Friday, January 22, 2016

Offer in Contract

Offer is one of the components of agreement. It`s status is equal to that of question. Offer is otherwise known as proposal. The person who is making the offer is called offerer or promissory or proposer.

Definition of Offer

When a person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the ascent of that other to such act or abstinence he is said to make a proposal. - Section 2 (a) of Indian Contract act.

Essentials of Offer

Offer may be General or Specific: Offers are of two types, namely specific offer and general offer. If offer is made particularly to one person, it is called specific offer. On the other hand if offer is made to a group of persons, it is called general offer. General offer also is so powerful as specific offer.

· A case on this occasion is Mrs. Cary Lli (Vs) Carbolic Smoke bal Company. In this case Carbolic Smoke bal company is a pharmaceutical company. During contemporary period of this case a fever called `Influenza` is in existence. This fever arises as a result of rat bite. This fever is characterized by propagation from one person to the other. On that occasion the company has invented capsules to cure influenza. Here the company makes a general offer saying that those capsules can cure influenza very quickly and prior consumption of their capsules will avoid attack by influenza. In addition to it the company says that if any person gets attacked by influenza even after prior consumption, the company will pay 100 pounds to such person. Mrs. Cary Lli makes prior consumption & gets attacked by that fever. Court decides that general offer also is valid and hence the company is under obligation to pay 100 pounds to her.

Offer must be Communicated: Offer attains validity only after Communication. Un-communicated offer is not valid.

· A case on this point is Lalman (Vs) Gowridutt. In this case Gowridutt is fond of children, but he has no children. Therefore he has brought his sister`s son. On one day, the boy gets missed from the house. Lalman is Gowridutt`s servant. Gowridutt sends Lalman to search for the missed boy. After Laman`s departure, Gowridutt makes an offer according to which he will give a reward to the person who brings the boy back. Thereafter the boy is found back by Lalman himself. After sometime Lalman comes to know about the reward and claims that reward. Here court decides that Lalman has no knowledge of the offer and hence he cannot claim the reward.

Price Declaration, Advertisement, Prospectus etc are not offers: All these things are only invitations to make offer, but not offers. Prospectus is invitation to make offer, share application is offer and allotment is acceptance.

· Related case is Harve (Vs) Facie. In this case A is owner of a pen corner and B is an officer. On one day B sends a telegram to A requesting to inform the price of Bumper ball pen. A sends Telegram to B saying that price of bumper ball pen is 10 pounds. Now B gives telegram to A send one pen. Afterwards A gives telegram saying that he has no stock of Bumper ball pens. B sues A. Here court decides that price declaration is invitation to make offer and therefore there is no Contract at all between A and B.

Offer should be made with a view to obtain ascent of the other party: In the absence of intention to get acceptance the offer is not valid.

Offer may be Expression or Implied: In presence of conversation it is called express offer and in the absence at conversation it is called implied offer. Both types of offers are Valid. It is well known that Implied Contract is Valid. On that ground it can be conformed that implied offer is Valid offer.

Reticence leads to acceptance - This wording sound should not be included in the offer: In case where offerer says that Silence indicates acceptance, that offer is not Valid. As per the rules of Valid acceptance, acceptance must be communicated. Mere silence is not sufficient.

· A related case is Felthour (Vs) Bindley. In this case A makes an offer to B saying that he (A) wants to purchase B`s property for 30 pounds and still says that B`s reticency indicates acceptance. Court decides that the offer is not Valid.

Legal Obligations: Offer must be capable of creating legal relation. That means two directional consideration must be reflected in the offer.

· A case on this point is Balfour (Vs) Balfour. In this case husband offers to send money to his wife at regular intervals of time for the purpose of medical treatment to which she gives acceptance. Here the offerer is not willing to get any consideration from offeree. Hence it is decided that the offer as well as contract are not creating legal relations.

Certainty: The language used in the offer must be certain there should be no element of un-certainty.

· A related case is Taylor (Vs) Portington. In this case B makes an offer to A saying that A has to modernize his house & if the mode of modernization is satisfactory to B, He (B) will join as tenant. In this offer un-certainity can be seen. It is not Valid offer.

Features of Valid Contract

Features of Valid Contract can be clearly known under the heads Consensus ad idem, Certainty, Free Consent, Capacity of Parties, Consideration, Legal Formalities, Lawful Object, Legal Obligations, Possibility of Performance and, Agreements not declared void.

Consensus ad idem: Consensus ad idem means identity of minds. That means there should be no difference between ways of thinking of offerer & offeree. Both of them should understand the same thing in the same way. In the absence of consensus ad idem, the contract is not valid.

· Example: A has two houses – one at City A and the other at City B. He wants to sell his house situated at City A. Now he is making an offer to B to sell away one of his house to which he gives his acceptance. Here A is thinking about house at City A and B has given acceptance with a view to purchase house at City B. Here is no consensus ad idem.

· A case on this point is Raffels Vs Wichelhaus. In this case there is a contract between A & B according to the terms of which A has to supply raw cotton to B in peerless ship. There are two ships with the same name. While entering into the contract A thinks about second peerless and B thinks about first peerless. Here court decides that their contract has no consensus ad idem & hence it is void.

Certainty: The wording used in the contract must be certain. Uncertain wording makes the Contract Void.

· Related case is Taylor Vs Portington. In this case there is a Contract between A and B according to which A has to modernize his house and B has to join as tenant. If the mode of modernization is satisfactory to B. Here court decides that their is no Certainty and therefore it is Void.

Free Consent: Both parties should enter into the Contract with Free Consent. There should be no physical pressure (coercion) or mental pressure (undue influence). Absence of free consent makes the Contract Voidable. A Voidable Contract may become either Valid or void depending upon intention of the suffering party.

· A case on this point is Ranganayakamma Vs Alwar Setty. In this case B gives a threatening to A saying that he (B) will not allow cremation of dead body of A`s husband, unless A adopts B`s sons. Here it is decided that there is no free consent from the side of A. There it is voidable, at the option of A.

Capacity of Parties: Both parties should have eligibility or qualification to enter into a Contract. Such eligibility is called Capacity of Contract. Minor insolvent person`s, lunatic persons etc have no capacity to contract.

· Related case is Mohiribeabee Vs Dharmades Ghosh. In this case A is a money lender and B is a minor. A Contract gets formed between them according to which B has to pledge his property with A to obtain a loan. On that occasion the minor executes a deed also saying that money lender has write off lien on the pledged property till settlement of debt. There after the minor sues to get in his property back without settling the debt. Money lender claims that he has write-off lien as per the deed. Here court decides that the deed executed by minor is void and therefore lender has no lien.

Consideration: Both parties presenting the Contract should get benefited mutually. Consideration may be in the form of cash or goods or act or abstinence. Consideration need not be adequate.

Legal Formalities: Contract may be oral or documentary. In case where it is oral, the concept of legal formalities is not applicable. If the contract is of documentary nature, all legal formalities like stamp duty etc must be properly fulfilled. If legal formalities are not satisfied the contract becomes unenforceable.

· Example: A and B have written their agreement on Rs. 10/- stamp where it is to be written actually on Rs. 100/- stamp. It is not Valid Contract.

Lawful Object: To attain validity object of the contract must be lawful. Un-lawful object makes the contract illegal & hence void.

· Example: There is a contract between X and Z according to which Z has to murder Y for a consideration of Rs. 10000/- from X. It is unlawful object.

Legal Obligations: To attain validity contract must be capable of creating legal obligations. One directional consideration leads to friendly relations and two directional consideration leads to legal relations.

· A case on this point is Balfour Vs Balfour. In this case A and B are husband and wife respectively. As per their contract, husband has to send money to his wife at regular intervals of time for the purpose of medical treatment. Here Court decides that there is only one directional consideration and hence their contract is not creating legal relations. So, their contract is held to be void.

Possibility of Performance: It should be possible to perform the event agreed in the contract. Impossibility makes the contract void.

· Example: A contract to join two parallel lines, has no possibility for performance and hence such a type of contract is void.

Agreement not declared void: Certain types of agreements are declared to be void by statues. As such agreements are harmful to society and they are named as Agreement opposed to public policy. Agreements in restraint of trade, Agreements in restraint of marriage, Agreements in restraint of personnel freedom etc come under Agreement opposed to public policy.

· A case of this occasion is Madhav Vs Rajkumar. In this case a contract gets formed between A and B according to which B has to stop his business and for that A has to pay Rs. 900/- to B. There-after B stops his business and A fails to pay. B Sue’s for recovery. Court decides that it is agreement in restraint of trade and hence void.

If an agreement satisfies all these features, then it becomes a contract. So All Contracts are agreements, but all agreements are not Contracts.

According to Sec. 10 of Indian Contract Act –All agreements are contracts if they are made by free consent of the parties, competent to contract, with a lawful object, for lawful consideration and are not hereby expressly declared to be void.

Acceptance in Contract

Offer and acceptance are components of an agreement. Offer constitutes question and acceptance constitutes answer. One who gives acceptance is called Offeree or Promisee or Acceptor.

Definition of Acceptance

When the person to whom the proposal is made, signifies his ascent there to, the proposal (offer) is said to be accepted. A proposal (offer) when accepted becomes a Promise. - Section 2(b) of Indian Contract Act

Features of Valid Acceptance

Acceptance must be given by that person only to whom the offer is made: If it is specific offer, acceptance is to be given by that person only to whom the offer is made.

· A case on this point is Balton Vs Jones. In this case A and B are traders and C is A`s Customer. On one day C writes a letter to A requesting A to send goods. It Constitutes C`s offer to A. By the time of receiving that letter, A has no such business & it had already been sold to B, his fellow delivery. Here court decides that the acceptance given by B is not valid because C has made this offer to A.

Acceptance must be Communicated: Offeree has to communicate his acceptance to offerer. There after only, Acceptance adopts Validity.

· A case on this point is Brogden Vs Metropolitan Railway Company. In this case Mr. A obtains a coal mine on lease. He wants to supply the extracted coal to a railway company. Therefore he writes a letter to the manager of Metropolitan Railway Company, Communicating his willingness to Supply Coal. That letter constitutes offer. The Manager of Railway Company gives his acceptance on the letter, but gets failed in communicating his acceptance. In the court it is decided that un-communicated acceptance is not valid.

· Same decision is made in Powell Vs Lee and Felthous Vs Bindley.

Acceptance Period: In case where offerer specify certain period to give acceptance, then acceptance is to be given before expiry of such specified period. But at times, offerer does not specify any period to give acceptance. In such a case acceptance should be given within reasonable period. The Concept of reasonable period depends upon nature of situation.

· A case on this point is Rarmsgate Victoria Hotel Company Vs Montiforie. In this case an investor applies for shares, in a company. It is well known that share application constitutes offer. Therefore allotment becomes acceptance. Here the company makes allotment after five months from the date of share application. Court decides that acceptance is not made within reasonable period and hence the allotment is not valid.

Acceptance must be Un-Conditional: No conditions should be linked to acceptance. Conditional acceptance is not valid. On the other hand it can be analyzed that conditional acceptance is not at all acceptance, But counter offer. Whenever it is taken as counter offer, it can be conformed that there is no contract.

· A case on this point is Union of India Vs Mrs. Babulal. In this case A makes an offer to sell his car to B at a price of Rs. 5000/-. B gives acceptance conditionally saying that he wants to purchase that car at Rs. 4500/-. Here court decides that conditional acceptance carries no validity and moreover it is B’s counter offer to A.

Acceptance should be made in the method specified by offerer: When offer is made, acceptance should be made in the method specified by offerer. For Example: Mr. A has made an offer and adds that if any person wants to give any acceptance he has to raise his hand. Now, to give acceptance that method only is to be adopted.

Acceptance given to revoked offer is not valid: When an Offer is revoked, the acceptance given to revoked offer is not valid. Offer must be revoked before acceptance.

Acceptance given to renewed offer is Valid: It might have been revoked previously. It is sufficient if offer is in force at the time of acceptance.

Acceptance must be absolute: That means acceptance should be given to entire offer. Partial acceptance is not Valid. It can be analyzed that partial acceptance is nothing but conditional acceptance and therefore Counter offer.

Acceptance must be communicated in the method specified by offerer: When an offer is made for the same, acceptance must be communicated in the method specified by offerer. For example: an offerer has suggested to communicate acceptance by means of registered post then such channel only should be adopted.

Acceptance is Irrevocable: When once acceptance is given. It cannot be taken back under any circumstances. Soon after acceptance contract comes into force and binds over the parties. So, revocation of acceptance is nothing but breach of contract. Thus it is aptly said that acceptance is like a lighted match stick to a train of gun powder.

CONSIDERATION

CONSIDERATION

Consideration is the foundation of every contract. The law enforces only those promises which are made for consideration. Where one party promises to do something, it must get something in return. This 'something in return' is called consideration. Consideration is the very life-blood of every contract. In the absence of consideration or undertaking is purely gratutious. However, sacred and binding in honor, it is create no legal obligation.

Definition. Consideration has been defined in many ways.

According to pollock "Consideration is the price for which the promise of some other is brought and the promise thus given for value is enforceable."

It is something which is of some value in the eyes of law.

According to Section 2 (d) of the Indian Contract Act defines consideration as-

(a) when at the desire of the promisor,

(b) the promise or any other person,

(d) something, such act or abstinence or promise is called a consideration for the promise.

Example:- A agrees to dell his horse to B for Rs. 1000. Here A's promise to sell his horse is for B's consideration to pay Rs. 1000 is A's consideration to sell his horse to B.

Types of Consideration

At least three types of Considerations found in Business Law:

Past consideration. When something is done or suffered before the date of the agreement, at the desire of the promisor, it is called ‘past considera-tion.’ It must be noted that past consideration is good consideration only if it is given by the promisee, ‘at the desire of the promisor.

Under English law, past consideration is no consideration. In India sec 25(2) adequately covers a past voluntary service.

Let us discuss some examples of this.

Illustrations

(a) A teaches the son of B at B’s request in the month of January, and in February B promises to pay A a sum of Rs 200 for his services. The services of A will be past consideration.

(b) A lawyer, gave up his practice and served as manager of a landlord at the latter’s request in lieu of which the landlord subsequently promised a pension. It was held that there was good past consideration. (Shiv Saran vs Kesho Prasad)

Present consideration. Consideration which moves simultaneously with the promise, is called ‘present consideration’ or ‘executed consideration’.

For example, A sells and delivers a book to B, upon B’s promise to pay for it at a future date. The consideration waiting from A is present or executed consideration since A has done his act of delivering the book simultaneously. with the promise of B.

It should, however, be noted that it is said to be . ‘present consideration’ when at the time of the agreement it is executed on one side and executory on the other. If both parties have done their part under the contract, e.g., where A sells a book to B and B pays its price immediately, it is a case of executed contract (where nothing remains to be done) and not of executed or present consideration.

Future consideration. When the consideration on both sides is to move at a future date, it is called ‘future consideration’ or ‘executory consideration’. It consists of an exchange of promises and each promise is a consideration for the” other.

For example, X promises to sell and deliver 10 bags of wheat to Y for Rs 6,500 after a week, upon Y’s promise to pay the agreed price at the time of delivery. The promise of X is supported by promise of Y and the consideration is executory on both ides.

It is to be observed that in an ‘executed consideration’, the liability ‘is outstanding against only one side whereas in an ‘executory consideration’ it is outstanding on both ends.

Termination of Agency Contract

Termination of agency may take place in two ways either by the operation of law or by the act of parties.

Termination of agency by the operation of law. The following are the situations where the agency is terminated by the operation of law.

· Expiry of time: At times contract of agency may get formed for a particular period. In such a case after expiry of that agreed period, termination of agency takes place.

· Fulfillment of object: At times the contract of agency may be found for a particular objective or to do a particular venture. In such a case termination of agency takes place after completion of that venture.

· Death or lunacy of either party: Whenever principal or agent come across death or lunacy, agency contract gets terminated.

· Insolvency of Principal: Principal should have capacity to contract. When principal becomes insolvent, He foregoes capacity to contract and termination of agency takes place. But the act is silent with regard to insolvency of agent. As minor also can act as agent, it can be conformed that insolvent person may act as agent.

· Destruction of subject matter: When subject matter of contract gets destructed, agency contract comes to an end.

· Principal – Alien Enemy: When principal is alien and war breaks out between the countries, then principal becomes alien enemy and agency contract gets terminated.

· Liquidation of company: On account of legal entity company may act either as principal or agent. Whatever the status may be, if company enters into liquidation, termination of agency takes place.

· Termination of Sub-agency: When ever man agency gets terminated on account of any reason, sub-agency also goes off.

Termination of agency by the act of Parties. The following are the situations where the agency is terminated by the act of parties.

· Termination of agency by the Principal: Principal can terminate the contract of agency by giving notice to agent. By doing so if agent comes across any suffering. Principal has to compensate the agent.

· Termination of agency by the Agent: Agent also can terminate the agency contract by giving notice to principal but by doing so if principal comes across any suffering, agent has to compensate.

· Termination of agency by both the parties to the contract: By means of mutual understanding between principal and agent, the contract of agency may come to an end.

Friday, November 27, 2015

difference between creaditors' winding up via members' winding up

CREDITORS’ VOLUNTARY WINDING UP VIS A VIS MEMBER’S VOLUNTARY WINDING UP

Winding-up / Liquidation is a legal process where a liquidator is appointed to administer an insolvent company’s affairs in order to provide a fair distribution of the Company’s assets to its creditors and members. Liquidators recover assets of the company and distribute the proceeds to its creditors. Meeting of Creditors / Members under the Companies Act can be called for a number of different reasons and at a number of different times.

CREDITORS VOLUNTARY WINDING UP

Voluntary winding up arises when the time limit for which the company was formed expires or the objects for which it was set up have been achieved. In such cases an ordinary resolution in the general meeting is sufficient. For every other reason, a special resolution is required. (484)

Winding up is deemed to commence when the requisite resolution is passed and from that date onwards the company shall cease to carry on its business. (486, 487)

Where the resolution for winding up has been passed, but the BOD are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. It is the duty of the BOD to present the full statement of the company’s affairs and list of creditors along with their dues. (500)

Resolution passed by creditors to be notified to the registrar within 10 days. (501)

Procedure

A liquidator is appointed by the company in its general meeting and by the creditors in their meeting. They may agree on one person or if 2 names are proposed, the liquidator appointed by the creditors will act. (502)

Any director, member or creditor may approach the court, for direction that:

Liquidator appointed in general meeting shall act, or
He shall act jointly with liquidator appointed by creditor, or
An official liquidator should be appointed, or
Some other person must be appointed as liquidator. [502 (2)]

The remuneration of liquidator shall be fixed by the creditors, or by the court. (504)

On appointment of liquidator, all the power of Board of Directors shall cease. (505)

In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (508).

The liquidator shall take the following steps when affairs of the company are fully wound up (509):

Laying a complete picture of accounts, winding up process and method of property disposal before the general meeting and creditors meeting.
Copy of account to be sent to the registrar and official liquidator within one week from the meeting.
Company is deemed to be dissolved by the Official Liquidator from the date of report to the court.

Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilised to pay off the liabilities. The proceedings so collected shall be utilised to pay off the creditors in equal proportion. Thereafter any money or property left may be distributed among members according to their rights and interests in the company.

MEMBERS VOLUNTARY WINDING UP

When the members themselves decide to wind up the company’s affairs due to their inability to carry on business or inability to meet their financial obligations or any other reason, such winding up is known as member’s voluntary winding up.

The principal difference between a member’s and a creditor’s winding up is that in a member’s winding up, the board of directors have to make a declaration stating that the company has no debts. The directors shall call a board meeting and make a declaration of winding up accompanied by an affidavit stating that:

The company has no debts to pay, or
The company will repay its debts, if any within 3 years from the commencement of the winding up, as specified in the declaration.

Procedure

In a general meeting, one or more liquidators will be appointed to supervise the winding up process and the distribution of assets. Remuneration to be paid to the liquidator shall also be fixed in the same general meeting in which he was appointed. Notice of the liquidator’s appointment should be given to the registrar within 10 days of such appointment.

The power of board ceases to exist once the liquidator is appointed. This ensures that the liquidator is given a free hand in managing the final affairs of the company in a manner he deems fit. In case the winding up process takes more than a year, the liquidator is obligated to call a general meeting and present a complete account of the course of action taken and the current position of the organisation.

Post Winding Up Provisions

Once the winding up is complete, the following steps need to be taken:

In a general meeting, called by advertisement, the liquidator shall lay down a complete picture of the winding up process by laying down the relevant accounts and the manner in which the properties have been disposed of.
Within one week of the meeting, the liquidator shall send a copy of the accounts to the registrar and the official liquidator. Once of the official liquidator is satisfied that the affairs of the company are not being carried on prejudicially, the company shall be deemed to be dissolved from the date of report to the court.

MEMBERS WINDING UP VS CREDITORS WINDING UP

S. No.	MEMBERS	CREDITORS
1.	A board of directors’ declaration is needed that the company has no debts or that it would pay the debts within 3 years, if any.	The board is not in a position to unilaterally comment upon the liability of the company and therefore a creditors meeting is called
2.	A declaration of solvency in form 149, duly notarized, is required to be filed by the directors with a verified affidavit along with e-form 62. A statement of assets and liabilities at estimated realizable value should also be prepared along with a copy of the auditor’s report on the above two documents. Statement of affairs to be filed in form 57 verified by an affidavit in form 58 within 21 days of commencement of winding up.	Form 65-A is filed which is a statutory declaration expressing the inability of the company to continue business, thereby summoning a creditors meeting.
3.	At the general meeting a special resolution needs to be passed for winding up and appointment of liquidator(s) and fixing of remuneration. The resolution notifying the liquidator’s appointment shall be published in the official gazette and in 2 newspapers (English + Regional Language).	At the creditor’s meeting, the board shall lay out the complete picture of accounts along with a list of creditors and their claims. The liquidator appointed by the creditors will act. A committee of inspection might be formed to supervise the acts of the liquidator.
4.	Form 23 is to be filed within 30 days for notifying the resolution and form 62 shall be filed within 10 days of appointment. The liquidator shall notify his appointment to the ROC within 30 days in form 152 and e-form 62 and the same shall be published in the official gazette in form 151.	The resolution passed in the meeting is to be filed with the ROC within 30 days.
5.	The final general meeting shall be called giving notice in form 155 in which a special resolution for disposal of books and dissolution shall be passed.	The liquidator shall call a final general meeting and a creditor’s meeting by advertisement, specifying the time, place and object of the meeting.
6.	The official liquidator shall check and verify all the documents submitted to him by the company’s liquidator.	The liquidator shall submit a copy of the accounts to the ROC and the official liquidator.

for detail

source:http://bsamrishindia.com/winding-up-under-companies-act-1956/

***

Dr. RAVNEET KAUR ARORA (PUNJAB)

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