Business & Labor Law Asign #1

8/14/2019 Business & Labor Law Asign #1

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Business Labour Laws Code 824 Assignment No.1

Q.#.1. IN WHAT WAYS AN OFFER CAN BE COMMUNICATED,ACCEPTED AND REVOKED?

ANSWER

PROPOSAL OR OFFER (Sec.2(a)For a valid contract it is essential that there must be consensus betweenthe contracting parties by means of offer and acceptance. An agreementarises when one party makes an lawful offer and the other party to whomit is made accept it in lawful manner. So offer and acceptance areessential to constitute a valid agreement.

DEFINITION: According to sec 2(a) of the contract act 1872:

When one person signifies to another his willingness to do, or to abstainfrom doing any thing with a view to obtaining the assent of that other to

such act or abstinence, he is said to make a proposal. Now it isunderstood, that an offer is made with the object to obtain the assent ofother person and its main purpose is to create relationship betweencontracting parties.

PARTIES OF OFFER:

There are two parties of an offer:i. Promisor / OffererThe person who makes the proposal or offer is called offerer or Promisor.

ii. Promisee / OffereeThe person to whom the proposal is made called Offeree or promise.

Illustration:

Suppose A offers B to purchase his car for Rs.150000. Here A is promisorand B is promisee.

[email protected] Page 1 of 33 03335494977

Types of Proposals

Express Implied Special GeneralProposal Proposal Proposal Proposal
mailto:[email protected]:[email protected]


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i) Express Proposal:When a proposal is communicate by words spoken or in written form iscalled express proposal.

ii) Implied Proposal:When the proposal is expressed by the conduct. It is called impliedproposal.

iii) Specific Proposal:When a proposal is made to certain or specific person it is called asspecified proposal. It can be accepted only by a specific person.

iv) General Proposal:When a proposal is made to a country or world at large it is knows asgeneral proposal.

ESSENTIALS OF VALID PROPOSAL:Following are the rules or essentials of valid proposal:

1. Express or Implied:

An offer may be communicate in writing, orally or by conduct. When offeris made by words spoken or written is called express offer. The offerwhich is made by the conduct of a person is called an implied offer.

Illustration:

(i) The owner of the weighting machine gives offer to general publicthrough his conduct by putting the weighing machine at nay publicplace. It is an example of implied offer.

(ii) X says to Y that the will sell his watch to him for Rs.5000 after twodays. It is an express offer.

2. Legal Relationship:

It is essential for valid proposal that it must create a legal relationshipotherwise it is only an invitation. A social offer does not create a legalrelationship. A proposal made without an intention to create legalrelationship is not a valid offer. Legal relationship determine the rightsduties and obligation of the contracting parties.



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Illustration:

(i) Ali invites Arif to attend his birthday party at Avari Hotel. It is asocial offer which do not create legal obligation.

(ii) X offers to sel his car to Y at a price of Rs.100000. It is a valid offerwhich creates legal relationship.

3. Specific or General Proposal:

An offer may be made either to specific person or persons or to thecountry or world at large. A proposal is called specific when it is made toa certain person and when proposal is made to country or world it iscalled general proposal. In specific offer it must be accepted by the sameperson to whom it is made.

Illustration:

(i) Mr. Akram announces a prize of Rs.1000 for any one who will findhis lost documents. It is a general offer.

(ii) Mr. Akram offers to sell his watch to Ali for Rs.2000. It is a specificoffer.

4. Precise and Definite:

An offer must be precise and definite. If the proposal is indefinite then itis not consider a valid proposal. An ambiguous or vague offer is considerinvalid offer. The terms and conditions of the proposal must be simpleclear and understandable, so that the persons involves in agreementmust be aware of it.

Illustration:

Ali says to Arif I will sell my precious item to you at a very low price. Itis not a valid offer because nature and price of item is not clear.

5. Communication of Offer:

It is an important factor of offer that it must be communicated to theother party without communication. Mere intention does not createagreement. So the offer must be in the notice of offeree before itsacceptance.



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Illustration:

(i) Mr. A have just intention to sell his VCR to B for Rs.5000 and fails tocommunicate offer in writing, orally or by conduct, then there is novalid proposal.

(ii) As nephew was missing. He sent B his servant to trace the boy,subsequently A announced a reward for information relating to theboy. B traced the boy in ignorance of the announcement regardingaward. Later on reading the notice of award B claimed it. Held Bwas not entitled to the award on the ground that he could notaccept the offer unless he had knowledge of it.

6. Lawful Proposal:

The proposal must fall under the law of state and it should not against thepublic interest. If proposal is against the law of state then it will notenforceable at law.

Illustration:

(i) An offer to create Monopoly.(ii) An offer to trade with Alien enemy.

7. Object is obtaining the Consent:

Where a person just show his intention without any willingness to obtainthe assent of offeree, is not consider a valid offer. So the object of theproposal should be to obtain the free consent of the other party.

Illustration:

(i) A says to B, I will sell my VCR at a reasonable price in next fewmonths. If my mood will good. It is not a valid offer by A.

(ii) A says to B. I will sell my VCR to you for Rs.5000. it is a valid offer

of Mr. A.

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55555555555SYSTEM55555555555555555555555555555555555555555555555555555555555s acceptance. In simple words the person making an offer cannot saythat if the acceptance is not communicated to him up to a certain time,the offer would be treated to have been accepted.

Illustration:

X offers to Y to sell his watch to him at a price of Rs.2000, adding that ifhe does not replay within ten days, the offer would be consideredaccepted. It is only one side offer because such condition cannot beimposed on the offeree, so it is not a valid offer.

10. Distinction between Offer and Invitation to Offer:

A proposal must be different from an invitation to offer. An invitation to

offer is not treated as offer in the eye of law because proposal or offer isdifferent from invitation to proposal. An invitation to proposal is justinviting the other person to show his willingness to do or not to doanything. Son a offer must not be an invitation to offer.

Illustration:


Types of Proposals


Types of Proposals



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An advertisement of sale of a car by auction, invitation by tender,issuance of prospectus by educational institution and quotation are onlyinvitation to offer and not offer.

REVOCATION OF PROPOSAL OR OFFER:

According to contract act an offer may revoke in following circumstances:

1. Notice of Revocation: (Sec.6(1))

Revocation means the cancellation. A proposal is revoked by thecommunication of notice of revocation by the offeror to the other party.The offeror can cancel its offer even the time for acceptance is still un-expired. An offer once revoked cannot be accepted until its renewed byofferor.

Illustration:

X proposes, by a letter sent by post, to sell his VCR to Y, X may revokehis proposal at any time before or at the moment when Y posts his letterof acceptance, but not afterwards.

2. Lapse of Time: (Sec.6(2))

A proposal is revoked by the lapse of time prescribed in proposal for itsacceptance. Where no time is prescribed, by the lapse of reasonable time

without communication of the acceptance, the proposal may comes to anend. So proposal must be accepted to the time specified by the offeror. Reasonable time is depend upon the circumstances. In case ofperishable goods time is obviously very short.

Illustration:

On Thursday a seller offers Rice to a buyer and gave him three days foracceptance. The buyer accepted offer after ten days. After waiting forthree days the seller sold the Rice. Offer has lapsed by ten days and

seller is not bound, to sell the rice to such buyer.

3. Failure of Acceptor to Meet Conditions: (Sec.6(3)).

A proposal is revoked by the failure of acceptor to fulfill conditionprecedent to acceptance. Every proposal contains some conditions and fora valid agreement their acceptance must be made according to



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requirement of proposal. So an offeror can terminate the offer due tofailure of acceptor to meet required condition.

Illustration:

A seller agrees to sell T.V. to B on condition that buyer should pay theprice before a particular date. The buyer fails to pay the price on due datethe offer comes to an end.

4. Death or Insanity of Proposer and Acceptor: (Sec.6(4))

A proposal is revoked by the death or insanity of the proposer if the factof his death or insanity comes to the knowledge of the acceptor beforeacceptance. In simple words where the offeror is died before acceptanceof the offer may comes to an ends provided that death must be in the

notice of offeree. If offeree is died before acceptance, the proposal maycancel. But where the offeree is died before acceptance of the proposal,then his executors will liable for the contract.

Illustration:

X owned certain debentures of a company. Y offered to buy them. X diedwithout accepting the offer. Held, the death of X terminated the offer tobuy and his administrator after Xs death could not accept.

5. Counter Offer:

If offeror accept the counter offer, then it creates a legal obligation andthe contract will enforceable at law. An offer is revoked when a counteroffer is made by the other party. Counter offe7777777777777777777n. An offer is counter when it is accepted withsome amendment in the terms and conditions are attached by theofferee. This type of offer is called counter offer.

6. Revocation by Sending Refusal:

An offer lapses when offeree rejects it by sending refusal. A rejected offercannot be accepted unless it is renewed by the offeror.

Illustration:

X offers to Y to sell his car for rupees two hundred thousands. The marketvalue of the car is Rupees three hundred thousand. Y refuses and doesnot accept the offer. There is revocation of offer.



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7. Subsequent Illegality:

The offer comes to an end when performance of contract becomes illegalafter offer is made. An offer may also be terminate, when it becomes

illegal due to incapability of performance or change in law before itsacceptance.

8. Destruction of Subject matter:

The proposal or offer comes to an end after the destruction of the subjectmatter. The subject matter is the reason of offer given by the offeror. Soexistence of subject matter is necessary for an agreement.9. Acceptance in Prescribed Mode:

When the offeror mention the prescribe mode for the acceptance ofproposal, then for valid acceptance it is necessary that acceptance shouldbe made in the required manner. If the acceptance is not made in aprescribe way, the offeror may cancel the acceptance. Where no prescribeway is mention by the offeror, then acceptance should made according tonormal trends and customs.

Illustration:

X offers to purchase Ys car and impose a condition that to intimate himby a phone call within two days. If Y accept the offer by sending a letter

which receives by X after three days, X may reject the offer.

ACCEPTANCE: Sec 2(b)

Section 2(b) of contract act defines Acceptance when the person towhom the proposal is made signifies his assent thereto the proposal issaid to be accepted. A proposal when accepted becomes a promise. Soevery contract arises from the acceptance of offer.

Illustration:

A offer B to sell his watch for Rs.2000. B accept the offer. This is validacceptance.

Parties of Acceptance:

(i) Promisor:



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The person making the proposal is called Promisor.(ii) Promisee:

The person to whom the proposal is made is called Promisee.

Q.#.2. DISCUSS IN DETAIL THE RIGHTS AND OBLIGATIONSOF PARTNERS BEFORE AND AFTER THE DISSOLUTION

OF A PARTNERSHIP FIRM.ANSWER

DISSOLUTION OF A FIRM

When a partnership is dissolved, all the liabilities of the firm are paid, out of theassets of the firm, available at the time of dissolution. The remaining amountafter paying all the liabilities, if available, will be distributed among the partnersin their profit loss sharing ratios. If assets of the firm are not sufficient to pay allthe liabilities of the firm, the partners will contribute the balance amount in theirprofit/loss sharing ratios to meet the liabilities of the firm.

Business organization is an act of grouping activities into effective cooperation toobtain the It is more or less independent complex of land, labour and capital,organized and directed for It is the simplest form of business organization,which is owned and controlled by one man. Sole proprietorship is the oldestform of business organization which is owned and controlled by one person. Inthis business, one man invests his capital himself. He is all in all in doing hisbusiness. He enjoys the whole of the profit.

According to Partnership Act 1932:Partnership is the relation between persons who have agreed to share the

profits of a business carried on by all or any of them acting for all. Partnershipmeans a lawful business owned by two or more persons. The profit of thebusiness shared by the partners in agreed ratio. The liability of each partner isunlimited. Small and medium size business activities are performed under thisorganization. It has the following features:

Legal Entity

Profit and Loss Distribution

Unlimited Liability



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Transfer of Rights

Management

Number of Partners

DISSOLUTION OF FIRM

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Types of Proposals



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A firm may be dissolved after the completion of particular venture, for which it isformed:3. Death of a PartnerA partnership firm may also dissolve with the death of a partner.4. InsolvencyInsolvency of a partner also serves as a notice for dissolution of firm.

DISSOLUTION BY COURTThe court may dissolve a firm due to the following reasons:1. Case of Unsound MindA partnership firm may be dissolved by the order of court, if any partnerbecomes of unsound mind.

2. Case of Incapable PartnerA partnership firm may be dissolved by the order of court if any partnerpermanently become incapable of performing his duties.3. Case of MisconductA partnership firm may be dissolved if a partner is found guilty of misconduct inaffairs of business.4. Transfer of InterestA partnership firm may be dissolved if any partner transfers his share of interestto other persons, without the consent of existing partners.5. Breach of AgreementA partnership firm may be dissolved if any partner commits a breach of

agreement.6. Assurance of LossCourt may dissolve a partnership firm if the business of that firm is sufferingfrom continuous loss.7. Others ReasonsThe court has the right to accept or reject the application of dissolution. The justand equitable reason is determined by the court.

RULE OF DISTRIBUTION (Sec.48)



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After dissolution of firm it is the liability of every partner to pay:

i) The deficiency or loss first out of the profit of business.ii) If profit of the firm is not sufficient to pay the deficiency of the

firm then pay it form of capital.iii) If capital is not sufficient then each partner individually

contributes the loss according to their profit sharing ratio.

Q.#.3. DISCUSS VARIOUS STEPS INVOLVED IN THEREGISTRATION OF A COMPANY?

ANSWER

Formation of company:

The following documents are required to be prepared/ submitted forformation of a company.1. Certificate of Incorporation2. Commencement of business3. Memorandum of Association4. Articles of Association5. Prospectus

Certificate of Incorporation:

On issuance of this certificate, the promoters of proposed companybecome entitled on the registration of its memorandum with the registrarof companies. This certificate contains the following information:

Date of issue

Name of the company

Certification by the registrar that company is incorporated

In case of limited company certificate by the registrar that company

is limited. Province and seal of the registrar

Authority of issuing certificate of incorpor1313131313131313r1313131313D"131313i1313 13131313131313131313131313 131313(1313131313Service Pack213131313131313131


Types of Proposals



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minimum subscription;(b) Every director of the company has paid to the company full amounton each of the shares taken or contracted to be taken by him and forwhich he is liable to pay in cash;(c) No money is or may become liable to be repaid to applicants for anyshares or debentures which have been offered for public subscription byreason of any failure to apply for or to obtain permission for the shares ordebentures to be dealt in on any stock exchange;(d) There has been filed with the registrar a duly verified declaration bythe chief executive or one of the directors and the secretary in theprescribed form that the aforesaid conditions have been complied with

and the registrar has issued a certificate referred to in sub-section (2);and(e) In the case of a company which has not issued a prospectus invitingthe public to subscribe for its shares, there has been filed with theregistrar a Statement in lieu of prospectus.

Certificate of commencement of business: it is a conclusive evidence that public company can start the businessand enter into contracts with the rest of world. Any contract made before issuance of this certificate shall be provisional

and the contracts enter into are not binding.

Restrictions on commencement of business:1) A company shall not commence any business or exercise anyborrowing powers unlessa) shares held subject to the payment of the .,whole amount thereof incash have been allotted to an amount not less in the whole than theminimum subscription;



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b) every director of the company has paid to the company full amount oneach of the shares taken or contracted to be taken by him and for whichhe is liable to pay in cash;c) no money is or may become liable to be repaid to applicants for anyshares or debentures which have been offered for public subscription by

reason of any failure to apply for or to obtain permission for the shares ordebentures to be dealt in on any stock exchange;d) there has been filed with the registrar duly verified declaration by thechief executive or one of the directors and the secretary in the prescribedform that the aforesaid conditions have been complied with and theregistrar has issued a certificate referred to in subsection (2); ande) in the case of a company which has not issued a prospectus invitingthe public to subscribe for its shares, there has been filed with theregistrar a statement in lieu of prospectus.2) The registrar shall, on th1717

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9191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919191919tioncontinues.6) Nothing in this section shall apply to a private company, or to acompany limited by guarantee and not having a share capital.

Memorandum of Association:

Memorandum of association is a legal document for incorporation of acompany Memorandum of association is a fundamental legal document onthe basis of which the company conducts external affairs. This documentsignifies the powers of the company as well as the limitations ofthe company. It contains information regarding the purpose, capital,place of business, liability of the members and acquisition of shares bythe subscribers.



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Contents of Memorandumsection 16,17,18Memorandum of association is required to be subscribed by at least threepersons in case of public company and at least by one person in case ofprivate company.

Name Province in which the registered office of the company is to

be located Objects

Liability of the memberslimited or unlimited

Authorized capital

Section 26 of the Ordinance as contained in theOrdinance is reproduced here under for reference:

Registration of articles: sec 26(1) There may, in the case of a company limited by shares, and thereshall, in the case of a company limited by guarantee or an unlimitedcompany, be registered with the memorandum, articles of associationsigned by the subscribers to the memorandum and setting out regulationsfor the company.(2) Articles of association may adopt all or any of the regulationscontained in Table A in the First Schedule.(3) In the case of an unlimited company or a company limited byguarantee, the articles, if the company has a share capital, shall state theamount of share capital with which the company proposes to beregistered.(4) In case of an unlimited company or a company limited by guarantee,

if the company has not a share capital, the articles shall state the numberof members with which the company proposes to be registered.(5) In the case of a company limited by shares and registered after thecommencement of this Ordinance, if articles are not registered, or, ifarticles are registered, in so far as the articles do not exclude or modifythe regulations in Table A in the First Schedule, those regulations shall, sofar as applicable, be the regulations of the company in the same mannerand to the same extent as if they were contained in duly registeredarticles.(6) The articles of every company shall be explicit and without ambiguity

and, without prejudice to the generality of foregoing, shall list andenumerate the voting and other rights attached to the different classes ofshares and other securities, if any, issued or to be issued by it.

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Types of Proposals



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3232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232

323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323232323a Province, as the case may be, in which the registeredoffice of the company is stated by the memorandum to be situate.(2) A declaration by such person as may be prescribed in this behalf, orby a person named in the articles as a director, or other officer of

company, of compliance with all or any of the requirements of thisOrdinance and the rules made thereunder shall be filed with the registrar;and the registrar may accept such a declaration as sufficient evidence ofsuch compliance.(3) If the registrar is satisfied that the company is being formed for lawfulpurposes, that none of its objects stated in the memorandum isinappropriate or deceptive or insufficiently expressive and that all therequirements of this Ordinance and the rules made thereunder have beencomplied with in respect of registration and matters precedent andincidental thereto, he shall retain and register the memorandum andarticles. if any.

(4) If registration of the memorandum is refused, the subscribers of thememorandum or any one of them authorised by them in writing mayeither supply the deficiency and remove the defect pointed out, or withinthirty days of the order of refusal prefer an appeal(a) where the order of refusal has been passed by an additional registrar,a joint registrar, a deputy registrar or an assistant registrar, to theregistrar; and(b) where the order of refusal has been passed, or upheld in appeal, bythe registrar, to the Authority.(5) An order of the Authority under subsection (4) shall be final and shall

not be called in question before any Court or other authority.



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Q.#.4. EXPLAIN THE VARIOUS PROVISIONS OF COMPANIESORDINANCE 1984 REGARDING THE WINDING UP OFCOMPANIES?

ANSWERCOMPANIES ORDINANCE, 1984Law relating to Companies:At the time of independence, Companies Act, 1913 prevalent in undividedIndia was adapted by a government of Pakistan. Companies Act, 1913was replaced by Companies Ordinance, 1984 which is the law relating tocompany.

Scope of Company Law:Company Law covers the following areas:

Rules regarding incorporation of companies Rules regarding issue of prospectus

Conditions with regard to issue of shares

Rights of various classes of shares

Transfer of shares

Rights, duties and obligation of promoters, directors, managers,

secretaries, chief executives and other officers of the company

Rights and duties of members, auditors, liquidators, creditors of the

company Rules regarding the preparation of memorandum and articles of

association

Objects of Companies Ordinance, 1984:

Consolidate and amend the law relating to companies.

Healthy growth of corporate sector

Setting minimum standards of integrity and management

Prevention of malpractices

Promotion of investment

Protection of interests of share holders Full and fair disclosure of information

Empowering government to intervene and investigate



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Winding up of companies

Winding Up-- Defined:It is a process through which the property of the company is administeredby the liquidator who takes control of the company, liquidates the assetsand pay off the debts owed by the company and thereafter distributes thesurplus, if any to the members according to the proportion of shares heldby them. Winding up is a process culminating on dissolution. Dissolutionis the stage where a company ceases to exist, its name is struck off bythe registrar. These modes as provided in section 297 of the ordinance:

Modes of winding up (sec 297)Winding up by Court a compulsory winding up by the order of court or

Voluntary winding up

Members voluntary winding up or Creditors voluntary winding up

Winding up subject to the supervision of the Court:Circumstances in which company may be wound up by Court: Sec 305A company may be wound up by the Court -(a) if the company has, by special resolution, resolved that the companybe wound up by the Court;(b) if default is made in delivering the statutory report to the registrar orin holding the statutory meeting or

any two consecutive annual general meetings;(c) if the company does not commence its business within a year from itsincorporation, or suspends itsbusiness for a whole year;(d) if the number of members is reduced, in the case of private company,below two or, in the case of anyother company, below seven;(e) if the company is unable to pay its debts;(f) if the company is -(i) conceived or brought forth for, or is or has been carrying on,

unlawful or fraudulent activities;

Winding up84. (1) If the company is wound up, the liquidator may, with the sanction of aspecial resolution of the company and any other sanction required by theOrdinance divide amongst the members, in specie or kind, the whole or any partof the assets of the company, whether they consist of property of the same kindor not.



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(2) For the purpose aforesaid, the liquidator may set such value as he deemsfair upon any property, to be divided as aforesaid and may determine how suchdivision shall be carried out as between the members or different classes ofmembers.(3) The liquidator may, with like sanction, vest the whole or any part of such

assets in trustees upon such trusts for the benefit of the contributories as theliquidator, with the like sanction, thinks fit, but so that no member shall becompelled to accept any shares or other securities whereon there is any liability.

(ii) Carrying on business not authorized by the memorandum;(g) if the company is -(iii) conducting its business in a manner oppressive to any of its membersor persons concerned with the formation or promotion of the company orthe minority shareholders;(iv) run and managed by persons who fail to maintain proper and trueaccounts, or commit fraud, misfeasance or malfeasance in relation to the

company; or(h) if the company is -(v) managed by persons who refuse to act according to the requirementsof the memorandum or articles or the provisions of this Ordinance or failto carry out the directions or decisions of the Court or the registrar or theCommission given in the exercise of powers under this Ordinance;(i) if, being a listed company, it ceases to be such company; [(j) if the Court is of opinion that it is just and equitable that the companyshould be wound up; or(i) if the company ceases to have a member.

Explanation I. - The promotion or the carrying on of any scheme orbusiness, except the business carried on under the provisions of theInsurance Act, 1938 (IV of 1938), howsoever described, whereby, inreturn for a deposit or contribution, whether periodically or otherwise, ofa sum of money in cash or by means of coupons, certificates, tickets orother documents, payment, at future date or dates of money or grant ofproperty, right or benefit, directly or indirectly, and whether with orwithout any other right or benefit, determined by chance or lottery or anyother like manner, is assured or promised shall be deemed to be anunlawful activity.

Explanation ll. - "Minority shareholders" means shareholders togetherholding not less than twenty per cent of the equity share capital of thecompany.

Company when deemed unable to pay its debts: sec 306(1) A company shall be deemed to be unable to pay its debts,-



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a) if a creditor, by assignment or otherwise, to whom the company isindebted in a sum exceeding one per cent of its paid-up capital or fiftythousand rupees, whichever is less, has served on the company, bycausing the same to be delivered by registered post or otherwise, at itsregistered office, a demand under his hand requiring the company to pay

the sum so due and the company has for thirty days thereafter neglectedto pay the sum, or to secure or compound for it to the reasonablesatisfaction of the creditor; or(b) if execution or other process issued on a decree or order of any Courtor any other competent authority in favor of a creditor of the company isreturned unsatisfied in whole or in part; or(c) if it is proved to the satisfaction of the Court that the company isunable to pay its debts, and, in determining whether a company is unableto pay its debts, the Court shall take into account the contingent andprospective liabilities of the company.

(2) The demand referred to in clause (a) of sub-section (1) shall bedeemed to have been duly given under the hand of the creditor if it issigned by an agent or legal adviser duly authorized on his behalf, or inthe case of a firm if it is signed by such agent or legal adviser or by anymember of the firm on behalf of the firm.



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Q.#.5. EXPLAIN THE CONTRACT OF SALES OF GOODS BYDISCUSSING ITS MAIN FEATURES.

ANSWER

CONTRACT OF SALES OF GOODS & ITS FEATURES:

Sale of Goods Act is one of very old mercantile law. Sale of Goods is oneof the special types of Contract. Initially, this was part of Indian ContractAct itself in chapter VII (sections 76 to 123). Later these sections inContract Act were deleted, and separate Sale of Goods Act was passed in1930.

The Sale of Goods Act is complimentary to Contract Act. Basic provisionsof Contract Act apply to contract of Sale of Goods also. Basic

requirements of contract i.e. offer and acceptance, legally enforceableagreement, mutual consent, parties competent to contract, free consent,lawful object, consideration etc. apply to contract of Sale of Goods also.

Contract of Sale - A contract of sale of goods is a contract whereby theseller transfers or agrees to transfer the property in goods to the buyerfor a price. There may be a contract of sale between one part-owner andanother. [section 4(1)]. A contract of sale may be absolute or conditional.[section 4(2)].

Thus, following are essentials of contract of sale - * It is contract, i.e. allrequirements of contract must be fulfilled * It is of goods * Transfer ofproperty is required * Contract is between buyer and seller * Sale shouldbe for price * A part owner can sale his part to another part-owner *Contract may be absolute or conditional.

How Contract of sale is made - A contract of sale is made by an offerto buy or sell goods for a price and the acceptance of such offer. Thecontract may provide for the immediate delivery of the goods orimmediate payment of the price or both, or for the delivery or paymentby installments, or that the delivery or payment or both shall be

postponed. [section 5(1)]. Subject to the provisions of any law for thetime being in force, a contract of sale may be made in writing or by wordof mouth, or partly in writing and partly by word of mouth or may beimplied from the conduct of the parties. [section 5(2)]. Thus, credit saleis also a sale. - - A verbal contract or contract by conduct of parties isvalid. e.g. putting goods in basket in super market or taking food in ahotel.



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Two parties to contract - Two parties are required for contract. - -Buyer means a person who buys or agrees to buy goods. [section 2(1)]. Seller means a person who sells or agrees to sell goods. [section2(13)]. A part owner can sale his part to another part-owner. However, if joint owners distribute property among themselves as per mutual

agreement, it is not sale as there are no two parties.

Contract of Sale includes agreement to sale - Where under acontract of sale the property in the goods is transferred from the seller tothe buyer, the contract is called a sale, but where the transfer of theproperty in the goods is to take place at a future time or subject to somecondition thereafter to be fulfilled, the contract is called an agreement tosell. [section 4(3)]. An agreement to sell becomes a sale when the timeelapses or the conditions are fulfilled subject to which the property in thegoods is to be transferred. [section 4(4)]. The provision that contract of

sale includes agreement to sale is only for the purposes of rights andliabilities under Sale of Goods Act and not to determine liability of salestax, which arises only when actual sale takes place.

Transfer of property- Property means the general property in goods,and not merely a special property. [section 2(11)]. In laymans termsproperty means ownership. General Property means full ownership.Thus, transfer of general property is required to constitute a sale. Ifgoods are given for hire, lease, hire purchase or pledge, generalproperty is not transferred and hence it is not a sale.

POSSESSION AND PROPERTY - Note that property and possession arenot synonymous. Transfer of possession does not mean transfer ofproperty. e.g. - if goods are handed over to transporter or godownkeeper, possession is transferred but property remains with owner.Similarly, if goods remain in possession of seller after sale transaction isover, the possession is with seller, but property is with buyer.

Goods - Goods means every kind of movable property other thanactionable claims and money; and includes stock and shares, growingcrops, 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. [section2(7)].

Price - Price means the money consideration for a sale of goods.[section 2(10)]. Consideration is required for any contract. However, incase of contract of sale of goods, the consideration should be price i.e.money consideration.



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Ascertainment of price - The price in a contract of sale may be fixed bythe contract or may be left to be fixed in manner thereby agreed or maybe determined by the course of dealing between the parties. [section9(1)]. Where the price is not determined in accordance with the foregoingprovisions, the buyer shall pay the seller a reasonable price. What is a

reasonable price is a question of fact dependent on the circumstances ofeach particular case. [section 9(2)].

Conditions and Warranties - Opening para of section 16 makes it clearthat there is no implied warranty or condition as to quality of fitness ofgoods for any particular purpose, except those specified in Sale of GoodsAct or any other law. - - This is the basic principle of caveat emptor i.e.buyer be aware. However, there are certain stipulations which areessential for main purpose of the contract of sale of goods. These go theroot of contract and non-fulfilment will mean loss of foundation of

contract. These are termed as conditions. Other stipulations, which arenot essential are termed as warranty. These are collateral to contract ofsale of goods. Contract cannot be avoided for breach of warranty, butaggrieved party can claim damages. - - A breach of condition can betreated as breach of warranty, but vice versa is not permissible.

A stipulation in a contract of sale with reference to goods which are thesubject thereof may be a condition or a warranty. [section 12(1)]. Acondition is a stipulation essential to the main purpose of the contract,the breach of which gives rise to a right to treat the contract as

repudiated. [section 12(2)]. A warranty is a stipulation collateral to themain purpose of the contract, the breach of which gives rise to a claim fordamages but not to a right to reject the goods and treat the contract asrepudiated. [section 12(3)]. Whether a stipulation in a contract of sale isa condition or a warranty depends in each case on the construction of thecontract. A stipulation may be a condition, though called a warranty in thecontract. [section 12(4)].

Where a particular stipulation in contract is a condition or warrantydepends on the interpretation of terms of contract. Mere stating Conditions of Contract in agreement does not mean all stipulations

mentioned are conditions within meaning of section 12(2).

When condition to be treated as warranty - Where a contract of sale issubject to any condition to be fulfilled by the seller, the buyer may waivethe condition or elect to treat the breach of the condition as a breach ofwarranty and not as a ground for treating the contract as repudiated.[section 13(1)]. Where a contract of sale is not severable and the buyerhas accepted the goods or part thereof, the breach of any condition to be



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fulfilled by the seller can only be treated as a breach of warranty and notas a ground for rejecting the goods and treating the contract asrepudiated, unless there is a term of the contract, express or implied, tothat effect. [section 13(2)]. Nothing in this section shall affect the case ofany condition or warranty fulfillment of which is excused by law by reason

of impossibility or otherwise. [section 13(3)].

Time of payment is not essence of contract but time of delivery of goods

is, unless specified otherwise - Unless a different intention appears fromthe terms of the contract, stipulations as to time of payment are notdeemed to be of the essence of a contract of sale. Whether any otherstipulation as to time is of the essence of the contract or not depends onthe terms of the contract. [section 11]. As a general rule, time ofpayment is not essence of contract, unless there is specific differentprovision in Contract. In other words, time of payment specified is

warranty. If payment is not made in time, the seller can claim damagesbut cannot repudiate the contract.

Caveat Emptor- The principle termed as caveat emptormeans buyerbe aware. Generally, buyer is expected to be careful while purchasing thegoods and seller is not liable for any defects in goods sold by him. Thisprinciple in basic form is embodied in section 16 that subject to provisionsof Sale of Goods Act and any other law, there is no implied condition orwarranty as to quality or fitness of goods for any particular purpose. Asper section 2(12), Quality of goods includes their state or condition.

Transfer of property as between seller and buyer - Transfer ofgeneral property is required in a sale. Property means legal ownership.It is necessary to decide whether property in goods has transferred tobuyer to determine rights and liabilities of buyer and seller. Generally, riskaccompanies property in goods i.e. when property in goods passes, riskalso passes. If property in goods has already passed on to buyer, sellercannot stop delivery of goods even if in the meanwhile buyer has becomeinsolvent. - - - Where there is a contract for the sale of unascertainedgoods, no property in the goods is transferred to the buyer unless anduntil the goods are ascertained. [section 18].

Property passes when intended to pass - Where there is a contract for thesale of specific or ascertained goods the property in them is transferred tothe buyer at such time as the parties to the contract intend it to betransferred. [section 19(1)]. For the purpose of ascertaining the intentionof the parties regard shall be had to the terms of the contract, theconduct of the parties and the circumstances of the case. [section 19(2)].Unless a different intention appears, the rules contained in sections 20 to



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24 are rules for ascertaining the intention of the parties as to the time atwhich the property in the goods is to pass to the buyer. [section 19(3)].

Specific goods in a deliverable state - Where there is an unconditionalcontract for the sale of specific goods in a deliverable state, the property

in the goods passes to the buyer when the contract is made, and it isimmaterial whether the time of payment of the price or the time ofdelivery of the goods, or both, is postponed. [section 20].

Auction sale - Auction sale is special mode of sale. The sale is made inopen after making public announcement. Buyers assemble and makeoffers on the spot. Person offering to pay highest price gets the goods.Usually, auctioneer is appointed to conduct auction. Higher and higherbids are offered and sale is complete when auctioneer accepts a bid.- - -In the case of a sale by auction (1) where goods are put up for sale in

lots, each lot is prima facie deemed to be the subject of a separatecontract of sale; (2) the sale is complete when the auctioneer announcesits completion by the fall of the hammer or in other customary manner;and, until such announcement is made, any bidder may retract his bid;(3) a right to bid may be reserved expressly by or on behalf of the sellerand, where such right is expressly so reserved, but not otherwise, theseller or any one person on his behalf may, subject to the provisionshereinafter contained, bid at the auction; (4) where the sale is notnotified to be subject to a right to bid on behalf of the seller, it shall notbe lawful for the seller to bid himself or to employ any person to bid atsuch sale, or for the auctioneer knowingly to take any bid from the seller

or any such person; and any sale contravening this rule may be treatedas fraudulent by the buyer; (5) the sale may be notified to be subject to areserved or upset price; (6) if the seller makes use of pretended biddingto raise the price, the sale is voidable at the option of the buyer. [section64].

Delivery of goods to buyer - The Act makes elaborate provisionsregarding delivery of goods to buyer. It is the duty of the seller to deliverthe goods and of the buyer to accept and pay for them, in accordancewith the terms of the contract of sale. [section 31]. Unless otherwise

agreed, delivery of the goods and payment of the price are concurrentconditions, that is to say, the seller shall be ready and willing to givepossession of the goods to the buyer in exchange for the price, and thebuyer shall be ready and willing to pay the price in exchange forpossession of the goods. [section 32]. - - Note that this is unlessotherwise agreed, i.e. buyer and seller can agree to different provisionsin respect of payment and delivery.



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Acceptance of goods by buyer- Contract of Sale is completed not bymere delivery of goods but by acceptance of goods by buyer. Acceptancedoes not mean mere receipt of goods. It means checking the goods toascertain whether they are as per contract. - - - Where goods aredelivered to the buyer which he has not previously examined, he is not

deemed to have accepted them unless and until he has had a reasonableopportunity of examining them for the purpose of ascertaining whetherthey are in conformity with the contract. [section 41(1)]. - - Unlessotherwise agreed, when the seller tenders delivery of goods to the buyer,he is bound, on request, to afford the buyer a reasonable opportunity ofexamining the goods for the purpose of ascertaining whether they are inconformity with the contract. [section 41(2)].Buyers and Sellers duties - The Act casts various duties and grantscertain rights on both buyer and seller.Rights of unpaid seller against the goods - After goods are sold and

property is transferred to buyer, the only remedy with seller is toapproach Court, if the buyer does not pay. Seller has no right to takeforceful possession of goods from buyer, once property in goods istransferred to him. However, the Act gives some rights to seller if his duesare not paid.

Suits for breach of the contract- Unpaid seller can exercise his rightsto the extent explained above. In addition, seller can exercise followingrights in case of breach of contract. Buyer has also rights in case ofbreach of contract.

Measure for compensation and damages The Sale of Goods Actdoes not specify how to measure damages. However, since the Act iscomplimentary to Contract Act, measure of compensation and damageswill be as provided in sections 73 and 74 of Contract Act.

Business & Labor Law Asign #1

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Transcript of Business & Labor Law Asign #1