The Indian Contract Act, 1872

The purpose of Law of Contract is to ensure the realisation of reasonable expectation of the parties who enter into contract. It deals with the general principles of the law of contract and with some special contracts also. Some of the contracts not dealt with by the Act are those relating to partnership, sale of goods, negotiable instruments, insurance, etc. There are separate Acts which deals with these contracts. Nature of the law of Contract The Law of Contract differs from other branches of law in an important respect. It dose not lay down the number of rights and duties which the law will enforce, it consist rather a number of limiting principles, subject to which the parties may create rights and duties. The parties to a contract, in sense, make the law for themselves. So long as they do not infringe some legal prohibition, they can make what rules they like in respect of their agreement. The law will give effect to their decision. Definition of Contract A contract is an agreement made between two or more parties which the law will enforce. Section 2(h) defines a contract as an agreement enforceable by law. This definition is based on the Pollocks definition which is every agreement and promise enforceable at law is a contract. According to Salmond a contract is an agreement creating and defining obligations between the parties If we analyse the definitions of contract we find that a contract essentially consist of two elements 1) agreement and 2) its enforceability by law An agreement is defined in Section 2(e) as, every promise or set of promises forming the consideration for each other. A promise is defined in Section 2(b) 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. This means that, an agreement is an accepted proposal. In order to form an agreement, there must be a proposal of offer by one party and its acceptance by the other. In short Agreement = Offer + Acceptance. The essence of an agreement is the meeting of the minds of the parties fully and finally i.e. there must be consensus ad idem. Before there can be an agreement between two parties, there must be consensus ad idem. This means the parties to an agreement must have agreed about the subject matter of the agreement in the same sense and at the same time. Unless there is consensus ad idem, there can be no contract. For e.g. A, who owes two cars as X and Y; is selling car X to B. B thinks, he is purchasing car Y. there is no consensus ad idem and cannot be contract. Essential Elements of Valid Contract According to Section 10, all agreements are contracts if the are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and not expressly declared to be void. In order to become a contract, an agreement must have the following essential elements 1) Offer and acceptance There must be two parties to an agreement, i.e. one party making the offer and other party accepting it. The terms of the offer must be definite and the acceptance of the offer must be absolute and unconditional. If conditional acceptance is given it can be treated as counter offer. The acceptance must also be according to the mode prescribed and must be communicated to the offeror. e.g. A asks B, will you sale your car to me for Rs.2 lakh? Here B expresses his willingness for it. Now A is the party making the offer and B is the party accepting it.
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) ) )

2) Intention to create legal relationship When two parties enter into an agreement, there intention must be to create legal relationship between them. If there is no such intention on the part of the parties, there is no contract between them. Agreements of a social and domestic nature do not create legal relationship and they are not contracts altogether. e.g. A husband promises to pay his wife Rs.5000 per month for daily household expenses. Then husband failed to pay the amount. The wife sued for the amount. Here agreement cannot create legal relationship but it is only a family adjustment so can not be treated as contract. Similarly invitation for marriage is also a social invitation so even though accepted cannot create legal relationship and contract. 3) Lawful consideration An agreement to be enforceable by law must be supported by consideration. Consideration means an advantage or benefit moving from one party to the other. In simple word it is something in return. The agreement is legally enforceable only when both the parties give something or get something in return. A promise to do something, getting nothing in return is usually not enforceable by law. Consideration need not necessarily be in cash or in kind. It may be an act or abstinence or promise to do or not to do something. But it must be real and lawful. It may be past, present or future. In case of cash sale, there is present consideration but in case of credit sale consideration for the seller is future consideration. e.g. A delivers 1 k.g. sugar to B and B pays price of it. Here 1 k.g. sugar is the consideration for B and price of it is the consideration for A. 4) Capacity of parties The parties to the agreement must be capable of entering into a valid contract. Every person is competent to contract if he a) is of the age of majority, b) is of sound mind and c) is not disqualified from contracting by any law. If the party suffers from minority, lunacy, idiocy, drunkenness, etc; the agreement is not enforceable. If a party suffers from any flaw in capacity, the agreement is not enforceable except in some special cases. e.g. A makes a contract with B who is a drunkard. But when the contract is made he is in good position i.e. not under the effect of liquor, the contract is valid all together. 5) Free and genuine consent It is essential for the creation of any contract that there must be free and genuine consent of the parties to an agreement. The consent of the parties is said to be free when they are of the same mind on all the material terms of the contract. The parties are said to be of the same mind when they agree about the subject matter of the contract in the same sense and at the same time. (Sec.13) There is absence of free consent if the agreement is induced by coercion, undue influence, fraud, misrepresentation, etc. If the consent is taken by coercion, undue influence, etc. it is voidable contract at the option of the party whose consent is so taken. But it is valid on the part of the other party. e.g. A makes a contract with B by threatening him to kill. He contract is voidable at the option of B as his consent is not free and taken by coercion. 6) Lawful object The object of an agreement must be lawful. In other word, it means that the object must not be a) illegal, b) immoral or c) opposed to public policy. If an agreement suffers from any legal flaw, it would not be enforceable by law. e.g. A promises to pay Rs.1 lakh to B and B promises to kill C. Here the object of an agreement is not legal so cannot create contract. 7) Agreement not declared void The agreement must not have been expressly declared void by law in force in the country. Following agreements have been expressly declared to be void by the Contract Act Agreement by incompetent parties. (Sec.11) Agreement is restraint of trade. (Sec.27) Agreement the meaning of which is uncertain. (Sec.29) etc. 8) Certainty and possibility of performance The agreement must be certain and not vague. If it is vague and not possible to ascertain its meaning, it cannot be enforced. The terms of the agreement must also be such as are
BBA Part III (Fundamentals of Business Law)

capable of performance. Agreement to do an act impossible in itself cannot be enforced. e.g. A agrees to sale B a hundred k.g. of oil. There is nothing to state what kind of oil is that. The agreement is void for uncertainty. A agrees to B to put life in Bs dead wife, the agreement is void as it is impossible to perform. 9) Legal formalities A contract may be made by words spoken or written. But it is for the benefit of the parties to make written contract. There are certain other formalities also which have to be complied in order to make an agreement legally enforceable. In some cases stamping and/or registration of documents is compulsory. Such formalities must be followed. e.g. Where there is a statutory requirement that the contract should be made in writing in the presence of two witnesses, the required statutory formalities must be followed. Classification of Contracts 1) 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 is / 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 voidable contract. [Sec.2(i)] This happens when the essential element of free consent in a contract is missing. When the consent of a party to a contract is not free, i.e. it is caused by coercion, undue influence, misrepresentation or fraud, the contract is voidable at his option [Sec.19 and 19-A] The party whose consent is not free may either rescind (avoid or repudiate) the contract if he so desires, or elect to be bound by it. A voidable contract continues to be valid till it is avoided by the party entitled to do so. e.g. A promises to sell his car to B for Rs.2 lakh. His consent is obtained by use of force. The contract is voidable at the option of A. A contract becomes voidable in the following two cases also a) When a person promises to do something for another person for a consideration but the other person prevents him from performing his promise, the contract become voidable at his option [Sec 53] e.g. A and B contract that B shall execute certain work for A for Rs.10000. B is ready and willing to execute the work accordingly but A prevents him from doing so. The contract is voidable at the option of B. b) When a party to a contract promises to perform an obligation within a specified time, any failure on his part to perform his obligation within the fixed time makes the contract voidable at the option of the promisee. [Sec.55] If the party rescinding the contract has received any benefit under the contract from another party, he shall restore such benefit. The party rescinding the contract is entitled to get compensation of any damage which he has sustained through the non fulfilment of contract. Void agreement An agreement not enforceable by law is said to be void. [Sec.2 (g)] A void agreement does not create any legal rights or obligations. It is void ab initio i.e. from the very beginning, for example an agreement with minor or an agreement without consideration. Void contract A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable [Sec.2 (f)] A contract, when originally entered into, may be valid and binding on the parties, it may subsequently become void e.g. a contract to import goods from a foreign country, when a war breaks out between the importing country and the exporting country.

BBA Part III (Fundamentals of Business Law)

Illegal agreement An illegal agreement is one which is against public policy or which is criminal in nature or which is immoral. All illegal agreements are void but all void agreements are not illegal. An illegal agreement is not only void as between the immediate parties but its collateral transactions also tainted with illegality. e.g. A borrows some amount from B and uses it to import some prohibited goods. B knows the purpose of loan. Here, the agreement of import is illegal so the collateral agreement between A and B is also treated as illegal. 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 etc. 2) Classification according to formation A contract may be (a) made in writing or by word of mouth, or (b) inferred from the conduct of the parties or the circumstances of the case. These are the modes of formation of a contract. Contracts may be classified according to the mode of their formation as follows Express Contracts If the terms of a contract are expressly agreed upon (whether by words spoken or written) at the time of formation of the contract, the contract is said to be an express contract. Where the offer or acceptance of any promise is made in words, the promise is said to be express (Sec.9) An express promise results in an express contract. Implied Contracts 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 results of any express promise or promises by the parties but of their particular acts. It may also result from a continuing course of conduct of the parties. Where the proposal or acceptance of any promise is made otherwise than in words, the promise is said to be implied (Sec.9) An implied promise results in an implied contract. Examples There is an implied contract when A i) gets into a public bus, or ii) takes a cup of tea in a restaurant iii) obtains a ticket from an automatic weighing machine. Quasi Contract Strictly speaking, a quasi contract is not a contract at all. A contract is intentionally entered into by the parties. A quasi contract, on the other hand, is created by law. e.g. A trader leaves goods at Cs house by mistake. C treats good as his own. C is bound to pay for goods. E-Commerce Contract An E-Commerce contract is one which is entered into between two parties via internet. 3) Classification according to performance Executed Contract Executed means that which is done. An executed contract is one in which both the parties have performed their respective obligations. e.g. If A agrees to paint a picture for B for Rs.1000. When A paints the picture and B pays the price, i.e. when both the parties perform their obligations, the contract is said to be executed. Executory Contract Executory means that which remains to be carried into effect. An executory contract is one in which both the parties have yet to perform their obligations. Thus in the above example, the contract is executory if A has not yet painted the picture and B has not paid the price. Similarly, if A agrees to engage B as his servant from the next month, the contract is executory.
BBA Part III (Fundamentals of Business Law)

A contract may sometimes be partly executed and partly executory. Thus if B has paid the price to A and A has not yet painted the picture, the contract is executed as to B and executory as to A. Unilateral or one sided contract A unilateral or one sided contract is one in which only one party has to fulfill 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. Such contracts are also known as contracts with executed consideration. 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 executory contracts and are also known as contracts with executory consideration. Offer At the inception of every agreement, there must be a definite offer by one person to another and its unqualified acceptance by the person to whom the offer is made. An offer is a proposal by one party to another to enter into a legally binding agreement with him. A person is said to have made a proposal, when he 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. [Sec.2(a)] The person making the offer is known as the offeror, proposer, or promisor and the person to whom the offer is made is called as the offeree or proposee. When the offeree accepts the offer, he is called acceptor or promisee. An offer may be made by express words, spoken or written. This is known as express offer. An offer may also be implied from the conduct of the parties or the circumstances of the case. This is known as implied offer. When a transport company runs a bus on a particular route, there is implied offer by the company to carry passengers for a certain fare. The acceptance of the offer is complete as soon as the passenger boards the bus. When an offer is made to a definite person, it is called specific offer. It can be accepted only by the person to whom it is made. When an offer is made to the world at large, it is called general offer. Any person or persons with notice of the offer may accept such offer. (Carlill v. Carbolic Smoke Ball Co.) Legal Rules as to Offer 1) Offer must be such as in law is capable of being accepted and giving rise to legal relationship - A social invitation, even if it is accepted, does not create legal relations because it is not so intended. An offer, therefore, must be such as would result in a valid contract when it is accepted. 2) Terms of offer must be definite, unambiguous and certain and not loose and vague - If the terms of an offer are vague or indefinite, its acceptance cannot create any contractual relationship. e.g. A says to B, I will sale you a car. A owns three different cars. The offer is not definite. 3) An offer may be distinguished from i) A declaration of intention and an announcement A declaration by a person that he intends to do something gives no rights to action to another. Such a declaration only means that an offer will be made or invited in future and not that an offer is made now. ii) An invitation to make an offer or do business Display of goods by a shopkeeper in his window, with prices marked on them, is not an offer but merely an invitation to the public to make an offer to buy the goods at the marked prices. Likewise, quotations, catalogues, advertisements in a newspaper for sale of an article, or circulars sent to potential customers do not constitute an offer.

BBA Part III (Fundamentals of Business Law)

4) Offer must be communicated An offer, to be complete, must be communicated to the person to whom it is made. Unless an offer is communicated to the offeree by the offeror or by his duly authorized agent, there can be no acceptance of it. 5) Offer must be made with a view to obtaining the assent The offer to do or not to do something must be made with a view to obtaining the assent of the other party addressed and not merely with a view to disclosing the intention of making an offer. 6) Offer should not contain a term the non compliance of which may be assumed to amount to acceptance - Thus a man cannot say that if acceptance is not communicated by a certain time, the offer would be considered as accepted. e.g. Where A writes to B, I will sell you my horse for Rs. 5,000 and if you do not reply, I shall assume you have accepted the offer there is no contract if B does not reply. 7) A statement of price is not an offer - A mere statement of price is not constructed as an offer to sell. Acceptance A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by the offeree to an offer. It is the declaration by the offeree that he is willing to bound by the terms of an offer. It is to an offer what a lighted match is to a train of gunpowder. It produces something which cannot be recalled. This means when the offeree signifies his accent to the offeror, the offer is said to be accepted. An offer when accepted becomes promise. Acceptance may be express or implied. It is express when it is communicated by the words spoken or written. It is implied when it is to be gathered from the surrounding circumstances or the conduct of the parties. When offer is made to a particular person, it can be accepted by him alone. If it is accepted by any other person, there is no valid acceptance. When an offer is made to world at large i.e. general offer, any person to whom the offer is made can accept it. Legal rules as to acceptance Acceptance to be legally effective, it must satisfy following conditions 1) It must be absolute and unqualified An acceptance, in order to be binding, must be absolute and unqualified in respect of all terms of an offer. If parties are not ad idem on all matters concerning the offer and acceptance, there is no contract. e.g. A says to B, I offer to sale my car for Rs.2 lakh. B replies, I will purchase it for Rs.150000. This is no acceptance and amounts to counter offer. 2) It must be communicated to the offeror To conclude to a contract between the parties, the acceptance must be communicated to the offeror. Only mental determination on the part of the offeree to accept the offer is not sufficient to result into contract. A mere mental determination on the part of the offeree to accept an offer, without any external expression, is not sufficient. 3) It must be according to the mode prescribed or in reasonable mode If the acceptance is not according to the mode prescribed or in a reasonable mode, the offeror may intimate the offeree, within a reasonable time that the acceptance is not according to the mode prescribed and demand the acceptance in a specific mode. If he dose not intimate the offeree, he deemed to have accepted the acceptance. 4) It must be given within a reasonable time If any time limit is specified, the acceptance must be given within that time. If no time limit is specified, it must be given within a reasonable time. 5) It cannot precede an offer If the acceptance precedes an offer, it is not valid acceptance and dose not results in a contract. e.g. In a company, shares were allotted to a person who had not applied for them. Then after he applied for shares. The previous allotment is not valid.
BBA Part III (Fundamentals of Business Law)

6) It must show intention on the part of the acceptor to fulfill terms of the promise. If no such intention is present, the acceptance is not valid. 7) It must be given by the party or the parties to whom the offer is made. 8) It must be given before the offer lapses or before the offer is withdrawn. 9) It cannot be implies by silence The acceptance of an offer cannot be implied from the silence of the offeree or his failure to answer, unless the offeree has by his previous conduct indicated the same. e.g. A wrote to B, I offer you my car for Rs.2 lakh. If I dont here from you in seven days, I shall assume that you accepted. B did not reply at all. There is no contract. Communication of Offer, Acceptance and Revocation An offer, its acceptance and their revocation (withdrawal) to be complete must be communicated. When the contracting parties are face to face, a contract comes into existence the moment the offeree gives his absolute and unqualified acceptance to the proposal made by the offeror. When the parties are at a distance and the offer and acceptance and their revocation are made through post, i.e. by letter or telegram, the rules contained in Secs. 3 to 5 apply. These rules are as follows Mode of communication (Sec.3) Offer, acceptance or revocation may be communicated by words spoken or written, or by conduct. Thus installation of a weighing machine at a public place is an offer, putting of a coin in the slot of the machine is the acceptance of the offer, and switching of the machine amounts to revocation of the offer. When is communication complete? (Sec.4) Communication of offer (Sec.4 para 1) The communication of an offer is complete when it comes to the knowledge of the person to whom it is made. A proposes by a letter to sell his motor cycle to B at a certain price. The letter is posted on 10th July and it reaches to B on 13th July; then communication of offer is complete on 13th July. Communication of acceptance (Sec.4 para 2) The communication of an acceptance is complete as against the proposer when it is put into a course of transmission to him, so as to be out of power of the acceptor. as against the acceptor with it comes to the knowledge of the proposer. I the above example B accepts As proposal by letter posted on 14 th July; it reaches to A on 17th July. Here communication of acceptance is complete as against A on 14th July and as against B on 17th July. Communication of the revocation (Sec.4 para 3) Revocation means taking back recalling or withdrawal. It may be a revocation of offer or acceptance. The communication of a revocation is complete as against the person who makes it, when it put into a course of transmission to the person whom it is made, so as to be out of the power of the person who makes it : as against the person to whom it is made, when it comes to his knowledge. A proposes by letter to sell his house to B at a certain price. The letter is posted on 15th May and it reaches B on 19th May. A revokes his offer by telegram on 18th May, which reaches B on 20th May. The revocation is complete as against A when the telegram is dispatched i.e. on 18th May and it is complete as against B when he receives it.

BBA Part III (Fundamentals of Business Law)

Time for revocation of offer and acceptance (Sec.5) Time for revocation of proposal (Sec. 5 para 1) A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not after words. Time for revocation of acceptance (Sec. 5 para 2) An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not after words. A proposes by a letter sent by post to sale his house to B. The letter is posted on the 1st of the month. B accepts the proposal by a letter sent by post on 4 th. The letter reaches A on 6th. A may revoke his offer at any time before B posts his letter of acceptance i.e. 4th but not after wards. B may revoke his acceptance at any time before the letter of acceptance reaches A i.e. 6th, but not after wards. When does an offer come to an end? An offer may come to an end by revocation or lapse, or rejection. Revocation or lapse of offer Sec.6 deals with various modes of revocation of offer. According to it, an offer is revoked. 1) By communication of notice of revocation by the offeror at any time before its acceptance is complete as against him. 2) By lapse of time if it is not accepted within the prescribed time. If however, no time is prescribed, it lapses by the expiry of a reasonable time. 3) By non fulfillment by the offeree of a condition precedent to acceptance. 4) By death or insanity of the offeror provided the offeree comes to know of it before acceptance [Sec.6(4)]. If he accepts an offer in ignorance of the death or insanity of the offeror, the acceptance is valid. 5) If a counter offer is made to it. Where an offer is accepted with some modification in the terms of the offer or with some other condition not forming part of the offer, such qualified acceptance amounts to a counter-offer. 6) If an offer is not accepted according to the prescribed or usual mode, provided the offeror gives notice to the offeree within a reasonable time that the acceptance is not according to the prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the acceptance. 7) If the law is changed. An offer comes to an end if the law is changed so as to make the contract contemplated by the offer illegal or incapable of performance. Consideration Consideration is one of the essential elements to support a contract. Subject to certain exception, an agreement made without consideration is nudum pactum (a nude contract) and is void. Consideration is a technical term used in the sense of quid pro quo (i.e. something in return) When a party to an agreement promises to do something, he must get something in return. This something is defined as consideration. Sec.2 (d) defines consideration as follows When at the desire of the promisor, the promisee 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 act or abstinence or promise is called consideration for the promise. Consideration, if we analyse this definition, may be :
BBA Part III (Fundamentals of Business Law)

1) An act i.e. doing of something. In this sense consideration is in an affirmative form. e.g. A promises to sale his car to B for Rs.2 lakh. Here Bs consideration is in the form of doing something. 2) An abstinence or forbearance, i.e. abstaining or refraining from doing something. In this sense consideration is in a negative form. e.g. A promises B not to file suit against him if he pays Rs.5000. The abstinence of A is the consideration for Bs payment. 3) A return promise. e.g. A agrees to sell his horse to B for Rs.10000. Here Bs promise to pay the sum of Rs.10000 is the consideration for As promise to sell the horse, and As promise to sell the horse is the consideration for Bs promise to pay the sum of Rs.10000. Legal Rules as to Consideration It must move at the desire of the promisor - An act constituting consideration must have been done at the desire or request of the promisor. If it is done, at the instance of third party or without the desire of the promisor, it will not be a good consideration. e.g. A saves Bs goods from fire without being asked to do so. A cannot demand payment for his services. 2) It may move from the promisee or any other person Under the Indian Law, consideration may move from the promise or any other person i.e. even a stranger. This means that as long as there is consideration for a promise it is immaterial who has furnished it. But the stranger to consideration will be able to sue only if he is a party to the contract. e.g. A boy took ice crme from a shop and his father pays for it. Payment made by father is also a good consideration for the shopkeeper. 3) It may be an act, abstinence or forbearance or a return promise - Following are good considerations for a contract. a) Forbearance to sue. If a person who could sue another for the enforcement of a right agrees not to pursue his claim, this constitutes a good consideration for a promise by the other person. b) Compromise of a disputed claim. Compromise is a kind of forbearance. c) Composition with creditors. A debtor who is financially embarrassed may call a meeting of his creditors and request them to accept a lesser amount in satisfaction of their debt. If the creditors agree to it, the agreement is binding both upon the debtor and the creditors and this amounts to a compromise of the claims of the creditors. 4) It may be past, present or future a) Past consideration When consideration by a party for a present promise was given in the past i.e. before the date of the promise, it is said to be past consideration. e.g. A provides some services to B at Bs desire and after a month, b promises to compensate A. Here the consideration received by B is past consideration. b) Present or executed consideration When consideration is given simultaneously with promise, i.e. at the time of the promise, it is said to be present consideration. In a cash sale, for example, consideration is present or executed. e.g. A receives Rs.5000 in return for which he promises to deliver certain goods to B. The money A receives is present consideration. c) Future or executory consideration When consideration from one party to the other is to pass subsequently to the making of the contract, it is future or executory consideration. e.g. A saves Bs goods from fire without being asked to do so. Later on B promises to pay reward for his services. Then As services is the past consideration for the promise made by B and Bs promise is future consideration. 1)
BBA Part III (Fundamentals of Business Law)

It need not be adequate - Consideration, as already explained means something in return needs not necessarily be equal in value to something given. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the Courts are not concerned as to its adequacy, provided it is of some value. The adequacy of the consideration is for the parties to consider at the time of making the agreement. An agreement, to which the consent of the parties is free, is not void only because the consideration is not adequate. e.g. A purchased from B an old table for Rs.500. it would be difficult for the Court to ascertain whether the price paid was adequate or not. 6) If must be real and not illusory - Although consideration need not be adequate, it must be real, competent and of some value in the eyes of the law. There is no real consideration in the following cases a) Physical impossibility A promises to put life into Bs dead wife and B should pay him Rs.100000. Here As promise not physically possible. b) Legal impossibility A owes Rs.100 to B. He promises to pay Rs.20 to C, who is Bs servant. Now C promises to discharge A form his liability of Rs.100. This is legally impossible because C cannot give discharge for the debt due to B. c) Uncertain consideration A engages B for doing certain work for reasonable consideration. Here reasonable consideration creates uncertainty. d) Illusory consideration 7) It must be something which the promisor is not already bound to do - A promise to do what one is already bound to do, either by general law or under an existing contract, is not a good consideration for a new promise, since it adds nothing to the pre-existing legal or contractual obligation. Likewise, a promise to perform a public duty by a public servant is not a consideration. 8) It must not be illegal, immoral or opposed to public policy - (Sec.23) The consideration given for an agreement must not be unlawful. Where it is unlawful, the Courts do not allow an action on the agreement. 5) Stranger to Contract It is general rule of law that only parties to a contract may sue and be sued on that contract. This rule is known as the doctrine of privity of contract. Privity of Contract means relationship subsisting between the parties who have entered into contractual obligation. It implies a mutuality of will and creates a legal bond or tie between the parties to a contract. There are two consequences of the doctrine of privity of contract : 1) A person who is not a partly to a contract cannot sue upon it even though the contract is for his benefit and he provided consideration. 2) A contract cannot confer rights or impose obligations arising under it on any person other than the parties to it. Thus, if there is a contract between A and B, C cannot enforce it. Exceptions The following are the exceptions to the rule that a stranger to a contract cannot sue. 1) A trust or charge - A person (called beneficiary) in whose favour a trust or other interest in some specific immovable property has been created can enforce it even though he is not a party to the contract. e.g. A husband who was separated from his wife, executed a separation deed by which he promised to pay to the trustees all the expenses for maintenance of his wife, can be enforced by his wife. 2) Marriage settlement, Partition or other family arrangements - When an arrangement is made in connection with marriage, partition or other family arrangements and a provision is made for the benefit of a person, he may sue although he is not a party to the agreement.

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e.g. Two brothers, on a partition of a joint property agreed to invest equally for maintenance of their mother. She was entitled to require the investment even though she is not a party to the agreement 3) Acknowledgement or estoppel - Where the promisor by his conduct, acknowledges or otherwise constitutes himself as an agent of a third party, a binding obligation is thereby incurred by him towards the third party. 4) Assignment of a contract - The assignee of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities between the original parties. Thus the holder in due course of a negotiable instrument can realize the amount on it even though there is no contract between him and the person liable to pay. 5) Contract entered into through an agent - The principal can enforce the contracts entered into by his agent provided the agent acts within the scope of his authority and in the name of principal. 6) Covenants running with the land - In cases of transfer of immovable property, the purchaser of land with notice that the owner of the land is bound by certain conditions or covenants created by an agreement affecting the land shall be bound by them although he was not party of the original agreement which contained the conditions or covenants. A Contract without Consideration is Void Exceptions The general rule is ex nudo pacto non oritur actio, i.e. an agreement made without consideration is void. Secs.25 and 185 dealt with the exceptions to this rule. In such cases the agreements are enforceable even though they are made without consideration. These cases are 1) Love and affection [Sec.25(1)] Where an agreement is expressed in writing and registered under the law for the time being in force and is made on account of natural love and affection between parties standing in a near relation to each other, it is enforceable even if there is no consideration. In simple words, a written and registered agreement based on natural love and affection between near relatives is enforceable even if it is without consideration. e.g. F, for natural love and affection, promises to give his son, S, Rs.10000. F puts his promise to S in writing and registers it. This is a contract even though there is no consideration by S. Nearness of relationship, however, dose not necessarily import natural love and affection. e.g. A Hindu husband, after referring to quarrels and disagreement between him and his wife executed a registered document in favour of his wife agreeing to pay her for maintenance, but no consideration moved from his wife. The agreement is void as no consideration is there. 2) Compensation for voluntary services [Sec. 25(2)] A promise to compensate, wholly or in part, a person who has already voluntary done something for the promisor, is enforceable, even though without consideration. In simple words, a promise to pay for a past voluntary service is binding. e.g. A finds Bs purse and gives it to him. B promises to give A Rs.50. This is a contract. 3) Promise to pay a time barred debt [Sec.25 (3)] A promise by a debtor to pay a time barred debt is enforceable provided it is made in writing and is signed by the debtors or by his agent authorized in that behalf. The promise may be to pay the whole or any part of the debt. The debt must be such of which the creditor might have enforced payment but for the law for the limitation of suits A debt is barred by limitation if it remains unpaid or unclaimed for a period of three years. Such a debt becomes legally irrecoverable. e.g. D owes C Rs.1000 but the debt is barred by the Limitation Act. D signs a written agreement to pay C Rs.500 on account of the debt. This is a contract. 4) Completed gift (Expl.1 to Sec.25) The rule no consideration, no contract does not apply to completed gifts. According to Expl. 1 to Sec.25, nothing
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shall affect the validity, as between the donor and donee, of any gift actually made. 5) Agency (Sec.185) No consideration is necessary to create an agency. Agency depends on agreement but not necessarily on contract. The fact that the principal has agreed to be represented by the agent is sufficient and no other consideration is necessary. 6) Charitable subscription Where the promise is made for the charitable subscription, then consideration for it is not necessary. e.g. A promises to make a gift of Rs.30000 towards the repairs of a temple. The trustee of the temple incurs liability on the basis of it. A dose not pay. Here trustees can recover the amount as it is a valid contract even though there is no consideration. Capacity to Contract The parties who enter into a contract must have the capacity to do so. Capacity here means competence of the parties to enter into a valid contract. According to Section 10, an agreement becomes a contract, if it is entered into between the parties who are competent to contract. Every person is competent to contract who a) is of the age of majority according to the law to which he is subject, b) is of sound mind and c) is not disqualified from contracting by any law to which he is subject. Section 11 declares the following persons to be incompetent to contract a) Minor, b) Person of unsound mind, c) person disqualified by any law to which he is subject. 1. Minor According to Section 3 of the Indian Majority Act, 1875, a minor is a person who is not completed eighteen years of age. In following two cases, he attains majority after twenty-one years of age a) Where a guardian of a minors property has been appointed under Guardians and Wards Act, 1890, or b) Where the superintendence of a minors property is assumed by a Court of Wards. The rules governing minors agreements are based on two fundamental rulesi) The law protects minors against their own inexperience and against possible improper conduct of those who are experienced. ii) The law should not cause unnecessary hardship to person who deal with minors. Minors Agreements 1) An agreement with or by minor is void and inoperative ab initio. (Mohari Bibi v. Dharmodas Ghose) In this case, a minor mortgaged his house in favour of a money lender to secure a loan of Rs.20000, out of which money lender paid minor a sum of Rs.8000. Subsequently, the minor sued for setting aside the mortgage, stating that he was underage at the time of execution of the mortgage. Held, the mortgage was void and it was cancelled. Further money lenders request to repay the amount advanced was also not accepted. 2) Minor can be a promisee or a beneficiary Incapacity of a minor to enter into a contract means incapacity to bind himself by a contract. He can be payee, endorsee, beneficiary or promisee in a contract. Such contracts may be enforced at his option, but not at the option of the other party. The law dose not declares him as incapable to accept any benefit.
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e.g. A minor under a contract of sale, delivered goods to the buyer. Now he can file a suit for the recovery of price. 3) Minors agreements cannot be ratified by him on attaining the age of majority Consideration which passed under the earlier contract cannot be implied into the contract which the minor enters on attaining majority. Thus consideration given during minority is no consideration. If it is necessary a fresh contract may be entered into by the minor on attaining the age of majority provided it is supported by a fresh consideration. e.g. M, a minor, borrows Rs.5000 from L and executes a promissory note in favour of L. After attaining majority, he executes another promissory note in settlement of the first note. The second promissory note is void for want of consideration. However, services rendered at the desire of minor during his minority and continued at the same request after his majority, form a good consideration for a subsequent promise by him in favour of the person who rendered the services. 4) If minor has received any benefit under a void agreement, he cannot be asked to compensate or pay for it e.g. A minor obtains a loan by mortgaging his property. He is not liable to refund the loan. Not only this, even his mortgaged property cannot be made liable to pay the debt. 5) He can always plead minority Even if he has, by misrepresenting his age, induced the other party to contract with him, he cannot be sued in contract for fraud because if the injured party were allowed to sue for fraud, it will be enforcing the void agreement. e.g. S, a minor, by fraudulently representing himself to be of full age, induced L to lend him certain amount. He refused to repay it and L sued him for money. Held, the contract was void and S was not liable to repay the amount. 6) There can be no specific performance of the agreements entered into by him as they are void ab initio A contract entered into on his behalf by his parent / guardian / manager of his estate can be specifically performed by or against the minor provided that it is within the scope of authority and for the benefit of minor. 7) He cannot enter into a contract of partnership But he may be admitted to the benefits of already existing partnership with the consent of all other partners. 8) He cannot be adjusted insolvent This is because he is incapable of contracting debts. 9) He is liable for necessaries A minor is liable to pay out of his property for necessaries supplied or necessary services rendered to him or anyone whom he is legally bound to support. It is only property of the minor which is liable and he is not personally liable. 10) He can be an agent An agent is merely connecting link between principal and the third party. A minor binds his principal by his personal act without incurring any personal liability. 11) His parents / guardians are not liable for the contract entered into by him Even though the contract is for the supply of necessities to the minor. But if the minor is acting as an agent of them then they are liable for the contract. 12) A minor is liable in Tort (a civil wrong) not arising out of contract. Minors Liability for Necessaries A minor is liable to pay out of his property for necessaries supplied to him or to anyone whom he is legally bound to support (Section 68). Again, he is not personally liable but it is only the property of minor which is liable for meeting the liability arising out of contract. Necessaries include 1) Necessary goods Necessary goods are not restricted to articles which are required to maintain existence , such as food and clothes, but include articles which are reasonably necessary to minor having regard to his situation in life. A watch and a bicycle may well be considered to be necessaries.
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2) Necessary services certain services rendered to the minor are considered to be necessaries. This includes education, training for trade, medical services, legal advice, provision of funeral of deceased husband of a minor widow, etc. A loan taken by a minor to obtain necessaries also binds him and is recoverable by the lender, but through property as minor is not personally liable.

2. Person of Unsound Mind One of the essential condition of competency of parties to contract is that they should be of sound mind. According to Section 12, 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 interest A person is usually of unsound mind but occasionally of sound mind, may make a contract when he is of sound mind A person is usually of sound mind but occasionally of unsound mind, may not make a contract when he is of unsound mind e.g. A sane man who is so drunk that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interest, cannot contract till drunkenness lasts. Soundness of mind of a person depends upon two factors 1) His capacity to understand the contents of the business concerned. 2) His ability to form a rational judgment as to its effect on his interest. If a person is incapable of both, he suffers form unsoundness of mind. The presumption of Court is in favour of sanity. If a person relies on unsoundness of mind, he must prove it in the court. Lunatic can enter into a contract during the period when he is of sound mind. Idiocy is permanent whereas lunacy denotes periodical insanity. An agreement of an idiot is void. A drunken or intoxicated person suffers from temporary incapacity to contract. 3. Other Persons a) An Alien An alien may be alien friend or alien enemy. A contract with alien friend is valid subject to certain limitations. If the contract with alien enemy is made during the war period, then alien enemy can neither contract with an Indian nor can sue in Indian Courts. If the contract is made before the war, it may either be suspended or dissolved. b) Foreign Sovereign They can enter into contracts and enforce those contracts in Indian courts. But Indian citizen has to obtain prior sanction of the Central Government in order to sue them in our Courts. c) Corporations A corporation (company) is an artificial person created by Law. Its contractual capacity is regulated by the terms of its Memorandum of Association and the provisions in the Companies Act. d) Insolvents When a debtor is adjudged insolvent, his property vests in the hands of Official Receiver. He can enter into contracts relating to insolvent persons property. Insolvent, himself suffers from certain disqualification. e) Convicts A convict when undergoing imprisonment is incapable of entering into a contract. FREE CONSENT It is essential to the creation of a contract that the parties are ad idem, i.e. they agree upon the same thing in the same sense at the same time and that their consent is free and real. Section 10 also says that all agreements are contracts if they are made by the free consent of parties

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Consent Two or more persons are said to consent when they agree upon the same thing in the same sense (Section 13) Free Consent Consent is said to be free when it is not caused by 1) 2) 3) 4) 5) Coercion Coercion as defined in Sec. 15 or Undue influence as defined in Sec. 16 or Fraud as defined in Sec. 17 Misrepresentation as defined in Sec. 18 or Mistake, subject to the provisions of Secs. 20, 21 and 22 (Sec.14)

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. It is immaterial whether the Indian Penal Code, 1860 is or is not in force in the place where the coercion is employed (Section 15) The threat amounting to coercion need not necessarily proceed from the party to the contract. It may proceed even from a stranger to the contract. Likewise, it may be directed against any body not necessarily the other contracting party. The intention of the person using coercion should, however, be to cause any person to enter into an agreement. Coercion includes fear, physical compulsion and menace to goods. Examples a) A threatens to shoot B if he (B) does not release him (A) from a debt which A owes to B. B release A under the threat. The release has been brought about by coercion. b) A threatens to kill B if he does not lend Rs.1,000 to C. B agrees to lend the amount to C. The agreement is entered into under coercion. Consent is said to be caused by coercion when it is obtained by 1) Committing or threatening to commit any act forbidden by the Indian Penal Code, 1860 2) Unlawful detaining or threatening to detain any property. 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. (Section 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 position to exercise undue influence over the other. Section 16(1) defines 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 A person deemed to be in a position to dominate the will of another a) Where he holds a real or apparent authority over the other, e.g. the relationship between master and servant, doctor and patient, etc. b) Where he stands in a fiduciary relation, (relation of trust and confidence) to the other. It is supposed to exist, for example, between father
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and son, solicitor and client, trustee and beneficiary, promoter and company, etc c) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress. Such a relation exists, for example, between a medical attendant and his patient. 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 either absolutely or if the party who is entitled to avoid it has received any benefit thereunder, has to restore it. Relationships which raise presumption of undue influence The following relationships usually raise a presumption of undue influence viz. i) parent and child, ii) guardian and war, iii) trustee and beneficiary, iv) religious adviser and disciple, v) doctor and patient, vi) solicitor and client, and vii) fiance and fiancee. 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. There is, however, no presumption of undue influence in the relationship of i) landlord and tenant, ii) creditor and debtor, and iii) husband and wife. The wife should not be pardanashin otherwise the presumption will arise. In these cases undue influence will have to be proved. Burden of proof In an action to avoid a contract on the ground of undue influence, the plaintiff has to establish that i) the other party was in a position to dominate his will. Mere proof of nearness of relationship is not sufficient for the Court to assume that one relation was a position to dominate the will of the other ii) the other party actually used his influence to obtain the plaintiffs consent to the contract; and iii) the transaction is unreasonable Where a person, who is in a position to dominate the will of another, enters in to a contract with him, and the transaction appears to be unreasonable, then the burden of proving that such contract was not induced by undue influence lies upon the person in a position to dominate the will of the other. Difference between Coercion and Undue Influence 1) Definition 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. (Section 15) 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 (Section 16) 2) Consent In coercion, the consent is given under the threat of an offence (i.e. committing, or threatening to commit, any act forbidden by the Indian Penal Code, 1860 or the unlawful detaining, or threatening to detain, any property) Under undue influence, the consent is given by the person who is so situated in relation to another that the other person is in a position to dominate his will. It means consent is given under normal influence.
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3) Character Coercion is mainly of a physical character. It involves mainly use of physical or violent force. The aggrieved party is compelled to make the contract against its will. Undue influence is of moral character. It involves use of moral force or mental pressure. 4) Intention In coercion, there must be an intention of causing any person to enter into an agreement. Under undue influence, the influencing party uses its position to obtain an unfair advantage over the other party. 5) Nature of act Coercion involves a criminal act. Undue influence involves no criminal act. 6) Effect In coercion, the contract is voidable at the option of the party whose consent has been obtained by the coercion or that party may enforce it in some modified form. Under undue influence, the contract is voidable or the court may set it aside 7) Restore of benefit In case of coercion, where the contract is rescinded by the aggrieved party, any benefit received has to be restored back to the other party. In undue influence, the court has the discretion to direct the aggrieved party to return the benefit in whole or in part or not to give any such direction. 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. e.g. A while selling his horse to B, tells him that the horse is totally sound. He genuinely believes the horse to be sound. Later on B finds the horse to be unsound. The representation made by A is a misrepresentation. Section18 defines misrepresentation. Accordingly, 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 it 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. Requirements of misrepresentation A misrepresentation is relevant if it satisfies the following requirements 1) It must be a representation of a material fact. Mere expression of opinion does not amount to misrepresentation even if it turns out to be wrong. 2) It must be made before the conclusion of the contract with a view to inducing the other party to enter into the contract. 3) It must be made with the intention that it should be acted upon by the person to whom it is addressed. 4) It must actually have been acted upon and must have induced the contract. 5) It must be wrong but the person who made it honestly believed it to be true. 6) It must be made without any intention to deceive the other party.

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7) It need not be made directly to the plaintiff. A wrong statement of facts made to a third person with the intention of communicating it to the plaintiff, also amounts to misrepresentation. Consequences of misrepresentation The aggrieved party, in case of misrepresentation by the other party can 1) avoid or rescind the contract ; or 2) accept the contract but insist that he shall be placed in the position in which he would have been if the representation made had been true. (Section 19) Fraud Fraud exists when it is shown that 1) a false representation has been made (a) knowingly, or (b) without belief in its truth, or (c) recklessly, not carrying whether it is true or false, and the maker intended the other party to act upon it, or 2) there is a concealment of a material fact or that there is a partial statement of a fact in such a manner that the withholding of what is not stated makes that which is stated false. The intention of the party making fraudulent misrepresentation must be to deceive the other party to the contract or to induce him to enter into a contract. e.g. A sells B a horse, which A knows to be unsound. A says nothing to B about the horse. Here A is committing fraud. According to Section 17, Fraud means and includes any of the following acts 1) The suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true; 2) The active concealment of a fact by a person 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. Essential Elements of Fraud 1) There must be a representation or assertion and it must be false. Without a representation or assertion there can be no fraud except in cases where silence may itself amount to fraud or where there is an effective concealment of fact. 2) The representation must relate to a material fact which exists now or existed in the past. A mere opinion, hearsay or flourishing description, is not regarded as representation of fact. e.g. A sell some spoons to B and makes the following statements i) The spoons are as good as that of X. This is a statement of opinion. ii) The spoons have as much silver in them as that of X. this is a statement of fact. 3) The representation must have been made before the conclusion of the contract with the intention of inducing the other party to act upon it. Not only must the representation be false and made with the knowledge of its falsity, but it must also be made with intent to deceive the other party. 4) The representation or statement must have been made with knowledge of its falsity or without belief in its truth or recklessly, not carrying whether it is true or false. Further, the representation amounting to fraud must have been made either by a party to the contract or with his connivance or by his agent. 5) The other party must have been induced to act upon the representation. A mere falsehood is not enough to give a right of action. It must have induced the other party to act upon it. The other party cannot shut his eyes to the
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obvious defects or flaws which he could have easily ascertained by reasonable investigation or inspection. 6) The other party must have relied upon the representation and must have been deceived. A mere attempt at deceit by one party is not fraud unless the other party is actually deceived. 7) The other party, acting on the representation must have subsequently suffered some loss. It is a common rule of law that there is not fraud without damage. As such fraud without damage or damage without fraud does not give rise to an action on deceit.

Consequences of Fraud A contract induced by fraud is voidable at the option of the party defrauded. Until it is avoided, it is valid. The party defrauded has, however, the following remedies1) He can rescind the contract. Where he does so, he must act within a reasonable time. 2) He can insist on the performance of the contract on the condition that he shall be put in the position in which he would have been if the representation made had been true. 3) He can sue for damages. Difference between Fraud and Misrepresentation 1) Definition 2) Intention In misrepresentation, there is a mis-statement or concealment of a material fact or facts essential to the contract without any intention to deceive the other party. In fraud, the intention is to deceive the other party. Misrepresentation is innocent, fraud is deliberate or willful. 3) Belief In case of misrepresentation, the person making the suggestion believes it to be true, while in case of fraud he dose not believe it to be true. 4) Rescission and damages in misrepresentation, the aggrieved party can rescind the contract or sue for restitution. There can be no suit for damages. In fraud, the remedy available to the aggrieved party is not limited to rescission alone. He can also claim damages. 5) Discovery of truth In case of misrepresentation, the aggrieved party cannot avoid the contract if it had the means to discover the truth with ordinary diligence. But in case of fraud, where there is active concealment, the contract is voidable even though the aggrieved party had the means of discovering the truth with ordinary diligence. Mistake Mistake may be defined as an erroneous belief about something. It may be a mistake of low or a mistake of fact. Mistake of Law Mistake of law may be Mistake of law of the country - Ignorantia juris non excusat, i.e. ignorance of low 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. 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 (Section 21)
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Mistake of Fact Mistake of fact may be a bilateral mistake or 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 (Section 20). The following two conditions have to be fulfilled for the application of Section 20;

i) The mistake must be mutual, i.e. both the parties should misunderstand each other and should be at cross purposes. E.g. A agreed to purchase Bs motor car which was lying in Bs garage. Unknown to either party, the car and garage were 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. The various cases which fall under bilateral mistake are as follows a) 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. 2) Mistake as to the identity of the subject matter. 3) Mistake as to the quality of the subject matter. 4) Mistake as to the quantity of the subject matter. 5) Mistake as to the title to the subject matter. 6) Mistake as to the price of the subject matter. b) Mistake as to the possibility of performing the contract - Consent is nullified if both the parties believe that an 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 Physically impossibility or Legal impossibility 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. E.g. A offers to sale his house to B for an intended sum of Rs.440000. by mistake he makes an offer of Rs.400000. He cannot plead mistake as defence. LEGALITY OF OBJECT When consideration or object is unlawful (Section 23) The consideration or object of an agreement is unlawful 1) If it is forbidden by law If the object or the consideration of an agreement is the doing of an act forbidden by law, the agreement is void. An act is forbidden by law when it is punishable by the criminal law of the country or when it is prohibited by special legislation or regulations made by a competent authority under powers derived from the Legislature. 2) If it is of such a nature that, if permitted, it would defeat the provision of any law If the object or the consideration of an agreement is such that, though not directly forbidden by law, it would defeat the provisions of any law, the agreement is void. e.g. A was licensed under the Excise Act to run a liquor shop. The Act forbade the sale, transfer or sub lease the license or the creation of partnership to run the shop. A took B into partnership. Here the agreement was void.
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3) If it is fraudulent An agreement which is made for a fraudulent purpose is void. Thus an agreement in fraud of creditors with a view to defeating their rights is void. e.g. A, B & C enter into an agreement for division among them of gains to be acquired by them by fraud. The agreement is void as its object is unlawful. 4) If it involves or implies injury to the person or property of another Injury means wrong, harm or damage. Person means ones body. Property includes both movable and immovable property. 5) If the Court regards it as immoral An agreement, the consideration or object of which is immoral, e.g. an agreement between a husband and wife for future separation, is unlawful. 6) Where the Court regards it as opposed to public policy. VOID AGREEMENTS The following agreements have be expressly declared to be void by the Contract Act 1) Agreements by incompetent parties (Section 11) 2) Agreements made under a mutual mistake of fact (Section 20) 3) Agreements the consideration or object of which is unlawful (Section 23) 4) Agreements the consideration or object of which is unlawful in part (Section 24) 5) Agreements made without consideration (Section 25) 6) Agreements in restraint of marriage (Section 26) 7) Agreements in restraint of trade (Section 27) 8) Agreements in restraint of legal proceedings (Section 28) 9) Agreements the meaning of which is uncertain (Section 29) Agreement, the meaning of which is not certain or capable of being made certain, are void. The uncertainty may be as to existence, quantity, quality, price, title, etc. of the subject matter. 10) Agreements by way of wager (Section 30) A wager is an agreement between two parties one promises to pay money or moneys worth on the happening of some uncertain event in consideration of the other partys promise to pay if the event dose not happen. 11) Agreements contingent on impossible events (Section 36) Contingent agreements to do or not to do anything, if an impossible event happens, are void. Such impossibility may be known or not known to the parties. 12) Agreements to do impossible act (Section 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 (Section 57) PERFORMANCE OF CONTRACT Offer to Perform (Sec. 38) Sometimes it so happens that the promisor offers to perform his obligation under the contract at the proper time and place but the promisee does not accept the performance. This is known as attempted performance or tender. Here promisor is not responsible for non performance. He dose not lose his right under the contract. Thus an attempt of performance is equivalent to actual performance. Requisites of a valid tender 1) It must be unconditional. It becomes conditional when it is not in accordance with the terms of the contract.
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2) It must be of the whole quantity contracted for or of the whole obligation. e.g. D a debtor offers to pay C, the amount due in installments and offers the first installment. The tender is not for the whole amount so not a valid tender. 3) It must be by a person who is in a position, and is willing to perform the promise. 4) It must be made at the proper time and place. A tender of goods after the business hours or of goods or money before the due date is not a valid tender. 5) It must be made to the proper person, i.e. the promisee or his duly authorized agent. It must also be in proper form. 6) It may be made to one of the several joint promisees. In such a case it has the same effect as a tender to all of them. 7) In case of tender of goods, it must give a reasonable opportunity to the promisee for inspection of the goods. A tender of goods at such time when the other party cannot inspect the goods is not a valid tender. Contracts which need not be performed 1) When its performance becomes impossible (Section 56) 2) When the parties to it agree to substitute a new contract for it or to rescind or alter it. (Section 62) 3) When the promisee dispenses with or remits, wholly or in part, the performance of the promise made to him or extends the time for such performance or accepts any satisfaction for it. (Section 63) 4) When the person at whose option it is voidable, rescinds it. (Section 67) 5) When the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise. (Section 67) 6) When it is illegal. By Whom must Contracts be Performed 1) Promisor himself If there is something in the contract to show that it was the intention of the parties that the promise should be performed by the promisor himself, such promise must be performed by the promisor. 2) Agent Where personal consideration is not the foundation of a contract, the promisor or his representative may employ a competent person to perform it. 3) Legal representatives A contract which involves the use of personal skill or is founded on personal consideration comes to an end on the death of the promisor. 4) Third persons When a promise accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor (Sec.41) 5) Joint promisors All joint promisors must jointly fulfill the promise. If any of them dies, his legal representatives must jointly fulfill the promise along with the surviving promisors. Who can Demand Performance?
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It is only the promisee who can demand performance of the promise under a contract. It makes no difference whether the promise is for the benefit of the promisee or for the benefit of any other person. In certain cases, a third party can also enforce a promise under a contract even though he is not a party to the contract. These cases have already been discussed in the Chapter on Consideration. Death of promisee In case of death of the promisee, his legal representatives can demand performance. Time and Place of Performance Time and place of performance of a contract are matters to be determined by an agreement between the parties themselves. Sec. 46 to 50 lay down the following rules in this regard: 1) Where no application is to be made and no time is specified. Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the promise must be performed within a reasonable time. 2) Where time is specified and no application is to be made. When a promise is to be performed on a certain day, the promisor may undertake to perform it without application by the promisee. In such a case, the promisor may perform the promise at any time during the usual hours of business on such day and at the place at which the promise out to be performed. 3) Application for performance on a certain day and place. When a promise is to be performed on a certain day, on application by the promisee, the promisor may undertake to perform it after the application by the promisee to that effect. In such a case, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business. 4) Application by the promisor to the promisee to appoint place. When a promise is to be performed without application by the promisee, and no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise, and to perform it at such place. 5) Performance in a manner or at time prescribed or sanctioned by the promisee. The performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions. e.g. A owes Rs.2000 to B. Now B accepts some of the As goods in reduction of the debt. It works as a part payment. 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. In some cases, other rights and obligations may arise as a result of discharge of contract, but they are altogether independent of the original contract. A) 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 their obligations arising under the contract within the time and in the manner prescribed. In such a case, the parties are discharged and the contract comes to an end. But if only one party performs the promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach. Performance of a contract is the most usual mode of its discharge. It may be Actual performance or Attempted performance.
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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. Most of the contracts are discharged by performance in this manner. 2) Attempted performance or tender Tender is not actual performance but is only an offer to perform the obligation under the contract, where the promisor offers to perform his obligation, but the promisee refuses to accept the performance. B) Discharge by Agreement or Consent As it is the agreement of the parties which binds them, so by their further agreement or consent the contract may be terminated. The various cases of discharge of a contract by mutual agreement are dealt with in Sections 62 and 63 and are discussed below a) Novation (Section 62) Novation takes place when (i) a new contract is substituted for an existing one between the same parties, or (ii) a contract between two parties is rescinded in consideration of a new contract being entered into on the same terms between one of the parties and a third party. Novation should take place before expiry of the time of the performance of the original contract. b) Rescission (Section 62) - Rescission of a contract takes place when all or some of the terms of the contract are cancelled. It may occur i) by mutual consent of the parties or, ii) 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 (Section 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 (Section 63) Remission means acceptance of a lesser fulfillment of the promise made e.g. acceptance of a lesser sum than what was contracted for, in discharge of the whole of the debt. It is not necessary that there must be some consideration for the remission of the part of the debt. e) Waiver Waiver takes place when the parties to the contract agree that they shall no longer be bound by the contract. Consideration is not necessary for waiver. f) Merger Merger takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract. E.g. P holds a property under a lease. He later buys the property. His rights as a lessee merge into his rights as an owner. C) 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) The law does not recognize what is impossible and 2) What is impossible does not create an obligation. According to Section 56, impossibility of performance may fall into either of the following categories 1) Impossibility existing at the time of agreement An agreement to do an act impossible in itself is void. This is known as pre contractual or initial impossibility. The fact of impossibility may be i) Known to the parties This is known as absolute impossibility. In case of absolute impossibility, the agreement is void ab initio. 24

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ii) Unknown to the parties Where at the time of making the contract both the parties are ignorant of the impossibility, as in the case of destruction of subject matter to the ignorance of both the parties, the contract is void on the ground of mutual mistake. 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. In such a case, the contract becomes void when the act becomes impossible or unlawful. Discharge by supervening impossibility A contract is discharged by supervising impossibility in the following cases 1) Destruction of subject matter of contract 2) Non existence or non occurrence of a particular state of things 3) Death or incapacity for personal service 4) Change of law or stepping in of a person with statutory authority 5) Outbreak of war D) Discharge by lapse of time The Limitation Act 1963 lays down that a contract should be performed within a specified period called period of limitation. If it is not performed, and if no action is taken by the promisee within the period of limitation, he is deprived of his remedy at law. In other words, we may say that the contract is terminated. 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. Where goods are sold on credit to be paid for after the expiry of a fixed period of credit, the price should be paid within three years of the expiry of period of credit. 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. E) Discharge by operation of law A contract may be discharged independently of the wishes of the parties, i.e. 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 promisor. In other contracts, the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person. b) By Merger This has already been explained in discharge by agreement or consent. c) By Insolvency When a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication. d) By unauthorized 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 party, the other party 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. e) By rights and liabilities becoming vested in the same person Where the rights and liabilities under a contract vest in the same person, for example when a bill gets into the hands of the acceptor, the other parties are discharged. F) 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 should
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perform his obligation under it. It confers a right of action for damages on the injured party. Breach of contract may be Actual breach or Anticipatory breach. 1) Actual Breach of Contract It may take place a) At the time when the performance is due Actual breach of contract occurs when at the time when the performance is due, one party falls or refuses to perform his obligation under the contract. b) During the performance of the contract Actual breach of contract also occurs when during the performance of the contract, one party falls or refuses to perform his obligation under the contract. this refusal to perform may be by Express repudiation (by word or act) or Implied repudiation (impossibility created by the act of a party to contract) 2) Anticipatory Breach of Contract It occurs when a party to an executory contract declares his intention of not performing the contract before the performance is due. He may do so i) By expressly renouncing his obligation under the contract. ii) By doing some act so that the performance of his promise becomes impossible.

REMEDIES FOR BREACH OF CONTRACT When a contract is broken, the injured party has one or more of the following remedies 1) Rescission of the contract When a contract is broken by one party, the other party may sue to treat the contract as rescinded and refuse further performance. In such a case, he is released of all the obligations under the contract. e.g. A promises to B to supply 10 bags of cement on a certain day. B agrees to pay the price after the receipt of the goods. A dose not supply the goods. B is discharged from liability to pay the price. 2) Suit for damages Damages are monetary compensation allowed to the injured party by the court for the loss or injury suffered by him by the breach of a contract. The object of awarding damages for the breach of contract is to put the injured party in the same position as if he had not been injured. Damages may be of four types a) Ordinary damages These are damages which actually arise in the usual course of things from the breach of a contract. b) Special damages Such damages cannot be claimed as a matter of right. These can be claimed only if the special circumstances which would result in a special loss in case of breach of a contract, are brought to the notice of the other party. c) Exemplary damages These damages are allowed in case of the breach of a contract to marry or dishonour of a cheque by a banker wrongfully. d) Nominal damages Where the injured party has not suffered any loss by reason of the breach of the Court may award a very nominal sum as damages. 3) Quantum Merit The term Quantum Merit means as much as earned. The right to sue on Quantum Merit arises where a contract, partly performed by one party, has become discharged by the breach of the contract by the other party. 4) Specific performance In certain cases the Court may direct the party in breach of a contract to actually carry out the promise, exactly according to the terms of the contract. This is called specific performance of the contract. 5) Injunction Where a party is in breach of a negative term of a contract (i.e. where he is doing something which he promised not to do) the Court may
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restrain him from doing what he promised not to do. Such an order of the Court is known as injuction. Agreements by way of wager (Section 30) A wager is an agreement between two parties one promises to pay money or moneys worth on the happening of some uncertain event in consideration of the other partys promise to pay if the event dose not happen. Thus A and B enter into an agreement that A shall pay B Rs.1000 if it rains on Monday and that B shall pay A the same amount if it dose not rain. It is a wagering agreement so void ab initio. Following are essentials of wagering agreement 1) The wagering agreement must contain promise to pay money or moneys worth. 2) The promise must be conditional on an event happening or not happening. A wager generally considers only the future event. But it may also relate to past event provided the parties are not aware about the result at the time of making the agreement. 3) Each party must stand to win or lose. An agreement is not wager if either of the parties may win but cannot lose 4) Neither should have control over the happening of the event. If the control of the event is in the hands of one party then it cannot be called as wager. 5) Neither of the parties should have interest in the happening or nonhappening of the event other than wining or losing the sum. Doctrine of Supervening Impossibility When the performance of the contract becomes impossible, it becomes void. 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 of things. If there is any change in the state of things which formed the basis of the contract, or if 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, the contract is discharged on the illness or incapacity or death of that party. 4) Change of law or stepping in of a person with statutory authority When subsequent to the formation of a contract, change of law takes place, or the Government takes some power under some Ordinance or Special Act. 5) Outbreak of war A contract entered into with an alien enemy during war is unlawful and therefore impossible of performance. Joint promisors and Their Performance of Contract When two or more persons have made a joint promise, they are known as joint promisors. All joint promisors must jointly fulfill the promise. If any one of them dies, his legal representatives must, jointly with the surviving promisors fulfill the promise. If all of them die, the legal representatives of all of them must fulfill the promise jointly. (Section 42) Section 43 lays down following rule regarding joint promisors 1) When two or more persons make a joint promise, the promisee may compel any one or more of them to perform the whole promise. This means liability of joint promisors is joint and several. 2) When a joint promisor is compelled to perform the whole of the promise, he may compel the other joint promisors to contribute equally with himself to the performance of the promise. 3) If any one of the joint promisors makes default in the contribution, the remaining joint promisors must bear the loss arising from such default in equal share.

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Sale of Goods Act, 1930

FORMATION OF CONTRACT OF SALE Contract of Sale of Goods 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 partowner and another [Section 4(1)] A contract of sale may be absolute or conditional [Section 4(2)] The term Contract of sale is a generic term and includes both a sale and an agreement to sell. Sale and agreement to sell 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 conditions 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 BBA Part III (Fundamentals of Business Law) 28

the conditions, subject to which the property in the goods is to be transferred, are fulfilled. [Section 4(4)].

Sale and agreement to sell distinction 1) Transfer of property In a sale, the property in the goods passes from the seller to the buyer immediately so that the seller is no more the owner of the goods sold. In an agreement to sale transfer of property in the goods is to take place at a future time or subject to certain conditions to be fulfilled. In this sense, a sale is an executed contract and an agreement to sell is an executory contract. 2) Type of goods A sale can only be in case of existing and specific goods only. An agreement to sell, the transfer of property in the goods is to take place at a future and contingent goods although in some cases it may refer to unascertained existing goods. 3) Risk of loss In a sale, if the goods are destroyed, the loss falls on the buyer even though the goods are in the possession of the seller. In an agreement to sell, if the goods are destroyed, the loss falls on the seller, even though the goods are in the possession of the buyer. 4) Consequences of breach In a sale, if the buyer fails to pay the price of the goods or if there is a breach of contract by the buyer, the seller can sue for the price even though the goods are still in his possession. In an agreement to sell if there is a breach of contract by the buyer, the seller can only sue for damages and not for the price even though the goods are in the possession of the buyer. 5) Right to resale In a sale, the seller cannot resale the goods (except in certain cases, as for example, a sale by seller in possession after sale under Sec. 30, or a sale by an unpaid seller under Sec. 54) If he does so the subsequent buyer does not acquire title to the goods. In an agreement to sell, in case of resale, the buyer, who takes the goods for consideration and without notice of the prior agreement, gets a good title. In such a case, the original buyer can only sue the seller for damages. 6) General and particular property A sale is a contract plus conveyance, and creates jus in rem i.e. gives right to the buyer to enjoy the goods as against the world at large including the seller. An agreement to sell is merely a contract, pure and simple, and creates jus in personam i.e. gives a right to the buyer against the seller to sue for damages. 7) Insolvency of buyer In a sale, if the buyer becomes insolvent before he pays for the goods, the seller, in the absence of a lien over the goods, must return them to the Official Receiver or Assignee. He can only claim a ratable dividend for the price of goods. In an agreement to sell, if the buyer becomes insolvent and has not yet paid the price, the seller is not bound to part with the goods until he is paid for. 8) Insolvency of seller In a sale, if the seller becomes insolvent, the buyer, being the owner, is entitled to recover the goods from the Official Receiver or Assignee. In an agreement to sell, if the buyer, who has paid the price, finds that the seller has become insolvent, he can only claim a ratable dividend and not the goods because property in them has not yet passed to him. Sale and hire purchase distinction 1) Transfer of ownership In sale, the ownership is transferred from the seller to the buyer as soon as the contract is entered into. In case of hire purchase, the ownership is transferred from the seller to the hire purchaser only on the payment of last installment. 2) Position of the buyer The position of the buyer is that of owner of the goods. The position of the hire purchaser is that of the bailee and he becomes owner only on the payment of last installment.
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3) Termination of contract In case of sale, buyer cannot terminate the contract and he is bound to pay the price of the goods. In case of hire purchase, the hire purchaser has option to terminate the contract at any stage and he cannot be forced to pay the future installments. 4) Payment of installments In case of sale, if the payment is made by the buyer in installments, the amount payable by the buyer is reduced, for the payment by the buyer is towards the price of the goods. In case of hire purchase, the installments paid by the buyer are regarded as hire charges and as a payment towards the price of the goods. 5) Right to take back the goods In case of sale, if the buyer becomes insolvent or he dose not pay the price, the seller cannot take back the goods. He can only claim ratable price of the goods. But in case of hire purchase, if the buyer fails to pay the installments, the seller has right to take back the goods. 6) Right to resale In a sale, the buyer can resale the goods and the purchaser can get good title. But in case of hire purchase, the hire purchaser cannot resale the goods. The purchaser cannot enjoy good title even though he is bonafide purchaser. 7) Tax In case of sale, tax is levied at the time of the contract. In case of hire purchase, tax is not levied until the payment of last installment. Essentials of a contract of sale 1) Two parties There must be two distinct parties, i.e. a buyer and a seller, to affect a contract of sale and they must be competent to contract. Buyer means a person who buys or agrees to buy goods [Sec.2(1)]. Seller means a person who sells or agrees to sell goods [Sec. 2(13)]. These two terms are complimentary. 2) Goods There must be some goods and property in which is or is to be transferred from the seller to the buyer. The goods which form the subject matter of the contract of sale must be movable. Transfer of immovable property is not regulated by the Sale of Goods Act. 3) Price The consideration for the contract of sale, called price, must be money. When goods are exchanged for goods, it is not a sale but a barter. There is, however, nothing to prevent the consideration from being partly in money and partly in goods. 4) Transfer of general property There must be a transfer of general property as distinguished from special property in goods from the seller to the buyer. If A owns certain goods, he has general property in the goods. If he pledges them with B, B has special property in the goods. 5) Essential elements of a valid contract All the essential elements of a valid contract must be present in the contract of sale. Subject Matters of Contract of Sale Goods from the subject matter of a contract of sale. According to Section 2(7), goods means every kind of movable property other than actionable claims and money; includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale. Trade marks, copyrights, patent rights, goodwill, electricity, water, gas are all goods. Actionable claims and money are not goods. An actionable claim means a claim to any debt or any beneficial interest in movable property not in possession (Sec.3 of the Transfer of Property Act, 1882). It is something which can only be enforced by action in a Court of Law. A debt due from one person to another is an actionable claim and cannot be bought or sold as goods. It can only be assigned. Money here means current money and not old rare coins. The definition of the term goods also suggests that it includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be served from the land before sale. Growing crops and grass are included in the definition of the terms goods because they are to be served from land. Trees which are agreed to be served before sale or under the contract of sale are goods
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Classification of goods 1) Existing goods There are the goods which are owned or possessed by the seller at the time of sale. Only existing goods can be the subject of a sale. The existing goods may be a) Specific goods These are goods which are identified and agreed upon at the time a contract of sale is made [Sec. 2(14)] as, for example, a specified watch, dog or horse. Goods are, however, not specific merely because the source of supply is identified, e.g. 500 quintals from 1,000 quintals on board. b) Ascertained goods Though commonly used as similar in meaning to specific goods, these are the goods which become ascertained subsequent to the formation of a contract of sale. c) Unascertained or generic goods These are the goods which are not identified and agreed upon at the time of a contract of sale. They are defined only by description and may from part of a lot. 2) Future goods These are the goods which a seller does not possess at the time of the contract but which will be manufactured or produced or acquired by him after the making of the contract of sale [Sec. 2(6)] A contract of present sale of future goods, though expressed an actual sale, purports to operate as an agreement to sell the goods and not a sale [Sec. 6(3)]. This is because the ownership of a thing cannot be transferred before that thing comes into existence. 3) Contingent goods Though a type of future goods, these are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen [Sec. 6(2)] CONDITIONS AND WARRANTIES 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)] Condition [Section 12(2)] A condition is stipulation which is essential to the main purpose of the contract. It goes to the root of the contract. It is defined an obligation which goes so directly to the substance of the contract, or in other words, is so essential to its very nature, that its non performance may fairly be considered by the other partly as a substantial failure to perform the contract at all. If there is a breach of a condition, the aggrieved party can treat the contract as repudiated. Warranty [Section 12(3)] A warranty is a stipulation which is collateral to the main purpose of the contract. It is not of such vital importance as a condition is. It is defined as an obligation which, goes to the substance of the contract. If there is a breach of a warranty, the aggrieved party can only claim damages and it has no right to treat the contract as repudiated. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract as a whole. The court is not to be guided by the terminology used by the parties to the contract. A stipulation may be a condition though called a warranty in the contract [Sec. 12(4)] Distinction between a condition and warranty 1) Difference as to value A condition is a stipulation which is essential to the main purpose of the contract. A warranty is a stipulation which is collateral to the main purpose of the contract.

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2) Difference as to breach If there is a breach of a condition, the aggrieved party can repudiate the contract of sale; in case of a breach of a warranty, the aggrieved party can claim damages only. 3) Difference as to treatment A breach of condition may be treated as a breach of a warranty. This would happen where the aggrieved party is contented with damages only. A breach of a warranty, however, cannot be treated as a breach of a condition. When condition to be treated as warranty (Section13) 1) Voluntary waiver of condition Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may (a) waive the condition, or (b) elect to treat the breach of the condition as a breach of warranty. If the buyer once decides to waive the condition, he cannot afterwards insist on its fulfillment. 2) Acceptance of goods by buyer Where 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. Express and Implied Conditions and Warranties In a contract of sale, express conditions and warranties are those which are expressly provided in the contract. Implied conditions and warranties are those which the law implies into the contract. Implied Conditions 1) Condition as to title [Section 14(a)] In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that a) in the case of a sale, he has a right to sell the goods, and b) in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. Where the seller having no title to the goods at the time of the sale, subsequently acquires a title, that title is the defective title of the original buyer and subsequent buyer. e.g. A bought a car from B and used it for four months. B had no title to the car and A had to hand it over to the true owner. Here A could recover the price paid. 2) Sale by description (Section 15) Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description. Sale of goods by description may include the following situations a) Where the buyer has not seen the goods and relies on their description given by the seller. b) Where the buyer has seen the goods but he relies not on that he has seen but what was stated to him and the deviation of the goods from the description is not apparent. Packing of goods may sometimes be a part of the description. e.g. A bought a reaping machine which the seller described to have been new the previous year and used to cut only 50 acres. A found the machine to be extremely old. Here, A can return the machine as it dose not correspond with the description. Sale by description as well as by sample Section 15 further provides that if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods correspond with the sample if the goods do not also correspond with the description. This means the goods must correspond both with the sample and with the description. 3) Condition as to quality or fitness [Section 16(1)] Normally, in a contract of sale there is no implied condition as to quality or fitness of the goods for a particular purpose. The buyer must examine the goods thoroughly
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before the he buys them in order to satisfy himself that the goods will be suitable for the purpose for which he is buying them. The following points should however be noted in this regard a) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which he needs the goods and depends upon the skill and judgment of the seller whose business it is to supply goods of that description, there is an implied condition that the goods shall be reasonably fit for that purpose. e.g. An order was placed for some lorries to be used for heavy traffic in a hilly area. The lorries supplied were unfit and broken down. There is breach of condition as to fitness. b) If the buyer purchasing an article for a particular use is suffering from an abnormality and it is not made known to the seller at the time of sale, implied condition of fitness does not apply. e.g. A purchased a coat which caused him a skin decease, due to abnormal sensitive skin. Here, the seller was not liable for breach of condition. c) If the buyer purchases an article under its patent or other trade name, the implied condition that articles are fit for a particular purpose shall not apply, unless the buyer relies on the sellers skill and judgment and makes known to the seller that he so relies on him. e.g. A bought a car from B depending upon the company name. now seller cannot be held responsible if the car dose not fit for the purpose. d) In case the goods can be used for a number of purposes, the buyer must tell the seller the particular purpose for which he requires the goods. If he does not, he cannot hold the seller liable if the goods do not suit the particular purpose for which he buys the goods. 4) Condition as to merchantability [Section 16(2)] Where goods are bought by description 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 are merchantable quality. This means goods should be such as are commercially saleable under the description by which they are known in the market. e.g. A bought a radio which can be played on battery and charging. The charging unit was found to be defective. Here, A can return the radio get refund of the amount. 5) Condition implied by custom - An implied condition as to quality or fitness for a particular purpose may be annexed by the usage of trade [Sec. 16(3)] In some cases, the purpose for which the goods are required may be ascertained from the acts and conduct of the parties to the sale, or from the nature of description of the article purchased. For instance, if a bottle of milk is purchased, the purpose for which it is purchased is implied in the thing itself. In such a case the buyer need not tell the seller the purpose for which he buys the goods. e.g. A bought a hot water bottle from B and it burst after few days use. Here A could recover the price paid. 6) Sale by Sample (Section 17) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. In the case of a contract for sale by sample, there is an implied condition a) that the bulk shall correspond with the sample in quality. b) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample. c) that the goods shall be free from any defect.

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7) Condition as to wholesomeness In the case of eatables and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome. e.g. A bought a bun containing a stone which broke one of his teeth. Here A could recover damages. Implied Warranties The implied warranties in a contract of sale are as follows 1) Warranty of quiet possession [Section 14(b)] In a contract of sale, unless there is a contrary intention, there is an implied warranty that the buyer shall have the enjoy quiet possession of the goods. If the buyer is in any way disturbed in the enjoyment of the goods in consequence of the sellers defective title to sell, he can claim damages from the seller. 2) Warranty of freedom from encumbrances [Section 14(c)] In addition to the previous warranty, the buyer is entitled to a further warranty that the goods are not subject to any charge of right in favour of a third party. If this possession is in any way disturbed by reason of any third party, he shall have a right to claim damages for breach of this warranty. 3) Warranty as to quality or fitness by usage of trade [Section 16(4)] An implied warranty as to quality or fitness for a particular purpose may be annexed by the usage of trade. 4) Warranty to disclose dangerous nature of goods Where a person sells goods, knowing that the goods are inherently dangerous or they are likely to be dangerous to the buyer and that the buyer is ignorant of the danger, he must warn the buyer of the probable danger, otherwise he will be liable in damages. CAVEAT EMPTOR This means let the buyer beware i.e. in a contract of sale of goods the seller is under no duty to reveal unflattering truths about the goods sold. Therefore, when a person buys some goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit his purpose or if he depends upon his own skill or judgment and makes a bad selection, he cannot blame anybody excepting himself. Exceptions The doctrine of caveat emptor has certain important exceptions. The exceptions are 1) Fitness for buyers purpose Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which he requires the goods and relies on the sellers skill or judgment and the goods are of a description which it is in the course of the sellers business to supply, the seller must supply the goods which, shall be fit for the buyers purpose. [Section 16(1)] 2) Sale under a patient or trade name In the case of contract for the sale of a specified article under its patent or other trade name, there is no implied condition that the goods shall be reasonably fit for any particular purpose. 3) Merchantable quality Where goods are bought by description 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. But if the buyer has examined the goods,
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there is no implied condition as regards defects which such examination ought to have revealed [Section 16(2)] 4) Usages of trade An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade [Section 16(3)]. 5) Consent by fraud Where the consent of the buyer, in a contract of sale is obtained by the seller by fraud or where the seller knowingly conceals a defect which could not be discovered on a reasonable examination, the doctrine of caveat emptor does not apply. UNPAID SELLER A seller of goods is deemed to be an unpaid seller when 1) the whole of the price has not been paid or tendered, 2) a bill of exchange or other negotiable instrument has been received as a conditional payment, and the condition on which it has been issued is not fulfilled by reason of the dishonour of the bill. RIGHTS OF AN UNPAID SELLER Refer to chart Rights to an unpaid against the goods Where the property in the goods has passed to the buyer, an unpaid seller has the following rights against the goods 1) Right of lien [Sections 46(1) (a) and 47 to 49] A lien is a right to retain possession of goods until payment of the price. It is available to the unpaid seller of the goods who is in possession of them where a) the goods have been sold without any stipulation as to credit ; b) the goods have been sold on credit, but the term of credit has expired; c) the buyer becomes insolvent [Sec.47 (1)] Rules regarding lien 1) The seller may exercise his right of lien even when he is in possession of the goods as agent or bailee. If he loses the possession of the goods, he loses the right of lien also. 2) The lien depends on actual possession and not on title. It is not affected even if the seller has parted with the document capable of transferring title. 3) The lien can be exercised by the unpaid seller only for the price and not for any other charges such as warehouse or dock charges. 4) Where an unpaid seller has made part delivery of the goods, he may exercise his right to lien on the remainder. He may refuse to deliver such remainder of the goods till he paid for the goods already delivered and the goods yet to be delivered 5) The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of goods Right of stoppage in transit [Sections 46(1) (b) and 50 to 52] The right of stoppage in transit is a right of stopping the goods in transit after the unpaid seller has parted with the possession of the goods. He has the further right of resuming possession of the goods as long as they are in the course of transit, and retaining possession until payment or tender of the price. It is available to the unpaid seller 1) When the buyer becomes insolvent; and 2) When the goods are in transit The right of stoppage in transit is an extension of the right of lien, but it arises only on the insolvency of the buyer and when the goods are in transit. [Section 46(1) (b)] Duration of transit Transit is an intermediate stage. Goods are deemed to be in course of transit from the time they are delivered to a carrier or other bailee for
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the purpose of transmission to the buyer, until the buyer or his agent takes delivery of them from such carrier or bailee. The carrier may hold goods a) as sellers agent In this case, the seller has lien on goods and there is no question of stoppage in transit. b) as buyers agent In this case seller cannot exercise his right of stoppage in transit. c) as an independent capacity In this case seller can exercise the right of stoppage in transit. 3) Right to resale [Sections 46(1) (c) and 54] The unpaid seller can resell the goods 1) Where the goods are of a perishable nature; or 2) Where he gives notice to the buyer of his intention to resell the goods and the buyer does not within a reasonable time pay or tender the price. If on a resale, there is a loss to the seller (i.e. the difference between the contract price and the amount realized on resale of the goods.), he can claim it from the buyer as damages for breach of contract. If there is a surplus on the resale, he is not bound to hand it over to the buyer because the buyer cannot be allowed to take advantage of his own wrong. 4) Right of withholding delivery [Section 46(2)] Where the property in goods has not passed to the buyer, an unpaid seller has a right of withholding delivery. Right of an unpaid seller against the buyer personally These are the rights are as follows 1) Suit for price (Section 55) (a) Where property has passed - Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for the price of the goods [Section 55(1)] (b) Where property has not passed - Where under a contract of sale the price is payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price. It makes no difference even if the property in the goods has not passed and the goods have not been appropriated to the contract [Section 55(2)] 2) Suit for damages for non acceptance (Section 56) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for non acceptance. 3) Repudiation of contract before due date (Section 60) Where the buyer repudiates the contract before the date of delivery, the seller may either a) treat the contract as subsisting and wait till the date of delivery or b) he may treat the contract as rescinded and sue for damages for the breach. 4) Suit for interest [Section 61(2)(a)] - Where there is a specific agreement between the seller and the buyer as to interest on the price of the goods from the date on which payment, becomes due, the seller may recover interest from the buyer. If however there is no specific agreement to this effect, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer. AUCTION SALE A sale by auction is a public sale where different intending buyers try to outbid each other. The goods are ultimately sold to the highest bidder. The auctioneer who sales the goods by auction is an agent of the seller. The law on auction sale
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is contained in Section 64 of the Sale of Goods Act. According to it, in the case of a sale by auction the following rules apply 1) Where the goods are put up by sale in lots, each lot is subject to a separate contract of sale. 2) The sale is complete when the auctioneer announces its completion by the fall of hammer or some other customary manner. If before the fall of the hammer any bidder retracts its bid, the security amount may not be forfeited. 3) The right to bid may be reserved expressly by or on behalf of seller. Where such right is expressly reserved, the seller or any person on his behalf may bid at the auction. 4) The seller may specify certain reserve price or upset price. It is the price below which the auctioneer will not sell. 5) If the seller makes the use of pretended bidding to raise the price, the sale is voidable at the option of the buyer. 6) Where a group of persons agree not to compete against each other and any one of them will bid and they all share the proceed, then it is called Knock out and it is not illegal. But if it is to defraud a third party then it is illegal.

THE INDIAN PARTNERSHIP ACT 1932

Definition of Partnership 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 (Section 4, para 1). Persons who have entered into partnership with one another are called individually partners and collectively a firm (Section 4 para 2) If we analyse the definition of partnership, the following essential characteristics stand out 1) Association of two or more persons There should be at least two competent persons to form a partnership. As regards the maximum number of partners in a firm, Sec. 11 of the Companies Act, 1956 provides that the number of partners in a firm carrying on banking business should not exceed ten and in any other business twenty. 2) Agreement The partnership relation is one of contractual nature. It arises from contract and not from status (Sec. 5, para 1), agreement between the partners is the basis of this contract. The agreement may be express (i.e. oral or written) or implied. Implied agreement may be inferred from the course of dealing or the conduct of the parties. The agreement may be for affixed period, or for the execution of a particular adventure, or it may give option to the partners to withdraw from the partnership at any time. 3) Business A partnership can be formed only for the purpose of carrying on some business. Business includes every trade, occupation and profession. 4) Sharing of profits The object of partnership must be to make profit. Profit means net profit i.e. excess of returns over outlays, the excess of what is obtained over the cost of obtaining it. Profit must be distributed among the partners in an agreed ratio. If any person claiming to be a partner is deprived of his right to share in the profits of the business, he is not a partner as his carrying on the business is not for profits of partnership, but a person may share profits of the firm still he may not be a partner. 5) Mutual agency The business of partnership may be carried on by all the partners or any of them acting for all. A partner is both an agent (in the sense that he can bind by his acts the other partners) and the principal (in the sense that he can be bound by the acts of the other partners.) Formation of Partnership A Partnership is based on an agreement. The partnership agreement may be made orally or in writing or may be implied from the course of dealing among
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the partners. However, all the essential elements of a valid contract must be present. There must be free and genuine consent of the parties who must be competent to contract. The object of the partnership should be lawful and other legal formalities should be complied with. But the following two points should be noted in this connection 1) Minor Partner A minor may be admitted to the benefits of partnership with the consent of all the other partners. 2) Consideration As no consideration is required to create an agency (Sec.185 of the Indian Contract Act, 1872), no consideration is required to create partnership which is an extension of the law of agency. Partnership Deed The agreement creating partnership may be express (i.e. oral or written) or implied, and the latter may be inferred from the conduct or the course of dealing of the parties or from the circumstances of the case. However, it is in the interest of the partners that the agreement must be in writing. The document which contains this agreement is called partnership deed. It usually contains provision relating to the nature and the principal place of business, the name of the firm, the names and addresses of the partners, the duration of the firm, profit sharing ratio, interest and capital and drawings, valuation of goodwill on the death or retirement of a partner, management, accounts, arbitration etc. The deed must be duly stamped as required by the Indian Stamp Act, 1889. Rights of Partner 1) Right to take part in business The partnership agreement usually provides the mode of the conduct of the business. Subject to any such agreement between the partners, every partner has a right to take part in the conduct of the business [Sec.12 (a)] This is based on the general principle that partnership business is the common business of all the partners. 2) Right to be consulted - Every partner has an inherent right to be consulted in all matters affecting the business of the partnership and express his views before any decision is taken by the partners. 3) Right of access to accounts - Subject to contract between the partners, every partner has a right to have access to and inspect and copy any of the books of the firm. A minor partner may have access to and inspect any of the accounts of the firm but not books. 4) Right to share in profits - In the absence of any agreement, the partners are entitled to share equally in the profits earned and are liable to contribute equally to the losses sustained by the firm. 5) Right to interest on capital - The partnership agreement may contain a clause as to the right of the partners to claim interest on capital at a certain rate. Such interest, subject to contract between the partners, is payable only out of profits, if any, earned by the firm. 6) Right to interest on advances - Where a partner makes, for the purposes of the business of the firm, any advance beyond the amount of capital, he is entitled to interest on such advance at the rate of six per cent per annum. Such interest is not only payable out of the profits of the business but also out of the assets of the firm. 7) Right to be indemnified - A partner has authority, in an emergency, to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence, in his own case, acting under similar circumstance. Such acts of the partner bind the firm. If as a consequence of any such act, the partner incurs any liability or makes any payment, he has a right be indemnified.
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8) Right to the use of partnership property - Subject to contract between the partners, the property of the firm must be held and used by the partners exclusively for the purposes of the business of the firm. No partner has a right to treat it as his individual property. If a partner uses the property of the firm directly or indirectly for his private purpose, he must account to the firm for the profits which he may have earned by the use of that property. 9) Right to partner as agent of the firm - Every partner for the purposes of the business of the firm is the agent of the firm and subject to the provisions of the Indian Partnership Act, the act of a partner which is done in the usual way, binds the firm 10) No new partner to be introduced - Every partner has a right to prevent the introduction of a new partner unless he consents to that or unless there is an express term in the contract permitting such introduction. This is because partnership is founded on mutual trust and confidence. 11) No liability before joining - A person who is introduced as a partner into a firm is not liable for any act of the firm done before he became a partner 12) Right to retire - A partner has a right to retire (a) with the consent of all the other partners, or (b) in accordance with an express agreement between the partners, or (c) where the partnership is at will, by giving notice to all the other partners of his intention to retire 13) Right not to be expelled - A partner has a right not to be expelled from the firm by any majority of the partners. 14) Right to outgoing partner to share in the subsequent profits - Where a partner has died, or has ceased to be a partner by retirement, expulsion, insolvency, or any other cause, the surviving or continuing partners may carry on the business with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate. In such a case, legal representative of the deceased partner, in the absence of a contract to the contrary is entitled, at his option, to (a) such share of the profits as is proportionate to his share in the property of the firm, or (b) interest at the rate of 6 per cent per annum on the amount of his share in the property of the firm (Sec. 37) Duties of a partner The partners must act with utmost good faith as the very basis of partnership is mutual trust and confidence. According to Sec. 9, which deals with the general duties of partners, partners are bound a) to carry on the business of the firm to the greatest common advantage. b) to be just and faithful to each other, and c) to render true accounts and full information of all things affecting the firm to any partner or his legal representative. The other duties are spread over the Partnership Act. These duties are summed up as under 1) To carry on business to the greatest common advantage - Every partner is bound to carry on the business of the firm to the greatest common advantage. He is bound, in all transactions affecting the partnership, to do his best in the common interest of the firm. 2) To observe faith - Every partner must be just and faithful and observe utmost goods faith towards every other partner of the firm. Good faith requires that he shall not obtain a private advantage at the expense of
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the firm. He is bound in all transactions affecting the partnership, to do his best in the common interest of the firm. 3) To indemnify for fraud - Every partner is bound to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. This is an absolute duty of a partner and no partner can contract himself out of it. The innocent partners of the firm are however, liable to third parties for the fraud of any of the partners. But they can proceed to claim damages against the partner who has committed the fraud. 4) To attend diligently - Subject to contract between the partners, it is the duty of every partner to attend diligently to his duties in the conduct of the business of the firm and to use his knowledge and skill to the common advantage of all the partners. 5) Not to claim remuneration - A partner is not entitled to receive any remuneration in any form for taking part in the conduct of the business of the firm. It is however, usual to allow some remuneration to the working partners provided there is a specific agreement to that effect 6) To share losses. It is the duty of every partner to contribute to the losses of the firm. In the absence of an agreement to the contrary, the partners are bound to contribute equally to the losses sustained by the firm 7) To indemnify for willful neglect. Every partner is, subject to contract between the partners, bound to indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. 8) To hold and use property of the firm exclusively for the firm. It is the duty of every partner of the firm to hold and use the property of the firm exclusively for the purposes of the business of the firm. 9) To account for personal profits. If a partner derives any benefit, without the consent of the other partners, from partnership transactions (or from any use by him of the partnership property, name or business connection) he must account for it and pay it to the firm. 10) To account for profits in competing business. A partner must not carry on any business of the same nature as competing with that of the firm. If he does that, he is bound to account for and pay to the firm all profits made by him in that business. 11) To act within authority. Every partner is bound to act within the scope of his actual or implied authority. Where he exceeds the authority conferred on him and the firm suffers a loss, he shall have to compensate the firm for any such loss. 12) To be liable jointly and severally. Every partner is liable, jointly with all the other partners and also severally, for all the acts of the firm done while he is a partner. 13) Not to assign his rights. A partner cannot assign his rights and interest in the firm to an outsider so as to make him the partner of the firm. He can, however, assign his share of the profit and his share in the assets of the firm. Types of Partners Actual or ostensible partner A person who becomes a partner by an agreement and is actively engaged in the conduct of the business of the
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partnership is known as an actual partner. He is the agent of the other partners in the ordinary course of the business of the firm. Sleeping or dormant partner A sleeping partner is one who does not take an active part in the conduct of the business of the firm. He, like other partners, invests capital and shares in the profits of the business. He is equally liable along with other partners for all the debts of the firm. Nominal partner A partner who lends his name to the firm, without having any real interest in it is called a nominal partner. He does not invest in the business of the firm, nor does he share in the profits or take part in the management of the business of the firm. But he, along with other partners, is liable to the outsiders for all the debts of the firm. Partner in profits only Sometimes partners may agree that a partner shall get a share of the profits only and that he shall not be liable to contribute towards the losses. Such a partner is known as a partner in profits only. Sub-partner When a partner agrees to share his profits derived from the firm with a third person, that third person is known as a sub-partner. A sub partner is in no way connected with the firm and cannot represent himself as a partner of the firm. Partner by estoppel or holding out Sometimes a person who is not a partner in a firm may under certain circumstances, be liable for its debts as if he were a partner. Such a partner is called a partner by estoppel or holding out. Minor partner According to Sec. 11 of the Indian Contract Act, an agreement by or with a minor is void. As such, he is incapable of entering into a contract of partnership. But with the consent of all the partners for the time being, a minor may be admitted to the benefits of partnership. It should, however, be noted that a new partnership cannot be formed with a minor partner. Also, there cannot be partnership of minors among themselves as they are incapable of entering into a contract. Duration of Partnership The partners may, at the time when they enter into partnership agreement, fix the duration of the partnership or may say nothing about it. In the former case, the partnership is called a partnership for a fixed term, and in the later case, a partnership at will. Sometimes, a partnership is formed for the purpose of carrying on a particular adventure or undertaking. In such a case, it is called a particular partnership. Partnership for a fixed term In this case, the partnership is entered into for a fixed period of time. When the fixed period is over, it comes to an end. The partners may, however, continue to carry on the business after the expiry of the fixed period. In such a case the mutual rights and duties of partners remain the same as they were before the expiry of fixed period and the partnership becomes partnership at will. [Sec. 17 (b)] Partnership at will Where no provision is made by contract between the partners for the duration of the partnership or for the determination of the partnership, the partnership is partnership at will (Sec. 7) It partners of his intention to dissolve the firm. When such a notice is given, the firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice. Particular partnership When a person becomes a partner with another person or persons in a particular adventure or undertaking, such a partnership is knows as particular partnership (Sec. 8). It comes to an end as soon as that adventure is completed.
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Dissolution of Firm Dissolution without the order of the court 1) Dissolution by agreement A firm may be dissolved with the consent of all the partners or in accordance with a contract between them. The contract for dissolution of the firm may be express or implied. 2) Compulsory dissolution A firm is compulsorily dissolved by a) the adjudication of all the partners or all the partners but one as insolvent. The partner on being adjudicated insolvent ceases to be a partner on the date on which the order of adjudication is made. The firm can no longer exist, for there must be at least two partners to constitute a firm. b) Happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership. 3) Dissolution on the happening of certain contingencies Subject to contract between partners, a firm is dissolved by a) The expiry of the term for which firm is constituted. b) The completion of the particular adventure if the firm is constituted for it. c) The death of the partner. d) The adjudication of the partner as insolvent. 4) Dissolution by notice of partnership at will Dissolution with order of the court 1) Insanity Where a partner has become of unsound mind, the court may dissolve the firm on the petition of any of the other partners or by the next friend of the insane partner.

The Negotiable Instruments Act, 1881 Definition of Negotiable Instrument A negotiable instrument is a method of transferring a debt from one person to another. The term negotiable instrument as such is not defined in the
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Negotiable Instruments Act, Sec.13, however, says that a negotiable instrument means a promissory note, bills of exchange or cheque payable either to order or to bearer. The definition, as it is, says that a negotiable instrument means and not means and includes. Therefore, any other instrument which satisfies the conditions of negotiability can be added to the list of negotiable instruments. According to Thomas, a negotiable instrument is one which is, by a legally recognized custom of trade or by law, a) transferable by delivery or by endorsement and delivery. b) without notice to the party liable, in such a way that the holder of it for the time being may sue upon it in his own name, and c) the property in it passes to a bona fide transferee for value free from equities and free from any defect in the title of the person from whom he obtained it. This means that a person taking an instrument (1) bona fide, and (2) for value, known as a holder in due course, gets a good title even though the title of the transferor may be defective. A rough and ready test of negotiability in case of bearer instruments is : Can a good title by acquired through a thief ? If yes, the instrument is negotiable. Characteristics of a negotiable instrument The characteristics of a negotiable instrument are as follows 1) Freely transferable The property in a negotiable instrument passes from one person to another by delivery, if the instrument is payable to bearer, and by endorsement and delivery if it is payable to order. 2) Title of holder free from all defects A person taking an instrument bona fide and for value, known as a holder in due course, gets the instrument free from all defects in the title of the transferor. He is not in any way affected by any defect in the title of the transferor or of any prior party. 3) Recovery The holder in due course can sue upon a negotiable instrument in his own name for the recovery of the amount. Further he need not give notice of transfer to the party liable on the instrument to pay. 4) Presumptions Certain presumptions apply to all negotiable instruments unless contrary is proved. These presumptions are dealt with in Secs. 118 and 119 and are as follows a) Consideration Every negotiable instrument is presumed to have been made, dawn, accepted, endorsed, negotiated or transferred for consideration. b) Date Every negotiable instrument bearing a date is presumed to have been made or drawn on such date. c) Time of acceptance When a bill of exchange has been accepted, it is presumed that it was accepted within a reasonable time of its date and before its maturity. d) Time of transfer Every transfer of a negotiable instrument is presumed to have been made before its maturity. e) Order of endorsements The endorsements appearing upon a negotiable instrument are presumed to have been made in the order in which they appear thereon. f) Stamp When an instrument has been lost, it is presumed that it was duly stamped. g) Holder presumed to be a holder in due course Every holder of a negotiable instrument is presumed to be a holder in due course. h) Proof of protest In a suit upon an instrument which has been dishonoured, the Court, on proof of the protest, presumes the fact of dishonour, until such fact is disproved. The above presumptions are rebuttable by evidence. If anyone challenges any of these presumptions, he has to prove his allegation. Again, these presumptions would not arise where an instrument has been obtained by any offence, fraud or unlawful consideration. Types of Negotiable Instruments
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Negotiable instruments may be 1) Negotiable by Statue, or 2) Negotiable by custom or usage 1) Instruments negotiable by Statute The Negotiable Instruments Act mention only three kinds of negotiable instruments (Sec.13). These are promissory notes, bill of exchange and cheques. These instruments are negotiable by Statute. 2) Instruments negotiable by custom or usage There are certain other instruments which have acquired the character of negotiability by the usage or custom of trade. In England, for example, the following instruments have been held to be negotiable by custom, viz, exchequer bills, bank notes, share warrants, circular notes, bearer debentures, dividend warrants, share certificates with blank transfer deed etc. The list of negotiable instruments thus appears to be flexible and inclusive. Holder and Holder in Due Course Holder (Sec.8) The Holder of a promissory note, bill of exchange or cheque means any person entitled in his own name (i) to the possession thereof, and (ii) to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction. In order to be entitled to the instrument in his own name, the holder must be named therein as the payee or the endorsee in case the instrument is payable to order, or he must be the bearer thereof in case the instrument is payable to bearer. Where a person obtains possession of an instrument by theft or under a forged endorsement, he is not a holder, as he cannot obtain or recover the payment of the instrument. But where a person (e.g. the heir of a deceased holder) in the absence of a holder can give a valid discharge to the make or acceptor of the instrument, he acquires the status of a holder and can sue on the instrument to recover the amount due thereon.

Holder in due course (Sec.9) Any person is a holder in due course if he fulfils the following conditions : 1) That, for consideration, he became (i) the processor of the negotiable instrument if payable to bearer, or (ii) the payee or endorsee thereof, if payable to order. 2) That he became the holder of the instrument before its maturity. 3) That he became the holder of the instrument in good faith, i.e. without sufficient cause to believe that any infirmity in the instrument or defect existed in the title of the person from whom he derived his title. Thus, if a holder acquires an instrument knowing that there is something wrong with it or if he willfully or fraudulently abstains from inquiry or if he deliberately ignores the truth, he is not taking it in good faith. A holder of a negotiable instrument will not be a holder in due course if (1) he has obtained the instrument by gift or for an unlawful consideration or by some illegal method; or (2) he has obtained the instrument after its maturity; or
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(3)

he has not obtained the instrument bona fide.

Privileges of a holder in due course A holder in due course gets title to a negotiable instrument free from equities. The special privileges of a holder in due course are as follows 1) Fictitious payee Where a bill is drawn payable to the drawers order in a fictitious name (i.e. where the drawer is fictitious person) and is indorsed in the same hand as the drawers signature, the acceptor is not relieved from liability to any holder in due course, on the plea that the drawer is fictitious.This is simple words, means that the acceptor of a bill cannot say, as against the holder in due course, that the other parties to the bill were fictitious. 2) Negotiable instrument without consideration When a negotiable instrument is made, drawn, accepted or transferred without consideration, it creates no obligation of payment between the parties to the transaction. An agreement made without consideration is void. But if the negotiable instrument gets into the hands of a holder in due course, he can recover the amount on it from any of the prior parties thereto. The plea of absence of consideration cannot be raised against a holder in due course or against any subsequent holder deriving title from him. 3) Conditional delivery If a bill or note is negotiated to a holder in due course, the other parties to the instrument cannot avoid liability on the ground that the delivery of the instrument was conditional or for a special purpose only 4) Instrument cleansed of all defects Once a negotiable instrument passes through the hands of a holder in due course, it gets cleansed of its defects provided the holder was himself not a party to the fraud or illegality which affected the instrument in some stage of its journey. Thus any defect in the title of the transferor will not affect the rights of the holder in due course even if he had knowledge of the prior defect provided he himself is not a party to the fraud (Sec.53) 5) Instrument obtained by unlawful means or for unlawful consideration The person liable to pay on a negotiable instrument cannot, as against a holder in due course, contend that he had lost it, or that it was obtained from by means of an offence or fraud or for an unlawful consideration. 6) Every holder is a holder in due course The law presumes that every holder is a holder in due course. 7) Estoppel against denying original validity of instrument The marker of a promissory note, the drawer of a bill of exchange or cheque and the acceptor of a bill of exchange cannot, in a suit thereon by a holder in due course, deny the validity of the instrument as originally made or drawn. 8) Estoppel against denying capacity of payee to indorse The maker of a promissory note and acceptor of a bill of exchange payable to order cannot, in a suit thereon by a holder in due course, deny the payees capacity at the date of the note or bill, to indorse the same. 9) Indorser not permitted to deny the capacity of prior parties The indorser of a negotiable instrument cannot in a suit thereon by a subsequent holder, deny the signature or capacity to contract of any prior party to the instrument. Crossing of Cheques There are two types of cheques, open cheques and crossed cheques, A cheque which is payable in cash across the counter of a blank is called an open cheque. When such a cheque is in circulation, a great risk attends it, if its holder loses it, its finder may go to the bank and get payment unless its payment has already been stopped. It was to prevent the losses incurred by open cheques getting into the hands of wrong persons that the custom of crossing was introduced.

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A crossed cheque is one on which two parallel transverse lines with or without the words & Co. are drawn. The payment of such a cheque can be obtained only through a banker. Thus crossing is a direction to the drawee banker to pay the amount of money on a crossed cheque generally to a banker or a particular banker so that the party who obtains the payment of the cheque can be easily traced. The crossing compels the holder to present the cheque through a quarter of known respectability and credit and affords security and protection to the owner of the cheque, as the cheque is payable only through a banker. Types of Crossing There are two types of crossing, viz; (1) general crossing and (2) special crossing Another type of crossing known as restrictive crossing has developed out of business usage. 1) General crossing A cheque is said to be crossed generally where it bears across its face an addition of i) the words and company or any abbreviation thereof, between two parallel transverse lines, either with or without the words not negotiable; or ii) two parallel transverse lines simply, either with or without the words not negotiable (Sec.123) Where a cheque is crossed generally, the drawee banker shall not pay it unless it is presented by a banker (Sec.126, para 1) 2) Special crossing Where a cheque bears across its face an addition of the name of a banker, either with or without the words not negotiable the cheque is deemed to be crossed specially (Sec.124) Transverse lines are not necessary in case of a special crossing. The payment of a specially crossed cheque can be obtained only through the particular banker whose name appears across the face of the cheque or between the transverse lines, if any. Where a cheque is crossed specially the banker on whom it is drawn shall pay it only to the banker on whom it is crossed, or his agent for collection (Sec. 126, para 2) 3) Restrictive crossing In addition to the two statutory types of crossing discussed above, there is another type which has been adopted by commercial and banking usage. In the type of crossing the words A/c Payee are added to the general or special crossing. The words A/c Payee on a cheque are a direction to the collecting banker that the amount collected on the cheque is to be credited to the account of the payee. If he credits the proceeds to a different account, he is prima facie guilty of negligence and will be liable to the true owner for the amount of the cheque. It should however be noted that A/c Payee cheques are negotiable [British Bank of Middle East v. Almal Bros., 66 CWN 285] 4) Not negotiable crossing (Sec.130) The effect of the words not negotiable on a crossed cheque is that the title of the transferee of such a cheque cannot be better than that of its transferor. The addition of the words not negotiable does not restrict the further transferability of the cheque. It only takes away the main feature of negotiability, which is, that a holder with a defective title can give a good title to a subsequent holder in the due course. Anyone who takes a cheque marked not negotiable takes it at his own risk. The object of crossing a cheque not negotiable is to afford protection to the drawer or holder of the cheque against miscarriage or dishonesty in the course of transit by making it difficult to get the cheque so crossed cashed, until it reaches its destination.

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Dishonour of a Negotiable Instrument A bill may be dishonoured by non acceptance (since only bills require acceptance) or by non payment. A promissory note and a cheque are dishonoured, the holder must give a notice of dishonour to all the prior parties in order to make them liable on the instrument. Dishonour by non acceptance (Sec.91) A bill of exchange is dishonoured by non acceptance in any one of the following ways 1) If the drawee does not accept the bill within forty eight hours from the time of presentment though it is duly presented for acceptance; 2) If there are several drawees (who are not partners) and all of them doe not accept; 3) When presentment for acceptance is excused, and the bill is not accepted; 4) When the drawee is incompetent to contract; 5) When the drawee gives a qualified acceptance; 6) When the drawee is a fictitious person or after reasonable search cannot be found. Dishonour by non payment (Sec.92) A promissory note, bill of exchange or cheque is said to be dishonoured by non payment when the marker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same. Notice of Dishonour When a negotiable instrument is dishonoured either by non acceptance or by non payment, the holder of the instrument must give a notice of dishonour to all the prior parties whom he wants to make liable on the instrument. If he does not give this notice, except in cases when notice of dishonour may be excused, all the prior parties liable thereon are discharged of their liability (Sec.93) Object of notice of dishonour The object of notice of dishonour is to inform the party liable on the instrument about the liability which accrues as a result of the dishonour of the instrument. The notice is necessary whatever the nature of the instrument, i.e. whether it is payable at sight or on demand or whether it is an accommodation bill. If the holder neglects to give such notice within a reasonable time from the date of dishonour, all the prior parties liable on the instrument and entitled to notice are discharged. Notice by whom 1) Notice by holder or any prior party Notice of dishonour may be given by the holder or any of the parties liable on the instrument (Sec.93)
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2) Chain method of giving notice of dishonour A party receiving notice of dishonour must, in order to render any prior party liable to himself, give notice of dishonour to such party within a reasonable time. 3) Notice by principal or agent If an instrument deposited with an agent for presentment is dishonoured, the notice of dishonour may be given either by the agent or by the principal himself. The agent may give notice to his principal within a reasonable time, and the principal may give notice within a reasonable time to the parties sought to be held liable (Sec.96) Notice to whom 1) Notice to all parties whom the holder seeks to make liable. Notice of dishonour must be given to all the parties whom the holder seeks to make liable. Notice of dishonour need not be given to the acceptor of a bill of exchange or the maker of the promissory note or the drawee of a cheque (Sec.93), because they are the parties primarily liable upon the instrument. It is they who dishonour the instrument by non acceptance or non payment, and notice to them will merely be notice of a fact already known to them. 2) Notice to party or his agent, or to legal representative or assignee. Notice of dishonour may be given to the party liable or his duly authorized agent, or where he has died, to his legal representative, or where he has been declared insolvent, to his assignee (Sec.94). When the party to whom notice of dishonour is dispatched is dead, but the party dispatching the notice is ignorant of his death, the notice is sufficient. (Sec. 97) Form of notice 1) The notice of dishonour may be oral or written. If it is written, it may be sent by post. If it is duly directed and sent by post, it would be a good notice even though it is miscarried. 2) It may be in any form but it must clearly indicate that the instrument has been dishonoured and that the party to whom it is being given will be liable on the instrument. 3) It must be given within a reasonable time at the place of business or (in case such party has no place of business) at the residence of the party for whom it is intended. In determining what is reasonable time for giving notice of dishonour, regard must be had to the nature of the instrument and the usual course of dealing with respect to similar instruments. In calculating such time, public holidays shall be excluded Rules of giving notice of dishonour (Sec. 106) If the holder and the party entitled to notice of dishonour carry on business or live (as the case my be) in different cities, the notice must be dispatched by the next post or on the day next after the day of dishonour. If these parties carry on business or live in the same place, the notice must be dispatched in time to reach its destination on the day next after the day of dishonour. When the notice of dishonour is not necessary (Sec.98) No notice of dishonour is necessary a) when it is dispensed with by the party entitled thereto; b) to charge the drawee, when he has countermanded payment; c) when the party charged could not suffer damage for want to notice; d) when the party entitled to notice cannot after due search be found, or the party bound to give notice is, for any other reason, unable without any fault of his own to give it; e) to charge the drawer when the acceptor is also the drawer;
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f) in the case of promissory note which is not negotiable; and g) when the party entitled to notice, knowing the facts, promises unconditionally to pay the amount due to the instrument. Duties of the holder upon dishonour 1) Notice of dishonour When a promissory note, bill of exchange or cheque is dishonoured by non acceptance or non payment, the holder must be give notice of dishonoured to all the parties to the instrument whom he seeks to make liable thereon 2) Noting and protesting When a promissory note or bill of exchange is dishonoured by non acceptance or non payment, the holder may cause such dishonour to be noted by a Notary Public upon the instrument. The holder may also, within a reasonable time of the dishonour of the note or bill, get instrument protested by the Notary Public 3) Suit of money After the formality of noting and protesting is gone through, the holder may bring a suit against the parties liable on the instrument for the recovery of the amount due. DISCHARGE OF INSTRUMENT The different modes of discharge of an instrument are as follows 1) By payment in due course This is the most obvious and the usual mode of discharge of an instrument and of the parties to it. The instrument is discharged by payment made in due course by the party who is primarily liable to pay (i.e. the market or the acceptor) or by a person who is accommodated in case the instrument was made or accepted for his accommodation. The payment of the amount due on the instrument must be made at or after the maturity to the holder of the instrument if the maker or acceptor is to be discharged. Payment of interest If a rate of interest is specified in the promissory note or bill of exchange, interest shall be calculated on the principal amount at the specified rate from the date of the instrument until tender or realization of the amount. 2) By party primarily liable becoming holder If the maker of a note or the acceptor of a bill becomes its holder at or after its maturity in his own right (i.e. he has an absolute title and does not hold it conditionally or as an agent), the instrument is discharged. 3) By express waiver When the holder of a negotiable instrument at or after its maturity absolutely and unconditionally renounces in writing or gives up his rights against all the parties to the instrument, the instrument is discharged. The renunciation must be in writing. 4) By cancellation Where an instrument is intentionally cancelled by the holder or his agent and the cancellation is apparent thereon, the instrument is discharged. Cancellation may take place by crossing out signatures on the instrument, or by physical destruction of the instrument with the intention of putting an end to the liability of the parties to the instrument. 5) By discharge as a simple contract A negotiable instrument may be discharged in the same way as any other contract for the payment of money. This includes, for example, discharge of an instrument by novation or rescission or by expiry of period of limitation. Discharge of Party or Parties A party or parties to a negotiable instrument is / are discharged in any one of the following ways 1) By payment When payment on an instrument is made in due course, both the instrument and the parties to it are discharged.
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2) By cancellation When the holder of a negotiable instrument or his agent cancels the name of the party on the instrument with intent to discharge him, such party and all subsequent parties, who have a right of recourse against the party whose name is cancelled, are discharged from liability to the holder. 3) By release Where the holder of a negotiable instrument release any party to the instrument by any method other than cancellation, the party so released is discharged from liability. 4) By allowing drawee more than forty eight hours If the holder of a bill of exchange allows the drawee more than forty eight hours exclusive of public holidays, to consider whether he will accept the same, all previous parties not consenting to such allowance are thereby discharged from liability to such holder. 5) By non presentment of cheque Where cheque is not presented by the holder for payment within a reasonable time of its issue and the drawer suffers actual damage through the delay because of the failure of the bank, he is discharged from liability to the extent of such damage. 6) Cheque payable to order Where a cheque payable to order purports to the indorsed by the payee, the banker is discharged by payment in due course. Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof. 7) Draft drawn by one branch on another Where any draft drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand indorsed by or on behalf of the payee, the bank is discharged by payment in due course. 8) By operation of law This includes discharge a) By an order of Insolvency Court, discharging the insolvent. b) When a judgement is obtained against the acceptor, maker or indorser, the debt under the bill is merged into judgement debt. c) By lapse of time i.e. when the remedy becomes time barred. 9) By material alternation A material alternation of a negotiable instrument renders the same void against persons who were parties thereto before such alteration unless they have consented to the alteration. 10) Discharge by payment of altered instrument When a promissory note, bill of exchange or cheque has been materially altered but does not appear to have been so altered, or where a cheque is presented for payment which does not at the time of presentation appear to be crossed, payment on such an instrument discharges the party liable if he pays according to the apparent tenor of the instrument (as altered) at the time of payment and otherwise in due course. Such a payment cannot be questioned even if it is proved that the instrument has been altered or that the cheque was originally crossed.

The Foreign Exchange Management Act, 1999 The Foreign Exchange Management Act (FEMA), 1999 has repealed the Foreign Exchange Regulation Act (FERA), 1973. The FEMA consolidates and amends the law relating to foreign exchange with the objective 1) of facilitating external trade and payments and
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2) for promoting the orderly development and maintenance of foreign exchange market in India. Definitions 1) Adjudicating Authority [Sec.2(a)] Adjudicating Authority means an officer authorized under Sec.16(1) 2) Appellate Tribunal [Sec. 2(b)] Appellate Tribunal means the Appellate Tribunal for Foreign Exchange established under Sec.18. 3) Authorized person [Sec.2 ] Authorised person means (a) an authorized dealer or (b) money change, off-shore banking unit, or (c) any other person for the time being authorized under Sec. 10(1) to deal in foreign exchange or foreign securities. 4) Capital account transaction [Sec.2(e)] It means (a) a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or (b) assets or liabilities in India of persons resident outside India. It also includes transactions referred to in Sec. 6(3) 5) Currency [Sec. 2(h)]. Currency includes all (a) currency notes, (b) postal notes, (c) postal orders, (d) money orders, (e) cheques, (f) travellers cheques, (g) letters of credit, (h) bills of exchange and promissory notes, and (i) credit cards. It also includes such other similar instruments as may be notified by the Reserve Bank. Currency notes [Sec. 2(i)] means and includes cash in the form of coins and bank notes. The Reserve Bank has notified debit cards, ATM cards or any other instrument by whatever name called that can be used to create a financial liability as currency. 6) Current account transaction [Sec. 2(f)] It means a transaction other than a capital account transaction. It includes i) payments due in connection with foreign trade, other current business, services, and short term banking and credit facilities in the ordinary course of business. ii) Payments due as interest on loans and as net income from investments iii) Remittances for living expenses of parents, spouse and children residing abroad, and iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children. 7) Export [2 (l)] Export with its grammatical variations and cognate expressions, means i) taking out of India to a place outside India any goods. ii) Provision of services from India to any person outside India. 8) Foreign exchange [Sec.2(m)] It means foreign currency and includes i) deposits, credits and balances payable in any foreign currency, expressed or drawn in Indian currency but payable in any foreign currency. ii) Drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency. iii) Drafts, trevellers cheques, letter of credit or bills of exchange drawn by banks, institutions or persons outside India but payable in Indian currency. 9) Import [Sec.2 (p)] Import with its grammatical variations and cognate expression, means bringing into India any goods or services. 10) Indian Currency [Sec. 2 (q)] It means currency which is expressed or drawn in Indian rupees. It does not include special bank notes and special one rupee notes issued under Sec. 28-A of the Reserve Bank of India Act, 1934. 11) Person resident in India [Sec. 2(v)] Person resident in India means i) a person residing in India for more than 182 days during the course of the preceding financial year but does not include A) a person who has gone out of India or who stays outside India, in either case (a) for or on taking up employment outside India, or
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(b) for carrying on outside India a business or vocation; (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; ii) any person or body corporate registered or incorporated in India, iii) an office, branch or agency in India owned or controlled by a person resident outside India. iv) an office, branch or agency outside India owned or controlled by a person resident in India. It is evident from the aforesaid provision that when an Indian citizen proceeds abroad for business visits or medical treatment or higher studies and for such other purposes as to stay with his or her spouse for an indefinite or uncertain period, he will be treated as a person resident in India during his temporary absence from India. 12)Person resident outside India [Sec. 2(w)]. Persons resident outside India means a person who is not a resident of India. 13)Transfer [Sec. 2(ze)] It includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title possession or lien. CONTRAVENTION AND PENALTIES (Chapter IV, Secs 13 to 15) Penalties (Sec. 13) Contravention The following contraventions by any person are liable to a penalty i.e. contravention of (a) any provision of this Act, or (b) any rule, regulation, notification, direction or order issued in exercise of the powers under this act, or (c) any condition subject to which an authorization is issued by the Reserve Bank. The penalty shall be levied upon adjudication (i.e. after hearing and determining judicially by the Adjudicating Authority) Amount of penalty Where the amount is quantifiable, the penalty can be up to thrice the sum involved in the contravention. Where the amount is not quantifiable, the penalty may be up to Rs.2,00,000. Where contravention is a continuing one, further penalty which may extend to Rs.5,000 may be levied for every day after the first day during which the contravention continues [Sec.13 (1)] Confiscation Further penalty. The Adjudicating Authority adjudging any contravention referred to above may, if he thinks fit, direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government. The confiscation is in addition to any penalty which the Adjudicating Authority may impose for such contravention. He may further direct that the foreign exchange holdings, If any, of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf. [Sec.13(2)] Property in respect of which contravention has taken place, shall include (a) deposits in a bank, where the said property is converted into such deposits, (b) Indian currency, where the said property is converted into that currency, and (c) any other property which has resulted out of the conversion of that property. Enforcement of the orders of Adjudicating Authority (Sec. 14) Civil imprisonment - If any person fails to make full payment of the penalty imposed on him within a period of 90 days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment. This is however, subject to his right to appeal.
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Notice No order for the arrest and detention in civil prison of a defaulter shall be made unless the Adjudicating authority has issued and served a notice upon the defaulter. The notice shall call upon him to appear before the Adjudicating Authority on the date specified in the notice. It shall also call upon him to show cause why he should not be committed to the civil prison, unless the Adjudicating Authority, for reasons in writing, is satisfied a) that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, concealed or removed any part of his property, or b) that the defaulter has, or has had since the issuing of notice by the Adjudicating Authority, refuses or neglects or has refused or neglected to pay the same. [Sec.14(2)]

Warrant for arrest A warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if he is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of its jurisdiction. The Adjudication Authority may also issue a warrant for the arrest of the defaulter, where appearance is not made pursuant to a notice issued and served. A warrant of arrest issued by the Adjudicating Authority may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found A person arrested in pursuance of a warrant of arrest shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within 24 hours of his arrest (exclusive of the time required for the journey). If the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him. Where the defaulter is a Hindu undivided family, the Karta thereof shall be deemed to be the defaulter Opportunity of showing cause When a defaulter appears before the Adjudicating Authority pursuant to notice to show cause or is brought before the Adjudicating Authority, he shall give the defaulter an opportunity of showing cause why he should not be committed to the civil prison. Release of defaulter Pending the conclusion of inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit. He may also release him on defaulters furnishing the security to the satisfaction of the Adjudicating Authority for his appearance as and when required. Order on conclusion of inquiry Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison. If he makes any such order, he shall cause the defaulter to be arrested if he is not already under arrest. Release of defaulter When the Adjudicating Authority does not make an order of detention referred to above, he shall, if the defaulter is under arrest, direct his release. Every person detained in the civil prison in execution of the certificate may be so detained a) where the certificate is for a demand of an amount exceeding Rs.1 crore, upto 3 years and b) in any other case, upto 6 months [Sec.14(1)] However, he shall be released from such detention on the amount mentioned in the warrant for his detention being paid to the officer in charge of the civil prison.
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A defaulter released from detention shall not, merely by reason of his release, be discharged from his liability for the arrears.

The Consumer Protection Act, 1986 The law relating to consumer protection is contained in the Consumer Protection Act, 1986. The Act applies to all goods and services. The Central Government may however by notification published in the Official Gazette exempt any goods or services [Sec.1] Objects of the Act The objects of the Act are as follows 1) Better protection of interests of consumers The Act seeks to provide for better protection of the interests of consumers. For that purpose, the Act makes provision for the establishment of Consumer Councils and other authorities for the settlement of consumer disputes and for matters connected therewith. 2) Protection of rights of consumers The Act seeks to promote and protect the rights of consumers such as right to be protected against marketing of goods and services which are hazardous to life and property, right to be informed about quality, quantity, price, standard, etc; right to be assured about competitive prices, right to be heard, right to seek redressal, right to consumer education. 3) Consumer Protection Councils The above objects are sought to be promoted and protected by the Consumer Protection Councils established at the Central and State levels. 4) Quasi judicial machinery for speedy redressal of consumer disputes The Act seeks to provide speedy and simple redressal to consumer disputes. For this purpose, there has been set up a quasi judicial machinery at the district, State and Central levels. These quasi judicial bodies are supposed to observe the principles of natural justice and are empowered (a) to give reliefs of a specific nature and (b) to award, wherever appropriate, compensation to consumer Penalties for non compliance of the orders given by the quasi judicial bodies have also been provided Definitions
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1) Complainant [Sec.2 (1) (b)] Complainant means i) a consumer; or ii) any voluntary consumer association registered under the Companies Act, 1956 or under any other law for the time being in force; or iii) the Central Government or any State Government, who or which makes a complaint; or iv) one or more consumers, where there are numerous consumers having the same interest. v) in case of death of a consumer, his legal heir or representative 2) Complaint [Sec.2(1) (c)] It means any allegation in writing made by a complainant with a view to obtaining any relief provided by or under this Act. The allegation in writing must be that i) an unfair trade practice or a restrictive trade practice has been adopted by any trader or service provider; ii) the goods bought by him or agreed to be bought by him suffer from one or more defects; iii) the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect; iv) a trader or the service provider, as the case may be, has charged for the goods or for the services mentioned in the complaint, a price in excess of the price a) fixed by or under any law for the time being in force b) displayed on the goods or any package containing such goods; c) displayed on the price list exhibited by him by or under any law for the time being in force; d) agreed between the parties v) goods which will be hazardous to life and safety when used are being offered for sale to the public a) in contravention of any standards relating to safety of such goods are required to be complied with, by or under any law for the time being in force; b) if the trader could have known with due diligence that the goods so offered are unsafe to the public vi) services which are hazardous or likely to be hazardous to life and safety of the public when used, are being offered by the service provider which such person could have known with due diligence to be injurious to life and safety 3) Consumer [Sec. 2 (1) (d)] Consumer means any person, who i) buys any goods for a consideration (a) which has been paid or promised or partly paid and partly promised, or (b) under any system of deferred payment. Consumer also includes any user of such goods other than the buyer himself. The use of such goods must however be for consideration paid or promised or partly promised, or under any system of deferred payment. The use of such goods must be made with the approval of the buyer. Consumer does not include a person who obtains goods for resale or for any commercial purpose. Commercial purpose does not include use by a person of goods bought and used by him and services availed by him exclusively for the purpose of earning his livehood by means of self employment. ii) Hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment. Consumer also includes any beneficiary of such services other than the person who hires or avails of such services. The
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beneficiary must however acquire the use of such services for under any system of deferred payment. Further such services must be availed of by the beneficiary with the approval of the hirer but does not include a person who avails of such services for any commercial purpose. 4) Consumer dispute [Sec.2(1)(e)] It means a dispute where the person against whom a complaint has been made, denies or disputes the allegations contained in the complaint. 5) Goods Forum [Sec. 2(1) (i)] It means goods as defined in the Sale of Goods Act, 1930. According to Sec. 2(7) of the Sale of Goods Act, 1930, goods means : Every kind of movable property other than actionable claims and money, and includes stocks and shares, growing crops, grass and things attached to or forming part of land which are agreed to be severed before sale or under the contract of sale. 6) Service [Sec.2 (1) (o)] It means service of any description which is made available to potential users. It includes provision of facilities in connection with (a) banking, (b) financing, (c) insurance (d) transport, (e) processing, (f) supply of electrical or other energy, (g) board or lodging or both, (h) house construction, (i) entertainment, amusement or other purveying of news or other information. The expression Service includes in its scope provision or facility in connection with telephone provided by Telecommunication Department and houses and plots by the Housing & Development Board. Service however does not include the rendering of any service free of charge or under a contract of personal service. Consumer Disputes Redressal Agencies (Chapter III, Secs. 9 to 27) There shall be established for the purpose of this Act, the following agencies, namely a) a Consumer Disputes Redressal Forum to be known as the District Forum established by the State Government in each district of the State by notification. The State Government may, if it deems fit, establish more than one District Forum in a district. b) a Consumer Disputes Redressal Commission to be known as the State Commission established by the State Government in the State by notification; and c) a National Consumer Disputes Redressal Commission established by the Central Government by notification. The District Forum (Secs.10 to 15) Composition (Sec.10) Each District Forum shall consist of a) a person who is, or has been, or is qualified to be a District Judge, who shall be its President; b) 2 other members, one of whom shall be a woman, who shall have the following qualifications, namely i) be not less than 35 years of age, ii) possess a bachelors degree from a recognized university, iii) be persons of ability, integrity and standing, and have adequate knowledge and experience of at least 10 years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration. Every appointment shall be made by the State Government on the recommendation of a selection committee consisting of the following namely i) President of the State Commission Chairman ii) Secretary, Law Department of the State Member
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iii) Secretary incharge of the Department dealing with consumer affairs in the State Member Term of Office Every member of the District Forum shall hold office for a term of 5 years or up to the age of 65 years, whichever is earlier. However, a member shall be eligible for re-appointment for another term of 5 years or upto the age of 65 years, whichever is earlier, subject to the condition that he fulfils the qualifications and other conditions for appointment and such re-appointment is also made on the basis of the recommendation of the Selection Committee. Resignation A member may resign his office in writing under his hand addressed to the State Government. On such resignation being accepted, his office shall become vacant. The vacancy so caused may be filled by appointment of a person possessing the qualifications mentioned above in relation to the category of the member who has resigned. Salary and terms & conditions of service The salary of honorarium and other allowances payable to and other terms and conditions of service of the members of the District Forum shall be prescribed by the State Government. Jurisdiction (Sec.11) - The District Forum shall have jurisdiction to entertain complaints where the value of the goods and services and the compensation, if any, claimed does not exceed Rs.20,00,000. This is however subject to other provisions of this Act. A complaint shall be instituted in a District Forum within the local limits of whose jurisdiction a) the opposite party (i.e. the person who answers complaint or claim) or each of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides or carries on business or has a branch office, or personally works for gain, or b) any of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides, or carries on business or has a branch office, or personally works for gain. c) the cause of action, wholly or in part, arises. CONSUMER DISPUTES REDRESSAL COMMISSION Secs. 16 to 19) COMMISSION (THE STATE

Composition [Sec.16 as amended by the Consumer Protection (Amendment) Act, 2002] Each State Commission shall consist of a) a person who is or has been a Judge of High Court, appointed by the State Government, who shall be its President. However, no appointment under this Clause shall be made expect after consultation with Chief Justice of the High Court ; b) 2 other members, one of whom shall be a woman, who shall have the following qualifications, namely i) be not less than 35 years of age; ii) possess a bachelors degree from a recognized university; and iii) be person of ability, integrity and standing and have adequate knowledge and experience of at least 10 years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration. However, not more than 50 per cent of the members shall be from amongst persons having a judicial background.

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Every appointment under Sec. 16 shall be made by the State Government on the recommendation of a Selection Committee consisting of the following members, namely i) President of the State Commission Chairman ii) Secretary of the Law Department of the State Member iii) Secretary in charge of the Department dealing with Consumer Affairs in the State Member Every member of the State Commission shall hold office for a term of 5 years or upto the age of 67 years, whichever is earlier. A member shall however be eligible for re-appointment for another term of 5 years or upto the age of 67 years, whichever is earlier, subject to the condition that he fulfils the qualifications and other conditions for appointment is made on the basis of the recommendation of the Selection Committee. Jurisdiction [Sec.17(1)] The State Commission shall have jurisdiction a) to entertain i) complaints where the value of the goods or services and compensation, if any, claimed exceeds Rs.20 lakhs but does not exceed Rs. One crore; and ii) appeals against the orders of any District Forum within the State; and b) to call for the records and pass appropriate orders in any consumer dispute which is pending before or has been decided by any District Forum A complaint shall be instituted in a State Commission within the limits or whose jurisdiction . As it is . NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION (NATIONAL COMMISION Sec.20 to 23) Composition [Sec.20 as amended by the Consumer Protection (Amendment) Act, 2002] The National Commission shall consist of a) a person who is or has been a Judge of the Supreme Court, to be appointed by the Central Government, who shall be its President. However, no appointment under this Clause shall be made except after consultation with the Chief Justice of India : b) 4 other members, one of whom shall be a woman, who shall have the following qualifications, namely i) be not less that 35 years of age; ii) possess a bachelors degree from a recognized university; and iii) be persons of ability, integrity and standing and have adequate knowledge and experience of at least 10 years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration; However, not more than 50 per cent of the members shall be from amongst the persons having a judicial background. Every member of the National Commission shall hold office for a term of 5 years or up to the age of 70 years, whichever is earlier. However, a member shall be eligible for re-appointment for another term of 5 years or up to the age 70 years, whichever is earlier, subject to the condition that he fulfils the qualifications and other conditions for appointment and such re-appointment is made on the basis of the recommendation of the Selection Committee : The salary or honorarium and other allowances payable to and the terms and conditions of service of the members of the National Commission shall be prescribed by the Central Government.
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Place of the National Commission The office of the National Commission shall be located in the Union Territory of Delhi (Rule 5 of the Consumer Protection Rules, 1957) Jurisdiction (Sec.21) Subject to the other provisions of this Act, the National Commission shall have jurisdiction 1) to entertain (i) complaints where the value of the goods or services and compensation, if any, claimed exceeds one crores and (ii) appeals against the orders of any State Commission; and 2) to call for the records and pass appropriate orders in any consumer dispute which is pending before or has been decided by any State Commission

Rights of the buyer 1) Right to have delivery as per contracts - The first right of the buyer is to have delivery of the goods as per contract. 2) Right to reject the goods - If the seller sends to the buyer a larger or smaller quantity of goods than he ordered, the buyer may a) reject the whole, b) accept the whole or c) accept the quantity he ordered and reject the rest. 3) Right to repudiate - Unless otherwise agreed, the buyer of goods has a right not to accept delivery thereof by installments. 4) Right to notice of insurance - Unless otherwise agreed, where goods are sent by the seller to the buyer by a sea route, the buyer has a right to be informed by the seller so that he may get the goods insured. 5) Right to examine - The buyer has a right to examine the goods which he has not previously examined before he accepts them. The seller is bound to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. 6) Right against the seller for breach of contract. 1) Suit for damages Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non delivery. The measure of damages is, prima facie, the difference between the contract price and the market price at the time when they ought to have been delivered, or if no time was fixed at the time of refusal to deliver. 2) Suit for price If the buyer has paid the price and the goods are not delivered, he can recover the amount paid. 3) Suit for specific performance The buyer may sue the seller for specific performance of the contract to sell. If the goods are specific or ascertained, the court may, if it thinks fit, order for the specific performance of the contract. 4) Suit for breach of warranty Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods. But he may sue the seller for damages for breach of warranty. 5) Repudiation of contract before due date When the seller repudiates the contract before the date of delivery, the buyer may either treat the contract as subsisting and wait till the date of delivery, or he
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may treat the contract as rescinded and sue for damages for the breach. This rule is known as the rule of anticipatory breach of contract. 6) Suit for interest Where there is a breach of contract on the part of the seller and as a result the price has to be refunded to the buyer, the buyer has a right to claim interest on the amount of the price refunded to him from the date on which the payment was made. The Court may award the interest at such rate as it thinks fit. Duties of the buyer 1) Duty to accept the goods and pay for them in exchange for possession - It is the duty of the buyer to accept the goods and pay for them, in accordance with the terms of the contract of sale. Further, the buyer must be ready and willing to pay the price in exchange for possession of the goods. 2) Duty to apply for delivery - Apart from any express contract, it is the duty of the buyer to apply for delivery. 3) Duty to demand delivery at a reasonable hour It is the duty of the buyer to demand delivery at a reasonable hour. 4) Duty to take risk of deterioration in the course of transit. Where the seller of goods agrees to delivery them at his own risk at a place other than where they are sold, the buyer shall take any risk of deterioration in the goods necessarily incident to the course of transit. The buyer and seller may, however, agree to contrary in this regard. 5) Duty to intimate the seller where he rejects the goods. Unless otherwise agreed, it is the duty of the buyer to inform the seller in case he refuses to accept the goods. 6) Duty to take delivery. It is the duty of the buyer to take delivery of the goods within a reasonable time after the tender of delivery. He becomes liable to the seller for any loss occasioned by his neglect or refusal to take delivery. 7) Duty to pay price. Where property in goods has passed to the buyer, it is his duty to pay the price according to the terms of the contract. 8) Duty to pay damages for non acceptance. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, he will have to compensate the seller, in a suit by him, for damages for non acceptance.

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