The document discusses business law and contracts. It begins by defining law and business law. Business law encompasses the laws governing how to start, manage, and close a business. The objectives and requirements of effective business law are then outlined. The key sources of Indian business/commercial law are the common law, equity, statute law, law merchant, and precedents. The essential elements of a valid contract are then defined, including minimum two parties, agreement through offer and acceptance, capacity to contract, free consent, lawful consideration, lawful object, certainty of terms, and possibility of performance. Key contract types like void, voidable, illegal, unilateral, and bilateral contracts are also explained.

1. I UNIT BUSINESS LAW : BUSINESS LAW, SOURCES OF BUSINESS
LAW,CONTRACTS, ESSENTIALS OF VALID CONTRACT,
PERFORMANCE OF CONTRACT, BREACH OF CONTRACT AND
REMIDIES, QUASI CONTRACTS, CONTINGENT CONTRACTS,
CONTRACT OF INDEMNITY & GAURENTEE, CONTRACT OF
AGENCY

2. WHAT IS LAW ?
The oxford English dictionary defines the word Law as the rule
made by authority for the proper regulation of a community or
society or for correct conduct in life.
The term law has been defined by some of the legal scholars in the
following words.
Austin: A law is a rule of conduct imposed and enforced by the
sovereign (Supreme , superior ).
Salmond :law is the body of principles recognized and applied by
the state in the administration of justice.

3. Business law:
Business law encompasses all of the laws that dictates how to form
and run a business.
This includes all of the laws that govern
•How to start , buy, manage and close or sell any type of business
The term business ,commercial and mercantile in relation to
law are used in the same sense.
Business law refers to those rules and regulations , which govern
(administer) the formation and execution of business transactions
made by various persons in the society.
Business law includes laws relating to contract, sale of goods ,
negotiable instruments, partnership , company and many other
economic laws having a bearing on trade , industry and commerce.

4. Objectives of business law:
•To enable enforcement of right.
•To facilitate industrial growth.
•To achieve social justice.
•To defines the rules.
Requirements of effective business law:
•Rules must be obeyed voluntarily.
•Rules must be just and reasonable
•Rules must be flexible.
•Rules must be knowable.

5. Scope of business law:
•The Indian contract act 1872.
•The sale of goods act 1930
•The partnership act 1932
•The negotiable instrument act 1881
•The companies act 1956,2015
•The patents act 1970
•The consumer protection act 1986
•The competition act 1986

6. Sources of indian mercantile law or commercial law or business
law :
Commercial law is that branch of law which is related to trade and
commerce .the bulk Indian commercial law is to a large extent an
adaptation of the english law
The common law
Equity
Statute law
The law merchant(Customs and usages)
Precedents
The common law : The common law refers to a system of law
based on judicial precedent handed down from generation to
generation.

7. •The common law had existed in England even before the
parliament came into being.
Equity law :
•Equity is based on the concepts of justice developed by the judges
whose decisions subsequently became precedents (model , guide ,
example) .
•It is an unwritten law as it is not written in any statute or act,
equity law is more flexible
•There is a conflict between the rules of common law and the rules
of equity, the later prevails (over come)
•The distinction between them was how ever eliminated by the
judicature acts of 1873 and 1875

8. Statute law: The statute law consists of the law passed by the
parliament and therefore , is written law .
The authority of parliament is supreme but is subject to
natural limitations and those laid down by the constitution.
The law merchant(Customs and usages):
•It is another important source of law and is based to a great
extent on customs and usages prevalent among merchants and
traders of the middle ages.
•The common law was found to be unsatisfactory in dealing with
disputes certain rules based upon customs and usages to govern
their mercantile transactions.

9. All agreements are not contracts, but all contracts are agreements.
Define contract
The word contract is derived from the Latin word contractum which means
drawn together.
Simply contract is an agreement enforceable by law. It is an agreement
between two or more parties .
Definition of contract
According to salmond an agreement creating and defining obligation
between parties.
Section 2(h) An agreement enforceable by law is called Contract.
EXAMPLE: A agreed to paint a picture for B and B promised to pay
Rs.5000/-to A

10. Section 2(a) of the Indian contract act 1872 defines proposal.
Sec.2(a) proposal when one person signifies to another his willingness to
do.
The word proposal is equivalent the term offer under the English contract
Act.
Equivalent words
India English
Proposal Offer
Promisor/proposer offeror
Proposee/Promisee offeree
In the Indian contract Act 1872-
•section 2(a) defines Proposal
•Section 2(b) defines promise
•Section 2(c ) defines promisor and promisee
•Section 2(f) defines Reciprocal promises.
•Section 2(e) an agreement

11. Types of contract
Void contract
Voidable contract
Illegal contract
Unenforceable contract
Express contracts
Implied contract
Formal contract
Executed contract
Executory contract
Unilateral contract
Bilateral contract

12. Void contract: section 2(g) An agreement not enforceable by law is called
void agreement. the contract based on such contract is void.
Example: an agreement by a minor ,an agreement with out consideration ,
an agreement in Restraint of marriage , an agreement in restraint of trade.
Voidable contract: section 2(i) An agreement which is enforceable by law
at the option of one or more of the parties but not at the option of the
other or other’s is called voidable contract. Thus a voidable contract is one
which could be avoided by one of the parties to contract at the choice. If a
party does not to avoid the contract it becomes valid contract. if a party
wants to avoid the contract, it becomes void contract.
There fore contract entered by coercion , fraud ,misrepresentation ,undue
influence is called voidable contract.

13. Illegal contracts: A contract which is against the law or morality is called illegal contract.
Eg: a contract to murder or to commit robbery or to cheat.
Unenforceable contract: an unenforceable contract is one which has all the essential of contract
yet it cannot be enforced in a count of law because of some technical defects.
Eg: time- barred debt, a pro-note with in adequate stamp.
Express contract: contract entered in to between the parties bywords , spoken or written is
called express contract.
Eg: A write to B iam prepared to sell my car for one lakh rupees . B accepts it by a telegram .
This is an express contract.
Implied contract: contract entered by actions or conduct of the parties and not by their express
Words is called implied contracts.
Eg: A takes a seat in a bus .
Executory contract: an Executory contract is one in which both parties have not yet performed
their duties.
Eg: A agrees to sell his car to B for five lakhs . B promises to pay the price.

14. Unilateral contract: Unilateral contract is one where only one party has performed his
obligation either before or at the time of contract and the other party’s obligation is
pending .
Eg: A a porter puts B luggage in the railway carriage .
Bilateral contract: A contract is bilateral if the obligation of both parties are pending at
the time of formation of the contract.
Eg: A promises to sell his car to B after 20 days and B promises to pay the price on
delivery of the car
Formal contract: A contract without consideration is formal contract. It is not
recognized in India but they are required to satisfy certain legal formalities in order to
be valid and binding.
Simple contract: A contract which is not formal is called simple contract . It is also
known as Parole contract .it is made by words , spoken or written. Consideration is an
essential element to make a contract

15. ESSENTIAL CONDITONS OF A VALID CONTRACT: SECTION 10
•Minimum two parties
•Agreement= offer+acceptance
•Offer and acceptance
•Consensus ad idem
•Capacity to contract
•Free consent
•Lawful consideration
•Legal relation ship
•Lawful object
•Certainty of terms
•Possibility of performance
•Lawful agreement
•Legal formalities

16. •Minimum two parties: There must be at least two parties . They are called offeror and
offeree. They are also called as promisor and promisee.
•Agreement : There must be an agreement to do same thing in the same sense. Offer by
one party and acceptance by the other party make an agreement.
There fore, agreement= offer+acceptance
•Offer and acceptance: There must be a lawful offer and a lawful acceptance. A person
making an offer is called offeror or proposer and the person who accepts the offeror is
called offeree or acceptor.
•Consensus –ad –idem :consensus ad –idem means identity of minds . Both parties must
have clear understanding about the subject matter of the contract at the same time and in
the same sense.
•Capacity to contract : section 11 and12: Every person has capacity to enter into contract
if he is a major with sound mind . Minors and persons with mental disorder have no
capacity to enter into contract.

17. Free consent :section 13 there is must be free consent. It means both parties must enter
into an agreement with out any force ,fraud ,coercion , misrepresentation ,mistake , or
undue influence.
Law full consideration: section 2(d) there must be a consideration in every contract. It must
be lawful. Consideration means something in return . Price is called consideration . A
contract without consideration is void.
Legal relationship : parties must have intention to create legal relationship between them.
Eg: A agrees to sell his car to B for 95,000/- such agreement creates legal relationship but
some social contracts cannot crates legal relationship.
Eg: A wife cannot file a case when her husband fails to buy a saree on her birthday.
Lawful object: section 23: the object of the contract must be lawful. It must not be immoral
or illegal or proposed to public policy
Eg: An agreement to supply rice to student hostel is lawful but an agreement to supply rice
to terrorist organization is unlawful, because the object of terrorists is illegal.

18. Certainty of terms: the terms of contract must be clear they must not be vague or
uncertain.
Eg: A agrees to sell B a hundred tons of oil, the terms are not clear because which kind
of oil is not mentioned.
Possibility of performance: an agreement must be possible to perform. Law never
compel anybody to do an impossible act.
Eg: Transfer of the sun or the moon is an impossibility.
Lawful agreement: the agreement must not have been expressly declared void or illegal
by any law in force in India.
Eg: restrain of marriage, wager agreements.
Legal formalities: Agreement may be oral or written.

19. PROPOSAL/OFFER
An offer must be addressed to the world at large or to a specific person .
An offer addressed to the world is called general offer or offer at large and an offer
addressed to a specific person is called specific offer or to an individual .
Classification of offer:
General offer: it is an offer made to the public in general any one can accept and do
the desired act section 8 of ICA.
Examples :
A offers to sell his house and gives an advertisement in the newspaper giving the
particulars of the house . it is a general offer.
Special offer: when offer is made to definite person and such offer can be accepted
only by that specified person.
A offers to sell his house to B for Rs.50000/-. This is called specific offer. i.e., offered
to a particular person B.

20. Cross offer : when two parties exchange identical offers in ignorance at the time of each other
Offer the offers are called cross offer.
Eg: A offers by means of letter to sell his house to B for 5 lakh rupees .B on the same day
and in ignorance of A’s letter writes a letter to A offering to purchase his house for 5 lakhs .
Both letters cross each other.
Counter offer: counter offer is rejection of offer and making a new offer. If any term is refused
or varied or added by the offeree it creates new offer. It cannot be treated as acceptance.
Invitation to offer: is an invitation to the general public to make an offer. It is only a first step
in the formation of contract. An invitation to offer is not offer . Such invitations are not real
offer .In the eye of law and do not become promise on acceptance.
Standing offer: an offer which is allowed to remain open for acceptance over a period of time is
Called standing offer or open offer or continuing offer.
Eg: A offers to B to sell 100 tons of rice during 1st January to 31st December. the tender for
supply of goods is a standing order

21. Offer Invitation to offer
Offeror must have intention to have contract The party has no such intention or
willingness
Offeror must signify his intention or
willingness
The party need not his intention or
willingness
The person who makes an offer is called
offeror
Person inviting the offer cannot be called as
offeror
An offer becomes a promise when it is
accepted
It does not become promise when it is
accepted
General offer Specific offer
It made to public at large Made to an individual
Called as offer at large Called as offer to individual
There is no necessity to express the
acceptance by the offeree. fulfillment of
the conditions is itself is the acceptance
The acceptance by the offeree is sufficient
to form a binding contract. The fulfillment
conditions may be done at large
It is generally made through media like
advertisement in newspaper, pamphlets,
radio and TV
Generally the advertisement media is not
necessary for a specific offer.

22. Acceptance
Acceptance: section 2(b) 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.
eg. A offers to sell his car to B for 90000.B accepts this and agrees to buy A’s car for rs.90000 .
In this case a binding contract comes into existence between A and B.
ESSENTIALS OF A VALID ACCEPTANCE:
It must be communicated by the offeree to the offeror.
It must be obsolete and unqualified or unconditional
It must be made in the mode prescribed
It must be made while the offer is still subsisting
It must succeed the offer
It must be given before lapse of offer or revocation

23. WORDS OR CONDUCT
An offer may be made by words of mouth , or by writing. Or it may even
be made by conduct.
Among these three ways the offer made by writing is considered always
the best.
An offer which is made by conduct is called impiledoffer. an offer which is
expressed by words , written or spoken is called Express offer.
Section 9 of Indian contract act 1872
 Provides that proposal or accepentance of any promise is made in words
the promise is said to be express
The proposal or acceptance is made other wise than in words the
promise is said to be impiled.

24. Revocation of Offer and Acceptance
Revocation of offer : An offer may be revoked or cancellation or taking back or withdrawal of
offer. An offer may be revoked at any time before the offeree accepts it.section5
Eg: A offers, by letter to sell his house to B,B accepts the offer by a letter. A may revoke his
offer at any time before B posts his letter of acceptance and not afterwards.
Rules of revocation of offer:
•It can be revoked at any time before acceptance
•Revocation take effect when it is communicated
•An offer must be revoked before expiry of prescribed period, if no time is fixed it lapse on the
reasonable time
Eg. A offers by letter to sell his house to B,B accepts the offer by a letter. A may revoke his
offer at any time before B post his letter to acceptance and not afterwards

25. Revocation of accepentance
Generally acceptance is revocable . According to section 5, an offeree may cancel his
acceptance by speedier mode of communication. An acceptance may be revoked at any
time before acceptance is complete as against the acceptor, but not afterwards.
Eg. A offers by letter, to sell his house to B and B accepts the offer by a letter sent by
post. B can revoke his acceptance by sending a telegram or fax, which reaches earlier
than his letter sent by post.
Communication of revocation: section 4
The revocation of an offer or acceptance is effective if it is communicated.
Lapse of offer:
An offer should be accepted before it lapse ways stated in section 6 of ICA
•By communication of notice of revocation
•By lapse of time
•By failure to accept condition precedent, By change in law
•By the death or insanity of the offeror , By counter offer by the offeree,

26. Capacity to contract:section11
Capacity to contract: capacity to contract means the competence(capability) of the parties to
Enter into a valid contract.
1) Minors: thus a minor is a person who is below the age of eighteen years. The term minor is
explained
In section 3 of Indian majority act 1875.
Note : in the following two cases a person becomes a major on completing the age 21 years:
Where a guardian of a minors person or property has been appointed under the guardian and
wards act,1890.
2) Persons of unsound mind: A person of unsound mind is one who is not of sound mind.
The term Sound mind for the purpose of contracting is defined in section 12 of the ICA
Following persons are considered to be of unsound mind:
1) Idiot 2) Lunatics 3) Drunken

27. 1. Idiot : An idiot is a person who has completely lost his mental faculties of thinking . An
agreement with an idiot is absolutely void.
Ex: A entered into an agreement to sell his property worth about rs.25000 to B for rs. 7000 .
B brought an action for the recovery of the property . It was proved by A’s mother that
he was idiot . The sale was held to be void
1. Lunatics: A lunatic is not permanently of unsound mind. He can enter in to valid
contract during lucid intervals i.e., during the period when he is of sound mind.
2. Drunken or intoxicated persons: A drunken or intoxicated person is one who is so
drunk or intoxicated that he is incapable of understanding the terms of agreement.
3) Persons disqualified by law:
An alien enemies: an alien is a person who is a foreigner to the land. He may be either an
alien friend or alien enemy. If the state of the alien is at peace with the country of his stay
is an alien friend . An if a war is declared between the two countries he is termed as an
alien enemy.
a)Contracts during the war. B) contracts made before declaration of war

28. Free consent
Consent: The term consent is defined in section 13 of the Indian contract act 1872.
“Two or more persons are said to consent when the agree upon the same thing in the same sense.”
One of the essentials of a valid contract mentioned in Section 10 is that the parties should enter
into contract with free consent. According to Section 14, Consent is said to be free when it is
not caused by –
1. coercion, as defined in Section 15, or
2. undue influence, as defined in section16, or
3. fraud, as defined in Section 17, or
4. misrepresentation as defined in Section 18, or
5. mistake, subject to the provisions of Section 20, 21 and 22.
According to Section 15, “Coercion” is the committing, or threatening to commit, any act
forbidden (illegal) by the Indian Penal Code, or the unlawful detaining, or threatening to detain,
any property, to the prejudice of any person whatever with the intention of causing any person
to enter into an agreement.

29. Eg: A threatens to kill B if he does not agree to sell his car to A for rs-10000.fearing death B
enters into an agreement with A for the sale of his car for rs-10000 only.
Undue Influence: Undue influence refers to “ the unconscious use of power over another
person, such power being obtained by virtue of a present or previously existing dominating
control arising out of relationship between the parties. Section 16(1)
Essentials
•There must be relationship between parties.
•One party must dominate the will of other party.
•The dominate party must use his dominant position to obtain an unfair advantage.
Eg: A , a spiritual adviser (guru), induced B his devotee to gift to him the whole property
secure benefit to his devotee’s soul in the next world.

30. coercion Undue influence
It involves physical force It involves mental pressure
Dominating the will of the other is not
necessary
Dominating the will of the other is
necessary
It involves a criminal act No criminal act is involved
Coercion exercised by or against third
person
Undue influence exercised by or against the
party only
Coercion may proceed even from a strange
party
It cannot proceed with out relationship
Coercion may committed even outside India Undue influence should be exercised by
India
Misrepresentation section 18 Fraud section 17
It is a false statement made deliberately
with intention to deceive
It is a false statement made deliberately
without intention to deceive
It is an innocent misrepresentation It is an intentional false representation
No dishonest intention It involves dishonest intention
The person making the statement believes
the same to be true
The person making the statement knows
that it is false

31. MISTAKE 20, 21 and 22
When the parties do not agree on the same thing in the same sense because of
some misunderstanding, it is known as” MISTAKE”
Essentials
• Both the parties should be under a mistake
• Mistake must be related to a fact
• The fact mistaken must be an essential to agreement
• Mistake must be bilateral
TYPES OF MISTAKES
Mistake of law: The mistake of law may be two types 1) mistake of indian law 2)
mistake of foreign law
Mistake of fact:- The mistake of fact are two types
bilateral and unilateral
• Bilateral fact: It is the mistake in which both the parties to an agreement
are at mistake about certain facts essential to the agreement .
• unilateral fact: it is mistake in which only one of the parties to an agreement is at
mistake about the facts which are essential to the agreement. Generally a
unilateral mistake does not render the agreement void

32. Essential facts which render the agreement void
The bilateral mistakes about the following essential facts render an agreement void.
Mistake about subject matter: the existence , title , quantity , quality etc. of the subject
matter are essentials facts of bilateral mistake if these facts renders an agreement void.
Mistake about possibility of performance: the fact of possibility of performance is an
essential fact.
Effects of bilateral mistake
The effect of bilateral mistake is that the agreement is void and Cannot be enforced at the
option of either party to the agreement. Section 20 of the ICA states the effect of bilateral
mistake.
Eg. A agreed to sell certain goods supposed at the time of contract on their way from
Singapore ,Madras unknown to both parties , the goods having been damaged had already
sold by the shipping company. In this case the agreement is -------. (subject matter void)

33. Unilateral mistake: it is the mistake in which only one of the parties to an agreement is at
mistake about the facts which are essentials to the agreement. Generally a unilateral mistake
does not render the agreement void. It does not effect validity of contract.
How ever there are certain cases in which a unilateral mistake renders an agreement void.
•Mistake about the identity of the parties to an agreement
Eg. A ,B and C
•Mistake about the nature of the agreement
Sometimes a deed (i.e., document)
Effects of unilateral mistake
The effect of unilateral mistake is that the agreement is not void on account of such mistake
the option of either party to the agreement. Section 22 of the ICA states the effect of
unilateral mistake.

34. Consideration section 2(d)
Consideration means a price or a payment. It may be described as something accepted or
agreed upon as a return or equivalent for the promise made. Quid pro quo (something in
return)
Eg: A agrees to sell his house to B for rs-5,00,000 here rs-5,00,000 is the consideration for
A’s promise to sell the house and A’s promise to sell the house is the consideration for B’s
promise to pay rs-5,00,000
Essentials:
•Consideration to be given at the desire of promisor
•Consideration to be given by promisee or any body
•Consideration may be past, present, future
•There must be some act, abstinence or promise
Past Consideration : When the act is done before the date of promise it is called past
consideration.
Eg: A renders some services to B in the month of January. In the Februray B promises to
pay five thousand rupees.
Present consideration: eg A agrees to sell his car to B for one lakh . B pays money to A at
the time of making the contract.

35. Performance of contracts
Introduction : After the formation of a valid contract the next step to is fulfillment of the object
that the parties had agreed to do. For the fulfillment of the object the parties become liable to
perform their respective obligations.
Thus the performance of contract section 37 of ICA can be discussed under the following two
Heads:
1. Performance of the promise.
2. Offer of performance of the promise ( tender of performance)
Performance of the promise: When a party fulfils all his obligations under the contract the party
is said to have performed his promise.
Tender of performance: The party who is bound to perform his obligation under contract may
Make an offer to the other party to perform his obligation . An offer to perform obligation is
Called tender of performance.
A valid tender of performance is equivalent to the performance of promise.

36. Essentials of a valid tender of performance
A tender of performance is valid and discharges a party from further liability , if it
satisfies the following conditions:
• The tender must be unconditional i.e., (it should be in accordance with the terms of the
contract) section 38(1)
•The tender must be made at proper time and place section 38(2)
•The tender must be provided a reasonable opportunity to the other party to ascertain that
the person making tender is able and willing to perform the whole promise section38(2)
•The tender must be provided a reasonable opportunity to the other party to see that the
things offered are the same as agreed section 38(3)
•The tender must be of the whole obligation
•The must be made to the promisee or his authorized agent
•The person making the tender must himself be able and willing to perform his obligation

37. Performance entitled to perform and demand performance
Persons who should perform the contract:
Depending upon the intention of the parties the contract may be performed by the following
persons.
1. The promisor himself section 40
2. The legal representatives section 37
3. The agent section 40
4. The third person section 41
The promisor himself section 40
Generally the contract should be performed by the promisor himself or by his legal
representative or by any other competent person employed by him.
The contract involving personal skill or personal consideration of the promisor must be
performed by the promisor himself.
Eg. A contract to paint , sing or marry and the contracts of the technical nature . If the
promisor dies such contracts come to an end

38. Legal representative : The contracts which do not involve any personal skill or consideration
may be performed legal representatives of the promisor if he dies before performance of the
contract . section 37.
The agent: The contracts which do not involve any personal skill or qualification may also be
performed by an agent appointed by the promisor. Section 40
Eg. A contract to sell goods or contract to pay money.
The third person : the performance by a third person is effective if the promisee accepts the
same. Once promisee accepts the performance from the third person, then he cannot compel
the promisor to perform the contract again section 41.
Persons entitled to Demand Performance
As a matter of fact the performance can be demanded only by a person to whom the promise
made. Thus the promisee is the only person who can demanded performance of the promise
under contract.
If the promise is made for the benefit of the third person the right to demand performance
rests with the promisee only.
Eg. A promised B to give Rs. 100 to C. But A did not pay the amount to C. in this case the
person who can demand performance is B (i.e., the promisee) and not C

39. How ever incase of death of the promisee the legal representatives of the deceased
promisee can demand performance.
But where the contract involves a personal skill or consideration the legal representatives
of the deceased promisee cannot demand performance.
Contracts which need not be Performed
•When the performance of a contract becomes impossible section 56
•When the parties to contract agree to substitute a new contract for it , or rescind
or alter it, the original contract need not be performed section 62
•When the promise dispense (give out) with or remits the performance or extends
the time of performance section63
•When the party at whose option the contract is voidable rescinds the contract
then the other party need not perform the contract section 64
•When the promisee neglects or refuses to afford the promisor the reasonable
facilities for performance of his promise section 67

40. When the performance of a contract becomes impossible section 56
Eg. A and B contract to marry each other. Before the time fixed for marriage, A become mad.
In this case the contract becomes void and the parties are discharged from performance of the
contract.
•When the parties to contract agree to substitute a new contract for it , or rescind or alter it,
the original contract need not be performed section 62
Section 62 reveals that in the following circumstance the original contract need not be
performed
Novation Rescission Alteration
Novation: When the parties substitute a new contract for the existing contract ,then the existing
i.e., original contract need not be performed.
Rescission: When the parties rescind (cancel the existing contract ), then the existing contract ,
i.e., original contract need not be performed.
Alteration: When the parties alters the terms of the existing contract ,then the existing i.e.,
original contract need not be performed.

41. When the promise dispense (give out) with or remits the performance or extends the
time of performance section63
Eg. A promises to paint a picture for B. afterwards B dispenses with the performance i.e.,
forbids, A to paint the picture . in this case , B has dispensed with his right to claim
performance and thus A is not required to perform the contract.
When the party at whose option the contract is voidable rescinds the contract then the
other party need not perform the contract section 64
Eg. A induces B to enter in to a contract by practicing fraud upon him. In this case at B’s
option and when B rescinds to the contract ,then the contract is discharged and the parties
need not perform the contract
When the promisee neglects or refuses to afford the promisor the reasonable facilities for
performance of his promise section 67
Eg. A contracts with B to repairs B’s house . B refuses or neglects to point out to A the
place in which repair is requires. In this case A is excused for non performance of the
contract it is caused by such refusal or neglect

42. Performance of joint Promises
When two or more persons enter into a joint agreement with one or more persons the
promise is known as a joint promise.
Eg. A,B and C jointly borrowed a sum of Rs.15,000 from X and Y and jointly promised to
repay the amount it is a joint promise
The joint promisors or their representatives must joint perform the promise : the joint
promisors must jointly fulfill the promise during their joint lifetime. And if any one of
theme dies his legal representatives must jointly with the surviving promisers fulfill the
promise. On the death all the promisors the representatives of all of them must jointly fulfill
the promise.
This rule is called the devolution of joint liabilities and is contained section 42 of the ICA.
The promisee may compel any one of the joint promisors to perform the promise:
The liability of joint promisors is joint and several and the promisee may compel any one or
more of the joint promisors to perform the whole promise section 43
Eg. A,B and C Jointly promised to pay Rs. 30000 to D. in this case B may compel either A, B
or c to pay him the entire sum of Rs.30000.

43. Rights and liability of the joint promisors among themselves
Joint promisors are liable to contribute equally: If a joint promisor has been compelled to
perform the whole of the promise. He may require the other joint promisors to make an
equal contribution towards the performance of the promise section43
Eg. A,B,C and D jointly promised to pay Rs. 20000 to E . E filed a suit against A only and
recovered the entire amount from him. In this case , A can recover Rs. 5,000 each from B,C
and D.
Joint promisors liable to share losses equally: if any one of the jointly promisors does not
make any contribution the remaining joint promisors should bear the loss in equal shares
section 43
Eg: A,B and C jointly promised to par Rs.3000 to D. A was compelled to pay the entire sum
of Rs. 3000 . In this case , A is entitled to recover Rs.1000 each from B and C . If C is unable
to pay anything , then A is entitled to recover Rs.1500 from B.

44. The promisee may release one of the joint promisors
Eg: A , B and C jointly promised to pay Rs. 9000 to D . D released A from liability. In this case
,the release of A does not discharge B and C from their liability .They remain liable to pay
the entire amount of Rs. 9000 to D. and though A is not liable to pay to D but he remains
liable to pay B and C i.e., he is liable to make the contribution to the other joint promisors.
Time and Place for Performance:
The rules regarding the time and place for performance are contained in section
46 to 50 of the ICA.
•Where the time for performance is not specified in the contract section 46
•Where the time for performance is specified in the contract section 47
•Where the day for the performance is specified in the contract promisor make
demand section 48
•Where the place for performance is not specified in the contract section 49
•Where the manner and time for performance is prescribed by the promisee
himself, the promise should be performed in the manner and at time section 50.

45. Performance of Reciprocal Promises
A promise given in consideration of other party’s promise is known as a reciprocal promise
. The reciprocal promise is defined in section 2(f) of the ICA.
Thus when a contract consist of exchange of promises the promises are called reciprocal
promisee.
Eg. A and B promised to marry each other . These are reciprocal promises . In this case A’s
promise is the consideration for B’s promise . And B’’s promise is the consideration for A’s
promise.
Appropriation of payments:
Some times a debtor owes several debts to the same creditor and makes payment which is
not sufficient to discharge all the debts. In such cases, the payment is appropriated ( i.e.,
adjusted against the debts) as per section( 59 to 61)
These sections contain the rules as to against which debt the payment is to be appropriated
and be discussed
Where the debtor has stated that the payment made by him should be adjusted against a
particular creditor must do so if he accepts the payment section 59

46. Eg. If the amount paid by the debtor is the exact amount of one of the debts it must be used to
discharge that particular debt .
•Where the debtor makes payment without any indication about the appropriation of the
payment, the creditor may adjust the payment according to his discretion. Section 60
•Where the debtor does not expressly intimate anything about the appropriation of the
payment and the creditor also files to a make any appropriation the law prefers to wipe out
the earlier debt in order of the time irrespective of the fact that some of them are time
barred section 61

47. Breach of Contract and Remedies
In case of a valid contract the parties are bound to perform their respective obligations.
If any party fails to perform his obligations, there occurs a breach of the contract.
The Breach of contract means the failure of a party to perform his obligation.
The breach of contract is of the following two types
•Actual breach
•Anticipatory breach
Actual breach of contract
It occurs when on the due date of performance or during the performance a party fails
to perform his obligations
Actual breach of contract on the due date of performance: sometimes on the due date
of performance , one party fails to perform his obligation
Eg: A agreed to sell his car to B on 1st June. But on 1st June , A refused to sell the car to B.
On as refusal to sell the car there occurred a breach of contract . And B can hold A liable
for the breach of contract.

48. Actual breach of contract during its performance
Eg. A contracted to sell to B certain goods of particular description to be delivered
on 15th march. On the due date of delivery ,A delivered the goods to B. but the
goods did not conform to the description . In this case , the breach of contract is
committed during the performance of the contract as A Has not performed the
contract according to its terms. And thus B is not bound to take delivery of the goods
and pay for them
Anticipatory breach of contract
The doctrine of anticipatory breach of contract has been incorporated in section 39
of the ICA.
The doctrine of anticipatory breach occurs when prior to the due date of
performance the promisor absolutely refuses or disables himself from the
performance of his obligations.

49. Eg. A contracted to supply to B 100 pieces of spark plugs on 15th December 2006.
But before the due date of performance (i.e., 15th December), A informed B that
he is not going to supply the spark plugs at all. On A’s refusal to supply the goods
the anticipatory breach of the contract occurs and B may put an end to the
contract. In case of Breach of Contract the aggrieved party has the following
remedies
1.Suit for rescission 2. Suit for injunction 3.Suit for damages
4.Suit for specific performance 5.Quantum Meruit
1.Suit for rescission: Rescission means revocation or setting aside of a contract or
cancellation or putting an end to a contract. When one of the parties to a contract
breaks the contract, the other party may sue and refuse further performance. The
aggrieved party is also entitled to claim compensation of damages caused to him
due to non fulfillment of the contract.
E.g. A promise to sell a horse to B for Rs.50,000/- on 1st July. But B fails to pay the
amount. Now he is a entitled to rescind (cancel, withdraw) the contract.

50. Suit for Damages : The another remedy for breach of contract is suit for damages. Damages
means monetary compensation payable by defaulting party to the aggrieved party for the
loss suffered by the aggrieved party as a result of breach of contract. The aggrieved party
may claim for damages.
Suit for Quantum Meruit :In legal sense , it means the payment in proportion to work done.
i.e., a person can recover compensation in proportion to the work done by him.
The aggrieved party can file a suit for the payment of remuneration in proportion to the
work done.
Suit for Specific Performance : Sometimes award of damages are not considered to be an
adequate remedy in certain cases and therefore the court of law can direct the party in case
of breach of contract according to terms and conditions of the contract.
When there exists no standard for measuring the actual damage caused by the non
performance of the act agreed to be done.

51. Suit for Injunction : It is an order of a court prohibiting a party to a contract from
doing a particular thing or from doing something against the terms and
conditions of the contract. If the party breaches the contract, the aggrieved party
can go to court for injunction. The court has discretionary powers to grant
injunction order in case of clear negative stipulation and in case of inferred
negative stipulation.
Eg. A, a singer , agreed to sing at B’s theater for certain period .she further agreed
that during the prescribed period she will not sing at any other theater .
Afterwards, A made a contract with C to sing at his theater and refused to sing at
B’s theater . B filed a suit for injunction A from singing at C’s theater , it was held
that although A could not be compelled to sing at B’s theater, but she could he
restrained by injunction from singing at C’s theater.
Type of damages
Ordinary Damage Liquidated Damages Nominal Damages
Special Damages Vindictive/Exemplary Damages

52. Special Damages : Special damages are those damages if the parties had
knowledge about such damages when they made the contract, to be likely to
result from the breach of contract .
Nominal Damages : Where the injured or aggrieved party suffered no loss or very
negligible loss, the court may still award him/her nominal damages merely
acknowledge that the aggrieved or injured party has proved his case and won it.
Ordinary Damages : These are also called natural damages, which arise in
ordinary course of events from break of contract. It requires aggrieved party must
have suffered damages by breach of contract and damages must be the proximate
or direct consequence of the breach of contract.
Vindictive/Exemplary Damages : Heavy damages are imposed by the court to
discourage the faulty party under the two following cases :
(a) Breach of a contract to marry.
(b) wrongful dishonor of a cheque by a banker.

53. Quasi contracts
A quasi-contract is “a legal substitute for a contract”.
The term quasi contract may be defined as a relation which resembles
(look like) that created by a contract.
A quasi-contract is used when a court wishes to create
an obligation upon a non-contracting party to avoid injustice.
As a matter of fact quasi contract is not a contract in the strict sense of
the term, because there no real contract in existence.
Moreover there is no intention of the parties to enter into a
contract.
It is an obligation which the law creates in the absence of any
agreement. Such obligation imposed the law are generally described as
quasi contractual obligation.

54. Will the man be held liable for payment?
Yes, if it could be proven that the man knew that the
sprinklers were being installed mistakenly  the court would
make him pay because of a quasi-contract.
No, he would not be liable if that knowledge could not be
proven.

55. Basis of quasi contracts
The quasi contracts are based on the maxim of ‘NEMO DEBET
LOCUPLATARI EX LIENA JUSTUA”. i.e., no man must grow rich out of
another persons costs .
In other words these are based on the equitable principle
that a person shall not be allowed to enrich himself at the expenses
of another.

56. Basis of distinction Quasi contract contract
Meaning It is not intentionally
formed by the parties but
law-imposes upon the
parties.
It is intentionally formed
by parties.
Essentials of contract A quasi contract does not
possess all the essential
of a valid contract.
A contract possess all the
essentials of a valid
contract.
Obligation Obligations are thrust
upon by the law.
Obligations are mutually
created by the parties.
Foundation It is founded upon the
principle of equity
It is founded upon general
principles of law of
contracts.
Objective It is imposed by law for
bringing about justice
It is entered into with an
object to create mutual
rights and obligations
Difference between quasi contract and contract

57. Types of Quasi contracts:
 Supply of necessaries to persons who are incompetent to
contract (Sec.68)
 Payment by an interested person (Sec.69)
 Obligation to pay for non gratuitous act (Sec.70)
 Responsibility of finder of goods (Sec.71)
 Payment of money or delivery of goods by Mistake or Coercion
(Sec.72)

58. Supply of necessaries to persons who are incompetent to contract (Sec.68)
Sometimes a person supplies the necessaries to a person who is not competent to
contract (i.e., minor, persons of unsound mind such as lunatics)
Eg. A supplied to B. a lunatic the necessaries suitable to his condition in life. In this
case A entitled to be reimbursed from B’s property.
Payment by a person having some interest in payment section 69
A person who is interested in the payment of money which another is bound by
law to pay and who therefore, pays it, is entitled to be reimbursed by the
other.
Eg. A held land in Bengal on a lease granted by B, a zamindar. The revenue payable
by B fell in arrears. As such , his land was advertised for sale by the
government. Under the revenue law the consequences of such sale was the
annulment of A’s lease.

59. Non gratuitous acts section 70
The non gratuitous acts means the acts which are not done free. A person who
does some non gratuitous acts for another is entitled to recover compensation for
such acts if the other person enjoys the benefits of such acts.
Eg. A a tradesman , left certain goods at B’s house by mistake . B treated the goods
as his own and used them. In this case , B is bound to pay for the goods to A.
Finder of goods: SECTION 71
Sometimes, a person finds certain goods , belonging to some other person. In such
cases, the goods do not become the property of the finder.
A person who finds goods belonging to another and takes them into his custody is
subject to same responsibility as a bailee. Section 403 IPC
Eg. When the true owner cannot be found , he can sell the goods which are of
perishing nature.

60. His liabilities:
•Responsible to take care of the goods as if they were his own Must.
•with reasonable carefulness trace the true owner.
Payment of money or delivery of goods by mistake or coercion:
Section 72
A person to whom money has been paid or anything delivered by mistake or under
coercion, must repay or return it.
Eg. A and B jointly owed Rs. 100 to C, A alone paid the amount to C .And B, not
knowing this fact , also paid Rs 100 to C. In this case, C is bound to repay the
amount to B who has paid it by mistake

61. CONTINGENT CONTRACT section 31
The term contingent contract in simple words , may be defined as a conditional
contract.
Section 31 defines a contingent contract is a contract to do or not to do something,
if some event, collateral (security , guarantee) to such contract, does or does not
happen.
The analysis of this section shows that a contingent contract is a contract which is
dependent on the happening or non-happening.
Eg. A contracts to pay Rs.10,000 to B if his (B’s) house is burnt. This is a contingent
contract as its performance is dependent upon an uncertain event (i.e., burning of B’s
house).
Eg. On 1st January A agrees with B that if he (A) gets a new car by 13th January, he will sell
his old car to him for Rs.40,000. it is a contingent contract as the performance of A’s
promise depends upon his getting a new car. If he gets the car, he shall perform the contract
. otherwise no.

62. Essential elements of a valid contingent contract:
There must be a valid contract.
The performance of the contract must be conditional.
The event must be uncertain (doubtful , unsure , undecided).
The event must be collateral to the contract.
•There must be a valid contract: A contract to do or not to do something must
be legally valid. i.e., it must fulfill the basic requirements of a valid contract.
•The performance of the contract must be conditional: The performance of a
contingent contract must depend upon the happening or non happening of
some future event.
Eg. A promises to pay Rs 500 to B if it rains on first of the next month. It is a
contingent contract as its performed depends upon future event (i.e., rain)

63. The event must be uncertain (doubtful , unsure , undecided): The future event
upon which The performance of a contract depends, must be an uncertain event.
If the event is certain (sure) ,i.e., the event is bound to happen then the contract is
not a contingent contract.
The event must be collateral (security , guarantee) to the contract: The uncertain
event upon which the performance of the contract is dependent, must not form a
part of the consideration of the contract . In other words the event must be
independent.
Eg. A agreed to purchase B’s horse for Rs 2000, if the horse proved lucky. It is not
a contingent contract as the event (i.e., luck of the horse) is directly connected
with the contract. (void for uncertainty)

64. Rules
1. contingent contract dependent on the Happening of future is to be
uncertain event.
2. contingent contract dependent on the Non- Happening of future is to be
uncertain event.
3. contingent contract dependent on the Happening of specified uncertain
event with in fixed time.
4. contingent contract dependent on the Non- Happening of specified
uncertain event with in fixed time .
5. contingent contract dependent on impossible event .

65. • contingent contract dependent on the Happening of future is to be
uncertain (doubtful) event:
A contingent contract dependent on the happening of a future uncertain event
can be enforced only when that uncertain event has happened section 32.
Eg. A contract to pay Rs 1000 to B then he (B) married C . But C died before the
marriage . In this case the contract becomes void as B’s marriage with C
has become impossible.
•contingent contract dependent on the Non- Happening of future is to be
uncertain event:
contingent contract dependent on the Non- Happening of future uncertain event
Can be enforced only when the happening of that event becomes impossible as
then that event cannot happen section 33.

66. Eg. A agreed to pay B Rs 500 if a certain ship did not return. The ship was sunk
. It is a contingent contract and can be enforced by law when the ship sinks.
Because when the ship sinks the event becomes impossible.
•contingent contract dependent on the Happening of specified uncertain event
with in fixed time:
contingent contract dependent on the Happening of specified uncertain event
with in fixed time can be enforced that event happens within the fixed time.
Eg. A agreed to pay Rs. 1000 to B if a certain ship returned within a year. It is a
contingent contract and can be enforced by law if the ship returns within a year.
contingent contract dependent on the Non- Happening of specified uncertain
event with in fixed time:
contingent contract dependent on the Non- Happening of specified uncertain
event with in fixed time can be enforced if that event does not happen within
fixed time .

67. Eg. A agrees to pay Rs 2000 to B if a certain ship does not return within a year. It is a
contingent contract and can be enforced if the ship does not return within a year.
•contingent contract dependent on impossible event:
Eg. A agreed to pay Rs 500 to B if he proved that two straight lines can enclose a
space . This is a void agreement as two straight lines can never enclose a space.

68. WAGERING AGREEMENT
•Wager means a bet. An agreement to pay money or money worth on happening or
non happening of event
•Each party has equal chance to win or lose the bet
•Parties should not have any other interest other than amount
ESSENTIAL OF WAGER
•Promise to pay money or money worth
•Depends on happening or non happening of event
•One party is to win, other is to lose
•Parties should not have any other interest other than amount

69. Contract of Indemnity
“A contract of indemnity is 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.” (Section 124)
In a contract of indemnity there are two parties. The party who promises to save
the other is known as indemnifier. The party who is promised to be saved or
protected against loss is known as the indemnity holder or indemnified
To ‘indemnify’ means to save from loss
Mr. A contracts with the Government to return to India from abroad after
completing his studies and serve the Government for a fixed period. He fails to
return to India. This is a contract of indemnity and he is bound to reimburse the
Government

70. •A person who promises to make good the losses, i.e., the promisor is called the
indemnifier and the person whose loss is to be made good, i.e., the promisee is
called the indemnity-holder or the person who is indemnified.
•By a contract of indemnity, a security is provided to the promisee against any
anticipated loss.
•To ‘indemnify’ means to save from loss
Examples:
Motor insurance
Marine insurance
Fire insurance
Life insurance is not the contract of indemnity.

71. Essentials & Rights
Essentials
•Must contain all the essentials of a valid contract.
•Promisee must have suffered a loss.
Rights of indemnity-holder (promisee)
Entitled to recover from promisor – Damages. All damages which he may be
compelled to pay in any sued in respect of any matter to which the promise to
indemnify applies.
Entitled to recover from promisor – Costs. All cost which he may be compelled
to pay in defending such sued provided he acted prudently or with the authority
of the indemnifier.
Entitled to recover from promisor – All sums. All sum which he may have paid
upon compromise of such sued provided the compromise was not contrary to the
order of the indemnifier and was careful or was formal by the indemnifier.

72. Contract of Guarantee
It is a contract to perform the promise, or discharge the liability of a third person
in case of his default.
Example: A requests B to lend Rs. 1000 to C and guarantees if C does not pay the
amount, he will pay. This is
PARTIES TO CONTRACT OF GUARANTEE
SURETY: The person who gives the guarantee is called the “surety”. Person giving
guarantee is also called as ‘guarantor’.
PRINCIPAL DEBTOR: The person in respect of whose default (failure to pay) the
guarantee is given is called the “principal debtor”, and
CREDITOR: The person to whom the guarantee is given is called the “creditor”.

73. Distinguish between Contract of Indemnity and Contract of Guarantee
BASIS
CONTRACT OF
INDEMNITY
CONTRACT OF
GUARANTEE
1. No. of parties
There are two parties to
the contract viz.
indemnifier (promisor)
and the Indemnified
(promise).
There are three parties
to the viz. creditor,
principal debtor and the
surety
2. Liability of parties
Liability of the
indemnifier to the
indemnified is primary
and independent.
Liability of the surety to
the creditor is collateral
or secondary, the
primary liability being
that of the principal
debtor.

74. 3. No. of contracts
There is only one
contract in case of a
contract of indemnity,
i.e., between the
indemnifier and the
indemnified.
In a contract of
guarantee there are three
contracts, between
principal Debtor and
Creditor; between
creditor and the surety
and between surety and
principal debtor.
4. Liability is due
The liability of the
indemnifier arises only
on the happening of a
contingency.(un fore seen
event)
There is usually an
existing debt or duty, the
performance of which is
guaranteed by the surety.
5. Liability of third party
An indemnifier cannot
sue a third party for loss
in his own name, because
there is no privity of
contract. He can do so
only if there is an
assignment in his favour.
A surety, on discharging
the debt due by the
principal debtor, steps
into the shoes of the
creditor. He can proceed
against the principal
debtor in his own right

75. Primary liability is of the principal debtor.
Liability of surety is secondary.
And arises when Principal Debtor fails to fulfill his commitments.
 However, this is so when surety gives guarantee at the request of principal
debtor.
If the surety gives guarantee on his own, then it will be contract of indemnity.
In such case, surety has all primary liabilities.
Three parties are involved in contract of guarantee. Contract between any two of them is
not a ‘contract of guarantee’. It may be contract of indemnity.
Types of Guarantee
Ordinary Guarantee: When a guarantee is given for a single specific debt or
transaction, it is called ordinary transaction.
Continuing Guarantee: When a guarantee extends to a series of distinct (different)
and separable transactions, it is continuing guarantee.

76. Rights of surety: after performing the promise or discharging the liability of the
principal debtor, a surety gets various rights against the following parties.
Rights against the creditor
Right to securities : a surety is entitled to the benefit of every security which the
creditor has against the principal debtor at the time of contract of surety ship. In
case the creditor fails to return the security . The surety is discharge to the extent
section 141
Rights of subrogation: a surety subrogates (replace) all the rights of the creditor
against the principal debtor
Right to claim set off: set –off means a right of counter claim or right of deduction
from the amount of debt.
Right equities: upon discharge of the guaranteed obligation the surety is entitled
to all the equities available to the creditor not only against the principal debtor
but also against all persons claiming through him.

77. Right to be discharged: A surety has a right to be discharge from the further obligation
under the fidelity guarantee if the misconduct or dishonesty of employee is proved for
whom he has given the guarantee.
Right to dismissal of employee: In case of fidelity (loyalty) guarantee a surety can
ask the employer to dismiss the employee who is proved guilty of misconduct or
dishonesty
Rights against the principal debtor
Right of subrogation: upon discharge of the guaranteed obligation , a surety gets all
the rights of the creditor against the principal debtor section141
Right to indemnity: in every contract of guarantee there is an implied promise by the
principal debtor to indemnity the surety. Section 145

78. Discharge of surety from liability:
A surety is said to be discharged from his liability when his liability under the
guarantee comes to end.
A surety may be discharged from his liability by any of the following modes.
Discharge of surety by Revocation
•By notice: A specific guarantee cannot be revoked if the liability under the
contract has already been created. But a continuing guarantee may at any time be
revoked by the surety. estate
This revocation applies as to future transactions. section 130
•By death : subject to contract to the contrary (oppose) the death of the surety
operates as revocation of a continuing guarantee as regards future transaction.
section131
•By Novation of contract: Novation of contract means substitution of anew
contract of guarantee for the existing one. section62

79. Discharge of surety by conduct of the creditor
A surety may also be discharged from his liability if the conduct of the creditor has any of the
following consequences:
•Variation in terms of the contract
•Release or discharge of principal debtor
•Compounding by creditor with the principal debtor
Variation in terms of the contract: when any variance in the terms of conduct
between the principal debtor and the creditor is made with out the surety's consent
the surety is discharge as to transactions, subsequent to the variance sec133
Release or discharge of principal debtor: The surety is discharged (free,
release) by any contract between the creditor and the principal debtor by which the
principal debtor is released , or by any act or omission of the creditor the legal
consequence of which is the discharge of the principal debtor sec 134

80. Compounding by creditor with the principal debtor: when the
creditor makes a contract with the principal debtor without the assent (agreement) of
the surety by which the creditor makes composition or promises to give time or not
to sue the principal debtors the surety is discharged sec 138
Eg. A gives a loan to B on the security of C, afterwards ,A obtains B’s scooter as
a further security subsequently, A gives up the further security, i.e., returns the
scooter to B. in this case ,C is not discharged to the extent of the value of the
security as further security was given after loan had already been given
Discharges of surety by invalidation of the contract
By obtaining guarantee by misrepresentation section 142:any guarantee which
has obtained by means of misrepresentation made by the creditor, or with his
knowledge and assent (true) ,concerning a material part of transaction, is
invalid.

81. •By obtaining guarantee by concealment sec 143: guarantee which the creditor
has obtained by means of keeping silence as to the material facts of
circumstances is invalid.
Eg. A engaged B as a cashier. B misappropriate some cash. There upon , A asks
B to bring some surety who can guarantee his conduct . C give his guarantee
for B’s good conduct. A does not inform C about B’s previous misconduct .B
again misappropriate cash . C is not liable as a surety
•By the failure of the co-surety to join section 144: where a person gives upon a
contract that the creditor shall not act upon it until the other co-surety has
joined the guarantee is not valid if the other person does not join.
•Whether failure of consideration between the creditor and principal debtor
discharged the surety.

82. What is contract of agency?
Can a minor appoint an agent or can a minor be appointed as agent?
What are the rights and duties of agent and principal?
Meaning of Contract of Agency
AGENT
An ‘AGENT’ is a person employed to do any act for another or to
represent another in dealings with third persons. The function of an
agent is to bring his principal Into contractual relations with third
persons.
PRINCIPAL
A person for whom the above act is done or who is so
represented is called the ‘PRINCIPAL’

83. General rules
1. Whatever principal can do by himself , he may get the same
done through an agent except the act involved is of personal
nature . E.g. Marriage
2. What person does by himself . Thus , the acts of the agent are
the acts of the principal.
The contract which creates the relationship of principal and agent
is called an agency. The terms agent and principal have been
defined in section 182 of the contract act

84. Example: where X appoints Y to buy ten tones of iron on his behalf ,X is the principal ,
Y is the agent and contract between the two is agency
Principal - s 183
The person for whom act is done by an agent or who is represented in dealings
with third persons by an agent is called as principal .
Who may become principal ?
Any person who is of the age of majority according to the law of majority
and who is of sound mind may employ an agent . It has been held that a
guardian of a minor can appoint him( minor) as agent Section 183
In a contract of agency the agent is authorized to establish privity (relationship)
of contract between the principal and a third party . as such the function of an
agent is essentially to bring about contractual relations between the principal
and third parties.

85. .
Consideration for Agency s 185
No consideration is required for creating an agency .
Thus the contract of agency constitutes an exception to the rule contained
in s.25 of ICA that no consideration – no contract. It means there can be a
gratuitous contract of agency
WHO MAY BE AN AGENT?
Acc to sec 184 of ICA any person who is authorized to act such a
person may be an agent. As the agent does not make contracts on
his own behalf it is not necessary that he should have contractual
capacity.

86. Difference Between An Agent And A Servant
Scope of authority: An agent can create a contractual relationship
between the principal and third parties. But a servant cannot
create contractual relationship between its employer and third
parties.
A servant acts under the direct control and supervision of his
employer and is bound to follow all the reasonable orders given to
him in the course of his employment.
Remuneration: An agent receives commission for his services.
A servant is generally paid wages or salary.
On whose behalf: An agent may work for several principals at the
same time. A servant can serve only one master at a time

87. An agent may work for several principals at the same time but servant
usually serves only one master.
A principal is liable for the wrongs of his agent done within the scope
of his authority. A master is liable for the wrongs of the servants if they
are committed in the course of his employment.
Kinds of agents

88. General Agent- Is one employed to do all the acts connected with a
particular business or employment Eg: manager of a firm.
Special Agent – employed to do some particular act or represent his
principal in some particular transaction.
Eg: agent employed to sell a motor car.
Universal Agent – Whose authority is unlimited. He enjoys extensive
powers to transact every kind of business on behalf of principal.
I. Mercantile agent-
An agent dealing in the buying and selling of the goods. An
agent who has the authority either to sell the goods, or to
consign (dispatch, deliver) the goods for the purpose of sale,
or to buy the goods or to raise the money on the security of
the goods on behalf of his principal

89. Types of Mercantile Agents
Factor
Possession(ownership , custody) of the goods is given for the purpose of
selling the same – sells in his own name – has general lien – usually
sells in his own name
Broker
Appointed to negotiate and make contracts for the sale and purchase on
behalf of the principal – not given possession – not in his own name
Commission agent
buys and sells and receives commission

90. Del credere agent
Agent as well as Guarantor.
One who in consideration of an extra commission, guarantees his
principal that the third persons with whom he enters into
contracts on behalf of the principal shall perform their financial
obligations i.e. if the buyer does not pay , he will pay.
Non- mercantile agents
Does not usually deal in the buying or selling of the goods. They include
Insurance agents ,Counsels or advocates, wife.etc.

91. Creation of Agency
Modes of creating contract of
Agency
By express
authority
By implied
authority
By
ratification
By
estoppels
By holding
out
By
necessity

92. Express Agency (sec186) –
A person may be appointed agent, either by word of mouth or by
writing. No particular form is required for appointing an agent.
Implied Agency (sec187) -
An agency which arises from the conduct, situation or relationships of
parties.
Eg: A owns a shop in Shimla , living himself in calcutta and visiting occasionally .
The shop is manage d by B and he is in the habit of purchasing goods from C
in the name of A for the purpose of the Shop and of paying the money out of
A’s funds with the knowledge of A . B has an implied authority from A to
order the goods from C in the name of A for the purpose of A’s Shop .

93. Agency by estoppel -
Where a person by his words / conducts induces third
person to believe that certain person is his agent . The person
who induces as such is estopped from denying the truth of
agency
Ex – X tells Y in the presence and within the hearing of Z that X is
Z’s agent . Z doesn’t contradict this . Later on Y enters into
contract with X believing that X is a agent of Z . In such case Z
is bound by this contract .

94. Agency by holding out –
It is a similar to the agency by estoppel . Holding out means holding the
person liable as it is the principal .
Ex – A allows his wife to manage his property and to mortgage it .A is
bound by the act of his wife .
Agency by necessity –
Agency by necessity arises under following circumstances
i. There is an actual necessity for acting on behalf of principal
ii. It is impossible to communicate with the principal and obtain his
consent
iii. The act must be done in the interest of principal .

95. Agency by Ratification s 196
Meaning – It arises when a person , on whose behalf the acts are done
without his knowledge or authority , expressly or impliedly ,accepts
such acts . Thus , when the principal approves an act of the agent who
never had an authority to undertake such acts , it is called as
ratification . It is also called as ex post facto agency . i.e agency
arising after event .
Ex – A without authority buys goods for B . Afterwards B sells them
to C on his own account . B’s conduct implies that ratification of the
purchases made for him by A
Ex – A without B’s authority , lends B’s money to C . Afterwards B
accepts the interest on the money from C . B’s conduct implies
ratification to loans.

96. Duties of an agent
1. Duty to follow the instructions of the principal – if not..
2. Duty to carry out the work with care and skill
3. Duty to render accounts to the principal
4. Duty to communicate with principal – if no time
5. Duty not to deal on his own account
6. Duty not to make secret profits from agency
7. Duty to pay the amount received for the principal
8. Duty not to use the information, received in the course of agency, against
the principal
9. Duty to protect the interest of the principal in case of his death or insanity
10. Duty not to delegate authority

97. 1. Rights to retain money due from the principal
2. Right to receive remuneration
3. Right of lien – The agent has the right to retain goods, papers and other
property- only particular lien
4. Right to be indemnified against consequences of lawful acts.
5. Right to compensation
6. Right to be indemnified against consequences of acts done in good faith
7. Right of stoppage of goods in transit.
(a) Principal becomes insolvent
(b) Agent has bought goods out of his own money
Rights of an agent

98. •Recover damages from agent if he disregards directions of Principal
•Obtain accounts from Agent
•Recover moneys collected by Agent on behalf of Principal
•Obtain details of secret profit made by agent and recover it from him
•Forfeit remuneration of Agent if he misconducts the business
Rights of principal
Duties of principal
•Pay remuneration to agent as 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.

99. Essentials and legal rules
• There should be an agreement between the principal and the agent
:Agreement maybe: Express or implied
• The agent must act in the representative capacity.
• The principal must be competent to contract.
• The agent need not be competent to contract. Why? But in the interest of
the principal?
• The consideration is not necessary.

100. BAILMENT derived from French word ‘bailler
Definition : Sec.148
“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 (liable , ready) 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.
Eg: A delivers a piece of cloth to B ,a tailor ,to be stitched in to a suit.
there is a contract of bailment between A and B.

101. Examples:
1. Hiring a bicycle
2. Giving cloth to a tailor
3. Delivering watch for repair
Bailor: who gives
Bailee : who takes
Bailment: transaction (deal , business , contract)
Essential features of Bailment
•Delivery of goods
•Contract
•Return of goods in specie

102. 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.(useful , productive)
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 (willing , liable) of according to the directions of the bailor,
either in original form or in altered form.

103. Bailment on the basis of benefits
•Bailment for the benefit of Bailor only
•Bailment for the benefit of Bailee only
•Bailment for the mutual benefit of both Bailor & Bailee
Based on benefit:
Bailment for the exclusive benefit of :
1] bailor: leaving goods in safe custody without paying
2] bailee :a loan of some article like a pen
3] mutual benefit: contracts for hiring, repair ,etc

104. Bailment may also be classified into two types
Non – Gratuitous bailment or bailment for reward: where either of
the two parties is entitled to remuneration.
Gratuitous bailment : where no remuneration is payable either to
the bailor or the bailee.
Difference between sale & bailment
•Ownership transferred?
•Buyer under no obligation to return goods?
•Ownership not transferred?

105. ESSENTIALS AND LEGAL RULES AS TO BAILMENT
Contract: A bailment is usually created by agreement b/w the bailor & bailee.
Delivery of Goods: In bailment, the possession of goods must be delivered by
the bailor to the bailee.
No Transfer of Ownership: In bailment, possession(custody) is transferred from
one person to another but ownership of goods remains with the bailor.
Delivery of Goods for Some Purpose: The delivery of goods must be for some
specific performance.
Return of Specific Goods: Goods are delivered to the bailee with the condition
that the same goods will be returned to the bailor after the accomplishment of
purpose.
Movable Goods: In bailment, the goods bailed must be movable.
Deposit of Money Into Bank: Deposit of money into bank by a customer is not a
contract of bailment because the money deposited is not returned in identical
coins and notes deposits.

106. Duties of Bailee
•Take reasonable care of goods[S.151]
•Not to make unauthorized use of goods [S.154]
•Not to mix goods with his own goods{S.155 mixes with consent ,
without consent S.156, without consent impossible to
separateS.157}
•Duty to return goods {A hires a horse for 4 days, fails to return,
horse dies, has to pay price of horse} section 160 and 161
•Duty to return any accretion( addition ,increase) to goods {cow +
calf} section 163

107. Duties of bailor
•Disclose faults in goods
•Repay necessary expenses in case of gratuitous bailment.. feeding
expenses for the horse kept in safe custody
•Repay extraordinary expenses in case of non-gratuitous bailment..
If horse falls ill during bailment period then giving expenses
•Duty to indemnify bailee.. If A gives his neighbor's scooter to B
•Duty to receive back the goods

108. RIGHTS OF BAILOR:
Right of Termination: bailor has right to terminate the contract
of bailment, if the bailee does any inconsistent act with regards to
goods.
Right to Demand Return of Goods: Any time in case of
gratuitous bailment. The bailor can demand back goods bailed at
any time even if he had lend it for a specific goods.
Right to file a suit against a wrong doer.
Enforcement of Rights: The duties of bailee are the rights of
bailor & bailor can enforce those rights by filing a suit against
bailee.

109. RIGHTS OF BAILEE:
Right to Interplead: If the person other than bailor claims the goods, bailee may
apply to court to stop the delivery.
Right Against third Party: If a third person wrongfully deprive bailee to use the
goods or cause any injury, then bailee is entitled to such remedies which are
available to real owner.
Right of Particular Lien: When the bailee has rendered some services or skills
on the good he had right of particular lien unless he is paid.
Right of General Lien: Banker, factors, attorney of High Court, policy broker will
be entitled to retain as a security for a general balance of account any goods
bailed to then.
Right to Claim Compensation in Case of faulty Goods.
Right to claim necessary expenses.
Right to return the goods to any of the joint bailor.

110. PLEDGE OR PRAWN (SEC.172)
Bailment of goods as security for payment of debt or performance
of a promise :PLEDGE
The bailor is called Pledger or Pawnor and the bailee is called
Pawnee.
Bailor: PAWNER
Bailee: PAWNEE
Example:
A borrows Rs.100 from B & keeps his watch as security : pledge

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

112. •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 sue the pawner or sell the goods on default.
Rights of Pawnee
Rights of Pawnor
•Enforcement of pawnee’s duties
•Defaulting pawnor’s right to redeem