ALGAPPA UNIVERSITY KARAIKUDI 630 003 TAMILNADU DIRECTORATE OF DISTANCE EDUCATION BBA (II YEAR)

PAPER 2.4 BUSINESS LAW

P !"# 2.2 C$%%"#&' ( L ) * B+,'-",, L )

I-.' - C$-/# &/ A&/ 0122 * Meaning and essentials of a valid contract Formation of contract Performance of contract Termination and discharge of contract Remedies for breach of contract Quast contract

S!"&' ( C$-/# &/, * Indemnity of guarantee Bailment Agency S (" $3 G$$., A&/4 0530 * Contract of sale Conditions and !ro!erty Performance of the sale Rights of an un!aid seller arranties Transfer of

N"6$/' 7(" I-,/#+%"-/, A&/4 0110 * "egotiable instruments Parties to a negotiable instrument Material alteration Crossing of che#ues $ndorsement Payment and collection of che#ues

I-.' - P #/-"#,8'! A&/4 0532 * Meaning and test of !artnershi! Registration of firms Relations of !artners dissolution of firms A#7'/# /'$- A&/4 0540 * Arbitration Arbitration Arbitration in suits ithout intervention of court

C ##' 6" $3 G$$., * Classification of Common Carriers Rights duties and liabilities of common carrier Carriage by rail Contract of affreightment Charter Party Bill of %ading Carriage by air &ocuments relating thereto %iability of the air Carrier

C$-/# &/ $3 I-,+# -&" * Basic elements 'inds of Insurance Fire Insurance Marine Insurance

B$$9, 3$# #"3"#"-&" () 'a!oor* " & +) ,en and Mitra -) ,hu.la* M) C) /) Relevant bare acts

$lements of Mercantile %a Commercial %a Mercantile %a

C$+#," M /"#' ( !#"! #". 7: D#. S. S+. ( '%+/8+4 Reader in &e!artment of Cor!orate ,ecretaryshi! Alga!!a 0niversity* 'arai.udi)

L",,$- N$. () +) -) /) 4) 6) 2) 7) 1) (5

T'/(" Indian Contract Act) (12+ ,!ecial Contracts Contract of Indemnity and 3uarantee Contract of Bailments Contract of Agency ,ale of 3oods Act) (1-5 "egotiable Instruments Act* (77( Partnershi! Act) (1-+ Arbitration Act) (1/5 Common Carriers Act Contract of Insurance

LESSON 0 INDIAN CONTRACT ACT. 0122

MEANING

The la relating to the contracts is contained in the Indian Contract Act) (72+) It is that branch of la hich lays do n the essentials of a valid contract* the different modes of discharging the contract and the remedies available to the aggrieved !arts in the case of breach on contract) It is the most im!ortant branch of business la ) It is of !articular im!ortance to !eo!le engaged in trade* commerce and industry as bul. of their business transactions are based on contracts)

A contract is an agreement made bet een t o or more !arties hich the la ill enforce ,ec) ( the of the Indian Contract Act defines it as 8An agreement enforceable by la 9 ,ec (5 lays do n that 8All agreements are contracts if they are made by the free consent of !arties com!etent to contract for a la ful consideration and ith a la ful ob:ect and are not hereby e;!ressly declared to be void)

ESSENTIALS OF A VALID CONTRACTS A valid contact must have the follo ing essentials () Two parties : for a valid contract* there must be t o !arties +) Offer and acceptance: There must be an offer and acce!tance <ne !arty has to ma.e an offer and the other !arty has to acce!t it) -) Consensus-ad-idem or Identity of Minds: The !arties to the contract must have agreed about the sub:ect matter of the contract at the same time and in the same sense)

Illustration: A has t o houses* one at Chennai and another at Coimbatore) =e has offered to sell one to B) B acce!ts thin.ing to !urchase the house at Coimbatore* hile A* hen he offers* has in his mind to dis!ose of house at Chennai) There is no Consensus>as>idem)

/) Consideration: It means 8,omething in return9 $very contract must be su!!orted by consideration) Illustration : A offers to sell his atch for Rs) 455 to B and B acce!ts the offer) Thus Rs) 455 is the consideration for the atch and vice>versa)

4) Capacity; The !arties to the contract must be com!etent to contract) For e;am!le a contract by a minor is void 6) Free Consent: The consent of the !arties must be free from any flo not be caused by a mista.e or coercion or undue influence 2) Lawful consideration: The consideration to a contract must be la ful Illustration: A !romises to !ay Rs) 455 to B* in consideration of B murdering C) The consideration is illegal) 8. The o !ects of the contact must e lawful Illustration? A !romises to !ay Rs) 455 for letting B@s house for running a brothel) The ob:ects is illegal) =ence* the contract is void) Thus* 8the essence of legal contract is that there shall be an agreement bet een t o !ersons* that one of them shall do something either for the benefit of the other or for his o n detriment and that these !ersons intend that the agreement shall be enforceable at la 9 it must

CLASSIFICATION OF CONTRACTS Contracts may be classified according to their validity* formation or !erformance) I) Classification According to validity

A contract is based on an agreement) An agreement becomes a contract hen all the essential elements referred to above are !resent) In such a case* the contract is a valid contract) If one or more of these elements are missing* the contract is either voidable* void* illegal or unenforceable)

V$'. 7(" C$-/# &/ An agreement hich is enforceable by la at the o!tion of one or more of the arties thereto* but not at the o!tion of the other or others* is a voidable contract) ,ec)+AiB)

$;am!le ? A !romises to sell his house to B for Rs) +*55*555) =is consent is obtained by use or force) The contract is voidable at the o!tion of A) =e may avoid the contract)

V$'. C$-/# &/ A contract hich is at enforceable by la is a void contract)

$;am!le ? A contract enter/ed into by a minor is void)

I(("6 ( A6#""%"-/ An illegal agreement is one hich is criminal is nature or hich is immoral) ,uch an agreement is a void contract) All illegal agreements are void but all more agreements or contracts are not necessarily illegal)

U-"-3$#&" 7(" C$-/# &/ An unenforceable contract is one hich cannot be enforced in a Court of a because of some technical defect* such as absence of riting or here the remeds has been barred by la!se of time)

II CLASSIFICATIONS ACCORDING TO FORMATION Contracts may be classified according to the mode of their formation as follo s?

E;!#",, C$-/# &/ If the terms of a contract are e;!ressly agreed u!on hether by ords s!o.en or ritten at the time of the formation of the contract* the contract is said to be an e;!ress contract)

I%!('". C$-/# &/ An im!lied contract is one hich is inferred from the acts or conduct of the !arties or course of dealings bet een them) It is not the result of any e;!ress !romise or !romises by the !arties but of their !articular act) Example: A enters into a hotel and ta.es lunch) It is an im!lied contract that he has to !ay the cost of lunch after ta.ing it)

III CLASSIFICATION ACCORDING TO PERFORMANCE These may be classified as $;ecuted contracts or $;ecutory contracts) 0nilateral contracts or Bilateral contracts)

E;"&+/". C$-/# &/, An e;ecuted contract as one in hich both the !arties have !erformed have !erformed their res!ective obligations) $;am!le? A agrees to su!!ly a atch to B for Rs) 455) Chen A su!!lies the and B !ays the !rice* the contracts is said to be e;ecuted) atch

E;"&+/$#: C$-/# &/, An e;ecutory contract is one in hich both the !arties have yet to !erform their obligations) Thus in the above e;am!le* the contract is e;ecutor if A has not yet su!!lied the atch and B has not !aid the !rice)

U-'( /"# ( C$-/# &/ A unilateral or one>sided contract is one in hich only one !arty has to fulfil his obligation at the time of the formation of the contract* the other !arty having fulfilled his obligation at the time of the contract or before the contract comes into e;istence)

B'( /"# ( C$-/# &/ A bilateral contract is one in hich the obligations on the !art of both the !arties to the contract are outstanding at the time of the formation of the contract) In this sense* bilateral contracts are similar to e;ecutor contracts)

OFFER AND ACCEPTANCE OFFER An offer is also called a !ro!osal) ,ec) + AaB of the Indian Contract Act defines a !ro!osal as* ?Chen one !erson signifies to another his illingness to do or to abstain from doing anything) Cith a vie to obtaining the assent of that other to such act or abstinence* he is said to ma.e a !ro!osal)9 The !erson ma.ing the !ro!osal is called the 8!ros!er9 or 8offerer9 and the !erson to hom the !ro!osal is made is called 8offeree9

LEGAL RULES RELATING TO OFFER () It must contain either definite terms or ca!able of being made definite) Montreal dfgdfgdfghgdh : It as held in this case* that a clause to favourate consider the a!!lies that rene al is ambinguous and not binding the com!ans +) It must intend to give use to legal conse#uences Gdfgjdfkgjdflkgd ? A husband !romised to !ay Rs) (555D> !er month to his ife* staying a ay from him) =eld that the !romise as never intended to b e enforced in la ) -) It must be distinguished from a #uotation or an invitation to offer Ghdkjdfkgjdkgjdgdfgkj : P offered to buy &@s !ro!erty for Rs) 6555) & re!lied* 8Con@t acce!t less than (5*5559 P agreed to !ay Rs) (5*555) But & sold it to another !erson) It as held that mere statement of !rice by & contained no im!lied contract to sell it at that !rice) A catalogue or !rice list or tenders invited for the su!!lier to goods are not !ro!osals) /) An offer may be made to an individual or addressed to the orlds at large) An offer is called a s!ecific offer hen it is made to a !articular !erson) Gdfgdfgdfgdfgdf fgdfgd dfgd dfg: The com!any has offered by advertisement* a re ard of E (55 to anybody contracting influenFa after using their smo.e ball according to their direction) Mrs) Carlill used it as directed but still had an attac. of influenFa) ,o* she sued for the a ard of E (55) It as held that she as entitled to the a ard since an offer made at large* can ri!en itself into a contract ith anybody ho !erforms the terms of the offer) 4) An offer is different from a tender A offers to su!!ly goods at a !articular rate for a !articular !eriod from a certai1n trade) If this offer is acce!ted by B* it is called a tender) It becomes an acce!tance only hen B !laces an order for a !art of the goods)

6) An offer must be communicated to the offeree 3dfg dfgdf dfg dfg dfg ? A@s ne!he as missing is ho as an em!loyee of A* volunteered his services to search for the boy) Mean hile* A had announced a re ard to anybody ho could trace the boy) It found the boy and brought him bac. to home and sued for the re ard) It as held that he as not entitled to the re ard as he as ignorant of the offer)

,ection / lays do n that the communication of an offer is com!lete only hen it reaches the offeree) ,o an offer binds the offeror only hen the offeree has the .no ledge of an offer)

ACCEPTANCE ,ection + the of the Indian Contract Act defines acce!tances as) Chen the !erson to hom the !ro!osal is made signifies his assent thereto the !ro!osal is said to be acce!ted) A !ro!osal hen acce!ted becomes a !romise) An offer hen acce!ted becomes a contract) An offer can be acce!ted only by the !ersons to hom the offer is made)

Boulton Gs Hones A sold his business to B) This sale is not .no n to G@s customers) ,o Hones ho is a usual customer of the vendor !laces an order for goods ith the vendor) A by name B* the ne o ner receives the order and su!!lies* the goods ithout disclosing the fact of sale of business to him) It as held that the !rice could not be recovered as the contract as not entered into ith him)

E,,"-/' (, $3 V ('. A&&"!/ -&" () Acce!tance must be communicated in usual and reasonable manner) It may be made by e;!ress ords* s!o.en or ritten or by conduct of the !arties* i)e) by doing an act hich amounts to acce!tance according to the terms of the offer or by the offeree acce!ting the benefit offered by the offeror) Any method can be !rescribed for the communication of acce!tance) But silence can never be !rescribed as a method of communication) =ence* mere mental assent ithout e;!ressing it and communicating it may means of ord or an act* is not sufficient) Brogden Gs Metro!olitan Rail ay Co) The Manager of a rail ay com!any sim!ly rote on the !ro!osal 8a!!roved9 and .e!t it in a dra er) By oversight it as not communicated) It as held that the acce!tance as not communicated and hence there as no contract)

+) Communication of acce!tance may be arved by the offeror ? This rule is established in the case of Carill G@s gdfg gdfg ng gdf here the advertisement never anted the communication a!art from fulfilling the conditions of offer) -) Acce!tance should be made before the offer la!ses or is revo.ed or is received

/) Acce!tance must be absolute and unconditional and should corres!ond ith the terms of the offeror) <ther ise* it amount to counter offer hich may be acce!ted or re:ected by the offeror) For e;am!le* A offeror to sell his car for ,) ( la.h B as.s for Rs) 25*555) It is not an acce!tance but a counter offer only) 4) Acce!tance once made* concludes the contract

CONSIDERATION Consideration means 8something in return for something9) ,ection + of the Indian Contract Act defined consideration thus 8Chen at the desire of the !romisor* the !romise or any other !erson has done or abstained from doing* or does or abstains from doing* or !romises to do or abstain from doing something* such act or abstinence or !romise is called a consideration for the !romise)9 0. C$-,'."# /'$- / /8" D",'#" $3 /8" P#$%',$# Consideration must !roceed at the re#uest of the !romisor) =ence acts done voluntarily or at the re#uest of third !arties do not constitute a valid consideration) &urga Prasad Gs Baldev ? A built a mar.et at the re#uest of the Collector of the !lace B !romised to !ay) A commission on the articles sold in the mar.et) It as held that B@s !romise to !ay commission did not constitute a valid consideration because A did not build the mar.et at the re#uest of B)

2. T8" P#$%',"" $# -: $/8"# P"#,$Consideration may move from the !romise or any third !arty) =ence* a stranger to consideration can sue on the contract)

3. < , .$-" $# 7,/ '-". 3#$% .$'-6 $# .$", $# 7,/ '- 3#$% .$'-6 aB Consideration may be e;ecuted* i)e) an act or forbearance made or suffered for the !romise given* or bB Consideration may be e;ecutor* i)e) a !romise to act or abstain from doing in future* or cB Consideration may be !ast* i)e) an act or forbearance already ta.en !lace before the contract as entered into 4. S$%"/8'-6

Consideration may not be ade#uate) But it must be real and la ful) $;am!le ? A agrees to sell a co orth Rs) (+55 for Rs) (5) =e has given his consent freely) The agreement is a contract though consideration is inade#uate) An agreement made ithout consideration is void) But the follo ing are e;ce!tions)

A(B An agreement e;!ressed in riting and registered and made on account of natural love and affection bet een !arties standing in neat relation to each other) A+B A !romise to com!ensate a !erson for the !romisor* or ho has already voluntarily done something

A-B A !romise to discharge a time>barred debt)

CAPACITY TO CONTRACT The !arties ho enter into a contract must have the ca!acity to do so ICa!acity@ means com!etence of the !arties to enter into a valid contract) According to ,ec) (5* an agreement becomes a contract if it is entered into bet een the !arties ho are com!etent to contract) Thus ,ec) (( declares the follo ing !erson to be incom!etent to contract) AiB AiiB AiiiB Minors Persons of unsound mind* and Persons dis#ualified by any la to hich they are sub:ect)

Inca!acity to contract Fgsd.lg:fds.lg asdg:sdl.gsdfg sgsdf Mental deficiency

Ing inca!acity arising of hdfgdf () Foreign ,uvereigns and Ambassadors They may enter into contracts) But they cannot be sued e;ce!t of the Central 3overnment and certified by the ,ecretary) +) Alien $nemy The enemy@s status is to be determined by the !lace at residence of the individual* but not by his nationality) If a contract is already entered into into before the declaration of ar* its !erformance ill be sus!ended during the ith the !ermission

!eriod of ar and in case the ar continues to here !eriod* the contract becomes void on the ground of im!ossibility of !erticugdfgdf contract)

-) Conviet =e is no com!etent to contract during the !eriod of sentence)

/) Ban.ru!t =e cannot enter into contract and bind his !ro!erty as his !ro!erty shall be vested in the official receiver hen he is ad:udged an insolvent)

4) Artificial Person ? Cor!oration It is a !erson in the eye of la ) It is a legal entity) It can !urchase !ro!erties enter into contracts* sue and be sued on such contracts) Its contractual ca!acity is limited) For e;am!le* it cannot enter into contract to marry or hich is ultra vires its !o ers)

(B) INCAPACITY ARISING FROM MENTAL DEFICIENCY A !erson is sand to be mentally deficient minor or AbB he is of unsound mind) hen AaB he does not attain ma:ority) $)g) a

0. W8"- 8" .$", -$/ // '- % =$#'/:* M'-$# A minor is a !erson ho has not com!leted (7 years of age) =e attain ma:ority on com!letion of his +( year in $ngland and (7 year in India) A minor cannot enter into a valid contract) 2. W8"- 8" ', $3 U-,$+-. M'-. ,ection (+ lays do n that ? A !erson is said to be of sound mind for the !ur!ose of ma.ing a contract if at the time hen he ma.es it* he is ca!able of understanding it and of forming a rational :udgement as to tis effect u!on his interests) A !erson ho is usually of unsound mind* but occasionally of sound mind may mase a contract hen he is of sound mind) Illustration? a !atient in a lunatic asylum* contract during those intervals) ho is at intervals of sound mind may

MINOR IN INDIAN LAW A minor is a !erson ho is not a ma:or) =e attains ma:ority on com!letion of +( years in $ngland and (7 years in India) $ven in India he attains ma:ority on com!letion of +( years hen his !ro!erty is managed by a court of ards or a guardian) () In Indian la * a contract by a minor is void) It cannot be even ratified by him after attaining ma:ority) +) A contract entered into by a minor by fraudulently misre!resenting his age is void) =e cannot be sto!!ed from setting u! the !lea of minority) -) 8Minors can have no !rivilege to cheat men9* though la !rotects them* so that !eo!le may not e;!loit their tender age) ,o* if a minor receives goods on credit hile !ayment cannot be enforced goods can be recovered* if restitution is !ossible) /) The !ro!erty of the minor is liable for the necessaries su!!lied to him* !rovided the goods are suitable tot eh condition of his life and status) $ven here* he is not !ersonally liable* but his estate only is liable) 4) Chile a sale or mortgage by a minor is void* a sale or mortgage in favour of a minor is enforceable by him) 6) A contract by a guardian on behalf of the minor is enforceable by or against the minor* !rovided the guardian is com!etent to contract and the contract is beneficial to the minor) But he cannot !urchase immovable !ro!erty ithout obtaining the consent of the court) 2) 0nder ,ec) - of the Indian Partnershi! Act a minor may be admitted to the benefits of !artnershi! ith the consent of all the !artners)

CONSENT AND FREE CONSENT Consent? It means ac#uiescence or act of assenting to an offer) 8T o or more !ersons are said to consent hen they agree u!on the same thing in the same sense9) A,ec) (-B Free Consent? Consent is said to be free A(B Consent as defined in ,ed) (4 or A+B 0ndue influence as defined in ,ec) (6* or A-B Fraud as defined in ,ed) (2* or A/B Misre!resentation as defined in ,ec) (7* or A4B Mista.e* sub:ect to the !rovisions of ,ecs) +5* +(* and ++ A,ec) (/B hen it is not caused by

Chen there is no consent* there is no contract Example : A is forced to sign a !romissory note at the !oint of !istol) A .no s hat he is signing but his consent is not free) The contract in this case is voidable at this o!tion) FLOW IN CONSENT Coercion A,ec) (4B 0ndue influence Misre!resentation A,ec) (6B Mista.e

Fraudulent or Cillful A,ed) (2B

Innocent or unintentional A,ec) (7B

Mista.e of la A,ec) +(B

Mista.e of fact A,ec) +5B

COERCION Chen a !erson is com!elled to enter into a contract by the use of force by the other !arty or under a threat* 8coercion9 is said to be em!loyed) Coercion is the committing* or threatening to commit* any act forbidden by the Indian Penal Code (765 or the unla ful detaining* or threatening to detain* any !ro!erty* to the !re:udice of any !erson hatever* ith the intention of causing any !erson to enter into an agreement)

$;am!le? a threatens to .ill B if he does lend Rs) (555 to C) B agrees to lend the amount to C) The agreement is entered into under coercion) A threat to commit suicide also amounts to coercion)

EFFECT OF COERCION

Chen consent to an agreement is caused by coercion* fraud or misre!resentation* the agreement is a contract voidable at the o!tion of the !arty hose consent as so caused A,ec) (1B

UNDUE INFLUENCE ,ometimes a !arty is com!elled to enter into an agreement against his ill as a result of unfair !ersuasion by the other !arty) This ha!!ens hen a s!ecial .ind of relationshi! e;ists bet een the !arties such that one !arty is in a dominant !osition to e;ercise undue influence over the other) ,ec) (6A(B defines ? undue influence9 as follo s A contract is said to be induced by undue influence here the relations subsisting bet een the !arties are such that one of the !arties is in a !osition to dominate the ill of the other and uses that !osition to obtain an unfair advantage over the other) The follo ing relationshi!s usually raise a !resum!tion of undue influence viF) AiB AiiB AiiiB AivB AvB AviB Parent and child 3uardian and ard Trustee and beneficiary &octors and !atient ,olicitor and client* and Finance and fiancJe

The !resum!tion of undue influence a!!lies henever the relationshi! bet een the !arties is such that one of them is by reason of confidence re!osed in him by the other* able to ta.e unfair advantage over the other)

EFFECT OF UNDUE INFLUENCE Chen consent to an agreement is obtained by undue influence* the agreement is a contract voidable at the o!tion of the !arty hose consent as so obtained) Any such contract may be set aside either absolutely or if the !arty ho is entitled to avoid it has received any benefit thereunder* u!on such terms and conditions as to the Court may seem :ust and e#uitable A,ec) (1>AB

DIFFERENCE BETWEENS COERCION AND UNDUE INFLUENCE S. N$. () C$"#&'$U-.+" I-3(+"-&" The consent is given under the The consent is given by a !erson threat of an offence ho is so situated in relation to another that the other !erson is in a !osition to dominate his ill Coercion is mainly of a !hysical 0ndue influence is of moral character) It involves mostly use character) It involves use of moral of !hysical or violent force) force or mental !ressure) There must be intention of =ere the influencing !arty uses its causing any !erson to enter into !osition to obtain an unfair an agreement advantage over the other !arty It involves a criminal act "o criminal act is involved

+)

-)

/)

MISREPRESENTATION AND FRAUD MISREPRESENTATION Misre!resentation is a false statement hich the !erson ma.ing it honestly believes to be true or hich he does not .no to be false) It also includes non>disclosure of a material fact or facts ithout any intent to deceive the other !arty) ,ec) (7 defines 8misre!resentation9 According to it* there is misre!resentation A(B Chen a !erson !ositively asserts that a fact is true hen his information does not arrant it to be so* though he believes is to be true) A+B Chen there is any breach of duty by a !erson hich brings an advantage to the !erson committing it by misleading another to his !re:udice) A-B Chen a !arty causes* ho ever innocently* the other !arty to the agreement to ma.e a mista.e as to the substance of the thing hich is the sub:ect of the agreement)

FRAUD Fraud e;ists hen it is sho n that a false re!resentation has been made AaB .no ingly* or AbB ithout belief in its truth* or AcB rec.lessly* not caring hether it is true or false* and the ma.er intended the other !arty to act u!on it) MISTAKE OF LAW

Mista.e of la country)

be A(B mista.e of la

of the country or A+B mista.e of la

of a foreign

() Mista"e of law of the country: Ignorantta :uris non e;erts $;) Ignorice of la s is no e;clause ? is a ell settled rule of la ) A !arty cannot be allo ed to get any relief on the ground that it had done a !articular act in ignorance of la ) A mista.e of la is* therefore* no e;cuse* and the contract cannot be avoided) $;am!le? A and B enter into a contract on the erroneous belief that a !articular debt is barred by the Indian %a of %imitation) This contract may be voidable) +) Mista"e of law of a forei#n country: ,uch a mista.e is treated as mista.e of fact and the agreement in such a case is void) A,ec) +(B

MISTAKE OF FACT Mista.e of fact may be A(B a bilateral mista.e* or A+B a unilateral mista.e

0. B'( /"# ( M',/ 9" Chere both the !arties to an agreement are under a mista.e as to a matter of fact essential to the agreement* there is a bilateral mista.e) In such a case the agreement is void Asec) +5B) The follo ing t o conditions have to be fauced for the a!!lication of ,ec) +5) AiB The mista.e must be mutual i)e) both the !arties should misunderstand each other and should be at a cross>!ur!oses) $;am!le? A agreed to !urchase B@s motor>car hich as lying in B@s garage) 0n.no n to either !arty* the car and garage here com!letely destroyed by fire a day earlier) The agreement is void

AiiB

The mista.e must relate to a matter of fact essential to the agreement) As to hat facts are essential in an agreement ill de!end u!on the nature of the !romise in each case)

$;am!le? A man and a oman entered into a se!aration agreement under hich the man agreed to !ay a ee.ly allo ance to the oman mista.enly believing themselves la fully married leld the agreement as void as there as mutual mista.e on a !oint of fact hich as material to the e;istence of the agreement)

The various cases hich fail under bilateral mista.e are as follo s?

M',/ 9" , /$ /8" S+7="&/ M //"#* Chere both the !arties to an agreement are or.ing under a mista.e relating to the sub:ect>matter* the agreement is void) Mista.e as to the sub:ect>matter covers the follo ing cases)

A(B Mista"e as to the e$istence of the su !ect-matter: If both the !arties believes the sub:ect>matter of the contract to be in e;istence* hich in fact at the time of the contract is non>e;istent* the contract is void) Example: A agrees to buy from B a certain goat) It turns out that the goat as dead at the time of the bargain* though neither !arts as a are of the fact) The agreement is void)

A+B Mista"e as to the identity of the su !ect-matter: It usually arises here one !arty intends to deal in one thing and the other intends to deal in another) $;am!le? C agreed to buy from R a cargo on cotton to arrive e;>!eerless from Bombay9) There ere t o shi!s of that name sailing from Bombay* one sailing in <ctober and the other in &ecember) C meant the former shi! R meant the latter) =eld* there as a mutual or a bilateral mista.e and there as no contract)

A-B Mista"e as to the %uality of the su !ect-matter: If the sub:ect matter is something essentially different from hat the !arties thought it to be the agreement is void) Example: A sells to B a !rece of sil. B thin.s that it is foreign sil.) A .no s that B thin.s so but .no s that it is Indian sil. only)

A/B Mista"e as to the %uantity of the su !ect-matter: If both the !arties are or.ing under a mista.e as to the #uantity of the sub:ect>matter the agreement is void) Example: A silver bar as sold under a mista.e as to its eight) There as a difference in value bet een the eight of the bar as it as and as it as su!!osed to be =eld the agreement as void)

A4B Mista"e as to the title to the su !ect-matter: If the seller as selling a thing hich he is not entitled to sell and both the !arties are acting under a mista.e* the agreement is void) Example: A !erson too. a lease of a fishery hich* un.no n to either !arty already belonged to him) =eld* the lease as void)

A6B Mista"e as to the price of the su !ect-matter: if there is a mutual mista.e as to the !rice of the sub:ect>matter* the agreement is void) Example: C rote to & offering to sell certain !ro!erty for Rs) (4*555) =e had earlier declined an offer from & to buy the same !ro!erty for Rs) +5*555) & ho .ne that his offer of Rs) (4*555 as a mista.e for Rs) +4*555* immediately acce!ted the offer) =eld* & .ne !erfectly ell that the offer as made by mista.e and hence the contract could not be enforced)

M',/ 9" , /$ /8" P$,,'7'('/: $3 P"#3$#%'-6 /8" C$-/# &/ Consent is nullified if both the !arties believe that in agreement is ca!able of being !erformed hen in fact this is not the case) The agreement* in such a case* is void on the ground of im!ossibility) Im!ossibility may beK &i' (hysical Impossi ility Example: A contract for the hire of a room for itnessing the coronation !rocession of $d ard GII as held to be void because un.no n to the !arties the !rocession had already been cancelled)

AiiB

Le#al Impossi ility: A contract is void if it !rovides that something shall be done hich cannot* as a matter of la be done)

2. U-'( /"# ( M',/ 9" Chen in a contract only one of the !arties is mista.en regarding the sub:ect matter or in e;!ressing or understanding the terms or the legal effect of the agreement the mista.e is a unilateral mista.e) According to ,ec) ++* a contract is not voidable merely because it as caused by one of the !arties to it being under a mista.e as to a matter of fact) A unilateral mista.e is not allo ed as a defence in avoiding a contract unless the mista.e is brought about by the other !arty@s fraud or misre!resentation)

$;am!le? A offers to sell his house to B for an intended sum of Rs) //*555) By mista.e he ma.es an offer in riting of Rs) /5*555) =e cannot !lead mista.e as a defence)

LEGALITY OF OB>ECT A contract must have a la ful ob:ect) The ord ob:ect means !ur!ose of design) In some cases consideration for an agreement may be la ful but the !ur!ose for hich the agreement is entered into may be unla ful) In such cases the agreement is void) As such both the ob:ect and the consideration of an agreement must be la ful other ise the agreement is void)

The consideration or ob:ect of an agreement is unla ful

() If the ob:ect is forbidden by la Example: A !romise to obtain for B an em!loyment in the !ublic service and (7 !romises to !ay Rs) (*55*555 to A) the agreement is void* as the consideration is unla ful) +) If the ob:ect is !ermitted* it ould defeat the !rovisions of any la Example: " agreed to enter a com!any@s service in consideration of a ee.ly age of Rs) 24 and a ee.ly e;!ense allo ance of Rs) +4) Both the !arties .ne that the e;!ense allo ance as a device to evade ta;) =eld the agreement as unla ful) -) If the ob:ect is fraudulent? An agreement hich is made for a fraudulent !ur!ose is void) Thus an agreement in fraud of creditors ith a vie to defeating their rights is void) /) If the Court regards the ob:ect as immoral Example: A agrees to let her daughter to B for concubinage Astate of living together as man and ife ithout being married) The agreement is unla ful* being immoral) 4) Chere the Court regards it as o!!osed to !ublic !olicy)

UNLAWFUL AND ILLEGAL AGREEMENTS

An unla ful agreement is one hich* li.e a void agreement* is not enforceable by la ) An illegal agreement is not only* void as bet een the immediate !arties but has further effect that the collateral transactions to it also become tainted ith illegality)

$;am!le? T lends Rs) 45*555 to B to hel! him to !urchase some !rohibited goods from T* an alien enemy) If B enters into an agreement ith T* the agreement ill be illegal and the agreement bet een B and T shall also become illegal* because it is collateral to the main transaction) T cannot* therefore* recover the amount)

AGREEMENTS OPPOSED TO PUBLIC POLICY An agreement is said to be o!!osed to !ublic !olicy hen it is harmful to the !ublic elfare) ,ome of the agreements hich are o!!osed to !ublic !olicy and are unla ful are as follo s) () Agreements of trading with enemy: An agreement made time of ar is illegal on the ground of !ublic !olicy) ith an alien enemy in

+) Agreement to commit a crime: Chere the consideration in an agreement is to commit a crime* the agreement is o!!osed to !ublic !olicy) The Court ill not enforce such an agreement) -) Agreements which interfere with administration of police: An agreement* the ob:ect of hich is to interfere ith the administration of :ustice is unla ful* being o!!osed to !ublic !olicy) It may ta.e any of the follo ing forms) (a Interference with the course of justice: An agreement ordinary !rocess of :ustice is unla ful) hich obstructs the

(! "tifling prosecution: It is in !ublic interest that if a !erson has committed a crime* he must be !rosecuted and !unished) (c Maintenance and champerty: Maintenance@ is an agreement to give assistance* financial or other ise* to another to enable him to bring or defend legal !roceedings hen the !erson giving assistance has got no legal interest of his o n in the sub:ect>matter)

/) Agreements in restraint of legal proceedings : ,ec) +7 agreements)

hich deals

ith these

AaB Agreements restricting enforcement of rights? An agreement hich holly or !artially !rohibits any !arty from enforcing his rights under or in res!ect of any contract is void to that e;tent) AbB Agreements curtailing !eriod of limitation? Agreements hich curtail the !eriod of limitation !rescribed by the %a of %imitation are void because their ob:ect is to defeat the !rovisions of la ) 4) #rafficking in pu!lic offices and rules: Agreements for the sale or transfer of !ublic offices and titles or for the !rocurement of a !ublic recognition li.e Padma Gibhushan or Param Geer Cha.ra for monetary consideration are unla ful being o!!osed to !ublic !olicy) $;am!le? R !aid a sum of Rs* +*45*555 to A ho agreed to obtain a seat for R@s son in a Medical College) <n A@s failure to get the seat* R filed a suit for the refund of Rs) +*55*555) =eld* the agreement is void on the ground of !ublic !ro!erty)

6) Agreements tending to create interest opposed to duty: If a !erson enters into an agreement hereby he is bound to do something hich is against his !ublic or !rofessional duty the agreement is void on the ground of !ublic !ro!erty) 2) Agreements in restraint of paternal rights: A father* and in his absence the mother* is the legal guardian of hisDher minor child) This rights of guardianshi! cannot be bartered a ay by any agreement) 7) Agreements restricting personal li!erty: Agreements hich unduly restrict the !ersonal freedom of the !arties to it are void as being against !ublic !olicy) 1) Agreements in restraint of marriage: $very agreement in restraint of the marriage of any !erson* other than a minor* is void A,ec) +6B) This is because the la regards marriage and married status as the right of every individual) (5) Marriage !rokerage or !rocage agreements: An agreements by hich a !erson for a monetary consideration* !romises in return to !rocure the marriage of another is void being o!!osed to !ublic !olicy) (() Agreements interfering with marital duties: Any agreement hich interferes ith the !erformance of marital duties is void being o!!osed to !ublic !olicy) ,uch agreements have been held to include the follo ing) AaB A !romise by a married !erson to marry during the lifetime or after the death of s!ouse) AbB An agreement in contem!lation of divorce e)g) an agreement to lend money to a oman in consideration of her getting a divorce and marrying the lender)

AcB An agreement that the husband and ife ill al ays stay at the !arents@ house and that the ife ill never leave her !arental house)

ife@s

(+) Agreements to defraud creditors or revenues authorities: An agreement the ob:ect of hich is to defraud the creditors or the revenue authorities is not enforceable being o!!osed to !ublic !olicy) (-) Agreements in restraint of trade: An agreement hich interferes ith the liberty of a !erson to engage himself in any la ful trade !rofession or vocation is called an agreement in restraint of trade)

VOID AGREEMENTS A void agreement is one hich is not enforceable by la L,ec) + M ,uch an agreement does not give rise to any legal conse#uences and e;aused ab initio)

The follo ing agreements have been e;!ressly deciared to be void by the Contract Act) (B Agreements by incom!etent !arties A,ec) ((B +B Agreements made under a mutual mista.e of fact L,ec) +5M) -B Agreements the consideration or ob:ect of hich is unla ful A,ec) +-B /B Agreements the consideration or ob:ect of hich is unla ful in !art A,ec) +/B 4B Agreements made ithout consideration A,ec) +4B

6B Agreements in restraint of marriage A,ec) +6B) 2B Agreements in restraint of trade A,ec) +2B 7B Agreements in restraint of legal !roceedings A,ec) +7B 1B Agreements the meaning of hich is uncertain A,ec) +1B (5BAgreements by ay of ager A,ec) -5B ((BAgreements contingent on im!ossible events A,ec) -6B (+BAgreements to do im!ossible acts A,ec) 46B (-BIn case of reci!rocal !romises to do things legal and also other things illegal* the second set of reci!rocal !romises is a void agreement A,ec) 42B

WAGERING AGREEMENTS OR WAGER A ager is an agreement is an agreement bet een t o !arties by hich one !romises to !ay money or money@s orth on the ha!!ening of some uncertain event in consideration of the other !arty@s !romise to !ay if the event does not ha!!en) Thus if A and b enter into an agreement that A shall !ay B Rs) (55 if it rains on Monday* and that B shall !ay A the same amount if it does not rain* it is a agering agreement)

E,,"-/' (, $3 W 6"#'-6 A6#""%"-/* A(B Promise to !ay money or money@s orth? The a !romise to !ay money or money@s orth) agering agreement must contain

A+B 0ncertain event? The !romise must be conditional on an event ha!!ening or not ha!!ening) A-B $ach !arty must stand to in or lose? 0!on the determination of the contem!lated event* each !arty should stand to in or lose) A/B "o control over the event? "either !arty should have control over the ha!!ening of the event one ay or the other A4B "o other interest on the event? "either !arty should have nay interest in the ha!!ening or non>ha!!ening of the event other gdfg:dg sum or sta.e he ill ith or lose

CONTINGENT CONTRACTS IContingent@ means that hich is de!endent on something else) A Contingent Contract is a contract to do or not to do something* if some event collateral to such contract* does or does not ha!!en A,ec) -(B) For e;am!le* goods are sent on a!!roval the contract is a contingent contract de!ending on the act of the buyer to acce!t or re:ect the goods) There are three essential characteristics of a contingent contract)

() Its !erformance de!ends u!on the ha!!ening or non>ha!!ening in future of some event) It is this de!endence on a future event hich distinguishes a contingent contract from other contracts) +) The event must be uncertain) If the event if bound to ha!!en* and the contract has got to be !erformed in any case it is not a contingent contract -) The event must be collateral* i)e) incidental to the contract

Contracts of insurance* indemnity and guarantee are the commonest instances of a contingent contract)

RULES REGARDING CONTINGENT CONTRACTS () Contingent contracts de!endent on the ha!!ening of an uncertain future event cannot be enforced until the event has ha!!ened) If the event becomes im!ossible* such contracts become void A,ec) -+B Example: A contracts to !ay B a sum of money hen B marries C) C dies being married to B) The contract becomes void) ithout

+) Chere a contingent contract is to be !erformed if a !articular event does not ha!!en* its !erformance can be enforced hen the ha!!ening of that event becomes im!ossible) A,ec) --B Example: A agrees to !ay B a sum of money* if a certain shi! does not return) The shi! is sun.) The contract can be enforced hen the shi! sin.s)

-) If a contract is contingent u!on ho a !erson ill act at an uns!ecified time* the event shall be considered to become im!ossible hen such !erson does anything hich renders it im!ossible that he should so act ithin any definite time* of other ise than under further contingencies A,ec) -/B Example: A agrees to !ay B a sum of money if B marries C) C marries &) The marriage of B to C must not be considered im!ossible* although it is !ossible that & may die and that C may after ards marry B)

/) Contingent contracts to do r onto to do anything* if a s!ecified uncertain event ha!!ens ithin a fi;ed time* become void if the event does not ha!!en or its ha!!ening becomes im!ossible before the e;!iry of that time) $;am!le? A !romises to !ay B a sum of money if a certain shi! returns ithin a year) The contract may be enforced if the shi! returns ithin the year and becomes void if the shi! is burnt ithin the year)

4) Contingent agreements to do or not to do anything* if an im!ossible event ha!!ens are void* hether or not the fact is .no n to the !arties A,ec) -6B)

PERFORMANCE OF CONTRACT Performance of a contract ta.es !lace hen the !arties to the contract fulfil their obligations arising under the contract ithin the time and in the manner !resented)

OFFER TO PERFORM ,ometimes it so ha!!ens that the !romisor offers to !erform him obligation under the contract at the !ro!er time and !lace but the !romise does not acce!t the !erformance) This is .no n as 8attem!ted !erformance9 or 8tender9)

RE?UISITES OF A VALID TENDER () It must be unconditional) It becomes conditional the terms of the contract) hen it is not in accordance ith

+) It must be of the hole #uantity contracted for or of the hole obligation) A tender of an installment hen the contract sti!ulates !ayment in full is not a valid tender) -) It must be by a !erson ho is in a !osition* and is illing* to !erform the !romise)

/) It must be made at the !ro!er time and !lace) A tender of goods after the business hours or of goods or money before the due date is not a valid tender) 4) It must be made to !ro!er !erson* i)e) the !romise or his duly authoriFed agent) It must also be in !ro!er form) 6) It may be made to one of the several :oint !romises) In such a case it has the same effect as a tender to all of them) 2) In case of tender of goods* it must give a reasonable o!!ortunity to the !romise for ins!ection of goods) 7) In case of tender of money* the debtor must ma.e a valid tender in the legal tender money)

RECIPROCAL PROMISES Promises hich form the consideration or !art of the consideration for each other are called? reci!rocal !romises9 L,ec) +AfBM) Chere* for e;am!le? A !romises to do or not to do something and consideration of B is !romise to do or not to do something the !romises are reci!rocal)

These !romises have been classified is follo s?

A(B Mutual and Inde!endent? Chere each !arty must !erform his !romise inde!endently and irres!ective of the fact hether the other !arty has !erformed or is illing to !erform his !romise or not the !romises are mutual and inde!endent) Example: In a contact of sale* B agrees to !ay the !rice of goods on of instant) , !romises to su!!ly the goods on + nd instant) The !romises are mutual and inde!endent)

A+B Conditional and &e!endent? Chere the !erformance of the !romise by one !arty de!ends on the !rior !erformance of the !romise by the other !arty the !romises are conditional and de!endent)

$;am!le? A !romises to remover certain debris lying in front of B@s house !rovided B su!!lies him ith the cart) The !romises in this case are conditional and de!endent) A need not !erform his !romise if B fails to !rovide him ith the cart)

A-B Mutual and Consent? Chere the !romises of both the !arties are to be !erformed simultaneously they are said to be mutual and concurrent) The e;am!le of such !romises may be sale of goods for cash)

R+(", R"6 #.'-6 P"#3$#% -&" $3 R"&'!#$& ( P#$%',", (B ,imultaneous !erformance of reci!rocal !romises +B <rder of !erformance of reci!rocal !romises -B $ffect of one !arty !reventing another from !erforming !romise /B $ffect of default as to !romise to be !erformed first) 4B Reci!rocal !romise to do things legal and also other things illegal

TIME AS T<E ESSENCE OF T<E CONTRACT

The e;!ression 8time is of the essence of the contract 8 means that a breach of the condition as to the time for !erformance ill entitle the innocent !arty to consider the breach as a re!udiation of the contract)

,ec) 44 deals ith the #uestion of 8time as the essence of the contract9 and !rovides)

() Chen time is of the essence? In a contract* in hich time if of the essence of the contract* if there is a failure on the !art of the !romisor to !erform his obligation ithin the fi;ed time) The contract Aor so much of it as remains un!erformed becomes voidable at the o!tion of the !romise A,ec) 44 !ara (B) If* in such a case the !romise acce!ts !erformance of the !romise after the fi;ed time* he cannot claim com!ensation for nay loss occasioned by the non>!erformance of the !romise at the agreed time) But if at the time of acce!ting the delayed !erformance he gives notice to the !romisor of his intention to claim com!ensation* he can do so A,ec) 44 !ara -B In commercial or mercantile contracts hich !rovide for !erformance ithin a s!ecified time* time is ordinarily of the essence of the contract) This is so because businessmen ant certainty) $;am!le? In a contract for the sale or !urchase of goods the !rices of hich fluctuate ra!idly in the mar.et* the time of delivery and !ayment are considered to be of the essence of the contract)

+) Chen time is not of the essence? In a contract* in hich time is not of the essence of the contract* failure on the !art of the !romisor to !erform his obligation ithin the fi;ed time does not ma.e the contract voidable* but the !romise is entitled to com!ensation for any loss occasioned to him by such failure A,ed) 44 !ara +B Intention to ma.e time as the essence of the contract* if e;!ressed in riting* must be in a language hich is unambiguous and unmista.able) The mere fact that a certain time is s!ecified in a contract for the !erformance of a !romise does not necessarily ma.e time as the essence of the contract) If the contract includes clauses !roviding for e;tension of time in certain contingencies or for !ayment of fine or !enalty for every day or ee. the or. underta.en remains unfinished on the e;!iry of time !rovided in the contract* such clauses are construed as rendering ineffective the e;!ress !rovision relating to the time being of the essence of the contract)

TERMINATION AND DISC<ARGE OF CONTRACT &ischarge of contract means termination of the contractual relationshi! bet een the !arties) A contract is said to be discharged hen it ceases to o!erate* i)e) hen the rights and obligations created by it come to an end)

A contract may be discharged () By Performance +) By Agreement or Consent -) By im!ossibility /) By %a!se of Time 4) By o!eration of %a 6) By Breach of Contract

0. D',&8 #6" 7: P"#3$#% -&" Performance means the doing of that hich is re#uired by a contract) &ischarge by !erformance ta.es !lace hen the !arties to the contract fulfill then obligations arising under the contract ithin the time and in the manner !rescribed) Performance of a contract is the most usual mode of its discharge) It may be A(B Actual Performance? Chen both the !arties !erform their !romises the contract is discharged) Performance should be com!lete !recise and according to the terms of the agreement) A+B Attem!ted Performance or Perfer? Tender is not actual !erformance but is only an after to !erform the obligation under the contract) 2. D',&8 #6" 7: 6#""%"-/ $# &$-,"-/ AaB ,ec) 6+ lays do n that if the !arties to a contract agree to substitute a ne contract for it or to rescind or to alter it the original contract is discharged and need not be !erformed) The various cases of discharge of contract by mutual agreement are dealt ,ec) 6+ and 6- are given belo ) Rescission ,ec) 6+? "ovation ta.es !lace an e;isting one bet een the same !arties) hen a ne ith in

contract is substituted for

$;am!le? A o es money to B under a contract) It is agreed bet een A* B and C that B shall henceforth acce!t C as his debtor* instead of A) the old debt of A to B is at an end and a ne debt from C to B has been contracted)

AbB Rescission ,ec) 6+? Rescission of a contract ta.es !lace the terms of the contract are cancelled) It may occur AiB AiiB By mutual consent of the !arties or

hen all or some of

Chere one !arty fails in the !erformance of his obligation in such a case the other !arty may rescind the contract ithout !re:udice to his right to claim com!ensation for the breach of contract)

$;am!le? A !romises to su!!ly certain goods to B si; months after date) By that time* the goods go out of fashion) A and B may rescind the contract)

AcB Alteration A,ec 6+B? Alteration of a contract may ta.e !lace hen one or more of the terms of the contract is are altered by the mutual consent of the !arties to the contract) In such a case* the old contract is discharged) $;am!le? A enters into a contract ith B for the su!!ly of (55 bales or cotton at his 3odo n "o) ( by the first of the ne;t month) A and B may after the terms of the contract by mutual consent)

AdB Remission ,ec) 6-B Remission means acce!tance of a lesser fulfilment or the !romise made* i)e) acce!tance of a lesser sum than hat as contracted for the discharge of the hole of the debt) $;am!le? A o es B Rs) 45*555) A !ays to B and B acce!ts in satisfaction of the hole debt) Rs) +5*555 !aid at the time and !lace at hich Rs) 45*555 ere !ayable) The hole debt is discharged)

AeB Caver? Caver ta.es !lace hen the !arties to a contract agree that gdfsg shall no longer be bound by the contract) This amounts to a mutual thandonment at rights by the !arties to the contract) AfB Merger? Merger tales !lace hen an inferior right accuring to a !arty under a contract merger into a su!erior right accruing to the same !arty under the same on some other contract) $;am!le? P holds a !ro!erty under a lease) =e later buys the !ro!erty) =is rights as a lessee merge into his rights as an o ner)

3. DISC<ARGE BY IMPOSSIBILITY OF PERFORMANCE If an agreement contains an underta.ing to !erform an im!ossibility* it is void ab initio) This rule is based on the follo ing ma;ims? () Impossi!ility existing of the time of agreement: ,ec) 46 lays do n that can agreement to do an im!ossible act itself is void9) This is .no n as !re>contractual or initial im!ossibility) +) Impossi!ility arising su!se$uent to the formation of contract: Im!ossibility hich arises subse#uent to the formation of a contract A hich could be !erformed at the time hen the contract as entered intoB is called !ost>contractual or su!ervening im!ossibility)

D',&8 #6" 7: S+!"#@"-'-6 I%!$,,'7'('/: A contract is discharged by su!ervising im!ossibility in the follo ing cases

() &estruction of sub:ect>matter of contract? Chen the sub:ect>matter of a contract* subse#uent to its formation* is destroyed ithout any fault of the !arties to the contract* the contract is discharged) $;am!le? C let a music hall to T for a series of concerts on certain days) The hall as accidentally burnt do n before the date of the first concert) =eld the contract as void)

+) "on>e;istence or "on>occurrence of a !articular state of things? ,ometimes* a contract is entered into bet een t o !arties on the basis of a continued e;istence or occurrence of a !articular state of things) If there is any change in the state of things hich ought to have occurred does not occur* the contract is discharged) $;am!le? A and B contract to marry each other) Before the time fi;ed for the marriage* A goes mad) The contract becomes void)

-) &eath or Inca!acity for !ersonal service? Chere the !erformance of a contract de!ends on the !ersonal s.ill or #ualification of a !arty* contract is discharged on the illness or inca!acity or death of that !arty) The man@s life is an im!lied condition of the contract)

$;am!le? An artist undertoo. to !erform at a concert for a certain !rice) Before she could do so* she as ta.en seriously ill) =eld she as discharged due to illness) /) Change of la ? Chen subse#uent to the formation of a contract change of la ta.es !lace* and the !erformance of the comerge becomes im!ossible the contract discharged) $;am!le? & enters into a contract ith P on ( st March for su!!ly of ghd.:fg im!orted goods in the month of ,e!tember of the same year in Hune gdfg fgdf Parliament the im!ort of such goods is banned) The contract is discharged)

4) <utbrea. of ar ? A contract entered into ith an after enems during ar is unla ful and therefore im!ossible for !erformance) Contracts entered into before the outbrea. of ar are sus!ended during the ar and may be revived after the ar is over)

4.

DISC<ARGE BY LAPSE OF TIME

The %imitation Act (16- la s do n that a contract should be !erformed ithin a s!ecific !eriod called !eriod of limitation) If it is not !erformed and if no action is ta.en by the !romise ithin the !eriod of limitation he is de!rived of his remedy at la ) For e;am!le the !rice of goods sold ithout any sti!ulation as to credit should be !aid ithin three years of the delivery of the goods) If the !rice is not !aid and creditor does not file a suit against the buyer for the recovery of !rice ithin three years the debt becomes time>barred and hence irrecoverable)

A.

DISC<ARGE BY OPERATION OF LAW A contract may be discharged by o!eration of la ) This includes discharge

AaB By &eath? In contracts involving !ersonal s.ill or ability* the contract is terminated on death of the !romissory) In other contracts the rights and liabilities of a deceased !erson !ass on to the legal re!resentatives of the deceased !erson) AbB By Merger? Chen an inferior right accruing to a !arty merges into a su!erior rights accruing to the same !arty under the same or some other contract the inferior right accruing to the !arty is said to be discharged) AcB By Insolvency? Chen a !erson is ad:udged insolvent* he is discharged from all liabilities incurred !rior to his ad:udication)

AdB By Authorised Alteration of the terms of a ritten agreement? Chere a !arty to a contract ma.es any material alteration in the contract ithout the consent of the other !arts* the other !arts can avoid the contract) A material alteration is one hich changes in a significant manner the legal identity or character of the contract or the rights and liabilities of the !arties to the contract) AeB B y Rights and %iabilities becoming visited of the dfgdfg Person? Chere the rights and liabilities under a contract vested in the same !erson for e;am!le hen a bill gets into the hands of the acce!tor* the other !arties are discharged)

6. DISC<ARGE BY BREAC< OF CONTRACT Breach of contract means a brea.ing of the obligation hich a contract im!oses) It occurs hen a !arty to the contract ithout la ful e;cuse does not fulfil his contractual obligation or by his o n act ma.es it im!ossible that he should !erform his obligation under it) It confers a right of action for damages on the in:ured !arty)

REMEDIES FOR BREAC< OF CONTRACT Chen a contract is bro.en* the in:ured !arty has one or more of the follo ing remedies?

() Rescission of the contract +) ,uit for damages -) ,uit u!on #uantum meruit /) ,uit for s!ecific !erformance of the contract 4) ,uit for in:unction

0. RESCISSION Chen a contract is bro.en by one !arty* the other !arty may sue to treat the contract as rescinded and refuse further !erformance) In such a case* be is absolved of all his obligations under the contract) $;am!le? a !romises B to su!!ly (5 bags of cement on a certain day) B agrees to !ay the !rice after the recei!t of the goods) A does not su!!ly the goods) B is discharged from liability to !ay the !rice) The Court may grant rescission)

AaB Chere the contract is voidable by the !lamtiff of AbB Chere contract is unla ful to fgdfg but a!!arent off its face and the defendant is more to blame thatn the gdfgdf

Chen a !arty treats the contracts as rescinded be ma.es himself liable to restgdf any benefits he has fgdfg of under the contract to the !arty from hom such benefits ere received) But if a !erson rightfully rescinds a contract he is entitled to com!ersation for any damage hich he has sustained through non>fulfilment of the contract by the other !arty)

2. DAMAGES &amages are a moctars com!ensation allo ed to the in:ured !arty by the Court for the loss or in:urs suffered by him by the breach of a contract) The ob:ect of a arding damages for the search of a contract is to !ut the in:ured !arty in the same !osition* so far as money am the it* as if he had not been in:ured* i)e) in the !osition in hich he ould have been had there been !erformance and not breach) This is called the doctrine of restitution)

The rules relating to damages may be considered as under 0. D % 6", #','-6 - /+# ((: O#.'- #: . % -6", Chen a contract has been bro.en* the in:ured !arty can recover from the other !arty such damages as naturally and directly arose in the usual course of things from the breach) This means that the damages must be the !ro;imate conse#uence of the breach of contract) These damages are .no n as ordinary damages) $;am!le? A contracts to sell and deliver 45 #uintals of Farm Cheat to B at Rs) (555 !er #uintal* the !rice to be !aid at the time of delivery the !rice of heat rises to Rs) (+55 !er #uintal and A refuses to sell the heat B can claim damages at the rate of Rs) +55 !er #uintal)

+) &amages in contem!lation of the !arties ,!ecial damages ,!ecial damages can be claimed only under the s!ecial circumstances hich ould result in a s!ecial loss in case of breach of a contract) ,uch damages .no s as s!ecial damages cannot be claimed as a matter of right)

$;am!le? A) a builder* contracts to erect a house for B by the ( st of Hanuary) The order that B may give !ossession of it at that time to C to hom B has contracted to hfdg it) A is informed of the contract bet een B and C) A builds the house so badly that before the ( st Hanuary* it falls do n and has to be rebuilt by B fgdfg vonse#uence loses the rent hich be as to have received from C* and gdfgdfgdf to ma.e com!ensation to C fvor the breach of the contract) A must ma.e cgdfgdfgd to gdfg for the cost of rebuilding the house for the rent lost* and for the com!ensation made to)

3. V'-.'&/'@" $# E;"%!( #: . % 6", &amages for the breach of a contract are given by ay of com!ensation for loss suffered* and not by ay of !unishement for rong inflicted) =ence vindictive or e;em!lary@ damages have no !lace in the la of contract because they are !unitive involving !unishment by nature) But in case of AaB breach of a !romise to marry and the dishonor of a che#ue by a ban.er rongfully hen he !ossesses sufficient funds by the credit of the customer* the Court may a ard e;em!lary damages)

4. N$%'- ( . % 6", Chere the in:ured !arty has not in fact suffered any loss by reason of the breach of a contract* the damages recoverable by him are nominal) These damages merels ac.no ledge that the !laintiff has !roved his case and on) $;am!le? A firm consisting of four !artners em!loyed B for a !eriod of t o years) After si; months t o !artners rebred the business being carried on by the other t o B declined to be em!loyed under the continuing !artners) =eld* he as only entitled to nominal damages as he had suffered no loss)

A. D % 6", 3$# ($,, $3 #"!+/ /'$&amages for loss of re!utation on case of breach of a contract are generally not recoverable) An e;em!uon to this rule e;ists in the case of a ban.er ho rongfully refuses to honour a customer@s che#ue) If the customer ha!!ens to be a tradesman* he can recover damages in res!ect of any loss to his trade re!utation byh the breach) And the rule of la is the smaller the amount of the che#ue dishonoured the larger the amount of damages a arded) But if the customer is not a tradesman be can recover only nominal damages) 6. D % 6", 3$# '-&$-@"-'"-&" -. .',&$%3$#/

&amages can be recovered for !hysical inconvenience and discomfort) The general rule in this connection is that the measure of damages is not affected by the motive or the manner of the breach) $;am!le? A as rongfully dismissed in a harsh and humiliating manner by from his em!loyment) =eld AaB A could recover a sum re!resenting his ages for the !eriod of notice and the commission hich he ould have earned during that !eriod but AbB he could not recover anything for his in:ured feelings or for the loss sustained from the fact that his dismissal made it more difficult for him to obtain em!loyment)

2. M'/'6 /'$- $3 . % 6", It is the duty of the in:ured !arty to ta.e all reasonable ste!s to mitigate the loss caused by the breach) =e cannot claim to be com!ensated by the !arty in default for loss hich the ought reasonably to have avoided) That is he cannot claim com!ensation for loss hich is really due not to the breach* but due to his o n neglect to mitigate the loss after the breach)

1. D'33'&+(/: $3 A,,",,%"-/ Although damages hich are inca!able of assessment cannot be recovered the fact that they are difficult to assess ith certainty or !recision does not !revent the aggrieved !arty from recovering them) The Court must do its best estimate the loss and a contingences may be ta.en into account) $;am!le? = advertised a beauty com!etition by hich gfdgf. of certain ne s!a!ers ere to select fifty ladies) =e himself as to select t elve out of these fifty) The selected t elve ere to be !rovided theatrical encagements) C as one of the fifty and by =@s breach of contract she as not !resent hen the final section as made) =eld C as entitled to damages although it as difficult to assess them)

1) Cost of &ecree The aggrieved !arty is entitled in addition to damages to get the cost of getting the decree for damages) The cost of suit for damages is in the discretion of the Court)

(5) &amages agreed u!on in advance in case of breach

If a sum is s!ecified in a contract as the amount to be !aid in case of its gdfgdf or if the contract contains any other sti!ulation by ay of gdfgdfg dfg failure to !erform the obligations the aggrieved !arty is entiled to gfdgd from the gdfgd has bro.en the contract a reasonable com!ensation not e;ceeding the fgdfg named) $;am!le? A contracts ith B to !ay Rs) (555 if he fails to !ay gdfgdf g given day) B is entitled to recover from A such com!ensation not e;ceeding Rs) &fgd as the Court considers reasonable)

L'B+'. /". D % 6", -. P"- (/: ,ometimes !arties to a contract sti!ulate at the time of its formation that on the breach of the contract by either of them a certain s!ecified sum gdfgd be !ayable as damages) ,uch a sum may amount to either li#uidated damages or a !enalty) %i#uidated damages re!resent a sum fi;edc or ascertained by the !arties in the contract hich is a fair and genuine !re>estimate of the !robable loss that gdfg fgd fg as a result of the breach) If it ta.es !lace) A !enalty is a sum named in the contract at the time of its formation* hich is dis!ro!oetionate to the damages li.ely to fdgdfgd as a result of the breach) It is fi;ed u! ith a vie to securing the !erformance of the contract)

P :%"-/ $3 I-/"#",/ The largest number of cases decided under ,ec) 2/ relate to sti!ulation if a contract !roviding for !ayment of interest) The follo ing rules are observed ith regard to !ayment of interest) () Payment of interest in case of default) +) Payment of interest at higher rate a) From the date of the bond* and b) From the date of default -) Payment of com!ound interest on default a) At the same rate as sim!le interest and b) At the rate higher than sim!le interest /) Payment of interest at a lo er rate* if interest !aid on due date)

3. ?UANTUM MERUIT

The !hrase #uantum meruit ghdfgfdgh much as earned) A right to sue on a #uantum meruit arises here a ggdfg !erformed by one !arty has become discharged to the breach of the contract dghdfghdf !arty)

4. SPECIFIC PERFORMANCE In certain cases of breach of contract damages are not an ade#uate remedy) The Court may* in such cases direct the !arty in breach to carry out his !romise according to the terms of the contract) ,ome of the cases in hich s!ecific !erformance of a contract may in discretion of the Court be enforced are as follo s? AaB Chen the act agreed to be done is such that com!ensation in money for its non !erformance is not an ade#uate relief) AbB Chen there e;ists no standard for ascertaining the actual damage caused by the non>!erformance of the act agreed to be done) AcB Chen it is !robable that the com!ensation in money cannot be got for the non>!erformance of the act agreed to be done)

A. IN>UNCTION Chere a !arty is in breach of a negativbe term of a contract the here gdfg is doing something hich he !romised not to do* the Court may be issuing an order restrain him from doing hat he !romised not to do) ,uch an order of the Court is .no n as in:unction@) $;am!le? C agreed to sing at %@s theatre* and during a certain !eriod to sing no here else) After ards C made contract ith N to sing at another theatre and refused to !erform the contract ith %) =eld* C could be restrained by in:unction from singing for N)

?UASI CONTRACTS
0nder certain circumstances* a !erson may receive a benefit to hich the la regards another !erson as better entitled* or for hich the la considers he should !ay to the other !erson* even though there is no contract bet een the !arties) ,uch relationshi!s are termed #uasi>contracts* because* although there is no contract or agreement bet een the !arties* they are !ut in the same !osition as if there ere a contract bet een them) A #uasi>contract rests on the ground of e#uity that a !erson shall not be allo ed to enrich himself un:ustly at the e;!ense of another) The !rinci!le of un:ust enrichment re#uires? That the defendant has been Ienriched@ by the recei!t of a Ibenefit@ That this enrichment is at the e;!ense of the !laintiff* and That the retention of the enrichment is un:ust) %a of #uasi>contracts is also .no n as the la of restitution) ,trictly s!ea.ing* a #uasi>contract is not a contract at all) A contract is intentionally entered into) A #uasi> contract* on the other hand* is created by la )

KINDS OF ?UASICCONTRACTS () SUPPLY OF NECESSARIES A,ec) 67B If a !erson* inca!able of entering into a contract* or anyone hom he is legally bound to su!!ort* is su!!lied by another ith necessaries suited to his condition in life* the !erson ho has furnished such su!!lies is entitled to be reimbursed from the !ro!erty of such inca!able !erson) $;am!le? A su!!lies B* a lunatic* ith necessaries suitable to his condition in life) A is entitled to be reimbursed from B@s !ro!erty)

+) PAYMENT OF INTERESTED PERSON A,ec) 61B A !erson ho is interested in the !ayment of money hich another is bound by la to !ay* and ho therefore !ays it* is entitled to be reimbursed by the other) $;am!le? P left his carriage on &@s !remises) &@s landlord seiFed the carriage as distress for rent) P !aid the rent to obtain the release of his carriage) =eld* P could recover the amount from &) The essential re#uirements are as follo s? AaB The !ayment made should be bonafide for the !rotection of one@s interest)

AbB The !ayment should not be voluntary one) AcB The !ayment must be such as the other !arty as bound by la to !ay)

-) OBLIGATION TO PAY FOR NONCGRATUITOUS ACTS A,ec) 25B Chen a !erson la fully does anything for another !erson or delivers anything to him* not intending to do so gratuitously* and such other !erson en:oys the benefit thereof* the latter is bound to ma.e com!ensation to the former in res!ect of* or to restore* the thing so done or delivered) $;am!le? a* a tradesman* leaves goods at B@s house by mista.e) B treats the goods as his o n) =e is bound to !ay for them to A)

Before any right of action under ,ec) 25 arises* three conditions must be satisfied) AaB The thing must have been done la fully) AbB The !erson doing the act should not have intended to do it gratuitously AcB The !erson for hom the acts is done must have en:oyed the benefit of the act)

/) RESPONSIBILITY OF FINDER OF GOODS Asec) 2(B A !erson* ho finds goods belonging to another and ta.es them into his custody* is sub:ect to the same res!onsibility as a bailee) =e is bound to ta.e as much care of the goods as a man of ordinary !rudence ould* under similar circumstances* ta.e of his o n goods of the same bul.* #uality and value) he must also ta.e all necessary measures to trace its o ner) If he does not* he ill be guilty of rongful conversion of the !ro!erty) Till the o ner is found out* the !ro!erty in goods ill vest in the finder and he can retain the goods as his o n against the hole orld Ae;ce!t the o nerB) $;am!le? F !ic.s u! a diamond on the floor of ,@s sho!) =e hands it over to , to .ee! it till true o ner is found out) "o one a!!ears to claim it for #uite some ee.s in s!ite of the ide advertisements in the ne s!a!ers) F claims the diamond for , ho refuses to return) , is bound to return the diamond to F ho is entitled to retain the diamond against the hole orld e;ce!t the true o ner)

The finder can sell the goods in the follo ing cases? Chen the thing found is in danger of !erishing)

Chen the o ner cannot* ith reasonable diligence* be found out) Chen the o ner is found out* but he refuse to !ay the la ful charges of the finder* and Chen the la ful charges of the finder* in res!ect of the thing found amount to t o>thirds of the value of the thing found) A,ec) (61B

4) MISTAKE OR COERCION A,ec) 2+B A !erson to hom money has been !aid* or anything delivered* by mista.e or under coercion* must re!ay or return it to the !erson ho !aid it by mista.e or under coercion) The ord Icoercion@ is used in ,ec) 2+ in its general sense and not as defined in ,ec) (4) $;am!le? A and B :ointly o e Rs) (55 to C) A alone !ays the amount to C and B* not .no ing this fact* !ays Rs) (55 over again to C) C is bound to !ay the amount to B)

?UANTUM MERUIT IQuantum meruit@ literally means Ias much as earned@ or as much as it merited@) Chen a !erson has done some or. under a contract* and the other !arty re!udiates the contract* or some event ha!!ens hich ma.es the further !erformance of the contract im!ossible* them the !arty ho has !erformed the or. can claim remuneration for the or. he has already done) %i.e ise* here one !erson has e;!ressly or im!liedly re#uested another to render him a service ithout s!ecifying any remuneration* but the circumstances of the re#uest im!ly that the service is to be !aid for* there is im!lied a !romise to !ay #uantum meruit* i)e) so much as the !arty rendering the service deserves) The right to claim #uantum meruit does not arise out of contract as the right to damages does* it is a claim on the #uasi>contractual obligation hich the la im!lies in the circumstances)

The claim for #uantum meruit arises only hen the original contract is discharged) If the original contract e;ists* the !arty not in default cannot have #uantum meruit remedy* he has to ta.e resort to remedy in damages) Further the claim for #uantum meruit can be brought only by the !arty ho is not in default) The claim for #uantum meruit arises in the follo ing cases AaB Chen an agreement is discovered to be void A,ec) 64B

AbB Chen something is done ithout any intention to do so gratuitously A,ec) 25B AcB Chen there is an e;!ress or im!lied contract to render services but there is no agreement as to remuneration AdB Chen the com!letion of the contract has been !revented by the act of the other !arty to the contract AeB Chen a contract is divisible AfB Chen an indivisible contract is com!letely !erformed but badly)

R"@'") ?+",/'$-,

() &efine contract) Chat are the essentials of a valid contractO +) Chat are legal rules relating to offerO -) Chat are the rules relating to considerationO /) &iscuss the nature of contract entered into ith minors)

4) Chat are the different modes of discharging the contractO 6) Chat are the remedies for breach of contractO 2) Chat are #uasi>contractsO $numerate the instances of #uasi>contracts laid do n under the Act)

SPECIAL CONTRACTS LESSON 2 INDEMNITY AND GUARANTEE

DEFINITION ,ection (+/ of the Indian Contract Act defines it as 8a contract by hich one !arty !romises to save the other from loss caused to him by the conduct of the !romisor himself or by the conduct of any other !erson9) The !erson ho !romises is called the Indemnifier and the !erson to hom the !romise is made is called the Indemnified or Indemnity =older)

Illustration? A !romises not to construct buildings on a !articular site so as to !revent light and air to B@s house and in case of breach of such !romise* to indemnify for the conse#uent loss) This is a contract of indemnity) A contract of insurance is also a contract of indemnity)

RIG<TS OF AN INDEMNITY <OLDER =e is entitled to recoverK All damages All costs hich he may be com!elled to !ay in any suit in res!ect of any matter to hich the !romise to indemnity a!!lies* and All sums hich he may have !aid under the terms of any com!romise of any such suit !rovided* such com!romise as not contrary to the orders of the !romisor and as !rudent or the !romisor authoriFes him to com!romise the suit)

CONTRACT OF GUARANTEE ,ection (+6 of Indian Contract Act defines it as 8a contract to !erform the !romise* or discharge the liability* of a third !erson in case of his default9) The !erson ho gives the guarantee is called the 8surety9* the !erson in res!ect of hose default* the guarantee is given is called the 8!rinci!al debtor9* and the !erson to hom the guarantee is given is called the 8creditor9)

Illustration? A !urchases goods from B on credit) C agrees to stand as a surety hich means that if A does not !ay the !rice of the goods* he ill !ay) =ere* A is the !rinci!al debator* B is the creditor and C is the surety or guarantee)

D',/'-&/'$- 7"/)""- C$-/# &/ $3 I-."%-'/: -. C$-/# &/ $3 G+ # -/"" C$-/# &/ $3 I-."%-'/: ( There are t o !arties* namely Indemnifier and the Indemnified) The liability of the Indemnifier is !rimary The liability of the Indemnifier is contingent The Indemnifier cannot sue the third !arty in his name even after ma.ing good the loss unless there is an assignment in his favour from the indemnified) C$-/# &/ $3 G+ # -/"" There are three !arties* viF the !rinci!al debtor* the creditor and the surety The liability of the surety is subsidiary The liability of the surety is subsisting The surety can sue the !rinci!al debtor in his o n name after !aying the creditor

+ /

RIG<TS OF SURETY Rights against the Princi!al &ebtor (B After discharging the liability of the !rinci!al debtor* the surety is entitled to all those rights hich the creditor himself e;ercises against the !rinci!al debtor) This right of the surety is called 8subrogation9) Illustration? The right of the creditor to receive dividends from the official assignee hen the !rinci!al debtor becomes ban.ru!t* can be e;ercised by the surety) +B The surety can !roceed against all those securities of the !rinci!al debtor* the creditor himself can !roceed against) hich

-B The surety is entitled to be indemnified for all !ayments rightfully made by him)

Illustration? B is indebted to C* and A is surety for the debt) C demands !ayment form A* and on his refusal sues him for the amount) A defends the suit* having reasonable grounds for doing so but is com!elled to !ay the amount of the debt ith

costs) =e can recover from B the amount !aid by him for costs as !rinci!al debt)

ell as the

R'68/, 6 '-,/ /8" C#".'/$#

(B The surety may re#uire the creditor to sue the debtor) But he cannot com!el the creditor to do so) +B In the case of fidelity contracts* he can insist u!on the creditor to dis!ense the services of the !rinci!al debtor hen his dishonesty is established) -B =e can claim set off or counter>claim obtained against the creditor) ith

hich the !rinci!al debtor could have

/B <n !ayment of the guaranteed debt* ha can re#uire the creditor to assign to him all the securities held by the creditor in res!ect of the debt) If the creditor loses or !arts ith such securities ithout the consent of the surety* the surety is discharged to the e;tent of the value of the security) Illustration? C advances to B* his tenant* Rs) +555 on the guarantee of A) C has also a further security for the sum of Rs) +555 by mortgage of B@s furniture) C cancels the mortgage) B becomes insolvent and C sues A on his guarantee) A is discharged from liability to the amount of the value of the furniture)

R'68/, 6 '-,/ /8" C$CS+#"/'", (B All the sureties shall bear e#ually* the loss caused by the insolvency of the !rinci!al debtor) If one of them bears the entire loss in the first instance he can claim contribution from other co>sureties) +B Chere the co>sureties agreed to become liable in different sums* they should contribute* according to $nglish %a * !ro!ortionately) Illustration? A* B and C have agreed to become liable for Rs) (5*555* +5*555 and /5*555 res!ectively* as sureties for &@s liability) &@s indebtedness as Rs) -5*555) A*B and C ould contribute in the ratio of ( ? + ? /) But according to Indian %a they shall bear such loss e#ually but not e;ceeding the sums hich they have agreed to !ay) ,o* A* B and C ill have to !ay Rs) (5*555 each)

SURETY DISC<ARGED FROM LIABILITY

() The surety is discharged from liability if the contract of guarantee becomes void or voidable* on the ground of misre!resentation by the creditor ith regard to a material circumstance* or on the ground that the guarantee as given on condition that another !erson ill :oin as a co>surety and that such other !erson has not :oined as such) Illustration? A engages B as cler. to collect money for him) B fails to account for some of his recei!ts and A in conse#uence* calls u!on him to furnish security for his accounting) C gives his guarantee for B@s accounting) A does not ac#uaint C ith B@s !revious conduct) B after ards ma.es default) The guarantee is invalid)

+) The surety is discharged by revocation as to future transaction in case of continuing guarantee) -) The surety is discharged a) )y *ariance of contract: Any variance in the terms of the contract bet een the !rinci!al debtor and the creditor ithout the surety@s consent discharges the surety) Illustration? C* contracts to lend B Rs) 4555 on the ( st of March) A guarantees re!ayment) C !ays Rs) 4555 to B on the ( st of Hanuary) A is discharged from his liability* as the contract has been varied in as much as C might sue B for the money before the (st of March)

b) )y release or dischar#e of principal de tor: The surety is discharged by any contract bet een the !rinci!al debtor and the creditor by hich the !rinci!al debtor is discharged or by any act or omission of the creditor* the legal conse#uence of hich is the discharge of the !rinci!al debtor) Illustration? A* contracts ith B for a fi;ed !rice to build a house for B ithin a sti!ulated time* B su!!lying the necessary timber) C guarantees A@s !erformance of the contract) B omits to su!!ly the timber) C is discharged from his surety shi!)

c) )y composition with de tor: The surety is discharged hen the !rinci!al debtor and creditor enter into a contract by hich the creditor A(B com!osition ith or A+B !romises to give time or A-B !romises not to sue the !rinci!al debtor) d) )y act or omission impairin# surety+s remedy: The surety is discharged if the creditor does any act inconsistent ith the rights of the surety or omits to do any act hich his duty to surely re#uires him to do)

Illustration? A !uts M as a!!rentice to B* and gives a guarantee in B for M@s fidelity) B !romises on his !art that he ill* at least once a month* see M ma.e u! the cash) B omits to see this done as !romised and M embeFFles) A is not liable to B on his guarantee)

e) Loss of security: the surety is discharged if the creditor losses or !arts ith the securities belonging to the !rinci!al debtor* ithout the consent of the surety)

The surety is not discharged in the follo ing cases? () A surety is not discharged hen a contract to give time to the !rinci!al debtor is made by the creditor ith a third !erson and not ith the !rinci!al debtor) Illustration? C* the holder of an overdue bill of e;change dra n by A as surety for B* and acce!ted by B* contracts ith M to give time to B) A is not discharged) +) Mere forbearance on the !art of the creditor to sue the !rinci!al debtor does not discharge the surety) Illustration? B o es C* a debt guaranteed by A) The debt becomes !ayable C does not sue B for a year after the debt has become !ayable) A is not discharged from his liability) -) Release of one co>surety does not discharge the other)

LESSON 3 CONTRACTS OF BAILMENTS

,ection (/7 of the Indian Contract Act defines that 8a bailment is the delivery of goods by one !erson to another for some !ur!ose* u!on a contract that they shall hen the !ur!ose is accom!lished* be returned or other ise dis!osed of according to the directions of the !erson delivering them)9 The !erson delivering the goods is called the 8bailor9) The !erson to hom they are delivered is called the 8bailee9)

E,,"-/' (, $3 B '(%"-/, () There must be delivery of goods? ,uch delivery may be actual or constructive) +) The delivery must be made for some s!ecific !ur!ose) -) The delivery must be made on condition that the goods shall be returned in s!ecific hen the !ur!ose is over* or dis!osed of according to the direction of the bailor) /) <nly !ossession but not the o nershi! of the goods is transferred) $;am!les? &elivery of a radio for re!air)

DUTIES OF A BAILEE 0. T$ / 9" #" ,$- 7(" & #" $3 /8" 6$$., 7 '(". /$ 8'% ,ection (4( lays do n that in all cases of bailment the bailee should ta.e that much of care hich an ordinary !rudent man ould ta.e of his o n goods under similar circumstances) ,ection (4+ lays do n that the bailee is not res!onsible* in the absence of any s!ecial contract* for the loss* destruction or deterioration of the thing bailed* if he has ta.en the amount of care described above) Illustration? A gives to B* to be made into an ornament) B .ee!s them in a safe here he usually .ee!s his o n valuables) B is not liable if the goods are lose by him) 2. N$/ /$ % 9" +- +/8$#'D". +," $3 6$$., 7 '(". The bailee should not ma.e use of goods for !ur!oses inconsistent ith the terms of the contract) If he does so* the bailor is entitled to terminate the contract and claim damages* if any)

Illustration? A lends a horse to B for his o n riding only) B allo s C* to ride the horse) C rides carefully but the horse accidentally falls and is in:ured) B is liable to com!ensate A for the in:ury caused to the horse)

3. N$/ /$ %'; /8" 6$$., $3 /8" 7 '($# )'/8 8', $)- 6$$., aB If a bailee mi;es the goods of the bailor ith his o n goods ith the consent of the bailor* both the bailor and the bailee shall have !ro!ortionate interest in the mi;ture) bB If the goods mi;ed by the bailee ithout the consent of the bailor and the goods are se!arable* the bailee is bound to bear the e;!enses of se!aration and !ay damages if any) cB If the goods are mi;ed by the bailee ithout the consent of the bailor and the goods are inse!arable* the bailee should com!ensate the bailor for the loss of goods)

Illustration? A bails a barrel of Ca!e flour orth Rs) /4 to B) B ithout A@s consent* mi;es the flour ith country flour of his o n* orth only Rs) +4 a barrel) B must com!ensate A for the loss of his flour)

4. N$/ /$ ,"/ +! .@"#," /'/(" The bailee should not deny the bailor@s title) =e should not set u! his o n title or that of a third !arty) A. T$ #"/+#- /8" 6$$., 7 '(". The bailee should return goods bailed* to the bailor hen the fi;ed !eriod is over or hen the !ur!ose is accom!lished) The bailee should also deliver any increase or !rofit hich may have accrued from the goods bailed) Illustration? A leaves a co in the custody of B to be ta.en care of The co calf B is bound to deliver the calf as ell as the co to A) has a

DUTIES OF A BAILOR 0. T$ .',&($," /8" 3 +(/, '- /8" 6$$., 7 '(". The bailor should disclose to the bailee* faults in the goods bailed* of hich he is a are) If he does not disclose* he ill be liable for the loss resulting therefrom)

Illustration? A lends a horse hich he .no s to be vicious to B) =e does not disclose this fact) The horse runs a ay) B is thro n do n and in:ured) A is res!onsible to B for damages sustained)

2. T$ 7" # ";/# C$#.'- #: ";!"-,", Chile the ordinary e;!enses are !ayable by the bailee* e;tra>ordinary e;!enses shall be borne by the bailor) Illustration? Chere a horse is lent for a :ourney* the bailee shall bear the e;!enses of feeding the horse) But in case of the horse becoming sic.* the bailor shall have to bear the necessary e;!enses for its recover)

3. R",!$-,'7'('/: 3$# ) -/ $3 /'/(" The bailor is res!onsible to the bailee for any loss sustained by he latter by the reason* that the bailor as not entitled to ma.e the bailment or to receive bac. the goods or to give directions res!ecting them)

RIG<TS OF BAILOR () =e is entitled to the increase or !rofit from goods bailed +) In the case of gratuitous loan* the lender may re#uire the goods to be returned* even though he lent it for a fi;ed !eriod for s!ecific !ur!ose) But if such a re#uest causes loss to the bailee e;ceeding the benefit he derives* the bailor should indemnify the borro er) -) The bailor is entitled to terminate the contract inconsistent ith the terms of bailment) hen the bailee does any act

Illustration? A gives a horse to B for hire for his o n riding) B drives the horse in his carriage) The bailment can be terminated at the o!tion of A)

LIEN %ien is a right of a !erson* ho has !ossession of goods of another* to return such !ossession until a debt due to him has been discharged) This right is called a 8Possessory lien9) %ien is of t o .inds? () Particular lien* and +) 3eneral lien

() A Particular %ien is one hich is available only against that !ro!erty in res!ect of hich the s.ill and labour are e;ercised or any e;!enses are incurred) Illustration? A delivers a atch for re!airs to B* a re!airer) B has a right to retain the atch till he is !aid for the services rendered) The bailees* re!airers and un!aid vendors of goods are entitled to !articular lein)

+) A 3eneral %ien is the right to retain the !ro!erty of another for a general balance of accounts) Ban.ers* can e;ercise this right for any debt due to them)

T8" .+/'", -. #'68/, $3 A 3'-."# $3 ($,/ 6$$., A !erson ho finds an article need not ta.e charge of it) But if he ta.es them into his !ossession* be becomes a bailee)

D+/'", -. R'68/, () =e must ta.e as much care of the goods as an ordinary !rudent man under similar circumstances* ta.e of his o n goods) ould*

+) =e cannot sue for remuneration for trouble and e;!ense incurred by him to !reserve the goods or to find out the o ner of the goods) -) =e may e;ercise !articular lien against the goods for such remuneration) /) If a re ard has been offered for the return of the goods* he can sue for such re ard) 4) If the goods are the sub:ect of the sale and if the o ner is not found or found refuses to !ay the la ful charges* the finder may sell the goods) a) Chen the goods are about to !erish or b) Chen they lose the greater !art of their value of c) Chen la ful charges amount to t o>thirds of their value hen

PLEDGE A !ledge is a 8bailment of goods as security for !ayment of a debt or !erformance of a !romise9) The bailor is called the 8!a nor9 and the bailee is called the 8!a nee9) In the case of !a n* there is no transfer of !ro!erty in goods) <nly !ossession of the goods is transferred) =ence* it is different from mortgage) Pa n is also different from lien* as in

the case of lien* there is not !o er to sell the article some conditions)

hile a !a nee can sell* sub:ect to

R'68/, $3 P )-$# $ven after the e;!iry of a sti!ulated !eriod* he may redeem the goods !ledged at any subse#uent time !efore the actual sale of the goods pledged ) But he must !ay e;!enses hich may have arisen from his default)

R'68/, $3 P )-"" () =e can retain the goods !ledged until he recovers the debt* interest and other e;!enses incidental to !ossession or !reservation of the goods) +) =e cannot retain the goods for debts other than those for hich !a n is made) -) =e is entitled to receive e;tra>ordinary e;!enses incurred for the !reservation of goods) /) If the !a nor ma.es a default* the !a nee may a) Bring a suit u!on the debt or !romise and b) Retain the goods !ledged or c) ,ell the goods by giving a reasonable notice of sale to the !a nor) If the !roceeds of such are less than the amount due in res!ect of the debt or !romise* the !a nor is still liable to !ay the balance) If the !roceeds of the sale are greater than the amount so due* the !a nee shall !ay over the balance to the !a nor)

LESSON 4 CONTRACT OF AGENCY

,ection (7+ of the Indian Contract Act defines an agent as !erson em!loyed to do any act for another or to re!resent another in dealings ith third !ersons) The !erson for hom such act is done* or ho is so re!resented is called the 8!rinci!al9)

ESSENTIALS OF A CONTRACT OF AGENCY () The !rinci!al and third !arties must be com!etent into contracts An agent may be even a minor ho can effectively bind his !rinci!al) But the !rinci!al cannot ma.e the minor agent liable for misconduct or negligence)

$;am!le? P* a !rinci!al gives M* a minor* a :e el orth Rs) (55 and instructs fgdgdf to sell it on credit or for less than Rs) 455) M sells the :e el on credit for Rs) /55) P cannot ma.e him liable hile he is bound by the sale))

Consideration is not essential) That the !rinci!al gives his consent to be re!resented by the agent is sufficient consideration for the agent gdg dfgd dfgd)

CREATION OF AGENCY An agency may be created in the follo ing ays?

() %y Express Authority: The authority of any agency may be e;!ressed in ords s!o.en or ritten) For e;am!le* a contract of agency can be ritten by means of !o er of attorney) +) %y Implied Authority: The authority of an agent can be interred from the circumstances of the case)

Illustration? A living in Bombay* o ns a sho! in Madras and he occasionally visits it) B is managing the sho! and is in the habit of ordering goods from C in the name of A for the !ur!ose of the sho! and of !aying to them out of A@s funds ith A@s .no ledge) B has an im!lied authority from A to order goods from C in the name of A for the !ur!ose of the sho!)

-) %y &ecessity: ,ometimes* e;igencies of circumstances re#uire a man to act for another as an agent* though not a!!ointed as such) Illustration? A horse as sent by rail) The o ner had not ta.en delivery of the same at the destination) ,o* the station master had to feed it) It as held that the station master had become an agent by necessity and as therefore entitled to recover the charges incurred by him)

/) %y 'olding (ut: Chere a master usually sends his servant to !ledge his credit for certain mangdfgfd he is bound by the acts of the servant for similar !ur!oses though done ithout his consent) 4) %y Estoppel: Chen one man by ords or conduct causes another to believe that some other !erson is his agent and that another !erson had acted on that belief* he ould be sto!!ed from denying the authority of that another !erson to act on his behalf) Illustration: a tells B in the !resence and ithin the hearing of P that he AAB is P@s agent and P does not contradict this statement B* on the faith of this statement* subse#uently enters into a contract ith A* ta.ing him to be P@s agent) P is bound by that contract)

6) %y )atification or Expost Eacto Agency : ,ection (16 of the Indian Contract Act lays do n that here acts are done by one !erson on behalf of another* but ithout his .no ledge of authority* he may elect to ratify or to diso n such acts) If he ratifies them the same effects ill follo as if they had been !erformed by his authority) Thus ratification relates bac. to the date of the original contract and binds the !rinci!al as if he has e;!ressly authoriFed it)

TERMINATION OF CONTRACT OF AGENCY A contract of agency is terminated in the follo ing () Chen the !eriod of agency e;!ires or +) Chen the !ur!ose of the agency is accom!lished or -) Chen the !rinci!al or agent dies or becomes of unsound mind /) Chen the !rinci!al becomes insolvent 4) Chen the sub:ect matter of the contract is destroyed 6) Chen the ob:ect of the contract becomes unla ful ays?

2) Chen the agent renounces the authority 7) Chen the !rinci!al revo.es his authority

The termination that ta.es effect so far as regards the agent* the moment* it becomes .no to him and so far as regards third !ersons* the moment it becomes .no to them) ,o* if an agent .no ing the termination of agency* contracts ith third !ersons ho are not a are of the termination* the becomes liable to the !rinci!al for damages hile the contract binds the !rinci!al and third !ersons)

,n ,#ency cannot e terminated in the followin# cases: AaB Chen the agency is one* cou!led ith interest) A* gives authority to B to sell A@s land and to !ay himself* out of the !roceeds* the debts sue to him ABB from A) A cannot revo.e this authority nor can it be terminated by his insanity or death) AbB Chen the agent has incurred !ersonal liability and AcB Chen the authority ahs been !artly e;ercised by the agent)

RIG<TS OF AN AGENT () =e is entitled to remuneration and other e;!enses !ro!erly incurred by him in the agency) But if he is guilty of misconduct* he is not entitled to receive the remuneration) Illustration? A em!loys B to recover Rs) (555 from C) Through B@s misconduct* the money is not recovered) B is entitled to no remuneration for his services and must ma.e good the loss) +) =e is entitled to retain the goods* !a!ers and other !ro!erty* movable on immovable* of the !rinci!al for his claims) -) The agent has a right to be indemnified by the !rinci!al for all la ful acts) Illustration? B at ,inga!ore under instructions from A of Calcutta* contracts ith C to deliver goods) A does not send the goods to B and C sues B breach of contract) B informs A of the suit and A authoriFes him to defend the suit) B defends and is com!elled to !ay damages etc) A is liable to B for such damages etc) /) The agent is entitled to be indemnified for the in:ury caused to him by the !rinci!al@s neglect or ant of s.ill)

Illustration? A em!loys B as a bric.>layer in building in a house and !uts a scaffolding himself uns.illfully and B is in conse#uence* hurt) A must com!ensate B) 4) Chen an agent acts in good faith* the em!loyer must indemnify him for the conse#uence of that act* through it causes an in:ury to the rights of third !arties) Illustration? B* at the re#uest of A* sells goods in the !ossession of A* but hich A had no right to dis!ose of B does not .no this and hands over the sale !roceeds to A) after ards C the true o ner sues A and recovers the value of goods and costs) A must indemnify B for hat he has !aid and for B@s o n e;!enses)

DUTIES OF AN AGENT () =e should act according to the directions of the !rinci!al and in default* indemnify the !rinci!al for the loss* if any +) In the absence of instructions* he must act according to the trade custom) Illustration? A* an agent engaged in carrying on for B* a business* in hich it is the custom* to invest from time to time* at interest the monies hich may be in hand* omits to ma.e such investment) A* must ma.e good to B the interest usually obtained by such investment) -) In case of difficulty* he must be diligent in communicating obtaining his instruction) ith the !rinci!al and

/) =e must conduct the business of agency ith as much s.ill as is generally !ossessed by !ersons engaged in similar business* unless the !rinci!al has notice of ant of s.ill) Illustration? A* having authority to sell on credit* sells goods to B ithout en#uiring about his solvency* B at the time of sale* is ban.ru!t) A must ma.e good the loss) 4) =e must render !ro!er accounts on demand) 6) =e must not delegate his authority ithout the consent of the !rinci!al) 2) =e must deliver all monies including secret commission* to the !rinci!al) =e can deduct his remuneration and other la ful e;!enses s!ent by him) 7) =e should not set u! his o n title or title of third !arties to the goods of the !rinci!al in hi hands) 1) If* by the nature of !rofession* an agent is !ur!orted to have s!ecial s.ill* he must e;ercise that degree of s.ill ordinarily e;!ected from the members of the !rofession)

Illustration? A solicitor* ho started the !roceedings under a suit in a court having no :urisdiction* is liable) (5) =e should not disclose confidential information) (() =is interest should not conflict ith his duty)

rong section or field a

CONDITIONS UNDER W<IC< T<E AGENT IS PERSONALLY LIABLE () An agent is liable for breach of arranty of authority) =e is liable to third !arties hen he e;ceeds his ostensible authority) =e becomes liable to !ay damages to the !rinci!al* hen he e;ceeds his actual authority but acts ithin the ostensible authority and enters into contracts ith third !arties ho are not a are of the curtailment of his authority) +) An agent cannot claim !erformance of a contract entered into by him a!!arently on behalf of the !rinci!al but really on his o n account) -) An agent is !ersonally liable a) Chen the contract e;!ressly !rovides b) Chen he does not sign the negotiable instrument as agent c) Chen he acts for a foreign !rinci!al d) Chen he acts for an undisclosed !rinci!al e) Chen the agency is cou!led ith interest

f) Chen the trade usage ma.es him liable* and g) Chen the !rinci!al cannot be sued as he is a minor or a foreign sovereign etc) REVIEW OF ?UESTIONS () &efine Contract of Indemnity and Contract of 3uarantee and bring out differences bet een them) +) Chat are the rights of the ,urety against AiB Princi!al debtor* AiiB Creditor and AiiiB Co>,ureties -) Chen the ,urety is discharged from his liabilitiesO /) &efine bailment) Chat are the rights and duties of bailor and baileeO 4) Chat are the duties of finder of lost goodsO 6) Chat are the different methods of creation of agencyO 2) Chat are the rights and duties of an agentO

LESSON A SALE OF GOODS ACT4 0530

,ection / of the ,ale of 3oods Act defines a contract of sale as 8a contract hereby the seller transfers or agrees to transfer the !ro!erty in goods to the buyer for a !rice9) The term 8contract of ,ale9 includes an actual sale as an agreement to sell) It may be absolute or conditional)

Chen the !ro!erty in the goods is transferred* the contract is called a sale) The contract called an agreement to sell* hen the transfer of !ro!erty is ta.e !lace at a future time or sub:ect to fulfilment of some condition) An agreement to sell becomes a sale* hen the time la!ses or such condition is fulfilled)

&ifferences bet een a sale and an agreement to sell may be summariFed as follo s?

S (" () +) -) /) < nershi! is transferred to the buyer It is an e;ecuted contract It creates rights in rem) The seller can sue for the !rice though the goods are in the his !ossession If the seller re>sells the goods* the buyer can claim damages for conversion and e;ercise right of recovery of goods from third !arties ho are a are of the !rior sale If the goods are destroyed by accident* the buyer has to bear the loss* though the goods are in the !ossession of the seller

A6#""%"-/ /$ S"(( < nershi! does not !ass to the buyer) It remains ith the seller) It is an e;ecutor contract It creates rights in !ersonam The seller can sue for the damages if the buyer refuses to ta.e delivery and !ay the !rice In case of re>sale the buyer can only claim damages)

4)

6)

In such cases* the seller has to bear the loss* even if the goods are in the !ossession of the buyer

2)

If the buyer becomes insolvent* the seller* in the absence of a lien* must deliver the goods to the official receiver and claim only ratable dividend for the !rice due If the seller becomes insolvent* the buyer can recover the goods from the official receiver since the o nershi! has !assed to him)

If the buyer becomes ban.ru!t before !ayment of !rice* the seller may refuse to deliver the goods unless !aid for since o nershi! rests ith the seller In such cases* the buyer ho has !aid the !rice can only claim retable dividend)

7)

CONDITION AND WARRANTY A term or a sti!ulation in a contract of sale ith reference to goods may be either a condition or a arranty) A condition is a term hich is essential to main !ur!ose of the contract and hence is the foundation of the contract) The effect of a breach of condition is that it gives the right to the aggrieved !arty to treat the contract as void and also to claim damages* if any) A arranty is a term hich is collateral to the main !ur!ose of the contract and hence is only a subsidiary !romise) The breach of arranty does not give right to the aggrieved !arty to treat the contract as void but entitles him to claim damages only) In the absence of contract to the contrary* time of delivery of goods is treated as condition and for !ayment of !rice* as arranty) In the follo ing cases* the breach of a condition only) AiB AiiB AiiiB AivB ill be treated as breach of arranty

Chen the buyer aives the condition or Chen the buyer treats the breach of condition as a breach arranty and does not treat the contract as void or Chere the contract of sale is inse!arable and the buyer has acce!ted the goods or !art thereof or Chere the contract is for s!ecific goods* the !ro!erty in has !assed to the buyer) hich

Condition and arranties may be e;!ress or im!lied* Chen they are definitely ritten in the contract* they are called e;!ress conditions and arranties) They are called im!lied conditions and arranties* hen they are not ritten in the contract and a!!lied to the contract either by o!eration of la or by trade custom)

IMPLIED CONDITIONS () As to title to goods: There is an im!lied condition that the seller has a right to sell in case of sale and that in the case of agreement to sell* he ill have the right to sell the goods at the time hen the !ro!erty is to !ass) )owland *s +ivall: A !urchased a car from B for a certain !rice and used it for some !eriod) ,ubse#uently* it as found that the car as stolen by B and therefore* A had returned bac. the car to the true o ner) It as held that A could recover the full !rice !aid to B) +) "ale !y description: The im!lied condition is that the goods delivered must corres!ond ith the descri!tion Example: Chere a machine as described as almost ne and used very little but hen delivered* as found to be an old and re!aired one* it as held that the buyer as entitled to re:ect the machine) -) "ale !y sample: The im!lied condition as >>> a) That the goods delivered shall corres!ond ith the sam!le

b) That the buyer shall have a reasonable o!!ortunity of com!aring the bul. ith the sam!le and c) That the goods shall be free from any defect rendering them unmerchantable* hich ould not be a!!arent on reasonable e;amination of the sam!le) +rummond , "ons *s *an Ingen , -o.: Chere orsted coating as su!!lied corres!onding ith the sam!le but not suitable for stitching due to a latent defect* it as held that the buyer as entitled to re:ect the goods)

/) "ale !y sample as well as description: In the case of sale of goods by sam!le as ell as descri!tion* the goods delivered must corres!ond ith both sam!le as ell as descri!tion) 4) As to $uality or fitness: The general rule is 8Caveat $m!tor9* i)e) let the buyer be are) ,o* the seller need not disclose the faults in the goods he sells nor need he guarantee that the goods are fit for the !ur!oses of the buyer) ,o* the buyer ta.es them as they come) But in the follo ing cases* there is an im!lied condition as to #uality or fitness of goods for any !articular !ur!ose)

a) Chere the buyer ma.es .no n the !ur!ose to the seller* ho is ordinarily dealing ith sale of goods of that descri!tion and the buyer relies on the :udgement of the seller) b) Chere the seller does not disclose the faults in his goods and such faults cannot be detected on reasonable e;amination) c) Chere the seller ma.es a statement and the buyer relies u!on it) Baldry G@s Marshall? A !urchased a motor car from B for using it as a tourist car) B* the seller .ne the !ur!ose) The car turned out to be unfit for the !ur!ose) =eld* A the buyer could re!udiate the contract) But there is not im!lied condition as to fitness or #uality of goods they are sold under the !atent or trade name) hen

$)C) $vans G@s ,tella Ben:amin? Chere a refrigerator as sold* it as held that the name of the article itself im!lies that it is fit for a !articular !ur!ose) 6) As to Merchanta!ility: In case of sale of good by descri!tion* there is an im!lied condition that the goods shall corres!ond ith the descri!tion and also that they shall be of merchantable #uality) %rant *s Australian /nitting Mills 0td.? The buyer as su!!lied ollen under!ants by the manufacturers) The buyer ore them for sometime and contracted a s.in disease) =eld* that the buyer as entitled to damages) Exception: If the buyer has e;amined the goods* there is not im!lied condition as to #uality of goods as regards defects hich such e;amination must have revealed) 2) As to wholesomeness: In the case of sale of vision* there is an im!lied condition that they are fit for immediate use* A* !urchased a bun from B and in:ured his teeth by biting a stone in the bun) B as held liable)

IMPLIED WARRANTIES () Carranty of 1uiet 2ossession: There is an im!lied have and en:oy #uiet !ossession) arranty that the buyer shall

+) Carranty against $ncumbrances? There is an im!lied arranty that the goods shall be free from encumbrance or charges in favour of any third !arty not declared or .no n to the buyer before or at the time of contract)

RIG<TS OF AN UNPAID SELLER The seller of goods is deemed to be an 8un!aid>seller9 hereK aB The hole of the !rice has not been !aid or tendered or

bB Chen a bill of e;change or any other negotiable instrument has been given as conditional !ayment but the same has been dishonoured)

An un!aid vendor has the right of ithholding the delivery of goods goods has not !assed to the buyer)

hen the !ro!erty in

=e has the follo ing rights hen the !ro!erty in goods has !assed to the buyer)

0. R'68/, $3 L'"-

The un!aid vendor ho is in !ossession of the goods* can retain such !ossession until the !rice is !aid or rendered) And if the goods are !artly delivered* the an e;ercise this right on the remaining goods e;ce!t hen such !art delivery amounts to sho that he has give u! the right of lien) This right of lien e;tends to the hole of goods in the !ossession of the un!aid vendor and can be e;ercised only for the recovery of the !rice of goods but not the amounts li.e godo n rent* incurred in storing the goods in e;ercise of lien for the !ractice) =e can e;ercise the right of lien Chere the goods have been sold ithout any sti!ulation as to credit

Chere the goods have been sold on credit* but the term of credit has e;!ired and the !rice remains un!aid) Chere the buyer becomes ban.ru!t

This right of lien is lostK Chen the goods are delivered by him to a carrier* or other bailee for the !ur!ose of transmission ithout reserving the right of dis!osal* Chen the buyer or his agent la fully obtains the !ossession of goods Chen the un!aid vendor has given u! his right of lien

2. R'68/ $3 ,/$!! 6" $3 6$$., '- /# -,'/

Chen the seller has !arted ith the !ossession of goods* he may regain and retain such !ossession by sto!!ing the goods in transit* from being delivered to the buyer) This right is available A(B hen the goods are in transit and A+B hen the buyer becomes ban.ru!t) Follo ing are the rules regarding duration of transit aB 3oods are deemed to be in transit so long as the buyer or his agent does not ta.e delivery of the goods bB The transit is at an end* hen the buyer or his agent obtains delivery before the arrival of the goods at their destination cB The transit is at an end* if the carrier or other bailee ac.no ledges to the buyer after the arrival of the goods at the destination the he holds the !ossession of goods as a bailee for the buyer) dB The goods are in transit* if the buyer or his agent re:ects the goods) eB The transit is at an end if the carrier or other bailee the goods to the buyer) rongfully refuses to deliver

The un!aid vendor must give notice of his claim to the carrier or other bailee* ho is in !ossession of the goods* in order to e;ercise this right of sto!!age) ,uch notice ta.es effect hen it reaches the carrier or his agent ho is in actual !ossession of goods) <n recei!t of notice of the sto!!age* the carrier must re>deliver the goods to or according to the directions of the seller) The seller shall have to bear the e;!enses of such re> delivery) 3. R'68/ $3 R"CS (" The un!aid vendor can re>sell the goodsK (B ithout notice to the buyer if the goods are !erishable goods and

+B Cith notice to the buyer of his intention to re>sell) If the goods are not !erishable)

=e can retain the !rofit resulting form such re>sale and claim damages from the original buyer for loss if any) But if he does not give notice to the buyer of his intention to re>sell the goods here necessary* he must !ay bac. the sur!lus or !rofit to the original buyer and bear the loss* if any)

REVIEW ?UESTIONS () &istinguish bet een sale and agreement to sell

+) Chat are the im!lied conditions and 3oods Act@ -) Chat are the rights of an un!aid sellerO

arranties laid do n under the ,ale of

LESSON 6 NEGOTIABLE INSTRUMENTS ACT4 0110

,ection (- of the "egotiable Instruments Act defines that a negotiable instrument means a !romissory note* bill of e;change or che#ue* !ayable either to order or bearer)

FEATURES () The !ro!erty in it !asses either by mere delivery or by endorsement and delivery +) The holder in due course is not affected by the defect in the title of his transferor or any !revious !arty) -) The holder in due course* can sue in his o n name) =e need not give notice to the debtor that he has become the holder) /) =e is not affected by certain defects li.e fraud to 4) Consideration is !resumed to have !assed 6) It is convenient method of discharging !ayments The Act does not sti!ulate that only bills of e;change* !romissory notes and che#ues are only the negotiable instruments) ,o* other instruments may also be added to the list of negotiable instruments !rovided) They are transferable by mere delivery and The holder in due course can sue in his o n name hich he is not a !artly

=ence* &ividend Carrants* Port Trust or Im!rovement Trust &ebentures* Rail ay Bonds* !ayable to bearer or Rail ay Recei!ts having the feature of negotiability are all negotiable instruments) ,o* a negotiable instrument is an ordinary chattel for chose>in>action clothed ith the feature of negotiability)

PARTIES TO NEGOTIABLE INSTRUMENTS The !arties to a bill of e;changes* a !romissory note and a che#ue are as follo s? (arties to a )ill of -$chan#es: A(B &ra er* A+B &ra ee* A-B Acce!tor* A/B Payee* A4B =older* A6B Indorser* A2B Indorsee* A7B &ra ee in case of need* and A1B Acce!tor for honour) (arties to a (romissory .ote: A(B Ma.er* A+B Payee A-B =older* A/B Indorser and A4B Indorsee

Me"er/ 0rawer: The !erson ho ma.es a !romissory note is called the 8ma.er9) The !erson ho ma.es or dra s a bill of e;change or che#ue is called the 8dra er9) 0rawee/ ,cceptor: The !erson on hom the bill of e;change or che#ue is dra n and ho is directed to !ay is called the 8dra ee9) In case of a che#ue* the dra ee is al ays a ban.er) In case of a bill of e;change* the dra ee becomes the 8acce!tor9 hen he acce!ts the bill* i)e) signs his accent u!on the bill and delivers the same or gives notice of such signing to the holder or to some !erson on his behalf A che#ue does not re#uire acce!tance as it is intended for immediate !ayment) (ayee: The !erson named in the bill* note or che#ue* to hom or to hose order the money is to be !aid* is called the 8!ayee9) In a bill or che#ue* the dra er may himself be the !ayee) Chere the !ayee named in a bill is a fictious or non> e;isting !erson* the bill is treated as !ayable to bearer) Indorser: The !erson 8indorser9) ho endorses the bill* note or che#ue to another is called the hom the bill* note or che#ue is endorsed is called the

Indorsee: The !erson to 8Indorsee9)

MATERIAL ALTERATION Material alteration refers to changes introduced on a che#ue hich affects its fundamental character) In other ords* 8any change in any instrument hich ma.es it s!ea. a different language* for all legal !ur!oses from hat it s!o.e originally9 ould constitute a material alteration) If the alteration is material* it renders the che#ue invalid)

E; %!(", $3 M /"#' ( A(/"# /'$There is material alteration hen

The date of the instrument is altered The time of !ayment is altered The amount is altered The rate of interests altered The !lace of !ayment is altered The name of !ayee is altered A ne !arty is added etc)

There is no material alteration A mista.e corrected Alteration is made

hen

ith the consent of all the !arties

Alteration is made to carry out the common intention of the !arties Blan. indorsement is converted into full indorsement An inchoate instrument is com!leted etc)

EFFECT OF MATERIAL ALTERATION According to ,ec) 72 of the "egotiable Instruments Act* if a che#ue is materially altered it canot be regarded as a che#ue at all) Therefore material alteration renders the che#ue void) CROSSING OF C<E?UES Crossing means dra ing t o !arallel transverse lines across the face of the che#ue ith or ithout the ords 8and com!any9 in bet een the lines) It is a direction to the dra ee ban. not to !ay the amount at the counter* but only through a ban.) It is made to guard !ayment against forgery by unscru!ulous !ersons)

KINDS OF CROSSING Is is of t o .inds A(B 3eneral Crossing and A+B ,!ecial Crossing

() 3eneral Crossing ,ec) (+- of the "egotiable Instruments Act defines 3eneral Crossing as* 8 here a che#ue bears across its* face an addition of the ords 8And Com!any9 or any abbreviation thereof bet een t o !arallel transverse lines or of t o !arallel transverse lines sim!ly* either ith or ithout the ords Inot negotiable@* that addition shall be deemed to be a crossing and the che#ue shall be deemed to be crossed generally9) T o !arallel transverse lines across the face of the che#ue ith or ithout the ords* 8P Co)9* 8Account Payee only9* 8"ot "egotiable9* constitute general crossing) The che#ue hich is crossed generally* is !ayable only to ban.er)

,!ecimens of 3eneral Crossing

2. S!"&' ( C#$,,'-6 ,ec) (+/ of the "egotiable Instruments Act defines ,!ecial Crossing as* 8 here a che#ue bears across its face an addition of the name of a ban.er* ith or ithout the ords 8not negotiable9* that addition shall be deemed a crossing and the che#ue shall be deemed to be crossed s!ecially and to be crossed to that ban.er9) Chen a che#ue is crossed s!ecially* the amount is !ayable by the dra ee only* only to the ban. named in the crossing)

,!ecimens of ,!ecial Crossing

EA&&$+-/ P :"" C#$,,'-6F

Chen the ords 8Amount Payee9* 8Account Payee only9 are added to the general or s!ecial crossing* it is called account Payee Crossing) The collecting ban.er must

collect the amount of the che#ue for the account of the !ayee only and none else) <ther ise* it is not a collection in due course and the ban.er is liable if the title of the !erson for hom the ban. collects* turns out to be defective)

EN$/ N"6$/' 7("F C#$,,'-6

Chen the ords 8not negotiable9 are added either in general or s!ecial crossing* the !erson ta.ing the che#ue cannot have and cannot give a better title than hat his transferor has) ,o* a Inot negotiable@ che#ue is transferable) But the transferee gets no better title than hat the transferor has)

RULES OF CROSSING () An uncrossed che#ue may be crossed generally or s!ecially by the dra er or the holder) +) A che#ue crossed generally* may be crossed s!ecially by the holder) -) The holder may add the ords 8not negotiable9)

/) The ban.er to hom the che#ue is crossed s!ecially* may re>cross it* but only to another ban. as his agent for collection) 4) Chere an uncrossed che#ue or a che#ue crossed generally is sent to a ban.er for collection* he may cross it s!ecially to himself) But he cannot en:oy ,tatutory !rotection against being sued for conversion)

INDORSEMENTS It means the riting of a !erson@s name Aother ise than as ma.erB on the face or bac. of a netgotiable instrument or on a sli! of !a!er Acalled alloongeB anne;ed thereto* for the !ur!ose of negotiation A,ec) (4B) The !erson ho signs the instrument is called the 8indorser@) The !erson to hom the instrument is indorsed is called the Iindorsee@)

KINDS OF INDORSEMENTS () Ban. Indorsement or 3eneral Indorsement Chen the indorser signs his name only* it is called blan. indorsement) An instrument endorsed in blan. is !ayable to bearer) The holder of an instrument

may rite above the indorser@s signature* a direction to !ay the amount to or to the another !erson) Chen the holder does so* he does not become liable as an endorser on the instrument* as he had not signed it)

2. S!"&' ( $# F+(( I-.$#,"%"-/ If the indorser signs his name and adds a direction to !ay the amount to or to the order of a certain !erson* it is called full indorsement) Illustration ? A bill made !ayable to ,mith* may be endorsed in full by him as 8Pay A or order9)

L,d)M ,mith An instrument having been endorsed in blan. is indorsed in full the indorser in full is liable to the !erson to hom it is indorsed in full or to others ho derive title through such !erson)

-) Restrictive Indorsement It is one hich !rohibits or restricts further negotiation or indorsee an agent to receive its contents for his indorser) hich constitute the

$;am!le? A(B 8Pay C only9 A+B 8Pay & for my use9 A-B 8Pay & on account of $9 A/B 8Pay $ or order for collection) /) Partial Indorsement Chen a !art of the amount of the instrument is endorsed* it is called !artial indorsement) It is void? $;am!le? A holds a bill for Rs) 755 A endorses thus

8Pay Rs) /55 to B or order9 AorB 8Pay B or order Rs) /55 and to C or order Rs) /559

But if the !art of the amount of the instrument is already !aid* the un!aid balance may be endorsed thus) 8Pay B or order Rs) /55* being un!aid residue of the bill9) 4) Conditional or Qualified Indorsement This is one ays? hich negotiates or limits the indorser@s liability* in the follo ing

AaB By ,ans Recourse Indorsement? The indorser e;cludes his liability by e;!ress ords in indorsement) $;am!les? A(B 8Pay A or order ,ans Recourse9 A,dB B

A+B 8Pay A at his o n ris.9 A,dB B

A-B 8Pay A ithout recourse to me9 A,dB B

AbB By ma.ing his liability de!end u!on the ha!!ening of a s!ecified event* though such event may never ha!!en) $;am!le ? 8Pay A or order on his marrying B9

AcB By ma.ing the right of the indorsee to receive the amount* de!end u!on the ha!!ening of a s!ecified event* though it may never ha!!en) AdB By Facultative Indorsement? This is one indorser) $;am!le? 8Pay A or order "otice of dishonor aived9 A,d)B B hich e;tents the liability of the

PAYMENT AND COLLECTION OF C<E?UE The !aying ban.er should use reasonable care and diligence in !aying a che#ue so as to abstain from any action li.ely to damage his customer@s credit)

PRECAUTIONS BEFORE <ONOURING A C<E?UE In order to safeguard his !osition* the !aying ban.er has to observe the follo ing !recautions before honouring a che#ue)

A(B Presentation of Che#ue First of all a !aying ban.er should note hether the !resentation of the che#ue is correct) It can be found out by noting the follo ing factors) AaB #ype of -he$ue: Che#ues may generally be of t o ty!es o!en or crossed) If it is o!en one* the !ayment may be !aid at the counter) If it is crossed* the !ayment must be made only to a fello ban.er) AbB %ranch: The !aying ban.er should see branch here the account is .e!t) hether the che#ue is dra n on the hether the che#ue is

AcB %anking 'ours: The !aying ban.er should also note !resented during the ban.ing hours on a business day)

AdB Multination: If the che#ue is from into !ieces or cancelled or mutilated* then the !aying ban.er should not honour it)

-) From of the Che#ue Before honouring a che#ue* a ban.er shold see the form of che#ue and find out hether it is regular or not) AaB (rinted Form: The customer should dra che#ues only on the !rinted leaves su!!lied by the ban.ers failing hich the ban.er may refuse to honour it) AbB -nconditional Order: The che#ue should not contain any condition AcB 0ate: Before honouring a che#ue* the !aying ban.er must see hether there is a date on the instrument) if a che#ue is ante dated* it may be !aid if it has not e;ceeded si; months from the date of its issue other ise it ill become stale one) If a che#ue is !ost dated* he should honour it only on its due date) AdB ,mount: The !aying ban.er should see hether the amount stated in the che#ue both in ords and figures agree ith each other) AeB Material ,lteration: If there is any material alteration the ban.er should return it ith a memorandum 8Alteration re#uires dra er@s confirmation9) AfB 1ufficient )alance: If the funds available are not sufficient to honour a che#ue* the !aying ban.er is :ustified in returning it) AgB 1i#nature of the 0rawer: It is the duty of the !aying ban.er to com!are the signature of his customer found on the che#ue ith that of his s!ecimen signature) AhB -ndorsement: The ban.er must verify the regularity of endorsement* if any* that a!!ears on the instrument)

AiB Le#al )ar: The e;istence of legal bar li.e 3arnishee order limits the duty of the ban.er to !ay a che#ue)

CIRCUMSTANCES UNDER W<IC< A C<E?UE MAY BE DIS<ONOURED A !aying ban.er is under a legal obligation to honour his customer@s mandate) =e is bound to do so under his contractual relationshi! ith his customer) A rongful dishonor ill have* the orse effect on the ban.er) =o ever* under the follo ing circumstances* the !ayment of a che#ue may be refused) aB Countermandin#: Countermanding is the instruction given by the customer of a ban. re#uesting the ban. not to honour a !articular che#ue issued by him) Chen such an order is received* the ban.er must refuse to !ay the che#ue) bB 2pon receipt of notice of death of a customer: Chen a ban.er receives ritten information from an authoritative source* regarding the death of a !articular customer* he should not honour any che#ue dra n by that deceased customer) cB 2pon the receipt of notice of insol*ency: <nce a ban.er has .no ledge of the insolvency of a customer he must refuse to !ay che#ues dra n by him) dB 2pon the receipt of notice of insanity: Chere a ban.er receives notice of a customer@s insanity* he is :ustified in refusing !ayment of the che#ue dra n by him) eB 2pon the receipt of notice of 3arnishee order: 3arnishee order refers to the order issued by a court attaching the funds of the :udgement debtor Ai)e) the customerB in the hands of a third !arty Ai)e) the ban.erB) In such a case* the ban.er may refuse !ayment) fB 2pon the receipt of notice of assi#nment: The ban. balance of a customer constitutes an asset and it can be assigned to any !erson by giving a letter of assignment to the ban.er) In such case also the ban.er may refuse !ayment) gB 4hen a reach of trust is intended: In the case of trust account* mere .no ledge of the customers intention to use the trust funds for his !ersonal use is a sufficient reason to dishonor his che#ue) hB 0efecti*e Title: If the !erson ho brings a che#ue for !ayment has no title or his title is defective* the ban.er should refuse to honour the che#ue !resented by him) iB Other 3rounds: A ban.er is :ustified in dishonouring a che#ue under the follo ing circumstances also?

a conditional one* dra n on an ordinary !iece of !a!er* a stale one* !ost>dated one* mutilated* dra n on another branch here the account is not .e!t*

!resented during non>ban.ing hours) If the ords and figures differ*

If there is no sufficient funds* If the signature of the customer is forged* If the endorsement is irregular and* If a crossed che#ue is !resented at the counter)

COLLECTING BANKER A collecting ban.er is one ho underta.es to collect the amount of a che#ue for his customer from the !aying ban.er)

DUTIES OF COLLECTING BANKER () -$ercise reasona le care and dili#ence in his collection wor": As an agent* he should e;ercise reasonable care* diligence and s.ill in collection or.) =e should observe utmost care hen !resenting a che#ue) +) (resent the che%ue for collection without any delay: If there is any delay in !resenting the che#ue for !resentment by the ban.er* the customer may suffer losses due to the insolvency of the dra er or insufficiency of funds in the account of the dra ee or insolvency of the ban.er himself) =ence the collecting ban.er has to !resent the che#ue for collection ithout any delay) -) .otice to customer in case of dishonor of che%ue: If the che#ue he collects has been dishonoured* he should inform him customer ithout any delay)

R"@'") ?+",/'$-,

() &efine "egotiable Instruments) Chat are the characteristics of negotiable instrumentsO +) Chat are the different .inds of crossingO -) Chat is indorsementsO Chat are the .inds of indorsementsO /) Chat are the !recautions to be ta.en by a ban.er hile honouring a che#ueO 4) Chat are the duties of a collecting ban.erO

LESSON 2 INDIAN PARTNERS<IP ACT4 0532

,ection / of the Indian Partnershi! Act defines it as Ithe relation bet een !ersons ho have agreed to share the !rofits of a business cancelation by gfdg any of them acting for all9 Persons ho have entered into !artnershi! ith one of other are called individually 8!artners9 and collectively 8a firm9* and the name under hich their business is carried on* is called the 8firm name9)

ESSENTIALS OF PARTNERS<IP () 5elationship: Partnershi! is the abstract relationshi! bet een !artners +) Two or More (ersons: As no one can be a !artner ith himself* there must be at least t o !ersons) The ma;imum number of members is (5 for a !artnershi! carrying on ban.ing business and +5 for a !artnershi! carrying on any other business) -) ,#reement or 0eed: Partnershi! arises out of an agreement but not out of status) ,uch agreement* also called as deed* may be e;!ress or im!lied from the conduct of the !arties) It may be oral or ritten) It contains details relating toK name of the firm and the names of the !artners* nature and !lace of business* the date of commencement and the duration of !artnershi!* ca!ital and ban.ing account* sharing of !rofits and losses* management* accounts arbitration etc)

/) )usiness: The ob:ect of the !artnershi! is to carry on any business* !rofession* vocation* trading or calling) ,uch business must be la ful) Mere holding of !ro!erty in common is not !artnershi!* e)g) co>o nershi!) 4) (rofit 1harin#: ,haring of !rofits is essential though it does not mean that all those ho !artici!ate in !rofits are necessarily !artners) 6) Carried on y all or any of them actin# for all: $ach !artner acts as an agent as ell as a !rinci!al) $ach one can act in the course of business and bind the

other !artners by his acts) As such* he can be called an agent) ,ince he is also bound by the acts of the other !artners* he can be called the !rinci!al) Thus* the la of !artnershi! is a branch of the general la of agency as every !artner has im!lied !o er to bind other !artners for the acts of the firm* done in the course of conduct of the business)

KINDS OF PARTNERS<IP () (artnership at will: Chere the !artners have not !rovided in their deed* for the duration of !artnershi! or for the termination of !artnershi!* the !artnershi! is called 8!artnershi! at ill9) A !artner may retire to dissolve the !artnershi! at his ill* by giving a notice to other !artners* of his intention to do so) +) (articular partnership: A !erson may become a !artner !articular adventures or underta.ings) ith another !erson in

-) (artnership for a fi$ed term: Chere the !artners fi; the definite !eriod or duration of !artnershi!* it is called a !artnershi! for a fi;ed term)

TEST OF PARTNERS<IP In determining hether a !artnershi! e;ists or not* or hether a !erson is a !artner or not the real relation bet een the !arties as sho n by all relevant facts* must be ta.en into consideration) The :oint use of !ro!erty in common in business for sharing of !rofits is evidence that a !artnershi! e;ists) But this is not conclusive evidence to sho that a !artnershi! e;ists) %i.e ise* an active !artici!ation in the conduct of business is evidenced that a !artnershi! e;ists) But again* it is no conclusive evidence to establish the fact of e;istence of !artnershi!) For e;am!le* a servant may manage the affairs of a firm) Qet he is not a !artner) In the same ay* a :oint venture having no ob:ect of !rofit sharing is not a !artnershi!* hile sharing of !rofits is evidence* though no conclusive* that a !artnershi! e;ists) ,o* ,ection 6 lays do n that the recei!t of a share of !rofit* or a !ayment contingent or varying ith the !rofits does not of itself* ma.e the reci!ient a !artner) Therefore* the true test of !artnershi! is no sharing of the !rofit* but hether the relationshi! of agency e;ists or not)

KINDS OF PARTNERS Follo ing are different .inds of !artners () ,ctual or Ostensi le (artner: An actual !artner is one in the conduct of the business of the !artnershi!) ho actively !artici!ates

+) 0ormant or 1leepin# (artner: =e is a !artner ho is not .no n to third !arties as such) =e does nto ta.e active !art in the conduct of business) =e occu!ies the !osition of an undisclosed !rinci!al) =ence* third !arties can sue him on discovering that he is a !artner) Chile he has access to accounts and e;amine and verify them* he has not duties to !erform) =ence no notice of his retirement to the !ublic is necessary nor the firm is dissolved hen he becomes insane) -) (artner y -stoppel: Chere a !erson causes* by his conduct* another to believe him to be a !artner and on that belief such other !erson gives credit to the firm* he is esto!!ed from denying that he is a !artner) -$ample: R* Q and N are !artners of a firm) R* in the !resence and ithin the hearing of A* re!resents to & that A is a !artner of their firm) A does not contradict this re!resentation) A* on faith of that re!resentation* lent Rs) 4555 to the firm* A* is liable as a !artner) /) (artner y 6oldin# Out : Chere a !erson re!resents himself or allo s others to re!resent him as a !artner of a !articular firm* he becomes liable to all those ho act and lend money to the firm* on the faith of such re!resentation) -$ample: A* re!resents himself as a !artner of a !articular firm) & on the faith of the re!resentation* lends credit to the firm) A becomes liable)

REGISTRATION OF FIRMS The Partnershi! Act does not !rovide for the com!ulsory registration of firms) It has left it to the o!tion of the firms to get themselves registered) But indirectly* by creating certain disabilities from hich an unregistered from suffers* it has made the registration of firms com!ulsory)

PROCEDURE FOR REGISTRATION The registration of a firm may be effected at any time by filling an a!!lication in the form of a statement* giving the necessary information* ith the Registrar of Firms of the area) The a!!lication for registration of a firm shall be accom!anied by the !rescribed fee) It shall state? AaB the name of the firm AbB the !lace or !rinci!al !lace of business of the firm AcB the names of other !laces here the firm carries on business AdB the date hen each !artner :oined the firm

AeB the names in full and !ermanent address of the !artners AfB the duration of the firm)

The statement shall be signed by all the !artners or by their agents s!ecially authoriFed in this behalf L,ec) 47A(BM) It shall also be verified by them in the !rescribed manner L,ec) 47A+BM) Chen the Registrar is satisfied that the above !rovisions have been duly com!iled ith* he shall record an entry of the statement in the Registrar of Firms Amaintained by Registrar of Firms in res!ect of each registered firm for recording the necessary information relating to that firmB and file the statement A,ec) 41B) =e shall then issue under his hand a certificate of registration) Registration is effective from the date hen the Registrar files the statement and ma.es entries in the Register of Firms)

EFFECTS OF NONCREGISTRATION (SEC. 65) () 1uits etween partners and firm: A !erson suiting as a !artner of an unregistered firm cannot sue the firm or any !artners of the firm to enforce a right from a contract or conferred by the Partnershi! Act) +) 1uits etween firm and third parties: An unregistered firm cannot sue a third !arty to enforce a right arising from a contract until the firm is registered* and the names of the !ersons suing a!!ear as !artners in the Register of Firms L,ec) 61A+BM

-) Clain of set-off: An unregistered firm or any !artner thereof cannot claim a set> off in a !roceeding instituted against the firm by a third !arty to enforce a right arising from a contract* until the registration of the firm is effected L,ec) 61A-BM

RELATIONS OF PARTNERS The relations of the !artners of a firm to one another are usually governed by the agreement among them) ,uch agreement may be e;!ress or im!lied)

RIG<TS OF A PARTNER 0. R'68/ /$ / 9" ! #/ '- B+,'-",,

The !artnershi! agreement usually !rovides the mode of the conduct of the business) ,ub:ect to !ay such agreement bet een the !artners* every !artner has a right to ta.e !art in the conduct of business L,ec) (+AaBM) This is based on the general !rinci!al that !artnershi! business is the common business of all the !artners) 2. R'68/ /$ 7" C$-,+(/". $very !artner has an inherent right to be consulted in all matters affecting the business of the !artnershi! and e;!ress his vie s before any decision is ta.en by the !artners) 3. R'68/ $3 A&&",, /$ A&&$+-/, ,ub:ect to contract bet een the !artners* every !artner has a right to have access to and ins!ect and co!y any of the boo.s of the firm) 4. R'68/ /$ S8 #" '- P#$3'/ In the absence of any agreement* the !artners are entitled to share e#ually in the !rofits earned and are liable to contribute e#ually to the losses sustained by the firm) A. R'68/ /$ I-/"#",/ $- C !'/ ( The !artnershi! agreement may contain a clause as to the right of the !artners to claim interest on ca!ital at a certain rate) ,uch interest* sub:ect to contract bet een the !artners* is !ayable only out of !rofits* if any* earned by the firm) 6. R'68/ /$ I-/"#",/ $- A.@ -&", Chere a !artner ma.es* for the !ur!oses of the business of the firm* any advance beyond the amount of ca!ital* he is entitled to interest on such advance at the rate of si; !er cent annum) ,uch interest is not only !ayable out of the !rofits of the business but also out of the assets of the firm) 2. R'68/ /$ 7" I-."%-'3'". A !artner has authority* in an emergency* to do all such acts for the !ur!ose of !rotecting the firm from loss as ould be done by a !erson of ordinary !rudence* in his o n case* acting under similar circumstances) ,uch acts of the !artner bind the firm) If as a conse#uence of any such act* the !artner incurs any liability or ma.es any !ayment* he has a right to be indemnified) 1. R'68/ /$ /8" U," $3 P #/-"#,8'! P#$!"#/: ,ub:ect to contract bet een the !artners* the !ro!erty of the firm must be held and used by the !artners e;clusively for the !ur!oses of the business of the firm) "o !artner has a right to treat it as his individual !ro!erty) If a !artner uses the

!ro!erty of the firm directly or indirectly for his !rivate !ur!ose* he must account to the firm for the !rofits hich he may have earned by the use of that !ro!erty) 5. R'68/ $3 P #/-"# , A6"-/ $3 /8" F'#% $very !artner for the !ur!oses of the business of the firm is the agent of the firm) 00. N$ N") P #/-"# /$ 7" I-/#$.+&". $very !artner has a right to !revent the introduction of a ne !artner unless he consents to that or unless there is an e;!ress term in the contract !ermitting such introduction) This is because !artnershi! is founded on mutual trust and confidence) 00. N$ L' 7'('/: 7"3$#" >$'-'-6 A !erson ho is introduced as a !artner into a firm is not liable for any act of the firm done before he became a !artner) 02. R'68/ /$ R"/'#" A !artner has a right to retire AaB ith the consent of all other !artners* or AbB in accordance ith an e;!ress agreement bet een the !artners* or AcB here the !artnershi! is at ill* by giving notice to all the other !artners of his intention to retire) 03. R'68/ $3 O+/6$'-6 P #/-"# /$ S8 #" '- /8" S+7,"B+"-/ P#$3'/, Chere a !artner has died* or has ceased to be a !artner by retirement* e;!ulsion* insolvency* or any other cause* the surviving or continuing !artners may carry on the business ith the !ro!erty of the firm ithout any final settlement of accounts as bet een them and the outgoing !artner or his estate) In such a case* legal re!resentative of the deceased !artner or the outgoing !artner is entitled to such share of the !rofits as is !ro!ortionate to his share in the !ro!erty of the firm)

DUTIES OF A PARTNER Partnershi! is a contract of uberrimae fide) The !artners must act ith utmost good faith as the very basis of !artnershi! is mutual trust and confidence) According to ,ec) 1* hich deals ith the general duties of !artners* !artners are bound AaB to carry on the business of the firm to the greatest common advantage* AbB to be :ust and faithful to each other* and

AcB to render true accounts and full information of all things affecting the firm to any !artner or his legal re!resentative)

The other duties are s!read over the Partnershi! Act) These duties are summed as under? 0. T$ & ##: $- 7+,'-",, /$ /8" 6#" /",/ &$%%$- .@ -/ 6" $very !artner is bound to carry on the business of the firm to the greatest common advantage) =e is bound* in all transactions affecting the !artnershi!* to do his best in the common interest of the firm) 2. T$ $7,"#@" 3 '/8 Partnershi! is a fiduciary relation) $very !artner must be :ust and faithful and observe utmost good faith to ards every other !artner of the firm) 3. T$ '-."%-'3: 3$# 3# +. $very !artner is bound to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm) 4. T$ //"-. .'('6"-/(: It is the duty of every !artner to attend diligently to his duties in the conduct of the business of the firm L,ec) (+bM* and to use his .no ledge and s.ill to the common advantage of all the !artners) A. N$/ /$ &( '% #"%+-"# /'$A Partner is not entitled to receive any remuneration in any form for ta.ing !art in the conduct of the business of the firm) It is ho ever* usual to allo some remuneration to the or.ing !artners !rovided there is a s!ecific agreement to that effect) 6. T$ ,8 #" ($,,", It is the duty of every !artner to contribute to the losses of the firm) In the absence of an agreement to the contrary* the !artners are bound to contribute e#ually to the losses sustained by the firm) An agreement to share !rofits im!lies an agreement to share losses also) 2. T$ '-."%-'3: 3$# )'((3+( -"6("&/ $very !artner is bound to indemnify the firm for any loss caused to it by his neglect in the conduct of the business of the firm) 1. T$ 8$(. -. +," !#$!"#/: $3 /8" 3'#% ";&(+,'@"(: 3$# /8" 3'#% illful

It is the duty of every !artner of the firm to hold and use the !ro!erty of the firm e;clusively for the !ur!oses of the business of the firm 5. T$ &&$+-/ 3$# !"#,$- ( !#$3'/, If a !artner derives any benefit* ithout the consent of the other !artners* from !artnershi! transactions* he must account for it and !ay it to the firm) This is because the relationshi! bet een !artners is a fiduciary relationshi! and no !artner is entitled to ma.e any !ersonal !rofit) 00. T$ &&$+-/ 3$# !#$3'/ '- &$%!"/'-6 7+,'-",, A !artner must not carry on any business of the same nature as com!eting ith that of the firm) If he does that he is bound to account for and !ay to the firm all !rofits made by him in that business) 00. T$ &/ )'/8'- +/8$#'/: $very !artner is bound to act ithin the sco!e of his actual or im!lied authority) Chere he e;ceeds the authority conferred on him and the firm suffers a loss* he shall have to com!ensate the firm for any such loss) 02. T$ 7" (' 7(" =$'-/(: -. ,"@"# ((: $very !artner is liable* :ointly ith all the other !artners and also severally* for all the acts of the firm done hile he is a !artner) 03. N$/ /$ ,,'6- 8', #'68/, A !artner cannot assign his rights and interest in the firm to an outsider so as to ma.e him the !artner of the firm) =e can* ho ever* assign his share of the !rofit and his share in the assets of the firm)

DISSOLUTION OF FIRMS ,ection -1 of the Indian Partnershi! Act lays do n that the dissolution of !artnershi! bet een all the !artners of a firm is called the 8dissolution of the firm9) This is different from the dissolution of !artnershi!) A !artnershi! may be dissolved ithout dissolution the firm) But dissolution of firm involves dissolution of !artnershi!) In the firm of A* B and C* if C dies or retires* the firm ill be dissolved) But A and B may ta.e in & and continue doing the business) This ne firm of A* B and & is called the ne or reconstituted firm)

D',,$(+/'$- $3 P #/-"#,8'! $- /8" 8 !!"-'-6 $3 &"#/ '- &$-/'-6"-&'", A !artnershi! is dissolved by >>>

 The death of the !artner The com!letion of the adventure of !artnershi! The insolvency of a !artner* and The retirement of a !artner

In all these cases* the remaining !artners* may constitute the firm) =ence* dissolution of !artnershi! does not necessarily involve dissolution of the firm) If they do not continue* the firm is dissolved automatically)

D',,$(+/'$- $3 F'#% A !artnershi! bet een all the !artners is dissolved in the follo ing ays

(B 0issolution y ,#reement: AaB By mutual consent of all the !artners* or AbB in accordance ith the contract entered into by them) +B Compulsory 0issolution: AaB by the insolvency of al the !artners e;ce!t one* or AbB by the business of the !artnershi! becoming illegal or unla ful by subse#uent events) -B 0issolution of (artnership at 4ill: The firm may be dissolved by any !artner giving a notice to the other !artners of his intention to dissolve the firm) But the notice must be in riting and unambiguous) <nce given* it cannot be ithdra n) The firm is dissolved from the date mentioned in the notice* or if the date is not mentioned* from the date of communication of the notice) /B 0issolution throu#h Court: A !artnershi! for a fi;ed !eriod ill be dissolved by a court here it is not dissolved for the reasons mentioned above) At the suit of a !artner* a firm may be dissolved on any of the follo ing grounds? AaB that a !artner has become of unsound mind* AbB that a !artner has become !ermanently inca!able of !erforming his duties* AcB that a !artner is guilty of conduct carrying on of the business) hich is li.ely to affect !re:udicially* the

AdB that a !artner !ersistently commits breach of agreement) For instance* a firm is dissolved hen? AiB a !artner commits breach of trust* or Aii ta.es a ay the !artnershi! boo.s etc) AeB that a !artner has transferred his interest to a third !arty or allo ed his share to be charged or sold in the recovery of arrears of land revenue

AfB that the business of the firm cannot be carried on* save at a loss* or AgB on any other ground be dissolved) hich renders it :ust and e#uitable that the firm should

REVIEW ?UESTIONS () define Partnershi!) Chat are the different .inds of !artnershi!O +) Chat are the rights and duties of !artnersO -) Chat is the !rocedure for registration of !artnershi! firmO Chat is the effect of non>registrationO /) Chat are the modes of dissolution of firmO

LESSON 1 ARBITRATION OF ACT4 0540

Arbitration is one of the oldest methods of settling civil dis!utes bet een t o or more !ersons by reference to the dis!ute to an inde!endent and im!artial third !erson instead of litigating the matter in the usual ay through the Courts) In 0nion of India Gs &)P) Cadia P ,ons* A)I)R) A(122B Bom) (5* it as observed that 8arbitration is a domestic forum) It is a forum other than a Court of la for determination of dis!utes and differences* after hearing both the sides* in a :udicial manner9) The la relating to arbitration is contained in the Arbitration Act* (1/5) The !erson a!!ointed to ad:udicate u!on the difference is called an arbitrator) ,ection +AaB defines that an 8Arbitration Agreement means a ritten agreement to submit* !resent or future differences to arbitration* hether an arbitrator is named therein or not9)

MATTERS REFERRED TO ARBITRATION () All dis!utes of civil and #uasi>civil nature +) All matters affecting the !rivate rights of the !arties matter of a civil suit hich can be the sub:ect>

-) All matters connected ith the !ersonal rights of the !arties such as marriage* maintenance or conditions on hich husband and ife may se!arate etc) /) Matters of #uestions of la 4) A time>barred debt* etc) and fact)

But the follo ing matters cannot be referred to arbitration?> AaB A suit for divorce of restitution of con:ugal rights AbB Right arising out of an illegal transaction AcB Insolvency !roceedings AdB Matters relating to !ublic charities AeB Matters of criminal nature* e)g) murder* theft etc) AfB Proceedings ith regard to lunacy) AgB Testamentary matters AhB A!!ointment of a guardian to a minor

W8$ & - #"3"# A !erson ho is com!etent to contract* may refer matters to arbitration because a reference or submission is an agreement) The manager or !artner of a Hoint =indu Family An agent duly authoriFe by the !rinci!al The official receiver by the leave of court Trustees acting together* and A com!any may refer a dis!ute)

But an insolvent or a !artner in a firm or an e;ecutor or administrator* or a minor cannot refer matters to arbitration)

KINDS OF ARBITRATION ARBITRATION WIT<OUT INTERVENTION OF A COURT 0nless the intention of the !arties is other ise e;!ressed* follo ing !rovisions shall be im!lied in an arbitration agreement)

aB $;ce!t hen it is !rovided other ise* the reference shall be to a sole arbitrator) bB If the reference is to an even number of arbitrators* the arbitrators shall a!!oint an um!ire not later than one month from the latest date of their res!ective a!!ointments) cB The arbitrators shall ma.e their a ard ithin four months* after entering on the reference or after having been called u!on to act* by notice in riting* from any !arty to the arbitration agreement or ithin such e;tended time as the court may allo ) dB Chen the arbitrators have either allo ed time to e;!ire ithout ma.ing an a ard or e;!ressed in riting* to any of the !arties to the agreement or um!ire* that they cannot agree* the um!ire shall forth ith enter on the reference in lieu of the arbitrators) eB The um!ire shall ma.e his a ard ithin t o months of entering on the reference or ithin such e;tended time as the court may allo

fB The arbitrators may e;amine all the !arties to the agreement and other !ersons claiming under them and all documents and !a!ers relating to the dis!ute and do all other necessary things) gB The a ard shall be final and binding on the !arties) hB Costs of references and the a ard shall be borne by the !arties* as the arbitrators* at their discretion* may direct)

ARBITRATION IN SUITS A#7'/# /'$- /8#$+68 /8" I-/"#@"-/'$- $3 C$+#/ )8"#" -$ S+'/ ', P"-.'-6 Though the !arties have entered into an arbitration agreement before a suit in res!ect of any matter relating to the agreement is field in a court* one of the !arties may a!!ly to the court for the filling u! of the agreement ith it) ,uch an a!!lication must be in riting* numbered and registered as a suit) The interested !arties shall be made as !laintiffs and disinterested as defendants) The court having heard the ob:ections* if any* of all the !arties to the agreement* issues an order of reference to an arbitrator a!!ointed by the !arties or by the court itself) Thereafter* all the rules a!!licable in the case of arbitration ithout intervention of the court* shall a!!ly)

A#7'/# /'$- /8#$+68 /8" I-/"#@"-/'$- $3 /8" C$+#/ )8"#"

S+'/ ', P"-.'-6

<n receiving an a!!lication from the !arties to the suit* the court may refer the matter in difference to an arbitrator a!!ointed by it* for determination ithin a s!ecified time) Chere some of the !arties to the suit a!!ly to the court for reference to arbitration* the other !arties ho ere not a!!licants shall be bound by the suit only* hich continues so far as it relates to those !arties)

ARBITRATOR An arbitrator is one* ho is a!!ointed by the contending !arties for negotiation and settlement of a dis!ute referred to him) ,ince* he is a!!ointed by the !arties to the dis!ute at their o n choice* anybody* including a minor or one of themselves may be a!!ointed as an arbitrator) But hen the !arties cannot a!!oint any arbitrator or if an a!!ointed arbitrator neglects or refuses to act or is inca!able of acting or dies* and if such vacancy is not duly filled ithin (4 days of the notice by any !arty on the other !arties to fill such a vacancy* the court* on the a!!lication of the !arty ho gave notice to other !arties for filling the vacancy* may a!!oint an arbitrator or arbitrators) The court* on receiving an

a!!lication from any of the !arties can remove an arbitrator hen he fails to !roceed ith the reference or hen he has misconducted himself of the !roceedings)

POWERS OF ARBITRATOR () =e can administer oath to the !arties and itnesses

+) =e can state a s!ecial case for the o!inion of the court on any matter of la -) =e can state the a ard in the form of a s!ecial case for the o!inion of the court /) =e can ma.e the a ard conditional or in the negative 4) =e can administer necessary interrogatories to any !arty to arbitration 6) =e can administer necessary interrogatories to any !arty to arbitration)

DUTIES () =e must act :udicially as he is an e;tra>:udicial court at the choice of the !arties) ,o* he must fi; the time and !lace for hearing and grant ad:ournments as may be necessary to do :ustice) +) =e must observe the fundamental !rinci!les of :ustice) =e may not strictly follo the technical rules of !rocedure) But he should not disregard the substance of :ustice) -) =e must be im!artial and act fairly to both the !arties) /) =e must not act as an agent or advocate of a !arty) =e must act as an im!artial :udge) 4) =e must decide on all matters relating to the dis!ute and ma.e an a ard 6) =e must not delegate his authority to someone else e;ce!t hen the delegation involves ministerial acts) =e may ho ever* ta.e the assistance of e;!erts li.e a Chartered Accountant etc) but he must give his o n decision) 2) =e must not investigate into matters hich are outside the sco!e of terms of reference to arbitration) ,o* he must not e;ceed his authority) 7) =e must ma.e an a ard ithin four months from the date on made or ithin such e;tended time as the court may allo ) hich reference is

POWERS AND DUTIES OF AN UMPIRE Chere t o or more even numbers of arbitrators are a!!ointed and the reference !rovides that in the event of their disagreement* the matter in dis!ute shall be referred to the decision of a third !erson* such third !erson is called an um!ire) ,o* an um!ire may be a!!ointed by the arbitrators ithin one month from the latest date of their res!ective a!!ointments) =e may be a!!ointed by the court A(B hen the arbitrators do not a!!oint him or A+B hen the !arties fail to a!!oint arbitrators) The court may remove him on same grounds on hich an arbitrator is removed* namely* hen he fails to !roceed ith arbitration or hen he misconducts himself or the !roceedings) =e has to ma.e an a ard ithin t o months or such e;tended !eriod as the court may allo ) =e may fi; the amount of costs and the !ersons ho shall bear such costs) his other rights and duties are the same as those of an arbitrator)

AWARD An a ard is the final decision of the arbitrators or an um!ire in res!ect of a dis!ute referred to arbitration) It must be in riting and signed by the arbitrators or an um!ire) It may be filed in the court hich thereu!on* gives notice to the !arties of the a ard) The o!inion of the court* on matters hich the arbitrators stated a s!ecial case for the o!inion of the court* shall be added to and forms !art of the a ard) 0nless a contrary intention a!!ears* an a ard is binding on the !arties to the arbitration agreements and !ersons claiming under them)

The court may modify an a ard? () Chen a !art of the a ard is on matters not referred to arbitration and such !art can be se!arated ithout affecting decision or +) Chen the a ard is im!erfect in form or contains obvious error or -) Chen the a ard contains clerical mista.e or an accidental omission)

The court may remit an a ard for reconsideration? (B Chen certain matters referred to arbitration are not determined or +B Chen the a ard determines the matters not referred to arbitrations or -B Chen the a ard is inca!able of e;ecution or /B Chen the legality of the a ard is ob:ected to and such ob:ection is a!!arent on the face of it)

Chen the a ard is remitted for reconsideration* the arbitrators or um!ire shall give their decision ithin the fi;ed time* or such e;tended time as the court may allo ) <ther ise* the a ard becomes void) The court may set aside the a ard? (B Chen the arbitrator or um!ire misconducts himself or the !roceedings* +B Chen the a ard is im!ro!erly !rocured or is other ise invalid* -B Chen the a ard is made after the arbitration has become invalid or has been su!erseded by an order of the court)

LESSON 5 COMMON CARRIES ACT

A Common Carrier is one hose business is to trans!ort !ro!erly or goods of all !ersons from !lace to !lace for hire) ,ection + of the Carriers Act (764* defines that 8Common Carrier denotes a !erson* other than the government* engaged in the business of trans!orting for hire* !ro!erty from !lace to !lace* by land or inland navigation for all !ersons indiscriminately)9 But the government or a carrier of !assengers or a carrier by a sea or air cannot be regarded as a carrier) Further* a common carrier is different from a !rivate carrier ho carries goods of !articular !ersons of his o n choice either for hire or gratuitously in a casual occu!ation or under a s!ecial contract)

DUTIES OF COMMON CARRIER () =e is bound to carry goods for all !ersons indiscriminately* +) =e is bound to carry goods does not !rofess to carry hich he !rofesses to carry* but not those hich he

-) =e is bound to carry the goods safely /) =e is bound to carry goods by his ordinary route to the usual destination or destinations in his customary manner ithout unnecessary delay or deviation) ,o* he is not bound to follo the shortest route) 4) =e must deliver the goods at the !lace stated by the consignor of the goods* e;ce!t hen the consignee instructs him to deliver the goods at a !articular !lace) 6) If the consignee does not ta.e delivery of the goods hen they reach the destination* he must arehouse them for a reasonable time so that the consignee can ta.e delivery thereof)

RIG<TS OF COMMON CARRIER () =e has a right to have the goods delivered to him) +) =e is entitled to !rescribe the hire for the carriage of goods by him) -) =e is entitled to e;ercise a lien on the goods in his !ossession for hire and other e;!enses or charges)

/) =e has a right to be reimbursed for the e;!enses incurred by him in the !rotection of the goods hen the consignee refuses to ta.e delivery of them) 4) If the goods are !erishable* he can sell a ay the goods hen the consignee has not ta.en delivery of them and the goods are about to !erish or if the goods get s!oiled in transit)

LIABILITIES OF COMMON CARRIERS () At common la * he is liable as a bailee and hence should ta.e much care of the goods as a man of ordinary !rudence ould ta.e care of his o n goods) +) =e is liable as an insurer for any loss or damage caused to the goods his negligence or not) But the follo ing are the e;ce!tions? hether by

aB Act of &ature: =e is not liable if the loss of goods is caused by unforeseen circumstances beyond his control and contem!lation* such as cyclone lighting etc) bB Alien Enemies: =e is not liable for the loss of goods caused by the foreign enemies during ars) cB 3Inherent 4ire5 in the Goods: =e is not liable for inherent defect in the goods such as deterioration of !erishable goods li.e fruits* vegetables etc) dB -onsignor6s 4ault: =e is not liable for the loss or damage of goods due to consignor@s fault such as bad !ac.ing etc)

L' 7'('/: '- #",!"&/ $3 S&8".+(". G$$., In case of unusually valuable goods li.e gold and silver and unusually !erishable goods such as glass* ivory articles* musical instruments etc) he is not liable for the loss of goods if the value of goods e;ceeds Rs) (55* unless the consignor or his agent e;!ressly declares their value and their descri!tion to the carrier)

L' 7'('/: '- #",!"&/ $3 N$-CS&8".+(". G$$., The liability of the carrier in res!ect of loss of these goods can be limited by a s!ecial contract signed by the consignor or o ner of the goods* e;ce!t hen such loss is caused by the criminal acts of negligence of the carrier himself or his agents or servants)

In order to sue the carrier for loss of goods* notice in riting of the loss of goods must be given to the carrier* ithin si; months from the date on hich the !laintiff has the .no ledge of the loss of goods)

L' 7'('/: '- #",!"&/ $3 . -6"#$+, 6$$., In case of dangerous goods li.e e;!losives* acids etc the consignor must sufficiently inform the carrier of the dangerous character of the goods) If not* the consignor ould be ans erable) But even if the consignor is una are of the dangerous character of goods* he ould be ans erable) <n the other hand* if the carrier is a are of the dangerous character of the goods carried* the consignor is not res!onsible for any conse#uent loss)

CARRIAGE BY RAIL Carriage by rail in India is regulated by the Indian Rail ays Act) (715

R",!$-,'7'('/: $3 R '() : A.%'-',/# /'$- , C ##'"#, $;ecution of for arding note A,ec) 2+B) Any !erson derivering to a rail ay administration any animals or goods to be carried by rail ay shall e;ecute a for arding note) The for arding note shall be in a form !rescribed by the rail ay administration and a!!roved by the Central 3overnment) The sender or his agent shall give the re#uired !articulars in the for arding note in res!ect of the animals or goods delivered to the rail ay administration here? AaB The animals or goods are to be carried by a train intended solely for the carriage of goods* or AbB The goods are to be carried by any other train and consist of articles of any of the follo ing categories namely a) Articles carried at o ner@s ris. rate b) Articles of a !erishable nature c) Articles mentioned in the ,econd ,cheduled A hich includes articles of s!ecial value hich are to be declared and insuredB) d) Articles in a defective condition or defectively !ac.ed) e) $;!losives and other dangerous goods)

As !er the amended ,ec) 2-* a rail ay administration is res!onsible for the loss destruction or deterioration in transit of animals or goods received by it for carriage by rail from all causes e;ce!t losses arising from Act of 3od Act of ar Act of !ublic enemies Arrest* restraint or seiFure under legal !rocess <rders or restrictions im!osed by or on behalf of the Central or a ,tate 3overnment "atural deterioration or in the goods %atent defects Fire* e;!losion or any unforeseen ris. astage in eight due to some inherent defect or vice

The rail ay administration is res!onsible for the non>delivery of animals or goods delivered to be carried by rail ay arising from any cause e;ce!t the above)

Chen any loss destruction* damage* deterioration or non>delivery has occurred as a result of one or more of the cause given above* the rail ay administration shall be res!onsible unless it satisfactorily !roves that it had e;ercised reasonable care and !rudence in the carriage of goods or animals)

CONTRACT OF AFFREIG<TMENT A contract for the carriage of goods by sea is called a contract of affreightment) It is an agreement hereby the shi! o ner underta.es either to carry the goods by ater or to su!!ly a shi! for the carriage of goods by ater in consideration of a !rice called 8freight9) A contract of affreightment is of t o .ind) () Charter>Party and +) Bill of %ading

C<ARTERCPARTY It is an agreement by hich the shi! o ner agrees to let an entire shi! or substantial !art of it to a shi!!er for the conveyance of goods on a certain voyage* to a definite !lace or for a s!ecific !eriod in consideration of 8freight9)

BILL OF LADING 8A bill of lading is a recei!t for the goods shi!!ed on board a shi!* signed by the !erson ho contracts to carry them* or his agent and stating the terms on hich the goods ere delivered to and received by the shi!9) A bill of lading contains the follo ing !articulars () The name of the shi! and its national character) +) A statement that it is sub:ect to the rules laid do n by the Act -) Mar.s for the identification of goods* the number of !ac.ages and the order and condition of the goods /) The !ort of loading* the destination and the route 4) The amount of freight 6) $;!ected !erils and other terms of carriage of goods) A Bill of %ading is a document to title of goods and can be sold hile the goods are still in transit) The transfer of bill of lading serves as the symbolic delivery of goods) But strictly s!ea.ing* it is not a negotiable instrument though it is deliverable to a !articular !erson or his order) therefore* it is sometimes described a 8#uasi>negotiable9 or 8as good as negotiable9)

CARRIAGE BY AIR The la relating to carriage of goods and !assengers across inter>national borders is regulated in India by the Carriage by Air Act* (12+) It also ma.es !rovisions for a!!lying the rules contained in the Carsa Convention and the =ague Protocol Asub:ect to certain e;ce!tions* ada!tations and modificationsB to non>international carriage by air)

DOCUMENTS OF CARRIAGE Chen !assengers and goods are carried by air* the follo ing documents are issued? Passenger Tic.ets? For carriage of !assengers* the carrier must deliver a !assenger tic.et hich must contain the follo ing !articulars) A(B The !lace and date of issue A+B The !lace of de!arture and of destination

A-B The agreed sto!!ing !laces* but the carrier may reserve the right to alter the sto!!ing !laces in case of necessity and the e;ercise of this right ould not de!rive the carriage of its international characterS A/B The name and address of the carrier or carriersS A4B A statement that the carriage is sub:ect to the rules relating to liability contained in the First ,chedule LRule -A(BM

The !assenger tic.et shall constitute !rima facie evidence of the conclusion and conditions of the contract of carriage)

LESSON 00 CONTRACT OF INSURANCE

The Contract of Insurance is a contract hereby a I!erson underta.es to indemnify another against a loss arising on the ha!!ening of an event or by !ay a sum of money on the ha!!ening of an event) The !erson ho insures is called 8Insurer9) The !erson ho effects the insurance is called the 8Insured9 or 8Assured9) The !rice for the ris. underta.en by the insurer and !aid by the insured to the insurer is called 8Premium9 and the document hich contains the contract of insurance is called 8Policy9) Follo ing are the general !rinci!les of contracts of insurance? () A contract of insurance is a contract uberrimae fider* i)e) a contract re#uiring utmost good faith of the !arties) ,o* all material facts hich are li.ely to influence the insurer in deciding the amount of !remium !ayable by the insured must be disclosed by the insured) Failure to disclose material facts renders the contract voidable at the o!tion of the insurer) +) The assured must have* that is called 8insurable interest9 in the sub:ect matter of the contract of insurance) 8=e must be so situated ith regard to the thing insured that he ould have benefit from its e;istence* loss from its destruction9) -) $very contract of insurance such as life insurance and !ersonal accident and sic.ness insurance* is a contact of indemnity) ,o* the insurer !ays the actual loss suffered by the insured) =e does not !ay the s!ecified amount unless this amount is the actual loss to the insured) /) The insured must ta.e reasonable !recautions to save the !ro!erty* ion the event of some misha! to the insured !ro!erty) =e must act as a !rudent uninsured !erson ould act in his o n case under similar circumstances to mitigate or minimiFe losses) 4) The insurer must run the ris. of indemnifying the insured) If he does not run the ris.* the consideration for hich the !remium is !aid* fails and conse#uently* he must return the !remium !aid by the insured) 6) The insurer is liable for loss hich is !ro;imately caused by the ris. insured against) The rule is 8causa !ro;ima non remota s!ectalur9* i)e) the !ro;imate but not the remote cause is to be loo.ed to) ,o* the loss must be !ro;imately caused in order that the insurer is to become liable) 2) $;ce!t in the case of life insurance* every contract of insurance comes to an end of the e;!iry of every year* unless the insured continues the same and !ays the !remium before the e;!iry of the year)

7) According to the rule of subrogation hen the loss is caused to the insured by the conduct of third !arty* the insurer shall have to ma.e good such loss and them have a right to ste! into the shoes of the insured and bring an action against such third !arty ho caused the loss to the insured) This right of subrogation is enforceable only hen there is an assignment of cause of action by the insured in favour of the insurer) The doctrine of subrogation does not a!!ly to life insurance) there are different .inds of insurance) A(B %ife A+B Fire A-B Marine A/B Accident and A4B 3uarantee insurance etc)

LIFE INSURANCE CONTRACT %ife insurance is !o!ularly referred to as life assurance) In this case* the under riter agrees to !ay the assured or his heirs* a certain sum of money on death or on the ha!!ening of an event de!endent u!on human life in consideration of !remiums !aid by the assured) It also grants disability and accident benefits annuities and su!er> annuation allo ances)

A life insurance !olicy is mainly to t o ty!es* A(B the hole life !olicy and A+B the endo ment !olicy) In the former one* the !remiums have to be !aid either for a s!ecified number of years or till the death of the assured) The !olicy matures on the death of the assured) But in the case of the latter ty!e* the amount assured is !ayable either on the death of the assured or on the e;!iry of a s!ecified number of years hichever is earlier) Again* a life insurance !olicy may be either* A(B ith !rofits or A+B ithout !rofits) In the case of the former !olicy* the assured gets not only the sum assured but also a share in the !rofits of the under riter in the form of bonus) But he has to !ay more !remium in this case than that is !ayable in res!ect of 8 ithout !rofits9 !olicy) But in the case of 8 ithout !rofits9 !olicy* the assured is not entitled to any share in the !rofits)

FIRE INSURANCE A contract of fire* insurance is a contract hereby the insurer underta.es* in consideration of the !remium !aid* to ma.e good any loss or damage caused by fire during a s!ecific !eriod) The contract s!ecified the ma;imum amount hich the assured can claim in case of loss) This amount is fi;ed by the !arties at the time of the contract) It is* ho ever* not the measure of the loss) The loss can be ascertained only after the fire has occurred) The insurer is liable to ma.e good the actual amount of loss nor e;ceeding the ma;imum amount fi;ed by the !arties)

C<ARACTERISTICS OF FIRE INSURANCE CONTRACT () It is a contract of indemnity) The assured can* in the event of loss* recover the actual amount of loss from the insurer) This is sub:ect to the ma;imum amount for hich the sub:ect>matter is insured) +) It is a contract of uberrinate fider) The assured and the insurer have to disclose everything hich is in their .no ledge and hich ill affect the contract of insurance) -) The assured must have insurable interest in the sub:ect>matter both at the time of insurance and at the time of loss) The insurable interest must be ca!able of valuation in terms of money) /) The ris. covered by a fire insurance contract is the loss resulting from fire or some cause hich is the !ro;imate cause of the loss) 4) It is sub:ect to the !rinci!les of subrogation and contribution 6) It is contract from year to year) It comes to an end after the e;!iry of the year) It can* ho ever* be rene ed if the assured !ays the !remium during the days of grace)

TYPES OF FIRE POLICIES 0. S!"&'3'& P$('&: It is !olicy hich covers the loss of the assured u! to a s!ecific amount hich is less than the real value of the !ro!erty) ,!ecific !olicy is a case of under> insurance to chec. under>insurance* the insurers usually insert average clause in the !olicy in hich case the !olicy is .no n as average !olicy) 2. C$%!#"8"-,'@" P$('&: It is a !olicy hich covers losses against fire* theft* burglary* third !arty ris.s* etc) such a !olicy is also .no n as 8all>in>one9 !olicy) It may also cover loss of !rofits during the !eriod the business remains closed due to fire) 3. V (+". P$('&: It is a !olicy in hich the amount !ayable in case of loss is fi;ed at the time the !olicy is ta.en) In the event of loss* the fi;ed amount is !ayable irres!ective of the actual amount of loss) A valued !olicy can be legally challenged because it is not a contract of indemnity)

/) Floating Policy It is a !olicy hich covers !ro!erty at different !laces against loss by fire) It might* for e;am!le* cover goods lying in t o arehouses at t o different !laces) It is al ays sub:ect to average clause 4) Re!lacement or Reinstatement Policy In order to !revent fraudulent devices by the assured* the insurers usually insert a clause in the !olicy* called the re>instatement clause* hereby the insurer underta.es to !ay the cost of the re!lacement of the !ro!erty damaged or destroyed by fire)

MARINE INSURANCE A contract of marine insurance is a contract hereby the insurer underta.es to indemnify the insured* in manner and to the e;tent thereby agreed* against marine losses* in consideration of a !remium !aid by the insured) It is a contract of indemnity) It is a contract Iuberrimae fider9) It must have insurable interest) The doctrine of subrogation a!!lies to it) The usual form of the !olicy is hat is called 8%loyd@s Policy9) %loyds are a registere body of several members and a bro.er is al ays em!loyed in the case of this !olicy) ,ometimes* a com!any !olicy also may be issued)

KINDS OF MARINE POLICIES () Time (olicy: It insures the sub:ect matter for a certain s!ecified !eriod* not e;ceeding t elve months) +) 7oya#e (olicy: It insures the sub:ect>matter for a certain voyage only i)e) :ourney from one fi;ed !ort to another fi;ed !ort) -) 7alued (olicy: It s!ecified the agreed value of the sub:ect>manner insured) Insurers are liable only for the loss not e;ceeding the value mentioned in the !olicy) /) 2n*alued or Open (olicy: It does not s!ecify the value of the sub:ect>matter) The value is to be ascertained subse#uently at the time of actual loss) 4) Mi$ed (olicy: It insures the sub:ect>matter for a s!ecified voyage and for a !articular !eriod) 6) Floatin# (olicy: It describes the general terms of insurance* leaving other !articulars such as the name of the shi! etc) to be declared subse#uently) 2) 4a#erin# or 6onour (olicy: It is also .no n as 8!olicy !roof of interest9 or 8Interest or no interest !olicy9) In this case* the insurer does not have insurable

interest in the sub:ect>matter of the contract) It resembles a ages and hence void %osses are indemnified de!ending on the honour of the insurer)

A marine insurance !olicy contains the follo ing !articulars? () "ame of the shi! +) "ame of the !arties -) The time of commencement and duration of the ris. /) 8%ost or not lost9 clause hereby the insurer is made liable hether the goods ere in e;istence or not at the time hen the insurance as effected* e;ce!t hen the insured .ne that the goods ere destroyed already) 4) 8Touch and ,tay9 clause hich mentions the various !arts touches and the !eriod of its stay at these !arts) 6) Acce!ted !erils for hich the insurer underta.es to be liable) 2) 8Free from ca!ture and seiFure9 clause hich e;onerates the insurer from has liability for the loss arising out of the ca!ture and seiFure of the shi!) 7) 8Free from !articular average9 or 8Free from all average9 clause hereby the insurer is e;em!ted from his liability for any !articular average loss or for all average loss caused to the sub:ect>matter of the contract) 1) 8Barratry9 clause relates to the liability of the insurer for the loss arising out of the rongful act of the master or any of the cre of the shi!) (5) 8,ue* %abour and Travel9 clause hich entitles the insured to minimiFe the loss and claim for e;!enses from insurer and to recover the goods lost by falling overboard accidentally) (() 8Collision or running do n9 clause hereby the o ner of an insured shi! shall indemnify the o ner of another shi! if the former shi! collides negligently ith the latter) (+) 8Inchmaree9 clause hich !rotects the insured against any latent defect in the machinery of the shi!) (-) 8$;!ected Perils9 clause !olicy) hich s!ecified the ris.s not covered by the insurance hich the shi!

A marine !olicy is thus a formal document signed by the insurer) It must be stam!ed) It contains the terms of the insurance as e;!lained above) It is an actionable claim and can be transferred by means of an assignment)

REVIEW ?UESTIONS* () Chat is an 8arbitration9) Chat are the .inds of arbitrationO +) &efine common carriers) Chat are right* duties and liabilities of common carriersO -) Chat are the general !rinci!les of contract of insuranceO /) Chat is marine insuranceO Chat are the .inds of marine !oliciesO

BOOKS REFERRED () 'a!oor* ")&) +) ,hu.la* M)C) -) ,ubba Rao $lements of Mercantile %a Mercantile %a Mercantile %a

MODEL ?UESTION PAPER BAC<ELOR OF COMMERCE PAPER 2.2 * COMMERCIAL LAW Time - hours P #/ C A Ans er any five of the follo ing All #uestions carry e#ual mar.s Ma;imum Mar.s ? (55 A4 R 7 T /5B

() &efine offer) Chat are legal rules relating to valid offerO +) Cho is a minorO &iscuss the nature of contract entered into ith minors) -) Chat are the agreements o!!osed to !ublic !olicyO /) Chat are the remedies for breach of contractO 4) &istinguish bet een contract of indemnity and contract of guarantee) 6) Chat are the duties of finder of lost goodsO 2) Chat are the !rinci!les of contract of insuranceO 7) Chat are the rights of an un!aid vendorO

PART B Ans er any Four of the follo ing All #uestions carry e#ual mar.s

A/ ; (4 T 65B

1) &efine contract) Chat are the essentials of a valid contractO (5) Chat are the different methods of discharging a contractO (() Chen the surety is discharged from his liabilitiesO (+) Chat are the im!lied conditions and 3oods ActO arranties laid do n under the ,ale of

(-) Chat are the rights and duties of an agentO (/) Chat are the rights* duties and liabilities of common carriersO (4) Chat are the different .inds of arbitrationO