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SemesterSemester -- II
Logic, Awareness and
Common Sense
Manmohan Vyas - ISBS
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Certain Questions toCertain Questions to begin withbegin with
Why Law is required ?
What is Law?
Sources of Law?
LAB Syllabus
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Legal AspectsLegal Aspects ofof BusinessBusiness
AnAn IntroductionIntroduction
Largely based on English common law because of the longperiod of British colonial influence.
Drafting of the Indian Constitution, laws from Ireland, theUnited States, Britain, and France were all synthesized to get arefined set of Indian laws.
Indian laws also adhere to the United Nations guidelines on
Human RightsL
aw, The EnvironmentalL
aw,L
aw OnIntellectual Property.
Indian civil law is complex, Religion specific laws. There areseparate laws governing Hindus, Muslims, Christians, Sikhs andfollowers of other religions
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CHAPTERCHAPTER -- II
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The Indian Contract Act,1872The Indian Contract Act,1872
Branch ofLaw which determines the
circumstances in which promises made by the
parties to a contract shall be legally binding onthem.
General principles of law of contract (Sec 1-75) & Some special contracts (Sec124-238)
The act is not Exhaustive.
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ContractContract -- DefinitionDefinition
Sec.2(h) Contract is an agreementenforceable by law
AnAgreement
EnforceabilityBy Law
Contract
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Agreement & EnforceabilityAgreement & EnforceabilityAgreement
Everypromise and every set of promises, formingconsideration for each otherE.g.
Consideration is the respective interest of each of the twoparties under the agreement
Promise
When the person to whom the proposal is made signifies hisassent thereto, the proposal is said to be accepted. A proposal, whenaccepted, becomes promise.E.g.
Agreement = Offer + Acceptance
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Flow & RelationFlow & Relation
Promise
Agreement
Contract
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Essential of AgreementEssential of Agreement
Consensus ad idem. E.g.....
O
bligation (Legal Tie Doing orAbstaining)
Social Agreements Not enforceable incourt of law
All contracts are agreement but all
agreements are not contracts
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Essential ElementsEssential Elements ofof Valid ContractValid Contract
Offer & Acceptance (2 Parties-Terms Definite-absolute &Unconditional)
Intention to create legal relationship
(Not of Social-Domestic nature E.g. Rose & Frank Co. v. Crompton Bros.)
Lawful consideration (Cash or Kind ,Act orAbstinence )
Capacity of parties (Minor, Unsound mind, Disqualified)
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Essentials cont..Essentials cont..
Free Consent ( Induced by Fraud, Coercion,Misrepresentation etc.)
Lawful object ( Must not be Illegal, Immoral &Against Public
Policy)
Agreement not declared void ( Minor - Void abinitio)
Certainty & Possibility of Performance
( Treasure , Putting Life )
Legal formalities ( Stamped , Registered etc.)
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Classification ofClassification of contractcontract
CONTRACTS
VALIDITY FORMATION PERFORMANCE
VALID
VOIDABLE
VOID
EXECUTEDEXPRESS
IMPLIED
QUASI
EXECUTORY
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OfferOffer andand AcceptanceAcceptance
y An Offer is a Proposal by one party to another toenter into a Legally binding agreement with him.
y Proposal :- When a person signifies to another hiswillingness to do or to abstain from doing anything,
with a view to obtain the assent of that other to such
act or abstinence.
y Parties :- Offeror , Proposer
Offeree or Proposee
Acceptor or Promisee
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OfferAndAcceptance cont..OfferAndAcceptance cont..
Flow of offer
y Specific Offer
y General Offer
Case -Carlill vs. Carbolic Smoke BallCompany
Offeror Offeree Acceptor
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Legal Rules As To OfferLegal Rules As To Offer
Should give rise to legal Relation
Terms must be definite, Unambiguous
An offer is distinguished from
A declaration of intention (e.g.Advertisement)
An invitation to make offer (e.g. Price tag )
Offer must be communicated (Lalman..)
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Legal RulesAs To Offer cont..Legal RulesAs To Offer cont..
Must be made with a view to obtaining
assent
Non compliance cannot be assumed asacceptance
Statement of price is not an offer ( Harvey vFacey)
Cross offers are not offers
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AcceptanceAcceptance
y Act of assenting by the offeree to an offer.
It is to an offer what a lighted match is to a
train of gunpowder.I
t produces somethingwhich cannot be recalled , or undone.
y An offer when accepted, becomes promise[Sec. 2 (b)].
y Acceptance of Particular offer / GeneralOffer.
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Legal Rules To AcceptanceLegal Rules To Acceptance
y It must be absolute and must conform with theoffer.
y It must be communicated to Offeror (mereresolve or mental determination will not do)
y Must be according to mode prescribed or
reasonable mode.
y It cannot be implied from silence.
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CommunicationCommunication
yOffer, Acceptance or Revocation may becommunicated by words spoken or writtenor by conduct.
y Communication ofOffer is complete
when it comes to the knowledge of theperson to whom it is made.
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Communication..Communication..
y Communication of Acceptance, is
complete_ _ _
as against the Proposer when it is put intocourse of transmission to him, so as to
out of power of the acceptor.
as against the Acceptor when it comes tothe knowledge of the Proposer.
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Communication..Communication..
y Communication of Revocation, it is
complete _ _ _
as against the person who makes it, when it isput into the course of transmission to the
person to whom it is made, so as to be outof the power of the person who makes it;
as against the person to whom it is made,when it comes to his knowledge. Example..
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Loss In Postal TransitLoss In Postal Transit
y Communication ofAcceptance is complete
as against the Proposer when it is posted.
The contract is complete even if the letter ofacceptance goes astray or is lost through an
accident in the post.
But, in order to bind the offeror, its important
that letter of acceptance is correctlyaddressed, stamped and posted.
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Contract over TelephoneContract over Telephone OralOral
CommunicationCommunication
y Offeree must make sure that the acceptance
is properly received, i.e. heard and
understood by the offeror. E.g. Aircraft flyingoverhead.
y
Contract over Telephone Middle of thereply, the line goes dead ( cant hear words of
acceptance).
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ConsiderationConsideration
Quid Pro Quo Something In return
Sec 2{d} When at the desire of thepromisor, the promisee or any other person
has done or abstained from doing, or doesor abstains from doing, or promises to do
or to abstain from doing, something, suchact or abstinence or promise is called
consideration for the promise.
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Legal Rules..Legal Rules..
May be Past, Present, Future
Need not be adequate
Must be real, not illusory.
Must be something which the promisor is
not already bound to do.
Must not be illegal, immoral or against Publicpolicy ( e.g. Promise to get a job in PSU).
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Stranger To ContractStranger To Contract
y Doctrine ofPrivity of Contract only theparties to a contract may sue and be sued
on the contract.
yTwo Implications of doctrine:-
A Person who is not party cannot sue.Contract cannot confer rights or imposeobligation other than parties.
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Exceptions to Rule of Stranger..Exceptions to Rule of Stranger..
y ATrust or Charge.
y Marriage settlement, Partition or Other
family arrangements.
y Acknowledge 0r Estoppel.
y Contract through anAgent.
y Covenants running with the land.
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Contract Without Consideration IsContract Without Consideration Is
VoidVoid -- ExceptionsExceptions
Love &Affection Written & Registeredagreement
Promise to pay for past voluntary services
Promise to pay a time barred debt.
Completed gift
CreatingAgency no consideration
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Capacity To ContractCapacity To Contract
Sec.11,declares following persons incompetent
Minors
Indian Majority Act,1875,a minor is a personwho has not completed 18 yrs. of age
Minors UnsoundMind DisqualifiedBy Law
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MinorMinor
Attains majority at the age of 21 yrs
Guardian appointed under Guardian & Wards
A
ct,1890 Superintendence of a minors property is assumed
by Court of wards.
Position of minor in agreement
VoidAb Initio :- Mohiri Bibi v. DharmodasGhose
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Position of minors cont..Position of minors cont..
y Can be beneficiary e.g. recovery of price
after sale.
y Cannot be ratified on attaining majority.
y Can always plead minority Fraud by
misrepresenting age
y Cannot enter into partnership but can be
admitted to benefits of already existing
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Minors liability for necessariesMinors liability for necessaries
Is liable to pay for necessaries supplied to
him.
Property of the minor is liable for meetingthe liability, not personally liable.
Necessary goods not restricted to articles
to maintain bare existence, but reasonablynecessary.
Services rendered Education, medical
Advice, provision of a funeral etc.
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PersonPerson ofof Unsound MindUnsound Mind
A person is said to be of sound mind for the
purpose of making a contract if, at the timewhen he makes it, he is capable of
understanding it and forming a rationaljudgment as to its effects upon his
interests.
y Unsound mind Lunatics , Idiots
Drunken or Intoxicated
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Other PersonsOther Persons
y Alien enemies
y Foreign sovereigns, their diplomaticstaff & representatives Priorpermission
y Corporations Artificial Person ,MOA
y
Insolvents Official Receiver orAssignee
y Convicts
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Free ConsentFree Consent
y Consent Two or more persons are said
to consent when they agree upon the samething in the same sense.
y Consent is free if its not cause by
Coercion Undue Influence
MistakeMisrepresentation
Fraud
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CoercionCoercion
y When a person is compelled to enterintoa contract by the use of force by other partyor under a threat, coercion is said to beemployed.
y It is committing or threatening tocommit, any act forbidden by the IPC,1860
y Effect -Voidable at the option of aggrieved.
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Cont..Cont..
y Threat to commit suicide :-
one committing suicide places himself or
herself beyond the reach of law,& necessarily
beyond the reach of any punishment.
y Sec. 306 of IPC Punishes abetment of
suicide
y Sec. 309 of IPC Punishes attempt tosuicide.
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Undue InfluenceUndue Influence
y Relation b/w the parties is such that one of
the parties is in position to dominate thewill of other & uses that position to obtain
unfair advantage.
y E.g. Parent Children / Doctor
Patient / Solicitor Client etc.
y Burden of proof On Plaintiff
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MisrepresentationMisrepresentation
Representation -A statement of fact
Representation, when wrongly made, ismisrepresentation.
Innocent or Unintentional Misrepresentation
Intentional or Deliberate Fraud
Consequences A
ggrieved party canAvoid or Rescind contract
Accept but insist prior position
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FraudFraud
y False representation Knowingly orRecklessly / concealment of material fact
y Intention of party making fraudulentmisrepresentation must be to deceive theother party.
y Fraud means & includes :- Sec. 17
y Consequences -Voidable
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MistakeMistake
y Erroneous belief about something.
y Mistake ofFacts Mistake of Law
y Mistake of facts: Bilateral Unilateral
y Bilateral Both the parties under mistake of facts
y Unilateral one party / negligence or lack of care should bear the consequences. Not allowed asdefence in avoiding a contract.
y Exceptions Mistake is Fundamental / Root ofAgreement. E.g. Identity of Person / Nature ofContract (void)
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DischargeDischarge ofof ContractContract
Contract may be discharged by
Performance
Agreement or ConsentImpossibility
Lapse of time ( Time Barred Debt)
Operation of law (Death / Insolvency etc.)
Breach of contract
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Continue..Continue..
y Discharge by performance
Actual Performance
Attempted Performance or Tender
y Discharge by Agreement
A thing may be destroyed in the same manner in
which it is constituted
Novation Rescission Remission -Waiver
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Discharge by Impossibility of Performance
y Impossibility existing at the time of contract
y Impossibility arising subsequently ( Supervening
Impossibility )
* Destruction Of Subject Matter
* Death or incapacity
* Change OfLawy Impossibility of Performance - NotAn Excuse. e.g.
Difficulty / Depreciating Currency / Strike Lockouts
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Continue..Continue..
Breach Of Contract
y Actual breach of contract At the time
of performance, one party fails or refuses.
If time is not essence, may accept withdamages. Prior notice required.
y Anticipatory Breach Party to Executory
Contract declares intention of non performance.* Treat The contract as discharged
* Take legal action
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ContractContract ofof AgencyAgency
y A person employed to do any act for
another, or to represent another in dealing
with 3rd persons.
y Person represented Principal
y Function to bring principal into
contractual relation with 3rd persony Agent- connecting Link
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Rules ofAgencyRules ofAgency
Whatever a person can do personally, he
can do through an agent. Exception..??
He who does an act through another
does it by himself
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CreationCreation ofof AgencyAgency
y Agency by Express agreement
y Agency by Implied Agreement
y Agency by Ratification
y Agency by Operation of law
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Types..Types..
y Agency by Implied Agreement
conduct, situation or relationship.
* Agency by Estopple.
* Agency by Holding out prioraffirmative act on part of P required to
establish agency subsequently.
* Agency by Necessity Agentexceeding authority in Emergency. Husband& Wife (Pledge credit for necessaries).
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Types..Types..
y Agency by Ratification Act on behalf,
without consent or knowledge. Subsequentlyaccepted.
* Requisitions of valid ratification Lawful,
P should have Powers, Contractual Capacity
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Delegation ofAuthorityDelegation ofAuthority
DelegatusNon Potest Delegare
A person to whom authority has been givencannot delegate that authority to another.
y Sub-Agent Agent of original agent
* Custom of trade
* Nature of work
y Relationship Proper / Not ProperAppointment
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Indemnity & GuaranteeIndemnity & Guarantee
y Contract by which one party promises tosave the otherfrom loss caused to him bythe conduct of the promisor himself, or bythe conduct of any other person, iscontract of Indemnity. E.g. A & B -railways
y
Person promises to make good the loss Indemnifier (Promisor).
y Person whose loss is made good Indemnified (Promisee).
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Indemnity & GuaranteeIndemnity & Guarantee
y Contract of Guarantee is a contract to
perform the promise, or discharge the
liability, of 3rd person in case ofhis default.
y Person who gives guarantee Surety
y In respect to whose default Principal
Debtory Person to whom given - Creditor
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Essential FeaturesEssential Features
y Concurrence of all the three parties
y Primary Liability other than Surety.
y Essential Of Valid Contract.
y Writing Not necessary.
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Remedies For Breach Of ContractRemedies For Breach Of Contract
yRescission of The Contract
y
SuitF
or DamagesySuit Upon Quantum Meruit
y
SuitF
or Specific PerformanceySuit For Injunction
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Quasi ContractQuasi Contract
A person shall not be allowed to enrich
himself unjustly at the expense of another.
Kinds of Quasi Contract
Supply Of Necessaries
Payment ByAn Interested Person. E.g. Land
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Cont..Cont..
yObligation To Pay for an act which is
not unwarranted. Lawfully done, intention
, enjoy benefitsy ResponsibilityOfFinderOf Goods
Prudence. Can Sell Perishable , owner not
found, refuse to pay charges etc.yMistake or Coercion Money
paid/Return
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CHAPTERCHAPTER -- IIII
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The Sales ofGoods Act,1930
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The Sales of Goods Act,1930The Sales of Goods Act,1930
y Part of The Indian ContractAct,1872
Contract of Sale is a contract whereby
the seller transfers or agrees to transfer
the property in goods to the buyer for aprice
y Transfer
y Agrees To Transfery Property In Goods
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Essentials of Contract Of SaleEssentials of Contract Of Sale
y Two parties Buyer & Seller
y Goods Must be movable. Transfer of
immovable property not regulated by this.y Price Consideration. Must be in money.
Partly Money Goods,Possible.
y Transfer orAgreement to Transferownership
y Essential Elements of valid contract
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SaleSale Agreement To SellAgreement To Sell
y Transfer of Property Executed / Executory
y Risk of loss Irrespective Of Possession
y Consequences Of Breach Sue for Price orDamages
y General & Particular Property Sale : Contract +conveyance.Agreement : Pure contract.
y Insolvency of Buyer
y Insolvency of Seller -
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SaleSale Hire PurchaseHire Purchase
Home assignment and class discussion
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Subject Matter of Sales ContractSubject Matter of Sales Contract
Goods
y Every Kind of movable property other than
Actionable Claims.
y Includes Stocks & shares, grass & things
attached to or forming part of land agreed
to be severedy Trademark, Copyrights, electricity, water, gas
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Classification of goodsClassification of goods
y Existing Goods
y Future goods
y Contingent Goods
Specific Ascertained Unascertained
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Conditions & WarrantiesConditions & Warranties
y Condition is a stipulation which is
essential to the main purpose of thecontract. Main Root of the Contract. If
Breach Aggrieved party can repudiate thecontract.
y Warranty is a stipulation which is
collateral to the main purpose of thecontract. If Breach aggrieved party can onlyclaim damages.
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Breach of conditionBreach of condition
When breach of condition treated as
breach of warranty?
y Voluntary waiver of condition by buyer or
elect to treat breach of condition aswarranty.
y Acceptance of goods by buyer - where
contract is not severable, breach can only betreated as that of warranty.
ExpressExpress Implied Condition &Implied Condition &
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ExpressExpress -- Implied Condition &Implied Condition &WarrantiesWarranties
Implied Condition
y Condition as to Title seller has/will haveright to sell. e.g. returning car to true owner
y Sale by Description if you contract to sellpeas, you cant oblige a party to take beans
y Condition as to quality or fitness
Buyer must examine thoroughly. Exception
* Purpose Disclosed, buyer relied on sellersjudgement, seller business to sell such goods
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y Condition as to Merchantability -Commercially saleable.
y Condition as to wholesomeness
y Sale by sample Bulk should correspond
to sample. Reasonable opportunity ofcomparing. Goods free from defects(Latent).
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Implied WarrantiesImplied Warranties
y Warranty of Quite Possession
y Warranty of freedom from encumbrance
y Warranty to disclose dangerous nature of
goods
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Caveat EmptorCaveat Emptor
Let the buyer beware
It is no part of the sellers duty to point outdefects of his own goods. Buyer must inspect to
find out if they will suit his purpose.
Exceptions
y False representation by seller
y Seller actively conceal the facts
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y Where buyer makes known thepurpose
y Sale by description implied condition ofmerchantability. But if buyer has examined,implied condition extends only hidden /
latent defects.
y Usage or custom of trade - e.g. Hotwater bottle
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Transfer of PropertyTransfer of Property
Property,Possession & Risk
Property Ownership Of Goods
Possession Custody or Control of Goods
Risk Risk Follows Ownership
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Passing of PropertyPassing of Property
y Goods must be ascertained Noproperty in the goods transfers unlessascertained
y Intention Of the parties If specificgoods , property passes when parties intendto. For intention Terms, conduct ,
circumstances
y Intention cannot be ascertained :-
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Intention Not Specified..Intention Not Specified..
y Specific goods - property passes at the time ofcontract, provided Deliverable State
Goods not in Deliverable state Property doesnot pass until work done & buyer has notice.
y Unascertained Goods:- Does not pass until theyare ascertained. UnconditionalAppropriation Selection of goods withintention of using them in performance & withmutual consent.
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Sale By Non OwnersSale By Non Owners
Nemo Dat Quod Non Habet
No one can give that which one has not
got
Exceptions:-
y Title By Estoppel
y Sale by Mercantile Agent If he haspossession by consent of owner
y Sale by one of Joint Owners
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y Sale by person in possession under voidable
contract-seller has acquired by Fraud ,
voidable. Not been rescinded.
y Sale by seller in possession after sale.
y Sale by unpaid seller
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Manmohan Vyas - ISBS
Unpaid SellerUnpaid Seller
Right of Lien - Right to retain possession ofGoods until payment of the price .
y Where goods been sold without stipulation
of credit
y
Credit term expiredy Buyer becomes insolvent
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Manmohan Vyas - ISBS
Right of stoppage in transitRight of stoppage in transit
y Right of stoppage in transit available when
the buyer becomes insolvent and when
goods are in transit.
y Carrier may hold goods.
y How stoppage by taking actual possession ,
by giving notice to carrier.
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Manmohan Vyas - ISBS
Right to ReRight to Re--salesale
y Where goods are of perishable nature or
y Seller gives notice of his intention and
buyer does not reply.
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Manmohan Vyas - ISBS
Auction SaleAuction Sale
y Goods are put-up for sale in lot, each lot deemedto be subject matter of separate contract of sale
y Sale is complete when auctioneer announces by
hammer or other customary manner.y Sale notified to be subject to a right to bid on
behalf of the seller
y Sale may be notified to be subject to reserved
price
y If pretended bidding to raise price, its voidable
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Manmohan Vyas - ISBS
Unpaid Seller RightsUnpaid Seller Rights-- ChartChart
Property In GoodsHas passed
RepudiationOf
Contract
Suit For
Damages
Suit For
price
LienStoppage In
TransitResale
Suit For
Interest
Withhold
Delivery
Property In GoodsHasNot Passed
Against Goods Against Buyer
Stoppage In
Transit
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Last but not the leastLast but not the least