BUSINESS LAW SUBJECT CODE : CCR8C52

CLASS : III B.Com

SYLLABUS

UNIT – I

LAW OF CONTRACT – NATURE- DEFINITION-

ESSENTIAL – ELEMENTS – CLASSIFICATION OF

CONTRACT.

UNIT – II

OFFER – ACCEPTANCE - LEGAL RULES –

CONSIDERATION – CONSENT- FREE CONSENT –

COERCION – UNDUE INFLUENCE –

MISREPRESENTATION – MISTAKE – FRAUD –

DISTINGUISH BETWEEN FRAUD AND

MISREPRESENTATION.

UNIT – III

PERFORMANCE – DISCHARGE – REMEDIES FOR

BREACH OF CONTRACT AND QUASI CONTRACT –

VOID AGREEMENT – WAGERING - RULES –

CONTINGENT CONTRACT WHICH NEED NOT BE

PERFORMED – PERFORMANCE OF CONTRACT.

UNIT – IV

SPECIAL CONTRACT – INDEMNITY AND GUARANTEE

– KINDS – RIGHTS AND DISCHARGE OF SURETY-

RIGHTS AND DUTIES OF BAILOR AND BAILEE

UNIT – V

AGENT – PRINCIPLES – CREATION OF AGENCY –

CLASSIFICATION OF AGENT – RELATIONS – DUTIES

AND RIGHTS OF AN AGENT WITH PRINCIPAL –

DELEGATION OF AUTHORITY - TERMINATION OF

AGENCY

UNIT - I

CONTRACT - NATURE – DEFINITION – ESSENTIAL ELEMENTS OF

CONTRACT AND CLASSIFICATION OF CONTRACT

Introduction

The law of Contract forms the oldest branch of the law relating to business

transaction. The law of contracts is applicable not the business community but others.

Before going to discuss about the business law. Let us discuss briefly about the law.

Law is a body of rules which is used for regulation the contract of the members of a

society.

Need for Law :

To maintaining of peace recognize the right of other, life cannot be live peacefully and

business cannot be carried out smoothly without law to regulate the conduct of people and

protect their property and contract rights.

Meaning of Law :

Principal and sales that regulate social conduct and the observance of with can be

unforced in counts.

Definition of Law :

“Law is a rule of external human action enforced by the sovereign political

authority” by Holland.

“ Law is a rule of civil conduct prescribed by the supreme power of a state

commending what is right and probability what is wrong”.

To Control all kinds of activates of people through a set of rules and principals

likewise different set of rules and principals is enforce for different kinds of social

behavior.

There are several branches of law civil law, constitutional law international Law,

Industrial and mercantile Law.

Mercantile Law / Business Law:

Mercantile Law known as commercial law or business law”. It is a branch of law

in order to governs and regulates trade and commerce.

Slater says “ The Phase mercantile Law or commercial law is generally used to

denote that portion of the law which deals with right and obligations arising out of

transactions between mercantile persons.

Mercantile Person :

Mercantile person means one who enter into business transitions, they may be

individual, an association of partnership company.

Source of Mercantile Law :

The Laws used in India mostly derived from British law. But we made some

modifications for the local Usages of trade and commerce.

The Important sources of Mercantile law is as follows :

I. English Mercantile Law

a. English Common Law

b. Principal of Equity.

c. Law merchant.

II. Precedents : (Post Indicial Decisions of court)

III. Indian State Law (Act of Indian Legislature)

IV. Local Customs at Usages.

I. English Mercantile Law :

a. The English Common Law :

The Term “ Common Law” is used to denote the case law based upon English

customs, usages, usages and traditions. Customs, usages which is evolved, recognized and

adopted as rules of conduct by the English community, acquire the name common law.

This is also called as” Unwritten Law” and it is not contained in any act of the legislature.

b. Principal of English :

English Law of equity is another guideline for Indian Courts. Branch of English

Law which is based on Principal of equity, Justice and good conscience. It is also a

unwritten law and developed from the common law, separately.

This law compensate the common law where the common law worked harshly.

Therefore, law based on equity was feasible as compared to the common law.

C. Law Merchant :

One of the most importance sources of English mercantile law is the law merchant

(Or) Lese Moratoria based on customs usages. At beginning it is not recognized by the

court, but later on, in the beginning of the 17th

century, the common law court recognize

the rules of law merchant.

The traders established their own tribunals consisting of merchants themselves.

The rules pronounced by the tribunal, became the law popularly Known as the law

merchant or lese moratoria, which was an independent law till it was accepted and

recognized by the common law.

II. Precedent (Past Judicial Decisions of Courts).

Precedent referees to the past Judicial decisions of court, are an important of

courts, are an important sources of law. In India, the supreme court is the highest Court. Its

decisions have binding force on all court subordinate to it.

III. Indian State Law : (act of Indian Legislate)

The Legislature is the main source of Law in modern times.

In India, the central and state legislature posses law making powers and excised their

powers.

The important acts passed by the Indian legislature are

Indian contract act 1872.

The Negotiable instruments act 1881

The Sale of goods act 1930

The Indian Partnership Act 1932

The Companies Act 1956

V. Local Customs and usages :

The Customs and usages of Particular trader are impotent sources of Indian

mercantile Law. They play an important role in regulating business details and guide the

courts, in deciding disputer arising out of mercantile transactions.

CONTRACT

Name of Contract :

Everyone of us enters into a number of contract almost every day. When a person

a seat in a bus (or) deposits his hug gages in a railway clock room (or) entrust his car to

the mechanic for repaired etc., he enters into a contract, through he may not be aware of

this fact.

When people entered into a contract they made a piece of private law binding on each

other and beneficed to themselves and in a wider sends to the community at large. When

contract were entered into freely and voluntary they would be held enforceable by court of

justices. Legally enforceable premieres are termed contract.

DEFINE THE TERM CONTRACT (OR) WHAT DO YOU MEAN BY

CONTRACT? (OR) GIVE A SHORT NOTE ON INDIAN CONTRACT ACT 1872.

The Law of Contract is the most important branch of Business Law. The Law of

Contract introduces definiteness in business transactions. The purpose of Law of Contract

is to ensure the realization of reasonable expectation of the parties who enter into a

contract.

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

deals with the various stages in the formation of a contract, its essential elements, its

performance or breach, the remedies for the breach of the contract and special contracts

viz., Indemnity and Guarantee, Bailment and Pledge, Agency etc.

Indian Contract Act 1872, Sec.2 (h) defines a contract as „an agreement enforceable

by law‟.

According to Salamond, a Contract is, „an agreement creating and defining obligations

between the parties‟.

In Indian, the law relating to contract is continued in the Indian Contract Act 1872.

The Indian contract Act may be derived into the path.

1. Gender Principal of Contract (Section 1 t 72)

2. Special type of Contract (Section 124 to 238)

Definition of Contract : (Under Section 2 (h):

Under section 2 (h) of Indian contact Act 1872 defines contact.

“ An Agreement enforceable by law is a contract”

In a simple word we can say “an agreement which can be enforced in a curt of law is

known as contract.

Contact consist of two elements.

1. Agreement

2. Enforceable by law.

Definition for agreement (U/s 2(e))

“ Every promise and every set of premise, forming consideration for each other is an

agreement”.

Defecation for Promise (u/s. 2(b))

Section 2(b) defines promise as “ A Proposal when accepted became a promise”.

An agreement consist of proposal (Offer) from are person and its acceptance by the other.

Simply, we can arrive the following

Agreement = Offer + Acceptance

An agreement of purely social (Or) demotic nature is not a contact.

Essential Enlacements of Contract U/s. 10

I. Offer and acceptance

II. Intention to create legal relations

III. Lawful consideration.

IV. Capacity of parties.

V. Free and of genuine constant.

VI. Lawful object.

VII. Agreement not declared video.

VIII. Certainly and Possibility of performance

IX. Legal formalities.

I. Offer and Acceptance :

Definition of Offer : U/s : 2 (a)

“ When are person signifies to another his willingness to do or abstain from doing

anything with a view to obtaining the assent of that to act or abstinence, he is said to make

a proposal”.

Offer or/ Proposer / Promiser

Offer or means the person who making a proposal.

Offence / Acceptor / Promidser

Offeree means the person to when offer is made.

Here, offer we can simply say “ A request by the offeror to offence”.

Acceptance

As per section 2(b) defines “when one person to whom the process is made

signifies his as sent (consent) there to the proposed is said to be acceptance.

II. Intention to Create Legal Relations :

There must be an intention among the parties to create legal relationship by making

an agreement.

III. Lawful Consideration :

Consideration means the price for permission. The Technical world s “ Quid – Pre-

quo it means something in return. The something may be benefit, right “ interest and

profit.

Agreement must given something or receive something in return.

For Example :

A offers to B. To Sell the scooter for Rs. 10.000/- B. is accepts it.

Here As consideration Rs. 10,000/- (Return for scooter)

B‟s Consideration is Scooter ( Return n for Rs, 10,000/-

IV. Capacity of Patties :

It means the payment capacity of party. The following person is not consider as

capacity person. Minor lunatics, Drunkards, Idiots are incompetent to contract to u/s. 11 of

the act. “ Every person is competent to contract who is age of majority according to the

law to which he is subject and who is of sound mind and is not disqualified he is subject.

V. Free and genuine consent :

The agreement must be free and genuine by the consent of the parties. The

agreement should not get by fraud coercion, mistake, undue influence, Misrepresentation

Vi. Lawful Objective :

The agreement must not be illegal posed (Opposite) to public. That means any

activities disapproves by the court of law.

VII. Agreement Not declared Void :

The Agreement made by expression it will become void.

As per the act, the following are expressly declared to be void.

1. Agreement in Restraint to marriage (See 26)

2. Agreement in restraint of trade (See 27)

3. Agreement in restraint of proceeding(See 28)

4. Agreement in having (Un certain meaning ) (See 29)

5. Wagering agreement (See 30).

Meaning :

Restraint – Keep under contort

- Stop some one moving freely

Presiding – an event of action (or)

- action taken in a law

- Court to settle a dispute.

Wager – Bet (Rise of money against some one else on the basis of the unexpected events)

Example : (Cricket Match)

VIII. Certainty and possibility of Performance :

To make a contract valid there must be certain . the agreement must be possible, is not

possible, is will because void contact.

I. Legal formalities :

An agreement may be by oral or writing. Contact is required by the law to be

writing. The agreement must be fulfill the formalities which is given the contract act.

To be in writing, registration and 21 attestation etc., Indian contract act contains

rules regarding each and every elements discusses above.

CLASSIFICATION OF CONTRACT (TYPE / KINDS)

I. According to enforceability (ie. Legal Validity)

1. Valid contract

2. Void Agreement

3. Void Contact

4. Violable contract

5. Illegal agreement

6. Unenforceable contract

II. According to formation : (i.e. mode of creation)

1. Express contract

2. Implied contract

3. Quasi contract

III. According to performance :

1. Executed contract

2. Executory contract

3. Unilateral contract

4. Bilateral contract

I. According to enforce ability (i.e. legal validity)

1. Valid contract

A contract must be satisfied all the elements of contract given under section 10 of

the Indian Contract Act, 1812 is called as valid contract.

2. Void Agreement

“A agreement not enforceable by law is said to be void “u/s 2 (g). A void

agreement has no legal effect.

3. Void Contract

An agreement which is not enforceable by law is called void contact. A contract

which is ceases void contract. A contract which is ceases to be enforceable by law

becomes void when it ceases to be enforceable.

Example:

A promised to marry B. Later on B died. In this case, the contract between void on

the death of B.

4. Voidable contract:

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

parties thereon, but not at the option of the other (or) others, is a “Voidable Contract”

Example :

A agreed to sell his car to B for Rs.50,000/- but the consent is get by force. The

contract is voidable at the option of A. Because, A can take decision to sell the car to

others. Therefore to sell the car to others. Therefore, it will become Voidable Contract.

5. Illegal Agreement

An agreement is illegal, when it is

i) Forbidden by law

ii) Fraudulent

iii) One who is involve injury to get consent

6. Unenforceable contract

It is a contract which is not enforceable by law, because of same technical defects.

The law requires some formalities to be fulfilled for a void contract. A contract must be in

writing, Registered Properly stamped or to be attested etc.,

If the aforesaid formalities not followed, the contract cannot enforceable by law.

II. According to formation (i.e Mode of creation)

I. Express contract

As per section 9 of the Act, offer or acceptance of promise is made in words. The

promise said to be express.

A writes a letter to B that he offers to sell his car. B reply to A, that he is accept the

offer. It is called as an express contract.

2. Implied Contract:

As per section 9, also says when an offer or acceptance is made otherwise than in

words, the promise is called implied contract.

Example:

X went to a restaurant and take a cup of coffee. He must pay unless otherwise expressed.

3. Quasi Contract

An obligation which the law creates in the absence of any agreement. A person

shall not be allowed to enrich himself unjustly at the expense of another.

Finder of lost goods is under an obligation to find out the true owner return the goods.

III. According to performance

I. Executed contract

If both the parties (i.e. offeror and offeree) perform completely in respect of their

obligation under the contract.

Example: Cash sale – Perform simultaneously.

2. Executory Contract:

If the obligation of the parties are to be performed at a later time.

Mr. A agrees to sell bus and delivery made to B. The payment made by B is in the

following months is called executory contract.

3. Unilateral contract:

If the obligation fulfilled by one party at the time of contract such a contract is

called unilateral contract.

It is also called as “One saided contract” (or) Contract with executed consideration.

Therefore, in the executed contract, the obligation is outstanding only against one of the

parties at the time of contract formation.

4. Bilateral contract :

If the obligation is not executed at the time of contract formation. That is the

obligation on the part of both the parties to the contract are outstanding at the time of

contract.

Bilateral contract is similar to executory contract.

Example :

Mr. X promised to paint Y‟s house for a sum of Rs.500. It is bilateral contract as

there is exchange of promises and obligations of both the parties are outstanding at the

time of formation of the contract.

IV. Classification of contracts

English law :

1. Formal Contract

2. Simple Contract

1. Formal Contract :

English contract act recognized formal contracts. Validity of these contracts

depends upon their form and they are valid even without consideration.

They are two types

i. Contract under seal

ii. Contracts of records

The following contracts should be under seal, otherwise they will not be valid

i. Contract with consideration

ii. Lease of land for period of more than three years.

iii. Contract by corporations and

iv. Contracts with British shipping

Contracts of records include the court judgments and recognizes obligations in such cases

arises out of court judgments and not under contracts.

II. Simple contracts:

All contract other than the formal ones are called simple contract or parole

contract. They may be made

i. Orally ii. In writing iii.Implied by conduct

UNIT – II

I. OFFER

Definition of Offer : U/s : 2 (a)

“ When are person signifies to another his willingness to do or abstain from doing

anything with a view to obtaining the assent of that to act or abstinence, he is said to make

a proposal”.

Offer or/ Proposer / Promiser

Offer or means the person who making a proposal.

Offence / Acceptor / Promidser

Offeree means the person to when offer is made.

Here, offer we can simply say “ A request by the offeror to offence”.

Offer Classified into Two Types :

1. Expressed offer

2. Implied Offer

1. Expressed Offer :

Expressed by world of mouth, spoken or written is called an expressed offer.

2. Implied Offer :

Expressed by conduct is called implied offer.

3.Specific Offer

When an offer is made to a definite person, it is called as a specific offer.

4.General Offer When an offer is made to the world at large, it is called as a general offer.

ESSENTIALS AND LEGAL RULES FOR A VALID OFFER

II. The offer must be communicated to other party.

III. The term of the offer must be definite and clear.

IV. The offer must be made with a view to obtain acceptance.

V. An offer must be made with a view to obtain acceptance.

VI. An offer may be positive or negative.

VII. The offer should not contain any term the non-compliance of which amounts to

acceptance.

VIII. Special terms and conditions of the offer be communicated.

IX. Two identical cross offer do not result in a contract.

I. THE OFFER MUST BE COMMUNICATED TO THE PARTY:

An offer is effective only when it is communicated to the offer. Until the offer is

made known to the offer. There can be no acceptance and no contract.

An offer is completed only when it has been communicated to the offer. According

to section 4of the act, “ the communication of a proposal is complete when it comes to the

knowledge of the person to whom it is made.

II. THE TERMS OF THE OFFER MUST BE DEFINITE AND CLEAR :

Anson says “The law requires the parties to make their own contract : it will not

make contract for them out of terms which are indefinite or illusory”. The offer must be

reasonably definite and requires nothing to complete it except acceptance.

III. THE OFFER MUST BE CAPABLE OF CREATING LEGAL

RELATIONSHIP:

If the offer does not create any legal consequences, it is not a valid offer in the eye

of law. An offer must be accepted then only it will result in a valid contract.

IV. THE OFFER MUST BE MADE WITH A NEW TO OBTAIN ACCEPTANCE :

When a person making an offer it means that he is making it with a view to obtain

the consent of the offer.

Under section 2(a) of the act lays down, “when one person signified to another his

willingness to do or abstain from doing anything with a view to obtaining the absent of the

other to such act or abstinence, he is said to make a proposed.

In offer, there should not be contain any confusion.

Catalogue and price list is not a offer. It is only an invitation to receive offer from

his customer.

Advertisement given in a paper for a job is not an offer.

V. AN OFFER MAY BE POSITIVE OR NEGATIVE

As per section 2(a), we know that the offer meant for acceptance and during

something. Therefore, an offer may to do something or not to do something.

An offer to do something is a positive offer. An offer not to do something is

negative offer.

VI. THE OFFER SHOULD NOT CONTAIN ANY TERM THE NON-

COMPLIANCE OF WHICH AMOUNT TO ACCEPTANCE:

In an offer the offer or cannot say that if the acceptance is not communicated up to

a certain time or date, the offer would be assumed to have been accepted. If the offer does

not reply, there is no contract, because no obligation to reply can be imposed on him, on

the grounds of justice.

VII. SPECIAL TERMS AND CONDITIONS OF THE OFFER BE

COMMUNICATED :

The acceptor may know or may not know about the things, which is offered.

Therefore, in an offer must contain special terms, before or at the term of contract.

VIII. TWO IDENTICAL (OFFER) CROSS OFFER DO NOT RESULT IN A

CONTRACT

When an offer made by each other is called cross offer. Cross offer do not

constitute acceptance of one‟s offer by the other and as such there is no completed

agreement.

Example :

A offer B to sell a (Hero Honda)

Scooter and B offer A to sell a scooter (Say Splender)

The exchange of things between the parties without any exchange of money value

is called cross offer.

WHEN DOES AN OFFER COME TO AN END?

An offer may come to an end by revocation or lapse, or rejection.

Revocation or lapse of offer

Sec.6 deals with various modes of revocation of offer. According to it, an offer is

revoked –

i. By communication of notice of revocation by the offeror at any time before his

acceptance is complete [Sec.6(1)].

ii. By lapse of time, if it is not accepted within the prescribed time; If no time is

prescribed, it lapses by the expiry of a reasonable time [Sec.6(2)].

iii. By the non-fulfillment by the offeree of a condition precedent to acceptance [Sec.6(3)].

Example

S, a seller, agrees to sell certain goods subject to the condition that B, the buyer, pays

the agreed price before a certain date. If B fails to pay the price by that date, the offer

stands revoked.

iv. By death or insanity of the offeror, the offeree comes to know of it before

acceptance [Sec.6(4)].

v. If a counter - offer is made to it

When an offer is accepted with some modification in the terms of the offer or with

some other condition not forming part of the offer, such qualified acceptance amounts to

a counter – offer.

Example

W offered to sell a farm to H for Rs.1000. H offered Rs.950. W refused the offer.

Subsequently H offered to purchase the farm Rs.1000. Held, there was no contract as H by

offering Rs.950 had rejected the original offer.

vi. If an offer is not accepted according to the prescribed or usual mode

vii. If the law is changed

Rejection of Offer

i. Express Rejection

The offeree may reject the offer expressly i.e., by words, written or spoken.

ii. Implied Rejection

When the offeree makes a counter – offer

Where the offeree gives a conditional acceptance

II. ACCEPTANCE

As per section 2(b) defines “when one person to whom the process is made

signifies his as sent (consent) there to the proposed is said to be acceptance.

ESSENTIAL AND LEGAL RULES FOR A VALID ACCEPTANCE:

i. Acceptance must be absolute and unqualified (u/s7(1))

ii. Acceptance must be communicated to the offeror

iii. The acceptance must be in the prescribed manner

iv. The acceptance must be in responsible to offer

v. The acceptance must be the offer

vi. The acceptance must be given before the offer lapses or is revoked.

vii. Acceptance may be expressed or implied.

I. ACCEPTANCE MUST BE ABSOLUTE AND UNQUALIFIED

In order to make legal effect, the acceptance must be absolute and unqualified

acceptance of all the terms of the offer.

Acceptance should not carry any condition. A qualified or a conditional acceptance

is not a acceptance at all. It is only a counter offer. Acceptance gives an end to the original

offer.

II. ACCEPTANCE MUST BE COMMUNICATED TO THE OFFEROR

The acceptance comes to an end when it is communicated to the offeror. It does

not create any legal relationship. A mental acceptance is not a acceptance.

FOR EXAMPLE:

Brogden vs. Metropolitan Railway Co, (1877). An agreement sent to the manager

for supply of coal. The manager offers a seal “Approval” on the offer letter and kept in to

his table, this is not a acceptance.

Therefore, in this case, the manager office the seal with a intention of sending the letter,

but not sent to the offer the not communication there is no creation of legal relationship

there is no contact.

III. The acceptance Must be in the prescribed Manner :

If the mode of acceptance prescribed by the offeror, the acceptor must follow the

mode. If the acceptor follow the mode, other then the given by the offered that acceptance

may not accept by the offered.

If prescribed time is not given , the acceptance to be communicated within

reasonable time.

IV. The Acceptance must be in Response to offer :

There is no acceptance carried \ out within the offer for example.

A Company contact allot any share within offer ( ie Application) from the public, so

acceptance should follow the offer and not precede it.

V. The Accepted must be by the offence :

An offer must be accepted by the person to whom it is made. A valid contract arts

only when acceptance Powel Vs Lea (1908).

In this case, A applied for a post of Head master, in a school.

The appointing committee select him but 17 it is not communicated to him. At the

same time, a person who is member of the communicated to him. At the same time a

person who is members of the committee. But he has no power (Authorization)

Communicate the selection to Mr. A. Due to this the committee contact the selection. Mr.

A. Make suit against the school,

In court the suit rejected for the information is given by the Unauthorized person.

VI. The acceptance must be given before the offer lapses or revoked :

Acceptance must be given within the specified time any. If the time is not maintained, then

the acceptance must be given within a reasonable time.

Example :

Ramsgate Victoria Gotel Co Vs Montefiore (In 1866)

The defondance (Application) for shares in June and the Allotment is made in

November. Then the applicant refuse to accept the allotment. The company make suit

against him. In court applicant (defendant) says the shave is not allotted within the period

(Reasonable time).

VII. Acceptance may be express or implied :

An acceptance expressed by word written or spoken is called expressed

acceptance. The acceptance is expressed by conduct is called implied contact.

II. Intention to Create Legal Relations :

There must be an intention among the parties to create legal relationship by making

an agreement.

III. Lawful Consideration :

Consideration means the price for permission. The Technical world s “ Quid – Pre-

quo it means something in return. The something may be benefit, right “ interest and

profit.

Agreement must given something or receive something in return.

For Example :

A offers to B. To Sell the scooter for Rs. 10.000/- B. is accepts it.

Here As consideration Rs. 10,000/- (Return for scooter)

B‟s Consideration is Scooter ( Return n for Rs, 10,000/-

IV. Capacity of Patties :

It means the payment capacity of party. The following person is not consider as

capacity person. Minor lunatics, Drunkards, Idiots are incompetent to contract to u/s. 11 of

the act. “ Every person is competent to contract who is age of majority according to the

law to which he is subject and who is of sound mind and is not disqualified he is subject.

V. Free and genuine consent :

The agreement must be free and genuine by the consent of the parties. The

agreement should not get by fraud coercion, mistake, undue influence, Misrepresentation

Vi. Lawful Objective :

The agreement must not be illegal posed (Opposite) to public. That means any

activities disapproves by the court of law.

VII. Agreement Not declared Void :

The Agreement made by expression it will become void.

As per the act, the following are expressly declared to be void.

6. Agreement in Restraint to marriage (See 26)

7. Agreement in restraint of trade (See 27)

8. Agreement in restraint of proceeding(See 28)

9. Agreement in having (Un certain meaning ) (See 29)

10. Wagering agreement (See 30).

Meaning :

Restraint – Keep under contort

- Stop some one moving freely

Presiding – an event of action (or)

- action taken in a law

- Court to settle a dispute.

Wager – Bet (Rise of money against some one else on the basis of the unexpected events)

Example : (Cricket Match)

VIII. Certainty and possibility of Performance :

To make a contract valid there must be certain . the agreement must be possible, is not

possible, is will because void contact.

X. Legal formalities :

An agreement may be by oral or writing. Contact is required by the law to be

writing. The agreement must be fulfill the formalities which is given the contract act.

To be in writing, registration and 21 attestation etc., Indian contract act contains

rules regarding each and every elements discusses above.

III. CONSIDERATION

An agreement made without consideration is nudum pactum ( a nude contract) and is

void. When a party to an agreement promises to do something, he must get „Something in

Return‟ i.e., Quid pro Quo. It also means something advantage moves from one party to

another.

Example

A agrees to sell his car to B for Rs.10000. Car is the consideration for B and price is

the consideration for A.

Definition

Sec.2(d) defines consideration as follows: „When at the desire of the promisor, the

promisee or any other person has done or abstained from doing, or does or abstains from

doing, or promises to do or to abstain from doing something, such act, abstinence or

promise is called a consideration for the promise‟.

ESSENTIALS LEGAL RULES AS TO CONSIDERATION

i It must move at the desire of the promisor

- An act constituting consideration must be done at the desire or request of the promisor.

Example

A saves B‟s goods from fire without being asked to do so. A can not demand

payment for his services.

ii. It may move from the promise or an other person

It is to be noted here that the stranger to consideration will be able to sue only if he

is a party to the contract.

iii. It may be an act, abstinence or forbearance or a return promise

An Act

- doing something (affirmative form)

An abstinence or forbearance

- Abstaining from doing something (negative form)

Example

A promises B not to file a suit against him if he pays him Rs.500. The abstinence

of A is the consideration for B‟s payment.

A return promise

Example

A agrees to sell his horse to B for Rs.10000. Here, B‟s promise to Rs.10000 is the

consideration to A; A‟s promise to sell the horse is the consideration to B.

iv. It may be past, present and future

Past Consideration

- Before the date of promise

Present Consideration

- At the time of Promise

Future Consideration

- Subsequently to the making of the contract.

v. It need not be adequate

This „something in return‟ need not necessarily be equal in value to „something

given‟.

vi. It must be real and illusory

vii. It must be something which the promisor is not already bound

Example

A promise to perform a public duty by a public servant is not a consideration.

viii. It must not be illegal, immoral or opposed to a public policy (Sec.23) NO CONSIDERATION, NO CONTRACT – WHAT ATE THE EXCEPTIONS FOR THIS RULE

(OR) EXPLAIN THE AGREEMENTS THAT ARE ENFORCEABLE EVENTHOUGH THEY ARE

AGREEEMENTS WITHOUT CONSIDERATION.

The general rule is „Ex nudo non oritur actio‟ i.e, an agreement made without

consideration is void. Sec.25 and 185 dealt with the exceptions to this rule.

i. Love and Affection [Sec.25(1)]

A written and registered agreement based on natural love and affection between

near relatives is enforceable even if it is without consideration [Ram Dass Vs.Krishan

Dev.(1986)].

ii. Compensation for voluntary services [Sec.25(2)]

A promise to pay for a past voluntary service is binding.

Example

A supports B‟s infant son. B promises to pay A‟s expenses in so doing. This is a

contract.

iii. Promise to pay a time – barred [Sec.25(3)]

A promise by a debtor to pay a time-barred debt, is enforceable that is made in

writing and signed by the debtor. The promise may be to pay whole or part of the debt.

iv. Agency [Sec.185]

No consideration is necessary to create an agency.

v. Completed Gift [Expl.1 to Sec.25]

According to Expl.1 to Sec.25, Nothing in Sec.25 shall affect the validity between

the donor and the donee of any gift actually made

vi. Charitable subscriptions

A. COERCION B. UNDUE INFLUENCE C. MISREPRESENTATION D.

FRAUD AND E.MISTAKE.

Sec. 10 says that „all agreements are contracts if they are made by the free consent

of the parties‟. The consent is to be free and real. The parties to the contract is to be ad-

idem.

Meaning of consent and Free consent (Sec.13 & 14)

Consent

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 caused by –

1. Coercion (Sec.15)or

2. Undue influence (Sec.16)

3. Fraud (Sec.17)

4. Misrepresentation (Sec.18) and

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

1.Coercion

When a person is compelled to enter into a contract by the use of force, by the

other party or under threat „Coercion‟ is said to be employed.

Coercion is the committing or threatening to commit any act forbidden by the

Indian Penal Code 1860 or the unlawful detaining, or threatening to detain any property, to

the prejudice of any person, whatever, with the intention of causing any person to enter

into an agreement (Sec.15)

A threat to commit suicide amounts to coercion. Coercion includes –

Fear

Physical compulsion and

Menance to goods

Example

A threatens to kill B if he does not lend Rs. 1000 to C. B agrees to lend the amount to

C. The agreement is entered into under coercion.

2. Undue influence (Sec.16)

If a party is compelled to enter into an agreement against his will as a result of unfair

persuasion by the other party, it is called as „Undue influence‟.

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 position to dominate the will of

the other and uses that position to obtain an unfair advantage over the other. [Sec.16(1)].

Example

A spiritual guru induced his devotee to gift to him the whole of his property in return of

a promise of salvation of the devotee. Held, the consent of the devotee was given under

undue influence [Mannu singh Vs.Umadat Pandey (1890)].

a. Misrepresentation and Fraud

„Misrepresentation is a misstatement of a material fact made innocently with an

honest belief as to its truth or non-disclosure of a material fact, without any intent to

deceive the other party‟.

‘Fraud‟ exists when is shown that a false representation has been made, i.

knowingly ii. without belief in its truth iii. Recklessly, not caring whether it is true or

false and iv. Maker intended the other party to act upon it. It also exists where there is a

concealment of material facts.

b. Mistake

Mistake may be defined as an erroneous belief about something. It may be mistake of

law or mistake of fact. Briefly Explain The Mistake Of Law

Mistake means an erroneous belief about something which may either be mistake

of law or mistake of fact.

i. Mistake of law of the country

It may be a –

Mistake of law of the country and

Mistake of law of a foreign country

Mistake of law of the country

The general rule as regards mistake of law of the country is that ignorance of law is no

excuse

Example

A and B enters into a contract on the erroneous belief that a particular debt is barred by

the Indian Law of limitation. The contract is not voidable.

Mistake of law of the country

Such a mistake is treated as a mistake of fact and the agreement in such a case is void

(Sec.21).

ii. Mistake of Fact

It may be –

A bilateral mistake or

A unilateral mistake

A. Bilateral Mistake

- When 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,

agreement is void [Sec.20].

Various cases which fall under bilateral mistake

i. Mistake as the subject matter - When both the parties to an agreement are working under a mistake relating to

the subject matter, the agreement is void. It covers the following cases:

a. Mistake as the existence of the subject matter

- If both the parties believe the existence of subject matter of the contract, which in

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

b. Mistake as to the identity of the subject matter

- It usually arises where one party intends to deal in one thing and the other intends

to deals in another.

c. Mistake as to the quality of subject matter

- If the subject matter is something essentially different from what the parties

thought it to be, the agreement is void.

d. Mistake as to the quantity of the subject matter

- If both the parties are working under a mistake as to the quantity of the subject

matter, the agreement is void.

e. Mistake as to the title of the subject matter

- If the seller is selling a thing which he is not entitled to sell and the both parties

act under a mistake, the agreement is void.

ii. Mistake as the possibility of performing contract - The agreement is void on the ground of impossibility when both the parties

believe that the agreement is capable of being performed but actually not possible [Sec.56,

para 1]. It may be -

Physical or

Legal impossibility

B. Unilateral Mistake

Where only one of the parties is under a mistake as to a matter of fact, the contract

is not voidable [Sec.22]. There are however two exceptions to this rule.

i. Identity of the person contracted with

- If A intends to enter into a contract with B, C can not give himself any right in

respect of the contract by accepting the offer. In such a case, the contract is void.

ii. Nature of contract

- Where a person is made to enter into a contract through the inducement of

another but through no fault of his own, there is a mistake as to the nature of

the contract, and the contract is void.

UNIT - III

Discharge by Performance

Actual performance Attempted performance I. Discharge by Performance :

Performance means the doing of that which is required by a

contract. Discharge by performance takes place when the parties to

the contract fulfill their obligations arising under the contract within

the time and in the manner prescribed. In such a case, the parties

are discharged and the contract comes to an end.

It may be two performance: 1. Actual

2. Attempted

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.

2. Attempted Performance or Tender:

Tender is not actual performance but is only an offer to perform

the obligation under the contract where the promisor offers to

perform his obligation but the promise refuses to accept the

performance, tender is equivalent to actual performance, except in

case at tender of money.

II. Discharge by Agreement or consent

By Express consent By implied consent

Novation Rescission Attemation Remission waiver merger

III. Discharge by Agreement or consent:

As it is the agreement of the parties which binds them, so by

their further agreement or consent the contract may be terminated.

The rule of law in this regard is as follows “Eodem modo quo quid

constituitur. Eodem modo destruitur”

By Implied consent:

a. Novation:

Novation takes place when i) a new contract is substituted for

an existing one between the same parties, or ii) a contract

between two parties is rescinded iin consideration of a new

contract being entered into on the same terms between one of

the parties and a third party.

b. Rescission :

Rescission of a contact 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 proud the right to claim compensation for the

breach of contract.

c. Alternation :

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 is case, the old contract is

discharged.

d. Remission:

Remission means acceptance of less fulfillment of the promise

made, e.g acceptance of a lesser sum than what was contracted for

in discharged of the whole of the debt. It is not necessary that there

must be some consideration for the remission of the part of the deid.

e. Waiver:

Waiver takes place when the pxrties to a contract agree that

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

mutual abandonment of rights by the parties to the contract.

Consideration is not necessary for waiver.

f. merger:

Merger takes place when an inferior right accruing to a party

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

party under the same or some other contract.

III Discharge By Impossibility of performance

1. Known to the 2. Unknown to 3. Supervening parties the parties impossibility An execuse Not on

execuse

a. Destruction of a. Difficulty of subject perfoumance b. Non-existence of b. commercial

a state of things impossibility c. Death or incapacity c. Failure of a for personal serious third party d. change of law d. Strides, lockouts and civil disturbances

e. outbreak of war e. Failure of one of the

objects 1. Known to the parties:

This is known as absolute impossibilities. In case of absolute

impossibility, the agreement is voluable mitio. For exmple, when

A agrees with B to discover treaswre by magic, or undertakes to

put life into the dead wife of B, the agreement is void.

2. Unknown to the parties:

i. where at the time of making the contract both the parties are

ignorant of the impossibility, as in the case of destruction of

subject-matter to the ignorance of both the parties, the contract is

void on the ground of mutual mistake.

ii. Impossibility arising subsequent to the formation of

contract impossibility which arises subsequent to the formation of a

contract is called post-contractual or supervenins impossibility.

3. Supervening impossibility:

A contract is discharged by supervising impossibility in the

following case.

a. An exec use:

a. Destruction of subject matter:

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.

b. Non-existence of a 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 formed

the basis of the contract, or if the state of things which ought to

have occurred does not occur, the contract is discharged.

c. Death or incapacity for personal Services:

Where the performance of a contract depends on the personal

skill or qualification of a party, the contract is discharged on the

illness or incapacity or death of that party. The man’s life is an

implied condition of the contract.

d. Change of law:

When, subsequent to the formation of a contract, change a law

takes place, or the government takes some power under some

ordinance or special Act, as F.eg, the Defence of India Act, so that

the performance of the contract becomes impossible, the contract is

discharged.

e. Outbreak of war:

A contract entered into with an alien enemy during war is

unlawful and therefore impossible of performance contracts entered

into before the outbreak of war are suspended during the war and

may be revived after the war is over.

B. Impossibility of performance:

B. Not an excuse:

“Impossibility of performance is, as a rule, not an excuse for

non-performance”

1. Difficulty of performance:

A contract is not discharged by the more fact that it has

become more difficult of performance due to some uncounted plated

events or delays.

2. Commercial impossibility:

A contract is not discharged merely because expectation of

higher profits is not realized, or the necessary raw material is

available at a higher price because of the outbreak of war, or there

is a sudden depreciation of currency.

3. Impossibility due to failure of a third person:

Where a contract could not be performed because of the

default by a third person on whose work the promisor rolled, it is

not discharged.

4. Strikes, lock-outs and civil disturbances:-

Events such as these do not discharge a contract unless the

parties have specifically agreed in this regard at the time of

formation of the contract.

5. Failure of one of the objects:

When a contract is entered into for several objects, the failure

of one of their does not discharge the contract.

IV. Discharge by Lapse of Time

The limitation Act, 1963 days down that a contract should be

performed within a specified period, called period of limitation. If it

is not performed and if no action is taken by the promise within the

period of limitations, he is deprived of his remedy at law. In other

words, we may say that the contract is terminated if the price is not

paid and creditor does not file a suit against the buyer for the

recovery of price within there years, the debt becomes time-barred

and here irrecoverable.

V. Discharge by Operation of Law

Death Merger Insolvency Unauthorised rights in

liabilities

alteration of vesturing the

same

terms of contract the same person

1. Death:

In contracts involving personal skill or ability the contract is

terminated on death of the promisor. In other contracts, the rights

and liabilities of a decreased person pass on to the legal

representatives of the deceased person.

b. Merger:

Merger takes place when an inferior right accruing to a party

under a contract merges into a superior right acoruing to the same

party under the same or some other contract.

c. Insolvency;

When a person is adjudged insolvent, he is discharged form all

liabilities incurred prior to his adjudication.

d. Unauthorized attraction 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 party the other party

can avoid the contract.

e. Right and liabilities vesting in the same person:

Where the rights and liabilities under a contract vest in the

same person, for eg, when a bill gets into the hands of the acceptor,

the other parties are discharged. This is to avoid clarify of action

VI. Discharge by Breach of contract

Actual Anticipatory

1. At the time of 1. By an act of the primer

The performance making performance impossible

ie. Implied repudiation

2. During the 2. By renunctation of the

obligation

performance ie. Express repudiation

1. Actual breach of contract:

a. At the time of the performance:

Actual breach of contract occurs, where at the time when the

performance is due, one party fails or refuses to perform his

obligation under the contract.

b. During the performance:

Actual breach of contract also occurs who during the

performance of the contract one party fails or refuses to perform his

obligation under the contract. This refusal to perform may be by

1. Express repudiation

2. Implied repudiation

2. Anticipatory breach of contract:

It occurs when a party to an exeutory contract declares his

intention of not performing the contract before the performance is

due. He may do so.

1. By an act of the promisor making performance impossible i.e.

implied repudiation :

By expressly renouncing his obligation under the contract. By

an act of the promisor making performance impossible ie. Implied

repudiation.

2. By renunciation of the obligation ie. Exp repudiation.

By expressly renouncing his obligation under the contract by

doing renunctation of the obligation ie. Express repudiation.

For eg:

A undertakes to supply certain goods to B on 1st January.

Before this date, he informs B that he is not going to supply the

goods. This is anticipatory breach of contract by express

repudiation.

A. VOID AGREEMENT

B. WAGERING AGREEMENTS AND

C. CONTINGENT CONTRACTS

A Void Agreement

- A void agreement is one which is not enforceable by law [Sec.2(g)]. Such an

agreement does not give rise to any legal consequences and void-ab-initio.

Meaning:

According to sec. 2 (9) “An agreement not enforceable by law is said to be

void”. Thus a void agreement does not give rise to any legal consequences and is

void ab-initic. A void agreement does not create any legal rights and obligations.

The courts will enforce only those agreements which fulfill the conditions of

enforceability as laid down in sec 10 of the Indian Contract Act. An agreement

though it might have all the essentials of a valid contract must not have been

expressly declared void by any law in force in the country. The contract Act has

specifically declared certain agreements as void.

An agreement can be void because of mistake, lack of consideration, want of

capacity etc. A list of such agreement is given below:

1. Agreements by persons who are not competent to contract (sec 11)

2. Agreements made under a bilateral mistake of fact (sec 20)

3. Agreement with unlawful consideration and object (sec 23)

4. Agreements of which the consideration or object is unlawful in part (sec 24)

5. Agreements without consideration (sec 25)

B Wagering Agreements or Wager (Sec.30)

- A wager is an agreement between two parties by which one promises to pay

money or money‟s worth on the happening of some uncertain event in

consideration of the other party‟s promise to pay if the event does not happen.

Example

A enters an agreement with B that A shall pay B Rs.100 if it rains on Monday and

B shall pay A the same amount if it does not rain on Monday. It is a wagering agreement.

C Contingent Contract

A contract may be –

An absolute contract or

A contingent contract

An absolute contract is one in which the promisor binds himself to the performance

in any event without any conditions.

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].

Example

Goods are sent on approval; It is the contingent contract depending on the act of

buyer to accept or reject it.

STATE THE DIFFERENCES BETWEEN A WAGERING AGREEEMENTS AND

CONTINGENT CONTRACTS.

Basis of Difference Wagering Agreements Contingent Contracts

1. Reciprocal

promises

It consists of reciprocal

promises

It may not contain reciprocal

promises

2. Nature Contingent in nature It may not be a wagering in

nature

3. Validity Void Valid

4. Gamble Game of Chance Not a game of chance

5. Determining factor Future event is the determining

factor.

Future event is only collateral.

1. Difference between void Agreement and void contract:

Void Agreement Void Contract

1. A void agreement is one which is not

enforceable at law and does not give rise

to any legal consequence.

2. It is void ab-initio (from the very

beginning) and no contract comes into

existence at all.

3. A void agreement is never valid.

Void contract is one which is valid when

it is entered into, but subsequent to its

formation it becomes unforceable

because of one reason of one other.

A contract which is enforceable by law,

may sometimes cease to be enforceable

subsequently for such reasons as

impossibility or illegality.

A void contract is valid till it ceases to

be valid contract

3. Difference between wagering Agreement and contract of Insurance

1. It is valid and can be enforced in court

of law.

2. Contracts of insurance re regarded as

beneficial to the public

It is void, under sec. 30 without any

legal effect.

Wagering agreements do not serve any

useful purpose.

3. Contracts of insurance are based on

scientific and actuarial calculation of

risk.

4. The holder of an insurance policy

must have an insurable interest in the

event upon which the insurance money

becomes payable contracts are entered

into to protect an interest.

5. It is a contract of indemnity. Because

the underlying idea of the contract is to

indemnify the insured person i.e. to

compensate him for the loss suffered by

him. However, the life insurance

contracts are not the contracts

indemnity.

6. The amount which is to be paid to the

insured person is not fixed. Only the

actual lose suffered by him is to be

compensated. However, in case of life

insurance, the amount may be treated as

fixed.

Wagering agreements are gamble

without any scientific calculation or risk.

In a wagering agreement there is no

interest to protect and the parties bet

exclusively because they can there by

make some easy money.

It is not contract of indemnity because

the amount to be paid to the winner is

not part as a compensation of loss.

The amount is fixed which is to be paid

to the winner on the conclusion of the

uncertain event.

UNIT – IV

INDEMNITY AND GUARANTEE

1. Contract of Indemnify

To indemnify means to compensate or make good the loss. The contract of

indemnity is entered into with the object of protecting the promise against

anticipated loss. The contingency upon which the whole contract of indemnity

depends is the happening of loss section (12$) of the Indian Contract Act.

“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, is called a contract of indemnity.

A contract of indemnity is a contract in which one person. Promises to

protect or compensate the other for the loss suffered by him due to the conduct of

the promisor or any of the person.

Indemnifier:

A person who promises to make good the loss, that is the promisor is called

the indemnifier.

Indemnified:

The person whose loss is to be made good, that is, the promise is called the

indemnity-holder or the person who is indemnified.

The definition of contract of indemnity,

A. Only express promises to indemnify, and

B. Only those cases where the loss arises from the conduct of the promisor

or of any other person.

The selection does not include:

a. Implied promises to indemnify,

b. Cases where loss arises from accidents and events not depending on the

conduct of the promisor or any other person.

2. Essentials of a valid Contract of Indemnity,

The analyses of the definition of contract of indemnity, the following are the

essentials for a valid contract of indemnity:

1. The contract of indemnity must contain all the essentials of valid

contract-competition of the parties, free consent, consideration,

legality of the object etc.

2. It is a contract between two parties one person promises to save the

other from any loss, which he may suffer.

3. The loss may be caused by the conduct of the promisor himself or

any other person.

4. The contract of indemnity may be express or implied.

An express promise is one where a person promises in express them to

compensate the other from the loss. That is an express contract is by words or by

writing.

3. Rights of Indemnity-holder (Indemnified) Sec - 125

The promise in a contract of indemnity acting within the scope of his

authority, is entitled to recover from the promisor.

1. All damages which he may be compelled to pay in any suit in respect of any

matter to which the promise to indemnify applies.

1. All costs which he may be compelled to pay in any such suit if, in bringing

or defending it, he did not contravene the orders of the promisor, and acted

as it would have been prudent for him to act in the absence of any contract

of indemnity.

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

such suit, if the compromise was not contrary to the orders of the promisor,

if the promisor authorized him to compromise the suit.

4. Rights of Indemnifier (Promisor)

The act makes no mention of the rights of an indemnifier. It has been held

however, that his rights, in such cases are similar to the rights of a surety, under

sec. 141 of the Indian Contract Act. That is the rights of the promisor are virtually

the same as those of the surety in a contract of guarantee.

5. Contract of Guarantee:

According to sec 126. “a contract of guarantee” is a contract to perform the

promise or discharge the liability of their person in case of his default”. A

guarantee may be either oral or written.

In a contract of guarantee there are three separate agreements.

One between the principle debtor and the creditor.

The second between the creditor and the surety and

The third between the surety and the principle debtor.

Essentials of a contract of Guarantee:

The following conditions are to be fulfilled for a contract of guarantee:

1. A contract of guarantee must satisfy all the essential elements of a valid

contract such as there must be lawful consideration and object, there must be

free consent.

2. There must be atleast three parties: 1. Surety (Guarantor), 2. Principle

Debtor, 3. creditor. All the parties must join the contract.

3. A contract of guarantee pre-supposes the existence of a liability

enforceable at law. It is the essence of a contract of guarantee that there

should be a liability , existing or future enforceable at law.

4. There are two types of liability: 1. Primary liability 2. Secondary liability.

The Primary liability is on the principle debtor.

5. It is an undertaking to perform the promise of other on his failure to do so

that is the surety undertakes to perform the promise of the principle debtor in

the event of letters failure to perform his promise.

6. A contract of guarantee may be oral or written. The contract may be

express or even implied from the conduct of the parties.

7. A contract of guarantee, like every other contract, must satisfy all the

essential elements of a valid contract. However, special features are to be

noticed with reference to consideration and capacity to contract.

a. Sec.127 of the act clearly provides that “Anything done, or any promise

made, for the benefit of the principal debtor may be a sufficient

consideration to the surety for giving the guarantee.

6. Parties to a contract of guarantee must be competent to contract. However

the incapacity of the principal debtor does not affect the validity of a

contract of guarantee. The creditor and the surety must be competent to

enter into a valid contract.

Comparison between contract of Indemnity and contract of Guarantee:

The following are the points of distinction between the two:

Contract of Indemnity Contract of Guarantor

1. There are two parties the indemnifier

and the Indemnity holder.

2. The liability of the indemnifier is

primary and independent.

3. There is only one contract (i.e.)

between indemnifier and indemnified.

4. Indemnifier need not act on the

request of the indemnified.

5. The liability of indemnifier arises on

the happening of a contingent contract.

There are three parties the creditor the

principal debtor and the surety.

The liability of the principal Debtor is

primary. The liability of the surety is

secondary; it is the surety is liable only

if the principal debtor fails.

There are three contracts i.e. first

between the creditor and the principal

debtor, second between the creditor and

the surety and third between the surety

and the principal debtor.

Surety gives guarantee on the request of

the principal debtor.

There is an existing debt or duty, the

performance of which is guaranteed by

the surety.

6. An indemnifier cannot see a third

party for loss in his own name because

there are no privities of contract. He can

do so only if there is an assignment in

his favour.

A surety on discharging the debt due by

the principal debtor can take action

against the principal debtor for his own

recovery.

KINDS OF GUARANTEE

Kinds of Guarantee

Simple or specific guarantee Continuing

Guarantee

Revocation of Continuing

Guarantor

1. By Notice

2. By Death of Surety

Kinds of Guarantee:

1. A Guarantee may usually be given for:

2. The repayment of the price of goods sold on credit : and

3. Good conduct or honesty or a person employed with a particular person.

Guarantee may either be retrospective or prospective. The former is given

for an existing debt while the latter is given for some future agreement.

1. Simple or specific Guarantee:

Simple guarantee is one in which guarantee is given for a single specific

debt or transaction. It comes to an end as soon as the liability under that transaction

ends. A specific guarantee once given in irrevocable.

2. Continuing Guarantee:

According to sex 129, “A guarantee which extends to a series of transactions

is called a continuing guarantee”. It is a gurantee which is given for a series of

transactions of continuing nature.

Revocation of continuing Guarantee:

A continuing guarantee may be revokes as regards future transactions under

the following circumstances.

1. By Notice :

A continuing guarantee may at any time, be revoked by the surety as to

future transactions by notice to the creditors (sec.30). the liability of surety cases

from the date of his service of notice upon the creditor. However, surety remains

able for the transactions entered into by him before giving the notice.

2. By Death of surety:

The death of the surety operate in the absence of any contract to the

contrary, as revocation of continuing guarantee future transactions.

However, his estate shall not be liable for the transactions entered into after

his death, even if the creditor has no notice of the death.

RIGHTS OF SURETY

A surety has rights against:

1. The creditor

2. The Principal debtor

3. The co-sureties

1. Rights against creditors :

1. Before payment of the guaranteed debt.

2. Right of set-off

3. Payment of the guaranteed debt.

4. Right to equities

5. Right of subrogation

1. Before Payment of the guaranteed debt.

A surety may, after the guaranteed debt has become due and before he is

called upon to pay require the creditor to sue the principal debtor. However the

surety will have to indemnity the creditor for any expenses or loss resulting there

from.

2. Right of set-off:

On being sued by the creditor the surety can rely on any set-off or counter –

claim which the debtors has against the creditor.

3. On payment of the guaranteed debt:

The surety is subrogated to all the rights of the creditor and gets the right to

demand from the creditor at the time of payment all the securities whether they had

been received before, at or after, the creation of the guarantees.

4. Right to equities:

On payment of the guaranteed debt, the surety is entitled to all equities

which the creditor could have enforced not only against the principal debtor

himself, but also against person claiming through him.

5. Right of subrogation:

Where a guaranteed debt has become due and the surety has paid all that he

is liable for, he is invested with all the rights which the creditor had against the

principal debtor (sec. 140).

Rights against principal debtor:

1. Right to be relieved of liability.

2. Right to indemnity.

1. Right to be relieved of liability:

Before the payment has been made, the surety can compel the principal

debtor to relieve him from liability by paying off the debt. But before he can do so,

the debt must be ascertained. Once the principal debtor‟s liability accurse as a fixed

sum, the surety can ask him to exonerate him from that liability.

2. Right of Indemnity:

In every contract of guarantee there is an implied promise by the principal

debtor to indemnity the surety and the surety is entitled to recover from the

principal debtor all payments property made (sec. 145).

3. Rights against co-sureties:

Right of contribution:

When a debt is guaranteed by two or more sureties, they are called co-

sureties. The co-sureties are liable to contribute, as agreed towards the payment of

the guaranteed debt. When one of the co-sureties makes payment to the creditor, he

has a right to claim contribution applicable here is not founded on contract but on

equity, i.e. there is equality of burden and benefit as between c0-sureties. This rule

is contained in (secs.146 and 147).

1. Co-sureties liable to contribute equally (sec.146).

2. Liability of co-sureties bound in different sums (sec.147).

3. Release of a co-surety (sec.138).

1. Co – sureties liable to contribute equally (sec.146)

Where there are two or more co – sureties for the same debt or duty and the

principal debtor make a default, the co-sureties. In the absence of any contract to

the commentary, are liable to contribute equally to the extent of the default. This

principle will apply whether their liability is joint or several, and whether their

liability arises under the same or different contract, and whether with or without the

knowledge of each other.

2. Liability of o-sureties bound in difference sums:

Where the co-sureties have agreed to guarantee different sums, they have to

contribute equally subject to the maximum amount guaranteed by each one. The

fact that the sureties are liable jointly or severally under one contract or several

contracts, or without the knowledge of each other is immaterial.

3. Release of a co-surety:

Where there are co-surety a release by the creditor of one of them does not

discharge the other, neigh does it free the surety so released from his responsibility

to the other sureties.

By Revocation:

Revocation by Surety: A specific guarantee cannot be revoked by the surety if the Liability has

already a continue at any e. Be revoked by the surety as to future transaction by the

revocation to the creation. But the surety remains liable for transactions already

entered into.

Death of Surety:

The death of surety operates in the absence of any contract to the country as

a revocation of a continuing guarantee. So for as regards future transactions. The

deceased sureties entered in to between the creditor and the principal debtor. After

the death of surety even if the creditor has the notice of the death.

Novation:

Novation means substitute and new contract of guarantee for an old one

either between the same parties of between the one of the old parties and a new

party the consideration for the new contract being mutual discharge of the old

contract.

2. By the conduct of the credition:

Variance in terms of contract:

Any variance of made with out the sureties consent in the terms of the

contract between the principal debtor and the creditor discharge the sureties has two

transaction to subsequent.

By Creditor with Principal debtor:

A contract between the creditor and the principal debtor, by which the

creditor makes a composition with, or promises to give time or not to sue, the

principal debtor, discharges the surety, unless the surety assents to such contact.

Loss of Security:

If the creditor losses or without the consent of the surety pacts with security

given to him the sureties discharged from liability to the extend of the value of

security.

3. By invalidation of contract:

Guarantee obtained by Misrepresentation:

Any Guarantee which has been obtained by means of Misrepresentation

made by the creditor or with his knowledge and assent, concerning a material part

of the transaction is invalid.

Guarantee Obtained by Concealment:

Any guarantee which the creditor has obtained by means of keeping silence

as to material circumstances is invalid.

Failure a Co-surety to join a surety:

Where a person gives a guarantee upon a contract that a creditor shall not act

upon it until another person has joined in it as co-surety.

Failure of consideration:

Where in a contract of guarantee there is a failure of consideration as

between the creditor and the principal debtors, the surety is discharged.

Conduct of the creditor:

Creditor’s act or omission impairing surety eventual remedy:

If the creditor does any act which is inconsistent with the cut of the surety,

or omits to which his duty to the surety requires him to do, and the eventual remedy

of the surety himself against the principal debtor is thereby impaired, the surety is

discharged (Sec.139)

BAILMENT AND PLEDGE

The word „bailment‟ is derived from the French word „baillier‟ which means

„to deliver‟ etymologically, it means any kind of „handling over‟ in legal sense. It

involves change of possession of goods from one person to another for some

specific purpose,(sec 148) defines bailment as the deliver of goods by one person to

another for some purpose upon a contract that they shall, when the purpose is

accomplished be returned or otherwise disposed of according to the directions of

the person delivering them. The person delivering the goods is called bailer and the

person to whom they are delivered is called the bailee.

Requisites of bailment

1. Contract:

A bailment is usually created by agreement between the bailer and the

bailee. The agreement may be express or implied. In certain expectional causes,

bailment is implied by law as between a finder of goods and the owner.

2. Delivery of possession:

A bailment necessarily involves delivery of possession of goods by bailer to

bailee. The basic features of possession are control and an intention to exclude

others. As such, more custody of goods does not create relationship of bailer and

bailee.

3. For some purpose:

The delivery of goods from bailer to bailee must be for some purpose. If

goods are delivered by mistake to a person, there is no bailment.

It is agreed between the bailer and bailee that is soon as the purpose is

achieved the goods shall be returned of disposed, According to the durations of the

bailer.

4. Return goods:

If the goods are not to be specifically returned there is no bailment.

Classification of Bailment:

Classification of Bailment

According to benefit According to consideration

1. Exclusive benefit of 1. Gratuitous bailment

the bailer

2. Exclusive benefit of 2. Non-gratuitous bailment or

the bailee bailment for reward

3. Mutual benefit of

the bailer and the bailee

Classification of bailment:

Bailment may be classified according to the benefit derived by the parties.

1. Exclusive benefit of the bailer:

As the delivery of some valuable to a neighbour for safe custody without

charge.

2. Exclusive benefit of the bailee:

As the lending of a bicycle to a friend for his use without charge.

3. Mutual benefit of the bailer and the bailee:

As the hiring of a bicycle or giving of a watch for repair. In these case

consideration passes between the bailer and the bailee.

According to consideration:

1. Gratuitous bailment

2. Non-Gratuitous bailment or bailment

1. Gratuitous bailment:

It is a bailment where no consideration passes between the bailer and the

bailee.

2. Non-Gratuitous bailment or bailment for reward:

It is a bailment where consideration –passes between the bailer and bailee.

Duties of bailer:

1. To disclose known Faults:

(sec.150). It is the first and foremost duty of the bailer to disclose the known

faults about the goods bailed to the bailee. If he does not make such disclosure, he

is responsible for any damages caused to the bailee directly form such faults.

2. To bear extraordinary expenses of bailment:

The bailee is bound to bear ordinary and reasonable expenses of the

bailment but for any extra ordinary expenses the bailer is responsible.

3. To indemnify bailee for loss in case of premature termination of gratuitous

bailment:

A gratuitous bailment can be terminated by the bailer at any time even

though the bailment was for a specified time or purpose.

4. To receive back the goods:

It is the duty of the bailer to receive back the goods when the bailee returns

them after the expiry of the term of the bailment or when the purpose for which

bailment was created has been accomplished.

5. To indemnify the bailee:

Where the title of the bailer to the goods is defective and the bailee suffers as

a consequence, the bailer is responsible to the bailee for any loss which the bailee

may sustain by reason that the bailer was not entitled to make bailment (sec.164).

Duties of bailee:

1. To take reasonable care of the goods bailed:

In all cases of bailment the bailee is bound to take as much care of the goods

bailed to him as a man of ordinary prudence would, under similar circumstances

take of his own goods of the same bulk, quality and value as the goods bailed. If in

spite of the bailee‟s reasonable care, goods, are damaged or destroyed in any way,

the bailee is not liable for the loss destruction of deterioration of the things bailed

(sec 151 and 152).

2. Not to make any unauthorized use of goods:

If the bailee uses the goods bailed in a manner which is inconstant with the

terms of the contract he shall be liable for any loss even though he is not guilty of

negligence and even if the damages the result of an accident (sec.154).

3. Not to setup an adverse title:

The bailee must hold the good on behalf of and for the bailer. He cannot do

the right of the bailer to ball the goods and receive them back (sec. 117).

4. To return any accretion to the goods:

In the absence of any contract to the contrary, the bailee is bound to deliver

to the bailer, or according to his directions any increase or profit which may have

accrued

5. To return the goods:

It is the duty of the bailee to return or deliver, according to the bailer‟s

directions, the goods bailed, without demand as soon as the time for which they

were bailed has expired or the purpose for which they were bailed has been

accomplished.

Right of bailer:

1. Enforcement of rights:

The bailer can enforce by suit all the liabilities or duties of the bailee as his

rights.

2. Avoidance of contract:

The bailer can terminate the bailment if the bailee does, with regard to the

goods bailed any act which is in consistent with the terms of the bailment.

3. Return of goods lent gratuitously:

When the goods are lent gratuitously the bailer can demanded their return

whenever he pleases even though he lent them for a specified time or purpose.

4. Compensation from wrong-donnas:

If a third person wrong fully deprives the bailee of the use or possession of

the goods bailed or does them any injury the bailer or the bailee may bring a suit

against the third person for such deprivation or injury (sec.180)

Rights of bailee:

1. Delivery of goods to one of several joint bailers of goods:

If several joint owners of goods bail them the bailee may deliver them back

to or according to the directions of any joint owner without the consent of all in the

absence of any agreement to the

2. Delivery of goods to bailer without title:

If the bailer has not title to the goods and the bailee, in good faith delivers

them back to or according to the directions of the bailer, the bailee is not reasonable

to the owner in respect of such delivery (sec.166)

3. Right to apply to court to stop delivery:

If a person, other than the bailer claims goods bailed, the bailee may apply to

the court to stop the delivery of the goods to the bailer, and to decide the tile to the

goods (sec.167)

4. Right of action against trespassers:

If a third person wrongfully deprives the bailee of the use or possession of

the goods bailed to him he as the right to bring an action against that party. The

bailer can also bring a suit in response of the goods bailed.

5. Bailee’s lien:

Where the lawful charges of one bailee in respect of the goods bailed are not

paid he may retain the goods. This right of the bailee to retain the goods is known

as particular lien.

Termination of bailment

A contract of bailment is terminated in the following cases.

1. On the expiry of the period:

When the bailment is for a specific period, it terminates on the expiry of that

period.

2. On the achievement of the object:

When the bailment is for a specific purpose, it terminates as soon as the

purpose is achieved.

3. Inconsistent use of goods:

When the bailee uses the goods in a manner inconstant with the terms of the

contract, the bailment terminates (sec.154).

4. Destruction of the subject-matter:

A bailment is terminated when the subject-matter of the bailment (a) is

destroyed, or (b) by reason of a change in its nature becomes incapable of use of

the purpose of the bailment.

5. Gratuitous bailment:

It can be terminated any time subject to condition laid down in (sec.159).

6. Death of the bailer of bailee:

A gratuitous bailment is terminated by the bailee (sec.162).

Unit – v

AGENCY

Agent:

The another person who acts on behalf of a businessman is known as an agent.

The principle:

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

principal.

An agency:

The contract which creates the relationship of principal and agent is called

an agency.

Rules of agency:

Agency axists whenever a person can bind another by acts done on his

behalf. That is when acted upon by the agent, it connects the principal with third

person.

Whatever a person can lawfully do himself he may also do the same through

an agent. In other words, “ Qui facit per alium facit per se is the principal of

agency”, which means “He does through another does by himself”.

Who can appoint an agent?

According to sec 183,” Any person who is of the age of majority according

to the law to which he is subject, and who is of sound mind, may employ an agent.

Who may be an agent:

Sec.184 lays down that” As between the principal & third persons any

person may become and agent, but no person who is not of the age of majority and

of sound mind can become an agent.

Agent distinguished from other relations.

Agent Servant

An agent is authorized to act on

behalf of his principal and has

power to create legal relations

between the principal and third

persons.

An agent is not subject to the direct

control and supervision of the

principal.

An agent may work for several

principals.

The principal directs an agent “as to

what is to be what is to be done”.

An agent may be paid by way of

commission on the basis of work

due.

The principal is liable for only those

acts of his agent which are done

within the scope of authority and is

A servent has no representative

character he has no authority to

make contract on behalf of his

master.

A servant acts under the direct

control and supervision of his

employer.

A whole time servant serves only

one master.

The master has the right to direct

to direct the only” what work is

to be done” but also” how the

work is to be done”.

A servant is paid by way of salary

or wages.

An employee is liable for the

wrongful acts of the servant, if

such acts are committed in the

not liable for those acts of the agent

which are done outside the scope of

such authority.

course of employment.

Essentials of Agency:

1. The principal must be competent to enter into a valid contract:

Sec 183 clearly states that any person who is major and of sound mind can

employ on agent. An incompetent person i.e., a minor or lunatic, cannot appoint an

agent because they cannot act act principal.

2. Any person may become an agent:

The agent need not be competent to contract. Even a person having no

contractual capacity. Under (sec .184)

3. There should be an agreement between the principal and the agent:

The agreement may be expressed or implied. “ Agency depends an

agreement but not necessary on contract has between the principal and third person

only person make become an agent.

4. The agent must act in Representative capacity:

“ The essence of the matter is that the principal authorized the agent to

represent or act for him in bringing the Principal into contractual relationship with a

third person”.

5. According to sec.185 “no Consideration is required for the creation of a valid

agency relationship.”

Creation of Agency

By express By implied By operation By ratification

agreement of law

Agency by Agency by Agency by

Stopped holding out necessity

Creation of agency:

The relationship of principal and agent may be created in the following

ways.

1. Agency by express agreement:

The authority of an agent may be oppressed or implied sec.186.

A contract of agency may be created by express words, written or oral,

normally, the authority given by a principal to his agent is express authority,

enabling the agent to bind the principal by acts done within the scope of that

authority. Generally, a written agreement is the power of attorney erected on a

stamped paper in favour of the agent.

2. Agency by implied Agreement:

According to sec. 187, “ an authority is said to be implied when it is to be

inferred from the circumstance of the case; and things spoken or written, or the

ordinary course of dealing, may be accounted circumstances of the case”. Implied

agency arises when there is no express agreements appointing a person as agent.

A. Agency by estoppel:

Estoppel means to prevent a person from denying a fact when a person has

by his conduct a statement induced others to believe that a certain person is his

agent he is estopped from subsequently denying it sec 237.

B. Agency by Holding out :

Agency by holding out is a branch of the agency by estopped. Here, an”

agency by holding out” requires some affrinative or positive act or conduct by the

principal to establish agency subsequently.

C. Agency by Necessity:

Generally the authority given by a principal to his ageny is an express

authority. Enabling the agent to bind the principal by acts done within the scope of

that authority. But in certain circumstances the law confers on authority in one

person to act as agent for another without requiring the consent of the principal.

3. Agency by operation of law:

An agency is also constituted by operation of law. When a company is

formed its promoters are its agent by operation of law. A partner is the agent of the

firm for the purposes of the business of the firm.

4. Agency by ratification:

Ratification means subsequent acceptance by the principal in respect of an

act done by the agent without authority. In other words, ratification means the

subsequent adoption and acceptance of an act originally done without authority or

instructions ratification is an approval of a previous act or contract.

Essentials of valid Ratification :

An agent must contract as an agent. That is, if a person acts in his own

name, which does not indicate any agency relationship, his act is done on behalf of

the ratifies such act can be ratified by him.

1. The principal must be in existence at the time of contract:-

Another condition to ratification is that the principal claiming the ratification

must have been in existence on the day the act sought to be ratified was done.

2. The principal must have contractual capacity:

The principal must be competent to contract both at the time of original

contract and at the time of ratification.

3. The principal must have full knowledge of material facts.

The ratification must be made with the full rnowledge of all the material

facts. Sec. 198 states that”. No valid ratification can be made by a person whose

knowledge of facts of the case is materially defective”.

4. Whole transaction must be ratified:

A person cannot ratify a part of the transaction which is beneficial to him

and reject the rest. There cannot be partial ratification and partial rejection.

5. Ratification must be made within Reasonable

The ratification becomes valid only if it is made within a reasonable time

after the act to be ratified is done. Howener, where time to ratify is limited.

6. Act to be ratified should not be void or illegal:

Ratification can be made only of valid and lawful acts. An act which is void

from the very beginning cannot be ratified.

7. Ratification must not injure a third person:

Any act which would become injurious to others by ratification, cannot be

ratified sec 200.

8. Ratification may be express or implied:-

According to sec 197,” Ratification may be expressed or may be implied in

the conduct of the person on whose behalf the acts are done.

Kinds of agents

By extent their authority By nature of work performed

General Special universal commercial non-commercial

agent agent agent agent agent

broker factor commission del credere

agency agent

Advocate insurance agent solicitor guardian wife

Kinds of agents:

According to the content of their authority, agents may be classified into

three categories & they are:

A. General Agent:

General agent is one who represents the principal in all matters concerning a

particular business Hi is appointed mostly by general police of attorney of a general

agent is continuous until it is terminated.

B. Special Agent:

Special agent is one who is appointed for a particular purpose. He has

limited authority. He represents the principal in some particular transaction.

C. Universal Agent :

A universal agent is on e who is authorized to transect all the business of his

principal of every kind and to do all the acts which the principal can lawfully do

and can delegate.

By nature of work payment; [commercial]

a. Broker;

A broker makes contracts in the name of his principal and not on his own

name. He is primarily employed to negotiate between two parties. He is usually

employed for sale of goods.

b. Factor:

A factor is a mercantile agent to whom the possession of the goods is given

for the purpose of selling the same. He has authority to sell in his own name.

c. Commission agent:

A commission agent is a mercantile agent who buys and sells the goods on

behalf of his principal & receives commission for his labour.

d. Del credere agent:

He is an agent who guarantees the solvency of the buyer. He occupies the

position of a guarantor as well as an agent

Non-Mercantile agent:

They includes advocates, insurance agents, solicitor, guardian, wife etc.

Duties of an agent towards the principal:

An agent has the following duites toward the principal.

1. Duty in conducting principals Business:

(sec.211) states that “An agent is bound to conduct the business of his

principal according to the directions given by the principal or in the absence of any

directions, according to the custom which prevails, in doing business of the same

kind at the place where the agent conducts such business.

2. Use of ordinary skill and diligence:

(sec 212) states, “ an agent is bound to conduct the business of the agency

with as much skill as is generally possessed by persons engaged in similar business

unless the principal has notice of his want of skill.

3. Duty to render Accounts:

(sec.213) states that “An agent is bound to render proper accounts to his

principal on demand”. It is the duty of an agent to keep true and correct account of

all transactions.

4. To get directions of principal:

According to (sec 214) “It is the duty of an agent in the case of difficulty, to

use all reasonable diligence in communicating with the principal.

5. duty not to deal on his own Account:

According to (sec 215) “If an agent deals on his own account in the business

of the agency without first obtaining the consent of his principal and acquainting

his with all materials circumstances which have come to his own knowledge on the

subject, the principal may repudiate the transaction.

6. Duty not to make secret profits:

(sec.216) States that “If an agent without the knowledge of his principal,

deals in the business of the agency on his own account instead of an account of his

principal is entitled to claim from, the agent any benefit which may be have

resulted to him from the transaction “.

7. Duty to pay sums received for principal:

(sec.218) states that the agent is bound to pay to his principal all sums

received on his account after deducting there from his hues on account of

remuneration and expenses.

8. Not to delegate:

Accounting to (sec 190) that an agent cannot delegate his authority or emply

another to perform acts which he has experessly or impliedly undertaken to perform

personally. Ordinarily an agent cannot further delegate the authority .

9. Duty to protect the interest of the principal:

According to (sec 209) “when an agency is terminated by the principal

saying or becoming of unsound mind, the agent is bound to take on behalf of the

representatives of his late principal.

10. Adverse title:

The agent must not set-up his own title or the title of third parties to the goods

received by him from the principal.

11. Naming an agent for principal:

(sec 195) states that in selecting an agent for his principal, an agent is bound

to exercise the same amount of discretion as a man of ordinary prudence would

exercise in his own case.

12. Liable for acts of sub-agent:

Where the sub- agent is appointed by the agent without authority, the agent

is responsible both the principal and the third party.

Right to retain money:

(Sec. 127) lays down that “An agent may retain, out of any sums received on

account of the principal in the business of the agency, all moneys due to himself in

respect of advances made or expenses property.

2. Right to receive remuneration :

(sec 219) lays down that “In the obscene of any special contract, payment

for the performance of any act is not due to the agent until the completion of such

act but an agent may detain moneys received by him on account of goods sold.

“ The agent is entitled to remuneration when the work is completed except

in the case of sale of goods and where there is an agreement to the country.

3. Effects of misconduct:

An agent who is guilty of misconduct in the business of the agency is not

entitled to any remuneration in respect of that part of the business which he has

misconduct”.

4. Right of lien:

(sec221) lays down that “In the absence of any contract to the contrary, an agent is

entitled to retain goods, papers and there property, whether movable or immovable,

of the principal received by him.

5. Right to be indemnified against consequence of lawful:

(sec. 222) lays down that “The employer to an agent is bound to indemnify

him against the consequence of all lawful acts done by such agent in exercise of

the authority conferred upon him”.

6. Right to be indemnified against consequence of acts done in good faith:

(sec 223) lays down that “where one person employs another to do an act,

and the agent does the act in good faith. The employer is liable to indemnity the

agent against the consequences third person.

7. Right to compensation :

(Sec 225) lays down that “The principal must make compensation to his

agent in respect of injury caused to such agent by the principals neglect or want of

skill.

8. To do lawful Acts:

According to (sec 188) “An agent having authority to do an act has authority

to do every lawful thing which is necessary in order to do such act”.

9. Right of stoppage of goods:

An agent has the right of stoppage of goods in transit if he has bought goods

either with his own money or by incurring a personal liability for the price and the

principal has become insolvent.

Termination of Agency

By act of the parties By operation of law

Agreement Revocation by the principal Revocation by the agent

Performance of Expiry of Death of Insanity of Insolvency Destruction Principal Dissolution Termination

the contract time either party either party of either of the subject becoming of a company of sub agents

party mater an alien enemy authority

Termination of agency

Sec.201 despises the modes of termination of agency. The section is not

apprehensive. The various modes of termination of agency as mentioned in sec.

201. In certain cases, the agency is irrecoverable.

1. Termination of agency by act of the parties:

1. Agreement

The relation of principal and agent like any other agreement may be

terminated at any time and at any stage by the mutual agreement between the

principal and the agent.

2. Revocation by the principal:

The principal may revoke the authority of the agent (sec 201) at any time

before the agent has exercised his authority 80 as to bind the principal unless the

agency is irrevocable (sec.203).

3. Revocation by the agent:

An agency may also be terminated by an express renunciation by the agent

after giving a reasonable notice to the principal (sec 201).

2. Termination of agency by operation of law:

1. Performance of the contract:

The most obvious mode of putting on end to the agency is to do what

the agent has under taken to do (sec. 201) Where the agency is for a particular

object, it is terminated when the object is accomplished or when the

accomplishment of the object becomes impossible.

2. Expiry of time:

When the agent is appointed for a fixed period of time, the agency

comes to an end after the expiry of that time even if the work is not completed.

3. Death and insanity:

When the agent or the principal dies or becomes of unsound mind, the

agency is terminated (sec. 201)

4. Insolvency:

The insolvency of the principal puts an end to the agency (sec.201)

though nothing is mentioned in sec. 201 as regards insolvency of the agent.

5. Destruction of subject –matter:

An agency which is created to deal with a certain subject-matter

comes to an end by the destruction of the subject-matter.

6. Principal becoming an alien enemy :

When the agent and the principal are aliens, the contract of agency is

valid so long as the countries of the principal and the agent are at peace.

UNIT - V

SALE OF GOODS

Meaning:

The sale of goods is the most common of all commercial contracts. A

knowledge of its main principles is of the utmost importance to all classes of the

community. The law relating to it is contained in the sale of goods Act 1930.

Contract of sale of goods:

A contract of sale of goods is a contract where by the seller transfers or

agrees to transfer the property in goods to the buyer for a price. There may be a

contract of sales between one part – owner and another [sec. 4(1)]. A contract of

sale may be absolute or conditional [sec. 4(2)].

The term contract of sale is a generic term and includes both a sale and an

agreement to sell.

Sale and agreement to sell:

Where under a contract of sale, the property in the goods is transferred from

Dissolution of a company:

When a company, whether principal or agent, is dissolved the contract of

agency with or by the company automatically comes to an end.

Termination of sub – agent’s authority:

The termination of an agent‟s authority puts an end to the sub – agent‟s

authority (sec.210).

ROC = Register of the company

The seller to the buyer, the contract is called a „sale‟, but where the transfer of the

property in the goods is to take place at a future time or subject to some conditions

thereafter to be fulfilled, the contract is called an „agreement to sell‟ [sec.4(3)].

Essentials of a contract of sale

1. Two parties:

There must be two distinct parties i.e. a buyer and a seller, to affect a

contract of sale and they must be competent to contract. „Buyer‟ means a person

who buys or agrees to buy goods [sec. 2(1)] „seller‟ means a person who sells or

agrees to sell goods[sec. 2(13)]. These two terms are complimentary.

2. Goods:

There must be some goods the property in which is or is to be transferred

from the seller to the buyer. The goods which form the subject – matter of the

contract of sale must be moveable. Transfer of immoveable property is not

regulated by the sale of goods Act.

3. Price:

The consideration for the contract of sale, called price, must be money.

When goods are exchanged for goods.

4. Transfer of general property:

There must be a transfer of general property as distinguished from special

property in goods from the seller to the buyer.

5. Essential elements of a valid contract:

All the essential elements of a valid contract must be present in the contract

of sale.

Sale and agreement to sell – distinction:

1. Transfer of

property.

2. Type of goods.

3. Risk of loss.

4. Consequences of

In a sale, the property in the

goods passes from the seller to

the buyer immediately so that

the seller is no more the

owner of the goods sold.

A sale can only be in case of

existing and specific goods

only.

In a sale, if the goods are

destroyed, the loss falls on the

buyer even though the goods

are in the possession of the

seller.

In a sale, if the buyer fails to

In an agreement to sell, the transfer

of property in the goods is to take

place at a future time or subject to

certain conditions to be fulfilled.

An agreement to sell is mostly in

case of future and confident goods

although in some cases it may refer

to uncertain existing goods.

In an agreement sell, if the goods

are destroyed, the loss falls on the

seller, even though the goods are in

the possession of the buyer.

On an agreement to sell if there is a

breach of contract by the buyer, the

seller can only due for damages and

not for the price even though the

breach.

5. Right to re – sell.

6. General and

particular property.

7. Insolvency of

buyer.

8. Insolvency of

seller.

pay the price of the goods or if

there is a breach of contract

by the buyer. The seller can

due for the price even though

the goods are still in this

possession.

In a sale, the seller cannot re-

sell the goods.

A sale is a contract plus

conveyance, and right to the

buyer to enjoy the goods as

against the world at large

including the seller.

In a sale, if the buyer becomes

insolvent before he pays for

the goods, the seller, in the

absence of a lien over the

goods.

If the seller becomes

insolvent, the buyer being the

owner is entitled to recover

the goods from the official

receiver.

goods are in the possession of the

buyer.

In an agreement to sell, in case of

re-sell, the buyer, who takes the

goods for consideration and

without notice of the prior

agreement, gets a good title. In

such a case, the original buyer can

only due the seller for damages.

An agreement to sell is merely a

contract, pure and simple, and a

right to the buyer against the seller

to due for damages.

In an agreement to sell, if the buyer

becomes insolvent and has not yet

paid the price, the seller is not

bound to part with the goods until

he is paid for.

In an agreement to sell, if the

buyer, who has paid the price, finds

that seller has