ALGAPPA UNIVERSITY KARAIKUDI – 630 003 TAMILNADU DIRECTORATE OF DISTANCE EDUCATION BBA (II YEAR

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PAPER 2.4 BUSINESS LAW

Paper 2.2 Commercial Law : Business Law

Indian Contract Act 1872 : Meaning and essentials of a valid contract Formation of contract – Performance of contract – Termination and discharge of contract – Remedies for breach of contract – Quast contract

Special Contracts : Indemnity of guarantee – Bailment – Agency Sale of Goods Act, 1930 : Contract of sale – Conditions and warranties – Transfer of property – Performance of the sale Rights of an unpaid seller Negotiable Instruments Act, 1881 : Negotiable instruments – Parties to a negotiable instrument – Material alteration – Crossing of cheques – Endorsement Payment and collection of cheques

Indian Partnership Act, 1932 : Meaning and test of partnership – Registration of firms – Relations of partners – dissolution of firms Arbitration Act, 1940 : Arbitration – Arbitration without intervention of court – Arbitration in suits Carriage of Goods : Classification of Common Carriers – Rights duties and liabilities of common carrier – Carriage by rail – Contract of affreightment – Charter Party – Bill of Lading – Carriage by air – Documents relating thereto – Liability of the air Carrier

Contract of Insurance : Basic elements – Kinds of Insurance – Fire Insurance – Marine Insurance

Books for reference 1. Kapoor, N D 2. Sen and Mitra 3. Shukla, M. C. 4. Relevant bare acts

Elements of Mercantile Law Commercial Law Mercantile Law

Course Material prepared by – Dr. S. Sudalaimuthu, Reader in Department of Corporate Secretaryship Algappa University, Karaikudi.

Lesson No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10

Title Indian Contract Act. 1972 Special Contracts Contract of Indemnity and Guarantee Contract of Bailments Contract of Agency Sale of Goods Act. 1930 Negotiable Instruments Act, 1881 Partnership Act. 1932 Arbitration Act. 1940 Common Carriers Act Contract of Insurance

1872. It is of particular importance to people engaged in trade. He has offered to sell one to B. has in his mind to dispose of house at Chennai. There is no Consensus-as-idem. Illustration: A has two houses. . the different modes of discharging the contract and the remedies available to the aggrieved parts in the case of breach on contract. It is that branch of law which lays down the essentials of a valid contract. ESSENTIALS OF A VALID CONTRACTS A valid contact must have the following essentials 1. A contract is an agreement made between two or more parties which the law will enforce Sec. 1 the of the Indian Contract Act defines it as “An agreement enforceable by law” Sec 10 lays down that “All agreements are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object and are not hereby – expressly declared to be void. 3. there must be two parties 2. B accepts thinking to purchase the house at Coimbatore. when he offers. Consensus-ad-idem or Identity of Minds: The parties to the contract must have agreed about the subject matter of the contract at the same time and in the same sense. It is the most important branch of business law. while A. one at Chennai and another at Coimbatore. commerce and industry as bulk of their business transactions are based on contracts. Offer and acceptance: There must be an offer and acceptance One party has to make an offer and the other party has to accept it. Two parties : for a valid contract. 1872 MEANING The law relating to the contracts is contained in the Indian Contract Act.LESSON 1 INDIAN CONTRACT ACT.

For example a contract by a minor is void 6. that one of them shall do something either for the benefit of the other or for his own detriment and that these persons intend that the agreement shall be enforceable at law” CLASSIFICATION OF CONTRACTS Contracts may be classified according to their validity. “the essence of legal contract is that there shall be an agreement between two persons. formation or performance. Illustration : A offers to sell his watch for Rs. illegal or unenforceable. An agreement becomes a contract when all the essential elements referred to above are present. 8. I. Thus Rs. the contract is a valid contract. Capacity. The parties to the contract must be competent to contract. The objects is illegal. The consideration is illegal. Consideration: It means “Something in return” Every contract must be supported by consideration. The objects of the contact must be lawful Illustration: A promises to pay Rs. Voidable Contract An agreement which is enforceable by law at the option of one or more of the arties thereto. 500 to B and B accepts the offer. In such a case. but not at the option of the other or others. 5. void.4. in consideration of B murdering C. Lawful consideration: The consideration to a contract must be lawful Illustration: A promises to pay Rs. the contract is either voidable.2(i). the contract is void. Hence. 500 – to B. 500 is the consideration for the watch and vice-versa. . 500 – for letting B’s house for running a brothel. If one or more of these elements are missing. Thus. Free Consent: The consent of the parties must be free from any flow – it must not be caused by a mistake or coercion or undue influence 7. Classification According to validity A contract is based on an agreement. is a voidable contract. Sec.

It is not the result of any express promise or promises by the parties but of their particular act. Illegal Agreement An illegal agreement is one which is criminal is nature or which is immoral. . Example : A contract enter4ed into by a minor is void. Example: A enters into a hotel and takes lunch. The contract is voidable at the option of A. It is an implied contract that he has to pay the cost of lunch after taking it. Unenforceable Contract An unenforceable contract is one which cannot be enforced in a Court of aw because of some technical defect.000.00.Example : A promises to sell his house to B for Rs. He may avoid the contract. II CLASSIFICATIONS ACCORDING TO FORMATION Contracts may be classified according to the mode of their formation as follows: Express Contract If the terms of a contract are expressly agreed upon whether by words spoken or written at the time of the formation of the contract. His consent is obtained by use or force. Void Contract A contract which is at enforceable by law is a void contract. Such an agreement is a void contract. such as absence of writing or where the remeds has been barred by lapse of time. Implied Contract An implied contract is one which is inferred from the acts or conduct of the parties or course of dealings between them. All illegal agreements are void but all more agreements or contracts are not necessarily illegal. 2. the contract is said to be an express contract.

When A supplies the watch and B pays the price. Executed Contracts An executed contract as one in which both the parties have performed have performed their respective obligations. Sec. Thus in the above example. the contract is executor if A has not yet supplied the watch and B has not paid the price. the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence. bilateral contracts are similar to executor contracts. OFFER AND ACCEPTANCE OFFER An offer is also called a proposal. 500.” The person making the proposal is called the “prosper” or “offerer” and the person to whom the proposal is made is called “offeree” . Bilateral Contract A bilateral contract is one in which the obligations on the part of both the parties to the contract are outstanding at the time of the formation of the contract. he is said to make a proposal. the contracts is said to be executed. Example: A agrees to supply a watch to B for Rs. Executory Contracts An executory contract is one in which both the parties have yet to perform their obligations.III CLASSIFICATION ACCORDING TO PERFORMANCE These may be classified as Executed contracts or Executory contracts. Unilateral contracts or Bilateral contracts. 2 (a) of the Indian Contract Act defines a proposal as. With a view to obtaining the assent of that other to such act or abstinence. In this sense. Unilateral Contract A unilateral or one-sided contract is one in which only one party has to fulfil his obligation at the time of the formation of the contract. :When one person signifies to another his willingness to do or to abstain from doing anything.

10. 3. 1000/. 5. that a clause to favourate consider the applies that renewal is ambinguous and not binding the compans 2. An offer is different from a tender A offers to supply goods at a particular rate for a particular period from a certai9n trade. An offer must be communicated to the offeree Gdfg dfgdf dfg dfg dfg : A’s nephew was missing is who was an employee of A. It becomes an acceptance only when B places an order for a part of the goods. But D sold it to another person. An offer is called a specific offer when it is made to a particular person. staying away from him. It found the boy and brought him back to home and sued for the reward. “Won’t accept less than 10. It must contain either definite terms or capable of being made definite. It was held that he was not entitled to the reward as he was ignorant of the offer. A catalogue or price list or tenders invited for the supplier to goods are not proposals. it is called a tender. 4. 6. can ripen itself into a contract with anybody who performs the terms of the offer. An offer may be made to an individual or addressed to the worlds at large. A had announced a reward to anybody who could trace the boy. she sued for the award of £ 100. It was held that she was entitled to the award since an offer made at large.LEGAL RULES RELATING TO OFFER 1. Gdfgdfgdfgdfgdf fgdfgd dfgd dfg: The company has offered by advertisement. If this offer is accepted by B. Meanwhile. D replied. a reward of £ 100 to anybody contracting influenza after using their smoke ball according to their direction. . It must be distinguished from a quotation or an invitation to offer Ghdkjdfkgjdkgjdgdfgkj : P offered to buy D’s property for Rs. Mrs.000” P agreed to pay Rs. volunteered his services to search for the boy.per month to his wife. It was held that mere statement of price by D contained no implied contract to sell it at that price. So. Carlill used it as directed but still had an attack of influenza.000. 6000. Montreal dfgdfgdfghgdh : It was held in this case. Held that the promise was never intended to b e enforced in law. It must intend to give use to legal consequences Gdfgjdfkgjdflkgd : A husband promised to pay Rs.

2. by doing an act which amounts to acceptance according to the terms of the offer or by the offeree accepting the benefit offered by the offeror. Boulton Vs Jones A sold his business to B. is not sufficient. Acceptance should be made before the offer lapses or is revoked or is received . But silence can never be prescribed as a method of communication. An offer can be accepted only by the persons to whom the offer is made. i. the goods without disclosing the fact of sale of business to him. mere mental assent without expressing it and communicating it may means of word or an act. Brogden Vs Metropolitan Railway Co. A by name B. Any method can be prescribed for the communication of acceptance. So an offer binds the offeror only when the offeree has the knowledge of an offer. It was held that the acceptance was not communicated and hence there was no contract. By oversight it was not communicated. spoken or written or by conduct of the parties. This sale is not known to V’s customers. A proposal when accepted becomes a promise.Section 4 lays down that the communication of an offer is complete only when it reaches the offeree. It was held that the price could not be recovered as the contract was not entered into with him.e. the new owner receives the order and supplies. 3. When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. Communication of acceptance may be warved by the offeror : This rule is established in the case of Carill V’s gdfg gdfg ng gdf where the advertisement never wanted the communication apart from fulfilling the conditions of offer. It may be made by express words. The Manager of a railway company simply wrote on the proposal “approved” and kept it in a drawer. Hence. So Jones who is a usual customer of the vendor places an order for goods with the vendor. An offer when accepted becomes a contract. Acceptance must be communicated in usual and reasonable manner. Essentials of Valid Acceptance 1. ACCEPTANCE Section 2 the of the Indian Contract Act defines acceptances as.

or c) Consideration may be past. It is not an acceptance but a counter offer only. 70. 3. Acceptance once made. A commission on the articles sold in the market. Acceptance must be absolute and unconditional and should correspond with the terms of the offeror. it amount to counter offer which may be accepted or rejected by the offeror. It was held that B’s promise to pay commission did not constitute a valid consideration because A did not build the market at the request of B.000. Section 2 of the Indian Contract Act defined consideration thus “When at the desire of the promisor. such act or abstinence or promise is called a consideration for the promise. Something . Durga Prasad Vs Baldev : A built a market at the request of the Collector of the place B promised to pay.e. Has done or abstained from doing or does or abstain from doing a) Consideration may be executed. 1 lakh B asks for Rs. For example.e. a promise to act or abstain from doing in future. an act or forbearance made or suffered for the promise given.e. Hence. i. or promises to do or abstain from doing something. i.” 1. i. Consideration at the Desire of the Promisor Consideration must proceed at the request of the promisor. or b) Consideration may be executor. a stranger to consideration can sue on the contract. or does or abstains from doing. 2. Otherwise. Hence acts done voluntarily or at the request of third parties do not constitute a valid consideration. A offeror to sell his car for S. the promise or any other person has done or abstained from doing. concludes the contract CONSIDERATION Consideration means “something in return for something”. an act or forbearance already taken place before the contract was entered into 4.4. The Promisee or any other Person Consideration may move from the promise or any third party. 5.

But they cannot be sued except with the permission of the Central Government and certified by the Secretary.Consideration may not be adequate. its performance will be suspended during the . Incapacity to contract Fgsdklgjfdsklg asdgjsdlkgsdfg sgsdf Mental deficiency Ing incapacity arising of hdfgdf 1. He has given his consent freely. But the following are exceptions. The agreement is a contract though consideration is inadequate. (2) A promise to compensate a person who has already voluntarily done something for the promisor. 10. An agreement made without consideration is void. Alien Enemy The enemy’s status is to be determined by the place at residence of the individual. 11 declares the following person to be incompetent to contract. 10. (1) An agreement expressed in writing and registered and made on account of natural love and affection between parties standing in neat relation to each other. but not by his nationality. an agreement becomes a contract if it is entered into between the parties who are competent to contract. Foreign Suvereigns and Ambassadors They may enter into contracts. (i) (ii) (iii) Minors Persons of unsound mind. or (3) A promise to discharge a time-barred debt. But it must be real and lawful. and Persons disqualified by any law to which they are subject. 2. Example : A agrees to sell a cow worth Rs. According to Sec. CAPACITY TO CONTRACT The parties who enter into a contract must have the capacity to do so ‘Capacity’ means competence of the parties to enter into a valid contract. Thus Sec. 1200 for Rs. If a contract is already entered into into before the declaration of war.

Bankrupt He cannot enter into contract and bind his property as his property shall be vested in the official receiver when he is adjudged an insolvent.g. he is capable of understanding it and of forming a rational judgement as to tis effect upon his interests. Conviet He is no competent to contract during the period of sentence. who is at intervals of sound mind may contract during those intervals. Illustration: a patient in a lunatic asylum. When he is of Unsound Mind Section 12 lays down that : A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it.period of war and in case the war continues to where period. It is a legal entity. E. 2. A minor cannot enter into a valid contract. Artificial Person : Corporation It is a person in the eye of law. 5. . a minor or (b) he is of unsound mind. Its contractual capacity is limited. 1. (B) INCAPACITY ARISING FROM MENTAL DEFICIENCY A person is sand to be mentally deficient when (a) he does not attain majority. the contract becomes void on the ground of impossibility of perticugdfgdf contract. A person who is usually of unsound mind. it cannot enter into contract to marry or which is ultra vires its powers. It can purchase properties enter into contracts. 4. When he does not attain majority: Minor A minor is a person who has not completed 18 years of age. but occasionally of sound mind may mase a contract when he is of sound mind. He attain majority on completion of his 21 year in England and 18 year in India. For example. sue and be sued on such contracts. 3.

so that people may not exploit their tender age. 7. a contract by a minor is void. CONSENT AND FREE CONSENT Consent: It means acquiescence or act of assenting to an offer. but his estate only is liable. 17. and 22 (Sec. a sale or mortgage in favour of a minor is enforceable by him. Even in India he attains majority on completion of 21 years when his property is managed by a court of wards or a guardian. Even here. 3. provided the guardian is competent to contract and the contract is beneficial to the minor. or (3) Fraud as defined in Sed. if restitution is possible. In Indian law. Under Sec. 18. A contract entered into by a minor by fraudulently misrepresenting his age is void. It cannot be even ratified by him after attaining majority. 16. “Minors can have no privilege to cheat men”. or (4) Misrepresentation as defined in Sec. 21. 15 or (2) Undue influence as defined in Sec. The property of the minor is liable for the necessaries supplied to him. A contract by a guardian on behalf of the minor is enforceable by or against the minor. So. “Two or more persons are said to consent when they agree upon the same thing in the same sense”. though law protects them. While a sale or mortgage by a minor is void. he is not personally liable. provided the goods are suitable tot eh condition of his life and status. 5. 6. 2. But he cannot purchase immovable property without obtaining the consent of the court. He attains majority on completion of 21 years in England and 18 years in India. 14) . 3 of the Indian Partnership Act a minor may be admitted to the benefits of partnership with the consent of all the partners. 4. He cannot be stopped from setting up the plea of minority. subject to the provisions of Secs. if a minor receives goods on credit while payment cannot be enforced goods can be recovered. or (5) Mistake.MINOR IN INDIAN LAW A minor is a person who is not a major. 20. (Sec. 13) Free Consent: Consent is said to be free when it is not caused by (1) Consent as defined in Sed. 1.

EFFECT OF COERCION . The contract in this case is voidable at this option. to the prejudice of any person whatever. A threat to commit suicide also amounts to coercion. with the intention of causing any person to enter into an agreement. B agrees to lend the amount to C.When there is no consent. 18) Mistake of law (Sec. or threatening to commit. 17) Innocent or unintentional (Sec. Example: a threatens to kill B if he does lend Rs. 21) Mistake of fact (Sec. or threatening to detain. any act forbidden by the Indian Penal Code 1860 or the unlawful detaining. The agreement is entered into under coercion. any property. there is no contract Example : A is forced to sign a promissory note at the point of pistol. 1000 to C. 15) Undue influence Misrepresentation (Sec. 20) COERCION When a person is compelled to enter into a contract by the use of force by the other party or under a threat. 16) Mistake Fraudulent or Willful (Sed. Coercion is the committing. A knows what he is signing but his consent is not free. FLOW IN CONSENT Coercion (Sec. “coercion” is said to be employed.

Any such contract may be set aside either absolutely or if the party who is entitled to avoid it has received any benefit thereunder. (i) (ii) (iii) (iv) (v) (vi) Parent and child Guardian and ward Trustee and beneficiary Doctors and patient Solicitor and client. This happens when a special kind of relationship exists between the parties such that one party is in a dominant position to exercise undue influence over the other. 16(1) defines : undue influence” as follows A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. 19-A) . able to take unfair advantage over the other. the agreement is a contract voidable at the option of the party whose consent was so caused (Sec.When consent to an agreement is caused by coercion. upon such terms and conditions as to the Court may seem just and equitable (Sec. The following relationships usually raise a presumption of undue influence viz. 19) UNDUE INFLUENCE Sometimes a party is compelled to enter into an agreement against his will as a result of unfair persuasion by the other party. the agreement is a contract voidable at the option of the party whose consent was so obtained. Sec. and Finance and fiancée The presumption of undue influence applies whenever the relationship between the parties is such that one of them is by reason of confidence reposed in him by the other. fraud or misrepresentation. EFFECT OF UNDUE INFLUENCE When consent to an agreement is obtained by undue influence.

and the maker intended the other party to act upon it. 1. Coercion Undue Influence The consent is given under the The consent is given by a person threat of an offence who is so situated in relation to another that the other person is in a position to dominate his will Coercion is mainly of a physical Undue influence is of moral character. there is misrepresentation (1) When a person positively asserts that a fact is true when his information does not warrant it to be so. however innocently. the other party to the agreement to make a mistake as to the substance of the thing which is the subject of the agreement. force or mental pressure. There must be intention of Here the influencing party uses its causing any person to enter into position to obtain an unfair an agreement advantage over the other party It involves a criminal act No criminal act is involved 2. or (c) recklessly. 3. It involves use of moral of physical or violent force. MISTAKE OF LAW . 4. It involves mostly use character. It also includes non-disclosure of a material fact or facts without any intent to deceive the other party. (3) When a party causes. 18 defines “misrepresentation” According to it. FRAUD Fraud exists when it is shown that a false representation has been made (a) knowingly. not caring whether it is true or false. (2) When there is any breach of duty by a person which brings an advantage to the person committing it by misleading another to his prejudice.DIFFERENCE BETWEENS COERCION AND UNDUE INFLUENCE S. or (b) without belief in its truth. No. Sec. MISREPRESENTATION AND FRAUD MISREPRESENTATION Misrepresentation is a false statement which the person making it honestly believes to be true or which he does not know to be false. though he believes is to be true.

20). or (2) a unilateral mistake 1. (Sec. 1.Mistake of law be (1) mistake of law of the country or (2) mistake of law of a foreign country. 21) MISTAKE OF FACT Mistake of fact may be (1) a bilateral mistake. Mistake of law of the country: Ignorantta juris non exerts Ex. the car and garage where completely destroyed by fire a day earlier. A party cannot be allowed to get any relief on the ground that it had done a particular act in ignorance of law. there is a bilateral mistake. and the contract cannot be avoided.e. therefore. The agreement is void (ii) The mistake must relate to a matter of fact essential to the agreement. This contract may be voidable. 20. . both the parties should misunderstand each other and should be at a cross-purposes. Mistake of law of a foreign country: Such a mistake is treated as mistake of fact and the agreement in such a case is void. A mistake of law is. no excuse. 2. The following two conditions have to be fauced for the application of Sec. Example: A agreed to purchase B’s motor-car which was lying in B’s garage. Bilateral Mistake Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement. Ignorice of laws is no exclause : is a well settled rule of law. Example: A man and a woman entered into a separation agreement under which the man agreed to pay a weekly allowance to the woman mistakenly believing themselves lawfully married leld the agreement was void as there was mutual mistake on a point of fact which was material to the existence of the agreement. In such a case the agreement is void (sec. As to what facts are essential in an agreement will depend upon the nature of the promise in each case. Unknown to either party. (i) The mistake must be mutual i. Example: A and B enter into a contract on the erroneous belief that a particular debt is barred by the Indian Law of Limitation.

(4) Mistake as to the quantity of the subject-matter: If both the parties are working under a mistake as to the quantity of the subject-matter the agreement is void. which in fact at the time of the contract is non-existent. though neither parts was aware of the fact. Example: A sells to B a prece of silk B thinks that it is foreign silk. Held. Mistake as to the subject-matter covers the following cases. (1) Mistake as to the existence of the subject-matter: If both the parties believes the subject-matter of the contract to be in existence. W meant the former ship R meant the latter. Example: W agreed to buy from R a cargo on cotton to arrive ex-peerless from Bombay”. . A knows that B thinks so but knows that it is Indian silk only. It turns out that the goat was dead at the time of the bargain. (2) Mistake as to the identity of the subject-matter: It usually arises where one party intends to deal in one thing and the other intends to deal in another. one sailing in October and the other in December. The agreement is void. (3) Mistake as to the quality of the subject-matter: If the subject matter is something essentially different from what the parties thought it to be the agreement is void. There were two ships of that name sailing from Bombay. there was a mutual or a bilateral mistake and there was no contract. the contract is void. There was a difference in value between the weight of the bar as it was and as it was supposed to be Held the agreement was void. the agreement is void.The various cases which fail under bilateral mistake are as follows: Mistake as to the Subject – Matter: Where both the parties to an agreement are working under a mistake relating to the subject-matter. Example: A silver bar was sold under a mistake as to its weight. Example: A agrees to buy from B a certain goat.

immediately accepted the offer. the agreement is void.000. 15.000 was a mistake for Rs. a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. 20. Impossibility may be— (i) Physical Impossibility Example: A contract for the hire of a room for witnessing the coronation procession of Edward VII was held to be void because unknown to the parties the procession had already been cancelled. 22. is void on the ground of impossibility.000. Unilateral Mistake When in a contract only one of the parties is mistaken regarding the subject matter or in expressing or understanding the terms or the legal effect of the agreement the mistake is a unilateral mistake. the lease was void. A unilateral mistake is not allowed as a defence in avoiding a contract unless the mistake is brought about by the other party’s fraud or misrepresentation. Example: A person took a lease of a fishery which. According to Sec. He had earlier declined an offer from D to buy the same property for Rs. in such a case. the agreement is void. 25. unknown to either party already belonged to him.000. The agreement. as a matter of law be done.(5) Mistake as to the title to the subject-matter: If the seller as selling a thing which he is not entitled to sell and both the parties are acting under a mistake. 15. (ii) Legal Impossibility: A contract is void if it provides that something shall be done which cannot. D who knew that his offer of Rs. Mistake as to the Possibility of Performing the Contract Consent is nullified if both the parties believe that in agreement is capable of being performed when in fact this is not the case. Example: C wrote to D offering to sell certain property for Rs. Held. (6) Mistake as to the price of the subject-matter: if there is a mutual mistake as to the price of the subject-matter. D knew perfectly well that the offer was made by mistake and hence the contract could not be enforced. Held. 2. .

Where the Court regards it as opposed to public policy. If the object is fraudulent: An agreement which is made for a fraudulent purpose is void. Held the agreement was unlawful. The agreement is unlawful.00. 1. 25. If the object is permitted. In some cases consideration for an agreement may be lawful but the purpose for which the agreement is entered into may be unlawful. He cannot plead mistake as a defence. being immoral. The consideration or object of an agreement is unlawful 1. 2. the agreement is void. If the Court regards the object as immoral Example: A agrees to let her daughter to B for concubinage (state of living together as man and wife without being married.Example: A offers to sell his house to B for an intended sum of Rs. 75 and a weekly expense allowance of Rs. If the object is forbidden by law Example: A promise to obtain for B an employment in the public service and 18 promises to pay Rs. Thus an agreement in fraud of creditors with a view to defeating their rights is void. LEGALITY OF OBJECT A contract must have a lawful object. The word object means purpose of design. it would defeat the provisions of any law Example: N agreed to enter a company’s service in consideration of a weekly wage of Rs. In such cases the agreement is void.000 to A. 5. 40. Both the parties knew that the expense allowance was a device to evade tax. 44. As such both the object and the consideration of an agreement must be lawful otherwise the agreement is void. 3. 4.000. as the consideration is unlawful. By mistake he makes an offer in writing of Rs. UNLAWFUL AND ILLEGAL AGREEMENTS .000.

1. he must be prosecuted and punished. Agreement to commit a crime: Where the consideration in an agreement is to commit a crime. the object of which is to interfere with the administration of justice is unlawful. . 3. 2. Example: T lends Rs. 4. recover the amount. the agreement is opposed to public policy. T cannot. Agreements which interfere with administration of police: An agreement. Agreements in restraint of legal proceedings : Sec. financial or otherwise. the agreement will be illegal and the agreement between B and T shall also become illegal. (b) Stifling prosecution: It is in public interest that if a person has committed a crime. 28 which deals with these agreements. to another to enable him to bring or defend legal proceedings when the person giving assistance has got no legal interest of his own in the subject-matter. because it is collateral to the main transaction. is not enforceable by law. (c) Maintenance and champerty: Maintenance’ is an agreement to give assistance.An unlawful agreement is one which. The Court will not enforce such an agreement. 50. like a void agreement. An illegal agreement is not only. (a) Interference with the course of justice: An agreement which obstructs the ordinary process of justice is unlawful. If B enters into an agreement with T. It may take any of the following forms. therefore. Some of the agreements which are opposed to public policy and are unlawful are as follows. an alien enemy. being opposed to public policy. AGREEMENTS OPPOSED TO PUBLIC POLICY An agreement is said to be opposed to public policy when it is harmful to the public welfare.000 to B to help him to purchase some prohibited goods from T. void as between the immediate parties but has further effect that the collateral transactions to it also become tainted with illegality. Agreements of trading with enemy: An agreement made with an alien enemy in time of war is illegal on the ground of public policy.

This rights of guardianship cannot be bartered away by any agreement. Such agreements have been held to include the following.00. 8. 2. 5. . Agreements restricting personal liberty: Agreements which unduly restrict the personal freedom of the parties to it are void as being against public policy. Example: R paid a sum of Rs.000. (a) A promise by a married person to marry during the lifetime or after the death of spouse. Agreements tending to create interest opposed to duty: If a person enters into an agreement whereby he is bound to do something which is against his public or professional duty the agreement is void on the ground of public property. Agreements interfering with marital duties: Any agreement which interferes with the performance of marital duties is void being opposed to public policy.(a) Agreements restricting enforcement of rights: An agreement which wholly or partially prohibits any party from enforcing his rights under or in respect of any contract is void to that extent. On A’s failure to get the seat. This is because the law regards marriage and married status as the right of every individual. Trafficking in public offices and rules: Agreements for the sale or transfer of public offices and titles or for the procurement of a public recognition like Padma Vibhushan or Param Veer Chakra for monetary consideration are unlawful being opposed to public policy. is the legal guardian of his/her minor child. 9. Agreements in restraint of paternal rights: A father. the agreement is void on the ground of public property. 2. 11. is void (Sec. (b) Agreements curtailing period of limitation: Agreements which curtail the period of limitation prescribed by the Law of Limitation are void because their object is to defeat the provisions of law. and in his absence the mother. 10.000 to A who agreed to obtain a seat for R’s son in a Medical College. Marriage brokerage or brocage agreements: An agreements by which a person for a monetary consideration. other than a minor. 6. promises in return to procure the marriage of another is void being opposed to public policy. R filed a suit for the refund of Rs. Agreements in restraint of marriage: Every agreement in restraint of the marriage of any person. 26).50. 7. Held.

an agreement to lend money to a woman in consideration of her getting a divorce and marrying the lender. 24) 5) Agreements made without consideration (Sec. 20]. 57) . 23) 4) Agreements the consideration or object of which is unlawful in part (Sec. 3) Agreements the consideration or object of which is unlawful (Sec. VOID AGREEMENTS A void agreement is one which is not enforceable by law [Sec. the second set of reciprocal promises is a void agreement (Sec. 25) 6) Agreements in restraint of marriage (Sec. 12. 26). Agreements in restraint of trade: An agreement which interferes with the liberty of a person to engage himself in any lawful trade profession or vocation is called an agreement in restraint of trade. 11) 2) Agreements made under a mutual mistake of fact [Sec. 36) 12)Agreements to do impossible acts (Sec.(b) An agreement in contemplation of divorce e. 30) 11)Agreements contingent on impossible events (Sec. 2 ] Such an agreement does not give rise to any legal consequences and exaused ab initio.g. 56) 13)In case of reciprocal promises to do things legal and also other things illegal. 7) Agreements in restraint of trade (Sec. 13. Agreements to defraud creditors or revenues authorities: An agreement the object of which is to defraud the creditors or the revenue authorities is not enforceable being opposed to public policy. 27) 8) Agreements in restraint of legal proceedings (Sec. 1) Agreements by incompetent parties (Sec. 29) 10)Agreements by way of wager (Sec. 28) 9) Agreements the meaning of which is uncertain (Sec. The following agreements have been expressly deciared to be void by the Contract Act. (c) An agreement that the husband and wife will always stay at the wife’s parents’ house and that the wife will never leave her parental house.

and that B shall pay A the same amount if it does not rain. 100 if it rains on Monday. It is this dependence on a future event which distinguishes a contingent contract from other contracts. There are three essential characteristics of a contingent contract. goods are sent on approval the contract is a contingent contract depending on the act of the buyer to accept or reject the goods. Thus if A and b enter into an agreement that A shall pay B Rs. For example. (2) Uncertain event: The promise must be conditional on an event happening or not happening. A Contingent Contract is a contract to do or not to do something. (3) Each party must stand to win or lose: Upon the determination of the contemplated event. does or does not happen (Sec. (4) No control over the event: Neither party should have control over the happening of the event one way or the other (5) No other interest on the event: Neither party should have nay interest in the happening or non-happening of the event other gdfgjdg sum or stake he will with or lose CONTINGENT CONTRACTS ‘Contingent’ means that which is dependent on something else. 31). if some event collateral to such contract. Essentials of Wagering Agreement: (1) Promise to pay money or money’s worth: The wagering agreement must contain a promise to pay money or money’s worth. each party should stand to win or lose. it is a wagering agreement. Its performance depends upon the happening or non-happening in future of some event. 1. .WAGERING AGREEMENTS OR WAGER A wager is an agreement is an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay if the event does not happen.

its performance can be enforced when the happening of that event becomes impossible. The marriage of B to C must not be considered impossible. 32) Example: A contracts to pay B a sum of money when B marries C. The contract can be enforced when the ship sinks. (Sec. 34) Example: A agrees to pay B a sum of money if B marries C. and the contract has got to be performed in any case it is not a contingent contract 3. C dies without being married to B. incidental to the contract Contracts of insurance. become void if the event does not happen or its happening becomes impossible before the expiry of that time. the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time. C marries D. . If the event becomes impossible. 4. although it is possible that D may die and that C may afterwards marry B. Example: A promises to pay B a sum of money if a certain ship returns within a year. Where a contingent contract is to be performed if a particular event does not happen. 33) Example: A agrees to pay B a sum of money. such contracts become void (Sec. The ship is sunk. The event must be collateral. Contingent contracts to do r onto to do anything. The contract becomes void. of otherwise than under further contingencies (Sec. Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. i. The contract may be enforced if the ship returns within the year and becomes void if the ship is burnt within the year. RULES REGARDING CONTINGENT CONTRACTS 1. if a certain ship does not return. The event must be uncertain. If the event if bound to happen. indemnity and guarantee are the commonest instances of a contingent contract. 2. 3.2.e. if a specified uncertain event happens within a fixed time. If a contract is contingent upon how a person will act at an unspecified time.

5. Contingent agreements to do or not to do anything, if an impossible event happens are void, whether or not the fact is known to the parties (Sec. 36).

PERFORMANCE OF CONTRACT Performance of a contract takes place when the parties to the contract fulfil their obligations arising under the contract within the time and in the manner presented.

OFFER TO PERFORM Sometimes it so happens that the promisor offers to perform him obligation under the contract at the proper time and place but the promise does not accept the performance. This is known as “attempted performance” or “tender”.

REQUISITES OF A VALID TENDER 1. It must be unconditional. It becomes conditional when it is not in accordance with the terms of the contract. 2. It must be of the whole quantity contracted for or of the whole obligation. A tender of an installment when the contract stipulates payment in full is not a valid tender. 3. It must be by a person who is in a position, and is willing, to perform the promise. 4. It must be made at the proper time and place. A tender of goods after the business hours or of goods or money before the due date is not a valid tender. 5. It must be made to proper person, i.e. the promise or his duly authorized agent. It must also be in proper form. 6. It may be made to one of the several joint promises. In such a case it has the same effect as a tender to all of them. 7. In case of tender of goods, it must give a reasonable opportunity to the promise for inspection of goods. 8. In case of tender of money, the debtor must make a valid tender in the legal tender money.

RECIPROCAL PROMISES Promises which form the consideration or part of the consideration for each other are called: reciprocal promises” [Sec. 2(f)]. Where, for example: A promises to do or not to

do something and consideration of B is promise to do or not to do something the promises are reciprocal.

These promises have been classified is follows:

(1) Mutual and Independent: Where each party must perform his promise independently and irrespective of the fact whether the other party has performed or is willing to perform his promise or not the promises are mutual and independent. Example: In a contact of sale, B agrees to pay the price of goods on of instant. S promises to supply the goods on 2nd instant. The promises are mutual and independent.

(2) Conditional and Dependent: Where the performance of the promise by one party depends on the prior performance of the promise by the other party the promises are conditional and dependent.

Example: A promises to remover certain debris lying in front of B’s house provided B supplies him with the cart. The promises in this case are conditional and dependent. A need not perform his promise if B fails to provide him with the cart.

(3) Mutual and Consent: Where the promises of both the parties are to be performed simultaneously they are said to be mutual and concurrent. The example of such promises may be sale of goods for cash.

Rules Regarding Performance of Reciprocal Promises 1) Simultaneous performance of reciprocal promises 2) Order of performance of reciprocal promises 3) Effect of one party preventing another from performing promise 4) Effect of default as to promise to be performed first. 5) Reciprocal promise to do things legal and also other things illegal

but the promise is entitled to compensation for any loss occasioned to him by such failure (Sed. if expressed in writing. When time is of the essence: In a contract. This is so because businessmen want certainty. If the contract includes clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of time provided in the contract. must be in a language which is unambiguous and unmistakable. If. 1. The contract (or so much of it as remains unperformed becomes voidable at the option of the promise (Sec. 55 para 3) In commercial or mercantile contracts which provide for performance within a specified time. 2. he cannot claim compensation for nay loss occasioned by the nonperformance of the promise at the agreed time. . in which time is not of the essence of the contract. Sec. such clauses are construed as rendering ineffective the express provision relating to the time being of the essence of the contract. Example: In a contract for the sale or purchase of goods the prices of which fluctuate rapidly in the market. 55 para 1). if there is a failure on the part of the promisor to perform his obligation within the fixed time. in which time if of the essence of the contract. The mere fact that a certain time is specified in a contract for the performance of a promise does not necessarily make time as the essence of the contract. in such a case the promise accepts performance of the promise after the fixed time. the time of delivery and payment are considered to be of the essence of the contract. he can do so (Sec. But if at the time of accepting the delayed performance he gives notice to the promisor of his intention to claim compensation.TIME AS THE ESSENCE OF THE CONTRACT The expression “time is of the essence of the contract “ means that a breach of the condition as to the time for performance will entitle the innocent party to consider the breach as a repudiation of the contract. When time is not of the essence: In a contract. failure on the part of the promisor to perform his obligation within the fixed time does not make the contract voidable. 55 deals with the question of “time as the essence of the contract” and provides. 55 para 2) Intention to make time as the essence of the contract. time is ordinarily of the essence of the contract.

By Lapse of Time 5. Discharge by Performance Performance means the doing of that which is required by a contract. By Breach of Contract 1. By impossibility 4.e. 62 and 63 are given below. 2. . when the rights and obligations created by it come to an end. It may be (1) Actual Performance: When both the parties perform their promises the contract is discharged. Discharge by agreement or consent (a) Sec. Discharge by performance takes place when the parties to the contract fulfill then obligations arising under the contract within the time and in the manner prescribed.TERMINATION AND DISCHARGE OF CONTRACT Discharge of contract means termination of the contractual relationship between the parties. Performance should be complete precise and according to the terms of the agreement. A contract may be discharged 1. (2) Attempted Performance or Perfer: Tender is not actual performance but is only an after to perform the obligation under the contract. By operation of Law 6. A contract is said to be discharged when it ceases to operate. Performance of a contract is the most usual mode of its discharge. The various cases of discharge of contract by mutual agreement are dealt with in Sec. By Agreement or Consent 3. i. 62 lays down that if the parties to a contract agree to substitute a new contract for it or to rescind or to alter it the original contract is discharged and need not be performed. By Performance 2.

(f) Merger: Merger tales place when an inferior right accuring to a party under a contract merger into a superior right accruing to the same party under the same on some other contract. the goods go out of fashion. (e) Waver: Waver takes place when the parties to a contract agree that gdfsg shall no longer be bound by the contract. Rs. the old debt of A to B is at an end and a new debt from C to B has been contracted.000 were payable. The whole debt is discharged. instead of A. the old contract is discharged. (b) Rescission Sec. A pays to B and B accepts in satisfaction of the whole debt. Example: A enters into a contract with B for the supply of 100 bales or cotton at his Godown No. acceptance of a lesser sum than what was contracted for the discharge of the whole of the debt. By that time. Example: A promises to supply certain goods to B six months after date.Rescission Sec. 20. In such a case. . Example: A owes B Rs. B and C that B shall henceforth accept C as his debtor. (d) Remission Sec. 62: Rescission of a contract takes place when all or some of the terms of the contract are cancelled. It may occur (i) (ii) By mutual consent of the parties or Where one party fails in the performance of his obligation in such a case the other party may rescind the contract without prejudice to his right to claim compensation for the breach of contract. 50. Example: A owes money to B under a contract. 63) Remission means acceptance of a lesser fulfilment or the promise made. A and B may after the terms of the contract by mutual consent.000. (c) Alteration (Sec 62): Alteration of a contract may take place when one or more of the terms of the contract is are altered by the mutual consent of the parties to the contract. This amounts to a mutual thandonment at rights by the parties to the contract.000 paid at the time and place at which Rs. i. 1 by the first of the next month. It is agreed between A. 62: Novation takes place when a new contract is substituted for an existing one between the same parties. 50.e. A and B may rescind the contract.

The contract becomes void. subsequent to its formation. the contract is discharged. Death or Incapacity for personal service: Where the performance of a contract depends on the personal skill or qualification of a party.Example: P holds a property under a lease. contract is discharged . is destroyed without any fault of the parties to the contract. This is known as precontractual or initial impossibility. This rule is based on the following maxims: 1. Example: C let a music hall to T for a series of concerts on certain days. If there is any change in the state of things which ought to have occurred does not occur. Non-existence or Non-occurrence of a particular state of things: Sometimes. Example: A and B contract to marry each other. His rights as a lessee merge into his rights as an owner. Impossibility arising subsequent to the formation of contract: Impossibility which arises subsequent to the formation of a contract (which could be performed at the time when the contract was entered into) is called postcontractual or supervening impossibility. Discharge by Supervening Impossibility A contract is discharged by supervising impossibility in the following cases 1. 56 lays down that can agreement to do an impossible act itself is void”. 3. A goes mad. The hall was accidentally burnt down before the date of the first concert. it is void ab initio. 3. the contract is discharged. 2. He later buys the property. Held the contract was void. a contract is entered into between two parties on the basis of a continued existence or occurrence of a particular state of things. 2. Before the time fixed for the marriage. Destruction of subject-matter of contract: When the subject-matter of a contract. Impossibility existing of the time of agreement: Sec. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE If an agreement contains an undertaking to perform an impossibility.

the contract is terminated on death of the promissory. Example: D enters into a contract with P on 1st March for supply of ghdkjfg imported goods in the month of September of the same year in June gdfg fgdf Parliament the import of such goods is banned.on the illness or incapacity or death of that party. If the price is not paid and creditor does not file a suit against the buyer for the recovery of price within three years the debt becomes time-barred and hence irrecoverable. she was taken seriously ill. . This includes discharge (a) By Death: In contracts involving personal skill or ability. and the performance of the comerge becomes impossible the contract discharged. 5. The man’s life is an implied condition of the contract. 4. Example: An artist undertook to perform at a concert for a certain price. For example the price of goods sold without any stipulation as to credit should be paid within three years of the delivery of the goods. Held she was discharged due to illness. Outbreak of war : A contract entered into with an after enems during war is unlawful and therefore impossible for performance. In other contracts the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person. 4. Contracts entered into before the outbreak of war are suspended during the war and may be revived after the war is over. Change of law: When subsequent to the formation of a contract change of law takes place. DISCHARGE BY OPERATION OF LAW A contract may be discharged by operation of law. Before she could do so. DISCHARGE BY LAPSE OF TIME The Limitation Act 1963 laws down that a contract should be performed within a specific period called period of limitation. If it is not performed and if no action is taken by the promise within the period of limitation he is deprived of his remedy at law. The contract is discharged. 5.

the injured party has one or more of the following remedies: 1. the other parties are discharged. (e) B y Rights and Liabilities becoming visited of the dfgdfg Person: Where the rights and liabilities under a contract vested in the same person for example when a bill gets into the hands of the acceptor. 6. the other parts can avoid the contract. (d) By Authorised Alteration of the terms of a written agreement: Where a party to a contract makes any material alteration in the contract without the consent of the other parts. Rescission of the contract 2. he is discharged from all liabilities incurred prior to his adjudication. Suit for specific performance of the contract 5. It occurs when a party to the contract without lawful excuse does not fulfil his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. REMEDIES FOR BREACH OF CONTRACT When a contract is broken. Suit for injunction 1. RESCISSION .(b) By Merger: When an inferior right accruing to a party merges into a superior rights accruing to the same party under the same or some other contract the inferior right accruing to the party is said to be discharged. (c) By Insolvency: When a person is adjudged insolvent. Suit for damages 3. Suit upon quantum meruit 4. DISCHARGE BY BREACH OF CONTRACT Breach of contract means a breaking of the obligation which a contract imposes. It confers a right of action for damages on the injured party. A material alteration is one which changes in a significant manner the legal identity or character of the contract or the rights and liabilities of the parties to the contract.

Example: a promises B to supply 10 bags of cement on a certain day. the price to be paid at the time of delivery the price of wheat . B is discharged from liability to pay the price. 1000 per quintal. Example: A contracts to sell and deliver 50 quintals of Farm Wheat to B at Rs. 2.When a contract is broken by one party.e. This means that the damages must be the proximate consequence of the breach of contract. The object of awarding damages for the search of a contract is to put the injured party in the same position. as if he had not been injured. The rules relating to damages may be considered as under 1. i. the injured party can recover from the other party such damages as naturally and directly arose in the usual course of things from the breach. so far as money am the it. In such a case. (a) Where the contract is voidable by the plamtiff of (b) Where contract is unlawful to fgdfg but apparent off its face and the defendant is more to blame thatn the gdfgdf When a party treats the contracts as rescinded be makes himself liable to restgdf any benefits he has fgdfg of under the contract to the party from whom such benefits were received. A does not supply the goods. The Court may grant rescission. in the position in which he would have been had there been performance and not breach. DAMAGES Damages are a moctars compensation allowed to the injured party by the Court for the loss or injurs suffered by him by the breach of a contract. These damages are known as ordinary damages. Damages arising naturally – Ordinary damanges When a contract has been broken. B agrees to pay the price after the receipt of the goods. be is absolved of all his obligations under the contract. the other party may sue to treat the contract as rescinded and refuse further performance. But if a person rightfully rescinds a contract he is entitled to compersation for any damage which he has sustained through non-fulfilment of the contract by the other party. This is called the doctrine of restitution.

the Court may award exemplary damages. and not by way of punishement for wrong inflicted. Vindictive or Exemplary damages Damages for the breach of a contract are given by way of compensation for loss suffered. 3. Hence vindictive or exemplary’ damages have no place in the law of contract because they are punitive involving punishment by nature. A builds the house so badly that before the 1st January. Held. a builder. the damages recoverable by him are nominal. and gdfgdfgdf to make compensation to C fvor the breach of the contract. it falls down and has to be rebuilt by B fgdfg vonsequence loses the rent which be was to have received from C. A must make cgdfgdfgd to gdfg for the cost of rebuilding the house for the rent lost. he was only entitled to nominal damages as he had suffered no loss. Example: A. But in case of (a) breach of a promise to marry and the dishonor of a cheque by a banker wrongfully when he possesses sufficient funds by the credit of the customer. After six months two partners rebred the business being carried on by the other two B declined to be employed under the continuing partners. Such damages knows as special damages cannot be claimed as a matter of right. 4. 1200 per quintal and A refuses to sell the wheat B can claim damages at the rate of Rs. contracts to erect a house for B by the 1st of January. Damages for loss of reputation . Nominal damages Where the injured party has not in fact suffered any loss by reason of the breach of a contract.rises to Rs. 200 per quintal. Damages in contemplation of the parties – Special damages Special damages can be claimed only under the special circumstances which would result in a special loss in case of breach of a contract. 2. The order that B may give possession of it at that time to C to whom B has contracted to hfdg it. A is informed of the contract between B and C. These damages merels acknowledge that the plaintiff has proved his case and won. Example: A firm consisting of four partners employed B for a period of two years. and for the compensation made to. 5.

7. 8. Damages for inconvenience and discomfort Damages can be recovered for physical inconvenience and discomfort. 6. The general rule in this connection is that the measure of damages is not affected by the motive or the manner of the breach. Held (a) A could recover a sum representing his wages for the period of notice and the commission which he would have earned during that period but (b) he could not recover anything for his injured feelings or for the loss sustained from the fact that his dismissal made it more difficult for him to obtain employment. The Court must do its best estimate the loss and a contingences may be taken into account. Example: A was wrongfully dismissed in a harsh and humiliating manner by from his employment. The selected twelve were to be provided theatrical encagements. . That is he cannot claim compensation for loss which is really due not to the breach. but due to his own neglect to mitigate the loss after the breach. Mitigation of damages It is the duty of the injured party to take all reasonable steps to mitigate the loss caused by the breach.Damages for loss of reputation on case of breach of a contract are generally not recoverable. Example: H advertised a beauty competition by which gfdgfk of certain newspapers were to select fifty ladies. An exempuon to this rule exists in the case of a banker who wrongfully refuses to honour a customer’s cheque. If the customer happens to be a tradesman. Difficulty of Assessment Although damages which are incapable of assessment cannot be recovered the fact that they are difficult to assess with certainty or precision does not prevent the aggrieved party from recovering them. C was one of the fifty and by H’s breach of contract she was not present when the final section was made. He himself was to select twelve out of these fifty. He cannot claim to be compensated by the party in default for loss which the ought reasonably to have avoided. And the rule of law is the smaller the amount of the cheque dishonoured the larger the amount of damages awarded. But if the customer is not a tradesman be can recover only nominal damages. he can recover damages in respect of any loss to his trade reputation byh the breach. Held C was entitled to damages although it was difficult to assess them.

Dfgd as the Court considers reasonable. Damages agreed upon in advance in case of breach If a sum is specified in a contract as the amount to be paid in case of its gdfgdf or if the contract contains any other stipulation by way of gdfgdfg dfg failure to perform the obligations the aggrieved party is entiled to gfdgd from the gdfgd has broken the contract a reasonable compensation not exceeding the fgdfg named. Payment of Interest The largest number of cases decided under Sec. The following rules are observed with regard to payment of interest. From the date of default 3. and b. Cost of Decree The aggrieved party is entitled in addition to damages to get the cost of getting the decree for damages. Payment of interest at higher rate a. B is entitled to recover from A such compensation not exceeding Rs. Liquidated damages represent a sum fixedc or ascertained by the parties in the contract which is a fair and genuine pre-estimate of the probable loss that gdfg fgd fg as a result of the breach. If it takes place. From the date of the bond. Liquidated Damages and Penalty Sometimes parties to a contract stipulate at the time of its formation that on the breach of the contract by either of them a certain specified sum gdfgd be payable as damages. Such a sum may amount to either liquidated damages or a penalty. Payment of compound interest on default . Example: A contracts with B to pay Rs. 1000 if he fails to pay gdfgdf g given day. Payment of interest in case of default. which is dispropoetionate to the damages likely to fdgdfgd as a result of the breach. 74 relate to stipulation if a contract providing for payment of interest. 1. It is fixed up with a view to securing the performance of the contract. The cost of suit for damages is in the discretion of the Court.9. 10. A penalty is a sum named in the contract at the time of its formation. 2.

Payment of interest at a lower rate.a. Such an order of the Court is known as injunction’. SPECIFIC PERFORMANCE In certain cases of breach of contract damages are not an adequate remedy. (b) When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done. The Court may. if interest paid on due date. At the rate higher than simple interest 4. and during a certain period to sing nowhere else. (c) When it is probable that the compensation in money cannot be got for the non-performance of the act agreed to be done. QUANTUM MERUIT The phrase quantum meruit ghdfgfdgh much as earned. Some of the cases in which specific performance of a contract may in discretion of the Court be enforced are as follows: (a) When the act agreed to be done is such that compensation in money for its non performance is not an adequate relief. At the same rate as simple interest and b. Held. A right to sue on a quantum meruit arises where a ggdfg performed by one party has become discharged to the breach of the contract dghdfghdf party. in such cases direct the party in breach to carry out his promise according to the terms of the contract. 3. 4. . the Court may be issuing an order restrain him from doing what he promised not to do. Afterwards W made contract with Z to sing at another theatre and refused to perform the contract with L. W could be restrained by injunction from singing for Z. 5. Example: W agreed to sing at L’s theatre. INJUNCTION Where a party is in breach of a negativbe term of a contract the where gdfg is doing something which he promised not to do.

or anyone whom he is legally bound to support. a lunatic. KINDS OF QUASI-CONTRACTS 1. they are put in the same position as if there were a contract between them. because. is supplied by another with necessaries suited to his condition in life.QUASI CONTRACTS Under certain circumstances. A is entitled to be reimbursed from B’s property. a person may receive a benefit to which the law regards another person as better entitled. even though there is no contract between the parties. PAYMENT OF INTERESTED PERSON (Sec. The principle of unjust enrichment requires:  That the defendant has been ‘enriched’ by the receipt of a ‘benefit’  That this enrichment is at the expense of the plaintiff. 69) A person who is interested in the payment of money which another is bound by law to pay. and  That the retention of the enrichment is unjust. Law of quasi-contracts is also known as the law of restitution. Example: P left his carriage on D’s premises. D’s landlord seized the carriage as distress for rent. is created by law. The essential requirements are as follows: (a) The payment made should be bonafide for the protection of one’s interest. 2. or for which the law considers he should pay to the other person. a quasi-contract is not a contract at all. Strictly speaking. with necessaries suitable to his condition in life. A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another. and who therefore pays it. 68) If a person. P could recover the amount from D. on the other hand. is entitled to be reimbursed by the other. P paid the rent to obtain the release of his carriage. although there is no contract or agreement between the parties. Example: A supplies B. Held. SUPPLY OF NECESSARIES (Sec. Such relationships are termed quasi-contracts. A quasicontract. the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. A contract is intentionally entered into. incapable of entering into a contract. .

(b) The payment should not be voluntary one. the property in goods will vest in the finder and he can retain the goods as his own against the whole world (except the owner). 70) When a person lawfully does anything for another person or delivers anything to him. and such other person enjoys the benefit thereof. Example: F picks up a diamond on the floor of S’s shop. He is bound to pay for them to A. S is bound to return the diamond to F who is entitled to retain the diamond against the whole world except the true owner. who finds goods belonging to another and takes them into his custody. 4. OBLIGATION TO PAY FOR NON-GRATUITOUS ACTS (Sec. F claims the diamond for S who refuses to return. He hands it over to S to keep it till true owner is found out. the latter is bound to make compensation to the former in respect of. B treats the goods as his own. he must also take all necessary measures to trace its owner. . (a) The thing must have been done lawfully. take of his own goods of the same bulk. 3. (c) The payment must be such as the other party was bound by law to pay. the thing so done or delivered. or to restore. (b) The person doing the act should not have intended to do it gratuitously (c) The person for whom the acts is done must have enjoyed the benefit of the act. Before any right of action under Sec. a tradesman. 71) A person. he will be guilty of wrongful conversion of the property. leaves goods at B’s house by mistake. not intending to do so gratuitously. If he does not. under similar circumstances. Till the owner is found out. RESPONSIBILITY OF FINDER OF GOODS (sec. three conditions must be satisfied. quality and value. He is bound to take as much care of the goods as a man of ordinary prudence would. 70 arises. The finder can sell the goods in the following cases: • When the thing found is in danger of perishing. Example: a. No one appears to claim it for quite some weeks in spite of the wide advertisements in the newspapers. is subject to the same responsibility as a bailee.

not knowing this fact. The right to claim quantum meruit does not arise out of contract as the right to damages does. 100 over again to C. C is bound to pay the amount to B. Example: A and B jointly owe Rs. i. If the original contract exists. in respect of the thing found amount to two-thirds of the value of the thing found. Further the claim for quantum meruit can be brought only by the party who is not in default. and When the lawful charges of the finder. where one person has expressly or impliedly requested another to render him a service without specifying any remuneration. or anything delivered. A alone pays the amount to C and B. The claim for quantum meruit arises in the following cases (a) When an agreement is discovered to be void (Sec. there is implied a promise to pay quantum meruit. (Sec. 100 to C. The word ‘coercion’ is used in Sec. MISTAKE OR COERCION (Sec. be found out. with reasonable diligence. 65) . but he refuse to pay the lawful charges of the finder. he has to take resort to remedy in damages. When the owner is found out. pays Rs. by mistake or under coercion. Likewise. must repay or return it to the person who paid it by mistake or under coercion.• • • When the owner cannot. 72 in its general sense and not as defined in Sec. so much as the party rendering the service deserves. or some event happens which makes the further performance of the contract impossible. The claim for quantum meruit arises only when the original contract is discharged. 15. it is a claim on the quasi-contractual obligation which the law implies in the circumstances. 72) A person to whom money has been paid. the party not in default cannot have quantum meruit remedy. and the other party repudiates the contract.e. 169) 5. When a person has done some work under a contract. QUANTUM MERUIT ‘Quantum meruit’ literally means ‘as much as earned’ or as much as it merited’. them the party who has performed the work can claim remuneration for the work he has already done. but the circumstances of the request imply that the service is to be paid for.

What are the rules relating to consideration? 4. Discuss the nature of contract entered into with minors. Define contract. What are the remedies for breach of contract? 7. . Review Questions 1. What are quasi-contracts? Enumerate the instances of quasi-contracts laid down under the Act. 70) (c) When there is an express or implied contract to render services but there is no agreement as to remuneration (d) When the completion of the contract has been prevented by the act of the other party to the contract (e) When a contract is divisible (f) When an indivisible contract is completely performed but badly. What are the essentials of a valid contract? 2. 5.(b) When something is done without any intention to do so gratuitously (Sec. What are the different modes of discharging the contract? 6. What are legal rules relating to offer? 3.

or discharge the liability.SPECIAL CONTRACTS LESSON – 2 INDEMNITY AND GUARANTEE DEFINITION Section 124 of the Indian Contract Act defines it as “a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person”. The person who gives the guarantee is called the “surety”. such compromise was not contrary to the orders of the promisor and was prudent or the promisor authorizes him to compromise the suit. the guarantee is given is called the “principal debtor”. . This is a contract of indemnity. A contract of insurance is also a contract of indemnity. of a third person in case of his default”. to indemnify for the consequent loss. and  All sums which he may have paid under the terms of any compromise of any such suit provided. RIGHTS OF AN INDEMNITY HOLDER He is entitled to recover—  All damages  All costs which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnity applies. Illustration: A promises not to construct buildings on a particular site so as to prevent light and air to B’s house and in case of breach of such promise. the person in respect of whose default. and the person to whom the guarantee is given is called the “creditor”. The person who promises is called the Indemnifier and the person to whom the promise is made is called the Indemnified or Indemnity Holder. CONTRACT OF GUARANTEE Section 126 of Indian Contract Act defines it as “a contract to perform the promise.

Contract of Guarantee There are three parties. Distinction between Contract of Indemnity and Contract of Guarantee Contract of Indemnity 1 There are two parties. Illustration: B is indebted to C. having reasonable grounds for doing so but is compelled to pay the amount of the debt with . This right of the surety is called “subrogation”. the creditor and the surety The liability of the surety is subsidiary The liability of the surety is subsisting The surety can sue the principal debtor in his own name after paying the creditor 2 3 4 RIGHTS OF SURETY Rights against the Principal Debtor 1) After discharging the liability of the principal debtor. The liability of the Indemnifier is primary The liability of the Indemnifier is contingent The Indemnifier cannot sue the third party in his name even after making good the loss unless there is an assignment in his favour from the indemnified. C agrees to stand as a surety which means that if A does not pay the price of the goods. Here. B is the creditor and C is the surety or guarantee. Illustration: The right of the creditor to receive dividends from the official assignee when the principal debtor becomes bankrupt.Illustration: A purchases goods from B on credit. 2) The surety can proceed against all those securities of the principal debtor. which the creditor himself can proceed against. viz the principal debtor. and A is surety for the debt. A is the principal debator. C demands payment form A. the surety is entitled to all those rights which the creditor himself exercises against the principal debtor. and on his refusal sues him for the amount. 3) The surety is entitled to be indemnified for all payments rightfully made by him. can be exercised by the surety. A defends the suit. he will pay. namely Indemnifier and the Indemnified.

2) In the case of fidelity contracts. they should contribute. according to English Law. 4) On payment of the guaranteed debt. SURETY DISCHARGED FROM LIABILITY . A. D’s indebtedness was Rs. the surety is discharged to the extent of the value of the security. Rs. 10.000. A. So. But he cannot compel the creditor to do so.000 respectively. B becomes insolvent and C sues A on his guarantee. But according to Indian Law they shall bear such loss equally but not exceeding the sums which they have agreed to pay. 2) Where the co-sureties agreed to become liable in different sums. 3) He can claim set off or counter-claim which the principal debtor could have obtained against the creditor.000 and 40. If the creditor loses or parts with such securities without the consent of the surety. C has also a further security for the sum of Rs. Rights against the Co-Sureties 1) All the sureties shall bear equally.costs.B and C would contribute in the ratio of 1 : 2 : 4. B and C have agreed to become liable for Rs.000. C cancels the mortgage. Illustration: C advances to B. 2000 on the guarantee of A. the loss caused by the insolvency of the principal debtor. as sureties for D’s liability. Rights against the Creditor 1) The surety may require the creditor to sue the debtor. ha can require the creditor to assign to him all the securities held by the creditor in respect of the debt. 30. he can insist upon the creditor to dispense with the services of the principal debtor when his dishonesty is established.000 each. 2000 by mortgage of B’s furniture. 10. B and C will have to pay Rs. proportionately. He can recover from B the amount paid by him for costs as well as the principal debt. If one of them bears the entire loss in the first instance he can claim contribution from other co-sureties. Illustration: A. A is discharged from liability to the amount of the value of the furniture. his tenant. 20.

B supplying the necessary timber. By composition with debtor: The surety is discharged when the principal debtor and creditor enter into a contract by which the creditor (1) composition with or (2) promises to give time or (3) promises not to sue the principal debtor. d. b. C guarantees A’s performance of the contract. B fails to account for some of his receipts and A in consequence. The surety is discharged from liability if the contract of guarantee becomes void or voidable. Illustration: C. A does not acquaint C with B’s previous conduct.1. 5000 on the 1 st of March. contracts with B for a fixed price to build a house for B within a stipulated time. The guarantee is invalid. Illustration: A. the legal consequence of which is the discharge of the principal debtor. or on the ground that the guarantee was given on condition that another person will join as a co-surety and that such other person has not joined as such. C pays Rs. on the ground of misrepresentation by the creditor with regard to a material circumstance. C is discharged from his surety ship. calls upon him to furnish security for his accounting. C gives his guarantee for B’s accounting. By variance of contract: Any variance in the terms of the contract between the principal debtor and the creditor without the surety’s consent discharges the surety. B omits to supply the timber. 3. contracts to lend B Rs. A is discharged from his liability. By release or discharge of principal debtor: The surety is discharged by any contract between the principal debtor and the creditor by which the principal debtor is discharged or by any act or omission of the creditor. Illustration: A engages B as clerk to collect money for him. A guarantees repayment. By act or omission impairing surety’s remedy: The surety is discharged if the creditor does any act inconsistent with the rights of . The surety is discharged by revocation as to future transaction in case of continuing guarantee. as the contract has been varied in as much as C might sue B for the money before the 1st of March. 2. B afterwards makes default. The surety is discharged a. 5000 to B on the 1st of January. c.

3. contracts with M to give time to B. see M make up the cash. Mere forbearance on the part of the creditor to sue the principal debtor does not discharge the surety. e.the surety or omits to do any act which his duty to surely requires him to do. without the consent of the surety. A is not discharged. Illustration: B owes C. A surety is not discharged when a contract to give time to the principal debtor is made by the creditor with a third person and not with the principal debtor. Illustration: C. and gives a guarantee in B for M’s fidelity. Release of one co-surety does not discharge the other. 2. at least once a month. the holder of an overdue bill of exchange drawn by A as surety for B. a debt guaranteed by A. B omits to see this done as promised and M embezzles. Loss of security: the surety is discharged if the creditor losses or parts with the securities belonging to the principal debtor. The surety is not discharged in the following cases: 1. B promises on his part that he will. A is not liable to B on his guarantee. A is not discharged from his liability. Illustration: A puts M as apprentice to B. The debt becomes payable C does not sue B for a year after the debt has become payable. and accepted by B. .

DUTIES OF A BAILEE 1. if any. B keeps them in a safe where he usually keeps his own valuables. destruction or deterioration of the thing bailed. Illustration: A gives to B. be returned or otherwise disposed of according to the directions of the person delivering them. for the loss. There must be delivery of goods: Such delivery may be actual or constructive. 2. upon a contract that they shall when the purpose is accomplished. 3. The delivery must be made for some specific purpose. To take reasonable care of the goods bailed to him Section 151 lays down that in all cases of bailment the bailee should take that much of care which an ordinary prudent man would take of his own goods under similar circumstances. Not to make unauthorized use of goods bailed The bailee should not make use of goods for purposes inconsistent with the terms of the contract.LESSON – 3 CONTRACTS OF BAILMENTS Section 148 of the Indian Contract Act defines that “a bailment is the delivery of goods by one person to another for some purpose. B is not liable if the goods are lose by him. 2. The delivery must be made on condition that the goods shall be returned in specific when the purpose is over. or disposed of according to the direction of the bailor. The person to whom they are delivered is called the “bailee”. 4. Examples: Delivery of a radio for repair. Section 152 lays down that the bailee is not responsible. Only possession but not the ownership of the goods is transferred. If he does so. the bailor is entitled to terminate the contract and claim damages. to be made into an ornament. . Essentials of Bailments 1. if he has taken the amount of care described above. in the absence of any special contract.” The person delivering the goods is called the “bailor”.

he will be liable for the loss resulting therefrom. B is liable to compensate A for the injury caused to the horse. 3. mixes the flour with country flour of his own. To return the goods bailed The bailee should return goods bailed. the bailee is bound to bear the expenses of separation and pay damages if any. 45 to B. The bailee should also deliver any increase or profit which may have accrued from the goods bailed. Not to mix the goods of the bailor with his own goods a) If a bailee mixes the goods of the bailor with his own goods with the consent of the bailor. both the bailor and the bailee shall have proportionate interest in the mixture. faults in the goods bailed. Illustration: A leaves a cow in the custody of B to be taken care of The cow has a calf B is bound to deliver the calf as well as the cow to A. worth only Rs. . Not to set up adverse title The bailee should not deny the bailor’s title. If he does not disclose. b) If the goods mixed by the bailee without the consent of the bailor and the goods are separable. B must compensate A for the loss of his flour. of which he is aware. DUTIES OF A BAILOR 1. 25 a barrel. C rides carefully but the horse accidentally falls and is injured. to ride the horse. the bailee should compensate the bailor for the loss of goods. B without A’s consent. B allows C. Illustration: A bails a barrel of Cape flour worth Rs. to the bailor when the fixed period is over or when the purpose is accomplished.Illustration: A lends a horse to B for his own riding only. c) If the goods are mixed by the bailee without the consent of the bailor and the goods are inseparable. To disclose the faults in the goods bailed The bailor should disclose to the bailee. 4. He should not set up his own title or that of a third party. 5.

to return such possession until a debt due to him has been discharged. General lien . Lien is of two kinds: 1. The bailment can be terminated at the option of A. To bear extra-ordinary expenses While the ordinary expenses are payable by the bailee. RIGHTS OF BAILOR 1. Responsibility for want of title The bailor is responsible to the bailee for any loss sustained by he latter by the reason. the bailee shall bear the expenses of feeding the horse. Particular lien. the lender may require the goods to be returned. even though he lent it for a fixed period for specific purpose. LIEN Lien is a right of a person. But if such a request causes loss to the bailee exceeding the benefit he derives. 3. He does not disclose this fact. who has possession of goods of another. 2. Illustration: A gives a horse to B for hire for his own riding. A is responsible to B for damages sustained. the bailor should indemnify the borrower. But in case of the horse becoming sick. The horse runs away. B drives the horse in his carriage. B is thrown down and injured. that the bailor was not entitled to make the bailment or to receive back the goods or to give directions respecting them. This right is called a “Possessory lien”.Illustration: A lends a horse which he knows to be vicious to B. the bailor shall have to bear the necessary expenses for its recover. 3. He is entitled to the increase or profit from goods bailed 2. In the case of gratuitous loan. and 2. extra-ordinary expenses shall be borne by the bailor. Illustration: Where a horse is lent for a journey. The bailor is entitled to terminate the contract when the bailee does any act inconsistent with the terms of bailment.

Hence. He must take as much care of the goods as an ordinary prudent man would. The bailor is called the “pawnor” and the bailee is called the “pawnee”. there is no transfer of property in goods. When lawful charges amount to two-thirds of their value PLEDGE A pledge is a “bailment of goods as security for payment of a debt or performance of a promise”. A General Lien is the right to retain the property of another for a general balance of accounts. take of his own goods. When they lose the greater part of their value of c. Bankers. If the goods are the subject of the sale and if the owner is not found or when found refuses to pay the lawful charges. 3. 5. under similar circumstances. a. a repairer. Duties and Rights 1. as in . B has a right to retain the watch till he is paid for the services rendered. A Particular Lien is one which is available only against that property in respect of which the skill and labour are exercised or any expenses are incurred. He may exercise particular lien against the goods for such remuneration. Illustration: A delivers a watch for repairs to B. If a reward has been offered for the return of the goods. be becomes a bailee. repairers and unpaid vendors of goods are entitled to particular lein. But if he takes them into his possession. In the case of pawn. he can sue for such reward. can exercise this right for any debt due to them. The bailees. 2. 2. Pawn is also different from lien. He cannot sue for remuneration for trouble and expense incurred by him to preserve the goods or to find out the owner of the goods. 4. it is different from mortgage. The duties and rights of A finder of lost goods A person who finds an article need not take charge of it. Only possession of the goods is transferred. When the goods are about to perish or b.1. the finder may sell the goods.

the case of lien. Rights of Pawnor Even after the expiry of a stipulated period. interest and other expenses incidental to possession or preservation of the goods. But he must pay expenses which may have arisen from his default. He is entitled to receive extra-ordinary expenses incurred for the preservation of goods. 3. Sell the goods by giving a reasonable notice of sale to the pawnor. He can retain the goods pledged until he recovers the debt. Rights of Pawnee 1. He cannot retain the goods for debts other than those for which pawn is made. he may redeem the goods pledged at any subsequent time before the actual sale of the goods pledged. the pawnee shall pay over the balance to the pawnor. there is not power to sell the article while a pawnee can sell. If the pawnor makes a default. 4. If the proceeds of the sale are greater than the amount so due. . subject to some conditions. If the proceeds of such are less than the amount due in respect of the debt or promise. Retain the goods pledged or c. 2. Bring a suit upon the debt or promise and b. the pawnor is still liable to pay the balance. the pawnee may a.

or who is so represented is called the “principal”. Example: P. By Implied Authority: The authority of an agent can be interred from the circumstances of the case. ESSENTIALS OF A CONTRACT OF AGENCY 1. a contract of agency can be written by means of power of attorney. 2. owns a shop in Madras and he occasionally visits it.. a jewel worth Rs. 500. . Illustration: A living in Bombay. But the principal cannot make the minor agent liable for misconduct or negligence. a minor. 400. B is managing the shop and is in the habit of ordering goods from C in the name of A for the purpose of the shop and of paying to them out of A’s funds with A’s knowledge. By Express Authority: The authority of any agency may be expressed in words spoken or written. P cannot make him liable while he is bound by the sale. That the principal gives his consent to be represented by the agent is sufficient consideration for the agent gdg dfgd dfgd. Consideration is not essential. The person for whom such act is done. a principal gives M. 100 and instructs fgdgdf to sell it on credit or for less than Rs. M sells the jewel on credit for Rs.LESSON – 4 CONTRACT OF AGENCY Section 182 of the Indian Contract Act defines an agent as person employed to do any act for another or to represent another in dealings with third persons. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop. For example. CREATION OF AGENCY An agency may be created in the following ways: 1. The principal and third parties must be competent into contracts An agent may be even a minor who can effectively bind his principal.

By Holding Out: Where a master usually sends his servant to pledge his credit for certain mangdfgfd he is bound by the acts of the servant for similar purposes though done without his consent. Illustration: A horse was sent by rail. By Necessity: Sometimes. he may elect to ratify or to disown such acts. Thus ratification relates back to the date of the original contract and binds the principal as if he has expressly authorized it.3. though not appointed as such. he would be stopped from denying the authority of that another person to act on his behalf. So. By Estoppel: When one man by words or conduct causes another to believe that some other person is his agent and that another person had acted on that belief. When the principal becomes insolvent 5. 6. When the object of the contract becomes unlawful . the station master had to feed it. but without his knowledge of authority. P is bound by that contract. on the faith of this statement. When the principal or agent dies or becomes of unsound mind 4. If he ratifies them the same effects will follow as if they had been performed by his authority. When the purpose of the agency is accomplished or 3. TERMINATION OF CONTRACT OF AGENCY A contract of agency is terminated in the following ways: 1. By Ratification or Expost Eacto Agency : Section 196 of the Indian Contract Act lays down that where acts are done by one person on behalf of another. The owner had not taken delivery of the same at the destination. exigencies of circumstances require a man to act for another as an agent. 5. It was held that the station master had become an agent by necessity and was therefore entitled to recover the charges incurred by him. 4. subsequently enters into a contract with A. When the subject matter of the contract is destroyed 6. When the period of agency expires or 2. taking him to be P’s agent. Illustration: a tells B in the presence and within the hearing of P that he (A) is P’s agent and P does not contradict this statement B.

contracts with C to deliver goods. 3. B informs A of the suit and A authorizes him to defend the suit. But if he is guilty of misconduct. of the principal for his claims. 2. coupled with interest. the moment. papers and other property. Illustration: B at Singapore under instructions from A of Calcutta. He is entitled to retain the goods. When the principal revokes his authority The termination that takes effect so far as regards the agent. So.7. A. Through B’s misconduct. if an agent knowing the termination of agency. gives authority to B to sell A’s land and to pay himself. the becomes liable to the principal for damages while the contract binds the principal and third persons. 1000 from C. it becomes know to him and so far as regards third persons. He is entitled to remuneration and other expenses properly incurred by him in the agency. out of the proceeds. he is not entitled to receive the remuneration. B is entitled to no remuneration for his services and must make good the loss. An Agency cannot be terminated in the following cases: (a) When the agency is one. A cannot revoke this authority nor can it be terminated by his insanity or death. B defends and is compelled to pay damages etc. When the agent renounces the authority 8. The agent has a right to be indemnified by the principal for all lawful acts. (b) When the agent has incurred personal liability and (c) When the authority ahs been partly exercised by the agent. the money is not recovered. A is liable to B for such damages etc. the debts sue to him (B) from A. . A does not send the goods to B and C sues B breach of contract. Illustration: A employs B to recover Rs. contracts with third persons who are not aware of the termination. RIGHTS OF AN AGENT 1. movable on immovable. the moment it becomes know to them.

3. omits to make such investment. He must render proper accounts on demand. The agent is entitled to be indemnified for the injury caused to him by the principal’s neglect or want of skill. B at the time of sale. unless the principal has notice of want of skill. In case of difficulty. if any 2. through it causes an injury to the rights of third parties. indemnify the principal for the loss. he must act according to the trade custom. 4. He must conduct the business of agency with as much skill as is generally possessed by persons engaged in similar business. sells goods in the possession of A. Illustration: A. 6.4. Illustration: A employs B as a brick-layer in building in a house and puts a scaffolding himself unskillfully and B is in consequence. In the absence of instructions. a business. is bankrupt. A must make good the loss. He must deliver all monies including secret commission. He should not set up his own title or title of third parties to the goods of the principal in hi hands. must make good to B the interest usually obtained by such investment. having authority to sell on credit. 7. 5. to invest from time to time. sells goods to B without enquiring about his solvency. He can deduct his remuneration and other lawful expenses spent by him. DUTIES OF AN AGENT 1. in which it is the custom. When an agent acts in good faith. A must indemnify B for what he has paid and for B’s own expenses. an agent engaged in carrying on for B. at interest the monies which may be in hand. afterwards C the true owner sues A and recovers the value of goods and costs. he must be diligent in communicating with the principal and obtaining his instruction. He should act according to the directions of the principal and in default. 8. He must not delegate his authority without the consent of the principal. Illustration: B. A. the employer must indemnify him for the consequence of that act. hurt. A must compensate B. . Illustration: A. to the principal. but which A had no right to dispose of B does not know this and hands over the sale proceeds to A. at the request of A. 5.

When the agency is coupled with interest f. is liable. When he acts for a foreign principal d. REVIEW OF QUESTIONS 1. CONDITIONS UNDER WHICH THE AGENT IS PERSONALLY LIABLE 1. His interest should not conflict with his duty. 11. An agent is personally liable a. He becomes liable to pay damages to the principal. When the Surety is discharged from his liabilities? 4. What are the rights of the Surety against (i) Principal debtor. When the trade usage makes him liable. 3. An agent cannot claim performance of a contract entered into by him apparently on behalf of the principal but really on his own account. An agent is liable for breach of warranty of authority. He is liable to third parties when he exceeds his ostensible authority. When he does not sign the negotiable instrument as agent c. by the nature of profession. (ii) Creditor and (iii) Co-Sureties 3. Define bailment. What are the duties of finder of lost goods? . when he exceeds his actual authority but acts within the ostensible authority and enters into contracts with third parties who are not aware of the curtailment of his authority. he must exercise that degree of skill ordinarily expected from the members of the profession. If. 2. When he acts for an undisclosed principal e. Define Contract of Indemnity and Contract of Guarantee and bring out differences between them. Illustration: A solicitor. When the contract expressly provides b. and g. 10. What are the rights and duties of bailor and bailee? 5. 2. When the principal cannot be sued as he is a minor or a foreign sovereign etc. who started the proceedings under a wrong section or field a suit in a court having no jurisdiction. He should not disclose confidential information. an agent is purported to have special skill.9.

It may be absolute or conditional.6. The seller can sue for the price though the goods are in the his possession If the seller re-sells the goods. 6. In such cases. When the property in the goods is transferred. It remains with the seller. What are the rights and duties of an agent? LESSON – 5 SALE OF GOODS ACT. the seller has to bear the loss. when the time lapses or such condition is fulfilled. The contract called an agreement to sell. when the transfer of property is take place at a future time or subject to fulfilment of some condition. 2. The term “contract of Sale” includes an actual sale as an agreement to sell. 3. What are the different methods of creation of agency? 7. 1930 Section 4 of the Sale of Goods Act defines a contract of sale as “a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price”. Ownership is transferred to the buyer It is an executed contract It creates rights in rem. even if the goods are in the . It is an executor contract It creates rights in personam The seller can sue for the damages if the buyer refuses to take delivery and pay the price In case of re-sale the buyer can only claim damages. 5. the buyer has to bear Agreement to Sell Ownership does not pass to the buyer. 4. Differences between a sale and an agreement to sell may be summarized as follows: Sale 1. the contract is called a sale. the buyer can claim damages for conversion and exercise right of recovery of goods from third parties who are aware of the prior sale If the goods are destroyed by accident. An agreement to sell becomes a sale.

the breach of a condition will be treated as breach of warranty only. possession of the buyer If the buyer becomes bankrupt before payment of price. 8. CONDITION AND WARRANTY A term or a stipulation in a contract of sale with reference to goods may be either a condition or a warranty. A condition is a term which is essential to main purpose of the contract and hence is the foundation of the contract. In the following cases. Condition and warranties may be express or implied. A warranty is a term which is collateral to the main purpose of the contract and hence is only a subsidiary promise. in the absence of a lien. They are called implied . The breach of warranty does not give right to the aggrieved party to treat the contract as void but entitles him to claim damages only. though the goods are in the possession of the seller 7. the property in which has passed to the buyer. the seller may refuse to deliver the goods unless paid for since ownership rests with the seller In such cases. as warranty. When they are definitely written in the contract. if any. the seller. (i) (ii) (iii) (iv) When the buyer waives the condition or When the buyer treats the breach of condition as a breach warranty and does not treat the contract as void or Where the contract of sale is inseparable and the buyer has accepted the goods or part thereof or Where the contract is for specific goods. In the absence of contract to the contrary. The effect of a breach of condition is that it gives the right to the aggrieved party to treat the contract as void and also to claim damages. they are called express conditions and warranties.the loss. must deliver the goods to the official receiver and claim only ratable dividend for the price due If the seller becomes insolvent. the buyer can recover the goods from the official receiver since the ownership has passed to him. If the buyer becomes insolvent. the buyer who has paid the price can only claim retable dividend. time of delivery of goods is treated as condition and for payment of price.

which would not be apparent on reasonable examination of the sample. let the buyer beware. That the goods delivered shall correspond with the sample b. it was held that the buyer was entitled to reject the machine. 2. he will have the right to sell the goods at the time when the property is to pass. it was found that the car was stolen by B and therefore. Subsequently. A had returned back the car to the true owner. . the goods delivered must correspond with both sample as well as description. 3. That the goods shall be free from any defect rendering them unmerchantable. was found to be an old and repaired one. 4.: Where worsted coating was supplied corresponding with the sample but not suitable for stitching due to a latent defect. As to title to goods: There is an implied condition that the seller has a right to sell in case of sale and that in the case of agreement to sell. the buyer takes them as they come. Drummond & Sons Vs Van Ingen & Co. Sale by description: The implied condition is that the goods delivered must correspond with the description Example: Where a machine was described as almost new and used very little but when delivered. Sale by sample as well as description: In the case of sale of goods by sample as well as description.conditions and warranties.e. 5. Sale by sample: The implied condition as --a. the seller need not disclose the faults in the goods he sells nor need he guarantee that the goods are fit for the purposes of the buyer. So. But in the following cases. IMPLIED CONDITIONS 1. As to quality or fitness: The general rule is “Caveat Emptor”. So. there is an implied condition as to quality or fitness of goods for any particular purpose. when they are not written in the contract and applied to the contract either by operation of law or by trade custom. Rowland Vs Divall: A purchased a car from B for a certain price and used it for some period. it was held that the buyer was entitled to reject the goods. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample and c. i. It was held that A could recover the full price paid to B.

Held.W. there is not implied condition as to quality of goods as regards defects which such examination must have revealed. Where the buyer makes known the purpose to the seller. B was held liable. Brant Vs Australian Knitting Mills Ltd. it was held that the name of the article itself implies that it is fit for a particular purpose. there is an implied condition that the goods shall correspond with the description and also that they shall be of merchantable quality. the seller knew the purpose. B. who is ordinarily dealing with sale of goods of that description and the buyer relies on the judgement of the seller. The car turned out to be unfit for the purpose. . Where the seller does not disclose the faults in his goods and such faults cannot be detected on reasonable examination. The buyer wore them for sometime and contracted a skin disease. 7. there is an implied condition that they are fit for immediate use. purchased a bun from B and injured his teeth by biting a stone in the bun. IMPLIED WARRANTIES 1. Exception: If the buyer has examined the goods. 6. As to Merchantability: In case of sale of good by description. Warranty of Quiet Possession: There is an implied warranty that the buyer shall have and enjoy quiet possession. Held. But there is not implied condition as to fitness or quality of goods when they are sold under the patent or trade name.a. E. Warranty against Encumbrances: There is an implied warranty that the goods shall be free from encumbrance or charges in favour of any third party not declared or known to the buyer before or at the time of contract. 2. A. Where the seller makes a statement and the buyer relies upon it. c. As to wholesomeness: In the case of sale of vision. b. that the buyer was entitled to damages.: The buyer was supplied wollen underpants by the manufacturers. Evans V’s Stella Benjamin: Where a refrigerator was sold. Baldry V’s Marshall: A purchased a motor car from B for using it as a tourist car. A the buyer could repudiate the contract.

incurred in storing the goods in exercise of lien for the practice. Right of stoppage of goods in transit .RIGHTS OF AN UNPAID SELLER The seller of goods is deemed to be an “unpaid-seller” where— a) The whole of the price has not been paid or tendered or b) When a bill of exchange or any other negotiable instrument has been given as conditional payment but the same has been dishonoured. When the buyer or his agent lawfully obtains the possession of goods When the unpaid vendor has given up his right of lien 2. Rights of Lien The unpaid vendor who is in possession of the goods. This right of lien extends to the whole of goods in the possession of the unpaid vendor and can be exercised only for the recovery of the price of goods but not the amounts like godown rent. Where the buyer becomes bankrupt This right of lien is lost— When the goods are delivered by him to a carrier. And if the goods are partly delivered. An unpaid vendor has the right of withholding the delivery of goods when the property in goods has not passed to the buyer. or other bailee for the purpose of transmission without reserving the right of disposal. He can exercise the right of lien – • • • • • • Where the goods have been sold without any stipulation as to credit Where the goods have been sold on credit. but the term of credit has expired and the price remains unpaid. He has the following rights when the property in goods has passed to the buyer. 1. can retain such possession until the price is paid or rendered. the an exercise this right on the remaining goods except when such part delivery amounts to show that he has give up the right of lien.

d) The goods are in transit. the carrier must re-deliver the goods to or according to the directions of the seller. from being delivered to the buyer. who is in possession of the goods. This right is available (1) when the goods are in transit and (2) when the buyer becomes bankrupt. when the buyer or his agent obtains delivery before the arrival of the goods at their destination c) The transit is at an end. REVIEW QUESTIONS . But if he does not give notice to the buyer of his intention to re-sell the goods where necessary. if the carrier or other bailee acknowledges to the buyer after the arrival of the goods at the destination the he holds the possession of goods as a bailee for the buyer. If the goods are not perishable. He can retain the profit resulting form such re-sale and claim damages from the original buyer for loss if any. The seller shall have to bear the expenses of such redelivery. Such notice takes effect when it reaches the carrier or his agent who is in actual possession of goods. e) The transit is at an end if the carrier or other bailee wrongfully refuses to deliver the goods to the buyer. On receipt of notice of the stoppage. if any.When the seller has parted with the possession of goods. The unpaid vendor must give notice of his claim to the carrier or other bailee. Following are the rules regarding duration of transit a) Goods are deemed to be in transit so long as the buyer or his agent does not take delivery of the goods b) The transit is at an end. in order to exercise this right of stoppage. if the buyer or his agent rejects the goods. he may regain and retain such possession by stopping the goods in transit. he must pay back the surplus or profit to the original buyer and bear the loss. Right of Re-Sale The unpaid vendor can re-sell the goods— 1) without notice to the buyer if the goods are perishable goods and 2) With notice to the buyer of his intention to re-sell. 3.

1. What are the rights of an unpaid seller? . What are the implied conditions and warranties laid down under the Sale of Goods Act’ 3. Distinguish between sale and agreement to sell 2.

(8) Drawee in case of need. a negotiable instrument is an ordinary chattel for chose-in-action clothed with the feature of negotiability.LESSON – 6 NEGOTIABLE INSTRUMENTS ACT. (2) Payee (3) Holder. Port Trust or Improvement Trust Debentures. FEATURES 1. (7) Indorsee. can sue in his own name. He is not affected by certain defects like fraud to which he is not a partly 5. payable either to order or bearer. (3) Acceptor. (4) Payee. So. (4) Indorser and (5) Indorsee . promissory notes and cheques are only the negotiable instruments. 1881 Section 13 of the Negotiable Instruments Act defines that a negotiable instrument means a promissory note. bill of exchange or cheque. and (9) Acceptor for honour. Railway Bonds. (6) Indorser. • • They are transferable by mere delivery and The holder in due course can sue in his own name Hence. Dividend Warrants. He need not give notice to the debtor that he has become the holder. PARTIES TO NEGOTIABLE INSTRUMENTS The parties to a bill of exchanges. So. a promissory note and a cheque are as follows: Parties to a Bill of Exchanges: (1) Drawer. 3. other instruments may also be added to the list of negotiable instruments provided. (5) Holder. payable to bearer or Railway Receipts having the feature of negotiability are all negotiable instruments. Consideration is presumed to have passed 6. 4. The holder in due course is not affected by the defect in the title of his transferor or any previous party. The property in it passes either by mere delivery or by endorsement and delivery 2. The holder in due course. (2) Drawee. It is convenient method of discharging payments The Act does not stipulate that only bills of exchange. Parties to a Promissory Note: (1) Maker.

i. note or cheque to another is called the “indorser”. to whom or to whose order the money is to be paid. MATERIAL ALTERATION Material alteration refers to changes introduced on a cheque which affects its fundamental character. Payee: The person named in the bill. In case of a bill of exchange. Indorser: The person who endorses the bill. the drawer may himself be the payee. In other words. is called the “payee”. The person who makes or draws a bill of exchange or cheque is called the “drawer”. Examples of Material Alteration There is material alteration when  The date of the instrument is altered  The time of payment is altered  The amount is altered  The rate of interests altered  The place of payment is altered  The name of payee is altered  A new party is added etc. Where the payee named in a bill is a fictious or nonexisting person. . “any change in any instrument which makes it speak a different language. Drawee. for all legal purposes from what it spoke originally” would constitute a material alteration. the bill is treated as payable to bearer. the drawee becomes the “acceptor” when he accepts the bill.Meker. In case of a cheque. signs his accent upon the bill and delivers the same or gives notice of such signing to the holder or to some person on his behalf A cheque does not require acceptance as it is intended for immediate payment. the drawee is always a banker. it renders the cheque invalid. note or cheque.e. In a bill or cheque. Indorsee: The person to whom the bill. Acceptor: The person on whom the bill of exchange or cheque is drawn and who is directed to pay is called the “drawee”. If the alteration is material. note or cheque is endorsed is called the “Indorsee”. Drawer: The person who makes a promissory note is called the “maker”.

There is no material alteration when • • • • • A mistake corrected Alteration is made with the consent of all the parties Alteration is made to carry out the common intention of the parties Blank indorsement is converted into full indorsement An inchoate instrument is completed etc.

EFFECT OF MATERIAL ALTERATION According to Sec. 87 of the Negotiable Instruments Act, if a cheque is materially altered it canot be regarded as a cheque at all. Therefore material alteration renders the cheque void. CROSSING OF CHEQUES Crossing means drawing two parallel transverse lines across the face of the cheque with or without the words “and company” in between the lines. It is a direction to the drawee bank not to pay the amount at the counter, but only through a bank. It is made to guard payment against forgery by unscrupulous persons.

KINDS OF CROSSING Is is of two kinds (1) General Crossing and (2) Special Crossing

1. General Crossing Sec. 123 of the Negotiable Instruments Act defines General Crossing as, “where a cheque bears across its, face an addition of the words “And Company” or any abbreviation thereof between two parallel transverse lines or of two parallel transverse lines simply, either with or without the words ‘not negotiable’, that addition shall be deemed to be a crossing and the cheque shall be deemed to be crossed generally”. Two parallel transverse lines across the face of the cheque with or without the words, “& Co.”, “Account Payee only”, “Not Negotiable”, constitute general crossing. The cheque which is crossed generally, is payable only to banker.

Specimens of General Crossing

2. Special Crossing Sec. 124 of the Negotiable Instruments Act defines Special Crossing as, “where a cheque bears across its face an addition of the name of a banker, with or without the words “not negotiable”, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker”. When a cheque is crossed specially, the amount is payable by the drawee only, only to the bank named in the crossing.

Specimens of Special Crossing

“Account Payee Crossing”

When the words “Amount Payee”, “Account Payee only” are added to the general or special crossing, it is called account Payee Crossing. The collecting banker must collect the amount of the cheque for the account of the payee only and none else.

Otherwise, it is not a collection in due course and the banker is liable if the title of the person for whom the bank collects, turns out to be defective.

“Not Negotiable” Crossing

When the words “not negotiable” are added either in general or special crossing, the person taking the cheque cannot have and cannot give a better title than what his transferor has. So, a ‘not negotiable’ cheque is transferable. But the transferee gets no better title than what the transferor has.

RULES OF CROSSING 1. An uncrossed cheque may be crossed generally or specially by the drawer or the holder. 2. A cheque crossed generally, may be crossed specially by the holder. 3. The holder may add the words “not negotiable”. 4. The banker to whom the cheque is crossed specially, may re-cross it, but only to another bank as his agent for collection. 5. Where an uncrossed cheque or a cheque crossed generally is sent to a banker for collection, he may cross it specially to himself. But he cannot enjoy Statutory protection against being sued for conversion.

INDORSEMENTS It means the writing of a person’s name (otherwise than as maker) on the face or back of a netgotiable instrument or on a slip of paper (called alloonge) annexed thereto, for the purpose of negotiation (Sec. 15). The person who signs the instrument is called the “indorser’. The person to whom the instrument is indorsed is called the ‘indorsee’.

KINDS OF INDORSEMENTS 1. Bank Indorsement or General Indorsement When the indorser signs his name only, it is called blank indorsement. An instrument endorsed in blank is payable to bearer. The holder of an instrument may write above the indorser’s signature, a direction to pay the amount to or to the another person. When the holder does so, he does not become liable as an endorser on the instrument, as he had not signed it.

3. 400” But if the part of the amount of the instrument is already paid. in the following ways: (a) By Sans Recourse Indorsement: The indorser excludes his liability by express words in indorsement. “Pay B or order Rs. it is called full indorsement.] Smith An instrument having been endorsed in blank is indorsed in full the indorser in full is liable to the person to whom it is indorsed in full or to others who derive title through such person.2. 5. Special or Full Indorsement If the indorser signs his name and adds a direction to pay the amount to or to the order of a certain person. Conditional or Qualified Indorsement This is one which negotiates or limits the indorser’s liability. the unpaid balance may be endorsed thus. Illustration : A bill made payable to Smith. 400 to B or order” (or) “Pay B or order Rs. 4. being unpaid residue of the bill”. Restrictive Indorsement It is one which prohibits or restricts further negotiation or which constitute the indorsee an agent to receive its contents for his indorser. Examples: (1) “Pay A or order . [Sd. may be endorsed in full by him as “Pay A or order”. it is called partial indorsement. Example: (1) “Pay C only” (2) “Pay D for my use” (3) “Pay D on account of E” (4) “Pay E or order for collection. 400 and to C or order Rs. 400. It is void: Example: A holds a bill for Rs. Partial Indorsement When a part of the amount of the instrument is endorsed. 800 A endorses thus “Pay Rs.

. the paying banker has to observe the following precautions before honouring a cheque. Example: “Pay A or order Notice of dishonor waived” (Sd. (1) Presentation of Cheque First of all a paying banker should note whether the presentation of the cheque is correct.Sans Recourse” (Sd) B (2) “Pay A at his own risk” (Sd) B (3) “Pay A without recourse to me” (Sd) B (b) By making his liability depend upon the happening of a specified event. PRECAUTIONS BEFORE HONOURING A CHEQUE In order to safeguard his position. depend upon the happening of a specified event. though such event may never happen. Example : “Pay A or order on his marrying B” (c) By making the right of the indorsee to receive the amount.) B PAYMENT AND COLLECTION OF CHEQUE The paying banker should use reasonable care and diligence in paying a cheque so as to abstain from any action likely to damage his customer’s credit. (d) By Facultative Indorsement: This is one which extents the liability of the indorser. It can be found out by noting the following factors. though it may never happen.

If it is open one. he should honour it only on its due date. If a cheque is post dated. the payment must be made only to a fellow banker. (b) Enconditional Order: The cheque should not contain any condition (c) Date: Before honouring a cheque.(a) Type of Cheque: Cheques may generally be of two types – open or crossed. then the paying banker should not honour it. From of the Cheque Before honouring a cheque. the paying banker is justified in returning it. (h) Endorsement: The banker must verify the regularity of endorsement. (a) Printed Form: The customer should draw cheques only on the printed leaves supplied by the bankers failing which the banker may refuse to honour it. (d) Amount: The paying banker should see whether the amount stated in the cheque both in words and figures agree with each other. 3. (b) Branch: The paying banker should see whether the cheque is drawn on the branch where the account is kept. (f) Sufficient Balance: If the funds available are not sufficient to honour a cheque. (c) Banking Hours: The paying banker should also note whether the cheque is presented during the banking hours on a business day. it may be paid if it has not exceeded six months from the date of its issue otherwise it will become stale one. the paying banker must see whether there is a date on the instrument. if any. (i) Legal Bar: The existence of legal bar like Garnishee order limits the duty of the banker to pay a cheque. (g) Signature of the Drawer: It is the duty of the paying banker to compare the signature of his customer found on the cheque with that of his specimen signature. if a cheque is ante dated. (d) Multination: If the cheque is from into pieces or cancelled or mutilated. (e) Material Alteration: If there is any material alteration the banker should return it with a memorandum “Alteration requires drawer’s confirmation”. . that appears on the instrument. the payment may be paid at the counter. a banker shold see the form of cheque and find out whether it is regular or not. If it is crossed.

In such a case. the customer) in the hands of a third party (i. regarding the death of a particular customer. the worse effect on the banker. g) When a breach of trust is intended: In the case of trust account. the banker).e. However. d) Upon the receipt of notice of insanity: Where a banker receives notice of a customer’s insanity.e. h) Defective Title: If the person who brings a cheque for payment has no title or his title is defective. the payment of a cheque may be refused. the banker should refuse to honour the cheque presented by him. i) Other Grounds: A banker is justified in dishonouring a cheque under the following circumstances also: • • a conditional one. he is justified in refusing payment of the cheque drawn by him.CIRCUMSTANCES UNDER WHICH A CHEQUE MAY BE DISHONOURED A paying banker is under a legal obligation to honour his customer’s mandate. he should not honour any cheque drawn by that deceased customer. When such an order is received. b) Upon receipt of notice of death of a customer: When a banker receives written information from an authoritative source. the banker may refuse payment. a) Countermanding: Countermanding is the instruction given by the customer of a bank requesting the bank not to honour a particular cheque issued by him. c) Upon the receipt of notice of insolvency: Once a banker has knowledge of the insolvency of a customer he must refuse to pay cheques drawn by him. drawn on an ordinary piece of paper. e) Upon the receipt of notice of Garnishee order: Garnishee order refers to the order issued by a court attaching the funds of the judgement debtor (i. under the following circumstances. mere knowledge of the customers intention to use the trust funds for his personal use is a sufficient reason to dishonor his cheque. In such case also the banker may refuse payment. . A wrongful dishonor will have. the banker must refuse to pay the cheque. He is bound to do so under his contractual relationship with his customer. f) Upon the receipt of notice of assignment: The bank balance of a customer constitutes an asset and it can be assigned to any person by giving a letter of assignment to the banker.

If the words and figures differ. If there is no sufficient funds. mutilated. he should inform him customer without any delay. post-dated one. Present the cheque for collection without any delay: If there is any delay in presenting the cheque for presentment by the banker. the customer may suffer losses due to the insolvency of the drawer or insufficiency of funds in the account of the drawee or insolvency of the banker himself. If the signature of the customer is forged. COLLECTING BANKER A collecting banker is one who undertakes to collect the amount of a cheque for his customer from the paying banker.• • • • • • • • • • a stale one. He should observe utmost care when presenting a cheque. . presented during non-banking hours. Notice to customer in case of dishonor of cheque: If the cheque he collects has been dishonoured. Hence the collecting banker has to present the cheque for collection without any delay. If the endorsement is irregular and. diligence and skill in collection work. drawn on another branch where the account is not kept. 3. Exercise reasonable care and diligence in his collection work: As an agent. 2. DUTIES OF COLLECTING BANKER 1. If a crossed cheque is presented at the counter. he should exercise reasonable care.

What are the different kinds of crossing? 3. What is indorsements? What are the kinds of indorsements? 4. What are the precautions to be taken by a banker while honouring a cheque? 5. What are the duties of a collecting banker? .Review Questions 1. What are the characteristics of negotiable instruments? 2. Define Negotiable Instruments.

trading or calling. Two or More Persons: As no one can be a partner with himself. 3. ESSENTIALS OF PARTNERSHIP 1. 4. Such agreement. Agreement or Deed: Partnership arises out of an agreement but not out of status. Profit Sharing: Sharing of profits is essential though it does not mean that all those who participate in profits are necessarily partners. vocation. sharing of profits and losses. 1932 Section 4 of the Indian Partnership Act defines it as ‘the relation between persons who have agreed to share the profits of a business cancelation by gfdg any of them acting for all” Persons who have entered into partnership with one of other are called individually “partners” and collectively “a firm”. capital and banking account. also called as deed. It contains details relating to— • • • • • • • • name of the firm and the names of the partners. The maximum number of members is 10 for a partnership carrying on banking business and 20 for a partnership carrying on any other business. It may be oral or written. Business: The object of the partnership is to carry on any business. may be express or implied from the conduct of the parties. . e. there must be at least two persons.g. Relationship: Partnership is the abstract relationship between partners 2. nature and place of business. the date of commencement and the duration of partnership. Mere holding of property in common is not partnership. accounts arbitration etc. and the name under which their business is carried on.LESSON – 7 INDIAN PARTNERSHIP ACT. Such business must be lawful. profession. 5. management. co-ownership. is called the “firm name”.

But again. the partnership is called “partnership at will”. an active participation in the conduct of business is evidenced that a partnership exists. Section 6 lays down that the receipt of a share of profit. TEST OF PARTNERSHIP In determining whether a partnership exists or not. For example. The joint use of property in common in business for sharing of profits is evidence that a partnership exists. while sharing of profits is evidence. KINDS OF PARTNERSHIP 1. done in the course of conduct of the business. or whether a person is a partner or not the real relation between the parties as shown by all relevant facts. Carried on by all or any of them acting for all: Each partner acts as an agent as well as a principal. the true test of partnership is no sharing of the profit. Therefore. he can be called the principal. Yet he is not a partner. he can be called an agent. the law of partnership is a branch of the general law of agency as every partner has implied power to bind other partners for the acts of the firm. Each one can act in the course of business and bind the other partners by his acts.6. So. must be taken into consideration. that a partnership exists. it is called a partnership for a fixed term. Partnership at will: Where the partners have not provided in their deed. it is no conclusive evidence to establish the fact of existence of partnership. Partnership for a fixed term: Where the partners fix the definite period or duration of partnership. but whether the relationship of agency exists or not. a servant may manage the affairs of a firm. Likewise. A partner may retire to dissolve the partnership at his will. But this is not conclusive evidence to show that a partnership exists. though no conclusive. Particular partnership: A person may become a partner with another person in particular adventures or undertakings. As such. of his intention to do so. or a payment contingent or varying with the profits does not of itself. by giving a notice to other partners. Since he is also bound by the acts of the other partners. 3. KINDS OF PARTNERS . a joint venture having no object of profit sharing is not a partnership. In the same way. make the recipient a partner. for the duration of partnership or for the termination of partnership. Thus. 2.

third parties can sue him on discovering that he is a partner. in the presence and within the hearing of A. PROCEDURE FOR REGISTRATION The registration of a firm may be effected at any time by filling an application in the form of a statement. It has left it to the option of the firms to get themselves registered. It shall state: . The application for registration of a firm shall be accompanied by the prescribed fee. lends credit to the firm. represents himself as a partner of a particular firm. Actual or Ostensible Partner: An actual partner is one who actively participates in the conduct of the business of the partnership. 4. Example: X. by creating certain disabilities from which an unregistered from suffers. But indirectly. he becomes liable to all those who act and lend money to the firm. Partner by Holding Out : Where a person represents himself or allows others to represent him as a partner of a particular firm. REGISTRATION OF FIRMS The Partnership Act does not provide for the compulsory registration of firms. giving the necessary information. he is estopped from denying that he is a partner. 2. Hence. While he has access to accounts and examine and verify them. A becomes liable. He occupies the position of an undisclosed principal. A. with the Registrar of Firms of the area. A does not contradict this representation. by his conduct. Partner by Estoppel: Where a person causes. lent Rs. Y and Z are partners of a firm. on the faith of such representation. it has made the registration of firms compulsory. D on the faith of the representation. on faith of that representation. Example: A. another to believe him to be a partner and on that belief such other person gives credit to the firm. he has not duties to perform. X. is liable as a partner. Hence no notice of his retirement to the public is necessary nor the firm is dissolved when he becomes insane. 5000 to the firm. represents to D that A is a partner of their firm. Dormant or Sleeping Partner: He is a partner who is not known to third parties as such.Following are different kinds of partners 1. A. 3. He does nto take active part in the conduct of business.

69(2)] 3. until the registration of the firm is effected [Sec. 2. . EFFECTS OF NON-REGISTRATION (SEC. and the names of the persons suing appear as partners in the Register of Firms [Sec. 69) 1. Suits between partners and firm: A person suiting as a partner of an unregistered firm cannot sue the firm or any partners of the firm to enforce a right from a contract or conferred by the Partnership Act. It shall also be verified by them in the prescribed manner [Sec. Such agreement may be express or implied. He shall then issue under his hand a certificate of registration. The statement shall be signed by all the partners or by their agents specially authorized in this behalf [Sec. 58(1)]. 69(3)] RELATIONS OF PARTNERS The relations of the partners of a firm to one another are usually governed by the agreement among them.(a) the name of the firm (b) the place or principal place of business of the firm (c) the names of other places where the firm carries on business (d) the date when each partner joined the firm (e) the names in full and permanent address of the partners (f) the duration of the firm. 59). he shall record an entry of the statement in the Registrar of Firms (maintained by Registrar of Firms in respect of each registered firm for recording the necessary information relating to that firm) and file the statement (Sec. When the Registrar is satisfied that the above provisions have been duly compiled with. Registration is effective from the date when the Registrar files the statement and makes entries in the Register of Firms. 58(2)]. Clain of set-off: An unregistered firm or any partner thereof cannot claim a set-off in a proceeding instituted against the firm by a third party to enforce a right arising from a contract. Suits between firm and third parties: An unregistered firm cannot sue a third party to enforce a right arising from a contract until – • • the firm is registered.

Such interest. Right of Access to Accounts Subject to contract between the partners. is payable only out of profits. if any. he is entitled to interest on such advance at the rate of six per cent annum. Such acts of the partner bind the firm. Right to be Indemnified A partner has authority. 6. in his own case. every partner has a right to have access to and inspect and copy any of the books of the firm. the partners are entitled to share equally in the profits earned and are liable to contribute equally to the losses sustained by the firm. 3. . This is based on the general principal that partnership business is the common business of all the partners. 7. Subject to pay such agreement between the partners. for the purposes of the business of the firm. 12(a)]. Right to Interest on Capital The partnership agreement may contain a clause as to the right of the partners to claim interest on capital at a certain rate. Right to Share in Profit In the absence of any agreement. Right to Interest on Advances Where a partner makes. in an emergency. any advance beyond the amount of capital. he has a right to be indemnified. If as a consequence of any such act. 2. subject to contract between the partners. Right to be Consulted Every partner has an inherent right to be consulted in all matters affecting the business of the partnership and express his views before any decision is taken by the partners. acting under similar circumstances. 4. 5. to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence. the partner incurs any liability or makes any payment. Such interest is not only payable out of the profits of the business but also out of the assets of the firm. Right to take part in Business The partnership agreement usually provides the mode of the conduct of the business.RIGHTS OF A PARTNER 1. earned by the firm. every partner has a right to take part in the conduct of business [Sec.

by giving notice to all the other partners of his intention to retire. In such a case. or (c) where the partnership is at will. legal representative of the deceased partner or the outgoing partner is entitled to such share of the profits as is proportionate to his share in the property of the firm. According to Sec. This is because partnership is founded on mutual trust and confidence. No partner has a right to treat it as his individual property. insolvency. or (b) in accordance with an express agreement between the partners.8. 11. 13. Right to the Use of Partnership Property Subject to contract between the partners. expulsion. partners are bound – . or any other cause. Right of Partner as Agent of the Firm Every partner for the purposes of the business of the firm is the agent of the firm. or has ceased to be a partner by retirement. 9. 10. the property of the firm must be held and used by the partners exclusively for the purposes of the business of the firm. Right of Outgoing Partner to Share in the Subsequent Profits Where a partner has died. 12. DUTIES OF A PARTNER Partnership is a contract of uberrimae fide. No New Partner to be Introduced Every partner has a right to prevent the introduction of a new partner unless he consents to that or unless there is an express term in the contract permitting such introduction. If a partner uses the property of the firm directly or indirectly for his private purpose. the surviving or continuing partners may carry on the business with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate. No Liability before Joining A person who is introduced as a partner into a firm is not liable for any act of the firm done before he became a partner. which deals with the general duties of partners. he must account to the firm for the profits which he may have earned by the use of that property. Right to Retire A partner has a right to retire (a) with the consent of all other partners. 9. The partners must act with utmost good faith as the very basis of partnership is mutual trust and confidence.

and to use his knowledge and skill to the common advantage of all the partners. 2. To carry on business to the greatest common advantage Every partner is bound to carry on the business of the firm to the greatest common advantage. . and (c) to render true accounts and full information of all things affecting the firm to any partner or his legal representative. (b) to be just and faithful to each other. To attend diligently It is the duty of every partner to attend diligently to his duties in the conduct of the business of the firm [Sec. 6. To share losses It is the duty of every partner to contribute to the losses of the firm. 3. Every partner must be just and faithful and observe utmost good faith towards every other partner of the firm. Not to claim remuneration A Partner is not entitled to receive any remuneration in any form for taking part in the conduct of the business of the firm. to do his best in the common interest of the firm. The other duties are spread over the Partnership Act. 7. To indemnify for fraud Every partner is bound to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. To indemnify for willful neglect Every partner is bound to indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. the partners are bound to contribute equally to the losses sustained by the firm. usual to allow some remuneration to the working partners provided there is a specific agreement to that effect.(a) to carry on the business of the firm to the greatest common advantage. In the absence of an agreement to the contrary. 5. He is bound. It is however. in all transactions affecting the partnership. 12b]. An agreement to share profits implies an agreement to share losses also. These duties are summed as under: 1. 4. To observe faith Partnership is a fiduciary relation.

for all the acts of the firm done while he is a partner. without the consent of the other partners. jointly with all the other partners and also severally. He can.8. B and C. if C dies or retires. from partnership transactions. To account for personal profits If a partner derives any benefit. This new firm of A. he must account for it and pay it to the firm. 10. This is different from the dissolution of partnership. the firm will be dissolved. To be liable jointly and severally Every partner is liable. 11. If he does that he is bound to account for and pay to the firm all profits made by him in that business. however. A partnership may be dissolved without dissolution the firm. To act within authority Every partner is bound to act within the scope of his actual or implied authority. Where he exceeds the authority conferred on him and the firm suffers a loss. But A and B may take in D and continue doing the business. assign his share of the profit and his share in the assets of the firm. 13. This is because the relationship between partners is a fiduciary relationship and no partner is entitled to make any personal profit. To account for profit in competing business A partner must not carry on any business of the same nature as competing with that of the firm. Dissolution of Partnership on the happening of certain contingencies . DISSOLUTION OF FIRMS Section 39 of the Indian Partnership Act lays down that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. To hold and use property of the firm exclusively for the firm It is the duty of every partner of the firm to hold and use the property of the firm exclusively for the purposes of the business of the firm 9. Not to assign his rights A partner cannot assign his rights and interest in the firm to an outsider so as to make him the partner of the firm. But dissolution of firm involves dissolution of partnership. he shall have to compensate the firm for any such loss. 12. In the firm of A. B and D is called the new or reconstituted firm.

may constitute the firm. For instance. the remaining partners. from the date of communication of the notice. 2) Compulsory Dissolution: (a) by the insolvency of al the partners except one. Once given. 4) Dissolution through Court: A partnership for a fixed period will be dissolved by a court where it is not dissolved for the reasons mentioned above. or (b) in accordance with the contract entered into by them. (d) that a partner persistently commits breach of agreement. the carrying on of the business. (b) that a partner has become permanently incapable of performing his duties. it cannot be withdrawn. or (ii takes away the partnership books etc. or if the date is not mentioned. Hence. . a firm is dissolved when: (i) a partner commits breach of trust. The firm is dissolved from the date mentioned in the notice. dissolution of partnership does not necessarily involve dissolution of the firm. the firm is dissolved automatically.A partnership is dissolved by -- The death of the partner  The completion of the adventure of partnership  The insolvency of a partner. Dissolution of Firm A partnership between all the partners is dissolved in the following ways 1) Dissolution by Agreement: (a) By mutual consent of all the partners. If they do not continue. (c) that a partner is guilty of conduct which is likely to affect prejudicially. But the notice must be in writing and unambiguous. 3) Dissolution of Partnership at Will: The firm may be dissolved by any partner giving a notice to the other partners of his intention to dissolve the firm. and  The retirement of a partner In all these cases. At the suit of a partner. a firm may be dissolved on any of the following grounds: (a) that a partner has become of unsound mind. or (b) by the business of the partnership becoming illegal or unlawful by subsequent events.

or (g) on any other ground which renders it just and equitable that the firm should be dissolved. define Partnership. REVIEW QUESTIONS 1. What are the rights and duties of partners? 3. What are the modes of dissolution of firm? . What is the procedure for registration of partnership firm? What is the effect of non-registration? 4. save at a loss.(e) that a partner has transferred his interest to a third party or allowed his share to be charged or sold in the recovery of arrears of land revenue (f) that the business of the firm cannot be carried on. What are the different kinds of partnership? 2.

4.LESSON – 8 ARBITRATION OF ACT. MATTERS REFERRED TO ARBITRATION 1. (1977) Bom. (f) Proceedings with regard to lunacy. In Union of India Vs D. The law relating to arbitration is contained in the Arbitration Act. A time-barred debt. present or future differences to arbitration. 1940. it was observed that “arbitration is a domestic forum. murder. All disputes of civil and quasi-civil nature 2. etc. Section 2(a) defines that an “Arbitration Agreement means a written agreement to submit. maintenance or conditions on which husband and wife may separate etc.P. (g) Testamentary matters (h) Appointment of a guardian to a minor . The person appointed to adjudicate upon the difference is called an arbitrator. e. Matters of questions of law and fact.g. whether an arbitrator is named therein or not”. in a judicial manner”. All matters affecting the private rights of the parties which can be the subjectmatter of a civil suit 3. But the following matters cannot be referred to arbitration:(a) A suit for divorce of restitution of conjugal rights (b) Right arising out of an illegal transaction (c) Insolvency proceedings (d) Matters relating to public charities (e) Matters of criminal nature. 5. Wadia & Sons. All matters connected with the personal rights of the parties such as marriage.R. theft etc. 10. 1940 Arbitration is one of the oldest methods of settling civil disputes between two or more persons by reference to the dispute to an independent and impartial third person instead of litigating the matter in the usual way through the Courts. after hearing both the sides. It is a forum other than a Court of law for determination of disputes and differences. A.I.

d) When the arbitrators have either allowed time to expire without making an award or expressed in writing. KINDS OF ARBITRATION ARBITRATION WITHOUT INTERVENTION OF A COURT Unless the intention of the parties is otherwise expressed. by notice in writing. from any party to the arbitration agreement or within such extended time as the court may allow. may refer matters to arbitration because a reference or submission is an agreement. But an insolvent or a partner in a firm or an executor or administrator. after entering on the reference or after having been called upon to act. and  A company may refer a dispute. c) The arbitrators shall make their award within four months. b) If the reference is to an even number of arbitrators. to any of the parties to the agreement or umpire. following provisions shall be implied in an arbitration agreement. a) Except when it is provided otherwise. the arbitrators shall appoint an umpire not later than one month from the latest date of their respective appointments. the umpire shall forthwith enter on the reference in lieu of the arbitrators. the reference shall be to a sole arbitrator. e) The umpire shall make his award within two months of entering on the reference or within such extended time as the court may allow . that they cannot agree.  The manager or partner of a Joint Hindu Family  An agent duly authorize by the principal  The official receiver by the leave of court  Trustees acting together. or a minor cannot refer matters to arbitration.Who can refer A person who is competent to contract.

Since. The interested parties shall be made as plaintiffs and disinterested as defendants. of all the parties to the agreement. anybody. as the arbitrators. The court. Thereafter. numbered and registered as a suit. at their discretion. may appoint an arbitrator or arbitrators. Where some of the parties to the suit apply to the court for reference to arbitration. h) Costs of references and the award shall be borne by the parties.f) The arbitrators may examine all the parties to the agreement and other persons claiming under them and all documents and papers relating to the dispute and do all other necessary things. including a minor or one of themselves may be appointed as an arbitrator. all the rules applicable in the case of arbitration without intervention of the court. ARBITRATOR An arbitrator is one. may direct. for determination within a specified time. The court having heard the objections. the court may refer the matter in difference to an arbitrator appointed by it. one of the parties may apply to the court for the filling up of the agreement with it. if any. ARBITRATION IN SUITS Arbitration through the Intervention of Court where no Suit is Pending Though the parties have entered into an arbitration agreement before a suit in respect of any matter relating to the agreement is field in a court. the other parties who were not applicants shall be bound by the suit only. he is appointed by the parties to the dispute at their own choice. Arbitration through the Intervention of the Court where a Suit is Pending On receiving an application from the parties to the suit. on the application of the party who gave notice to other parties for filling the vacancy. who is appointed by the contending parties for negotiation and settlement of a dispute referred to him. which continues so far as it relates to those parties. issues an order of reference to an arbitrator appointed by the parties or by the court itself. g) The award shall be final and binding on the parties. on receiving an . the court. shall apply. Such an application must be in writing. But when the parties cannot appoint any arbitrator or if an appointed arbitrator neglects or refuses to act or is incapable of acting or dies. and if such vacancy is not duly filled within 15 days of the notice by any party on the other parties to fill such a vacancy.

He may however. 2. He must be impartial and act fairly to both the parties. He can state a special case for the opinion of the court on any matter of law 3. He can administer necessary interrogatories to any party to arbitration 6. He must act judicially as he is an extra-judicial court at the choice of the parties. He must decide on all matters relating to the dispute and make an award 6. He must make an award within four months from the date on which reference is made or within such extended time as the court may allow. He may not strictly follow the technical rules of procedure. So. He must act as an impartial judge. But he should not disregard the substance of justice. DUTIES 1. . he must fix the time and place for hearing and grant adjournments as may be necessary to do justice. So. 4. He can state the award in the form of a special case for the opinion of the court 4. 7. POWERS OF ARBITRATOR 1. 8. He can administer necessary interrogatories to any party to arbitration.application from any of the parties can remove an arbitrator when he fails to proceed with the reference or when he has misconducted himself of the proceedings. but he must give his own decision. take the assistance of experts like a Chartered Accountant etc. He must observe the fundamental principles of justice. He can administer oath to the parties and witnesses 2. 5. He must not delegate his authority to someone else except when the delegation involves ministerial acts. He can make the award conditional or in the negative 5. he must not exceed his authority. 3. He must not investigate into matters which are outside the scope of terms of reference to arbitration. He must not act as an agent or advocate of a party.

So. It must be in writing and signed by the arbitrators or an umpire. an umpire may be appointed by the arbitrators within one month from the latest date of their respective appointments. namely. He may be appointed by the court (1) when the arbitrators do not appoint him or (2) when the parties fail to appoint arbitrators. gives notice to the parties of the award. He may fix the amount of costs and the persons who shall bear such costs. his other rights and duties are the same as those of an arbitrator. The court may modify an award: 1. The court may remove him on same grounds on which an arbitrator is removed.POWERS AND DUTIES OF AN UMPIRE Where two or more even numbers of arbitrators are appointed and the reference provides that in the event of their disagreement. shall be added to and forms part of the award. When the award contains clerical mistake or an accidental omission. When the award is imperfect in form or contains obvious error or 3. He has to make an award within two months or such extended period as the court may allow. AWARD An award is the final decision of the arbitrators or an umpire in respect of a dispute referred to arbitration. when he fails to proceed with arbitration or when he misconducts himself or the proceedings. the matter in dispute shall be referred to the decision of a third person. an award is binding on the parties to the arbitration agreements and persons claiming under them. on matters which the arbitrators stated a special case for the opinion of the court. such third person is called an umpire. Unless a contrary intention appears. When a part of the award is on matters not referred to arbitration and such part can be separated without affecting decision or 2. It may be filed in the court which thereupon. The opinion of the court. The court may remit an award for reconsideration: 1) When certain matters referred to arbitration are not determined or 2) When the award determines the matters not referred to arbitrations or 3) When the award is incapable of execution or .

the award becomes void. .4) When the legality of the award is objected to and such objection is apparent on the face of it. The court may set aside the award: 1) When the arbitrator or umpire misconducts himself or the proceedings. or such extended time as the court may allow. 3) When the award is made after the arbitration has become invalid or has been superseded by an order of the court. the arbitrators or umpire shall give their decision within the fixed time. Otherwise. When the award is remitted for reconsideration. 2) When the award is improperly procured or is otherwise invalid.

5. RIGHTS OF COMMON CARRIER 1.LESSON – 9 COMMON CARRIES ACT A Common Carrier is one whose business is to transport properly or goods of all persons from place to place for hire. he is not bound to follow the shortest route. but not those which he does not profess to carry 3. DUTIES OF COMMON CARRIER 1. a common carrier is different from a private carrier who carries goods of particular persons of his own choice either for hire or gratuitously in a casual occupation or under a special contract.” But the government or a carrier of passengers or a carrier by a sea or air cannot be regarded as a carrier. 2. other than the government. He is bound to carry goods for all persons indiscriminately. property from place to place. If the consignee does not take delivery of the goods when they reach the destination. 2. He is entitled to prescribe the hire for the carriage of goods by him. he must warehouse them for a reasonable time so that the consignee can take delivery thereof. He has a right to have the goods delivered to him. He is bound to carry goods by his ordinary route to the usual destination or destinations in his customary manner without unnecessary delay or deviation. engaged in the business of transporting for hire. Section 2 of the Carriers Act 1865. He is entitled to exercise a lien on the goods in his possession for hire and other expenses or charges. . except when the consignee instructs him to deliver the goods at a particular place. So. 3. by land or inland navigation for all persons indiscriminately. 6. He is bound to carry goods which he professes to carry. He must deliver the goods at the place stated by the consignor of the goods. He is bound to carry the goods safely 4. defines that “Common Carrier denotes a person. Further.

2. 100. musical instruments etc. such as cyclone lighting etc.4. c) “Inherent Fire” in the Goods: He is not liable for inherent defect in the goods such as deterioration of perishable goods like fruits. except when such loss is caused by the criminal acts of negligence of the carrier himself or his agents or servants. ivory articles. Liability in respect of Non-Scheduled Goods The liability of the carrier in respect of loss of these goods can be limited by a special contract signed by the consignor or owner of the goods. 5. unless the consignor or his agent expressly declares their value and their description to the carrier. Liability in respect of Scheduled Goods In case of unusually valuable goods like gold and silver and unusually perishable goods such as glass. vegetables etc. He is liable as an insurer for any loss or damage caused to the goods whether by his negligence or not. he is liable as a bailee and hence should take much care of the goods as a man of ordinary prudence would take care of his own goods. But the following are the exceptions: a) Act of Nature: He is not liable if the loss of goods is caused by unforeseen circumstances beyond his control and contemplation. b) Alien Enemies: He is not liable for the loss of goods caused by the foreign enemies during wars. If the goods are perishable. At common law. He has a right to be reimbursed for the expenses incurred by him in the protection of the goods when the consignee refuses to take delivery of them. LIABILITIES OF COMMON CARRIERS 1. d) Consignor’s Fault: He is not liable for the loss or damage of goods due to consignor’s fault such as bad packing etc. . he can sell away the goods when the consignee has not taken delivery of them and the goods are about to perish or if the goods get spoiled in transit. he is not liable for the loss of goods if the value of goods exceeds Rs.

If not. notice in writing of the loss of goods must be given to the carrier. acids etc the consignor must sufficiently inform the carrier of the dangerous character of the goods. or (b) The goods are to be carried by any other train and consist of articles of any of the following categories namely – a.In order to sue the carrier for loss of goods. Articles carried at owner’s risk rate b. the consignor is not responsible for any consequent loss. Any person derivering to a railway administration any animals or goods to be carried by railway shall execute a forwarding note. he would be answerable. Liability in respect of dangerous goods In case of dangerous goods like explosives. The sender or his agent shall give the required particulars in the forwarding note in respect of the animals or goods delivered to the railway administration where: (a) The animals or goods are to be carried by a train intended solely for the carriage of goods. On the other hand. 72). . d. if the carrier is aware of the dangerous character of the goods carried. the consignor would be answerable. within six months from the date on which the plaintiff has the knowledge of the loss of goods. Explosives and other dangerous goods. Articles in a defective condition or defectively packed. e. But even if the consignor is unaware of the dangerous character of goods. Articles of a perishable nature c. CARRIAGE BY RAIL Carriage by rail in India is regulated by the Indian Railways Act. 1890 Responsibility of Railway Administration as Carriers Execution of forwarding note (Sec. The forwarding note shall be in a form prescribed by the railway administration and approved by the Central Government. Articles mentioned in the Second Scheduled (which includes articles of special value which are to be declared and insured).

explosion or any unforeseen risk The railway administration is responsible for the non-delivery of animals or goods delivered to be carried by railway arising from any cause except the above. Bill of Lading CHARTER-PARTY It is an agreement by which the ship owner agrees to let an entire ship or substantial part of it to a shipper for the conveyance of goods on a certain voyage. Charter-Party and 2. It is an agreement whereby the ship owner undertakes either to carry the goods by water or to supply a ship for the carriage of goods by water in consideration of a price called “freight”.As per the amended Sec. a railway administration is responsible for the loss destruction or deterioration in transit of animals or goods received by it for carriage by rail from all causes except losses arising from – • • • • • • • • Act of God Act of war Act of public enemies Arrest. 1. the railway administration shall be responsible unless it satisfactorily proves that it had exercised reasonable care and prudence in the carriage of goods or animals. CONTRACT OF AFFREIGHTMENT A contract for the carriage of goods by sea is called a contract of affreightment. . 73. When any loss destruction. to a definite place or for a specific period in consideration of “freight”. A contract of affreightment is of two kind. damage. restraint or seizure under legal process Orders or restrictions imposed by or on behalf of the Central or a State Government Natural deterioration or wastage in weight due to some inherent defect or vice in the goods Latent defects Fire. deterioration or non-delivery has occurred as a result of one or more of the cause given above.

it is sometimes described a “quasi-negotiable” or “as good as negotiable”. Expected perils and other terms of carriage of goods. The transfer of bill of lading serves as the symbolic delivery of goods. The port of loading. A statement that it is subject to the rules laid down by the Act 3. but the carrier may reserve the right to alter the stopping places in case of necessity and the exercise of this right would not deprive the carriage of its international character. DOCUMENTS OF CARRIAGE When passengers and goods are carried by air. . it is not a negotiable instrument though it is deliverable to a particular person or his order. CARRIAGE BY AIR The law relating to carriage of goods and passengers across inter-national borders is regulated in India by the Carriage by Air Act. or his agent and stating the terms on which the goods were delivered to and received by the ship”. It also makes provisions for applying the rules contained in the Warsaw Convention and the Hague Protocol (subject to certain exceptions. the destination and the route 5. the number of packages and the order and condition of the goods 4. therefore. A Bill of Lading is a document to title of goods and can be sold while the goods are still in transit. 2. adaptations and modifications) to non-international carriage by air. (1) The place and date of issue (2) The place of departure and of destination (3) The agreed stopping places. 1972. signed by the person who contracts to carry them.BILL OF LADING “A bill of lading is a receipt for the goods shipped on board a ship. the following documents are issued: Passenger Tickets: For carriage of passengers. The amount of freight 6. Marks for the identification of goods. The name of the ship and its national character. But strictly speaking. A bill of lading contains the following particulars 1. the carrier must deliver a passenger ticket which must contain the following particulars.

(5) A statement that the carriage is subject to the rules relating to liability contained in the First Schedule [Rule 3(1)] The passenger ticket shall constitute prima facie evidence of the conclusion and conditions of the contract of carriage. .(4) The name and address of the carrier or carriers.

unless the insured continues the same and pays the premium before the expiry of the year. the consideration for which the premium is paid. the proximate but not the remote cause is to be looked to. The person who insures is called “Insurer”. He does not pay the specified amount unless this amount is the actual loss to the insured. every contract of insurance comes to an end of the expiry of every year. .e. all material facts which are likely to influence the insurer in deciding the amount of premium payable by the insured must be disclosed by the insured. Every contract of insurance such as life insurance and personal accident and sickness insurance. The person who effects the insurance is called the “Insured” or “Assured”. So.LESSON – 10 CONTRACT OF INSURANCE The Contract of Insurance is a contract whereby a ‘person undertakes to indemnify another against a loss arising on the happening of an event or by pay a sum of money on the happening of an event. the insurer pays the actual loss suffered by the insured. i. If he does not run the risk. 3. Following are the general principles of contracts of insurance: 1. “He must be so situated with regard to the thing insured that he would have benefit from its existence. 2. the loss must be proximately caused in order that the insurer is to become liable. The insurer must run the risk of indemnifying the insured. 7. Failure to disclose material facts renders the contract voidable at the option of the insurer. The price for the risk undertaken by the insurer and paid by the insured to the insurer is called “Premium” and the document which contains the contract of insurance is called “Policy”. The insurer is liable for loss which is proximately caused by the risk insured against. 6. He must act as a prudent uninsured person would act in his own case under similar circumstances to mitigate or minimize losses.e. i. is a contact of indemnity. So. that is called “insurable interest” in the subject matter of the contract of insurance. a contract requiring utmost good faith of the parties. So. 4. he must return the premium paid by the insured. ion the event of some mishap to the insured property. Except in the case of life insurance. The insured must take reasonable precautions to save the property. The rule is “causa proxima non remota spectalur”. fails and consequently. loss from its destruction”. 5. The assured must have. A contract of insurance is a contract uberrimae fider.

(1) with profits or (2) without profits. In the former one. LIFE INSURANCE CONTRACT Life insurance is popularly referred to as life assurance. in consideration of the premium paid. According to the rule of subrogation when the loss is caused to the insured by the conduct of third party. the assured gets not only the sum assured but also a share in the profits of the underwriter in the form of bonus. Again. This right of subrogation is enforceable only when there is an assignment of cause of action by the insured in favour of the insurer. there are different kinds of insurance. not the measure of the loss. the insurer shall have to make good such loss and them have a right to step into the shoes of the insured and bring an action against such third party who caused the loss to the insured. This amount is fixed by the parties at the time of the contract. In the case of the former policy. The doctrine of subrogation does not apply to life insurance. the assured is not entitled to any share in the profits. (1) the whole life policy and (2) the endowment policy. the underwriter agrees to pay the assured or his heirs. It is. insurance is a contract whereby the insurer undertakes. The policy matures on the death of the assured. But in the case of “without profits” policy. But in the case of the latter type. however. (1) Life (2) Fire (3) Marine (4) Accident and (5) Guarantee insurance etc. a life insurance policy may be either. It also grants disability and accident benefits annuities and superannuation allowances. FIRE INSURANCE A contract of fire. the premiums have to be paid either for a specified number of years or till the death of the assured. The contract specified the maximum amount which the assured can claim in case of loss. to make good any loss or damage caused by fire during a specific period. the amount assured is payable either on the death of the assured or on the expiry of a specified number of years whichever is earlier. A life insurance policy is mainly to two types. In this case. The insurer is liable to make good the actual amount of loss nor exceeding the maximum amount fixed by the parties. But he has to pay more premium in this case than that is payable in respect of “without profits” policy. The loss can be ascertained only after the fire has occurred. .8. a certain sum of money on death or on the happening of an event dependent upon human life in consideration of premiums paid by the assured.

the fixed amount is payable irrespective of the actual amount of loss. TYPES OF FIRE POLICIES 1. It is a contract of uberrinate fider. This is subject to the maximum amount for which the subject-matter is insured. 3. The assured must have insurable interest in the subject-matter both at the time of insurance and at the time of loss. recover the actual amount of loss from the insurer. 5. third party risks. The risk covered by a fire insurance contract is the loss resulting from fire or some cause which is the proximate cause of the loss. It can. be renewed if the assured pays the premium during the days of grace. Specific policy is a case of underinsurance to check under-insurance. . The assured and the insurer have to disclose everything which is in their knowledge and which will affect the contract of insurance. A valued policy can be legally challenged because it is not a contract of indemnity. The assured can. 2. 3. in the event of loss. It is contract from year to year. the insurers usually insert average clause in the policy in which case the policy is known as average policy. It may also cover loss of profits during the period the business remains closed due to fire. It is subject to the principles of subrogation and contribution 6. such a policy is also known as “all-in-one” policy. however. The insurable interest must be capable of valuation in terms of money. In the event of loss. Comprehensive Policy It is a policy which covers losses against fire. It comes to an end after the expiry of the year. Valued Policy It is a policy in which the amount payable in case of loss is fixed at the time the policy is taken. burglary. It is a contract of indemnity.CHARACTERISTICS OF FIRE INSURANCE CONTRACT 1. 4. Specific Policy It is policy which covers the loss of the assured up to a specific amount which is less than the real value of the property. theft. etc. 2.

6. not exceeding twelve months. against marine losses. 5. 3. in consideration of a premium paid by the insured. Replacement or Reinstatement Policy In order to prevent fraudulent devices by the assured. 4. for example. the insurer does not have . Insurers are liable only for the loss not exceeding the value mentioned in the policy. Sometimes. a company policy also may be issued. 2. 7. Voyage Policy: It insures the subject-matter for a certain voyage only i. The value is to be ascertained subsequently at the time of actual loss. The doctrine of subrogation applies to it. It is a contract ‘uberrimae fider”.4. whereby the insurer undertakes to pay the cost of the replacement of the property damaged or destroyed by fire. called the re-instatement clause. Lloyds are a registere body of several members and a broker is always employed in the case of this policy. the insurers usually insert a clause in the policy. to be declared subsequently. Time Policy: It insures the subject matter for a certain specified period. journey from one fixed port to another fixed port. MARINE INSURANCE A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the insured. Wagering or Honour Policy: It is also known as “policy proof of interest” or “Interest or no interest policy”. Unvalued or Open Policy: It does not specify the value of the subject-matter. Valued Policy: It specified the agreed value of the subject-manner insured. in manner and to the extent thereby agreed. Floating Policy It is a policy which covers property at different places against loss by fire. It is a contract of indemnity. In this case. leaving other particulars such as the name of the ship etc. It is always subject to average clause 5. It might. cover goods lying in two warehouses at two different places. Mixed Policy: It insures the subject-matter for a specified voyage and for a particular period. KINDS OF MARINE POLICIES 1. The usual form of the policy is what is called “Lloyd’s Policy”.e. It must have insurable interest. Floating Policy: It describes the general terms of insurance.

“Free from capture and seizure” clause which exonerates the insurer from has liability for the loss arising out of the capture and seizure of the ship. The time of commencement and duration of the risk 4. “Expected Perils” insurance policy. “Free from particular average” or “Free from all average” clause whereby the insurer is exempted from his liability for any particular average loss or for all average loss caused to the subject-matter of the contract. 5. “Inchmaree” clause which protects the insured against any latent defect in the machinery of the ship. Name of the ship 2. “Collision or running down” clause whereby the owner of an insured ship shall indemnify the owner of another ship if the former ship collides negligently with the latter. except when the insured knew that the goods were destroyed already. A marine insurance policy contains the following particulars: 1. clause which specified the risks not covered by the . “Sue. 13.insurable interest in the subject-matter of the contract. 12. It resembles a wages and hence void Losses are indemnified depending on the honour of the insurer. Name of the parties 3. Labour and Travel” clause which entitles the insured to minimize the loss and claim for expenses from insurer and to recover the goods lost by falling overboard accidentally. 7. Accepted perils for which the insurer undertakes to be liable. “Barratry” clause relates to the liability of the insurer for the loss arising out of the wrongful act of the master or any of the crew of the ship. 9. 11. “Lost or not lost” clause whereby the insurer is made liable whether the goods were in existence or not at the time when the insurance was effected. “Touch and Stay” clause which mentions the various parts which the ship touches and the period of its stay at these parts. 10. 6. 8.

It is an actionable claim and can be transferred by means of an assignment. It must be stamped. What are the kinds of arbitration? 2. duties and liabilities of common carriers? 3.A marine policy is thus a formal document signed by the insurer. What is an “arbitration”. Shukla. It contains the terms of the insurance as explained above. What are right. What is marine insurance? What are the kinds of marine policies? BOOKS REFERRED 1. Subba Rao Elements of Mercantile Law Mercantile Law Mercantile Law . Define common carriers. REVIEW QUESTIONS: 1. 2. M.C. N. What are the general principles of contract of insurance? 4. Kapoor. 3.D.

Define contract. What are the rights. Distinguish between contract of indemnity and contract of guarantee. Define offer. What are the duties of finder of lost goods? 7. 6.A Answer any five of the following All questions carry equal marks Maximum Marks : 100 (5 X 8 = 40) 1. 3. duties and liabilities of common carriers? 15. What are the rights and duties of an agent? 14. What are the implied conditions and warranties laid down under the Sale of Goods Act? 13. When the surety is discharged from his liabilities? 12. What are the agreements opposed to public policy? 4.MODEL QUESTION PAPER BACHELOR OF COMMERCE PAPER 2. What are the different kinds of arbitration? . What are the remedies for breach of contract? 5. Who is a minor? Discuss the nature of contract entered into with minors.2 : COMMERCIAL LAW Time 3 hours Part . What are the rights of an unpaid vendor? PART – B Answer any Four of the following All questions carry equal marks (4 x 15 = 60) 9. What are the principles of contract of insurance? 8. What are legal rules relating to valid offer? 2. What are the essentials of a valid contract? 10. What are the different methods of discharging a contract? 11.

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