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According to Salmond a contract is An agreement creating and defining obligations between the parties
According to Sir William Anson, A contract is-an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.
An agreement becomes enforceable by law when it fulfills certain conditions. These conditions, which may be called the Essential Elements of a Contract, are explained below.
3. Lawful Consideration:
Subject to certain exceptions, an agreement is legally enforceable only when each of the parties to it gives something and gets something. An agreement to do something for nothing is usually not enforceable by law. The something given or obtained is called consideration. The consideration may be; in act (doing something) or forbearance (not doing something) or a promise to do or not to do something. Consideration may be past
(something already done or not done).It may also be present or future: But only those considerations are valid which are lawful.
4. Capacity of Parties:
The parties to an agreement must be legally capable of entering into an agreement otherwise it cannot be enforced by a court of law. Want of capacity arises from minority, lunacy, idiocy, drunkenness, and similar other factors. If any of the parties to the agreement suffers from any such disability, the agreement is not enforceable by law, except in some special cases.
5. Free Consent:
In order to be enforceable, an agreement must be based on the free consent of all the parties. There is absence of genuine consent if the agreement is induced by coercion, undue influence, mistake, misrepresentation, and fraud. A person guilty of coercion, undue influence etc. cannot enforce the agreement. The other party (the aggrieved party) can enforce it, subject to rules laid down in the Act.
7. Certainty:
The agreement must not be vague. It must be possible to ascertain the meaning of the agreement, for otherwise it cannot be enforced.
8. Possibility of Performance:
The agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced.
9. Void Agreements:
An agreement so made must not have been expressly declared to be void. Under Indian Contract Act there are five categories of agreements which are expressly declared to be void. They are:
1. 2. 3. 4. 5.
Agreement in restraint, to marriage. (Sec. 26) Agreement in restraint of trade. (Sec. 27) Agreement in restraint of proceedings. Agreements having uncertain meaning... (Sec. 29} Wagering agreement. (Sec. 30)
Conclusion
.The elements mentioned above must all be present. If any one of them is absent, the agreement does not become a contract. An agreement which fulfills a11 the essential elements is enforceable by law and is called a contract. From this it follows that, every contract is an agreement but all agreements are not contracts. Every contract gives rise to certain legal obligations or duties on the part of the contracting parties. The legal obligations are enforced by the courts. The Indian Contract Act contains rules regarding each of the elements mentioned above. These rules are discussed in the subsequent chapters. .
Offer
A proposal is also called an offer. The promisor or the person making the offer is called the offeror. The person to whom the offer is made is called the offeree.
An offer may be made in two ways: I. II. by words, spoken or written and by conduct.
When an-offer is made by stating so in words or in writing, it is called an Express offer. When an offer is implied from the conduct of a person, it is. Called an Implied offer. Examples (i) and (it) in the last page, are cases of express offer. Example - (ii) is a case of an implied offer. In so far .as the proposal or acceptance of any promise is. Made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied-Sec. 9.
An advertisement in a newspaper or elsewhere may be so worded that it amounts to an offer. But ordinarily and advertisement is considered to be an invitation to make offers. Similarly, in an auction sale, articles are displayed with an intention that the bidders present may bid for them i.e. may make an offer. Thus in an auction sale a bid is an otter while the fall of the hammer signifies the acceptance of the auctioneer. (Payre v. Cave) Examples: A label on an article in a shopkeepers showcase stating `price Rs. S is considered to be the expression of an intention to sell the article at Rs.5. If is not an offer to the .world at large which can be accepted by anybody. The intending purchaser who wishes to buy the article is the proposer. The
shopkeeper may or may not accept the proposal. The same rule applies to pricelist and catalogues. Fisher v. Bell.
1. By notice
If the offeror gives notice of revocation to the other party, i.e., expressly withdraws the offer, and the offer comes to an end. An offer may be revoked any time before acceptance. But not afterwards. Once an offer is accepted there is a binding contract. The acceptance of an offer becomes binding on the offeror as soon as the acceptance is, put in course of communication to the offeror so as to be out of the power of the acceptor. But any time before this happens the offer may be revoked.
A proposal is sent by X to Y and is accepted by Y by letter. The proposal might have been revoked any time before the letter of acceptance was posted but it cannot be revoked after the letter is posted. The notice of revocation does not take effect until it comes within the knowledge of the offeree.
2. By lapse of time
When the proposer prescribes a time within which the proposal must be accepted, the proposal lapses as soon as the time expires.
5. By death or insanity
An offer lapses by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
6. Counter Offer
When a counter offer is given, the original offer lapse. See the Case of Hyde v. Wrench
7. By refusal
A proposal once refused is dead and cannot be revived by its subsequent acceptance. Example: An offer to sell his farm to B for Rs. 1,000. B replies offering to pay Rs. 950. A refuses. Subsequently B writes accepting the original offer. There is no contract because the original offer has lapsed.
It must not be sham or illusory. The impossible acts and illusory or non-existing goods cannot support a contract. Therefore, real consideration comes from good consideration. (See p. 39) A contribution to charity is without consideration. Therefore, Examples: No consideration : V owed 1208 to E who told V that if the money was not paid by 7th July he would file a bankruptcy petition against V Thereupon V promised to pay the money before 12 oclock on 8th July and E agreed not to file the petition before that time. Held, there was no consideration for Es promise. Vanburgen v. St. Edmunds Properties Ltd it is not real consideration.
3. Public duty:
Where the promise is already under an existing public duty, an express promise to perform, or performance of, that duty will not amount to consideration. There will be no detriment to the promisee or benefit to the promisor over and above their existing rights and liabilities Example: A contract to pay money to a witness who has received a subpoena to appear at a trial. Collins v. Godefroy
4. Promise to a stranger:
But a promise made to a stranger to perform an existing contract, is enforceable because the promisor undertakes a new obligation upon himself -which can be enforced by the stranger. X wrote to his nephew B, promising to pay him an annuity of 150 in consideration of his marrying C B was already engaged to marry C Held, the fulfillment of Bs contract with C was consideration to support Xs promise to pay the annuity. Shadwell v. Shadwell;
S files a suit against B for Rs. 5,000. Subsequently he agrees to withdraw the suit on payment of Rs. 3,000. The agreement is a contract. The withdrawal of a suit is valuable consideration so as to support the promise to pay money.
8. Consideration may move from the promise or from any other person:
A person granted some properties to his wife C directing her at the same time to pay an annual allowance to his brother R C also entered into an agreement with R promising to pay the allowance to R. This agreement can, be enforced by R even though no part of the consideration received by C moved from R Chinnaya v. Ramaya. A stranger to the consideration can sue to enforce the contract, though a stranger to the contract cannot. In England, a stranger to the consideration .cannot sues on the contract.
Subject to the above essential factors, a good consideration can be any of the following: (1) Physical goods; (2) Services;
(3) Forbearance (for example not to sue); (4) Arbitration or the compromise of disputed claims, and (5) Settlement or composition with creditors.
Exceptions
There are exceptional cases where a contract is enforceable even though there is no consideration. They are as follows:
expressed in writing and registered under the law for the time being in force for the registration of documents, and is made on account of natural love and affection between parties standing in a near relation to each other.''-Sec 25(1). An agreement without consideration is valid under Section 25(l) only if the following requirements are complied with : (i) The agreement is made by a written document. (ii) The document is registered according to the law relating to registration in force at the time. (iii) The agreement is made on account of natural lave and affection. (iv)The parties- to the agreement stand in a near relation to each other.
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Examples A for natural love and affection, promises to give his son B, Rs. 1,000. A puts his promise to B in writing and registers it. This is a contract. [Illustration (b) to Section 25]
2. Voluntary Compensation:
A promise made without any consideration is valid if, it is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do.-Sec. 25(2). Section 25(2) applies when there is a -voluntary act by one party and there is a subsequent promise (by the party benefited) to pay compensation to the former. The term `voluntarily signifies that the act was done, ` otherwise than at the desire of the promisor. Examples (i) D finds Bs purse and gives it to him. B promises to give D Rs. 50. This is a contract. (ii) D supports Bs infant son. B promises to pay Ds expenses in so doing. This is a contract.
3. Time-barred debt:
A promise to pay, wholly or in part, a debt which is barred by the law of limitation can be enforced if the promise is in writing and is signed by the debtor or his authorized agent.-Sec. 25(3). A debt barred by limitation cannot be recovered. Therefore a promise to repay such a debt is, strictly speaking, without any consideration. But nevertheless such a promise can be enforced if the debtor or his authorized agent makes written and signed promise to repay tithe debt must be a liquidated or ascertained sum of money and there must be a definite promise to pay. A mere acknowledgement of the debt is not enough. Example D woes B Rs. 1000 but the debt is barred by the Limitation Act. D signs a written promise to pay B Rs. 500 on account of the debt. This is a contract.
4. Agency:
No consideration is required to create an agency.-Sec. 185.
5. Completed gift:
The rule no consideration; no contract does not apply to completed gifts. Explanation l, to Section 25 states that, Nothing in this section shall affect the validity as between the donor and the donee, of any gift actually made.
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Thus, if a person gives certain properties to another according to the provisions of the Transfer of Property Act (i.e., by a written and registered document) he cannot subsequently demand the property back on the ground that there was no consideration.
THE ESSENTIAL ELEMENTS OF A PARTNERSHIP Definition and characteristics: Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. A partnership as defined in the act, must have three essential elements: 1. There must be an agreement entered into by two or more persons. 2. The agreement must be to share the profits of a business. 3. The business must be carried on by all or any of them acting for all. 1. Voluntary agreement : the first elements shows the voluntary contractual nature of partnership. A partnership can only arise as a result of an agreement, express or implied, between two or more person. Where there is no agreement there is no partnership. But a partnership cannot be formed with more than ten person in banking and twenty person in other types of business. A partnership with persons exceeding the above limits must be registered under a companies act. 2. Sharing of profits of a business: The second elements state the motive underlying the information of a partnership. It also lays down that the existence of a business is essential to a partnership business include any trade, occupation or profession if two or more person join together to form a music club it is not a partnership because there is no business in this case. But if two or more persons join together to give musical performance to the public with a view to earning profit, there is a business and a partnership is formed. 3. Mutual agency: The third element is the most important feature of partnership. It states that person carrying on business in partnership is agents as well as principles. The business of a firm is carried on by all or by any one or more of them on behalf of all. Every partner has the authority to act on behalf of all and can, by his actions, bind all the partners of the firm, each partner is the agent of the others in all matters connected with the business of the partnership. The law of partnership has therefore been called a branch of the law agency. 4. The test of a true partnership: in a true partnership, all the essential elements mentioned above must be present. If all the relevant facts taken together show that all the three essential elements are present, the group of persons doing business together will be called a partnership.
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Partnership and co-ownership Co-ownership means joint ownership. A and B jointly purchase a horse. They are co owners but not necessarily partners. The distinction between co ownership and partnership can be described as follows: 1. In a partnership each partner is the agent of the others but a co owner is not the agent of the other owners. The rights of a co owner cannot be affected by any act done by the other owners. 2. Partnership always arises out of agreement. Co ownership may arise by agreement or by operation of law. A and B inherit a house from their father. They become co owners by operation of the law of inheritance. 3. A co owner can transfer his interest to a third party without the consent of the other co owners. A partner can transfer his interest, under certain circumstances, but the transferee can never become a partner of the business without the consent of the other partners. 4. A partnership always implies a business. Co ownership may exist without any business, e.g. joint ownership of a residential house. 5. Since co ownership may exist without a business. The question of sharing profits or losses on immaterial in a co ownership. In a partnership there must be sharing of profits. 6. A partner has a lien on the partnership assets for moneys spent by him for the partnership. A co owner has no lien under similar circumstances.
Rights of partners The rights of partners, and the relations of partners to one another, are determined by the agreement of the partners. The important rights of partners are summarized below: 1. Conduct of business: Every partner has a right to take part in the conduct of the business. 2. Can express opinion: every partner shall have the right to express his opinion. 3. Access, inspection, copy: Every partner has a right to have access to and to inspect and copy any of the books of the firm. 4. Equity of profits: The partners are entitled to share equally in the profits earned. 5. Interest on capital: A partner is entitled to get interest on the capital out of profits only. 6. Interest on advance: A partner. Paid or advanced to the firm beyond the amount of capital, is entitled to interest thereon at the rate of six per cent per annum. 7. To get indemnity: The firm shall indemnify a partner in respect of payments made and liabilities incurred by him, in the ordinary and proper conduct of the business and in doing such act, in any emergency.
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8. Application of property of firm: The property of the firm shall be held and used by the partners exclusively for the purposes of the business. 9. Partners authority: Every partner has right to act on behalf of the firm. He has express and implied authority. 10. Power in an emergency: he has certain powers in an emergency. 11. Reconstitution: The constitution of a firm may be changed by the introduction of a new partner, death, retirement , insolvency, expulsion or by the transfer of a partners share to an outside. 12. Dissolution: A partner has the right to get the firm dissolved under appropriate circumstances. Upon dissolution, the partners have the right to get accounts of the firm and surplus assets according to their shares. 13. Right to carrying on a competing business: By a special agreement, an outgoing partner can be prevented from carrying on a similar business within a specified period or local limits, 14. Right to share profits after retirement: if after retirement and the continuing partner carry on the business of the firm with the property of the firm the outgoing partner is entitled to get share of profits or 6% per annum of his share of the property of the firm at their option.
Duties of partners The important duties of partners are summarized below: 1. Justice, faithfulness, true accounts, full information: partner are bound to carry on the business of the firm to the greatest common advantages, to be just and faithful to each other, and to render true accounts and full things affecting the firm to any partner or his legal representative. 2. To pay indemnity: every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. 3. To attend diligently: Every partner is abound to attend diligently to his duties. 4. No remuneration: Subject to any contract to the contrary, a partner is not entitled to received remuneration for taking part in the concert of the business. 5. Equality of losses: Subject to any contract to the country, partners are bound to pay the losses of the firm equally. 6. To pay indemnity for willful neglect: A partner shall indemnity the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. 7. No private benefits: A partner cannot use the partnership properties, directly or indirectly, for his own benefits. 8. To account for secret profit: If a partner derives any profits for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm.
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9. No secret profit: If a partner derives any competing business of the firm, he shall account for and pay to the firm all profits made by him in that business. 10. Unlimited liability: Every partner is liable for the acts of the firm done while he is a partner. The liability is joint and several.
The grounds of dissolution A firm may be dissolved on any of the following grounds: 1. By agreement(sec.40): A firm may be dissolved any time with the consent of all the partners of the firm. Partnership is created by contract, it can also be terminated by contract. 2. Compulsory dissolution(sec.41): A firm is dissolved____ (a) By the adjudication of all the partners or of all the partners but one as insolvent, or (b) By the happening of any event which makes the business of the firm unlawful. But if a firm has more than one undertaking, some of which become unlawful and some remain lawful, the firm may continue to carry on the lawful undertakings. 3. On the happening of certain contingencies(sec.42):Subject to contract between the partners, a firm is dissolved----(a) If constituted for a fixed term, by the expiry of that term; (b) If constituted to carry out one or more adventures or undertaking, by the completion thereof. (c) By the death of a partner ; and (d) By the adjudication of a partner as an insolvent. The partnership agreement may provide that the firm will not be dissolved in any of the aforementioned cases. Such a provision is valid. 4. By notice(sec.43): where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all other partners of his intention to dissolve the firm. The firm is dissolved as from the data mentioned in the notice as the data of dissolution, or, if no data is mentioned, as from the data of communication of the notice. 5. Dissolution by the court(sec.44): At the suit of a partner, the court may dissolved a firm on any one of the following grounds: (a) Insanity: if a partner has become of unsound mind. The suit for dissolution in his case can be filed by the next friend of the insane partner or by any other partner.
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(b)
(c)
(d)
(e)
(f)
(g)
Permanent incapacity: if a partner becomes permanently incapable of performing his duties as a partner. Permanent incapacity may arise from an incurable illness. Guilty conduct: if a partner is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business. To justify Persisten breach agreement: If a partner wilfully and persistently commits breach of the partnership agreement regarding management or otherwise conducts himself. Transfer of whole interest: If a partner has transferred the whole of this interest in the firm to an outside or has allowed his interest to be sold in execution of a decree. Loos: If the business of the firm cannot be carried on except at a loss. The courts have been given discretion to dissolve a firm in cases where it is impossible to make profits. Just and equitable clauses: If the court considers it just equitable to dissolve the firm. This clause give a discretion power to the court to dissolve a firm.
What is Company?
Company: The term company is used to describe an association of a number of persons, formed for some common purpose and registered according to the law relating to companies. Section 3(1) (i) of the Companies Act, 1994 states that a company means, a company formed and registered under this Act or an existing company.
Essential features of a company 1. RegistrationA Company comes into existence only after registration under the Companies Act. But a Statutory Corporation is formed and commence business as notified or stated in the Act and as passed in the Legislature.
2. Voluntary AssociationA Company is an association of many people on a voluntary basis. Therefore a company is formed by the choice and consent of the members.
3. Capital-
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4. Permanent ExistenceThe Company has Perpetual Succession. The death or insolvency of a shareholder does not affect its existence. A company comes into end only when it is liquidated according to provision of the Company Act.
5. Legal PersonalityA Company is regarded by law as a single person. It has a legal personality. This rule applies even in the case of One-man Company.
6. Limited LiabilityThe liabilities of shareholders of a company are usually limited. The creditors of a company are not creditors of individual shareholders and a decree obtained against a company cannot be executed against any shareholders. It can only be executed against the assets of the company. According to the Company Act 1994 of Bangladesh, the liability of shareholder may be limited by share under section 6(a) (4) or limited by the guarantee under section 7(a)(4).
7. TransferabilityThe shareholder of a company can transfer its share and ordinarily the transferee becomes a member of the company.
8. Statutory ObligationA Company is required to comply with various statutory obligations regarding management, e.g., filling balance sheets, maintaining proper account books and registers etc.
9. Common SealCompany cannot sign on any contract because it is artificial person and it works with common seal.
10.Right To Sue-
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Company can sue on other parties like natural person for protecting its assets and properties. Other persons can also change on the company.
11.Financial PowerA Company is given exclusive power and the only medium of organizing business which is given the privilege of raising capital by public subscription either by way of shares or debentures.
Difference between a private company and a public company Following are the main points of difference between a Public Company and a Private Company:1. Minimum number of members: Minimum number of members required to form a private company is 2, whereas a Public Company requires at least 7 members (Section 5 of the Companies Act, 1994). 2. Maximum number of members: Maximum number of members in a Private Company is restricted to 50 (Section 2(q) of the Companies Act 1994), there is no restriction of maximum number of members in a Public Company. 3. Number of Directors: A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have at least 3 directors (Section 90 of the Companies Act, 1994). 4. Transferability of shares: There is restriction on the transferability of the shares of a Private Company (Section 2(q) (i) of the Companies Act 1994) through its Articles of Association, whereas there is no restriction on the transferability of the shares of a Public company 5. Issue of Prospectus: A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus. 6. Commencement of Business: A Private Company can commence its business immediately after its incorporation, whereas a Public Company cannot start its business until a Certificate to commencement of business is issued to it (Section 150 of the Companies Act 1994). 7. Shares Warrants:
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A Private Company cannot issue Share Warrants against its fully paid shares, whereas a Public Company can issue Share Warrants against its fully paid up shares (Section 46 of the Companies Act 1994). 8. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Joint Stock Companies and Firms (RJSC) (Section 83 of the Companies Act 1994). 9. Quorum: The quorum in a General Meeting, in the case of a Private Company, whose number of members does not exceed six, is TWO members present personally, in the case of a Private Company, whose number of members exceed six, is THREE members present personally; whereas in the case of a Public Company FIVE members must be present personally to constitute quorum (Section 85(2) (b) of the Companies Act 1994). However, the Articles of Association may provide other provisions stating the number of members to constitute quorum. 10. Rotation of Director: Every year at the Annual General Meeting, one third of the Directors of a Public Limited Company, who have been longest in office since their last election, has to retire (Article 79 and 80 of Schedule I of the Companies Act 1994, which has been made binding by Section 17 of the Companies Act 1994). This rotation of Directors does not apply to a Private Limited Company. 11. Copy of balance-sheet: In the case of a private company, which is not an subsidiary of a public company, no person other than a member of the company shall be entitled to inspect or to obtain copies of the profit and loss account of that company (Section 190 of the Companies Act 1994). In case of a public limited company everyone is entitled to inspect or obtain copies of the profit and loss account of that company.
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