business law (completed)

Meaning and Nature of Law

What is Law ?

Law means those rules and regulations which are binding on us and there is a sanction if we do not obey law.

Law is those rules of conduct recognised by the state and enforced on the people.

Characteristics of Law

a) It is a body of rules.

b) It is made by the state.

c) It is enforced.

d) It regulates human conducts.

e) It is imposed.

f) Content of law is not static but dynamic


Objects of Law

a) To maintain order

b) To establish socio-economic justices

c) Vehicle of social change

d) Harbinger of social justice.

e) To regulate human conduct

f) To regulate business relations.

g) Promote a welfare state.


Need for knowledge of Law

Ignorantia juris non excusat

(ignorance of law is no excuse)

Basic foundations of Law

1. No one is above Law

2. All are equal before law

3. Law is not static, it is dynamic

Business Law

Law is like a tree which has several branches.

Civil Law, Criminal Law, Industrial Law, Constitutional Law, Tax Law, Business Law/ Mercantile Law/ Commercial Law.

Business Law consists of those rules which are connected with trade, industry and commerce.

It is that law which deals with mercantile transactions, contractual relations and the mutual rights and obligations arising out of mercantile transactions between mercantile persons.

Sources of Mercantile Law

1) English Mercantile Law.

a. Common law

b. Equity

c. Statute law

d. Lex mercatoria / Law Merchant

e. Roman Law

f. Case Law

2) Customs and usages

3) Judicial decisions / precedents

4) Legislation.

NATURE OF CONTRACT

DEFINITION OF CONTRACT

A contract is an agreement made between two or more parties which the law will enforce. According to Sec. 2 (h), a contract is an agreement enforceable by law. An agreement comes into existence by the process of offer by one party and its unqualified acceptance by the other party.

The parties who enter into an agreement must agree upon the subject-matter in the same sense and at the same time, i.e., there must be consensus ad idem.

An agreement may be a social agreement or a legal agreement. A social agreement is that which does not give rise to legal consequences. In case of its breach the parties cannot go to the Law Court to enforce a right. A legal agreement is that which gives rise to legal consequences and remedies inthe Law Court in case of its breach.

ESSENTIALS OF CONTRACT

1. There must be an agreement. This involves two parties, one party making the offer and the other party accepting it.

2. The parties must intend to create legal relationship.

3. The parties must be capable of entering into an agreement as regards age and understanding.

4. The agreement must be supported by consideration on both sides.

5. The consent of the parties must be free and genuine.

6. The object of the agreement must be lawful.

7. The terms of the agreement must be certain

and capable of performance.

8. The agreement must not have been expressly

declared as void.

CLASSIFICATION OF CONTRACT

Void agreement – an agreement not enforceable by law [Sec.2(g)]

Void contract – a contract which ceases to be enforceable by law [Sec.2(f)]

Voidable Contract – a contract which is enforceable by law at the option of one party thereto, but not at the option of the other [Sec.2(i)]Illegal Agreement – an agreement which involves the transgression of some rule of basic public policy and is criminal in nature or immoral. It is not only void as between the immediate parties but it also taints the collateral transactions with illegality.

Express contract – a contract is which the terms are stated in words (written or spoken) by the parties.Implied contract – a contract which is inferred from the circumstances of the case or from theconduct of the parties.

Cont……d

CLASSIFICATION OF CONTRACT (Cont….d)

Quasi-contract – an obligation created by law, regardless of agreement.

Executed contract – a contract which is wholly performed by both the parties.

Executory contract – a contract in which the promises of both the parties have yet to be performed.

Partly executory, partly executed – a contract in which one party has performed his obligation, but the other party has yet to perform his obligation.

Unilateral contract – a contract in which only one party has yet to perform his obligation.

Bilateral contract – a contract in which both the parties have yet to perform their obligations.

OFFER & ACCEPTANCE

OFFER

An offer is an undertaking by the offeror to be contractually bound in the event of a proper acceptance of the offer by the oferee. It may be made by express words spoken or written, or it may be implied when it is inferred from the conduct of the offeror or from the circumstances of the case. It is specific when it is made to a particular person, and general when it is made to the world at large. In the former case, it is called a specific offer; in the latter case, it is called a general offer.

Legal Rules as to Offer

1. It must be intended to create legal relations.

2. It must be certain.

3. It must be distinguished from

a) A declaration of intention, and

b) and invitation to make offer.

4. It must be communicated to the offeree.

5. It must be made with a view to obtaining the assent of the offeree.

6. It must not contain a term the non-compliance of which would amount to acceptance.

7. A statement of price is not an offer.

Lapse of Offer

An offer lapses or comes to an end -

1. By communication of notice of termination of offer to the offeree.

2. By lapse of the specified or reasonable time.

3. By death or insanity of the offeror.

4. By a counter-offer. Counter-offer is an offer to the original offer.

5. By not being accepted according to the prescribed or usual mode.

6. By non-fulfillment of a condition precedent.

Communication of Offer, Acceptance and Revocation

The communication of a proposal (offer) is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete – as against the purposer when it is put into a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer. The communication of a revocation is complete – 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 be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge (Sec. 4).

Special terms of offer.

These must be brought to the notice of the other party before the acceptance of the offer, otherwise the acceptor will not be bound by such terms. Where the acceptor knows that there are some special terms, and his attention is drawn to them, he is bound by them if he accepts the offer.

Contract by Telephone or Telex

It has the same effect as an oral agreement entered into between the parties when they are face to face.

OFFER & ACCEPTANCEACCEPTANCE

Legal Rules as to Acceptance

1. It must be absolute and unqualified.

2. It must be communicated to the offeror.

3. It must be according to the prescribed or usual mode.

4. It must be given within the prescribed or reasonable time.

5. It must be given by the specific person to whom the offer is made. If the offer is general, it may be accepted by any person.

6. It must show an intention to fulfil the promise.

7. It cannot precede an offer.

8. It must be given before the offer lapses.

9. Mental acceptance is no acceptance.

Effect of silence on acceptance

The acceptance of an offer cannot be implied from the silence of the offeree unless the offeree has by his previous conduct indicated that his silence means that he accepts.

Acceptance subject to contract

An acceptance subject to contract means that the parties do not intend to be bound until a formal contract is prepared and signed by them.

Agreement to agree in futureIf the parties have not agreed upon the terms of theiragreement but have agreed to agree in future, there is no contract.

CONSIDERATION

Consideration means something in return. It is the price for which the promise of the other is bought. It must result in a benefit to the promisor and / or a detriment to the promisee or both. Sec. 2 (d) defines it as follows:

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

Legal rules as to consideration

• It is essential to support every contract.

• It must move at the desire of the promisor.

• It may move from the promisee or any other person.

• It may be past, present or future.

• It need not be adequate.

• It must be real and not illusory.

• It must not be something which the promisor is already legally or contractually bound to do.

• It must not be illegal, immoral or opposed to public policy.

Stranger to contract

The general rule is that a stranger to a contract cannot sue. But he may sue where -

1. a trust or charge is created in some specific immovable property in favour of him;

2. a provision is made in a marriage settlement, partition or family arrangement for his benefit;

3. there is an acknowledgement of a liability by the promisor or the promisor constitutes himself as agent;

4. he is the assignee of rights and benefits under

involving personal skill;

5. he enters into a contract through an agent; and

6. there are covenants running with the land.

An agreement made without consideration is void [Sec. 25]The following are the exceptions to this rule, i.e., no consideration is required in case of -

1. A written and registered agreement based on natural love and affection between parties standing in a near relation to each other [Sec. 25 (1)];

2. A promise to compensate, wholly or a part, a person who has already voluntarily done something for the promisor [Sec. 25(2)];

3. A promise by a debtor to pay a time-barred debt if it is made in writing and is signed by the debtor or by

his agent [Sec. 25(3)];

4. An agency [Sec. 185];

5. A complete gift [Expl. 1 to Sec. 25]

CAPACITY TO CONTRACT

Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject (Sec. 11)

1.MinorA minor is a person who has not completed eighteen years of age. But where a guardian has been appointed to a minor under the Guardians and Wards Act or where a minoris under the guardianship of the Court of Wards, he attains majority at the age of twenty-one. The positions as regards his agreements is as follows:

Cont……d

1) His agreement is altogether void and inoperative.2) He can be a promisee or a beneficiary in a contract.3) His estate is liable for the necessary goods supplied or necessary

services rendered to him or to anyone whom he is legally bound to support or for money lent to him to buy necessaries.

4) He may enter into contracts of apprenticeship, service, education and instruction provided these are beneficial to him.

5) He can be an agent.

Cont……d

6) He cannot be a partner. But he can be admitted to the benefits of an already existing partnership with the consent of the other partners.

7) If he has received any benefit under a void agreement, he cannot be asked to compensate or pay for it.

8) The court never orders specific performance of his agreements.9) He can always plead minority and is not estopped from doing so

even when he enters into an agreement by falsely misrepresenting his age.

10) He cannot be adjudged insolvent.

2. Persons of unsound mindLunatics. A lunatic can enter into a contract when he is of sound mind.

Idiots. An agreement of an idiot like that of a minor is altogether void.

Drunken or Intoxicated persons. Their position is similar to that of lunatics.

These persons, like a minor, are liable for necessaries supplied to them or their minor dependants.

3. Other persons.Alten enemies. During the war an Indian citizen cannot enter into a contract with a alien enemy. Contracts made before the war are either suspended or dissolved.

Foreign sovereigns and accredited representatives of a foreign state. They can enter into contracts and enforce these contracts in our Courts. But they cannot be sued in our Courts without the prior sanction of the Central Government.

Corporations. The contractual capacity of a statutory corporation is limited by the Statute governing it. As regards a company registered under the Companies Act, 1956, its contractual capacity is regulated by its Memorandum of Association and the Companies Act, 1956.

Insolvents. When a debtor is adjudged insolvent heis deprived of his power to deal in his property divisible

among his creditors.

Convicts. A Convict when undergoing imprisonment is incapable of entering into a contract.

FREE CONSENT

All agreements are contracts if they are made by the free consent of the parties. Two or more persons are said to consent when they agree upon the same thing in the same sense [Sec. 13.] Consent is said to be free when it is not caused by

(i) Coercion, or

(ii) Undue influence, or

(iii) Fraud, or

(iv) Misrepresentation, or

(v) Mistake, subject to the provisions of Secs. 20, 21 and 22.

Effect of agreement without free consent.

When consent to an agreement is caused by coercion, fraud, misrepresentation, or undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused [Secs. 19 and 19-A]

COERCION

“Coercion” is the committing or threatening to commit any act formidden by the Indian Penal Code, 1860 or the unlawful deaining, 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 (Sec. 15).

A threat to commit suicide amounts to coercion.

UNDUE INFLUENCE

A contract is said to be induced by “undue influence” where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other, and uses that position to obtain an unfair advantage over the other. A person is deemed to be in a position to dominate the will of another where he –

Cont……d

(a) Holds real or apparent authority over the other, or

(b) Stands in a fiduciary relation to the other; or

(c) Makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress. Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears to be unconscionable, the burden of providing that such contract was not induced by undue influence lies upon the person in a position to dominate the will of the other (Sec. 16).

Relationships which raise presumption of undue

influence:

• Parent and Child.

• Trustee and Beneficiary.

• Religious Guru and Disciple.

• Guardian and Ward.

• Solicitor and Client

• Doctor and Patient.

• Fiance and Fiancee.

No presumptions of undue influence in the following cases:

1. Husband and Wife.

2. Landlord and Tenant.

3. Creditor and Debtor.

MISREPRESENTATION AND FRAUD

“Misrepresentation is a mis-statement of a material fact made innocently with a honest belief as to its truth or non-disclosure of a material fact, without any intent to deceive the other party.

“Fraud” exists when it is shown that a false representation has been made.

• Knowingly, or

• Without belief in its truth, or

• recklessly, not caring whether it is true or false, and

• the maker intends the other party to act upon it. It also exists when there is a concealment of a material fact.

MISTAKE

Mistake is erroneous belief about something.

It may be a

(1)Mistake of Law, or

(2)Mistake of fact.

Mistake of Law, It may be a

a) Mistake of law of the country, or

b) Mistake of law of a foreign country.

The general rule as regards mistake of law of the country is that ignorance of law is no excuse. Mistake of law of a foreign country is regarded as a mistake of fact.

2. Mistake of Fact, It may be a -

(1) Bilateral mistake. Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void [Sec. 20].

Mistake of Fact (bilateral mistake) may relate to:

a) Subject-matter. Mistake of fact regarding subject-matter may relate to

i. Existence of the subject-matter;ii. Price of the subject-matter;iii. Quantity of the subject-matter;iv. Identity of the subject-matter.v. Quality of the subject-matter, orvi. Title to the subject-matter.

Cont……d

b) Possibility of performance. Mistake of fact may also relate to

i. Physical, orii. Legal, impossibility of performance.

In both these cases, the agreement is void.

2. Mistake of Fact (Cont….d)(2) Unilateral mistake. Where only one of the parties is under a mistake as to a matter of fact, the contract is not

voidable [Sec. 22]. There are however two exceptions to this rule.

(i) Identity of the person contracted with. If A intends to enter into a contract with B. C cannot give himself any right in respect of the contract by accepting the offer. In such a case the contract is void.

(ii) Nature of contract. Where a person is made to enter into a contract through the inducement of another but through no fault of his own, there is a

mistake as to the nature of the contract, and the contract is void.

LEGALITY OF OBJECT

An agreement is a contract if it is made for a lawful consideration and with a lawful object. [Sec. 10].

Every agreement of which the object or consideration is unlawful is void. The consideration or object of an agreement is unlawful if – it is forbidden by law; or it is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy (Sec. 23).

Effects of illegality.

No action is allowed on an illegal agreement.

This rule is based on the following two maxims:

(1) No action arises from a base cause.

(2) Where there is equal guilt, the defendant is in a better position.

The effect of illegality are summed up as follows:

(1) The collateral transactions to an illegal agreement also become tainted with illegality.

(2) No action can be taken for the

a) Recovery of money paid or property

transferred under an illegal agreement, and

b) Breach of an illegal agreement.

AGREEMENTS OPPOSED TO PUBLIC POLICY

An Agreement is said to be opposed to public policy when it is injurious to the welfare of the society or its tends to be harmful to the public interest. The following agreements are, or have been held to be, opposed to public policy:

1. Agreements of Trading with enemy.

2. Agreement to commit a crime.

3. Agreements interfering with administration of justice.

These include

a) Agreements for stifling prosecution, and

b) Agreements which interfere with the course of

justice.

Cont…..d


4. Agreements in restraint of legal proceedings. These include

a) Agreements to oust the jurisdiction of Courts, and

b) Agreements to vary periods of limitation.

5. Agreements for the sale of public offices.

6. Agreements tending to create interest opposed to duty.

7. Agreements in restraint of parental rights.

8. Agreements restricting personal liberty.

9. Agreements in restraint of marriage.

10. Marriage brokerage agreements.

Cont…..d


11. Agreements interfering with marital duties.

12. Agreements in fraud of creditors or revenue authorities.

13. Agreements in restraint of trade. An agreement in restraint of trade is one which restraints a person from freely exercising his trade, business or profession. Every agreement, by which anyone is restrained from exercising a lawful profession, trade or business of any kind is, to that extent, void [Sec. 27]. Exceptions are made in case of agreements for sale of goodwill and partners’ agreements provided the restraint is reasonable.

VOID AGREEMENTS

A void agreement is one which is not enforceable by law

[Sec. 2(g)]

The following agreements have been expressly declared to be void:

1. Agreements made by incompetent persons [Sec. 11].

2. Agreements made under a mutual mistake of fact [Sec. 20].

3. Agreements the consideration or object of which is unlawful [Sec.23].

4. Agreements the consideration or object of which unlawful in part [Sec. 24].

5. Agreements made without consideration [Sec. 25].

6. Agreements in restraint of marriage [Sec. 26].

7. Agreements in restraint of trade [Sec. 27].Cont…..d

8.Agreements in restraint of legal proceedings [Sec. 28].

9.Agreements the meaning of which is uncertain [Sec. 29].

10. Agreements by way of wager [Sec. 30].

11. Agreements contingent on impossible events [Sec. 36].

12. Agreements to do impossible acts [Sec. 56].

Wagering agreements.A wagering agreement is an agreement to pay money or money’s worth on the happening or non-happening of a specified uncertain event. Wagering agreements are void in India. In the States of Maharashtra and Gujarat, however, they have been declared to be illegal. The collateral transactions to such wagering agreements in the States of Maharashtra and Gujarat also become illegal. In the rest of India, collateral transactions are valid.

Uncertain agreements

Agreements the meaning of which is not certain, or capable of being made certain, are void.

Restitution

It means return of the benefit received from the plaintiff under a void contract. The principle of restitution is that the defendant who has been unjustly enriched at the expense of the plaintiff is required to make restitution to the plaintiff.

CONTINGENT CONTRACTS

A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

Characteristics of contingent contract.

1. Its performance depends upon the happening or non-happening in future of some event.

2. The event must be uncertain.

3. The uncertain future event must be collateral to the contract.

Rules regarding contingent contracts.

1. If a contingent contract is to be performed if an uncertain future event happens, it cannot be enforced until the event has happened. If it is to be performed if a particular event does not happen, its performance can be enforced if the event becomes impossible.

2. If a contingent contract depends for its performance on doing of an act by the promisor, the contract becomes void where the promisor makes the performance impossible.

Cont……d

Rules regarding contingent contracts.

3. If a contingent contract contemplates doing of a thing if a specified event happens within a fixed time, it becomes void if the event does not happen within that time.

4. If a contingent contract contemplates to do anything if an impossible event happens, it is void.

PERFORMANCE OF CONTRACT

The parties to a contract must either perform or offer to perform their respective promises.

Attempted performance or tender. Attempted performance or tender is an offer of performance by the promisor in accordance with the terms of the contract. If the promisee does not accept performance, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract. Thus a tender is equivalent to actual performance. The tender, in order to have this effect, must be unconditional, of the whole quantity contracted for, at the proper time, place and in the manner specified; and, where these are not specified, it must be made in a reasonable manner.

Reciprocal promises. Promises which form the consideration or part of the consideration for each other are called 'reciprocal promises'.

Rules regarding performance of reciprocal promises.

1. When reciprocal promises have to be simultaneously performed the promisor is not bound to perform, unless the promisee is ready and willing to perform his promise.

2. The reciprocal promises must be performed in the order fixed by the contract.

3. Where the nature of reciprocal promises is such that one cannot be performed unless the other party

performs his promise in the first place. Then if the latter fails to perform he cannot claim performance from the other, but must make compensation to the first party for his loss.

By whom must contract be performed.

1. By promisor himself - If that was the intention of the parties. i.e. where personal consideration is the foundation of the contract.

2. By agent - where personal consideration is not the foundation of the contract.

3. By legal representatives - in case of death of the promisor.

4. By joint promisors - when two or more persons/have made a joint promise, then unless a contrary intention appears from the contract. all such persons must jointly fulfill the promise. If any of them dies, his legal representative must, jointly

with the surviving promisors, fulfill the promise. If all the promisors die, the legal representatives of all of them must fulfill the promise jointly.

Who can demand performance? It is only the promisee, and in case of his death,his legal representatives. who can demand performance. When a person has made a promise to several persons,then, unless a contrary intention appears from the contract, the right to claim performance rests with all of them. When one of the promisees dies, it rests with his legal representatives jointly with the surviving promisees. When all the promisees die, it rests with their legal representatives jointly.

Time and place of performance.Time and place of performance of a contract are matters to be determined by agreement between the parties themselves.Where no time for performance is specified, the promisor must perform the promise within a reasonable time. If no time and place is fixed for theperformance of the promise, the promisor mustapply to the promisee to fix the day and time forperformance.

Time as the essence of contract.

Time for the performance of a contract may be fixed in the contract itself. In that case the contract must be performed within that time when time is of the essence of the contract. The general rule is that in commercial contracts time is of the essence of contract. In other contracts stipulations as to time are, in the absence of an express or implied evidence to the contrary, presumed not to be of the essence of the contract.

Appropriation of payments. The debtor has, at the time of payment, right of choice of appropriating the payment; in default of the debtor, the creditor has the right to appropriate; in default of either, the law will allow appropriation of debts in order of time.

Rule of Clayton’s Case. Where the parties have a current account between them, appropriation impliedly takes place in the order in which the receipts and payments take place and are entered in the account. The first item on the debit side of the account is discharged or reduced by the first item on the credit side.

Assignment of contract.Assignment of a contract means transfer of contractualrights and liabilities under the contract to a third party.It may take place by –

1. Act of the parties. This is subject to the following rules:

(1) Contracts involving personal skill or ability or other personal qualifications cannot be assigned.

(2) A promisor cannot assign his liabilities or obligations under a contract.

(3) The rights and benefits under a contract may be assigned if the obligation under the contract is not of a personal nature.

(4) An actionable claim can always be assigned but the assignment to be complete and effectual must be effected by an instrument in writing. Notice of such

assignment must also be given to the debtor.

2. Operation of law. This takes place in case of death or insolvency of a party to the contract.

DISCHARGE OF CONTRACT

A contract is said to be discharged when the obligations created by it come to an end. The various modes of discharge of a contract are as follows:

1. Discharge by performance.

Discharge of a contract by performance takes place when the parties to the contract fulfill their obligations arising under the contract within the time and in the manner prescribed. The performance may be

(i) actual performance, or

(ii)attempted performance

2. Discharge by agreement or consent.

A contract rests on the agreement of the parties. As it is agreement which binds them, so by their agreement or consent they may be discharged. The discharge by consent may be express or implied. Discharge by implied consent takes place by–

(a) Novation, i.e., when a new contract is substituted for an existing one, either between the same parties or between one of the parties and a third party. (b) Alteration, i.e., when one or more of the terms of the contract

is/are altered by the mutual consent of the parties to the contract. (c) Rescission, i.e., when all or some of the terms of the contract

are cancelled. (d) Remission, i.e., acceptance of a lesser fulfillment of the promise

made. (e) Waiver which means intentional relinquishment or giving up of a

right by a party entitled thereto under a contract. (f) Merger, i.e., when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under a new contract.

3. Discharge by impossibility.

Impossibility of performance may be-Initial impossibility. An agreement to do an act

impossible in itself is void.

Supervening impossibility. Impossibility which arises subsequent to the formation of a contract (which could be performed at the time when the contract was entered into) is called subsequent or supervening impossibility.

The cases covered by supervening impossibility include;

(a) Destruction of subject-matter of contract; (b) Non-existence or non-occurrence of a particular state of

things: (c) Death or incapacity for personal service; (d) Change of law or stepping in of a person with statutory authority; (e) Outbreak of war.

The contract is discharged in these cases.

The following cases are not covered by supervening impossibility:

(a) Difficulty of performance;

(b) Commercial impossibility;

(c) Failure of a third person on whose work the promisor relied;

(d) Strikes, lock-outs and civil disturbances;

(e) Failure of one of the objects.

The contract is not discharged in these cases.

4. Discharge by lapse of time.

If a contract is not performed within the period of limitation and if no action is taken by the promisee in a Law Court, the contract is discharged.

5. Discharge by operation of law.

This includes discharge by

(a) death,

(b) merger,

(c) insolvency,

(d) unauthorised alteration of the terms of a

written agreement, and

(e) rights and liabilities becoming vested in the

same person.

6. Discharge by breach of contract. If a party breaks his obligation which the contract

imposes, there takes place breach of contract. Breach of contract may be

[1] Actual breach, or

[2] Anticipatory breach.

[1] Actual breach of contract may occur

(a) At the time when the performance is due, or

(b) During the performance of the contract.

[2] Anticipatory breach of contract occurs when a party repudiates his liability or obligation under the contract before the time for performance arrives.

REMEDIES FOR BREACH OF CONTRACT

In case of breach of a contract, the injured party has one or more of the following remedies:

1. Rescission. When there is breach of a contract by a party, the injured party may sue to treat the contract as rescinded. He is also absolved of all the obligations under the contract.

2. Damages. Damages are monetary compensation awarded to the injured party by Court for the loss or injury suffered by him. The foundation of modern law of damages, both in India and England, is to be found in the judgment in the case of Hadley v. Baxendale. Sec. 73 of the Indian Contract Act which deals with “compensation for loss or damage caused

by breach of contract” is based on the judgment in the case of Hadley v. Baxendale. Damages may be of four types:

Cont…..d

1) Ordinary damages. These are damages which actually arise in the usual course of things from the breach of a contract.

2) Special damages. Damages which may reasonably be supposed to have been in the contemplation of both the parties at the time when they made the contract as the probable result of the breach of it, are known as special damages and may be recovered.

3) Vindictive or exemplary damages. These damages are allowed in case of the breach of a contract to marry or dishonour of a cheque by a banker wrongfully.

4) Normal damages. Where the injured party has not suffered any loss by reason of the breach of a contract, the court may award a very nominal sum as damages.

Liquidated damages and penalty. ‘Liquidated damages’ represent a sum, fixed or

ascertained by the parties in the contract, which is a fair and genuine pre-estimate of the probable loss that

might ensue as a result of the breach. A ‘penalty’ is a sum named in the contract at the time of its formation, which is disproportionate to the damage likely to accrue as a result of the breach. The Courts in India allow only ‘reasonable compensation’.

3. Quantum Meruit. A right to sue on a quantum meruit (as much as earned) arises where a contract, partly performed by one party,

has become discharged by the breach of the contract by the other party. This right is founded on an implied promise by the other party arising from the acceptance of a benefit by that party.

4. Specific performance.

In certain cases the Court may direct the party in breach of a contract to actually carry out the promise, exactly according to the terms of the contract. This is called specific performance of the contract.

5. Injunction.

It is a mode of securing the specific performance of the negative terms of a contract.

QUASI CONTRACTS

In certain cases the law imposes an obligation and allows an action to be brought on it as if it arose out of an agreement, though none was present in fact. Such cases, strictly speaking, are not contracts, but the law recognises them as “certain relations resembling those created by contracts”. In English Law, such relations are called quasi-contracts.

Quasi contracts rest on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.

Secs. 68 to 72 deal with the following quasi-contracts:[1] Claim for necessaries supplied to a person incapable of contracting or on his account. [Sec. 68].

[2] Reimbursement of a person paying money due by another in payment of which he is interested [Sec. 69].

[3] Obligation of a person enjoying benefit of a non-gratuitous act [Sec. 70].

[4] Responsibility of finder of goods [Sec. 71].

[5] Liability of person to whom money is paid or thing delivered by mistake or under coercion [Sec. 72].

SALE OF GOODSContract of sale.

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 [Sec. 4].

Sale and agreement to sell.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. 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.

Contract of sale how made.A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of suchoffer. It 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. It 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 [Sec. 5].

Subject-matter of sale.‘Goods’ form the subject of a contract of sale. They mean every kind of movable property other than actionable claims and money, and include stock and shares, growingcrops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale [Sec. 2(7)].

Cont…..d

Goods may be:

1. Existing goods, i.e. goods which are owned and

possessed by the seller at the time of sale. These

goods may be specific ascertained or unascertained.

2. Future goods, i.e., goods which the seller does not possess at the time of the contract and which will be acquired, manufactured or produced by him at some future date.

3. Contingent goods, i.e. goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

Price.

The price in a contract of sale must be expressed in money. It

[1] May be fixed by the contract itself, or

[2] may be left to be fixed in an agreed manner, or[3] may be determined from the course of dealing between the parties. Where the price is not determined in accordance with these provisions, the buyer must pay the seller a reasonable price [Sec. 9].

CONDITIONS AND WARRANTIESA stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty [Sec. 12(1)]. A condition is a stipulation essential to the main purpose of the contract. Its breach gives a right to the buyer to treat the contract as repudiated [Sec. 12(2)]. A warranty is a stipulation collateral to the main purpose of the contract. Its breach gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated [Sec. 12(3)].

Express and Implied conditions and warranties

In a contract of sale, conditions and warranties may be express or implied. Express conditions and warranties are those which are agreed upon between the parties at the time of the contract.Implied conditions and warranties are those which are implied by law unless the parties stipulate to the contrary.

Implied Conditions.

1. Condition as to title. In a contract of sale there is an implied condition on the part of the seller that

a) In the case of a sale, he has a right to sell the goods, and

b) In the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass [Sec. 14(1)].

2. Sale by description. Where there is a contract for the sale of goods by description, there is an implied

condition that the goods shall correspond with the description. If the sale is by sample as well as by description, the goods shall correspond both with the sample and the description [Sec. 15].

3. Condition as to quality or fitness. The condition as to quality or fitness is implied where

a) The goods sold are such as the seller deals in the ordinary course of his business;

a) The buyer relies on the seller’s skill or judgment as to the fitness of the goods for any particular purpose; and

b) The buyer expressly or impliedly makes known to the seller that he wants the goods for that particular purpose [Sec. 16(1)].

4. Condition as to merchantability. Where goods are bought by description from a seller who deals in goods of that

description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality [Sec. 16(2)].

5. Condition implied by custom. An implied condition as to quality or fitness for a particular purpose may be annexed by the usage of trade [Sec. 16(3)].

6. Sale by sample. In the case of a contract for sale by sample there is an implied condition

a. That the bulk shall correspond with the sample in quality;

b. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and

c. That the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on a reasonable examination of the sample [Sec. 17].

7. Condition as to wholesomeness. In case of eatables and provisions, there is an implied condition that the goods shall be wholesome and fit for human consumption.

Implied Warranties.In a contract of sale, unless there is a contrary intention, there is an implied warranty that

[1] the buyer shall have and enjoy quiet possession of the goods [Sec. 14 (b)].

[2] the goods are free from any charge or encumbrance in favour of any third party [Sec. 14 (c)].

Caveat Emptor.

This means “let the buyer beware”. The doctrine of caveat emptor does not apply –

[1] In case of implied conditions and warranties;

[2] When the buyer intimates the purpose

the seller and depends upon his skill or judgment;

[3] When there is a usage of trade;

[4] When there is a fraud by the seller.

TRANSFER OF PROPERTY

It is important to know the precise moment of time at which the property in goods passes from the seller to the buyer for the following reasons:

1. Risk follows ownership whether delivery has been made or not and whether price has been paid or not. This is, however, subject to agreement between the parties.

2. When the goods are damaged or destroyed by the action of the third parties, it is the owner of the goods who can take action against them.

Cont…..d

3. In the event of insolvency of either the seller or the buyer, the question whether the Official Receiver or Assignee can take over the goods or not depends on whether the property in the goods has passed from the seller to the buyer.

4. The seller can sue for the price, unless otherwise agreed, only if the goods have become the property of the buyer.

TRANSFER OF PROPERTYThe primary rules for ascertaining when the property in goods passes to the buyer are as follows:

[1] Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained [Sec. 18].

[2] Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the

circumstances of the case [Sec. 19]. Where the intention of the parties cannot be ascertained, the following rules shall apply:

Cont…..d

1. Specific goods.

In case of a contract for the sale of specific goods

a) In a deliverable state, if the contract is unconditional, property passes as soon as the contract is entered into [Sec. 20].

b) If the seller has to do something to put them in a deliverable state, property passes only when such thing is done and notice thereof is given to the buyer [Sec. 21].

c) In a deliverable state if the seller has to do something for the purpose of ascertaining the price,

property will pass only when such act is done and notice thereof is given to the buyer [Sec. 22].

Cont…..d

2. Unascertained goods. In case of unascertained or future goods sold by

description, property passes only when goods according to the description are unconditionally appropriated to the contract and the buyer is given a notice

thereof. Delivery to a carrier (the seller not reserving right of disposal, Sec. 25) amounts to an unconditional appropriation [Sec. 23].

3. Goods sent on approval.In case of goods delivered to a buyer on approval or ‘on sale or return’ property passes when he signifies his approval or acceptance or when he does some act adopting the transaction. If he retains the goods without

giving notice of rejection, property passes when the time agreed for returning the goods expires or alter a reasonable time has expired [Sec. 24].

SALE BY NON-OWNERSThe general rule of law is that only the owner of the goods or any person specifically authorised by him can sell the goods. If any other person sells them, the title of the buyer will not be better than that of the seller.

Exceptions. The following are the exceptions to the above rule:1. Sale by a mercantile agent.

2. Sale under the implied authority of owner or title by estoppel.

3. Sale by one of several joint owners.

4. Sale by a person in possession of goods under a voidable contract.

5. Sale by a seller in possession after sale.

6. Sale by a buyer in possession after having bought or agreed to buy.

7. Sale by an unpaid seller.

In all these cases, the person selling the goods must be in possession of the goods with the consent of the seller and the buyer must act bonafide.

PERFORMANCE OF CONTRACT

It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them in accordance with the terms of the contract of sale.

Delivery of goods.

Delivery means voluntary transfer of possession of goods from the seller to the buyer. It may be

(i) Actual,

(ii) Symbolic, or

(iii) Constructive

But it must be according to the rules as given below:

Cont…..d

Rules as to delivery.

1. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions.

2. A delivery of part of the goods, in progress, of the delivery of whole, amounts to, for the purpose of passing the property in such goods, as a delivery of the whole.

3. Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery.

Cont…..d

Rules as to delivery.

4. The place of delivery is the place at which they are at the time of the sale.

5. If the goods are in possession of a third party, there is no delivery until such third party acknowledges to the buyer that he holds the goods on his behalf.

6. Where the seller is bound to send the goods to the buyer but no time for sending them is fixed, they must be sent within a reasonable time.

Cont…..d

Rules as to delivery.7. Expenses of making delivery are borne by the seller and expenses of obtaining delivery by the buyer.

8. If the seller sends to the buyer a larger or a smaller quantity of goods than he ordered, the buyer may

a) Reject the whole, or

b) Accept the whole, or

c) Accept the quantity he ordered and reject the rest.

9. If the seller delivers, with the goods ordered, goods of a wrong description, the buyer may accept the goods ordered and reject the rest or reject the whole.

10.Unless otherwise agreed, the goods are not to be delivered by installments.

RIGHTS OF AN UNPAID SELLER

A seller of goods is deemed to be an unpaid seller

[1] when the whole of the price has not been paid or tendered;

[2] when a bill of exchange or other negotiable instrument has been received as a conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument, or otherwise [Sec. 45].

An unpaid seller has the rights –

1. As against the goods.

(1) Right of lien. It is available to the unpaid seller whena) The goods have been sold without any stipulation

as to credit;

b) The goods have been sold on credit, but the

term of the credit has expired;

c) The buyer becomes insolvent [Sec. 47].Cont…..d

(2) Right of stoppage in transit. when the buyer of goods becomes insolvent the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit. The seller may resume possession of the goods, as long as they are in the course of transit and may retain them until payment or tender of the price [Sec. 50]. The unpaid seller may exercise this right of stoppage in transit either by taking actual possession of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are.

Cont…..d

3) Right of re-sale. The unpaid seller can re-sell the goods

(i) Where the goods are of a perishable nature;(ii) Where he was exercised his right of lien or stoppage in

transit and given notice to the buyer of his intention to re-sell the goods and where the buyer has not within a reasonable time paid the price; and

(iii) Where the seller expressly reserves a right of re-sale in case the buyer should make default [Sec. 54].

Right of withholding delivery. Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights to lien and stoppage in transit

where the property has passed to the buyer [Sec. 46 (2)].

2. As against the buyer personally.

1) Suit for price. Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods [Sec. 55].

2) Damages for non-acceptance. Where the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for damages for non-acceptance [Sec. 56].

Cont…..d

3) Repudiation of contract before due date. Where the buyer in a contract of sale repudiates the contract before the date of delivery, the seller may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as

rescinded and sue for damages for the breach [Sec. 60].

4) Suit for interest. The seller can recover interest on price from the date on which the payment became due, if there is a special agreement to that effect.

AUCTION SALEA sale by auction is a public sale where different intending buyers try to outbid each other. The goodsare ultimately sold to the highest bidder. The law on auction sales is contained in Sec. 64 of the Sale of Goods Act.

business law (completed)

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