Indian contract act 1872

Capacity to contract
Sec not 11 ‘every person is competent
to contract, who is the 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.
 MINOR
• Absolutely void • Minor member of
• No ratification company
• No restitution • Minor promisee
• No estoppel • Minor surety
• Minors beneficiary** • Minors liability for tort
• Liability for (civil wrong)
necessities*
• Minor agent *valid contract
• Minor partner **voidable contract
 CONSIDERATION
sec 2d ‘When at the desire of promisor, the promisee or any other
person has done or abstained from doing or does or abstains from
doing or promises to do or to abstain from doing something, such act or
abstinence, or promise is called a considerationfor the promise.’

• Essentials of a Consideration
• Should be furnished at the desire of the promisor
• May move from promisee or any other person
• May be promise or abstinence
• May be past ,present or future
• Unique consideration for each promise
• Must be real and not illusory, illegal, impossible,
uncertain, ambiguous, fradulent, immoral or opposed
to public policy
• Consideration must be valuable in the eyes of law
 No consideration. No contract
• EXCEPTIONS
• Promise made on account of natural love and affection
• Promise to compensate for voluntary services
• Promise to pay time barred debt
• Contracts of agency
• Completed gifts
Legality of object and consideration
• Sec 23 when consideration and object is
unlawful
• Forbidden by law
• Defeats the provisions of law
• Fradulent
• Implies injury to another person or property
• Immoral or opposed to public property or public policy
 Agreements opposed to public policy
• Trading with enemy
• Improper promotion of litigation and stifling of
prosecution
• Marriage brokerage contracts
• Creating intrest opposed to duty
• Interfering with marital status
• Agreements in restraint of parental rights
 CONSENT sec 13 “ 2 or more persons
are said to consent when they agree upon
the same thing in the same sense.

• FREE CONSENT …. Sec 14 consent is

said to be free when it is not caused by
• Coercion …. Sec15
• Undue influence….sec 16
• Fraud….sec 17
• Misrepresentation….sec 18
• Mistake….
 Coercion Sec 15 ‘ coercion is committing or
threatening to commit any act forbidden by the Indian Penal
Code or the unlawful detaining or threatening to detain any
property, to the prejudice of any person, whatsoever, with
the intention of causing any person to enter into an
agreement.

• Threat to commit suicide

• Threat to file a suit ( on false charges)

• EFFECTS
• Voidable
 Undue influence ..sec 16 a contract is said to be
affected by undue influence when
a..the relations subsisting b/w theparties are such thatone of the
parties is in a position to dominate the will of the other,and

b..uses that position to obtain an advantage over the other.

• Persons deemed to be in a position to dominate

the will of the other
• Real or apparent authority
• Fiduciary relationship
• Contract with person with temporary or permanently disabled
mental ability
UNLESS
• All material facts were disclosed
• Adequate consideration
• Independent advice and freedon to exercise it
 Effects …undue influence
• Voidable
 Fraud sec 17…any of the following acts
committed by a party to a contract , or by any one with his
connivance or by his agent with intent to deceive another
party thereto or his agent or to induce him to enter into the
contract
• A suggestion as to a fact of that which is not true by
one who does not believe it to be true.
• An active concealment of a fact by one having
knowledge or belief of the fact
• A promise made w/o any intention of performing it
• Any other act fitted to deceive
• Any such act or omission as the law specially declares
to be fraudulent
 Elements of fraud
• The act must be committed by a party to the
contract or with his connivance or by his agent,
and not by a stranger.
• Nature of act
• The act must be committed with the intent of
causing the deceived party to act upon it
• The act must deceive the other party
• The deceived party must have suffered
 Silence…not fraud UNLESS
• It is duty to speak
• Silence, in itself, will be equivalent to
speech
 DUTY TO SPEAK
• Contract of uberrimae fidei (absolute good
faith)
Eg insurance contracts, family settlements
• Contracts of partnership
• Contracts of guarantee
• Fiduciary relationship
 Effects …fraud
• Voidable
• Damages
Misrepresentation is a false representation
made innocently w/o intent of deceiving. Includes
a…wrong statement of a material fact not known to be
false
b…non disclosure of fact where there is need to disclose
without intent to deceive

• IT MAY BE COMMITTED BY
• Breach of duty
• Causing mistake by innocent
misrepresentation
 MISTAKE erroneous belief concerning something
Mistake

OF LAW OF FACT

INDIAN..valid FOREIGN…voidable
PVT RGT OF PARTIES,,voidableBILATERAL,,void UNILATERAL

SUBJECT MATTER PERFORMANCE POSSIBILITY

TRANSACTION NATURE PARTY ID’s

 Difference
• COERCION & • FRAUD AND
UNDUE INFLUENCE MISREPRESENTATI
• Mode of obtaining ON
consent • Intention
• Type of force • Rights
• Existence of • Defence
relationship
 Void contracts
• Agreements made by incompetent parties.
• Agreements made by mutual mistake of fact
• Agreements with illegal object and/or consideration in full
or in part
• Agreement without consideration
• Agreement in restraint of marriage
• Agreement in restraint of trade
• Agreement in restraint of legal proceedings
• Uncertain agreements
• Agreement by way of wager
• Agreement to do an impossible act
 Contingent contract
• An absolute contract promisor undertakes to
perform the contract in all events
• Contingent contracts contract to do something if some
collateral event to such contract does or does not
happen.

• Essential characteristics
• Performance of a contract depends on happening or non
happening of a certain in the future.
• The event is uncertain
• The uncertain event is collateral to the contract

• Rules of performance
• If the event does not happen the contract becomes void.
• Nullity or possibility is decided only once the event has
happened or becomes impossible and not before.
• Contracts to do an impossible thing are void
 Quasi contracts
certain relation resembling those of
contracts
A person cannot be allowed to enrich himself at the cost of
another
• Types of quasi contracts
• Claim for necessaries supplied to a person incapable of
contracting
• Reimbursement of person paying money due by another
in payment of which he is interested
• Obligation of a person enjoying benefit of a non
gratuitous act
• Responsibility of a finder of goods
• Liability of a person to whom money is paid or things
delivered, by mistake or under coercion
 Discharge of contracts
• Meaning and mode of discharge
• When an obligation comes to an end
• By agreement
• 1 By novation
• 2 by rescission #by mutual consent
#by the aggrieved party
#by party whose consent is not free
• 3 by alteration
• 4 by remission

• By performance of contract
• By lapse of time
• By operation of law
• By material alteration
• By subsequent impossibility of performance
• By breach
• By performance
• In full

Exceptions
• where contract is divisible
• A promisor substantially does what he promised
• A party is prevented from completing the
undertaking by some act or omission of the
other party

• By lapse of time
• Operation of law
• Merger
• Death
• Loss of evidence
• By insolvency

• Material alteration
• Supervening impossibility of
performance
• Impossibility known and unknown to parties at the time
of making a contract
• Impossibility arising subsequent to the contract
#by destruction of subject matter
#by non existence of state of things necessary for
performance
#death or incapacity of capacitor
#Change of law
#outbreak of war
• Breach
• Actual breach
• Anticipatory breach

• PERFORMANCE OF CONTRACTS
# actual performance
# attempted performance / tender
tender of money
tender of goods
 Essentials of a valid tender
• Should be unconditional
• Should be an offer to perform in full
• Must be made at fixed/proper time and place
• Should be made to the proper promisee
• Should be for quality and quantity agreed upon
in case of goods
• Reasonable opportunity to be provided to
promisee
• Must be of precise amt and in legal tender
money (tender of money)
Remedies for breach of contract
• Rescission
• Damages
#ordinary
# special
#exemplary /vindictive
# nominal
• Quantum meirut
• Specific performance
• Injunction
 Contracts of indemnity and
guarantee
• Contract of indemnity as per Sec 124 of ICA
1872 ‘a contract by which one party promises to save
the other from the loss caused to him by the conduct of
the promisor himself ,or by the conduct of the third
party.
• DEFINITION includes
# express promise to indemnify
# cases where loss is caused by the conduct of the
promisor himself or any other person
It does not cover
# implied promise to indemnify
# cases wherethe loss is caused accidently or by
the conduct of the promisee.
• Parties to a contract of indemnity
INDEMNIFIER and INDEMNITY-HOLDER

Rights of indemnity-holder
• Right to claim damages
• Claim for costs
• Claim for sum paid under a compromise
All essentials of valid contract must
be present
• Something done/promise made for benefit
of principal debtor shall qualify as
consideration
• Creditor and surety must be competent.
the principal debtor can be minor.
• Liability of surety is conditional. Arises at
default by principal debtor.
 Contract of guarantee Sec 126 of ICA 1872 ‘a
contract to perform the promise of discharge of the
liability of a third person in case of his default.
• Parties to contract of guarantee
SURETY, Principal debtor and creditor

Objective / purpose
• To Secure performance of something
• To secure honesty and fidelity of someone
• To secure someone from injury
 Types of guarantee
• Specific guarantee
• Continuing guarantee
can be revoked by
# notice
# death
 Rights of surety
• Against principle debtor
#right to be subrogated
#right to claim indemnity

• Against the creditor

#right to every security which the creditor
has against the debtor at the time of
guarantee
• Against co-sureties
#liable to contributre equally
#libale for different sums

DISCHARGE OF SURETY
# by notice or death
#changes in terms of the original contract b/w the
principle debtor and creditor
#by release or discharge of principle debtor
#compounding by creditor with the principal debtor
• Creditors act or omission impairing surety’s
eventual remedy
• Loss of security
• By invalidation of the contract of guarantee
 Contract of bailment
• Sec 148 of ICA 1872 “Bailement is 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 be disposed off according to the
direction of the person delivering them.” BAILOR
The person delivering goods
• BAILEE The person to whom they are delivered

Essentials of bailment
• Delivery of possession
• Delivery of goods must be for a specific purpose
• Contract
• Return of goods

• TYPES OF BAILMENT
• Gratuitous or non-gratuious
OR
• Bailment for exclusive benefit of the bailor
• Bailment for exclusive benefit of bailee
• Bailment for mutual benefit
RIGHTS OF BAILOR
• Right of termination
• Right to demand return of goods anytime in
case of gratuituous bailment
• Enforcement of rights

DUTIES OF BAILOR
• To disclose faults in the goods bailed
• Responsibility for title to the goods
• To bear necessary expenses of
bailment(gratuituous bailment)
• To bear risk for loss
• RIGHTS OF BAILEE
• right to interplead
• Right against third person
• Right of particular lien for payment of service
• Right of general lien
• Right to indemnity
• Right to claim compensation in case of faulty
goods
• Right to claim necessary expenses
• Right of delivery of goods to any of the joint
bailors
• DUTIES OF BAILEE
• To take care of goods
• To use goods only in authorised manner
• Must not mix goods with his own goods
• To return the goods
• To return increase of profit from goods
• Must not set up an adverse title

• LIEN –
• right of a person to retain that which belongs to
another
• Particular lien
• General lien
 PAWN OR PLEDGE
• Sec 172 of ICA 1872 “pledge is the
bailment of goods as security for payment
of debt or the performance of a promise.’’
• Bailor /depositor/pledger / pawner
• Bailee/depositee /pledgee/pawnee
 RIGHTS AND DUTIES OF PAWNER
• Duty to repay loan
• Right to receive goods till sold

RIGHTS AND DUTIES OF PAWNEE

• Right to retainer
• Right of particular lien
• Right to receive extraordinary expenses
• Pawnees right in case of default of the pawner
• pawnee to not use goods .
• PLEDGE BY NON OWNERS
• only owner of goods can make a valid pledge
• Nemo dat quod non habet no man can pass
better title than he himself has.

• EXCEPTIONS
• Pledge by mercantile agents
• Pledge by seller or buyer in possession after
sale
• Pledge by co-owners
• Pledge by a person in possession under
voidable title
 Termination of bailment
• On expiry of stipulated period
• On fulfillment of purpose
• By notice
• By death
 AGENCY
• Sec 182 of Indian contract act 1872 “an
agent is a person employed to do any act for
another or to represent another in dealing with
third persons. The person for whom such act is
done, or who is so represented ,is called the
principal.”

• WHO CAN EMPLOY AN AGENT

sec 183 of ICA 1872 “any person who is of the
age of majority according to the law to which he
is subject and who is of sound mind, may
employ an agent.
• Who may be an agent
sec 184 of ICA 1872 “as between principal
and third person any person may become an
agent, but no person who is not the age of
majority and of sound mind can become an
agent so as to be responsible to his principal.

CONSIDERATION AND AGENCY

sec 185 of ICA 185 “ no consideration is
necessary to create agency.
 Creation of agency
• By express agreement
• By implication
# agency by estoppel
#agency by holding out
#agency by neccessity
• Agency by ratification
# ratification can be express or implied
#no ratification possible by person whose
knowledge of the case is materially defective
#ratification to be made within reasonable time
# Ratification cannot be made for criminal acts
# Ratification should be only of those acts in which the
person ratifying has the power to do so.
# Ratification cannot be made to subject third person to
damage or terminate right or interest of a third
person.
• Agency by operation of law

• Classsification of agents
• General agent and Special agent
• Mercantile agent
# factors
# brokers
# Auctioneers
#partners
#del credere agent

Extent of agents authoritys

• Actual or real authority
• Ostensible authority
• Authority in an emergency
• Delegation of authority
Sec 190 ICA 1872 “an agent cannot lawfully
appoint a sub agent to do acts which he has
undertaken to do personally”
EXCEPTIONS
#where custom of trade permits to appoin a sub
agent
#where the nature of agency so requires
When the act to be done is ministerial ( requires no
discretion or confidence)
#when the principal so agrees expressly or
impliedly
• # incase of unforseen emergency
SUB-AGENT is a person employed by an acting
under the control of the original agent .
@principal can hold the agent responsible for the
acts of the sub agent.
@the agent is responsible for the acts of subagent
to the principal and third parties.
SUBSTITUTED AGENT where an agent
holding an express or implied authorityto name
another person to act for his principal,names
another person accordingly,he is a substitued
agent for the principal
• Duties of an agent
• Duty to follow instructions
• Duty to follow custom in absence of instructions
• Duty to exercise skill and diligence
• Duty to render account
• Duty to communicate
• Duty not to deal with his own account
• Duty to pay over all money
• Duty not to make secret profit
• Duty to protect interest of principal in the case of his
death or insolvency
• Duty not to set up an adverse title
• Duty not to delegate authority
• Rights of agent
• Right of retainer
• Right to remuneration
• Right of lien
• Right to indemnification
• Right to compensation
 Personal liability of an agent
• Generally
An agent cannot personally enforce contract entered into
by him on behalf of his principle, nor is he personally
bound by them.
EXCEPT in case of
#in case of foreign principle
#In case of undisclosed principle
#in case of incompetent principle
#in case of non existence of principle
#in case of acts not ratified
#in case of acts in his own name
#in case of express agreement
#in case of custom or usage of trade

Right of person dealing with agent

#right of person dealing with agent personally liable
#inducing agent or principle to act on belief that principle or
agent will be held exclusively liable.
 POSITION OF PRINCIPAL or contracts
/agency with third persons
• Named principal
# acts done within authority of agent by agent
#Acts done beyond agents authority by agent
#Liability of principal inducing belief that agent’s
unauthorized acts were authorized
#notice to the agent
#misrepresentation or fraud by an agent
#Admission made by an agent
• Unnamed principal
• Undisclosed principal
 TERMINATION OF AGENCY
• By act of parties
# by agreement between principal and agent
# By revocation of agency by the principal
# By renunciation of business by the agent

• By operation of law
# By completion of business of agency
# By efflux of time
# By death or insanity of principal or agent
# By the insolvency of the principal
#by insolvency of principal
#By destruction of subject matter of agency
# By the principal becoming an alien enemy.
 SALE OF GOODS ACT 1930
• Sec 4(1) “ 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.”

Hence contract of sale # Sale

# Agreement of sale

Essentials of contract of sale

# Two Parties
# Goods
# Transfer of general property
# Price
# essentials of a valid offer

SALE AND AGREEMENT TO SELL

# Nature of contract
# Transfer of ownership
# General and particular property
# Seller’s right of resale
# Right to recover price and damages
# incidence of risk of loss
 Distinction between SALE &
• Bailment
• Gift
• Barter and exchange
• Mortgage and hypothecation
• Contract for work and labour
• Hire-purchase agreement
# regulating law
# transfer of property
# buyer’s status
# buyer’s option
# installment payment
 Formation of contract of sale
• Essentials of a valid contract
• Maybe verbal or written fully/partly
• Express or implied

• GOODS Subject matter of contract of sale

• Sec 2(7) every kind of movable property other than
actionable claims and money and includes stocks and
shares, growing crops, and things attached to or forming
part of land which are agreed to be severed before sale
or under contract of sale”
• Types of goods
• Existing
• # specific
• # ascertained
• # unascertained
• Future
• Contingent
 Effect of perishing/destruction of goods
forming subject matter of contract
• In case of contract of sale contract
becomes void if
• There contract is for sale of specific goods
• Goods no longer answer to their description in the
contract, before making of the contract
• The seller is not aware about the destruction of goods

• In case of agreement to sell the contract

becomes void if
• There is an agreement to sell specific goods
• The goods no longer answer to their description in the
agreement
• There must not be any fault of buyer or seller
• The goods have perished before agreement to sell
becomes sale

PRICE of goods
• Modes of determining price
# may be fixed by contract
# may be left to be fixed in an agreed manner
# may be determined by the course of dealing between the
parties.
Thus, price may not be fixed at the time sale however, there
has to be a price which the buyer is dutybound to pay.
• Duty of buyer to pay a reasonable price
• If a third party is to fix price by valuation and
does not do so the contract becomes void
• Ernest money Vs advance payment
• Stipulation …sec 12(1) is a contract of sale
with reference to goods which are subject
thereof maybe a condition or a warranty
• Condition is a stipulation essential to the main
purpose of the contract, the breach of which
gives rise to a right to treat a contract as
repudiated ….sec 12 (2)
• Warranty is a stipulation collateral to the main
purpose of a contract, the breach of which gives
right to a claim for damages but not a right to
reject the goods and repudiate the contract..sec
12 (3)
 Distinction between condition
and warranty
• Difference as to value
• Difference as to breach
• Difference as to treatment

• Express conditions and warranties

• Implied conditions and warranties
• Implied conditions
• As to title
• As to description
• As to sample
• As to quality or fitness
• As to merchantability
• As to wholesomeness
• Implied warranty
• Quiet enjoyment
• Freedom from encumbrances
• Usage of trade
• Dangerous nature

• Breach of codition becomes breach of

warranty
• Voluntary waiver by buyer
• Compulsory treatment of condition as warranty
 Doctrine of caveat emptor
• Let the buyer beware it is the responsibility of
the buyer to use his skill and diligence to ensure
right quality of goods

• Exceptions
• Sale under fitness for buyers purpose
• Sale under merchantable quality
• Sale under a patent or trade name
• Sale under usage of trade
• Consent by fraud
 Transfer of ownership
• Risk passes with ownership
• Action against third party
• Insolvency of the seller or buyer

• Rules regarding transfer of ownership

• Of ascertained goods
• When goods are in deliverable state
• When the seller has to do something
• When goods are to be measured
• When goods are sold on approval
• Unascertained goods

• Transfer of title by non owners

Generally ‘ nemo dat quad non habet”

• Except
• sale by mercantile agent
• Sale by estoppel
• Sale by co owner
• Sale by a person with voidable title
• Sale by seller in possession of goods after sale
• Sale by buyer in possesion of goods after sale
• Sale by an unpaid seller

• PERFORMANNCE OF CONTRACT OF SALE

• As regards seller DELIVERY
• As regards buyer ACCEPTANCE OF DELIVERY
AND PAYMENT
• DELIVERY OF GOODS …means voluntary
transfer of possession of goods from one person
to another. It may be Actual or Constructive /
symbolic

• Rules concerning delivery

• Mode of delivery
• Delivery and payment
• Effect of part delivery
• Buyer to apply for delivery
• Place of delivery
• Goods in possession of a third party
• Time of delivery
• Expenses of delivery
• Installment delivery
• Delivery to a carrier or wharfinger

• Rights of an unpaid seller or vendor

• Unpaid seller is a seller who has not been paid
in full or has received a negotiable instrument
which is subsequently dishonoured.
• Right to lien if
Goods are not sold on credit
Goods sold on credit n credit period has expired
The buyer becomes insolvent
• Right to stoppage in transit
• Right of resale
• Right to withhold delivery
• Right to sue for price, damages ,interest
Distinction between lien and stoppage in
transit
Retain possession / resume possessiopn
Non payment /non payment due to insolvency only
When goods r in possession/after parting from goods
AUCTION SALE sec 64…public sale in
which goods are offered to the highest
bidder
Goods sold in separate lots, each lot will prima facie be
deemed to be subject of a separate contract of sale
The sale is compleate when auctioneer annonces its
completion by fall of hammer or in some other customary
manner.
If goods destroyed or damaged before the completion of
the sale, loss to be borne by the seller
A right to bid may be reserved expressly by or on behalf of
the seller , and the seller or one on his behalf may bid
subject to provisions
• Where the sale is not notified to be subject to bid
on behalf of the seller,if will not be lawful fopr
seller to bid himself or to employ someone to bid
on his behalf.and maybe treated as fraud by
buyer
• Pretended biddin by buyer/seller/representative
will render sale voidable at the option of the
buyer
• Sale may be with or without reserve.(upset or
minimum price)
 Implied warranties in an auction sale
• Auctioneer warrants his authority to sell
• He knows of no defect in principal’s title
• He guarantees to give quiet and undisturbed
possession in payment of price
NEGOTIABLE INSTRUMENTS
ACT 1881
• Negotiable…transferable from one to
another for consideration
• Instrument…written document which
creates a right in favour of someone

• Sec 13 a negotiable instrument means a

promissory note, bill of exchange,, or
cheque , payable either to order or bearer.
 Characterstics of negotiable
instruments
• Contract to pay money
• Freely transferable by delivery / endorsement & delivery
ad infinitum till maturity
• The transferor need not give notice of transfer to person
liable to pay instrument
• Holder in due course has good title even if title of
trasferor is defective
• Transferee can use it in his own name
• As good as cash.
• Dishonour results in ruin of credit of all parties
 Negotiation
Sec 14 when a promissory note, bill of exchange, or
cheque is transferred to any person ,so as to constitute that
person the holder thereof,
• Negotiation by mere delivery
• Negotiable by endorsement and delivery
• Holder
• Holder in due course
• Endorsement
– # blank / general endorsement
– # special/full endorsement
– # restrictive endorsement
– Conditional /qualified endorsement
– Sans recourse
– Contingent
– Facultative
– Sans frais
– # partial endorsement
• Who may endorse?
The payee of the instrument make sthe first endorsement
and thereafter the holder

• Effect of endorsement
 Promissory note
• SEC 4 “ an instrument in writing containing an
unconditional undertaking signed by the maker to pay a
certain sum of money, to or to the order of a certain
person.”
• Parties to a promissoory note
# Maker
# Payee
 Essentials of a promissory note
• Must be in writing
• It is a promise to pay
• Undertaking to pay is unconditional
• Should be signed by the maker
• Maker must be certain
• The payee must be certain
• The promise should be to pay money only
• The amount should be certain
• Other legal formnalities
 Bill of exchange
• Sec 5 “ 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.”

• Charecterstics
• Must be in writing
• Must be signed by the drawer
• The drawer, drawee, and payee must be certain
• The sum payable must also be certain
• Should be properly stamped
• An order to pay money only
 Parties to bill of exchange
• Drawer
• Drawee
• Payee

• Types of b/e
• Demand bill
• Time bills
• Trade bill
• Accomodation bills
• Inland bill
• Foreign bill

• Bank draft
• Traveller’s cheque
• Inchoate instrument
 HUNDIES…indigineous bill of exchange
drawn in local language
• Darshani hundi
• Mudatte hundi
• Shah jog hundi
• Nam jog hundi
• Firman jog hundi
• Dhani jog hundi
• Jokhmi hundi
 Acceptance of bill
• Act of putting signature of the drawee or his authorized
agent with the word acceptance written on it.
• Liability of drawee arises only on acceptance by drawee
and handing over the accepted bill to the holder
• It must appear on the bill itself

• Types of acceptance
• General
• Qualified
– Conditional
– Partial
– Qualified as to time/place
– Acceptance by some of the drawee
• Presentment for payment of bills
• Dishonoring of bills
When drawee does not accept the bill within 48 hrs from
time of presentment for acceptance,or refuses
In case of qualified acceptance cause holder is not bound
to take qualified acceptance
Where presentmant for acceptance is excused as in the
following
drawee untraceable after reasonable search
drawee incompetant to contract
drawee is fictitious
drawee becomes bankrupt
drawee is dead.
Dishonour by non payment
• Noting and protesting
 Diffrence between a B/E and a
P Note
• Number of parties
• Promise and order
• Acceptance
• Nature of liability
• Maker’s position
• Notice to prior parties
Notice to prior parties
Protest
• copies
• Discounting of bills
• Retirement of a bill and rebate
 Cheque…
• Sec 6 “ a bill of exchange drawn on a
specified banker payable on demand.”

• Parties to a cheque
• Drawer
• Drawee/ banker
• Payee

• Dating of a cheque
• Antedated, postdated, & stale cheques
• Marking of cheque by banker/ drawee

• Crossing of cheque
– General crossing
– Special crossing
 Liabilities of parties to Negotiable
instruments
• Liability of drawer
• Liability of drawee of cheque
• Liability of maker of note and acceptor of bill
• Liability of endorser
• Liability of prior parties to a holder in due course

• Parties liable as principle debtors

• maker of P note,drawer of cheque, drawer of bill until
acceptance,the acceptor of bill

• All other parties liable as surities,whose liability arises

only on default of the party primarily liable.
• Discharge of party from liability
when a party or parties is discharged , the instrument
continues to be negotiable and undischarged parties
remain liable
Modes of discharge
• By cancellation
• By release
• By discharge of secondary parties
• Operation of law eg insolvency of debtor
• Non presentment discharges the drawer
• By allowing drawee more than 48 hrs to accept the bill,
all previous parties are dicharged.
• By material alteration
The Companies Act ,1956

Sec 3 (1) a “company is a company formed and

registered under the companies act 1956.”

• Existing company “a company formed and

registered in accordance with any of the previous
company laws”

• In general terms “an artificial person created by law

with perpetual succession and a common seal”
 Charecterstics of a company
• Incorporated association
• Artificial legal person
• Separate legal entity
• Limited liability
• Perpectual succession
• Transferability of shares
• Separate property
• Commom seal
• Capacity to sue and be sued
 Kinds of companies

• On Basis of constitution
public
private

• On basis of control
govt
holding & subsidiary
• On basis of incorporation
chartered company
statutory company
foreign company
registered company
 Diff b/w pvt and a public co
• Min number 2/7
• Max no 50/unlimited
• No of directors 2/3
• Transfer of shares restricted/free
• Name of co P(ltd)/ltd
• restriction on directors none/many
• Invitation to subscribe cannot invite public/can by issue
of prospectus
• Prospectus need not/mandatory
• Commencement cert of incorporation/cert of
of business commencement of business
• Statutory meeting nt req/ within 6 mnts along with
statutory report report to the registrar
• Min subs nt reqd/first allotment only on
achieving min subs
• Managerial remuneration no limits/certain limits
• Articles of association have its own/can adopt
table A of the act
• Quorum gen meeting 2/5 personally present
• Share warrant issue cannot/can
 Formation and incorporation of
a company
• Promotion
• Registration or incorporation
• Raising of capital
• Commencement of business

Promotion
• Discovery of business opportunities
• Detailed investigation of feasibility of the idea
• Organization of funds, property & managerial ability
• Taking necessary steps to float the company
• Promoter….individual, syndicate, association,
partnership or a company which takes all steps to create
and mould a company.

Remuneration of promoters
• Selling his own property at an overvaluation.
• Taking a grant of some shares of the company
• Taking commission on the shares sold
• Taking a grant of a lump sum of money from the company

• Registration or incorporation
• Application to be filed with registrar of companies of state
in which registered office of company is to be situated
along with the following documents and the prescribed
fees.
• The memorandum of association duly signed by the
subscribers.
• Articles of associations similarly signed
• Agreement, if any, which company proposes to enter into
with any individual for appointment as its managing or
whole time director or manager.
• The sanction obtained from the controller of capital
issues, if the proposed capital exceeds Rs 1 crore.
• License from central govt in case of industries specified
in the first schedule to the industries industries
development and regulation act, 1951.
• List of directors and their consent to act.
• A statuatory declaration stating that all the requirements
of the act have been complied with signed by one of the
Following
• Advocate of supreme court or high court
• Attorney or pleader entitled to appear before the high
court
• A chartered accountant practising in india
• A person named in articles as director, manager or
secretary of the company.

Certificate of incorporation

Effects of registration
• separate legal entity
• It acquires perpetual succession.
• Property is not property of the shareholders
• Raising of capital
• Applibable only for public ltd company having share
capital
• Directors file copy of prospectus with registrar and invite
public to subscribe
• On achieving min subscription shares alloted
• If min subscription not recd within 120 days of issue of
prospectus money refunded

• Commencement of business
• Pvt co can start business from date of incorporation
• Public co has to apply for issue of certificate of
commencement of business.
• For issue of certificate to commence business the
followin are neccessary
• Shares upto min subscription are alotted
• Every director has paid to the company on shares taken
by him
• No money is payable to applicants
• A statutory declaration of compliance signed by director
or secretary

• Memorandum of association
• 1 st step
• It defines the relationship of the co with the outside world
• It should be in the prescribed fomat
• Printed, divided into paragraphs numbered
consecutively.
• Signed by subscribers in presence of atleast 1 witness.
• Contents of memorandum
• Name clause #p ltd/ ltd
#must not be undesirable
#not to resemble existing co
Can drop ltd if it is for promotion of science , commerce ,
art, religion, charity, or any other useful object.
If co applys income to promote its objects.

Registered office clause states the name of the

state in which the co is situated.
Co to have registered office within 30 days of incorporation
or when it commences business.
• Object clause sets out objects for which co has been
formed. # main objects
# other objects
# states to which objects extend
• Liability clause nature of liability the members will
incur. Limited to shares / guarantee/ unlimited
• Capital clause contains amt of capital co is registered
with and no and value of shares into which it is divided.

• Association clause
• Doctrine of ultra vires means beyond the powers
of the company
• Ultra vires act are inoperative and void
• They cannot be ratified.
• Duty of court to ensure the company does not involve
itself in any ultra vires act
• However acts ultravires the director can be ratified by
shareholders
• Similarly, acts ultravires articles can be rectified by
modifying the articles accordingly

• Effects of ultravires transactions

• Injuction
• Personal liability of directors
• Ultra vires contracts
 Articles of associtaion
• Contains rules and regulation and byelaws for general
administration
• Public ltd co may register its own or adopt table A
• Unlimited and p ltd have to register

• Contents of articles
• Should not contradict the act, provides for matters like
• # adoption or execution of pre incorporation contracts
• # share capital and rgt of shareholders
• # making of calls
• # forfeiture of shares
• # increase and reduction of capital
• # transfer of shares
• # lien on shares
• # lien on shares
• # share cert and share warrant
• # dividend , reserve, and capitalization of profits
• # appointment of managerial personnel
• # remuneration of directors
• # voting rights of members
• # Arbitration provisions
• # general meetings, proxies and polls
• # proceedings of board of directors
• # winding up
• Effects of memorandum and articles
• Once registered binds the co and members
• # members to the company
• # company to the members
• # members interse
• # company to outsiders

• Constructive notice of memorandum and articles

• Both public documents
• Hence deemed to have been read

• Doctrine of indoor management

• Limitation to doctrine of constructive notice
• Outsiders are not bound to know about the internal
functioning of the co.
 prospectus
• “It means any document described or issued as a
prospectus and includes any notice, circular advertisement
or other document inviting deposits from public or inviting
offers from the public for the subscription or purchase of
any shares in or debentures of a body corporate.”

• Issuing houses and deemed prospectus

• Requirements as to a prospectus
• It should be dated
• A copy should be dated with the registrar
• It should be issued within ninety days of its registration
• Isuue w/o registration finable upto 5000 rupees
• Contents of a prospectus
• Main objects of company including details of signatories
• The number & classes of shares
• The number of redeemable shares to be issued with
DORedemption
• Names, occupation, and addresses of managerial
personnel
• Subscribed capital
• Min subscription for allotment and time of opening of
subscription list
• The amt payable on allotment and and allotment per
share.
• In case of prospectus issued within last two years details
of subscription and allotment
• Particulars about any option or preferential right given to
any person to subscribe to shares or debentures of a co
• Amt/estimated amt of preliminary expenses and persons
paid and payable
• Number of shares and debentures issued for a
consideration other than cash in the last two years.
• Premium paid or payable on any shares issued within 2
yrs preceding date of prospectus
• Details of any amt or benefit paid to any promoter or
officer in the preceding 2 yrs
• Particulars about vendors
• Amt or rate of underwriting commission
• Names and addresses of auditors
• Voting rights of diff classes of shares
• Names and addresses of creditors of the company
• Particulars of nature and extent of interest of every
director, promoter in promotion of the co or in property
acquired by the co within 2 yrs of issue of prospectus
• Time since company is carrying on business
• Particulars of capitalization of reserves and profits.
• Surplus arising out of revaluation of assets
• A reasonable time and place at which all copies of all
accounts on which reports of auditors is based may be
inspected.

Statement in lieu of prospectus

When capital is acquired through pvt contracts, no
prospectus needs to be issued to the public.a draft
prospectus diclosing required info is to be filed with
registrar 3 days before allotment of shares or
debentures
• Untrue statements………..misleading in form
and context. Misstatement of fact.
• False statements and half truths

• Liabilities in case of mis statement in prospectus

• 1. Civil liability
Investor damnified can have claims against
# the company, # the directors, promoters and experts

Remedies against company if he can prove

# He is an allottee and not a purchaser fom the market
# he is infact induced by the prospectus
# the above was issued by the company or by someone
with the company’s authority
Remedies against company
• Recission
• Damages of deceit

• Remedies against directors

• Liability for damages

• 2 Criminal liability
Types of shares
• Cumulative shares
• # participating/non participating
• # convertible
• # redeemable/ irredemable

• Non cumulative shares

• # participating/non participating
• # convertible/non convertible
• # redeemable/ irredemable