Unit – 2

Indian Contract Act, 1872 Part II

2.1  Breach of Contract

Breach occurs where one party to a contract fails to perform its contractual obligations, or the performance is flawed. A breach of contract doesn't intrinsically bring a contract to an end. The breach may give to the aggrieved party the right to terminate the contract but it's for the non-breaching side to form a choice whether or to not exercise that option. The aggrieved party features a right of election; that's to say , it can choose either to affirm the contract or to terminate it. However, once that call has been taken, it is, in theory, irrevocable.

A Breach could also be anticipatory or actual.

• Anticipatory Breach

Also mentioned as ‘breach by repudiation’, constructive breach occurs when one party states, before the arrival of the date fixed for performance, without justification that it cannot or won't perform the fabric a part of the contractual obligations on the agreed date or that it intends to perform during how that's inconsistent with the terms of the contract. This may additionally occur where one party by some action makes performance impossible. As an example , A, after agreeing to sell his car to B on a hard and fast date, sells it to C. This is often often constructive breach .

EFFECT OF ANTICIPATION BREACH

Where there's an constructive breach, the non-breaching party may either rescind the contract, or Treat the accept force and await the time of performance. In first case, it can immediately sue for damages, i.e., it isn't required to attend for the time for performance to expire.

For example, [D agreed to use P] as a courier for 3 months commencing on June 1. Before the said date D told P that his services wouldn't be required. This was to be an constructive breach of contract and it entitled P to sue D for damages immediately. If the non-breaching party elects to treat the contract operative, it waits until the time of performance then holds the other party liable for the non-performance. Thus, by doing therefore the non-breaching party is giving a chance to the breaching party to still perform, if it can, so on urge a legitimate discharge.

• Actual Breach

Actual breach refers to the failure to perform contractual obligations when performance is due. Failure to perform obligations is that the commonest quite breach, wherein a seller fails to deliver the products by the appointed time, or where, although delivered, the products aren't up to the mark in respect of quality or quantity laid call at the contract.

EFFECT OF ACTUAL BREACH

Breach is described as how of discharge although it shouldn't automatically discharge the contract. Breach of contract leads to two main remedies, namely breach of condition, and breach of warranty.

Breach of a condition this is often a significant term, mentioned as breach of contract, which entitles the casualty to damages, and provides it an option to treat the contract as subsisting or discharged.

Breach of a warranty this is often a term, called non-material breach, which entitles the non-breaching party to damages. It doesn't have the proper to repudiate the contract, although a non-material breach can provides it the proper to defer performance until the breach is made good. However, once the breach is remedied, the non-breaching party must go ahead and render its performance, minus any damages caused by the breach.

Thus, it's clear from the above that not every breach entitles the casualty to treat the contract as discharged. It must be shown that the breach has affected a big a part of the contract, which it is a breach of condition rather than breach of warranty.

2.2  Remedies for Breach of Contract

A legal remedy may be a writ that seeks to uphold a person’s rights or to redress a breach of the law.

When one party breaches a contract, the opposite party may ask a court to supply a remedy for the breach. The court may order the breaching party to pay money to the non-breaching party.

Types of Remedies

• Suit for rescission
• Suit for damages
• Suit for quantum meruit
• Suit for performance
• Suit for an injunction
• Suit for Rescission

Suit for Rescission

The term Rescission refers to the cancellation of contract.

In such cases, if one party has broken his contractual relations, the opposite party may treat the breach as discharge and refuse to perform his a part of performance.

Thus just in case of rescission of contract, the aggrieved or casualty is discharged from all his obligations of the contract.

Under Following Cases the Court may refuse to Grant Rescission:

• The parties can't be restored to their original positions thanks to changed circumstances.

• The party(s) has acquired rights in straightness and value during subsistence of contract.

• Only a neighborhood of the contract is rescinded and this part can’t be separated from remainder of the contract.

• But if an individual rightfully rescinded, he's entitled to compensation for any damage which he has sustained through non fulfillment of the contract by the opposite party.

Example:

'A' contracts to provide 10kg of tea leaves for Rs. 8,000 to 'B' on 15 June. If 'A' doesn't supply the tea leaves on the appointed day, 'B' needn't pay the worth. 'B' may treat the contract as rescinded and should sit quietly reception. 'B' can also file a ‘suit for rescission’ and claim damages. 12 A B Breach of contract when ‘A’ don’t supply to ‘B

Suit for Damages

Damages are a monetary compensation allowed to the casualty for the loss or injury suffered by him as a results of the breach of contract. The elemental principle underlying damages isn't punishment but to compensate the aggrieved party for the loss suffered by him within the original position as he would are.

Rules regarding damages

• The damages must naturally arise within the usual course of things from such breach i.e. the damages must be the proximate or direct consequence of the breach of contract.

• The aggrieved party must have suffered damages by breach of contract.

• Damages are awarded to compensate the loss caused by a celebration but to not punish the party at default for the breach of contract.

• Amount of damages are often decided at the time of agreement by the mutual consent of both the parties.

Types of damages

• Ordinary

• Special

• Exemplary

• Nominal damages

• Damages for inconvenience and discomfort

• Liquidated damages and penalty

• Stipulation for interest

• Forfeiture of margin there are 8 sorts of damages

EXAMPLE: Mr. A to pay 3 lac to Mr.B on 1st April. Mr.A doesn't pay the cash thereon day. Mr. B is unable to pay her debts and suffer a loss. Mr. A is susceptible to pay B principal amount and also interest thereon. 16 A B Breach of contract when ‘A’ don’t give money to ‘B’. Payable money

Suit for Quantum Meruit

It means “AS much as EARNED” or “in proportion to the work done.”

Right to ‘Quantum Meruit’ literally means a right to say the compensation for the work already done.

EXAMPLES:  Mr. A engages Mr. B a contractor, to create a 3 storied house. After a neighborhood is made ‘A’ prevents ‘B’ from working any longer. ‘B’ the contractor, is entitled to urge reasonable compensation for work done under the doctrine of quantum merit additionally to the damages for breach of contract. 18 Breach of contract when ‘A’ told ‘B’ to prevent building construction. A B

Suit for Performance

Suit for performance means demanding the court’s direction to the defaulting party to hold out the promise consistent with the terms of contract. Cases where suit for performance isn't maintainable

i. Where compensatory damages arising from breach aren't measurable

Ii. Where monetary compensation isn't an adequate remedy.

Example: X agreed to sell an old painting to Y for Rs50,000. Subsequently, X refused to sell the painting. Here, Y may file a suit against X for the precise performance of the contract.

Suit for Injection

It means demanding court’s stay order.

An order of the court which prohibits an individual to try to to a specific act.

A party to a contract does something which he presumed to not do, the court may issue an order prohibiting him from doing so.

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 require the entire of his supply of electricity from a particular 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 the other company.

2.3    Indemnity and Guarantee

Concept

Definition:

As per Section 124, A contract by which one party is 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.

“Contract of indemnity” defined.- A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity.”

Example: A contracts to indemnify B against the results of any proceedings which C may take against B in respect of a particular sum of 200 rupees. This is often a contract of indemnity.

A contract to indemnify B against the results of any proceedings which C may take against B in respect of a particular sum of 200 rupees. This is often a contract of indemnity."

Essential Elements of Indemnity Contract:

• Two parties.
• Legal relationship.
• Free consent.
• Competence.
• Consideration. 
• Lawful objective.
• Express or implied.
• Compensation of loss.

Parties of Contract of Indemnity:

1. Indemnity holder:

• Who bears loss.
• Who is promise. 
• Who receive compensation?

2. Indemnifier:

• Who pay compensation for indemnity’s loss?
• Who is promisor.

Indemnifier (Promisor) Indemnity holder (Promise) Contract Compensation paid Contract for compensation

Rights of Indemnity Holder when used as per Section 125

The promise 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 contrary to the orders of the promisor, and was one which it would have been prudent for the promise to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.

Rights of Indemnifier:

The ICA,1872 is silent for rights of indemnifier. The rights of indemnifier is similar has rights of surety.

• Right of Sub-rogation: Sub-rogation is a process where rights will get shifted from one person to the other. It means that after compensating indemnity holder for his loss, the indemnifier has right to sue third party who is liable for that.
• Right to refuse indemnity: Sometimes loss suffered by indemnity holder is beyond the contract, in this case indemnifier has right to refuse for compensation.

Contract of Guarantee as per Section 126

A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. A guarantee may be either oral or written.

Contract of guarantee’, ‘surety’, ‘principal debtor’ and ‘creditor’—A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability, of a third person just in case of his default. The one that gives the guarantee is named the ‘surety’; the person in respect of whose default the guarantee is given is called the ‘principal debtor’, and therefore the person to whom the guarantee is given is called the ‘creditor’. A guarantee may be either oral or written. —A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability, of a 3rd person just in case of his default. The one that gives the guarantee is called the ‘surety’; the person in respect of whose default the guarantee is given is called the ‘principal debtor’, and the person to whom the guarantee is given is called the ‘creditor’. A guarantee may be either oral or written."

Some Important Section under the Contract of Guarantee

Consideration for Guarantee as per Section 127

Anything done, or any promise made, for the advantage of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.

Anything done, or any promise made, for the advantage of the principal debtor, is also a sufficient consideration to the surety for giving the guarantee." Illustrations

(a) B requests A to sell and deliver to him goods on credit. A agrees to try and do so, provided C will guarantee the payment of the value of the goods. C promises to ensure the payment in consideration of A’s promise to deliver the goods. This is often a sufficient consideration for C’s promise. (a) B requests A to sell and deliver to him goods on credit. A agrees to try to to so, provided C will guarantee the payment of the value of the goods. C promises to ensure the payment in consideration of A’s promise to deliver the goods. This is often a sufficient consideration for C’s promise."

Essentials Elements of a Contract of Guarantee

1. Concurrence of All the Parties

All the three parties namely, the principal debtor, the creditor and therefore the surety must conform to make such a contract.

2. Liability

In a contract of guarantee, liability of the surety is secondary i.e., the creditor must first proceed against the debtor and if the latter doesn't perform his promise, then only he can proceed against the surety.

3. Existence of a Debt

A contract of guarantee pre-supposes the existence of a liability, which is enforceable at law. If no such liability exists, there are often no contract of guarantee. Thus, where the debt, which is sought to be guaranteed is already time barred or void, the surety isn't liable.

4. Consideration

There must be consideration between the creditor and the surety so on make the contract enforceable. The consideration must even be lawful. During a contract of guarantee, the consideration received by the principal debtor is taken to be the sufficient consideration for the surety.

Anything done, or any promise made, for the advantage of the principal debtor is also sufficient consideration to the surety for giving the guarantee – Sec. 127 of Indian Contract Act, 1872..

Thus, any benefit received by the debtor is adequate consideration to bind the surety. But past consideration is not any consideration for a contract of guarantee. There must be a fresh consideration moving from the creditor.

5. Writing not Necessary

A contract of guarantee may either be oral or written. It's going to be express or implied from the conduct of parties.

Note: A Contract of Guarantee should be in writing under English Law.

6. Essentials of a valid Contract

It must have all the essentials of a valid contract like offer and acceptance, intention to make a legal relationship, capacity to contract, genuine and free consent, lawful object, lawful consideration, certainty and possibility of performance and legal formalities.

7. No Concealment of Facts

The creditor should confide in 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.

8. No Misrepresentation

The guarantee shouldn't be obtained by misrepresenting the facts to the surety. Though the contract of guarantee isn't a contract i.e., of absolute good faith, and thus, doesn't 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

Parties to Contract of Guarantee:

1. Surety  ( Who gives guarantee )
2. Principal debtor ( for whom guarantee is given)
3. Creditor  ( to whom guarantee is given)

Types of Guarantee

• Special guarantee:

A guarantee is a “specific guarantee”, if it is intended to be applicable to a particular debt and thus comes to an end on its repayment.

• Continuing guarantee A guarantee which extends to a series of transactions is called a “continuing guarantee”, e.g., (i) fidelity guarantee, (ii) overdraft.

Types of Contract of Guarantee

• Unilateral contract of commercial credit ( for trade transaction)
• Bank guarantee(for contract of tender)
• Letter of credit(for international trade)
• Absolute performance bonds
• Retrospective guarantee( for existing obligation)
• Prospective guarantee (for future obligation)
• Specific guarantee9for single transaction)
• Continuing guarantee( for more than single debt)

Difference between Contract of Indemnity and Contract of Guarantee

Surety

Surety’s Liability as per Section 128

The liability of the surety is co-extensive with that of the principal debtor, unless it's otherwise provided by the contract.

The liability of the surety is co-extensive with that of the principal debtor, unless it's otherwise provided by the contract."

Example: 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 just for the quantity of the bill, but also for any interest and charges which can became due thereon .

Continuing Guarantee as per Section 129

A guarantee which extends to a series of transactions is named a ‘continuing guarantee’.

Example:

(a) A, in consideration that B will employ C in collecting the rents of B’s zamindari, promises B to be responsible, to the quantity of 5,000 rupees, for the due collection and payment by C of these rents. This is often a unbroken guarantee.

Rights of Surety

Against the principal debtor

• Right of subrogation
• Right to indemnity

Against the creditor

• Right Of Securities
• Right To Claim Set Off

Against the Co-sureties as per Section 132

When several co-sureties have given guarantee for the same debt with their maximum limits, they are liable to pay equally but subject to the limits they have fixed

Liability of two persons, primarily liable, not suffering from arrangement between them that one shall be surety on other’s default

Where two persons contract with a 3rd person to undertake a particular liability, and also contract with each other that one among them shall be liable only on the default of the other, the person not being a party to such contract, the liability of each of such two persons to the third person under the first contract isn't suffering from the existence of the second contract, although such person may are awake to its existence.

Example

A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B, and C knows this at the time when the note is formed. The fact that A, to the knowledge of C, made the note as surety for B, is not any answer to a suit by C against A upon the note.

Some Important Sections under the Contract of Surety

Discharge of Surety by Variance in Terms of Contract as per Section 133

Any variance, made without the surety’s consent, within the terms of the contract between the principal 1[debtor] and therefore the creditor, discharges the surety on transactions after the variance.

Example

(a) A becomes surety to C for B’s conduct as manager in C’s bank. Afterwards, B and C contract, without A’s consent, that B’s salary shall be raised, which he shall become responsible for one-fourth of the losses on overdrafts. B allows a customer to over-draw, and therefore the bank loses a sum of cash

." A is discharged from his surety ship by the variance made without his consent, and isn't susceptible to observe this loss. A is discharged from his surety ship by the variance made without his consent, and isn't susceptible to observe this loss."

Discharge of Surety by Release or Discharge of Principal Debtor as per Section 134

The surety is discharged by any contract between the creditor and therefore the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is that the discharge of the principal debtor.

Example

(a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts together with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C, and A is discharged from his surety ship.

Discharge of surety when creditor compounds with, gives time to, or agrees to not sue, principal debtor as per section 135

A contract between the creditor and therefore the principal debtor, by which the creditor makes a composition with, or promises to offer time to, or to not sue, the principal debtor, discharges the surety, unless the surety assents to such contract.

Surety not discharged when agreement made with person to offer time to principal debtor as per section 136

Where a contract to offer time to the principal debtor is formed by the creditor with a 3rd person, and not with the principal debtor, the surety isn't discharged.

Example

C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to offer to B. A isn't discharged. C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to offer to B. A isn't discharged."

Creditor’s forbearance to sue doesn't discharge surety as per section 137

Mere forbearance on the part of the creditor to sue the principal debtor or to enforce the other remedy against him doesn’t, within the absence of any provision within the guarantee to the contrary, discharge the surety.

Example

B owes to C a debt guaranteed by A. The debt becomes payable. C doesn't sue B for a year after the debt has become payable. A isn't discharged from his surety ship.

Release of one co-surety doesn't discharge others as per section 138

Where there are co-sureties, a release by the creditor of 1 of them doesn't discharge the others, neither does it free the surety so released from his responsibility to the other sureties.

Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy as per section 139

If the creditor does any act which is inconsistent with the rights of the surety, or omits to try and do any act which his duty to the surety requires him to try and do, and therefore the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

Example

(a) B contracts to create a ship for C for a given sum, to be paid by instalments because the work reaches certain stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two instalments. A is discharged by this prepayment.

Rights of surety on payment or performance as per section 140

Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he's responsible for , is invested all the rights which the creditor had against the principal debtor.

Surety’s right to benefit of creditor’s securities as per section 141

A surety is entitled to the advantage of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the worth of the safety.

Example

(a) C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also an extra security for the 2000 rupees by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent and C sues A on his guarantee. A is discharged from liability to the quantity of the value of the furniture.

Guarantee obtained by misrepresentation, invalid as per section 142

Any guarantee which has been obtained by means of misrepresentation made by the creditor, or together with his knowledge and assent, concerning a cloth a part of the transaction, is invalid.

Guarantee obtained by concealment, invalid as per section 143

Any guarantee which the creditor has obtained by means of keeping silence on a cloth circumstance, is invalid.

Example

(a) A engages B as clerk to gather money for him. B fails to account for a few of his receipts, and A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B’s duly accounting. A doesn't acquaint C with B’s previous conduct. B afterwards makes default. The guarantee is invalid.

Guarantee on contract that creditor shall not act thereon until co-surety joins as per section 144

Where an individual gives a guarantee upon a contract that the creditor shall not influence it until another person has joined in it as co-surety, the guarantee isn't valid if that other person doesn't join.

Implied promise to indemnify surety as per section 145

In every contract of guarantee there's an implied promise by the principal debtor to indemnify the surety, and therefore the surety is entitled to get over the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.

Example

(a) B is indebted to C, and A is surety for the debt. C demands payment from A, and on his refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so, but he's compelled to pay the amount of debt with costs. He can get over B the amount paid by him for costs, also because the principal debt.

Co-sureties liable to contribute equally as per section 146

Where two or more persons are co-sureties for an equivalent debt or duty, either jointly or severally, and whether under an equivalent or different contracts, and whether with or without the knowledge of every other, the co-sureties, within the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the entire debt, or of that a part of it which remains unpaid by the principal debtor.

Example:

(a) A, B and C are sureties to D for the sum of three ,000 rupees lent to E. E makes default in payment. A, B and C are liable, as between themselves, to pay 1,000 rupees each

Liability of co-sureties bound in different sums as per section 147

Co-sureties who are bound in several sums are at risk of pay equally as far because the limits of their respective obligations permit.

(a) A, B and C, as sureties for D, enter into three several bonds, each during a different penalty, namely, A within the penalty of 10,000 rupees, B therein of 20,000 rupees, C therein of 40,000 rupees, conditioned for D’s duly accounting to E. D makes default to the extent of 30,000 rupees. A, B and C are at risk of pay 10,000 rupees.

Modes of Discharge of Surety

• Revocation by notice.
• Revocation by death.
• Discharge of surety by variance in terms of contract.
• Discharge of surety by release or discharge of principal debtor.
• Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.
• Creditor's forbearance to sue does not discharge surety.
• Release of one co-surety does not discharge other.
• Discharge of surety by creditor's act or omission impairing surety's eventual remedy.
• By the creditor losing his security.
• By concealment or misrepresentation.

2.4   Contracts

DEFINATION

An agreement enforceable by law may be a contract.

STEPS INVOLVED WITHIN THE CONTRACT

1. Proposal and its communication

2. Acceptance of proposal and its communication

3. Agreement by mutual promises

4. Contract

5. Performance of Contract

ESSENTIAL REQUIREMENTS OF A LEGITIMATE CONTRACT

• Offer and its acceptance
• Free consent of both parties
• Mutual and lawful consideration for agreement
• It should be enforceable by law. Hence, intention should be to make legal relationship. Agreements of social or domestic nature aren't contracts
• Parties should be competent to contract
• Object should be lawful
• Certainty and possibility of performance
• Contract shouldn't are declared as void under Contract Act or the other law

TYPES/KINDS OF CONTRACT

1. On the idea of validity

Valid contract: An agreement which has all the essential elements of a contract is named a legitimate contract. a legitimate contract are often enforced by law.

Void contract [Section 2(g)]: A void contract may be a contract which ceases to be enforceable by law. A contract when originally entered into could also be valid and binding on the parties. It's going to subsequently become void. -- There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is against "Public Policy" under any contract— than that contract itself can't be enforced under the law-

Voidable contract [Section 2(i)]: An agreement which is enforceable by law at the option of 1 or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it's repudiated by the aggrieved party.

Illegal contract: A contract is against the law if it's 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 an individual or property of another, or court regards it as immoral or against public policy. These agreements are punishable by law. These are void-ab-initio.

“All illegal agreements are void agreements but all void agreements aren't illegal.

Unenforceable contract: Where a contract is good in substance but due to some technical defect can't be enforced by law is termed unenforceable contract. These contracts are neither void nor voidable.

2. On the idea of formation

Express contract: Where the terms of the contract are expressly prescribed in words (written or spoken) at the time of formation, the contract is claimed to be express contract

Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is formed otherwise than in words, promise is claimed to be implied.•

Quasi contract: A contract is made by law. Thus, quasi contracts are strictly not contracts as there's no intention of parties to enter into a contract. It's legal obligation which is imposed on a celebration who is required to perform it. A contract is predicated on the principle that an individual shall not be allowed to complement himself at the expense of another.

3.On the idea of Performance

Executed contract: An executed contract is one during which both the parties have performed their respective obligation.

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.

Unilateral contract: A agreement is one during which just one party has got to perform his obligation at the time of the formation of the contract, the opposite party having fulfilled his obligation at the time of the contract or before the contract comes into existence.

Bilateral contract: A contract is one during which the requirement on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts also are referred to as contracts with executory consideration.

2.5   Special Contracts

Bailment

Introduction

According to Sec 148 of the Contract Act, 1872, ‘A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

The person delivering the goods is called the bailor, the person to whom they are delivered is called the bail and the transaction is called the bailment.

Essentials of Bailment

It is a delivery of movable goods by one person to another (not being his servant). According to Section 149 the delivery of goods may be actual or constructive.

The goods are delivered for some purpose. When they are delivered without any purpose there is no bailment as defined under Sec 148

The goods are delivered subject to the condition that when the purpose is accomplished the goods are to be returned in specie or disposed of according to the directions of the bailor, either in original form or in altered form.

Kinds of Bailment

There are five sorts of Bailment are as under

1) Gratuitous Bailment

A Bailment made with none Consideration for the benefit of the bailor or for the benefit of the bailee is named Gratuitous Bailment. In simple words A bailment with no consideration is Gratuitous bailment.

2) Non-Gratuitous Bailment:

Non Gratuitous may be a bailment for reward. It's for the advantage of both the bailor and bailee.

3) Bailment for the benefit of the Bailor during this case the bailor delivers his goods to a bailee for a secure custody with none benefit/ reward. It's called "the bailment for the advantage of the bailor".

4) Bailment for the exclusive advantage of the Bailee

In this case Bailor delivers his goods to a bailee with none benefit for his use, it's called "the bailment for the exclusive benefit of the bailee"

5) Bailment for the benefit of the Bailor and Bailee

In this case goods are delivered for consideration, both the bailor and bailee get benefit and hence it's called the bailment for the advantage of the bailor and bailee.

Duties and Rights of Bailor and Bailee

Duties of the Bailee

• Duty to take reasonable care of goods delivered to him [Sec 151]
• Duty not to make unauthorized use of goods entrusted to him [ sec 154]
• Duty not to mix goods bailed with his own goods [ Sec 155]
• Duty to return the goods [ Sec 165]
• Duty to deliver any accretion to the goods [Sec 163]

Duties of the Bailor

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

Rights of Bailee

• Enforcement of Bailor’s Duties
• Right to deliver goods to one of several joint owners
• Right to deliver goods, in good faith, to bailor without title, without incurring any liability to the true owner
• Right of Lien

Rights of the Bailor

• Enforcement of Bailee’s Duties
• Right to terminate bailment if the bailee uses the goods wrongfully [ Sec 153]
• Right to demand return of the goods at any time in case of gratuitous bailment [Sec 159]

SOME IMPORTANT SECTION UNDER CONTRACT OF BAILMENT

BAILEE WHEN NOT LIABLE FOR LOSS, ETC., OF THING BAILED AS PER SECTION 152

The bailee, within the absence of any special contract, isn't liable for the loss, destruction or deterioration of the thing bailed, if he has taken the quantity of care of it described in section 151.

TERMINATION OF BAILMENT BY BAILEE’S ACT INCONSISTENT WITH CONDITIONS AS PER SECTION 153

A contract of bailment is voidable at the choice of the bailor, if the bailee does any act with reference to the goods bailed, inconsistent with the conditions of the bailment.

Example:

A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage. This is, at the choice of A, a termination of the bailment. A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage. This is, at the choice of A, a termination of the bailment."

LIABILITY OF BAILEE MAKING UNAUTHORISED USE OF GOODS BAILED AS PER SECTION 154

If the bail makes any use of the goods bailed which isn't consistent with the conditions of the bailment, he's susceptible to make compensation to the bailor for any damage arising to the goods from or during such use of them. —

Example

(a) A lends a horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is liable to make compensation to A for the injury done to the horse.

TERMINATION OF GRATUITOUS BAILMENT BY DEATH AS PER SECTION 162

A gratuitous bailment is terminated by the death either of the bailor or of the bailee.

Pledge

Introduction

According to Sec 172, Contract Act, 1872, ‘The bailment of goods for repayment of a debt or performance of a promise is called ‘pledge’. The Bailor in this case is called the pawnor, the bailee is called the Pawnee.

DIFFERENCE

Essential Features of a Valid Pledge

• Delivery of possession
• Delivery should be upon a contract
• Delivery should be for the purpose of security
• Delivery should be upon condition to return

Lien

A lien is that the right to retain the lawful possession of another person's piece of property until the owner fulfills a duty to the person holding the property, like the payment of lawful charges for work done on the property. A mortgage may be a common lien.

In its most general meaning, this term includes every case during which real or personal estate is charged with the payment of any debt or duty. During a more limited sense it's defined to be a right of detaining the property of another until some claim is satisfied. The proper of lien generally arises by operation of law, but in some cases it's created by express contract.

Two kinds of Liens

There are two sorts of liens: particular and general. When an individual claims a right to retain property, in respect of cash or labor expended on such particular property, this is often a specific lien.

Liens may arise in three ways:

• By express contract.
• From implied contract, as from general or particular usage of trade.
• By legal relation between the parties, which can be created in three ways:

When the law casts an obligation on a party to try and do a specific act and reciprocally that, to secure him payment, it gives him such lien; common carriers and inn keepers are among this number.

When goods are delivered to a tradesman or the other individual to expend his labor upon, he's entitled to detain those goods until he's remunerated for the labor which he so expends.

When goods are saved from the perils of the sea, the salvor may detain them until his claim for salvage is satisfied; but in no other case has the finder of goods a lien.

General liens arise in three ways:

• By the agreement of the parties.
• By the overall usage of trade.
• By particular usage of trade.

Concept between the Pledge and Lien

Pledge:

1) Creation of right: during a pledge, goods are bailed as a security for payment of debt or for performance of a promise.

2) Right to sell: It gives a right to sell.

3) Possession: It creates a right of security i.e. pledge of goods isn't lost by return of goods to the owner or by loss of possession.

4) Origin: Pledge is made by contract between the parties.

Lien:

1) There's no bailment of goods as security. It's only a creation of a right to possession within the hands of the bailee. It's a mere right of retainer.

2) It gives no right to sell

3) Lien is host by loss of possession

4) Lien is made by law or by express or implied contract.

A lien is simply a personal right. A pledge may be a far more valuable right than a mere lien. The difference lies there in , during a lien there's no power of sale or disposition of the goods, whereas during a pledge there's power to sell on default. A lien is simply a personal right of retention. A lien disappears when possession is lost and there's no right of sale. Sale on default is an event of pledge. A pledge is assignable.

A pledge is something between an easy lien and a mortgage. Within the case of alien there's no transfer of any interest. Within the case of a mortgage, mortgagee has an absolute interest within the property subject to a right of redemption. But within the case of a pledge, the pledgee has only a special property while the overall property therein remains within the pledgor.

Rights and Duties of Pawnor and Pawnee

DUTIES OF A PAWNOR

• Duty to repay the loan
• Duty to pay expenses in case of default

DUTIES OF A PAWNEE

• Duty not use of pledged goods
• Duty to return the goods

RIGHT OF PAWNOR

• Right to redeem the goods pledged
• 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

SOME IMPORTANT SECTION UNDER THE CONTRACT OF PLEDGE

PLEDGE BY MERCANTILE AGENT AS PER SECTION 178

Where a mercantile agent is, with the consent of the owner, in possession of goods or the document of title to goods, any pledge made by him, when acting within the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to form the same; as long as the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.

Explanation.—In this section, the expressions ‘mercantile agent’ and ‘documents of title’ shall have the meanings assigned to them within the Indian Sale of goods Act, 1930 (3 of 1930).]

PLEDGE BY PERSON IN POSSESSION UNDER VOIDABLE CONTRACT AS PER SECTION 178A

When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires an honest title to the goods, provided he acts in good faith and all of sudden of the pawnor’s defect of title.]

PLEDGE WHERE PAWNOR HAS ONLY A LIMITED INTEREST AS PER SECTION 179

Where an individual pledges goods during which he has only a limited interest, the pledge is valid to the extent of that interest.

Agency

Concept

Meaning & Definition of Agency

“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 person who delegates the authority is known as principal.
• To whom the power is delegated is known as agent.
• The relationship that is created is known as agency.
• A person who act in place of another – Agent
• The person on whose behalf he acts – Principal

WHO MAY EMPLOY AGENT

AS PER SECTION 183

Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.

WHO MAY BE AN AGENT

AS PER SECTION 184

As between the principal and third person any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principle according to the provisions in that behalf herein contained. —As between the principal and third person any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principle according to the provisions in that behalf herein contained."

NOTE AS PER SECTION 185

Consideration not necessary.—No consideration is necessary to create an agency.

FEATURES OF THE CONTRACT OF AGENCY

• Principal is answerable to third parties for the acts of agent
• Consideration not necessary – Section 185 of the act clearly lays down , “ No consideration is necessary to create an agency”
• Principal must be competent to employ an agent – Only a person who is competent to contract can employ an agent. (Major, Sound Mind )
• Agent may not have contractual capacity – A minor or a person of unsound mind may act as an agent & bind the principal to the third persons.

TEST OF AGENCY

A person does not become an agent on behalf of another merely because he gives him advice in matters of business.

Every person who acts for another cannot be agent. Cobbler mending shoes of a man, servant rendering services for us – are not agents.

To test whether a person is or not an agent

• The essential condition is that whether he is clothed with a necessary authority by another (principal) to bind him & make him (principal) answerable to the third persons & thus establishing a privity contract between that third person & the principal.
• If this condition is satisfied then a person is considered as an agent.

CLASSIFICATION OF AGENTS

Special Agents – who is employed to do some particular act or represent his principal in some particular transaction? As soon as the act is performed the authority of agent comes to an end. E.g. An agent engaged to sell a house.

General Agent – who is employed to do all such acts which are connected with the business of trade of his employer. If principal limits authority secretly, he himself will be bound

Universal Agent – is one who is employed to all such act which a principal can lawfully do & can delegate. Agent has unlimited authority.

FROM THE POINT OF VIEW OF NATURE OF WORK TO BE PERFORMED:

1. Factors – is a mercantile agent to whom the possession of goods are given for the purpose of selling them. He usually sells the goods in own name. He can exercise a general right of lien on the goods delivered to him for balance of payment if any.

2. Auctioneer – is an agent who is appointed by the principal to sell the goods on his behalf at a public auction for a reward in form of commission. Eg reserve price

3. Broker – is an agent appointed by the principal for the purpose of selling or buying goods on his behalf. He do not have possession of goods nor he can contract in his own name. He bring seller & buyer together to bargain. He gets commission ( brokerage ).

4. Commission Agent – is a mercantile agent who is employed to buy & sell goods for his principal on best possible terms. He transact in his own name. He is entitled to commission. He may or may not have possession.

5. Del credere Agent – is one who guarantees to his principal, the performance of the financial obligation by party with whom he enters into a contract on principal behalf, in consideration of an extra commission. He becomes surety & become liable on the default of third party.

6. Banker – act as a mercantile agent on behalf of his customer when he collects cheques, drafts, bills & pay insurance premium & buy or sell securities.

Modes of Creation of Agency

By express agreement – authority is given to agent in written or by words of mouth. He can bind the principal to the third parties by his acts to the extent he is delegated with the authority.

By implied agreement

1. Agency by Estoppel – Where a person permit another to act on his behalf. Principal is estopped from denying his agent’s authority. E.g. A tell B in the presence of P that A is the agent of P. P does not contradict the statement. B enter into the contract with P on the belief that A is P’s agent. In such case P would be bound by the contract.  He is not the agent. He ceases to be an agent

2. Agency by holding out – Some positive conduct of the principal indicates that a particular person is his agent.

P sends A to buy goods on credit from C. A buys goods on credit for himself & refuses to pay. C sue P. P cannot plead that A had no authority.

3. Agency by necessity – When an agency is created by the circumstances. The impossibility of getting the instructions from the principal is the basis of creation of agency by necessity.

E.G. X sent some horses to Y through a railway company. But Y did not take the delivery of the horses at the destination with the result the railway company had to feed the horses. Held, the railway co. Was an agent of necessity & could recover the amount spent on feeding the horses.

4. Agency by ratification – Ratification means subsequent adoption or acceptance by a person of an unauthorized act done by another on his behalf without any authority. X buys 5 bags of wheat on behalf of Y without his knowledge or authority. Y would be bound by the contract, if he ratify or accept the same. It can be expressed or implied.

Essentials of a valid ratification

1. Act must have been done as agent on behalf of principal identifiable – Only the person on whose behalf the act is done can ratify it. If the agent act in his own name, his act cannot be ratified by any other person. e.g. X was authorised by Y to buy wheat at certain price. X exceeded his authority & purchased wheat from Z at a higher price in his own name. He did not profess to buy wheat on behalf of Y. Subsequently Y ratified the act of X but later refused to take delivery of the wheat. Z sue Y. Held, the contract could not be ratified because X did not purport to act as an agent of Y.

2. The principal must be in existence. Eg company and promoters

3. The principal must be competent to ratify the act – must have contractual capacity. A minor cannot ratify the contract a contract on attaining the age of majority.

4. The principal must have the full knowledge of all the material facts – X bought certain goods for Y at the price greater than the market value in the name of Y. Y ratified the transaction without knowing the same ( high price ) . The ratification is invalid.

5. The principal must ratify the whole transaction.

6. Ratification must be made within reasonable time.

7. Act to be ratified must not be void or illegal.

8. Ratification must be communicated.

Modes of Termination of Agency

TERMINATION OF AGENCY AS PER SECTION 201

An agency is terminated by the principal revoking his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being effective for the relief of insolvent debtors.

TERMINATION OF AGENCY, WHERE AGENT HAS AN INTEREST IN SUBJECT-MATTER AS PER SECTION 202

Where the agent has himself an interest within the property which forms the subject-matter of the agency, the agency cannot, within the absence of an express contract, be terminated to the prejudice of such interest.

EXAMPLE

(a) A gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts because of him from A. A cannot revoke this authority, nor can it's terminated by his insanity or death. (a) A gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts because of him from A. A cannot revoke this authority, nor can it's terminated by his insanity or death."

• By act of parties
• By agreement – mutual consent
• By revocation of authority by the principal – The principal can revoke the authority of an agent at any time before the authority has been exercised as to bind the principal.
• By renunciation by the agent – by giving reasonable notice.
• By performance of contract of agency.
• By death of principal or agent.
• By expiry of time – where agency is for fixed time period.
• By insolvency of the principal.
• By destruction of subject matter – agency was created to sell a house & house destroys.
• By becoming alien enemy – where principal & agent are from different countries.

DUTIES OF AN AGENT

• To follow principal’s directions – An agent must act within the scope of the authority conferred on him. An agent was instructed to insure goods. He failed to do so. The goods were destroyed. He was held liable to the extent of loss.
• To follow the customs in the absence of instructions – B, a broker, in whose business, it is not the custom to sell on credit , sell 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.
• To conduct business with reasonable care skill & diligence – A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the proper & usual enquires as to the solvency of B. B at the time of such sale, is insolvent. A must make compensation of his principal in respect of any loss thereby sustained.
• To keep & render accounts to principal when demanded.
• To communicate with principal.
• Not to deal on his own account – If an agent wants to deal on his own account, he must seek the consent of the principal first & must acquaint him with all the material facts. ( Purchase )
• Not to make secret profits ( Bribe )– Agency is a judiciary relation.
• To pay sum received – he can deduct his remuneration & all expenses incurred in conducting business.

RIGHTS OF AN AGENT

Right of retainer – The agent has a right to retain, out of any sums received all money due to him in respect of remuneration, advance made, expenses incurred in conducting business.

Right to receive remuneration if he has completed his task. He is not entitled to any remuneration for part transaction.

Right of lien – he has right to exercise particular lien over the goods, paper, property until the amount due to him for commission, expenses has been paid.

Rights and Duties of Principle and Agent

DUTIES & RIGHTS OF THE PRINCIPAL

• To pay remuneration to agent
• To recover compensation for breach of duty by the agent
• To forfeit agent’s remuneration where he is guilty of misconduct
• To receive any extra profit made by agent.
• To enforce the various duties of the agent.
• To receive all sums.

SOME IMPORTANT SECTION UNDER CONTRACT OF AGENCY

WHEN PRINCIPAL MAY REVOKE AGENT’S AUTHORITY AS PER SECTION 203

The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so on bind the principal.

REVOCATION WHERE AUTHORITY HAS BEEN PARTLY EXERCISED.AS PER SECTION 204

The principal cannot revoke the authority given to his agent after the authority has been partly exercised; thus far as regards such acts and obligations as arise from acts already wiped out the agency.

EXAMPLE

(a) A authorizes B to buy 1,000 bales of catch on account of A and to buy it out of A’s moneys remaining in B’s hands. B buys 1,000 bales of cotton in his own name, so on make himself personally responsible for the value. A cannot revoke B’s authority thus far as regards payment for the cotton

COMPENSATION FOR REVOCATION BY PRINCIPAL, OR RENUNCIATION BY AGENT AS PER SECTION 205

Where there's an express or implied contract that the agency should be continued for any period of your time, the principal must make compensation to the agent, or the agent to the principal, because the case could also be , for any previous revocation or renunciation of the agency without sufficient cause.

Notice of revocation or renunciation AS PER SECTION 206

Reasonable notice must tend of such revocation or renunciation, otherwise the damage thereby resulting to the principal or the agent, because the case could also be, must be made good to the one by the other.

REVOCATION AND RENUNCIATION COULD ALSO BE EXPRESSED OR IMPLIED AS PER SECTION 207

Revocation or renunciation could also be expressed or could also be implied within the conduct of that principal or agent respectively. —Revocation or renunciation could also be expressed or could also be implied within the conduct of that principal or agent respectively."

EXAMPLE:

A empowers B to let A’s house. Afterwards A lets it himself. This is an implied revocation of B’s authority. A empowers B to let A’s house. Afterwards A lets it himself. This is an implied revocation of B’s authority."

WHEN TERMINATION OF AGENT’S AUTHORITY TAKES EFFECT ON AGENT, AND ON THIRD PERSONS.AS PER SECTION 208

The termination of the authority of an agent doesn't , thus far as regards the agent, become before it becomes known to him, or, thus far as regards third persons, before it becomes known to them.

EXAMPLE

(a) A directs B to sell goods for him, and agrees to offer B five per cent. Commission on the worth fetched by the goods an afterwards by letter, revokes B’s authority. B after the letter is shipped, but before he receives it, sells the goods for 100 rupees. The sale is binding on A, and B is entitled to 5 rupees as his commission.

AGENT’S DUTY ON TERMINATION OF AGENCY BY PRINCIPAL’S DEATH OR INSANITY.AS PER SECTION 209

When workplace is terminated by the principal dying or becoming of unsound mind, the agent is sure 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.

Disclaimer - This content published is the sole responsibility of the author. The company does not publish any study material which are not approved or validated by qualified professors or experts in the relevant field.