BUSINESS LAW. Commercial Law : Business Law

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1 BUSINESS LAW Commercial Law : Business Law Indian Contract Act 1872 : Meaning and essentials of a valid contract Formation of contract Performance of contract Termination and discharge of contract Remedies for breach of contract Quast contract Indian Partnership Act, 1932 : Meaning and test of partnership Registration of firms Relations of partners dissolution of firms Indian companies Act, 1956 MEANING INDIAN CONTRACT ACT The law relating to the contracts is contained in the Indian Contract Act It is that branch of law which lays down the essentials of a valid contract, the different modes of discharging the contract and the remedies available to the aggrieved parts in the case of breach of contract. It is the most important branch of business law. It is of particular importance to people engaged in trade, commerce and industry as bulk of their business transactions are based on contracts. A contract is an agreement made between two or more parties which the law will enforce Sec. 1 the of the Indian Contract Act defines it as An agreement enforceable by law Sec 10 lays down that All agreements are contracts if they are made by the 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. ESSENTIAL ELEMENTS OF A VALID CONTRACT A valid contact must have the following essential elements:- 1. Two parties : for a valid contract, there must be two parties 2. Offer and acceptance: There must be an offer and acceptance one party has to make an offer and the other party has to accept it. 3. Consensus-ad-idem or Identity of Minds: The parties to the contract must have agreed about the subject matter of the contract at the same time and in the same sense. Illustration: A has two houses, one at Howrah and another at Kohima. He has offered to sell one to B. B accepts thinking to purchase the house at Kohima, while A, when he offers, has in his mind to dispose of house at Howrah. There is no Consensus-as-idem. 4. Consideration: It means Something in return Every contract must be supported by consideration.

2 Illustration: An offer to sell his watch for Rs. 500 to B and B accepts the offer. Thus Rs. 500 is the consideration for the watch and vice-versa. 5. Capacity; The parties to the contract must be competent to contract. For example a contract by a minor is void 6. Free Consent: The consent of the parties must be free from any flow it must not be caused by a mistake or coercion or undue influence 7. Lawful consideration: The consideration to a contract must be lawful Illustration: A promises to pay Rs. 500 to B, in consideration of B murdering C. The consideration is illegal. 8. The objects of the contact must be lawful Illustration: A promises to pay Rs. 500 for letting B s house for running a brothel. The objects are illegal. Hence, the contract is void. Thus, the essence of legal contract is that there shall be an agreement between two persons that one of them shall do something either for the benefit of the other or for his own detriment and that these persons intend that the agreement shall be enforceable at law CLASSIFICATION OF CONTRACTS Contracts may be classified according to their validity, formation or performance. I. Classification According to validity A contract is based on an agreement. An agreement becomes a contract when all the essential elements referred to above are present. In such a case, the contract is a valid contract. If one or more of these elements are missing, the contract is voidable, void, illegal or unenforceable. Voidable Contract An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. Sec.2(i). Example: A promises to sell his house to B for Rs. 2,00,000. His consent is obtained by use or force. The contract is voidable at the option of A. He may avoid the contract. Void Contract A contract which is at enforceable by law is a void contract. Example: A contract entered into by a minor is void. Illegal Agreement An illegal agreement is one which is criminal is nature or which is immoral. Such an agreement is a void contract. All illegal agreements are void but all more agreements or contracts are not necessarily illegal.

3 Unenforceable Contract An unenforceable contract is one which cannot be enforced in a Court of law because of some technical defect, such as absence of writing or where the remedy has been barred by lapse of time. CLASSIFICATIONS ACCORDING TO FORMATION Contracts may be classified according to the mode of their formation as follows: 1) Express Contract If the terms of a contract are expressly agreed upon whether by words spoken or written at the time of the formation of the contract, the contract is said to be an express contract. 2) Implied Contract An implied contract is one which is inferred from the acts or conduct of the parties or course of dealings between them. It is not the result of any express promise or promises by the parties but of their particular act. Example: A enters into a hotel and takes lunch. It is an implied contract that he has to pay the cost of lunch after taking it. CLASSIFICATION ACCORDING TO PERFORMANCE These may be classified as Executed contracts or Executory contracts. Unilateral contracts or Bilateral contracts. Executed Contracts An executed contract as one in which both the parties have performed have performed their respective obligations. Example: A agrees to supply a watch to B for Rs When A supplies the watch and B pays the price, the contracts is said to be executed. Executory Contracts An executory contract is one in which both the parties have yet to perform their obligations. Thus in the above example, the contract is executor if A has not yet supplied the watch and B has not paid the price. Unilateral Contract A unilateral or one-sided contract is one in which only one party has to fulfil his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence.

4 Bilateral Contract A bilateral contract is one in which the obligations on the part of both the parties to the contract are outstanding at the time of the formation of the contract. In this sense, bilateral contracts are similar to executor contracts. OFFER AND ACCEPTANCE OFFER An offer is also called a proposal. Sec. 2 (a) of the Indian Contract Act defines a proposal 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. The person making the proposal is called the prosper or offerer and the person to whom the proposal is made is called offeree LEGAL RULES RELATING TO OFFER 1. It must contain either definite terms or capable of being made definite. It was held in this case, that a clause to favorite consider the applies that renewal is ambiguous and not binding the complains 2. It must intend to give use to legal consequences A husband promised to pay Rs. 1100/- per month to his wife, staying away from him The promise was never intended to be enforceable in law. 3. It must be distinguished from a quotation or an invitation to offer T offered to buy D s property for Rs D replied, Won t accept less than 10,000 T agreed to pay Rs. 10,000. But D sold it to another person. It was held that mere statement of price by D contained no implied contract to sell it at that price. A catalogue or price list or tenders invited for the supplier to goods are not proposals. 4. An offer may be made to an individual or addressed to the worlds at large. An offer is called a specific offer when it is made to a particular person. The Company has offered by advertisement, a reward of 100 to anybody contracting influenza after using their smoke ball according to their direction. Mrs. Barli used it as directed but still had an attack of influenza. So, she sued for the award of 100. It was held that she was entitled to the award since an offer made at large, can ripen itself into a contract with anybody who performs the terms of the offer. 5. An offer is different from a tender A offers to supply goods at a particular rate for a particular period from a certai9n trade. If this offer is accepted by B, it is called a tender. It becomes an acceptance only when B places an order for a part of the goods. 6. An offer must be communicated to the offeree Ram s nephew was missing is who was an employee of Ram, volunteered his services to search for the boy. Meanwhile, Ram had announced a reward to anybody who could trace the boy. It

5 found the boy and brought him back to home and sued for the reward. It was held that he was not entitled to the reward as he was ignorant of the offer. Section 4 lays down that the communication of an offer is complete only when it reaches the offeree. So an offer binds the offeror only when the offeree has the knowledge of an offer. ACCEPTANCE Section 2 - the Indian Contract Act defines acceptances as. 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. An offer when accepted becomes a contract. An offer can be accepted only by the persons to whom the offer is made. Essentials of Valid Acceptance 1. Acceptance must be communicated in usual and reasonable manner. It may be made by express words, spoken or written or by conduct of the parties, i.e. by doing an act which amounts to acceptance according to the terms of the offer or by the offeree accepting the benefit offered by the offeror. Any method can be prescribed for the communication of acceptance. But silence can never be prescribed as a method of communication. Hence, mere mental assent without expressing it and communicating it may means of word or an act, is not sufficient. 2. Communication of acceptance may be awarded by the offeror. 3. Acceptance should be made before the offer lapses or is revoked or is received 4. Acceptance must be absolute and unconditional and should correspond with the terms of the offeror. Otherwise, it amount to counter offer which may be accepted or rejected by the offeror. For example, M offeror to sell his car for N. 2 lakh S asks for Rs. 1,70,000. It is not an acceptance but a counter offer only. 5. Acceptance once made, concludes the contract CONSIDERATION Consideration means something in return for something. Section 2 of the Indian Contract Act defined consideration thus 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 abstain from doing something, such act or abstinence or promise is called a consideration for the promise. 1. Consideration at the Desire of the Promisor Consideration must proceed at the request of the promisor. Hence acts done voluntarily or at the request of third parties do not constitute a valid consideration. 2. The Promisee or any other Person

6 Consideration may move from the promise or any third party. Hence, a stranger to consideration can sue on the contract. 3. Has done or abstained from doing or does or abstain from doing a) Consideration may be executed, i.e. an act or forbearance made or suffered for the promise given, or b) Consideration may be executor, i.e. a promise to act or abstain from doing in future, or c) Consideration may be past, i.e. an act or forbearance already taken place before the contract was entered into 4. Something Consideration may not be adequate. But it must be real and lawful. Example : Bimal agrees to sell a cow worth Rs for Rs. 10. He has given his consent freely. The agreement is a contract though consideration is inadequate. An agreement made without consideration is void. But the following are exceptions. (1) An agreement expressed in writing and registered and made on account of natural love and affection between parties standing in neat relation to each other. (2) A promise to compensate a person who has already voluntarily done something for the promisor, or (3) A promise to discharge a time-barred debt. CAPACITY TO CONTRACT The parties who enter into a contract must have the capacity to do so Capacity means competence of the parties to enter into a valid contract. According to Sec. 10, an agreement becomes a contract if it is entered into between the parties who are competent to contract. Thus Sec. 11 declares the following person to be incompetent to contract. (i) (ii) (iii) Minors Persons of unsound mind, and Persons disqualified by any law to which they are subject. Incapacity to contract Mental deficiency Incapacity arising:- 1. Foreign Sovereigns and Ambassadors

7 They may enter into contracts. But they cannot be sued except with the permission of the Central Government and certified by the Secretary. 2. Alien Enemy The enemy s status is to be determined by the place at residence of the individual, but not by his nationality. If a contract is already entered into before the declaration of war, its performance will be suspended during the period of war and in case the war continues to where period, the contract becomes void on the ground of impossibility of contract. 3. Convict He is no competent to contract during the period of sentence. 4. Bankrupt He cannot enter into contract and bind his property as his property shall be vested in the official receiver when he is adjudged an insolvent. 5. Artificial Person : Corporation It is a person in the eye of law. It is a legal entity. It can purchase properties enter into contracts, sue and be sued on such contracts. Its contractual capacity is limited. For example, it cannot enter into contract to marry or which is ultra vires its powers. (B) INCAPACITY ARISING FROM MENTAL DEFICIENCY A person is said to be mentally deficient when (a) he does not attain majority. E.g. a minor or (b) he is of unsound mind. 1. When he does not attain majority: Minor A minor is a person who has not completed 18 years of age. He attain majority on completion of his 21 year in England and 18 year in India. A minor cannot enter into a valid contract. 2. When he is of Unsound Mind Section 12 lays down that : A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person who is usually of unsound mind, but occasionally of sound mind may be a contract when he is of sound mind. MINOR IN INDIAN LAW A minor is a person who is not a major. He attains majority on completion of 21 years in England and 18 years in India. Even in India he attains majority on completion of 21 years when his property is managed by a court of wards or a guardian.

8 1. In Indian law, a contract by a minor is void. It cannot be even ratified by him after attaining majority. 2. A contract entered into by a minor by fraudulently misrepresenting his age is void. He cannot be stopped from setting up the plea of minority. 3. Minors can have no privilege to cheat men, though law protects them, so that people may not exploit their tender age. So, if a minor receives goods on credit while payment cannot be enforced goods can be recovered, if restitution is possible. 4. The property of the minor is liable for the necessaries supplied to him, provided the goods are suitable tot eh condition of his life and status. Even here, he is not personally liable, but his estate only is liable. 5. While a sale or mortgage by a minor is void, a sale or mortgage in favour of a minor is enforceable by him. 6. A contract by a guardian on behalf of the minor is enforceable by or against the minor, provided the guardian is competent to contract and the contract is beneficial to the minor. But he cannot purchase immovable property without obtaining the consent of the court. 7. Under Sec. 3 of the Indian Partnership Act a minor may be admitted to the benefits of partnership with the consent of all the partners. CONSENT AND FREE CONSENT Consent: It means acquiescence or act of assenting to an offer. Two or more persons are said to consent when they agree upon the same thing in the same sense. (Sec. 13) Free Consent: Consent is said to be free when it is not caused by (1) Consent as defined in Sed. 15 or (2) Undue influence as defined in Sec. 16, or (3) Fraud as defined in Sed. 17, or (4) Misrepresentation as defined in Sec. 18, or (5) Mistake, subject to the provisions of Sec. 20, 21, and 22 (Sec. 14) When there is no consent, there is no contract Example : A is forced to sign a promissory note at the point of pistol. A knows what he is signing but his consent is not free. The contract in this case is voidable at this option. FLOW IN CONSENT Coercion (Sec. 15) Undue influence (Sec. 16) Misrepresentation Mistake Fraudulent or Willful (Sed. 17) Innocent or unintentional (Sec. 18)

9 COERCION When a person is compelled to enter into a contract by the use of force by the other party or under a threat, coercion is said to be employed. Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code 1860 or 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. Example: Ali threatens to kill Billal if he does lend Rs to Cubar. Billal agrees to lend the amount to Cubar. The agreement is entered into under coercion. A threat to commit suicide also amounts to coercion. EFFECT OF COERCION When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused (Sec. 19) UNDUE INFLUENCE Sometimes a party is compelled to enter into an agreement against his will as a result of unfair persuasion by the other party. This happens when a special kind of relationship exists between the parties such that one party is in a dominant position to exercise undue influence over the other. Sec. 16(1): undue influence as follows 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. The following relationships usually raise a presumption of undue influence viz. (i) (ii) (iii) (iv) Parent and child Guardian and ward Trustee and beneficiary Doctors and patient (v) (vi) Solicitor and client, and Finance and fiancée The presumption of undue influence applies whenever the relationship between the parties is such that one of them is by reason of confidence reposed in him by the other, able to take unfair advantage over the other. EFFECT OF UNDUE INFLUENCE When consent to an agreement is obtained by undue influence, the agreement is a contract voidable at the option of the party whose consent was so obtained. Any such contract may be set aside

10 either absolutely or if the party who is entitled to avoid it has received any benefit there under, upon such terms and conditions as to the Court may seem just and equitable (Sec. 19-A) DIFFERENCE BETWEENS COERCION AND UNDUE INFLUENCE S. No. Coercion Undue Influence 1. The consent is given under the threat of an offence 2. Coercion is mainly of a physical character. It involves mostly use of physical or violent force. 3. There must be intention of causing any person to enter into an agreement The consent is given by a person who is so situated in relation to another that the other person is in a position to dominate his will Undue influence is of moral character. It involves use of moral force or mental pressure. Here the influencing party uses its position to obtain an unfair advantage over the other party 4. It involves a criminal act No criminal act is involved MISREPRESENTATION AND FRAUD MISREPRESENTATION Misrepresentation is a false statement which the person making it honestly believes to be true or which he does not know to be false. It also includes non-disclosure of a material fact or facts without any intent to deceive the other party. Sec. 18 defines misrepresentation According to it, there is misrepresentation (1) When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes is to be true. (2) When there is any breach of duty by a person which brings an advantage to the person committing it by misleading another to his prejudice. (3) When a party causes, however innocently, the other party to the agreement to make a mistake as to the substance of the thing which is the subject of the agreement. FRAUD Fraud exists when it is shown that a false representation has been made (a) knowingly, or (b) without belief in its truth, or (c) recklessly, not caring whether it is true or false, and the maker intended the other party to act upon it. MISTAKE OF LAW Mistake of law be (1) mistake of law of the country or (2) mistake of law of a foreign country.

11 1. Mistake of law of the country: Ignorant juries none exerts Ex. Ignorance of laws is no excuse: is a well settled rule of law. A party cannot be allowed to get any relief on the ground that it had done a particular act in ignorance of law. A mistake of law is, therefore, no excuse, and the contract cannot be avoided. Example: A and B enter into a contract on the erroneous belief that a particular debt is barred by the Indian Law of Limitation. This contract may be voidable. 2. Mistake of law of a foreign country: Such a mistake is treated as mistake of fact and the agreement in such a case is void. (Sec. 21) MISTAKE OF FACT Mistake of fact may be (1) a bilateral mistake, or (2) a unilateral mistake 1. Bilateral Mistake Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, there is a bilateral mistake. In such a case the agreement is void (sec. 20). The following two conditions have to be fauced for the application of Sec. 20. (i) The mistake must be mutual i.e. both the parties should misunderstand each other and should be at a cross-purposes. Example: Amit agreed to purchase Bikas s motor-car which was lying in Bikas s garage. Unknown to either party, the car and garage where completely destroyed by fire a day earlier. The agreement is void (ii) The mistake must relate to a matter of fact essential to the agreement. As to what facts are essential in an agreement will depend upon the nature of the promise in each case. Example: A man and a woman entered into a separation agreement under which the man agreed to pay a weekly allowance to the woman mistakenly believing themselves lawfully married led the agreement was void as there was mutual mistake on a point of fact which was material to the existence of the agreement. The various cases which fail under bilateral mistake are as follows: Mistake as to the Subject Matter: Where both the parties to an agreement are working under a mistake relating to the subject-matter, the agreement is void. Mistake as to the subject-matter covers the following cases. (1) Mistake as to the existence of the subject-matter: If both the parties believe the subject-matter of the contract to be in existence, which in fact at the time of the contract is non-existent, the contract is void.

12 Example: Shyam agrees to buy from Kamal a certain goat. It turns out that the goat was dead at the time of the bargain, though neither parts was aware of the fact. The agreement is void. (2) Mistake as to the identity of the subject-matter: It usually arises where one party intends to deal in one thing and the other intends to deal in another. Example: Sundar agreed to buy from Rita a cargo on cotton to arrive ex-peerless from Patna. There were two ships of that name sailing from Patna, one sailing in October and the other in December. Sundar meant the former ship Rita meant the latter. Held, there was a mutual or a bilateral mistake and there was no contract. (3) Mistake as to the quality of the subject-matter: If the subject matter is something essentially different from what the parties thought it to be the agreement is void. Example: A sells to B a piece of silk B thinks that it is foreign silk. A knows that B thinks so but knows that it is Indian silk only. (4) Mistake as to the quantity of the subject-matter: If both the parties are working under a mistake as to the quantity of the subject-matter the agreement is void. (5) Mistake as to the title to the subject-matter: If the seller as selling a thing which he is not entitled to sell and both the parties are acting under a mistake, the agreement is void. (6) Mistake as to the price of the subject-matter: if there is a mutual mistake as to the price of the subject-matter, the agreement is void. Mistake as to the Possibility of Performing the Contract Consent is nullified if both the parties believe that in agreement is capable of being performed when in fact this is not the case. The agreement, in such a case, is void on the ground of impossibility. Impossibility may be (i) Physical Impossibility Example: A contract for the hire of a room for witnessing the coronation procession of Emili was held to be void because unknown to the parties the procession had already been cancelled. (ii) Legal Impossibility: A contract is void if it provides that something shall be done which cannot, as a matter of law be done. 2. Unilateral Mistake When in a contract only one of the parties is mistaken regarding the subject matter or in expressing or understanding the terms or the legal effect of the agreement the mistake is a unilateral mistake. According to Sec. 22, a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. A unilateral mistake is not

13 allowed as a defense in avoiding a contract unless the mistake is brought about by the other party s fraud or misrepresentation. Example: A offers to sell his house to B for an intended sum of Rs. 44,000. By mistake he makes an offer in writing of Rs. 40,000. He cannot plead mistake as a defense. UNLAWFUL AND ILLEGAL AGREEMENTS An unlawful agreement is one which, like a void agreement, is not enforceable by law. An illegal agreement is not only, void as between the immediate parties but has further effect that the collateral transactions to it also become tainted with illegality. VOID AGREEMENTS A void agreement is one which is not enforceable by law [Sec. 2 ] Such an agreement does not give rise to any legal consequences. The following agreements have been expressly declared to be void by the Contract Act. 1) Agreements by incompetent parties (Sec. 11) 2) Agreements made under a mutual mistake of fact [Sec. 20]. 3) Agreements the consideration or object of which is unlawful (Sec. 23) 4) Agreements the consideration or object of which is unlawful in part (Sec. 24) 5) Agreements made without consideration (Sec. 25) 6) Agreements in restraint of marriage (Sec. 26). 7) Agreements in restraint of trade (Sec. 27) 8) Agreements in restraint of legal proceedings (Sec. 28) 9) Agreements the meaning of which is uncertain (Sec. 29) 10) Agreements by way of wager (Sec. 30) 11) Agreements contingent on impossible events (Sec. 36) 12) Agreements to do impossible acts (Sec. 56) 13) In case of reciprocal promises to do things legal and also other things illegal, the second set of reciprocal promises is a void agreement (Sec. 57) WAGERING AGREEMENTS OR WAGER

14 A wager is an agreement is an agreement between two parties by which one promises to pay money or money s worth on the happening of some uncertain event in consideration of the other party s promise to pay if the event does not happen. Essentials of Wagering Agreement: (1) Promise to pay money or money s worth: The wagering agreement must contain a promise to pay money or money s worth. (2) Uncertain event: The promise must be conditional on an event happening or not happening. (3) Each party must stand to win or lose: Upon the determination of the contemplated event, each party should stand to win or lose. (4) No control over the event: Neither party should have control over the happening of the event one way or the other CONTINGENT CONTRACTS Contingent means that which is dependent on something else. A Contingent Contract is a contract to do or not to do something, if some event collateral to such contract, does or does not happen (Sec. 31). For example, goods are sent on approval the contract is a contingent contract depending on the act of the buyer to accept or reject the goods. There are three essential characteristics of a contingent contract. 1. Its performance depends upon the happening or non-happening in future of some event. It is this dependence on a future event which distinguishes a contingent contract from other contracts. 2. The event must be uncertain. If the event if bound to happen, and the contract has got to be performed in any case it is not a contingent contract 3. The event must be collateral, i.e. incidental to the contract Contracts of insurance, indemnity and guarantee are the commonest instances of a contingent contract. RULES REGARDING CONTINGENT CONTRACTS 1. Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. If the event becomes impossible, such contracts become void (Sec. 32) 2. Where a contingent contract is to be performed if a particular event does not happen, its performance can be enforced when the happening of that event becomes impossible. (Sec. 33) 3. If a contract is contingent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, of otherwise than under further contingencies (Sec. 34)

15 4. Contingent contracts to do r onto to do anything, if a specified uncertain event happens within a fixed time, become void if the event does not happen or its happening becomes impossible before the expiry of that time. 5. Contingent agreements to do or not to do anything, if an impossible event happens are void, whether or not the fact is known to the parties (Sec. 36). TERMINATION AND DISCHARGE OF CONTRACT Discharge of contract means termination of the contractual relationship between the parties. A contract is said to be discharged when it ceases to operate, i.e. when the rights and obligations created by it come to an end. A contract may be discharged 1. By Performance 2. By Agreement or Consent 3. By impossibility 4. By Lapse of Time 5. By operation of Law 6. By Breach of Contract 1. Discharge by Performance Performance means the doing of that which is required by a contract. Discharge by performance takes place when the parties to the contract fulfill then obligations arising under the contract within the time and in the manner prescribed. Performance of a contract is the most usual mode of its discharge. It may be (1) Actual Performance: When both the parties perform their promises the contract is discharged. Performance should be complete precise and according to the terms of the agreement. (2) Attempted Performance or Perfer: Tender is not actual performance but is only an after to perform the obligation under the contract. 2. Discharge by agreement or consent (a) Sec. 62 lays down that if the parties to a contract agree to substitute a new contract for it or to rescind or to alter it the original contract is discharged and need not be performed. The various cases of discharge of contract by mutual agreement are dealt with in Sec. 62 and 63 are given below. Rescission Sec. 62: Novation takes place when a new contract is substituted for an existing one between the same parties.

16 (b) Rescission Sec. 62: Rescission of a contract takes place when all or some of the terms of the contract are cancelled. It may occur (i) (ii) By mutual consent of the parties or Where one party fails in the performance of his obligation in such a case the other party may rescind the contract without prejudice to his right to claim compensation for the breach of contract. (c) Alteration (Sec 62): Alteration of a contract may take place when one or more of the terms of the contract is are altered by the mutual consent of the parties to the contract. In such a case, the old contract is discharged. (d) Remission Sec. 63) Remission means acceptance of a lesser fulfillment or the promise made, i.e. acceptance of a lesser sum than what was contracted for the discharge of the whole of the debt. (e) Waver: Waver takes place when the parties to a contract agree that shall no longer be bound by the contract. This amounts to a mutual agreement at rights by the parties to the contract. (f) Merger: Merger tales place when an inferior right accruing to a party under a contract merger into a superior right accruing to the same party under the same on some other contract. 3. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE If an agreement contains an undertaking to perform impossibility, it is void ab initio. This rule is based on the following maxims: 1. Impossibility existing of the time of agreement: Sec. 56 lays down that can agreement to do an impossible act itself is void. This is known as pre-contractual or initial impossibility. 2. Impossibility arising subsequent to the formation of contract: Impossibility which arises subsequent to the formation of a contract (which could be performed at the time when the contract was entered into) is called post-contractual or supervening impossibility. Discharge by Supervening Impossibility A contract is discharged by supervising impossibility in the following cases 1. Destruction of subject-matter of contract: When the subject-matter of a contract, subsequent to its formation, is destroyed without any fault of the parties to the contract, the contract is discharged. 2. Non-existence or Non-occurrence of a particular state of things: Sometimes, a contract is entered into between two parties on the basis of a continued existence or occurrence of a particular state

17 of things. If there is any change in the state of things which ought to have occurred does not occur, the contract is discharged. 3. Death or Incapacity for personal service: Where the performance of a contract depends on the personal skill or qualification of a party, contract is discharged on the illness or incapacity or death of that party. The man s life is an implied condition of the contract. 4. Outbreak of war: A contract entered into with an after enemies during war is unlawful and therefore impossible for performance. Contracts entered into before the outbreak of war are suspended during the war and may be revived after the war is over. 4. DISCHARGE BY LAPSE OF TIME The Limitation Act 1963 laws down that a contract should be performed within a specific period called period of limitation. If it is not performed and if no action is taken by the promise within the period of limitation he is deprived of his remedy at law. For example the price of goods sold without any stipulation as to credit should be paid within three years of the delivery of the goods. If the price is not paid and creditor does not file a suit against the buyer for the recovery of price within three years the debt becomes time-barred and hence irrecoverable. 5. DISCHARGE BY OPERATION OF LAW A contract may be discharged by operation of law. This includes discharge (a) By Death: In contracts involving personal skill or ability, the contract is terminated on death of the promissory. In other contracts the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person. (b) By Merger: When an inferior right accruing to a party merges into a superior rights accruing to the same party under the same or some other contract the inferior right accruing to the party is said to be discharged. (c) By Insolvency: When a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication. (d) By Authorized Alteration of the terms of a written agreement: Where a party to a contract makes any material alteration in the contract without the consent of the other parts, the other parts can avoid the contract. A material alteration is one which changes in a significant manner the legal identity or character of the contract or the rights and liabilities of the parties to the contract. 5. DISCHARGE BY BREACH OF CONTRACT Breach of contract means a breaking of the obligation which a contract imposes. It occurs when a party to the contract without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. It confers a right of action for damages on the injured party. QUASI CONTRACTS

18 Under certain circumstances, a person may receive a benefit to which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties. Such relationships are termed quasi-contracts, because, although there is no contract or agreement between the parties, they are put in the same position as if there were a contract between them. A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another. The principle of unjust enrichment requires: That the defendant has been enriched by the receipt of a benefit That this enrichment is at the expense of the plaintiff, and That the retention of the enrichment is unjust. Law of quasi-contracts is also known as the law of restitution. Strictly speaking, a quasi-contract is not a contract at all. A contract is intentionally entered into. A quasi-contract, on the other hand, is created by law. INDEMNITY AND GUARANTEE DEFINITION Section 124 of the Indian Contract Act defines it as a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. The person who promises is called the Indemnifier and the person to whom the promise is made is called the Indemnified or Indemnity Holder. RIGHTS OF AN INDEMNITY HOLDER He is entitled to recover All damages All costs which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnity applies, and All sums which he may have paid under the terms of any compromise of any such suit provided, such compromise was not contrary to the orders of the promisor and was prudent or the promisor authorizes him to compromise the suit. CONTRACT OF GUARANTEE Section 126 of Indian Contract Act defines it as a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the surety, the person in respect of whose default, the guarantee is given is called the principal debtor, and the person to whom the guarantee is given is called the creditor. Distinction between Contract of Indemnity and Contract of Guarantee

19 Contract of Indemnity 1 There are two parties, namely Indemnifier and the Indemnified. 2 The liability of the Indemnifier is primary 3 The liability of the Indemnifier is contingent 4 The Indemnifier cannot sue the third party in his name even after making good the loss unless there is an assignment in his favour from the indemnified. Contract of Guarantee There are three parties, viz the principal debtor, the creditor and the surety The liability of the surety is subsidiary The liability of the surety is subsisting The surety can sue the principal debtor in his own name after paying the creditor RIGHTS OF SURETY Rights against the Principal Debtor 1) After discharging the liability of the principal debtor, the surety is entitled to all those rights which the creditor himself exercises against the principal debtor. This right of the surety is called subrogation. Illustration: The right of the creditor to receive dividends from the official assignee when the principal debtor becomes bankrupt, can be exercised by the surety. 2) The surety can proceed against all those securities of the principal debtor, which the creditor himself can proceed against. 3) The surety is entitled to be indemnified for all payments rightfully made by him. Rights against the Creditor 1) The surety may require the creditor to sue the debtor. But he cannot compel the creditor to do so. 2) In the case of fidelity contracts, he can insist upon the creditor to dispense with the services of the principal debtor when his dishonesty is established. 3) He can claim set off or counter-claim which the principal debtor could have obtained against the creditor. 4) On payment of the guaranteed debt, ha can require the creditor to assign to him all the securities held by the creditor in respect of the debt. If the creditor loses or parts with such securities without the consent of the surety, the surety is discharged to the extent of the value of the security. Rights against the Co-Sureties 1) All the sureties shall bear equally, the loss caused by the insolvency of the principal debtor. If one of them bears the entire loss in the first instance he can claim contribution from other co-sureties.

20 2) Where the co-sureties agreed to become liable in different sums, they should contribute, according to English Law, proportionately. CONTRACTS OF BAILMENTS Section 148 of the Indian Contract Act defines that 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 person delivering them. The person delivering the goods is called the bailor. The person to whom they are delivered is called the bailee. Essentials of Bailments 1. There must be delivery of goods: Such delivery may be actual or constructive. 2. The delivery must be made for some specific purpose. 3. The delivery must be made on condition that the goods shall be returned in specific when the purpose is over, or disposed of according to the direction of the bailor. 4. Only possession but not the ownership of the goods is transferred. Examples: Delivery of a radio for repair. DUTIES OF A BAILEE 1. To take reasonable care of the goods bailed to him Section 151 lays down that in all cases of bailment the bailee should take that much of care which an ordinary prudent man would take of his own goods under similar circumstances. Section 152 lays down that the bailee is not responsible, in the absence of any special contract, for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care described above. 2. Not to make unauthorized use of goods bailed The bailee should not make use of goods for purposes inconsistent with the terms of the contract. If he does so, the bailor is entitled to terminate the contract and claim damages, if any. 3. Not to mix the goods of the bailor with his own goods a) If a bailee mixes the goods of the bailor with his own goods with the consent of the bailor, both the bailor and the bailee shall have proportionate interest in the mixture. b) If the goods mixed by the bailee without the consent of the bailor and the goods are separable, the bailee is bound to bear the expenses of separation and pay damages if any. c) If the goods are mixed by the bailee without the consent of the bailor and the goods are inseparable, the bailee should compensate the bailor for the loss of goods.

21 4. Not to set up adverse title The bailee should not deny the bailor s title. He should not set up his own title or that of a third party. 5. To return the goods bailed The bailee should return goods bailed, to the bailor when the fixed period is over or when the purpose is accomplished. The bailee should also deliver any increase or profit which may have accrued from the goods bailed. DUTIES OF A BAILOR 1. To disclose the faults in the goods bailed The bailor should disclose to the bailee, faults in the goods bailed, of which he is aware. If he does not disclose, he will be liable for the loss resulting therefrom. 2. To bear extra-ordinary expenses While the ordinary expenses are payable by the bailee, extra-ordinary expenses shall be borne by the bailor. 3. Responsibility for want of title The bailor is responsible to the bailee for any loss sustained by he latter by the reason, that the bailor was not entitled to make the bailment or to receive back the goods or to give directions respecting them. RIGHTS OF BAILOR 1. He is entitled to the increase or profit from goods bailed 2. In the case of gratuitous loan, the lender may require the goods to be returned, even though he lent it for a fixed period for specific purpose. But if such a request causes loss to the bailee exceeding the benefit he derives, the bailor should indemnify the borrower. 3. The bailor is entitled to terminate the contract when the bailee does any act inconsistent with the terms of bailment. PLEDGE A pledge is a bailment of goods as security for payment of a debt or performance of a promise. The bailor is called the pawnor and the bailee is called the pawnee. In the case of pawn, there is no transfer of property in goods. Only possession of the goods is transferred. Hence, it is different from mortgage. Pawn is also different from lien, as in the case of lien, there is not power to sell the article while a pawnee can sell, subject to some conditions. Rights of Pawnor

22 Even after the expiry of a stipulated period, he may redeem the goods pledged at any subsequent time before the actual sale of the goods pledged. But he must pay expenses which may have arisen from his default. Rights of Pawnee 1. He can retain the goods pledged until he recovers the debt, interest and other expenses incidental to possession or preservation of the goods. 2. He cannot retain the goods for debts other than those for which pawn is made. 3. He is entitled to receive extra-ordinary expenses incurred for the preservation of goods. 4. If the pawnor makes a default, the pawnee may a. Bring a suit upon the debt or promise and b. Retain the goods pledged or c. Sell the goods by giving a reasonable notice of sale to the pawnor. If the proceeds of such are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the balance to the pawnor. INDIAN PARTNERSHIP ACT, 1932 Section 4 of the Indian Partnership Act defines it as the relation between persons who have agreed to share the profits of a business cancelation by gfdg any of them acting for all Persons who have entered into partnership with one of other are called individually partners and collectively a firm, and the name under which their business is carried on, is called the firm name. ESSENTIALS OF PARTNERSHIP 1. Relationship: Partnership is the abstract relationship between partners 2. Two or More Persons: As no one can be a partner with himself, there must be at least two persons. The maximum number of members is 10 for a partnership carrying on banking business and 20 for a partnership carrying on any other business. 3. Agreement or Deed: Partnership arises out of an agreement but not out of status. Such agreement, also called as deed, may be express or implied from the conduct of the parties. It may be oral or written. It contains details relating to name of the firm and the names of the partners, nature and place of business, the date of commencement and the duration of partnership, capital and banking account, sharing of profits and losses, management,

23 accounts Arbitration etc. 4. Business: The object of the partnership is to carry on any business, profession, vocation, trading or calling. Such business must be lawful. Mere holding of property in common is not partnership, e.g. co-ownership. 5. Profit Sharing: Sharing of profits is essential though it does not mean that all those who participate in profits are necessarily partners. 6. Carried on by all or any of them acting for all: Each partner acts as an agent as well as a principal. Each one can act in the course of business and bind the other partners by his acts. As such, he can be called an agent. Since he is also bound by the acts of the other partners, he can be called the principal. Thus, the law of partnership is a branch of the general law of agency as every partner has implied power to bind other partners for the acts of the firm, done in the course of conduct of the business. KINDS OF PARTNERSHIP 1. Partnership at will: Where the partners have not provided in their deed, for the duration of partnership or for the termination of partnership, the partnership is called partnership at will. A partner may retire to dissolve the partnership at his will, by giving a notice to other partners, of his intention to do so. 2. Particular partnership: A person may become a partner with another person in particular adventures or undertakings. 3. Partnership for a fixed term: Where the partners fix the definite period or duration of partnership, it is called a partnership for a fixed term. TEST OF PARTNERSHIP In determining whether a partnership exists or not, or whether a person is a partner or not the real relation between the parties as shown by all relevant facts, must be taken into consideration. The joint use of property in common in business for sharing of profits is evidence that a partnership exists. But this is not conclusive evidence to show that a partnership exists. Likewise, an active participation in the conduct of business is evidenced that a partnership exists. But again, it is no conclusive evidence to establish the fact of existence of partnership. For example, a servant may manage the affairs of a firm. Yet he is not a partner. In the same way, a joint venture having no object of profit sharing is not a partnership, while sharing of profits is evidence, though no conclusive, that a partnership exists. So, Section 6 lays down that the receipt of a share of profit, or a payment contingent or varying with the profits does not of itself, make the recipient a partner. Therefore, the true test of partnership is no sharing of the profit, but whether the relationship of agency exists or not. KINDS OF PARTNERS Following are different kinds of partners