BUSINESS LAW NOTES. Example: there is a Contract between X and Y where Y is a minor who has no capacity to contract. It is Void Contract.

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Griffin McKinney
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1 BUSINESS LAW NOTES Kinds of contract 1. Types of Contracts On the basis of Validity On this base Contracts can be classified into 5 groups. namely Valid, Void, Voidable, Illegal and Unenforceable Contracts. Valid: The Contracts which are enforceable in a court of law are called Valid Contracts. To attain Validity the Contract should have certain features like consensus ad idem, Certainty, free consent, two directional consideration, fulfillment of legal formalities, legal obligations, lawful object, capacity of parties, possibility of performance, etc. Example: there is a Contract between X and Y and let us assume that their contract has all those above said features. It is Valid Contract. Void: A Contract which is not enforceable in a court of law is called Void Contract. If a Contract is deficient in any one or more of the above features (Except free consent and legal formalities). It is called Void Contract. Example: there is a Contract between X and Y where Y is a minor who has no capacity to contract. It is Void Contract. Voidable: A Contract which is deficient in only free consent, is called Voidable Contract. That means it is a Contract which is made under certain pressure either physical or mental. At the option of suffering party, a voidable contract may become either Valid or Void in future. For example: there is a Contract between A and B where B has forcibly made A involved in the Contract. It is voidable at the option of A. Illegal: If the contract has unlawful object it is called Illegal Contract. Example: There is a contract between X and Z according to which Z has to murder Y for a consideration of Rs /- from X. It is illegal contract. 2. Types of Contracts on the basis of Formation On this base Contracts can be classified into three groups, namely Express, Implied, Quasi Contracts. Express Contracts: The Contracts where there is expression or conversation are called Express Contracts. For example: A has offered to sell his house and B has given acceptance. It is Express Contract.

2 Implied Contract: The Contracts where there is no expression are called implied contracts. Sitting in a Bus can be taken as example to implied contract between passenger and owner of the bus. Quasi Contract: In case of Quasi Contract there will be no offer and acceptance so, Actually there will be no Contractual relations between the partners. Such a Contract which is created by Virtue of law is called Quasi Contract. Sections 68 to 72 of Contract Act read about the situations where court can create Quasi Contract. QUASI CONTRACTS In case of Quasi Contract, there will be no offer and no acceptance either on express base or on implied base. But under certain circumstances Court creates contract between the parties artificially and thus binds over the parties. Such contracts which are created by virtue of law are called Quasi Contracts. Section 68 to 72 of Contract Act read about the situations where court can create Quasi Contract. Section 68 - when necessaries are supplied: When one party supplies necessaries to the other (without request), a quasi contract comes into force. A case on this point is Chaval Vs Cooper. Section 69 - When expenses of one person are paid by the other: When expenses which are to be paid one party are paid by another party, the parties are said to be under quasi contract. A case on this point is Hazarilal Vs Navaranglal. In this case B purchases A`s agricultural land. On that land cess is in arrears for a longer period which are actually to be cleared by A, But B pays that amount. Here Court creates a quasi-contract between them under Section 69 and thus capacitates B to recover that amount from A. Another case on this point is Govindram Govardhan Das Vs State of Gondal. Section 70 - When one party is benefited by the activity of another party: When one party conducts an activity and its benefit is attained by another party, then also Court can create a quasi-contract. A Case on this point is DamodarModaliar Vs Secretary of State for India. In this case A is resident of a Village. The local government conducts repairs to the tank situated at A`s village. As a result A gets benefited because the surrounding lands belong to A. Here Court creates a Quasi Contract and decides that A has to bear cost of repairs. Section 71 - In case of finder of lost goods: Court can create a quasi-contract in case of finder of lost goods.

3 Related case is Hallius Vs Fowler. In this case B finds a diamond at A`s shop and hands it over to A, requesting A to send the diamond to true owner. True owner is not found. When true owner is not found. Finder gets the title. No one can claim share in it. Here court creates a bailment contract between B and A and thus capacitates B to get diamond back. Section 72 - When payment is made by mistake: When ever payment is made by mistake or goods are delivered by mistake, Court can create a quasi Contract. A case on this point is Khaniyalal Vs Sales Tax Officer of the Banaras. In this case Mr. A pays Sales tax by mistake though he is need to pay. Here Court creates a quasi Contract and capacitates A to recover that amount. BAILMENT CONTRACTS A Contract where one party delivers goods to the other upon return basis to fulfil a specific purpose is called bailment contract. It includes two parties namely; bailer and bailee. The person who is delivering the goods is called bailer and the person to whom goods are delivered, is called bailee. Example: A has handed over his fan to B for the purpose of repairs. It is bailment contract. A is bailer and B is bailee. Similarly X has handed over his dress Y for the purpose of washing. It is also bailment Contract where X is bailer and Y is bailee. Types of Bailment Contracts The bailement contracts are classified into Gratuitous bailments and Non Gratuitous bailments. Gratuitous Bailments: If there is only one directional consideration, it is called Gratuitous bailment. In here, the bailment contract is for the benefit of either the bailer or the bailee only. Example 1: Mr. A, while going to abroad, has handed over his gold to this friend namely B for Safe custody. Here bailer only is getting benefited. Example 2: Y has taken Scooter for X who is his friend for 1 day. Here only bailee is being benefited. Non Gratuitous bailments: If there is two directional consideration it is called Non- Gratuitous bailment. In here, the bailment contract is for the benefit of both parties. Example: X has handed over his dress to B who is owner of a laundry for washing. At a charge of Rs. 10/-. Here both parties are being benefited. Features of Bailment 1. In case of bailment, as there is delivery of goods, there will be change in procession.

4 2. Though there is change in possession, there will be no change in title. 3. Bailment includes return of goods after fulfillment of purpose. 4. In delivering the goods, there must be specific purpose. Difference between Bailment and Sale BAILMENT 1. Here parties are called bailer and bailee. 1. Here parties are called buyer and seller. 2. There must be returnable. 2. Such rule is not applicable. 3. There is no question of Shipping of title. Though procession goes to bailee, title rests with bailer. 4. The concept of bailment is applicable to movable property only. 5. Bailment may be with one directional consideration or two directional consideration. Rights and Duties of Bailer Rights of Bailer 3. Here title will get shifted from seller to buyer. 4. The concept of Sale is applicable to both movable and immovable. 5. Sale always will be with two directional consideration. 1. If bailee does not take care and destruction of goods takes place, bailer can claim compensation. 2. If bailee uses the goods for un-authorized purposes, bailer has the right to claim compensation. 3. Bailer has the right to claim return of goods. 4. Bailer has right to claim not only delivered goods but also accruals on goods if any. 5. In case where bailee has mixed the goods and they are of sufferable nature, bailer can claim cost of separation from bailee. 6. In case where the goods are of insufferable nature, bailer has right to claim compensation. 7. Bailer has right to repudiate the Contract of bailment whenever he wants but, by doing so, if bailee comes across any suffering, bailer has to compensate. Duties of Bailer 1. Duty to dispose faults: Bailer should disclose faults present in goods at the time of making delivery. Faults are of two types namely ; Known faults and Un-known faults. On the other hand bailments also are of two types namely Gratuitous bailment and Non- Gratuitous bailment. In case of gratuitous bailment, bailer is liable to compensate for bailee injuries arising out of known faults. In Gratuitous bailment, bailer is not answerable to un-known faults. In case of Non-Gratuitous bailment, bailer is answerable to both known faults and Un-known faults. 2. Duty to contribute for expenses: Bailer should Contribute for expenses incurred by bailee. In case of Gratuitous bailment, bailer need not contribute for ordinary expenses

5 and extra ordinary expenses or to the contributed by bailer. In case of Non-Gratuitous bailment, bailer should contribute for both ordinary expenses and extra ordinary expenses. 3. Duty with regard to defective title: In case where bailer has delivered the goods with defective title, the bailee may come across suffering from the side of true owner due to bailers defective title. In such a case bailer with defective title should compensate bailee. 4. Duty to Indemnify: Principal of indemnity operates between bailer and bailee, where bailer becomes implied indemnifier and bailee becomes implied indemnity holder. So bailer has duty to indemnify bailee. 5. Duty to take the Goods back: After fulfillment of purpose bailee returns the goods to bailer. Then bailer should take them back. If bailer refuses to take the goods back, bailer has to compensate bailee. Rights and Duties of Bailee Rights of Bailee 1. Bailee has right to claim compensation for injuries arising out of faults present in goods, If it is gratuitous bailment, bailee can make bailer answerable with regard to known faults only. But not to un-known faults. In case of Non-gratuitous bailment bailee can make bailer answerable to known as well as un-known faults. 2. Bailee has right to claim contribution for expenses. If it is Gratuitous bailment, bailee can claim only extraordinary expenses. But in case of Non-Gratuitous bailment, bailee can claim both ordinary and ordinary expenses. 3. In case where bailer has given goods with defective title and bailee, therefore, comes across suffering, then such bailee has right to get compensated by defective titled bailer. 4. Bailee has right of indemnity, for making involvement in bailment Contract, bailer can make bailee answerable. 5. Bailee has right of lien. It is only particular lien. That means he can exercise right of lien against those goods only on which amount is due. 6. Bailee can return the goods to any one of the joint owners. 7. In times of need Bailee has right to approach Court of law. Duties of Bailee 1. Bailee should take reasonable care on goods. 2. Bailee should not use the goods for an unauthorized purpose. 3. Bailee should not setup adverse title. 4. Bailee should return the goods after fulfillment of purpose. 5. Bailee should return not only delivered goods, but also additions. 6. Bailee should not mix up the goods with his own goods or others goods. If bailee has mixed the goods and the goods are of sufferable nature, bailee has to face the cost of separation. If the goods are of insufferable nature, bailee has to compensate bailer.

6 Indemnity Contract In the contract of Indemnity, a person agrees to rescue another person who is a party of some other contract and come across any loss out of the same. The loss can be incurred from the act of any party or by any means in that contract. In the indemnity contract, the person who comes to the rescue of the other person to make good the loss is known as Indemnifier. The other one whose loss is made good is known as Indemnified or also called as Indemnity-Holder. Example: A and B are in the contract of Indemnity. B is in a contract with C regarding a sum of Rs 10000/-. According to the contract of indemnity between A and B, A agrees to rescue B from any consequence that occurs from the contract of B s of Rs 10000/- with C. Types of Indemnity The indemnities are of two types; 1. The Express Contract of Indemnity 2. The Implied Contract of Indemnity Express Contract of Indemnity: When the contract of indemnity is written or orally consented, then such indemnity contracts are said to be Express Contract of Indemnity. Example: A and B are into the contract of Indemnity. A agrees to reimburse the loss incurred by B from a contract with C of some so-called amount. Implied Contract of Indemnity: When the contract of indemnity is applied by a statute or by a common law that is in existence, then such indemnity contracts are said to be Implied Contract of Indemnity. Example: A and B are agent and principal. A has to supply goods to B for his business. A supplied goods but B did not want them and denied taking the same. A can sell the goods and if he incurs any loss while selling them, then B has to make good the loss of A and the statue or the common law will ensure the same.

7 WHAT ARE THE RIGHTS OF UNPAID SELLER The seller who has not received price of goods sold or the seller who has got his negotiable instrument dishonored will become Unpaid Seller. Sale of goods act, 1930 Section 45 to 55 read about the rights of Unpaid Seller. Those rights can be classified into two groups. They are as follows. Rights against Goods Rights against Buyer What are the Rights of Unpaid Seller against Goods When goods are in existence and title has not gone to buyer, Unpaid Seller can exercise the rights against goods. These rights are categorized into three types. They are as follows. 1. Right of lien 2. Right of stoppage in transit 3. Right to Re-Sell Right of lien Right to retain goods by unpaid seller till amount is recovered is called right of lien. If unpaid seller wants to exercise right of lien, he has to fulfill the following conditions. He must be unpaid seller There should be no credit terms in the Contract of Sale. After completion of credit period, right of lien can be exercised. The unpaid seller should have obtained those goods lawfully. Amount must be due on those goods only against which right of lien is decided. Right of stoppage in transit Unpaid Seller has right to stop the goods in the transit itself. To exercise this right the following conditions are to be fulfilled. He must be unpaid seller. Buyer must be insolvent.

8 There should be no credit terms in the Contract of Sale. After expiry of Credit period, this right can be exercised. Amount must be due on those goods only against which this right is desired. At times the transport company may refuse to deliver the goods to buyer due to any reason. Then the goods are said to be in transit. At times, the buyer may retain the goods at the transport company. Then the goods are said to be not in transit. Right to re-sale The unpaid seller can re-sell the goods for non-payment of price by buyer. He can exercise this right when the goods are of perishable nature while doing so it is beneficiary to the seller to give a notice to buyer with regard to resale. If such notice is given seller can claim loss. If any on resale from the buyer. On the other hand if there is profit on resale the former buyer cannot claim that profit. If notice is not given the seller has to face adverse consequence. If there is any loss on re-sale, that loss cannot be recovered from buyer. But in case of profit, seller has responsibility to pay that amount of profit to buyer. What are the Rights of Unpaid Seller against Buyer At times it becomes inevitable choice to exercise rights on buyer for non-payment of price. The unpaid seller can file suits against the buyer as explained below. Right to sue for price It is fundamental right of buyer to file a suit for recovery of unpaid price. In the case of sale. Suit will be made for price balance, but not for compensation. Right to sue to interest If the buyer makes unreasonable delay for making payment, the seller has right to claim interest also. Right to sue for compensation When an agreement to sell is breached, the seller can see only for compensation for the breach of Contract. Under such circumstances he cannot sue for price.

9 Right to Sue for anticipatory contract When an agreement to sell is breached by buyer before date of performance. It is called anticipatory breach. Then also seller can sue for compensation. CONTRACTS MADE BY MINORS Minors suffer from mental deficiency. They have no Capacity to Contract. According to Indian law those persons who have not completed the age of 18 years are minors and in England Minority extends up to 21 years. Contracts made by Minors as per Indian law Minor Contracts are ab-initio Void: Contracts made by minors are Void from the beginning itself. Example: A case on this occasion is Mohirb bee bee Vs Dharmabas Ghosh. Ratification is not Valid: A Contract made by minor cannot attain Validity though it is ratified after becoming a major. Since minor contract is ab-initio Void, ratification cannot bring Validity. Estoppel principle is not applicable to Minors: Though there is very strong evidence to say that a person is a major, without applying Estoppel principle, chance will be given to that person to prove minority. Restitution of fraud: Law has given and certain protection to minor. Minor should make use of such protection for defense purposes only and not for offence purposes. If minor fraudulently obtains property, then he is under obligation to return that property to person concerned. But the provision differs if it is matter of money. Minor as Partner: According to the provisions of partnership act, Partnership is result of agreement. As minor has no capacity to contract he cannot be a partner. But partnership act reads about minor partner. With the consent of all other partners, A minor may be admitted as a part to the benefits of the firm and with limited liability. Minor as Share Holder: Obtaining shares in a Company is also a Contract. (It is known that prospectus is invitation to make offer, share application is offer and Allotment is acceptance.) Therefore minor cannot attain membership in a company. But by obtaining fully paid up shares on the basis of transfer, minor can get share holder ship in a Company. Minor as Agent: A minor can act as an agent according to the provision of law of agency principle should have capacity to contract. But no emphasis is seen with regard to agent`s capacity to Contract. Whenever agent enters into a Contract in his capacity as agent, It is implied that the Contract is made by principle himself. So minor can act as an agent. Minor and Necessaries: According to Indian law also, If minor Contract is made for necessaries, It attains Validity.

10 Minor and Negotiable Instruments: A minor can execute all types of negotiable Instruments in his capacity as agent. Minor and Parents: To Contracts made by minors, their parents are not answerable. Other party to the Contract cannot proceed against minor`s parents to obtain consideration concern. Minor as beneficiary: In a trust arrangement minor can be a beneficiary. Though he is a stranger to Contract, he can proceed legally against the trustee in case where trustee comes across breach of trust.

SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL) Subject: Business Law

SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL) Subject: Business Law Sample Questions: Section I: Subjective Questions 1. Who can be called sleeping or dormant partner? 2. Write a short note on future goods. 3. Differentiate between illegal and void agreements. 4. X gives