Commercial Law

Transcript

Unit I Contract – definition- Obligation and agreement – Nature and contract and Components of valid contract – Offer and Acceptance – Consideration and Capacity – free consent – Unlawful agreement – Quasi Contract Contract A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. Defintions Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. Section 2(e) defines agreement as “every promise and every set of promises formingconsideration for each other.” Section 2(b) defines promise in these words: “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise.” From the above definition of promise, it is obvious that an agreement is an accepted proposal. The two elements of an agreement are: (i) offer or a proposal; and (ii) an acceptance of that offer or proposal. What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy. Thus, a contract consists of two elements: (i) an agreement; and (ii) legal obligation, i.e., it should be enforceable at law. However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts Obligations and Agreement What obligations are contractual in nature? We have seen above that the law of contracts is not the whole law of agreements. Similarly, all legal obligations are not contractual in nature. A legal obligation having its source in an agreement only will give rise to a contract. An obligation which does not have its origin in an agreement does not give rise to a contract. Some of such obligations are 1 1. Torts or civil wrongs; 2. Quasi-contract; 3. Judgements of courts, i.e., Contracts of Records; 4. Relationship between husband and wife, trustee and beneficiary, i.e., status obligations. These obligations are not contractual in nature, but are enforceable in a court of law. Thus, Salmond has rightly observed: “The law of Contracts is not the whole law of agreements nor is it the whole law of obligations. It is the law of those agreements which create obligations, and those obligations which have, their source in agreements.” Law of Contracts creates rights in personam as distinguished from rights in rem. Rights in rem are generally in regard to some property as for instance to recover land in an action of ejectment. Such rights are available against the whole world. Rights in personam are against or in respect of a specific person and not against the world at large. Nature of contract The law of contract is that branch of law which determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties. Indian Contract Act, 1872 came into effect from 1st September, 1872. It extends to the whole of India except the state of Jammu and Kashmir. CONTRACT [SECTION 2(h)]: A contract is “an agreement enforceable by law”. Thus, CONTRACT = AGREEMENT (+) ENFORCEABILITY BY LAW “All contracts are agreements but all agreements are not contracts” AGREEMENT [SECTION 2(e)]: An agreement means, “Every promise or every set of promises, forming consideration for each other”. AGREEMENT = PROMISE(S) BY ONE PARTY (+) PROMISE(S) BY THE OTHER PARTY PROMISE [SECTION 2(b)]: “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.” PROMISE = PROPOSAL + ACCEPTANCE PROPOSAL/OFFER [SECTION 2(a)]: A person is said to make a proposal when “he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining assent of that other to such act or abstinence” PROPOSAL = WILLINGNESS TO DO OR ABSTAIN FROM DOING (+) WILLINGNESS’ TO OBTAIN ASSENT OF THE OTHER PARTY TO SUCH ACT OR ABSTINENCE 2 CONSIDERATION [SECTION 2(d)]: “When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing something, such cat or abstinence is called consideration”. In other words, consideration is something in return. Essential of a Valid Contract [Section 10] According to Section 10, “All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void”. The essential elements of a valid contract are: (i) Agreement: To constitute a contract there must be an agreement. There must be two parties to an agreement, i.e. one party making an offer (offeror) and the other party accepting the offer (offeree). The terms of the offer must be definite and acceptance must be absolute and unconditional. The acceptance must be according to the mode prescribed and must be communicated to the offeror. (ii) Consensus-ad-idem (meeting of minds): To constitute a valid contract, there must be meeting of minds i.e. consensus-ad-idem. The parties should agree to the same thing in the same sense and at the same time. (iii) Intention to create legal relationship: When the two parties enter into an agreement, there must be an intention by both parties to legally bind the other as a result of such agreement. Thus, agreements of social or household nature are not contracts. (iv) Capacity of parties (competence): The parties to the agreement must be capable of entering into a valid contract. According to Section 11, every person is competent to contract if he or she, 1. is of the age of majority; 2. is of sound mind; and 3. is not disqualified from contracting by any law to which he is subject. (v) Lawful Consideration: An agreement to form a valid contract should be supported by consideration. Consideration means “something in return” (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful. (vi) Free consent: To constitute a valid contract there must be free and genuine consent of the parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue influence or mistake. (vii) Lawful object: The object of the agreement must not be illegal or unlawful. Section 23: According to Section 23, the consideration or object of an agreement is lawful, unless• It is forbidden by law; or 3 • Is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; or • Involves or implies, injury to the person or property of another; or • The court regards it as immoral, or opposed to public policy. (viii) Agreement not declared void or illegal: Agreements which have been expressly declared void or illegal by law are not enforceable at law; hence does not constitute a valid contract. (ix) Certainty and possibility of performance: The terms of agreement must be certain and not vague. If it is not possible to ascertain the meaning of the agreement, it is not enforceable at law. Also, agreements to do impossible acts cannot be Types of Contract CLASSIFICATION OF CONTRACTS On the basis of Validity 1. Valid contract 2. Void contract 3. Voidable contract 4. Void agreement On the basis of Formation 1. Express contract 2. Implied contract 3. Quasi Contracts On the basis of Performance 1. Executed contract 2. Executory contract 3. Unilateral contract 4. Bilateral contract • Valid contract: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law. • Voidable contract [Section 2(i)]: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party. • Void contract [Section 2(j)]: A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void. • Void agreement: An agreement not enforceable by law is said to be void. Such agreement does not confer any right to any of the parties to it. The agreement, in such a case, is voidab-initio (from the very beginning). Such an agreement does not result in a contract at all. 4 • Unenforceable contracts: Where a contract is good in substance but because of some technical defect cannot be enforced by law is called unenforceable contract. These contracts are neither void nor voidable. • Illegal agreement: An agreement is illegal if it is forbidden by law; or is of such nature that, if permitted, would defeat the provisions of nay law or is fraudulent; or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio. “All illegal agreements are void agreements but all void agreements are not illegal.” • Express contract: Where the terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation, the contract is said to be express contract. • Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise than in words, promise is said to be implied. • Quasi contracts: A quasi contract is created by law. Thus, quasi contracts are strictly not contracts as there is no intention of parties to enter into a contract. It is legal obligation which is imposed on a party who is required to perform it. A quasi contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another. • Executed contract: An executed contract is one in which both the parties have performed their respective obligation. • Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract. • Unilateral contract: A unilateral contract is one in which only one party has to perform his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time o the contract or before the contract comes into existence. • Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts are also known as contracts with executory consideration. Offer and Acceptance Offer/ Proposal A proposal is defined as “when one person signifies to another his willingness to do or to 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.” [Section 2 (a)]. An offer is synonymous with proposal.The offeror or proposer expresses his willingness “to do” or “not to do” (i.e., abstain from 5 doing) something with a view to obtain acceptance of the other party to such act or abstinence. Thus, there may be “positive” or “negative” acts which the proposer is willing to do. An offer can also be made by a party by omission (to do something). This includes such conduct or forbearance on one’s part that the other person takes it as his willingness or assent. An offer implied from the conduct of the parties or from the circumstances of the case is known as implied offer. Specific and General Offer An offer can be made either: 1. to a definite person or a group of persons, or 2. to the public at large. The first mode of making offer is known as specific offer and the second is known as a general offer. In case of the specific offer, it may be accepted by that person or group of persons to whom the same has been made. The general offer may be accepted by any one by complying with the terms of the offer. The general offer creates for the offeror liability in favour of any person who happens to fulfil the conditions of the offer. It is not at all necessary for the offeree to be known to the offeror at the time when the offer is made. He may be a stranger, but by complying with the conditions of the offer, he is deemed to have accepted the offer. Essential requirements of a valid offer An offer must have certain essentials in order to constitute it a valid offer. These are: 1. The offer must be made with a view to obtain acceptance [Section 2(a)]. 2. The offer must be made with the intention of creating legal relations. 3. The terms of offer must be definite, unambiguous and certain or capable of being made certain (Section 29). The terms of the offer must not be loose, vague or ambiguous. 4. An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat. 5. The offer must be communicated to the offeree. An offer must be communicated to the offeree before it can be accepted. This is true of specific as well as general offer. Acceptance The Indian Contract Act, 1872 defines an acceptance as follows: ‘‘When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted” [Sec. 2(b)]. Thus, acceptance is the act of giving consent to the proposal. A proposal when accepted becomes a contract. Essential of Valid Acceptance (1) Acceptance must be absolute and unqualified (2) Acceptance must be communicated to the offeror (3) Acceptance must be according to the mode prescribed. (Section 7) 6 Consideration Something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances. Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance, the performance is consideration for the promise, while the promise is consideration for the performance. Rules as to Consideration I. II. III. IV. V. 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 real and competent Consideration must be legal Exceptions to the Rule “No Consideration No Contract” 1. An agreement made without consideration is valid if: (a) it is expressed in writing, and (b) it is registered (under the law for the time being in force for registration of documents), and (c) it is made on account of natural love and affection, and (d) made between parties standing in a near relation to each other. 2. A promise made without consideration is valid if, “it is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do” [Section 25 (2)]. 3. Consideration is not necessary to effect bailment (Section 148). 4. No consideration is required to create an agency (Section 185). Notice, however, that if no consideration has passed to the agent, he is only a gratuitous agent and is not bound to do the work entrusted to him, although if he begins the work, he must do it to the satisfaction of his principal. 5. The rule ‘no consideration no contract’ does not apply to completed gifts Capacity to contract Section 11 provides that “Every person is competent to contract who is of the age ofmajority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.” Thus, incapacity to contract may arise from: (i) minority, (ii) mental incompetence, and (iii) status. Minority 7 According to Section 3 of the Indian Majority Act, 1875, a minor is a person who has not completed 18 years of age. However, in the following two cases, a minor attains majority after 21 years of age: 1. Where a guardian of minor’s person or property has been appointed under the Guardians and Wards Act, 1890, or 2. Where the superintendence of minor’s property is assumed by a Court of Wards. Minors’ Contracts The position of minors’ contracts is summed up as follows: 1. A contract with or by a minor is void and a minor, therefore, cannot, bind himself by a contract. A minor is not competent to contract. 2. A minor can be a promisee or a beneficiary. 3. A minor’s agreement cannot be ratified by the minor on his attaining majority. 4. If a minor has received any benefit under a void contract, he cannot be asked to refund the same. 5. A minor is always allowed to plead minority, and is not estopped to do so even where he had procured a loan or entered into some other contract by falsely representing, that he was of full age. 6. A minor cannot be a partner in a partnership firm. However, a minor may, with the consent of all the partners for the time being, be admitted to the benefits of partnership 7. A minor’s estate is liable to a person who supplies necessaries of life to a minor, or to one whom the minor is legally bound to support according to his station in life. 8. Minor’s parents/guardians are not liable to a minor’s creditor for the breach of contract by the minor. 9. A minor can act as an agent and bind his principal by his acts without incurring any personal liability. Mental Incompetence parties to the contract must be competent to contract, and a person must be of sound mind so as to be competent to contract (Section 10–11). Section 12 lays down a test of soundness of mind. It reads as follows: “A person is said to be of unsound mind for the purpose of making a contract, if at the time when he makes it, he is incapable of understanding it, and of forming a rational judgement as to its effect upon his interests. A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.” Lunatics A lunatic is a person who is mentally deranged due to some, mental strain or other personal experience. However, he has some intervals of sound mind. He is not liable for contracts entered into while he is of unsound mind. However, as regards contracts entered into during lucid intervals, he is bound. His position in this regard is identical with minor, i.e., in general the contract is void but the same exceptions as discussed above (under minor’s contracts) are relevant. 8 Idiots An idiot is a person who is permanently of unsound mind. He does not have lucid intervals. He is incapable of entering into a contract and, therefore, a contract with an idiot is void. However, like a minor, his properties, if any, shall be liable for recoveries on account of necessaries of life supplied. Also he can be a beneficiary. Drunken or Intoxicated Persons A person who is drunk, intoxicated or delirious from fever so as to be incapable of understanding the nature and effect of an agreement or to form a rational judgment as to its effect on his interests cannot enter into valid contracts whilst such drunkenness or delirium lasts. Under the English Law, contracts made by persons of unsound mind are voidable and not void. Incompetence Through Status Besides minors and persons of unsound mind, there are some other persons who are incompetent to contract, partially or wholly, so that the contracts of such persons are void. Incompetency to contract may arise from political status, corporate status, legal status, etc. Alien Enemy (Political Status). An alien is a person who is the citizen of a foreign country. Thus, in the Indian context, an alien is a person, who is not a subject of India. An alien may be (i) an alien friend, or (ii) an alien enemy. An alien friend (i.e., a foreigner) whose country is at peace with the Republic of India, has usually the full contractual capacity of a natural born Indian subject. But he cannot acquire property in Indian ship, and also cannot be employed as Master or any other Chief Officer of such a ship. In the case of contracts with an alien enemy (i.e. an alien whose country is at war with India) the position is studied under two heads: (i) contracts during the war; and (ii) contracts made before the war. During the subsistence of the war, an alien can neither contract with an Indian subject nor can he sue in an Indian court except by licence from the Central Government. As regards contracts entered into before the war breaks out, they are either dissolved or merely suspended. Foreign Sovereigns and Ambassadors (Political status) Foreign sovereigns and accredited representatives of a foreign State or Ambassadors enjoy some special privileges. They cannot be sued in our courts unless they choose to submit themselves to the jurisdiction of our courts. They can enter into contracts and enforce those contracts in our courts. However, they cannot be proceeded against in Indian courts without the sanction of the Central Government. Company under the Companies Act or Statutory Corporation by passing Special Act of Parliament (Corporate status) A company cannot enter into a contract which is ultra vires its Memorandum of Association. A statutory corporation cannot go beyond the objects mentioned in the Act, passed by the Parliament. 9 Similarly, Municipal Corporations (Local bodies) are disqualified from entering into contracts which are not within their statutory powers. Married Women (Marital status) A married woman has full contractual capacity and can sue and be sued in her own name. She is not incompetent to contract. Insolvent Persons (Legal status) Insolvent persons are incompetent to contract until they obtain a certificate of discharge. Free consent It is essential to the creation of a contract that both parties agree to the same thing in the same sense. When two or more persons agree upon the same thing in the same sense, they are said to consent. Free Consent Defined (Section 14) Consent is said to be free when it is not caused by (a) Coercion. (b) Undue influence. (c) Fraud. (d) Misrepresentation. (e) Mistake. For a contract to be valid it is not only necessary that parties consent but also that they consent freely. Where there is a consent, but no free consent, there is generally a contract voidable at the option of the party whose consent was not free. Coercion (Sections 15, 19 and 72) Coercion is (i) the committing, or threatening to commit any act forbidden by the Indian Penal Code or (ii) the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Undue influence (Sections 16 and 19-A) Undue influence consists in the improper exercise of a power over the mind of one of the contracting parties by the other. According to Sec. 16, a contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Fraud (Sections 17 and 18) 10 ‘Fraud’ means and includes any of the following acts committed by a party to a contract (or with his connivance or by his agent) with intent to deceive another party thereto or his agent; or to induce him to enter into the contract: 1. the suggestion, as a fact, of that which is not true by one who does not believe it to be true; 2. the active concealment of a fact by one having knowledge or belief of the fact; 3. a promise made without any intention of performing it; 4. any other act fitted to deceive; 5. any such act or omission as the law specially declares to be fraudulent. Misre[resemtation (Sections 18 and 19) Like fraud, misrepresentation is incorrect or false statement but the falsity or inaccuracy is not due to any desire to deceive or defraud the other party. It is innocent. The party making it believes it to be true. Mistake Mistake may be defined as an erroneous belief concerning something. Mistake is of two kinds: (1) Mistake of fact, and (2) Mistake of law. Unlawful agreement The Indian Contract Act, 1872 declares certain agreements to be void. These are explained below. Agreements against public policy The term ‘public policy’ is not capable of being defined with any degree of precision because ‘public policy’, in its nature, is highly uncertain and fluctuating. It keeps on varying with the habits and fashions of the day, with the growth of commerce and usage of trade.In simple words, it may be said that an agreement which conflicts with morals of the time and contravenes any established interest of society, it is void as being against public policy. Thus, an agreement which tends to be injurious to the public or against the public good is void as being opposed to public Some of the commonly accepted grounds of public policy including those contained in Sections 26 to 28 are; 1. Trading with enemy 2. Agreements for stifling prosecution 3. Contracts in the nature champerty and maintenance 4. Agreements for the sale of public offices and titles 5. Agreements in restraint of parental rights 6. Agreement in restraint of marriage 7. Marriage brokerage or brocage contracts 8. Agreements in restraint of legal proceedings 9. Contracts interfering with course of Justice 10. Contracts tending to create monopolies 11. Agreements in restraint of trade. 11 Unit II Different mode of Discharge of contract – Remedies for breach – Contract of indemnity and guarantee – right of surety – Discharge of surety – Pawn or Pledge – right of Payee – Rights and Liabilities of finder of last goods – Law of agency – Kinds of agency – ex’post facto agency requirements – rights and liabilities of principles and agents Discharge of contract The cases in which a contract is discharged may be classified as follows: (a) By performance or tender. (b) By mutual consent. (c) By subsequent impossibility. (d) By operation of law. (e) By breach. (a) By Performance The obvious mode of discharge of a contract is by performance, that is, where the parties have done whatever was contemplated under the contract, the contract comes to an end. Thus where ‘A’ contracts to sell his car to ‘B’ for Rs. 85,000 as soon as the car is delivered to ‘B’ and ‘B’ pays the agreed price for it, the contract comes to an end by performance. (b) By Mututal Consent (Section 62) If the parties to a contract agree to substitute a new contract for it, or to rescind it or alter it, the original contract is discharged. A contract may terminate by mutual consent in any of the followings ways: 1. Novation ‘Novation’ means substitution of a new contract for the original one. The new contract may be substituted either between the same parties or between different parties. 2. Rescission Rescission means cancellation of all or some of the terms of the contract. Where parties mutually decide to cancel the terms of the contract, the obligations of the parties there under terminate. 3. Alteration If the parties mutually agree to change certain terms of the contract, it has the effect of terminating the original contract. There is, however, no change in the parties. 4. Remission (Section 63) 12 Remission is the acceptance of a lesser sum than what was contracted for or a lesser fulfilment of the promise made. 5. Waiver Waiver means relinquishment or abandonment of a right. Where a party waives his rights under the contract, the other party is released of his obligations 6. Merger A contract is said to have been discharged by way of ‘merger’ where an inferior right possessed by a person coincides with a superior right of the same person. (c) By Subsequent impossibility(Section 56) Impossibility in a contract may either be inherent in the transaction or it may be introduced later by the change of certain circumstances material to the contract. Examples of Inherent Impossibility (1) A promises to pay B Rs. 50,000 if B rides on horse to the moon. The agreement is void. (2) A agrees with B to discover treasure by magic. The agreement is void. The impossibility in these cases is inherent in the transaction. Such a contract is void ab-initio. On the other hand, where a contract originates as one capable of performance but later due to change of circumstances its performance becomes impossible, it is known to have become void by subsequent or supervening impossibility. We shall now consider this kind of impossibility in details. Subsequent Impossibility in England is referred to as ‘Doctrine of Frustration’. A contract is deemed to have become impossible of performance and thus void under the following circumstances: 1. Destruction of subject-matter of the contract 2. By the death or disablement of the parties 3. Subsequent illegality 4. Declaration of war 5. Non-existence or non-occurrence of a particular state of things (d) By Operation of Law Discharge under this head may take place as follows: 1. By death 2. By insolvency 3. By merger 13 4. By the unauthorised alteration of terms of a written document (e) By Breach of Contract A contract terminates by breach of contract. Breach of contract may arise in two ways: (a) Anticipatory breach, and (b) Actual breach. Anticipatory Breach of Contract Anticipatory breach of contract occurs, when a party repudiates it before the time fixed for performance has arrived or when a party by his own act disables himself from performing the contract. Actual Breach of Contract The actual breach may take place (a) at the time when performance is due, or (b) during the performance of the contract. Actual breach of Contract, at the time when performance is due. If a person does not perform his part of the contract at the stipulated time, he will be liable for its breach. Remedies of breach As soon as either party commits a breach of the contract, the other party becomes entitled to any of the following reliefs: 1. Rescission of the Contract. 2. Damages for the loss sustained or suffered. 3. A decree for specific performance. 4. An injunction. 5. Suit on Quantum Meruit. 1. Rescission of the Contract When a breach of Contract is committed by one party, the other party may sue to treat the contract as rescinded. In such a case, the aggrieved party is freed from all his obligations under the contract. Party Rightfully Rescinding Contract Entitled to Compensation (Section 75) A person who rightfully rescinds the contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract. 2. Damages Damages, generally speaking, are of four kinds: a) Ordinary Damages, 14 b) Special Damages, c) Vindictive, or Punitive or Exemplary Damages, and d) Nominal Damages. a) Ordinary Damages (Section 73) Ordinary damages are those which naturally arose in the usual course of things from such breach. The measure of ordinary damages is the difference between the contract price and the market price at the date of the breach. If the seller retains the goods after the breach, he cannot recover from the buyer any further loss if the market falls, nor be liable to have the damages reduced if the market rises. b) Special Damages (Section 73) Special damages are claimed in case of loss of profit, etc. When there are certain special or extraordinary circumstances present and their existence is communicated to the promisor, the nonperformance of the promise entitles the promisee to not only claim the ordinary damages but also damages that may result therefrom. c) Vindictive Damages Vindictive damages are awarded with a view to punish the defendant, and not solely with the idea of awarding compensation to the plaintiff. These have been awarded (a) for a breach of promise to marry; (b) for wrongful dishonour of a cheque by a banker possessing adequate funds of the customer. The measure of damages in case of (a) is dependent upon the severity of the shock to the sentiments of the promisee. In case of (b) the rule is smaller the amount of the cheque dishonoured, larger will be the amount of damages awarded. d) Nominal Damages Nominal damages are awarded in cases of breach of contract where there is only a technical violation of the legal right, but no substantial loss is caused thereby. The damages granted in such cases are called nominal because they are very small, for example, a rupee or a shilling. 3. Specific Performance Where damages are not an adequate remedy, the court may direct the party in breach to carry out his promise according to the terms of the contract. This is called ‘specific performance’ of the contract. Some of the instances where Court may direct specific performance are: a contract for the sale of a particular house or some rate article or any other thing for which monetary compensation is not enough because the injured party will not be able to get an exact substitute in the market. Specific performance will not be granted where: (a) Monetary compensation is an adequate relief. (b) The contract is of a personal nature, e.g., a contract to marry. (c) Where it is not possible for the Court to supervise the performance of the contract, 15 e.g., a building contract. (d) The contract is made by a company beyond its objects as laid down in its Memorandum of Association. 4. Injunction Injunction means an order of the Court. Where a party is in breach of a negative term of contract (i.e., where he does something which he promised not to do), the Court may, by issuing an order, prohibit him from doing so. 5. Quantum Meruit The phrase ‘Quantum Meruit’ means as much as is merited’ (earned). The normal rule of law is that unless a party has performed his promise in its entirely, it cannot claim performance from the other. To this rule, however, there are certain exceptions on the basis of ‘Quantum Meruit’. A right to sue on a ‘quantum meruit’ arises where a contract, partly performed by one party, has become discharged by the breach of the other party. Contract of indemnity and guarantee As per Section 124 of the Indian Contract Act, the contract of indemnity is defined as, “a contract by which one party promises to save other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.” A person who promises to bear the loss is known as indemnifier and the person whose loss is covered is known as indemnified. These types of contracts are mainly formed between insurance companies and their customers. Rights of indemnity holder: (Sec 125) The promise in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor — 1. Damages: An indemnity-holder when sued is entitled to recover from the indemnifier all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies. 2. Costs: All costs which he may be compelled to pay in any suit in instituting or defending it provided the indemnity-holder had not contravened the orders of the promisor and acted prudently or provided the promisor authorized him to bring the suit. Costs must be such as would have been incurred by a prudent man. 3. All sums: All sums which he may have paid under the terms of any compromise of any suit. The compromise must not be contrary to the orders of the promisor or it must be 16 authorized by the promisor and must be one which would be prudent for the promise to make. It must be noted that the indemnity holder must act within the scope of his authority. He should not contravene the orders of the promisor and act prudently to avail himself of the above rights. 4. Suit for specific performance: Besides the above rights, an indemnity-holder can sue for specific performance of the contract of indemnity if he incurs absolute liability which is covered by the contract of indemnity. Under Section 126, of the Act, a contract of guarantee is defined as, “a contract to perform the promise, or discharge the liability of a third person in case of his default.” This type of contract is formed mainly to facilitate borrowing and lending money. The three parties involved in this type of contract are: • • • Surety: is the person by whom the guarantee is given Principal Debtor: is the person from whom the assurance is given. Creditor: is the person to whom the guarantee is given. Essential Feactures of Contract of Guarantee. a) Tripartite Contract It is an agreement between the principal debtor, creator and surety. The tree separates contracts exist between them. If the promise principaldebtor is not fulfilled, the liability for the surety arises. In a contract of guarantee the principal debtor is liable and the surety will be liable on principal debtor’s default. The principal contract exists between the principal debtor and the creditor and the contract between the surety is a condarycontract. b) C o n s i d e r a t i o n A contract guarantee like other contracts must fulfill essentials of a valid contract. It must be supported by some consideration. It is not necessary that there must be direct consideration between the surely and the creditor. The consideration by the principal debtor is sufficient for the surety. (Section 127) c) M i s r e p r e s e n t a t i o n A guarantee obtained by means of misrepresentation made by the creator or with his knowledge ad assent, concerning a material part of the transaction is invalid. If the consent of surety will be obtained by misrepresentation, the surety is discharged from his liability (section 142). d) Concealment 17 A guarantee which the creditor obtains by means of keeping silence to material circumstances is invalid. The expression keeping silence meansintentional concealment of the facts. The creditor should disclose to surety the facts which are likely to affect the surety’s liability (Sec.143) e) Writing not necessary It is not necessary that the contract of guarantee must be in writing. It may be either oral or written. It may be express of implied from the conduct of parties. Kinds of Guarantee 1. Simple Guarantee: A guarantee which extends to a single debt or transaction is called ordinary, simple or specific guarantee. It comes to an end as soon as the liability under the transaction ends. 2.Continuing Guarantee: A guarantee, which extends to a series of transactions is called continuing guarantee. Inother words a guarantee which covers a number of transactions over a period of time iscalled continuing guarantee. It’s like a standing offer which is accepted by the creditor every time a subsequent transaction takes place. (Section 129) Differences between indemnity and guarantee 1. In a contract of indemnity, there are ‘two parties : the indemnifier and the indemnity-holder. In a contract of guarantee there are three parties : the creditor, the principal debtor, and t surety. 2. In a contract of indemnity it is necessary to have only one contract, i.e., between the indemnityholder and the indemnifier ; in a contract of guarantee it is necessary to have three contracts, between the parties, i.e., between the creditors, the principal debtors and the surety. 3.in a contract of indemnity, the liability of the indemnifier is primary ; in a contract of guarantee, the liability of the surety is secondary i.e., the surety is liable only if the principal debtor fails to perform his obligations. 4. in a contract of guarantee there is an existing debt or duty, the performance of which is guaranteed by the surety. In a contract f indemnity, the liability of the indemnifier arises only on the happening of a contingency. 5. In a contract of indemnity the indemnifier can sue only the indemnity older for his loss, because there is no contract between the indemnified and other parties unless there is an assignment on his favour ; in a contract of guarantee the surety can proceed against principal debtor. 6. in a contract of guarantee the surety, after he discharges the debt owing to the creditor, can proceed against the principal debtor; in a contract of indemnity the loss falls on the indemnifier except in certain special cases. Right of Surety 1. Rights Against the Creditors 18 a) Right to securities: The security at the time of payment can demand the securities which creditor has received from principal debtor at the time of creation of contract, whether surety is aware of such securities or not. If creditor by negligence loses any security held by him, thesurety is discharged to that extent from the payment of guaranteed sum. But if security is lost due to unavoidable act, the surety would not be discharged. (Section 141) b) Right to claim Set-off: If the principal debtor has some claims against the creditor, the debtor can ask for adjustment of his debts to the extent of his claims. If the creditor sues surety for repayment, the surety can claim set off, if any which principal debtors had against creditor 2. Rights Against the Principal Debtor a) Right of Subrogation: When surety has paid the guaranteed debt on default of principal debtor he is entitled to all the rights, which creditor had against principal debtor. The surety is entitled to all the remedies which are available to creditor against principal debtor. (Section 140) b) Right of Indemnity: In every contract of guarantee there is an implied promise by principal debtor to indemnify surety. The surety is entitled to recover from principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.(Sec. 145) 3.Rights Against Co-Sureties a) Similar Amount: Where there are sureties for the same debt and the principal debtor has committed a default, each party is liable to contribute equally to the extent of the default. b) Different Amount: Where there are sureties for the same debt for different sums, they are bound to contribute equally subject to the limit fixed by their guarantee. They will not contribute proportionately. Discharge of surety The liability of a surety under a contract of guarantee comes to an end under any one of the following circumstances : 1. Notice of revocation : In the case of a continuing guarantee, a notice by the surety to the creditor stating that he will not be responsible, will revoke his liability as regards all future transactions. He will remain liable for all transactions entered into prior to the date of the notice.Sec. 130. 2. Death of surety : In the case of a continuing, guarantee the death of a surety discharges him from all liabilities as regards transactions after his death unless there is a contract to the contrary .sec 131 3.variation of contract : Any variance, made without the surety’s consent in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.Sec. 133. 19 4. Release or discharge of principal debtor : The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.Sec. 134. 5. Arrangement with principal debtor : A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.-Sec. 135. 6. Creditor’s forbearance to sue does not discharge surety :Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.–Sec. 137. 7. Release of one co-surety : Where there are co-sureties, a release by the creditor of one of them does not discharge the others ; neither does it free the surety so released from his responsibility to the other sureties. Sec. 138. 8. Act or omission impairing surety’s eventual remedy : If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.-Sec. 139. 9. Loss of security : If the creditor loses or parts with any security given to him by the principal debtor at the time the contract to guarantee was entered into, the surety is discharged to the extent of the value of the security, unless the surety consented to the release of such security.-Sec. 141. 10. Miscellaneous : A contract of guarantee is invalid if it is obtained by means of misrepresentation (Sec. 142), silence as to material circumstances (Sec. 143), or if a co-surety fail; to join according to the terms of the contract (Sec. 144). See-pp. 150-151. Bailment and Pledge Definition of Bailment “A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished be returned or otherwise disposed’, of according to the directions of the persons delivering them” The person delivering the goods it called the Bailor. The person to whom they are delivered is called the Bailee. The transaction is called Bailment. Characteristic Features or the Requisites of Bailment 1. Delivery : It is delivery 6f goods by one person to another. 2. Purpose : The goods are delivered for some purpose. 20 3. Return : It is agreed, that when the purpose is accomplished the goods are to be returned or otherwise disposed of according to the direction of the bailor. 4. Contract : Bailment arises from express or implied t contract. (n case of finder of goods bailment arises by implication tit’ law. 5. Ownership : In bailment the bailor continues to be the owner of the goods. Therefore bailment does not cause any change of ownership. 6. movable goods : Bailment is concerned with only movable goods. Money is not included in the category in movable goods. A deposit of money is not bailment. 7. Possession : A person already in possession of the goods may become a bailce by a subsequent agreement, express. or implied. Different kinds of Bailment Bailments may be classified into; (1) Gratuitous Bailment and (2) Bailment for Reward. A gratuitous bailment is one in which neither the bailor, nor the bailee is entitled to any remuneration, e.g., loan of an article gratis ; safe custody without charge, etc. A bailment for reward is one where either the bailor or the bailee is entitled to a remuneration e.g., a motor car let out for hire ; goods given to a carrier for carriage at a price ; articles given to a person for being repaired for a remuneration ; pawn, etc. Duties of the Bailee 1. Duty of reasonable care: The bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.-Sec. 151. The degree of care to be taken by a bailee is that of a man of ordinary prudence. If he takes that amount of care, he will not be held responsible for loss, destruction or deterioration of the goods bailed. (Sec. 152). 2. Bailee’s liability for negligence of servants: A bailee is liable for damages caused by negligence of the servants about the use or custody of the things bailed, when acting in course of their employment. But the bailee is not liable for damages caused by the acts or default of third person which cannot be prevented by ordinary diligence. The bailee is also not liable for unauthorised acts of his servants outside the scope of their employment. 3. Unauthorized use of goods: If the bailee makes unauthorized use of goods bailed, i.e., uses them in a way not authorized by the terms of the bailment, he is responsible for all damages to the goods and must pay compensation to the bailor. This liability arises even if the bailee is not guilty of any negligence, and even if the damage is the result of accident.-Sec. 154. 4.Mixture of Bailor’s goods with the Bailee’s : If the bailee mixes up his own goods with those of the bailor, the following rules apply : 21 (a) “If the bailee, with consent of the bailor, mixes the goods of the bailor with his own goods, the bailor and the bailee shall have an interest, in proportion to their respective shares, in the mixture thus produced.”-Sec. 155. (b) “If the bailee, without the consent of the bailor mixes lie goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods remains in the parties respectively ; but the bailee is bound to bear the expense of separation or division, and any damage arising from the mixture.”-Sec. 156. 5. Duty of returning goods: “It is the duty of the bailee to return or deliver according the bailor’s directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.”sec160. 6.Accretion to the goods bailed: “in the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed.”-Sec. 163. 7. Liabilities of Innkeeper and Hotelkeepers : In England Innkeepers were governed by the Common Law. They were regarded as insurers, i.e., loss of or damages to customer’s goods had to be fully made up, except certain special cases. This rule was applied in Bombay High Court in an old case (1886). It is now held that the liabilities of innkeepers and hotel-keepers are as bailees and are governed by Sections 151 and 152 1. Duties of the Bailor l. Bailor’s duty to disclose faults in goods bailed : “The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extra ordinary risk, and, if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults. 2. Payment of expenses in Gratuitous Bailments : “Where by the conditions of the bailment, the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.”-Sec. 158. 3. Responsibility for breach of warranty of title : The bailor is responsible to the bailee for any loss which, the bailee may sustain-by reason that the bailor was not entitled to make the bailment, or to receive back the goods or to give direction respecting them.-Sec. 164. Bailee’s Rights 1. Enforcement of rights: The bailee can, by suit, enforce the duties of the bailor. 22 2. Bailment by several joint owners: “If several joint owners of goods bail them, the bailee may deliver them back to, or according to the directions of, one joint owner without the consent of all, in the absence of any agreement to the contrary.”-Sec. 165. 3. Bailee not responsible on re-delivery to bailor without title : “If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to directions of the bailor, the bailee is not responsible to the owner in respect of such delivery.”-Sec. 166. 4. Bailee’s Particular Lien : Lien means the rights to retain property until some debt or claim is paid. The right of lien is given by law in certain cases. Lien may be of two types : General Lien and Particular Lien. General lien means the right to retain all the goods of the other party until all the claims of the holder are paid. Particular lien means the right to retain particular goods until claims on account of those goods are paid. A bailee has a particular lien,. when he has rendered any service upon an article and is entitled to some remuneration for it according to the terms of the contract between him and the other party. The following limitations upon the Bailee’s particular . lien are to be noted-Sec. 170. (i) The particular lien is available only if the service rendered by the bailee is one involving the exercise of labour or skill in respect of the goods bailed. There is no lien for custody charges or other charges for work not involving labour or skill. (ii) The right of lien cannot be exercised until the services have been performed in full. When a bailee has done only a part of the work contracted for he cannot claim lien for part payment. (iii) The lien cannot be claimed if there is an agreement to pay the money on a future date. (iv) The lien can be exercised only so long as the goods are in the possession of the bailee. If possession is lost for any reason, the lien is also lost. Bailors’s Rights I. Enforcement of rights : The bailor can enforce by suit all the liabilities or duties of the bailee 2. Act inconsistent with the terms : “A contract of bailment is voidable, at the option of the bailor, if the bailee does any act with regard to the goods bailed inconsistent with the conditions of the bailment.”-Sec. 153. 3. Restoration of goods lent gratuitously : When goods are lent gratuitously, the bailor can demand their return whenever he pleases, even though he lent it for a specified time or purpose. But if the bailee in such cases had acted in such a manner that the return of the goods before the stipulated time would cause loss greater than the benefit which he has received, the bailor must indemnify him for the loss if he compels an immediate return.-Sec. 159. 23 Rights and Duties of Finder of Goods Rights A finder of goods is in the position of a bailee if he takes charge of the goods. (See p. 132) The rights of the finder of goods can be summarised as follows.-Sections 168 and 169 : l. Possession : He can retain possession of the goods against everybody except the true owner. 2. Compensation and Lien : H;, is entitled to be compensated for the trouble and expense incurred by him to preserve the goods and to find out the owner. He has a lien upon the goods for the payment of these sums i.e., he can refuse to return the goods until they are paid. 3. Reward : He cannot file a suit for the expense he has incurred but can sue for any reward which the owner might have offered for the return of the goods lost. 4. Sale: If the goods found are commonly the subject-matter of sale and if the owner cannot with reasonable diligence be found or if he refuses to pay the lawful charges of the finder, the goods can be sold provided the following further conditions are fulfilled (a) When the thing is in danger of perishing or of losing the greater part of its value. (b) When the lawful charges of the finder amount to two thirds of its value. Duties and Obligations The finder of goods is a bailee. Therefore, he has the following duties and obligations : (i) He must take reasonable care of -the goods (Sec. 151). (ii) He must not mix the finder’s goods with his own goods (Secs. I55-157). (iii) The goods must be returned to the real owner (Secs. 160 & 161). (iv) If there is an accretion to the goods bailed, it must be given to the real owner (Sec. 163). (v) He must not use the goods for his purpose. (vi) He must try to find out the true owner of the goods. SUITS BY BAILEES OR BAILORS AGAINST WRONG-DOERS 1. Right to interplead : If a person, other than the bailor, claims the goods bailed, he may apply to the courts to stop delivery of the goods bailed and to decide the title to the goods.-Sec. 167. 2. Suit by bailor or bailee against wrong-doer : If a third party wrongfully deprives the bailee of the use of the goods bailed or does them any injury, the bailee is entitled to use all such remedies as the owner of the goods might have used. Either the bailee or the bailor may file a suit against the third party in such cases.-Sec. 180. 3. Apportionment of relief or compensation obtained by such suits : Whatever is obtained by way of relief or compensation in any such suits shall, as between the bailor and the bailee be dealt with according to their respective interests.-Sec. 181. 24 Bailments by way of Pledge or Pawn Definition The bailment of goods as security for payment of a debt or performance of a promise is called Pledge or Pawn. The bailor in this case is called the. Pledgor or, the pawnor. The bailee is called the Pledgee or the Pawnee.-Sec. 172. Difference between Bailment and Pledge Pledge is a particular kind of bailment. The difference between Pledge and other kinds of bailment lies in the purpose or objective of the transaction. The purpose of a pledge is to provide security for a debt or the performance of a promise. In other kinds of bailment there are other purposes for example, repair, safe-custody etc. The pledgor and the pledgee have certain special rights and duties. When can a non-owner make a valid Pledge? The owner of goods can always make a valid-pledge. In the following cases, one who is not, an owner can make I valid pledge. 1. Mercantile Agent :A mercantile agent who is, with the consent of the owner, in possession of the goods or of the documents of title to goods, can make a valid pledge of the goods while acting in the ordinary course of business of a mercantile agent. Such a pledge will be valid even if the agent had no authority to pledge, provided that the Pawnee acts in good faith and has not at the time of the pledge any notice that the pawnor has no authority to pledge Sec.178. 2. Possession under a voidable contract : A person having possession . of goods under a voidable contract can make a valid pledge of the goods so long as the contract is not rescinded. The Pawnee gets a good title to the goods provided he acts in good faith and without notice of the pawnor’s defect of title.-Sec. 178 3. Pawnor with a limited interest : Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.- Sec. 179. 4. Possession with co-owner : If one of several co-owners is in sole possession of the goods with the consent of the owners, he can make a valid pledge of he goods.-Sec. 30 (I). Sale of Goods Act. Rights of Pledgee or Pawnee 1. Right of Retainer: “The Pawnee can retain the goods pledged. not only for payment of the debt or the performance of the promise, but also for the interest of the debt and all necessary expenses 25 incurred by him in respect of the possession or for the preservation of the goods pledged.”-Sec. 173. 2. Retainer for subsequent advance: The Pawnee’s lien is a particular lien, i.e., he cannot retain the goods for any debt other than the debt for which the security was given unless there is an express contract to the contrary. the Pawnee makes fresh advances to the same debtor it will he presumed that the debtor has agreed to. create on the goods already pledged a lien for the fresh advance.-Sec. 174 3.Extraordinary expenses : the Pawnee is entitled to receive from the pawnor extra0rrlinary expenses incurred by him for the preservation of the goods pledged.-Sec. 175. . 4. Pawnee’s right where pawnor makes default : “If the pawnor makes a default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the Pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as collateral security ; or, he may sell the thing pledged on giving the pawnor reasonable notice of the sale. Rights of Pledgor 1. Defaulting pawnor’s right to redeem : “If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them ; but he must, in that case, pay, in addition, any expenses which have arisen from his default.”-Sec. 177. 2. Preservation and maintenance: The pledgor can enforce the preservation and proper maintenance of the goods pledged. 3. Protection of debtors: The pledgor as a debtor has various rights given to him by statutes enacted for the protection of debtors e.g., the Moneylenders Acts. Law of agency Contract of Agency - Agency is a special type of contract. The concept of agency was developed as one man cannot possibly do every transaction himself. Hence, he should have opportunity or facility to transact business through others like an agent. The principles of contract of agency are – (a) Excepting matters of a personal nature, what a person can do himself, he can also do it through agent (e.g. a person cannot marry through an agent, as it is a matter of personal nature) (b) A person acting through an agent is acting himself, i.e. act of agent is act of Principal. - - Since agency is a contract, all usual requirements of a valid contract are applicable to agency contract also, except to the extent excluded in the Act. One important distinction is that as per section 185, no consideration is necessary to create an agency. 26 Section 182 of the Indian contract Act 1982 dfines Agen and Principal as: An "agent" is a person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the "principal". Contracts of Agency An agent does not act on his own behalf but acts on behalf of his principal. He either represents his principal in transactions with third parties or performs an act for the principal. The question as to whether a particular persons is an agent can be verifies by finding out if his acts bind the principal or not. Creation of Agency I. II. III. IV. V. Any person who is of the age of majority and is of sound mind may employ an agent (Sec. 183). Between the principal and the third persons, any person may become an agent. But no person who is a minor and of unsound mind can become an agent (Sec 184) No consideration is necessary to create an agency (Sec. 185) It is not essential that a contract of agency be entered in to. It is sufficient if a person acts on behalf of another and is accepted by the latter. An agency can be created either in writing or orally. An oral appointment is valid appointment even though the contract of agency by which agent is authorized has to be in writing. Types of Agency The most common types of agents are: Sole selling agent; • • • • • • • • • Sub agent; Mercantile agent; Factor; Forwarding or Clearing Agent; Insurance Agent; Director Agent; Auctioneer; Estate Agent; Broker etc. Sub Agents: Sub agents are generally of three types 27 Those employed without the express or implied authority of the principal and by whose acts the principal is not bound; • Those employed with express or implied authority of the principal but between whom and the principal there is no privity of contract; • Those employed with the express authority of the principal and between whom and the principal there is a privity of contract and a direct relationship of principal and agent is accordingly established. • A sub agent is a person employed by and acting under the control of the original agent in the agency business. An agent cannot lawfully employ another person to perform acts which he has expressly or impliedly undertaken to perform personally unless by ordinary custom of trade a sub agent may or from the nature of the agency a sub agent must be employed. A sub agent cannot be appointed ordinarily by the agent without the express or implied consent of the principal. When a sub agent is appointed with the consent of the principal, he is, as regards the third persons, represented by the sub agent also and is bound by and responsible for the acts of the sub agent as if he were an agent ordinarily appointed by the principal. Otherwise it is the agent who is responsible to the principal for the acts of the sub agent and the sub agent is responsible for his acts to the agent and not to the principal except in case of fraud or willful wrong. The principal is not responsible for the acts of the sub agent if the sub agent is appointed without his consent. Sole Selling Agent: In case of sole selling agent, the relationship between the principal and the sole selling agent is more or less of a seller and buyer and therefore, when a sole selling agent sells the goods to his buyer the relationship between the sole selling agent and the buyer may be of the vendor and purchaser unless the agency is disclosed. Mercantile Agent A mercantile agent is one having authority in the course of business to sell goods or consign goods for the purpose of sale or to buy goods and even to raise money on the security of goods. A mercantile agent is also called a commissioner agent. Factor A factor in ordinary course of business is entrusted with possession of the goods or with possession of documents of title to goods; Broker He only brings about the transaction between the principal and the buyer or seller but the possession of the goods or document of title to goods is not given to him. He is, therefore, an agent, who in ordinary course of business is employed to make contract for the purchase or sale of shares or goods. Forwarding or Clearing Agent 28 A forwarding agent, also called shipping agent or clearing agent acts as agent of the principal, who wants to export goods outside the country or to clear the goods imported by the principal and all the functions for exporting or clearing and taking possession of imported goods are done by this agent. Estate Agent An estate agent generally deals as intermediary in the transaction of sale and purchase of immoveable property or in management of any property. Auctioneer An auctioneer is in law an agent of the person whose property is to e sold by auction through him. He also becomes the agent of the auction purchaser when the bid is struck down in his favour. The Rights of the Agent The agent has a right to certain monies in his hands held on account of the principal for the expenses incurred by him in the course of agency business; b. He has a lien on the goods of the principal for his dues; c. He has a right to adjust his commission or remuneration against the amount payable to the principal; d. All these rights are, however, subject to a contract to the contrary and therefore different provisions can be made in the agreement of agency. a. Duties of Agent An agent owes the principal a number of duties. These include: a duty to undertake the task or tasks specified by the terms of the agency (that is, the agent must not do things that he has not been authorized by the principal to do); b. a duty to discharge his duties with care and due diligence; and c. a duty to avoid conflict of interest between the interests of the principal and his own (that is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal). a. An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. 29 In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged commission, or a reasonable fee established after the fact. Rights of Principal a. b. c. d. Recover damages from agent if he disregards directions of Principal Obtain accounts from Agent Recover moneys collected by Agent on behalf of Principal Obtain details of secret profit made by agent and recover it from him e. Forfeit remuneration of Agent if he misconducts the business. Duties of Principal a. Pay remuneration to agent as agreed b. Indemnify agent for lawful acts done by him as agent c. Indemnify Agent for all acts done by him in good faith d. Indemnify agent if he suffers loss due to neglect or lack of skill of Principal. Termination of Agency An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors. [section 201]. - - In following cases, an agency cannot be revoked – o Agency coupled with interest (section 202) o Agent has already exercised his authority (section 203) o Agent has incurred personal liability. Unit III Indian Partnership Act 1932 – definition and tests of Partnership – Implied authority of Partners – Limitations – firsm debts and Private debts – priority in discharge – rights and liabilities of partners - Resolution of parnership Definition of "Partnership", "Partner", "Firm" and "Firm-Name". Section4 "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually, "partners" and collectively "a firm", and the name under which their business is carried on is called the "firmname". Essential Elements of Partnership (i) Agreement 30 Partnership must be the the result of an agreement between two or more persons. An agreement from which relationship of partnership arises may be express. It may also be implied from the act done by partners and from a consistent course of conduct being followed showing mutual understanding between them. It may be oral or in writing. (ii) Sharing profits of the business First, there must exist a business. The motive of the business is the acquisition of gains. Therefore there can be no partnership where there is no intention to carry on the business and to share the profit thereof. Secoundly, there must be an agreement to share profits. The agreement to share losses is not an essential element. However in the event of losses, unless agreed otherwise, there must be born in the profit sharing ratio. (ii) Business carried on by all or any of them acting for all Each Partner carries on the business as a principle as well as the agent on behalf of the other partners. This is the cardinal principle of the partnership Law. Therefore, the true test of partnership is mutual agency rather than sharing of profit. True test of Partnership The sharing of profits or of gross returns accruing from property by persons holding join or common interest in the property would not by itself make such persons partners. Although the right to participate in profits is a strong test of partnership, and there may be cases where, upon a simple participation in profits, there is a partnership, yet whether the relation does or does not exist must depend upon the whole contract between the parties. But the task becomes difficult when either there is no specific agreement or the agreement is such as does not specially speak of partnership. In such a case for testing the existence or otherwise of partnership relation. Sec 6 has to be referred. According to this section, regard must be had to the real relation between parties as shown by all relevant facts taken together. Implied authority of a partner Every partner has the implied authority to bind the firm and other partners by his acts done in the name of the firm, in the ordinary course of the firm's business and with the intention to bind the firm. However, a partner has no implied authority, unless otherwise expressed in the partnership deed, in the following matters: (a) To submit a dispute relating to the firm to arbitration; (b) To compromise or relinquish any claim or a portion of claim made by the firm; (c) To withdraw a suit or proceedings filed on behalf of the firm; (id) to admit any liability in a suit or proceeding against the firm; (e) To open a bank account on behalf of the firm in his own name; (f) To acquire or purchase immovable property for and on behalf of the firm; 31 (g) To transfer or sell immovable property belonging to the firm; and (h) To enter into partnership with others on behalf of the firm. Limitations of Partnership form of Business Organisation Inspite of all these advantages as discussed above, a partnership firm also suffers from certain limitations. Let us discuss all these limitations. a) Unlimited Liability: All the partners are jointly as well as separately liable for the debt of the firm to an unlimited extent. Thus, they can share the liability among themselves or any one can be asked to pay all the debts even from his personal properties. b) Uncertain Life: The partnership firm has no legal entity separate from its partners. It comes to an end with the death, insolvency, incapacity or the retirement of any partner. Further, any dissenting member can also give notice at any time for dissolution of partnership. c) Lack of Harmony: You know that in partnership firm every partner has an equal right to participate in the management. Also every partner can place his or her opinion or viewpoint before the management regarding any matter at any time. Because of this sometimes there is a possibility of friction and quarrel among the partners. Difference of opinion may lead to closure of the business on many occasions. d) Limited Capital: Since the total number of partners cannot exceed 20, the capital to be raised is always limited. It may not be possible to start a very large business in partnership form. e) No transferability of share: If you are a partner in any firm you cannot transfer your share of interest to outsiders without the consent of other partners. This creates inconvenience for the partner who wants to leave the firm or sell part of his share to others. Liabilities Subject to the particular provisions which apply in relation to limited partnerships, every partner is the general agent of the partnership for carrying on its business in the ordinary way. The firm is responsible for whatever is done by any of the partners when acting for the firm within the limits of the authority conferred by the nature of the business it carries on. Even if there are limits as between the partners with regard to the authority of each partner, third parties who are not aware of those limits are entitled to assume that each partner is empowered to do for the firm all such acts which are necessary for its business, in the way in which the business is ordinarily carried on by other people. Every partner in the firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner, provided that they relate to matters for which the partner, through the acts of whom the liability or debts have arisen, is authorized to act for the firm as aforesaid. The firm is also liable for wrongful acts of a partner acting in the ordinary course of the business of the firm. A person who holds himself out as a partner of a firm or knowingly suffers himself to be represented as a partner is liable as a partner. 32 A partner who retires from a partnership is liable for the firm’s debts and obligations incurred prior to the date on which he ceased to be a partner and the liability of an outgoing partner for future debts and obligations of the firm ceases once his retirement has been publicly notified. Similarly a new partner in an existing partnership is not liable for the firm’s liabilities and obligations incurred prior to the date of his admission, unless, of course, he has agreed otherwise. Rights and Duties of Partners Partnership can be defined as the agreement between two or more persons who have agreed to share the profits of a business which is carried be all or any one of them acting for all. Here are some of the rights of partners – 1. Every partner has the right to take part in the management of the business, and hence every partner should be consulted before taking any decisions which can have a material impact on the business which partners are running. 2. A partner can deny any admission of a new partner into the partnership firm. Also he can retire at any point of time from partnership after giving proper notice to all other partners. 3. Every partner has the right to share the profits or losses with a predetermined ratio and also if in the course of business if any partner has paid any expense out of his or her pocket then he has the right to get indemnified from the partnership firm. Along with the right there are some duties which partners have to perform like he must devote time and concentration towards business, he must act within authority as well as carry the business with utmost care and if any loss happens due to his negligence then he must compensate the same to all other Above rights and duties of partners are not limited and there can be many other rights and duties which can be decided by partners according to partnership deed or agreement. Duration/Dissolution The duration of a partnership depends on the express or implied agreement between the partners. Therefore a partnership is liable to be dissolved pursuant to the provisions of the partnership agreement. A partnership entered into far an indefinite period may be dissolved (subject to any other provisions of the partnership agreement) at any time by any partner giving notice to the other partner/s, or by the death or bankruptcy of any partner. A partnership may also be dissolved by the court on the application of any partner. The court has, inter alia, jurisdiction to dissolve a partnership whenever it deems it just and equitable. Expulsion 33 It is customary for a partnership agreement to provide for the circumstances under which a partner may be expelled from the firm. If no provision is made then the other partners cannot expel a partner. Unit IV Sale of good Act 1930 – definition of sale and distinction between sale and related transaction resembling sale – Sale and agreement to Sell – rules regarding passing of property in goods – condition and warranties – actual and implied – Principle of “ Caveat emptor” and its limitations – Rights of unpaid vendor. Sale of Goods Act 1930 Sale of Goods Act is one of very old mercantile law. Sale of Goods is one of the special types of Contract. Initially, this was part of Indian Contract Act itself in chapter VII (sections 76 to 3). Later these sections in Contract Act were deleted, and separate Sale of Goods Act was passed in 1930. The Sale of Goods Act is complimentary to Contract Act. Basic provisions of Contract Act apply to contract of Sale of Goods also. Basic requirements of contract i.e. offer and acceptance, legally enforceable agreement, mutual consent, parties competent to contract, free consent, lawful object, consideration etc. apply to contract of Sale of Goods also. Contract of Sale - A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. [section 4(1)]. A contract of sale may be absolute or conditional. [section 4(2)]. Thus, following are essentials of contract of sale - * It is contract, i.e. all requirements of ‘contract’ must be fulfilled * It is of ‘goods’ * Transfer of property is required * Contract is between buyer and seller * Sale should be for ‘price’ * A part owner can sale his part to another part-owner * Contract may be absolute or conditional. Contract of Sale includes agreement to sale Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. [section 4(3)]. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. [section 4(4)]. The provision that contract of sale includes agreement to sale is only for the purposes of rights and liabilities under Sale of Goods Act and not to determine liability of sales tax, which arises only when actual sale takes place. A sale and an agreement to sell can be distinguished as:i) Transfer of Property (Ownership): In a sale, the property in goods or the ownership is immediately transferred from the seller to the buyer. In an agreement to sell the property in the 34 goods is not transferred immediately at the time of contract, but the ownership is transferred at a later time either at the expiry of a certain period or fulfillment of certain condition. Until then, the seller continues to be the owner of the goods. ii) Risk of Loss: The general rule is that, unless otherwise agreed, the risk of loss passes with property. In case of sale, if the goods are destroyed the loss falls on the buyer, even if the buyer is not in possession of goods because the ownership has been transferred. In an agreement to sell, the loss is to be borne by the seller because the ownership has still not passed on to the buyer, even if the buyer has possession of it. iii) Consequences of Breach: In case of sale, if the buyer fails or refuses to pay the price of the goods, the seller can sue for the price, even if he has the possession of goods. In an agreement to sell, if the buyer fails to accept and pay the price, the seller can sue him only for damages and not for the price, even if the goods in possession of the buyer. iv) Right of Resale: In a sale the property of goods is immediately transferred to the buyer and so the seller (even if the goods are in his possession) cannot result the goods. If the seller does so, the subsequent buyer cannot acquire the title to the goods. The original buyer can recover the goods from the third person and can also sue the seller for the breach of contract. In an agreement to sell, the seller can sell the goods to anyone as he has the property of goods and the new buyer gets the title of goods as he purchases the goods for consideration and without any notice of prior agreement. In such a case the original buyer can only sue for damages. v) Buyers Insolvency: In a sale, if the buyer becomes insolvent before he pays the price of the goods, the seller will have to deliver the goods to the official assignee or receiver and he can only claim dividend for the price of the goods. In an agreement to sell, if the buyer becomes insolvent and has not paid the price, the seller can refuse to deliver the goods to the official assignee or receiver until paid in full. vi) Seller’s Insolvency: If the seller becomes insolvent then in case of sale the buyer is entitled to recover the goods from the official assignee of receiver since the ownership has been transferred to the buyer. In case of an agreement to sell, if the buyer has paid the full price, he can only claim a rateable dividend and not the goods because the property in the goods still rests with the seller. vii) Nature of Contract: A sale is an executed contract. An agreement to sell is an executary contract. viii) Types of Goods: A sale can only be in the case of existing and specific goods. An agreement to sell mostly takes place in the case of future and contingent goods. Transfer of property “Property” means the general property in goods, and not merely a special property. [section 2(11)]. In layman’s terms ‘property’ means ‘ownership’. ‘General Property’ means ‘full 35 ownership’. Thus, transfer of ‘general property’ is required to constitute a sale. If goods are given for hire, lease, hire purchase or pledge, ‘general property’ is not transferred and hence it is not a ‘sale’. Possession and property Note that ‘property’ and ‘possession’ are not synonymous. Transfer of possession does not mean transfer of property. e.g. - if goods are handed over to transporter or godown keeper, possession is transferred but ‘property’ remains with owner. Similarly, if goods remain in possession of seller after sale transaction is over, the ‘possession’ is with seller, but ‘property’ is with buyer. Goods - “Goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. [section 2(7)]. Price - “Price” means the money consideration for a sale of goods. [section 2(10)]. Consideration is required for any contract. However, in case of contract of sale of goods, the consideration should be ‘price Conditions and Warranties Opening para of section 16 makes it clear that there is no implied warranty or condition as to quality of fitness of goods for any particular purpose, except those specified in Sale of Goods Act or any other law. - - This is the basic principle of caveat emptor’ i.e. buyer be aware. However, there are certain stipulations which are essential for main purpose of the contract of sale of goods. These go the root of contract and non-fulfilment will mean loss of foundation of contract. These are termed as ‘conditions’. Other stipulations, which are not essential are termed as ‘warranty’. These are collateral to contract of sale of goods. Contract cannot be avoided for breach of warranty, but aggrieved party can claim damages. - - A breach of condition can be treated as breach of warranty, but vice versa is not permissible. A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. [section 12(1)]. A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. [section 12(2)]. A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. [section 12(3)]. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract. [section 12(4)]. Where a particular stipulation in contract is a condition or warranty depends on the interpretation of terms of contract. Mere stating ‘Conditions of Contract’ in agreement does not mean all stipulations mentioned are ‘conditions’ within meaning of section 12(2). When condition to be treated as warranty 36 Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated. [section 13(1)]. Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect. [section 13(2)]. Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise. [section 13(3)]. Time of payment is not essence of contract but time of delivery of goods is, unless specified otherwise - Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract. [section 11]. As a general rule, time of payment is not essence of contract, unless there is specific different provision in Contract. In other words, time of payment specified is ‘warranty’. If payment is not made in time, the seller can claim damages but cannot repudiate the contract. Caveat Emptor The principle termed as ‘caveat emptor’ means ‘buyer be aware’. Generally, buyer is expected to be careful while purchasing the goods and seller is not liable for any defects in goods sold by him. This principle in basic form is embodied in section 16 that subject to provisions of Sale of Goods Act and any other law, there is no implied condition or warranty as to quality or fitness of goods for any particular purpose. As per section 2(12), “Quality of goods” includes their state or condition. Exceptions to the Rule of Caveat Emptor There are eight exceptions to this rule of caveat emptor. They are: 1. purchase by description : The rule of caveat emptor does not apply in a case where goods are bought by description from a seller. In such a situation there is an implied condition that the goods shall correspond with the description. It is a condition which goes to the root of the contract, and the breach of it entitles the buyers to reject the goods. 2. Purchase by samples and description: Where goods are bought by sample as well as by description and the bulk of goods do not correspond with the sample or with the description, the buyer is entitled to reject the goods.The rule of caveat emptor shall not apply in such a case. 3. Fitness for purpose :Where the buyer informs the seller the particular purpose for which the goods are required and relies upon the seller’s skill or judgment there is in that case, an implied condition that the goods shall be reasonably fit for the purposes for which they are required. 4. Trade name : In the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose. 37 5. Merchantable quality : Where the goods are bought by description from a seller who deals in goods of that description whatever he is manufacturer or producers or not, there is an implied condition that the goods shall be of merchantable quality. 6. Usage of trade : Where the usage or trade annexes an implied condition or warranty as to quality or fitness for a particular purpose and seller deviates from that, then this rule (of caveat emptor) does not apply. 7. Sale by sample : In a sale of goods by sample, the rule of caveat emptor does not apply if the bulk does not correspond with the sample or if the buyer is not given an opportune ity to compare bulk with the sample. 8. Consent by fraud : Where the seller makes a false statement intentionally to the buyer and the buyer relies on it or where the seller knowingly conceals the defects in the good, the doctrine of caveat emptor does not apply. Contracts are made up of various statements and promises which differ in character and importance; the parties may regard some of them as vital , as subsidiary or collateral to the main purpose of the Contract. Where parties regard the term essential it is a condition. Where parties do not regard it as essential it is warranty. The general rule is that where a stipulation in contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. A warranty is also a stipulation but it is not essential to the main purpose of the contract. Rather it is collateral to the main purpose of the contract and the breach of it gives rise to a claim of damages but not to a right to reject the goods and treat the contract as repudiated. A condition is a vital term of the contract. A vital term is that term which goes to the root or substance of the contract.Its non fulfillment causes irreparable loss to the injured party. In case of violation of a condition the injured party gets a right to cancel the contract.The party can refuse to accept the goods. If the injured party has already paid the price he can recover it. A breach of condition may be treated as a breach of warranty.The buyer in case of breach of condition has an option to claim damages instead of repudiating the contract. A warranty is not a vital term of the contract. It does not go to the root or substance of the contract. In case of violation of a warranty the injured party has a right to recover damages only. The party cannot refuse to accept the goods nor can he reject the contract. A breach of warranty cannot be treated as breach of condition.The buyer in case of breach of warranty cannot repudiate the contract; his only right is that he can claim damages. Conditions when incorporated in clear words in a deed by a party those are called express conditions. Where conditions are not incorporated in the contract but the law presumed their 38 existence in the contract they are called implied conditions. Thus unless otherwise agreed, the law includes the following into a contract: (i) Implied conditions as to titles: In every contract of sale there is an implied condition that the seller has a right to sell the goods and in an agreement to sell he has a right to sell the goods at the time when the property is to pass. The transfer of tilte to the goods can only be made either by the owner or an agent. (ii) Sale by description: Goods must correspond to the description. (iii) Sale by Sample: Goods must be according to the sample agreed upon. In the case of Lorymer v. Smith the seller sold two parcels of wheat by sample and showed only one parcel and refused to show the other . the buyer examined it after a week and the Court held that buyer can cancel the contract. (iv) Sale by sample and description: Goods must correspond to both. If they they correspond to only sample or only description the buyer is entitled to reject the goods. (v) Fitness or Quality: Where buyer expressly or by implication makes known to the seller that goods are required for a particular purpose and that he relies on the skill or judgment of the seller in that behalf and the goods are of a description which it in the course of seller's business to supply then there is an implied condition that the goods shall be reasonably fit for such purpose. (vi) Merchantability:Where goods are bought from a seller who deals in goods of that description, whether he is the manufacturer or producer or not,there is an implied condition that the goods shall be of merchantable quality. (vii) Wholesomeness: In a contract of sale of eatables and provisions goods must be merchantable and wholesome also. Implied Warranties: (i) Quiet Possession to be given to the buyer. (ii) Free from any charge or encumbrance; and (iii) Usage of trade: An implied warranty as to quality or fitness for a particular purpose may be annexed by usage of trade. Transfer of property as between seller and buyer Transfer of general property is required in a sale. ‘Property’ means legal ownership. It is necessary to decide whether property in goods has transferred to buyer to determine rights and liabilities of buyer and seller. Generally, risk accompanies property in goods i.e. when property in goods passes, risk also passes. If property in goods has already passed on to buyer, seller cannot stop delivery of goods even if in the meanwhile buyer has become insolvent. - - - Where there is a 39 contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. [section 18]. Property passes when intended to pass - Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. [section 19(1)]. For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. [section 19(2)]. Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. [section 19(3)]. Specific goods in a deliverable state - Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. [section 20]. Auction sale - Auction sale is special mode of sale. The sale is made in open after making public announcement. Buyers assemble and make offers on the spot. Person offering to pay highest price gets the goods. Usually, auctioneer is appointed to conduct auction. Higher and higher bids are offered and sale is complete when auctioneer accepts a bid.- - - In the case of a sale by auction — (1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale; (2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; and, until such announcement is made, any bidder may retract his bid; (3) a right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction; (4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer; (5) the sale may be notified to be subject to a reserved or upset price; (6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer. [section 64]. Unit V Preparation of specimen for a valid contract of a business – List out the rights and liabilities of principles and agent – illustrate a partnership deed – state the rules regarding passing of property of goods Rights and Liabilities of Principle and Agent An agency is the creation of a contract entered into by mutual consent between a principal and an agent. By agency, a principal grants authority to an agent to act on behalf of and under the control of the principal. The relation between a principal and an agent is fiduciary and an agent’s 40 actions bind the principal[i]. The law of agency thus governs the legal relationship in which an agent deals with a third party for his/her principal. An agent owes certain duties towards his/her principal and a principal owes certain duties towards his/her agent. The scope of an agent’s duty to the principal is determined by: • • the terms of the agreement between the parties[ii]; and extent of the authority conferred and the obligations of loyalty to the interests of the principal. An agent’s primary duties are: • • • • act on behalf of and be subject to the control of the principal; act within the scope of authority or power delegated by the principal; discharge his/her duties with appropriate care and diligence; and avoid conflict between his/her personal interests Other duties of an agent include: • • • • • not to acquire any material benefit from a third party in connection with transactions conducted or through the use of his/her positions as an agent[iii]; to act with the care, competence, and diligence normally exercised by agents in similar circumstances[iv]; to take action only within the scope of the his/her actual authority[v]; to comply with all lawful instructions received from the principal and persons designated by the principal concerning agent’s actions on behalf of the principal[vi]; to act reasonably and to refrain from conduct that is likely to damage the principal’s enterprise[vii]; An agent is liable to a principal when he/she acts without actual authority, but with apparent authority. An agent is liable to indemnify a principal for loss or damage resulting from his/her act. A principal owes certain contractual duties to his/her agent. Correlative with the duties of an agent to serve a principal loyally and obediently, a principal’s primary duties to his/her agent include: • • To compensate the agent as agreed; and To indemnify and protect the agent against claims, liabilities, and expenses incurred in discharging the duties assigned by the principal[viii]. Because of the fiduciary relationship, a principal owes his/her agent a duty of good faith and fair dealing[ix]. However, a principal can be relieved of contractual obligations by an agent’s prior breach of contract. A principal has a duty to act in accordance with the express and implied terms of any contract between a principal and an agent[x]. 41 When an agent acts within the scope of actual authority, the principal is liable to indemnify the agent for payments made during the course of the relationship irrespective of whether the expenditure was expressly authorized or merely necessary in promoting the principal’s business. Specimen for a valid contract Private & Confidential Wednesday, October 25, 2000 Mr. LALIT VIJ H 33, Sector 25 NOIDA Tel: 91 118 4539541 EMPLOYMENT CONTRACT Dear Lalit, Subsequent to the meetings between Exl-Service India Private Limited and you, we are pleased to make an offer of employment on the following terms and conditions: 1. Appointment 1.1 You shall be appointed to the position of Vice President - Operations. 1.2 You will join as early as possible but not later than Nov 18th , 2000 . 1.3 You shall be based in NOIDA but will serve the Company or any of its subsidiaries or associated companies in any location within or outside of India. 1.4 Your employment with the Company is subject to: (a) Your undergoing a pre-employment medical examination and being declared fit; and, (b) The accuracy of the testimonials and information provided by you; and, (c) Your being free from any contractual restrictions preventing you from accepting this offer or starting work on the above-mentioned date; and, (d) Your providing two satisfactory references. 2. Remuneration 42 2.1. As an employee of the Company you will receive an Annual Fixed Salary of Rupees 2,307,433.00 . This will be disbursed to you in accordance with the prevailing standard compensation plans of the company, information on which will be provided to you upon joining the company. 2.2. Additionally, you will receive a one time lump-sum amount of Rupees 400,000.00 on joining the Company. 2.3. You will receive an amount towards annual qualifying discretionary bonus based entirely on the management’s assessment of your performance during the previous year (January to December). The details of the scheme, including the nature of your participation and extent of the award, will be separately discussed with you by the management. 2.4. You shall be eligible to participate in the Company’s Stock Options Program and we are pleased to award you ten thousand stocks from the date of joining. Additionally, you will receive seven thousand five hundred stocks each on the first and second anniversary of your date of joining. The details of the scheme will be separately discussed with you by the management. 2.5. The payments described above will not be further grossed up for taxes and you will be responsible for the payment of taxes with respect to such payments, that are deducted at source as per the prevailing rules. 2.6. The remuneration paid to you has taken into consideration the status and responsibilities of the appointment and as such, you will not be entitled to any other payment by way of overtime and other allowances. 3. Probation 3.1 You will serve a probationary period of six months. During the period of probation the contract may be terminated by either party by giving one month’s notice in writing or payment of salary in lieu thereof. On satisfactory completion of your probation your services will be confirmed by the management in writing. 3.2 The Company reserves the right to extend the probationary period in the event that your performance is not up to expectation. 4. Code of Conduct 4.1 You shall, at all times, be required to carry out such duties and responsibilities as may be assigned to you by the Company and shall faithfully and diligently perform these in compliance with established policies and procedures, endeavoring to the best of your ability to protect and promote the interests of the Company. 4.2 You shall not, except with the written permission of the Company, engage directly or indirectly in any other business, occupation or activity, whether as a principal, agent or 43 otherwise, which will be detrimental, whether directly or indirectly, to the Company’s interests. 4.3 You shall keep strictly confidential details of your salary and employment benefits within and outside the Company. 4.4 You shall not disclose or divulge any confidential information related to the Company’s business or its customers which may come to your knowledge or possession during the tenure of your employment, and which should not be disclosed or made public save in the course of the proper execution of your duties. 4.5 You undertake not to make copies or duplicates of confidential or sensitive property or material including but not limited to keys, access cards, diskettes, photographs or such other proprietary information relating to the Company’s business. 4.6 You will be bound by the Code of Conduct and all other rules, regulations, policies and orders issued by the Company from time to time in relation to your conduct, discipline and service condition such as leave, medical, retirement, etc. as if these conduct rules, regulations, policies et al, were part of this contract of appointment. 5. Working Hours 5.1 Exl practices a 48-hour work week for all staff and management employees. Actual work timings and shifts may vary from time to time based on business and customer service requirements. You will be advised by your supervisor or manager of the working hours, break period and weekly rest day(s) for your unit. 6. Termination of Employment 6.1 Either the Company or you may at any time terminate this agreement by giving in writing to the other party one month’s notice during your probationary period or three months’ notice after confirmation or in lieu thereof a sum equal to the amount or pro-rated amount of salary which would have been accrued to you during the period or remaining period of notice. 6.2 Company reserves the right not to relieve you of your services in the event that all Company documents / property in your custody have not been properly handed over by you to an authorized representative. 6.3 Absence for a continuous period of eight days without prior approval of your superior, (including overstay of leave / training), can lead to your services being terminated without notice or explanation. 7. Retirement 44 a. You shall retire on your 58 th birthday or the last day before this, if your birthday does not fall on a working day. b. You may be retired earlier if found medically unfit. Kindly sign and return a copy of this letter. Please initial each page in acceptance of the terms and conditions set out herein. We welcome you and wish you every success in your career with Exl-Service India Private Limited. Yours sincerely, for Exl-Service India Private Limited /s/ Vikram Talwar VIKRAM TALWAR Chief Operating Officer I accept the terms and conditions of this letter /s/ Lalit Vij Lalit Vij 4/11/2000 A -102, Sector 58, Noida (UP) - 201301 India ( +91-11-8-4586970, 4586971, 4514394 Fax : +91-11-8-4514395 Regd. Off. 103A Ashoka Estate, Barakhamba Road, New Delhi - 110001 SPECIMEN FORM OF A PARTNERSHIP DEED THIS AGREEMENT made at Karachi this 1st date of July, 1990, between AB, Muslim, adult, residing at Karachi of the one part AND, CD, Muslim, adult, residing at Karachi, of the other part. WHEREAS the party of the One Part and the party of the Other Part have agreed to enter into a partnership business upon the terms and conditions herein contained; NOW THEREFORE THESE PRESENTS WITNESS.-And it is hereby agreed between the parties hereto as follows: 1. This Deed of Partnership shall come into force with effect from the first day of April, 1990. 45 2. The partnership business shall consist of sale, purchase and manufacture of dyes and chemicals, and all kinds of agency business, whether manufacturing or otherwise, and/or such other business as may be decided by the partners from time to time. 3. The partnership shall be carried on in the name and style of "AB & Sons". 4. The partnership shall be a partnership at will. 5. The partnership business shall be conducted at Karachi and/or at such other place or places as shall be agreed to. by the partners from time to time. 6. Both the partners shall initially invest Rs. 10,000 each and the amounts so invested by the partners shall form tile capital of the partnership, and the same shall be used as per these present in the partnership business. 7. Further capital, if any, required by the partnership shall be obtained from time to time by the partnership by way of loans hundies or otherwise from third parties on payment of interest at the market rate, and such interest shall be paid out of the partnership funds irrespective of profits and losses of the said business. 8. The net profits of the partnership business shall, after meeting all the necessary costs, charges and expenses incurred in carrying on the said partnership business, be divided in the following proportion: (a) AB..................50P. in the rupee. (b) CD..................50P. in the rupee. any they shall in the like proportion bear all losses, including loss of capital. 9. The profits and losses of the partnership shall be determined as on the 30th day of June each year, and the same shall be distributed to, or recovered from, the partners concerned in the proportion aforesaid. 10. It is hereby agreed that each of the partners shall be entitled to draw Rs. 1,000 (Rupees one thousand only) per month for his personal expenses without the consent of the other partner, and such drawing shall be debited to his personal account, and the sum so drawn shall be in part or full satisfaction, as the case may be, of the share of the said partner in the profits of the said partnership business for that year. PROVIDED ALWAYS that if in any year, the sum drawn as aforesaid by the partner shall exceed the amount of his share of the net profits for that year, the said partner shall refund the excess to the partnership as soon as the same shall be ascertained or from his share of the profits of the subsequent year or years. 11. The partners shall open one or more current accounts with any Bank or Banks in the name of the partnership, and the account or accounts so opened shall be operated by either partner. 12. Both the partners shall have full power and authority to draw cheques, withdraw cash through signed cheques, overdraw from Bank or Banks, take loans, secure credits, sign bills of exchange 46 and any other legal instrument or instruments, endorse hundies, appoint attorney or attorneys for and to commence, continue, defend, compound or settle any suit, prosecution or any legal proceeding for or against the partnership, PROVIDED ALWAYS that in each such case, the approval or ratification of the other partner shall invariably be obtained. 13. All partnership money, bills, notes, cheques and other securities received by the partnership shall, as and when received, be paid and deposited in the Bank or Banks to the credit of the firm's account, except such sums as are immediately required to meet the current expenses. 14. The accounts of the said partnership shall be properly maintained and kept at the office of the partnership, and shall be made up and prepared at the close of each year ending on the 30th day of June and the Same shall be signed by both the partners. 15. None of the partners hereto shall pledge the credit of the said business of the partnership, except in the usual and regular course of business, or give credit to or conduct any business for any other firm, company or person. 16. The money constituting the net profits made on such yearly account as aforesaid, after deducting all the expenses, salaries, wages, taxes, etc., may be withdrawn by each partner respectively entitled thereto according to his respective share as herein before provided (less such sums as may have been previously drawn on account by such partner). 17. In the event of any partner desiring to retire, for any reason whatsoever, from the said partnership, he shall give a previous notice of three months to that effect. On such notice being received by the firm, the account books of the firm shall be brought up-to-date and a balance-sheet as at the end of the period of the said notice shall be made up. The outgoing partner shall be paid his share of the net profits as on the date of retirement and shall be required to pay all his dues or debts, if any, to the firm, and after all the claims and dues of and/or against the firm are satisfied, he shall be deemed to be free from the partnership, and the other partners shall be deemed to be free from the partnership, and the other partners shall be entitled to continue the business of the partnership as the sole proprietor thereof. The partner thus going out shall be entitled to the rights of the goodwill of the firm to the extent of his share in the partnership. 18. In the event of death of either of the partners occurring during the currency of the said partnership, the surviving partner shall be entitled to continue and carry on the said business in partnership with the legal heirs, successors or legal representative of the deceased partner, and if such heirs, successors or legal representatives of the deceased partner decide not to carry on the said business in partnership, then the surviving partner may carry on the said business as the sole proprietor thereof in the same name and style, after working out and paying the dues and claims of the deceased partner to his heirs, successors or legal representatives, as the case may be, who shall have full power to inspect accounts and obtain such information as may be necessary for 47 ascertaining that the share of the deceased has been properly worked out and paid. The share of the deceased shall include his share in the goodwill of the firm. 19. Any dispute or question which may arise in the business of the said partnership in connection with any matter between the partners or the surviving partner and the heirs, successors or legal representatives of the deceased partner, whether during the currency of this Agreement or after the termination thereof, relating to or arising out of the business of the partnership or of this Agreement. Such arbitration shall be held at Karachi, and shall be governed by the provisions of the Arbitration Act for the time being in force in Pakistan, and the Arbitration Award shall be binding on the parties to the dispute. IN WITNESS WHEREOF the parties hereto have hereunto set and subscribed their respective hands and seals the day and year first herein above written. SIGNED SEALED AND DELIVERED by the within named AB, in the presence of .________________ (Signature of AB) SIGNED SEALED AND DELIVERED by the within named CD, in the presence of ___________________ (Signature of CD) REFERENCES Books: 1. Business Law 2. Business Law R.S.N.Pillai & Bhagavathi N.D.Kapoor 3. Mercantile Law for CA Common Proficiency - P C Tulsian 4. Business Law P.Saravanavel & Syed Bandre Alam 48 Internet search dated 20.06.2012: 1. 2. 3. 4. 5. http://220.227.161.86/16818IndianPartnershipact.pdf http://www.preservearticles.com http://www.nios.ac.in/Secbuscour/cc07.pdf http://www.idlaw.com.cy/images/uploadFiles/files/1245663413-Partnership__3_.pdf www.paksearch.com/Government/CORPORATE/Partner/PAR_1d.html#App1 49