A brief about Void agreements, Performance Discharge, Breach of legal contract, Quasi-Contract, Bailment & ledge, Agency. Along with examples so that it is easy for the student to understand business law

1. -Antara Rabha (15026)
-Nishant Bhati (15101)
-Shubhangi Bhatia (15168)
-Tavishi Aggrawal (15184)
-Yatin Singh (15195)
Void Agreements
Performance
Discharge
Breach of Legal contract
Quasi Contract
Contract of Indemnity
Contract of Guarantee
Bailment and Pledge
Agency

2. What does void mean?
Void -Not binding by law.
According to Sec 2(G)
A void agreement refers to the agreement which is not
enforceable by law.

3. Expressly Declared Void
agreements
Restrain of
marriage
By way of
wager
Restrain of
trade
Meaning of
which is
uncertain
Restrain of
legal
proceeding
Made without
considerationBy minor or a
person of
unsound mind
To do
impossible
acts
Consideration
or the object
is lawful
Contingent on
impossible
events
Made under
bilateral
mistake of
fact
Following are the agreements which have expressly declared to be void
contracts as per the Indian contract act, 1872:-

4. Restrain of marriage (Section 26)
“Every agreement in restrain of the marriage of any person, other than
the minor is void”
Case: Rao Rani vs. Gulab Rani
A division bench of the Allahabad High Court looked into this case wherein
the two parties were the widows of the same man, Ram Adhar. After the
death of their common husband, a dispute had arisen at the Revenue Court
regarding the matter as to who would inherit a certain zamindari land
holdings. However, the dispute was amicably settled by the two parties by
signing a compromise deed wherein it was stated that both of them would
inherit equally but if anyone would re-marry, the entire right over the
property would shift to the other. Subsequently, Gulab Rani married
again and the property came under the complete control of Rao Rani.
However, years later, Gulab Rani filed a suit to regain ownership of part of
that property and, amongst other contentions, claimed that the compromise
deed Chief Justice Ahmad delivered the judgment stating-
“All that was provided was that if a widow elected to re-marry, she would be
deprived of her rights given to her by the compromise. In other words, no
direct prohibition to re-marry was imposed by the compromise and the
compromise was arrived at in order to preserve the family properties and to
ensure their proper management.”

5. Agreements in restrain of trade
(Section 27)
“Every agreement by which one is restrained from exercising
a lawful profession, trade or any kind of, is to that extend is
void”
Case: Madhub Chander V Raj Coomar
(1874) 148 LR 76
In this case two people Madhub and Raj were neighbouring
shopkeepers. They were rivals. Raj agreed to pay Madhu an
amount of money for closing his business located near his
shop. Madhub closed his business. Raj refused to pay the
agreed amount. The court held that the agreement was void.

6. Exceptions: An agreement in restraint of trade
is valid in the following cases:
 Sale of goodwill:
The seller of the 'goodwill' of a business can be restrained from carrying on a similar
business, within specified local limits, so long as the buyer, or any person deriving
title to the goodwill from him, carries on a like business therein, provided the
restraint is reasonable in point of time and space.
 Partners' agreements:
An agreement in restraint of trade among the partners or between any partner and
the buyer of firm's goodwill is valid if the restraint comes within any of the following
cases:
(a) An agreement among the partners that a partner shall not carry on any
business other than that of the firm while is a partner
(b) An agreement by a partner with his other partners that on retiring from the
partnership he will not carry on any business similar to that of the firm within a
specified period or within specified local limits, provided the restrictions imposed
are reasonable
(c) An agreement among the partners, upon or in anticipation of the dissolution of
the firm that some or all of them will not carry on a business similar to that of the
firm within a specified period or within specified local limits provided the
restrictions imposed are reasonable
(d) An agreement between any partner and the buyer of the firm's goodwill that
such partner will not carry on any business similar to that of the firm within a
specified period or within specified local limits, provided the restrictions imposed
are reasonable.

7.  Trade combinations:
An agreement, the primary object of which is to regulate business
and not to restrain it, is valid. Thus, an agreement in the nature of
a business combination between traders or manufacturers e.g., not
to sell their goods below a certain price, to pool profits or output
and to divide the same in an agreed proportion, does not amount to
a restraint of trade and is perfectly valid (Fraser & Co. vs. Bombay
Ice Company). Similarly, an agreement amongst the traders of a
particular locality with the object of keeping the trade in their own
hands is not void merely because it hurts a rival in trade (Bhola
Nath vs. Lachmi Narain).
 Negative stipulations in service agreements:
An agreement of service by which a person binds himself during
the terms of the agreement, not to take service with anyone else, is
not in restraint of lawful profession and is valid. Thus a chartered
accountant employed in a company may be debarred from private
practice or from serving elsewhere during the continuance of
service (Maganlal vs. Ambica Mills Ltd.).
Exceptions: An agreement in restraint of trade
is valid in the following cases:

8. Agreements in restrain of legal
proceeding(Section 28)
Three kinds of agreements are void:
(a) An agreement by which a party is restricted absolutely from taking usual legal
proceedings, in respect of any rights arising from a contract.
(b) An agreement which limits the time within which one may enforce his contract rights,
without regard to the time allowed by the Limitation Act.
(c) An agreement which provides for forfeiture of any rights arising from a contract, if suit
is not brought within a specified period, without regard to the time allowed by the Limitation
Act.
Restriction on Legal proceedings:
(a) The Section applies only to rights arising from a contract. It does not apply to cases of civil
or criminal wrongs or torts.
(b) This Section does not affect the law relating to arbitration.
(c) The Section does not affect an agreement whereby parties agree “not to file an appeal” in a
higher court. Thus where it was agreed that neither party shall appeal against the trial court’s
decision, the agreement was held valid.
CASE- Baroda spinning company ltd vs Satyanaryan Marine and fire insurance company
“Any agreement in restraint of legal proceedings void”

9. Uncertain agreements(Section 29)
“Agreements, the meaning of which is not certain, or capable of being
made certain, are void”
CASE
A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty.
A, who is a dealer in coconut oil only, agrees to sell to B “one hundred tons of oil.” The nature
of A’s trade affords an indication of the meaning of the words, and A has entered into a
contract for the sale of one hundred tons of coconut oil.

10. Wagering agreements(Section 30)
Wager is a game of chance in which the contingency of either gain
or loss is wholly dependent on an ‘uncertain event’.
“Agreements by way of wager are void; and no suit shall be
brought for recovering anything alleged to be won on any wager, or
entrusted to any person to abide the result of any game or other
uncertain event on which any wager is made.”
An event may be uncertain, not only because it is a future event, but
because it is not yet known to the parties. Thus a wager may be made
upon the result of the cricket match which is to take place next month in
Calcutta, or upon the result of an election which is over, if the parties do
not know the result.
Secondly, the parties to a wager must have no interest in the event’s
happening or non-happening except the winning or losing of the bet laid
between them.
It is here that wagering agreements differ from insurance contracts which
are valid because parties have an interest to protect the life or property,
and have, for that very reason, entered into the contract of insurance.

11. Insurance contracts
Insurance contracts are valid contracts even though they provide
for payment of money by the insurer on the happening of a future
uncertain event. Such contracts differ from wagering agreements
mainly in three respects:
(a) The holder of an insurance policy must have an ‘insurable
interest’ in the event upon which the insurance money
becomes payable. Thus contracts of insurance are entered
into to protect an interest.
(b) Contracts of insurance are based on scientific and
actuarial calculation of risks, whereas wagering
agreements are a gamble without any scientific calculation
of risks.
(c) Contracts of insurance are regarded as beneficial to the
public, whereas wagering agreements do not serve any
useful purpose.

12. Example of wagering
A and B mutually agree that if it rains today A will
pay B Rs 100 and if it does not rain B will pay A Rs
100 or where C and D enter into an agreement
that on tossing up a coin, if it falls head upwards C
will pay D Rs 50 and if it falls tail upwards D will
pay C Rs 50, there is a wagering agreement.
CASE- Carlill vs Carbollic smoke company

13. Agreement contingent on
impossible events (Section 36)
“Contingent agreements to do or not to do anything, if an
impossible event happens, are void, whether the
impossibility of the event is known or not to the parties to
the agreement at the time when it is made.”
Illustrations
(a) A agrees to pay B 1,000 rupees if two straight lines should
enclose a space. The agreement is void.
(b) A agrees to pay B 1,000 rupees if B will marry A's daughter
C. C was dead at the time of the agreement. The agreement is
void

14. Agreements to do impossible
acts(Section 56)
“An agreement to do an impossible act is void”
Illustration
An agreement to take tourists to Canada and bring them back to India
in 15 hours is an impossible task. The agreement is void.
When a person promises to do an act that is legal and subsequently
promises to do certain illegal acts, then the first part of the agreement
is valid but the second is void.
Restitution
When a contract is void, no party is required to perform it but if a party
has received a benefit, it must restore it or compensate the other
party. This rule is based on the principle of justice and equity that no
person should be allowed to get a benefit at the expense of another.

15. Performance of Contract
 The term ‘Performance of contract‘ means that both, the promisor, and
the promisee have fulfilled their respective obligations, which the contract
placed upon them.
 For instance, A visits a stationery shop to buy a calculator. The
shopkeeper delivers the calculator and A pays the price. The contract is
said to have been discharged by mutual performance.
 Section 27 of Indian contract Act says 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 any other law.”

16. Types Of Performance
 A person cannot acquire rights under a contract to which he is not
party: This means, only the promisor can demand performance of
the promise.
Eg: M promises N to pay C. in case of non-payment, only N can take action
against M and not C.
 The contracts can be performed by the promisor himself OR by the
promisor or his agent OR by the legal representative OR by a third
person.
 However, in case of contracts involving personal skill, their heirs
can’t are not bound to perform the contract. The contract would
come to an end on the death of the deceased person.

17. Types Of Performance
 Actual Performance
When a promisor to a contract has fulfilled his obligation in accordance with
the terms of the contract, the promise is said to have been actually
performed.
Actual performance gives a discharge to the contract and the liability of the
promisor ceases to exist.
 Attempted Performance
When the performance has become due, it is sometimes sufficient if the
promisor offers to perform his obligation under the contract. This offer is
also known as tender.
The rationale being that when a person offers to perform, he is ready,
willing and capable to perform.

18. Discharge Of A Contract
 Discharge by performance
 Discharge by agreement or consent
 Discharge by impossibility of performance
 Discharge by lapse of time
 Discharge by operation of law
 Discharge by breach of contract

19. Discharge By Performance
Where both the parties have either carried out or tendered
(attempted) to carry out their obligations under the
contract, is referred to as discharge of the contract by
performance.

20. Discharge By
Agreement Or Consent
 A contract emanates from an agreement between the parties. The
contract must also be discharged by agreement.
 Discharge by substituted agreement arises when a contract is
abandoned, or the terms within it are altered, and both the parties are
in conformity over it.
 Eg: A and B enter into some agreement, and A wants to change his
mind and not to carry out his terms of the contract. If he does this
unilaterally then he will be in breach of contract to B. However, if he
approaches B and states that he would like to be released from his
liabilities under the contract then the latter might agree. In that case
the contract is said to be discharged by (bilateral) agreement.

21. Discharge By Impossibility Of Performance
 If whatever happens to prevent the contract from being performed
1. has not been caused by either party
2. could not have been foreseen, and
3. its effect is to destroy the basis of the contract
Then the courts will, generality, state that the contract has become
impossible to perform.
 Section 56 of the Indian Contract Act clearly provides that an
agreement to do an act impossible in itself is void

22. Discharge By Lapse Of
Time
 The limitation act 1963, clearly states that a contract should
be performed within a specified time called period of limitation
 If it is not performed and if the promisee takes no action within
the limitation time, then he is deprived of his remedy at law
 For eg: Period of Limitation for simple contracts is 3 years.
So, if on default by a debtor, the creditor doesn’t file suit within
3 years, the creditor will be deprived of remedy

23. Discharge By Operation Of Law
 Death
 Merger
 Insolvency
 Unauthorised Alteration Of The Terms Of A Written
Agreement : A party can treat a contract discharged (i.e., from his
side) if the other party alters a term (such as quantity or price) of
the contract without seeking the consent of the former.

24. Discharge By Operation Of Law
Merger
A contract also stands discharged through a merger that occurs
when an inferior right accruing to party in a contract amalgamates
into the superior right ensuing to the same party.
 For instance, A hires a factory premises from B for some
manufacturing activity for a year, but 3 months ahead of the expiry
of lease purchases that very premises. Now since A has become
the owner of the building, his rights associated with the lease
(inferior rights) subsequently merge into the rights of ownership
(superior rights). The previous rental contract ceases to exist.

25. DISCHARGE BY BREACH OF
CONTRACT
Breach occurs where one party to a contract fails to perform its
contractual obligations, or the performance is defective.
 Anticipatory Breach: occurs when one party states, before the
arrival of the date fixed for performance, without justification that it
cannot or will not carry out the material part of the contractual
obligations on the agreed date or that it intends to perform in a way
that is inconsistent with the terms of the contract.
 Actual Breach: refers to the failure to perform contractual
obligations when performance is due. Failure to perform obligations
is the most common form of breach, wherein a seller fails to deliver
the goods by the appointed time etc.

26. Remedies Of Injured Party
 A remedy is a means given by law for the
enforcement of a right
 Following are the remedies
[1] Rescission of damages.
[2] Suit upon quantum meriut.
[3] Suit for specific performance.
[4] Suit for injunction.

27. Rescission
 When a contract is broken by one party, the other party
may sue to treat the contract as rescinded and refuse
further performance. In such a case, he is absolved of all
his obligations under the contract.
 The court may give rescission due to
1)contract is voidable
2)contract is unlawful
 The court may refuse to rescind if
1)Plaintiff has ratified the contract.
2)Parties cannot be restored to the original position.
3)The third party has acquired for value.
4)When only a part is sought to be rescinded.(sec 27 of
specific relief act 1937)

28. Damages
 Damages are a monetary compensation
allowed to the injured party by the court for the
loss or injury suffered by him by the breach of
the contract.
 The objective of awarding damages for the
breach of contract is to put the injured party in
the same position as if he had not been injured.
This is called the doctrine of restitution.
 The fundamental basis is awarding damages for
the pecuniary loss.

29. Quantum Meriut
 The phrase quantum meriut literally means
‘as much as earned’.
 A right to sue on a quantum meriut arises
when a contract, partly performed by one
party, has been discharged by breach of
contract by the other party.
 This right is performed not on original
contract but on implied promise by other
party for what has been done.

30. Specific Performance
 In certain cases of breach of contract damages are not
an adequate remedy. The court may, in such cases,
direct the party in breach to carry out his promise
according to terms of the contract. This is a direction by
the court for specific performance of the contract at the
suit of the party not in breach
 Cases for specific performance to be enforced
1. When the act agreed to be done is such that
compensation is not adequate relief.
2. When there is no standard for ascertaining the
actual damage
3. When it is probable that compensation cannot be
agreed to be done.

31. Injunction
 When a party is in breach of a negative term
of contract the court may, by issuing an order,
restrain him by doing what he promised him
not to do. Such an order of the court is called
injunction
 Court refuses grant of injunction
[1] whereby a promisor undertakes not to do
something
[2] which is negative in substance though not in
form

32. Quasi-Contracts: What is it?
 It is an obligation, which the law creates in the
absence of the agreement. It can be described as,
“certain contracts resembling those created by the
contract”.
 There will be no offer and no acceptance either on
express base or on implied base. The Court creates
contract between the parties artificially in certain
circumstances, and thus binds over the parties.
 It has been given in Section 68-72 of the Indian
Contract Act, 1872.

33. Quasi Contracts: Section 68
 Section 68 - when necessaries are supplied: When
one party supplies necessaries to the other (without
request), a quasi contract comes into force.
 A case on this point is Chowal Vs Cooper: In this
case X’s husband becomes no more. She is very poor
and therefore not capable of meeting even cost of
cremation. Y, one of her relatives, understands her
position and spends his own money for cremation. It
is done so without X’s request. Afterwards Y claims
his amount from X and X refuses to pay. Here court
applies Sec. 68 and creates a Quasi Contract
between them.

34. Quasi Contracts: Section 69
 Section 69 - When expenses of one person are
paid by the other: When expenses which are to be
paid one party are paid by another party, the parties
are said to be under quasi contract.
 A case on this point is Hazarilal Vs Navaranglal: In
this case B purchases A`s agricultural land. On that
land cess is in arrears for a longer period which are
actually to be cleared by A, But B pays that amount.
Here Court creates a quasi contract between them
under Section 69 and thus capacitates B to recover
that amount from A.

35. Quasi-Contracts: Section 70
 Section 70 - When one party is benefited by the
activity of another party: When one party Conducts
an activity and its benefit is attained by another party,
then also Court can create a quasi Contract.
 A Case on this point is Damodar Modaliar Vs
Secretary of State for India: In this case A is
resident of a Village. The local government conducts
repairs to the tank situated at A`s village. As a result A
gets benefited because the surrounding lands belong
to A. Here Court creates a Quasi Contract and
decides that A has to bear cost of repairs.

36. Quasi-Contracts: Section 71
 Section 71 - In case of finder of lost goods: Court
can create a quasi contract in case of finder of lost
goods.
 Related case is Hallius Vs Fowler: In this case B
finds a diamond at A`s shop and hands it over to A,
requesting A to send the diamond to true owner. True
owner is not found. When true owner is not found.
Finder gets the title. No one can claim share in it.
Here court creates a bailment contract between B and
A and thus capacitates B to get diamond back.

37. Quasi-Contracts: Section 72
 Section 72 - When payment is made by mistake:
When ever payment is made by mistake or goods are
delivered by mistake , Court can create a quasi
Contract.
 A case on this point is Khaniyalal Vs Sales Tax
Officer of the Banaras: In this case Mr. A pays Sales
tax by mistake though he is need to pay. Here Court
creates a quasi Contract and capacitates A to recover
that amount.

38. Contract of Indemnity
 A contract where one party promises to save the
other from any loss caused to him by the conduct of
promisor himself or any other person is called contract
of indemnity, (Section 124) Indian Contract Act, 1872.
 Indemnity contract includes two parties namely;
Indemnifier and Indemnity holder. The person who is
promising to pay compensation is called Indemnifier
and the person who`s loss is compensated is called
Indemnity holder.

39. Contract of Indemnity:
Examples
 There is a contract between X and Y according to which X has
to Sell a tape recorder (which is selected) to Y after three
months. On the next day of their contract Z has come to X and
has insisted on selling the same tape recorder to him (Z). Here
Z is promising to compensate X for any loss faced by X, due to
selling the tape recorder to Z. X has agreed. Now the contract
which has got formed between X and Z is called indemnity
contract, where Z is indemnifier and X is indemnity holder.
 Mr. Joe is a shareholder of Alpha Ltd. lost his share certificate.
Joe applies for a duplicate one. The company agrees, but on
the condition that Joe compensates for the loss or damage to
the company if a third person brings the original certificate.

40. Contract of Guarantee
 A contract to perform the obligation or to discharge the
liability of a third party in case of its default is called
contract of guarantee, (Section 126) Indian Contract Act,
1872.
 Guarantee contract includes three parties namely;
Creditor, Principal Debtor and Surety. The person who is
granting the loan, the person who is utilizing the amount
of loan is principal debtor and the person who is giving
guarantee is called surety or guarantor or favored
debtor. In case of guarantee contract there will be two
types of liabilities namely; Primary liability and secondary
liability. Primary liability will be with principal debtor and
Secondary liability goes to surety.

41. Contract of Guarantee:
Examples
 Y is in need of Rs. 10000/-. Upon guarantee by Z, Y
has got the amount from X. Here X, Y and Z are
creditor, principal debtor and surety respectively.
 Mr. Harry takes a loan from the bank for which Mr.
Joesph has given the guarantee that if Harry default in
the payment of the said amount he will discharge the
liability. Here Joseph plays the role of surety, Harry is
the principal debtor and Bank is the creditor.

42. Contract of Indemnity Vs.
Guarantee
 Number of Parties: Indemnity contract includes two parties
namely, indemnifier and indemnity holder. But guarantee
contract includes three parties namely creditor, Principal
debtor and surety
 Number of Contracts: In case of indemnity contract, as
there are only two parties, there is possibility for existence
of one contract only. But a contract of guarantee includes
three sub-contracts.
 Nature: As indemnity contract includes two parties and one
contract, it can be said that indemnity contract is simple in
nature. But guarantee contract includes three parties and
three sub-contracts and hence be said that guarantee
contract is complex in nature.

43. Contract of Indemnity Vs.
Guarantee
 Liability: In contract of guarantee there will be two types of
liabilities namely; primary and secondary liabilities which will
be with principal debtor and surety respectively. But in
contract of indemnity there is no classification and sharing
of liability where the absolute liability rests with indemnifier.
 Recovery: In case of indemnity contract the indemnifier,
after compensating indemnity holder`s loss, cannot recover
that amount from any person. But in contract of guarantee, if
surety makes payment to creditor, he (surety) can recover
that amount from principal debtor.
 Interest of parties: Indemnity contract gets formed upon
indemnifier`s interest and guarantee contract gets formed
upon principal debtor`s interest.

44. Bailment
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.

45. 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.

46. 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]

47. 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]

48. 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

49. 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]

50. 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.

51. Distinction between pledge and
bailment
Pledge
• Pledge is the bailment
for a specific purpose ie
to provide security for a
debt or for fulfillment of
object.
• The pledgee has right to
sale on default after
giving notice thereof to
the Pledger.
Bailment
• Bailment is for a
purpose other than two
under pledge ie for
repairs, safe custody
etc.
• No right to sale. The
bailee may either
retain the goods or the
bailor for non-payment
of his dues

52. 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

53. Duties of Pawnor and Pawnee
Pawnor:
• Duty to repay the loan
• Duty to pay expenses in case of
default
Pawnee:
• Duty not use of pledged goods
• Duty to return the goods

54. Rights of Pawnor and Pawnee
Pawnor:
• Right to redeem the goods pledged
• Right to receive the increase
Pawnee:
• Right to retain the pledged goods
• Right to extra ordinary expenses
• Right in case of default of the pawnor
• Right to sell the goods