Cima_Business Law_Practical Problems_1

The door of a public toilet had a defective pay-lock. A lady found herself locked in. She tried to climb out, allowing her weight to rest on the toilet roll, which rotated. She fell and was injured. Is she liable to get damage from the local authority ? If so how much ?

The court in Sayers v. Harlow UDC (1958)(which described her plight as an ‘inconvenience’) held that her injuries were 75 per cent the fault of the local authority and 25 per cent her own fault. Damages were reduced accordingly.Here the lady is partly liable for her mistake and therefore rule of contributory damage will be applicable.

Terminology of Negotiable Insturment (Commercial Paper)

allonge—A separate piece of paper attached to the instrument on which the indorsement is written.
assignee—The party to whom the right has been transferred.
assignment—The transfer of contractual rights by the obligee to another party.
assignor—The party who transfers the right.
bearer paper—Bearer paper is negotiated by delivery: indorsement is not necessary.
blank indorsement—An indorsement that does not specify a particular indorsee. It creates bearer paper.
certificate of deposit (CD)—A two-party negotiable instrument that is a special form of note created when a depositor deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus and agreed-upon rate of interest upon the expiration of a set time period agreed upon by the parties.
check—An order by the drawer to the drawee bank to pay a specified sum of money from the drawer's checking accounting to the named payee (or holder).
collateral—Security against repayment of the note that lenders sometimes require; can be a car, a house, or other property.
demand instrument—An instrument payable on demand.
demand note—A note payable on demand.
draft—A three-party instrument that is an unconditional written order by one party that orders the second party to pay money to a third party.
drawee of a check—The financial institution where the drawer has his or her account.
drawee of a draft—The party who must pay the money stated in the draft. Also called the acceptor of a draft.
drawer of a check—The checking account holder and writer of the check.
drawer of a draft—The party who writes the order for a draft.
drawer's negligence—The drawer is liable if his or her negligence led to his or her forged signature or the alteration of a check. The payor bank is not liable in such circumstances.
fictitious payee rule—A rule that says a drawer or maker is liable on a forged or unauthorized indorsement of a fictitious payee.
fixed amount—A requirement of a negotiable instrument that ensures that the value of the instrument can be determined with certainty.
fixed amount of money—A negotiable instrument must contain a promise or order to pay a fixed amount of money.
forged indorsement—The forged signature of a payee or holder on a negotiable instrument.
holder—A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or his order, or to bearer, or in blank.
imposter—A person who impersonates a payee and induces a maker or drawer to issue an instrument in the payee's name and to give it to the imposter.
imposter rule—A rule that says if an imposter forges the indorsement of the named payee, the drawer or maker is liable on the instrument and bears the loss.
indorsee—The person to whom negotiable instrument is indorsed.
indorsement for deposit or collection—An indorsement that makes the indorsee the indorser's collecting agent (e.g. for deposit only)
indorsement—The signature (and other directions) written by or on behalf of the holder somewhere on the instrument.
indorser—The person who indorses a negotiable instrument.
instrument—Term that means negotiable instrument.
maker of a CD—The bank (borrower).
maker of a note—The party who makes the promise to pay (borrower).
money—A "medium of exchange authorized or adopted by a domestic or foreign government."
negotiable instrument—A special form of contract that satisfies the requirements established by Article 3 of the UCC. Also called commercial paper.
negotiation—Transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder.
nonnegotiable contract—Fails to meet the requirements of a negotiable instrument and, therefore, is not subject to the provisions of UCC Article 3.
nonrestrictive indorsement—An indorsement that has no instructions or conditions attached to the payment of the funds.
order paper—Order paper is negotiated by (1) delivery and (2) indorsement.
order to pay—A drawer's unconditional order to a drawee to pay a payee.
payable on demand or at a definite time requirement—A negotiable instrument must be payable either on demand or at a definite time.
payee of a CD—The depositor (lender).
payee of a check—The party to whom the check is written.
payee of a draft—The party who receives the money from a draft.
payee of a note—The party to whom the promise to pay is made (lender).
permanency requirement—A requirement of negotiable instruments that says they must be in permanent state, such as written on ordinary paper.
portability requirement—A requirement of negotiable instruments that says they must be able to be easily transported between areas.
promise to pay—A maker's (borrower's) unconditional and affirmative undertaking to repay a debt to a payee (lender).
promissory note—A two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party.
restrictive indorsement—An indorsement that contains some sort of instruction from the indorser.
sight draft—A draft payable on sight. Also called a demand draft.
signature requirement—A negotiable instrument must be signed by the drawer or maker. Any symbol executed or adopted by a party with a present intent to authenticate a writing qualifies as his or her signature.
special indorsement—An indorsement that contains the signature of the indorser and specifies the person (indorsee) to whom the indorser intends the instrument to be payable. Creates order paper.
time draft—A draft payable at a designated future date.
time instrument—An instrument payable (1) at a fixed date, (2) on or before a stated date, (3) at a fixed period after sight, or (4) at a time readily ascertainable when the promise or order is issued.
time note—A note payable at a specific time.
trade acceptance—A sight draft that arises when credit is extended (by a seller to a buyer) with the sale of goods. The seller is both the drawer and the payee, and the buyer is the drawee.
unconditional—Promises to pay and orders to pay must be unconditional in order for them to be negotiable.
unconditional promise or order to pay requirement—A negotiable instrument must contain either an unconditional promise to pay (note or CD) or an unconditional order to pay (draft or check).
unqualified indorsement—An indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the maker, drawer, or acceptor defaults on it.
unqualified indorser—An indorser who signs an unqualified indorsement to an instrument.

The legal effects of frustration

At common law: the contract is automatically brought to an end at the time of the frustrating event. The relevant statute is the Law Reform (Frustrated Contracts) Act 1943. It only applies where there’s no express provision in the contract for what happens if it’s frustrated.

The key provisions are:
If some sort of pre-payment or deposit has been made, the buyer can get that pre-payment back, minus any expenses incurred by the seller.

If the contract has already been partly performed, it’s a bit more complicated. You have to pay for any benefit you’ve already received. Suppose the contract is for a complete garden makeover, and at the time of the frustrating event, the contractor has already installed a swimming pool in your garden. You have to compensate the gardener for the expenses he’s incurred in installing your pool.

Practical Problems_Contract Act_78

F promised to pay his son S a sum of Rs. 1 lakh if S passed C.A. exams in the first attempt. S passed the exam in the first attempt, but F failed to pay the amount as promised. S files a suit for recovery of the amount. State whether S can recover the amount under the Indian Contract Act, 1872.

Implied Terms_Contract Act

A term which has not been mentioned by either party will nonetheless be ‘included’ in the contract, often because the contract doesn’t make commercial sense without that term. Terms like this are called implied terms, and there are two main types:

Terms implied by statute: the Sale of Goods Act 1979. The key provisions are:

Section 12: the person selling the goods has to have the legal right to sell them.

Section 13: if you’re selling goods by description, e.g. from a catalogue or newspaper advert, then the actual goods have to correspond to that description.

Section 14: the goods must be of “satisfactory quality” – that is, they should meet the standard that a reasonable person would regard as “satisfactory”. Also, if the buyer says they’re buying the goods for a particular purpose, there’s an implied term that the goods are fit for that purpose.

Section 15: if you’re selling the goods by sample – you show the customer one bag of flour and they order 50 bags – then the bulk order has to be of the same quality as the sample.

Terms implied by the courts…

As a matter of fact. Something that’s so obviously included that it didn’t need to be mentioned in the contract. If I agree to pay you £50 for a lawnmower, it probably wouldn’t occur to us to write down that we mean fifty pounds sterling, as opposed to any other sort of pound. That’s obvious to both of us. (Beware of this point – it has to have been obvious to both parties – it’s not enough to show that one party thought it was included, or that the contract would have been more reasonable with the added term.)

As a matter of law. This is about general considerations of public policy – the courts are laying down, as a matter of law, how the parties to certain types of contract ought to behave. For example, in one case, the courts held that landlords of blocks of flats ought to keep the communal areas (lifts, stairs etc) in a reasonable state of repair – so that term was implied into the rental contract.

Customary terms.

Some terms are generally known to be included in contracts in a particular trade or locality. Amongst bakers, “one dozen” means thirteen – they don’t have to include terms in every contract specifying that.

Express Terms

Express terms are terms that have been specifically mentioned and agreed by both parties at the time the contract is made. They can either be oral or in writing.

Practicle Problems_Contract Act_76

X agrees to pay Y Rs. 1000 if Y writes 100 pages for him in one minute. Is it a valid contract ?

Elements of Contract

The first step in a contract question is always to make sure that a contract actually exists. There are certain elements that must be present for a legally binding contract to be in place.
The first two are the most obvious:

An offer: an expression of willingness to contract on a specific set of terms, made by the offeror with the intention that, if the offer is accepted, he or she will be bound by a contract.

Acceptance: an expression of absolute and unconditional agreement to all the terms set out in the offer. It can be oral or in writing. The acceptance must exactly mirror the original offer made.

A counter-offer is not the same as an acceptance. A counter-offer extinguishes the original offer: you can’t make a counter-offer and then decide to accept the original offer! But…
A request for information is not a counter-offer. If you ask the offeror for information or clarification about the offer, that doesn’t extinguish the offer; you’re still free to accept it if you want.

It is very important to distinguish an offer from an invitation to treat – that is, an invitation for other people to submit offers. Some everyday situations which we might think are offers are in fact invitations to treat: Goods displayed in a shop window or on a shelf. When a book is placed in a shop window priced at £7.99, the bookshop owner has made an invitation to treat. When I pick up that book and take it to the till, I make the offer to buy the book for £7.99. When the person at the till takes my money, the shop accepts my offer, and a contract comes into being.
Adverts basically work in the same way as the scenario above. Advertising something is like putting it in a shop window.

Auctions:
The original advertising of the auction is just an invitation to treat.
When I make a bid, I am making an offer.
When the hammer falls, the winning ‘offer’ has been accepted. The seller now has a legally binding contract with the winning bidder (so long as there is no reserve price that hasn’t been reached)

N.B: an offer can be revoked at any time before it is accepted, so long as you inform the person you made the offer to that the offer no longer stands.

Consideration: each party to the contract must receive something of value.
This is best illustrated by an example: suppose I promise to give you my watch, but you don’t give me anything in return. If I break my promise and keep my watch, you can’t then go to court and make me give it to you. The contract isn’t legally binding: you didn’t give me any consideration for my promise.
So put simply, consideration is the price paid for the other’s promise.

There are four legal maxims that apply to consideration:
Consideration must move from the promisor;
Consideration need not move to the promisee;
Past consideration is not good consideration;
The consideration given must be sufficient, but it need not be adequate.
The detail isn’t necessary here, but there is a separate note on them if you’re interested.

Intention to create legal relations: if my brother offers me a lift to London, and I say I’ll contribute to the cost of the petrol and then don’t, there isn’t necessarily a binding contract that he can sue me under. If the arrangement is an informal, social one, then my offer to pay for petrol probably wasn’t made with the intention of being legally bound (see the definition of ‘offer’ above).

In general, arrangements of a social nature are presumed not to be legally binding, whilst commercial arrangements are presumed to be intended as binding contracts. Of course, these presumptions can always be rebutted in court by producing evidence to the contrary.

What is innominate Terms ?

Innominate terms - (intermediate terms) Terms of a contract that cannot be classified as conditions or warranties. The parties to a contract may label the terms of the contract as either conditions or warranties and those labels will usually be respected by the courts provided that the result is reasonable. Similarly, certain terms have traditionally been treated as conditions or warranties even though they have not been labelled as such (for example, time clauses in mercantile contracts are to be treated as conditions). Innominate terms are those that will not fit the above categories. The remedy for breach of an innominate term will depend on whether or not the breach is of a fundamental nature, i.e. that the injured party has been deprived of substantially the whole of the benefit of the contract. If the injured party has been so deprived, he will be entitled to treat the contract as repudiated and claim damages. If not, he will be entitled to damages only.