Legal Aspects-contract Act

7/31/2019 Legal Aspects-contract Act

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The law of contract is the most importantbranch of Mercantile Law.

Without such a law it would be difficult, if notimpossible, to carry on any trade or businessin a smooth manner.

The law of contract is applicable not only tobusiness but also to all day-to-day personaldealings.

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Before learning the meaning of the term 'Law' youmust know as to why we need law.

No civilized society can exist without law. It isrequired for the preservation of peace and

orderliness in every society. Without law, no person will care for others and

their dealings may not materialize.

With the growth of society and the concept of

welfare state, it became necessary to regulate theconduct of people and protect their property andcontractual rights.

Hence, each country enacted laws suited to itsvarious needs and the value system it cherished.

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DEFINE LAW

Law is a rule of civil conduct, prescribed bythe supreme power of stale, commanding whatis right and prohibiting what is wrong." -----

-- .

'Law is the body of principles recognised andapplied by the state in the administrator of

justice."

-

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Mercantile law or commercial law is not aseparate branch of law.

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SOURCES OF MERCANTILE LAW

Law

SOURCES

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Our laws are based primarily on the Englishlaws which developed through customs andusages of Merchants or traders in England,These customs and usages governed these

merchants in their dealings with each other.This law is also known as 'Common Law'.

As a matter of fact, it is an unwritten lawbased on customs, usages and precedents.

The most important part of mercantile law,namely, the Law of Contracts, is still a part ofCommon Law in England.

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LAW:

The Acts passed by the Indian Legislature arethe main source of 1ndian mercantile law.

The important Acts passed by the IndianLegislature are the Indian Contract Act 1872,

The Negotiable Instruments Act Essentials of aContract 1881, The Sale of Goods Act 1930,The Indian Partnership Act 1932, TheCompanies Act 1956, and so on

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The past judicial decisions of courts are anotherimportant source of law. They are generallyfollowed by the courts while deciding similar casesbefore them.

The past decisions have persuasive and guidingvalue.

Wherever the law is silent on a point, the judge hasto decide the case according to the principle ofequity, justice and good conscience.

The decisions of English courts are also frequentlyreferred to as precedents in deciding various casesand for interpreting the Indian Statutes.

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The customs and usages of particular trade areyet another important source of Indianmercantile law.

They play an important role in regulating the

dealings between the merchants of that trade.But it is necessary that such customs or usagesmust be widely known, reasonable, constantand must not be inconsistent with the law, The

Indian Contract Act recognises this fact byproviding that "nothing contained therein shallaffect any usage or custom of trade.

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Broadly speaking, a contract is an agreement made

between two or more persons to do or to abstain fromdoing a particular act. A contract invariably creates alegal obligation between the parties by which certainrights are given to one party and a corresponding dutyis imposed on the other party. A contract has beendefined by different authorities in various ways. Some ofthe important definitionsare as follows:

A contract is an agreement, creating and defining the obligationsbetween parties.

A contract is an agreement enforceable at law made between two

or more persons by which rights are acquired by one or more toacts or forbearance on the part of others.

Every agreement and promise enforceable at law is a contract

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ACONTRACTESSENTIALLYCONSISTSOFTWOELEMENTS:

an agreementits enforceability

by law

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Section 2(e)of the Contract Act definesagreement as

In this context a promise refer to a proposal(offer) which has been accepted.

For example, Ramesh offers to sell his ,scooterfor Rs. 8,000 to Shyam. Shyam accepts thisoffer. It becomes a promise and treated as an

agreement between Ramesh and Shyam. In other words, an agreement consists of an

offer by one party and its acceptance by theother.

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offer

acceptance

AGREEMENT

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DIFFERENTIATIONBETWEEN :

AGREEMENT

Offer and its acceptance

constitute an Agreement

May not create a legal

obligation

Every agreement need not

be a contract.

Agreement is not

concluded and binding onconcerned parties.

CONTRACT

enforceability of an

agreement constitute a

contract

creates a legal obligation

All contracts are

agreements

Contract is concluded and

binding on concerned

parties.

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contract

On the basis

of creation

On the basis

of execution

On the basisof

enforceability.

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A contract may be

(i) made in writing or by word of mouth

or

(ii) inferred from the conduct of theparties or circumstances of the case.

The first category of contract is termed as' and the second as

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EXPRESSCONTRACT

An express contract is one where the terms areclearly stated in words, spoken or written.

For example,

A wrote a letter to B stating offer to sellmy car for Rs. 30,000 to you", B accepts theoffer by letter sent to A. This is an expresscontract.

Similarly, when A asks a scooter mechanicto repair his scooter and the mechanic agrees,it is an express contract made orally by spokenwords.

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IMPLIEDCONTRACT

A contract may be created by the conduct or actsof parties (and not by their words spoken orwritten). It may result from a continuing course ofconduct of the parties.

For example,

where a coolie in uniform carries the luggageof A to be carried out of railway station withoutbeing asked by A to do so and A allows it, the lawimplies that has agreed to pay for the services ofthe coolie. This is a case of an implied contract

between A and the coolie.Similarly, when boards a BMTC bus, an

implied contract comes into being. is bound topay the prescribed fare.

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EXECUTED CONTRACTS:

It is a contract where both the parties havefulfilled their respective obligations under thecontract.

For example,

A agrees to sell his book to B for Rs. 30. Adelivers the book to B and B pays Rs. 30 toIt is an executed contract.

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EXECUTORY CONTRACTS:

It is a contract where both the parties to thecontract have still to perform their respectiveobligations.

For example,

A agrees to sell a book to B for Rs. 30. If thebook has not been delivered by A and B has notpaid the price. the contract is executory.

A contract may sometimes be partly executed andpartly executory. It happens where only one of theparties has performed his obligation.

In the example given above, if A has deliveredthe book to B but B has not paid the price. thecontract is executed as to A and executory as to B.

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the basis of execution, a contract can alsobe classified as unilateral or bilateral.

is one in which onlyone party has to perform his obligation, theother party had fulfilled his part of theobligation at the time of the contract itself. For

example, A buys a ticket from the conductorand is waiting in the queue for the bus. Acontract is created as soon as the ticket ispurchased. The other party is now to provide abus wherein he could travel.

A is one in which theobligations on the part of both the parties areoutstanding at the time of the formation of thecontract.

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CONTRACT

VALID

contract

VOID

Contract

VOIDABLE

contract

ILLEGAL

contact

UNENFORCEABLE

contract

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VALID CONTRACT:

A contract which satisfies all the conditionsprescribed by law is a valid contract. If one ormore of these elements is/are missing, thecontract is either void, voidable, illegal orunenforceable.

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VOID CONTRACT:

According to Section 2 (

It is a contract without any legal effects and is anullity.

A contract may become void due to impossibilityof performance, change of law or some otherreasons. Section 2(g) says that an

In the case of void agreement no contract comesinto existence. Such an agreement confers no

rights on any person and creates no obligations. Itis void i.e., from the very beginning.

A void agreement never matures into a contract, itis void from the very beginning.

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VOIDABLE CONTRACT:

According to Section of the Contract Act,

Thus, a voidable contract is one which can beset aside or repudiated at the option of theaggrieved party. Until it is set aside or avoided

by the party entitled to do so, it remains avalid contract.

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DISTINCTION BETWEEN:

VOID CONTRACT

It is void from the very beginning.A contract is void if any essential

element of a valid contract (other

than free consent) is missing.

It cannot be enforced by any

party.

Third party does not acquire anyrights.

Question of damages does not

arise

VOIDABLE CONTRACT

It remains valid till it isrepudiated by the aggrieved

party.

A contract is voidable if the

consent of a party is not free.

If the aggrieved party so decides,

the contract may continue to bevalid and enforceable.

An innocent party in good faith

and for consideration acquires

good title before the contract is

avoided.

If it is not avoided within a

reasonable time it may become

valid.

The aggrieved party can also

claim damages.

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ILLEGALORUNLAWFULCONTRACT:

The word illegal' means contrary to law. You know thatcontract is an agreement enforceable by law andtherefore, it cannot be illegal. It is only the agreementwhich can be termed as illegal or unlawful. Hence, it ismore appropriate to use the term 'illegal agreement' inplace of 'illegal contract'.

An 'illegal agreement' is one which has been specificallydeclared to be unlawful under the provisions of theContract Act or which goes against the provisions of anyother law of the land. Such agreement cannot beenforced law.

For example,A agrees to pay 50,000 to B if B kills C. This is

an illegal agreement because its object is unlawful. Evenif B kills C, he cannot claim the agreed amount from A.

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UNENFORCEABLECONTRACT:

It is a contract which is actually valid but cannot beenforced because of some technical defect.

This may be due to non-registration of theagreement, non-payment of the requisite stampfee, etc.

Sometimes, the law requires a particular agreementto be in writing. If such agreement has not beenput in writing, it becomes unenforceable.

For example,

an oral agreement, for arbitration areunenforceable because the law requires that anarbitration agreement must be in writing. It isimportant to note that in most cases, such ,contracts can be enforced if the technical defectinvolved is removed.

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Proper offer and its proper

acceptance

Intention to create legal

relationship

Free consent

Capacity of parties to contract

Lawful consideration

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Lawful object

Agreement not expressly

declared void

Certainty of meaning

Possibility of performance

Legal formalities

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In order to create a valid contract it isnecessary that there must be at least twoparties, one making the offer and the otheraccepting it.

For example, the offer must be definite andduly communicated to the other party.Similarly, the acceptance must beunconditional and communicated to the

offeror in the prescribe mode, and so on.Unless such conditions with regard to the offerand the acceptance are satisfied the agreementdoes not become enforceable.

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Section 2(a) defines the term 'proposal' asfollows:

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1Offer must intend to create legal relations:

2Terms of offer must be certain and not vague:

3offer be distinguished from a declaration intention

4Offer distinguished from invitation to offer

5The offer must be communicated:

6

7

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Section 2(b) of the Indian Contract Act definesthe term 'acceptance' as

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1 Acceptance must be absolute and unqualified

2 Acceptance must be in the prescribed manner

3 Acceptance must be communicated

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Acceptance must be communicated by a person who has

the authority to accept

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Acceptance must made within prescribed or

within a reasonable

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Acceptance must be given before the offer lapses or

withdrawn

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LAPSE OF AN OFFER


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LAPSE OF AN OFFER

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There must be an intention among the parties tocreate a legal relationship, If an agreement is notcapable of creating a legal obligation it is not acontract.

In case of social or domestic agreements, generallythere is no intention to create legal relationship.

For example,

In an invitation to dinner there is no intentionto create legal relationship and therefore, is not acontract. Similarly, certain agreements betweenhusband and wife do not become contractsbecause there is no intention to create legalrelationship.

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CASE:

This point can well be illustrated by thefamous case of v. Mr. Balfourhad promised to pay 30 per month to hiswife living in England when she could not

accompany him to Caulon where he wasemployed. Mr. Balfour failed to pay thepromised amount. Mrs. Balfour filed a suitagainst her husband for breach of thisagreement, It was held that she could notrecover the amount as it was a socialagreement and the parties never intended tocreate any legal relations.

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For a contract to be valid, it is essential thatthere must be free and genuine consent of theparties to the contract. They must have madethe contract of their own free will and not

under any fear or pressure. According to Section 14,

But if the agreement is induced by mutualmistake which is material to the agreement, itwould be void.

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CONSENT:

Section of the Indian Contract Act definesthe term 'Consent' as

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COERCION

. Section 15 of the Contract Act defines'coercion' as is

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UNDUEINFLUENCE:

Section 16 (i) of the Contract Act definesundue influence as

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FRAUD

The term 'fraud' is defined by Section 17 of theIndian Contract as follows:

Fraud means and includes any of the followingacts committed by a party to a contract or by anyone with his connivance or by his agent, .withintent to deceive another party thereto or hisagent, or to induce him to enter into the contract:i) the suggestion, as to a fact, of that which is nottrue, by one who does not believe it to be true;

ii) the active concealment of a .fact by one havingknowledge or belief the fact;

iii) a promise made without any intention ofperforming it;

iv) any other act fitted to deceive;v) an9 such actor omission as the law specially declares to befraudulent."

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MISREPRESENTATION

A

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MISTAKE

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The parties to an agreement must becompetent to contract i.e., they must becapable of entering into a contract. If any partyto the contract is not competent to contract,

the contract is not valid. Section 11 of the Act which says that

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THUS, APERSONTOBECOMPETENTTOCONTRACTSHOULDNOTBE

a minor1

of an unsound

mind2

disqualified from

contracting3

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A MINOR:

According to Section 3 of the Indian MajorityAct, a person is deemed to have attainedMajority

(i) when he completes 18 years or

(ii) where a guardian of person or propertyor both. has been appointed by a Court of Law(or where his property has passed under the

superintendence of the Court of Wards), heattains Majority on completion of 21 years.

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POSITIONS OF MINOR:

Contract with a minor is void ab initio Fraudulent representation by a minor is void

Ratification of a

cannot be a partner in a partnershipfirm. However, a minor may, with the consent allthe partners for the time being, be admitted to thebenefits of partnership

agent

cannot insolvent he isof contracting debts.

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EXCEPTIONS

Contract for the benefit of a minor

Contract by Guardian

Contract for Supply of Necessaries

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Section 12 of the Indian Contract Act which reads

Thus soundness of mind of a persondepends on two facts:

i) his capacity to understand the terms of thecontract, and

ii) his ability to form a rational judgment as to its

effect upon his interests. If a person is incapable ofboth, he suffers from unsoundness of mind. Idiots,lunatics and drunken persons are examples ofthose having an unsound mind

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lunatic is a person who is mentallyderanged due to some mental strain orother.persona1 experience.

An idiot is a person who is permanentlyof unsound mind. Idiocy is a congenital defect.Such a person has no lucid intervals. Hecannot make a valid contract.

Section of the IndianContract Act reads: A

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HOMESTUDY:MAKEAREPORTONMOHIRIBIBI

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An agreement must be supported byconsideration, Consideration means somethingin return. It is also defined as the price paid byone party to buy the promise of the other.

However, this price need not always be interms of money.

For' example,

A agrees to sell his book to B for Rs. 20.

Here the consideration for A is Rs. 20, and forB it is the book.

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Section 2(d) of the Indian Contract Act definesconsideration as

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Consideration must move at the

desire of the promisor

Consideration may move from the

promisee or any other person

Consideration may be past, present or

future

Consideration must be of some value

Consideration must be Legal

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The object of an agreement must be lawful. An agreement made for any act which is

prohibited by law will not be valid.

For example,

if A rents out a house for use as agambling den, the agreement is void becausethe object of the agreement is unlawful. If theobject is unlawful for any of the reasons

mentioned in Section 23, the agreement shallbe void.

Thus, as

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The agreement must not have been expresslydeclared void under Contract Act. Sections to30 specify certain types of agreements which havebeen expressly declared void. They are .

agreement in restraint of marriage,

agreement in restraint of legal proceedings, agreement in restraint of trade and

agreement by way of wager.

For example,

A agreed to pay Rs. 1,000 to B if he (B) doesnot marry throughout his life. B promised not tomarry at all. This agreement shall not be validbecause it is in restraint of marriage which hasbeen expressly declared void under Section

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Section of the Contract Act provides that

Thus to make a valid contract it is

absolutely essential that its terms must beclear and not vague or uncertain.

For a example,

A agreed to sell 100 tonnes of oil to B.

Here it is not clear what kind of oil is intendedto be sold. Therefore, this agreement is notvalid on the ground of uncertainty.

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The terms of the agreement must also be such asare capable of performance. An agreement to doan act impossible in itself is void (Section 56.)

the act is impossible of performance, physically

or legally, the agreement cannot be enforced bylaw.

For example,

A promises to B that he will enclose some areabetween two parallel lines or that he will run at a

speed of 200 kms. per hour or that he will bringgold from the sun. All these acts are such whichare impossible of performance and therefore theagreement is not treated as valid.

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The Contract Act does not require that a contractmust be in writing to be valid. But, in some casesthe Act has specified that the agreement must bemade in writing.

For example,

a promise to pay a time barred debt must bein writing and an agreement for a sale ofimmovable property must be in writing andregistered under the Transfer of Property Act,1882. In such a situation, the agreement must

comply with the necessary formalities as to writing,registration, etc.

If these legal formalities are not carried out,then the contract is not enforceable by law.

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WAGERING AGREEMENTS

A wager is an agreement by which one promises to pay money or moneys worth

on the happening of some uncertain event

in consideration of the other partys promiseto pay if the event does not happen.

It is essential that each party may either win orloose

If either of the parties may win but cannotloose or may loose but cannot win is notwagering.

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CHARACTERISTICS OF A WAGERING


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CHARACTERISTICSOFA WAGERINGAGREEMENT

Promise to pay money or moneys worth.

The promise is conditional on the happening

of an uncertain future event.

Each party must stand to win or lose. There is no control over the event.

There is no other interest in the event.

There is no other consideration.

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A crossword competition involving skills for itssuccessful solution.

Games of skill.

A subscription / contribution / agreement to

subscribe or contribute towards any plate,prize or sum of money of Rs 500 or above tobe awarded to a winner of a horse race.

Share market transaction in which delivery is

intended.

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EFFECTOF WAGERING AGREEMENTS

Wagering Agreements have been declared void in India. Such agreements are illegal in Maharashtra and Gujarat.

No suit can be maintained for recovery or enforcing theresult of any game or uncertain event.

Money deposited with stakeholder cannot be recovered.

An agent cannot recover any money from the principal.

The principal cannot sue the agent for not carrying outhis instruction.

Agent is bound to hand over the winnings to principal.

Collateral transactions are not affected except in

Maharashtra and Gujarat.

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CONTINGENT CONTRACTS

A Contingent contract is a contract to do or

not to do something, if some event, collateral

to such contract, does or does not happen.

[Sec 31]

Performance depends on happening of some

uncertain event.

Performance depends on some uncertain

event.

The event must be collateral.

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RULESREGARDINGCONTINGENTCONTRACT

Cannot be enforced until the event hashappened. If the event becomes impossiblesuch contract becomes void. (Sec 32)

Where the contract is to be performed if a

particular event does not happen, performancecan be enforced on the event becomingimpossible. (Sec 33)

Contract contingent upon how a person will

act at an unspecified time, the event shall beconsidered to become impossible when theperson does anything rendering it impossible.(Sec 34)

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Contract to do or not to do anything if a

specified uncertain event happens within a

fixed time, becomes void if the event does not

happen or its happening becomes impossible

before the expiry of that time, and vice versa.

(Sec 35)

Contingent agreement to do or not to do

anything, if an impossible event happens arevoid whether or not the fact is known to the

parties. (Sec 36)

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DISCHARGEOF CONTRACT

A contract is said to be discharged when it ceasesto operate.

The rights and obligations created by it comes toan end.

A contract may be discharged -

doing what the partiesintended to do when they entered in to thecontract.

It is thelegitimate attempt on the part of the promisor toperform his obligations

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BY MUTUAL AGREEMENTOR CONSENT

Novation

Rescission

Alteration

Remission

Waiver

Merger

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BYOPERATIONOF LAW

By death.

By merger.

By insolvency.

By unauthorized alteration of terms of a

written contract.

By rights and liabilities becoming vested in the

same person.

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BY IMPOSSIBILITYOF PERFORMANCE

Impossibility existing at the time of agreement

Known to the parties the agreement is void

ab initio.

Unknown to the parties the agreement is

void on the ground of mutual mistake.

Impossibility arising subsequent to theformation of the contract.

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BY SUPERVENING IMPOSSIBILITY

Destruction of subject matter of contract

Non-existence or non-occurrence of a

particular state or things

Death or incapacity for personal services

Change of law or stepping in of a person with

statutory authority

Out break of war

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Impossibility of performance is, as a rule, notan excuse for non-performance.

In the following cases a contract is not

discharged on the ground of supervening

impossibility:

Difficulty of performance,

Commercial impossibility,

Impossibility due to failure of a third person, Strikes, lock-outs and civil disturbances, and

Partial Impossibility.

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BYBREACHOFCONTRACT

a) On the due date of performance.

b) During the course of performance of

contract.

i) Express Repudiation.

ii) Implied Repudiation.

a) By express renunciation.

b) Making the performance of promise

become impossible by doing some act.

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REMEDIESFOR BREACHOF CONTRACT

When the contract is broken, the injured party

has one or more of the following remedies:

Rescission of the contract.

Suit for damages.

Suit upon quantum meruit.

Suit for specific performance.

Suit for injunction.

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RESCISSIONOFTHECONTRACT

Rescission means a right not to perform an

obligation.

In case of breach of contract the promisee

need not perform his obligation, he is not only discharged from his liabilities

but also he is entitled to claim compensation

for damages

which he might have sustained due to non

performance of the contract. [Section 39]

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SUITFORDAMAGES

Damages are monetary compensation allowed

to the injured party for the loss suffered.

The object of awarding damages is not to

punish the party at fault

but to make good the financial loss suffered

by the injured party due to breach of contract.

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RULESRELATINGTODAMAGES

arising in the usual course

of things.

such damages which the

parties knew to be likely to result from thebreach.

Compensation is not given for any remote or

indirect loss or damages, and

Such compensation for damages arising from

breach of quasi contract shall be same as in

any other contract.

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essentiallyin the nature of punishment for wrong

inflicted.

the injured party has not

in fact suffered any loss due to the breach of

contract.

the smaller

the amount of cheque dishonoured, higher the

amount of damages.

generally not recoverable.

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represent a sum, fixedor ascertained by the parties in the contract,

which is a fair and genuine pre-estimate of theprobable loss that might ensue as a result of

the breach if it takes place. is a sum named in the contract which

is disproportionate to the damages likely toaccrue as a result of the breach.

In India no such distinction is made and thecourt allow only reasonable compensation.

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QUANTUM MERUIT

When an agreement is discovered to be void.[Sec 65]

When something is done without any intentionto do gratuitously. [Sec 70]

When there is an express or implied contractto render service but no agreement as toremuneration.

When the completion of the contract has beenprevented by the act of the other party to the

contract. When a contract is divisible.

When an indivisible contract is completelyperformed but badly.

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SPECIFIC PERFORMANCE

The remedy of Specific Performance is in thenature of equitable remedies based on theprinciples of equities.

Among the remedies are specific performance,injunction, rectification and cancellation ofinstruments and rescission of contract.

In the discretion of the court, specificperformance may be enforced:

where there is no standard for ascertaining the

actual damage caused by the non-performance; or

where compensation in money for the non-performance would not afford adequate relief.

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SUITFOR INJUNCTION

It is a judicial process whereby a party to thecontract is ordered to refrain from doing aparticular act or thing, or

to do a particular act or thing.

It a discretionary remedy and it acts only inpersonam.

Injunction means a prohibitory order of thecourt to a person to

not to do a particular act he has promised not

to do under a contract, or to do an act which he has promised, under a

contract, to do.

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QUASI CONTRACTS

Sometime a person may receive a benefitwhich the law regards another person as betterentitled, or

for which the law considers he should pay tothe other person,

even though there is no contract between theparties.

Such relationships are called quasi contracts

because although there is no contract or

agreement between the parties, they are put on the same pedestal as though

there was a contract between them.

This is based on the principles of equity.

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KINDSOFQUASICONTRACTS

Right to recover the price of necessities

supplied. [Sec 68]

Payment by an interested person. [Sec 69]

Right to recover for non-gratuitous Act. [Sec

70]

Responsibility of the finder of Goods. [Sec 71]

When money is paid or things are delivered by

mistake or under coercion. [Sec 72]

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CONTRACTSOF INDEMNITY


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In a contract of indemnity one party promises to

compensate the other party against losssuffered by the latter.

Section 125 confines itself to losses occasioned

due to an act of promisor or due to act of anyother persons.

A contract by which one party promises to save

the other from loss caused to him by the

conduct of the promisor himself or by theconduct of any other person is called a contract

of indemnity. [Sec 124]


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If a person who is interested in the payment ofmoney which another is bound to pay and pays

it, he is entitled to be indemnified. [Sec 69]

The surety has a rights to claim indemnity fromthe principal debtor for sums he has rightfully

paid towards the guarantee. [Sec 145]

The principal is liable to indemnify the agent

for all amount paid by him during the exercise

of his authority. [Sec 222]

RIGHTSOFINDEMNITYHOLDER [SEC 125]


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All damages that he may be compelled topay in a suit in respect of any matter to

which the promise to indemnify applies.

All cost that he may be compelled to pay in

bringing or defending such suit.

All sums which he may have paid under the

terms of any compromise of any such suit.

CONTRACT OF GUARANTEE


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CONTRACTOF GUARANTEE

A contract of guarantee is essentially acontract

to perform the promise or

discharge the liability of a third person in case of his default.

The basic function of a contract of guarantee

is to enable a person to get a loan, or goods, or

an employment. [Sec 126]

ESSENTIALFEATURESOFGUARANTEE


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Surety.

Principal Debtor.Creditor.

Not be vitiated by incapacity, flaw in consent,

and unlawful character of the agreement.May be oral and it may either be expressed or

implied.

Concurrence of parties.

Existence of Principal debt.

Essential of a valid contract like Considerationand Free consent.

EXTENT OF SURETY'S LIABILITY


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EXTENTOFSURETY SLIABILITY

The liability of surety is coextensive with that of

the principal debtor. [Sec 128]The Surety may limit his liability by an express

agreement.

The liability of the surety arises immediatelywhen a default is made by the principal debtor.

The creditor can sue the surety without suingthe principal debtor.

If the guarantee is conditional upon anotherperson joining it as co-surety, the guarantee isnot valid if that person does not join. [Sec 144]

KINDSOF GUARANTEES


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Specific guarantee extends to a specific

transaction or a single debt.The liability of surety comes to an end when the

guaranteed debt is duly discharged.

Continuing guarantee extends to a series of

transaction.This kind of guarantee is intended to cover a

number of transactions over a period of time.

Whether the guarantee is continuing guaranteeor not is a question of intention, subject matter& circumstance.

REVOCATIONOF CONTINUINGG


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GUARANTEE

By Notice By Death of Surety

By Novation. (Sec 62)

By variance in the terms of contract. (Sec 133)

By release or discharge of principal debtor. By compounding with the principal debtor. (Sec 135)

By creditor's act or omission imparting surety'seventual remedy. (Sec 139)

By loss of security. (Sec 142)

RIGHTSOF SURETY


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Right of SecurityRight of set-off.Right of subrogation.

Right to be relieved of liability.Right to indemnity.

Right of contribution Co-sureties liable to contribute equally.Liability of co-sureties bound in different

sums.Release of co-surety.

DISCHARGEOF SURETY


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By Revocation of Guarantee

Discharge by conduct of creditor

Variance in the terms of the contract

Release or discharge of principal debtor

Compounding by creditor with principal

debtor

Creditor compounding with principal debtor

Creditor promising to give time to the

principal debtor

Creditor agreeing not to sue the debtor.


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By impairing surety's remedyLoss of security by the creditor

Discharge of surety by invalidation ofcontract

Guarantee obtained by misrepresentation

Guarantee obtained by concealment

Guarantee on contract that creditor shall

not act on it until a co-surety joinsFailure of consideration

BAILMENT & PLEDGE


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"A bailment is the delivery of goods

by one person to another for some purpose,

upon a contract that they shall, when thepurpose is accomplished,

be returned or otherwise disposed ofaccording to the direction of the person

delivering them.

The person delivering the goods is called

the bailor and the person to whom the goods are delivered

is called the bailee."

ESSENTIALREQUISITEOFBAILMENT


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There must be a contract.There must be a delivery of possession.

The delivery be of goods.

Delivery to be made by the owner, calledbailor.

Delivery be to another person, called bailee.

Delivery for specific purpose.

Delivery on the condition that they be

returned.

KINDSOF BAILMENT


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Gratuitous Bailment

Non-Gratuitous Bailment

For the exclusive benefit of bailor.

For the exclusive benefit of bailee.

For mutual benefit.

DUTIESOFA BAILOR


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To disclose known faults [Sec 150]To bear extraordinary expenses [Sec 158]

To indemnify bailee for loss in case of

premature termination of gratuitous

bailment. [Sec 159]

To receive back the goodsTo indemnify the bailee against the

defective title of the bailor [Sec 164]

DUTIESOFA BAILEE


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To take reasonable care of the goods bailed.

Not to mix goods bailed with his own goods.

Not to make unauthorized use of goods.

Not to set up an adverse title.

To return the accretion to the goods.

To return the goods.

RIGHTSOF BAILOR


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Right to claim damages in case of negligence.

Right to terminate the contract in case ofunauthorized use.Right to claim compensation in case of

unauthorized use.Right to claim separation of goods in case of

unauthorized mixture.Right to claim separation of goods in case of

unauthorized mixture of goods which cannotbe separated.

Right to demand return of the goods.Right to claim compensation in case of

unauthorized retention of goods.Right to demand accretion to the goods.

RIGHTS OF BAILEE


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RIGHTSOF BAILEE

Delivery of goods to one of the several joint

bailors of goods.

Delivery of goods without title.Right to apply to court to stop delivery.

Right of action against trespassers.

Bailee's Lien.

TERMINATIONOF BAILMENT


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On the expiry of the period.

On the achievement of the object.

Inconsistent use of goods.Destruction of subject matter.

Gratuitous bailment.

Death of bailor or bailee.

FINDEROF GOODS


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A person who finds goods belonging to

another and takes them into his custody,

is subject to the same responsibilities as a

bailee. [Sec 71]

He must take reasonable care.He must not use the goods for his own

purpose.

He must not mix goods with his own.He must try to find out the owner of the

goods.

RIGHTS OF FINDER OF GOODS


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RIGHTSOF FINDEROF GOODS

Right of lien.

Right to sue for rewards.

Right of sale.

PLEDGE


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The bailment of goods as security for payment

of a debt or performance of a promise. [Sec172]A pledge can be created only in respect of a

chattel (movable possession) capable ofdelivery.

The general property in the goods remains inthe owner,

but a special property in them passes to thepawnee who may sell the goods.

The person delivering goods is Pledger orPawnor.The person to whom goods are delivered is

Pledgee or Pawnee.

RIGHTSOF PAWNEE / PLEDGEE


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Right to retain goods pledged [Section 173 and

174]Right to extraordinary expenses

Right against true owner, when the Pawnor'stitle is defective

Pawnee's right where Pawnor makes default

Under Section 176 the Pawnee has the followingthree rights:

may file a suit against the Pawnor; orhe may sell the goods after giving reasonable

notice; or

can recover any deficiency arising on the sale.


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RIGHTSOF PAWNOR / PLEDGER

Right to get back goods.

Right to redeem debt.

Preservation and maintenance ofgoods.

Rights of an ordinary debtor.

PLEDGE BY NON-OWNERS


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PLEDGEBYNON OWNERS

Pledge by Mercantile Agent.

Pledge by a person in possession under a

voidable contract.

Pledge where pawnor has limited interest.

Pledge by seller in possession after sale.

Pledge by buyer in possession before sale.

CONTRACTOF AGENCY


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An agent is a person employed to do any act for

another, or to represent another, in dealings with third

persons.

The person for whom such act is done or who isso represented, is called the principal."

Whatever the principal can do himself, he mayget the same done through an agent,; and

What the principal does by another, he does ithimself.

The acts of the agents are the acts of theprincipal.

CREATIONOF AGENCY


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By Agreement

- Express Agreement.- Implied Agreement.

Implied agency includes the following

Agency by Estoppel.

Agency by holding out.

Agency by necessity

Agent acceding his authority in an

emergency.A person entrusted with another's property.

Husband and Wife.

Agency by ratification.

ESSENTIALSOFAVALIDRATIFICATION

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The agent must act for an identifiable principal.The principal must be in existence.The principal must have contractual capacity.Ratification must be with full knowledge of

facts.Ratification must be done within a reasonable

time.The act to be ratified must not be void, illegal or

ultra vires.The whole transaction must be ratified.Ratification can be of the acts the principal had

power to do.Ratification should not put a third party todamages.

Ratification relates back to the date of the act.

DUTIESOF AGENTS


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To carry out the work according to the

directions of principal.To carry out the work with reasonable care,

skill and diligence.

To render proper accounts.To communicate with the principal in case of

difficulty.

Not to deal on his own account.To pay sums received for the principal.


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To protect the interest of the principal in

case of his death or insolvency.

Not to use information obtained in the

course of agency against the principal.

Not to make secret profit.

Not to set up an adverse title.

Not to put himself in a position where his

interest and duty conflict.

Not to delegate authority.

RIGHTS OF AGENTS


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RIGHTSOF AGENTS

Right of retainer.

Right to receive remuneration.

Right of lien.

Right of indemnification.

Right of compensation.

Right of stoppage in transit.

DELEGATIONOF AUTHORITYDelegatus non potest delegar


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Delegatus non potest delegarA Sub-agent is a person employed by and

acting under the control of the original agent andthe business of the agency. [Section 191]

A agent may appoint a sub-agent if - There is a custom of trade.

The nature of work is such that sub-agent isnecessary.Where the principal is aware of the intention of

the agent to appoint a sub-agent.Where unforeseen emergencies arise rendering.Where the act to be done is purely ministerial.Where the principal permits appointment of sub-

agent.


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Where the sub-agent is not properly

appointed, the effect will be :

the principal is not bound by the acts of

sub-agent;

the original agent is responsible for theacts of the sub-agent both to the principal

and to he third party;

the sub-agent is responsible for his acts to

the original agent but not to the principal

even in case of fraud or willful wrong.

POSITIONOF PRINCIPALAND AGENTINRELATION TO THIRD PARTIES


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RELATIONTOTHIRDPARTIES

Acts of the agent are the acts of the

principal.

When the agent exceed his authority

Notice given to agent as notice to principal.

Principal inducing belief that agent's

unauthorized acts were authorized.

Misrepresentation or fraud of agent.


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The position of Principal contracting party

may sue either the principal or the agent or

both.

The principal may also require the

performance of contract.

The position of agent as between the

principal and agent, the agent has all the

rights of an agent as against the principal;

but as regards the third party, he is

personally liable on the contract.


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The position of third parties

the third party may elect to sue either the

principal or the agent or both.

If the principal discloses himself before the

contract is completed, the other party may

refuse to fulfill the contract on the ground of

mistake of identity of party.

The third party can also claim a right of set-

off against the agent.

PERSONAL LIABILITYOFAN AGENT -EXCEPTIONS [SEC 230]


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When the contract expressly provides.

When the agent acts for a foreign principal.When he acts for an undisclosed principal.When he acts for a principal who cannot be

sued.Where he signs a contract in his own name.Where he acts for a principal not in existence.Where he is liable for breach of warranty of

authority.Where he receives or pays money by mistake or

fraud.Where his authority is coupled with interest.Where trade usage or customs makes him

personally liable.

TERMINATIONOFAGENCY [SEC 201]


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a) Agreement.b) Revocation by the principal.

c) Revocation by agent.

a) Performance of contract.b) Expiry of time.

c) Death or Insanity.

d) Insolvency.e) Destruction of subject matter.

f) Principal becoming an alien enemy.

g) Dissolution of a company.

IRREVOCABLE AGENCY


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IRREVOCABLE AGENCY

a) Where the agency is coupled with

interest. [Sec 202]

b) Where the agent has exercised part of his

authority. [Sec 204]

c) Where the Agent has incurred personalliability.

END


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ENDOF

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Documents

Legal Aspects-contract Act