MGT 202 Legal Environment of Business

MGT 202 Legal Environment of BusinessMd. Lutfar RahmanFacultyCollege of Business AdministrationLaw of ContractWhat is contract?It is mentioned in section 2(h) of the Contract Act, 1872, that

A binding agreement between two or more persons that is enforceable by law

This is the simple definition of the term contract given by the act. So, accordingly it means that whenever the agreement acquires the qualification of enforceability by law then it becomes a contract. Law of ContractThe agreements may be of two types:Agreement enforceable by law; andAgreements not enforceable by law.The agreements which are enforceable by law only those can be the contacts, and never the others which are not enforceable by law. All contracts are agreements, but all agreements are not contract.

Law of ContractFor a clear idea about a Contract we have to depend on at least two other definitions, viz:AgreementEnforceability by lawDefinition of agreement: Every promise and every set of promises forming the consideration for each other is an agreement.Law of ContractWhat is Consideration?: When at the desire of the promisor the promisee or any other person has done or abstained from doing or does or abstain from doing or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise. It is done at the desire of the promisor. So, if it is done at the desire of any third person that will not be a consideration. Conversely, if anything is done at the desire of the promisor, that will be a good consideration irrespective of the nature of the thing done, even that may be legal or illegal, adequate or inadequate.Law of ContractWhat is promise?: A proposal when accepted becomes a promise. Promise has two components:ProposalAcceptance That means first of all a proposal is necessary and then that must be accepted to have a promise. Law of ContractWhat is proposal?: When one person signifies to another his willingness to do or to obtain from doing anything, with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal. Here two constituent sectors of an offer are found. First, to be an offer, there must be a signification of ones willingness to another. Secondly, the signification must be made with a definite object that, that is intended to have the consent from the person to whom it is addressed.Law of ContractWhat is acceptance?: After an offer is found there must be an acceptance to reach the stage of promise.When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted.Law of ContractSummery of Contract:A contract is constituted by agreement and enforceability by law, and an agreement is constituted by promise and consideration, and a promise is constituted by offer and acceptance, and consideration is constituted by the desire of promisor and act or refrain by the promisee. Law of ContractWhen does an agreement becomes enforceable by law?All agreement are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.Law of ContractTo be a contract, an agreement must fulfill the following conditions:The parties must be competent;The consent of parties must be free;There must have lawful consideration;The object must be lawful; andThe agreement must not expressly declared void by law.Law of ContractThe five conditions in the earlier slide are the further conditions to be satisfied to convert an agreement into a contract. Accordingly, there may be an agreement by the incompetent parties without free consent and it is immaterial whether the consideration or object is lawful or not. Thus, if two persons agree to have a transaction the ultimate object of which is smuggling that will be nevertheless an agreement though that cannot be a contract. But that particular agreement cannot be a contract without satisfying these conditions.Law of ContractIt would be convenient if the above components are projected through the following diagram:ContractAgreementAgreeable by lawConsequence of partiesFree consentObject must be lawfulConsideration must be lawfulNot declared by law as void.

PromiseConsiderationProposalAcceptanceTypes of ContractExpress contract: If the offer and acceptance of a contract are made in words, i.e., either expressed orally or in words, the contract will be deemed to be express one. As for example: A tells I would like to sell this car for Tk 3 Lacs and B replies I agree this is an express contract. Thus express contract may be of two types:Written contract, andOral contract Types of ContractImplied contract: If the offer and acceptance of a contract are made otherwise than in words, it will be treated as an implied contract. For instance, if a shoe shiner starts polishing the shoes of one person and the later permits it remaining silent knowingly that the first person is doing so to get a payment in exchange of this service, it will be treated by the law as a case of implied contract. Types of Contract as regards the enforceability and validityValid contract: An agreement enforceable by law is a contract and this is valid contract. In other words, the valid contract is that agreement which fulfils all requirements of a valid contracts imposed by the law. Voidable contract: 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.Voidable contractFrom earlier slide, it appears that the void ability of a contract is temporary status. It has to be made enforceable by law or has to be set aside and both these are dependent at the option of the parties of other side. A contract can become voidable for many reasons if determined by the law. Once a contract becomes voidable, it acquires a temporary and transitional status. It has to be either validated or annulled. The law gives the power of validating it to the parties one side of the contract, not of the other side. Law determines at whose option it will be valid in each particular case considering the nature of that voidable contract. Thus a contract cannot remain as voidable forever; rather it has to be valid or void.Void ContractA contract which cease to be enforceable by law becomes void when it ceases to be enforceable.The definition implies two things to be void contract:One valid contract is thereThen it must cease its enforceability by law.Void AgreementAn agreement not enforceable by law is said to be void.Thus an agreement, in fact, will either be enforceable by law or not. If it becomes enforceable by law it will be a contract and if failed to be so then it will remain as agreement and the legal status of the agreement will be void agreement. And there are obviously certain criteria set by law for the enforceability.Distinction between void agreement and void contractThere is a similarity between these two terms, void agreement and void contract, that is, both of these are not enforceable by law. The only basic distinction between these two is that a void contract was valid once upon a time, but a void agreement was never in a position to be enforceable by law. In other words, void agreement implies void ab initio, i.e., void from very beginning or from its birth, whereas void contract implies that it is not void in its very inception rather it was born as valid or enforceable by law and subsequently it ceased to be enforceable by law. Illegal AgreementThe concept of illegal agreement can be inferred from the relevant laws that it means the agreement which is illegal. It is worth mentioning here that all illegal agreements are void agreements but all void agreements are not illegal, because illegality is one of the grounds to be void but there may be other reasons for which an agreement may be void but in that case that some can not be termed as illegal. Suppose, entering into an agreement to write 100 standard pages within five minutes in ones own handwriting is void agreement, but this is not an illegal agreement. But, if some how an agreement becomes illegal then obviously that will be void agreement. Illegal ContractThis is a misnoma, because it creates a paradoxical situation. A contract implies that it is enforceable by law. So. Whenever the term contract is used it cannot bear the term illegal with it, because that will create self-contradiction, which will give rise to a paradox. Because the agreement which is enforceable by law cannot be termed as illegal. That is why, illegal agreement is a correct term but not the illegal contract.Unenforceable ContractThis is another interesting terminology, which has not been defined in the Contract Act, 1872. It means a contract, which cannot be enforced by the courts of law for some technical reasons. Suppose, the right arising out of a time barred contract may not be enforceable in the courts of law and such a contract may be termed as unenforceable contract. Proposal and AcceptanceDefinition of Proposal: Proposal is the starting point from where an agreement gets life formally which ultimately may take the shape of a legally binding contract. The term proposal which is used in Bangladesh is synonymous with the term offer used under English law. Section 2(a) of the Contract Act, 1872, while defining the term proposal says that- Proposal and AcceptanceWhere one person signifies to another his willingness to do or to obtain from doing something with a view to obtaining the assent of that other to such act or abstinence he is said to make a proposal. Proposal and AcceptanceIf we dissect the above mentioned definition then one may find out the following elements of a proposal:Signification of ones willingness;Willingness is expressed to another person;The willingness may be affirmative or negative, i.e., that is either to do something or to abstain from doing;The said willingness is expressed to other person with a definite object, that is, the person who makes it intends to obtain the consent to the same from the person to whom it is made.Analysis of the Definition of OfferWhat is an offer? The simplest answer to this question is that it is a willingness of one person. But if someone has a willingness in his mind it will not be sufficient to constitute an offer, rather it must be expressed to someone else. That willingness may be to do something or to abstain from doing something. The last important element of an offer is relating to the intension of the person who is making the proposal i.e., proposer, that is one must make it with the intension of getting the consent from the other person to whom it is made. Let us examine the conversation in the next slide. Analysis of the Definition of Offer(A conversation is taking place between A and B while they were taking tea at fine evening of autumn sitting in the garden of B)A: Have you bought another car? I just heard it from C that you purchased a Lexus car yesterday.B:Yeah. It is true.A:But I think the second car will be really useless for you, one is sufficient.B: I am thinking to sell my old one.A: For how much?B: 5 lacsA: Thats nice.

Analysis of the Definition of OfferHere, the statement made by B failed to constitute an offer because of two reasons - first of all, he was not serious about his willingness, rather he was merely thinking like this. Secondly, here B told that he was thinking to sell the car for a certain price but it was not intended by his statement that he made it with a view to obtain the consent from A in this regard. Analysis of the Definition of OfferNature of Willingness: It should be affirmative or negative i.e., to do something or to abstain from doing something WillingnessWillingness is expressed to another person. His expression must be heard by others to make an offer.The said willingness is expressed to other person with a definite object to obtain consent from the person to make an offer.Characteristics of a proposal and some rules regarding a valid proposalA proposer must intend to create legal relations and as such expressed willingness (offer) must be capable of creating legal relations. Example: Promise made by A to pay B monthly allowance for a definite period. But after sometime A denied to give B the said allowance. B could not enforce the obligation because nature of agreement implies no intension to give rise to a legal obligation and as such there was no offer at all to be accepted and consequently there was no contract between A & B. Similarly an invitation to dine is not an offer.Characteristics of a proposal and some rules regarding a valid proposalIf someone invites his friends to have a tea in his house and if any of the invited guests after accepting the said invitation misses that tea party, that person will not be held liable for breach of contract, thought the host has already incurred certain expenses in the preparation of the party, because, these are purely social relations, where legal obligations and consequences are never intended, so there was no offer no acceptance no contract no breach of contract.Characteristics of a proposal and some rules regarding a valid proposalMere expression of intension is not sufficient to constitute an offer, rather that must be the final decision of his thought which is made with a definite purpose, i.e., to obtain the consent of the person to whom it is made. Thus if A says to B, I may sell one of my cars if I can get Tk 3 lacs that is not an offer. If there is no offer, no question of acceptance and as such no contract. Characteristics of a proposal and some rules regarding a valid proposalFor example A told B, while taking tea, I will be happy if I can sell my house situated at Uttara for Tk 1 crore to a university teacher, B being a university teacher comes forward with the said money and claims the house. Bs such performance will not amount to acceptance, because As statement did not constitute an offer, since it was a mere statement of intension expressed to B out of conversation. Characteristics of a proposal and some rules regarding a valid proposalAn offer must be definite i.e., any vague or ambiguous statement is incapable to give birth to a proposal. An offer may be made to a specific person or specific class of persons or even to the world at large generally. Because the definition of the term proposal does not restrict that the offer should be made only to one person rather the law says when one person signifies to another which implies that the offer must not be addressed to the offeror himself, rather to another so it is not a bar in making an offer even to the whole world at large.Characteristics of a proposal and some rules regarding a valid proposalExamples:A says to B to sell his computer to him for a certain price it is a specific proposal made to one specific person, B which is capable to be accepted only by B alone, and no other person except B can accept the offer.A makes an offer to sell some computers at low price and specifically mentions in the offer that it is made only for the law students it is an offer made to a specific class of persons.Characteristics of a proposal and some rules regarding a valid proposalOffer may be expressed or implied. If it is made by words, written or oral, it becomes an express offer and if it is made otherwise than in words, i.e., by conduct it is an implied offer.Examples:1) A tells B I will sell my car to you for Tk 1000 it is an express offer which is made orally.Characteristics of a proposal and some rules regarding a valid proposal2) A sends an e-mail to B offering to sell his land situated at Gulshan for a certain price it is also an express offer which is in the form of writing.3) A professional shoe shiner when starts polishing ones shoes in front of the owner of the shoes, and the owner does not deny. This is a case of implied offer which is made by conduct. Characteristics of a proposal and some rules regarding a valid proposalSince ones willingness may be positive or negative, likewise an offer also may be positive or negative, because an offer is nothing but the expression of ones willingness.Example:A tells that I will sell my car for Tk 3 lacs it is a positive offer.A tells B that If you do not go to Coxs Bazar tomorrow, I will not give C Tk 3 lacs It is a negative offer.Characteristics of a proposal and some rules regarding a valid proposalOffer may be conditional or unconditional. It is natural that besides unconditional offers one can make a proposal subject to some stipulations also. For Example, If A tells B that I will sell my car to you if you recruit my nephew in your company as a manager it is a conditional offer. In case of a conditional offer the offeree must fulfill all terms and conditions of offer in order to accept it.Offer and Invitation to TreatOffers must be distinguished from invitation to treat, because there are many statements which seem to be offers, but in fact these are invitation to treat. Simply speaking, we discussed earlier the constituent elements of an offer, and if any statement lacks any of those elements that may be termed as an invitation to treat. Offer and Invitation to TreatIt is convenient to distinguish between an offer and an invitation to treat on the basis of two factors.:Nature of the statement; andIntension of the party who is making the statementIn the context of the nature of the statement it is to be examined whether the said statement satisfies all requirements of a valid offer, inter alia, final expression of ones willingness and sufficiently definite to be capable of acceptance, if the statement or conduct becomes so satisfactory then it will be an offer, but if in short of it at any degree then it will be an invitation to treat, not an offer.

(Case study: Gibson Vs. Manchester City Council)Offer and Invitation to TreatAuction Sales: It is well established principle regarding auction sale that the offer is made by the bidder, i.e., the bid itself is an offer which is to be accepted by the fall of the hammer of the auctioneer on his table. There are certain issues relating to auction sales. 1)The first issue is about the request for bids. Is the request for bid a definite offer? 2)The second issue is about the nature of advertisement of an auction sale is it an offer or invitation for treat? The advertisement of an auction is generally held to be an invitation to treat. Offer and Invitation to Treat3) The next question arises does an advertisement that specified goods will be sold by auction on a certain day constitute a promise to potential bidders that the sale will actually be held? 4) The third issue is regarding the advertisement that mentions the sale to be held without reserve is it a definite offer to sell to the highest bidder.Offer and Invitation to TreatTenders: The general rule is that an invitation to tender for a particular project is an invitation to treat and the person who submits the tender is deemed by law as an offeror as the submission of tender is an offer which in turn is to be accepted by the person who invites the tender for any particular project. Offer and Invitation to TreatDisplay of goods: Now a days a fixed price shops are increasing and being popular day by day. The issue is whether the display of goods for sale an offer or invitation to treat. If goods are exhibited in a shop-window or inside a shop with a price attached, does this constitute an offer to sell at that price? The general English Law view is in favor of its being treated as an invitation to treat. Offer and Invitation to TreatLord Parker in Fisher Vs. Bell undoubtedly decided the issue suggesting that:It is clear that, according to the ordinary law of contract, the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which constitute a contract.Offer and Invitation to TreatAdvertisements: The general principle relating to advertisement is that it is not an offer, rather an invitation to treat. It is also the established principle that a circular, catalogue advertising goods for sale is not an offer itself, but it is a mere attempt to induce offers and in this regard Lord Herschel's observation is worth mentioning here: Offer and Invitation to TreatThe transmission of such a price-list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given, there is binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he could be quite unable to carry out, his stock of wine of that description being necessarily limited. Offer and Invitation to TreatTimetables and boarding on the bus or train: The matters of daily life are in most of the cases become confusing. Such as in case of boarding on a bus or train there may be four probable explanations:1) The bus time table and the running of the bus are an offer by the bus company which is accepted by boarding on the bus. This was the view of Lord Greene that the offer was made by the bus company and it was accepted when a passenger puts himself either on the platform or inside the bus. Offer and Invitation to Treat2) Alternatively an acceptance takes place when the passenger asks for a ticket and pays the fare.3) The bus time-table is an invitation to treat, the offer is made by the passenger on boarding the bus and the acceptance takes place when the bus conductor accepts the money and issues the ticket.4) The bus conductor makes the offer when he issues the ticket and this offer is accepted by paying the fare and retaining the ticket.What is Acceptance? Section 2(b) of the Contract Act 1872, states that When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.We can dissect the definition at least into three constituent parts:Signification of the assent;Assent is signified by the person to whom the proposal was made;The term thereto used in this section implies that the assent must be given to the offer as it is.What is Acceptance?By an analysis of the above definition we can reach to the following conclusions:A proposal must be accepted by the person to whom the offer is made. So, if A offers B to sell his car to him, C can not accept the offer.If the consent is not signified then there will not be a valid acceptance. It implies that if someone keeps the assent in his own mind then it will not be enough to constitute an acceptance. So, that assent must be signified.

What is Acceptance?3) The term thereto in fact indicates to some essential conditions of acceptance. It implies that nothing can be excluded from the offer or nothing can even be added with the offer. So, if someone would like to sell his car for a certain price and the person to whom it is addressed he accepts the offer adding another condition that it must be painted before the delivery of possession it is not a signification of his assent thereto, i.e., to the offer as it is and so is not an acceptance in the eye of law. What is Acceptance?Assent must be signified to the proposer. Thus mere assent of one person in his own mind will not suffice, rather it must be communicated to the proper person.Assent, the centre point of acceptance.Who will give the assent?Assent must be given by the person to whom the proposal was made.Assent to what? Assent must be given thereto, that means, to the proposal exactly as it is made. Rules Regarding a valid acceptance : Nature and Mode of Acceptance In order to convert a proposal into a promise, the acceptance must be absolute and unqualified. So, acceptance with a variation is no acceptance at all. Absolute and unqualified these two terms together makes one thing emphatically clear that acceptance must be made to the offer as it is made without any variation in it. In other words, nothing can be added with the offer or nothing can be excluded and no part or no term of offer can be varied to any extent in its acceptance. Examples in next slidesRules Regarding a valid acceptance : Nature and Mode of Acceptance Example#1A: I will sell my car to you for Tk 3 lacs.B: I agree. But you must paint the car before giving it to me. Here Bs statement is not an acceptance, because it adds one more condition which did not exist in the offer. Thus it is not an unqualified acceptance as required by law. Rules Regarding a valid acceptance : Nature and Mode of Acceptance Example #2:A: I will sell two cars together for Tk 5 lacs.B: I agree to purchase any one of it for Tk 2.5 lacs.Here Bs statement does not constitute a valid acceptance. Because it is not absolute one as required by law. It excluded something from the original offer and agreed partially, so it is not a valid acceptance.

Rules Regarding a valid acceptance : Nature and Mode of Acceptance Example #3:A: I will sell my computer to you for Tk 50 thousands onlyB: I agree to accept for Tk 49 thousandsHere also Bs statement is not a valid acceptance, because it is a statement with a variation and deviation from the offer.Capacity of PartiesEvery person is competent to contract who is the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from any law to which he is subject.So, if we dissect the section then we get three conditions to be fulfilled by a person to be competent to enter into a contract, that the person is-Of the age of majority;Of sound mind; andNot disqualified from contracting by any law to which he is subject.Capacity of PartiesThus we can express the competency of parties negatively, that the following persons cannot enter into a contract:minors;Persons of unsound mind; andPersons disqualified by any law.Two major things to be done by a person of sound mind if he has the capability:To understand the contractTo form a rational judgment considering its effect upon his own interests.

Free ConsentFree consent is an essential element of a valid contract. It is natural that for an agreement both parties to it must come to a common point. For that reason consent has become an essential element of an agreement. To constitute a contract even mere consent is not sufficient, rather the consent must be free consent according to the law. First of all, we have to know the meaning of consent then the criteria to be a free consent. Free ConsentMeaning of consent: Section 13 of the Contract Act, 1872, says that, two or more persons are said to consent when they agree upon the same thing in the same sense.Thus, there are two statutory requirements to be a consent that the consent must be given:To the same thing, andIn the same senseFree ConsentSo, if the parties agree upon different things or in different senses then this will not be treated as consent. Of course, the term thing used in the first requirement means the contents of agreement.Meaning of free consent: Section 14 says consent is said to be free when it is not caused by-CoercionUndue influenceFraud MisrepresentationMistake

Free ConsentConsent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake. Thus, to be a free consent, that must not be caused by any of these five elements- coercion, undue influence, fraud, misrepresentation, and mistake. In other words, if a consent is given being affected by any of the above five elements, the consent will not be treated by the law as a free consent.

The Negotiable Instruments Act, 1881An Act to define and amend the law relating to:Promissory NotesBills of ExchangeCheques.Negotiable Instrument1) A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.Explanation (i): A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Negotiable InstrumentExplanation (ii): A promissory note, bill of exchange or check is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank (An endorsement on commercial paper naming no payee and so payable to the bearer).Negotiable InstrumentExplanation (iii): Where a promissory note, bill of exchange or check, either originally or endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.A negotiable instrument may be payable to two or more payees jointly or it may be made payable in the alternative to one of two, or one or some of several payees. Interpretation Clauseaccommodation party means a person who has signed a negotiable instrument as a maker, drawer, acceptor or endorser without receiving the value thereof and for the purpose of lending his name to some other person; banker means a person transacting the business of accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and with drawble cheque, draft, order or otherwise, and includes any Post Office Savings Bank; Interpretation Clausebearer means a person who by negotiation comes into possession of a negotiable instrument, which is payable to bearer; delivery means transfer of possession, actual or constructive, from one person to another;issue means the first delivery of a promissory note, bill of exchange or cheque complete in form to a person who takes it as a holder;Interpretation ClauseNegotiation: When a promissory note, bill of exchange or check is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.Endorsement: When the maker or holder of a negotiable instrument signed the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the endorser.Interpretation ClauseEndorsement in Blank and in full: If the endorser signs his name only, the endorsement is said to be in blank, and if he adds a direction to pay the amount mentioned to, or to the order of, a specified person, the endorsement is said to be in full and the person so specified is called the endorsee of the instrument.

Promissory Notes

A written promise to pay or repay a specified sum of money at a stated time or on demand. Also called note of hand. Written promise to pay, frequently used in installment loans and commercial loans. A promissory note is the legal evidence of a debt, a promissory note may be transferred to a third party as a Negotiable Instrument. The holder of a promissory note who wants payment before the maturity date can negotiate it by endorsing the note and presenting it to the payer for payment.

Promissory Notes

A promissory note is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.A Promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay (on demand or at a fixed or determinable future time) a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Promissory Notes

Example:

I, Jane Monroe, do promise to pay City Finance Co., the sum of $50,000. Repayment is to be made in the form of 300 equal payments at 6% interest, or $322.15 payable on the 1st of each month, beginning 8/1/2009 until total debt is satisfied.Signed Jane MonroeIllustration of Promissory NoteA signs instruments in the following terms:I promise to pay B or order Tk 500.I acknowledge myself to be indebted to B in Tk 1,000 to be paid on demand, for value received.Mr. B, I O U Tk 1,000.I promise to pay B Taka 500 and all other sums which shall be due to him.I promise to pay B Taka 500, first deducting there out any money which he may owe me.I promise to pay B Taka 500 seven days after my marriage with C.Illustration of Promissory NoteG) I promise to pay B Taka 500 on Ds death, provided D leaves me enough to pay that sum.H) I promise to pay B Taka 500 and to deliver to him my black horse on 1st January next.The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked , (d), (e), (f), (g) and (h) are not promissory notes.Case Reference of Promissory Notes It may assume the form of a promissory note, an ordinary receipt, a deposit receipt, a memorandum, an acknowledgement of a debt or a bond. Though the main purport of all these kinds of instruments is one and the same, yet a sharp distinction has been held to exist between:1) a promissory note and an ordinary receipt;2) a promissory note and a deposit receipt;3) a promissory note and a memorandum;4) a promissory note and an acknowledgement of a debt;5) a promissory note and a bond. Case Reference of Promissory NotesThe distinction is of practical considerable importance in view of the provisions of the limitation Act which provide periods of limitation for suits on the basis of such instruments in different articles and of the provisions of the Stamp Act which provide for the fixation of stamps of different value in the case of different instruments. All this has led the Legislature to define the expression promissory note in explicit words. Bill of ExchangeA bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay (on demand or at a fixed or determinable future time) a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

A written order directing that a specified sum of money be paid to a specified person.

Bill of ExchangeShort-term negotiable financial instrument consisting of a written order addressed by the seller of goods to the buyer requiring the latter to pay a certain sum of money on demand or at a future time. Bills of exchange are often used in international transactions, and the holder of such a bill may redeem it in cash immediately by selling it to a bank at a discount. Bills of exchange used in domestic transactions are sometimes called drafts.Bill of ExchangeA three-party negotiable instrument in which the first party, the drawer, presents an order for the payment of a sum certain on a second party, the drawee, for payment to a third party, the payee, on demand or at a fixed future date.A bill of exchange is distinguishable from a promissory note, since it does not contain a promise and the drawer does not expressly pledge to pay it. It is similar to a note, however, since it is payable either on demand or at a specific time.The terms bill of exchange and draft are synonymous; however, the former is generally used in international law, whereas the latter is used in the Uniform Commercial Code.

Bill of ExchangeBills of exchange are similar to checks and promissory notes. They can be drawn by individuals or banks and are generally transferable by endorsements. The difference between a promissory note and a bill of exchange is that this product is transferable and can bind one party to pay a third party that was not involved in its creation. If these bills are issued by a bank, they can be referred to as bank drafts. If they are issued by individuals, they can be referred to as trade drafts.Bill of ExchangeA bill of exchange is essentially an order made by one person to another to pay money to a third person. A bill of exchange requires in its inception three partiesthe drawer, the drawee, and the payee. The person who draws the bill is called the drawer. He gives the order to pay money to the third party. The party upon whom the bill is drawn is called the drawee. He is the person to whom the bill is addressed and who is ordered to pay.Bill of ExchangeHe becomes an acceptor when he indicates his willingness to pay the bill. The party in whose favor the bill is drawn or is payable is called the payee. The parties need not all be distinct persons. Thus, the drawer may draw on himself payable to his own order.A bill of exchange may be endorsed by the payee in favour of a third party, who may in turn endorse it to a fourth, and so on indefinitely. The "holder in due course" may claim the amount of the bill against the drawee and all previous endorsers, regardless of any counterclaims that may have disabled the previous payee or endorser from doing so. This is what is meant by saying that a bill is negotiable.

Calculating maturity of bill or note payable so many months after sightIn calculating the date at which a promissory note or bill of exchange, made payable a stated number of months after date or after sight, or after a certain event, is at maturity, the period stated shall be held to terminate on the day of the month which corresponds with the day on which the instrument is dated, or presented for acceptance or sight, or noted for non-acceptance, or pretested for non acceptance, or the event happens, or, where the instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for honor, with the day on which it was so accepted. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month. At sight, on payment, after sight.The expression after sight means, in a promissory note, after presentment for sight, and, in a bill of exchange, after acceptance, or noting for non-acceptance, or protest for non-acceptance.88IllustrationA) A negotiable instrument, dated 29th January, 1878, is made payable at one month after date. The instrument is at maturity on the third day after the 28th February, 1878.Days of grace: Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.IllustrationB) A negotiable instrument, dated 30th August, 1878, is made payable three months after dated. The instrument is at maturity on the 3rd December, 1878.C) A promissory note or bill of exchange, dated 31st August, 1878, is made payable three months after date. The instrument is at maturity on the 3rd December, 1878.Calculating maturity of bill or note payable so many days after date or sight In calculating the date at which a promissory note or bill of exchange made payable a certain number of days after date or after sight or after a certain event is at maturity, the day of the date, or of presentment for acceptance or sight, or of protest for non acceptance, or on which the event happens, shall be excluded.

When the day of maturity is a holidayWhen the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the next preceding business day.AgencyEvery person capable of binding himself or of being bound, by the making, drawing, acceptance or negotiation of a negotiable instrument, may so bind himself or be bound by a duly authorized agent acting in his name, a general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or endorsing bills of exchange so as to bind his principal.An authority to draw bills of exchange does not of itself import an authority to endorse.Sec 28: Liability of agent signing1) Where a person signs a promissory note, bill of exchange or check without adding to his signature words indicating that he signs it as an agent for and on behalf of a principal or in a representative character, he is personally liable thereon but the mere addition to his signature of words describing him as an agent or as filling a representative character does not exempt him from personal liability.2) Notwithstanding anything contained in sub- section (1), any person signing a promissory note, bill of exchange or check for and on behalf of the principal is not liable to a person who induces him to sign upon the belief that the principal alone would be held liable.Transferor by delivery and transfereeWhereas the holder of a negotiable instrument payable to bearer negotiates it by delivery without endorsing it, he is called a transferor by delivery.A transferor by delivery is not liable on the instrument.A transferor by delivery who negotiates a negotiable instrument thereby warrants to his immediate transferee, being a holder for consideration, that the instrument is what it purports to be, that he has a right to transfer it, and that at the time of transfer he is not aware of any defect which renders it valueless. Signature essential to liabilityNo person is liable as maker, drawer, endorser or acceptor of a promissory note, bill of exchange or check who has not signed it as such provided that where a person signs any such instrument in a trade or assumed name he is liable thereon as if he has signed it in his own name.Liability of a drawerThe drawer of a bill of exchange by drawing it engages that on due presentation it shall be accepted and paid according to its tenor, and that if it be dishonored, he will compensate the holder or any endorser who is compelled to pay it; andThe drawer of a cheque by drawing it, engages that in the case of dishonor by the drawee he will compensate the holder provided that the drawer of a bill of exchange is not liable thereon until acceptance in the manner provided by this act.Liability of drawee of check The drawee of a check having sufficient funds of the drawer in his hands properly applicable to the payment of such check must pay the check when duly required so to do, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default.Case ReferencesIf a contract of sale provides that payment is to be made draft or bill drawn on the buyer, the latter is bound to accept the draft or bill on tender of the proper documents. This he must do even though the goods be lost or destroyed at the time the draft is presented or the delivery thereof has become impossible due to war. Case ReferencesThe delivery he is entitled to as against payment of the contract price is not the goods contracted for but their symbol represented by the Bill of Lending or invoice.Where therefore, there has been un acceptance of a bill drawn against certain goods the drawee is bound to pay on due date. The only defense open to him is that the documents were not the proper documents or that they were forged. Only drawee can be the acceptor except in need or for honorNo person except the drawee of a bill of exchange, or all or some of several drawees, or a person named therein as a drawee in case of need, or an acceptor for honor, can bind himself by an acceptance.Liability of endorserIn the absence of a contract to the contrary, the endorser of a negotiable instrument, by endorsing it, engages that on due presentation it shall be accepted and paid according to its tenor and that if it be dishonored he will compensate the holder or subsequent endorser who is compelled to pay it for any loss or damage caused to him by such dishonor.Every endorser after dishonor is liable as upon an instrument payable on demand. Sec-36: Liability of prior parties to holder in due courseEvery prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfiedSec-37: Maker, drawer and acceptor principalsThe maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be. Sec-38: Prior party a principal in respect of each subsequent partyAs between the parties so liable as sureties, each prior party is, in the absence of a contract to the contrary, also liable thereon as a principal debtor in respect of each subsequent party.IllustrationA draws a bill payable to his own order on B who accepts. A afterwards indorses the bill to C, C in D, and D to E. As between E and B. B is the principal debtor, and A, C and D are his sureties. As between E and A, A is the principal debtor, and C and D are his sureties. As between E and C, C is the principal debtor and D is his surety.Sec-40: Discharge of Endorsers LiabilityWhen the holder of a negotiable instrument, without the consent of the endorser, destroys or impairs the endorsers remedy against a prior party, the endorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity. IllustrationA is the holder of a bill of exchange made payable to the order of B, which contains the following endorsements blanks-First endorsement, BSecond Endorsement, Peter Williams.Third endorsement, Wright & Co.Fourth endorsement, John Rosario.This bill A puts in suit against John Rosario and strike out, without John Rosarios consent, the inducements by Peter Williams, and Wright & Co. A is not entitled to recover anything from John Rosario. Difference between Promissory note and Bill of ExchangePromissory note Bill of Exchange It is an unconditional promise to payTwo parties are involved here (a) Drawer, (b) PayeeThe liable person for making payment signs the note to pay and hence there is no need for endorsementMaker of the promissory note is primarily responsible to payThere is no need to issue notice for dishonoring the promissory note

It is an unconditional order to payThree parties are involved here, (a) Drawer, (b) Drawee, Payee3) It needs endorsement in maximum cases except one or two cases.4) Here maker is responsible if drawee dishonors bill of exchange and abstain from making payment to the payee.5) Here notice is issued to dishonor the bill of exchange. In case of dishonor and payment held up, responsible persons to be notified through Notary Public. Difference between Promissory note and Bill of Exchange Promissory note Bill of Exchange 6) There is no days of grace in promissory note7) If makers of promissory note are more than one, they are jointly and Individually responsible8) Promissory note is unconditional9) It is made one copy10) Promissory note is payable as soon as demanded11)Probe is not necessary for dishonor.12) After dishonor, legal action can be started without notice. 6) For calculation of maturity of bill of exchange, three days grace period is allowed.7) If bill of exchange is acknowledged by more than one, then all will be held liable to pay8) It may be accepted subject to conditions9) It is made three copies10) It needs to be submitted for payment 11) Probe is necessary after dishonor. In absence of probe, legal action can not be taken12) After dishonor of the bill of exchange, legal action can not be started without notice. Legal Environment of BusinessLaw ofSale of Goods and Hire PurchaseShort title, extent and commencementThis act may be called the Sale of Goods Act, 1930It extends to the whole of India.It shall come into force on the first day of July, 1930DefinitionsSec 2(1)-Buyer: means a person who buys or agrees to buy goods;Sec 2(2)-Delivery: means voluntary transfer of possession from one person to another.Sec 2(3)-Goods are said to be in a deliverable state when they are in such state the buyer would under the contract be bound to take delivery of them;DefinitionsSec 2(4)-Documents of title to goods includes:1) A bill of lading;2) Dock warrant;3) Warehouse-keepers certificate;4) Railway receipt;5) Warrant of order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented;

DefinitionsRailway Receipt: A railway receipt is a document of title, within the definition of the term in Section 2(4), Sale of Goods Act, and enables the person mentioned as consignee to give a valid discharge in respect of the goods to which it relates. Hence, a consignee of goods or an endorsee of a railway receipt though he be an agent of the consignor has sufficient interest in the goods to file a suit against the railway. Bill of LadingA legal document betweenthe shipper of a particular good and the carrier detailing the type, quantity and destination of thegood being carried.The bill of lading alsoserves as a receipt of shipment when the good is delivered to the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.

Explains 'Bill Of Lading'

For example, suppose that a logistics company must transport gasoline from a plant in Texas to a gas station in Arizona via heavy truck.A plant representative and the driverwould sign the bill of lading after the gasis loaded onto the truck.Once the gasoline is delivered to the gas station in Arizona, the truck drivermust have the clerk at the station sign the document as well.

DefinitionsSec 2(6)-Future goods means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale. Where contracts of sale were finalized at Dhaka and specific goods were to be manufactured at Tongi in pursuance of those contracts, it was held that goods were future goods within the meaning of Section 2(6);DefinitionsSec 2(7)-Goods means every kind of movable property other than actionable claims and money and includes:a) stocks and shares;b) growing crops;c) grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; DefinitionsStanding timber is movable property if under the contract of sale they (the trees) are to be severed. But the severance must take place when the timber still vests in the contracting party. Hence trees which are to be severed before sale or under the contract of sale are goods for the purpose of the sale of goods act.DefinitionsThe expression goods at all relevant times standing timber agreed to be severed before sale or under the contract of sale.Bamboos and timber are goods.Lottery tickets are goods and not actionable claims within the meaning of Section 2(7) of the act.DefinitionsSec. 2(8)-A person is said to be insolvent who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not;Sec 2(9)- mercantile agent means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods;

DefinitionsSec. 2(10)-Price means the money consideration for a sale of goods;Sec. 2(11)-Property means the general property in goods, and not merely a special property;Sec. 2(12)-Quality of goods includes their state or condition;Sec.2(13)-seller means a person who sells or agrees to sell goods;Formation of the Contract4.Sale and agreement to sell:4(1)A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for price. There may be a contract of sale between one part-owner and another.4(2) A contract of sale may be absolute or conditional.Formation of the Contract4(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. Formation of the Contract4(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.Sale is defined as: A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.Essentials of contract of sale It is contract, i.e. all requirements of contract must be fulfilled ; It is of goods; Transfer of property is required; Contract is between buyer and seller;Sale should be for price; A part owner can sale his part to another part-owner; Contract may be absolute or conditional;How Contract of sale is madeA contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer.The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by installments, or that the delivery or payment or both shall be postponed. How Contract of sale is madeSubject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the parties. [section 5(2)]. Thus, credit sale is also a sale. - - A verbal contract or contract by conduct of parties is valid. e.g. putting goods in basket in super market or taking food in a hotel.Two parties to contract Two parties are required for contract. - - Buyer means a person who buys or agrees to buy goods. [section 2(1)]. Seller means a person who sells or agrees to sell goods. [section 2(13)]. A part owner can sale his part to another part-owner. However, if joint owners distribute property among themselves as per mutual agreement, it is not sale as there are no two parties. Contract of Sale includes agreement to sale Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. Contract of Sale includes agreement to sale section 4(3)]. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. section 4(4). The provision that contract of sale includes agreement to sale is only for the purposes of rights and liabilities under Sale of Goods Act and not to determine liability of sales tax, which arises only when actual sale takes place.Transfer of property Property means the general property in goods, and not merely a special property. [section 2(11)]. In laymans terms property means ownership. General Property means full ownership. Thus, transfer of general property is required to constitute a sale. If goods are given for hire, lease, hire purchase or pledge, general property is not transferred and hence it is not a sale. Possession and property Note that property and possession are not synonymous. Transfer of possession does not mean transfer of property. e.g. - if goods are handed over to transporter or godown keeper, possession is transferred but property remains with owner. Similarly, if goods remain in possession of seller after sale transaction is over, the possession is with seller, but property is with buyer.Essentials of SaleBilateral Contract: A contract of sale, like any other contract, is a consensual act inasmuch as the parties are at liberty to settle for themselves the terms of their bargain. A sale has to be bilateral because the property in goods has to pass from one person to another. Hence, it is essential that seller and buyer must be different persons. Because a person can not buy his own goods. Case Example next slideBilateral Contract(Case Example-1)A case before the Gujarat High court:A partnership firm was dissolved and the surplus assets, including some goods, were divided among the partners in specie. Sales tax officer sought to tax this.Rejecting the contention of the state, Gujarat High Court said: They (partners) were themselves the joint owners of the goods and they could not be both sellers and buyers. Moreover, no money consideration was promised or paid by any partner to the firm as consideration for the goods allotted to him.

Bilateral Contract(Case Example-2)Graff Vs Evans:The accused was the manager of a club. The club was not licensed for the sale of intoxicating liquors, but these were supplied by the manager to the members at fixed prices.This was held to be not a sale within the meaning of licensing Acts. It was merely a distribution of the liquors among the members, they being the joint owners of the club. But if the club were an incorporated body, the result would perhaps have been different. Bilateral Contract(Case Example-2Thus where a company passed a resolution transferring a number of buses to a partnership consisting a certain persons who were also the members of the company, this was held to be a sale, the company being a separate legal person. No one can sale his goods to himself. A sale contemplates a seller and a purchaser. If a person revalues his goods and shows a higher value for them in his books of accounts, he can not be considered as having sold the goods and made profits there from. There may be a contract of sale between one part-owner and another. Similarly, a partner may sell to the firm and vice versa. Where a mans goods are sold under an execution, he may himself buy them. Bilateral Contract(Case Example-2A sale is said to be consensual because it is necessary that the parties should agree with their free consent. A forced purchase or procurement is an acquisition and not a sale. Where the control order leaves some scope for consent it may be a sale. Thus, where a sugar manufacturer is told to sell only a stated prices and to stated customers, it is a sale, because the buyers to whom this privilege is given are still free to buy or not.Bilateral Contract(Case Example-2A sale is always a consensual transaction. There must be mutual assent, in the objective sense in which this expression is always understood in the law of contract, to all the elements which make up a sale. The seller must agree to transfer the property and the buyer to take it, and they must agree to do so in return for money which is paid and received as the price of the goods. When the consent of the parties does not extend so far, or does not exist at all, there is no sale. Such transactions or events are sometimes termed as quasi-contracts of sale or implied contract of sale. Bilateral Contract(Case Example-2Compulsory acquisition: Where property is compulsorily acquired pursuant to an authority conferred by statute there is no sale of the property, even though compensation is payable and its amount may be fixed by negotiation between the parties. The expression compulsory purchase commonly used in this connection is misleading.Bilateral Contract(Case Example-2Where drugs or appliances were supplied to a member of the public under national health service scheme, whether by a hospital or a pharmacist, and although for a charge, holding this to be not a sale.There is no sale in this case. Sale is a consensual contract requiring agreement, express or implied. In the present case there is no need for any agreement. The patient has a statutory right to demand the drug on payment. The hospital has a statutory obligation to supply it on such payment. Bilateral Contract(Case Example-2And if the prescription is presented to a chemist he appears to be bound by his contract with the appropriate authority to supply the drug on receipt of such payment. There is no need for an agreement between the patient and either the hospital or the chemist and there is certainly no room for bargaining.Bilateral Contract(Case Example-2On the same reasoning, the supply of electricity, gas or water by a public authority is not a sale of such commodities, so that, independently of any question whether the goods is appropriate, the Sale of Goods Act does not apply. There is no contractual obligation on which an action may be brought against the authority for failure to make the supply available or to provide a supply fit for the purpose of the consumer. Whether such an action will lie under the statute depends upon its terms. A remedy may also be available in negligence. Bilateral Contract(Case Example-2Where wheat was supplied by millers by a Government Authority (Food Department) for milling and to sell at prescribed rates, it was held that ownership rights were not vested in the millers. They did not become owners of the material. They were bound to hand over the profit made on resale of wheat at increased prices.Money ConsiderationThe consideration for a sale of goods must be money, called the price. Where the property in goods is transferred for any consideration other than money that will not be sale, but will exchange of barter. In other words, where goods are exchanged for goods, that is not a sale. But where goods are sold for a definite sum of price is paid partly in terms of valued up goods and partly in cash, that is sale. For example, in Aldridge Vs Johnson.Money ConsiderationFifty-two bullocks, valued $ 6 a piece, were exchanged for 100 quarters of barley at $ 2 per quarter, the difference to be made up in cash, the contract was treated as one of sale. Similarly, where corn was delivered on terms that on demand either the price would be paid or an equal quantity of corn would be returned, that was held to be sale.Money ConsiderationWhere an old car is returned to the dealer for a new one and the difference is paid in cash, that should also be a sale.Where a petroleum company distributed coins on special curiosity, but with no money or intrinsic value, free with every four gallons of oil, it was not a contract of sale, since the consideration for the transfer of the coins was not a money payment, but the undertaking by the customer to enter a collateral contract to purchase the appropriate quantity of ESSO petrol.Sale of Contract for Work and MaterialDistinguish between a contract for the sale of goods and contract for work and services.If a thing to be delivered has individual existence before delivery as the sole property of the party who is to deliver it, then it is a sale, otherwise not;If the main object of the contract is the transfer from A to B, for a price, of the property in a thing in which it had no previous property, then it is a contract of sale; Distinguish between a contract for the sale of goods and contract for work and services.

c) A contract for sale is a contract whose main object is the transfer of the property in and the delivery of the procession of a chattel (any tangible movable property), as the chattel to the buyer. Where the main object of the work undertaken by the payee of the price is not the transfer of chattel, the contract is one for work and labor.

Distinguish between a contract for sale of goods and contract for work and services The test is whether or not the work and labor bestowed end in anything that can properly become the subject of sale, neither the ownership of materials nor the value of the skill and labor as compared with the value of materials is conclusive although such matters may be taken into consideration in determining , in the circumstances of a particular case, whether the contract is in substance one for work and labor or for sale of a chattel.Sale of Contract for Work and MaterialA lady engaged a dentist to make two sets of false teeth to be fitted into her mouth. Before the work could be completed the lady died. In the doctors action to recover his charges the contract was held to be one of sale.The court emphasized that we should see the end of the transaction. If the result of a transaction is the passing of an article for a price it is a sale. Sale of Contract for Work and MaterialRobinson Vs gravesThe defendant orally commissioned the plaintiff, an artist, to paint the portrait of a lady, and subsequently repudiated the contract before the portrait was completed. In an action by the plaintiff for the agreed price, it was held to be a contract of work and labor. The painter recovered. Sale of Contract for Work and MaterialRobinson Vs gravesThe court said: In such cases the proper test is to see whether work is of the essence of the contract. In cases of work of art, whether in gold, silver, marble or plaster, where the application of skill and labor is of the highest description, the material is of no importance as compared to labor, the price may be recovered as for work and labor.Sale of Contract for Work and MaterialA hotel company which provides residence and food, making a consolidated charge for both the services and makes no rebate if food is not taken by a particular customer, does not make a sale of food. The position is akin to that of a steamship or airline company which serves food to passengers. The decision of the Punjab High Court as already approved by the Supreme Court, has now been extended to the service of food in restaurants also. Sale of Contract for Work and MaterialThe supply of meals, whether to residents or stray customers, is essentially in the nature of service and not a transaction of sale. The customers come here not to buy food and drinks but to find bodily satisfaction that service of food in the setting of a restaurant can afford to give. But even so, it has been held that where a meal is supplied to a customer in a restaurant there is a sale of goods, the element of service being subsidiary; but it is submitted that a meal supplied to a lodger or a resident hotel guest is part of a contract of services.GoodsThe subject matter of the contract must be goods. The expression goods as thus defined in Section 2(7) of the act:Goods means every kind of movable property other than actionable claims (giving cause for legal action) and money: and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.GoodsThus goods include every kind of movable property other than actionable claims and money. Things like goodwill, copyright, trade mark, patent, water, oil, air, gas, electricity, motor vehicles and ships are all goods and may be subject of a contract of sale. Sale of a lottery tickets has been held to be sale of goods.GoodsLetting out advertisement hoardings has been held to have the effect of handling of goods for purposes of commercial tax. Things attached to or forming part of land may be sold as goods provided they are agreed to be severed under the contract.Standing trees may be sold as goods if they are to be removed within a reasonable time.GoodsA decree can also be sold as goods.Sugarcane supplied to a sugar factory is goods within the meaning of sale of goods act.Goods also include shares and stock.Sale of software is a sale of goods. A contract to supply a program on a disk is a sale of goods if the supplier is selling the disk to the buyer.Hire PurchaseHire-purchase system is a special system of purchase and sale of goods. Under this system purchaser pays the price of the goods in installments. The installments may be annual, six monthly, quarterly, monthly fortnightly etc. Under this system the goods are delivered to the purchaser at the time of agreement before the payment of installments but the title on the goods is transferred after the payment of all installments as per the hire-purchase agreement.Hire PurchaseThe special feature of a hire-purchase transaction is that the payment of every installment is treated as the payment of hire charges by the purchaser to the hire vendor till the payment of the last installment. After the payment of the last installment, the amount of various installments paid is appropriated towards the payment of the price of the goods sold and the ownership or the goods is transferred to the purchaser. Thus hire-purchase means a transaction where the goods are sold by vendor to the purchaser under the following conditions:Hire PurchaseThe goods will be delivered to the purchaser at the time of agreement.The purchaser has a right to use the goods delivered.The price of the goods will be paid in installments.Every installment will be treated to be the hire charges of the goods which is being used by the purchaser.If all installments are paid as per the terms of agreement , the title of the goods is transferred by vendor to the purchaser.If there is a default in the payment of any of the installments, the vendor will take away the goods from the possession of the purchaser without refunding him any amount received earlier in the form of various installments.

Hire PurchaseUsually every hire-purchase agreement shall contain the following terms:The cash price of the goods, cash price means the price at which goods may be purchased against cash payment.The hire-purchase price, hire purchase price means the total amount which is payable by the hire-purchaser under the agreement.The date on which the hire-purchase agreement will commence.The description of the goods that will be delivered to the hire-purchaser at the commencement of the agreement.Hire PurchaseThe number of installments to be paid by the hire-purchaser along with the amount of each installment and the date of payment of each installment.The down payment (a partial payment made at the time of purchase, with the balance to be paid later) if any, the down payment means the amount which is required to be paid by hire-purchaser to the hire vendor at the time of commencement of hire-purchase agreement.The rate interest charged by the hire vendor (optional).

Characteristics of Hire-Purchase SystemHire-purchase is a credit purchase.The price under hire-purchase system is paid in installments.The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.Hire vendor continues to be the owner of the goods till the payment of last installment.The hire-purchaser has a right to use the goods as a bailer.Characteristics of Hire-Purchase SystemThe hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer.The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement.If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.

Example of hire purchaseThe appellant (The party who appeals a decision of a lower court) company, a financing firm, carried on the business of advancing money by entering into hire purchase agreements with those willing to buy motor vehicles. The appellant paid the price to the dealer and the car was handed over to the hirer. The later paid the price by monthly installments. He has the option to determine the agreement at any time by paying rent up-to-date and returning the motor vehicle. Difference between sale and hire purchaseThe essence of a sale is that the property is transferred from the seller to the buyer for a price, whether paid at once or paid later in installments. On the other hand, a hire purchase agreement, as its very nature implies, has two aspects. There is first an aspect of bailment (The act of delivering goods or personal property to another in trust) of goods subjected to hire purchase agreement, and there is next, an element of sale which fructifies (to make fruitful or productive) when the option to purchase is exercised by the intending purchaserDifference between sale and hire purchaseThus the intending purchaser is known as the hirer so long as the option to purchase is not exercised. The essence of the agreement is that the property in the goods does not pass at the time of agreement but remains in the intending seller, and only passes later when the option is exercised by the intending purchaser. When the hirer does not have the option to return, it will be an agreement to buy and not a hire purchase, even if the price is payable in installments and the seller has the option, on default, either to seize the goods or to sue the buyer for the price.

ExampleA lady hired certain furniture from the plaintiff, the price to be paid in two installments. The plaintiff had the right to take back the furniture if an installment was not paid. Before the last installment was paid, the lady sold the furniture to the defendant. It was held that the defendant had acquired a good title, the lady being in possession of the furniture under an agreement to buy. She did not have the option to return, but was compelled to buy.A hire purchase agreement confers two distinct sets of right on the hirer, namely: The right to use the goods and the option to purchase. Both the rights are capable of joint as well as separate assignment. The hirer may be prohibited from selling away the goods or pledging them but he can not be prohibited from assigning his rights.

The assignee of such rights becomes a trustee of the goods for the hirer. It is his duty to protect the goods and if he allows the owner to wrongfully seize the goods and buys them himself from the owner, he is liable to the hirer for his loss. Legal Environment of BusinessCompany LawHistory of Modern Company Law

The history ofmodern company lawin England beganin1844 when the Joint Stock Companies Act was passed.The Act provided for the first timethat acompany could be incorporated by registration without obtaining a Royal Charter orsanction by a special Act of ParliamentThe office of the Registrar of Joint Stock Companies was also created. But theAct denied to the members the facility of limited liabilityJoint Stock Company: A company (usually unincorporated) which has the capital of its members pooled in a common fund; transferable shares represent ownership interest; shareholders are legally liable for all debts of the companyHistory of Modern Company LawThe English Parliament in 1855 passed the Limited Liability Act providing for limited liability to the members of a registered company.The act of 1844 was superseded by acomprehensive Act of 1856,which markedthe beginning of a new era incompanylaw in England. This Act introduced the modern mode of creating companies by means of memorandum and articles of associations.

IntroductionThe word Company' is an amalgamation of the Latin word 'Com meaning with or together" and 'Pains' meaning "bread. Originally, it referred to a group of personswho took their meals together. A company is nothing but agroup of personswhohave come together or who have contributed money for some common person and who have incorporated themselves into a distinct legal entity in the form of a company for that purpose.

IllegalAssociationUnder the Companies Act, 1956, not more than 10 persons can come together for carrying on anybanking business and not more than 20 persons can come together for carrying on any other of business, unless the association is registered under the Companies Act or any other Indian law. Any association which does not comply with the above norms is an illegal association. Therefore, a partnership of more than 10 or 20 members, as the case may be, is an illegal association unless they registered under the Companies Act or any other Indian law.

What is Private CompanyPrivate Company meansacompanywhichhasaminimumpaid upcapitalofonelakh rupees orsuchhigherpaidup capital as may be prescribed, and by its Articles-(a)restricts the right to transfer itsshares,ifany(b) limits the number of its members to fifty not including(i) persons who are not in theemployment of the company;(ii)personswho,havingbeenformerlyinthe employmentofthecompany,weremembersofthe companywhileinthatemploymentceased,and(c) prohibits any invitationto the publicto subscribe for anysharesin, ordebentures of,the company;(d) prohibits any invitationor acceptanceof deposits from persons other than its members, directors or their relatives.

What is a PublicCompany?Public Company means a company which(a) is not a private company;(b) has a minimum paid up capital of five lakh rupees/such higher paid up capital, as may be prescribed;is a private company which is a subsidiary of a company which is not a private company.

Distinction between Private Company and Public Company 1.MinimumCapital in case of PrivateCompany, minimum Rs.1 lakh and in caseof PublicCompany,minimumpaid upcapitalofRs.5 lakh.2.Minimumnumber Twoin caseof PrivateCompanyand sevenin caseofpublic company.3.Maximumnumber In case of Private Company 50 and there is no limit incase of Public Co.Distinction between Private Company and Public Company4.Number ofDirectors [Sec.252]Minimum two in case of Private Co. and minimum three incase of Public Company.5.Restriction on appointment of directors [Sec.266]To becomea director of publiccompany, suchpersons haveto agree to buy qualification shares and file a copy of consent with the Registrar of Companies giving their willingness to become director of public company.6.Restriction on invitation to subscribe for shares A public Co. can invite the general public to subscribe for companys shares but not private company.

Distinction between Private Company and Public Company7.Transfer[Sec.82] Public companys shares are transferable but not private companys shares.8.Special Privileges: A private company enjoys some special privileges but not a public company.9.Quorum[Sec.174] If the Articles of Association do not provide fora greater quorum, then five members personally presentis aquorum for public company. Itis two in case of private company.10.ManagerialRemuneration[Sec.198].Totalmanagerialremunerationcannotexceed11%ofitsnetprofitincase of public company , but there is no such restriction in case ofpublic company.

Formation of CompanyDocuments to befiled with the Registrar:1. Memorandum dulysigned by the subscriber.2. The Articles of Association, if any, signed by the subscribers to the Memorandum of Association. A pubic company limited by shares need not have its own Articles of Association.

3.The agreement if any, which the company proposes to enter with any individual for appointment as its managing or whole time director or manager

Formation of CompanyA list ofdirectors who have agreed to becomethefirstdirectors of the company(this applies to a public company limited by shares) and heirwritten consent to act asdirectorsand take up qualification shares.A declaration stating that allthe requirements of the Companies Act and other formalities relating to registration have beencompliedwith.

Formation of CompanySuch a declaration shall be signed by any of the following persons;l.Advocate ofHighCourtorSupremeCourt,or2.A secretary or a CharteredAccountant in whole practiceorengagedintheformationofa company, or3. A person named in the Articles asDirector, Manager or Secretary of the company, or4. An attorneyor a pleader who is eligibleto appear High Court[Sec33(2)], within30 days of the date ofincorporation of the company, a notice of the situation of Registered Office address shall be given to the Registrar who shall record the same [Sec.146].

Memorandum of AssociationMeaning:It contains the fundamental conditions upon which alone the company is allowed to be incorporated.Italsoregulatesthe externalaffairsof thecompany in relation to outsiders.

Its purpose is to enable shareholders and those who dealwiththe companyto knowwhatits permitted range of activities are.

Purpose of Memorandum of Association1.The prospective shareholders shall know the field in, or thepurpose for, which their money is going to beused by the company and what risk they are undertaking in making investment.2.The outsiders dealing with thecompany shall know with certainty as to whatthe objects of the companyare and as to whether the contractual relation in to which they contemplate toenter the company.

PrintingandsigningofMemorandumMA of a company shall be-(a) printed,(b) divided in toparagraphs numbered consecutively, & signed by 7 (2 incase of private co.) subscribersEach subscriber shall sign (and add his address, description and occupation,if any) inthe presence of of at least 1witness who shall attest the signature and shall likewise add his address, description and occupation, if any.

Contents of Memorandum of Association1.Name Clause2.Registered Office AddressClause3.Objects Clause4.The Capital Clause5.The Liability Clause6.The Association Clause

Incorporating benefitsIncorporating has many benefits for business owners. That is why incorporating is a crucial step to make to take your entrepreneurship to the next level. Main benefits of incorporating a business are Tax Advantages and Legal Protection. The main tax advantage is that the owners get to pay company's expenses before the taxes. Here's income and resulting assets schema before and after incorporating

Incorporating has many benefits for business owners. That is why incorporating is a crucial step to make to take your entrepreneurship to the next level.Main benefits of incorporating a business areTax AdvantagesandLegal Protection. The main tax advantage is that the owners get to pay company's expensesbefore the taxes. Here's income and resulting assets schema before and after incorporating:

Assets Before Incorporating.IncomeLiabilitiesTaxesAssetsAssets After IncorporatingIncomeLiabilitiesAssetsTaxesCorporations and LLCs provide limited liability protection to its owners. Typically the owners are not personally responsible for the debts of the business, thus creditors cannot pursue owners personal assets - such as a house or a car to pay business debts.Other reasons on why incorporate are:to establish credibilityto extend life of the business beyond the owner'sto transfer ownershipto raise capital

Articles of Association:

The rules regarding the company's internal affairs are prescribed in this document. The subscribers signed the company's articles in front of the witness which are ultimately delivering to the registrar. These witnesses also attest the signatures.The articles of association of a registered company are its main constitutional documents.Typically a company's articles will contain regulations covering the following areas, together with many more minor matters:Directors powers and responsibilities, directors meetings, appointing and removing directors, directors remuneration, types of shares, issuing shares, share certificates, share transfers, paying dividends, organisation of general meetings, such as notice of meetings, voting rights and proxies right to speak, quorum, etc. Most companies' articles are based on standard documents, either Table A (companies registered before 1st. October 2009) or the Model Articles (after that date). CONTENTS OF THE ARTICLESShare allotmentsShare transfersGeneral meetingsBoard meetingsAppointment and removal of directors