Legal_Aspects_of_Business.ppt

Indian Contract Act
 Definition of a contract: Sec. 2(h) :
 "An agreement enforceable by law is a
contract.”

 'Every contract is an agreement but every
agreement may not be a contract'
 Essentials of a valid contract:
 Offer and acceptance
 Lawful consideration
 Competent parties
 Free consent
 Consideration and object to be legal

 Definition Of a offer: Sec. 2(a)
When one person, signifies to another,his
willingness to do or to abstain from doing
anything,
with a view to obtaining the assent of that other to
such act or abstinence,
he is said to make a proposal/offer.

Modes of making an offer
 Express offer: offer made by words (written
or oral)
 Implied offer: offer made by conduct
 Offer by abstinence: offer made by party by
omission to do something
 Specific and General offers: offer can be
made either to (1) a definite person or group
of persons, or to (2) the public at large.

EXAMPLES
 A real estate company proposes, by a letter
or over telephone, to sell the flat to Rajiv at a
certain price
 A company owns a fleet of motorboat for
taking people from Mumbai to Goa.The
boats are in water at gateway of India.
 Akbar, a creditor, offer not to file a suit
against Begum, a debtor, if the latter pays
him the amount of Rs 2000 outstanding.

CASE
A patent medicine company advertised that it would
give a reward of $100 to anyone who will contact
influenza after using smoke balls of the company for a
certain period according to printed directions. Mrs
Carlill purchased the advertised smoke ball and
contacted influenza by using the same according to
printed guidelines. She claimed the reward of $100.
the company resisted the claim on the ground that
advertisement was only invitation to offer and no offer
was made to her and she had not communicated her
acceptance assuming the advertisement was an offer.
She filed the suit for the recovery of reward.

 Rules of a valid offer:
 It must contemplate to give rise to legal
relationship.
 Terms must be certain and unambiguous.
 Invitation to offer is not an offer.
 Offer must be communicated
 Special terms must be communicated in a
special manner
 Offer should not contain a term the non-
compliance of which would amount to
acceptance.

 Definition Of acceptance: Sec. 2(b)
 When a person to whom the offer is made, signifies his assent
thereto, the offer is said to be accepted.
Rules of a valid acceptance:
 The person to whom the offer is made must give it.
 It must be absolute and unqualified.
 Example
 A offered to sell his land to B for Rs 50,000. B replied purporting to
accept and enclosed Rs 10,000 promising to pay the balance of Rs
40,000 by monthly installment
 A offers to sell his house to B for Rs 5,00,000. B replies, “ I am
prepared to buy your house for Rs 5,00,000 provided you purchase
my Maruti car for Rs 2,00,000
 A, a real estate company, offers to sell a flat to B and B agrees to
purchase it subject to the title of the flat being approved by B’s
solicitor.

 Rules of a valid acceptance:
 Mental acceptance is ineffectual.
 It must be expressed in the prescribed manner or in
some usual manner.
 It must be given within a reasonable time.
 It must succeed the offer.

 Consideration: Sec. 2 (d)
 When,
 at the desire of the promisor, the promisee or any
other person;
 has done or abstained from doing, or does or
abstains from doing, or promises to do or abstain
from doing something,
 such act or abstinence or promise is called as
Consideration for the promise.
 Example
 A agrees to sell his motorcycle to B for Rs 20,000.
Here, B’s promise to pay the sum of Rs 20,000 is
the consideration for A’s promise to deliver the
motorcycle, and A’s promise to deliver the
motorcycle is the consideration for B’s promise to
pay Rs 20,000.

 Essentials of valid consideration:
 Consideration must move at the desire of the promisor
 Consideration may move from the promisee or any other person
 It may be past, present or future
 Consideration need not be adequate
 Consideration must be real and competent
 Example: A received summon to appear as a witness at trial. B, a
party to the suit, promises to pay A Rs 1000 in addition to A’s
expenses. However, B declined to pay the amount later. Can A
enforce the B’s promise.
 Consideration must be legal
 Sec 23 defines illegal agreements as one the consideration or
object of which (1) is forbidden by law (2) defeats the provision of
any law (3) is fraudulent (4) involves or implies injury to the person
or property of another (5) the court regard it as immoral or
opposed to public policy

Voidable contracts
 A voidable contract is one which may be
repudiated (i.e., avoided) at the will of one or
more of the parties, but not by others.
 Until it is so repudiated it remains valid and
binding
 It is affected by a flaw (misrepresentation,
fraud, coercion, undue influence), and the
presence of any of these defects enables the
party aggrieved to repudiate the contract.

Characteristics of voidable
contract
 Valid and binding on both the parties until avoided by
aggrieved party
 Can be avoided only by aggrieved party within a
reasonable time
 Example: A purchased certain goods from B by making
misrepresentation of some facts. Later B come to know
about the representation made by A. However, B does
not within a reasonable time, repudiate the contract. A
sells those goods to C.
 The party at whose option the contract is voidable, is not
bound to repudiate it
 The party repudiating the contract is entitled to get
damages for any loss that he may have suffered
 Aggrieved party has two-fold rights (a) to repudiate the
contract and therefore not to be bound there under (b)
to carry out the transaction as stipulated in spite of flaw
therein.

Void contracts
 An agreement which is not enforceable by either of the
parties to it is void. (sec 2 (j))
 Sometimes contract is valid at the time of formation, but
may become void afterwards
 The act has declared certain type of agreements to be void,
viz., (1) agreements entered into through a mutual
mistakes of facts between the parties (s.20) (2) agreements
the object or consideration of which is unlawful (s.23) (3)
agreements part of the consideration or object of which is
unlawful (s.24) (4) agreements made without consideration
(s.25) (5) agreements in restraint of trade (s. 27) (6)
agreements in restraint of legal proceedings (s. 28) (7)
agreements in restraint of marriage (s. 26) (8) uncertain
agreements (s. 30) (9) wagering agreements (s.30) (10)
impossible agreements (s. 56) (11) an agreement to enter
into agreement in future

Distinction between void
agreements and voidable
contracts
 Legality: a void agreement is without any legal effect,
a voidable contract can be enforced by the party at
whose option it is voidable
 Enforceability: a void agreement is uneforceable from
very beining, whereas voidable contract become
unenforceable only when the party at whose option
the contract is voidable rescinds it
 Example:
 A pays B Rs 10000 in consideration of B’s promise to
sell him some goods.The goods had been destroyed
at the time of promise.
 A, a doctor, by exercising undue influence over his
patient B induces him to sell his car woth RS 1,50,000
for Rs 1,00,000

Contd…
 Compensation: under voidablee contracts,
any person who has received any benefit
must compensate or restore it to the other
party, however compensation in the event of
non performance of void agreement does not
arise

 Competency of parties to a contract:
 Sec.10 states:
“Essential ingredient of a valid contract is
that the contracting parties must be
competent”

 Competency of parties to a contract:
 Sec 11 says:
“Every person is competent to contract;
who is of age of majority according to the
law to which he is subject,
and who is of sound mind,
and is not disqualified from contracting
by any law to which he is subject”

Who is a Minor?
 As per Indian Majority Act:
a person below age of eighteen years under
normal circumstances
and
a person below age of twenty one years in
case of a guardian being appointed for his
person or property

 Effects of agreement with or by a minor
 Usually it is Void – ab - initio (absolutely
void and inoperative)
 No ratification on attaining age of
majority

 Effects of agreement with or by a minor
 Minor is however responsible for
necessaries provided to him during his
minority
 Minor can be admitted to benefits of
partnership
 Beneficial agreements are valid
 minor is eligible to get benefits but can
not be responsible towards liabilities

 Sound mind: Sec. 12:
 “A person is said to be of sound mind for
the purpose of making a contract, if, at
the time when he makes it, he is capable
of understanding it and of forming a
rational judgement as to its effects on
his interests”

 Disqualified from contracting:
 Alien enemies
 Foreign sovereigns
 Convicts
 Insolvent
 As per any other law applicable

 Consent
 i.e. 'Agreeing upon the same thing in the
same sense'
 Free Consent: Section 14--
Consent is said to be free when it NOT caused
by any one of the following
 Coercion . Undue influence
 Misrepresentation . Fraud
 Mistake

Coercion: (Sec 15):" It is
 a) Committing or threatening to commit, any act
forbidden by Indian Penal Code, or
 b) unlawful detaining or threatening to detain any
property,
 to the prejudice of any person whatever,
 with the intention of causing any person to enter
into an agreement“
 Example:
 A threatens to kill B if he does’nt transfer his house
in A’s favour for a very low price
 A threatens to kill B (C’s son) if C does not let his
house to A and thereupon C gives his consent.

Coercion: (Sec 15)
 Effect of Coercion:
 Contract is voidable at the option of the
party whose consent was so obtained
 Burden of proof that coercion was used lies
on the aggrieved party.

Undue Influence: Sec 16(1)
"A contract is said to be induced by undue
influence where,
i) the relations subsisting between the parties
are such that one of the parties is in a position
to dominate the will of the other, and
ii)he uses the position to obtain an unfair
advantage over the other."

Undue Influence: Sec 16(1)
Effects of Undue influence
 Agreement is voidable at the option of the party
whose consent is so caused
 Example: A, a man enfeebled by disease or age,
is induced by B’s influence over him as his
medical attendant to agree to pay B an
unreasonable sum for his professional service.

 Undue Influence
In a position to dominate the will of the other means:
a) Where he holds a real or apparent authority over
the other, for eg. lawyer & client, trustee &
beneficiary, master & servant, judge and the
accused, doctor and a patient etc.
b) where he stands in a fiduciary relation to the other
 (fiduciary relation = relation of mutual trust and
confidence) eg. Father & son, Guru & disciple
c) where he makes a contract with a person whose

Misrepresentation: Sec 18—
"It means and includes-
a) the positive assertion in a manner not warranted
by the information of the person making it, of that
which is not true, though he believes it to be true,
or
b) any breach of duty, which without any intent to
deceive, gains an advantage to the person
committing it, by misleading other person to his
prejudice, or
c) causing, however innocently, a party, to make a
mistake as to the substance of the thing which is
the subject of the agreement

Fraud: Sec 17—
It means and includes any of the following acts
committed by a party to the contract—
i)The suggestion that a fact is true when it is not true,
by the one who does not believe it to be true
ii)The active concealment of a fact by a person who
has knowledge or belief of the fact
iii)A promise made without any intention of
performing it
iv)Any other act fitted to deceive
v)Any such act or omission as the law specially

 Representation =
 statement of fact made by one party to
another
 either before or at the time of contract
 relating to some matter essential to the
formation of the contract
 with an intention to induce the party to enter
into the contract

An innocent wrong statement
= Misrepresentation
A deliberate or intentional statement to deceive the
other = Fraud

Effects of Misrepresentation
 The aggrieved party has two options
1. He can rescind the contract, treating it as voidable
2. He may affirm the contract and insist that he shall
be put in a position in which he would have been, if
the statement was true.

EXAMPLE
 A, by a misrepresentation leads B erroneously
to believe that 500 kilos of indigo are made
annually at A’s factory. B examines the
account of the factory, which shows only 400
kilos of indigo have been made. After this, B
buys the factory. Is contract voidable on
account of A’s mispresentation.

 Effects of Fraud:
The aggrieved party has three remedies
1. He can rescind (set aside) the contract, treating it as
voidable
2. He may affirm the contract and insist that he shall
be put in a position in which he would have been, if
the statement were true.
3. He can also sue for damages, if any, because fraud
is a civil wrong and hence compensation is payable

Mistake= erroneous belief concerning something
Mistake can be of Law Or of Fact
Mistake of law
Mistake of Law Mistake of law
of the country of foreign country
Mistake of Fact
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Bilateral Unilateral
Mistake Mistake

 Mistake of law of one's own country is no excuse.
 Mistake of foreign law however stands on the same
footing as mistake of fact
Bilateral mistake
1. Both parties to an agreement misunderstood each
other and are at cross purposes
2. Mistake relates to a fact and not to judgment or
opinion etc.
3. The fact must be essential to the agreement
 Bilateral Mistake is of two types, namely;
1. Mistake as to Subject Matter

 Mistake as to the subject matter:
Mistake as to the existence of the subject matter
of the agreement
Mistake as to the identity of the subject matter
Mistake as to the title of the subject matter
Mistake as to the quantity of the subject matter
 Mistake as to the quality of the subject matter

CASES
 A, who owns two fiat cars, offers to sell his white
fiat for Rs 80,000. B accepts the offer thinking A is
selling his brown fiat.
 P wrote to H inquiring the price of the rifle of
particular make and suggested that he might buy
as many as 30. on receipt of the information, he
telegraphed, “send three rifles”. But because of
the mistake of telegraph authorities message
transmitted was “send the rifles”. H dispatched 30
rifles.
 A buys an article thinking it is worth Rs 10,000
while actually it is worth Rs 5,000 only. Later he
wants to avoid the agreement on the ground of
mistake as to the price of subject matter. Can he
avoid.
 A agrees to sell B a specific cargo of goods

Mistake as to possibility of Performance
Here both parties think that it is possible to perform the Contracts.
But actually it will be an impossible event. In such a case contract
gets discharged.
Example : A has to pay Rs. 100000 to B and for that B has to marry
C. While entering into the Contract A and B think that C is alive. But
actually C was dead five years ago..

 Unilateral Mistake :
 only one of the contracting parties is mistaken as
to a fact of material to the contract
Effect of Unilateral Mistake:
 Contract remains valid unless caused by
misrepresentation or fraud.
 Where the mistake is caused by
misrepresentation or fraud the contract becomes
voidable at the option of the aggrieved party.
CASE: A sold rice to B by sample, and B thinking that they were
old rice, purchased them. Infact, the rice were new. Can B
avoid the contract.

Cases where agreement does not give rise to any
contract in spite of a unilateral mistake:
Ø Mistake as to the identity of the person
contracted with, where such identity is important
Ø Mistake as to nature and character of the written
document.
 Reason for these two exceptions is that the
mistake is so fundamental as to go to the roots of
the agreement

Agreement against public policy
 An agreement which conflicts with morals of time
and contravenes any established interest of society is
void as being against public policy.
 The agreement declared void as against public policy
are:
a) Trading with enemy: all contracts made with alien
enemy are illegal unless made with govt. permission
b) Agreements for stifling prosecution: agreement for
compounding or suppression of criminal charges and
for offences of public nature
CASE:A, knowing that B has committed a murder
obtains a promise from B to pay A Rs 10,000 in
consideration of not exposing B

Contd…
c) Contracts in the nature of champerty and
maintenance: Where, a person, having no
interest, agrees to maintain a suit on behalf of
another against a third party, it is known as
maintenance. Champerty is a bargain whereby
one party is to assist another in recovering
property, and in return, is to share in the
proceeds of the action. Champerty and
maintenance are not illegal but court refuses to
enforce it, when
i. They are found to be extortionate and
unconscionable
ii. Not made with the bonafide object of assisting
the claims of the person unable to carry on
litigation himself.

CASES
 A, a financier, promises to spend Rs 30,000
for the consideration that a part of the
estate recovered through litigation will be
conveyed to him, the value of which
amounted to Rs 90,000
 A promises to render services for the
conduct of litigation in consideration of
payment of 10 percent of the amount
recovered through court

Contd..
a) Agreements for the sale of public offices and titles
Example:A promises to pay B Rs 5,000 if B secures
him an employment in public office
b) Agreements in restraint of parents right
c) Agreements in restraint of marriage of any person
other than a minor
d) Marriage brokerage
e) Agreements in restraint of legal proceedings
f) Agreements interfering with the course of justice:
any agreement for the purpose of using any influence
of any kind with judges or officers of justice

Agreements in restraint of trade
 Sec 27 provides that “every agreement by which anyone is
restrained from exercising a lawful profession, trade or business of
any kind is void”
 CASE
 29 out of 30 manufacturers of combs in the city of Patna agreed
with R to supply him with combs and not to anyone else. Under the
agreement R was free to reject the goods if he founds there was no
market for them. Is agreement void.
 J, an employee of company, agreed not to employ himself in a
similar concern within a distance of 800 miles from Chennai after
leaving the company’s service. Is agreement void.
 A and B carried on business of readymade garments in a certain
locality in calcutta. A promised to stopped business in that locality if
B paid him Rs 900 which he had paid to his workmen as advances. A
stopped his business but B did not paid him the promised money. Is
agreement void.

Cases in which restraint of trade
is valid
 Sale of a goodwill of business
Example: S, a seller of imitation jewellery, sells his business to B and
promises not to carry on business of imitation jewellery and real jewellery. Is
agreement valid?
 Partner’s agreement: partners may agree that
1) A partner shall not carry on any business other than that of a firm while he is
a partner
2) A partner on ceasing to be a partner will not carry on similar business to that
of the firm within specified period or within specified local limits
3) Partners may , upon or anticipation of the dissolution of firm, make an
agreement that some or all of them will not carry on business similar to that
of a firm within a specified period or within a specified local limits and such
an agreement shall be valid if the restriction imposed are legal
4) A partner, may upon the sale of a goodwill of the firm, make an agreement
that such a partner will not carry on any business similar to that of a firm
within a specified period or within a specified local limits and such an
agreement shall be valid if restriction imposed are legal

Contd…
 Restrictive trade agreements: if restrictive
trade agreement is not against public interest,
it is valid.
 Service agreements: an agreement of service
by which a person binds himself during the
term of agreement not to take service with
anyone else or directly or indirectly take part
in promotion of any business in direct
competition with that of his employer.

Wagering agreements
 A promise to give money or money’s worth upon the
determination of an uncertain event
Example:
A and B bet as to whether it would rain on aprticular
day or not - A promises to pay Rs 100 to B if it rained
and B promising an equal amount to A, if it did not.
A borrows Rs 500 from B and payed to C, to whom A
has lost bet.
 Wagering agreements void and not illegal: unless the
wager amounts to a lottery, which is crime under the
Indian Penal Code S. 294 A, its not illegal.
 However, supreme court upheld lotteries as legal where
prior permission of Govt. is obtained and winner of the

Exceptions
 Transactions for the sale and purchase of stocks and
shares
 Prize competitions
 An agreement to contribute a plate or prize of the
value of Rs 500 or above to be awarded to the winner
of horse race
 Contracts of insurance

Quasi contract
 A situation in which law imposes on one
person, on grounds of natural justice, an
obligation similar to that which arises from a
true contract, although not contract, express
or implied, has infact been enterd into by
them
 Example
 X supplies goods to his customerY, goods are
delivered by a servant of X to Z, mistaking Z
forY. Is Z liable to pay compensation to X.

CASES WHICH ARE TREATED AS
QUASI CONTRACTS
 Claim for necessaries supplied to a person incapable
of contracting or on his account
 Examples:
 A supplies B, a lunatic, with necessaries suitable to
his condition in life. A is entitled to be reimbursed
from B’s property.
 A who supplies the wife and children's of B, a lunatic,
with necessaries suitable to their conditions in life, is
entitled to be reimbursed from B’s property

Contd…
 Reimbursement to a person paying money due by
another in payment of which he is interested:A person
who is interested in payment of money which another
is bound by law to pay, and who, therefore, pays it, is
entitled to be reimbursed by the other (S. 69)
 EXAMPLE:
 B holds land in Bengal, on lease granted by A, the
Zamindar.The revenue payable by A to the govt being
in arrear, his land is advertised for sale by the govt.
Under the revenue law, the consequence of such sale
will be the annulments of B’s lease. B, to prevent the
sale and consequent annulment of his own lease, pays
the govt, the sum due from A. A is bound to make
good to B the amount so paid.

Contd…
 Obligation of person enjoying benefits of non-
gratuitous act: where the person lawfully does
anything for another person, or delivers anything to
him, not intending to do it gratuitously, and such
another person enjoys the benefit thereof, later is
bound to make compensation to the former (s. 70)
 Example
 A, a tradesman, leaves goods at B’s house by mistake.
B treats the goods his own. Is B bound to pay for
them.
 A saves B’s property from fire. Is A entitled to get
compensation from B.
 Responsibility of finder of goods: A person who finds
goods belonging to another and take them into his

CONTD…
 Liability of person to whom money is paid or
things delivered by mistake or under
coercion: A person to whom money has been
paid, or thing delivered by mistake or under
coercion, must repay or return them
 Example:A and B jointly owe Rs 1,000 to C. A
pays the amount to C. Also, B, not knowing
this fact, pay Rs 1,000 to C. Is C bound to
repay the amount to B.

Contingent Contracts
 A contingent contract is to do or not to do
something, if some event collateral to such
contract does or does not happen.
 A contingent contract may be contingent
uponThe happening or not happening of
some event within a specified time
 Example: A contract to pay B Rs 10,000 if B’s
house is burnt

Performance of Contract
 Performance of contract means carrying out of obligation
under it
Who must perform the promise under the contract-
a) By promisor himself
b) By his agent
c) By his legal representative
Performance of joint promises
a) When two or more person has made a joint promise, all such
persons must jointly fulfill the promise
b) When two or more person make a joint promise, the
promisee may compel any one or more of such joint
promisors to perform whole of the promise.

Contd…
c) Where, a joint promisor has been compelled to perform the
whole promise, he may compel other joint promisor to
contribute equally. If any one of the joint promisor makes
default in such contribution, the remaining joint promisor must
bear the loss in equal shares.
Examples
 A, B and C are under joint promise to pay D Rs 3,000. a is
compelled to pay the whole amount. Can A recover the amount
from B and C. if yes, how much.
 A, B and C are under joint promise to pay D Rs 3,000. C is
compelled to pay the whole amount. A is insolvent, but his
assets are sufficient to pay half of his debt. Can C recover the
amount from B and A. If yes, how much.
 A, B and C are under joint promise to pay D Rs 3,000. C is unable
to pay anything. And A is compelled to pay the whole amount. B
is insolvent, but his assets are sufficient to pay half of his debt.
Can A recover the amount from B and C. If yes, how much.

CONTD…
d) When a person has made a promise to two or more
persons jointly, the right to claim performance rests
with all the joint promisees and after death, with the
representative of such a deceased promisee jointly with
survivor’s and after death of survivors with
representatives of all jointly
 Example:
 A, in consideration of Rs 5,000 lent to him by B and C,
promises B and C jointly to repay them that sum with
interest on a day specified. B dies. Later on C also dies.
Who will claim the right to performance?

Contracts which need not be
performed
 The parties may mutually agree to substitute the
original contract by a new one or rescind it or alter it
 The promisee may dispense with or remit wholly or in
part the performance of the promise made to him or
extend the time for such performance or accept any
satisfaction for it
 The person at whose option the contract is voidable
because of undue influence, fraud, coercion or
misrepresentation can rescind it
 The promisee neglects or refuses to afford the
promisor reasonable facilities for the performance of
his promise

Rules regarding the time, place and
manner of performance of contract
 When the time for the performance has been
specified, the promisor must perform on the day fixed
during usual business hours and at the place at which
promise ought to be performed
 Where a time of performance is not specified, the
performance must be made within a reasonable time
 Where a promise is to be performed on a certain day,
the promisee must apply for performance at a proper
place during usual business hours
 When promise is to be performed and no place is
fixed, the promisor must apply to the promisee to
appoint a reasonable place for performance
 The performance of any promise may be made in any
manner or at any time which the promisee prescribes

 Remedies for Breach of contract:
Remedies are available under Indian Contract Act, 1872 and under
Specific Relief Act 1963.
Remedies under specific relief act are
1. A decree for specific performance: the court direct the party in
breach to carry out his promise according to the term of the
contract
2. An injunction: an order of the court prohibiting a person to do
something where a party is in breach of negative term of
contract
3. A suit on quantum meruit: means as much as merited
(earned). A right to sue on a “quantum meruit” arises where a
contract partly performed by one party has become
discharged by breach of other party.
Remedies under Indian Contract Act, 1872
1. Recession of contract (s. 39)

Remedies for Breach of contract:
• Rescission of the contract:
 When breach of contract is committed by one
party, the other party may treat the contract as
rescinded
 Aggrieved party is freed from all the obligation
 Example
 A promises to supply one bag of rice on a certain
day and B promises to pay the price on receipt of
the bag. A does not delivers the bag of rice on the
appointed day.

Damages
Damages are awarded as per rules laid down in Ss. 73-
74. As per S.73 -
1. compensations as general damages will be
awarded only those losses that directly or
naturally results from breach of contract
2. compensation for losses indirectly caused by
breach may be paid as special damages
3. aggrieved party should try to take steps to keep
the losses to the minimum
S. 74 provides that if the parties agree in their contract
that whosoever commits the breach shall pay the
agreed amount as compensation, the court has
power to award a reasonable amount only, subject

 Different kinds of damages:
 Ordinary damages: damages which naturally arise in the usual
course of thing from such breach
 The measure of ordinary damage is difference between the
contract price and market price at the date of breach
 Example: A contracts to deliver 10 bags of rice at Rs 500 a bag on
future date. On the due date he refuses to deliver. The price on
that day is Rs 520 a bag. What is the measure of damage?
 Special damages: are claimed in case of loss of profit etc.
 When there are certain special circumstances present and their
existence is communicated to the promisor, the non-
performance of promise entitles the promisor to not only pay
ordinary damages but also other damages that may result
therefrom.
 The communication of special circumstances are prerequisite for
the claim of damages

CASES
 A, a builder, contracts to erect and finishes the house by the 1st Jan,
in order that B give possession of it at that time to C, to whom B has
contracted to let it. A is informed of the contract between B and C. A
builds the house so badly that before 1st Jan it falls down and had to
be rebuilt by B, who in consequence losses the rent, which he has to
receive from C and is obliged to make compensation to C for the
breach of contract. Can B claim for compensation? How much?
 X’s mill was stopped due to breakdown of shaft. He delivered the
shaft toY, a common carier, to be taken to manufacturer to copy it
and make a new one. X did not make known toY that delay would
result in loss of profit. By some neglect on the part ofY the delivery
of the shaft was delayed in transit beyond a reasonable time. As a
result, the mill remain idle for a longer time than otherwise would
have been, had the shaft been delivered in time. IsY liable for loss of
profit?

Contd..
 Liquidated damages & Penalty:
 The parties to the contract pre-estimate of the loss which might
happen to them in case contract was broken by any of them
(Liquidated damages)
 The parties made no attempt to estimate the loss that might
happen to them in case of breach but still stipulate a sum to be
payable in case of breach with the object of coercing the party to
perform the contract (penalty)
 Example:
 A contracts with B to pay B Rs 1000 if he fails to pay B 500 on a
particular day. A fails to pay Rs 500 on that day. Is B entitled for
compensation?
 A contracts with B that if A practices as surgeon in Calcutta, he
will pay B Rs 5000. A practices as surgeon in Calcutta. Is B
entitled for compensation?

Contd…
 Exemplary, punitive or vindictive
damages: awarded to punish the
defendant and not solely of awarding
compensation to the plaintiff. These have
been awarded
a) For breach of a promise to marry
b) For wrongful dishonor of the cheque of
the customer by a banker possessing
adequate funds of the customer.
 Nominal damages: awarded where there
is only technical violation of legal rights
but no substantial loss is caused thereby.

Contracts of Indemnity.
A contract by which one party promises to save
the other from loss caused to him by the
conduct of the promisor himself, or by
the conduct of any other person, is called a "
contract of indemnity".
Eg - A contract to indemnify B against the
consequences of any proceedings which C may take
against B in respect of a certain sum of 20000/-
rupees. This is a contract of indemnity.

Essentials of Contract of
Indemnity.
 It must contain all the essentials of a valid
contract.
 The promisee or the Indemnity holder must
have suffered loss.

Rights of indemnity holder
1. All damages which he may be compelled to pay in
any suit in respect of any matter
to which the promise to indemnify applies.
2. All costs which he may be compelled to pay in
any such suit if, in bringing or defending it,
providing he acted prudently or with the authority
of promisor
3. All sums which he may have paid under the terms of
any compromise of any such suit, if the compromise
was not contrary to the orders of the promisor, or
was prudent or authorized by the promisor

Contracts 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.
Eg – A lends money to B and C promises A that if B fails
to repay he will pay the money.
 The person who gives the guarantee is called the
"surety“.
 The person in respect of whose default the
guarantee is given is called the "principal debtor “.
 The person to whom the guarantee is given is called
the "creditor“.
 A guarantee may be either oral or written.

Essentials of a Guarantee
1. There must be a debt existing, which should be
recoverable.
2. Existence of 3 parties ie. Principal debtor, creditor &
surety.
3. There should be some consideration
4. The liability must be legally enforceable.
5. The principal debtor must be primarily liable.
Surety’s liability is secondary.
6. There must be a distinct promise, oral or written by
the surety to pay the debt in case of default by
principal debtor.
7. All essentials of a contract.

Rights of Surety
 Rights of Subrogation (Right of surety against
principal debtor).-
When the surety pays gauranted sum to creditor on
behalf of principal debtor, he owns all the rights of the
Creditor.
 Rights to indemnity - Surety is entitled to recover from
the principal debtor whatever sum he has rightfully
paid under the guarantee, but, no sums which he has
paid wrongfully
 Rights to benefit of Creditors Securities A surety
is entitled to the benefit of every security which
the creditor has against the principal debtor

Contract of Bailment
 A bailment is the transfer of possession of
personal property without the transfer of
ownership, usually on the understanding that
the property will be returned.
 The party who transfers the property is called
the bailor, and the party to whom the
property is transferred is the bailee.

Types of Bailment
 There are two main types of bailment:
contractual and non-contractual.
 Contractual bailment exists where the
elements of a bailment are found in a
contract.
 Non-contractual bailment exists where the
elements of a bailment are present without
a contract.

Rights and Duties of a
Bailee
 All bailees are under a duty to ensure to take
care of the property bailed to them.
 The standard of care varies according to the
type of bailment.
 The standard of care is least exacting upon a
bailee when the bailment is both gratuitous
and for the benefit of the bailor. The standard
of care is most exacting on a bailee when the
bailment is gratuitous and for the benefit of
the bailee.

Pledge
 The bailment of goods as a security for payment for
debt or performance of promise is called pledge
 Example:A borrows Rs 100 from B and keeps his
watch as security for payment of debt.The bailment
of watch is called pledge
Distinction between bailment and pledge
1. As to purpose: pledge is bailment of goods for a
specific purpose while no such purpose in case of
bailment
2. As to right of sail: pledgee has a right of sale in case of
default after giving notice to pledger while there is no
such right to sale to bailee
3. As to right of using the goods: pledgee has no rights
of using the goods pledged while no such restriction

81
Law of Agency
 When people do business, they often deal with each other
directly
Buyer   Seller
 However, sometimes they deal with each other using a
“middleman” (or representative or intermediary)
Buyer  Middleman  Seller
 The legal relationship between the middleman and the
businessperson is governed by the law of agency
 The legal term for a middleman or representative is an agent
 The person who is represented by the agent is called the principal
 Therefore, in our example
Buyer  Middleman  Seller
If the middleman represents the buyer
Principal  Agent  Seller

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Definition of Agency (cont)
 Definition:
 An agent is a person who is authorised to represent
another person, who is called the principal.
 The agent creates a legal relationship between the
principal and a third party.
 Therefore, any contract entered into is between the
principal and the third party, even though it is
arranged by the agent
 The agent does not usually get any rights or
responsibilities under the contract
 Therefore, it is the principal who must have the
capacity to contract and not the agent

83
Forms of Agency
There are several different forms of agency
 A general agent has the power to act for the principal
in all business matters
 A special agent only has the authority of the principal
for one transaction
 A del credere agent guarantees to the principal that if
the third party does not pay then the agent will pay.
 The agent usually takes a higher commission for this
 A marketing agent has limited authority to introduce
potential clients to the principal. He does not have the
authority to negotiate or enter into contracts on
behalf of the principal
 A distribution agent is appointed by a supplier to
arrange for distribution of the supplier’s goods in a

84
Creation of Agency
The principal/agent relationship can be created
in several ways
 ExpressAppointment
 Ratification
 Implication
 Necessity
 Estoppel

85
Express Appointment
 This is the most common way of creating an
agency
 The agent is specifically appointed by the
principal for a particular task or a general
function
 It can be done by contract, but this is not
necessary
 What matters is authority

86
Ratification
 In this case, a person who does not have the
authority of the principal enters into a contract with a
third party on behalf of the principal
 Ratification occurs when the principal expressly
accepts the contract later
 The effect of this is to make the earlier actions of the
agent valid
The following conditions apply to ratification
1. The principal must have been in existence at the time
the agent made the contract with the third party
 This is not a problem where the principal is a real
person, but it could apply to companies or

87
Ratification (cont.)
2. The principal must have had the legal capacity to
contract at the time the contract was made
3. An undisclosed principal cannot ratify a contract
 In other words, when the agent made the contract
with the third party, he must have stated to the third
party that he was acting as an agent for a particular
person
 Even though the principal had not actually authorised him
 If the agent appeared to be acting for himself, then
the principal cannot ratify the contract later.
4. The principal must adopt the whole of the contract
5. Ratification must take place within a reasonable time

88
Implication
 Agency by implication is where it is assumed
that the principal has authorised the person
to act as his agent
 It is assumed that because the agent holds a
particular position, then he has the authority
of the principal to enter into contracts
 Eg: in Panorama Developments v Fidelis
Furnishing Fabrics Ltd, it was held that a
company secretary had the implied authority
to make contracts in the company’s name for
the day to day running of the company

89
Necessity
 A principal/agent relationship can be created where
there has been no agreement between the parties
when there is an emergency and one person acts to
protect the interests of another person.
 There are 3 conditions for necessity to apply
1. There must be a genuine emergency
 Eg in Great Northern Railway Co v Swaffield, the
railway company transported the defendant’s horse
 When no one arrived at the destination to collect it,
the railway company paid to put the horse in some
stables
 The court allowed the company to recover the costs

90
Necessity (cont.)
2. There must also be no practical way of getting
further instructions from the principal
 In Springer v Great Western Railway Co, some
tomatoes arrived late at a port because of a storm
 The railway company could not transport them to
London immediately because of a strike.The
company decided to sell the tomatoes locally
before they became rotten
 The court held that the railway company should
pay the owner of the tomatoes the difference in
the price between the price obtained locally and
the (higher) price which would have been obtained
in London
 The reason for this is that it was possible for the

91
Estoppel
 This form is also known as agency by holding out
 It occurs where there is no actual principal/agent
relationship, but the principal makes a third party
think that there is
 In this case the agent has apparent authority and the
principal is bound by any contract entered into by the
‘agent’ and a third party who thought there was a
proper principal/agent relationship
 There are 2 conditions for estoppel to apply
1. The ‘principal’ must have made a representation that
the ‘agent’ had his authority
2. The party who claims there has been estoppel must

92
Authority of the Agent
 In order for the agent to create rights and
responsibilities for the principal in a contract,
the agent must act within the authority
given to him by the principal
 An agent has two types of authority
1. Actual: Actual authority occurs in 2 ways
 Expressly
 By implication
2. Apparent

93
Actual Authority
 Express Actual Authority:This is the authority given by the
principal expressly to the agent
 The principal tells the agent what he wants the agent to do
and what powers (or authority) the agent has to do those
things
 Implied Actual Authority: A third party can assume that
someone has the powers which a person in the agent’s
position usually has, whether or not the agent has been given
those powers expressly
 For example, in Watteau v Fenwick, the new owners of a hotel
employed the previous owner as the manager.They expressly
told him that he could not buy certain things, including cigars.
However, the manager bought cigars from a third party.The
third party sued the owners for payment as the manager was
their agent.The court held that buying cigars was within the
usual authority of the manager of a hotel. If the owners
wanted to limit the manager’s authority in buying things then

94
Apparent Authority
 Apparent authority relates to agency created by estoppel
 Apparent authority occurs in 2 ways
1. A person makes a representation to a third party that another person
has their authority to act as their agent even though that person has
not been appointed as their agent
 In this situation, the person who makes the representation is bound
by the actions of their apparent agent
 A person will also be liable if he knows that someone is claiming to be
his agent, but he does nothing to stop that person
2. When a principal told a third party in the past that someone was his
agent
 If the principal ends the agency but does not tell the third party, then
he may still be liable for the actions of his former agent

Sale of Goods Act, 1930
 Section 4 (1) of the Sale of Goods Act defines
contract of sale of goods as “a contract by which
seller transfers or agrees to transfer the property in
goods to the buyer for a price”
Essential characteristics of Contract of Sale of Goods
a) Two parties
b) Transfer or agreement to transfer ownership of
goods
c) The subject matter of contract must necessarily be
Goods
d) Price is the consideration of contract of sale
e) A contract of sale may be absolute or conditional
f) All other essentials of valid contract

“Sale” and “Agreement to
sell”
 Sale:Where ownership in the goods transferred from
seller to buyer
 Example:A sells his car to B for Rs 1 Lakh. If all
essential elements of contracts are present, it is a sale.
This is so even where the payment of the price or
delivery of car or both have been postponed
 Agreement to sell: contract of sale under which
transfer of property in goods is to take place at a
future date or subject to some conditions thereafter to
be fulfilled
 Example:A agrees to sell certain goods to B.The
goods are on their way from London to Mumbai in a
ship.The ownership in the goods will pass to the buyer
when the goods come and the agreement is subject to

Difference between “sale” and “agreement to sell”
 Transfer of property (ownership): In “sale”, property in
goods transfers immediately to the buyer at the time
of contract while in “an agreement to sell” there is no
transfer of property to the buyer at the time of
contract
 Risk of loss: in “sale”, if goods are destroyed the risk
passes to buyer even though the goods may not have
come into his possession while in “agreement to sell”
such loss has to be borne by the seller
 Consequences of breach: in “sale”, if buyer wrongfully
neglects or refuses to pay the price of the goods, the
seller can sue him even though the goods are still in
his possession while in “agreement to sell”, if buyer

Contd…
 Right of resale: in “sale”, the property is with the buyer and as such
the seller can not resell the goods. In “agreement to sell”, the
property in goods remain with the seller and as such he can dispose
of the goods as he like and the original buyer can sue him for the
breach of contract only
 Insolvency of buyer before he pays for the goods: in “sale”, if buyer
is adjudged insolvent before payment of goods, the seller in
absence of “right of lien”, must deliver the goods to the official
receiver or assignee. In an “agreement to sell”, the seller may refuse
to deliver the goods
 Insolvency of seller if buyer has already paid the price: in sale, if
seller is adjudged insolvent, the buyer is entitled to recover the
goods from official receiver or assignee. In an “agreement to sell”, if
buyer has already paid the price and seller is adjudged insolvent, the
buyer can only claim a rateable dividend (as a creditor) and not
goods

Sale of goods and hire purchase agreement
 In sale, property in the goods transferred immediately at the
time of contract, whereas in hire-purchase property in the goods
transferred only after the payment of last installment
 In sale, position of buyer is that of owner while in hire purchase
position of buyer is similar to bailee till the payment of last
installment
 In sale, buyer can not terminate the contract and he is bound to
pay the price of goods. In hire purchase, the hirer may terminate
by returning the goods to owner without any liability to pay
remaining installments
 In sale, seller takes the responsibility of any loss resulting from
the insolvency of buyer. In hire-purchase, owner takes no such
risk, if hirer fails to pay installments the owner has a right to take
back the goods
 In sale, sales tax is levied at the time of contract whereas in hire-
purchase sales tax is not leviable until it eventually ripens into
sales.

Subject matter of contract of
sale of goods
 Goods form the subject matter of contract
of sale
 Goods may be classified into three types
1. Existing goods
a. Specific goods
b. Unascertained goods
2. Future goods
3. Contingent goods

Contd…
1. Existing goods
 Goods which are physically in existence and which are
in seller’s ownership or possession, at the time of
entering the contract
 Existing goods may be either ‘specific’ or
unascertained’
 Specific: goods identified and agreed upon at the time
of the making of contract
 Example:A agrees to sell B a particular radio bearing a
distinctive number
 Unascertained goods: the goods which are not
separately identified or ascertained at the time of
making of contract

Contd…
2. Future goods: goods to be manufactured,
produced or acquired by the seller after the
making of contract of sale
 Example:A agrees to sell B all the milk that
his cow may yield during the coming year
3. Contingent goods: Goods, the acquisition of
which by seller depends upon an uncertain
contingency
 Example:A agrees to sell B specific rare
painting provided he is able to purchase it
from its present owner

Effect of perishing of goods
 Under sec. 7 & 8, perishing not only covers
physical destruction but also
1. Damage to goods so that the goods have
cease to exist in the commercial sense
2. Loss of goods by theft
3. Where the goods have been lawfully
requisitioned by the government

Contd…
 Effect of perishing of goods
1. Perishing of specific goods at or before making of contract
 Incase of perishing of whole of goods: where ‘specific goods’
form the subject matter of sale, and they without the
knowledge of seller perish at or before the time of contract,
the agreement is void
 Example: A agrees to sell B a certain horse. It turns out that
the horse was dead at the time of bargain
 In case of perishing of only part of the goods: where in ‘specific
goods’ only part of the goods perished , the effect of the
perishing will depend upon whether the contract is entire
(void) or divisible (not void).
 Case: There was a contract for the sale of a parcel containing
700 bags of chinese groundnuts of different qualities.
Unknown to the seller, 109 bags had been stolen at the time of
contract.The seller delivered the remaining 591 bags and on
the buyers refusal to take them, brought an action for the

Contd…
2. Pershing of specific goods before sale but after
agreement to sell: where there is an agreement to sell
specific goods , and subsequently the goods, without
any fault on the part of the seller or buyer, perish
before the risk passes to the buyer, the agreement is
thereby avoided i.e., contract of sale becomes void
Example: a buyer took a horse on trial for 8 days on
condition that if found suitable for his purpose the
bargain would become absolute.The horse died on
3rd day without the fault of any of the party. Is
contract valid.
 If only part of the goods perish, the contract becomes
void if it is indivisible but if it is divisible the parties
are absolved from their obligations only to the extent

Contd…
3. Effect of perishing of future goods: future
goods, if sufficiently identified, are to be
treated as specific goods, the destruction of
which makes contract void.
Example: C agreed to sell H 200 tons of potatoes
to be grown on C’s land. C sowed sufficient
land to grow the required quantity of
potatoes, but without the fault on his part, a
disease attacked the crop and he could
deliver only about 10 tons. Is contract valid.

Conditions and warranties
 Sec. 12(2) defines conditions as a stipulation essential to the
main purpose of contract, the breach of which give rise to a
right to treat the contract as repudiated
 Sec. 12(3) defines warranty as stipulation collateral to main
purpose of contract, the breach of which gives rise to claim for
damages but not to a right to reject a goods and treat the
contract as repudiated
 Example:
 Kaushal asks a dealer to supply him a shirt which would not
shrink after use and wash.The dealer supplies a shirt which
shrinks after use and wash. Kaushal can reject the shirt or keep
the shirt and claim for damages. here stipulation to supply a
shirt which would not shrink after use and wash is condition.
 Kaushal buys a particular shirt which is warranted by a dealer
to be one which would not shrink after use and wash and the
shirt does shrink after use and wash, kaushal’s only remedy is
to claim damages

 Express and implied conditions and warranties:
 Express condition or warranty: these may be of any
kind that the parties may choose to agree upon
 Implied conditions and warranty: implied conditions
and warranties are deemed to be incorporated by
law in every contract of sale of goods unless the
terms of contract shows a contrary intention. It
includes
1. Condition as to title
2. Sale by description
3. Condition as to quality or fitness for buyers purpose
4. Condition as to merchantable quality
5. Condition as to wholesomeness
6. Implied condition in case of sale by sample

 Condition as to title: in contract of sale, it is implied
condition on the part of seller in case of ‘sale’ that he
has a right to sell the goods and in ‘agreement to sell’,
he will have a right to sell the goods at the time when
the ownership is to pass unless circumstances of
contract shows a contrary intention
 Sale by description: in contract for the sale of goods
by description it is implied condition that the goods
shall corresponds with the description

 Condition as to quality or fitness: as a general rule, buyer has to
satisfy himself about the quality and fitness of goods before
purchase and seller is not responsible for it. However, there is an
exceptions
 When buyer make known to the seller particular purpose for
which goods are required, there is an implied condition that
goods shall be reasonably fit for such purpose. For this, 3
condition must be fulfilled
1) The purpose must have been disclosed
2) The buyer must have relied on the skills of seller
3) The seller’s business must be to sell such type of goods
Example: a person who is a carpenter, and has no special
knowledge about the hot water bottle, purchases it from
chemist.The bottle bursts and injures his wife. Is chemist liable
for refund of price or damages?
The above exception does not apply if the specific goods are sold
under their patent or trademark
Example: A buyer orders a patent smoke consuming furnace by its
patent name for his brewery.The furnace supplied is found to be
unsuitable for the purpose. Can buyer take action against seller?

 Condition as to merchantable quality: another implied
condition is that goods should be merchantable
 Example:Ameer buys a black yarn from Daleep and
finds it to be damaged by white ants.
 There is a contract of sale of manila hemp.The hemp,
that is supplied, though manila hemp, is so damaged
by sea water that no one in the market would accept it
as manila hemp.
 However, if buyers examines the goods prior to sale,
there is no implied condition as to merchantability
 However, inspite of examination, if goods have certain
latent defects which would not reveal by examination,
the implied condition as to merchantability subsists.

 Implied condition as to wholesome: condition of merchantability includes
another condition, namely that of wholesome or soundness in the case of
sale of provisions or foodstuff.
 Example: C bought a bun at M’s factory and broke one of the teeth by
biting on a stone in a bun. Is M liable of damages?
 Implied condition in case of sale by sample: implied conditions are:
 The bulk shall correspond to the sample in quality
 The buyer shall have reasonable opportunity of comparing the bulk with
sample
 The goods shall be free from any defects rendering them unmerchantable
 Implied condition in case of sale by sample as well as description: the
goods must correspond with the description as well as sample
 Example: there was a sale of ‘foreign refined rape-oil’ warranted only
equal to sample.The oil supplied was same as the sample but was not
‘foreign refined rape-oil’, being a mixture of it and other oil.

Implied warranties
 There are two implied warranties:
1. Warranty of quiet possession: in contract of
sale, unless contrary intention appears, there
is an implied warranty the buyer shall have
and shall enjoy quiet possession of goods
2. Warranty of freedom from encumbrance:
goods are free from any charge or
encumbrance in favour of third person, not
declared to or known to buyer

Doctrine of Caveat Emptor
Means “caution buyer”, i.e., ‘let the buyer beware’
Exceptions to doctrine of caveat emptor
1. Where the seller makes a false representation and buyer
relies on that representation, the buyer is entitled to the
goods according to that representation
2. Where the consent of buyer, in a contract of sale, is obtained
by the seller by fraud or seller actively conceals the defects,
so that on reasonable examination the same could not be
discovered
3. Where buyer makes known to the seller the purpose for
which he is buying the goods, then there is an implied
condition
4. In case of sale by description, there is an implied condition
as to goods being of merchantable quality
5. Proof of reasonable usage or custom of trade may also
establish an implied condition as to quality or fitness of
goods for a particular purpose

Meaning of transfer of ownership:
“When the buyer becomes the owner of the goods only
there the transfer of the ownership of goods considered to
have been established”
Significance:
 Transfer of risk
 Right to file suit
 Accruing of goods by the liquidation

Transfer of title by non-owners
 Sale by mercantile agents:
 Example: A mercantile agent obtained some diamonds from
the true owner falsely pretending that he had a customer who
wanted to purchase them and he afterwards fraudulently
pledges the goods to secure advance for himself. Will true
owner be bound by pledge?
 Sale by a joint owner:
 Example: Radha & Shyam are co-owners of radiogram.While
the radiogram was in possession of Radha, Shyam secretly
sells it to pawan. Can Pawan get the title of the good?
 Sale by a person in possession under a voidable contracts
 Example: Kawal, by exercising undue influence, buys a car
from Bimal at a very low price and sell it toKanta. Can Kanta
get the title of the car?

Contd…
 Sale by a seller in possession of goods after sale
 Eaxmple: Shyam sells 100 bags of sugar to Bali. Bali delays in
taking the bags away. In the meantime, Shyam sells those
bags to another purchaser Kamal who takes it without
notice of prior sale and for value. Can Kamal get the title of
goods?
 Sale by a buyer in possession of goods:
 Example: Amrik sells Bhatia some copper and transfers him
Bill of lading along with Bill of Exchange. Bhatia endorses
the Bill of Lading to Sultan. Bhatia subsequently becomes
insolvent without making payment. Can Amrik stop the
goods in transit?
 Sale by an unpaid seller
 Exceptional cases under other acts

Meaning of unpaid seller:
“When the whole of the price has not been paid or tendered,When
a bill of exchange or any other negotiable instrument has been
received as a conditional payment and the condition on which it
was received has not been fulfilled by reason of dishonor of the
instrument or otherwise”
Rights of an unpaid seller:
 Right of lien
 Stoppage of goods in transit
 Right of re sale
Unpaid seller’s right against the buyer-
 Suit for the price
 Suit for damages
 Suit for interest

Definition
 Law relating to negotiable instruments is primarily
contained in Negotiable Instruments Act, 1881.
 The term ‘instruments’ means any written document
by which a right is created in favour of some person
 The word ‘negotiable’ has a technical meaning
whereby rights in the instruments can be transferred
from one person to another.
 An ‘instrument’ is called ‘negotiable’ if it possesses the
following features:
1. Freely transferable
2. Holders title free from defects
3. The holder can sue in his own name

Characteristics of Negotiable
instruments
 Must be in writing
 Must be signed by a person who is a maker or drawer
 There must be an unconditional promise or order
 Must involve payment of certain sum of money and
nothing else
 Must be payable at a time which is certain to arrive
 In bill or cheque, the drawee must be named or
described with reasonable certainty
 The instrument must be such or in such a state that it
can be transferred

Nature and kinds of
Negotiable Instruments
 Negotiable instruments originated as a form
of bill of exchange.
 A bill of exchange was a document made by a
person instructing another person to make
payment to a third person or the bearer of the
document.
 The Bills of Exchange Act governs three kinds
of negotiable instruments: bills of exchange,
promissory notes and cheques.

Bills of Exchange (Drafts)
 Section 5 of the Negotiable Instruments Act, 1881 defines a bill of
exchange as ‘an instrument in writing containing an unconditional order,
signed by the maker, directing a certain person to pay a certain sum of
money only to or to the order of a certain person, or to the bearer of the
instrument’.
 Suppose Rajiv has given a loan of RupeesTenThousand to Sameer, which
Sameer has to return. Now, Rajiv also has to give some money toTarun. In
this case, Rajiv can make a document directing Sameer to make payment
up to RupeesTenThousand toTarun on demand or after expiry of a
specified period.This document is called a Bill of Exchange, which can be
transferred to some other person’s name byTarun.
 Types of bills of exchange:
 Demand bills: A bill of exchange or promisory note is payable on
demand, thus, no time of payment is mentioned therein
 Sight or Time Bills: Bills payable at a fixed period after date or sight of
bills

Promissory Note
 Suppose you take a loan of Rupees 5,000 from your friend Ramesh.You
can make a document stating that you will pay the money to Ramesh
or the bearer on demand. Or you can mention in the document that
you would like to pay the amount after three months.This document,
once signed by you, duly stamped and handed over to Ramesh,
becomes a negotiable instrument. Now Ramesh can personally present
it before you for payment or give this document to some other person
to collect money on his behalf. He can endorse it in somebody else’s
name who in turn can endorse it further till the final payment is made
by you to whosoever presents it before you.This type of a document is
called a Promissory Note.
 Section 4 of the Negotiable InstrumentsAct, 1881 defines a promissory
note as ‘an instrument in writing (not being a bank note or a currency
note) containing an unconditional undertaking, signed by the maker, to
pay a certain sum of money only to or to the order of a certain person
or to the bearer of the instrument’.

Cheque
 The Negotiable Instruments Act, 1881 defines a cheque as a bill of
exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand.
 A cheque is an order by the account holder of the bank directing his
banker to pay on demand, the specified amount, to or to the order of
the person named therein or to the bearer.
 From the point of view of the holder, a cheque contains the implied
promise of its drawer that the drawer has funds on deposit at the bank
to meet the amount.

TYPES OF CHEQUES
Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the
counter at the bank.The holder can do the following:
i. Receive its payment over the counter at the bank,
ii. Deposit the cheque in his own account
iii. Pass it to some one else by signing on the back of a cheque.
b) Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to
issue such cheques.This risk can be avoided by issuing another types of cheque
called ‘Crossed cheque’.The payment of such cheque is not made over the
counter at the bank. It is only credited to the bank account of the payee.
c) Bearer cheque: A cheque which is payable to any person who presents it for
payment at the bank counter is called ‘Bearer cheque’. A bearer cheque can be
transferred by mere delivery and requires no endorsement.
d) Order cheque: An order cheque is one which is payable to a particular person.
In such a cheque the word ‘bearer’ may be cut out or cancelled and the word
‘order’ may be written.The payee can transfer an order cheque to someone else
by signing his or her name on the back of it.

Crossing of Cheques
 Crossing of cheque is direction to the paying banker
by the drawer that payment should not be made
across the counter
 Sec 123 defines crossing as ‘where a cheque bears
across its face an addition of words ‘and company’ or
any abbreviation thereof, between two parallel
transverse lines, or of two parallel lines simply, either
with or without the words, ‘not negotiable’, that
addition shall be deemed a crossing, and the cheque
shall be deemed to be crossed generally’
 Significance of crossing: crossing of cheque serves as
a measure of safety against theft or loss of cheque in

 Modes of crossing:
(1) General crossing: implies the addition of two
transverse lines.
(2) Special crossing: implies the specification of name
of banker on the face of cheque.
 Not negotiable crossing: ‘general’ or ‘special’ crossing
may also be accompanies by the word ‘not negotiable’
which means the cheque is deprives of its special
feature of negotiability
 Account payee crossing: signifies that drawer intends
that payment to be credited only to the payee’s
account and in none else.
 Not negotiable, A/c payee crossing: safest form of
crossing

The Holder and Holder in Due
Course
 A holder is a person entitled in his own name to the possession
thereof and to receive or recover the amount due thereon from the
parties thereto.
 E.g.: when an employer pays employee with paycheck,
the employee is a holder.
 A holder in due course is one who acquires more rights in an
instrument than the transferor had.
 To obtain the rights to which the holder in due course is entitled, he or
she must satisfy a number of conditions.

Holder Versus Holder In Due Course
 Holder
 A person who is in
possession of a
negotiable
instrument that is
drawn, issued, or
endorsed to him or
his order, or to
bearer, or in blank.
 Holder in Due Course
(HDC)
 A person who takes a
negotiable
instrument for value,
in good faith, and
without notice that it
is defective or is
overdue.

Holder in Due Course:
The Conditions
 The holder in due course must satisfy the following
conditions:
 The holder must have taken the instrument complete and
regular on its face;
 The instrument must have been acquired before it was
overdue, and without notice of any dishonour;
 Consideration must have been given; and
 The holder must have taken the instrument in good faith
and without notice of any defect.

RIGHTS OR PRIVILIDGES OF HDC
1) HDC can file a suit in his own name against the parties liable to pay.
2) The HDC gets a good title even though the instruments were originally stamped
but was an inchoate instrument OR even though the title of the transferor or any
price party to the instrument is defective
3) Every prior party to the instruments is liable to a HDC until the instrument is duly
satisfied (Sec 36).
4) Acceptor cannot plead against HDC that the bill is drawn in fictitious name
5) The other parties liable to pay cannot plead that the delivery of the instrument
was conditional or for a specific purposes only
6) if negotiable instrument is made without consideration, & get into hands of the
HDC, he can recover the amount on it from any of the prior parties
7) The person liable cannot plead against the HDC that the instrument had been
lost/obtained by means of fraud/for an unlawful consideration.
8) The validity of instrument as originally made or drawn cannot be denied by
maker of drawer of negotiable instrument or by acceptor of bill of exchange.
9) Endorser is not permitted as against the HDC to deny the signature or capacity to
contract of any prior party to the instrument

Negotiation
 The transfer of an instrument by one party to another so as to
constitute the transferee a holder thereof.
 Distinction between negotiability and assignability:
 Negotiation can be affected by mere delivery if the instrument is
bearer one and by ‘endorsement and delivery’ in case it is an order
instrument. Assignment requires a written document signed by the
transferor.
 In assignment, the title of the transferee is always subject to the
title of its transferor. In case of of negotiation, holder in due course
gets better title than its transferor
 Consideration is always presumed in case of negotiable
instruments; in case of assignment the transferee must prove
consideration for the transfer.

Dishonour of instruments
 A bill of exchange may be dishonoured either by non-acceptance or
non-payment. Sec. 91 enumerates circumstances when the bill will
be considered dishonoured
1. When the drawee does not accept it within 48 hrs. from the time of
presentment of acceptance
2. When presentment for acceptance is excused and it remains
unaccepted
3. When the drawee is the person incompetent to contract
4. When the drawee could not be found after reasonable search
5. Where the acceptance is qualified
6. Where one or more of the several drawees refuse to accept the bill

Contd…
 Dishonour of instrument by non-payment: when
maker, acceptor or drawee makes default in payment
upon being duly required to pay the same or when
presentment for payment is excused and instruments
remain unpaid after maturity
 Effect of dishonour: render the drawer and all the
endorsers liable to holder

Discharge of instrument
 A negotiable instrument is said to be discharged
when it becomes completely useless i.e., no action on
that will lie and it can not be negotiated further. In the
following cases, the instrument deemed to be
discharged-
1. When the party primarily liable on the instrument
makes the payment in due course to the holder at or
after maturity
2. When the bill of exchange which has been negotiated
is, at or after maturity, held by an acceptor in his own
right
3. When the party primarily liable becomes insolvent,
the instrument is discharged and the holder can not
make any other prior party liable thereon.

Discharge of one or more party
 By cancellation
 By release
 By payment
 By allowing drawee more than 48 hour to
accept
 By taking qualified acceptance
 By not giving notice of dishonor
 By non-presentment for acceptance of bill
 By delay in presenting the cheque
 By material alteration
 By negotiation back

Features of Partnership Act,
1932
 Indian Partnership Act, 1932 is a Central Act. (made by
Parliament
 This Act deals with special type of contract.( contract
of partnership)
 Provisions regarding contract of partnership were
earlier contained in the Indian Contract Act, 1872.
 This Act extends to the whole of India except the state
of Jammu and Kashmir.
 This Act came in to force on 1.10.1932, except section
69 which came into force on the 1st Day of October,
1933.

Meaning &Definition of
‘Partnership’
Section 4 of the Partnership Act, 1932 defines the
term ‘Partnership’ as under:
‘’PARTNERSHIP IS THE RELATION BETWEEN TWO
OR MORE PERSONS WHO HAVE AGREED TO
SHARE THE PROFITS OF A BUSINESS CARRIED
ON BY ALL OR ANY OFTHEM ACTING FOR ALL’’.
Thus, Partnership is the name of legal relationship
between/among persons who have entered in to
the contract.

Maximum Limit on Number of
Partners
 Section 11 Companies Act provides that the
maximum no. of persons, a firm can have:
In case of partnership firm carrying on a banking business 10
In case of partnership firm carrying on any other business 20
If the number of partners exceeds the aforesaid limit,
the partnership firm becomes an illegal association.
If an association of persons or firm having members or partners
exceeding the Above limit will not be an illegal association if that firm’s
objective is not to earn profit.

Two or more
persons
An agreement
Sharing of profit
Business
Mutual agency
Essential elements of Partnership

Nature of Partnership
 A partnership firm is not a person in the eyes
of Law (except for the purpose of taxation
[sec.2 (31)] ). It has no separate legal entity
(like company) apart from the partners
constituting it.
 Further Section 5 of the Act provides that
partnership arises from contract and not from
status

Characteristics of Partnership
A partnership firm has the following
characteristics:
1. Two or more members
2. Unlimited liability
3. Voluntary registration
4. No separate legal existence
5. Restriction on transfer of interest:
6. Based on agreement
7. Partners are competent to contract
8. Partnership may be only for lawful business.

Types of Partnership
Partnership at Will
(Sec.7)
Particular Partnership
(Sec.8)
On the Basis of Duration

Partnership at Will [Sec.7 read with
Sec.43)]
 When there is no provision in partnership agreement
(known as partnership Deed, if in writing) for:
 The duration of their partnership, or
 The determination of their partnership,
then the partnership is called ‘Partnership atWill’.
 Special feature of ‘Partnership at will’ is that such
firm may be dissolved by any partner by giving a
notice in writing to all other partners of his intention
to dissolve the firm
 The firm will be dissolved from that date which is
mentioned in the notice as the date of dissolution
and if no date is mentioned then from the date of
communication of notice.

Particular Partnership [sec.
8]
 When a partnership is formed for a
 Specific venture or undertaking, or
 Particular period (fixed term)
then such partnership is called a ‘particular
partnership’.
 Such partnership comes to an end on the
completion of the venture or the expiry of time
period.
 If such partnership is continued after the expiry of
term or completion of venture, it is deemed to be a
partnership at will.
 A particular partnership may be dissolved before
the expiry of the term or completion of the venture

Contd.
 Sec. 17 (b) of the Act provides that if a firm
,constituted for a fixed term, continues to
carry on business after the expiry of that
term, then the partnership will become
partnership at will AND mutual rights and
duties of partners will remain same as they
were before the expiry.

Partnership deed
 A partnership is formed by an agreement. This agreement
may be in writing or oral.though the law does not expressly
require that the partnership agreement should be in writing,
it is desirable t o have it in writing in order to avoid any
dispute with regard to the terms of the partnership. The
document which contains the term of a partnership as
agreed among the partners is called “partnership deed”.
 The partnership Deed is to be duly stamped as per the Indian
Stamp Act, and duly signed by all the partners.
Contd.

Contents of partnership Deed
A partnership deed may contain any matter relating to the
regulation of partnership but all provisions in the deed should
be within the limits of Indian Partnership Act, 1932. However, A
Partnership Deed should contain the following clause:
 Nature of business
 Duration of partnership
 Name of the firm
 Capital
 Share of partners in profits and losses
 Bank Account firm
 Books of account
 Powers of partners
 Retirement and expulsion of partners
 Death of partner
 Dissolution of firm
 Settlement of disputes

Minor Partner
 Sec. 30(1): ‘A person who is a minor according to the law to
which he is subject may not be a partner in a firm, but with the
consent of all partners for the time being, may be admitted to
the benefits of partnership’

Types of partnership
 Partnership at will :
 M O H Uduman v AshurnAIR 1991 SC 1020:
 KarumuthuThiagarajan Chettiar v Muthappa Chettiar
AIR 1961 SC 1225
 Partnership for a fixed term
 Particular partnership :
 Limited Partnership :
 Partnership by Holding out
 Sleeping partner
 Nominal partner
 Working partners

Rights of a partner
1. Joint ownership of partnership property
2. Right to take part in the management [sec. 12]
3. Access accounts and act during emergency
4. Right to profit
5. No claim for interest of capital
6. Right to indemnity sec. 13(e)
6. Right not to be expelled
7. No new partner to be introduced: right to prevent
8. No liability before joining unless with consent and
expressly stated in the deed
9. Right to retire

Nature of Liability of
partners
 Joint and several: sec. 25: every partner is
liable jointly with all the other partners and
also severally for all acts of the firm done
while he is a partner’
 Test
 Benefit of the partnership
 Within the scope of authority
 Malyn v John Houston 1903 1 KB 81
 Moreton v Harden 1825
 Citizens LifeAssurance v Brown 1905
 RW Pathirana v Pathirana 1967 1 AC 233

Nature of Implied Authority
 1. Authority to purchase and sell
 Bond v Gibson [1808]
 2. power to recover money due to firm/
borrow money on credit:
 Higgins v Beauchamp 1914 2 KR 1992:
 3. Authority to engage lawyers
 4. Authority to insure firm goods

Conditions for application of
Implied authority
 1. Act must be done in the capacity of a partner:
 Gouthwaite v Duckworth [1810 104 ER 174]:
 2. Act must be done on behalf of the firm and not
on personal behalf
 3. Act must relate to activities within the scope of
business
 4. Act must be done in the firms name
 Offer: CommunicationExceptions

A company formed and registered i.e.
incorporated under the Companies Act, 1956
or an existing co. [Sec.3]

 Incorporated Association
 Artificial person
 Separate Legal Entity
 Perpetual Succession i.e. continued existence
 Limited Liability
 Common Seal
 Transferability of Shares
 Separation of ownership from its management
 Capacity to Sue and be sued in its own name

Incorporated Association
 A company must be incorporated or
registered under Companies Act
 Minimum number required is 7 in case of
public company and 2 in case of private
company.

Separate legal entity
 A company is a separate legal entity means it
is different from its members. It works as a
individual body.
 It can make contracts, open a bank account,
can sue and be sued by others.
 The law has recognised that even if a person
holds virtually all the shares, the right and
obligations of the company shall be different
from its members.

Artificial person
 A company is a purely a creation of law. It is
invisible, intangible and exists only in the
eyes of law.
 It has no soul, no body, but has a position to
enter or exit into a contract, to appoint a
people as its employees
 In short it can do every thing just like a
natural person.

Perpetual existence [sec
34(2)]
 Section 34(2) of the act states that an
incorporated company has perpetual life.
 The life of the company is not related to the
life of the members . Law create the company
and law alone can dissolve it.
 The existence of the company is not affected
b y death, insolvency, retirement or transfer
of share of members.

Limited liability
 It means that the liability of a
member shall be limited to the value
of the share held by him, he cannot
be called upon to bear the loss from
his personal property.

Common seal
 A company being an artificial person
can not work as a natural being.
 Therefore, it has to work through its
directors, officers and other
employees. Common seal used as a
official signature of a company.

Transferability of share
sec(82)
 The share of a company are freely
transferable.The shareholder can
transfer his share to any person
without the consent of other
members.
 A company cannot impose absolute
restrictions on the rights of member
to transfer their shares

Separate property
 Shareholders are not, in the eyes of law, part
owners of undertaking.
 Shareholders are only given certain rights by
law, e.g., to vote or attend meetings, to
receive dividends.

Capacity to sue and be sued
 When a company incorporated it
acquire a separate and independent
legal personality. As a legal person it
can be sue and be sued in its own
name.

Solomon carried on business as leather merchant. He sold his business for a sum of
$30,000 to a company formed by him along with his wife, a daughter and four sons.
The purchase consideration was satisfied by allotment of 20,000 shares of $1 each
and issue of debentures worth $10,000 secured by floating charge on the
company’s assets in favour of Mr Solomon. All the other shareholders subscribed
for one share of $1 each. Mr. Solomon was also the MD of company. The company
almost immediately ran into difficulties and immediately became insolvent and
winding up commenced. At the time of winding up the total asset of company
amounted to $6,050; its liabilities were $10,000 secured by debentures issued by
Solomon and $8,000 owing to unsecured trade creditors. The unsecured sundry
creditors claimed the whole of the company assets, viz., $6,050 on the ground that
the company was mere alias or agent for Solomon.

Types of companies
(Registered under company act 1956)
COMPANIES
Incorporated
Chartered
companies
Statutory
companies
Registered
companies
Liability
limited liability
unlimited liability
Number of
members
private
public
Control
holding
subsidiary
ownership
government
non government

Member and Shareholder
 Limited Company: Generally, member and shareholders are used
interchangeably
 Unlimited Company or Company limited by guarantee: member may not
be a shareholder
 Distinction between member and shareholder in case of limited
company
1. X is a member of company limited by shares. His name is placed on the
register of members. Here, “member” or “shareholder” can be used
interchangeably. However,
a. On sale: X sells shares toY. He hands over share transfer form and share
certificate toY.
b. On death: X dies and his property including shares is inherited byY.
c. On becoming insolvent: X becomes insolvent and his property including
shares vests in the official receiver or officially assignee.
2. A person who is holding a share warrant is a shareholder but not member
3. A member who subscribes to the MoA becomes member but not

MoA - Charter of the company and contains the
powers of the company.
Contents
• Name Clause
• Domicile Clause
• Objects Clause
• Liability Clause
• Capital Clause

AoA – (i) Rules & Regulation of internal Management.
(ii) Contract between the company and its members.
Contents
 Business of the company
 Amt. of capital issued & the classes of shares
 Rights of each class of share holder & procedure for
variation
 Allotment ,Calls, Forfeiture of shares
 Transfer of shares
 Companies lien on shares

 Exercise of borrowing powers including issue
of debentures.
 General Meeting, Notices, Quorum, Proxy,
Voting, resolution, Minutes etc.
 Appointment, No., & Powers of Directors.
 Dividends- Interim & Final- General Reserve.
 Accounts & Audits.
 Keeping of books.

Modes of winding up
(i)Compulsory winding up by Court [Sec.433]
(ii)Voluntary winding up
Members voluntary winding up
Creditors voluntary winding up

 Special Resolution.
 Default in holding statutory meeting.
 Failure to commence business.
 Reduction in membership.
 Inability to pay debts.
 Just & equitable.

 Ordinary resolution passed where the period
fixed by the Articles for the duration.
 If the company resolves by special resolution
that it shall be wound-up voluntarily [sec.484]

Members
• Solvent companies
• No need of creditors
meeting
• Liquidator appointed
by the member
• No committee of
inspection can be
formed.
Creditors
• Insolvent Companies
• Creditors meeting
necessary
• Liquidator appointed
by the creditor
• If wish can formed a
Committee of
inspection.

Difference b/w public and private co.
Private company Public company
 Minimum no. of member is 2 &
maximum is 50
 Right to transfer shares is
restricted
 Can Commence business
immediately after receiving
certificate of incorporation
 Need not to hold statutory
meeting
 Directors are not required to file
with registrar written consent to
act as director or sign MoU or
enter into contract for their
qualification shares
 Directors are not required to
retire by rotation
 Minimum no. is 7 & no restriction
on maximum no.
 Shares are freely transferable
 Can commence only after
receiving certificate to
commence from registrar
 Must hold statutory meeting
 Directors are required to file with
registrar written consent to act as
director or sign MoU or enter into
contract for their qualification
shares
 At least 2/3rd of directors must
retire by rotation

Difference b/w public and private co.
Private company Public company
 No. of directors may be increased
to any extent without the
permission of central govt.
 Two members have to be
personally present to form a
quorum
 If the no. of directors is more than
12 approval of central govt is
necessary
 The number is five

Procedure for incorporation of company
 Divided into three parts
1. Promotion
2. Registration
3. Floatation
 Promotion
 Preliminary steps taken for the purpose of registration
and floatation of co.
 The person who assumes the task of promotion is
called promoter
 The promoter may be an individual, syndicate,
association, partnership or company

Duties and liabilities of promoters
 Promoters are in fiduciary relationship with the company
 Promoters are not forbidden to make profit but to make secret profit
 Example:
 In Gluckstein vs. Barnes, a syndicate of person was formed to buy a
property called ‘Olympia’ and resell this Olympia to the co. to be formed
for the purpose.The syndicate first bought the debenture of old olympia
co. at discount.Then they bought the co. itself for $1,40,000. out of this
money, provided by themselves the debentures were repaid in full and
profit of $ 20,000 made thereon.They promoted a new co. and sold
olympia to it for $ 1,80,000. the profit of 80,000 was revealed in the
prospectus but not the profit of $ 20,000.
 Liabilities of promoters
 For non-disclosure – the co. may (1) rescind the contract and recover the
purchase price (2) recover the profit made, if rescission is not claimed or
impossible (3) claim damages for breach of fiduciary duty
 Under companies act – for mis-statement contained in prospectus –
imprisoned upto 2 yrs. Or fine upto Rs 50,000. in course of winding up –

Registration
 Promoters will have to get together atleast 7 person in case of public co.
and 2 persons in case of private co. to subscribe to MoU
 3 documents are required to be presented to Registrar of Companies
where office is to be situated (1) Memorandum of the Co. (2) the article (3)
agreement, if any.
 Availability of name: co. cannot be registered by name which in opinion of
central govt. is undesirable
 Two documents are to be submitted within 30 days of the registration of
the company: (1) address of the registered office of the co. (2) particulars
regarding directors, managers and secretary, if any.
 Certificate of incorporation/ consequence of incorporation: when the
documents have been filed and fees paid, Registrar, if satisfied, enter the
name of co. and issue a certificate of incorporation
Floatation
 When company has been registered and received certificate of
incorporation, it is ready for floatation

Prospectus
 Steps necessary before issue of prospectus: public co. limited by shares,
generally issues shares to the public for which it has to issue the prospectus.
 After certificate of incorporation, first appointed director takes over and
elect one of the members as Chairman of the BOD.The Board attends
following matters
1. Appointment of expert agencies
2. Entering into underwriting/brokerage contracts
3. Listing of shares on stock exchanges
4. Drafting prospectus to be issued to public
 Prospectus
 A document is called prospectus, if it satisfies 2 things
1. It invites subscription to shares or debentures or invites deposits
2. Aforesaid invitation is made to public

Contents of prospectus
 General information
 Capital structure of the company
 Terms of present issue
 Particulars of the issue
 Company management and project
 Certain prescribed particulars
 Outstanding litigations
 Management perception of risk factors

Shares
 Sec 2(46) defines share “as a share in the share capital of a
company and includes stock except where a distinction
between share and stock is expressed or implied”
 A share signifies the following
1. The interest of shareholder in a company; the right to receive
dividends, attend meetings, vote at the meeting
2. The liability of shareholder in a company
3. The right of shareholder to transfer shares subject to article of
association
4. Binding covenants on the part of the company as well as the
shareholder, as given in the article of company

Classes of shares
 Preference shares: carries 2 rights over holders of equity shares –
(1)preferential right in respect of dividends at a fixed amount or at a fixed
rate (2) a preferential right in regard to repayment of capital on winding
up
 Priority of preference shareholder in relation to rights of equity
shareholder
1. Participating or non-participating: participating means to (1) to
participate further in the profit either along with or after payment of
certain rate of dividends on equity share (2) to participate in surplus
asset at the time of winding up
2. Cumulative or non cumulative: dividends not paid in any year/years
accumulate and are paid out whenever profits are available –
cumulative.
3. Redeemable or irredeemable: a preference share which can be
redeemed upon the resolution of BOD, if article so provide -
redeemable

Contd…
 Equity share: share which is not preference share.The rate
of dividend is not fixed.
 Deferred or founders share:
a) Normally held by promoters or director
b) Usually of small denomination, say 1Rs each
c) Generally given equal voting rights as that of equity
share
d) Carry a dividend fixed in relation to profit available after
dividends have been declared

Right of minority
shareholder
 EquitableTreatment.
 The right to seek information
 The right to voice opinion
 Disclosure andTransparency
 The right to seek redress

DIRECTOR - APPOINTMENT
(1) Unless the articles provide for the retirement of all
directors at every annual general meeting, not less
than two-thirds of the total number of directors of a
public company, or of a private company which is a
subsidiary of a public company, shall—
(a) be persons whose period of office is liable to
determination by retirement of directors by rotation;
and
(b) save as otherwise expressly provided in this Act, be
appointed by the company in general meeting.
(2)The remaining directors in the case of any such
company, and the directors generally in the case of a

Legal_Aspects_of_Business.ppt

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