ws Governing Contraens (Unie 9 Unit 2 | ie Governing Contracts al el Indian Cont Introduction to the Act act Act was enacted in 14 into forees on 1 September 1879. Contract Act, English Common Law « india which is composed of judicin oa the primary source of law which reevinen in Indian law regulates. contra It sets out the conditions in which the promise ty the parties to the contract will be legally ha, on them. Initially, the act consisted of 11 ch and 266 sections. In 1930, provisions rel of Goods’ and in 1932, provisions relate ‘Partnership’ was revoked from this a promotion of separate acts for the s Indian Contract Act, 1872 imeludes foll provisions: 1) Provisions related to the general principles of the law of contract and quasi-contraet (Section 1 « 15 Provisions related to the spe contracts i) Indemnity and Guarantee (Section 124-14 i) Bailment and Pledge (Section 148-18 iit) Agency (Sections 182 to 238). 21.2. Application of the Act [Section 1] The Indian Contract Act, 1872 (Sections 1-75) cai into force on 1“ September, 1872. It applies to whole of India except the State of Jammu an Kashmir. law on all types It is not @ complete and exhausti of contracts, It does not deal wi the law of contract n all the branches 0 There, are separate Acts which deal with contracts telating to Negotiable Instruments, Transfer of Property, Sale of Goods. Partnership. Insurance, etc Again the Act does not affect any usage oF custom of trade. 2.1.3. Important Definitions [Section 2] } al. {Sec a)|: When one person igi her his willingness to do or to anything, with a view w t nt of that other to such act or " sid to make a proposal is jon 2(b)}: When the person to ‘ is made signifies his assent ' tid 0 be accepted. A jecomes a promise [Section 2(€)]: The person , proposal is called an son to whom is called the the Promise [Section nf the promisor, the her person hus done or 1 abstains from > or to abstain from uch act or abstinence or J 4 consideration for. the 5) Agreement [Section 2 (e)]: F y set of promises, forming procal Promises (Section he consid hot ) Void Agreement (Section 2( able by law is void, 8) Contract {Section 2(h)}: agreement enforceable by law 9) Voidable Contract [Section which is enforceable by law of the parties the option af ather or oth contract 10) Void Contract [Section 249) cases to be enforceable by 1 @ Scanned with OKEN ScannerEZ OA eel 2.2.1. Meaning and Definitions of a Contract The word “contract” is derived from the Latin word ‘Contractum’ meaning drawing together. Section 2h) of the Indian Contract Act, 1872 def contract as an “agreement enforceable by law contract is an exchange of promises. It is formed by two or more persons. It is initiated by one party by offering something to the other party party accepts the offer in full then it becomes an agreement. When such agreement fulfils the conditions of Section 10 of the Indian Contract Act, it becomes the contract. A If the other According to Pollock, “Every agreement and promise enforceable by law is a contract A contract is an agreement According to Salmond, obligations between the creating and defining parties” "A contract is a According to Sir William Anson, legally binding agreement between two or more persons by which rights are acquired by one or more fo acts or forbearances (abstaining from doing something) on the part of the others” 2.2.2. Essential Elements of a Valid Contract A valid contract is enforceable by law. Lack of any element prescribed under section 10 would change legal status of a contract and it may not be permitted to be enforced. Following essential elements must co-exist in order to make a valid contract Essential Elements of a Valid Contract ‘Agreement (Offer and Acceptance) Legal a ‘Lawful Consideration | de Capacity of Parties [= eee Lawful Object Writing and Registration Cenainy Possibility of Performance ‘Tereement not Declared Void Agreement (Offer and Acceptance): To constitute a contract there must be an agreement, and for an agreement, there must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer. 3 4) egal Aspects of Business) GOS; MBA First Semester ( ful” denotes that the offer ang {adhere to the Comtract Aer’, ‘The term " acceptance must relevant standards. egal Relations: There Intention to Create L ing the parties that the must tention amor fae should be attached by legal ae Mt create legal obligations, consequences ant Damertic and social agreements do not creale a legal relationship and therefore do not ercate a contract. For example, a commitment to have dinner at a friend's house does not establish legal relationship and is not a contract. The agreement between men and women is also not intended to establish a legal relationship and therefore does not lead to a contract. Lawful Consideration: The third essential element of a valid contract is the presence of ‘consideration’. Consideration is the term for the something that is offered or acquired as payment for the promise. Only when both parties to an agreement give and receive something then only an agreement is legally _ enforceable. Consideration is the term for the something that is offered or acquired as payment for the promise. For example, A agrees to sell his books to B for 7100, B’s promise to pay 100 is the consideration for A’s promise to sell his books and A’s promise to sell the books is the consideration for B's promise to pay %100. Consideration is described as the price paid by one party in exchange for the promise made by the other party. Only when both parties to an agreement give something and receive something then agreement will be legally enforceable. Capacity of Parties: must be comy cannot be enforced the Indian Contract is competent to c i) Is of the age aw to which law to which In other words competent to cont i) intervals), @ Scanned with OKEN Scanner@ Scanned with OKEN Scannera 1) On the Basis of Enforceability: On the basis of enforceability, various contracts are as follows: 1) Valid Contract: An agreement is a valid contract if it fulfils all the essential requirements of a contract given under Section 10. A valid contract is enforceable by law. Lack of any element prescribed under section 10 would change legal status of a contract and it may not be permitted to be enforced. For example, a) X offers to marry Y. Y accepts X’s offer. This is a valid contract. b) A homeowner (who is over the age of 18 and of sound mind) signed a contract with the appliance store to buy a refrigerator. The payment of refrigerator is made by the homeowner, who then Picks it up from the appliance retailer and takes it home. ii) Void Contract: It is a contract without any legal effect and cannot be enforced in a Court of Law. Section 24j) says that a void contract is “a contract which ceases to be enforceable by law”. Where both parties to an agreement are under a mistake of fact, [Section 20], an agreement made without consideration, [Section 25], when the consideration or object of an agreement is unlawful, [Section 23}, etc., are instances of void contract. For example, a) A and B contract to marry each other. A goes mad before the time fixed for marriage. The contract becomes void. b) A contracts to take indigo for B to a foreign port. The government of A then declares war on the nation where the port is located. When war is declared, the contract is null and void. iii) Void Agreement: Section 2(g) says that, an agreement not enforceable by law is void. Agreement becomes void if it lacks any one of the essentials of valid contract. Void agreement is void when it is made. The Act has outlined a number of circumstances that may cause an agreement to be void. One of these elements is the contract's illegality, which renders it void because it has an illegal ‘object and consideration. In void agreement if the party has suffered any loss he cannot claim any compensation. A void agreement MBA First Semester (LEE iv) y) ; al Aspects of Haines) CY] " ment it is made. The Act ha hn et ce yy be deemed is v has outlined @ under which an agreement ma} void. i |, Ramm lends 1,00,000 to Shyam, eee mortgage of his house. The or for the Mae pb initio due 16 mortgage agreement is void al minority of Shyam. Voidable Contract: Section 2(1) says that, voidable contract is “an agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contract ‘Agreement becomes voidable if the consent of one party had not been free (except mistake). When it is declared to be so by an aggrieved party then voidable contract become void only. If aggrieved party in voidable contract caused by fraud suffered any loss he has the right to claim compensation from other party. For example, A contract brought about as a result of Coercion, Undue influence, Fraud ‘or Misrepresentation would be voidable at the option of the person whose consent was caused by any one of these factors. Mlegal Contract: It is a contract, which is forbidden by law. Illegal contract if permitted would defeat the provisions of any law or is fraudulent, It may involve or imply injury to a person or property of another, or court regards it as immoral or opposed to Public policy. The court will not only enforce such a contract but also other connected contracts. All illegal agreements are null and all null and void agreements or c ot necessarily illegal. Every aj which the object’ and cons unlawful is not only void immediate parties but also collateral transactions with Bombay, the wagering agreeme: declared unlawful by statue. For example, 4) Contract to commit crime, is immoral or opposed to are illegal in nature, b) A.B and C emers into an the division among acquired oF to be @ Scanned with OKEN Scannertechnical dato 1 is calted ay contracts are ej contracts are yy hon-fulfilment ¢ these cannot be contracts: mij when the technical ‘ixed. For example. « insUFANCe Policy ys oy due to a formatities oreed Se is investigated and Mt eNO accept an idence of a contract if a the appropriate stamp duty has not been paid Unenforveable contracts are fully valid contracts, but the parties cannot enforce them through the courts For example, an oral arbitration agreement is void because it violates the law's Fequirement that arbitration agreements be in Writing, The oral arbitration agreement will only be enforceable if it is reduced 10 writing Difference between Void Agreement and Megal All” void agreemey |__ agreement 3) Parties who enter i liable for Connecte into the void ‘agreement are not a “d transactions or collate agreements oi enforceable and legal. “This void fre sinning. In void agreement, there wi anything has be Under void agreement, person acquiring the will not get any rights on them and will not be 1 iy further transaction in respect of them. TIT be no compensa (given under the agreement. Agreement i __Wegal Agreement | An illegal agreement is an agreement whose creation” prohibited by the cour of law nl Under egal agr eement, parties are lable to punishment for etverng into an illegal contract. #}Connected transact ‘agen ais i Void € om the | void contract is void in the beginning but later | becomes valid or voidable “haiti {In void contract. compensation will be provided if] something has been given or done under the contract. goods| Under void contrac, a person acquiring gous have ited | rights on them and will be entitled to sell or pledge them [before it becomes void. tion if Difference between Void Agreements and Voidable Contracts Void Agreements [1A void agreement cana he enforceable By any one of the parties. ‘A void agreement is void ab initio. - aa ‘Voidable Contracts a Avoidable contract is a contract which is enforceable by law at the option of the aggrieved party Avoidable contract becomes void when the party on wi ‘option the contract is void chooses to repudiate the contract, ‘As void agreement is unenforceable from the beginning thus, there does not arise any question of compensation due to non-performance of “agreement 4) A void agreement does not affect the collateral agreements. However, the collateral agreements will also become void if the agreement is void due to the illegality ofthe consideration and object. [5 In void agreements, hit party has no rights ip ‘A void agreement can never become a val contract L In the case of a voidable contract, a person is ent ‘compensation for loss or damage due to non-perfo the contract, Avoidable contract does not affect the collateral agree In voidable contract, a third party who purchases p rood faith before the repudiation of the contract a title of those goods. Avoidable contract becomes valid if the aggrieved | not repudiate the contract within reasonable timeyusiness) GG MBIA Fist Semester (Lagat Aspects of B nas Difference between Void Contract and vir ___Voidabl Contract _— to be enforceable it ceases to be enforceable. enforceable contract cannot be made valid by af the co remedy for the parties to the contract. 2) On the Basis of Formation: On the basis of formation, various contract are as follows Express Contract: Generally the contracts are made in this form. These contracts results from express agreements. Express agreement is created by making an offer and accepting it verbally or in writing. According to Section 9 of Indian Contract Act “In so far as the proposal and acceptance of any ise is made in words, the promise is prov said to be express. An express promise leads to the formation of express contract”. For example, a) A say to B “Will you buy my car for 1,00,000?" B says to A “I am ready to buy your car for 1,00,000". It is an express contract made orally b) X writes a letter to Y, “I offer to sell my car for 1,00,000 to you". Y send a letter to X. “I am ready to buy your car for 1,00,000". It is an express contract made in writing ii) Implied Contract: Where the offer and acceptance are made not by use of words but by conduct only and are therefore implied from the circumstances, the agreement is an implied agreement. The entire agreement can be implied or only a few terms of the agreement may be implied. For example, if a person enters a bus, there is implied promise that he will pay the bus fare. iii) Quasi-Contract: The term quas would literally mean ‘semi-contract’. A quasi-contract is created by law. Because there is no purpose on the side of the parties fo engage into a contract, quasi-contracts strictly speaking are not contracts. It is a legal responsibility that is imposed on the party that must carry it out. The idea that one ontract ee ey comes] eens y oe teats void won| ar mene of the pac paling tlt es ll fa 3) cea cies Wald wisn Hosa] A cots SS is a ede nence aul ocsreprsenaton Avoidable contract can be made valid by the option of} Lai nye] rived party who hus the gh [ay A veal conescr dees now provide say legal] ie valdeble contact, tbe aggrioved party set Tice conmnct, When wach pares [Sauce tan the contract Becomes void = whi enforceable by 1 ea ereon is called as vou iforceable at the Opi is caused by 1 is not ent void only when to repudiate it dl the right to] draw the person cannot benefit at the expense of another is the foundation of a quasi-contract 3) On the Basis of Performance: On the basis of perfarmance, various contract are as follows: i) Executed Contract: An executed contract is one in which both the parties have performed their respective obligation. An act or forbearance could serve as the consideration in a particular contract. The contract is considered as an executed contract if the act has been carried out, executed, or the forbearance has been documented. For example, X makes an agreement for buying one hundred cotton bales from Y @ %5,000 per bale. Y delivers these cotton bales to X and in return of it X makes payment to Y. This contract becomes executed one. ii) Executory Contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as execut consideration is obligation. Such performed in future contracts are contracts. For agreement for buyi X has made pay! delivered to him. B yet to be transfer remains executory. 4) On the Basis of obligation, various cont @ Scanned with OKEN Scannerobligation to 40 oF for A makes payment for a FOF example, Perfo OM Jaipur: tgs Me for his Performed his promise, 1, PO He has for the transport Tt is now the a promise, Sompany to perform he the ii) Bilateral Cont ract: Wh Promise in a contract ig gan”, blization ract Iso ligation or Part of utstandi Pinte, Doth the parties, ir nine on the ilateral contract, 's known as 23.1. Introduction For the formation proposal or offer by thereof by the oth involves the process of ne; apply their minds make create a contract of | contract the process of 'Y one party and the acceptance er is necessary. This generally ‘gotiation where the parties offer and acceptance and When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. In order to convert a proposal into a promise, the acceptance must be Absolute and Unqualified: Any departure from the terms of the offer or any qualification vitiates the acceptance unless it is agreed to by the person from whom the offer comes. An acceptance with a variation is no acceptance; itis simply a counter proposal. Expressed in Some Usual and Reasonable Manner: If the proposer prescribes any particular manner of acceptance it has to be in that manner and where no manner Is prescribed it should be in a usual and reasonable manner. 2.3.2, Essentials for Formation of Contract A valid contract requires: ) ‘Agreement: The parties to the contract must agree to enter into the contract. Legally, the agreement consists of one party's offer to enter into the contract and the other party's acceptance 3) of the terms of the offer. Section 2 (e) ident agreement as, “Every promise and every set of promises, forming consideration for each other Again Section 2(b) defines promise in these words, “When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepled. Proposal when accepted becomes a promise” In other words, an ment is a proposal that has been accepted. An offer or proposal from one side must be accepted by the other in order for there to be an agreeme To sum up: Contract = Agreement + Enfrceabiity by Law Agreement = Offer + Acceptance Enforceability by Law: An agreement is said to be enforceable by law if it creates some le obligation. In other words, the parties to agreement must be obligate cep. their promises and declare their intent to bring leg action in the event of any party's default.. e.g., in case of social or domestic agreements: the usual presumption is that the parties do not intend to create legal relations. The contract's subje either the law or pul contract to commit enforceable. Contras of usury laws wi enforceable. An exa be unenforceable policy is a contract trade. Consideration: notion of exchanj good consideratio what constitutes, be exchanged. consist of the rel offer and accept rules of consider necessary excl consideration. @ Scanned with OKEN Scanner@ Scanned with OKEN Scanner_ "= Lam Governing Contra i 9) For example, a) X writes ata cerains 2.10 Sel him a hy act by wi 8 is an ats aa EO Words 223 er by an express offer letter). This is b) A offers to fTers to sell a house os the One, he fo acenain is an o offer, Words), Thi By 8 is an expres, 2) Implied Offer ~ By Omigg,. make an offer by omission att A includes such behaviour (4° prt that the ott pega fo wallingness of assent. An li ae that is implied from mplied offer is one or from the conditions of the ease” Of tH Patties For example, 1) -X owns a motor boat for ¢ from Mumbai “Erving people boat is in the an act in order to obtain other. This is an example of an implied offer, A’s offer not to sue B, if the latter pays A the outstanding amount of 200. This is an offer to do something through abstinence or | | ii) omission, 24.1.2. Essential Elements of Valid Offer Following are the essential elements of valid offer: Essential Elements of Valid Offer Capable of Creating a Legal ‘Certain, Definite and Relauonship vn Expressed or implied Distinguished from an Invitation to Offer Specific or General [Made witha view to Obtain the] Consent of the Offeree offer is not a valid offer in the offer does not intend to give 4) 3) 2 rise to legal consequences. For example, an offer to one's wife to show her a movie, or an offer to a friend to dine at the offeror’s place, is ‘Rot a valid offer and such offers cannot give rise ‘o a binding agreement although it is accepted and there is consideration. It is presumed that in Social or domestic arrangements the parties do Hot intend legal consequences to follow a breach of agreement Offer must be Certain, Definite and Not ‘Vague: Acceptance of an offer cannot create ‘any contractual relationship if the terms of an offer are indefinite or vague. If the ‘agreement contains machinery for ascertaining | vague term, the agreement is not void because it is vague. For example, X offers to sell 100 quintals of oil to Y, there is no indication of what type of oil was intended. Due to a lack of certainty, the offer cannot be accepted. However, if, in the preceding example, A is only a dealer in coconut oil, it shall constitute a valid offer because the nature of A’s trade provides an indication of which oil is being offered Offer must be Expressed or Implied: An offer can be made by conduct or by words. When an offer is expressed by words, written or spoken then it is called as express offer. However, when an offer is inferred from the conduct of a person or circumstances of the case then it is known as implied offer. For example, A tells B that he is willing to sell his motorcycle for 20.000. This is an example of expressed offer. Offer must be distinguished from an Invitation to Offer: Offer must be distinguished from an invitation to make an offer. In the case of an invitation to offer, the person in others to make an offer to him. It is a preh Proposal that invites negotiations or prel discussions. For example, A adv. house for sale, B, C, and D offer to buy for a certain price. A refuses to take offers. A is permitted to do so advertisement issued by A is not an invitation to an offer. Itis B, C, and D the offer, and it is up to A to accept or offer. Offer may be specific or General: offer is made to a definite person or itis said to be ‘specific offer’. This accepted by the person oF the the offer is made. On the other hand, ss @ Scanned with OKEN Scanner6) Offer must be Comn od offer’ is made 10 the world at lunge or public 1 general, Such offer can be accepted by an person fulfils the required conditiow Advertisement is one of the examples of peneral contract, For example, M makes an offer to N te sell his bicycle for 500, there iy a specific offer only N an accept it An ofler must be communicated 10 the person 10 whom it i fer cannot be aceepted by it unless it is comm d. Accepting an offer while tunaware of the offer is not avceptance and it does not create any rights on the acceptor For example, A is unaware that a reward being offered for the arrest of a specific criminal, he catches the criminal and reports the information to the superintendent of police, A cannot recover the rewan! because he did not accept the offer and he was unaware of it 7) Offer must be Made with a View to Obtaining 8) 9% the Consent of the Offeree: An offer i effective only if it is communicated to the offeree. There can be no id no contract until the offeree is aware of the offer Anything done in ignorance of the offer can be considered as its acceptance, because there was. never This applies to both “general” and ‘specific acceptance a consensus of wills, offers. Offer may be Conditional: An offer may be conditional; an offeror may attach terms and conditions to the offer mode of acceptance. All the terms of the offer iccepted by the offeree He can prescribe the must_be There is no contract, unless all the terms of the offer are fulfilled and accepted in the specified manner. No Term the Non-Compliance of whi Amounts to Acceptance: The offer should not term of non-compliance, which contain the For example, X writes a letter to Y. He writes that [offer to sell my car for 1,00,000 and if I do not receive your reply by Friday 1 will assume that you have accepted the offer. If Y will not give any reply then it does not mean that Y accepted the offer. 2.4.1.3. Classification of Offer Offer can be classified into: 1) offer made to anyone can tion 8 of the General Offer: General the public in general accept and do the des 1 Axpoots of Busines) Cl Hipy sieneater ats Hirst Se haat OIF thy WeePHANCE OF thy of «contig (Act state ua} constitute reworal offer epuanice by ANY hg, Indian Com tere of a pre sail, Whe af propos 7 it is open for a nature yt iOS of people in the offer whieh i Speclal Offer in tl These Off Can he ite perso mae for deine Pic person 10 WK the recepted only by speci ‘offer iy made Cross Offer: while a aid to be cross offer 1 ract bet fo partics exchange the h other's offer well When tw then it i there is no bidding cor innot be interpreted ay accept Counter Offer: The offeree ts si! when he offers 10 one's offer we by the other 10 have made walified ions 6 of the original » counter off ce of the offer subject to modific accept 1 variations in the tern fer. The original offer is rejected if a counter Je. A counter offer indicates that the original offer rejected and a new one was rmade in its plac Standing, Open or Continuing Offer: Standing offer is an offer which is allowed t remain n for acceptance over a period of tine. Its open offer or continuing offer of an Offer must be accepted before it lapses (i« comes to an end). An offer may come to end in of the ways, which are as follows 1) By Revocation: An offer lapses if the offeror revokes the offer before its acceptance by the offeree. According to Section 5 of the Indian Contract Act, a proposal may be revoked at any time before the communication of acceptance is complete as against the proposer but not afterwards,Laws Governing Cont 4) 5) ACIS (Unie 2) example, an offer was made in June communicated i offer to buy shay accepted withi MY Shares S of a Neat esha ee It aa had lapsed bec Sasonable time. By Death or Ing, Offeree: An offer i, ot the insanity of the pace offeroy ine oF nsaity comes ye acceptor before hy other words, a legal sake’ hi offeror, even if ag ieceptance jg ignorance of the death. Tf we away or becomes insane prior iq accepting the offer, the offer also terminates by the death er insanity of the offeree be, itive and no other person may y Failure to Ace offer lapses if it is ions of Pt Condition Precedent: An stecepted without fulfilling the offer. For example, X £20,000 before a certain date. Y accepted the offer but did not send an advance of 20,000. In this case, the offer has lapsed because the advance was not paid. By Counter Offer: An offer lapses if the counter offer is made because a counter offer amounts to rejection of the original offer. Counter refers 10 making a fresh offer instead of accepting the original offer. For example, X offered to sell his car to Y for 21,00,000. Y said that he would buy it for 290,000. X refused to sell for 290,000. Subsequently, Y offered to buy the car for 21,00,000. Here, Y's offer to buy for 290,000 is 4 counter offer which terminates the original offer. Y's second offer to buy for %1,00,000 is a fresh offer and not an acceptance of the original offer. By Not Accepting in the Prescribed Mode or Usual Mode: An offer if it is not accepted in the specific manner (if any, prescribe inthe offer) or in some usual and reasonable manner (i tno manner has been prescribed in the offer his car, example, X offered 10 sell 21,00,000 and wrote to Y “Send »y 0 7) By Rejection of Offer by Offeree: An offer lapses if it is rejected by the offeree. If the offeree expressly rejects the offer or accepts it with certain conditions, the offer is considered to have been rejected. It should be remembered that offer that has been rejected cannot be Fesurrected late. 8) By Subsequent legality or Destruction of Subject-Matter of the Offer: An offer lapses if it becomes illegal or the subject-matter is destroyed before its acceptance by offeree For examph i) X of Delhi offered supply of 100 tonne of Sugar to Y at Mumbai on a certain date Before this offer is accepted by Y, the Central Government issued an order Prohibiting the inter-state movement. of sugar. Here, X's offer has come to an end. ii) X of Dethi offered to sell his car to Y of Agra for %1,00,000, Before the offer is accepted by Y, the car is destroyed by fire Here X's offer has come to an end 2.4.2, Acceptance [Section 2(b)] Acceptance is an expression by the offeree to his willingness to be bound by the terms of the offer nce may be interpreted as asseatogiven to a When a proposal is accepted. t becomes a Promise. Acceptance means giving. consent 10 the offer. An offer and acceptance combine together to form a contract An application for a share in a company is in the nature of an offer, whereas the company’s allotment Of the shares is an acceptua ‘An acceptance cannot completed, For example, to B for 10,00,000. B 1,00,000. B's behavio offer. 24.2.1, Who Can An offer can only be ac it is made, There are express the acceptance 1) In Case of Speci be accepted only @ Scanned with OKEN Scanner2.4. Essentials of valid acceptance are as follows: 2) In Case of General Offer: Ge . offer made (0 the world at large or publi feneral. General offer can be aveepted by any person who has the knowledge ot the offer b} fulfilling the terms of the offer. Far example. & 1 it would pay 7100 to company advertised th 0 8 anyone who contracted influenza after usin company's smoke halls in accordance with (Ne printed instructions, Mrs, Arora followed the woke balls, but she later instructions on the 4 claim for became ill with influe led a cl a. She the reward. She was entitled t because she had accepted the offer by with the terms of the offer An acceptance ean be eithe or “express acceptanc which is made by 1) Express Acceptance: Acceptance whic t words written or spoken « das expr acceptance. For example, A offers to B, “Will £501,000" Then B says purchase my motor eycle for ® Tam ready to purchase your motor cycle for 750,000. In this example B accepts an offer mad by A Implied Acceptance: When an acceptance is made otherwise than in words then it is called as implied acceptance, It 1s not directly stated but is demonstrated by any ac indicate an individual's acceptance offer. For example, a transportation company may operate buses on various routes to carry passengers. A Passenger named X bourds the bus. X's. act X, and he is 2.2. Essentials of Valid Acceptance Absolute and Unqualified or Unconditio Under section 7 (1) of the Indian Contract Act In order t0 convert a proposal into a promise, the acceptance must be absolute and meuns that an offer must be nqualifie accepted as it is, without any changes or conditions, A qualified and conditional acceptance is 2 counter offer, which terminates the original offer and cannot be equivalent 10 mark revived by subsequent acceptance Within Proper Time: Acceptance must be given within proper time. The appropriate time would be the time specified by the offeror. If the offeror hhas not specified be given within a reasonable time. In case of a conflict. the length of reasonable time would be ny time, then acceptance must on the fat Of the sur ba expires OF iS revoke Jctermined by the © Before the offe icceptance must be & Acceptance Must fy the other hang its communicaeg fo the offeror, In the eyes of the law, & rere Meng Oe ee we accom 0 coer pan manufestation of tha ¢ or words ust be Ce 3) tented or declare indicated 4 complete unt reptance is not complet there is some external conduc determination through con Must be According to the Prescribed Mode ; uid follow that mode gf An acceptor sh = which is prescribed by the offeror. ip no mode of acceptance is prescribed by the hen in that cuse, acceptance must follow reasonable or common mode. On the other hand, if. proposer prescribed a manner and the not made in thal manner, the proposer may, within a reasonable time after the eceptance is communicated to him, insist that his proposal should be accepted in the prescribed manner and not otherwise, but if he fails to do so, acceptance he accepts the acceptance. 5) Acceptance must be given only by the Person to whom the Offer is made: An offer can only be wcepted by the person to whom itis made and with whom it imports an intention to contract An offer cannot be accepted by any other person without the consent of the offeror. For example, if A makes a contract with B, then C cannot substitute himself with B without the consent of A, 6) Acceptance must succeed the Offer: After receiving the offer, acceptance must be given. It should not come before the offer. If an ‘acceptance comes before an offer, it is not considered valid and does not result in a contract 7) Offer Once Rejected cannot be Accepted: Once an The term promisor legal obj Provisio legislatia @ Scanned with OKEN Scannersing C ves Governing Contacts (Un) ges must either perf ptt orm oF offe pective Promises, Why fer 10 perf re ren. bo » perform their ‘Shsations Under a contract, the ceaeteS ful ini fury conclusion and nothing al_and natural mode "of minating the contract for giy gt Schsing or r perform thelr TSPECtiVe Obligations 25.2. Types of Contract in following conditions a co formed fy Actual Performance: fulfilled his/her obligation hoy at {2 bave completed everyth Jeera be has ything that he/she a and there is nothing else to be done winewe onder to be disctistged talGckeree a performed by the patties in accordance with ve terms and conditions. In other words, it meane kc Is. it means that party has fulfilled all obligations that he/she has promised to do. He/she had to have completed the contract’s requirements 2) Offer to Perform or Tender: Tender or attempted performance occurs where the promisor is required to fulfil his/her contractual obligations but the promisee refuses to do so. If the promisor makes a performance offer that the offeree declines, the promisor is not liable for nnon-performance. A tender is referred as an offer to perform one’s obligations under the contract. ‘The promisor’s performance is as follows: ji) He/She is no longer obligated as he/she has legally performed his/her part. ii) He/She does not lose his contractual rights. iii) He/She is not guilty of non-performance. iv) According to law, the performance is legal and perfectly legitimate. Performance of mitract is said to be For example A, the debtor, tenders money due under a debt. The result of that tender is to stop the running of interest on the amount payable but the debt is not discharged. Essentials of Offer to Performance or Tender of Performance Following are the essentials of an offer to performance or tender of performance: jonal: The tender must be completely unconditional. When a tender is made in accordance with the contract's terms, it is said to be an unconditional tender. For example, A offers to deliver 100 bales of cotton to B if B sells his one machine to A. It is a conditional tender and therefore invali OO ————— place at the Tt must take 0 ‘at the agreed-Up ng business hours ii) At Proper Time: ‘appropriate time, such time (if one exists) or du (if there is no agreement of goods or money before the due da not considered as a valid tender to time). Tender iii) At Proper Place: It must be in a suitable location, such as the agreed-upon location (it there is one), or at promisee’s business location (if there is one), or at the promisee’s residence (if there is no business place) iv) Reasonable Opportunity to Promise must provide the promisee with opportunity to verily that the goods offet are identical to those that the promisor is obligated to deliver v) For Whole Obligation: It must apply to the ntire obligation, not just a portion of it. A ht deviation from terms of the contract sli on the other hand, may not cancel the tender. For example, delivery of 100.10 tonnes of wheat in a contract for 100 tonnes of whe isa valid tender but delivery of 120 tonnes of wheat is invalid tender. To Proper Person: Offer of performance or tender of performance must be addressed to the promisce or to a duly authorised representative Of the promisee. A tender made to one of many joint promisees has the same legal implications as if it were made to all of ther vii) Of Exact Amount and in Legal Tender: In case of tender of money, it must be of exact amount and in legal tender 2.5.3. Who may perform a ‘A contract's promise can be fulfilled in ways, depending on the conditions. 1) Promisor Himself: If the con anything reflecting parties inte promise should be fulfilled by himself, such promise must be promisor. [Section 40), F promises to paint a picture for must be performed by A himself, Agent: When personal cons required by the contract, the representative may hire a col carry it out. [Section 40] 3) Representatives: When the contract involving the use of or based on personal consi end. In the case of any @ Scanned with OKEN Scannerrepresentatives of the deceased promisor are obligated to carry it out unless the contract expressly states otherwise [Section 37, Para 2] However, under the terms of a contract, their liability is limited to the value of the property rit from the deceased person. they 4) Third Person: If a promise accepts performance cof the promise from a third person, he cannot later force it against the promisor. That is. a stranger's performance, approved by the promisee, results in the promisor being discharged, despite the fact that the latter has not authorised or ratified the third party's act [Section 41} Joint Promisor: If wo or more people make a joint promise, unless the contract expressly states otherwise, they must all fulfil the promise together. If one of them dies, his/her legal representatives must fulfil the promise jointly with the remaining promisors. Representatives of all the promisors should jointly fulfil the promise in case if all the promisor dies [Section 42] 2.5.4. Who may Demand Performance? A contractual right is the opposite of contractual obligation. Who has the legal authority to enforce contractual rights? The Act makes no direct provision in this context. Any of the following people can demand contract's performance: 2.6.2. Modes of Discharge of Contract Following are the different modes of discharge of contract 1) By Performance: One of the most common ways performance. It occurs when all parties to a contract fulfil their respective responsibil MBA Fit Semester (Legal Aspects of Business) CGR + The promise, i.¢., the person, ig 1) Promisee: THe. Pras given. 118 the primary hom the promise Was whom no. will demand that the Promise be t's terms. fulfilled according to the contra actions will be taken by ageny ae behalf of the promisor in order to demand performance or to enforce the contract, 3 epresentatives: In case if the promise ) Lona Rep rmperonal conc is comple the legal successor will be the one to whom the contractual rights may be passed. They may demand that the contract be fulfilled 4) Third Person: Even if a stranger is a beneficiary under a contract, he/she cannot normally sue on it A third party may, however, enforce a contract in certain extraordinary circumstances. Pye Giclee La 2.6.1. Meaning of Discharge of Contract The term “discharge of contract” refers t0 the termination of the parties’ contractual relationship. When a contract ceases to operate. ic.. when the rights and obligations constituted by it expire, it is said to be discharged. Other rights and obligations may occur as a result of contract discharge in some cases, but they are cntirely unrelated with the original contract. 2) Agent: Necessary o discharge a contract is Modes of Discharge of Contract My By tmponsity By Lape iy Mata Agreement Performane ‘of Performance of Time " ‘or Consent ) Aca) nial Impossbity 3) Saperveningimposiy Novation 1 Amempred “ay Known to the Parues ")" Deacon of Subject Mater ii) Alteration ) Unknown the) Death or Incapacity for ii) Reseission Parcs Personal Services iw) Remission ©) Known to the ¢)-—Declaaton/Outbreak of War ¥) Waiver Promisor Only Change of Law ©) NonExistence or Non: Occurrence of a Pariculie Sate of Things Necessary for @ Scanned with OKEN Scanner@ Scanned with OKEN Scannera) Destruction of Subject Mumbai to Kolkata in a certain ship. The items were ao longer there at the time of the contract since, unknown (0 both parties, the ship had! already sunk im the deep ovean. When it is the contract cannot be determined th fulfilled, itis void. Known to the Promisor Only: It is the situation where the promisor is the only one who is aware of the initial Such a promisor must any loss incurred as a impossibility compensate fi result of the promise’s failure to be fulfilled For example, X contract to mary Y, being already married to Z, and being forbidden by law to which he is subject to practise polygamy. X must make compensation to Y for the loss caused to her by the non-performance of his promise. yor Post- Only if the are met does the Supervening — Impos Comtractual Impossil following conditions contract become void due to the subsequent impossibility After the formation of the contract, the act or action to be performed should have become impossible. b) The impossibility should have been caused by an unforeseen circumstance which was beyond the control of the promisor. The impossibility must not be due to ‘own actions or negligence of the promisor, The contract is discharged in the following circumstances due to a supervening impossibility ‘Matter: The contract will discharge if the subject- matter is destructed without the fault of any of the party. However, if the subject matter is destroyed as a result of one party's fault, the guilty party will be responsible for the damage caused to the other. For example, a music hall and a garden were let out by A tw B for a series of concerts on four different days. Before the date of the first MBA First Se » sc (Legal Aspe of Basins) concert, the hall was burnt-down, ay result, the contract became because of supervening impossibiliy, Death or Incapacity for Pers If the — promisor Services: ae itated or dies, and the com is for personal service or competengg, the contract is said (0 be vog Contracts that require the promisor yy use his or her personal skill or abiiqy are discharged if the promisor becomes ill, dies, or becomes incapacitated. Fog example, a piano player agreed tg perform a concert on a particular day She was not able to give her performance due to her illness. As result, the contract was discharged due because of her illness. Declaration/Outbreak — of | War: Declaration of the war either suspends or makes the contract void. When the government declares a war against the public interest or national interest, the contract is generally declared void. For example, A contracts to take in a cargo for B at a foreign port. A’s government, afterwards. declares a war against the country in which the port is situated. The contract becomes void when war is declared. After the formation @ Scanned with OKEN Scanner@ Scanned with OKEN ScannerActual Breach: Following are the two ways in 1) "On Due Date of Performance: An actual breach of comiact on the due dae. of fer par of the contract at the me fixed for performance, Fer example, X agreed 1 sc to ¥ 10 wane of wheat @ RR000 per alive logon: Asa root Tt tn Bal performance forn An Juring the course se of F i) During the C actual breach of contrac recurs wh nce part of the of perform contract has been completed by one party but then he/she rejects or fails to complete ihe remaining of it For example, X agreed to sell to Y 10 tonne of wheat @ %,000 per tonne to be delivered in two equal instalments on 20' October and 21% October. On 20" October. X delivered 5 wnnes and refused to deliver remaining 5 tonnes. It is an actual breach of the course of performance 2.7.3. Remedies for Contract under Indian Contract Act, 1872 The course of actions available to an uggrieved party for the enforcement of a right under a ract is known as remedy for breach of contract Following are remedies available w an aggrieved party 1) Rescission of Contract: When a co breached by one party. the other party has the right to sue to have the contract terminated. In this case, the aggrieved party is discharged from all contractual obligations ract is For example, A promises B to supply 100 bags of rice on a certain date. B promises to pay the A does not price on the receipt of the goods d deliver the goods on the appointed day, Bn not pay the prive ) Suit upon Quantum Meruit: Quanium meruit means “as much as earned or proportionate to the work done." When a contract partially performed by one party is discharged by the i. Breach of AMA Fira Semester (Lexa Aspects of Business) Geigy other party’s breach of the contract. right jy sue on a quantu ruil OCCUPS ath situation. In such cases, the plaintift is entitieg of the services rendered or goody nee ne of discharge, go delivered up until the t fer the original contract but under the quay. contract }) Suit for Specific Performance: Specific nce means the actual Carrying Out of perform the contract by the relevant parties. When q party fails to fulfil his or her contractual obligations, the Court may, at its discretion order the defendant to perform his or her obligations in accordance with the terms laid ct. The Specific Relief down under the cont Act of 1877 entails the provisions concerning the granting of this relief for Injunction: An injunction is a method of ensu performance of a contract’s negative term. When a party to a contract violates a contract's negative term (i.c., when he does something he promised not to do), the Court may, in its diseretion, issue an order restraining the defendant from doing what he promised not to do. This type of order made by the court is known as injunction 4) Sui the precise Suit for Damages: Damages are the common legal remedy for breach of contract. It is a monetary compensation provided to the party in exchange for the loss or injury suffered by him/her. The objective behind providing damages is to put the injured party in the same: financial position as if the contract had been completed or fulfilled. 2.8. SALE OF 1930 2.8.1. Introductio In an extremely industri economy, selling of goo are executed diversely. understood with full coy every product which is 4 part of it For example, selling regarded as a sale of dealings between buye of misut oppression, etc., which g @ Scanned with OKEN Scanner——————————————— Laws Governing Cont (Unie, enable people 10 com duties in business de, Mutual rights appreciating the sou, wae axe lings, + The Act af nd also helps in redressing the grievanee'®® °F & deal ang el? ! = INCE OF the di help in be kept in note that in stTessed panty, It are also bought and sold, pg ctomy+ ‘services purchasing of servic Mt the “selling 8 are ng Goods Act, as they are not i and 4 pant of Sale of angible commodities Accordingly the Sale oj r y s t Goods A acted to enable the parties 19 kno gees YS nights and obligations AN transactic Ging sal or purchase Of goods. The act anyone sae also helps to understand validity or otherwis, the remedies available ner of Wansaction, may be specifically noted th, “services” are also Sold and pu purchase of services does not { of the Sale of Goods Act, as thes and aggrieved party. It at in the economy chased. But sale or all within the scope are not goods Sale of goods is one of the specific forms of contracts recognised and regulated by law in nie. The law relating to such contracts is contained in the Sale of Goods Act, which ‘Was enacted in 1930. It is extensively based on the English Sale of goods Act. 1893. Initially, this was the part of Indiz Contract Act itself in Chapter VII [Section 76 to 123]. The provisions of the Contract Act, insofar as they are inconsistent with the express provisions of Sale of Goods Act, shall apply to contracts for the sale of goods. c.2.. provisions regarding the legality of contract, capacity of parties, etc 2.8.2. Scope of the Act The Sale of Goods Act regulates “sale,” but not mortgage” (which is governed by the 1882 Transfer of Property Act) or “pledge” (which is dealt with under the Indian Contract Act, 1872). Other transportable property, such as actionable claims and money, are not covered by the be nasen ae moveable property other than goods and immovable property a ‘covered by this Act. The Sales of Goods Act, 1930 was enacted to define and amend the law governing the sale of goods. 2.8.3. Short Title, Extent and ent [Section 1] Pace ld Sale of Goods At 1930. 2) It extends to the whole of India except the State of Jammu and Kashmir. 3) It shall come into force on the 1" day of July, 1930 2.8.4. Salient Features of the Act n 2.8.5. 3) 6) Since its inception it was known as the Indian Sale of Goods Act, 1930 till September 21 1963. On and from September 22, 1963 the } word ‘Indian’ was omitted by Section 2 of the Sale of Goods (Amendment) Act, 1963 (Act 33 1963). Ih is, therefore, known as the Sale of Goods Act, 1930 since then The Sale of Goods Act is applicable to the whole of India. But it has no application to Jammu & Kashmir by virtue of Section 3 and Sch., to the Act 3 of 1951 (Section 1). But this Act has been extended to Berar by the Act 4 of 1941 and to Pondicherry. (Section 3, Pt. I of Sch. of the Act 26, 1968) This Act has been adopted in Indian Union (ie, Bharat) by the India (Adaptation of Existing Indian Laws) Order, 1947 approved by the Governor-General in implementation of the powers discussed by Sections 9 and 18 of the Indian Independence Act, 1947 on and from August 15, 1947, the Independence Day of India and thereafter by Article 372 of the Constitution of Indi Definiti ons [Section 2] is Act, unless there is anything repugnant in the subject or context b Buyer [Section 2(1)]: Buyer means a person who buys or agrees to buy goods. Delivery [Section 2(2)}: Delivery mea voluntary transfer of possession from person to another Deliverable State [Section 2(3)]: Go said to be in a “deliverable state” when are in such state that the buyer would the contract be bound to take deliv them. Fault [Section 2(5)]: Fault means wrot or default Future Goods [Section 2(6)]: Fi goods to be manufactured or Goods {Section 2(7)}: Goods means. of movable property other than claims and money; and includes shares, growing crops. grass, attached t0 oF forming part of fare agreed to be severed before the contract of sale. @ Scanned with OKEN Scanner8 7) Insolvent [Section 2(8)}: A person is said 10 be insolvent” who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has ‘committed an act of insolvency oF not. 8) Mercantile Agent [Section 2(9)]: Mercantile agent means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of ods 9) Price {Section 2(10)}: Price means the money consideration for a sale of goods, 10) Property [Section 2(11)]: Property means the general property in goods, and not merely a special property 11) Quality of Goods [Section 2(12 Goods includes their state or condi 12) Seller [Section 2(13)]: Seller means a person who sells or agrees to sell goods. 13) Specific Goods [Section 2(14)]: Specific goods means goods identified and agreed upon at the time a contract of sale is made. Quality of on. 2.9. CONTRACT OF SALE OF GOODS 2.9.1. Concept of Contract of Sale A sale contract is a contract made by a buyer and a seller. For a predetermined sum, the seller 0 the guarantees to give something or sell anythi customer The transfer of ownership occurs under these contracts when the buyer pays and the seller deliver. The contract alters slightly when the vendor is unable to deliver the thing that has been purchased, According to Section 4(1) of the Sale of Goods Act, 1930, “A contract of Sale of Goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another” A contract of sale may be absolute or conditional In common parlance, when a seller handovers the goods, property, or promises to do the same to the buyer for a price it is called a contract of sale of goods Legal Aspects of Business) Gist ag a. jst Semester of a Sales Contract ents of contract of MBA F ture 2.9.2. Nats ee a 2 of sales must have tw 1) Two Partles: Comme a a ae parties namely sor agrees 10 Sel roduets individ seller. A buyer is Someone es mye ‘on decides to buy something. Buyer and seller cannot be the same pervon boca he or she cannot buy his or her own Pro 7 5) Geode: Bvery contact of sale should lia 2 Ga ae ie a, Accnding to Seton 27), "Goods means every kind of moveable property other than ac! onable claims and Mnoney and includes stock 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’ ms and money. all Except actionable cl 2 movable property, is considered as “good Price: One more essential element of contract of sale is price. The term “price” refers to the monetary consideration for the selling of goods: Where the only concem is merchandise, it is referred to as “barter” rather than a “sale.” In case if no consideration is involved it is considered as gift, not a sale. However, since the legislation does not prohibit it, the consideration can be made up of both money and goods. ‘Transfer of General Property: Property means the general property in goods, and not merely a special property. The ownership of the goods is referred to as “general property in goods.” Whereas, possession of products is referred to as special property in goods. As a result, either a transfer of ownership or an agreement to transfer ownership of products is required. In agreement to sell, ownership can’ be transferred immediately upon sale completion or at a later date Essential Elements of a Valid Con Contract of sale should also conform other essential of a valid contract: i) The parties to the contract mi competent to enter into a contract ii) Free consent of the parties. iii) The object of the contract must be 3) 4 5 2.9.3. Formation of Cont) Sale of Goods [Section 5] Entering into a contract of sale does not any particular form unless. specially any law, The agreement may be exp! @ Scanned with OKEN Scanner@ Scanned with OKEN Scanneree se ®) Effect of | Since a has) Even after paying Tnsalveney the c. the of Setter pol the bayer cannot having ws, th claim the good Pewaesston aim them because of Goods he official ownership has 1 been transferred “ him Or rateable dividends may be claimed boy the buyer who thas paid the price Effect ofS possession | Delivery of the Insalvencs 1 woods canbe ‘of the Buyer passe he refused by the before . seller |seller unless he is Paying the the [paid full price of the goods becau Price nals he fi X the ownership has rot yet transferred paid price, he to the buyer. can only demand en PAD aE cl ele) SUBJECT-) MATTER OF CONTRACT The sub of a sale under Section 6 of the Sale of Goods Act, 1930 can be existing or future goods D The matte ods which form the subject of a contract goods, owned or Possessed by the seller, or future goods. 2) There may be a contract for the nay be either existin, le of goods the acquisition of which by the seller depends upon a contingency which may or may not happen 3) Where by a contract of sale the seller purports to effect a present sale of future goods. the contract operates as an agreement to sell the 2.10.1. Meaning & Definition of Goods According to Section 2(7) of the Sale of Goods Act, 1930. “Goods means every kind of movable property other than actionable claims and money, and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale’ Section 2(9) of the Re ration Act, 1908 defines novable property as including standing timber, wowing crops and grass, fruit upon and juice in trees immovable A irs Semester (Legal Aspests of Business) GGsypy ! of every description excep, Therefore, every kind of MB nd) proper property ble property such as 1) Shares, 4 2) Growing crops and Grass 2 en or fing est of lal which are agreed to be severed before sale or under the contract of sale For example, old rare coins, stock, shares, debentures, goodwill, patents, trademark, copyright crops, tr etc electricity, grass, growing water tut and their log wood delivered, s to be & Things excluded from the term “Goods” The term *goods’ does not include the following 1) » Actionable claim, which means a claim to any debt or any beneficial interest in movable property not in possession. Such claims cannot be sold or purchased like goods, they can only be assigned, e.g. a debt due from one son to another: Money, which means the legal tender and not the old rare coins; Immovable property. 2.10.2. Classification of Goods To transfer of property in goods, a contract of sale is made. The subject-matter of the contract is goods. From a legal viewpoint, the goods may be of several types as shown in figure below Classification of Goods Existing Future ‘Contingent Goods Goods Goods specific Ascertained Unascertained Goods Goods Goods Existing Goods physically in seller is in “pledge”, he goods may be; Specific identifi of the @ Scanned with OKEN Scanner@ Scanned with OKEN Scannermentioned in the document are present in the warehouse, Warehouse-keeper’s certificate must be in the form of a warrant 19 be considered as u document of title 4) Wharfinger’s Certificate: The owner, oF ceper of a warf is known as Wharfinger. He receives the goods in order to ship it. This transaction is carried-on by him in return of ment for hire. Wharfinger issues & 1 known as Wharfinger’s certificate warehouse This certificate is similar 10 keeper's certificate. This certificate is a proof that goods are present at the wharf, It must be in the form of a warrant to be considered a 5) Railway Receipt: The document which is issued by the railway as a proof that the good has been received is known as Railway Receipt. It states that the goods listed in the receipt will be shipped to the consignee upon his surrender of the receipt at the destination of the goods. Railway receipt and bill of lading are similar for the purposes of Section 53(1) of the Selling of Goods Act, 1930 (regarding the effect of a buyer's sub-sale or pledge) and Section 178 of the Indian Contract Act, 1872 (regarding the effect of a buyer's sub-sale or pled; arding pledge by mercantile agent) This is a non-negotiable instrument. 6) Mate’s Receipt: It is a confirmation that the goods have been sent. It is not a document of title of goods. In return for the Mate’s receipt the holder of the bill of lading is entitled to obtain the bill of lading ) Delivery Order: An order provided by the owner of goods to an individual holding the goods on his behalf to deliver the goods to the person named in the order is known as delivery order. It has to be ‘document that represents the good. 8) Test: The test to determine whether a particular document is a document showing title or a document of title is whether the document is used in the ordinary course of business as authorising a transfer or receipt of the goods. 9) Conditional Delivery Order: A conditional delivery order, as described in Section 2(4) of the Sale of Goods Act, is not a document of ttle. 10) Consignment Note: Since a consignment note does not have the same legal standing as a bill of lading, Section 2(4) of the Selling of Goods Act does not refer to it. sana Fira Seneser (<0! M*P® Business) im ser (Legal Aspe a ot Seam 2ALd. aero of the Sale of Goody) According © ats in a contract of sale wath 1930, a stipulatic ect thereof ar nce 10 good! which are the subje reference 10 re mn [Section 12(2)}. of 3) A warranty {Section 12(3)] 12(2)] 11.2, Condition [Section hati to Section 12(2) of the Sale of Goods ’ ion essential ‘A ‘condition’ is a stipulation esse neg el pea of the contract, the breach of which gives the aggrieved party a right to treat the contract as repudiated” action for damages In addition, he may maintain an action for loss suffered, if any, on the footing that the for loss s broken and the seller is guilty of whole contrac non-delivery In common parlance, a condition is an essential requirement of the contract on which the whole contract depends and if that requirement of contract is breached then the sufferer has an absolute right to reject the contract itself. For example, Ram consults Shyam, a motor car dealer for a car suitable for touring purposes to promote the sale of his product. Shyam suggests Maruti” car and Shyam accordingly buys it from Shyam. ‘The car turns out to be in poor condition for touring purposes. Here the term that the ‘car should be suitable for touring purposes’ is a condition of the contract. I is $0 vital that its non-fulfilment defeats the very purpose for which Ram purchases the car. Therefore, Ram is entitled to reject the car and have refund the price. 2.11.3. Warranty [Section L According to Section 12(3) of the Act, 1930 “A ‘warranty’ is a stipulat to the main purpose of the contract, which gives rise to a claim for damag right to reject the goods and treat 1 repudiated”. It says that the aggriev ight to sue for damage only, and ni contract itself. @ Scanned with OKEN Scanneros Governing Cont : = Unit 2) For example, Ram buy, ne show room and the cay 4st” Mé somntecearing defect under mance’ period of one Year from the ql usage for a sna there iS a Warranty for mute Of actual purchase fact T repli of any manufacturing dofecP Ace™ED atthe event cannot be properly repaireg, | f the defective part If after six months Ram fin, is not wor nds that sain orking he cannot termin; 2 ae of the The Tate Can. Sither get ir eae replace it with anew horn, 8° it repaired or Ram gets a right for claim 2 for a saffered by him but aot the right of mtaga ety se comrtection Sf CONE aaes tee 2.11.4. Cone Basis of ifference o er oF 3) Waranty or conditions by the Herve manufacturer that the good is 00 Germs This type of strategy is used to pron by creating consumer confidence: 4) Warranties and conditions can Din contractor to an obligation of performance bind the 5) Warranties are often only looked at as an assurance tool but they can provide significant reductions in the total cost of ownership | systems, 2.11.6. When a Condition may be Treated as a Warranty [Section 13] ‘As stipulated under Section 13 of the Sale of Goods Act, 1930. inthe following cases, a contract is not avoided even on account of a breach of a condition. These are: When a Condition may be ‘Treated as a Warranty Meaning A stipulation Gin aA stipulation Gna contract's main|collateral to. the Purpose is referred| contract's main / ater aee ee a! Sere Warranty [cee i fe CIE eons) ia en Acceptance of || Conversion of cont lat is ‘Voluntary Waiver: Son important to the| just subsidiary and ofConiten |} Guyer” || anny” Difference A breach of [Only the right to condition gives the | sue for damages is, | asto Breach aggrieved party the| granted when a right to sue for| warranty is, Jdamages and to| breached. There is cancel the}no way to back contract out ofthe ‘contract. [3 Difference [In certain cases, a] A warranty breach | asto breach of cannot be treated | Treatment |condition may be/as condition. taken as a breach| breach. of warranty. 211.5. Importance of Condition and Warranties in Sale of Goods Act There are many benefits of conditions and warranties in sales of goods act. Some of them are mentioned as below: 1) The terms of conditions and warranties protects the rights of both buyers and sellers. 2) In the case of Breach of condition, the party can bring the contract to an end where as in the case of breach of warranty the party can claim damages. Voluntary Waiver of Condition: Where a contract of sale is subject to any condition to be fulfilled by the seller. the buyer may: Waive the condition, or ii) Elect to treat the breach of the condition ‘as a breach of warranty [Section 13(1)] 1) The buyer cannot afterwards insist on its fulfilment, if he once decides to waive the condition. 2) Acceptance of Goods by Buyer: Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect [Section 13(2)]. 3) Conversion of Condition into Warranty: Where the buyer elects to treat breach of the condition as a breach of warranty: e.g. he claims damages instead of repudiating the contract, i @ Scanned with OKEN Scanner2.11.7. Express and Implied Conditions and Warranties Condition” or “warranty” stipulation can be eithe 1) Express: They are “express” when the terms of the contract expressly state then Implied: They expressly provided for implied” when, not being The law implies them in any particular contract on operation of its own rules. However. as per Section 16 (4) an express condition or warranty does not negate a condition or warranty implied by law unless it is incompatible with it As a result, an express agreement, the course of dealing between the parties sage might negate or vary an implicit c imposed by law 2.11.71. Implied Condi The implied conditions on the buyer listed in the Sale of G are as follows: 1) Condition as to Title [Section 14(a)|: In contract of sale, there is an implied conditio on the part of the seller unless th circumstances of the contract are such as t¢ show a different intention. This means in the case of a sale, the seller has a right to sell the goods and in the case of an agreement to sell hhe will have a right to sell the goods at the time when the property is to pass. The buyer has all the right to reject the goods and receive refund of the purchase price (if paid) plus mages in case if the title is found to be defective. Even if the buyer has used the products. this will be permitted For example, a car is purchased by A from B. But after 6 months Z. the real owner of the car asked A to return back the car. A has to return it to its rightful owner. Even though several months had passed, A was entitled to recover the whole amount. Sale by Description [Section 15]: ln a sale by description there is an implied condition that the goods shall correspond with the description; and if the sale is by sample as well as by description. the goods must not only correspond with the sample but also with description. As a result, it must be decided that whether or not buyer agreed to acquire the products based on their description, that is. whether the Una First Semester (Legal Aspects of Business) Geigy, description was necessary for identifying he commodities that the buyer had agreed to buy, If sales by description are necessary, and items delivered do not match the description, jy is a breach of condition, and it is the right of the buyer to reject the goods. [Cis a condition iq the contract that breach of any kind empowers the buyer to reject the products regardless of whether or not the buyer is able to inspect them. For example, On its route from Murshidabad to Calcutta, A sells twelve bags of “waste silk” to B. There is a jon that the silk be of the type k contract does not fulfil this requirement, B has the right to refuse the products jon as to Fitness or Quality [Section 8 it is the responsibility of the buyer to assure himself of the quality of the items he purchases, as well as ensuring that the commodities are suitable for the reason for which it is being purchased is also. the responsibility of the buyer. Thus, the seller cannot be held liable, if the items purchased subsequently turn out to be unfit for the purpose. However, following are a few exceptions to this rule. Only in these exceptional circumstances there is an implied condition as to quality or fitness i) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required. Condition as 16(2)]: Whe description frot of that dese manufacturer 9 implied condit merchantable q The commodi quality when that a prudentLaws Goveming Contracts (Unie contract are such as to show a different intention there are following implied applicable: ltt could thus entitling buyer to, rej An mag them Products, ie Crea cones ject thy Conditions Implied. j Sample [Section 17; that The bulk shall ¢ sample in quality; The buyer shait opportunity of comy the sample, and opportunity is not py right to refuse such goods, The goods shall be free from any defect which renders them uamerchentsbie and which would not be apparent on reasonable examination of sample. have reasonable paring the bulk with in case if such an rovided. buyer has the the acceptance of For example, X purchased a quantity of worsted coating from Y that was equal to-the sample shown. The coating was similar tothe sample but the cloth was discovered to be unsuitable for manufacturing coats due to a latent defects. Because the flaw in the sample was not obvious upon reasonable investigation, the buyer had the right to reject the products Conditions as to Wholesomeness: Apart from implied condition of merchantability an implied condition of wholesome is also applicable in case of eatables and provisions. ‘The term “wholesomeness” refers to whether or not the commodities are fit for human consumption. For example, a bottle of beer is purchased by A from B, a wine trader. Later, it was founded that beer contained arsenic. A became unwell after drinking the beer. B was considered responsible for A’s illness as a result of his actions. 217.2. my Warranties Under fis sabe Act of 1930, Sections 4b) and 14(c), lays down implied warrantees 4 contract of sale of goods am Sontract of sale, unless 1) Warranty as to Undisturbed Possession [Section 14(b)]: Unless the ation, there is an implied warranty that the buyer shail have and enjoy quiet Possession of the goods. The buyer has the right to sue the seller for damages for breach of warranty in situation where the rights of buyers related to possession and enjoyment of the goods is disturbed as a result of the seller's defective title For example, a second hand scooter is sold by Ramesh to Mahesh Mahesh spent a hundred dollars in repairing that scooter. The police took this.scooter because it was stolen. Mahesh filed a lawsuit against’ Ramesh, seeking damages for violation of warranty of quiet Possession, as well as repair costs. Mahesh was entitled to receive compensation. for such losses. Warranty as to Non-Existence of Encumbrances [Section 14(c)]: Buyer has an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made. If the buyer is compelled to discharge the amount of the encumbrance, this is a breach of warranty for which the buyer is entitled 10 damages. For example, Money is borrowed by Nitin from Akhilesh. Nitin. put his scooter as collateral, Nitin then sold the scooter to Karan. Karan purchased that scooter in good faith. Karan has all the rights to sue Nitin for damages because his possession has heen disrupted by the charge Disclosure of Dangerous Nature of Goods: Another implied warranty on the seller's behalf is that if the buyer is unaware that the goods fare intrinsically dangerous or are likely to be dangerous for him/her, the seller must advise the buyer of the potential danger. If this warranty is breached, the seller shall be held liable for damages For example, « un of disinfectant was sold by B to C. B was aware of the fact that if it was ‘opened without extra care, it might be deaklly to . When C opened the tin, disinfection powdereyes and caused injury. B was damages to C because he ard. got into his/her found accountable for did not warn C of the potential haz yy or Fitness by Usage particular purpose may usage of trade. 12.12. TRANSFER Ce ata (PROPERTY) 1 (efoto ey Passing 2.12.1. Meaning of (Transfer) of Ownership (Property Goods The word “transfer” or “passing of property applies to the transfer of ownership rather than the actual possession of goods, Possession of good and “property in goods” is not the same. The term “possession” refers to having ownership of the goods. So, while the property in goods may transfer to the buyer, the goods may remain in the seller's hands, either as an unpaid seller or as a bailee for the buyer. For example, where a principal sends goods to his agent, he merely transfers the physical possession and not the ownership of goods. Here, the principal is the owner of the goods but is not having possession of goods and the agent is having possession of goods but is not the owner 2.12.2. Rules of Transfer of Property three heads discuss the rules related to Followi transfer of property 1) Transfer of Property in Specific or Ascertained Goods [Section 19-22}: Following are the rules related to transfer of property in specific goods: i) General Rule [Section 19}: According to Section 19 of the Sale of Goods Act, 1930, “Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the cont intend it to be transferred”. For the pi of ascertaining the intention of the regard shall be had to the terms contract, the conduct of the partie circumstances of the case. 2) Transfer of Property in Unascer - MBA First Semester (E52 °C =e speci 5 in a Deliverable Stage Pe Pe ap Where there ie Sectional contract for the sale unconigoods in a deliverable Ste, the Propertne contract is made. and it i wher eral whether the ime of payment of iraiice or the time of delivery Gh por both, is postponed: For example, Boca agrees to sell his horse to Alok fer arto. vAniket agrees 10 receive the eanumnt after one month. Ofer is accepted pine Mlok. Alok shall be the owner of the 0 ‘as the offer has been horse as soon because there is no such Je and horse is in the accepted conditional appl deliverable state. Joods not in Deliverable Stage [Section 21]: Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. For example, A, a boat builder, agrees to sell a boat lying in his yard to B for a set fee; the boat will be painted and fitted for use on the turbulent river, and the payment will be made upon delivery. The property in the boat, as well as the risk, does not pass to B until the boat has been painted and fittes and B has been notified of this. When the Price of Goods is Ascertained by Weighing, ete., [ 2): Where there is a contract for of specific goods in a deliverable s the seller is bound to weigh, me or do some other act or thing with to the goods for the purpose of asc the price, the property does not such act or thing is done and the notice thereof iii) iv) Future Goods: Transfer of pi tunascertained and future goods is as fe i) Where there is a contract for Uunascertained goods, no proj goods is transferred to the buyer until the goods are ascertained. 18) ' Where there is a contract for unascertained or future description and goods of that ii) @ Scanned with OKEN Scanner