business law

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MODULE I – MERCANTILE LAW OR BUSINESS LAW

I LAW & SOCIETY OR WHY DO WE NEED LAWS?

1. WITHOUT LAW THERE WILL BE CHAOS AND CONFUSION IN SOCIETY

2. TODAY LAW PERVADES ALMOST EVERY FACET OF HUMAN LIFE

3. IT IS ALSO SAID- IGNORANCE OF LAW IS NOT AN EXCUSE

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II. WHAT IS MEANT BY LAW OR DEFINITIONS OF LAW

1. OXFORD DICTIONARY DEFINES THE TERM ‘LAW’ AS “THE RULE MADE BY AUTHORITIES FOR THE PROPER REGULATION OF A COMMUNITY OR SOCIETY OR FOR CORRECT CONDUCT OF LIFE”

2. ACCORDING TO JURIST- AUSTIN “ A LAW IS A RULE OF CONDUCT IMPOSED AND ENFORCED BY THE SOVEREIGN”

3. ACCORDING TO JURIST – SALMOND “LAW IS THE BODY OF PRINCIPLES RECOGNISED AND APPLIED BY THE STATE IN THE ADMINSTRATION OF JUSTICE”

4. LAW ACCORDING TO HOLLAND “LAW IS RULE OF EXTERNAL HUMAN ACTIONS ENFORCED BY SOVEREIGN POLITICAL AUTHORITY”

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III. WHAT ARE THE BRANCHES OF LAW?OR

WHAT ARE THE CLASSIFICATION OF LAWS?

1. PUBLIC LAW & PRIVATE LAW2. CRIMINAL LAW & CIVIL LAW3. SUBSTANTIVE LAW & PROCEDURAL

LAW4. INTERNATIONAL LAWS & NATIONAL

LAWS5. PUBLIC INTERNATIONAL LAW &

PRIVATE INTERNATIONAL LAW [MS = 12, SG=16 – 18, PG=

4 ]

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IV. WHAT IS BUSINESS OR MERCANTILE LAW1. THE TERM MERCANTILE OR BUSINESS LAW

DEALS WITH THAT BRANCH OF LAW REGULATING TRADE, INDUSTRY AND COMMERCE

2. IT PRESCRIBES RULES FOR THE GOVERNANCE OF RELATIONS BETWEEN:(a) BUSINESS PERSONS TO BUSINESS

PERSONS(b) BUSINESS PERSONS AND THEIR

CUSTOMERS, DEALERS, SUPPLIERS ETC.,(c) BUSINESS PERSONS AND THE STATE

CONT…

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3. IN PARTICULAR IT IS CONCERNED WITH THE FOLLOWING LEGISLATIONS:

a) INDIAN CONTRACT ACT 1872b) SALE OF GOODS ACT 1930c) INDIAN PARTNERSHIP ACT 1932d) NEGOTIABLE INSTRUMENTS ACT 1881e) INDIAN COMPANIES ACT 1956f) THE DEPOSITORIES ACT 1996g) THE CONSUMER PROTECTION ACT 1986h) THE FOREIGN EXCHANGE MGT- ACT

1999i) INFORMATION TECHNOLOGY ACT 2000j) THE PATENTS ACT 1957k) THE COPY RIGHT ACT 1957l) THE COMPETITION ACT 2000m) TRADE MARKS ACT 1999

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V. WHAT ARE THE SOURCES OF BUSINESS LAW IN INDIA

SOURCES OF INDIAN LAWS ARE

ENGLISH JUDICAL TRADE INDIANLAW DECISIONS CUSTOMS

STATUTES OR & CASE LAWS USAGE

ENGLISH EQUITY LAW MERCHANT STATUTECOMMON OR

LAWLAW MARITIME

USAGE[MS = 14 – 15, PG=5 – 6, MK=2- 3 AP=1- 2

SG=24 – 25]

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MODULE II – LAW OF CONTRACT

I WHAT IS THE MEANING OF THE TERM CONTRACT

1. THE WORD CONTRACT IS DERIVED FROM LATIN WORD ‘CONTRACTUM’-MEANING TOGETHER

2. “A CONTRACT IS AN AGREEMENT ENFORCEMENT AT LAW MADE BETWEEN TWO OR MORE PERSONS BY WHICH RIGHTS ARE ACQUIRED BY ONE OR MORE TO ACT OR FOREBEARANCE ON THE PART OF OTHER OR OTHERS”

[SIR WILLIAM ANSON]

CONT….

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3. EVERY AGREEMENT AND PROMISE ENFORCEABLE AT LAW IS A CONTRACT “[SIR FEDRICK POLLOCK]

4. ACCORDING TO SECTION 2 (h) OF THE INDIAN CONTRACT ACT 1872 “ AN AGREEMENT ENFORCEABLE BY LAW IS A CONTRACT”

5. AN ANALYSIS OF THESE DEFINITIONS SHOW THAT A CONTRACT MUST HAVE THE FOLLOWING TWO ELEMENTS:(a) AN AGREEMENT AND(b) IT MUST BE LEGALLY ENFORCEABLECONTRACT=AN AGREEMENT +ITS ENFORCEABILITY

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II. WHAT IS MEANT BY THE TERM AGREEMENT?

1. AS PER SECTION 2 (e): “ EVERY PROMISE AND EVERY SET OF PROMISES, FORMING CONSIDERATION FOR EACH OTHER IS AN AGREEMENT”

2. WHAT IS “PROMISE”-ACCORDING TO SECTION 2 (b) “A PROPOSAL WHEN ACCEPTED BECOMES A PROMISE”

3. RAM OFFERS TO SELL HIS CAR TO SHYAM FOR RS. 2 LAKHS. SHYAM ACCEPTS THIS OFFER. THIS OFFER WHEN ACCEPTED BECOMES A PROMISE AND THIS PROMISE IS TREATED AS AN AGREEMENT BETWEEN THE TWO

CONT….

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4. AS PER SECTION 2 (c) THE PERSON MAKING THE PROPOSAL IS CALLED “PROMISOR” AND THE PERSON ACCEPTING THE PROPOSAL IS CALLED “PROMISEE”

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III. WHEN DOES AN AGREEMENT BECOME A CONTRACT?

1. ACCORDING TO SECTION 2 (h) ONLY THOSE AGREEMENTS WHICH ARE ENFORCEABLE BY LAW IS A CONTRACT

2. AGREEMENTS INTENDED ONLY TO CREATE MORAL, RELIGIOUS OR SOCIAL OBLIGATION AND NOT INTENDED TO CREATE LEGAL OBLIGATIONS ARE NOT TREATED AS ‘CONTRACTS’

CONT….

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[EX (i) A PROMISE TO HOST A LUNCH FOR A FRIEND ON HIS BIRTHDAY IS NOT LEGALLY ENFORCEABLE (AS IT IS ONLY A SOCIAL OBLIGATION)(ii) ANTONY PROMISES A PRIEST THAT HE WOULD DONATE RS. 10,000/- IF HE GETS A FIRST CLASS [ONLY A MORAL OBLIGATION](iii) A HUSBAND PROMISED HIS WIFE TO PAY RS. 500 PM AS POCKET MONEY. HE LATER STOPPED PAYING IT.BOTH THESE AGREEMENTS ARE SOCIAL / RELIGIOUS / FAMILY OBLIGATIONS AND ARE NOT ENFORCEABLE IN LAW

3. THEREFORE IT IS SAID THAT ALL CONTRACTS ARE AGREEMENTS BUT ALL AGREEMENTS ARE NOT CONTRACTS [BECAUSE SOME OF THEM ARE NOT LEGALLY ENFORCEABLE]

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IV. WHAT ARE THE INGREDIENTS OR ESSENTIAL REQUIREMENTS FOR AN AGREEMENT TO BECOME A CONTRACT

1. SECTION 10 PRESCRIBES TEN REQUIREMENTS FOR AN AGREEMENT TO BECOME A CONTRACT

2. IF ANY ONE OF THE REQUIREMENTS ARE NOT MET, THE AGREEMENT WOULD NOT BE ENFORCEABLE IN LAW AND HENCE WOULD NOT BECOME A CONTRACT

3. THE TEN REQUIREMENTS ARE: (i) THERE SHOULD BE A PROPER PROPOSAL

(OFFER) AND ITS PROPER ACCEPTANCE

(ii) THERE MUST BE AN INTENTION TO CREATE LEGAL RELATIONS

(iii) THERE MUST BE A LAWFULL CONSIDERATION CONT…

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(iv) THE PARTIES SHOULD HAVE LEGAL CAPACITY OR COMPETENCY TO ENTER INTO A CONTRACT

(v) THEIR CONSENT MUST BE FREE ([WITHOUT COERCION]

(vi) THE OBJECT OF THE AGREEMENT SHOULD BE LAWFULL

(vii) IF THE LAW REQUIRES IT TO BE IN WRITING OR REGISTERED IT SHOULD BE COMPLIED WITH

(vii) THERE SHOULD BE CERTAINITY OF MEANING

(ix) THERE SHOULD BE POSSIBILITY IF PERFORMANCE CONT…

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(x) IT SHOULD NOT FALL UNDER CERTAIN CATEFORIES OF AGREEMENTS WHICH HAVE BEEN EXPRESSLY PROHIBITED OR DELCARED AS ILLEGAL

[MS=2.4 PG = 30-33 SG = 38-42 CB=4-5 MK=8-13

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V. WHAT ARE THE CLASSIFICATION OF CONTRACTS?

(1) ON THE BASIS OF ENFORCEABILITY: (a) VALID CONTRACTS [MA=2.4, MK-

13(b) VOID CONTRACTS [MS=2.9 MK-14(c) VOIDABLE CONTRACTS [MS=2.9, MK=13(d) ILLEGAL CONTRACTS [MS=2.9, MK=17

CONT…..

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(2) ON THE BASIS OF MODE OF CREATION/ FORMATION:

(a) EXPRESS CONTRACT [MS=2.10, MK=18 (b) IMPLIED CONTRACT [MS=2.11, MK=18 (c) QUASI CONTRACT [NOT STRICTLY A

CONTRACT](3) ON THE BASIS OF EXTENT OF

PERFORMANCE: (a) EXECUTED CONTRACT [MS=2.11 MK=19 (b) EXECUTORY CONTRACT [MS=2.11 MK=19(4) ON THE BASIS OF OBLIGATIONS:(a) UNILATERAL (2) BILATERAL (3)

MULTILATERAL [MS=2.9 to 2.12 PK=34, SG=42-43, CB=6-8MK =13-20]

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VI. WHAT IS MEANT BY VOID AGREEMENTS, VOID CONTRACTS, VOIDABLE CONTRACTS

1) VOID AGREEMENT – ACCORDING TO SECTION 2(g) “ AN AGREEMENT NOT ENFORCEABLE BY LAW IS VOID [ VOID MEANS EMPTY]AN AGREEMENT NOT SUPPORTED BY :

(a) CONSIDERATION (b) FREE CONSENT (c) COMPETENT PARTIES (d) WHEN THE

OBJECT IS UNLAWFULL [A VOID AGREEMENT IS AB-INIT10 VOID [MS=2.9 MK=15 SG=46]

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2) VOID CONTRACT ACCORDING TO SECTION 2 (j) A

CONTRACT WHICH WAS INITIALLY VALID, BUT BECAME SUBSEQUENTLY INVALID IS A VOID CONTRACT FROM THE DATE IT BECOME INVALID.

[MS=2.9, MK=14 S=46, ][AN AGREEMENT WITH A FOREIGN NATIONAL

BECOMES VOID WHEN WAR IS DECCARED BETWEEN THE TWO COUNTRIES]

3) VOIDABLE CONTRACT – ACCORDING TO SECTION 2(i) “AN AGREEMENT WHICH IS ENFORCEABLE BY LAW AT THE OPTION OF ONE OR MORE OF THE PARTIES THERETO, BUT NOT AT THE OPTION OF THE OTHER OR OTHERS CONT…

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[EX – A PARTY WHO HAS GIVEN HIS CONSENT TO AN AGREEMENT BY MISTAKE, MISREPRESENTATION, FRAUD, COERCION OR UNDER UNDUE INFLUENCE HAS THE OPTION TO RESCIND OR CANCEL OR AVOID THE CONTRACT. ONLY HE HAS THE OPTION TO AVOID AND NOT THE OTHER PARTY – IF THE WISHES, HE CAN PROCEED WITH THE CONTRACT][MS=29 MK=14 ]

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VII.WHAT IS MEANT BY ILLEGAL AGREEMENTS, UNLAWFULL AGREEMENTS, UN-ENFORCEABLE CONTRACTS? (1) ILLEGALAGREEMENT AN

AGREEMENT IS SAID TO BE ILLEGAL WHEN THE PURPOSE OR OBJECT FOR WHICH IT HAS BEEN FORMED IS BASED ON COMMITTING A CRIME[MS=2.10 MK=17]

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(2) UNLAWFULL AGREEMENT – AN AGREEMENT IS SAID TO BE UNLAWFULL, WHEN IT HAS BEEN ENTERED INTO AMONG PARTIES CONTRARY TO THE PROVISIONS OF LAW. SUCH AN AGREEMENT IS ONLY UNLAWFULL AMONG THE PARTIES TO THE AGREEMENT AND NOT AGAINST A STRANGER[MS=2.10 MK=17]

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(3) WHAT IS MEANT BY UNENFORCEABLE CONTRACTAN AGREEMENT WHICH IS OTHERWISE VALID BUT CANNOT BE ENFORCED FOR WANT OF PROCEDURAL FORMALITIES OR TECHNICAL FAULTS LIKE WRITTEN ON INSUFFICIENT STAMP PAPER.[MS=2.10 MK=17]

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VIII.WHAT IS MEANT BY EXPRESS CONTRACT OR IMPLIED CONTRACT?

(1) CONTRACTS WHICH ARE EXPRESSED ORALLY OR IN WRITING ARE CALLED EXPRESS CONTRACTS

(2) WHERE THE OFFER AND ACCEPTANCE ARE MADE OTHERWISE THAN IN WORDS IT IS CALLED IMPLIED CONTRACTS – IT IS IMPLIED FROM THE BEHAVIOUR OR BODY LANGUAGE OF THE PARTIES[MS 2.10 & 2.11 , MK = 18-19 ]

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IX. WHAT IS MEANT BY QUASI CONTRACT OR CONSTRUCTIVE CONTRACTS

(1) SUCH CONTRACTS DO NOT EMENATE OUT OF ANY AGREEMENTS AND HENCE ARE NOT CONTRACTS IN THE STRICT SENSE OF THE TERM ‘ CONTRACT’

(2) THE REALITY IS, IN CERTAIN SPECIAL CIRCUMSTANCES COURTS INTERPRET IT AS IF THERE WAS AN AGREEMENT

(3) IT IS BASED ON THE PRINCIPAL OF EQUITY

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(4) SECTION 68-72 OF THE ICA DESCRIBES THE CASES WHICH WILL BE DEEMED AS QUASI- CONTRACTS

(5) EX. (i) LIABILITY OF A FINDER OF LOST GOODS TO RETURN IT TO THE OWNER

(ii) IF MONEY IS PAID BY MISTAKE TO THE WRONG PERSON HE IS OBLIGATED TO RETURN IT

[MK-19 ]

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X. WHAT IS MEANT BY EXECUTED, EXECUTORY CONTRACTS

1. EXECUTED CONTRACT – WHEN THE OBLIGATIONS UNDER THE CONTRACT HAVE BEEN DISCHARGED IT BECOMES AN EXECUTED CONTRACT

2. EXECUTORY CONTRACT – A CONTRACT IN WHICH THE OBLIGATIONS BY EITHER PARTY ARE TO BE PERPORMED AT A FUTURE DATE

3. EX. ‘ A’ AGREES TO SELL HIS CAR TO ‘B’ FOR RS 1LAKH AND RECIEVES AN ADVANCE OF RS.1,000/- AND GIVE DELIVERY WHEN THE BALANCE IS PAID

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XI. WHAT IS MEANT BY THE TERMS “OFFER” (OR PROPOSAL) AND “ACCEPTANCE” UNDER ICA 1872 ?

1. SECTION 2(a) DEFINES ‘OFFER’ OR ‘PROPOSAL’ AS FOLLOWS:

(i) WHEN A PERSON SIGNIFIES HIS WILLINGNESS TO ANOTHER PERSON

(ii) IN RESPECT OF DOING OR ABSTAINNG FROM DOING SOMETHING

(iii) WITH A VIEW TO OBTAINING THE ASSENT OF THE OTHER”

HE IS SAID TO BE MAKING A PROPOSAL

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[EX- RAM CONVEYS HIS INTENTION TOSELL HIS HOUSE NO 27 ON HOSUR ROAD FOR RS. 10 LAKHS TO SITA, MADE WITH AN INTENTION TO OBTAIN HER ASSENT – IDEA CONVEYED IS KNOWN AS A ‘PROPOSAL OR OFFER’2. THERE ARE CERTAIN RULES FOR

MAKING A VALID OFFER LIKE:i. A STATEMENT OF INTENTION IS NOT

AN OFFER AS IT IS NOT INTENDED TO CREATE LEGAL OBLIGATIONS [I AM MULLYING THE IDEA OF SELLING MY LAPTOP TO PROF. RAM]IT MUST BE INTENDED TO CREATE LEGAL OBLIGATIONS CONT….

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ii. IT CAN BE BY WORDS OR BY CONDUCT [EXPRESS OR IMPLIED]

EXPRESS – RAM SAYS TO SHYAM I WILL SELL MY CAR TO YOU FOR RS. 3

LAKHSIMPLIED – BMTC RUNS BUSES ON

ROADS, IT IS IMPLIED THAT PASSANGERS USING IT MUST

PAYiii. THE TERMS OF OFFER MUST BE CERTAIN

OR CAPABLE OF BEING MADE CERTAIN [IT SHOULD NOT BE AMBIGOUS]

EX- RAM SAYS TO SHAYM “ I WILL SELL YOU A CAR, RAM HAS THREE CARS. THE PROPOSAL IS NOT CERTAIN AS TO WHICH CAR.

CONT….

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iv. AN OFFER MUST BE DISTINGUISHED FROM AN INVITATION TO OFFER OR A QUOTATION[AN AUCTIONER OFFERING A GOOD ON AUCTION, OR BARGAIN ADVERTISEMENTS/ PRICE CATALOGUES ARE NOT OFFERS, BUT THE PERSON RESPONDING IS SAID TO BE MAKING AN OFFER AND NOT THE AUCTIONER.

v. IF THERE ARE SOME SPECIAL CONDITIONS ATTACHED TO THE OFFER IT SHOULD BE NOTIFIED. [QUOTATION INVITED WITHIN 3 DAYS OF ADVERTISEMENT – APPLY THROUGH E-MAIL ETC]

[MS=3.2-3.3 PG=34-35 SG=47-48 CB=13-14 ]

3.8 MK=22-30

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XII.WHAT IS MEANT BY “ACCEPTANCE” AND WHAT ARE THE ESSENTIALS OF A VALID ACCEPTANCE

SECTION 8 & 9 LAY DOWN THE RULESTO CONVERT A PROPOSAL INTO APROMISEi. ACCEPTANCE MUST BE ABSOLUTE

AND UNQUALIFIED [SUBJECT TO OR CONDITIONAL ACCEPTACE NOT ALLOWED]

ii. MODE OF ACCEPTANCE MUST BE IN SOME USUAL OR REASONABLE MODE OR IN THE PRESCRIBED MODE

iii. MERE MENTAL ACCEPTACE IS NOT ENOUGH IN LAW

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iv. ACCEPTANCE MUST BE COMMUNICATED TO THE PROPOSER

v. ACCEPTANCE MUST BE GIVEN WITHIN REASONABLE TIME AND BEFORE THE PROPOSAL LAPSES OF IS REVOKED

vi. ACCEPTANCE OF THE PROPOSAL MUST BE TOTAL (OF ALL THE TERMS)

vii. ACCEPTANCE MUST BE BY A CERTAIN PERSON [NOT BY AN ANONYMOUS PERSON]

viii.ACCEPTANCE NEED NOT NECESSARILY BE IN WORDS [INSURANCE COMPANY ENCASHING A CHEQUE IS ENOUGH PROOF OF ACCEPTANCE]

CONT…

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ix. AN ACCEPTANCE GIVEN IN IGNORANCE OF OFFER WILL NOT BE VALID

[SERVANT TRACED MASTORS SON – WITHOUT KNOWING THE REWARD OFFER]

[MS=4.1-4.9 PG=38-39, SG=52-55

CB=15-18 MK=28-34]

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XIII.WHAT ARE REQUIREMENTS OF COMMUNICATING A: A PROPOSAL AN ACCEPTANCE OR A REVOCATION?

1. COMMUNICATION OF A PROPOSAL IS COMPLETE WHEN IT COMES TO THE KNOWLEDGE OF THE PERSON TO WHOM IT IS MADE [WHEN THE LETTER CONTAINING THE PROPOSAL REACHES THE PROPOSEE]

2. THE COMMUNICATION OF ACCEPTANCE IS COMPLETE:

a) AS AGAINST THE PROPOSER WHEN IT IS PUT IN COURSE OF TRANSMISSION AND IS GONE OUT OF THE REACH OF THE PROPOSER [WHEN THE PROPOSAL LETTER IS PUT IN THE POST BOX]

CONT……

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b) AS AGAINST THE ACCEPTOR WHEN IT COMES TO HIS KNOWLEDGE [WHEN THE LETTER REACHES HIM]

3. COMMUNICATION OF REVOCATION (WITHDRAWAL OF OFFER) IS COMPLETE:

a) AS AGAINST THE PERSON WHO MAKES IT, WHEN IT IS PUT INTO A COURSE OF TRANSMISSION TO THE PERSON TO WHOM IT IS MADE SO AS TO GO OUT OF THE REACH OF THE PERSON REVOKING. [WHEN REVOCATION LETTER IS POSTED]

b) AS AGAINST THE PERSON TO WHOM IT IS MADE, WHEN IT COMES TO HIS KNOWLEDGE [WHEN LETTER IS RECEIVED BY HIM]

CONT……

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4. TIME DURING WHICH AN OFFER OR ACCEPTANCE CAN BE REVOKED

a) A PROPOSAL CAN BE REVOKED AT ANY TIME BEOFRE THE COMMUNICATION OF ITS ACCEPTANCE

b) ACCEPTANCE MAY BE REVOKED AT ANY TIME BEFORE THE COMMUNICATION OF ACCEPTANCE IS COMPLETE AS AGAINST THE ACCEPTOR BUT NOT AFTERWARDS

[MS=4.7 PG=40 SG=54-55 CB=18-21 MK=34-35]

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XIV.WHAT IS “CONSIDERATION” AND WHAT ARE THE ESSENTIALS OF VALID CONSIDERATION

1. SECTION 2 (d) OF ICA DEFINES CONSIDERATION AS “WHEN AT THE DESIRE OF THE PROMISOR, THE PROMISEE OR ANY OTHER PERSON HAS DONE OR ABSTRAINED FROM DOING, OR DOES OR ABSTAINS FROM DOING, OR PROMISES TO DO OR TO ABSTAIN FROM DOING SOMETHING, SUCH ACT OR ABSTINENCE OR PROMISE IS CALLED A CONSIDERATION FOR MAKING THE PROMISE”

CONT….

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2. ‘CONSIDERATION’ IS ALSO KNOWN AS ‘QUID PRO QUO’ THAT IS SOMETHING IN RETURN FOR SOMETHING DONE OR FOR ABSTAINING FROM DOING SOMETHING [RAM AGREES TO PAY SHYAM RS. 10,000/- IF HE DOES NOT PRESS THE SUIT FILED AGAINST RAM OR WITHDRAWS THE POLICE COMPLAINT]

3. THAT SOMETHING IN RETURN IS CALLED “CONSIDERATION”

4. CONSIDERATION IS THE PRICE FOR WHICH THE OTHER PERSON’S PROMISE IS BOUGHT.

5. AS PER SECTION 10 & 25 A CONTRACT WITHOUT CONSIDERATION IS HELD TO BE VOID AND NOT ENFORCEABLE[HOWEVER THERE ARE A FEW EXCEPTIONS TO THIS RULE]

[MS=51 MK=40 CB=23 PG=41 SG=67]

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XV. WHAT ARE ESSENTIALS OF A VALIDCONSIDERATION ?

1. CONSIDERATION SHOULD HAVE BEEN PROVIDED AT THE DESIRE OF THE PROMISOR ONLY

a) ACT OR ABSTINENCE BY MR. ‘B’ SHOULD HAVE BEEN AT THE REQUEST OF MR. ‘A’

b) VOLUNTARY OR GRATUITOUS ACTS BY ‘B’ NOT REQUESTED BY ‘A’ WOULD NOT AMOUNT TO CONSIDERATION

c) DESIRE OF THE PROMISOR COULD BE EXPRESS OR IMPLIED

CONT…….

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d) ACT OR ABSTYNENCE BY ‘B’ COULD BE FOR THE BENEFIT OF ‘A’ OR ANY THIRD PERSON[EX. MR. ‘D’ CONSTRUCTED A MARKET AT THE REQUEST OF THE COLLECTOR MR ‘A’ THE SHOP KEEPERS USING THE MARKET PROMISED ‘D’ TO PAY A COMMISSION TO ‘D’ ON THE BASIS OF THEIR GOODS SOLD. IF HE LATER BACK-TRACKED, MR ‘D’ CANNOT ENFORCE PAYMENT BECAUSE THE MARKET WAS NOT CONSTRUCTED AT THE REQUEST OF THE SHOP KEEPERS- SHOE SHINE BOYS IN THE TRAIN POLISHED SHOES WITHOUT BEING ASKED –COCONUT PLUCKER PLUCKED NUTS WITHOUT BEING ASKED]

CONT…….

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2. CONSIDERATION MAY MOVE FROM THE PROMISEE OR ANY OTHER THIRD PERSON:

a) THE RETURN PROMISE (CONSIDERATION) MAY BE PERFORMED BY THE PROMISEE HIMSELF OR BY ANY THIRD PARTY

b) HOWEVER THE THIRD PARTY (MR ‘C’) CANNOT SUE MR ‘A FOR NON PERFORMANCE AS HE IS NOT A PARTY TO THE CONTRACT[FLOWER BOQUET DELIVERY]A BEQUEATED RS. 10 LAKHS TO HIS DAUGHTER ON CONDITION THAT SHE WILL GIVE AN ANNUITY OF RS 1 LAKH TO HIS SISTER (GIRL’S AUNT. SHE SIGNED AN AGREEMENT WITH HER ANUTY TO THIS EFFECT.

CONT…….

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AND AFTER HER FATHER’S DEATH SHE REFUSED TO PAY THE ANNUITY TO THE AUNTY ON THE GROUND THAT AUNTY HAD NOT OFFERED HER ANY “CONSIDERATION” AND HENCE THERE IS NO VALID CONTRACT BETWEEN HER AND HER AUNTY. COURTS HLED THOUGH THE AUNTY HAD NOT GIVEN ANY “CONSIDERATION” TO THE NEICE, THE CONSIDERATION [PAYMENT OF 10 LAKHS WAS MADE BY A THIRD PERSON-HER BROTHER AND HENCE THE CONTRACT BETWEEN AUNT AND NIECE IS VALID AND ENFORCEABLE]

3. CONSIDERATION NEED NOT BE IN CASH OR KIND

a) EVEN ACTS OF ABSTAINING OR FOREBEARING LIKE PROMISE OF NOT TO SUE OR WITHDRAWAL OF SUIT IS HELD TO BE VALID CONSIDERATION CONT…….

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4. CONSIDERATION COULD BE PAST, PRESENT OR FUTURE

a) CONSIDERATION RECEIVED BEFORE EXECUTION OF CONTRACT (PAST) [REWARD FOR SAVING FROM DROWNING]

b) WHEN CONSIDERATION IS FOR A CURRENT FAVOUR (PRESENT)

c) CONSIDERATION MAY BE TO DO A FUTURE ACT OR NOT TO DO A FUTURE ACT[A PROMISES NOT TO COMPETE AGAINST B IN NEXT YEARS SPORTS]

CONT…….

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5. CONSIDERATION NEED NOT BE FULL OR ADEQUATE

a) IT NEED NOT BE ADEQUATE OR EQUIVALENT TO THE VALUE OF THE PROMISE[MR A AGREES TO SELL HIS BIKE COSTING RS 1 LAKH TO HIS NEPHEW B FOR RS 10,000/- AND A’S CONSENT WAS GIVEN FREELY. THE AGREEMENT IS VALID AND ENFOCEABLE THOUGH THE CONSIDERATION IS INADEQUATE

b) HOWEVER INADEQUATE CONSIDERATION COULD GIVE RISE TO LITIGATION WHETHER THE CONSENT WAS “FREE OR NOT”

6. CONSIDERATION MUST BE REAL AND NOT ILLUSORY

CONT…….

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a) CONSIDERATIONS WHICH CANNOT BE PHYSICALLY OR LEGALLY ACHIEVED WOULD NOT BE PROPER CONSIDERATION[(1) A PROMISES TO REVIVE ‘B’S DEAD WIFE FOR RS 10,000 AND RECEIVES AN ADVANCE (2) A JUDGE’S SON AGREED TO GET A FAVOURABLE JUDGEMENT FROM HIS FATHER IN FAVOUR OF ‘B’ FOR CONSIDERATION OF RS 10,000. B REFUED TO PAY]

b) CONSIDERATION SHOULD NOT BE UNCERTAIN OR ILLUSORY[A AGREES TO PAY A “REASONABLE COMMISSION” TO B]

CONT…….

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7. CONSIDERATION MUST NOT BE FOR SOMETHING WHICH THE OTHER IS LEGALLY BOUND TO DO [A AGREED TO PAY B THE RTO THE FEE FOR THE DRIVING LICENCE + RS 1000/-]

[MS=5.1& 5.2, CB=24-25, SG=68 MK=41-46 PK=41- 42]

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XVI.AN AGREEMENT WITHOUT CONSIDERATION IS VOID [ACCORIDNG TO SECTION 25] – WHAT ARE THE EXCEPTIONS TO THIS RULE?

1. CONSIDERATION BEING ONE OF THE ESSENTIAL INGREDIENTS OF A VALID CONTRACT, AS A GENERAL RULE AN AGREEMENT MADE WITHOUT CONSIDERATION IS VOID AND NOT ENFORCEABLE

2. THERE ARE 7 EXCEPTIONS TO THIS RULE AND THE EXEPTIONS ARE:

a) AS PER SECTION 25 (1) AN AGREEMENT MADE OUT OF LOVE AND AFFECTION WITHOUT ANY CONSIDERATION IS VALID IF IT MEETS ALL THE FOLLOWING CONDITIONS:

i. IT MUST BE EXPRESSED IN WRITINGCONT……

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ii. IT MUST BE REGISTERED UNDER THE LAW OF REGISTRATION

iii. MADE ON ACCOUNT OF NATURAL LOVE AND AFFECTION

iv. IT MUST BE BETWEEN PARTIES WHO ARE NEAR RELATIONS TO EACH OTHER[(1) A AGREES TO PAY HIS SON’S DEBT TO THE SON’S DEBTORS(2) A AGREES TO PAY HIS QUARRELLING WIFE TO STAY AWAY FROM HIM HELD NOT VALID AS THE AGREEMENT WAS NOT FOR LOVE AND AFFECTION(3) NON WRITTEN OR NON REGISTERED WOULD ALSO NOT BE VALID IF REGISTRATION IS MANDATORY]

CONT……

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3. AS PER SECTION 25 (2) AN AGREEMENT TO COMPENSATE FOR PAST VOLUNTARY SERVICE IS VALID EVEN IF THERE IS NO CONSIDERATIONA RESCUED B FROM DROWING. ON RETURNING HOME, ‘B’ PROMISES TO PAY A RS 1000/- THIS IS A VALID CONTRACT THOUGH A HAD DONE IT WITHOUT ANY EXPECTATION. [ PAST CONSIDERATION]

4. AS PER 25 (3) AGREEMENTS TO PAY TIME BARRED DEBT IS VALID EVEN WITHOUT ANY FRESH CONSIDERATION

5. EXPLANATION TO SECTION 25 (1) SAYS A GIFT IF ALREADY MADE BY DONOR TO DONEE SHALL BE VALID EVEN WITHOUT CONSIDERATION

CONT……

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[IN THIS CASE DONEE NEED NOT BE A RELATIVE][I GAVE ALL MY STAMP / COIN COLLECTIONS TO A STUDENT IN THE COLLEGE]

6. ACCORDING TO SECTION 63 FOR REMISSION OR COMPROMISING A DEBT NO CONSIDERATION IS NECESSARY[AGREEING TO EXTEND TIME FOR REPAYMENT AGREEING TO CLOSE DEBT FOR A LOWER AMOUNT]

7. ACCORDING TO SECTION 185 NO CONSIDERATION IS REQUIRED FOR EXECUTING AN AGREEMENT OF AGENCY

8. NO CONSIDERATION REQUIRED FOR MAKING CONTRIBUTIONS TO CHARITY

[MS 5.6 – 5.7, MK= 47 – 50, CB= 29 – 30, PG=42

SG= 67 – 68]

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XVII.WHAT IS MEANT BY PRIVITY TO CONTRACT? [ ONLY PARTIES TO A CONTRACT CAN SUE OR BE SUED- ARE THERE ANY EXCEPTIONS TO THIS RULE] OR A STRANGER TO A CONTRACT CANNOT SUE

1. IT IS A FUNDAMENTAL PRINCIPLE OF LAW OF CONTRACT THAT A STRANGER TO A CONTRACT CANNOT SUE, ONLY A PERSON WHO IS A PARTY TO A CONTRACT CAN SUE OR BE SUED.

EX. ‘A’ MORTGAGES HIS PROPERTY TO ‘B’ IN CONSIDERATION OF B’S PROMISE TO ‘A’ TO PAY A’S DEBTS TO ‘C’. B DID NOT KEEP HIS PROMISE. C CANNOT SUE B AS C IS NOT A PARTY TO THE AGREEMENT BETWEEN A & B

CONT……

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2. THE RULE THAT STRANGER TO A CONTRACT CANNOT SUE HAS THE FOLLOWING EXCEPTIONS:

a) IN CASE OF CREATION OF A TRUST A BENEFICIARY CAN SUE THE TRUSTEES FOR DEMANDING HIS BENEFITS THOUGH HE IS NOT A PARTY TO THE TRUST AGREEMENT]

b) IN CASE OF FAMILY ARRANGEMENTS OR SETTLEMENTS[WHEN A FAMILY PARTITION AGREEMENT PROVIDED FOR THE MARRIAGE EXPENSES OF FEMALE MEMBER EVEN WHEN SHE IS NOT A PARTY TO THE AGREEMENT]

CONT……

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c) WHEN THE DEPENDANT ADMITS HIMSELF TO BE AGENT OF THE THIRD PARTY[‘A’ RECEIVES SOME MONEY FROM ‘B’ TO BE PAID TO ‘C’ AND HE ADMITS THIS TO C. ‘C’ CAN THEN SUE ‘A’ TO RECOVER THIS AMOUNT FROM A]

d) IN CASE OF AGREEMENTS SIGNED BY AGENTS THE PRINCIPAL CAN SUE THE THIRD PARTY ON AN AGREEMENT SIGNED BY HIS AGENT AND THE THIRD PARTY [PROVIDED AGREEMENT IS WITHIN THE SCOPE OF AGENCY]

e) IN CASE OF ASSIGNMENT OF RIGHTS UNDER A CONTRACT[AN ASSIGNEE/ NOMINEE CAN SUE FOR BENEFIT, THOUGH HE IS NOT A PARTY TO THE CONTRACT]

[MS=5.4 – 5.5, MK=43 – 44, CB= 27 – 28, SG=40]

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XVIII.WHAT IS MEANT BY ‘COMPETENCY’ OR CAPACITY TO CONTRACT?

1. AN ESSENTIAL INGREDIENT OF A VALID CONTRACT IS THAT IT SHOULD HAVE BEEN EXECUTED BY COMPETENT PERSONS OR PERSONS WHO HAVE THE LEGAL CAPACITY TO ENTER INTO LEGAL OBLIGATIONS [SN – 10]

2. SECTION 11 SPELLS OUT THE CRITERIA FOR DETERMINING THE ‘COMPETENCY’ OR THE “CAPACITY” FOR ENTERING INTO CONTRACTS

3. SECTION 11 DECLARES THE FOLLOWING PERSONS AS INCOMPETENT TO ENTER INTO CONTRACTS:

i. A MINOR ACCORDING TO THE LAW TO WHICH HE IS SUBJECT TO,

ii. IF HE IS OF UNSOUND MIND, ANDiii. IF HE IS SPECIFICALLY DISQUALIFIED FROM

ENTERING INTO A CONTRACT BY LAW

56

XIX.WHO IS A MINOR?1. ACCORDING TO SECTION 3 OF

THE INDIAN MAJORITY ACT 1875, AN INDIAN NATIONAL IS A MINOR TILL HE COMPLETES 18 YEARS

2. IF HE IS A WARD COMING UNDER THE GUARDIAN AND WARDS ACT, HIS MINORITY CONTINUES TILL HE COMPLETES 21 YEARS

57

XX. WHAT IS THE LEGAL IMPLICATIONS OF AGREEMENTS INVOLVING MINORS

1. AN AGREEMENT WHICH PUTS OBLIGATION ON A MINOR IS VOID AND NOT ENFORCEABLE[A MINOR AGREED TO MORTGAGE HIS HOUSE TO MR B FOR RS 20,000AND RECEIVED AN ADVANCE OF RS 8000/- MR B CAN NEITHER ENFORCE THE MORTGAGE OR DEMAND REFUND OF THE ADVANCE]

2. AN AGREEMENT CONFERING BENEFITS ON THE MINOR IS A VALID AGREEMENT AND IS ENFORCEABLE BY THE MINOR[A MINOR PAID AN ADVANCE FOR THE PURCHASE OF AN IMMOVABLE PROPERTY WHEN THE SELLER REFUSED TO COMPLETE THE SALE, THE COURTS HELD THE MINOR CAN ENFORCE THE CONTRACT] CONT….

58

3. AGREEMENTS OF APPRENTICESHIP OR SERVICE BY MINORS

a) AN AGREEMENT SIGNED ON BEHALF OF A MINOR (BY PARENT / GUARDIAN) TO UNDERGO APPRENTICESHIP (FOR THE DEVELOPMENT & EMPLOYABILITY OF THE MINOR) IS VALID AND ENFORCEABLE AGAINST THE MINOR

b) AN AGREEMENT ON BEHALF OF MINOR SIGNED BY PARENTS / GUARDIANS TO RENDER SERVICE IN AN ORGANISATION IS NOT VALID AND NOT ENFORCEABLE

4. RATIFICATION ON ATTAINING MAJORITY WILL NOT VALIDATE THE AGREEMENTAN AGREEMENT ENTERED INTO WHILE A MINOR WILL NOT BECOME VALID EVEN IF IT IS SUBSEQUENTLY RATIFIED WHEN THE MINOR BECOMES A MAJOR CONT….

59

5. THE RULE OF ESTOPPEL DOES NOT APPLY TO A MINOR

a) RULE OF ESTOPPEL SAYS A PERSON CANNOT GO BACK ON HIS ADMISSIONS

b) THIS RULE IS NOT APPLICABLE TO MINORSc) A MINOR ENTERED INTO AN AGREEMENT

DECLARING THAT HE IS A MAJOR. WHEN HE LATER DECLARED THAT HE WAS A MINOR THE OPPOSITE PARTY TRIED TO APPLY THE RULE OF ESTOPPEL. COURTS REFUSED TO APPLY RULE OF ESTOPPEL ON THE MINOR

6. MINOR’S LIABILITIES FOR RECEIPT OF NECESSITIES

a) A MINOR RECEIVED NECESSITIES FROM A SHOP KEEPER [FOOD, CLOTHING, SHELTER] AND SHOP KEEPER DEMANDED PAYMENT FROM THE MINOR

CONT….

60

b) COURTS HELD THE MINOR HAS NO PERSONAL OBLIGATION TO PAY, BUT IF THE MINOR HAS ANY PROPERTY, THE SHOP KEEPER CAN RECLAIM THE AMOUNT FROM ANY SUCH PROPERTY

7. AN AGREEMENT ENTERED ON BEHALF OF A MINOR BY HIS GUARDIAN OR MANAGER OF THE ESTATE IS BINDING ON THE MINOR

a) IT CAN BE ENFORCED AGAINST THE MINOR AS WELL AS HIS PROPERTY PROVIDED THEY WERE SIGNING AGREEMENTS WHICH THEY WERE AUTHORISED TO SIGN

CONT….

61

8. STATUS OF MINOR AS A PARTNERa) MINOR CAN NOT SIGN A PARTERSHIP

AGREEMENTb) HOWEVER SECTION 30 OF THE ACTS SAYS A

MINOR CAN RECEIVE BENEFITS UNDER A PARTNERSHIP AGREEMENT SIGNED ON HIS BEHALF BY HIS GUARDIAN

c) HOWEVER THE GUARDIAN CANNOT ENTER INTO ANY AGREEMENT CASTING OBLIGATIONS ON THE MINOR [MINOR CAN RECEIVE PROFITS OF PARTNERSHIP FIRMS BUT MINOR CANNOT BE MADE RESPONSIBLE TO SHOULDER LOSSES INCURRED BY THE FIRM]

CONT….

62

9. CAN A MINOR ACT AS AN AGENT AND SIGN CONTRACTS ON BEHALF OF ANOTHER

a) ACCORDING TO SECTION 184 A MINOR CAN SIGN AN AGREEMENT AS AN AGENT CASTING OBLIGATIONS ON HIS MASTER OR PRINCIPAL

10. MINOR AND INSOLVENCYa) MINOR CAN NEVER BE DECLARED INSOLVENTb) IF ANY NECESSITIES ARE SUPPLIED TO HIM

AND HE CANNOT PAY, HE CANNOT BE DECLARED AN INSOLVENT[AT BEST RECOVERY CAN BE ENFORCED AGAINST HIS PROPERTY FOR NECESSITIES SUPPLIED TO HIM]

CONT….

63

11. A CONTRACT JOINTLY ENTERED INTO BY A MINOR AND MAJOR ON ONESIDE

a) IN SUCH A CONTRACT THE MINOR WILL HAVE NO OBLIGATION, BUT THE MAJOR WILL BE HELD LIABLE[A MAJOR STOOD SURETY FOR A MINOR TO OBTAIN A STUDY LOAN FROM A BANK]

12. POSITION OF MINORS PARENTSa) PARENTS OF A MINOR ARE NOT LIABLE FOR

AGREEMENTS SIGNED BY THE MINORb) HOWEVER IF THE MINOR HAS SIGNED THE

AGREEMENTS AS THE AGENT OF THE PARENTS, THE PARENTS ARE LIABLE

CONT….

64

13. MINORS LIABILITY FOR TORTa) A TORT IS A CIVIL WRONG AND NOT A

CONTRACTUAL WRONGb) MINOR IS NOT LIABLE FOR DAMAGE ARISING

OUT OF CONTRACT BUT IS LIABLE FOR DAMAGE ARISING OUT OF TORT[A HORSE HIRER GAVE A HORSE TO A MINOR TO RIDE ON CONDITION THAT HE SHALL NOT MAKE THE HORSE JUMP. THE BOY GAVE THE HORSE TO HIS FRIEND WHO MADE THE HORSE JUMP AND INJURED THE HORSE. THE MINOR HAD DONE AN ACT NOT VISUALISED IN THE CONTRACT AND THIS IS A TORT FAULT AND THE MINOR IS LIABLE TO PAY FOR THE COMPENSATION]

[MS=6.6 – 6.8 MK=53 – 56]

65

XXI.WHAT IS THE LEGAL STATUS OF AGREEMENTS EXECUTED BY PERSONS OF ‘UNSOUND MIND’ ?

1. WHAT IS MEANT BY ‘UNSOUND MIND’SECTION 12 DEFINES ‘UNSOUND MIND’ AS FOLLOWS:“ A PERSON IS SAID TO BE OF SOUND MIND FOR THE PURPOSE OF MAKING A CONTRACT, IF AT THE TIME WHEN HE MAKES IT, HE IS CAPABLE OF UNDERSTANDING IT AND FORMING A RATIONAL JUDGEMENT AS TO ITS EFFECTS UPON HIS INTERESTS”

CONT…..

66

2. THIS SECTION FURTHER STATES THAT A PERSON WHO IS USUALLY OF UNSOUND MIND, BUT OCCASIONALLY OF SOUND MIND CAN SIGN A VALID CONTRACT DURING THE SPELL HE WAS OF SOUND MIND[A PATIENT IN A LUNATIC ASSYLUM CAN SIGN]

3. A PERSON WHO IS USUALLY OF SOUND MIND, BUT OCCASSIONALLY OF UNSOUND MIND CAN NOT MAKE A CONTRACT DURING THE SPELLS HE IS OF UNSOUND MIND. [MR. A IS SOBER DURING DAY TIME AND DEAD DRUNK AFTER 8PM TILL 6 AM CANNOT BIND HIMSELF WHEN HE IS DRUNK OR A PERSON UNDER HYPNOTISM]

4. UNSOUNDNESS OF MIND MAY BE DUE TO IDIOCY. SUCH PERSONS ARE HELD TO BE PERPETUALLY UNSOUND AND CANNOT SIGN ANY CONTRACTS [EX MENTALLY DEFORMED PERSONS]

5. AGREEMENTS INVOLVING PERSONS OF UNSOUND MIND ARE TREATED, THE SAME WAY AS MINORS AGREEMENTS ARE TREATED

[MS = 6.9 – 6.10 MK=60 – 61]

67

XXII.WHAT ARE THE CATEGORIES OF PERSONS LEGALLY DECLARED TO BE INCOMPETENT TO SIGN CONTRACTS

1. AN ALIEN ENEMY CANNOTa) AN ALIEN IS A CITIZEN OF A FOREIGN

COUNTRYb) AN ALIEN FRIEND CAN EXECUTEc) AN ALIEN ENEMY (A NATIONAL OF COUNTRY

AGAINST WHOM INDIA HAS DECLARED A WAR) CANNOT ENTER INTO A CONTRACT DURING THE PERIOD OF SUCH DECLARATION

d) VALID CONTRACT ENTERED BEFORE THE WAR WILL STAND SUSPENDED DURING THE WAR AND CAN BE RESUMED AFTER THE WAR HAS ENDED

CONT…..

68

2. AGREEMENTS SIGNED BY SOVEREIGNS AND AMBASSADORS

a) WHILE THEY CAN SUE OTHERS THEY CANNOT BE SUED FOR CONTRACTS ENTERED INTO BY THEM

b) IF THEY ARE TO BE SUED, PRIOR PERMISSION HAS TO BE OBTAINED FROM THE CENTRAL GOVERNMENT

3. A CONVICTa) A CONVICT CANNOT ENTER INTO CONTRACT

DURING HIS PERIOD OF IMPRISONMENT ORb) CANNOT SUE ON ANY CONTRACT SIGNED

BEFORE IMPRISONMENT DURING THE PERIOD OF IMPRISONMENT

CONT…..

69

4. A MARRIED WOMANa) SHE CAN ENTER INTO CONTRACT ONLY ON HER OWN

PROPERTIESb) SHE CANNOT CONTRACT ON ANY PROPERTY

BELONGING TO HER HUSBAND 5. AN INSOLVENTa) AN INSOLVENT CAN INCUR DEBTS, BUT HE CANNOT

SELL HIS PROPERTYb) IF HE OBTAINS A DISCHARGE THEN HIS RIGHTS ARE

REVIVED6. JOINT STOCK COMPANIES & INCORPORATED

COMPANIESa) THEY CAN ENTER INTO CONTRACTS ONLY IN AREAS OR

SUBJECTS SPECIFICALLY APPROVED UNDER THEIR MEMORANDUM OF ASSOCIATION (UNDER THE COMPANIES ACT 1956)

b) ANY CONTRACTS SIGNED BY THE DIRECTORS ON ITEMS NOT COVERED UNDER MEMORANDUM IS NOT BINDING

[MS = 6.2 = 6.3, MK= 61 – 62]

70

XXIII.WHAT IS THE LEGAL STATUS OF AGREEMENTS WITHOUT ‘FREE CONSENT’?

1. WHAT IS ‘CONSENT’?a) SECTION 13 OF THE ICA DEFINES THE TERM

CONSENT AS “ TWO OR MORE PERSONS ARE SAID TO CONSENT WHEN THEY AGREE UPON THE SAME THING IN THE SAME SENSE” (CONSENT INVOLVES IDENTITY OF MINDS OR “CONSENSUS AD-IDEM”)

b) CONSENT SIGNIFIES AN ACT DONE BY A PERSON KNOWINGLY + FEELINGLY + WILLINGLY

c) BOTH PARTIES MUST AGREE UPON THE SAME THING IN THE SAME SENSE

CONT…..

71

2. WHAT IS THE SIGNIFICANCE OF FREE CONSENT?

a) AN AGREEMENT IS ENFORCEABLE AND BECOMES A CONTRACT ONLY WHEN THE CONSENT TO THE AGREEMENT IS “FREE”

b) SECTION 14 DEFINES ‘FREE CONSENT’c) CONSENT IS SAID TO BE ‘FREE’ WHEN IT IS

NOT CAUSED BY:i. ‘COERCION’ AS DEFINED IN SECTION 15, OR ii. ‘UNDUE INFLUENCE’ AS DEFINED IN

SECTION 16, ORiii. ‘FRAUD AS DEFINED’ IN SECTION 17, ORiv. ‘MISREPRESENTATION’ AS DEFINED IN

SECTION 18, ORv. ‘MISTAKE’, SUBJECT TO SECTIONS

20,21&22 [MK= 64 – 65 MS= 7.1 & 8]

72

XXIV.WHAT IS THE IMPACT OF COERCION ON ENFORCEABILITY OF AN AGREEMENT

1. WHAT IS ‘COERCION’?a) ACCORDING TO SECTION 15,

‘COERCION’ IS “THE COMMITTING OR THREATENING TO COMMIT ANY ACT FORBIDDEN BY THE INDIAN PENAL CODE (IPC), OR THE UNLAWFUL DETAINING OR THREATENING TO DETAIN, ANY PROPERTY, TO THE PREJUDICE OF ANY PERSON WHATEVER, WITH THE INTENTION OF CAUSING ANY PERSON TO ENTER INTO AN AGREEMENT”.

CONT…

73

b) THE EXPLANATION TO SECTION 15 SAYS IT IS IMMATERIAL WHETHER THE IPC IS OR IS NOT IN FORCE IN THE PLACE WHERE THE COERCION IS EMPLOYED

EX: (i) RELATIVES COMPEL A WIDOW TO ADOPT A CHILD OR ELSE WILL NOT ALLOW THE HUSBAND’S BODY TO BE REMOVED FOR CREMATION. WIDOW LATER BACKED OUT. COURTS HELD HER CONSENT WAS UNDER COERCION(ii) A POINTS A PISTOL AND COMPELS A LAND LORD TO RENT HIS HOUSE

[MS= 8.6 – 8.7 MK= 65 – 67 ]2. WHAT IS THE EFFECT OF COERCIONa) THE AGREEMENT / CONTRACT IS NOT

TOTALLY VOID

CONT…

74

b) IT IS VOIDABLE (OBLIGATIONS AVOIDABLE) BY THE PERSON WHOSE CONSENT WAS OBTAINED BY COERCION

c) THE BURDEN OF PROOF OF THAT COERCION WAS USED WILL REST ON THE PARTY WHO WANTS TO ESCAPE THE OBLIGATIONS UNDER THE CONTRACT

[MS= 8.6 – 8.7 MK= 66 – 67 ]

75

XXV.WHAT IS THE IMPACT OF ‘UNDUEINFLUENCE’ ON THE ENFORCEABILITY OF AN AGREEMENT?

1. WHAT IS MEANT BY UNDUEINFLUENCE?a) SECTION 16 (1) DEFINES THE TERM

‘UNDUEINFLUENCE’ AS FOLLOWS:“A CONTRACT IS SAID TO BE INDUCED BY UNDUEINFLUENCE WHERE:(i) THE RELATIONS SUBSISTING BETWEEN THE PARTIES ARE SUCH THAT ONE OF THE PARTIES IS IN A POSITION TO DOMINATE THE WILL OF THE OTHER AND(ii) HE USES THE POSITION TO OBTAIN AN UNFAIR ADVANTAGE OVER THE OTHER”

CONT….

76

b) SECTION 16 (2) SAYS A PERSON IS DEEMED TO BE IN A POSITION TO DOMINATE THE WILL OF THE OTHER WHEN: (i) HE HOLDS A REAL OR APPARENT AUTHORITY OVER THE OTHER[RELATIONSHIP BETWEEN POLICE OFFICER & ACCUSED, MASTER & SERVENT](ii) WHERE HE STANDS IN A FIDUCIARY RELATION WITH THE OTHER (FIDUCIARY MEANS RELATIONSHIP OF MUTUAL TRUST & CONFIDENCE)[FATHER & SON / DAUGHTER, GUARDIAN & WARD, SOLICITOR & CLIENT, DOCTOR & PATIENT, GURU & DISCIPLE, TRUSTEE & BENEFICIARY]

ORCONT…..

77

(iii) HE MAKES A CONTRACT WITH A PERSON WHOSE MENTAL CAPACITY IS TEMPORARILY OR PERMANENTLY AFFECTED BY REASON OF AGE, ILLNESS, MENTAL OR BODILY DISTRESS, OR ILLITERACY

c) THE ONUS OF PROVING NO UNDUE INFLUENCE WAS USED WILL REST ON THE SHOULDERS OF THE PERSON WHO WAS IN A POSITION TO DOMINATE

d) HOWEVER THERE IS NO PRESUMPTION OF UNDUE INFLUENCE IN THE CASE OF THE FOLLOWING RELATIONSHIPS:(a) HUSBAND & WIFE (b) PARENTS & CHILDREN(c) LANDLORD & TENET(d) CREDITOR & DEBTOR

CONT…..

78

2. WHAT IS THE EFFECT OF UNDUEINFLUENCE

a) THE CONTRACT IS NOT TOTALLY VOID

b) IT IS VOIDABLE BY THE WEAKER PARTY IF THEY ESTABLISH THAT UNDUEINFLUENCE WAS USED

[MS = 8.8 – 8.10 MK= 67 – 71 ]

79

XXVI.WHAT IS THE DISTINCTION BETWEEN COERCION & UNDUEINFLUENCE

BASIS COERCION UNDUEINFLUENCE

1 METHOD OF OBTAINING CONSENT

BY COMMITING OR THREATENING TO COMMIT AN OFFENCE FORBIDDEN BY IPC

BY DOMINATING THE WILL OF THE OTHER THROUGH THE SPECIAL RELATIONSHIP

80

CONT….

2 NATUE OF FORCE

INVOLVES PHYSICAL FORCE

IT INVOLVES MORAL PRESSURE AND IS SUBTLE IN CHARACTER

3 PRESUMPTION

THERE IS NO PRESUMPTION OF COERCION. IT MUST BE PROVED BY THE PARTY ALLEGING COERCION

THERE IS PRESUMPTION OF UNDUEINFLUENCE IN CASE OF CERTAIN TYPE OF RELATIONSHIPS

81

4 PLACE OF USE

THREAT MAY BE COMMITTED IN INDIA OR OUTSIDE INDIA

IT MUST HAVE BEEN EXERCISED ONLY IN INDIA

5 CRIMINAL ELEMENT

IT ENTAILS CRIMINAL LIABILITY

IT DOES NOT ENTAIL CRIMINAL LIABILITY

6 RELATIONSHIP

THERE MAY NOT BE ANY RELATIONSHIP BETWEEN THE PARTIES

THERE MUST BE SOME SPECIAL RELATIONSHIP BETWEEN THE PARTIES SUCH THAT ONE OF THEM CAN DOMINATE THE WILL OF THE OTHER

82

XXVII.WHAT IS THE LEGAL STATUS OF AGREEMENTS (OR CONSENT) OBTAINED BY FRAUD?

1. WHAT IS MEANT BY THE TERM “FRAUD”a) ACCORDING TO SECTION 17 “FRAUD

MEANS AND INCLUDES ANY OF THE FOLLOWING ACTS COMMITTED BY A PARTY TO THE CONTRACT OR WITH HIS CONNIVANCE OR BY HIS AGENT TO INDUCE ANOTHER TO ENTER INTO THE CONTRACT

b) IT INCLUDES THE FOLLOWING ACTS:i. SUGGESTING SOMETHING AS TRUE WHEN

IT IS NOT TRUE BY ONE WHO DOES NOT BELIEVE IT TO BE TRUE

ii. ACTIVE CONCEALMENT OF FACT BY A PERSON WHO HAS KNOWLEDGE OR BELIEF OF THE FACT

CONT….

83

iii. A PROMISE MADE WITHOUT ANY INTENTION OF PERFORMING IT

iv. ANY OTHER ACT FITTED TO DECEIVEv. ANY OTHER ACT OR OMISSIONS AS THE LAW

SPECIFICALLY DECLARES TO BE FRAUD2. CAN MERE SILENCE AMOUNT TO FRAUDa) SECTION 17 OUT LINES WHEN SILENCE

AMOUNTS TO FRAUDb) AS A GENERAL RULE SILENCE IS NOT FRAUDc) SILENCE IS FRAUDULENT IF THE

CIRCUMSTANCES OF THE CASE ARE SUCH THAT IT IS THE DUTY OF THE PERSON KEEPING SILENCE TO SPEAK:[A BROKER SOLD HIS OWN SHARES TO A BUYER WITHOUT DISCLOSING THAT IT WAS HIS OWN SHARES – BUYER CAN REFUSE TO TAKE IT] CONT….

84

d) THERE IS A DUTY TO SPEAK ON THE PART OF THE PERSON KEEPING SILENCE IN THE FOLLOWING TYPES OF CONTRACTS:

i. IN CONTRACTS OF GOOD FAITH LIKE: CONTRACTS OF INSURANCE / SALE OF IMMOVEABLE PROPERTY/CONTRACTS OF MARRIAGE / CONTRACTS FOR PURCHASE OF SHARES & FAMILY CONTRACTS

ii. CONTRACTS OF PARTNERSHIP (PARTNERS SHOULD BE JUST & FAITHFUL TO EACH OTHER)

iii. CONTRACTS OF GUARANTEE (THE CREDITOR MUST DISCLOSE ALL MATERIAL FACTS ABOUT THE DEBTOR TO THE SURETY

iv. WHERE THE PARTIES STAND IN FIDUCIARY (TRUST) RELATIONSHIP TO EACH OTHERCONT….

85

v. CONTRACTS TO MARRYvi. CHANGE OF CIRCUMSTANCES (WHEN A

STATEMENT MADE WAS TRUE AT TIME OF MAKING BUT CHANGE IN CIRCUMSTANCES MADE IT UNTRUE)

e) IN CERTAIN CIRCUMSTANCES SILENCE IS EQUIVALENT TO SPEECH[IF YOU DO NOT DENY IT, I SHALL PRESUME THAT THE HORSE IS SOUND. A SAYS NOTHING. A’S SILENCE IS EQUAL TO SPEECH

3. WHAT IS THE EFFECT OF FRAUDTHE PARTY DEFRAUDED HAS THE FOLLOWING REMEDIES:

a) SUIT FOR RECISION PROVIDED THE SUIT IS FILED WITHIN REASONABLE TIME

CONT….

86

b) SUIT FOR SPECIFIC PERFORMANCE AND TO REQUIRE OTHER PARTY TO PUT HIM IN A POSITION IN WHICH HE WOULD HAVE BEEN IF THE REPRESENTATION MADE HAD BEEN TRUE

c) SUE THE OTHER PARTY FOR DAMAGES4. THE RIGHT OF RECISION (AVOIDING) IS LOST

IN THE FOLLOWING CASES:a) WHEN THE DEFRAUDED PARTY PROCEEDS

WITH THE CONTRACT EVEN AFTER BECOMING AWARE OF THE FRAUD

b) THE PARTIES CANNOT BE RESTORED TO THEIR ORIGINAL POSITIONS

c) THE THIRD PARTIES HAVE ACQUIRED RIGHTS IN GOOD FAITH AND AFTER PAYING GOOD CONSIDERATION (PRICE)

d) THE AGRIEVED PARTY COULD HAVE DISCOVERED THE TRUTH BY ORDINARY DILIGENCE [[MS = 8.3 – 8.5, MK=75 – 78, CB=44- 46]

87

XXVIII.WHAT IS THE LEGAL STATUS OF AGREEMENTS OR CONTRACTS

OBTAINED BY MISREPRESENTATION?1. WHAT AMOUNTS TO MISREPRESENTATION

ACCORDING TO SECTION 18 MISREPRESENTATION MEANS AND INCLUDES THE FOLLOWING:

a) A POSITIVE ASSERTION, IN A MANNER NOT WARRANTED BY THE INFORMATION OF THE PERSON MAKING IT, OF THAT WHICH IS NOT TRUE, THOUGH HE BELIEVES IT TO BE TRUE

b) ANY BREACH OF DUTY WITHOUT AN INTENT TO DECIEVE BY WHICH THE PERSON GETS AN ADVANTAGE BY MISLEADING ANOTHER TO HIS DISADVANTAGE

CONT…

88

c) CAUSING, HOWEVER INNOCENTLY, A PARTY TO AN AGREEMENT TO MAKE A MISTAKE AS TO THE SUBSTANCE OF THE THING WHICH IS THE SUBJECT MATTER OF THE AGREEMENT

d) THE MISREPRESENTATION MAY BE CAUSED BY ANY ONE OF THE FOLLOWINGWAYS: -

i. BY MAKING UNWARRANTED STATEMENTS [A TELLS B, WITHOUT CHECKING RECORDS THAT IN HIS FACTORY 1000TONS OF ICE IS PRODUCED EVERY

MONTH. A BELIEVES THIS TO BE TRUE. THE ACTUAL PRODUCTION IS ONLY 800TONS. A= IS GUILTY OF MISREPRESENTATION] CONT…

89

ii. BREACH OF DUTYCOMMITTING A BREACH OF DUTY WITHOUT INTENTION TO DECIEVE [ A TELLS THE INSURANCE AGENT THAT HE IS 25 YEARS OLD AND LIC ISSUES HIM A POLICY BASED ON WHICH PREMIUM COMPUTED ON 25. A IS ACTUALLY 27 (HE DID NOT KNOW HIS CORRECT AGE)

iii. INNOCENTLY INDUCING MISTAKE ABOUT THE SUBJECT MATTER. PRODUCER TELLS BUYER THERE IS MOTORABLE ROAD TO CARRY OUR MACHINERY TO YOUR PLANT. THERE WAS A WEAK BRIDGE ON THE WAY WHICH WAS NOT COMMUNICATED

e) MISREPRESENTATION CAN ARISE NOT ONLY FROM MISSTATEMENT OF FACTS, BUT ALSO FROM SUPRESSION OF FACTS (THOUGH MADE INNOCENTLY)

CONT…

90

2. WHAT IS THE EFFECT OF MISREPRESENTATION ON THE ENFORCEABILITY OF THE AGREEMENT

i. THE AGGRIEVED PARTY HAS 2 COURSES OF ACTION:

a) HE CAN RESCIND (REFUSE TO PROCEED WITH THE CONTRACT), OR

b) PROCEED WITH THE CONTRACT AND INSIST ON RESTITUTION THAT IS TO BE PUT IN A POSITION HE WOULD HAVE BEEN, IF THE REPRESENTATION MADE WOULD HAVE BEEN TRUE [SECTION 19 (2)]

ii. THE CONTRACT WILL NOT BE VOIDABLE IF THE PARTY ALLEGING MISREPRESENTATION COULD HAVE DISCOVERED THE TRUTH WITH ORDINARY DILIGENCE

[MS= 8.1 & 8.2, MK= 72 – 74 , CB= 46 – 47 ]

91

XXIX.WHAT IS THE DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION?

CONT…..

BASIS OF DIFFERENCE

MISREPRESENTATION

FRAUD

1 BELIEF

OR

HONESTY

PERSON MAKING THE FALSE STATEMENT HONESTLY BELIEVES IT TO BE TRUE

THE FALSE STATEMENT IS MADE BY A PERSON WHO KNOWS IT TO BE FALSE OR MAKES IT RECKLESSLY-WHETHER IT IS TRUE OR FALSE

92

CONT…..

2 INTENTION TO DECEIVE

NO INTENTION TO DECEIVE

THERE IS INTENSTION TO DECEIVE

3 IMPLICATION

IT MAKES THE CONTRACT VOIDABLE IN THE HANDS OF THE AFFECTED

NOT ONLY IS THE CONTRACT VOIDABLE THE AFFECTED PARTY CAN SUE FOR DAMAGES

93

4 CRIMINALITY

IT IS NOT A CRIMINAL OFFENCE UNDER IPC

IN CERTAIN CASES IT CAN BECOME A CRIMINAL OFFENCE PUNISHABLE UNDER IPC

5 ON DISCOVERY OF TRUTH

AGGRIEVED CANNOT AVOID THE CONTRACT IF HE COULD HAVE DETECTED THE MISTAKE WITH ORDINARY DILIGENCE

THE CONTRACT IS VOIDABLE THOUGH THE AGGRIEVED COULD HAVE DISCOVERED THE MISTAKE WITH ORDINARY DILIGENCE

94

XXX.WHAT IS THE LEGAL STATUS OF AGREEMENTS / CONTRACT BROUGHT ABOUT BY ‘MISTAKE’?

1. WHAT IS ‘MISTAKE’?MISTAKE MAY BE DEFINED AS ERRONEOUS BELIEF CONCERNING SOMETHING. IT MAY BE OF 2 KINDS:

a) MISTAKE OF LAWb) MISTAKE OF FACT2. WHAT IS MEANT BY MISTAKE OF LAW?a) THIS AGAIN CAN BE OF 2 TYPES:i. MISTAKE OF LAW OF ONES OWN COUNTRYii. MISTAKE OF FOREIGN LAWb) MISTAKE OF OWN LAW IS NOT EXCUSABLE

CONT…..

95

c) MISTAKE OF FOREIGN LAW VITIATES THE CONTRACT AND RENDERS IT VOID (IT HAS THE SAME EFFECT AS MISTAKE OF FACT)

3. WHAT IS MEANT BY MISTAKE OF FACT?a) THIS AGAIN CAN BE OF 2 TYPES:i. BILATERAL MISTAKE ORii. UNILATERAL MISTAKEb) WHEN BOTH PARTIES TO A CONTRACT

MISUNDERSTOOD THE FACTS THERE IS A BILATERAL MISTAKE AND HENCE THERE IS NO PROPER OFFER OR ACCEPTANCE.

4. WHAT ARE THE CONTINGENCIES OF BILATERAL MISTAKES [BOTH MAKING MISTAKES] THAT MAKE THE AGREEMENT VOID?

CONT….

96

a) MISTAKE AS TO THE EXISTENCE OF THE SUBJECT MATTER

[X AGREED TO BUY FROM Y 100 TONNES OF WHEAT ARRIVING BY SHIP HIMALAYA FOR RS 1 LAKH. UNKNOWN TO BOTH THE SHIP HAD SUNK-THE CONTRACT IS VOID]

b) MISTAKE AS TO IDENTITY OF THE SUBJECT MATTER. X AGREED TO BUY FROM Y 100 TONNES OF WHEAT ARRIVING FROM CANADA BY SHIP-CANBARA. UNKNOWN TO BOTH THERE WERE TWO SHIPS BY THE SAME NAME ONE LEAVING IN SEPTEMBER AND OTHER IN DECEMBER – DUE TO MISTAKE IN IDENTITY – AGREEMENT NOT ENFORCEABLE

CONT….

97

c) MISTAKE REGARDING THE QUALITY OF THE SUBJECT MATTER(IF THE QUALITY OF SUBJECT MATTER HAS BEEN MUTUALLY MIS UNDERSTOOD)[X AGREED TO BUY AT AN AUCTION THE PAINTING OF PICASSO SUBSEQUENTLY IT CAME TO BE KNOWN THAT IT WAS NOT THE ORIGINAL PAINTING THE AGREEMENT IS VOID]

d) MISTAKE REGARDING QUANTITY OF THE SUBJECT MATTER(WHERE THE QUANTITY PURCHASED WAS DIFFERENT FROM WHAT WAS INTENDED)[X INSPECTED 50 RIFLES PUT UP BY Y FOR SALE. X SEND A TELEGAM “SUPPLY THREE RIFLES”. THE TELEGRAM WAS RECEIVED Y AS “SUPPLY THE RIFLES”.

CONT….

98

Y SHIPPED ALL 50 RIFLES. HELD THERE WAS NO CONTRACT THOUGH THE MISTAKE WAS CAUSED BY A THIRD PARTY]

e) MISTAKE RAGARDING PRICE OF THE SUBJECT MATTER[X OFFERED TO BUY Y’S CAR FOR RS. 75000/- Y DECLINED THE OFFER ON THE GROUNDS THAT THE PRICE WAS TOO LESS. AFTER A MONTH X RECEIVED A TELEGRAM AGREEABLE TO SELL FOR RS. 7500/-. X IMMEDIATELY ACCEPTED THE OFFER. THE AGREEMENT WAS HELD NOT ENFORCEABLE AS X KNEW VERY WELL THAT THE PRICE QUOTED WAS A MISTAKE]

f) MISTAKE REGARDING TITLE (OWNERSHIP) OF THE SUBJECT MATTER

CONT….

99

[X AGREED TO PURCHASE A PROPERTY FROM Y FOR RS. 10 LAKHS UNKNOWING THAT PROPERTY HAD REALLY BELONGED TO HIM. HELD THE AGREEMENT WAS VOID]

g) MISTAKE REGARDING PHYSICAL OR LEGAL POSSIBILITY OF PERFORMANCE[AN AGREEMENT,TO HIRE ROOMS TO WATCH THE KINGS CORONATION CEREMONY. UNKNOWN TO BOTH PARTIES THE ROAD PARADE OF THE CORONATION WAS CANCELLED FOR SECURITY REASONS. AGREEMENT WAS HELD TO BE VOID FOR PHYSICAL IMPOSSIBILITY OF PERFORMANCE

CONT….

100

5. WHAT IS THE EFFECT WHEN THE MISTAKE IS ONLY UNILATERAL OR BY ONE OF THE PARTIES ONLY

a) SECTION 22 LAYS DOWN THAT A CONTRACT WILL NOT BECOME VOID MERELY BECAUSE ONE OF THE PARTIES TO THE AGREEMENT IS UNDER A MISTAKE ON THE SUBJECT MATTER OF THE AGREEMENT. THUS UNILATERAL MISTAKES DO NOT EFFECT THE VALIDITY OF THE CONTRACT[X AGREED TO LEND HIS LAPTOP TO Y FOR 3 TRIMESTERS. Y ACCEPTED IT BY MISTAKE THINKING IT IS FOR 3 SEMESTERS. Y CANNOT REFUSE TO HAND OVER THE LAPTOP AFTER 3 TRIMESTERS OR REFUSE TO PAY THE AGREED RENT]

[MS= 7.1 – 7.10, MK=80 – 86, CB=48 – 52]

101

XXXI.WHAT IS MEANT BY UNLAWFUL AGREEMENTS?

1. AN AGREEMENT BECOMES VALID AND ENFORCEABLE ONLY IF BOTH THE CONSIDERATION AND THE OBJECT OF THE AGREEMENT ARE LAWFUL

2. SECTION 23 STIPULATES THAT THE OBJECT AND CONSIDERATION OF AN AGREEMENT SHALL BE UNLAWFUL IN THE FOLLOWING CASES IF:

i. IT IS FORBIDDEN BY LAW [SELLING CONTROLLED ARTICLES ABOVE THE PRICE FIXED BY ESSENTIAL COMMODITIES ACT 1956]

ii. IT IS OF SUCH A NATURE THAT IF PERMITTED IT WOULD DEFEAT THE PROVISIONS OF LAW [ AN AGREEMENT BY A DEBTOR NOT TO RAISE THE PLEA OF LIMITATION IN A SUIT FILED BY THE CREDITOR]

CONT….

102

iii. IT IS FRAUDULENT (AN AGREEMENT TO DIVIDE THE GAINS ACQUIRED BY FRAUD)

iv. IT INVOLVES OR IMPLIES INJURY TO THE PERSON OR PROPERTY OF ANOTHER[AN AGREEMENT TO INDEMNIFY A PERSON AGAINST THE CONSEQUENCES OF PUBLICATION OF SCANDALOUS OR LIBEL MATERIAL]

v. THE COURTS REGARD IT AS IMMORAL OR OPPOSED TO PUBLIC POLICY[AN AGREEMENT TO HIRE A HOUSE FOR PROMOTING PROSTITUTION OR STORING SMUGGLED GOODS]

[MS MK= 49 – 90]

103

XXXII.WHAT ARE THE KINDS OF AGREEMENTS HELD TO BE OPPOSED TO PUBLIC POLICY?

1. THE FOLLOWING TYPES OF AGREEMENTS HAVE BEEN HELD TO BE OPPOSED TO PUBLIC POLICY AND THEREFORE ARE VOID:

i. TRADING WITH ENEMY DURING WARii. STIFLING PROSECUTION

[AGREEMENTS WHICH SEEK TO ABSOLVE AN OFFENDER OR TO WITHDRAW A CRIMINAL PROSECUTION]

iii. MAINTENANCE & CHAMPERTYa) MAINTENANCE – AGRGEEMENTS THAT

SEEKS TO PROVIDE FINANCIAL ASSISTENCE TO BRING OR DEPEND A LAW SUIT OR TO FOMENT LITIGATION

CONT…..

104

b) CHAMPERTY – AN AGREEMENT TO SHARE THE BENEFIT TO BE DERIVED FROM A LAW SUIT

c) COURTS WILL NOT ENCOURAGE AN AGREEMENT THAT IS EXTORTIONATE [AN AGREEMENT TO PAY THE LAWYER ACCORDING TO THE RESULT OF THE CASE]

iv. FOR INTEREFERING WITH THE COURSE OF JUSTICE [AGREEMENTS FOR USING ANY KIND OF IMPROPER INFLUENCE ON JUDGES AND LAW ENFORCEMENT OFFICERS]

v. FOR TRAFICKING IN PUBLIC OFFICES AND TITLES

CONT…..

105

[AGREEMENT FOR PURCHASE OR SALE OF PUBLIC OFFICES, APPOINTMENTS, PROCUREMENT OF REWARD OR TITLES – “ PADMASHREE”, DRONACHARYA AWARDS ETC]

vi. MARRIAGE BROKERAGE AGREEMENTS[AGREEMENTS TO PROCURE MARRIAGES FOR REWARD OR AGREEMENTS TO PAY MONEY TO PARENT OR GUARDIAN TO GIVE A MINOR DAUGHTER IN MARRIAGE]

vii. AGREEMENTS RESTRICTING PERSONAL LIBERTY[X BORROWED MONEY FROM Y AND SIGNED AN AGREEMENT NOT TO CHANGE HIS ADDRESS TILL THE MONEY IS FULLY PAID]

CONT…..

106

viii. AGREEMENTS IN RESTRAINT OF PARENTAL RIGHTS[RIGHT OF PARENT / GUARDIANSHIP CANNOT BE SOLD THROUGH AN AGREEMENT]

ix. AN AGREEMENT WITH A PUBLIC OFFICIAL TO DO SOMETHING OPPOSED TO HIS DUTY

x. AGREEMENTS INTERFERING WITH MARITAL RIGHTS [LENDING MONEY TO A WOMAN TO OBTAIN DIVORCE AND THEREAFTER TO MARRY HIM]

xi. AGREEMENTS TO INCREASE OF REDUCE THE PERIOD OF LIMITATION

xii. AGREEMENTS TO DEFRAUD CREDITORS OR REVENUE AUTHORITIES

CONT…..

107

2. EFFECT OF UNLAWFUL AGREEMENTS: -

i. EVERY AGREEMENT WITH THE OBJECT OR CONSIDERATION WHICH IS UNLAWFUL IS AB-INITIO-VOID

ii. ANY COLLATERAL TRANSACTION TO SUCH AGREEMENTS IS ALSO VOID

iii. IN CASE THE PARTIES ARE EQUALLY GUILTY, THE DEPENDENT IS IN A BETTER POSITION

iv. AN AGREEMENT IS VOID EVEN IF ONLY A PART OF THE OBJECT OR CONSIDERATION IS UNLAWFUL

[MS= 9.1 – 9.19, MK=92 – 98, CB= 55 – 58]

108

XXXIII.WHAT ARE TYPES OF AGREEMENTS THAT HAVE BEEN EXPRESSLY DECLARED AS VOID UNDER THE ICA? [ WHAT ARE VOID AGREEMENTS]

1. WE HAVE ALREADY SEEN THAT AGREEMENTS WITH MINOR OR UNSOUND PERSONS WITH BILATERAL MISTAKE, WITH UNLAWFUL CONSIDERATION OR WITH NO CONSIDERATION ARE NOT LEGALLY ENFORCEABLE. IN ADDITION TO THESE ICA EXPRESSLY DECLARES 7 TYPES OF AGREEMENTS AS AB – INITIO -VOID

2. THE FOLLOWING AGREEMENTS ARE EXPRESSLY DECLARED AS VOID UNDER THE ICA:

CONT…..

109

i. AGREEMENTS IN RESTRAINT OF MARRIAGE (SEC – 26)

ii. AGREEMENTS IN RESTRAINT OF TRADE (SEC – 27)

iii. AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS (SEC – 28)

iv. AGREEMENTS THE MEANING OF WHICH IS UNCERTAIN (SEC – 29)

v. AGREEMENTS BY WAY OF WAGER (SEC – 30)

vi. AGREEMENTS CONTINGENT ON IMPOSSIBLE EVENTS (SEC – 36)

vii. AGREEMENTS TO DO IMPOSSIBLE ACTS (SEC – 56)

CONT…..

110

3. WHAT IS THE DIFFERENCE BETWEEN ILLEGAL AGREEMENTS & VOID AGREEMENTS

i. COLLATERAL AGREEMENTS TO AN ILLEGAL AGREEMENT ARE ALWAYS VOID

ii. COLLATERAL AGREEMENTS TO THE 7 CATEGORIES LISTED ABOVE NEED NOT NECESSARILY BE ILLEGAL

4. WHAT IS MEANT BY AGREEMENT IN RESTRAINT OF MARRIAGE IS VOID?

a) EVERY ADULT ENJOYS THE FREEDOM TO MARRY

b) SECTION 26 DECLARES THAT THE FOLLOWING KINDS OF AGREEMENTS PUTTING IMPEDIMENTS ON THIS RIGHT IS VOID:

CONT…..

111

i. AN AGREEMENT AGREEING NOT TO MARRY AT ALL OR A CERTAIN PERSON OR FROM A PARTICULAR SECT / CASTE / RELIGION

ii. OR MARRIAGE ONLY FOR A FIXED PERIOD

c) HOWEVER AGREEMENTS RESTRAINING CHILD MARRIAGE IS NOT VOID

[MS= 9.11 MK=101 CB=63]

112

5. WHAT IS MEANT BY AGREEMENT IN RESTRAINT OF TRADE IS VOID?

a) THE CONSTITUTION OF INDIA GUARANTEES THE FREEDOM TO CONDUCT TRADE & BUSINESS TO EVERY CITIZEN

b) SECTION 27 DECLARES THAT EVERY AGREEMENT RESTRAINING ANOTHER PERSON FROM EXERCISING A LAWFUL PROFESSION, TRADE OR BUSINESS TO THAT EXTENT IS VOID

c) HOWEVER THIS SECTION PROVIDES THE FOLLOWING EXCEPTIONS:

i. SALE OF GOODWILL CONT…

113

ii. AGREEMENT RESTRAINING PARTNERS NOT TO CARRY ON INDEPENDENT BUSINESS IN COMPETITION WITH THE PARENT FIRM WHILE THEY REMAIN AS PARTERS IS NOT VOID

iii. A TRADE ASSOCIATION AGREEMENT INTENDED TO REGULATE AND NOT RESTRAINT TRADE IS NOT VOID

iv. NEGATIVE STIPULATIONS IN SERVICE AGREEMENTS NOT TO SERVE ANOTHER MASTER WHILE SERVING THE MAIN MASTER IS NOT VOID[MS = 9.12 MK=102 – 103 CB=63 ]

CONT…

114

6. WHAT IS MEANT BY AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS IS VOID

i. SECTION 28 DECLARES THE FOLLOWING KINDS OF AGREEMENTS AS VOID: -

a) ABSOLUTE RESTRICTION ON LEGAL PROCEEDINGS

b) AGREEMENTS CURTAILING THE LIMITATION PERIOD

c) EXINGUISHMENT OF CONTRACTUAL RIGHTS AFTER EXPIRY OF SPECIFIED PERIOD

d) AGREEMENTS DICHARGING A PARTY FROM LIABILITY AFTER EXPIRY OF SPECIFIED PERIOD CONT…

115

ii. THERE ARE TWO EXCEPTIONS TO THIS RULE: a) AN AGREEMENT TO REFER THE PRESENT

DISPUTE TO ARBITRATIONb) AN AGREEMENT TO REFER A FUTURE DISPUTE

TO ARBITRATION [MS MK=104 – 105 CB=66]7. AGREEMENTS THE MEANING WHICH IS

UNCERTAIN IS VOID [SN 29]i. COURTS WILL NOT ENFORCE AGREEEMNTS

WHICH ARE NOT CERTAIN (VAGUE) OR WHICH IS NOT CAPABLE OF BEING MADE CERTAIN

ii. ‘X’ AGREES TO SELL TO Y 100 TONNES OF OIL [NO INDICATION OF WHAT KIND OF OIL. HOWEVER IF HE WAS A DEALER ONLY IN COCONUT OIL, IT WOULD NOT BE A VAGUE AGREEMENT]

CONT…

116

8. WAGERING AGREEMENTS ARE VOID (Sn 30)

i. WHAT IS WAGER (GAMBLING)“WAGER IS A PROMISE TO GIVE MONEY OR MONEY’S WORTH UPON DETERMINATION OR ASCERTAINMENT OF AN UNCERTAIN EVENT

[X & Y MAKE AN AGREEMENT THAT X SHALL PAY Y RS. 500 IF IT RAINS ON MONDAY Y SHALL PAY X RS. 500 IF IT DOES NOT RAIN ON MONDAY]

ii. WHAT ARE ESSENTIAL INGREDIENTS OF A WAGER

a) THERE MUST BE PROMISE TO PAY MONEY OR MONEY’S WORTH

b) THE PROMISE MUST BE CONDITIONAL ON THE HAPPENING OR NOT HAPPENING OF AN EVENT CONT…

117

c) THE AGREEMENT MUST BE CONDITIONAL UPON THE HAPPENING OF AN UNCERTAIN EVENT

d) BOTH PARTIES MUST STAND AN EQUAL CHANCE TO WIN OR LOSE ON DETERMINATION OF THE CONTEMPLATED EVENT

e) NEITHER PARTY SHOULD HAVE CONTROL OVER THE HAPPENING OR NOT HAPPENING OF THE EVENT

f) NEITHER PARTY SHOULD HAVE ANY INTEREST OTHER THAN THE SUM OR STAKE THAT HE STANDS TO WIN OR LOSE

iii. THE FOLLOWING ARE EXCEPTIONS TO THE WAGERING AGREEMENTS:

a) HORSE RACING CONT…

118

b) CROSSWORD COMPETITIONSc) GAMES OF SKILLd) SHARE MARKET TRANSACTIONSe) CONTRACTS OF INSURANCEf) CHIT FUNDSiv. WHAT IS THE DIFFERENCE BETWEEN

WAGERING AGREEMENTS & INSURANCE CONTRACTS

CONT…

WAGERING AGREEMENTS

INSURANCE CONTRACTS

1 THERE IS NO INSURABLE INTEREST EXCEPT THE STAKE MONEY

THE ASSURED HAS AN INSURABLE INTEREST HIGHER THAN THE STAKE MONEY

119

CONT…

2 THESE ARE VOID AS THESE ARE NOT CONTRACTS OF INDEMNITY

THESE ARE VALID CONTRACTS, AS THE OBJECT IS TO MAKE GOOD THE ACTUAL LOSS OF THE INSURED

3 THESE ARE CONDITIONAL

THESE ARE CONTRACTS OF INDEMNITY, EXCEPT INSURANCE ON LIFE WHICH IS A CONTINGENT CONTRACT

120

[MK= 106 – 107 CB= 67 – 69 ]v. AGREEMENTS TO DO IMPOSSIBLE ACTS ARE

VOID (Sn 56)a) X AGREES WITH B TO TURN SILVER INTO

GOLD BY MAGICb) X AGREES WITH B TO RUN 100 KM IN 1

HOUR

[MS MK= 109 CB-69]

4 IT IS JUST A GAMBLE

THESE ARE BASED ON SCIENTIFIC AND ACTURIAL CALCULATION OR RISKS

5 THERE IS NO BENEFIT TO SOCIETY

IT IS A FORM OF SOCIAL COOPERATION

121

XXXIV.WHAT IS THE LAW PERTAINING TO CONTINGENT CONTRACTS [ Sn 31]

1. CONTRACTS MAY BE ‘ABSOLUTE’ OR “CONTINGENT”

a) ABSOLUTE CONTRACT: A CONTRACT IN WHICH PARTIES PERFROM THEIR RECIPROCAL PROMISES IN ALL EVENTS

b) CONTINGENT CONTRACT : A CONTRACT TO DO OR NOT TO DO SOMETHING IF SOME EVENT COLLATERAL TO SUCH CONTRACT DOES OR DOES NOT HAPPEN

2. AN ORDINARY CONTRACT CAN BE CHANGED INTO A CONTINGENT CONTRACT IF ITS PERFORMANCE IS MADE DEPENDENT UPON THE HAPPENING OR NON-HAPPENING OF AN UNCERTAIN EVENT

CONT….

122

3. CONTRACTS OF INSURANCE, CONTRACTS OF GUARANTEE ARE POPULAR INSTANCES OF CONTINGENT CONTRACTS[1) X PROMISES TO SELL TO Y 100 TONNES OF COTTON IF HIS SHIP REACHES BOMBAY SAFELY2) X PROMISES TO GIVE Y A LOAN IF HE IS ELECTED PRESIDENT OF THE COOPERATIVE SOCIETY]

4. THE FOLLOWING ARE THE ESSENTIAL REQUIREMENTS OF A CONTINGENT CONTRACT [ Sn 32 & 33]

a) THE PERFORMANCE OF THE CONTRACT DEPENDS UPON THE HAPPENING OR NOT HAPPENING OF SOME FUTURE UNCERTAIN EVENT

b) THE FUTURE UNCERTAIN EVENT SHOULD BE COLLATERAL OR INCIDENTAL TO THE MAIN CONTRACT CONT….

123

5. WHAT IS THE DIFFERENCE BETWEEN WAGERING AGREEMENTS (GAMBLING) AND CONTINGENT CONTRACTS

CONT….

BASIS OF DIFFERENCE

WAGERING AGREEMENT

CONTINGENT CONTRACT

1 MUTUAL PROMISE

MUTUAL PROMISE REQUIRED

MUTUAL PROMISE NOT NECESSARY

124

2 INTEREST IN THE SUBJECT MATTER

PARTIES DO NOT HAVE INSURABLE INTEREST IN THE HAPPENING OR NOT HAPPENING OF THE EVENT AS SUCH. THEIR MAIN INTEREST IS IN WINNING OR LOSING

PARTIES HAVE SUBSTANTIAL INSURABLE INTEREST IN THE HAPPENING OR NOT HAPPENING OR THE EVENT

3 FUTURE EVENT

THE HAPPENING OF FUTURE UNCERTAIN EVENT IS THE SOLE DETERMING FACTOR OF THE AGREEMENT

THE FUTURE EVENT IS NOT THE SOLE FACTOR IT IS ONLY INCIDENTIAL OR COLLATORAL TO THE MAIN AGREEMENT

125

[MS = 10.3 – 10.7 MK=110 – 114 CB= 73 – 76]

4 NATURE THESE ARE GAMBLING IN NATURE

CONTINGENT CONTRACTS SUCH AS INSUREANCE, INDEMNITY OR GUARANTEE ARE NOT WAGERS OR GAMBLES

5 RECIPROCAL PROMISE

IT CONSISTS OF RECIPROCAL PROMISE

THERE NEED NOT BE RECIPROCAL PROMISE

6 VALIDITY IT IS VOID IT IS A VALID CONTRACT

126

XXXV.WHAT IS MEANT BY QUASI – CONTRACT AND WHAT IS THE EXTENT OF ITS ENFORCEABILITY?

1. WHAT IS MEANT BY QUASI- CONTRACTa) UNDER THE LAW OF CONTRACTS

OBLIGATIONS ARE VOLUNTARILY CREATED UPON EACH OTHER BY PARTIES TO THE CONTRACT

b) IN CERTAIN CIRCUMSTANCES OBLIGATIONS MAY BE CREATED OR IMPOSED BY LAW EVEN WITHOUT THE EXISTENCE OF A CONTRACT

c) SUCH IMPOSED OBLIGATIONS ARE CALLED QUASI- CONTRACTUAL OBLIGATIONS CONT….

127

d) SUCH OBLIGATIONS ARE IMPOSED BY COURTS ON THE EQUITY PRONCIPLE THAT NO MAN SHOULD GROW RICH AT THE COST OF ANOTHER

e) QUASI- CONTRACTS ARE NOT CONTRACTS, BUT THE RELATIONSHIP OR OBLIGATIONS RESEMBLE THE RELATIONS/ OBLIGATIONS ARISING OUT OF CONTRACTS

f) THE 5 TYPES OF QUASI-CONTRACTUAL OBLIGATIONS ARE OUTLINED IN SECTIONS 68 – 72 OF THE ICA 1872

2. THE 5 TYPES OF QUASI- CONTRACT OBLIGCATIONS ARE DESCRIBED BELOW:

CONT….

128

a) CLAIMS FOR REIMBURSEMENT OF COST OF NECESSITIES SUPPLIED (Sn 68)

i. IF A PERSON INCAPABLE OF ENTERING INTO A CONTRACT OR SOMEONE WHO IS LEGALLY BOUND TO SUPPORT SUCH HELPLESS PERSON IS SUPPLIED LIFE SUPPORTING ESSENTIALS, THE SUPPLIER IS ENTITLED TO BE REIMBURSED THE COST FROM THE PROPERTY OF THE INCAPABLE PERSON[X SUPPLIES FOOD AND MEDICINES TO A LUNATIC OR HIS GUARDIAN. THE SUPPLIER CAN CLAIM REIMBURSEMENT]

NOTE: HE CAN ONLY CLAIM REIMBURSEMENT OF NECESSITIES AND NOT LUXURY ITEMS SUPPLIED [COST OF SCENTS, LIQUOR ETC WILL BE LUXURIES]

CONT….

129

b) REIMBURSEMENT TO A PERSON PAYING MONEY DUE BY ANOTHER, IN THE PAYMENT OF WHICH THE PAYER IS INTERESTED (Sn 69)

1. THE OBLIGATIONS OR RIGHT TO REIMBURSEMENT UNDER SECTION 69 WILL ARISE ONLY IF THE FOLLOWING CONDITIONS ARE FULFILED:

i. THE PLAINTIFF (PETITIONER CLAIMING REIMBURSEMENT MUST HAVE AN INTEREST IN PAYING THE DEBT OWED BY THE DEPENDENT TO ANOTHER PARTY

ii. THE DEFENDENT SHOULD HAVE A STATUTORY OR CONTRACTUAL LIABILITY TO PAY THE DEBT

CONT….

130

iii. THE PLAINTIFF (CLAIMANT) SHOULD HAVE ACTUALLY MADE THE PAYMENT TO THE OTHER PARTY[X BOUGHT A HOUSE FROM Y AND PAID HIM THE FULL PRICE IN 2008. AFTER AN YEAR MUNICIPAL AUTHORITIES SENT A NOTICE FOR ARREARS HOUSE TAX FOR THE EARLIER YEARS IN THIS HOUSE ADDRESS WITH A THREAT THAT THE HOUSE WILL ATTACHED / AUCTIONED IF THE ARREARS IS NOT PAID WITHIN 1 MONTH. X PAID THE TAX WHICH Y SHOULD HAVE PAID TO SAVE HIS PROPERTY FROM ATTACHMENT. X CAN SUE Y FOR REIMBURSEMENT OF THE ARREAR TAX PAID BY HIM TO THE MUNICIPAL AUTHORITIES]

CONT….

131

c) OBLIGATION OF A PERSON ENJOYING THE BENEFIT OF NON-GRATITOUS ACT (Sn 70)

i. IF A PERSON LAWFULLY DOES SOMETHING FOR ANOTHER PERSON OR DELIVERS ANYTHING TO HIM, NOT INTENDING TO DO SO GRATUITOUSLY (NOT FREE), AND SUCH OTHER PERSON HAS ENJOYED THE BENEFIT, THE LATER (ENJOYER) IS BOUND TO MAKE COMPENSATION TO THE FORMER (SUPPLIER) OR TO RESTORE OR RETURN THE THING SUPPLIED[SHOP KEEPER X SENT A SUPPLY OF PIZA TO A MR. REDDY ON THE THIRD FLOOR OF A BUILDING. THE DELIVERY BOY SUPPLIED THE PIZA BY MISTAKE TO ANOTEHR MR REDDY ON THE SECOND FLOOR. THE SECOND FLOOR REDDY AND FAMILY CONSUMED THE PIZA. THEY ARE BOUND TO PAY, THOUGH THEY NEVER ORDERED THE PIZA]

CONT….

132

d) RESPONSIBILITY OF FINDER OF GOODS (Sn- 71)

i. ACCORDING TO SECTION 71 A PERSON WHO FINDS GOODS BELONGING TO ANOTHER AND TAKES THEM INTO HIS CUSTODY, IS SUBJECT TO THE RESPONSIBILITIES OF A BAILEE (CUSTODIAN)

ii. THE RESPONSIBILITIES ARE AS FOLLOWS:• TO TAKE REASONABLE CARE OF THE GOODS,

WHICH A MAN OF ORDINARY PRUDENCE WOULD TAKE

• TAKE REASONALBE STEPS TO TRACE THE OWNER

• NOT TO MAKE UNAUTHORISED USE OF THE GOODS

• TO RETURN THE GOODS TO THE TRUE OWNER CONT….

133

iii. THE FINDER HOWEVER WILL HAVE THE FOLLOWING RIGHTS IN RESPECT OF THE GOODS FOUND:

• TO RECEIVE COMPENSATION FOR THE EXPENSES INCURRED BY HIM IN PRESERVING THE GOODS OR EXPENSES ON FINDING THE TRUE OWNER

• TO RETAIN POSSESSION UNTIL THE OWNER PAYS THE RIGHTFUL EXPENSES

• TO SELL THE GOODS IF THE TRUE OWNER CANNOT BE FOUND AFTER A REASONABLE SEARCH OR THE OWNER REFUSES TO PAY THE LAWFUL CHARGES

• AND WHEN THE GOODS ARE IN DANGER OF PERISHING OR THE CHARGES PAYABLE TO THE FINDER EXCEEDS TWO-THIRDS OF THE VALUE OF THE GOODS, TO SELL THE GOOD

CONT….

134

e) LIABILITY OF THE PERSON TO WHOM MONEY HAS BEEN PAID OR ANYTHING DELIVERED BY MISTAKE [Sn 72][X & Y JOINTLY OWES RS 100 TO Z. X PAYS THE FULL AMOUNT TO Z. Y NOT KNOWING THIS FACT PAYS ANOTHER RS. 100 TO Z. Z IS BOUND TO REFUND THE RS 100 TO Y]

[MS 13.1 – 13.7, MK=142 – 147, CB=109 – 112, PG = 56 -57]

3. WHAT IS THE DISTINCTION BETWEEN A CONTRACT AND A QUASI- CONTRACT

CONT….

135

CONT….

POINTS OF DISTINCTION

CONTRACT QUASI-CONTRACT

1 PURPOSE OBLIGATIONS ARISE FROM THE FREE WILL OF THE PARTIES

OBLIGATIONS ARE IMPOSED BY EXTERNAL AGENCIES ON GROUNDS OF EQUITY

2 AGREEMENT A CONTRACT IS AN AGREEMENT

THERE IS NO AGREEMENT AT ALL

136

3 ESSENTIAL ELEMENT

THE AGREEMENT FULFILLS THE REQUIREMENTS OF MAKING IT A CONTRACT

ESSENTIALS FOR FORMATION OF A CONTRACT (OFFER, ACCEPTANCE ARE MISSING)

4 NATURE IT IS A FULL-FLEDGED CONTRACT AND IS BINDING ON THE PARTIES

IT IS NOT A FULLFLEDGED CONTRACT. IT CAN AT BEST BE CALLED AN IMPLIED MORAL CONTRACT

137

XXXVII.WHAT IS MEANT BY DISCHARGE OF CONTRACT AND WHAT ARE VARIOUS MODES OF DISCHARGE?

1. WHAT IS MEANT BY DISCHARGE?A CONTRACT IS SAID TO BE DISCHARGED WHEN:

a) THE PARTIES TO THE CONTRACT HAVE PERFORMED THEIR OBLIGATIONS RESPECTIVELY WITH THE TERMS OF THE AGREEMENT, OR

b) THEY HAVE BEEN RELIEVED FROM FULFILLING THEIR OBLIGATIONS UNDER LAW

CONT…..

138

2. WHAT ARE THE METHODS UNDER WHICH A CONTRACT WILL STAND DISCHARGED?

a) DISCHARGE BY PERFORMANCEb) DISCHARGE BY AGREEMENTc) DISCHARGE BY LAPSE OF TIMEd) DISCHARGE BY OPERATION OF LAWe) DISCHARGE BY IMPOSSIBILITY & f) DISCHARGE BY BREACH OF CONTRACT[MS=10 – 10.2 MK=129 CB=76-77]

139

XXXVII.WHAT IS MEANT BY DISCHARGE BY PERFORMANCE?

1. PERFROMANCE IS THE USUAL MODE OF DISCHARGE OF A CONTRACT

2. SECTION 37 & 38 PROVIDE THAT THE PARTIES MUST EITHER PERFORM, ATTEMPT TO PERFORM OR ATLEAST OFFER TO PERFORM UNLESS SUCH PERFORMANCE IS DISPENSED WITH OR EXCUSED UNDER THE PROVISIONS OF ICA OR ANY OTHER LAW

3. IF THE PROMISOR DIES BEFORE PERFORMANCE, HIS LEGAL REPRESENTATIVES MUST PERFORM UNLESS THE CONTRARY INTENTION APPEARS FROM THE CONTRACT

CONT……

140

4. AN OFFER TO PERFORM OR TENDER MUST SATISFY THE FOLLOWING REQUIREMENTS:

a) IT MUST BE UNCONDITIONAL [Sn 38 (1)]b) IT SHOULD BE MADE AT FIXED OR PROPER

TIME AND PLACE [Sn 38 (2)]c) REASONABLE OPPORTUNITY MUST BE GIVEN

TO THE OTHER PARTY TO INSPECT AND SATISFY THAT THE PERFORMANCE IS IN ACCORDANCE WITH THE TERMS OF CONTRACT

d) WHERE THERE ARE SEVERAL JOINT PROMISEES THE TENDER MADE TO ANY ONE OF THE JOINT PROMISEES WILL HAVE THE SAME AFFECT AS AN OFFER TO ALL OF THEM

CONT……

141

e) TENDER CAN BE MADE TO THE PROMISEE OR HIS DULY AUTHORISED AGENT

f) IT SHOULD BE AN OFFER TO PERFORM IN FULL

g) IT SHOULD BE FOR DELIVERY OF GOODS OF THE RIGHT QUALITY AND QUANTITY

h) IN CASE OF PAYMENT OF MONEY, THE TENDER MUST BE OF THE PRECISE AMOUNT AND IN TERMS OF LEGAL CURRENCY [ AN OFFER TO GIVE IN CHEQUE INSTEAD OF CASH MAY NOT SATISFY THE REQUIREMENT IF TURNED DOWN BY THE OTHER PARTY]

CONT……

142

5. THERE ARE TWO KINDS OF TENDER:a) TENDER OF MONEY ORb) TENDER OF GOODS6. IN CASE OF PAYMENT OF MONEY, WHO

SHOULD PERFORM – CAN SOMEBODY OTHER THAN PROMISOR OR PROMISEE PERFORM?

a) IF THE PROMISE TO PERFORM IS OF PERSONAL NATURE [SING, DANCE, SPEAK ETC] OR IF THE CONTRACT SPECIFICALLY INSISTS SO, THE PROMISOR HIMSELF MUST PERFORM

CONT……

143

b) CONTRACTUAL OBLIGATIONS WHICH ARE NOT OF PERSONAL IN NATURE COULD BE PERFORMED BY AN AGENT OF THE PROMISOR

c) ON THE DEATH OF A PROMISOR, OBLIGATIONS NOT OF PERSONAL NATURE COULD BE PERFORMED BY THE LEGAL REPRESENTATIVES OF THE PROMISOR

d) THIRD PARTIES MAY PERFORM THE PROMISE WHEN THEY ARE MADE ASSIGNS/NOMINEES BY THE PARTIES OR BY OPERATION OF LAW[X OWS Y RS 5000. Z A FRIEND OF X OFFERS RS 4000 TO Y AND HE ACCEPTS IT IN FULL SATISFACTION. Z CANNOT SUBSEQUENTLY SUE X FOR THE BALANCE]

CONT……

144

7. WHAT IS THE IMPORTANCE OF TIME & PLACE OF PERFORMANCE OR WHAT IS MEANT BY TIME IS THE ESSENCE OF A CONTRACT

a) CONTRACTING PARTIES MUST PERFORM THEIR PROMISES WITHIN THE TIME SPECIFIED OR AGREED

b) IN COMMERCIAL TRANSACTIONS TIME IS TREATED AS AN ESSENTIAL INGREDIENT, WHILE IN NON-COMMERCIAL CONTRACTS, THERE IS NO SUCH PRESUMPTION

c) WHEN TIME IS AN ESSENTIAL INGREDIENT, NON PERFORMANCE ON TIME MAKES THE CONTRACT VOIDABLE IN THE HANDS OF THE AGGRIEVED (Sn 55)

CONT……

145

d) WHEN TIME IS NOT THE ESSENCE OF THE CONTRACT, THE AGGRIEVED CAN SUE FOR COMPENSATION

e) IF THE PROMISEE ACCEPTS ALTERNATE TIME OR PLACE OF DELIVERY, HE CANNOT THEN CLAIM COMPENSATION

[MS=10.3 – 10.11 MK=114 – 12 CB=76 – 84 PG=57 – 58]

146

XXXVIII.WHAT IS MEANT BY DISCHARGE OF CONTRACT BY AGREEMENT [Sn 62]

1. SINCE A CONTRACT IS CREATED BY AGREEMENT, IT MAY BE TERMINATED BY THE SAME METHOD OR MUTUAL CONSENT

2. THE DISCHARGE OF A CONTRACT BY AGREEMENT CAN TAKE THE FOLLOWING SHAPES:

a) NOVATION (i) WHEN ALL PARTIES TO A CONTRACT AGREE TO REPLACE THE OLD CONTRACT WITH NEW CONTRACT (ii) IT MUST BE DONE BEFORE THE BREACH OR EXPIRY OF THE OLD CONTRACT

b) RECISSION (i) IT TAKES PLACE WHEN ALL OR SOME OF THE TERMS OF THE CONTRACT ARE CANCELLED CONT…….

147

c) REMISSION(i) IT MEANS THE ACCEPTANCE OF A LESSER SUM THAN WHAT WAS CONTRACTED OR A LESSER FULFILLMENT OF THE PROMISE MADE(ii) IT MAY CONSIST OF EXTENTION OF TIME FOR PERFORMANCE OR ACCEPTANCE OF ALTERNATIVE SATISFACTION INSTEAD OF THE ORIGINAL PERFORMANCE

d) WAIVERIT MEANS DELIBERATE / INTENTIONAL ABANDONMENT OR RELINQUISHMENT OF THE RIGHTS BY THE PARTIES TO A CONTRACT

CONT…….

148

e) MERGERIT TAKES PLACE WHEN AN INFERIOR RIGHT ACCRUING TO A PARTY UNDER A CONTRACT MERGES INTO A SUPERIOR RIGHT ACCRUING TO THE SAME PARTY UNDER THE SAME OR SOME OTHER CONTRACT [A TENENT GIVING UP HIS TENENCY RIGHTS WHEN HE BUYS UP THE SAME HOUSE]

f) ALTERATIONWHEN ONE OR MORE OF THE TERMS OF THE CONTRACT IS / ARE ALTERED BY MUTUAL CONSENT OF THE PARTIES TO THE CONTRACT. THE OLD CONTRACT IS DISCHARGED AND THE PARTIES BECOME BOUND BY A NEW CONTRACT

[MS=10.12 – 10.16 MK= PG=59 CB=88]

149

XXXIX.WHAT IS MEANT BY DISCHARGE OF CONTRACT BY IMPOSSIBILITY OF PERFORMANCE?

1. ACCORDING TO SECTION 56 OF ICA, AN AGREEMENT TO DO AN ACT IMPOSSIBLE ON THE FACE OF IT IS VOID [X PROMISES Y AN INDIAN NATIONAL TO GET HIM ELECTED AS PRESIDENT OF PAKISTAN]

2. IMPOSSIBILITY MAY BE OF 3 KINDS:a) IMPOSSIBILITY KNOWN TO THE PARTIES

AT THE TIME OF MAKING THE CONTRACT. IN SUCH CASES THE AGREEMENT IS AB- INITIO – VOID AS BOTH KNOW OF THE IMPOSSIBILITY

CONT…

150

b) IMPOSSIBILITY UNKNOWN TO BOTH PARTIES AT THE TIME OF MAKING THE CONTRACT. IN SUCH CASE ALSO THE CONTRACT IS VOID DUE TO MUTUALITY OF THE MISTAKE [A SUPPLIER AGREES TO SHIP MATERIAL TO US ON SHIP WHICH SANK – THE FACT OF SINKING SHIP WAS NOT KNOWN TO BOTH]

c) IMPOSSIBILITY OR ILLEGALITY WHICH AROSE SUBSEQUENT TO THE FORMATION OF THE CONTRACT. IN SUCH CASE ALSO THE CONTRACT BECOMES VOID DUE TO IMPOSSIBILITY OF PERFORMANCE

CONT…

151

3. CASES COVERED UNDER SUPERVENING IMPOSSIBILITY ARE AS FOLLOWS:

a) DESTRUCTION OF THE SUBJECT MATTER [DEATH, SINKING, FIRE ETC]

b) NON – OCCURRENCE OF CONTEMPLATED STATE OF THINGS[X HIRED A FLAT IN LONDON TO VIEW THE CORONATION OF THE KING FROM A VANTAGE POSITION. THE CORONATION AND STREET PROCESSION WAS CANCELLED]

c) UNANTICIPATED CHANGE OF CIRCUMSTANCES[CRICKET TICKET SALES. TOUR OF AUSTRALIANS CALLED OFF DUE TO TERROR THREAT] OR FUNCTION CANCELLED DUE TO BANDH]

CONT…

152

d) DEATH OR INCAPACITY OF A PARTY[ARTIST WHO WAS TO SING DIED OR GOT PARALYSED]

e) CHANGE OF LAW[SALE OF LIQUOR AND INTRODUCTION OF PROHIBITION IN A STATE]

f) OUTBREAK OF WAR[DURING THE CONTINUANCE OF THE WAR THE CONTRACT REMAINS SUSPENDED]

4. HOWEVER THERE ARE SOME EXCEPTIONS TO THE DOCTRINE OF SUPERVENING IMPOSSIBILITY LIKE:

a) IF PERFORMANCE BECAME CUMBERSOME OR DIFFICULT IT IS NOT SUFFICIENT GROUNDS TO ESCAPE LIABILITY[WEDDING CATEROR AGREED AT RS X PER PLATE. INFLATION AND COST OF INGREDIENTS GOING UP. CATERER HAS TO BEAR IT]

CONT…

153

b) DUE TO REDUCTION IN ANTICIPATED PROFITS [GOVERNMENT RAISED THE MINIMUM WAGES – CONTRACTOR MUST COMPLETE THE JOB]

c) SELF INDUCED IMPOSSIBILITYd) STRIKES, LOCKOUTS AND CIVIL

DISTURBANCE IS NOT GROUNDS FOR ESCAPING LIABILITY

e) PARTIAL IMPOSSIBILITY – WILL NOT TERMINATE THE WHOLE CONTRACT

5. EFFECT OF SUPERVENING IMPOSSIBILITYa) THE CONTRACT BECOMES VOID AND

PARTIES ARE RELEASED FROM FURTHER PERFORMANCE

b) IF ANY PERSON HAS RECEIVED ANY BENEFIT HE MUST RESTORE IT TO THE OTHER PARTY OR MAKE COMPENSATION FOR IT

[SN 56 & 65]

154

XL. WHAT IS MEANT BY DISCHARGE BY LAPSE OF TIME?

1. IF A CONTRACT IS NOT PERFORMED WITHIN THE PERIOD PRESCRIBED UNDER THE INDIAN LIMITATION ACT 1963, IT LAPSES.

XLI.WHAT IS MEANT BY DISCHARGE BY OPERATION OF LAW?

1. A CONTRACT IS DISCHARGED BY OPERATION OF LAW IN THE FOLLOWING WAYS:

a) DEATH OF THE PROMISORb) INVOLVENCY OR MERGERc) UNAUTHORISED ALTERATION IN THE

TERMS OF CONTRACT OR MATERIAL WITHOUT THE CONSENT OF THE OTHER PARTY [SUPPLY OF BASMATI WITH SOME OTHER RICE]

155

XLII.WHAT IS MEANT BY DISCHARGE BY BREACH?

1. WHEN A PARTY FAILS TO PERFORM HIS OBLIGATION UNDER A CONTRACT, HE IS SAID TO HAVE COMMITTED A BREACH OF CONTRACT

2. BREACH CAN BE OF 2 TYPES:(a) ANTICIAPTED BREACH & (b) ACTUAL BREACH

3. REMEDIES AGAINST ANTICIPATORY BRACH [Sn 39]

• AGGRIEVED PARTY CAN TREAT IT AS ACTUAL BREACH AND SUE FOR DAMAGES OR

• WAIT FOR THE DUE DATE AND SUE FOR DAMAGES THEREAFTER

[MS= 11.2 – 12.6 MK= 128 – 140 PK=59 CB=94]

156

XLIII.WHAT IS THE DIFFERENCE BETWEEN SUPERVENING IMPOSSIBILITY AND DOCTRINE OF FRUSTRATION?

CONT….

SUPERVENING IMPOSSIBILITY

DOCTRINE OF FRUSTRATION

1 SUPERVENING IMPOSSIBILITY IS CONTEMPLATED IN SECTION 56 OF THE ICA

DOCTRINE OF FRUSTRATION (SIMILAR TO IMPOSSIBILITY) IS APPLICABLE UNDER ENGLISH LAW

157 [MS = 11.7 ]

2 IMPOSSIBILITY OF PERFORMANCE HAS TO BE DECIDED BY COURTS AND NOT FOR THE PARTIES TO RAISE IT AS A DEFENCE

PARTIES CAN RAISE THE DOCTRINE OF FRUSTRATION AS A DEFENCE

3 IN INDIAN LAW WHEN THE CONTRACT BECOMES IMPOSSIBLE TO PERFORM, ANY AMOUNT PAID AS ADVANCE OR BENEFIT ALREADY GIVEN MUST BE RETURNED TO THE PARTY CONCERNED UNDER THE PRINCIPLE OR QUASI- COTNRACT [Sn 64 & 65]

UNDER THE DOCTRINE OF FRUSTRATION, ANY MONEY THAT WAS ALREADY ADVANCED BY THE PROMISOR TO THE PROMISEE NEED NOT BE REFUNDED. THE STATUS-QUO WOULD BE MAINTAINED

158

XLIV. WHAT ARE THE REMEDIES AVAILABLE TO THE AGGRIEVED FOR BREACH OF COTNRACT BY THE OTHER PARTY?

1. THE ICA PROVIDES FOR THE FOLLOWING REMEDIES:

a) SUIT FOR RECISION OF THE CONTRACTb) SUIT FOR CLAIMING DAMAGESc) SUIT OF CLAIMING QUANTUM MERUITd) SUIT FOR SPECIFIC PERFORMANCEe) SUIT FOR INJUNCTION2. WHAT IS MEANT BY SUIT FOR RECISION

THE COURT MAY GRANT RECISION (PERMISSION NOT TO PERFORM ANY MORE OBLIGATIONS) IN THE FOLLOWING CASES:

CONT ……

159

a) WHERE THE CONTRACT IS VOIDABLE AT THE OPTION OF THE PLAINTIFF

b) THE COURT MAY HOWEVER REFUSE RECISION IN THE FOLLOWING CASES:

i. WHERE THE PLAINTIFF HAS EXPRESSLY OR IMPLIEDLY RATIFIED THE CONTRACT

ii. DUE TO CHANGE IN CIRCUMSTANCES, THE PARTIES CANNOT BE RESTORED TO THEIR ORIGINAL POSITION

iii. WHERE THIRD PARTIES HAVE OBTAINED RIGHTS UNDER THE CONTRACT IN GOOD FAITH

iv. WHERE ONLY A PART OF THE CONTRACT IS SOUGHT TO BE RESCINDED AND SUCH PART IS NOT SEVERABLE FROM THE REST OF THE CONTRACT [Sn 27 OF THE SPECIFIC RELIEF ACT 1963]

CONT ……

160

3. WHAT IS MEANT BY SUIT FOR DAMAGES AND WHAT ARE THE VARIOUS TYPES OF DAMAGES:

i. WHAT IS DAMAGESa) DAMAGES ARE THE MONETARY

COMPENSATION ALLOWED TO THE INJURED PARTY FOR THE LOSS OR INJURY SUFFERED BY HIM AS A RESULT OF THE BREACH OF CONTRACT

b) DAMAGE IS NOT PUNISHMENT OR PENALTY IT IS AIMED AT PUTTING THE INJURED PARTY INTO A SITUATION THE AGGRIEVED WOULD HAVE BEEN HAD THE CONTRACT BEEN FULFILLED

c) DAMAGES AWARDED BY COURT COULD BE ANY ONE OF THE FOLLOWING:

CONT ……

161

• ORDINARY OR GENERAL OR COMPENSATORY DAMAGE FOR THE ACTUALLY QUANTIFIED DAMAGE

• SPECIAL DAMAGES (DAMAGES AS CONTEMPLATED BY THE PARTIES AT THE TIME OF EXECUTING THE CONTRACT)

• EXEMPLARY, PUNITIVE OR VINDICTIVE DAMAGES(WHERE AGGRAVATED SITUATION EXISTS)

iv. NOMINAL DAMAGES (ONLY TOKEN DAMAGE FOR MERE TECHNICAL VIOLATIONS)

d) SECTION 73 OF THE ICA PRESCRIVE THE RULES REGARDING QUANTIFICATION OF THE DAMAGES TO BE AWARDED AS FOLLOWS:

CONT ……

162

• ONLY DAMAGE DIRECTLY OR NATURALLY ARISING OUT OF THE BREACH IS TO BE COMPENSATED

• REMOTE OR INDIRECT DAMAGES ARE NORMALLY NOT GRANTED UNLESS THE PARTIES HAD INDICATED THE SAME IN THE CONTRACT

e) WHAT IS MEANT BY LIQUIDATED DAMAGESIF THE PARTIES HAD INDICATED IN THE CONTRACT ITSELF THE QUANTUM OF DAMAGES PAYABLE IT IS CALLED LIQUIDATED DAMAGES

f) WHAT IS MEANT BY “QUANTUM MERUIT”?i. ANOTHER REMEDY AVAILABE IS TO FILE A

SUIT FOR GRANT OF “QUANTUM METUIT”CONT ……

163

ii. THE PHARSE “QUANTUM MERUIT” MEANS “AS MUCH AS EARNED”

iii. IN CASE A CONSTRUCTION CONTRACT IS UNDERTAKEN AND LATER THE WORK HAD TO BE STOPPED FOR SOME LEGAL REASON AND THE CONTRACT HAS BECOME VOID, THE PARTY WHO HAS DONE PART WORK CAN SUE FOR RECOVERING CHARGES FOR THE PROPORTION OF WORK ALREADY COMPLETED

iv. THE CLAIM FOR “QUANTUM MERUIT” CAN BE OVER AND ABOVE THE CLAIM FOR DAMAGES

g) WHAT IS MEANT BY “EARNEST MONEY” AND “SECURITY DEPOSIT”

CONT ……

164

• SOMETIMES A PARTY MAY BE REQUIRED TO DEPOSIT SOME MONEY WITH THE OTHER PARTY TO THE CONTRACT AND IT MAY BE IN THE NATURE OF “EARNEST MONEY” OR “SECURITY DEPOSIT”

• EARNEST MONEY CAN BE ADJUSTED AGAINST PURCHASE PRICE AND IS FOREFEITED IF THE CONTRACT FALLS THROUGH OR IS NOT ENTERED INTO

• SECURITY DEPOSIT ON THE CONTRARY IS FOR ENSURING PERFORMANCE. IT IS NOT PART OF THE PURCHASE PRICE AND IS ALSO NOT ADJUSTED AGAINST PAYMENTS TO BE MADE. IT CANNOT BE FOREFEITED AS ITS FOREFEITURE WILL AMOUNT TO PENALTY WHICH ONLY COURS CAN AWARD

CONT ……

165

4. WHAT IS MEANT BY SUIT FOR SPECIFIC PERFORMANCE?

a) IF THE COURTS FEEL MONETARY COMPENSATION IS NOT THE ADEQUATE REMEDY IT MAY COMPEL THE PARTY COMMITTING THE BREACH TO DO WHAT HE HAD PROMISED TO DO

b) CIRCUMSTANCES WHEN COURT WOULD ORDER SPECIFIC PERFORMANCE COULD BE AS FOLLOWS:

i. WHERE THE CONTRACT IS SUCH THAT MONEY WOULD NOT BE THE ADEQUATE RELIEF

ii. WHERE THERE ARE NO STANDARDS FOR ASCERTAINING THE ACTUAL DAMAGE CAUSED BY THE NON-PERFORMANCE OF THE AGREED ACT

CONT ……

166

iii. WHEN IT IS PROBABLE THAT COMPENSATION IN MONEY CANNOT BE GOT FOR THE NON - PERFORMANCE OF THE CONTRACT.

c) HOWEVER SPECIFIC PERFORMANCE IS NOT ORDERED IN THE FOLLOWING CASES:

i. MONEY IS AN ADEQUATE REMEDYii. IT WILL BE INEQUITABLE (UNFAIR)

TO EITHER PARTYiii. THE CONTRACT IS OF PERSONAL

NATURE (EX CONTRACT TO MARRY)iv. THE COURT CANNOT SUPERVISE ITS

EXECUTIONCONT

……

167

5. WHAT IS MEANT BY SUIT FOR INJUNCTION?

a) INJUNCTION IS AN ORDER FROM A COURT TO RESTRAIN A PERSON FROM DOING A PARTICULAR ACT

b) WHERE A PARTY TO A CONTRACT IS ATTEMPTING TO DO SOMETHING THAT WILL DEFEAT THE EXECUTION OF THE CONTRACT, THE COURT MAY ORDER THE RESTRAINT OF THE OPPOSING ACTION WHEN PETITIONED BY THE OTHER PARTY TO THE CONTRACT

[MS 14.1 – 14.11 MK = 149 – 160 CB= 99 – 106]

168

MODULE III A – SPECIAL CONTRACTS[CONTRACT OF INDEMNITY &

GUARANTEE, CONTRACT OF BAILMENT & PLEDGE, CONTRACT OF

AGENCY]

I. WHAT IS MEANT BY CONTRACT OF INDEMNITY & WARRANTY AND WHAT ARE THE PROVISIONS REGULATING THEM

1. WHAT IS MEANT BY CONTRACT OF:INDEMNITY:ACCORDING TO SECTION 124 A CONTRACT OF INDEMNITY MEANS “ A CONTRACT BY WHICH ONE PARTY PROMISES TO SAVE THE

CONT….

169

OTHER FROM LOSS CAUSED TO HIM BY THE CONDUCT OF THE PROMISER HIMSELF OR BY THE CONDUCT OF ANY OTHER PERSON[X TAKES HIS FRIEND Y TO A HOTEL AND TELLS THE OWNER GIVE Y WHAT EVER FOOD HE

WANTS, I WILL SEE THAT YOU ARE PAID]GUARANTEE:ACCORDING TO SECTION 126 A CONTRACT OF GUARANTEE MEANS “ A CONTRACT TO PERFORM THE PROMISE OR DICHARGE THE LIABILITY OF A THIRD PERSON IN CASE OF HIS DEFAULT”[X TAKES Y TO A HOTEL AND TELLS THE OWNER GIVE Y WHAT EVER FOOD HE WANTS, IF HE DOES NOT PAY YOU, I WILL PAY]

CONT…

170

2. WHO ARE THE PARTIES TO:CONTRACT OF INDEMNITY:a) THE PERSON WHO PROMISES TO MAKE

GOOD THE LOSS IS CALLED THE INDMNIFIER (PROMISOR) [Mr X]

b) AND THE PERSON WHOSE LOSS IS TO BE MADE GOOD IS CALLED THE INDEMNIFIED OR INDEMNITY HOLDER (PROMISEE) [HOTEL OWNER]

c) TOTALLY 2 PARTIESCONTRACT OF GUARANTEE:a) THE PERSON IN RESPECT OF WHOSE

DEFAULT THE GUARANTEE IS GIVEN IS CALLED THE ‘PRINCIPAL DEBTOR’ [Mr Y] CONT…

171

b) THE PERSON TO WHOM THE GUARANTEE IS GIVEN IS CALLED THE ‘CREDITOR’ [HOTEL OWNER]

c) THE PERSON WHO GIVES THE GUARANTEE IS CALLED THE ‘SURETY’ [Mr X]

d) TOTALLY 3 PARTIES3. WHAT ARE THE RIGHTS OF THE

INDEMNITY HOLDERSECTION 125 ENTITLES THE INDEMNITY HOLDER TO RECOVER THE FOLLOWING FROM THE PROMISOR:

a) ALL DAMAGES WHICH HE MAY BE COMPELLED TO PAY IN A SUIT IN RESPECT OF ANY MATTER TO WHICH THE PROMISE TO INDEMNIFY APPLIES

CONT…

172

b) ALL COSTS WHICH HE MAY BE COMPELLED TO PAY IN BRINGING OR DEPENDING SUCH SUITS PROVIDED HE ACTS AS A PRUDENT MAN

c) ALL SUMS WHICH HE MAY HAVE PAID UNDER THE TERMS OF ANY COMPROMISE OF ANY SUCH SUIT

4. WHAT ARE THE KINDS OF GUARANTEES

a) RETROSPECTIVE GUARANTEE – IT IS A GUARANTEE FOR AN EXISTING DEBT

b) PROSPECTIVE GUARANTEE – IT IS A GUARANTEE FOR A FUTURE DEBT

c) SPECIFIC GUARANTEE – A GUARANTEE WHICH EXTENDS TO A SINGLE DEBT OR SPECIFIC TRANSACTION

CONT…

173

d) CONTINUING GUARANTEE – A GUARANTEE THAT EXTENDS TO A SERIES OF TRANSACTIONS

5. CAN A GUARANTEE BE REVOKED OR WHEN CAN A SURETY STAND DISCHARGED?

a) BY NOTICE (SECTION 130): A SURETY CAN AVOID THE LIABILITY IN RESPECT OF FUTURE TRANSACTIONS BY NOTICE OF REVOCATION. BUT THE GUARANTOR REMAINS LIABLE FOR ALL TRANSACTION PRIOR TO SUCH NOTICE

b) BY DEATH OF SURETY (SECTION 131). DEATH OF THE SURETY OPERATES AS TERMINATION OF CONTINUING GUARANTEE WITH REGARD TO FUTURE TRANSACTIONS.

[MS = MK CB= 115 – 120 PG= 61 -62]

174

II. WHAT IS THE NATURE AND EXTENT OF A SURETY’S LIABILITY

1. COEXTENSIVE WITH THE PRINCIPLE DEBTOR

a) SURETY’S LIABILITY ARISES ONLY WHEN THE PRINCIPAL DEBTOR FAILS TO HONOUR HIS OBLIGATION. ONCE THE LIABILITY ARISES IT IS JOINT OR COEXTENSIVE WITH THAT OF THE PRINCIPAL DEBTOR. A SURETY’S LIABILITY IS NEITHER MORE NOR LESS THAN THAT OF THE PRINCIPAL DEBTOR

2. SECONDARY LIABILITYa) SURETY’S LIABILITY IS SECONDARY AND

ARISES ONLY IF THE PRINCIPLE DEBTOR FAILS TO PERFORM [PRIMARY RESPONSIBILITY REMAINS WITH THE PRINCIPAL DEBTOR] CONT….

175

3. SURETY IS A FAVOURED DEBTORNO NEW LIABILITY CAN BE THRUST ON THE SURETY WHICH IS NOT COVERED IN THE ORIGINAL CONTRACT. ON ANY ALTERATION OF THE CONTRACT WITHOUT SURETY’S CONSENT, THE SURETY CEASES TO BE LIABLE

4. NO PRIVITY OF CONTRACTTHOUGH THE OBLIGATIONS OF THE SURETY & PRINCIPAL DEBTOR AR CO-EXTENSIVE, THEY DO NOT CONSTITUTE A SINGLE LEGAL PERSON. ACCORDINGLY THE SURETY IS NOT BOUND BY THE ADMISSIONS MADE BY THE PRINCIPAL DEBTOR

[MS MK= CB=120 – 121]

176

III. WHAT ARE RIGHTS OF A SURETY?1. RIGHTS AGAINST THE PRINCIPAL

DEBTOR (Sn 145)a) IN A CONTRACT OF GUARANTEE THERE

IS AN IMPLIED PROMISE OF THE PRINCIPAL DEBTOR TO INDEMNIFY THE SURETY

b) ON DEFAULT, AFTER PAYING OF THE DEBTS OF THE PRINCIPAL DEBTOR, SURETY CAN CLAIM ALL THOSE RIGHTS THE CREDITOR HAD AGAINST THE PRINCIPAL DEBTOR. THAT IS THE SURETY STEPS INTO THE SHOES OF THE CREDITOR. THERE IS NO NEED OF ASSIGNMENT OR TRANSFER OF RIGHTS FROM THE CREDITOR TO THE SURETY. THE SUBROGATION IS AUTOMATIC

CONT……

177

2. RIGHTS AGAINST THE CREDITORa) BEFORE MAKING PAYMENT OF THE

GUARANTEED DEBT THE SURETY CAN ASK THE CREDITOR TO FILE A SUIT AGAINST THE DEBTOR

b) RIGHT TO SECURITIES. THE SURETY ENTITLED TO THE BENEFIT OF EVERY SECURITY HELD BY THE CREDITOR AT THE TIME OF MAKING THE CONTRACT. IF ANY SUCH SECURITY IS LOST WITHOUT THE CONSENT OF THE SURETY, THE LIABILITY OF THE SURETY WILL STAND REDUCED TO THAT EXTENT.

CONT……

178

c) RIGHT OF SUBROGATION ON PAYING OF THE DEBT, THE SURETY WOULD BE AUTOMATICALLY INVESTED WITH ALL THOSE RIGHTS WHICH THE CREDITOR HAD AGAINST THE PRINCIPAL DEBTOR

3. RIGHT OF THE SURETY AGAINST CO-SURETIES

a) CO-SURETIES ARE LIABLE TO PAY THEIR SHARE TO THE SURETY WHO PAID THE DEBT

[MS MK= CB=124 – 125]

179

IV. BRING OUT THE DISTINCTION BETWEEN A CONTRACT OF INDEMNITY & CONTRACT OF GUARANTEE

CONT....


CONTRACT OF

INDEMNITY

CONTRACT OF

GUARANTEE

1 NO. OF PARTIES

TWO

[INDEMNIFIER+

INDEMNITY HOLDER]

THREE

[CREDITOR+PRINCIPL

DEBTOR+SURETY]

180

CONT....

2 OBJECT OR PURPOSE

FOR REIMBURSEMENT OF LOSS

FOR SECUTIRY OF A DEBT OR GOOD CONDUCT OF AN EMPLOYEE

3 NUMBER OF CONTRACTS

ONLY ONE CONTRACT BETWEEN INDEMNIFIER & INDEMNIFIED

THREE CONTRACTS:

(i) PRINCIPAL DEBTOR WITH CREDITOR

(ii) CREDITOR & SURETY

(iii) SURETY & PR. DEBTOR

181

CONT....

4 NATURE OF LIABILITY

THE LIABILITY OF THE INDEMNIFIER IS PRIMARY (MAIN) RESPONSIBILITY

LIABILITY OF THE SURETY IS SECONDARY (SURETY LIABLE ONLY IF PR. DEBTOR DEFAULTS)

5 IS REQUEST NECESSARY

INDEMNIFIER ACTS INDEPENDENT OF ANY REQUEST BY THE INDEMNITY HOLDER OR THIRD PARTY

IT IS NECESSARY

THAT THE SURETY

GIVE THE

GUARANTEE ONLY

AT THE REQUEST

OF THE DEBTOR

182 CB=118 – 119 PG=63

6 EXISTENCE OF EXISTING DUTY OR DEBT

IN MOST CASES THERE IS NO EXISTING DUTY OR DEBT

THERE IS AN EXISTING DEBT OR DUTY THE PERFORMANCE OF WHICH IS GUARANTEED BY THE SURETY

7 RIGHT TO SUE

THE INDEMNIFIER CANNOT SUE THE THIRD PARTY FOR LOSS IN HIS OWN NAME, BECAUSE THERE IS NO PRIVITY OF CONTRACT. HE CAN DO SO ONLY IF THER IS AN ASSIGNMENT IN HIS FAVOUR

THE SURETY

AFTER HE PAYS

THE DEBT TO

CREDITOR, CAN

PROCEED

AGAINST

THE DEBTOR IN

HIS OWN RIGHT

183

MODULE III B – BAILMENT & PLEDGE

I. WHAT ARE THE LAWS GOVERNING THE CONTRACT OF BAILMENT & PLEDGE

1. WHAT IS MEANT BY ‘BAILMENT’ACCORDING, TO SECTION 148 OF THE ICA ‘BAILMENT’ IS DEFINED AS “THE DELIVERY OF GOODS BY ONE PERSON TO ANOTHER, FOR SOME PURPOSE, UPON A CONTRACT THAT THEY SHALL, WHEN THE PURPOSE IS ACCOMPLISHED, BE RETURNED OR OTHERWISE BE DISPOSED OF ACCORDING TO THE DIRECTION OF THE PERSON DELIVERING THEM”

CONT….

184

2. WHO ARE THE PARTIES TO THE CONTRACT?

a) THE PERSON DELIVERING THE GOODS IS CALLED THE ‘BAILOR’

b) THE PERSON TO WHOM THE GOODS ARE DELIVERED IS CALLED THE “BAILEE”

3. EXAMPLES OF BAILMENTa) X LENDS HIS MOTOR CYCLE TO Y FOR HIS

USEb) X GIVES HIS MOTOR CYCLE TO Y FOR

REPAIRSc) ‘X’ GIVES HIS MOTOR CYCLE TO Y ON HIREd) ‘X’ GIVES 2 METRES OF CLOTH TO A

TAYLOR TO STITCH A PANTe) ‘X’ GIVES HIS SHIRT TO Y FOR IRONING

CONT…

185

4. WHAT ARE THE ESSENTIAL INGREDIENTS OF A BAILMENT SEEN IN THE DEFINITION

a) THERE MUST BE DELIVERY OF ‘CHATTEL’ [MOVEABLE GOODS OTHER THAN MONEY] TO ANOTHER PERSON [WHO SHOULD NOT BE YOUR SERVANT]

b) DELIVERY SHOULD BE BASED ON A CONTRACT [IN CERTAIN CIRCUMSTANCES IT COULD ALSO BE NON CONTRACTUAL – WHEN CUSTOMS SIEZED A PASSENGERS GOODS IT WAS HELD THAT CUSTOMS DEPARTMENT BECOMES A BAILEE EVEN THOUGHTHERE IS NO CONTRACT BETWEEN THE PERSON AND THE CUSTOMS AUTHORITIES] CONT…

186

c) DELIVERY MUST BE WITH SOME PURPOSE [IT COULD BE LENDING, CUSTODY, REPAIR, SECURITY DEPOSIT FOR DEBT ETC]

d) THERE SHOULD BE RETURN OF GOODS OR DISPOSAL OR ALTERATION OF GOODS AS DESIRED BY THE BAILOR

e) IT MUST BE ONLY MOVEABLE GOODS [CASH IS NOT TREATED AS MOVEABLE FOR PURPOSE OF BAILMENT]

f) THERE SHOULD BE NO TRANSFER OF OWNERSHIP [THE BAILOR CONTINUES TO BE THE OWNER AND ONLY TEMPORARY POSSESSION IS TRANSFERRED TO THE BAILEE]

5. WHAT ARE THE KINDS OF BAILMENTa) ON THE BASIS OF CHARGES BAILMENTS

COULD BE OF 2 TYPES:(i) GRATUITOUS (ii) NON- GRATUITOUS CONT…

187

b) ON THE BASIS OF BENEFITS IT COULD BE OF 3 TYPES(i) BAILMENT FOR EXCLUSIVE BENEFIT OF BAILOR ONLY[X WHILE GOING ABROAD GIVES HIS JEWELS TO Y FOR SAFE KEEPING](ii) BAILMENT FOR EXCLUSIVE BENEFIT OF BAILEE ONLY[X GIVES HIS CAR TO Y FOR USE AT HIS DAUGHTER’S WEDDING FREE OF CHARGE](iii) BAILMENT FOR MUTUAL BENEFIT [BOTH][X GAVE HIS CAR ON HIRE TO Y]

[MS= 16.1 – 16.3 MK= 180 – 182 CB=129 - 130]

188

II. WHAT ARE THE DUTIES OF A BAILOR1. TO DISCLOSE FAULTS IN THE GOODS BAILEDa) DUTY OF GRATUITOUS BAILOR – IS BOUND TO

DISCLOSE TO BAILEE THE FAULTS IN THE GOODS, HE IS AWARE WHICH COULD EXPOSE THE BAILEE TO RISKS. IF THE BAILEE FAILS TO MAKE SUCH DISCLOSURE HE WILL HAVE TO COMPENSATE THE BAILEE FOR ANY DAMAGE SUFFERED[X LENDS HIS CAR TO Y WITHOUT DISCLOSING THAT ITS BREAKS ARE NOT OK]

b) DUTY OF NON- GRATUITIOUS BAILOR- SINCE THE BAILOR IS COLLECTING HIRE CHARGES, HE IS DUTY BOUND TO ENSURE THAT THE GOOD IS REASONABLY SAFE. BAILOR WOULD BE LIABLE FOR DAMAGES TO THE BAILEE WHETHER OR NOT HE WAS AWARE OF THE DEFECT[X LENT A BIKE TO Y ON HIRE. Y SUFFERED INJURY DUE TO POOR BREAKS. X MUST PAY FOR Y’S MEDICAL EXPENSES]

CONT….

189

2. TO PAY NECESSARY EXPENSES TO THE BAILEE

i. IN CASE OF NON – GRAUITOUS BAILMENT MUST PAY REASONABLE MAINTENANCE EXPENSES TO THE BAILEE[X LEFT HIS PET DOG WITH Y WHEN HE WENT ABROAD FOR A MONTH THE DOG FELL ILL Y INCURRED MEDICAL EXPENSES ON THE DOG]

ii. IN CASE OF GRATUITOUS BAILMENT, HE SHOULD PAY THE BAILEE ANY EXTRA - ORDINARY EXPENDITURE INCURRED[X GAVE HIS BIKE TO Y FOR FREE USE FOR 2 DAYS. Y HAD TO PAY A FINE OF RS 100/- FOR THE VEHICLE NOT HAVING A SMOKE EMISSION CERTIFICATE TO THE COPS]

CONT….

190

3. TO INDEMNIFY THE BAILEE FOR ANY BREACH OF WARRANTY AS TO TITLE[X STOLE A HORSE BELONGING TO Z AND GAVE IT TO Y ON HIRE. Y HAD TO PAY DAMAGE OF RS. 1000/ - X HAS TO PAY RS. 1000/ - TO Y]

4. TO INDEMNIFY BAILEE FOR PREMATURE TERMINATION OF GRAUITOUS BAILMENT[X LENT HIS OLD BIKE TO Y FOR USE FOR 3 MONTHS. Y SPEND RS 500/- TO MAKE IT USEABLE. AFTER ONE MONTH X ASKED FOR THE RETURN OF THE BIKE X MUST PAY THE COST OF REPAIR]

5. TO RECEIVE BACK THE GOODS AFTER THE BAILMENT PERIOD IS OVER OR ON THE ACCOMPLISHMENT OF THE PURPOSE[X GAVE HIS SARI FOR DRY CLEANING BUT WAS NOT COLLECTING IT BACK]

[MS=16.3 – 16.5 MK=185 – 186 CB=132 – 133 ]

191

III. WHAT ARE THE DUTIES OF A BAILEE1. TO TAKE REASONABLE CARE OF THE GOODS

[THE EXTENT OF CARE A MAN OF ORDINARY PRUDENCE WOULD TAKE IF THE GOODS WERE HIS OWN] [BAILEE MUST PROVE THAT HE HAD TAKEN REASONABLE CARE]

2. NOT TO MAKE ANY UN – AUTHORISED USE OFTHE GOODS BAILED – IF HE MISUSES HE WILL HAVE TO PAY DAMAGES[ X LENT HIS HORSE TO Y FOR HIS OWN USE ONLY. Y ALLOWED HIS SON TO RIDE THE HORSE AND THE HORSE GOT INJURED. Y MUST COMPENSATE X]

3. BAILEE NOT TO MIX THE GOODS OF BAILOR WITH HIS OWN GOODS

a) WHEN MIXING IS WITH BAILOR’S CONSENT BOTH PARTIES SHALL HAVE PROPORTIONATE INTEREST IN THE MIXED GOODS

CONT……

192

b) WHEN MIXING IS WITHOUT BAILOR’S CONSENT AND GOODS CAN BE SEPARATED BAILEE MUST PAY EXPENSES OF SEPARATION AND ANY LOSS SUFFERED IN THE PROCESS OF SEPARATION

c) WHEN MIXING IS WITHOUT CONSENT AND GOODS CANNOT BE SEPARATED THE BAILEE HAS TO COMPENSATE THE BAILOR’S FOR HIS LOSS

4. TO RETURN THE GOODSTO RETURN THE GOODS TO THE BAILOR AT THE END OF THE BAILMENT PERIOD OR DISPOSE IT AS DIRECTED BY THE BAILOR – HE CANNOT RETAIN POSSESSION

CONT……

193

5. TO RETURN ANY INCREASE OR PROFIT THAT ACCRUED TO THE GOODS DURING THE BAILEE’S CUSTODY[X GIVES HIS COW FOR SAFE KEEPING FOR SIX MONTHS. THE COW GAVE BIRTH TO A CALF. Y SHOULD RETURN THE COW & CALF]

6. NOT TO DO ANY ACT THAT WILL PREVENT THE GOODS GOING BACK TO THE BAILOR – THIS RULE HAS AN EXCEPTION LIKE – IF A LORRY OWNER TRANSPORT X’S GOOD AND THE CENTRAL EXCISE AUTHORITIES CONFISCATES THE GOODS THE LORRY OWNER IS NOT LIABLE FOR THE LOSS OF GOODS

[MS=16.5 – 16.6 MK= 185 - 186 CB=134 –

135]

194

IV. WHAT ARE THE RIGHTS OF A BAILEE

1. TO CLAIM COMPENSATION IN CASE OF FAULTY GOODS[HIRING OF DEFECTIVE CAR]

2. TO CLAIM REIMBURSEMENT OF EXPENSES [BAILE HAD TO PAY EMISSION TEST FINE ON CAR GIVEN BY BAILOR]

3. TO CLAIM LOSS ARISING OUT OF PREMATURE DEMAND FOR RETURN OF GOODS BY THE BAILOR

4. TO SUE ANY THIRD PARTY WHO INTERFERES WITH THE BAILEE’S RIGHT TO USE THE GOODS

CONT....

195

5. BAILEES RIGHT TO LIEN [TO HOLD ON TO THE GOODS] IN CASE BAILOR HAS TO MAKE ANY PAYMENT TO THE BAILEE, BAILEE CAN RETAIN POSSESSION TILL SUCH PAYMENT OR LOSS IS MADE GOOD

6. RIGHT TO RETURN THE GOODS TO ANY ONE OF SEVERAL JOINT BAILORS

7. RIGHT TO BE INDEMNIFIED DUE TO ANY LOSS SUFFERED BY BAILEE WHEN BAILOR DID NOT HAVE THE AUTHORITY TO BAIL THE GOODS

[MS= 16.7 – 16.8 MK=186 – 189 CB= 136]

196

V. WHAT IS MEANT BY ‘LIEN’ AND WHAT ARE THE VARIOUS TYPES OF LIEN

1. WHAT IS MEANT BY LIEN - “IT IS THE RIGHT OF ANY PERSON TO RETAIN POSSESSION OF THE GOODS BELONGING TO ANOTHER, UNTIL THE PRESENT AND ACCRUED CLAIMS OF THE PERSON IN POSSESSION ARE SATISFIED BY THE OTHER PARTY”

2. SINCE THIS RIGHT ARISE BY POSSESSION IT IS CALLED “POSSESSORY LIEN”

3. WHAT ARE THE DIFFERENT TYPES OF LIENa) PARTICULAR LIEN – IF BAILEE HAS SEVERAL

GOODS AND PAYMENTS ARE DUE ONLY ON A PARTICULAR GOOD, HE CAN RETAIN ONLY THAT GOOD AND NOT ANY OTHER GOODS

CONT….

197

b) GENERAL LIEN – IT IS THE RIGHT OF THE BAILEE TO RETAIN ANY GOODS OF THE BAILOR FOR ANY MONIES DUE TO HIM[SEE WHAT IS MEANT BY FACTORS/ “WHARFINGERS” – MK – 189 ]

4. HOW ARE LIENS TERMINATEDa) ON SURRENDER OF POSSESSION – IF

BAILEE LOSES POSSESSION. HE LOSES HIS LIEN

b) ON PAYMENT OF OUTSTANDING DUES IF DUES ARE PAID BAILEE LOSES HIS RIGHT TO LIEN

c) ON WAIVER – BAILEE MAY WAVE HIS LIEN UPON AN EXPRESS OR IMPLIED AGREEMENT

[MS= 16.8 – 16.9 MK= 187 – 189 CB= 137- 138]

198

VI. WHAT ARE THE RIGHTS OF A BAILOR1. RIGHT TO TERMINATE THE BAILMENT – IF

BAILEE DOES NOT FULFILL THE CONDITIONS OF BAILMENT

2. RIGHT TO DEMAND RETURN OF GOODS – IF BAILMENT WAS GRATUITOUS BAILOR CAN DEMAND PREMATURE RETURN[HOWEVER IF BAILEE SUFFERS ANY LOSS DUE TO PREMATURE RETURN IT HAS TO BE COMPENSATED BY THE BAILOR]

3. TO SUE THIRD PARTY IF HE CAUSES DAMAGE OR OBSTRUCTS THE BAILEE’S USE OF THE GOODS

4. RIGHT TO DEMAND PROFITS ARISING OUT OF GOODS BAILED

5. RIGHT TO ENFORCE BAILEE’S OBLIGATIONS

[MS=16.5 MK= 189 – 190 CB= 138 ]

199

VII. WHAT ARE THE RIGHTS AND LIABILITIES OF A FINDER OF GOODS

1. WHO IS A FINDERSECTION 71 OF ICA PROVIDES THAT “A PERSON WHO FINDS THE GOODS BELONGING TO ANOTHER AND TAKES IT INTO HIS POSSESSION IS CALLED THE FINDER OF GOODS”

2. WHAT ARE HIS DUTIES & LIABILITIESa) TO TAKE REASONABLE CARE OF THE

GOODS b) TO USE REASONABLE DILIGENCE TO FIND

THE TRUE OWNERc) TO RESTORE THE GOODS TO THE REAL

OWNER d) NOT TO USE THE GOODS FOR HIS OWN

PURPOSECONT…..

200

VIII.WHAT IS MEANT BY ‘PLEDGE’ OR “PAWN” AND WHAT ARE THE LAWS GOVERNING THE CONTRACT OF PLEDGE

1. PLEDGE OR PAWN IS A SPECIAL KIND OF BAILMENT

2. ACCORDING TO SECTION 172’PLEDGE’ IS “THE BAILMENT OF GOODS AS A SECURITY FOR PAYMENT OF DEBT OR PERFORMACE OF A PROMISE”[PLEDGING JEWELS IN A BANK TO GET A LOAN]

3. THE BAILOR IN THIS CASE IS CALLED THE “PAWNER” AND THE BAILEE IS CALLED THE PAWNEE

4. PLEDGE CAN BE MADE ONLY OF MOVEABLE PROPERTIES

CONT…..

201

4. WHAT ARE THE RIGHTS OF A PAWNEEa) RIGHT TO RETAINEER UNTIL DEBT IS

PAID b) RIGHT TO RECEIVE EXTRA ORDINARY

EXPENSES IF ANY INCURREDc) IN CASE OF FAILURE OR DEFAULT BY

PAWNEE:i. TO SUE TO RETAIN THE GOODS AS

COLLATERAL SECURITYii. TO SELL THE GOODS AFTER GIVING

REASONALBE NOTICE[BANKS CAN AUCTION THE GOLD ORNAMENTS IF PAWNER DOES NOT RECLAIM THE GOLD AFTER EXPIRY OF PERIOD – WITH DUE NOTICE TO PAWNEE]

[MS= 16.11 – 16.14 MK=193 CB= 139 – 140 ]

CONT…..

202

5. WHAT ARE THE DUTIES OF A PAWNEEa) TO TAKE REASONABLE CARE OF THE

GOODS PLEDGED b) NOT TO MAKE UNAUTHORISED USE OF

THE GOODS PLEDGEDc) NOT TO MIX THE GOODS WITH HIS OWNd) NOT TO DO ANY ACT IN VIOLATION OF

THE TERMS OF PLEDGEe) TO RETURN THE GOODS ON PAYMENT

OF HIS DUESf) TO DELIVER ANY ACCRETION TO THE

GOODS WHILE IN HIS CUSTODY[A COW GIVING CALF, ISSUE OF BONUS SHARES TO SHARES PLEDGED]

CONT…..

203

6. WHAT ARE THE RIGHTS OF A PAWNERa) TO ENFORCE THE PAWNEE’S DUTIESb) A DEFAULTING PAWNER HAS RIGHT TO

PAY AND RECLAIM HIS GOODS BEFORE PAWNEE SELLS IT

7. WHAT ARE THE PAWNER’S DUTIESa) TO COMPENSATE THE PAWNEE FOR ANY

EXTRA ORDINARY EXPENSESb) TO MEET HIS OBLIGATIONS ON THE

STIPULATED DATE AND COMPLY WITH THE TERMS OF CONTRACT

[MS = 16.12 – 16.14 MK= 193 – 194 ]

204

IX. WHAT IS THE DIFFERENCE BETWEEN ‘BAILMENT’ & ‘PLEDGE’

CONT…..

PLEDGE BAILMENT

1 PURPOSE BAILMENT OF GOODS FOR THE SPECIFIC PURPOSE OF PROVIDING SECURITY FOR LOAN OR PERFORMANCE OF AN OBLIGATION

NO SUCH PURPOSE IN CASE OF BAILMENT. IT CAN BE FOR ANY PURPOSE

205

[MS= 16.12 MK= 193 CB=139]

PLEDGE BAILMENT

2 RIGHT TO PROPERTY OR

PLEDGEE GETS POSSESSION PLUS PROPERTY IN THE GOODS IF PLEDGOR FAILS TO REDEEM THE PLEDGE AND ALSO TO SELL IT

BAILEE GETS ONLY THE POSSESSION OF GOODS THE OWNERSHIP CONTINUES TO REMAIN WITH BAILOR

3 RIGHT USE

PLEDGEE HAS NO RIGHT TO USE THE GOODS. HE CAN ONLY POSSES THE GOODS AS SECURITY

NO SUCH RESTRICTION UNLESS THE CONTRACT SPECIFICALLY STIPULATES NON-USE

206

MODULE III C – LAW OF AGENCY

I. WHAT IS MEANT BY ‘AGENCY’1. SECTION 182 OF ICA DEFINES AN

‘AGENT’ AS “A PERSON EMPLOYED TO DO ANY ACT FOR ANOTHER OR REPRESENT ANOTHER IN DEALINGS WITH THIRD PERSONS”.

2. PARTIESa) PRINCIPAL – THE PERSON FOR WHOM

SUCH ACT IS DONE OR FOR WHOM THE REPRESENTATION IS MADE IS CALLED THE ‘PRINCIPAL’

b) AGENT – THE OTHER PERSON CALLED UPON TO REPRESENT THE PRINCIPAL IN DEALINGS WITH THIRD PARTIES IS CALLED THE ‘AGENT’

CONT….

207

c) RELATIONSHIP- THE RELATIONSHIP BETWEEN THE PRINCIPAL AND THE AGENT IS CALLED ‘AGENCY’

3. GENERAL PRINCIPALS OF AGENCYa) WHATEVER A PERSON IS COMPETENT TO

CONTRACT HE MAY GET IT DONE THROUGH ANOTHER (AGENT) EXCEPT FOR ACTS INVOLVING PERSONAL SKILL AND QUALIFICATIONS [ MARRIAGE, PAINTING, SINGING]

b) HE WHO GETS IT DONE THROUGH ANOTHER (AGENT) IS DEEMED TO HAVE DONE IT HIMSELF (ACTS OF AGENTS ARE CONSIDERED ACTS OF THE PRINCIPAL)

4. WHAT ARE THE ESSENTIALS OF A VALID CONTRACT OF AGENCY

a) EXISTENCE OF AN AGREEMENT (EXPRESS OR IMPLIED) APPOINTING A PERSON AS AGENT

CONT….

208

b) THE ‘PRINCIPAL’ MUST BE A PERSON ‘COMPETENT TO CONTRACT’

c) THE AGENT NEED NOT NECESSARILY HAVE THE COMPETENCY TO CONTRACT[EVEN A MINOR CAN BE A VALID AGENT]

d) NO CONSIDERATION IS REQUIRED FOR CREATING A CONTRACT OF AGENCY

5. AN AGENT IS DIFFERENT FROM A SERVANT AND ALSO FROM AN INDEPENDENT CONTRACTOR

6. WHAT ARE THE KINDS OF AGENTSa) GENERAL AGENT- ONE WHO IS EMPLOYED

TO DO ALL ACTS CONNECTED WITH A PARTICULAR BUSINESS OR EMPLOYMENT [EX – A MANAGER] CONT….

209

b) SPECIAL AGENT – ONE WHO IS APPOINTED TO DO A PARTICULAR ACT – AS SOON AS THAT PARTICULAR ACT IS COMPLETED THE AGENCY COMES TO AN END

c) UNIVERSAL AGENT – AN AGENT WHOSE AUTHORITY IS UNLIMITED. HE CAN DO ALL ACTS WHICH HIS PRINCIPAL CAN LAWFULLY DO. HE ENJOYS EXTENSIVE POWERS TO TRANSACT ANY KIND OF BUSINESS ON BEHALF OF THE PRINCIPAL

d) MERCANTILE AGENTS – AN AGENT WHO IS EITHER AUTHORISED TO SELL OR BUY GOODS OR RAISE OR COLLECT MONEY FOR THE MASTER AND SUCH AGENTS ARE FURTHER CLASSIFIED AS FOLLOWS:

CONT….

210

i. FACTOR AN AGENT TO WHOM GOODS ARE ENTRUSTED FOR SALE. HE SELLS THE GOODS IN HIS OWN NAME AND AT SUCH TERMS AS HE THINGS FIT. HE COULD ALSO PLEDGE THE GOODS

ii. COMMISSION AGENT AN AGENT WHO BUYS OR SELLS GOODS FOR HIS PRINCIPAL ON THE BEST POSSIBLE TERMS IN HIS OWN NAME AND WHO RECEIVES COMMISSION FOR HIS LABOUR. HE MAY HAVE POSSESSION OF THE GOODS

iii. DEL CREDERE AGENT – AN AGENT WHO FOR SOME ADDITIONAL PAYMENT GUARANTEES THAT THE PRINCIPAL WILL RECEIVE SUMS DUE FROM THIRD PARTIES OR WILL ENSURE THAT THE THIRD PARTIES WILL PERFROM THEIR OBLIGATIONS TO THE PRINCIPAL. IF THIRD PARTY DOES NOT PAY, HE WILL PAY IT. THUS HE OCCUPIES THE POSITION OF SURETY AS WELL AS AN AGENT

CONT….

211

iv. BROKER AN AGENT IS EMPLOYED TO MAKE CONTRACTS FOR SALE OR PURCHASE OF GOODS FOR THE PRINCIPAL. HE IS NOT ENTRUSTED WITH THE GOODS. HE MERELY ACTS AS A CONNECTING LINK AND LETS THE THIRD PARTY AND PRINCIPAL TO BARGAIN DIRECTRLY. IF THE DEAL COMES THROUGH HE WILL GET A COMMISSION OR BROKERAGE. HE MAKES THE CONTRACTS IN THE NAME OF THE PRINCIPAL

e) NON – MERCANTILE AGENTS – THEY INCLUDE ADVOCATES, ATTORNEYS, INSURANCE AGENT, WIFE ETC.

[MS= 17.1 – 17.10 MK=202 – 203 ]

212

II. HOW ARE AGENTS APPOINTED OR HOW ARE AGENCIES CREATED

1. AGENCY BY EXPRESS AGREEMENT (SEC 187)

a) WHERE AN AGENCY IS CREATED BY THE EXPRESS AGREEMENT OF THE PRINCIPAL

b) IT CAN BE BY WORD OF MOUTH OR IN WRITING

c) HOWEVER FOR SALE OF IMMOVEABLE PROPERTY [LAND & BUILDINGS] IT HAS TO BE IN WRITING AND ON PROPER STAMP PAPER – THIS IS CALLED POWER OF ATTORNEY

2. AGENCY BY IMPLIED AGREEMENTa) SUCH AGENCIES COULD TAKE THE

FOLLOWING FORMS:CONT….

213

i. AGENCY BY ESTOPPELii. AGENCY BY HOLDING OUTiii. AGENCY BY NECESSITYiv. WIFE AS IMPLIED AGENT OF HUSBAND b) WHAT IS AGENCY BY ESTOPPEL

WHEN A PERSON KNOWINGLY AND WITHOUT OBJECTION PERMITS ANOTHER TO ACT AS HIS AGENT THE THIRD PERSONS HAVE ACTED ON THIS BELIEF, THE FIRST PERSON WHO DID NOT DENY OR DISCLAIM THE RELATIONSHIP CANNOT GO BACK AND SAY THAT THE SECOND PARTY WAS NOT HIS AGENT. HE IS STOPPED FROM GOING BACK ON HIS IMPLIED ADMISSION

c) WHAT IS MEANT BY AGENCY BY HOLDINGOUT

CONT….

214

i. UNLIKE THE IMPLIED ACT IN ESTOPPEL, HERE THE PRINCIPAL BY HIS PAST DEEDS HAS GIVEN A POSITIVE INDICATION THAT THE SECOND PARTY IS HIS AGENT – HE HAS HELD HIS NECK OUT AND MUST HONOUR THE ACTION OF THE SECOND PARTY WITH THIRD PARTIES[A HAS ALLOWED HIS SERVANT TO BUY GOODS FROM A SHOP AND ALWAYS PAID FOR IT. HIS SERVANT WAS SACKED AND THE MASTER HAD NOT INFORMED THE SHOP KEEPER ABOUT HIS SACKING. MASTER BOUND TO PAY FOR PURCHASES MADE BY SERVANT AFTER TERMINATION]

d) WHAT IS MEANT BY AGENCY BY NECESSITY

CONT….

215

i. IN CERTAIN CIRCUMSTANCES (EMERGENCY) THE LAW CONFERS AN AUTHORITY ON CERTAIN PERSON TO ACT AS THE AGENT OF THE PRINCIPAL (EVEN WITHOUT CONSENT OF THE PRINCIPAL). SUCH AN AGENCY IS CALLED AN AGENCY OF NECESSITY

ii. THE FOLLOWING CONDITIONS MUST BE FULFILLED BEFORE A PERSON ACTS AS AN AGENT OF NECESSITY:

• THERE MUST BE A REAL EMERGENCY TO ACT ON BEHALF OF THE PRINCIPAL

• IT IS NOT POSSIBLE FOR THE AGENT TO COMMUNICATE AND GET INSTRUCTIONS FROM THE PRINCIPAL

• THE PERSON ACTING AS AGENT MUST DO SO IN A BONA – FIDE MANNER AND IN THE INTEREST OF THE PARTIES

CONT….

216

• AGENT MUST TAKE REASONABLE AND A PRACTICAL COURSE OF ACTION[A FATHER SENT HIS 5 YEAR SON ON THE FLIGHT AS AN UNACCOMPANIED PASSENGER FROM LONDON TO MUMBAI. NO RELATION CAME TO PICK UP THE CHILD AT THE MUMBAI AIRPORT. AIRLINES PUT UP THE CHILD IN A HOTEL AND FED THE CHILD. FATHER BOUND TO PAY THE HOTEL BILL AND EXPENSES INCURRED BY THE AIRLINE]

e) WIFE AS IMPLIED AGENT OF HUSBANDi. WHERE A WIFE IS LIVING WITH HER

HUSBAND SHE CAN DRAW ON HER HUSBAND’S CREDIT FOR OBTAINING NECESSITIES OF LIFE (FOOD, CLOTHING, SHELTER ETC)

CONT….

217

ii. HOWEVER A HUSBAND NEED NOT HONOUR (OR PAY FOR) HIS WIFE’S ACTIONS IN THE FOLLOWING CIRCUMSTANCES:

• HE HAS EXPRESSLY FORBIDDEN HIS WIFE FROM DOING SO

• GOODS PURCHASED ARE NOT NECESSITIES• HE HAS GIVEN SUFFICIENT FUNDS TO THE

WIFE FOR MEETING HER NECESSITIES• THE CREDITOR HAS BEEN EXPRESSLY TOLD

NOT TO GIVE CREDIT TO HIS WIFENOTE: IF THE WIFE IS LIVING APART FROM THE

HUSBAND WITHOUT PROPER JUSTIFICATION, SHE WILL NOT HAVE THE

AUTHORITY TO BIND OR DRAW ON HER HUSBAND’S CREDIT

CONT….

218

3. CREATION OF AGENCY BY RATIFICATION [Sn 197]

i. IF A PERSON ACTS ON BEHALF OF ANOTHER WITHOUT HIS AUTHORITY, THE LATTER MAY EITHER DISOWN OR ACCEPT OR ADOPT IT

ii. THE SUBSEQUENT ADOPTION OR ACCEPTANCE OF AN UNAUTHORISED ACT DONE BY ANOTHER IS CALLED RATIFICATION

iii. IF THE PRINCIPAL SUBSEQUENTLY RATIFIES, IT IS TREATED AS IF IT WAS DONE WITH HIS AUTHORITY

iv. RATIFICATION CAN BE EXPRESS OR IMPLIED

[MS= 17.2 – 17.6 MK=206 – 208 CB=148 – 149]

219

III. WHAT ARE THE REQUIREMENTS OF VALID RATIFICATION (Sn 199, 200)

1. PRINCIPAL MUST BE ALIVE AT THE TIME THE AGENT MADE THE CONTRACT

2. PRINCIPAL MUST HAVE HAD THE CAPACITY TO CONTRACT AT THE TIME THE AGENT ACTED OR MADE THE CONTRACT

3. THE PRINCIPAL SHOULD HAVE KNOWLEDGE OF ALL FACTS OF THE MATERIAL BEFORE ADOPTING

4. RATIFICATION MUST BE FOR THE WHOLE AND NOT PART OF THE TRANSACTION

5. RATIFICATION MUST BE MADE WITHIN TIME FIXED OR REASONABLE TIME

6. RATIFICATION MUST NOT CAUSE DAMAGE TO THE INTEREST OF THE THIRD PERSON

CONT…..

220

7. THE ACT BEING RATIFIED MUST BE A LAWFUL ONE

8. THE ACT TO BE RATIFIED MUST BE WITHIN THE PRINCIPAL’S AUTHORITY

NOTE: A VALID RATIFICATION BINDS THE PRINCIPAL WITH THE THIRD PARTIES

[MS=17.5 – 17.6 MK=206 – 208 CB=148 – 149 ]

221

IV. WHAT ARE THE WAYS IN WHICH AN AGENCY GETS TERMINATED

1. AN AGENCY CAN BE TERMINATE BY :(a) ACTS OF THE PARTIES

OR(b) BY OPERATION OF LAW

2. TERMINATION BY THE PARTIES(a) BY MUTUAL AGREEMENT BETWEEN

PRINCIPAL AND AGENT(b) REVOCATION BY PRINCIPAL (Sn 203 – 207) BY NOTICE EXCEPT WHEN THE AGENCY WAS OF IRREVOCABLE NATURE (Sn 201)(C) REVOCATION BY AGENT AFTER GIVING REASONABLE NOTICE TO THE PRINCIPAL

CONT…..

222

3. TERMINATION BY OPERATION OF LAW(a) ON ACCOMPLISHMENT OR

COMPLETION OF THE OBJECT OF THE AGENCY

(b) ON THE EXPIRY OF THE PERIOD OF AGENCY(c) ON THE DEATH OF THE PRINCIPAL OR AGENT (d) INSANITY OF THE PRINCIPAL OR AGENT(e) INSOLVENCY OF THE PRINCIPAL(f) DESTRUCTION OF THE SUBJECT MATTER OF THE CONTRACT

CONT…..

223

(g) DISSOLUTION OF THE COMPANY(h) PRINCIPAL AGENT BECOMES ALIEN

ENEMY (i) TERMINATION OF SUB – AGENTS

AUTHORITY 4. TERMINATION OF AGENCY COMES

INTO EFFECT ONLY WHEN IT COMES TO THE NOTICE OF THE OTHER OR THE THIRD PARTIES (Sn 208)

[MS= 18.11 – 18.14 MK=222 – 224 CB= 158 – 159

]

224

V. WHAT IS MEANT BY IRREVOCABLE AGENCY1. WHEN AN AUTHORITY GIVEN TO AN AGENT

CANNOT BE REVOKED IT IS CALLED AN IRREVOCABLE AGENCY

2. IT BECOMES IRREVOCABLE IN THE FOLLOWING CASES:

a) WHERE AN AGENCY IS COUPLED WITH INTEREST (Sn 202) – WHEN THE AGENT HAS AN INTEREST IN THE PROPERTY WHICH FORMS THE SUBJECT MATTER OF AGENCY[X WHO OWES MONEY TO Y, ALLOWS Y TO COLLECT THE RENT OF HIS PROPERTIES FROM X’S TENENTS]

b) WHERE THE AGENT HAS PARTLY EXERCISED HIS AUTHORITY AND CREATED COMMITMENT TO THIRD PARTIES (Sn 204)

c) WHERE THE AGENT HAS MADE PERSONAL COMMITMENT TO THIRD PARTIES FOR EXECUTING THE PRINCIPAL’S WORK

[MS=18.14 MK=225 – 226 CB= 159 – 160 ]

225

VI. WHAT IS MEANT BY ‘SUB – AGENT’ & “SUBSTITUTED AGENT”

1. AN AGENT CANNOT PASS ON HIS RESPONSIBILITY TO ANOTHER PERSON UNLESS THE PRINCIPAL PERMITS HIM OR THE CUSTOM AND USAGE OF THAT BUSINESS PERMITS AN AGENT TO APPOINT A SUB - AGENT

2. AN AGENT CAN APPOINT A SUB – AGENT IN THE FOLLOWING CIRCUMSTANCES:

a) IF PERMITTED BY CUSTOM OF THE TRADEb) IF THE NATURE OF BUSINESS MAKE IT

NECESSARY [ SHIPOWNERS, TRANSPORT OPERATORS]

c) IF THE ACT DONE IS PURELY CLERICAL OR MINISTERIAL

d) IF PERMITTED BY THE PRINCIPALe) IN CASE OF UNFORESEEN EMERGENCY CONT….

226

3. COMPARISON AMONG, AGENT, SUB – AGENT & SUBSTITUTED AGENT

CONT….

BASIS AGENT SUB - AGENT SUBSTITUTED AGENT

APPOINTED BY WHOM

BY PRINCIPAL

BY AGENT (EVEN WITHOUT PRINCIPAL’S APPROVAL)

APPOINTED BY AGENT WITH CONSENT OF THE PRINCIPAL TO REPLACE HIM AS AGENT

227

CONT….

BASIS AGENT SUB-AGENT

SUBSTITUTED AGENT

TAKES INSTRUCTIONS OR DIRECTIONS FROM

PRINCIPAL AGENT REPLACES ORIGINAL AGENT AND TAKES DIRECTIONS FROM PRINCIPAL

REPRESENTS WHOM

THE PRINCIPAL

THE AGENT

THE PRINCIPAL

228

CONT….

BASIS AGENT SUB-AGENT SUBSTITUTED AGENT

ACTIONS BIND WHOM

THE PRINCIPAL

ONLY THE AGENT UN-LESS THE SUB-AGENT IS APPOINTED WITH EXPRESS OR IMPLIED CONSENT OF THE PRINCIPAL

BINDS THE PRINCIPAL DIRECTLY AS IF HE IS THE ORIGINAL AGENT

229

[MS = 17.6 – 17.8 MK=210 – 211 CB=152 –

153 ]

BASIS AGENT SUB-AGENT SUBSTITUTED AGENT

PRINCIPAL’S OBLIGATIONS TO THIRD PARTIES

OBLIGATED TO THIRD PARTIES

NORMALLY NOT OBLIGATED TO THIRD PARTIES

OBLIGATED TO THIRD PARTIES

TERMINATABLE BY

PRINCIPAL BY AGENT BY PRINCIPAL

230

VII. WHAT ARE THE DUTIES OF AN AGENT TO A PRINCIPAL

1. DUTY TO FOLLOW THE PRINCIPAL’S DIRECTIONS OR TO ADHERE TO THE ESTABLISHED CUSTOMS OF THAT TRADE OR BUSINESS

2. DUTY TO CARRY OUT THE WORK WITH REASONABLE SKILL AND DILIGENCE

3. DUTY TO RENDER PROPER ACCOUNTS4. IN CASE OF DIFFICULTY TO PROMPTLY

COMMUNICATE TO THE PRINCIPAL AND SEEK HIS GUIDANCE

5. DUTY NOT TO TRADE ON HIS OWN UNLESS PERMITTED BY THE PRINCIPAL

CONT…..

231

6. DUTY NOT TO MAKE ANY PROFIT OUT OF HIS AGENCY EXCEPT HIS AGENCY REMUNERATION

7. ON AGENCY GETTING TERMINATED DUE TO DEATH OR OF UNSOUND MIND TO PROTECT AND PRESERVE THE INTEREST OF PRINCIPAL OF THE PRINCIPAL ENTRUSTED TO HIM

8. DUTY NOT TO DELEGATE AND MUST PERFORM THE DUTY HIMSELF EXCEPT WHEN HE IS PERMITTED BY CUSTOM OR USAGE TO DELEGATE

[MS = 18.1 – 18.3 MK=212 – 214 ]

[

232

VIII.WHEN DOES THE AGENT BECOME PERSONALLY LIABLE

1. AGENT IS ONLY A CONNECTING LINK AND IN THE NORMAL COURSE THE PRINCIPAL IS LIABLE FOR THE ACTIONS OF HIS AGENT

2. HOWEVER SECTION 230 PROVIDES 12 EXCEPTIONS WHEN THE AGENT WILL BECOME PERSONALLY LIABLE AND THEY ARE AS FOLLOWS:

i. WHEN THE AGENT ACTS FOR A FOREIGN PRINCIPAL

ii. WHEN THE AGENT ACTS FOR AN UNNAMED PRINCIPAL

iii. WHERE THE PRINCIPAL THOUGH DISCLOSED CANNOT BE SUED

iv. WHERE CONTRACT IS MADE FOR A FICTITIOUS OR NON-EXISTENT PRINCIPAL

CONT…

233

v. WHERE AN AGENT ACTS FOR AN UNDISCLOSED PRINCIPAL

vi. WHERE AGENT HAS EXPRESSLY AGREED TO TAKE PERSONAL RESPONSIBILITY

vii. WHERE AGENT HAS A COUPLED INTEREST WITH THE PRINCIPAL IN THE SUBJECT MATTER OF AGENCY

viii. WHERE AGENT EXCEEDS HIS AUTHORITYix. WHERE AN AGENT RECEIVES MONEY BY

FRAUD OR MISTAKE x. WHERE AN AGENT SIGNS A CONTRACT OR

NEGOTIABLE INSTRUMENT IN HIS OWN NAMExi. WHERE THERE IS A CUSTOM OR USAGE

HOLDING THE AGENT LIABLExii. WHEN HE POSES OR PRETENDS TO BE THE

AUTHORISED AGENT OF ANOTHER[MS=18.10 – 18.11 MK=212 – 215 CB=156 –

158]

234

IX. WHAT ARE THE RIGHTS OF AN AGENT1. RIGHT TO RECEIVE REMUNERATION2. RIGHT TO RETAINER – TO ADJUST FROM

MONIES RECEIVED ANY AMOUNTS LEGITIMATELY DUE TO HIM

3. RIGHT OF LIEN – RIGHT TO HOLD ON TO THE GOODS UNTIL THE PRINCIPAL PAYS HIS DUES TO HIM

4. RIGHT TO BE INDEMNIFIED AGAINST CONSEQUENCES OF HIS LAWFUL ACTS

5. RIGHT TO BE INDEMNIFIED AGAINST CONSEQUENCES OF ACTS DONE IN GOOD FAITH

6. RIGHT TO COMPENSATION FOR ANY INJURIES SUFFERED BY HIM DUE TO PRINCIPAL’S NEGLECT OR WANT OF SKILL

7. RIGHT TO STORAGE OF GOODS IN TRANSIT IF HE HAS BOUGHT THE GOODS IN HIS OWN NAME AND PRINCIPAL HAS BECOME INSOLVENT

[MS=18.10 – 18.11 MK=212 – 215 CB=156 – 158]

235

X. WHAT IS THE LIABILITY OF THE PRINCIPAL WHEN HE IS(1) A NAMED PRINCIPAL(2) UNNAMED PRINCIPAL(3) UNDISCLOSED PRINCIPAL(4) WHEN REPRESENTED BY A PRETENDED AGENT

1. LIABILITY OF THE PRINCIPALa) AN AGENT BEING A CONNECTING LINK

BINDS THE PRINCIPAL FOR ALL HIS ACTS DONE WITHIN THE SCOPE OF HIS AUTHORITY AS AN AGENT

b) WHEN AN AGENT DOES SOME ACT, PART OF WHICH IS AUTHORISED AND OTHER PART IS NOT AND THEY ARE SEPARATABLE THE PRINCIPAL IS RESPONSIBLE ONLY FOR THE AUTHORISED PART CONT…

236

c) PRINCIPAL IS LIABLE FOR FRAUD MISREPRESENTATIONS MADE WHICH FALL WITHIN THE APPROVED SCOPE OF AGENTS WORK

d) PRINCIPAL IS NOT LIABLE FOR MISREPRESENTATION OR FRAUD COMMITTED BY AGENT OUTSIDE THE SCOPE OF THE AGENCY

2. LIABLITY OF A NAMED PRINCIPALa) WHEN THE AGENT REVEALS THE NAME

AND PARTICULARS OF THE PRINCIPAL, IT IS CALLED NAMED PRINCIPAL

b) IN SUCH CASES THE PRINCIPAL IS LIABLE TO THRID PARTIES FOR ACTS OF THE AGENT (WITHIN THE SCOPE OF AGENCY)

CONT…

237

3. LIABLITY OF AN UNNAMED PRINCIPALa) WHEN AN AGENT KNOWING FULLY WELL

THE EXISTENCE AND IDENTITY OF THE PRINCIPAL REFUSES TO REVEAL THE NAME, THE PRINCIPAL IS CALLED THE UNNAMED PRINCIPAL

b) HERE HE ADMITS THE EXISTENCE OF THE PRINCIPAL BUT DOES NOT DISCLOSE HIS IDENTITY

c) IF AGENT REFUSES TO REVEAL THE IDENTITY, THE AGENT BECOMES LIABLE TO THIRD PARTIES

4. LIABILITY OF AN UNDISCLOSED PRINCIPAL

a) WHEN NEITHER THE AGENT REVEALS HIS IDENTITY NOR THAT OF THE PRINCIPAL, IT IS CALLED AN UNDISCLOSED PRINCIPAL

CONT…

238

b) THIRD PARTIES CAN REFUSE TO PROCEED WITH THE CONTRACT OR INSIST ON THE SUBSEQUENTLY EXPOSED PRINCIPAL TO HONOUR THEIR DEALINGS WITH THE HIDDEN AGENT

5. LIABILITY OF PRINCIPAL FOR ACTS OF PRETENDED AGENTAGENT ALONE IS LIABLE AND NO LIABILITY ON THE PRINCIPAL WHOM THE AGENT PRETENDS TO REPRESENT

[MS=18.7 – 18.10 ]

239

[

XI. WHAT IS THE DISTINCTION IN THE ROLES OF AN AGENT, SERVANT, INDEPENDENT CONTRACTORPOINTS

OF DIFFERENCE

AGENT SERVANT INDEPENT CONTRACTOR

1 NATURE OF DUTY & SUPERVISION

TOLD WHAT TO DO BUT NO SUPERVISION DURING JOB PERFORMANCE

TOLD WHAT TO DO + HOW TO DO IT AND WHEN TO DO IT

TOLD ONLY WHEN TO DO AND BY WHICH TIME RESULT REQUIRED

240

[ 2 DESCRETION IN PERFORMING TASK

THOUGH DIRECTED BY PRINCIPAL HAS CONSIDERABLE DESCRETION

HAS VERY LIMITED DESCRETION

HAS TOTAL DESCRETION. NO INTERFERENCE IN THE MANNER OF DOING THE JOB

3 DELEGATION TO LOWER LEVELS

IF CUSTOM PERMITS CAN APPOINT SUB-AGENTS

CANNOT DELEGATE

UNLESS EXPRESSLY PERMITTED BY MASTER

CAN SUB – CONTRACT TO OTHER CONTRACTORS

241

[

[MS= MK=200 - 201 CB=151 – 152 ]

4 REPORTS TO

PRINCIPAL MASTER JOB OUT SOURCER

5 NO OF PERSON CAN REPORT TO

CAN SIMULTANEOUSLY BE AGENT OF MANY PRINCIPALS

CAN SERVE ONLY ONE MASTER AT A TIME

CAN BE A CONTRACTOR TO MANY PERSONS

6 PAYMENT

NO SALARY ONLY COMMISSION

REMUNERATION OR SALARY

CHARGES FOR JOB UNDERTAKEN

7 THIRD PARTY & MASTER

CAN SIGN CONTRACTS CREATING OBLIGATIONS ON PRINCIPAL

CANNOT DO SO UNLESS EXPRESSLY PERMITTED

CAN NOT SIGN ANY CONTRACTS ON BEHALF OF THE PRINCIPAL

242

MODULE IV – SALE OF GOODS ACT 1930

I. WHAT IS MEANT BY CONTRACT OF ‘SALE’1. ACCORDING TO SECTION 4 OF THE SGA A

CONTRACT OF SALE MEANS “A CONTRACT WHEREBY THE SELLER TRANSFERS OR AGREES TO TRANSFER THE PROPERTY (OWNERSHIP) IN THE GOODS TO THE BUYER FOR A PRICE”

2. IT COULD BE ANY ONE OF THE FOLLOWING :(a) A SALE OR (b) AN AGREEMENT TO SELL

3. THE CONTRACT OF SALE MAY BE ABSOLUTE OR CONDITIONAL

4. THE TERM ‘PROPERTY’ IN THE DEFINTION HAS THE MEANING OF ‘OWNERSHIP’

243

II. WHAT ARE ESSENTIAL ELEMENTS OF A CONTRACT OF “SALE”

1. TWO PARTIESa) THERE HAS TO BE A BUYER AND SELLER

[THE SAME PERSON CANNOT BE A ‘BUYER’ AS WELL AS SELLER]

2. MUTUAL AGREEMENTa) THERE MUST BE A MUTUAL AGREEMENT

TO BUY AND SELL OR VICE VERSA AND THERE MUST BE FREE MUTUAL CONSENT FOR THE SAME

3. SALE MUST BE OF IMMOVABLE “GOODS”a) ACCORDING TO THE SGA THE “GOODS”

INCLUDES THE FOLLOWING:i. EVERY KIND OF IMMOVABLE PROPERTY

CONT….

244

ii. GOODWILL, TRADEMARK, COPY RIGHT, WATER / GAS / ELECTRICITY / TELEPHONE CONNECTIONS

iii. DECREE ORDERS PASSED BY COURTS iv. STOCKS & SHARESv. GROWING CROPS, GRASS, TREES

ATTACHED TO THE LAND WHICH THE PARTIES HAVE AGREED TO BE CUT AND REMOVED UNDER THE CONTRACT OF SALE

b) HOWEVER THE FOLLOWING ARE EXCLUDED FROM THE TERM ‘GOODS’ UNDER THE SGA:

i. ALL IMMOVABLE PROPERTY (LAND & BUILDINGS)

ii. LAW SUITS OR ACTIONABLE CLAIMSiii. TRANSACTIONS OF MONEYiv. BARTER DEALS (GOODS FOR GOODS)

CONT….

245

4. THERE MUST BE TRANSFER OF ‘PROPERTY’a) SELLER MUST AGREE TO TRANSFER THE

‘PROPERTY’ OR ‘OWNERSHIP’ OF THE GOODS

b) THERE MUST BE TRANSFER OF ‘GENERAL PROPERTY’ [FULL OWNERSHIP] AND NOT MORE TRANSFER OF ‘SPECIAL PROPERTY’ [POSSESSION ONLY][IN CASE ONLY POSSESSION IS TRANSFERRED UNDER AN AGREEMENT IT WILL ONLY MAKE THE AGREEMENT, A CONTRACT OF BAILMENT]

5. CONSIDERATION CALLED ‘PRICE’ MUST BE IN MONEY

a) ONLY WHEN THE CONSIDERATION IS RECEIVED IN CASH WILL IT MAKE IT A ‘SALE’

CONT……

246

b) CONSIDERATION PARTLY IN CASH & PARTLY IN KIND IS OK [X SOLD HIS CAR TO Y IN EXCHANGE FOR A BIKE + RS 50,000]

c) EXCHANGE OF GOODS FOR GOODS WILL NOT AMOUNT TO ‘SALE’ AND IT WOULD ONLY MAKE IT A BARTER

6. MEET ICA REQUIREMENTSALL ESSENTIAL ELEMENTS OF A VALID CONTRACT UNDER ICA 1872 SHOULD ALSO BE MET

7. A CONTRACT OF SALE COULD BE A CONTRACT OF SALE (EXECUTED) OR A CONTRACT TO SELL (EXECUTORY)

a) WHEN THE ‘PROPERTY’(OWNERSHIP) IN THE GOODS IS IMMEDIATELY TRANSFERED FROM SELLER TO THE BUYER IT IS CALLED A “SALE”

CONT……

247

b) WHEN THE TRANSFER OF THE ‘PROPERTY’ IN THE GOODS IS TO TAKE PLACE AT A FUTURE DATE OR SUBJECT TO SOME CONDITION TO BE FULFILLED AFTER SIGNING THE AGREEMENT IT IS CALLED AN AGREEMENT TO SELL OR IT COULD BE CALLED A CONDITIONAL SALE OR AN EXECUTORY CONTRACT

[MS=22 – 22.2 MK=231 – 234 CB=165 – 166 PG=79 – 81 ]

248

[

III. WHAT IS ‘PRICE’ AND HOW IS IT FIXED1. IN A CONTRACT OF SALE ‘PRICE’ OR

EXCHANGE OF MONEY IS AN ESSENTIAL CONSIDERATION

2. NORMALLY THE SELLER AND THE BUYER BY MUTUAL CONSENT ARRIVE AT THE PRICE TO BE PAID – IT MIGHT INVOLVE SOME AMOUNT OF BARGAINING

3. HOWEVER IF THE SELLER AND BUYER HAVE NOT FIXED THE PRICE IT HAS TO BE FIXED REASONABLY BASED ON THE PREVAILING MARKET POSITION

4. IN CERTAIN CASES INSTEAD OF THE PARTIES GOVERNMENT FIXES THE PRICES

5. INSOME CASES THE MANUFACTURER DECIDES THE MAXIMUM RETAIL PRICE TO BE COLLECTED BY A RETAILER

[MS= 22.7 MK=242 – 243 ]

249

IV. WHAT IS MEANT BY THE TERM “STIPULATION AS TO TIME”

1. IN THE NORMAL COURSE THE PRICE MONEY HAS TO BE PAID WHEN THE GOODS ARE HANDED OVER TO THE BUYER

2. BUT PARTIES CAN ENTER INTO A CONTRACT OF SALE STIPULATING A LATER DATE FOR DELIVERY OF GOODS OR A LATER DATE FOR PAYMENT OF PRICE

3. PARTIES CAN ALSO HAVE STIPULATION IN THE CONTRACT OF SALE FOR INSTALMENT SUPPLY AND INSTALMENT PAYMENT

4. HOWEVER IN CERTAIN KINDS OF GOODS WHERE PRICES FLUCTUATE ON A DAY TO DAY BASIS LIKE GOLD, SILVER, SHARES & EQUITY SALE WHERE THE PRICE IS THE ESSENCE OF THE CONTRACT THE PRICE PAYABLE WILL BE THE PRICE APPLICABLE ON THE DATE OF SALE

[MS= 22.8 & 24.2 MK=244]

250

V. WHAT IS MEANT BY THE TERM “EARNEST MONEY”

1. IN ORDER TO ENSURE THAT THE PROSPECTIVE BUYERS ARE SERIOUS ABOUT THE PURCHASE AND THEY WILL KEEP THEIR COMMITMENT TO BUY, THE SELLER MAY INSIST ON A PORTION OF THE SALE VALUE TO BE DEPOSITED IN ADVANCE. THIS PORTION OF THE MONEY IS CALLED EARNEST MONEY

2. THIS MONEY IS RETURNED IF THE BUYER PERFORMS HIS OBLIGATION WITH OUT ANY HITCH

3. IF THE PARTIES AGREE IT COULD ALSO BE ADJUSTED AGAINST THE PRICE PAYABLE

4. IF THE BUYER DEFAULTS AND THE FAILURE ON THE PART OF THE BUYER IS ESTABLISHED THE SELLER MAY EVEN TAKE OVER THE MONEY UNDER A FORFEITURE CLAUSE[MS= 22.8 MK=244]

251

VI. WHAT IS THE DISTINCTION BETWEEN ‘SALE’ & ‘AGREEMENT TO SELL’

CONT….


SALE AGREEMENT TO SELL

1 NATURE OF CONTRACT

AN EXECUTED CONTRACT WHERE ONE OF THE PARTIES HAS ALREADY PERFORMED HIS PART OF THE OBLIGATION

IS AN EXECUTORY CONTRACT WHERE BOTH PARTIES ARE YET TO PERFORM THEIR MUTUAL PROMISES WITHIN A AN AGREED TIME

252

CONT….

2 TYPE OF RIGHT CREATED

CREATES A RIGHT OF ‘JUS - IN – REM’ – RIGHT IN THE GOODS AGAINST THE WHOLE WORLED

CREATES A RIGHT OF ‘JUS – IN – PERSONAM’ – RIGHT IN THE GOODS ENFORCEABLE ONLY AGAINST THE PERSON COMMITTING THE DEFAULT

3 PASSING OF PROPERTY & TIMING OF SHIFTING OF OWNERSHIP

THE ‘PROPERTY’ (OWNERSHIP)IN THE GOODS PASSES TO THE BUYER AS SOON AS THE AGREEMENT IS SIGNED

THE TRANSFER OF PROPERTY (OWNERSHIP) TO THE BUYER IS SHIFTED TO A FUTURE DATE OR SUBJECT TO FULFILLMENT OF SOME CONDITIONS

253

CONT….

4 RISK OF LOSS ON WHOSE HEAD

RISK ACCOMPANIES OWNERSHIP. IN SALE THE OWNERSHIP IS IMMEDIATE ON SALE. HENCE ANY LOSS OF GOODS BEFORE IT REACHES THE BUYER HAS TO BE BORNE BY THE BUYER

SINCE TRANSFER OF PROPERTY (OWNERSHIP) IS POSTPONED TO A FUTURE DATE. ANY LOSS SUFFERED EVEN IF THE GOODS ARE ALREADY IN THE HANDS OF THE BUYER WILL HAVE TO BE BORNE BY THE SELLER

5 REMEDIES ON BUYER COMMITTING BREACH OF CONTRACT

IF THE BUYER FAILS TO PAY THE PRICE, THE SELLER CAN SUE HIM TO RECOVER THE PRICE EVEN IF THE GOODS ARE STILL IN SELLERS POSSESSION

ON THE BUYERS FAILURE TO ACCEPT OR PAY FOR THE GOODS, THE SELLER CAN SUE ONLY FOR DAMAGES AND NOT FOR RECOVERY OF PRICE

254

CONT….

6 REMEDY ON SELLER COMMITTING BREACH OF CONTRACT

(i) BUYER CAN COMPEL

THE SELLER TO DELIVER

THE GOODS

(ii) TO DEMAND DAMAGES

EQUAL TO THE DIFFERENCE

BETWEEN CONTRACT PRICE

& MARKET PRICE ON THE

DATE OF BREACH

(iii) SUE THE SELLER FOR

CONVERSION

THE BUYER CAN ONLY SUE THE SELLER FOR DAMAGES

7 INSOLVENCY OF BUYER BEFORE HE PAYS FOR THE GOODS

THE SELLER IS ENTITLED TO SUE FOR THE PRICE OF THE GOODS OR HAVE LIEN TO HOLD ON TO THE GOODS OR STOP THE GOODS IF THEY ARE IN TRANS IT

SELLER HAS ONLY THE RIGHT TO SUE FOR DAMAGES FOR NON - PERFORMANCE OF CONTRACT

255

CONT….

8 INSOLVENCY OF BUYER AFTER HE HAS PAID FOR THE GOODS

IF THE SELLER IS

STILL IN POSSESION

OF THE GOODS, HE

SHOULD HAND IT

OVER TO THE OFFI-

CIAL COURT RECE

IVER OR ASSIGNEE

OF THE BUYER

THE GOODS HAVE TO BE HANDED OVER TO THE COURT RECEIVER

9 INSOLVENCY OF THE SELLER IF THE BUYER HAS ALREADY PAID THE PRICE

IF THE GOODS ARE NOT IN BUYERS POSSESSION HE CAN RECOVER THE GOODS FROM THE COURT RECEIVER

BUYER HAS TO PROVE THE AMOUNT HE HAS PAID TO THE SELLER AND CLAIM A RATE – ABLE DIVIDEND DECIDED BY COURT. BUYER CANNOT FORCE THE RECEIVER TO RETURN THE GOODS TO HIM AS HE HAS NOT YET BECOME THE OWNER

256

[MS=22.2 – 22.3 MK=234 – 236 CB=167

PG=82]

10 RIGHT OF RESALE

EVEN IF THE

POSSESSION HAS

NOT YET BEEN

HANDED OVER

TO THE BUYER,

THE ORIGINAL

OWNER CANNOT

SELL IT TO

ANOTHER AS HE

HAS CEASED TO

BE THE OWNER

IF THE SELLER SELLS THE PROPERTY TO A NEW BUYER, THE ORIGINAL BUYER CAN ONLY SUE HIM FOR BREACH OF CONTRACT

257

[

VII. WHAT IS THE DISTINCTION BETWEEN ‘SALE’ & ‘HIRE PURCHASE’

CONT…..

POINT OF DISTINCTION

SALE HIRE PURCHASE


IS AN EXECUTED CONTRACT WHERE ONE OF THE PARTIES HAS ALREADY PERFORMED HIS PART OF THE CONTRACT

IS AN EXECUTORY CONTRACT WHERE BOTH PARTIES ARE YET TO PERFORM ALL THEIR MUTUAL PROMISES

258

[

CONT…..

2 TRANSFER OF OWNER-SHIP OR PROPERTY

OWNERSHIP IS IMMEDIATELY TRANSFERRED TO THE BUYER

THE BUYER CAN BECOME AN OWNER ONLY AFTER PAYING ALL THE INSTALMENTS

3 POSITION OF BUYER OR HIRER

THE BUYER BECOMES FULL OWNER OF THE GOODS

TILL HIRER PAYS ALL INSTALMENTS HE IS ONLY A BAILEE HAVING MERE CUSTODY WITH NO OWNERSHIP RIGHTS

259

[

CONT…..

4 POWER TO TERMINATE OR RESCIND THE CONTRACT

THE BUYER CANNOT TERMINATE THE CONTRACT AND IS BOUND TO PAY THE PRICE OF THE GOODS

THE BUYER CAN BECOME AN OWNER ONLY AFTER PAYING ALL THE INSTALMENTS

5 TRANSFER OF TITLE

BUYER CAN TRANSFER THE GOODS TO ANOTHER BUYER WHO PAYS IN GOOD FAITH

HIRER CANNOT TRANSFER THE TITLE EVEN TO A BONA- FIDE BUYER. EVEN IF HE HAS SOLD IT TO ANOTHER THE ORIGINAL OWNER CAN SUE FOR RECOVERY

260

[

CONT…..

6 TREATMENT OF INSTALMENTS PAID

IF SALE IS ON INSTALMENT BASIS, PAYMENTS MADE ARE TREATED AS PART PAYMENT OF PRICE

IN CASES HIRER DEFAULTS ALL PAYMENT MADE ARE TREATED ONLY AS HIRE CHARGES AND NOT ADJUSTED TOWARDS PRICE

7 IMPACT OF BUYER OR HIRER BECOMING INSOLVENT

THE SELLER HAS TO BEAR ANY LOSS RESULTING FROM INSOLVENCY OF BUYER

THE OWNER DOES NOT BEAR ANY LOSS. IF THE HIRER BECOMES INSOLVENT. THE OWNER CAN DEMAND RETURN OF THE GOODS

261

[

[MS=22.5 MK=236 – 237 CB=168 PG=83]

8 SALES TAX PAYABLE

SALES TAX IS PAYABLE AT THE TIME OF SIGNING THE CONTRACT

TAX NEED NOT BE PAID TILL THE HIRE PURCHASE MATURES INTO A SALE ON PAY-MENT OF THE LAST INSTALMENT


IT INCLUDES BOTH SALE AND AGREEMENT TO SELL

IT IS BAILMENT PLUS AGREEMENT TO SELL

10 REGULATING ACT

SALE OF GOODS ACT 1930

HIRE PURCHASE ACT 1972

262

VIII. WHAT IS THE DISTINCTION BETWEEN AGREEMENT TO SELL & HIRE PURCHASE

CONT......

POINTS OF DIFFERENCE

AGREEMENT TO SELL

HIRE PURCHASE

1 NATURE OF AGREEMENT

IT IS A STEP LEADING TO A CONTRACT OF SALE

IT BECOMES A SALE ONLY WHEN ALL PAYMENTS ARE MADE IN FULL

2 TRANSFER OF GOODS

NOT NECESSARY TO CONVEY THE PROPERTY TO BUYER

CONVEYANCE OR POSSESSION OF THE GOODS TO BE GIVEN IMMEDIATELY TO THE HIRER

263

[MS = 22.5 MK=237 PG=84]

3 RIGHT TO OWNERSHIP

BUYER CAN SELL OR PLEDGE EVEN BEFORE COMPLETING THE SALE

HIRER CAN NOT SELL OR PLEDGE THE GOODS TILL FULL AMOUNT IS PAID

4 BENEFITS OF IMPLIED CONDITIONS AND WARRNTIES

BUYER CAN TAKE ADVANTAGE OF IMPLIED CONDITIONS AND WARRANTIES

THE HIRER CANNOT CLAIM THE BENEFITS OF IMPLIED CONDITIONS UNLESS THE PAYMENT IS MADE IN FULL AND SALE IS COMPLETED

5 ACT APPLICABLE

SALE OF GOODS ACT 1930

HIRE PURCHASE ACT 1972

264

IX. WHAT IS THE DIFFERENCE BETWEEN A SALE AND A CONTRACT FOR WORK AND LABOUR

1. CONTRACT OF WORK AND LABOUR CAN BE OF 2 TYPES:

a) WHEN MATERIAL IS GIVEN BY X TO Y TO USE LABOUR ON IT AND RETURN IT AS A FINISHED GOOD. IN THIS CASE IT DOES NOT AMOUNT TO A SALE AND NO SALES TAX IS APPLICABLE AS IT IS ONLY A CONTRACT FOR WORK

b) IF THE MATERIAL AND THE LABOUR BOTH ARE SUPPLIED BY THE SAME PERSON IT AMOUNTS TO CONTRACT FOR WORK & LABOUR. IN THIS CASE IT AMOUNTS TO A SALE AND THE SALES TAX WILL HAVE TO BE PAID

[MS=22.4 MK=237 – 238 CB=168]

265

X. WHAT IS MEANT BY ‘EXCHANGE OR BARTER’ AND ‘REGULATED SALE OR RATION SALE’

1. WHAT IS BARTERa) WHEN ONE PARTY OFFERS GOODS TO

ANOTHER AND THE OTHER PARTY RETURNS THE CONSIDERATION WITH SOME OTHER GOODS WITHOUT ANY EXCHANGE OF MONEY IT IS CALLED A BARTER DEAL

b) BARTER DEALS DO NOT COME UNDER THE DEFINITION OF SALE

c) HOWEVER IF THE RETURN CONSIDERATION INVOLVES SOME GOODS PLUS SOME MONEY IT WOULD AMOUNT TO SALE

[MS=22.5 ] CONT..

266

2. RATION SALE OR REGULATED SALEa) UNDER STATUTORY PROVISION

SOMETIMES CIVIL SUPPLIES AUTHORITIES SELL CERTAIN ESSENTIAL COMMODITIES TO PEOPLE BELOW A CERTAIN INCOME LEVEL. THIS IS KNOWN AS ‘RATION SALE’

b) IN THIS CASE AS THE BUYER DOES NOT HAVE THE OPTION OF ASKING FOR MORE QUANTITY OR BARGAINING ON THE PRICE HENCE RATION SALES DO NOT SATISFY THE REQUIREMENT OF ‘SALE’ UNDER THE SG. ACT 1930

[MS=22.5 ] CONT..

267

3. WHAT IS FUTURE GOODSi. GOODS THAT ARE TO BE MADE AFTER

MAKING THE CONTRACTii. WITH REGARD TO FUTURE GOODS THERE

CAN ONLY BE AN AGREEMENT TO SELL iii. AN APPLICANT FOR SHARES IS A

PROSPECTIVE INVESTER IN FUTURE GOODS

4. WHAT IS MEANT BY CONTINGENT GOODSi. WHEN THE ACQUISITION OF THE GOODS

BY THE SELLER DEPENDS UPON AN UNCERTAIN CONTINGENCY THE GOODS ARE CALLED CONTINGENT GOODS[X AGREES TO SELL 100 UNITS OF AN ARTICLE PROVIDED THE SHIP WHICH IS TO BRING THEM REACHES THE PORT SAFELY]

268

[

XI. WHAT ARE THE CLASSIFICATION OF GOODS UNDER SGA 1930

1. GOODS (MOVEABLE) CAN BE CLASSIFIED INTO THE FOLLOWING THREE TYPES:(a) EXISTING GOODS (b) FUTURE GOODS(c) CONTINGENT GOODS

2. WHAT IS EXISTING GOODSa) GOODS WHICH ARE IN PHYSICAL

EXISTENCE IN THE POSSESSION OF THE SELLER AT THE TIME OF ENTERING INTO THE CONTRACT OF SALE IS CALLED EXISTING GOODS

CONT…….

269

[

b) EXISTING GOODS CAN AGAIN BE CLASSIFIED INTO 3 FOLLOWING TYPES:

i. SPECIFIC GOODS – IDENTIFIED AND AGREED UPON AT THE TIME OF MAKING THE CONTRACT

ii. UNASCERTAINED GOODS – GOODS ARE EITHER NOT IDENTIFIED OR NOT AGREED UPON AT TIME OF MAKING THE CONTRACT

iii. ASCERTAINED GOODS – GOODS IDENTIFIED AND AGREED UPON SUBSEQUENT TO MAKING OF THE CONTRACT OF SALE

270

[

XII. WHAT IS THE EFFECT OF GOODS PERISHING

1. THERE ARE THREE CONTINGENCIES:a) GOODS PERISHING BEFORE MAKING THE

CONTRACT [Sn 7]b) GOODS PERISHING BEFORE SALE BUT AFTER

AGREEMENT TO SELLc) PERISHING OF FUTURE GOODS AFTER AN

AGREEMENT TO SELL2. PERISHING BEFORE MAKING THE CONTRACT

(Sn - 7)a) IF SELLER WAS UNAWARE OF ITS PERISHING

AT THE TIME OF COTNRACT, IT IS VOID [CEMENT BECAME UNMERCHANTABLE DUE TO RAIN AND CAKING UP] CONT…

271

[

b) IN CASE ONLY PART OF THE GOODS PERISH OR BECOME UNMERCHANTABLE THE NATURE OF CONTRACT WILL DEPEND ON WHETHER THE PERISHABLE AND NON – PERISHABLE ARE SEPARATABLE OR DIVISIBLE. IF IT CANNOT BE DIVISIBLE THE WHOLE CONTRACT IS VOID. THE DIVISIBLE PART WHICH IS IN GOOD CONDITION MUST BE ACCEPTED BY THE BUYER – A BASKET OF MANGOES]

3. PERISHING BEFORE SALE BUT AFTER AGREEMENT TO SELL (Sn – 8 )THE CONTRACT OF SALE OF SPECIFIC GOODS CAN BE AVOIDED ON THE GROUNDS OF SUPERVENING IMPOSSIBILITY IF IT SATISFIES THE FOLLOWING CONDITIONS:

CONT…

272

[

i. THERE IS ONLY AN AGREEMENT TO SELLii. THE LOSS IS CAUSED TO SPECIFIC GOODSiii. THE LOSS IS NOT ATTRIBUTABLE TO THE FAULT

OF ANY PARTYiv. THE GOODS HAVE PERISHED BEFORE THE RISK

PASSES TO THE BUYER[NOTE THIS SECTION 8 DOES NOT APPLY TO UNASCERTAINED GOODS. HENCE DESTRUCTION OF THE WHOLE OF THE GOODS WHILE IN THE POSSESSION OF SELLER, WILL NOT DISCHARGE HIM FROM HIS OBLIGATIONS]

4. EFFECT OF PERISHING OF FUTURE GOODSIF THE FUTURE GOODS IS SUFFICIENTLY IDENTIFIED AND PERISHES THE CONTRACT WILL BE TREATED AS VOID

[ MS= 22.6 – 22.7 MK=240 – 242 CB=170]

273

[

XIII. WHAT IS MEANT BY THE TERMS “STIPULATION”, “WARRANTY” & “CONDITION”

1. ‘STIPULATION’a) WITH A VIEW TO ACCOMPLISH A SALE A PERSON IS

LIKELY TO MAKE NUMBER OF STATEMENTS OR REPRESENTATIONS. MERE PUFFING REPRESENTATIONS NOT FORMING PART OF THE CONTRACT OF SALE HAVE NO LEGAL SIGNIFICANCE

b) BUT REPRESENTATIONS FORMING AN INTEGRAL PART OF THE CONTRACT OF SALE ARE CALLED “STIPULATIONS”

2. WHAT IS A “CONDITION”ACCORDING TO SECTION 12 (2) OF SGA “A CONDITION IS A STIPULATION ESSENTIAL TO THE MAIN PURPOSE OF THE CONTRACT, THE BREACH OF WHICH GIVES A RIGHT TO REPUDIATE THE CONTACT” CONT….

274

[

3. WHAT IS “WARRANTY”ACCORDING TO SECTION 12 (3) A “WARRANTY” IS A STIPULATION COLLATERAL TO THE MAIN PURPOSE OF THE CONTRACT, THE BREACH OF WHICH GIVES RIGHT TO A CLAIM FOR DAMAGES ONLY AND NOT A RIGHT TO REJECT THE GOODS OR REPUDIATE THE CONTRACT”[WHETHER A STIPULATION IN A CONTRACT OF SALE IS A “CONDITION” OR “WARRANTY” WILL DEPEND ON THE CONSTRUCTION OF THE CONTRACT, A STIPULATION MAY BE A ‘CONDITION’ EVEN THOUGH IT IS CALLED A “WARRANTY” IN THE CONTRACT

CONT….

275

[

4. WHAT IS THE DISTINCTION BETWEEN A ‘CONDITION’ AND A “WARRANTY”

CONT….


CONDITION WARRANTY

1 NATURE OF STIPULATION

A CONDITION IS AN ESSENTIAL STIPULATION TO THE MAIN PURPOSE OF THE CONTRACT

WARRANTY IS A STIPULATION COLLATERAL (INCIDENTAL) TO THE MAIN PURPOSE OF THE CONTRACT

276

[

CONT….

2 EFFECT OF BREACH

BREACH OF CONDITION GIVES A RIGHT TO THE PARTY NOT AT FAULT TO EITHER REPUDIATE (REJECT THE GOODS) THE CONTRACT OR TO CLAIM DAMAGES

BREACH OF “WARRANTY” ENTITLES THE AGGRIEVED PARTY ONLY THE RIGHT TO CLAIM DAMAGES

3 TREATMENT

A BREACH OF CONDITION MAY BE TREATED AS A BREACH OF WARRANTY

A BREACH OF WARRANTY CANNOT BE TREATED AS A BREACH OF CONDITION

4 INTER

CHANGE

A CONDITION MAY DISCEND TO THE LEVEL OF A WARRANTY

A WARRANTY CAN NEVER GET UPGRADED TO A CONDITION

277

[

5. WHEN CAN A BREACH OF ‘CONDITION’ BE TREATED AS A BREACH OF ‘WARRANTY’

a) IN THE FOLLOWING CASES THE BUYER MAY TREAT THE BREACH OF ‘CONDITIONS’ AS BREACH OF WARRANTY:

i. WARRANTY WAIVER – WHEN A SELLER COMMITS A BREACH OF CONDITION THE BUYER HAS THE OPTION OF : (a) WAIVE THE CONDITION OR (b) TO TREAT THE BREACH CONDITION AS A BREACH OF WARRANTY. IN BOTH CASES BUYER CANNOT REPUDIATE THE CONTRACT NOR LATER INSIST ON TREATING IT AS A CONDITION

ii. COMPULSORY TREATMENT OF CONDITION AS WARRANTY WERE THE GOODS IN THE CONTRACT IS NOT SEVERABLE AND THE BUYER HAS ACCEPTED PART OF THE GOODS THE BREACH OF ANY CONDITION BY THE SELLERCAN ONLY BE TREATED AS BREACH OF WARRANTY UNLESS THERE IS AN EXPRESS OR IMPLIED TERM IN THE CONTRACT TO THAT EFFECT [Sn 13 (2)]

[MS=23 – 2.3, MK=247 – 249, CB=173 – 174, PG=84 – 85]

278

[

XIV.WHAT IS MEANT BY EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES

1. CONDITIONS AND WARRANTIES ARE TREATED AS EXPRESS WHEN THE PARTIES HAVE EXPRESSLY INDICATED THEM IN THE CONTRACT

2. HOWEVER UNDER SECTION 14 OF THE SGA CERTAIN CONDITIONS AND WARRANTIES ARE TREATED AS IMPLIED EVEN IF THEY HAVE NOT BEEN SPECIFICALLY INCORPORATED IN THE CONTRACT OF SALE

279

[

XV. WHAT ARE THE IMPLIED CONDITIONS TO BE READ INTO EVERY CONTRACT OF SALEUNLESS OTHERWISE AGREED, LAW INCORPORATES INTO THE CONTRACT THE FOLLOWING IMPLIED CONDITIONS:

1. CONDITION AS TO TITLE [Sn 14(a)](i) IN CASE OF CONTRACT OF SALE, THE SELLER HAS A RIGHT TO SELL (OWNERSHIP) AT THE TIME OF MAKING THE SALE CONTRACT(ii) INCASE OF AGREEMENT TO SELL HE WILL HAVE THE RIGHT TO SELL AT TIME WHEN THE AGREEMENT TO SELL IS TO BE CONVERTED TO A SALE(iii) BUYER CAN REPUDIATE THE CONTRACT IF THE SELLER CANNOT SHOW PROOF OF TITLE CONT….

280

[

2. WHEN SALE IS BY DESCRIPTION [Sn 15](i) THERE IS AN IMPLIED CONDITION THAT THE GOODS SHALL CORRESPOND WITH THE DESCRIPTION OF GOODS(ii) THE DESCRIPTION COULD BE BY MEANS OF WORDS, SYMBOLS, NUMBER, GRADE, BRAND, MODE OF PACKING ETC[NOKYA MOBILE 6630]

3. WHEN SALE IS BY IDENTIFIED SAMPLE [Sn 17]THERE ARE THE FOLLOWING IMPLIED CONDITIONS:(i) THE BULK SHALL CORRESPOND IN QUALITY WITH THE IDENTIFIED SAMPLE(ii) THE BUYER SHALL HAVE REASONABLE OPPORTUNITY OF COMPARING THE BULK WITH THE SAMPLE(iii) THE GOODS SHALL BE MERCHANTABLE AND SHOULD NOT HAVE ANY HIDDEN DEFFECTS WHICH CANNOT BE DETECTED BY REASONABLE EXAMINATION OF THE BULK OR SAMPLE

CONT….

281

[4. WHEN SALE IS BY SAMPLE AS WELL AS

DESCRIPTION [Sn 15]THE IMPLIED CONDITION IS THAT THE BULK GOODS SHALL CORRESPOND NOT ONLY WITH THE SAMPLE BUT ALSO WITH THE DESCRIPTION

5. CONDITION AS TO FITNESS OR QUALITY [Sn 16](i) USUALLY THERE IS NO IMPLIED CONDITION OR WARRANTY THAT THE GOODS ARE FIT FOR A PARTICULAR PURPOSE WHICH THE BUYER HAS IN MIND(ii) IT IS FOR THE BUYER TO TAKE CARE AND SATISFY HIMSELF (CAVEAT EMPTOR) THAT THE GOODS WILL MEET HIS PARTICULAR PURPOSE(iii) HOWEVER SECTION 16 PROVIDES 3 EXCEPTIONS TO THE RULE OF CAVEAT EMPTOR:(a) THE BUYER EXPRESSLY OR IMPLIEDLY MAKES KNOWN TO THE SELLER THE PARTICULAR PURPOSE FOR WHICH HE REQUIRES THE GOODS CONT….

282

[

(b) THE BUYER SAYS HE RELIES ON THE SKILL AND JUDGEMENT OF THE SELLER(c) THE SELLER IS KNOWN TO BE A SUPPLIER OF THAT SPECIFIC QUALITY OF GOOD

6. CONDITION AS TO THE MERCHANTABILITY OF THE GOODACCORDING TO SECTION 16(2) WHEN THE GOODS ARE BOUGHT BY PRE – DESCRIPTION THE SELLER WHO DEALS IN GOODS OF THAT DESCRIPTION SHALL ENSURE MERCHANTABILITY [FIT TO USE] OF THAT GOOD [CEMENT GOT WET AND SOLIDIFIED]

7. CONDITION AS TO WHOLESOMENESSIN CASE OF PROVISIONS AND FOODSTUFF IT MUST NOT ONLY BE MERCHANTABLE BUT ALSO BE WHOLESOME AND BE SUITABLE FOR HUMAN CONSUMPTION

[MS=23.3 – 23.7, MK=250 – 255, CB=175 – 178, PG=86 – 87 ]

283

[

XVI. WHAT ARE THE IMPLIED WARRANTIES READ INTO EVERY CONTRACT OF SALE

1. UNLESS SPECIFICALLY AGREED TO THE CONTRARY BY THE PARTIES, THE LAW (SECTION 14) RECOGNISES THE FOLLOWING IMPLIED WARRANTIES IN EVERY CONTRACT OF SALE”

2. WARRANTY OF QUIET POSSESSION - THE BUYER SHALL HAVE THE RIGHT TO QUIET POSSESSION WITHOUT DISTURBANCE / INTERFERENCE FROM ANY THIRD PERSON OR FROM THE SELLER

3. WARRANTY OF FREEDOM FROM ENCUMBARANCESTHE GOODS ARE FREE FROM ANY ENCUMBRANCE OR PRIOR CHARGE TO ANY THIRD PARTY NOT SPECIFICALLY MADE KNOWN TO THE BUYER BY THE SELLER

CONT….

284

[

4. WARRANTY IMPLIED BY USAGE OR TRADETHE FITNESS OR QUALITY OF THE GOODS FOR A PARTICULAR PURPOSE IS ESTABISHED BY LONG STANDING TRADE CUSTOM

5. WARRANTY OF DISCLOSING DANGEROUS NATURE OF THE GOODSWHERE THE SELLER HAS KNOWLEDGE THAT THE GOOD HAVE SOME INHERENT DANGER HE HAS AN IMPLIED OBLIGATION TO MAKE IT KNOWN TO THE BUYER OR WARN THE BUYER ABOUT THE DANGER[A TIN OF CHEMICALS REQUIRED CAREFUL OPENING OR IT WOULD EXPLODE – MUST WARN]

[MS= 23.8 – 23.10 MK=256 – 258 CB=178 – 179 PG=87 –

88]

285

[

XVII.WHAT IS MEANT BY THE DOCTRINE OF CAVEAT EMPTOR AND WHAT ARE THE SEVEN EXCEPTIONS TO THIS RULE

1. THE EXPRESSION ‘CAVEAT EMPTOR’ MEANS THE “LET THE BUYER BEWARE”

2. IT IS THE BUYER’S DUTY TO THROUGHLY EXAMINE THE GOODS HE IS GOING TO BUY

3. IF THE GOODS TURN OUT TO BE DEFECTIVE OR NOT SUITABLE FOR HIS PURPOSE, HE HAS NONE TO BLAME BUT HIMSELF

4. THE SELLER HAS NO OBLIGATION TO DISCLOSE THE DEFECTS IN HIS GOODS OF WHICH HE MAY BE AWARE

5. THERE IS NO IMPLIED UNDERTAKING THAT THE SELLER SHALL SUPPLY GOODS SUITED TO THE BUYER’S PURPOSE

6. HOWEVER THE MATTER WOULD BE DIFFERENT IF THERE IS FRAUD OR MISREPRESENTATION BY THE SELLER CONT……

286

[7. THIS RULE WILL NOT APPLY IF THE BUYER HAD

SPECIFICALLY INDICATED HIS REQUIREMENTS AND HAD LEFT IT TO THE SKILL AND EXPERTISE OF THE SELLER TO SUPPLY GOODS OF THAT QUALITY

8. HOWEVER THE PRINCIPLE OF CAVEAT EMPTOR HAS CERTAIN EXCEPTIONS AND IT WILL NOT APPLY IN THE FOLLOWING CASES:

i. WHEN THE BUYER HAS INDICATED IT IS FOR A PARTICULAR PURPOSE

ii. CONDITION AS TO THE GOODS MERCHANTABILITYiii. GOODS SOLD BY SAMPLE AS WELL AS DESCRIPTIONiv. GOODS SOLD BY SAMPLEv. CONDITIONS AS TO QUALITY OR FITNESS FOR HUMAN

USEvi. WHERE THE CONSENT OF THE BUYER HAS BEEN

OBTAINED BY FRAUD OR WHERE SELLER KNOWINGLY CONCEALS DEFECTS NOT DISCOVERABLE ON REASONABLE EXAMINATION

vii. MISREPRESENTATION BY SELLER[MS= 23.10 – 23.11, MK=258 – 259, CB=179 – 180,

PG=88 – 89 ]

287

[XVIII.WHAT IS MEANT BY TRANSFEOR OR PASSING OF

PROPERTY IN THE GOODS1. THE TERM “TRANSFER OF PROPERTY” MEANS

THE TRANSFER OF “OWNERSHIP” OF THE GOODS

2. “PROPERTY” (OWNERSHIP) IN THE GOODS MUST BE DISTINGUISHED FROM THE TERM “POSSESSION” OF THE GOODS

3. POSSESSION REFERS TO THE CUSTODY OF THE GOODS

4. “PROPERTY” IN THE GOODS (OWNERSHIP) MAY PASS FROM SELLER TO BUYER BUT THE GOODS MAY BE IN POSSESSION OF THE BUYER OR SELLER AS A BAILEE

5. IN SOME CASES THE POSSESSION OF THE GOODS MAY BE IN THE HANDS OF AN AGENT OF EITHER SELLER OR BUYER

CONT…

288

[6. THE DETERMINATION OF THE EXACT TIME WHEN

THE “PROPERTY IN THE GOODS” PASSES [EVEN WITHOUT POSSESSION SHIFTING] IS OF GREAT IMPORTANCE AND SIGNIFICANCE IN A CONTRACT OF SALE FOR DETERMINING THE FOLLOWING:

a) WHO WILL BEAR THE RISK OF DAMAGE OR LOSS OF THE GOODS IF IT HAPPENS BEFORE THE PHYSICAL TRANSFER OF THE GOODS – THE BUYER OR SELLER

b) WHO CAN STOP [BUYER OR SELLER] WHEN THIRD PARTIES ARE INTERFERING WITH THE GOODS

c) AT WHAT POINT CAN SELLER INSIST ON PAYMENT OF PRICE WHEN BUYER IS REFUSING TO TAKE POSSESSION OF THE GOODS

d) AT WHAT POINT CAN THE COURT RECEIVER TAKE POSSESSION OF THE GOODS WHEN EITHER THE SELLER OR BUYER BECOMES INVOLVENT

[MS=24.2 MK=261 – 262 CB=183 – 184 PG=89]

289

[XIX. WHAT ARE THE RULES TO DETERMINE THE EXACT

TIME OF THE PASSING OF THE OWNERSHIP OR TRANSFER OF PROPERTY FROM THE SELLER TO THE BUYER OR THE NEW OWNER

1. THE PRIMARY RULE IS IF THE PARTIES HAVE SPECIFICALLY INDICATED THE TIME OF PASSING IN THE CONTRACT OF SALE ITSELF THAT IS TREATED AS FINAL

2. HOWEVER IF THE PARTIES HAVE NOT INDICATED THE EXACT TIME OF SHIFTING OF OWNERSHIP THE SECTIONS 20 TO 24 UNDER THE S.G. ACT 1930 WILL DETERMINE THE ISSUE

3. BROADLY THERE ARE TWO SETS OF RULES:a) RULES WHEN THE GOODS ARE ASCERTAINED BY

THE BUYER & SELLERb) WHEN THE GOODS ARE NOT YET ASCERTAINED

OR GOODS ARE FUTURE GOODS YET TO BE MANUFACTURED CONT……

290

[4. WHAT ARE THE RULES TO ASCERTAIN TIME OF

TRANSFER WHEN THE GOODS HAVE ALREADY BEEN IDENTIFIED AND MADE SPECIFIC

a) ACCORDING TO SECTION 20, IF THE GOODS HAVE BEEN ASCERTAINED AND ARE IN A DELIVERABLE CONDITION, THE PROPERTY PASSES FROM SELLER TO THE BUYER AS SOON AS THE CONTRACT IS SIGNED (EVEN IF PHYSICAL TRANSFER OF GOODS OR PAYMENT IS DEFERED TO A FUTURE DATE)[X SELLS HIS HORSE TO Y FOR RS. 10,000/- AND AGREES TO DELIVER THE HORSE IN Y’S HOUSE WITHIN 3 DAYS. Y HAS ALREADY BECOME THE OWNER, AND IF THE HORSE DIES BEFORE DELIVERY ‘Y’ HAS TO BEAR THE LOSS]

CONT……

291

[b) WHEN THE GOODS ARE ASCERTAINED, BUT YET

TO BE PUT IN DELIVERABLE STATE [Sn 21]IF THE SELLER HAS TO DO SOMETHING FOR PUTTING THE GOODS IN A DELIVERABLE STATE, THE PROPERTY DOES NOT PASS UNTIL SUCH THING IS DONE BY THE SELLER AND HE NOTIFIES THE BUYER ABOUT THE SAME[THE ENTIRE QUANTITY OF OIL IN THE TANK WAS SOLD, BUT X SELLER HAD AGREED TO PACK IT IN 5 LITRE BAGS BEFORE DESPATCH TO Y. BEFORE THE PACKING OR BEFORE THE INTIMATION TO Y A FIRE DESTROYED THE WHOLE STOCK – X HAS TO BEAR THE LOSS AND RETURN THE PRICE MONEY]

c) WHEN THE GOODS HAVE BEEN ASCERTAINED HAS TO BE WEIGHED OR MEASURED FOR ASCERTAINING THE TOTAL PRICE MONEY TO BE PAIDCONT……

292

[ACCORDING TO SECTION 22 EVEN THOUGH THE GOODS HAVE BEEN ASCERTAINED AND ARE IN DELIVERABLE CONDITION, BUT THE ACTUAL WEIGHING OR MEASURING FOR DETERMINING TOTAL PRICE IS NOT COMPLETED, THE TRANSFER DOES NOT TAKE PLACE TILL THAT PROCESS IS COMPLETED AND SELLER GIVES NOTICE TO THE BUYER ABOUT THE COMPLETION OF WEIGHING PROCESS.[IF DAMAGE OCCURS BEFORE NOTICE, SELLER MUST BEAR THE LOSS, IF AFTER NOTICE BUYER MUST BEAR THE LOSS]

5. WHAT ARE THE RULES FOR ASCERTAINING TIME OF TRANSFER OF ‘PROPERTY’ WHEN GOODS ARE NOT YET ASCERTAINED

a) ACCORIDNG TO SECTION 18 NO TRANSFER OF PROPERTY (OWNERSHIP) TAKES PLACE UNTIL GOODS ARE ASCERTAINED [SINCE BOTH PARTIES DO NOT KNOW – THERE IS NO CONTRACT ]

CONT……

293

[b) ACCORDING TO SECTION 23 WHEN THE

GOODS ARE PURCHASED BY DESCRIPTION OR SAMPLE IF THE BUYER OR SELLER PROVIDES THE OTHER PARTY TO UNCONDITIONALLY TO APPROPRIATE OR SEPARATE AND REMOVE THE REQUIRED QUANTITY & QUALITY FROM THE UNASCERTAINED BULK QUANTITY THE TRANSFER TAKES PLACE WHEN THE OTHER PARTY CARRIES OUT THE SEPARATION PROCESS. APPORTIONING MAY HAPPEN IN ONE OF THE FOLLWING MANNER:

i. SEPARATING THE GOODS WITH CONSENT OF BUYER

ii. PUTTING THE QUANTITY IN SUITABLE CONTAINERS WITH THE CONSENT OF THE BUYER

iii. DELIVERING THE GOODS TO A COMMON CARRIER FOR TRANSMISSION TO THE BUYER

CONT……

294

[6. WHAT ARE THE RULES FOR DETERMINING TIME OF

TRANSFER WHEN SELLER SELLS GOODS TO THE BUYER ON INSPECTION AND APPROVAL BASIS

a) ACCORDING TO SECTION 24 WHEN GOODS ARE SENT ON ‘APROVAL OR RETURN BASIS’ THE PROPERTY WILL PASS TO THE BUYER WHEN ANY ONE OF THE FOLLOWING HAPPENS:

i. BUYER CONVEYS HIS APPROVALii. WHEN BUYER DOES SOMETHING SIGNIFYING

TRANSACTION [BUYER RESELLS OR PLEDGES THE GOODS TO SOMEONE ELSE]

iii. WHEN THE BUYER RETAINS THE GOODS BEYOND THE TIME FIXED FOR RETURN OR ON THE EXPIRY OF REASONABLE TIME WHEN NO TIME HAS BEEN FIXED FOR RETURN[X GAVE A HORSE TO Y FOR TRIAL RETURNABLE IN 7 DAYS. HORSE DIED WITHIN 7 DAYS. OWNER CANNOT DEMAND PAYMENT OF PRICE FROM Y]

[MS=24.2 – 24.5, MK=262 – 266, CB=184 – 186, PG=89 –90]

295

[7. WHAT ARE THE RULES FOR DETERMINING TIME OF

TRANSFER WHEN SELLER IS DESPATCHING THE GOODS BY SHIP ORWHAT IS MEANT BY “F.A.S CONTRACTS” “F.O.B CONTRACTS” AND “C.I.F COTNRACTS”

a) IF GOODS ARE SENT BY SHIP TO THE BUYER THE ACTUAL TIME OF PASSING OF THE PROPERTY WILL DEPEND ON WHETHER THE GOODS ARE SENT UNDER ‘F.A.S CONTRACTS’ OR F.O.B CONTRACTS’ OR ‘C.I.F. CONTRACTS’

b) WHAT IS ‘F.A.S. CONTRACTS’ (FREE ALONGSIDE SHIP)i. IT MEANS THE SELLER IS RESPONSIBLE FOR

DELIVERING THE GOODS TILL THE PORT WHARF (LOADING PLATFORM) AND INFORMING THE BUYER

ii. IMMEDIATELY ON COMMUNICATION THE SELLER PASSES ON THE PROPERTY TO THE BUYER

iii. IF ANY PORTION OF THE GOODS IS LOST / DAMAGED WHILE LOADING OR IN TRANSIT THE LOSS WILL BE ON THE HEAD OF THE BUYER

296

[c) WHAT IS ‘F.O.B CONTRACT’ (FREE ON BOARD)i. HERE THE SELLER BEARS THE RISK TILL THE

GOODS ARE LOADED ON THE SHIP AND GIVES NOTICE TO THE BUYER

ii. AFTER THE LOADING ANY DAMAGE OR LOSS IN TRANSIT WILL HAVE TO BE BORNE BY THE BUYER

d) WHAT IS C.I.F. CONTRACTS (COST + INSURANCE + FREIGHT)

i. HERE THE SELLER’S PRICE INCLUDES THE COST OF THE GOODS + INSURANCE + FREIGHT CHARGES

ii. ONCE SELLER COMPLETES ALL THE ABOVE FORMALITIES AND INTIMATES THE BUYER THE DETAILS OF SHIPPING PAPERS, INSURANCE ETC, THE RISK PASSES ON TO THE BUYER

iii. BUYER HAS TO MEET THE EXPENSES OF UNLOADING, STACKING + WHRFAGE AT THE DESTINATION PORT

[MS = 24.6 ]

297

[I. UNDER WHAT CIRCUMSTANCES CAN NON –

OWNERS OF THE GOODS EXECUTE A CONTRACT OF SALE. WHAT IS THE EXTENT OF THE TITLE ACQUIRED BY THE BUYERS IN SUCH COTRACTS OR

II. WHAT IS MEANT BY “NEMODAT QUAD NON HABET”

1. THE ABOVE LATIN PHRASE MEANS – NO ONE CAN CONVEY A BETTER TITLE THAN WHAT HE HAS

2. NORMALLY ONLY AN OWNER OR HIS AUTHORISED AGENT CAN SELL THE GOODS AND A NON – OWNER EVEN IF HE SELLS CANNOT CONVEY GOOD TITLE TO THE BUYER

3. THIS GENERAL PRINCIPLE HAS HOWEVER THE FOLLOWING EXCEPTIONS [Sn 27]

CONT….

298

[a) MERCANTILE AGENTS SUCH AS DEALERS,

BROKERS, COMMISSION AGENTS, ATTORNEYS, BANKERS, INSURANCE AGENTS, WHARFINGERS AND FACTORS CAN CONVEY GOOD TITLE IF THEY ARE IN POSSESSION OF THE GOODS OR ANY DOCUMENT OF TITLE TO THE GOODS

b) SALE BY A THIRD PERSON WHEN THE REAL OWNER BY HIS CONDUCT DOES NOT DENY THE THIRD PARTY’S ATTEMPTS TO SELL THE GOODS AND THE BUYER BUYS THE GOODS IN GOOD FAITH AND FOR PRICE [NON – ESTOPPEL BY OWNER]

c) SALE BY CO – OWNER ACCORDING TO SECTION 28 A BUYER CAN GET A VALID TITLE IF ALL THE FOLLOWING CONDITIONS ARE SATISFIED:CONT….

299

[i. THE CO – OWNER MUST BE IN SOLE POSSESSION

OF GOODS WITH THE CONSENT OF CO - OWNERS ii. THE BUYER SHOULD PURCHASE THE GOODS FOR

VALUE AND IN GOOD FAITHiii. THE BUYER SHOULD NOT HAVE NOTICE OR

SUSPICION (AT THE TIME OF SALE) OF ANY DEFECT IN THE SELLER’S AUTHORITY TO SELL

4. SALE BY A PERSON IN POSSESSION UNDER A VOIDABLE CONTRACTAS PER SECTION 29 WHERE A PERSON IS IN POSSESSION OF THE GOODS UNDER A VOIDABLE CONTRACT (AS PER SECTIONS 19 & 19 A OF ICA) SELLS THE GOODS TO ANOTHER BEFORE THE CONTRACT IS REPUDIATED AND THE BUYER PURCHASES THEM FOR VALUE, IN GOOD FAITH AND WITHOUT NOTICE OF SELLER’S DEFECT IN TITLE WILL ACQUIRE A GOOD TITLE

CONT….

300

[5. SALE BY SELLER IN POSSESSION AFTER SALE

[Sn 30 (1) ]A SELLER WHO SOLD THE GOODS AND RETAINING POSSESSION PENDING PAYMENT MAY SELL THE GOODS TO ANOTHER BUYER WHO COULD GET GOOD TITLE PROVIDED THE SECOND BUYER (1) ACTS IN GOOD FAITH (2) DOES NOT HAVE NOTICE OF PRIOR SALE & (3) OBTAINS POSSESSION OF GOODS OR DOCUMENTS TO THE TITLE OF THE GOODS

6. SALE BY UNPAID SELLER (SECTION 54)A BUYER FROM AN UNPAID SELLER IN POSSESSION OF THE GOODS UNDER HIS RIGHT OF LIEN OR STOPPAGE IN TRANSIT CAN ACQUIRE GOOD TITLE IF HE BUYS IT IN GOOD FAITH

[ MK=267 – 270 CB=189 – 192 ]

301

[XXI.WHAT ARE THE RULES REGARDING DELIVERY OF

GOODS OR PERFORMANCE OF THE CONTRACT1. DUTY OF SELLER

IT IS THE DUTY OF THE SELLER TO DELIVER THE GOODS TO THE BUYER OR HIS AGENT

2. TYPES OF DELIVERYa) ACTUAL DELIVERY – GOODS ARE PHYSICALLY

HANDED OVERb) SYMBOLIC DELIVERY – WHERE GOODS ARE

BULKY A SYMBOLIC DELIVERY IS GIVEN LIKE: KEY TO GODOWNS, BILL OF LADING, RAILWAY RECEIPTS

c) CONSTUCTIVE DELIVERY – WHERE THIRD PERSON IN POSSESSION OF GOODS ACKNOWLEDGES TO HOLD THE GOODS ON BEHALF AND AT THE DISPOSAL OF THE BUYER

302

[XXII.WHAT ARE THE RULES REGARDING DELIVERY OF

GOODS1. AS PER SECTION 32 DELIVERY AND PAYMENT ARE

CONCURRENT CONDITIONS. BOTH PARTIES MUST PERFORM THEIR DUTIES.

2. DELIVERY TO THE BUYER COULD BE EITHER ACTUAL, SYMBOLIC OR CONSTRUCTIVE

3. EFFECT OF PART DELIVERYA DELIVERY OF PART OF THE GOODS, IN PROGRESS OF DELIVERY AMOUNTS TO DELIVERY OF THE WHOLE IF THERE IS NO INTENTION OF SEVERING SUCH PART FROM THE WHOLE

4. BUYER TO APPLY FOR DELIVERYSELLER OF GOODS NOT BOUND TO DELIVER, UNTIL THE BUYER APPLIES FOR DELIVERY

5. MODE OF DELIVERYMODE WILL BE AS DESIRED BY THE PARTIES

CONT…..

303

[6. PLACE OF DELIVERY [Sn 36 (1) ]

(a) NORMALLY IT IS AT PLACE OF SALE(b) GOODS NOT IN EXISTENCE ARE TO BE DELIVERED AT THE PLACE AT WHICH THEY ARE MANUFACTURED

7. TIME OF DELIVERY [ Sn 36 (2)]WHERE NO TIME IS SPECIFIED, IT SHOULD BE DELIVERED IN A REASONABLE TIME

8. DEMAND AT REASONABLE HOURBUYER SHOULD DEMAND DELIVERY AT REASONABLE HOURS OF THE DAY

9. GOODS IN POSSESSION OF THIRD PARTIES [Sn 36 (3) ]DELIVERY IS EFFECTIVE ONLY WHEN THE THIRD PARTY ACKNOWLEDGES TO THE BUYER THAT HE IS HOLDING IT ON BEHALF OF THE BUYER AND AWAIT HIS INSTRUCTIONS ON DELIVERY

CONT…..

304

[10. INSTALMENT DELIVERY [SN 37 (3)]

BUYER IS NOT BOUND TO ACCEPT THE GOODS IN INSTALMENTS UNLESS THE BUYER HAS AGREED TO IT

11. EXPENSES OF DELIVERY [36 (5)]SELLER MUST PUT THE GOODS IN A DELIVERABLE STATE

12. DELIVERY OF WRONG QUANTITY [S – 37 ](a) IN CASE OF SHORT DELIVERY, BUYER HAS OPTION OF REJECTING IT(b) EXCESS DELIVERYBUYER HAS THE OPTION OF TAKING THE REQUIRED QUANTITY AND REJECTING THE EXCESS(C) MIXED DELIVERYBUYER CAN ACCEPT OR REJECT CONT…..

305

[13. DELIVERY TO CARRIER OR WHARFINGER

DELIVERY OF GOODS TO A CARRIER (ARRANGED BY BUYER OR SY SELLER) AND HANDING OVER OF GOODS FOR SAFE CUSTODY TO THE WHARFINGER AMOUNTS TO DELIVERY

14. SELLER TO INFORM BUYER IN TIME [ 39 (3)]SELLER MUST INFORM BUYER IN TIME FOR HIS TAKING POSSESSION

15. DETERIORATION OF GOODS IN TRANSIT [Sn 40]WHERE THE BUYER WANTS GOODS TO BE DELIVERED AT SOME DISTANT PLACE, BUYER SHALL BEAR THE RISK OF DETERIORATION DURING TRANSIT

[MS = 25.1 – 25.3 MK=272 – 277 CB=196 – 199 PG=90 - 92 ]

306

[XXIII.WHAT ARE THE RIGHTS AND DUTIES OF THE BUYER1. RIGHTSa) TO RECEIVE DELIVERY OF GOODSb) TO REPUDIATE IF SELLER COMMITS BREACHc) TO HAVE REASONABLE OPPORTUNITY TO EXAMINE

THE GOODSd) TO SUE SELLER FOR DAMAGES FOR NON-DELIVERYe) TO RECOVER THE AMOUNT PAID IF SELLER FAILS TO

DELIVERf) TO SUE SELLER FOR SPECIFIC PERFORMANCEg) TO SUE SELLER FOR DAMAGES FOR BREACH OF

WARRANTY2. DUTIESa) TO PAY AND TAKE DELIVERYb) TO APPLY TO SELLER FOR DELIVERY c) TO COMPENSATE SELLER IF HE DOES NOT TAKE

POSSESSION

307

[XXIV.WHAT ARE THE RIGHTS AND DUTIES OF THE SELELR1. RIGHTSa) TO RECEIVE THE PRICEb) TO GET COMPENSATION FOR NEGLECT ON PART OF

BUYERc) TO GET REASONABLE CHARGES FOR TAKING CARE OF

GOODSd) IF HE IS UNPAID SELLER TO EXERCISE HIS RIGHT OF LIENe) TO SUE FOR DAMAGES WHEN BUYER WRONGFULLY

REFUSES TO TAKE POSSESSION OF GOODSf) TO SEU FOR PRICE OF GOODS2. DUTIESa) TO DELIVER GOODS WHEN DEMANDED BY BUYER b) TO COMPENSATE BUYER IF SELLER COMMITS ANY BREACH c) TO GIVE REASONABLE OPPORTUNITY FOR INSPECTION TO

BUYERd) TO REFUND ANY ADVANCE IF SALE IS NOT PROCEEDED WITHe) TO COMPENSATE THE BUYER IN CASE OF DELIVERY OF

WORNG QUANTITY[MS= 25.6 – 25.7 MK=287 – 288 CB=210 – 211 PG=93 – 94 ]

308

[XXV.WHAT ARE THE RIGHTS OF UNPAID SELELR1. WHO IS AN UNPAID SELLER

SECTION 45 DEFINES UNPIAD SELLER AS FOLLOWS:

a) WHEN THE WHOLE PRICE HAS NOT BEEN PAID OR TENDERED IN FULL

b) WHEN A NEGOTIABLE INSTRUMENT HAS BEEN RECEIVED AS CONDITIONAL PRECEDENT AND THE SAME HAS BEEN DISHONOURED

c) THE FOLLOWING CHARACTERISTICS OF AN UNPAID SELLER SHOULD BE THERE:

i. HE MUST SELL GOODS ON CASH TERMS AND NOT ON CREDIT, AND MUST REMAIN UNPIAD

ii. HE MUST BE UNPAID EITHER WHOLLY OR PARTLY

iii. HE MUST NOT REFUSE TO ACCEPT PAYMENT WHEN TENDERED

309

[XXVI.WHAT ARE THE RIGHTS OF AN UNPAID SELLER1. THE UNPAID SELLER HAS TWO BROAD CATEGORIES OF

RIGHTS LIKE:a) RIGHTS AGAINST GOODSb) RIGHTS AGAINST THE BUYER PERSONALLY2. WHAT ARE HIS RIGHTS AGAINST THE GOODS:a) RIGHT OF LIEN [Sn 47, 48, 49]b) RIGHT OF STOPPING THE GOODS – IN – TRANSIT [Sn 50

TO 52]c) RIGHT OF RESALE [Sn 54]3. WHAT ARE HIS RIGHTS AGAINST THE BUYER

PERSONALLYa) SUIT FOR PRICE [SEC – 55]b) SUIT OF DAMAGES FOR NON – ACCEPTANCE [ Sn 56]c) SUIT OF REPUDIATION OF CONTRACT BY THE BUYER

BEFORE DUE DATE OF DELIVERY [Sn 60]d) SUIT FOR INTEREST AND SPECIAL DAMAGES [Sn 62][MS=26.1 – 26.5 MK=280 – 286 CB=203 – 210

PG=96 ]

310

[XXVII.WHAT ARE THE REMEDIES AVAILABLE TO A

BUYER IN CASE SELLER COMMITS BREACH OF CONTRACT

1. SUIT FOR DAMAGES FOR NON – DELIVERY [Sn 57]

2. SUIT OF SPECIFIC PERFORMANCE [Sn 58]3. SUIT OF DAMAGES FOR BREACH OF

WARRANTY [Sn 59]4. SUIT FOR RECISSION OF CONTRACT AND

FOR BREACH OF CONDITION [Sn 60]5. SUIT FOR SPECIAL DAMAGES CAN ALSO BE

FILED UNDER SECTION 73 OF ICA6. SUIT FOR RECOVERY OF PRICE TOGETHER

WITH INTEREST [Sn 61][MS= 25.7 MK= 287 – 289 CB=210 –

211 ]

311

[

XXVIII.WHAT IS THE DIFFERENCE BETWEEN LIEN & STOPPAGE – IN – TRANSIT

SL NO

LIEN STOPPAGE – IN - TRANSIT

1 IT DEPENDS UPON THE SELLER HAVING POSSESSION OF THE GOODS

IT DOES NOT DEPEND ON SELLER HAVING POSSESSION. IT CAN BE EXERCISED WHEN GOODS ARE IN POSSESSION OF A MIDDLEMAN

2 IT IS RETENTION OF POSSESSION OF GOODS

IT IS RESUMPTION OF POSSESSION OF GOODS

312[ CB=207 ]

[

SL NO

LIEN STOPPAGE – IN - TRANSIT

3 IT IS EXERCISED WHEN THE PRICE IS NOT PAID

IT IS EXERCISED WHEN THE BUYER BECOMES INSOLVENT

4 IT ENDS WHEN POSSESSION IS LOST BY BUYER

IT BEGINS WHEN POSSESSION IS LOST

5 IT ARISES NOT ONLY IN CASE OF INSOLVENCY OF BUYER BUT ALSO WHEN THE BUYER IS ABLE TO PAY BUT DOES NOT PAY

IT ARISES ONLY WHEN THE BUYER BECOMES INVOLVENT

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