Legal Aspects of Business
Contract
Definition: The term contract is defined as an agreement between two or more parties which has a binding nature, in essence, the agreement with legal enforceability is said to be a contract. It creates and defines the duties and obligations of the parties involved.
Process of Contract
First and foremost, an offer is made by one party to another, which when accepted by the party to whom it is made, leads to the agreement. If that agreement is enforceable in the court of law, it is known as a contract.
Essential Elements of a Contract
Agreement: The primary element that creates a contract between parties is an agreement, which is a result of offer and acceptance, that forms consideration for the parties concerned.
Free Consent: Consent of the parties is another important aspect of a contract, which means the parties entering into the contract, must agree upon the same thing in the same sense. The consent of the parties is said to be free when it is not influenced by coercion, undue influence, fraud, misrepresentation and mistake.
Competency: Competency refers to the capacity of the parties to enter into the contract, i.e. he/she has reached the age of maturity, he/she must be of sound mind, and he/she is not disqualified from contracting, as per the law like the alien enemy, foreign sovereigns, etc.
Consideration: It implies the price agreed to be paid for the promisor’s obligation by the promisee. It must be adequate and lawful.
Lawful object: The object for which the contract is created must be lawful, or else it is declared as void.
Not expressly declared as void: The law should not expressly declare the contract as void, such as contract in restraint of marriage, trade or legal proceedings.
Other important elements of the Contract
There must be at least two parties to constitute a contract, i.e. one who proposes and another accepts the same.
The parties entering into the contract must intend to create a legal obligation for one another.
It must be in writing.
There must be certainty of meaning. the terms of the parties must be clear to the parties, i.e. the party should not interpret anything wrong, there must be a consensus ad idem.
There should be a possibility of performing the contract.
So, these are some paramount elements of a contract, without which it cannot be enforced in the court of law.
Types of Contract
On the basis of validity
Valid Contract: An agreement which is enforceable by law, is a valid contract.
Void Contract: The contract which is no longer enforceable in the court of law is a void one.
Voidable Contract: A contract in which one of the parties to the contract has a choice to avoid performing his/her part, then it is termed as a voidable contract. When the consent of the party is not free, the contract becomes voidable, at the option of the aggrieved party.
Illegal Contract: A contract which is forbidden by law is termed as an illegal contract.
Unenforceable Contract: The contract whose substance is good, but due to some issues, it is not enforceable, is called an unenforceable contract.
On the basis of formation
Express Contract: When the terms of the contract are expressed orally or in writing, it is known as an express contract.
Implied Contract: The contract which is constituted by implication of law or action, is an implied one.
Quasi-Contract: These are not a real contract, but are identical to a contract, which is formed out of some circumstances.
On the basis of Performance
Executed Contract: When the contract is performed, it is known as an executed contract.
Executory Contract: When the obligation in a contract, is to be performed in future, it is described as an executory contract.
Unilateral Contract
Bilateral Contract
Ans 2
Definition of Negotiable Instruments
A negotiable instrument refers to a signed document that contains a promise by a person being the payer to pay a certain amount of money to the specified person or the assignees being payee either on-demand or at a specified date in the future. The instrument is said to be negotiable since it can be freely transferred by one person to another and the transferee of the instrument gets a clear title to the said instrument.
Characteristics of Negotiable Instruments
Negotiable instruments can be characterized by the presence of the following features:
Transferrable: These instruments can be easily transferred by the holder to another person either by delivery or by making a lawful endorsement. If the payee is not mentioned in the instrument then the transfer can be made by mere delivery and if the payee is mentioned then the transfer has to be made by endorsement in the name of another person or assignee or bearer.
Right to Receive Payment: If the negotiable instrument is not honored on the specified date and the holder of the instrument doesn’t get the payment then the holder becomes entitled to take legal action against the payer. This applies even if the instrument was not initially issued to the holder but instead transferred.
Title of Transferee: The transferee of the negotiable instrument gets a clear title to the instrument and is known as a “holder in due course”. This means that the title of such a transferee who acquired the instrument by legal means shall not be affected due to the flaw or illegality in the title on account of the transferor or any other previous holder.
Examples of Negotiable Instruments
Some of the common examples of negotiable instruments include
Cheques
promissory notes
bills of exchange
demand drafts, etc.
Types of Negotiable Instruments
The negotiable instruments can be broadly classified into three types namely promissory notes, cheques, and bills of exchange.
1. Promissory Notes
These are the instruments that are signed by the payer and contain a promise to pay a certain amount of money to another person, or his/her order, or to the bearer of the instrument at a certain date. The promise to pay shall be unconditional failing which the note shall not be called a promissory note. The person making the note is known as the maker and the person to whom such note is being made is called the payee. For example, A makes a promissory note in writing to B stating that I shall pay $10,000 to B on 30.11.2020 and signed the same.
2. Bills of Exchange
Bills of exchange contain a direction or an order made by the maker of the instrument instructing a certain person to pay a specified amount of money to another person, or his/her order, or to the bearer of the instrument at a specified date. The person making the instrument is known as a drawer and the person on whom such instrument is drawn is known as drawee or the acceptor. The payee may or may not be the drawer. For example, A draws a bill of exchange to B in which it’s written that “Kindly pay to the bearer $10,000 on 30.11.2020 and oblige”.
3. Cheques
Cheques are the bill of exchanges that are drawn by the person making such cheques on the specific bank instructing the bank to pay a certain amount of money to a person mentioned therein on demand. The person signing the cheque and making an instruction to the bank is known as the drawer, the bank becomes the drawee and the person to whom payment is to be made is known as the payee.
Essentials Elements of a Bills of Exchange
The essential elements of a Bills of Exchange are:
A Bills of Exchange should always be a written document.
Bills of Exchange must be dated and stamped.
A Bills of Exchange must be signed by the maker or drawer.
The Bills of Exchange must clearly mention the name of the drawer.
The order for the Bills of Exchange must be an unconditional one.
A Bills of Exchange must have an order to pay money and not goods.
The sum payable for the Bills of Exchange must be specified.
The money for the Bills of Exchange must be payable to a definite person or to his order or to the bearer.
The amount for the Bills of Exchange should be paid within a stipulated time.
A Bills of Exchange must have adequate stamp duty at the prescribed rate.
Some Examples of Bills of Exchange
Let us get some clarity on what exactly a Bills of Exchange looks like by considering a few examples.
“Please let the bearer have 100 pounds and oblige” – This is not a Bills of Exchange since it is a request, not an order.
“We hereby authorize you to make a payment on our account to the order of Mr.X, $200” – This is again not an order hence not a Bills of Exchange.
ANs 1
DISCHARGE OF A CONTRACT
Meaning of a Contract:
A verbal agreement or a written agreement, particularly one concerning business, deals, or tenure that is planned to be enforceable by law, is called a contract.
Definition of a Contract:
Contract, in the least complex definition, is a guarantee that is enforceable by law. The guarantee or promise might be to accomplish something or to shun accomplishing something. The creation of an agreement requires the common consent of at least two people, one of them usually making a proposition and another accepting the contract.
Discharge of Contract:
The discharge of a contract is characterised as the end of an agreement or an arrangement made by a couple of parties, which results in the failure in performing or playing out the obligations referenced at the hour of making a contract with the acknowledgment of all the parties with free consent. Subsequently, the commitments might be legal or contractual or performance, or even operational.
The different methods by which a contract can be discharged are as follows:
Discharge of contract by breach of contract:
Breach of contract is concerned with the termination of the original contract due to the failure of performing obligations by either or all of the parties, which discourages each of the other parties. It relates to void or terminating the original contract completely. These breaches of contracts may be either anticipatory or actual.
Discharge of contract by accord and satisfaction:
Accord is an executor contract that helps to perform the existing duties at present to avoid the contractual discharge. On the other hand, based on the performance of the accord, the satisfaction of a contract will be considered, and one doesn’t want to void the entire contract.
Discharge of contract by the impossibility of performance:
In this case, the discharge of the contract happens without any interference from both of the parties. Despite the fact that everything is acceptable at the place of pain, certain unexpected and undetermined issues might occur, which decreases the chance of playing out or performing a contract. This includes a downturn for the market, catastrophic events, absence of legitimate reason, unfortunate episodes, and so on. In the Indian Contract Act, segment 59 plainly clarifies that assuming any of the reasons might prompt the difficulty of execution, and it is prudent to break the agreement.
Discharge of contract by lapse of time:
According to the Limitation Act 1963, it is indicated that in case if the agreement can’t be performed within the predetermined period, it might influence the other party and lead to the abrogation of the whole agreement. Then, at that point, it is treated as a contractual discharge of the agreement by a time-lapse.
Discharge of contract by agreement:
If both of the individuals or parties in the agreement aren’t willing to proceed with the agreement till the due date, then it is changed over to the next party, whether or not they might acknowledge the discharge of the agreement or contract by the understanding will occur. However, it happens in different circumstances. They are as follows:
A: Waiver: Waiver refers to the abandonment of right. In case any of the parties surrender their rights from the contract, which affects the other party, then it leads to the discharge of the contract by substitute agreement.
B: Alteration: It is another situation where the particulars of the agreement or contract will be changed either partially or totally with the assent of the two parties. Be that as it may, the parties will not change, and they can appreciate new advantages, possibly they may less or more than the old agreement or contract.
C: Rescission: Here, both the parties agreed to modify certain rules and regulations in the contract with mutual understanding. It may lead to the cancellation of all the rules or may cancel partially.
D: Novation: Specifying the substitution of either a new contract in the place of the original contract or new members in the place of the old one, whether it may be a single person or both the parties, is known as novation, which is a part of the contractual discharge by substitution of agreement.
Discharge of contract by performance:
The discharge of a contract occurs when both parties are refused to perform the obligations can be referred to as discharge by performance.
Ans 2
What is Contract of Sale of goods
Contract of sale of goods is a contract, whereby, the seller transfers or agrees to transfer the property in goods to the buyer for a price. There can be a contract of sale between one part-owner and another.
In other words, under a contract of sale, a seller (or vendor) in the capacity of the owner, or part-owner of the goods, transfers or agrees to transfer the ownership in goods to the buyer (or purchaser) for an agreed upon value in money (or money equivalent), called the price, paid or the promise to pay same.
A contract of sale may be absolute or conditional depending upon the desire of contracting parties.
Essentials elements of a Contract of Sale
The following six features are essential elements of any contract of sale of goods.
Goods
Price
Two parties
Transfer of ownership
All Essentials of a Valid Contract of Sale
Includes both a ‘sale‘ and ‘an agreement to sell‘
1. Two Parties: A contract of sale of goods is bilateral in nature wherein property in the goods has to pass from one party to another. One cannot buy one’s own goods.
For example, A is the owner of a grocery shop. If he supplies the goods (from the stock meant for sale) to his family, it does not amount to a sale and there is no contract of sale. This is so because the seller and buyer must be two different parties, as one person cannot be both a seller as well as a buyer. However, there shall be a contract of sale between part owners.
Suppose A and B jointly own a television set, A may transfer his ownership in the television set to B, thereby making B the sole owner of the goods. In the same way, a partner may buy goods from the firm in which he is a partner, and vice-versa.
However, there is an exception against the general rule that no person can buy his own goods. Where a pawnee sells the goods pledged with him/her on non-payment of his/her money, the pawnor may buy them in execution of a decree.
2. Goods: The subject matter of a contract of sale must be goods. Every kind of movable property except actionable claims and money is regarded as ‘goods’. Contracts relating to services are not considered as contract of sale. Immovable property is governed by a separate statute, ‘Transfer of Property Act’.
3. Transfer of ownership: Transfer of property in goods is also integral to a contract of sale. The term ‘property in goods’ means the ownership of the goods. In every contract of sale, there should be an agreement between the buyer and the seller for transfer of ownership. Here property means the general property in goods, and not merely a special property.
Thus, it is the general property, which is transferred under a contract of sale as distinguished from special property, which is transferred in case of pledge of goods, i.e., possession of goods is transferred to the pledgee or pawnee while the ownership rights remain with the pledger. Thus, in a contract of sale there must be an absolute transfer of the ownership. It must be noted that the physical delivery of goods is not essential for transferring the ownership.
4. Price: The buyer must pay some price for goods. The term ‘price’ is ‘the money consideration for a sale of goods’. Accordingly, consideration in a contract of sale has necessarily to be in money. Where goods are offered as consideration for goods, it will not amount to sale, but it will be called barter or exchange, which was prevalent in ancient times.
Similarly, if a person offers the goods to somebody else without consideration, it amounts to a gift or charity and not sale. In explicit terms, goods must be sold for a definite amount of money, called the price. However, the consideration can be partly in money and partly in valued up goods. Furthermore, payment is not necessary at the time of making the contract of sale.
5. All essentials of a Valid contract: A contract of sale is a special type of contract, therefore, to be valid, it must have all the essential elements of a valid contract, viz., free consent, consideration, competency of contracting parties, lawful object, legal formalities to be completed, etc. A contract of sale will be invalid if important elements are missing. For instance, if A agreed to sell his car to B because B forced him to do so by means of undue influence, this contract of sale is not valid since there is no free consent on the part of the transferor.
6. Includes both a ‘Sale’ and ‘An Agreement to Sell’: The ‘contract of sale’ is a generic term and includes both sale and an agreement to sell. The sale is an executed or absolute contract whereas ‘an agreement to sell’ is an executory contract and implies a conditional sale.
A contract of sale can be made merely by an offer, to buy or sell goods for a price, followed by acceptance of such an offer. Interestingly, neither the payment of price nor the delivery of goods is essential at the time of making the contract of sale unless otherwise agreed.
Subject to the provisions of the law for time being in force, a contract of sale may be made either orally or in writing, or partly orally and partly in writing, or may even be implied from the conduct of the parties.
Ans 3 - Definition of Sale
A sale is a type of contract in which the seller transfers the ownership of goods to the buyer for a money consideration. Here the relationship amidst the seller and buyer is of creditor and debtor. It is the result of an agreement to sell when the conditions are fulfilled and the specified time is over.
Types of Sale
The following are the essential conditions regarding Sale:
There must be at least two parties; one is the buyer, and other is the seller.
The subject matter of the sale is the goods.
Payment should be made in the country’s legal currency.
The goods should pass from seller to buyer.
All the necessary conditions of a valid contract should be present like free consent, consideration, a lawful object, capacity of parties, etc.
If the goods are being sold and the property is transferred to the buyer, but the seller is not paid. Then, the seller can go to the court and file a suit against the buyer for the damages and the price too. On the other hand, if the goods are not delivered to the buyer then he can also sue the seller for damages.
Definition of Agreement to Sell
An agreement to sell is also a contract of sale of goods, in which the seller agrees to transfer goods to the buyer for a price at a later date or after the fulfilment of a condition.
When there is a willingness of the both the parties to constitute a sale i.e. the buyer agrees to buy, and the seller is ready to sell the goods for monetary value. In an agreement to sell the performance of the contract is done at a future date, i.e. when the time elapses or when the necessary conditions are satisfied. After the contract is executed, it becomes a valid sale. All the necessary conditions required at the time of sale should exist in the case of an agreement to sell too.
If the seller rescinds the contract, then the buyer can claim damages for the breach of contract. On the other hand, the unpaid seller can also sue the buyer for damages.
Key Differences Between Sale and Agreement to Sell
The following are the major differences between sale and agreement to sell:
When the vendor sells goods to the customer for a price, and the transfer of goods from the vendor to the customer takes place at the same time, then it is known as Sale. When the seller agrees to sell the goods to the buyer at a future specified date or after the necessary conditions are fulfilled then it is known as Agreement to sell.
The nature of sale is absolute while an agreement to sell is conditional.
A contract of sale is an example of Executed Contract whereas the Agreement to Sell is an example of Executory Contract.
Risk and rewards are transferred with the transfer of goods to the buyer in Sale. On the other hand, risk and rewards are not transferred as the goods are still in possession of the seller.
If the goods are lost or damaged subsequently, then in the case of sale it is the liability of the buyer, but if we talk about an agreement to sell, it is the liability of the seller.
Tax is imposed at the time of sale, not at the time of agreement to sell.
In the case of a sale, the right to sell the goods is in the hands of the buyer. Conversely, in agreement to sell, the seller has the right to sell the goods.
Ans 5
What is an unpaid seller?
Ans: An unpaid seller is one whose
entire price has not been paid or tendered
has accepted a bill of exchange for the price, but such bills have been dishonored
Rights of Unpaid Seller Against Buyer
When the buyer of goods does not pay his dues to the seller, the seller becomes an unpaid seller. And now the seller has certain rights against the buyer. Such rights are the seller remedies against the breach of contract by the buyer. Such rights of the unpaid seller are additional to the rights against the goods he sold.
1] Suit for Price
Under the contract of sale if the property of the goods is already passed but he refuses to pay for the goods the seller becomes an unpaid seller. In such a case. the seller can sue the buyer for wrongfully refusing to pay him his due.
But say the sales contract says that the price will be paid at a later date irrespective of the delivery of goods,. And on such a day the if the buyer refuses to pay, the unpaid seller may sue for the price of these goods. The actual delivery of the goods is not of importance according to the law.
2] Suit for Damages for Non-Acceptance
If the buyer wrongfully refuses or neglects to accept and pay the unpaid seller, the seller can sue the buyer for damages caused due to his non-acceptance of goods. Since the buyer refused to buy the goods without any just cause, the seller may face certain damages.
The measure of such damages is decided by the Section 73 of the Indian Contract Act 1872, which deals with damages and penalties. Take for example the case of seller A. He agrees to sell to B 100 liters of milk for a decided price. On the day, B refuses to accept the goods for no justifiable reason. A is not able to find another buyer and the milk goes bad. In such a case, A can sue B for damages.
3] Repudiation of Contract before Due Date
If the buyer repudiates the contract before the delivery date of the goods the seller can still sue for damages. Such a contract is considered as a rescinded contract, and so the seller can sue for breach of contract. This is covered in the Indian Contract Act and is known as Anticipatory Breach of Contract.
4] Suit for Interest
If there is a specific agreement between the parties the seller can sue for the interest amount due to him from the buyer. This is when both parties have specifically agreed on the interest rate to be paid to seller from the date on which the payment becomes due.
But if the parties do not have such specific terms, still the court may award the seller with the interest amount due to him at a rate which it sees fit.
Remedies of Buyer Against the Seller
Just as the seller can rescind the contract, then so can the seller. When the seller breaches the contract the buyer also has certain remedies against the seller. Let us take a look at some remedies that the Sales Act prescribes for the buyer.
1] Damages of Non-Delivery
If the seller wrongfully or neglectfully refuses to deliver the goods to the buyer, then the buyer can sue for non-delivery of the goods. According to Section 57 of the Sale of Goods Act, if the buyer faces losses due to the wrongful actions of the seller (non-delivery) he can sue for damages caused due to this.
Let’s take for example A whose agrees to sell to B 10 pair of shoes for 1000/- each. B was going to sell the same shoes to C for 1100/- a pair. A neglects to deliver the goods to B. Now, B can sue A for non-delivery. He can sue for the amount of 100/- per pair, i.e. 1000/- (the difference between B’s cost price and sale price)
2] Suit for Specific Performance
If the seller commits a breach of contract, the buyer can approach the court to ask the seller for specific performance. The court after deliberation can command the seller for specific performance. One important point to keep in mind is that this remedy is only available if the goods are ascertained or specific.
Example: There was a contract between A and B, that A will sell to B a very expensive painting on a specific date. On the said day A refuses to sell. B can approach the court, who orders A to sell the painting to B at the ascertained price.
3] Suit for Breach of Warranty
When the seller breaches the warranty of the goods, the buyer cannot simply reject the goods on such basis. The buyer has two options in such a case,
set up against the buyer the said breach of warranty in the extinction of the price
or sue the seller for breach of warranty
4] Repudiation of Contract
If the seller repudiates the contract, the buyer does not have to wait until the date of the contract. He can treat the contract as rescinded and sue for damages immediately. This will be an anticipatory breach of contract.
5] Sue for Interest
The Act specifically states that nothing in the act will affect the right of the seller or the buyer to recover interest or special damages due to him by the contract. And if there is no specific clause in the contract, the court can come to the rescue of the affected party.
Ans 1
A quasi-contract is an agreement imposed by the law, which outlines the obligation of one party towards another party if the former possesses the property of the latter party, i.e., something is acquired by one party at the expense of another party. The court creates these to avoid unjust enrichment of any party’s overpayment against a good or service. Since the court makes these, neither party can disagree with it and must follow it.
Ans 2A void agreement definition would be an agreement or contrac with no legal value. Legally, a void agreement means the contract or agreement is no longer enforceable. While precise definitions vary by jurisdiction, void agreements are generally categorized as being void from the beginning and were never valid at any point. On the other hand, void contracts are generally defined to have been valid at one time, but are now invalid. However, despite those precise definitions existing, the terms are most often used interchangeably.
Ans3 Lawful Consideration and Lawful Object. Section 23 of the Indian Contract Act clearly states that the consideration and/or object of a contract are considered lawful consideration and/or object unless they are. specifically forbidden by law. of such a nature that they would defeat the purpose of the law. are fraudulent.
Ans 4 A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay on demand or at fixed or determinable future time a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument
Ans5 A cheque may bounce if it has expired or if there is a problem with the date of issuing it. Sometimes, the issuer may choose to stop the payment. In that case, too, the cheque is considered as dishonoured. There could be various other reasons for a bank to dishonour a cheque.
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