THE INDIAN CONTRACT ACT, 1872 Indian Contract Act came into to force on the 1st day of September 1872. It is not an exhaustive code containing the entire law of contracts. The Indian Contract Act may be divided into two parts. Sec. I to 75 Deals with the general principles of the Law of Contract . Sec. 124 to 238 Deals with the special types of Contracts such as: a) Contract Contract of Indemn Indemnity ity and Guarant Guarantee ee b) Contra Contract ct of Bailm Bailment ent and and Pledg Pledge e c) Contract of Agency Definition of Contract: Sec. 2(h) an agreement enforceable by law is a Contract Contract: 1. An agreement and 2. The agreement must be enforceable by law Agreement: Sec. 2 (e) 'every promise and every set of promises forming consideration for each other, is an agreement. Promise: Sec. 2 (b) 'A proposal when accepted, becomes a promise' AGREEMENT = Offer + Acceptance An agreement of purely social or domestic nature is not a contract. Balfour V Balfour (1919) Husban Husband d & wife wife were were resid resident ents s of Cylon Cylon,, where where husban husband d was was employ employed. ed. They They went went to England on 9 months leave. Wife remained there due to illness, husband returned, promised to send send $ 30 ever every y mont month h till till she she retu return rn.. Coul Could d not not send send mone money. y. Wife Wife sued sued for for the the allowance. It was held that there was no binding contract. She could not recover, as it was a social agreement and parties did not intend to create any legal relations. Essential Elements Of A Contract: According to Sec. – 10 'All agreements agreements are Contracts Contracts if they are made by the free free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void'. All Contracts are agreements, but all agreements need not be contracts. 1. Offer & Acceptance. Acceptance. 2. Intention to create legal Relations. 3. Lawful consideration. consideration. 1
4. Capacity of parties. 5. Free and genuine consent. 6. Lawful object 7. Agreement not declared void. 8. Certainty and possibility of performance. 9. Legal formalities. Classification of contracts: Contracts may be classified into the following three main categories: 1. According to enforceability i.e. legal validity: (i) Valid contract
Sec. 10
(ii) Void agreement (iii) Void contract
Sec.2 (g) Sec.2 (j)
(iv) Voidable contract
Sec.2 (1)
(v) Illegal Agreement (v) Unenforceable Unenforceable contract. II. According to formation i.e. mode of creation (l) Express contract Sec.9 (2) Implied contract Sec.9 (3) Quasi contract III. According to performance 1) Exec Execut uted ed cont contra ract ct (2) Executory contract (3) Unilateral contract (4) Bilateral contract Introductory Lecture
LAW is a body of rules that are used for regulating the conduct of the Members of Society, and every society frames these rules according to their needs.
Today’s society is pluralistic – Hindus/ Christians/ Christians/ Muslims etc.
Law was periodically refashioned to meet the problems created by Social conditions.
Customs Usage ---Legislative Acts ---Precedents became the main sources of law.
Law & Society are very closely related. Law aims at bringing peace and order in the society. The purpose of law is the administration administration of Justice.
Unless peace is attained and maintained a society cannot survive.
Need For Law: An individual is confronted, almost daily, with situations that demand certain knowledge of law. Ignorantia Juris non excusat .
Ignorance of law is no excuse. The term 'Law' denotes rules and principles either enforced by an authority or self-imposed by the Members of Society to control and regulate peoples behaviour behaviour with a view to securing Justice, peaceful life and societal security. » Whatever is not enforceable is not L aw » Bran Branch ches es of Law Law
- Civi Civill Law Law Criminal Law Constitutional Law Merchantile Merchantile Law Labour Laws
Mercantile Law: Commercial Law – Business Law is that branch of law, which governs and regulates trade and commerce. Deals with the rights and obligations arising out of transactions between mercantile persons. persons. In fact it is a branch of Civil Law. Scope: Generally include the laws relating to Contracts, Sales of goods, Partnerships, Companies. Negotiable Instruments, Insurance, Insolvency, carriage carriage of goods and arbitrations arbitrations etc. Source Of Mercantile Law: 1.English Mercantile law: law : a) The English English Common Common Law/ Law/ Un-written Un-written b) Prin Princi cipl ples es of equ equit ity y c) Law Merc Merchan hantt or Lex Lex Merca Mercator toria ia 2.Precedents 2.Precedents (past Judicial Decisions of courts 3.Indian Statue law (Act of Indian Legislation) 4.Local customs and usages.
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INDI IN DIAN AN CONT CO NTRA RACT CT ACT, AC T, 1872 18 72 The act lays down general principles relating relating to formulation, performance and enforceability enforceability of contracts and the rules relating to certain special types of contract such as Indemnity, Guarantee, Guarantee, Bailment, Pledge and Agency. Agreement: Every promise and every set of promises, formulating the consideration for each other is an agreemen agreement. t. When one person person consents consents to another another his proposal proposal,, and that other person person assents there to, the proposal is said to be accepted becomes a promise. Contract An agreement enforceable by law is a contract .In other words, a contract is an agreement made with an intention to create a legal obligation i.e. duty enforceable enforceable by law. Offer Or Proposal When one person signifies to another his willing to do or abstain from doing anything with a view to obtaining the assent of the other the such act or abstinence, he is said to make proposal sec. 2(a). Acceptance When the person to whom the proposal is made signifies his assent there to the proposal is said to be accepted (sec. 2(b)). In other words acceptance is manifestation by the offeree of his assent to the terms of the offer . Consideration When at the desire of the promisor, the promise or any other person has done or abstained from from doing, doing, or does does or absta abstains ins from doing, doing, or promi promises ses or do or absta abstain in from from doing, doing, somethin something g such acts or abstinen abstinence ce or promise promise is called called consider consideratio ation n for the promisepromisesec.2(d). Consent Two or more persons are said to consent when they agree upon the same thing at the same sense. What is a contract? A) A contract contract is an agreem agreement ent enforcea enforceable ble by law-sec law-sec.2 .2 (h). B) All contracts contracts are agreements but all agreements are not necessarily necessarily contracts. contracts. C) Agreemen Agreements ts not enforcea enforceable ble by law law are not contrac contracts. ts. D) An agreem agreement ent is a contra contract ct if it is made made by a free free consen consentt of partie parties s competen competentt to contr contract act,, for a lawfu lawfull consid considera eratio tion n and and with with a lawfu lawfull object object,, and and is not expres expressly sly declared void-sec.10. E) The contract contract must be definite and and its purpose purpose should should be to create create a legal relationship. relationship. F) A contrac contractt creat creates es an obliga obligatio tion n i.e., i.e., duty to cast upon a person person by law. When the parties to the contract exchange promises, its gives rise to a contractual obligation. Essential Elements Of Contract 1) Minimum two parties
PROPOSAL PERSON
CALLED OFFER
PROMISER OR OFFERER
TO WHOM OFFER IS MADE
,,
WHO ACCEPTS
,,
1) Offer and acceptance. 2) Intention to create legal obligations. 3) Lawful consideration. consideration. 4) Competent parties. 5) Free consent. 6) Lawful object. 7) Not expressly declared declared void. 8) Certainty and possibility of performance. performance. 9) Legal formalities. Kinds Of Contract a) b) c) d) e) f) g) h) i) j) j) k) l)
Expr Expres ess s cont contra ract ct Impl Implie ied d con contr trac act. t. Cont Contin inge gent nt cont contra ract ct.. Quas Quasii cont contra ract ct.. Exec Execut uted ed con contr trac act. t. Exec Execut utor ory y cont contra ract ct.. Contracts Contracts for executed executed consider consideratio ation. n. Vali Valid d con contr trac acts ts.. Void Voidab able le cont contra ract cts. s. Void oid con contr tra acts cts. Unenfo Unenforce rceab able le contra contracts cts.. Ille Illega gall agr agree eeme ment nts. s.
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OFFEREE ACCEPTOR
OFFER AND ACCEPTANCE Offer: A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence Sec.2 (a). Kinds of offer: a) Expre Express ss or Impli Implied ed b) Speci Specific fic or Gene General ral Essentials of an Offer: 1. Intentio Intentions ns to create create legal legal oblig obligatio ations. ns. 2. Certa rtainty nty. 3. To do somet something hing or or abstain abstain from from doing doing somethin something. g. 4. An offer offer must must be commun communicat icated. ed. 5. An offer offer must must not not be ‘negativ ‘negative’ e’ in terms terms.. Rules relating to offer: 1. An invita invitation tion to offer offer is not not an offer. offer. 2. Two ident identical ical cross cross offers offers do do not make make a contract contract.. 3. Speci Special al term terms s in an an offe offer. r. Lapse of offer: a) By eff efflu lux x of time time.. b) By wrong wrong mode mode of accepta acceptance. nce. c) By rejec ejecti tion on.. d) By counter counter offer offer or cond conditio itional nal accept acceptance ance.. e) By death death or insani insanity ty of any any of the the parties. parties. f) By subseq subsequent uent illeg illegalit ality y or destru destructio ction n of subjec subjectt matter. matter. g) By revo revoca cati tion on.. Acceptance: An acceptance is the act of manifestation by the offeree of his assent to the terms of the offer. It signifies the offeree’s willingness to be bound by the terms of the proposal communicated to him. To be valid an acceptance must correspond exactly with the terms of the offer, it must be unconditional and absolute and it must be communicated to the offeror. It can be Express or Implied. Essentials of Valid Acceptance: 1. To be be made made by the offer offeree ee.. 2. Commu Communic nicate ated d to the offe offeror ror.. 3. After After rece receivi iving ng the the offe offer. r. 4. Befor Before e the the offer offer lapse. lapse. 5. Mode Mode of of comm communi unicat cation ion.. 6. Absolute and unqualified. 7. Once Once reje reject cted ed it cann cannot ot be acce accept pted ed agai again n unle unless ss rene renewe wed d by the the offeror.
CONSIDERATION Consideration is one of the essentials elements of a valid contract. It is the price for which the promise of the other is bought. A contract is basically bargain between two partie parties, s, each each rece receivi iving ng someth something ing of value value or benef benefit it to them. them. This This someth something ing is prescribed in law as consideration. For instance, in a contract of sale of goods, the price paid for the goods sold. Consideration Consideration may be in the form of money, services services rendered, goods exchanged or a sacrifice, which is of value to the other party. Essential Elements: 1. 2. 3. 4. 5. 6. 7.
At the the desir desire e of the the prom promiso isor. r. Consideration Consideration may may move move from the promisee promisee or any other person. person. Conside Considerat ration ion must must be an act, abstine abstinence nce or promis promise. e. Conside Considerat ration ion may may be past, past, present present or future. future. Conside Considerat ration ion need need not be adeq adequate uate.. Conside Considerat ration ion must must be real real and compe competent tent.. Cons Conside idera ratio tion n must must be legal. legal.
Consideration when not necessary: 1. Agreeme Agreement nt made made on account account of love love and affec affection tion.. 2. Compens Compensatio ation n for past past volunt voluntary ary servic service. e. 3. Promised Promised to pay pay a time barred barred debt. debt. 4. Gifts. 5. Agency. Legality of Consideration And Object: The The cons consid ider erat atio ion n and and obje object ctiv ive e of a cont contra ract ct must ust be lawf lawful ul (Sec (Sec.. 10. 10. if the the consideration consideration or the object of an agreement agreement is unlawful unlawful or opposed opposed to public policy, the agreement shall be void (sec-23). a) b) c) d) e) f)
Forb Forbid idde den n by by law law Defeats Defeats the provisio provisions ns of law Fraud audulent lent Injuriou Injurious s to person person or property property of of another another Immo Immoral ral agree agreeme ments nts Agree Agreeme ments nts oppo oppose sed d to publ public ic poli policy cy
The following heads of public policy have been recognized by various courts : a) Tradi Trading ng with with an enem enemy y b) Traffick Trafficking ing in public public offices offices c) Interfer Interference ence with the cours course e of justic justice e d) Stifling prosecution prosecution maintenance maintenance and champerty champerty e) Marriage Marriage brokera brokerage ge contract contracts s f) Unfai Unfairr and and unre unreaso asona nable ble deali dealing ngs s g) Creatin Creating g interes interestt agains againstt public public duty duty
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Agreements where consideration or object is n unlawful in part: According According to section 24, if any part of a single consideration consideration for one or more objects, or any part of any any one one of seve several ral consi conside dera ratio tions ns for for a sing single le objec objectt is unlaw unlawfu ful, l, the agreement is void. Section24 is in effect, an extension of the principle of illegality laid down by section23. Where the object or consideration is illegal in part and is not sever able from the rest, the agreement is void as a whole.
CAPACITY TO CONTRACT According According to Sec-10, the parties who enter into a contract must have the capacity to do so, that is, the parties must be competent to enter into a valid contract. Further, as per section 11, every person is competent to contract who is of the age of majority, and who is of sound mind and is not disqualified from contracting by any law to which he is subject. Contract with minor: • • • • • • • • • •
Who is a minor Minor’s agreement to be void Ab-initio Contracts beneficial to minor No Ratification Doctrine of restitution Minor not estopped from pleading minority Minor’s liability for necessaries Contract of apprenticeship Minor partner Minor’s liability in Torts
Contract with a Person of Unsound Mind A person is said to be sound mind for the purpose of making a contract if, at any time when he makes it he is capable of understanding it and of forming a rational Judgment as to its effects upon his introits (S-12). A contract with a person of unsound mind (including a lunatic or a person in drunken state or a person delirious from fever) is absolutely void. Contract with an Insolvent A person person may rightfully rightfully enter enter into contract contract even even after after the insolven insolvency cy proceed proceedings ings against him have commenced but before adjudication Contract with Corporations A corporation is an artificial person created by Law, having a separate legal entity. For instance, a company incorporated under the companies Act is a Juristic person, capable of entering into contracts of all sorts however, subject to the limitations laid down in the
‘objects’ clause of Memorandum of Association.
FREE CONSENT Two or more persons are said to have given their consent when they agree to the same thing in the same sense. Consent is said to be free when it is not vitiated by coercion, undue influence, fraud, misrepresentation or mistake . Coercion: Means committing or threatening to commit some act is contrary to law. Consent is said to be obta obtain ined ed by coer coerci cion on when when pres pressu sure re is exer exerte ted d by eith either er of the the foll follow owin ing g techniques A) Committing Committing or threatening threatening to commit commit any act forbidden forbidden by the IPC, OR B) Unlawful detaining or threatening threatening to detain detain any property property to the prejudice prejudice of the party whose consent being so obtained (Sec – 15). Under Influence: Consent of a person is said to be induced by undue influence, when: a) The parties parties to a contract contract are so so related that that one party party is in a position position to dominate dominate the will of the other; and b) When When such position position is used used by the former former party to obtain obtain an unfair unfair advantag advantage e over the other party – Sec. 16 (1). A person is deemed to be in dominating position over the other in the following cases Sec – 16 (2): Real or apparent authority Fiduciary Relationship Mental Incapacity Presumption of under influence Effect of under influence • • • • •
Fraud: Broadly speaking, fraud is intentional mis-representation of facts. A fraud is said to have been committed when any of the following acts are done by a party to a contract, with intention to decline the other party or to induce him to enter in to the contract or a) Suggesti Suggesting, ng, as a fact, somethin something, g, which is not true true by a person person who does does not believe it to be true. b) Actively concealin concealing g a fact by by one who who has knowledge knowledge or belief of the fact fact c) Any such act or omission omission as the law specifically specifically declares declares to be fraudulent. fraudulent. • • •
Silence when amounts to fraud Effect of fraud Limitation to the right of Rescission Termination.
Misrepresentation: It is an untrue statement of a material fact, which includes the other party, to enter into an agreement. Misrepresentation may be of the following types a) Unwa Unwarra rrant nted ed Asser Assertio tions ns 9
b) Brea Breach ch of duty duty c) Inducing Inducing mistake mistake abou aboutt subject subject matte matter. r. Mistake: Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void Mistake of Law Mistake of Fact o Mistake as to Identity o Mistake as to subject matter Mistake as to mature and content of the promise • •
•
LEGALITY OF OBJECT AND CONSIDERATION The object and the consideration of an agreement t must be lawful; otherwise, the agreement is void. The object of an agreement is unlawful in the following cases: a) b) c) d) e)
If it id forfor-bid bidden den by law law If it defea defeats ts the the provisi provisions ons of of any law If itit is is frau fraudu dule lent nt If it involves involves or implies implies injury injury to a person person or property property or another another If the court regards regards it is immoral immoral or opposed opposed to public public policy. policy.
Meaning Of Illegal Agreements: Illegal agreements are those agreements, which are: a) Void ab-ini ab-initio tio i.e. i.e. void from from the very beginn beginning, ing, and and b) Punis Punishab hable le by the the crimi crimina nall law law of the count country ry or by any specia speciall legisl legislati ation on / regulation. Effects of Illegal Agreements: a) The collateral collateral transaction transaction to an an illegal agreement agreement also also become become illegal and and hence cannot be enforced. b) No action can can be taken taken for recovery recovery of money money paid or property property transferred transferred under under an illegal agreement t and for the breach of an illegal agreement. c) In case of an agreeme agreement nt containi containing ng the promise, promise, some some part of which which is legal legal and other part illegal, the legal position is as under.
CASE If the illegal part cannot separated from the legal part.
PROVISION be
If the illegal part can be separated from the legal part
The whole agreement is altogether illegal
The The court court will will enfor enforce ce the legal legal part part and and reject the illegal part
Void Agreements If Consideration or Objects Unlawful In Part According to sec 24, if one of the several consideration or objects of an agreement is unlawful, the agreement is void. Agreement Opposed To Public Policy a) Agreeme Agreement nt of trading trading with Enemy. Enemy. b) Agreeme Agreement nt for for stiflin stifling g prosecu prosecution tion c) Agreeme Agreement nt in nature nature of mainten maintenance ance and and champert champerty. y. d) Agreement Agreement for sale/transfer sale/transfer of public offices and titles. titles. e) Agreeme Agreement nt in restrai restraint nt of person personal al rights. rights. f) Agreeme Agreement nt in in restr restraint aint of perso personal nal liberty liberty g) Agreeme Agreement nt tending tending to to create create monopo monopoly ly h) Agreeme Agreement nt interfer interfering ing with with courses courses of Justice Justice i) Marri Marriage age broke brokera rage ge Contr Contract acts s j) Agreeme Agreement nt in in restr restraint aint of marr marriage iage (Sec-26 (Sec-26)) k) Agreement Agreement in restraint restraint of of trade. trade. l) Agreem Agreement ent in in restrai restraint nt of legal legal proce proceedi eding. ng.
CONTINGENT CONTRACT Meaning: A ‘contingent contract’ is a contract to do or not to do something if some event collateral to such contract, does or does not happen Sec-31 Essential features: a) Depende Dependence nce on a future future even event. t. b) Coll Collat ater eral al even event. t. c) Un-c Un-cer erta tain in eve event nt.. Rules regarding contingent contracts: KINDS OF CONTIGENT CONTRACT
RULES REGARDING ENFORCEMENT
1) Con Contra tracts cts cont onting ingent ent upo upon the Such contracts cannot be enforced by law happening of an uncertain future event unless and until that event has happened. If (Sec-32) the the even eventt beco becom mes impo imposs ssib ible le,, such such contracts become void. 2) Contracts contingent upon the nonhapp happen enin ing g of a cert certai ain n futu future re even eventt (Sec-33)
3) Contracts contingent upon the future conduct of a living person (Sec-34)
Such contracts can be enforced when the happening of that event becomes impossible and not before. If the uncertain event is the future conduct of a livi living ng pers person on,, such such even eventt shal shalll be considered impossible if that such person does anythin thing g by which ich it beco ecomes impossible to perform the contract with in 11
any definite time. 4) Con Contra tracts cts cont onting ingent ent upo upon the Such contracts become void if before the happ happen ening ing of an unce uncerta rtain in spec specifi ified ed expiry of fixed timeevent within a fixed time (Sec-35) a) Such event event does does not happen, happen, or b) Such event event becom becomes es impo impossib ssible le 5) Contrac Contracts ts conting contingent ent upon upon the non- Such contracts can be enforced by law if happ happen ening ing of an unce uncerta rtain in speci specifie fied d before the expiry of fixed time. event within a fixed time (Sec-35) a) Such event event does does not happen, happen, or b) It beco become mes s cert certai ain n that that such such even eventt will not happen. 6) Agree reement ents: Contin tingent impossible events (Sec-36)
upon
Such Such agree agreeme ments nts are void void wheth whether er the the impossibility of the event is known or not to the parties to the agreement at the time when it is made.
PERFORMANCE OF A CONTRACT The The partie parties s to a contr contract act must must either either perfor perform m or offer offer to perfo perform rm their their respec respectiv tive e promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law (Sec-3)
Types of performance: There may be two types of performance as follows: a) Actual Wher Where e prom promis isso sorr has has made ade an off offer of Actual performan performance: ce: performance and the offer has been accepted by the promisee, it is called an actual performance. Attempted ted perfor performan mance ce (or tender tender): ): wher b) Attemp where e a prom promis isso sory ry has has made an offer of performance to the promisee and the offer has not been accepted by the promisee, it is called attempted performance. Sec-38 Effects of tender: There are two effects of tender as under : a) The promisser is not responsible for non-performance b) The promissory dos not loose his rights under the contract. Types of tender: There can be two types of tender as follows: Essentials of a Valid Tender Unconditional
At proper time
At proper Reasonability To place for opportunity proper to promisee Person
Of exact For Whole ole amount Obligation and in
LEG LEGAL REPRE EPRES SENTA ENTATI TIVE VE
THIR THIRD D PA PART RTY Y
legal tender a) Unco Uncond ndit itio iona nal: l: It must be unconditional-tender is said to be unconditional when it is made in accordance with the terms of the contract. b) At Pro Prope perr Time Time:: It must be at proper time, i.e. at the stipulated time (if there is an agreement as to time) or during business hours (if there is no agreement as to time). Tender of goods or money before the due date is also not a valid tender. c) At Prop Proper er Plac Place e : It must be at proper place, i.e. at the stipulated place (if there is an agreement as to place) or a promisee’s business place (if there is business) or at promisee’s residence (if there is no business place). d) Reasonable Oppurtunity To Promisee : It must give a reasonable opportunity to the promisee of ascertaining that the goods offered are the same as the promisor is bound to deliver. e) For For Whol Whole e Obli Obliga gatio tion n : It must be for the whole obligation and not for a apart of the whole obligation. obligation. However, However, a minor deviation from the terms of the contract may not render the tender invalid . f) To Prop Proper er Pers Person on:: It must be made to the promisee or his authorized agent. TYPES OF TENDER
MEANING
EFFECT
I. Tend Tender er of good goods s or Where the promisor services offers to deliver the goods or services but the promisee refuses to accept the delivery.
a) Goods or services need not be offered again. b) Promisor may sue the promisee for non-performance c) Prom Promiso isorr disch dischar arged ged from from his liability.
II. Tender of money
a) Promisor Promisor is not dischar discharged ged from from his his liab liabil ilit ity y to pay pay the the amount b) Promisor will not be liable for interest from the date of a valid tender
Where the promisor offers o pay the amount but thee promisee refu efuses to accept cept the the same
g) Of Exact Exact Amoun Amountt And In Legal Legal Tender: Tender: In case tender of money, it must be of exact amount and in legal tender. h) Effect of of refusal refusal of party to to perform perform promise promise wholly: wholly: Party to a contract has refused to perform or disabled himself from performing his promise in its entirety; the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. PERSONS WHO CAN DEMAND PERFORMANCE
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OMISOR
PROMISOR’S PROMISOR’S AGENT LEGAL REPRESENTATIVE REPRESENTATIVE THIRD PARTY JOINT PROMISSORS
PERSONS WHO MUST PERFORM
Time & place of performance sec. -46 to 50:
The various rules regarding the time and place of performance are given below: CASE
RULE
I. Where the time of performance performance is The contract must be performed in not specified in the contract (promisor reaso reasonab nable le time. time. The The quest question ion 'What 'What is undertake to perform without reasonable time' is a question of fact (secapplication by the promisee) 46) II. Where the time s specified in the The promise must perform his promise n cont contra ract ct.. (pr (promis omisor or unde undert rtak ake e to that particular day during the usual hours of perf perfor orm m with withou outt appl applic icat atio ion n by the the business and at a place where the promise promisee) ought to be performed (sec-47) III. Where the time of performance is The promisee must apply for performance specified in a contract and the at a proper place and within usual hours of promis omiso or has has not unde underrtak taken to business (sec-48) perform perform it without without applica application tion by the promisee. IV. Where the place of performance is The promisor must apply to the promisee to not not spec specif ifie ied d in a cont contra ract ct and and the the appoint a reasonable place for the prom promise ise is to be perfo perform rmed ed witho without ut performance and to perform the promise at application by the promisee. such place (sec-49) V. Where the promisee prescribes the manner or time of performance.
The promise must be performed in the manner and at the time prescribed by the promisee (sec-50)
Time as the Essence of Contract: Time is the essence of a contract means that it is essential for the parties to a contract to perform their respective promises within the specified time.
Cases where time is considered to be essence of contract: In the following cases, time is usually considered to be the essence of contract: a) Where the parties have expressly agreed to treat the time as the essence of the contract. b) Where the non-performance at the specified time operates as an injury to the party. c) Where the nature and necessity of the contract within the specified time.
Presumption As To Time As Essence Of Contract IN COMMERCIAL CONTRACTS
OR
MERCHANTILE
IN NON-COMMERCIAL OR NON-MERCHANTILE CONTRACTS
(a) Time fixed for a delivery of goods is considered to be the essence of a contract
Usually, the presumption is that time is not the essence of a contract.
(b) (b) Time Time fixe fixed d for for the the paym paymen entt of the the price is not considered to be the essence of a contract
For example, n case of the sale of an immovable property, time is presumed to be not the essence of a contact.
Consequences Of Non-Prformanceor Contract Within Specified Time (Sec-55) WHEN WHEN TIME TIME IS IS ESSE ESSENCE NCE OF A CONTRA CONTRACT CT
WHEN WHEN TIME TIME IS IS NOT NOT ESSE ESSENCE NCE OF A CONTRA CONTRACT CT
a) The contr contrac actt becomes becomes void voidab able le at the option of the promisee b) If perfor performan mance ce beyond beyond the speci specifie fied d is accepted accepted,, he promisee promisee cannot claim claim compensation for any loss occasioned by the non-performance of the promisee at the agreed time unless at the time of such acceptance he gives notice to the promiser of his intention to do so
a) The contract does not become voidable at the option of the promisee b) The promisee is entitled to claim compensation for any loss occasioned to him by non-performance of the promise at the agreed time.
Reciprocal promises: Promises, which form the consideration or part of the consideration for each other, are called 'reciprocal promises' Types: a) Mutual and independent b) Mutual and Dependent c) Mutual and concurrent Rules: a) Regarding Regarding simul simultane taneous ous perfor performanc mance e (Sec.-51) (Sec.-51) b) Regarding Regarding order order of perfor performanc mance e (Sec.-52) (Sec.-52) c) Effects Effects of preventin preventing g the perfor performanc mance e (Sec.-53 (Sec.-53)) d) Effects Effects of non-perform non-performance ance in case case of Mutual and Depend Dependent ent Reciproc Reciprocal al promises (Sec.-54) e) Effects Effects of promise promise to to do legal legal and legal legal things things (Sec.(Sec.-57) 57) 15
f)
Effects Effects of alterna alternative tive promise promise being being illeg illegal al (Sec.-5 (Sec.-58) 8)
Assignment of contracts: contracts : Assignment of contract means transfer of contractual rights and liabilities to a third party. Mode: a) Ass Assign ignmen mentt by act act of of parti parties es b) Ass Assign ignmen mentt by opera operatio tion n of law law Appropriation of payment (sec.-59 to 61): Appropriation Appropriation of payment means application of payment to a particular debt.
Rules: CASE I.
II.
III.
Where debt to be discharged is indi indica cate ted d i.e. i.e. wher where e a debt debtor or who owes owes seve severral distinct debts to one creditor either with express intimation or under circumstan circumstances ces implying implying that the payment is to be applied to the disc discha harg rge e of som some particular debt. Where the debt to be discha dis charge rged d is not indica indicated ted,, i.e. i.e. wher where e the the debt debtor or does does not intimate and there are no circum circumsta stance nces s indica indicatin ting g to which debt the payment is to be applied. Where neither party makes any appropriation
RULE The The paym paymen ent, t, if acce accept pted ed must must be applied accordingly.
The creditor has option to apply the payment to any lawful debt due from the debtor even if it is a time barred debt. But he cannot apply to a disputed debt. The payment shall be applied in discharge of the debts in order of time whether or not they are time barred. If the debts are of equal standing, the payment shall be applied in discharge of each proportionately.
Rule in clayton’s case: Thi This s rule rule appl applie ies s wher where e part partie ies s have have a runn runnin ing g acco accoun untt betw betwee een n them them.. According to this rule, in the absence of any contrary, an item of receipt side must be apportioned against the items of payment side in order of date.
At The Due Date of PerfoD rm urain ng cethe PerformBy ancExpress Eexpress Reputation By Im Ap nltiiecd ipR ateopru ytation Same Identity Actual
MODES OF Actual Tender AlterDISCHARGE ation By Impossibility RemissioOF n of CONTRACT WaBiv ByNovation PerPerformance formance Recession yeLrapse of Time Performance Death Insolvency By Mutual Agreement By Operation of Law Initial Initial Impossibility Subsequent Impossibility Impossibility
Mutual Alteration
By Breach
DISCHARGE OF A CONTRACT: Discharg Discharge e of a contract contract means means discontin discontinuatio uation n of the contractu contractual al relations relations between the parties to a contract. A contact said to be discharged when the rights and obligations of the parties under the contract toofan end. of Destruction of subject Death matter or personal incapacity Declaration Decome claration war Change Cessation law of a State of Things
QUASI CONTRACT 17
Quasi contract are those transactions, which do not actually form contracts between the parties in the legal sense, but only create certain legal rights and obligations similar to those created by a contract. Following transactions, transactions, are recognized as ‘quasi-contracts’ under the law. a) Where Where necessa necessari ries es are supplie supplied d to a person person,, who is incomp incompete etent nt to contra contract ct (e.g. A minor or Lunatic) or to someone whom he is legally bound to support, the supplier is entitled to recover the price from the property of the incompetent person. b) When When a person person makes makes payme payment nt of money due due by anoth another, er, in paymen paymentt of which which he is invested he shall be entitled to be reimbursed by the other. c) When a person person does something something to him, him, not intending intending to do gratuitous gratuitously ly and such other other person enjoys the benefit there of, the latter is obliged to compensate the former in respect of, or to restore, the thing so done or delivered. d) A person, person, who finds goods goods belonging belonging to another another and takes them them into this custody, custody, has the same obligations as that of a bailee. e) A person to whom money money is paid or anything anything deliver delivered, ed, by mistake mistake or under under coersion, coersion, shall be liable to repay or return it. Compensation for Failure to Discharge Obligations Created By Quasi-Contracts : Section 73 provides in this regard that “when an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it, is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it, and has broken his contract.” So according to this section the person failing to discharge a quasi-contractual obligation is liable to pay some compensation to the other party as is payable in case of breach of contract. So a person is bound to discharge obligations obligations created by a quasi-contract.
CONTRACT OF INDEMNITY A contract by which one party promises to save the other from, loss caused to him by the
conduct of any other promisor is called a contract of Indemnity (S – 124). In simple words, a contract of Indemnity is a contract in which one person promises to protect or compensate the other for the loss suffered by him due to conduct of the promisor or any other person. The person who promises to compensate is the Indemnifier and the person who is protected against loss is known as Indemnity Holder or Indemnified. Essentials of a contract of indemnity: A valid contract of Indemnity should fulfill the following conditions: 1. There There must must be two par partie ties s – Indemnif Indemnifier ier and Indemnified. 2. Contra Contract ct of Indemn Indemnity ity being being a speci species es of contra contract ct must must have have all all essent essentia ials ls of a valid contract like free consent, compet competenc ence e of parti parties, es, consid considera eratio tion n etc. 3. Ther There e must must be a prom promis ise e to save save the the other party from some loss. 4. The The loss oss may be due due to the the promi omisor sor himself or any other person. 5. The contract of Indemnity may be express of implied. Commencement of the indemnifiers liability: In the Indian contract Act there is no provision regarding the time of commencement of Indemnifiers liability under the contract of Indemnity. So, we have to look for the answer in the observations of courts in various judicial decisions. Rights of indemnity holder when sued (sec. –125) The Indemnity Holder is entitled to recover from the Indemnifier the following provided he has not acted outside the scope of his authority. 1. All damage damages s which the indemn indemnity ity Holder Holder was compell compelled ed to pay in any such suit in respect of any matter to which the promise to Indemnify applies. 2. All costs costs which which the Indemnit Indemnity y holder may may be compelled compelled to pay pay in any such such suit. 3. All sums, sums, which which he may may have paid paid under under the terms terms of any comprom compromise ise of any, any, such suit. Rights of Indemnifier: There is no provision in the contract Act about Indemnifier’s rights. However, by reading Sec. – 141, which deals with rights of surety one, conclude that rights of an Indemnifier are the same as those of the Surety. By death of surety: Section 131 provides in this regard ‘the death of the surety operates in the absence of a contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions’. Guarantee is automatically revoked on surety’s death and no notice of death is required to be given to the creditor. But for the transactions already entered into the estate of the surety is liable. Nature and extent of surety’s liability: 1. Co-extensive: Surety is liable for the whole of the amount for which the principal debtor is liable and no more contracts to the contrary. 2. Surety Surety’s ’s right right to limit limit his liabil liability ity:: Altho Although ugh the liabili liability ty of the surety surety is coextensive extensive with that of principa principall debtor, debtor, he may limit limit his liability. liability. He may expressly expressly declare his guarantee to be limited to a fixed amount. 3. Surety Surety’s ’s liabil liability ity arises arises immedi immediate ately ly on defau default lt of the princi principle ple debtor debtor:: Surety cannot be called upon to pay unless the principal debtor has committed the default. 19
4. Surety’s liability where the original contract between creditor and principal debtor is void or voidable: The contract between the surety and the creditor is an independent contract and not a collateral one, and it is not that surety is liable. Thus where the original contract between the creditor and the principal debtor is void (e.g. Where principal debtor is minor) the surety will be liable as if he is the principal debtor. Similarly where the contract between the creditor and the principal debtor is voidable, the surety may not be discharged from liability.
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” (S – 126). There is a contract to perform the promise of another person of another person or discharge his liability in case of his default . default . In a contract of guarantee there are three parties. 1. Surety – The person who gives the guarantee is called surety (S-126). 2. Principal Debtor – The party in respect of whose default the guarantee is given (S126). 3. Creditor – – The person to whom the guarantee is given is called creditor
(S-126).
Requisites of a valid guarantee: 1. Requirements of a valid contract – The essentials of a valid contract must be present to make the contract of guarantee enforceable enforceable by law. 2. The The cont contra ract ct must must be supp suppor orte ted d by cons consid ider erat atio ion n – Howe Howeve ver, r, the the Law Law pres presum umes es that that cons consid ider erat atio ion n rece receiv ived ed by the the prin princi cipa pall Debt Debtor or is suff suffic icie ient nt consideration for surety. There need not be direct consideration between the surety and creditor. 3. There must be some one primarily liable – There must be some one liable as a principal debtor and the surety undertakes to be liable on his default. If that liability does not exist, there cannot be a contract of guarantee. But a guarantee given for the Minor’s debt is an exception to this rule. 4. There should be no misrepresentation - A surety ought to be acquired with the whol whole e cont contra ract ct ente entere red d into into with with his his prin princi cipa pal. l. Sec. Sec. 142 142 and and 143 143 decl declar are e the the guarantee obtained by means of a misrepresentation or concealment of material facts by the creditor as invalid. 5. Writing not necessary – A contract of guarantee may be oral in writing (S-126). 6. Concurrence – A contract of guarantee requires concurrence of all the three parties to it, i.e. the principal debtor, the creditor, and the surety. The surety comes into picture at the request of the principal debtor. Kinds of Guarantee: 1. Retros Retrospec pective tive and and Prosp Prospect ective ive – A retrospective is one, which is for an existing debt, where a prospective guarantee is for a future debt. 2. Spec Specif ific ic and con continu tinuin ing g – Cont Contin inui uing ng guar guaran ante tee e exte extend nds s to a seri series es of transactions. The liability of surety in this case extends to a number of transactions and he becomes liable for the unpaid balance at the end of guarantee. Whether a guarantee is continuing or not depends upon the language of guarantee and the surrounding circumstances. circumstances. Revocation of a Continuing Guarantee: The revocation of guarantee means the cancellation of the guarantee. On revocation the liability of surety cones to an end. A continuing guarantee guarantee may be revoked in any one of the following ways:
1. By notice of revocation: revocation: A surety may revoke the continuing guarantee by giving notice of revocation to the creditor. Section 130 of the contract Act provides. 2. A cont contin inui uing ng guar guaran ante tee e may may at any any time time be revo revoke ked d by sure surety ty,, as to futu future re tran transa sact ctio ions ns,, by noti notice ce to the the cred credit itor or.. Howe Howeve ver, r, sure surety ty rema remain ins s liab liable le for for transactions already entered into before revocation. Void Contract Of Guarantee: A contract of guarantee is not enforceable in a court of law in the following cases: 1. If the contract contract of guarantee guarantee does not fulfill fulfill the condition conditions s of a valid contrac contract. t. (Illegal (Illegal object, no free consent etc.) 2. If the guara guarantee ntee is obtai obtained ned by misrep misreprese resentat ntation ion (S-142) (S-142) If creditor makes misrepresentation of a material fact, the guarantee is invalid. Difference between Indemnity and Guarantee: 1. Parties 2. Numb Number er of cont contra ract cts s 3. Natu Nature re of liab liabil ilit ity y 4. Purp Purpos ose e of of con contr trac actt 5. Request 6. Exis Existi ting ng liab liabil ilit ity y 7. Intere Interest st in transa transacti ction on 8. Right Right to to sue sue thir third d par partie ties s Rights of surety: a) Right of surety against principal debtor 1. Right Right to be subrogated subrogated (S – 140) subrogati subrogation on implies implies the substitut substitution ion of one person person for another. 2. Right Right to to Indem Indemnit nity y (S (S – 145) 145) b) Right of surety against the creditor 1. Right to claim securities (S – 141) 2. Right of set-off 3. Right to share reduction. c) Right of surety against Co-sureties 1. Righ Rightt of con contr trib ibut utio ion n 2. Co-sur Co-sureti eties es bound bound in diffe differen rentt sums. sums. 3. Right Right of shar share e benefi benefits ts of secu securi rity ty 4. Effect Effect of of rele release ase of suret surety y (S – 138) 138) Discharge of Surety: A surety is said to be discharged from liability when his liability comes to an end. This may happen in various ways, either by the action of the surety himself or by creditor or by principal debtor or by both or by operation of law. 1. By revo revoca cati tion on S – 130 130 2. By dea death th of of sure surety ty S – 131 131 3. By variat variation ion in in terms terms of contra contract ct (S – 133) 4. By releas release e or dischar discharge ge of the princ principal ipal debtor debtor (S (S – 134) 5. By compositi composition on with the the princip principal al surety’ surety’s s remedy remedy (S – 139) 6. By loss loss of secu securit rity y (S – 141) 141)
21
BAILMENT AND PLEDGE BAILMENT: 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 disposed of according of accounting to the directions of the person delivering them. The person delivering the goods is called the “bailor” and the person to whom the goods are delivered is called “bailee” Sec – 148. Example: 1. Delive Deliverin ring g a watch watch for for repa repair. ir. 2. Leave Leave car/s car/scoo cooter ter at at parkin parking g stand. stand. 3. Leavin Leaving g lugga luggage ge in in clock clock room. room. 4. Deliveri Delivering ng gold gold to goldsm goldsmith ith for makin making g ornaments ornaments.. 5. Leavin Leaving g garmen garments ts with with a dry clea cleaner ner.. Essentials of Bailment: 1. A contract contract of bailment bailment requi requires res two partie parties, s, bailor bailor and the baile bailee. e. 2. A bail bailme ment nt invo involv lves es deli delive very ry of poss posses essi sion on of the the good goods s from from bail bailor or to bail bailee ee ‘possession’ here must be distinguished from mere ‘custody’. 3. The delive delivery ry of goods should should be made for some some purpose purpose,, and and under a contrac contractt of bailment, when the goods go into, or remain in the possession of a person without any contract of bailment the holder of goods can not be held liable as the bailee. 4. Bailment Bailment is always always subjec subjectt to the condition condition that when the the purpose purpose is accomplish accomplished ed the goods will be returned to the bailor or disposed of according to his directions. If this condition is absent, the contract is not of bailment. Bailment, Sale and Hire Purchase: A bailment differs from a sale in the sense that in the latter what is transferred is not mere possession, but also ownership and therefore the buyer is under no obligation to return. However, a hire-purchase agreement is a bailment with an option to sale. The hire-purchaser is in the position of bailee, till he purchases the goods by paying the last installment. Duty of Bailor: It is the primary primary duty of the bailor bailor to disclose disclose,, to the bailee, bailee, the defaults defaults of defects; defects; in the goods bailed of which the bailor has knowledge and which might interfere with their use or expose the bailee to extraordinary risks. If the bailor fails to disclose the defect and the bailee suffers any loss due to such non-disclosure, the bailor must compensate the bailee. Where the goods are bailed for hire, the bailor is responsible for any damage caused to the bailee from the goods, whether or not he was aware of the goods bailed (Sec – 150). The bailor must examine the goods and remove such defects as reasonable examination would have have dis disclo closed sed.. Howeve However, r, the bailor bailor canno cannott be held held liable liable for laten latentt defect defects, s, whethe whetherr discoverable discoverable or not. Duties of Bailee: 1. Reas Reason onab able le care care.. 2. Not to make make unauth unauthori orized zed use. use. 3. Not Not to to mix mix the the goo goods ds.. 4. To retu return rn the the goo goods ds.. 5. To ret retur urn n inc incre reas ase. e. 6. Not to set set up up an advers adverse e title title..
Rights of Bailee: 1. The bailee bailee has has a ‘right ‘right to claim compen compensati sation on from the bailor’ bailor’ S – 164.
2. Right Right to be compen compensate sated d for expens expenses es incurr incurred ed S – 158. 158. 3. Right Right of lien lien over over the goods goods S – 170. 170. 4. Bankers, Bankers, factor factors, s, war fingers fingers,, attorney’s attorney’s of a High High Court and policy policy brokers brokers have have a right to ‘General lien.’ 5. Bailee Bailee has a right right to stop delivery delivery of goods goods to other than than the bailor bailor even even under court court order. 6. The bailee bailee is entitled entitled to sue a wrong-doer/t wrong-doer/third hird party party for damages damages or compensat compensation. ion. The amount of damages or compensation will be divided between bailor and bailee according to their respective interests S- 180, 181. Rights of Finder of Goods: Goods : A finder of lost goods is in the position of bailee and is, a such, bound to exercise reasonable care with regard to the goods. But he has no right to sue the owner for compensation fro the trouble and expense voluntarily incurred by him to preserve the goods and to find the owner. However, a finder has the following rights: 1. To retain retain the goods against against the owner owner till he receive receives s compensatio compensation n for trouble trouble and expense. 2. To sue the owner, owner, where where the owner owner has has offered offered a specific specific reward reward for the the finder finder of lost goods, for such reward and to retain the goods till he receives it Sec – 168. 3. To sell the the goods when when the owner owner cannot cannot be found or if he refuse refuses s to pay the lawful lawful charges of the finder, in either of the following cases: (a) When the goods goods are are perishing perishing;; or (b) When When the lawful lawful charges charges of the finder finder amount amount to two-th two-third ird of the value value of goods S – 169. Rights Of Bailor: Bailor: The bailor has a right to terminate the contract of bailment if the bailee does any act with regard to the goods, inconsistent with the conditions of bailment S – 153. Termination Of Bailment: A contract of bailment normally terminates with the return of goods by the bailee to the bailor or as per his directions and settlement of their mutual rights. Further a contract of bailment is terminated by the death either of the bailor or of the bailee. Pledge: A ‘pledge’ is a bailment of goods where in the goods are delivered as a security for payment of debt or performance of a promise. The bailor is called the ‘pledger’ or ‘pawnor’ and the bailee is called the ‘pledge’ or ‘pawnee.’ A pledge can be of movables and usually consists of goods capable of actual or constructive delivery. delivery. Rights of Pledge/Pawnee: 1. Righ Rightt to reta retain in the the good goods s 2. Right Right to extr extraor aordin dinar ary y expens expenses es 3. Righ ight to to su sue 4. Righ ight to to sel selll Rights of Pledger: (a) (a) A pled pledgo gorr has has the the righ rightt to reco recove verr the the good goods s on paym paymen entt of the the debt debt or performance of the promise. (b) Where pledgor has has defaulted in making making of the debt, debt, he may redeem redeem the goods pledged at any subsequent time before their sale. (c) Pledgor Pledgor has the right to recover any increase increase or accredita accreditation tion period period to the goods occurred during the period of pledge. Pledge by Mercantile Agent: A ‘mercantile agent’ is an agent having the authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, for the purpose of sale, or to buy goods or to raise money on the security of goods. Pledge made by a mercantile agent, shall be valid, provided the pledgee acts in good faith and has no notice of the fact that the agent has no 23
notice of the fact that the agent has no authority to pledge. Sec – 178.
AGENCY An ‘agent’ is person employed to do any act or to represent another in dealings with the third persons. The person who employs the agent and for whom such act is done, or who is so represented, is called the “Principal”. The essence of a contract of agency is the agent’s representative capacity coupled with power power to affect affect the legal relatio relations ns of the princ principa ipall with with third third person persons. s. It is this, this, which which distinguishes the relationship between an agent and principal from the relationship between a master and a servant. It is only when a person acts as a representative of the other in the creation, modification or termination of contractual obligations between that other and third persons, that he is an agent. KINDS OF AGENTS 1. MERCA MERCANTI NTILE LE AGEN AGENT(A T(ABCD BCDF) F) Factor Broker Auctioneer Delcredere agent Commission agent • • • • •
2. Non-merca Non-mercantil ntile e agents - agents who represen representt their principal principals, s, in transaction transactions s other than those of sale or purchase of goods, are non-mercantile agent. E.g.-Directors, E.g.-Directors, company secretaries, secretaries, & professional advisers Appointment: The appointment of an agent may be either express or implied. An ‘implied agency’ is created by following modes. • • •
By Estoppel or holding out By necessity By ratification
Agents authority Actual authority Apparent or ostensible authority Agent exceeding his authority Delegation of agents authority Effects of delegation Substituted agent
Duties of Agent: • • • • • • •
To follow instructions or customs To excise reasonable skill and diligence To render proper accounts To communicate in emergency To avoid conflict of interest Not to make secret profits To remit sums
•
Not to delegate his authority
PARTNERSHIP (The Indian partnership Act 1932) ‘Partnership’ is the relation between persons who have agreed to share the profits of a business carried on by all, or any of them acting for all (Sec-4) ‘Partner ‘Partners’ s’ ‘Firm’ ‘Firm’ and ‘Firm name’ name’ –persons –persons who have entered into partners partnership hip with one another are called individually as ‘Partners’ and collectively as ‘firm’ and the name under which they run their business is called the ‘firm name’ Essentials Of Partnership: 1. Ag Agree reemen mentt (partn (partners ership hip deed deed)) 2. Two Two or or more more pers person ons s 3. Business 4. Shar Sharin ing g of prof profit its s 5. Mutu Mutual al Ag Agen ency cy RIGHTS OF PARTNERS DUTIES OF PARTNERS AUTHORITY OF PARTNERS LIABILITY OF PARTNERS LIABILITY FOR WRONGFUL ACTS OF A PARTNER LIABILITY FOR MISAPPROPRIATION MISAPPROPRIATION LIABILITY OF A PERSON NOT BEING A PARTNER (HOLDING OUT) Admission of a New Partner: Who can admitted Effects of admission (New partnership deed necessary) Liability of a new partner Retirement of a partner Modes of retirement – 1. By co consent 2. By agree greeme ment nt 3. By no notice • • • • •
Liability of a retired partner Rights of a retired partner Minor partner Rights of a minor partner Liabilities of a minor partner Position on attaining majority
EXPULSION OF A PARTNER INSOLVENCY OF A PARTNER DEATH OF A PARTNER LIABILITY OF A DECEASED PARTNER RIGHTS OF A DECEASED PARTNER/HIS LEGAL REPRESENTATIVE Dissolution of Firm: 1. By agreem reemen entt 2. Comp Compul ulso sory ry disso dissolu luti tion on 25
3. Cont Contin inge gent nt dissol dissolut utio ion n 4. Diss Dissol olut utio ion n by not notic ice e 5. Diss Dissol olut utio ion n by cour courtt Insanity of partner Permanent incapacity incapacity of a partner Misconduct on the part of a partner Persistent breach of agreement by a partner Transfer of interest by partner When the business of a firm cannot be continued except for loss Any other just and equitable ground 6. Diss Dissol olut utio ion n Deed Deed Public notice of dissolution Liabilities after dissolution Rights after dissolution • • • • • • •
• • •
Settlement of Accounts: 1. Losses, Losses, includi including ng deficienci deficiencies es of capital capital,, shall be paid. paid. First out of profits Next out of capital and Lastly if necessary, by the partners individually individually in their profit sharing ratio. • • •
2. Assets, Assets, includi including ng any sums contribu contributed ted by the partners partners to make up defici deficiencie encies s Of capital, shall be applied. First in paying the debts of the firm to third parties Secondly, in paying to each partner proportionately towards any advances made over and above the capital Thi Third rdly ly,, in payi paying ng to each each part partne nerr prop propor orti tion onat atel ely y towa toward rds s the the capi capita tall contributed by them and Lastly, the surplus, if any, shall be shared amongst the parties in their profits sharing profit. • •
•
•