Business Law INTRODUCTION

What is law? Law means rules: 1. Different sets of rules regulating your external human action and conduct of an individual dealing with other individual and with the government. 2. For the welfare of the State, demanded a reformed set of rules therefore Law has been often subjected to changes to meet the needs of society and at the same time, attempting to achieve uniformity in its application. Law denotes Rules of conduct enforced by the state When does set of rules become law? Characteristics of law: 1. It is enforceable by the State. 2. It receives due recognition. 3. It attempts to achieve some sort of uniformity and security in its application. Conclusion: Law includes all the rules and the principles which are regulate our relations with other individual and with the state.

Definition of Law:

Holland defines Law as Rule of external human action enforced by Sovereign _________ Authority

Salmond defines Law as the body of principles recognised and applied by the State in administration of Justice

Dictionary meaning: Soveregin supreme and unapproved power as a state or an independent state.

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Legislate: Make or pass as law. Statutes: An enactment of a legislative body based on a common law and equity. Reform: Change, modification, alteration. Rigid: Not changing, strict.

Law when enacted has to observe the following principles: 1. It should not offend local customs and usage of the society. Conformity with custom and usage. 2. It should not be static or rigid piece of legislation. It changes with times, custom and the needs of the society. Man is expected to observe the code of conduct or the set of rules.

Sources of Indian Law: The following are the sources of Indian Law: 1. English Law: is the principle source of Indian law: (as British ruled our country for many years, therefore their also left an impact on our law). Law of Merchant. English common law. Roman law. Rules of equity British Parliament. English judicial decisions. 2. Indian Statues: The central and state legislatures enact law in India, which is applied by the Courts in India. Prior to 1872, English Courts used to apply personal law of the parties to the suit. The Indian Contract Act is based on the English common law rules. 3. Judicial Decisions: Interpretation of law by judges application depending upon the facts of each case. Where customs and usage is silent-Courts apply Law based on English Judgments.

PAGE NO 2 Precedent: Application of Judicial decisions in previous case to subsequent similar cases from a very important source of law. 4. Custom and usage: Custom and usage should be ancient, reasonable and constant. Custom when accepted by the court and incorporated in a judicial decision become legal custom.

What is Business law?

The term Business Law, commercial law and mercantile law are same. Business Law is a Branch of General law. Business law includes law relating to contract, sales of goods, partnership negotiable instrument act, companies act and co operative societies act. Business Law is gaining lot of importance now a day for example: Consumer Protection Act gaining importance safeguarding the rights and interest of the consumer. Individuals deal with other individual, or individual with government involving some sort of obligation is business transaction. Growth of business demands introduction of new pieces of legislation amendment. Law regulates various transaction of business community.

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Business Law Indian Contract Act, 1872. Introduction

Prior to the Indian Contract ACT, 1872, English Law applied which led to many inconvenience. Example: To regulate the contract where parties were Mohammedans and Hindus. The right of Hindus and Mohammedans were regulated by their own personal law. If both the parties were Hindus, they were regulated by Hindu law. When both the parties were Muslim, Mohammedans law applied. If, however one party was Hindu (Plaintiff) and the other was Muslim (defendant), the law of the defendant applied. In this case Mohammedans Law would apply. Only where law of Hindu and Mohammedans were silent on any point, English law applied. Gradually, the importance of enactment of General Law regulating the contract was realized and this gave birth to Indian Contract Act, 1872.

Definition of contract: Section 2(h) of Indian Contract defines Contract as an agreement enforceable by law.

This definition consists of two important elements of a contract: 1. It is an agreement between two or more person. 2. It is enforceable by law. I.e. which rise to legal obligation and legal rights. Definition of Agreement:

Section 2(e) of Indian Contract defines Agreement means as accepted proposal. Offer+Acceptance. This definition consists of two important elements of an offer: 1. To form an agreement there must be a proposal or an offer by one party. 2. Its acceptance by the other.

PAGE NO 4 Distinguish between an Agreement and a Contract

AGREEMENT An offer by one party and its acceptance by the other party constitute an agreement. Agreement = offer + acceptance. Every promise & every set of promises forming consideration for each other is an agreement.

CONTRACT An agreement and its enforceability at law together constitute a contract. Contract = agreement + enforceability by law. An agreement becomes a contract only when there re all the essential element of a valid contract present: Legal relationship Lawful consideration Competent parties Free consent No expressly declared to be void Legal formalities Possibility of performance A contract necessarily creates a legal obligation. All legal agreement are called contract. Contract always accompanied by a legal obligation and legal rights. There is always a legal duty or consequence attach to it. All contracts are agreements. Agreement is a narrower concept than a contract or specie of agreement.

Agreement may or may not create a legal obligation. Agreement can be legal or social in nature depending upon the intention of the parties. All agreements are not contracts. Agreement is a wider concept than contract.

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Business Law Essential element of a valid contract Section 10 lays down the essential elements of a valid contract. All agreements are contract if they are made by free consent of the parties competent to contract, for lawful consideration and with lawful object and not hereby expressly declared void. Section 10: Deals with the essential element of a valid contract. To form (make, constitute) a valid contract 1.Offer and acceptance: There must be at least two parties to an agreement i.e.one party making an offer (proposal)and the other party accepting it. The term of the offer must be definite and the acceptance of the offer must be absolute and unconditional. It is necessary to understand the offer in the same thing at the sense at the same time. Consensus Ad Item : To understand the subject matter in the same Sense and the same time The party making an offer is called an offerer/offeror The party to whom the offer is made is called an offeree. The acceptance must be according to the mode prescribed and must be communicated to the offerer/offeror 2.Intention to create legal relationship : When the two parties enter into an agreement,then the intension must be create legal relationship between them (not to legally bind each other). If there is no such intension of the parties,there is no contract between them Agreement of a social or domestic in nature do not create a legal relationship. As they are not contracts Case law : Balfour Vs. Balfour Facts : A husband agreed to pay 70 pounds to his wife every month. He failed to pay the said amount to his wife. The wife filed a case on her husband for the said amount page no 6

Held : Wife cannot recover the said amount through Court pf law because it was social agreement and the intension of the parties was not to legal bind them

In the commercial business agreements the presumption is usually that the intension of the parties is to create legal relationship. But if it specially shown that the parties did not intend to legally bound.

Case law : Rose and Frank Co. Vs Crompton Bros. Facts : There was an agreement between R company and C company by the means of which the former was appointed as the agent of latter. One clause on the agreement was : This agreement, and shall not be subject to legal jurisdiction in the law courts. Held : There was no binding contract as there was no intension to create legal relationship

3. Lawful consideration: An agreement to be enforceable law must be supported by consideration. The term Consideration in simple words means something in return, The agreement is legally enforceable only when both parties give and get something in return. A promise to do something getting nothing in return is not enforceable by law.Nudam Pactum ( A bare promise) Consideration need not necessarily be in cash or kind. It may be an act or a promise to do or not to do something .It may be past ,present or future . But it must be lawful in nature.

4. Competent parties to contract\Capacity to contract : The parties to contract should be capable of entering into a valid contract . Every person is competent to contract if he is: Is of the age of majority to the law he subjected to Is of sound mind Is not disqualified by any law from contracting.

5. Free and genuine consent : It is essential to the creation of every

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Contract that there must be free and genuine consent of the parties to the agreement. The consent of the parties is said be free when the parties are of the same mind on all the material terms of the contract. The parties are said to be of the same mind when the agree about the subject matter of the contract in the same time in the same sense. Section 13 says that if there is absence of free consent , then the agreement is induced (made) by coercion (force), undue influence, fraud, misinterpretation.

6. Lawful object : The object of the agreement should be lawful. In other words, it means that the object must not be:

It is not forbidden (not allowed) by any law If permitted, it would defeat the provision of any law or It is fraudulent in nature Illegal Immoral Oppose to public policy Or involves , an injury to another person or property of another person

7. Agreements must not be expressly declared to be void: The agreement must not be expressly declared by the Indian contract act, 1872 to be void. An agreement in restraint of trade An agreement in restraint of legal proceedings An agreement in restraint of marriage An agreement of wager Agreement to do an impossible act Minors agreement is void ab initio

8.Obsevance of legal formalities : A contract can be oral, written, or implied. It is however in interest of the parties that the contract should be in written form. There are some other formalities also to be completed within order to make an agreement legally enforceable. In some case the document in which contract is incorporated is to be stamped. In some other cases, a contract besides being written one has to be registered or attested (in

PAGE NO 8 presence of witnesses) If the agreement fails to comply with the legal formalities as required by the law or the act then it cannot be enforceable at law in other words there is technical defect. Whenever a law specifies a contract should be in writing and should comply with all legal formalities. If the legal formalities are not complied with the contract will not be valid . E. g. Will should be registered; transfer of property should be done on a proper stamp paper

9.Possibility of performance : A contract should not be to do impossible act. Such agreement are not enforceable and not valid in law. The party cannot take the help of law to compel the other party to do an impossible act. Impossibility to performance nullifies an existing obligation. e.g. A promise to share with B 75% of the treasure, if creates a treasure by magic. As it is an impossible act to create treasure by magic. the above agreement is incapable of performance and therefore void.

PAGE NO 9 ACCEPTANCE RULES REGARDING VALID ACCEPTANCE A Proposal is always made with the view to be accepted. The rules regarding valid acceptance are as under: 1) Which can accept the offer (proposal)

Specific offer : an offer can be accepted only by the person to whom it is has been made (definite person) Specific offer : when an offer is made to a class of person, it can be accepted by any member of that class General offer : If the proposal is made to the world at large, it can be accepted by any person or group of people in the world, and in each case there will be separate contract between the offeror or offeree.

2) Acceptance of an offer must be absolute and unconditional : Section 7(1) of Indian contract
act states than an acceptance to be absolute and unconditional. Acceptance must be of all the terms A provisional or conditional or partial acceptance amounts to rejection of the offer. In case there is any variation between terms of the offer and the terms of the acceptance, there is no contract.

3) Acceptance must be made within reasonable time : If the offeror/Proposer have prescribed
the time limit for the acceptance of an offer, acceptance must be made within that time limit or acceptance is not legally binding. If no time limit is prescribed by the proposer, the acceptance must be made within a reasonable time. Reasonable time depends upon the subject matter whether it is perishable or non perishable item. Acceptance of the offer must be made before the offer is withdrawn or lapsed.

4) Mode of acceptance: Acceptance can be made By written word Verbal (spoken words)

PAGE NO 10 By conduct By post Telegram Or by the prescribed manner, If any specified by the offeror

5). Mental acceptance is not acceptance at all in the eyes of law: A valid acceptance is said to be fulfilled when the offeree communicates the same (unconditional acceptance) to the offeror in one of the modes prescribed within the time limit. A mere mental acceptance (an acceptance which is not communicated to the offeror) is no acceptance at all in law A mental resolve (intension to make up our minds) to accept an offer does not give rise to a binding offer or a valid offer

6). Acceptance must be communicated to the offeror : An acceptance must be communicated to the offeror only and not to his friends, his relatives or an agent otherwise this may not amount to valid acceptance

7) Acceptance of offer is the acceptance of all its terms: Whenever a person accepts an offer it is said to be accepted in its entirely or totality. Even, If the offeree is ignorant (unaware) of the some of the terms of the offer Except under the following circumstances Where the terms are nit apparent on the face of the terms of the contract Where no reasonable caution is taken to invite the attention of the acceptor Partial acceptance is not acceptance in the eyes of law

8. Acceptance must be communicated before the offer lapses or revoked or withdrawn. If acceptance is not communicated to thee offer before the offer is lapse or withdrawn then the offer is not binding and acceptance is not qualified (not Valid)

9. Qualified acceptance is a counter- offer. Under the Indian Contract Act, qualified, Conditional acceptance amounts to rejection of the offer. An acceptance with the variation in the terms is no acceptance it it rather a

Page 11 Counter- offer, which may be accepted or rejected by the original offeror, who is now in a position of an offeree

COUNTER OFFER

Meaning of a counter offer :

A counter offer means an original offer is rejected and a fresh offer is given. This fresh offer is known as counter offer. CASE LAW : HYDE V/S WRENCH FACTS : H offered to sell his farm to W for 1000/- pounds. W was interested in buying 950 pounds . H refused the offer ( counter offer made by W). Subsequently, W offered to purchase the farm for 1000/- pounds. HELDS: There was no contract because W rejected the original offer by giving a counter offer of 950 pounds. The counter offer of W was ow a fresh offer from W to H and H had the right to accept or reject the offer. The position of W & H was interchanged from offeree to offeror & offeror to offeree.

PAGE NO 12 Definition of Offer/Proposal : A proposal or an offer is the first step towards the formation of a contract Section: 2(a) of the act defines a proposal as under: Whenever a person signifies his willingness to do or obstain from doing Anything with a view of obtaining the assent of that other person to such an act or abstinence he is said to have made a proposal is also known as as Offer. (Assent : means an acceptance, Abstain means refrain/avoiding doing an act) Eg : A promises to pay B rs 100 a month provided B does not play his Tabla every night. A`s proposal to pay Rs 100 is done is done with view to obtaining the assent of A not to do something. This is a valid proposal ( negative act/ for not doing) and if it is assented to or accepted by B it is constitute a contract. Eg A is willing to sell his car to B for Rs 1 Lakh. Here A is making an offer to B because he signifies to B his willingness to sell his car with the view of obtaining B`s assent to purchase the car. Eg I am willing to die for my country. Or I am willing to serve you. Are mere statement and not offers as in this case here the intention of the person is not to be bound (legally bind) by it. The person making the proposal is called as proposer (offeror) and the person accepting the proposal is called the offeree. When an offer is accepted it results into contract. An offer that has not been accepted is ineffective & powerless.

Rules regarding a valid contract:1) The offer must contemplate the creation of legal relationship B/w the offeror & the offeree. An offer must be intended to create and be capable of creating legal relationship and not social or moral relation. If the proposal is not intended to create legal relationship it is not offer in the eyes of law. Eg A promised to give B rs 500 as a birthday present on B`s birthday. A failed to fulfill his promise. B wants to file a suit against A for the realization of the said amount. Advise B. B cannot succeed as there was no intention on the part of A to create a legal obligation. Case Law : Balfour v/s Balfour Case Law: Rose & Frank Co V/s Cromoton Bros. 2) The terms of the offer must be definite

PAGE 13 It should not be vague or loosely termed. It should be certain (consensus Ad idem) Eg A wants 100 ml of oil. Here the terms of the offer is not definite it could be 100ml of . cooking oil or hair oil. According to S-29 of thid act, the terms of an offer not certain are void aggrements. Eg A says to B I will sell you my car. A owns 4 cars the offer is not definite or clear in nature.

3) An offer may be expresses or implied. An expresses offer is that is made to the offeror either in writing OR by spoken words. An implied pffer is that which is implied OR understood by the conduct of the offeror A proposal is made in any of the above mentioned manner prescribed

4) Person to whom an offer may be made: a) To a definite person Specific offer Eg A offers to sell his house to B for Rs 100000. This is an offer that is made to B & it is only B who has a right to accept the offer. b) To a definite class of persons- specific offer Eg X puts a notice of reward to any student finding & returning his lost book.This offer is made to a definite class of persons namely the students. c) To the world at large- General offer. d) Eg A advertises in the news papers for a reward to any person finding OR giving information about his missing son.

5) Offer must be communicated:

PAGE NO 14 A person cannot accept an offer if he is unaware of its existence. Unless an offer is not properly communicated there can be no acceptance of it. An acceptance of an offer in ignorance of the offer is no acceptance at all and does not create any legal rights or obligation. Case Law: Lalman V/s Gauri Dutt G sent his servant L in search of her missing nephew. G then later on announced a reward for information concerning the boy in ignorance of any such reward. Subsequently when L came to know of this reward, he claimed it. Held: L was not entitled to the reward as L was ignorant of the offer. Hence the question of acceptance does not arise in this case at all and therefore does not create any legal rights or obligation.

Distinction b/w an offer and an invitation to offer: Every expression of willingness of a person to enter into contract may not be an offer in legal sense. Therefore an offer must be distinguish from an invitation to offer. For examples: Auctions, Quotations of prices, catalogues, advertisements, tenders, shares application or circulars. Distinctions: 1) If the person who makes the statement intends to be bound by it as soon as it Is accepted it is an offer

2) If he intends to do some further act before being bound by it it is an invitation to an offer E.g A
want to build a bungalow on a given plot. He invites people to give their quotation for their service in relation to building the same B, C & D give their quotation respectively. Here A has reserved to do some further act before he binds himself by it. He has the liberty to choose either B or C or D. In the above case A has invited B, C and D to give their offer therefore it is and invitation to an offer and on offer/ 3) When an offer is accepted it results in the creation of an agreement. However when an invitation or an offer is accepted it results into and offer itself.

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An a) b) c) d) e) f) g) h)

offer remains open till :It is rejected It is lapsed (time lapsed) It is accepted By non-acceptance It is revoked Death of the offeror / offeree When the offeror / offeree becomes insane When the offer is withdrawn before it is accepted

When an offer is made which is not accepted, not rejected, not revoked, then after a reasonable period the offer will remain deemed to have come to an end. Eg: An offer for sale of a flat for Rs. 1,00,000/- cannot be accepted after an unreasonable time that is say after a year of the offer.

Communication of an offer: An offer has to be communicated to the offeree without which there would be no valid offer. Any special condition if contained in the offer will be binding upon the offeree. An offer may be communicated expressly OR it may be implied. An offer is said to have communicated when it has come to the knowledge of the offeree.

PAGE NO 16 CONSIDERATION

CONCEPT OF CONSIDERATION :

Consideration in simple term means something in return, price of a promise. Section 2 defines consideration as When at the desire of the promise, the promise, or any other person a) has done, or abstained from doing, or b) does, or abstains from promise, is called a consideration for the promise. From the above definition it is clear that the term consideration is used in the sense of quid pro quo which means something in return. This something may be some benefit, right, interest, profit, or it may be some forbearance or responsibility upon the other party. Thus, generally speaking a contract cannot be thought of without consideration. No consideration no contract is the rule of law. Eg.:X proposes to sell his motor car to Y for Rs. 50,000/-. Y accepts the proposal. Thus, I) for Xs promise to sell his motor car, the consideration is Ys promise to pay Rs. 50,000/- to X, and II) for Ys promise to pay Rs. 50,000/- to X, the consideration is Xs promise to sell his motor car to Y.

LEGASL RULES OF CONSIDERATION : 1. A consideration must move at the desire of the promisor : The basic rule about consideration is that an act, or, forbearance, or some benefit, right, interest, profit constituting consideration, must have been done solely at the desire or request of the promisor, even if the benefit is enjoyed by the third party. It is therefore follows that an act done without the desire or request of the promisor is a voluntary act, which cannot be called a consideration. Again an act done at the request or desire of the third person i.e other than the promisor cannot be good consideration in the eye of law. Eg. 1) A saves Bs house from fire without being asked to do so. A cannot demand payment for his services. 2) A rushes to save Bs good from fire at the request of B. Here is good consideration because A acted at the desire of B. 2. A consideration may be given by the promise or any other person : Under the Indian law, consideration must move from the promise or any other person i.e even the stranger. That means that as long as there is consideration for a promise it is immaterial who has furnished it. But the stranger to consideration will be able to sue only if he is a party to the contract. While under the English Law consideration must move only from the promise or from his agent. If it si given by a third person, i.e other than the promise, it is no consideration. Caselaw: Chinnaya v/s Rammaya Mrs. A by deed of gift, gifted away certain property to her daughter with the direction that the daughter must pay an annuity (allowance) to her maternal uncle. On the same day the daughter executed writing in favour of her uncle agreeing to pay an annuity. Thereafter she refused to honour her promise on the ground that no consideration had passed from her uncle & therefore she was not liable to pay annuity. Held that PAGE NO 17 consideration need not necessarily move from the promisee. It may move from any other person. Hence, her maternal uncle was entitled to receive an annuity.

3. Consideration need not be adequate : Consideration i.e. something in return need not necessarily be equal in value to something given by the other party. The court is not concerned with the adequacy of consideration provided it is of some value in the eyes of law as long as the promisor has given his free consent. Eg. X agrees to sell his motor car worth Rs. 50,000/- for Rs. 500/- to Y. Xs consent to the agreement was free consent. The agreement is a valid contract, not withstanding the inadequacy of the consideration.

4. Consideration must be real and not illusory :

A mere sham(make-believe) consideration one which is only of apparent but not of real value is no consideration, because contract cannot be created on the basis of something for nothing. The consideration must also be competent. Thus an agreement to do something which the promisor is already under a duty to do either under the general law or under an existing contract is no consideration at all ( the performance of an act by the person who is already bound by law to perform the same act either as a public duty or under the existing contractual obligation does not constitutes a consideration for contract). In the following cases the question arises whether the consideration is real or illusory : A) Forbearance to sue B) Compromise of disputed claim C) Performance of pre existing obligation Caselaw: Collins v/s Godfrey X a witness receives summons to appear at trial in a court. Y promised to pay him certain amount as consideration for the loss of time during his attendance at the court. Held the promise was without consideration because X was already under the legal duty imposed by law to appear & give evidence. Eg. If a man promises to discover a treasure by magic, the transaction is void.

5. Consideration must be legal : It must not be illegal, immoral or opposed to public policy i.e every agreement of which the object or consideration is void. Consideration in restraint of trade, marriage, legal proceeding etc is void under section 23.

6. Consideration may be Past, Present or Future : A past consideration is something which the promise has already dome or abstained from doing before the making of an agreement. It is an executed consideration. Past consideration is recognized only under the Indian Contract Act but not under the English Law. Caselaw: Sindha v/s Abraham A a minor received the benefit of certain services by the plaintiff. The plaintiff rendered those services not voluntarily but at the desire of A, the minor. These services were continued even after majority at the desire of A. Subsequently A PAGE NO 18 promised to pay an annuity to the plaintiff. Held the past consideration was a good consideration.

A present consideration is something which the promisee does or abstains from doing simultaneously at the time of making a promise. It is known as an executed consideration. Eg. A goes to a bookseller and buys a book and pays the price on the spot there & then.

A future consideration in one which is promised to be given at a future date or after a stipulated period. It is also called an executory consideration. Eg. R promises to deliver 100 bags of rice to S after a month and S promises to pay the price after 3 months from the date of receipt of goods. The consideration in this case are executory or future.

7. A Stranger to a contract cannot sue upon it : Unless and until there is privy of contract a party cannot sue on a contract. Privity of contract means relationship that subsist between the parties, who have entered into contractual obligations. Thus, if there is a contract between A and B, C cannot enforce it, even though the contract may be for the benefit of C.

However, following are the exception to the above general rule : 1) A beneficiary under the trust has a legal right to sue upon an agreement, even though he is not a party to it, for its enforcement so as to get the trust actually executed for his benefit. 2) An assignee in the case of death or insolvency can sue upon the contract for its enforcement. 3) In the case of marriage settlement or family partition with the provision for a benefit of a third party, he can sue for enforcement of his right. 4) If the promisor acknowledges himself as an agent of the third party, he owes a legal duty towards the third party. 5) A contract made through an agent can be enforced by the principal, provided the agent acts within the scope of his authority. 6) In the case of a third party risk insurance contract, the person who meets with an accident with the vehicle, can enforce the insurance contract though he is not a party to the insurance contract.

EXCEPTION TO THE GENERAL RULE NO CONSIDERATION NO CONTRACT : The general rule of the law is that an agreement without consideration is void. However following are the exceptional cases, in which an agreement without consideration is not void and is enforceable. 1) An agreement made out of Natural love and Affection section 25(1) : If an agreement is made in writing and registered under the law in force, out of natural love and affection between the parties standing in a near relation to each other no consideration is required i.e husband & wife, father & son etc. PAGE NO 19 Eg. X for natural love and affection promises to give his son, Y Rs. 20,000/-, X puts his promise in writing and registers it. This is a contract. Caselaw:Venakatswamy v/s Ragaswamy An elder brother on account of natural love and affection promised to pay the debts of his young brother. The agreement was put in writing and registered. Held : the agreement is valid. 2) An agreement for compensation for Past Voluntary Services section 25(2) : An agreement to compensate wholly or in part a person who has already done voluntarily some services for the promisor or who was legally compelled to do something for the promisor is enforceable at law even though without consideration. Eg. A supports Bs infant son. B promises to pay As expenses in so doing. This is a contract. 3) A promise to pay a Time barred debt section 25(3) : A promise made in writing and signed by the debtor or by his agent who is authorized to sign it to pay wholly or in part a time bared debt, is enforceable in the court of law. The debt must be such of which the creditor might have enforced payment but for the law for the limitation of suits. There must be a promise to pay and not only an acknowledgement of indebtness. Eg. X owes Rs. 10,000/- to Y, but the debt is barred by the limitation Act. X signs a written promise to pay Y a sum of Rs. 5,000/- on account of the time barred debt. This is a contract. 4) An agreement to create an Agency section 185 : No consideration is required to create an agency (S.185). In other words no consideration is necessary for giving a person authority to act as an agent. LAWFUL AND UNLAWFUL CONSIDERATION AND OBJECTS : Section 23 lays down that the consideration or object of an agreement is lawful except in the following five cases : 1) Where the consideration of object is forbidden by law.

An act is forbidden by law when it si punishable under the Indian Penal Code or under any other legislation Eg. A promises to secure for B an employment in the public services and B promises to pay Rs. 1,00,000/- to A. The agreement is void as the consideration being As promise to secure for B an employment in the public services is opposed to public policy and therefore unlawful. 2) If it is of such a nature that if permitted it would defeat the provision of any statutory law, such as the Hindu law or the Mohammadan Law or the Criminal Procedure Code or the Law of Limitation it is Void. Eg.A, a Muslim, contracts to marry B. A already has 4 wives. His contract for marriage with B would be void because it would defeat the provision of the Mohammadan Law, as a Muslim is permitted to have not more than four wives 3) When consideration or object is fraudulent it is void. If an agreement is made with the intention of practicing fraud upon some person it is void agreement. PAGE 20

Eg.A & B agree to distribute between gains acquired by then by fraud. The agreement is void. 4) If it involves or implies injury to a person or property of another by causing criminal or wrongful harm is void. Eg. A promises to pay B a sum of Rs. 1000/-, if B published an article, defamatory / malicious ( insulting or harming ones reputation) in character against C. The agreement is void as it involves an injury to the reputation of Cs. 5) If the Court regards it as immoral or opposed to public policy, it is void. All agreement in violation of the public morals of the time or harmful to the public welfare is void. Agreement created with the object of sexual immorality, illicit cohabitation, prostitution or concubinage etc is void. Caselaw:Alice v/s Clark : It was held that adulterous cohabitation is an offence it cannot be a lawful consideration. Eg. Adultery is not merely immoral but illegal as well as under IPC. Agreement against public policy is difficult to be defined precisely, as it is vague and not always the same. In general it refers to public morals of the time and the established social, economic, cultural & political interests of the society from time to time. The following agreement has been held against public policy. 1) All agreements made between citizens of the enemy countries or where two countries are at war with each other are held void as they are against public policy. 2) All agreements made for maintenance and / or champerty are held to be void as they are against public policy. 3) All agreement made for stifling prosecutions i.e. compounding or compromising prosecutions for non-compounding offences like grievous hurt, criminal breach of trust etc. are void, as they are against public policy. 4) All marriage breakage agreement under which the money is paid as consideration for procuring a marriage are void. 5) All agreement that interfere with administration of justice are against public policy. 6) All agreement which tend to create interest against duty of a public servant are against public policy and therefore void. 7) All agreements for sale of public offers are against public policy.

8) All agreements in restraint of marriage of any person other than a minor. 9) All agreements in restraint of legal proceedings are against public policy. 10) All agreements to default creditors are against public policy. 11) All agreements not bid against one another are void if the object is to defraud a third person or decree holder. 12) All agreement tending to create monopoly are void. 13) All agreements which seek waiver of illegality are void. 14) All agreements in restraint of trade are void. 15) All agreement between pleaders and their clients where the clients to pay to their pleaders money according to the success in the mater in addition to their full fees.

Capacity to contract A: PERSONS WHO ARE COMPETENT TO CONTRACT: SECTION 11

Page no 21

Every person is competent to contract ,who is 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 It is therefore ,follows the incapacity to contract arises from the following three circumstances or conditions , viz i)Age of minority ii)Unsound mind i.e. madness, lunacy, or mental incapacity. iii)Disqualification under any law B: Agreements by Minor WHO IS MINOR A minor is a person who has not attained the age of majority, according to law by which he/she is governed. According to section 3 of Indian Majority act ,1875 a person become major on completion of 18 yrs of age.It means that minor domiciled in India is a person who has not completed of 18 yrs of age.However when a guardian of a minors person and /or property is appointed by the court the age of majority of such minor is 21 yrs. RULES RELATING TO MINORS AGREEMENTS 1) A minors agreement is VOID AB INITIO and inoperative : because a minor has no capacity (S. 11). A minor cannot bind himself by a contract. However under the English law , a contract by minor is voidable Caselaw : Mohori bibee Vs. Dhannodas Ghose Facts : A minor executed a mortgage for Rs. 20000/- out of which she received Rs. 8000/- from the mortgagee. Subsequently , the minor sued for setting aside the mortgages. The mortgagee claimed refund of Rs. 8000/- paid by him Held : that the minors agreement is void ab initio, hence the question of refunding the money did not arises at all. Even if the minor misrepresents his age, at the time of entering into a contract, the concept is void 2) A minor who has entered into a contract cannot ratify it subsequently on attaining the age of majority because minors agreement is void ab initio ( Indra Ramaswamy Vs. Anthiappa Chettiar) 3) A minors property is liable to a person who supplies necessaries of life to a mior (S. 68). The terms necessaries is not defined anywhere in Contract act, 1872, however it means those essential goods/service which is reasonably necessary to a minor, keeping in mind the social status of the minor in society.

4) There is no estoppel against a minor. If a minor misrepresent himself to be a major and induces another person to enter into a contract with him even then he can plead minority as a defense in a law suit on the agreement . Thus no minor can be sued in contract or given in tort for fraud PAGE NO 22 ESTOPPEL : Estoppel is rule of evidence. When a man by words spoken or written or by the conduct induced another to believe that certain state of things exist, he will not be allowed to deny the existence of that state of things. However a minor even though he is falsely represent himself to be major can yet deny the stand and take up the defense of minority. He is not estopped from pleading his minority. The law of estoppel therefore does not apply to minor. 5) Since a minors agreement is void ab initio, it cannot be specially performed 6) As a minor is incapable of contracting debts, he cannot be adjudicated insolvent 7) A minor cannot be member of registered company 8) An agreement by a minors guardian or parent for the benefit of the minor is void unless the guardian himself is competent to discharge the obligations, mentioned in the agreement 9) A person who is standing as surely for a minor cannot be held liable for non performance of the contract by minor 10) If a person, jointly with minor makes promise in favour of the minor ,makes a promise in favour of the another person it is the major and the minor who is not liable for discharging the obligation under the contract. 11) A transfer of mortgages of a property in favour of a minor is void transfer or mortgage.

An exceptions to the Rule that Minors Agreeement is Void ab initio: Following are the exceptions to the general rule that Minors agreement is Void ab initio A minor is therefore can contract in the following cases 1.) Promisee or transferee or Beneficiary : A minor can be promise or a beneficiary in equity though not in law i.e. Law does not regard the minor is incapable of accepting benefit . Caselaw ; sriniwas Vs. Raghavachariar . a promissory note executed in a favour of minor can be executed . a minor is allowed to enforce a contract which is of some benefit to him under which he has to bear no obligation 2.) Agency : A minor can act as an agent and bind his principal by his act but unlike other agents, he is not liable to his principal for his acts 3.) Partnership : A minor cannot enter into a contract of partnership however with the consent of all partners a minor can be admitted to the benefits of the firm 4.) Necessaries : Where the person supplies necessaries to a person incapable of entering into a contract like a minor, according to the minors social status ,is entitled to be reimbursed from the properties for the necessaries supplied to him. However the minor is not personally liable to compensate for necessaries

C;AGREEMENT BY PERSON OF UNSOUND MIND (Ss.11 & 12) What is soundness of mind? A person is said to be of sound mind ,if at the time of making contract is capable of understanding the terms and conditions of the contract and has ability to form a rational judgment as to its effect on his interests

PAGE NO 23 CONTRACTS BY LUNATICS

Section 12: says that a person , who is usually of unsound mind but occasionally of a sound mind may make a contract when he is of sound mind . A person who is usually of sound mind but occasionally of unsound mind may not make acotract when he is of unsound mind Caselaw ; Indersingh Vs. Parmeshwar Singh : Where a person who has an idiot and incapable of understanding the transaction agreed to sell the property worth of Rs. 25,000/- for Rs. 7,000/- only, it was held that the agreement is void as the person was incapable of exercising his own judgments. Eg. A sane man who is delirious from fever or who is so drunk that he cannot understand the terms of contract or form a rational judgment as to its effects on his interest cannot contact whilst such delirious or drunkenness exists

CONTACTS BY DRUNKERDS Contract by drunken person is absolutely void and can not be ratified. In order that contract by drunkard should be void the drunkenness must be so effective and absolute that no rational judgments can be formed by the contracting party. He should be incapable of understanding the nature of the contract and its legal consequences

D. AGREEMENT BY DISQUALIFIED PERSON Disqualification or incompetence to contract arises from political status, corporate status, martial status ,legal status etc.

CONTRACT BY CORPORATION A corporation is an artificial person created by law under the Companies Act or formed Special Act of Legislature . It is competent to contract can not enter into contracts which are ultra vires of the Memorandum of Association . A municipal corporation cannot enter into contract beyond its statutory power.

MARTIAL STATUS A married woman is competent to contract, she can sue or be sued in the court of law. A parda nishia woman is incapable of entering into a contract unless it is established that the contract was explained to and understand by her.

PAGE NO 24 Important Sections to be studied in the Contract Act, 1872: General principles: Sec 1 75 Specific Contract Act: 124- 238

General principles: Sec 1 75

1. Offer: 2 (a) 2. Acceptance: 2(b) 3. Consideration: 2(d) 4. Exception to the rule of consideration: Natural love & affection 25(1) Compensation for past voluntary service 25(2) Promise to pay a time barred debt 25(3) Gift 25 explanation 1 Agency 185

5. Capacity to contract : 10-12 Competent parties 11 Essentials of a valid contract 10 Necessaries to a minor 68 Indian majority Act, 1875 Sec.3 defines minor Person of unsound mind 12

6. Free consent : 13-22 Coercion 15 Undue influence 16 Fraud 17 Misrepresentation 18 Mistake 20-22

7. Void agreements: 23-30 Agreement made by an incompetent persons, e.g. Minor a person of unsound mind. (Sec. 11) Agreement made under mutual mistake as to matter of fact essential to the agreement. ( Sec. 20)

PAGE NO 25

Agreement made under mistake of law not in force in India ( Sec. 21) Agreement, the consideration or the object is which is unlawful. ( Sec. 23) Agreement, the consideration or object of which is unlawful in part. ( Sec.24) Agreement made without consideration. ( Sec. 25) Agreement in restraint of marriage. ( Sec. 26) Agreement in restraint of trade. ( Sec. 27) Agreement in restraint of legal proceeding. ( Sec. 28) Agreement, the meaning of which is uncertain. ( Sec. 29) Agreement by way of wager ( Sec. 30) Agreement contingent on an uncertain future event if the event becomes impossible. ( Sec. 32) Agreement contingent on an impossible event ( Sec. 36) Agreement to do an impossible act. ( Sec.56) Agreement to do an act which subsequently becomes impossible. ( Sec.56)

8. Contingent Contract : 31-36

9. Discharge of Contract : 37-67 By performance 37 By breach 39 By frustration 56 By agreement 62-64 By accord and satisfaction 63 By operation of law.

10. Quasi Contract : 68-72

11. Remedies of Contract Suit for damages 73-75 Damages and penalty in the contract 74

PAGE NO 25 Contingent Contract (Section 31-36) Definition of Contingent Contract. Section 31 of ICA defines contingent contract as a contract to do or not to do something if some event, collateral to such contract happens, or does not happen, as the case may be. CHARECTERISTIC OF A CONTINGENT CONTRACT: 1. Performance of the contract depends upon the happening or non-happening of some future event. 2. The event must be uncertain. 3. Event must be collateral or incidental to the main contract. E.g. A contracts to pay B Rs. 10,000/- if Bs house is burnt. Here the Liability of A arises, only when a particular event takes place. i.e. burning of Bs house. This event is collateral to the main contract. As in this case burning of Bs house is not the performance required from B under the contract nor it is the consideration obtain from B. It is altogether an independent event. E.g. A agrees to deliver 100 bags of rice and B agrees to pay the price afterwards. This is a conditional contract and not a contingent because Bs obligation to pay afterward is part of the promise itself and not a collateral event.

RULES REGARDING CONTINGENT CONTRACT: (Sec. 32-36)

1. Happening of future uncertain event: Unless and until that future uncertain event has
happened the law cannot enforced it. If the event becomes impossible such a contract becomes void. E.g. A agrees to pay B a sum of money if the ship reaches Mumbai dock. The contract is enforceable if the ship reaches he Mumbai dock.

2. Non-happening of the uncertain future event: The contract can be enforceable only when
the happening of that event becomes impossible and not before that. E.g. A agrees to sell his car to B if C dies. The contract cannot be enforced as long as C is alive.

3. When the event is deemed to be impossible : If a contract is contingent upon how a person
will act at an unspecified time, the event shall be considered to became impossible when such a person does anything which is renders it impossible that he should so act within any definite time or otherwise than under further contingencies. E.g. A agrees to pay B a sum of money if B marries C. C marries D the marriage between B and C now will be considered impossible, although it is possible that D may die and that C may afterwards marry B.

4. Happening of an event within a fixed time : A contract becomes enforceable it an event

happens within a fixed period of time, otherwise it becomes void if, at the expiration of the time fixed, such an event has not happened, or if before the time fixed, such event becomes impossible. E.g. A promises to pay B a sum of money, if a certain ship returns within a year. The contract may be enforceable if the ship returns within a year, and becomes void if the ship is burnt or sinks within a year.

PAGE NO 27

1. Non-happening of an event within a fixed time : A contract becomes enforceable upon the
non-happening of an event within a fixed period of time, otherwise it becomes void. It may be enforced by law when the time fixed has expired and such an event has not happened or before the time fixed has expired, if it becomes certain that such event will not happen. E.g. A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced, if the ship does not return within a year or is burnt within a year.

2. Agreement contingent on an impossible event becomes void : An agreement, upon the

happening of an impossible event is void, whether the impossibility of the event is known or not known to the parties to the agreement, at the time when it is made. E.g. A agrees to pay B Rs.10,000/- if two parallel lines should enclose a space. The agreement is void. A agrees to pay B Rs. 1 lakh if B marries As daughter C. C is dead at the time of the agreement. The agreement is void.

Distinction between a Contingent Contract and Wagering Agreement.

Contingent Contract Contingent contracts are not wagering in nature The event may be within the power of one of the parties. The future event is merely collateral or incidental to the main contract. May not contain reciprocal promises. Contingent contract are valid unless and until it is dependent upon an impossible event.

Wagering Agreements Wagering agreements are basically contingent in nature. The uncertain event is beyond the power of both the parties. The future event is the sole determining factor. Consists of reciprocal promises. Wagering agreements are void in nature.

PAGE NO 28 Quasi Contract ( Sec. 68-72 ). Meaning of Quasi - Contract Law requires a person who receives the benefit to pay OR compensate the person giving the benefits even though he receives the benefit without any contract. Such a contract created or constituted by law is called as Quasi contracts. According to Indian Contract Act, if under certain circumstances, a person has received a benefit to which the law regards another person as a better entitled or for which the law considers he should pay to the other person, even though there is no contract between parties. These relationships are termed as Quasi Contracts or also Implied Contracts because they are such obligation which resemble a contract. They are also called as Construction Contracts under the English law. When an obligation resembling those created by contracts have been incurred & not been discharged any person injured by the failure to discharge is entitled to receive compensation from the party in deficit.

CHARACTERISTIC OF A QUASI CONTRACT: 1. The defendant has been enriched by the receipt of benefit. 2. This enriches the defendant at the expenses of the plaintiff. 3. The retention of the enrichment is unjust. Quasi contract is based on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expenses of another.

Types of quasi contracts :

1. Claim for supply of necessities to a person incompetent to contract [Sec.68]: If a

person incapable to contract is supplied with necessities suited to his condition of life by another person then the person who supplies the necessities is entitled to reimbursed from the property of such incompetent person. E.g. : A supplies B a lunatic suitable to his condition of life. A is entitled to reimbursement. Necessities as such are a question of fact & law in each case. It includes articles required to maintain a person in the same stage & the degree of life in which he is living. They are those without which an individual cannot reasonably exists. E.g. : Expense incurred by a person for performing the funeral of the father of a minor is a necessity. Every money advanced for purchase of necessities can be claimed. However the price paid for such supplies must be reasonable.

The incapable person is however not personally liable to pay compensation. Compensation may be claimed from his property. 2. Reimbursement of money paid in which he is interested [ Section 69 ]: A person who is interested in the payment of money that another person is bound by law to pay & therefore pays it is entitled to reimbursement from the person who is bound by law to pay the payment. PAGE NO 29 E.g. : B holds a land on lease granted by A. The revenue is payable by A to the government. But A is in arrears of the same. The government has advertised the sale of the land on account of the failure by A to pay the revenue. Under the law the result of the sale would mean that B would loose his right over the property & therefore in order to prevent the sale B pays the revenue to the government. A is bound to reimburse B with the amount spent by him to save his interest.

3. Obligation of a person to pay for enjoying the benefits out of non gratuitous act
[Section 70 ] : When a person lawfully does anything to another person OR delivers something not intending to do so gratuitously & if the other person enjoys the benefits of the act the latter is bound to compensate the former OR restore the thing so done OR delivered. E.g.: A, a transaction leaves certain goods at the house of B by mistake. B treats the goods as his own. He will be liable to pay for the goods to A. 4. Responsibility of finder of goods [ Section 71]: A person who finds the goods belonging to another & takes them into his custody is subject to the same responsibility as a bailee. Rights of the finder of the goods: a) The finder of the goods is entitled to retain the goods until he receives his lawful charges OR compensation for returning the goods & for the care & preservation of the goods. However he cannot sue for such compensation. He may sue where the owner has advertised a specified reward. b) He is entitled to the possession of the goods till the true owner is found. c) He can sell the goods where i. ii. iii. The goods are of perishable nature The true owner is not found. If true owner if found refuses to pay the charges. Where the lawful charges amounts to more than 2/3 rd of the value of the commodity found.

iv.

Liabilities of the finder of goods : a) He is responsible to take due care of the goods as a man of ordinary prudence would take in respect of his own goods. b) He must with responsible diligence trace the true owner of the goods.

5. Contract between a person to whom money has been paid OR things have been delivered by mistake OR coercion [Section 72] : A person to whom money has been paid OR anything has been delivered by mistake OR under coercion must repay OR return it. A payment made under mistake that is not legally due OR which cannot be enforced when made by a person must be repaid to him. Even taxes paid under the mistake of law are to be repaid. E.g. : A & B jointly owed Rs. 1,000/- to C. A, alone pays the sum to C not knowing that B has already paid Rs.500/- to C. In this case A is entitled to the refund of Rs. 500/- paid by him to C under mistake.

PAGE NO 30

Distinction between a Contract and a Quasi Contract Contract A contract comes into existence out of the will of the parties, expressed with the sole intention of creating an obligation. A contract is an agreement. A contract is characterized by certain essential elements. A contract is a full-fledge contract and is binding. Quasi Contract A quasi contract is an obligation which resembles that created by a contract even when there is no contract between the parties. There is no agreement at all. The essentials for the formation of a contract are absent. A quasi contract is not full-fledged contract. It is an implied contract. It resembles a contract in the sense that the law imposes obligation in quasi contracts similar to obligations arising from a contract.

PAGE NO 31 Bailment ( Section 148) : Bailment is defined as A bailment is the delivery of goods by one person to another for some purpose upon a contract that they shall be returned or otherwise disposed off according to the direction of the person delivering them after the purpose has been accomplished. The person delivering the goods is called as bailor & the person to whom they are delivered is called bailee.The transaction is called bailment. Eg: 1) A delivers a piece of cloth to B a tailor to be stiched into suit.This would amount to bailment. 2) R delivers a radio to S for repairs. 3) A delivers goods to B , a carrier to be transported from Mumbai to Pune. Essential of Bailment : 1) A Contract :

The delivery of goods is upon a contract between the bailer & the bailee. However a person already in possession may become a bailee by a subsequent agreement. Being a contract,it must have all the essential elements of a valid contract. 2) Minimum two parties to the contract: The bailor and the Bailee. Delivery of goods and change of possession: There is a change or transfer of possession of the goods and right to ownership. Change of possession of the goods by delivery from one person to another is essential. However this must be for a temporary period. Mere custody of goods without departing its possession does not constitute bailment. Eg: A servant in custody of goods of his master. This does not involve bailment as the right of possession of the goods is always with the master. The delivery of the goods may be actual or constructive. Actual delivery may be by handing over the goods to the throughthe bailer. Constructive delivery may be by doing anything that has the effect of putting the possession of the goods in the hands of the bailee.

3)

4)

For a specific purpose:. The delivery of the goods in a bailment must be for a specific purpose. When the purpose is accomplished they shall be returned or disposed off according to the direction of the bailer.

5)

Movable property: PAGE NO 32

The bailment of goods can be only in respect of movable properties except money and actionable claim (shares, debentures, promissory note, Cheques etc). Money is not included as a movable property for the purpose of bailment. 6) Return of the specific goods: After the purpose for which the goods had been bailed has been accomplished the bailer must return the goods either to the bailer or to someone according to the directions of the bailer. 7) Delivery of goods: There are two types of delivery of goods that is a) Actual / Physical : Where the goods are physically handed over by the bailor to the bailee. b) Constructive / Symbolic Delivery :Where the goods are in possession of a third party who agrees to hold them on the behalf of the Bailee or where the bailee is already in the possession of the goods on the behalf of the bailor and agrees to hold them on his behalf.Eg. bill of landing, railway receipt etc. Right of the bailer: 1. The return of goods [ Section 160 & 161] The bailer has a right to receive back the goods from the bailee or direct the goods to be delivered to any person as soon as the time for which they were bailed has expired or the purpose for which they were bailed have been accomplished.

If the goods are not returned ,delivered or tendered at the proper time the bailer can claim compensation for any loss or of the goods. 2.Treat the bailment as voidable (Section 153): If the bailed does not act as regards the goods bailed in consistence of the conditions of bailment the contract of the bailment is voidable at the option of the bailer. If the bailer wrongfully uses or disposes the goods the bailer can terminate the bailment and claim rights. 3.Claim for compensation for the wrongful act OR use of the goods by the bailee (Section 154): In case of any wrongful use of the goods by the bailee, the bailer can claim compensation for any damage arising to the goods or out of the wrongful use. 4. To receive the increase of profits from the goods bailed [ Section 163] : In the absence of any contract to the contrary the bailer is entitled to any increase of the profits that may have occurred from the goods bailed. 5. in the case of mixture of goods by the bailee: a) b) Where if the bailee with the consent of the bailer mixes the goods of the bailer with his own goods the bailer can claim proportionate share in the mixed goods. Where if the bailee without the consent of the bailer mixes the goods of the bailer with his own goods & the goods can be separated & devide the bailer can claim expenses of separation & any damage arising out of the mixture. PAGE NO 33 If the bailee without the consent of the bailer mixes the goods of bailer with his own goods& the goods cannot be separated the bailer is entitled to be compensated for the loss of goods. Ex.; A bails 100 kg of pure ghee to B. B without the consent of A, mixes with his 100 kg of Dalda ghee. Duties & liabilities of the bailer 1. Put the bailee in possession of the goods [Section 149]: The bailer should put the bailee in possession of the goods by doing anything which has the effect of putting the bailee in possession. Disclose faults in the goods bailed [ section 150] The bailer is bound to disclose the bailee Faults in the goods bailed of which he is aware Faults that materially interfere with the use of them or expose the bailee to extra ordinary risks If the bailer does not disclose to the bailee the above facts he is responsible for the damages arising from such faults. If the goods delivered are dangerous the facts should be disclosed to the bailee. If the goods are bailed on hire the bailer is responsible for such damages whether he was not aware of such faults in the goods. Eg:A hire a truck from B.The truck is unsafe though b is not aware of it A is injured B is responsible for the injury of A. 3. Repay necessary expenses [Section 158]: Whereby the condition of bailment the goods are to be kept OR to be carried on to have work done upon them by the bailee for the bailer the bailee is to receive no remuneration The bailer shall repay to the bailee necessary expenses incurred by him for the purpose of bailment. 4. Responsibility for any loss due to defect in title [ Section 164] The bailer is responsible to the bailee for any loss which the bailee may sustain (incur) by reason that

c)

2. a) b)

5.

a) The title of the bailer was defective & as such the bailer was not entitled to make the bailment. b) The bailer is not entitled to receive back the goods or give directions regarding them. To take back the goods : The bailer shall take back the goods from the bailee when the purpose is accomplished or after the term of expiry of the bailment. Rights of bailee:-

1.

Right of lien [ Section 170 ] A lien is a right of any person to retain that which is in the possession belonging to another until certain demand of the person in possession is satisfied.In there words a lien means the right to retain the possession of goods or property until the claim is satisfied. PAGE NO 34 General lien : It means the right to retain any goods of another until all the claims of the holder are satisfied. It is a right of retention of goods not only towards the demands arising out of the article in possession but for general balance of account in favour of the holder . General lien is available only to the bankers,policy brokers & attorneys. Particular lien or Specific lien A particular or specific lien means the right to retain the particular goods until the claims arising out of those goods only are satisfied. Particular lien is attached to specific goods for the unpaid price. Where the bailee has in accordance with the purpose of bailment rendered any service involving the exercise of labour of skill in respect of the goods bailed in the absence of the contract to the contrary right to retain such goods until he receives due remuneration or the services he has rendered in respect of the goods. 1. Right to know faults in goods bailed (Section 150): Bailee has right to know the faults in the goods bailed to him of which the bailer is aware and which would materially interfere with the use of the goods and expose him to extraordinary risk. If the bailer does not disclose the bailee is entitled to receive damages arising from such faults.

1) 2)

Claim expenses of bailment [Section 158 ] The bailee has aright to claim expenses incurred by him for bailment. Claim losses from the defect in title for the bailer [section 160 ] If the bailers title to the goods is defective by reason of which of which he was not entitled to make the bailment OR to receive back the goods. The bailee is entitled to compensation for any loss sustained by him on account of the effect. Claim proportionate share in the goods mixed [ section 155 ] If the bailee mixes the goods of the bailer with his own goods with the consent of the bailer the bailee has right to claim the proportionate share in the goods bailed. Wrongful deprivation of the goods [ Section 180 & 181] Id a 3rd person wrongfully deprives the bailee of the use of possession of the goods or does them any injury the bailee is entitled to use such remedies as the owner might have done in similar situation.Either the bailer or the bailee may bring a suit against the 3rd person for such deprivation or injury. Duties & Liabilities of the bailee:

3)

4)

I.
II.

To take resonable care of the goods bailed [ Section 157 ] Unauthorized use of goods bailed [ section 154 ]

If the bailee makes any use of the goods bailed that is not according to the conditions of the contact he is liable to pay compensation to the bailee for the loss OR damage to the goods. III. Return of the goods [Section 160 & 161 ] IV. To deliver any increase of profit accrued on goods [ Section 163 ]In the absence of any contract to the contrary the bailee is bound deliver to the bailer any increase of profits that may have accrued from the goods bailed. Page no 35 Eg: A leaves a cow in the custody of B to be taken care of.The cow while in the custody of B gives birth to a calf B is bound to deliver the cow as well as calf to A. Effect of mixture of bailers goods with the bailee [ Section 156 & 157 ]

V.

Termination of the contract of Bailment. 1. 2. 3. 4. 5. On the realization of the purpose On expiry of specify period By inconsistent use of the goods by the bailee On the death of the bailor or the bailee. On the destruction of the subject matter of bailment.

Pledge Section 173 says that a bailment of goods as security , for payment of a debt or performance of a promise is called pledge. Eg. A borrows a sum of Rs. 500/- from B and keeps his watch as a security for the payment of debt. The bailment of watch is called pledge. The bailor, in this case is called the pawner or the pledger and the bailee is called the pledger / pawnee.

Page no 36 Contract 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 an act is done OR who is represented is called as the principal. The person employed OR who represents is called as the agent. The relation b/w them is called agency. An agent therefore his principal & the third person [ Sec 182 ] .An agent is bound to follow the lawful instruction of his principal. Essentials of agency : The principal must be a competent person [ Sec 183 ] Any person who has attained the age of majority according to the law to which he is subject & who is of a sound mind may employ an agent. This means minor can not appoint an agent because a minors contract is void. Any person can become an agent [ Sec 184] Any person can become n agent but no person who has not attained the age of majority & who is not of a sound mind can become an agent so as to be responsible to the principal according to the provisions in that behalf. The selection therefore states that even a minor OR a person of an unsound mind as an agent is not responsible to the principal therefore the agent who is minor OR a person of an unsound mind can represent the principal before third person& bind the principal by their acts. The agent does not incur any personal liability. The contract of agency is based on the maxim Quit facittalium faut perse meaning he who acts through others acts himself. No consideration is necessary for the creation of an agency [ Sec 185 ] Creation of Agency: Agency is created by a contract b/w the principal & the agent in which the principal authorizes the agent to act on his behalf. This contractual relation b/w the principal & the agent can take place in any of the following ways. 1) Agency by agreement [ Sec 186 & 187 ] The agreement can be expressed OR implied

a) Expressed Agreement ; The authority of the agent may be expressed by writing OR orally OR by a simple agreement The agreement is expressed when it is given by words spoken ORwritten b) Implied Agreement : An authority is said to be implied when it is inferred from the conduct situation OR the relation of the parties OR circumstances of the case by the ordinary course of dealings.

2)

Agency by necessity [ Sec 189 ]When one is compelled to act as an agent of another without the authority of that other such an agency is known as agency by necessity. PAGE NO 37 An agent has an authority in any emergency to do all such acts for the principal for the purpose of protecting of any loss if the act done is such as would be done by person of ordinary prudence in his own case. e.g: 1 the master of ship may borrow money to carry out necessary repairs to the ship. Such an act by the master in the absence of an owner would be binding on the owner (principal). He should act in the interest of the parties concerned. 2. An agency is created b/w a husband & wife i.e. a wife may purchase goods which are necessary & bind the husband for the payment of the same. 3. Agency by estoppels Or holding out [Section 237]: When an agent has without the authority done an act OR has incurred an obligation to a third person on behalf of his principal the principal is bound by the act Or obligation if he has by words OR conduct induced the third person to believe that the act OR obligation were within the scope of the agents authority . In other words when a principal by his words OR conduct induces a third party to believe that a certain person is his agent he is precluded from subsequently denying the facts of agency. Eg B, a servant of A purchase goods from C on credit for A without the authority of A. Later A pays for the goods. He as induced C to believe that B is his agent & therefore will be bound by subsequent purchases mad by B from C for A even if they are made without authority. 4. Agency by operation of law: In a particular firm a partner is an agent of the other partner & of the partnership firm while dealing with 3rd parties. The act of the partner while carrying on the business of the firm in the usual way binds the firm & its partners. This is an implied agency created by the operation of law. 5. Agency by ratification [Section 195 to 200]: Where a person on behalf of another but without his knowledge does an act OR authority the other person may elect to ratify OR to disown such an act. If he ratifies them the same effect will follow as if the act had been done with previous authority [Section 196] The ratification may be expressed OR implied by the conduct of whose behalf the act has been done [Section 197\ e.g: A without the authority buys good for B. Later B sells them to C as his own. Bs conduct implies a ratification of the purchase made by A. By ratification the person becomes an agent with retrospective effect i.e. he becomes an agent from the time he has done the act & not from the time the act has been ratified. Ratification would constitute as if the act was done with the previous permission of the principal.

Rules regarding ratification: PAGE NO 38 1) A person on behalf of another must do the act 2) The act must be done without the knowledge OR the authority of the person on whose behalf the act has been done 3) The person on whose behalf the act has been done must be legally in existence at the time of the act 4) Ratification may be done by expresses terms OR could e implied by the conduct 5) A person whose knowledge of the case is materially defective can make no valid ratification 6) The principal must be competent to ratify both at the time if ratification i.e. the time when the act has been done & also at the time if ratification 7) The ratification must be done within reasonable time 8) The ratification must be communicated 9) Ratification must be of the whole contract and not part of it 10) Ratification should not just a third party to damages Sub Agent A sub-agent is a person employed by and acting under the control of original agent in the business of agency [Section 191] An agent appointed by an original agent would therefore be termed as a subagent. The relation of the subagent to that of the original agent is that of a principal and agent. As a general rule an agent cannot delegate his authority to another. This is based on the maxim "Delegatus non protest deligare" which means a delegate cannot delegate i.e. one who has an authority to anoter therefore an agent cannot lawfully appoint another person to perform the act which he has expressly OR impliedly undertaken to perform personally. However, there are certain exceptions to this rule i.e. when an agent can appoint another person as an agent to act as a subagent 1) A sub agent may be employed by the ordinary custom of the trade e.g. Appointment of sub agents like architects, engineers, lawyers by an agent for the sake of development of land 2) From the nature of the agency a sub agent may be employed e.g. An agent authorized to file OR defend suits may engage a lawyer (sub agent) 3) Where unforeseen emergencies arise necessitating OR compelling the agent to appoint a sub agent it would be allowed 4) The acts of the sub agent are purely ministerial nature like an authority to sign 5) Where circumstances exists to reasonably presume that the parties to the contract originally intended that the authority would be delegated Relation between the principal, agent and sub agent The relation between the principal, agent and sub agent depends upon whether the agent has an authority to appoint sub agent and whether the sub agent has been properly appointed. If the sub agent has been properly appointed the principal is liable for the acts of the sub agent PAGE NO 39 The sub agent is not responsible to the principal because there is no privacy contract between sub agent and the principal. It is only in the case of fraud that the principal may proceed against the sub agent

a) Where the sub agent is not properly appointed When an agent has appointed a person to act as a sub agent without the authority to do so the principal shall not be liable for the acts of the sub agents so employed nor is the sub agent responsible to the principal. The agent is responsible for the acts of such a sub agent both to the principal and to third persons Duties of an agent 1. 2. 3. 4. 5. 6. To conduct the business of the principal under his instructions [Sections 211] To conduct the business with skill and diligence [Section 212] To render proper accounts to the principal [Section 213] To pay sums received for the principal [Section 217 & 218] To communicate with the principal while in difficulty [Section 214] On the death OR insanity of the principal he is bound to protect and preserve the interest of the principal [Section 216] 7. Not to deal with the goods of the principal on his own account [Section 215] 8. Must not earn secret profits [Section 216] 9. No to delegate [Section 190] 10. Liable for the acts of Sub agent [Section 192 & 193] 11. Liable for misrepresentation OR fraud [Section 238] 12. Liable for misconduct [Section *20] Rights of an agent 1. Right to retain [Section 217] The agent may retai out of the sum of the principal all money due to himself in respect of advances made OR expense incurred in conducting the business of the principal He can retain only such sums as in his possession. He cannot retain sums received by him in one business for his remunerations in another business 2. Right to claim the remunerations [Section 219] 3. Right of Lien [Particular Lien] [Section 211] 4. Right of indemnity [Section 222 & 223] 5. Right of compensation [Section 225] 6. To do all lawful things for the purpose of agency [Section 188] 7. In emergency he is entitled to do any act to protect the interest of the principal [ Section 189] 8. To appoint a substitute agent[Section 194] 9. To renounce agency [Section 201] 10. Compensation for pre-matured revocation Duties and Liabilities of a principal 1. 2. 3. 4. To indemnify the agent [Section 222 & 223] To compensate the agent for any injury caused [Section 225] To pay remunerations and dues to the agent [Section217] Misrepresentation OR fraud by an agent [Section 238]

PAGE NO Misrepresentation Or fraud committed by an agent acting in the course of business for his principal has the same effect as if the misrepresentation OR fraud has been committed by the principal. Hence the principal is liable for these acts of the agent to 3rd parties 5. All contracts entered into by the agent with third persons [Section 226] 6. All notices given to the agent [Section 229] 7. Where the principal induces a 3rd party to believe that the agents unauthorized act were authorized [Section 237] Rights of the principal

1. To repudiate the contract [Section 215] Where an agent deals on his own account in the business OR agency, without obtaining the consent of this principal and acquainting him with all material circumstances which has come to the knowledge of the principal. The principal in such cases a. Repudiate the transaction b. Affirm the transaction and claim benefits c. Claim damages for any loss caused to him To claim benefits out of secret profits made by the agent [Section 216] To ratify OR disown the agents act [Section 196] To revoke agents authority [Section 203] To claim for loss in profit [Section 211 & 212] To demand accounts [Section 213] to refuse remunerations when the agent is guilty of misconduct Termination of agency

2. 3. 4. 5. 6. 7.

An agent may be terminated in any of the following ways: 1) By the act of the parties [Section 201] a. By agreement: When both the parties to the contract terminate the agency by way of an agreement b. By Revocation: When the principal revokes the contract of agency c. By renouncing: By renouncing the agency on the part of the agent d. By completion: By the completion OR performance 2) By the operation of law: a. By the death OR insanity of the principal Or the agent b. By the insolvency of the principal 3) By another mode of termination: a. By the flux of time: Where an agency is for a fixed period it is terminated on the expiry of the time whether the purpose for which the agency has been created is accomplished OR not b. By destruction of the subject matter of the contract c. Where the object of the agency becomes unlawful d. When the principal OR the agency becomes an alien enemy

PAGE NO 41

CONTRACT OF IDEMNITY AND GUARANTEE Section 123 define "indemnity" as a contract by which one party promises to save the other from the loss caused to him by the conduct of the promisor himself or by the conduct of any other person. By a contract if indemnity, a security is provided to the promise against any anticipated loss. The promise is protected and assured of being compensated for the loss if any arising out of the contract. The loss must be such as the promisor or indemnifier has taken upon himself to indemnify. e.g. A and B claim certain goods from a Railway Company as rival owners. Party A takes delivery of the goods by agreeing to compensate the railway company against the loss in case Party B turns out to be true owner. There is a contract of indemnity between Party A and Railway Company.

ESSENTIAL REQUIREMENTS OF A CONTRACT OF INDEMNITY

(i) It is a contract and therefore, all the essentials of valid contract must be present in this contract also (ii) There must be two parties: An indemnifier i.e. promisor and an indemnified or indemnity holder i.e. promisee (iii) The loss to a promise is essential. Unless the promisee has suffered loss, he cannot hold the promisor liable on the contract of indemnity (iv) It is a contract to indemnify the promise from the loss arising out of the promisors contractual liability. According to the definition, the loss must have been caused either by the conduct of the promisor himself or by the conduct of any other person (v) The loss caused by events or accidents like death, disability, destruction of fire, cyclone etc. are not covered under this contract (vi) The right to indemnify and obligation or duty to indemnify may result from expressed contract or from implied contract or may be imposed by law (vii) The contract of indemnity may be either against liability or against mere loss or damage. Whether it is against liability or against mere loss or damage depends upon the intention of the parties and the terms and conditions of the contract (viii) The liability under this contract is primary and not secondary or collateral (ix) This contract ensures the benefits the benefit of the person to be indemnified alone and cannot avail of by a third person who has a right of action or claim against the person to be indemnified RIGHT OF INDEMNITY HOLDER (S 125)

1. The indemnity holder has the right to recover all the amages which he may compelled to pay in respect of any matter to which the promise to indemnity applies from the indemnifier All cost that the indemnity holder may be compelled to pay in any suit in instituting or defending it can be claimed from the indemnifier provided that the PAGE NO 42 2. the indemnity holder did not contradict the orders of the promisor and has acted prudently 3. All sums that the indemnity holder may be paid under the terms of any comprise of any suit is recoverable from the indemnifier 4. An indemnity holder can sue the indemnifier for specific performance of the contract of indemnity if he incurs liability that is covered by the contract of indemnity DEFINITION OF CONTRACT OF GUARANTEE Section (126-147)

Section 125 defines "Contract of Guarantee is a contract to perform the promise and discharge the liabilities of a third person incase of this default" The person who gives Guarantee is called the Surety or guarantor. The person in respect of whose default the guarantee is given is called the principal debtor He person who the guarantee is given is called the creditor e.g. S request C to lend Rs. 500 to P and guarantees that if P fails to pay the amount, he will pay. This is a contract of guarantee. S, in this cases is surety, C the creditor and P, the principal debtor.

Essentials of Contract of Guarantee

1. A contract of guarantee is a contract therefore all the essential elements of a valid contract must be present in the contract

2. It is a tripartite agreement i.e. it involves three parties namely the creditor, principal debtor and the guarantor. A contract of Guarantee has three agreements a. An agreement between the creditor and the principal debtor b. An agreement between the creditor and the guarantor c. An agreement between the principal debtor and the guarantor 3. A guarantee may be written or oral 4. There must be a debt existing which should be recoverable There must be a promise oral or written by the surety to pay the debt in case of default committed by the principal debtor 5. The liability of the principal debtor is primary (first liability) and the liability of the surety is secondary 6. The liability of the guarantor is conditional upon the default committed by the PD 7. Relation between the creditor and the surety is fiduciary in nature and therefore the creditor must disclose all the material facts to the surety 8. The liability of the surety must be legally enforceable

PAGE NO 43

Distinguish b/w Contract of Indemnity & Contract of Guarantee:

Sr. No. 1. 2. 3. 4. 5. 6.

Contract of Indemnity There are 2 partied involved in the contract namely the indemnifier & the indemnity holder. There is only 1 agreement. The liability of the indemnifier is primary. The main object of the contract is the reimbursement of loss. (repay to) The liability of the indemnifier arises only on the happening of the contingency; i.e., loss suffered by the indemnity holder. Right to sue the indemnifier can be exercised by the indemnity holder however the indemnifier cannot sue the 3rd party for the loss.

Contract of Guarantee There are 3 partied involved in the contract namely the principal debtor, the creditor & the surety. There are 3 agreements. The liability of the surety is secondary & arises only if the principal debtor defaults. The main object of the contract is surety of performance. The liability or debt is already in the existence & it is only the performance of which that is guaranteed by the surety. The surety if held liable can sue the principal debtor & recover his loss.

Continuing guarantee [Section 129]:

Guarantee

Continuing

Specific

PAGE NO 44 A guarantee that extends to a series of transactions is called as a Continuing guarantee. A guarantee may cover a single or specific transaction or a series (separate & distinct) of transaction is called Specific Guarantee. A guarantee that covers a single transaction is called Single guarantee & one that covers a series of transactions is called a Continuing guarantee. In a specific guarantee the liability of the surety exists only to a single or specific transaction. In a Continuing guarantee the liability is not restricted to a single transaction but extends to a series of transactions. Whether a guarantee is a continuing guarantee or not depends upon the intentions of the parties, language of the guarantee & the position of the parties at the time of the instrument were written. A guarantee for payment of a certain sum of money within a definite time is not a Continuing guarantee. Revocation of Continuing Guarantee: 1. By notice [Section 130]: The surety may at any time revoke a Continuing guarantee by notice to the creditor. A notice of revocation by the surety to the creditor is sufficient to revoke the Continuing guarantee as to the future transactions. Notice by the surety must be clearly & specifically given. The liability of the surety ceases from the day of the service of the notice upon the creditor. A single guarantee cannot be revoked by notice if the liability has already occurred. 2. By death of the surety [Section 131]: In the absence of any contract to the contrary the death of surety operates as a revocation of the Continuing guarantee as regards the future transaction. 3. By discharge of the surety: A Continuing guarantee is also revoked when the surety is discharged in the following ways: a. By variance or variation in the terms of the contract [Section 133]: Any variation made with the consent of the surety in the terms of the contract b/w the principal debtor and creditor discharges the surety as to the subsequent transactions; i.e., any future transactions after the death of the variation.

This is based on the principle that there is also a contract b/w the creditor & surety and the surety & principal debtor which may be affected because of the variation. b. By release or discharge of principal debtor [Section 134]: The surety is discharged by any contract b/w the creditor and principal debtor by which principal debtor is released of his liabilities OR when the principal debtor is discharged by an act OR provision of the creditor, the subsequences of which discharges the principal debtor. e.g.: A contracts to build a house for B, for a fixed price, within a fixed time under the condition that B would supply the raw material for construction. C guarantees the performance of A. B fails to supply the raw material. C is discharged of its liability.

PAGE NO 45 c. By the creditor compounding with principal debtor [Section 135]: A contract b/w the creditor and the principal debtor by which the creditor make a compromise with OR promises to give time to sue OR not sue the principal debtor discharges the surety of his liabilities, unless he has consented to the contract. d. By misrepresentation [Section 142]: When a creditor misrepresent to the surety regarding the material facts, the guarantee is invalid and the surety is discharged. e. By the creditors act OR omission impairing the sureties eventual remedy [Section 139]: If the creditor does any act which is inconsistent with the rights of the surety OR omits to do any act which he is bound to do towards the surety and which takes away the eventual remedy of the surety against the principal debtor than the surety is discharged of his liabilities. e.g.: B contracts to build a ship for C for a certain sum to be paid in installments the work reaches several stages. A becomes a surety of performance of B. C without the knowledge of A prepays to B the last 2 installments. A is discharged of his liabilities by prepayment. f. By the concealment of the material facts [Section 143]. g. By failure of the co-surety to join [Section 144]: Failure on the part of the person to join as surety to the contract where the first surety OR guarantee was given under the expressed condition that the creditor shall not act upon the guarantee until the other person is also joined as a co-surety will discharged a surety of his liabilities. A surety is not-discharged in the following cases:

a) When an agreement is made by the creditor with a 3 rd person to give time to the
principal debtor: Where a contract to give time to the principal debtor is made by the creditor with a 3rd person but not with the principal debtor himself the surety is not discharged. e.g.: A has promised B to repay certain amount within fixed time. C has guaranteed the performance of B. A contracts with B whereby he agrees to give extra time for repayment to B. In such a case C will not be released of his liabilities as a surety. b) Creditors forbearance to sue the principle debtor [Section 137]: Mere forbearance on the part of the creditor to sue the principal debtor OR to enforce any remedy against him does not in the absence of any contract to the contrary discharge the surety. e.g.: B owes C debt guaranteed by A. The debt becomes payable but C does not sue B for a year after the default. This will not discharge the liability of A.

c) By the release of one of the co-sureties [Section 138]: When 2 or more persons guarantee the performance of a debt they are called as joint co-sureties.

PAGE NI 46 When there are co-sureties in a Contract of Guarantee the release by the creditor of one of them does not discharge the others, neither it discharge the surety of so released from his responsibilities towards the other sureties. e.g.: A owes C a debt which is guaranteed by 3 sureties namely B1, B2, B3. C releases of his liabilities. B1 & B2 are not released of their liabilities towards C. Though B3 has been released of his liabilities towards C he is not released of his liabilities towards B1 & B2. Rights of the surety: a) Right of subrogation [Section 140]: Right to surety against the principal debtor where a guarantee debt has become due on the default of the principal debtor to perform a guarantee duty has taken place & the surety is liable to perform. The surety upon the payment or performance is liable & is vested with all his rights which the creditor had against the principal debtor. b) Right of indemnity [Section 145]: The surety has right of indemnity against the principal debtor i.e. the principal debtor is bound to make good any loss suffered by the surety on account of the default by the principal debtor. c) Right to the benefits of the creditor securities [Section 141]: If the principal debtor has given certain securities in addition to the surety the surety will have a right over the securities & if the creditor releases the securities without consent of the surety the surety will be released of his liabilities to the extent of the amount of security. d) Right against co-sureties [Section 146 & 147]: When more than one person promises or discharges the liability of a third person in case of his default is called co-sureties (more than one guarantor in a contract). The co-sureties are jointly and severally liable for the debt. Where more than one person guarantees the repayment of the debt every co-surety is liable to pay the other co-sureties equal share of the debt or equal share of the part which has remained unpaid. Liabilities of the surety: Section 128 says that the liability of the surety is co-extensive with that of the principal debtor which means neither more or less than that of the principal debtor, unless it is otherwise provided by the contract. 1) Surety right to limit his liability. The surety can expressly declare that his guarantee to be limited to a fixed amount. 2) The liability of the surety does not come to an end with the death of the principal debtor. 3) A surety is not liable, where the principal debtor is a minor. 4) A creditor can sue a surety without suing the principal debtor.

PAGE NO 47 VOID AGREEMENT

SECTION 23 TO 30 Meaning of Void Agreement: Void agreements are agreements that are not enforceable by law [Section 2 (g)]. It has no legal status or sanctity. The Indian Contract Act, 1872 has expressly declared the following agreements to be void. 1) Agreement made by an incompetent persons, e.g. Minor, a person of unsound mind. [Section 11]. 2) Agreement made under mutual mistake as to matter of fact essential to the Agreement. [Section 20]. 3) Agreement made under mistake of law not in force in India. [Section 21]. 4) Agreement, the consideration or the object is which is unlawful. [Section 23]. 5) Agreement, the consideration or the object of which is unlawful in part. [Section 24]. 6) Agreement made without consideration. [Section 25]. 7) Agreement in restraint of marriage. [Section 26]. 8) Agreement in restraint of trade. [Section 27]. 9) Agreement in restraint of legal proceeding. [Section 28]. 10) Agreement, the meaning of which is uncertain. [Section 29]. 11) Agreement by way of wager. [Section 30]. 12) Agreement contingent on an uncertain future event if the event becomes impossible. [Section 32]. 13) Agreement contingent on an impossible event. [Section 36]. 14) Agreement to do an impossible act. [Section 56]. 15) Agreement to do an act which subsequently becomes impossible. [Section 56]. Note: Points 1 to6, 10, 13-15 already have been explained and discussed. Please refer your notes for the same. Agreement in Restraint of Marriage [Section 26]: According to sec.26 every agreement in restraint of marriage of any person other than a minor is void. Such an agreement is opposed to public policy. Restraint of marriage means restriction or limitation imposed on an individuals right to marry. But a promise to marry a particular individual does not mean any restraint of marriage hence it is valid agreement. Case law: Lowe V/s. Peers. A promised to marry B only and to pay B a sum of Rs. 2,000/- if he married someone else, A married C. It was held that the agreement was void as it was a restraint of marriage and thus opposed to public policy. Similarly, marriage brokerage contracts are also void. An agreement to procure a husband and wife for payment of money is void. An agreement by parent or a guardian to give minor in marriage for consideration of money is void. Agreement in Restraint of Trade [Section 27]: Section 27 says that every agreement, by which, any one is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent, void. However, following are the three exceptions to the above general rule: PAGE NO 48

1) Goodwill: One who sells the goodwill of a business may agree with the buyer to refrain from
carrying on a similar business within specified local limits so long as the buyer carries on a like business therein. 2) Partnership: a) According to Section 11(2) of the Indian Partnership Act 1932, a partnership contract may provide that a partner shall not carry on any business other than that of the firm while he is a partner. b) A partnership contract may provide that on ceasing to be partner the ceased partner will not carry on the business similar to that of the firm within specified local limit within a reasonable time.

c) Partners may upon or in anticipation of dissolution of the firm may make an agreement that some or all of them not carry out the same business similar to that of the firm within the specified period or within the specified local limits, provided restrictions, imposed are reasonable. 3) Service bond: An agreement of service, by which a person prevent the other from accepting service with any one else, during the term of agreement, is not an agreement in restraint of trade. E.g. A doctor employed in a hospital can be prevented from doing private practice. Agreement in Restraint of Legal Proceeding [Section 28]: Every agreement, by which: a) Any person thereto is restricted absolutely from enforcing his rights under or in respect of any contract by usual legal proceeding in the ordinary tribunals. OR b) This limit the time, within which he may thus enforce his rights, is void to that extent. Exception: 1) An agreement to refer a pending dispute or future disputes to arbitration is valid in law and binding upon the parties thereto. 2) An agreement restricting the rights of the either party to sue within a particular territorial jurisdiction of a court is valid. Agreement made by way of wager [Section 30]: A wager is an agreement between two parties to the effect that if a given uncertain event happens, one person shall pay a certain sum to the other and if the uncertain event does not happen, other person shall pay to the first party. The essence of wager is that one person is to win and the other is to lose upon the determination of an uncertain event. E.g.: R agrees to pay S if there is rain on a particular day otherwise S will pay R the amount. The agreement is void ant illegal. Exception to wager: 1) Prizes for competitions: the purely depends upon the exercise of intelligence and skill. 2) Share market transaction: in which there is an intention to give and take shares are not wagering transaction but the intention to pay the prices difference, the truncation is badla transaction which is wagering in nature. 3) Contract of Insurance. PAGE NO 49 4) Plate, prize or sum of money: above Rs 500/- to be awarded to winner of a horse race is valid.

AGREEMENT AGAINST PUBLICY:

If any agreements conflicts with the morals of the time and contravenes nay will established social, economic and political interest of the give society, it is void as being against public policy. 1) 2) 3) 4) An An An An agreement agreement agreement agreement of trading with an alien enemy. for sale of Public Offices and titles. creating interest opposed to a public duty. for creating interference with Administration of Justice.

5) Agreements for marriage brokerage.

PAGE NO 51 Discharge of Contract: Discharge means termination of contract. By discharge the rights & obligations of parties come to an end. A contract may be discharged in following ways:By agreement or consent By impossibility of performance By lapse of time By operation of law By breach of Contract

By Performance

I. II.

BY BY 1. 2. 3. 4. 5. 6.

PERFORMANCE AGGREEMENT OR CONSENT Novaion Rescission Alteration Remission Waiver Merger

III. BY IMPOSSIBILITY OF PERFOMANCE A) Unknown by the parties B) Supervening impossibilities IV.BY LAPSE OF TIME V. BY OPERATION OF LAW A) Death B) Merger C) Insolvency D) Unauthorized alteration of the terms (without consent of all) VI. BY BREACH OF CONTRAT A) Actual breach B) Anticipatory breach. I.BY PERFORMANCE If both the parties to the contract have preformed what they had agreed to do the contract is discharged. A party is released from the contract where the

PAGE NO-51 performance of the contract is excused under the provisions of this law or any other law. Eg. A delivers the goods to B, whereby B makes the payment of the same. Both the parties have preformed their part of contract.

II.BY AGREEMENT OR CONSENT

A) By express consent B) By implied consent.

1. Novation:- If there is a contract in existences and a new contract is substituted in its place,
either between the same parties or between different parties, there is a novation and the obligation of the old contract is dissolved. When the parties to a contract agree to substitute the existing contract for a new contract, it is called Novation. In cases where there is a novation, the original contract need not be performed. E.g. A owes money to B under a contract. It is agreed between A, B & C that B shall hence forth accept C as his debtor instead of A. the old debts of A to B is at an end and a new debt from C to B is contracted.

2. Remission:- Remission means acceptance of a lesser fulfillment of the promise made. Eg

acceptance of a lesser sum than what was contracted for, in discharge of the whole of the debt.

3. Merger:- Merger takes place when an inferior right accruing to a party under a contract merges
in to a superior right accruing to the same party under the same or some other contract. E.g. P holds a property under a lease. He later buys the property. His right as lessee merges into his right as owner.

4. Waiver:- Waiver takes place when the parties to a contract agree that, they shall no longer be
bound by the contract. This amounts to a mutual abandonment of the rights by the parties to the contract. Consideration is not necessary for waiver. 5. Alteration:- Alteration takes place when one or more terms of the contract is/are altered by the mutual consent of the parties to the contract. The old contract is discharged. 6. Rescission:- Recession of the contract takes place when all or some of the terms of the contract are cancelled. It may occur:a) by the mutual consent of the parties or b) Where one party fails in the performance of his obligation. In such a case, the other party may rescind the contract without the prejudice to his right to claim compensation for the breach of contract.

III.BY IMPOSSSIBILITY OF PERFORMANCE

A) Unknown by the parties:- Where at the time of making the contract both the parties are
ignorant of the impossibility, as in the case of destruction of the subject matter to the ignorance of both the parties, the contract is void on the ground of mutual mistake.

B) Supervening impossibilities:- Impossibility which arises subsequent to the formation of a

contract is called supervening impossibility. If the impossibility is caused by the circumstances beyond the control of the parties, then the parties are discharge from further performance of the obligation arising out from the contract. Cases where the performance of a contract becomes impossible are:a) b) c) d) e) Death of personal incapacity of the promisor Destruction of the subject matter of the contract Change of law. Outbreak of war. Non-existence of a particular state or thin which forms the basis of the contract.

IV.BY LAPSE OF TIME. The Limitation Act 1963 lays down that a contract should be performed within a specified period, called period of limitations. If it is not performed, and no action is taken by the promise within the period of limitation, he is deprived of his remedy at law. In other words, the contract is terminated due to lapse of time.

V.BY OPERATION OF LAW

A. Death:- Where the contract is of a personal nature or where the personal skill or ability of the
promisor is involved the death of the promisor shall discharge the contract.

B. Merger:- Merger takes place when an inferior right accruing to a party under contract mergers
into a superior right accruing to the same party under the same or some other contract. E.g. P holds a property under a lease. He later buys the property. His right a lessee merges into his right as owner. C. Insolvency:- When a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication. D. Unauthorized Alteration of the terms: Where a party makes any material alteration in the contract without the consent of the other party, the other party can avoid the contract.

VI.BY BREACH OF CONTRACT Whenever the promisor refuses to perform or fails to perform the promise it is said to be committing a breach of contract.

A. Actual Breach:- Actual Breach of contract occurs, when at the time of the performance is due,
one party fails or refuses to perform his obligation under the contract OR when during the performance of the contract, on party fails or refuses to his obligation under the contract. B. Anticipatory Breach:- An anticipatory breach of a contract is said to take place when the promisor repudiates the contract even before the date of the performance of the contract. This may be possible where the promisor .

communicates to the promisee before the actual date of the performance of the contract that he does not desire to perform his part of the contract. In such a case the peromisee may treat the repudiation as an immediate breach of the contract & sue the promisor for damage. He may also put an end to the contract. The promisee has an option to treat the communication of the intention of the promisor responsible for non-performance. The disadvantage for the promisee is that the contract is kept alive for the benefit of the promisor that would enable the promisor to fulfill the promise if so advised even after repudiating the same. In case a promisee keeps a contract alive by treat the communication inoperative the result would be. a) The promisor gets a second chance to choose to perform the contract at the agreed fixed time & the promise is bound to accept the same. If the contract is alive & some event happens which may discharge the contract by some operation of law the promisor may take advantage of the changed circumstances

PAGE NO 54 BREACH OF CONTACT

Parties to the contract must perform their liabilities and also enforce their rights. It is only when the breach (failure of performance) is committed by one of the party to the contract that the other party is aggrieved or injured. Law provides remedies to the aggrieved party as follows:-

1. Under Specific Relief Act, 1877:- Any party who fails to actually perform this part in the
contract is said to have committed the breach, therefore the aggrieved party can file a suit for specific performance calling upon the party who has committed the breach to fulfill those specific promises promised in the valid contract.

2. Suit for injunction:- An injunction is an order of the court either directing the party to do
something or prohibiting him from doing something. The order of injunction for either a limited period or it could be permanent injunction.

3. Suit for damages:- The party who is aggrieved is entitled to monetary conpensation and the
discretion lies with the Court Restitution compensation for monetary losses which naturally flows from the breach of the contract. Nominal damages: Damages which occur in the usual course of business of transaction. Special damages: Damages which occurs in the unusual course of business i.e. additional loss. Remote damages: Damages which cannot be measured mental agony or pain. 1. RULE I: Measure of damages in sale of goods act is difference between the contract price and the market price. 2. RULE II: Damages are recoverable when they do not arise in usual course and when they are reasonably contemplated. 3. RULE III: A contract may stipulate penalty in case of failure of contract. Such penalty can be levied. 4. RULE IV: Quantum Meruit: As much earned or deserved. Act is non-gratuitious Where the contract if any discharged, party exercising quantum meruit must not be a defaulter himself but should have performed his part in contract. Quantum meruit could be awarded by measuring the work done or goods supplied as per the prevailing market rate.