Amity Center for elearning

F-2,Block, Amity Campus

Sec-125, Nodia (UP)

India 201303ASSIGNMENTS

PROGRAM:

SEMESTER-ISubject Name : Business Environmental Law

Study COUNTRY : Sudan LC

Permanent Enrollment Number (PEN) : MFC001652014-2016014

Roll Number : AMF105 (T)

Student Name : SOMAIA TAMBAL YOUSIF ELMALIK

INSTRUCTIONS

a) Students are required to submit all three assignment sets.ASSIGNMENTDETAILSMARKS

Assignment AFive Subjective Questions10

Assignment BThree Subjective Questions + Case Study10

Assignment C45 Objective Questions10

b) Total weightage given to these assignments is 30%. OR 30 Marksc) All assignments are to be completed as typed in word/pdf.d) All questions are required to be attempted.e) All the three assignments are to be completed by due dates (specified from time to time) and need to be submitted for evaluation by Amity University.f) The evaluated assignment marks will be made available within six weeks. Thereafter, these will be destroyed at the end of each semester.

g) The students have to attach a scan signature in the form.Signature:

Date

:_______30 January 2015________________________

( ) Tick mark in front of the assignments submittedAssignment AAssignment BAssignment C

Business Environmental Law

ASSIGNMENT A

Q1 what is business environment? What are the benefits & limitations of environmental analysis?

What is environment?

Environment 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-Davis, K, the Challenge of Business, (New york: McGraw Hill, 1975), P43

Environment refers to all external forces that have a bearing on the functioning of a business. Jauch and Gluecke define environment thus: The environment includes factors outside which can lead to opportunities or a threat to the firm. Although there are many factors, the most important of these sectors are socio-economic, technological, supplier, competitor and the government

Business is all about reaping profits from the opportunities available in the environment Opportunity can manifest themselves in the form of short supply, excess demand, latent need or new better and economical sources of supply or manufacturing.

Every business operates in a particular environment and each business unit has its own environment. A change in environment presents opportunity to some and threat to others.

Sometimes, in the same industry, a relevant change in environment can a favorable of the opposite impact on different units of the same industry.

For instance, the General Agreement on Trade and Services (GATS) implemented in India on January 1,2005, is an opportunity for research-based pharmaceutical companies like Ranbaxy but a threat for smaller companies. In the long run, only those organizations will survive that are able to forecast the environment early and can react in time to the change in environment.

The recent changes in tariff rates have changed the toy industry of India with the market now being dominated by Chinese products. A slight change in the Reserve Bank of Indias monetary policy can increase of decrease interest rates in the market. A slight shift in the governments fiscal policy can shift the whole demand curve towards the right or the left.

Hindustan Lever Limited (HLL) took advantage of the new takeover and merger codes and acquired brands like Kissanfrom the UB group. TOMCO (Tata Oil Mills Company) and Lakme from Tata and Modern Foods from the government, besides many other small takeovers and mergers.

The new moguls of the Indian business are those who predicted the changes in the environment and reacted accordingly. Azim Premji of Wipro, Narayana Murthy of Infosys, Subhash Goyal of ZEE, the Ambanis of reliance, L.N.Mittal of Mittal Steel, of Bharti Telecom are some of them.

Even a small businessman who plans to open a small shop as a general merchant in his town needs to study the environment before deciding where he wants to open his shop, the products he intend to sell and what brands he wants to stock.

Relationship between a business and an environment:The relation between a business and an environment is not a one way affair. The business also equally influences the external environment and can bring about changes in It. Powerful business lobbies for instance, actively work towards changing government policies.

The business environment is not all about the economic environment but also about the social and political environment. Politically, after the Congress government came to power at the center with the support of the CPI in May 2004, the whole process of disinvestments took a U-turn Similarly, a new sociological order in India today has created a market for fast foods, packaged foods, multiplexes, designer names, valentine day gifts and presents, and gymnasiums and clubs etc.

So it is quite obvious that success in a business depends upon better understanding of the environment. A successful organization doesnt look at the environments on and ad hoc basis but develops a system to study the environment on a continuous basis to try and protect the organization from every possible threat and to take the advantage of every opportunity. Some times better and timely understanding of the environment can even turn threat into an opportunity.

Characteristics of Environment:1. Environment is Complex: The environment consists of a number of factors, events, conditions and influences arising from different sources. All these interact with each other to create new sets of influences.2. It is Dynamic: The environment by its very nature, is a constantly changing one. The varied influences operating upon it impart a dynamism to it and cause it ot continually change its shape and character. 3. Environment is multi-faceted: The same environmental trend can have different effects on different industries. For instance GATS that is an opportunity for some companies but a threat for others.4. It has a far-reaching impact: The environment has a far reaching impact on organizations inn that the growth and profitability of organization depends critically on the environment in which it exists.5. Its impact on different firms with in the same industry differs: A change in environment may have different bearings on various firms operating in the same industry. In the pharmaceutical industry in India, for instance, the impact of the new IPR (Intellectual Property Rights) law will different for research-based pharmacy companies such as Ranbaxy and Dr. Reddys Lab and will be different for smaller pharmacy companies.6. It may be and opportunity as well as a threat to expansion: Developments in the general environment often provide opportunities for expansion in terms of both products and markets. For example, liberalization in 1991 opened lot of opportunities for companies and HLL took the advantage to acquire companies like Lakme, TOMCO, and KISSAN etc. Changes in environment often also pose a serious threat to the entire industry. Like Liberalization does pose a threat of new entrants to Indian firms in the form of Multi National Corporation (MNCs).7. Changes in the environment can change the competitive scenario: General environmental changes may alter the boundaries to an industry and change the nature of its competition. This has been the case with deregulation in the telecom sector in India. Since deregulation, every second year new competitors emerge, old foes become friends and M&As follow every new regulation.8. Sometimes developments are difficult to predict with any degree of accuracy: Macroeconomic developments such as interest rate fluctuations, the rate of inflation, and exchange rate variations are extremely difficult of predict on a medium of a long term basis. On the hand, some trends such as demographic and income levels can be easy to forecast.Environmental Scanning: The process by which organizations monitors their environment to identify opportunities and threats affecting their business, is known environmental scanning. The following factors to be considered for environmental scanning:1. Events: Important and specific occurrences that taking place in a certain sector.

2. Trends: The general tendencies or course of action along which these events take

Place.

3. Issues: the current concerns that arise in response to events and trends.

4. Expectations: The demands made by interested groups in the light of their concern for issues.(Azhar Kazmi, TATA McGraw Hill,p118) Type of Environment:The environment can be divided into three broad categories:

Internal Environment

Macro Environment (General Environment)

Micro Environment(Relevant Environment of Competitive Environment) Internal Environment: Internal environment refers to that of the organization and is controllable. Some internal factors are:1. Culture and Value Systems: Organizational culture can be viewed as the system of shared values and beliefs that shape a companys behavioral norms. A value is an enduring preference as a mode of conduct or an end state. The value system of the founders of the organization has a lasting impact on it. The value systems not only influence the working of the company and the attitude of its people but also the choice of its business. Values and cultures are inherited from seniors by juniors in a organization. If a young man gets a job in a bureaucratic culture he gets accustomed to a work routine of 10 to 6. On the other hand, if he gets a job in a private concern he works till the work finishes. Similarly, for organizations accustomed to and aggressive consumer goods sales culture, a foray into the industrial goods segment proves difficult.

2. Mission and Objectives: The mission and objectives of the company guide the priorities, direction of development, business philosophy, and business policy.

3. Management Structure and Nature: Structure is the manner in which the tasks and sub-tasks of the organization are related. Structure is concerned with the hierarchical relationship and the relationship between the management od different functional areas like the structure of the top management and the pattern of shareholding.

4. Human Resource: It concerns with factors like manpower planning, recruitment and selection, compensation, communication and appraisal.Besides this, internal environment also includes corporate resources, production/operation of goods and services, finance and accounting systems and methods, marketing and distribution.

Macro Environment: The Macro/General environment consists of factors external to the industry that may have a significant impact on the firms strategies. Here we will look at six broad dimensions: demographic, socio-cultural, political/legal, technological, economic and global. Dimensions in General Environment

All these dimensions of general environment are interrelated. These dimensions not only influence businesses, but also influence each other. After a political change in 1991, when congress government came to power, major economic change took place in the form of LPG, i.e., Liberalization, Privatization, and Globalizations. 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.

Globalization has also enabled India to become the software superpower of the world. All global organizations now have a new and vast market, as well as cheap manufacturing hub, which has compelled them to change their global marketing and manufacturing strategies.

With this, over the last ten years there has been a drastic change in the Indias demography per capita incomes have risen. The number of young achievers and high earners has increased drastically, which changed the entire demand schedule of products.

This shows that a single political in 1991 has changed all the components of the macro environment. So while studying macro environment, one should not only concentrate on how this factor will influence business but also on how this will influence other components of the environment and what will be the impact of these changes in the business. Only then can one design long term strategies.

1. Political Environment: It is the political environment of the country that decides the fortune of businesses in a country. After the 1917 revolution in sudden political change transformed the equation of doing business. After the change of regime in the USSR in late 1980s and early 1990s business equations changed once again in Resin.In India in 1977, the janata government came to power because of which Coca Cola and IBM had to leave the country. All liquor companies had to close their operations. When P.V Narsimha Rao can to power and a new economic policy was putin that presented of new opportunities for Businesses, but at the same time brought a threat for inefficient organizations.

Not only political philosophy but political stability too has significance for businesses. The more stable, the political environment of a country the more conducive will be the environment for business. The consensus among various political parties on key issues is also relevant in this case.

2. Regulatory and Legal Environment: The political environment governs the legal and regulatory environment of country. The regulatory environment plays a vital role by dictating the dos and donts of a business. Every county has a different legal environment.In India we have the Companies Act that governs Companies, the MRTP Act which restricts monopoly, various laws regarding shares, the Consumer protection Act, environmental laws, and the implementation of GATS.GATS has resulted in the implementation of international laws regarding patents, There are laws for import and export, licensing etc. that have a drastic impact on business and the future of organizations.

When an NRI Lord Swaraj Paul, a British Citizen, tried take over Escorts, its owners, the Nandas approached the government to save their company. A law restricting any NRI from purchasing shares of an Indian company came into force, and Escorts was saved.

3. Demographic: It is the demographic environment which decides the marketing mix for an organization. It decides the type of product the organization comes out with. In India a lot of research and efforts are undertaken to reduce the cost of products and to launch products at the cheapest possible rates. A one rupee sachet of shampoo or a five rupee ice-cream cone is some examples. It is the demography that decides the pricing, promotion and distribution strategies. 70% of Indias population is lives in villages and of this, 70% are youth which is why every business house is launching new products, specifically for rural market. ITC launched its unique and ambitious program called e-chaupal, targeted at the rural market.4. Socio Culture: Socio culture variables like the beliefs, value system, attitudes of people and their demographic composition have a major impact on their personality and behavior style. The consumers preferences have undergone a drastic change through the 1990s this has led to the production of more cars, refrigerators, air conditioners and other articles that were at one time considered ostentatious and luxurious.Not only this, this socio-culture paradigms also dictate the preference of consumer in different regions. For instance companies launch different products in the south and north because of differing preferences. Companies have to change their product portfolio because of cultural preferences as McDonalds and KFC did when they launched their restaurant chain in India.

5. Technological: Technological forces present a wide range of opportunities and threats that have to be accounted for in the process of business strategy formulation. Technological advancement may dramatically affect an Organizations products, services, markets, suppliers, distributors, competitors, customers, manufacturing process, marketing practices, financial composition, and competitive position. Some of the important factors that influence operating in the technological environment are: Sources of technology like company sources, external sources and foreign sources cost of technology acquisition, collaboration and transfer of technology. Rate of change in technology, of obsolesce Impact of technology on human being, the man machine system, and the environmental effect of technology. Communication and infrastructural technology in management.In fact, technology is today a decisive factor. From FMCGs to the microprocessor industry is investing heavily technology. The technological knowledge of consumer the decisions. Organizations have to modify products according to the level of technological knowledge of the target costumer, because in developing nations complex household machines that need programming will not work. So they have to be technologically more and more focused.

6. Global Environment: The international environment consists of all factors operate 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.For the sake of business, countries are burying their grievances and forging economic relationships. Erstwhile adversaries like America and Russia are today goods friends and China and India are coming closer.

India has signed a bilateral treaty with SriLanka; it is developing close economic relationship with South Africa and Brazil, and is planning to develop a road network in South East Asia. India is also a close ally of ASEAN, and is also signatory of WTO which has a multilateral trade agreement among more than 100 nations.

India is in a process of laying down a gas pipeline from Iran via Pakistan. All this is just glimpse of the present international environment. Every new bilateral and multilateral agreement new vistas for business and also brings a new threat in the form of global competition.

7. Economic Environment: The economic environment consists of macro level factors related to the means of production and distribution of wealth, which have an impact on the business of an organization.The economic structure of a country, whether it is socialist, mixed or capitalist, has drastic impact on the economy. Economic policies such as foreign trade policy, industrial policy, fiscal policy, GDP growth tare, policy of licensing, monetary policy, development of financial institutions, development of money and stock market, and the extent of globalization are some of the aspects of an economy that reflect on business in an economy. A slight change in monetary policy can release crores of rupees into the economy that may result in a decrease in interest rate, which further increases investment as well as inflation.

Also, banks lending rates decide the level of investment in any country. The higher the interest rate, the lower the level of investment. In most industrialized nations like the US, this interest rate between 4% to 6% in India in 1991, the PLR (prime lending rate) was 17% to 18% which was reduced to 8% to 10% by 2000 because of a change in the countrys economic policy.

8. National Competitive Advantage: Despite globalization, industrialization is clustered in a small and specific number of countries. Most successful computer and biotechnology firms are based in the US, the successful chemical and engineering industry is based in Germany, and the cream of the electronics industry is based in Japan.Similarly the successful call centers are clustered in India as are many of the customized software companies. This suggests that nation and its environment in which a company is based may have an important bearing of the competitive position of that company in the global marketplace.

Michael Porters International Competitiveness Model

In a study national competitive advantage, Michael Porter identified four attributes of a national of country-specific environment that have an important impact on the global competitiveness of companies located within that nation.

a. Factor Endowments: A nations position in the factors of production such as skilled labor, capital, technology or infrastructure necessary to compete in a given industry.

b. Demand Condition: The nature of home demand for services.

c. Relating and Supporting Industry: The presence and absence in a nation of supplier industries and related industries that are internationally competitive.

d. Firm strategy, structure and rivalry: The conditions in the nation that govern how companies are created, organized and managed and the nature of domestic rivalry.Micro Environment: Micro environment of the competitive environment refers to the environment which and organization faces in its specific arena. This arena may be an industry; of it may be what is referred to as a strategic group. Besides looking at primary demand and supply factors, firms examine the state of competition they face because that determines whether that determines whether they will remain in the same industry or start a new one. All the business decisions-what business, pricing, distribution channel, promotion portfolio, etc. depends on competitive position of the firm.For instance, a new entrant in the glucose biscuit segment will have to study and consider the marketing mix as well as strategy of existing players like Britannia, Parle, Priyagold, etc., before deciding its marketing mix following are the key Micro Environment factors:

The Five Forces of Competition: Professor Michael Porter of the Harvard Business School has demonstrated the state of competition in an industry as a composite of five composite of competitive forces. According to Michael Porter the five forces of competition are:a. Threat of Competitors: The rivalry among sellers in the industry.

b. Threat of New Entrants: The potential entry of new competitors.

c. Threat of Substitutes: Market attempts of companies in other industries to win customers over to their own substitute products.

d. Bargaining Power of Supplier: The competitive pressure stemming from the supplier-seller collaboration and resultant bargaining.

e. Bargaining Power of Buyers: The competitive pressure stemming from seller-buyer collaboration and bargaining. Michael Portes Five Forces Model

Benefits of Environmental Analysis:1. Environmental analysis gives an idea of organizations environment.

2. Environmental analysis gives a brief about competitors.

3. Environmental analysis tells us about opportunities to reap profits.

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

5. Environmental analysis keeps the manager informed and alert.

6. Business is all about making the right decision at the right time. Without proper environmental analysis the right decision cant be made.

7. Environmental analysis helps in predicting the future.

8. Environmental analysis helps in suitable modification of strategies, as and when required.

Limitations of Environmental Analysis:1. Today the environment is turbulent and dynamic and it is difficult to forecast of predict the environment.

2. Business environment is global and any development in any part of the world can influence the business. Even a small political move can have a drastic impact, which in very difficult to scan and assess. A sudden disintegration of USSR had very adverse impact on many exporters in India. A sudden attack of Al Qaeda on the Twin Towers in the US resulted in the hike of global petroleum prices. After

Signing the WTO, all of a sudden the toy market of India was captured by Chinese products. Today it is extremely difficult to predict the external environment.

3. The Effectiveness of environmental analysis depends upon how it is practiced, i.e., whether it is a systematic approach, ad hoc or processed. Under a systematic approach, information for environmental scanning is collected, scanned and monitored on a continuous basis and forecast and is assessed for the relevant factor. In an ad hoc approach, an organization conducts special surveys and studies to deal with specific environmental issues from time to time. In a processed form approach, an organization uses information in a processed form, available from different sources, both inside and outside the organization. For effectiveness, an organization should use the combination of these approaches instead of just following the tried formulas, because all have their importance according to requirementToo much reliance is often placed on the information collected through environmental scanning.

When there is overloading of information, one is likely to get lost and become inactive-typical of paralysis through analysis syndrome. Q2 Define contract, Explain any four element of a contract?Definition of Contract: Section 2(h) of the Act, defines a contract as an agreement enforceable by law. A contract is defined as an agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more, to act on the part of the other. It creates and defines obligations between the parties.All agreements are not necessarily enforceable by law. An agreement to sell a house may be a contract enforceable by law. However, an agreement to attend a party being of a social nature is not enforceable. It is not necessary that a contract need not be only in writing, unless there is specific provision in law that it should be in writing. Certain contracts must be in writing as otherwise they are not enforceable in law. Following are the examples of such contracts. Contract for sale of immovable property must be in writing, stamped and registered. Certain other contracts though are required to be in writing do not compulsorily be require registration, for example, Bills of Exchange, Promissory Notes, Cheques, A Trust created under the Indian Trust Act, A promise to pay a time-barred debt, Contracts made without consideration with natural love and affection.Elements of Contract: It may be noted that a contract essentially contains two elements: Agreement and enforceability by law: For a better understanding, let us elaborate on these two elements. Section 2(e) of the Act defines agreement as, every promise and every set of promises, forming consideration for each other. This essentially means that there should be an offer and acceptance to form an agreement. It is important that before an agreement is finalized there should be a consensus ad idem (consent to the matter) between the two parties. Both the contracting parties should say and mean the same without, which there cannot be a contract.The other element of contract, enforceability by law, emphasizes the importance of intention to create a legal obligation or duty to perform or abstain from performing certain act(s). These acts could relate to social or legal matters. The classic case of Balfour vs. Balfour (1919) elaborates this point. A husband working in Ceylon, had agreed in writing to pay a housekeeping allowance to his spouse living in England. On receiving information that she was unfaithful to him, he stopped the allowance. It was held that the agreement was without any intention of creating a legal obligation. Hence, there was no contract. It may be summed up that all contracts are agreements, but all agreements are not contracts.

Essential Elements of a Valid Contract:1. Offer and acceptance.

2. Intention to create legal relationship.

3. Capacity to contract.

4. Free consent.

5. Lawful consideration.

6. Legal object.

7. Certainty and possibility of performance.

Each of the essential elements are discussed in detail below.

1. Offer and Acceptance

A contract basically evolves from an offer by one party and acceptance of the same, by the other party. The acceptance should be definite and without any qualification. There should be a consensus ad idem between the two parties on the terms and conditions of contract.

Conditions of Making an Offer: The following conditions that govern making an offer are:

1. The offer must be definite and not vague.

2. An offer should be differentiated from an invitation to make an offer. There are occasions where a person may make some statements or give information with an intention of inviting others to make an offer. For example, a catalogue with prices indicated on it is not an offer to sell. On the contrary it is only an invitation to make an offer. A person interested in buying the product specified in the catalogue, may make an offer to buy and it is left to the discretion of the seller to either accept or reject the same.

Lapse of Offer: Section 6 specifies the instances which results in the lapse of an offer:I. An offer comes to an end if it is revoked by the offeror at any time before its acceptance is complete as against him and not after its acceptance;

II. If either the offeror or the offeree dies or becomes insane and the offeree comes to know about it, before acceptance. If the offeree accepts an offer in ignorance of the death and insanity of the offeror, the acceptance is valid;

III. If the offer is not accepted within the specified time or within a reasonable time, or if none of it is clearly specified then the law of limitation applies after that, if none is specified (Law of limitation applies). In Ramsgate Victoria Hotel Co vs. Montefiore, Montefiore agreed to take up shares in Ramsgate Victoria Hotel Co in June. However, when he received the letter of acceptance in November, he declined to take up shares. The offer had come to an end by lapse of time and therefore he could not be compelled to take up the shares. When an offer is made by an agent and it is accepted within a reasonable time, the contract will be binding on the principal even though the agent may have been guilty of delay in making the offer;

IV. On failure to fulfill a condition precedent to acceptance. In State of Madhya Pradesh vs. Gobardhan Dass where the tender required acceptance of a tender to be accompanied by payment of 25% of the amount and was fulfilled by the successful tenderer to make the requisite payment the court held that the omission did not give rise to a binding contract between the parties;

V. If it is not accepted in the mode prescribed or if no mode is prescribed, in some usual and reasonable manner or if the offer is rejected by the distinct refusal of the offeree;

VI. If the offeree makes a counter offer, it amounts to rejection of the original offer and such an offer by the offeree may be accepted or rejected by the offeree;

VII. If law is changed making the offer illegal or incapable of performance. According to the Indian Contract Act, an offer may be revoked at any time provided it is communicated to the offeree before the acceptance. Also an offer to keep an offer open for a specified time (option) is not binding unless it is supported by consideration.

Acceptance: Under Section 2(b) of the Act, when a person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Just as in case of offer, acceptance may also be express or implied. An acceptance is said to be express when it is communicated by words spoken or written or by doing some required Act. It is implied when it is to be gathered from the surrounding circumstances or the conduct of the parties. In an auction sale, the highest bidder is assumed to be the buyer of the goods once the deal is struck.In order to convert an offer into a promise, acceptance should be absolute and unqualified. It is also essential that the acceptance is given in some usual and reasonable manner. If the offer prescribes the manner in which the acceptance is to be given, then the acceptor should adhere to the prescribed mode. On failure to do so, the offeror can insist that his offer will be accepted only if it is given in the prescribed manner

Conditions of Acceptance:

i. An offer should be accepted only by the person to whom it is put forth. It is clear by the rule of law that if A proposes to make a contract with B, C cannot substitute himself with B without the consent of A. An acceptance may be withdrawn before it reaches the offeror.

ii. Acceptance of an offer should be absolute and unqualified and should conform totally to the offer made. A conditional or qualified acceptance does not result in a valid contract. By giving a conditional acceptance or counter offer, the original offer is deemed to have been rejected. Once the original offer has been rejected by making a counter offer, it cannot be accepted again, unless renewed. In Hyde vs. Wrench an offer made for the sale of a farm for 1,000 pounds was not accepted in the first instance. A counter offer was made wherein the plaintiff expressed his willingness to buy the same for 950 pounds. When the counter offer was rejected, the plaintiff consented to buy the farm for 1,000 pounds which was again rejected by the defendant. A suit filed for breach of contract was not maintainable as the counter offer implied that the original offer had been rejected. Hence, there was no valid contract between the parties.

iii. The acceptance must be communicated to the offeror. The acceptance must be in the form specified or in some perceptible form if not specified. A mere intent of acceptance will not suffice. In this regard, reference may be made to an American case, Eliason vs. Henshaw the mode of acceptance as prescribed by the offeror was not adhered to. The offeree sent the letter of acceptance by post when it was required to be sent by wagon as indicated by the offeror. A deviation in the mode of acceptance clearly entitled the offeror to treat the acceptance as invalid.

2. Intention to Create Legal Relationship: The validity of a contract is dependent on the intention of the contracting parties. A contract will be valid only when the parties to the contract intend to create a legal relationship between them. Non-existence of such an intention will not give rise to a valid contract. Agreements of social nature do not contemplate legal relationship and hence they are not contracts.The parties to a contract may either specifically 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 relationship can be implied from the agreement itself.

3. Capacity to Contract: Section 10 specifies that an agreement to be a contract is too entered between the two parties who are competent to contract. The persons declared to be incompetent to contract are:a. Minors: A minor is a person under the age of eighteen years, except when a guardian of a minors person or property has been appointed by the court, in which case it is twenty-one. The purpose of declaring minors as incompetent to enter into a contract is to protect minors against their own inexperience. However, law tries not to cause unnecessary hardships to persons who deal with minors..

b. Persons of Unsound Mind: Section 12 lays down a test of soundness of mind. It states that a person is said to be of sound mind for the purpose of making a contract if, at the time of making the contract, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person who is a lunatic (who is at times of sound mind) may enter into contract in these times. Persons who have completely lost their mental powers or those who are drunken or intoxicated are incapable of entering into a contract. The question of unsoundness has to be determined based on unmistakable facts and not merely on speculation. The burden of proving insanity will be on the person who alleges it. The question whether a contract is invalidated because of unsoundness of mind will not depend upon the belief or disbelief of the witness but largely based upon the inference to be drawn from evidence.

c. Persons Disqualified by any Law to which they are Subject: The following persons are disqualified by law to enter into a contract:

1. Alien Enemies: They are those persons who are not subjects of Republic of India and the country, in which they reside, is not at peace with Republic of India. An Indian who resides voluntarily in a country hostile to India is also considered as an alien enemy. Contracts made before war may be either suspended or dissolved depending whether their performance would benefit the enemy or not.

2. A special privilege is granted to the foreign sovereigns, their diplomatic staff and accredited representatives of foreign states. Such persons can enter into contracts and enforce their performance in Indian courts. However, they cannot be sued unless these persons voluntarily submit to the Indian Law. An Indian citizen needs to obtain the permission of the Central Government to sue such a person.

3. A contract entered into by a company beyond its authority, as prescribed in its Memorandum of Association and the relevant provisions in the Companies Act, is declared as void. A company formed under the Companies Act, 1956 has a limited contractual capacity and any Act in excess of its powers whether expressly conferred on it or derived by reasonable implication from its objects clause in the Memorandum, is ultra vires the company and is void.

4. Any contract with a person adjudged insolvent is not valid. It is the official receiver or official assignee of the insolvent who can enter into contracts relating to his property and sue and be sued on his behalf.

5. A convict is incapable of entering into a contract while undergoing imprisonment. The incapacity to contract, or to sue on a contract, comes to an end when the sentence expires. Also, the convict does not suffer from the rigors of the Law of Limitation as the period of the sentence is not included in the lapsed time frame.

4. Free Consent: The fourth essential element of a valid contract is free consent. Consent is said to be free when it is not caused by any of the following:

a. Coercion (Section 15): Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain, any property to the prejudice of any person whatever with the intention of causing any person to enter into an agreement. Unlawful detaining or threatening to detain any property is also an instance of coercion. Threatening at gun-point, threatening to commit suicide and refusing to hand over the account books of a business to an agent are some of the instances which amount to coercion. The party whose consent is obtained by coercion has the right to avoid performance of the contract. In Ranganayakamma vs. Alwar Setti the question before the court was regarding the validity of the adoption of a boy by a widow aged 13 years. In the given case, the husbands dead body was not allowed to be removed for cremation until the widow adopted the boy. It was held that the adoption was brought about by coercion and was not binding.b. Undue Influence (Section 16): Undue influence is defined as follows: A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. It is to be noted that the emphasis is on the ability to dominate the will of another. Such ability is said to be existing in cases, where a person:1. Holds a real or apparent authority over the other. For example, income tax authority and assesse, police and accused;

2. Stands in a fiduciary relation (relation of trust and confidence). Fiduciary relationship implies a relationship of confidence and trust. Examples of fiduciary relationship are solicitor and client, spiritual adviser and devotee, husband and wife.

3. Makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress. The unconscientiously use by one person of power possessed by him over another in order to induce the other party to enter into a contract is referred as moral coercion and is considered as a form of undue influence. In Lakshmi Amma vs. Telengala, the executant who was aged and suffering from diabetes made a deed of settlement of the entire property in favor of one of his grandsons to the exclusion of his wife, his children and other grandchildren. The person in whose favor the deed was made was unable to prove that the executant had executed the deed without any external pressure while he was not of infirm mind and was fully aware of the dispositions. The court held the settlement deed to be invalid.

The following relationships raise the assumptions of undue influence:

Parent and child,

Guardian and ward,

Trustee and beneficiary,

Religious advisers and disciple,

Doctor and patient,

Solicitor and client, and

Fiance and fiancee.

c. Misrepresentation (Section 18): Misrepresentation is the innocent or unconscious presentation of wrong facts by one party which are taken into account by other party before entering into a contract. The person making such a misrepresentation honestly believes that such statement is true. Section 18 defines misrepresentation to be existing.1. When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be so.

2. When there is any breach of duty by a person which brings an advantage to the person committing it by misleading another to his prejudice.

3. When a party causes, however innocently, the other party to the agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

d. Fraud (Section 17):

Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance (intentional active or passive acquiescence) or by his agent with intent to deceive or to induce a person to enter into a contract. The essential ingredients of fraud as contemplated by subsection (1) are as under:

1. There must be a False Representation of a Material Fact.

2. The Representation should be made with Knowledge of its Falsity.3. The Other Party should have been induced to Enter into the Contract based on the False Representation.4. The Other Party should have relied upon the False Representation and should have been deceived.

5. LAWFUL CONSIDERATION:

Consideration is an important element of a contract. In day to day life, quite often promises are made without giving them a thought. In order to make an agreement enforceable, law requires such agreements barring a few exceptions, to be backed by consideration.

Consideration may be of following kinds:i. Executory or future consideration, in return of a promise which is to be fulfilled in future.

ii. Executed or present in which it is an act or forbearance made or suffered for a promise. For example, in a cash sale, consideration is present or executed.

iii. Past consideration is the one which pays for a past act or forbearance. An act constituting consideration which took place and is complete before the promise is made.

As per Section 23, there has to be a lawful consideration for a legal object in every contract. Hence, the following aspects should not exist in case of consideration and object for the contract to be declared as legal and binding.

1. It should not be Forbidden by Law:

2. Performance should not Defeat the Provisions of any Law

3. It should not be Fraudulent

4. It should not be Considered Immoral6. LEGAL OBJECT. The sixth essential element of a valid contract is legal object. By object it is to mean the purpose of the contract. Contracts with unlawful objects are void.

7. CERTAINTY AND POSSIBILITY OF PERFORMANCE: the agreements in which the meaning is not certain, or is not capable of being made certain, are void. The uncertainty may exist because of quality, quantity, price or title of the subject matter. The terms of contract should be certain. In Keshavlal Lallubhai Patel vs. Lalbhai Trikumlal Mills Limited, the workers of the respondent Mill went on a strike expressing their support to the Quit India Movement. As a result, the respondent mill was closed and could not supply the textile goods to the appellants as agreed. In a letter seeking extension of time the respondent mill cited the reason for the failure to supply goods and stated that the delivery time of the goods stands extended until the normal state of affairs is restored.

In Guthing vs. Lynn, the buyer of a horse agreed to pay 5 pounds extra, if the horse proved to be lucky. The agreement was held to be void for uncertainty. The definition of void agreements includes the wager agreements. Section 30 defines wager as an agreement between the parties by which one promises to pay money or moneys worth on the happening of some uncertain event in consideration of the other parties promise to pay if the event does not happen.RESTITUTION: When a contract becomes void, any benefit derived out of the contract by one party is required to be restored to the other. It is significant to note that the law of restitution covers only benefits received and not losses incurred. The principle of restitution is that the defendant who has been unjustly enriched at the expense of the plaintiff is required to make restitution to the plaintiff. There cannot be restitution where the parties are wholly incompetent to contract (where one of the parties is minor). Section 65 which deals with restitution applies to contracts discovered to be void and contracts which become void. A person who has received a benefit under any such contract will have to restore the benefit to the person from whom it was received. In Dharamsey vs. Ahmedbhai, a person hired a godown for a period of 12 months by paying an advance for the entire period. When a fire broke out in the godown he was entitled to claim a proportionate amount of rent paid in advance.CONTINGENT CONTRACTS: Section 31 of the Act provides for such contracts and defines it as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. In Muthu vs. Secretary of State, a person was the highest bidder for a house which was put up for sale. However, one of the conditions was that the sale could be confirmed only if the Collector authorizes it. The Collector declined to confirm the sale. It was held that there was no contract. The event on which the happening of the contract is dependent should be uncertain. Further, the event should be collateral to the contract. The event should not form part of the consideration of the contract though the contract is made to depend upon it. Contracts of indemnity and insurance are examples of contingent contracts.PERSONS WHO ARE REQUIRED TO PERFORM CONTRACTS: Where personal considerations form the basis of a contract, the promisor alone should perform the contract. Where personal considerations do not form the basis of a contract, then the contract may be performed by the promisor or his agent or legal representatives of the promisor in the event of his death.

Time and Place of Performance: A contract, which does not specify the time for performance should be performed within a reasonable time. When a promise is to be performed on a certain day, and the promisor has undertaken to perform it, without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it, without application by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business. A contract should be performed in the manner and at the time prescribed in the contract.

Devolution of Joint Rights and Liabilities: Where a joint promise is made, the promisee may compel any one of the joint promisors to perform the whole of the promise. The joint promisor, who performs the contract, may claim contribution from the other joint promisors. Where any of the joint promisors defaults in making his contribution, then the other joint promisors will have to bear even the defaulted amount equally.

Appropriation of Payments: Where several debts are owed and where payment made is insufficient to discharge the debt, the debtor may intimate the creditor as to the nature of appropriation. In such a case, the creditor should follow the directions issued by the debtor. Assignment of Contracts: Assignment of a contract means the transfer of rights and liabilities arising out of the contract in favor of a third person either with or without the concurrence of other party to a contract. An assignment may take place either by the act of the parties or by operation of law.

Discharge of Contract: We now come to the last stage of contracts. A contract is said to be discharged when the rights and liabilities created by such contract come to an end. Contracts may be discharged or terminated by:1. Performance of the contract, or

2. By mutual consent, or

3. By lapse of time (by limitation), or

4. By operation of law, or

5. Impossibility of performance, or

6. By breach of contract.

Each of the various modes of discharge of contract is explained below:

1. Performance of Contract: The most obvious and meaningful way to discharge a contract is to fulfill the terms and conditions agreed by each of the parties in the contract. Section 38 provides for tender of performance. As per this section if the promisor offers to perform his side of the contract, but the promisee does not accept his performance the promisor is discharged from his liability. This is known as attempted performance. The promisor may sue the promisee for the breach of contract, if he so desires.

2. Discharge by Mutual Agreement or Consent: The contract may be terminated by mutual consent of both the contracting parties. Various cases of discharge by mutual agreement are specified in Section 62 and Section 63. Section 62 provides about the effect of novation as to where a new contract is substituted for an existing contract by mutual agreement of both the parties, the new contract is basically agreed upon to adjust the remedial rights arising out of the breach of the old contract.

3. Discharge by Lapse of Time: Any contract cannot be extended indefinitely. The Limitation Act, 1963 provides for a certain time frame within which the contract has to be performed (called period of limitation). If no action is taken by the contracting parties within the period of limitation, no remedy at law will be available. It provides for a definite time frame within which, the deprived party may seek remedy at law.

4. Discharge by Operation of Law: A contract may be discharged by the operation of law in any of the following ways:

i. By Merger: When the parties agree to include the previous inferior contract in a superior contract.

ii. Law does not permit any unauthorized alteration of the terms of a written agreement. Any such act by any one of the parties will automatically make the contract as discharged by operation of law.

iii. By Insolvency: When a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication.

iv. Death: Where a contract is entered into, based on personal consideration and where it is required that performance of the contract should be made by the promisor in person, the contract will be discharged on the death of the promisor.

5. Discharge by Impossibility of Performance: A contract which is clearly impossible to perform is discharged. A contract which has its subject as an act, which is impracticable to perform by either of the parties is assumed to be impossible to perform and hence the contract is discharged. Section 56 states that a contract which is made impossible to perform due to subsequent changes is taken as void and hence discharged. This is known as, supervening impossibility or supervening illegality.6. Discharge by Breach of Contract: Breach of contract is often referred as the easiest way of discharging a contract. When either of the parties does not fulfill the duties and liabilities prescribed by the contract, the contract is said to be breached. There are two types of breach of contract:i. Actual breach of contract. Actual Breach of contract may take place in two instances:

a. When the performance is actually due

b. During the actual performance of the contract.

ii. Anticipatory breach of contract. Anticipatory breach of contract is stated to have occurred if a breach has been committed before the time for performance. When a party explicitly denies or abstains from performing the contract or does some definite act, which makes the performance impossible, then such a breach is an anticipatory breach of contract.REMEDIES FOR BREACH OF CONTRACT: The following alternatives are available for the injured party in case of a breach of contract.a) Rescission: The injured party can rescind the contract and refuse the performance of contract.

b) Restitution: As per Section 65, when a party treats the contract as rescinded, he makes himself liable to restore any benefits that he has received, under the contract to the party from whom such benefits were received. The court may refuse to rescind the contract where the plaintiff has expressly or impliedly ratified the contract or where only a part of the contract is sought and such part is not severable from the rest of the contract. Section 75 provides relief to the person who sustains damages through non-fulfillment of the contract by entitling him to claim compensation for the same.

c) Claim Damages: Section 73 deals with the compensation for loss or damage caused by breach of contract. The foundation of the claim for damages rests in the celebrated case of Hadley vs. Baxendale (1854). The facts of the case are: A delivered a defective shaft in his mill to B, a manufacturer, for making a new shaft-identical to the one that is sent. A did not make known to B that delay would result in loss of profits. B by his neglect delayed the delivery of the shaft beyond a reasonable time. As a result the mill was idle for a longer period than it would otherwise have been, had there been no such delay. It was held, B was not liable for the loss of profits during the period of delay as the circumstances communicated to A did not show that the delay in the delivery of the shaft would entail loss of profits to the mill. Damages cannot be awarded if the injured party did not take any reasonable steps for the loss to be avoided. Section 74 allows for agreement of a sum to be paid as damages in case of breach of such contract. If the contract contains any stipulation by way of a penalty for failure to perform the obligations, the aggrieved party is entitled to receive from the party who has broken the contract. The damages are classified into four categories:

i. General or Ordinary Damages: These are damages which naturally arise in the usual course of things from such breach. General Damages are usually assessed based on the actual loss suffered. The main aim of providing general damages is to compensate the aggrieved party and not to punish the party which is at fault.

ii. Special Damages: These are awarded from a breach of contract under some peculiar circumstances. At the time of entering into the contract the party has notice of special circumstances, which makes special loss, the likely 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. In Simpson vs. London and N W Rail Co, Simpson entrusted a few specimens of his goods to an agent of a railway company in order that the same be delivered at New Castle where an agricultural show was to be held. The consignment note clearly specified that the delivery was to be made in time. Because of default by the railway company, the samples arrived late for the show. It was held that Simpson could claim damages for loss of profits.

iii. Vindictive or Exemplary Damages: These are discouraged by court of law. However, in case of breach of a promise to marry and dishonor of cheque by banker wrongfully when he possesses sufficient funds to the credit of the customer, exemplary damages are awarded.

iv. Nominal Damages: These are awarded merely to acknowledge that the plaintiff has proved his case. Nominal damages are not awarded to compensate for the damages.

Q3 what are the rights of a finder of a good under the Indian contract Act?RIGHTS OF FINDER OF GOODS: When a person finds an article and takes it into his custody, he assumes the role of a bailee. He then has the same responsibilities like any other bailee. We shall now discuss the rights available to him:i. According to Section 168, the finder of goods can exercise lien over the goods till the owner reimburses the expenses incurred for the safe custody of the goods.

ii. Where 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:

If the owner cannot be found provided the bailee has made reasonable efforts;

If the owner refuses, upon demand, to pay the lawful charges of the finder;

The article is of perishable nature or that, which loses most of its value with passage of time; orIf the lawful charges of the finder in respect of the goods found, amount to two thirds of their value.Contracts of Indemnity: According to Section 124, a contract by which, one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is called a contract of indemnity. The person who promises or makes good the loss is called the indemnifier (promisor) and the person whose loss is to be made good is called the indemnified or indemnity holder (promisee). A contract of insurance is an example of a contract of indemnity according to English Law. In consideration of a premium the insurer promises to make good the loss suffered by the assured on account of the destruction by fire of his property insured against fire. However, 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 pay a certain sum of money either on the death of a person or on the expiry of a stipulated period of time. The question of having suffered a loss does not arise. Moreover, as the life of a person cannot be valued, the whole of the sum assured becomes payable and for that reason also it is not a contract of indemnity.

The contract of indemnity in a real sense is a contingent contract. It must have all essentials of valid contract. It can be expressed or implied. It is relevant to discuss following cases in this regard:

The case of Goulston Discount Co. Ltd. vs Clark (1967), is an explicit example of express contract of indemnity.A and B go into a shop. B says to the shopkeeper let him (A) have the goods, I will see you paid. The contract is one of indemnity.

The case of Adamson vs Jarvis (1927) explains an implied contract of indemnity.

A on the instruction of T, sold certain cattle belonging to O. O held A liable for it and recovered damages from him for selling it. It was held that A could recover the loss from T, as a promise by T to A from any such loss would be implied from his conduct in asking A to sell the cattle.

The definition given in Sections 124 and is 125 of the Contract Act are not exhaustive of the law of indemnity as it does not include implied promises to indemnify and cases where loss arises from accidents and events that are not depending on the conduct of the promisor or any other person. Certain rights have been granted to the indemnity holder under Section 125.

Rights of Indemnity Holder When Sued: The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor:a. all damages within the scope of the terms of the indemnity;

b. all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the indemnifier authorized him to bring or defend the suit; and c. All sums to be paid under the terms of any compromise of any such suit, providedthe compromise is not contrary to the orders of the indemnifier, and should be authorized by him.

Though the Indian Contract Act does not grant specific rights to the indemnifier, we can however, as in English Law, draw the rights of the indemnifier to be the same as those of the surety which are detailed in the foregoing parts.

The Indian Contract Act does not specify the time of commencement of the indemnifiers liability. Different courts have been following different rules with regard to this. Some courts contend that the indemnifiers liability will begin only when the indemnity holder actually suffers a loss. On the other hand, some have held that an indemnity holder may compel an indemnifier to fulfill his promise even before actually incurring the loss. Buckley L J in Richardson, ex parte etc. made the following observation Indemnity is not given by repayment after payment. Indemnity requires that the party to be indemnified shall never be called upon to pay. Contracts of Guarantee: Section 126 deals with contract of guarantee. According to this Section contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety, the person in respect of whose default the guarantee is given is called the principal debtor, and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written.The purpose of a contract of guarantee is to provide additional security to the creditor in the event of default by the principal debtor. In a contract of guarantee, there are three parties, i.e., the creditor, the debtor and the surety. Also, 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).

It should also be noted that a contract of guarantee presupposes the existence of a debt. If 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.

KINDS OF GUARANTEE: A guarantee may be given retrospectively for an existing debt, or for future debt, or for the good conduct or honesty of an employee, in which case the guarantee is called a fidelity guarantee.A guarantee may also be specific or continuing guarantee. A specific guarantee is one which is given for a specific debt, and comes to an end when the debt is paid. A continuing guarantee relates to a series of transactions where the surety remains liable for a fixed sum till the continuance of guarantee. However, a continuing guarantee can be revoked by the surety by giving due notice to the creditor. This can be explained by referring to the case Wingfield vs de St Croix. In this case, the creditor (C) let out his cottage to the principal debtor (P) on the condition that rent would be paid initially for three months and thereafter from week to week. S, who was the surety, guaranteed the payment of rentals by P to C. After four months, the surety revoked his guarantee by giving notice to the creditor. It 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.

A continuing guarantee may also be revoked by any of the modes:

a. novation;

b. variance in the terms of the contract;

c. discharge of the principal debtor;

d. compounding with the principal debtor;

e. creditors act or omission impairing suretys eventual remedy; and

f. Loss of security.

The following illustration discusses the case of continuing guarantee: A, in consideration that B will employ C in collecting the rents of Bs zamindari, promises B to be responsible, to the amount of Rs.5, 000 for the due collection and payment by C of those rents. This is a continuing guarantee. Just like other contracts, a contract of guarantee should also be supported by consideration. Inadequacy of consideration is not a criterion to judge the validity of a contract of guarantee. The only requirement is that there should be some consideration. Further, it is not necessary that consideration should have passed between the creditor and the surety. It is sufficient that the creditor has done something for the benefit of the debtor. Past consideration will not be treated as good consideration for a contract of guarantee.

CONSIDERATION OF GUARANTEE:Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.

It is relevant to discuss following illustrations in this regard: B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of As promise to deliver the goods. This is a sufficient consideration of Cs promise.

A sells and delivers goods to B. C afterwards, without consideration agrees to pay for them in default of B. The agreement is void.

In a contract of guarantee it is not necessary that all the material facts be disclosed unless it is in nature of insurance. In other words a contract of guarantee is not a contract of Uberrimae Fidei.

The following case aptly describes this. London General Omnibus Co. vs. Holloway (1912) C engaged P as a clerk to collect money for him. P misappropriated some of Cs receipts and failed to account for them. This sum was made good by Ps relations and C agreed to retain P in his service on having a fidelity guarantee. S gave his guarantee for Ps duly accounting. C did not acquaint S with Ps previous dishonesty. Held, the guarantee could not be enforced against S owing to the non-disclosure of Ps previous dishonesty.

BAILMENT & PLEDGE of GOODS: Bailment and Pledge are special types of contracts which are regulated by Sections 148 to 181 of the Indian Contract Act, 1872. The word bailment takes its roots from the French word bailor which means to deliver. According to Section 148, bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor and the person to whom they are delivered is called the bailee.The following case and illustrations explain the concept of bailment clearly.N R Srinivasa Iyer vs New India Assurance Co. Ltd. (1983) An insurance company places a damaged insured car of A in possession of R, a repairer. A is the bailor, the insurance company is the bailee, and R is the sub-bailee. It is not necessary that a contract be entered for a bailor and bailee relationship to be formed. Essentials of a bailment can be summarized as under:a. Firstly, there should be delivery of goods for some purpose. The delivery of goods should not be accompanied by transfer of ownership.

b. Secondly, the goods should either be returned to the bailor after the purpose has been accomplished or it should be disposed of according to the bailors directions. Classification of Bailment: Bailments may be for,

i. exclusive benefit of the bailor;

ii. exclusive benefit of the bailee;

iii. mutual benefit of the bailor and the bailee;

iv. gratuitous bailment; where there is no consideration between the parties; and

v. Non-gratuitous bailment or bailment for reward.Duties and Rights of Bailor and Bailee:

DUTIES OF A BAILOR:I. The bailor is bound to disclose, all the faults in the goods bailed to the bailee, of which the bailor is aware, and that which materially interferes with the use of the goods, or exposes the bailee to extraordinary risks. If he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

II. In a contract of bailment, the bailee will have to bear all the ordinary expenses incurred, while the bailor will be responsible for any extraordinary expenses incurred by virtue of the bailment. In case of a gratuitous bailment, it is the duty of the bailor to bear the ordinary and reasonable expenses incurred by the bailee.

III. The bailor is responsible to the bailee for any loss sustained by him in the following instances:

Where the bailor is not entitled to make the bailment, or to receive back the goods, or to give directions, regarding them.

Premature termination of a gratuitous bailment.

IV. It is the duty of bailor to receive back the goods after the purpose is achieved. Rights of Bailor: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 (Section 153).

iii. Emand return of goods lent gratuitously.

iv. The bailor can sue a third party who by his act causes any injury or deprives the bailee the possession and use of goods bailed.

DUTIES OF BAILEE:I. The bailee is duty bound to take reasonable care of the goods bailed, as he would in similar circumstances take care of his own goods. According to Section 151, the bailee should take such care of the goods as a man of ordinary prudence would take of his own goods. If the bailee has not acted in a prudent manner, he cannot be excused by pleading that he had taken 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 knowledge that his goods were being kept in a negligent manner.

II. The bailee should not make any unauthorized use of goods.

III. The bailee should not mix the goods of the bailor with his own goods, but keep them separate from his own goods. Where the bailee mixes the bailors goods with those of his own with the bailors consent, then the bailor and the bailee shall have an interest in the mixed goods in proportion to their respective shares. Where he mixes the goods without the consent of the bailor, two possibilities may arise:

The goods can be separated.

The goods cannot be separated

Where the goods can be separated: Where the goods of the bailor and the bailee can be separated, then they will remain the owners in accordance with their respective shares. However, the costs of separation as well as any damage arising from the mixture will have to be borne by the bailee.

When the goods cannot be separated: The bailor can recover damages from the bailee for the loss of the goods.

If, by mistake on the part of the bailee or by accident or by an act of God or by the act of an unauthorized third party, goods of the bailor get mixed up with like goods of the bailee, then the mixture belongs to the bailor and bailee in proportion to their shares but the cost of separation will have to be borne by the bailee.

IV. The bailee should not set up an adverse title of the goods bailed claiming them to be his.

V. The bailee not only has to return the goods bailed but also any accretion to the goods.

Rights of Bailee: The duties of the bailor are the rights of the bailee:i. Delivery of goods to one of several joint bailors of goods.

According to Section 165, in case of several joint owners of goods, the bailee may deliver them back 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. Delivery of goods to bailor without title.

According to Section 166, if the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to the directions of, the bailor, the bailee is not responsible to the owner in respect of such delivery. iii. Right to apply to court to stop delivery, where it is claimed by a person other than the bailor.

According to Section 167, if a person other than the bailor claims the goods bailed, the bailee may apply to the court to stop the delivery of the goods to the bailor, and to decide the title to the goods.

iv. Right of action against trespassers.

According to Section 180, if a third person wrongfully deprives the bailee of the use or possession of the goods bailed to him, he has the right to bring an action against that party. The bailor can also bring a suit in respect of the goods bailed. In Purushottam Das Banarsi Das vs Union of India delivery of certain goods were obtained by a person on a forged railway receipt. The said person later pledged the goods with a third party. It was held that the railway authorities could recover the same from the third party.

v. The bailee is also entitled to recover necessary expenses incurred on bailment. He can also recover compensation from the bailor in case he incurs a loss owing to the defective title of the bailor.

vi. Retain the goods (lien) till his dues are paid, in other words the bailee can exercise a general lien. The bailee may also exercise a particular lien when the contract requires him to use his skills.

Q4 For every valid agreement there should be a consideration. Comment

LAWFUL CONSIDERATION: Consideration is an important element of a contract. In day to day life, quite often promises are made without giving them a thought. In order to make an agreement enforceable, law requires such agreements barring a few exceptions, to be backed by consideration. Consideration may be of following kinds:i. Executory or future consideration, in return of a promise which is to be fulfilled in future.

ii. Executed or present in which it is an act or forbearance made or suffered for a promise. For example, in a cash sale, consideration is present or executed. iii. Past consideration is the one which pays for a past act or forbearance. iv. An act constituting consideration which took place and is complete before the promise is made. As per Section 23, there has to be a lawful consideration for a legal object in every contract. Hence, the following aspects should not exist in case of consideration and object for the contract to be declared as legal and binding. It should not be Forbidden by Law Performance should not Defeat the Provisions of any Law It should not be Fraudulent It should not be Considered ImmoralLEGAL OBJECT: The sixth essential element of a valid contract is legal object. By object it is to mean the purpose of the contract. Contracts with unlawful objects are void.

CERTAINTY AND POSSIBILITY OF PERFORMANCE: the agreements in which the meaning is not certain, or is not capable of being made certain, are void. The uncertainty may exist because of quality, quantity, price or title of the subject matter. The terms of contract should be certain. In Keshavlal Lallubhai Patel vs. Lalbhai Trikumlal Mills Limited, the workers of the respondent Mill went on a strike expressing their support to the Quit India Movement. As a result, the respondent mill was closed and could not supply the textile goods to the appellants as agreed. In a letter seeking extension of time the respondent mill cited the reason for the failure to supply goods and stated that the delivery time of the goods stands extended until the normal state of affairs is restored.

In Guthing vs. Lynn, the buyer of a horse agreed to pay 5 pounds extra, if the horse proved to be lucky. The agreement was held to be void for uncertainty. The definition of void agreements includes the wager agreements. Section 30 defines wager as an agreement between the parties by which one promises to pay money or moneys worth on the happening of some uncertain event in consideration of the other parties promise to pay if the event does not happen.

RESTITUTION: When a contract becomes void, any benefit derived out of the contract by one party is required to be restored to the other. It is significant to note that the law of restitution covers only benefits received and not losses incurred. The principle of restitution is that the defendant who has been unjustly enriched at the expense of the plaintiff is required to make restitution to the plaintiff. There cannot be restitution where the parties are wholly incompetent to contract (where one of the parties is minor). Section 65 which deals with restitution applies to contracts discovered to be void and contracts which become void. A person who has received a benefit under any such contract will have to restore the benefit to the person from whom it was received. In Dharamsey vs. Ahmedbhai, a person hired a godown for a period of 12 months by paying an advance for the entire period. When a fire broke out in the godown he was entitled to claim a proportionate amount of rent paid in advance.

CONTINGENT CONTRACTS: Section 31 of the Act provides for such contracts and defines it as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. In Muthu vs. Secretary of State, a person was the highest bidder for a house which was put up for sale. However, one of the conditions was that the sale could be confirmed only if the Collector authorizes it. The Collector declined to confirm the sale. It was held that there was no contract. The event on which the happening of the contract is dependent should be uncertain. Further, the event should be collateral to the contract. The event should not form part of the consideration of the contract though the contract is made to depend upon it. Contracts of indemnity and insurance are examples of contingent contracts.PERSONS WHO ARE REQUIRED TO PERFORM CONTRACTS: Where personal considerations form the basis of a contract, the promisor alone should perform the contract. Where personal considerations do not form the basis of a contract, then the contract may be performed by the promisor or his agent or legal representatives of the promisor in the event of his death.

Time and Place of Performance: A contract, which does not specify the time for performance should be performed within a reasonable time. When a promise is to be performed on a certain day, and the promisor has undertaken to perform it, without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it, without application by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business. A contract should be performed in the manner and at the time prescribed in the contract.

Devolution of Joint Rights and Liabilities: Where a joint promise is made, the promisee may compel any one of the joint promisors to perform the whole of the promise. The joint promisor, who performs the contract, may claim contribution from the other joint promisors. Where any of the joint promisors defaults in making his contribution, then the other joint promisors will have to bear even the defaulted amount equally.

Appropriation of Payments: Where several debts are owed and where payment made is insufficient to discharge the debt, the debtor may intimate the creditor as to the nature of appropriation. In such a case, the creditor should follow the directions issued by the debtor. Assignment of Contracts: Assignment of a contract means the transfer of rights and liabilities arising out of the contract in favor of a third person either with or without the concurrence of other party to a contract. An assignment may take place either by the act of the parties or by operation of law.

Discharge of Contract: We now come to the last stage of contracts. A contract is said to be discharged when the rights and liabilities created by such contract come to an end. Contracts may be discharged or terminated by: Performance of the contract, or

By mutual consent, or

By lapse of time (by limitation), or

By operation of law, or

Impossibility of performance, or

By breach of contract. Each of the various modes of discharge of contract is explained below:

1. Performance of Contract: The most obvious and meaningful way to discharge a contract is to fulfill the terms and conditions agreed by each of the parties in the contract. Section 38 provides for tender of performance. As per this section if the promisor offers to perform his side of the contract, but the promisee does not accept his performance the promisor is discharged from his liability. This is known as attempted performance. The promisor may sue the promisee for the breach of contract, if he so desires.

i. Discharge by Mutual Agreement or Consent: The contract may be terminated by mutual consent of both the contracting parties. Various cases of discharge by mutual agreement are specified in Section 62 and Section 63. Section 62 provides about the effect of novation as to where a new contract is substituted for an existing contract by mutual agreement of both the parties, the new contract is basically agreed upon to adjust the remedial rights arising out of the breach of the old contract.

ii. Discharge by Lapse of Time: Any contract cannot be extended indefinitely. The Limitation Act, 1963 provides for a certain time frame within which the contract has to be performed (called period of limitation). If no action is taken by the contracting parties within the period of limitation, no remedy at law will be available. It provides for a definite time frame within which, the deprived party may seek remedy at law.

iii. Discharge by Operation of Law: A contract may be discharged by the operation of law in any of the following ways:

i. By Merger: When the parties agree to include the previous inferior contract in a superior contract. ii. Law does not permit any unauthorized alteration of the terms of a written agreement. Any such act by any one of the parties will automatically make the contract as discharged by operation of law. iii. By Insolvency: When a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication. iv. Death: Where a contract is entered into, based on personal consideration and where it is required that performance of the contract should be made by the promisor in person, the contract will be discharged on the death of the promisor. Q5 Explain the rights of an unpaid seller under Indian sales of goods Act.DEFINITIONS:

1. Buyer means a person who buys or agrees to buy goods;

2. Delivery means voluntary transfer of possession from one person to another;

3. Goods are said to be in a deliverable state when they are in such state that the buyer would under the contract be bound to take delivery of them;

4. Document of title to goods includes bill of lading, dock-warrant, warehouse keepers certificate, harbingers certificate, railway receipt, [multimodal transport document,] warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented;

5. Fault means wrongful act or default;

6. Future goods means goods to be manufactured or produced or acquired by the seller after making of the contract of sale;

7. Goods means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

8. A person is said to be insolvent who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not;

9. Mercantile agent means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods;

10. Price means the money consideration for a sale of goods;

11. Property means the general property in goods, and not merely a special property;

12. quality of goods includes their state or condition;

13. Seller means a person who sells or agrees to sell goods;

14. Specific goods means goods identified and agreed upon at the time a contract of sale is made; and

15. Expressions used but not defined in this Act and defined in the Indian Contract Act, 1872, have the meaning assigned to them in that act. Rights Of An Unpaid Seller Against The Goods: The term unpaid seller is defined by Section 45 of the Sale of Goods Act, 1930. As per this section, the seller of goods is deemed to be an unpaid seller within the meaning of the Act.

1. When the whole of the price has not been paid or tendered.

2. When a bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.

Rights of an Unpaid Seller: As per Subsection (1) of Section 46, subject to the provisions of this Act and of any law for the time being in force notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law,1. A lien on the goods for the price while he is in possession of them.

2. In case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them.

3. A right of re-sale as limited by this Act.

Where the property in goods has not passed to the buyer the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer. [Section 46(2)]Section 46(1) will be applicable only if the plaintiff proves that:

a. He is an unpaid seller.

b. The buyer is insolvent.

c. The goods were in transit.

d. The property in the goods has passed to the buyer. Unpaid Sellers Lien (Section 47):

1. Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely

a. Where the goods have been sold without any stipulation as to credit.

b. Where the goods have been sold on credit, but the term of credit has expired.

c. Where the buyer becomes insolvent

2. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as an agent or bailee for the buyer. In Imperial Bank vs. London & St Katherine Dock Co., it was held that even though the delivery of a bill of lading transfers legal property, it does not affect the sel