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    CORPORATE LEGALENVIRONMENT

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    CORPORATE LEGAL ENVIRONMENT Law in simple terms means Rules

    With the growth of society and welfare statecivilization has demanded a reformed set of rulestime and again.

    Laws have been often being subject to change tomeet the practical needs of society and attempting to

    achieve security and uniformity in its application. Law includes all the rules & principles which

    regulate our relations with other individuals and withthe state.

    By AustinA law is a rule of conduct imposed and

    enforced by the Sovereign.

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    The terms Business, Commercial and Mercantile aresynonymous.

    Business law is a branch of General law (civil). It relatesto industry, trade & commerce. It should be understood that Business law is not

    altogether distinct and separate form other branches oflaw.

    With the growth of trade and commerce, old acts wereamended and other new Act were introduced to meet therequirement of time.

    Mercantile law deals with rights & obligations arising outof mercantile transactions or business transactions.

    A mercantile person ins one who enters into businesstransactions and may be an individual, an association ofpersons such as partnership or a company. Mercantilelaw is also called as Business law or Commercial law.

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    For proper conduction of business, set of rules andregulations are essentially required in order to control andmonitor the business activities.

    With the complexities of modern business world, thescope of business law had widened enormously.

    It includes : Contract Law

    Partnership law. Sales of Goods Negotiable Instrument Arbitration

    Company Law Out of all these law, contract law is applicable and basisof Mercantile law. All these laws are subject toamendments made by State or Central Govt. as per theneeds and requirement at a given point of time, but sincethese are statutory laws, minimum changes are effected.

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    CONTRACT LAW, 1872 Law of Contract is mainly based on English Common

    law. It commenced from 1st Sept. 1872. Scheme of the Act : General principles of law of Contract (Sec. 1-75). Specific kind of contract : (Sales & Goods Repeated) Contract of Indemnity & Guarantee. (Sec. 124-147) Contract of Bailment and pledge. (Sec. 148-181). Contract of Agency (Sec . 182-238).General Interpretation & Def. :Sec 2

    (a) When one person signifies to another hiswillingness to do or to abstain from doing anything,with a view to obtain the assent of that other to suchact or abstinence, he is said to make a proposal.

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    (b)When the person to whom the proposal is made signifieshis assent thereto, the proposal is said to be accepted.A proposal, when accepted, becomes a promise.

    (c)The person making the proposal is called the Promisorand the person accepting the proposal is called thePromisee.

    (d)When at the desire of the Promisor, the Promisee or anyother person has done or abstained from doing, or

    promises to do or to abstain from doing, something,such act or abstinence or promise is called asconsideration for the promise.

    (e)Every promise and every set of promises forming theconsideration for each other is an agreement.

    (f) Promises which form the consideration or part of theconsideration for each other, are called Reciprocalpromises.

    (g)An agreement not enforceable by law is said to be void.(h) An agreement enforceable by law is contract.

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    Essential of a Valid ContractAs per Sec 2 (h)

    An agreement enforceable by law is aCONTRACT.For an agreement to become a contract followingessential conditions or elements must be fulfilled

    1. Offer & Acceptance It means there must be an offer

    by one party and its acceptance by the other. Theoffer when accepted becomes agreement.2. Mutual Consent the parties to an agreement must

    have mutual consent. They must agree upon thesame thing in same manner.

    Ex- W&V horse.3. Legal Obligation An agreement must create legalobligation, which means obligation which isenforceable by law.

    4. Ex : Invitation to dine, failing to serve, cannot sue

    (Social agreement).

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    4. Free consent - There must be free consent of the of theparties, a consent is not free, when it is obtained bycoercion, undue influence, fraud or misrepresentation of

    facts etc. NO VALID CONTRACT IF NO FREECONSENT.

    Ex : Signing of documents.5. Parties must be competent to contract : Parties must be

    capable of entering into contract.

    Minor, persons of unsound mind are not competent tocontract.

    NO VALID CONTRACT IF PARTIES NOT COMPETENT.

    6. Lawful Consideration : In a contract there must be alawful consideration. Lawful consideration is that whichis not fraudulent, forbidden by law, immoral or apposedto public policy.

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    Consideration is the price of promise, or something inreturn.

    Ex: A agrees to sell his car to B for 1,00,000, now Bs

    promise to pay the 1,00,000, consideration for A . andVice versa.7. Lawful object : Object of the agreement must be lawful.

    Lawful object means which is not fraudulent, forbiddenby law etc. IF THE OBJECT IS NOT LAWFUL THERE

    IS NO VALID CONTRACT.Ex: Agreement for distributing money gained fromunlawful means.

    8. The Agreement must be certain : Meaning of theagreement should be certain. An agreement whose

    meaning is not certain is not valid.Ex : A agreed to B to sell a hundred tones of oil. Her itis not clear what kind of oil it is.

    9. The performance must not be impossible - Theperformance of an agreement must be possible. An

    agreement to do impossible act is not valid.

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    Classification of Contracts : According to enforceability i.e. Legal validity. According to formation i.e. mode of creation. According to performance.I. According to enforceability - Contract may be classified into the following types

    according to their enforceability or legal validity

    1) Valid contract a contract enforceable under law is avalid contract (Sec. 10).2) Void Contract a contract which is not enforce able by

    law. Ex: Car Destroyed - cannot be sold.3) Voidable ContractFree Consent is an important

    aspect of a contract. Now if the consent of a party istaken by fraud or other illegal means then the contract isvoidable at the instance of the party being defrauded.

    Ex : Factory production 200 units, where as in reality itproduced 1000 units, the purchaser has an option to put

    an end to the contract.

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    4) Unenforceable Contracts are those which cannot beenforced in a court of law because of some technicaldefects, e.g. If there is a requirement that at contract

    must be in writing or it must be registered, or it beproperly stamped, then if these requirement are not metthen the contract becomes unenforceable, though it is avalid contract otherwise.

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    II. Classification of Contract according to their mode ofcreation or formationExpress Contract : is that which is mode in writing or by

    the words and month. Ex : A wrote a letter to B, I am prepared to sell my car forRs. 50,000,. B accepted the offer by letter. This is aExpress contract.

    2. Implied Contract is that which is not made in words.

    Such contracts come into existence on account of act orconduct of the parties. Ex: A went to a restaurant, and took a cup of tea. In this

    case, there is an implied contract that he will pay for thecup of tea.

    3. Quasi Contract are not contracts as there is nointension of the parties to enter into a contract. It is anobligation which the law creates in the absence of anyagreement.

    Ex : A, a tradesman, left certain goods of Bs house bymistake. B treated the goods as his own. B is bound to payfor the goods.

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    III.Classification of Contracts according to theirperformance -

    1. Unilateral contract is a one sided contract in which only

    one party has to perform his obligation while the otherparty has performed his obligation.Ex : A, advertise for his lost son, t hat the would pay50,000 to any one who find him, B found the boy, in thiscase B has already performed his obligations and then

    the contract courses into being, whereas now it onlyremains that A pays Rs. 50,000 to B.2. Bilateral Contract is one in which both obligation are

    outstanding, for the parties. Ex : Am agrees to coach B, a premedical student form

    the first day of the next month, and B in considerationpromise to pay Rs. 1000 as per month such a contractis bilateral as both parties are required to discharge theirobligation.

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    OFFER & ACCEPTANCE PROPOSAL OR OFFER : Essentials for an offer or proposal i) There must be an expression of the willingness. ii) The expression of willingness to do or to abstain

    from doing something must be to another person. iii) The expression of willingness to do or to abstain

    from doing something must be made with a view toobtaining the assent of the other person to such act orabstinance.

    Rules regarding a Valid Offer : 1) An offer may be expressed or implied.

    Ex : A say to B that he is willings to sell his mobiketo him for Rs. 20,000 this is an expressed offer. Ex: A shoe shiners starts shining some ones shoes

    without being asked to, so in such case any reasonableman would guess that he expects to be paid for this.

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    2) An offer must give rise to legal consequences. Ex: Offer of dinner at friends place, or offer to ones wife

    to show her a movie are not valid offer. But in business transactions for any agreement it is

    taken for granted that parties intend legal consequencesto follow.

    3) The term of offer must be certain and not vague.

    4) An invitation to offer is not an offer.

    Ex: An advertisement for sale of goods by auction doesnot amount to an offer, it merely invites offer, actual bidsare made at the auctions are offers.

    5)An offer may be Specific or General. Ex: Made to definite persons, or general public or world

    at large.

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    6) An offer must be communicated to the offeree. Unless the offer is made known to the offeree there can

    be no acceptance and no contract.

    Ex: A, without knowing that a reward has been offered forarrest of a particular criminal, catches the criminal andgives the information to the police. A cannot recover thereward as he cannot be said to have accepted the offerwhen he was not aware of it.

    7. An offer can be made subject to any terms andconditions.Lapse & Revocation of offer1) An offer lapses after stipulated or reasonable time. An offer lapses if acceptance is not communicated within

    the time prescribed in the offer or within a reasonabletime. Ex: An application for allotment was made on 8th June,

    the company notified its allotment on 23 November,. Itwas held that the offer has lapsed due to delay of the

    company in notifying their acceptance, so the person wasnot bound to accept the shares.

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    2) An offer lapses by rejection made by the offeree, it canbe by spoken words, writing or implied.

    3) An offer lapses by the death or insanity of the offeror orthe offeree before acceptance.

    4) An offer lapses by revocation, at any time beforeacceptance, by communication of notice of revocation bythe offeror to the other party.

    Ex : an Auction sale, A makes the highest bid, butwithdraws before the fall of hammer, thus, the offer isrevoked by of before its acceptance.

    5) Revocation by non-fulfilment of a condition precedent toacceptance.

    Ex: A offers to sell his can to B if he joins his club, nowBs joining the club is a condition precedent in this case.

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    Acceptance When the person to whom the proposal is made signifies

    his assent, the proposal is

    said to be acceptedLegal Rules for a valid Acceptance :1. Acceptance must be given only by the person to whom

    the offer is made. If you propose to make a contract withA, then B cannot substitute himself for A without yourconsent.Ex : Class of people or world at large.

    2. Acceptance must be absolute & unqualified (Counteroffer)

    Even slight deviation from term of offer makes theacceptance invalid.3. Acceptances must be expressed in some usual and

    reasonable manner, unless the proposal prescribed themanner in which it is to be accepted.

    Express & Implied.

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    4. Acceptance must be communicated by the acceptor. 5. Acceptance must be given within a reasonable time

    and before the offer labses and/or is revoked. 6. Acceptance must succeed the offer. 7. Rejected offers can be accepted only if renewed. Communication of Offer, Acceptance & Revocation 1. Communication of an offer is complete when it

    comes to the knowledge of the person to whom it ismade. 2. Communication of acceptance has two aspects as

    against the proposer and as against the acceptor. The communication of an acceptance is complete

    (a) as against the proposer, when it is put in a course oftransmission to him, so as to be out of power of theacceptor and (b) as against the acceptor when it comesto the knowledge of the proposer i.e. when the letter ofacceptance is received by t he proposes.

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    3. Communication of a revocation The communication of a revocation is complete (a)

    against the person who makes it when it is put intocourse of transmission to the person to whom it is made,so as to be out of the power of the person revoking. (b)as against the person to whom it is made, when it comesto his knowledge i.e. when the letter of revocation isreceived by him.

    CAPACITY OF PARTIESMINOR A person, domiciled in India, who is under 18 years of

    age is a minor. But in case where guardian is appointedby a court, and minors whose property superintendencehas been assumed by a court of wards, in that casemajority attainment is considered at the age of 21 years.

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    Minors Agreements

    1) An agreement by a minor is absolutely void andinoperative as against him, law acts as the guardian ofminors and protect their right because their mentalfaculties are not mature.

    No Restitution except in certain cases A minor cannotbe ordered to make compensation for a benefit obtainedunder a void agreement.

    Court may compel restitution by a minor when he is aplaintiff.

    Ex- A minor sells a house for 5,00,000 and later files asuit to set aside the sale on the ground of minority, thenhe may be directed by the court to to refund purchasemoney received by him before the can recoverpossession of the property sold. (Jager Nath Singh V/sLalta Prasad).

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    2. Beneficial agreement are valid contract. Court protects the right of minors. Thus any agreement

    which is of some benefit to the minor and under which he

    is required to bear no obligation is valid. A natural guardian is empowered to enter into a contract

    on behalf of the minor and the contract would be bindingand enforceable if the contract is for the benefit of theminor.

    Ex : When a Minor purchase of property was, after hispurchase, dispossessed by a third party, it was held thatthe minor could recover from his vendor the sum which hehas paid as purchase party.

    3) Contract of apprenticeship and Service by Minor : A Contract of apprenticeship is valid and binding upon a

    minor (not less than 14 years of age) because such acontract is protected by Apprentices Act 1961.

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    This was to enable children learn trades, craft etc. sothat when they are of full age they may gain a livelihood.

    Ex : An agreement of service by a minor is validbecause a minors promise to service would noconsideration for the promise of the other party to payhim salary.

    4) No ratification on attaining the age of majorityRatification means subsequent acceptance of anagreement or act..

    A minors agreement is nullity or void, it cannot beratified on attaining majority age.

    Ex : If an advance is made to a minor during hisminority, a promise to pay back after he attains age ofmajority is not enforceable.

    5) Rule of estoppels does not apply to a minor.

    Estoppel has been defined u/s 115 of Evidence Act.

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    Accordance of Lord Halsburg Estoppel arises when youare precluded or prevented from denying the truth ofanything which you have represented as a fact althoughit is not a fact.

    A minor cannot cheat by representing in a contract as amajor.

    6) Minor Liability for necessaries - Sec 68 of Contract act appliedIf a a person incapable

    of entering into a contract is supplied by another personwith necessaries suited to his condition in life, theperson, who has furnished such supplies is entitled to bereimbursed from the property of such incapable person.

    Ex : A supplies B, a lunatic, with necessaries suitable tohis condition in life. A is entitled to be reimbursed fromBs property.

    7) Specific Performance means actual carrying out ofthe contract as agreed.

    Court shall never direct specific perf. Of an agreementmade by a minor, which is void.

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    But a contract entered into on behalf of Minor by hisguardian or manager of his estate is binding on the

    minor can be specifically enforced by as against theminor provided (a) the contract is within the authority ofthe guardian or manager (b). it is for the benefit of theminor.

    8) Minor Partner A minor is incompetent to contract.

    But as per sec. 30 of Contract Act he can be admitted tothe benefit of partnership with the consent of all thepartners by an agreement executed through his lawfulguardian with other partners.

    A minor cannot participate in the management of

    business. He shall not share losses except for 3rd party liabilities

    and that too upto his share in the partnership assets.

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    Free Consent Sec. 13 Contract Act defines the term Consent as Two

    or more person are said to consent when they agree

    upon the same thing in the same sense. See 14 lays down thatConsent is said to be Free

    when it is not caused by Coercion Sec. 15 Undue influence -= Sec. 16 Misrepresentation Sec. 18 Fraud Sec. 17 Mistake Sec. 17

    Coercion

    Coercion implies Committing or threatening to commit any act forbidden

    by IPC.

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    Unlawful detaining of threatening to detain any property,with the intension of causing any person to enter into anagreement.

    Ex : A threatens to shoot B, if he does not let out his houseto him B agrees to let out his house to A. The consent of Bis induced by coercion.

    Threat to commit suicide Neither suicide nor threat to commit suicide is

    punishable under I.P.C. only an attempt to commit suicideis punishable under it.

    Duress - means either actual or threatened violence overthe person (body) of another party or his wife or childrenwith a view to obtain the consent of that party to the

    agreement. Effect of Coercion A contract brought about by coercion

    is voidable at the option of the party whose consent wastaken by coercion (Sec. 19).

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    The burden of proof that coercion was used

    lies on the party who want to set aside thecontract on the plea of coercion.

    Undue Influence

    A contract is said to be induced by undueinfluence where -

    the relations subsisting between the parties

    are such that one of the parties is in aposition to dominate the will of the other,

    he uses the position to obtain an unfairadvantage over the other.

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    Sec. 16(2) A person is deemed to be in a position todominate the will of another

    (a) Where the holds a real authority over the other, e.g.the relationship between master and servant, policeofficer and the accused or

    (b) Where he stands in a Fiduciary relation e.g. relationof mutual trust and confidence.

    Ex: Father and son, guardian, & ward, solicitor and

    client, doctor and patient, Guru & disciple.

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    (c) Where he makes a contract with a person whosemental capacity is affected by age, illness or bodilydistress, e.g. old illiterate persons.

    Presumption of undue influence is taken merely by thestatus of the parties as in case of (a), (b), & (c).

    No presumption of undue influence taken in followingcases :

    Husband & wife. Mother & daughter Grandson & Grand father Creditor & Debtor. In these cases the burden of proof lies with the person

    who alleges that undue influence exists.

    Effect of Undue Influence The contract is voidable at the option of the party

    whose consent was so caused.

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    Misrepresentation A statement of fact made by one party to the other either

    before or at the time of making contract, relating to some

    matter essential to the formation of the contract, with anintension to induce the other party to enter into thecontract.

    Misrepresentation can be innocently made or (b) Intentional

    For misrepresentation which is made intentionally, theterm Fraud is used.

    Ex : A makes B to believe that his land produces 10quintals of wheat per acre, B purchases that land takingthe statement of A to be true, later on it transpires that

    land produces only 5 quintal of wheat. This ismisrepresentation. Ex. Business Sales 50,000 per month Negotiations,

    Sales drops to 5,000/ month, the party did not disclosethis facts contract of sale made. This is

    misrepresentation.

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    Fraud Sec 17State that Fraud means the following acts

    committed by a party to a contract, with connivance or by

    his agent, with intentions to deceive or to induce anotherparty thereto or his agent, to enter into the contract -

    The suggestion that a fact is true when it is not true byone who does not believe it to be true. (But if arepresentor honestly believes his statement to be true,

    he cannot be liable for deceit no matter how ill-advised,stupid or negligent he may have been. The active concealment of a fact by a person who has

    knowledge or belief of the fact. But mere non- disclosure is not fraud, where there is no

    duty to disclose. E.g. Caveat EmptorBuyer Beware .

    A seller is not bound to disclose to the buyer the faults inthe goods he is selling.

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    3. A promise made without any intention of performing is aFraud.

    Ex : X purchase certain good from Y on credit withoutany intension of paying them as he was an insolvent. It isa clear case of fraud from Xs side. But mere failure to

    pay, where there was no original dishonest intention, isnot fraud.

    4. Any other act fitted to deceive All surprises, trick,cunning, and other unfair way that is used to cheat anyonce is considered fraud.

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    Indemnity and Guarantee Indemnity A contract by which one party promises to save the other

    from loss caused to him by the conduct of the promisorhimself or by the conduct of any other person, is called aContract of Indemnity.

    Contract of Indemnify is really a part of general class ofContingent Contract. The object is to protect the

    promisee from anticipated loss. Happening of loss is the contingency upon which thecontract of Indemnity depends.

    The person who promises to make good the loss is calledthe Indemnifier (Promisor) and the person whose loss is

    to be made good is called the Indemnity-Holder(Promisee). Ex; A contracts to indemnify B against the consequences

    of any legal proceedings which C may take against B inrespect of a certain sum of Rs. 1,00,000. This is acontract of indemnity A is Indemnifier B is theIndemnified.

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    Guarantee

    A contract of Guarantee is a contract to perform thepromise of discharging the liability of a third person incase of his default. (Sec. 126)

    A contract of Guarantee is entered in with the object ofenabling a person to get a loan or goods on credit or anemployment.

    The person who gives Guarantee is called the Suretythe person in respect of whose default the guarantee isgiven is called the Principal Debtor, and the personwhom guarantee is given is called the Creditor.

    A guarantee may be either Oral or Written.

    Ex : A, advances a loan of Rs. 5000 to B and C promisesto A that if B does not repay the loan< C will do so. Thisis a contract of Guarantee.

    Distinction between a contract of Indemnity and aContract of Guarantee.

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    1. Number of Parties In contract of Indemnity there are2 parties the Indemnifier and the Indemnity Holder.In contract of Guarantee there are 3 parties the

    creditor, the principal debtor and the surety.2. A contractor of Indemnity is for the reimbursement ofloss, where as a contract of Guarantee is for thesecurity of a debt or good conduct of an employee.

    3. No. of Contract In indemnity there is only one

    contract between the Indemnifier and the Indemnified.In guarantee there are 3 contracts :Between Principal Debtor and Creditor

    Between Creditor & the Surety. Between Surety and the Principal Debtor.4. Nature of liability In indemnity the liability of

    indemnifier is Primary in nature. In Guarantee theliability of surety is secondary i.e. the surety is onlyliable in case of default by Principal Debtor.

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    5. Existing debtor duty In case of Indemnity in most casesthere is no existing debt or duty, whereas in case ofGuarantee there is an existing debt or duty, theperformance of which is guaranteed by the surety.

    6. Right to Sue In guarantee, the surety after thedischarge of the debtor owing to the creditor, canproceed against the Principal debtor.

    In Indemnity, the indemnifier cannot sue the 3rd party forthe loss in his own name, because there is no privities

    of contract. Ordinary Guarantee and Continuing Guarantees When guarantee is given for a single specific debt or

    transaction, is called ordinary Guarantee. It comes to anend as soon as the liability under the transaction end.

    When a guarantee extends to a series of distinct andseparable transactions, it is called a ContinuingGuarantee. The guarantee given here is intended tocover a number of transactions over a period of time.(Standing offer).

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    Bailment & Pledge Sec 148 Contract Act - A bailment is the delivery of

    goods, by one person to another for some purposes,upon a contract that they shall when the purpose is

    accomplished, be returned or disposed it according tothe directions of the person delivering them.

    The person delivering the goods is called Bailor and theperson to whom they are delivered is called the Baileeand the transaction is called the Bailment.

    Kind of Bailment1) Bailment for the exclusive benefit of the bailor bailor

    leaves goods in the safe custody of the bailee withoutany compensation to be paid.

    2) Bailment for the exclusive benefit of the bailee e.g. a

    loan of some article.3) Contract for repair, hire etc call in this close, wherein the

    bailor receives the benefit of service and the baileebenefits by the receipt agreed charges.

    Difference between sale and bailment Different between Bailment & License

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    Duties of Bailee Duty to take reasonable care of goods delivered to him. Duty not make unauthorized use of goods entrusted to

    him. Duty not to mix goods bailed with his own goods. Duty to return the goods. Duties of Bailor

    Duty to disclose faults in goods bailed Duty to repay necessary expenses in case of gratuitous

    bailment. Pledge or Pawn The bailment of goods as security for payment of a debt

    or performance of a promise is called Pledge. Bailor inhis case is Pawaer and bail is Pawaee.

    Distinction between bailment and pledge As to purpose AS to right of sale. As to right of using the goods.

    Di h f C t t

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    Discharge of Contract When the right and obligations arising out of a contract are

    extinguished the contract is said to be discharged orterminated.

    A contract may be discharged in the following ways 1. By Performance Actual or attempted Actual Performance Each party fulfills its obligation within time and in required

    manner as per contract and the contract come to an end orstands discharged.

    But if one party performs its promise he alone isdischarged, and such a party gets a right of action againstthe other party who is guilty of Breach of contract.

    Attempted Performance When the promisor offers to perform his obligation under

    the contract, but is unable to do so because the promisedoes not accept the performance, it is called attemptedperformance or Tender This tender is only an offer toperform

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    2. Discharge by Mutual Consent or Agreement -A contract is created by means of an agreement it mayalso be discharged by another agreement between thesame parties.Sec. 62 & 63 provides for the following methodsdischarge.

    1) Novation means substitution of a new contract inplace of old contract, the consideration being thedischarge of the old contract.The parties to contract and their obligations may changein Novation.Ex. A is indebted to B & B to C. By mutual agreementBs debt to C & Bs loan to A are cancelled and Caccepts A as his debtor. Thus there is novation involvingchange of parties.2) Alteration Alteration means change in one ormore of the material terms of a contract. A materialalteration is one which alters the legal effect of thecontract e.g. Change in amount of money to be paid or

    a change in the rate of interest etc.

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    3) Rescission - A contract may be discharged before thedate of performance by agreement between the partiesto the effect that is shall no longer bind them. Such anagreement is called Rescission or Cancellation ofcontract. And the consideration being abandonment oftheir right by the parties.

    Ex : A promises to deliver certain goods to B an acertain date before the date of performance, A & Bmutually agree that the contract will not be performed.

    The contract stands discharged by rescission. Non-performance by the parties for a long period without

    complaint, it amounts to an implied rescission.4).Remissionmay be defined as the acceptance of a

    lesser sum or a lessor fulfillment of the promise made.

    Ex : If the promise agrees to accept Rs. 2000 in fullsatisfaction of a claim of Rs. 5,000 the promise isenforceable and the promise cannot bring a suit ofrecovery in future.

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    5).Waiver means the deliberate abandonment or givingup of a right which a party is entitled to under a contract,where upon the other party to the contract is releasedfrom his obligations.

    6) Discharge by subsequent or Super viewingImpossibility or Illegality :Sec. 56 An agreement to doan act impossible in itself is void.

    A contract to do an act which after the contract is made,becomes impossible, or by reason of some event which

    the promisor could not prevent, becomes void when theact becomes impossible or unlawful.Ex; A contracts to marry B being already married to C(which is illegal). A. must make compensation to B fornon- performance of his promise.

    Ex : A music hall was agreed to be let out, for a series ofconcerts. The hall was destroyed by fire before the dateof first concert. The plaintiff sued the defended fordamages for beach of contract. It was held by the courtthat the contract has become void and the defendant wasnot liable.

    Ex: Similarly if a factory premises on which a machinery is

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    Ex: Similarly, if a factory premises on which a machinery isto be installed are destroyed by fire, or a ship under acharter party is seized by a foreign government, thecontract is discharged.

    Cases not covered by supervising Impossibility.1) Difficulty of Performance cannot be excused from

    performance. Ex- X contracted with y to send certain goods from

    Bombay to Delhi in September, in August transport

    companies went on a strike and transport was available atvery high rates. It was held, that the increase in freightrates did not excuse performance.

    2) Impossibility due to the default of a third person.Ex: A, a wholesaler, enter into a contract with B for the sale

    of certain goods to be produced by Z a manufacturers ofthose goods. Z fails to manufacturers those goods. A inliable to B for damages.

    3) Strikes & Lock-out A strike by the workman or a lock-outby the employer also does not excuse performance

    because the former is manageable and the latter is self-induced.

    4) Di h b L f Ti

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    4) Discharge by Lapse of Time ; Law of Limitation lays down that in case of breach

    of a contract legal action should be taken within aspecified period, called the period of limitation,

    otherwise the promisee is debarred from instituting a suitin a court of law and contract stands discharged.

    5) Discharge by operation law - A contract terminates by operations of law in the

    following cases :

    (a) By death of the promisor. (b) Insolvency by court order for liabilities prior to

    his adjudication. (c) Merger an inferior right contract merges. Into a

    super right contract. Ex : Contract of tenency - purchase Ownership rights.6) Discharge by Breach of Contract.

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    Breach of contract by a party is also a method ofdischarge of a contract, because breach also brings toan end the obligations created by a contract on the partof each of the parties.

    i.e. party at fault can sue the other party for damages, butthe contract or such stands terminated.

    Express Implied. Fails to perform on the day fixed.

    Various remedies for breach of Contract Where there is breach of contract, the injured party

    becomes entitled to the following remedies :

    Rescission of the contract Suit for Damages Suit uon quantum uncirt Suit for specific performance of contract. Suit for injuction

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    1) Rescission Where thee is breach of contract by oneparty, the other party may rescinded the contract andneed not perform his part of obligations under the contract

    if he decides not to take any legal action against the guiltyparty. (But if the aggrieved party wants to sue the guilty party

    for damages, then he has to file suit for rescission ofcontract and side by side claim damages before the court.

    2) Suit for Damages Damages are moetary compensationallowed to the injured party for the loss suffered by him asa result of breach of contract.

    Damages are categories according to their applicability ina particular case-

    1) Ordinary damages when a contract has been brokenthe injured party as a rule, can always recover from theguilty party ordinary damages.These damages arise naturally and directly in the usualcourse of things, it means these damages are direct resultof breach of contract.

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    Ex :? Money to be delivered on a specified date, notdelivered, resulted in loss to the other party for nonpayment of his debt.

    2) Special Damages are those which arise onaccount of special or unusual circumstances affecting theplaintiff (aggrieved party). These damages are remote,special damages cannot be claimed as a matter of right,these can only be allowed by the court in case of specialcircumstances.

    Ex : A contract with B to supply 100 tons of iron, Awas supposed to get this iron from C, C was specificallytold by A that he is entering into a contract with B forsupply of iron. C fails to provides A with the iron, C isbund to pay special damages for the loss of profit which

    could have been earned by A. 3) Exemplary or Vindictive Damages Thesedamaged are awarded by the court with a view to punishthe guilty party for the breach and not by way ofcompensation for the loss suffered by the aggrieved party.

    E ( ) B h f C t t t

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    Ex. (a) Breach of Contract to marry. (b) Dishonour of cheque by a Baker when there are

    sufficient funds to the credit of the customer.4) Nominal Damages are those which are awarded only

    for name sake. They are neither awarded ascompensation not as a punishment. (small amount).

    Ex : In a sale of goods, if the contract price and themarket price is almost the same at the date of breach ofcontract.

    5) Suit for Quantum Merit This remedy is available to theinjured party against the guilty by filing a suit of QuantumMercuit, which means as much as in earned.

    Ex: A engages B (a contractor), to build a 2 storied house,after a part is constructed, A prevents B from working anymore, B the contractor is entitled to get reasonablecompensation for the work done in addition to thedamages for breach of Contract.

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    6) Suit for Specific Performance - Specific performance means actual carrying out of the

    contract as agreed.

    The aggrieved party may file a suit for specificperformance, for getting a decree by the court wherebydirecting the defendant to actually perform the promisethat has been made under the contract.

    * (Such a suit may be filed either or in addition to a suit

    for damages).7) Suit for Injunction-Injunction is an order of a courtrestraining a perform form doing a particular act.It is a mode of securing the sp. Performance of thenegative terms of the contract i.e. where he is doing

    something which he promised not to do. Ex : A agreed to take the whole supply of some goodsfrom a particular supplier and no one else (negativepromise). He was therefore restrained by an injunctionfrom buying the supply of goods from any othersuppliers.