The law of contract is the most important branch of
Without such a law it would be difficult, if not
impossible, to carry on any trade or business in a
The law of contract is applicable not only to
business but also to all day-to-day personal
WHAT IS LAW?
Before learning the meaning of the term 'Law' you must
know as to why we need law.
No civilized society can exist without law. It is required
for the preservation of peace and orderliness in every
Without law, no person will care for others and their
dealings may not materialize.
With the growth of society and the concept of welfare
state, it became necessary to regulate the conduct of
people and protect their property and contractual rights.
Hence, each country enacted laws suited to its various
needs and the value system it cherished.
"Law is a rule of civil conduct, prescribed by the
supreme power of stale, commanding what is right
and prohibiting what is wrong." -------
'Law is the body of principles recognised and
applied by the state in the administrator of justice."
MEANING OF MERCANTILE
Mercantile law or commercial law is not a separate
branch of law.
It is a part of civil law which deals with the
rights and obligations of mercantile
persons arising out of mercantile
transactions in respect of mercantile
ENGLISH MERCANTILE LAW:
Our laws are based primarily on the English laws
which developed through customs and usages of
Merchants or traders in England, These customs
and usages governed these merchants in their
dealings with each other. This law is also known as
As a matter of fact, it is an unwritten law based on
customs, usages and precedents. The most
important part of mercantile law, namely, the Law of
Contracts, is still a part of Common Law in England.
INDIAN STATUTE LAW:
The Acts passed by the Indian Legislature are the
main source of 1ndian mercantile law.
The important Acts passed by the Indian
Legislature are the Indian Contract Act 1872, The
Negotiable Instruments Act Essentials of a Contract
1881, The Sale of Goods Act 1930, The Indian
Partnership Act 1932, The Companies Act 1956,
and so on
The past judicial decisions of courts are another
important source of law. They are generally followed by
the courts while deciding similar cases before them.
The past decisions have persuasive and guiding value.
Wherever the law is silent on a point, the judge has to
decide the case according to the principle of equity,
justice and good conscience.
The decisions of English courts are also frequently
referred to as precedents in deciding various cases and
for interpreting the Indian Statutes.
CUSTOMS AND USAGES:
The customs and usages of particular trade are yet
another important source of Indian mercantile law.
They play an important role in regulating the
dealings between the merchants of that trade. But it
is necessary that such customs or usages must be
widely known, reasonable, constant and must not
be inconsistent with the law, The Indian Contract
Act recognises this fact by providing that "nothing
contained therein shall affect any usage or custom
WHAT IS A CONTRACT?
Broadly speaking, a contract is an agreement made between
two or more persons to do or to abstain from doing a
particular act. A contract invariably creates a legal obligation
between the parties by which certain rights are given to one
party and a corresponding duty is imposed on the other party.
A contract has been defined by different authorities in various
ways. Some of the important definitionsare as follows:
A contract is an agreement, creating and defining the obligations
A contract is an agreement enforceable at law made between two or
more persons by which rights are acquired by one or more to acts or
forbearance on the part of others.
- Sir William Anson
Every agreement and promise enforceable at law is a contract.
- Sir Fredrick Pollock
A CONTRACT ESSENTIALLY
CONSISTS OF TWO ELEMENTS:
Section 2(e) of the Contract Act defines agreement
as “every promise and every set of promises
forming the consideration for each other.
In this context a promise refer to a proposal (offer)
which has been accepted.
For example, Ramesh offers to sell his ,scooter for
Rs. 8,000 to Shyam. Shyam accepts this offer. It
becomes a promise and treated as an agreement
between Ramesh and Shyam.
In other words, an agreement consists of an offer
by one party and its acceptance by the other.
ON THE BASIS OF CREATION
A contract may be
(i) made in writing or by word of mouth
(ii) inferred from the conduct of the parties or
circumstances of the case.
The first category of contract is termed as
'express contract ' and the second as 'implied
An express contract is one where the terms are
clearly stated in words, spoken or written.
A wrote a letter to B stating “ offer to sell my
car for Rs. 30,000 to you", B accepts the offer by
letter sent to A. This is an express contract.
Similarly, when A asks a scooter mechanic to
repair his scooter and the mechanic agrees, it is an
express contract made orally by spoken words.
A contract may be created by the conduct or acts of
parties (and not by their words spoken or written). It may
result from a continuing course of conduct of the parties.
where a coolie in uniform carries the luggage of A
to be carried out of railway station without being asked
by A to do so and A allows it, the law implies that A has
agreed to pay for the services of the coolie. This is a
case of an implied contract between A and the coolie.
Similarly, when A boards a BMTC bus, an implied
contract comes into being. A is bound to pay the
ON THE BASIS OF EXECUTION
On the basis of the extent to which the contracts
have been performed, we may classify them as
(i) executed contracts,
(ii) executory contracts.
It is a contract where both the parties have fulfilled
their respective obligations under the contract.
A agrees to sell his book to B for Rs. 30. A
delivers the book to B and B pays Rs. 30 to A. It is
an executed contract.
It is a contract where both the parties to the contract
have still to perform their respective obligations.
A agrees to sell a book to B for Rs. 30. If the book
has not been delivered by A and B has not paid the
price. the contract is executory.
A contract may sometimes be partly executed and partly
executory. It happens where only one of the parties has
performed his obligation.
In the example given above, if A has delivered the
book to B but B has not paid the price. the contract is
executed as to A and executory as to B.
On the basis of execution, a contract can also be
classified as unilateral or bilateral.
A unilateral contract is one in which only
one party has to perform his obligation, the other
party had fulfilled his part of the obligation at the
time of the contract itself. For example, A buys a
ticket from the conductor and is waiting in the
queue for the bus. A contract is created as soon as
the ticket is purchased. The other party is now to
provide a bus wherein he could travel.
A bilateral contract is one in which the
obligations on the part of both the parties are
outstanding at the time of the formation of the
A contract which satisfies all the conditions
prescribed by law is a valid contract. If one or more
of these elements is/are missing, the contract is
either void, voidable, illegal or unenforceable.
According to Section 2 (0) A contract which ceases
to be enforceable by law becomes void when it
ceases to be enforceable.
It is a contract without any legal effects and is a nullity.
A contract may become void due to impossibility of
performance, change of law or some other reasons.
Section 2(g) says that an agreement nor
enforceable by law is said to be void.
In the case of void agreement no contract comes into
existence. Such an agreement confers no rights on any
person and creates no obligations. It is void ab-intio
i.e., from the very beginning.
A void agreement never matures into a contract, it is
void from the very beginning.
According to Section 2(i) of the Contract Act, 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.
Thus, a voidable contract is one which can be set
aside or repudiated at the option of the aggrieved
party. Until it is set aside or avoided by the party
entitled to do so, it remains a valid contract.
ILLEGAL OR UNLAWFUL CONTRACT:
The word illegal' means contrary to law. You know that
contract is an agreement enforceable by law and therefore, it
cannot be illegal. It is only the agreement which can be
termed as illegal or unlawful. Hence, it is more appropriate to
use the term 'illegal agreement' in place of 'illegal contract'.
An 'illegal agreement' is one which has been specifically
declared to be unlawful under the provisions of the Contract
Act or which goes against the provisions of any other law of
the land. Such agreement cannot be enforced by law.
A agrees to pay Rs.50,000 to B if B kills C. This is an
illegal agreement because its object is unlawful. Even if B kills
C, he cannot claim the agreed amount from A.
It is a contract which is actually valid but cannot be
enforced because of some technical defect.
This may be due to non-registration of the agreement,
non-payment of the requisite stamp fee, etc.
Sometimes, the law requires a particular agreement to
be in writing. If such agreement has not been put in
writing, it becomes unenforceable.
an oral agreement, for arbitration are
unenforceable because the law requires that an
arbitration agreement must be in writing. It is important
to note that in most cases, such , contracts can be
enforced if the technical defect involved is removed.
PROPER OFFER AND PROPER
In order to create a valid contract it is necessary
that there must be at least two parties, one making
the offer and the other accepting it.
For example, the offer must be definite and duly
communicated to the other party. Similarly, the
acceptance must be unconditional and
communicated to the offeror in the prescribe mode,
and so on. Unless such conditions with regard to
the offer and the acceptance are satisfied the
agreement does not become enforceable.
OFFER OR PROPOSAL
Section 2(a) defines the term 'proposal' as follows:
When one person signifies to another
his willingness to do or to abstain from
doing anything, with a view to obtaining the
assent of that other to such act or
abstinence, he is said to make a proposal.
Section 2(b) of the Indian Contract Act defines the
term 'acceptance' as "when the person to
whom the proposal is made signifies his
assent thereto, the proposal is said to be
accepted. A proposal when accepted
becomes a promise. "
INTENTION TO CREATE LEGAL
There must be an intention among the parties to create
a legal relationship, If an agreement is not capable of
creating a legal obligation it is not a contract.
In case of social or domestic agreements, generally
there is no intention to create legal relationship.
In an invitation to dinner there is no intention to
create legal relationship and therefore, is not a contract.
Similarly, certain agreements between husband and wife
do not become contracts because there is no intention
to create legal relationship.
This point can well be illustrated by the famous
case of Balfour v. Balfour. Mr. Balfour had
promised to pay f 30 per month to his wife living in
England when she could not accompany him to
Caulon where he was employed. Mr. Balfour failed
to pay the promised amount. Mrs. Balfour filed a
suit against her husband for breach of this
agreement, It was held that she could not recover
the amount as it was a social agreement and the
parties never intended to create any legal relations.
For a contract to be valid, it is essential that there
must be free and genuine consent of the parties to
the contract. They must have made the contract of
their own free will and not under any fear or
According to Section 14, consent is said to be
free when it is not caused by ( i ) coercion,‘
(ii) undue influence, (iii) fraud, (iv)
misrepresentation, or ( v ) mistake.
But if the agreement is induced by mutual mistake
which is material to the agreement, it would be void.
Section 13 of the Indian Contract Act defines the
term 'Consent' as Two or more persons are
said to consent when they agree upon the
same thing in the same sense.
. Section 15 of the Contract Act defines 'coercion'
as Coercion is
( i ) the committing or threatening to
commit, any act forbidden by the Indian
Penal Code; or
(ii) 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
Section 16 (i) of the Contract Act defines undue
influence as '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 term 'fraud' is defined by Section 17 of the Indian
Contract Act as follows:
Fraud means and includes any of the following acts
committed by a party to a contract or by any one with his
connivance or by his agent, .with intent to deceive
another party thereto or his agent, or to induce him to
enter into the contract:
i) the suggestion, as to a fact, of that which is not true,
by one who does not believe it to be true;
ii) the active concealment of a .fact by one having
knowledge or belief of the fact;
iii) a promise made without an,y intention of performing
iv) any other act fitted to deceive; v) an9 such act or
omission as the law specially declares to be fraudulent."
A representation, when wrongly made,
either innocently or intentionally, is called
CAPACITY OF PARTIES:
The parties to an agreement must be competent to
contract i.e., they must be capable of entering into a
contract. If any party to the contract is not
competent to contract, the contract is not valid.
Section 11 of the Act which says that every
person is competent to contract who is of
the age of majority according to the law to
which he is subject and who is of sound
mind, and is not disqualified from
contracting by any law to which he is
THUS, A PERSON TO BE
COMPETENT TO CONTRACT
SHOULD NOT BE
According to Section 3 of the Indian Majority Act, a
person is deemed to have attained Majority
(i) when he completes 18 years or
(ii) where a guardian of person or property or
both. has been appointed by a Court of Law (or
where his property has passed under the
superintendence of the Court of Wards), he attains
Majority on completion of 21 years.
POSITIONS OF MINOR:
Contract with a minor is void ab initio
Fraudulent representation by a minor is void
Ratification of a contract by a minor on attaining
the age of majority is void
Minor as a partner
A minor cannot be a partner in a partnership firm.
However, a minor may, with the consent of all the
partners for the time being, be admitted to the benefits
Minor can be an agent
Minor as a shareholder
A minor cannot be declared insolvent because he
is incapable of contracting debts.
for the benefit of a minor
Contract by Guardian
Contract for Supply of Necessaries
WHO IS A PERSON OF SOUND
Section 12 of the Indian Contract Act which reads a
person is said to be of sound mind for the
purpose of making a . contract, if at the time
when he makes it, he is capable of
understanding it and of forming a rational
judgement as to its effect upon his interests.
Thus soundness of mind of a person depends on two
i) his capacity to understand the terms of the contract,
ii) his ability to form a rational judgement as to its effect
upon his interests. If a person is incapable of both, he
suffers from unsoundness of mind. Idiots, lunatics and
drunken persons are examples of those having an
Lunatics: A lunatic is a person who is mentally
deranged due to some mental strain or
Idiots: An idiot is a person who is permanently of
unsound mind. Idiocy is a congenital defect. Such a
person has no lucid intervals. He cannot make a
Drunken Persons: Section 12 of the Indian
Contract Act reads: A same man is delirious
from fever or who is so drunk that he
cannot understand the terms of a contract
or form a rational judgement as to its
effects on his interest cannot contract while
such delirium or drunkenness lasts.
MAKE A REPORT ON MOHIRIBIBI VS
DHARMODAS GHOSH CASE
An agreement must be supported by consideration,
Consideration means something in return. It is also
defined as the price paid by one party to buy the
promise of the other.
However, this price need not always be in terms of
A agrees to sell his book to B for Rs. 20. Here
the consideration for A is Rs. 20, and for B it is the
Section 2(d) of the Indian Contract Act defines
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 or
abstinence or promise is called a
consideration for the promise.
The object of an agreement must be lawful.
An agreement made for any act which is prohibited
by law will not be valid.
if A rents out a house for use as a gambling
den, the agreement is void because the object of
the agreement is unlawful. If the object is unlawful
for any of the reasons mentioned in Section 23, the
agreement shall be void.
Thus, the consideration as well as the
object ,of the agreement should be lawful.
AGREEMENT NOT EXPRESSLY
The agreement must not have been expressly
declared void under Contract Act. Sections 24 to 30
specify certain types of agreements which have been
expressly declared void. They are .
agreement in restraint of marriage,
agreement in restraint of legal proceedings,
agreement in restraint of trade and
agreement by way of wager.
A agreed to pay Rs. 1,000 to B if he (B) does not
marry throughout his life. B promised not to marry at all.
This agreement shall not be valid because it is in
restraint of marriage which has been expressly declared
void under Section 26.
CERTAINTY OF MEANING:
Section 29 of the Contract Act provides that
Agreements, the meaning of which is not
certain or capable of being made certain,
are void. Thus to make a valid contract it is
absolutely essential that its terms must be clear and
not vague or uncertain.
For a example,
A agreed to sell 100 tonnes of oil to B. Here it
is not clear what kind of oil is intended to be sold.
Therefore, this agreement is not valid on the ground
POSSIBILITY OF PERFORMANCE:
The terms of the agreement must also be such as are
capable of performance. An agreement to do an act
impossible in itself is void (Section 56.)
If the act is impossible of performance, physically or
legally, the agreement cannot be enforced by law.
A promises to B that he will enclose some area
between two parallel lines or that he will run at a speed
of 200 kms. per hour or that he will bring gold from the
sun. All these acts are such which are impossible of
performance and therefore the agreement is not treated
The Contract Act does not require that a contract must
be in writing to be valid. But, in some cases the Act has
specified that the agreement must be made in writing.
a promise to pay a time barred debt must be in
writing and an agreement for a sale of immovable
property must be in writing and registered under the
Transfer of Property Act, 1882. In such a situation, the
agreement must comply with the necessary formalities
as to writing, registration, etc.
If these legal formalities are not carried out, then
the contract is not enforceable by law.
A Contingent contract is a contract to do or not to
do something, if some event, collateral to such
contract, does or does not happen. [Sec 31]
Performance depends on happening of some
Performance depends on some uncertain event.
The event must be collateral.
Cannot be enforced until the event has happened.
If the event becomes impossible such contract
becomes void. (Sec 32)
Where the contract is to be performed if a particular
event does not happen, performance can be
enforced on the event becoming impossible. (Sec
Contract contingent upon how a person will act at
an unspecified time, the event shall be considered
to become impossible when the person does
anything rendering it impossible. (Sec 34)
Contract to do or not to do anything if a specified
uncertain event happens within a fixed time,
becomes void if the event does not happen or its
happening becomes impossible before the expiry of
that time, and vice versa. (Sec 35)
Contingent agreement to do or not to do anything, if
an impossible event happens are void whether or
not the fact is known to the parties. (Sec 36)
DISCHARGE OF CONTRACT
A contract is said to be discharged when it ceases to
The rights and obligations created by it comes to an
A contract may be discharged BY PERFORMANCE
Actual performance – doing what the parties
intended to do when they entered in to the contract.
Attempted performance or tender – It is the
legitimate attempt on the part of the promisor to perform
BY MUTUAL AGREEMENT OR
Novation: it occurs when a new contract is
substituted for an existing contract, either b/w the
same parties or b/w different parties, the
consideration mutually being the discharge of the
Eg.- A is indebted to Band B to C. by mutual
agreement B’s debt to C and B’s loan to A are
cancelled and C accepts A as his debtor.
Rescission: a contract may be discharged, before
the date of performance by agreement b/w the
parties to the effect that it shall no longer bind them.
Such an agreement amounts to cancellation.
Eg.- A promises to deliver goods to B, and if A and
B mutually agrees to not to continue with the
Alteration: it means change in one or more of the
material terms of a contract. If a material alteration
in a written contract is done by mutual consent, the
original contract is discharged by alteration and a
new contract in its altered form takes place.
Remission: it may be defined as “the acceptance of
a lesser sum than what was contracted for a lesser
fulfillment of the promise made”.
Waiver: it means the deliberate abandonment or
giving up of a right which a party is entitled to under
a contract, where upon the other party to the
contract is released from his obligation.
BY OPERATION OF LAW
By unauthorized alteration of terms of a written
By rights and liabilities becoming vested in the
BY IMPOSSIBILITY OF
Impossibility existing at the time of agreement –
Known to the parties – the agreement is void ab
Unknown to the parties – the agreement is void on
the ground of mutual mistake.
Impossibility arising subsequent to the formation of
BY SUPERVENING IMPOSSIBILITY
Destruction of subject matter of contract
Non-existence or non-occurrence of a particular
state or things
Death or incapacity for personal services
Change of law or stepping in of a person with
Out break of war
Impossibility of performance is, as a rule, not an
excuse for non-performance.
In the following cases a contract is not discharged
on the ground of supervening impossibility:
Difficulty of performance,
Impossibility due to failure of a third person,
Strikes, lock-outs and civil disturbances, and
BY BREACH OF CONTRACT
Breach of contract means violation of a
It is of two kinds:
Anticipatory Breach ( breach occurring before
the time fixed)
b) Making the performance of promise become
impossible by doing some act.
By express renunciation.
Actual Breach (when a party fails to perform his
obligations upon the fixed date of performance)
On the due date of performance.
b) During the course of performance of
REMEDIES FOR BREACH OF
When the contract is broken, the injured party has
one or more of the following remedies:
Rescission of the contract.
Suit for damages.
upon quantum meruit.
for specific performance.
Suit for injunction.
RESCISSION OF THE CONTRACT
Rescission means a right not to perform an
In case of breach of contract the promisee need not
perform his obligation,
he is not only discharged from his liabilities but also
he is entitled to claim compensation for damages
which he might have sustained due to non
performance of the contract. [Section 39]
SUIT FOR DAMAGES
Damages are monetary compensation allowed to
the injured party for the loss suffered.
The object of awarding damages is not to punish
the party at fault
but to make good the financial loss suffered by the
injured party due to breach of contract.
RULES RELATING TO DAMAGES
Ordinary damages – arising in the usual course
special damages – such damages which the
parties knew to be likely to result from the breach.
Compensation is not given for any remote or
indirect loss or damages, and
Such compensation for damages arising from
breach of quasi contract shall be same as in any
Exemplary or Vindictive damages –
essentially in the nature of punishment for wrong
Nominal Damages – the injured party has not in
fact suffered any loss due to the breach of contract.
Damages for loss of reputation – the smaller
the amount of cheque dishonoured, higher the
amount of damages.
Damages for inconvenience and discomfort
–generally not recoverable.
Liquidated damages – represent a sum, fixed or
ascertained by the parties in the contract,
which is a fair and genuine pre-estimate of the
probable loss that might ensue as a result of the
breach if it takes place.
Penalty – is a sum named in the contract which is
disproportionate to the damages likely to accrue as
a result of the breach.
In India no such distinction is made and the court
allow only “reasonable compensation”.
When an agreement is discovered to be void. [Sec
When something is done without any intention to do
gratuitously. [Sec 70]
When there is an express or implied contract to
render service but no agreement as to
When the completion of the contract has been
prevented by the act of the other party to the
When a contract is divisible.
When an indivisible contract is completely
performed but badly.
The remedy of Specific Performance is in the
nature of equitable remedies based on the
principles of equities.
Among the remedies are specific performance,
injunction, rectification and cancellation of
instruments and rescission of contract.
In the discretion of the court, specific performance
may be enforced:
where there is no standard for ascertaining the
actual damage caused by the non-performance; or
where compensation in money for the nonperformance would not afford adequate relief.
SUIT FOR INJUNCTION
It is a judicial process whereby a party to the
contract is ordered to refrain from doing a particular
act or thing, or
to do a particular act or thing.
It a discretionary remedy and it acts only in
Injunction means a prohibitory order of the court to
a person to
not to do a particular act he has promised not to do
under a contract, or
to do an act which he has promised, under a
contract, to do.
Sometime a person may receive a benefit which the
law regards another person as better entitled, or for
which the law considers he should pay to the other
person, even though there is no contract between
Such relationships are called quasi contracts
because although there is no contract or agreement
between the parties, they are put on the same
pedestal as though there was a contract between
This is based on the principles of equity.
KINDS OF QUASI CONTRACTS
Right to recover the price of necessities supplied.
Payment by an interested person. [Sec 69]
Right to recover for non-gratuitous Act. [Sec 70]
Responsibility of the finder of Goods. [Sec 71]
When money is paid or things are delivered by
mistake or under coercion. [Sec 72]
CONTRACTS OF INDEMNITY
a contract of indemnity one party promises to
compensate the other party against loss suffered by
125 confines itself to losses occasioned due
to an act of promisor or due to act of any other
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. [Sec 124]
a person who is interested in the payment of
money which another is bound to pay and pays it,
he is entitled to be indemnified. [Sec 69]
surety has a rights to claim indemnity from the
principal debtor for sums he has rightfully paid
towards the guarantee. [Sec 145]
principal is liable to indemnify the agent for all
amount paid by him during the exercise of his
authority. [Sec 222]
RIGHTS OF INDEMNITY HOLDER
damages that he may be compelled to pay in
a suit in respect of any matter to which the
promise to indemnify applies.
cost that he may be compelled to pay in
bringing or defending such suit.
sums which he may have paid under the
terms of any compromise of any such suit.
CONTRACT OF GUARANTEE
contract of guarantee is essentially a contract
perform the promise or
the liability of a third person
case of his default.
basic function of a contract of guarantee is
enable a person to get a loan, or goods, or an
employment. [Sec 126]
ESSENTIAL FEATURES OF
be vitiated by incapacity, flaw in consent, and
unlawful character of the agreement.
May be oral and it may either be expressed or
Concurrence of parties.
Existence of Principal debt.
Essential of a valid contract like Consideration and
EXTENT OF SURETY'S
liability of surety is coextensive with that of the
principal debtor. [Sec 128]
The Surety may limit his liability by an express
The liability of the surety arises immediately when a
default is made by the principal debtor.
The creditor can sue the surety without suing the
If the guarantee is conditional upon another person
joining it as co-surety, the guarantee is not valid if
that person does not join. [Sec 144]
KINDS OF GUARANTEES
guarantee – extends to a specific transaction
or a single debt.
The liability of surety comes to an end when the
guaranteed debt is duly discharged.
Continuing guarantee –extends to a series of
This kind of guarantee is intended to cover a number
of transactions over a period of time.
Whether the guarantee is continuing guarantee or not
is a question of intention, subject matter &
REVOCATION OF CONTINUING
By Death of Surety
By Novation. (Sec 62)
By variance in the terms of contract. (Sec 133)
By release or discharge of principal debtor.
By compounding with the principal debtor. (Sec 135)
By creditor's act or omission imparting surety's eventual
remedy. (Sec 139)
By loss of security. (Sec 142)
RIGHTS OF SURETY
Against Creditor –
Right of Security
Right of set-off.
Right of subrogation.
Against principal debtor –
Right to be relieved of liability.
Right to indemnity.
Against co-sureties –
Right of contribution –
Co-sureties liable to contribute equally.
Liability of co-sureties bound in different sums.
Release of co-surety.
DISCHARGE OF SURETY
Revocation of Guarantee
by conduct of creditor
in the terms of the contract
or discharge of principal debtor
by creditor with principal debtor
compounding with principal debtor
promising to give time to the principal
agreeing not to sue the debtor.
impairing surety's remedy
Loss of security by the creditor
Discharge of surety by invalidation of contract
Guarantee obtained by misrepresentation
Guarantee obtained by concealment
Guarantee on contract that creditor shall not act
on it until a co-surety joins
Failure of consideration
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 direction of the
person delivering them”.
The person delivering the goods is called the
The person to whom the goods are delivered is
called the bailee."
ESSENTIAL REQUISITE OF
must be a contract.
must be a delivery of possession.
delivery be of goods.
to be made by the owner, called bailor.
be to another person, called bailee.
for specific purpose.
on the condition that they be returned.
KINDS OF BAILMENT
On the basis of reward
On the basis of Benefit
the exclusive benefit of bailor.
the exclusive benefit of bailee.
DUTIES OF A BAILOR
disclose known faults [Sec 150]
bear extraordinary expenses [Sec 158]
indemnify bailee for loss in case of premature
termination of gratuitous bailment. [Sec 159]
receive back the goods
indemnify the bailee against the defective title
of the bailor [Sec 164]
DUTIES OF A BAILEE
take reasonable care of the goods bailed.
to mix goods bailed with his own goods.
to make unauthorized use of goods.
to set up an adverse title.
return the accretion to the goods.
return the goods.
RIGHTS OF BAILOR
to claim damages in case of negligence.
Right to terminate the contract in case of
Right to claim compensation in case of
Right to claim separation of goods in case of
Right to claim separation of goods in case of
unauthorised mixture of goods which cannot be
Right to demand return of the goods.
Right to claim compensation in case of
unauthorised retention of goods.
Right to demand accretion to the goods.
RIGHTS OF BAILEE
of goods to one of the several joint
bailors of goods.
of goods without title.
to apply to court to stop delivery.
of action against trespassers.
TERMINATION OF BAILMENT
the expiry of the period.
the achievement of the object.
use of goods.
of subject matter.
of bailor or bailee.
FINDER OF GOODS
person who finds goods belonging to another and
takes them into his custody, is subject to the same
responsibilities as a bailee. [Sec 71]
must take reasonable care.
must not use the goods for his own purpose.
must not mix goods with his own.
must try to find out the owner of the goods.
RIGHTS OF FINDER OF
to sue for rewards.
bailment of goods as security for payment of a
debt or performance of a promise. [Sec 172]
A pledge can be created only in respect of a chattel
(movable possession) capable of delivery.
The general property in the goods remains in the
but a special property in them passes to the pawnee
who may sell the goods.
The person delivering goods is Pledgor or Pawnor.
The person to whom goods are delivered is Pledgee
RIGHTS OF PAWNEE / PLEDGEE
to retain goods pledged [Section 173 and 174]
Right to extraordinary expenses
Right against true owner, when the Pawnor's title is
Pawnee's right where Pawnor makes default
Under Section 176 the Pawnee has the following
may file a suit against the Pawnor; or
he may sell the goods after giving reasonable notice;
can recover any deficiency arising on the sale.
RIGHTS OF PAWNOR /
to get back goods.
Right to redeem debt.
Preservation and maintenance of goods.
Rights of an ordinary debtor.
PLEDGE BY NON-OWNERS
by Mercantile Agent.
by a person in possession under a
where pawnor has limited interest.
by seller in possession after sale.
by buyer in possession before sale.
CONTRACT OF AGENCY
agent is a person employed to do any act for
to represent another, in dealings with third persons.
The person for whom such act is done or who is so
represented, is called the principal."
Whatever the principal can do himself, he may get
the same done through an agent,; and
What the principal does by another, he does it
The acts of the agents are the acts of the principal.
CREATION OF AGENCY
- Express Agreement.
- Implied Agreement.
Implied agency includes the following –
Agency by Estoppel.
Agency by holding out.
Agency by necessity –
Agent acceding his authority in an emergency.
A person entrusted with another's property.
Husband and Wife.
Agency by ratification.
ESSENTIALS OF A VALID
agent must act for an identifiable principal.
The principal must be in existence.
The principal must have contractual capacity.
Ratification must be with full knowledge of facts.
Ratification must be done within a reasonable time.
The act to be ratified must not be void, illegal or ultra
The whole transaction must be ratified.
Ratification can be of the acts the principal had
power to do.
Ratification should not put a third party to damages.
Ratification relates back to the date of the act.
DUTIES OF AGENTS
carry out the work according to the directions
carry out the work with reasonable care, skill
render proper accounts.
communicate with the principal in case of
to deal on his own account.
pay sums received for the principal.
protect the interest of the principal in case of
his death or insolvency.
to use information obtained in the course of
agency against the principal.
to make secret profit.
to set up an adverse title.
to put himself in a position where his
interest and duty conflict.
to delegate authority.
RIGHTS OF AGENTS
to receive remuneration.
of stoppage in transit.
DELEGATION OF AUTHORITY
non potest delegar
A Sub-agent is a person employed by and
acting under the control of the original agent and the
business of the agency. [Section 191]
A agent may appoint a sub-agent if There is a custom of trade.
The nature of work is such that sub-agent is
Where the principal is aware of the intention of the
agent to appoint a sub-agent.
Where unforeseen emergencies arise rendering.
Where the act to be done is purely ministerial.
Where the principal permits appointment of sub-agent.
EFFECT OF APPOINTMENT OF
SUB-AGENT [SECTION 192 AND
a sub-agent is properly appointed, the
following effect follows :
principal is bound by the acts of the subagent;
agent is responsible to the principal for the
acts of the sub-agent;
sub-agent is responsible for his acts to the
agent, but not to the principal, except in case of
fraud or willful wrong.
the sub-agent is not properly appointed,
the effect will be :
principal is not bound by the acts of subagent;
original agent is responsible for the acts of
the sub-agent both to the principal and to he
sub-agent is responsible for his acts to the
original agent but not to the principal even in
case of fraud or willful wrong.
POSITION OF PRINCIPAL AND AGENT
IN RELATION TO THIRD PARTIES
Named principal –
Acts of the agent are the acts of the principal.
When the agent exceed his authority
Notice given to agent as notice to principal.
Principal inducing belief that agent's
unauthorised acts were authorised.
Misrepresentation or fraud of agent.
Undisclosed principal –
position of Principal – contracting party may
sue either the principal or the agent or both.
principal may also require the performance
position of agent – as between the principal
and agent, the agent has all the rights of an agent
as against the principal;
as regards the third party, he is personally
liable on the contract.
position of third parties –
third party may elect to sue either the
principal or the agent or both.
the principal discloses himself before the
contract is completed, the other party may refuse
to fulfill the contract on the ground of mistake of
identity of party.
third party can also claim a right of set-off
against the agent.
PERSONAL LIABILITY OF AN AGENT EXCEPTIONS [SEC 230]
the contract expressly provides.
When the agent acts for a foreign principal.
When he acts for an undisclosed principal.
When he acts for a principal who cannot be sued.
Where he signs a contract in his own name.
Where he acts for a principal not in existence.
Where he is liable for breach of warranty of authority.
Where he receives or pays money by mistake or
Where his authority is coupled with interest.
Where trade usage or customs makes him
TERMINATION OF AGENCY [SEC
Termination of agency by act of parties
b) Revocation by the principal.
c) Revocation by agent.
Termination of agency by operation of law
a) Performance of contract.
b) Expiry of time.
c) Death or Insanity.
e) Destruction of subject matter.
Principal becoming an alien enemy.
g) Dissolution of a company.
Where the agency is coupled with interest.
b) Where the agent has exercised part of his
authority. [Sec 204]
Where the Agent has incurred personal