Assignment Semester 1 Cycle 6 ((Bel))

8/20/2019 Assignment Semester 1 Cycle 6 ((Bel))

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F-2,Block, Amity CampusSec-125, Nodia (UP)

Idia 2!1"!"

ASSI#N$%N&SP'#'A$S%$%S&%'-ISu*+ect Name Busiess %iometal .a/Study CUN&'0 Suda .CPemaet %ollmet Num*e (P%N) $FC!!152!1-2!1!1'oll Num*e A$F1!5 (&)

Studet Name S$AIA &A$BA. 0USIF %.$A.I3

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6) &e studets ae to attac a sca si6atue i te =om7

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Assi6met A Assi6met B Assi6met C

Busiess %iometal .a/ASSI#N$%N& A91 /at is *usiess eiometD Eat ae te

*ee=its limitatios o= eiometal aalysisDEat is eiometDEnvironment literarily means the surroundings, external objects, influences

or circumstances under which someone or something exists. The

environment of any organization is “the aggregate of all conditions, events

and influences that surround and affect it”-avis, !, the "hallenge of

#usiness, $%ew yor&' (c)raw *ill, +/, 012

Environment refers to all external forces that have a bearing on the

functioning of a business. 3auch and )luec&e define environment thus' “The

environment includes factors outside which can lead to o44ortunities or athreat to the firm. 5lthough there are many factors, the most im4ortant of

these sectors are socio-economic, technological, su44lier, com4etitor and the

government”

#usiness is all about rea4ing 4rofits from the o44ortunities available in the

environment 644ortunity can manifest themselves in the form of short

su44ly, excess demand, latent need or new better and economical sources of

su44ly or manufacturing.

Every business o4erates in a 4articular environment and each business unit

has its own environment. 5 change in environment 4resents o44ortunity to

some and threat to others.

7ometimes, in the same industry, a relevant change in environment can a

favorable of the o44osite im4act on different units of the same industry.

8or instance, the )eneral 5greement on Trade and 7ervices $)5T7/

im4lemented in 9ndia on 3anuary +,:;;, is an o44ortunity for research-

based 4harmaceutical com4anies li&e


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$Tata 6il (ills "om4any/ and >a&me from Tata and (odern 8oods from the

government, besides many other small ta&eovers and mergers.

The new moguls of the 9ndian business are those who 4redicted the changes

in the environment and reacted accordingly. 5zim 0remji of Ai4ro,

%arayana (urthy of 9nfosys, 7ubhash )oyal of BEE, the 5mbanis of

reliance, >.%.(ittal of (ittal 7teel, of #harti Telecom are some of them.

Even a small businessman who 4lans to o4en a small sho4 as a general

merchant in his town needs to study the environment before deciding where

he wants to o4en his sho4, the 4roducts he intend to sell and what brands he

wants to stoc&.

'elatiosip *et/ee a *usiess ad a eiometThe relation between a business and an environment is not a one way affair.

The business also e?ually influences the external environment and can bring

about changes in 9t. 0owerful business lobbies for instance, actively wor&

towards changing government 4olicies.

The business environment is not all about the economic environment butalso about the social and 4olitical environment. 0olitically, after the

"ongress government came to 4ower at the center with the su44ort of the

"09 in (ay :;;1, the whole 4rocess of disinvestments too& a @-turn

7imilarly, a new sociological order in 9ndia today has created a mar&et for

fast foods, 4ac&aged foods, multi4lexes, designer names, valentine day gifts

and 4resents, and gymnasiums and clubs etc.

7o it is ?uite obvious that success in a business de4ends u4on better

understanding of the environment. 5 successful organization doesn=t loo& at

the environments on and ad hoc basis but develo4s a system to study the

environment on a continuous basis to try and 4rotect the organization from

every 4ossible threat and to ta&e the advantage of every o44ortunity. 7ome

times better and timely understanding of the environment can even turn

threat into an o44ortunity.

Caacteistics o= %iomet+. %iomet is Comple> The environment consists of a number of

factors, events, conditions and influences arising from different

sources. 5ll these interact with each other to create new sets of

influences.

:. It is 8yamic The environment by its very nature, is a constantlychanging one. The varied influences o4erating u4on it im4art a

dynamism to it and cause it ot continually change its sha4e and

character.

2. %iomet is multi-=aceted The same environmental trend canhave different effects on different industries. 8or instance )5T7 that

is an o44ortunity for some com4anies but a threat for others.


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1. It as a =a-eaci6 impact The environment has a far reachingim4act on organizations inn that the growth and 4rofitability of

organization de4ends critically on the environment in which it exists.

. Its impact o di==eet =ims /it i te same idusty di==es 5change in environment may have different bearings on various firms

o4erating in the same industry. 9n the 4harmaceutical industry in

9ndia, for instance, the im4act of the new 90< $9ntellectual 0ro4erty

> too& the advantage to ac?uire com4anies li&e >a&me, T6("6,

and !9775% etc. "hanges in environment often also 4ose a seriousthreat to the entire industry. >i&e >iberalization does 4ose a threat of

new entrants to 9ndian firms in the form of (ulti %ational

"or4oration $(%"s/.

. Ca6es i te eiomet ca ca6e te competitie sceaio)eneral environmental changes may alter the boundaries to an

industry and change the nature of its com4etition. This has been the

case with deregulation in the telecom sector in 9ndia. 7ince

deregulation, every second year new com4etitors emerge, old foes

become friends and (D5s follow every new regulation.

. Sometimes deelopmets ae di==icult to pedict /it ay de6eeo= accuacy (acroeconomic develo4ments such as interest ratefluctuations, the rate of inflation, and exchange rate variations are

extremely difficult of 4redict on a medium of a long term basis. 6n

the hand, some trends such as demogra4hic and income levels can be

easy to forecast.

%iometal Scai6The 4rocess by which organizations monitors their environment to

identify o44ortunities and threats affecting their business, is &nown

environmental scanning. The following factors to be considered for environmental scanning'

+. %ets 9m4ortant and s4ecific occurrences that ta&ing 4lace in acertain sector.

:. &eds The general tendencies or course of action along which theseevents ta&e


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0lace.

2. Issues the current concerns that arise in res4onse to events andtrends.

1. %>pectatios The demands made by interested grou4s in the light of their concern for issues.$5zhar !azmi, T5T5 (c)raw *ill,4++/

&ype o= %iometThe environment can be divided into three broad categories'

9nternal Environment

(acro Environment $)eneral Environment/

(icro Environment$


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$aco %iomet The (acroG)eneral environment consists of factors external to the industry that may have a significant im4act on the

firm=s strategies. *ere we will loo& at six broad dimensions'

demogra4hic, socio-cultural, 4oliticalGlegal, technological, economic and

global.

8imesios i #eeal %iomet

5ll these dimensions of general environment are interrelated. These

dimensions not only influence businesses, but also influence each other.

5fter a 4olitical change in ++, when congress government came to 4ower,

major economic change too& 4lace in the form of >0), i.e., >iberalization,

0rivatization, and )lobalizations. This led to and enhancement in the

technological environment of the country. This technological and economic

change has transformed the socio-culture environment of the country.

)lobalization has also enabled 9ndia to become the software su4er4ower of

the world. 5ll global organizations now have a new and vast mar&et, as well

as chea4 manufacturing hub, which has com4elled them to change their global mar&eting and manufacturing strategies.

Aith this, over the last ten years there has been a drastic change in the

9ndia=s demogra4hy 4er ca4ita incomes have risen. The number of young

achievers and high earners has increased drastically, which changed the

entire demand schedule of 4roducts.

emogra4hic

0oliticalG>eg

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Economic

#usiness

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This shows that a single 4olitical in ++ has changed all the com4onents of

the macro environment. 7o while studying macro environment, one should

not only concentrate on how this factor will influence business but also on

how this will influence other com4onents of the environment and what will

be the im4act of these changes in the business. 6nly then can one design

long term strategies.

+. Political %iomet 9t is the 4olitical environment of the countrythat decides the fortune of businesses in a country. 5fter the ++

revolution in sudden 4olitical change transformed the e?uation of

doing business. 5fter the change of regime in the @77< in late +;s

and early +;s business e?uations changed once again in


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chea4est 4ossible rates. 5 one ru4ee sachet of sham4oo or a five ru4ee

ice-cream cone is some exam4les. 9t is the demogra4hy that decides

the 4ricing, 4romotion and distribution strategies. ;H of 9ndia=s

4o4ulation is lives in villages and of this, ;H are youth which is why

every business house is launching new 4roducts, s4ecifically for rural

mar&et. 9T" launched its uni?ue and ambitious 4rogram called e-

chau4al, targeted at the rural mar&et.

1. Socio Cultue 7ocio culture variables li&e the beliefs, value system,attitudes of 4eo4le and their demogra4hic com4osition have a major

im4act on their 4ersonality and behavior style. The consumer=s

4references have undergone a drastic change through the +;s this

has led to the 4roduction of more cars, refrigerators, air conditioners

and other articles that were at one time considered ostentatious and

luxurious.

%ot only this, this socio-culture 4aradigms also dictate the 4reference

of consumer in different regions. 8or instance com4anies launchdifferent 4roducts in the south and north because of differing

4references. "om4anies have to change their 4roduct 4ortfolio

because of cultural 4references as (conalds and !8" did when they

launched their restaurant chain in 9ndia.

. &ecolo6ical Technological forces 4resent a wide range of o44ortunities and threats that have to be accounted for in the 4rocess

of business strategy formulation. Technological advancement may

dramatically affect an” 6rganization=s 4roducts, services, mar&ets,

su44liers, distributors, com4etitors, customers, manufacturing 4rocess,

mar&eting 4ractices, financial com4osition, and com4etitive 4osition.

7ome of the im4ortant factors that influence o4erating in the

technological environment are'

• 7ources of technology li&e com4any sources, external sources

and foreign sources cost of technology ac?uisition,

collaboration and transfer of technology.

•


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need 4rogramming will not wor&. 7o they have to be technologically more

and more focused.

C. #lo*al %iomet The international environment consists of allfactors o4erate at the transnational, cross-cultural level and across the

border. The world is a global village today and it is getting closer and

closer as far as business is concerned.

8or the sa&e of business, countries are burying their grievances and

forging economic relationshi4s. Erstwhile adversaries li&e 5merica

and


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based in the @7, the successful chemical and engineering industry is

based in )ermany, and the cream of the electronics industry is based

in 3a4an.

7imilarly the successful call centers are clustered in 9ndia as are many

of the customized software com4anies. This suggests that nation and

its environment in which a com4any is based may have an im4ortant

bearing of the com4etitive 4osition of that com4any in the global

mar&et4lace.

$icael Potes Iteatioal Competitieess $odel

9n a study national com4etitive advantage, (ichael 0orter identified four

attributes of a national of country-s4ecific environment that have an

im4ortant im4act on the global com4etitiveness of com4anies located within

that nation.

a. Facto %do/mets 5 nation=s 4osition in the factors of 4roduction

such as s&illed labor, ca4ital, technology or infrastructure necessary tocom4ete in a given industry.

b. 8emad Coditio The nature of home demand for services.c. 'elati6 ad Suppoti6 Idusty The 4resence and absence in a

nation of su44lier industries and related industries that are

internationally com4etitive.

8irm 7trategy, 7tructure

D ocal emand

"ondition


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d. Fim state6y, stuctue ad ialy The conditions in the nationthat govern how com4anies are created, organized and managed and

the nature of domestic rivalry.

$ico %iomet (icro environment of the com4etitive environmentrefers to the environment which and organization faces in its s4ecific arena.

This arena may be an industryI of it may be what is referred to as a strategic

grou4. #esides loo&ing at 4rimary demand and su44ly factors, firmsexamine the state of com4etition they face because that determines whether

that determines whether they will remain in the same industry or start a new

one. 5ll the business decisions-what business, 4ricing, distribution channel,

4romotion 4ortfolio, etc. de4ends on com4etitive 4osition of the firm.

8or instance, a new entrant in the glucose biscuit segment will have to study

and consider the mar&eting mix as well as strategy of existing 4layers li&e

#ritannia, 0arle, 0riyagold, etc., before deciding its mar&eting mix following

are the &ey (icro Environment factors'

&e Fie Foces o= Competitio 0rofessor (ichael 0orter of the *arvard#usiness 7chool has demonstrated the state of com4etition in an industry asa com4osite of five com4osite of com4etitive forces. 5ccording to (ichael

0orter the five forces of com4etition are'

a. &eat o= Competitos The rivalry among sellers in the industry. b. &eat o= Ne/ %tats The 4otential entry of new com4etitors.c. &eat o= Su*stitutes (ar&et attem4ts of com4anies in other

industries to win customers over to their own substitute 4roducts.

d. Ba6aii6 Po/e o= Supplie The com4etitive 4ressure stemmingfrom the su44lier-seller collaboration and resultant bargaining.

e. Ba6aii6 Po/e o= Buyes The com4etitive 4ressure stemmingfrom seller-buyer collaboration and bargaining.

$icael Potes Fie Foces $odel

Threat of 7ubstitutes

#argain 0ower

of su44lier

#argain 0ower

of #uyer

Threat of %ewEntrants

Threat of "om4etitor


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Bee=its o= %iometal Aalysis+. Environmental analysis gives an idea of organization=s environment.

:. Environmental analysis gives a brief about com4etitors.

2. Environmental analysis tells us about o44ortunities to rea4 4rofits.

1. Environmental analysis gives details about threats in the environment.

. Environmental analysis &ee4s the manager informed and alert.

C. #usiness is all about ma&ing the right decision at the right time.

Aithout 4ro4er environmental analysis the right decision can=t be

made.

. Environmental analysis hel4s in 4redicting the future.

. Environmental analysis hel4s in suitable modification of strategies, as

and when re?uired.

.imitatios o= %iometal Aalysis+. Today the environment is turbulent and dynamic and it is difficult to

forecast of 4redict the environment.

:. #usiness environment is global and any develo4ment in any 4art of the world can influence the business. Even a small 4olitical move can

have a drastic im4act, which in very difficult to scan and assess. 5

sudden disintegration of @77< had very adverse im4act on many

ex4orters in 9ndia. 5 sudden attac& of 5l Jaeda on the Twin Towers in

the @7 resulted in the hi&e of global 4etroleum 4rices. 5fter

7igning the AT6, all of a sudden the toy mar&et of 9ndia was

ca4tured by "hinese 4roducts. Today it is extremely difficult to

4redict the external environment.

2. The Effectiveness of environmental analysis de4ends u4on how it is

4racticed, i.e., whether it is a systematic a44roach, ad hoc or

4rocessed. @nder a systematic a44roach, information for

environmental scanning is collected, scanned and monitored on a

continuous basis and forecast and is assessed for the relevant factor. 9n

an ad hoc a44roach, an organization conducts s4ecial surveys and

studies to deal with s4ecific environmental issues from time to time.

9n a 4rocessed form a44roach, an organization uses information in a

4rocessed form, available from different sources, both inside and

outside the organization. 8or effectiveness, an organization should use

the combination of these a44roaches instead of just following the triedformulas, because all have their im4ortance according to re?uirement

Too much reliance is often 4laced on the information collected

through environmental scanning.

Ahen there is overloading of information, one is li&ely to get lost and

become inactive-ty4ical of K4aralysis through analysis syndrome.


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92 8e=ie cotact, %>plai ay =ou elemet o= acotactD8e=iitio o= Cotact 7ection :$h/ of the 5ct, defines a contract as anagreement enforceable by law. 5 contract is defined as an agreement

enforceable at law, made between two or more 4ersons, by which rights are

ac?uired by one or more, to act on the 4art of the other. 9t creates anddefines obligations between the 4arties.

5ll agreements are not necessarily enforceable by law. 5n agreement to

sell a house may be a contract enforceable by law. *owever, an agreement

to attend a 4arty being of a social nature is not enforceable. 9t is not

necessary that a contract need not be only in writing, unless there is

s4ecific 4rovision in law that it should be in writing. "ertain contracts must

be in writing as otherwise they are not enforceable in law. 8ollowing are

the exam4les of such contracts. "ontract for sale of immovable 4ro4erty

must be in writing, stam4ed and registered. "ertain other contracts thoughare re?uired to be in writing do not com4ulsorily be re?uire registration, for

exam4le, #ills of Exchange, 0romissory %otes, "he?ues, 5 Trust created

under the 9ndian Trust 5ct, 5 4romise to 4ay a time-barred debt, "ontracts

made without consideration with natural love and affection.

%lemets o= Cotact 9t may be noted that a contract essentially containstwo elements'

A6eemet ad e=ocea*ility *y la/' 8or a better understanding, let uselaborate on these two elements. 7ection :$e/ of the 5ct defines agreement

as, Kevery 4romise and every set of 4romises, forming consideration for

each other=. This essentially means that there should be an offer and

acce4tance to form an agreement. 9t is im4ortant that before an agreement

is finalized there should be a consensus ad idem $consent to the matter/

between the two 4arties. #oth the contracting 4arties should Ksay and mean

the same= without, which there cannot be a contract.

The other element of contract, enforceability by law, em4hasizes the

im4ortance of intention to create a legal obligation or duty to 4erform or

abstain from 4erforming certain act$s/. These acts could relate to social or legal matters. The classic case of #alfour vs. #alfour $++/ elaborates this

4oint. 5 husband wor&ing in "eylon, had agreed in writing to 4ay a

house&ee4ing allowance to his s4ouse living in England. 6n receiving

information that she was unfaithful to him, he sto44ed the allowance. 9t

was held that the agreement was without any intention of creating a legal


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obligation. *ence, there was no contract. 9t may be summed u4 that all

contracts are agreements, but all agreements are not contracts.

%SS%N&IA. %.%$%N&S F A GA.I8 CN&'AC&

+. 6ffer and acce4tance.

:. 9ntention to create legal relationshi4.2. "a4acity to contract.

1. 8ree consent.

. >awful consideration.

C. >egal object.

. "ertainty and 4ossibility of 4erformance.

Each of the essential elements are discussed in detail below.

17 ==e ad Acceptace 5 contract basically evolves from an offer by one 4arty and acce4tance of the same, by the other 4arty. The acce4tance should be definite and without

any ?ualification. There should be a consensus ad idem between the two

4arties on the terms and conditions of contract.

Coditios o= $aki6 a ==e The following conditions that governma&ing an offer are'

+. The offer must be definite and not vague.

:. 5n offer should be differentiated from an invitation to ma&e an offer.

There are occasions where a 4erson may ma&e some statements or give information with an intention of inviting others to ma&e an

offer. 8or exam4le, a catalogue with 4rices indicated on it is not an

offer to sell. 6n the contrary it is only an invitation to ma&e an offer.

5 4erson interested in buying the 4roduct s4ecified in the catalogue,

may ma&e an offer to buy and it is left to the discretion of the seller

to either acce4t or reject the same.

.apse o= ==e 7ection C s4ecifies the instances which results in the la4seof an offer'

9. 5n offer comes to an end if it is revo&ed by the offeror at any time

before its acce4tance is com4lete as against him and not after its

acce4tanceI

99. 9f either the offeror or the offeree dies or becomes insane and the

offeree comes to &now about it, before acce4tance. 9f the offeree


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acce4ts an offer in ignorance of the death and insanity of the offeror,

the acce4tance is validI

999. 9f the offer is not acce4ted within the s4ecified time or within a

reasonable time, or if none of it is clearly s4ecified then the law of

limitation a44lies after that, if none is s4ecified $>aw of limitation

a44lies/. 9n


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9n order to convert an offer into a 4romise, acce4tance should be absolute

and un?ualified. 9t is also essential that the acce4tance is given in some

usual and reasonable manner. 9f the offer 4rescribes the manner in which

the acce4tance is to be given, then the acce4tor should adhere to the

4rescribed mode. 6n failure to do so, the offeror can insist that his offer

will be acce4ted only if it is given in the 4rescribed manner

Coditios o= Acceptace

i. 5n offer should be acce4ted only by the 4erson to whom it is 4ut

forth. 9t is clear by the rule of law that if 5 4ro4oses to ma&e a contract

with #, " cannot substitute himself with # without the consent of 5. 5n

acce4tance may be withdrawn before it reaches the offeror.

ii. 5cce4tance of an offer should be absolute and un?ualified and should

conform totally to the offer made. 5 conditional or ?ualified acce4tance

does not result in a valid contract. #y giving a conditional acce4tance or

counter offer, the original offer is deemed to have been rejected. 6nce theoriginal offer has been rejected by ma&ing a counter offer, it cannot be

acce4ted again, unless renewed. 9n Hyde vs. Wrench an offer made for the

sale of a farm for +,;;; 4ounds was not acce4ted in the first instance. 5

counter offer was made wherein the 4laintiff ex4ressed his willingness to

buy the same for ; 4ounds. Ahen the counter offer was rejected, the

4laintiff consented to buy the farm for +,;;; 4ounds which was again

rejected by the defendant. 5 suit filed for breach of contract was not

maintainable as the counter offer im4lied that the original offer had been

rejected. *ence, there was no valid contract between the 4arties.

iii. The acce4tance must be communicated to the offeror. The acce4tance

must be in the form s4ecified or in some 4erce4tible form if not s4ecified. 5

mere intent of acce4tance will not suffice. 9n this regard, reference may be

made to an 5merican case, Eliason vs. *enshaw the mode of acce4tance

as 4rescribed by the offeror was not adhered to. The offeree sent the letter

of acce4tance by 4ost when it was re?uired to be sent by wagon as

indicated by the offeror. 5 deviation in the mode of acce4tance clearly

entitled the offeror to treat the acce4tance as invalid.

27 Itetio to Ceate .e6al 'elatiosip The validity of a contract isde4endent on the intention of the contracting 4arties. 5 contract will bevalid only when the 4arties to the contract intend to create a legal

relationshi4 between them. %on-existence of such an intention will not give

rise to a valid contract. 5greements of social nature do not contem4late

legal relationshi4 and hence they are not contracts.


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The 4arties to a contract may either s4ecifically lay down that the

agreement entered is not a formal or legal agreement or in certain cases the

non-existence of an intention to enter into a legal relationshi4 can be

im4lied from the agreement itself.

"7 Capacity to Cotact 7ection +; s4ecifies that an agreement to be acontract is too entered between the two 4arties who are com4etent to

contract. The 4ersons declared to be incom4etent to contract are'

a7 $ios 5 minor is a 4erson under the age of eighteen years, exce4twhen a guardian of a minor=s 4erson or 4ro4erty has been a44ointed by the

court, in which case it is twenty-one. The 4ur4ose of declaring minors as

incom4etent to enter into a contract is to 4rotect minors against their own

inex4erience. *owever, law tries not to cause unnecessary hardshi4s to

4ersons who deal with minors..

*7 Pesos o= Usoud $id 7ection +: lays down a test of soundness of mind. 9t states that a 4erson is said to be of sound mind for the 4ur4ose of

ma&ing a contract if, at the time of ma&ing the contract, he is ca4able of

understanding it and of forming a rational judgment as to its effect u4on his

interests. 5 4erson who is a lunatic $who is at times of sound mind/ may

enter into contract in these times. 0ersons who have com4letely lost their

mental 4owers or those who are drun&en or intoxicated are inca4able of

entering into a contract. The ?uestion of unsoundness has to be determined

based on unmista&able facts and not merely on s4eculation. The burden of

4roving insanity will be on the 4erson who alleges it. The ?uestion whether

a contract is invalidated because of unsoundness of mind will not de4end

u4on the belief or disbelief of the witness but largely based u4on theinference to be drawn from evidence.

c7 Pesos 8is4uali=ied *y ay .a/ to /ic tey ae Su*+ect Thefollowing 4ersons are dis?ualified by law to enter into a contract'

+. 5lien Enemies' They are those 4ersons who are not subjects of


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voluntarily submit to the 9ndian >aw. 5n 9ndian citizen needs to

obtain the 4ermission of the "entral )overnment to sue such a

4erson.

2. 5 contract entered into by a com4any beyond its authority, as

4rescribed in its (emorandum of 5ssociation and the relevant

4rovisions in the "om4anies 5ct, is declared as void. 5 com4anyformed under the "om4anies 5ct, +C has a limited contractual

ca4acity and any 5ct in excess of its 4owers whether ex4ressly

conferred on it or derived by reasonable im4lication from its objects

clause in the (emorandum, is ultra vires the com4any and is void.

1. 5ny contract with a 4erson adjudged insolvent is not valid. 9t is the

official receiver or official assignee of the insolvent who can enter

into contracts relating to his 4ro4erty and sue and be sued on his

behalf.

. 5 convict is inca4able of entering into a contract while undergoing

im4risonment. The inca4acity to contract, or to sue on a contract,

comes to an end when the sentence ex4ires. 5lso, the convict does

not suffer from the rigors of the >aw of >imitation as the 4eriod of

the sentence is not included in the la4sed time frame.

7 Fee Coset The fourth essential element of a valid contract is freeconsent. "onsent is said to be free when it is not caused by any of the

following'a7 Coecio (Sectio 15) "oercion is the committing or threatening tocommit any act forbidden by the 9ndian 0enal "ode, or unlawful detaining

or threatening to detain, any 4ro4erty to the 4rejudice of any 4erson

whatever with the intention of causing any 4erson to enter into an

agreement. @nlawful detaining or threatening to detain any 4ro4erty is also

an instance of coercion. Threatening at gun-4oint, threatening to commit

suicide and refusing to hand over the account boo&s of a business to an

agent are some of the instances which amount to coercion. The 4arty whose

consent is obtained by coercion has the right to avoid 4erformance of thecontract. 9n


19/94

@ndue influence is defined as follows' 5 contract is said to be induced by

undue influence where the relations subsisting between the 4arties are such

that one of the 4arties is in a 4osition to dominate the will of the other and

uses that 4osition to obtain an unfair advantage over the other. 9t is to be

noted that the em4hasis is on the ability to dominate the will of another.

7uch ability is said to be existing in cases, where a 4erson'

+. *olds a real or a44arent authority over the other. 8or exam4le,

income tax authority and assesse, 4olice and accusedI

:. 7tands in a fiduciary relation $relation of trust and confidence/.

8iduciary relationshi4 im4lies a relationshi4 of confidence and trust.

Exam4les of fiduciary relationshi4 are solicitor and client, s4iritual

adviser and devotee, husband and wife.

2. (a&es a contract with a 4erson whose mental ca4acity is tem4orarily

or 4ermanently affected by reason of age, illness or mental or bodilydistress. The unconscientiously use by one 4erson of 4ower

4ossessed by him over another in order to induce the other 4arty to

enter into a contract is referred as moral coercion and is considered

as a form of undue influence. 9n Lakshmi Amma vs. Telenala! the

executant who was aged and suffering from diabetes made a deed of

settlement of the entire 4ro4erty in favor of one of his grandsons to

the exclusion of his wife, his children and other grandchildren. The

4erson in whose favor the deed was made was unable to 4rove that

the executant had executed the deed without any external 4ressure

while he was not of infirm mind and was fully aware of thedis4ositions. The court held the settlement deed to be invalid.

The following relationshi4s raise the assum4tions of undue influence'

L 0arent and child,

L )uardian and ward,

L Trustee and beneficiary,

L


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such a misre4resentation honestly believes that such statement is true.

7ection + defines misre4resentation to be existing.

+. Ahen a 4erson 4ositively asserts that a fact is true when his

information does not warrant it to be so, though he believes it to be

so.

:. Ahen there is any breach of duty by a 4erson which brings anadvantage to the 4erson committing it by misleading another to his

4rejudice.

2. Ahen a 4arty causes, however innocently, the other 4arty to the

agreement to ma&e a mista&e as to the substance of the thing which is

the subject of the agreement.

d7 Faud (Sectio 1J)

8raud means and includes any of the following acts committed by a 4artyto a contract, or with his connivance $intentional active or 4assive

ac?uiescence/ or by his agent with intent to deceive or to induce a 4erson

to enter into a contract. The essential ingredients of fraud as contem4lated

by subsection $+/ are as under'

+. There must be a 8alse


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iii. 0ast consideration is the one which 4ays for a 4ast act or

forbearance. 5n act constituting consideration which too& 4lace and

is com4lete before the 4romise is made.

5s 4er 7ection :2, there has to be a lawful consideration for a legal object in

every contract. *ence, the following as4ects should not exist in case of

consideration and object for the contract to be declared as legal and binding.

+. 9t should not be 8orbidden by >aw'

:. 0erformance should not efeat the 0rovisions of any >aw

2. 9t should not be 8raudulent

1. 9t should not be "onsidered 9mmoral

7 .%#A. B@%C&7 The sixth essential element of a valid contract islegal object. #y object it is to mean the 4ur4ose of the contract. "ontracts

with unlawful objects are void.

J7 C%'&AIN&0 AN8 PSSIBI.I&0 F P%'F'$ANC% theagreements in which the meaning is not certain, or is not ca4able of being

made certain, are void. The uncertainty may exist because of ?uality,

?uantity, 4rice or title of the subject matter. The terms of contract should be

certain. 9n !eshavlal >allubhai 0atel vs. >albhai Tri&umlal (ills >imited,

the wor&ers of the res4ondent (ill went on a stri&e ex4ressing their

su44ort to the Juit 9ndia (ovement. 5s a result, the res4ondent mill was

closed and could not su44ly the textile goods to the a44ellants as agreed. 9n

a letter see&ing extension of time the res4ondent mill cited the reason for

the failure to su44ly goods and stated that the delivery time of the goods

stands extended until the normal state of affairs is restored.9n )uthing vs. >ynn, the buyer of a horse agreed to 4ay 4ounds extra, if

the horse 4roved to be luc&y. The agreement was held to be void for

uncertainty. The definition of void agreements includes the wager

agreements. 7ection 2; defines wager as an agreement between the 4arties

by which one 4romises to 4ay money or money=s worth on the ha44ening

of some uncertain event in consideration of the other 4arties 4romise to 4ay

if the event does not ha44en.

'%S&I&U&IN Ahen a contract becomes void, any benefit derived out

of the contract by one 4arty is re?uired to be restored to the other. 9t issignificant to note that the law of restitution covers only benefits received

and not losses incurred. The 4rinci4le of restitution is that the defendant

who has been unjustly enriched at the ex4ense of the 4laintiff is re?uired to

ma&e restitution to the 4laintiff. There cannot be restitution where the

4arties are wholly incom4etent to contract $where one of the 4arties is

minor/. 7ection C which deals with restitution a44lies to contracts


22/94

Kdiscovered to be void= and Kcontracts which become void=. 5 4erson who

has received a benefit under any such contract will have to restore the

benefit to the 4erson from whom it was received. In Dharamsey vs.

Ahmedbhai! a 4erson hired a godown for a 4eriod of +: months by 4aying

an advance for the entire 4eriod. Ahen a fire bro&e out in the godown he

was entitled to claim a 4ro4ortionate amount of rent 4aid in advance.

CN&IN#%N& CN&'AC&S 7ection 2+ of the 5ct 4rovides for suchcontracts and defines it as a contract to do or not to do something, if some

event, collateral to such contract, does or does not ha44en. 9n (uthu vs.

7ecretary of 7tate, a 4erson was the highest bidder for a house which was

4ut u4 for sale. *owever, one of the conditions was that the sale could be

confirmed only if the "ollector authorizes it. The "ollector declined to

confirm the sale. 9t was held that there was no contract. The event on whichthe ha44ening of the contract is de4endent should be uncertain. 8urther, the

event should be collateral to the contract. The event should not form 4art of

the consideration of the contract though the contract is made to de4end u4onit. "ontracts of indemnity and insurance are exam4les of contingent

contracts.

P%'SNS EH A'% '%9UI'%8 & P%'F'$ CN&'AC&SAhere 4ersonal considerations form the basis of a contract, the 4romisor

alone should 4erform the contract. Ahere 4ersonal considerations do not

form the basis of a contract, then the contract may be 4erformed by the

4romisor or his agent or legal re4resentatives of the 4romisor in the event of

his death.

&ime ad Place o= Pe=omace 5 contract, which does not s4ecify thetime for 4erformance should be 4erformed within a reasonable time. Ahen

a 4romise is to be 4erformed on a certain day, and the 4romisor has

underta&en to 4erform it, without a44lication by the 4romisee, the 4romisor

may 4erform it at any time during the usual hours of business on such day

and at the 4lace at which the 4romise ought to be 4erformed. Ahen a

4romise is to be 4erformed on a certain day, and the 4romisor has not

underta&en to 4erform it, without a44lication by the 4romisee, it is the duty

of the 4romisee to a44ly for 4erformance at a 4ro4er 4lace and within the

usual hours of business. 5 contract should be 4erformed in the manner and

at the time 4rescribed in the contract.

8eolutio o= @oit 'i6ts ad .ia*ilities Ahere a joint 4romise ismade, the 4romisee may com4el any one of the joint 4romisors to 4erform

the whole of the 4romise. The joint 4romisor, who 4erforms the contract,

may claim contribution from the other joint 4romisors. Ahere any of the


23/94

joint 4romisors defaults in ma&ing his contribution, then the other joint

4romisors will have to bear even the defaulted amount e?ually.

Appopiatio o= Paymets Ahere several debts are owed and where 4ayment made is insufficient to discharge the debt, the debtor may intimate the

creditor as to the nature of a44ro4riation. 9n such a case, the creditor should

follow the directions issued by the debtor.

Assi6met o= Cotacts 5ssignment of a contract means the transfer of rights and liabilities arising out of the contract in favor of a third 4erson

either with or without the concurrence of other 4arty to a contract. 5n

assignment may ta&e 4lace either by the act of the 4arties or by o4eration of

law.

8ISCHA'#% F CN&'AC& Ae now come to the last stage of contracts. 5 contract is said to be discharged when the rights and liabilities

created by such contract come to an end. "ontracts may be discharged or

terminated by'

+. 0erformance of the contract, or

:. #y mutual consent, or

2. #y la4se of time $by limitation/, or

1. #y o4eration of law, or

. 9m4ossibility of 4erformance, or

C. #y breach of contract.

Each of the various modes of discharge of contract is ex4lained below'

17 Pe=omace o= Cotact The most obvious and meaningful wayto discharge a contract is to fulfill the terms and conditions agreed by

each of the 4arties in the contract. 7ection 2 4rovides for tender of

4erformance. 5s 4er this section if the 4romisor offers to 4erform his

side of the contract, but the 4romisee does not acce4t his 4erformance

the 4romisor is discharged from his liability. This is &nown as

attem4ted 4erformance. The 4romisor may sue the 4romisee for the breach of contract, if he so desires.

27 8isca6e *y $utual A6eemet o Coset The contract may beterminated by mutual consent of both the contracting 4arties. Farious

cases of discharge by mutual agreement are s4ecified in 7ection C:

and 7ection C2. 7ection C: 4rovides about the effect of novation as to

where a new contract is substituted for an existing contract by mutual


24/94

agreement of both the 4arties, the new contract is basically agreed

u4on to adjust the remedial rights arising out of the breach of the old

contract.

"7 8isca6e *y .apse o= &ime 5ny contract cannot be extendedindefinitely. The >imitation 5ct, +C2 4rovides for a certain time

frame within which the contract has to be 4erformed $called 4eriod of limitation/. 9f no action is ta&en by the contracting 4arties within the 4eriod of limitation, no remedy at law will be available. 9t 4rovides for

a definite time frame within which, the de4rived 4arty may see&

remedy at law.

7 8isca6e *y peatio o= .a/ A cotact may *e disca6ed*y te opeatio o= la/ i ay o= te =ollo/i6 /ays

i. #y (erger' Ahen the 4arties agree to include the 4revious

inferior contract in a su4erior contract.

ii. >aw does not 4ermit any unauthorized alteration of the terms of awritten agreement. 5ny such act by any one of the 4arties will

automatically ma&e the contract as discharged by o4eration of

law.

iii. #y 9nsolvency' Ahen a 4erson is adjudged insolvent, he is

discharged from all liabilities incurred 4rior to his adjudication.

iv. eath' Ahere a contract is entered into, based on 4ersonal

consideration and where it is re?uired that 4erformance of the

contract should be made by the 4romisor in 4erson, the contract

will be discharged on the death of the 4romisor.

57 8isca6e *y Impossi*ility o= Pe=omace 5 contract which isclearly im4ossible to 4erform is discharged. 5 contract which has its

subject as an act, which is im4racticable to 4erform by either of the

4arties is assumed to be im4ossible to 4erform and hence the contract is

discharged. 7ection C states that a contract which is made im4ossible

to 4erform due to subse?uent changes is ta&en as void and hence

discharged. This is &nown as, Ksu4ervening im4ossibility= or

Ksu4ervening illegality=.

7 8isca6e *y Beac o= Cotact #reach of contract is oftenreferred as the easiest way of discharging a contract. Ahen either of

the 4arties does not fulfill the duties and liabilities 4rescribed by the

contract, the contract is said to be breached. There are two ty4es of

breach of contract'


25/94

i7 Actual *eac o= cotact7 5ctual #reach of contract may ta&e 4lacein two instances'

a. Ahen the 4erformance is actually due

b. uring the actual 4erformance of the contract.

ii7 Aticipatoy *eac o= cotact7 5ntici4atory breach of contract isstated to have occurred if a breach has been committed before the timefor 4erformance. Ahen a 4arty ex4licitly denies or abstains from

4erforming the contract or does some definite act, which ma&es the

4erformance im4ossible, then such a breach is an antici4atory breach of

contract.

'%$%8I%S F' B'%ACH F CN&'AC& The followingalternatives are available for the injured 4arty in case of a breach of

contract.

a) 'escissio The injured 4arty can rescind the contract and refuse the 4erformance of contract.

*) 'estitutio 5s 4er 7ection C, when a 4arty treats the contract asrescinded, he ma&es himself liable to restore any benefits that he has

received, under the contract to the 4arty from whom such benefits were

received. The court may refuse to rescind the contract where the 4laintiff

has ex4ressly or im4liedly ratified the contract or where only a 4art of the

contract is sought and such 4art is not severable from the rest of the

contract. 7ection 4rovides relief to the 4erson who sustains damages

through non-fulfillment of the contract by entitling him to claimcom4ensation for the same.

c) Claim 8ama6es' 7ection 2 deals with the com4ensation for loss or damage caused by breach of contract. The foundation of the claim for

damages rests in the celebrated case of *adley vs. #axendale $+1/. The

facts of the case are' 5 delivered a defective shaft in his mill to K#=, a

manufacturer, for ma&ing a new shaft-identical to the one that is sent. K5=

did not ma&e &nown to K#= that delay would result in loss of 4rofits. K#= by

his neglect delayed the delivery of the shaft beyond a reasonable time. 5s a

result the mill was idle for a longer 4eriod than it would otherwise have been, had there been no such delay. 9t was held, K#= was not liable for the

loss of 4rofits during the 4eriod of delay as the circumstances

communicated to K5= did not show that the delay in the delivery of the shaft

would entail loss of 4rofits to the mill. amages cannot be awarded if the

injured 4arty did not ta&e any reasonable ste4s for the loss to be avoided.

7ection 1 allows for agreement of a sum to be 4aid as damages in case of


26/94

breach of such contract. 9f the contract contains any sti4ulation by way of a

4enalty for failure to 4erform the obligations, the aggrieved 4arty is entitled

to receive from the 4arty who has bro&en the contract. The damages are

classified into four categories'

i7 #eeal o diay 8ama6es These are damages which naturallyarise in the usual course of things from such breach. )eneral amages areusually assessed based on the actual loss suffered. The main aim of

4roviding general damages is to com4ensate the aggrieved 4arty and not to

4unish the 4arty which is at fault.

ii7 Special 8ama6es These are awarded from a breach of contract under some 4eculiar circumstances. 5t the time of entering into the contract the

4arty has notice of s4ecial circumstances, which ma&es s4ecial loss, the

li&ely result of the breach in the ordinary course of things. These are the

damages which are claimed in addition to the damages arising from the

breach of contract. 9n 7im4son vs. >ondon and % A emplay 8ama6es' These are discouraged by court of law. *owever, in case of breach of a 4romise to marry and dishonor of

che?ue by ban&er wrongfully when he 4ossesses sufficient funds to thecredit of the customer, exem4lary damages are awarded.

i7 Nomial 8ama6es' These are awarded merely to ac&nowledge that the 4laintiff has 4roved his case. %ominal damages are not awarded to

com4ensate for the damages.

9" /at ae te i6ts o= a =ide o= a 6ood ude teIdia cotact ActD'I#H&S F FIN8%' F #8S Ahen a 4erson finds an article andta&es it into his custody, he assumes the role of a bailee. *e then has the

same res4onsibilities li&e any other bailee. Ae shall now discuss the rights

available to him'


27/94

i. 5ccording to 7ection +C, the finder of goods can exercise

lien over the goods till the owner reimburses the ex4enses incurred

for the safe custody of the goods.

ii. Ahere the owner has announced a reward for recovery of the

lost article, the finder has the right to retain the goods till he receives

the award.iii. The finder has a right to sell the article'

L 9f the owner cannot be found 4rovided the bailee has made

reasonable effortsI

L 9f the owner refuses, u4on demand, to 4ay the lawful charges of the

finderI

L The article is of 4erishable nature or that, which loses most of its

value with 4assage of timeI or

L 9f the lawful charges of the finder in res4ect of the goods found,amount to two thirds of their value.

CN&'AC&S F IN8%$NI&0 5ccording to 7ection +:1, a contract by which, one 4arty 4romises to save the other from loss caused to him by

the conduct of the 4romisor himself or by the conduct of any other 4erson,

is called a Kcontract of indemnity=. The 4erson who 4romises or ma&es

good the loss is called the indemnifier $4romisor/ and the 4erson whose

loss is to be made good is called the indemnified or indemnity holder

$4romisee/.

5 contract of insurance is an exam4le of a contract of indemnityaccording to English >aw. 9n consideration of a 4remium the insurer

4romises to ma&e good the loss suffered by the assured on account of the

destruction by fire of his 4ro4erty insured against fire. *owever, a

contract of life insurance does not come under the category of a contract

of indemnity. This is because, in the case of life insurance, the insurer

agrees to 4ay a certain sum of money either on the death of a 4erson or

on the ex4iry of a sti4ulated 4eriod of time. The ?uestion of having

suffered a loss does not arise. (oreover, as the life of a 4erson cannot be

valued, the whole of the sum assured becomes 4ayable and for that

reason also it is not a contract of indemnity.

The contract of indemnity in a real sense is a contingent contract. 9t must

have all essentials of valid contract. 9t can be ex4ressed or im4lied. 9t is

relevant to discuss following cases in this regard'

• The case of )oulston iscount "o. >td. vs "lar& $+C/, is an

ex4licit exam4le of ex4ress contract of indemnity.


28/94

K5= and K#= go into a sho4. K#= says to the sho4&ee4er “let him $5/

have the goods, 9 will see you 4aid.” The contract is one of

indemnity.

• The case of 5damson vs 3arvis $+:/ ex4lains an im4lied contract

of indemnity.

K5= on the instruction of KT=, sold certain cattle belonging to K6=. K6=

held K5= liable for it and recovered damages from him for selling it.

9t was held that K5= could recover the loss from KT=, as a 4romise by

KT= to K5= from any such loss would be im4lied from his conduct in

as&ing 5 to sell the cattle.

The definition given in 7ections +:1 and is +: of the "ontract 5ct are

not exhaustive of the law of indemnity as it does not include im4lied

4romises to indemnify and cases where loss arises from accidents and

events that are not de4ending on the conduct of the 4romisor or any

other 4erson. "ertain rights have been granted to the indemnity holder

under 7ection +:.

'i6ts o= Idemity Holde Ee Sued The 4romisee in a contract of indemnity, acting within the sco4e of his authority, is entitled to recover

from the 4romisor'

a. all damages within the sco4e of the terms of the indemnityI

b. all costs which he may be com4elled to 4ay in any such suit if,

in bringing or defending it, he did not contravene the orders of the

4romisor, and acted as it would have been 4rudent for him to act in

the absence of any contract of indemnity, or if the indemnifier

authorized him to bring or defend the suitI and

c. 5ll sums to be 4aid under the terms of any com4romise of any such suit, 4rovided the com4romise is not contrary to theorders of the indemnifier, and should be authorized by him.

Though the 9ndian "ontract 5ct does not grant s4ecific rights to the

indemnifier, we can however, as in English >aw, draw the rights of the

indemnifier to be the same as those of the surety which are detailed in the

foregoing 4arts.

The 9ndian "ontract 5ct does not s4ecify the time of commencement of theindemnifier=s liability. ifferent courts have been following different rules

with regard to this. 7ome courts contend that the indemnifier=s liability will

begin only when the indemnity holder actually suffers a loss. 6n the other

hand, some have held that an indemnity holder may com4el an indemnifier to

fulfill his 4romise even before actually incurring the loss. #uc&ley > 3 in


29/94

given by re4ayment after 4ayment. 9ndemnity re?uires that the 4arty to be

indemnified shall never be called u4on to 4ay”.

CN&'AC&S F #UA'AN&%% 7ection +:C deals with contract of guarantee. 5ccording to this 7ection Kcontract of guarantee= is a contract to

4erform the 4romise, or discharge the liability of a third 4erson in case of his default. The 4erson who gives the guarantee is called the Ksurety=, the

4erson in res4ect of whose default the guarantee is given is called the

K4rinci4al debtor=, and the 4erson to whom the guarantee is given is called

the Kcreditor=. 5 guarantee may be either oral or written.

The 4ur4ose of a contract of guarantee is to 4rovide additional security to

the creditor in the event of default by the 4rinci4al debtor. 9n a contract of

guarantee, there are three 4arties, i.e., the creditor, the debtor and the

surety. 5lso, there are three contracts in a contract of guarantee $i.e.,

between the creditor and the debtor, between the creditor and the surety and

between the debtor and the surety/.

9t should also be noted that a contract of guarantee 4resu44oses the

existence of a debt. 9f there is no existing liability, there cannot be a

guarantee. Therefore, if the debt to be guaranteed is already time barred,

guarantee given will not be valid and the surety will be discharged from his

liability.

3IN8S F #UA'AN&%% 5 guarantee may be given retros4ectively for an existing debt, or for future debt, or for the good conduct or honesty of an

em4loyee, in which case the guarantee is called a Kfidelity guarantee=.

5 guarantee may also be s4ecific or continuing guarantee. 5 s4ecific

guarantee is one which is given for a s4ecific debt, and comes to an end

when the debt is 4aid. 5 continuing guarantee relates to a series of

transactions where the surety remains liable for a fixed sum till the

continuance of guarantee. *owever, a continuing guarantee can be revo&ed

by the surety by giving due notice to the creditor. This can be ex4lained by

referring to the case Aingfield vs de 7t "roix. 9n this case, the creditor $"/

let out his cottage to the 4rinci4al debtor $0/ on the condition that rent

would be 4aid initially for three months and thereafter from wee& to wee&.

7, who was the surety, guaranteed the 4ayment of rentals by 0 to ". 5fter four months, the surety revo&ed his guarantee by giving notice to the

creditor. 9t was held that the surety was not liable for the rentals which

became due after revocation of the guarantee. The death of a surety also

results in revocation of continuing guarantee as far as future transactions

are concerned.


30/94

5 continuing guarantee may also be revo&ed by any of the modes'

a. novationI

b. variance in the terms of the contractI

c. discharge of the 4rinci4al debtorI

d. com4ounding with the 4rinci4al debtorIe. creditor=s act or omission im4airing surety=s eventual remedyI and

f. >oss of security.

The following illustration discusses the case of continuing guarantee' K5=,

in consideration that K#= will em4loy K"= in collecting the rents of K#=s

zamindari, 4romises K#= to be res4onsible, to the amount of


31/94

on having a fidelity guarantee. 7 gave his guarantee for 0=s duly

accounting. " did not ac?uaint 7 with 0=s 4revious dishonesty. *eld, the

guarantee could not be enforced against 7 owing to the non-disclosure of

0=s 4revious dishonesty.

BAI.$%N& P.%8#% o= #8S #ailment and 0ledge are s4ecialty4es of contracts which are regulated by 7ections +1 to ++ of the 9ndian

"ontract 5ct, +:. The word Kbailment= ta&es its roots from the 8rench

word Kbailor= which means Kto deliver=. 5ccording to 7ection +1,

“bailment is the delivery of goods by one 4erson to another for some

4ur4ose, u4on a contract that they shall, when the 4ur4ose is accom4lished,

be returned or otherwise dis4osed of according to the directions of the

4erson delivering them”. The 4erson delivering the goods is called the

Kbailor= and the 4erson to whom they are delivered is called the Kbailee=.

The following case and illustrations ex4lain the conce4t of bailment clearly.

% < 7rinivasa 9yer vs %ew 9ndia 5ssurance "o. >td. $+2/ 5n insurance

com4any 4laces a damaged insured car of K5= in 4ossession of K


32/94

interferes with the use of the goods, or ex4oses the bailee to

extraordinary ris&s. 9f he does not ma&e such disclosure, he is

res4onsible for damage arising to the bailee directly from such faults.

99. 9n a contract of bailment, the bailee will have to bear all the ordinary

ex4enses incurred, while the bailor will be res4onsible for any

extraordinary ex4enses incurred by virtue of the bailment. 9n case of a gratuitous bailment, it is the duty of the bailor to bear the ordinary

and reasonable ex4enses incurred by the bailee.

999. The bailor is res4onsible to the bailee for any loss sustained by him

in the following instances'

• Ahere the bailor is not entitled to ma&e the bailment, or to

receive bac& the goods, or to give directions, regarding them.

• 0remature termination of a gratuitous bailment.

9F. 9t is the duty of bailor to receive bac& the goods after the 4ur4ose is

achieved.

'i6ts o= Bailo

i. The bailor is entitled to file a suit for enforcing all the

liabilities or duties of the bailee.

ii. The bailor can terminate the bailment if the bailee does, with

regard to the goods bailed, any act which is inconsistent with the

terms of the bailment $7ection +2/.

iii. Emand return of goods lent gratuitously.

iv. The bailor can sue a third 4arty who by his act causes any

injury or de4rives the bailee the 4ossession and use of goods bailed.

8U&I%S F BAI.%%

9. The bailee is duty bound to ta&e reasonable care of the goods bailed,

as he would in similar circumstances ta&e care of his own goods.

5ccording to 7ection ++, the bailee should ta&e such care of the

goods as a man of ordinary 4rudence would ta&e of his own goods. 9f

the bailee has not acted in a 4rudent manner, he cannot be excused

by 4leading that he had ta&en similar care of his own goods also, and

his goods, have also been lost or damaged along with those of the

bailor, or that the bailor had the &nowledge that his goods were being

&e4t in a negligent manner.

99. The bailee should not ma&e any unauthorized use of goods.


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999. The bailee should not mix the goods of the bailor with his own goods,

but &ee4 them se4arate from his own goods. Ahere the bailee mixes

the bailor=s goods with those of his own with the bailor=s consent, then

the bailor and the bailee shall have an interest in the mixed goods in

4ro4ortion to their res4ective shares. Ahere he mixes the goods

without the consent of the bailor, two 4ossibilities may arise'

• The goods can be se4arated.

• The goods cannot be se4arated

Eee te 6oods ca *e sepaated Ahere the goods of the bailor and the bailee can be se4arated, then they will remain the owners in

accordance with their res4ective shares. *owever, the costs of

se4aration as well as any damage arising from the mixture will have to

be borne by the bailee.

Ee te 6oods caot *e sepaated The bailor can recover damages from the bailee for the loss of the goods.

9f, by mista&e on the 4art of the bailee or by accident or by an act of

)od or by the act of an unauthorized third 4arty, goods of the bailor

get mixed u4 with li&e goods of the bailee, then the mixture belongs to

the bailor and bailee in 4ro4ortion to their shares but the cost of

se4aration will have to be borne by the bailee.

9F. The bailee should not set u4 an adverse title of the goods bailed

claiming them to be his.

F. The bailee not only has to return the goods bailed but also anyaccretion to the goods.

'i6ts o= Bailee The duties of the bailor are the rights of the bailee'

i. elivery of goods to one of several joint bailors of goods.

5ccording to 7ection +C, in case of several joint owners of goods,

the bailee may deliver them bac& to or according to the directions of,

one joint owner without the consent of all, in the absence of any

agreement to the contrary.

ii. elivery of goods to bailor without title.

5ccording to 7ection +CC, if the bailor has no title to the goods, and the

bailee, in good faith, delivers them bac& to, or according to the

directions of, the bailor, the bailee is not res4onsible to the owner in

res4ect of such delivery.

iii.


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5ccording to 7ection +C, if a 4erson other than the bailor claims the

goods bailed, the bailee may a44ly to the court to sto4 the delivery of

the goods to the bailor, and to decide the title to the goods.

iv.


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ii. Executed or 4resent in which it is an act or forbearance

made or suffered for a 4romise. 8or exam4le, in a cash

sale, consideration is 4resent or executed.

iii. 0ast consideration is the one which 4ays for a 4ast act or

forbearance.

iv. 5n act constituting consideration which too& 4lace and iscom4lete before the 4romise is made.

5s 4er 7ection :2, there has to be a lawful consideration for a legal object

in every contract. *ence, the following as4ects should not exist in case of

consideration and object for the contract to be declared as legal and

binding.

• 9t should not be 8orbidden by >aw

• 0erformance should not efeat the 0rovisions of any >aw

•

9t should not be 8raudulent• 9t should not be "onsidered 9mmoral

.%#A. B@%C& The sixth essential element of a valid contract is legalobject. #y object it is to mean the 4ur4ose of the contract. "ontracts with

unlawful objects are void.

C%'&AIN&0 AN8 PSSIBI.I&0 F P%'F'$ANC% theagreements in which the meaning is not certain, or is not ca4able of being

made certain, are void. The uncertainty may exist because of ?uality,

?uantity, 4rice or title of the subject matter. The terms of contract should be

certain. 9n !eshavlal >allubhai 0atel vs. >albhai Tri&umlal (ills >imited,the wor&ers of the res4ondent (ill went on a stri&e ex4ressing their

su44ort to the Juit 9ndia (ovement. 5s a result, the res4ondent mill was

closed and could not su44ly the textile goods to the a44ellants as agreed. 9n

a letter see&ing extension of time the res4ondent mill cited the reason for

the failure to su44ly goods and stated that the delivery time of the goods

stands extended until the normal state of affairs is restored.

9n )uthing vs. >ynn, the buyer of a horse agreed to 4ay 4ounds extra, if

the horse 4roved to be luc&y. The agreement was held to be void for

uncertainty. The definition of void agreements includes the wager agreements. 7ection 2; defines wager as an agreement between the 4arties

by which one 4romises to 4ay money or money=s worth on the ha44ening

of some uncertain event in consideration of the other 4arties 4romise to 4ay

if the event does not ha44en.

'%S&I&U&IN Ahen a contract becomes void, any benefit derived outof the contract by one 4arty is re?uired to be restored to the other. 9t is


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significant to note that the law of restitution covers only benefits received

and not losses incurred. The 4rinci4le of restitution is that the defendant

who has been unjustly enriched at the ex4ense of the 4laintiff is re?uired to

ma&e restitution to the 4laintiff. There cannot be restitution where the

4arties are wholly incom4etent to contract $where one of the 4arties is

minor/. 7ection C which deals with restitution a44lies to contracts

Kdiscovered to be void= and Kcontracts which become void=. 5 4erson who

has received a benefit under any such contract will have to restore the

benefit to the 4erson from whom it was received. 9n haramsey vs.

5hmedbhai, a 4erson hired a godown for a 4eriod of +: months by 4aying

an advance for the entire 4eriod. Ahen a fire bro&e out in the godown he

was entitled to claim a 4ro4ortionate amount of rent 4aid in advance.

CN&IN#%N& CN&'AC&S 7ection 2+ of the 5ct 4rovides for suchcontracts and defines it as a contract to do or not to do something, if some

event, collateral to such contract, does or does not ha44en. 9n (uthu vs.

7ecretary of 7tate, a 4erson was the highest bidder for a house which was 4ut u4 for sale. *owever, one of the conditions was that the sale could be

confirmed only if the "ollector authorizes it. The "ollector declined to

confirm the sale. 9t was held that there was no contract. The event on whichthe ha44ening of the contract is de4endent should be uncertain. 8urther, the

event should be collateral to the contract. The event should not form 4art of

the consideration of the contract though the contract is made to de4end u4on

it. "ontracts of indemnity and insurance are exam4les of contingent

contracts.

P%'SNS EH A'% '%9UI'%8 & P%'F'$ CN&'AC&SAhere 4ersonal considerations form the basis of a contract, the 4romisor alone should 4erform the contract. Ahere 4ersonal considerations do not

form the basis of a contract, then the contract may be 4erformed by the

4romisor or his agent or legal re4resentatives of the 4romisor in the event of

his death.

&ime ad Place o= Pe=omace 5 contract, which does not s4ecify thetime for 4erformance should be 4erformed within a reasonable time. Ahen

a 4romise is to be 4erformed on a certain day, and the 4romisor has

underta&en to 4erform it, without a44lication by the 4romisee, the 4romisor

may 4erform it at any time during the usual hours of business on such day

and at the 4lace at which the 4romise ought to be 4erformed. Ahen a

4romise is to be 4erformed on a certain day, and the 4romisor has not

underta&en to 4erform it, without a44lication by the 4romisee, it is the duty

of the 4romisee to a44ly for 4erformance at a 4ro4er 4lace and within the


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usual hours of business. 5 contract should be 4erformed in the manner and

at the time 4rescribed in the contract.

8eolutio o= @oit 'i6ts ad .ia*ilities Ahere a joint 4romise ismade, the 4romisee may com4el any one of the joint 4romisors to 4erform

the whole of the 4romise. The joint 4romisor, who 4erforms the contract,

may claim contribution from the other joint 4romisors. Ahere any of the

joint 4romisors defaults in ma&ing his contribution, then the other joint

4romisors will have to bear even the defaulted amount e?ually.

Appopiatio o= Paymets Ahere several debts are owed and where 4ayment made is insufficient to discharge the debt, the debtor may intimate the

creditor as to the nature of a44ro4riation. 9n such a case, the creditor should

follow the directions issued by the debtor.

Assi6met o= Cotacts 5ssignment of a contract means the transfer of rights and liabilities arising out of the contract in favor of a third 4erson

either with or without the concurrence of other 4arty to a contract. 5n

assignment may ta&e 4lace either by the act of the 4arties or by o4eration of

law.

8ISCHA'#% F CN&'AC& Ae now come to the last stage of contracts. 5 contract is said to be discharged when the rights and liabilities

created by such contract come to an end. "ontracts may be discharged or

terminated by'

• 0erformance of the contract, or

• #y mutual consent, or

• #y la4se of time $by limitation/, or

• #y o4eration of law, or

• 9m4ossibility of 4erformance, or

• #y breach of contract.

Each of the various modes of discharge of contract is ex4lained below'

17 Pe=omace o= Cotact The most obvious and meaningful wayto discharge a contract is to fulfill the terms and conditions agreed by

each of the 4arties in the contract. 7ection 2 4rovides for tender of

4erformance. 5s 4er this section if the 4romisor offers to 4erform his

side of the contract, but the 4romisee does not acce4t his 4erformance

the 4romisor is discharged from his liability. This is &nown as


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attem4ted 4erformance. The 4romisor may sue the 4romisee for the

breach of contract, if he so desires.

i. 8isca6e *y $utual A6eemet o Coset The contract may beterminated by mutual consent of both the contracting 4arties. Farious

cases of discharge by mutual agreement are s4ecified in 7ection C:

and 7ection C2. 7ection C: 4rovides about the effect of novation as towhere a new contract is substituted for an existing contract by mutual

agreement of both the 4arties, the new contract is basically agreed

u4on to adjust the remedial rights arising out of the breach of the old

contract.

ii. 8isca6e *y .apse o= &ime 5ny contract cannot be extendedindefinitely. The >imitation 5ct, +C2 4rovides for a certain time

frame within which the contract has to be 4erformed $called 4eriod of

limitation/. 9f no action is ta&en by the contracting 4arties within the 4eriod of limitation, no remedy at law will be available. 9t 4rovides for

a definite time frame within which, the de4rived 4arty may see&

remedy at law.

iii7 8isca6e *y peatio o= .a/ A cotact may *e disca6ed*y te opeatio o= la/ i ay o= te =ollo/i6 /ays

i. #y (erger' Ahen the 4arties agree to include the 4revious

inferior contract in a su4erior contract.

ii. >aw does not 4ermit any unauthorized alteration of the terms of a

written agreement. 5ny such act by any one of the 4arties will

automatically ma&e the contract as discharged by o4eration of law.

iii. #y 9nsolvency' Ahen a 4erson is adjudged insolvent, he is

discharged from all liabilities incurred 4rior to his adjudication.

iv. eath' Ahere a contract is entered into, based on 4ersonal

consideration and where it is re?uired that 4erformance of the

contract should be made by the 4romisor in 4erson, the contract

will be discharged on the death of the 4romisor.

95 %>plai te i6ts o= a upaid selle ude Idiasales o= 6oods Act78%FINI&INS

+. “#uyer” means a 4erson who buys or agrees to buy goodsI

:. “elivery” means voluntary transfer of 4ossession from one

4erson to anotherI


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2. )oods are said to be in a “deliverable state” when they are in

such state that the buyer would under the contract be bound to ta&e

delivery of themI

1. “ocument of title to goods” includes bill of lading, doc&-

warrant, warehouse &ee4er=s certificate, harbingers= certificate,

railway recei4t, Mmultimodal trans4ort document,N warrant or order for the delivery of goods and any other document used in the

ordinary course of business as 4roof of the 4ossession or control of

goods or authorizing or 4ur4orting to authorize, either by

endorsement or by delivery, the 4ossessor of the document to

transfer or receive goods thereby re4resentedI

. “8ault” means wrongful act or defaultI

C. “8uture goods” means goods to be manufactured or 4roduced

or ac?uired by the seller after ma&ing of the contract of saleI

. “)oods” means every &ind of moveable 4ro4erty other thanactionable claims and moneyI and includes stoc& and shares,

growing cro4s, grass, and things attached to or forming 4art of the

land which are agreed to be severed before sale or under the contract

of saleI

. 5 4erson is said to be “insolvent” who has ceased to 4ay his

debts in the ordinary course of business, or cannot 4ay his debts as

they become due, whether he has committed an act of insolvency or

notI

. “(ercantile agent” means a mercantile agent having in thecustomary course of business as such agent authority either to sell

goods, or to consign goods for the 4ur4oses of sale, or to buy goods,

or to raise money on the security of goodsI

+;. “0rice” means the money consideration for a sale of goodsI

++. “0ro4erty” means the general 4ro4erty in goods, and not

merely a s4ecial 4ro4ertyI

+:. “?uality of goods” includes their state or conditionI

+2. “7eller” means a 4erson who sells or agrees to sell goodsI+1. “74ecific goods” means goods identified and agreed u4on at

the time a contract of sale is madeI and

+. Ex4ressions used but not defined in this 5ct and defined in the

9ndian "ontract 5ct, +:, have the meaning assigned to them in that

act.


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'I#H&S F AN UNPAI8 S%..%' A#AINS& &H% #8S The term Kun4aid seller= is defined by 7ection 1 of the 7ale of )oods 5ct,

+2;. 5s 4er this section, the seller of goods is deemed to be an Kun4aid

seller= within the meaning of the 5ct.

+. Ahen the whole of the 4rice has not been 4aid or tendered.

:. Ahen a bill of exchange or other negotiable instrument has been

received as conditional 4ayment and the condition on which it was

received has not been fulfilled by reason of the dishonor of the instrument

or otherwise.

'i6ts o= a Upaid Selle 5s 4er 7ubsection $+/ of 7ection 1C, subjectto the 4rovisions of this 5ct and of any law for the time being in force

notwithstanding that the 4ro4erty in the goods may have 4assed to the

buyer, the un4aid seller of goods, as such, has by im4lication of law,

+. 5 lien on the goods for the 4rice while he is in 4ossession of them.

:. 9n case of the insolvency of the buyer a right of sto44ing the goods

in transit after he has 4arted with the 4ossession of them.

2. 5 right of re-sale as limited by this 5ct.

Ahere the 4ro4erty in goods has not 4assed to the buyer the un4aid seller

has, in addition to his other remedies, a right of withholding delivery

similar to and co-extensive with his rights of lien and sto44age in transitwhere the 4ro4erty has 4assed to the buyer. M7ection 1C$:/N

7ection 1C$+/ will be a44licable only if the 4laintiff 4roves that'

a. *e is an un4aid seller.

b. The buyer is insolvent.

c. The goods were in transit.

d. The 4ro4erty in the goods has 4assed to the buyer.

Upaid Selles .ie (Sectio J)


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+. 7ubject to the 4rovisions of this 5ct, the un4aid seller of

goods who is in 4ossession of them is entitled to retain 4ossession of

them until 4ayment or tender of the 4rice in the following cases, namely

a. Ahere the goods have been sold without any sti4ulation as to

credit.

b. Ahere the goods have been sold on credit, but the term of credit has ex4ired.

c. Ahere the buyer becomes insolvent

:. The seller may exercise his right of lien notwithstanding that he is in

4ossession of the goods as an agent or bailee for the buyer. 9n 9m4erial

#an& vs. >ondon D 7t !atherine oc& "o., it was held that even though

the delivery of a bill of lading transfers legal 4ro4erty, it does not affect the

seller=s right of lien on the goods as long as they are in his 4ossession.

#oods sold /itout ay stipulatio as to cedit Ahen goods are soldwithout any sti4ulation as to credit, the seller can retain the goods, until the

4ayment is made.

#oods sold o cedit, *ut te tem o= cedit as e>pied Ahen goodsare sold on credit, the 4ossession of the goods is transferred to the buyer

immediately. *owever, if the seller has retained 4ossession of the goods

until the ex4iry of the 4eriod of credit, the lien which was not available to

him during that 4eriod will accrue to him on the ex4iry of the credit 4eriod,

even though the buyer is not insolvent at that time.Eee te *uye *ecomes isolet The third case where the seller has alien on the goods is where the buyer becomes insolvent. The seller=s lien isrevived in case the time for 4ayment has not arrived and the buyer becomes

insolvent. This is based on the rule, that where one of the 4arties to the

contract is unable to fulfill the 4romise re?uired of him, the other 4arty is

absolved from 4erforming his obligation.

9n E " Edulji vs. "afe 3ohn #rothers, a second-hand refrigerator was

4urchased for ater it was agreed between the vendee and the

vendor that the refrigerator should be 4ut in order at a cost of ater, he

informed the vendor that the refrigerator was not in wor&ing order. The

vendor too& away two 4arts of the refrigerator for further re4airs. 5s the

full cost of the original re4airs had not been 4aid, the vendor claimed a lien


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on the 4arts ta&en. 9t was held that when the contract was fully 4erformed

and when the goods were handed bac& $although the cost of re4airs had not

been fully 4aid/ the lien had come to an end, and could not be revived

because the buyer as&ed for further re4airs.

Pat 8eliey (Sectio )

Ahere an un4aid seller has made 4art delivery of the goods, he may

exercise his right of lien on the remainder, unless such 4art delivery has

been made under such circumstances as to show an agreement to waive the

lien. 5 4art delivery of goods does not amount to a full delivery of goods.

*ence, an un4aid seller who has made 4art delivery can exercise his right

of lien over the remaining goods. 9n such a case, the seller has a lien not

only for the 4ro4ortion of 4rice to be 4aid on account of goods retained, but

also for whatever 4ortion of 4rice that remains un4aid. *owever, if

delivery of 4art of the goods is intended to be a symbolic delivery of the

whole, the right of lien on the goods retained will come to an end.&%'$INA&IN F .I%N (S%C&IN K) 17 The un4aid seller of goods loses his lien thereona. Ahen he delivers the goods to a carrier or other bailee for the 4ur4ose of

transmission to the buyer without reserving the right of dis4osal of the

goods.

b. Ahen the buyer or his agent lawfully obtains 4ossession of the goods.

c. #y waiver thereof.

27 The un4aid seller of goods, having a lien thereon does not lose his lien by reason only that he has obtained a decree for the 4rice of the goods.

Stoppa6e i &asit 7ubject to the 4rovisions of this 5ct, when the buyer of goods becomes insolvent, the un4aid seller who has 4arted with the

4ossession of the goods has the right of sto44ing them in transit, that is to

say, he may resume 4ossession of the goods as long as they are in the

course of transit, and may retain them until 4ayment or tender of the 4rice.

$7ection ;/

The following are the conditions re?uired to be fulfilled for the

a44licability of 7ection ;.

a/ The seller should be un4aid

b/ The buyer must be insolvent

c/ The 4ro4erty in the goods should have 4assed from the seller to the

buyer


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d/ The goods should be in transit.

The right of sto44age of goods accrues to the seller because of the

insolvency of the buyer. Ahere during the course of transit, the seller

discovers that the buyer is insolventI he may reta&e 4ossession of the goods

before the 4ossession is transferred to the buyer. 9t should also be noted

that the right of sto44age is exclusive of the right of lien.

'I#H&S F &H% UNPAI8 S%..%' A#AINS& &H% BU0%' P%'SNA..0 5n un4aid seller has the following rights against the buyer 4ersonally.

a7 Suit =o pice (Sectio 55) Ahere under a contract of sale the 4ro4ertyin the goods has 4assed to the buyer and the buyer wrongfully neglects or

refuses to 4ay for the goods, according to the terms of the contract, the

seller may sue him for the 4rice of the goods M7ection $+/N.

Ahere under a contract of sale, the 4rice is 4ayable on a certain day

irres4ective of delivery and the buyer wrongfully neglects or refuses to 4ay

such 4rice, the seller may sue him for the 4rice although the 4ro4erty in the

goods has not 4assed and the goods have not been a44ro4riated to the

contract M7ection $:/N.

*7 Suit =o dama6es =o o-acceptace (Sectio 5) Ahere the buyer wrongfully neglects or refuses to acce4t and 4ay for the goods, the seller

may sue him for damages for non-acce4tance.

c7 Suit =o iteest (Sectio 1) Ahere the buyer wrongfully refuses toacce4t and 4ay for the goods, the court may award interest at such rate as it

thin&s fit on the amount of the 4rice to the seller in a suit by him for theamount of the 4rice from the date of the tender of the goods or from the

date on which the 4rice was 4ayable.

The law relating to sale of goods can be found in the 7ale of )oods 5ct,

+2;. The sale of goods is the most common of all commercial contracts

and hence the law relating to this, is bound to be of im4ortance to all

classes of the community.

The general rules a44licable to contracts are a44licable to contracts of sale

of goods as well. The general 4rovisions of the 9ndian "ontract 5ct,

continue to a44ly to contracts for the sale of goods in so far as they are notinconsistent with the ex4ress 4rovisions of the 7ale of )oods 5ct. The 5ct

has not defined the term Ksale= but contem4lates two 4arties to the contract

L a buyer and a seller and that the buyer acce4ts the goods for a 4rice.

CN&'AC& F SA.%


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5s 4er 7ection 1$+/ of the 7ale of )oods 5ct, a contract of sale of goods is

a contract whereby the seller transfers or agrees to transfer the 4ro4erty in

goods to the buyer for a 4rice. 5s 4er subsection $:/, such contract of sale

may either be absolute or conditional.

7ubsection $2/ deals with the conce4t of an agreement to sell and sti4ulates

that where the transfer of 4ro4erty in the goods is to ta&e 4lace at a futuretime or subject to some condition thereafter to be fulfilled, such a contract is

an agreement to sell.

SA.% AN8 A#'%%$%N& & S%..

The distinction between a sale and an agreement to sell may thus be

summarized as follows'

+. 5 contract which contem4lates transfer of title to goods to the

buyer immediately is a sale while a contract which does not

contem4late a transfer of title to goods immediately is an agreement

to sell.:. 5 contract of sale is an executed contract. 9t involves a

contract 4lus a conveyance of the 4ro4erty. Ahen the 4ro4erty is

transferred, the rights and liabilities attached to the goods are also

transferred. 5n agreement to sell, on the other hand, is an executor

contract. The 4ro4erty in the goods does not 4ass until a certain time

has la4sed or until a certain condition is fulfilled.

2. 9n an agreement to sell, the seller remains the owner of the

4ro4erty until it is actually transferred to the buyer at a future 4oint

of time. *owever, in a contract of sale, the buyer becomes theowner immediately an

Assignment Semester 1 Cycle 6 ((Bel))

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Transcript of Assignment Semester 1 Cycle 6 ((Bel))