R.K. BAN6IA

TheIndian Contract Act

Revised by

Dr. Narender KumarFormerly Professor, Department of Laws,

Panjab University, Chandigarh

ALLAHABAD LAW AGENCYLAW PUBUSHERS

16/2, Mathura Road, Plot No. 33,Faridabad (Haryana)

CONTENTS

CHAPTER 1

FORMATION OF CONTRACTPage

1. AGREEMENT AND CONTRACT ... 2Contract ... 2Agreement ... 21. Contract ... 32. Void Agreements ... 33. Voidable contracts ... 3

Void agreement and voidable contract distinguished ... 34. Illegal agreements ... 4

THE AGREEMENT (OFFER AND ACCEPTANCE) ... 4PROPOSAL OR OFFER ... 4

Offer and Invitation to treat (offer) distinguished ... 5Assurance Given by Official of a Company ... 8Intention to create legal relationship ... 8Offer Must be Communicated ... 10Offer—How Communicated ... 11Express and Implied Offers ... 11Implied Offer ... 11Communication of Offer—When Completes ... 12Cross Offers ... 13Specific and General Offers ... 13Standing, Open or Continuing Offer ... 14Letters of Intent ... 17

ACCEPTANCE ... 18Effect of Acceptance ... 19

I. ESSENTIALS OF A VALID ACCEPTANCE ... 201. Acceptance should be communicated ... 20

Communication must be made by the offeree or hisauthorized agent (Only offeree can accept the offer) ... 21

Communication of acceptance to a wrong person ... 21Communication of acceptance not needed in acceptance

by conduct ... 22Acceptance of offer by conduct ... 22Implied Acceptance ... 24Agreement in Sub Silentio ... 24

( v )

vi INDIAN CONTRACT ACT

PagePhishing ... 25When is communication of acceptance completes ... 26Acceptance by Post/Telegram ... 26Illustration ... 26Offeror bound when letter of acceptance (or telegram) is

posted to him ... 26Acceptor bound when his letter reaches the offeror ... 27Post Office as Agent ... 28Acceptance by Telephone ... 28Communication of Acceptance by Telex/Fax ... 29Contract through E-mail ... 30

2. Acceptance should be absolute and unqualified ... 31Acceptance or rejection of tender offer must be within

reasonable time ... 323. Acceptance should be expressed in usual/prescribed

manner ... 33Usual and reasonable manner ... 33Prescribed manner ... 33

4. Acceptance should be made while the offer is stillsubsisting ... 35Where the Contract Completes ... 36Revocation of Offer and Acceptance ... 36Revocation of offer ... 36Withdrawal of Bids ... 37Bid Security ... 39Tender—Forfeiture of Earnest Money ... 4^Revocation in contracts by post ... 4^Modes of revocation of offer ... 411. By notice of revocation — 412. By lapse of time - 4 2

3. By failure to fulfil a condition precedent ... 4 2

4. By death or insanity of the offeror ••• 4^Revocation of acceptance (India) ••• 4 4

Revocation of Acceptance (England) ••• 4 4

II. STANDARD FORM CONTRACTS ••• 4 5

Exclusion or Limitation of liability by one party ••• 4J5

1. There should be contractual document ••• 4

2. There should be no misrepresentation ••• 4^3. There should be a reasonable notice of the

contractual terms •••4. Notice should be contemporaneous with the contract ... 4 8

5. The terms of the contract should be reasonable ••• 4^6. Strict interpretation of the exemption clause7. Fundamental Breach of Contract — 5 0

8. Non-contractual Liability

CONTENTS vil

Page9. Liability towards third parties ... 5210. Statutory Protection ... 52Position in India ... 53

III. PROMISSORY ESTOPPEL ... 53Application of the doctrine against the Government ... 54No estoppel when there is no promise ... 55

CHAPTER 2CONSIDERATION

Definition of Consideration under Section 2(d) ... 571. Consideration only at the desire of the promisor ... 582. Consideration by Promisee or any other person

(Privity of Consideration) ... 58PRIVITY OF CONTRACT ... 59

English Law ... 59Indian Law ... 60Exceptions to the rule that a stranger to contract

cannot sue ... 61(i) Trust of contractual rights or beneficiary under

a contract ... 61(ii) Conduct, Acknowledgment, or Admission ... 62(iii) Provision for marriage expenses or maintenance

under family arrangement ... 633. Consideration may be Past, Present (Executed) or

Future (Executory) ... 64(a) Past Consideration ... 64

Past services voluntarily rendered [Section 25(2)] ... 64English law regarding past consideration ... 65Past consideration at the promisor's request ... 65

(b) Executed or Present Consideration ... 66(c) Executory or Future Consideration ... 66

4. Something, i.e., An Act, Abstinence or Promise by thepromisee constitutes consideration ... 67Consideration received by one of the joint promisors ... 67Subscription for a charitable purpose ... 67Consideration need not be adequate ... 68Consideration must be real ... 70Performance of an existing legal duty is no consideration ... 70Promise to perform an already existing contractual duty ... 70Performance of an existing duty to a third party ... 71Promise to pay less amount than due—The Rule in

Pinncl's Case ... 72Indian Law ... 73Forbearance to sue is consideration ... 74Exceptions when agreement without consideration is valid ... 75

viii INDIAN CONTRACT ACT

PagePromise due to natural love and affection [Section 25(1)] ... 76Compensation for past voluntary services [Section 25(2)] ... 77Promise to pay a time barred debt ... 78Limitation period for non-repayment of loan amount ... 78Promise to pay time barred debt—Not "express" promise ... 78Debt due by whom ••• 79Wholly or in part ... 79There should be express promise ... 79Admission to pay in court proceedings ... 81Promise to Pay must be Unconditional ... 81

CHAPTER 3

CAPACITY TO CONTRACTTHE POSITION OF A MINOR ... 82

Who is a minor ••• 82Nature of a minor's agreement ... 83Position under English Law ... 85Ratification of the minor's agreement ... 85Ratification of acts done on minor's behalf ... 86No Estoppel against a minor ... 87Return of benefit secured by a fraudulent minor ... 89English Law : The Doctrine of Restitution ... 89Indian Law : Compensation by a minor ... 901. Compensation under Sections 64, 65 and 70,

Indian Contract Act ••• 902. Compensation under Specific Relief Act, 1963 ... 91Lahore High Court view ••• 92Allahabad High Court view ••• 93Minor's liability for Necessaries ... 95Illustrations ... 95What are ngcessaries ••• 96

BENEFICIAL CONTRACTS OF SERVICE ANDAPPRENTICESHIP ... 98

Position in England ••• 98Contract of service or apprenticeship ••• 98Contracts analogous to those of service and apprenticeship ... 98Contract beneficial to infant ••• ^Position in India ••• 99Contracts of service ••• 1̂ 0Contracts of apprenticeship ••• ^ 0Contracts of marriage ••• ^Contracts of immovable property by the minor's guardian ... 101Contracts beneficial to a minor ••• *®Position of a minor in Partnership •••Position of a minor in case of Negotiable Instruments — 103

CONTENTS Ix

PagePosition of a minor in a contract of agency ... 104Minor's liability when the same act results in a tort as

well as breach of agreement ... 104THE POSITION OF A PERSON OF UNSOUND MIND ... 106

Unsound mind ... 107Onus to Prove Unsoundness ... 108

CHAPTER 4FREE CONSENT

What is free consent ... 1091. COERCION ... 109

(i) Act forbidden by the Indian Penal Code ... 110Need for amendment of Section 15 ... I l l

(ii) Unlawful detaining of property ... I l lTo the prejudice of a person ... 112Threat to strike is no coercion ... 112Statutory compulsion is no coercion ... 112"Duress" under English Law ... 113Threat to goods is no duress ... 113Difference between Coercion and Duress ... 114

2. UNDUE INFLUENCE ... 115Essentials of undue influence ... 116Person in dominant position and obtaining of unfair

advantage ... 116(1) Real or apparent authority ... 117(2) Fiduciary relation ... 117(3) Person in mental or bodily distress ... 119Presumption of undue influence in Unconscionable

Bargains ... 119Fraud/undue influence—Execution of document by old,

illiterate and ailing person ... 122When there is no domination of will ... 123Effect of undue influence ... 124

3. FRAUD ... 125I. False statement of fact [Section 17(1)] ... 126

Mere silence is no fraud ... 127Exceptions ... 128

(i) Duty to speak (Contracts Uberrima Fides) ... 128Non-disclosure of facts not-material ... 130Marital Status—Non-disclosure ... 131Statutory Disclosures ... 131Duty to disclose changes ... 132

(ii) Silence being equivalent to speech ... 132Means of discovering the truth ... 132Active concealment [Section 17(2)] ... 133

x INDIAN CONTRACT ACT

PagePromise made without any intention to perform it

[Section 17(3)] ... 133Any other act fitted to deceive [Section 17(4)] ... 133Any act or omission which the law declares as

fraudulent [Section 17(5)] ... 134II. Wrongful intention ... 134

Contract on the basis of false statement ... 135Statement should be meant for the party misled ... 136Proof of Fraud ... 137

4. MISREPRESENTATION ... 137Fraud and Misrepresentation distinguished ... 138Effect of flaw in consent ... 1391. Right of Rescission of the contract ... 140

Limits to the right of rescission ... 141(1) When the contract is affirmed ... 141(2) Lapse of time ... 141(3) Acquisition of a right by a third party ... 142(4) Inability to restore the goods ... 142(5) Damages in lieu of rescission of contract ... 143

2. Right to claim compensation ... 3(1) Damages in cases of fraud ...(2) Damages in case of non-fraudulent

misrepresentations — 144(3) Duty of a party rescinding the contract to pay

compensation ••• I 4 4

5. MISTAKE ... I 4 4

1. Mistake, when there is no consensus ad idem orthere is absence of consent ••• 145

2. Mistake as to a matter of fact essential to theagreement — 146(1) Mistake of both the parties •• I 4 6

(2) Mistake of fact ••• u l

(3) Mistake essential to the agreement ... I4?I. Mistake as to the existence of the subject-matter ... 148

Mistake regarding quality of the subject-matter only ... 149II. Mistake as to the possibility of performance of

the contract •• i 4 9

III. Mistake as to title • •• I 5 0

IV. Mistake as to promise - i 5 °V. Mistake as to the identity of the parties ••• I 5 0

Contract by parties in each other's presence(inter praesentes) •••

Mistake as to the existence of a material fact —

CONTENTS xi

CHAPTER 5

LEGALITY OF OBJECT AND CONSIDERATIONPage

1. Forbidden by law ... 156Distinction between void and illegal contracts ... 158

2. Defeat the provisions of any law ... 1603. Fraudulent purpose ... 1644. Agreement injurious to the person or property of another ... 1655. Immoral ... 166

Past and Future Cohabitation ... 1676. Opposed to public policy ... 169

(1) Agreement to stifle prosecution ... 175(2) Agreement of maintenance and champerty ... 176(3) Trading agreement with an enemy ... 179(4) Marriage brokerage contract ... 179(5) Agreement tending to injure the public service ... 180Termination of employees by company ... 181Considerations and Objects unlawful in part ... 181

CHAPTER 6VOID AGREEMENTS

AGREEMENT IN RESTRAINT OF MARRIAGE ... 183AGREEMENT IN RESTRAINT OF TRADE ... 184

Exceptions to an agreement in restraint of trade ... 186(1) Sale of Goodwill ... 186(2) Exceptions under the Indian Partnership Act, 1932 ... 188(3) Restraint by a contract of service ... 189

Garden Leave Clause ... 191(4) Trade Combinations ... 191(5) Solus agreement ... 192Agreement void only to the extent of restraint ... 193

AGREEMENT IN RESTRAINT OF LEGAL PROCEEDINGS ... 193(1) Agreement absolutely restraining legal proceedings ... 194(2) Agreement limiting time for a legal action ... 196Agreement extinguishing the rights on expiry of a

specified period ... 196Amendment Act, 1997 ... 197Exceptions ... 197(1) Contract to refer future dispute to arbitration ... 197(2) Contract to refer existing questions to arbitration ... 198

AMBIGUOUS AND UNCERTAIN AGREEMENTS ... 198AGREEMENT BY WAY OF WAGER ... 200

What is a wagering agreement ... 201Essentials of a wagering agreement ... 2011. Opposite views about an uncertain event ... 2012. Chances of gain or loss to the parties ... 201

xii INDIAN CONTRACT ACT

Page3. No other interest in the event except the amount

of bet ... 202Prize Money on lottery tickets ... 203Speculative Transactions ... 203Teji Mandi Transactions ... 204Validity of wagering agreements and collateral transactions... 205

CHAPTER 7CONTINGENT CONTRACTS

What is a contingent contract ... 207Enforcement of contingent contract ... 2081. Contracts contingent on an event happening ... 2082. Contracts contingent on the event not happening ... 2093. Contract contingent on the future conduct of a living

person ... 2094. Contracts contingent on happening of specified event

within fixed time ... 2095. Contracts contingent on not happening of specified event

within a fixed time ... 2106. Agreements contingent on impossible event ... 210

CHAPTER 8PERFORMANCE OF CONTRACT

Offer of performance or tender ...Essentials of a valid tender ... 213

1. The tender must be unconditional ... 2132. The tender must be at proper time and place ... 2133. The promisee must be given an opportunity to

ascertain that the goods are according to thecontract. — 215

4. An offer of performance to one of the joint promiseesis a valid tender — 215

Performance on the death of a party ••• 215By whom should the contract be performed ... 216Performance by the promisor or his agent ... 216Joint Promisors and the nature of their liability ... 217The liability of the joint promisors is joint and several ... 217Successive actions against different joint promisors ... 217Contribution between joint promisors ••• 218Inability of a promisor to contribute ••• 219Contribution when some promisors are surety — 219Effect of release of a joint promisor — 219Effect of death of a joint promisor on the liability

of others ... 220Nature of Lability of joint promisees ••• 220

CONTENTS xiii

PageTime and Place of performance ... 221

(1) Time for performance of promise, where noapplication is to be made and no time is specified. ... 221

(2) Time and place for performance of promise, wheretime is specified, and no application to be made. ... 221

(3) When the promisee is to apply for performance, hemust do so at proper time and place. ... 221

(4) Place for performance of promise, where applicationto be made and no place fixed for performance. ... 222

(5) The performance of any promise may be made inany manner, or at any time which the promiseeprescribes or sanctions. ... 222

Effect of failure to perform the contract in time (Section 55). ... 2221. When time is the essence of the contract ... 223

Determining whether time is of the essence of contractor not ... 223

When performance within specific time not insisted ... 224Extension of time ... 226Right to avoid the contract, if delay in performance ... 227Right of compensation—an alternative remedy ... 228

2. When time is not the essence of the contract ... 2283. Time whether essence of contract ... 229

Time as essence of contract—Failure of defendant ... 229Performance of reciprocal promises ... 229(1) Contracts requiring simultaneous performance ... 230(2) When the order of performance expressly fixed by

the contract ... 230(3) One party preventing the other from performing

his reciprocal promise ... 231(4) Non-performance of a reciprocal promise by the

party who is to perform first ... 231Reciprocal promise to do things legal and also other

things illegal ... 233Alternative promises of which one branch is legal and

the other illegal ... 233APPROPRIATION OF PAYMENT ... 233

(1) Appropriation as desired by the debtor ... 233(2) Appropriation by the creditor ... 235(3) Appropriation towards debts in order of time ... 235

CHAPTER 9DISCHARGE OF CONTRACT

(1) Discharge by performance ... 237(2) Discharge by Breach of Contract ... 237

Anticipatory breach of contract ... 238Effect of anticipatory breach of contract ... 239

Xlv INDIAN CONTRACT ACT

Page(i) Election to rescind the contract ... 239(ii) Election to keep the contract alive ... 240

(3) Discharge by impossibility of performance ... 241Initial Impossibility ... 242Subsequent Impossibility ... 243The doctrine of frustration ... 243"Doctrine of frustration" not applicable ... 245Death or incapacity of a party ... 245Frustration by Virtue of Legislation ... 245Frustration due to change of circumstances ... 246Position in India ... 246No frustration of Executed contracts ... 248No frustration by mere likely delay in performance ... 249Impossibility does not mean mere commercial difficulty ... 249Restoring benefit received under an agreement discovered

to be void or contract becoming void ... 251(4) Discharge by Agreement and Novation (Section 62) ... 252

Novation ... 252(i) Change in the terms of the contract ... 252(ii) Change in the parties to the contract ... 253Statutory Substitution of Parties ... 255Only material change results in the cancellation of the

original contract ... 256Memorandum of understanding ... 256Remission of performance (Section 63) ... 257(i) Dispensing with or remitting performance ... 257

"Fixed date" for performance ... 259Accepting performance from a third party ... 260

(ii) Extending the time of performance ... 260(iii) Accepting any other satisfaction instead of

performance ... 261Accord and Satisfaction—Payment of Lesser than

Amount Due ... 261Discharge by Neglect ... 264

CHAPTER 10QUASI CONTRACTS OR CERTAIN RELATIONS

RESEMBLING THOSE CREATED BY CONTRACTQUASI CONTRACTS ... 2651. Claim for necessaries supplied to a person incompetent

to contract ... 2662. Reimbursement of money paid, due by another ... 266

(1) One should have interest in making payment ... 267(2) Another person should be bound by law to pay ... 268

3. Obligation of person enjoying benefit of non-gratuitous act ... 269

CONTENTS xv

PageDoing of something or delivering anything to another

person ... 269It must be doing of something positive ... 270No intention to do the act gratuitously ... 271Enjoyment of benefit by the defendant is necessary ... 272Unjust benefit to the defendant necessary ... 272Application of Section 70 against the Government ... 273Section 70 cannot be invoked against a minor ... 275Liability to pay minimum charges ... 275

4. Responsibility of finder of goods ... 275Finder's right of lien and compensation ... 276Finder is bailee only against the true owner ... 277

5. Liability of a person getting benefit under mistake orcoercion ... 277Unjust benefit under mistake ... 277Money paid or anything delivered under mistake ... 277Refund of import duty not legally payable ... 279Unjust Benefit under Mistake ... 279No refund if the plaintiff did not pay from his own pocket... 280Money not recoverable where there is no unjust

enrichment of the defendant ... 280Unjust benefit under "Coercion" ... 281Recovery of sale consideration on sale of machinery ... 282Compulsion of law is not coercion ... • 282The Plaintiff in Default ... 282

CHAPTER 11REMEDIES FOR BREACH OF CONTRACT

1. DAMAGES ... 2831. Remoteness of Damage ... 287

(1) First branch of the rule in Hadley v. Baxendale :Damage arising in the usual course of things ... 288Delay in carriage of goods meant for sale ... 289Compensation for mental anguish ... 290When monetary compensation is not adequate relief ... 291Breach of promise to marry ... 291Claim by stranded passengers ... 291Damages for pre-contract and wasted expenditure ... 292

(2) Second branch of the rule in Hadley v. Baxendale :More loss arising from the special circumstances ... 292

2. Measure of Damages ... 295Actual re-sale by the seller not necessary ... 297Damages when goods have fixed market price ... 298Loss of profit on a sub-contract ... 299Damages in case of delivery by instalments ... 299

xvi INDIAN CONTRACT ACT

PageDuty to mitigate the loss ••• 299Liquidated damages and penalty ... 301Nominal Damages — 302Entitlement of compensation for breach of contract ... 303Forfeiture of Earnest Money ••• 307No Forfeiture of Advance if Contract Becomes Frustrated ... 307

2. QUANTUM MERUIT ... 308Sufferance of Damages ••• 311

CHAPTER 12CONTRACTS OF INDEMNITY AND GUARANTEE

Contract of Indemnity ••• 313Insurance contract, if contract of indemnity ... 314

India - 314Liability of insurer and breach of fedelity insurance

contract ••• 314England ••• 314Rights of the indemnity holder ... 315When can an indemnifier be made liable? Can he claim

to be indemnified before he is demnified? ... 315Contract of Guarantee ••• 317Surety ... 318Main Features of Contract of Guarantee .» 3181. The contract may be either oral or in writing ••• 3182. There should be a principal debt ••• 3183. Benefit to the principal debtor is sufficient

consideration ••• 3194. Consent of the surety should not have been obtained

by misrepresentation or concealment ••• 319Distinction between contracts of Indemnity and Guarantee ... 320Liability of Surety—Its Nature and Extent — 321Liability of guarantor coextensive with that of principal

debtor ... 322Surety's liability for loan transaction ... 322Cash Credit Facility—Liability of surety coextensive with

that of principal debtor ... 322Creditor can sue the surety without exhausting remedies

against the principal debtor ... 323Prior action against principal debtor not necessary ... 324Prior action against pledged goods not necessary ... 324Limit on surety's liability by contract ... 325Condition that there shall be a co-surety ... 325Liability of co-surety ... 326Illustrations of continuing guarantee ... 326

Discharge of surety from liability ... 327

CONTENTS xvii

Page1. By Revocation by the surety (Section 130). ... 3282. By surety's death (Section 131). ... 3293. By variance in the terms of contract (Section 133). ... 329

Novation of Contract ... 3324. By release or discharge of the principal debtor (Section 134).... 332

No discharge after the decree is passed ... 3335. When creditor compounds with, gives time to, or agrees

not to sue the principal debtor (Section 135). ... 334(i) Creditor compounding with the principal debtor ... 334(ii) Creditor promising to give time to the principal

debtor ... 335(iii) Creditor promising not to sue the principal debtor ... 336Mere forbearance to sue not enough ... 336Forbearance to sue until the end of the period of

limitation ... 3366. By creditor's act or omission impairing surety's eventual

remedy (Section 139) ... 3377. By loss of the security by the creditor (Section 141) ... 338

Discharge of Principal Debtor without creditor's faultdoes not discharge the surety ... 339

Substitution of Surety ... 339RIGHTS OF SURETY ... 339Rights against the Principal Debtor ... 3401. Right of Subrogation (Section 140) ... 3402. Right of indemnity against the principal debtor (Sec. 145) ... 340Right against the Creditor ... 341

Right to securities with the creditor (Section 141). ... *341Securities received by the Creditor at the time of contract

of guarantee ... 342Loss of securities without creditor's negligence ... 342Securities received by the creditor after the contract of

guarantee ... 342Surety has no right to goods in hypothecation ... 343Right of the surety who guarantees a part of the debt ... 343

Right against the Co-sureties ... 344Right of contribution against co-sureties (Sees. 146 & 147) ... 344Contract to the contrary ... 344Contribution ... 344Co-sureties bound in different sums (Section 147) ... 344Release of a co-surety from liability ... 345Bank Guarantee ... 345Surety Common Qua Different Debtors ... 347Performance Guarantee by Banks ... 347Unconditional Bank Guarantee ... 348Bank Guarantee vitiated by fraud ... 350

F2

xviii INDIAN CONTRACT ACT

PageClause stipulating exclusive jurisdiction to a certain Court ... 350Invocation of Bank Guarantee ... 350Injunction against Invocation of Bank Guarantee ... 352

CHAPTER 13BAILMENT AND PLEDGE

BAILMENT ... 353Essentials of Bailment ... 353

1. Delivery of the goods for some purpose ... 354If the owner maintains control over the goods, there is

no bailment ... 355There can be bailment without a contract ... 356

2. Return of the goods after the purpose is achieved ... 357Constructive bailment do not confer any right to stranger ... 358Hiring of Locker—Not Bailment • •• 358

Bailor's duty when goods bailed are defective ... 358Bailor's duty of disclosure ••• 358Gratuitous bailment ... 359Bailment for reward ••• 359

DUTIES OF BAILEE ... 3591. Duty to take reasonable care of the goods bailed

(Sees. 151-152). ... 360Bailee should act as a prudent man — 360Liability of bailee to pay compensation for damaged goods ... 362Agreement exempting bailee from liability — 362Bailee not liable when he takes due care — 362Hiring of bank lockers •• 363

2. Duty not to make unauthorized use of the goods bailed(Sees. 153 & 154) - 364(i) Termination of bailment ••• 364(ii) Damages for loss due to unauthorized use ... 365

3. Duty not to mix bailor's goods with his own goods(Sees. 155-157) ... 365Mixture of goods with bailor's consent ••• 365Mixture of goods without bailor's consent ... 365(i) When the mixed goods can be separated ... 366(ii) When the mixed goods cannot be separated ... 366

4. Duty to return the goods on the fulfilment of the purpose(Sees. 160 & 161, 165-167) ••• 366Restoration of goods lent gratuitously ••• 368Return when bailment by several joint owners ... 368Return of goods to the bailor, when he has no title

to them ••• 3685. Duty to deliver to the bailor increase or profit on the

goods bailed (Section 163). ••• 3 6 9

CONTENTS xix

PageIssue of Bonus shares, etc. ... 369Position of Right Shares ... 369

Rights of bailee ... 3691. Right to recover necessary expenses incurred on bailment

(Section 158). ... 3702. Right to recover compensation from the bailor (Sec. 164). ... 3703. Right of lien on the goods bailed (Sees. 170 and 171) ... 370

(1) Particular lien (Section 170) ... 371(2) General lien (Section 171) ... 372(i) General lien of Bankers ... 372

Scope of provision regarding general lien ofbankers, etc. ... 373

Lien over money ... 374No lien over goods given for a special purpose ... 375

(ii) General lien of Factors ... 376(iii) General lien of Wharfingers ... 377(iv) General lien of Attorneys ... 377(v) General lien of Policy-brokers ... 378

Right of suit against a wrongdoer (Section 180) ... 378Position of finder of goods ... 378(i) Right of lien (Section 168). ... 379(ii) Right of claiming the reward, if announced by the

owner (Section 168) ... 379(iii) Right to sell the goods found (Section 169) ... 380

PLEDGE ... 380Bailment and Pledge distinguished ... 380Nature of Pledge ... 380Essentials of pledge ... 381

(1) Delivery of goods ... 381(2) Purpose of pledge is security for payment of

debt, etc. ... 383Hypothecation and Pledge distinguished ... 383Right of the Hypothecate ... 384Who can pledge ... 384

(1) Pledge by mercantile agent (Section 178) ... 384(i) Pledge should be by mercantile agent ... 385(ii) Possession of mercantile agent with owner's consent ... 385(iii) Pledge by the mercantile agent in the ordinary

course of the business ... 386(iv) Pledgee acting in good faith ... 386

(2) Pledge by person in possession under a voidable contract(Section 178-A) ... 386

(3) Pledge by a person with a limited interest (Section 179) ... 387(4) Pledge by seller in possession after sale [Section 30 (1),

Sale of Goods Act] ... 387

xx INDIAN CONTRACT ACT

Page(5) Pledge by buyer in possession after sale [Section 30 (2),

Sale of Goods Act] ... 388Rights of Pledgee or Pawnee (Sees. 173 to 176) ... 388(1) Right to retain the goods pledged (Sees. 173 and 174)... 388(2) Right to recover extraordinary expenses incurred by

pawnee (Section 175) ... 389(3) Right of suit to recover the debt, etc., and sale of

the pledged goods (Section 176) ... 389(i) Right of suit against pawnor ... 390

Pawnee can opt to file a suit and also to retain thepledged goods ... 390

Pledge by Joint-Account Holders ... 390Rights Pawnee of vis-a-vis Other Creditors ... 391Pledged goods if lost or damaged ... 392

(ii) Right of sale of the pledged goods ... 392Discretion not to sell the pledged goods but to

retain them and file a suit ... 393Remedies of filing suit and sale of goods are

disjunctive ... 394Pawnor's right to redeem (Section 177) — 395Accretions to the pledged goods — 395Legal Heir's Right to Redeem — 396

CHAPTER 14AGENCY

Establishing Agency — 398Different kinds of Agents ••• 401(1) Auctioneers — 401(2) Factors ... 401(3) Brokers ... 402(4) Del Credere Agents ... 402Some features of a contract of agency — 402

1. The principal should be competent to contract(Section 183) ... 402

2. The agent may not be competent to contract(Section 184) ... 403

3. No consideration is necessary to create an agency(Section 185) ••• 403

Modes of Creation of Agency ••• 403(1) Acts done with Principal's Actual Authority ... 404

Express Authority ••• 404Implied Authority ... 404Extent of Implied Authority ••• 404

(2) Agenfs authority in an Emergency (Section 189) ... 406(3) Principal bound by Estoppel — 406

CONTENTS xxi

Page(4) Principal bound by Ratification ... 407RATIFICATION (SECTIONS 196-200) ... 407ESSENTIALS OF VALID RATIFICATION ... 408

1. Act done on behalf of another (Section 196) ... 4082. Principal should be in existence and competent to

contract ... 4093. Ratification may be express or implied (Section 197) ... 4104. Ratification with full knowledge of facts (Section 198) ... 4105. Ratification of the whole transaction (Section 199) ... 4106. Ratified act should not be injurious to a third person

(Section 200) ... 4107. Ratification within a reasonable time ... 411Effect of Ratification : The doctrine of Relating Back ... 411Revocation of offer before ratification ... 412

(5) Agency in Husband-Wife relationship ... 413Agency by Co-habitation ... 413Agency of Necessity ... 413Relations of Principal and Agent Inter se ... 414

Duties of Agent ... 4141. Duty not to delegate his duties (Section 190) ... 414

Exceptional situations when a sub-agent can be validlyappointed ... 414

Sub-agent defined ... 415Position when sub-agent properly appointed ... 415The acts of the sub-agent bind the principal towards

third persons ... 415Responsibility of the Agent or Sub-agent towards the

Principal ... 416Position when sub-agent not properly appointed ... 416Substituted Agent ... 417Agent's duty in appointing a substituted agent ... 417Sub-agent and Substituted agent distinguished ... 418

2. Duty to follow principal's directions (Section 211) ... 4183. Duty to show proper skill and care (Section 212) ... 4204. Duty to render proper accounts (Section 213) ... 4215. Duty to communicate with principal (Section 214) ... 4226. Duty not to deal on his own account (Sees. 215 & 216) ... 422

(i) Repudiation of contract by principal when agent dealson his own account ... 422

(ii) Principal's right to claim benefit when agent actingon his own account ... 423

7. Duty to pay sums received for principal (Sees. 217 & 218) ... 424Rights of Agent and Duties of Principal ... 4241. Right to Remuneration (Section 219) ... 424

Agent's efforts should be effective cause for the transaction... 425

xxii INDIAN CONTRACT ACT

PageNo remuneration for the business misconducted (Sec. 220) ... 425Suit for recovery of commission in contract of Agency ... 426

2. Right to retain sums (Sees. 217 and 218) ... 4263. Right of lien on principal's property (Section 221) ... 4264. Right to be indemnified (Sees. 222-224) ... 427

Indemnity for lawful acts (Section 222) ... 427Indemnity for civil wrongs (Section 223) ... 427No indemnity in case of criminal offences (Section 224) ... 428

5. Right to compensation for damages due to principal'sneglect (Section 225) ... 428

RELATIONS OF PRINCIPAL AND AGENT WITH THIRDPERSONS ... 429Liability of the Principal ... 429Authorized and Unauthorized acts ... 429

1. Principal's liability when agent exceeds authority ... 430Position when the authorized and unauthorized acts are

separable ... 430Position when the authorized and unauthorized acts are

not separable — 4312. Principal's liability for notice to the agent — 4313. Principal's liability for agent's fraud, misrepresentation

and torts (Section 238) ••• 431Vicarious liability of the principal ••• 432

Personal liability of Agent ••• 434(1) When agent acts on behalf of a foreign principal ••• 435

Option to sue foreign principal or Indian agent ••• 435Agency Coupled with Interest — 436

(2) When agent acts for an Undisclosed Principal ••• 437Right of undisclosed principal to require performance ... 437Right of third person against undisclosed principal ... 437

(3) When the principal, though disclosed, cannot be sued ... 438(4) When there is a contract for the agent's personal

liability ... 4 39(5) When an agent makes a breach of some legal

obligation ••• 439(6) Liability of pretended agent — 439Option of the third person to sue the agent or principal ... 440Estoppel against third person ••• 4 4 0

Termination of Agency (Ss. 201-210) ••• 440Rules of revocation of authority ••• 441(1) Revocation may be express or implied (Section 207) ... 441(2) No revocation of agency when agent has interest in

the subject-matter (Section 202) — 441(3) Revocation possible before the authority has been

exercised (Section 203) — 443

CONTENTS xxlil

PageRevocation when authority has been partly exercised

(Section 204) ... 443(4) Principal to compensate, if there is premature

revocation without justification (Section 205) ... 443(5) Principal should give reasonable notice of revocation

(Section 206) ... 444(6) Termination of agency terminates sub-agency also

(Section 210) ... 444(7) Agent's duty on termination of agency by principal's

death or insanity (Section 209) ... 444(8) Time from which the termination of agent's authority

becomes effective (Section 208) ... 444Renunciation of agency by the agent ... 446

CHAPTER 15SUMMARY

FORMATION OF CONTRACT (CHAPTER 1) ... 447Offer distinguished from Invitation to treat (offer) ... 448Intention to create legal relationship ... 449Communication of offer necessary ... 450Cross Offers ... 450Specific and General Offers ... 450Standing, Open or Continuing Offer ... 4511. Acceptance should be communicated ... 452

Communication of acceptance not needed inacceptance by conduct ... 452

When is communication of acceptance complete? ... 453Acceptance by post, etc. ... 453Acceptance by Telephone or Telex ... 454

2. Acceptance should be absolute and unqualified : Itlapses by rejection or counter offer ... 454

3. Acceptance should be in the usual/prescribed manner ... 4544. Acceptance should be made while the offer is still

subsisting ... 455Revocation of Offer ... 455Revocation in contracts by post ... 455Modes of revocation of offer ... 456(1) By notice of revocation ... 456(2) By lapse of time ... 456(3) By failure to fulfil a condition precedent ... 456(4) By the death or insanity of the offeror ... 456Revocation of acceptance (India) ... 457Revocation of acceptance (England) ... 457Application of the doctrine against the Government ... 460

CONSIDERATION (CHAPTER 2) ... 460

INDIAN CONTRACT ACT

Page1. Consideration only at the desire of the promisor ... 4612. Consideration by promisee or any other person ... 461

Privity of Contract - 461English Law ... 462Indian Law ••• 462

Exception to the rule that a stranger to a contractcannot sue — 462

(i) Trust of contractual rights or beneficiary undera Contract ••• 462

(ii) Conduct, Acknowledgment, or Admission ... 463(iii) Provision for marriage expenses or maintenance

under a family arrangement ... 4633. Consideration may be Past, Executed or Executory ... 463(a) Past consideration ••• 463

Past services voluntarily rendered ... 464English law regarding past consideration ... 464

(b) Executed or present consideration ... 464(c) Executory or future consideration ... 4644. Something—An act, abstinence or promise by the

promise constitutes consideration ... 465Consideration need not be adequate — 465Subscription for a charitable purpose ••• 465Consideration must be real ••• 4 *5Performance of an existing duty is no consideration •••Promise to perform an already existing contractual duty ... 466Performance of an existing duty owed to a third party — 4^6Promise to pay less amount than due •••English law : The rule in Pinnel's case ••• 466Exceptions to the rule in Pinnel's case ••• 466Promise to pay less amount than due (Indian Law) ... 467Exceptions when an agreement without consideration

is valid ... 467CAPACITY TO CONTRACT (CHAPTER 3) ... 468

Nature of a minor's agreement ••• 4*>8Position under English Law ••• 469Ratification of the minor's agreement ••• 469Ratification of acts done on minor's behalf ••• 469No estoppel against a minor - 470Return of benefit secured by a fraudulent minor ... 470English Law : The doctrine of restitution •• 470Indian Law : Compensation by a minor ... 470Minor's liability for necessaries — 471What are Necessaries? — 471Beneficial contracts of service and apprenticeship

(England) ... 472

CONTENTS xxv

PageContracts of service and apprenticeship (India) ... 472Contracts of immovable property by the minor's guardian ... 472Contracts beneficial to a minor ... 473Position of a minor in Partnership ... 473Position of a minor in case of Negotiable Instruments ... 473Position of a minor in a contract of agency ... 473Minor's liability when the same act results in a tort as

well as a breach of agreement ... 474Position of a person of Unsound Mind ... 474

FREE CONSENT (CHAPTER 4) ... 475Duress under English Law ... 475Person in dominant position and obtaining of unfair

advantage ... 476Presumption of undue influence in Unconscionable

bargains ... 4771. False statement of fact . 4782. Wrongful intention . 479Fraud and Misrepresentation distinguished . 480(i) Mistake when there is no consensus ad idem ... 480(ii) Mistake as to matter of fact essential to the

agreement ... 480LEGALITY OF OBJECT AND CONSIDERATION ... 482

VOID AGREEMENTS (CHAPTER 6) ... 484Exceptions to the rule ... 485Prize on a Lottery Ticket ... 487

CONTINGENT CONTRACTS (CHAPTER 7) ... 487PERFORMANCE OF CONTRACT (CHAPTER 8) ... 487

Offer of performance or Tender ... 488Joint promisors and the nature of their liability ... 488Nature of liability of joint promisees ... 489Effect of failure to perform the contract in time ... 489Appropriation of Payments ... 490

DISCHARGE OF CONTRACT (CHAPTER 9) ... 490Anticipatory Breach of Contract ... 490Restoring benefit on subsequent impossibility ... 493

QUASI CONTRACTS OR CERTAIN RELATIONSRESEMBLING THOSE CREATED BY CONTRACT(CHAPTER 10) ... 494

REMEDIES FOR BREACH OF CONTRACT (CHAPTER 11) ... 496Compensation for mental anguish ... 497Duty to mitigate loss ... 498

CONTRACTS OF INDEMNITY AND GUARANTEE(CHAPTER 12) ... 499When can indemnifier be made liable? ... 500Main features of a contract of guarantee ... 500

xxvi INDIAN CONTRACT ACT

PageDistinction between contracts of Indemnity and Guarantee ... 501Continuing Guarantee ... 501Discharge of a surety from liability ... 502Rights of Surety ... 503

BAILMENT AND PLEDGE (CHAPTER 13) ... 504Bailor's duty when goods bailed are defective ... 505Duties of bailee ••• 505Rights of bailee ... 507Hypothecation and Pledge distinguished ... 509Essentials of pledge ... 509Rights of Pledgee or Pawnee ... 509Pawnor's right to redeem ... 510

AGENCY (CHAPTER 14) ... 510Some features of a contract of agency ... 511How agency is created? ... 511Employer agreeing to collect Life Insurance Premium ... 512Liability of principal for acts of agent—Purchaser of

buying property in good faith—Transaction bindsprincipal ••• 513

Essentials of valid ratification ... 513Effect of Ratification : The doctrine of Relation Back ••• 514Relations of Principal and Agent inter se ••• 515Duties of Agent ••• 515Sub-agent and substituted agent distinguished ••• 516Agent when personally bound ••• 520Option of the third person to sue the agent or principal ... 521Termination of Agency ... 521Rules of revocation of authority ••• 521Time from which the termination of agent's authority

becomes effective ... 522Renunciation of agency by the agent ••• 522