CONTRACT ACT 1872 FOR ENTREPRENEURS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE / CSE PARTICIPANTS [email_address] mobile : 91+9414430763
My words.... Ours is a great country with immense entrepreneurial potential. However, our legal system and taxation system is so cumbersome that our creativity and talent is wasted / unnecessarily diverted in these sectors. I wish that these are simplified so that an ordinary entrepreneur can understand these without help from any expert. I wish that more people should become entrepreneurs, rather than becoming an expert in avoiding taxation. Let us wish that some likeminded person is able to reach policy making level and is able to change these. I have tried to simplify Indian contract act for Indian entrepreneurs – but it is so complicated that even if you simplify it, it will remain complicated. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes force him to adopt unfair means ...
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If I promise to offer you a dinner and break that promise, can you claim damages under Contract act ? No, An agreement between two persons to go together to the restraurant, or to cinema, or for a walk, does not create a legal obligation on their part to abide by it.
a husband working in Ceylone, had agreed in writing to pay a housekeeping allowance to his wife living in England. On receiving information that she was unfaithful to him, he stopped the allowance. Can the wife claim damages under contract act ? In Balfour v. Balfour (1919) 2 KB 571, it was held that he was entitled to do so. This was a mere domestic arrangement with no intention to create legally binding relations.
“ when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”. Is it correct ? Yes
X promises to pay an increased price for a horse if it proves lucky to him, is there a valid offer ? No this offer is vague (not clear) it doesnt tell about the price clearly. An offer must be clear, definite, complete and final. It must not be vague.
Ram prepares a written offer for Shyam and posts it. Due to flood, the post is lost. Shyam didnt receive the offer, can he give his accptance without receiving offer ? No An offer becomes effective only when it has been communicated to the offeree so as to give him an opportunity to accept or reject the same.
A bus plying on a definite route goes along the street. Is there an offer by the bus conductor to the passengers ? Yes offer may be written / oral or just by conduct
A company offered by advertisement, a reward of $ 100 to anyone who contacted influenza after using their smoke ball in the specified manner. Mrs. Carlill did use smoke ball in the specified manner, but was attacked by influenza. She claimed the reward. Can she get it ? Carlill v. Carbolic Smoke Ball Co. : it was held that she could recover the reward as general offer can be accepted by anybody.
A advertise in the newspapers that he will pay rupees one thousand to anyone who restores to him his lost son. B without knowing of this reward finds A’s lost son and restore him to A. Can B claim reward No In this case since B did not know of the reward, he cannot claim it from A even though he finds A’s lost son and restores him to A.
a young boy ran away from his fathers home. The father issued a pamphlet offering a reward of Rs. 500 to anybody who would bring the boy home. A person saw the boy at a railway station and sent a telegram to the boys father. Can he claim reward Harbhajan Lal v. Harcharan Lal (AIR 1925 All. 539): yes, although he had not brought the boy to home, still he had substantially performed the conditions and was entitled to the reward offered. .it was an open offer, any person could claim reward on the basis of the offer.
Can a person who attended the advertised place of auction, sue for breach of contract if the auction is cancelled No auction is not an offer, but an invitation to offer ( Harris v. Nickerson (1873) L.R. 8 QB 286).
Can a customer force a shopkeeper to sell the goods at marked price in a retail mall? No the display of goods in a shop window with prices marked upon them, or the display of priced goods in a self- service store or a shopkeeper's catalogue of prices are invitations to an offer.
While negotiating, X made a statement of the price at which he is prepared to consider negotiating the sale of piece of land. Can Y bind X for that price ? No, It is not an offer but a statement only. ( Harvey v. Facey (1893) A.C. 552).
where a horse is offered for Rs. 1,000 and the offeree counter-offers Rs. 990, can the offeree later accept the earlier offer of Rs 1000? No, the earlier offer no longer exists now the offer lapses by rejection.
Ram offers his goods to Shyam for Rs. 2000 only. Shyam remains silent. Ram despatches the goods. Is there a contract ? No Mere silence on the part of the offeree does not amount to acceptance.
A was an inventor and a manufacturer of guns and ammunition. He sold his world-wide business to B and promised not to manufacture guns anywhere in the world for 25 years. Was this restraint valid? What should be the judgement in this case ? It was held (by the judges) that the restraint was reasonable as it was no more than is necessary for the protection of the company
A paid Rs. 900 to B’s workman. B undertook to stop his business in a particular locality in Calcutta. He did not keep his promise. A files a suit. Is it valid The court dismissed A’s suit as the agreement was void under Section 27 (restriction on trade).
A agreed to sell to B all the salt he manufactured and B agreed to buy such salt. A further agreed not to sell salt to third-parties. Do you think that this promise makes contract invalid ? This is a valid and reasonable restriction
A entered into a bond with the company to serve for a period of five years. In case,A leaves his job earlier and joins elsewhere with companys competitor within five years, he was liable for damages. A was imparted the necessary training but he left the job and joined another company. The former employer instituted a suit against N. Was it a valid contract ? Yes, it was a valid contract and had reasonable conditions
An employee agreed with the employer firstly, not to compete with latter after leaving the job and, secondly, not to injure employer’s interest during employment. Which of these are valid restrictions as per contract act ? It was held that the first condition is invalid, but the second is valid
There was an agreement in the nature of a business combination between traders or manufactures e.g. n ot to sell their goods below a certain price, to pool profits or output and to divide the same in an agreed proportion. Was it a valid contract ? Yes, it was a valid contract
What are wagering agreements? Wagerning agreements are nothing but ordinary betting agreements. They are invalid
A contracts to sell B 10 bales of cotton for Rs. 20,000, if the ship by which they are coming returns safely. What type of contract is it ? Contingent contract
A contracts to pay B a sum of money when B marries C, C dies without being married to B. how this contract can be executed ? The contract is now void
A makes a contract to buy B’s house if A survives C. what type fo contract is it ? Contingent contract
A agrees to pay B Rs. 1,000 if B marries C. C marries D. What type of contract is it ? Void contract The marriage of B to C is impossible although it is possible that D may die and C may afterwards marry B.
A promises to pay B a sum of money if a certain ship returns with in a year. When will this contract become void ? The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.
A agrees to pay Rs. 1,000 to B if two straight lines should enclose a space. What type of contract is it ? Void contract, Two straight line can never enclose a space.
X, Y and Z enter into an agreement for the division among them of gains acquired by them by fraud. What type of contract is it ? Void the objective is illegal.
X promises to obtain for Y an employment in the Government service and Y promises to pay Rs. 1,500 to X. What type of contract is it ? Void contract
X promises to Y to drop a prosecution which he has instituted against Y for robbery, and Y promises to restore the value of the things taken. What type of contract is it ? Void contract
A who is B’s husband promises to exercise his influence, as such, with B (a judge) in favour of C and C promises to pay Rs. 1,000 to A. what type of contract is it ? Void contract
A makes an agreement (the proprietors of a newspaper) to indemnify the printers against claims arising from libels printed in the newspaper It is void as it implies or involves injury to the person of another.
Can a parda-nashin woman make a contract? Yes, but the person who contracts with her, has to prove that no undue influence was used and that she had free and independent advice, fully understood the contents of the contract and exercised her free will. “The law throws around her a special cloak of protection” ( Kali Baksh v. Ram Gopal (1914) L.R. 41 I.A. 23, 28-29, 36 All 81, 89).
An agreement by which a person deprives himself of the custody of his child is valid or invalid ? Invalid
Atal makes a contract with Sonia that he will never marry, is it a valid contract ? No, It is a void contract
a man agreed with his money lender not to change his residence, or his employment or to part with any of his property or to incur any obligation on credit without the consent of the money lender, is it a valid contract ? No It is violation of personal liberty. So it is void contract.
What is bailment ? Bailment is a voluntary delivery of goods for a temporary purpos e on the understanding that they are to be returned in specie in the same or altered form. The ownership of the goods remains with the bailor, the bailee getting only the possession.
C contracts to lend B Rs. 5,000 on 1st March, A guarantees repayment. C pays the money to B on 1st of January. Is A liable ? No A is discharged from his liability, as the contract has been varied in as much as C might sue B for the money before 1st of March, (Section 133).
X contracts with B to build a house for a fixed price for B within a stipulated time, B supplying the necessary timber. Z guarantees X’s performance. B omits to supply the timber. Is Z still liable for payment ? No, by B's omission, Z is discharged from liability (Section 134).
A guarantees to B, to the extent of Rs. 10,000, that C shall pay all the bills that B shall draw upon him. B draws upon C, C accepts the bill. A gives notice of revocation, C dishonours the bill at maturity. Is A liable for his guarantee? Yes, before A gave his revocation, there was already a deal. A is liable as the deal is based on his guarantee (Section 130).
B contracts to build a ship for C for a given sum, to be paid by instalments as the work reaches certain stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two instalments.is A still liable ? A is discharged by this prepayment (Section 139).
A becomes surety to C for B’s conduct as a manager in C’s bank. Afterwards B and C contract without A’s consent that B’s salary shall be raised and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw and the bank loses a sum of money. Is A liable ? A is discharged from his suretyship by the variance made without his consent, and is not liable to make good this loss (Section 133)
A, B and C are sureties to D for the sum of Rs. 3,000 lent to E who makes default in payment. A, B and C are liable, as between themselves to pay Rs. 1,000 each. A is forced to pay more than Rs. 1000, what can he do ? He can claim contribution from the other two to reduce his payment to only Rs. 1,000. If one of them becomes insolvent, the other two shall have to contribute the unpaid amount equally.
What is bailee particular lien (sec. 170) as per Indian contract act ? Where the goods are bailed for a particular purpose and the bailee in due performance of bailment, makes efforts, he has in the absence of an agreement to the contrary a lien on the goods, i.e., the bailee can retain the goods until his charges in respect of labour and skill used on the goods are paid by the bailor.
What are the duties of a bailee ? He must not set up an adverse title to the goods. It is the duty of the bailee to return the goods without demand on the expiry of the time fixed or when the purpose is accomplished (Section 160). If he fails to return them, he shall be liable for any loss, destruction or deterioration of the goods even without negligence on his part (Section 161). In the absence of any contract to the contrary, the baliee must return to the bailor any increase, or profits which may have accrued from the goods bailed (Section 163).
A leaves a cow in the custody of B to be taken care of and the cow gets a calf, Is B bound is deliver the cow as well as the calf to A Yes
A lets out a motor-car for hire to B. A is the bailor and receives the hire charges and B is the bailee and gets the use of the car. Where, A hands over his goods to B, a carrier for carriage at a price, what type of bailment is it ? Bailment for reward
What is gratuitous bailment ? Here neither the bailor nor the bailee is entitled to any remuneration. Such a bailment may be for the exclusive benefit of the bailor, e.g., when A leaves his dog with a neighbour to be looked after in A’s absence on a holiday.
What are the matters on which quasi contracts are possibe ? Necessaries supplied to person incapable of contracting or to anyone whom he is illegally bound to support - Section 68. Suit for money had and received - Section 69 and 72. Quantum Meruit Obligations of a finder of goods - Section 71. Obligation of person enjoying benefit of a non-gratuitous act - Section 70
What is quantum merit? It means “as much as earned” or reasonable remuneration. It is used where a person claims reasonable remuneration for the services rendered by him when there was no express promise to pay the definite remuneration,
If a person makes a contract to provide some services, but doesnt complete it, can he claim remuneration for this. No
If a person makes a contract to provide some services, but he is prevented from completing it, can he claim remuneration for half of work completed by him? Yes
Can the finder of lost goods demand for reimbursement of his expenses ? Yes, the finder is a bailee and use/ take the goods as his personal goods. If the owner is traced, he must return the goods to him. The finder is entitled to get the reward that may have been offered by the owner and also any expenses he may have incurred in protecting and preserving the property.
A, a tradesmen, leaves goods at B’s house by mistake and B treats the goods as his own and uses them, Is he bound to pay A for them? Yes
What will happen in case of death of one party to the contract ? the representatives of the promisor are bound to perform the promise unless a contrary intention appears from the contract or the contract is based on personal service.
X promises to deliver a horse to Y on a certain day on payment of Rs 1,000. X dies before that day. What will happen now ? X’s representatives are bound to deliver the horse to Y and Y is bound is pay Rs. 1,000 to X’s representatives.
What are essential characteristics of a tender ? Tender = offer by the promisor to perform the contract (although the other party is not willing to implement the contract) it must be unconditional; if must be made at a proper time and place; it must be made under circumstances enabling the other party to ascertain that the party by whom it is made is able and willing to do by his promise;
Can tender be made to only part person out of 3 joint promisees ? Yes tender made to one of the several joint promisees has the same effect as a tender to all of them.
X, a singer enters into a contract with Y, the manager of a theatre to sing at his theatres two nights in every week during the next two months, and Y engaged to pay her Rs. 100 for each nights performance. On the sixth night X wilfully absents herself form the theatre. Can Y end the contract ? Yes, Y is at liberty to put an end to the contract.
If in the previous question, with the assent of Y, X sings on the seventh night, is the contract still valid ? Yes, Y is presumed to have signified his acquiescence in the continuance of the contract and cannot put an end to it; but is entitled to compensation for the damages sustained by him through X’s failure to sing on the sixth night.
X promises to pay Rs. 1,000 to Y. X dies before making payment, should his representative perform the promise ? Yes, his representatives must perform the promise or employ some proper person to do so.
X, a well known painter, promises to paint a picture for Y. can he ask someone else to do the job on his behalf ? No X must personally perform the promise.
Can a promisee ask one of the joint promisee to peform the entire contract ? Yes when two or more persons made a joint promise, the promisee may, in the absence of an express agreement to the contrary compel any one or more of such joint promisors to perform the whole of the promise.
X, Y and Z jointly promise to pay Rs. 6,000 to A. can A compel either X or Y or Z to pay the amount. Yes
X, Y and Z make a joint promise to pay Rs.6,000 to A, Z is unable to pay any amount and X is compelled to pay the whole. Is X entitled to receive Rs. 3,000 from Y. Yes
Can a promisee assign his rights to some other person? Yes, he may assign rights and benefits of contract and the assignee will be entitled to demand performance by the promisor. But the assignment to be complete and effectual, must be made by an instrument in writing.
A owes B Rs. 500 and A transfers the liability to C i.e. asks C to pay the sum to B, Is B bound to accept this? How can this arrangement work now ? No, this cannot bind B, and B may not consent to this arrangement, as he may know nothing of C’s solvency. But if B consents to accept performance by C, there is a substitution of new contract and the old contract is discharged and all rights and liabilities under it are extinguished. This is technically called novation.
What is a Novation ? when a new contract is substituted for existing contract either between the same parties or between different parties,
What is the difference between liquidated damages and penalty ? where the amount fixed is a genuine pre-estimate of the loss in case of breach, it is liquidated damages . If the amount fixed is without any regard to probable loss, but is intended to frighten the party and to prevent him from committing breach, it is a penalty
What is specific performance ? the actual carrying out of the contract by the parties as per their contract,
What are the cases when court doest order for specific performance of a contract ? where monetary compensation is an adequate remedy; where the Court cannot supervise the execution of the contract, e.g., a building contract; where the contract is for personal service; and where one of the parties is a minor.
Can a minor make a contract ? Yes, but practically No however, minor can make contracts relating to necessities Minor can make a contract and make it enforceable, but the other party cant enforce contract against minor minor can be beneficiary Minor cant be held responsible for a contract contract with minor is void
Can a minor become a shareholder ? Yes, but the company cant force him to pay the call money
Can a minor escape crime ? It will come in juvenile crime and minor will be punished as per law
When can you say that there is free concent ? Free concent is essential for a contract. Consent is free only when : 1. it is without coercion / force / undue influence 2. it is based on facts 3. there is no misunderstanding 4. there is no fraud / cheating 5. it is based on consideration and both the parties understand that they are doing as per their choice
How does contract gets discharged ? 1. when it is perfomed by both the parties 2. when both the parties agree that they dont want to implement contract 3. when one party dies and contract cant be enforced 4. when there is mistake of fact 5. when performance of contract becomes illegal / impossible / immoral / socially unacceptable
What are the remedies to a person when other party doesnt fulfill contract ? The agrieved party may rescind the contract and stop his part The agrieved party is discharged from his part also. The agrieved party may go to court for : 1. damages / compensation / penalty 2. request for specific performance, when monetary compensation will be inadequate
Can a person make a contract as minor and declare that he is a major ? This contract will be void
What is contract of indemnity ? A contract of indemnity is a contract by which one party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person (Section 124). loss due to flood / natural calamity cant come in contract of indemnity
What is a contract of guarantee ? A contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the Surety, the person for whom the guarantee is given is called the Principal Debtor, and the person to whom the guarantee is given is called the Creditor (Section 126).
What is contract of agency ? Section 182 : An agent is a person who is employed to bring his principal into contractual relations with third-parties.He is a mere connecting link between the principal and a third-party. But during the period that an agent is acting for his principal, he is having the capacity of his principal.
What are types of agency ? Express agency Agency by estoppel Implied Agency Wife as agent Agency of necessity Agency by ratification
When does agency come to an end ? 1. when time of agency has lapsed 2. when principal has expressly revoked agency 3. when the purpose for which agent was appointed has completed / has become impossible
What are duties of an agent ? He must act within the scope of the authority conferred upon him and carry out strictly the instructions of the principal (Section 211). in the absence of express instructions, he must follow the customs (Section 211). He must do the work with reasonable skill and diligence (Section 212). He must disclose promptly any material information coming to his knowledge He must not disclose confidential information (Section 213). He must not allow his interest to conflict with his duty (Section 215). The agent must keep true accounts He must not make any secret profit; he must disclose any extra profit that he may make.
What are the rights of an agent ? to receive remuneration as soon as he has done what he was supposed to do (Section 219) to be indemnified by the principal against all charges, expenses and liabilities properly incurred by him in the course of the agency (Sections 222-223).
Who is a merchantile agent ? The person who can on behalf of some other person, buy / sell / consign / borrow agaist goods / or do other such activities in regular business dealings
What are the various types of mercantile agents ? 1. factor 2. broker 3. auctioneer 4. commission agent 5. del credere agent 6. banker agent
Who is a factor ? His prime duty is with regard to cllect payments from customer. He also undertakes selling on behalf of some other person He sells and collects payment and send it back to the original owner
Who is a Del Credere agent ? This agent takes resonsibility for payment of debtors. If debtors dont pay, this agent will pay from his pocket. He charges del credere commission for this addtional services
Who is commission agent ? This person buys and sells goods on behalf of some other person.
Can we create agency without agreement ? In some cases yes - 1. by estoppel 2. by holding out 3. by necessity (read sec. 187)
What is the difference between void and voidable contracts? Void contract cannot be a legally binding contract. It is an agreement which cannot be enforced in any case. Voidable contract can be enforced at the desire of one of the party. If that party wants, contract can be enforced and if that part wants, the contract will be nullified and will become a void contract.
Give examples of void contracts ? Agreement to restrict trade, business, marriage, legal proceedings, or for unlawful object agreement based on mutual mistake of fact, agreement without consideration wagering agreement impossible agreement
Examples .. Gajendra makes an agreement with Aishwairya that he will not marry Deepika. It is a void contract.
Gajendra makes an agreement with Aishwairya that he will only marry her. Is it a void contract ? No
Pankaj makes an agreement with Manmohan Singh that we will not become partner of Shashi. Is it a void contract? Yes It is a void contract
Sumit and Gautam are partners running Indian Cricket League They make an agreement that no partner will start a cricket club during this league. Is it valid ? Yes it is a reasonable restriction on trade / business
A makes an agreement with B to buy his house. B has 100 houses, the agreement didnt specify exact house. Is it valid ? No uncertain agreements are void
What is restituion in contract act? Restitution means to return back – what one is supposed to have.
Ajay makes a contract with Pankaj to sing 5 songs on latter's party. But he sings only 3 songs and then returns. Pankaj doesnt make payment and cancels the contract. Here Pankaj can be forced to pay for 3 songs proportionately.
What is bailment ? It is made from english word BAILOR which means to deliver. Bailment = delivery of goods / property to another person for specific purpose and for specific time bailor = the person who delivers the goods bailee = the person who takes delivery of the goods
What are the essential elements of bailment? 1. agreement & valid contract 2. delivery of goods 3. movable property (not immovable property like building etc) 4. definite purpose /time 5 ownership is not transferred
Types of bailment – on the basis of reward Gratuitous bailment = no reward non-gratuitous bailment = it is for charges
Types of bailment – on the basis of who gets benefit ? Bailor benefitting bailment Bailee benefitting bailment mutual benefitting bailment (both get rewards)
A gives a cloth piece to tailor to make shirt, what type of bailment is it ? Mutually benefitting Non-gratuitous bailment
A borrows B's book for preparing for exam, what type of bailment is it ? Bailee benefitting bailment it is also gratuitous bailment
Duties of bailor ? 1. to disclose all the faults, mistakes, etc. And to reimburse expenses incurred by bailee due to fault in the product (not disclosed by bailor) 2. to collect goods as per schedule 3. to indemnify bailee for his loss and meet extraordinary expenses
Duties of bailee? To return the goods as plans to return any accretin to the goods (suppose A got B's Cow, cow gave birth to a calf, A will have to return both cow and calf) to take care of the goods to not to mix goods with his personal goods to not to make unauthorised use of the goods
Rights of bailor ? To demand the goods back to enforce bailee's duties to claim increase in profit from goods bailed
What are rights of bailee ? To deliver goods to joint bailors / bailor as per terms to have lien on goods for his charges (if bailor doesnt pay charges, bailee may ask him to pay, otherwise, he can keep the goods with himself till he receives the payment) enforce bailor's duties
What is the difference between coercion & undue influcnce ? Coercion = here a person is using physical force or some illegal threat etc. Undue influce = here the person is using his position and is not taking any illegal act or any physical force coercion is severe (in terms of damages etc.) in comparison to undue influence and here the party which has taken any benefit, must return it back. Contract is voidable in both the cases
What is nominal damage in contract act? If there are certain occasions when there is no real loss to a party due to breach of contract, the court may award nominal damages (very small amount of damage – just as a penalty) A & B make a contract, but A violates. B doesnt suffer loss, as he had already made a provision for this. Still Court can ask A to pay nominal damages to B.
What is vindictive damage in contract act ? These are also called exemplary damages they are high in magnitude they are awarded in following cases : 1. breach of contract to marry 2. wrongful dishonour of a cheque by a bank officer causing loss of reputation of the firm these damages are supposed to create a pressure on others not to do such breach of contracts exemplary = which is to set an example
Is champarty contracts valid in India ? Yes if they are not against public policy (they are not allowed in the UK) champarty = an agreement between the party suing in a lawsuit (plaintiff) and another person, usually an attorney, who agrees to finance and carry the lawsuit in return for a percentage of the recovery (money won and paid.)
Is an agreement for stifling prosecution valid in India ? NO stifle = to throttle / to kill prosecution = case / litigation A makes an agrement with B whereby he agrees not to sue B if B sells his car to A. Otherwise he would sue B for a crime committed by B under criminal procedure code. This is void agreement.
Aruj makes a contract with Supriya that if Supriya will bring him a wife, he will pay Supriya Rs. 2000 Is it a valid contract ? No marriage contracts are void
A makes an agreement with B, who is working in one of our neighbouring country. Trade with the residents of that country is banned. Is this contract a valid contract? No
A makes a contract with B to supervise cultivation of Dodapost (a type of herb) (without licence), is it a valid contract ? No
A makes a contract with B to sell some commodity after 6 months. He doesnt want to have any physical delivery of goods. He just want to take benefit of price difference . Is it a contract? Yes it is speculation, it is allowed gambling is not allowed (sec. 30)
Pankaj says that if it will rain today, he will give me Rs. 5000. Is it a valid contract ? No it is wagering contract – so invalid
When is an acceptance a valid acceptance ? 1. it is communicated to the offerer 2. it must be absolute and unqualified (no condition) 3 . it must be in prescribed time and format 5. acceptance can be by action also (in that case it works without oral or written communication). 6. it must be in the prescribed mode.
A makes an accptance to B for is offer. A sends acceptance by letter. The letter is due to reach B on 14/12/09, but A telephones B and refuses to accept the offer on 12/12/09. Is the acceptance still valid? Not valid (in India) (in England, it will still be a valid acceptance).
A makes an accptance to B for is offer. A sends acceptance by letter. The letter is due to reach B on 14/12/09, but B falls ill and doesnt open the letter. Is the acceptance valid? No Accpetance is complete when it comes to the knowledge of the offeror. (howerver, it is valid against A, - if B reads it and wants to enforce, yes, he can enforce it).
What are the cases when there is no free consent ? Coercion (sec, 15 Undue influence (sec. 16) Fraud (sec. 17) misrepresentation (sec. 18) mistake of facts (21 to 22)
What are the cases, when consideration is not valid ? 1. illegal consideration 2. consideration agains any rule / law / govt policy 3. against public policy 4. consideration which is agains morality 5. injury to other persons 6. faudulant consideration
What are the damages / remedies in case of breach of contract? Quantum merit (as much as deserved / meritted) suit for specific performance (force the other party to perform the contract). Rescind the contract (means cancel the complete contract) go for injunction (stop him from doing what he is doing).
WHAT IS CONSIDERATION? SEC. 2(D) WHAT IS OFFERED TO THE OTHER PERSON AGAINST THE PERFORMANCE OF CONTRACT CONSIDERATION MUST BE AT THE DESIRE OF PROMISOR
WHO IS COMPETENT TO CONTRACT? 1. who is major (above 18 years of age) 2. a person of sound mind 3. not disqualified under law (all the three conditions must be fulfilled)
Is free consent necessary for a contract ? Yes (read sec. 13 )
A husband obtained a release deed from wife and son by giving a threat that he would commit suicide otherwise. Is this contract valid ? No there is no free consent it is a contract under coercion so it is voidable (read sec. 15)
Is consideration necessary for a contract? Yes exceptions : AGENCY NATURAL LOVE AGAINST PAST VOLUNTARY SERVICES TIME BARRED DEBT COMPLETED GIFT
Case : Carlill v. Carbolic Smoke Ball Co: . The company offered by advertisement, a reward of $100 to anyone who contacted influenza after using their smoke ball in the specified manner. Mrs. Carlill did use smoke ball in the specified manner, but was attacked by influenza. Can she claim reward ? Yes
a young boy ran away from his fathers home. The father issued a pamphlet offering a reward of Rs. 500 to anybody who would bring the boy home. The plaintiff saw the boy at a railway station and sent a telegram to the boys father. Can plaintiff get Rs. 500? Yes (read case Harbhajan Lal v. Harcharan Lal (AIR 1925 All. 539))
a person attended an advertised place of auction but the auction was cancelled, can that person sue for damages ? No, Advertisement for auction is not an offer. It is just an invitation to offer. Read : ( Harris v. Nickerson (1873) L.R. 8 QB 286).
Ravi went to a retail store. There was a display of priced goods in a self- service counter. He saw price of Rs. 100 for a plate. He wanted to buy it, but he was refused. Can he file a suit under contract act? No display is just an invitation to offer it is not an offer
Raja offers to sell his car for Rs. 30000, but Ravi, the offeree makes a counter offer of Rs. 20000. But later Ravi wants to buy @ 30000. But now Raja refuses. Can Ravi get it ? No original offer lapsed when counter offer was made
Can an illiterate person be forced to follow rules of journey which are printed on the back of a ticket? Yes, the conditions are deemed to be communicated and the traveller is bound by them whether or not he has read them. He is bound even if he is illiterate and unable to read them
B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C agrees to give guarantee. What is the consideration that C gets here? C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is sufficient consideration for C’s promise.The consideration received by the principal debtor is sufficient for surety.
Which contract can have less number of parties – indemnity or guarantee? Indemnity In a contract of indemnity there are two parties: the indemnifier and the indemnified. In a contract of guarantee, there are three parties
B requests A to sell and deliver to him goods on credit. A agrees to do so on guarantee given by C. B didnt make payment. A files a case against C. C objects to it and asks him to file a suit first on B. Is A required to sue A before C? No A creditor is not bound to proceed against the principal debtor. He can sue the surety without sueing the principal debtor
What is the the doctrine of privity of contract a stranger to a contract cannot sue on the contract.
What is Executory consideration Future consideration
A worker deserts his company by breaking his contract of service and is induced to return to his duty by the promise for extra wages, however, no extra wages is paid to him. Can he sue for it? he cannot sue for the extra wages since he has only done what he had already contracted
A, for natural love and affection, promises to give his son B Rs. 10,000. Can this contract be enforced? Yes
A minor has obtained some benefiton a mortgage and promised to pay it when he becomes a major. Can that money be recovered from Minor when he becomes a major ? No
a minor fraudulently overstates his age and takes delivery of a motor car after executing a promissory note in favour of the trader for its price Can the trade take any action against minor ? No
A minor got injured and a hospital provided him treatment to save him. Minor now refuses to pay the bills. Can hospital recover this money ? Yes, from the estate of the minor (if any) A minors estate is liable to pay a reasonable price for necessaries supplied to him or to anyone whom the minor is bound to support (Section 68 of the Act).
Can a minor be adjudged an insolvent ? No he cannot be adjudicated as an insolvent.
A guardian entered into a contract for marriage of his minor daughter. Is it a valid contract? Yes, A guardian of a minor, may enter into contract for marriage on behalf of the minor, and such a contract would be good in law
A lunatic entered into an agreement – now he wants to enforce this agreement (for his own benefit) can it be enforced? Yes If a contract entered into by a lunatic or person of unsound mind is for his benefit, it can be enforced (for the benefit) against the other party
Can a minor become an agent of an foreign ambassador ? No as foreign ambassadors cant be forced to implement an agreement.
S, in consideration that C will employ P in collecting the rents of C’s Zamindari, promises C to be responsible to the amount of Rs. 5,000 for the due collection and payment by P of these rents. What type of guarantee is it ? It is continuous guarantee
When wife purchases from market, is she agent of her husband? Yes, Where a husband and wife are living together, the wife is presumed to have her husbands authority to pledge his credit for the purchase of necessaries of life suitable to their standard of living. But the husband will not be liable if he shows that (i) he had expressly warned the trademan not to supply goods on credit to his wife; or (ii) he had expressly forbidden the wife to pledge his credit; or (iii) his wife was already sufficiently supplied with the articles in question; or (iv) she was supplied with a sufficient allowance.
Can a wife, who is deserted by her husband, still work as an agent for her husband? Yes, A wife deserted by her husband and thus forced to live separate from him, can pledge her husbands credit to buy all necessaries of life according to the position of the husband even against his wishes
How can pledge of government securities be done ? The Government securities must, however, be pledged by endorsement and delivery.
The hotel-keeper knew that the room was in an insecure condition. While C was dining in the dining room, some articles were stolen from his room. Is hotel keeper liable? Yes
B contracts to build a ship for C for a given sum, to be paid by instalments as the work reaches certain stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two instalments. Is A still liable for payment? No
There was some amendment in the terms of the contract between the creditor and the principal debtor, without the consent of the surety. Is surety still a surety? No
A, B and C are sureties to D for the sum of Rs. 9,000 lent to E who makes default in payment. A, B and C are liable, as between themselves to pay Rs. 3,000 each. However, A alone is forced to pay Rs 9000. Can A recover the amount from B & C ? Yes
A, B and C are sureties to D for the sum of Rs. 9,000 lent to E who makes default in payment. A, B and C are liable, as between themselves to pay Rs. 3,000 each. However, A alone is forced to pay Rs 9000. B becomes bankrupt. How much can A recover the amount from C ? Half = 4500
What do you understand from factor ? A factor is a mercantile agent employed to sell goods which have been placed in his possession or contract to buy goods for his principal. He is the apparent owner of the goods in his custody and can sell them in his own name and receive payment for the goods. He has an insurable interest in the goods and also a general lien in respect of any claim he may have arising out of the agency.
WHAT IS QUASI CONTRACT ? It is not a contract, but it is created by law. It arises out of such relation between the two parties – whereby one party has to honour the other party example : a person lost his purse, another person got it by chance. The other person must return it back to the first person (true owner).
A contracts with B that he will pay B Rs. 1000 if B's house gets destroyed by fire, which type of contract is it ? Contingent contract (here the contract will be executed only on happening of an incident)
What is the difference between contingent contract and wager contract ? There is a loss to one of the person on happening of an event - - there i contingent contract is legal, but wager is illegal and not allowed batting agreements (example : it if rains – I will give you 100) are illegal.
What types of contract is there in insurance contract ? Contingent contract
When can you sue for specific performance of a contract ? Specific performance = same performance = money as a damage / penalty is inaequate when the court is satisfied that money cannot substitute the damage – the court may order for specific performance and in that case the contract must be executed as per planned.
Which of these is a quasi contract 1. Pankaj lost his camera which Raju got by chance 2. ajay paid Rs 100 to Tarun, a minor 3 by mistake Goti gave a watch to Raju instead to Kavi 4. seller of a goods didnt get payment 5. Ram pays Rs 200 on behalf of Shyam, on a disputed matter to Kavi. ANSWER : 1,3
Which of these is/are contracts ? When you invite B to your home for dinner and B accepts your invitation. = NO When you board a public bus. = yes When you call a taxi on the telephone = yes. When you put a one rupee coin in the slot of a weighing machine. = no When you eat a meal at a restaurant. = yes
Situation of a minor A, a minor, enters, into the following contracts. Is he and the other party bound by any of them? A contracts to marry B, aged 19 years. A boards a bus. = yes A lends Rs. 500 to B, aged 25 years. = yes A becomes an apprentice in an industrial concern. = yes A buys a TV set on credit.= no
SOLUTON Minor can make other person binding on his interest – but no person can make minor responsible for something. In the case the minor picks up a bus or gives loan, the minor can make other person to fulfill the commitment. But minor cannot be forced.
Distinguish between innocent misrepresentation and fraud and mistake. In case of mistake the contract is Void. In the case of misrepresentation, and fraud, the contract is voidable. Misrepresentation is covered in sec. 18, fraud in sec. 17, mistake in sec. 21 and 22. Damages can be claimed in fraud. Fraud has following components : false representation of facts so that the other person acts upon it.
A procured B a second wife on B’s promise to pay him Rs. 500. can the contract be enforced No – as it is not a legal contract
Enumerate the different modes of discharge of a contract. Lapse of time refusal to perform by both the parties by operation of law (when it becomes impossible) ' performance breach of contract mutual consent
Liquidated and unliquidated damages; -- - differentiate these When the amount of damages can be ascertained in advance, the parties may fix this amount in advance and therefore it is called liquidated damage. But when the amount of damage cannot be ascertained in advance, it is called unliquidated damage. Liquidated damanges are decided in advance.
Indemnity and Guarantee; Differentiate them There are two parties in idemnity, but 3 parties in guarantee. In indemnity, there is a promise to indemnify in case of loss by a person. Let us X and Y make a contract, X makes a mistake and he indemnifies to Y as per contract. This is indemnity. But instead of X, if Z indemnifies, it is guarantee by third party.
How will you enforce these contracts : B has promised to pay A Rs. 1,000 for his horse which had died before the contract - it is a void contract – as it is a mistake relating to fact of contract. (sec. 21,22) B, a minor, promised to pay A Rs. 10,000 for his car. = (contract with minor is void as it cannot be enforced against minor).
Reciprocal promises. - are they contracts No – they are not contracts Suppose Goti promises to give Pankaj rs 500 for his bike and Pankaj also promises to sell his bike to Goti for Rs. 500, still it is not a contract, it is only reciprocal promise.
Surety enjoys a right of subrogation. Do you agree Surety has the right to collect damages from the party in default. Suborgation means the surety gets the right to claims, once it has performed its role. For example, A and B has made a contract and C is surety for B. Due to a mistake by D, B fails to perform his part. C pays the damages (being surety). Now C can sue D for damages and collect the money to recover the damages paid. If C receives excess amount, it will go to B.
Failure to sue the principal debtor within time, discharges the surety. - do you agree Yes – law of limitation applies here. Suppose A promised to pay Rs 100 to B and C is surety for A. B didnt ask A to pay and now the amount is time barred. Thus C is free from his liability.
Money deposited in fixed deposit with a bank is bailment. - do you agree No – bailment is used with regards to goods or things which are delivered by one person to another for a specific purpose. It is defined as : Bailment is a voluntary delivery of goods for a temporary purpose on the understanding that they are to be returned in specie in the same or altered form. The ownership of the goods remains with the bailor,
What is gratuitous bailment? It is not for charge. Suppose I put my Car with Ravi for 2 days – and Ravi provides this facility to me not for charge – it is gratuitous bailment. Similarly : where you lend your book to a friend of yours for a week. (not for charge).
What is meant by ratification? It means approval. When a party approves the act of another party, it is ratification Ratification is not possible for ultra vires acts. Ratification is required when a person does something, which he / she was not allowed to do. For example A sells B's bike to C. now B has to ratify it then only this contract can be enforceable.
Distinguish between particular lien and general lien? General lien is towards all the property, but particular lien is towards only a specific property. Suppose Sachin buys a charter plane on credit with specific lien, then the creditor can only sell the plane if Sachin doesnt pay his liability. However, if it is general lien, the creditor can recover from any property of sachin.
A on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta. Has A employed any coercion? Yes
A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. Is the agreement valid? The agreement is VOID – as it is a contract based on mistake of fact. (sec. 21,22)
X having advanced money to his son Y, during the minority, upon Y’s becoming major obtains by misuse of parental influence a bond from Y for a greater amount than the sum due in respect of the advances. Has X employed undue influence? Yes
A sells by auction, to B a horse which A knows to be unsound. A says nothing to B about the horses unsoundness. Is A guilty of fraud. No – it is the duty of B to inquire about the horse..
A and B are traders and enter into some contract. A has private information of a change in price which would effect B’s willingness to proceed with the contract. Is A bound to inform B. No
A intending to deceive B falsely represents that five hundred paunds of indigo are made annually at A’s factory and thereby induces B to buy the factory. What is the remedy available to B. It is a contract based on fraud. So B can sue A for damages and rescind the contract. (sec. 17)
A’s son has forged B’s name to a promissory note. B, under threat of prosecuting A’s son obtains a bond from A for the amount of the forged note. Can B sue on this bond. No – as it is also based on coersion (Sec. 15) A's son has committed a crime. Reply to a crime should not be a crime.
“ Mere silence may amount to fraud”. COMMENT This is applicable in the case of contract of uberrmae fedei . Uberrmae Fedei means contract of utmost faith. Following are contracts of uberrmae fedei : 1. prospectus by company, 2. sale of land 3. family arrangement 4. insurance contracts. Thus in these cases mere silence may amount to fraud. In other cases, mere silence is not a fraud.
“ The legal effect of a contract is confined to the contracting parties”. Comment The legal effect of contract is binding on both the parties to the contract, but sometimes, it may be related to third parties also. Quasi contracts are such examples where a party which has not signed the contract is also bound by the contract. Quasi contract is an obligation created by law (not by agreement). For example finder of lost goods has the responsibility to return the goods.
“ The essence of every agreement is that there ought be free consent on both the sides”. As per section 10 free consent is essential for a contract. Further, consent based on coercion, misrepresentation (sec. 18) , fraud (sec. 17) ,are not allowed. All these contracs will be voidable. Contracts based on mistakes (sec. 20,21) will be void
X entrusts Y with a negotiable instrument endorsed in blank. Y makes over the instrument to C in violation of the private orders of X. Is it a valid act? Yes – it is a negotiable instrument, and a holder in due course gets good right to the instrument and also the rifht to endorse it to others.
A enters into a contract with B to sell him 100 bales of cotton and afterwards discovers that B was acting as agent for C. Whom can A sue? A can sue either of B or C.
A employs B to beat C and agrees to indemnify him against all consequences. B beats C and had to pay damages to C. Is A bound to indemnify B? No – it is an illegal contract and has no validity
X directs Y his agent to buy a certain house for him. Y tells X that it cannot be bought but buys the house himself later. Can X on discovering this compel Y to sell it to him? Yes – as Y was working as the agent of X and has misused his position.
A has authority from his principal B to sell goods on credit. A sells goods on credit to C without making the proper and usual enquiries as to C’s solvency. C at the time of such sale was insolvent. Should A compensate B? Yes as per sec. 212, agent is bound to act diligently
A authorises B to let A’s house. Afterwards A lets it himself. Is the authority of B revoked? Yes – here the principal has revoked the authority of B (sec. 207)
X gives authority to Y to sell X’s land, to pay himself out of the proceeds the debts due to him. Can X revoke this authority? No – as X has liability to Y and the authority is given in relation to that liability : Sec. 202 (it is not simple agency, but it is agency with interest)
A holds a lease from B terminable on 3 months notice. C an unauthorised person gives notice of termination to A. Can the notice be ratified by B? Here lease is given by B so notice should also be given by B. Therefore the answer is NO (sec. 200)
A without authority buys goods for B. Afterwards B sell them to C on his own account. Does he ratify the act of A? Yes now B has ratified the act of A. Sec. 197 .
A has an agent at Calcutta namely B to whom he sends certain goods with directions to send them immediately to Lucknow. But B finds that the goods may not stand the journey to Lucknow and sells them at Calcutta itself. Is he justified in doing so? Yes in order to protect the interest of principal, the agent can take such measures. Sec. 189 : an agent may do all things which may be necessary to protect the principal
A delivers his two wrist watches for repair to B. B keeps both the watches duly repaired. A is prepared to take back one of the watches on payment of the charge for repairing it but B refuses ans wants to deliver both the watches. Is B justified?
Solution No B is not justified B has lien on the other watch, and can keep it till he receives the payment sec. : 170 : particularlien
A leaves a cow in the custody of B to be taken care of. The cow begets a calf. Is B bound to redeliver the calf also. Yes – B has to deliver calf also. Sec. : 163 : it is a case of bailment
A lends his car to B on the express understanding that only B should drive it. But B’s son drives the car. In spite of all his diligence the car meets with an accident and is severely damaged? Is B liable for damage? Yes
A lends a cycle which he knows is defective to B. B is injured while driving. Is A liable for injuries sustained? Yes A should have told B about it earlier Sec. 150 :
A, B and C as sureties for D enter into several bonds each in a different penalty namely, A in the penalty of Rs. 10,000, B in that of Rs. 20,000 and C in that of Rs. 40,000 conditioned for D’s duty accounting to E. D makes a default to the extent of Rs. 30,000. How much A, B and C are liable to pay?
X guarantees to Z payment for iron to be supplied by him to Y to the extent of 20,000 tonnes. Y and Z have privately agreed that Y should pay five rupees per ton beyond the market price, such excess to be applied in liquidation of old debt. This agreement is concealed from X. Is X liable. No - the surety is not responsible if there is a private secret agreement (sec. 143)
A owes money to B which has been guaranteed by C. The debt becomes due, but B does not sue A for a year thereafter. Is C discharged from liability? No : the surety is not discharged unless there is some agreement to the contrary Sec. 137
A agrees to appoint B as salesman in his office at a monthly salary of Rs. 300 upon C becoming a surety for B’s duty accounting of the monies received by him. Afterwards without C’s knowledge or consent, A agreed to pay B commission on the collections instead of monthly salary. Is C liable for any subsequent misconduct of B? No (sec. 133, the terms cant be changed without the consent of surety)
A guarantees to B to the extent of Rs. 1,000 that C shall pay all the bills that B shall draw upon him. B draws upon C. C accepts the bill. A gives a notice of revocation. Is A liable if C dishonours the bill at maturity?
Solution Yes – sec. 130 revocation was done after the deal. `this revocation will apply on future transactions only
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. Is A liable for the interest on the amount of the bill due.
Solution Sec. 128 : the liability of surety is equal to that of principal debtor, so the surety is liable for interest also
What is the difference between a bailment and pledge? Bailment (sec. 148), here goods / any assets are transferred for some purpose. It may be against payment / without payment. Pledge ( Sec. 172 ) : here goods / articles are given by the debtor as security for performance of loan taken by the debtor. This is kept by the creditor / lender till the repayment of loan. It is also called pawn.
What are the various bodies in contracts of pledge, bills and bailment In pledge the parties are : Pawner : the person who gives the article. Pawnee – the person who keeps the security in bailment : bailor and bailee just like pawner and pawnee. In bills we have : 1. drawer, drawee, and holder. Drawer prepares bill and gives to holder to collect payment on due date from drawee.
Pawan delivered some jewellery to Amir for his approval. Amir pledged the same with Pankaj, Pawan wants to get back the jewellary from Pankaj. Would he succeed? The jewellery was given by Amir to Pankaj, so only Amir can collect it back from Pankaj. Since the jewellery was given by Amir to Pankaj, it is assumed that Amir has accepted the jewellery and thus there is a sale between Pawan and Amir, thus Pawan should collect payment from Amir. So answer : NO
A contracts to sell and deliver 25,000 tonnes of certain raw material to B on a fixed day. A knows nothing of B’s mode of conducting his business. A breaks his promise and B having no raw material is obliged to close his factory. Is B entitled to recover the loss caused by such closure?
Solution .. No – the buyer should have clarified the terms and made a provision for such compensation (sec. 73)
A contracts to buy B’s scooter for Rs. 7,800, but breaks his promise. B could obtain another scooter immediately after the breach for Rs. 8,500. Can B recover the excess of Rs. 700.
X, a trader leaves goods at Y’s house by mistake. Y treats the goods as his own. What is remedy available to X. X can recover damages or goods (if they are intact) sec. 70
X owes money to Y under a contract. It is agreed between X, Y and Z that Y will accept Z as his debtor instead of X. Is the old debt extinguished? Yes : as per sec. 62
P contracts with Q to execute some construction work for a fixed price, Q supplying the scaffolding and timber necessary for the work. Q fails to supply the necessary scaffolding and timber. Can P refuse to execute the construction work? Can P claim damages for loss arising for Qs non-performance.
X promises to build a stable for Y’s horse and Y promises to pay X on completion of the work. Half-way during construction X demands money from Y. Can Y refuses to pay? Yes – he will pay after complete construction as per contract sec. 52
X undertakes to deliver 100 bags of wheat to Y on an appointed day. Is X bound to fix the place of delivery? Yes Sec. 49
A promises to deliver 50 rice bags at B’s warehouse on 1st January. A brings the goods as promised but after the usual business hours. Has A performed his promise? No Sec. 47
A, B and C jointly promise to pay D a sum of Rs. 1,500. C is compelled to pay the whole amount. A is insolvent but his assets are sufficient to pay one half of his debts. How much C is entitled to recover from A and B’s estates. 250 from A and 625 from B. (sec. 43 )
A, a singer enters into a contract with B, the manager of a theatre, to sing at this theatre two nights in every week during the next two months and is engaged to pay her Rs. 100 for each night’s performance. On the sixth night, A wilfully absents herself from the theatre. Can B put an end the contract. Yes : Sec. 39
A promises to paint a picture for B within a month for a price. A dies shortly thereafter. Can B enforce the contract against the legal representatives of A. No sec. 37
A agrees to pay B a sum of money if B marries C. C married D. What is the consequence? The contract is now void Sec. 36
A makes a contract with B to buy B’s car if A survives C. Can contract be enforced before C dies? No Sec. 32
C contracts to pay A Rs. 10,000 if his car is destroyed. What is the nature of his contract? Contingency contract Sec. 31
A agrees to sell B all the rice in his godown. Is it a valid agreement? Yes there is certainity
A is dealer in different kinds of oil. He agrees to sell B “a hundred tonnes of oil. “Is there any agreement”? No Sec. 29 it is a mistake
A owes to B Rs. 1,000 but the debt is barred by the Limitation Act. A orally promises to pay the debt. Can B recover the money from A. No it requires written consent now
X promises to superintend on behalf of Y a legal manufacturer of indigo and illegal traffic in cosmetic. Y promises to pay to X Rs. 20,000 a year for this. Is the agreement valid? No it is invalid Sec. 24
A’s estate is sold for arrears of revenue under the provisions of an Act of legislature by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A, becomes the purchaser and agrees to convey the estate to A upon receiving from him the price which B has paid. Is the agreement valid.
Solution ... This agreement will defeat the purpose of law. If it is noticed later, it will be invalid.
A promises to obtain for B an employment in the public service and B promises to pay Rs. 1,000 to A. Is this valid contract. No Sec. 23
A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. Is the agreement valid? No Sec. 20 (mistake of facts)
distinguish between a condition and a warranty. Condition is essential, if it is broken, the contract of sale is broken. Warranty is collateral to the main purpose of ( second part of a) contract, if it is broken damages can be claimed. Read sec. 10 to 17 of Sale of goods act for detail. Condition is more important and binding than warranty.
DISTINGUISH Sale and Hire Purchase Agreement There is immediate transfer of property in case of sale. In hire purchase, the property transfers at the end of the period (when all the instalments are paid). If you buy a car from a showroom on hire purchase, you will be its true owner only when you payback all the instalments and thus hire purchase doesnt give the buyer complete powers. The hire purchase agreement only gives an option to buy the goods to the buyer, but there is a clear agreement in the case of sale.
Can you sell future goods? Yes – as per sec. 2(6) : these goods must be specific, identifiable and certain. If they are not certain, you cannot sell them. Example : In your factory you make bisxuits. You make a contract to supply 1000 kg of biscuits to a buyer on certain price and the goods will be manufactured in next 1 month.
What is the Doctrine of ‘Nemo dat quod non habet’. It is related to transfer of ownership. It means : no one can pass a better title than he himself has. You cant sell a property, which doesnt belong to you. If you are owner of something then only you can sell it. If you are not owner, how can you sell something?
Discuss the rights of an unpaid seller. The unpaid seller can take possession of the goods, he can stop the goods in transit (which are going to the buyer) or can sell these goods to some other person. (sec.,50,52, 54 of sale of goods act) He has right to lien on the goods He can withhold delivery of goods (if the goods are with him). (sec. 55 of sale of goods act)
WHAT IS THE Doctrine of Caveat Emptor Sec 16 : the buyer should satisfy himself about the goods before buying. Thus buyer should be alert and careful while buying the goods.
A and B are co-owners of a T.V. while the T.V. is in possession of B. A's secretary takes it away and sells it to C, a bonafide purchaser for value. As per sec. 14(a) and rule of Nemo Dat Quod Non-Habet the secretary of A cant sell the TV to C. C will have to return the TV back to A & B. However, C can recover his money from secretary of A.
X by way of undue influence buys a car from Y at a very low price and sells it to Z, an innocent purchaser. Here this is a case of voidable contract between X and Y. However, Z purchased from X without any knowledge of this. As per sec. 27 of Sale of Goods act, the buyer gets a good title, if he buys innocently and after fulfilling regular checkups. Thus Z cant be forced to return car. X can recover his remaining money from Y.
Why it is important to know the time of passing of property? If the goods are damaged after that time, the responsibility is that of buyer, if the goods are destroyed before that time, the responsibility will be that of the seller. The time is important, as if there is some special circumstances, it may lead the contract to a null / void contract.
What are implied conditions and warranties? These conditions are assumed to be there in every sale contract. 1. condition to the title of the goods : it is assumed that the seller has title to the goods. 2. quite possession / freedom from encumbrances (nobody should disturb the enjoyment of the goods). 3. in case of sale by description, the goods must be similar to description, and in case of sale by sample, the goods should be similar to the sample 4. quality / fitness : the goods must be fit for use for the purpose for which they have been bought. 5. the seller has to disclose dangerous nature of goods. 6. as per business practices. ... ..
Define negotiable instrument. Negotiable instrument is one instrument which can be transferred by one person. Thus ownership is transferable in the case of negotiable instrument. It is of two types : 1. bearer 2. order bearer instrument doesnt require any endorsement – transfer is by only delivery. In case of order instrument, the owner has to endorse it in favour of transferee.
contd... Sec. 13(1) : negotiable instrument means – a promissory note – a bill of exchange – a cheque payable to order or bearer promissory note is a promise to pay certain amount to the bearer of the instrument or to order on specified date
What is the difference between a bill and promissory note? Promissory note is a promise to pay, it is prepared by the debtor himself and it is given to creditor. A bill is an order to a party to pay some amount. Thus it is prepared by creditor on a debtor. A bill has to be accepted by the debtor (that the debtor will pay on specified date / on demand).
What is dishonour of a bill ? When the debtor (drawee) is not able to pay a bill on due date, it is called dishonour of a bill. It is the inability of the debtor to pay the bill on due date. When there is dishonour of bill, the holder of the bill will give a notice to the drawee. This notice must be noted with notary. Read sec. 91 to 99 of negotiable instrument act.
Do you think : Forgery of drawers’ signatures protects the paying bank. No. Forgery is a crime. The bank has to recover the amount from the person who is doing forgery.
What is the difference between holder and holder in due course ? Holder means the bearer of an instrument. Holder in due course means a person who has acquired instrument properly through proper legal procedure and therefore that person has proper legal right on the instrument. A holder in due course is a person, who gets full right to the instrument.
Some furniture was delivered by X to A on hire purchase basis so that he could become owner after the payment of the last instalment. A sold the furniture to B even before such payment. A failed to make the last payment. X wanted to recover the furniture from B. Would he succeed? A is not the owner of the property, so he cant sell the property, so the property belongs to X. If B is able to proove that he had some criteria to believe that A was owner, then he may be able to retain the property. In that case X should get damages from A.
In a contact through sea, where the seller has to put the goods on board ship at his own expenses, the contract is known as : There is are three popular types : .1 FOB 2 CIF 3. EX-FACTORY this is the case of FOB – free on board – because here the seller is responsible to put the goods on board. In the case of CIF, the seller bears carriage, insurance and freight (all the three expenses). In ex-factor or ex-godown, the seller gives the delivery of goods at factory and is not responsible thereafter.
What is Stale cheque. A cheque which is out of date is called stale cheque. A chaque has life of 6 months from the date which it bears. In some cases, the life of cheque is only 3 months. (for example in the cae of banker's cheque)
What is banker's cheque? A cheque drawn by one bank on another bank. It is used for transfer of money to another person within the same city. It is similar to bank draft.
What is hundi? It is a traditional financial instrument, which has been in use for hundreds of years. It was used by Marwari traders to undertake financial transactions. Suppose Y is your debtor (you have sold him some goods on credit) by Rs. 3000 and you have to pay Rs. 3000 to Z. You can draw a hundi on Y payable to Z. Thus on due date, Z will collect Rs. 3000 from Y on your behalf and thus your account will be settled. It is like bill of exchange.
What is an Accommodation Bill It is a means of financing. Example : I need Rs. 9 Lakh urgently urgently. I draw a bill on you for 6 months and get the bill accepted by you for Rs. 9 lakhs. I go to the bank and get the bill discounted. The bank gives me some 8.9 lakhs. On due date (after 6 months), the bank will collect Rs. 9 lakhs from you. (by that time I will also give you Rs. 9 lakhs, so that you may pay to the bank).
Who is a Holder-in-due course As per sec. 9 of Negotiable Instrument : A holder in due course is a person who obtains possession of a negotiable instrument for consideration and without any cause to believe that any defect exists in the title of the person from whom he derives his title. The instrument must be obtained before the date of expiry of the instrument and with proper endorsement (in case of to order instrument). Sometimes, holder in due course gets better title than a holder.
A draws a bill payable three months after sight on B. It passes several hands before X becomes its holder. On presentation by X, B refuses to accept the bill. Discuss the rights of X.
Solution ... X has right to collect payment from B or from the person who gave this instrument to X. The concerned person will than collect throug the chain, ultimately, A will be responsible, who will finally collect payment from B. X will have to give a notice of dishonour to B and then he will be able to recover money from the person who passed him this bill.
What is Endorsement. If I have some bill / cheque / promisory note (a negotiable instrument – of any type), and I want to give it to someone else, I can give it by delivery (in case of bearer instrument) or by endorsement (in case the instrument is to order). Thus endorsement is required when the instrument is to order. It enables a person to transfer ownership of the negotiable instrument. Here the endorser rights at the back of the instrument the name of the endorsee, and the details.
Example of endorsement I T.K. Jain give the right of this cheque to Mr M. K. Jain for money and consideration received. Signature.
What is a valid endorsement It must be made before the instrument expires it must be made by a holder in due course it must be made by a person who has clear title to the instrument. It must be against consideration. (read Sec. 15 and 16 of Negotiable instrument act for detail) Sec. 52 : endorser may exclude his own ultimate liability in some cases.
Describe legal presumption in case of negotiable instruments. Negotiable instruments are transferable by the holder in due course. It is assumed that the negotiable instrument was prepared for consideration. It was transferred before its maturity date. It was duely signed / stamped as per legal requirements. The holder of the instrument is assumed to be the holder in due course. (read sec. 118 and 119 of N.I. Act 1881)
Discuss the penal provisions in case of dishonour of cheque? Dishonour means payment is not made by the banker against the cheque. The banker may refuse payment when – 1. there is insufficient balance 2. there is signature mismatch 3. when there is stop payment instruction by the drawer 4. other reasons approved by law. 138-142 say : Imprisonment upto 2 years / fine upto twice the amount of cheque (or both) penaly if there is dishonour due to lack of funds. (proper procedure regarding notice must be followed). (case: G.M. Mittal Stainless Steel v/s Nagarjun Investments 1997)
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