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Business Law note (BBS 2nd Year)

Introduction to Business Law:
There are different tyes of a!ti"ity in a so!iety# Business is a$so a art of so!ia$ a!ti"ity% re&u$ated 'y the $aw#
Business refers to the e!ono(i! a!ti"ities in whi!h &oods and ser"i!e are su$ied in e)!han&e for so(e
ay(ent# *t in!$udes 'uyin& and se$$in&% (anufa!turin& rodu!ts% e)tra!tin& natura$ resour!es# Business $aw is
the $aw !on!erned with 'usiness a!ti"ity# Business $aw is an a&&re&ate of those ru$es% whi!h are !onne!ted with
trade% !o((er!e and industry# *t is a$so +nown as !o((er!ia$ or (er!anti$e $aw# *t is the $aw whi!h ro"ides the
different ro"isions to the !o((er!ia$ !o((unity and re&u$ates their a!ti"ities re$atin& to the trade and
!o((er!e# ,hi!h in!$udes the $aw re$atin& to !ontra!t% sa$e of &oods% a&en!y% industry% &uarantee% insuran!e and
'an+in&% ar'itration% forei&n in"est(ent and te!hno$o&y transfer et!# Business $aw is not searate dis!i$ine% it is
a art of !i"i$ $aw% whi!h dea$s with the ri&ht and o'$i&ation of 'usiness fir(s that arises fro( there 'usiness
a!ti"ity# There are different $aws in whi!h the si&nifi!ant ro"isions are (ade to re&u$ate the 'usiness re$ated
a!ti"ities% and these $aws are +nown as 'usiness $aw#
A!!ordin& to -#. /aoor0 1 2er!anti$e $aw is a$so used to denote the a&&re&ate 'ody of those $e&a$ ru$es whi!h
are !onne!ted with trade% industry and !o((er!e#1
Features of Business Law
i) Re&u$ates industry% trade and !o((er!e#
ii) Re&u$ates e"ery 'usiness a!ti"ity of 'usiness !o((unity#
iii) *t has no waterti&ht de(ar!ation with the other 'ran!hes of $aw#
i") Pro(otes ri&hts and interest of 'usiness !o((unity#
") this is the (ost i(ortant (eans to !reate ositi"e en"iron(ent for the roserity of 'usiness#
,ith the in!reasin& !o($e)ities and te!hno$o&ies of the (odern 'usiness% the s!oe of 'usiness $aw is
auto(ati!a$$y e)tended#
Importance of Business Law:
The 'usiness $aw $eads the roserity of a !ountry# *t re&u$ates######
and affe!t the 'usiness sin!e 'efore the esta'$ish(ent of 'usiness fir(% whi$e !ondu!tin& the 'usiness and to its
fina$ sta&e# The ro$e of 'usiness $aw is "ita$ in the 'usiness se!tor% 'ut it is &uided 'y the e!ono(i! o$i!y of the
state# A 'usiness erson (ust +now a$$ the !on!erned $aws# Su!h $aws $ay "ita$ ro$e for the for(ation and
!o((en!e(ent% runnin&% adatin&% esta'$ishin&% &i"in& dyna(is( and e)ansion of the 'usiness as we$$ as
fu$fi$$in& 'usiness &oa$s and (aintainin& so!ia$ resonsi'i$ities# The i(ortan!e of 'usiness $aw !an 'e "iewed
on the fo$$owin& &rounds0
a) rote!tion of e!ono(i! ri&ht
') Re&u$ation and Syste(ati3ation of 'usiness
!) Co((en!e(ent and de"e$o(ent of 'usiness
d) Enfor!e(ent of 'usiness Contra!t
e) .e$i"ery of 4usti!s
( you !an !onsu$t with your 'oo+ for the 'rief e)$anation of the a'o"e oints)
Sour!es of Business Law
A sour!e (eans an ori&in or resour!es or !ause or $a!e fro( where $aw e(anates# The ter( sour!e of -ea$ese
'usiness $aw denotes two (eanin&# 5irst$y the $a!e or oint fro( where the $aw 'e&ins and se!ond$y the $a!e
fro( where the ru$es of 'usiness a!ti"ities &et $e&a$ authority# The (ain sour!es of 'usiness $aw are dis!ussed
a) Custom and Usage: The !usto( is +nown as arti!u$ar way of $ife or 'eha"ior# *f su!h 'eha"ior is fo$$owed
!ontinuous$y 'y the eo$e in the so!iety% it 'e!o(es a !usto(s or usa&es whi!h are i(ortant sour!es of $aw#
This tyes of !usto( shou$d not oose to statutory $aw% (orta$ity and u'$i! we$fare# *f there is no $e&is$ation%
no re!edents the (atter is to 'e de!ided 'y the !usto( or usa&e of that arti!u$ar#
') Statutes6 Le&is$ation0 The $e&is$atory $aw !o(e fro( ar$ia(ent or $aw (a+in& 'ody of the nation# This tyes
of $aw is the out!o(e of de(and of eo$e and need of the ti(e# *t is (ade after fu$fi$$in& a series of dis!ussion
'y $aw(a+ers# -ow a days (ost of 'usiness a!ti"ities are re&u$ated 'y the $aw (ade 'y ar$ia(ent#
c) Judicial Decision: 4udi!ia$ de!ision are +nown as re!edent# Pre!edent is a 7udi!ia$ de!ision whi!h !ontains
in itse$fs a rin!i$e# *n other words it is the ear$ier de!ision of sure(e !ourt whi!h is ta+en as a ru$e whi$e
de!idin& the $ater !ases# ,here there is no $aw to dea$ the ro'$e(s in su!h !ases the !ourt !an (a+e de!ision in
the $i&ht of 7usti!e and e8uity su!h de!ision are treated as $aw for that (atter# *t is the one of the (a7or sour!es of
(odern 'usiness $aw#
9ther Sour!es ( this shou$d 'e in!$uded in your answer the differen!e is that the a'o"e are the (ain sour!es)
d) English Mercantile law: 'usiness $aw was de"e$oed in En&$and# *t is the ioneer of 'usiness $aw in the
wor$d# -ea$ is !on7oind inf$uen!ed 'y the British ru$e sin!e year#
e) rofessional !pinion of e"perts: Lawyers and !riti!s (ay $ay si&nifi!ant ro$e !reatin& &ood $e&a$
en"iron(ent# The oinion and e)$anation (ade 'y su!h rofessiona$ (ay &i"e roer instru!tion and 'etter
!ontri'ution to the de"e$o(ent of $aw#
f) Business #greement$ Con%entions: Con"entiona$ $aw refers to any ru$e or syste( of ru$e a&reed uon 'y the
arties to re&u$ate their 'usiness !ondu!t# *nternationa$ 'usiness or&ani3ation are (ore a!ti"e in nationa$% re&ion
and wor$d 'usiness nowdays# E)a($es0 ( ,T9% SA5TA) # And 'i$atera$ a&ree(ent 'etween the nations and
!on"entions of 'usiness !o((unities are the (ain sour!es of nationa$ and internationa$ 'usiness $aw#
Legal En%ironment
Le&a$ en"iron(ent of 'usiness refer to the a&&re&ate of surroundin& !onne!ted with the $aw that inf$uen!e the
'usiness a!ti"ities and 'usiness fir(s# *t refers to the a&&re&ate of a$$ tyes of $aw% re&u$ation# A!ts and
re!edents intended to en!oura&e% rote!t% &uide the 'usiness a!ti"ities# Su!h $aw are (ade and enfor!ed 'y the
state for the roserity of e"ery ase!t of 'usiness#
A!!ordin& to Pre( R Panta 1 The $e&a$ en"iron(ent refers to the fra(ewor+ of $aws% re&u$ation are !ourt
de!ision% intended to en!oura&e% &uide and !ontro$ 'usiness a!ti"ities# :
Business $aw !hater 2- Contra!t( T; BBS 2nd year)
&Define contract)
A !ontra!t is an a&ree(ent enfor!ea'$e 'y $aw# The $aw of !ontra!t is the 'asis of 'usiness# E"ery 'usiness
a!ti"ity is deter(ined and &uided 'y the a&ree(ent of the !on!erned arties# *n fa!t% the $aw of !ontra!t is
!on!erned with e"ery'ody and e"ery ase!t of the 'usiness to erfor( any +ind of a!t# And it is !on!erned with
the ri&hts and o'$i&ation of the arties enterin& into it#
A!!ordin& to A#4 Sa$(ond0 1An a&ree(ent !reatin& and definin& o'$i&ation 'etween two or (ore arties is a
Sure(e !ourt of -ea$0 1An a&ree(ent of two or (ore arties with !ondition is !ontra!t#
*n short the !ontra!t in!$udes the fo$$owin&0
- two or (ore arties
- an a&ree(ent on the &round of free !onsent
- e)!han&e of ro(ise 'y (eetin& the (inds
- enfor!ea'$e 'y $aw#
*n short the ri&ht and $ia'i$ities that are !reated re!iro!a$$y 'etween the !on!erned arties !an 'e !a$$ed !ontra!t#
-ature of Contra!t0
A !ontra!t is an a&ree(ent whi!h is enfor!ea'$e 'y the $aw# The a'o"e definition ha"e !$eared that an a&ree(ent
'etween two or (ore arties !on!$uded with their !onsent% !reates ri&hts and $ia'i$ities 'etween the(# Su!h
!onsent of the arties !reates !ontra!t# An a&ree(ent is re&arded as a !ontra!t where there are the (ain
!hara!teristi!s of "a$id !ontra!t resented in it# There shou$d 'e the !ertain !hara!teristi!s to 'e the !ontra!t
deter(ined 'y the $aw#
The nature of $aw !an 'e dis!ussed in the fo$$owin& &rounds0
1) A&ree(ent6 Pro(issory -ature0 Contra!t is a ri"ate $e&is$ation% whi!h is for(ed and 'indin& 'etween the
!on!erned arties on the &round of their a&ree(ent# A&ree(ent has two e$e(ent one is there shou$d 'e two
arties (a+in& an a&ree(ent% one !an not enter into a !ontra!t a$one# Another is#####
(eetin& of (inds of !on!ernin& arties# An a&ree(ent is the out!o(es of !onsentin& (inds of the arties# The
!ontra!tin& arties (ust (eet their (inds as re&ards the su'7e!t (atter of the !ontra!t% in the sa(e sense% uon
the sa(e thin& and at the sa(e ti(e#
2) Pri"ate $e&is$ation0 A !ontra!t is a ri"ate $e&is$ation 'indin& fro( those arties who are in"o$"ed in it# ,hen
any one 're!hes the !ontra!t the other arty 'e!o(es "i!ti(i3e finan!ia$$y# Therefore% the "i!ti( arty (ay
enfor!e 'y the !ourt#
<) Le&a$ 9'$i&ation0 There (ust 'e $e&a$ o'$i&ation in an a&ree(ent to 'e!o(e a !ontra!t# ;sua$$y it is resu(ed
that the arties enterin& into a !o((er!ia$ a&ree(ent intend to !reate a $e&a$ re$ationshi 'etween the(# The
a&ree(ent whi!h do not esta'$ish a $e&a$ re$ationshi are not !ontra!ts#
Contra!t = $e&a$ity > 9'$i&ation > Business 2atter
?) 5reedo(6 Autono(y of arties0 The arties of !ontra!t (ust 'e autono(ous to de$i"er their &enuine !onsent at
the ti(e of !on!$udin& !ontra!ts# *t is a$so +nown as a freedo( of !ontra!ts# The !on!ernin& arties of the
!ontra!t shou$d 'e free to !hoose the for( of !ontra!t% its su'7e!t and deter(ine !onsideration and its e)tent as
we$$ as the ter( of !ondition#
@) urity of Contra!t0 San!titeness is another nature of !ontra!t# The !o((on $aw syste( rote!ts !ontra!t fro(
!o((ission of fraud% (isresentation% (ista+e% !oer!ion and undue inf$uen!e and effort to !ontro$ the e!ono(i!
e)$oitations of e($oyee 'y the do!trine of restraint of trade#
A) 5un!tion of Contra!t0 Contra!t is a (eans for the a!hie"e(ent of urose of the arties# The fo$$owin&
fun!tion are erfor(ed 'y nature throu&h the !ontra!t#
- to fa!i$itate forward $annin& of transa!tion and to (a+e ro"ision for future !ontin&en!ies#
- to esta'$ish the rese!ti"e resonsi'i$ities of the arties and erfor(an!e to 'e e)e!ted fro( the(#
- To ena'$e the e!ono(i! ris+s in"o$"ed in the transa!tion to 'e a$$o!ated in ad"an!e 'etween the arties#
- To ro"ide a$ternati"e way or re(edy if thin& &o wron&#
- Creation of $e&a$ ri&hts to rote!t own interest#
Essentia$ E$e(ent of A "a$id Contra!t (*B) 2C
Contra!t and a&ree(ent0
*n &enera$ !ontra!t is an a&ree(ent 'etween two or (ore arties# *n fa!t su!h a&ree(ent are not !ontra!t# 9n$y
those a&ree(ent whi!h are enfor!ea'$e 'y the $aw are !ontra!t# *n the a&ree(ent% the arties of it (a+e ro(ises
a'out so(ethin& whi!h is to 'e erfor(ed% when su!h ro(ises or e)e!tation of the arties 'e!o(e an
a&ree(ent and when this a&ree(ent is 'a!+ed u 'y $aw it 'e!o(es a !ontra!t whi!h !reates $e&a$$y 'indin&
o'$i&ation 'etween the arties#
The s!oe of an a&ree(ent is wider than of !ontra!t 'e!ause a !ontra!t (ust fu$fi$$ so(e essentia$ e$e(ents# *t
has $i(ited s!oe whi!h e)ists within the $i(itation of $e&a$ity# Thus a$$ !ontra!t are a&ree(ents 'ut a$$
a&ree(ent are not !ontra!t# Thus !ontra!t essentia$$y !onsists of two e$e(ent first is a&ree(ent and se!ond is its
enfor!ea'i$ity# ,here !ertain duties or o'$i&ation are !reated 'y a&ree(ent 'etween the arties% !ontra!t $aw
dea$s with % where as an a&ree(ent whi!h does not !reate o'$i&ation is not the su'7e!t (atter of !ontra!t $aw#
The essentia$ e$e(ents of a "a$id !ontra!t are as fo$$ows0
1) 9ffer and A!!etan!e0 There (ust 'e an a&ree(ent 'etween two arties to !reate a !ontra!t# The a&ree(ent
in"o$"es a "a$id offer 'y one arty and "a$id a!!etan!e of the offer 'y other arty# Therefore the 7ourney of
!ontra!t a$ways starts with offer and a!!etan!e#
2) Consideration0 Consideration (eans so(ethin& in return# *t has (oti"ation ower to fu$fi$$ the ro(ise# The
a&ree(ent 'orn when !ontra!tin& arties are &i"in& and &ettin& so(ethin& in return# *t is not ne!essary to 'e !ash
or +ind% it (ay 'e a ro(ise to do or not to do so(ethin&# But it (ust 'e rea$ and $awfu$% whi!h (ay 'e in ast%
resent and future#
<) Le&a$ Re$ationshi0 At the ti(e of enterin& into an a&ree(ent the arties shou$d ha"e the intention to !reate
$e&a$ re$ationshi 'etween the( to a"oid a$$ tyes of !onf$i!ts# This tyes of $e&a$ re$ationshi he$s "i!ti( arty
to ha"e $e&a$ re(edy in !ase of fai$ure of either arty# A&ree(ent without $e&a$ re$ation !an not 'e enfor!ed# 5or
e)a($e0 The re$ationshi 'etween a $oaner and 'orrower !an not attra!t the $aw of !ontra!t# The father ro(ise
his son to &et a !y!$e if he assed the e)a(# Son assed the e)a(% The son !$ai(s for his ri3e# *n su!h (atter %
father not 'ound to ta+e !y!$e for his son% 'e!ause they had no su!h intention to !reate $e&a$ re$ationshi whi$e
(a+in& the ro(ises# To 'e fa$$en in !ontra!t $aw the a&ree(ents arties (ust ha"e the intention to esta'$ish
$e&a$ re$ationshi 'etween the(#
?) 5ree Consent0 ,hen the arties of !ontra!t a&rees uon sa(e thin& in the sa(e sense% their !onsent (ust 'e
free fro( oression % under inf$uen!e% (isresentation% fraud and (ista+e of $aw# The !onsent (ust 'e (ade
with +nowin&$y and free$y# *f the !onsent is not free the arties !an a"oid the !ontra!t#
@) 2eetin& of 2inds0 To 'e a !ontra!t% two or (ore than two ersons (ust a&ree uon sa(e thin& in the sa(e
sense# *f DAD want to ur!hase DED 'ut B want to se$$ DYD than there is no !ontra!t raised 'etween DAD and DBD
'e!ause there is no (eetin& of (inds#
A) Co(etent ( Caa'$e) arties0 the arties who are in"o$"ed in the a&ree(ent (ust 'e !o(etent to !ontra!t# *f
in!o(etent arties are in a !ontra!t% it is not "a$id# The arties not !aa'$e to !ontra!t are (inor erson of
unsound (ind and $e&a$$y dis8ua$ified erson#
F) Lawfu$ 9'7e!ti"es0 The o'7e!ti"es of a&ree(ent (ust 'e $awfu$ to 'e a "a$id !ontra!t# *f the su'7e!t (atter of
a&ree(ent are not $awfu$ ( i$$e&a$% i((ora$ and oose to u'$i! o$i!y) are not !ontra!t% and the a&ree(ent
ha"in& this tyes of o'7e!ti"es are not enfor!ed 'y $aw#
G) -ot de!$ared to 'e "oid0 Those a&ree(ents whi!h are e)ress$y de!$ared "oid 'y the !ontra!t and other $aw
for!e are not the !ontra!t# A&ree(ent to +i$$ the $ife of other or a&ree(ent to stea$ &oods are i$$e&a$ and "oid#
Si(i$ar$y a&ree(ent in restraint (arria&e% or rofession are "oid 'y -CA#
H) Certainty0 The o'7e!ti"es of an a&ree(ent (ust 'e !ertain and !$ear and ra!ti!a$# The !ontra!t whi!h is
un!ertain due to $a!+ of ro"idin& reasona'$e (eanin& is "oid# 5or e)a($e0 A a&rees B that he wi$$ ur!hase
another !ar if the first !ar 'e!o(es $u!+y to hi(# Su!h a&ree(ent !an not enfor!e a&ainst A% and B !an not !$ai(
for another ur!hase 'y A# Be!ause the ter( D $u!+yD does not ha"e any !ertain and !$ear (eanin& in ra!ti!a$
1C) Possi'i$ity of erfor(an!e0 The o'7e!ti"es or the a!tion to !o($ete the a&ree(ent (ust 'e ossi'$e to
erfor(# Any a!t whi!h !an not 'e done or is non- erfor(a'$e does not !reate $e&a$ o'$i&ation to the !ontra!tin&
Define Offer:
To offer means to present something so that it may be accepte or re!ecte" Offer is the
proposa# of the first party to another parties" NCA efines offer as $ An offer is a proposa# presente by
one person to another %ith the intention of obtaining his assent for performing any %or&$ An this
types of proposa# creates a #ega# ob#igation if it is accepte by the acceptance parties" A 'a#i offer may
be e(presse or imp#ie"
i) *pecific an genera# offer+ ,here an offer is mae to a partic-#ar person there is a specific offer an
%here it is mae to the genera# p-b#ic there is a genera# offer"
ii) Cross an co-nter offer+ ,here both parties ma&e their offer to each other at the same time. there is
a cross offer" *-ch types of offer is not a 'a#i offer for the contract beca-se to create a contract there
m-st be an offer from one sie an acceptance from other sie"
,here an offeree intens to accept the offer after a#teration in any term of offer. there is a co-nter
Note + / the abo'e types of offer is !-st for -nerstaning p-rpose that may -nnecessary for e(am)
R-#es Regaring the 'a#i offer /important 0-estion)
i) Creating a #ega# re#ationship+ the offerer m-st ha'e intention of creating #ega# re#ationship" After the
acceptance of the offer it m-st create some #ega# ob#igation"
ii) Offer sho-# not be certain an sho-# be mae to a efinite person"
iii) Offer may be conitiona#+ An offer may be mae s-b!ect to conitiona# an that m-st be c#eare#y
con'eye to the offeree" An -nreasonab#e treatment an ignorance of offeree to the conitions are not
i') Offer an offree m-st be comm-nicate"
') The offer can be e(presse in ifferent for %ritten. spo&en) an imp#ie
'i) Offer is see&ing acceptance of other party
'ii) offer may be specific to the person or be to genera# p-b#ic or g#oba##y"
'iii) Offer sho-# not contain the term that non-comm-nication or re!ection %o-# amo-nt to an
i() 1n'itation to offer is not an offer"
() A'ertisement is not the offer"
business law chapter-7-9 (TU BBS 2nd year)
Define consideration and descri)e rules regarding consideration*
Consideration !a' 'e defined as a ri!e of ro(ise% whi!h is 'ou&ht 'y the ne)t arties (ro(ise)# ,hen a arty
to an a&ree(ent ro(ises to do so(ethin& he6she (ust &et so(ethin& in return whi!h (ust 'e "a$ua'$e in the eye
of $aw# This Iso(ethin&J is defined as !onsideration whi!h (ay 'e ri!e% reward% ay(ent or "a$ue for whi!h the
ro(ise of the other is !arried#
A!!ordin& to 4usti!e a$terson 0 !onsideration (eans so(ethin&% whi!h is of so(e "a$ue in the eye of $aw% it (ay
'e so(e 'enefit to the $antin& or so(e detri(ent to the defendant#
5or e)a($e0 A a&ree to se$$ a house to B for Rs 2 $a+h# 5or AJs ro(ise% the !onsideration is Rs# 2 $a+h and for
BJs ro(ise% the !onsideration is the house#
+ules +egarding consideration
a) Consideration (ust 'e rea$ and so(ethin& of "a$ua'$e in the eye of $aw#
') Consideration (ust (o"e at the desire of the ro(isor0 The a!t (ust 'e done at the desire of the ro(isor#
,ithout the desire of the ro(isor no !onsideration !an 'e "a$ua'$e# *t re&ards that the !onsideration (ust 'e
(o"ed fro( ro(ise on$y not fro( other or stran&er to !ontra!t#
!) Consideration (ay (o"e fro( the ro(ise or third ersons0 The a!t whi!h !onstitutes a !onsideration (ay 'e
(o"ed 'y the ro(ise or any other erson on his 'eha$f to enfor!e a ro(ise# But in En&$ish $aw it (ust 'e fro(
the ro(ise not fro( other#
d) Consideration (ay 'e of ast% resent or future#
e) Consideration (ust 'e $awfu$0 ,hen a arty to an a&ree(ent ro(ises to do so(ethin& the a!!etors (ust &et
so(ethin& in return whi!h (ust 'e $e&a$ and ha"e the "a$ues in the eye of $aw# An i$$e&a$ !onsideration is not
suosed to 'e a !ontra!t# *t is "oid#
f) Consideration need not 'e ade8uate(satisfa!tory) 0 Consideration need not 'e ade8uate to the ro(ise# The
!ontra!t #######
is deend uon !onsideration# So 8uantu( of the !onsideration is de!ided 'y the arties to the !ontra!t# The
ade8ua!y of !onsideration is deter(ined 'y the fa!ts% !ir!u(stan!es and ne!essities and nature of !ases#
& Free Consent )
Define free consent
Consent (eans a&ree to do so(ethin&# Two or (ore arties are said to !onsent when they a&ree uon the sa(e
thin& in the sa(e sense# *t is the (eetin& of (ind# The a&ree(ent without any !ontro$ is Ifree !onsentJ# 9n$y
(eetin& of (inds are not suffi!ient to 'e the !ontra!t whether there (ust 'e the rea$ and free !onsent of the
arties# *t is o'tained 'y free and ure wi$$ of the arties fro( their own a!!ord% !onsent is said to 'e free when it
is not !aused 'y !oer!ion% fraud% undue inf$uen!e% (isresentation and (ista+e# *f there is no free !onsent then
there wi$$ not 'e any !ontra!t% so it is !reated for the sa+e of due and $awfu$ !onsideration% not to $ose anythin&#
5ree !onsent ro"ides (eetin& of (inds% enfor!ea'i$ity and $e&a$ re(edy for the !ontra!tin& arties on their
Define Coercion
Coer!ion is the a!t of for!in& or threatenin& so(eone to do so(ethin& a&ainst $aw# *t is a threat or for!e used 'y
one arty a&ainst another for !o(e$$in& to enter into an a&ree(ent# *n su!h !ondition the !onsent is not free#
-CA states that 1 ,hen so(e'ody has detained or threatened to detain roerty or has threatened to !o((it any
a!t for'idden 'y the $aw for !ausin& any erson to enter into !ontra!t a&ainst his wi$$% the erson is said to ha"e
!aused !oer!ion#1 *f A !o(e$s B to enter into an a&ree(ent 'y !ausin& har( or treatin& to !o((it har( as
a&ainst the $ife and roerty of B or his ersons or third erson# The !ontra!t 'etween A and B is !aused 'y
Contingent Contract.
Define contingent contract and describes the rules regarding contingent contract.
A contingent contract can be efine as conitiona# contract" *-ch a contract epens on a f-t-re
-ncertain e'ent" A contingent contract is a contract to o or not to o something. if some e'ent.
co##atera# to s-ch contract. oes or oes not happen" The e(amp#e of contingent contract is 1ns-rance
contract" A contract to pay Rs" 2333333 if 45s eath" 6-t e(piry of a fi(e time. can not be contingent
contract. beca-se these e'ents are of certain nat-re"
R-#es Regaring Contingent Contract"
i) On the happening of a f-t-re -n-certain e'ent+ A contract to o or not to o something. if an
-ncertain f-t-re e'ent happen. can not be enforce by #a% -n#ess -nti# the e'ent has happene" 1f the
gro-n e'ent becomes impossib#e that contracts becomes 'oi"
ii) On the non happening of f-t-re -ncertain e'ent+ The contingent contract is to be performe if a
partic-#ar e'ent oes not happens. it5s performance can be enforce %hen the happening of that e'ent
becomes impossib#e" For e(+ A agree to pay certain s-m of money if a ship oes not ret-rn to port" The
ship ret-rn bac&" The contract becomes 'oi" Rather the ship sin&s in the sea. no% the ship co-# not
ret-rn fore'er. the contract is enforceab#e"
iii) On the e'ent #in&e %ith h-man con-ct. or eman """""""
impossib#e+ a contract contingent on the act or con-ct of specifie man if that things becomes
impossib#e by his enia# or inabi#ity. can no create any #iabi#ity" For e(+ A agree to pay 6 a certain s-m
of money" 1f 6 constr-ct the ho-se an is certifie by 7 an engineer. here certification of the ho-se by
7 is contingent e'ent" The #iabi#ity is not create beca-se the ho-se is not certifie by 7"
i') On the e'ent5s happening %ithin a fi(e time+ A contract contingent -pon the happening of an e'ent
%ithin a fi(e time becomes 'oi" 1f the e'ent becomes impossib#e" For e(+ A agree to p-rchase certain
amo-nt of goos if A5s ship comes %ithin one month" No% the ship has not ret-rne %ithin that time"
The contract becomes 'oi"
') if the contract epens -pon the f-t-re -ncertain e'ent if that oes not happen %ithin the fi(e
time. the contract may be enforce"
'i) 1f the f-t-re e'ent is i##ega# or certain the contract becomes 'oi"
Remedies for Breach of Contract
What does mean by breach of contract define arious remedies for Breach of contract.
A breach of contract means fai#ing to o something %hich is in the contract" A 8breach5 means to an act
of brea&ing a r-#e or an agreement" The parties to a contract m-st f-#fi## their respecti'e ob#igation
beca-se they are agree -pon at the time of creation of the contract" 1f any party oes not f-#fi## his
#iabi#ity. another party becomes 'ictimi9e" The nat-re of breach of contract may be act-a# or
anticipatory" The contract can be terminate by the breach of terms an conition of the contract
agree. an the breach of the #a% of contract mae by the #egis#at-re or the stat-tory #a% of contract"
Remeies for the breach of contract+ ,hen any party to contract breaches a contract the 'ictimi9e
party sho-# ta&e the #ega# remeies" An important characteristics of a contract is the a'ai#abi#ity of
remeies to the aggrie'e party" The remeies. %hich are enforce by the #a% are as fo##o%+
i) Rescission or cance##ation of the contract+ ,hen one party breaches the contract. the other party
can re'ocate or cance# the f-rther performance that are agree to o in the contract" The 'ictim party
can cance# the contract after gi'ing a reasonab#e notice to the breacher party" The 'ictim party has a
right of emaning compensesation for their #oss that are being thro-gh the breach of contract"
ii) Restit-tion+ Restit-tion means 8 ret-rning e'ery thing to the state as it %as before" The parties to a
contract ha'e to ret-rn the binifit to each other %hich %as recei'e -ner the contract" The in!-re party
ha'e the remeies to restit-te the changes. acti'ities. #osses as it %as before"
iii) Damages+ 1f any party breaches the contract. the 'ictimi9e party sho-# be pai the financia#
compensation. a%are by the co-rt for his:her #oss thro-gh the breacher" To pay for the amage is
!-st to pay some money for the p-rpose of his reco'ery" The #osses can be recor'e from breacher as
per #a% or terms an conition that %as imp#ie -ring the time of ma&ing the contract"
i') *pecific performance+ ,hen any party breaches a contract. the in!-re party may eman a
specific performance by s-it" The co-rt may orer the breacher party for a specific performance. s-ch
orer is mae by the co-rt %hen other types of compensation o not seem to be ae0-ate"
') 1n!-ction+ 1n!-ction is a co-rt orer that restraints the breacher party from oing %rong or contin-ing
the %rongf-# act. comp#aine" *-ch remey is appropriate %here there is a &in of pre'enti'e re#ief to
the aggrie'e party"
For e(+ A promise to se## his car to 4 for ; #a&h. rather that gi'ing it to A. 4 intens to se## the car for 6
#a&h to 7" 1n s-ch conition the co-rt can orer restraining 4 to se## his car to C %hen it is c#aime by A"
'i) *-it -pon <-ant-m =er-it+ 8<-ant-m mer-it5 means 8payment in proportion to the amo-nt of %or&
one"5 A in!-re party has the right to s-e an 0-ant-m mer-it arises %here a contract. part#y performe
by one party. has become ischarge by the breach of another party" *-ch type of remey is base on
the imp#ie agreement to payment for %hat has been one or compete"
!uasi Contract
Define !uasi contract.
>enera##y the agreement. %hich f-#fi##s certain essentia# e#ements is ca##e contract " 6-t certain cases
create a contract %itho-t any essentia# e#ements of a 'a#i contract. it is ca##e ? 0-asi contract5" 1n
s-ch contract there is no meeting of min. no offer an acceptance. no free consent. no intention to
create #ega# re#ation an e'en parties ha'e no intention to enter into a contract" 1t comes into e(istence
%hen one of the parties act acti'ates the #a%" The parties of a 0-asi contract. sometimes are -n&no%n
to each other ho%e'er they ha'e some right an #iabi#ities -ner some circ-mstance" D-ty is more
important an promise is #ess important in s-ch contract" NCA terme it as 8 inirect contract" The
basis of 0-asi contract is the octrine of in!-st enrichment that is. a person sha## not a##o%e to enrich
himse#f -n!-st#y at the e(pense of another"
Define )ailment and descri)es the essentials factors of )ailment-
Bai$(ent is a +ind of se!ia$ !ontra!t% !aused 'y the de$i"ery of &oods# Howe"er itJs not a transfer of ownershi
of &oods rather it is the de$i"ery of &oods on a returna'$e 'asis#
-CA defines 'ai$(ent as : A !ontra!t re$atin& to 'ai$(ent sha$$ 'e dee(ed to ha"e 'een !on!$uded in !ase any
erson de$i"ers any roerty to another erson on a returna'$e 'asis or for handin& it o"er to any other erson or
se$$in& it as ordered 'y hi(# 5or e&0 : A &i"es his house to B on a rent for Rs# 2CCC (onth$y% it is the 'ai$(ent of
'ui$din& for hire%K E &i"es his !ar to reair to L# *t is the 'ai$(ent of a &oods for reair#
Essentia$ fa!tor of Bai$(ent0
i) .e$i"ery of &oods0 .e$i"ery of &oods !an 'e defined as the !han&e of ossession of &oods fro( one erson to
another% 'ut the ownershi of the &ood re(ain sa(e# *t (ust 'e (ade on the &round of free !onsent# The de$i"ery
of &oods (ay 'e a!tua$ and !onstru!ti"e# A &i"es his 'i+e to B on hire for one day% B ta+es the 'i+e i((ediate$y#
*t is an a!tua$ de$i"ery of &oods% howe"er !onstru!ti"e de$i"ery is not a !han&e of the hysi!a$ ossession of
&oods# The &oods re(ain in the sa(e $a!e 'ut so(ethin& is done that !auses a !han&e of its ossession to the
'ai$ee# 5or e)a($e de$i"ery of +ey of store or "ehi!$es is the !onstru!ti"e de$i"ery#
ii) .e$i"ery for so(e se!ia$ urose0 .e$i"ery of &oods (ust 'e (ade for so(e urose throu&h whi!h the
Bai$ee is 'ound to return the &oods when the urose is a!hie"ed# *f &oods are de$i"ered 'y (ista+e than there is
no !ontra!t of 'ai$(ent#
iii) Creation of Contra!t0 The re$ationshi 'etween a 'ai$or and a 'ai$ee is the !reation of a !ontra!t# There (ust
'e a written do!u(ent if de$i"ery of &ood worth (ore than 2CC# Thus the 'oth 'ai$ee and 'ai$or are 'ound to
!reate a !ontra!t and a$so they shou$d 'e !o(etent to !reate a !ontra!t#
i") The &ood (ust 'e return#
") -o transfer of ownershi
"i) Consideration is not ne!essary0 the !ontra!t of 'ai$(ent (ay 'e &ratuitous or non- &ratuitous# *f 'ai$(ent is
(ade for the 'enefit of a 'ai$or or of a 'ai$ee it is &ratuitous# 5or e)0 E $ets his 'i+e to A 7ust for 1C (inutes#
+ights and duties of Bailor
.hat is )ailor descri)es the right and duties of )ailor-
Bai$or is a arty or erson on who a&ree to de?$i"er his &oods to the 'ai$ee for so(e urose for so(e eriod of
ti(e on a !ondition that the 'ai$ee sha$$ u$ti(ate$y return the &oods to the 'ai$or# 5or e)0 *f A de$i"ers his !ar to B
for a wee+% here A is 'ai$or and the !ar (ay 'e de$i"ered &ratuitous$y or non- &ratuitous$y#
The ri&hts of 'ai$or are &i"en 'e$ow0
1) enfor!e(ent of a 'ai$eeJs duties0 Bai$or !an enfor!e the duties of 'ai$ee as his own ri&ht 'y suit in the
fo$$owin& !ir!u(stan!es#
i) To de(and !o(ensation% in !ase of da(a&e of &oods#
ii) To de(and da(a&e in !ase of an unauthori3ed use of &oods or 'rea!h of the ter(s% and unauthori3ed (i)in&
of &oods with other &oods#
iii) To return &oods in the res!ri'ed ti(e#
i") To de(and natura$ in!re(ent or rofit in &oods#
2) ri&ht to a"oid or ter(inate the !ontra!t0 The 'ai$or has a ri&ht to ter(inate the !ontra!t########
at any ti(e in the fo$$owin& !ir!u(stan!es0
i) *f the o'7e!ti"es of the !ontra!t !an not 'e fu$fi$$ed#
ii) if the !ontra!t has an i$$e&a$ o'7e!t#
iii) *f the the 'ai$ee 'rea! hes the ter(s of !ontra!t#
i") *f the 'ai$(ent is &ratuitous#
<) restoration of &oods $ent &ratuitous$y0 ,here &oods are $ent &ratuitous$y the 'ai$or !an de(and their return at
any ti(e#
?) Ri&ht to re!ei"e !o(ensation fro( wron& doer#
The fo$$owin& are the duties of 'ai$or0
i) .uty to dis!$ose the +nown defe!ts of &ood0 a 'ai$or has to dis!$ose the +nown defe!ts of the######
&oods for 'ai$(ent# *f the 'ai$or does not do so% he wi$$ 'e resonsi'$e for the har( or the $oss to 'ai$ee% 'ut not
for un+nown defe!ts#
ii) .uty to 'ear e)traordinary e)enses0 The 'ai$or is resonsi'$e to 'ear the e)traordinary e)enses of &oods e&0
(edi!a$ treat(ent of si!+ ani(a$s% or the e)enses (ade for +eein& the &ood safe#
iii) .uty to inde(nify the 'ai$ee0 the 'ai$or is resonsi'$e to the 'ai$ee for any $oss due to his6 her i(erfe!t or
defe!ti"e tit$e of the &oods and re(ature ter(ination of the !ontra!t#
i") .uty to re!ei"e 'a!+ the &oods#
Define Bailee and descri)es the right and duties of )ailee-
Bai$ee is the arty of a 'ai$(ent !ontra!t to who( &oods is de$i"ered 'y 'ai$or on the !ondition that after the
!o($etion of urose of !ontra!t% or so(e eriod of ti(e the 'ai$ee shou$d return the &oods to the 'ai$or# *f E
&i"es his house on rent to Y# The Y is 'ai$ee#
The ri&ht of 'ai$ee is &i"en 'e$ow0
i) Ri&ht to 'e inde(nified for the $oss !aused 'y $a!+ of infor(ation a'out the &oods% defe!ti"e tit$es of &ood#
ii) Ri&ht to de$i"er &oods to one of the se"era$(7oint owners)0 *f the 'ai$(ent !ontra!t is !on!$uded 'y se"era$
7oint owner the 'ai$ee (ay de$i"er the &oods 'a!+ to one of the 7oint owners% without !onsent of other owner in
the a'sen!e of any a&ree(ent to the !ontary#
iii) Ri&ht of se!ia$ $ien0 Se!ia$ ri&ht is the ri&ht of a 'ai$ee that !an +ee the &oods 'ai$ed in his6 her !ustody
unti$ the 'ai$or does not ay a$$ the ne!essary !har&es# The 'ai$ee e"en !an re!o"er the !har&e 'y se$$in& the
i") Ri&ht to de$i"er the &oods to 'ai$or e"en thou&h the rea$ owner of &oods is not the 'ai$or#
The duties of 'ai$ee is &i"en 'e$ow0
i) .uty not to (a+e unauthori3ed use of the &ood 'ai$ed#
ii) -ot to (i) the 'ai$ed &oods with other &oods#
iii) duty to ta+e reasona'$e !are of the &oods 'ai$ed#
i") .uty to return the &oods to the 'ai$or in ti(e#
") To return the &oods with their natura$ rofit or in!re(ents#
"i) To fo$$ow the ter(s and the instru!tion of the 'ai$or#
"ii) .uty to !o(ensate the $oss or da(a&e !aused 'y hi(6 her#
Finder of Lost goods
Define finder of lost goods and write the right and duties of finder-
5inder of $ost &oods is the erson who finds and +ee the $ost &oods of another erson in his own ossession% the
$aw i($ies that there is a !ontra!t of 'ai$(ent 'etween the owner and finder of the $ost &oods# By the $aw the
finder is treated as the 'ai$ee who had a&reed to +ee the &oods of 'ai$or(the erson whose &ood is $ost) safe$y
and ro(ised to return 'a!+ to the owner#
The ri&ht and duties of finder of $ost &ood is &i"en 'e$ow0
i) Ri&ht of ossession0 a finder of $ost &oods has the ri&ht to +ee it in his ossession unti$ the true owner is
ii) Ri&ht of $ien 0 the finder has the ri&ht to +ee the &oods in his !ustody unti$ the owner ays the e)enses
Min!urred in +eein& the( safe% in reairin& the &oods and in sear!hin& the true owner#
iii) Ri&ht to sue for reward0 The finder !an sue for any se!ifi! reward whi!h the owner has offered for the return
of the &oods# He6She (ay a$so retain the &oods unti$ he re!ei"ed su!h reward#
i") Ri&ht to se$$ the &oods0 A finder of $ost &ood !an se$$ those d&oods in the fo$$owin& !ir!u(stan!e0
- *f the true owner !an not 'e found#
- *f the 'ai$or does not ay the e)enses within a reasona'$e ti(e#
- *f the &oods natura$$y de!rease or are destroyed within se!ifi! ti(e#
- *f the $awfu$ !har&es of the finder in rese!t of the &oods found a(ount to 26< of the "a$ue of &ood#
i) To sear!h the rea$ owner of the &oods found#
ii) -ot to (i) the found &oods with other &oods#
iii) To return the &oods to the rea$ owner after re!ei"in& the ne!essary e)enses#
i") To ta+e !are of &ood and not to (a+e an unauthori3ed use of su!h &oods#
ledge or awn
Define pledge and write the right and duties of pawaner-
P$ed&e is a +ind of 'ai$(ent where the transfer of &oods or 'ai$(ent of &oods are (ade as a se!urity for the
ay(ent of de't% or erfor(an!e of a ro(ise# *n su!h !ase% the erson who &i"es &oods as a se!urity is !a$$ed
$ed&er or awnor ('ai$or)% and the erson who re!ei"e the &oods as a se!urity is !a$$ed I$ed&eeJ or IawneeJ
('ai$ee)# The $ed&e is 'ound to return the $ed&ed &oods on the fu$fi$$(ent of his de't or $ed&orJs ro(ise#
Thus the !ontra!t% 'y whi!h the ossession of &oods is transferred as a se!urity is +nown as $ed&e#
5or e)0 E 'orrows Rs# @CCCC fro( Y and +ee his &o$d as a se!urity for the ay(ent of that $oan#
Essentia$ities of $ed&e0
i) .e$i"ery of &oods#
ii) .e$i"ery for se!urity#
iii) Lawfu$ urose#
i") Return of &oods#
") The &oods (ust 'e $on& $astin&#
+ight and Duties of a pawner
i) A $ed&or has a ri&ht to enfor!e the fo$$owin& duties uon a $ed&e 'y a suit#
ii) for reasona'$e !are of &oods#
iii) for rede(tion of &oods#
i") to re!ei"e the &oods with a!!retion#
") To sto se$$in& the &oods 'y deositin& dues#
"i) Ri&ht to &et sur$us after the sa$e of &oods 'ai$ed 'y the $ed&e#
"ii) Ri&ht to return the &oods after the fu$$ ay(ent of dues#
i) to !o(ensate the e)traordinary e)enses in!urred for ne!essary !are of &oods $ed&ed#
ii) to re!ei"e the &oods after the fu$$ ay(ent as er !ontra!t#
iii) to ay the rest of the dues% if it is insuffi!ient 'y the sa$e of the &oods $ed&ed#
i") to disose the fa!ts or defe!ts and &oodness of the &oods $ed&ed#
Business law chapter 19- Indemnity & Gurentee
"ndemnity and #uarantee
"ntroduction$ Definition of "ndemnity
Define "ndemnity and %rite do%n the right and duties of "ndemnity holder.
1nemnify means to compensate or to ma&e goo of the #oss an contract of inemnity means a
promise or statement of #iabi#ity to pay compensation for a #oss or for a %rong in transaction" 1n the #a%
of contract inemnity is the ob#igation. -nerta&en by one party to co'er the #oss or ebt inc-rre by
another" 1nemnity is an ass-rance gi'en by the promisor to promisee that he: she %i## ma&e goo or
sa'e from #oss %hich is raise from their contract for e(amp#e+ @*ams-ng@ company agree to ma&e
har%are for @App#e@ company. an it %i## be responsib#e for the #oss an ma&e it for app#e" 1f @*ams-ng@
se## the pro-ct mae for app#e" 1n s-ch transaction. if any #oss ca-se to @App#e@ . %hate'er may be
the reason. @*ams-ng@ is bo-n to pay the compensation to @App#e@ an 1ns-rance contract" ,ho gi'es
s-ch ass-rance &no%n as inemnifier an to %hom that ass-rance is gi'en is &no%n as inemnity
ho#er or inemnifie"
Right an D-ties of 1nemnity Ho#er
1nemnity ho#er is the party %ho has been ass-re of reco'ery of a #oss by the inemnifier" NCA 23;6
has mae the pro'ision regaring the rights of an inemnifier" The rights an -ties of 1nemnity
ho#er is gi'en be#o%+
A Rights+
a) 1nemnity ho#er can c#aim for compensation for amages s-ffere from the transaction" The
ho#er can reco'er any or a## of the amo-nts of compensation -ner the contract"
b) He:*he can reco'er a## amages %hich he: she may be compe##e to pay in any s-it in respect of
any matter to %hich the promise to inemnity app#ies"
c) A## the cost spent on the case fi#e or efene by him in connection re#ating to inemnity"
) He: *he can reco'er a## the cost of #ega# action. if it becomes necessary to initiate s-ch an action for
a fai#-re to pay the amo-nt mentione in a## the abo'e ca-ses"
A#ong %ith s-ch rights 6-t the inemnifier %i## not be #iab#e for the #oss in the fo##o%ing circ-mstances"
A D-ties+
a) 1f He: *he %or&s neg#igent#y"
b) 1f he:she is acting %ith the intention of ca-sing any #oss or amage"
c) 1f the inemnity ho#er is acting against the instr-ction of other party/Promisor) "
note+ he:she means inemnity ho#er" / %hen %riting -ties yo- m-st %rite eg" 1nemnity ho#er
m-stn@t act an %or& neg#igent#y or something #i&e that")
ARights an D-ties of an 1nemnifier
The abo'e -ties or #iabi#ity of inemnity ho#er is the right of inemnifier" Th-s the -ties of
inemnifier arises in the fo##o%ing circ-mstances+
i) There m-st be a #oss in accorance %ith the contract to ma&e the inemnifier #iab#e"
ii) There m-st be an occ-rrence of the anticipate e'ent" ,itho-t any occ-rrence of the prescribe
contingent e'ent. there is no inemnity by the inemnifier"
iii) ,here the right of inemnity is -se by the inemnity ho#er pr-ent#y an the instr-ction of the
inemnifier is not contra'ene or %hen there is no breach of contract"
i') 1f the cost emane by the inemnifier are not ca-se by neg#igence. hapha9ar beha'ior"
Contract of agency
A contract of agency is one that creates a #ega# re#ationship bet%een the principa# an
an agent" The person %ho has been e#egate the a-thority to act on beha#f of another is ca##e @ an
agent@. an the person %ho a-thori9es another to carry o-t some responsibi#ity is ca##e @ a principa#@"
Nepa# Agency Act 232B states $ An agent is one %ho %or&s for any omestic or foreign b-siness firm
a## o'er Nepa# or in any part of the &ingom of Nepa#. an the term $agent$ may mean a istrib-tor .
stoc&iest. nominee or a representati'e"$
Th-s agency is a re#ationship %here one agree to represent of other to o some act on beha#f of other"
&rocedures of Registration of agency business in 'epal (fre)uently as*ed and
important from e+am point of ie%,
1n Nepa#. the #a% of agency is go'erne by t%o act. name#y. Agency act 232B an R-#es 232C an
Contract Act 23;6" Agency act 232B; an R-#es 232C are re#ating to the proce-res of registration.
rene%a# an p-nishment" The proce-re for registering an agency in Nepa# is as fo##o%+
a) App#ication+ Any person %i##ing to ta&e agency is re0-ire to s-bmit app#ication to the irector:
Contro##er of the ept" of commerce for the registration of agency" The app#ication sho-# contain the
name an aress of agent an he: she sho-# ma&e commitment to f-rnish escription of transaction
%ithin e'ery three month %ith fee for registration"
b) Registration+ On recei'ing app#ication. the contro##er ma&es the necessary in'estigation an
register the agency"
-odes of Creating .gency:
2) 6y e(press agreement+ Norma##y. the a-thority gi'en by principa# to his agent is an e(press
a-thority" 1t is the most -s-a# an nat-ra# %ay to appoint an agent. by e(ec-ting the
forma# po%er of attorney in a %ritten stampe an signe oc-ment"
2) 6y 1mp#ie Agreement+ 1n imp#ie agreement agency arises -ner certain circ-mstances from the
beha'io-ra# con-ct of the parties or re#ationship bet%een them" The circ-mstances are as fo##o%s+
a) Agency by estoppe#+ 1f a person represents by %ors or con-ct that the another person is his
agent an thir party reasonab#y be#ie'es on s-ch representation an enters into an agreement. the
person %ho represent" *o. is bo-n by the act of other. this is &no%n as agency by estoppe#"
b) Agency by ho#ing O-t+ Di&e %ise agency by estoppe# the agency is create b-t in ho#ing o-t @ the
principa# himse#f ho#s o-t the %ors that someboy is his agent an there is ho#ing o-t"
c) Agency by necessity+ 1n certain -rgent circ-mstances the #a% confers an a-thority on a person to
act as an agent for the benefit of another" *-ch agency is ca##e an agency of necessity" 1n s-ch case.
the agent m-st act in goo faith an to protect an preser'e the interest of the princip#e"
@4@ a transporter. carries =eat pro-ct of @7@ from N-%a&ot to Eathman-" 6eca-se of stri&e. @4@ so# a##
meat pro-ct in @Ea&ani@. other%ise. there %as a anger of amage of a## the pro-ct" 1n s-ch case @7@
can@t s-e against @4@ beca-se of %ant of a-thority" Here @4@ is treate as an agent of @7@ by necessity"
F) 6y Ratification+ ,here an agent oes an act for his principa# %itho-t consent or &no%#ege. an the
act is accepte by the principa# after %ars . it is ca##e agency by ratification" Th-s. the act of
performing an the act of ratifying by the principa# may create an agency" *-ch types of agency occ-rs
in t%o %ays+
i) The person acting on beha#f other has no a-thority an enters an agreement on beha#f of principa#
an if the transaction is aopte by principa#"
ii) The agent %hen he e(cees his a-thority an enters an agreement on beha#f of principa#. an the
principa# accept the transaction"
For e"g+ A is a ins-rance agent of 6" @6@ is a b-siness man" @A@ ins-res the goos of 6 %itho-t consent
of @6@" 1f @6@ ratifies the act of @A@. the po#icy of ins-rance is 'a#i %ith retrospecti'e effect"
'ote: rules regarding alid ratification is also the important )uestion.
B" 6y Operation of #a%+ 1n some certain circ-mstances an agency is create by operation of #a%"
- %hen a company is forme as a #ega# person it cannot r-n itse#f" 1t@s promoters r-n its b-siness" They
are its agent or representati'e by operation of #a%" The company is responsib#e for their acts"
- a partner is an agent of a b-siness firm for the p-rpose of r-nning the b-siness" Th-s the act of the
partner performe to carry o-t the firm@s b-siness bins the firm #ega##y"
- a carrier of goos acting as an agent. the carrier is create as an agency by operation of #a%"
Write do%n the rights and duties of an .gent.
/ Duties:
i)D-ty to obey #a%f-# irections of principa# or c-stoms+ An agent m-st fo##o% a## the #a%f-# instr-ction
gi'en by the principa#" 1n the absence of s-ch instr-ction. the agent has to act in accorance %ith the
c-stoms of the b-siness"
ii) D-ty to rener an acco-nt + an agent is bo-n to rener proper acco-nt of the transaction one by
him:herse#f on eman of principa#"
iii) To carry o-t the %or& %ith reasonab#e care. s&i##. an i#igence"
i') D-ty to act in goo faith an is the interest of the principa#"
') D-ty to comm-nicate %ith principa#"
'i) Not to ma&e any secret profit beyon the commission"
'ii) Not to e#egate %or& or a-thority gi'en by the principa#"
i() D-ty to protect an p-rs-e the interest of the principa# in partic-#ar circ-mstances"
/ Rights:
i) Right to recei'e rem-neration"
ii) Right to retain money"
iii) Right of #ien+ E(cept other%ise agree. an agent has a right to retain goos. papers or other
property of the principa# recei'e by him:her -nti# the rightf-#:agree amo-nt of commission: payment
is reco'ere"
i') Right to inemnification of cost inc-rre in a #a%f-# act"
") Ri&ht to re!ei"e !o(ensation of $oss#