ccm business laws

8/14/2019 CCM Business Laws

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Business Law

Condensed Course MaterialCondensed Course Material

BBABBA

Prof A. K. Sawhney


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Corporate Legal Environment

Laws of Contract: Essentials of contract

Kinds of Contract

Capacity to ContractConsideration

Free Consent

DischargeBreach of Contract


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Indian Contract Act 1972

Section 1 - 75

General principle of contract i.e Nature of

Contract, Formation of Contract,Operation of Contract.

Section 76 -123 : India Sales of Goods Act

(Replaced in 1930)Section 124-147:Special Contract Identity

Guarantees


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Section 148-181: Contract of Bailment and

Pledge

Section 182-238: Contract of agency

Section 239-266: was repeated by Indian

Partnership Act 1982

Thus Law relating to sales of goods and Lawof partnership was originally included in

Indian Contract act 1972 but later on

Separate act were passed dealing withthese subjects-


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Other Status which deal with other special type of contracts

i.e Negotiable Instrument act 1881

Arbetration Act 1940

Marine Insurance Act 1963

Thus Indian Contract Act is not a Complete code of Contract

as it deals with some special contracts only.

What is a CONTRACT???

Section 2(b) of Indian Contract Act 1972 defines a

contract as a agreement enforceable by law.

Section 2(e) defines agreement as Every Promise and Every set

Of promises forming consideration foe each other.

Section -2(d) defines promises in these wordsWhen the person to whom the proposal is made

signifies the assent there ,the proposal is said to be accepted.

A proposal when accepted becomes a promise.


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From the above definition of Promise it isobvious that an agreement is an acceptedproposal.

Two elements of an agreement are :

1.) An offer or a Proposal

2.)An acceptance of that offer or proposal.

Agreements which are ENFORCEABLE BYLAW are CONTRACT.

Contract Act is the Law of These Agreement

which create obligations ,and in the case ofa breach of promise by one party to the


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agreements ,the other has a Legal Remedy.

Thus Contract Consists of two elements::

1.) Agreement

2.)The agreements must give rise two Legal

Obligations.

Agreements which are not enforceable by

law courts do nat give rise to Contractual

Obligations.


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Example

i.) A & B for Dinner

ii.) A, promise his son to give Pocket money.

In the above Example promise is notEnforceable act.

Law-As there is No Intention to Create Legal

Obligations Such agreement are SocialAgreements which do not give rise to legal

Consequences.


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This shows that an agreement is a broaderterm than a contract ,therefore Contract is

an Agreement but an agreement is notnecessarily a contract.

What Obligations are contractual in nature?

We have seen that the Law of Contract is notthe Whole law of Agreements.

Similarly all legal obligations are notcontractual in nature .An obligation having

its source in an agreement will give rise toa contract.


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Essentials of a Valid Contract

The two elements of contract are Agreement

and Legal Obligations.

Section 10 of this act provide for some

elements which are essential in order to

constitute a valid contract.

All agreements are contract if they are made

by FREE CONSENT of parties

CONTEMPT to Contract.


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The Essential of Contract

1.) Offer And Acceptance

2.) Intention to create legal relationship

3.) Free & genuine consent

4.) Parties competent to contract

5.) Lawful considerations6.) Lawful objects

7.) Agreements not declared illegal or void

8.) Certainty of meaning9.) Possibility of Performance

10.)Necessary Legal Formalities


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Offer & Acceptance

There are two parties

Offerer: Party making offer

Offeree:Party to whom offer is made

Consensus Item: Two parties thinking of the

same thing in the same sense.


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3.Free and Genuine consent

Should not be detained by misrepresentation,

fraud, undue influence, coercion or mistake.If the

consent is obtained by any of these flaws,then

The contract is not valid.

2.Intention to create legal

relationship

An agreement of a purely Social and

domestic nature is not a contract


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Parties Competent to contract

Section II-Any Person is competent to Contract ifhe is of Mature Age

of sound mind

Not disqualified from Contracting by any lawThus there may be flaw in capacity of parties to

the contract.The flaw in capacity may be due

to minority,lunacy,idicoy,drunkenness or

status.


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Lawful Consideration

Consideration is the price for which the

promise of others is sought.If not

Supported by consideration it will simply

NUDUM-PACTUM and not enforceable bylaw.

Consideration must be real and lawful.


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Lawful Object

Approved by Law

Agreement not declared illegal

or voidCertain Agreements which have been

declared illegal/void by law in such case

even if it poses all elements of validagreement ,the agreement will not be

enforceable by law


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Certainty of Meaning

Capable of performance not on the base of

impossible act- the agreement be

enforceable by law.

Possibility of Performance

Meaning of agreement must be certain

,capable of being made certain otherwise it

will not be enforceable by law.


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Necessary Legal Formalities

Must be Oral or in Writing But by Law it

must

be in Writing: Registration, Attestation if

necessary.


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Classification of Contract

1.) Validity of Enforceability

2.) Mode of formation

3.) Performance


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Classification based on Validity

1.) Valid Contract

2.) Voidable Contract

3.) Void Contract or Agreements4.) Illegal or Unenforceable


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An agreement which is not enforceable by

either of the parties is void.

SECTION -2(i) such an agreement is

without any legal effect. Aleinitio ( from the

very beginning)

Under the Law an agreement with the minor

is void (SECTION II).

A contract which ceases to be enforceable

by law becomes void when it ceases to be

Enforceable (SECTION 2(j)).


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Other instances of Void agreements are:

Agreement entered into through a mutual

mistake of fact between the parties

(Section 20).

Agreement in which the Object or

consideration of which is Unlawful

(Section 23).

Agreements parts of the consideration or

object of which is Unlawful (Section 24).

Agreement made without consideration

(Section 25).


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Agreement in restraint of marriage

(Section 26).

Agreement in restraint of trade(Section 27).

Agreement in restraint of legal proceedings

(Section 28).Uncertain agreements (Section 29).

Wagering agreements (Section 30).

Impossible agreements (Section 56).

An agreement to enter into an agreement

in the future.


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Contract Must be in Writing

Negotiable instrument such as Bill ofExchange, cheque, Promissory Note mustbe in writing.

Memorandum and Article of Association ofCompany

Documents coming within the preview of

section 17 of the Registration Act 1908 Transfer of immovable property under the

transfer of property act 1872


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Classification according to

Performance Executed

Executory or 1> Unilateral 2> Bilateral

An executed contract is one wholly performed. Nothingremains to be donein terms of contract.

Executory Contract becomes an Executed one, whencompletely perfomed

Unilateral Contract is one where-in there is an obligationto perform on the part of one party only.

A Bilateral contract is one, where-in there is an obligationon the part of both to do or to refrain from doingparticular thing.


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The term of the offer must not be loose, vague or ambiguous

The offer must be distinguished from a mere declaration of

intention or an invitation to offer or to treat

The offer must be communicated to the offeree

The offer must not contain a term of non compliance of which

may be assumed to amount to acceptance

A tender is an offer as it is a response to an invitation to offer

The identical cross offers dont make a contract


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Termination or Laps of an offer

The offer lapses after stipulated or

reasonable time

An offer lapses by the death or insanity of

the offerer or the offeree before

acceptance


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Acceptance

When the person to whom the proposal ismade, signifies his accent there to, theproposal is said to be accepted. Thusacceptance is the act of giving consent to the

proposal. A proposal when acceptedbecomes a contract.

Essential of a valid Acceptance-

Acceptance must be absolute and unqualified

(sec 7) Acceptance must be communicated to the offerer


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Acceptance must be according to the mode

prescribed

It must be given within the time specified orwithin a reasonable time

It must be in response to offer

It must be made before the offer lapses It must be given by the person to whom the

offer is made


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Capacity of Contract

Who are competent to contract Sec 11

provides that 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 ofsound mind and is not disqualified from

contracting by any law to which he is a subject

Thus incapacity to contract may arise from

Minority

Mental Incompetence

Status


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Minors Contract

The contract with or by a minor is void and

a minor, therefore, can not, bind himself

by a contract

A minor can be a promisee or a

beneficiary

A minor agreement cant be ratified by the

minor on his attaining majority


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Mental Incompetence

Mental Incompetence is lunatics, idiots,

drunken or intoxicated persons, insolvent

persons


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Consideration

In simple terms, consideration is what apromisor demands as the price for hispromise.

Importance of consideration- A promise without consideration is purely

gratuitous and however sacred and binding inhonor it may be, cannot create an obligation.

Thus generally speaking a contract cannot bethought off without consideration NoConsideration, No Contract is the rule of law


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Consideration must move at the desire of

the promisor

Consideration may move from the

promisee or any other person

Consideration need not be adequate

Consideration must be legal


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Legality of Object

An agreement will not enforceable if theobject or the consideration is unlawful If its forbidden by law

If its of such a nature that if permitted, itwould defeat the provisions of any law

If its fraudulent

If it involves or implies injury to the person or

the property of another If the court regard it as immoral or oppose to

the public policy


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Agreement Declared Void

Agreement against public policy Sec 26 to 28,deals with

Trading with enemy Agreement for stiffing prosecution

Contracts in the nature of Champerty and Maintenance

Agreement for the sale of public offices and titles Agreement in restraint of parental rights Agreement in restraint of marriage

Marriage brokerage or brocage contracts Agreement in restraint of legal proceeding

Contract interfering with the course of justice

Contracts tending to create monopolies Agreement in restraint of trade


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Law Related to Negotiable

Instruments

A K Sawhney


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Negotiable Instrument

A Negotiable Instrument means a

Promissory Note, a Bill of Exchange, a

Cheque payable either to order or to bearer.

(Sec-13) Presumption as to Negotiable Instruments-

Sec-118 and 119 enlist the presumption as

to a negotiable instruments unless contraryis proved


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Promissory Note

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 acertain sum of money to, or to the order of

a certain person or the bearer of the

instrument


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Cheque

A Cheque is defined a Bill of Exchange

drawn on a specified banker and not

express to be payable otherwise then on

demand. (Sec 6 of NI Act 1881). Thus acheque is a bill of exchange always

payable on demand drawn on a specified

banker not otherwise.


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Types of Crossing

General Crossing

Special Crossing

Not-negotiable Crossing Account payees crossing

Not-negotiable, account payee crossing


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Statutory Protection Available to a

Paying Banker

Sec 31 holds the paying banker liable for

payment to a wrong person


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Kinds of Endorsement

Conditional Endorsement

Endorsement in Blank

Endorsement in Full

Restrictive Endorsement

Endorsement Sans Recourse

Facultative Endorsement Partial Endorsement


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Law of Sale of Goods

Essentials And Introduction

Indian Sale of goods act 1930.

Came in Existence in July 1930.

Indian sale of goods act closely follows

English sale of goods act 1893 it extends

to whole of India except Jammu &

Kashmir state.


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Goods and their Classification

Goods are defined to mean every kind of

movable property other than actionable

claims and money. The term include stock

and shares ,growing corporations andthings attached to or forming part of the

land which are agreed to be severed

before sale or under the contract sale.[Section 2(7) ]

St k d h h b i l d d i


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Stocks and shares have been included in

the above definition because English law

does not recognize them as goods. The term money excludes money&

actionable claims.

Money means the legal tender and notold coins which can be sold and

purchased as goods.

Actionable claims are things which aperson cannot make use of which can be

claimed by means of legal action. Eg: debt


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In general it is only movable things that

forms goods i.e things which can be

moved from one place to another.

However all such things which are a partof the land of self but are agreed to be

severed from the land under the contract

are considered as goods.


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Classification of goods

Existing goods.

Future goods.

Contingent goods.

Existing goods ::Goods which are inpossession at the time of contract.

[Section 6].

Future goods:: Goods to be manufactured orproduced or acquired by the seller aftermaking the contract of sale.[ Section 2(6) ]


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Contingent goods:: Goods which are the

acquisitionof which by the seller dependsupon a contingency which may or may not

happen contingents are a part of future

goods.


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Formation of the contract of sale

Sale and agreements to sell [Section 4]

A contract may be absolute or conditional.

SALE: Under a contract ,the sale of goods

(property) in the goods is transferred from theseller to the buyer, the contract is called a sale.

AGREEMENT TO SELL: Under a contract when

the transfer of property in the goods is to take

place at the future time or subject to some

condition ,thereafter to be fulfilled, the contract is

called an agreement to sell.


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An Agreement to sell becomes a sale whenthe time elapse or the conditions are

fulfilled subject to which the property in the

goods is to be transferred.


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Essentials of a contract of sale

1.)There are Two parties :: Buyers and Sellers.

A person cannot buy his own goods.

A part owner can sell to another part buyer i.e to his firmor firm may sell to his partner.

2.)Transfer or agreement to transfer the Ownership ofgoods.

In a contract to sale the ownership that is transferred (insale) or agreed to be transferred (in an agreements tosell) as against mere possession or limited interest (as a

pledge) and the subject matter in which the property istransferred is necessary goods i.e movable sale ofimmovable is not covered under the Sale of goods Act.

3 )C id ti i th P i


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3.)Consideration in the Price

Consideration is necessary to be money

i.e legal tender. If for instance goods areoffered as the consideration for goods tosale, it will be called a BARTER.

Similarly in case there is no consideration it

amounts to gift and not sale.4.)All other essentials of a valid contract must

be present .Being a Specie of contract ,salemust confirm to all other essentials of a validcontract i.e parties to contract must becontempt of contracting, consent of theparties must be free, the object must be legaland so on.


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Sale Vs Agreement to sell

Sale

1.)A sale is a executed

contract.

2.)In a sale since the

property has passed to

the buyer ,the seller can

sue the buyer for the

price of the goods.

3.)A sale contract is right in

rem.

Agreement to Sell

1.)An agreement to sell is

an executory contract.

2.)In an agreement to sell in

case of breach the seller

can only sue for damages

unless the price was

payable at a stated date.

3.)An agreements to sellcreates a right

inpersonam


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4.)In case of loss of goods

the loss will fall on the

buyer ,even though thegoods are in the

possession of the seller ,it

is because risk is

associated with

ownership.5.)In case the buyer pays the

price and seller thereafter

becomes insolvent the

buyer can claim the goodsfrom official receiver or

assignee

4.)The loss in this

case shall be borne

by the seller ,eventhough the goods arein the possession ofthe buyer.

5.)In thosecircumstance thebuyer cannot claim

the goods but only arateable dividend forthe money paid .


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Law and Hire purchase


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Law and Hire purchase

Agreement An agreement for hire with an option to

purchase. The hire under this agreement

is required to pay every month a particular

sum of money and if he pays in that wayfor a fixed number of installments the hirer

will become the owner of the goods or the

payments of last installment.

Hire purchase agreement is distinct


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Hire purchase agreement is distinct

from sale in which price is payable

by installments.

In case of sale the property passes as soon as

sale is made, although the price has not been

fully paid in.

A hire purchase agreement on the other handdoes not result in passing of the property

unless the option to purchase is exercised

usually by payments of all the installments. Till

such time it constitutes bailment. Thus hire purchase

Agreement is bailmentplus agreement to sell.


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Price

Price means money consideration for sale of

goods-it is a integral part of a contract of sale.

Section 9

The price can be fixes either by a contract

or a value or it can be determined by the

course of dealings between the parties.

In case price cannot be fixed the buyer isbound to pay Reasonable Price. Reasonable

price varies from case to case .where there is

market price there is reasonable price.


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Section 10 lays down that in case

price is left to be fixed by the valuer and

the valuer fails to fix the price ,theagreement becomes void except as to part

of goods delivered and accepted

regarding which the buyer is bound to paya reasonable price. However if one of the

party prevents the valuer from making the

valuation he would be liable to pay

damages to the other contracting party.


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Passing of the property in


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Passing of the property in

Goods (Section 18-25)

Section 18-25 lay down the rules whichdetermines when property passes from theseller to the buyer.

Specific or Ascertained Goods Specific goods in deliverable stage

Specific goods not in a deliverable stage

Where there is a contract for sales of specific

goods in a deliverable stage but the seller isbound to weigh, measure or test with referenceto ascertaining the price etc

Unascertained or future goods (sec 18)

Transfer of Title by Non-


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y

owners (Sec 27-30)

The general rule is that only the owner of

the goods can transfer a good title. No one

can give a better title then he himself has.

Sales by Non-Owners;


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Sales by Non-Owners;

When Valid? When affected by a mercantile agent in the ordinary

course of business

Where made by a joint owner in possession with consentof other joint owner

Where made by a person in possession under a voidablecontract before it is opted to be set aside

In case of sale by a seller in possession of goods.However he should not be in a possession as buyersbailee

In case of sale by a buyer in possession of goods afteragreement to sell but before actual sale

By an unpaid seller in possession in exercise of his right oflien or stoppage in transit.

Performance of the contract of


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Performance of the contract of

sale

The duties of the Seller and Buyer

The seller of the goods have the duty of giving the

delivery according to the term of the contract and

according to this rule contained in the sales of goods act

The buyer of the goods has the duty to pay for the goods;

accept delivery and pay compensation to the seller in

case he wrongfully refuses to accept delivery.

Delivery Physical or Actual Delivery; Symbolic Delivery;

Constructive Delivery or Atternment; Place of Delivery;Time of Delivery; Delivery of wrong quantity; Installment

Delivery; Delivery to the Carrier or the Wharfinger


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Right of Unpaid Seller

Rights against goods

Lien on the goods

Right of stoppage in transit

Right of resale

Rights against the buyer personally

Suit for the price (Sec 55)

Suit for damages (Sec 56)


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Buyer Rights against Seller

Damages for non-delivery (Sec 57)

Specific Performance (Sec 58)

Remedy for breach of warranty (Sec 59)