Indian Legal Environment

LEGAL ASPECTS OF BUSINESSLEGAL ASPECTS OF BUSINESS

Prof.(CMDE) P. K. GoelProf.(CMDE) P. K. Goel

04/08/23 Prof.(CMDE) P. K. Goel 2

Law of ContractLaw of Contract

““The law of contract is intended to The law of contract is intended to ensure that what a man has been led ensure that what a man has been led to expect shall come to pass; that to expect shall come to pass; that what has been promised to him shall what has been promised to him shall be performed”be performed”

- Sir William Anson- Sir William Anson


What is a Contract?What is a Contract?““Every agreement and promise Every agreement and promise enforceable at law is a contract”enforceable at law is a contract”

-Sir Federick PollockSir Federick Pollock

““An agreement creating and defining An agreement creating and defining obligations between the parties”obligations between the parties”

-Sir William AnsonSir William Anson

““An Agreement enforceable by law is a An Agreement enforceable by law is a contract”contract”

- Sec.2(h) of the Indian Contract Act,1872- Sec.2(h) of the Indian Contract Act,1872


ContractContract

AgreementAgreement Enforceability of an agreementEnforceability of an agreement

Offer (or proposal)Offer (or proposal)

Acceptance of Acceptance of offer (or proposaloffer (or proposal

Legal obligation arising Legal obligation arising out of an agreementout of an agreement


Distinction between an Agreement and a ContractDistinction between an Agreement and a ContractAn Agreement differs from a contract in the following respects:An Agreement differs from a contract in the following respects:

Contact is concluded and Contact is concluded and binding on the concerned binding on the concerned parties.parties.

Agreement is not Agreement is not concluded or binding concluded or binding contractscontracts

4)4) BindingBinding

All Contacts are necessarily All Contacts are necessarily agreements.agreements.

Every Agreement need Every Agreement need not necessarily be a not necessarily be a contractcontract

3)3) One in otherOne in other

A Contract necessarily A Contract necessarily creates a legal obligation.creates a legal obligation.

An Agreement may or An Agreement may or may not create a legal may not create a legal obligation.obligation.

2) 2) Creating of Creating of legal obligationlegal obligation

Agreement and its Agreement and its enforceability constitute a enforceability constitute a contractcontract

Offer and its acceptance Offer and its acceptance constitute an agreementconstitute an agreement

1)1) What constituteWhat constituteA ContractA ContractAn AgreementAn AgreementBasis of distinctionBasis of distinction


What is an Agreement?What is an Agreement?

““Every Promise and every set of Every Promise and every set of Promises, forming the consideration for Promises, forming the consideration for each other, is an Agreement”each other, is an Agreement”

-Sec. 2(e) of the Act-Sec. 2(e) of the Act

a)a) OfferOfferb)b) AcceptanceAcceptance


Characteristics of an AgreementCharacteristics of an Agreement

- Plurality of PersonsPlurality of Persons

- Consensus – ad – idem - Consensus – ad – idem


What is a Promise?What is a Promise?

““Proposal when accepted, becomes a Proposal when accepted, becomes a

promise.”promise.”

-Section 2 (b)-Section 2 (b)


““The law of contract is not the whole law of The law of contract is not the whole law of

agreements, nor is it the whole law of agreements, nor is it the whole law of

obligations. It is the law of those obligations. It is the law of those

agreements which create obligations, and agreements which create obligations, and

those obligations which have their source those obligations which have their source

in agreements.”in agreements.”

-SalmondSalmond


Essential elements of a valid contractEssential elements of a valid contract

1.1. Agreement i.e. Offer & Acceptance.Agreement i.e. Offer & Acceptance.2.2. Intention to create legal relations.Intention to create legal relations.3.3. Lawful considerationLawful consideration4.4. Competence of partiesCompetence of parties5.5. Free ConsentFree Consent

- CoercionCoercion - Undue Influence- Undue Influence- FraudFraud - Misrepresentation- Misrepresentation- MistakeMistake


Essential elements of a valid contractEssential elements of a valid contract

6.6. Lawful objectLawful object7.7. Writing & RegistrationWriting & Registration8.8. CertaintyCertainty9.9. Possibility of PerformancePossibility of Performance10.10.Not Expressly declared void.Not Expressly declared void.


Classification of contractsClassification of contracts

1.1. On the basis of enforceabilityOn the basis of enforceability• ValidValid• VoidVoid• VoidableVoidable• UnenforceableUnenforceable• IllegalIllegal

2.2. On the basis of mode of creationOn the basis of mode of creation• ExpressExpress• ImpliedImplied• Constructive or QuasiConstructive or Quasi


Classification of contracts………..Classification of contracts………..

3.3. On the basis of the extent of executionOn the basis of the extent of execution• ExecutedExecuted• ExecutoryExecutory

4.4. On the basis of form of the contractOn the basis of form of the contract• FormalFormal• SimpleSimple


What is an Offer (PROPOSAL)What is an Offer (PROPOSAL)

““When one person signifies to another When one person signifies to another his willingness to do or to abstain from his willingness to do or to abstain from doing anything, with a view to doing anything, with a view to obtaining the assent of that other to obtaining the assent of that other to such act or abstinence, he is said to such act or abstinence, he is said to make proposal”make proposal”

Sec 2(a) of the ActSec 2(a) of the Act


Essentials of a ProposalEssentials of a Proposal1.1. It must be an EXPRESSION OF It must be an EXPRESSION OF

WILLINGNESS to do or to abstain from WILLINGNESS to do or to abstain from doing some thing.doing some thing.

2.2. The expression must be TO ANOTHER The expression must be TO ANOTHER PERSON.PERSON.

3.3. This must be made WITH A VIEW TO This must be made WITH A VIEW TO OBTAINING THE ASSENT OF THE OBTAINING THE ASSENT OF THE OTHER PERSON.OTHER PERSON.


Legal Rules Regarding a Valid OfferLegal Rules Regarding a Valid Offer1.1. Express or ImpliedExpress or Implied2.2. Legal consequences, Legal Relations.Legal consequences, Legal Relations.3.3. Certain.Certain.4.4. Invitation to offer is no offer.Invitation to offer is no offer.5.5. Specific or generalSpecific or general6.6. Communicated to the offereeCommunicated to the offeree7.7. Non-compliance of the term-would amount to Non-compliance of the term-would amount to

acceptance-not validacceptance-not valid8.8. Subject to any terms and conditions.Subject to any terms and conditions.


Legal Rules Reg. A Valid AcceptanceLegal Rules Reg. A Valid Acceptance1.1. Acceptance must be given only by the Acceptance must be given only by the

person to whom the offer is made.person to whom the offer is made.2.2. Acceptance must be absolute & Acceptance must be absolute &

unqualified.unqualified.3.3. Acceptance must be expressed in some Acceptance must be expressed in some

usual & reasonable manner, unless the usual & reasonable manner, unless the proposal prescribes the manner in which it proposal prescribes the manner in which it is to be accepted.is to be accepted.


Legal Rules Reg. A Valid Acceptance…Legal Rules Reg. A Valid Acceptance…4.4. Acceptance must be communicated by Acceptance must be communicated by

the acceptor.the acceptor.5.5. Acceptance must succeed the offer.Acceptance must succeed the offer.6.6. Acceptance must be given within a Acceptance must be given within a

reasonable time and before the offer reasonable time and before the offer lapses and/or is revoked.lapses and/or is revoked.

7.7. Rejected offers can be accepted only, if Rejected offers can be accepted only, if renewed.renewed.


ConsiderationConsiderationDEFINITION:DEFINITION:

““When at the desire of the promisor, the When at the desire of the promisor, the promisee or any other person has done or promisee or any other person has done or abstained from doing, or does or abstains from abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, doing, or promises to do or abstain from doing, something, such act or abstinence or promise something, such act or abstinence or promise is called consideration for the promise”is called consideration for the promise”

Sec 2(a)Sec 2(a)


Consideration……..Consideration……..

Consideration is the “Price for which a Consideration is the “Price for which a

promise is bought”promise is bought”

-Sir F. Pollock-Sir F. Pollock


Essentials of a valid considerationEssentials of a valid consideration1.1. Consideration must move at the desire of the Consideration must move at the desire of the

promisor.promisor.2.2. Consideration may move from the promisee or Consideration may move from the promisee or

any other person.any other person.3.3. Consideration must be legalConsideration must be legal4.4. It may be past, present or future.It may be past, present or future.5.5. It must be ‘Something of value’.It must be ‘Something of value’.6.6. Consideration may be a promise to do Consideration may be a promise to do

something or abstain from doing something.something or abstain from doing something.


No Consideration NecessaryNo Consideration Necessary1.1. Made on account of natural love & affection.Made on account of natural love & affection.2.2. To compensate for past voluntary service.To compensate for past voluntary service.3.3. Agreement to pay a time barred debt.Agreement to pay a time barred debt.4.4. Contracts of agency.Contracts of agency.5.5. Completed gifts.Completed gifts.6.6. Remission of the promisee of performance Remission of the promisee of performance

of the promise.of the promise.7.7. GuaranteeGuarantee


Capacity of PartiesCapacity of PartiesMEANINGMEANING

““Every person is competent to contract Every person is competent to contract who is of the age of majority according to who is of the age of majority according to the law to which he is subject, and who is the law to which he is subject, and who is of sound mind, and is not disqualified from of sound mind, and is not disqualified from contracting by any law to which he is contracting by any law to which he is subject”subject”


Minor’s AgreementMinor’s Agreement1.1. Absolutely VoidAbsolutely Void2.2. No RatificationNo Ratification3.3. No RestitutionNo Restitution4.4. No EstoppelsNo Estoppels5.5. Minor BeneficiaryMinor Beneficiary6.6. Minor’s Liability for NecessitiesMinor’s Liability for Necessities7.7. Minor PromiseeMinor Promisee


Minor’s Agreement………..Minor’s Agreement………..8.8. Minor AgentMinor Agent9.9. Minor PartnerMinor Partner10.10.Surety for a MinorSurety for a Minor11.11.Minor as a member of a companyMinor as a member of a company12.12.A minor cannot be declared as an A minor cannot be declared as an

insolventinsolvent13.13.Minor’s Liability for Tort.Minor’s Liability for Tort.


Persons of Unsound MindPersons of Unsound Mind

““A Person is said to be of sound mind A Person is said to be of sound mind for the purpose of making a contract, if for the purpose of making a contract, if at the time when he makes it, he is at the time when he makes it, he is capable of understanding it, and of capable of understanding it, and of forming a rational judgment as to its forming a rational judgment as to its effect upon his interests.”effect upon his interests.”


Disqualified PersonDisqualified Person

1.1. Alien EnemyAlien Enemy

2.2. Foreign Sovereigns & ambassadorsForeign Sovereigns & ambassadors

3.3. ConvictConvict

4.4. Company or corporationCompany or corporation

5.5. InsolventInsolvent-Sec. 13-Sec. 13


Free ConsentFree Consent

DEFINITION:DEFINITION:

““Two or more persons are said to Two or more persons are said to

consent when they agree upon the consent when they agree upon the

same thing in the same sense”.same thing in the same sense”.


Free ConsentFree ConsentConsent is said to be ‘Free’ when it is Consent is said to be ‘Free’ when it is not caused by:not caused by:

1)1) CoercionCoercion2)2) Undue InfluenceUndue Influence3)3) FraudFraud4)4) MisrepresentationMisrepresentation5)5) MistakeMistake


CoercionCoercion““Coercion is the committing or threatening Coercion is the committing or threatening to commit, any act forbidden by the Indian to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining or Penal Code, or the unlawful detaining or threatening to detain, any property, to the threatening to detain, any property, to the prejudice of any person whatever with the prejudice of any person whatever with the intention of causing any person to enter intention of causing any person to enter into an agreement”into an agreement”


Undue InfluenceUndue Influence““A contract is said to be induced by A contract is said to be induced by undue influence where,undue influence where,

1)1) The relations subsisting between the The relations subsisting between the parties are such that one of the parties are such that one of the parties is in a position to dominate parties is in a position to dominate the will of the other, andthe will of the other, and

2)2) He uses the position to obtain an He uses the position to obtain an unfair advantage over the other”unfair advantage over the other”


FraudFraud““Fraud means & includes any of the following Fraud means & includes any of the following acts committed by the party to a contract, or acts committed by the party to a contract, or with his connivance, or by his agent, with intent with his connivance, or by his agent, with intent to deceive or to induce another party there to to deceive or to induce another party there to or his agent, to enter into the contract:or his agent, to enter into the contract:


FraudFrauda)a) A suggestion as to a fact of that which is not A suggestion as to a fact of that which is not

true by one who does not believe it to be true.true by one who does not believe it to be true.

b)b) An active concealment of a fact by one having An active concealment of a fact by one having knowledge or belief of the fact.knowledge or belief of the fact.

c)c) A promise made without any intention of A promise made without any intention of performing it.performing it.

d)d) Any other act fitted to deceive.Any other act fitted to deceive.

e)e) Any such act or omission as the law Any such act or omission as the law specifically declares to be fraudulent.”specifically declares to be fraudulent.”


MisrepresentationMisrepresentationMisrepresentation means & Includes:Misrepresentation means & Includes:

a) The positive assertion, in a manner a) The positive assertion, in a manner not warranted by the information to not warranted by the information to the person making it, of that which is the person making it, of that which is not true, though he believes it to be not true, though he believes it to be true; ortrue; or


Misrepresentation means & Includes:Misrepresentation means & Includes:

b) Any breach of duty which, without an b) Any breach of duty which, without an intent to deceive, gains an advantage intent to deceive, gains an advantage to the person committing it, or any one to the person committing it, or any one claiming under him, by misleading claiming under him, by misleading another to his prejudice or to the another to his prejudice or to the prejudice of any one claiming under prejudice of any one claiming under him, orhim, or


Misrepresentation means & Includes:Misrepresentation means & Includes:

c) Causing however innocently, a party c) Causing however innocently, a party

to an agreement, to make a mistake to an agreement, to make a mistake

as to the substance of the thing which as to the substance of the thing which

is the subject of the agreement.is the subject of the agreement.


MistakeMistakeMEANINGMEANING

Mistake may be defined as an erroneous Mistake may be defined as an erroneous belief concerning somethingbelief concerning somethingKinds of mistakeKinds of mistake1.1. Mistake of lawMistake of law

• ForeignForeign• IndianIndian

2.2. Mistake of factMistake of fact• BilateralBilateral• UnilateralUnilateral


Legality of object & considerationLegality of object & considerationConsideration & objects are unlawfulConsideration & objects are unlawful

IFIF1)1) It is forbidden by lawIt is forbidden by law2)2) It is of such a nature that, if permitted, it It is of such a nature that, if permitted, it

would defeat the provisions of any law.would defeat the provisions of any law.3)3) It is fraudulentIt is fraudulent4)4) It involves or implies injury to the person It involves or implies injury to the person

or property of anotheror property of another5)5) The court regards it as immoralThe court regards it as immoral6)6) The court regards it as ‘opposed to public The court regards it as ‘opposed to public

policy’.policy’.


Expressly declared void agreementsExpressly declared void agreements

AgreementAgreement1)1) In restraint of marriageIn restraint of marriage2)2) In restraint of tradeIn restraint of trade3)3) In restraint of legal proceedingsIn restraint of legal proceedings4)4) The meaning of which is uncertainThe meaning of which is uncertain5)5) By way of wagerBy way of wager6)6) Contingents on impossible eventsContingents on impossible events7)7) To do impossible acts”To do impossible acts”


Contingent ContractsContingent Contracts““A contingent contract is a contract to A contingent contract is a contract to

do or not to do something, if some do or not to do something, if some

event, collateral to such contract does event, collateral to such contract does

or does not happen”or does not happen”


PERFORMANCE OF CONTRACTPERFORMANCE OF CONTRACT

WHO CAN DEMAND PERFORMANCE?WHO CAN DEMAND PERFORMANCE?

ONLY THE PROMISEEONLY THE PROMISEE


By whom contracts must be performedBy whom contracts must be performed

1.1. By the promisor himselfBy the promisor himself

2.2. By the agentBy the agent

3.3. By the legal representativesBy the legal representatives

4.4. Performance by a third personPerformance by a third person


Discharge of a contractDischarge of a contractModes of dischargeModes of discharge1.1. By performance – actual or attempted.By performance – actual or attempted.2.2. By mutual consent or agreement.By mutual consent or agreement.3.3. By subsequent or supervening By subsequent or supervening

impossibility or illegality.impossibility or illegality.4.4. By lapse of timeBy lapse of time5.5. By operation of lawBy operation of law6.6. By breach of contractBy breach of contract


Quasi – Contract Quasi – Contract

Quasi Contractual obligationsQuasi Contractual obligations

1.1. Claim for necessaries supplied to a Claim for necessaries supplied to a person incapable of contracting or on person incapable of contracting or on his account.his account.

2.2. Reimbursement of person paying Reimbursement of person paying money due by another, in payment of money due by another, in payment of which he is interested.which he is interested.


Quasi Contractual obligationsQuasi Contractual obligations

3.3. Obligations of person enjoying benefit Obligations of person enjoying benefit of non-gratuitous act.of non-gratuitous act.

4.4. Responsibility of finder of goods.Responsibility of finder of goods.

5.5. Liability of person to whom money is Liability of person to whom money is paid, or thing delivered by mistake or paid, or thing delivered by mistake or under co-ercion.under co-ercion.


Remedies for breach of contractRemedies for breach of contract

1.1. Rescission of the contract.Rescission of the contract.

2.2. Suit for damagesSuit for damages

3.3. Suit upon quantum – MeruitSuit upon quantum – Meruit

4.4. Suit for specific performance of the Suit for specific performance of the contractcontract

5.5. Suit for an injunction.Suit for an injunction.


IndemnityIndemnity


““A contract by which one party promises to A contract by which one party promises to

save the other from loss caused to him by save the other from loss caused to him by

the conduct of the promisor himself or by the conduct of the promisor himself or by

the conduct of any other person, is called the conduct of any other person, is called

a contract of indemnity”.a contract of indemnity”.


GuaranteeGuarantee


““A contract of guarantee is a contract A contract of guarantee is a contract

to perform the promise, or discharge to perform the promise, or discharge

the liability of the third person in case the liability of the third person in case

of his default”.of his default”.


Distinction between Indemnity & GuaranteeDistinction between Indemnity & Guarantee

IndemnityIndemnity GuaranteeGuarantee Liability of the Liability of the

Indemnifier is Indemnifier is PrimaryPrimary

Liability of the surety is Liability of the surety is secondary. Primary Liability secondary. Primary Liability is of Principal Debtoris of Principal Debtor

Indemnifier acts Indemnifier acts independentlyindependently

Surety gives guarantee at Surety gives guarantee at the request of the debtorthe request of the debtor

Two parties – Two parties – Indemnifier and Indemnifier and Indemnity holderIndemnity holder

3 Parties – Creditor, 3 Parties – Creditor, Principal Debtor and Principal Debtor and Surety.Surety.



IndemnityIndemnity GuaranteeGuarantee In most cases, liability of the In most cases, liability of the

indemnifier arises only on the indemnifier arises only on the happening of the happening of the contingency.contingency.

There is an existing There is an existing legal debt/duty, the legal debt/duty, the performance of which is performance of which is guaranteed by the guaranteed by the surety.surety.

The Indemnifier cannot sue The Indemnifier cannot sue the third party for loss in his the third party for loss in his own name. Can only bring own name. Can only bring the suit in the name of the the suit in the name of the indemnified unless there is an indemnified unless there is an assignment in his favour.assignment in his favour.

Can proceed against the Can proceed against the Principal Debtor in his Principal Debtor in his own right.own right.



IndemnityIndemnity GuaranteeGuarantee For the reimbursement of For the reimbursement of

loss. The liability of the loss. The liability of the indemnifier arises only on indemnifier arises only on the happening of a the happening of a contingency.contingency.

Security of a debt or good Security of a debt or good conduct of an employee. conduct of an employee. There is usually an existing There is usually an existing debt or duty the debt or duty the performance of which is performance of which is guaranteed by the surety.guaranteed by the surety.

Only one contract between Only one contract between the indemnifier and the the indemnifier and the indemnifiedindemnified

3 Contracts = 3 Contracts = A & BA & B = = B & CB & C = = A & CA & C


Kinds of GuaranteeKinds of Guarantee

a)a) SpecificSpecific

b)b) Continuing GuaranteeContinuing Guarantee


Discharge of Surety from LiabilityDischarge of Surety from Liability1.1. Notice of RevocationNotice of Revocation2.2. Death of SuretyDeath of Surety3.3. Variance in terms of contractVariance in terms of contract4.4. Release or discharge of Principal Debtor.Release or discharge of Principal Debtor.5.5. Arrangement by Creditor with Principal Arrangement by Creditor with Principal

Debtor without surety’s consent.Debtor without surety’s consent.6.6. Creditor’s act or omission impairing surety’s Creditor’s act or omission impairing surety’s

eventual remedy.eventual remedy.7.7. Loss of security.Loss of security.8.8. Invalidation of the contract of Guarantee.Invalidation of the contract of Guarantee.


BailmentBailmentDEFINITION:DEFINITION:

““A Bailment is the delivery of goods by A Bailment is the delivery of goods by one person to another for some purpose, one person to another for some purpose, upon a contract that they shall, when the upon a contract that they shall, when the purpose is accomplished, be returned or purpose is accomplished, be returned or otherwise disposed of according to the otherwise disposed of according to the directions of the person delivering them”.directions of the person delivering them”.


Essential features of BailmentEssential features of Bailment

1.1. Delivery of movable goodsDelivery of movable goods

2.2. Goods are delivered for some Goods are delivered for some purpose.purpose.

3.3. Condition of delivery – on Condition of delivery – on accomplishment of purpose goods accomplishment of purpose goods are to be returned.are to be returned.


Duties of BaileeDuties of Bailee1.1. To take reasonable care of goods To take reasonable care of goods

delivered to him.delivered to him.2.2. Not to make unauthorized use of goods Not to make unauthorized use of goods

entrusted to him.entrusted to him.3.3. Not to mix goods bailed with his own Not to mix goods bailed with his own

goodsgoods4.4. To Return the goods.To Return the goods.5.5. To deliver any accretion to the goods.To deliver any accretion to the goods.


Duties of BailorDuties of Bailor1.1. To disclose faults in goods bailed.To disclose faults in goods bailed.2.2. To repay necessary expenses in To repay necessary expenses in

case of gratuitous bailment.case of gratuitous bailment.3.3. To repay any extraordinary To repay any extraordinary

expenses in case of non-gratuitous expenses in case of non-gratuitous bailment.bailment.

4.4. To indemnify bailee.To indemnify bailee.5.5. To receive back the goods.To receive back the goods.


Rights of BaileeRights of Bailee

1.1. Enforcement of bailor’s duties.Enforcement of bailor’s duties.2.2. To deliver goods to one of several To deliver goods to one of several

joint bailors.joint bailors.3.3. To deliver goods in good faith, to To deliver goods in good faith, to

bailor without title.bailor without title.4.4. Lien.Lien.


Rights of BailorRights of Bailor

1.1. Enforcement of bailee’s duties.Enforcement of bailee’s duties.2.2. To terminate bailment if the bailee To terminate bailment if the bailee

uses the goods wrongfully.uses the goods wrongfully.3.3. To demand return of goods at any To demand return of goods at any

time incase of Gratuitous Bailment.time incase of Gratuitous Bailment.


AgencyAgencyDEFINITION:DEFINITION:

““An AGENT is a person employed to do any An AGENT is a person employed to do any act for another or to represent another in act for another or to represent another in dealing with third persons. The person for dealing with third persons. The person for whom such act is done, or who is represented, whom such act is done, or who is represented, is called the PRINCIPAL”is called the PRINCIPAL”

Sec 2(a)Sec 2(a)


Creation of AgencyCreation of Agency

•Agency by Express AgreementAgency by Express Agreement

•Agency by Implied AgreementAgency by Implied Agreement

•Agency by RatificationAgency by Ratification

•Agency by Operation of LawAgency by Operation of Law


Duties of AgentDuties of Agent To follow Principal’s directions or customs.To follow Principal’s directions or customs. To carry out the work with reasonable care, skill and To carry out the work with reasonable care, skill and

diligence.diligence. To render accountsTo render accounts To communicate with Principal in case of difficulty.To communicate with Principal in case of difficulty. Not to deal on his own account.Not to deal on his own account. Not to make any profit out of his agency except his Not to make any profit out of his agency except his

remuneration.remuneration. On termination of agency by Principal’s death or Insanity to On termination of agency by Principal’s death or Insanity to

protect and preserve the interest of the Principal.protect and preserve the interest of the Principal. Not to delegate authority.Not to delegate authority.


Rights of AgentRights of Agent To receive remunerationTo receive remuneration RetainerRetainer Lien - particularLien - particular To be indemnified against consequences of Lawful To be indemnified against consequences of Lawful

actsacts To be indemnified against consequences of acts To be indemnified against consequences of acts

done in goods faithdone in goods faith To compensationTo compensation Stoppage of goods in transit.Stoppage of goods in transit.


Duties of PrincipalDuties of Principal To indemnify agents against consequences of To indemnify agents against consequences of

all lawful acts.all lawful acts. To indemnify agents against consequences of To indemnify agents against consequences of

acts done in good faithacts done in good faith To indemnify against the injury caused by To indemnify against the injury caused by

Principal’s neglect.Principal’s neglect. To pay the agent for commission or other To pay the agent for commission or other

remuneration agreed.remuneration agreed.


Rights of PrincipalRights of Principal To recover damagesTo recover damages

To obtain an account of secret profits and To obtain an account of secret profits and recover them and resist a claim for recover them and resist a claim for remuneration.remuneration.

To resist against agent’s claim for To resist against agent’s claim for indemnity against liability incurred.indemnity against liability incurred.


Termination of AgencyTermination of Agency

By Act of By Act of PartiesParties

By Operation of LawBy Operation of Law

Agreement

Revocation by the Principal

Revocation by the Agent

Performance of the ContractPerformance of the Contract

Expiry of the timeExpiry of the time

Death of either partyDeath of either party

Insanity of either partyInsanity of either party

Destruction of the subject matterDestruction of the subject matter

Principal becoming an alien enemyPrincipal becoming an alien enemy

Dissolution of Co.Dissolution of Co.

Termination of agents authorityTermination of agents authority


Contract of sale of GoodsContract of sale of Goods


““A Contract whereby the seller transfers or A Contract whereby the seller transfers or

agrees to transfer the property in goods to agrees to transfer the property in goods to

the buyer for a price.”the buyer for a price.”Sec 4(1) of the Sale of Goods ActSec 4(1) of the Sale of Goods Act


Essential Characteristics of a Essential Characteristics of a contract of Sale of Goodscontract of Sale of Goods

1.1. Two PartiesTwo Parties

2.2. Transfer of PropertyTransfer of Property

3.3. GoodsGoods

4.4. PricePrice

5.5. Includes both a ‘Sale’ and ‘an Agreement to Includes both a ‘Sale’ and ‘an Agreement to Sell’Sell’

6.6. No Formalities to be observedNo Formalities to be observed


Distinction between ‘Sale’ and Distinction between ‘Sale’ and ‘Agreement to Sell’‘Agreement to Sell’

1.1. Transfer of property (ownership)Transfer of property (ownership)2.2. Risk of lossRisk of loss3.3. Consequences of BreachConsequences of Breach4.4. Right of ResaleRight of Resale5.5. Insolvency of buyer before he pays for Insolvency of buyer before he pays for

goodsgoods6.6. Insolvency of seller if the buyer has already Insolvency of seller if the buyer has already

paid the price.paid the price.


ConditionCondition


““A Condition is a stipulation essential to A Condition is a stipulation essential to

the main purpose of the contract, the the main purpose of the contract, the

breach of which gives the aggrieved party breach of which gives the aggrieved party

a right to repudiate the contract itself.”a right to repudiate the contract itself.”Sec 12(2)Sec 12(2)


WarrantyWarranty


““A warranty is a stipulation collateral to the A warranty is a stipulation collateral to the

main purpose of the contract, the breach main purpose of the contract, the breach

of which gives the aggrieved party a right of which gives the aggrieved party a right

to sue for damages only, and not to avoid to sue for damages only, and not to avoid

the contract itself.”the contract itself.”


Implied ConditionsImplied Conditions As to titleAs to title In a sale by descriptionIn a sale by description In a sale by sampleIn a sale by sample In a sale by sample as well as by descriptionIn a sale by sample as well as by description As to fitness or qualityAs to fitness or quality As to merchantabilityAs to merchantability As to wholesomenessAs to wholesomeness


Implied WarrantiesImplied Warranties

Of quiet possessionOf quiet possession

Of freedom from encumbrancesOf freedom from encumbrances

Of disclosing the dangerous nature of Of disclosing the dangerous nature of

goods to the ignorant buyer.goods to the ignorant buyer.


Exception to the Doctrine of Caveat emptorException to the Doctrine of Caveat emptor In case of misrepresentation by sellerIn case of misrepresentation by seller In case of concealment of latent defects by In case of concealment of latent defects by

seller.seller. In case of sale by description.In case of sale by description. In case of sale by sample.In case of sale by sample. In case of sale by description by sample.In case of sale by description by sample. Fitness for a particular purposeFitness for a particular purpose Merchantable quality.Merchantable quality.


Transfer of PropertyTransfer of Property

Risk ‘Prima Face’ passes with Risk ‘Prima Face’ passes with

propertyproperty

Action Against third partiesAction Against third parties

Suit for priceSuit for price

Insolvency of the seller or the buyer.Insolvency of the seller or the buyer.


Rules regarding transfer of propertyRules regarding transfer of property

1.1. In Specific or Ascertained GoodsIn Specific or Ascertained Goods When goods are in a deliverable stateWhen goods are in a deliverable state When goods have to be put in a deliverable When goods have to be put in a deliverable

statestate When goods have to be measured etc. to When goods have to be measured etc. to

ascertain priceascertain price When goods are delivered on approvalWhen goods are delivered on approval

2.2. In Unascertained goods & future goodsIn Unascertained goods & future goods


Meaning of unpaid sellerMeaning of unpaid sellerDEFINITION:DEFINITION:

The seller of goods is deemed to be ‘UNPAID The seller of goods is deemed to be ‘UNPAID

SELLER (a) When the whole of the price has not SELLER (a) When the whole of the price has not

been paid or tendered; OR (b) Where a bill of been paid or tendered; OR (b) Where a bill of

exchange or other negotiable instrument has been exchange or other negotiable instrument has been

received as a conditional payment, I.e. subject to the received as a conditional payment, I.e. subject to the

realization thereof, and the same has been realization thereof, and the same has been

dishonoreddishonored


Characteristics of an unpaid sellerCharacteristics of an unpaid seller He must sell goods on cash terms and He must sell goods on cash terms and

not on creditnot on credit He must be unpaid either wholly or He must be unpaid either wholly or

partlypartly He must not refuse to accept payment He must not refuse to accept payment

when tendered.when tendered.


Rights of an unpaid sellerRights of an unpaid seller

Against the GoodsAgainst the Goods Against the Buyer personallyAgainst the Buyer personally

Where the property in the goods has

passed [Sec. 46(1)]

Where the property in the goods has

Not passed [Sec. 46(2)]

Lien(Sec. 47

to 49

Stoppage in transit(Sec. 50

to 52

Suit for price(Sec. 55)

Suit for damages(Sec. 56)

Re-sale(Sec.54)

RepudiationOf contract(Sec. 60)

Suit for interest

(Sec. 61)

With holdingdelivery

Stoppagein transit


Negotiable InstrumentNegotiable InstrumentDEFINITION:DEFINITION:

““A Negotiable instrument means a promissory note, A Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bill of exchange or cheque payable either to order or to bearer”to bearer”

-Sec. 13-Sec. 13

“ “ A Negotiable instrument is one the property in A Negotiable instrument is one the property in which is acquired by every person who takes it which is acquired by every person who takes it BONAFIDE and for value, notwithstanding any defect BONAFIDE and for value, notwithstanding any defect of title in the person from whom he took it.”of title in the person from whom he took it.”

-Judge Wills-Judge Wills


Essential Elements of Essential Elements of a Negotiable Instrumenta Negotiable Instrument

In writingIn writing Signed by the Maker/DrawerSigned by the Maker/Drawer Promise or order to payPromise or order to pay Promise/order must be unconditionalPromise/order must be unconditional Payment in MoneyPayment in Money For a certain sumFor a certain sum Payable at a time certain to arrivePayable at a time certain to arrive Drawee must be named or described with Drawee must be named or described with

reasonable certainty.reasonable certainty.


Promissory Note Promissory Note MeaningMeaning

““A Promissory note is an instrument in writing A Promissory note is an instrument in writing

(not being a bank note or currency note) (not being a bank note or currency note)

containing an unconditional undertaking, containing an unconditional undertaking,

signed by the maker, to pay a certain sum of signed by the maker, to pay a certain sum of

money, or to the order of, a certain person, or money, or to the order of, a certain person, or

to the bearer of the instrument.to the bearer of the instrument.


Bill of ExchangeBill of ExchangeMeaningMeaning

““A Bill of exchange is an instrument in writing A Bill of exchange is an instrument in writing

containing an unconditional order signed by the containing an unconditional order signed by the

maker, directing a certain person to pay a maker, directing a certain person to pay a

certain sum of money only to, or to the order of, certain sum of money only to, or to the order of,

a certain person or to the bearer of the a certain person or to the bearer of the

instrument.”instrument.”


ChequeChequeMeaningMeaning

““A Cheque is a bill of exchange drawn on a A Cheque is a bill of exchange drawn on a

specified banker and not expressed to be specified banker and not expressed to be

payable otherwise than on demand and it payable otherwise than on demand and it

includes the electronic image of a truncated includes the electronic image of a truncated

cheque and a cheque in the electronic form”cheque and a cheque in the electronic form”


Cheque – Electronic FormCheque – Electronic FormMeaningMeaning

‘‘A cheque in the electronic form’ means a cheque A cheque in the electronic form’ means a cheque

which contains the exact mirror image of a paper which contains the exact mirror image of a paper

cheque, and is generated, written and signed in a cheque, and is generated, written and signed in a

secure system ensuring the minimum safety standards secure system ensuring the minimum safety standards

with the use of digital signature (with or without with the use of digital signature (with or without

biometrics signature) and asymmetric crypto system.biometrics signature) and asymmetric crypto system.


Truncated ChequeTruncated ChequeMeaningMeaning

‘‘A truncated cheque’ means a cheque which is A truncated cheque’ means a cheque which is

truncated during the course of a clearing cycle, either truncated during the course of a clearing cycle, either

by the clearing house or by the bank, whether paying by the clearing house or by the bank, whether paying

or receiving payment, immediately on generation of an or receiving payment, immediately on generation of an

electronic image for transmission, substituting the electronic image for transmission, substituting the

further physical movement of the cheque in writing.further physical movement of the cheque in writing.


Distinction between Bill & Promissory NoteDistinction between Bill & Promissory Note

NoteNote BillBill Two parties – Maker Two parties – Maker

(Dr) & Payee (Cr)(Dr) & Payee (Cr) 3 Parties –Drawer Drawee & 3 Parties –Drawer Drawee &

Payee. Two can be OKPayee. Two can be OK

Cannot be made Cannot be made payable to the makerpayable to the maker

The drawer and payee or The drawer and payee or drawee and payee –samedrawee and payee –same

Unconditional promise Unconditional promise by the maker to payby the maker to pay

Unconditional order to the Unconditional order to the drawee to pay according to the drawee to pay according to the drawer’s directions.drawer’s directions.


Distinction between Bill & Promissory Note…Distinction between Bill & Promissory Note…

NoteNote BillBill Presented for payment Presented for payment

w/o any prior w/o any prior acceptance by the acceptance by the makermaker

Payable after sight must be Payable after sight must be accepted by the drawee or accepted by the drawee or some one else on his behalf some one else on his behalf before it can be presented.before it can be presented.

The liability of maker is The liability of maker is primary & absoluteprimary & absolute

Liability of the drawer is Liability of the drawer is secondary & conditionalsecondary & conditional

Maker stands in Maker stands in immediate relation with immediate relation with the payeethe payee

Maker/drawer of an accepted Maker/drawer of an accepted bill in immediate relation with bill in immediate relation with the acceptor & not the payee.the acceptor & not the payee.


Distinction between Bill & Promissory Note…Distinction between Bill & Promissory Note…

NoteNote BillBill No need of protestNo need of protest Foreign bills must be Foreign bills must be

protested for dishonor where protested for dishonor where law requires itlaw requires it

No notice is necessaryNo notice is necessary Notice of dishonor by the Notice of dishonor by the holder to the drawer & holder to the drawer & intermediate endorsersintermediate endorsers


Distinction between A cheque & B/EDistinction between A cheque & B/E

ChequeCheque Bill of ExchangeBill of Exchange Drawn on a BankerDrawn on a Banker May be drawn on any May be drawn on any

person including a bankerperson including a banker

Payable on demandPayable on demand Payable on demand or Payable on demand or the expiry of certain the expiry of certain period after date of sight.period after date of sight.

Payable to bearer on Payable to bearer on demand-validdemand-valid

Such a B/E is void and Such a B/E is void and illegalillegal

Does not require Does not require acceptance by the draweeacceptance by the drawee

Such acceptance is Such acceptance is necessarynecessary


Distinction between A cheque & B/E…….Distinction between A cheque & B/E…….

ChequeCheque Bill of ExchangeBill of Exchange Does not require any stampDoes not require any stamp Proper stamp is Proper stamp is

necessarynecessary

No days of graceNo days of grace Three days of grace on Three days of grace on ‘time bills’‘time bills’

Can be crossedCan be crossed Can not be crossedCan not be crossed Payment can be Payment can be

countermanded by the drawercountermanded by the drawer NoNo

No system of noting/protestNo system of noting/protest Such a thing is Such a thing is requiredrequired


HolderHolder““The holder of a negotiable instrument The holder of a negotiable instrument

means any person entitled to the means any person entitled to the

possession of the instrument in his own possession of the instrument in his own

name and to receive or recover the name and to receive or recover the

amount due thereon from the parties liable amount due thereon from the parties liable

thereto.”thereto.”-Sec.8-Sec.8


Holder in due courseHolder in due course1.1. He must be a holder.He must be a holder.2.2. He must be a holder for valuable He must be a holder for valuable

consideration.consideration.3.3. He must have become the holder of the N/I He must have become the holder of the N/I

before its maturity.before its maturity.4.4. He must take the N/I complete and regular on He must take the N/I complete and regular on

the face of it.the face of it.5.5. He must have become holder in good faith.He must have become holder in good faith.


Privileges of Holder in due coursePrivileges of Holder in due course He gets a better title than that of the transferor.He gets a better title than that of the transferor. Privilege in case of inchoate stamped instruments.Privilege in case of inchoate stamped instruments. Liability of prior partiesLiability of prior parties Privilege in case of fictitious bill.Privilege in case of fictitious bill. Privilege when an instrument delivered conditionally Privilege when an instrument delivered conditionally

is negotiated.is negotiated. Estoppel against denying original validity of Estoppel against denying original validity of

instrument.instrument. Estoppel against denying capacity of payee to Estoppel against denying capacity of payee to

indorse.indorse.


NegotiationNegotiationDEFINITIONDEFINITION

““When a promissory note, bill of exchange When a promissory note, bill of exchange

or cheque is transferred to any person, so or cheque is transferred to any person, so

as to constitute that person the holder as to constitute that person the holder

thereof, the instrument is said to be thereof, the instrument is said to be

negotiated.”negotiated.”


Not NegotiableNot NegotiableMEANINGMEANING

““A person taking a cheque crossed A person taking a cheque crossed

generally or specially, bearing in either generally or specially, bearing in either

case the words ‘Not Negotiable’, shall not case the words ‘Not Negotiable’, shall not

have, and shall not be capable of giving, a have, and shall not be capable of giving, a

better title to the cheque than which the better title to the cheque than which the

person from whom he took it had.”person from whom he took it had.”


Bouncing of ChequesBouncing of Cheques Cheque should have been dishonored due to Cheque should have been dishonored due to

‘insufficiency of funds.’‘insufficiency of funds.’ Cheque presented within its validity.Cheque presented within its validity. For the discharge of legally enforceable debt or For the discharge of legally enforceable debt or

other liability.other liability. Notice within 30 days of dishonor.Notice within 30 days of dishonor. Failed to make the payment within 15 days of the Failed to make the payment within 15 days of the

receipt of notice.receipt of notice. A written complaint to a M.M. or 1A written complaint to a M.M. or 1stst Class J.M. within Class J.M. within

one month of the date when the cause of action one month of the date when the cause of action arose.arose.

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