Business Law Book Mba 2 Sem

8/2/2019 Business Law Book Mba 2 Sem

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Business LawIndian Contract Act 1872 : Meaning and essentials of a valid contractFormation of contract Performance of contract Termination and discharge of

contract Remedies for breach of contract Quast contract

Special Contracts : Indemnity of guarantee Bailment AgencySale of Goods Act, 1930 : Contract of sale Conditions and warranties Transfer of property Performance of the sale Rights of an unpaid seller

Negotiable Instruments Act, 1881 : Negotiable instruments Parties to anegotiable instrument Material alteration Crossing of cheques

Endorsement Payment and collection of cheques

Indian Partnership Act, 1932 : Meaning and test of partnership Registrationof firms Relations of partners dissolution of firms

Arbitration Act, 1940 : Arbitration Arbitration without intervention of court Arbitration in suits

Carriage of Goods : Classification of Common Carriers Rights duties andliabilities of common carrier Carriage by rail Contract of affreightment

Charter Party Bill of Lading Carriage by air Documents relating thereto

Liability of the air Carrier

Contract of Insurance : Basic elements Kinds of Insurance Fire Insurance Marine Insurance


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Lesson No. Title

1. Indian Contract Act. 1972

Special Contracts

2. Contract of Indemnity and Guarantee

3. Contract of Bailments

4. Contract of Agency5. Sale of Goods Act. 1930

6. Negotiable Instruments Act, 1881

7. Partnership Act. 1932

8. Arbitration Act. 1940

9. Common Carriers Act

10 Contract of Insurance


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LESSON 1INDIAN CONTRACT ACT. 1872

MEANING

The law relating to the contracts is contained in the Indian Contract Act. 1872.

It is that branch of law which lays down the essentials of a valid contract, the

different modes of discharging the contract and the remedies available to the

aggrieved parts in the case of breach on contract. It is the most important

branch of business law. It is of particular importance to people engaged in

trade, commerce and industry as bulk of their business transactions are based

on contracts.

A contract is an agreement made between two or more parties which the law

will enforce Sec. 1 the of the Indian Contract Act defines it as An agreement

enforceable by law Sec 10 lays down that All agreements are contracts if they

are made by the free consent of parties competent to contract for a lawful

consideration and with a lawful object and are not hereby expressly declared

to be void.

ESSENTIALS OF A VALID CONTRACTSA valid contact must have the following essentials

1. Two parties : for a valid contract, there must be two parties2. Offe r and acceptance: There must be an offer and acceptance One party

has to make an offer and the other party has to accept it.

3. Consensus-ad-id em or Iden tity o f M inds : The parties to the contractmust have agreed about the subject matter of the contract at the same

time and in the same sense.

Illustration: A has two houses, one at Chennai and another at Coimbatore. He

has offered to sell one to B. B accepts thinking to purchase the house at

Coimbatore, while A, when he offers, has in his mind to dispose of house at

Chennai. There is no Consensus-as-idem.


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4. Consideration: It means Something in return Every contract must besupported by consideration.

Illustration : A offers to sell his watch for Rs. 500 to B and B accepts the offer.

Thus Rs. 500 is the consideration for the watch and vice-versa.

5. Capacity; The parties to the contract must be competent to contract. Forexample a contract by a minor is void

6. Free Consent : The consent of the parties must be free from any flow itmust not be caused by a mistake or coercion or undue influence

7. Lawful consideration: The consideration to a contract must be lawfulIllustration: A promises to pay Rs. 500 to B, in consideration of B

murdering C. The consideration is illegal.

8. T he objects of t he contact must b e lawfulIllustration: A promises to pay Rs. 500 for letting Bs house for running

a brothel. The objects is illegal. Hence, the contract is void.

Thus, the essence of legal contract is that there shall be an agreement

between two persons, that one of them shall do something either for the

benefit of the other or for his own detriment and that these persons

intend that the agreement shall be enforceable at law

CLASSIFICATION OF CONTRACTSContracts may be classified according to their validity, formation or

performance.

I. Classification According to validity

A contract is based on an agreement. An agreement becomes a contract

when all the essential elements referred to above are present. In such a

case, the contract is a valid contract. If one or more of these elements are

missing, the contract is either voidable, void, illegal or unenforceable.

Voidable Contract


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An agreement which is enforceable by law at the option of one or more of

the arties thereto, but not at the option of the other or others, is a

voidable contract. Sec.2(i).

Example : A promises to sell his house to B for Rs. 2,00,000. His consent is

obtained by use or force. The contract is voidable at the option of A. Hemay avoid the contract.

Void ContractA contract which is at enforceable by law is a void contract.

Example : A contract enter4ed into by a minor is void.

Illegal AgreementAn illegal agreement is one which is criminal is nature or which is immoral.

Such an agreement is a void contract. All illegal agreements are void but

all more agreements or contracts are not necessarily illegal.

Unenforceable ContractAn unenforceable contract is one which cannot be enforced in a Court of aw

because of some technical defect, such as absence of writing or where

the remeds has been barred by lapse of time.

II CLASSIFICATIONS ACCORDING TO FORMATIONContracts may be classified according to the mode of their formation as

follows:

Express ContractIf the terms of a contract are expressly agreed upon whether by words

spoken or written at the time of the formation of the contract, thecontract is said to be an express contract.

Implied Contract


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An implied contract is one which is inferred from the acts or conduct of the

parties or course of dealings between them. It is not the result of any

express promise or promises by the parties but of their particular act.

Example: A enters into a hotel and takes lunch. It is an implied contract that

he has to pay the cost of lunch after taking it.

III CLASSIFICATION ACCORDING TO PERFORMANCEThese may be classified as Executed contracts or Executory contracts.

Unilateral contracts or Bilateral contracts.

Executed ContractsAn executed contract as one in which both the parties have performed have

performed their respective obligations.

Example: A agrees to supply a watch to B for Rs. 500. When A supplies the

watch and B pays the price, the contracts is said to be executed.

Executory ContractsAn executory contract is one in which both the parties have yet to perform

their obligations. Thus in the above example, the contract is executor if A

has not yet supplied the watch and B has not paid the price.

Unilateral ContractA unilateral or one-sided contract is one in which only one party has to fulfil

his obligation at the time of the formation of the contract, the other party

having fulfilled his obligation at the time of the contract or before the

contract comes into existence.

Bilateral ContractA bilateral contract is one in which the obligations on the part of both the

parties to the contract are outstanding at the time of the formation of the

contract. In this sense, bilateral contracts are similar to executor

contracts.


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OFFER AND ACCEPTANCEOFFERAn offer is also called a proposal. Sec. 2 (a) of the Indian Contract Act

defines a proposal as, :When one person signifies to another his

willingness to do or to abstain from doing anything. With a view toobtaining the assent of that other to such act or abstinence, he is said to

make a proposal. The person making the proposal is called the prosper

or offerer and the person to whom the proposal is made is called

offeree

LEGAL RULES RELATING TO OFFER1. It must contain either definite terms or capable of being made definite.

Montreal dfgdfgdfghgdh : It was held in this case, that a clause to favourate

consider the applies that renewal is ambinguous and not binding thecompans

2. It must intend to give use to legal consequences

Gdfgjdfkgjdflkgd : A husband promised to pay Rs. 1000/- per month to his

wife, staying away from him. Held that the promise was never intended to b

e enforced in law.

3. It must be distinguished from a quotation or an invitation to offer

Ghdkjdfkgjdkgjdgdfgkj : P offered to buy Ds property for Rs. 6000. D

replied, Wont accept less than 10,000 P agreed to pay Rs. 10,000. But Dsold it to another person. It was held that mere statement of price by D

contained no implied contract to sell it at that price.

A catalogue or price list or tenders invited for the supplier to goods are not

proposals.

4. An offer may be made to an individual or addressed to the worlds at large.

An offer is called a specific offer when it is made to a particular person.

Gdfgdfgdfgdfgdf fgdfgd dfgd dfg: The company has offered by

advertisement, a reward of 100 to anybody contracting influenza after

using their smoke ball according to their direction. Mrs. Carlill used it as

directed but still had an attack of influenza. So, she sued for the award of

100. It was held that she was entitled to the award since an offer made

at large, can ripen itself into a contract with anybody who performs the

terms of the offer.

5. An offer is different from a tender


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A offers to supply goods at a particular rate for a particular period from a

certai9n trade. If this offer is accepted by B, it is called a tender. It

becomes an acceptance only when B places an order for a part of the

goods.

6. An offer must be communicated to the offeree

Gdfg dfgdf dfg dfg dfg : As nephew was missing is who was an employee

of A, volunteered his services to search for the boy. Meanwhile, A had

announced a reward to anybody who could trace the boy. It found the boy

and brought him back to home and sued for the reward. It was held that

he was not entitled to the reward as he was ignorant of the offer.

Section 4 lays down that the communication of an offer is complete only

when it reaches the offeree. So an offer binds the offeror only when the

offeree has the knowledge of an offer.

ACCEPTANCESection 2 the of the Indian Contract Act defines acceptances as. When the

person to whom the proposal is made signifies his assent thereto the

proposal is said to be accepted. A proposal when accepted becomes a

promise. An offer when accepted becomes a contract.

An offer can be accepted only by the persons to whom the offer is made.

Boulton Vs Jones A sold his business to B. This sale is not known to Vs

customers. So Jones who is a usual customer of the vendor places an

order for goods with the vendor. A by name B, the new owner receives

the order and supplies, the goods without disclosing the fact of sale of

business to him. It was held that the price could not be recovered as the

contract was not entered into with him.

Essentials of Valid Acceptance1. Acceptance must be communicated in usual and reasonable manner. It

may be made by express words, spoken or written or by conduct of the

parties, i.e. by doing an act which amounts to acceptance according to

the terms of the offer or by the offeree accepting the benefit offered by

the offeror.


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Any method can be prescribed for the communication of acceptance. But

silence can never be prescribed as a method of communication. Hence,

mere mental assent without expressing it and communicating it may

means of word or an act, is not sufficient.

Brogden Vs Metropolitan Railway Co. The Manager of a railway companysimply wrote on the proposal approved and kept it in a drawer. By

oversight it was not communicated. It was held that the acceptance was

not communicated and hence there was no contract.

2. Communication of acceptance may be warved by the offeror : This rule is

established in the case of Carill Vs gdfg gdfg ng gdf where the

advertisement never wanted the communication apart from fulfilling the

conditions of offer.

3. Acceptance should be made before the offer lapses or is revoked or is

received

4. Acceptance must be absolute and unconditional and should correspond

with the terms of the offeror. Otherwise, it amount to counter offer which

may be accepted or rejected by the offeror. For example, A offeror to sell

his car for S. 1 lakh B asks for Rs. 70,000. It is not an acceptance but a

counter offer only.

5. Acceptance once made, concludes the contract

CONSIDERATIONConsideration means something in return for something. Section 2 of the

Indian Contract Act defined consideration thus When at the desire of the

promisor, the promise or any other person has done or abstained from doing,

or does or abstains from doing, or promises to do or abstain from doing

something, such act or abstinence or promise is called a consideration for the

promise.

1. Consideration at the Desire of the PromisorConsideration must proceed at the request of the promisor. Hence acts done

voluntarily or at the request of third parties do not constitute a valid

consideration.

Durga Prasad Vs Baldev : A built a market at the request of the Collector of

the place B promised to pay. A commission on the articles sold in the


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market. It was held that Bs promise to pay commission did not constitute

a valid consideration because A did not build the market at the request of

B.

2. The Promisee or any other PersonConsideration may move from the promise or any third party. Hence, a

stranger to consideration can sue on the contract.

3. Has done or abstained from doing or does or abstain from doinga) Consideration may be executed, i.e. an act or forbearance made or

suffered for the promise given, or

b) Consideration may be executor, i.e. a promise to act or abstain from

doing in future, or

c) Consideration may be past, i.e. an act or forbearance already taken place

before the contract was entered into

4. Something

Consideration may not be adequate. But it must be real and lawful. Example :

A agrees to sell a cow worth Rs. 1200 for Rs. 10. He has given his

consent freely. The agreement is a contract though consideration is

inadequate.

An agreement made without consideration is void. But the following are

exceptions.

(1) An agreement expressed in writing and registered and made on account

of natural love and affection between parties standing in neat relation to

each other.

(2) A promise to compensate a person who has already voluntarily done

something for the promisor, or

(3) A promise to discharge a time-barred debt.

CAPACITY TO CONTRACT


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The parties who enter into a contract must have the capacity to do so

Capacity means competence of the parties to enter into a valid contract.

According to Sec. 10, an agreement becomes a contract if it is entered into

between the parties who are competent to contract. Thus Sec. 11 declares the

following person to be incompetent to contract.

(i) Minors

(ii) Persons of unsound mind, and

(iii) Persons disqualified by any law to which they are subject.

Incapacity to contract

Fgsdklgjfdsklg asdgjsdlkgsdfg sgsdf Mental deficiency

Ing incapacity arising of hdfgdf

1. Foreign Suvereigns and Ambassadors

They may enter into contracts. But they cannot be sued except with the

permission of the Central Government and certified by the Secretary.

2. Alien Enemy

The enemys status is to be determined by the place at residence of the

individual, but not by his nationality. If a contract is already entered into

into before the declaration of war, its performance will be suspendedduring the period of war and in case the war continues to where period,

the contract becomes void on the ground of impossibility of

perticugdfgdf contract.

3. Conviet

He is no competent to contract during the period of sentence.

4. Bankrupt

He cannot enter into contract and bind his property as his property shall

be vested in the official receiver when he is adjudged an insolvent.

5. Artificial Person : Corporation


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It is a person in the eye of law. It is a legal entity. It can purchase

properties enter into contracts, sue and be sued on such contracts. Its

contractual capacity is limited. For example, it cannot enter into contract

to marry or which is ultra vires its powers.

(B) INCAPACITY ARISING FROM MENTAL DEFICIENCYA person is sand to be mentally deficient when (a) he does not attain majority.

E.g. a minor or (b) he is of unsound mind.

1. When he does not attain majority: MinorA minor is a person who has not completed 18 years of age. He attain

majority on completion of his 21 year in England and 18 year in India. A

minor cannot enter into a valid contract.

2. When he is of Unsound MindSection 12 lays down that : A person is said to be of sound mind for the

purpose of making a contract if at the time when he makes it, he is

capable of understanding it and of forming a rational judgement as to tis

effect upon his interests. A person who is usually of unsound mind, but

occasionally of sound mind may mase a contract when he is of sound

mind.

Illustration: a patient in a lunatic asylum, who is at intervals of sound mindmay contract during those intervals.

MINOR IN INDIAN LAWA minor is a person who is not a major. He attains majority on completion of 21

years in England and 18 years in India. Even in India he attains majority on

completion of 21 years when his property is managed by a court of wards or a

guardian.

1. In Indian law, a contract by a minor is void. It cannot be even ratified byhim after attaining majority.

2. A contract entered into by a minor by fraudulently misrepresenting his

age is void. He cannot be stopped from setting up the plea of minority.

3. Minors can have no privilege to cheat men, though law protects them,

so that people may not exploit their tender age. So, if a minor receives


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goods on credit while payment cannot be enforced goods can be

recovered, if restitution is possible.

4. The property of the minor is liable for the necessaries supplied to him,

provided the goods are suitable tot eh condition of his life and status.

Even here, he is not personally liable, but his estate only is liable.5. While a sale or mortgage by a minor is void, a sale or mortgage in favour

of a minor is enforceable by him.

6. A contract by a guardian on behalf of the minor is enforceable by or

against the minor, provided the guardian is competent to contract and

the contract is beneficial to the minor. But he cannot purchase immovable

property without obtaining the consent of the court.

7. Under Sec. 3 of the Indian Partnership Act a minor may be admitted to

the benefits of partnership with the consent of all the partners.

CONSENT AND FREE CONSENTConsent: It means acquiescence or act of assenting to an offer. Two or more

persons are said to consent when they agree upon the same thing in the same

sense. (Sec. 13)

Free Consent: Consent is said to be free when it is not caused by

(1) Consent as defined in Sed. 15 or

(2) Undue influence as defined in Sec. 16, or

(3) Fraud as defined in Sed. 17, or

(4) Misrepresentation as defined in Sec. 18, or

(5) Mistake, subject to the provisions of Secs. 20, 21, and 22 (Sec. 14)

When there is no consent, there is no contract

Example : A is forced to sign a promissory note at the point of pistol. A knows

what he is signing but his consent is not free. The contract in this case isvoidable at this option.

FLOW IN CONSENTCoercion

(Sec. 15)Undue

influence (Sec.

Misrepresentatio

n

Mistake

Fraudulent or Innocent or


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of relationship exists between the parties such that one party is in a dominant

position to exercise undue influence over the other.

Sec. 16(1) defines : undue influence as follows

A contract is said to be induced by undue influence where the relations

subsisting between the parties are such that one of the parties is in a positionto dominate the will of the other and uses that position to obtain an unfair

advantage over the other.

The following relationships usually raise a presumption of undue influence viz.

(i) Parent and child

(ii) Guardian and ward

(iii) Trustee and beneficiary

(iv)Doctors and patient

(v) Solicitor and client, and

(vi)Finance and fiance

The presumption of undue influence applies whenever the relationship

between the parties is such that one of them is by reason of confidence

reposed in him by the other, able to take unfair advantage over the other.

EFFECT OF UNDUE INFLUENCEWhen consent to an agreement is obtained by undue influence, the

agreement is a contract voidable at the option of the party whose consent

was so obtained. Any such contract may be set aside either absolutely or

if the party who is entitled to avoid it has received any benefit thereunder,

upon such terms and conditions as to the Court may seem just and

equitable (Sec. 19-A)

DIFFERENCE BETWEENS COERCION AND UNDUE INFLUENCES. No. Coercion Undue Influence

1. The consent is given under the

threat of an offence

The consent is given by a

person who is so situated in

relation to another that the


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other person is in a position to

dominate his will

2. Coercion is mainly of a

physical character. It involves

mostly use of physical orviolent force.

Undue influence is of moral

character. It involves use of

moral force or mentalpressure.

3. There must be intention of

causing any person to enter

into an agreement

Here the influencing party uses

its position to obtain an unfair

advantage over the other party

4. It involves a criminal act No criminal act is involved

MISREPRESENTATION AND FRAUDMISREPRESENTATIONMisrepresentation is a false statement which the person making it honestly

believes to be true or which he does not know to be false. It also includes

non-disclosure of a material fact or facts without any intent to deceive the

other party.

Sec. 18 defines misrepresentation According to it, there is misrepresentation

(1) When a person positively asserts that a fact is true when his information

does not warrant it to be so, though he believes is to be true.

(2) When there is any breach of duty by a person which brings an advantage

to the person committing it by misleading another to his prejudice.

(3) When a party causes, however innocently, the other party to the

agreement to make a mistake as to the substance of the thing which is

the subject of the agreement.

FRAUDFraud exists when it is shown that a false representation has been made (a)

knowingly, or (b) without belief in its truth, or (c) recklessly, not caring whether

it is true or false, and the maker intended the other party to act upon it.

MISTAKE OF LAWMistake of law be (1) mistake of law of the country or (2) mistake of law of a

foreign country.


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1. Mistake of law of the country: Ignorantta juris non exerts Ex. Ignorice oflaws is no exclause : is a well settled rule of law. A party cannot be

allowed to get any relief on the ground that it had done a particular act in

ignorance of law. A mistake of law is, therefore, no excuse, and the

contract cannot be avoided.

Example: A and B enter into a contract on the erroneous belief that a

particular debt is barred by the Indian Law of Limitation. This contract

may be voidable.

2. Mistake of law of a foreign country: Such a mistake is treated asmistake of fact and the agreement in such a case is void. (Sec. 21)

MISTAKE OF FACTMistake of fact may be (1) a bilateral mistake, or (2) a unilateral mistake

1. Bilateral MistakeWhere both the parties to an agreement are under a mistake as to a matter

of fact essential to the agreement, there is a bilateral mistake. In such a

case the agreement is void (sec. 20). The following two conditions have to

be fauced for the application of Sec. 20.

(i) The mistake must be mutual i.e. both the parties should misunderstand

each other and should be at a cross-purposes.Example: A agreed to purchase Bs motor-car which was lying in Bs

garage. Unknown to either party, the car and garage where completely

destroyed by fire a day earlier. The agreement is void

(ii) The mistake must relate to a matter of fact essential to the agreement. As

to what facts are essential in an agreement will depend upon the

nature of the promise in each case.

Example: A man and a woman entered into a separation agreement underwhich the man agreed to pay a weekly allowance to the woman mistakenly

believing themselves lawfully married leld the agreement was void as there

was mutual mistake on a point of fact which was material to the existence

of the agreement.


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The various cases which fail under bilateral mistake are as follows:

Mistake as to the Subject Matter:Where both the parties to an agreement are working under a mistake relating to

the subject-matter, the agreement is void. Mistake as to the subject-matter

covers the following cases.

(1) Mistake as to the existence of the sub ject-matter: If both the partiesbelieves the subject-matter of the contract to be in existence, which in

fact at the time of the contract is non-existent, the contract is void.

Example: A agrees to buy from B a certain goat. It turns out that the goat

was dead at the time of the bargain, though neither parts was aware of

the fact. The agreement is void.

(2) Mistake as to the id entity o f th e sub ject -mat ter: It usually arises whereone party intends to deal in one thing and the other intends to deal in

another.

Example: W agreed to buy from R a cargo on cotton to arrive ex-peerless

from Bombay. There were two ships of that name sailing from Bombay,

one sailing in October and the other in December. W meant the former

ship R meant the latter. Held, there was a mutual or a bilateral mistakeand there was no contract.

(3) Mistake as to the qualit y o f t he sub je ct -mat ter: If the subject matter issomething essentially different from what the parties thought it to be the

agreement is void.

Example: A sells to B a prece of silk B thinks that it is foreign silk. A

knows that B thinks so but knows that it is Indian silk only.

(4) Mistake as to the quantit y o f t he sub jec t-matt er: If both the parties areworking under a mistake as to the quantity of the subject-matter the

agreement is void.


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Example: A silver bar was sold under a mistake as to its weight. There

was a difference in value between the weight of the bar as it was and as it

was supposed to be Held the agreement was void.

(5) Mistake as to the title to the subject-matter: If the seller as selling athing which he is not entitled to sell and both the parties are acting under

a mistake, the agreement is void.

Example: A person took a lease of a fishery which, unknown to either

party already belonged to him. Held, the lease was void.

(6) Mistake as to the price of the subject-matter: if there is a mutualmistake as to the price of the subject-matter, the agreement is void.

Example: C wrote to D offering to sell certain property for Rs. 15,000. Hehad earlier declined an offer from D to buy the same property for Rs.

20,000. D who knew that his offer of Rs. 15,000 was a mistake for Rs.

25,000, immediately accepted the offer. Held, D knew perfectly well that

the offer was made by mistake and hence the contract could not be

enforced.

Mistake as to the Possibility of Performing the ContractConsent is nullified if both the parties believe that in agreement is capable ofbeing performed when in fact this is not the case. The agreement, in such a

case, is void on the ground of impossibility.

Impossibility may be

( i) Phys ical Impossibi li tyExample: A contract for the hire of a room for witnessing the coronation

procession of Edward VII was held to be void because unknown to the

parties the procession had already been cancelled.

(ii) Legal Impossibi li ty: A contract is void if it provides that something shallbe done which cannot, as a matter of law be done.

2. Unilateral Mistake


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When in a contract only one of the parties is mistaken regarding the

subject matter or in expressing or understanding the terms or the legal

effect of the agreement the mistake is a unilateral mistake. According to

Sec. 22, a contract is not voidable merely because it was caused by one of

the parties to it being under a mistake as to a matter of fact. A unilateral

mistake is not allowed as a defence in avoiding a contract unless the

mistake is brought about by the other partys fraud or misrepresentation.

Example: A offers to sell his house to B for an intended sum of Rs.

44,000. By mistake he makes an offer in writing of Rs. 40,000. He cannot

plead mistake as a defence.

LEGALITY OF OBJECTA contract must have a lawful object. The word object means purpose of design.

In some cases consideration for an agreement may be lawful but the purpose

for which the agreement is entered into may be unlawful. In such cases the

agreement is void. As such both the object and the consideration of an

agreement must be lawful otherwise the agreement is void.

The consideration or object of an agreement is unlawful

1. If the object is forbidden by law

Example: A promise to obtain for B an employment in the public service

and 18 promises to pay Rs. 1,00,000 to A. the agreement is void, as the

consideration is unlawful.

2. If the object is permitted, it would defeat the provisions of any law

Example: N agreed to enter a companys service in consideration of a

weekly wage of Rs. 75 and a weekly expense allowance of Rs. 25. Both

the parties knew that the expense allowance was a device to evade tax.

Held the agreement was unlawful.

3. If the object is fraudulent: An agreement which is made for a fraudulent

purpose is void. Thus an agreement in fraud of creditors with a view to

defeating their rights is void.

4. If the Court regards the object as immoral


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Example: A agrees to let her daughter to B for concubinage (state of

living together as man and wife without being married. The agreement is

unlawful, being immoral.

5. Where the Court regards it as opposed to public policy.

UNLAWFUL AND ILLEGAL AGREEMENTSAn unlawful agreement is one which, like a void agreement, is not enforceable

by law. An illegal agreement is not only, void as between the immediate parties

but has further effect that the collateral transactions to it also become tainted

with illegality.

Example: T lends Rs. 50,000 to B to help him to purchase some prohibited

goods from T, an alien enemy. If B enters into an agreement with T, theagreement will be illegal and the agreement between B and T shall also become

illegal, because it is collateral to the main transaction. T cannot, therefore,

recover the amount.

AGREEMENTS OPPOSED TO PUBLIC POLICYAn agreement is said to be opposed to public policy when it is harmful to the

public welfare. Some of the agreements which are opposed to public policy and

are unlawful are as follows.1. Agreements of trading with enemy: An agreement made with an alien

enemy in time of war is illegal on the ground of public policy.

2. Agreement to commit a crime: Where the consideration in an agreement

is to commit a crime, the agreement is opposed to public policy. The

Court will not enforce such an agreement.

3. Agreements which interfere with administration of police: An agreement,

the object of which is to interfere with the administration of justice is

unlawful, being opposed to public policy. It may take any of the following

forms.

(a) Interference with the course of justice: An agreement which obstructs

the ordinary process of justice is unlawful.

(b) Stifling prosecution: It is in public interest that if a person has

committed a crime, he must be prosecuted and punished.


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(c) Maintenance and champerty: Maintenance is an agreement to give

assistance, financial or otherwise, to another to enable him to bring or

defend legal proceedings when the person giving assistance has got no

legal interest of his own in the subject-matter.

4. Agreements in restraint of legal proceedings : Sec. 28 which deals with

these agreements.

(a) Agreements restricting enforcement of rights: An agreement which

wholly or partially prohibits any party from enforcing his rights under

or in respect of any contract is void to that extent.

(b) Agreements curtailing period of limitation: Agreements which curtail

the period of limitation prescribed by the Law of Limitation are void

because their object is to defeat the provisions of law.

5. Trafficking in public offices and rules: Agreements for the sale or transfer

of public offices and titles or for the procurement of a public recognition

like Padma Vibhushan or Param Veer Chakra for monetary consideration

are unlawful being opposed to public policy.

Example: R paid a sum of Rs, 2,50,000 to A who agreed to obtain a seat

for Rs son in a Medical College. On As failure to get the seat, R filed a

suit for the refund of Rs. 2,00,000. Held, the agreement is void on the

ground of public property.

6. Agreements tending to create interest opposed to duty: If a person enters

into an agreement whereby he is bound to do something which is against

his public or professional duty the agreement is void on the ground of

public property.

7. Agreements in restraint of paternal rights: A father, and in his absence

the mother, is the legal guardian of his/her minor child. This rights of

guardianship cannot be bartered away by any agreement.

8. Agreements restricting personal liberty: Agreements which unduly restrictthe personal freedom of the parties to it are void as being against public

policy.

9. Agreements in restraint of marriage: Every agreement in restraint of the

marriage of any person, other than a minor, is void (Sec. 26). This is

because the law regards marriage and married status as the right of every

individual.


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6) Agreements in restraint of marriage (Sec. 26).

7) Agreements in restraint of trade (Sec. 27)

8) Agreements in restraint of legal proceedings (Sec. 28)

9) Agreements the meaning of which is uncertain (Sec. 29)

10) Agreements by way of wager (Sec. 30)

11) Agreements contingent on impossible events (Sec. 36)

12) Agreements to do impossible acts (Sec. 56)

13) In case of reciprocal promises to do things legal and also other

things illegal, the second set of reciprocal promises is a void agreement

(Sec. 57)

WAGERING AGREEMENTS OR WAGERA wager is an agreement is an agreement between two parties by which one

promises to pay money or moneys worth on the happening of some

uncertain event in consideration of the other partys promise to pay if the

event does not happen. Thus if A and b enter into an agreement that A

shall pay B Rs. 100 if it rains on Monday, and that B shall pay A the same

amount if it does not rain, it is a wagering agreement.

Essentials of Wagering Agreement:(1) Promise to pay money or moneys worth: The wagering agreement must

contain a promise to pay money or moneys worth.

(2) Uncertain event: The promise must be conditional on an event happening

or not happening.

(3) Each party must stand to win or lose: Upon the determination of the

contemplated event, each party should stand to win or lose.

(4) No control over the event: Neither party should have control over thehappening of the event one way or the other

(5) No other interest on the event: Neither party should have nay interest in

the happening or non-happening of the event other gdfgjdg sum or stake

he will with or lose


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CONTINGENT CONTRACTSContingent means that which is dependent on something else. A Contingent

Contract is a contract to do or not to do something, if some event collateral to

such contract, does or does not happen (Sec. 31). For example, goods are sent

on approval the contract is a contingent contract depending on the act of thebuyer to accept or reject the goods.

There are three essential characteristics of a contingent contract.

1. Its performance depends upon the happening or non-happening in future

of some event. It is this dependence on a future event which

distinguishes a contingent contract from other contracts.

2. The event must be uncertain. If the event if bound to happen, and the

contract has got to be performed in any case it is not a contingentcontract

3. The event must be collateral, i.e. incidental to the contract

Contracts of insurance, indemnity and guarantee are the commonest

instances of a contingent contract.

RULES REGARDING CONTINGENT CONTRACTS1. Contingent contracts dependent on the happening of an uncertain future

event cannot be enforced until the event has happened. If the eventbecomes impossible, such contracts become void (Sec. 32)

Example: A contracts to pay B a sum of money when B marries C. C dies

without being married to B. The contract becomes void.

2. Where a contingent contract is to be performed if a particular event does

not happen, its performance can be enforced when the happening of that

event becomes impossible. (Sec. 33)

Example: A agrees to pay B a sum of money, if a certain ship does not

return. The ship is sunk. The contract can be enforced when the shipsinks.

3. If a contract is contingent upon how a person will act at an unspecified

time, the event shall be considered to become impossible when such

person does anything which renders it impossible that he should so act


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within any definite time, of otherwise than under further contingencies

(Sec. 34)

Example: A agrees to pay B a sum of money if B marries C. C marries D.

The marriage of B to C must not be considered impossible, although it is

possible that D may die and that C may afterwards marry B.

4. Contingent contracts to do r onto to do anything, if a specified uncertain

event happens within a fixed time, become void if the event does not

happen or its happening becomes impossible before the expiry of that

time.

Example: A promises to pay B a sum of money if a certain ship returns

within a year. The contract may be enforced if the ship returns within the

year and becomes void if the ship is burnt within the year.

5. Contingent agreements to do or not to do anything, if an impossible

event happens are void, whether or not the fact is known to the parties

(Sec. 36).


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PERFORMANCE OF CONTRACTPerformance of a contract takes place when the parties to the contract fulfil

their obligations arising under the contract within the time and in the manner

presented.

OFFER TO PERFORMSometimes it so happens that the promisor offers to perform him obligation

under the contract at the proper time and place but the promise does not

accept the performance. This is known as attempted performance or tender.

REQUISITES OF A VALID TENDER1. It must be unconditional. It becomes conditional when it is not in

accordance with the terms of the contract.

2. It must be of the whole quantity contracted for or of the whole obligation.

A tender of an installment when the contract stipulates payment in full is

not a valid tender.

3. It must be by a person who is in a position, and is willing, to perform the

promise.

4. It must be made at the proper time and place. A tender of goods after the

business hours or of goods or money before the due date is not a valid

tender.

5. It must be made to proper person, i.e. the promise or his duly authorized

agent. It must also be in proper form.

6. It may be made to one of the several joint promises. In such a case it has

the same effect as a tender to all of them.

7. In case of tender of goods, it must give a reasonable opportunity to the

promise for inspection of goods.

8. In case of tender of money, the debtor must make a valid tender in the

legal tender money.

RECIPROCAL PROMISES


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Promises which form the consideration or part of the consideration for each

other are called: reciprocal promises [Sec. 2(f)]. Where, for example: A

promises to do or not to do something and consideration of B is promise to do

or not to do something the promises are reciprocal.

These promises have been classified is follows:

(1) Mutual and Independent: Where each party must perform his promise

independently and irrespective of the fact whether the other party has

performed or is willing to perform his promise or not the promises are

mutual and independent.

Example: In a contact of sale, B agrees to pay the price of goods on of

instant. S promises to supply the goods on 2nd

instant. The promises aremutual and independent.

(2) Conditional and Dependent: Where the performance of the promise by

one party depends on the prior performance of the promise by the other

party the promises are conditional and dependent.

Example: A promises to remover certain debris lying in front of Bs house

provided B supplies him with the cart. The promises in this case areconditional and dependent. A need not perform his promise if B fails to

provide him with the cart.

(3) Mutual and Consent: Where the promises of both the parties are to be

performed simultaneously they are said to be mutual and concurrent. The

example of such promises may be sale of goods for cash.

Rules Regarding Performance of Reciprocal Promises1) Simultaneous performance of reciprocal promises

2) Order of performance of reciprocal promises

3) Effect of one party preventing another from performing promise

4) Effect of default as to promise to be performed first.


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performance of a promise does not necessarily make time as the essence

of the contract. If the contract includes clauses providing for extension of

time in certain contingencies or for payment of fine or penalty for every

day or week the work undertaken remains unfinished on the expiry of

time provided in the contract, such clauses are construed as rendering

ineffective the express provision relating to the time being of the essence

of the contract.

TERMINATION AND DISCHARGE OF CONTRACTDischarge of contract means termination of the contractual relationship

between the parties. A contract is said to be discharged when it ceases to

operate, i.e. when the rights and obligations created by it come to an end.

A contract may be discharged

1. By Performance

2. By Agreement or Consent

3. By impossibility

4. By Lapse of Time

5. By operation of Law

6. By Breach of Contract

1. Discharge by PerformancePerformance means the doing of that which is required by a contract.

Discharge by performance takes place when the parties to the contract

fulfill then obligations arising under the contract within the time and in

the manner prescribed.

Performance of a contract is the most usual mode of its discharge. It maybe

(1) Actual Performance: When both the parties perform their promises the

contract is discharged. Performance should be complete precise and

according to the terms of the agreement.


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(2) Attempted Performance or Perfer: Tender is not actual performance

but is only an after to perform the obligation under the contract.

2. Discharge by agreement or consent(a) Sec. 62 lays down that if the parties to a contract agree to substitute a

new contract for it or to rescind or to alter it the original contract isdischarged and need not be performed.

The various cases of discharge of contract by mutual agreement are dealt

with in Sec. 62 and 63 are given below.

Rescission Sec. 62: Novation takes place when a new contract is

substituted for an existing one between the same parties.

Example: A owes money to B under a contract. It is agreed between A, B

and C that B shall henceforth accept C as his debtor, instead of A. the old

debt of A to B is at an end and a new debt from C to B has beencontracted.

(b) Rescission Sec. 62: Rescission of a contract takes place when all or

some of the terms of the contract are cancelled. It may occur

(i) By mutual consent of the parties or

(ii) Where one party fails in the performance of his obligation in such a

case the other party may rescind the contract without prejudice to

his right to claim compensation for the breach of contract.Example: A promises to supply certain goods to B six months after date.

By that time, the goods go out of fashion. A and B may rescind the

contract.

(c) Alteration (Sec 62): Alteration of a contract may take place when one

or more of the terms of the contract is are altered by the mutual

consent of the parties to the contract. In such a case, the old contract

is discharged.

Example: A enters into a contract with B for the supply of 100 bales or

cotton at his Godown No. 1 by the first of the next month. A and B

may after the terms of the contract by mutual consent.


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(d) Remission Sec. 63) Remission means acceptance of a lesser fulfilment

or the promise made, i.e. acceptance of a lesser sum than what was

contracted for the discharge of the whole of the debt.

Example: A owes B Rs. 50,000. A pays to B and B accepts in

satisfaction of the whole debt. Rs. 20,000 paid at the time and place atwhich Rs. 50,000 were payable. The whole debt is discharged.

(e) Waver: Waver takes place when the parties to a contract agree that

gdfsg shall no longer be bound by the contract. This amounts to a

mutual thandonment at rights by the parties to the contract.

(f) Merger: Merger tales place when an inferior right accuring to a party

under a contract merger into a superior right accruing to the same

party under the same on some other contract.

Example: P holds a property under a lease. He later buys the property.

His rights as a lessee merge into his rights as an owner.

3. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCEIf an agreement contains an undertaking to perform an impossibility, it is

void ab initio. This rule is based on the following maxims:

1. Impossibility existing of the time of agreement: Sec. 56 lays down that

can agreement to do an impossible act itself is void. This is known aspre-contractual or initial impossibility.

2. Impossibility arising subsequent to the formation of contract:

Impossibility which arises subsequent to the formation of a contract

(which could be performed at the time when the contract was entered

into) is called post-contractual or supervening impossibility.

Discharge by Supervening ImpossibilityA contract is discharged by supervising impossibility in the following

cases

1. Destruction of subject-matter of contract: When the subject-matter of a

contract, subsequent to its formation, is destroyed without any fault of

the parties to the contract, the contract is discharged.


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Example: C let a music hall to T for a series of concerts on certain days.

The hall was accidentally burnt down before the date of the first concert.

Held the contract was void.

2. Non-existence or Non-occurrence of a particular state of things:Sometimes, a contract is entered into between two parties on the basis of

a continued existence or occurrence of a particular state of things. If

there is any change in the state of things which ought to have occurred

does not occur, the contract is discharged.

Example: A and B contract to marry each other. Before the time fixed for

the marriage, A goes mad. The contract becomes void.

3. Death or Incapacity for personal service: Where the performance of acontract depends on the personal skill or qualification of a party, contract

is discharged on the illness or incapacity or death of that party. The man

s life is an implied condition of the contract.

Example: An artist undertook to perform at a concert for a certain price.

Before she could do so, she was taken seriously ill. Held she was

discharged due to illness.

4. Change of law: When subsequent to the formation of a contract change of

law takes place, and the performance of the comerge becomes

impossible the contract discharged.

Example: D enters into a contract with P on 1st March for supply of

ghdkjfg imported goods in the month of September of the same year in

June gdfg fgdf Parliament the import of such goods is banned. The

contract is discharged.

5. Outbreak of war : A contract entered into with an after enems during war

is unlawful and therefore impossible for performance. Contracts entered

into before the outbreak of war are suspended during the war and may berevived after the war is over.

4. DISCHARGE BY LAPSE OF TIMEThe Limitation Act 1963 laws down that a contract should be performed

within a specific period called period of limitation. If it is not performed and if


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no action is taken by the promise within the period of limitation he is deprived

of his remedy at law. For example the price of goods sold without any

stipulation as to credit should be paid within three years of the delivery of the

goods. If the price is not paid and creditor does not file a suit against the buyer

for the recovery of price within three years the debt becomes time-barred and

hence irrecoverable.

5. DISCHARGE BY OPERATION OF LAWA contract may be discharged by operation of law. This includes

discharge

(a) By Death: In contracts involving personal skill or ability, the contract is

terminated on death of the promissory. In other contracts the rights andliabilities of a deceased person pass on to the legal representatives of the

deceased person.

(b) By Merger: When an inferior right accruing to a party merges into a

superior rights accruing to the same party under the same or some other

contract the inferior right accruing to the party is said to be discharged.

(c) By Insolvency: When a person is adjudged insolvent, he is discharged

from all liabilities incurred prior to his adjudication.

(d) By Authorised Alteration of the terms of a written agreement: Where a

party to a contract makes any material alteration in the contract without

the consent of the other parts, the other parts can avoid the contract. A

material alteration is one which changes in a significant manner the legal

identity or character of the contract or the rights and liabilities of the

parties to the contract.

(e) B y Rights and Liabilities becoming visited of the dfgdfg Person: Where

the rights and liabilities under a contract vested in the same person for

example when a bill gets into the hands of the acceptor, the other parties

are discharged.

6. DISCHARGE BY BREACH OF CONTRACTBreach of contract means a breaking of the obligation which a contract

imposes. It occurs when a party to the contract without lawful excuse

does not fulfil his contractual obligation or by his own act makes it


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impossible that he should perform his obligation under it. It confers a

right of action for damages on the injured party.

REMEDIES FOR BREACH OF CONTRACTWhen a contract is broken, the injured party has one or more of the following

remedies:

1. Rescission of the contract

2. Suit for damages

3. Suit upon quantum meruit

4. Suit for specific performance of the contract

5. Suit for injunction

1. RESCISSIONWhen a contract is broken by one party, the other party may sue to treat

the contract as rescinded and refuse further performance. In such a case,

be is absolved of all his obligations under the contract.

Example: a promises B to supply 10 bags of cement on a certain day. B

agrees to pay the price after the receipt of the goods. A does not supply

the goods. B is discharged from liability to pay the price.

The Court may grant rescission.

(a) Where the contract is voidable by the plamtiff of

(b) Where contract is unlawful to fgdfg but apparent off its face and the

defendant is more to blame thatn the gdfgdf

When a party treats the contracts as rescinded be makes himself liable torestgdf any benefits he has fgdfg of under the contract to the party from whom

such benefits were received. But if a person rightfully rescinds a contract he is

entitled to compersation for any damage which he has sustained through

non-fulfilment of the contract by the other party.


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2. DAMAGESDamages are a moctars compensation allowed to the injured party by the

Court for the loss or injurs suffered by him by the breach of a contract.

The object of awarding damages for the search of a contract is to put the

injured party in the same position, so far as money am the it, as if he hadnot been injured, i.e. in the position in which he would have been had

there been performance and not breach. This is called the doctrine of

restitution.

The rules relating to damages may be considered as under

1. Damages arising naturally Ordinary damangesWhen a contract has been broken, the injured party can recover from the

other party such damages as naturally and directly arose in the usualcourse of things from the breach. This means that the damages must be

the proximate consequence of the breach of contract. These damages are

known as ordinary damages.

Example: A contracts to sell and deliver 50 quintals of Farm Wheat to B at

Rs. 1000 per quintal, the price to be paid at the time of delivery the price

of wheat rises to Rs. 1200 per quintal and A refuses to sell the wheat B

can claim damages at the rate of Rs. 200 per quintal.

2. Damages in contemplation of the parties Special damages

Special damages can be claimed only under the special circumstances

which would result in a special loss in case of breach of a contract. Such

damages knows as special damages cannot be claimed as a matter of

right.

Example: A. a builder, contracts to erect a house for B by the 1st of

January. The order that B may give possession of it at that time to C to

whom B has contracted to hfdg it. A is informed of the contract between

B and C. A builds the house so badly that before the 1

st

January, it fallsdown and has to be rebuilt by B fgdfg vonsequence loses the rent which

be was to have received from C, and gdfgdfgdf to make compensation to

C fvor the breach of the contract. A must make cgdfgdfgd to gdfg for the

cost of rebuilding the house for the rent lost, and for the compensation

made to.


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3. Vindictive or Exemplary damagesDamages for the breach of a contract are given by way of compensation

for loss suffered, and not by way of punishement for wrong inflicted.

Hence vindictive or exemplary damages have no place in the law of

contract because they are punitive involving punishment by nature. But incase of (a) breach of a promise to marry and the dishonor of a cheque by

a banker wrongfully when he possesses sufficient funds by the credit of

the customer, the Court may award exemplary damages.

4. Nominal damagesWhere the injured party has not in fact suffered any loss by reason of the

breach of a contract, the damages recoverable by him are nominal. These

damages merels acknowledge that the plaintiff has proved his case and

won.

Example: A firm consisting of four partners employed B for a period of

two years. After six months two partners rebred the business being

carried on by the other two B declined to be employed under the

continuing partners. Held, he was only entitled to nominal damages as he

had suffered no loss.

5. Damages for loss of reputationDamages for loss of reputation on case of breach of a contract are

generally not recoverable. An exempuon to this rule exists in the case of

a banker who wrongfully refuses to honour a customers cheque. If the

customer happens to be a tradesman, he can recover damages in respect

of any loss to his trade reputation byh the breach. And the rule of law is

the smaller the amount of the cheque dishonoured the larger the amount

of damages awarded. But if the customer is not a tradesman be can

recover only nominal damages.

6. Damages for inconvenience and discomfortDamages can be recovered for physical inconvenience and discomfort.

The general rule in this connection is that the measure of damages is not

affected by the motive or the manner of the breach.

Example: A was wrongfully dismissed in a harsh and humiliating manner

by from his employment. Held (a) A could recover a sum representing his

wages for the period of notice and the commission which he would have


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earned during that period but (b) he could not recover anything for his

injured feelings or for the loss sustained from the fact that his dismissal

made it more difficult for him to obtain employment.

7. Mitigation of damagesIt is the duty of the injured party to take all reasonable steps to mitigate

the loss caused by the breach. He cannot claim to be compensated by the

party in default for loss which the ought reasonably to have avoided. That

is he cannot claim compensation for loss which is really due not to the

breach, but due to his own neglect to mitigate the loss after the breach.

8. Difficulty of AssessmentAlthough damages which are incapable of assessment cannot berecovered the fact that they are difficult to assess with certainty or

precision does not prevent the aggrieved party from recovering them.

The Court must do its best estimate the loss and a contingences may be

taken into account.

Example: H advertised a beauty competition by which gfdgfk of certain

newspapers were to select fifty ladies. He himself was to select twelve out

of these fifty. The selected twelve were to be provided theatrical

encagements. C was one of the fifty and by Hs breach of contract she

was not present when the final section was made. Held C was entitled todamages although it was difficult to assess them.

9. Cost of Decree

The aggrieved party is entitled in addition to damages to get the cost of

getting the decree for damages. The cost of suit for damages is in the

discretion of the Court.

10. Damages agreed upon in advance in case of breach

If a sum is specified in a contract as the amount to be paid in case of its

gdfgdf or if the contract contains any other stipulation by way of gdfgdfg

dfg failure to perform the obligations the aggrieved party is entiled to

gfdgd from the gdfgd has broken the contract a reasonable

compensation not exceeding the fgdfg named.


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Example: A contracts with B to pay Rs. 1000 if he fails to pay gdfgdf g

given day. B is entitled to recover from A such compensation not

exceeding Rs. Dfgd as the Court considers reasonable.

Liquidated Damages and PenaltySometimes parties to a contract stipulate at the time of its formation that on

the breach of the contract by either of them a certain specified sum gdfgd be

payable as damages. Such a sum may amount to either liquidated damages or a

penalty. Liquidated damages represent a sum fixedc or ascertained by the

parties in the contract which is a fair and genuine pre-estimate of the probable

loss that gdfg fgd fg as a result of the breach. If it takes place. A penalty is a

sum named in the contract at the time of its formation, which is

dispropoetionate to the damages likely to fdgdfgd as a result of the breach. It is

fixed up with a view to securing the performance of the contract.

Payment of InterestThe largest number of cases decided under Sec. 74 relate to stipulation if a

contract providing for payment of interest. The following rules are observed

with regard to payment of interest.

1. Payment of interest in case of default.

2. Payment of interest at higher rate

a. From the date of the bond, and

b. From the date of default

3. Payment of compound interest on default

a. At the same rate as simple interest and

b. At the rate higher than simple interest

4. Payment of interest at a lower rate, if interest paid on due date.

3. QUANTUM MERUITThe phrase quantum meruit ghdfgfdgh much as earned. A right to sue on

a quantum meruit arises where a ggdfg performed by one party has

become discharged to the breach of the contract dghdfghdf party.


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4. SPECIFIC PERFORMANCEIn certain cases of breach of contract damages are not an adequate

remedy. The Court may, in such cases direct the party in breach to carry

out his promise according to the terms of the contract.

Some of the cases in which specific performance of a contract may indiscretion of the Court be enforced are as follows:

(a) When the act agreed to be done is such that compensation in money

for its non performance is not an adequate relief.

(b) When there exists no standard for ascertaining the actual damage

caused by the non-performance of the act agreed to be done.

(c) When it is probable that the compensation in money cannot be got for

the non-performance of the act agreed to be done.

5. INJUNCTIONWhere a party is in breach of a negativbe term of a contract the where

gdfg is doing something which he promised not to do, the Court may be

issuing an order restrain him from doing what he promised not to do.

Such an order of the Court is known as injunction.

Example: W agreed to sing at Ls theatre, and during a certain period to

sing nowhere else. Afterwards W made contract with Z to sing at another

theatre and refused to perform the contract with L. Held, W could berestrained by injunction from singing for Z.


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The essential requirements are as follows:

(a) The payment made should be bonafide for the protection of ones

interest.

(b) The payment should not be voluntary one.

(c) The payment must be such as the other party was bound by law to pay.

3. OBLIGATION TO PAY FOR NON-GRATUITOUS ACTS (Sec. 70)When a person lawfully does anything for another person or delivers

anything to him, not intending to do so gratuitously, and such other person

enjoys the benefit thereof, the latter is bound to make compensation to the

former in respect of, or to restore, the thing so done or delivered.

Example: a, a tradesman, leaves goods at Bs house by mistake. B treats the

goods as his own. He is bound to pay for them to A.

Before any right of action under Sec. 70 arises, three conditions must be

satisfied.

(a) The thing must have been done lawfully.

(b) The person doing the act should not have intended to do it gratuitously

(c) The person for whom the acts is done must have enjoyed the benefit of

the act.

4. RESPONSIBILITY OF FINDER OF GOODS (sec. 71)A person, who finds goods belonging to another and takes them into his

custody, is subject to the same responsibility as a bailee. He is bound to

take as much care of the goods as a man of ordinary prudence would,

under similar circumstances, take of his own goods of the same bulk,

quality and value. he must also take all necessary measures to trace its

owner. If he does not, he will be guilty of wrongful conversion of the

property. Till the owner is found out, the property in goods will vest in

the finder and he can retain the goods as his own against the whole world

(except the owner).

Example: F picks up a diamond on the floor of Ss shop. He hands it over to

S to keep it till true owner is found out. No one appears to claim it for

quite some weeks in spite of the wide advertisements in the newspapers.


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F claims the diamond for S who refuses to return. S is bound to return the

diamond to F who is entitled to retain the diamond against the whole

world except the true owner.

The finder can sell the goods in the following cases:

When the thing found is in danger of perishing.

When the owner cannot, with reasonable diligence, be found out.

When the owner is found out, but he refuse to pay the lawful charges

of the finder, and

When the lawful charges of the finder, in respect of the thing found

amount to two-thirds of the value of the thing found. (Sec. 169)

5. MISTAKE OR COERCION (Sec. 72)A person to whom money has been paid, or anything delivered, by mistake

or under coercion, must repay or return it to the person who paid it by

mistake or under coercion. The word coercion is used in Sec. 72 in its

general sense and not as defined in Sec. 15.

Example: A and B jointly owe Rs. 100 to C. A alone pays the amount to C and

B, not knowing this fact, pays Rs. 100 over again to C. C is bound to pay

the amount to B.

QUANTUM MERUITQuantum meruit literally means as much as earned or as much as it

merited. When a person has done some work under a contract, and the

other party repudiates the contract, or some event happens which makes

the further performance of the contract impossible, them the party who

has performed the work can claim remuneration for the work he has

already done. Likewise, where one person has expressly or impliedly

requested another to render him a service without specifying anyremuneration, but the circumstances of the request imply that the service

is to be paid for, there is implied a promise to pay quantum meruit, i.e.

so much as the party rendering the service deserves. The right to claim

quantum meruit does not arise out of contract as the right to damages

does, it is a claim on the quasi-contractual obligation which the law

implies in the circumstances.


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SPECIAL CONTRACTSLESSON 2

INDEMNITY AND GUARANTEEDEFINITIONSection 124 of the Indian Contract Act defines it as a contract by which one

party promises to save the other from loss caused to him by the conduct of the

promisor himself or by the conduct of any other person. The person who

promises is called the Indemnifier and the person to whom the promise is made

is called the Indemnified or Indemnity Holder.

Illustration: A promises not to construct buildings on a particular site so as to

prevent light and air to Bs house and in case of breach of such promise, to

indemnify for the consequent loss.

This is a contract of indemnity. A contract of insurance is also a contract of

indemnity.

RIGHTS OF AN INDEMNITY HOLDERHe is entitled to recover

All damages

All costs which he may be compelled to pay in any suit in respect of any

matter to which the promise to indemnity applies, and

All sums which he may have paid under the terms of any compromise of

any such suit provided, such compromise was not contrary to the orders

of the promisor and was prudent or the promisor authorizes him to

compromise the suit.

CONTRACT OF GUARANTEESection 126 of Indian Contract Act defines it as a contract to perform the

promise, or discharge the liability, of a third person in case of his default. The

person who gives the guarantee is called the surety, the person in respect of


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Illustration: B is indebted to C, and A is surety for the debt. C demands

payment form A, and on his refusal sues him for the amount. A defends the

suit, having reasonable grounds for doing so but is compelled to pay the

amount of the debt with costs. He can recover from B the amount paid byhim for costs as well as the principal debt.

Rights against the Creditor

1) The surety may require the creditor to sue the debtor. But he cannot

compel the creditor to do so.

2) In the case of fidelity contracts, he can insist upon the creditor to

dispense with the services of the principal debtor when his dishonesty isestablished.

3) He can claim set off or counter-claim which the principal debtor could

have obtained against the creditor.

4) On payment of the guaranteed debt, ha can require the creditor to assign

to him all the securities held by the creditor in respect of the debt. If the

creditor loses or parts with such securities without the consent of the

surety, the surety is discharged to the extent of the value of the security.

Illustration: C advances to B, his tenant, Rs. 2000 on the guarantee of A. Chas also a further security for the sum of Rs. 2000 by mortgage of Bs

furniture. C cancels the mortgage. B becomes insolvent and C sues A on his

guarantee. A is discharged from liability to the amount of the value of the

furniture.

Rights against the Co-Sureties1) All the sureties shall bear equally, the loss caused by the insolvency of

the principal debtor. If one of them bears the entire loss in the first

instance he can claim contribution from other co-sureties.

2) Where the co-sureties agreed to become liable in different sums, they

should contribute, according to English Law, proportionately.

Illustration: A, B and C have agreed to become liable for Rs. 10,000, 20,000

and 40,000 respectively, as sureties for Ds liability. Ds indebtedness was

Rs. 30,000. A,B and C would contribute in the ratio of 1 : 2 : 4. But according


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to Indian Law they shall bear such loss equally but not exceeding the sums

which they have agreed to pay. So, A, B and C will have to pay Rs. 10,000

each.

SURETY DISCHARGED FROM LIABILITY1. The surety is discharged from liability if the contract of guarantee

becomes void or voidable, on the ground of misrepresentation by the

creditor with regard to a material circumstance, or on the ground that

the guarantee was given on condition that another person will join as a

co-surety and that such other person has not joined as such.

Illustration: A engages B as clerk to collect money for him. B fails to

account for some of his receipts and A in consequence, calls upon him to

furnish security for his accounting. C gives his guarantee for Bs

accounting. A does not acquaint C with Bs previous conduct. B

afterwards makes default. The guarantee is invalid.

2. The surety is discharged by revocation as to future transaction in case

of continuing guarantee.

3. The surety is discharged

a. By v ariance of con tra ct : Any variance in the terms of the contractbetween the principal debtor and the creditor without the suretys

consent discharges the surety.

Illustration: C, contracts to lend B Rs. 5000 on the 1st of March. A

guarantees repayment. C pays Rs. 5000 to B on the 1st of January. A

is discharged from his liability, as the contract has been varied in

as much as C might sue B for the money before the 1st of March.

b. By release or discharge of principal debtor: The surety isdischarged by any contract between the principal debtor and the

creditor by which the principal debtor is discharged or by any act oromission of the creditor, the legal consequence of which is the

discharge of the principal debtor.

Illustration: A, contracts with B for a fixed price to build a house for B within

a stipulated time, B supplying the necessary timber. C guarantees As


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performance of the contract. B omits to supply the timber. C is discharged

from his surety ship.

c. By composition wit h debtor: The surety is discharged when theprincipal debtor and creditor enter into a contract by which thecreditor (1) composition with or (2) promises to give time or (3)

promises not to sue the principal debtor.

d. By act or omission impairing suretys remedy: The surety isdischarged if the creditor does any act inconsistent with the rights

of the surety or omits to do any act which his duty to surely

requires him to do.

Illustration: A puts M as apprentice to B, and gives a guarantee in B for Ms

fidelity. B promises on his part that he will, at least once a month, see M

make up the cash. B omits to see this done as promised and M embezzles.

A is not liable to B on his guarantee.

e. Los s o f securit y: the surety is discharged if the creditor losses orparts with the securities belonging to the principal debtor, without

the consent of the surety.

The surety is not discharged in the following cases:

1. A surety is not discharged when a contract to give time to the principal

debtor is made by the creditor with a third person and not with the

principal debtor.

Illustration: C, the holder of an overdue bill of exchange drawn by A as

surety for B, and accepted by B, contracts with M to give time to B. A is

not discharged.

2. Mere forbearance on the part of the creditor to sue the principal debtor

does not discharge the surety.

Illustration: B owes C, a debt guaranteed by A. The debt becomes payable

C does not sue B for a year after the debt has become payable. A is not

discharged from his liability.

3. Release of one co-surety does not discharge the other.


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The bailee should not make use of goods for purposes inconsistent with the

terms of the contract. If he does so, the bailor is entitled to terminate the

contract and claim damages, if any.

Illustration: A lends a horse to B for his own riding only. B allows C, to ridethe horse. C rides carefully but the horse accidentally falls and is injured.

B is liable to compensate A for the injury caused to the horse.

3. Not to mix the goods of the bailor with his own goodsa) If a bailee mixes the goods of the bailor with his own goods with the

consent of the bailor, both the bailor and the bailee shall have

proportionate interest in the mixture.

b) If the goods mixed by the bailee without the consent of the bailor and thegoods are separable, the bailee is bound to bear the expenses of

separation and pay damages if any.

c) If the goods are mixed by the bailee without the consent of the bailor and

the goods are inseparable, the bailee should compensate the bailor for

the loss of goods.

Illustration: A bails a barrel of Cape flour worth Rs. 45 to B. B without As

consent, mixes the flour with country flour of his own, worth only Rs. 25a barrel. B must compensate A for the loss of his flour.

4. Not to set up adverse titleThe bailee should not deny the bailors title. He should not set up his own

title or that of a third party.

5. To return the goods bailedThe bailee should return goods bailed, to the bailor when the fixed period is

over or when the purpose is accomplished. The bailee should also deliverany increase or profit which may have accrued from the goods bailed.

Illustration: A leaves a cow in the custody of B to be taken care of The cow

has a calf B is bound to deliver the calf as well as the cow to A.

DUTIES OF A BAILOR


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1. To disclose the faults in the goods bailedThe bailor should disclose to the bailee, faults in the goods bailed, of which

he is aware. If he does not disclose, he will be liable for the loss resulting

therefrom.

Illustration: A lends a horse which he knows to be vicious to B. He does notdisclose this fact. The horse runs away. B is thrown down and injured. A

is responsible to B for damages sustained.

2. To bear extra-ordinary expensesWhile the ordinary expenses are payable by the bailee, extra-ordinary expenses

shall be borne by the bailor.

Illustration: Where a horse is lent for a journey, the bailee shall bear the

expenses of feeding the horse. But in case of the horse becoming sick, thebailor shall have to bear the necessary expenses for its recover.

3. Responsibility for want of titleThe bailor is responsible to the bailee for any loss sustained by he latter by

the reason, that the bailor was not entitled to make the bailment or to

receive back the goods or to give directions respecting them.

RIGHTS OF BAILOR1. He is entitled to the increase or profit from goods bailed

2. In the case of gratuitous loan, the lender may require the goods to be

returned, even though he lent it for a fixed period for specific purpose.

But if such a request causes loss to the bailee exceeding the benefit he

derives, the bailor should indemnify the borrower.

3. The bailor is entitled to terminate the contract when the bailee does any

act inconsistent with the terms of bailment.

Illustration: A gives a horse to B for hire for his own riding. B drives the

horse in his carriage. The bailment can be terminated at the option of A.

LIEN


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Lien is a right of a person, who has possession of goods of another, to

return such possession until a debt due to him has been discharged. This

right is called a Possessory lien.

Lien is of two kinds: 1. Particular lien, and 2. General lien

1. A Particular Lien is one which is available only against that property in

respect of which the skill and labour are exercised or any expenses are

incurred.

Illustration: A delivers a watch for repairs to B, a repairer. B has a right to

retain the watch till he is paid for the services rendered.

The bailees, repairers and unpaid vendors of goods are entitled to

particular lein.

2. A General Lien is the right to retain the property of another for a general

balance of accounts. Bankers, can exercise this right for any debt due to

them.

The duties and rights of A finder of lost goodsA person who finds an article need not take charge of it. But if he takes them

into his possession, be becomes a bailee.

Duties and Rights1. He must take as much care of the goods as an ordinary prudent man

would, under similar circumstances, take of his own goods.

2. He cannot sue for remuneration for trouble and expense incurred by him

to preserve the goods or to find out the owner of the goods.

3. He may exercise particular lien against the goods for such remuneration.

4. If a reward has been offered for the return of the goods, he can sue forsuch reward.

5. If the goods are the subject of the sale and if the owner is not found or

when found refuses to pay the lawful charges, the finder may sell the

goods.

a. When the goods are about to perish or


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b. When they lose the greater part of their value of

c. When lawful charges amount to two-thirds of their value

PLEDGEA pledge is a bailment of goods as security for payment of a debt or

performance of a promise. The bailor is called the pawnor and the bailee is

called the pawnee. In the case of pawn, there is no transfer of property in

goods. Only possession of the goods is transferred. Hence, it is different from

mortgage. Pawn is also different from lien, as in the case of lien, there is not

power to sell the article while a pawnee can sell, subject to some conditions.

Rights of PawnorEven after the expiry of a stipulated period, he may redeem the goods pledged

at any subsequent time before the actual sale of the goods pledged. But he

must pay expenses which may have arisen from his default.

Rights of Pawnee1. He can retain the goods pledged until he recovers the debt, interest and

other expenses incidental to possession or preservation of the goods.

2. He cannot retain the goods for debts other than those for which pawn is

made.

3. He is entitled to receive extra-ordinary expenses incurred for the

preservation of goods.

4. If the pawnor makes a default, the pawnee may

a. Bring a suit upon the debt or promise and

b. Retain the goods pledged or

c. Sell the goods by giving a reasonable notice of sale to the pawnor.

If the proceeds of such are less than the amount due in respect of the debtor promise, the pawnor is still liable to pay the balance. If the proceeds of

the sale are greater than the amount so due, the pawnee shall pay over

the balance to the pawnor.


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LESSON 4CONTRACT OF AGENCY

Section 182 of the Indian Contract Act defines an agent as person employed todo any act for another or to represent another in dealings with third persons.

The person for whom such act is done, or who is so represented is called the

principal.

ESSENTIALS OF A CONTRACT OF AGENCY1. The principal and third parties must be competent into contracts

An agent may be even a minor who can effectively bind his principal. But the

principal cannot make the minor agent liable for misconduct ornegligence.

Example: P, a principal gives M, a minor, a jewel worth Rs. 100 and instructs

fgdgdf to sell it on credit or for less than Rs. 500. M sells the jewel on

credit for Rs. 400. P cannot make him liable while he is bound by the

sale..

Consideration is not essential. That the principal gives his consent to berepresented by the agent is sufficient consideration for the agent gdg

dfgd dfgd.

CREATION OF AGENCYAn agency may be created in the following ways:

1. By Express Authority: The authority of any agency may be expressed in

words spoken or written. For example, a contract of agency can be

written by means of power of attorney.

2. By Implied Authority