Business law

CONTENT
1.CONTRACT AND IT’S ESSENTIAL
ELEMENTS
2.PERFORMANCE OF CONTRACT
3.INDEMNITY ,BAILMENT ,PLEDGE &
LIEN
4.CONTRACT OF AGENCY
5.SALE OF GOODS ACT 1930

INTRODUCTION
 It came into force on the first day of September, 1872.
 The objective of the Contract Act is to ensure that the rights and
obligations arising out of a contract are honoured and that legal
remedies are made available to an aggrieved party against the party
failing to honour his part of agreement.
 It extends to the whole of India except the State of Jammu and
Kashmir
 When one person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtaining the assent of
the other to such act or abstinence, he said to make a proposal.

ELEMENTS OF A VALID
CONTRACT
 According to section 10 all agreements are contracts if they are made
by the Free consent of the parties, competent to contract for a lawful
consideration and with a lawful object and are not expressly declared
to be void.
 The essential elements required to a contract to be valid are as
follows
 Offer & Acceptance: There should be a lawful offer and acceptance
by both the parties to a contract.
 Intention to create legal relationship

 Lawful Consideration: It means something in return which should
be in a lawful manner.
 Capacity of parties: If either of parties do not possess capacity to
enter into a contract ,then it is not a valid contract.
 Free consent: It means the parties agreed upon the “ same thing in
same sense”
 Lawful Object: The object of the contract should be lawful.
 Certainity of Meaning : The contract cannot be vague, it should be
certain in its purpose
 Possibility of Performance: If the contract is physically or legally
impossible in itself, then it cannot be enforced.

 Not declared to be void or illegal: The agreement though satisfy all
the condition to be valid ,must be not have been declared to be void.
 Legal Formalities: An oral contract is a valid contract but in those
cases where writing, registration etc.. Is required by the Act.
These are the essential elements of a contract.
CLASSIFICATION OF CONTRACT :
A contract may be classified on the basis of their

CLASSIFICATION OF CONTRACT
validity formation other
performa
nce
execution
1.Illegal
2.unenforceable.
3.Void
4.Voidable
5.valid
1.bilateral.
2.unilateral
1.Executory
2.executed
1.Conting
2.wageri
1.express.
2.implied.
3.Quasi
4.e.com

Classification on the basis of validity
Valid contract: An
agreement which has all
the essential elements of
a contract is called a
valid contract.
Illegal contract: A contract is illegal
if it is forbidden by law; or is of
such nature that, if permitted, would
defeat the provisions of any law or
is fraudulent; or involves or implies
injury to a person or property of
another, or court regards it as
immoral or opposed to public policy.
These agreements are punishable by
law. These are void-ab-initio.
Void contract[Section
2(g)]: A void contract
is a contract which
ceases to be
enforceable by law.
Unenforceable contract:
Where a contract is good in
substance but because of
some technical defect cannot
be enforced by law is called
unenforceable contract.
Voidable contract[Section
2(i)]: An agreement which is
enforceable by law at the
option of one or more of the
parties thereto, but not at the
option of other or others, is a
voidable contract.

On basis of execution & formation
Implied contract: An
implied contract is one
which is inferred from
the acts or conduct of the
parties or from the
circumstances of the
cases.
Express contract: Where
the terms of the contract
are expressly agreed upon
in words (written or
spoken) at the time of
formation, the contract is
said to be express contract.
Quasi contract: A quasi
contract is created by law.
Thus, quasi contracts are
strictly not contracts as
there is no intention of
parties to enter into a
contract.
Executory contract: An
executory contract is one
where one or both the
parties to the contract
have still to perform their
obligations in future.
Executed contract: An
executed contract is
one in which both the
parties have
performed their
respective obligation.

On the basis of performance & others
Unilateral contract: A unilateral
contract is one in which only one
party has to perform his obligation
at the time of the formation of the
contract, the other party having
fulfilled his obligation at the time of
the contract or before the contract
comes into existence.
• Bilateral contract: A bilateral
contract is one in which the
obligation on both the parties to
the contract is outstanding at
the time of the formation of the
contract. Bilateral contracts are
also known as contracts with
executory consideration.

OFFER & TYPES OF OFFER
When one person signifies to another, his
willingness to do or to abstain from doing
anything, with a view to obtaining the consent of
that other person towards such act or abstinence,
he is said to be making an offer or proposal.
Typesofofferare
Express Offer Implied Offer
Specific Offer General Offer
 The offer is the starting point in the process of
making an agreement
 Every agreement begins with one party offeringto
do/sell something or to provide a serviceetc

Essentials of an Offer
 Terms of must be definite, unambiguos, &
certain or capable of being made certain
 Every offer should be communicated, ie., offeree must
have the knowledge of the offer
 An offer cannot contain a term, the non-compliance of
which would to amount to acceptance
 Offer must have a intention of creating a binding,
mere statement does not amount to an offer
 Must have intention to create a legal relationship
 Must be made with a view to obtain assent thereto
 If no time is fixed within which the offer is to be
accepted, the offer does not remain open for an
indefinite period
 A offer must be distinguished from a mere invitation to
offer
 Offer may be „positive‟or„negative‟
 Two identical cross-offers do-not result in a contract

Acceptance &Essentials of Valid Acceptance
 An acceptance is the act of manifestation by the offeree of his
intention to the terms of offer and willingness to be bound by
the terms of the offer communicated to him.
 An agreement emerges from the acceptance of an offer.
 Acceptance is the second stage of a contract. Essential elements
of acceptance are
i) Must be absolute & unqualified & according to the terms of offer
ii) Tobe made by the offeree
iii) Communicated to the offeror
iv) After receiving the offer
v) Before the offer lapses-within the time period
vi) Mode of Communication, if any, must be as prescribed in the
offer
vii) In case of rejection of offer – a renewal of offer required

Consideration & Essentials of Consideration
 It is the price for which the promise of the other is made.A
contract is basically a bargain between two parties, each
receiving „something‟of benefit to them.This somethingis
described as consideration. Eg., Price for the goods sold.
Essentials for a valid Consideration:
i) At the desire of the promisor
ii) May move from the promisee or any other person
iii) Must be an act, abstinence or promise
iv) May be past ,present or future
v) Need not be adequate
vi) Must be real & competent
vii) Must be legal

Capacity of Parties
Essential element of enforceability agreement: Parties
should possess contractual capacity (S.10) Contractual
Capacity:Not defined
A person who is major, of sound mind, and is not
disqualified from contracting by law is competent to
enter into a valid contract
(S.11) – inference of contractual capacity: contracting
parties should be capable of understanding it and of
form a rational judgment of its effect on their interest.
They should also not be disqualified by law to enter
into a contract

Persons Not Competent to Contract
(S.11)
Mental Deficiency
i) Minors
ii) Of Unsound Mind
a) Idiots b) Insane c) Drunkards/intoxicated
Legal Disability
iii) Disqualified by law
a) Aliens b) Foreign sovereigns & ambassadors c) Convicts
d) incorporated institutions like joint stock companies, societies, trusts
etc. e) insolvents f) married women (prior to 1956)

Minor
• A contract with a minor is void ab-initio
• (In England- minor contract is voidable at the option of minor)
• A minor cannot be asked to refund any benefit received under a void agreement
• He is not estopped to plead minority even where he falsely represents
himself to be of full age
A minor „scontract cannot be ratified by him on attainingmajority
He cannot be a partner in a partnership firm. He can be admitted to the
benefits of an already existing partnership
Minor can be a promisee or a beneficiary, He cannot bind himself by a
contract, but there nothing in Act which prevents him from making other party to
be bound to the minor.
His estate is liable to a person who supplies necessaries of life to him
His parents/guardians are not liable to a minor‟s creditor‟s on his breach of
contract
He can be an agent

Free Consent
(S.13) defines consent as “ Two or more persons are said
to consent when they agree upon the same thing in
the same sense.”
Free Consent (S.14): consent is said to be free when it is
not caused by –
i) Coercion
ii) Undue influence
iii) Fraud
iv) Misrepresentation
v) Mistake
A contract to be valid it is not only necessary that parties
consent, but also that they consent freely
Where there is consent, but not free consent, the contract
is voidable at the option of the party whose consent
was not free

Coercion
Coercion is a committing or threatening to commit some
act which is contrary to law
Consent is said to be caused by coercion when it is
obtained by either of the following acts:
i) Committing or threatening to commit any act
forbidden by the IPC, or
ii) Unlawful detaining or threatening any property
Duress: English equivalent of coercion
Consequence of Coercion: when consent is caused by
coercion, the contract is voidable at the option of the
party whose consent was obtained.

Undue Influence
A contract is said to induced by undue influence where:
i) A party is in a position to dominate the will of the
other, and
ii) Is in a position to obtain unfair advantage over the
other
Dominating position may be:
iii)
i) One dominating, holds a real or apparent authority
over other eg. Master-servant
ii) Dominator stands in fiduciary relation to other
eg, father –son
Dominator makes a contract with a person whose
mental capacity is temporarily/permanently affected
eg, old illiterate person
It‟sa voidable contract

Fraud
Fraud is a misrepresentation of facts made to induce
to enter into a contract with intention to deceive
or cheat.
includes:
a) The suggestion, as a fact, of that which is not
true by one who does not believe it to be true.
b) Active concealment of a fact by onehaving
knowledge or belief of the fact
c) A promise made without intentionof
performing it
d) Any other act fitted todeceive
e) Any such act or omission which law declaresto
be fradulent

Misrepresentation
Misrepresentation means an innocent mis- statement of
fact to the contract made by one party to induce the
other to enter into a contract. (no desire of deceiving
or defraud)
Classified into 3 groups:
1. A +ve assertion, in a manner not warranted (by the
information of the person making it), of that which is
not true, though believes it to be true.
2. Any breach of duty which, without intent to deceive
gives advantage to the person committing it, by
misleading another to his pre-judice
3. Causing, however innocently, a party to an agreement
to make a mistake as to the substance of thing which
is subject of agreement

Misrepresentation
Consequences:
Party wronged can;
1. Avoid agreement, or
2. Insist contract be performed & he be put in position in which he
would have been, if the representation made had been true
Unlike fraud, misrepresentation doesn‟tentitle a party to claim
damages (subject to exceptions)
Exceptions:
Breach of warranty of authority of an agent. Where agent believes
that he has authority to represent the principal, while in fact he has
no such authority, agent liable to damages, though he is guilty of
innocent representation
Negligent representation made by one person to another between
whom a confidential relation exists, solicitor – client, father –
daughter.
However, if the party whose consent was caused by
misrepresentation had means of discovering truth with ordinary
diligence, he has no remedy.

Distinction between Misrepresentation & Fraud
1. Fraud is committed with intention to deceive while entering
into contract, whereas in misrepresentation is due to
innocence, without intention to deceive or gain advantage.
2. Both voidable at the option of the wronged. But, in case
fraud, party wronged gets additional remedy to sue for
damages. In misrepresentation claim for damages arises
only in exceptional cases.
3. In both cases contract can be avoided.
However, in case of misrepresentation, if the party whose
consent is caused had the means of discovering the truth
with ordinary diligence, contract cannot be avoided.

Mistake
Mistake means erroneous belief or wrong notion
concerning some fact.
Consent is not free when agreement is entered into under
mistake. Parties entering into contracts should not be under
any error
They must agree on the same thing in the same sense
„Consensus ad-idem‟must be present
Salomon describes contracts as “error in cause”
Consequence:
Mistakes render a contract void. Party complaining of the
mistake may repudiate it, i.e., need not perform it.
If executed, party receiving any advantage must restore , or
compensate for it, as soon as the contract is discovered to
be void.

Types Mistakes
Two types:
1. Mistake of Law
2. Mistake of Facts
Mistake of Law
i) Mistake of the law of the land
ii) Mistake of foreign law
iii) Mistake of private right of the parties
Mistake of Fact
I) Bilateral mistake
II) Unilateral mistake

Mistake of Law
1.Mistake of law of land:
The rule is “ignorance of law is no excuse”
A contract is not voidable because it was caused by a mistake as to any in
force in India.
2. Mistake of foreign law:
The maxim “ ignorance of law is no excuse” applies only to law of the
country & not to foreign law.
The mistake of foreign law is treated as mistake of fact
S.21 – “Amistake as to a law not in force in India has the same effect
as a mistake of fact.”
3. Mistake of Private right of the parties:
Mistake of the private right of the parties is also excusable.
Such mistake stands on the same footing as the mistake
of fact & the contract can be avoided on the ground of
mistake

Mistake of Fact
1. Bilateral mistake:
When both parties are under a mistake of fact
essential for the agreement, the mistake called
bilateral mistake of fact & the agreement is void
(An erroneous value of the thing which forms subject
matter is not to be deemed a mistake as to matter of
fact)
Bilateral mistake may be:
A) Mistake as to the subject matter
B) Mistake as to the possibility of performance

Mistake of Fact
Mistake as to the subject matter
The subject matter may be of reg:
i) Existence
ii) Identity
iii) Title
iv) Quality
v) Quantity
vi) Price
Mistake as to the possibility of performance
If both parties believe that the agreement is capable of
being performed though it is not, the agreement is void

Mistake of Fact
Unilateral mistake:
When one of the contracting parties is at mistake it is known
as unilateral mistake. Generally in such situation the contract
is not invalid.
S.22- “Acontract is not voidable merely because it was caused
by one of the parties to it under a mistake as to a matter of
fact”
A party cannot be allowed to avoid a contract merely on the
ground of his own mistake which may be due to his own
negligence or carelessness
However, there are exceptions

Mistake of Fact
Exceptions (Unilateral mistakes):
1. Mistake as to the identity of the person
contracted with
2. Mistake as to nature of the contract
3. Mistake as to quality of the promise

Quasi Contract
“Under certain circumstances, the law imposes, certain
rights & obligations similar to that arises from a true
contract, even though
there is no contract, express or implied, between
parties.”
Such contracts are termed as quasi- contracts
(Dr.Jenks)
This is based on maxim that „noman must grow rich out
of another person‟s cost‟.
It is based on equitable principal, „that a person shall not be
allowed unjustly to enrich himself at the expense of another‟

Kinds of Quasi Contracts
Claim for necessaries supplied to a person incapable of
contracting on his account(S.68)
Reimbursement of a person paying money due by another in
payment of which he is interested (S.69)
Obligation of person enjoying benefit of a non-
gratuitous act (S.70)
Rights and liabilities of the finder of lost
goods(S.71)
Liability of persons to whom money is paid or things
delivered by mistake or coercion(S.72)

PERFORMANCE & DISCHARGE OF CONTRACT
 Section 37, Para 1, of the Contract Act lays down that,
“The parties to a contract must either perform, or offer to
perform, their respective promises, unless such
performance is dispensed with or excused under the
provisions of this act, or of any other law.”
 The offer to perform the contract is called Tender. Offer
to perform or Tender may be called attempted
performance. A tender, to be legally valid, must fulfill the
following conditions.

A tender,to be legally valid, must fulfill the following
conditions
 It must be unconditional
 A tender money, must be in legal tender money, not by any
foreign money, or by promissory note or cheque .
 The tender must be made at a proper time and place
 The person to whom a tender is made must be given a
reasonable opportunity of ascertaining that the person by
whom it is made is able and willing there and then, to do the
whole of what he is bound by his promise to do.
 If the offer is an offer to deliver anything to the promisee, the
promisee must have a reasonable opportunity of seeing that
the thing offered is the thing which the promisor is bound by
his promise to deliver.
• When there are several promisees, an offer, to any one of them
is a valid tender.Must be in proper form
• Must be willing and ready to fulfill the obligations

Performance made by whom?
 Personal Performance : In cases involving personal skill, taste,
or credit, the promisor must himself perform the contract.
 Performance by Representative : In all other cases the
Promisor or his representatives may employ a competent person
to perform it.
 Performance by a third person : When a promise accepts
performance of the promisee from a third person, he cannot
afterwards enforce it against the promisor

Persons entitled to demand performance
• Promisee
• Legal Representative
• Third Party (Eg. Trust : A & B enter into a contract in
favor of C; C can demand performance)
• Joint promisees

Time for Performance
• When no time is specified : Reasonable time
• When time is specified (it has to be followed)
• On application for performance by promisee
 Place for Performance
 This applies to
• Delivery of Goods
• Payment of Money

Performance of Reciprocal Promises
• 1.Mutual and Dependent
• 2.Mutual and Independent
• 3.Mutual and Concurrent
Order of Performance (who has to do when) : Fixed by
contract

Contracts that need not be performed
• When a new contract is substituted
• A person rescinds it (who has the option of ‘voidable’)
• Promisee neglects or refuses to afford the promisor
circumstance for performance
• Impossibility or Illegality
• If one person has right to rescind a contract

Discharge of Contract by a New Agreement
• Substitution
– Of old contract by new contract
– Of a party to the contract by a new one
• Alteration (change in terms of contract
• Rescission (by mutual consent/non-
performance/voidable)
• Waiver (abandonment of a right which a person is
entitled to)

Discharge of Contract by a New Agreement
• Remission (promisee may give up a part of his
claim at his own will)
– Whole / in part
– Extend the time of performance
– Accept any other satisfaction than performance
• Merger (superior right and inferior right
coincide and meet in one and the same person)
eg. Person buys the land which he has taken
for lease before.

Discharge by Operation of law
• Insolvency
• Merger
• Death
• Lapse of Time
• Material alteration / Unauthorized alteration

Discharge of contract by impossibility
• Destruction of object necessary for
performance
• Change of law
• Personal incapacity
• Non-existence or non-occurrence of an event
necessary for performance
• Outbreak of war

Breach Of Contract
• If a party breaks his obligations which the
contract imposes; contract is no longer
binding on the other person
• Actual Breach of Contract
– At the time when the performance is due
• One party fails or refuses to perform his obligation
– During the performance of the contract
• Express Repudiation (by word or act refuses to
continue to perform his obligation)
• Implied Repudiation (makes by his own act the
complete performance of the contract impossible)

Anticipatory Breach of Contract
• Anticipatory Breach of Contract (done before
the time for performance arrives)
– By Renunciation (Express Repudiation)
– By creating some Impossibility (Implied
Repudiation)

Remedies in case of Breach
• Suit for damages (dealt by Indian Contract
Act)
• Dealt by Specific Relief Act, 1963
– Bring an action for specific performance
– Suit for Injunction
– Claim for quantum meruit
– Restitution
– Suit for cancellation or rescission

Remedies for Breach of Contract
• Suit for Damages (loss or damage suffered by
breach of contract)
• Kinds
– Ordinary or General Damages (damages which
arise on a breach; parties know it at the time of
entering into contract; eg. Difference in contract
price and market price)
– Special Damages (breach of contract under some
special circumstances)

• Kinds
– Exemplary Damages (shows the Court’s strong
disapproval of the conduct of the defendant in
committing the wrong; eg. Refusal to honor a
cheque in spite of having funds)
– Nominal Damages (breach involved is of technical
nature, so some nominal damages (1 rupee) may be
awarded)
– Remote Damages (not to be given for any remote and
indirect loss or damage sustained by reason of the
breach)

• Rules regarding determination of amount of
damages
– Restoration of parties to a position where they would have
been if the contract had been performed and not where they
would have been if they never made the contract
• Damages are recoverable in 2 cases
– When they arise naturally in the usual course of
things from such breach.
– Loss or damage which the parties knew, when they made
the contract is likely to result from the breach of it.

Suit for Injunction
• Preventive relief
• This is an order of the court restraining the wrong
doer from doing or continuing the wrongful act
complained of.
• Usually granted to enforce negative stipulations in
cases where damages are not adequate relief.

Suit for Quantum Meruit
• Quantum Meruit means as much as is earned.
• Right to Quantum Meruit : Right to claim the
compensation for the work already done.

INDEMNITY
 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 ofindemnity.
Thepersonwhopromisestosavetheother fromlossis
calledindemnifier.
Thepersonwhoselossistobemadegoodis called
indemnifiedorindemnityholder.

RIGHTS OF INDEMNITY HOLDER
1.All damages which he may be compelled to payinany
suedinrespectofanymattertowhich thepromiseto
indemnifyapplies.
2.Allcostwhichhemaybecompelledtopayin
defending such sued provided he acted prudently or
with the authority of the indemnifier.
3.All sum which he may have paid upon compromise of
such sued provided the compromisewasnotcontraryto
theorderofthe indemnifier and was prudent or was
authorized by theindemnifier.

GUARANTEE
 “Acontract of guarantee isacontract to performthe
promiseordischargetheliability of athirdpersonincaseof
hisdefault.”
Eg-AadvancesaloanofRs5000toB andC
 promisestoAthat if Bdoesn’trepaytheloan, Cwilldoso.
Thisisacontractofguarantee.

SURETY PRINCIPAL DEBTOR &
CREDITOR
Thepersonwhogivestheguaranteeiscalled the‘surety’.
Thepersoninrespectofwhosedefaultthe guaranteeisgiven
iscalled‘principaldebtor’.
Thepersontowhomtheguaranteeisgivenis called
‘creditor’.

ESSENTIAL ELEMENTS OF
GUARANTEE
Acontractofguaranteemustsatisfyallthe essentialelementsofa
contract.
Itistripartiteagreement.Oneisprincipal debtor and creditor.
Second is creditor& suretyandthethirdbtwnprincipaldebtor
andsurety.
In guarantee,the primary liabilityis of principaldebtor.The
liabilityofsuretyarises onlyincaseofdefaultbyprincipaldebtor.
A contractof guarantee is invalidwhere guaranteehasbeen
obtainedbymeansof misrepresentationmadebycreditor.

DIFFERENCE BETWEEN INDEMNITY
& GUARANTEE
INDEMNITY
 In indemnity , there are two parties
 i.e. indemnifier and indemnity holder.
 There is only one contract btw
 indemnifier and indemnity holder.
 The liability of indemnifier is primary.
 The liability of indemnifier arises only on the happening of
contingency.
 The indemnifier act independently without any request of the debtor
or third party.
 The indemnifier can’t sue the third party for loss in his own name.
 Indemnity is for reimbursement of loss.

 GUARANTEE
 In guarantee, there are three parties
 i.e. creditor, principal debtor and surety.
 There are three contracts, one btw principal debtor and
creditor, second btw creditor and surety and third between
surety and principal debtor.
 The liability of the surety is secondary and arises only if the
principal debtors fails to perform his obligations.
 There is a existing legal debt, the performance of which is
guaranteed by the surety.
 Under guarantee, it is necessary that surety should give
guarantee at the request of debtor.
 Surety after discharging the debt can sue the principal debtor.
 The contract of guarantee is for surety of debt .

NATURE & EXTENT Of SURETY
LIABILITY
The liabilityofsuretyissecondaryi.e heis liableonlyon
defaultofprincipaldebtor.
The liabilityof surety arises immediately on thedefaultof
principaldebtorunlessthereis a provision in thecontractthatthe
creditor mustfirstproceedagainstprincipaldebtoror mustgivea
noticeofdefaulttosurety.Ifcreditorholds securityfrom principal
debtorforhisdebt,thecreditorneednotfirst resorttothose
securitiesbeforesuingsurety.
Suretyisnotliableifguaranteehasbeen obtained by
misrepresentation.
Suretyisliableeveniftheprincipaldebtor has been
discharged likePrincipaldebtor beingdischarged.

TYPES OF GUARANTEE
OrdinaryGuarantee
Whenaguaranteeisgivenforasinglespecific debt or
transaction, itis calledordinary transaction.
ContinuingGuarantee
When a guarantee extends to a series of distinctand
separabletransactions,itis continuingguarantee.

DISCHARGE OF GUARANTEE
Theguaranteemaybedischargedinthe followingmanner:
1.Notice ofRevokation
2.DeathofSurety
3.VariationofContract
4.ReleaseordischargeofPrincipalDebtor
5.Lossof Security
 6.Creditorsactorcommissionimpairingsurety’s eventualremedy.
7.ByCompositionwiththePrincipalDebtor

RIGHTS OF SURETY
 RightofSuretyagainsttheCreditor
1.Righttobenefitofcreditorssecurities
2.Righttoclaimsetoff,ifany
 Right againstPrincipalDebtor
1.Right ofSubrogation
2.RighttoclaimIndemnity
 Right againstCosurety
1.Liabilitiesofcosuretywhencontributing equally.
2.Whenthecosurety’shaveagreedto guarantee diff.sums

Bailment and Pledge
 According to sec 148 of the contract act, 1872, ‘A
bailment is the delivery 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 the bailor,
the person to whom they are delivered is called the
bailee and the transaction is called the bailment.

Essentials of Bailment
It is a delivery of movable goods by one person to
another (not being his servant). According to Section
149 the delivery of goods may be actual or
constructive.
The goods are delivered for some purpose. When
they are delivered without any purpose there is no
bailment as defined under Sec 148
The goods are delivered subject to the condition
that when the purpose is accomplished the goods
are to be returned in specie or disposed of
according to the directions of the bailor, either in
original form or in altered form.

Duties of the Bailee
(i) Duty to take reasonable care of goods
delivered to him [Sec 151]
(ii) Duty not to make unauthorized use of
goods entrusted to him [ sec 154]
(iii) Duty not to mix goods bailed with his own goods [ Sec
155]
(iv) Duty to return the goods [ Sec 165]
(v) Duty to deliver any accretion to the goods [Sec 163]

Duties of the Bailor
(i)Duty to disclose fault in the goods bailed [Sec 150]
(ii)Duty to repay necessary expenses in case of gratuitous
Bailment [Sec 158] eg bailment of horse and expenses
incurred towards feeding and medical care of the horse to
keep it alive.
(iii)Duty to repay any extraordinary expenses in case of non-
gratuitous expenses
(iv) Duty to indemnify bailee [Sec 164]

Rights of Bailee
(i) Enforcement of Bailor’s Duties
(ii) Right to deliver goods to one of several joint owners
(iii) Right to deliver goods, in good faith, to bailor without title,
without incurring any liability to the true owner
(iv) Right of Lien
Rights of the Bailor
(i) Enforcement of Bailee’s Duties
(ii) Right to terminate bailment if the bailee uses the goods
wrongfully [ Sec 153]
(iii) Right to demand return of the goods at any time in case of
gratuitous bailment [Sec 159]

Pledge or Pawn
 According to Sec 172, Contract Act, 1872, ‘ The bailment of
goods for repayment of a debt or performance of a promise is
called ‘pledge’. The bailor in this case is called the pawnor,
the bailee is called the pawnee.
 Essential Features of a valid pledge
 Delivery of possession
 Delivery should be upon a contract
 Delivery should be for the purpose of security
 Delivery should be upon condition to return

Termination of bailment
• Doing an act inconsistent with terms of
bailment[S.153]
• At desire of the bailor in case of gratuitous
bailment[S.159]
• On expiry of period[S.160]
• On accomplishment of object[S.160]
• Death of the bailor or bailee [S.162]

Rights of Pawnee & Pawner
• Right of retainer{S.173}: right to retain goods until dues
paid
• Right of transfer for subsequent advances:{S.174}: on
lending money to same debtor without further security
• right to retain earlier goods extends Right to
extraordinary expenses {S.175} Right to use the pawner
or sell the goods on default.
 Rights of Pawner:
 Enforcement of pawnee’s duties Defaulting pawnor’s right
to redeem

DefinitionofAgent&Principal
Anagentisapersonemployedtodoanyactfor anotherortorepresent
anotherindealingswiththird persons.
Thepersonforwhomsuchactsaredoneorwhois representediscalledthe
principal.
Thecontractwhich createsrelationship ofprincipal& agentiscalled an
agency.

Essentialsandlegal rules
1. Thereshouldbeanagreementbetweentheprincipaland the
agent:Agreementmaybe:Expressorimplied
2. Theagentmustactintherepresentativecapacity.
3. Theprincipalmustbecompetenttocontract.
4. Theagentneednotbecompetenttocontract.Why?Butin the
interestoftheprincipal?
5. Theconsiderationisnotnecessary.

Generalrulesof agency
1. Whatever a person can lawfully do himself, he may
alsodothesamethroughanagent
2. Hewhoactsthroughanother,doesbyhimselfDistinctionb/wagent&servant.
Whomayemployanagent?
Anypersonwhoisoftheageofmajorityaccordingtothelawtowhichheissubject,andwho
isofsoundmind, mayemployanagent.
Whomaybeanagent?
Asbetweentheprincipalandthirdpersonsanyperson maybecomean agent

Agent Servant
He has the authority to He ordinarily has no such
create commercial relationship authority.
between the principal & the
third party
He may work for several
principal at a time.
He ordinarily work for only
one master at a time.
He usually get commission He usually get salary or
wages.

Creationofagency
1. Agency by express agreement
2. Agency by implied agreement
3. Agency by ratification
A. Agency by express agreement
Appointmentin writing or by words of mouth
Usual form of a written agreement : Power of attorney
– General power of attorney or SpecialPA

B.Agencybyimplied agreement
Duetotheconductofthepartiesorthecourseofdealing
of a particularbetween the parties or the situation
case.
Agenciesbyanimpliedagreementincludes:
1. Agencybyestoppel
2. Agencybyholding out
3. Agencybynecessity

Where a person by his words or conduct has willfully led
another to believe that certain set of circumstances or
facts exist, and the other person has acted on that belief,
he is estopped from denying the truth of such statements
althoughsuchastateof thingsdidnotinfactexist.
Agency by estoppels

Agencybyholding out:
Morethanestoppel– positiveoraffirmativeconductoftheprincipalisrequired
Agency by necessity:
Due to extraordinary circumstances, person may be
the consent orcompelled to act without requiring
authority
Agency by holding

Conditions:
• TheremustberealemergencytoactonbehalfofthePrincipal.
• Agentnotinapositiontoobtaininstructions
• ActinghonestlyandintheinterestofthePrincipal
• Adoptingreasonableandpracticablecourseof action
Cases:
1. Wheretheagentexceedshisauthoritybonafideinan emergency
2. Wherethecarrierofgoodsactingasabailee,does anythingtoprotector
preservethegoods.
3. Wherehusbandimproperlyleaveshiswifewithoutprovidingproper
meansforhersustenance.
Agency by necessity

C.Agencyby ratification
Apersondoessomeactsonbehalfofanotherperson withouthisknowledgeorauthority
AnotherpersonsubsequentlyacceptstheactsThen:Agencybyratification
Alsoknownasex-postfactoagency(agencyarising aftertheevent)

Conditions for ratification
1. Theagentmustactonbehalfofthe principal
2. The principal must be competent to contract and in
existenceatthetimeofcontractbytheagent
3. Thereshouldbeanactcapableofratification
4. The principal must have full knowledge of the material
facts.
5. Wholetransactionmustberatified
6. Withinareasonable time.
7. Ratificationmustnotinjureathird party.

I.Fromthepointofviewoftheextentoftheirauthority: 1.GeneralAgent-Isone
employedtodoall theacts
connectedwithaparticularbusinessoremployment
Eg:managerofa firm.
2. SpecialAgent– employedtodosomeparticularactor representhisprincipalin
some particulartransaction.
Eg:agentemployedtosellamotorcar.
3. UniversalAgent– Whoseauthorityisunlimited.He enjoysextensivepowers
totransacteverykindof businessonbehalfofprincipal.
Kinds of Agency

II.Fromthepointofviewofthenatureofworkperformedbythem:
I. Mercantileagent-
Anagentdealinginthebuyingandsellingof thegoods
An agent whohas theauthorityeither tosell thegoods, or toconsign the
goodsforthepurposeofsale,ortobuythegoodsortoraisethe moneyon
thesecurityofthegoodsonbehalfofhisprincipal

TypesofMercantileAgents
Factor:possessionofthegoodsisgivenforthe purposeofsellingthesame–
sellsinhisownname– hasgenerallien– usuallysellsinhisownname
Broker:appointedtonegotiateandmakecontracts forthesaleandpurchaseon
behalfof theprincipal
– notgivenpossession– notinhisownname
Commissionagent:buysandsellsandreceivescommission

4.Del credere agent: One who in consideration of an extra commission,
guarantees his principal that the third persons with whom he enters into
contractsonbehalf oftheprincipalshallperformtheirfinancialobligations
i.e.ifthebuyerdoesnotpay,hewillpay.
II.Non-mercantileagents:
Doesnotusuallydealinthebuyingorsellingofthe goods.Theyinclude
Insuranceagents,Counselsor advocates,wife,etc.

Dutiesofan agent
1. Dutytofollowtheinstructionsoftheprincipal– if not..
2. Dutytocarryouttheworkwithcareandskill
3. Dutytorenderaccountstotheprincipal
4. Dutytocommunicatewithprincipal– ifnotime
5. Dutynottodealonhisownaccount
6. Dutynottomakesecretprofitsfromagency
8. Dutytopaytheamountreceivedfortheprincipal
9. Dutynottousetheinformation,receivedinthecourseof agency,againstthe principal
10.Dutytoprotecttheinterestoftheprincipalincaseofhis deathor insanity
11. Dutynottodelegateauthority

Rightsofan agent
1. Rightstoretainmoneyduefromtheprincipal
2. Righttoreceiveremuneration
3. Rightoflien– Theagenthastherighttoretaingoods, papersandother
property- onlyparticularlien
4. Righttobeindemnifiedagainstconsequencesoflawfulacts.
5. Right tocompensation
6. Righttobeindemnifiedagainstconsequencesofactsdoneingood faith
7. Rightofstoppageofgoodsintransit.
(a) Principalbecomesinsolvent
(b) Agenthasboughtgoodsoutofhisownmoney

Rightsofprincipal
Recover damages from agent if he disregards
directions of Principal
Obtain accounts fromAgent
Recover moneys collected by Agent onbehalf of
Principal
Obtain details of secret profit made by agent and
recover it from him
Forfeit remuneration of Agent if he misconducts the
business

Duties ofprincipal
Pay remuneration to agentas agreed
Indemnify agent for lawful acts done by him as agent
Indemnify Agent for all acts done by him in good
faith
Indemnify agent if he suffers loss due to neglect or
lack of skill of Principal.

Delegation of authority byanagent
General rule:
“Delegatus non-protest delegare” i.e. a delegate cannot
further delegate
But in exceptional cases sub-agent can be appointed
Cases:
1. Express authority from the principal
2. Where the principal has impliedly, by his conduct
allowed such delegation of authority.
3. Ordinary Custom of a particulartrade
4. Nature of the work
5. Acts which do not require personal or professional skill
6. Due to unforeseen emergencies

Relationsof principalwith third parties
 Agent’s authority
 Power or capacity to bind the principal with the third
party
 Two types of authority
1. Actual or real authority
2. Ostensible or apparent authority
Scope and extent of agent’sauthority
Principal and the third party
Personal liability of the agent

1.Actual or real authority
Authority conferred upon the agent by his principal
Two kinds:
1. Express authority
2. Implied authority: conferred upon the agent by the
conduct of the principal
2.Ostensible or apparent authority
The act is in excess of the actual authority
Authority due to the appearance created by the principal
3.Authority in necessity

Relationship betweenprincipal and sub-agent
Discussed under two heads:
1. Where the sub-agent is properlyappointed
2. Where the sub-agent is improperlyappointed
1.Where the sub-agent is properlyappointed
(a)The principal is bound and is liable to third parties for the
acts of the sub-agent
(b) Where the agent is responsible to the principal for the
acts of sub-agent.
(c )The Sub-agent is responsible for his acts to originalagent
not to principal except in fraud or willful wrong

2. Where the sub-agent is improperlyappointed
(a)The principal is not represented by sub-agent and hence
he is not liable for acts of the sub-agent
(b)The agent is responsible for the acts of the sub-agent to
the principal as well as to the third parties
(c)The sub-agent is not responsible to principal at all.

Personal Liability ofagent
1.When contract expresslyprovides
2.Agent acts for foreign principal
3.Agent acts for undisclosed principal
4.When principal can not be sued
5.Where agent signs contract in his name
6.Principal is not in existence
7.Liable for breach of warranty ofauthority
8.When he pays or receives money by mistake
9. Authority is coupled with interest
10. Trade makes agent personally liable

Terminationofagency
End of the relationship of a principal and his agent
Studied under:
1. Termination of agency by act of the parties
2. Termination of agency by operation oflaw
1.Termination of agency by act of the parties
1. Agreement -between the principal and agent
2. Revocation bythe principal :Revocation may be express or
implied – There areconditions
(i) In case of continuous agency
(ii) Where an agency has been created for a fixed period of
time.
3. Revocation of agency bythe agent

II.Termination of agency by operation oflaw
1. Completion of agency business
2. Expiry of time
3. Death of the principal or the agent
4. Insanity of the principal or the agent
5. Insolvency of the principal
6. Destruction of the subject-matter of the agency
7. Dissolution of a company
8. Principal or agent becomes alienenemy

Effectiveness of termination:
As between the principal and agent, termination of agency is
effective only when it becomes known to the agent.
- Third parties- when it is known to them.
Irrevocable agency
1.Where the agency is coupled with interest- where the
agent has some interest over the subject matter
2.When revocation would cause the agent personal loss
3.When the authority has been partly exercised by the
agent.

Definition
Prof. SVK
It is a contract by which the ownership of movable
goods is transferred from the seller to the buyer.
The term ‘contract of sale’ is defined in Section 4(1)
of the Sale of Goods Actas-
“A contract of sale of goods is a contract
whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a
price”
The Sale of Goods Act extends to whole of India
except the State of Jammu and Kashmir

Essentialsof aContractof Sale
Prof. SVK
(i) All requirements of a valid contract must be
fulfilled
(ii) Two Parties –
(iii) Goods
(iv) Transfer of Property
(v) Price
(vi) Includes both a ‘sale’ and ‘agreement to sale’
(vii)No formalities arerequired

Price
Prof. SVK
Exchange,sale
Mode of determining of price [ section9(1)]
Fixed by contract
By third parties

(ii) Specific goods : Goods identified and agreed
upon at the time of the making of the contract of
sale are called ‘specific goods’ [Sec. 2(14)]. It may be
noted that in actual practice the term ‘ascertained
goods’ is used in the same sense as ‘specific goods,’
For example, where Aagrees to sell to Ba
particular radio bearing a distinctive number, there
is a contract of sale of specific or ascertained goods
Prof. SVK

(iii)unascertained goods :The goods, which are not
separately identified or ascertained at the time of the making of
the contract, are known as ‘unascertained goods.’ They
are indicated or defined only by description. For example, if
Aagrees to sell to B one bag of sugar out of the lot of
one hundred bags lying in his godown; it is a sale
of unascertained goods because it is not known which bag is to
be delivered. As soon as a particular bag is separated from the
lot for delivery, it becomes ascertained or specific goods.
Prof. SVK

(iv) Future Goods- Future goods are goods to be
manufactured or produced or yet to be acquired by seller.
There cannot be present sale in respect future goods because
the property cannot pass. This is applicable to goods which are
subject matter of the agreement to sale.
Example
(a)Aagrees to sell to Ball the milk that his cow may yield
during the coming year. This is a contract for the sale of future
goods.
(b)X agrees to sell to Yall the mangoes, which will be produced
in his garden next year. It is contract of sale of future goods,
amounting to ‘an agreement tosell.’
Prof. SVK

(v) Contingent Goods- Though a type of future goods,
these are the goods the acquisition of which by the seller
depends upon a contingency, which may or may not happen
[Sec. 6 (2)].
Example
Aagrees to sell specific goods in a particular ship to Bto be
delivered on the arrival of the ship. If the ship arrives but with
no such goods on board, the seller is not liable, for the contract
is to deliver the goods should they arrive.
i.e. the goods arriving by shipsetc.
Prof. SVK

Stipulation, Condition &Warranty
Prof. SVK
A representation which forms part of the contract of
sale and affects the contract, is called a stipulation.
A stipulation which is most important for
formation of the contract of sale is known as a
‘condition’.
A stipulation which is collateral or of least
importance for the formation of the contract of sale,
is known as a ‘warranty’.

Conditions
Prof. SVK
Section 12(2) of the Sale of Goods Act, 1930 defines
condition as, “a condition is a stipulation essential
to the main purpose of the contract, the breach of
which gives rise to right to treat the contract as
repudiated.”
Example: Buyer wanted a horse which could run at a
speed of 45 m.p.h.

ImpliedConditions
Prof. SVK
(i) Condition as to Title [Sec14(a)]
(ii) Condition as to Description [Sec15]
(iii) Condition as to Sample [Sec17(2)]
(iv) Condition as to Sample as well as Description [Sec 15]
(v) Condition as to Quality or Fitness for Buyer’s purpose
[Section 16(1)]
(vi) Condition as to Merchantability
[Section 16(2)]
(vii)Condition as to Wholesomeness

Condition as to Title[Sec14(a)]
Prof. SVK
It is the most important implied condition in a
contract of sale that seller has the right to sell the
goods.
.

Conditionas to Description[Sec15]
Prof. SVK
Whenever the goods are sold by description, the
implied condition is that the goods shall correspond
with the description.
’

Condition as toSample
Prof. SVK
In a sale by sample there is a implied condition that the
goods shall correspond with the sample in quality, and
the goods shall be free from the defects which render
them unmerchantable.
Sale by sample has following three conditions:
(i)Correspondence of Goods with sample in quality [sec
17(2)(a)]
(ii)Reasonable opportunity of comparing goods with the
sample [Sec 17(2)(b)]
(iii) Merchantability of Goods [Sec 17(2)(c)]

Conditionas to Sampleas wellas Description [Sec
15]
Prof. SVK
Sometimes, the seller shows sample to the buyer and
also gives him description. In such case, the implied
condition is that the goods shall correspond with
both, the sampleas well description.

Condition as toMerchantability [Section16(2)]
Prof. SVK
The term merchantability means two things:
(i) If goods are purchased for resale, they should be
immediately re-saleable; &
(ii) If goods are purchased for self use then they should be
reasonably fit for the purpose for which they are
generally used.
.

Condition& Warranties
Prof. SVK
Condition
stipulation
is a
which is
essential to the main
purpose of the
contract.
It is of vital
importance
Warranties are subsidiary
or collateral to the main
purpose of the contract.
It is not of vital importance.
The main contract can be
completed even if warranty
is not fulfilled.

Condition& Warranties
Prof. SVK
In case of breach
condition, the buyer
may put an end to the
contract.
A breach of condition
may be treated as a
breach of warranty.
of In case of breach of
warranty, the buyer cannot
put an end to the contract.
He can only claim
damages from the seller.
A breach of warranty
cannot be treated as a
breach of condition.

Doctrineof CaveatEmptor [Sec16]
Prof. SVK
The doctrine of caveat emptor is a fundamental
principle of law of sale of goods. It means ‘Caution
Buyer’ i.e. ‘let the buyer beware’. In other words, it is
no part of the seller’s duty to point out defects in his
own goods. The buyer must inspect the goods to find
out if they will suit his purpose e.g. certain pigs are
sold ‘subject to all faults’. These pigs being infected
cause typhoid to the other healthy pigs of the buyer.
The rule of caveat emptorwould apply.

UNPAID SELLER:-
Prof. SVK
Seller :- Aperson who sells the goods or agrees to sell the goods is called
seller.
Unpaid :- It means payment is not made or without
payment. In simple words, "Unpaid seller" means a person who has sold
the goods for a price but price has not been paid to him.
Sales act defines the "unpaid seller" in the following words :
Unpaid Seller Is APerson :-
i. To whom the whole price has not been paid or tendered.
ii.And where a bill of exchange or other negotiable instruments has been
accepted by him as a condition on which it was received has not been
fulfilled by reason of dishonor of the instrument or otherwise.
EXAMPLE: Party Asells a car on cash basis to party B
and the price has not been received yet.

Rights of unpaid seller
Prof. SVK
Right against goods Right against the buyer personally
When the property in the
goods has been transferred
Right of Lien
Right of stoppage in
goods in transit
Right to resale
When the property in the goods
has not been transferred
Right of withholding delivery
Suit for price
Suit for damages for non
acceptance
Suit for special damage
and interest

Rightagainstthe goods
Prof. SVK
A. When the propertyin the goods has been transferred
1.RIGHT OF LIEN[Sec 46(1)(a) and 47 to 49]
The right of lien means lawfully right to
retain the goods possession until the full price
is received. An unpaid seller can exercise his right of lien
in following cases.Sec47-49
I. Where the goods have been sold on the cash basis.
II. Where the goods have been sold on credit basis and
the termof credit has expired.
III.Where the buyer has become insolvent even if the
period of credit has not been expired.

Other rules to satisfy the conditions for this right are
I. The unpaid seller must be in actual possession of the
goods sold.
II.It can be exercised even If the documents of title have
been delivered to the buyer.
III.It can be exercised for the price and not for
other expenses.
IV.If the seller delivers some goods, it can be exercised
on the remaining
Termination of right of lien
Seller’s right of lien is terminated in following cases.
1.When he delivers the goods to the carrier or other
bailey for transmission to the buyer
Prof. SVK

2. When the buyer or his agent lawfully obtains the
possession of the goods.
3. When seller waives his right of lien on the goods.
4. The right of lien once lost will not be restored.
5. When the buyer further sells the goods and the
seller agrees.
Example:
A seller “S” sells a TV set to “B” and delivers it
to “B” and since the TV set was not functioning
properly , “B” delivered it back to “S” for the
repairs. It was held that “S” can not exercise his
right of lien over TV set.
Prof. SVK

2.RIGHT OF STOPPAGE IN TRANSIT[Sec. 50 to 52]
Prof. SVK
It means stoppage of goods while
they are in transit to take possession
until the price is paid(sec.50-52)
Unpaid seller can stop the goods in transit in
the following cases.
1. While the buyer becomes insolvent.
2. While the goods are out of actual possession of seller, but
have not reached buyer’s possession i.e. goods are in transit
with career.
3. The unpaid seller can stop the goods in transit only for
payment of the price of the goods and not for any other
charges.

The unpaid seller can not stop goo ds intransit in
Prof. SVK
following cases.
1. When the goods reaches the destination.
2. While the buyer or his agent takes possession of delivery
even if it is not reached destination.
3. In case the carrier is agent of the buyer, the transit comes
to an end the instance carrier receives the goods and seller
can not stop the transition.
4. Carrier’s wrongful refusal to deliver goods to the buyer
Example:”A” sells TV set to “B”.“A”delivers the TV to
the carrier to carry it to “B”. Later on gets news that “B”
has become insolvent;“A” can stop delivery.

3.RIGHT TO RE-SALE
Prof. SVK
If a buyer fails to pay or offer the price within a
reasonable time, the unpaid seller has the right to
resell the goods in the following circumstances.
1. Where thegoods are of perishable nature.
2. Where the unpaid seller has exercised his right of lien or
stoppage in transit and gives a notice to buyer of his
intension of resell the goods.
3. Where the unpaid seller has expressly reserved his right of
resale.
4. Where seller gives notice to the buyer of his intension to
resell and the buyer does not pay within a reasonable time,
he can

a) Recover loss on resale of thegoods, if any
b) Retain any surplus on resale of goods, if any
However if the seller sells with out the notice to
the buyer, he cannot
a) Recover any loss of the goods,if any
b) Retain any surplus on the resale of the goods, if
any
Example:“M” sells 100 blankets to “N” and gives him
one week for payment. “N” does not pay. “M” can
resell those to any otherperson.
Prof. SVK

B. When the property in goods has not been
transferred
RIGHT OF WITHHOLDING DELIVERY
If the property in the goods has not passed to the
buyer, the unpaid seller cannot exercise right of lien ,
but gets a right of withholding the delivery of goods,
similar to andco-extensive with lien.
Prof. SVK

Rightsagainstthe buyer personally
Prof. SVK
There are some rights which an unpaid seller may
enforce against the buyer personally. These rights are
called RIGHTS IN PERSONAM
SUIT FOR PRICE[Sec. 55]
Where ownership of the goods has passed to the buyer and
the buyer refuses to pay the price according to the terms
of the contract, the seller can sue the buyer for price,
irrespective of delivery of the goods.(Sec.55)

SUIT FOR DAMAGES FOR NON-DELIVERY[Sec.56]
 Where the buyer refuses to accept and pay for
the goods, the seller may sue him for damages for
non acceptance. The seller can recover damages
only and not the full price (Sec. 56)
 SUIT FOR SPECIAL
DAMAGES AND
INTEREST [Sec.61]
 The seller can sue the buyer for special damages
where the parties are aware of such damages at the
time of contract. The unpaid seller can recoverProf. SVK

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