Meaning and definition of Indian Contract Act 1872

Introduction:

The Indian Contract Act, 1872 is the law relating to Contracts in India. It came into force on September
1, 1872 and is extended to the whole of India except to the state of Jammu and Kashmir.

The term 'Contract' has been defined in Section 2(h) of the Indian Contract Act, 1872. It
defines the Contract as an agreement enforceable by law.
An agreement cannot become a contract unless it can be enforceable by law. To be enforceable
by law, a contract must contain all the essential elements of a valid contract as defined in Section
10.

According to Section 10, "All agreements are contracts, if they are made by the free consent of
the parties, competent to contract, for a lawful consideration, with a lawful object and are not
expressly declared by the Act to be void.

Now after examining the definitions of contract we can say that-

Contract = Agreement + Enforceability

Illustration- There is an agreement between A and B that A will construct a house for B, and B
will pay Rs. 10 lakhs to A.The agreement between A and B is a contract because it is enforceable
by law.

Essential Elements of a Contract

A contract that is not a valid contract will have many problems for the parties involved. For this reason,
we must be fully aware of the various elements of a valid contract.

Essential Elements of a Contract as defined in Section 10 of the Indian Contract Act 1872

Vital Elements of a Valid Contract

1. Offer and Acceptance:- With a specific end goal to make a legitimate contract, there must be
a ‘legal offer’ by one gathering and ‘legal acknowledgment’ of the same by the other party.

Example: – John offers to purchase a house from the builder (Estate organization) and
manufacturer acknowledges it.

2. Aim to Create Legal Relationship:- In the event that, there is no such plan from gatherings,
there is no agreement. Understandings of social or local nature don’t ponder legitimate relations.
Case: – Balfour versus Balfour (1919)

3. Lawful Consideration:-Consideration has been characterized in different ways. As indicated

by Blackstone,”Consideration is a reward given by the gathering contracting to another.” as it
were of Pollock, “Consideration is the cost for which the guarantee of the another is brought.”

Example:- John is purchasing a house by giving Rs 10,00,00 to the manufacturer.

4. Capacity of the parties:- The gatherings to an understanding must be capable to contract. In

the event, that both of the gatherings does not have the ability to get, the agreement is not
substantial.

Agreeing the accompanying persons is clumsy to contract.

(a). Minors,

(b). Persons of unsound personality, and

(c). Persons precluded by law to which they are subject.

Example:- Anita is equipped for paying to the manufacturer while the developer has the position
of the house prepared to give.

5. Free Consent:-“Consent” implies the gatherings probably settled upon the same thing in the
same sense. As per Section 14, Consent is said to be free when it is not created by-

(1). Coercion,

(2). Undue impact

(3). Fraud

(4). Mis-representation

(5). Mistake.

Example:- John is purchasing the house due to the deceptive notice by the manufacturer of
having ocean confronting flats yet just by paying higher rate was not unveiled.

6. Legal Object:-The object of understanding must be legitimate. Item has nothing to do with
thought. It implies the reason or configuration of the agreement. Accordingly, when one
contracts a house for utilization as a betting house, the object of the agreement is to run a betting
house.

The Object is said to be unlawful if-

(a). It is illegal by law;

(b). It is of such nature that if allowed it would crush the procurement of any law;

(c). It is deceitful;

(d). It includes a damage to the individual or property of whatever other;

(e). The court views it as corrupt or contradicted to open strategy.

7. Certainty of Meaning:- As indicated in Section 29,” Agreement the importance of which is

not Certain or fit for being made sure are void.”

8. Probability of Performance:- On the off chance that the demonstration is inconceivable in

itself, physically or legitimately if can’t be upheld at law.

Example – Builder guarantees to have John an additional sq feet space for their home that is not
lawfully enlisted then it is unrealistic.

1. Agreement - Offer and Acceptance

An offer or proposal by one party and an acceptance of that offer by another party iscalled an
agreement. An agreement has been defined by the Act as “every promise or every set ofpromises
forming considerations for each other.” The acceptance of the offer must be according to the
mode prescribed and must be communicated to the proposer. Further, the intention of the
agreement must be tocreate legal relationship between the parties. Agreement must be capable of
performance with terms whichare clear and certain. It should not be suffering from either a
fundamental mistake or impossibility ofperformance.
Cases;- A and B agree to go to a movie on coming Sunday. A does not turn in resulting in loss of B’s time
B cannot claim any damages from B since the agreement to watch a movie is a domestic agreement
which does not result in a contract.

The parties to the contract should have a mutual understand regarding the subject-matter of
the contract. There must be a "lawful offer" and "lawful acceptance" thus resulting in an
agreement. The parties must have agreed to the subject-matter in the same sense.

2. Intention to create legal relationship:

Whenever parties make an agreement, their must be anintention to create a legal
relationship between them. If such intention is not present, there is no contractbetween
the parties. In case of social or domestic agreements, parties do not contemplate
legalrelationship, as such these are not contracts.
Example: a husband agreed to pay to his wife certain amount as maintenance every
month while he was abroad. Husband failed to pay the promised amount. Wife sued him
for the recovery of the amount. Here in this case wife could not recover as it was a social
agreement and the parties did not intend to create any legal relation.
3. Free consent :- consent of the parties must be genuine consent means agreed upon same
thing in the same sense i.e. there should be consensus – ad – idem. A consent is said to be free
when it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
Example: a threatened to shoot b if he B does lend him 20000afs and b agree to it. Here the
agreement is entered into under coercion and hence voidable at the the option of B.

4. Lawful Consideration
Consideration is an essential element of a valid contract. An agreement
withoutconsideration is a bare promise and is not binding on the parties.Contracts result
only when a promise is made inexchange for in something in return. This something in
return is termed as “consideration”.
Example: A agrees to sell his car to B for a sum of Rs.10,000. For A’ a promise the
consideration is asum of 10,000 while for B’s promise consideration is the car.
Consideration means 'something in return'. In every legal contract, there must be something in
return. An agreement is legally capable to be enforced only when each of the parties to it gives
something and gets something. The consideration should not be unlawful, illegal, immoral or
opposed to public policy.
4. Capacity to contract
Section 11 of the Indian Contract Act provides the requirements for competancy of the parties
to the contract.
It says, "Every person is competent to contract, who is of the age of majority, according to law,
which he is subject to
also who is of sound mind and
who is not disqualified from contracting by any law to which he is the subject"
. Minors, lunatics, unsound and intoxicated persons are incompetent to enter into a contract.
However, there are exceptions as defined in Section 68. In case of an exception the minor or
lunatic is not personally liable.

5. Consent to contract
All the parties must have agreed upon the subject matter of the agreement in the same sense.
Section 14 says that if the agreement is induced by coercion, fraud misinterpretation or mistake,
it is said to be "no free consent" and such a contract is voidable and cannot be enforceable by
law.
6. Lawful object
The object of the agreement should be lawful and not of which the law is disapproved.
The object would be unlawful if it is forbidden by law , is fraudulent, or cause injury to
the person or property of another or is immoral or opposed to any public policy.
The agreement must not relate to a thing which is contrary to the provisions of any law or
hasexpressly been forbidden by any law or which is opposed to public policy or
immoral. All agreements which are notlawful cannot be enforced by law.
Example: A agrees to sell certain goods to B. A knows that the goods are to be smuggled
out of the country.The contract is unlawful and not enforceable.

7. Certainity
 Every agreement of the contract must be certain. If the agreement is not certain or incapable of
being made certain, it is void.
Example: a agrees to sell to b a hundred tons of oil. There is nothing in order to show what kind
of oil was intended for sale.

8. Possibility of Performance
Every contract must be capable of performance. Otherwise, the agreement is void. An
agreement to do an impossible act whether physically or legally, is void.
Example: a agree with b to discover treasure by magic the agreement cannot be enforced as it is
not possible to be performed.

9. Not expressly declared void

The agreement must not have been expressly declared to be void under the Act. Examples of
such agreements are restrainment of trade, marriage, legal proceedings and wagering
agreements. Such agreements are not enforceable by law.
Example: threat to commit murder o r making defamatory statement or entering into
agreegment which are opposed to public policy are illegar in nature.
10. Legal formalities like Writing, Registration etc.
A contract may be oral or in writing according to the Indian Contract Act. In certain special cases
the agreement must be in written. In some cases like contracts by companies, selling or buying
of shares etc., the contract must be registered.
e.g. contract of insurance is not valid except as a written contract.

Two parties: one conanot contract with himself. A contract involves at least two parties one
party making offer and ther other party accepting it
A contract may be made by natural personsand by other persons having legal existancce e.g.
companies, universities.
Example; to constitute a contract of sale, there must be two parties- seller and buyer. The seller
and buyer must be two different persons, because one person cannot buy his own goods.

Conclusion
Contracts play a very important role in the day-to-day life of every person. Contracts or agreements
between various parties are framed and validate by the Contract Act. So for the formation of a
contract, the above-given conditions must be fulfilled by the parties.

Good source for element andy types

Types of Contract

On the basis of validity/enforceability

1. Valid contract
“ an agreement enforceable by law is a contract’. An agreement which has all the essential
element s of a a contract is know as a valid contract. A walid contract is one which can be
enforce by any opthe parties to the contract and the aparty not at fault acan also file a suit In
the court of law.
Example– A offers B to offer his home for Rs 3 Lakhs. B consents to purchase the house at this
cost. It is a substantial contract.Void contract
2. Voidable contract
An agreement enforceable by law at the option of one or more parties, but not at the the
option of other is a voidable contract’. A vaoidable contract is one whichi can be set aside,
repudiated or avoided at the option of the aggrieved party. Until the contract is se aside or
repudiated by the aggrieved party, it remains a valid contract
Exampe Contract with a minor to work can be Voidable.
Or amar promisies to sell his horse to akabar for1000 and amer’s consent was obtained
forcvefully. The contract is voidable at the option of amar if he fails to avoid the contract
remains valid.
3. Unenforceable contract
A contract which is good in substance, but due to technical defects cannot be enforce by law is
known as unenforceable contract. If the defect is removed , the contract can be enforced
Example when the law requires that a contract should be in writing , stamped or registered the
contract cannot be enforced by lae if such formalities are not properly observed
4. Void contract
“a contract which cease to be enforcedable by law becomes void whien it ceases to be
enforceable”. In other wors a void contract is a contract which has enforceabley by, when
originally created, but ue to the happening of some events, it ceases to be enforceable by law.
W Example: amar offer to marry laxmi. Laxmi accepted the offer. Later laxmi dies t the contract
was valid at the time of formation but subsequently becomes void on the death of laxmi
Or destruction of subject matte
Death of the parties
Parties becoming unsound mind
Party becoming alien enemy
5. Illegal agreement
The term illegar refers to an act which is in contravention of law, in oter words agreements
which are forbidden and punishable by law are called illegal agreements. Making of such
agreements is unaccepatable and the law does not recognize such agreeements and they are
declared void-ab-initio. Moreover any collateral agreement to an illegal agreement is also
tainted with illegality and hence void.
Example; Salman agree to pay 1 lakh to virat if he skills smit. Such agreement s are ++9 in nature
and therefore cannot be enforced in the court of law.
A contract is illegal if its forbidden by law or is of such nature that if permitted would defeat the
provisions of any law or is fraudulent; or involves or implies injury to a person or property of
another, ot court regard it as immoral or opposed to public policy. These agreements are
punishable by law. These are void-ab-initia. “ all illegar agreements are void agreement but all
void agreement are not illegar”.
On the basis of Formation

1. Express contract
Where the terms of contract are expressly agreep in words( written or spoken) at the time of
formation, the contract is said to be express contract.
Example: amar said to akbar. “ will you buy my watch for 50” akbar replies, “I am ready to buy”.
This is an express contract made orally.

2. Implied contract
An implies contract is one which is inferrend from the acts or conduct of the parties of from the
ccurcumstances of the cases. Where a proposal or acceptance is made otherwise than in words,
promise is said to be implied.
Example: buying a cup of tea in a restaurant, getting into public bus, using a phone booth ar
some of the many examples where parties do not signify there offer an d acceptance by words
spoken or written.
3. Quasi contract
A quasi contract is created by law. Thus, quasi contracts are strictly not contract as there is no
intention of perties to enter into a contract. It is legal obligation which is imposed on a party
who is required to perform it. A quadi contract is based on the principle that a person shall not
be allowed to enrich himself at the expense of another
Example: amar a trader leaves goods at akbar’s place. Akhbar treats the good as his own and
uses the goods. Akbar is bound to pay for the goods to amar as akbar has used the goods to his
benefit.
4. E-contract
An e contract is the one, which is entered between the parties via interent. It is one of the most
common ways of contracting in the current scenario. The offer and acceptance of the arties don
not happen in person but over the information technology (internet)
Example: rohit ordered a law book from an online book store. The book store makes the delvier
in four working days and rohit pays for the same.

On the basis of exten of execution

Tacit is something that is unspoken and tacit contracts are those contracts where the offer or the
acceptance is communicated indirectly through different gestures and symbols made by the parties to
the contract. A contract is said to be tacit when the same is inferred from the conduct of the
parties.Withdrawals of cash through Automated Teller Machine (ATM), sale by fall of hammer at an
auction sale are examples of tacit contracts.

Tacit means something which is "unspoken or implied." An opinion or view which is not
"voiced" is said to be tacit. In other words, a tacit point may be communicated indirectly in the
form of gestures or signs. In some cases, a tacit piece of information need not be expressed with
speech or words; it is inferred or understood (taken for granted) instinctively. Here are a couple
of sentences which will illustrate the meaning of the word with examples: 1. Her knowing smile
gave me a tacit consent to make the next move. 2. Both parties are bound by a tacit contract,
because they trust each other blindly.
Read more at: https://www.caclubindia.com/experts/tacit-contract-75281.asp

1. Executed contract
An executed contract is one in which bothe the parties have performed their respective
obligation.
Example: hussian agrees to paint a picture for amitah for 5k when Hussain paints and Amitabh
pays the price, i.e., when both parties perform their obligation, the contract is said to be
executed contrct.
2. Executory contract
An executory contract is one where one or both the parties to the contract have still to perform
their obligations in future. Thus, a contract which is partially performed or wholly unperformed
is termed as executory contract.
Example: x offer his auto to y for 10k. y acknowledges x offer. On the off chance, that x has not
yet conveyed the auto and y has not yet paid the cost, it is executory contrct.
3. Unilateral contract
A unilateral contract is one in which only one part has to perform his obligation at the time of
ther formation of the contract, the other part having fulfilled his obligation at the time of the
contract or before the contract comes into existence.
Example: raj makes payment for rail tickets for his journey from delhi to chandigarh. He has
performed his promise. It is now for the rail way company to perform the promise.
4. Bilateral contract
A bilateral contract is one in which the obligation on both the parties to the contract is
outstanding at the time of the formation of the contract. Bilateral contracts are also know as
contracts with executory consideration
Example: amar promises to sell his twol wheeler for 15k to akbr and agrees to deliver the two
wheeler on the receipt of the payment by the end of the month. The contract is bilater as both
 the parties have exchanged a promise to be performed within a stipulated time period in the
future.

Other types of contract

Contract of record
Judgement of court
Recognizance
Acknowledgement of debt of state/governemt

Contract under seal

A contract is made as per a person signs a document”
e.g. signing checque, signing partnership deal etc.

Proposal or Offer
According to the Indian Contract Act 1872, proposal is defined in Section 2 (a) as “when one
person will signify to another person his willingness to do or not do something (abstain) with a
view to obtain the assent of such person to such an act or abstinence, he is said to make a
proposal or an offer.

Let us look at some features or essentials of such an offer

 The person making the offer/proposal is known as the “promisor” or the “offeror”. And
the person who may accept such an offer will be the “promisee” or the “acceptor”
“offeree”.

 The offeror will have to express his willingness to do or abstain from doing an act. Only
willingness is not enough. Or simply a desire to do/not do something will not constitute
an offer.
 An offer can be positive or negative. It can be a promise to do some act, and can also be a
promise to abstain (not do) some act/service. Both are valid offers.

Example: Mr. A says to Mr. B “will you purchase my car for 10k?” in this case Mr. A is making

an offer to Mr. B. here A is the offeror and B is the Offeree.

Essentials of a Valid Offer

1. There must be two parties

for a v,alid offer there must be two parties. A person cannot make an offer to
him self. Ther parties to contract are:

the person who make offer is called offeror or promisor

the person to whom offer is made is know as offeree or promise.

2. The offer must be communicated

3. Offer may be expressed or implied
4. Offer must create legal relation
5. Offere must be clear not vogue
6. Offer must be different from invitiaton
7. Offer may be positive or negative
8. The offer must have its terms definit and clear

The terms of offer must be certain, definit and clear. If the terms of the offer are
not certain or definite it is not a valid offer, as it not clear what exactly the
parties intend to do.

Example: ram offer to sell to Rahim his glod ring for 10k or 15k. here ram
offer is not certain becoz it is not clear as to which of the price is to be paid by
Rahim.

9. The offer must be made with view to obtain the assent of the other party

The offer must be made with an intension to obtain the assent of the other
parth. The offer made as a prank or joke is not a valid offe and therefore it
accepted it cannot amount a valid contract.

Example: if B jokingly offer M to sell his scooter 11k and m knows that B is
not serious, accepted the offer, then such acceptance doesnot hold any value as
the offer made jokingly In not valid

The offer may invove doing something or not doing something. An offer to do
no something is a positive offer and an offer not to do something is a negative
offer.
 Example: anil proposes sunil to manufacture 10k shirt the proposal is to do
something . i.e to manufacture shirts. This is positive offer

Example 2: anil a debtor to sunil proposes to sunil “ if you do not fill a suit
against me for defamation for nex three, I shall give you 5k you over 1000.
Over and above the outsanding amount of such proposal is said to be a proposal
to abstain from doing something. This is negative proposal.

Here are some of the few essentials that make the offer valid.

1] Offer must create Legal Relations

The offer must lead to a contract that creates legal relations and legal consequences in case of
non-performance. So a social contract which does not create legal relations will not be a valid
offer. Say for example a dinner invitation extended by A to B is not a valid offer.

2] Offer must be Clear, not Vague

The terms of the offer or proposal should be very clear and definite. If the terms are vague or
unclear, it will not amount to a valid offer. Take for example the following offer – A offers to sell
B fruits worth Rs 5000/-. This is not a valid offer since what kinds of fruits or their specific
quantities are not mentioned.

Offeror shuld have intention to obtain the consent of the offeree

When a person is making an offer it means that he is making it with a view to obtain the consent
of the offeree. As soon as the offeree accepts it, the offeror is bound by it.

Offer must be distinguished from invitation

An invitation to offer is anction inviting other parties to make an offer to form a contract. In the
case of of an invitation to offer the person sending out the invitation does not make an ooffer by
only invites the other part to make an offer. Thus such invitation for offers are therefore not offer
in the eye of law and do not become agreement by their acceptance.

Menu cad of restaurant is an invitation to put an offer

Example: price tag attached with the goods displayed in any showroom or supermarket is also
an invitation to proposal. If the sales man or the cashier oes not accept the price, the intereste
buyer cannot compel him to sell, if he wants to but it, he must make proposal.

Or job or tener ads inviting application for a job or inviting tenders is an invitation for an offer.
3] Offer must be Communicated to the Offeree

For a proposal to be completed it must be clearly communicated to the offeree. No offeree can
accept the proposal without knowledge of the offer. The famous case study regarding this is
Lalman Shukla v. Gauri Dutt. It makes clear that acceptance in ignorance of the proposal does
not amount to acceptance.

4] Offer may be Conditional

While acceptance cannot be conditional, an offer might be conditional. The offeror can make the
offer subject to any terms or conditions he deems necessary. So A can offer to sell goods to B if
he makes half the payment in advance. Now B can accept these conditions or make a
counteroffer.

It may be subject to any terms & conditions:

An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the
mode of acceptance. There is no contract, unless all the terms of the offer are accepted in the
mode prescribed by the offeror. It must be noted that if the offeror asks for sending the
acceptance by telegram and the offeree sends the acceptance by letter, and the offeror may reject
such acceptance.

Example:
A asks B to send the reply of his offer by telegram but B sends reply by letter, A may reject such
acceptance because it is opposed to the prescribed mode of communication.

It must not contain cross offers:

When two parties make similar offers to each other, in ignorance of each other’s such offers are
called cross-offers. The acceptance of cross-offers does not result in complete agreement.

Example:
On 23rd December 2007, A wrote B to sell him 100 ton of iron at Rs.10,000 per ton. On the same
day, B wrote to A to buy 100 tons of iron at Rs.10,000 per ton. There is no contract between A &
B because the offers wee similar and made in ignorance of the other and so there is no
acceptance of each other’s offer.
It should not contain negative condition:
An offer should not contain a condition the non-compliance of which may be assumed as
acceptance. An offeror cannot say that if acceptance is not communicated up to a certain date,
the offer would be presumed to have been accepted. If the offeree does not reply, there is no
contract, because no obligation to reply can be imposed on him, on the ground of justice no
agreement because such condition cannot be imposed on the offeree. It is only a one sided offer.

Example:
A wrote to B offering to sell his book for Rs.500 adding that if he didn’t reply with in 5 days, the
offeree would be presumed to have been accepted. There is no agreement b/c such condition
can’t be imposed on the offeree. It is only a one sided offer.

5] Offer cannot contain a Negative Condition

The non-compliance of any terms of the offer cannot lead to automatic acceptance of the offer.
Hence it cannot say that if acceptance is not communicated by a certain time it will be
considered as accepted. Example: A offers to sell his cow to B for 5000/-. If the offer is not
rejected by Monday it will be considered as accepted. This is not a valid offer.

6] Offer can be specific or General

An offer may be made to definite person or persons or to the world at large.
When it is made to some specific person or persons it is called a specific offer.
When it is made to the world at large it is called a General offer. A specific
offer can be accepted only by the person to whom the offer has been made
and in the manner, if any specified in the terms of the offer.
But a general offer can be accepted by any persons having notice of the offer
by doing what is required under the offer
Carlill V. Carbolic Smoke Ball Co. (1983). In this case, the Company advertised that a reward of
£ 100 would be given to any person who contracted influenza after having used the smoke-balls
of the Company as directed. Mrs. Carlill used the smoke-balls according to the directions of the
company. but contracted influenza. It was held, that the offer was a general one, and Mrs. Carlill
had accepted it by acting in accordance with the advertisement, and therefore, the company could
not get away from its responsibility by saying that they had not meant it seriously. She was
entitled to the reward.

In India, the principle was applied in the case of Har Bhajan. Lal V, Han Charan Lal. In this case
offer of reward was made to any one tracing a lost boy and bringing him home. Harbhajan Lal
who knew of the reward. found out the boy and took him to the Police Station. It was held that he
was entitled to the reward.

7] Offer may be Expressed or Implied

The offeror can make an offer through words or even by his conduct. An offer which is made via
words, whether such words are written or spoken (oral contract) we call it an express contract.
And when an offer is made through the conduct and the actions of the offeror it is an implied
contract.

Example: If A says to B that he is willing to sell him his car for a sum of Rs. 10,000 it is an
express offer.
Example : A bus company runs a bus on a particular route. This is an implied offer by the bus
company to take any person on the route who is prepared to pay the prescribed fare. The
acceptance of the offer is complete as soon as a passenger gets into the bus.

Offer must be communicated: – The offer should be properly communicated as to whom the
offer is made. The offer stands completely only when the offeree is communicated about the
same. If offer accepted without any proper communication and information is not valid.

Leading case: Lalman Shukla V. Gauri Dut (1913):

In this case, G’s nephew has absconded. He sent his munim L in search of the missing boy. In his
absence, G issued hand bills oferring a reward of Rs, 501/- to anyone who might find out the boy
L found out the boy before seeing the hand bills. Later on, he came to know of the reward and
sued G for the reward. Here he could not claim the reward as he did not know about the offer.

(1) By words (whether written or oral)

The written offer can be made by letters, telegrams, E-mail, advertisements, etc. The oral offer
can be made either in person or over the telephone.

(2) By conduct : The offer may be communicated by making positive acts or signs to the offeree.
However, the silence of a party does not amount to an offer.

Example– When you board a taxi, you are accepting to pay the taxi fare via your conduct.

Case Laws

(1)In Balfour vs. Balfour (1919)

Mr. Balflour was a civil engineer and worked for the government as the Director of Irrigation in
Ceylon(now Sri Lanka).In 1915 both of them came back to England when Mr. Balflour was on
leave but due to an illness(arthritis) of Mrs. Balfour, she was unable to come back to Ceylon with
her husband. The husband promised to pay 30 euros per month to his wife until she rejoined him
in Ceylon. The husband failed to pay her the said amount hence the wife sued him for the amount.
The court held that the husband was not liable as there was no intention to create a legal
relationship.

(2)In Jones v Padavatton(1969)

Mrs. Violet Laglee Jones agreed with her daughter Mrs. Ruby Padavatton that if she would give
up her job in the USA and studied for the bar exam in England, the mother would pay her an
allowance of 200$ per month. In 1964 the mother bought a house and varied the agreement by
giving the daughter a part of the house to stay and a part to rent so as to cover her expenses and
her maintenance. In 1967 the parties had an argument and as a consequence, the mother brought
an action for the possession of the house. The mother based her claim on the allegation that the
agreement was not made with the intention of creating a legal relationship. It was held that there
was no intention to create a legal relationship and gave possession to the mother.

Classification of Offer

There can be many types of offers based on their nature, timing, intention, etc. Let us take a look
at the classifications of offers.

Express offer: when the offeror expressly communicate the offer the offer is said to ben an
express offer the express offer may be made by

Spoke word or written word

Implied offer: when the offer is not communicate expressly its called implied offer. An offer
may be implied from: the conduct of the parties or the circumstances of the case.

General Offer

A general offer is one that is made to the public at large. It is not made any specified parties. So
any member of the public can accept the offer and be entitled to the rewards/consideration. Say
for example you put out a reward for solving a puzzle. So if any member of the public can accept
the offer and be entitled to the reward if he finishes the act (solves the puzzle.)

Specific Offer

A specific offer, on the other hand, is only made to specific parties, and so only they can accept
the said offer or proposal. They are also sometimes known as special offers. Like for example, A
offers to sell his horse to B for Rs 5000/-. Then only B can accept such an offer because it is
specific to him.

Cross Offer

In certain circumstances, two parties can make a cross offer. This means both make an identical
offer to each other at the exact same time. However, such a cross offer will not amount to
acceptance of the offer in either case.

For example, both A and B send letters to each other offering to sell and buy A’s horse for Rs
5000/-. This is a cross offer, but it will be considered as acceptable for either of them.

When does a contract come into existence: a contract comes to existence when any of the parties
accept the cross offer made by the other party.
Counter Offer

There may be times when a promise will only accept parts of an offer, and change certain terms
of the offer. This will be a qualified acceptance. He will want changes or modifications in the
terms of the original offer. This is known as a counteroffer. A counteroffer amounts to a rejection
of the original offer.

Standing, open and continuous offer

An offer is allowed to remain open for acceptance over a perio of time ks known as standing,
open or contionually offer. Tender for supply of good s is a kind of staning offer.

Example: when we ask the newspaper vendor to supply the newspaper daily. In such case we do
not repeat our offer daily and the newspaper vendor supplies the newspapaer to us daily. The
offer of such type are called standing offer.

LAPSE OF AN OFFER
 An offer should be accepted before it lapses (i.e. comes to an end). An offer may come to an end
in any of the following ways stated in Section 6 of the Indian Contract Act:

1. By communication of notice of revocation: An offer may come to an end by communication

of notice of revocation by the offeror. It may be noted that an offer can be revoked only before
its acceptance is complete for the offeror. In other words, an offeror can revoke his offer at any
time before he becomes before bound by it. Thus, the communication of revocation of offer
should reach the offeree before the acceptance is communicated.

2. By lapse of time: Where time is fixed for the acceptance of the offer, and it is not acceptance
within the fixed time, the offer comes to an end automatically on the expiry of fixed time. Where
no time for acceptance is prescribed, the offer has to be accepted within reasonable time. The
offer lapses if it is not accepted within that time. The term ‘reasonable time’ will depend upon
the facts and circumstances of each case.

3. By failure to accept condition precedent: Where, the offer requires that some condition
must, be fulfilled before the acceptance of the offer, the offer lapses, if it is accepted without
fulfilling the condition. ARUN VERMA - (c) 14

4. By the death or insanity of the offeror: Where, the offeror dies or becomes, insane, the offer
comes to an end if the fact of his death or insanity comes to the knowledge of the acceptor before
he makes his acceptance. But if the offer is accepted in ignorance of the fact of death or insanity
of the offeror, the acceptance is valid. This will result in a valid contract, and legal
representatives of the deceased offeror shall be bound by the contract. On the death of offeree
before acceptance, the offer also comes to an end by operation of law.
5. By counter – offer by the offeree: Where, a counter – offer is made by the offeree, and then
the original offer automatically comes to an end, as the counter – offer amounts to rejections of
the original offer.

6. By not accepting the offer, according to the prescribed or usual mode: Where some
manner of acceptance is prescribed in the offer, the offeror can revoke the offer if it is not
accepted according to the prescribed manner.

7. By rejection of offer by the offeree: Where, the offeree rejects the offer, the offer comes to
an end. Once the offeree rejects the offer, he cannot revive the offer by subsequently attempting
to accept it. The rejection of offer may be express or implied.

8. By change in law: Sometimes, there is a change in law which makes the offer illegal or
incapable of performance. In such cases also, the offer comes to an end.

An offer lapses by subsequent illegality or destruction of subject matter. An offer lapses if it

becomes illegal after it is made, and before it is accepted. An offer may lapse if the substance,
which

is the subject matter of the offer, is destroyed or substantially impaired before acceptance

An offer lapses by not being accepted in the mode prescribed, or if no mode is prescribed, in
some

usual and reasonable manner. But, according to Section 7, if the offeree does not accept the offer

according to the mode prescribed, the offer does not lapse automatically. It is for the offeror to
insist

that his proposal be accepted only in the prescribed manner, and if he fails to do so he is deemed
to

have accepted the acceptance

Acceptance
The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom the
proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus the proposal
when accepted becomes a promise.”

Therefore once an offer is accepted it cannot be revoked because it has become a promise which
creates a legal obligation between the parties.

When the proposal is accepted and it becomes a proposal it also becomes irrevocable. An offer
does not create any legal obligations, but after the offer is accepted it becomes a promise. And a
promise is irrevocable because it creates legal obligations between parties. An offer can be revoked
before it is accepted. But once acceptance is communicated it cannot be revoked or withdrawn.

Example -Anita offers to buy Priya’s car for Rs.10 lakhs and Priya accepts such an offer. Now,
this has become a promise.

Essentials of a valid acceptance

1. Acceptance mst be given by(offeree) that person only to whom the offer is made
The proposal can only be accepted by the person to whom it is made (offeree) and not by any
other person. If it is accepted by any other person on behalf of the original proposed, there
cannot be a promise and the parties be valid.

Acceptance must be communicated

Necessary for the valid acceptances that it must be communicated by the Offeree to the offerer.
If the offeree has the intention to accept the proposal but he fails to communicate it to the
offerer, there cannot be an acceptance and therefore, there cannot be a contract.
Illustration: A offers to sell his car to B for Rs. B intends to accept the proposal writes a letter of
acceptance of the Proposal but forgets to dispatch it. A sells the car to C, B has no claim against
A because his acceptances has not been communicated to A.

2. Acceptance must be absolute and unqualified

Acceptance of the proposal must be absolute and unqualified by the offeree. There cannot be
the slightest deviation from the term of the offer for the valid acceptances. So it is compulsory
for the valid acceptances that the offeree must accept the proposal with all its terms and
conditions.
Illustration: A offers to sell his motorcycle to B for Rs. 20,000 on a cash basis. B accepts the
proposal and pays Rs. 10,000 down and promises to pay the balance of Rs. 10,000 at evening.
There cannot be a contract because the acceptance is not absolute and unqualified.

3. The acceptance must be given with in the prescribed time

 The acceptance must be given within the time prescribed by the offerer and if no time
prescribed by the offerer for the acceptance of the proposal, the proposal must be accepted
within a reasonable time. The reasonable time is a question of fact, depends on each particular
case.
Illustration: The application for the allotment of shares was given on June 8th. The applicant was
informed on November 23 that’ shares were allotted to him. He refused to accept them. In a
legal proceeding, it was held that due to the delay in notification of acceptances: time applicant
is not bound to purchase shares (Ramsgate Victoria Hotel”‘ Co. Vs Montefiore 1866)

4. Acceptance must be unconditional

It is another important essential element of a valid acceptance. A valid contract arises only if the
acceptance is absolute and unconditional. It means that the acceptance should be in total (i.e. of
all the terms of the offer), and without any condition.

Thus, an acceptance with a variation is no acceptance. It is simply a counter offer. A counter

offer puts an end to the original offer, and it cannot be revived by subsequent acceptance.

Example:
A offers to sell his watch to B for Rs.500 and B replies that he can buy it only for Rs.300 thee is a
material variation in the acceptance. Therefore, there is no agreement as the acceptance is not
absolute and unconditional.

5. The acceptance must be given within the time prescribed by the offerer and if no time
prescribed by the offerer for the acceptance of the proposal, the proposal must be accepted
within a reasonable time. The reasonable time is a question of fact, depends on each particular
case.
Illustration: The application for the allotment of shares was given on June 8th. The applicant was
informed on November 23 that’ shares were allotted to him. He refused to accept them. In a
legal proceeding, it was held that due to the delay in notification of acceptances: time applicant
is not bound to purchase shares (Ramsgate Victoria Hotel”‘ Co. Vs Montefiore 1866)

6. ACCEPTANCE MUST FOLLOW THE OFFER: The acceptances always given after the proposal is
made. The acceptance is not possible before the offer is received. Therefore, a person cannot be
allotted this shares of the company until he applied for them.
Illustration: A offers to pay Rs. 5000 to a person who provides information about his lost horse.
B ignorant of A proposal provid4 information to A about his lost horse. But later on, he known
about A offer B is not entitled to get the reward of Rs. 5000 because cannot be made before the
proposal.

7. The acceptance cannot be presumed from silence:

Sometimes, the acceptor does not convey his decision to the offer or/and keeps silent. In such a
case, his silence does not amount to acceptance. Similarly, the offeror does not have the legal
 rights to say that if no answer is received within a certain time, the offer shall be deemed to
have been accepted.
He (the offeror) cannot impose a condition that offeree’s silence will be regarded as equivalent
to acceptance.

8. It may be Express or Implied:

When an acceptance is given by words spoken or written, it is called express acceptance. When
it is given by conduct, it is called implied acceptance. Sometimes the proposal instead of being
made to a definite person is made to the public.

Example:
A wrote a letter to B to sell his cycle for Rs.2,000. B accepted his offer and sent a letter of
acceptance to A. It is an express acceptance.

9. Acceptance must be communicated in the method specified by oferer

offeree is bound to accept the proposal with a manner prescribed by the offerer for the
acceptance of the proposal. If the offeree deviates from the manner prescribed by the offerer
for the acceptance of the proposal, the proposer has a right not to accept the acceptance and
there cannot be a contract.
Illustration: A offers to sell 100 units of his product for Rs. 20 per unit to B and requires that
acceptance must be sent through a telephonic message. But B sends a letter for the acceptance
of the Proposal. A can refuse to accept the acceptance by informing B that acceptance is not
according to prescribed mode.

10. The acceptance must be given befor the laps of offer

A valid contract can arise only when the acceptance is made before the offer has lapsed or been
withdrawn. An acceptance which is made after the withrawl of the offer is invalid, and does not
create any legal relationship.
Example: amar offered , by letter, to sell his horse to akabr for 2k subsequently, amar withdraw
his offer by telegram which was also receive by akbar. After the receipt of this telegram, akbar
accepte the offer by a letter and posted the same in this case the acceptance is invalid as it was
made after the effective withdrawl of the offer.

Communication of offer and acceptance

An offer and its acceptance have legal effect unless its communicated to the other party. The offer and
the acceptance can be communicated by word (spoken or written) or by conduct.

Communication of offer is complete. As soon as it comes to the knowledge of the offeree.

A communication of acceptance is complete at differen time for the offeror and offeree.

 For the offeror, the ommuncation of acceptancceis complete when it is put in the course of
transmission to him. Thus, the offeror becomes bound by acceptance as soon as letter of
acceptance is posted by the offeree
  For the offeree, the communication of accepatnace is complete when it comes to knowledge o
offeror.

Example: amar offers to sell his house to akbar for 14k by a letter dated 25 aug . the letter reach
abkar on 29 aug. akbar accpts the offer by a letter posted on 29 aug. this letter of acceptance reach
amar on 30aug,

11.
12.
13. Acceptance must be absolute and unqualified
14. Acceptance must be in the mode prescribed
15. Acceptance must be communicated to the offeror
16. Silence cannot be prescribed as mode of acceptance:
17. Acceptance must be given within the time stpulated or within a
reasonable time if time is not mentioned
18. There can be no acceptance before the communication of the
offer
19. Acceptor must in indicate intention to fulfil the promise
20. If the proposal is made through an agent, it is sufficient
if the acceptance is communicated to him
21. Acceptance of the proposal will mean acceptance of all the
terms of the offer

Communication of Offer, Acceptance and Revocation

The following rules, as laid down in Sections 4 and 5, will be applicable:

1. Communication of an offer. The communication of an offer is complete when it comes to the

knowledge of the person to wham it is made, i.e., when the letter containing the offer reaches the

offeree.

2. Communication of an acceptance. The communication of an acceptance has two aspects, viz.,

as

against the proposer and as against the acceptor. The communication of an acceptance is
complete

(a) as against the proposer, when it is put in a course of transmission to him, so as to be out

of power of the acceptor and

(b) as against the acceptor, when it comes to the knowledge of the proposer, i.e., when the

letter of acceptance is received by the proposer.

3. Communication of a revocation. The communication of a revocation is complete:

(a) as against the person who makes it, when it is put into a course of transmission to the

person to whom it is made, so as to be out of the power of the person revoking, i.e., when the
letter

of revocation is posted, and

(b) as against the person to whom it is made, when it comes to his knowledge, i.e., when the

letter of revocation is received by him.

CONSIDERATION
Definition

The Indian Contract Act defines consideration as follows: Section 2(d) ‘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.’

A consideration consists of the following four components:

 The act or abstinence or promise which forms the consideration for the promise, must be done
at the desire of the promisor;
 It must be done by the promisee or any other person;
 It may have been already executed or is in the process of being done or may be still executory;
 It must be something to which the law attaches a value.

At the desire of the promisor if the promisee either

 Does something (in the past, present or future) OR

 Abstains from doing something (in the past, present or future)

Then, this act of doing or abstinence is called Consideration. Now, it has two aspects, either
doing some act or abstaining from doing something. Let’s look at some examples:

Example 1 – Doing something

Peter and John enter into a contract where Peter promises to deliver 15 curtains to John in one
month’s time. Also, John promises to pay Peter an amount of Rs 3,000 on delivery. In this
contract, John’s promise to pay Rs 3,000, on delivery, is the consideration for Peter’s promise.
Also, Peter’s promise of delivering 15 curtains is the consideration of John’s promise to pay.

Example 2 – Not doing something

Peter has taken a loan from his friend John. However, he has not repaid the loan yet. John
promises not to file a suit against Peter if he promises to repay the loan within a week. In this
case, abstinence on the part of John is due to the consideration of Peter’s promise of repayment
of the loan.
The definition of consideration highlights the following essentials to be fulfilled for the presence of a
valid consideration:

1) Consideration to be given “at the desire of the promisor”

The definition of consideration in the Actt clearly emphasize that an act or abstinence which is to be
a concideration for the promise must be done or promised to be done in accordance with the desire
of the promisor.. if such consideration is made at the will of a third party or without the desire of the
promisor it will be a good consideration.
Example: A save’s B goods from a fire without being asked to do so. A cannot demand payment for
his service.
2) Consideration to be given “by the promise or an other person”
Consideration may move from the promisee to any other person

If you look at the definition of consideration according to section 2 (d) of the Indian Contract
Act. 1872, it explicitly states the phrase ‘promisee or any other person…’ This essentially means
that in India, consideration may move from the promise to any other person. However, it is
important to note that there can be a stranger to consideration but not a stranger to the contract.

Peter gifted his son, Oliver an apartment in the city with a condition that he pays a fixed amount
of money to his uncle, John, every year. On the same day, Oliver executed a deed to pay a fixed
amount of money to John every year. However, Oliver failed to pay and John filed a suit for
recovery. Oliver pleaded that he was not liable since no consideration had moved from John.
However, the court held the words ‘promisee or any other person…’ and allowed John to
maintain his suit for recovery.

3) Consideration may consist of an at or abstinences:

consideration may consist of either positive act or an abstinence, i.t. a negative act. It must be
noted that past consdition is good considation only if it is given th the promise, at the desire of the
promisor.
4) It cannot be Unlawful :A consideration that is against the law or public policies is not valid.Peter
offers Rs 10,000 to John to beat up his business rival. John beats him up but Peter refuses to pay
him. John cannot file a suit for recovery since the consideration is against the law.
5) Consideration should no be something which the promisor is already bound.
A person may already be bound to do somting law or by contract . a promise to do something which
he os already boundf to do is not a good consideration. Likewise, a promise to perform a public duty
by a public servant is not a good consideration.
6) Considerartion must not be illegal, immoral or against the public policey
This says that consideration to an agreement should not be something illegal, immoral or something
agains the public policy. The courd should decide whether the consideration promised is lawful or
unlawful, where it is unlawful the court should bo allow the action on agreement.
7) Consideration should not be illusory but real
Although the consideration accepted may not be adequate but it should be real and not illusory and
should be competent and of some value in the eye of law. There is no real consideration in the
following cases.
a. Physical impossible: a promise to put life in b’s dead wife on behalf of
500 this is physically impossible to perform.
 b. Legally impossible: a owes to b 100 he promise to pay 521 to c, the
servent of b, who in return promises to discharge a from his debt. This is
legally impossible cause c cannot give a discharge for a debt due to B
c. Uncertain consideration: a engages b for doing certain work and
promises to pay a “reasonable” sum. There is no recognized way to
ascertain the “ reasonable” remuneration this consideration is uncertain
consideration.
8) Consideration should not be adequate:
It is however not necessary that consideration must be adequate to the promise made.
Consideration as considered to be “something in return” it need not necessarilty be equal to the
value to the “something given”. But it should be something to which law attach value.
Example: a purchase table from b for 5k. it’s a difficult task for the court to ascertain whether the
value3 of theble worth the price given or not.

9) Consideration may be past, present or future, in so far as definition says that the promisee:
a) Has done or abstained from doing, i.e. before the date of promise
Example: A render some service to B at the latter’s desire. After a month B promise to
compensate A for the service rendered to him its pas consideration.
b) Does or abstains from doing, i.e at the same time as promise is made.
Example: could be cash sale, when we buy something in concideration for money from a shop
it’s a present consideration.
c) Promises to do or to abstain from doing, something.
Example: D promised to deliver certain goods to P after a week; P promises to pay the price
after a fortnight. The promise of D is supported by the promise of P. consideration in this case is
future or executory.
10) There should be some act, abstinence or promise by the promisee, which constitutes
consideration for the promise.
11) Consideration must be ‘something of value’. The fourth and last essential of valid
consideration is that it must be ‘something’ to which the law attaches a value. The
consideration need not be adequate to the promise for the validity of an agreement. The law
only insists on the presence of consideration and not on the adequacy of it. However, if the
consideration be grossly or shockingly inadequate, and if one of the parties to the contract
alleges that his consent was obtained by fraud, coercion or undue influence, the court will
treat inadequacy of consideration as an evidence in support of such allegation and will
declare the contract, void

Exceptions to the Rule of ‘No Consideration, No Contract’

Consideration being one of the essential elements of a valid contract, the general rule is that ‘an
agreement made without consideration is void’, But there are a few exceptions to the rule, where an
agreement without consideration will be perfectly valid and binding. These exceptions are as follows:

1. Agreement made on account of natural love and affection [Sec. 25 (1) An agreement made without
consideration is enforceable if, it is (i) expressed in writing, and (ii) registered under the law for the time
being in force for the registration of documents, and is (iii) made on account of natural love and
affection, (iv) between parties standing in a near relation to each other. Thus there are four essential
requirements which must be complied with to enforce an agreement made without consideration, as
per Section 25(1).

(a) Examples: A, out of his love and affection, promises to give his wife, Rs.10,000. This promise is put
into writing and is registered. It will be a valid contract without consideration.

(b) After persistent quarrels and disagreement between husband and his wife, the husband promised
in writing to pay his wife, a sum of money for her maintenance and separate residence. The agreement
was also registered. It was held that the promise was not enforceable because it was not entered out of
natural love and affection. (Rajlusmi Dabee v. Bhootnath) (1900).

2. Agreement to compensate for past voluntary service [Sec. 25 (2)]. A promise madewithout
consideration is also valid, if it is a promise to compensate, wholly or in part, a person who has already
voluntarily done something for the promisor, or done something which the promisor was legally
compellable to do.

When a contract is made to compensate a person who has already done something voluntarily for the
promisor, or done something which the promisor was legally compellable to do. Here two conditions
must be fulfilled. First, the act must have been done voluntarily and for the benefit of the promisor,
secondly, the intention of promisor must have been to compensate the promisee. This contract may be
oral or written. Thus, services voluntarily rendered but not with gratuitous intention can form valid
consideration for a promise given to compensate him.

3. Agreement to pay a time-barred debt [Sec. 25 (3)]. Where there is an agreement, made in writing
and signed by the debtor or by his authorised agent, to pay wholly or in part a debt barred by the law of
limitation, the agreement is valid even though it is not supported by any consideration. A time-barred
debt cannot be recovered and therefore a promise to repay such a debt is without consideration.

For example, A owes B Rs. 2,000 but the debt is barred by the Law of Limitation. A sign written promise
to pay B Rs. 1,000 on account of the debt. This is a contract.

4. Agency:- Consideration is not necessary to create an agency.

5. Complete gift:- The rule ‘no consideration, no contract’ does not apply to completed gifts. According
to explanation to section 25, nothing shall affect the validity, as between the donor and donee of any
gift actually made.

4. Completed gift. A gift (which is not an agreement) does not require consideration in order to be valid.
‘As between the donor and the donee, any gift actually made will be valid and binding even though
without consideration’ . In order to attract this exception there need not be natural love and affection or
nearness of relationship between the donor and donee. The gift must, however, be complete.

5. Contract of agency. Section 185 of the Contract Act lays down that no consideration is

necessary to create an agency.

6. Remission by the promisee, of performance of the promise (Sec. 63). For compromising a due debt,
i.e., agreeing to accept less than what is due, no consideration is necessary. In other words, a creditor
can agree to give up a part of his claim and there need be no consideration for such an agreement.
Similarly, an agreement to extend time for performance of a contract need not be supported by
consideration .

7. Contribution to charity. A promise to contribute to charity, though gratuitous, would be enforceable,

if on the faith of the promised subscription, the promisee takes definite steps in furtherance of the
object and undertakes a liability, to the extent of liability incurred, not exceeding the promised amount
of subscription.

Stranger to Contract:

According to general rule of law only parties to a contract my sue and may be sued on the contract. This
rule is based on the doctrine of the privity of contract. This means relationship subsisting between the
parties to a contract. It means mutually of will and creates a legal bond or tie between the parties to a
contract. The consequences of the doctrine of privity of contract are:

(1) Any person who is not a party to a contract cannot sue upon it even though the contract is for his
benefit and he supplied consideration.

(2) A contract cannot give rights or impose obligations arising under the contract on any person other
than the parties to it.

But there are certain exceptions to the rule that a stranger can sue, i.e. a stranger can sue in certain
cases. This is possible in cases of trust or charge. Similarly, a stranger may sue in case of marriage
settlement, partition or other family arrangements. A stranger can also be sued in case of
acknowledgement or estoppel. Where the promisor by his conduct, acknowledge or otherwise
constitutes himself as an agent of the Third party, a binding obligation is thereby incurred towards him.
Similarly, in case of assignment of a contract, the assignee of rights and benefits under a contract not
involving personal skill can enforce the contract subject to the equities between the original parties.

LAWFUL CONSIDERATION OR OBJE

LAWFUL CONSIDERATION OR OBJECTS

Capacity to Contract
One of the most essential elements of a valid contract is the competence of the parties to make a
contract. Section 11 of the Indian Contract Act, 1872, defines the capacity to contract of a person to be
dependent on three aspects; attaining the age of majority, being of sound mind, and not disqualified
from entering into a contract by any law that he is subject to. In this article, we will look at all aspects in
a detailed manner.

apacity to Contract

According to Section 11, “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 subject.”

So, we have three main aspects:

1. Attaining the age of majority

2. Being of sound mind
3. Not disqualified from entering into a contract by any law that he is subject to

Who can all enter into a contract?

Under section 11 of the Indian Contract Act, any person is competent to contract are as follows.

 A person who attained the age of majority and is not a minor.

 A person of sound mind.
 A person who has not been disqualified by law or declared as insolvent/bankrupt

Persons not eligible for contract

If a person falls in any of the following categories, he/she will be declared as an incompetent party
to a contract.

 Minors
 Persons of unsound mind
 Persons disqualified by law
Minors
Section 3 of the Indian Contracts Act, 1872 states the definition of a minor.
Any person who is a citizen of India and is under the age of 18 years is a minor.
An agreement with a minor is null and void that means it cannot be enforceable by law.
Further, even if the minor attains the age of majority that is age above 18 years, still the agreement
cannot be enforced afterwards.

Ratification of minor’s agreement – An agreement with a minor is void and hence cannot be
ratified even if the minor attains the age of majority.

Minor as a beneficiary – If a contract benefits a minor, then such an agreement is valid and
enforceable by law. Thus, he is permitted to act as a beneficiary for a contract.

Role of estoppel against a minor – Even if a minor by misrepresenting his age, induced a person
to enter into a contract with him then also he cannot be made liable for such an act. Thus there can
be no estoppel against a minor.

No specific performance – As a contract with a minor is void, he cannot be asked for specific
performance of the contract. But the contract can be specifically enforced only if it falls under
these exceptions.

If the guardian enters into a contract on behalf of the minor.

If the minor is being benefited from the contract.

 The doctrine of restitution – As per section 33 of the Specific Relief Act,1963 we can
conclude that the court cannot compel a minor to restore the property unless the property
is in a recoverable position or still in possession of that minor.
 Necessaries supplied to a minor – A minor being incapable of contracting can be supplied
with necessaries, the basic essentials of life such as food, shelter, clothes etc. The person
supplying such necessaries is entitled to get reimbursed from the property of such a person.
The necessaries provided must be as follows.
1. Basic minimal necessaries that are needed for survival.
2. It should be only provided when the minor does not have a sufficient supply of it.
 Minor acting as a partner – A minor person cannot act as a partner but can be made as a
beneficiary of the partnership as per section 30 of Indian Partnership Act, 1932.
 Minor acting as an Agent – A minor can be appointed as an agent but cannot delegate his
authority to any other person. Hence, he cannot appoint an agent himself.
 Contract of apprenticeship – A contract of apprenticeship shall be binding on minors as
per the Apprentices Act, 1961.
 Contract of Marriage – The arrangement of the marriage of minors is enforceable by law
as it is considered beneficial for them.
 Minor as a shareholder – A minor cannot act as a shareholder of any company.
 Minor as a trade union member – In some cases, a minor can be a member of a trade
union if he has attained the age of 15 years at the time of registration
Persons of unsound mind
Under section 12 of the Indian Contract Act 1872, persons of sound mind can be defined as the
people who while entering into a contract are capable of understanding the nature of it and
therefore can form a rational judgment regarding the same.
Thus, from the above statement, it can be concluded that people of unsound mind are:

 Incapable of understanding the nature of their act while entering into a contract.
 Unable to form a rational judgment.

As per section 11, any contract with a person of unsound mind will be declared as void.
Persons of unsound mind can be bifurcated into following heads –

 An idiot
 Lunatic
 Intoxicated person

An Idiot
An idiot is a person who is permanent of unsound mind that is being of unsound mind by birth.
Such a person can never understand the nature of the act and form a rational judgement about the
same. Thus, contracts with such a person are void-ab-initio.

Lunatic
Lunatics are the ones who are not permanently of unsound mind but are also of sound mind during
a specific period or interval. Such people are allowed to enter into a contract only when they are
of sound mind.
NOTE: A person occasionally of sound mind but generally of unsound mind can enter into a
contract at the time when is of sound mind.
A person occasionally of unsound mind but generally of sound mind cannot enter into a contract
when is of unsound mind.

Intoxicated person
A person when intoxicated or drunk is usually not capable of making a rational judgment. Thus if
such a person enters into a contract, it will result in a void contract.

Persons disqualified by law

Following are the people disqualified by law.

 Alien Enemy
 Foreign Sovereign
 Convict
 Insolvent

1) Alien Enemy

An “Alien” is the one who is an outsider or the one not belonging to our country. If the
state where the person is an alien and the state where he belongs is at war, then such a
person will be an alien enemy to the other state.
A contract can be entered with an alien enemy only with the approval of the central
government. Any contract without the approval of the Central Government will result in
an unenforceable contract.

2) Foreign Sovereign

The foreign sovereigns can enter into a valid contract and such contracts are only
enforceable in the Indian Courts when the contracts were made with the prior approval of
the Central Government. A suit cannot be filed in the Indian Courts regarding the contract
if there is no sanction of the Central Government.

Or foreing sovereigns are the representitivees of foreign states. They and their
representatives are bewtowed upon with certain privileges and immunities in every
country. In India they cannot ener into a contract except through their agens residing in
india. If they enter into a contract through their agentk, that agent will have the the enrire
liability . foreign sovereigns and amabasssdors can enter into contracts and enforce those
contracts in indian court, but they cannot be proceeded again in courts without the sanction
of the central governemen.

Company or statutory bodies: a contract entered into by a corporate body or statutory body
will be valid only to the extent it is within its memorandum of association, memorandum
of association of a company is legal document which is important to its formation. While
entering into a contract the company cannot go beyond the conditions mentioned in the
memorandum of association.

3) Convict

A convict is incapable of entering into a contract only during the period of his
imprisonment but still, he can enter into a contract if the central government permits.
Thus a convict is incapable only for a specific period of time as at the time of his acquittal,
he again becomes capable of entering into a contract.

4) Insolvent

When a person is declared insolvent by the court, that means his property vests in the
receiver, and therefore he is unable to enter into a contract relating to property as his power
has already been taken away by the court.
Such a person can again become capable of entering into a contract when discharged by
the court.

Conclusion
From the above discussion, it can be concluded that the capacity to contract is the legal
competence to contract. A person declared as incompetent to contract is the one who is
incapable of entering into a contract, and a contract with such a person is unenforceable by
law. Further, such persons are also divided into categories such as minor, unsound mind
and persons disqualified by law. Any person if falls in any of these categories will be
declared as an incompetent person to contract, making his contract void or voidable in
certain circumstances. But the court of law also provides relief to certain people, making
them incapable of contracting for only a specific period of time such as convicts and
insolvents.
Thus, the capacity to contract is an essential element to fulfil the requirements of a valid
contract.
Free Consent
In the Indian Contract Act, the definition of Consent is given in Section 13, which states that “it is
when two or more persons agree upon the same thing and in the same sense”. So the two people
must agree to something in the same sense as well. Let’s say for example A agrees to sell his car
to B. A owns three cars and wants to sell the Maruti. B thinks he is buying his Honda. Here A and
B have not agreed upon the same thing in the same sense. Hence there is no consent and
subsequently no contract.

Now Free Consent has been defined in Section 14 of the Act. The section says that consent is
considered free consent when it is not caused or affected by the following,

1. Coercion
2. Undue Influence
3. Fraud
4. Misrepresentation
5. Mistake

learly, Free Consent means the absence of any kind of coercion, undue influence, fraud,
misrepresentation or mistake. When the consent which is given is affected by these elements it
calls into question whether the consent given was free and voluntary. The objective of this principle
is to ensure that judgment of the parties while entering into the contract wasn’t clouded. Therefore
consent given under coercion, undue influence, fraud, misrepresentation or mistake has the
potential to invalidate the contract.

Coercion (Section 15)

Coercion means using force to compel a person to enter into a contract. So force or threats are used
to obtain the consent of the party under coercion, i.e it is not free consent. Section 15 of the Act
describes coercion as

 committing or threatening to commit any act forbidden by the law in the IPC
 unlawfully detaining or threatening to detain any property with the intention of causing any
person to enter into a contract

For example, A threatens to hurt B if he does not sell his house to A for 5 lakh rupees. Here even
if B sells the house to A, it will not be a valid contract since B’s consent was obtained by coercion.

Undue Influence (S.16)

Section 16 of the Act contains the definition of undue influence. It states that when the relations
between the two parties are such that one party is in a position to dominate the other party, and
uses such influence to obtain an unfair advantage of the other party it will be undue influence.
The section also further describes how the person can abuse his authority in the following two
ways,

 When a person holds real or even apparent authority over the other person. Or if he is in a
fiduciary relationship with the other person
 He makes a contract with a person whose mental capacity is affected by age, illness or
distress. The unsoundness of mind can be temporary or permanent

Say for example A sold his gold watch for only Rs 500/- to his teacher B after his teacher promised
him good grades. Here the consent of A (adult) is not freely given, he was under the influence of
his teacher.

A, a money-lender, advances Rs. 100 to B, an agriculturist, and by undue influence induces B to

execute a bond for Rs. 200 with interest at 6 per cent per month. The Court may set the bond aside,
ordering B to repay Rs. 100 with such interest as may seem just.

Transaction with Parda-nishin women: Who is a parada-nishin women? A

woman who observes complete seclusion due to the prevailing custom in her community is said
to be parda-nishin. She does not act independently but has to depend upon someone else for
performing her outward duties. A woman going to the Court to give her evidence, settling gent
with her tenant, collecting rents from them, dealing with other parties in matters of business,
falling to outsiders can not be regarded as a Parda- nishin woman. The training, habit and
surrounding circumstances are the main elements to be considered to decide whether a woman is
a Parda-nishin or not Wearing a Burga does no make a woman a Parda- nishin.

A Parda-nishin woman can be influenced by undue influence. Persons entering into contracts with
such a woman have to be very careful because they may be required to prove (1) that such woman
understood the contents of the contracts; (2) she had free and independent advice and (3)she
exercise her free will.

“Fraud” : (S.17)

Consent is not said to be free when it has been obtained by means of fraud. In such cases, the contract
becomes voidable at the option of the party whose consent was obtained by means of fraud.

So according to Section 17, a fraud is when a party convinces another to enter into an agreement
by making statements that are

 suggesting a fact that is not true, and he does not believe it to be true
 the active concealment of facts
 a promise made without any intention of performing it
 any other such act fitted to deceive
  any act or omission which the law specifically provides to be fraudulent.

Examples

(a) A sells, by auction to B, a horse which A knows to be unsound. A says nothing to B about
the horse’s unsoundness. This is not fraud by A.

(b) B says to A “If you do not deny it, I shall assume that the horse is sound”. Here, A’s silence
is equivalent to speech. Here, the relation between the parties would make it A’s duty to tell B if
the horse is unsound.

(c) B is A’s daughter and has just come of age. Here the relation between the parties would
make it A’s duty to tell B if the horse is unsound.

(d) A and B, being traders, enter upon a contract. A has private information of a chnage in prices
which would after B’s willingness to proceed with the contract. A is not bound to inform B.

False Statement: A false statement intentionally made by one of the parties, which is considered
to be a fraud.

Active Concealment: The active concealment of a fact by an individual who believes the fact is
a fraud.

Intentional non-performance: A promise that is made without any intention to perform it is

intentional non-performance.

Deception: Any other facts stated to deceive is called deception.

Fraudulent act or omission: The clause provided under certain acts makes it mandatory to
disclose relevant facts. According to Section 55 of the Transfer of Property Act, the seller of
immovable property has to reveal to the buyer all the material defects, and any failure in the
same leads to fraud.

Is silence a fraud: A general rule is that silence is not a fraud until there is a duty to speak
particularly in the fiduciary relationships.

Where silence is a fraud: Under certain circumstances, ‘silence is in itself equivalent to

speech’.

Misrepresentation (S.18)

Misrepresentation is also when a party makes a representation that is false, inaccurate, incorrect,
etc. The difference here is the misrepresentation is innocent, i.e. not intentional. The party
making the statement believes it to be true. Misrepresentation can be of three types
 A person makes a positive assertion believing it to be true

Any breach of duty gives the person committing it an advantage by misleading another. But
the breach of duty is without any intent to deceive

when one party causes the other party to make a mistake as to the subject matter of the contract.
But this is done innocently and not intentionally.

Fraudulent Misrepresentation: This refers to a false representation that has been made
intentionally.

Negligent Misrepresentation: This refers to a representation that is made carelessly.

Innocent Misrepresentation: This refers to a representation that is neither fraudulent nor

negligent.

Mistake
When one of the parties has given its consent to the contract under some kind of misunderstanding
then the consent is said to be have been given by mistake. If it wasn’t for the misunderstanding the
party would not have entered into the agreement. Under contract law, a mistake can of two kinds:

i. A Mistake of Law
ii. A Mistake of Fact
Mistake of Law

This mistake may relate to the mistake of the Indian laws, or it can be a mistake of foreign laws.
If the mistake is regarding Indian laws, the rule is that the ignorance of the law is not a good
enough excuse. This means either party cannot simply claim it was unaware of the law.

The Contract Act says that no party shall be allowed to claim any relief on the grounds of
ignorance of Indian law. This will also include a wrong interpretation of any legal provisions.

Mistake of law may be of two types

1. Mistake of law of the country

2. Mistake of foreign law

Mistake of law of the country or mistake of law. Everyone is deemed to be conversant with
the law of his country, and hence the maxim ‘ignorance of law is no excuse’ . Mistake of law,
therefore, is no excuse and it does not give right to the parties to void the contract.

Mistake of foreign law. Mistake of foreign law stands on the same footing as the ‘mistake of
fact’.Here the agreement is void in case of ‘bilateral mistake’ only,

Mistake of Fact

Then there is the other type of mistake, a mistake of fact. This is when both the parties
misunderstand each other leaving them at a crossroads. Such a mistake can be because of an
error in understanding, or ignorance or omission etc. But a mistake is never intentional, it is an
innocent overlooking. These mistakes can either be unilateral or bilateral.

Bilateral Mistake

When both parties of a contract are under a mistake of fact essential to the agreement, such a
mistake is what we call a bilateral mistake. Here both the parties have not consented to the same
thing in the same sense, which is the definition of consent. Since there is an absence of consent
altogether the agreement is void.

Unilateral Mistake

A unilateral mistake is when only one party to the contract is under a mistake. In such a case the
contract will not be void. So the Section 22 of the Act states that just because one party was
under a mistake of fact the contract will not be void or voidable. So if only one party has made a
mistake of fact the contract remains a valid contract.
‘A’ agrees to sell to ‘B’ a specific cargo of goods supposed to be on its way from England to
Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been
cast away and the goods lost. Neither party was aware of the these facts. The agreement is void.

2. ‘A’ agrees to buy from ‘B’ a certain horse. It turns out that the horse was dead at the time of
bargain, though neither party was aware of the fact. The agreement is void.

3. ‘A’, being entitled to an estate for the life of ‘B’, agrees to sell it to ‘C’. ‘B’ was dead at the time
of the agreement, but both parties were ignorant of the fact. The agreement is void.

A contract is not voidable because it was caused by a mistake as to any law in force in India, but
a mistake as to a law not in force in India has the same effect as a mistake of fact.[18] For example
if ‘A’ and ‘B’ make a contract grounded on the erroneous belief that a particular debt is barred by
the Indian Law of Limitation; the contract is not voidable.

A contract is not voidable merely because it was caused by one of the parties to it being under a
mistake as to a matter of fact.[19]

Legality of object and Consideration

Introduction:

If an agreement is to be enforced in a court of law, both consideration and object of the agreement
must be lawful.

When one of consideration or object is unlawful, the contract is void.

Accordign to section 23 “ the consideration of object of an agreement is lawful unless its forbidden by
law ; or is of such a nature that if permitted, it would defeat the provision of any law; or is fraudulent; or
involves or implies injury to the person or property of another; or the court regards it as immoral, or
opposed to public policy. In each of these cases, the consideration or object of an agreement is unlawful
is void”.

Section 2(d0 of indian contract act defines consideration as when at the desire of the promisor, the
promise or any other person has done or abstaine 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 described a
consideration for the promise.

Example: a agree to sell his home to b for rs10k. here b promise to pay rs 10k is the consideration for a’s
promise to sell the ome and a’s to sell the home is the consideration for b’s promise to pay 10k.
When consideration and object is unlawful

 specifically forbidden by law

 of such a nature that they would defeat the purpose of the law
 are fraudulent
 involve injury to any other person or property
 the courts regard them as immoral
 are opposed to public policy.

1] Forbidden by Law

When the object of a contract or the consideration of a contract is prohibited by law, then they
are not lawful consideration or object anymore. They then become unlawful in nature. And so
such a contract cannot be valid anymore

Example: a promise b to drop a prosection which he has instituted against b for robbery, and b
promise o restore the value of the things taken. The agreement is voi as its object is unlawful

2] Consideration or Object Defeats the Provision of the Law

This means if the contract is trying to defeat the intention of the law. If the courts find that the
real intention of the parties to the agreement is to defeat the provisions of the law, it will put
aside the said contract. Say for example A and B enter into an agreement, where A is the debtor,
that B will not plead limitation. This, however, is done to defeat the intention of the Limitation
Act, and so the courts can rule the contract as void due to unlawful object.

Example: a an agreement between husband and wife to live separately is invalid as being
opposed to hindu law

Or an agreement by the debtor not to raise the plea of limitation is void.

3] Fraudulent Consideration or Object

Lawful consideration or object can never be fraudulent. Agreements entered into containing
unlawful fraudulent consideration or object are void by nature. Say for example A decides to sell
goods to B and smuggle them outside the country. This is a fraudulent transaction as so it is void.
Now B cannot recover the money under the law if A does not deliver on his promise.

Examples: a promise to pay 22 to b if b would commit fraud on c. b agreeing to defraud is

unlawful consideration for a’s promise to pay. Hence the agreement is illegal and void

Or a , b and c enter into an agreement for the division among them of gains acquired, or to be
acquire by the them by fraud. The agreement is void as its object unlawful.

4] Defeats any Rules in Effect

If the consideration or the object is against any rules in effect in the country for the time being,
then they will not be lawful consideration or objects. And so the contract thus formed will not be
valid.

5] When they involve Injury to another Person or Property

In legal terms, an injury means to a criminal and harmful wrong done to another person. So if the
object or the consideration of the contract does harm to another person or property, this will
amount to unlawful consideration. Say for example a contract to publish a book that is a
violation of another person’s copyright would be void. This is because the consideration here is
unlawful and injures another person’s property, i.e. his copyright.

Example:an agreement by which a debtor,. Who borrowed rs20 promise to do manual labour
without pay for the creditor so long as the debt was not repaid in full has been held to be void, as
it involved injury to the person of the debtor.

An agreement between some persons to purchase shares in a company and thus by fraud a deceit
to induce other persons to believe that there is a bonafie market for the shares is void.

6] When Consideration is Immoral

If the object or the consideration are regarded by the court as immoral, then such object and
consideration are immoral. Say for example A lent money to B to obtain a divorce from her
husband C. It was agreed once B obtains the divorce A would marry her. But the court passed the
judgement that A cannot recover money from B since the contract is void on account of unlawful
consideration.

Exmaples: a agree to let her daughter to b for cocubinage (state of living together as man and
wife) without being married. This agreement is unlawful and immoral.

An agreement for future marriage after

7] Consideration is Opposed to Public Policy

Whenever an agreement is harmful to public welfare it is said to be against public

policy. Or harmful to political, economic, social, technological and welfare of public.

For the good of the community, we restrict certain contracts in the name of public policy. But we
do not use public policy in a wide sense in this matter. If that was the case it would curtail
individual freedom of people to enter into contracts. So for the purpose of lawful consideration
and object public policy is used in a limited scope. We only focus on public policy under the law.

So let us look at some agreements that are opposed to public policy,

1. Trading with the Enemy: Entering into an agreement with a person from a country with
whom India is at war, void be a void agreement. For example, a trader entering into a
contract with a Pakistani national during the Kargil war.
2. Stifling Prosecution: This is a pervasion of the natural course of law, and such contracts
are void. For example, A agrees to sell land to B if he does not participate in the criminal
proceedings against him.

A saw b murdering c. a for a consideration of rs1 lakh promises b not disclose it to any
one

3. Maintainance and Champerty: Maintainance agreement is when a person promises to

maintain a suit in which he has no real interest. And champerty is when a person agrees
to assist another party in litigation for a portion of the damages or proceeds.

Eg if a an advocate helps in litigation ofor b a paintiff. Here b has agreed topay certain
amount to a fi decision will be infavor of hime

4. An Agreement fro sale of public offices and titles

A,. provide money to MP to influence his opinoion and judgement

B. provoke public officers to act corruptly

c. procure a public title like bharat rattan, Padma vibhahan ecc

d. procuring votes for an election

e. sell seats in colleges( medical, engineering)

interfering in the process of justice is unlawful,

influence judges to decide the case in one’s favor

agreement to delay the course of judgement

paying money for false evidence

5. Agreements to create Monopolies

6. Agreement creating interest oppose to duty

Agreement which forces aperson to do something against his professional duty

e.g rango ( a manger of a firm), agrees to accept the tender of jumbo ‘only’ if jumbo pasy
him 50k privately

7. An agreement to brokerage marriage for rewards

 8. Interfering with the Courts: An agreement whose object is to induce a judicial or state
officials to act corruptly and interfere with legal proceedings
9. Agreements in restraint of legal proceedings: If the object of an agreement is to
restrain an individual from going to a court of law for redress and relief. Such an
agreement is void since it is opposed to public policy.
10. Agreements in restraint of parental rights: According to Family Law father is the
natural guardian and he has got the right of guardianship of his child until he attains
majority. In the absence of the father, mother is the guardian. Thus right is considered by
law so important and so fundamental that it cannot be bartered away by any agreement
under the law. A father is entitled to the custody of his minor child. Any agreement by
the parents which contemplates a transfer such of rights to stranger is void since it is
opposed to public policy.

7. Agreements restricting personal liberty: Agreements which unduly restrict the personal
freedomparties to it are void as being against public policy.

8. Agreements tending to create interest opposed to duty: It person enters into an agreement
whereby he is bound to do something which is against his public or professional duty,
theagreement is void on the ground of public policy.

9. Agreements interfering with marital status: Agreements to create against marital duties are
void.

10. Marriage Brokerage agreements: Agreements to procure marriages for reward are void
since marriage ought to proceed from the free and voluntary decision of the parties.

11. Agreements in restraint of marriage: The law considers marriage and the married status as
the individual and personal right of every man. A person while selecting his life partner, should
be guided by only consideration of love, affection and mutual welfare and not by monetary
consideration. Marriage ought to be free. Freedom of choice in marriage has been guaranteed to
every person who is major in age. If the object of an agreement is to restrain a person from
marriage, such agreement is void since it is opposed to public policy.

12. Agreements to defraud creditors or revenue authorities: An agreement the object of

which is to defraud the creditors or the revenue authorities is not enforceable, being opposed to
public policy.

13. Agreements in restraint of trade: Where the object of an agreement is to interfere with
thefreedom of a person to carry on any lawful trade or profession the said agreement is called
agreement in restrain of trade. Freedom of contract and freedom of trade are well recognised
rules of law. The public policy requires that every man shall be at liberty, in welfare of the
community to carry on his trade, business or profession to the best of his capacity. Any restraint
of trade not only affects the means of livelihood of an individual% but also affects the industrial
growth and enterprise and thereby weakens the whole economic system of a country. Further it
deprives the skill and services of capable persons.
Void Agreement

Introduction

Section 2(g). a void agreement as an agreement not enforceable by law is said to void’ a void agreement
does not give rise to any legal consequences and is void ab initio ( from the beginning). According to
section 10, an egreement, in order to become a valid contract, must not be one of those that are
expressly declared to be void the law

Difference between a Void Agreement and a Void Contract

Definition: void agreement is defined by Section 2(g) viz., an agreement not enforceable by law is void
agreement. Void contract is defined by Section 2(j) viz., a contract which ceases to be enforceable by law
is a void contract since the time it ceases to be enforceable.

Thus it is very clear from the two definitions that a void agreement is void from the very beginning and
does not create any legal effect, while a void contract is not void from the beginning, it becomes void at
a subsequent stage due to the occurrence of an event or change in the original conditions. We may
illustrate this with the help of an example. A, an Indian, enters into a contract with B, a Pakistani
national, to supply woolen a carpets after three months. After some time war breaks out between India
and Pakistan. The contract in between A & B shall become void at the outbreak of war.

The agreement that are expressly declared to be void are as follows:

Void agreement may be broadly be classified as

1. Agreement contrary to (express provision of ) law

2. Agreement contrary to public

EXPRESSLY DECLARED VOID AGREEMENT

There are certain agreements, which are expressly declared to be void.
They are as follows:
(1) Agreement by a minor or a person of unsound mind.[Sec(11)]
(2) Agreement of which the consideration or object is unlawful[Sec(23)]
(3) Agreement made under a bilateral mistake of fact material to the agreement[Sec(20)]
(4) Agreement of which the consideration or object is unlawful in part and the illegal part can not be
separated from the legal part [Sec(24)]
(5) Agreement made. without consideration.[Sec(25)]
(6) Agreement in restraint of marriage [Sec(26)]
(7) Agreement in restrain of trade [Sec(27)]
(8) Agreement in restrain of legal proceedings[Sec(28)]
(9) Agreements the meaning of which is uncertain [Sec(29)]
(10) Agreements by way of wager [Sec(30)]
(11) Agreements contingent on impossible events [Sec(36)]
(12) Agreements to do impossible acts [Sec(56)]
Some discussions on void agreement are as follows:

(1) Agreement by a Minor Or a Person of Unsound Mind-

A person who has not completed his or her 18 years of age signifies as minor. Law acts as the
guardian of minors and protects their rights, because their mental facilities are not mature- they
do not possess the capacity of judge what is good and what is bad for them. Accordingly, where
is a minor charged with obligations and the other contracting party seeks to enforce those
obligations against the minor, the agreement is deemed as void.

A person who does not possess a sound mind or whose mental powers are not arranged or whose
mental condition is not under his or her own control. Any agreement by person of unsound mind
is absolutely void because he has no capacity to judge, what is good and what is bad for him.

Illustration
(a) A, 15 years old boy, made an agreement with B to give him Tk.1000. This is a void
agreement.
(b) A mentally disordered man made an agreement with X to marry her, but this is not a valid
agreement.

(2) Agreement Made Without Consideration-

An agreement made without consideration is void, unless
1) it is expressed in writing and registered under the law for the time being enforce for the
registration of(documents), and is made on account of natural love and affection between parties
standing in a near relation to each other; or unless.
2) It is a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promissory was legally compellable to do,
or unless.
3) It is a promise, made in writing and signed by the person to be charged therewith, or by his
agent generally or specially authorized in the behalf, to pay wholly or in part a debt of which the
creditor might have enforced payment but for the law for the limitation of suits.

In any of these cases, such an agreement is a contract.

Explanation 1–Nothing in this section shall affect the validity, as between the donor and donee,
of any gift actually made.
Explanation 2- An agreement to which the consent of the promisor is freely given is not void
merely because the consideration may be taken into account by the court in determining the
question whether the consent of the promisor was freely given.

Illustrations
a) A promises for no consideration, to give to B Rs. 1000; this is a void agreement.
b) A, for natural, love and affection, promises to give his son, B Rs. 1000. A puts his promise
to B into writing and registers it. This is a contract.
c) A finds be B’s purse and gives it to him. B promises to give A Rs. 50. This is a contract.
d) A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract.
(3) Agreements in Restraint of Marriage-
Every individual enjoys the freedom to marry and so according to section 26 of the contract act
“every agreement is restraint of the marriage of any person, other than a minor, is void.” The
restraint may be general or partial but the agreement is void, and therefore, an agreement
agreeing not to marry at all, or a certain person or, a class of persons, or for a fixed period, is
void. However, an agreement restraint of the marriage of a minor is valid under the section.

Illustrations
(a) A agrees with B for good consideration that she will not marry C. It is a void agreement.
(b) A agrees with B that she will marry him only; it is a valid contract of marriage.

(4) Agreement in Restraint of Trade-

The constitution of India guarantees that the freedom of trade and commerce to every citizen and
therefore section 27 declares “every agreement by which any one is restrained from exercising a
lawful profession, trade or business of any kind, is to that extent void.” Thus no person is at
livery to deprive himself of the fruit of his labor, skill or talent, by any contracts that he enters
into.

It is to be noted that whether restraint is responsible or not, if it is in the nature of restraint of

trade, the agreement is void always, subject to certain exceptions provided for statutorily.

Illustration
An agreement whereby one of the parties agrees to close his business in consideration of the
promise by the other party to pay a certain some of money , is void, being an agreement is
restraint of trade, and the amount is not recoverable, if the other party fails to pay the promised
some of money. (Mad hub Chander vs. Raj Kumar).

But agreements merely restraining freedom of action necessary for the carrying on of business
are not void, for the law does not intend to take away the right of a trade to regulate his business
according to his own discretion and choice.

(5) Agreement in restraint of legal proceedings-

Every agreement, by which any party thereto is restricted absolutely from enforcing his right
under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or
which limits the time within which he may thus enforce his rights, is void to that extent. Section
28 declares the following two kinds of agreements void:
(a) An agreement by which a party is restrained absolutely from taking usual legal
Proceeding, in respect of any rights arising from a contract.
(b) An agreement which limits the time within which one may enforce his contract
Rights, without to the time allowed by the limitation act.
Illustration
In a contract of fire insurance, it was provided that if a claim is rejected and a suit is not filed
within three months after such rejection, all benefits under the policy shell be forfeited. The
provision was held valid and binding and the suit filed after three months was dismissed. (Baroda
spinning Ltd. vs. Satyanarayan Marine and Fire Ins. Com. Ltd.)

(6) Uncertain Agreements-

“Agreements, the meaning of which is not certain, or capable of being made certain, are void”
(Sec-29). Through Sec-29 the law aims to ensure that the parties to a contract should be aware of
the precise nature and scope of their mutual rights and obligation under the contract. Thus, if the
word used by the parties are or indefinite, the law cannot enforce the agreement.

Illustration
(a) A agrees to sell to B “a hundred tons of oil.” There is nothing whatever to show what kind
of oil was intended. The agreement is void for uncertainty.
(b) A who is dealer in coconut oil only, agrees to sell to B “a hundred tons if oil.” The nature
of A’s trade affords an indication of the meaning of the words, and A has entered into a
contract for the sale of one hundred toms of coconut oil.
(c) A agrees to sell to B “one thousand mounds of rice at a price to be fixed by C.” As the price
is capable of being made certain, there is no uncertainty here to make the agreement void.
(d) A agrees to sell to “his white house for rupees five hundred or rupees one thousand.” There
is nothing to show which of the price was to be given. The agreement is void.

Further, an agreement “to enter into an agreement in future” is void for uncertainty unless all the
terms of the proposed agreement are agreed expressly or implicitly. Thus, an agreement to
engage a servant some time next year, at a salary to be mutually agreed upon is a void
agreement.

(7) Wagering Agreement-

Literally the word ‘wager’ means ‘a bet’ something stated to be lost or won on the result of a
doubtful issue, and, therefore, wagering agreements are nothing but ordinary betting agreements.
Thus where A and B mutually agree that if it rains today A will pay B Tk.100 and if it does not
rain B will pay A Tk.100 or C and D entered into agreement that on tossing up a coin, if it fall
head upwards C will pay D Tk.50 and if falls tail upwards D will pay C Tk.50, there is a
wagering agreement.

(8) Agreement Contingent on Impossible Events-

“Contingent agreements to do or not to do anything if an impossible event happens are void,
whether the impossibility of the event is know on not to the parties to thr agreement at the time
when it is made.” (Sec. 36)

Illustration
(a) A agrees to pay B Rs.1000 (as a loan) if two straight line should enclosed a space. The
agreement is void.
(b) A agrees to pay B Rs.1000 (as a loan) if B will marry A’s daughter, C. C was dead at the
time of the agreement, the agreement is void.

(9) Agreements to do Impossible Act-

“An agreement to do an act impossible in itself is void.” (Sec, 56 Part-1)

Illustration
(a) A agrees with B to discover treasure by magic. The agreement is void. [Section 56].
(b) A agrees with B to run with a speed of 100 Kilometer per hour. The agreement is void.

Exceptions:

Following are exceptions to the general rule that all agreements in restraint
of trade are void”;

(a) Sale of Goodwill:

When seller of good will agrees with the buyer to refrain from crying on
a similar business within specified local limits, shall be valid provided
the limits are reasonable. Reasonableness of restriction will depend on
many factors e.g. the area in which the goodwill is effectively enjoyed
and the price paid for it.

Illustrations:

A, after selling the goodwill of his business to B promises not to carry on similar
business ‘anywhere in the world’. As the restraint is unreasonable the
agreement is void. C, a seller of imitation jewelry in London sells his business
to D and promises that for a period of two years he would not deal (a) In
limitation jewelry in England, (b) In real jewelry in England and (c) In real or
imitation jewelry in any part of UK or in France, USA, Russian or Spain etc.
The first promise was held valid while the remaining promises that is (B) and
(C) were held void, as such restraint was unreasonable.

(b) Agreements under Partnership Act, 1932:

According to partnership act, the following agreements are not considered

in restraint of trade.
(i) A partner may agree not to carry on a business, similar to that of a
partnership while he is a partner.
(ii) A partner may agree with other partners that on retiring from the
partnership, he will not carry on a similar business within a specified
period or within specified local limits.
(iii) The partners may in anticipation of the dissolution of the firm, agree
that some or all of them will not carry on a similar business within a
specified period or within specified local limits.
(iv) Any partner may on the sale of goodwill of firm, agree with the buyer
of goodwill not to carry on similar business within a specified period or
within specified local limits.

(C) Trade Combinations:

If the object of the agreement is to regulate business and not to restrain

it, then it is valid. An agreement between businessmen to regulate
prices, output, etc. cannot be regarded as restraint of trade and is valid.
Similarly, an agreement to avoid competition is not necessarily
unlawful, even if it damages others. But a combination which tends to
create monopoly and which is against the public interest is void.

(d) Service Contracts:

An agreement of service by which a person binds himself during the

term of employment, not to take service with anyone else, is not in
restraint of lawful profession and is valid.
(5) Wagering Agreement:

Section 30 explains that agreements by way of wager are void. In

wagering one party is to win and the other to lose upon a future event
which at the time of the contract is of an uncertain nature. A wager is
an agreement by mutual promises, each of them conditional on the
happening or not happening of unknown event. A wager is a game of
chance in which gain or loss is wholly dependent on an uncertain event.
The parties to a wager must have no interest in the event’s happening
or non-happening except the winning or losing of the betting amount.

Exceptions:

Section 30 makes an exception in favor of certain prizes for horse

racing. According to this section a bet on horse race carrying a prize of
Rs 500 or more to the winner has been made valid. But with a view to
protect the poor persons from gambling, a bet on a horse race carrying
a prize of less than Rs. 500 remains a wager.

Illustration:

A bets with B and loses. A applies to C for a loan in order to pay B. C gives the
loan to A to enable him to pay B In this case an agreement between A and B
is void, being a wagering agreement. But contract between A and C is a valid
contract because a contract collateral to a wagering is not void.

(6) Agreements Contingent on Impossible Events:

Contingent agreements to do or not to do anything, if an impossible

event happens, are void, whether the impossibility of the event is known
or not to the parties to the agreement at the time when it is made. (Sec
36) "

Illustrations:

(a) A agrees to pay B Rs. 1000 if two straight lines should enclose a space. The
agreement is void.
(b) A agrees to pay B Rs 1000 if B will marry A’s daughter, C. C was dead at the
time of the agreement. The agreement is void.

(7) Agreements to do Impossible Acts:

“An agreement to do an act impossible in itself is void. (Sec. 56, Para 1)

Illustration:

A agrees with B to discover treasure by magic. The agreement is void.

(B) Agreements Contrary to Public Policy:

All agreements contrary to Public Policy are void. The term “Public
Policy” in its broadest sense means that sometimes the courts will, on
consideration of public interest, refuse to enforce a contract. A judge
protesting against ‘public policy’ stated, “It is very unruly horse and
when once you get astride it you never know where it will carry you”.
However, following heads are included under “public policy”.

(1) Trading with Enemy:

Declaration of war imports a prohibition of commercial intercourse and

correspondence with the enemy’s country. Contracts which are entered
into before the out-break of war are either suspended till the end of the
war or are dissolved.

(2) Trafficking in Public Offices:

An agreement intended to induce a public officer to act corruptly is

contrary to public policy. Sale of public offices i.e., appointments in
consideration of money are also against Public policy. Such
agreements if enforced, would lead to inefficiency and corruption in
public life and are therefore held to be bad.

(3) Interference with Administration of Justice:

It may take any of the following:

(a) Interference with the Course Justice:

Any agreement which obstructs the ordinary process of justice is void

e.g. promise to give money to induce a person to give false evidence is
held void. But an agreement to submit to present or future dispute to
arbitration is perfectly valid.

(b) Stifling Prosecution:

In public interest criminals should be prosecuted and punished. Hence

an agreement not to prosecute an offender or to withdraw a pending
prosecution is void if the offence is of public nature. However, the law
allows compromise agreement in respect of the compoundable offence.
If a person has committed a crime, he must be punished. But a
compromise in case of commercial transactions and an arbitration
agreements are valid.

Illustrations:

A promises to drop a prosecution which he has instituted against B for robbery

and B promises to restore the stolen property, the agreement is unlawful being
opposed to public policy.

(4) Maintenance and Champerty:

Maintenance is agreement to give assistance financial or otherwise, in

defending or launching legal proceedings when one has no legal
interest of his own in the subject matter. Champerty is a bargain
whereby one party is to assist the other in recovering property and is to
share in the proceeds of the action’ under English law. Both these are
void.
Under Indian law these are not absolutely void, if object of contract is not to
stir up litigation bat to assist other in making a reasonable claim arising out of
a contract it is Valid.
(5) Marriage Brokerage Agreements:

An agreement to procure the marriage of a person is consideration of a

sum of money is called marriage brokerage. Such agreements are void
e.g., agreement to sell a girl. Similarly an agreement to pay money to
the parent of a minor to induce them to give daughter in marriage is
void.

(6) Agreements in restraints of Parental Rights:

An agreement which interferes with parental rights of a legal guardian

over his/her child is void as it minor is against public policy.

(7) Agreement tending to create interest opposed to public policy:

Agreement tending to create interest opposed to public duty. Whereby

a person agrees to do something which is against his public duty, the
agreement is void.

Illustrations:

Vinod directs his agent Ram to buy a certain house for him. Ram tells him it
can’t bought but he himself buys it secretly. Vinod can compel Ram to sell it to
him (Vinod) at the price Ram gave for it.

(8) Agreement to Influence Election to Public Offices:

An agreement with voters to procure their votes for monetary

consideration and an agreement with third person to influence. Voters
by indirect means are void on the ground of public policy.

(9) Agreement Creating Monopolies:

Agreements having or their object the creation of monopolies are void,

being opposed to public policy. (Somu Pillai v. The Municipal Council.)
(10) Agreement Intended to Defraud Creditors:

An agreement the object of which is to defraud the creditors or the

revenue authorities is not enforceable, being opposed to public policy.
Final Words:

Void agreements which are not enforceable at law nor they have any
legal consequences.
They are void from their beginning and lack their binding authority too.
The main reasons behind them that they are either against the public
policy or contrary to the express previsions of law.

EXCEPTIONS.

They are statutory exceptions and judicial exceptions.

Statutory Exceptions : They are given in the Act itself. They are:

1. Sale of goodwill: One who sells the goodwill of a business may agree with the buyer to refrain

from carrying on similar business so long as the buyer carries on a like business therein. The said

exception is subject to the following conditions:

(a) It must apply to only a similar business.

(b) It must apply only within specified local limits

(c) It must be in force only so long as the buyer carries on a like business; and

(d) The restriction will be valid only if it is considered by the court as a reasonable one.

2. Under Partnership Act:

(a) A partner shall not carry on any business other than that of the firm which he is a partner. (b)

An outgoing partner may agree with his partners not to carry on a business similar to that of the

firm within a specified period or within specified local limits.

(c) Partners may enter into an agreement among themselves that none of them on ceasing to be

partner will carry on any business similar to that of the firm within specified period or within

Indian Contract Act 1872

SAINTGITS

I semester B.Com sebastiank.s@in.com

Page 25

specified local limit of a firm, make an agreement with the buyer that such partner will not carry on

any business similar to that of the firm within a specified period or within a specified limit.

Judiciary exceptions: They are ensuing from judicial interpretation of section 27.

I. Trade combinations: Traders and manufacturers in the same line of business normally form

associations to regulate business or to fix prices. The regulations as to the opening and closing of

business in a market, licensing of traders, supervision and control of dealers and the mode of

dealing arc not unlawful even if they are in restraint of trade.

2. Sole or exclusive dealing agreements: In business appointment of sole selling or distributing

agents is quite common. Such agreements have been held to be perfectly legal.

3. Service agreements: Restriction during service shall not be void. But after the termination of

service an agreement by which a person is restrained from competing with his earner master shall

be void.

Uncertain agreements: An agreement the meaning of which is not certain is void. If there is

ambiguity in the wording of contract it is not possible to read the exact intention of the parties to the

contract. Where the term in agreement is vague and may be, interpreted in many ways, then the

agreement is void because of uncertainty.

contingent contract

Introduction

The word contingent means when an event or situation is contingent, i.e. it

depends on some other event or fact.

For example, making money is contingent on finding a good-paying job.

Now, the ‘contingent contract’ means enforceability of that contract is directly

depends upon happening or not happening of an event.

Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent
Contract’ as follows: ‘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’.

In simple words, contingent contracts, are the ones where the promisor perform
his obligation only when certain conditions are met. The contracts of insurance,
indemnity, and guarantee are some examples of contingent contracts.

Illustration:- A contracts to pay to B Rs. 20,000 if B’s house is burnt. This is a

contingent.

Essentials of a contingent contract

1] Depends on happening or non-happening of a certain event

The contract is contingent on the happening or the non-happening of a certain

event. These said events can be precedent or subsequent, this will not matter.
Say for example Peter promises to pay John Rs 5,000 if the Rajdhani Express
reaches Delhi on time. This is a contingent event.
2] The event is collateral to the contract

It is important that the event is not a part of the contract. It cannot be the
performance promised or a consideration for a promise.

Peter enters into a contract with John and promises to deliver 5 television sets to
him. John promises to pay him Rs 75,000 upon delivery. This is NOT a contingent
contract since John’s obligation depends on the event which is a part of the
contract (delivery of TV sets) and not a collateral event.

Peter enters into a contract with John and promises to deliver 5 television sets to
him if Brazil wins the FIFA World Cup provided John pays him Rs 25,000 before
the World Cup kicks-off. This is a contingent contract since Peter’s obligation
arises only when Brazil wins the Cup which is a collateral event.

3] The event should not be a mere will of the promisor

The event cannot be a wish of the promisor. Say for example Peter promises to
pay John Rs 5,000 if Argentina wins the FIFA World Cup provided he wants to.
This is NOT a contingent contract. Actually, this is not a contract at all.

Peter promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on August
30, 2018. This is a contingent contract. Going to Dubai can be within John’s will
but is not merely his will.

4] The event should be uncertain

If the event is sure to happen, then the contract is due to be performed. This is
not a contingent contract. The event should be uncertain.

Peter promises to pay John Rs 500 if it rains in Mumbai in the month of July 2018.
This is not a contingent contract because in July rains are almost a certainty in
Mumbai.
Rules regarding Contingent Contracts
1. Contracts contingent on the happening of an event
2. Contracts contingent on a event not happening
3. Contract contingent on the conduct of a living person who does something to maek the event or
conduct as impossible of happening
4. Contracts contigent on an event happening with in specific time
5. Contract contingent on an event not happeining withihn a specific time
6. Contracts contingent on an impossible event

7. Uncertain event (Sec.32): Contingent contract to do or not to do anything, if an uncertain future

event happens, it cannot be enforced by law unless and until that event has happened. If event
become impossible, such contract become void . Peter promises to pay John Rs 500 if it rains in
Mumbai in the month of July 2018. This is not a contingent contract because in July rains are
almost a certainty in Mumbai.

8. • Impossible event (Sec.33): Contingent contracts to or not to do anything, if an uncertain

future event does not happen can be enforced when the happening of that event becomes
impossible, and not before. If X agrees to pay Y 1000 rupees if Y will marry X’s daughter but at
the time of the agreement, the daughter was dead. Thus, this contract is void.

9. Performance dependent on non-happening of event (Sec.34): When performance depends on

non-happening of an event, the contract shall not be performed unless the happening of that
event becomes impossible. If a man promises to pay another man some money if a ship does
not return within a year, the contract becomes void if the ship is burnt or sinks within that year.
Illustration: X promises to pay Y a sum of money if a certain ship does not return before 31st
March 2019. The contract may be enforced if the ship does not return before 31st March 2019.
Also, if the ship burnt before the given time, the contract is enforced by law since the return is
impossible.

10. • Performance dependent on particular individual (Sec.35(1)): Contingent contracts to or not

to do anything, if a specified uncertain event happens within a fixed time become void, if at the
expiration of the time fixed, such event has not happened, or if before the time fixed, Such
event becomes impossible. Illustration: X agrees to pay Y, Rs. 100,000 if Y marries Z. However, Z
marries A. The marriage of Y to Z must now be considered impossible, although it is possible
that A may die and that Z afterward marry Y.

11. • Event within fixed time(Sec.35(2)): Contingent contract to do or not to do anything, if a

specified uncertain event does not happen within fixed time, may be enforced by law when the
time fixed has expired and such event has not happened, or before the time fixed has , if it
becomes certain that such event will not happen. Illustration: X promises to pay Y a sum of
money if a certain ship returns before 1st April 2019. The contracts may be enforced if the ship
returns within the fixed time. On the other hand, becomes void if the ship sinks.

12. • Dependence on impossible event (Sec.36): Contingent contract to do or not to do anything if

impossible event happens, are void whether the impossibility of event of the event is known or
not to be parties to the agreement at the time when it is made. Illustration: Peter promises to
pay John Rs 50,000 if the sun rises in the west the next morning. This contract is void since the
happening of the event is impossible.
Discharge of Contract
As per the INDIAN CONTRACT ACT 1872 – “Discharge of contract means the termination of a
contractual relationship between parties”.
A contract is said to be discharged when it ceases to operate, i.e. when the rights & obligation
created by it come to an end.
e.g. Two parties A & B Make a contract to build a fly-over in a City. A is the municipal authority
of the city & B is a construction company. Due to some reasons the contract get discharged.
Then the both parties are free from the obligations of contract, i.e. the rights & obligations of
the parties come to an end.

A contracts is discharged when the obligations created by it come to an end.

A contract may be discharged in any of the following ways:
1. By agreement.
2. By performance of the contract.
3. By lapses of time.
4. By operation of law.
5. By material alteration.
6. By subsequent impossibility of the performance.
7. By breach.

Discharge of Contract by agreement:

According to sec. 62-64 of Indian Contract Act 1872 – A Contract can be terminated or discharged
by mutual express or implied agreement between the parties in any of the following ways

A) By Novation: Substitution of a new contract in place of the old existing one is known as
‘inovation of contract’. New contract may be either between the same parties or between
different parties, the consideration being mutually the discharge of the old contract.

known as ‘inovation of contract’. New contract may be either between the same parties or
between different parties, the consideration being mutually the discharge of the old contract.

(i) Substitution of a contract with new terms for an old contract between the same parties.

(ii) Substitution of a new party for an old one, the contract remaining the same. Promisee will
now look to the third party for the performance of the contract. Original promisor is released
of the obligations under the old contract.

Examples
 (i) A owes money to B under a contract. It is agreed between A, B and C that B shall
henceforth accept C as his debtor, instead of A. The old debt of A to B is at an end and a new
debt from C to B has been contracted.

(ii) A owes B 10,000 rupees. A enters into an arrangement with B, and gives B a mortgage of
his (A’s) estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract
and extinguishes the old.

(iii) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees. B orders A to credit C
with 1,000 rupees in his books but C does not assent to the arrangement. B still owes C 1,000
rupees, and no new contract has been entered into.

Novation can take place only with the consent of all the parties. It cannot be compulsory.
(Appukuthan V. Athapa, 1966).

As a result of novation, old contract is completely discharged and law will not entertain any
action based upon the terms of the old contract.

B) By Accord and Satisfaction

“every promise may dispense with or remit the performance of promis made to him and
accept, instead of it, any statifaction which he think fit.”

In other words “when a lesser sum is actuall paid than what is due under an existing contract
, the new contract is called ‘accord’ and the actual payment is called satisfaction.

e.g Ramesh has a postpaid mobile conection of airtel. Abill of his mobile is of rs1234 which he
seems more than actual bill. Thus he register a complain with airtel. The airtel official offers
him to apy 1200 as settlement. Here 1245 is accord and 1200 is satisfaction.

C) By Remission and Waiver

By remission (Sec. 63) : Remission means acceptance of a lesser performance than what was actually
due under the contract. According to Sec. 63 a party may dispense with or remit, wholly or in part,
the performance of the promise made to him. He can also extend the time of such performance or
accept instead of any satisfaction which he deems fit. A promise to do so will be binding even though
there is no consideration for it

Example:

(1) A owes B Rs. 5,000. A pays to B and B accepts in satisfaction of whole debt Rs. 2,000 paid at the
time and place where Rs. 5,000 were payable. The whole debt is discharged.

(ii) A owes B, under a contract, a sum of money., the amount of which has not been ascertained.

A without ascertaining the amount gives to B, and B, in satisfaction therefore, accepts the sum of Rs.
2,000. This is a discharge of the whole debt whatever may be its amount.

“when aprty to the contract abandons or waiver his rights, the contract is discharge”.

e.g a promise to paint pain picture for b. b afterward forbid him to do so. A is no longer bound to
perform the promise.

D). By Rescission.
“ when a person at whose option a contract is voidable rescinds it, the other party thereto need not
perfrom his promis”. He is discharged from his liability under the contract.

Rescission ma occure by mutual consent of the parties or when one party fails to perfom his obligation
the other party may rescind the contract. Rescission of contract be in party only. The entir contract
must rescinded

Rescission means cancellation of the contract. A contract can be rescinded by any of the following
ways :-

(i) By mutual consent :- Parties may enter into a simple agreement to rescind the contract before
it’s breach.

(ii) By the aggrieved party :- Where a party has committed a breach of the contract, the aggrieved
party can rescind the contract without in any way effecting his right of getting compensation for the
breach of contract.

(iii) By the party whose consent is not free:- In case of a voidable contract, the party whose
consent is not free can, if so decides, rescind the contract.

Accord and satisfaction: These two terms are used in English Law. In England, a promise to accept
less than what is actually due under the contract is not enforceable, but if this promise has been
actually carried out, it will give a valid discharge to the other partly.

Example: A is B’s debtor for a sum, of Rs. 500. B agrees to accept Rs. 300 in full satisfaction of his
claim. This promise is unenforceable. However, if A pays Rs. 300 and B accepts the payment, A will be
discharged from his liability for the whole debt.

(c) By alteration: Alteration means change in one or more of the conditions of the contract.

Alteration made by the mutual consent of the parties will be perfectly valid. But any material
alteration in terms of a written contract by the one party without the consent of other party will
discharge such party from its obligations under the contract.

In case of novation a new contract replaces an old contract. The parties may also change. While in
case of alteration only some of the terms of the contract are changed. Parties also continue to be the
same.

(d) By remission (Sec. 63) : Remission means acceptance of a lesser performance than what was
actually due under the contract. According to Sec. 63 a party may dispense with or remit, wholly or in
part, the performance of the promise made to him. He can also extend the time of such performance
or accept instead of any satisfaction which he deems fit. A promise to do so will be binding even
though there is no consideration for it.

Example:

(1) A owes B Rs. 5,000. A pays to B and B accepts in satisfaction of whole debt Rs. 2,000 paid at the
time and place where Rs. 5,000 were payable. The whole debt is discharged.

(ii) A owes B, under a contract, a sum of money., the amount of which has not been ascertained.
A without ascertaining the amount gives to B, and B, in satisfaction therefore, accepts the sum of Rs.
2,000. This is a discharge of the whole debt whatever may be its amount

‘Accord means promise to accept less than what is due under the contract. ‘Satisfaction’ implies the
payment or the satisfaction of the lesser obligation. An accord not followed by satisfaction will be
unenforceable. Actual performance of the new promise and its acceptance by the other party is
essentail to discharge the old obligations by accord and satisfaction. The original cause of action is not
discharged so long as the satisfaction, agreed upon, remains executory.

(e) Owing to the occurrence of an event, on the happening of which it was previously agreed that all
rights and liabilities should cease.

(f) By waiver (Sec. 63) : A contract may be discharged by agreement between the parties to waive
their rights arising from the contract. Thus, in case of waiver, the person who is entitled to any right
under the contract, intentionally relinquishes them without consideration and without a new
agreement. Under English law waiver is possible only by agreement under seal.

Example: A promises to paint a picture for B.B afterwards forbids him to do so. A is no longer bound
to perform the promise.

By performance of the contract (Sec. 37)

When the parties to a contract fulfil the obligations arising under the contract within the time
and manner prescribed, then the contract is discharged by performance.
Example: Peter agrees to sell his cycle to John for an amount of Rs 10,000 to be paid by John on
the delivery of the cycle. As soon as it is delivered, John pays the promised amount.
Since both the parties to the contract fulfil their obligation arising under the contract, then it is
discharged by performance. Now, discharge by the performance of a contract can be by:
1. Actual performance
When each party to a contract fulfils his obligation arising under the contract within the
time and in the manner prescribed, it amounts to actual performance of the contract
and the contract comes to an end or stands discharged.
2. Attempted performance

On the other hand, it is possible that when the promisor attempts

to perform his promise, the promisee refuses to accept it. In such
cases, it is called attempted performance or tender.
Discharge by Mutual Agreement
If all parties to a contract mutually agree to replace the contract with a
new one or annul or remit or alter it, then it leads to a discharge of the
original contract due to a mutual agreement.

Example: Peter owes Rs 100,000 to John and agrees to repay it within

one year. They document the debt under a contract. Subsequently, he
loses his job and requests John to accept Rs 75,000 as a final settlement
of the loan. John agrees and they make a contract to that effect. This
discharges the original contract due to mutual consent.

DISCHARGE BY OPERATION OF LAW

A contract terminates by operation of law in the following cases:
a. Death. Where the contract is of a personal nature, the death of the promisor discharges
the contract. In other contracts the rights and liabilities of the deceased person pass onto
the legal representatives of the dead man.
b. Insolvency. A contract is discharged by the insolvency of one of the parties to it when
an Insolvency Court passes an “order of discharge” exonerating the insolvent from
liabilities on debts incurred prior to his adjudication.
c. Merger. Where an inferior right contract merges into a superior right contract, the
former stands discharged automatically.
d. Unauthorized material alteration. A material alteration made in a written document or
Contract by one party without the consent of the other, will make the whole contract void.
Thus, where the amount of money to be received is altered, or an additional signature is
Forged, on a promissory note by a creditor, he cannot bring a suit on it and the pro-note
Cannot by enforced against the debtor even in its original shape. The effect of making
such an alteration is exactly the same as that of cancelling the contract

5. By material alternation
Any material alteration made intentionally in a written contract by the
promisee or his agent without the consent of the promisor entitles the later
to regard the contract as rescinded.
An alternation will be taken to be material if it directly or indirectly affects
the nature or operation of the contract or the identity, validity or effect of
the document.
6. By supervening impossibility of performance (Sec. 56)
Supervening impossibility arises due to the happening of certain events which
were neither in the contemplation of the parties when they entered into the
agreement nor either of the parties are responsible for causing the
performance of the contract impossible. In such a case the contract will be
void as soon as such events make the performance of the contract impossible.
The impossibility must be either legal or physical but not commercial. This is
called “Doctrine or Supervening Impossibility”. Section 56 of the Indian
Contract Act lays down:
“An agreement to do an impossible act is void”.
A contract to do an act, which after the contract is made, becomes
impossible, or by reason of some event which the promisor could not prevent,
becomes void when the act becomes impossible or unlawful. This is called
“Supervening Impossibility”, i.e. impossibility arising subsequent to the
formation of the contract. The supervening impossibility may be due to any
of the following causes:
(a) By the destruction of the subject matter. If the subject matter of the
contract is destroyed subsequent to the formation of the contract, without
any fault of either of the parties, the contract shall become void.
Example: (i) A music hall was let for a series of concerts on certain days.
The hall was burnt down before the date of the first concert. The contract
was held to be void.
(ii) A person contracted to deliver a part of a specific crop of potatoes. The
potatoes were destroyed through no fault of the party. The contract was held
to be discharged. Howell V. Coupland,1876).
(b) By the non-existence of a state of things necessary for the
performance. If a contract is made on the basis of continued existence of
certain state of circumstances, the contract stands discharged if the state of
things ceases to exist.
Example: (i) H hired a room from K for two days to witness the coronation
procession of King Edward VII. K knew the object of the contract though the
contract contained no reference to the coronation. Owing to King’s illness the
procession was cancelled. It was held that H was excused from paying rent
for the room, as the existence of the procession as the basis of the contract
and its abandonment discharged the contract. (Krell V. Henry 1903).
(ii) A and B contracted to marry each other. Before the time fixed for
marriage, A goes mad. The contract become void.
(c) Death or personal incapacity of the promisor. Contracts involving
personal skill of the promisor will stand discharged in the case of his death or
personal incapacity.
Example: A contracts to act at a theatre for six months in consideratin of a
sum paid in advance by B. On several occasions A is too ill to act. The contract
to act on the occasions becomes void.
(d) Change of law. On account of subsequent change in law, the
performance of the contract may become impossible. The object of the
contract may be declared to be unlawful.
Example: (i) A, who is governed by Muslim law and who already had a wife
promises to marry B. Subsequent to this promise and before it is carried out,
Special Marriage Act prohibiting polygamy is passed. The contract to marry
becomes void.
Example: (ii) X sold to Y a specific parcel of wheat in a godown. Before
delivery could be made, the godown was sealed by the Government and the
entire quantity was requisitioned by the Government under Statutory Power.
The contract was held discharged (Re Shipp, Anderson & Co. V. Harrison Brs.
and Co’s Arbitration (1915).
(E) Outbreak of War. A contract entered into with an alien enemy during
the war is unlawful and, therefore, void ab initio contracts made before the
outbreak of war either suspended or declared void by the Government. If they
are suspended, they may be performed after the termination of the war.
Example: A contracts to take in cargo for B at a foreign port. A’s Government
afterwards declared war against the country in which port is situated. The
contract becomes void when war is declared.
It is worthwhile to not that the word “impossible” under Section 56 has not
been used in the physical or literal sense. A contract may not have become
literally or physically impossible to perform but if an untoward event has
happened which has totally upset the very foundations of the contract will be
taken to be impossible to perform.

DISCHARGE BY BREACH OF CONTRACT

‘Breach of contract by a party thereto is also a method of discharge of a
contract, because
‘breach’ also brings to an end the obligations created by a contract on the
part of each of the parties.
Of course the aggrieved party, i.e., the party not at fault can sue for
damages for breach of contract
as per law; but the contract as such stands terminated. Breach of contract
may be of two kinds: (1)
Anticipatory breach; and (2) Actual breach
By Breach
Breach means failure of a party to perform his or her obligation under a
contract Breach of contract may arise in two ways.
1. Actual Breach.
2. Anticipatory Brerach.
Actual Breach : Actual breach means breach committed either; (i) at the
time when the performance of the contract is due; or (ii) during the
performance of the contract.
Example: (i) agrees to supply to B on the 1st February, 1975, 1000 bags of
sugar. On 1st February, 1975 he fails to supply. This is actual breach of
contract at the time when the peroformance is due. The breach has been
committed by A.
(ii) If on 1st February, 1975 A is prepared to supply the required number of
bags of sugar and B without any valid reasons refuses to accept them, B is
guilty of breach a contract.
Anticipatory Breach
Breach of a contract committed before the date of performance of the
contract is called anticipatory breach of contract. (Sec. 39). The contract in
this case is repudiated before the time fixed for its performance arrives and
is so discharged.
Example: (i) A agrees to employ B from 1st of March. On 1st February, he
writes to B that he need not join the service, the contract has been expressly
repudiated by A before the date of its performance.
(ii) A agrees to marry B. But before the date A marries C. The contract has
been repudiated by A by his conduct before the due date of its performance.
Anticipatory breach of contract does not give rise to a right of action unless
the promisee elects to treat it as equivalent to actual breach.
5. By material alternation
Any material alteration made intentionally in a written contract by the
promisee or his agent without the consent of the promisor entitles the later
to regard the contract as rescinded.
An alternation will be taken to be material if it directly or indirectly affects
the nature or operation of the contract or the identity, validity or effect of
the document.
(3) By Lapse of time
Every contract must be performed either within the period fixed or within a
reasonable time of the contract. Lapse of time may discharge the contract by
barring the right to bring an action to enforce the contract under the
Limitation Act.
Example: Peter takes a loan from John and agrees to pay instalments every
month for the next five years. However, he does not pay even a single
instalment. John calls him a few times but then gets busy and takes no
action. Three years later, he approaches the court to help him recover his
money. However, the court rejects his suit since he has crossed the time-
limit of three years to recover his debts.
discharge of a contract

A contract creates certain obligations on one or all parties involved. The discharge of a contract
happens when these obligations come to an end. There are many ways in which a contract is
discharged. In this article, we will look at various such scenarios.

Discharge by Performance

When the parties to a contract fulfil the obligations arising under the contract within the time and
manner prescribed, then the contract is discharged by performance.

Illustration: Peter agrees to sell his cycle to John for an amount of Rs 10,000 to be paid by John on
the delivery of the cycle. As soon as it is delivered, John pays the promised amount.

Since both the parties to the contract fulfil their obligation arising under the contract, then it is
discharged by performance. Now, discharge by the performance of a contract can be by:

1. Actual performance

2. Attempted performance

As shown in the example above, actual performance is when all the parties to a contract do what they
had agreed for under the contract. On the other hand, it is possible that when the promisor attempts
to perform his promise, the promisee refuses to accept it. In such cases, it is called attempted
performance or tender.

Discharge by Mutual Agreement

If all parties to a contract mutually agree to replace the contract with a new one or annul or remit or
alter it, then it leads to a discharge of the original contract due to a mutual agreement.

Illustration: Peter owes Rs 100,000 to John and agrees to repay it within one year. They document the
debt under a contract. Subsequently, he loses his job and requests John to accept Rs 75,000 as a final
settlement of the loan. John agrees and they make a contract to that effect. This discharges the
original contract due to mutual consent.

Discharge by the Impossibility of Performance

If it is impossible for any of the parties to the contract to perform their obligations, then the
impossibility of performance leads to a discharge of the contract. If the impossibility exists from the
start, then it is impossibility ab-initio. However, the impossibility might also arise later due to:

An unforeseen change in the law

Destruction of the subject-matter essential to the performance

The non-existence or non-occurrence of a particular state of things which was considered a given for
the performance of the contract.

A declaration of war
Illustration: Peter enters into a contract with John to marry his sister Olivia within one year. However,
Peter meets with an accident and becomes insane. The impossibility of performance leads to a
discharge of the contract.

Discharge of a Contract by Lapse of Time

The Limitation Act, 1963 prescribes a specified period for performance of a contract. If the promisor
fails to perform and the promisee fails to take action within this specified period, then the latter
cannot seek remedy through law. It discharges the contract due to the lapse of time.

Illustration: Peter takes a loan from John and agrees to pay instalments every month for the next five
years. However, he does not pay even a single instalment. John calls him a few times but then gets
busy and takes no action. Three years later, he approaches the court to help him recover his money.
However, the court rejects his suit since he has crossed the time-limit of three years to recover his
debts.

Discharge of a Contract by Operation of Law

A contract can be discharged by operation of law which includes insolvency or death of the promisor.

Discharge by Breach of Contract

If a party to a contract fails to perform his obligation according to the time and place specified, then
he is said to have committed a breach of contract.

Also, if a party repudiates a contract before the agreed time of performance of a contract, then he is
said to have committed an anticipatory breach of contract.

In both cases, the breach discharges the contract. In the case of:

an actual breach, the promisee retains his right of action for damages.

an anticipatory breach of contract, the promisee cannot file a suit for damages. It also discharges the
promisor from performing his part of the contract.

Discharge of a Contract by Remission

A promisee can waive or remit the performance of promise of a contract, wholly or in part. He can also
extend the time agreed for the performance of the same.

In example 3 above, Peter only repays a part of the money he owes to John. However, John agrees to
accept it as a final settlement of the debt. John’s act of remission discharges the contract.

Discharge by Non-Provisioning of Facilities

In many contracts, the promisee agrees to offer reasonable facilities to the promisor for the
performance of the contract. If the promisee fails to do so, then the promisor is discharged of all
liabilities arising due to non-performance of the contract.
Illustration: Peter agrees to fix John’s garage floor provided he keeps his car out for at least 6 hours.
Peter approaches him a few times but John is reluctant to get his car out. John fails to provide
reasonable facilities to Peter (an empty floor). This discharges him of all obligations arising under the
contract.

Discharge of a Contract due to the Merger of Rights

In some situations, it is possible that inferior and superior right coincides in the same person. In such
cases, both the rights combine leading to a discharge of the contract governing the inferior rights.

Illustration: Peter rents John’s apartment for two years. One year into the contract, he offers to buy the
property from John, who agrees. The enter a sale contract and Peter becomes the owner of the
apartment. Here Peter has two rights; one accorded by the lease agreement making him the renter and
second by the sale agreement making him the owner. The former being an inferior right merges with
the superior one and discharges the lease contract.
BREACH OF CONTRACT
A contract is breached or broken when any of the parties fails or refuses to
perform its promise under the contract.Breach of contract is a legal cause of
action in which a binding agreement is not honored by one or more parties by
non-performance of its promise by him renders impossible.
According to Section 39, where the party has refused to perform or disabled
himself from performing, his promise in its entirely, the other party may put an
end to the contract, , unless that other party has expressly or impliedly signified
its consent for the continuance of contract. If the other party chooses to put an
end to the contract, the contract is said to be broken and amounts to breach of
contract by the party not performing or refusing to perform its promise under
the contract. This is called repudiation. Thus repudiation can occur when either
party refuses to perform his part or makes it impossible for him to perform his
part of contract in each of the cases in such a manner as to show an intention
not to fulfil his part of the contract.

Anticipatory and Actual Breach of Contract

A breach is a failure by a party to fulfil the obligations under a contract.
It is of two types, namely, anticipatory breach and actual breach. In this
article, we will focus on understanding both types of breaches with the
help of some examples.

Anticipatory Breach of Contract

As the name suggests, an anticipatory breach is a breach of contract
before the time of performance. So, if a promisor denies to perform his
promise and signifies his unwillingness before the time for
performance, then it is an anticipatory breach of contract.

The promisor can convey his unwillingness either by:

 Expressing it in words (spoken or written)

 Implying it by his conduct
Let us look at an example. Peter enters into a contract with John on May
30, 2018. In the contract, Peter agrees to sell his house to John provided
he receives a token amount of Rs 5,00,000 from John on or before June
30, 2018. However, on June 15, 2018, John informs Peter that he will
not be able to provide the token amount on the said date, thereby
expressing rejection of the contract.

Actual Breach of Contract

While an anticipatory breach is before the time of performance, an
actual breach of contract is on the scheduled time of performance of the
contract. An actual breach of contract can be committed either:

1] At the time when the Performance of the Contract is Due

Peter enters into a contract with John promising to deliver 50 bags of

cotton to him on June 30, 2018. However, on the scheduled day, he fails
to deliver the same. This is an actual breach of contract. Also, this
breach is at the time the performance of the contract is due.

2] During the Performance of the Contract

An actual breach of contract can also occur when one party fails to
perform his obligation, during the performance of the contract. This
refusal can be expressed in words or by action.

Remedies for Breach of Contract

When a promise or agreement is broken by any of the parties we call it a
breach of contract. So when either of the parties does not keep their end
of the agreement or does not fulfil their obligation as per the terms of the
contract, it is a breach of contract. There are a few remedies for breach
of contract available to the wronged party. Let us take a look.
1] Recession of Contract

When one of the parties to a contract does not fulfil his obligations, then
the other party can rescind the contract and refuse the performance of his
obligations. The aggrieved party may rescind the contract. In such cases, the injured /
aggrieved party can either rescind the contract of file a suit for damages. In general, rescission of the
contract is accompanied by a suit for damages.

EXAMPLES 'A' contracts to supply 10kg of tea leaves for Rs. 8,000
to 'B' on 15 June. If 'A' does not supply the tea leaves on the appointed
day, 'B' need not pay the price. 'B' may treat the contract as rescinded
and may sit quietly at home. 'B' may also file a „suit for rescission‟ and
claim damages

A promises B to supply 10 Bags of cement on a certain day. B

agrees to pay the price after the receipt of the goods. A does not supply
the goods. B is discharged from liability to pay the price

2] Sue for Damages

Damages are monetary compensation allowed to the indured party for the loss or injury suffered by him
as a result of the breach of contract.

The fundamental princiople underlying damages is not punishement but to compensate the aggrieved
part for the loss suffere by him in the original position as he would have seen.

Types of damage

There are mainly forur types of damages

1] Ordinary damages

On the breach of a contract, the suffering party may incur some

damages arising naturally, in the usual course of events. Even if the
suffering party knew about the likely damages if the contract was
breached, he can claim compensation for such losses.
Peter agrees to sell and deliver 10 bags of potatoes to John for Rs 5,000
after two months. On the date of delivery, the price of potatoes
increases and Peter refuses to perform his promise. John purchases 10
bags of potatoes for Rs 5,500. He can receive Rs 500 from Peter as
ordinary damages arising directly from the breach.

2] Special Damages

A party to a contract might receive a notice of special circumstances

affecting the contract. In such cases, if he breaches the contract, then he
is liable for the ordinary damages plus the special damages.

Peter hired the services of John, a goods transporter, to deliver a

machine to his factory urgently. He also informed John that his business
has stopped for want of the machine. However, John delayed the
delivery of the machine by an unreasonable amount of time. Peter
missed out on a huge order since he didn’t have the machine with him.

In this case, Peter can claim compensation from John. The

compensation amount will include the amount of profit he could have
made by running his factory during the period of delay. However, he
cannot claim the profits that he would have made if he got the contract
since John was not made aware of the same.

3] Vindictive or Exemplary Damages

There are two scenarios for awarding vindictive or exemplary damages:

 Breach of a promise to marry because it causes injury to his/her

feelings
 Wrongful dishonour of cheque by a banker because it causes loss of
reputation and credibility.
In case of a wrongful dishonour of cheque from a businessman, the
compensation will include exemplary damages even if he has not
suffered any financial loss. However, a non-trader is not awarded heavy
compensation unless the damages are alleged and proved as special
damages.

Example: Peter is a farmer. He issues a cheque for procuring seeds for

his next crop. He has sufficient funds in his account but the bank
erroneously dishonours the cheque. Peter files a suit claiming
compensation for damages to his reputation. The Court awards a
nominal amount as damages since Peter is not a trader.

4] Nominal Damages

If a party to a contract files a suit for losses but proves that while there
has been a breach of contract, he has not suffered any real losses, then
compensation for nominal damages is awarded. This is done to establish
the right to a decree for a breach of contract. Also, the amount can be as
low as Re 1.

A contracted to purchase ‘LML Scooter’ from B, a dealer, for Rs. 25, 000. But A failed to purchase
the Scooter. However, the demand for the Scooter far exceeded the supply and B could sell the
Scooter to Z for Rs. 25, 000, i.e., without any loss of profit. Here if B makes a claim upon A for
breach of contract, he will be entitled to nominal damages only.

Suit for Quantum Merit

It means “AS MUCH AS EARNED” or “in proportion to the work done.”  The phrase „Quantum Meruit‟
literally means  When a person has begun the work and before he could complete it, the other party
terminates the contract or does something which make it impossible for the other party to complete the
contract, he can claim for the work done under the contract so far party.

EXAMPLES  P agreed to write a volume on ancient armour to be published in a magazine

owned by C. For this, P was to receive 100 pounds on completion. When P had completed part
of the work, but not the whole, C abandoned the magazine. P was held entitled to get damages
for breach of contract and payment quantum meruit for the part already completed. 
A, engages B, a contractor, to build a three storied house. After a part of the house is
constructed, A prevents B from working any more. B, the contractor, is entitled to get
reasonable compensation for work done under the doctrine of quantum meruit in addition to
the damages for breach of contract.

3] Sue for Specific Performance

This means the party in breach will actually have to carry out his duties
according to the contract. In certain cases, the courts may insist that the
party carry out the agreement.

So if any of the parties fails to perform the contract, the court may order
them to do so. This is a decree of specific performance and is granted
instead of damages.

For example, A decided to buy a parcel of land from B. B then refuses

to sell. The courts can order B to perform his duties under the contract
and sell the land to A

4] Injunction
is an order of a court restraining a person from doing a particular act. It is a mode of securing
the specific performance of the negative terms of the contract. To put it differently, where a
party is in breach of negative term of the contract (i.e., where he is doing something which he
promised not to do) the court may, by issuing an injunction, restrain him from doing, what he
promised not to do.

EXAMPLES A, a singer contracts with B the Manager of a theatre to Sing at his theatre for one
year and to abstain from Singing at other theatres during the theatre. She absents herself , B cannot
compel A to sing at his theatre, but he may sue her for an injunction restraining her from Singing at
other theatres .

G agreed to take the whole of his supply of electricity from a certain company. The agreement was
held to import a negative promise that he would take none from elsewhere. He was, therefore,
restrained by an injunction from buying electricity from any other company.
QUASI CONTRACTS

The name ‘Quasi Contracts’ is given by the English Law to such transactions
in which there is in fact no contract between the parties, but the rights and
obligations are created similar to those created by a ‘contract’.
For a contract there must be offer and acceptance, free consent, lawful
consideration and object and such other elements described under Sec. 10 of
the Indian Contract Act. But Quasi Contracts do no have such essential
elements of a contract and, therefore, Indian Contract Act has now here used
the term ‘Quasi or Implied’ Contracts’.
“An obligation created by law for the sake of justice; specif., an obligation
imposed by law on parties because of a relationship between parties or
because one of them would otherwise be unjustly enriched. It’s not a
contract, but instead is a remedy that allows the plaintiff to recover a
benefit conferred on the defendant.
Let’s look at an example of a Quasi contract: Peter and Oliver enter a
contract under which Peter agrees to deliver a basket of fruits at Oliver’s
residence and Oliver promises to pay Rs 1,500 after consuming all the
fruits. However, Peter erroneously delivers a basket of fruits at John’s
residence instead of Oliver’s. When John gets home he assumes that the
fruit basket is a birthday gift and consumes them.

Although there is no contract between Peter and John, the Court treats
this as a Quasi-contract and orders John to either return the basket of
fruits or pay Peter.

A quasi contract example involves an agreement between at least two

parties who had no prior obligation to each other. It is a contract that's
legally recognized in a court of law. More specifically, this type of contract is
created by court order, not between the parties in question.
Quasi contracts arise when a dispute exists over payment for goods and
services. What's difficult about these circumstances is that no official
agreement has been created between the parties involved. The court steps
in to prevent what's known as unjust enrichment. In essence, it's trying to
correct a situation where one party has acquired something to the
detriment of the other party.
The types of relations dealt here in the Contract Act in these sections are
stated as below:
1. Supplier of necessaries to minors. Lunatics, married women etc. (S. 68).
2. Person paying moneys due by another (S.69).
3. Person enjoying benefit to non-gratutious act or Quantum Meruit. (S. 70).
4. Finder of goods (S.71).
5. Person receiving money or goods belonging to another under mistake or
under coercion (S.72). Let us now take these cases one by one
1. Claim for necessaries suppled to a person Incapable of contracting
(Section 68)
If the “necessaries” for a person, who is incapable of contracting (for example, a
minor or a mentally disabled person) or of the dependants of such a person are
taken care of by someone, he has the right to be reimbursed from the property
of such incapable person. Although the word “necessaries” has not specifically
been defined in the Act, it is impliedly clear that it means the necessaries to
sustain life, basic things like food, clothing, education, etc. These are things
without which a person cannot reasonably exist. In simple terms, if a person A
supplies another person B (who is incapable of entering into a contract) or his
family or anybody else who is dependant on him, with necessaries for life, he is
entitled to take his due return from the property of person B. He is entitled only
to such a reasonable amount as the value of the goods or services he may have
supplied hold.

Illustration
(a) A supplies B, a lunatic, with necessaries suitable to his conditions in life.
A is entitled to be reimbursed from B’s property.
(b) A supplied the wife and children of B lunatic with accessaries suitable to
their conditions in life A is entitled to be reimbursed from B’s property.
The situation discussed by the above section is covered by Section 11 of the
Act also, which deals with agreements with persons incompetent to contract.
The two illustrations given above here also state the same position. However,
the situation arises only in dealing with the incapable persons. Two points
here are to be kept in mind.
(1) The amount is recoverable from the property and not from the person.
Such person is not personally liable. If he has got any property, then only the
creditors shall be able to get their re- imbursement. If no property belongs to
such person or persons the creditors shall not be left with any right.
(2) The object supplied must be necessities of life. The word necessities of
life is used here in its technical sense, and has a wide scope. It does not only
concern with food, and clothes but with every thing which the circumstances
permit. In England, in one case an engagement ring for one’s Finance has been
treated as a necessity, but vanity bag has not been included, under this term.
(Elkington & Co. V. Amery 1936).
In India, the term necessities, has also included in its perview the costs of
defending a suit on behalf of a minor, in respect of his property (Watkins V.
Dhunoo,) moneys lent for marriage expenses of a minor and others, say his
sisters (Nardan Prasad V. Ajhudhia Prasad) and also a loan to the minor to
save his property from execution. (Kedarnath V. Ajhudhia, 1883). Thus the
term ‘necessities’ is to be viewed in its proper perspective.
The following conditions are to be satisfied for the use of the term
‘necessaries’ (a) Things supplied must be suited to the minor’s conditons in
life;
(b) These must be ncessary for minor’s requirements, when actually sold or
delivered; and
(c) The minor must be having such things in sufficient quantity at the time of
such supply.
Non-fulfilment of any of these above stated conditions shall effect adversely
the rights of the other party.
Nature of Remedy: Remember, a supplier of necessaries has been granted a
remedy under this section against the property of the person and not the
person himself.

2. Reimbursement to person paying money due by another in payment

of which he is interested (Section 69).
If a person A pays something in someone’s (a person B’s) place, that which person
B is himself ‘bound by law’ to pay, A will be reimbursed by B. Please note that
the person A should be ‘interested’ in this payment. It is a case of
implied indemnity.

For instance, Joe is a Zamindar. Annie holds one of his lands on lease in Punjab.
The revenue of Joe’s land is payable to the government in arrears. So, the land
ends up being advertised for sale by the government. According to the Revenue
Law, if the land is sold, it will end Annie’s lease. To prevent this sale, Annie pays
Joe’s dues to the government. Joe is bound to pay back to Annie.

Illustration:
B hold land in Bengal, on a lease granted by A, the zamindar. The revenue
payable by A to the Government being a arrear, his land is advertised for sale
by the Government. Under the revenue law, the consequence of such sale will
be the annulement of B’s lease to prevent the sale and the consequent
annulement of his own lease, pays to the Government the sum due from A. A
is bound to make good to B the amount so paid.
The above illustration is based on the decision given in Faiyazunissa V.
Bajrang Bahadur Singh (1927).
The above case taken up under Sec. 69 is an exception to the rule
regarding consideration Sec.
2 (d) of the Act defining the term ‘Consideration’, starts with “When at the
desire of the promisor, the promisee or any other person has done.....”, If
there is no desire of the promisor, the act or abstinence of the stranger or
even the promiser shall not amount to consideration and in the absence of
lawful consideration, there shall not be any contract. It is clear from the
above illustration, that the payment of the revenue by B to the Government
has not been made with the concurrence of A. Yet, Principles of Equity has
created an obligation upon A to reimburse B, the payment made by him to
the Government.
Section 69, lays down three important conditions for its operation:
(a) The person who is interested in the payment of money, should have paid
for the protection of his own interest. If the payment is not bonafide for the
protection of his own interest, but is made without any such notice, then he
shall be having no right for reimbursement.
Let us make our point more clear with the help of the following examples:
(i) A purchases property from B, and the sale is fictitious. A cannot recover
from B money paid by him to save the property from being sold in execution
of a decree against B. (Janki Prasad Singh v. Baldeo Prasad (1908). But where
the sale is bonafide, he shall be entitled to recover the amount from B.
(ii) A’s goods are wrongfully attached in order to releae arrears of
Government revenue due by B, and A pays the amount of save the goods from
sale, A is entitled to recover the amount from B. (Tulsa Kunwar V.
Jageshwar Prasad (1906). Another case on the point is Abid Hussain V.
Ganga Sahai (1928).
It is sufficient to show that the person claiming the benefit had an interest in
paying the money at the time of the payment. In a case decided by Madras
High Court, a similar decision is given. Sami Pillai V.B. Naidu (1972) a
mortgagee of a tenant’s crop paid the amount due to Government in respect
of a loan given to the tenant (Mortgagor) and raised the attachment. The
mortgagee being interested in payment at the time of payment and therefore,
was entitled to recover from the mortgagor (tenant) the amount so paid to
the Government. Remember, this section does not require from the person
interested in payment to have legal propritory interest in the property in
respect of which the payment has been so made. Decision in Govindram v.
State of Gandal (1950), Bombay bears in testimony to this point.
(b) The payment should be a voluntary one. If the payment is made
voluntarily, the other party then is not under an obligation to make the
payment back. While deciding in Ram Tuhul Singh V. Biseswar Lal the
judicial Committee, observed,” It is not in every case in which a man has
benefitted by the money of another that an obligation to repay that money
arises. The question is not to be determined by nice considerations of what
may be fair or proper according to the highest morality. To support such sa
suit there must be an obligation in the case of a voluntary payment by A
of B’s debt.
Example
A canal company owned a canal and was under a statutory duty to keep the
bridge on the canal under repair. The bridge fall into disrepair and the
plaintiffs, the highway authority called upon the canal company to repair it.
When the canal company failed to do so, the plaintiff’s themselves repaired
the bridge and broughtan action to recover the money paid. Held, the plaintiff
could not recover as they act as mere volunteers. (Macclesfiled Corporation
V. Great Central Rly. 1911).
The payment made by such as the other party was bound by law to pay. The
liability for which payment may be made under this section need not be
statutory. Contractual liability is not a necessary element. Let us make the
point clear with the help of the following Examples:-
(i) W was the owner of a warehouse. G imported certain goods and kept
them in the ware house. The goods were stolen without any negligence on the
part of W. The authorities made a demand on W for the payment of the
custom duties which W paid. Held W could recover the amount from
G. (Brook’s Wharf Ltd. V. Goodman Bros. 1937).
(ii) The goods belonging to A are wrongfully attached in order to realise areas
of Government revenue due by G. A pays the amount to save the goods from
sale. A is entitled to recover the amount from G. (Abid Hussain V. Ganga
Sahai, 1928).

Obligation of a person enjoying benefit of non-gratuitous act

(Sec.70)
Where a person lawfully does anything for another person or delivers anything
to him not intending to do so gratuitiously, and such other person enjoys the
benefit thereof, the latter is bound to make compensation to the former in
respect of, or to restore the thing so done or delivered.
Illustrations:
(i) A, trademen, leaves goods at B’s house by mistake. B treats the goods as
his own. He is bound to pay A for them.
(ii) A saves B’s property from fire. A is not entitled to compensation from B,
if the circumstances show that he intended to act gratutiously. A maneges the
estate of his wife and sisters-in-law and is under the impression that he will
receive remuneration for his services. He is entitled to get reasonable
remuneration.
(iii) The right of action this section arises only after the fulfilment of the
following three conditions:- (a) The thing must be done lawfully;
(b) The thing must be done by a person not intending to act gratuitously; and
(c) The person for whom the act is done must enjoy the benefit of it.
(a) The thing must be done lawfully. Here the word ‘lawfully’ is quite
significant. It indicates that after something is done or delivered to one
person by another and the thing is accented and enjoyed by the former, a
lawful relationship occurs between the two. Such decision has been given
in Chaturbhuj Vilthaldas V. Moreshwar (1954). However, it should be
noted that the thing done or delivered must not have been delivered or done
with fraud or dishonesty.
(b) The thing should not be done or delivered gratuitously. If the benefit to
the other person has been done by a person gratuitously i.e., without any
intention to get a reward, he shall not be able to give any right under this
section. The section requires other person to use his right of rejecting the
thing, if he so likes. The section is applicable for those acts only which are
done with the intention of being paid for. Services freely rendered, without
any co-operation of a reward for them do not lie under the preview of this
section.
A saves B’s property from fire. He does the act on the basis of humanity and
fellow-feeling. Here A cannot get any reward from B under section 70. On the
other hand if the Salvage Crops of an Insurance Co. with which the property
is insured renders its services for saving the house property from fire, from
the objective is for getting the payment of the services so rendered, although
no such agreement has taken place.
(c) the person for whom the act is done must enjoy the benefit of it. If such
person has not enjoyed such benefit, he shall not be liable to pay for it.
Examples
(i) A village was irrigated by a tank. The Government effected certain
repairs to the tank for its preservation and had no intention to do so
gratuitously for the zamindars. The zamindars enjoyed the benefit thereof.
Held, they were liable to contribute. (Damodar Mudaliar V. Secretary of
State for India, 1894).
(ii) A Railway Company had constructed a culvert near Madura, which in 1938
it widened at considerable expense, on a requisiton in that behalf being made
by the Provincial Government. The company had done the work under protest,
alleging that the order was illegal and that they would claim to recover the
expenditure, from the government or the Madura municipality, or both. These
two latter, however, had repudiated their liability. In a subsequent suit on
behalf of the Railway Company against the Madura municipality, it was held
by P.C. that Sec. 70 could not be invoked to assist the Railway, for through
the work was done lawfully and without intending to do it gratutiously, the
defendants could not made liable, therefore, as it was not done for the
defendants, nor had the defendants enjoyed benefit of it (Pallonji Edulji &
Sons V. Lonavla Municipality)
Remember Section 70 does not apply to persons who are incompetent to
contract. In Simohaj Khan V. Bangi Khan (1931) it has been made clear that
Section 70 refers to circumstances in which the law implies a Promise to pay,
and where there could not have been a legally binding contract, a promise to
pay cannot be implied.

Section 71 (Responsibility of finder of goods)

Simply, a person who finds goods that belong to another person shall be treated
as a bailee. A bailee is essentially a safe keeper of the goods, who is supposed to
return the goods to the actual owner or dispose them in the manner in which the
actual owner may want them to. The bailee has certain duties and rights as the
‘possessor’ or ‘custodian’ of the goods for the time being. For example, Sarah
finds a diamond lying on the floor in a shop. She picks it up and keeps it in her
safe possession. Sarah makes all reasonable efforts to find the true owner of the
diamond. The diamond actually belonged to Nadia. Sarah has the right to hold
the possession of the diamond against all the world except Nadia, and is supposed
to make reasonable efforts to find her, and return it to her. In this case, Nadia
will have to pay the compensation for all the loss suffered by Sarah in finding her.

Duties of the finder of goods

1. The finder has a duty to take reasonable care.

2. He/she has a duty not to use the goods for his personal purposes.
3. He/she has a duty not to mix the found goods with his own goods.
4. He/she has a duty to make reasonable efforts to find the actual owner of the goods.
Rights of the finder of goods

1. Right to Lien– The right to retain the goods found until he receives compensation for all
the expenses suffered in finding the owner.
2. Right to Sue– If the owner had announced a reward for whoever finds the good, the finder
has the right to sue the owner for such reward or retain the goods until he is compensated.
3. Right to Sell– The finder of goods has the right to sell the goods in certain specific
circumstances, for example:

i) If the owner could not be found even after reasonable efforts.

ii) If the owner is found but refuses to pay compensation or the lawful charges of
the finder.

iii) If the goods are in immediate danger of perishing if not used.iv) If the lawful
charges of the finder amount to two-thirds of the value of goods.

Section 72 (Liability of person to whom money is paid or thing

delivered by mistake or under coercion)

As the heading suggests, if something is delivered to a person by ‘mistake’ or

under ‘coercion’, he is liable to pay it back. For instance, Aristotle and Dante share
a flat and contribute in half for the rent to be paid. Aristotle, without knowing
that Dante has already paid the due rent to the landlord in whole, pays again to
the landlord. The landlord, in this case, is liable to give back the money delivered
to him by mistake. The term mistake here can mean both mistake of fact or
mistake of law.

The section also uses the term ‘coercion’. Here is an example of something
delivered under coercion- A railway company refuses to deliver goods to a certain
consignee except upon the payment of a certain illegal sum of money. The
consignee pays the sum to obtain his goods. The company is liable to return the
sum of money illegally charged.
Features of a Quasi Contract

1. It is usually a right to money and is generally (not always) to a

liquated sum of money
2. The right is not an outcome of an agreement but is imposed by law.
3. The right is not available against everyone in the world but only
against a specific person(s). Hence it resembles a contractual right.

Contract of indemnity and gurantee

Contract of Indemnity (Section 124) A Contract by which one party promises to another to save him
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
Parties to the Contract of Indemnity

The person who promises to protect another: INDEMNIFIER \

The person who is so protected is: INDEMNITY-HOLDER/INDEMNIFIED

Meaning of Indemnity Indemnity means enact to compensate or protect somebody from the loss or
make good to the loss. When one person promises to another person that in case another person
suffers from some loss the first person will compensate the loss.
For example, A promises to deliver certain goods to B for Rs. 2,000
every month. C comes in and promises to indemnify B’s losses if A fails
to so deliver the goods. This is how B and C will enter into contractual
obligations of indemnity.
A contract of insurance is very similar to indemnity contracts. Here, the
insurer promises to compensate the insured for his losses. In return, he
receives consideration in the form of premium. However, the Contract
Act does not strictly govern these kinds of transactions. This is because
the Insurance Act and other such laws contain specific provisions for
insurance contracts.
Right of the indemnity holder – (Section 125)
An indemnity holder (i.e. indemnified) acting within the scope of his authority is entitled
to the following rights –

1. Right to recover damages – he is entitled to recover all damages which he might

have been compelled to pay in any suit in respect of any matter covered by the contract.

2. Right to recover costs – He is entitled to recover all costs incidental to the

institution and defending of the suit.

3. Right to recover sums paid under compromise – he is entitled to recover all

amounts which he had paid under the terms of the compromise of such suit. However,
the compensation must not be against the directions of the indemnifier. It must be
prudent and authorized by the indemnifier.

4. Right to sue for specific performance – he is entitled to sue for specific

performance if he has incurred absolute liability and the contract covers such liability.
The promisee in a contract of indemnity, acting within the scope of his authority, is
entitled to recover from the promisor-

(1) all damages which he may be compelled to pay in any suit in respect of any matter
to which the promise to indemnify applies

(2) all costs which he may be compelled to pay in any such suit if, in bringing or
defending it, he did not contravene the orders of the promisor, and acted as it would
have been prudent for him to act in the absence of any contract of indemnity, or if the
promisor authorized him to bring or defend the suit ;

(3) all sums which he may have paid under the terms of any compromise of any such
suit, if the compromise was not

It is important to note here that the right to indemnity cannot be claimed of dishonesty,
lack of good faith and contravention of the promisor’s request. However, the right
cannot be negatived in case of oversight. [Yeung v HSBC]

Rights of Indemnifier

As per the Indian Contract Act, 1872 indemnifier does not have any right. But in the case of Jaswant
Singh v Section of State[4] the court has held that the indemnifier shall be entitled with all the securities
of indemnified in the same manner as the creditor is against its principal debtor whether or not he is
aware of the same.

Comparison Chart

BASIS FOR
INDEMNITY GUARANTEE
COMPARISON

Meaning A contract in which one A contract in which a party

party promises to another
that he will compensate
him for any loss suffered
by him by the act of the
promisor or the third
party.
promises to another party
that he will perform the
contract or compensate the
loss, in case of the default of
a their person, it is the
contract of guarantee.

Defined in Section 124 of Indian Section 126 of Indian

Contract Act, 1872 Contract Act, 1872

Parties Two, i.e. indemnifier and Three, i.e. creditor, principal

indemnified debtor and surety
 BASIS FOR
INDEMNITY GUARANTEE
COMPARISON

Number of One Three

Contracts

Degree of liability Primary Secondary

of the promisor

Purpose To compensate for the To give assurance to the

loss promisee

Maturity of When the contingency Liability already exists.

Liability occurs.

Differentiation between contract of indemnity and contract of

guarantee

There is a difference between the two special types of contracts,

contract of indemnity and contract of guarantee which is as follows: –

1. In a contract of guarantee, there are three parties to a contract

namely surety, principal debtor and creditor whereas in case of
indemnity there are only two parties to a contract, promisor, and
promisee.
2. In case of the contract of guarantee, the liability of the surety is
secondary whereas in a contract of indemnity the liability of
promisor is primary.
3. Surety provides guarantee only when requested by the principal
debtor in a contract of guarantee. Indemnifier is not required to act
at the request of the debtor, in a contract of indemnity.
4. In a contract of guarantee, there is an existing liability for debt or
duty, surety guarantees the performance of such liability. In a
contract of indemnity, the possibility of incurring a loss is contingent
against which indemnifier undertakes to indemnify.
5. Surety is eligible to proceed against the principal debtor on payment
of debt, in case principal debtor fails to pay the debt. Indemnifier
cannot sue third parties in his own name.

Example

Indemnity

Mr. Joe is a shareholder of Alpha Ltd. lost his share certificate. Joe applies for
a duplicate one. The company agrees, but on the condition that Joe
compensates for the loss or damage to the company if a third person brings
the original certificate.

Guarantee

Mr. Harry takes a loan from the bank for which Mr. Joesph has given the
guarantee that if Harry default in the payment of the said amount he will
discharge the liability. Here Joseph plays the role of surety, Harry is the
principal debtor and Bank is the creditor.

Contract of Guarantee
Meaning and definition
Contract of Guarantee
Section 126 of the Indian contract act defines a contract of guarantee as a
contract to perform the promise or discharge the liability of the defaulting party
in case he fails to fulfill his promise.

As per section 126 of Indian Contract Act, 1872, a contract of guarantee

has three parties: –

Surety: A surety is a person giving a guarantee in a contract of

guarantee. A person who takes responsibility to pay a sum of money,
perform any duty for another person in case that person fails to perform
such work.

Learn more about Discharge and Rights of Surety here.

Principal Debtor: A principal debtor is a person for whom the

guarantee is given in a contract of guarantee.

Creditor: The person to whom the guarantee is given is known as the

creditor.

For example, Mr. X advances a loan of 25000 to Mr. Y and Mr. Z

promise that in case Mr. Y fails to repay the loan, then he will repay the
same. In this case of a contract of guarantee, Mr. X is a Creditor, Mr. Y
is a principal debtor and Mr. Z is a Surety.

Illustration

Ankita advances a loan of INR 70000 to Pallav. Srishti who is the boss of Pallav
promises that in case Pallav fails to repay the loan, then she will repay the same.
In this case of a contract of guarantee, Ankita is the Creditor, Pallav the principal
debtor and Srishti is the Surety.
Essentials of a Contract of Guarantee

1) Must be made with the agreement of all three parties

All the three parties to the contract i.e the principal debtor, the creditor, and the
surety must agree to make such a contract with the agreement of each other.
Here it is important to note that the surety takes his responsibility to be liable for
the debt of the principal debtor only on the request of the principal debtor. Hence
communication either express or implied by the principal debtor to the surety is
necessary. The communication of the surety with the creditor to enter into a
contract of guarantee without the knowledge of the principal debtor will not
constitute a contract of guarantee.

Illustration
Sam lends money to Akash. Sam is the creditor and Akash is the principal debtor.
Sam approaches Raghav to act as the surety without any information to Akash.
Raghav agrees. This is not valid.

2) Consideration
According to section 127 of the act, anything is done or any promise made for
the benefit of the principal debtor is sufficient consideration to the surety for
giving the guarantee. The consideration must be a fresh consideration given by
the creditor and not a past consideration. It is not necessary that the guarantor
must receive any consideration and sometimes even tolerance on the part of the
creditor in case of default is also enough consideration.

In State Bank of India v Premco Saw Mill(1983), the State Bank gave notice to
the debtor-defendant and also threatened legal action against her, but her
husband agreed to become surety and undertook to pay the liability and also
executed a promissory note in favor of the State Bank and the Bank refrained
from threatened action. It was held that such patience and acceptance on the
bank’s part constituted good consideration for the surety.

3) Liability
In a contract of guarantee, the liability of a surety is secondary. This means that
since the primary contract was between the creditor and principal debtor, the
liability to fulfill the terms of the contract lies primarily with the principal debtor.
It is only on the default of the principal debtor that the surety is liable to repay.

4) Presupposes the existence of a Debt

The main function of a contract of guarantee is to secure the payment of the debt
taken by the principal debtor. If no such debt exists then there is nothing left for
the surety to secure. Hence in cases when the debt is time-barred or void, no
liability of the surety arises. The House of Lords in the Scottish case of Swan vs.
Bank of Scotland (1836) held that if there is no principal debt, no valid guarantee
can exist.

5) Must contain all the essentials of a valid contract

Since a contract of guarantee is a type of contract, all the essentials of a valid
contract will apply in contracts of guarantee as well. Thus, all the essential
requirements of a valid contract such as free consent, valid consideration offer,
and acceptance, intention to create a legal relationship etc are required to be
fulfilled.

To know more about the essentials of a valid contract, please read this
6) No Concealment of Facts
The creditor should disclose to the surety the facts that are likely to affect the
surety’s liability. The guarantee obtained by the concealment of such facts is
invalid. Thus, the guarantee is invalid if the creditor obtains it by the concealment
of material facts.

7) No Misrepresentation
The guarantee should not be obtained by misrepresenting the facts to the surety.
Though the contract of guarantee is not a contract of Uberrima fides i.e., of
absolute good faith, and thus, does not require complete disclosure of all the
material facts by the principal debtor or creditor to the surety before he enters
into a contract. But the facts, that are likely to affect the extent of surety’s
responsibility, must be truly represented

Types of Guarantee
Specific guarantee’

Continuing guarantee Prof. SVK

Specific GuaranteeSpecific Guarantee  It is given for single debt or obligation and

comes to an end when the debt guaranteed has been paid or obligation guaranteed has been
discharged. Thus, where A gives a loan to B for which C stands guarantee, it is a case of a
specific guarantee. In this case, there is a specific debt and the guarantee shall come to an end
the moment the loan is repaid.

Example : a guarantees B that C would make payment on 20 sep. after the completion of
obligation the gurantee would be ischare

Illustrations

a) S is a bookseller who supplies a set of books to P, under the contract that if P

does not pay for the books, his friend K would make the payment. This is a
contract of specific guarantee and K’s liability would come to an end, the moment
the price of the books is paid to S.

b) On M’s recommendation S, a wealthy landlord employs P as his estate

manager. It was the duty of P to collect rent every month from the tenants of S
and remit the same to S before the 15th of each month. M, guarantee this
arrangement and promises to make good any default made by P. This is a contract
of continuing guarantee.

A specific guarantee cannot be revoked. Once the guarantee is given it cannot be withdrawn or
revoked and even after the death of the Surety (guarantor), it continues to operate making his
legal representatives liable for the same.

Continuing GuaranteeContinuing Guarantee a continuing guarantee is one where the

guarantee given is not for a single or specific debt or obligation, but for a series of debts.

Therefore Bankers always prefer to have a continuing guarantee so that the

guarantor’s liability is not limited to the original advances and would also extend
to all subsequent debts.

The most important feature of a continuing guarantee is that it applies to a series

of separable, distinct transactions. Therefore, when a guarantee is given for an
entire consideration, it cannot be termed as a continuing guarantee.

Illustration

K gave his house to S on a lease for ten years on a specified lease rent. P
guaranteed that S, would fulfill his obligations. After seven years S stopped
paying the lease rent. ‘K sued him for the payment of rent. P then gave a notice
revoking his guarantee for the remaining three years. P would not be able to
revoke the guarantee because the lease for ten years is an entire indivisible
consideration and cannot be classified as a series of transactions and hence is not
a continuing guarantee.
 --- RIGHTS AND LIABILITIES OF SURETYRIGHTS AND LIABILITIES OF SURETY
Rights of surety against the principle debotor.
1. right by subrogation
2. right by indemnity

right agaist the creditor

1. right to claim securities

2. right to set off
3. right to share deduction
4. right to share reduction
5. right to demand termination of employee (fedility termintiot)

right of contribution against co-surities

 guatantee for equal amount

 guarantee for different amount
o Burden of default to be shared equally up to respective amount of guarantee.

By conduct of creditor

 by variation in the terms

 release or discharge of debtos
 compounding with principle debtor
 impairing surety’s rememdy
 by loss of security

by invalidation of contract of guratnee

 guarantee obtained by misrepresentation

 by concealment
 failure of consideration
 failure of ex-surety to join.
3.

1. Right of subrogation (interchange): when the surety has paid the guaranteed debt on default
of the principal debtor he is then entitled to all the rights which the creditor had against the
principal debtor. The surety is entitled to all the remedies which are available to the creditor
against the principal debtor Prof.

e.g. a guarantees b for all the payments that c would make to be for the delivery of shoes.

2. Right to securities: Surety is entitled to the benefit of all the securities given by the principal
debtor to the creditor. The surety at the time of payment can demand the securities, which the
creditor has received from the principal debtor. Surety can recover the securities only after
making full payment. He cannot claim the benefit of a part of the securities if he has paid a part
of the debt. Prof. SVK

3. Right of surety when the creditor loses or parts with the securities of the principal debtor: if
the creditor by negligence loses any security held by him, or if the creditor parts with the
security, the liability of the surety is reduced to the extent of the value of those securities.

4. Right of reimbursement (compensation) from the principal debtor: a surety is entitled to

recover from the principal debtor whatever amount, he has rightfully paid to the creditor.

LIABILITIES The liabilities of the surety are co-existent which those of the principal debtor
unless it is otherwise provided.

Example: if A guarantees to B the payment of a Bill of Exchange by C, the acceptor. The bill is
dishonored by C. A is liable not only for the amount of the bill but also for any interest or
charges which may have become due on it. Prof. SVK

5..Change in the terms of the contract: If the principal debtor and the creditor make any
changes, without the consent of the surety, the surety is discharged from the contract. Prof. SVK

DISCHARGE OF SURETY
Discharge by death of the surety: In specific guarantee the surety is not discharged from his
liability on his death if the liability has already occurred. But the death of surety operates as
revocation of a continuing guarantee as to future transactions. The deceased surety’s estate will
not be liable for any transaction after the death, even if the creditor has no knowledge of
surety’s death. Prof. SVK

Release or discharge of principal debtor: a surety is discharged by any contract between the
creditor and the principal debtor, or any act or omission of the creditor by which the principal
debtor is released or discharged. Prof. SVK

Compounding of creditor with principal debtor: a contract between the creditor and the
principal debtor, by which the creditor makes a composition with, or promises to give time to, or
not to sue, the principal debtor, discharge the surety. Prof. SVK

Notice of revocation

Death of surety

Variation of contract

Release of discharge of principle debtor

Loss of security

Creditors act or commission impairing surety’s eventual remedy

By compostion with the principle debtos

Revocation of Guarantee

Revocation of Continuing Guarantee ***

1. Notice of revocation
2. Surety’s death
3. Novation
4. By allteration in terms of contract
5. Release or dishcharge of principle debtor and creditor
6. Loss of security

So far as a guarantee given for an existing debt is concerned, it cannot be

revoked, as once an offer is accepted it becomes final. However, a continuing
guarantee can be revoked for future transactions. In that case, the surety shall
be liable for those transactions which have already taken place.

A contract of guarantee can be revoked in the following two ways-

1) By giving a notice (Section 130)

Continuing guarantees can be revoked by giving notice to the Creditor but this
applies only to future transactions. Just by giving a notice the surety cannot waive
off his responsibility and still remains liable for all the transactions that have been
placed before the notice was given by him. If the contract of guarantee includes
a clause that a notice of a certain period of time is required before the contract
can be revoked, then the surety must comply with the same as said in Offord v
Davies (1862).

Illustration

A guarantees to B to the extent of Rs. 10,000, that C shall pay for all the goods
bought by him during the next three months. B sells goods worth Rs. 6,000 to C.
A gives notice of revocation, C is liable for Rs. 6,000. If any goods are sold to C
after the notice of revocation, A shall not be, liable for that.
2) By Death of Surety(Section 131)
Unless there is a contract to the contrary, the death of surety operates as a revocation of the
continuing guarantee in respect to the transactions taking place after the death of surety due to
the absence of a contract. However, his legal representatives will continue to be liable for
transactions entered into before his death. The estate of deceased surety is, however, liable for
those transactions which had already taken place during the lifetime of the deceased. Surety’s
estate will not be liable for the transactions taking after the death of surety’even if the creditor
had no knowledge of surety’s death.

Discharge of a surety

 By giving notice of revocation for future transactions (section 130).

 In case of death of surety, the guarantee is revoked for all the future
transactions (section 131).
 When there is a change in terms and condition of the contract
between the creditor and principal debtor without obtaining the
consent of surety. The surety will be discharged of all the
transactions taking place after such change in terms and condition
(section 133). For example – Q rents his house to R at a fixed rent, P
becomes surety for rent payable by R to Q. R and Q agree on a
higher rent for which they do not obtain P’s consent. In such a case P
will be discharged as a surety after such change in contract.
 In case the creditor releases the debtor or makes any omission due
to which results in the discharge of principal debtor’s liability
(section 134).
 When the principal debtor makes payment of debt.
 When the creditor enters into an arrangement with the principal
debtor for not to sue him or to provide extra time for payment of
debt, the surety will be discharged (section 135).
 The surety will be discharged when the creditor does any act which
is inconsistent with the rights of surety.
What is bailment?

Bailment as defined in section 148 of the Indian contract act 1872 is the delivery
of goods by one person to another for some specific purpose, upon a contract
that these goods are to be returned when the specific purpose is complete. For
example, A delivering his car for Service at the service center is an example of
bailment. The person delivering the goods is known as bailor and the
person to whom goods are delivered is known as bailee. However, if the
owner continues to maintain control over the goods, there is no bailment

Essentials of Contract of Bailment

1. The existence of a valid contract:- The existence of a valid contract is a foremost condition
in bailment which implies that goods are to be returned when the purpose is fulfilled. Finder
of lost goods is also known as bailee although there may not be any existing contract
between him and the actual owner.
2. Temporary delivery of goods:- The whole concept of bailment revolves around the fact
that the goods are delivered for a temporary period and bailee cannot have permanent
possession. Delivery of goods can be done through actual delivery or through constructive
delivery which means that doing something which has the effect of putting the goods in
possession of bailee or any other person authorized by him.
3. Return of specific goods:- The bailee is bound to return the goods to bailor after the
purpose for which it was taken is over. If the person is not returning the goods then it will
not be bailment.
Essentials of Valid Bailment

1. Agreement
2. Delivery of Goods
3. Purpose
4. Return of Goods

Agreement
For a valid contract of bailment, both the bailor as well as bailee have to enter
into an agreement that the bailor will transfer goods to the bailee for a specific
purpose and after the completion of the purpose bailee will return the goods to
the bailor and bailor will pay to the bailee for his services.

Illustration

If A and B want to enter into the contract of bailment with the purpose that B will
repair A’s car, they have to enter into an agreement, which includes all the
instruction and orders of A regarding the repairs and usage of his property etc.

Delivery of Goods
For a valid bailment, it is necessary that the bailor will transfer i.e. deliver his
goods to the bailee so that bailee can act towards completion of the purpose. The
possession should bevoluntary i.e. not by force, coercion, undue influence etc.

Delivery of possession of goods can be actual or constructive

Actual delivery means when the bailor transfer the goods to the bailee that
transfer should be in physical nature.
Illustration

If A wants B to repair his car, so A has to transfer the physical possession of the
car to B, because without the physical possession B is unable to complete the
purpose for which bailment took place.

Constructive delivery is the opposite of actual delivery. In constructive

delivery, the document which shows the title of goods gets transferred, due to
which indirectly the possession gets transferred.

Illustration

If A has a railways receipt i.e. document of title to goods, transfers the receipt to
B, here B indirectly has the possession of goods, as he has the document of title
to goods.

Purpose

Bailment takes place when the bailor transfers constructive to the bailee, the
main reason why bailor transfer his goods is the performance of a specific
purpose. And when that purpose gets completed the bailor return the goods to
the bailee.

Illustration

If A and B want to enter into the contract of bailment, A should transfer his goods
and provide some purpose to B, so that B can act to complete that purpose.
Return of Goods

The contract of bailment comes to an end when the bailee after fulfilment of the
purpose return the goods to the bailor or disposed of as per the direction of the
bailor.

Illustration

If Ram transfers his gold to Shaam so that Shaam can make a ring from that
gold. Shaam has to return the gold ring to Ram after the purpose for which they
enter into an agreement gets accomplished.

Illustration If A gives his car to B his neighbor for 10 days, but at the same
time he keeps one key with himself and during this period of 10 days he used to
take the car. Now this will not be a case of bailment as A is keeping control over
the property bailed.

o Exception: The money deposited in the bank shall not account to bailment as the money
returned by the bank would not be the same identical notes. And it is one of the essentials
of the bailment that same goods are to be delivered back.

What is Bailment?

‘Bailment’ is the delivery of goods by a person (the Bailor) to another (the Bailee) for a certain purpose.
The purpose is mentioned in a contract and upon the accomplishment, the ‘good’ is to be returned, or
delivered or disposed as per the directions.[1]

Who is a Bailor?

Bailor: A person who has the duty to deliver the good is called the ‘Bailor.’[2]
Who is a Bailee?

Bailee: The person to whom the Bailor has the duty to deliver the good, is called the ‘Bailee.’[3]

Duties of Bailor

Bailor have various duties like indemnification of Bailee’s suffering, bearing extra – ordinary
expenses, disclosing all the faults of the bailed good to the Bailee[4], claiming the good back after the
Bailment, etc.

Duties of Bailee

Bailees have various duties like to take reasonably good care of the bailed good. Not to use the good
unauthorizedly, not mixing the bailed good with something else, to return the good to the Bailor, etc.

Types of Bailments

Deposit:- It is the simple bailment of goods by one man to another for a particular
use.

For example, A gives his computer to B for 7 days, it will be a case of a deposit

Hire:- It includes goods delivered to the bailee for hire.

For example, A gives his car to B for 7 days on rent of Rs. 700 per day, it will be
a case of a hire

Pawn/ Pledge:- when goods are delivered to another person by way of security
for money borrowed.
For example, A takes a loan from the Bank and keeps his papers of the house
with a bank as security, it will be a case of pledge

Duties of a Bailor

Section 150 of the Indian Contract Act, 1872 bound the bailor with certain duties to disclose the latent
facts specifically pertaining to defect in goods. Bailor’s duty of disclosure are:

 Gratuitous Bailment: It is the duty of the bailor to disclose all the defects in the goods that
he is aware of to the Bailee that can interfere with the use of goods or can expose him to
extraordinary risks. And failure to do the same will make bailor liable for damages.

Example if a person bails his scooter to his friend and if the person know that the brakes
are loose, then he must tell this to the friend. Otherwise, the bailor will be responsible for
damages arising directly out of the faults to bailee. But the bailor is not bound to tell the
bailee about the fault if the bailor himself does not know about it.

 Non Gratuitous Bailment (Bailment for Reward):This duty particularly deals with the
goods given on hire. As per this provision, when the goods are bailed for hire, then in such
a situation even if the bailor is aware of the defect in the goods or not will be held liable
for the injury that has been caused due to the existence of such defect.
 The duty of a bailor for consideration is much greater. He is making profit
from his profession and, therefore, it is his duty to see that the goods which
he delivers are reasonably safe for the purpose of the bailment. It is no
defence for him to say that he was not aware of the defect. Section 150
clearly says that “if the goods are bailed for hire, the bailor is responsible
for such damage, whether he was or was not aware of such faults in the
goods bailed.” He has to examine the goods and remove such defects as
reasonable examination would have disclosed.

 * Duty of Bailor for reward:-
 c) To bear extraordinary expenses of Bailment:-
  The Bailee is bound to bear ordinary and reasonable expenses of bailment
but for any extraordinary expenses the bailor is responsible. E.g., ‘A’ lends
his horse to ‘B’, a friend, for two days. The feeding charges are to be paid
by ‘B’. But if the horse meets with an accident ‘A’ will have to repay ‘B’
medical expenses incurred by ‘B’.

 d) To receive back the goods:-
 It is the duty of the Bailor to receive back the goods when the Bailee returns
them after the expiry of the term of the Bailment or when the purpose for
which Bailment was created has been accomplished. If the Bailor refuses
to receive back the goods, the entitled to receive compensation from the
Bailor for the necessary expenses of custody.

 e) To indemnify the Bailee:-
 Where the title of the Bilor to the goods is defective and the Bailee suffers
as a consequence, the Bailor is responsible to the Bailee may sustain by
reason that the Bailor was not entitled to make Bailment, or to receive back
the goods, or to give directions respecting them.

Duties of Bailee

Bailee has to fulfil several obligations as per Indian Contract Act, 1872. That is:

 Duty to take reasonable care: It is the duty of the Bailee to take care of goods as his own
goods. He shall ensure all safety measures that are necessary to protect the goods. The
standard of care should be such as taken care by a prudent man. The goods shall be taken
care of equally whether they are gratuitous or non-gratuitous. The Bailee shall be held
liable for payment of compensation if he fails to take due care. But if the Bailee has taken
due care and instead of that the goods are damaged then in such a situation Bailee will
not be liable to pay compensation. The Bailee is not liable for the loss of goods due to
destruction by fire[4]. (Section 151-152)
  Duty not to make unauthorized use of the goods:Bailee is duty bound to use the goods
for a specific purpose only and not otherwise. If he uses the goods for any other purpose
than what is agreed for then the bailor has the right to terminate such bailment or is
entitled with compensation for damage caused due to unauthorized use. (Section 153-
154)
 Duty not to mix bailor’s goods with his own goods: It is the duty of the Bailee not to mix
bailor’s goods with his own. But if he wants to do the same then he shall seek consent
from the bailor for mixing of goods. If the bailor agrees for the mixing of the goods then
the interest in the mixed goods shall be shared in proportion. In case, Bailee without the
consent of bailor mixes the goods with his own then two situations arise: goods can be
separated and goods can’t be separated. In the former case the Bailee has to bear the cost
of separation and in the latter case since there is the loss of the goods, therefore, bailor
shall be entitled with damages of such loss. (Section 155-157)
 Duty to return the goods on the fulfilment of purpose:Bailee is duty bound to return the
goods once the purpose is achieved or on the expiry of the time period for which the goods
were bailed. But if the Bailee makes default in returning the goods on proper time then
he will be responsible with the loss, destruction or deterioration of the goods if any.
(Section 160-161)

In the case of Bank of India v. Grains & Gunny Agencies[5] the court held that if the goods are lost or
destroyed due to the negligence of servant of Bailee, then in such case as well Bailee shall be liable.

 Duty to deliver to the bailor increase or profit if any on the goods bailed:The Bailee has
a duty to return the goods along with increase or profit subject to contract to the contrary.
Accretion that has accrued from the bailed goods is the part of the bailed goods and
therefore bailor has the right over such accretions if any. And such accretions shall be
handed over to the bailor along with the goods bailed. For instance, A leaves a cow in the
custody of B and cow gives birth to the calf. Then B is duty bound to hand over the bailed
goods along with accretion to the bailor[6]. (Section 163)
Rights of a Bailor ***

As such Indian Contract Act, 1872 does not provide for Rights of a Bailor. But Rights of a Bailor is
same as Duties of the Bailee i.e. Rights of Bailor = Duties of Bailee[7]. So the rights of bailor are:

 Enforcement of Bailee’s Duty:Since Right of the bailor is same as the right of the Bailee,
therefore on the fulfilment of all duties of Bailee the bailor’s right is accomplished. For
example, it is the duty of the Bailee to give the accretions and it is the right of bailor to
demand the same.
 Right to claim damages: If the Bailee fails to take care of the goods, the bailor has the
right to claim damages for such loss. (Section 151)
 Right to Termination the Contract: If the Bailee does not comply with the terms of the
contract and acts in a negligent manner in such case the bailor has the right to rescind the
contract. (Section 153)
 Right to claim compensation: If the Bailee uses the goods for an unauthorized purpose or
mixes the goods which cause loss of goods in such case bailor has the right to claim
compensation.
 Right to demand the return of goods: It is the duty of the Bailee to return the goods and
the bailor has the right to demand the same.

Rights of a Bailee

 Right to recover expenses:In the contract of Bailment, the Bailee incurs expenses to
ensure the safety of goods. The Bailee has the right to recover such expenses from the
bailor. (Section 158)
 Right to remuneration: When the goods are bailed to the Bailee he is entitled to receive
certain remuneration for services that he has rendered. But in case of gratuitous bailment,
the Bailee is not awarded any remuneration.
 Right to recover compensation:At times a situation arises wherein bailor did not have the
capacity to contract for bailment. Such a contract causing loss to the Bailee, therefore the
Bailee has the right to recover such compensation from the bailor. (Section 168)
 Right to Lien:Bailee has the right over Lien. By this, we mean that if the bailor fails to make
payment of remuneration or does not pay the amount due, the Bailee has the right to
 keep the goods bailed in his possession till the time debtor dues are cleared. Lien is of two
types: particular lien and general lien. (Section 170-171)

In the case of Surya Investment Co. v. S.T.C[8], the court held that expenses incurred by Bailee during
preservation of goods under lien shall be borne by bailor.

 Right to suit against a wrongdoer:After the goods have been bailed and any third party
deprives the Bailee of use of such goods, then the Bailee or bailor can bring an action
against the third party. (Section 180)
Comparison Chart
BASIS FOR
BAILMENT
COMPARISON
Meaning When the goods are
temporarily handed over
from one person to another
person for a specific
purpose, it is known as
bailment.
Defined in Section 148 of the Indian
Contract Act, 1872.
Parties The person who delivers the
goods is known as the Bailor
while the person to whom
the goods are delivered is
known as Bailee.
Consideration May or may not be present.
Right to sell the The party whom goods are
goods being delivered has no right
to sell the goods.
Use of Goods The party whom goods are
being delivered can use the
goods only, for the specified
purpose.
PLEDGE
When the goods are
delivered to act as security
against the debt owed by
one person to another
person, it is known as the
pledge.
Section 172 of the Indian
Contract Act, 1872.
The person who delivers
the goods is known as
Pawnor while the person
to whom the goods are
delivered is known as
Pawnee.
Always present.
The party whom goods are
being delivered as security
has the right to sell the
goods if the party who
delivers the goods fails to
pay the debt.
The party whom goods are
being delivered has no
right to use the goods.
 BASIS FOR
BAILMENT PLEDGE
COMPARISON

Purpose Safe keeping or repairs, etc. As security against

payment of debt.

Bailment of Pledges

Pledge

Pledge is a kind of bailment. Pledge is also known as Pawn.It is defined under section 172 of the Indian
Contract Act, 1892. By pledge, we mean bailment of goods as a security for the repayment of debt or
loan advanced or performance of an obligation or promise. The person who pledges the goods as
security is known as Pledger or Pawnor and the person in whose favour the goods are pledged is known
as Pledgee or Pawnee.

Concept of Pledge

In the pledge, the pawnor transfer/bailed his goods to the Pawnee as security
against the amount he takes from the Pawnee. The pawnor has a duty to pay the
amount back to the Pawnee and the Pawnee has a duty to return the goods after
pawnor pays the amount. The Pawnee should not make unauthorized use of the
goods bailed to him if he does he will be liable to pay compensation to the pawnor.
The Pawnee has a right to sell the goods after giving prior notice to the pawnor if
he fails to pay the amount back.

Illustration
A borrowed Rs.100 from B and gave his cycle as a security for the repayment of
the amount, in the condition that if A pays back to B he will get his cycle back. it
is called the contract of Pledge.

What is a Pledge?

Pledge can be defined as when the goods are bailed with the objective of payment of a debt it is called
a ‘Pledge.’ It can be either against the payment of a debt or against the performance of a promise.[5]

Who is a Pawnor?

A Pawnor is the bailor in this case.[6]

Who is a Pawnee?

A Pawnee is the bailee in this case.[7]

What are the various rights and duties?

1. Right of Retention

It is Pawnee’s right to retain the good bailed to him till the payment of the last instalment of debt or
interest or any other expenses incurred by him during the bailment period for the preservation of the
good.[8]

2. Extraordinary expenses

If the Pawnee has suffered some extra expenses whilst the good was in his possession then it is the
duty of the Pawnor to reimburse the expenses.[9]
 3. Where the Pawnor is wrong

If during the bailment of a good the Pawnor is wrong then he or she is responsible for all the
wrongs.The Pawnee must redeem the value of the pledge to the Pawnor after the completion of the
bailment.[10]

4. Default in Payment

If the Pawnee makes a default while paying the debt or while performing the promise at the given time
then the Pawnor has the right to redeem the Pledged goods from the Pawnee before the actual sale but
if the case arises he must pay in addition the expenses which have arisen from his default.[11]

5. With regard to Section 19

If the Pawnee has obtained the goods that have been pledged by him under section 19 of the Indian
Contracts Act,and the contract at the time of the pledge has not been refunded by the Pawnee; he has
the right to acquire a good title to the good, given that his actions are in good faith and without a notice
of the bonus defect of ownership title.[12]

6. Interest

If the case arises where a person while pledging a good has only the interest which is limited to a
certain extent then the pledge is valid only till the extent of that interest and not further so here it is the
pledge where the Pawnee has only a limited interest.[13]
Rights and Duties of Pawnor

Rights of Pawnor

Right to redeem goods

It is the right of the pawnor to redeem his goods i.e. to get back from the Pawnee
after he paid the amount to the pawnee.

Illustration

If A bailed his watch as security and took Rs.800 as a loan from N. A return the
money to N. Here, A has a right to get his watch back.

Right to claim damages or compensation

It is the right of the pawnor to get the compensation if the Pawnee makes any
unauthorised use of the goods or fails to keep the goods safe.

Illustration

If A bailed his Car as security and took Rs.1,30,000 as a loan from C on the terms
that C will not use that car in any manner. C uses it as a taxi. Here A can claim
damages as C made unauthorized use of the goods.
Duties of Pawnor

Duty to pay the loan

It is the duty of the pawnor to pay the amount back to the pawnee so that he will
get his goods back.

Illustration

If A bails his gold chain as security to B for a loan of Rs.3000 Here, A has a duty
to pay back the amount of loan to B.

Duty to pay extraordinary expenses incurred by

Pawnee.
It is the duty of the pawnor to pay the extraordinary expenses to the pawnee,
which the Pawnee incurred in keeping the goods safe.

Illustration

If A bails his cow to B for Rs.8000. B paid all the expenses like food for cow,
shelter etc. Here A has a duty to pay the expenses back to B.

Duty to pay claims and damages or compensation to

Pawnee
The pawnor has a duty to pay the compensation or damages to the Pawnee if the
Pawnee suffered any type of legal damages due to pawnor’s goods.

Illustration
If A bails his bike as security to B for the loan of Rs.50000 with the term that B
can use his bike. A, however, didn’t disclose the fact to B that the breaks of the
bike are not working well. B met with an accident and suffered damage. Here it
is the duty of A to compensate B for the damage he has suffered due to A’s goods.

Rights and Duties of Pawnee

Rights of Pawnee

Right to retain Goods

As per Section 173 of the Indian Contract Act, if the pawnor fails to pay the
amount to the Pawnee, so the Pawnee has a right to retain the goods of the
pawnor.

Illustration

If A bails his watch as security to B for the loan amount of Rs.500. If A fails to
pay the amount or pays the amount after the time as per the terms and
conditions, B has a right to retain the watch.

Right to get compensation

In the case, where pawnee suffered because of the goods of the pawnor, the
Pawnee has a right to get the compensation against that damage from the
pawnor.

Illustration

If A bails his bike as security to B for the loan of Rs.50000 with the terms that B
can use his bike. A, however, didn’t disclose the fact to B that the brakes of the
bike were not working well. B met with an accident and suffered damage. Here,
B has a right to claim compensation from A.

Right to Sell
As per section 176 of the Indian Contract Act, if the pawnor fails to pay the
amount back to the Pawnee, the Pawnee has a right to sell the goods and
reimburse his amount.

Illustration

If A bails his gold ring to B as a security for the loan amount of Rs.7000 if A fails
to pay the amount back to B. B has a right to sale the ring and get his amount
back.

To get extraordinary expenses incurred by him

As per section 175 of the Indian Contract Act, if the pawnee has suffered any
extraordinary expenses with respect to pawnor’s goods then he has a right to get
paid back by the pawnor.

Illustration

If A bails his cow to B as security for Rs.18000 as a loan. B incurred expenses

like food expenses, shelter expense etc. B has a right to get all the amount back
from A.
Duties of Pawnee

Duty to take reasonable care

It is the duty of Pawnee to take reasonable care of the goods of pawnor, like his
own goods.

Illustration

If A bails his gold to B for the amount of Rs.80, 000 as loan security. B has a duty
to keep the gold of A safe and should take reasonable care.

State Bank of Saurastra v. Chitranjan Rangnath Raja and Anr.

In this case, the bank was the Pawnee and the defendant was the pawnor, the
pawnor bails his 5000 tins of groundnut oil as security against the amount of Rs.
75000. The defendant died. The bailed goods of the defendant were lost from the
possession of the bank. Later, after the given time limit bank files a case against
the defendant as ask for the repayment of the amount. The bank states that, as
the bank is the Pawnee, they have the right to get their money back, but because
they lost the goods of the plaintiff whose market value is Rs. 75000, that makes
them not able to get their payment back, thus the petition got dismissed

Duty to give back the goods after repayment of the

loan
When the pawnor pays back the amount to the Pawnee, the Pawnee has a duty
to give back the goods back to the pawnor.

Illustration
If A bails his watch to B as security for Rs.2000 as a loan. It is the duty of B to
give back the watch to A when A repay Rs.200

Duty not to make unauthorized use of goods

It is the duty of the Pawnee to not to make any unauthorized use of pawnor’s
goods. If the Pawnee makes unauthorized use of goods he will be liable to pay
compensation to the pawnor.

Illustration

If A bails his car to B as a security against loan amount of Rs.90000. If B uses

the car as a taxi without A’s Consent. Here, B will be liable for unauthorized use
of the car.

Duty to give back the owner any increment in the

goods
It is the duty of the Pawnee to give to the pawnor any increment in the goods
during his possession.

Illustration

If A bails his cow to B as a security against loan amount of Rs.80000. During B’s
possession cow gives birth to a calf. If A repays the amount, It is the duty of B to
give that calf and the cow back to A.

Duty not to mix the goods

It is the duty of the Pawnee to not to mix the pawnor’s goods with his own goods.
Illustration

If A bails 100lt. of petrol to B against the loan of Rs.13000. It is the duty of the
B to not mix the goods of A with his goods.

Pledge by Non Owner

Pledge by Mercantile agent

Section 178 of the Indian Contract Act states that the pledge between the
mercantile agent and Pawnee can be valid if the agent has the possession of the
goods with the consent of the owner and the Pawnee acted good faith and does
not know about the original title of the goods.

Illustration

If A is a mercantile agent of B bails the bike of B which is in his possession to D.

D in good faith and does not know about the title of the bike accept as security.
Here the pledge is considered as valid. But if B knows about title, then the pledge
will not be held valid.

Pledge by the person in possession under voidable

contract
As per section 178 ‘A’ of the Indian Contract Act, the pledge between the pawnor
having the possession of the goods under voidable contract and pawnee can be
valid, provided that during the pledge the contract has not been revoked and the
pawnee acted in good faith and does not have any idea about the title of the
goods.

Illustration
If A has possession of the watch under voidable contract, bails the watch to B. B
in good faith and does not know about the title of the watch, accepts it. That
pledge is considered as valid. But if B knows about the title, then that pledge is
not considered as valid.

Pledge where pledger has only a limited interest

As per Section 179 of the Indian Contract Act, the pledge between the pawnor
having limited interest and Pawnee can be valid, if during the pledge the pawnee
acted in good faith and does not know about the title of the goods.

Illustration

If A finds a defective watch and spent Rs.50 in repairing that watch. Here A can
have a limited interest on watch i.e. he can bail the watch in pledge for Rs.50 or
less.

Pledge by a co-owner in possession

The pledge between a co-owner and Pawnee can be valid if he has the consent of
other co-owner. But when the co-owner without the consent of other co-owner
enters the contract of pledge, that contract can be valid if the Pawnee acted in
good faith and does not know about the title of the goods.

Illustration

Situation 1: If A and B jointly owned a car. The car is in the possession of A.

One day A wants to bail the car for the purpose of the pledge, he has to take the
consent of B.
Situation 2: if A enters into the pledge with C and bails the car to C, without the
consent of B. That pledge is considered as valid only if C acts in good faith and
does not know anything about the title of the car.

Pledge by seller or buyer in possession

A seller, after selling his goods has the possession of the goods with the consent
of the buyer or the buyer before completion of the sale has the possession of
goods with the consent of the seller can enter into the valid pledge. But if the
party enter into a contract without the consent of the other party, that contract
can be valid, if the Pawnee acted in good faith and does not know about the title
of the goods.

Illustration

If A buys a cycle from B. A after purchase left the cycle in the possession of B. B
bails the cycle in a pledge with C. C act in good faith and does not know about
the title of the cycle. This is a valid pledge.

Essential of a valid pledge

 Delivery of possession
Pledge is like a bailment and it also involves the delivery of goods from
the pawnor to Pawnee. Delivery of goods also results in delivery of
possession. For example, Delivery includes transferring of a document to
the bank for taking a loan. This transaction will involve the delivery of
goods.
 Deleviery should be upon a contract
 Delivery should be for the purpose of security
The purpose for which goods are bailed is that bailed goods should serve
as security for the payment of debt or performance of a price. When
goods are pledged, the Pawnee becomes a secured creditor.
 Deliver should be upon condition to returen

Duties of pawnor

 Duty to repay loan

 Duty to pay expenses in case of default
Duty of pawnee

 Duty not use of pledge good

 Duty to return the goods

Right of pawnor

 Right to redeem goods pledgeed

 Right to receive the increase

Right of pawnee

 Right to retain the pledged goods

 Right to extra ordinary expenses
 Right in case of default of the pawnor
 Right to sell the goods

Rights of Pawnor

As per Section 177 of the Indian Contract Act, 1872 the Pawnor has the Right to Redeem. By this, we
mean that on the repayment of the debt or the performance of the promise, the Pawnor can redeem the
goods or property pledged from the Pawnee before the Pawnee makes the actual sale. The right of
redemption is extinguished once the actual sale is done by the Pawnee as per his right under section
176 of the Indian Contract Act, 1872[9].

Rights of a Pawnee

The rights of the Pawnee as per Indian Contract Act, 1872 are:

 Right to retain the goods: If the Pawnor fails to make the payment of a debt or does not
perform as per the promise made, the Pawnee has the right to retain the goods pledged
as security. Moreover, Pawnee can also retain goods for non-payment of interest on debt
or non-payment of expenses incurred. But Pawnee cannot retain goods for any other debt
or promise other than that agreed for in the contract. (Section 173-174)
 Right to recover extraordinary expenses: The expenses incurred by Pawnee on the
preservation of goods pledged can be recovered from Pawnor. (Section 175)
 The right of suit to procure debt and sale of pledged goods: On the failure to make
repayment to Pawnee of the debt, the Pawnee has two right: either to initiate suit
proceedings against him or sell the goods. In the former case, the Pawnee retains the
goods with himself as collateral security and initiate the court proceedings. He need not
provide any notice of such proceedings to the Pawnor[10]. And in the latter case, the
Pawnee can sell the goods after giving due notice of sale to the Pawnor. If the amount
received from the sale of goods is less than the amount due then the rest amount can be
recovered from Pawnor. And if the Pawnee gets more amount than the due amount then
such surplus is to be given back to Pawnor. (Section 17
Introduction: What is Agency?

When one party delegates some authority to another party whereby the latter
performs his actions in a more or less independent fashion, on behalf of the first
party, the relationship between them is called an agency.

Meaning and definition of Agency

In India, the agent and principle share a relationship that is

contractual in nature, and therefore it is governed by the terms and
conditions of the contract between them. Chapter X of the Indian
Contract Act, 1872 provides the basic structure of rules and
regulations that basically govern the performance and formation of
any type of contract including the agency contract. In agency
contracts, there exists a legal relationship between two people
whereby one person acts on behalf of the other. The person acting
on behalf of the other is called an agent, and the person from whom
the agent derives authority to act is called the principal.

Who is an Agent?

The Indian Contract Act, 1872 defines an ‘Agent’ in Section 182 as a person
employed to do any act for another or to represent another in dealing with third
persons.
Who is a Principal?

According to Section 182, The person for whom such act is done, or who is so
represented, is called the “principal”. Therefore, the person who has delegated
his authority will be the principal.

Illustrations

 A, a businessman, delegates B to buy some goods on his behalf. Here, A is the principal
and B is the agent, and the person from whom the goods are bought is the ‘Third Person’.
 Joe appoints Mary to deal with his bank transactions. In this case, Joe is the Principal, Mary
is the Agent and the Bank is the Third Party.
 Lavanya lives in Mumbai, but owns a shop in Delhi. She appoints a person Susan to take
care of the dealings of the shop. In this case, Lavanya has delegated her authority to Susan,
and she becomes a Principal while Susan becomes an agent.

Who can appoint an Agent?

According to Section 183, any person who has attained the age of majority and
has a sound mind can appoint an agent. In other words, any person capable of
contracting can legally appoint an agent. Minors and persons of unsound mind
cannot appoint an agent.

Who may be an Agent?

In the same fashion, according to Section 184, the person who has attained the
age of majority and has a sound mind can become an agent. A sound mind and
a mature age is a necessity because an agent has to be answerable to the
Principal.
Creation of Agency
An agency can be created either in writing or orally. An oral appointment is a valid appointment even
though the contract of agency by which agent is authorized has to be in writing.

An agency can be created by:

1. Express agreement

2. Implied agreement

 Agency by estoppel

 Agency by necessity

 Agency by ratification

 Agency by emergency: an agent can act on behalf of the

principle for preventing the principle from the loass as would
be done by a person of ordinary prudence, in his own case,
under similar circumstance.

Direct (express) appointment– The standard form of creating an agency is by

direct appointment. When a person, in writing or speech appoints another person
as his agent, an agency is created between the two.

e.g execute a deed for sale or purchase of land, the agent must be appointed by
executing a formal ‘power of attorney’ on a stamed paper.

Implied: implied agency arises when there is no express agreement appointing

a person as an agent, but instead the existence of agency is inferred from the
circumstances of the case, or from the conduct of the parties. On a particular
occasion of from the relationship btween parties. Such an agency may take the
following forms

Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has
been ordering and purchasing goods from C for the purpose of the shop. The
goods purchased were being regularly paid for but of the funds provided by
A. B shall be considered to be an agent of A by his conduct.
Partners, servants and wives are usually regarded as agents by implications
because of their relationship

 Agency by estoppel or An agency can also be created by estoppel. In a

situation where one person behaves in such a manner in front of a third
person, as to make someone believe he is an authorized agent on behalf of
someone, an agency by estoppel is created.

 Ex: a tells b in the presence and within the hearing of c that he is c’s agent.
C does not contradict this statement and keeps quiet. Later on b enters into
a transaction with a believing honestly that a is c’s agent. C is bound by
this transaction and he will be estopped from denying the existence of
agency, even though such agency did no in fact exist.

 Example: A says to B in the presence of and within the hearing of C

that he is C’s agent. C remains mum. B supplies goods of Rs. 10,000/-
to A taking him as C’s agent. C’s responsible for the payment of price
of these goods.

 Agency by necessatity

In a situation of necessity, one person can act on behalf of another to save

the person from any loss or damage, without expressly being appointed as
an agent. This creates an agency out of necessity.\
 “an agency by necessity is conferred by law in certain cases, where a
person is face with an emergency in which the propert or interests of
another are in imminent danger, and it becomes necessary in order to
preserve the property of interests, to act befor the instruction of the owner
can be obtained. The law assumes the consent of the owner to the creation
of the relations of principle and agent”

For example, a sent a horse by railway. On its arrival at the

destination, there was no one to receive it. The railway company, is
bound to take reasonable steps to keep the horse alive, was an agent
of the necessity of A

Example: The master of the ship on finding that the cargo is rapdily
perishing is entilted to dispose it of at the best price available so as to
bind the consignor as an agent by necessity.

 Agency by Holding Out Such an agency is based on the doctrine of

holding out which is a part of the law of estoppel. In this case also the
alleged principal is bound by the acts of the supposed agent, if he has
inducted third persons to believe that they are done with his authority. But,
unlike an agency of estoppel, an agency by holding out required some
affirmative or positive act or conduct by the principal to establish agency
subsequently. Thus, where an employer has been accustomed to pay for
goods bought on his behalf by his employer from Galaxy4u, the employer
may be liable for a purchase made in the customary manner, even though
it is made, by the employee fraudulently after he has left the employment.
The employer’s conduct in holding out his employee to be his agent (paying
for purchases made by the employee on previous occasions) estops him
from denying that his authority was not still in existence.
Implication– When an agent is not directly appointed but his appointment can
be inferred from the circumstances, an agency by implication is created.

Ratification– When an act of a person, who acted as another person’s agent (on
his behalf) without his knowledge is later ratified by that person, this creates an
agency by ratification between the two.

Example: The manager of a company perporting to act as an agent on the

compnay’s behalf but without its authority, accepted an offer by L, the
defendant L subsequently withdrew the offer, but the company ratified the
manager’s acceptance. L was held to be bound by the acceptance. His
revocation of the offer was held to be invalid. Ratification relates back to the
due when the agent had first acted and, therefore, subsequent revocation
shall have no effect.*

“”were acts are done by one person on behalf of another, but without his
knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies
them the same effects will follow as if the ha.d been performed by authority.

Creation of Agency: Agency may be created by any of the following ways:

1. Expressly (Sec. 187)
When an agent is appointed by words spoken or written, his authority is said
to be express.
2. Impliedly (Sec. 187)
When agency arises from the conduct of the parties or inferred from the
circumstances of the case, it is called implied agency.
Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has
been ordering and purchasing goods from C for the purpose of the shop. The
goods purchased were being regularly paid for but of the funds provided by
A. B shall be considered to be an agent of A by his conduct.
Partners, servants and wives are usually regarded as agents by implications
because of their relationship.
Wife as an implied agent to her husband
(a) Where the husband and wife are living together in a domestic
establishment of their own, the wife shall have an implied authority to pledge
the credit of her husband for necessaries. The implied authority can be
challenged by the husband only in the following circumstances.
(1) The husband has expressly forbidden the wife from borrowing money or
buying goods on credit (Debenham V. Mellon (1880) 6 A.C. 24).
(2) The articles purchased did not constitute necessities.
(3) Husband had given sufficient funds to the wife for purchasing the articles
she needed to the knowledge of the seller (Miss Gray Ltd. V. Cathcort (1922)
38 T.L.R. 562).
(4) The creditor had been expressly told not to give credit to the wife
(Etheringtion V. Parrot
(1703) Salia 118).
(b) Where the wife lives apart from husband without any of her fault, she
shall have an implied authority to bind the husband for necessaries, if he does
not provide for her maintenance.
3. Agency by necessity
Under certain circumstances, a person may be compelled to act as an agent
to the other, e.g. master of the ship can borrow money at a port where the
owner of the ship has not agent, to carry out necessary repairs to the ship in
order to complete the voyage. In such a case of necessity, person acting as
an agent need not necessarily have the authority of the principal. However,
the agent must act under pressing conditions and for the benefit of the
principal.
Example: The master of the ship on finding that the cargo is rapdily perishing
is entilted to dispose it of at the best price available so as to bind the
consignor as an agent by necessity.
4. Agency by estoppel (Sec. 237)
When an agent has without authority, done acts or incurred obligations to
third persons on behalf of his principal, the principal is bound by such acts
and obligations if he has by his words or conduct induced such third person to
believe that such acts and obligations were within the scope of the agent’s
authority.
Example: A says to B in the presence of and within the hearing of C that he
is C’s agent. C remains mum. B supplies goods of Rs. 10,000/- to A taking him
as C’s agent. C’s responsible for the payment of price of these goods.
5. Agency by ratification (Sec. 196 to 200)
Ratification means subsequent acceptance and adoption of an act by the
principal originally done by the agent without authority. According to section
196. “Where acts are done by one person on behalf of another but without his
knowledge or authority, he may check to ratify or to disown such act. If he
ratifies them, the same effects will follow as if they had been performed by
his previous authority.”
Example: The manager of a company perporting to act as an agent on the
compnay’s behalf but without its authority, accepted an offer by L, the
defendant L subsequently withdrew the offer, but the company ratified the
manager’s acceptance. L was held to be bound by the acceptance. His
revocation of the offer was held to be invalid. Ratification relates back to the
due when the agent had first acted and, therefore, subsequent revocation
shall have no effect.*
In order that ratification may be legal and valid, it must satisfy the following
essentials. (1) The act must be done in the name of the principal.
(2) Principal must have been in existence and competent to contract at the
time when agent acted on his behalf as well as on the date of ratification.
(3) The act must be legal which the principal must be competent to do.
(4) Ratification must be with full knowledge of all the material facts (Sec.
198).
(5) Ratification must relate to the whole act and not to a part of it.
Ratification of a part of the act will not be valid (Sec. 199).
(6) There can be no valid ratification of an act which is to the prejudice of a
third person (Sec. 200).
* Blton Partners V. Lambert (1889) 41 Ch. D. 295
Example: A holds a lease from B, terminable on three months notice, C, an
unauthorised person gives notice to termination to A. The notice cannot be
ratified by B, so as to be binding on A.
(7) Ratification of an act must be made, either within the time fixed for this
purpose or within a reasonable time after the contract was entered into by
the agent.
https://sol.du.ac.in/mod/book/view.php?id=644&chapterid=379

classification of agent
according to extent of authority

 Special agent
A general agen is one who is appointed to represent the principle in all the matters concerning
a particular business.
 General Agent
A special agen is one who is appointed to do some particular act or enter into some particular
contract.

According to nature of work performed by them

 Commercial or mercantile agent

A mercantile agent is one having authority in the course of business to sell goods or consign
goods for the purpose of sale or to buy goods and even to raise money on the security of goods. A
mercantile agent is also called a commissioner agent
o Factor: possession of property sell on credit and in his own name, general lien, cannot
bartera and connot delegate
o Auctioneer: appointed to sell by auction deliver goods on receipt of price recover price
from highest bidder can file suit in his own name particular lien.

o Sub-Agent-An agent appointed by an agent.

o Co-Agent- Agents together appointed to do an act jointly.
o Broker- An agent whose job is to create a contractual relationship between two parties.
o Commission Agent- An appointed to buy and sell goods (make the best purchase) for
his Principal. Or employed to buy or sell or to transact business not liable for third part,
particular lien may or may not have possession.
o Del Credere- An agent who acts as a salesperson, broker and guarantor for the
Principal. He guarantees the credit extended to the buyer.
o
 Non mercantile agent
o Wife as an agen: living together and looking for necessaries
o Husband is not liable: expressly forbidden credit, not necessary, given money and trader
is told expressly.

Sole Selling Agent:

In case of sole selling agent, the relationship between the principal and the sole selling agent is
more or less of a seller and buyer and therefore, when a sole selling agent sells the goods to his
buyer the relationship between the sole selling agent and the buyer may be of the vendor and
purchaser unless the agency is disclosed.
o

Types of Agents

1. Special Agent- Agent appointed to do a singular specific act.

2. General Agent- Agent appointed to do all acts relating to a specific job.
3. Sub-Agent-An agent appointed by an agent.
4. Co-Agent- Agents together appointed to do an act jointly.
5. Factor- An agent who is remunerated by a commission (one who looks like the apparent
owner of the things concerned)
6. Broker- He only brings about the transaction between the principal and the buyer or seller but
the possession of the goods or document of title to goods is not given to him. He is, therefore,
an agent, who in ordinary course of business is employed to make contract for the purchase or
sale of shares or goods. or An agent whose job is to create a contractual relationship between
two parties.
7. Auctioneer- An agent who acts a seller for the Principal in an auction.
8. Commission Agent- An appointed to buy and sell goods (make the best purchase) for his
Principal
9. Del Credere- An agent who acts as a salesperson, broker and guarantor for the Principal.
He guarantees the credit extended to the buyer.
10. Forwarding or Clearing Agent: A forwarding agent, also called shipping agent or clearing agent
acts as agent of the principal, who wants to export goods outside the country or to clear the
goods imported by the principal and all the functions for exporting or clearing and taking
possession of imported goods are done by this agent.
Duties of an agent
Duties of an Agent
1. To follow the instructions of his principal: The agent must conduct
the business of the principal according to the directions of the latter. In the
absence of any such directions, he must follow the custom of the business
prevailing in the locality where the agent is conducting such business. If the
agent acts otherwise and the principal sustains a loss, the former must
compensate the latter for it. He will have to account for the profits to the
principal if there are any. He will also lose his remuneration (Sec. 211).
Example: A, an engaged in carrying on for B a business in which it is the
custom to invest from time to time, at interest, the money which may be in
hand omits to make such investment. A must take good to B the interest
usually obtained by such investment.
2. Duty to act, with skills and diligence (Sec. 212): The agent must
conduct the business of agency with as much skill as is generally possessed
by persons engaged in similar business unless the principal has notice of his
want of skill.
Example: A, an agent for the sale of goods, having authority to sell on credit,
sells to B on credit without, making the proper and usual enquires as to the
solvency of B. B. at the time of such sale is insolvent. A must make
compensation to his principal in resepct of any loss thereby sustained.
3. Duty to render accounts: An agent is bound to render proper accounts
to his principal on demand. He must explain those accounts to the principal
and produce the vouchers in support of the entries (Sec. 213).
4. Duty to communicate with the principal: In cases of difficulty it is
the duty of the agent to use all reasonable diligence in communicating with
the principal and in seeking to obtain the instructions. It is only in an
emergency where there is no time to communicate that he may act bonafide
without consulting the principal (214).
5. Duty not to deal on his own account: The relationship of principal
and agent is of a fiduciary character. An agent, therefore, should not deal on
his own account and should not do anything which may indicate a clash
between his interest and duties. An agent shall have to pay all the benefits to
the principal, which may have resulted to him from his dealings on his own
account in the business of the agency without the knowledge of the principal
(Secs. 215 & 216).
Example: A directs B, his agent, to buy a certain house for him. B tells A
that it cannot be bought, any buys the house for himself. A may, on
discovering that B has bought the house, compel him to sell it to A at the
price he gave for it.
6. Duty not to delegate his authority: An agent cannot delegate his
authority to another person unless authorised or warranted by the usage of
trade or nature of the agency. A work entrusted to the agent must be done
by him.
7. Duty to protect the interest of principal or his legal representative
in the event of principal’s unsoundness of mind or his death: When an
agency is terminated by the principal dying or becoming of unsound mind, the
agent is bound to take on behalf of the representatives of his late principal,
all reasonable steps for the protection and preservation of the interests
entrusted to him (Sec. 209).
8. Duty to pay sums received for principal: The agent is bound to pay
to his principal all sums received on his account after deducting for his own
claim (Sec. 218).

Rights of an agent
Right to claim reimbursement for expenses: Agent has the right to
retain, out of the money received on behalf of the principal, money advacned
or expenses properly incurred in conducting the agency business (Sec. 217).
The agent may have paid the money at the request of the principal, or on
account of the understanding implied by the terms of the agency or through
mercantile usage.
2. Right to receive remuneration: He has also a right to claim
remuneration as may be payable to him for acting as an agent. In the absence
of any contract to the contrary, this right to claim remuneration will arise
only when he has carried out the object of the agency in full without being
guilty of misconduct (Sec. 219).
An agent who is guilty of misconduct in the business of the agency is not
entitled to any remuneration in respect of the part of that business which had
been misconducted (Sec. 220).
Example: A employs B to recover 1,00,000 rupees from C, and to lay it out
on good security. B recovers, 1,00,000 rupees and lays out 90,000 rupees on
good security, but lays out 10,000 rupees on security which he ought to have
known to be had, whereby A losses 2,000 rupees. B is entitled to remuneration
for recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is
not entitled to any remuneration for investing the 10,000 rupees and the he
must make good the 2,000 rupees to A.
3. Right to indemnification against consequences of all lawful acts
: An agent has a right to be indemnified by the principal against the
consequences of all lawful acts done in exercise of his authority. (Sec. 222).
Example: B, a broker at Calcutta, by the orders of A, merchant there,
contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses
to receive the oil and C sues B. B informs A, who repudiates the contract
altogether. B defends, but unsuccessfuly, and has to pay damages and incurs
expenses. A is liable to B for such damages, costs and expenses.
4. Rights of indemnification against consequences of acts done in
good faith: An agent has a right to be indemnified by the principal for any
compensation which he may be required to pay to the third parties for injuries
caused to them by his wrongful acts within the scope of his actual authority
done in his good faith, i.e., without any wrong or dishonest intentions (Sec.
223).
Example: B at the request of A, sells goods in the possession of A, but which
A had no right to dispose of B does not know his, and hands over the proceeds
of the sale to A. Afterwards C, the true owner of the goods sues B and recover
the value of the goods and cost. A is liable to indemnify B for what he has
been compelled to pay to C and for B’s own expenses.
But where one person employs another to do an act, which is criminal, the
employer is not liable to the agent either upon an express or an implied
promise, to indemnify him against the consequences of the act (Sec. 224).
Example: A employs to B to beat C, and agrees to indemnify him against all
consequences of the act. B thereupon beats C, and has to pay damages to C
for so doing. A is not liable to indemnify B for those damages.,
5. Right of indemnification for injuries caused by Principal’s
neglect: An agent has a right to claim compensation from the principal for
injuries caused to him by the negligence or want to skill on the part of the
principal (Sec. 225).
Example: A employs B as a bricklayer in building a house, and puts up the
scaffolding himself. The scaffolding is unskillfully put up, and B is in
consequence hurt. A must make compensation to B.
6. Right of particular lien: An agent is entitled to retain under the
possession both movable and immovable of the property of the principal
received by him until the amount due to him for commission, disbursements
and services has been paid or accounted for him, provided the contract does
not provide otherwis (Sec. 221)

1. Right to remuneration– an agent is entitled to get an agreed remuneration as per the contract. If
nothing is mentioned in the contract about remuneration, then he is entitled to a reasonable
remuneration. But an agent is not entitled for any remuneration if he is guilty of misconduct in the
business of agency.
2. Right of retainer– an agent has the right to hold his principal’s money till the time his claims, if
any, of remuneration or advances are made or expenses occurred during his ordinary course of
business as agency are paid.
3. Right of lien– an agent has the right to hold back or retain goods or other property of the principal
received by him, till the time his dues or other payments are made.
4. Right to indemnity– an agent has the right to indemnity extending to all expenses and losses
incurred while conducting his course of business as agency.
5. Right to compensation– an agent has the right to be compensated for any injury suffered by him
due to the negligence of the principal or lack of skill.

‫ ظ‬An agent has the following 5 rights:

1. Right of retainer– An agent has the right to retain any remuneration or expenses incurred
by him while conducting the Principal’s business.
2. Right to remuneration– An agent, when he has wholly carried out the business of the
agency has the right to be remunerated of any expenses suffered by him while conducting
the business.
3. Right of Lien on Principal’s property- The agent has the right to hold (keep with himself)
any movable or immovable property of the Principal until his due remuneration is paid to
him by the Principal.
4. Right to be Indemnified– The agent has the right to be indemnified against all the lawful
acts done by him during the course of conducting the Principal’s business.
5. Right to Compensation– The Agent has the right to be compensated for any injury or loss
suffered by him due to the lack of skill and competency of the Principal.
Principal’s duties to Agent
The Principal has 4 duties towards the Agent:

1. The Principal is bound to indemnify the agent against any lawful acts done by him in the
exercise of his authority as an agent.
2. The Principal is bound to indemnify the agent against any act done by him in good faith,
even if it ended up violating the rights of third parties.
3. The Principal is not liable to the agent if the act that is delegated is criminal in nature. The
agent will also in no circumstances be indemnified against criminal acts.
4. The Principal must make compensation to his agent if he causes any injury to him because
of his own competence or lack of skill.

Rights and Duties of the Principal

Rights and Duties of the Principal
The agent’s duties are principal’s right and agent’s rights are principal’s
duties.
Termination of Agency
Agency may be terminated by any of the following ways.
By Act of Parties
1. By agreement between the principal and agent: In some cases
contract of agency itself may contain provisions as regard the termination of
agency. They may be express or implied, which may be inferred from the
circumstances of the case and terms of the contract.
2. By revocation of agency by the principal: Principal may either
expressly or impliedly, after giving reasonable notice, revoke the authority
of the agent before it has been exercised by the latter so as to bind the
former (Sec. 207).
Example: A empowers B to let A’s house. Afterwards A lets it himself. This
is an implied revocation of B’s authority.
Principal shall have to pay compensation to the agent for any earlier
revocation of his authority without sufficient cause before the period for
which it was given to him.
Irrevocable agency: However, the principal will not be entitled to revoke
the authority of the agent in the following circumstances.
(i) Where the agency is coupled with interest: An agency where the
agent himself has an interest in the property which form the subject matter
of agency is said to be agency coupled with interest. Such an agency cannot
be revoked.
Example: A gives authority to C to sell A’s land and to pay himself out of the
proceeds the debt due to him from A. A cannot revoke this authority, nor can
it be terminated by his insanity or death.
(ii) Where authority has been partly exercised by the gent: If the
authority has partly been exercised by the agent, the principal cannot revoke
the authority of the agent so far as regards such acts and obligations as arise
from acts already done in the agency (Sec. 204).
Example: A asks B, his agent, to pay out of A’s funds a sum of Rs. 1,000 to C
in two equal installments. By a subsequent letter A revokes B’s authority.
Before this revocation B had already paid a sum of Rs. 500 to C. A is bound by
this payment.
(iii) Where agent has incurred personal liability: Where the agent has
purchased bounds in his personal name for the principal has thereby made
himself personally lilable, the principal cannot revoke agent’s authority.
Example: A authorised B to buy 1,000 bales of cotton on account of A and to
pay for it but of A’s money remaining in B’s hands B buys, 1,000 bales of
cotton in his own name, so as to make himself personally liable for the price.
A cannot revoke B’s authority so far as regards payment for the cotton.
4. By renunciation of business by the agent: Agent, after giving
reasonable notice to the principal, may renounce the business of agency. In
case the contract of agency is enterest into for a fixed period, agent shall
have to pay compensation to the principal for his earlier renunciation of the
business of agency.
5. By insolvency of the principal: The contract of agency will come to
an end when the principal becomes insolvent and the fact of his insolvency
comes to the knowledge of the agent. As against third persons, the agency
will terminate when it comes to their knowledge. Insolvency of an agent will
not lead to the termination of the contract of agency.
6. Destruction of the subject matter of the contract of agency: The
contract of agency will come to an end when the subject matter of the agency
will come to an end or when it ceases to exist or when the principal is deprived
of his powers on the subject matter of the contract of agency.
7. Principal becoming an alien enemy: Breaking out of war between two
countries in one of which resides principal and in the other resides the agent,
shall cause the termination of the authority of an agent.
When termination of agent’s authority takes effect as to agent, and
as to third person: The termination of the authority of an agent does not,
so far as regards the agent, take effect before it becomes known to him, or
so for as regards third persons, before it becomes known to them. (Sec. 208).
Agent’s duty on termination of agency by principal’s death or insanity when
an agency is terminated by the principal dying or becoming of unsound mind,
the agent is bound to take on behalf of the representatives of his late
principal, all reasonable steps for the protection and preservation of the
interests entrusted to him (Sec. 209).
Termination of sub-agent’s authority: The termination of the authority
of an agent causes the termination (subject to the rules herein contained
regarding the termination of an agent’s authority) of the authority of all sub-
agents appointed by him (Sec. 210).

Illustration

Hala directs her agent Saima to buy a certain house for her. Saima does not buy
the house, and tells Hala that it cannot be bought due to certain reasons, but
ends up buying the house herself. In this case, Hala has the right to claim the
house from Saima at the price which Saima bought it for herself.
Personal liability of the agent
Personal liability of the agent
Generally an agent is not personally responsible for the contracts made by
him on behalf of his principal. But he incurs personal liability in the
following cases:
1. Foreign principal: When the contract is made by the sale or purchase
of goods for a merchant resident abroad, in case of breach of contract the
third party can make the agent personally liable.
2. Undisclosed principal: When the agent does not disclose the name of
the principal the third party can make the agent personally liabily if he has
relied upon the responsibility of the agent.
3. Principal cannot be sued: Wherer the principal though disclosed
cannot be sued, e.g. foreign sovereign, ambassador, etc., or the principal is
disqualified from contracting though otherwise competent to contrast and
this inability of the principal was not communicated to the third party at the
time of contracting, he can hold the agent personally liable.
4. Personal liability by agreement: When the agent expressly by
agreement or impliedly by conduct undertakes personal liability of the
contract.
5. Agent’s liability for breach of warranty: When the agent acts without
or beyond his authority and in this was commits a breach of warranty of
authority, he can be hold personally liable.
If the agent knows that he is exceeding his authority, the breach of warranty
will amount to deceit (Polhill V. Walter (1832) 3 B & Ad. 114).
6. Agent signs the contract in his own name: An agent who signs a
Negotiable Instrument e.g. Bills of Exchange, Promissory Notes etc., his own
name without making it clear that he is signing as an agent, will be held,
personally liable.
7. Agency coupled with interest: Where the contract of agency relates
to a subject matter in which the agent has a special interest, agent shall be
personally liable to the extent of his interest since he shall be a principal for
that interest.
8. Non-existent principal: If an agent acts for a non-existent principal,
he shall be held personally liable as if he had contracted on his own account,
e.g., promoters entering into contracts on behalf of a company yet to come
into existence.

Introduction :

An “agent” is a person employed to do any act for another, or to represent another in dealing
with third persons. The person for whom such act is done, or who is so represented, is called the “principal”.
The contract between Principal and Agent is called 'Contract of Agency'. The rights and duties of the Agent
are corresponding to the duties. Rights and Duties of an Agent are as follows :

A) Duties of an Agent :

1) Agent's duty in conducting principal's business (Section 211) :

An agent is bound to conduct the business of his principal according to the directions given by
the principal, or, in the absence of any such directions, according to the custom which prevails in doing
business of the same kind at the place where the agent conducts such business. When the agent acts
otherwise, if any loss be sustained, he must make it good to his principal, and, if any profit accrues, he must
account for it.

Illustrations :

(a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to
time, at interest, the moneys which may be in hand, on its to make such investments. A must make good to
B the interest usually obtained by such investments.

(b) B, a broker in whose business it is not the custom to sell on credit, sells goods of A on credit to C,
whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the loss
to A.

2) Skill and diligence required from agent (Section 212) :

An agent is bound to conduct the business of the agency with as much skill as is generally
possessed by persons engaged in similar business, unless the principal has notice of his want of skill. The
agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make
compensation to his principal in respect of the direct consequences of his own neglect, want of skill or
misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect,
want of skill or misconduct.

Illustrations

(a) A, a merchant in Calcutta, has an agent, B, in London, to whom a sum of money is paid on A’s
account, with orders to remit. B retains the money for a considerable time. A, in consequence of not
receiving the money, becomes insolvent. B is liable for the money and interest, from the day on which it
ought to have been paid, according to the usual rate, and for any further direct loss - as, e.g., by variation
of rate of exchange — but not further.

(b) A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without
making the proper and usual inquiries as to the solvency of B. B at the time of such sale is insolvent. A must
make compensation to his principal in respect of any loss thereby sustained.

(c) A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the usual
clauses are inserted in the policy. The ship is afterwards lost. In consequence of the omission of the clauses
nothing can be recovered from the underwriters. A is bound to make good the loss to B.

(d) A, a merchant in England, directs B, his agent at Bombay, who accepts the agency, to send him 100
bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship
arrives safely in England. Soon after her arrival the price of cotton rises. B is bound to make good to A the
profit which he might have made by the 100 bales of cotton at the time of ship arrived, but not any profit he
might have made by the subsequent rise.

3) Duty to render proper accounts (Section 213)

According to Section 213 of Indian Contract Act 1872, An agent is bound to render proper accounts to his
principal on demand.

4) Duty to communicate with principal (Section 214) :

It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his
principal, and in seeking to obtain his instructions.

5) Not to deal on his own Account :

Section 215 of the Indian Contract Act 1872 deals with right of principal when agent deals, on his own
account, in business of agency without principal's consent. Section 215 runs as follows -

If an agent deals on his own account in the business of the agency, without first obtaining the consent of
his principal and acquainting him with all material circumstances which have come to his own knowledge on
the subject, the principal may repudiate the transaction, if the case shows either that any material fact has
been dishonestly concealed from him by the agent, or that the dealings of the agent have been
disadvantageous to him.

Illustrations

(a) A directs B to sell A’s estate. B buys the estate for himself in the name of C. A, on discovering that B
has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed
any material fact, or that the sale has been disadvantageous to him.

(b) A directs B to sell A’s estate. B, on looking over the estate before selling it, finds a mine on the estate
which is unknown to A. B informs A that he wishes to buy the estate for himself, but conceals the discovery
of the mine. A allows B to buy, in ignorance of the existence of the mine. A, on discovering that B knew of
the mine at the time he bought the estate, may either repudiate or adopt the sale at his option.

6) Not to make Secret Profits

Section 216 of Indian Contract Act, deals with Principal's right to benefit gained by agent dealing on his own
account in business of agency. An Agent, without the knowledge of his principal, should not deal in the
business of agency on his own to make secret profit.

Section 216 of the Indian Contract Act,1872 reads as - "If an agent, without the knowledge of his
principal, deals in the business of the agency on his own account instead of on account of his principal, the
principal is entitled to claim from the agent any benefit which may have resulted to him from the
transaction."

Illustration

A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the
house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price
he gave for it.

7) Duty to pay sums received for principal :

According to Section 218 of the said Act, An agent is bound to pay to his principal all sums received on
his account.

8) Not to Disclose Secret :

It is duty of an agent to maintain secrecy of the business of agency and should not reveal the
confidential matters.

B) Rights of an Agent

Rights of an Agent are as follows -

1) Right to Receive Remuneration : According to Section 219 of the Indian Contract Act, An agent is
entitle to his remuneration.But Section 220 of the said Act says that, an agent who is guilty of misconduct in
the business of the agency is not entitled to any remuneration in respect of that part of the business which
he has misconducted.

2) Right of Lien (Section221) : Agent's lien on principal's property

In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other
property, whether movable or immovable, of the principal received by him, until the amount due to himself
for commission, disbursements and services in respect of the same has been paid or accounted for to him.

3) Right to Indemnity : Agent to be indemnified against consequences of lawful acts. Indemnity means
promise make good the loss (See.. Contract of indemnity ) According to Section 222 of the Indian Contract
Act, 1872 "The employer of an agent is bound to indemnify him against the consequences of all lawful acts
done by such agent in exercise of the authority conferred upon him.

Illustrations

(a) B, at Singapure, under instructions from A of Calcutta, contracts with C to deliver certain goods to him.
A does not send the goods to B, and C sues B for breach of contract. B informs A of the suit, and A authorities
him to defend the suit. B defends the suit, and is compelled to pay damages and costs, and incurs expenses.
A is liable to B for such damages, costs and expenses.

(b) B, a broker at Calcutta, by the orders of A, a merchant there, contracts with C for the purchase of 10
casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the
contract altogether. B defends, but unsuccessfully, and has to pay damages and costs and incurs expenses.
A is liable to B for such damages, costs and expenses.
4) Right to Compensation :
According to section 225 of the said Act, an agent is entitled to claim compensation for the injuries
suffered as a consequence or want of skill of the principal. Section 225 reads as follows -

"The principal must make compensation to his agent in respect of injury caused to such agent by the
principal’s neglect or want of skill.

Illustration

A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is
unskillfully put up, and B is in consequence hurt. A must make compensation to B.

Delegation of Authority Section 190

provides that “an agent cannot lawfully employ another to perform acts which he has expressly or
impliedly undertaken to perform personally, unless by the ordinary custom of trade a subagent may, or
from the nature of agency, a subagent must, be employed.” Accordingly an agent cannot delegate his
powers or duties to another without the express authority of the principal, except in certain cases. This
section is based on the well-known maxim of Roman law, viz, “delegates nonpotest delegare”, that is “a
delegate cannot further delegate.” An agent, being himself the delegate of his principal, cannot pass on
that delegated authority to someone else. As a rule, he must not depute another person to do that
which he has undertaken to do personally. The reason for this rule is that confidence in the integrity and
competence of a particular person is at the root of a contract of agency.

Delegation of Authority But there are exceptions to this general rule. He can appoint sub-agent.
1)Where the principal has expressly permitted delegation of such power.

2)Where the principal has impliedly, by his conduct, allowed such delegation of authority, e.g. where the
principal knows that the agent intends to delegate his authority but does not object to it.

3)Where by the ordinary custom of trade a subagent may be employed. Thus stock exchange member
brokers generally appoint clerks to transact business on behalf of their clients.

4)Where the very nature of agency makes it necessary to appoint a subagent. For example, a manager
of a shop may employ sales assistant.

5)Where the acts to be done are purely ministerial and do not involve the exercise of discretion, e.g.
clerical or routine work.

6)Where unforeseen emergencies arise rendering appointment of the sub-agent necessary.

Delegation of agent’s authority (Secs. 191 to 195)
The general principal is “A delegate cannot further delegate”. (Delegatus
non-protest delegate). An agent, himself being the delegate of his
principal, cannot further delegate his powers. However, under certain
circumstances the agent may delegate some or all of his powers to another
person. Such person may be either a sub-agent or a substituted agent.
Sub-agent
A ‘sub-agent” is a person employed by and acting under the control of the
original agent in the business of agency (Sec. 191). In the following cases an
agent can appoint a sub-agent unless he is expressly forbidden to do so:-
(i) When the ordinary custom of trade permits the appointment of a sub-
agent.
(ii) When the nature of the agency business requires the appointment to a
sub-agent.
(iii) When the act to be done is purely ministerial and involves no exercise of
discretion or confidence, e.g. routine clerks and assistants.
(iv) When the principal agrees to the appointment of such a sub-agent
expressly or implidly. (v) When some unforeseen emergency has arisen.
The relations of the sub-agent to the principal depend on the question
whether the agent had an authority to appoint the sub-agent and whether
sub-agent is properly appointed.
Where the sub-agent is properly employed the principal is, so far as regard
third persons, represented by the sub-agent and is bound by and is responsible
for his acts as if he was an agent originally appointed by the principal,
therefore, will be responsible for the acts of a properly appointed sub-agent.
Where an agent, without having authority to do so, has appointed a person to
act as a sub-agent, i.c., a sub-agent is improperly appointed, the principal is
not represented by or responsible for the acts of the sub-agent as between
himself and the third parties. The sub-agent is also not responsible to the
principal for anything. The agent is responsible for the acts of the sub-agent
both to the principal and to the third persons (Sec. 193).
Substituted agent
Where an agent holding an express or implied authority to name another
person to act in the business of the agency, has accordignly, named another
person such person is not a sub-agent but a substituted agent. The substituted
agent shall be taken as the agent of principal for such part of the work as is
entrusted to him (Sec. 194).
Example: A directs B, his solititor, to sell his estate by auction, and to
employ an auctioneer for the purpose. B names C, an auctioneer to conduct
the sale. C is not a sub-agent, but is A’s agent for the conduct of the sale.
In selecting substituted agent for his principal an agent is bound to exercise
the same amount of discretion as a man of ordinary prudence would exercise
in his own case, and if he does this, he is not responsible to the principal for
acts or negligence of the substituted agent.
Example: A instructs B, a merchant, to buy a ship for him. B employed a ship
surveyor of good reputation to choose a ship for A. The surveyor makes the
choice negligency and the ship turns to be unseaworthy and is lost. B is not,
but the surveyor is responsible to A

Who is a sub-agent?
An agent may sometimes delegate the duty that has been delegated to him by
the Principal to somebody else. Ordinarily, an agent cannot delegate the duty he
is supposed to perform himself to another person (delegatus non potest delegare-
discussed below), except in particular circumstances where he must, out of
necessity, do so. Section 191 of the Indian Contract Act, 1872 defines a sub-
agent to be a person employed by and acting under the control of the original
agent in the business of the agency.

Termination of agency
1. By act of the parties
 Agreement
 Revocation by the principal
 Revocation by the agent
 An agency may be terminated by act of the parties in the following ways:

 By agreement between principal and agent: The parties are free to terminate the contract of agency
mutually. Such as agreement may be made at any time and at any stage.
 By revocation of agents authority by the principal: The principal can revoke the authority of the
agent any time before the authority has been exercised so as to bind the principal: Revocation on
may be express or may be implied.
 By Renunciation of agency by the agent: The agency is terminated if the agent himself renounces the
business of agency.

By Notice

If the agency agreement provides that the agency may be terminated upon either party serving on
the other written notice of a specified duration.

However, if the agency agreement does not contain any termination provision, the general rule is
that reasonable notice has to be given to the other party to terminate the agency.

v Renunciation by agent

An agent is entitled to renounce his power by refusing to act or by notifying the principal that he
will not act for the principal[ii].

Unilateral termination of the agency by the agent before he has fulfilled the obligations to the
principal under the agency agreement will render the agent liable to the principal for the breach of
the agency agreement such as payment of damages for the loss suffered by the principal.

2. Termination by operation of law

 Performance of the contract
 Expiry of the time
 Death of either party
 Insanity of either party
 Insolvency of either party
 Destruction of the subject matter
 Principle become alien enemy
 Dissolution of a company
Termination of Agency by Operation of Law
An agency can be terminated by operation of law in any of the following
cases:
1. Performance of the Contract: When the agency is for a particular
object, the agency terminates when the object is fulfilled.
2. Expiry of Time: When an agency is created for a particular period of
time, it comes to an end on the expiry of that period even if the work is
not completed.
3. Death or Insanity of Either Party: The agency is terminated when the
agent or principal dies or becomes insane. On the death of either the
agent or the principal, the agency is automatically terminated because
a person cannot act on behalf of non-existent person. Thus, where a
client dies, his pleader’s authority also terminates. Similarly, the
relationship between agent and principal comes to an end when
principal or agent becomes insane, for a person of unsound mind
cannot contract.
4. Insolvency of the Principal: When the principal is declared as
insolvent, the agency is terminated. This is because the insolvent is
disqualified from entering into contract in respect of his property.
5. Destruction of Subject-Matter: When the subject-matter in respect of
which agency was created has been destroyed, the agency is terminated.
Thus, if an agent is asked to sell a house, and the house is destroyed by
fire, there is a cessation of the agency.
6. Principal becoming an Alien Enemy: When the war breaks out
between the countries of the principal and the agent, the contract of
agency is terminated.
7. Dissolution of a Company: When a company, whether it is of
principal’s or agent’s dissolved, the contract of agency between them
comes to an end.
8. Termination of Sub-Agent’s Authority: The sub-agents authority is
terminated automatically, as and when the authority of the agent is
terminated.
9. Subsequent event Rendering the Agency Unlawful: It maybe that an
act is lawful when the agency was created but if it is declared by law to
be unlawful subsequently, agency cannot continue, as that would be
unlawful. An agency that is lawful may become unlawful due to
declaration of war when the principal or agent is deemed an alien
enemy.
Termination of Sub-agency and Substituted Agency
The authority of sub-agent will be terminated as and when the main
agency is terminated. However, the substituted agency will not be
terminated automatically if the authority of the main agent is
terminated.

Lien
Lien
Lein is a right of person to retain that which is in his possession and which
belongs to another, until the demands of the person in possession are
satisfied.
Kinds of Lien
There are two kinds of liens : (a) particular lien, (b) general lien.
Particular Lien
It is a right to retain possession over those particular goods in connection with
which the debt arose. It is restricted to those goods which are subject matter
of the contract and are liable for certain demands of the person in possession
of those goods.
According to Section 170 where the bailee has, in accordance with the
purpose of the contract of bailment, rendered any service involving the
exercise of labour and skill in respect of the goods bailed, he has, in the
absence of a contract to contrary, a right to retain such goods in his possession
until he receives due remuneration for the services he had rendered in respect
of them.
Besides the bailee, other persons who are entitled to exercise particular lien
are unpaid seller of goods, finder of goods, pawnee, agents, etc.
General Lien
It entitles a person in possession of the goods to retain them until all claims
of the person in possession against the owner of the goods are satisfied. It is
not necessary that the demands should arise only out of the articles detained
under possession. General lien is a kind of a special privilege which the law
has granted only to few persons (i) bankers, (ii) factors (iii) wharfingers, (iv)
attorney of the High Courts, (v) policy brokers, and (vi) others by agreement.
These parties, can exercise general lien against any goods under their
possession and for any sum legally due on a general balance of account. But
where the goods are deposited for some special purposes, e.g., safe custody,
they will not come under the spell of general lien. This is because acceptance
of goods for, special purpose implied by excludes general lien.
Example (i) K deposited certain jewels with the Madras Bank to secure
certain debt. after payment of this debt he demanded the return of these
jewels from the bank. He was still indebted to the bank for certain other
debts. On the bank’s refusal to return, it was held that he was not entitled to
recover unless he proved that the bank had agreed to give up its general lien
(Kunhan V. Bank of Madras, 1895).
(ii) A solicitor has a general lien on all the papers of the client in his
possession in his professional capacity as solicitor. He can claim a lien for all
costs due to him from the client but not for money loans (Re. Taylor).
The sale of goods Act 1930
A contract of goods is a contract whereby the seller transfers or agrees to transfer the
property to goods to the buyer for a price. There may be a contract of sale between one
part-owner and another [Sec. 4(1)]. A contract of sale may be absolute or conditional
[Sec 4(2)].

The term ‘contract of sale’ is a generic term and includes both a sale and an agreement
to sell.

Sale and agreement to sell: when under a contract of sale, the property in the goods is
transferred from the seller to the buyer, the contract is called a ‘sale’, but where the
transfer of the property in the goods is to take place at a future time or subject to some
conditions thereafter to be fulfilled, the contract is called an ‘agreement to sell’ [Sec.
4(3)]. An agreement to sell becomes a sale when time elapses or the conditions, subject
to which the property in the goods is to be transferred are fulfilled [Sec. 4(4)]

Definition:

It is a contract by which the ownership of moveable good is transferred from the seller
to the buyer . the term contract of sale is defined as follow

According to section 4 of the Act, a contract of sale means “ a contract where the seller
transfer or agrees to transfer the property in goods th e the buyter for price”

Sale : it is a contract where the ownership in the good is transferred by seller to the
buter immediately at the conclusion contract

Example : a sell his house to for 20k. it is a sale since the ownership of the house has
been transferred from A to B.

A contract of sale is made by an offer to buy or sell goods for a price

and the acceptance of such offer by the other party. The contract may
be oral or in writing. A contract of sale may be absolute or conditional.

Formalities of a contract of sale: Section 5 of the Act specifically

provides for the following three steps or formalities in a contract of
sale:
1) Offer and Acceptance: A contract of sale is made by an offer to
buy or sell the goods for a price and acceptance of such offer.

2) Delivery and Payment: It is not necessary that the payment for the
goods to the seller and delivery of goods to the buyer must be
simultaneous. They can be made at different times or in instalments –
as per the contract.

3) Express or Implied: The contract can be in writing, oral or implied.

It can also be partly oral and partly written.

Agreement to sell: a agreed to buy from b a certain quantity of nitrate of soda. The
ship carrying the nitrate of soda was yet to arrive. This is ‘an agreement to sale’. In this
case, the ownership of nitrate of soda is to be to transferred to a on the arrival of the
ship containing the specified goods. I.e nitrate of soda

Essential of contract of sale

1. All requirement of a valid contract must be fulfilled

2. Two parties
3. Goods
4. Transfer of property
5. Price
6. Include both sale and agreement to sale
7. No formalities are required

Two parties: There must be two parties- a buyer and a seller to constitute a contract of
sale. there ust be a buyer, a person who buys or agrees to buy the goods and seller, a
person who sell or agree to sell goods.the seller and buyer must be different persons.

2) Subject matter to be goods: The term ‘goods’ is defined in Section 2(7). It states that
‘goods’ “means every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before sale or under the
contract of sale”.

Money cannot be sold because money means legal tender and not the old coins which
can be sold and purchased as goods. Actionable claims are things that a person cannot
make use of, but which can be claimed by him by means of legal action such as a debt.

Sale of immovable property is not covered under this Act. As per Section 3 of the
Transfer of Property Act, 1882, ‘immovable property’ does not include standing timber,
growing crops or grass. They are considered movable property and thus goods.
Standing timber is taken as movable property while trees are immovable property.

Things like goodwill, copyright, trademark, patents, water, gas, electricity are all goods.
In the case of Commissioner of Sales Tax vs. Madhya Pradesh Electricity Board [AIR 1970
SC 732], the Supreme Court observed – “…electricity…can be transmitted, transferred,
delivered, stored, possessed, etc., in the same way as any other movable property…If
there can be sale and purchase of electric energy like any other movable object, we see
no difficulty in holding that electric energy was intended to be covered by the definition
of “goods”.

Transfer of ownership of Goods: There must be transfer of

ownership or an agreement to transfer the ownership of goods from
the seller to the buyer – not the transfer of mere possession or limited
interest as in the case of pledge, lease or hire purchase agreement). If
goods remain in possession of seller after sale transaction is over, the
‘possession’ is with seller, but ‘ownership’ is with buyer. The Act uses
the term ‘general property’ implying that sale involves total ownership
and not a specific right limited by conditions.

Delivery of goods refers to a voluntary transfer of possession of goods

from one person to another. Delivery may be constructive or actual
depending upon the circumstances of each case. A contract may
provide for the immediate delivery of the goods or immediate payment
of the price or both. Alternatively, the delivery or payment may be
made by instalments or be postponed.
SALE & AGREEMENT TO SELL

A contract of sale is a generic term and includes both an actual sale and an agreement
to sell. Section 4 provides that if the property in goods is transferred from the seller to
the buyer under a contract, the contract is called a sale. Where the transfer of the
property in the goods will take place at a future time or is subject to some condition
which has to be fulfilled, the contract is called an agreement to sell. Such an agreement
to sell becomes a sale when the prescribed time lapses or the conditions are fulfilled.

Goods: Contract of sale relates to goods i.e., movable property . Transaction involving
purchase and sale of immovable property are out of the purview of the Sale of Goods
Act. “Every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops, grass, and things
attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale will be considered goods”
Transfer of general property: The object of the contract must be the
transfer of general property as distinguished from the special property in
the goods by one person to another. The term ‘general property’ refers
to ownership of goods. Delivery

The delivery of goods signifies the voluntary transfer of possession

from one person to another. The objective or the end result of any such
process which results in the goods coming into the possession of the
buyer is a delivery process. The delivery could occur even when the
goods are transferred to a person other than the buyer but who is
authorized to hold the goods on behalf of the buyer.

There are various forms of delivery as follows:

 Actual Delivery: If the goods are physically given into the possession
of the buyer, the delivery is an actual delivery.
 Constructive delivery: The transfer of goods can be done even when
the transfer is effected without a change in the possession or
 custody of the goods. For example, a case of the delivery by
attornment or acknowledgment will be a constructive delivery. If
you pick up a parcel on behalf of your friend and agree to hold on to
it for him, it is a constructive delivery.
 Symbolic delivery: This kind of delivery involves the delivery of a
thing in token of a transfer of some other thing. For example, the
key of the godowns with the goods in it, when handed over to the
buyer will constitute a symbolic delivery.
Price: The consideration for the contract of sale called price must be money. or the
consideration in a contract of sale has to be price. i.e , money if goods are offered as the
consideration for goods, it will not amount to sale. It will be barter,. There is no
consideration, it will be called gift. But where the goods are sold for definit suma and
the price is paid partly in kindand partlu in cash, the transaction is a sale.

Essential elements of a valid contract: All the essential elements of a valid contract
must be present in the contract of sale. 9 or all essentials of a valid contract must ber
present viz. competent parties, free consent, legal object and so on. The transfer of
possession and ownership under the act has to be voluntary and not be tainted with
fraud or duress

Time: any stipulation with respect to time is not deemed to be of essence to a contract
of sale unless a different intention appears from the terms of the contract .

Goods Definition: The subject matter of a contract of a sale must be goods .According
to Section 2(7) the term ‘goods’ means “every kind of movable property other than
actionable claims and money and includes stock and shares , growing crops , and things
attached to or forming part of the land which are agreed to be severed before sale or
under the contract of sale”.

Specific Types of goods:

Existing goods: These are the goods which are owned or possessed by the seller at the
time of sale. Only existing goods can be the subject of a sale. The existing goods may
be-

a) Specific goods: Goods identified and agreed upon at the time of making of
the contract of sale of goods.
 b) Ascertained goods: Goods identified subsequent to the formation of the
contract of sale. The terms ascertained and specific, are commonly used for same
kind of goods.

For example, when a customer selects a particular painting/artwork to

buy from the seller at the time of formation of the contract, the
painting/artwork is an ‘ascertained good’ since the customer contracted to
purchase that specific painting/artwork only

c) Unascertained or generic goods: Goods not identified or agreed upon at the

time of making of the contract of sale. They are the goods defined for description
only

.Example: ‘A’ who wants to buy a television set goes to a showroom where four
sets of Janta model of Oscar television are displayed. He sees the performance of
a particular set, which he agrees to buy. The set so agreed to be bought is a
specific set. If after having bought one set he marks a particular set, the set so
marked become ascertained. Till this all is done all sets are unascertained.

For example, A contracts to buy one sack of rice from B. Here, the
subject-matter of the contract, i.e. rice is not identified specifically by the
buyer at the time of formation of contract but is under the possession of
the seller.

Future goods:

Goods to be manufactured, produced or acquired after making of the contract are

called future goods.

Example: ‘A’ contract, on 1st January, to sell B 50 shares in Reliance Ltd., to be delivered
and paid for on the 1st March of the same year. At the time of making of the contract, A
is not in possession of any shares. The contract is a contract for the sale of future goods.

Contingent goods : Goods, the acquisition of which by the seller ,depends upon an
uncertain contingency are called ‘contingent goods’. They are also a type of future
goods.

Example: ‘A’ agrees to sell 100 units of an article provided the ship which is bringing
them, reaches the port safely. This is an agreement for the sale of contingent goods

For example, A agrees to deliver a T.V. set to B when he receives the same from the vendor upon
fulfilment of his contract with the vendor (between the seller and the vendor).
Perishing of goods

EFFECT OF DESTRUCTION OF GOODS:

Goods perishing before making of contract (Sec 7): A contract for the sale of specific
goods is void if at the time when the contract was made, the goods have, without the
knowledge of the seller, perished. The same would be the case where the goods
become so damaged as no longer to answer to their description in the contract.

Illustration: A agrees to sell to B a certain horse. It turns out that the horse was dead at
the time bargain, though neither party was aware of the face. Discuss the validity of the
contract.

Solution: the agreement is void. In case part of goods is persished , the following rule
applied, the following rule applies;

A: if contract is indivisible, it shal be void, and

B if the contract is divisibl, it shall not be void and the part available in good condition
must be accepted by the buyer.

Goods perishing after the agreement to sell but before the sale is effected (Sec.8): An
agreement to sell specific goods becomes void if subsequently the goods, without any
fault on the part of the seller or the buyer, perish or become so damaged as no longer
to answer to their description in the agreement before the risk passes to the buyer,
‘Fault’ means wrongful act or default [Sec 2(5)]

Illustration:

Facts: a buyer took a horse on a trail for 10 days on condition that if found suitable fot
his purpose the bargain would become absolute. The horse died on 5th day without any
fault of either party. Discuss the position of both parties.

Solution: the contract, which was in the form of an agreement to sell, becomes void and
the seller shall bear the loss.

Price:

Section 2 (100 defines price “ as money consideration for a sale of goods”

Ascertainment of price.
 (1) The price in a contract of sale may be fixed by the Contract or may be left to be fixed in
manner thereby agreed or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall
pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on
the circumstances of each particular case.
Condition and warranty

introduction

in contract of sale, usually parties make certain statement or the stipulation about the
goods under sale or purchase. These stipulations in a contract of sale made with
reference to the subject matter of sale. It may either a condition or sale.

The stipulation form the part of the contract of sale and breach of which may provide a
remedy to the buyer against the seller

The provisions realtiong to the condition and warranties are covered under section 11 to
17 of the sale of goods act.

The Sale of Goods Act 1930 provides the definition for a Condition as – ““A
condition is a stipulation essential to the main purpose of the contract, the
breach of which gives rise to a right to treat the contract as repudiated” .

A Condition forms the core of the contract i.e. considered as an essential to the
main purpose of the contract. Therefore, the repercussion would be repudiation
of the contract or claim for damages or both depending upon the breach and
case.[ii] Breach of a Condition makes a contract voidadble on the part of non-
defaulting party to the contract. However, a Warranty is treated as a collateral
to the main purpose of a contract and therefore, the repercussions of breach of
warranty by one of the parties would be only a claim for damages by the non-
defaulting party.

A condition is a stipulation essential to the main purpose of the contract,

the breach of which gives the right to repudiate the contract and to claim
damages. (Sec 12 (2)). We can understand this with the help of the
following example:

Say ‘X’ wants to purchase a car from ‘Y’, which can have a mileage of
20 km/lt. ‘Y’ pointing at a particular vehicle says “This car will suit you.”
Later ‘X’ buys the car but finds out later on that this car only has a top
mileage of 15 km/ liter. This amounts to a breach of condition because
the seller made the stipulation which forms the essence of the contract. In
this case, the mileage was a stipulation that was essential to the main
purpose of the contract and hence its breach is a breach of condition.

Kinds of Condition
8. Express condition

A condition that has n expressly provided for agreed upon by both the
parties at the time of the contract of sale.

9. Implied condition
Condition are said to be implied when the law incorporates their
existence as implicit to a contract of sale unless other wise agreed
upon between parties. Both parties shall be bound by implied
contion unless they are excluded by an express agreement between
them implied condition are of following types.
1. Condition to title
2. Condition as to description
3. Condition as to sample
4. Condition as to sample as well as description
5. Condition as to quality or fitness
6. Condition as to merchantability
7. Condition as to wholesomeness

Condition as to Title [Section 14(a)]

Section 14(a) of the Sale of Goods Act 1930 explains the implied condition as to
title as ‘in the case of a sale, he has a right to sell the goods and that, in the case
of an agreement to sell, he will have a right to sell the goods at the time when
the property is to pass’.

This means that the seller has the right to sell a good only if he is the true owner
and holds the title of the goods or is an agent of the title holder. When a good is
sold the implied condition for the good is its title, i.e. the ownership of the good.
If the seller does not own the title of the said good himself and sells it to the
buyer, it is a breach of condition. In such a situation the buyer can return the
goods to the seller and claim his money back or refuse to accept the good before
delivery or whenever he learns about the false title of the seller.

Sale by Description (Section 15)

Section 15 of the Sale of Goods Act, 1930 explains that when a buyer intends to
buy goods by description, the goods must correspond with the description given
by the buyer at the time of formation of the contract, failure in which the buyer
can refuse to accept the goods.

Sale by Sample (Section 17)

When the goods are to be supplied on the basis of a sample provided to the seller
by the buyer while the formation of a contract the following conditions are
implied:

 Bulk supplied should correspond with the sample in quality

 Buyer shall have a reasonable opportunity to compare the goods with the sample
 The good shall be free from any apparent defect on reasonable examination by the buyer.

Condition as to Quality or Fitness (Section 16)

Normally, in a contract of sale there is no implied condition s to quality or fitness of the goods for a
particular purpose. The buyer must examine the goods thoroughly before he buys them in order to
satisfy himself.

Example: an order was place for some lorries to be used for heavy traffic in a hilly area. The lorries
supplied were unfit and breadown. Ther is a breach of condition as to fitness.

The doctrine of Caveat Emptor is applicable in the case of sale/purchase of goods,

which means ‘Buyer Beware’. The maxim means that the buyer must take care
of the quality and fitness of the goods he intends to buy and cannot blame the
seller for his wrong choice. However, section 16 of the Sale of Goods Act 1930
provides a few conditions which are considered as an implied condition in terms
of quality and fitness of the good:

 When the buyer specifies the purpose for the purchase of the good to the seller, he relied
on the sound judgment and expertise of the seller for the purchase there is an implied
condition that the goods shall comply with the description of the purpose of purchase.
 When the goods are bought on a description from a person who sells goods of that
description (even if he doesn’t manufacture the good), there is an implied condition that the
goods shall correspond with the description. However, in case of an easily observable defect
that is missed by the buyer while examining the good is not considered as an implied
condition

Condition as to merchanability sec. 16 (12)

Where goods are bought by description from a seller whol deals In goods of that description there is
an implied condition that the goods are of merchantable quality. This means good should be such that
they are commercially saleable, as per the descrioption by which they are known in the market at their
full value.

Condition as to wholesomeness

In the case eatable and provision, in addition to the iplied condition as to merchantability, there is
another implied condition that the goods shall be wholesome.

Example: x purchase milk from y, a milk dear. The milk contained typhoid germs. X’s wife, on taking
the milk, got infection and died. Held, x can entitled for damages.

Warranty as – “A warranty is a stipulation collateral to the main purpose of the

contract, the breach of which gives rise to a claim for damages but not to a
right to reject the goods and treat the contract as repudiated”.

A warranty is a stipulation collateral to the main purpose of the said

contract. The breach of warranty gives rise to a claim for damages.
However, it does give a right to reject the goods or treat the contract as
repudiated. (Sec 12(3)). Let us understand this with the help of an
example below.

A man buys a particular car, which is warranted to be quite to drive and

very comfortable. It turns out that after some days the car starts to make
a very unpleasant noise every time it is operated. Also sitting inside it is
also not very comfortable.

Thus the buyer’s only remedy is to claim damages. This is not a breach
of the condition but rather a breach of warranty, because the stipulation
made by the seller was only a collateral one.

Kinds of warranties

A. Express warranties: a warranty is ssaid to be express when the term of the contract
expressly provides for it. At the time of contract of sale, both the parties may agree
upon any numbe of express warranties.
B. Implied warranties: an implied warranty is one which the law incorporates into a
contract of sale. Even when no express representations have been made in connection
with a contract of sale, the law implies certain representation s having been made by
the parties while entering into the contract following are the three implied warranties.
1. Warranty to quiet possession
Section 14(b) of the Act mentions ‘an implied warranty that
the buyer shall have and enjoy quiet possession of the goods’
which means a buyer is entitled to the quiet possession of the
goods purchased as an implied warranty which means the
buyer after receiving the title of ownership from the true
owner should not be disturbed either by the seller or any
other person claiming superior title of the goods. In such a
case, the buyer is entitled to claim compensation and
damages from the seller as a breach of implied warranty.
2. Warrant against encumbrances
Any charge or encumbrance pending in favour of the third
party which was not declared to the buyer while entering into
a contract shall be considered as a breach of warranty, and
the buyer is be entitled to compensation and claim damages
from the seller for the same.
3. Warranty to disclose the dangerous nature of goods
 Where a person sell goods, knowing that the good are inherently dangerious or
they are likely to be dangerous to the buyer and that the buyer is ignorant of
that danger, he must warn the buyer of the probable danger, otherwise he will
be liable in damages.

Warrant as to quality of trad of fitness by usage of trade

An implied warranty as to quality of fitness for a particular purpose may be
annexed by the usage of trade.
Conclusion–As regards conditions and warranties , section 16(4) lays down that an express
warranty or condition does not negative a warranty or condition implied by this Act unless
inconsistent therewith. That means that when the parties expressly agree to such stipulation and the
same are inconsistent with the implied conditions and warranties, the express conditions and
warranties will prevail and the implied ones in S. 14 to 17 will be negative.

Doctrine of CAVEAT EMPTOR

CAVEAT EMPTOR IS A LATIN PHRASE MEANING “LET THE BUYER BEAWARE”

Caveat Emptor is a Latin expression which means ‘Cautious Buyer’, i.e., ‘Let the buyer
beware’. In other words, it is for the buyer to satisfy himself that the goods which he is
purchasing are of the quality which he requires. If he buys goods for a particular purpose, he
must satisfy. himself that they are fit for that purpose.

In simple words, it is not the seller’s duty to give to point out the defects in the goods he is
selling. The buyer purchases goods at his own risk. He must take care while purchasing the
goods. If he makes a wrong selection, he cannot blame the seller. Example: X purchases a
horse from Y. X needed the horse for riding but he did not disclose this fact to Y. The horse is
not suitable for riding but is suitable only for being driven in the carriage. Caveat emptor
being the rule, X can neither reject the horse nor can claim any compensation from Y.

Exceptions to the Doctrine of Caveat Emptor. The rule of ‘Caveat Emptor’ is, subject to
the following exceptions:

1. Implied condition as to quality or fitness : Section 16(1) provides ‘that (a) where the
buyer, makes known to the seller the purpose for which the goods are required; (b) the
buyer relies on skill and judgement of the seller and (c) the goods are of description
which it is the course of seller’s business to supply, there is an implied condition that
the goods shall be reasonably fit for such purpose. This exception, however, does not
apply if the goods are bought under the patent or other trade name.
2. Condition as to description: Where the goads are purchased by description and they
do not correspond with the description, the rule of caveat emptor does not apply.
 3. Implied condition as to merchant ability: Where goods are bought by description
from a seller who deals in goods of that description, there is an implied condition that
the goods shall be of merchantable quality.
4. Condition as to wholesomeness: This condition is applicable in case of foodstuffs and
other goods meant for human consumption. In such cases there is an implied condition
that the goods shall be fit for human consumption.
5. Conditions implied by custom of trade: An implied condition as to quality or fitness
for a particular purpose may be annexed by the usage of trade.
6. Seller is guilty of fraud: Where the consent of the buyer is obtained by fraud by the
seller or where the seller knowingly conceals a defect so that it could not be discovered
on a reasonable examination, the doctrine of caveat emptor does not apply.

7] Fraud or Misrepresentation by the Seller

This is another important exception. If the seller obtains the consent of the buyer by fraud then caveat
emptor will not apply. Also if the seller conceals any material defects of the goods which are later
discovered on closer examination then again the buyer will not be responsible. In both cases, the seller
will be the guilty party.

8] Fraud or Misrepresentation by the Seller

This is another important exception. If the seller obtains the consent of the buyer by fraud then caveat
emptor will not apply. Also if the seller conceals any material defects of the goods which are later
discovered on closer examination then again the buyer will not be responsible. In both cases, the seller
will be the guilty party.

1] Fitness of Product for the Buyer’s Purpose

When the buyer informs the seller of his purpose of buying the goods, it is implied that he is relying on
the seller’s judgment. It is the duty of the seller then to ensure the goods match their desired usage.

Say for example A goes to B to buy a bicycle. He informs B he wants to use the cycle for mountain
trekking. If B sells him an ordinary bicycle that is incapable of fulfilling A’s purpose the seller will be
responsible. Another example is the case study of Priest v. Last.

2] Goods Purchased under Brand Name

When the buyer buys a product under a trade name or a branded product the seller cannot be held
responsible for the usefulness or quality of the product. So there is no implied condition that the goods
will be fit for the purpose the buyer intended.

3] Goods sold by Description

When the buyer buys the goods based only on the description there will be an exception. If the goods
do not match the description then in such a case the seller will be responsible for the goods.

4] Goods of Merchantable Quality

Section 16 (2) deals with the exception of merchantable quality. The sections state that the seller who is
selling goods by description has a duty of providing goods of merchantable quality, i.e. capable of
passing the market standards.

So if the goods are not of marketable quality then the buyer will not be the one who is responsible. It
will be the seller’s responsibility. However if the buyer has had a reasonable chance to examine the
product, then this exception will not apply.

5] Sale by Sample

If the buyer buys his goods after examining a sample then the rule of Doctrine of Caveat Emptor will not
apply. If the rest of the goods do not resemble the sample, the buyer cannot be held responsible. In this
case, the seller will be the one responsible.

For example, A places an order for 50 toy cars with B. He checks one sample where the car is red. The
rest of the cars turn out orange. Here the doctrine will not apply and B will be responsible.

6] Sale by Description and Sample

If the sale is done via a sample as well as a description of the product, the buyer will not be responsible
if the goods do not resemble the sample and/or the description. Then the responsibility will fall squarely
on the seller.

7] Usage of Trade

There is an implied condition or warranty about the quality or the fitness of goods/products. But if a
seller deviated from this then the rules of caveat emptor cease to apply. For example, A bought goods
from B in an auction of the contents of a ship. But B did not inform A the contents were sea damaged,
and so the rules of the doctrine will not apply here.

8] Fraud or Misrepresentation by the Seller

This is another important exception. If the seller obtains the consent of the buyer by fraud then caveat
emptor will not apply. Also if the seller conceals any material defects of the goods which are later
discovered on closer examination then again the buyer will not be responsible. In both cases, the seller
will be the guilty party.

, The doctrine of Caveat Emptor shall not apply to all those purchases, which have been made by a
buyer under a contract where the seller obtained his consent by fraud. A seller, who is guilty of fraud,
shall have no protection of the doctrine of caveat emptor.

DOCTORINE of caveat venditor

Means ‘let the seller beware’ the seller shall be under an obligation to inform the buyer of any defeat in
the goods sold at the time of the contract, except in a case where the defeat is obviously known to the
buyer. This force the seller to take responsibility for the product and discourages sellers from vending
products of unreasonable quality or of dangerous nature.
Comparison Chart

BASIS FOR
CONDITION WARRANTY
COMPARISON

Meaning A requirement or event A warranty is an assurance

that should be performed given by the seller to the
before the completion of buyer about the state of the
another action, is known product, that the
as Condition. prescribed facts are
genuine.

Defined in Section 12 (2) of Indian Section 12 (3) of Indian

Sale of Goods Act, 1930. Sale of Goods Act, 1930.

What is it? It is directly associated It is a subsidiary provision

with the objective of the related to the object of the
contract. contract.

Result of breach Termination of contract. Claim damages for the

breach.

Violation Violation of condition can Violation of warranty does

be regarded as a violation not affect the condition.
of the warranty.

Remedy available to Repudiate the contract as Claim damages only.

the aggrieved party well as claim damages.
on breach
Transfer of Property in Goods
The most important consequence of a contract of sale of goods is the transfer
of property in the goods from the seller to the buyer because risk always
follows such a transfer of ownership and the time of payment as well as the
time of delivery of the goods is not an essential consequence of such a
contract.
The most important point regarding the transfer of ownership is that it can
take place only in case of ascertained and specific goods.
According to Sec. 18 “No transfer of property in the goods can take place
from the seller to the buyer unless and until they are ascertained”.
Illustration: A sells 200 maunds of wheat out of a total of 618 maunds
stored in a warehouse and gives a delivery order to B, the purchaser, directing
the warehouse men to deliver 200 maunds of wheat to B. B lodges the delivery
order with the warehouse men to no transfer of property takes place from A
to B so far as the quantity to be sold to him is concerned because the goods
were unascertained.
For the consideration of the problem of transfer of property it can be divided
in two broad categories:

The transfer of property in the goods from the seller to the buyer is the essence of a contract of sale.
Therefore the moment when the property in goods passes from the seller to the buyer is significant for
following reasons:

a. Ownership -- The moment the property in goods passes, the seller ceases to be their owner
and the buyer acquires the ownership. The buyer can exercise the proprietary rights over the
goods. For example, the buyer may sue the seller for non-delivery of the goods or when the
seller has resold the goods, etc.
b. Risk follows ownership -- The general rule is that the risk follows the ownership, irrespective
of whether the delivery has been made or not. If the goods are damaged or destroyed, the loss
shall be borne by the person who was the owner of the goods at the time of damage or
destruction. Thus the risk of loss prima facie is in the person in whom the property is.
c. Action Against Third parties -- When the goods are in any way damaged or destroyed by the
action of third parties, it is only the owner of the goods who can take action against them.
d. Suit for Price - The seller can sue the buyer for the price, unless otherwise agreed, only after
the gods have become the property of the buyer.
e. Insolvency - In the event of insolvency of either the seller or the buyer, the question whether
the goods can be taken over by the Official Receiver or Assignee, will depend on whether the
property in goods is with the party who has become insolvent.
Passing of Property
There are four primary rules that govern the passing of property:

 Specific or Ascertained Goods

 Passing of Unascertained Goods
 Goods sent on approval or “on sale or return”
 Transfer of property in case of reservation of the right to disposal

(a) Transfer of Property in Specific and Ascertained Goods

According to Sec. 19 where there is a contract of sale of specific or
ascertained goods, the property in them shall pass from the seller to the buyer
when the parties have intended it to pass.
In order to find out the intention of parties in this regard, consideration is to
be given to the terms of the contract, conduct of the parties and
circumstances of the case.
But if the parties fail to lay down their intentions regarding the transfer of
property in the goods, certain rules have been laid down for ascertaining the
intention of the parties as to the time at which the property in the goods is
to pass to the buyer, which are contained from Sec. 20 to 24 and which are
the following:
1. When goods are in a deliverable state: According to Section 20 where
there is an unconditional contract for the sale of specific goods in a
deliverable state the property in the good passes to the buyer when the
contract of sale is made and it is immaterial whether the time of payment of
the price or the time of delivery of the goods or both is postponed.
Illustration : Where there is a contract between A & B for the purchase of
a specific quantity of hemp stored on the premises of the seller A; price to be
paid on 4th February and the delivery to be given on 1st of May while the
contract is being made on 20th January the property in the specific lot of
hemp shall be transferred from A to B on 20th January itself.
As goods under this rule are in such a state they can be immediately delivered
to the buyer, there remains nothing which can prevent a transfer of
ownership. But if the parties in such cases themselves decide that no transfer
of property shall take place till the entire price is paid, or till the delivery of
goods has been given to the buyer, there would be no transfer of property in
the goods inspite of the fact that the goods are specific and in a deliverable
state. As for example goods sold under hire purchase agreement.
2. When goods are not in a deliverable state: According to Section 21
where there is a contract for the sale of specific goods but the seller is bound
to do something to the goods in order to put them in a deliverable state,
property in them shall not be transferred until such thing is done by the seller
and buyer has notice thereof.
Illustration: There was a contract for the wood of Oak trees in a certain
forest. The buyer purchased the wood from the seller selecting certain
portion of trees and rejecting others. According to the custom of trade the
seller was to separate the selected portions from the rejected portions. But
the buyer threw upon himself the duty of separating the two portions. The
court decided that no transfer of ownership has taken places so far as wood
is concerned.
3. When goods are to be measured etc.: According to Section 22, where
there is a contract for the sale of specific goods in a deliverable state but the
seller is bound to measure, weight or count the goods in order to determine
the price, there would be no change of ownership from the seller to the buyer
till such act is done and the buyer has notice thereof.
Illustration: There was a contract for the sale of 289 bales of goat skin.
Every bale was to contain
5 dozens smaller bales and according to the contract the price was to be
determined according to the price of smaller bales so that the seller was to
count the number of smaller bales in every bigger bale. It was decided that
no transfer of property has taken place when the bales were destroyed by the
fire during the process of counting by the seller.

Transfer of property in unascertained goods: According to section

18 no transfer of property can take place from the seller to the buyer in
unascertained goods. Therefore some acts have got to be done in order to
convert unascertained goods into ascertained or specific goods. Such acts are
collectively and technically called ‘appropriation’. According to Section 23
“Where there is a contract for the sale of unascertained or future goods by
description and goods of that description as well as in deliverable state are
unconditionally appropriated to the contract, either by the seller with the
consent of the buyer or by the buyer with the consent of the seller, the
property in the goods shall be transferred from the seller to the buyer, as
soon as such appropriation is made, the consent of the buyer or the seller as
the case may be obtained either before or after appropriation.
Thus appropriation of goods is the most important act which permits the
transfer of property from the seller to the buyer. Appropriation may be
defined as the application of the goods for the purposes of a contract of sale
such an act must have the following essentials.
1. Goods which are appropriated must be of the same description
under which they are sold: For example where an order was placed for tea
sets, jars and glasses made of china clay and where the seller while supplying
the goods also placed some other things in the parcel it was held that there
was no appropriation because the goods did not exactly answer the
description given in the contract.
2. The goods appropriated to the contract must be in a deliverable state
because unless they are in such a state no transfer of property can take place.
3. The goods must be unconditionally appropriated to the
contract: According to section 23 sub-section 2. “Goods are said to be
unconditionally appropriated to the contract when the seller gives them to
the buyer or a carrier or some other bailee (whether named by the buyer or
not) for the purpose of transmission to the buyer. The most common form of
appropriation is the delivery of goods to person for the purpose of transporting
them to the buyer and as soon as this is done, generally speaking, the property
shall be transferred to the buyer if the seller has not reserved the right of
disposal as defined by section 25.
4. Basis of appropriation: Appropriation of goods is done on the basis of
consent of either the buyer or the seller. Such a consent may be obtained
either before or after appropriation.
By the buyer with the consent of the seller: Where the buyer is holding
the goods on behalf of the seller as an agent, the buyer can appropriate the
goods for the purpose of the contract, inform the seller regarding the same,
obtain his consent only them the property shall be transferred to the buyer.
TRANSFER OF PROPERTY IN SALE BY APPROVAL When
goods are delivered on approval (Sec. 24): When goods are
delivered to the buyer on approval or ‘on sale or return,’ or on
other similar terms, the property therein passes to the buyer :

(i) When he signifies his approval or acceptance to the seller, or

(ii) When the buyer does any other act adopting the transaction,
e.g., pledges the goods or resells them.

(iii) When the buyer retains the goods, without giving notice of
rejection, beyond the time fixed for the return of goods, or if no
time has been fixed, beyond a reasonable time. In short, the
property passes either by acceptance or by failure to return the
goods within specified or reasonable time. Goods Sent on
Approval

When a seller sends good to a buyer on approval basis or on terms

similar to ‘on sale or return’, the property passes to the buyer only
when:

 The buyer communicates his approval to the seller or does an act

which signifies acceptance of the transaction.
 He does not give his approval or acceptance to the seller but accepts
the goods without giving notice of rejection. There are two
possibilities here:
o A time has been fixed for the return of goods – In this case, if the
approved time has elapsed, then the property is passed to the
buyer.
o A time has not been fixed for the return of goods – In this case,
the property is passed to the buyer once a reasonable time has
elapsed.
 The buyer does something to the goods which signifies acceptance
of goods. For example, he sells the goods or pledges it.
Let us see an example. Peter is a jeweler. John visits his shop to buy a
necklace for his wife Olivia. However, he is not sure if Olivia will like
the necklace he has chosen. Peter agrees to deliver the necklace to
John’s house on a sale or return basis.

If Olivia does not like the necklace, then John can return it to Peter
without having to pay for it. When Peter reaches John’s house, another
man called Chris is also present in the house. Olivia or John don’t
express their approval to Peter but John pledges the necklace with Chris
for a certain amount.

In this case, the ownership of the necklace transfers to John since his act
of pledging the necklace shows his unequivocal intention to buy it.
Peter can recover the price of the necklace from John.

TRANSFER OF PROPERTY WHEN RIGHT OF DISPOSAL IS RESERVED The object of reserving

the right of disposal of goods is to secure that the price is paid before the property passes to the buyer.
For example, under the VPP (Value Pre Paid) system the ownership passes to the buyer when the price
is paid against the delivery of goods, till then the seller retains control over the goods.

Section 25(1) lays down that—

in a contract for the sale of specific goods or where goods are subsequently appropriated to the
contract,

- the seller may reserve the right of disposal of the goods until certain conditions are fulfilled.

- In such a case, even if the goods are delivered to the buyer himself, or to a carrier or other
bailee for transmission to the buyer, the buyer does not acquire ownership until the conditions imposed
by the seller are satisfied.

- For example, X sends certain goods by lorry to Y and instructs the lorry driver not to deliver
the goods until the price is paid by Y to the lorry driver. The property passes only when the price is paid.
 Transfer of title by Non-owners (sec.27-30) The general rule is that only
the owner of goods can transfer a good title. No one can give better title than he himself has.
This rule is expressed by the maxim “Nemo dat quod non habet,” which mean “that no one can
give what he himself has not.”

1. Sale by mercantile agent.(sec.27) It as an agent having in the customary course of business as
such agent authority either to sell goods for the purpose of sale, or to buy goods, or to raise
money on the security of goods.

2. Sale by a joint-owner.(sec.28) Several joint owners of goods has the sole possession thereof,
with the consent of the others, any purchaser from such person, for value without notice at the
time, of the seller’s want of authority to sell, acquire a good title thereof against the other joint
owners.

3.  Sale by a person in possession under a voidable contract(sec.29) A person who has

obtained possession of goods under a contract which is voidable on the ground of fraud,
misrepresentation, coercion, or undue influence, can convey a good title, provided the sale
takes place before the voidable contract is

4. Sale by a seller in possession of goods after sale.(sec.30) A seller having sold goods, continues
in possession thereof or title to the goods, the transfer by such person or by a mercantile agent
acting for such person, of the same, by way of sale will pass a good title to the transferee, if such
latter person has acted in good faith and without notice of the previous sale.

5. Sale by buyer in possession of goods.(sec.30(2)) A person having bought or agreed to buy

obtains, with the consent of the seller, possession of the goods or of the documents of title to
the goods. The delivery of such person, of the goods or documents, pledge or other disposition
thereof will be valid and effective, if the person receiving the same, acted bonafide and without
notice of the seller’s lien, if any.

6. Sale by an unpaid seller.(sec.54(3)) An unpaid of goods who has exercised his right of the lien
or stoppage in transit can, even though the ownership in them has passed to the buyer, resell
the goods and convey a valid to another buyer, though no notice of re-seller has been given to
the original buyer.

https://www.lawctopus.com/academike/nemo-dat-quod-non-habet/

https://blog.ipleaders.in/transfer-of-title-of-goods/
Performance of Contract of Sale
The performance of a contract of sale implies delivery of goods by the seller and acceptance of the
delivery of goods and payment for them by the buyerl, in accordance with contract.

The performance of contract means

Delivery of goods by the seller as per the contractual terms

Acceptance of delivery of the goods by the buyer

Payment of goods to the seller as per the contractual terms and conditions.

The contact of sale always involves reciprocal promises i.e. the promise of seller to deliver goods and
promise of buter is to accept the goods and make payment.

Importance aspects

 Delivery of goods
 Acceptance of the delivery
 Payment

Delvierry: delivery of goods means voluntary transfer of possession og goods from one person to
another. If transfer of possession is not vouluntary, i.e., possession is obtained under pistol point or by
theft, there is no deliver

Modes of delivery

1. Actual delivery: the goods are physically handed over by the seller to the buyer\when the seller
hand over the contracted good in the hand of buyer or buyer’s agent by giving in possession
2. Symbolic delivery: the goods remain where they are, but the means of obtaining possession of
godds is delivered. Or when the goods are bulkier ( or ponderous), where actual handover is not
possible a symbolic done. Ex. Handover of key of car or warehouse or papers.
3. Constructive delivery/delivery by attornment
The person in possession of the goods of the seller acknowledges that he holds the goods on
behalf of the buter and the buter haws assented to it/ where a 3rd person i.e. an agent or
bailer, who holds the good on behalf of the buyer and acknowledges the buyer
It happens as
a. The seller possesses the goods and agrees to hold the goods for the
buyer
b. Goods are in possession of a buyer, and the seller agrees to the buyer as
the owner of the goods.
c. Where the 3rd preson is in possession of goods, aknowleges the buyer
that he holds the goods on behalf of buyer.

Example: s has his goods stored in the waare house of c who keeps account of the goods for s.
S sell 50 bags of goods to b

S gives instruction to c to transfer goods to b

C assents such transfer of the 50 bags of goods to b and make an entry of transfer of goods to b in his
book of account this is delivery by attornment.

Rules of deliver

1. Delivery may either actual or symbolic or constructive

2. Delivery and payment are concurrent condition
3. Effect of part delivery, when property in goods is to pass on delivery
4. Buyer to apply for delivery
5. Time of delivery
6. Place of deliver

1. Mode of Delivery: It can be actual, symbolic or by attornment

2. b) Delivery & Payment-concurrent conditions: Both the parties must be ready and willing to
transfer possession of goods and payment concurrently as per the contractual conditions

c) Effect of Part Delivery: Delivery of a part of goods from the whole has the same effect of
transfer of ownership. Ex: ‘S’ directed his wharfinger to deliver the goods lying at his wharf to
‘B’, to whom the goods are sold by ‘S’. ‘B’ weighed & inspected the whole goods & taken away a
part of it. Held the delivery of part of goods has the same effect as the delivery of whole goods.

d) Buyer to Apply for Delivery: The seller is not bound to deliver the goods until buyer applies
for the delivery. Availability of goods with seller ready for delivery must be intimated by the
seller to the buyer & then buyer must apply for delivery.

e) Place of Delivery: The place of delivery must be negotiated by both the parties during the
contract and goods must be delivered during working days & working hours. In case of no
defined place, the goods must be sold at the place, where they are ready for sale.

f) Time of Delivery: when no specific time is contracted for delivery, the seller must deliver the
goods in reasonable time. In case of decided time, the delivery must be done or at least tender
(attempted) of delivery is contemplated.

g) Goods in Possession of 3rd Party: At the time of sale, if the goods are in possession with 3rd
party, the delivery of goods is not possible until, the 3rd party acknowledges to the buyer, that
he holds the goods on behalf of him (buyer). (Ex: Railway receipt or bills of lading)

h) Cost of Delivery: Unless it is contracted, all the expense of delivery & incidental to delivery of
goods must be borne by the seller, while all the expense of obtaining delivery & incidental to
receipt of goods must be borne by the buyer.

i) Delivery of Wrong Quantities of Goods: The delivery of the quantity of goods must be as per
the contracted terms & conditions. Any defective delivery of goods entitles the buyer to reject
the goods. There are 3 different conditions of wrong quantities of delivery as follows…..
1) Delivery of goods less than contracted: Seller delivers goods less than contracted quantity,
buyer may reject the goods.

Ex: The seller has contracted to sell 50 different colored cotton cloth of 1000 meters long each.
When delivery received & buyer checked for the length, each of colour is found 20 meter less
than the contracted length. Dr. Prashant B. Kalaskar

2) Delivery of goods Excess than contracted: Seller delivers goods excess than contracted
quantity, buyer may

i) reject the goods,

ii) ii) accepts the contracted quantity only or

iii) iii) accepts the excess goods (in this case the buyer has to pay for excess goods at the
contracted rate). Dr. Prashant B. Kalaskar

3) Delivery of goods contracted mixed with other uncontracted goods: Seller delivers
contracted goods along with some other goods which were not contracted quantity, buyer may
i) reject the whole goods,

ii) accepts the only the contracted goods and rejects others

Ex: ‘A’ contracts to buy 100 tons of cane sugar. Seller delivers 80 tons of cane sugar & 20 tons of
beet sugar. ‘A’ may accept 80 tons of contracted cane sugar & rejects the 20 tons of beet sugar

j) Instalment Deliveries: Unless it is contracted, the seller is not entitled to deliver goods in
instalments. If seller does so, the buyer may reject the delivery (unless otherwise contracted).
Ex: ‘B’ contracts to buy 5000 liters of a specific crude oil from ‘S’ to be delivered in Oct-Nov. ‘S’
delivers 4000 liters in October, In this case buyer is not bound to accept the lesser quantity
(instalment) than contracted quantity

Deliver to Carrier or Wharfinger: If the seller delivers the goods to a carrier for transport or to a
wharfinger of the buyer for the safe custody, in prima facie is the delivery to the buyer. - In this
case the, the seller must contract with carrier or wharfinger for the safe custody, or else seller
will be liable for any damage. - In case if buyer asks the seller to transport goods through sea
route, then seller must request the buyer to insured the goods or else any damage may fall on
the sellers account.

Right of unpaid seller

Unpaid seller defined as
 The seller of goods is deemed to be an “unpaid seller” whitin the meaning
of this Act.”
a. Who has not been paid or tendered the whole of the price of the
goods sold, or
b. Who had received a bill of exchange or other negotiable instrument
has as a condition payment, and the condition on which it was
received has not been fulfilled because of the dishonor of the
instrument or otherwise.
Example: a purchase some goods in his personal name on behalf of his principal b.
b refuses to pay the price of the goods. Since a has incurred personal liability, the
relationship between him and his principle will be taken as that of a seller and a
buyer. A will be taken as unpaid seller under the provision of sec.45

An unpaid seller has two-fold rights which are as follows:

1. Rights of unpaid seller against the goods.

2. Rights of unpaid seller against the buyer personally.

RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS SOLD

(1) a possessory lien (particular, not general);

(2) a right of stoppage in transitu; and

(3) a right of resale.

1. Right of Lien:

For the recovery of price, an unpaid seller has a right to keep the goods in
his own possession. Right of Lien means seller can withhold the delivery
of goods to the seller till his payment is being made. In other words, ‘Lien’
is the right to retain possession of goods and refuse to deliver them to the
buyer until the price due in respect of them is paid or tendered
 Example: X sells the goods to Y for Rs. 500. Y pays 250 and promises to
pay the remaining 250 after two month. X has a right of lien on the
goods.

Termination of Lien

An unpaid seller loses his right of lien in the following cases:

1.By Waiver:

If an unpaid seller himself waives his right of lien then it will be

terminated.

2. Goods delivered to Buyer:

When a buyer or his agent or his any representative obtains the lawful
possession of goods, unpaid seller’s right of lien automatically ends.

3. No Right of Disposal:

When an unpaid seller delivers the goods to the carrier/bailee without

reserving the right to disposal with himself then his right of lien ends.

2. Right of Stopping the Goods in Transit:

The right of stoppage in transit means the right of stopping the goods
while they are in transit, to regain possession and to retain them till the
full price is paid[10]. In other words, if buyer has become insolvent, an
unpaid seller has a right of stopping the goods in transit and can resume
the same on the payment of price.

 He must be unpaid seller.

 Buyer must be insolvent.
 There should be no credit terms in the Contract of Sale. After expiry of
Credit period, this right can be exercised.
 Amount must be due on those goods only against which this right is
desired.

At times the transport company may refuse to deliver the goods to buyer due to
any reason. Then the goods are said to be in transit. At times, the buyer may
retain the goods at the transport company. Then the goods are said to be not in
transit.

Example: A sells 100 Kgs of wheat to B but delivery will be two stages.
A delivers 50 Kgs wheat in first week of January and will deliver
remaining in last week of January. Later on he comes know that B has
become insolvent. A can stop delivery of remaining in transit and can
resume the same on the payment of price.

Right of Resale:

An unpaid seller is considered the owner of the goods until he is not paid
by the buyer. So he has a right to sell his goods subject to a few conditions.
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The right of resale is very important right of an unpaid seller. In the

absence of this right, the unpaid seller’s other right against the goods,
namely, ‘lien’ and ‘stoppage in transit,’ is just futile because these rights
only entitle the unpaid seller to retain the goods until paid by the buyer. If
the buyer continues to remain in default, then what else the seller is
expected to do with the goods, especially when the goods are perishable?
Hence, Section 54 of SOGA, therefore, gives to the unpaid seller a
limited right to resell the goods in the following cases:

(a) Where the goods are of a perishable nature; or

(b) Where such a right is expressly reserved in the contract in case the
buyer should make a default[18].

Example: A agrees to deliver a homemade cake to C on credit. C does not

pay. A can re-sell it to any other person.
What are the Rights of Unpaid Seller against Buyer

At times it becomes inevitable choice to exercise rights on buyer for non-payment

of price. The unpaid seller can file suits against the buyer as explained below.

Right to sue for price

It is fundamental right of buyer to file a suit for recovery of unpaid price. In the
case of sale. Suit will be made for price balance, but not for compensation.

Right to sue to interest

If the buyer makes unreasonable delay for making payment, the seller has right
to claim interest also.

Right to sue for compensation

When an agreement to sell is breached, the seller can see only for compensation
for the breach of Contract. Under such circumstances he cannot sue for price.

Right to Sue for anticipatory contract

When an agreement to sell is breached by buyer before date of performance. It
is called anticipatory breach. Then also seller can sue for compensation.