What is a Statutory Meeting?

It is the first meeting of the shareholders of a public company having share

capital and is held once in the lifetime of a company. A private limited company
and a company limited by guarantee not having share capital need not hold a
statutory meeting.
Statutory meeting must be held within a period of not less than one month and
not more than six months after the date on which it is authorized to commence
its business.

Statutory meeting and statutory report.

(1) Every public company that is a limited company and has a share capital
shall, within a period of not less than one month and not more than three months
after the date at which it is entitled to commence business, hold a general
meeting of the members of the company to be called the "statutory meeting".

(2) The directors shall at least seven days before the day on which the meeting
is to be held forward a report to be called the "statutory report" to every member
of the company.

(3) The statutory report shall be certified by not less than two directors of the
company and shall state—

(a) the total number of shares allotted distinguishing shares allotted as

fully or partly paid up otherwise than in cash, and stating in the case of
shares partly paid up the extent to which they are so paid up, and in either
case the consideration for which they have been allotted;

(b) the total amount of cash received by the company in respect of all the
shares allotted and so distinguished;

(c) an abstract of the receipts of the company and of the payments made
thereout up to a date within seven days of the date of the report exhibiting
under distinctive headings the receipts from shares and debentures and
other sources the payments made thereof and particulars concerning the
balance remaining in hand, and an account or estimate of the preliminary
expenses;

(d) the names and addresses and descriptions of the directors, trustees for
holders of debentures, if any, auditors, if any, managers, if any, and
secretaries of the company; and

(e) the particulars of any contract, the modification of which is to be

submitted to the meeting for its approval together with the particulars of
the modification or proposed modification.

(4) The statutory report shall, so far as it relates to the shares allotted and to the
cash received in respect of those shares and to the receipts and payments on
capital account, be examined and reported upon by the auditors, if any.

(5) The directors shall cause a copy of the statutory report and the auditor's
report, if any, to be lodged with the Registrar at least seven days before the date
of the statutory meeting.

(6) The directors shall cause a list showing the names and addresses of the
members and the number of shares held by them respectively to be produced at
the commencement of the meeting and to remain open and accessible to any
member during the continuance of the meeting.

(7) The members present at the meeting shall be at liberty to discuss any matter
relating to the formation of the company or arising out of the statutory report,
whether previous notice has been given or not, but no resolution of which notice
has not been given in accordance with the articles may be passed.

(8) The meeting may adjourn from time to time and at any adjourned meeting
any resolution of which notice has been given in accordance with the articles
either before or subsequently to the former meeting may be passed and the
adjourned meeting shall have the same powers as an original meeting.

(9) The meeting may by ordinary resolution appoint a committee of inquiry, and
at any adjourned meeting a special resolution may be passed that the company
be wound up if notwithstanding any other provision of this Act at least seven
days notice of intention to propose the resolution has been given to every
member of the company.

(10) In the event of any default in complying with this section every officer of
the company who is in default and every director of the company who fails to
take all reasonable steps to secure compliance with this section shall be guilty of
an offence against this Act.

Prospectus
The term ‗prospectus‘ refers to a mandatory document which contains an
invitation to subscribe for shares, issued by all the companies. It is a legal
document, wherein the offer their securities for public for purchase. It must be
in written format, i.e. an oral invitation to offer, for the purchase of shares will
not be regarded as a prospectus. It includes the red-herring prospectus, shelf
prospectus, abridged prospectus or any other circular or notice, that invites the
public to subscribe for its shares.

Prospectus is the key document of the body corporate, on which the investment
decisions of the prospective investors relies. So, it is mandatory for the
companies to make disclosure of all the material facts and also prohibits
variations in the terms and conditions of the contracts, as any misstatement or
concealment of facts can cause heavy loss to the investing public.
Statement of Lieu of Prospectus
The Statement in Lieu of Prospectus is a document filed with the Registrar of
the Companies (ROC) when the company has not issued prospectus to the
public for inviting them to subscribe for shares. The statement must contain the
signatures of all the directors or their agents authorised in writing. It is similar
to a prospectus but contains brief information.

The Statement in Lieu of Prospectus needs to be filed with the registrar if the
company does not issues prospectus or the company issued prospectus but
because minimum subscription has not been received the company has not
proceeded for the allotment of shares.

If the promoters of a public company hope to get the subscription of capital

from their own limited circle there is prospectus to the public. The promoters
shall have to file ‗a statement in lieu of prospectus.

If a public company is not issuing a prospectus on its formation. It then must

file a statement in lieu of Prospectus with the Registrar of the companies. A
statement in lieu of prospectus is defined as ‗a public document prepared in the
second schedule of companies ordinance by every such public company which
does not issue a prospectus on its formation by filing with the registrar before
allotment or shares of debentures, and signed by every person who is named
therein‘. A statement in lieu of prospectus gives practically the same
information as a prospectus and is signed by all the directors or proposed
directors. In case the company has not filed a statement in lieu of prospectus
with the registrar, it is then not allowed to allot any of its shares or debentures.

Difference between Prospectus and Statement in Lieu of Prospectus

Statement in Lieu of
Basis for Comparison Prospectus
Prospectus
Prospectus refers to a
Statement in lieu of
legal-document
prospectus is a document
published by the
issued by the company
Meaning company to invite
when it does not offer its
general public for
securities for public
subscribing its shares
subscription.
and debentures.
To encourage public To be filed with the
Objective
subscription. registrar.
Capital is raised from Capital is raised from
Used when
general public. known sources.
It contains details It contains information
Content prescribed by the Indian similar to a prospectus
Companies Act. but in brief.
Minimum subscription Required to be stated Not required to be stated
Key Differences between Prospectus and Statement in Lieu of Prospectus
The difference between prospectus and statement in lieu of prospectus is
described in the points given below:
1. A legal document published by the company to invite the general public
for subscribing its shares and debentures is called Prospectus. A
document published by the company when it does not offer its securities
for public subscription is called Statement in lieu of prospectus.
2. The prospectus is issued with a view to encouraging public subscription.
On the other hand, Statement in lieu of Prospectus is issued in order to be
filed with the registrar of companies.
3. The company publishes prospectus to raise funds from the general public.
Conversely, when the funds are to be raised from known sources, the
statement in lieu of prospectus is used.
4. Prospectus contains all the relevant details, prescribed by the Indian
Companies Act, 2013. On the contrary, Statement in lieu of Prospectus
contains similar details as given in a prospectus, but in short.
5. Minimum Subscription required to be stated in a prospectus but not in a
statement in lieu of prospectus because the document is not concerned
with an offer to issue securities at a stated price to subscribe.

Defunct Company:
A corporation which has been cancelled by the jurisdiction which initially
created it. In most jurisdictions, corporations (aka companies), are created by a
certificate issued in the name of the government and the corporation is put on an
official list of active companies.

For number reasons sometimes related to failure to file an annual report,

sometimes related to punitive action, the certification of a corporation can be
canceled by the government which initially issued it.In law, one will speak of a
corporation as being "struck from the Register". These companies are said to be
defunct. Most jurisdictions have complicated procedures available to revive a
defunct corporation.

Bangladesh International Arbitration Centre

Bangladesh International Arbitration Centre is the first international arbitration
institution of the country. It is registered as a not-for-profit organization and
commenced operations in April 2011 under a license from the Government.
Three prominent business Chambers of Bangladesh, namely, International
Chamber of Commerce-Bangladesh (ICC-B), Dhaka Chamber of Commerce &
Industry (DCCI) and Metropolitan Chamber of Commerce & Industry (MCCI),
Dhaka are sponsors of BIAC. The International Finance Corporation (IFC) – the
private sector arm of The World Bank – with funds from UK Aid and European
Union, is supporting BIAC in the initial stages under a co-operation agreement.
BIAC provides a neutral, efficient and reliable dispute resolution service in this
emerging hub of South Asia‘s industrial and commercial activity. BIAC
introduced its Arbitration Rules in April 2012. These Rules incorporate some of
the leading developments in domestic and international arbitration, while
conforming to the Bangladesh Arbitration Act 2001. BIAC is renowned for its
first-rate, state-of-the-art arbitration facilities, experienced panel of independent
arbitrators and excellence in serving its clients. Discover from these pages why
businesses increasingly choose to arbitrate in BIAC.

Why Choose BIAC

 BIAC is the first organization in Bangladesh to offer institutionalized

ADR facilities. In the short period of its existence, it has already hosted
arbitration from Bangladeshi and multinational or foreign companies
working in Bangladesh.
 BIAC offers cost effective arbitration services.
 Bangladesh legal systems and Courts are ADR friendly. Arbitration
Awards from Bangladesh are enforceable in more than 147 jurisdictions
through the ‗Convention on the Recognition and Enforcement of Foreign
Arbitral Award‘, just as awards from other contracting states may be
enforced in Bangladesh.
 BIAC Arbitration Rules have been drafted by eminent jurists of the
country, with the participation of a leading UK law firm and international
arbitration experts from the United States,incorporating global best
practices and conforming to Bangladesh legal regime.
 BIAC‘s independence and neutrality make it an attractive venue for
arbitration, while its commitment to confidentiality is greatly valued.
 State-of-the art hearing room facilities and other logistic arrangements
make it a pleasure to hold hearings at BIAC.
 Provision of Fast Track Arbitration where the sum in dispute is small.
 Monitoring and follow up by qualified and experienced Secretariat, allow
for timely disposal of cases at nominal administrative cost.
 Parties are free to chose arbitrators from anywhere in the world, as well
as from BIAC Panel of Arbitrators.
 BIAC is located in Dhaka, capital of Bangladesh, which is well-
connected to international aviation routes.

What does Non-disclosure mean?

Non-disclosure means failure to divulge a relevant fact when applying for an
insurance policy. This is a violation of the principle of good faith which should
be observed in insurance negotiations. A claim might not be awarded if the
insurer has proof of an insured's non-disclosure.

It is important that a person answers the questions in an insurance application

honestly. If they don't, they are guilty of misrepresentation and the consequence
might be the following: the contract can either be voided or their claim may be
denied. Their other obligation is to voluntarily offer information which is
relevant to the policy that they wish to buy. That is disclosure.

For example, an applicant who wants to get a property insurance for their house
should tell the insurer that it regularly functions as a venue for a sales meeting.
The presence of people other than the residents will make the insurer aware of
the potential damage it might cause the house. The insurer can also then assess
the risks right away and properly calculate the cost of the premium.

Misrepresentation and Non-Disclosure: Insurance Law

Misrepresentation or non-disclosure in applications for insurance may have

serious ramifications. False, incorrect or incomplete answers in the application
or non-disclosure of material facts may go to the root of the contract and put its
continued existence in jeopardy. The relationship between the insurer and the
insured is recognized as one where mutual obligations of trust and good faith
are paramount. At the time of the application, the essential facts are usually
known very well by the applicant but may be difficult for the insurer to
ascertain. The insurer is vulnerable and requires the material facts in order to
determine whether or not it will issue a policy, what specific exclusions it may
require, and what premium it will charge. There are, in fact, two distinct duties
on the applicant during the application process. Typically, the applicant is
interviewed by an agent or broker in order to complete the application.
Depending upon the nature and type of insurance coverage sought, the
application will contain a series of questions regarding the applicant's
background, business activities, health and the like. And the application will
typically contain a declaration to be executed by the applicant that the answers
provided are full, complete and true. As a result, there are two separate
significant issues: (1) Has the applicant misrepresented any answers to the
questions on the application? and (2) Has the applicant failed to disclose any
facts within his or her knowledge that are material to the insurance?

When an insurer takes the position that a policy is void by reason of

misrepresentation or non-disclosure, the insurer is not required to establish the
motives of the insured. The insured's motives are not relevant as long as the
misrepresentations are of a fact known to the insured which could be regarded
by a reasonable insurer as material to the risk. As it is standard practice for the
insurer to set out in the application a series of specific questions regarding the
applicant and matters relevant to insurability, a number of authorities have
considered the extent to which the questions on the application form modify,
limit or alter the general duty of disclosure. As a general rule, the fact that
particular questions relating to the risk are put to the applicant does not relieve
him or her of the independent obligation to disclose all material facts. However,
the particular form of question may bear on the scope and duty of disclosure and
may result in a finding that there has been waiver by the insurer. In situations
where the application form is completed with the assistance of an agent or
broker, the factual circumstances surrounding the completion of the application
are relevant to a determination as to whether there was misrepresentation or
non-disclosure. Where the agent or broker misinterprets the question or
provides misleading or incorrect advice to the insured, the insured may not be
held responsible for inaccurate answers. Further, if there is any uncertainty in
the scope and purview of the answers sought, the issue will be resolved in
favour of the insured. And the duty of disclosure imposed on the insured does
not stop at the application stage. It continues up to the moment when a binding
insurance contract is concluded.
The role of a Lloyd's Agent
A Lloyd's Agent is appointed by the Lloyd's Agency Department to supply local
shipping information and casualty intelligence and to provide surveying and, in
most instances, claim adjusting services to the global insurance industry and its
customers. Lloyd's Agents are appointed for their professionalism and expertise.

A firm or company having complied with the requirements of the Council of

Lloyd's for conducting an underwriting agency at Lloyd's and that acts for the
members except with respect to managing a syndicate.
Our aim – for Lloyd’s Agents to be the best marine service providers in
their regions

 All Lloyd‘s Agents can carry out or arrange pre- and post-loss marine
cargo surveys.
 Many Agents are skilled hull and machinery surveyors.
 Many Agents adjust and settle claims and conduct recovery action on
behalf of their principals.
 Many Agents undertake a range of non-marine surveying and claims
activities

What is CODIFICATION?
The process of collecting and arranging the laws of a country or state into a
code, t. e., into a complete system of positive law, scientifically ordered, and
promulgated by legislative authority.

A codifying statute is one which restates legal subject matter previously

contained in earlier statutes, the common law, and custom. It is a statute that
purports to be exhaustive in restating the whole of the law on a particular topic,
including prior caselaw as well as legislative provisions. The courts generally
presume that a codifying statute supersedes prior caselaw.

Public Law vs. Private Law: Definitions and Differences

Public Law Explained
To simplify things, public law deals with issues that affect the general public or
state - society as a whole. Some of the laws that its wide scope covers are:

 Administrative law-laws that govern government agencies, like the

Department of Education and the Equal Employment Opportunity
Commission
 Constitutional laws-are laws that protect citizens' rights as afforded in
the Constitution
 Criminal laws are laws that relate to crime
 Municipal laws-are ordinances, regulations and by-laws that govern a
city or town
 International laws-are laws that oversee relations between nations
Private Law Explained
Private law affects the rights and obligations of individuals, families,
businesses and small groups and exists to assist citizens in disputes that involve
private matters. Its scope is more specific than public law and covers:
 Contract law - governs the rights and obligations of those entering into
contracts
 Tort law - rights, obligations and remedies provided to someone who has
been wronged by another individual
 Property law - governs forms of property ownership, transfer and tenant
issues
 Succession law - governs the transfer of an estate between parties
 Family law - governs family-related and domestic-related issues
Aims
Public Law: Public Law aims to protect the public interest.
Private Law: Private Law seeks to protect only private interests.

Sanctions
Public Law: Penal sanctions are more severe; for example, sanctions exacted
for criminal activity include fines, imprisonment or death.
Private Law: Sanction usually include the payment of damages by the
defendant to the plaintiff;sometimes injunctions or specific performance are
granted.

Affected Parties
Public Law: The main parties involved here are the individuals and the state.
Private Law: The main parties involved are the private entities or organizations
acting in the private capacity.

Responsibilities
Public Law: This branch of law is responsible for regulating a harmonious
relation between the citizens and the state.
Private Law: This branch of law is responsible for regulating the activities
between two or more private entities in a just and fair manner.
Governing Area
Public law: This branch of tries to ensure the public interest of the general
population.
Private law: This branch of law tries to secure private interests/freedom of the
individuals in the community.
Overall Content
Public law: Public law defines the powers and obligations of the state and
establishes the rights and duties of the relationship among the individuals and
the governments. Applies to relationships between individuals in a legal system.
e.g. contracts and labor laws.
Private law: Private law characterizes the rights and obligations of people and
private bodies, in their relationship among the either. applies to the relationship
between an individual and the government. E.g. criminal law.
 Basis Private Law Public Law
Relationships between
individuals, such as the the The relationship between
Governs
Law of Contracts and the Law individuals and the state.
of Torts.
Civil law, labor law,
Constitutional,
Subdivisions commercial law, corporate law,
administrative and criminal.
competition law.
Common law (in Canada and
Other terms None
much of the US)

Implied warranty
As a point of law, the understanding that a particular product is safe and suitable
for a particular use, when the vendor knows at the time of sale the use for which
the product is intended.

Under a sales contract, whether written or oral, there is a guarantee that the item
sold is merchantable and fit for the purpose intended. This guarantee arises by
operation of law and is in addition to any expressed warranties that are provided
at the time of sale. These implied warranties exist to protect consumers who
might otherwise pay for products that are not as represented by the merchant.
What is an undisclosed principal?
In agency law, an undisclosed principal is a person who uses an agent for
negotiations with a third party who has no knowledge of the identity of the
agent's principal. Often in such situations, the agent pretends to be acting for
himself or herself.

Recession Insurance

NEW HAVEN – The Chief Economist of the International Monetary Fund,

Olivier Blanchard, and several IMF economists have proposed in a recent paper
that governments should offer what they call ―recession insurance.‖ Companies
and/or individuals would buy insurance policies, pay a regular premium for
them, and receive a benefit if some measure of the economy, such as GDP
growth, dropped below a specified level. Such insurance, they argue, would
help firms and people deal with the ―extreme uncertainty‖ of the current
economic environment.

Recession insurance might, indeed, help alleviate the economic crisis by

reducing uncertainty. After all, the real problem that we are currently facing is
one of paralysis: uncertainty has placed many spending decisions – by
businesses (on higher output) and by consumers (on the items that businesses
produce) – on hold. Reducing uncertainty might augment, or even be superior
to, fiscal stimulus programs, for it would address the root cause of the
unwillingness to spend.

Moreover, recession insurance might, in contrast to fiscal policy, impose no

costs on the government, for if it stimulates confidence, then the risk being
insured against is prevented. The government‘s ability to offer such insurance
on a scale sufficient to make it costless is one reason to favor a public scheme
over private insurers.

Define and distinguish between Ratio Decidendi and Obiter Dicta.

Ans. ‗Ratio Decidendi’ —It means reasons for the decision. If a question
comes before the Judge which is not covered by any authority he will have to
decide it upon principle, that is to say, he has to formulate the rule for the
occasion and decide the case applying that rule to the facts of the case. The rule
that he formulates in deciding the case will be law for all subsequent like cases.
Thus, whatever rule a .yige enunciates just for the purpose of deciding the case
before him, that is to say, the rule declared and applied by the Judge in deciding
a case before him, is a valid and authoritative act on his part. Hence, to extract
the law is a precedent.

One has to study the material facts of the case, the decision thereon, the rules
and principles enunciated by the Judge in the course of such decision, and then
pull out that rule or principle which is actually made use of by the Judge in
deciding the dispute in the case. The legal principle formulated for, and actually
applied in deciding the problem in the case is called ‗Ratio decidendi‘. It is the
legal principle which forms the basis of: adjudication of the points in issue.This
ratio decidendi has to be determined by the judge and he has to apply it to the
facts of a case which he is going to decide. This provides anj opportunity to the
judge to mould the law according to changed circumstances.

Obiter Dicta —It means ‗things said by the way‘. It is the statement of law
which is not strictly relevant to the facts of the case and goes beyond the
requirements of the points in issue. Obiter dicta are of little legal authority.At
best they amount only to persuasive precedent. They do not even bind the lips
that utter them. However, the obiter dicta pro-nounced by highest tribunals of
justice are at times binding like the obiter dicta of Supreme Court of India
conclusively binding on all inferior courts. Things said by the judge by way of
illustration or just to make the point clear to the persons can also be termed as
obiter dicta.

What is a Resulting Trust?

1. Resulting trusts are a fiction of the law that arises where property is
transferred or acquired by one under facts and circumstances which
indicate that the beneficial interest is not intended to be enjoyed by the
holder of legal title.
2. Resulting trusts are ordered by Courts using its ―equitable‖ powers.
Basically, when a court exercises its ―equitable‖ power, it is using its
inherent power to order anything that isn‘t prohibited by a statute or
constitution. As you might guess, this category of power is rather wide
ranging and includes almost anything that otherwise is specifically
prohibited by law.
3. The most critical factor for a court in determining whether to impose a
resulting trust from the facts and circumstances is the intent of the parties
involved.

Resulting trusts arise in typically three situations:

(1) purchase money trusts;
(2) instances where an express trust does not exhaust the property given
to the trustee; and
(3) where an express trust fails, in whole or in part.
Resulting (implied) trusts
A resulting trust involves a reversionary interest (i.e., an interest remaining in a
prior owner) when the equitable (or beneficial) interest in property was not
completely or effectively disposed of. Like a constructive trust, it arises by
operation of law rather than a settlor‘s express intent.
Generally, a resulting trust is established where:
1. The settlor did not completely dispose of all the equitable interests,
especially if there is excessive trust res;
2. Unanticipated circumstances arise for which the trust does not cover; or
3. The expressed trust is unenforceable, due to some flaw in its drafting.
Discretionary Trust

 This is a flexible type of trust which includes a wide range of potential

beneficiaries and allows you (the 'settlor') to add further beneficiaries
after the trust has been set up.
 The trustees decide which beneficiary(ies) will receive the plan proceeds
and so your choice of trustees is extremely important - you should only
choose people you can trust to carry out your wishes.
 The trust deed requires you to name ‗default beneficiaries‘ which helps to
indicate to your trustees who you‘d like to benefit from the plan proceeds
but ultimately the trustees have full discretion (which is why it‘s called a
Discretionary Trust) and can make payment to any of the potential
beneficiaries. If you require certainty then an Absolute Trust may be
more suitable.
 You cannot benefit from this type of trust and so it isn‘t suitable for plans
which include critical illness cover. That‘s because you won‘t be able to
benefit from your critical illness cover.
 The Discretionary Trust is suitable for single life and joint life second
death plans only - not joint life first death plans.

Protective trust
A type of private trust that enables the settlor to provide protection for an
immature or reckless beneficiary by transferring assets to trustees to hold on
protective trusts for that beneficiary. A beneficiary initially receives a life
interest in the trust fund which is protected in that it automatically comes to an
end if, for example, he is declared bankrupt or attempts to assign his interest to
his creditors. The fund will then be held on discretionary trusts for the benefit of
a wider class of beneficiaries which will include the beneficiary and his family.

What is a 'Prospectus'
A prospectus is a formal legal document that is required by and filed with the
Securities and Exchange Commission that provides details about an investment
offering for sale to the public. The preliminary prospectus is the first offering
document provided by a security issuer and includes most of the details of the
business and transaction in question; the final prospectus, containing finalized
background information including such details as the exact number of
shares/certificates issued and the precise offering price, is printed after the deal
has been made effective. In the case of mutual funds, a fund prospectus contains
details on its objectives, investment strategies, risks, performance, distribution
policy, fees and expenses, and fund management.

What is a 'Takeover'
A takeover occurs when an acquiring company makes a bid in an effort to
assume control of a target company, often by purchasing a majority stake. If the
takeover goes through, the acquiring company becomes responsible for all of
the target company‘s operations, holdings and debt. When the target is a
publicly traded company, the acquiring company makes an offer for all of the
target‘s outstanding shares.

Eventually, the insurance industry will subsume the computer security industry.
Not that insurance companies will start marketing security products, but rather
that the kind of firewall you use--along with the kind of authentication scheme
you use, the kind of operating system you use and the kind of network
monitoring scheme you use--will be strongly influenced by the constraints of
insurance.

Consider security, and safety, in the real world. Businesses don't install building
alarms because it makes them feel safer; they do it to get a reduction in their
insurance rates. Building owners don't install sprinkler systems out of affection
for their tenants, but because building codes and insurance policies demand it.
Deciding what kind of theft and fire prevention equipment to install are risk
management decisions, and the risk taker of last resort is the insurance industry.

What is the 'Articles Of Association'

The articles of association is a document that specifies the regulations for a
company's operations, and they define the company's purpose and lay out how
tasks are to be accomplished within the organization, including the process for
appointing directors and how financial records will be handled.
Articles of association often identify the manner in which a company will issue
stock shares, pay dividends and audit financial records and power of voting
rights. This set of rules can be considered a user's manual for the company
because they outline the methodology for accomplishing the day-to-day tasks
that must be completed.

The articles of association is a document that specifies the regulations for a

company's operations, and they define the company's purpose and lay out how
tasks are to be accomplished within the organization, including the process for
appointing directors and how financial records will be handled.

While the content of the articles of association and the exact terms used vary
from jurisdiction to jurisdiction, the document is quite similar everywhere, The
articles of association generally contain provisions on the company name, the
purpose of the company, the share capital, the organization of the company and
provisions regarding shareholder meetings.

A company‘s Articles of Association (AOA) is nothing but a primary

declaration of the company‘s nature of business and purpose along with the
Memorandum of Association which together form the company‘s constitution.
These must be submitted at the time of the incorporation of the company. This
clearly defines the overall responsibilities of the directors, the nature of the
business to be undertaken by the company and the means by which the
shareholders exert control over the board of directors.
Content of Articles of Association

As it is evident, an Articles of Association must contain all the necessary

information in regards to who holds the power distribution among the directors,
officers and shareholders, etc.

It also indicates who holds right of vote and veto, the nature and form in which
the primary business of the company is to be carried out, the structure for the
internal corporate governance of the concerned company, the means of internal
review by which executive decisions are being made, the bodies in whom
authority to make such decisions in the last resort finally rest, the process and
nature or percentage of votes that are required for the establishment of a
majority and make certain key decisions etc.

Also, side by side the rights and duties of the members of the company, their
names and numbers as well as other details relating to the contributed share
capital are included.
The Articles of Association also contains the following details:
 The appointments of the directors- which shows whether a shareholder
dominates or shares equality with all the contributors
 Directors Meeting- the quorum and also the percentage of the votes
 Major decisions of the Management
 Shares’ transferability- assigning rights of the founders or other
members of the company
 Extraordinary voting rights of the Chairman also his/her mode of
election
 Dividend policy- a percentage of profits to be declared when there is
profit or otherwise
 Winding up- the conditions, notice to members etc
 Confidentiality of know-how and the founders‘ agreement and penalties
for disclosure
 First right of refusal- purchasing rights and counter-bid by a founder
 Classes of shares, their values and the rights attached to each of them.
 Calls on shares, transfer of shares, forfeiture, conversion of shares and
alteration of capital.
 Directors, their appointment, powers, duties etc.
 Meetings and minutes, notices etc.
 Accounts and Audit
 Appointment of and remuneration to Auditors.
 Voting, poll, proxy etc.
 Dividends and Reserves
 Procedure for winding up.
 Borrowing powers of Board of Directors and managers etc.
 Minimum subscription.
 Rules regarding use and custody of common seal.
 Rules and regulations regarding conversion of fully paid shares into
stock.
 Lien on shares.
Alteration of Articles of Association
The alteration of the Articles should not sanction anything illegal. They should
be for the benefit of the company. They should not lead to breach of contract
with the third parties. The following are the regulations regarding alteration of
articles:
A company may alter its Articles with a special resolution. Due importance and
care should be given to ensure that the alteration of AoA does not conflict with
the provisions of the Memorandum of Association or the Companies Act. A
copy of every special resolution altering the Articles must be filed with the
Registrar within 30 days of its passing.

1. The proposed alteration should not contravene the provisions of the

Companies Act.
2. The proposed alteration should not contravene the provisions of the
Memorandum of Association.
3. The alteration should not propose anything that is illegal.
4. The alteration should be bonafide for the benefit of the company.
5. The proposed alteration should in no way increase the liability of existing
members.
6. Alteration can be made only by a special resolution.
7. Alteration can be done with retrospective effect.
8. The Court does not have any power to order alteration of the Articles of
Association.
The following companies must have their own articles of association:
1. Unlimited Companies
2. Companies limited by guarantee
3. Private companies limited by shares

Memorandum of Association
Memorandum of Association (MOA) is the supreme public document which
contains all those information that are required for the company at the time of
incorporation. It can also be said that a company cannot be incorporated without
memorandum. At the time of registration of the company, it needs to be
registered with the ROC (Registrar of Companies). It contains the objects,
powers, and scope of the company, beyond which a company is not allowed to
work, i.e. it limits the range of activities of the company.

Any person who deals with the company like shareholders, creditors, investors,
etc. is presumed to have read the company, i.e. they must know the company‘s
objects and its area of operations. The Memorandum is also known as the
charter of the company. There are six conditions of the Memorandum:

Clauses of Memorandum of Assocuation

 Name Clause – Any company cannot register with a name which CG
may think unfit and also with a name that too nearly resembles with the
name of any other company.
  Situation Clause – Every company must specify the name of the state in
which the registered office of the company is located.
 Object Clause – Main objects and auxiliary objects of the company.
 Liability Clause – Details regarding the liabilities of the members of the
company.
 Capital Clause – The total capital of the company.
 Subscription Clause – Details of subscribers, shares taken by them,
witness, etc.

Articles of Association
Articles of Association (AOA) is the secondary document, which defines the
rules and regulations made by the company for its administration and day to day
management. In addition to this, the articles contain the rights, responsibilities,
powers and duties of members and directors of the company. It also includes the
information about the accounts and audit of the company.

Every company must have its own articles. However, a public company limited
by shares can adopt Table A instead of Articles of Association. It comprises of
all the necessary details regarding the internal affairs and the management of the
company. It is prepared for the persons inside the company, i.e. members,
employees, directors, etc. The governance of the company is done according to
the rules prescribed in it. The companies can frame its articles of association as
per their requirement and choice.

Differences Memorandum of Association and Articles of Association

Basis for Memorandum of

Articles of Association
Comparison Association
Memorandum of Association
is a document that contains Articles of Association is
all the fundamental a document containing
Meaning information which are all the rules and
required for the regulations that governs
incorporation of the the company.
company.
Defined in Section 2 (56) Section 2 (5)
Type of Information Powers and objects of the
Rules of the company.
contained company.
It is subordinate to the It is subordinate to the
Status
Companies Act. memorandum.
The memorandum of
The articles of
association of the company
Retrospective Effect association can be
cannot be amended
amended retrospectively.
retrospectively.
The articles can be
A memorandum must
Major contents drafted as per the choice
contain six clauses.
of the company.
Obligatory Yes, for all companies. A public company
 limited by shares can
adopt Table A in place
of articles.
Compulsory filing
at the time of Required Not required at all.
Registration
Alteration can be done, after
passing Special Resolution
Alteration can be done in
(SR) in Annual General
the Articles by passing
Meeting (AGM) and
Alteration Special Resolution (SR)
previous approval of Central
at Annual General
Government (CG) or
Meeting (AGM)
Company Law Board (CLB)
is required.
Regulates the
relationship between
Defines the relation between company and its
Relation
company and outsider. members and also
between the members
inter se.
Acts done beyond Can be ratified by
Absolutely void
the scope shareholders.

Key Differences Between Memorandum of Association and Articles of

Association

The major differences between memorandum of association and articles of

association are given as under:
1. Memorandum of Association is a document that contains all the condition
which are required for the registration of the company. Articles
of Association is a document that contains the rules and regulation for the
administration of the company.
2. Memorandum of Association is defined in section 2 (56) while the
Articles of Association is defined in section 2 (5) of the Indian
Companies Act 1956.
3. Memorandum of Association is subsidiary to the Companies Act,
whereas Articles of Association is subsidiary to both Memorandum of
Association as well as the Act.
4. In any contradiction between the Memorandum and Articles regarding
any clause, Memorandum of Association will prevail over the Articles of
Association.
5. Memorandum of Association contains the information about the powers
and objects of the company. Conversely, Articles of Association contain
the information about the rules and regulations of the company.
6. Memorandum of Association must contain the six clauses. On the other
hand, Articles of Association is framed as per the discretion of the
company.
 7. Memorandum of Association is obligatory to be registered with the ROC
at the time of registration of Company. As opposed to Articles of
Association, is not required to be filed with the registrar, although the
company may file it voluntarily.
8. Memorandum of association defines the relationship between company
and external party. On the contrary, articles of association govern the
relationship between the company and its members and also between the
members themselves.
9. When it comes to scope, the acts performed beyond the scope of
memorandum are absolutely null and void. In contrast, the acts done
beyond the scope of artciles can be ratified by unanimous voting of all
shareholders.

What is a Memorandum of Association?

Memorandum of Association is the most important document of a company. It
states the objects for which the company is formed. It contains the rights,
privileges and powers of the company. Hence it is called a charter of the
company. It is treated as the constitution of the company. It determines the
relationship between the company and the outsiders.

The whole business of the company is built up according to Memorandum of

Association. A company cannot undertake any business or activity not stated in
the Memorandum. It can exercise only those powers which are clearly stated in
the Memorandum.

Lord Cairns:“The memorandum of association of a company is the charter and

defines the limitation of the power of the company established under the Act‖.

Thus, a Memorandum of Association is a document which sets out the

constitution of the company. It clearly displays the company‘s relationship with
outside world. It also defines the scope of its activities. MoA enables the
shareholders, creditors and people who has dealing with the company in one
form or another to know the range of activities.

Contents of Memorandum of Association

According to the Companies Act, the Memorandum of Association of a
company must contain the following clauses:
1. Name Clause of Memorandum of Association
The name of the company should be stated in this clause. A company is free to
select any name it likes. But the name should not be identical or similar to that
of a company already registered. It should not also use words like King, Queen,
Emperor, Government Bodies and names of World Bodies like U.N.O.,
W.H.O., World Bank etc. If it is a Public Limited Company, the name of the
company should end with the word ‗Limited‘ and if it is a Private Limited
Company, the name should end with the words ‗Private Limited‘.
2. Situation Clause of Memorandum of Association
In this clause, the name of the State where the Company‘s registered office is
located should be mentioned. Registered office means a place where the
common seal, statutory books etc., of the company are kept.The company
should intimate the location of registered office to the registrar within thirty
days from the date of incorporation or commencement of business.
The registered office of a company can be shifted from one place to another
within the town with a simple intimation to the Registrar. But in some situation,
the company may want to shift its registered office to another town within the
state. Under such circumstance, a special resolution should be passed. Whereas,
to shift the registered office to other state, Memorandum should be altered
accordingly.
3. Objects Clause of Memorandum of Association
This clause specifies the objects for which the company is formed. It is difficult
to alter the objects clause later on. Hence, it is necessary that the promoters
should draft this clause carefully. This clause mentions all possible types of
business in which a company may engage in future.
The objects clause must contain the important objectives of the company and
the other objectives not included above.
4. Liability Clause of Memorandum of Association
This clause states the liability of the members of the company. The liability may
be limited by shares or by guarantee. This clause may be omitted in case of
unlimited liability.
5. Capital Clause of Memorandum of Association
This clause mentions the maximum amount of capital that can be raised by the
company. The division of capital into shares is also mentioned in this clause.
The company cannot secure more capital than mentioned in this clause. If some
special rights and privileges are conferred on any type of shareholders mention
may also be made in this clause.
6. Subscription Clause of Memorandum of Association
It contains the names and addresses of the first subscribers. The subscribers to
the Memorandum must take at least one share. The minimum number of
members is two in case of a private company and seven in case of a public
company.
Thus the Memorandum of Association of the company is the most important
document. It is the foundation of the company.

Purpose of memorandum:
The purpose of the memorandum is two fold.
1. The intending share holder who contemplates the investment of his capital
shall know within what field it is to be put at risk.
2. Anyone who shall deal with the company shall know without reasonable
doubt whether the contractual relation into which he contemplates entering with
the company is one relating to a matter within its corporate objects.

At least seven persons in the case of public company and at least two in the case
of a private company must subscribe to the memorandum. The memorandum
shall be printed, divided into consecutively numbered paragraphs, and shall be
signed by each subscriber, with his address, description and occupation added,
the presence of at least one witness who will attest the same.

Condition
Certain terms, obligations, and provisions are imposed by the buyer and seller
while entering into a contract of sale, which needs to be satisfied, which are
commonly known as Conditions. The conditions are indispensable to the
objective of the contract. There are two types of conditions, in a contract of sale
which are:
 Expressed Condition: The conditions which are clearly defined and
agreed upon by the parties while entering into the contract.
 Implied Condition: The conditions which are not expressly provided, but
as per law, some conditions are supposed to be present at the time making
the contract. However, these conditions can be waived off through
express agreement. Some examples of implied conditions are:
o The condition relating to the title of goods.
o Condition concerning the quality and fitness of the goods.
o Condition as to wholesomeness.
o Sale by sample
o Sale by description.

Warranty
A warranty is a guarantee given by the seller to the buyer about the quality,
fitness and performance of the product. It is an assurance provided by the
manufacturer to the customer that the said facts about the goods are true and at
its best. Many times, if the warranty was given, proves false, and the product
does not function as described by the seller then remedies as a return or
exchange are also available to the buyer i.e. as stated in the contract.
A warranty can be for the lifetime or a limited period. It may be either
expressed, i.e., which is specifically defined or implied, which is not
explicitly provided but arises according to the nature of sale like:

 Warranty related to undisturbed possession of the buyer.

 The warranty that the goods are free of any charge.
 Disclosure of harmful nature of goods.
 Warranty as to quality and fitness
 Differences Between Condition and Warranty

Basis for
Condition Warranty
Comparison
A requirement or event A warranty is an assurance
that should be performed given by the seller to the
Meaning before the completion of buyer about the state of the
another action, is known product, that the prescribed
as Condition. facts are genuine.
Section 12 (2) of Indian Section 12 (3) of Indian Sale
Defined in
Sale of Goods Act, 1930. of Goods Act, 1930.
It is directly associated It is a subsidiary provision
What is it? with the objective of the related to the object of the
contract. contract.
Claim damages for the
Result of breach Termination of contract.
breach.
Violation of condition
Violation of warranty does
Violation can be regarded as a
not affect the condition.
violation of the warranty.
Remedy available
Repudiate the contract as
to the aggrieved Claim damages only.
well as claim damages.
party on breach

Key Differences Between Condition and Warranty

The following are the major differences between condition and warranty in
business law:
1. A condition is an obligation which requires being fulfilled before another
proposition takes place. A warranty is a surety given by the
seller regarding the state of the product.
2. The term condition is defined in section 12 (2) of the Indian Sale of
Goods, Act 1930 whereas warranty is defined in section 12 (3).
3. The condition is vital to the theme of the contract while Warranty is
ancillary.
4. Breach of any condition may result in the termination of the contract
while the breach of warranty may not lead to the cancellation of the
contract.
5. Violating a condition means violating a warranty too, but this is not the
case with warranty.
6. In the case of breach of condition, the innocent party has the right to
rescind the contract as well as a claim for damages. On the other hand, in
breach of warranty, the aggrieved party can only sue the other party for
damages.
Insurance vs Wagering Contract
In a wagering contract, the parties create the risk and want to make money on
the happening or otherwise of an event, while in insurance, the risk already
exists and the purpose of contract is simply to transfer the risk. Though there is
uncertainty and payment is made on the happening of the event, in both the
cases, really it is to so. The following are the differences between these two
contracts.
1. Enforceable:A contract of insurance is legally enforceable, a wager is not.

2. Insurable Interest :There must be insurable interest in the subject matter

under a contract of insurance. This is not necessary for a wager, where the
interest is limited usually to the stake won or lost.

3. Utmost good faith : A contract of insurance requires the parties to observe

utmost good faith but in case of a wagering contract, good faith need not be
observed.

4. Premium: In case of a wagering contract, no consideration by way of

premium is given by the insured to the insurer, whereas in the case of an
insurance contract, there is consideration due to the presence of insurable
interest.

5. Social Approval : Insurance contracts have the general approval of the

society and are encouraged as they benefit the community as a whole, while
wagering contracts are not approved by the society.

6. Indemnity:Indemnity and nothing more than indemnity is obtained under a

policy of insurance other than life or persona accident; this does not enter into a
wager. The sum paid under a contract of insurance represents the actual loss
sustained; he who wins a bet has his stake returned, together with some
addition.

7. Happening of Event:An insured event (except death) against the risk of

which the insurance is taken may or may not take place at all. The wagering
event is bound to happen.

8. Risk:Insurance is meant for protection, if the risk which is already there,

materializes. But the risk is oriented in wagering contracts.

9. Amount:The wagering amount is paid immediately on the occurrence of the

event. Only if there is a loss owing to the occurrence of the event, the money
will be paid subject to a maximum limit specified in insurance contract.

10. Calculations:A wagering contract is a blind contract and there is no

yardstick to assess the risk accurately. As against this, all insurance contracts
are based on scientific and actuarial calculation of risks and the premium is
calculated by taking into account all the circumstances attending on the risk.

11. Risk in Claims:With nearly every type of insurance contract, claims

involve risks of varying degrees. A fire insurance policy, for instance may
involve crores of rupees or not even a single paisa. With wagers, the amount
payable to the winner or payable by the loser is known in advance. Thus, a
wager is either won or lost.

12. Return of premium paid:Under an insurance agreement, the insurer is

liable to pay the money, if an insured event occurs, but is not required to return
the premium. But in case of a wagering contract, the premium paid is also
returned to the winner in addition to the prize money.

The differences between wagering and insurance

Contract of Insurance Wagering Agreement
1. A contract of insurance is a contract to 1. A wagering agreement is an
make good the loss of property (or life) of agreement to pay money or money's
another person against some worth on the happening of an
consideration called premium. uncertain event.
2. In a contract of insurance the insured 2. No insurable interest is necessary
must have insurable interest. Without in case of a wagering agreement.
insurable interest it will be a wagering
agreement.
3. In a contract of insurance both the 3. In a wagering agreement, there is
parties are interested in the protection of conflict of interest and in reality
the subject matter, i.e., there is mutuality there is no interest at all to protect.
of interest.
4. Except life insurance, a contract of 4. In case of a wagering agreement
insurance is a contract of indemnity, i.e., a there is no question of indemnity.
contract to make good the loss. On the happening of the event fixed
amount becomes payable.

Express Warranties
An express warranty can take several different forms, whether spoken or
written, and is basically a guarantee that the product will meet a certain level of
quality and reliability. If the product fails in this regard, the manufacturer will
fix or replace the product for no additional charge. Many such warranties are
printed on a product's packaging or made available as an option.
A verbal express warranty may be as simple as a car dealer telling a customer,
"I guarantee that this engine will last another 100,000 miles." If the car fails to
live up to this claim, the buyer may take it up with the seller (although proving
the existence of a verbal warranty is very difficult).
Other warranties may be expressed in writing but do not necessarily look like
traditional warranties. For example, a light bulb manufacturer prints the words
"lasts 15,000 hours" on its packaging. The words "guaranteed" or "warranty" do
not appear, but this claim nevertheless is an express warranty.

Implied Warranties
Most consumer purchases are covered by an implied warranty of
merchantability, which means it is guaranteed to work as claimed. For instance,
a vacuum cleaner that does not create enough suction to clean an average floor
is in breach of the implied warranty of merchantability. Federal law defines
"merchantable" by the following criteria:
  They must conform to the standards of the trade as applicable to the
contract for sale.
 They must be fit for the purposes such goods are ordinarily used, even if
the buyer ordered them for use otherwise.
 They must be uniform as to quality and quantity, within tolerances of the
contract for sale.
 They must be packaged and labeled per the contract for sale.
 They must meet the specifications on the package labels, even if not so
specified by the contract for sale.
Even used goods are covered, although some states allow retailers of either used
or new goods to invalidate the implied warranty by stating "sold as is."
Products guaranteed for a different purpose than what the manufacturer
explicitly intended come with an implied warranty of fitness. For example, if a
shoe salesperson sells you a pair of high heels for running -- assuming you've
made it clear that you want shoes for running -- then your purchase is covered
under an implied warranty of fitness.

Difference Between Fraud and Misrepresentation

Basis for
Fraud
Comparison
Meaning A deceptive act done
intentionally by one party in
order to influence the other
party to enter into the contract
is known as Fraud.
Section 2 (17) of the Indian
Defined in
Contract Act, 1872
Purpose to
deceive the Yes
other party
Variation in In a fraud, the party making
extent of the representation knows that
truth the statement is not true.
The aggrieved party, has the
Claim
right to claim for damages.
The contract is voidable even
Voidable if the truth can be discovered
in normal diligence.
Misrepresentation
The representation of a
misstatement, made innocently,
which persuades other party to
enter into the contract, is known
as misrepresentation.
Section 2 (18) of the Indian
Contract Act, 1872
No
In misrepresentation, the party
making the representation
believes the statement made by
him is true, which subsequently
turned out as false.
The aggrieved party has no right
to sue the other party for
damages.
The contract is not voidable if
the truth can be discovered in
normal diligence.

Key Differences Between Fraud and Misrepresentation

The major difference between fraud and misrepresentation are as under:

1. Fraud is a deliberate misstatement of a material fact. Misrepresentation is
a bonafide representation of misstatement believing it to be true which
turns out to be untrue.
 2. Fraud is done to deceive the other party, but Misrepresentation is not
done to deceive the other party.
3. Fraud is defined in Section 17 and misrepresentation is defined in Section
18 of the Indian Contract Act, 1872.
4. In fraud, the party making representation knows the truth however in
misrepresentation, the party making representation does not know the
truth.
Assignment of life insurance policy

Assignment of life insurance policy simply means transfer of rights from one
person to another. The policyholder can transfer the rights of his insurance
policy to another for various reasons and this process is called Assignment.

The person who assigns the policy, i.e. transfers the rights, is called the
Assignor and the one to whom the policy has been assigned, i.e. the person to
whom the policy rights have been transferred is called the Assignee. Once the
rights have been transferred to the Assignee, the rights of the Assignor stands
cancelled and the Assignee becomes the owner of the policy.

There are 2 types of Assignment:

1. Absolute Assignment - This means complete Transfer of Rights from the
Assignor to the Assignee, without any further conditions applicable.
2. Conditional Assignment -This means that the Transfer of Rights will happen
from the Assignor to the Assignee subject to certain conditions.If the conditions
are fulfilled then only the Policy will get transferred from the Assignor to the
Assignee.
Let‘s take an example:
Rahul owns 2 Life Insurance policies of value Rs 2 lakhs and Rs 5 lakhs
respectively. He would like to gift one policy of Rs 2 lakhs to his best friend
Ajay. In that case, he would like to absolutely assign the policy in his name
such that the death or maturity proceeds are directly paid to him. Thus, after the
assignment, Ajay becomes the absolute owner of the policy. If he wishes, he
may again transfer it to someone else for any other reason. This type of
Assignment is called Absolute Assignment.

Now, Rahul needed to take a loan for Rs 5 lakhs. So, he thought of doing so
against the other policy that he owned for Rs 5 lakhs. To take a loan from ABC
bank, he needed to conditionally assign the policy to that Bank and then the
bank would be able to pay out the loan money to him. If Rahul failed to repay
the loan, then the bank would surrender the policy and get their money back.

Once Rahul‘s loan is completely repaid, then the policy would again come back
to him. In case, Rahul died before completely repaying the loan, then also the
bank can surrender the policy to get their money back. This type of Assignment
is called Conditional Assignment.
What is a collateral assignment of life insurance?
A collateral assignment of life insurance is a conditional assignment appointing
a lender as the primary beneficiary of a death benefit to use as collateral for a
loan. If the borrower is unable to pay, the lender can cash in the life insurance
policy and recover what is owed. Businesses readily accept life insurance as
collateral due to the guarantee of funds if the borrower were to die or default. In
the event of the borrower's death before the loan's repayment, the lender
receives the amount owed through the death benefit and the remaining balance
is then directed to other listed beneficiaries.
The borrower must be the owner of the policy, but not necessarily the insured,
and the policy must remain current for the life of the loan with the owner
continuing to pay all necessary premiums. Any type of life insurance policy is
acceptable for collateral assignment, provided the insurance company allows
assignment for the particular policy. A permanent life insurance policy with
a cash value allows the lender access to the cash value to use as loan payment if
the borrower were to default.
Alternately, the policy owner's access to the cash value is restricted in an effort
to protect the collateral. If the loan is repaid before the borrower's death, the
assignment is removed and the lender is no longer the beneficiary of the death
benefit. Insurance companies must be notified of collateral assignment of a
policy, but other than their obligation to meet the terms of the contract, they
remain disinterested in the agreement.

What is the difference between Contracts and Quasi Contracts?

Contracts
1. A contract is a contract between two parties. In contract, always there is
an agreement between the parties.
2. In contract, always there is an agreement between the parties.
3. In contract, the parties must give their consent to it.
4. In contract, the liability exists between the parties by the terms of the
parties.
5. Examples: A sells his house to B for certain consideration. It is a contract.
The consumers purchase the goods and services from the shop-owners.
6. It is created by the operation of the contract.
7. It is right in rem, and also right in personam.
8. The word ―contract‖ is divided from the Latin ―contractum‖ which gives
meaning ―drawn together‖ or ―consensus ad idem (identity of minds).
Thus the meaning of ―contract‖ is a drawing together of two or more
minds to form a common intention giving rise to an agreement‖.
9. 10. Essentials:
o Free consent;
o The parties must be competent;
o There must be lawful consideration and lawful object;
o The agreement must not expressly be declared to be void; and
o If the law in force requires, it must be registered.
10. Example: A enters into a hotel and eats some food. It is the liability of A
to pay the consideration for food. It is an implied contract. The contract is
implied in fact. It is a true contract.
Quasi Contracts

1. A quasi-contract is not a real contract. Quasi contracts are also known as

―constructive contracts‖ or ―certain relations resembling those created by
contracts‖.
2. Where as in quasi-contract, there is no agreement between the parties.
3. Where as in quasi-contract, the parties do not consent.
4. In quasi-contract, the liability exists independent of the agreement and
rests upon equity, justice and good conscience.
5. Example: A is a lunatic. He has some property. B-son of A, met an
accident. Moved by the pitiable condition of the boy-B, X spends Rs.
1,000/- for B‘s treatment. X can claim this amount from A and his
property.
6. It is imposed by law. It is not created by the operation of the contract.
7. It is right in personam. I.e. strictly available against a person and is not
available against the entire world.
8. Salmond defines quasi contracts: ―there are certain obligations which are
not in truth contractual in the sense of resting on agreement, but which
the law treats as if they were‖.
9. Essentials:
o It is imposed by law. It is not created by contract;
o It is a right in personam;
o The person who incurs expenses is entitled to receive money
(unjust enrichment); and
o It is raised by a legal fiction.
10. Example: A- a publisher entrusts to B a printer to print a book. Half of the
printing work is completed. Then B finds that the book is libelous one
and he may be prosecuted by the state. He stops the work. What would be
his position? Then came‘s the doctrine of ―quasi-contracts‖. It gives
reasonable remuneration for the services actually rendered by B. B is
entitled to get reasonable remuneration from A for the work completed.
Here it becomes ―a contract implied in law‖. It is a quasi-contract.

Difference between “Tort” and “Quasi-Contracts”

Tort
1. The plaintiff is entitled to get unliquidated damages.
2. In the law of torts, the duty is towards persons generally. Every person is
under certain obligations against other public, i.e. not to cause injury or harm,
etc. These duties and rights of every person is ―rights in rem.‖
3. In tortious liability, the plaintiff and the defendant may or may not knew each
other before the tortious liability arises.

Quasi-contract
1. Injunctions, specific restitution of property, and the payment of liquidated
damages of money by way of penalty, etc. are the legal remedies available for
plaintiff under quasi-contracts.
2. There is a contract implied by the law, and therefore contractual liability is
imposed upon the defendant. The plaintiffs rights against the defendant are
―rights in personam.‖
3. In quasi-contractual obligations, generally, the plaintiff and defendant know
each other from the beginning, and then it ripens into contractual liability.

What is the difference between Agent and Bailee?

It is also necessary to properly understand the distinction between an agent and
a bailee. There is too much of similarity between the two and at times a bailee
might be acting as an agent and an agent may be acting as a bailee.Although
there are the following points of similarity, yet there is some distinction
between the two:

Similarity between Agent and Bailee:

1. Degree of care to be exercised by a bailee and an agent is the same, i.e,
ordinary care.
2. A bailee may become an agent in case the principal asks him to dispose of the
property.
3. Likewise, an agent may be in possession of principal's property, as such, to
thai extent he is a liable.

Agent
1. An agent is appointed to represent the principal or to act on his behalf.
2. Possession of goods is not necessary for the relationship of agency to persist.
3. An agency is generally remunerative.
4. A principal is liable for the acts of the agent.

Bailee
1. A bailee has no power either to represent the principal or to act on his behalf.
2. The relationship of bailment exists so long as the bailee is in possession of
the goods belonging to the bailor.
3. A bailment may be gratuitous.
4. A bailor is not liable for the acts of the bailee
Definition of Coercion

Coercion is a practice of unlawfully intimidating a person or property,

employed to induce a person to enter into an agreement without his independent
will. This involves physical pressure. It is an act of compelling a person in such
a manner that he doesn‘t have any choice rather than entering into an agreement
with the other party.

Coercion includes blackmailing, threatening to kill or beat any person, torture,

harming the family of a person, detaining property. Moreover, it includes the
actual committing or threatening to commit an offence which is strictly
prohibited, or forbidden by the Indian Penal Code (IPC), 1860. The acts
influenced by coercion are voidable, not void i.e. if the other party whose will is
influenced by coercion seems any benefit in the contract, then it can be
enforceable.

Example: A threatens B to marry him, or else he will kill her whole family. In
this situation, the consent of B is not free i.e. coercion influences it.

Undue Influence

Undue Influence is a situation in which one person, influences the free will of
someone else by using his position and authority over the other person, which
forces the other person to enter into an agreement. Mental pressure and moral
force are involved in it.

The parties to the contract are in fiduciary relation to each other like a master –
servant, teacher – student, trustee – beneficiary, doctor – patient, parent – child,
solicitor – client, employer – employee, etc. The dominant party tries to
persuade the decisions of the weaker party, to take unfair advantage of his
position. The contract between the parties is voidable, i.e. the weaker party can
enforce it if he seems some benefit in it.

Example: A teacher forces his student to sell his brand new watch, in a very
nominal price, to get good grades in the examination. In this situation, the
consent of the student is affected by the undue influence.

Differences Between Coercion and Undue Influence

Basis for
Coercion Undue Influence
Comparison
Coercion is an act of Undue Influence is an act of
Meaning threatening which involves influencing the will of the
the use of physical force. other party.
It is governed by Section 15 It is governed by Section 16
Sections of the Indian Contract Act, of the Indian Contract Act,
1872. 1872.
Psychological pressure or Mental pressure or Moral
Use of
Physical force force
To compel a person in such
a way that he enters into a To take unfair advantage of
Purpose
contract with the other his position.
party.
Criminal Nature Yes No
The act of undue influence
is done only when the
The relationship between
Relationship parties to the contract are in
parties is not necessary.
relationship. Like teacher -
student, doctor - patient etc.

Key Differences Between Coercion and Undue Influence

The major differences between coercion and undue influence are as under:
1. The act of threatening a person in order to induce him to enter into an
agreement is known as coercion. The act of persuading the free will of
another individual, by taking advantage of position over the weaker party,
is known as undue influence.
2. Coercion is defined in section 15 while Undue Influence is defined in
section 16 of the Indian Contract Act, 1872.
3. Any benefit received under coercion is to be restored back to the other
party. Conversely, any benefit received under the undue influence is to be
returned to the party as per the directions given by the court.
 4. The party who employs coercion is criminally liable under IPC. On the
other hand, the party who exercises undue influence is not criminally
liable under IPC.
5. Coercion involves physical force, whereas Undue Influence involves
mental pressure.
6. The parties under coercion need not be in any relationship with each
other. As opposed to undue influence, the parties must be in a fiduciary
relationship with each other.

Indemnity

A form of contingent contract, whereby one party promises to the other party
that he will compensate the loss or damages occurred to him by the conduct of
the first party or any other person, it is known as the contract of indemnity. The
number of parties in the contract is two, one who promises to indemnify the
other party is indemnifier while the other one whose loss is compensated is
known as indemnified.The indemnity holder has the right to reimburse the
following sums from the indemnifier:

 Damages caused, for which he was compelled.

 The amount paid for defending the suit.
 The amount paid for compromising the suit.
One more common example of indemnity is the insurance contract where the
insurance company promises to pay for the damages suffered by
the policyholder, against the premiums.
Guarantee

When one person signifies to perform the contract or discharge the liability
incurred by the third party, on behalf of the second party, in case he fails, then
there is a contract of guarantee. In this type of contract, there are three parties,
i.e. The person to whom the guarantee is given is Creditor, Principal Debtor is
the person on whose default the guarantee is given, and the person who gives a
guarantee is Surety.
Three contracts will be there, first between the principal debtor and creditor,
second between principal debtor and surety, third between the surety and the
creditor. The contract can be oral or written. There is an implied promise in the
contract that the principal debtor will indemnify the surety for the sums paid by
him as an obligation of the contract provided they are rightfully paid. The surety
is not entitled to recover the amount paid by him wrongfully.

Distinguish between indemnity and guarantee

Answer:
Indemnity and guarantee are two important ways to safeguard ones interests
when entering into a contract. There are many similarities between the two
concepts though they differ a lot also.
Distinction between a contract of guarantee and a contract of indemnity:
L.C. Mather in his book ‗Securities Acceptable to the Lending Banker‘ has
brought out the distinction between indemnity and guarantee by the following
illustration. A contract in which A says to B, ―If you lend Rs. 1 Lac to C, I will
see that your money comes back‖ is an indemnity. On the other hand
undertaking in these words, ―If you lend 1 Lac to C and he does not pay you, I
will pay‖ is a guarantee. Thus, in a contract of indemnity, there are only two
parties, indemnifier and indemnified. In case of a guarantee, on the other hand,
there are three parties, the ‗principal debtor‘, the ‗creditor‘ and the ‗surety‘.
A guarantee is a promise to someone that a third party will meet its obligation to
them. ―If they do not pay you, I will pay you‖. An indemnity is a promise to be
responsible for another person‘s loss and to agree to compensate them for any
loss or damage on mutually agreed terms. For example, one agrees to pay the
difference of repairs if they exceed a certain limit.
Other points of difference are:
Basis for
Indemnity Guarantee
Comparison
A contract in which a party
A contract in which one party
promises to another party
promises to another that he
that he will perform the
will compensate him for any
Meaning contract or compensate the
loss suffered by him by the
loss, in case of the default of
act of the promisor or the
a their person, it is the
third party.
contract of guarantee.
Section 124 of Indian Section 126 of Indian
Defined in
Contract Act, 1872 Contract Act, 1872
Two, i.e. indemnifier and Three, i.e. creditor, principal
Parties
indemnified debtor and surety
Number of
One Three
Contracts
Degree of liability
Primary Secondary
of the promisor
To give assurance to the
Purpose To compensate for the loss
promisee
Maturity of When the contingency
Liability already exists.
Liability occurs.
Comprise only two parties- There are three parties
the indemnifier and the namely the surety, principal
indemnity holder. debtor and the creditor.
The liability of the surety is
secondary. The surety is
Liability of the indemnifier is liable only if the principal
primary. debtor makes a default. The
primary liability being that
of the principal debtor.
 The indemnifier need not The surety give guarantee
necessarily act at the request only at the request of the
of the indemnified. principal debtor
The possibility of any loss
There is an existing debt or
happening is the only
duty‘ the performance of
contingency against which
which is guarantee by the
the indemnifier undertakes to
surety.
indemnify.
The indemnifier cannot
After discharging the debt,
proceed against third parties
the surety is entitled to
in his own name, unless there
proceed against the principal
is an assignment in his
debtor in his own name.
favour.

Key Differences Between Indemnity and Guarantee

The following are the major differences between indemnity and guarantee:
1. In the contract of indemnity, one party makes a promise to the other that
he will compensate for any loss occurred to the other party because of the
act of the promisor or any other person. In the contract of guarantee, one
party makes a promise to the other party that he will perform the
obligation or pay for the liability, in the case of default by a third party.
2. Indemnity is defined in Section 124 of Indian Contract Act, 1872, while
in Section 126, Guarantee is defined.
3. In indemnity, there are two parties, indemnifier and indemnified but in
the contract of guarantee, there are three parties i.e. debtor, creditor, and
surety.
4. The liability of the indemnifier in the contract of indemnity is primary
whereas if we talk about guarantee the liability of the surety is secondary
because the primary liability is of the debtor.
5. The purpose of the contract of indemnity is to save the other party from
suffering loss. However, in the case of a contract of guarantee, the aim is
to assure the creditor that either the contract will be performed, or
liability will be discharged.
6. In the contract of indemnity, the liability arises when the contingency
occurs while in the contract of guarantee, the liability already exists.

8 main Elements of Marine Insurance Contract

The marine insurance has the following essential features which are also called
fundamental principles of marine insurance,
(1) Features of General Contract,
(2) Insurable Interest,
(3) Utmost Good Faith,
(4) Doctrine of Indemnity,
(5) Subrogation,
(6) Warranties
(7) Proximate cause,
(8) Assignment and nomination of the policy.
(9) Return of premium.

1. Features of General Contract :

(a) Proposal :
The broker will prepare a slip upon receipt of instructions to insure from ship
owner, merchant or other proposers. Proposal forms, so common in other
branches of insurances, are unknown in the marine insurance and only the 'slip'
so called 'the original slip' is used for the proposal.

The original slip is accompanied with other material information which the
broker deems necessary for the purpose. The brokers are expert and well versed
in marine insurance law and practice.The various kinds of marine proposals are
altogether too diverse, so elaborate rating schedules are not possible and the
proposals are considered on individual merits.

(b) Acceptance : The original slip is presented to the Lloyd's Underwriters or

other insurers or to the Lead of the insures, who initial the slip and the proposal
is formally accepted. But the contract cannot be legally enforced until a policy
is issued.

The slip is evidence that the underwriter has accepted insurance and that he has
agreed subsequently to sign a policy on the terms and conditions indicated on
the slip. If the underwriter should refuse to issue or sign a policy, he could not
legally be forced to do so.

(c) Consideration: The premium is determined on assessment of the proposal

and is paid at the time of the contract. The premium is called consideration to
the contract.

(d) Issue of Policy: Having effected the insurance, the broker will now send his
client a cover note advising the terms and conditions, on which the- insurance
has been placed. The broker's cover note is merely an insurance memorandum
and naturally has no value in enforcing the contract with the underwrites.

The policy is prepared, stamped and signed without delay and it will be the
legal evidence of the contract. However, after issue of the policy the court has
power to order the rectification of the policy to express the intention of the
parties to the contract as evidenced by the terms of the slip.

2. Insurable Interest : Section 7, 8 and 9 to 16 provide for insurable interest.

An insured person will have insurable interest in the subject-matter where he
stands in any legal or equitable relation to the subject-matter in such a way that
he may benefit by the safety or due arrival of insurable property or may be
prejudiced by its loss, or by damage thereto or by the detention thereof or may
incur liability in respect thereof.

Since marine insurance is frequently affected before the commercial

transactions to which they apply are formally completed it is not essential for
the assured to have an insurable interest at the time of effecting insurance,
though he should have an expectation of acquiring such an interest. If he fails to
acquire insurable interest in due course, he does not become entitled to
indemnification.Since the ownership and other interest of the subject matter
often change from hands to hands, the requirement of the insurable interest to be
present only at the time of loss makes a marine insurance policy freely
assignable.

Exceptions : There are two exceptions of the rule in marine insurance.

1. Lost or Not Lost : A person can also purchase policy in the subject-matter in
which it was known whether the matters were lost not lost. In such cues the
assured and the underwriter are ignorant about the safety or otherwise of the
goods and complete reliance was placed on the principle of Good Faith.

The policy terminated if anyone of the two parties was aware of the fact of loss.
In this case, therefore, the insurable interest may not be present at the time of
contract because the subject-matter would have been lost.

2. P.P.I. Policies : The subject-matter can be insured in the usual manner by

P.P.I. (Policy Proof of Interest),e., interest proof policies. It means that in the
event of claim underwriters may dispense with all proof of insurable interest.

In this case if the underwriter does not pay the claims, it cannot be enforced in
any court of law because P.P.I, policies are equally void and unenforceable. But
the underwriters are generally adhering on the terms and pay the amount of
claim.The insurable interest in marine insurance can be of the following forms:

I. According to Ownership : The owner has insurable interest up to the full

value of the subject-matter. The owners are of different types according to the
subject-matter.

(a) In Case of Ships : The ship-owner or any person who has purchased it on
charter-basis can insure the ship up to its full price.

(b) In Case of Cargo: The cargo-owner can purchase policy up to the full price
of the cargo. If he has paid the freight in advance, he can take the policy for the
full price of the goods plus amount of freight plus the expense of insurance.

(c) In Case of Freight: The receiver of the freight can insure up to the amount
of freight to be received by him.

II. Insurable Interest in Re-insurance ; The underwriter under a contract of

marine insurance has an insurable interest in his risk, and may reinsure in
respect of it.

III. Insurable Interest in other Cases : In this case all those underwriters are
included who have insurable interest in the salary and own liabilities. For
example, the master or any member of the crew of a ship has insurable interest
in respect of his wages. The lender of money on bottom or respondent a has
insurable interest in respect of the loan.
3. Utmost Good Faith : Section 19, 20, 21 and 22 of the Marine Insurance Act
1963 explained doctrine of utmost good faith. The doctrine of caveat emptor (let
the buyer beware) applies to commercial contracts, but insurance contracts are
based upon the legal principle of uberrimae fides (utmost good faith). If this is
not observed by either of the parties, the contract can be avoided by the other
party.

The duty of the utmost good faith applies also to the insurer. He may not urge
the proposer to affect an insurance which he knows is not legal or has run off
safely.But the duty of disclosure of material facts rests highly on the insured
because he is aware of the material common in other branches of insurance are
not used in the marine insurance.

Ships and cargoes proposed for insurance may be thousands of miles away, and
surveys on underwriters' behalf are usually impracticable. The assured,
therefore, must disclose all the material information which may influence the
decision of the contract.

Any non-disclosure of a material fact enables the underwriter to avoid the

contract, irrespective of whether the non-disclosure was intentional or
inadvertent. The assured is expected to know every circumstance which in the
ordinary course of business ought to be known by him. He cannot rely on his
own inefficiency or neglect.

The duty of the disclosure of all material facts falls even more heavily on the
broker. He must disclose every material fact which the assured ought to disclose
and also every material fact which he knows.

The broker is expected to know or inquire from the assured all the material
facts. Failure in this respect entitles the underwriter to avoid the policy and if
negligence can be held against the broker, he may be liable for damages to his
client for breach of contract. The contract shall be an initio if the element of
fraud exists.

Exception : In the following circumstances, the doctrine of good faith may not
be adhered to:

(i) Facts of common knowledge.

(ii) Facts which are known should be known to the insurer.

(iii) Facts which are not required by the insurers.

(iv) Facts which the insurer ought reasonably to have in furred from the details
given to him.

(v) Facts of public knowledge.

4. Doctrine of Indemnity : Under Section 3 of the Act at is provided 'A contact

of marine insurance is an agreement whereby the insurer undertakes to
indemnify the assured in the manner and the extent agreed upon.
The contract of marine insurance is of indemnity. Under no circumstances an
insured is allowed to make a profit out of a claim. In the absence of the principle
of indemnity it was possible to make a profit.The insurer agrees to indemnify
the assured only in the manner and only to the extent agreed upon. Marine
insurance fails to provide complete indemnity due to large and varied nature of
the marine voyage.

The basis of indemnity is always a cash basis as underwriter cannot replace the
lost ship and cargoes and the basis of indemnification is the value of the subject-
matter.This value may be either the insured or insurable value. If the value of
the subject matter is determined at the time of taking the policy, it is called
'Insured Value'. When loss arises the indemnity will be measured in the
proportion that the assured sum bears to the insured value.

In fixing the insured value, the cost of transportation and anticipated profits are
added to original value so that in case of loss the insured can recover not only
the cost of goods or properties but a certain percentage of profit also.

The insured value is called agreed value because it has been agreed between the
insurer and the insured at the time of contract and is regarded as sacrosanct and
binding on both parties to the contract. In marine insurance, it has been
customary for the insurer and the assured to agree on the value of the insured
subject-matter at the time of proposal.Having, agreed of the value or basis of
valuation, neither party to the contract can raise objection after loss on the
ground that the value is too high or too low unless it appears that a fraudulent
evaluation has been imposed on either party.

Insured value is not justified in fire insurance due to moral hazard as the
property remains within the approach of the assured, while the subject- matter is
movable from one place to another in case of marine insurance and the assured
value is fully justified there. Moreover, in marine insurance, the assured value
removes all complications of valuation at the time of loss.

Technically speaking the doctrine of indemnity applies where the value of

subject-matter is determined at the time of loss. In other words, where the
market price of the loss is paid, this doctrine has been precisely applied.Where
the value for the goods has not been fixed in the beginning but is left to be
determined the time of loss, the measurement is based on the insurable value of
the goods. However, in marine insurance insurable value is not common
because no profit is allowed in estimating the insurable value.

Again if the insurable value happens to be more than the assured sum, the
assured would be proportionately uninsured. On the other hand, if it is lower
than the assured sum, the underwriter would be liable for a return of premium of
the difference.

Exceptions: There are two exceptions of the doctrine of indemnity in marine

insurance.
1. Profits Allowed : Actually the doctrine says that the market price of the loss
should be indemnified and no profit should be permitted, but in marine
insurance a certain profit margin is also permitted.

2. Insured Value : The doctrine of indemnity is based on the insurable value,

whereas the marine insurance is mostly based on insured value. The purpose of
the valuation is to predetermine the worth of insured.

5.Doctrine of Subrogation : Section 79 of the Act explains doctrine of

subrogation. The aim of doctrine of subrogation is that the insured should not
get more than the actual loss or damage.

After payment of the loss, the insurer gets the light to receive compensation or
any sum from the third party from whom the assured is legally liable to get the
amount of compensation.

The main characteristics of subrogation are as follows:

1.The insurer subrogates all the remedies rights and liabilities of the insured
alter payment of the compensation.

2. The insurer has right to pay the amount of loss after reducing the sum
received by the insured from the third party. But in marine insurance the right of
subrogation arises only after payment has been made, and it is not customary as
in fire and accident insurance, to alter this by means of a condition to provide
for the exercise of subrogation rights before payment of a claim.
At the same time the right of subrogation must be distinguished from
abandonment. If property is abandoned to a marine insurer, he is entitled to
whatever remains to the property irrespective of value of subrogation.

3. After indemnification, the insurer gets all the rights of the insured on the third
parties, but insurer cannot file suit in his own name. Therefore, the insured must
assist the insurer for receiving money from the third party.If the insured is
revoking from filing suit against the third party, the insurer can receive the
amount of compensation from the insured. Section 80 of the Act deals with the
right of contribution between two or more insurers where there is over
insurances by double insurance. It is corollary of principle indemnity

6. Warranties: A warranty is that by which the assured undertakes that some

particular thing shall or shall not be done, or that some conditions shall be
fulfilled or whereby he affirms or negatives the existence of a particular state of
facts.Warranties are the statement according to which insured person promises
to do or not to do a particular thing or to fulfill or not to fulfill a certain
condition. It is not merely a condition but statement of fact.
Warranties are more vigorously insisted upon than the conditions because the
contract comes to an end if a warranty is broken whether the warranty was
material or not. In case of condition or representation the contract comes to end
only when these were material or important.
Warranties are of two types:(1) Express Warranties, and (2) Implied Warranties.
Express Warranties: Express warranties are those warranties which are
expressly included or incorporated in the policy by reference.

Implied Warranties : These are not mentioned in the policy at all but are
tacitly understood by the parties to the contract and are as fully binding as
express warranties.

Warranties can also be classified as (1) Affirmative, and (2) Promissory.

Affirmative warranty is the promise which insured gives to exist or not to exist
certain facts. Promissory warranty is the promise in which insured promises that
he will do or not do a certain thing up to the period of policy. In marine
insurance, implied warranties are very important. These are:

1. Seaworthiness of Ship.
2. Legality of venture.
3. Non-deviation.
All these warranties must be literally, complied with as otherwise the
underwriter may avoid all liabilities as from the date of the breach.

However, there are two exceptions to this rule when a breach of warranty does
not affect the underwriter's liability:

(1) where owing to a change of circumstances the warranty is no longer

applicable.

(2) Where compliance would be unlawful owing to the enactment of subsequent

law.

1. Seaworthiness of ship : The warranty implies that the ship should be

seaworthy at the commencement of the voyage, or if the voyage is carried out in
stages at the commencement of each stage. This warranty implies only to
voyage policies, though such policies may be of ship, cargo, freight or any other
interest. There is no implied warranty of seaworthiness in time policies.

A ship is seaworthy when the ship is suitably constructed, properly equipped,

officered and manned, sufficiently fuelled and provisioned, documented and
capable of withstanding the ordinary strain and stress of the voyage. The
seaworthiness will be clearer from the following points:
1. The standard to judge the seaworthiness is not fixed. It is a relative term
and may vary with any particular vessel at different periods of the same
voyage. A ship may be perfectly seaworthy for Trans-ocean voyage.A
ship may be suitable for summer but may not be suitable for winter.
There may be different standard for different ocean, for different cargo,
for different destination and so on.

2. Seaworthiness does not depend merely on the condition of the ship, but it
includes the suitability and adequacy of her equipment, adequacy and
experience of the officers and crew.
 3. At the commencement of journey, the ship must be capable of
withstanding the ordinary strain and stress of the sea.
4. Seaworthiness also includes "Cargo-Worthiness". It means the ship must
be reasonably fit and suitable to carry the kind of cargo insured. It should
be noted that the warranty of seaworthiness does not apply to cargo. It
applies to the vessel only. There is no warranty that the cargo should be
seaworthy.It cannot be expected from the cargo-owner to be well-versed
in the matter of shipping and overseas trade. So, it is admitted in
seaworthiness clause that the cargo would be seaworthy of the vessel and
would not be raised as defense to any claim for loss by insured perils.It
should be noted that the ship should be seaworthy at the port of
commencement of voyage or at the different stages if voyage is to be
completed in stages.

2. Legality of Venture; This warranty implies that the adventure insured shall
be lawful and that so far as the assured can control the matter it shall be carried
out in a lawful manner of the country. Violation of foreign laws does not
necessarily involve breach of the warranty. There is no implied warranty as to
the nationality of a ship.The implied warranty of legality applies total policies,
voyage or time. Marine policies cannot be applied to protect illegal voyages or
adventure. The assured can have no right to claim a loss if the venture was
illegal. The example of illegal venture may be trading with an enemy, violating
national laws, smuggling, breach of blockade and similar ventures prohibited by
law.Illegality must not be confused with the illegal conduct of the third party
e.g., barratry, theft, pirates, rovers. The waiver of this warranty is not permitted
as it is against public policy.

4.Other Implied Warranties :There are other warranties which must be

complied in marine insurance.

(a) No Change in Voyage :When the destination of voyage is changed

intentionally after the beginning of the risk, this is called change in voyage.
In absence of any warranty contrary to this one, the insurer quits his
responsibility at the time of change in voyage. The time of change of voyage is
determined when there is determination or intention to change the voyage.

(b) No Delay in Voyage : This warranty applies only to voyage policies. There
should not be delay in starting of voyage and laziness or delay during the course
of journey. This is implied condition that venture must start within the
reasonable time.
Moreover, the insured venture must be dispatched within the reasonable time. If
this warranty is not complied, the insurer may avoid the contract in absence of
any legal reason.

(c) Non deviation: The liability of the insurer ends in deviation of journey.
Deviation means removal from the common route or given path. When the ship
deviates from the fixed passage without any legal reason, the insurer quits his
responsibility.This would be immaterial that the ship returned to her original
route before loss. The insurer can quit his responsibility only when there is
actual deviation and not mere intention to deviation.
Exceptions:
There are following exceptions of delay and deviation warranties:
1. Deviation or delay is authorised according to a particular warranty of the
policy.
2. When the delay or deviation was beyond the reasonable approach of the
master or crew.
3. The deviation or delay is exempted for the safety of ship or insured matter or
human lives.
4. Deviation or delay was due to barratry.

4.Proximate Cause: According to Section 55 (1) Marine Insurance Act,'

Subject to the provisions of the Act and unless the policy otherwise provides the
insurer is liable for any loss proximately caused by a peril insured against, but
subject to as aforesaid he is not liable for any loss which is not proximately
caused by a peril insured against.'Section 55 (2) enumerates the losses which are
not payable are (i) misconduct of the assured (ii) delay although the delay be
caused by a peril insured against (iii) ordinary wear and tear, ordinary leakage
and breakage inherent vice or nature of the subject matter insured, or any loss
proximately caused by rates or vermin or any injury to machinery not
proximately caused by maritime perils
1. The insurer is not liable for any loss attributable to the willful misconduct of
the assured, but, unless the policy otherwise provides, he is liable for any loss
proximately caused by a peril insured against.
2. The insurer will not be liable for any loss caused by delay unless otherwise
provided.

3. The insurer is not liable for ordinary wear and tear, ordinary leakage and
breakage, inherent vice or nature of subject-matter insured, or for any loss
proximately caused by rats or vermin, or for any injury to machinery not
proximately caused by maritime perils.
Dover says "The cause proximate of a loss is the cause of the loss, proximate to
the loss, not necessarily in time, but in efficiency. While remote causes may be
disregarded in determining the cause of a loss, the doctrine must be interpreted
with good sense." So as to uphold and not defeat the intention of the parties to
the contract.
Thus the proximate cause is the actual cause of the loss. There must be direct
and non-intervening cause. The insurer will be liable for any loss proximately
caused by peril insured against.

8. Assignment: A marine policy is assignable unless it contains terms expressly

prohibiting assignment. It may be assigned either before or after loss. A marine
policy may be assigned by endorsement thereon or on other customary manner.
A marine policy is freely assignable unless assignment is express prohibited. A
marine policy is not an incident of sale. So, if there is intention to assign a
policy when interest passes, there must be an agreement to this effect.
Sections 53 of the Marine Insurance Act, 1963 states, Where the assured has
parted with or lost his interest in the subject-matter insured and has not, before
or at time of so doing, expressly or impliedly agreed to assign the policy, any
subsequent assignment of the policy is inoperative. '
Section 17 of the Act states, "Where the asserted assigns or otherwise parts with
his interest in the subject-matter insured, he does not thereby transfer to the
assignee his rights under the contracts of insurance.
The feature of return of premium has been already discussed in the portion of
life insurance.

Industrial All-Risk Policy (IAR) Policy

Industrial All Risk Insurance is a comprehensive policy to cover damage to all
types of fixed assets from all unforeseen circumstances except for those defined
in ―Exclusions‖. The Policy also compensates for any loss of revenue or profits
following a physical damage to the fixed assets. The risks generally included in
the policy are:
 Fire
 Explosions
 Natural Calamities like floods, storms of all kinds, Earthquake,
Landslides, Rockslides, Land Subsidence
 Riot & Strikes
 Malicious Damages
 Machinery Breakdown
 Boiler Explosion
 Breakdown of electronic equipment
 Loss of revenue due to any of the risks mentioned above

Property not covered under the policy includes:

 Money cheque, stamps, bonds, credit cards, securities of any description,
Jewelry, precious stones
 Vehicles licensed for road use;
 Property in transit other than within the premises specified in the
Schedule;
 Property or structures in course of demolition, construction or erection
and materials or supplies in connection therewith;
 Land, driveways, pavements, roads, runways, railway, etc.
 Livestock, growing crops or trees;
 Property undergoing alteration/repair/testing, installation or servicing,
undergoing any process;
 Damage to property being insured by any marine policy.

This policy also does not cover damage to the property insured caused by:
 Faulty or defective design materials or workmanship inherent vice latent;
 Interruption of the water supply, gas, electricity or fuel systems;
 Collapse or cracking of buildings;
 Corrosion, rust extremes or changes in temperature, dampness, dryness,
wet or dry rot fungus, shrinkage, evaporation, loss of weight pollution;
 Acts of fraud or dishonesty;
  Coastal or river erosion;
 Willful act/negligence;
 Cessation of work delay or loss of market or any other consequential or
indirect loss;
 War and nuclear perils.

What Makes a Contract Enforceable?

They say a rose is a rose is a rose. And for the most part, that is true. But in
contract law, a contract is not always a contract. In other words, a contract needs
six elements to be considered enforceable. It must contain:

1. An offer made by the promisor

2. An acceptance of the offer by the promisee
3. Consideration in the form of money or a promise to do or not do
something
4. Mutuality between parties to carry out the promises of the contract
5. Capacity of both parties in mind and age
6. Legality of terms and conditions

Definition of Consideration
―When at the desire of the promissor, the promisee or any other person has done
or abstained from doing or does or abstains from doing or promise to do or
abstain from doing something, such act or abstinence or promise is called
consideration for the promise‖.
Essentials of Consideration
Presence of consideration is one of the requisites of Valid Contract.
Consideration must be of two directional nature. That means both parties should
get benefited mutually. Then only the Contract becomes capable of creating
legal relations. Consideration may be in the form of cash, goods, act or
Abstinence.

Essentials of Consideration
Consideration should be passed at the request of offerer: Offeree should
send only such consideration which is wanted by offerer. In case where offeree
sends un-wanted consideration, he has no right to claim counter consideration.
Consideration may move from promise or any other person: According to
Indian law, consideration may move from promise or any other person. It is
specified in Section 2(d) of Indian Contract Act definition itself. But according
to England law – Consideration should move from promise only. Though it is
said so England law has given an exception where consideration may move
from a person other than promise. Here condition is there should be blood
relationship between promisee and that other person who is sending the
consideration.
Consideration may be Past, Present or Future: Consideration are of three
types namely Past, Present and Future consideration. The consideration which is
sent before formation of contract is called past consideration. The consideration
which gets passed at the time of formation of contract is called Present
Consideration. The Consideration which is to be passed in future i.e. after the
contract is called Future Consideration. As per Indian Law three types of
considerations are Valid. But as per England law Past Consideration is not
valid.
Consideration need not be adequate: Consideration of the Contract need not
have equal magnitudes. In adequacy of consideration will not infect Validity of
the Contract.
Consideration must be Lawful: Presence of unlawful Consideration makes the
Contract illegal and hence Void.
Consideration Must be Real: Consideration should not be of illegal contract. It
must be a believable concept.

Difference Between Void Contract and Voidable Contract

Void Contract
A void contract is a contract which is not enforceable in the court of law. At the
time of formation of the contract, the contract is valid as it fulfills all the
necessary conditions required to constitute a valid contract, i.e. free consent,
capacity, consideration, a lawful object, etc. But due to a subsequent change in
any law or impossibility of an act, which are beyond the imagination and
control of the parties to the contract, the contract cannot be performed, and
hence, it becomes void. Further, no party cannot sue the other party for the non-
performance of the contract.
The contract becomes void due to the change in any law or any government
policy for the time being in force in India. Along with that, the contracts which
are opposed to public policy also ceases its enforceability. Contracts with
incompetent persons are also declared void like minor, persons of unsound
mind, alien enemy or convict, etc.
Voidable Contract
Voidable Contract is the contract which can be enforceable only at the option of
one of the two parties to the contract. In this type of contract, one party is
legally authorized to make a decision to perform or not to perform his part. The
aggrieved party is independent to choose the action. The right may arise because
the consent of the concerned party is influenced by coercion, undue influence,
fraud or misrepresentation, etc.
The contract becomes valid until the aggrieved party does not cancel it.
Moreover, the party aggrieved party has the right to claim damages from the
other party.
 The contract in which
The type of contract
one of the two parties
which cannot be
Meaning has the option to enforce
enforceable is known as
or rescind it, is known as
void contract.
voidable contract.
Section 2 (j) of the Section 2 (i) of the
Defined in Indian Contract Act, Indian Contract Act,
1872. 1872.
The contract is valid, but The contract is valid,
subsequently becomes until the party whose
Nature
invalid due to some consent is not free, does
reasons. not revokes it.
Subsequent illegality or
If the consent of the
impossibility of any act
Reasons parties is not
which is to be performed
independent.
in the future.
Yes, but only to the
Rights to party No
aggrieved party.
Not given by any party
to another party for the
non-performance, but Damages can be claimed
Suit for damages
any benefit received by by the aggrieved party.
any party must be
restored back.
Offer
An offer is an expression of a person showing his willingness to another person
to do or not to do something, to obtain his consent on such expression. The
acceptance of the offer by such person may result in a valid contract. An offer
must be definite, certain and complete in all respects. It must be communicated
to the party to whom it is made. The offer is legally binding on the parties.
There are following types of offer:
 General offer: The type of offer which is made to the public at large.
 Specific offer: The type of offer made to a particular person.
 Cross offer: When the parties to the contract accept each other‘s offer in
ignorance of the original offer, it is known as the cross offer.
 Counter offer: This is an another type of offer in which the offeree does
not accept the original offer, but after modifying the terms and conditions
accept it, it is termed as a counter offer.
 Standing offer: An offer which is made to public as a whole as well as it
remains open for a specific period for acceptance it is known as Standing
offer.
Example:
 A tells to B,‖I want to sell my motorcycle to you at Rs. 30,000, Will you
purchase it?‖
 X says to Y,‖I want to purchase your car for Rs. 2,00,000, Will you sell it
to me?‖
Definition of Invitation to offer (treat)
An Invitation to Offer is an act before an offer, in which one person induces
another person to make an offer to him, it is known as invitation to offer. When
appropriately responded by the other party, an invitation to offer results in an
offer. It is made to the general public with intent to receive offers and negotiate
the terms on which the contract is created.
The invitation to offer is made to inform the public, the terms and conditions on
which a person is interested in entering into a contract with the other party.
Although the former party is not an offeror as he is not making an offer instead,
he is stimulating people to offer him. Therefore, the acceptance does not amount
to a contract, but an offer. When the former party accepts, the offer made by the
other parties, it becomes a contract, which is binding on the parties.
Example:
 Menu card of a restaurant showing the prices of food items.
 Railway timetable on which the train timings and fares are shown.
 Government Tender
 A Company invites application from public to subscribe for its shares.
 Recruitment advertisement inviting application.

Difference Between Offer and Invitation to Offer (Treat)

Basis for Comparison Offer Invitation to Offer
When one person When a person expresses
expresses his will to something to another
another person to do or person, to invite him to
Meaning
not to do something, to make an offer, it is
take his approval, is known as invitation to
known as an offer. offer.
Defined in Section 2 (a) of the Not Defined
 Indian Contract Act,
1872.
To receive offers from
people and negotiate the
Objective To enter into contract.
terms on which the
contract will be created.
Essential to make an
Yes No
agreement
An Invitation to offer,
The Offer becomes an
becomes an offer when
Consequence agreement when
responded by the party to
accepted.
whom it is made.

What is a 'Counteroffer'
A counteroffer is a proposal that is made as a result of an undesirable offer. A
counteroffer revises the initial offer and makes it more desirable for the person
making the new offer. This type of offer permits a person to decline a previous
offer and allows offer negotiations to continue.
A counter offer is an offer made in response to a previous offer by the other
party during negotiations for a final contract. It is a new offer made in response
to an offer received. It has the effect of rejecting the original offer, which cannot
be accepted thereafter unless revived by the offeror. Making a counter offer
automatically rejects the prior offer, and requires an acceptance under the terms
of the counter offer or there is no contract.
Definition of Merger
Merger refers to the mutual consolidation of two or more entities to form a new
enterprise with a new name. In a merger, multiple companies of similar size
agree to integrate their operations into a single entity, in which there is shared
ownership, control, and profit. It is a type of amalgamation. For example M Ltd.
and N Ltd. jJoined together to form a new company P Ltd.
The reasons for adopting the merger by many companies is that to unite the
resources, strength & weakness of the merging companies along with removing
trade barriers, lessening competition and to gain synergy. The shareholders of
the old companies become shareholders of the new company. The types of
Merger are as under:
 Horizontal
 Vertical
 Congeneric
 Reverse
 Conglomerate
Definition of Acquisition
The purchase of the business of an enterprise by another enterprise is known as
Acquisition. This can be done either by the purchase of the assets of the
company or by the acquiring ownership over 51% of its paid-up share capital.
In acquisition, the firm which acquires another firm is known as Acquiring
company while the company which is being acquired is known as Target
company. The acquiring company is more powerful in terms of size, structure,
and operations, which overpower or takes over the weaker company i.e. the
target company.
Most of the firm uses the acquisition strategy for gaining instant growth,
competitiveness in a short notice and expanding their area of operation, market
share, profitability, etc. The types of Acquisition are as under:
 Hostile
 Friendly
 Buyout

Difference Between Merger and Acquisition

Basis for Comparison Merger Acquisition
The merger means the
When one entity
fusion of two or more
purchases the business of
Meaning than two companies
another entity, it is
voluntarily to form a new
known as Acquisition.
company.
Formation of a new
Yes No
company
The mutual decision of Friendly or hostile
Nature of Decision the companies going decision of acquiring and
through mergers. acquired companies.
Minimum number of
3 2
companies involved
To decrease competition
Purpose and increase operational For Instantaneous growth
efficiency.
The size of the acquiring
Generally, the size of
company will be more
Size of Business merging companies is
than the size of acquired
more or less same.
company.
Legal Formalities More Less
An acquisition occurs
Merger is considered to
when one company or
be a process when two or
corporation takes control
Definition more companies come
of another company and
together to expand their
rules all its business
business operations.
operations.
They are considered as They are considered as
Terms
amicable. hostile.
No new stocks are
Stocks New stocks are issued.
issued.
The larger companies
The companies of same
Companies acquire smaller
size join hands together.
companies.
Both the companies are The company that is
Power
treated as equal. stronger gets the power.
 The two companies of
same size combine to The two companies of
increase their strength different sizes come
Challenges
and financial gains along together to combat the
with breaking the trade challenges of downturn.
barriers.
A buyout agreement is A buyout agreement is
known as a merger when known as an acquisition
both owners mutually when the agreement is
Agreement
decide to combine their hostile, or when the
business in the best target firm is unwilling
interest of their firms. to be bought.
Disney and Pixar merged Google acquired Android
Examples together to collaborate for $50 million in August
easily and freely. 2005.

Key Differences Between Merger and Acquisition

The points presented below explain the substantial differences between merger
and acquisition in a detailed manner:
1. A type of corporate strategy in which two companies amalgamate to form
a new company is known as Merger. A corporate strategy, in which
one company purchases another company and gain control over it, is
known as Acquisition.
2. In the merger, the two companies dissolve to form a new enterprise
whereas, in the acquisition, the two companies do not lose their existence.
3. Two companies of the same nature and size go for the merger. Unlike
acquisition, in which the larger company overpowers the smaller
company.
4. In a merger, the minimum number of companies involved are three, but in
the acquisition, the minimum number of companies involved is 2.
5. The merger is done voluntarily by the companies while the acquisition is
done either voluntarily or involuntarily.
6. In a merger, there are more legal formalities as compared to the
acquisition.

Why Merge?
Companies would choose to merge together for different reasons:

1. The combined entity would be larger, and have corresponding larger

resources for marketing, product expansion, and obtaining financing. This
could help them better compete in the marketplace.
2. The combined entity could merge similar operations to reduce costs.
Corporate and administrative functions, such as human resources and
marketing, are often targets for combinations. They might also combine
the production areas if the companies produce similar products and
reduce costs by having fewer plants or facilities in operation.
 3. The combined entity might have less competition in the marketplace. If
the products of the two companies competed for customers, they could
combine their offerings and use resources for improving the product,
rather than marketing against each other.
4. The combined entity might have synergy in operations. Synergy is when
combined operations show lower costs or higher profits than would be
expected by just adding their financial information together on paper.
This could be due to economies of scale, where costs are lower due to
higher volume of production, or due to vertical integration, where greater
control over the production process is achieved due to owning more steps
in the production process.

Why Acquire?
Acquisitions are undertaken for strategic reasons. For example:
1. A company might acquire another company to obtain a specific product.
It can be less expensive to purchase a company offering a product you'd
like to sell than building the product yourself. Software companies often
purchase smaller companies that offer extensions to their product line if
they become popular with customers, so they can add the functionality to
their primary offering.
2. A company might acquire other companies to increase its size. A larger
company may have more visibility in the marketplace, and also better
access to credit and other resources.
3. A company might acquire another to obtain control over a critical
resource. For example, a jewelry company might acquire a gold mine, to
ensure they have access to gold without market price fluctuations.

Types of mergers:The following are the types of mergers

1. Horizontal mergers: It refers to two firms operating in same industry or
producing ideal products combining together. For e.g., in the banking industry
in India, acquisition of Times Bank by HDFC Bank, Bank of Madura by ICICI
Bank, Nedungadi Bank by Punjab National Bank etc. in consumer electronics,
acquisition of Electrolux‘s Indian operations by Videocon International Ltd., in
BPO sector, acquisition of Daksh by IBM, Spectramind by Wipro etc. The main
objectives of horizontal mergers are to benefit from economies of scale, reduce
competition, achieve monopoly status and control the market.
2. Vertical merger: A vertical merger can happen in two ways. One is when a
firm acquires another firm which produces raw materials used by it. For e.g., a
tyre manufacturer acquires a rubber manufacturer, a car manufacturer acquires a
steel company, a textile company acquires a cotton yarn manufacturer etc.
3. Conglomerate merger: It refers to the combination of two firms operating in
industries unrelated to each other. In this case, the business of the target
company is entirely different from those of the acquiring company. For e.g., a
watch manufacturer acquiring a cement manufacturer, a steel manufacturer
acquiring a software company etc. The main objective of a conglomerate
merger is to achieve i big size.
4. Concentric merger: It refers to combination of two or more firms which are
related to each other in terms of customer groups, functions or technology. For
eg., combination of a computer system manufacturer with a UPS manufacturer.
5. Forward merger: In a forward merger, the target merges into the buyer. For
e.g., when ICICI Bank acquired Bank of Madura, Bank of Madura which was
the target, merged with the acquirer, ICICI Bank.
6. Reverse merger: In this case, the buyer merges into the target and the
shareholders of the buyer get stock in the target. This is treated as a stock
acquisition by the buyer.
7. Subsidiary merger: A subsidiary merger is said to occur when the buyer sets
up an acquisition subsidiary which merges into the target.
6 Factors Limiting The Payment Of Indemnity In Insurance

In insurance contracts, indemnity is provided subject to certain terms and

conditions of the policy. Moreover, indemnity is not global for all types of
insurance policies. Various terms and conditions of the insurance policy limits
the payment of indemnity in insurance contracts. In this context, there are
major six factors limiting the payment of indemnity in insurances and they do
create an impact on the principle of indemnity.
1. Sum Insured : If the sum-insured is restricted to a lesser amount than the
actual value then in case of a total loss the insured gets the sum insured which
does not actually indemnify him. Even if it is not a total loss, nevertheless, by
means of a policy condition known as ‗average‘ the insurers will not pay more
than the proportionate loss, i.e. corresponding the ratio in between sum-insured
and actual value. Similarly, there is also no point in arranging an excessive sum-
insured as that will never entitle him to get more than the actual amount of loss
as already explained. This will simply mean payment of excessive premium
without any corresponding benefit. Sum-insured should, therefore, always base
on the actual market value of the subject matter of insurance at the time of
opening the policy of insurance. The essential requirement of insurance is that it
should be full value insurance.

2. Excess : This means that with regard to any loss, a certain predetermined
amount shall be deducted and the balance, if any, shall be paid.

Example 1 :
Excess … $100
Loss ….. $200
Payable… $100
Example 2 :
Excess ….$100
Loss ……..$100
Payable ….NIL.
Here it will be observed that due to a policy condition, the insured is not put
back into the same financial position after a loss. From underwriting point of
view such a treatment is sometimes required, particularly to keep a check on
moral hazard with regard to an insured who is in the habit of making constant
trivial claims. Another justification of excess is to eliminate trivial claims
keeping in view the administrative expenses which are quite often more than the
claim amount itself.

3. Franchise : If a policy is made subject to franchise, then in order to get a

claim the extent of claim must reach the amount of franchise when the insured
gets full claim. If the amount of loss does not reach the franchise then insured
does not get anything. It is actually a prerequisite or pre-qualification to get a
claim.

Example 1:
Franchise….. $100
Loss …………..$ 99
Payable……. $ NIL
Example 2:
Franchise ….$100
Loss ………..$ 150
Payable….. $ 150
Example 3:
Franchise ..$100
Loss ………$ 100
Payable…. $100
With regard to franchise also it will be seen that if the extent of loss does not
reach the amount of franchise then nothing is payable and the insured does not
get an indemnity even though he has suffered a loss. Nevertheless, from
underwriting point of view, like excess, such a check is given to treat moral
hazard and trivial claims.

4. Average : Average is a method by which under-insurance is defeated. The

norms of insurance demand that there should always be full value insurance.
Under-insurance deprives the insurers in getting the actual premium even
though they are liable to pay the loss to the fullest extent, only limit being the
sum-insured. The result being that the experience gets unfavorable leading to
enhancement of the premium to the detriment of even those who always believe
in full value insurance. To take care of such a situation average has been
introduced to make the insured his own part-insurer to the extent of under-
insurance.

Liability of Insurer = (Sum Insured x Loss)/ Full value

For Example : Sum-insured ….$10000
Actual value ……………………..$20000
Loss ………………………………….$1000
Policy pays (10000×1000)/20000= $500
If there is under-insurance then the insured will not get full indemnity. But it
has to be appreciated that this is due to defective arrangement of insurance for
which principle of indemnity cannot be blamed. One point is to be remembered
here which is this that if the benefit of average is to be obtained by insurers then
they must put this average condition in the policy. Otherwise, even though there
is under-insurance average cannot be applied.

5. Limits : Many policies limit the amount to be paid for certain events.

6. Deductibles : Deductible is the name given to a very large excess particularly

in commercial insurance.

Factors Limiting the Payment of Indemnity

Sum Insured – The limit of an insurer‘s liability is the sum insured. The
insured cannot receive more than the sum insured even where indemnity is a
higher figure.

Average – Where there is under-insurance the insurers are receiving a premium

only for a proportion of the entire value at risk and any settlement will take this
into account using the formula. Liability of Insurer = Sum Insured x loss Full
value When average operates to reduce the amount payable, the insured receives
less than indemnity.

Excess – An excess is an amount of each and every claim which is not covered
by the policy. Where excess applies to reduce the amount paid, the insured
receives less than indemnity

Franchise – A franchise is a fixed amount which is to be paid by the insured in

the event of a claim. But once the amount of franchise is exceeded then insurers
pay the whole of the loss.

Limits – Many policies limit the amount to be paid for certain events.

Deductibles - Deductible is the name given to a very large excess particularly

in commercial insurance

What's the relationship between indemnity principle and subrogation?

These concepts are related, but not quite the same.
―Indemnity‖ is ―liability over.‖ For instance, say you are a tenant in an
apartment. A guest makes a hole in the wall. Your landlord won‘t give you back
your security deposit. You would have a claim for the rowdy guest to indemnify
you—in other words, pay any damages that you‘re responsible for.

Indemnification doesn‘t have to arise from a contract; the law will presume it in
certain situations. It is a very common term in contracts. For instance, in a
marital settlement agreement, it‘s not always possible to remove the ex-spouse‘s
name from a mortgage or other joint debt, but the agreement will generally
provide that the spouse who keeps the house will indemnify the other for the
value of the mortgage. The mortgage holder might still try and collect from both
spouses, but if the leaving spouse pays something (to protect her credit, for
instance), she has a dollar-for-dollar claim against the remainer. Indemnification
is often expressed via a ―hold harmless‖ clause; the indemnifying party is
agreeing to accept some sort of liability and if the other party somehow ends up
with that liability the indemnification will require the first party to pay.

Liability insurance is a particular kind of indemnification. You pay your

premium and the insurer agrees to be responsible for your damages (less the
deductible, up to the policy limit, subject to whatever is excluded which usually
means intentional damages).

Subrogation is the idea that in accepting compensation of some sort for a claim,
you are giving up the right to collect it from some other source, and in your
place the person who paid you the first-party compensation may (attempt to)
collect it from the ultimately liable party. This sort of arrangement is most
commonly found in the American legal landscape in insurance claims. It isn‘t
uncommon in the sale of defaulted commercial paper, either (think bank sells
off bad credit-card debt to one of these debt-buyer-collection outfits, who then
tries to sue the debtors) which is another form of subrogation, but in that context
the word ―subrogation‖ isn‘t as commonly used; ―assignment‖ is usually what
you‘ll see.

First-party insurance is there to pay for losses that happen to you, such as health
insurance or collision insurance on your car. Often this sort of loss will also
give rise to a claim against a third party whose tortious conduct contributed to
the loss. Think a vehicle accident that causes several thousand dollars worth of
damage to your car, or a slip-and-fall in a store that puts you in the hospital.
Your collision coverage might pay to get the car fixed in the interest of getting
you moving again quicker, or your health insurer may cover the initial hospital
stay. You could have sued the person who caused the accident, but that would
have taken forever before you got anything. So what you do is accept the
benefits from your insurer with the understanding that the insurer may pursue
indemnification from the tortfeasor to mitigate its losses; the claim has been
subrogated to the insurer in that case.

The main legal relationship between indemnity and subrogation is that the
insurer has no right to subrogate until the insured is indemnified (that's the law
where I am; I take no responsibility for the accuracy of that statement in your
jurisdiction, and this answer is not to be taken as legal advice for anybody,
anywhere!).

An insurer who pays a claim sometimes has a right to take (or continue) legal
proceedings in the name of the insured against anybody the insured could have
sued for the loss (to subrogate is to ―step into the shoes‖ of another person in a
lawsuit). The insured has a duty to cooperate in with the insurer when this is
done (eg. producing documents, being deposed, showing up for trial, etc.).

For example, if an arsonist burns your house down, you could sue the arsonist
for damages. But you won't bother with that if you have property insurance—
you‘ll just make a claim on the policy. Once the claim is paid, the insurer is
subrogated to your rights against the arsonist, and can sue in your name… That
is, if you've been indemnified.

To be indemnified is to be ―made whole‖ after a loss. The principle of

indemnity in insurance is that the insured cannot recover more than the value of
the loss (actually, the insured can never recover more than the limits of the
policy, its percentage interest in the property [if the property has co-owners], or
an indemnity, whichever is less).

If the insured could ―win‖ by getting more than an indemnity, the insurance
contract is essentially a wager, which the courts say is not allowed because it's
contrary to public policy.

The relationship of subrogation to indemnity, again, is that the insured has to be

indemnified before the insurer has a right to subrogate. This is why sometimes
insurers will ―waive the deductible‖—if the insured had to pay a deductible, the
insured was not fully indemnified and the insurer cannot subrogate.

Again: no subrogation without indemnity.

What is the importance of subrogation and contribution corollaries in

insurance contract?

Insurance is spreading/ averaging the risk/ loss among insured persons by

insurers/ other compensators. Otherwise this insurance business is not feasible.
To make it feasible there are what is called as The principles of Insurance.

The principles of Insurance evolved by sharing among the insured the risk.As
well as the loss is spread among insurers/ other compensators.The insured
should not get undue advantage i.e. they should not gain unduly at the cost of
insurers.If there was more than one insurance cover for same risk factor and on
the same property, the insurers combined together should take risk.

The principle holding that two or more insurers each liable for a covered loss
should participate in the payment of that loss. Having paid its share of a loss, an
insurer may be entitled to equitable contribution—a legal right to recover part of
the payment from another insurer whose policy was also applicable.

Subrogation is similar to contribution and is often talked about as a corollary of

indemnity. What it means is that one person, usually the person who is doing
the insuring, takes over the rights of another person, usually the one who is
being insured. You will find that the majority of insurance documents include a
subrogation condition or clause that will state that the insurer can take over and
carry out a settlement or a defense of any claim as they decide appropriate.

This means that if the insured has made a claim and it has been paid by the
insurer, the insurer has indemnified the insured and so has every right to try and
recover the sum in any (legal) ways they see fit.
Practically, this means that if someone, for example, has been in a car accident
that was caused by somebody else, they have the right to make a claim, and if
the case is proved, damages will be paid by the insurance company of the
person who was at fault.

Without an insurer having a subrogation clause within a policy, the person

making a claim would be able to claim through the insurance and also to make a
civil claim in accordance with their legal rights, and so would be compensated
twice, which opposes the indemnity principle.

The principle of indemnity and subrogation protects insurers from multiple

claims for the same incident.

Importance of Insurance to Businessmen

The importance of insurance to a businessman can be understood from the

following points.
Importance and Benefits of Insurance
1. Security and Safety: It gives a sense of security and safety to the
businessman. It enables him to receive compensation against actual loss. He can
concentrate on his business with a secure feeling that in case of losses arising
from insurable risk, his losses will be compensated.

2. Distribution of risk: Risk in insurance is spread over a number of people

rather being concentrated on a single individual.

3. Normal expected profit: An insured trader can enjoy normal margin of

profit all the time. He is protected from unexpected losses because of insurance.

4. Easy to get loans: A trader can get bank loans easily if his stock or property
is insured, as insurance provides a sense of security to the lenders.

5. Advantages of Specialization: Businessmen can concentrate on their

business activities without spending more time on safeguarding their property.
The insurance companies, on the other hand, can provide specialized insurance
services.

6. Development of Social Sectors: Insurance funds are available for economic

development particularly for the development of social sectors. Especially for a
developing country like India, insurance funds are an important source for
investing in infrastructure projects (roads, power, water supply, telecom etc).

7. Social cooperation: The burden of loss is shouldered by so many persons.

Thus, insurance provides a form of social cooperation.
Benefits of Insurance

Insurance is important because both human life and business environment are
characterized by risk and uncertainty. Insurance plays a key role in mitigation of
risks. The benefits of insurance are discussed below:

Benefits of Insurance to insured

1. Insurance provides security against risk and uncertainty.
2. It enables the insured to concentrate on his work without fear of loss due to
risk and uncertainty.
3. It inculcates regular savings habit, as in the case of life insurance.
4. The insurance policy can be mortgaged and funds raised in case of financial
requirements.
5. Insurance policies, especially pension plans provide for income security
during old age.
6. The insured gets tax benefits for the amount of premium paid.
7. Insurance of goods may be a mandatory requirement in certain contracts.
Benefits of Insurance to society
1. Insurance is an important risk mitigation device.
2. Insurance companies provide the required funds for infrastructure
development.
3. It provides a sense of security.
4. Insurance provides security to the insured during his life and to his
dependents.
5. It provides employment opportunities. With the entry of private insurers
employment opportunities have increased greatly.
6. Insurance provides a sense of livelihood to those who might otherwise not
have an income source — housewives, retired people, students etc can work as
agents and earn commission.
7. Insurance works on the principle of pooling of risks and distributes risks over
many people.
8. Insurance is an invaluable aid to trade.

Benefits of Insurance to the Nation

1. Insurance provides funds to the government for providing basic facilities and
to develop infrastructure.
2. It has enabled the country to get foreign exchange (49% FDI is permitted in
the insurance sector in India).
3. Insurance relieves the government of the burden of supporting a family, in
case of the untimely demise of the breadwinner.
4. Insurance promotes trade and industry by providing risk cover.
5. Insurance companies pay taxes out of profits earned. This is an important
revenue source to the government.
6. Insurance companies are permitted to invest 5% of the funds in the capital
market. LIC alone has invested around Rs.28,000 crore in the Indian capital
markets. Such investments develop the capital market.
The Benefits of Insurance in Business Risk Management
First, let‘s define what risk means in insurance and also understand what risk
management is all about. Risk is the probability that an event would occur
which would lead to certain losses or financial consequences. Risk management
on the other hand is a situation whereby a company or organization takes steps
to identify, assess and control risks that may affect the assets and earnings of the
company.

Business owners have a lot to think about. They have to hire capable staff, seek
funding for businesses, strategize, plan and implement. These activities can be
very overwhelming and as such, it is not surprising that a lot of businesses put
risk management at the bottom of the list of important things to be taken care of.
Well, until something terrible happens and then they start to wish they had paid
more attention to risk management in their business.

When there is effective risk management in place, situations and conditions that
may threaten the business in the future would be identified and steps would be
taken to prevent such occurrences and again, further steps would be taken to
reduce the effect if it happens in spite of all efforts to prevent it.

Risk management involves three basic activities;

 Identification of risks.
 Assessing the nature of such risks.
 Taking steps to control them.

6 Advantages of Risk Management

The importance of risk management in an organization cannot be over-

emphasized. Some of the benefits include:

 Guarding against loss of valuable resources.

 Reducing all forms of liability in the event of unfortunate occurrences.
 Protecting people and the environment from harm.
 Reducing premiums by showing your insurance company that you are
fully committed to preventing insured losses.
 Reducing operational downtimes when losses or damages occur.
 Prolonging the life of a business and ensuring continuity of existence.

7 Benefits of Insurance in Business Risk management

 Prevention and minimization of financial losses-: Insurance helps you
to reduce financial losses when unfortunate events occur. For instance,
when there is a breakdown of equipment your company might not be able
to function properly and this might lead to a loss of revenue but you can
use a business interruption insurance policy to guide against this such that
the insurance company covers for any losses incurred during the period.
 Promotes business continuity-: When some companies are hit with
sudden unfortunate occurrences, it may lead to the end if not properly
 managed but insurance helps to minimize risks so that the business
continues to operate and grow regardless.
 Risk sharing-: Insurance also helps to achieve risk or loss sharing in
business. Such that when a company makes losses instead of profits, the
insurance company can come to the rescue. Also, when businesses are hit
with misfortunes, they may not be able to solely afford the costs of
getting back up and running again but when the business is insured, the
risks are shared between the company and in the insurance company such
that both parties can collectively get the business up and running again.
 Protection of business image-: When a business goes down, it is not
only the business that suffers; the customers, stakeholders, shareholders
and the public are affected too. Therefore, insurance helps to manage bad
occurrences so that customers and every other person attached to the
business can be protected.
 Protects the business against debtors-: Sometimes, debtors also pose
risks to the business and insurance can help to protect the business against
defaulters.
 Effective use of resources-: Insurance also helps to promote and ensure
that resources are put to the best use. For instance, health insurance helps
to ensure that employees are of perfect health and happy so that they can
put in their best.
 Provides assurance to stakeholders and investors-: Also, when a
company is insured, it provides a kind of assurance to people who may
consider doing business with them. Insuring your company attracts
shareholders and customers to your business

Is Contract of Insurance a contract of indemnity?

A contract of insurance may be defined as follows‖ a contract by which a

person promises to indemnify other, for a consideration called premium, against
losses that might happen as a result of the perils or events against which
insurance is taken.‖

Thus a contract by which the assurer promises to indemnify the insured in case
of the happening of the event against which the insurance was taken. It is a
normal contract. All the general provisions apply to it. Thus the requirement of
section 10 of the Indian contract act also applies and is to be fulfilled.

Indemnity means ―when a person promises to the save the other from loss
caused from the conduct of promisor himself or by the conduct of any other
person‖. The English law defines the indemnity as‖ a contract to save another
harmless from loss caused as a result of transactions entered into at the instance
of the promisor.‖ Thus the law covers all type of indemnifications.

Indemnity is a type of contingent contract. It also depends on happening of

events. The contract of insurance is also a contract that is contingent to the
happening of an event. Insurance is a contingent contract but is not a wager.
There is a huge difference between the contract of wager and a contingent
contract. The major event of wager is not causing any loss to the promisee. A
contingent contract on the other hand is contingent on the happening of any
event that may result in loss of the promise.

The contract of insurance is indeed a contact of indemnity. As the following

is noticed in both the contracts:
1) Both are contingent on happening of an event.
2) Both are special contracts, but the general principal applies to both.
3) A promise to compensate is common.
4) Consideration must be there.

How is an offer terminated?

There are a number of ways for an offer to be terminated. They are events that
may occur after an offer has been made which bring it to an end so that it can no
longer be accepted. An offer is terminated in the following circumstances:
1. Revocation
2. Rejection
3. Lapse of time
4. Conditional Offer
5. Operation of law
6. Death
7. Acceptance
8. Illegality

8 Important Ways in which an Offer may come to an End

1. By communication of notice of revocation:
An offer may come to an end by communication of notice of revocation by the
offeror. It may be noted that an offer can be revoked only before its acceptance
is complete for the offeror.In other words, an offeror can revoke his offer at any
time before he becomes bound by it. Thus, the communication of revocation of
offer should reach the A notice of revocation will take effect only when it is
brought to the knowledge of the offeree. It may be noted that notice of
revocation must come from offeror or his duly authorised agent.

2. By lapse of time:
Sometimes, the time is fixed for the acceptance of the offer, and it is not
accepted within the fixed time. In such cases, the offer comes to an end
automatically on the expiry of fixed time.

3. By failure to accept condition precedent:

Sometimes, the offer requires that some condition must be fulfilled before the
acceptance of the offer. In such cases, the offer lapses, if it is accepted without
fulfilling the condition.
4. By the death or insanity of the offeror:
Sometimes, the offeror dies or becomes insane. In such cases, the offer comes to
an end if the fact of his death or insanity comes to the knowledge of the
acceptor before he makes his acceptance.But if the offer is accepted in
ignorance of the fact of death or insanity of the offeror, the acceptance is valid.
This will result in a valid contract, and legal representatives of the deceased
offeror shall be bound by the contract.
It will be interesting to know that there is no provision in the Indian Contract
Act about the effect of the death of an offeree, if he dies before acceptance. But
it is an established rule that the offer comes to an end by operation of law,
because death automatically brings about the termination of the offer.

5. By counter-offer by the offeree:

Sometimes, a counter-offer is made by the offeree. In such cases, the original
offer automatically comes to an end, as the counter-offer amounts to rejections
of the original offer.

6. By not accepting the offer, according to the prescribed or usual mode:

Sometimes, some manner of acceptance is prescribed in the offer. In such cases,
the offeror can revoke the offer if it is not accepted according to the prescribed
manner. It may be noted that within a reasonable time offeror should give notice
to the offeree that the offer should be accepted in the prescribed manner, and not
otherwise.
7. By rejection of offer by the offeree:
Sometimes, the offeree rejects the offer. In such cases, the offer comes to an
end. Once the offeree rejects the offer, he cannot revive the offer by
subsequently attempting to accept it.
The rejection of offer may be express or implied. Express rejection is that where
the offeree rejects the offer by words, written or spoken. Implied rejection is
that where offeree‘s conduct shows that he is not accepting the offer e.g. where
the offeree makes a counter-offer, or where he gives conditional acceptance.

8. By change in law:
Sometimes, there is a change in law which makes the offer illegal or incapable
of performance. In such cases also, the offer comes to an end.

Mergers and Acquisitions Risk Management

To make sure your company is not blindsided by surprise liabilities after the
merger or acquisition transaction, it is encouraged to consider the following
prior to closing the deal:
 Ensure all of the seller‘s existing insurance policies have sufficient limits
and adequate coverage for its main risks.
 Determine whether the seller has any potential liabilities that are not
insured.
 Take note of the seller‘s existing third-party contracts, guarantees,
Indemnities and agreements.
  Address any circumstances or conditions that could generate claims if
operations are added or moved to locations unfamiliar to your company.
 Address any differences in the way the seller reported claims with the
way the buyer reports claims.
 Review change of control provisions in-bedded in various types of
insurance policies to ensure the transaction doesn‘t automatically trigger
the cancellation of insurance coverage.

Additional uncovered liabilities are often discovered in the the merger and
acquisition due diligence process, and the purchase price can be adjusted
accordingly or the buyer granted applicable indemnification which is why
merger insurance should also be considered.

Exceptions to Consideration (No Consideration and No Contract)

The general rule of law is "no consideration, no contract", i.e., in the absence of
consideration there will be no contract. However, the law recognizes the
following exceptions to the rule of consideration. The exceptions have been
given in Sec. 25 of the Indian Contract Act. In these cases, agreements are
enforceable even if these have been made without consideration.

1. A promise made out of material love and affection:An agreement

expressed in writing and registered under the law for the time being in force for
the registration of documents and is made on account of natural love and
affection, between parties standing in a near relation to each other, is
enforceable without consideration.It should be noted that nearness of relation
does not necessarily mean that the agreement has been made out of natural love.

2. A promise made to compensate for voluntary services: A promise to

compensate, wholly or in part, a person who has voluntarily done something for
the promisor, or something which the promisor was legally compellable to do, is
enforceable without consideration.This rule, in fact, recognizes past
consideration which was given without request or desire of the promisor.

3. Written promise to pay a time-barred debt: A promise made in writing to

pay a debt barred by the Law of Limitation is enforceable even without
consideration.

4. Gift, etc. actually made: Explanation I to Section. 25 provides that any gift
actually made is valid.

5. To create agency: Under Sec. 185, no consideration is necessary to create an

agency. Actually speaking, consideration is there even in an agency in the sense
that the principal has agreed to be bound by the acts of the agent. Thus he
undertakes the responsibility of the agent. We have seen earlier in Currie v.
Misa's case that suffering responsibility is a good consideration.
What is agreement?
An agreement is a form of cross reference between different parties, which may
be written, oral and lies upon the honor of the parties for its fulfillment rather
than being in any way enforceable.

What is Contract?
A contract is a legally binding agreement or relationship that exists between
two or more parties to do or abstain from performing certain acts. There must be
offer and acceptance for a contract to be formed. An offer must backed by
acceptance of which there must be consideration. Both parties involved must
intend to create legal relation on a lawful matter which must be entered into
freely and should be possibletoperform.

According to section 2(h) of the Contract Act 1872: An agreement enforceable

by law is a contract.‖ A contract therefore, is an agreement the which creates a
legal obligation i.e., a duty enforceable by law. From the above definition, we
find that a contract essentially consists of two elements:
(1) An agreement and
(2) Legal obligation i.e., a duty enforceable by law.

All contracts are agreements but all agreements are not contracts. Explain
this statement.

No doubt it is a valid and true statement. Before critically discussing the

statement, we must know the exact and basic meanings of the two terms
contract and agreement in the context of business law. For a Contract to be there
an agreement is essential; without an agreement, there can be no contract. As
the saying goes, ―where there is smoke, there is fire; for without fire, there can
be no smoke‖. It could will be said, ―where there is contract, there is agreement
without an agreement there can be no contract‖. Just as a fire gives birth to
smoke, in the same way, an agreement gives birth to a contract.

Brief notes on All Contracts are Agreements but All Agreements are not
Contracts
It is a valid and true statement. Before we can critically examine the statement,
it is necessary to understand the meaning of agreement and contract. According
to section 2(a) "every promise on every set of promises forming the
consideration for each other an agreement.
It is fact an agreement is a proposal and its acceptance, by which two or more
person or parties promises to do abstain from doing an act. But a contract
according to section 2(h) of the Indian Contract Act, "An agreement enforceable
by law is a contract. It is clear these definitions that the there elements of a
contract ore
(a) Agreement Contractual Obligation
(b) Enforceability by Law.
We can say that (a) All contracts are agreements, (b) But all agreements are not
contracts. (A) All Contracts are Agreements
For a Contract to be there an agreement is essential; without an agreement, there
can be no contract. As the saying goes, "where there is smoke, there is fire; for
without fire, there can be no smoke". It could will be said, "where there is
contract, there is agreement without an agreement there can be no contract". Just
as a fire gives birth to smoke, in the same way, an agreement gives birth to a
contract.
Another essential element of a contract is the legal obligation for the parties to
the contract, there are many agreements that do not entail any legal obligations.
As such, these agreements cannot be called contracts.
For Example:
A gives his car to B for repair and B asks for Rs. 200 for the repair works. A
agrees to pay the price and B agrees to repair the car. The agreement imposes an
obligation on both. The third element of a contract is that the agreement must be
enforceable by Law. If one party fails to keep his promise, the other has the
right to go the court and force the defaulter to keep his promises.
There are other elements are:
1. Offer and acceptance,
2. Legal obligation,
3. Lawful consideration,
4. Valid object,
5. Agreement not being declared void by Law,
6. Free consent,
7. Agreement being written and registered,
8. Capacity to contract,
9. Possibility of performance from what has been discussed. It is clear that all
contracts are agreements.

What does 'Force Majeure' mean

Force majeure is a French term literally translated as "greater force", this clause
is included in contracts to remove liability for natural and unavoidable
catastrophes that interrupt the expected course of events and restrict participants
from fulfilling obligations.

When negotiating these clauses, make sure that they apply equally and benefit
all parties bound to the agreement. It may also be helpful to include some
specific examples of acts that will be covered under the clause such as wars,
natural disasters, and other major events that are clearly outside a party's
control. Examples will help to clarify that the clause is not intended to apply to
excuse failures to perform for reasons within the control of the parties.

Provides coverage for financial losses arising out of the inability to bring a
project to completion. The coverage encompasses delays as well as total
termination of the contract resulting from events totally outside the control of
the contractor (i.e., fire, earthquake, war, revolution, flood, and epidemics).
Types of losses covered by the policy include continued debt servicing, loss of
income, ongoing fixed costs, spoilage, and related contingencies. The coverage
has a very limited domestic market but is commonly placed as a political risk
coverage for contractors working in foreign countries.

Are force majeure clauses standardized?

No. Force majeure is often treated as a standard clause that cannot be changed.
However, as the clause excuses a party from carrying out its obligations, it
needs to be carefully thought through and tailored for the project in question.
It may be appropriate for there to be different events that give rise to different
contractual consequences. For example, see the 2013 EPEC publication by
Allen & Overy comparing termination clauses and force majeure clauses in PPP
projects in a number of European countries.
It is important to note that Lenders do not like force majeure as it creates a level
of uncertainty for them. Therefore, where external funding is to be called upon,
thought should be given when drafting the underlying project agreements as to
what Lenders are likely to accept.

Who should bear risk?

The risk of force majeure is generally allocated to the grantor. The theory goes
that the grantor is best able to manage force majeure risk, as such risk relates
partially to the activities of the host country government and its relations with
other countries and/or its populace, and that the grantor is the only party able to
bear such risk, given its size and the difficulty of obtaining adequate insurance.
However, in certain markets, such as the UK, the grantor may require the
project company to bear a portion, or all, of the force majeure risk or may
separate the risks between natural and political force majeure events, with
different consequences (see below).
What are the consequences of force majeure event?
Should the affected party be relieved of its obligations to perform under the
contract? In some projects a force majeure event is likely to have an impact on
the whole project – such as lightning striking a power plant transmission
substation and making it temporarily unusable. However, in other projects, such
as a water concession over a whole network, even if force majeure has an
impact on a specific treatment plant or pumping station, it may not affect the
whole network.

The affected party should be under an express duty to minimize the disruption
caused by force majeure.Should some events constitute force majeure for one
party but not the other? Care should be taken to ensure that force majeure
events only relieve obligations to the extent that they prevent the party from
performing them.

Liquidated damages
Is the contractor to pay liquidated damages if completion or some other event
does not occur by a specified date? If so, the contract should stipulate that the
date in question is extended by any period during which the contractor is
prevented from carrying out the activity in question.
Continued payment?
To what extent (if any) should the contractor continue to be paid even where it
is unable to perform its obligations. This should be expressly stated.
Other project documents
Is there a linked project agreement that may be affected also? Are the provisions
in related project agreements ―back-to-back‖? For example, if a project
company is to receive no revenues during a force majeure event under a power
purchase agreement, will it still be liable under the take or pay provisions in the
fuel supply contract? Lenders will want to ensure that the definition and
treatment of force majeure is identical in each of the project contracts.
However, it should be remembered that force majeure only excuses a party
from performing under a contract to the extent that performance under that
contract is hindered or prevented. Therefore, it may be necessary to include a
provision specifically referring to circumstances where a party is prevented
from performing its obligations under another agreement due to force majeure.
Termination for extended force majeure

Should there be termination in case of extended force majeure events? Should a

maximum period be identified during which the effects of one single event or an
aggregate duration of force majeure events over the period of the concession
may last before one or both of the parties can act to either remove itself from the
project or obtain compensation for damages incurred. NB – watch out for
wording which talks about continuation of the force majeure event for a period
– what is important is the duration of the inhibiting effects of force majeure.
The theory is that parties will have insurance and other resources to tide them
over for some period of force majeure, but eventually they should be entitled to
terminate. Often if it agrees to continue with the project despite continuing force
majeure, the project company‘s compensation during force majeure will
increase accordingly to create an incentive to remain.

Force majeure events

The parties will usually agree on a list, which may or may not be exhaustive, of
examples of force majeure events. Force majeure events generally can be
divided into two basic groups: natural events and political events.

(a) natural events

These may include earthquakes, floods, fire, plague, Acts of God (as defined in
the contract or in applicable law) and other natural disasters.These are events
which are not within the control of the Host Government.

The parties will need to look at the availability and cost of insurance, the
likelihood of the occurrence of such events and any mitigation measures which
can be undertaken. For example, although the grantor will be best placed to
appreciate the ramifications of common natural disasters, the contractor should
be able to obtain insurance for the majority of this risk or otherwise mitigate the
occurrence of the risk.
(b) political and special events

These may include terrorism, riots or civil disturbances; war, whether declared
or not; strikes (usually excluding strikes which are specific to the site or the
project company or any of its subcontractors), change of law or regulation [this
is often dealt with separately from force majeure], nuclear or chemical
contamination, pressure waves from devices travelling at supersonic speeds,
failure of public infrastructure.

Formation of agency

1.Agency by appointment

a. An agency is created by express appointment when the principal appoints the

agent by express agreement with the agent. This express agreement may be an
oral or written agreement between the principal and the agent.

b.Contract law principles apply to an agency agreement. An agent may agree to

act in consideration for a reward. On the other hand, an agency is gratuitous if
the agent agrees to act for no consideration.

c.The general rule is that agency may be created orally and there is no formality
for the creation of agency by express agreement, except for one situation which
is discussed below. This general rule applies even to cases of appointing agents
for the signing of agreements for sale and purchase of immovable property,
whether on behalf of the vendor or the purchaser.

The one exception is where an agent is appointed to execute a deed on behalf of

the principal. In this case, the agent will have to be appointed by deed, which is
called a power of attorney.

2.Agency by estoppel (implied appointment)

a. Agency by estoppel arises when A makes a representation to a third party,

whether by words or conduct, that B is his agent, and subsequently that third
party deals with B as A's agent in reliance on such representation. A will not be
permitted (is estopped) to deny the existence of the agency if to do so would
cause damage (usually financial loss) to that third party.

b.The person who makes such representation ("A" in paragraph (a) above) is
treated as having created an agency relationship between himself as the
principal and the other person ("B" in paragraph (a) above) as his agent,
although there is in fact no agreement between the two parties ("A" and "B" in
paragraph (a) above) as to the creation of the agency relationship. Agency by
estoppel is sometimes called implied appointment of agent.
c.In agency by estoppel, the authority of the agent is described as only apparent
or ostensible but not actual, as the principal has, in fact, not granted the agent
such authority to act on the principal's behalf.

d.The extent of apparent or ostensible authority of the agent in an agency by

estoppel depends largely upon the contents of the representation made by the
principal to the third party who relies and acts on the representation. The
principal is said to "hold out" a person as his agent with such authority as the
principal may induce the third party to believe and is estopped from denying the
existence of agency.

3.Agency by ratification

a. Agency by ratification arises when a person (the principal) ratifies (that is,
approves and adopts) an act which has already been done in his name and on his
behalf by another person (the agent) who in fact, had no actual authority
(whether express or implied) to act on his (the principal's) behalf when the act
was done.

b.Ratification by itself only creates an agency relationship between the principal

and the agent in respect of the act ratified by the principal, but not in respect of
any other act, whether past or future.

c.The person who ratifies an act of another person must have been in existence
and have the legal capacity to carry out that act himself both at the time when
the act was done and at the time of ratification. A person may lack legal
capacity on grounds of bankruptcy, infancy or mental incapacity.

4.Agency of necessity

a. Agency of necessity arises when a person ("A") is faced with an emergency

in which the property of another person ("B") is in imminent jeopardy and it
becomes necessary, in order to preserve the property for A to act for and on
behalf of B. In this case, A acts as an agent of necessity of B.

b.Agency of necessity arises only when it is practically impossible for the agent
to communicate with the principal before the agent acts on behalf of the
principal. (This would be difficult to establish with today's advanced
communication systems and is the reason why agency of necessity does not
often arise.)

c.Authority to act in case of emergencies cannot usually prevail over express

instructions to the contrary given by the principal.

Agency by implied authority is of three types as shown below;

Agency by Necessity

Agency by Estoppel
Agency by Holding out.

By Necessity: At times it may become necessary to a person to act as agent to

the other. For example: A has handed over 100 quintals of butter for
transportation, to a road transport company. Actually it is bailment contract,
assume that in the transit all vehicles has got stopped where it takes one week
for further movement. So the transport company authorities have sold away the
butter in those nearby villages. Here agency by necessity can be seen.

By Estoppel: In presence of A , B says to C that he (B) is A`s agent though it is

not so actually. A has not restricted B from making such statement. Here agency
by Estoppel can be seen

By Holding out: B is A`s servant and A has made B accustomed to bring good
on credit from C. On one occasion A has given amount to B to bring goods
from C on cash basis. B has misappropriated that amount and has brought goods
on credit as usually, Here is agency by holding out and therefore A is liable to
pay amount to C