Module 2 ils

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MODULE 2



THE CONTRACT ACT 1872

The main object of Contract Act is to introduce

clarity in business transactions.

The law of contracts differs from other branches

of law.

It determines the circumstances in which

promises made by parties to a contract shall be

legally binding on them.



DEFINITIONS…

When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining theassent of that other to such act or abstinence, he is said tomake a PROPOSAL or OFFER

A proposal, when accepted, becomes a PROMISE of theofferer

When a person to whom the proposal is made, signifies his

assent thereto, the PROPOSAL is said to be ACCEPTED

The person making the proposal is called the "PROMISOR",and the person accepting the proposal is called "PROMISEE”



When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or

does or abstains from doing, or promises to do or toabstain from doing, something, such act or abstinenceor promise is called a CONSIDERATION for the

promise;

Every promise and every set of promises, forming theconsideration for each other, is an AGREEMENT;

Promises which form the consideration or part of theconsideration for each other are called RECIPROCAL PROMISES



An agreement enforceable by law is aCONTRACT

Therefore CONTRACT = Agreement +Enforceability by Law.

AGREEMENT = Offer + Acceptance +Enforceability by Law



Section 2(h) defines:

An agreement enforceable by law is acontract.

Therefore there must be :

† An agreement† The agreement should be enforceable by law.



ARE ALL AGREEMENTS A CONTRACT??

All agreements are not contracts.

Only those agreements enforceable by law

are contracts.



AGREEMENT

Every promise and every set of promises, forming

the consideration for each other, is an

AGREEMENT.



CHARACTERISTICS OF AGREEMENT

• An agreement should bemade to more than one

person

Plurality of

persons

• There should be identityof mindsConsensusad-idem



KINDS OF AGREEMENTS

Kinds of Agreements

Valid agreements Invalid agreements



VALID AGREEMENTS

The one which is enforceable by law.

Eg: A contract which is done in par with a legalagreement.

Sale deed.



INVALID AGREEMENTS

Invalid agreements

Void Voidable Unenforceable Illegal



TYPES OF CONTRACT

Validity Mode of Performanceformation



VALIDITY

VOIDABLE CONTRACT: An agreement which is enforceable by law at the option of one or more of the parties thereto, but notat the option of the other or others, is a voidable contract”.

VOID AGREEMENT: An agreement not enforceable by law issaid to be void.” A void agreement does not create any legal rightor obligation. Such agreement is void-ab-initio from the beginning itself.

A contract which ceases to be enforceable by law becomes voidwhen it ceases to be enforceable.” In this case when the contractwas entered into, may be valid and binding on the parties as per law, but subsequently it has become void. E.g., in the case of import contract, the agreement is enforceable, but if subsequentlywar brakes out then the agreement becomes void contract.



ILLEGAL AGREEMENTS: an illegal agreement is one,which transgresses (against) some basic rule of Public Policyor is of criminal in nature or is immoral. ALL ILLEGAL

AGREEMENT IS VOID, BUT ALL VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void betweenthe immediate parties but has its further effect that even thecollateral transactions to it become tinted with illegality. Acollateral transaction is one, which is subsidiary, incidental or auxiliary to the principal contract.

UNENFORCEABLE CONTRACT: An unenforceablecontract is one which cannot be enforced in a court of law

because of some technical defect such as absence of consideration or absence of contract in writing. The parties tothe contract may fulfill their obligations but in the event of

breach of contract the other party cannot enforce it.



MODE OF FORMATION

Express contracts: If the terms of the contract areexpressly agreed upon (whether by words spoken or written) at the time of formation of contract.

Implied contracts: in this case the contract comesinto existence by the acts or conducts of the parties -E.g., Getting into a Public bus.



Quasi contract: strictly speaking quasi contracts are

not contracts. A contract is one, which is entering into

with the consent of the parties to the contract. A quasi

contract is one, which is created by law . It is basedon the principle that “a person shall not be allowed to

enrich himself unjustly at the expense of another.”

Contingent Contract: a type of contract- to do or

not to do something, if some event, collateral to such

contract does not happen

E.g., Mr. A contracts to pay B Rs.20000 if B’s house is burnt.This is a contingent contract.



PERFORMANCE

Executed contract: An executed contract is one in

which both the parties have performed their

respective obligation.

• Executory contract: An executory contract is one

where one or both the parties to the contract have still

to perform their obligations in future. Thus, a contract

which is partially performed or wholly unperformedis termed as executory contract.



Unilateral contract: A unilateral contract is one in

which only one party has to perform his obligation at

the time of the formation of the contract, the other party having fulfilled his obligation at the time o the

contract or before the contract comes into existence.

Bilateral contract: A bilateral contract is one in

which the obligation on both the parties to the

contract is outstanding at the time of the formation of

the contract. Bilateral contracts are also known as contracts with

executory consideration



ESSENTIALS OF A VALID CONTRACT

All agreements are contracts if they are made with: Offer and Acceptance

Intention to create a legal relationship

Lawful Consideration

Capacity of the Parties

Free Consent

Lawful Object

Certainty and Possibility of Performance

Legal formalities

If any of the above is missing, the contract becomes void

E g Mr A has 3 cars He asked Mr B



OFFER AND ACCEPTANCE

There must be minimum two parties to an agreement. I.e. one party making the offer (also called as

offerer/proposer/promisor)

and

the other accepting it (also called asofferee/proposee/promisee/acceptor)

The terms of offer must be definite

Acceptance must be unconditional.

E.g., Mr. A has 3 cars. He asked Mr. B

“are you ready to purchase my car for

Rs. 2 lakhs.



OFFER – MEANING

A person is said to have made a proposal/offer,

when he signifies to another his willingness

to do or to abstain from doing anything,with a view to obtaining the assent of that other to

such act or abstinence



OFFER - KINDS OF OFFER:

Express offer - When offer is made by express

spoken or written words

E.g., When A says to B, “Will you purchase my house

at Chennai for Rs. 3 lakhs. .



Implied offer - An offer may also be implied

from the conduct of the parties or the

circumstances of the case.

E.g., When a transport company runs a bus on a

particular route, there is an implied offer by the transport

co. to carry passengers for a certain fare. The acceptance

of the offer is complete as soon as a passenger boards

the bus.



Specific offer - When an offer is made to a

definite person, it is said to be Specific Offer. It

can be accepted by the person to whom it is

made.

General offer – When an offer is made to the

world at large .

E.g., If Mr. A asks to B, for his blue car for Rs.

2,00,000/-, Mr. C cannot accept the offer.



ESSENTIALS REGARDING OFFER

The offer must be given with an intention to createlegal relationship - A social invitation even if it isaccepted, does not create a legal relationship becauseit is not intended so.

The terms of the offer must be definite: the termsof the offer must be definite and certain and must not

be ambiguous or vague.



Offer must be communicated: an offer to be completemust be communicated to the person to whom the offer ismade. Mere by acting to the terms of the offer withoutknowledge, the offer cannot be treated as accepted. Anacceptance of offer in ignorance of offer is no acceptance

and does not confer any right on the acceptor.



Offer may be conditional: When the offer is

subject to conditions, they must be clearly

communicated to the offeree. If the person

accepts the offer without the knowledge of theconditions the offeror can‟t claim the fulfillment

of conditions. But the conditions are clearly

expressed, then offeree can plead ignorance



Offer must not contain a term that non-

compliance of which may be assumed to

amount to acceptance: the person making theoffer cannot say that if acceptance is not

communicated by a certain time, the offer

would be considered as accepted.

statement of price is not an offer: a mere

declaration of intention or a mere statement of price is not construed as an offer to sell



ACCEPTANCE

When a person to whom the proposal is made,

signifies his assent thereto,

the proposal is said to be accepted.

A proposal, when accepted, becomes a promise

Acceptance may be implied or expressed. In expressacceptance- it could be either expressed in written or spoken , while that given by conduct is termed asimplied acceptance.



LEGAL RULES TO ACCEPTANCE

Unconditional - An acceptance in order to be binding must be absolute/complete and

unconditional. The acceptance must be to all

terms of offer.

Communicated to the offeror

Must be given in the prescribed mode - if the

acceptance is not according to mode

prescribed, or some usual or reasonable, there

is no contract.



Given in a reasonable time - if any time limit is

specified, the acceptance must be given within

that time. If no time limit is specified by the

offeror, then it must be given



Must be given by the parties, to whom the

offer is made - When an offer is made to a

particular person, it can be accepted by him

alone. If it is accepted by another person, there isno valid acceptance

Must be given before the offer lapses or

withdrawn



It cannot precede an offer

Once the offer is rejected it cannot be

accepted by the offeree, unless the offeror

renews the offer

It cannot be implied for the silence - the

acceptance of an offer cannot be implied from

the silence of the offeree, unless the offeree

has, by his previous conduct inducted that hissilence means the acceptance



LAPSE OR TERMINATION OF OFFER

I. By communicating the notice of revocation - Offeror can givenotice of revocation to offeree but before the acceptance iscomplete as against him.

e.g., At an auction sale, A makes the highest bid of B‟s goods.He withdraws the bid before the fall of the hammer. The offer

has been revoked before its acceptance.

II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed time is over, otherwise after the reasonable time.

e.g., A seller on Thursday offered wool to a purchaser and gavehim 3 days time to accept. The purchaser accepted the offer onMonday, by that time A had sold the wool. Held, the offer hadlapsed.



III. By non-fulfillment by the offeree of a conditionprecedent to acceptance

E.g., S a seller agrees to sell certain goods subjectto the condition that B, the buyer, pays the agreed

price before a certain date. S had sold the wool. If

before the date buyer did not pay then the offer isrevoked.

IV. By death or insanity of the offeror provided the

offeree comes to know it before acceptance. But If heaccepts an offer in ignorance of the death or insanityof the offeror, the acceptance is valid.



V. By counter offer - When offer is accepted with somemodifications in the terms of the offer, then it amounts to counter offer. By putting counter offer the original offer comes to an end.

E.g. A asks B, Are you ready to purchase my flat for 10 lakhs.B asks A, Are you ready to sell it to Rs. 8 lakhs. B‟s question to

A is a counter offer. E.g. An offeree agreed to accept half the quantity of goods

offered by the offeror on the terms and conditions as wouldhave applied to the full contract. Held, there was no contract asthere was a counter offer to the offer



VI. If an offer is not accepted according tothe prescribed or usual mode provided the

offeror gives notice to the offeree within areasonable time that the acceptance is notaccording to the prescribed or usual mode. If the offeror keeps quiet, he is deemed to haveaccepted the acceptance.

VII. If the law is changed. An offer comes toan end if the law is changed so as to make the

contract contemplated by the offer illegal or incapable of performance.



VIII. Destruction of subject matter: - „A‟ offers „B‟his cow for Rs. 4500/- In the mean time, the cow dies

due to snake bite. The offer is lapsed.

Rejection of offer: - An offeree may reject the offer.Once he does that he cannot subsequently accept it.

Rejection of the offer may be express or implied.Express Rejection: The offeree may reject the

offer expressly, i.e., by words written or spoken.This is effective only when notice of rejectionreaches the offeror.

Implied Rejection: Rejection of the offer isimplied by law- where the offeree makes acounter-offer or where the offeree gives aconditional acceptance



REVOCATION OF OFFER

Revocation means

taking back or

Withdrawal or

cancellation.



COMMUNICATION OF REVOCATION OF

OFFER

The communication of a revocation is complete -

as against the person who makes it (i.e. for the

revoking party), when it is put into a course of

transmission to the person to whom it is made, soas to be out of the power of the person who

makes it; (i.e. when the letter of revocation is

posted.)



(For the opposite party) as against the personto whom it is made, when it comes to his

knowledge (when the letter reaches him)

E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is

posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on

19th May. The telegram reaches B on 21st May. The revocation is complete as

against A when the telegram is dispatched, i.e., on 19th May. It is complete asagainst B when he receives it, i.e., on 21st May.

TIME FOR REVOCATION OF PROPOSALS



TIME FOR REVOCATION OF PROPOSALS

AND ACCEPTANCE

A proposal may be revoked at any time before the

communication of its acceptance is complete as

against the proposer, but not afterwards.

Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. theletter is posted on the 1st of the month. Mr. B accepts the proposal by a

letter sent by post on the 4th. The letter reaches Mr. A on the 6th.



An acceptance may be revoked at any time before

the communication of the acceptance is complete

as against the acceptor, but not afterwards.

Mr. A may revoke his offer at any time before Mr. B posts his letter of

acceptance, i.e., 4th but not afterwardsMr. B may revoke his acceptance at any time before the letter of acceptance

reaches Mr. A, i.e., 6th, but not afterwards



LOSS OF LETTER OF ACCEPTANCE IN

POSTAL TRANSIT:

Acceptance is complete as against the offeror as soonas the letter of acceptance is posted.

The contract is complete even if the letter of

acceptance goes astray or is lost through an accidentin the post.

But in order to bind the offeror, it is important that theletter of acceptance is correctly addressed, adequatelystamped and posted,

Otherwise the acceptance is not complete



REVOCATION HOW MADE

A proposal is revoked –

(1) by the communication of notice of revocation bythe Proposer to the other party;

(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, withoutcommunication of the acceptance;



(3) by the failure of the acceptor to fulfill a

condition precedent to acceptance; or

(4) by the death or insanity of the Proposer, if thefact of the death or insanity comes to theknowledge of the acceptor before acceptance.




Intention to create legal relationship

When two parties enter into an agreement their

intention must be to create a legal relationship

between them.



If there is no such intention to create legal

relationship , there can be no contract between

the parties.

In Balfour v Balfour,a husband agreed to pay $20 to

his wife every month while he was abroad. On

failure of pay the wife sued him for the recovery of

amount. It was held that it was a domestic agreement

which do not intend to create legal relations




Lawful Consideration

÷ When a party to an agreement promises to do

something, he must get something in return.

÷ This “something in return” is defined asconsideration.

E.g., A agrees to sell his car to B for Rs.15000/-, for A’s promise the

consideration is Rs.15000/- and for B’s promise the consideration is the car.



LEGAL RULES TO CONSIDERATION

Move at the desire or request of promisor - An actconstituting consideration must have been done at thedesire or request of the promisor, if it is done at thedesire of the third party or without the desire of the

promisor it will not be a good consideration.

It may move from the Promisee or any otherPerson – This means that as long as there is a

consideration for a promise it is immaterial who hasfurnished it. But a stranger to the consideration will be able to sue only if he is a party to the contract



It may consist of an Act or Abstinence (meansnot doing something)

Consideration can be past, present or future

E.g., A borrows Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. Bis now about to file a suit and A agrees now to pay a higher rate of interest. B agrees for

not filing a suit. This forbearance is a valid consideration.

It need not be adequate - Consideration as said “something in



It need not be adequate Consideration as said something inreturn” and something this something in return need not beequal in value to “Something given”. The law requires that thecontract must be supported by consideration and not theadequate consideration.

Must be real & not illusionary - There is no realconsideration in the following cases: Physical impossibility: A promises to put life into B‟s dead

wife on the consideration of Rs.999. A‟s promise is physically impossible to perform.

Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn promise todischarge A from the liability. This is legally impossible,

because C cannot discharge A from the debt due to B. Uncertain consideration: A engages B for doing certain

work and promises to pay a “Reasonable some”. There isno recognized method of ascertaining the “ReasonableSome”. The promise is unenforceable due to uncertainty.

Should not be illegal - the consideration given for an



Should not be illegal - the consideration given for an

agreement must not be unlawful. A consideration to

the contract must not be against Public Policy,

Immoral and illegal

It must be something which the promisor is not already

bound to do: a promise to do what one is already bound to do,

either by general law or under an existing contract, is not a

good consideration for the new promise, since it adds nothingto the pre-existing legal or contractual obligation.

CL: There was a promise to pay to the vakil an additional sum if the suit was

successful. Held, the promise was void for the want of consideration. The vakil

was under a pre-existing contractual obligation to render the best of his services

under the original contract. (Ramachandra Chintaman vs. Kalu Raju)

C O O S O



EXCEPTION TO THE RULES OF

CONSIDERATION

Where an agreement is expressed in writing andregistered under the law for the time being in force for

the registration of the documents and is made on

account of natural law and affection between parties

standing to the near relation to each other, it is

enforceable even if there is no consideration

Eg: On a birthday party of A, his father Mr. B promises to give him Rs.

10000/-. Mr. B puts his promise in writing and gets it registered it. It is a

valid consideration.



Promise to pay a time-bared debt: A promise to paya time-bared debt by the debtor is enforceable

provided it is made in writing and signed by the person to be charged therewith or by his agent. Thedebt must be such “of which the creditor might haveenforced payment but for the law for the limitation of suits”

Completed gifts

Compensation for the past voluntary services

Charitable subscription



Compensation for the past voluntary services - is

binding.

E.g. P f inds S‟s purse and gives it to him. S

promises to give P Rs. 100/- This is a

contract i.e., A promise, to compensate,wholly or in part, a person, who has already

voluntarily done something for the

promisor, is enforceable, even though

without consideration



DOCTRINE OF PRIVITY OF CONTRACT

Meaning:

The general rule is that only the parties to acontract can sue and be sued upon the contract.

In other words, if a person is not a party to thecontract (i.e., a stranger to contract), he cannot sue.

It implies the mutuality of will and legal bonding between the parties.

It refers to the relationship between the parties whohave entered into a contract.

Stranger to Contract V. Stranger to Consideration

A who is indebted to B, sells his property to C. C promises to pay off the debt to B. When C fails to pay; B has no right to sue C, because heis a stranger to contract.

CAPACITY TO CONTRACT



CAPACITY TO CONTRACT

Every person is competent to contract who is of: the age of majority according to the law to which he is

subject, sound mind, and is not disqualified from contracting by any law to which he

is subject. Section 11 declares the following persons to be incompetent to

contract. Minors Persons of unsound mind Persons disqualified by any law for the time being in force. Idiot

Lunatic with unsound mind Alien enemy Convicts

MINOR



MINOR

According to Section 3 of the Indian Majorities Act,1875, a minor is a person who has not completedeighteen years of age. In the following two cases, heattains majority after twenty one years of age:

Where a guardian of a minor‟s person or propertyhas been appointed under the guardian and wardsAct, 1890, or

Where the superintendence of a minor‟s propertyis assumed to be court of wards.



The rules governing minor‟s agreements are based on twofundamental rules:

The first rule is that the law protects minors‟ against their owninexperience and against the possible improper designs of

those more experienced.

The second rule is that, in pursuing the above object, the lawshould not cause unnecessary hardship to person who dealswith minors.

Legal rules of Minors:



g

An agreement with minor is void- ab-initio

A minor mortgaged his house in favour of a money lender to secure aloan of Rs.20, 000/- Subsequently the minor sued for setting a side

the mortgage, stating that he was underage when he executed the

mortgage. Held, the mortgage was void and, therefore, it was

cancelled. Further the money lender requested for the repayment of

the amount advanced to the minor as part of the consideration for the

mortgage was also not accepted (Mohiri Bibi vs. Dharamodas Ghose)



He can be a Promisee or a Beneficiary: incapacity of minor to enter into a contract means incapacity to bind

him-self by a contract. There is nothing that debars him

from being a beneficiary. Such contract may be enforced

at the option of the minor and not the other party.

Case law: M, Aged 17, agreed to purchase a second hand scooter for Rs.5000/-

from N. he paid Rs.200/- as advance and agreed to pay the balance the next day

and collect the scooter. When he came with the balance money next day, N told himthat he has changed his mind and offered to return the advance. N cannot avoid the

contract, though M may, if he likes. (Sharafat Ali v/s Noor Mohd)



He can always plead minority: even if he has, by

misrepresenting his age, induced the other party tocontract with him, he cannot be sued either in contract or

in tort for fraud because if the injured party were allowed

to sue for fraud, it would be giving him an indirect

means of enforcing the void agreement.

Case law: M, A minor, borrowed Rs.5000/- from L and executed aPromissory note in favour of L. after attaining the majority, he

executed another Promissory note in settlement of the first note. Thesecond Promissory note is void for the want of consideration.(Indran Rama Swamy v/s Anthiappa Chettiar)



If he has received any benefit under a void

agreement, he cannot be asked to compensate or payfor it: section 65 which provides for restitution in case of

agreements discovered to be void does not apply to the

minor

Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable torefund the loan not only that, even his mortgaged property cannot be made liableto pay the debt.



There can be no specific performance of the

contract with minor, since agreement with minor

is void-ab-inito: Can‟t file a suit for specific non

performance. But if a contract is entered into on his

behalf by his Parents / guardian then the same can beenforced by or against the minor provided the

contract is :

(a) within the scope of the authority of the Parent /

guardian, and

(b) for the benefit of the minor.



He cannot enter into a contract of Partnership: aminor can be admitted as a beneficiary of Profits of aPartnership firm already in existence, with theconsent of all the existing Partners. But he cannot beadmitted as a Partner

He can be an agent: an agent is merely connectinglink between Principal and third Party. The movementthe Principal and third party comes into contract witheach other, the agent drops out with any personal

liability, hence a minor can act as agent.

His Parents / guardian are / is not liable for



His Parents / guardian are / is not liable forthe contracts of the minor: the exemption tothis rule is that where the minor act as an agent

of his Parent / guardian, the Parent / guardianshall be liable for his acts.

He cannot be adjudged as an insolvent.

He cannot be a shareholder in a Company.

He can be member in a Trade union: APerson who attained the age of 14 years can beadmitted as a member.



Minor’s liability for necessaries: a minor is liable to pay out of his property for “necessaries” supplied to himor to anyone whom he is legally bound to support(Section 68). The claim arises not out of contract but outof what are called Quasi-Contracts. Again it is only the

property of the minor, which is liable for meeting the

liability arising out of such contracts. He is not personally liable.

Case law: G, a minor, entered into a contract with R, a noted billiards player, topay him certain sum of money to learn the game and play matches with him duringhis world tour. R spent time and money in making arrangements for billiardsmatches. Held, G was liable to pay as the agreement was one for necessaries as

it was in effect “for teaching, instructions and employment and was reasonableand for the benefit of the infant.” (Robarts v/s Gray)

UNSOUND MIND



UNSOUND MIND

A person is said to be of sound mind for the proposeof making a contract, if, at the time when he makes it, he is capable of

understanding the terms of the contract andTo form a rational judgment as to its effect upon

his interest.

Therefore, if both of the above is not satisfied, then isa person suffering of unsound mind.Eg: IdiotsLunaticsDrunkards

A person, who is usually of unsound mind, butoccasionally of sound mind, may make a contractwhen he is of sound mind

FEW OTHER PERSONS ARE ALSO PROHIBITED



FEW OTHER PERSONS ARE ALSO PROHIBITED

TO ENTER INTO A CONTRACT.

Alien Enemy.

Insolvent.

Foreign Sovereigns, their diplomatic staff and

accredited representatives of the foreign states.

Corporations (beyond MOA and AOA).

Convicts



FREE CONSENT

According to section 14, an agreement can be treatedas a valid contract when the consent of the parties are

free and not under any undue influence, fear or

pressure etc. The consent of the parties must be

genuine and free consent.

A consent is said to be free when it is not



A consent is said to be free when it is not caused by

(i) coercion, (ii) undue influence

(iii) fraud,

(iv) misrepresentation, or (v) mistake.

If the contract made by any of the above four reason,at the option of the aggrieved party it could be treated

as a void contract. If the agreement induced bymutual mistake the agreement would stand void or canceled

Vitiating elements in

Contract



VITIATING ELEMENTS IN A CONTRACT

Coercion Coercion" is the

committing, or threatening to commit, anyact/crime or

the unlawful detaining, or threatening to detain,any property or any act

forbidden by the Indian Penal Code 1860

with the intention of causing any person to enter into an agreement.

Threat to commit Suicide amount to Coercion

E.g. A threatens B to shoot himif he does not release him fromdebt which A owes to B. This is

coercion.

UNDUE INFLUENCE



UNDUE INFLUENCE

When a special kind of relationship exists between the parties

such that one party is in a position to exercise undue influenceover the other.

And such party uses his position to dominate the will of the

other party to obtain an unfair advantage over the other party

Essentials:

There must be two persons.

The relationship should satisfy between them.

One should dominate the other.

There must be unfair advantage.

It is a moral character

Some of the e amples here nd e infl ence



Some of the examples where undue influenceexists between the following relations:

Superior and subordinate Principal and agent

Doctor and Patent

Promoter and Company Solicitor and Client

Father and Son

Teacher and Student Spiritual guru and devotee

Case Laws: A Spiritualguru induced his devoteeto gift him the whole of his

property in turn of a promise of salvation of thedevotee. Held, the consentof the devotee was givenunder the undue influence.(Mannu Singh v/s Umadat

Panday)

FRAUD



FRAUD

Essentials:

There must be a representation There must be two persons

There must be an active concealment of the fact

The person making the representation does not believe it to be true

There must be an intention of the proposer or the promiser to deceive the other person

The other person must have relied upon the representationand must have been deceived and suffered loss

The representation must have been made before the

Commencement of the contract The representation must relate to a material fact which

exists now or existed in the past

MISREPRESENTATION



MISREPRESENTATION

Essentials:

It must be representation of material fact

It must be made before the conclusion of the

contract

It must be wrong but the person making it believes

it to be true

It must have been made without any intention of

deceiving the other Person It need not be made directly made to the Plaintiff

MISTAKE



Mistake may be defined as an erroneous belief aboutsomething.

It may be of two kinds

mistake of law Mistake of own country

Mistake of foreign country

mistake of fact A bilateral mistake

Unilateral mistake



MISTAKE OF LAW

Mistake of law of the country is no excuse, is awell-settled rule of law. A Party to the contract

cannot be allowed to ask for relief on the ground

that the act was done in ignorance of law.



Mistake of law of a foreign country: such

mistake is treated as mistake of fact, and such

agreement is treated as void

E.g. A & B purchases and sells a plot of land of 195 sq.mts. in

Dublin, believing that a house can be constructed over it.Actually in Dublin house cannot be constructed on a plot lessthan 200 sq.mts. The contract can be avoided.

MISTAKE OF FACT

E.g. A person was induced to sign a gift deed (will),on the presentation that it was a power attorney.

E X t h d i t d hi lf Y



MISTAKE OF FACT

Unilateral Mistake - Unilateral means only one partyto a contract is under a mistake of fact. A contract can

be avoided on the ground of unilateral mistake, if it can be shown that mistake was caused by Fraud or misrepresentation.

Types:A unilateral mistake may be-

Mistake as to the nature of transactionMistake as to identity of party

E.g. X goes to a shop and introduces himself as Y

and purchases some goods on credit. The contract is

void.

Bilateral Mistake - Where both the parties to an



Bilateral Mistake Where both the parties to anagreement are under a mistake as to a matter of fact, theagreement is void.

TypesMistake as to existence of subject-matter

Identity of subject-matter

Title of subject-matter

Quality of subject-matter Quantity of subject-matter

Price of subject-matter

E.g. A agrees to buy a horse from B at certain price.The horse was dead at the time of bargain and neither

party was aware about the fact. Held, the agreement isvoid.

LAWFUL OBJECTS



The object of the agreement must not be illegal or

unlawful

It is forbidden by law - An act is forbidden by law

when it is punishable under the criminal law or is

prohibited by special legislation or regulations made

by the competent authority.

is of such nature that, if permitted it would defeatthe provisions of any law



→ is fraudulent - an agreement if any made for

any fraudulent purpose is void. Thus, an

agreement with an intention of fraud of

creditors with a view to defeat their right is

void.

→ of involves or implies, injury to the person or property of another - injury means wrong,

harm or damage. Person means ones body,

property includes both movable andimmovable.



the Court regards it as immoral - anagreement, the consideration or object of which is immoral, e.g., agreement betweenhusband and wife for future separation, isunlawful (Sumitra Devi v/s Sulekha Kundu)

opposed to public policy – An agreementwhich is injurious to the general public or isagainst the interest of the society



™Agreement not declared void or illegal:Agreements which have been expressly

declared void or illegal by law are not

enforceable at law; hence does not constitute avalid contract.

™CERTAINTY AND POSSIBILITY OF



CERTAINTY AND POSSIBILITY OF

PERFORMANCE

The terms of agreement must be certain and

not vague. If it is not possible to ascertain the

meaning of the agreement, it is not enforceable at

law. Also, agreements to do impossible actscannot be enforced

LEGAL FORMALITIES



LEGAL FORMALITIES

A contract may be oral or in writing. If, however,the law requires for a particular contract, it should

comply with all the legal formalities as to writing,

registration and attestation.

IE



IE;

The contract act does not insist that the agreementmust be in writing, it could be oral. But, in somecases the law strictly insist that the agreement must bein writing like agreement to sell immovable property

must be in writing and should be registered under theTransfer of Property Act, 1882. These agreement arevalid only when they fulfill the formalities likewriting, registration, signing by the both the parties

are completed. If these legal formalities are notcompleted, it cannot be treated as a valid contract.

PERFORMANCE OF A CONTRACT



PERFORMANCE OF A CONTRACT

It means fulfilling of their respective legal obligationscreated under the contract by both the promisor and

promisee.

Performance by all the parties of the respective

obligations is the normal and natural mode of

discharging or terminating a contract.

Illustrations



(a) A promises to deliver goods to B on a certain day

on payment of Rs. 1,000. A dies before that day. A‟s

representatives are bound to deliver the goods to B,

and B is bound to pay Rs. 1,000 to A‟s

representatives.

(b) A promises to paint a picture for B by a certainday, at a certain price. A dies before the day. The

contract cannot be enforced either by A‟s

representative or by B [section 37]. The performance

can be „actual performance‟ or „attempted performance‟, i.e. „offer to perform‟.



Section 38 specifies that where a promisor hasmade an offer of performance to the promisee,

and the offer has not been accepted, the promisor

is not responsible for non-performance, nor doeshe thereby lose his rights under the contract.

WHO CAN DEMAND PERFORMANCE???



WHO CAN DEMAND PERFORMANCE???

It is only the promisee who can demand

performance of the promise under a contract .

A person cannot acquire rights under

a contract to which he is not a party.

( T.G Venkataraman vs. State of

Madras)

BY WHOM CONTRACTS MUST BE



PERFORMED ???

By the promisor himself

By the promisor or his agent

By the legal representatives

Performance by a third person





PERFORMED ???

Section 40 specifies:

That if it appears from the nature of the case that it

was the intention of the parties to any contract that

any promise contained in it should be performed by

the promisor himself, such promise must be

performed by the promisor.

In other cases, the promisor or his representativesmay employ a competent person to perform it.



Obligations of Parties to Contracts

Actual Performance: If the promisor makes an

offer of performance to the promisee and the offer

to perform is accepted by the promisee.

Attempted Performance: If the promisor makes an

offer of performance to the promisee; but the offer

to perform is not accepted by the promisee (also

called offer to perform or tender).

PERSONS LIABLE FOR, AND ENTITLED TO,



, ,

PERFORMANCE (SEC 40 & SEC 42)

Persons liable for Performance:

Promisor

Agent of Promisor Any of the several joint

promisors

Legal Representatives

of a Promisor

Persons entitled toPerformance:

Promisee

Agent of PromiseeAll the joint promisees

together

Legal Representatives

of a Promisee

PERFORMANCE OF JOINT PROMISE



PERFORMANCE OF JOINT PROMISE

Jointly and severally liable unless otherwise provided

Claim from other joint promisors, if he is

compelled to perform the whole promise or makes a default in performance of his promise

Where one of the joint promisors is released,

other joint promisors shall continue to be liable.

DISCHARGE OF A CONTRACT



DISCHARGE OF A CONTRACT

Discharge of a contract means termination of thecontractual relations between the parties to a

contract.

A contract is said to be discharged when the

rights and obligations of the parties under the

contract come to an end.

MODES OF DISCHARGE OF CONTRACT



MODES OF DISCHARGE OF CONTRACT

Discharge of

contract

Impossibility

Agreement

Performance

Breach

Operation of

law

Lapse of time

DISCHARGE BY PERFORMANCE



(a) By Actual Performance: A contract is said to be

discharged by actual per-formance when the parties to

the contract perform their promises in accordance

with the terms of the contract.

(b) By Attempted Performance or Tender: A

contract is said to be discharged by attempted

performance when the promisor has made an offer of

performance to the promisee but it has not beenaccepted by the promisee.

DISCHARGE BY MUTUAL AGREEMENT



Since a contract is created by mutualagreement, it can also be discharged by mutualagreement.

A contract can be discharged by mutual

agreement in any of the following ways: a) Novation

b) Rescission

c) Alteration d) Remission

Novation [Section 62]

N i h b i i f



Novation means the substitution of a new contractfor the original contract. Such a new contract may be

either between the same parties or between different parties. The consideration for the new contract is thedischarge of the original contract.

Example i) A owes money to B under a contract. It is agreed

between A, Band C that B shall henceforth accept Cas his debtor, instead of A. The old debt of A to B no

longer exists and a new debt from C to B has beencontracted.

Rescission [Section 62]



Rescission means cancellation of the contract by any party or all the parties to a contract.

Example

X promises Y to sell and deliver 100 Bales of cotton on 1st Oct. at his godown and Y

promises to pay for goods on 1st Nov. X does

not supply the goods. Y may rescind thecontract.

Alteration [Section 62]



Alteration means a change in the terms of a contractwith mutual consent of the parties.

Alteration discharges the original contract and createsa new contract. However, parties to the new contractmust not change.

Example

X promises to sell and deliver 100 bales of cotton on1st Oct. and Y promises to pay for goods on 1st Nov.Afterwards, X and Y mutually decide that the goodsshall be delivered in five equal installments at Z‟sgodown. Here, original contract has been dischargedand a new contract has come into effect.

Remission [Section 63]



Remission means acceptance by the promisee of a‟

lesser fulfillment of the promise made.

According to Section 63, “Every promisee may

dispense with or remit, wholly or in part, the

performance of the promise made to him, or may

extend the time for such performance, or may acceptinstead of it any satisfaction which he thinks fit.”

Example

i) A promises to paint a picture for B. B afterwards

forbids him to do so. A is no longer bound to perform

the promise.

DISCHARGE BY OPERATION OF LAW



DISCHARGE BY OPERATION OF LAW

A contract may be discharged by operation of

law in the following cases:

→ By Death of the Promisor

→ By Insolvency

→ By Unauthorised Material Alteration→ By the Identity of Promisor and Promisee



Example:

X draws a bill receivable on Y who accepts

the same. X endorses the bill in favour of Z

who in turn endorses in favour of Y. Here, Y is

both promisor and promisee and hence theother parties are discharged.

DISCHARGE BY IMPOSSIBILITY OF



PERFORMANCE

The effects of impossibility of the performance of a contract may be discussed under the following

two heads:

(a) Effects of Initial Impossibility

(b) Effects of Supervening Impossibility



Effects of Initial Impossibility [Section 56]

Initial impossibility means the

impossibility existing at the time of making the

contract. The effects of initial impossibility are

as under.

Case:♪ Where both the promisor and promisee know about the initial

i ibili



impossibility.

Effect:

♪ Such agreement is void ab initio.

♪ Example X undertakes to put life into the dead wife of Y. This

agreement is void.

Case:

♪ Where both the promisor and promisee do not know about the

initial impossibility

Effect:

♪ Such agreement is void on the ground of mutual mistake.

♪ Example X agrees to sell his horse to Y. Unknown to both the

parties; the horse was dead at the time of making the

agreement. This agreement is void.

Case:

Wh h i l k b h i i i l



♪ Where the promisor alone knows about the initial

impossibility

Effect:

♪ Such promisor must compensate for any loss which

such promisee sustains through the nonperformance

of the promise.♪ Example A contracts to marry B, being already

married to C, and being forbidden by the law to

which he is subject to practise polygamy. A must

make compensation to B for the loss caused to her bythe non-performance of his promise.



Effects of Supervening Impossibility [Section56] Supervening impossibility means

impossibility which does not exist at the time of

making the contract but which arisessubsequently after the formation of the contract.

Case:

Where an act becomes impossible after the contract is



Where an act becomes impossible after the contract is

made.

Effect:

The contract to do such an act becomes void when the

act becomes impossible.

Case: Where an act becomes unlawful by reason of some

event beyond the control of promisor.

Effect:

The contract to do such an act becomes void when the

act becomes unlawful.

Case:



Where the promisor alone knows about the

impossibility.

Effect:

Such promisor must compensate the promiseefor any loss which such promisee might have

suffered on account of non-performance of the

promise.

Case:



Where an agreement is discovered to be void

or where a contract becomes void. Effect:

Any person who has received any benefit

under such agreement or contract is bound torestore it or to make compensation for it, to the

person from whom he received it. [Section 65]

Example: X contracts to sing for Y at a concertfor Rs 1,000, which is paid in advance. X is

too ill to sing. X must refund Rs 1,000 to Y.

DISCHARGE BY LAPSE OF TIME



A contract is discharged if it is not performed or

enforced within a specified period, called period of limitation. The Limitation Act, 1963 has prescribed

the different periods for different contracts.

E.g: Period of limitation for exercising right to

recover a debt is 3 years, and to recover an

immovable property is 12 years. The contractual

parties cannot exercise their rights after the expiry of period of limitation.

DISCHARGE BY BREACH OF

CONTRACT



CONTRACT

A contract is said to be discharged by breach of contract if any party to the contract refuses or

fails to perform his part of the contract or by his

act makes it impossible to perform his obligationunder the contract.

A breach of contract may occur in the following two

ways:



ways:

Anticipatory Breach of Contract: Anticipatory

breach of contract occurs when party declares hisintention of not performing the contract before the

performance is due.

Actual Breach of Contract :Actual breach of

contract occurs in the following two ways:

(i) On Due Date of Performance: If any party to a

contract refuses or fails to perform his part of the

contract at the time fixed for performance, it is calledan actual breach of contract on due date of

performance.



During the Course of Performance: If any

party has performed a part of the contract and

then refuses or fails to perform the remaining

part of the contract, it is called an actual breachof contract during the course of performance.

Remedies for Breach



Remedies for Breach

Remedies

Damages

Recission Restitution Specific

Performance

Injunction Quantum

merui t

Anton Pi l ler

order

Common law Equitable

remedies

DAMAGES



Main purpose of damages is to enable the innocent

party to receive MONETARY COMPENSATION. Damages are a common law remedy and awarded

as of right.

They are calculated on the basis of looking at whatthe position of the plaintiff would have been if the

contract had been properly performed.

They are assessed on a once and for all basis at the

date of breach.

DAMAGES Steps in determining an award of damages



p g g

DAMAGES



Causation

Is there a causal connection between the breach and theloss suffered?

The plaintiff must show that the breach of contract bythe defendant was the cause of the loss.

The general test used by the courts is the same as thatused in assessing damages in general – the „but for‟ test

CASE: Alexander v Cambridge Credit Corporation Ltd (in rec) (1987)

Note the „but for‟ test is not an exclusive test, e.g. there

is the „common sense‟ test, which was approved in: CASE: Chappel v Hart (1998)

DAMAGES



Remoteness

The loss or injury must not be too remote, i.e. lossesmust be reasonably related to the contract.

Hadley v Baxendale (1854) indicates 2 types of loss arerecoverable:

loss arising from the breach in the usual or normal

course of things; and

loss arising from special or exceptionalcircumstances where it can be shown that thedefendant had actual knowledge of the plaintiff‟s

needsCASE: Victoria Laundry v Newman Industries [1949)

CASE: Commonwealth of Australia v Amann Aviation Pty Ltd (1991)

DAMAGES



G S Damages

The aim of damages is to put the injured party back as close to the position they would have been in had the breach never occurred.

Damages are recoverable for provable or economic loss as well as:

expectation losses

reliance losses

CASE: Commonwealth of Australia v Amann Aviation Pty Ltd (1991)

distress and disappointment

CASE: Jarvis v Swan Tours [1972]

CASE: Jackson v Horizon Holidays [1975]

CASE: Baltic Shipping Co Ltd v Dillon (1993) physical injury

CASE: Grant v Australian Knitting Mills Ltd [1936]

Difficulty in calculation is not a ground for disallowing a claim

CASE: Howe v Teefy (1927)

DAMAGES



Mitigation of damages

The plaintiff must take reasonable steps to minimise

or mitigate their loss. Failure to do so can result in areduction of damages.

CASE: Payzu v Saunders [1919]

Mitigation is a question of fact and the onus of proof is on the defendant.

Damages



Damages

Damages

Nominal(No actual loss suffered)

Ordinary

(Usual remedy)

Exemplary

(punitive)

General Special

TYPES OF DAMAGES



The type of damages that will be awarded will be

determined by the seriousness of the breach and whether the contract has specified the amount of damages to be

paid in the event of breach:

nominal damages – plaintiff‟s legal rights have beeninfringed but they have suffered no actual loss

CASE: Charter v Sullivan [1957]

ordinary damages – loss suffered by the plaintiff as aresult of the breach and can be either general or special

damages exemplary damages – punitive and may be awarded for

non-economic loss

CASE: Jackson v Horizon Holidays [1975]

TYPES OF DAMAGES



Liquidated damages

Awarded where a plaintiff is able to sue for aspecified sum, which must be a genuine or bona fide

pre-estimate of the actual loss that will flow fromthe breach.

Unliquidated damages

Awarded where an injured party has no fixed sum inmind and leaves the court to decide the amount.

Penalty

A threat to ensure performance and not enforceable

because they are not a genuine pre-estimate of thedamage that will result from the breach

CASE: Dunlop Pneumatic Tyre Co v New Garageand Motor Co Ltd [1915]

Equitable Remedies



q

Equitable

Remedies

Recission Restitution SpecificPerformance

Injunction Quantum merui t

Anton Piller Order

These are discretionary remedies at equity and are onlygranted where damages are not an adequate remedy.

EQUITABLE REMEDIES



Rescission

A right available to an injured party.

Does not require the intervention of the court.

Entitles the injured party to set the contract aside and isonly available for breach of a condition.

Substantial restoration must be possible as the injured

party is restored to their pre-contractual position.

The right to rescission is lost if the injured party:

continues with the transaction;

fails to act or act within a reasonable time; or if an innocent third party acquires an interest in the

subject matter.

EQUITABLE REMEDIES



Restitution

Is based on the concept of unjust enrichment andsometimes referred to as quasi-contract.

The plaintiff must establish:

the benefit was at the plaintiff‟s expense;

it would be unjust to allow the defendant to keep

that benefit or enrichment; andCASE: Pavey & Matthews Pty Ltd v Paul (1987)

the defendant must obtain a benefit or enrichment;

the defendant has no defences to rely upon.

EQUITABLE REMEDIES



Q

Restitution can be used if:

the defendant has received a sum of money from the plaintiff and there has been a total failure of consideration or a mistake of fact;

CASE: McCormack v Commonwealth (1984)

under a mistake of law;CASE: David Securities Pty Ltd v Commonwealth Bank (1992)

under duress or compulsion.

Restitution makes use of the doctrine of quantum meruit

CASE: Pavey & Matthews Pty Ltd v Paul (1987)

CASE: Planche v Colburn (1831)

CASE: Sumpter v Hedges [1898]

EQUITABLE REMEDIES



Specific Performance

A remedy compelling performance.

It is only granted at the court‟s discretion where thecourt can supervise the implementation of thecontract.

It is not available in contracts involving personal

services because the court is unable to adequatelysupervise the task

CASE: Ryan v Mutual Tontine Westminster Chambers Assoc [1893]

EQUITABLE REMEDIES



Q

Injunction

It is a restraining order which prevents a person from

breaking a contract.

It is a discretionary remedy and aims at enforcing

negative promises.

It normally cannot be used where it would achieve the

same result as specific performance.

EQUITABLE REMEDIES

Mareva Injunction



Mareva Injunction

Prevents the defendant from removing assets from

the court‟s jurisdiction. CASE: Mareva Compania Naviera SA v International Bulk Carriers SA, The Mareva [1975]

Anton Piller Order Prevents a defendant from disposing of any evidence

before trial.

CASE: Anton Piller KG v Manufacturing Processes Ltd [1976]

Quantum Meruit

Arises where there has been part-performance, andonly where it can be implied that payment would bemade.

STATUTES OF LIMITATIONS



An injured party can loose their right to an action unlessthey act within a certain time period.

The statutes of limitations of the States and Territories

determine the time limits within which an injured partymust take action.

Prevents actions remaining open indefinitely.

VOID AGREEMENTS



Agreements by incompetent parties Agreements under mutual mistake of fact material to the

agreement

Agreement with unlawful consideration or object – (a)immoral & illegal agreements (b) agreements opposed to

public policy

Agreements unlawful in part

Agreements without consideration

Agreements in restraint of marriage

Agreements in restraint of legal proceedings

Agreements which are uncertain and ambiguous

Agreement by way of wager or wagering agreements

Agreements to do impossible acts

WAGERING AGREEMENTS



Definition:Agreement between two parties

One promises to pay money or money‟s worth

On happening of some uncertain event

In consideration of other party‟s promise to pay

If that event does or does not happen

Example: P and Q enter into an agreementthat if Australia‟s team wins the test match,

P will pay Rs. 100 and if it loses Q will pay

Rs. 100 to P

BAILMENT, BAILOR AND BAILEE



Bailment is

The delivery of goods, by one person to another, for some purpose,

Upon a contract that they shall, when the purpose is accomplished,

Be returned or otherwise disposed of,

According to the instructions of the person delivering them. (Section

148)

Bailor

is the person delivering the goods

Bailee is the person to whom the goods are delivered.

ESSENTIALS OF BAILMENT



ContractDelivery of the Goods – Delivery of

possession of goods by Bailor to Bailee

Possession (not ownership) is transferred

Modes of Delivery

Purpose (goods must be returned after aspecific purpose is accomplished)

Consideration (generally in the form of money payment)

DUTIES OF THE BAILOR



Disclose faults in goods (Sec 150) Bear Expenses (Sec 158)

Indemnify(secure in respect of harm) Bailee (Sec

159 & Sec 164) Receipt of Goods back on termination of

bailment

DUTIES OF BAILEE (OR) RIGHTS OF BAILOR



Care of Goods (Sec 153)

To act consistently with the terms (Sec 153)

Compensation for damage to goods (Sec 154)

Not to mix goods bailed with others

With bailor‟s consent (Sec 155) Without bailor‟s consent

Return of the goods bailed (Sec 160)

Compensation for failure to return (Sec 161)

Increase or profit from goods bailed (Sec 163)

Delivery of goods to Joint Bailors (Sec 165)

RIGHTS OF BAILEE



Enforcement of Bailor‟s duties Delivery of goods to Joint Bailors

Delivery of goods when Bailor‟s title is

defective (Sec 166) Right of Lien (Secs 170 & 171)

Wrongful deprivation of goods (Secs 180 &

181)

PLEDGE



Pledge is a Bailment of goods as security for payment of a debt or performance of a promise

Pawnor is the Bailor of such goods

Pawnee is the Bailee of the goods Eg., A borrows Rs.200 from B and keeps his

watch as security for payment of the debt, the

bailment of watch is a pledge.

ESSENTIAL ELEMENTS OF A CONTRACT OF

PLEDGE



PLEDGE

Delivery of Goods (may be actual or constructive)

Security

Goods – Only goods can be pledged. Goodsincludes Shares, Documents, Promissory Notes,

Bills of Exchange or Valuable things. However,

money i.e., currency notes, cannot be pledged.

RIGHTS OF A PAWNEE/PLEDGEE



Right of Retainer (Sec 173) Retainer for subsequent advances (Sec 174)

Reimbursement of Expenses (Sec 175)

Rights in case of default by Pawnor (Sec 176) Suit

Retention/Sale of Goods

Surplus/Deficit on Sale

No Notice Right against true owner (Sec 178A)

RIGHTS OF A PAWNOR



To get back goods To redeem goods before sale (Sec 177)

Right to Notice of Sale

Goods in proper condition

PLEDGE V. BAILMENT



PledgePurpose: specific

Sale of goods:

Pledgee has a right of sale of pledged on

default of pawnor

Use of goods: No

right

BailmentPurpose: other

purposes like repairs,

safe custody, etc.,

Sale of goods: No right

Use of goods: Can use

as per the terms of the

contract

LAW OF AGENCY



Definitions (Sec 182)

Agent Is a person employed

To do any act for another, or

To represent another in dealings with

third partiesPrincipal

Is the person

For whom such act is done, or Who is so represented

WHO CAN APPOINT AGENT (SEC 183)



Any person whoHas attained the age of majority

and

Is of sound mind,

can appoint another person as his

agent to act on his behalf with an authority to

bind him.

WHO MAY BECOME AGENT (SEC 184)



As between Principal and the third party, any person can become an Agent.

Even a person who

Has not attained majority; or Is of unsound mind, can become an agent of another.

ESSENTIALS OF A CONTRACT OF AGENCY



Test for Agency Rules as to Agency (Maxim: qui facit per

alium facit per se)

Elements of Agency Intention

Express/Implied Agreement

Consideration not necessary

Capacity to employ agent

Capacity to be employed as agent

KINDS OF AGENTS



Based on AuthorityUniversal Agent

General Agent

Special Agent Based on Nature of Work

Commercial or Mercantile Agents

Non-mercantile Agents

DUTIES OF AN AGENT/RIGHTS OF THE

PRINCIPAL

The Principal instructed his agents to deliver goods only against cashbut agent delivered them on credit. Held Agent was liable for the pricewhich the purchaser failed to pay (Paul Bier V. Chottalal)

A, an agent for sale of goods, having authority to sell on credit, sells toB on credit, without making proper and usual enquiries as to his

l B t th ti f h l i i l t A t k



To act as per Principal‟s directions (Sec 211) Skill and diligence (Sec 212)

Render proper Accounts (Sec 213)

Communicate with Principal (Sec 214) Not to deal on his own account (Secs 215 & 216)

Pay all sums received (Sec 218)

No remuneration for business misconducted (Sec220)

solvency. B, at the time of such sale is insolvent. A must makecompensation to his principal in respect of any loss thereby sustained.

A employs B to recover Rs. 1 lac from C. Through B’s misconduct themoney is not recovered from C. B is not entitled to remuneration for hisservices, and shall make good the loss sustained.

CONTD.,



Not to make secret profits Not to disclose information

Upon termination of agency (Sec 209)

Not to delegate authority (Sec 190)

Liable to pay damages

RIGHTS OF AN AGENT/DUTIES OF THE

PRINCIPAL



Right of Retainer (Sec 217) Right to Remuneration (Secs 219 & 220)

Right of Lien (hold property to recover debt Sec

221) Right to be indemnified (Secs 222, 223, & 224)

Right to compensation (Sec 225)

Right of stoppage in transit Liability of Principal inducing others (Sec 237)

MODE OF CREATION OF AGENCY

A residing in Delhi and has a house at Kolkata. He appoints Bin Kolkata, by a Power of Attorney, as a caretaker of hishouse

A owns a shop in Noida but lives in Delhi He visits the shop



Express Agreement Implied Agreement

Agency by Estoppel

Agency by Holding OutAgency in case of Necessity

Agency by Ratification

By operation of Law

house. A owns a shop in Noida but lives in Delhi. He visits the shopoccasionally which is managed by B. B usually orders from C in A’sname for the shop, and pays them out of A’s funds with A’s knowledge.B has an implied authority from A to order goods from C in his name for the shop.

P consigns goods to N with instructions not to sell below a fixed price. Jenters into an agreement with N (who also does not indicate the reserveprice) for the purchase of entire lot at a sum below reserve price. P keepsquiet. P is stopped from later denying that N did not have the authority tosell below the reserve price.

P allows his servant A to buy goods for him on credit from C and pays for them regularly. On one occasion, P pays A cash to purchase goods. Apurchases goods on credit and pockets the money. C can recover the pricefrom P since through previous dealings, P has held out A as his Agent.

* Partners are considered as Agents of each other and also of the Firm.* The management of a Company is considered to act as an Agents of the Company.

Meaning: When a person does some act on behalf of another withoutsuch other’s knowledge, the act may be ratified(to approve or sanctionor confirm) or disown by the other person. When he opts to ratify thesame, he is bound by the acts as if he had expressly authorised theperson to do the act on his behalf (Sec 196).

A without authority, buys goods, for B. Later B sells them to C on his ownaccount; B’s conduct implies a ratification of purchase made for him by A.

* Agent may have to sell goods instantly if it is of perishable nature andcannot withstand until further instructions from Principal.

* A horse sent by rail was not taken delivery at the destination. The stationmaster has to feed the horse. The Station master becomes an Agent bynecessity and hence the owner shall compensate him.

CONDITIONS FOR A RELATIONSHIP TO BE

AN AGENCY BY NECESSITY:



Agent should neither be in a position nor have anyopportunity to communicate with his Principal within the

time available.

Actual and definite commercial necessity to act

promptly.

Acted bonafide and for the benefit of his Principal.

Adopted the most reasonable and practicable cause.

Possession of the goods belonging to his principal andwhich are subject of contract.

TERMINATION OF AGENCY By Act of Parties

Agreement (mutual agreement)



g ( g )Revocation by Principal thro noticeRenunciation by Agent thro reasonable notice

By Operation of LawCompletion of Business Impossibility of performance

Expiry of fixed period of time Insanity or death of Principal or AgentDestruction of subject matter Insolvency of Principal

Termination of Sub-agent‟s authority Dissolution of a Company

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