Mercantile Law

What is ‘Contract‘?
The term ‘Contract‘ is defined in Section 2(h) of the Indian Contract Act, which reads as under

“An agreement enforceable by law is a contract.”
The analysis of this definition shows that a contract must have the following two elements:

1. An agreement, and
2. The agreement must be enforceable by law.

1. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: THIRD Semester Name of the Subject: MERCANTILE LAW PAPER CODE-203 CLASS-BBA(CAM)

2. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) UNIT 1 CONTRACT INDIAN CONTRACT ACT 1872 What is ‘Contract‘? The term ‘Contract‘ is defined in Section 2(h) of the Indian Contract Act, which reads as under “ An agreement enforceable by law is a contract.” The analysis of this definition shows that a contract must have the following two elements: 1. An agreement, and 2. The agreement must be enforceable by law.

3. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)   In other words: Contract = An Agreement + Enforceability by law Agreement (Section 2(e)0 Every promise and every set of promises forming the consideration for each other is an agreement. Promise (Section 2(b)) A proposal when accepted becomes a promise. Every agreement is not a contract. When an agreement creates some legal obligations and is enforceable by law, it is regarded as a contract. “All contracts are agreements but all agreements are not contract”

4. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) OFFER According to Sec.2(a), when a person made a proposal, when he signifies to another his willingness to do or to abstain from doing something. Implied offer Specific offer General offer Cross offer Counter offer Standing offer Express offer

5. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) According to sec.2(b), when a person made a proposal to another to whom proposal is made, if proposal is assented there to, it is called acceptance. Acceptance must be given as per the mode prescribed by the offerer. Acceptance must be given before the lapse of time or within reasonable time. Acceptance must be unconditional. Acceptance may be given by any person in case of general offer . ACCEPTANCE

6. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)   ESSENTIAL ELEMENTS OF CONTRACT   Agreement Intention to create legal relationship  Free and genuine consent. Parties competent to contract  Lawful consideration. Lawful object. Must be in writing. (Generally, oral contract is not enforceable) Agreement not declared void or illegal .  Certainty of meaning .  Possibility of performance .  Necessary legal formalities.

7. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) FREE CONSENT According to Sec 10 of the Indian Contract Act one of the essentials of a valid contract is “Free Consent” Sec 13 defines “consent” as “Two or more persons are said to consent when they agree upon the same thing in the same sense ”. According to Sec 14, consent is said to be free when it is not caused by: Coercion Undue influence Fraud Misrepresentation Mistake

8. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CONSIDERATION According to sec 2(d) consideration is defined as “when at the desire of the promisor , or 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 an act or absinence or promise is called a consideration for the promise .

9. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CAPACITY TO CONTRACT Following are the condition for a person to enter into contract He must be major He must be sound mind He must not be disqualified by any other law.

10. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) MINOR According to Indian majority act sec(3) minor is defined as any person under the age of 18 years . In the following cases a person is said to be minor if he does not complete the age of 21 years any person under the guardian & wards act , 1890 any person which comes under superintendence of law/legal representative

11. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DISQUALIFIED PERSONS TO ENTER INTO A CONTRACT Minor unsound person others i.e alien enemy, insolvent, convict, company/corporation against MOA / AOA .

12. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) VALID CONTRACTS Absolute contract Contingent contract(Sec. 31-36) Express contract Implied/Quasi contract(Sec.68- 72 ) TYPES OF CONTRACTS INVALID CONTRACTS Void contract Is void(Void - ab - initio) Becomes void Voidable contract Illegal contract Unenforceable contract

13. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DISCHARGE OF A CONTRACT Discharge by performance Discharge by agreement or consent Discharge by impossibility of performance Discharge by lapse of time Discharge by operation of law Disharge by breach of contract

14. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) REMEDIES OF INJURED PARTY A remedy is a means given by law for the enforcement of a right Following are the remedies: Rescission of damages . Suit upon quantum meruit. Suit for specific performance. Suit for injunction.

15. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CONTRACTS OF INDEMNITY A contract of indemnity is a contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other party. UNIT-2 CONTRACT ACT WHAT IS CONTRACT OF GUARANTEE A contract of guarantee is defined as a contract to perform the promise or discharge the liability or a third person in case of his default. The person who gives the guarantee is called the “Surety”, the person from whom the guarantee is given is called the “Principal Debtor” and the person to whom the guarantee I given is called the “Creditor”.

16. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) INDEMNITY A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a ‘contract of indemnity. [section 124]. For Example - A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity. PARTIES TO CONTRACT OF INDEMNITY: INDEMNIFIER: The person who promises to indemnify. INDEMNITY HOLDER: The person whose loss is to be indemnified. Examples: Motor insurance Marine insurance Fire insurance Life insurance is not the contract of indemnity

17. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) RIGHTS OF INDEMNITY-HOLDER WHEN SUED The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor- all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies; all costs which he may be compelled to pay in any such suit, if in bringing of defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit;  all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contract to the orders of the promisor, and was one which it would have been prudent for the promise to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit. RIGHTS OF INDEMNIFIER: The contract act is silent about the rights of indemnifier

18. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CONTRACT OF GUARANTEE  A “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. A guarantee may be either oral or written. [section 126]. PARTIES TO CONTRACT OF GUARANTEE SURETY: The person who gives the guarantee is called the “surety”. Person giving guarantee is also called as ‘guarantor’. ; PRINCIPAL DEBTOR: the person in respect of whose default the guarantee is given is called the “principal debtor”, and CREDITOR: the person to whom the guarantee is given is called the “creditor”. Three parties are involved in contract of guarantee. Contract between any two of them is not a ‘contract of guarantee’. It may be contract of indemnity. Primary liability is of the principal debtor. Liability of surety is secondary and arises when Principal Debtor fails to fulfill his commitments. However, this is so when surety gives guarantee at the request of principal debtor .

19. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) ESSENTIALS OF CONTRACT OF GUARANTEE: Existence of a principal debt . Consideration for a contract of guarantee. There should be no misrepresentation or concealment. Contract of guarantee must contain all the essential elements of valid contract. Contract of guarantee is a complete and separate contract by itself.

20. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) KINDS OF GUARANTEE ABSOLUTE GUARANTEE (unconditional guarantee by surety) CONDITIONAL GUARANTEE (enforceable when contingency along with default happens) RETROSPECTIVE GUARANTEE (given for existing debt) PROSPECTIVE GUARANTEE (given for future debt) LIMITED GUARANTEE (for a single transaction) UNLIMITED GUARANTEE (unlimited as to time or amount) GENERAL GUARANTEE (for acceptance by the public generally) SPECIAL GUARANTEE (for acceptance by the particular person) CONTINUING GUARANTEE (extends to series of transactions)

21. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) RIGHTS OF SURETY AGAINST THE PRINCIPAL DEBTOR Right of subrogation Right to indemnity AGAINST THE CREDITOR Surety's right to benefit of creditor's securities and, (if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security). Surety can rely upon any set off or counter claim which the debtor must possess against the creditor. AGAINST THE CO-SURETIES When several co-sureties have given guarantee for the same debt with their maximum limits, they are liable to pay equally but subject to the limits they have fixed

22. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DISCHARGE OF SURETY Revocation by notice. Revocation by death. Discharge of surety by variance in terms of contract.  Discharge of surety by release or discharge of principal debtor.   Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor. Creditor's forbearance to sue does not discharge surety. Release of one co-surety does not discharge other. Discharge of surety by creditor's act or omission impairing surety's eventual remedy. By the creditor losing his security.

23. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) BAILMENT Bailment is another type of special contract. Since it is a ‘contract’, naturally all basic requirements of contract are applicable.   A “bailment” is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the “bailor”. The person to whom they are delivered is called the “bailee” [section 148]. Bailment means act of delivering goods for a specified purpose on trust. The goods are to be returned after the purpose is over. In bailment, possession of goods is transferred, but property i.e. ownership is not transferred.

24. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CLASSIFICATION OF BAILMENT ON THE BASIS OF BENEFIT Bailment exclusive for Bailor’s benefit. Bailment exclusive for Bailee’s benefit Bailment for mutual benefit. ON THE BASIS OF WILLINGNESS Voluntary Bailment : Express contract between the parties. Involuntary bailment: Arises as per the operation of law.  ON THE BASIS OF REWARDS   Gratituous Bailment :   Where neither the bailor nor the bailee get any remuneration, then, it gratuitous.   Non- Gratituous Bailment :  When either the bailor or bailee get remuneration, then it is known as non-gratuitous bailment.

25. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) RIGHTS OF BAILOR   Right of Termination:   bailor has right to terminate the contract of bailment, if the bailee does any inconsistent act with regards to goods.   Right to Demand Return of Goods:  Any time in case of gratuitous bailment. The bailor can demand back goods bailed at any time even if he had lend it for a specific goods. Right to file a suit against a wrong doer.   Enforcement of Rights:  The duties of bailee are the rights of bailor & bailor can enforce those rights by filing a suit against bailee.   DUTIES OF BAILOR   Duty to disclose known defects:  A bailor is bound to disclose all the defects relating to goods of which he is known.   Duty to Bear Extraordinary expenses: Where the bailment is gratuitous & the bailee is not to receive any remuneration, the bailor shall pay bailee all the necessary expenses.    Bear Risk for Loss:  bailor is to bear risk of loss or destruction of the thing bailed if the bailee had taken prudent care of the goods.   Duty to indemnify bailee: bailor has to indemnify bailee for any loss due to imperfect title in the goods bailed. Duty to receive back the goods: on the expiry of the term of bailment.

26. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) RIGHTS OF BAILEE Right to Interplead:  If the person other than bailor claims the goods, bailee may apply to court to stop the delivery.   Right Against third Party:  If a third person wrongfully deprive bailee to use the goods or cause any injury, then bailee is entitled to such remedies which are available to real owner.   Right of Particular Lien:  When the bailee has rendered some services or skills on the good he had right of particular lien unless he is paid.   Right of General Lien:  Banker, factors, attorney of High Court, policy broker will be entitled to retain as a security for a general balance of account any goods bailed to then.   Right to Claim Compensation in Case of faulty Goods.     Right to claim necessary expenses.   Right to return the goods to any of the joint bailor. 

27. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DUTIES OF BAILEE: Duty of Reasonable care. Duty not to make unauthorized use of goods. Duty not to mix bailor’s goods with his own. Duty to return any profit out.    PARTICULAR LIEN:   It is available to the bailee against such goods in respect of which he has rendered some servicing involving the excerise of labour or skills.   GENERAL LIEN:      It entitles a person to retain the position of goods belonging to another for general balance of account.   Bankers, factor, attorneys of a High Court and policy brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other person have a right retain, as a security for which balance, goods, bailed to them, unless is an express contract to that effect

28. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) PLEDGE Bailment of goods as a security for payment of debts or performance of promise is called pledge.  The bailor is called pledgor or pawnor and the bailee is called Pawnee.   ESSENTIALS OF PLEDGE   Delivery of Goods:  The delivery of goods to pledgee is necessary to constitute a pledge. Delivery of goods should be by way of security. The security being for the payment of debt or the performance of a promise. Goods must be movable. An implied condition to return the goods.   RIGHTS AND DUTIES OF PAWNEE Right of retainer Right of particular lien Right to extraordinary expenses Right in case of default of the pawnor RIGHTS AND DUTIES OF PAWNOR Right of redemption Right to take back the goods.

29. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) PLEDGE BY NON OWNERS Pledge by mercantile agent Where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorized by the owner of the goods to make the same Pledge by person in possession under voidable contract When the pawnor has obtained possession of the other goods pledged by him under a contract voidable under section 19 of section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquired a goods title to the goods, provided he acts in good faith and without notice of the pawnor's defect of title. Pledge where pawnor has only a limited interest Where person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.. Pledge by seller or buyer in possession after sale Pledge by seller or buyer in possession after sale is valid pledge provided it is in good faith.

30. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DEFINITION OF AGENT AND PRINCIPAL AGENT An ‘AGENT’ is a person employed to do any act for another or to represent another in dealings with third persons. The function of an agent is to bring his principal Into contractual relations with third persons. PRINCIPAL A person for whom the above act is done or who is so represented is called the ‘PRINCIPAL

31. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) ESSENTIALS OF RELATIONSHIP OF AGENCY Aggrement b/w principal and agent-: Agency depends on agreement but not necessarily on contract. Any person can become an agent b/w a principal and the third person. Intention of an agent to act on behalf of the principal. CREATION OF AGENCY By express agreement By implied agreement Agency by ESTOPPLE. Agency by Holding out. Agency by necessity. 3. By ratification

32. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DUTIES OF AGENT To carry out the work undertaken according to the directions given by the principal. To carry out the work with reasonable care, skill and diligence. To communicate with the principal in the case of difficulty. To pay sums received for the principal. To protect and preserve the interests of the principal in the case of his death or insolvency. Not to make secret profit from agency . Not to set up an adverse title. Not to use information obtained in the course of the agency against the principal.

33. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) RIGHTS OF AGENT Right of retainer . Right to receive remuneration . Right of lien . Right of indemnification . Right of compensation.

34. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DUTIES OF PRINCIPAL To indemnify the agent against the consequences of all lawful acts To indemnify the agent against the consequences of acts done in good faith To indemnify the agent for injury caused by principal’s neglect. To pay the agent the commission other remuneration agreed . RIGHTS OF PRINCIPAL To recover damages. To obtain an account of secret profits and recover them and resist a C laim for remuneration. To resist agent’s claim for indemnity against liability incurred

35. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) TERMINATION OF AGENCY BY ACT OF THE PARIES Agreement Revocation by the principal Revocation by the agent 2. BY OPERATION OF LAW Performance of the contract Expiry of the time Death of either party Insanity of either party Insolvency of either party Destruction of the subject matter Principal becoming an alien enemy Dissolution of a company

36. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) UNIT-3 SALES OF GOODS ACT, 1930 Transactions in the nature of sale of goods form the subject matter of the Sale of Goods Act, 1930 The Act came into force on 1 July, 1930 It extends to the whole of India, except Jammu & Kashmir This chapter deals with the specific types of contract, i.e., sale of good DEFINITION OF A CONTRACT OF SALE Section 4 defines a contract of sale as “a contract whereby a seller transfers or agrees to transfer the property in goods to the buyer for a price”

37. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) ESSENTIALS OF A CONTRACT OF SALE From the definition, the following essentials of the contract emerge: There must be at least two parties: a sale has to be bilateral because the property in goods has to pass from one person to another. The seller and the buyer must be different persons Transfer or agreement to transfer the ownership of goods: In a contract of sale, it is the ownership that is transferred (in the case of sale), or agreed to be transferred (in the case of agreement to sell), as against transfer of mere possession If for instance, goods are offered as the consideration for goods, it will not amount to sale. It will be called a barter. Where goods are sold for a definite sum and the price is paid partly in terms of valued up of goods and partly in cash, that is sale All other essentials of a valid contract as per the Indian Contract Act, 1872 must be present

38. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) SALE AND AGREEMENT TO SELL SALE Where under a contract of sale, the property (ownership) in the goods is transferred from the seller to the buyer, it is called a sale. Thus, sale takes place when there is a transfer of ownership in goods from the seller to the buyer. A sale is an executed contract AGREEMENT TO SELL Agreement to sell means a contract of sale under which the transfer of property in goods is to take place at a future date or subject to some conditions thereafter to be fulfill.

39. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) GOODS & THEIR CLASSIFICATION 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 the land which are agreed to be severed before sale or under the contract of sale Trademarks, patents, copyright, goodwill, water, gas, electricity are all goods In general, it is only the movables that form good The term goods excludes money Money means legal tender and not the rare coins which can be sold and purchased as goods Money itself cannot be subject of a sale The actionable claims are things which a person cannot make use of, but which can be claimed by him by means of a legal action

40. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DOCUMENTS OF TITLE TO GOODS Any written instrument, such as a bill of lading, a warehouse receipt, or an order for the delivery of goods, that in the usual course of business or financing is considered sufficient proof that the person who possesses it is entitled to receive, hold, and dispose of the instrument and the goods that it covers. A document of title is usually either issued or addressed by a bailee—an individual who has custody of the goods of another—to a bailor—the person who has entrusted the goods to him or her. Its terms must describe the goods covered by it so that they are identifiable as well as set forth the conditions of the contractual agreement. Possession of a document of title is symbolic of ownership of the goods that are described within it.

41. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CLASSIFICATION OF GOODS Existing goods are those which are owned or possessed by the seller at the time of the contract Instances of goods possessed but not owned by the seller are sales by agents and pledge. Existing goods may be either: a) Specific or ascertained b) Generic and unascertained Future goods means goods to be manufactured or produced or acquired by the seller after making the contract of sale Contingent goods are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen. Contingent goods is a part of future goods

42. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CONDITIONS & WARRANTIES ( SEC. 11-17) In a contract of sale, parties make certain stipulations, i.e., agree to certain terms regarding the quality of the goods, the price and the mode of its payment, the delivery of goods and its time and place All stipulations cannot be treated on the same footing Some may be intended by the parties to be of a fundamental nature, eg. Quality of the goods to be supplied, the breach of which therefore will be regarded as a breach of the contract Some may be intended by the parties to be binding, but of a subsidiary or inferior character, eg., time of payment, so that a breach of these terms will not put an end to the contract but will make the party committing the breach liable to damages The former stipulations are called ‘conditions’ and the latter ‘warranties’

43. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CONDITION & WARRANTY DISTINGUISHED AS TO VALUE A condition is a stipulation which is essential to the main purpose of the contract, whereas a warranty is a stipulation which is collateral to the main purpose of the contract. AS TO BREACH The breach of a condition gives the aggrieved party the right to repudiate the contract and also to claim damages. AS TO TREATMENT A breach of condition may be treated as a breach of warranty. But a breach of warranty cannot be treated as a breach of condition .

44. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) EXPRESS & IMPLIED CONDITIONS & WARRANTIES EXPRESS CONDITION OR WARRANT These may be of any kind that the parties may choose to agree upon, eg, it may be agreed that delivery of goods shall be made or taken on or before a certain date. Similarly, in a contract of sale of a car, express warranty as to its soundness may be incorporated IMPLIED CONDITIONS AND WARRANTIES They are deemed to be incorporated by law in every contract of sale of goods unless the terms of the contract show a contrary intention

45. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) TRANSFER OF OWNERSHIP A contract of sale is performed in two inter-related stages Transfer of possession of goods Transfer of ownership of goods Followings reason- Risk of Losses Only owner can sue-if third party destroyed or damaged Insolvency of buyer & Seller-when seller or buyer become insolvent then liquidator can take over property Suit for price-only seller can sue

46. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) C ONCEPT OF NEGOTIABLE INSTRUMENT Negotiable means ‘transferable by delivery,’ and the word instrument means ‘a written document by which a right is created in favour of some person.’ The term “negotiable instrument” literally means ‘a written document which creates a right in favour of somebody and is freely transferable by delivery.’ A negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery. NEGOTIABLE INSTRUMENT ACT 1881

47. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) TYPES OF NEGOTIABLE INSTRUMENTS Negotiable instruments are of two types which are as follows: Negotiable Instruments recognized by status: e.g. Bills of Exchange, Cheque and Promissory Notes. Negotiable instruments recognized by usage or customs of trade: e.g. Bank notes, exchequer bills, share warrants, bearer debentures, dividend warrants, share certificate.

48. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) PROMISSIORY NOTE According to Section 4 , “ A promissory note is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.” An instrument is a promissory note if there are present the following elements:- Writing Promise to pay : Case: Mange Lal Vs. Lal Chand, AIR 1995, Rajasthan High Court Unconditional Case: Roberts Vs Peake Money only and a certain sum of money Certainties of parties Signed by the maker

49. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) BILL OF EXCHANGE According to Section 5, A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A banker’s draft A demand draft even if it drawn upon another office of the same bank An order issued by a District Board Engineer on Government Treasury for payment to or order of a certain pers on

50. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) DISHONOUR OF CHEQUES According to Sec. 138 Dishonour of cheque for insufficiency, etc. of funds in the account – where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed that offence and shall, without prejudice to any other provision of this Act .

51. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) NATURE & MEANING An association of like-minded persons formed for the purpose of carrying on some business or undertaking. A company owes its existence either to a special Act of Parliament or to Company Legislation. “An association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business and who share profit and loss arising there from.” Lord Justice James UNIT 4 COMPANIES ACT 1956

52. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CHARACTERISTICS Corporate Personality Limited Liability Perpetual Succession Separate Property Transferability of Shares Common Seal Contractual Rights Capacity to sue and be sued Limitation of Action Separate Management Termination of its Existence

53. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) TYPES OF BUSINESS ORGANISATIONS NON CORPORATE Proprietorship Collective Ownership HUF Partnership Partnership at Will Joint Ventures CORPORATE Reg. Companies Unlimited Companies Pvt. Ltd. Companies Pub. Ltd. Companies Govt. Companies Corporation Statutory Trust Society

54. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CLASSIFICATION OF COMPANIES On the Basis of Incorporation Chartered Companies Statutory Companies Registered Companies On the Basis of Liability Unlimited Companies Companies limited by Guarantee Companies limited by shares Companies limited by shares and Guarantee On the Basis of Membership Private Company Public Company Holding Company Subsidiary Company

55. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) MEMORANDUM OF ASSOCIATION It contains the fundamental rules regarding the constitution of the company. It lays down how the company is going to be constituted and what work it shall undertake. It sets out the constitution of the company. It is a foundation on which the structure of the company stands. Its purpose is to enable the shareholders, creditors, and those who deal with the company to know what is the permitted range of its enterprise. It defines as well as confines the power of the company

56. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) CONTENTS OF THE MEMORANDUM Name Clause Registered Office / Situation Clause Object Clause- main objects and other objects Liability Clause- limited by share or guarantee Capital Clause. Association Clause DOCTRINE OF ULTRA VIRES An act or transaction, which may not be illegal, is beyond company's power by not being within the object of the Memorandum. An act ultra vires the company is incapable of ratification. Act which is intra vires the company but outside the authority of directors may be ratified by the company in proper form. The shareholders can ratify an act ultra vires the directors.

57. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) ARTICLES OF ASSOCIATION Articles are by-laws or rules and regulations for the govern the management of its internal affairs and conduct of business. It also includes regulation contained in Table A of Schedule I. Deals with the rights of the members inter se. Articles are subordinate to and controlled by Memorandum. Unlimited companies, companies limited by guarantee and private companies must have their own Articles of Associations. Must be printed, divided into paragraphs, numbered consecutively, stamped adequately, signed by each subscriber to Memorandum and duly witnessed.

58. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) PROSPECTUS " Any document described or issued as a prospectus and includes any notice, circular, advertisement, or other document inviting deposits from the public or for the subscription or purchase of any shares in, or debenture of a body corporate." [(Section 2(36)]

59. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) STATEMENT IN LIEU OF PROSPECTUS of Promoters are required to prepare a draft prospectus known as statement in Lieu of Prospectus. A copy of it must be filled with the RoC at least three days before any allotment of shares is made. It contains similar particulars as are required for a prospectus. No minimum subscription is required to be stated. The process of issuing securities through a statement in lieu of prospectus is a kind of private placement.

60. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) SHARE CAPITAL In relation to a company limited by share it means share capital - in terms of rupees divided into specified number of shares of a fixed amount each. The memorandum must state the amount of capital and its various division. Nominal, Authorised or Registered Capital Issued Capital Subscribed Capital Called-up Capital Un-called Capital Paid-up Capital

61. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) KINDS OF SHARES Two classes of Shares [Sec 86 as amended in 2002] - Equity Share [Sec 85(2)] "Equity Share Capital means all share capital which is not preference share capital." The equity shareholders receive dividend out of profits declared in AGMs. Dividend declared only after depreciation allowance and payment of preference shareholders. Voting right is in proportion to paid-up equity capital. Preference Shares [Sec 85(1)] Preference shares capital is that part of share capital which fulfills following two conditions-carries preferential right with respect to dividend- fixed amount or at fixed rate; and carries preferential right with respect to repayment of capital on winding up.

62. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) BOARD OF DIRECTORS "A director includes any person occupying the position of director by whatever name called." [Section 2(13)].Only individual, and not a body corporate, association or firm, shall be appointed as director. [Section 253]"An individual who direct, control, manage, superintend the affairs of the company in the form of the board of directors.“ Professional Directors Specialist in different fields of management. Income derives principally from sitting fees. Nominee Directors Appointed by FIs, or Banks Powerful tool of project supervision, monitoring and control. Executive Directors Is a full time employee of the company. May not be members of the board, as such not a director in strict sense.

63. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) TYPES OF DIRECTORS Independent Directors Do not have any material pecuniary relationship or transaction with the company. Entitle to receive director's remuneration. Government Directors (Section 408) Appointed by the Central Government on the recommendation of the CLB. To safeguard the interest of the company or its shareholder or in public interest. When the operations of the company are conducted in such a manner as to oppress any member of the company or in a manner prejudicial to the company. Whole-time Directors [Section 269(1)] Includes a director in the whole time employment of the company. Technical director, legal director, works director sales director if appointed on full time basis. Executive directors have employment stake in the company. They wield substantial power, enjoy maximum remuneration, perquisites, fees, commission and allowances. Part-time directors get only sitting fees for the board meetings attended by them and wield little or no powers.

64. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) QUALIFICATION OF DIRECTORS According to Sec 274 a person shall not be capable of being appointed as director if: found to be of unsound mind; an un-discharged insolvent; applied to be adjudicated as an insolvent; convicted of any offence involving moral turpitude and sentenced for not less than six months and a period of 5 years has not elapse. has failed to repay the deposits or interest thereon or redeemed its debentures. Only individuals can be a director. [Sec 253]

65. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) COMPANY MEETINGS A company being an artificial person expresses its will or takes its decision through resolutions passed at regularly convened meeting of the general body of the shareholders, and the directors. The companies Act provide the shareholders a forum of self-protection, which is general meeting of shareholders. The shareholders can use the forum to appoint directors as well as auditors of their own choice who may safeguard them from the possible manipulation. The business of the meeting is conducted in the form of resolutions proposed and passed .

66. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) TYPES OF COMPANY MEETINGS Shareholders Meetings Statutory Meeting under Section 165; Annual General Meetings under Section 166; Extraordinary General Meetings: Convened by directors between two AGMs Meetings of the Board of Directors. Meetings of the Board Committee. Class Meetings of Shareholders. Meetings of the Debenture holders. Meetings of the Creditors. Meetings of the Contributories in winding u

67. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) THANK YOU