongs to them. 11. # minor is liable for necessaries$ .inor7s estate is liable for necessaries s"pplied to minor d"ring minorit . .inor does not personall liable for the s"ppl of necessaries. (he necessaries s"ch as food, clothing, and shelter etc.., necessaries also incl"de 6goods7 and 6ser%ices7. )1Q. ;erson of unsound mind #ns$ According to section 12 of the Indian contract Act, 1872 A person is said to be of so"nd mind for the p"rpose of ma/ing a contract if, at the time when he ma/es it, he his capable of "nderstanding it and of forming a rational #"dgment as to its effects "pon his interests. 9o"ndness of mind of a person depends on two facts& 1. Abilit to "nderstand the contract at the time of ma/ing. 2. Abilit to form a rational #"dgment abo"t the effect of the contract on his interest. Fnso"ndness ma arise from idioc , l"nac , dr"n/enness, h pnotism, mental deca beca"se of old age and deliri"m (high temperat"re) etc..,
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A person who is "s"all of "nso"nd mind and occasionall of so"nd mind can contract when he is of so"nd mind. A person who is "s"all of so"nd mind and occasionall of "nso"nd mind cannot contract when he is of "nso"nd mind. (h"s, the b"rden of proof will be lie "pon the person who claims that he was not of so"nd mind at the time of ma/ing a contract.
))Q.what are necessaries when he is a minor on a contract for necessaries? (O/) %inorCs liabilit8 for necessaries? #ns$ Definition$ According to section +, of the Indian ma#orit act, 187E 6A minor is a person who has not completed 18 ears of age. 2owe%er, minorit will contin"e "p to 21 ears in case, if 2on.co"rt has appointed g"ardian for a minor7s propert 7. (h"s, minor estate is liable for necessaries s"pplied to minor d"ring minorit . .inor does not personall liable for the s"ppl of necessaries. According to the section A8 of the Act, If a person incapable of entering into a contract, (or) an one whom he is legall bo"nd to s"pport, is s"pplied b another person with necessaries s"ited to his condition in life, the person who had f"rnished s"ch s"pplies is entitled to be reimb"rsed from the propert of s"ch incapable There are two essentials$E 1. (he things s"pplied m"st be s"ited to his condition in life (i.e.., position and financial stat"s of the minor). 2. (he things s"pplied m"st be necessaries of life (i.e.., food, clothing, shelter, etc..,) 'ecessaries also includes$E !" 'ecessar8 goods$ Decessar reasonabl necessar goods are not restricted to articles which are re3"ired to
maintain a bare e$istence, s"ch as bread and clothes, b"t it also incl"de goods which are to the minor ha%ing regard to his station in life. (i.e.., watch, bic cle, etc..,) (+ample$ 'ash (vs) *mran (10<:). -acts$ 6I7, a minor, bo"ght ele%en fanc waistcoats from 6D7. he was at that time ade3"atel pro%ided with clothes. 1udgment$ (he waistcoats were not necessaries, and 6I7 was not liable to pa for an of them.
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b" &ervices rendered$ 0ertain ser%ices rendered to a minor ha%e been held to be necessaries. (hese incl"de ed"cation, training for a trade, medical ad%ice, hose gi%en to a minor on rent for the p"rpose of li%ing and contin"ing his st"dies etc.., As regards contracts which are not for the s"ppl of necessaries b"t which are "ndo"btedl beneficial to the minor, in s"ch a case the minor pri%ate estate is liable. (+ample$ /oberts (vs) 3ra8 (1012). -acts$ 6)7, a minor, entered into a contract with 6C7, a noted billiards pla er, to pa him a certain s"m of mone to learn the game and pla matches with him d"ring his world to"r. 6C7 spent time and mone in ma/ing arrangements for billiards matches. 1udgment$ 6)7 was liable to pa as the agreement was one for necessaries as it was in effect for teaching, instr"ction, and emplo ment and was reasonable for the benefit of the infant. Loans incurred to obtain necessaries$ A loan ta/en b a minor to obtain necessaries also binds him and is reco%erable b the lender as if he himself had s"pplied the necessaries. ,"t the minor is not personall liable. It is onl his estate which is liable for loans. )2Q. 6ontract b8 disHualified person. (Or) ;erson e+pressl8 disHualified (other person). #ns$ ,esides minors and persons of "nso"nd mind, there are also other persons who are dis3"alified from contracting partiall (or) wholl . 9o, the contracts b s"ch persons are %oid. If, b an pro%isional legislation, a person is declared disHualified proprietor, he is not competent to enter into an contract in respect of the propert . (he following persons are dis3"alified from contracting8 (a) Alien enem . (b) -oreign so%ereign states. (c) 0orporations. (d) Insol%ents. (e) 0on%icts.
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1'I0A (legalit of ob#ect)'A

)0Q..nder what circumstances is the ob"ect (or) consideration of a contract deemed unlawful? *llustrate with e+amples? #ns$ %eaning$E 0onsideration is a technical term "sed in the sense of 3"id'pro'3"o (i.e.., some thing in ret"rn). <hen a part to an agreement promises to do something, he m"st get something in ret"rn. (his something is defined as consideration. An agreement will not be enforceable if its ob#ects (or) the consideration are "nlawf"l. According to section, of the Indian contract Act, 1872. (he consideration and ob#ects are "nlawf"l in the following cases& 1. *f it is forbidden b8 law$ If the ob#ect (or) the consideration of an agreement is forbidden b law, in s"ch a case the agreement is deemed to be "nlawf"l and %oid. An act is forbidden b law if,
B-LAW NOTES
It is p"nishable "nder the criminal law of the co"ntr . (or) It is prohibited b special legislations and reg"lations made b competent a"thorit "nder power deri%ed from legislat"re. (+ample$ 6A7 promises to obtain for 6,7 an emplo ment in the p"blic ser%ice and 6,7 promises to pa Cs.1!!!4' to 6A7. (he agreement is %oid, as the consideration for it is "nlawf"l. ). *f it is defeats the provision of an8 law$ If the ob#ect (or) consideration of an agreement is of s"ch a nat"re that, tho"gh not directl forbidden b law, it wo"ld defeat the pro%isions of the law, in s"ch a case the agreement is deemed to be "nlawf"l and %oid. (+ample$ An agreement between h"sband and wife to li%e separatel is in%alid as being opposed to 2ind" law. 2. *f it is fraudulent$ An agreement, whose ob#ect (or) consideration is to defra"d others, is "nlawf"l and hence it becomes %oid. (+ample$ 6A7, 6,7, 607 enters into an agreement for di%ision among them of gains ac3"ired (or) to be ac3"ired, b them b fra"d. (he agreement is %oid, as its ob#ect is "nlawf"l. 4. *f it involves (or) implies in"ur8 to the person (or) propert8 of another$ If the ob#ect (or) consideration of an agreement is to in#"re the person (or) propert of another is %oid. In s"ch a case ob#ect (or) the consideration is deemed to be "nlawf"l. (+ample$ /am &aroop (vs) ,ansi %andar (1015)$ -acts$ , borrowed Cs.1!! from *7 and e$ec"ted a bond promising to wor/ for * witho"t pa for a period of two ears. In case of defa"lt, , was to pa interest (at a %er e$orbitant rate) and the principal amo"nt at once. B"dgment& (he contract was %oid as it in%ol%es in#"r to the person of ,. 5. *f the court regards it as immoral$ An agreement, whose consideration and ob#ect is immoral, is deemed to be illegal and %oid. (he word immoral incl"des se$"al immoralit . 2ence its ob#ect (or) consideration is "nlawf"l. (+ample$ ;earce (vs) ,roo s (1:77)$ -acts$ A firm of coach'b"ilders hired o"t a carriage to a prostit"te, /nowing that it was to be "sed b prostit"te to attract men. 1udgment$ (he coach'b"ilders co"ld not reco%er the hire as the agreement was "nlawf"l.
B-LAW NOTES
7. !here the court regards it as opposed to public polic8$ An agreement whose consideration (or) ob#ect is s"ch a nat"re that opposed to p"blic polic . (h"s it becomes %oid and it deemed to be "nlawf"l. 2<Q.Discuss the doctrine of public polic8? 3ive e+amples of agreement which are opposed to public polic8? (or) F#greements opposed to public polic8GE(+plain. #ns$ An agreement is said to be opposed to p"blic polic when it is harmf"l to the p"blic welfare. An agreement whose ob#ect (or) consideration is opposed to p"blic polic is %oid. 9ome of those agreements which are (or) which ha%e been held to be, opposed to p"blic polic and are "nlawf"l as follows&' 1. #greements of trading with enem8$ An agreement made with an alien enem at the time of war is illegal on the gro"nd of p"blic polic . (his agreement is based "pon the two reasons& a) 0ontract made d"ring the contin"ance of the war, an alien enem can neither contract with an Indian s"b#ect (nor) can he s"e in an Indian co"rt. 2e can do so onl after he recei%es a license from the central go%ernment. b) 0ontract made before the war ma either be s"spended (or) dissol%ed. ). #greement to commit a crime$ An agreement is to commit a crime is opposed to p"blic polic and it is %oid. In s"ch a case the co"rt will not enforce the agreements. (+ample$ !.?.&mith M sons (vs) 6linton (10<:)$ -acts$ 6A7 promises to indemnit (pa ) a firm of printers and p"blishers of a paper against the conse3"ences of an libel (p"blishing a false statement) which it might p"blish in its paper. 1udgment$ 6A7 promise co"ld not be enforce in a law co"rt. <here the firm was compelled to pa damages for a p"blished libel. 2. #greements in restraint of legal proceedings$ An agreement in restraint of legal proceeding is the one b which an part thereto is restricted absol"tel from enforcing his right "nder a contract thro"gh a co"rt. 0ontracts of this nat"re are %oid beca"se its ob#ect is to defeat the pro%ision of the Indian *imitation act.
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4. #greements which interfere with administration of "ustice$ <here the consideration (or) ob#ect of an agreement of which is to interfere with the administration of #"stice is "nlawf"l, being opposed to p"blic polic . It ma ta/e an of the following forms&' a) Interference with the co"rt of #"stice, b) 9tifling prosec"tion, c) .aintenance, d) 0hampert . 5. Traffic ing in public offices and tittles$ Traffic ing in public offices means trading in p"blic offices to obtain some gain which other wise cannot be obtained. Traffic ing in tittle means some s"ch award from go%ernment in ret"rn of consideration. A contact of this nat"re is %oid and is against to p"blic polic and also it is illegal. (+ample$ ;ar inson (vs) 6ollege of #mbulance> Ltd (10)5)$ -acts$ 6A7 promised to obtain an emplo ment to 6,7 in a p"blic office and 6,7 promised to pa 6A7 Cs.1!!!4'. 1udgment$ (he agreement was against to p"blic polic and also illegal. 7. #greement tending to creates interest opposed to dut8$ If a person enters into an agreement whereb he is bo"nd to do something which is against to p"blic (or) professional d"t , in s"ch a case the agreement is %oid on the gro"nd of the p"blic polic . 9. #greements in restraint of parental rights$ A father (or) mother is the legal g"ardian of his4her minor child. (his right and d"t of g"ardianship cannot be bartered awa . (herefore, a father4mother cannot enter into an agreement inconsistent with his d"ties which are opposed to p"blic polic . :. #greement in restraint of marriage$ 1%er agreement in restraint of marriage of an person, other than a minor, is %oid and opposed to p"blic polic . (his is beca"se the law regards marriage and marriage stat"s as the right of e%er indi%id"al. 0. #greement restricting personal libert8& Agreement which "nd"l restricts the personal freedom of the parties is %oid and against to p"blic polic . 1<. #greement in restraint of trade$ 1%er agreement b which an one is restrained from
e$ercising a lawf"l profession (or) trade (or) b"siness of na /ind, is to that e$tent %oid and opposed to p"blic polic . ,"t this r"le is s"b#ect to the following e$ceptions&' (+ceptions$
B-LAW NOTES
a) 9ale of goodwill. b) Hartner7s agreement. c) (rade combinations. d) 9er%ice agreement. In the abo%e e$ceptions the co"rt will enforce the agreements. ,eca"se onl if there is an restrictions imposed on s"ch agreements are reasonable. (+ample$ &hai h @alu (vs) /am &aran ,hagat (10<0)$ -acts$ :"t of +! ma/ers of combs in the cit of Hatna, 2@ agreed to s"ppl with 6C7 to s"ppl him and also agreed not to s"ppl an one else all their o"tp"t. Fnder the agreement 6C7 was free to re#ect the goods if he fo"nd no mar/et for them. 1udgment$ (he agreement amo"nted to restraint of trade and th"s %oid. 11. %arriage bro erage$ As a p"blic polic , marriage sho"ld ta/e place with free choice of the parties and it cannot be interfered with b third part acting as bro/er. Agreement for bro/erage for arranging marriage is %oid. 9imilarl agreement of dowr cannot be enforced. 1). #greement to defraud creditors (or) revenue authorities$ An agreement which ob#ect is to defra"d the creditors (or) re%en"e a"thorities is not enforceable, being opposed to p"blic polic . 12. #greement interfering with marital duties$ An agreement which interferes with the
performance of marital d"ties is %oid, being opposed to p"blic polic . 21Q. !rite a short note on unlawful and illegal agreements #ns$ An unlawful agreement is one which, li/e a %oid agreement and is not enforceable b law. It is destit"te (lac/ing) of legal effects altogether. If affects onl the immediate parties and has no f"rther conse3"ences. An illegal agreement, on the other hand, is not onl %oid as between the immediate parties b"t has this f"rther effect that the collateral transactions to it also become tainted (infect) with illegalit . (h"s, 6e%er illegal agreement is "nlawf"l, b"t e%er "nlawf"l agreement is not necessaril illegal7. It is sometimes diffic"lt to decide as to weather an act is illegal (or) "nlawf"l beca"se, as man of the illegal and the "nlawf"l acts lie on the borderline. It ma , howe%er, be obser%ed that
B-LAW NOTES
illegal acts are those which are opposed to p"blic morals and "nlawf"l acts are those which are less rigoro"s in effect and in%ol%es a 6non'criminal breach of law7. (hese acts do not effect p"blic morals (nor) do the res"lts in the commission of crime. 2)Q. F*n cases of eHual guilt> the position of the defendant is better than that of the plaintiffG.E comment. #ns$ %eaning of unlawful and illegal agreements$ An "nlawf"l agreement is one which, li/e a %oid agreement and is not enforceable b law. It is destit"te (lac/ing) of legal effects altogether. If affects onl the immediate parties and has no f"rther conse3"ences. An illegal agreement, on the other hand, is not onl %oid as between the immediate parties b"t has this f"rther effect that the collateral transactions to it also become tainted (infect) with illegalit . (h"s, 6e%er illegal agreement is "nlawf"l, b"t e%er "nlawf"l agreement is not necessaril illegal7. (ffects of illegalit8$ (he general r"le of law is that no action is allowed on an illegal and "nlawf"l agreement. (his is based on the following two ma$ims&' 1. Do action arises from a base ca"se. (he effect of this is that the law disco"rages people from entering into illegal agreements which arise from base. (Ex-turpi causa non oritur action). #. In cases of e3"al g"ilt, the defendant is in a better position. (In pari delicto, potior est condition defendentis). (+ample$ 6A7 promises to pa 6,7 Cs.E!!4' if he beats 6(7. If 6,7 beats 6(7, he cannot reco%er the amo"nt from 6A7. (:r) If 6A7 has alread paid the amo"nt and 6,7 does not beat 6(7, 6A7 cannot reco%er the amo"nt. If an agreement is illegal, the law will help neither part to the agreement. (his means that, as a res"lt of ref"sal of the co"rt, to help plaintiff in reco%ering the amo"nt, (i.e.., the defendant who is e3"all g"ilt stands to gain). (he co"rt is, in fact, ne"tral (opposite) in s"ch cases. (he co"rt allows the defendant to ha%e that ad%antage, not beca"se it appro%es of his cond"ct, b"t beca"se it is not
B-LAW NOTES
prepared to grant an relief on the basis of illegal agreement. As a res"lt of the ne"tralit the defendant stands to gain. The effects of illegalit8 ma8 now be summed up as under$ 1. (he collateral transactions to an illegal agreement become tainted (infect) with illegalit and treated as illegal e%en tho"gh the wo"ld ha%e lawf"l b themsel%es. ). Do action can be ta/en (a) -or the reco%er of mone paid. (:r) propert transferred "nder illegal agreement, and (b) -or the breach of an illegal agreement. 2. In cases of e3"al g"ilt on an illegal agreement, the position of defendant is better than that of the plaintiff (i.e.., innocent part ) ma , howe%er, s"e to reco%er mone paid (or) propert transferred "nder following circ"mstances& (a) <here he is not e3"all g"ilt (in pari delicto) with the defendant. (+ample$ where he has ind"ced to enter into an agreement b infl"ence (or) coercion. (b) (c) <here he does not ha%e to rel on the illegal transaction. <here a s"bstantial part of the illegal transaction has not been 0arried o"t, and he is tr"l and gen"inel repentant. OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO 22Q. F#n #greement in restraint of trade is voidGE(+ceptions. #ns$ %eaning$ An agreement which interferes with the libert of a person to engage himself in an lawf"l profession, trade (or) ,"siness of an /ind is called 6An Agreement in restraint of trade7. (+ample$ &hai h @alu (vs) /am &aran ,hagat (10<0)$ -acts$ :"t of +! ma/ers of combs in the cit of Hatna, 2@ agreed to s"ppl with 6C7 to s"ppl him and also agreed not to s"ppl an one else all their o"tp"t. Fnder the agreement 6C7 was free to re#ect the goods if he fo"nd no mar/et for them. fra"d, "nd"e
B-LAW NOTES
1udgment$ (he agreement amo"nted to restraint of trade and th"s %oid. (h"s, e%er agreement b which an one is restrained from e$ercising a lawf"l profession (or) trade (or) b"siness of an /ind, is to that e$tent %oid and opposed to p"blic polic . ,"t this r"le is s"b#ect to the following e$ceptions&' (+ceptions$ (he general principle of law is that all restraints of trade are %oid. ,"t in India it is %alid if it is falls with in an of the stat"tor e$ceptions. (he following are the e$ceptions to the r"le that F#n #greement in restraint of trade is voidG. a) 9ale of goodwill. b) Hartner7s agreement. c) (rade combinations. d) 9er%ice agreements. a) &ale of goodwill$ A seller of the goodwill of a b"siness ma agree with the b" er to refrain from carr ing on a similar b"siness, with in the specified local limits, so long as the b" er carries on a li/e b"siness, pro%ided that s"ch limits are reasonable. In s"ch a case an Agreement in restraint of trade is %alid. b) ;artnerCs agreement$ in case of partnership, partner ma agree that& i. ii. A partner shall not carr on an b"siness other than that of the firm while he is a partner. An o"tgoing partner ma agree with his partners not to carr on a b"siness similar to that of the firm with in a specified period (or) with in the specified local limits. iii. An Hartners ma , "pon the sale of goodwill of the firm, ma/e an agreement with the b" er that s"ch partners will not carr on an b"siness similar to that of the firm with in a specified period (or) with in specified local limits. c) Trade combinations$ An agreement in the nat"re of a b"siness combination between traders (or) man"fact"res does not amo"nt to a restraint of trade and is perfectl %alid. ,"t if an agreements attempts to create a monopol it wo"ld be %oid. (+ample$ &.,.-raser M 6ompan8 (vs) ,omba8 *ce %fg. compan8 (10<4)$ -acts$ An agreement between certain ice man"fact"ring companies not tot sell ice below a stated price and to di%ide the profits in a certain proportion is not %oid "4s 27. 1udgment$ 9"ch agreement does not amo"nt to a restraint of trade (nor) opposed to p"blic polic and is perfectl %alid.
B-LAW NOTES
d) &ervice contracts$ An agreement of ser%ice b which an emplo ee binds himself, d"ring the term of his agreement, not to compete with his emplo er is %alid and does not amo"nt to restraint of trade. (+ample$ 6,7 a ph sician and s"rgeon, emplo s 6A7 as an assistant for a term of three ears and 6A7 agrees not to practice as a s"rgeon and ph sician d"ring these three ears. (he agreement is %alid and 6A7 can be restrained b an in#"nction if he starts independent practice d"ring this period. (h"s, in the abo%e e$ceptions the co"rt will enforce the agreements. ,eca"se onl if there is an restrictions imposed on s"ch agreements are reasonable. 24Q. #greement in restraint of trade. #ns$ %eaning$ An agreement which interferes with the libert of a person to engage himself in an lawf"l profession, trade (or) ,"siness of an /ind is called 6An Agreement in restraint of trade7. (h"s, e%er agreement b which an one is restrained from e$ercising a lawf"l profession (or) trade (or) b"siness of an /ind, is to that e$tent %oid and opposed to p"blic polic . ,"t this r"le is s"b#ect to the following e$ceptions&' (+ceptions$ (he general principle of law is that all restraints of trade are %oid. ,"t in India it is %alid if it is falls with in an of the stat"tor e$ceptions. (he following are the e$ceptions to the r"le that F#n #greement in restraint of trade is voidG. 1. 9ale of goodwill. 2. Hartner7s agreement. +. (rade combinations. 5. 9er%ice agreements. (h"s, in the abo%e e$ceptions the co"rt will enforce the agreements. ,eca"se onl if there is an restrictions imposed on s"ch agreements are reasonable. 25Q. !rite a short note on reciprocal promises. #ns$ According to section 2(f) of the Indian contract Act, 1872. 6Hromises which form the
consideration for each other are called reciprocal promises. (hese promises ha%e been classified b *ord .ansfield based on the "ones (vs) ,ar le8 case the are as follows&'
B-LAW NOTES
1. %utual and independent$ <here each part independent. (+$ E 6,7 agrees to pa the price of goods on 1!th. 697 promises to s"ppl the goods on 2!th. (he promises are m"t"al and independent. ). 6onditional and dependent$ <here the performance of the promise b one part depends on the prior performance of the promise b the other part , the promises are conditional and independent. (+$ E 6A7 promises to remo%e certain debris (something which has destro ed) l ing in front of 6,7s s"pplies him with the cart. (he promises are conditional and independent. 2. %utual and concurrent$ <here the promises of the both the parties are to be performed sim"ltaneo"sl , the are said to be m"t"al and conc"rrent. (+$ E sale of goods for cash. 27Q. *mmoral agreements. #ns$ (he word immoral incl"des se$"al immoralit . 2ence its ob#ect (or) consideration is "nlawf"l. An agreement, whose consideration and ob#ect is immoral, is deemed to be illegal and %oid. An agreement is "nlawf"l for immoralit in the following cases& 1. <here the consideration is an act of se$"al immoralit . (i.e.., illicit cohabitation or prostit"tion. (+ample$ 6A7 agrees to let her da"ghter on hire to 6,7 for conc"binage, the agreement is "nlawf"l, being immoral. ). <here the ob#ect of the agreement is the f"rtherance of se$"al immoralit . (i.e.., lending mone to a prostit"te to help her in his trade). (+ample$ 6A7 let flat to 6,7, a woman whom he /new to be a prostit"te. (he agreement was "nlawf"l if 6A7 /new the p"rpose that 6,7s ob#ect was to "se the flat for immoral p"rpose. m"st perform his promise independentl and irrespecti%e of the fact whether the other part has performed, (or) not, the promises are m"t"al and
B-LAW NOTES
1'I0A (%oid agreements)'7

29Q. !agering agreement. (Or) !rite a short note on B!#3(/G. #ns$ Definition$ A wager is an agreement between two parties b which one part promises to pa mone (or) mone 7s worth an the happening of soma "ncertain e%ent, in consideration of the other parties promises to pa if the e%ent does not happen. (+ample$ 6A7 and 6,7 enter into a contract that 6A7 shall pa 6,7 Cs.1!!4' if it rains on .onda , and that 6,7 shall pa the same amo"nt if it does not rain. It is a wagering agreement.
B-LAW NOTES
(he following are the essentials of a wagering agreement&' 1. (here m"st be promise to pa mone (or) mone 7s worth. 2. (he e%ent m"st be "ncertain. +. (here m"st be two parties. 5. 1ach part m"st stand to win (or) lose. E. Do control o%er the e%ent. A. Do other interest in the e%ent e$cept winning (or) losing. (+ceptions$ (he following transactions are not considered as wagering agreements. a) 9hare mar/et transactions, b) 0rossword competition,
c) 0ontract of ins"rance, d) 2orse racing, e) )ames of s/ill (i.e.., pict"re p";;les, athletic competitions, etc..,). 2:Q. void agreements #ns$ According to section 2(g) of the Indian contract Act, 1872. 6A %oid agreement is one which is not enforceable b law7. A %oid agreement does not create an legal right (or) obligation. It is %oid'ab'initio (i.e.., %oid of into right from the beginning). (he following agreements ha%e been e$pressl declared to %oid b the contract act&' 1. Agreements b incompetent parties. (9ection 11) 2. Agreements made "nder m"t"al mista/e of facts. (9ection 2!) +. Agreements which the consideration (or) ob#ect is "nlawf"l. (9ection 2+) 5. Agreements which the consideration (or) ob#ect is "nlawf"l in part. (9ection 25) E. Agreements made witho"t consideration. (9ection 2E) A. Agreements in restraint of marriage. (9ection 2A)
B-LAW NOTES
7. Agreements in restraint of trade. (section 27) 8. Agreements in restraint of legal proceedings. (section 28) @. Agreement which the meaning is "ncertain. (section 2@) 1!. Agreements b wa of wager. (section +!) 11. Agreements contingent on impossible e%ents. (section +A) 12. Agreements to do impossible Acts. (section EA) 1+. In case of reciprocal promises to do things legal and also other things illegal. (he second set (illegal) of reciprocal promises is a %oid agreement. (section E7) 20Q. !rite a short note on restitution. #ns$ %eaning$ when a contract becomes %oid, the part who has recei%ed an benefit "nder it m"st restore it to the other part (or) m"st compensate the other part b the %al"e of benefit. (his restoration of the benefit is called 6restit"tion7. (he principle of restit"tion is that a person who has been "n#"stl enriched at the e$pense of another is re3"ired to ma/e restit"tion to that other. In essence, restit"tion is not based on loss to the plaintiff b"t it is on benefit which is en#o ed b the defendant at the cost of the plaintiff which is "n#"st for the defendant to retain. (+ample$ 6A7 pa s 6,7 Cs.1!!!4' in consideration of 6,7s promise to marr 607, 6A7s da"ghter. 607 is dead at the time of promise. (he agreement is %oid b"t 6,7 m"st repa 6A7 Cs.1!!!4'. 4<Q. !rite a short note on void agreement and void contract. #ns$ Aoid agreement$ According to section 2(g) of the Indian contract Act, 1872. 6A %oid agreement is one which is not enforceable b law7. A %oid agreement does not create an legal right (or) obligation. It is %oid'ab'initio (i.e.., %oid of into right from the beginning). (+$ E An agreement with a minor, an agreement witho"t consideration, etc.., Aoid contract$ According to section 2(f) of the Indian contract Act, 1872. A contract which ceases to be enforceable b law becomes %oid when it ceases to be enforceable7.
B-LAW NOTES
A contract, when originall entered into, ma be %alid and binding on the parties it ma s"bse3"entl become %oid. <e ma tal/ of s"ch a contract as %oid agreement. (+$ E A contract to import goods from a foreign co"ntr when a war brea/s o"t between the importing co"ntr and the e$porting co"ntr . 41Q. Define wagering agreement and e+plain the essentials of a wagering agreement in detail? #ns$ Definition$ A wager is an agreement between two parties b which one part promises to pa mone (or) mone 7s worth an the happening of soma "ncertain e%ent, in consideration of the other parties promises to pa if the e%ent does not happen. (+ample$ 6A7 and 6,7 enter into a contract that 6A7 shall pa 6,7 Cs.1!!4' if it rains on .onda , and that 6,7 shall pa the same amo"nt if it does not rain. It is a wagering agreement. (ssentials of a wagering agreement$ (he following are the essentials of a wagering agreement, the are follows&' 1. ;romise to pa8 mone8 (or) mone8Cs worth$ (he wagering agreement m"st be certain and there m"st be promise to pa mone (or) mone 7s worth between the parties. ). .ncertain event$ (he promise made between the partied m"st be conditional and "ncertain e%ent (i.e.., happening (or) non happening). )enerall a wager relates to a f"t"re e%ent, b"t it ma also relate to a past e%ent pro%ided the parties are not aware of its res"lt (or) the time of its happening. 2. (ach part8 must stand to win (or) lose$ 1ach part sho"ld stand to win (or) lose "pon the determination of the "ncertain e%ent. An agreement is not a wager if either of the parties ma win b"t cannot lose (or) ma lose b"t cannot win. 4. 'o control over the event$ (he wagering agreement is a game of chance. (herefore, no part sho"ld ha%e control o%er the happening (or) non happening of an e%ent. If on the other hand one of the parties has control o%er the e%ent, then the transaction lac/s an essential ingredient of a wager. 5. 'o other interest in the event$ (he parties sho"ld ha%e no other interest in the s"b#ect matter of the agreement e$cept winning (or) losing of the amo"nt of the wager. (+ample$ In a wrestling bo"t, 6A7 tells 6,7 that wrestler no.1 will win. 6,7 challenges the statement of 6A7. (he bet with each other o%er the res"lt of the bo"t. (his is a wagering agreement. 7. There must be two parties.
B-LAW NOTES
9. The agreement must be void u=s 2<. (+ceptions$ E (he following transactions are not considered as wagering agreements& a) &hare mar et transactions$ in case of share mar/et transactions in which deli%er of stoc/s and shares intended to be gi%en and ta/en are not considered as wagering agreements. b) 6rossword competition$ A crossword competition in%ol%ing a good meas"re of s/ill for its s"ccessf"l sol"tion. ,"t if pri;es of a crossword competition depend "pon the correspondence of the competitors sol"tion with a pre%io"sl prepared sol"tion /ept with the editor of a newspaper, there it is treated as lotter of pri;e not e$ceed rs.1!!!4'. c) 6ontract of insurance$ 0ontract of ins"rance is not wagering agreements e%en tho"gh the pa ment of mone b the ins"rer ma depend "p on a f"t"re "ncertain e%ent. d) ?orse racing$ An agreement to contrib"te a pri;e of the %al"e of abo%e Cs.E!!4' to be awarded to the winner of a horse race is also one of the e$ceptions to the wagering agreement. e) 3ames of s ill (i.e.., pict"re p";;les, athletic competitions, etc..,). and wagering transaction. According to pri;e competition act, 1@EE, pri;e competition is game of s/ill are not wagers pro%ided the amo"nt
63
UNIT 2 - DISCHARGE OF A CONTRACT ( PART I )

1Q. Explain the meaning of contingent contract? What are the rules related to contingent contract? Ans: DEFINI I!N: According to sec (31) of ICA, 1872, a contingent contract is a contract to do or not to do something, if the event, collateral to such contract, does or does not happen. hus it is a contract, the performance of !hich is dependent upon the happening or non happening of an uncertain future event, collateral to such events. E": "A# promises to pa$ %s 1&&&&'(, if )#s house is *urnt. E##EN IA$ %&A'A% E'I# I%# !F A %!N IN(EN %!N 'A% : 1. Its performance depends upon the happening or non happening in the future of some event. 2. 3. he event must *e uncertain he event must *e collateral %!N 'A% : he follo!ing are
')$E# 'E(A'DIN( *E'F!'+AN%E !F A %!N IN(EN the rules regarding performance of a contingent contract+
1. %ontingent contract upon the happening of a future uncertain e,ent:,hen the happening of such event has possi*le it *ecomes enforced and if the happening of such event *ecomes impossi*le it *ecomes void. E": "A# contracts to pa$ ")# a sum of mone$ !hen ")# marries "C#.#C# dies !ithout *eing married to ")#. he contract *ecomes void. 2. %ontingent contract upon the non happening of a future uncertain e,ent: ,hen the happening of such event *ecomes impossi*le it *ecomes enforced and !hen such event has possi*le it *ecomes void. E": -A. agrees to sell his car to -). if -C. dies. he contract cannot *e enforced as long as -C. is alive.
64 3. %ontingent contract upon happening of an e,ent .ithin a specified time: ,hen such event has happened !ithin the specified time it can *e enforced and if the happening of such event *ecomes impossi*le !ithin the specified time it *ecomes void. E": "A# agrees to pa$ ")# a sum of mone$ if ")# marries "C#,#C# marries "/#. he marriage of ")# to "C# must *e considered impossi*le no!, although it is possi*le that "/# ma$ die and that "C# ma$ after!ards marr$ ")#. 4. %ontingent contract upon non happening of an e,ent .ithin a specified time: ,hen the happening of such event *ecomes impossi*le !ithin the specified time it can *e enforced and if the happening of such event has happened !ithin the specified time it *ecomes void. E": #A# promises to pa$ ")# a sum of mone$ if a certain ship returns !ithin a $ear. he contract ma$ *e enforced if the ship returns !ithin a $ear, and *ecomes void if the ship is *urnt !ithin the $ear. 5. %ontingent contract upon impossi/le e,ents: 0uch an agreement cannot *e enforced since it is void. ,hether the impossi*ilit$ of the event !as 1no!n to the parties or not is immaterial. E": "A# agrees to pa$ ")# %s 1&&&'( if ")# !ill marr$ A#s daughter, "2#. "2# !as dead at the time of the agreement. he agreement is void. 6. %ontingent contract upon future conduct of a li,ing person: ,hen such person acts in the manner as desired in the contract it can *e enforced and if such person does not acts in the manner as desired in the contract it *ecomes void.
0Q. Differences /et.een .agering agreement and contingent contract.
65 Ans: he follo!ing are the differences *et!een !agering agreement and contingent agreement+( WA(E'IN( A('EE+EN %!N IN(EN A('EE+EN 1. ,agering is an agreement !here a person Contingent contract is one in !hich promisor agrees to pa$ mone$ to the other person underta1es uncertain event. 2. It is void u's 3& 3. 3enerall$ it is a reciprocal promise. 4. In a !ager the parties are not interested in !inning or losing the amount. 7. In a !ager the future event is the sole In a contingent contract the future events is onl$ determining factor. 8. It is a game of chance. collateral. It is not a game of chance. to perform the contract upon upon the happening or non happening of an happening or non happening of an uncertain collateral event. It is perfectl$ valid u's 31. here ma$ *e unilateral promises. he parties have real interest in the happening or
the su*5ect matter of the agreement e6cept non happening of an uncertain future event.
1Q. .hat is meant /2 performance? And offer of performance3tender? Ans: *erformance: performance of a contract means carr$ing out of promises and o*ligations underta1en *$ the parties according to the terms prescri*ed in the contract.
66 !FFE' !F *E'F!'+AN%E !' ENDE': ,hen promisor has made a valid offer of performance to the promise and offer had not *een accepted *$ the promise, the promisor is not responsi*le for non performance and he does not lose an$ rights under the contract. A valid tender of performance is e9uivalent to performance. It is also 1no!n as -attempted performance. or -tender.. he follo.ing are the essentials or re4uisites of a ,alid tender: 1. It must *e unconditional. It *ecomes conditional !hen it is not in accordance !ith the terms of the contract. Ex: "/# a de*tor offers to pa$ to "C#, his creditor, the amount due to him on the condition that "C# sells to him certain shares at cost. his is not a valid tender. 0. It must *e the !hole 9ualit$ contracted for or of the !hole o*ligation. A tender of an installment !hen the contract stipulated pa$ment in full is not a valid tender. 1. It must *e *$ a person !ho is in a position, and is !illing to perform the promise. 5. It must *e made at the proper time and place. A tender of goods after the *usiness hours or of goods or mone$ *efore the de date is not a valid(tender. Ex: -/. o!es -C. %s.1&&'( pa$a*le on 1st of August !ith interest. :e offers to pa$ on the 1st of ;ul$ the amount !ith interest up to the 1st of ;ul$. It is not a valid tender as it not made at the appointed time. 6. It must *e made to the proper person and also in proper form. 7. It ma$ *e made to one of the several 5oint promises. In such a case it has the same effect as a tender to all of them. 8. In case of tender of goods, it must give a reasona*le opportunit$ to the promise for inspection of the goods. A tender of goods at such time !hen the other part$ cannot inspect the goods is not a valid tender. )ut in the follo!ing case, tender !as held to *e valid. Ex: #tartup ,s. +acDonald 91:51;:
67 Facts: he plaintiffs agreed to sell 1& tons of linseed oil to the defendant to the delivered -!ithin the last fourteen da$s of <arch.. /eliver$ as tendered at 8.3&pm on <arch 31, a 0aturda$. he defendant refused to accept the goods o!ing to lateness of the hour. <udgment: hough the hour !as unreasona*le, the defendant could still ta1e deliver$ *efore midnight. :. In case of tender of mone$, the de*tor must ma1e a valid tender in legal tender mone$. Ex: In India in rupees, us(dollars etc..,
5Q. =2 .hom must contracts /e performed? Ans: he promise under a contract ma$ *e performed *$= a. *romisor himself: If there is something in the contract to sho! that it !as the intention of the parties that the promise should *e performed *$ the promisor himself, such promise must *e performed *$ promisor himself. his means contracts !hich involve the e6ercise of personal s1ill or diligence or !hich are founded on personal confidence *et!een the parties must *e performed *$ promisor himself. E": A contract to paint a picture or to sing or to marr$.
68 b. Agent: ,here personal consideration is not the foundation of the contract, the promisor or his representative ma$ emplo$ a competent person to perform it. E": "A# promises to pa$ ")# a sum of mone$= "A# ma$ perform the promise, either *$ personall$ pa$ing the mone$ to ")# or *$ causing (ma1ing)it to *e paid to ")# *$ another.
c. $egal 'epresentati,es: A contract !hich involves the use of personal s1ill or is founded on personal considerations comes to an end on death of the promisor. As regards an$ other contract, the legal representatives of the deceased promisor are *ound to perform it unless a contrar$ intention appears from the contract. )ut their lia*ilit$ under a contract is limited to the value of propert$ the$ inherit from the deceased. E": "A# promises to deliver goods to ")# on a certain da$ on pa$ment of %s.1&&&'(. "A# dies *efore that da$. A#s representatives are *ound to deliver the goods to ")#, and ")# is *ound to pa$ %s 1&&&'( to A#s representative.
d.
hird person: ,hen a promisee accepts the performance of the promise from third person, he cannot after!ards enforce it against the promisor.
e. <oint promisors: ,hen t!o or more persons have made a 5oint promise, then unless a contrar$ intention appears from the contract, all such persons must 5ointl$ fulfill the promise, if an$ of them dies, his legal representatives must 5ointl$ !ith the surviving promisor have to fulfill the promise. If all of them die, the legal representatives of all of them must fulfill the promise 5ointl$. As per section 87,.If an$ promisee neglects or refuses to afford reasona*le facilities for performance of the promise to promisor, the promisor is e6cused for non performance..
6Q. 'eciprocal promises:-
69 Ans: According to section 2(f) of the ICA, 1872, -promises !hich form the consideration or part of the consideration for each other are called -reciprocal promises.. hese promises have *een classified *$ lord <ansfield *ased on the ;ones (vs) )ar1le$ case as follo!s+( i. +utual and independent: ,here each part$ must perform his promise independentl$ and irrespective of the fact !hether the other part$ has performed, or is !illing to perform, his promise or not, the promises are mutual and independent. E": -). agrees to pa$ the price of goods on 1& th. -0. promises to suppl$ the goods on 2&th. he promises are mutual and independent.
ii.
%onditional and dependent: ,here the performance of the promise *$ one part$ depends on the prior performance of the promise *$ the other part$, the promises are conditional and independent. E":-A. promises to remove certain de*ris(something !hich has to *e destro$ed) l$ing in front of )#s house provided -). supplies him !ith the cart. independent. he promises are conditional and
iii.
+utual and concurrent: !here the promises of *oth the parties are to *e performed simultaneousl$, the$ are said to *e mutual and concurrent. E": 0ale of goods for cash.
7Q.What are the rules of la. relating to time and place of performance of contract? Ans: ->erformance of contract means carr$ing out of promises and o*ligations underta1en *$ the parties according to the terms prescri*ed in the contract..
70 A contract can *e performed *$ the promisor himself, *$ the agent on *ehalf of the promisor, *$ the legal representatives on the death of the promisor, *$ the 5oint promisors or *$ an$ third person. ime and place of performance: ime and place of performance of a contract are matters'rules to *e determined *$ an agreement *et!een the parties themselves. 0ection 48 to 7& of the contract Act la$ do!n the rules regarding the time and place of performance the$ are follo!s+( i. Where no application is to /e made and no time is specified : >#ec 57? ,here a promisor has to perform his promise !ithout application *$ the promisee and no time is specified for performance, the engagement or promise must *e performed !ithin a reasona*le time.
-,hat is a reasona*le time. is a 9uestion of fact in each particular case. It depends on the special circumstances of the case (contract), the usage of trade, or the intention of the parties at the time of entering into the contract.
ii.
Where time is specified and no application is to /e made : >#ec 58? ,hen a promise is to *e performed on a certain da$ !ithout application *$ promisee, the promisor ma$ perform the promise at an$ time during the usual !or1ing hours on such da$.
E": -A. promises to deliver goods at -).s !arehouse on the 1 st of ;anuar$. ?n that da$ -A. *rings the goods to -).s !arehouse, *ut after usual hour of closing it and the$ are not received. -A. has not performed the promise.
iii.
Application for performance on a certain da2 and place : >#ec 5:? ,hen a promise is to *e performed on a certain da$ the promisor ma$ underta1e to perform it after the application *$ the promisee to that affect. In such a case it is the dut$ of the promisee to appl$ for performance at a proper place and time !ithin usual *usiness hours.
71 iv. Application /2 the promisor to the promisee to appoint a place : >#ec 5@? ,hen a promise is to *e performed !ithout application *$ the promisee and no place is fi6ed for the performance, it is the dut$ of the promisor to appl$ to the promisee to appoint a reasona*le place for the performance of the promise and perform the promise at such place. E": -A. underta1es to deliver goods to -). on a fi6ed da$. -A. must appl$ to -). to appoint a reasona*le place for the purpose of receiving it, and must deliver it to him at such place.
v.
*erformance in manner or at the time prescri/ed or sanctioned /2 the promisee: - >#ec 6A? he performance of an$ promise ma$ *e made in an$ manner or at an$ time !hich the promisee prescri*es or sanctions.
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8Q. .hat is reciprocal promises? Explain the rules regarding the reciprocal promises? Ans: According to section 2(f) of Indian Contract Act, 1872. ->romises !hich form the consideration or part of the consideration for each other are called -reciprocal promises.. 'ules regarding performance of reciprocal promises: 0ection (71 to 74) of the contract Act, la$ do!n the rules regarding the order of performance of reciprocal promises= !hich are as follo!s+( i. #imultaneous performance of reciprocal promises: ,here the promises are to *e performed simultaneousl$, the$ are said to *e -mutual and concurrent.. According to section 71 such promises need not perform *$ the promisor unless the promise is read$ and !illing to perform his reciprocal promise. E": -A. and -). enter into a contract that -A. shall deliver certain goods to -). to *e paid for *$ -). on deliver$ = and -). need not pa$ for the goods unless -A. is read$ and !illing to deliver them on pa$ment.
72 ii. !rder of performance of reciprocal promises: According to section 72, !here the order in !hich the reciprocal promises are to *e performed is e6pressl$ fi6ed in the contract, the$ must *e performed in that order. ,here the order is not e6pressl$ fi6ed, the$ must *e performed in that order !hich the nature of transaction re9uires. E": -A. and -). entered into a contract, that -A. shall *uild a house for -). at a fi6ed price. A#s promise to *uild the house must *e *efore )#s promise to pa$ for it.
iii.
Effect of one part2 pre,enting another from performing promise: According to section 73, !hen a contract contains reciprocal promises and one part$ to a contract prevents the other from performing his promise. In such a case the contract *ecomes voida*le at the option of the part$ so prevented and is entitled to compensation from the other part$ for an$ loss !hich he ma$ sustain in conse9uence of non performance of the contract. E": -A. and -). enter into contract that -). shall e6ecute certain !or1 for -A. for %s 1&&&'(. -). is read$ and !illing to e6ecute the !or1 accordingl$ *ut -A. prevents him from doing so. he contract is voida*le at the option of -). and if he elects to rescind it, he is entitled to recover from -A., compensation for an$ loss !hich he has incurred *$ its non performance.
iv.
Effect of default as to promise to /e performed first: According to section 74, !here the performance of promise *$ one part$ depends on the prior performance of the promise *$ other part$. In such a case one of them cannot *e performed till the other part$ has performed his promise then if the other part$ fails to perform it, he cannot claim off the performance of the reciprocal promise from the first part$ and the other part$ ma1e compensation for an$ loss !hich the first part$ ma$ sustain *$ the non performance of the contract. E": -A. promises to .). to sell him 1&& *ales of merchandise to *e delivered ne6t da$, and -). promises -A. to pa$ for them !ithin a month. -A. does not deliver according to his promise. )#s promise to pa$ need not *e performed and A must ma1e compensation to -)..
73 ,. 'eciprocal promises to do things legal and also other things illegal. 9#ection 68;.
:Q.C ime and essence of the contract.C- explain. Ans: In the performance of a contract, time is crucial element. Contracts must *e performed on time. -Is time of essence@. is a 9uestion of fact and la!. 0ection 77, of the Indian Contract At, 1872 provides the effect of failure to perform at a time fi6ed in a contract in !hich time is essential as follo!s+( a) .hen time is of essence: If the promisor fails to perform on an agreed or specified time, the contracts !ill *ecome voida*le at the option of the promisee.
b) When time is not essence: If the promisor fails to perform !ithin the specified time, the contract !ill not *ecome voida*le at the option of the promisee. It means that in such a case the promisee cannot rescind the contract and he !ill have to accept the dela$ed performance. )ut the promisee is entitled to claim the compensation for an$ loss caused to him *$ the dela$. If promisee accepts the dela$ed performance and intend to sue the promisor for compensation for dela$ed performance, promisee must give an oral or !ritten notice to the promisor regarding his intention.
74
@Q. Discuss the la. relating to the rights and lia/ilities of Doint promisors in a contract? Also explain the de,olution of Doint lia/ilities? 9!'; Q. =2 .hom Doint promises must /e performed? Ans: +EANIN(: ,hen t!o or more persons have made a 5oint promise, the$ are 1no!n as 5oint promisors. Anless a contrar$ intention appears from the contract, all 5oint promisors must 5ointl$ fulfill the promise. If an$ of them dies, his legal representatives must, 5ointl$ !ith the surviving promisors, fulfill the promise. If all of them die, the legal representative of all of them must fulfill the promise 5ointl$. =2 .hom Doint promises must /e performed: he follo!ing are the rules as regards performance of 5oint promises+ 1. All promisors must Dointl2 fulfill the promise: According to section 42, !hen t!o or more persons have made a 5oint promise, then unless a contrar$ intention appears *$ the contract, all 5oint promises must 5ointl$ fulfill the promise. If an$ of them dies, his legal representatives must, 5ointl$ !ith the surviving promisors, fulfill the promise. If all of them die, the legal representative of all of them must fulfill the promise 5ointl$. 0. An2 one of the Doint promisors ma2 /e compelled to perform: Bsection 43, para1C+ !hen t!o or more persons ma1e a 5oint promise and there is in the a*sence of e6press agreement to the contrar$, the promisee ma$ compel an$ one or more of the 5oint promisors to perform the !hole of the promise. his means the lia*ilit$ of 5oint promisors is 5oint and several. E": A, ), and C 5ointl$ promises to pa$ / %s 3&&&. / ma$ compel all or an$ or either A or ) or C to pa$ him %s 3&&&.
75 1. A Doint promisor compelled to performE ma2 claim contri/ution Fsection 51E*ara 0G: If one of the several 5oint promisors is made to perform the !hole contract, he ma$ compel the other 5oint promisors to contri*ute e9uall$ !ith himself to the performance of the promise, unless a contrar$ intention appears from the contract. E": A, ), and C 5ointl$ promises to pa$ / %s 3&&&'(. A is compelled to pa$ the !hole amount to /. he ma$ recovers %s 1&&&'( from ) and C. 5. #haring of losses arising from default:-Fsection 51E *ara 1G: if an$ one of the 5oint promisors ma1es a default in ma1ing contri*ution, the remaining 5oint promisors must *ear the loss arising from such default in e9ual shares. E": A, ), and C 5ointl$ promises to pa$ / %s 3&&&'(. C is una*le to pa$ an$thing and A is compelled to pa$ the !hole amount to / and entitled to receive %s 17&&'( form ). 6. 'elease of Doint promisor:Fsection 55G:If one of 5oint promisor is released from his lia*ilit$ *$ the promisee, his lia*ilit$ to the promise ceases nut this does not discharge the other promisors from their lia*ilit$. he released 5oint promisor also continues to *e lia*le to the other promisors. E": /1, /2, and /3 5ointl$ o!e a de*t to C. C releases /1 from his lia*ilit$ and files a suit against /2 and /3 for pa$ment of de*t. /2 and /3 are not released from their lia*ilit$ nor is /1 discharged from his lia*ilit$ to /2 and /3 for contri*ution.
76
1AQ. .hat do 2ou mean /2 assignment of contract? What conditions should /e fulfilled for assignment of contract? Ans: +EANIN(: he !ord -assign. means -transfer.. herefore -assignment of contract means
transfer of contractual rights and lia*ilities under the contract to the third part$ !ith or !ithout the concurrence of the other part$ to the contract. It ma$ ta1e place+ ( 1). Act of the parties. 2). ?peration of la!. I; Act of the parties: Assignment is said to ta1e place *$ an act of the parties !hen the$ themselves ma1e the assignment. a; Assignment of contractual o/ligations: 1) Contractual o*ligation involving personal s1ill or a*ilit$ cannot *e assigned. E": a contractual o*ligation *$ a film actor to act in film or a contract to marr$ or paint a picture cannot *e assigned. 2) A promisor cannot assign his lia*ilities or o*ligations under a contract. Bi.e., a promisee cannot *e compelled *$ the promisor or a third part$ to accept an$ person other than the promisor as the person lia*le to him on promiseC. his rule is *ased on sense and convenience. E": if / o!es C %s7&&&'( and is o!ed the same sum *$ /1, / cannot as1 C to recover the amount from /1 unless C accepts the performance from /1. /; Assignment of contractual rights: 1) he right and *enefit under a contract ma$ *e assigned if the o*ligation under the contract is not of a personal nature.
77 E": / o!es %s 7&&'( to C. C, the creditor, can transfer his right to /. if / has alread$ paid %s 2&&'( to C, recover onl$ %s 3&& from /. An actiona*le claims can *e al!a$s *e assigned *ut the assignment to *e complete and effectual must *e effected *$ an instrument in !riting. Dotice of such assignment must also *e given to the de*tor II; !peration of la.: Assignment *$ operation of la! ta1es place *$ intervention of la!. 1) /eath+ upon the death of the part$ to a contract his rights and lia*ilities under the contract devolve upon his heirs and legal representatives. 2) Insolvenc$+ in case of insolvenc$ of a person his rights and lia*ilities incurred previous to ad5udication pass to the official receiver or assignee. to recover the amount from
!ill *e *ound *$ this pa$ment and shall *e entitled to
78 11Q. .rites a short note on Himpossi/ilit2 of performance.C Ans: Impossi/ilit2 of performance: 0ection 78, of contract act, deals !ith the impossi*ilit$. If an agreement contains an under!riting to perform impossi*ilit$, it is void(a*(initio. (Eoid). It is of t!o t$pes+ 1. Impossi/ilit2 existing at the time of contract: -An agreement to do an act impossi*le in itself is void.. If the parties are interested into an agreement to perform something !hich is o*viousl$ impossi*le and !hich ma$ or ma$ not *e 1no!n to *oth the parties. a) If it is Ino.n to the parties: if at the time of contract *oth the parties 1no! that the performance of contract is not possi*le, the agreement *ecomes void. b) If it is not Ino.n to the parties: if *oth the parties do not 1no! a*out the impossi*ilit$, the agreement is void on the ground of mutual mista1e. c) If it is Ino.n to the promisor onl2: if the impossi*ilit$ of a contract not 1no!n to the promisee and the promisor alone 1no!s of the impossi*ilit$ then such promise is *ond to compensate the promisee for an$ loss he ma$ suffer through the non performance of the promise. 0. #u/se4uent or super,ening impossi/ilit2: Impossi*ilit$ !hich arises su*se9uent to the formation of the contractBI.e., a contract to do an act, !hich after the contract is madeC is called post( contractual or supervening impossi*ilit$. In such a case the contract is void. Impossi*ilit$ of performance of a contract, as a general rule, is no e6cuse for the non performance of the contract.
10Q. Define HDoctrine of super,ening impossi/ilit2.C Explain the effects on the performance of the contract. Ans: Impossi/ilit2 of performance: 0ection 78, of the contract act, deals !ith the impossi*ilit$ of performance. -An agreement to do an act impossi*le in itself is void.. It is of t!o t$pes=
79 1. Impossi*ilit$ e6isting at the time of contract. 2. su*se9uent of supervening impossi*ilit$. Impossi*ilit$ !hich arises su*se9uent to the formation of contract Bi.e., a contract to do an act, !hich after the contract is madeC is called post contractual or supervening impossi*ilit$. In such a case the contract *ecomes void. Discharge /2 super,ening Impossi/ilit2 9or; cases .here the HDoctrine of super,ening impossi/ilit2 applies:C A contract !ill *e discharged on the ground of supervening impossi*ilit$ in the follo!ing cases+( 1. Destruction of su/Dect matter of contract: ,hen the su*5ect matter of a contract, su*se9uent to its formation, is destro$ed !ithout an$ fault of parties to the contract, then the contract is discharged. Example: a2lor Js %ald.ell 91:71;: Facts: C agreed to let out a music hall to accidentall$ destro$ed *$ fire. <udgment: the o!ner !as a*solved from lia*ilit$ to let the music hall as promised. hus the contract !as void. 0. Non-existence or non occurrence of a particular state of things: 0ome times, a contract is entered into *et!een t!o parties on the *asis of a continued e6istence or occurrence of a particular state of things. If there is an$ change in the state of things !hich formed as the *asis of contract, the contract is discharged. on a certain dates. )ut *efore those da$s the hall !as
Example: Krell Js &enr2 91@A1;: Facts: : hired a flat from F for ;une 28 and 27, 1G&2 for !itnessing a coronation procession of Fing Hd!ard EII. F 1ne! of :#s purpose though the contract contained no reference to this. he coronation procession !as cancelled due to the illness of the 1ing. <udgment: : !as e6cused from pa$ing the rent for the flat on the ground that e6istence of the procession !as the *asis to the contract. Its cancellation discharged the contract.
80 1. Death or personal incapacit2 of the parties: ,here the performance of a contract depends on the personal s1ill or 9ualification or the e6istence of a given person, the contract is discharged on the illness, incapacit$, or death of that person. E": -A. contracts to act at a theatre for 8 months in consideration of a sum paid in advance *$ -).. ?n several occasions, A is too ill to act. he contracts to act on those occasions *ecome void. 5. %hange of la.: ,hen a su* se9uent change of la! ta1es place or the government ta1es some po!er under some special po!er, so that the performance of a contract *ecomes impossi*le, the contract is discharges. E": here !as a contract of a sale of trees of a forest, su*se9uentl$ *$ an act of legislature= the forest !as ac9uired *$ the state government. su*se9uent change in la!. 6. !ut-/reaI of .ar: All contracts entered into !ith an alien enem$ during !ar is un la!ful and therefore impossi*le of performance. Contracts entered into *efore the out(*rea1 of !ar are suspended during the !ar and ma$ *e received after the !ar is over. Effects of super,ening impossi/ilit2: I. ,hen the performance of a contract *ecomes impossi*le or unla!ful to its formation, the contract *ecomes void. II. ,here one person has promised to do something !hich he 1ne!, or !ith reasona*le diligence, might have 1no!n, and !hich the promisee did not 1no! to *e impossi*le or un(la!ful, the promisor must ma1e compensation to the promisee for an$ loss !hich the promisee incurred through the non(performance of a contract. III. ,hen an agreement is discovered to *e void, or !hen a contract *ecomes void, an$ person !ho has received an$ advantage. Ander such agreement or contract is *ound to restore (return) it, or to ma1e compensation to it, to the person from !hom !ho received it. E": A pa$s ) %s. 1&&& in consideration of )#s promise to marr$ C, A#s daughter. C is dead at the time of promise. he agreement is void, *ut ) must repa$ A %s.1&&&. he contract !as discharged *$ impossi*ilit$ created *$
11Q. 'ights of Doint promisors:
81 !' De,olution of Doint rights: Ans: According to section 47, !hen a person has made a promise to several persons 5ointl$, these several persons are 1no!n as 5oint promisees. Anless a contrar$ intention appears from the contract, the right to claim performance rests !ith all the 5oint promisees. ,hen one of 5oint promisee dies his legal representatives 5ointl$ !ith the surviving 5oint promisees, has the right to claim performance !ith their legal representatives 5ointl$. E": ) and C 5ointl$ lend %s 7&&&'( to A !ho promises ) and C 5ointl$ to repa$ them that sum !ith interest on a da$ specified. ) dies, the right to claim performance rests !ith )#s representatives 5ointl$ !ith C during C#s life. After the death of C, the right to claim performance rests !ith the representatives of ) and C 5ointl$.
15Q. Impossi/ilit2 of performance is as a ruleE not an excuse for non-performance of a contract. Discuss. AN#: 0ection 78, of the contract Act= deals !ith the impossi*ilit$ of performance. -An agreement to do an act impossi*le in itself is void. Impossi*ilit$ of performance is, as a rule not an e6cuse for non(performance of a contract. In the follo!ing cases, a contract is not discharged on the ground of supervening impossi*ilit$ or -/octrine of supervening impossi*ilit$. does not appl$. 1. Difficult2 of performance: A contract is not discharged merel$ *ecause that it has *ecome more difficult of performance due to some uncontemplated events or dela$s. Example: saIiroglou and %o.ltd. 9Js; No/lee hrol (.+.=.&...91@70;: Facts: A agreed to sell to ) 3&& tons of 0udan groundnuts c.i.f :am*urg. he usual and normal route at the date of the contract !as via 0ueI Canal. 0hipment !as to *e in Dovem*er'/ecem*er, 1G78, *ut on Dovem*er 2, 1G78 the canal !as closed to traffic and it !as not reopened until the follo!ing April. A refused to ship the goods via the cape of good hope on the plea that the contract had *een frustrated *$ reason of the closing of the 0ueI route.
82 <udgment: he contract !as not frustrated as A could have transported the goods via the Cape of 3ood :ope. 0. %ommercial impossi/ilit2: A contract is not discharged merel$ *ecause e6pectation of higher profits is not realiIed, or the necessar$ ra! material is availa*le at a higher price *ecause of the out*rea1 of !ar, or there is a sudden depreciation of currenc$. commercial impossi*ilit$. 1. Default of third person: !hen a contract could not *e performed *ecause of the default of a third person on !hole !or1 the promisor relied in such a case impossi*ilit$ of performance cannot *e e6cused. hus it is not discharged. hus, performance cannot *e e6cused on the ground of
Example: (anga #aran Js 'am %haran 91@60;: Facts: A agreed to sell to ) a specified 9uantit$ of cotton goods to *e manufactured *$ a particular mill. ) agreed to deliver as and !hen goods might *e received from the mill. A time !as named for the completion for the deliver$. A could not fulfill the agreement as the mill failed to produce the goods. <udgment: ) !as entitled to recover damages from A. 5. #triIesE locI outsE and ci,il distur/ances: A contract is not discharged *$ reason of stri1e *$ the !or1ers, or out*rea1 of some civil distur*ances interrupting the performance of promise. :o!ever, the parties to a contract ma$ agree to the contrar$ *$ ma1ing an e6press provision in this regard. 6. Failure of one of the o/Dect: if a contract is made for fulfillment of several o*5ects, the failure of one or more of them does not discharge the contract. Example: &erne /a2 steam =oat %ompan2 9Js; &utton 91@A1;: Facts: -:). agreed to let out a *oat to -:.. a) for vie!ing a naval revie! on the occasion of the coronation of Hd!ard EII, *) o sail round the fleet. ?!ing to the 1ing#s illness the naval revie! !as a*andoned *ut the fleet !as assem*led. he *oat, therefore, could *e used to sail round the fleet.
83 <udgment: he contract !as not discharged, *ecause failure of one of the o*5ect does not discharge the contract. 7. #elf induced impossi/ilit2: if impossi*ilit$ arises due to a part$#s o!n conduct or act Bi.e., a deli*erate act or a negligent actC, it cannot *e called as supervening impossi*ilit$, and therefore the part$ is not received from his o*ligation to perform.
84
(PART - II)
16Q.Discharge /2 performance. Ans: >erformance means the doing of that !hich is re9uired *$ a contract. /ischarge *$ performance ta1es place !hen the parties to the contract fulfill their o*ligations arising under the contract !ithin the time and in the manner prescri*ed. In such a case, the parties are discharged and the contract comes to an end. >erformance of a contract is the most usual mode of its discharge. It ma$ *e+ 1. 0. Actual performance Attempted performance or tender of performance. ,hen *oth the parties perform their promises, the contract is discharged.
1. Actual performance:
>erformance should *e complete, precise and according to the terms of the agreement. <ost of the contracts are discharged *$ performance in this manner. Ex: -A. contracts to sell his car to -). for %s.17,&&&'( as soon as the car delivered to -). and -). pa$s the agreed price for it. he contract comes to an end *$ performance. ender of *erformance: In certain situations the promisor offers
0. Attempted performanc or
performance of his o*ligation under the contract at the proper time and place *ut the promise refuses to accept the performance. his is called as - ender. or -Attempted >erformance.. ,here a valid ender is
made and is not accepted *$ the promise, the promisor shall not *e responsi*le for non(performance and he doest not lose his rights under the contract. 17Q.Explain in detail HDischarge of a contract /2 agreement 9or; /2 consent or /2 mutual consentC Ans: he general rule of la! is a thing ma$ *e destro$ed in the same manner in !hich it is constituted. his means a contractual o*ligation ma$ *e discharged *$ a agreement !hich ma$ *e e6pressed or implied.
85 he various cases of discharge of a contract *$ mutual agreement are dealt !ith in 0ection 82 and 83 and are discussed *elo!+ 1. No,ation 9#ection.70;: Dovation ta1es places+ i. ii. iii. ,hen su*stitution of a ne! contract for the original one either *et!een the same parties or *et!een same parties or he consideration for the ne! contract is mutuall$ *eing the discharge of old contract. Dovation should ta1e place *efore the e6pir$ of the time of the performance of the original contract. Ex: -A. o!es -). %s.1&,&&&'(. :e enters into an agreement !ith -). a mortgage of his (A#s) estate for %s.7,&&&'( in place of the de*t of %s.1&,&&&'(. his is a ne! contract e6tinguishes the old one.
0. 'ecession 9#ection.70;: %ecession of a contract ta1es place !hen all or some of the terms of the contract are cancelled. It ma$ occur+ a) )$ mutual consent of the parties (or) *) ,here one part$ fails in the performance of his o*ligation. In such a case, the other part$ ma$ resend the contract !ithout claiming compensation for the *reach of contract. In case of recession, onl$ the old contract is cancelled and no ne! contract comes to e6ist in its place. )oth in novation and in recession, the contract is discharged *$ mutual agreement.
Ex: -A. and -). enters into a contract that -A. shall deliver certain goods to *e *$ the 17 th of this month and that -). shall pa$ the price on the 1st of the ne6t month. -A. does not suppl$ the goods. -). ma$ resend the contract, and need not pa$ the mone$. 1. Alteration 9#ection.70;: Alteration means a change in one or more terms of a contract !ith mutual consent of parties. In such a case the old is discharged. Ex: -A. enters into a contract !ith -). for the suppl$ of hundred *ales of cotton at his godo!n Do.1 *$ the 1st of the ne6t month. -A. J -). ma$ alter the terms of the contract *$ mutual consent. 5. 'emission 9#ection.71;: %emission means acceptance of a lesser fulfillment of the promise made or acceptance of a sum lesser than !hat !as contracted for. In such a case, 0ection.83 of the Contract Act allo!s the promise to dispense or remit the performance of the promise *$ the promisor, or to e6tend the time for the performance of to accept an$ other satisfaction instead of performance.
86 Ex: -A. o!es -). %s.7,&&&'(. -A. pa$s to -). and -). accepts in the satisfaction of the !hole de*t %s.2,&&&'( paid at the time and place !hich %s.7,&&&'( !ere pa$a*le. he !hole de*t is to *e discharged.
6. Wai,er: ,hen a contracting part$ fails to perform his o*ligation under the contract, the other part$ (aggrieved part$) ma$ resend the contract and ma$ !aive the promisor or release. ,aiver. 7. =2 merger: <erger ta1es place !hen an inferior right accruing to a part$ under a contract merges into a superior right accruing to the same part$ under the same or some other contract. Ex: ->. holds a propert$ under a lease. :e later *u$s the propert$. :is rights as a lessee merge into his rights as a o!ner. his is called as
18Q.Discharge /2 !peration of $a. Ans: A contract ma$ *e discharged *$ operation of la! !hich ta1es place+ 1. =2 Death+ If contracts involving personal s1ill or a*ilit$ of the promisor, the contract is discharged ' terminated on the death of the promisor. 2. =2 insol,enc2+ ,hen a person is ad5udged insolvent, he is discharged from all lia*ilities incurred prior to his ad5udication. 3. =2 merger+ <erger ta1es place !hen an inferior right accruing to a part$ under a contract merges into a superior right accruing to the same part$ under the same or some other contract. In such a case, the contract ma$ *e discharged. 4. =2 unauthoriLed alteration of the terms of a .ritten agreement+ ,here a part$ to a contract ma1es an$ material alteration in the contract !ithout the consent of the other part$, the other part$ can avoid the contract. 5. =2 rights and lia/ilities /ecoming ,ested in the same person+ ,hen the rights and lia*ilities under a contract vests in the same person, the other parties are discharged. KKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKK 1:Q. Explain H/reach of contractC as a mode of discharge of contract? What do 2ou understand /2 /reach of contact? #tate the rights of the promisee in case of Hanticipator2 /reach of contract? !r Discharge of /reach of contract? http://www.miteshk.webs.com
87 Ans: *reach of contract means promisor fails to perform the promise or *rea1ing of the o*ligations !hich a contract imposes. It occurs !hen a part$ to the contract !ithout la!ful e6cuse does not fulfill his contractual o*ligation or *$ his o!n act ma1es it impossi*le that he should perform his o*ligation under it. It confers a right of action or damages on the in5ured part$. )ranch of contacts ma$ *e of t!o t$pes+ 1. 0. Actual *reath of contact. Anticipator$ *reath of contact.
1. Actual /reach of contract+ Actual *reach means promisor#s failure to perform the promise on due date of performance. ,hen a promisor fails or refuses to perform the promise upon the due date for performance then it is called actual *reach of contract. In such a case the promisee is e6empted and ma$ resend the contract. >romise can sue the part$ at fault for damages for *reach of contract. Ex: !MNeil 9,s; Armstrong 91:@6;: Facts: ">#, a )ritish su*5ect, !as engaged *$ the captain of a !ar ship o!ned *$ the ;apanese government to act as a fire man. 0u*se9uentl$ !hen the ;apanese government declared !ar !ith china, -p. !as informed that the performance of contract !ould *ring him under the penalties o the foreign enlistment act . :e conse9uentl$ left the ship. <udgment: :e !as entitled to recover the !ages agreed upon. 0. Anticipator2 =reach of contract+ It occurs !hen a part$ to e6ecutor$ contract declares his intension of not performing the contract *efore the performance is due. It ma$ ta1e place in t!o !a$s. a; Expressl2 /2 .ords+ here a part$ to the contract communicates to the others part$ *efore the due date o performance, his intention not to perform it. Ex: &ochster 9,s; de la tour 91:61;: Facts: -/. engaged -:. on 12th of April to enter into his service as courier and to accompan$ him upon a tour. he emplo$ment !as to commence on 1st ;une. ?n 11th ma$ -/. rote to -:. telling him that services !ould no longer *e re9uired..:# immediatel$ *rought an action for damages although the time for performance had not arrived. <udgment: :e !as entitled to do so.
88 /; Implied /2 the conduct+ :ere a part$ *$ his o!n voluntar$ act disa*les himself from performing the contract. Ex: a person contracts to sell a particular horse to another on 1st of ;une and *efore the due date he sells the horse to some*od$ else. Effect3right of an anticipator2 /reach: In case of anticipator$ *reach, the promisee is e6cused from performance and he ma$ choose an$ one of the follo!ing t!o options+ 1. :e can treat the contract as discharged so that he is a*solved of the performance of his part$ of the promise. 2. :e can immediatel$ ta1e a legal action for *reach or !ait till the time the act !as to *e done.
1@Q.What are the rules under the Indian contract act for estimating the loss or damage arising from a /reach of contract? ?r Define damages? Explain different t2pe of damages a.arded on /reach of contract? Ans: /amages are the monetar$ compensation allo!ed to the aggrieved part$ for the loss or in5ur$ suffered *$ him *$ the *reach of contract. he fundamentals principle underl$ing damages is not punishment *ut compensation for the pecuniar$ (having to do !ith mone$) loss !hich naturall$ flo!s from the *reach. -If actual los is not proved no damages !ill *e a!arded. 2pes o damages: /amages ma$ *e of different t$pes the$ are as follo!s+ 1. !rdinar2 or natural or general or compensator2 damages: ?rdinar$ damages are generall$ the difference *et!een contract price and mar1et price in sale of such damages !hich arise naturall$ in usual course of things from the *reach of contract. Ex: &adle2 9,s; /axendale 91:65;: Facts: :#s mill !as stopped *$ the *rea1 do!n of shaft. :e delivered the shaft to ")#, a common carrier to *e ta1en to a manufacturer to cop$ it and ma1e a ne! one. -:. did not ma1e 1no!n to -). that dela$ !ould result in loss of profits *$ some neglect on the part of -). the deliver$ of shaft !as dela$ed in transit *e$ond a reasona*le time (so that the mill !as idle for a longer period than other !ise !ould have *een the case had there *een no *reach of the contract of carriage.
89 <udgment: -). !as not lia*le for loss of profits during the period of dela$ as the circumstances communicated to -). did not sho! that a dela$ in the deliver$ of shaft !ould entail loss of profit to mill. 0.special damages: !here a part$ to a contract receives a notice of a special circumstances affecting the contract, he !ill *e lia*le not affecting the contract , he !ill *e lia*le not onl$ for damages arising naturall$ *ut directl$ from the *reach and also fo4 special damages. Ex: A, having a contracted !ith -). to suppl$ -). 1&&& tons of iron L1&& a ton, to *e delivered at a stated time. -A. contracts !ith -c. for to purchase of 1&&& tons of iron 8& a ton telling -C. that he does so for the purpose of performing his contact !ith -).. -C. fails to perform his contract !ith -A. %s.2&&&& '( *eing the profit !hich -A. !ould made *$ the performance of his contract !ith -).. 1. Nominal 9or; toIen damages: Dominal damages are a!arded !here the plaintiff has proved that there has *een a *reach of contract *ut he has not in fact suffered an$ real damage. Do! $ou ma$ as1 !h$ such damages are a!arded. he ans!er is simple. It is a!arded 5ust to esta*lish the right to decree or the *reach of contract. he amount ma$ *e even a rupee. 5.Jindicti,e or exemplar2 damages+ H6emplar damages are punitive damages !hich are a!arded *$ the court in some cases. It is generall$ given *$ !a$ of compensation for loss suffered and not *$ !a$ of punishment for !rong inflicted. H6emplar$ damages a!arded onl$ in t!o !a$s+ a) )reach o contract of marr$. *) /ishonor of a che9ue *$ a *an1er !hen there are sufficient funds to the credit of the consumer. 6. Damages for loss of reputation+ /amages for loss of reputation in case of *reach o contact are generall$ not recovera*le. )ut there is an e6emption to this rule e6ists in a case o a *an1er !ho !rongl$ refuses to honor a customer#s che9ue. If the customer happens to *e a trade man, he can recover damages in respect of an$ loss to his trade reputation *$ the *reach of contract. And the rule o la! is+ the smaller the amount of damages a!arded. )ut I the customer is not a tradesman, he can recover onl$ nominal damages. 7. Damages or incon,enience and discomfort+ /amages can *e recovered for ph$sical inconvenience and discomfort. If, ho! ever the inconvenience or discomfort caused *$ a *reach is su*stantial, the damages can *e recovered on the ground of fairness 8.+itigation of damages+ It is the dut$ o the in5ured part$ to ta1e all reasona*le steps to mitigate the loss caused *$ the *reach. :e cannot claim compensation or loss !hich is reall$ due not to the *reach *ut due to his o!n neglect.
90 :. %ost of decree: he aggrieved part$ id entitled, in addition to damages, to get the decree for damages. he cost of suit for damages is in the discretion of the court. @. Damages agreed upon in ad,ance in cash for /reach+ If a sum is named in a contract as the amount to *e paid in cash of its *reach, or if the contract contains an$ other stipulation *$ !a$ of penalt$ for failure to perform the o*ligations, the aggrieved part$ is entitled to receive from the part$ !ho has *ro1en the contract, a reasona*le compensation not e6ceeding the amount so named in the contract. 1A. Difficult2 of assessment+ he damages !hich are difficult to assess !ith inconvenience discomfort and sufficienc$ cannot *e recovered. )ut the damages !hich are difficult to asses !ith certaint$ does not prevent the aggrieved part$ from recovering them. hem court !ill loo1 into it and ma$ allo! monetar$ damages of ouch inconveniences.
0AQ.What is meant /2 of contract of contract? Explain the remedies for or /reach of contract? Ans: +eaning: )reach of contract means promisor#s failure to perform the promise or *rea1ing of the o*ligation !hich a contract imposes. It confers a right of action or damages on the in5ured part$. )reach of contract ma$ *e of t!o t$pes+ a) Actual /reach+ promises failure to perform the promise on due date of performance than it is called actual *reach of contract. b) Anticipator2 /reach+ It occurs !hen a part$ to an e6ecutor$ contract declares his intention of not performing the contract *efore the performing the contract *efore the performance is due. 'emedies for /each of contract: A remed$ is the means given *$ la! -for the enforcement of right.. In the case of *reach of contract the aggrieved' in5ured part$ (i.e., the part$ !ho is not in *reach) *ecomes entitled to an$ one or more of the follo!ing remedies against the guilt$ part$. follo!s+ 1. 'escission of the contract+ !hen a contract is *ro1en *$ one part$, the other part$ ma$ treat the contract as rescinded. In such case the aggrieved part$#s are entitled to claim for damages that he might have suffered rom the promisor. 0. #uit for damages+ damages are the monetar$ compensation allo!ed to the aggrieved part$ for the loss or in5ur$ suffered *$ him *$ the *reach of contract. he fundamental principle underl$ing damages is not punishment *ut compensation or the pecuniar$ loss !hich naturall$ flo!s from the *reach. .If actual loss is not proved no damages !ill *e a!arded.. http://www.miteshk.webs.com he$ are
91
1. #uit for HQuantum-meruit+ he phrase Muantum meruit literall$ <eans -as much as is earned. or -as much as merited. or In proportion to the !or1 is done.. he general rule of la! is that unless a person has performed his o*ligation in full, he cannot claim performance fro the other. )ut in certain cases, !hen a person has done some !or1 under a contract, and the other part$ discharged the contract, or some event happens !hich ma1es the further performance of the contract impossi*le, then the part$ ho has performed the !or1 can claim remuneration for the !or1 he has alread$ done. 5. suit for specific performance+ !here damages are not an ade9uate remed$, the court ma$ direct the part$ to carr$ out his promise according to the terms of the contract. performance. of the contract. 0pecific performance !ill not *e granted in the follo!ing cases !here+ his is called -specific
i.
/amages are an ade9uate remed$. ii. ,here the contract is not certain or is ine9uita*le to either part$.
i. ii. iii. iv.
he contract is in it nature recovera*le. ,here the contract is of specific nature. ,here the contract is made *$ trustees in *reach of their trust. ,here the contract is made *$ a compan$ in e6cess of its po!ers as laid do!n in its <emorandum of Association. ,here the contract cannot supervise its carr$ing out.
v.
6. #uit for inDunction: ,here a part$ is in *reach of a negative term of the contract (i.e., !here he is doing something !hich he promised not to do), in such a case, the Court ma$, *$ issuing an order, restrain him from doing !hat he promised not to do. -In5unction.. 0uch an order of the court is 1no!n as
92 01Q. What do 2ou understand /2 HQuantum meruitC. When does claim on Quantum meruit arise? !' Write a short note on HQuantum +eruitC Ans: his phrase -Muantum <eruit. means -As much as earned or as much as merited. he general rule of la! is that unless a person has performed his o*ligation in full, he cannot claim performance from the others. )ut in certain cases, !hen a person has done some !or1 under a contract, and the other part$ discharged the contract or some event happens !hich ma1es the further performance of the contract impossi*le, then the part$ !ho had performed the !or1 can claim remuneration for the !or1 he has alread$ done. he claim for 9uantum meruit arises onl$ !hen the original contract is discharged and it could *e *rought *$ the part$ !ho is not in default. he claim on -Muantum <eruit. arises in the follo!ing cases+
1. When an agreement is disco,ered to /e ,oid: ,hen an agreement is discovered to *e void or !hen a contract *ecomes void, an$ person !ho has received an$ advantage under such contract is *ound to restore it or to ma1e compensation for it.
0. When something is done .ithout an2 intention to do so gratuitousl2: ,hen a thing is unla!full$ done or goods are supplied *$ a person !ithout an$ intention to do so gratuitousl$ to another person and such other person en5o$s the *enefit there of, he is *ound to ma1e compensation to the former. 1. ,here there is e6press or implied contract to render services *ut there is no agreement as to remuneration. In such a case, the court decides the reasona*le remuneration. 5. ,hen the completion of the contract has *een prevented *$ the Act, of the other part$ to the contract, the$ could recover the Muantum <eruit. 6. When a contract is di,isi/le: ,hen a contract is divisi*le and the part$ is not in default, has en5o$ed the *enefit of the part performance, the part$ in default ma$ sue on 9uantum meruit. )ut if the contract is not divisi*le, the part$ in default cannot claim remuneration on the ground of 9uantum meruit. 7. When an indi,isi/le contract is completel2 performed /ut /adl2: ,hen an indivisi*le contract for a lump sum is completel$ performed, *ut *adl$, the person !ho had performed the contract can claim the lump sum *ut the other part$ can ma1e a deduction for *ad !or1.
93
00Q. Write a short note on HInDunctionC. Ans: ,hen a part$ is in *reach of negative term of the contract (i.e., !here he is doing something !hich he promised not to do), in such a case the court ma$ *$ issuing an order restrain him from doing !hat he promised not to do, such an order of the court is 1no!n as -In5unction.. he grant of an In5unction *$ the court is normall$ discretionar$, *ut there seems no reason !h$ the court should refuse the grant of an In5unction to restrain the *reach of contract. a; ,here*$ a promisor underta1es not to do something. /; ,hich is negative in su*stance though not in form Ex: -D., a Nilm Actress agreed to act e6clusivel$ for -,. for a $ear and for no one else. /uring the $ear, she contracted to act for -O.. 0he could *e restrained *$ In5unction from doing so.
01Q.Define HQuasi %ontractC. Explain the t2pes of HQuasi %ontractC. Ans: +eaning: Ander certain special circumstances, a person ma$ receive a *enefit to !hich the la! regards another person as *etter entitled or for !hich the la! considers he should pa$ it to the other person, even though there is no contract *et!een the parties these relationships are terms as -Muasi Contract. or constructive contracts under the Hnglish Pa! and -Certain relationships resem*ling those created *$ contracts. under the Indian Pa!. Muasi contract is not made *$ a process of proposal and acceptance or *$ free consent. It is a trust upon us *$ la!. A Muasi(contract rests upon the e9uita*le, !hich declares that a person shall not *e allo!ed to enrich himself un5ustl$ at the e6pense of another. #ilent features of Quasi-contract: i. ii. iii. It is a right !hich is availa*le not against a particular person or persons and so, that in this respect it resem*les a contractual right. It does not arise from an$ agreement of the parties concerned it is imposed *$ la!. 0uch Muasi(contractual right is al!a$s a right to mone$, and generall$, though not al!a$s, to a li9uidated sum of mone$.
94 N*E# !F Q)A#I-%!N 'A% #: he follo!ing are of Muasi(contracts are discussed *elo!. 1. #uppl2 of necessaries 9sec7:;: according to section 88, if a person incapa*le of entering into a contract or an$ one !hom he as legall$ *ound to support is supplied *$ another !ith necessaries suited to his condition in life the person !ho has furnished such supplies I entitled to *e reim*ursed from the propert$ of such incapa*le person. Ex: OA#, supplies -). a lunatic !ith necessaries suita*le to his condition in life. .A. is entitled to reim*urse from )#s propert$. 0. *a2ment /2 an interested person 9#ection.7@; A person, !ho is interested in pa$ment of mone$ !hich another is *ound *$ la! to pa$ and !ho therefore pa$s it, is entitled to *e reim*ursed *$ other. he essential re9uirements of 0ection.8G as follo!s+ a) *) c) he pa$ment mode should *e *onafide for the protection of one#s interest. he pa$ment should not *e a voluntar$ one. he pa$ment must *e such as the other part$ !as *ound *$ la! to pa$. he revenue pa$a*le *$ -A. to the
Ex: -). holds land )engal on a lease granted *$ the Oamindar.
3overnment *eing in arrears his land is advertised for sale *$ the 3overnment under the %evenue Pa!. he sale !ill *e annulment of -)#s lease. #)# to prevent the sale and the conse9uent of annulment of his o!n lease pa$s to the 3overnment the sum due from A. A is *ound to ma1e good to ) the amount so paid. 1. !/ligation to pa2 for non-gratuitous acts 9#ection.8A;: ,hen a person la!full$ does an$thing for another person or delivers an$thing to him not intending to do so, gratuitousl$, and such other person en5o$s the *enefit thereof, the latter is *ound to ma1e the compensation to the former in respect of or restore, the things do done or delivered. Ex: -A., a tradesman lease goods at -). house *$ mista1e. ) treats the goods as his o!n. :e is *ound to pa$ for them to A. 5. 'esponsi/ilit2 of finder of goods 9#ection.81;: A person !ho finds goods *elonging to another and ta1es them into his custod$ is su*5ect to the same responsi*ilit$ as )ailee. :e is *ound to ta1e as much care o the goods as a man of ordinar$ prudence !ould under similar circumstances ta1e of his o!n goods of the same *ul1, 9ualit$ and value. :e must also ta1e all necessar$ measures to trace its o!ner. If he does not, he !ill *e guilt$ of !rongful conservation of the propert$ till the o!ner is found out, the
95 propert$ in goods !ill vest in the finder and he can retain the goods as his o!n against the !hole !orld (e6cept the o!ner). Ex: -N. pic1s up a diamond on the floor of "0#s shop. :e hands it over to "0# to 1eep it till the real o!ner is found out. Do one appears to claim it for 9uite some !ee1#s inspite of !ide advertisement in the ne!s papers. "N# claims the diamond from "0# !ho refuses to return. "0# is *ound to return the /iamond to "N# !ho is entitled to retain the diamond against the !hole !orld e6cept the true o!ner. 6. +istaIe or coercion 9#ection.80;: A person to !hom mone$ has *een paid, or an$thing delivered *$ mista1e or under coercion, must repa$ or return it to the person !ho paid it *$ mista1e or under coercion. Ex: -A. J -). 5ointl$ o!e %s.1&&'( to -C.. A alone pa$s the amount to C and ) not 1no!ing this fact pa$s %s.1&&'( over again to -C.. C is *ound to pa$ the amount to ).
05Q.Write a short note on HFinder of lost goods or H'esponsi/ilit2 of finder of goodsC Ans: A person, !ho finds goods *elonging to another and then ta1es into his custod$, is su*5ect to the
same responsi*ilit$ as a *ailee. :e is *ound to ta1e as much care of the goods as a man of ordinar$ prudence !ould under similar circumstances ta1e of his o!n goods of the same *ul1, 9uantit$ and value. :e must also ta1e all necessar$ measures to trace its o!ner. If he does not, he !ill *e guilt$ of !rongful conversion of the propert$ till the o!ner is found out, the propert$ in goods !ill vest in the finder and he can retain the goods as his o!n against the !hole !orld (e6cept the o!ner). he finder can sell the goods in the follo.ing cases: 1. ,hen the thing found is in danger of perishing. 2. ,hen the o!ner cannot !ith reasona*le diligence, *e found out. 3. ,hen the o!ner is found out, *ut he refuses to pa$ the la!ful charges of the finder and 4. ,hen the la!ful charges of the finder, in respect of the thing found, amounts to 2'3rd of the value of the things found.
104
3-UNIT SALE OF GOODS ACT (PART - I)

1Q.Explain th nat!" #$ a %#nt"a%t #$ &al #$ '##(& an( )"in' #!t %l a"l* th (i&tin%ti#n ) t+ n &al an( an a'" , nt t# & llANS. C#nt"a%t #$ &al #$ G##(&. It is a contract where by the seller transfers (OR) agrees to transfer the property in goods to the buyer for a price. Sal an( A'" , nt t# & ll. In sale of goods, the property in the goods is transferred from the seller to the buyer immediately then the contract is called &al , but where the transfer of property in the goods passes only after the seller has fulfilled certain conditions subsequently is called an a'" , nt t# & ll. E&& ntial& #$ a %#nt"a%t #$ &al . The following are the Essential elements are necessary for contract of sale 1) Th " ,!&t ) at l a&t t+# pa"ti &. there must be two distinct parties (i.e.., seller and !uyer) to effect a contract of sale and they must be competent to contract. "ection #($) defines %& person who buys (or) agrees to buy goods is called a /!* "' and "ection #($() defines %& person who sells (or) agrees to sell is called & ll "'. 0) S!)1 %t ,att " ,!&t ) 2G##(&3. There must be some goods, the property in which is (or) is to be transferred from the seller to the buyer. The goods which form the sub)ect matter must be mo*able. 3) C#n&i( "ati#n i& p"i% . The consideration for the contract of sale, called price, it must be money. +here there is no consideration, it would be a gift, there is no contract of sale. "imilarly, where goods are sold for a price, which is to be paid partly in cash and partly in goods then it is considered as contract of sale. 4) T"an&$ " #$ ' n "al p"#p "t*. There must be a transfer of general property from the buyer to the seller. 5) A)&#l!t (OR) Q!ali$i (. & contract of sale may be absolute or conditional. 6) E&& ntial l , nt& #$ a 7ali( %#nt"a%t. &ll the essentials of a *alid contract must be present in the contract of sale. The following are the differences between the sale and &greement to sell are as follows
105
DIFFERENCE
SALE The transfer of ownership passes from seller to buyer immediately. It is an e,ecuted contract. "ale can be only in specific or e,isting goods. If the goods are destroyed, the loss falls on the buyer e*en though the goods are in the procession of seller. In case of breach by seller, the buyer has the legal right to obtain the possession of the goods. In case of breach by buyer, the seller has the legal right to sue the buyer for reco*ery of price of goods. In case of sell, the seller has no right to resell the goods. If the buyer becomes insol*ent, the official assignee/ official recei*er shall ha*e a right o*er the goods.
If the seller becomes insol*ent, the official assignee/ official recei*er shall ha*e no right o*er the goods.
AGREE8ENT TO SELL The transfer of ownership passes from seller to buyer subsequent to the formation of agreement to sell. It is an e,ecutor contract. &n agreement to sell is mostly in case of future or contingent goods If the goods are destroyed, the loss falls on the seller e*en though the goods are in procession of buyer. In case of breach by seller, the buyer's remedy is to claim damages for nonperformance of the contract. In case of breach by buyer, the seller cannot sue the buyer for reco*ery of price of goods. .is right is limited to claim damages. In case of agreement to sell, the seller can resell the goods to any other person. If the buyer becomes insol*ent, the official assignee/ official recei*er shall ha*e no right o*er the goods.
If the seller becomes insol*ent, the official assignee/ official recei*er shall ha*e a right o*er the goods.
1.T"an&$ " #$ p"#p "t*
0.Nat!" #$ %#nt"a%t
3. T*p #$ '##(&.
4. Ri&9 #$ l#&&.
5. R , (i & $#" )" a%h )* & ll ".
6. R , (i & $#" )" a%h )* )!* ".
:.Ri'ht #$ " &al
;. In&#l7 n%* #$ )!* ".
<. In&#l7 n%* #$ & ll ".
1=. G n "al > pa"ti%!la" p"#p "t*
& sale is a contract plus con*eyance, and creates )us in rem i.e., gi*es a right to the buyer to en)oy the goods
&n agreement to sell is merely a contract, pure and simple, and creates jus in person-am i.e., gi*es a right
106
as against the world at large including the seller.
to the buyer against to sue for damages.
(PART II)
0Q. Explain th %#n(iti#n& an( +a""anti & #$ th &al #$ '##(& a%t? 1<3=An&. &ccording to section $#($) of sales of goods act, $0(1. %& stipulation in a contract of sale with reference to goods which are the sub)ect thereof may be a condition (or) a warranty. http://www.miteshk.webs.com
107 C#n(iti#n an( @a""anti &. C#n(iti#n. &ccording to section $#(#) a %C#n(iti#n' is a stipulation essential to the main purpose of the contract, the breach of which gi*es raise to a right to treat the contract as repudiated. @a""ant*. &ccording to the section $#(() a %@a""ant*' is stipulation collateral to the main purpose of the contract, the breach of which gi*es raise to a claim for damages but not to the right to re)ect the goods and treat the contract as repudiated. +hether a stipulation in a contract of sale is a condition (or) warranty depends in each case of the construction of the contract. & stipulation may be a condition, through called a warranty in a contract. I,pli ( C#n(iti#n&. The &ct prescribes some of the implied conditions in a contract. !uyer can repudiate contract for breach of any of these conditions 1. C#n(iti#n a& t# tittl . S %ti#n 14(a) In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller, that, a) In case of a sale, he has the right to sell the goods and b) In case of an agreement to sell2 he will ha*e a right to sell the goods at the time when the property is to pass. Thus, if seller sells stolen goods, the buyer can repudiate the contract and claim damages also, as the seller had no right to sale the goods. 0. Sal )* ( &%"ipti#n. (& %ti#n 15) where there is a contract for the sale of goods by description, there is an implied condition that that the goods shall correspond with the description. %"ale of goods by description' includes the following a) +here the buyer has not seen the goods and relies on their description gi*en by the seller. b) +here the buyer has seen the goods but he relies not on what he has seen but what was stated to him and de*iation of the goods from the description is not apparent. c) 3ac4ing of goods may sometimes be a part of description. 3. C#n(iti#n a& t# A!antit* (#") $itn &&. (& %ti#n 16(1)) where the buyer, e,pressly (or) by implication, ma4es 4nown to the seller the particular purpose for which he requires the goods, so as to show that the buyer relies on the seller's s4ill (or) )udgment, and the goods are of a description which is in the course of the seller's business to supply, there is an implied condition that the goods shall be reasonable fit for the purpose. This will not apply where specific goods are sold under their patient (or) trademar4. Thus, the four conditions must be fulfilled a) The p!"p#& must ha*e been (i&%l#& ( (e,pressed or implied) by the buyer.
10 b) The buyer must ha*e " li ( on the seller's s4ill (or) )udgment. c) The & ll "3& )!&in && must be to sell those goods. !) The goods should not ha*e been sold !n( " a pati nt (#") t"a( ,a"9. 4. C#n(iti#n& a& t# , "%hanta)ilit*. ("ection $5(#)) where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quantity2 pro*ided that, if the buyer has e,amined the goods, there shall be no implied condition as regards defects which such e,amination ought to ha*e re*ealed. 5. C#n(iti#n i,pli ( )* %!&t#,. (& %ti#n 16(3)) &n implied condition as to quantity (or) fitness for a particular purpose may be anne,ed by the usage of trade. The purpose for which the goods are required may be ascertained from the acts and conducts of the parties and from the nature of the description of the article purchased. Exa,pl . P"i &t (7&) la&t (1<=3). Fa%t&. %3' as4ed for a hot water bottle of %6', a retail chemist. .e was supplied one which burst after a few days use and in)ured %3's wife. B!(', nt. %6' was liable for breach of implied condition because %3' had sufficiently made 4nown the use for which he required the bottle. 6. Sal )* &a,pl . (S %ti#n 1:) In a sale by sample the following are the implied conditions a) The bul4 shall correspond with the sample in quantity. b) That the buyer shall ha*e a reasonable opportunity of comparing the bul4 with the sample. c) That the goods shall be free from any defects rendering them un-merchantable, which would not be apparent on reasonable e,amination of the sample. Exa,pl . F"#&t (7&) A*l &)!"* Dai"* C#.Lt( (1<=5). Fa%t&. %7' brought mil4 from %&'. the mil4 contained germs of typhoid fe*er. %7's wife too4 the mil4 and got infection as a result of which she died. B!(', nt. %7' could reco*er damages. :. C#n(iti#n a& t# +h#l &#, n &&. In the case of eatables and pro*isions, in addition to the implied condition as to merchantability there is another implied condition that the goods shall be wholesome. I,pli ( @a""anti &. The implied conditions in a contract of sale are as follows 1. @a""ant* #$ A!i t p#&& &&i#n. (& %ti#n 14())) In a contract of sale, unless contrary intention appears, it is implied that the buyer shall ha*e and en)oy quiet possession of the goods. If the buyer is in any way disturbed in the en)oyment of the goods in consequence of the seller's defecti*e tittle to sell, then the buyer is entitled to sue the select for damages. http://www.miteshk.webs.com
10" 0. @a""ant* #$ $" (#, $"#, n%!,)"an% &. (& %ti#n 14 (C)) means that the goods are free from any charge (or) encumbrances in fa*our of any third party, not declared to (or) 4nown to the buyer. in such a case he shall ha*e a right to claim damages for breach of this warranty. 3. @a""ant* a& t# A!antit* (#") $itn && )* !&a' #$ t"a( .(S %ti#n 16(4)) &n implied warranty as to quantity (or) fitness for a particular purpose may be anne,ed by the usage of trade. 4. @a""ant* a& t# (i&%l#& (an' "#!& nat!" #$ '##(&. +here a person sells goods 4nowing that the goods are inherently dangerous (or) they are li4ely to be dangerous to the buyer and that the buyer is ignorant of the danger. In such a case the seller warn the buyer otherwise he would be held liable. 3Q. Stat th (#%t"in #$ 2Ca7 at E,pt#"3 an( &tat th x% pti#n& t# it.
An&. 8 anin'. 8a*eat Emptor is a fundamental principal go*erning the law of sale of goods2 it means 96et the buyer beware:. In other words, it is no part of the seller's duty in a contract of sale of goods to gi*e the buyer an article suitable for some particular purpose, (or) of particular quantity, unless the quantity (or) fitness is made an e,press terms of the contract. The person who buys goods must 4eep his eye open, his mind acti*e and should be conscious while buying the goods. If he ma4es a bad choice, he must suffer the consequences of lac4 of s4ill and )udgment in the absence of any misrepresentation (or) guarantee by the seller. Ex% pti#n& t# p"in%ipal #$ Ca7 at E,pt#". The doctrine of 8a*eat Emptor has certain important e,ceptions they are follows 1. Fitn && $#" )!* "3& p!"p#& . +here the buyer e,pressly (or) by implication, ma4es 4nown to the seller the particular purpose for which he needs the goods and depends on the s4ill and )udgment of the seller whose business is to supply goods of that description, in such a case there is an implied condition that the seller must supply the goods shall be reasonably fit for that purpose. 0. Sal !n( " a pati nt (#") t"a( na, . If the buyer purchases an &rticle under its patient (or) other trade name and relies on seller s4ills and )udgment which he ma4e 4nown to him, in such a case there is no implied condition that the goods shall be reasonably fit for any particular purpose. 3. 8 "%hanta)l Q!alit*. +here the goods are brought from a seller who deals in goods of that description weather he is the manufacturer (or) producer (or) not, there is an implied condition that the goods are of merchantable quantity. 4. U&a' #$ t"a( . &n implied condition as to quality (or) fitness for a particular purpose may be anne,ed by the usage of trade. 5. C#n& nt )* $"a!(. +here the consent of the buyer, in a contract of sale, is obtained by the seller by fraud (or) where the seller 4nowingly conceals a defect which could not be disco*ered on a reasonable e,amination. In such a case the doctrine of ca*eat emptor does not apply.
110 6. In case of eatables and pro*isions in addition to the implied condition of merchantability, there is an implied condition that the goods shall be wholesome. 4Q. Stat )"i $l* th "!l & a& t# th pa&&in' #$ p"#p "t* $"#, th & ll " t# th )!* " in a %#nt"a%t? $#" th &al #$ '##(&. (OR) @hat i& , ant )* t"an&$ " #$ p"#p "t* in '##(& an( +h n (# & p"#p "t* pa&& $"#, th & ll " t# th )!* "An&. 8 anin' #$ p"#p "t* in '##(&. It means ownership of the goods. It is different from possession of the goods. 3ossession refers to custody of the goods. There may be situations where a person may be the owner of certain goods but not in possession of the same (or) *ice-*ersa. T"an&$ " #$ p"#p "t* (#") pa&&in' #$ p"#p "t*. where the intention of the parties as to the time when the property in goods passes to the buyer cannot be ascertained from the contract, the rules contained in section #1 to #; apply. These rules are as follows (A) Sp %i$i% (#") a&% "tain ( '##(&.(& %ti#n 0= t# 00) (i). Pa&&in' #$ p"#p "t* at th ti, #$ %#nt"a%t. where there is an unconditional contract of sale of specific goods in a deli*erable state, the property in the goods passes to the buyer when contract is made. The fact is that the postponement of time of payment (or) deli*ery (or) both, will not affect the passing of property. Thus, goods are said to be in deli*erable state when they are in such a state that the buyer would under the contract be bound to ta4e deli*ery of them. (ii). Pa&&in' #$ p"#p "t* ( la* ( ) *#n( th (at #$ th %#nt"a%t. (a) Sp %i$i% G##(& n#t in a ( li7 "a)l &tat . In case of specific goods to which something has to be done by the seller to put them in to a deli*erable state, but the fact is that the property passes only when such thing is done and the buyer has notice thereof. ()) @h n th p"i% #$ th '##(& i& t# ) a&% "tain ( )* + i'htin'? t%. where there is a contract of sale of specific goods in the deli*erable state, but the seller is bound to weight, measure, test (or) do some other thing with respect to them, for ascertaining the price, but the fact is that the property does bot pass until such act is done and the buyer has notice of it. (/) Una&% "tain ( (#") $!t!" '##(&. In case of unascertained goods, the property in the goods is not transferred to the buyer unless and until the goods are (i) &scertained and (ii) unconditional appropriated.
111 (i) A&% "tain ( '##(&. &scertainment is the process by which the goods answering to the description (or) quality stated in the contract, identified and set a part. &scertained can be a unilateral act of the seller i.e., he alone may set apart the goods. Exa,pl . Rh#( (7&) Th+ait & (1;0:). 7acts In a sale of #1 hog heads of sugar out of larger quantity, ; were filled and ta4en away by the buyer. The remaining $5 hog heads were subsequently filled and the buyer was informed of the same. The buyer promised to ta4e them away, but before he could do so, the goods were lost. B!(', nt. The property had passed to the buyer at the time of loss. (ii) Un%#n(iti#nal app"#p"iati#n. It is unconditional when the seller does not reser*e to himself the right of disposal of the goods. The appropriation may be done either by the seller with the assent of the buyer (or) by the buyer with the assent of the seller. "uch assent may be e,pressed (or) implied, and may be gi*en either before (or) after the appropriation is made. If the contract is silent as to the party who is to appropriate the goods, the party who under the contract is first to act is the one who appropriates. Exa,pl . %&' sells by description $1 sheep to %!'. if %&' is to send sheep to %!', it is %&' who appropriate the sheep, it is %!' who appropriate the sheep, if the buyer tells the seller to send the goods by rail (or) some other mode of carriage, he is deemed to ha*e gi*en his assent in ad*ance to the subsequent appropriation by the seller of the goods. (C) G##(& & nt #n app"#7al (#") #n &al (#") " t!"n )a&i&. +hen goods are deli*ered to the buyer on appro*al (or) on sale (or) return in such a case the ownership pass to the buyer as follows (i) A%% ptan% #$ '##(&. +hen he signifies his appro*al (or) acceptance to the seller. (ii) A(#pti#n #$ th t"an&a%ti#n. +hen he does any other act adopting the transaction. (iii) Fail!" t# " t!"n th '##(&. The ownership shall pass to the buyer, if the buyer fails to return the goods to the seller a) +ith in specified time- if certain time is fi,ed for return of goods. )) +ithin a reasonable time- if no time has been fi,ed for return of goods. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< 5Q Di$$ " n% & ) t+ n Ri'ht #$ Li n an( Ri'ht #$ &t#ppa' in t"an&it. An&. The following are the differences between the right of lien and right of stoppage in transit they are follows Ri'ht #$ li n Ri'ht #$ &t#ppa' in t"an&it
11#
$. The essence of right of lien is to retain $. The essence of right of stoppage in transit is possession. right to regain possession.
#. "eller should be in possession of goods under #. in case of stoppage in transit2lien (a) "eller should ha*e parted with the possession ()) possession should be with a carrier and (C) buyer was not acquired the possession. (. It can be e,ercised e*en when the buyer is not (. It cannot be e,ercised e*en when the buyer is insol*ent. not insol*ent.
;. Right of stoppage in transit begins when the ;. The end of the right of lien is the starting point right of lien ends. of stoppage in transit.
6Q. Stat th
x% pti#n& t# th "!l 2N ,# (at A!i n#n ha) t3. (O")
Sal )* n#n-#+n "&. (O") T"an&$ " #$ tittl #th " than th #+n ". An&. The general is that only the owner of the goods can transfer a goods title. =o one can gi*e a better title than what he himself has. This is e,pressed in 6atin word 2N ,# (at A!i n#n ha) t3. "ub)ect to pro*isions of this act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority (or) with the consent of the owner, the buyer acquires no better title to the goods than the seller had. Ex% pti#n& t# th a)#7 "!l .- 7or e,ample, a thief cannot pass on better title to purchaser of the stolen goods. This is *ery important principle. .owe*er, strict implementation of this principle will create some difficulties. "ome e,ceptions are pro*ided, as discussed below. 1. Sal )* a p "&#n n#t th #+n " (#") tittl )* &t#pp l. (& %ti#n 0:) where the true owner by his conduct, act (or) omission leads the buyer to belie*e that the seller has the authority to sell and
11$ induces the buyer to buy the goods, he shall be estopped from denying the fact of want of authority of the seller. The buyer in such a case get better tittle than that of the seller. 0. Sal )* , "%antil a' nt. (& %ti#n 0:) & sale by mercantile agent shall pass a *alid title to the buyer e*en though such sale is not made as per the directions of the seller, if the following conditions are satisfied. a) The sale is made by a mercantile agent in the capacity of mercantile agent. b) The goods came into his possession with the consent of the seller. c) The sale is made by the mercantile agent acting in the ordinary course of business d) The buyer buys the goods in goods faith and for consideration. 3. Sal )* #n #$ & 7 "al 1#int #+n "&. (S %ti#n 0;) & sale by one of the )oint owners shall pass a *alid title to the buyer e*en though such sale is not made with the consent of the other )oint owners, if the following conditions are satisfied a) The goods are in the sole possession of the )oint owner. b) The goods came into his possession with the consent other )oint owners. c) The buyer buys the goods in good faith and for consideration. 4. Sal )* a p "&#n in p#&& &&i#n !n( " a 7#i(a)l %#nt"a%t. (& %ti#n 0<) & re-sale of goods by a buyer shall pass a *alid title to the new buyer, if the following conditions are satisfied a) & person buys the goods under a *oidable contract. b) "uch buyer resells the goods to a new buyer. c) &t the time of re-sale, the *oidable contract has not been rescinded by the original seller. d) The new buyer buys the goods in good faith of want of authority of the seller. The buyer in such a case shall get better title than that of the seller. 5. Sal )* a & ll " in p#&& &&i#n #$ '##(& a$t " th &al . (& %ti#n 3=(1)) & seller, who has the possession of the goods already sold by him, may re-sell such goods to the new buyer, and the new buyer shall ha*e a *alid title to such goods, if the following conditions are satisfied a) The ownership of goods has been passed to the buyer. b) The seller continues to be in possession of goods, e*en after their sale. c) The seller re-sells the goods to the new buyer. d) The new buyer buys the goods in good faith (i.e.., the new buyer had no 4nowledge of the fact that the goods being sold by the seller ha*e already been sold to some other buyer) and consideration.
114 6. Sal )* th )!* " in p#&& &&i#n #$ '##(&. (& %ti#n 3=(0)) +here a person ha*ing bought (or) agreed to buy goods, obtains, with the consent of the seller, possession of the goods (or) document of title to the goods, the deli*ery (or) transfer by such person (or) a mercantile agent acting for such person, of the goods (or) documents, will be *alid and effecti*e, pro*ided the person recei*ing the same, acted bonafide and without notice of the seller's lien, if any. :. Sal )* an !npai( & ll ". (S %ti#n 54 (3) where an unpaid seller who ha e,ercised his right of lien (or) stoppage in transit re-sells the goods, the buyer acquires a good title to the goods as against the original buyer. ;. Ex% pti#n& !n( " #th " A%t&.a) "ale by a finder of lost goods. b) "ale by a 3awnee (or) pledge. c) "ale by an official recei*er (or) assignee (or) liquidator of companies. d) "ale by !an4/ 7I under "ecuriti>ation &ct, #11#. e) .older in due course under =egotiable instruments &ct, $??@. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< :Q. Ri'ht #$ " -&al . An&. Ri'ht #$ " -&al . (S %ti#n 46(1)(C) an( 54) The unpaid seller can resell the goods if $) The seller has e,ercised the right of lien (or) stoppage of goods in transit. #) +here the goods are of perishable nature (or) () +hen the seller has gi*en a notice to the buyer of his intention to resell the goods. .owe*er the notice by the seller is not required if the goods are perishable. ;) The buyer fails to pay the price within a reasonable time. If on resale after proper notice, there is a loss to the seller (i.e.., difference between the contract price and the mar4et price), he can claim it from the buyer. If there is any surplus on re-sale, the seller is not bound to hand it o*er to the buyer because the buyer cannot be allowed to ta4e ad*antage of his own wrong. In case notice is not gi*en, the unpaid seller Is not entitled to reco*er any loss on the re-sale of the goods. Is not bound to retain any surplus arising on the re-sale of the goods. The buyer is entitled to claim such surplus, if any, accruing on re-sale.
115 +here the seller e,pressly reser*es a right of re-sale in case the buyer could ma4e default. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
;Q. @h# i& CUnpai( S ll "D- Explain th "i'ht& #$ an !npai( & ll "An&. 8 anin'. &ccording to section ;A(a) The seller of goods is deemed to be an unpaid seller if $) The whole of the price has not been paid (or) tendered and the seller had an immediate right of action for the price. #) +hen a bill of e,change (or) other negotiable instrument was gi*en as payment, but the same has been dishonored, unless and until this payment was an absolute, and not a conditional payment. &ny person who is in a position of a seller, is also a seller, and may e,ercise the rights conferred upon an %Bnpaid seller' in the abo*e said circumstances. Ri'ht& #$ an !npai( & ll ". &n unpaid seller has been e,pressly gi*en the right against the goods as well as the buyer personally which as been discussed below Rights of unpaid seller may broadly classified under two heads ($) rights against the goods. (#) Right against the buyer personally. (1) Ri'ht& a'ain&t th '##(&. &gain it was classified in to two types (i) +here the property in the goods has passed (ii) +here the property in the goods has not passed (i) @h " th p"#p "t* in th '##(& ha& pa&& (. &gain it has classified in to three types (a) Right of 6ien. (b) Right of stoppage in transit and (8) Right of re-sale. (a) Ri'ht #$ Li n . (S %ti#n 46(1)(a) an( 4: t# 4<) The word %6ien' means a right to retain possession. &n unpaid seller, who is in possession of the goods, is entitled to remain them until payment (or) tender of the price in the following cases +here the goods ha*e been sold without any stipulation as to credit (or) +here the goods ha*e been sold on credit but the terms of credit has e,pired (or) +here the buyer becomes insol*ent. ()) Ri'ht #$ &t#ppa' in t"an&it. (& %ti#n 46(1)()) an( 5= t# 50) The unpaid seller has the right of stopping the goods in transit after he has parted with their possession to a carrier, in case of insol*ency of the buyer. The right is e,ercisable by the seller only if the following conditions are fulfilled -
116 $. The seller must be unpaid. #. .e must ha*e parted with the possession of goods. (. The goods must be in transit. ;. The buyer must ha*e become insol*ent. A. The right is sub)ect to pro*isions of the act. (C) Ri'ht #$ " -&al . (S %ti#n 46(1)(C) an( 54) The unpaid seller can resell the goods if A) The seller has e,ercised the right of lien (or) stoppage of goods in transit. 5) +here the goods are of perishable nature (or) @) +hen the seller has gi*en a notice to the buyer of his intention to resell the goods. .owe*er the notice by the seller is not required if the goods are perishable. ?) The buyer fails to pay the price within a reasonable time. (ii) +h " th p"#p "t* in th '##(& ha& n#t pa&& (. (& %ti#n 46(0)) +here the property in goods has not passed to the buyer, an unpaid seller has, in addition to his other remedies, a right of withholding deli*ery similar to and co-e,tensi*e with his rights of lien and stoppage in transit where the property has passed to the buyer. 0. Ri'ht& a'ain&t th )!* " p "&#nall*. &n unpaid seller can enforce certain rights against the goods as well as the buyer personally. The rights which an unpaid seller may enforce against the buyer personally is called the rights in personam as against the right in rem (i.e.., rights against the goods), and are in addition to his rights against the goods. The rights in personam are as follows (a) S!it $#" p"i% . (S %ti#n 55) (a) +here under a contract of sale the property in the goods has passed to the buyer, and the buyer wrongfully neglects (or) refuses to pay the price, the seller can sue the buyer for the price of the goods. ("ection AA($). (b) +here property has not passed under the contract of sale and the price is payable on a certain day irrespecti*e of deli*ery and the buyer wrongfully neglects (or) refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods ha*e not been appropriated to the contract. ("ection AA(#). ()) S!it $#" (a,a' & $#" n#n-a%% ptan% . (& %ti#n 56) &n unpaid seller has the right to sue the buyer for reco*ery of damages if the seller is ready and willing to deli*er the goods to the buyer as per the terms of the contract2 but the buyer wrongfully neglects (or) refuses to accept the goods. &s regards measure of damages, section @( of the Indian contract &ct, $?@#, applies.
117 (C) S!it $#" (a,a' & $#" " p!(iati#n #$ %#nt"a%t. (& %ti#n 6=) +here the buyer repudiates the contract before the date of deli*ery, the seller may either $) Treat the contract as subsisting and wait till the date of deli*ery. #) .e may treat the contract as rescinded and sue fro damages for the breach. This rule is 4nown as %Rule of anticipatory breach of contract'. (() &!it $#" int " &t. (& %ti#n 61(0)(a)) In case of breach of contract on the part of the buyer, while filing a suit for the price, the seller may sue the buyer for interest from the date of the tender of the goods (or) from the date on which the price was payable.
<Q Ri'ht #$ Li n An&. Ri'ht #$ Li n. (S %ti#n 46(1)(a) an( 4: t# 4<) The word %6ien' means a right to retain possession. &n unpaid seller, who is in possession of the goods, is entitled to remain them until payment (or) tender of the price in the following cases +here the goods ha*e been sold without any stipulation as to credit (or) +here the goods ha*e been sold on credit but the terms of credit has e,pired (or) +here the buyer becomes insol*ent. R!l & " 'a"(in' li n.
11 $. 6ien can be e,ercised for the non-payment of the price, and not for the other charges due against the buyer. #. The unpaid seller can e,ercise his lien notwithstanding that he is in possession of the goods (or) bailee for the buyer. (. +here the part deli*ery has been made, he may still e,ercise his right of lien on the reminder of goods unless he has wai*ed the lien. ;. It is a personal right, which can be e,ercised only by him and not by assignees (or) creditors. T ",inati#n #$ li n. The unpaid seller of goods loses his lien on the goods when $. +hen the seller deli*ers the goods to a carrier (or) other bailee for the purpose of transmission to the buyer, without reser*ing the right of disposal of the goods to himself. #. !y wai*ing his right of lien. (. +here the buyer (or) his agent lawfully obtains possession of the goods. ;. +here he assents to a sub-sale by the buyer. A. +here he ta4es a security from the buyer for the payment of the price in place of his lien. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< 1=Q Ri'ht #$ &t#ppa' in t"an&it. An&. Ri'ht #$ &t#ppa' in t"an&it. (& %ti#n 46(1)()) an( 5= t# 50) The unpaid seller has the right of stopping the goods in transit after he has parted with their possession to a carrier, in case of insol*ency of the buyer. The right is e,ercisable by the seller only if the following conditions are fulfilled 5. The seller must be unpaid. @. .e must ha*e parted with the possession of goods. ?. The goods must be in transit. 0. The buyer must ha*e become insol*ent. $1. The right is sub)ect to pro*isions of the act. The abo*e right pre*ents the goods from being deli*ered to the buyer, and reassuming (or) regaining possession while in transit, retaining them till the price is paid. This right is earned only when the right of lien is lost and is a*ailable only when the buyer has become insol*ent. The unpaid seller may e,ercise his right of stoppage in transit by either (a) !y ta4ing actual possession of the goods, (or)
11" (b) !y gi*ing notice of his claim to the carrier (or) other bailee in whose possession the goods are. D!"ati#n #$ t"an&it - Coods are deemed to be in transit from the time are deli*ered to the carrier for transmission to the buyer until the buyer ta4es deli*ery of them. The goods are still in transit if they are re)ected by the buyer, the transit comes to an end in the following cases $) If the buyer obtains deli*ery before the arri*al of the goods at their destination. #) If, after the arri*al of the goods at their destination, the carrier (or) the other bailee ac4nowledges to the buyer (or) his agent that he holds on his behalf, e*en if a further destination of the goods is indicated by the buyer. () If the carrier wrongfully refuses to deli*er the goods to the buyer. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
11Q.@hat i& , ant )* t"an&$ " #$ p"#p "t* in '##(&- Explain it& &i'ni$i%an% An&. 8 anin' #$ p"#p "t* in '##(&. It means ownership of the goods. It is different from possession of the goods. 3ossession refers to custody of the goods. There may be situations where a person may be the owner of certain goods but not in possession of the same (or) *ice-*ersa. Si'ni$i%an% #$ pa&&in' #$ p"#p "t*. The time of transfer of ownership of goods decides *arious rights and liabilities of the seller and the buyer a) It is the owner who has to bear the ris4 and not the person who merly has the possession. b) It is the owner who can ta4e action against the third party and not the person who merly has the possession. c) The seller can sue for the price only if the ownership of goods has been transferred to the buyer. d) In case of insol*ency of the buyer, the official recei*er (or) assignee can ta4e the possession of goods from seller only if the owner ship of goods has been transferred to the buyer. e) In case of insol*ency of the seller, the official recei*er (or) assignee can ta4e the possession of goods from buyer only if the ownership of goods has not been transferred to the buyer.
125
4-UNIT:-CONSUMER PROTECTION ACT, 1986. &ESSENTIAL COMMODITIES ACT, 1955
1Q. What are the Objects of consumer protection Act, 1986? Ans: The law relating to consumer protection is contained in the consumer protection Act, 1986. The act applies to all goods and services. The central government however by notification published in the Official goods #or$ %ervices. Objects of the Act: The following are the ob&ectives of 'onsumer (rotection Act, 1986. They are follows)* 1. Better Protection of onsumers: The act see+s to provide for the better protection of the interest of consumers and for that purpose, ma+es a provision for the establishment of consumer councils and other authorities for settlement of consumer disputes and for matters connected therewith. !. Protection of ri"hts of consumers: The Act, see+s to promote and protect the rights of consumers such as)* a$ The consumer has the right to be protected against mar+eting of goods and services which are ha!ardous to life and property. b$ They have the right to be informed about the ,uality, ,uantity, potency, purity, standard and price of goods #or$ services so as to protect the consumers against the unfair trade practices. c) The consumers also have the right to see+ redressal against the unfair trade practices #or$ restrictive trade practices of e"ploitation of the consumers. And d) The consumer has -ight of education. #. onsumer protection ounci$s: The ob&ectives of 'onsumer protection Act, 1986, are sought to be promoted and a!ette e"empts any
protected by the 'onsumer (rotection 'ouncils established at the central and %tate levels. %. Quasi&'u(icia$ machiner) for spee() re(ressa$ of consumer (isputes: The Act also see+s to provide speedy and simple redressal to consumer disputes. .or this purpose, there has been set up a ,uasi*&udicial machinery at the district, state and central levels. These ,uasi*&udicial bodies are supposed to give reliefs of a specific nature, and also provide compensation to consumers whenever appropriate. /////////////////////////////////////////////////////////////////////////// !Q. Write a short note on onsumer *isputes +e(ressa$ A"encies? Ans: ,stab$ishment of
onsumer *isputes +e(ressa$ A"encies: -.ection 9/
'onsumer 0isputes -edressal Agencies have been established according to the section 9*12 under chapter 333, of the consumer protection Act, 1986. According to section 9, they have been established for the purpose of providing &ustice to the consumers. 3t can be established as agencies, they are follows)*
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126 1. onsumer *isputes +e(ressa$ 0orum: A consumer disputes redressal forum is also called as 40istrict
.orum5 established by the state government in each district of the state by notification. The state overnment may, if it deems fit, establish more then one 0istrict forum in a district. 3t has &urisdiction to entertain complaints where the value of the goods #or$ services and the compensations claimed does not e"ceed -s. 6 la+h. 2. onsumer *isputes +e(ressa$ ommission: 'onsumer 0isputes -edressal 'ommission it is also +nown as
the 4%tate commission5 established by the state government in the state by notification. 3t has &urisdiction to entertain complaints where the value of the goods #or$ services and compensation claimed e"ceeds 6 la+hs but does not e"ceed -s. 17 la+hs. 3. 1ationa$ onsumer *ispute +e(ressa$ ommission: 8ational 'onsumer 0ispute -edressal 'ommission it
is also called 48ational 'ommission5 established by the central government by notification. 3t has &urisdiction to entertain complaints where the value of the goods #or$ services and compensation claimed e"ceeds 17 la+hs. /////////////////////////////////////////////////////////////////////////
#Q. What is juris(iction of a consumer *isputes +e(ressa$ 0orum -the (istrict forum/? 2n 3hat manner is a comp$aint fi$e( before it? What proce(ure is fo$$o3e( b) it after recei4in" a comp$aint? Ans: The 40istrict .orum5 #or$ consumer 0isputes -edressal .orum is one of the 'onsumer 0isputes -edressal agency dealt under section 17 to 16. 9ach 0istrict forum consists of:* a$ A person who is, or has been, or is ,ualified to be a district &udge, who shall be its president. b$ 1 other members who shall be persons of ability, integrity and standing, and have the ade,uate +nowledge #or$ e"perience of, #or$ have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs #or$ administration, one of who shall be a women. h !:""###.$% &'h(.#&)'.c*$
12+ ;owever, every appointment shall be made by the state government on the recommendation of a selection committee consisting of)* 1. The president of the state commission #i.e.., chairman$, 1. %ecretary, <aw department of the state #i.e.., member$, =. %ecretary in charge of the 0epartment with consumer affairs in the state #i.e., member$ 9very member of the 0istrict forum shall hold office for a term of 6 years #or$ up to the age of 66 years, whichever is earlier. ;e shall not be eligible for re*appointment. 'uris(iction: According to the section 11, The 0istrict .orum shall have &urisdiction to entertain complaints where the value of the goods #or$ services and the compensation, if any, claimed does not e"ceed -s. 6 la+hs. This is however sub&ect to other provisions of the Act. A complaint shall be instituted in a 0istrict .orum within the local limits of whose &urisdiction:* a$ The opposite parties where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides #or$ carries on business #or$ has a branch office, #or$ personally wor+s for gain, #or$ )) Any of the opposite parties, where there are more then one, at the time of the institution of the complaint, actually and voluntary resides #or$ carries on business #or$ has a branch office, #or$ personally wor+s for gain. >ut in such a case either the permission of the 0istrict .orum is given, #or$ the opposite parties who do not reside, #or$ carry on business #or$ have a branch office, #or$ personally wor+s for gain, as the case may be, must ac,uiesce in such institution: #or$ c$ The cause of auction, wholly #or$ part, arises. 5anner: According to section 11, a complaint, in relation to any goods sold #or$ delivered #or$ agreed to be sold #or$ delivered #or$ any service provided #or$ agreed to be provided, may be filed with a 0istrict forum by)* a$ The consumer to whom such goods sold #or$ delivered #or$ agreed to be sold #or$ delivered #or$ such service provided #or$ agreed to be provided. a$ Any recogni!ed consumer association, whether the consumer to whom such goods sold #or$ delivered #or$ agreed to be sold #or$ delivered #or$ such service provided #or$ agreed to be provided is a member of such association #or$ not: #or$ b$ The central #or$ the state governments. Proce(ure: The procedure on complaint of goods may be of two types) #a$ 'omplaint relating to goods. #b$ 'omplaint relating to services. -a/ omp$aint re$atin" to "oo(s: The 0istrict forum shall, on receipt of a complaint, if it relates to any goods, refer a copy of complaint to the opposite party mentioned in the complaint. .urther it shall direct the opposite party to give his version of the case with in a period of =7 days. This period may be e"tended by a further period not e"ceeding 16 days as may be granted by the 0istrict .orum. h !:""###.$% &'h(.#&)'.c*$
128 ?here the opposite party on receipt of a complaint referred to him denies #or$ disputes the allegations contained in the complaint, #or$ omits #or$ fails to ta+e any action to represent his case within the time given by the 0istrict .orum, the 0istrict .orum shall proceed to settle the consumer dispute in the following manner)* 1. The district forum shall obtain a sample of goods from the complainant, seal it and refer the sample so sealed to the laboratory for test. The test be made with a view to finding out weather such goods from any defect alleged in the complaint #or$ suffer from any other defect. The report will be given to the district forum with in @6 days of the receipt of the reference. 1. >efore any sample of the goods referred to any appropriate laboratory for test, the 0istrict forum may re,uire the complainant to deposit to the credit of the forum for carrying out the necessary analysis #or$ test in relation to the goods and such fees as may be specified by the 0istrict .orum. ,. The 0istrict .orum shall remit the amount of fee deposited to its credit to the appropriate laboratory for to carry out the test. On receipt of a report from the laboratory, the 0istrict .orum shall forward a copy of the report along with such remar+s as the 0istrict forum may fell appropriate to the opposite party. @. 3f any parties of disputes the correctness of the findings of the appropriate laboratory, #or$ disputes the correctness of the methods of analysis #or$ test adopted by the appropriate laboratory, the 0istrict forum shall re,uire the opposite party #or$ the complainant to submit in writing his ob&ections in regard to report made by the appropriate laboratory. 5. The 0istrict .orum shall give a reasonable opportunity to the complainant as well as opposite party of being heard as to the correctness #or$ otherwise of the report made by the appropriate laboratory and also as to the report made in relation thereto. Thereafter, it shall issue an appropriate order under section 1@. -b/ omp$aint re$atin" to ser4ices: 3f the complaint received by the 0istrict forum relating to the services, then the
0istrict forum shall refer a copy of such complaint to the opposite party directing to give his version of the case with in a period of =7 days #or$ such e"tended period not e"ceeding 16 days as may be granted by the 0istrict .orum. ?here the opposite party on receipt of a complaint referred to him denies #or$ disputes the allegations contained in the complaint, #or$ omits #or$ fails to ta+e any action to represent his case within the time given by the 0istrict .orum, the 0istrict .orum shall proceed to settle the consumer dispute in the following manner)* 1. On the basis of evidence brought to its notice by the complainant and the opposite party, where the opposite party disputes the allegations contained in the complaint. #or$ 2. On the basis of evidence brought to its notice by the complainant where the opposite party omits #or$ fails to ta+e any action to represent his case within the time given by the 0istrict .orum. The proceedings complying with the procedure laid down above cannot be called in ,uestion in any court on the ground that the principles of nature &ustice have not been complied with.
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129
%Q. Write a short note on consumer *isputes +e(ressa$ commission -the .tate composition, 'uris(iction an( proce(ure is to be fo$$o3e( b) it.
ommission/ as to its
Ans: The 4%tate 'ommission5 #or$ consumer 0isputes -edressal 'ommission is one of the 'onsumer 0isputes -edressal agency dealt under section 16 to 19. 9ach %tate 'ommission consists of:* a$ A person who is, or has been a &udge of ;igh 'ourt, appointed by the state government, who shall be its president. b$ 1 other members who shall be persons of ability, integrity and standing, and have the ade,uate +nowledge #or$ e"perience of, #or$ have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs #or$ administration, one of who shall be a women. ;owever, every appointment shall be made by the state government on the recommendation of a selection committee consisting of)* 1. The president of the state commission #i.e.., chairman$, 1. %ecretary, <aw department of the state #i.e.., member$, =. %ecretary in charge of the 0epartment with consumer affairs in the state #i.e., member$ 9very member of the 0istrict forum shall hold office for a term of 6 years #or$ up to the age of 62 years, whichever is earlier. ;e shall not be eligible for re*appointment. 'uris(iction: According to the section 12, The %tate 'ommission shall have &urisdiction)* -) To entertain complaints where the value of the goods #or$ services and the compensation, if any, claimed does not e"ceed -s. 6 la+hs but does not e"ceed -s. 17 la+hs : and b$ Appeal against the orders of any district forum within the state. c) To call for records and pass appropriate orders in any consumer dispute which is pending before #or$ has been decided by any district forum which the state where it appears to the state commission that such district forum has e"ercised a &urisdiction not vested in it by law #or$ has failed to e"ercise its &urisdiction so vested #or$ has acted in e"ercise of its &urisdiction illegally #or$ with material irregularity. d$ The &urisdiction of the state commission shall be sub&ect to other provisions of the Act. Proce(ure: According to the section 18, the provisions of the section 11, 1=, A 1@ the rules made there under for the disposal of complaints by the district forum with such modifications as may be necessary be applicable to the disposal of the disputes by the state commission. h !:""###.$% &'h(.#&)'.c*$
1,. Appea$: According to section 19, any person aggrieved by an order made by the state commission may prefer and appeal against such orders to the national 'ommission with in a period of =7 days from the date of order. The national commission may entertain and appeal after the e"piry of this period of =7 days if it is satisfied that there was sufficient cause for not filling the appeal within that period. 6Q.What is the composition of the 1ationa$ onsumer *isputes +e(ressa$ ommission -the nationa$
ommission/? What is the juris(iction an( 3hat is the proce(ure app$icab$e to it? Ans: The 48ational 'ommission5 #or$ 8ational consumer 0isputes -edressal 'ommission is one of the 'onsumer 0isputes -edressal agency dealt under section 16 to 19. 9ach 8ational 'ommission consists of:* -) A person who is, or has been a &udge of %upreme 'ourt, appointed by the 'entral government, who shall be its president. )) @ other members who shall be persons of ability, integrity and standing, and have the ade,uate +nowledge #or$ e"perience of, #or$ have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs #or$ administration, one of who shall be a women. ;owever, every appointment shall be made by the 'entral government on the recommendation of a selection committee consisting of)* 1. A person who is a &udge of the supreme court, to be nominated by the chief &ustice of 3ndia #i.e.., chairman$, 1. %ecretary, <aw department of the state #i.e.., member$, =. %ecretary in charge of the 0epartment with consumer affairs in the state #i.e., member$ 9very member of the 0istrict forum shall hold office for a term of 6 years #or$ up to the age of 27 years, whichever is earlier. ;e shall not be eligible for re*appointment. 'uris(iction: According to the section 11, The 8ational 'ommission shall have &urisdiction)* a$ To entertain complaints where the value of the goods #or$ services and the compensation, if any, claimed does not e"ceed -s. 17 la+hs : and )) Appeal against the orders of any %tate 'ommission. c) To call for records and pass appropriate orders in any consumer dispute which is pending before #or$ has been decided by any state 'ommission where it appears to the 8ational commission that such %tate 'ommission. ;ad e"ercised a &urisdiction not vested in it by law #or$ has failed to e"ercise its &urisdiction so vested #or$ has acted in e"ercise of its &urisdiction illegally #or$ with material irregularity. Proce(ure: According to %ection 11, the 8ational 'ommission shall, in the disposal of any complaints #or$ any proceedings before it, have 1. The power of civil court as specified in section 1=.
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1,1 1. The power to issue an order to the opposite party directing him to do any #or$ more of the things referred to in section 1@ The national commission shall follow such procedure as may be prescribed by the 'entral overnment. Appeal) According to section 1=, any person aggrieved by an order made by the 8ational commission in e"ercise of its powers, may prefer and appeal against such orders to the %upreme 'ourt with in a period of =7 days from the date of order. The %upreme 'ourt may entertain and appeal after the e"piry of this period of =7 days if it is satisfied that there was sufficient cause for not filling the appeal within that period. 6Q. 7nfair 8ra(e Practices. Ans) According to section 1#1$#r$, it means a trade practice which a trader, for the purpose of promoting the sales #or$ supply #or$ use of any goods #or$ for the provision of nay service, adopts any unfair method #or$ unfair #or$ deceptive practice. 3t includes any of the following practices. 1. The practice of ma+ing any statement whether orally #or$ in writing #or$ by visible representation which)* -) .alsely represents that the goods are of a particular standard, ,uantity, ,uality #or$ grade composition, style #or$ model. )) .alsely represents that the services are of a particular standard, ,uality #or$ grade. c$ .alsely represents any re*build, second hand, renovated, reconditioned #or$ old goods as new goods. d) -epresent that the goods #or$ services have sponsorship, approval, performance, characteristics, accessories, uses #or$ benefits which such goods #or$ services do not have: e$ -epresents that the seller #or$ the supplier has a sponsorship #or$ approval #or$ affiliation of which such seller of supplier does not have. f$ Ba+es a false #or$ misleading representation concerning the need for #or$ the usefulness of any goods #or$ services. g$ ives to the public any warranty #or$ guarantee of the performance, efficacy #or$ length of life of a product #or$ of any goods that is not based on an ade,uate of proper test thereof. h) Ba+es to the public a representation in a form that purports to be a warranty #or$ guarantee of a product #or$ any goods #or$ services #or$ a promise to replace, maintain #or$ repair an article #or$ any part thereof #or$ to repeat #or$ continue a service until it has achieved a specific result, if such purported warranty #or$ guarantee #or$ promise is materially mis*leading #or$ if there is no reasonable prospect that such warranty #or$ guarantee #or$ promise will be carried out. i$ Baterially mis*leading the public concerning the price at which a product #or$ goods #or$ services, have been #or$ ordinarily sold #or$ provided.
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1,2 &$ ives false statement #or$ mis*leading facts disparaging the goods, services #or$ trade of another person.
1. permits the publication of any advertisement whether in any newspaper #or$ otherwise, for the sale #or$ supply at a bargain price, of goods #or$ services that are not intended to be offerer for sale #or$ supply at the bargain price, #or$ for a period that is, and in ,uantities that are reasonable, having regard to the nature of the mar+et in which the business is carried on, the nature and si!e of business of the advertisement.
E''&/ %-0 c*$$*d% %&' Ac , 1955

9Q What is the object of the essentia$ commo(ities act 1966? 2n(emnif) the commo(ities 3hich ha4e been specifie( as essentia$ commo(ities un(er the essentia$ commo(ities act? Ans: 2ntro(uction: 3ndia started facing severe shortages of many commodities particularly before and during the %econd ?orld ?ar. The government of 3ndia therefore made a certain rules to control production, supply and distribution of certain items under defense of 3ndia act. These rules continued to apply up to 19@6 when essential supplies #temporary power$ Act, 19@6 was passed. This act was of temporary nature which lasted up to 16 th Canuary 196=. %ince shortages continued, it was felt that a permanent measure for the control of essential commodities is necessary. ;ence, the essentials commodities act, 1966 was passed which came into force on 1st, April 1966.
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1,, Objecti4e of essentia$ commo(ities Act, 1966: The ob&ect of the act is to provide, in the interest of the general public, for the control of production, supply and distribution of, and trade and commerce in certain commodities which specified in the act to be essential commodities. Another ob&ect of the act is to chec+ the inflationary trends in prices to ensure e,uitable distribution of essential commodities. %ection 1#a$ states the following are essential commodities, they are follows)* 1. 'attle fodder introducing oil ca+es and other concentrates. 1. 'oal, including co+e and other derivatives. =. 'omponents parts and accessories of automobiles. @. 'otton and wooden te"tiles. 6. 0rugs. 6. .ood stuffs including edible oil seeds and oils. 2. 3ron and steel, including manufactured products of iron and steel. 8. (aper including newsprint, paper board and straw board. 9. (etroleum and petroleum products. 17. -aw cotton, whether ginned #or$ unginned and cotton seeds. 11. -aw &ute. 11. Any other class of commodities which the central government may by notified order declares to be an essential commodity. //////////////////////////////////////////////////////////////// 8Q onfiscation of ,ssentia$ commo(ities Act, 1966. Ans: According to section 6#a$, an essential commodities may be sei!ed in pursuance of an order made under section =, where any such sei!ure ta+es place, a report of such sei!ure shall without un*reasonable delay he made to the collector of the district #or$ the presidency to run, in which such essential commodities is sei!ed. The collector districts, the essential commodities, so sei!ed to be produced for inspection before him, for that if the collector is satisfied their has been contravention of the order. Therefore he may order for confiscation of 1. The essential commodities so sei!ed. 1. Any pac+age covering in which such essential commodity is found. =. Any animal, vehicle #or$ other conveyance used in carrying such essential commodities. >ut according to section 6#a$ no food grains #or$ edible oils sei!ed in pursuance of an order made under section =, shall be confiscated on receiving a report of sei!ure #or$ an inspection of any essential commodities is sub&ect to speedy and natural decay, in such case he may)* h !:""###.$% &'h(.#&)'.c*$
1,4 1. Order the essential commodities to be sold at the controlled price. 1. ?here no such price is fined order the same to be sold by public auction. 3f the retail sale price of any essential commodity has been fined by the central government #or$ a state government under this act, #or$ under any other act, for the time being in force. The collector may for its e,uitable distribution and availability at fair price order the same to be sold to fair price shops at the price so fined. ?here any essential commodities is sold, the sale proceeds after the deduction of the e"penses of any such sale #or$ auction #or$ other owner #or$ the person from whom it is sei!ed the refund shall be made where no order of confiscation is passed by the collector where an order an appeal. %o, re,uires where in prosecution instituted for the contravention of the order shall be paid to the owner. Any person aggrieved by order of confiscation under section 6#a$ within one month from the date of an order of confiscation appeared to the state government. %o, concerned the state government after giving an opportunity to the applicant to be heard pass such order which it may thin+ fit. The award of any confiscation shall not prevent the inspection of any punishment to which the person effects their by is liable under the act. The power &urisdiction is available to the collector #or$ the state government not with standing anything to the contrary contain in any other law for the time being enforce and any court, tribunal #or$ other authority shall not have such power.
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138
5-UNIT: - COMPANY LAW (PART - I) 1Q. Define a company. Explain the characteristics features of a company?
Ans: According to section 3(1)(i) of the companies Act, 1956, A company means formed and registered under this Act, (or) an existing company. Definition: A company is a o!untary association of persons registered under the companies Act,1956 formed for some common purpose, "ith capita! di isi#!e into parts, $no"n as shares, and "ith a !imited !ia#i!ity. %t is a creation of !a" and it sometimes $no"n as artificia! person "ith a perpectua! succession and a common sea!. LINDLEY DE!INI"I#N: According to LINDLEY.L.$ a company is defined as &an association of many persons "ho contri#ute money (or) moneys "orth to a common stoc$, and emp!oy it in some common trade (or) #usiness (i.e., for a common purpose), and "ho share the profit and !oss arising therefrom. 'he common stoc$ so contri#uted is denoted in money and is the capita! of money. 'he persons "ho contri#ute it, (or) to "hom it #e!ongs, are mem#ers. 'he proportion of capita! to "hich each mem#er is entit!ed is his share. (hares are a!"ays transfera#!e a!though the right to transfer them is often more (or) !ess restricted). *n incorporation a company #ecomes a #ody corporate (or) a corporation "ith a perpectua! succession and a common sea!. %t a!so ac+uires a persona!ity distinct from its mem#ers. %haracteristic features of a company: 1. eparate le&al entity: A company is regarded as a separate !ega! entity from its mem#ers. %n other "ords, it has an independent existence. 'he mem#ers of a company are not !ia#!e for the acts of the company e en if he ho!ds irtua!!y the entire share capita!. 'he companys money and property #e!ong to the company and not to the share ho!ders. Example: alomon '(s) alomon * %o.Lt+ '1,-.): !acts: ( so!d his #oot #usiness to a ne"!y formed company for daughter and four sons too$ up one share of ,
3---- (pounds). .is "ife, one
1 (pound) each. ( too$ /3--- shares of , 1 (pound)
each and de#entures of , 1---- (pounds) in the company. 'he de#entures ga e ( a charge o er the assets of the company as the consideration for the transfer of the #usiness. (u#se+uent!y "hen a company "as "ound up, its assets "ere found to #e "orth amounted to and
6--- (pounds) and its !ia#i!ities
, 10--- (pounds) of "hich , 1---- (pounds) "ere due to ( (secured #y de#entures)
0--- (pounds) due to unsecured creditors. 'he unsecured creditors c!aimed that ( and the
company "ere one and the same person and that the company "as a mere agent for ( and hence they shou!d #e paid in priority, to (.
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13% $u+&ment: %t "as he!d #y the court that the company "as du!y incorporated it #ecame, in the eyes of !a", a separate person independent from ( and "as his agent. A!though ( "as irtua!!y the ho!der of a!! the shares in the company yet he "as a!so a creditor secured #y it de#entures and "as therefore entit!ed to repayment in priority to the unsecured creditors. /. Limite+ lia0ility: A company may #e a !imited #y shares (or) !imited #y guarantee. %f a company !imited #y shares, the !ia#i!ity of mem#ers is !imited to the unpaid a!ue of shares. %f a company !imited #y guarantee, the !ia#i!ity of mem#ers is !imited to such amount as the mem#ers may underta$e to contri#ute to the assets of the company in the e ent of the "inding up. 1. 2erpectual succession: A company is a 1uristic person and its !ife does not depend on the !ife of its mem#ers. %t is created #y a process of !a" and !a" a!one can disso! e it. 'hus, mem#ers may come and mem#ers may go, #ut the company goes on for e er. A!so, changes in the name of the company (or) con ersion of the companies "i!! not affect the !ega! status (or) !ife of the company. 3. %ommon seal: 2 ery company must ha e its o"n common sea! "ith its name engra ed on it. As the company has no physica! existence, it must act through its agents and a!! such contracts entered into #y its agents must under the sea! of the company. %t acts as the officia! signature of the company. 4. "ransfera0ility of shares: 'he capita! of a company di ided into parts, ca!!ed shares. 'here shares are mo a#!e property and can #e transferred from one person to another in the manner pro ided in the artic!es. 5. eparate property: A company is a !ega! person distinct from its mem#ers. %t is, therefore, capa#!e of o"ing, en1oying and disposing of property in its o"n name. 'hus, the company is a rea! person in "hich a!! its property is ested and #y "hich it is contro!!ed, managed and disposed of. .. %apacity to sue: A company can sue and #e sued in its corporate name. it may a!so inf!ict (or) suffer "rongs. ,. hare capital: 'he share capita! of a company is a!"ays di ided into certain num#er of shares, each ha ing specified nomina! a!ue. 'he concept of share capita! ena#!es the in estor to participate in the o"nership of the company. 'hus, the share capita! ena#!es the company to mo#i!i3e huge capita! out!ay from !a$hs of in estors, "hich "ou!d not #e possi#!e in any other from of #usiness. -. 6oluntary association: 'he o#1ect of a company cou!d #e for #usiness (or) e en for non4#usiness purpose. 'hus, association not for profit can a!so #e registered as a company under section /5 of the companies Act, 1956. 'he "ord person inc!udes #oth natura! person and !ega! person.
/Q. 7hat is a corporate (eil? 7hen it is pierce+? Ans: A company is a !ega! person distinct from its mem#ers and en1oys the pri i!eges of !imited !ia#i!ity, perpectua! succession, corporate persona!ity etc.., ho"e er in certain circumstances, this
1&' corporate ei! has #een pierced to !oo$ #ehind the corporate entity and ta$e action, as if the company and mem#ers are one and the same. %t "ou!d amount to piercing of corporate ei! in any one of the fo!!o"ing circumstances54 1. 6hen the !ia#i!ity of the mem#ers of a !imited company are made un!imited. /. 6hen the directors of the company are made persona!!y !ia#!e for the acts done #y them on #eha!f of the company. 3. 6hen the !ega! entity concept is discharged remo ing the separate existence of the company from that of its mem#ers. 'hus, !ifting of corporate ei! cou!d #e statutory (or) 1udicia!. Exceptions: 4 'he fo!!o"ing are the arious cases in "hich corporate ei! has #een !ifted are as fo!!o"s5 1. 2rotection of re(enue: 'he courts may ignore the corporate entity of a company "here it is used for tax e asion (or) to circum ent tax o#!igation. Example: ir Din ha8 9anec:;ee 2etit '1-/.): !acts: 7, an assesses. 6ho "as recei ing huge di idend and interest income, transferred his in estments to 8 pri ate companies formed for the purpose of reducing his tax !ia#i!ity. 'hese companies transferred the income to 7 as a pretended !oan. $u+&ment: 'hese companies are formed #y 7 pure!y and simp!y as a means of a oiding tax o#!igation and the companies "ere nothing more than the assesse himse!f. 'hey dis no #usiness #ut "ere created simp!y as !ega! entities to ostensi#!y recei e the di idends and interest and to hando er them to 7 as pretended !oans. /. A(oi+ance of 8elfare le&islation: %f the purpose of formation of the company "as to a oid "e!fare !egis!ation it means to protect the interest of the "or$ers. %n such a case it is the duty of the court to get #ehind the smo$e screen and disco er the true state of affairs. 1. 2re(ention of frau+ 'or) improper con+uct 'or) %ommission of frau+: 'he !ega! persona!ity of a company may a!so #e discharged in the interest of 1ustice "here the machinery of incorporation has #een used for some fraudu!ent purpose !i$e defrauding creditors (or) defeating (or) circum enting !a" in such a case the court !ifted the ei! to too$ into the rea!ities of the situation. Example: $ones '(s) Lipman '1-5/): !acts: , agreed to se!! a certain !and to 9 for , 5/5- (pounds). .e su#se+uent!y changed his mind and to a oid the specific performance of the contract, he so!d it to a company "hich "as formed specifica!!y for the purpose. 'he company has , and a c!er$ of his so!icitors as the on!y mem#ers. 9 #rought on action for the specific performance against , and the company. $u+&ment: 'he court !oo$ed to the rea!ity of the situation and he!d that , must comp!ete the contract of sa!e, disregarding the !ega! entity of the company. 3. Determination of a character of a company 8hether it is enemy: A company may assume an enemy character "hen persons in de4facto (in actua! fact, rea!) contro! of its affairs are residents in an enemy country. %n such a case the court may examine the character of persons in rea! contro! of the company, and dec!are the company to #e an enemy company. Example: Daimler %o.Lt+ '(s) %ontinental tyre * ru00er %o.Lt+ '1-15):
1&1 !acts: A company "as incorporated 2ng!and for the purpose of se!!ing in 2ng!and 'yres made in :ermany #y a :ermany company "hich he!d the #u!$ of shares in the 2ng!ish company. 'he remaining shareho!ders, except one, and a!! the directors "ere :erman residents. 7uring the ;irst 6or!d 6ar the 2ng!ish company commenced an action for reco ery of a trade de#t. $u+&ment: 'he <ompany "as a a!ien company and the payment of de#t to it "ou!d amount to trading "ith the enemy, and therefore the company "as not a!!o"ed to proceed "ith the action. 4. %ompany a(oi+in& le&al o0li&ation: 6here the use of an incorporated company is #eing made to a oid !ega! o#!igation, the court "i!! disregards the !ega! persona!ity of the company. 5. 7here the company is a sham: 'he court a!so !ifts the ei! "here a company is a mere c!oa$ (or) sham. Example: <ilfor+ 9otor %o.Lt+ '(s) =orne '1-11): !acts: home, a former emp!oyee of a company, "as su#1ect to a co enant not to so!icit its customers. .e forms a company to carry on a #usiness "hich, if he had done so persona!!y, "ou!d ha e #een a #reach of the agreement. $u+&ment: An in1unction "as granted against #oth him and the company to restrain them from carrying on the #usiness. 'he company "as descri#ed in this 1udgment as a de ice, a stratagem and as a mere c!oa$ (or) sham for the purpose of ena#!ing the defendant to commit a #reach of his co enant against so!icitation. .. %ompany actin& as an a&ent of the sharehol+ers: 6here a company is acting as an agent (or) trustee of the shareho!ders, the shareho!ders "i!! #e !ia#!e for the acts of the company. ,. 2rotectin& pu0lic policy: 6here the doctrine of corporate ei! conf!icts "ith the pu#!ic po!icy, the court !ift the corporate ei! for protecting the pu#!ic po!icy.
1Q. Explain the +ifferences 0et8een a company an+ partnership? Ans: 'he princip!e differences #et"een a company and a partnership are as fo!!o"s54
Difference
>e&ulation Act
%ompany %t is regu!ated #y companies Act, 1956.
2artnership %t is regu!ated #y the %ndian partnership Act, 193/.
9o+e of creation.
%t comes into existence after registration =egistration is not compu!sory in case of under the companies Act, 1956. partnership.
Le&al status:
A company is a separate !ega! entity distinct A partnership firm has no existence apart from its mem#ers. (2x5 (a!mon s sa!mon from its mem#ers. <o.,td).
#8nership
'he property of a company #e!ongs to the 'he property of a partnership firm is the 1oint company and not to its indi idua! mem#ers. property of the partners "ho are co!!ecti e!y entit!ed to it.
1&(
Lia0ility of mem0ers
,ia#i!ity of a mem#er of !imited company is ,ia#i!ity of a partner is un!imited, (i.e.., e en !imited to unpaid a!ue on shares he!d (or) his o"n persona! assets are !ia#!e for the the amount of guarantee as mentioned in the memorandum of association. de#ts of the firm).
9ana&ement
'he affairs of the company are managed #y 2 ery mem#er of a partnership firm may its directors, (or) managing directors (or) ta$e part in its management un!ess the managers, and its mem#ers ha e no right to partnership agreement pro ides other"ise. ta$e part in the management.
"ransfera0ility shares
of
shareho!der,
su#1ect
to
restrictions A partner cannot transfer his interest "ithout
contained in the Artic!es, can free!y transfer the consent of a!! other partners. his share.
Authority of mem0ers.
A share ho!der is not an agent of the 2ach partner is an agent of the partnership company and has no po"er to #ind the firm to ma$e contract and to incur !ia#i!ities. company #y hid acts.
2o8ers
A company po"ers are !imited to those 2ach partnership firm can do any thing a!!o"ed #y the o#1ects c!ause in its memorandum of association. "hich the partners agreed to do and there is no !imit to its acti ities.
>estriction on po8ers.
Artic!es of association of company are =estrictions on the po"er of the particu!ar effecti e as against the pu#!ic, as it is a partner one. contained in the partnership pu#!ic document and can #e inspected #y any agreement "i!! not a ai! against outsiders.
Insol(ency of the firm
A company en1oys a perpectua! succession.
>n!ess there is a contract to the contrary,
7eath (or) retirement (or) inso! ency of a death, retirement (or) inso! ency of a partner mem#er does not affect the existence of the resu!ts in the disso!ution of the partnership company. firm. A partner "ho is o"ed money #y his firm compensation "ith its other creditors.
De0ts
%f a company o"es a de#t to any of its assets "hen it is "ound up.
mem#ers he can c!aim payment out of its cannot pro e against the firms assets in
1&3
9inimum mem0ership.
'he minimum num#er re+uired to form a 'he minimum num#er of persons re+uired to company is / in case if pri ate companies form a partnership firm is t"o. and 0 in case of pu#!ic company respecti e!y.
9aximum mem0ership.
'here is no !imit to the num#er of mem#ers A partnership cannot #e formed "ith persons in case of a pu#!ic !imited company. exceeding /-, the num#er is !imited to 1- in .o"e er, a pri ate company cannot ha e case of #an$ing companies. more then 5- mem#ers.
Au+it.
'he audit of the accounts of a company is 'he audit of the accounts of a firm is not o#!igatory, (i.e.., a !ega! necessity). compu!sory.
(PART -II)
3Q. 7ho is promoter? Discuss his le&al position in relation to a company 8hich he promotes? Ans: 'he promoter has not #een defined any "here under the <ompanies Act, 1956. 'he Act, on!y states that a promoter of the company sha!! a!so !ia#!e for mis4statement in the prospectus.
1&& 'herefore, from the functiona! point of ie", a promoter can #e defined as a person "ho does the necessary pre!iminary "or$ identica! to the formation of the company. 'he first persons "ho contro! a companys affairs are its promoters. !unctions of promoter: 'he fo!!o"ing are the functions of a promoter they are fo!!o"s5 (a) 6ho concei es the idea of #usiness. (#) *riginates the scheme for formation of the company. (c) 'a$es necessary steps to incorporate the company (d) ?ro ides initia! capita! or !oan funds. (e) 2nsures that the memorandum and artic!es are prepared, executed and registered. (f) 7ecides the first director of the company. (g) @a$es agreements for the preparation, ad ertisements and circu!ation of prospectus. (h) ;inds the #an$ers, #ro$ers and !ega! ad isor. 'hus, in fact promoter is one "ho #rings the company in to existence. Le&al status?position of a promoter: 'he statutory pro isions are si!ent regarding the !ega! status of a promoter. A promoter cannot #e an agent or trustee for the proposed company (or) company under incorporation. .o"e er, the !a" imposes certain duties, functions, responsi#i!ities and !ia#i!ities on a promoter "hich are &!i$e that of an agent or trustee) of a proposedAunder incorporation company. 'his position of the promoter &!i$e that of an agent or trustee) is ca!!ed the &fiduciary duties or fiduciary ro!e or fiduciary position) of a promoter. !i+uciary position of the promoter: 'he promoter stands in a fiduciary re!ation to the company "hich he promotes. 'hey are fo!!o"s54 '1)Not to ma:e any profit at the expense of the company: 'he promoter cannot ma$e any profit of the company he promotes either direct!y (or) indirect!y "ithout $no"!edge and the consent of the company. (imi!ar!y he is not a!!o"ed to dri e any profit from the sa!e of his o"n property to the company un!ess a!! materia! facts are disc!osed. %f any such secrete profits is io!ated to this ru!e, the company may compe! him to account for and surrender for such profits. '/) "o &i(e 0enefit of ne&otiations to the company: 'he promoter must gi e #enefit to the company of any contracts (or) negotiations enter into #y him in respect of the company. 'hus "here he purchases some property for the company and he cannot rightfu!!y se!! that property to the company, he may se!! at a higher price than he ga e for it. %f he does do, the company may on disco ering the fact, the company may ha e the fo!!o"ing remedies against such promoter54
1&5 a) =escind the contract and reco er the money if any a!ready paid on the transaction (or) #) =etain the property, pay the promoter on!y the cost a!ue and depri e him the profit,(or) c) 6here the a#o e remedies are inappropriate, the company may sue for misfeasance (i.e.., #reach of duty to disc!ose) Example: Erlan&er '(s) Ne8 om0rero 2hosphates %o.@ '1,.,): !acts: A (yndicate, of "hich 2 "as the head, purchased an is!and "ith a!ua#!e minera!s. 2, as promoter, so!d the is!and to a ne"!y formed company for the purpose of #uying it. A contact "as entered into #et"een B, a nominee of the (yndicate, and the company for purchase at dou#!e the price actua!!y paid #y 2. $u+&ment: %t "as he!d #y the court that as there had #een no disc!osure #y the promoters of the profit that "ere ma$ing, the company "as entit!ed to rescind the contract and to reco er the purchase money from 2 and the other mem#ers of the syndicate. '1) "o ma:e full +isclosure of interest an+ profits: if the promoter fai!s to disc!ose the re!e ant facts, the company may sue him for damages for #reach of his fiduciary duty and reco er them from him any secrete profit. %t is important to note that profit is permissi#!e, if fu!! disc!osure of the facts is gi en to the independent Coard of director (or) shareho!ders. '3) Not to ma:e unfair use of the position: 'he promoter must not ma$e an unfair (or) reasona#!e use of his position and must ta$e care to a oid anything "hich has the appearance of undue inf!uence (or) fraud.
4Q. 7hat +o you un+erstan+ 0y preliminary contracts? Explain the position of the promoters as re&ar+s to the preAincorporation contracts? Ans: 9eanin&: 'he promoters of a company usua!!y enter into contracts to ac+uire some property (or) right for the company "hich is yet to #e incorporated. (uch contracts are ca!!ed per4incorporation (or) pre!iminary contracts. %n other "ords, ?re!iminary contracts are those contracts made #y the promoters on #eha!f of the company #efore its incorporation. 2osition of the promoter as re&ar+s preliminary contracts: 'he promoters genera!!y enter into pre!iminary contracts as agents for the company "hich is yet to #e formed, #ut actua!!y a promoter cannot act as an agent to a company "hich is not at a!! in existence. .ence the company is not !ia#!e for the acts of the promoters done #efore its incorporation.
1&) '1) %ompany not 0oun+ 0y preliminary contract: A company, "hen it comes into existence, is not #ound #y a pre!iminary contract e en if the contract "as entered on #eha!f of the company, for the purpose of the company and for the #enefit of the company, such contracts "i!! not #ind the company. Example: En&lish * colonial pro+uce co.@ Lt+ '1-B5): !acts: A so!icitor prepared the @emorandum and Artic!es of Association of the company and paid the necessary registration fees and other incidenta! expenses to o#tain the registration of the company. .e did this on the instruction of certain persons "ho !ater #ecame directors of the company. $u+&ment: 'he <ompany "as not !ia#!e to pay the (o!icitors costs, a!though it has ta$en the #enefits of his "or$. (/) <ompany cannot enforce pre4incorporation contract5 2 en after incorporation of the company, it cannot enforce the contracts made (i.e.., pre!iminary contracts) #efore its incorporation. Example: Natal Lan+ %oloniCation %o.Lt+ '(s) 2auline %olliery yn+icate Lt+..@ '1-B3): !acts: 'he D <ompany agreed "ith an agent of the ? (yndicate ,td.., #efore its formation to grant a mining !ease to the (yndicate. 'he syndicate "as registered and disco ered a seam of coa!. 'he company refused to grant the !ease. $u+&ment: 'here "as no #inding contract #et"een the D company and the (yndicate. '1)2romoters personally lia0le: 'he promoters remain persona!!y !ia#!e on the contract made on #eha!f of a company #efore its incorporation. 'hus, the promoters a!one sha!! #e persona!!y !ia#!e for the pre!iminary contracts (i.e.., #efore its incorporation) entered on #eha!f of the company. Example: Delner '(s) Eaxter '1,55): !acts: A hote! company "as a#out to #e formed and persons responsi#!e for the ne" company signed an agreement on /0th 9anuary, 1E66, for the purpose of stoc$ on #eha!f of the proposed company, payment to #e made on /Eth 9anuary, 1E66. 'he company "as incorporated on /-th ;e#ruary, 1EE6. 'he goods "ere consumed in the #usiness and the company "ent into !i+uidation #efore the de#t "as paid. 'he persons signing the agreement "ere sued on the contract. $u+&ment: 'he persons signing "ere promoters and persona!!y !ia#!e on their signature. FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF 5Q. 7hat is a pri(ate company? 7hen +oes it 0ecome +eeme+ to 0ecome a pu0lic company? Ans: A pri ate company is norma!!y "hat the Americans ca!! a <!ose corporation. According to section 3(1)(iii) of the companies Act, 1956, a pri ate company means a company "ith a minimum paid4up capita! of 1,--,--- and "hich its #y artic!esF4
1&* a) #) =estricts the right to transfer its shares, if any5 ,imits the num#er of its mem#ers to 5- not inc!uding the emp!oyee mem#ers5 c) ?rohi#its any in itation (or) acceptance of deposits from persons other than its mem#ers, directors (or) their re!ati es5 d) ?rohi#its any in itation to the pu#!ic to su#scri#e for any shares in, (or) de#entures of the company. 'he a#o e 8 restricti e c!auses must #e specified in the artic!es of the pri ate company. 'hus, e ery pri ate company must ha e registered artic!es. 'here shou!d #e at!east t"o su#scri#ers to form a pri ate company. A!so it shou!d ha e at!east t"o directors. 'he "ord pri ate !imited must #e added at the end of the name of a pri ate company. 'he num#er of de#enture4ho!der may exceed 5- as there is no restriction on their num#er in the definition. A pri ate company must a!so ha e its o"n Artic!es of Association "hich contains a!! the conditions mentioned in the definition. 2ri(ile&es of a pri(ate company: A pri ate company a!so is #esto"ed "ith certain pri i!eges such as54 1) /) A pri ate company may ha e on!y / mem#ers. %t can a!!ot shares #efore the minimum su#scription for (or) paid.
3) ?rospectus (or) a statement in !ieu of prospectus is not re+uired to a!!ot shares (or) to issue a prospectus to the pu#!ic. 8) 5) 6) 0) E) 9) 1-) 11) %t need not ha e more then / directors. .o!ding of statutory meeting (or) fi!!ing of statutory report is not re+uired. A pri ate company may start its #usiness immediate!y on its incorporation. %t may issue any $ind of shares and a!!o" disproportionate oting rights. 'he directors can ote on a contract "hich they are interested. 'he ru!es regarding directors are !ess stringent. 7irectors need not retire #y rotation. 'he specia! notice of 18 days, for the appointment of a ne" director is not re+uired.
1/) 'he restrictions p!aced on a pu#!ic company ide section /93, of the ActF do not app!y to the pu#!ic company. 13) A !imit of manageria! remuneration does not app!y. 2roce+ure for con(ersion of a pri(ate company into pu0lic company: 1. %on(ersion 0y +efault :' ection 31) >nder section 83, of the companies Act, if a pri ate company fai!s to comp!y "ith any of the four restrictions pro ided under section 3(1)(iii) and app!ica#!e to pri ate
1&8 company, the company ceases to #e a pri ate company from the date of defau!t. %n such a case the fo!!o"ing "ou!d #e the conse+uences54 a) 'he company "i!! !ose a!! the pri i!eges and exemption conferred on it, #y the Act as a pri ate company. #) 'he officers in defau!t sha!! #e punisha#!e "ith prescri#ed fine. %f infringement "ere accidenta!, and if the company ,a" Coard is satisfied that it is 1ust and e+uita#!e to grant re!ief, it may re!ie e the company on such terms and conditions as seem to the company ,a" Coard 1ust, an app!ication from the company (or) any other person. '/) %on(ersion 0y operation of la8 '+eeme+ pu0lic company): ' ection 31AA) ?ri ate companies are exempted from the operation of se era! sections of the Act, under section 834A, a pri ate company #ecomes a pu#!ic company, $no"n as a deemed pu#!ic company. (Gno"n as deemed Hpu#!ic company)54 a) 6here at !east /5I of the paid4up share capita! of the pri ate company is he!d #y one (or)
more #ody corporate. ;or the purposes of section 834A(1), #ody4corporate means pu#!ic company (or) pri ate companies "hich had #ecome pu#!ic companies #y irtue of section 834A. #) 6here the a erage annua! turno er of pri ate company during the re!e ant period is =s.1-
crores (or) more. =e!e ant period means 3 consecuti e financia! years. c) 6here the pri ate company ho!ds not !ess than /5I of the paid4up share capita! of a pu#!ic
company, ha ing a share capita!. d) 6here a pri ate company in ites, accepts (or) rene"s deposits from the pu#!ic, such pri ate
companies #ecomes a deemed pu#!ic company from the date on "hich such in itation, acceptance (or) rene"a! as the case may #e, 6ith in 3 months from the date on "hich a pri ate company #ecomes a pu#!ic company, it sha!! inform the =egistrar that it has #ecome a pu#!ic company. 'here upon the =egistrar sha!! de!ete the "ord pri ate #efore the "ord ,imited in the name of the company. %t sha!! a!so ma$e the necessary a!ternations in the certificate of incorporation issued to the company and its @emorandum of Association. '1) %on(ersion 0y %hoice 'or) 6iolation: 'section 33) a) A pri ate company can #e con erted into a pu#!ic company #y amending the artic!es of
association to de!ete the four restricti e c!auses in its artic!es. #) c) <on ene the #oard meetings to discuss the proposed con ersion and a!so con ene the 2.:.@ At the 2.:.@., pass the fo!!o"ing specia! reso!utions54
1&% (i) 7e!eting the four restricti e c!auses pertaining to a pri ate company. (ii) Amending a!! those artic!es "hich are inconsistent "ith that of a pu#!ic company. d) e) ;i!e from no./3 "ith the =.*.<., "ith in 3- days of passing the specia! reso!ution. A prospectus as per (chedu!e %% (or) statement in !ieu of prospectus as per (chedu!e %J
shou!d #e fi!es "ith =.*.<., "ith in 3- days of passing the specia! reso!ution. f) %f the num#er of mem#ers #e!o" 0 steps shou!d #e ta$en to increase the mem#ers to at !east
0 either #y a!!otment of shares (or) registration of transfer done in a #oard meetings. (imi!ar!y the num#er of directors shou!d #e increased to at !east 3, if there are on!y / directors, #y appointing an additiona! director in the #oard meeting. A!so the paid4up capita! of the company shou!d #e increased #y 5 !a$hs, g) *#tain a fresh certificate of incorporation from =.*.<., conse+uent to con ersion of the
company into pu#!ic !imited. h) A!ter the regu!ations contained in the artic!es "hich are inconsistent "ith those of a pu#!ic
company. i) 'he company #ecomes a pu#!ic !imited from the date of passing the specia! reso!ution.
.o"e er the change of name #y de!eting the "ord pri ate "i!! ta$e effect on!y on issue of such fresh certificate #y =.*.<., KKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKK
.Q 7rite a short note on 2eels %ase. Ans: %ertificate of incorporation: 'section 14) A certificate of incorporation gi en #y the =egistrar in respect of a company (i.e.., =.*.<) is conc!usi e e idence that a!! the re+uirements of a companies Act ha e #een compi!ed "ith in respect of registration and nothing can #e in+uired into as to the regu!arity of the prior proceedings and the certificate cannot #e disputed on any grounds "hatsoe er. 'his is $no"n as =u!e in ?ea!s case. A pri ate company may commence #usiness immediate!y after incorporation once it has recei ed the certificate of incorporation. *n the other hand, a pu#!ic company can commence #usiness (or) exercise #orro"ing po"ers on!y after getting another certificate ca!!ed certificate of commencement of #usiness. 6hen once the @emorandum is registered and the company ho!ds out to the "or!d as a company underta$ing #usiness, "i!!ing to recei e shareho!ders and ready to contract engagements, then, it
15' "ou!d #e of the most disastrous conse+uences if after a!! that has #een done, any person "as a!!o"ed to go #ac$ and enter into an examination of the circumstances attending the origina! registration and the regu!arity of the execution of the documents Example: $u0ilee %otton 9ills Limite+ '(s) Le8is '1-/3): !acts: *n 9anuary 6th, the necessary documents "ere de!i ered to the =egistrar for registration. '"o days after, he issued the certificate of incorporation #ut dated it 6th 9anuary instead of Eth, (i.e.., the day on "hich the certificate "as issued. *n 6th 9anuary some shares "ere a!!otted to ,, (i.e.., #efore the certificate of incorporation "as issued). 'he +uestion arose "hether the a!!otment "as oid. $u+&ment: the certificate of incorporation is conc!usi e e idence of a!! that it contains. 'herefore, in !a" the company "as formed on 6th 9anuary and, therefore, the a!!otment "as a!id. 'he certificate of incorporation has #een he!d to #e conc!usi e on the fo!!o"ing points54 1) 'hat re+uirement of the Act in respect of registration of matters precedent and incidenta!
thereto ha e to comp!ied "ith. %f after the receipt of certificate of incorporation #y a company it is disco ered that there "ere certain irregu!arities "ith regard to its registration, these "i!! not affect the a!idity of the company. /) 'hat the association is a company authori3ed to #e registered under the Act, and has #een
du!y registered. 3) 'hat the date #orne #y the certificate of incorporation is the date of #irth of the company.
(i.e., the date on "hich company comes into existence. .o"e er a certificate of incorporation "i!! not !ega!i3e any i!!ega! o#1ect mentioned in the @emorandum. 'he certificate is on!y conc!usi e for the purpose of incorporation. 'hus, the a!idity of the certificate of incorporation cannot #e +uestioned after the issue of such certificate. Cut the position is firm!y esta#!ished that if a company is #orn, the on!y method to put an end to it is #y "inding up. ,Q. Discuss the +octrine of ultra (irus of a company@ the +irectors an+ the Articles? 7hat is the le&al effects of ultra (irus Acts? Ans: 9eanin&: A company has a po"er to do a!! things as are54 1. /. 3. authori3ed to #e done #y the companies Act, 1956. essentia! to attainment of its o#1ects specified in the memorandum5 reasona#!y and fair!y incidenta! to its o#1ects. 'he "ord >!tra means Ceyond and the "ord Jires means ?o"ers. 'hus, L>!tra Jires) means the doing of an act #eyond the !ega! po"ers and the authority of the company. 'he memorandum
151 of a company defines its po"ers. Any acti ity of a company #eyond its memorandum is, therefore, u!tra4 ires the company. 'he purpose of these restrictions is to protect54 1. %n estors in the company so that they may $no" the o#1ects to "hich their money is to #e
emp!oyed. /. <reditors #y ensuring that the companies fund are not "asted in unauthori3ed acti ities. %f an act is u!tra irus the company, it does not create any !ega! re!ationship. (uch an act is a#so!ute!y oid and e en the "ho!e #ody of shareho!ders cannot ratify it and ma$e it #inding on the company. Cut intra4 ires can #e ratified #y the shareho!ders #y passing a reso!ution in the genera! meeting. %t is not necessary that an act to #e considered u!tra ires must #e i!!ega!F it may (or) may not #e.
Example: Ash0ury >ail8ay %arria&e an+ Iron company Limite+ '(s) >iche '1,.4): !acts: A company "as incorporated "ith the fo!!o"ing o#1ects54 a) #) c) 'o ma$e, se!! (or) !end on hire, rai!"ay carriages and "agonsF 'o carry on the #usiness as @echanica! 2ngineers and :enera! contractors. 'o purchase, !ease, "or$ and se!! mines, minera!s, !and and #ui!dings. 'he directors of the company entered into an agreement "ith =iche for financing the construction of a rai!"ay in Ce!gium. 'he +uestion raised "as "eather that contract "as co ered "ithin the meaning of genera! contracts. $u+&ment: 'he court he!d that the contract "as u!tra4 ires the company and oid. (ince the
memorandum in p!ace of specifying the particu!ar $ind of #usiness "ou!d irtua!!y point to carrying on the #usiness of any $ind "hatsoe er and "ou!d #e unmeaning. 'herefore, the company cou!d not finance the construction of rai!"ay !ine #y a!!eging that such a #usiness fa!!s under the #usiness of genera! contractors. Effects of GltraA6ires transactions:4 1. 6oi+ an+ unenforcea0le: A contract of a company "hich is u!tra4 ires the company is Joid4a#4initio and it has no !ega! effect. /. No ratification: An >!tra4 ires transaction cannot #e ratified e en #y the "ho!e #ody of shareho!ders. 1. In;unction: @em#ers of a company are entit!ed to ho!d a company to its registered o#1ects #ecause, "hene er a company does (or) proposes to do something #eyond the scope of its acti ities (or) o#1ects are !aid do"n in the memorandum, any of its mem#ers can get an in1unction from the court for restraining the company from proceedings "ith u!tra4 ires Act. http://www.mite h!.we" .#$m
15( 3. 2ersonal lia0ility of Directors: Any mem#er of a company can maintain an action against the directors of the company to compe! them to restore to the company the funds of the company that ha e #een emp!oyed #y them in u!tra4 ires transactions. 4. Ereach of 8arranty of authority: 6hen an agent exceeds his authority, he his persona!!y !ia#!e for the #reach of "arranty of authority in a suit #y the third party. 5. GltraA6ires acHuire+ property: A!though u!tra4Jires transactions are oid, yet if a company has ac+uired some property under an u!tra4Jires transaction it has the right to ho!d that the property and protect it against damage #y other persons. Example: National "elephone %ompany Limite+ '(s) t. 2eter 2ort %onsta0les '1-BB): !acts: A te!ephone company put up te!ephone "ires in a certain area. 'he company had no po"er in the memorandum to put up "ires there. 'he defendants cut them do"n. $u+&ment: 'he <ompany cou!d sue for damage to the "ires. GltraA6ires the +irectors5 %f an act (or) transactions is u!tra4Jires the directors, (i.e.., #eyond the po"ers of the company), the shareho!ders can ratify it #y a reso!ution in the genera! meeting (or) e en #y ac+uiescence pro ided they ha e $no"!edge of the facts re!ating to the transaction to #e ratified. %f an act is "ithin the po"ers of the company, any irregu!arities may #e cured #y the consent of the shareho!ders. GltraA6ires the Articles: %f an act (or) transaction is >!tra4Jires the Artic!es, the company can ratify it #y a!tering the Artic!es #y a specia! reso!ution. Again if the act is done irregu!ar!y, it can #e a!idated #y the consent of the shareho!ders pro ided it is "ithin the po"ers of the company. FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF
(PART -IiI)
1BQ 7rite a short note on 2eels %ase. Ans: %ertificate of incorporation: 'section 14) A certificate of incorporation gi en #y the =egistrar in respect of a company (i.e.., =.*.<) is conc!usi e e idence that a!! the re+uirements of a companies Act ha e #een compi!ed "ith in respect of registration and nothing can #e in+uired into as to the regu!arity of the prior proceedings and the certificate cannot #e disputed on any grounds "hatsoe er. 'his is $no"n as =u!e in ?ea!s case. A pri ate company may commence #usiness immediate!y after incorporation once it has recei ed the certificate of incorporation. *n the other hand, a pu#!ic company can commence #usiness
153 (or) exercise #orro"ing po"ers on!y after getting another certificate ca!!ed certificate of commencement of #usiness. 6hen once the @emorandum is registered and the company ho!ds out to the "or!d as a company underta$ing #usiness, "i!!ing to recei e shareho!ders and ready to contract engagements, then, it "ou!d #e of the most disastrous conse+uences if after a!! that has #een done, any person "as a!!o"ed to go #ac$ and enter into an examination of the circumstances attending the origina! registration and the regu!arity of the execution of the documents Example: $u0ilee %otton 9ills Limite+ '(s) Le8is '1-/3): !acts: *n 9anuary 6th, the necessary documents "ere de!i ered to the =egistrar for registration. '"o days after, he issued the certificate of incorporation #ut dated it 6 th 9anuary instead of Eth, (i.e.., the day on "hich the certificate "as issued. *n 6th 9anuary some shares "ere a!!otted to ,, (i.e.., #efore the certificate of incorporation "as issued). 'he +uestion arose "hether the a!!otment "as oid. $u+&ment: the certificate of incorporation is conc!usi e e idence of a!! that it contains. 'herefore, in !a" the company "as formed on 6th 9anuary and, therefore, the a!!otment "as a!id. 'he certificate of incorporation has #een he!d to #e conc!usi e on the fo!!o"ing points54 8) 'hose re+uirements of the Act in respect of registration of matters precedent and incidenta! thereto ha e to comp!ied "ith. %f after the receipt of certificate of incorporation #y a company it is disco ered that there "ere certain irregu!arities "ith regard to its registration, these "i!! not affect the a!idity of the company. 5) 'hat the association is a company authori3ed to #e registered under the Act, and has #een du!y registered. 6) 'hat the date #orne #y the certificate of incorporation is the date of #irth of the company. (i.e., the date on "hich company comes into existence. .o"e er a certificate of incorporation "i!! not !ega!i3e any i!!ega! o#1ect mentioned in the @emorandum. 'he certificate is on!y conc!usi e for the purpose of incorporation. 'hus, the a!idity of the certificate of incorporation cannot #e +uestioned after the issue of such certificate. Cut the position is firm!y esta#!ished that if a company is #orn, the on!y method to put an end to it is #y "inding up.
11Q. Discuss the +octrine of ultra (irus of a company@ the +irectors an+ the Articles? 7hat is the le&al effects of ultra (irus Acts? Ans: 9eanin&: A company has a po"er to do a!! things as are54 8. authori3ed to #e done #y the companies Act, 1956. 5. essentia! to attainment of its o#1ects specified in the memorandum5 6. reasona#!y and fair!y incidenta! to its o#1ects.
15& 'he "ord >!tra means Ceyond and the "ord Jires means ?o"ers. 'hus, L>!tra Jires) means the doing of an act #eyond the !ega! po"ers and the authority of the company. 'he memorandum of a company defines its po"ers. Any acti ity of a company #eyond its memorandum is, therefore, u!tra4 ires the company. 'he purpose of these restrictions is to protect54 3. %n estors in the company so that they may $no" the o#1ects to "hich their money is to #e emp!oyed. 8. <reditors #y ensuring that the companies fund are not "asted in unauthori3ed acti ities. %f an act is u!tra irus the company, it does not create any !ega! re!ationship. (uch an act is a#so!ute!y oid and e en the "ho!e #ody of shareho!ders cannot ratify it and ma$e it #inding on the company. Cut intra4 ires can #e ratified #y the shareho!ders #y passing a reso!ution in the genera! meeting. %t is not necessary that an act to #e considered u!tra ires must #e i!!ega!F it may (or) may not #e. Example: Ash0ury >ail8ay %arria&e an+ Iron company Limite+ '(s) >iche '1,.4): !acts: A company "as incorporated "ith the fo!!o"ing o#1ects54 d) e) f) 'o ma$e, se!! (or) !end on hire, rai!"ay carriages and "agonsF 'o carry on the #usiness as @echanica! 2ngineers and :enera! contractors. 'o purchase, !ease, "or$ and se!! mines, minera!s, !and and #ui!dings. 'he directors of the company entered into an agreement "ith =iche for financing the construction of a rai!"ay in Ce!gium. 'he +uestion raised "as "eather that contract "as co ered "ithin the meaning of genera! contracts. $u+&ment: 'he court he!d that the contract "as u!tra4 ires the company and oid. (ince the
memorandum in p!ace of specifying the particu!ar $ind of #usiness "ou!d irtua!!y point to carrying on the #usiness of any $ind "hatsoe er and "ou!d #e unmeaning. 'herefore, the company cou!d not finance the construction of rai!"ay !ine #y a!!eging that such a #usiness fa!!s under the #usiness of genera! contractors.
Effects of GltraA6ires transactions:4 1. 6oi+ an+ unenforcea0le: A contract of a company "hich is u!tra4 ires the company is Joid4a#4 initio and it has no !ega! effect. /. No ratification: shareho!ders. An >!tra4 ires transaction cannot #e ratified e en #y the "ho!e #ody of
155 1. In;unction: @em#ers of a company are entit!ed to ho!d a company to its registered o#1ects #ecause, "hene er a company does (or) proposes to do something #eyond the scope of its acti ities (or) o#1ects are !aid do"n in the memorandum, any of its mem#ers can get an in1unction from the court for restraining the company from proceedings "ith u!tra4 ires Act. 3. 2ersonal lia0ility of Directors: Any mem#er of a company can maintain an action against the directors of the company to compe! them to restore to the company the funds of the company that ha e #een emp!oyed #y them in u!tra4 ires transactions. 4. Ereach of 8arranty of authority: 6hen an agent exceeds his authority, he his persona!!y !ia#!e for the #reach of "arranty of authority in a suit #y the third party. 5. GltraA6ires acHuire+ property: A!though u!tra4Jires transactions are oid, yet if a company has ac+uired some property under an u!tra4Jires transaction it has the right to ho!d that the property and protect it against damage #y other persons. Example: National "elephone %ompany Limite+ '(s) t. 2eter 2ort %onsta0les '1-BB): !acts: A te!ephone company put up te!ephone "ires in a certain area. 'he company had no po"er in the memorandum to put up "ires there. 'he defendants cut them do"n. $u+&ment: 'he <ompany cou!d sue for damage to the "ires. GltraA6ires the +irectors5 %f an act (or) transactions is u!tra4Jires the directors, (i.e.., #eyond the po"ers of the company), the shareho!ders can ratify it #y a reso!ution in the genera! meeting (or) e en #y ac+uiescence pro ided they ha e $no"!edge of the facts re!ating to the transaction to #e ratified. %f an act is "ithin the po"ers of the company, any irregu!arities may #e cured #y the consent of the shareho!ders. GltraA6ires the Articles: %f an act (or) transaction is >!tra4Jires the Artic!es, the company can ratify it #y a!tering the Artic!es #y a specia! reso!ution. Again if the act is done irregu!ar!y, it can #e a!idated #y the consent of the shareho!ders pro ided it is "ithin the po"ers of the company.
1/Q. Define +octrine of constructi(e notice. Discuss the scope of the +octrine of in+oor mana&ement. "o 8hat extent has the +octrine 0een incorporate+ in the companies Act@ 1-45? Ans: 9eanin&: *nce registered "ith the memorandum and artic!es it #ecome pu#!ic document and can #e inspected #y any person on payment of nomina! fees. 'herefore, e ery person dea!ing "ith the company is presumed to ha e read the memorandum and artic!es. ;urther it is presumed that he has understood the pro isions of memorandum and artic!es correct!y, not on!y the exact po"ers of the
15) company #ut a!so the extent to "hich the po"ers ha e #een de!egated to the directors and !imitations on such po"ers. 'his is $no"n as <onstructi e notice of memorandum and artic!es. Limitation: 'his doctrine of constructi e notice pre ents any person dea!ings "ith the company from a!!eging that he did not $no" the pro isions contained in the memorandum and artic!es of the company. 'hus, e ery outsider dea!ing "ith the company shou!d ensure that the company fo!!o"s its interna! procedures strict!y in accordance "ith the memorandum and artic!es. %f any contract is entered "ith the company in contra ention of these pro isions, such a contract is enforced against the company. 'hus, this doctrine protects the company against the outsiders. 'he !imitation of doctrine of constructi e notice is pro ed too incon enient for #usiness transactions and hindered the smooth f!oe of #usiness. %t "as rep!aced "ith the 7octrine of indoor management in 1E56 in the =oya! Critish Can$ ( s) 'ur+uand <ase. 'here fore it is a!so ca!!ed as ru!e in =oya! Critish Can$ ( s) 'ur+uand. Example: >#YAL E>I"I = EAND 6s. "G>QGAND: '1,45): !acts: 'he directors of a #an$ had issued #onds to '. 'hey had the po"er under the Artic!es to issue such #onds pro ided, they "ere authori3ed #y a reso!ution passed #y the shareho!ders at a genera! meeting of the company. Do such re+uired reso!ution "as passed #y the company. $u+&ment: ' cou!d reco er the amount of the #onds from the company on the ground that he "as entit!ed to assume that the reso!ution had #een passed. According to the 7octrine of indoor management any persons dea!ing "ith the companies !imited !ia#i!ity are not #ound to in+uire into the regu!arity of the interna! proceedings and "i!! not #e affected #y irregu!arities of "hich they had no notice. %t is #ased on pu#!ic con enience and 1ustice. 'hus, this doctrine of indoor management protects the outsiders against the company and ensures smooth f!o" of transactions. Exceptions to the Doctrine of in+oor mana&ement: 'he 7octrine of indoor management "i!! not protect outsider in the dea!ings "ith the company and the company "i!! not #e !ia#!e in the fo!!o"ing circumstances54 1. Dno8le+&e of irre&ularity: 6here a person dea!ing "ith a company has actua! or constructi e notice of the irregu!arity and "ant of authority as regards interna! management, in such a case he cannot c!aim the #enefit under the ru!e of indoor management. Example: ".>. 2ratt Lt+. (s. E.D. assoon * co. Lt+. '1-15):
15* !acts: <ompany A !ent money to <ompany C on a mortgage of its assets. 'he procedure !aid do"n in the Artic!es for such transactions "as not comp!ied "ith. 'he directors of the t"o companies "ere the same. $u+&ment: 'he !ender had notice of the irregu!arities and hence the mortgage "as not #inding. /. Ne&li&ence: 6here the outsider fai!s to ma$e the irregu!arity and proper in+uiries to satisfy himse!f as to the officers authority, in such a case he cannot c!aim the #enefit of the ru!e of indoor management. Example: E.Anan+ Eihari Lal (s. Din ha8 * %ompany 'Ean:ers) '1-3/): !acts: An accountant of a company transferred some property of a company in fa our of Anand Cihari. *n an auction #rought #y him for the #reach of contract. $u+&ment: 'he transfer "as oid as such a transaction "as apparent!y #eyond the scope of the accountants authority. 'he p!aintiff shou!d ha e seen the po"er of attorney executed in fa our of the accountant #y the company. 1. !or&ery: 'he ru!e in 'ur+uand case does not app!y "here an outsider re!ies (or) cheated upon a forged document, the company can ne er #e he!d #ound for forgeries committed #y its officers. Example: >u0en (s. <reat !in&all consoli+ate+ %o. '1-B5): !acts: 'he secretary of a company issued a share certificate under the companys sea! "ith his o"n signature and the signature of a director forged #y him. $u+&ment: 'he share certificate "as not #inding on the company. 'he person "ho ad anced money on the strength of this certificate "as not entit!ed to #e registered as ho!der of the shares.
3. Acts outsi+e the scope of apparent authority: %f an officer of a company enters into a contract "ith a third party and if the act of the officer is #eyond the scope of his authority, the company is not #ound. Example: Dre+it0an: %assel (s. chen:ers Lt+. '1-/.): !acts: A #ranch manager of a company dre" and indorsed #i!!s of exchange on #eha!f of the company. .e had no authority from the company to do so. $u+&ment: 'he <ompany "as not #ound. 4. 'he ru!e "i!! not app!y to transactions, "hich are i!!ega! (or) Joid4ad4initio.
158 5. 6here the outsider has not consu!ted the memorandum and artic!es and if the dea!ing "ith the company are contrary to the pro isions of these documents. %n such a case the company "i!! not #ound. 11Q. 7hat are the pro(isions of the companies Act@ for the pre(ention of oppression of the minority sharehol+ers an+ 9ismana&ement of a company? Ans: 'he *ppression of minority or @ismanagement of a company #y @a1ority ca!!s for some remedia! action. %n such a case, the minority shareho!ders may app!y to 'he tri#una! for the "inding up of the company on the ground that it is 1ust and e+uita#!e to do so. 'he tri#una! for appropriate re!ief. 'he <entra! :o ernment for appropriate re!ief. 2re(ention of #ppression: (ec 390 pro ides that a re+uisite num#er of mem#ers of a company "ho comp!ain that the affairs of the company are #eing conducted in a manner pre1udicia! to the pu#!ic interest or in a manner oppressi e, to any mem#er or mem#ers, may app!y to the 'ri#una! for appropriate re!ief. *ppression must #e of such a nature as "e!! ma$e it 1ust and e+uita#!e for the 'ri#una! to "ind up the company. 'he 'ri#una! may a!so gi e re!ief if it is of the opinion that54 %. 'he companys affairs are #eing conducted in a manner pre1udicia! to pu#!ic interest in a manner oppressi e to any mem#er or mem#ers. %%. 'he facts 1ustify the compu!sory "inding up order on the ground that it is 1ust and e+uita#!e that the company shou!d #e "ound up. *n #eing satisfied a#out the a#o e re+uirement, the 'ri#una! may pass such order as it thin$s fit "ith a ie" to #ringing an end to the matters comp!ained of. 2re(ention of misAmana&ement: (ection 39E pro ides for re!ief against mismanagement. A re+uisite num#er of mem#ers of a company may app!y to the 'ri#una! for appropriate re!ief on the ground of mismanagement of the company. 'he 'ri#una! may gi e re!ief if it is of opinion54 'hat the affairs of the company are #eing conducted in a manner pre1udicia! to the pu#!ic interest. 'hat #y reason of a materia! change in the management or contro! of the company.
15%
13Q. I"he 8ill of ma;ority must pre(ailJ Is the principle of the company mana&ement. Are there any exceptions. Ans: 'he management of a company is #ased on the ma1ority ru!e. 'his princip!e that the "i!! of the ma1ority shou!d pre ai! and #ind the ma1ority is $no"n as the princip!e of ma1ority ru!e. %t is a!so ca!!ed as the &=u!e in ;oss s. .ar#ott!e). Example: I!oss (s. =ar0ottleJ '1,31): !acts: '"o minority shareho!ders in a company a!!eged that its directors "ere gui!ty of the #uying their o"n !and for the companys use and paying themse! es a price greater than its a!ue. 'his act of the directors resu!ted in a !oss to the company. 'he @inority shareho!ders decided to ta$e an action for damages against the directors. 'he shareho!ders in genera! meeting #y ma1ority reso! ed not to ta$e any action against the directors a!!eging that they "ere not responsi#!e for the !oss "hich had #een incurred. $u+&ment: 'he court dismissed the suit on the ground that the acts of directors "ere capa#!e of confirmation #y the ma1ority of mem#ers and he!d that the proper p!aintiff for "rongs done to the company is the company itse!f and not the minority shareho!ders. %t further he!d that the company can act on!y through its ma1ority shareho!ders. According to the princip!e a company is a separate !ega! entity from the mem#ers "ho compose it. As such if any "rong is done to the company it is the company "hich can #ring an action. A+(anta&es of rule in !oss (s. =ar0ottle: 1) =ecognition of the separate !ega! persona!ity of company of a company suffers in1ury, the company itse!f can see$ redress. /) 'his princip!e needs to preser e right of ma1ority to decide ho" the affairs of the company sha!! #e conducted. 3) @u!tip!icities of the futi!e suits are a!so a oided. 8) ,itigation at the suit of a minority is futi!e if ma1ority do not "ish it. Exception: 'he fo!!o"ing are the exceptions to the ru!e ;oss s. .ar#ott!e54 %. 6here the acts done is i!!ega! or u!tra ires of the company 44 2 ery shareho!der has aright to restrain the company from doing any acts "hich are u!tra ires the company or are i!!ega!.
1)' %%. 6here the ma1ority are perpetrating a fraud on the minority 4 "here the ma1ority of a companys mem#ers use their po"er to defraud of oppress the minority.
%%%. 6here the company is doing an act "hich is inconsistent "ith the Artic!es44 'he minority shareho!ders can #ring an action to restrain the a!teration of the artic!es "hich is not made #onafide for the #enefit of the company as a "ho!e. %J. 6here an act can on!y #e done #y a specia! reso!ution, #ut in fact has #een done #y a simp!e ma1ority #y passing on!y an ordinary reso!ution. J. 2 ery shareho!der has rights against the company. %f any such right is in +uestion, a sing!e shareho!der can defy a ma1ority consisting of a!! other shareho!ders. J%. 'he minority shareho!ders may #ring an action against the company "here there is a #reach of duty #y the directors and ma1ority shareho!ders to the detriment of the company. J%%. 6here there is oppression of minority or mismanagement of the affairs of the company the minority can app!y to the 'ri#una! or centra! :o t. for re!ief. KKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKK 14Q. 7rite a Note on the Eorro8in& po8ers of a company. Ans: A company needs money to finance its acti ities from time to time. Apart from issue of
shares it has to resort to #orro"ings. 2 ery trading company, un!ess prohi#ited #y its @emorandum or Artic!es, has imp!ied po"er to #orro" money for the purposes of its #usiness. 6hen a company has express or imp!ied po"er to #orro", it can #orro" su#1ect to the !imits set #y the @emorandum or the Artic!es. Corro"ing #y a company may #e54 1. A #orro"ing "hich is u!tra ires the <ompany /. A #orro"ing "hich is intra ires the company #ut u!tra ires the directors. 1. Eorro8in& 8hich is ultra (ires the company5 %f a company #orro"s money #eyond its express on imp!ied po"ers, the #orro"ing is u!tra ires the company and is oid. 'he !ender of money a!so has no !ega! or e+uita#!e de#ts against the company. As such he can ha e no rights against the company for the reco ery of the !oan. 'he !ender has the fo!!o"ing rights54
1)1 +) In;unction: %f the money !ent to the company has not #een spent, the !ender may get in1unction from the court to restrain the company from parting the money and has a right to reco er it. ") u0ro&ation: %f the money #orro"ed is used #y the company in paying off its !a"fu! de#ts, the !ender "i!! ran$ as a creditor up to the amount so use and can reco er it from the company. #) I+entification an+ tracin&: %f the !ender can identify his money or any property purchased "ith it he can c!aim the money or the property purchased "ith the money #orro"ed pro ided he can trace and identify the money or property purchased "ith it. ,) >eco(ery of Dama&es: 'he !ender under a transaction u!tra ires the directors may reco er damages from the directors for #reach of their "arranty of authority. /. Eorro8in& 8hich is intra (ires the company 0ut ultra (ires the +irectors: %f the #orro"ing is in excess mere!y of the po"ers of the directors #ut not of the company, it can #e ratified and rendered a!id #y the company. %n such a case the !oan #inds #oth the !ender and company as if it had #een made "ith the companys authority in the first p!ace. %f the company refuses to ratify the directors act, the norma! princip!es of agency app!y. 'he third party "ho dea!s "ith an agent $no"ing that the agent is exceeding his authority has no right of action against the principa!. 15Q. Define 2rospectus. 7hat +o you un+erstan+ 0y the Krule of &ol+en le&acy? Ans5 According to section /(36) defines a prospectus as &any document descri#ed or issued as a prospectus and inc!udes any notice, circu!ar, ad ertisement or other document in iting deposits from the pu#!ic or in iting offers from the pu#!ic for the su#scription or purchase of any shares in, or de#entures of shares or de#entures of, a #ody corporate.) A prospectus must #e in "riting. An ora! in itation to the pu#!ic to su#scri#e for the shares or de#entures of a company is not a prospectus. According to section55 a prospectus issued #y an intended company must #e dated and that date is the date of pu#!ication of the prospectus. 'he prospectus must a!so #e signed #y the proposed directors of the company. According to the section 6- a prospectus can #e issued #y the company on!y "hen it has #een de!i ered to the registrar for registration. 'he prospectus must #e issued "ithin 9- days of the date on "hich a copy is de!i ered for registration. %f a prospectus is issued "ithout #eing de!i ered to the registrar for the registration, or "ithout necessary documents or the consent of the experts the company and e ery person "ho is party $no"ing!y to the issue of the prospectus, sha!! #e punisha#!e "ith a fine "hich may extend to =s.5-,---A. 'he o#1ects of registration of a prospectus are5 http://www.mite h!.we" .#$m
1)( 1.'o $eep an authenticated record of the terms and conditions of issue of shares or de#entures, and /.'o pinpoint the responsi#i!ity of the persons issuing the prospectus for statements made #y them in the prospectus. ?rospectus is the "indo" through "hich an in estor can !oo$ into the soundness of a companys enture. 'he important contents of prospectus are as fo!!o"s5 2art I of sche+ule II 1. :enera! information a#out the issue. /. <apita! structure of the company 3. 'erms of the present issue 8. ?articu!ars of the issue 5. <ompany, management and pro1ect 6. ?articu!ars a#out the past share issues of the company and other !isted companies under the same management, made in pre ious for 3 years. 0. 7etai!s a#out outstanding !itigations, crimina! prosecutions and defau!ts in statutory and other dues. E. @anagement perception of ris$ factors such as difficu!ty in a ai!a#i!ity of ra" materia!s or in mar$eting of products, etc.
2art II of che+ule II (A). :enera! %nformation re!ated to the consent of directors, experts, auditors, company secretary, etc.., (C1). ;inancia! information a#out report #y the auditors a#out profit M !oss account, assets, !ia#i!ities of !ast fi e years, financia! information a#out su#sidiaries (if any). (C/). %f the proceeds of issue are for purchase of #usiness (or) ac+uiring contro!!ing shares in other company so that it #ecomes su#sidiary, the detai!s of such #usiness (or) such other company. (C3). ?rincipa! terms of !oans and assets charged as security. (<1). (tatutory information a#out issue !i$e minimum su#scription, expenses of issue, under"riting etc.., (</). 7etai!s a#out property proposed to #e purchased, directors and their remuneration, materia! contracts etc.., 2artAIII: 'his part gi es c!assifications a#out re+uirements of parts % M %%, it c!arifies54 1. %f company is "or$ing for !ess then 5 years, then detai!s a#out years in "hich it has "or$ed shou!d #e gi en.
1)3 /. 'he accounting detai!s shou!d #e certified #y <hartered Accountant. 3. 'he profit M !oss account, copies of materia! contracts and other documents specified in prospectus shou!d #e open for inspection and time and p!ace "hen these "i!! #e a ai!a#!e for inspection must #e specified in prospectus. 8. A dec!aration that re!e ant pro isions of <ompanies Act, and guide!ines issued #y :o ernment ha e #een comp!ied "ith. "he <ol+en >ule: 1. 'he go!den ru!e (or) go!den !egacy "as !aid do"n in the De" Cruns"ic$ ( s) @uggeridge case. /. 'he princip!e is that 7irectors and *ther persons "ho are responsi#!e for the issue of the prospectus indirect!y ho!d out to the pu#!ic that great ad antage are !i$e!y to accrue to those mem#ers of the pu#!ic "ho "ou!d ta$e up shares in the company. 'his ho!ding out casts onerous duty on them, (i.e.., they must state the facts honest!y and faithfu!!y). 'hey must not on!y a#stain something as a fact "hen it is not actua!!y so, #ut a!so must not omit a fact "hich they $no". 3. 'he pu#!ic ta$es the shares on the faith of representation contained in the prospectus. 'he pu#!ic is at a mercy of the promoters and "i!! stands to !ose e erything if there is mis4 statement in prospectus. 8. 'herefore it is the duty of those "ho issue prospectus to #e truthfu! in a!! respects. 'hus, a prospectus must te!! the truth, the "ho!e truth and nothing #ut the truth. Dothing shou!d #e stated as a fact "hich is not so and no fact shou!d #e omitted. 'herefore e erything must #e stated "ith strict and scrupu!ous accuracy. 5. (imi!ar!y ha!f4truth is no #etter than do"n right fa!sehood. A statement that the company has paid di idend consistent!y for certain num#er of years is a mis4!eading statement particu!ar!y "hen it has not disc!osed the fact that the di idend "as paid out of re a!uation reser es.
1)&
(PART -I-)
1.Q. Define +irector? Explain the 2o8ers an+ +uties of +irectors? Ans: Intro+uction: A company #eing an artificia! person cannot act #y itse!f. %t has neither a mind nor a #ody of its o"n. %t must act through some human agency. %n other "ords, its #usiness shou!d #e carried on #y some persons on its #eha!f such person termed as directors. 'he directors are the persons e!ected #y the shareho!ders to direct, manage (or) super ise the affairs of the company. %n other "ords, 'he Coard of directors are the #rain and the on!y #rain of the company "hich is the #ody, and the company can does act on!y through them. %t is on!y "hen the #rain functions that the corporation is said to #e function. Definition: According to section /(13) of the companies Act, 1956, defines 7irector &as any person occupying the position of director, #y "hate er name ca!!ed. %f he performs the function of director, he "ou!d #e termed a director in the eyes of !a" e en though he may #e named different!y. A director may, therefore, #e defined as a person ha ing contro! o er the direction, conduct, management (or) superintendence of the affairs of the company). Num0er of +irectors: According to the section /5/(1) e ery pu#!ic company ha e at!east 3 directors and according to section /5/(/) e ery other company (i.e.., a pri ate company is deemed to #e a
1)5 pu#!ic company) at !east / directors. According to section /5E, the num#er so fixed may #e increased (or) decreased "ithin the !imits prescri#ed #y the Artic!es #y an ordinary reso!ution of the company in genera! meeting. Cut According to section /59, "here the increase in the num#er does not ma$e the tota! num#er of directors more then 1/, it cannot appro ed #y the centra! go ernment. %t is the maximum !imit permitted #y the Artic!es for its appro a! #y the <entra! go ernment. 2o8ers of Eoar+ of Directors: 1. <eneral 2o8ers: ' ection /-1) 'he Coard of directors of a company is entit!ed to exercise a!! po"ers and to do a!! acts and things "hich the company is authori3ed to do. 'he po"ers may #e su#1ect to t"o conditions, they are54 a) ;irst!y, the Coard sha!! not do any act "hich is to #e done #y the company in genera! meeting. #) (econd!y, the Coard sha!! exercise its po"ers su#1ect to the pro isions contained in that #eha!f in the companies Act, (or) in the memorandum (or) the Artic!es of the company (or) in any regu!ations made #y the company in genera! meeting. /. 2o8ers to 0e exercise+ only at meetin&: ' ection /-/) 'he Coard of directors of a company (pu#!ic as "e!! as pri ate) must exercise the fo!!o"ing po"ers on #eha!f of the company #y means of reso!utions passed at the meetings of the Coard54 a) @a$e ca!!s on shares, 0) %ssue 7e#entures, c) Corro" moneys other"ise than on de#entures (i.e.., pu#!ic 7eposits), +) %n est the funds of the company, and e) @a$e !oans. 'here are certain other po"ers "hich must #e exercised on!y at the Coard. 'hose po"ers are54 1. 'o fu!fi!! acancies in the Coard. ((ection /6/). /. 'o sanction (or) gi e consent for certain contracts in "hich particu!ar directors, their re!ati es and firms are interested. ((ection /90). 3. 'o recei e notice of disc!osure of shareho!ders of directors. ((ection 3-E). 8. 'o appoint as managing director (or) manager a person "ho is a!ready managing director (or) manager of another company. ((ection 316 M 3E6). 5. 'o ma$e in estments in companies in the same group. ((ection 30/). >estrictions on po8ers: 'section /-1) 'he Coard of 7irectors of a pu#!ic (or) pri ate company "hich is su#sidiary of a pu#!ic company, sha!! exercise fo!!o"ing po"ers on!y "ith the consent of the shareho!ders in the genera! meetings54
1)) 1. 'o se!! (or) !ease (or) other"ise dispose of the "ho!e, (or) su#stantia!!y the "ho!e, of the under ta$ing of the company. /. 'o remit (or) gi e time for repayment of nay de#t due to the company #y any director. 3. 'o in est the amount of compensation recei ed #y the company in respect of compu!sory ac+uisition of any underta$ing (or) property of the company. 8. 'o #orro" moneys "here the moneys to #e #orro"ed, together "ith the moneys a!ready #orro"ed #y the company "i!! exceed the aggregate of the paid4up capita! of the company and its free reser es. 5. 'o contri#ute to charita#!e and other funds not direct!y re!ating to the #usiness of the company (or) "e!fare of its emp!oyees, amounts exceeding in any financia! year =s.5---- (or) 5I of the a erage net profits of the 3 proceeding financia! years, "hiche er is greater. Duties of Eoar+ of Directors: 7irectors occupy a $ey position in the management and administration of the company. 'heir duties are usua!!y regu!ated #y the Artic!es of the company. 'he genera! duties of the directors of the company may #e c!assified as54 1. ;iduciary 7uties, /. 7uties of care, s$i!! and di!igence, 1. !i+uciary Duties: 'he fiduciary duties of directors are #asica!!y identica! "ith those to any person in a fiduciary position. 'hey must exercise their po"ersF4 a) .onest!y5 and #) %n the interest of the company and share ho!ders. As a fiduciary they must not p!ace them se!f in a position in "hich their conf!ict their duties to their company and their persona! interests. 'hese fiduciary duties are o"ed to the company and not to the indi idua! shareho!ders and they must not ma$e a secrete profits out of their position. /. Duties of care@ s:ill an+ +ili&ence: 7irectors shou!d carry out their duties "ith such care, s$i!! and di!igence as is reasona#!y expected from persons of their $no"!edge and status. 'he standard of care, s$i!! and di!igence depending up onF4 a) 'he type and nature of "or$F #) 'he di ision of po"er #et"een directors and other officersF c) 'he genera! usage and customs of that type of #usiness and
1)* d) 6hether directors "or$ gratuitous!y (or) remunerati e!y. Example: %ity EHuita0le !ire Insurance %ompany Limite+. '1-/4): !acts: 'he directors of an insurance company !eft the management of the companys affairs a!most entire!y in the hands of C, the managing director. *"ing to Cs fraud, a !arge amount of the companys assets disappeared. C and the firm in "hich he "as a partner had ta$en a huge !oan from the company, and the cash at #!an$ (or) in hand inc!uded , 03-- in the hands of the companys stoc$#ro$ers, in "hich C "as a partner. 'he directors ne er en+uired as to ho" these items "ere made up. $u+&ment: 'he directors "ere neg!igent. (.o"e er, the Artic!es protected the directors from !ia#i!ity as there "as no "i!!fu! neg!ect (or) defau!t and conse+uent!y they "ere not he!d !ia#!e. #ther Duties: 'he other 7uties of a director are54 a) 'o attend Coard meetings. #) Dot to de!egate his functions except to the extent authori3ed #y the Act (or) the constitution of the companyF and c) 'o disc!ose his interest. KKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKK
1,Q. Eriefly state the pro(isions of the companies Act@ 1-45@ re&ar+in& the mo+e Appointment of Directors of a company? Ans: Intro+uction: A company #eing an artificia! person cannot act #y itse!f. %t has neither a mind nor a #ody of its o"n. %t must act through some human agency. %n other "ords, its #usiness shou!d #e carried on #y some persons on its #eha!f such person termed as directors. 'he directors are the persons e!ected #y the shareho!ders to direct, manage (or) super ise the affairs of the company. %n other "ords, 'he Coard of directors are the #rain and the on!y #rain of the company "hich is the #ody, and the company can does act on!y through them. %t is on!y "hen the #rain functions that the corporation is said to #e function. Definition: According to section /(13) of the companies Act, 1956, defines 7irector &as any person occupying the position of director, #y "hate er name ca!!ed. %f he performs the function of director, he "ou!d #e termed a director in the eyes of !a" e en though he may #e named different!y. A director may, therefore, #e defined as a person ha ing contro! o er the direction, conduct, management (or) superintendence of the affairs of the company).
1)8 Num0er of +irectors: According to the section /5/(1) e ery pu#!ic company ha e at!east 3 directors and according to section /5/(/) e ery other company (i.e.., a pri ate company is deemed to #e a pu#!ic company) at !east / directors. According to section /5E, the num#er so fixed may #e increased (or) decreased "ithin the !imits prescri#ed #y the Artic!es #y an ordinary reso!ution of the company in genera! meeting. Cut According to section /59, "here the increase in the num#er does not ma$e the tota! num#er of directors more then 1/, it cannot appro ed #y the centra! go ernment. %t is the maximum !imit permitted #y the Artic!es for its appro a! #y the <entra! go ernment. Appointment of Directors: 1. !irst Directors: ' ection /43 of clause 53 of ta0le KA) a) 'he artic!es of a company usua!!y name the first directors #y their respecti e names (or) prescri#e the method of appointing them. #) %f the first directors are not named in the artic!es, the num#er of directors and the names of the directors sha!! #e determined #y in "riting #y the su#scri#ers of the memorandum (or) a ma1ority of them. c) %f the first directors are not appointed in the a#o e manner, the su#scri#ers of the memorandum "ho are indi idua!s #ecome directors of the company. 'hey sha!! ho!d office unti! directors are du!y appointed in the first annua! genera! meeting. /. Appointment of Directors 0y the company: ' ection /44 to /4.) According to the section /55 except first director the su#se+uent directors are appointed #y share ho!ders in genera! meeting. (uch directors are !ia#!e to retire #y rotation. %n the case of pu#!ic (or) pri ate company "hich is a su#sidiary of a pu#!ic company, at !east /A3rd of the tota! num#er of directors sha!! #e !ia#!e to retire #y rotation. 'his means not more than 1A3rd of the tota! directors may #e appointed on a permanent #asis, of the directors !ia#!e to retire #y rotation. 'hose "ho are retiring are ho"e er e!igi#!e for re4 appointment. 1. Appointment of Directors 0y Eoar+: ' ection /5B@ /5/@ * 111) 'he Coard of 7irectors may appoint 7irectors under arious sections in different cases54 a) As A++itional Directors: ' ection /5B) 'he Coard of directors may appoint additiona! directors from time4to4time. %f so, authori3ed #y its artic!es "ithout consu!ting the shareho!ders. Additiona! 7irector ho!ds office up to the next annua! genera! meeting. 'he num#er of directors inc!uding the additiona! director shou!d not exceed the maximum num#er of directors as determined #y the artic!es of the company.
1)% b) In a casual 6acancy: ' ection /5/) A casua! Jacancy may arise #y death, resignation, retirement, inso! ency (or) dis+ua!ification of a director. 'he #oard of directors may fi!! this acancy su#1ect to regu!ations in the artic!es. 'he casua! directors sha!! ho!d office on!y up to the date of origina! directors tenure. c) As alternate +irector: ' ection 111) 'he #oard may appoint a!ternati e director in the p!ace of origina! director if the artic!es authori3es. .e his appointed to act as a director in p!ace of the origina! director during the a#sent of origina! director remains for more then 3 months from the state in "hich the meetings of the Coard are ordinari!y he!d. (uch a!ternati e director sha!! ho!d office on!y ti!! the origina! director returns. 3. Appointment of +irectors 0y thir+ parties: ' ection /44) 'he Artic!es may authori3e third parties to appoint nominees to the #oard of the company. 'he num#er of such nominees shou!d not exist 1A3rd of tota! num#er of directors, such directors are not !ia#!e to retire #y rotation. 'he third party means it may #e de#enture ho!ders, #an$ing company (or) financia! institution etc.., 4.Appointment 0y proportional representati(e: ' ection /54) 'he Artic!es of a company may pro ide for the appointment of director #y proportiona! representation. Cut it shou!d not !ess then /A3rd of the tota! num#er of directors of a pu#!ic company (or) pri ate company "hich is a su#sidiary of a pu#!ic company according to the princip!e of proportiona! representation. 5.Appointment of +irector 0y the central &o(ernment: 'section 3B,) 'he centra! go ernment has the po"er under section 8-E, to appoint directors as on order passed #y the company !a" Coard for to efficiency safeguard the interest of the company (or) its share ho!ders (or) the pu#!ic interest for to pre ent mis4management. (uch directors can ho!d office for a period of not exceeding 3 years on any one occasion. 'he po"er can #e exercised #y the company !a" #oard either on a reference made #y the centra! go ernmentF4 a) Dot !ess then 1-- mem#ers of the company. ") @em#ers of the company not ho!ding !ess than 1A1-th of the oting po"ers. A director appoint #y the centra! go ernment is not re+uired to ho!d +ua!ification shares is to retire #y rotation.

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B-LAW NOTES UNIT-1:- CONTRACT ACT

1Q. Define contract? Discuss the essential elements of a valid contract?

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(+ample$ Agreements in restraint of trade, marriages, legal proceedings, etc.., :) 6ertaint8$

* @!! (po"nds). > -ace

to 2ar%e ? o". > -ace to

* @!! (po"nds) as/ed b

@E! (ponds) had re#ected the original offer.

tal/ of s"ch a contract as %oid him. 0ontract ca"sed b

the beginning. In other words it is not a %oid. In case aggrie%ed part

1!!! (po"nds). 627 offered

@E! (po"nds) 6<7

consideration. (h"s, the consideration ma be past, present (or) f"t"re.

(K#%;L($' A promise to perform a p"blic d"t b a p"blic ser%ant is not a consideration.

1E*6# (capacit8 of parties)E4

1'I0A (legalit of ob#ect)'A

1'I0A (%oid agreements)'7

UNIT 2 - DISCHARGE OF A CONTRACT ( PART I )

0Q. Differences /et.een .agering agreement and contingent contract.

6Q. 'eciprocal promises:-

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11Q. 'ights of Doint promisors:

i. ii. iii. iv.

Ex: -). holds land )engal on a lease granted *$ the Oamindar.

3-UNIT SALE OF GOODS ACT (PART - I)

1.T"an&$ " #$ p"#p "t*

5. R , (i & $#" )" a%h )* & ll ".

6. R , (i & $#" )" a%h )* )!* ".

:.Ri'ht #$ " &al

;. In&#l7 n%* #$ )!* ".

<. In&#l7 n%* #$ & ll ".

1=. G n "al > pa"ti%!la" p"#p "t*

as against the world at large including the seller.

to the buyer against to sue for damages.

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4-UNIT:-CONSUMER PROTECTION ACT, 1986. &ESSENTIAL COMMODITIES ACT, 1955

onsumer *isputes +e(ressa$ A"encies: -.ection 9/

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3---- (pounds). .is "ife, one

1 (pound) each. ( too$ /3--- shares of , 1 (pound)

6--- (pounds) and its !ia#i!ities

, 10--- (pounds) of "hich , 1---- (pounds) "ere due to ( (secured #y de#entures)

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%ompany %t is regu!ated #y companies Act, 1956.

2artnership %t is regu!ated #y the %ndian partnership Act, 193/.

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restrictions A partner cannot transfer his interest "ithout

Insol(ency of the firm

A company en1oys a perpectua! succession.

>n!ess there is a contract to the contrary,

%f a company o"es a de#t to any of its assets "hen it is "ound up.

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!ill e ound $ this pa$ment and shall e entitled to

E''&/ %-0 c$$d% %&' Ac , 1955