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BUSI N E S S
L AW With notes

Phystry with me
 OFFE R A ND
ACCE PT AN CE

1 To form a contract there must be an offer made by

one party which is in turn, accepted by another party.
2 There are 2 important indgredients to an offer:
a) It must be expressions of willingness to do.
b) Willingness must be expressed with a view to obtain
the assent of other party to whom the offer is made
 RULES RELATING T O F F E R
O

The offer must be with an intent to The offer must be either specific or
create legal relationship general

Offer must be certain and definite. Offer must be communicated

Offer must be express or implied

 RULES REL A N C E
ATIN G T O AC C E P T

It must be absolute and unqualified It cannot precede an offer.

It must show an intention on the

part of the acceptor to fulfil terms
It must be communicated to the of the promise. If no such intension is
offerer. present, the acceptance is not valid.
It must be given within a reasonable It must be given before the offer
time. lapses or before the offer is
withdrawn.
 Consent means "knowledge and approval" of the
parties concerned.
consent would be considered as free consent if it is

FREE not vitiated by coercion, undue influence, fraud,

misrepresentation or mistake

CONSENT Wherever the consent of any party is not free, the

contract is voidable at the option of that party.
In the Indian Contract Act, the definition of
Consent is given in Section 13, which states that “it
is when two or more persons agree upon the same
thing and in the same sense”.
Discharge of
Contract
 a contract is said to be discharged when the
rights and obligations created by the contract are
terminated.
Discharge of a contract implies termination of the
contractual relationship between the parties. On
the termination of such relationship, the
parties are released from their obligations in
the contract. In this way the contract comes
to an end.
 1. By performance
Modes of 2. By mutual agreement
3. By impossibility
Discharge of 4. By operation of law
contract 5. By lapse of time
6 .By breach of contract
 Discharge of Contract by performance
Performance means the doing of that which is required by a contract.
Discharge by performance takes place when both the parties to the
contract fulfill their obligations arising under the Contract within the
time and in the manner prescribed.
most usual mode of its discharge.
it may be:
Actual performance Attempted performance

When both the parties perform Where the promisor offers to perform
their promises, the contract is his obligation, but the promisee refuses to
discharged. accept the performance.
 Discharge of Contract by mutual agreement
As it is the agreement of the parties which binds them, so by their
further agreement or consent the contract may be terminated.
A contractual agreement may be discharged by agreement which may be
express or implied.

Example

A sells a car to B on approval with the condition that it should be

returned within 7 days if its is found wanting (lack) in efficient functioning.
B may return the car within 7days if it is found wanting.
consent to return the car is given to B at the time of formation of
contract
 Discharge of Contract by Impossibility
If an agreement contains an undertaking to perform an impossibility, it is
according to section 56, impossibility of performance may fall into either
of the following categories:

Impossibility existing at the time of agreement

Impossibility arising subsequent to the formation of contract

contract is discharged due to supervening impossibility under the following situations: i.
Destruction of subject matter of contract ii. Non existence or non occurrence of a
particular state of things iii. Change of law or stepping in of a person with statutory
authority. iv. Death or personal incapacity of the party. v. Declaration of war.
 by Operations of law
A Contract may be discharged independently of the wishes of the parties
i.e. bh operation of law.
This includes discharge by:

by death
Insolvency
Merger
Loss of evidence
Discharge of Contract by lapse of time
The limitation act, 1963 lays down that a contract should be
performed within a specified period, called period of limitation.
If it is not performed, and if no action is taken by the
promisee within the stipulated time, he is deprived of his remedy
at law.
 Discharge by breach of contract
Breach of contract means a breaking of the obligation which a contract
imposes. It occurs when a party to the contract without lawful excuse
does not fulfil his obligation or by his own act makes it impossible that he
should perform his obligation under it.
Actual breach of contract Anticipatory breach of contract
Where one of the parties breaches the It occurs when a party to an executory
contract by refusing to perform the promise Contract declares his intention of not
on due date, it is known as actual breach performing the contract before the
of contract. In such a case the other performance is due.
party to contract obtains a right of action
against the one who breached the contract.
 Bailment
The word Bailment is derived from the fresh word
'baillier' which means to deliver, it means any kind of
"handing over".
Sec. 148 defines Bailment as 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 otherwise disposed of according to the
directions of the person delivering them.
 Bailment
The person delivering the goods is called bailor and the
person to whom it is delivered is called bailee.
A sells certain goods to B who leaves them in possession
of A, the relationship between B and A is that of bailor
and bailee.
 Duties of bailor
1. To disclose known facts: It is the first and foremost duty
of the bailor to disclose the known faults about the goods
bailed to the bailee.
2. To bear extraordinary expenses of Bailment: A lends his
horse to B, a friend, for two days. The feeding charges are
to be paid by B. But if the horse meets with an accident A
will have to repay B medical expenses incurred by B

3. To receive back the goods

 Duties of bailee
1. To take reasonable care of goods bailed.
2. Not to make any unauthorised use of goods.
Example: A lends a horse to B for his riding only, B allows C,
a member of his family, to ride the horse, C rides with care,
but the horse accidentally falls and is injured. B is liable to
make compensation to A for the injury caused to the horse.
3. Not to mix the goods bailed with his own goods .
4. Not to set-up an adverse title: The bailee must hold the
goods on behalf of and for the bailor.
 Rights of bailor
The bailor can enforce by suit all the liabilities or duties
of the bailee, as his rights.
The bailor can terminate the bailment if the bailee does,
with regard to the goods bailed, any act which is
inconsistent with the terms of the bailment.
Compensation from a wrong doer, if a third person
wrongfully deprives the bailee of use or possession of the
goods bailed, or does them any imjury, the bailor or the
bailee may bring a suit against that person.
 Rights of bailee
If several joint owners of goods bail them, the bailee may deliver
them back to, or according the the directions of, one joint owner
without the consent of all.
If the bailor has no title to the goods, and the bailee, in good faith,
delivers them back to, or according to the directions of, the bailor,
the bailee is not responsible to the owner in respect of such delivery.
Delivery of goods to bailor without title
when the lawful charges of the bailee in respect of the goods bailed
are not paid, he may retain the goods.
 Contract of Indemnity Sec.124

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 contract of indemnity
The person who makes the promise to make good the
loss is called the indemnifier. The person whose loss is to
be made good is called indemnity holder.
 Contract of Indemnity Sec.124
examples

For example, A promises to deliver certain

goods to B for Rs. 2,000 every month. C
comes in and promises to indemnify B’s losses
if A fails to so deliver the goods. This is
how B and C will enter into contractual
obligations of indemnity.
 Contract of Guarantee

A contract of guarantee is a contract to perform the promise

made or discharge liability incurred by a third person in case of his
default. The contract of guarantee is made to ensure performance
of a contact or discharge of obligation by the promisor. In
case he fails to do so, the person giving assurance or
guarantee becomes liable for such performance or discharge. In a
contract of guarantee there are three parties, namely, the principal
debtor, creditor and surety. The principal debtor is primarily liable
to pay and the surety is the person who gives the guarantee.
CONTRACT
OF SALE
 A contract of sale of goods is a contract whereby the
seller transfers or agrees to transfer the property in
goods to the buyer for a price.
The term contract of sale is a generic term and it
includes both sale and agreement to sell. Where, under a
contract of sale, the property in goods is transferred
from seller to the buyer, it is called ‘Sale’ but where the
transfer of property in goods is to take place at a future
time or subject to some conditions thereafter to be
fulfilled, the contract is called ‘ agreement to sell’
Essentials of
contract of
sale
 The following are the essentials of contract of sale---
1. Two parties: There are two distinct parties in a contract of sale
– seller and buyer.
2. Transfer of general property: ‘Property’ means the general
property in goods and not merely a special property [Section 2 (11)].
3. Goods: Goods form the subject matter of the contract and must
be movable. Goods mean every kind of movable property other
than actionable claims and money and include stock and
shares, growing crops, grass and things attached to or
forming part of land which are agreed to be severed sale or
under the contract of sale.
 4. Price: The consideration for the contract
of sale must be in the form of money
and is called price.
5. All essentials of a valid contract: All
the essential elements of a valid contract
like agreement, free consent, consideration, etc.
must be present in a contract of sale of goods.
 Sale is an executed contract whereas
agreement to sale is an executory
Contract.
Distinguish performance of sale is absolute and
between without any condition, whereas in
sale and agreement it is conditional and is made in
agreement
future.
to sale
In sale, the property of goods passes
from the seller to buyer immediately and
the seller is no longer the owner, whereas
in agreement to sale the transfer of-
 Property takes place on a future date, or at
times subject to fulfillment of certain
conditions.
Distinguish
between In sale, if the goods are destroyed, the
sale and loss falls on the buyer even though the
agreement goods are in possession of seller. In an
to sale
agreement to sale, the loss falls on the
seller, even though goods are in possession
of buyer.
 In sale, if there is a breach of contract,
the seller can sue for the price, even if
the goods are in his possession. In an
Distinguish agreement to sale, if the buyer fails to
between accept the goods, the seller can sue for
sale and damages and not the price even if the
agreement goods are in possession of the seller.
to sale
 PARTNERSHIP LAW
The law of partnership is contained in the Indian
Partnership Act of 1932. The Act came into force on
1st October, 1932. This act is based on the
English law relating to partnership. Partnership is
an association of two or more persons, formed as a
result of an agreement to carry on some business,
and the agreement must be to share the profits
of the business.
 CHARACTERISTICS OF PARTNERSHIP

1. Relationship between two or more persons: Partnership can

occur only a minimum of two persons.
2. Agreement: Partnership is the result of contract, it comes
into existence with a mutual agreement between the
partners.
3. Sharing of profits: The agreement to carry on business
must be with the object of making and sharing profits among
all the partners.
 CHARACTERISTICS OF PARTNERSHIP

4. Unlimited liability: In partnership, the liability of partners is

joint as well as unlimited. Each partner is liable to an
unlimited extent and each partner's personal property is liable
for clearing debts of the firms.
5- No separate legal existence
 1. Right to take part in the conduct of the
business: As per Section 12 [a] of the Act, every
Rights of
partner has the right to take part in the conduct
partners
of the business of the firm.
2. Right to be consulted: Every partner has the
right to be consulted and heard with respect to
the conduct of the business, before any matter is
decided.
3. Right of access to books: Every partner has the
right to have access to and inspect and copy of
the books of the firm.
 4. Right to share the profits: Section 13 [d] of
Rights of the Act provides every partner, irrespective
partners
of the amount of contribution, the right to
share equally the profits earned by the firm.
5. Right to Interest on advances: Where a
partner makes any payment or advances
beyond the amount of capital he has agreed
to subscribe, he is entitled to receive interest
at the rate of 6% per annum.
 o f 1. Dissolution by mutual agreement
t i o n
s o l u h i p 2. Compulsory dissolution- A firm gets
s
Di r tn er s
pa compulsory dissolved in the following cases:

a) By the adjudication of all the partners or of all the

partners but one is insolvent.
b) On the happening of any unlawful event
c) If all the partners, or all but one partner, are
declared insolvent
 o f 3. Dissolution on the happening of the
t i o n
s o l u h i p contingencies.
s
D r tn er
i s
pa 4. Where the partnership is at will, the firm
may be dissolved by any partner by giving notice
in writing to all the other partners of his
intention to dissolve the firm
5. Dissolution by court: the court may dissolved a firm on any of the
following grounds:
a) if a partner has become of unsound mind
b) any partner becoming permanently incapable of performing his
duties
 i o n o f c) If a partner willfully or persistently
o l u t i p
s s h
i s
D r tn e r commits breach of agreements relating
pa
to the management of affairs of the
firm.
d) If a partner has, transferred the
whole of his intrest in the firm to a
third party.
 Negotiable Instruments Act, 1881

Negotiable instrument means a document

guaranteeing the payment of specific amount of
money which is transferrable from one person to
another, either on demand or at some defined time,
with the name of the payer on the instrument.
E.g.- Promisory note, Cheque and a Bill of exchange,
etc.
 Bills of exchange

A bill of exchange is an instrument in writing containing an

unconditional order, signed by the maker, directing a certain
sum of money only to, or to the order of a certain person or
to the bearer of the instrument.
It is a binding agreement between buyer and seller where the
buyer agrees to pay a fixed sum of cash at a predetermined
date or upon demand from the seller. Banks usually act as a
third party to ensure payment and receipt of funds.
Bills of exchange (Specimen)
 Promissory Note Section 4

Promisory note is a promise to pay a certain amount

of money within a. Stipulated period of time, issued by
the debtor.
A debt instrument that contains a written promise
by one party to pay another party a definite sum of
money, either on demand or at specified future date.
Promissory Note(Specimen)
 Cheques

A cheque is a bill of exchange, drawn on a specified

banker and it includes ‘the electronic image
of truncated cheque’ and ‘a cheque in electronic form’.
The cheque is always payable on demand. A cheque must
contain all the characteristics of a bill
of exchange.
 Types of Crossing

GENERAL CROSSING : In the case of general crossing on the cheque,

the paying banker will pay money to any banker. For
the purpose of general crossing two transverse parallel lines at the
corner of the cheque are
necessary.
Thus, in this case, the holder of the cheque or the payee will receive the
payment only through a
bank account and not over the counter. The words ‘and Co.’ have no
significance as such.
 Types of Crossing

Special crossing: The cheque bears across its face an

addition of the banker's name, with or without the
words 'not negotiable'.

Restrictive crossing - Restrictive crossing involves the

crossing of a cheque through two parallel lines on the left
corner of a cheque. The words A/c payee are inserted
inside the parallel lines.
Cheque (specimen)