BUSINESS LAW NOTES

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LANDMARK METROPOLITAN UNIVERSITY OF BUEA

BUSINESS LAW LECTURE NOTES FOR YEAR II

BY ASHUTABE A A
Meaning & Nature of Law

Law of Contract Definition Classification of Contracts essential elements of a contract - Remedies for
Breach of Contract.

As a social being, man comes into contact with people in different capacities He comes into contact,

For example: 1) with a landlord as a tenant 2) with Government as a Taxpayer 3) with customers as a
seller and 4) with suppliers as a buyer.

a) Inevitable consequence of modern civilization


b) In all these associations, he is expected to observe a code or a set of rules.

The word ‘Law’ is a general term and has different connotations for different people, e.g.,

a) A citizen may think of Law as a set of rules which he must obey.

b) A Lawyer who practices law may think of Law as a vocation.

c) A legislator may look at law as something Created by him

d) A judge may think as guiding principles to be applied in making decisions

Definition of Law

In the words of Salmond,” Law is the body of principles recognized and applied by the state in the
administration of justice.” Woodrow Wilson has defined law as “that portion of the established habit and
thought of mankind which has gained distinct and formal recognition in the shape of uniform rules
backed by the authority and power of the government.”

Law is not static laws are changed to fit the requirements of the society.

Law prevailing in a society at any point of time must be in conformity with

a) the general sentiments


b) customs and
c) aspirations of its people.
d) It is a real phenomenon having a real existence in relation to the facts of human affairs

Object of Law

1) The object of law is order and the result of order is that men are enabled to look ahead with some
sort of security as to the future.
2) In the context of new emerging India, the main object of law is considered to be “ to establish
socio-economic justice and remove the existence imbalance in the socioeconomic structure.”
3) In the pre- independence era, the principal concern of the government was limited to the
maintenance of law and order in the country.

But

4) The situation has changed now and the fundamental task of broadening the horizons of the
welfare state is being pursued by the legislation covering the entire gamut of social activity

Definition of Contract

It is an agreement made between two or more parties which the law will enforce

Sec. 2(h) Indian Contract Act, 1872 defines a Contract as an agreement enforceable by law Every
agreement and promise enforceable at law is a Contract An agreement creating and defining obligations
between the parties What is enforceability of an Agreement?

An agreement is defined as “Every promise and every set of promises, forming consideration for each
other” A promise is defined thus “When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise An agreement
is an accepted proposal To form an agreement, there must be a proposal or offer by one party and its
acceptance by the other AGREEMENT = OFFER + ACCEPTANCE

Consensus Ad- Idem

The parties to the agreement must have agreed about the subject matter of the agreement in the same
sense and at the same time. Unless there is consensus ad idem, there can be no contract.

Obligation

It is defined as a legal tie which imposes upon a definite person or persons the necessity of doing or
abstaining from doing a definite act or acts It may relate to social or legal matters An agreement which
gives rise to social obligation is not a contract

Essential Elements of Valid Contract

1) Offer and acceptance


2) Intention to create legal relationship
3) Lawful consideration
4) Capacity of parties – competency
5) Free and genuine consent
6) Lawful object
7) Agreement not declared void
8) Certainty and possibility of performance
9) Legal formalities
10) Offer and acceptance
11) There must be two parties to an agreement
12) One party makes the offer and other party accepts it

The terms of the offer must be definite and the acceptance of the offer must be absolute and
unconditional. The acceptance must be according to the mode prescribed and must be communicated to
the offeror.

Intention to create legal relationship

When two parties enter into an agreement, their intention must be to create legal relationship between
them. If there is no such intention on the part of the parties, there is no contract between them

Agreements of social or domestic nature do not contemplate legal relationship as such they are not
contracts Case :( Balfour V. Balfour). A husband promised to pay his wife a household allowance of $30
every month. Later the parties separated and the husband failed to pay the amount. The wife sued for the
allowance. Held, agreements such as these were outside the realm of contract altogether

Lawful consideration

Consideration means an advantage or benefit moving from one party to the other. It is the essence of a
bargain. “something in return” A promise to do something and getting nothing in return is usually not
enforceable by law Consideration need not necessarily be in cash or kind It may be an act or abstinence or
promise to do or not to do something It may be past, present or future It must be real and lawful Capacity
of parties - Competency

The parties to the agreement must be capable of entering into a valid contract

Every person is competent to contract if he

1) Is of the age of majority


2) Is of sound mind and
3) Is not disqualified from contracting by any law to which he is subject
4) Free and genuine consent

It is essential to the creation of every contract that there must be free and genuine consent of the parties to
the agreement The consent of the parties is said to be free when they are of the same mind on all the
material terms of the contract There is absence of the free consent if the agreement is induced by
Coercion, Undue Influence, Fraud, Misrepresentation etc., Lawful object

The object must not be

1) Illegal
2) Immoral
3) Opposed to public policy If an agreement suffers from any legal flaw, it would not be enforceable
by law
4) Agreement not declared void
5) The agreement must not have been expressly declared void by law in force in the country
6) Certainty and possibility of Performance
7) The agreement must be certain and not vague or indefinite, if not it cannot be enforced
EG : A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty “Scammel Vs. Ouston” O agreed to purchase a
motor van from S “ on hire purchase terms”. The hire purchase price was to be paid over two years.
Held, there was no contract as the terms were not certain about the rate of interest and mode of payment.
NO precise meaning could be attributed to the words “on hire purchase” since there was a wide variety of
hire purchase terms. Legal formalities

A contract may be made by words spoken or written

As regards the legal effects, there is no difference between a contract in writing and a contract made by
word of mouth.

In the interest of parties, the contract should be in writing

The document in which the contract is incorporated is to be stamped

When there is a statutory requirement that a contract should be made in writing or in the presence of
witnesses or registered, the required statutory formalities must be complied with

Contracts According to Validity

Voidable contract

An agreement which is enforceable by law at the option of one or more parties thereto, but not at the
option of the other or others is a voidable contract. When the consent of a party of a contract is not free
the contract is voidable at his option. When a party to a contract promises to perform all obligation within
a specified time, any failure on his part to perform his obligation within the fixed time makes the contract
voidable at the option of the promisee

Void agreement

a) An agreement not enforceable by law is said to be void


b) A void agreement does not create any legal rights or obligations

Void contract

a) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable
b) A contract, when originally entered into, may be valid and binding on the parties it may be
subsequently become void. Eg war or Government Order

Illegal agreement

An illegal agreement is one which transgress (controversy) some rule or basic public policy or which is
criminal in nature or which is immoral. All Illegal agreements are void but all void agreements are not
necessarily illegal
Unenforceable contract; An unenforceable contract is one which cannot be enforced in court of law
because of some technical defect such as absence or writing etc.,

CLASSIFICATION ACCORIDNG TO FORMATION

Express contract; If the terms of contract expressly agreed upon at the time of formation of the contract,
the contract is said to be an express contract

Implied contract; An implied contract is one which is inferred from the acts or conduct of the parties or
course of dealings between them

Quasi contract; A quasi contract is not a contract at all. A contract is intentionally entered into by the
parties. A quasi contract is created by law. It resembles a contract in that a legal obligation is imposed on
a party who is required to perform it.

a) Eg : T a tradesman, leaves goods at C’s house by mistake. C treats the


goods as his own.
b) C is bound to pay for the goods
c)E commerce contract
d) The contracts which is entered into between two parties via internet is called E
Commerce Contract

CLASSIFICATION ACCORDING TO PERFORMANCE

Executed contract; Executed means that which is done. If both the parties have performed their
obligations, they are executed contracts

Executory contract; Both the parties have yet to perform their obligations and It may sometimes partly
executed and partly executor

Unilateral; When only one party has to fulfill his obligation at the time of the formation of the contract,
the other party having fulfilled his obligation at the time of the contract or before the contract comes into
existence. A permits a railway coolie to carry his luggage and place it in a carriage. The contract comes
to an end as it places it in carriage. Now it is the obligation of A to pay the amount’

Bilateral contract; The obligation on the part of both the parties the contract is outstanding at the time of
formation of the contract. (Executory Contracts)

Remedies For Breach of Contract

What Is A Remedy? a remedy is the means given by law for the enforcement of a right. when a contract
is broken, the injured party, has one or more of the following remedies:

a) Rescission of the contract


b) Suit for Damages
c) Suit upon Quantum Meruit
d) Suit for specific performance of the Contract
e) Suit for injunction.
Recission; When a contract is broken by one party, the other party may sue to treat the contract as
rescinded and refuse further performance. In such a case, he is absolved of all his obligations under the
contract. E.g: A promises B to supply 10 Bags of cement on a certain day. B agrees to pay the price after
the receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.

Damages; Damages are the monetary compensation allowed to the injured party by the court for the loss
of injury suffered by him by the breach of a contract.

Objects of Awarding Damages

It is to put the injured party in the same position, so far as money can do it, as if he had not been injured,
I.e, in the position in which he would have been there been performance and not breach. This is also
known as DOCTRINE OF RESTITUION .

Contract of Agency

Agency is a special type of contract. The concept of agency was developed as one man cannot possibly do
every transaction himself.

The principles of contract of agency are :

(a) Accepting matters of a personal nature (e.g. a person cannot marry through an agent, as it is a matter
of personal nature)

(b) A person acting through another person. As per section 185, no consideration is necessary to create an
agency

Agent and Principal. An “agent” is a person employed to do any act for another or to represent another
in dealings with third persons. The person for whom such act is done, or who is so represented, is called
the “principal”

Contract of Agency

Agency is a special type of contract. The concept of agency was developed as one man cannot possibly do
every transaction himself.

The principles of contract of agency are :

(a) Accepting matters of a personal nature (e.g. a person cannot marry through an agent, as it is a matter
of personal nature)

(b) A person acting through another person

Agent and Principal; An “agent” is a person employed to do any act for another or to represent another
in dealings with third persons. The person for whom such act is done, or who is so represented, is called
the “principal”

Creation of Agency
Agency with Express Agreement

The authority given by principal to agent is an express authority which enables the agent to bind the
principal by acts done within scope of his authority. The agreement may be either by word of mouth or
written form

a) It arises from the conduct, situation or relationship of parties


b) b)It may be inferred from circumstances of the case or ordinary course of dealing

E.g. A woman allowed her son to drive a car for her , she paid all the expenses for maintenance. The son
caused an accident injuring his wife. Held wife could sue the mother since son was an agent of mother
[ Smith vs. Moss]

Classification of Agents

An agent is a person who brings his principal into the contractual relations with the third parties. The
principal appoints or employs an agent under the contract of agency. Thus, an agent is the link that
connects the principal to the third parties. An agent binds the principal by his acts. In other words, a
principal is responsible for the acts of the agent to the third parties. When an agent acts for his principal,
he has the capacity of his principal. There are 3 classes of agents:

1) General agent,
2) 2)Special agent and
3) 3) Mercantile agent.

Let us discuss the Classification of Agents in detail.

General Agent The principal appoints a general agent to do anything within his authority in all
transactions or in all transactions relating to a specific trade, business or matter. The principal grants the
authority to the agent to act on his behalf. It may be assumed by the third party that such an agent has the
authority to do all that is usual for a general agent to do. Any private restrictions on the agent’s authority
do not affect the third party

Special Agent: He is the one who is appointed or employed to do or perform only a specific act, task or
function. Outside of this special act, task or function, he has no authority or power. In this case, the third
party cannot assume that the agent has unlimited authority. Thus, any act of the agent outside his
authority cannot bind the principal

Mercantile Agent; As per section 2(9) of the Sale of goods act, 1930, a mercantile agent is a person who
in the customary course of business has an agent’s authority either to sell or consign the goods for the
purpose of sale or to buy goods or to raise money on the security of goods. Thus, this definition covers
the following:

a. Factors: A factor is a person who is appointed to sell goods which are put in his possession or to buy
goods for his principal. He is the evident owner of the goods in his custody and can thus sell them in his
own name and receive payment for them. He also has an insurable interest in the goods in his custody and
a general lien regarding any claim that he may have to arise out of the agency.

b. Brokers: A broker is a person whose business is to make contracts with the other parties for the sale
and purchase of goods or securities for brokerage. He does not have the possession of the goods and acts
in the name of the principal. Also, he has no lien over goods because he has no possession of goods.

c. Del Credere Agent: A del credere agent is a person who ensures or guarantees his principal that the
creditors of goods will pay for the goods they buy for extra remuneration. In the case of failure to pay by
the third party, he needs to pay the due amount to his principal.

d. Bankers: The relation between a banker and a customer is basically that of a debtor and creditor.
However, when a banker buys or sells securities or collects cheque, dividends, interests, bills of exchange
or promissory notes on behalf of his customer, he becomes the agent of his customer. Thus, he has a
general lien on all the securities in his possession regarding the general balance due to him by the
customer.

e. Partners: As per the Partnership Act, every partner is an agent as well as the principal of every other
partner in a Partnership firm. Also, every partner is the agent of the firm for the business of the firm.

f. Auctioneers: An auctioneer is a person who sells the goods by auction. An auction is a process by
which goods are sold to the highest bidder in a public competition. He cannot warrant his principal’s title
to the goods. He is the agent of the seller until the goods are auctioned or knocked down. However, after
the knockdown, he becomes the agent of the buyer. Also, he is evidence that the sale took place.

Rights, Duties and Liabilities of Agent and Principal –

a) Agent exceeding his authority in an emergency (sec 189)


b) Not in a position to communicate with the principal
c) Taken necessary steps to protect the interests of principal

A) Acted Bonafide

i) Principal is liable for the acts of agent


ii) To protect or preserve
iii) The authority is implied because of necessity
E.g. A horse was sent by train. When it arrived at the station of destination, nobody took the delivery. The
railway Co. had to feed the horse. Held the rail Co. was an agent of necessity and could recover the
amount spent on horse

Negotiable Instruments

Concept - Characteristics- Promissory Note, Bill of Exchange, and Cheques - Types of Crossing; Contract
of Sale of Goods - Definition- Essentials of a Contract of Sale – Contract of sale Vs Agreement to Sell -
Rights of Unpaid Seller – Rules as to delivery of goods- -Conditions And Warranties-Types-Doctrine of
Caveat Emptor
Distinction between Condition and Warranty.

A negotiable instrument is actually a written document. This document specifies payment to a specific
person or the bearer of the instrument at a specific date. So we can define a bill of exchange as “a
document signifying an unconditional promise signed by the person giving the promise, requiring the
person to whom it is addressed to pay on demand, or at a fixed date or time”.

Characteristics of a negotiable instrument

1. Must be in writing: A mere verbal promise to pay is not a promissory note. The method of writing
(either in ink or pencil or printing, etc.) is unimportant, but it must be in any form that cannot be altered
easily.

2. Must certainly an express promise or clear understanding to pay: There must be an express
undertaking to pay. A mere acknowledgment is not enough. The following are not promissory notes as
there is no promise to pay. Example: ‘Mr. B.I.O.U Rs. 10,000’. There is no promise to pay and therefore
this is not a valid promissory note.

3. Must be unconditional: A conditional undertaking destroys the negotiable character of an otherwise


negotiable instrument. Therefore, the promise to pay must not depend upon the happening of some
outside contingency or event. It must be payable absolutely.

4. Signed by the maker: The person who promises to pay must sign the instrument even though it might
have not been written by the promisor himself. There are no restrictions regarding the form or place of
signatures in the instrument. It may be in any part of the instrument. It may be in pencil or ink, a thumb
mark or initials.

5. Must be certain: The note self must show clearly who the person is agreeing to undertake the liability
to pay the amount. In case a person signs in an assumed name, he is liable as a maker because a maker is
taken as certain if from his description sufficient indication follows about his identity. In case two or
more persons promise to pay, they may bind themselves jointly or jointly and severally, but their liability
cannot be in the alternative.

6. The payee must be certain: The instrument must point out with certainty the person to whom the
promise has been made. The payee may be ascertained by name or by designation.

7. The promise should be to pay money and money only: Money means legal tender money and not old
and rare coins. A promise to deliver paddy either in the alternative or in addition to money does not
constitute a promissory note.

8. The amount should be certain: One of the important characteristics of a promissory note is a
certainty- not only regarding the person to whom or by whom payment is to be made but also regarding
the amount.

Promissory Note
Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank note or a
currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of
money to or to the order of a certain person, or to the bearer of the instruments.” Bill of exchange is an
instrument ordering the debtor to pay a certain amount within a stipulated period of time. Bill of exchange
needs to be accepted in order to call it valid or applicable. And the bill of exchange is issued by the
creditor.

Promissory Note, on the other hand, is a promise to pay a certain amount of money within a stipulated
period of time. And the promissory note is issued by the debtor.

Bill of Exchange, A bill of exchange is defined 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. – Negotiable Instruments Act, 1881. Bill of
exchange is an instrument ordering the debtor to pay a certain amount within a stipulated period of time.
Bill of exchange needs to be accepted in order to call it valid or applicable. And the bill of exchange is
issued by the creditor.

Promissory Note, on the other hand, is a promise to pay a certain amount of money within a stipulated
period of time. And the promissory note is issued by the debtor.

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;

Basically, there are 3 types of cheque crossing:

General Crossing; General Crossing In general crossing, the cheque bears across its face an addition of
two parallel transverse lines and/or the addition of words ‘and Co.’ or ‘not negotiable’ between them. 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. But, the words ‘not
negotiable’ are significant as they restrict the negotiability and thus, in the case of transfer, the transferee
will not give a title better than that of a transferor.

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.

In general crossing, the cheque bears across its face an addition of two parallel transverse lines and/or the
addition of words ‘and Co.’ or ‘not negotiable’ between them.

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.

But, the words ‘not negotiable’ are significant as they restrict the negotiability and thus, in the case of
transfer, the transferee will not give a title better than that of a transferor.

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. According to this
crossing, the cheque can be collected by the bank only for the person, whose name is written on the
cheque.

Contract of Sale of Goods

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 includes both a ‘sale ‘and
an ‘agreement to sell’.

Definition

Contract of sale of goods is a contract, whereby, the seller transfers or agrees to transfer the property in
goods to the buyer for a price. There can be a contract of sale between one partowner and another.

Essentials of a Contract of Sale

1.Two parties; There must be two distinct parties , i.e., a buyer and a seller, to the effect a contract of
sale and they must be competent to contract. Buyer means a person who buys or agrees to buy gods

2. Goods: The goods which form the subject-matter must be movable. Transfer of immovable property is
not regulated by the Sale of goods act. Associated Hotels of India Vs Excise & Taxation Officer A hotel
company provided residence and food making a consolidated charged for both the services. No rebate
was allowed if food was not taken by the customers. Held, supply of foods was not sale of goods but
simply a service as the transaction was an indivisible contract of multiple services and did not involve any
sale of food.

3. Price; Aldridge Vs. Johnson A agreed to exchange with B 100 quarters of Barley at $2 per quarter for
52 bullocks valued at $6 per bullock and pay the difference in cash. Held, the contract was a contract of
sale

4. Transfer; of general property: there must be a transfer of general property as distinguished from
special property in goods from the seller to the buyer. If A owns certain goods, he has general property in
the goods. IF he pledges them with B, B has special property in the goods.

5. Essential elements of valid contract:

All the essential elements of a valid contract must be present in the contract of sale. Contract of sale Vs
Agreement to Sell
Sale Agreement To Sell;

1. TRANSFER OF PROPERTY: The property in goods immediately passes from seller to buyer.
Sale is an executed contract. Eg: A sold his car to B at.7,00,000frs & B pays the amount
immediately to A. Here, the ownership is transfered from A to B.
2. AGREEMENT TO SELL In this the property in goods transfer to the buyer in future or
certain conditions to be fulfilled. This is an executor contract. A offers to sell his car to B at
7,00,000frs. B agreed to take the car after one month. Here, the contract has been completed

Rights of Unpaid Seller

The seller of goods is deemed to be an ‘unpaid seller’ within the meaning of this Act

(a) When the whole of the price has not been paid or tendered.

(b) When a bill of exchange or other negotiable instrument has been received as conditional payment,
and the conditions on which it was received has not been fulfilled by reason of the dishonour of the
instrument or otherwise.

Rules as to delivery of goods

It is the duty of the seller to deliver the goods and the buyer to pay for them and accept them, as per the
terms of the contract and the law on sales. The delivery of goods and payment of the price are concurrent
conditions as per the law on sales unless the parties agree otherwise

Conditions and Warranties

The Sale of Goods Act, identifies the terms, “Conditions and Warranties” as being of a prime significance
in a contract of sale.

1) A stipulation which is essential to the main purpose of a contract is known as a condition.


2) A stipulation which is collateral to the main purpose of the contract is a warranty.

Types of condition and warranties

The conditions and warranties may be express or implied.

Express conditions and warranties are which, are expressly provided in the contract. Implied conditions
and warranties are those which are implied by law or custom; these shall prevail in a contract of sale
unless the parties agree to the contrary.

Implied Conditions

i) Condition as to title; In every contract of sale, unless the circumstances of the contract are such as to
show a different intention, there is an implied condition on the part of the seller, that :

a) In case of a sale, he has a right to sell the goods, and

b) In case of an agreement to sell, he will have a right to sell the goods at the time when the property is to
pass.
The words 'right to sell' contemplate not only that the seller has the title to what he purports to sell, but
also that the seller has the right to pass the property. If the seller's title turns out to be defective, the buyer
may reject the goods.

ii) Condition as to Description; In a contract of sale by description, there is an implied condition that the
goods shall correspond with the description. The term ' sale by description' includes the following
situation ;

a) Where the buyer has not seen the goods and buys them relying on the description given by the seller.

b) Where the buyer has seen the goods but he relies not on what he has seen but what was stated to him
and the deviation of the goods from the description is not apparent.

c) Packing of goods may sometimes be a part of the description. Where the goods do not conform to be
method of packing described (by the buyer or the seller) in the contract, the buyer can reject the goods.

iii) Condition as to Quality or Fitness; Where the buyer, expressly or by implication, makes known the
seller the particular purpose for which goods are required, so as to show that the buyer relies on the
seller's skill or judgment and the goods are of a description which it is in the course of the seller's business
to supply (whether or not as the manufacturer of producer), there is an implied condition that the goods
shall be reasonably fit for such purpose. In other words, this condition of fitness shall apply, if:

a)The buyer makes known to the seller the particular purpose for which the goods are required,

b) The buyer relies on the seller's skill or judgment ,

c) The goods are of a description which he sellers ordinarily supplies in the course of his business, and

d) The goods supplied are not reasonably fit for the buyer's purpose.

iv ) Condition as to Merchantability; Where the goods are bought by description from a seller, who
deals in goods of that description (whether or not as the manufacturer or producer) there is an implied
condition that the goods shall be of merchantable quality. Merchantable quality ordinarily means that the
goods should be such as would be commercially saleable under the description by which they are known
in the market at their full value.

v) Condition as to Wholesomeness;In case of sale of eatable provisions and foodstuff, there is another
implied condition that the goods shall be wholesome. Thus, the provisions or foodstuff must not only
correspond to their description, but must also be merchantable and wholesome. By 'wholesomeness' it
means that goods must be for human consumption.

vi) Condition Implied by Custom or Trade Usage: An implied warranty or condition as to quality or
fitness for a particular purpose may be annexed by the usage of trade. In certain sale contracts, the
purpose for which the goods are purchased may be implied from the conduct of the parties or from the
nature or description of the goods. In such cases, the parties enter into the contract with reference to those
known usage. For instance, if a person buys a perambulator or a medicine the purpose for which it is
purchased is implied from the thing itself; the buyer need not disclose the purpose to the seller.
vii) Conditions in a Sale by Sample: A contract of sale is a contract for sale by sample where there is a
term in the contract, express or implied to that effect. Usually, a sale by sample is implied when a sample
is shown and the parties intend that the goods should be of he kind and quality as the sample is.

viii) Conditions in a sale by Sample as well as by Description: A vast majority of cases where samples
are shown, are sales by sample as well as by description. In a contract for sale by sample as well as by
description, the goods supplied must correspond both with the sample as well as with the description.

Implied Warranties

A condition becomes a warranty when

a) the buyer waives the conditions or opts to treat the breach of the condition as a breach of warranty ; or
b) The buyer accepts the goods or a part thereof, or is not in a position to reject the goods.

1. Implied Warranty of Quiet Possession; In every contract of sale, unless there is a contrary intention,
there is implied warranties that the buyer's shall have and enjoy quiet possession of the goods. If the
buyer's right to possession and enjoyment of the goods is in any way disturbed as consequences of the
seller's defective title, the buyer may sue the seller for damages for breach of this warranty.

2. Implied Warranty of Freedom from Encumbrances; The buyer is entitled to a further warranty that
the goods shall be free from any charge or encumbrance in favor of any third party not declared or known
to buyer before or at the time when the contract is made. If the buyer is required to discharge the amount
of the encumbrance it shall be a breach of this warranty and the buyer shall be entitled to damages for the
same.

Doctrine of Caveat Emptor

Subject to the provisions of this Act and of any other law for the time being in force, there is no implied
warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a
contract of sale.

The doctrine of ‘Caveat Emptor’ means “let the buyer beware“.

In other words, the buyer must take care of his own interest while purchasing the goods. While
purchasing the goods the buyer should check the goods carefully. If a buyer purchases the goods and after
it, he comes to know that these are defective. In this case, the seller will not be responsible for this defect.
The object of this principle is to make the buyer more careful in purchasing. It is his duty that he should
check the quality and fitness of the commodity which he needs.

Distinction between Condition and Warranty

Conditions
a) A condition is a stipulation which is essential to the main purpose of the contract
b) If there is a breach of condition, the aggrieved party can repudiate the contract of sale
c) A breach of condition may be treated as a breach of a warranty

Warranties
a) A warranty is a stipulation which is collateral to the main purpose of the contract.
b) If there is a breach of warranty, the aggrieved party can claim damages only.
c) A breach of warranty cannot be treated as breach of condition

Company Law

Company - Definition, Meaning, Features, Types of companies - Memorandum of Association, Articles


of Association- Prospectus Shareholders meetings - Company Management - Qualifications,
Appointment, Powers, and legal position of Directors. Company Act 2013

Definition

“In terms of the Companies Act, 2013 ‘company’ means a company incorporated under the Act, or under
the previous company law” [Sec. 2(20)].

A company may be an incorporated company or a Corporation, or an unincorporated company. An


incorporated company is a single and legal (artificial) person distinct from the individuals constituting it,
whereas an unincorporated company, such as a partnership, is a mere collection or aggregation of
individuals. Therefore, unlike a partnership, a company is a corporate body and a legal person having
status and personality distinct and separate from that of the members constituting it.

Features of a company

Independent corporate existence; The outstanding feature of a company is its independent corporate
existence. It is a distinct legal person existing independent of its members. By incorporation under the
Act, the company is vested with a corporate personality which is distinct from the members who compose
it. A well-known illustration of this principle is the decision of the House of Lords in Salomon v.
Salomon & Co. [(1898) AC 22].

Limited Liability; The privilege of limiting liability for business debts is one of the principal advantages
of doing business under the corporate form of organization. Where the subscribers exercise the choice of
registering the company with limited liability, the members’ liability becomes limited or restricted to the
nominal value of the shares taken by them or the amount guaranteed by them. No member is bound to
contribute anything more than the nominal value of the shares held by him.

Perpetual succession; An incorporated company never dies. It is an entity with perpetual succession.
Perpetual succession, means that the membership of a company may keep changing from time to time,
but that does not affect the company’s continuity. The death or insolvency of individual members does
not, in any way affect the corporate existence of the company. [Gopalpur Tea Co. Ltd. v. Penhok Tea Co.
Ltd. (1982) 52 Comp. Cas. 238 (Cal.)] “Members may come and go but the company can go on forever”.
It continues to exist even if all its human members are dead. Even where during the war all the members
of a private company, while in general meeting, were killed by a bomb, the company survived not even a
hydrogen bomb could have destroyed it. [K’9 Meat Supplies (Guildford) Ltd., Re 1966 (3) All. ER 320.]
Separate property A company, being a legal person, is capable of owning, enjoying and disposing of
property in its own name. The company becomes the owner of its capital and assets. The shareholders are
not the several or joint owners of the company’s property. The company is the real person in which all its
property is vested, and by which is controlled, managed and disposed of [Bacha F Guzdar v. C.I.T. AIR
1955 SC 74.]. The property is vested in the company as a body corporate, and no changes of individual
membership affect the title. The property, however much, the shareholders may come and to remains
vested in the company, and the company can convey, assign, mortgage, or otherwise deal with it
irrespective of these mutations. CORPORATE LAWS & COMPLIANCE 3

Transferable Shares; When joint stock companies were established the great object was that their shares
should be capable of being easily transferred. Accordingly, the Companies Act, 2013 in Section 44
declares: ‘The shares or debentures or other interest of any member in a company shall be movable
property, transferable in the manner provided by the articles of the company’. Thus incorporation enables
a member to sell his shares in the open market and to get back his investment without having to withdraw
the money from the company. This provides liquidity to the investor and stability to the company.

Common seal; Since the company has no physical existence, it must act through its agents and all such
contracts entered into by its agents must be under the seal of the company. The common seal acts as the
official signature of the company. Prior to the Companies (Amendment) Act, 2015 the common seal is a
seal used by a corporation as the symbol of its incorporation and also a statutory requirement for a Mba
business laws notes company. As a departure from this concept, the Companies (Amendment) Act, 2015
has deleted the requirement of having Common Seal compulsorily.

Types of companies

A company may be incorporated as a One Person Company (OPC) a new concept all together in the
Companies Act, 2013, Private Company or a Public Company, depending upon the number of members
joining it. Again it may either be an unlimited company, or may be limited by shares or by guarantee or
by both. On the basis of control, companies can be classified as associate company, holding company and
subsidiary company. Some other forms of classification of companies are: foreign company, Government
Company, small company, dormant company, Nidhi Company and company formed for charitable
objects.

Companies may be classified into various classes on the following basis:

On the Basis of Incorporation

(a) Statutory companies These are the companies which are created by a special Act of the Legislature,
e.g., the Reserve Bank of India, the State Bank of India, the Life Insurance Corporation, the Industrial
Finance Corporation, the Unit trust of India and State Financial Corporations These are mostly concerned
with public utilities, e.g. railways, tramways, gas and electricity companies and enterprises of national
importance. The provisions of the Companies Act, 2013 do not apply to them unless the special act
specifies such application. Banking Regulation Act, 1949 is a special legislation concerning banking
companies.

(b) Registered companies These are the companies which are formed and registered under the
Companies Act, 2013, or were registered under any of the earlier Companies Acts.

On the basis of liability


(a) Company limited by shares Section 2 (22) of the Companies Act, 2013, defines that when the
liability of the members of a company is limited by its memorandum of association to the amount (if any)
unpaid on the shares held by them, it is known as a company limited by shares. It thus implies that for
meeting the debts of the company, the shareholder may be called upon to contribute only to the extent of
the amount, which remains unpaid on his shareholdings. His separate property cannot be encompassed to
meet the company’s debt.

(b) Company limited by guarantee Section 2 (21) of the Companies Act, 2013 defines it as the
company having the liability of its members limited by the memorandum to such amount as the members
may respectively undertake by the memorandum to contribute to the assets of the company in the event of
its being wound up. Thus, the liability of the member of a guarantee company is limited up to a stipulated
sum mentioned in the memorandum. Members cannot be called upon to contribute beyond that stipulated
sum.

(c) Unlimited company Section 2 (92) of the Companies Act, 2013 defines unlimited company as a
company not having any limit on the liability of its members. In such a company the liability of a member
ceases when he ceases to be a member. The liability of each member extends to the whole amount of the
company’s debts and liabilities but he will be entitled to claim contribution from other members.

On the basis of members

(a) One person company (1); The Concept of One Person Company (OPC) The concept of One Person
Company (OPC) has now been introduced in India, through Section 2 (62) of Companies Act, 2013
thereby enabling Entrepreneur(s) carrying on the business in the Sole Proprietor form of business to enter
into a Corporate Framework. Though this concept is new in India but it is already a part of many other
countries like China, Australia, Pakistan and UK etc. According to Section 2 (62) of the Companies Act,
2013 ‘One Person Company’ means a company which has only one person as a member. A company
formed under one person company may be either: a) A company limited by shares, or b) company limited
by guarantee, or c) An unlimited company. One Person Company is a hybrid of Sole-Proprietor and
Company form of business, and has been provided with concessional/relaxed requirements under the Act.

(b) Private Company; [Section 2 (68)] According to Section 2 (68) of Companies Act, 2013 a ‘private
company’ means a company having a minimum paid-up share capital as may be prescribed, and which by
its articles:

(1) restricts the right to transfer its shares.

(2) except in case of One Person Company, limits the number of its members to two hundred: Provided
that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes
of this clause, be treated as a single member; Provided further that:

(a) persons who are in the employment of the company, and

(b) persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment ceased, shall
not be included in the number of members, and
(3) prohibits any invitation to the public to subscribe for any securities of the company. The Companies
(Amendment) Act, 2015 has omitted ‘of one lakh rupees or such higher paid-up share capital’ from the
definition of Private Company w.e.f. 25.05.2015. The impact of this amendment is that today one can
have a company of paid up capital of mere ` Two (with each subscriber giving a rupee as subscription) for
a private company and ` Seven for a public company.

(c) Public company; [Section 2 (71)] According to Section 2 (71) of Companies Act, 2013 a ‘public
company’ means a company which: (1) is not a private company. (2) has a minimum paid-up share
capital, as may be prescribed: (3) Seven or more members are required to form the company.

(d) Small Company; [Section 2 (85)] According to Section 2 (85) of Companies Act, 2013 a ‘‘small
company’’ means a company, other than a public company: (1) paid-up share capital of which does not
exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five
crore rupees. Or (2) turnover of which as per its last profit and loss account does not exceed two crore
rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to: a) a holding company or a subsidiary company. b) a
company registered under Section 8, or c) a company or body corporate governed by any special Act.

On the basis of control

Holding company and Subsidiary company ‘Holding’ and ‘Subsidiary’ Companies are relative terms. A
company is a holding company of another if the other is its subsidiary. According to Section 2 (46) of the
Companies Act, 2013 'holding company', in relation to one or more other companies, means a company
of which such companies are subsidiary companies. According to Section 2 (87) of the Companies Act,
2013 'subsidiary company' or 'subsidiary', in relation to any other company (that is to say the holding
company), means a company in which the holding company :

(a) controls the composition of the Board of Directors, Or

(b) exercises or controls more than one-half of the total share capital either at its own or together with
one or more of its subsidiary companies: Provided that such class or classes of holding companies as may
be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. On the
basis of Listing in the recognised Stock Exchange

(a) Listed company (also widely held) According to Section 2 (52) of the Companies Act, 2013, a 'listed
company' means a company which has any of its securities listed on any recognised stock exchange.
Whereas the word securities as per the Section 2 (81) of the Companies Act, 2013 has been assigned the
same meaning as defined in clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956. (b)
Unlisted company Unlisted Company means company other than listed company.

(b) Others

(a) Government Company According to Section 2 (45) of the Companies Act, 2013, a 'Government
company' means any company in which not less than fifty one per cent of the paid-up share capital is held
by the Central Government, or by any State Government or Governments, or partly by the Central
Government and partly by one or more State Governments, and includes a company which is a subsidiary
company of such a Government company.
(b) Foreign Company According to Section 2 (42) of the Companies Act, 2013, ‘foreign company’
means any company or body corporate incorporated outside India which: (a) has a place of business in
India whether by itself or through an agent, physically or through electronic mode. And (b) conducts any
business activity in India in any other manner.

(c) Associate Company According to Section 2 (6) of the Companies Act, 2013, 'associate company' in
relation to another company, means a company in which that other company has a significant influence,
but which is not a subsidiary company of the company having such influence and includes a joint venture
company. As per the Explanation given under the Section, the clause, 'significant influence' means control
of at least twenty per cent of total share capital, or of business decisions under an agreement.

(d) Dormant company Where a company is formed and registered under this Act for a future project or
to hold an asset or intellectual property and has no significant accounting transaction, such a company or
an inactive company may make an application to the Registrar in such manner as may be prescribed for
obtaining the status of a dormant company.

Memorandum of Association

A Memorandum of Association (MoA) represents the charter of the company. It is a legal document
prepared during the formation and registration process of a company to define its relationship with
shareholders and it specifies the objectives for which the company has been formed

Content of the memorandum

The memorandum of a company shall state:

(1) the name of the company with the last word ‘Limited’ in the case of a public limited company, or the
last words ‘Private Limited’ in the case of a private limited company.

(2) the State in which the registered office of the company is to be situated.

(3) the objects for which the company is proposed to be incorporated and any matter considered
necessary in furtherance thereof. If any company has changed its activities which are not reflected in its
name, it shall change its name in line with its activities within a period of six months from the change of
activities after complying with all the provisions as applicable to change of name.

(4) the liability of members of the company, whether limited or unlimited, and also state:

a) in the case of a company limited by shares, that the liability of its members is limited to the amount
unpaid, if any, on the shares held by them. And

b) in the case of a company limited by guarantee, the amount up to which each member undertakes to
contribute:

1) To the assets of the company in the event of its being wound-up while he is a member or within one
year after he ceases to be a member, for payment of the debts and liabilities of the company or of such
debts and liabilities as may have been contracted before he ceases to be a member, as the case may be,
and
2) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories
among themselves.

(5) in the case of a company having a share capital:

a) the amount of share capital with which the company is to be registered and the division thereof into
shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to
subscribe which shall not be less than one share, and

b) the number of shares each subscriber to the memorandum intends to take, indicated opposite his name.

Articles of Association

Articles of association form a document that specifies the regulations for a company's operations and
defines the company's purpose. The document lays out how tasks are to be accomplished within the
organization, including the process for appointing directors and the handling of financial records. Section
5 of the Companies Act, 2013 seeks to provide the contents and model of articles of association as
follows:

(a) Regulations for management: The articles of a company shall contain the regulations for management
of the company.

(b) Inclusion of matters: The articles shall also contain such matters, as are prescribed under the rules.
However, a company may also include such additional matters in its articles as may be considered
necessary for its management.

(c) Contain provisions for entrenchment: The articles may contain provisions for entrenchment (to protect
something) to the effect that specified provisions of the articles may be altered only if conditions or
procedures as that are more restrictive than those applicable in the case of a special resolution, are met or
complied with.

(d) Manner of inclusion of the entrenchment provision: The provisions for entrenchment shall only be
made either on formation of a company, or by an amendment in the articles agreed to by all the members
of the company in the case of a private company and by a special resolution in the case of a public
company.

(e) Notice to the registrar of the entrenchment provision: Where the articles contain provisions for
entrenchment, whether made on formation or by amendment, the company shall give notice to the
Registrar of such provisions in such form and manner as may be prescribed.

(f) Forms of articles: The articles of a company shall be in respective forms specified in Tables, F, G, H, I
and J in Schedule I as may be applicable to such company. (g) Model articles: A company may adopt all
or any of the regulations contained in the model articles applicable to such company.

(h) Company registered after the commencement of this Act: In case of any company, which is registered
after the commencement of this Act, in so far as the registered articles of such company do not exclude or
modify the regulations contained in the model articles applicable to such company, those regulations
shall, so far as applicable, be the regulations of that company in the same manner and to the extent as if
they were contained in the duly registered articles of the company.

Prospectus

The Companies Act, 2013 defines a prospectus under section 2(70). Prospectus can be defined as “any
document which is described or issued as a prospectus”. This also includes any notice, circular,
advertisement or any other document acting as an invitation to offers from the public. Such an invitation
to offer should be for the purchase of any securities of a corporate body. Shelf prospectus and red herring
prospectus are also considered as a prospectus.

Essentials for a document to be called as a prospectus

For any document to considered as a prospectus, it should satisfy two conditions.

1. The document should invite the subscription to public share or debentures, or it should invite deposits.

2. Such an invitation should be made to the public.

3. The invitation should be made by the company or on the behalf company.

4. The invitation should relate to shares, debentures or such other instruments. Contents For filing and
issuing the prospectus of a public company, it must be signed and dated and contain all the necessary
information as stated under section 26 of the Companies Act,2013:

a) Name and registered address of the office, its secretary, auditor, legal advisor, bankers, trustees, etc.

b) Date of the opening and closing of the issue.

c) Statements of the Board of Directors about separate bank accounts where receipts of issues are to be
kept.

Contents

For filing and issuing the prospectus of a public company, it must be signed and dated and contain all the
necessary information as stated under section 26 of the Companies Act,2013:

1. Name and registered address of the office, its secretary, auditor, legal advisor, bankers, trustees, etc.

2. Date of the opening and closing of the issue.

3. Statements of the Board of Directors about separate bank accounts where receipts of issues are to be
kept.

4. Statement of the Board of Directors about the details of utilization and non-utilisation of receipts of
previous issues.

5. Consent of the directors, auditors, bankers to the issue, expert opinions.

6. Authority for the issue and details of the resolution passed for it.
7. Procedure and time scheduled for the allotment and issue of securities.

8. The capital structure of the in the manner which may be prescribed.

9. The objective of a public offer.

10. The objective of the business and its location.

11. Particulars related to risk factors of the specific project, gestation period of the project, any pending
legal action and other important details related to the project.

12. Minimum subscription and what amount is payable on the premium.

13. Details of directors, their remuneration and extent of their interest in the company.

14. Reports for the purpose of financial information such as auditor’s report, report of profit and loss of
the five financial years, business and transaction reports, statement of compliance with the provisions of
the Act and any other report.

Share holders meetings

The shareholders’ meeting is the body that passes resolutions for joint-stock companies. The
shareholders’ meeting has such important tasks as approving the financial statements and the appointment
of the board of directors. Basically the shareholders’ meeting represents ownership claims, i.e. the
company’s shareholders

Company Management

Management has been defined as “the process of planning, organizing, leading and controlling the efforts
of company members and of using all company resources to achieve stated company goals.” Hence, the
occupation of management is to maintain control over the company's actions and perf The supreme
executive authority controlling the management and affairs of a company vests in the team of directors of
the company, collectively known as its Board of Directors. At the core of the corporate governance
practice is the Board of Directors which oversees how the management serves and protects the long term
interests of all the stakeholders of the Company.

The institution of board of directors was based on the premise that a group of trustworthy and respectable
people should look after the interests of the large number of shareholders who are not directly involved in
the management of the company. The position of board of directors is that of trust as the board is
entrusted with the responsibility to act in the best interests of the company. Although the Board comprises
individual directors, yet the actions and deeds of directors individually functioning cannot bind the
company, unless a particular director has been specifically authorised by a Board resolution to discharge
certain responsibilities on behalf of the company. The Companies Act, 2013 does not contain an
exhaustive definition of the term “director”. Section 2 (34) of the Act prescribed that “director” means a
director appointed to the Board of a company. A director is a person appointed to perform the duties and
functions of director of a company in accordance with the provisions of the Companies Act, 2013.
Definition of an Independent Director; Section 149 (6) An independent director means a director other
than a managing director or a whole-time director or a nominee director who does not have any material
or pecuniary relationship with the company/ directors. Section 149(6) of the Act prescribes the criteria for
independent directors which are as follows: (a) Who in the opinion of the Board, is a person of integrity
and possesses relevant industrial expertise and experience; (b) Such individual shall not be a promoter or
related to promoter of the company or its holding, subsidiary or associate company; (c) Such individuals
must not have any material or pecuniary relationship during the two immediately preceding financial
years or during the current financial year with the company or its promoters/directors/holding/subsidiary/
associate company; Appointment

Appointment Of Directors; Section 152 First Director The first directors of most of the companies are
named in their articles. If they are not so named in the articles of a company, then subscribers to the
memorandum who are individuals shall be deemed to be the first directors of the company until the
directors are duly appointed. In the case of a One Person Company, an individual being a member shall
be deemed to be its first director until the director(s) are duly appointed by the member in accordance
with the provisions of Section 152. ormance, and simultaneously to

Consumer Protection

a) Definitions of Consumer, Goods, Service


b) Meaning of Consumer Dispute, Complaint
c) Unfair Trade Practices
d) Restrictive Trade Practices
e) Rights of Consumers
f) Consumer Redressal Agencies
g) Consumer councils.
h) Laws relating to Intellectual Property Rights-
i) Corporate Social Responsibility-
j) Arguments for and against CSR.

Definitions of Consumer, A consumer is a person or a group who intends to order, orders, or uses
purchased goods, products, or services primarily for personal, social, family, household and similar needs,
not directly related to entrepreneurial or business activities.

Meaning of Consumer Dispute, consumer dispute means a dispute where the person against whom a
complaint has been made,

denies or disputes the allegations contained in the complaint; Complaint

a) Unfair Trade Practices


b) An unfair trade practice which for the purpose of promoting the sale use or supply of any goods
or for the provision of any service, adopts any unfair method or deceptive practice including any
of the following:

1. False or misleading representation about quality, quantity and standard of goods.

2. Bargain price
3. Offering of gifts, prize and contest.

4. Non compliance of product safety standard

5. Hoarding or destruction of goods

6. Falsely represents any re-built, second-hand , renovated or old goods as new goods.

7. Represents that the goods or service have sponsorship, approval , performance uses or benefits which
such goods or service do not have. Makes a false representation

Restrictive Trade Practices

2(n) of the Consumer Protection Act, 1986, restrictive trade practice means a trade practice which tends
to bring about manipulation of price or conditions of delivery or to affect flow of supplies in market
relating to goods or services in such a manner as to impose on the consumers unjustified costs or
restrictions

Rights of Consumers

The bill stated that every person has four basic consumer rights—the right to be informed, the right to
choose, the right to safety, and the right to be heard. These rights received a lot of attention from the
consumer movement, a movement to pass laws protecting consumers from unfair and unsafe business
practices.

Consumer Redressal Agencies

These are the three consumer redressal agencies, namely, the District Forum, the State Commission and
the National Commission. Its significance is visible all across the country where all the grievances of the
consumers are being tackled, upholding consumer interest.

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