LAB_ (PGDM-IB)_Contract Act & SGA

8/7/2019 LAB_ (PGDM-IB)_Contract Act & SGA

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SemesterSemester -- II

Logic, Awareness and

Common Sense

Manmohan Vyas - ISBS


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ManmohanVyas - ISBS

Certain Questions toCertain Questions to begin withbegin with

Why Law is required ?

What is Law?

Sources of Law?

LAB Syllabus


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ManmohanVyas - ISBS

Legal AspectsLegal Aspects ofof BusinessBusiness

AnAn IntroductionIntroduction

Largely based on English common law because of the longperiod of British colonial influence.

Drafting of the Indian Constitution, laws from Ireland, theUnited States, Britain, and France were all synthesized to get arefined set of Indian laws.

Indian laws also adhere to the United Nations guidelines on

Human RightsL

aw, The EnvironmentalL

aw,L

aw OnIntellectual Property.

Indian civil law is complex, Religion specific laws. There areseparate laws governing Hindus, Muslims, Christians, Sikhs andfollowers of other religions


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ManmohanVyas - ISBS

CHAPTERCHAPTER -- II


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The Indian Contract Act,1872The Indian Contract Act,1872

Branch ofLaw which determines the

circumstances in which promises made by the

parties to a contract shall be legally binding onthem.

General principles of law of contract (Sec 1-75) & Some special contracts (Sec124-238)

The act is not Exhaustive.


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ContractContract -- DefinitionDefinition

Sec.2(h) Contract is an agreementenforceable by law

AnAgreement

EnforceabilityBy Law

Contract


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Agreement & EnforceabilityAgreement & EnforceabilityAgreement

Everypromise and every set of promises, formingconsideration for each otherE.g.

Consideration is the respective interest of each of the twoparties under the agreement

Promise

When the person to whom the proposal is made signifies hisassent thereto, the proposal is said to be accepted. A proposal, whenaccepted, becomes promise.E.g.

Agreement = Offer + Acceptance


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Flow & RelationFlow & Relation

Promise

Agreement

Contract


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Essential of AgreementEssential of Agreement

Consensus ad idem. E.g.....

O

bligation (Legal Tie Doing orAbstaining)

Social Agreements Not enforceable incourt of law

All contracts are agreement but all

agreements are not contracts


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Essential ElementsEssential Elements ofof Valid ContractValid Contract

Offer & Acceptance (2 Parties-Terms Definite-absolute &Unconditional)

Intention to create legal relationship

(Not of Social-Domestic nature E.g. Rose & Frank Co. v. Crompton Bros.)

Lawful consideration (Cash or Kind ,Act orAbstinence )

Capacity of parties (Minor, Unsound mind, Disqualified)


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Essentials cont..Essentials cont..

Free Consent ( Induced by Fraud, Coercion,Misrepresentation etc.)

Lawful object ( Must not be Illegal, Immoral &Against Public

Policy)

Agreement not declared void ( Minor - Void abinitio)

Certainty & Possibility of Performance

( Treasure , Putting Life )

Legal formalities ( Stamped , Registered etc.)


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Classification ofClassification of contractcontract

CONTRACTS

VALIDITY FORMATION PERFORMANCE

VALID

VOIDABLE

VOID

EXECUTEDEXPRESS

IMPLIED

QUASI

EXECUTORY


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OfferOffer andand AcceptanceAcceptance

y An Offer is a Proposal by one party to another toenter into a Legally binding agreement with him.

y Proposal :- When a person signifies to another hiswillingness to do or to abstain from doing anything,

with a view to obtain the assent of that other to such

act or abstinence.

y Parties :- Offeror , Proposer

Offeree or Proposee

Acceptor or Promisee


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OfferAndAcceptance cont..OfferAndAcceptance cont..

Flow of offer

y Specific Offer

y General Offer

Case -Carlill vs. Carbolic Smoke BallCompany

Offeror Offeree Acceptor


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Legal Rules As To OfferLegal Rules As To Offer

Should give rise to legal Relation

Terms must be definite, Unambiguous

An offer is distinguished from

A declaration of intention (e.g.Advertisement)

An invitation to make offer (e.g. Price tag )

Offer must be communicated (Lalman..)


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Legal RulesAs To Offer cont..Legal RulesAs To Offer cont..

Must be made with a view to obtaining

assent

Non compliance cannot be assumed asacceptance

Statement of price is not an offer ( Harvey vFacey)

Cross offers are not offers


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AcceptanceAcceptance

y Act of assenting by the offeree to an offer.

It is to an offer what a lighted match is to a

train of gunpowder.I

t produces somethingwhich cannot be recalled , or undone.

y An offer when accepted, becomes promise[Sec. 2 (b)].

y Acceptance of Particular offer / GeneralOffer.


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Legal Rules To AcceptanceLegal Rules To Acceptance

y It must be absolute and must conform with theoffer.

y It must be communicated to Offeror (mereresolve or mental determination will not do)

y Must be according to mode prescribed or

reasonable mode.

y It cannot be implied from silence.


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CommunicationCommunication

yOffer, Acceptance or Revocation may becommunicated by words spoken or writtenor by conduct.

y Communication ofOffer is complete

when it comes to the knowledge of theperson to whom it is made.


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Communication..Communication..

y Communication of Acceptance, is

complete_ _ _

as against the Proposer when it is put intocourse of transmission to him, so as to

out of power of the acceptor.

as against the Acceptor when it comes tothe knowledge of the Proposer.


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Communication..Communication..

y Communication of Revocation, it is

complete _ _ _

as against the person who makes it, when it isput into the course of transmission to the

person to whom it is made, so as to be outof the power of the person who makes it;

as against the person to whom it is made,when it comes to his knowledge. Example..


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Loss In Postal TransitLoss In Postal Transit

y Communication ofAcceptance is complete

as against the Proposer when it is posted.

The contract is complete even if the letter ofacceptance goes astray or is lost through an

accident in the post.

But, in order to bind the offeror, its important

that letter of acceptance is correctlyaddressed, stamped and posted.


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Contract over TelephoneContract over Telephone OralOral

CommunicationCommunication

y Offeree must make sure that the acceptance

is properly received, i.e. heard and

understood by the offeror. E.g. Aircraft flyingoverhead.

y

Contract over Telephone Middle of thereply, the line goes dead ( cant hear words of

acceptance).


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ConsiderationConsideration

Quid Pro Quo Something In return

Sec 2{d} When at the desire of thepromisor, the promisee or any other person

has done or abstained from doing, or doesor abstains from doing, or promises to do

or to abstain from doing, something, suchact or abstinence or promise is called

consideration for the promise.


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Legal Rules..Legal Rules..

May be Past, Present, Future

Need not be adequate

Must be real, not illusory.

Must be something which the promisor is

not already bound to do.

Must not be illegal, immoral or against Publicpolicy ( e.g. Promise to get a job in PSU).


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Stranger To ContractStranger To Contract

y Doctrine ofPrivity of Contract only theparties to a contract may sue and be sued

on the contract.

yTwo Implications of doctrine:-

A Person who is not party cannot sue.Contract cannot confer rights or imposeobligation other than parties.


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Exceptions to Rule of Stranger..Exceptions to Rule of Stranger..

y ATrust or Charge.

y Marriage settlement, Partition or Other

family arrangements.

y Acknowledge 0r Estoppel.

y Contract through anAgent.

y Covenants running with the land.


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Contract Without Consideration IsContract Without Consideration Is

VoidVoid -- ExceptionsExceptions

Love &Affection Written & Registeredagreement

Promise to pay for past voluntary services

Promise to pay a time barred debt.

Completed gift

CreatingAgency no consideration


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Capacity To ContractCapacity To Contract

Sec.11,declares following persons incompetent

Minors

Indian Majority Act,1875,a minor is a personwho has not completed 18 yrs. of age

Minors UnsoundMind DisqualifiedBy Law


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MinorMinor

Attains majority at the age of 21 yrs

Guardian appointed under Guardian & Wards

A

ct,1890 Superintendence of a minors property is assumed

by Court of wards.

Position of minor in agreement

VoidAb Initio :- Mohiri Bibi v. DharmodasGhose


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Position of minors cont..Position of minors cont..

y Can be beneficiary e.g. recovery of price

after sale.

y Cannot be ratified on attaining majority.

y Can always plead minority Fraud by

misrepresenting age

y Cannot enter into partnership but can be

admitted to benefits of already existing


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Minors liability for necessariesMinors liability for necessaries

Is liable to pay for necessaries supplied to

him.

Property of the minor is liable for meetingthe liability, not personally liable.

Necessary goods not restricted to articles

to maintain bare existence, but reasonablynecessary.

Services rendered Education, medical

Advice, provision of a funeral etc.


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PersonPerson ofof Unsound MindUnsound Mind

A person is said to be of sound mind for the

purpose of making a contract if, at the timewhen he makes it, he is capable of

understanding it and forming a rationaljudgment as to its effects upon his

interests.

y Unsound mind Lunatics , Idiots

Drunken or Intoxicated


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Other PersonsOther Persons

y Alien enemies

y Foreign sovereigns, their diplomaticstaff & representatives Priorpermission

y Corporations Artificial Person ,MOA

y

Insolvents Official Receiver orAssignee

y Convicts


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Free ConsentFree Consent

y Consent Two or more persons are said

to consent when they agree upon the samething in the same sense.

y Consent is free if its not cause by

Coercion Undue Influence

MistakeMisrepresentation

Fraud


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CoercionCoercion

y When a person is compelled to enterintoa contract by the use of force by other partyor under a threat, coercion is said to beemployed.

y It is committing or threatening tocommit, any act forbidden by the IPC,1860

y Effect -Voidable at the option of aggrieved.


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Cont..Cont..

y Threat to commit suicide :-

one committing suicide places himself or

herself beyond the reach of law,& necessarily

beyond the reach of any punishment.

y Sec. 306 of IPC Punishes abetment of

suicide

y Sec. 309 of IPC Punishes attempt tosuicide.


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Undue InfluenceUndue Influence

y Relation b/w the parties is such that one of

the parties is in position to dominate thewill of other & uses that position to obtain

unfair advantage.

y E.g. Parent Children / Doctor

Patient / Solicitor Client etc.

y Burden of proof On Plaintiff


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MisrepresentationMisrepresentation

Representation -A statement of fact

Representation, when wrongly made, ismisrepresentation.

Innocent or Unintentional Misrepresentation

Intentional or Deliberate Fraud

Consequences A

ggrieved party canAvoid or Rescind contract

Accept but insist prior position


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FraudFraud

y False representation Knowingly orRecklessly / concealment of material fact

y Intention of party making fraudulentmisrepresentation must be to deceive theother party.

y Fraud means & includes :- Sec. 17

y Consequences -Voidable


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MistakeMistake

y Erroneous belief about something.

y Mistake ofFacts Mistake of Law

y Mistake of facts: Bilateral Unilateral

y Bilateral Both the parties under mistake of facts

y Unilateral one party / negligence or lack of care should bear the consequences. Not allowed asdefence in avoiding a contract.

y Exceptions Mistake is Fundamental / Root ofAgreement. E.g. Identity of Person / Nature ofContract (void)


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DischargeDischarge ofof ContractContract

Contract may be discharged by

Performance

Agreement or ConsentImpossibility

Lapse of time ( Time Barred Debt)

Operation of law (Death / Insolvency etc.)

Breach of contract


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Continue..Continue..

y Discharge by performance

Actual Performance

Attempted Performance or Tender

y Discharge by Agreement

A thing may be destroyed in the same manner in

which it is constituted

Novation Rescission Remission -Waiver


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Discharge by Impossibility of Performance

y Impossibility existing at the time of contract

y Impossibility arising subsequently ( Supervening

Impossibility )

* Destruction Of Subject Matter

* Death or incapacity

* Change OfLawy Impossibility of Performance - NotAn Excuse. e.g.

Difficulty / Depreciating Currency / Strike Lockouts


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Breach Of Contract

y Actual breach of contract At the time

of performance, one party fails or refuses.

If time is not essence, may accept withdamages. Prior notice required.

y Anticipatory Breach Party to Executory

Contract declares intention of non performance.* Treat The contract as discharged

* Take legal action


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ContractContract ofof AgencyAgency

y A person employed to do any act for

another, or to represent another in dealing

with 3rd persons.

y Person represented Principal

y Function to bring principal into

contractual relation with 3rd persony Agent- connecting Link


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Rules ofAgencyRules ofAgency

Whatever a person can do personally, he

can do through an agent. Exception..??

He who does an act through another

does it by himself


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CreationCreation ofof AgencyAgency

y Agency by Express agreement

y Agency by Implied Agreement

y Agency by Ratification

y Agency by Operation of law


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Types..Types..

y Agency by Implied Agreement

conduct, situation or relationship.

* Agency by Estopple.

* Agency by Holding out prioraffirmative act on part of P required to

establish agency subsequently.

* Agency by Necessity Agentexceeding authority in Emergency. Husband& Wife (Pledge credit for necessaries).


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Types..Types..

y Agency by Ratification Act on behalf,

without consent or knowledge. Subsequentlyaccepted.

* Requisitions of valid ratification Lawful,

P should have Powers, Contractual Capacity


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Delegation ofAuthorityDelegation ofAuthority

DelegatusNon Potest Delegare

A person to whom authority has been givencannot delegate that authority to another.

y Sub-Agent Agent of original agent

* Custom of trade

* Nature of work

y Relationship Proper / Not ProperAppointment


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Indemnity & GuaranteeIndemnity & Guarantee

y Contract by which one party promises tosave the otherfrom loss caused to him bythe conduct of the promisor himself, or bythe conduct of any other person, iscontract of Indemnity. E.g. A & B -railways

y

Person promises to make good the loss Indemnifier (Promisor).

y Person whose loss is made good Indemnified (Promisee).


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Indemnity & GuaranteeIndemnity & Guarantee

y Contract of Guarantee is a contract to

perform the promise, or discharge the

liability, of 3rd person in case ofhis default.

y Person who gives guarantee Surety

y In respect to whose default Principal

Debtory Person to whom given - Creditor


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Essential FeaturesEssential Features

y Concurrence of all the three parties

y Primary Liability other than Surety.

y Essential Of Valid Contract.

y Writing Not necessary.


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Remedies For Breach Of ContractRemedies For Breach Of Contract

yRescission of The Contract

y

SuitF

or DamagesySuit Upon Quantum Meruit

y

SuitF

or Specific PerformanceySuit For Injunction


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Quasi ContractQuasi Contract

A person shall not be allowed to enrich

himself unjustly at the expense of another.

Kinds of Quasi Contract

Supply Of Necessaries

Payment ByAn Interested Person. E.g. Land


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Cont..Cont..

yObligation To Pay for an act which is

not unwarranted. Lawfully done, intention

, enjoy benefitsy ResponsibilityOfFinderOf Goods

Prudence. Can Sell Perishable , owner not

found, refuse to pay charges etc.yMistake or Coercion Money

paid/Return


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CHAPTERCHAPTER -- IIII


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The Sales ofGoods Act,1930


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The Sales of Goods Act,1930The Sales of Goods Act,1930

y Part of The Indian ContractAct,1872

Contract of Sale is a contract whereby

the seller transfers or agrees to transfer

the property in goods to the buyer for aprice

y Transfer

y Agrees To Transfery Property In Goods


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Essentials of Contract Of SaleEssentials of Contract Of Sale

y Two parties Buyer & Seller

y Goods Must be movable. Transfer of

immovable property not regulated by this.y Price Consideration. Must be in money.

Partly Money Goods,Possible.

y Transfer orAgreement to Transferownership

y Essential Elements of valid contract


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SaleSale Agreement To SellAgreement To Sell

y Transfer of Property Executed / Executory

y Risk of loss Irrespective Of Possession

y Consequences Of Breach Sue for Price orDamages

y General & Particular Property Sale : Contract +conveyance.Agreement : Pure contract.

y Insolvency of Buyer

y Insolvency of Seller -


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SaleSale Hire PurchaseHire Purchase

Home assignment and class discussion


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Subject Matter of Sales ContractSubject Matter of Sales Contract

Goods

y Every Kind of movable property other than

Actionable Claims.

y Includes Stocks & shares, grass & things

attached to or forming part of land agreed

to be severedy Trademark, Copyrights, electricity, water, gas


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Classification of goodsClassification of goods

y Existing Goods

y Future goods

y Contingent Goods

Specific Ascertained Unascertained


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Conditions & WarrantiesConditions & Warranties

y Condition is a stipulation which is

essential to the main purpose of thecontract. Main Root of the Contract. If

Breach Aggrieved party can repudiate thecontract.

y Warranty is a stipulation which is

collateral to the main purpose of thecontract. If Breach aggrieved party can onlyclaim damages.


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Breach of conditionBreach of condition

When breach of condition treated as

breach of warranty?

y Voluntary waiver of condition by buyer or

elect to treat breach of condition aswarranty.

y Acceptance of goods by buyer - where

contract is not severable, breach can only betreated as that of warranty.

ExpressExpress Implied Condition &Implied Condition &


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ExpressExpress -- Implied Condition &Implied Condition &WarrantiesWarranties

Implied Condition

y Condition as to Title seller has/will haveright to sell. e.g. returning car to true owner

y Sale by Description if you contract to sellpeas, you cant oblige a party to take beans

y Condition as to quality or fitness

Buyer must examine thoroughly. Exception

* Purpose Disclosed, buyer relied on sellersjudgement, seller business to sell such goods


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y Condition as to Merchantability -Commercially saleable.

y Condition as to wholesomeness

y Sale by sample Bulk should correspond

to sample. Reasonable opportunity ofcomparing. Goods free from defects(Latent).


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Implied WarrantiesImplied Warranties

y Warranty of Quite Possession

y Warranty of freedom from encumbrance

y Warranty to disclose dangerous nature of

goods


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Caveat EmptorCaveat Emptor

Let the buyer beware

It is no part of the sellers duty to point outdefects of his own goods. Buyer must inspect to

find out if they will suit his purpose.

Exceptions

y False representation by seller

y Seller actively conceal the facts


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y Where buyer makes known thepurpose

y Sale by description implied condition ofmerchantability. But if buyer has examined,implied condition extends only hidden /

latent defects.

y Usage or custom of trade - e.g. Hotwater bottle


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Transfer of PropertyTransfer of Property

Property,Possession & Risk

Property Ownership Of Goods

Possession Custody or Control of Goods

Risk Risk Follows Ownership


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Passing of PropertyPassing of Property

y Goods must be ascertained Noproperty in the goods transfers unlessascertained

y Intention Of the parties If specificgoods , property passes when parties intendto. For intention Terms, conduct ,

circumstances

y Intention cannot be ascertained :-


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Intention Not Specified..Intention Not Specified..

y Specific goods - property passes at the time ofcontract, provided Deliverable State

Goods not in Deliverable state Property doesnot pass until work done & buyer has notice.

y Unascertained Goods:- Does not pass until theyare ascertained. UnconditionalAppropriation Selection of goods withintention of using them in performance & withmutual consent.


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Sale By Non OwnersSale By Non Owners

Nemo Dat Quod Non Habet

No one can give that which one has not

got

Exceptions:-

y Title By Estoppel

y Sale by Mercantile Agent If he haspossession by consent of owner

y Sale by one of Joint Owners


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y Sale by person in possession under voidable

contract-seller has acquired by Fraud ,

voidable. Not been rescinded.

y Sale by seller in possession after sale.

y Sale by unpaid seller


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Unpaid SellerUnpaid Seller

Right of Lien - Right to retain possession ofGoods until payment of the price .

y Where goods been sold without stipulation

of credit

y

Credit term expiredy Buyer becomes insolvent


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Right of stoppage in transitRight of stoppage in transit

y Right of stoppage in transit available when

the buyer becomes insolvent and when

goods are in transit.

y Carrier may hold goods.

y How stoppage by taking actual possession ,

by giving notice to carrier.


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Right to ReRight to Re--salesale

y Where goods are of perishable nature or

y Seller gives notice of his intention and

buyer does not reply.


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Auction SaleAuction Sale

y Goods are put-up for sale in lot, each lot deemedto be subject matter of separate contract of sale

y Sale is complete when auctioneer announces by

hammer or other customary manner.y Sale notified to be subject to a right to bid on

behalf of the seller

y Sale may be notified to be subject to reserved

price

y If pretended bidding to raise price, its voidable


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Unpaid Seller RightsUnpaid Seller Rights-- ChartChart

Property In GoodsHas passed

RepudiationOf

Contract

Suit For

Damages

Suit For

price

LienStoppage In

TransitResale

Suit For

Interest

Withhold

Delivery

Property In GoodsHasNot Passed

Against Goods Against Buyer

Stoppage In

Transit


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Last but not the leastLast but not the least

Documents

LAB_ (PGDM-IB)_Contract Act & SGA