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MLANING AND IMÞCk1ANCL CI 8USINLSS LAW

Commerc|a| |aw (also known as bus|ness |aw) ls Lhe body of law LhaL governs buslness and
commerclal LransacLlonsŦ lL ls ofLen consldered Lo be a branch of clvll law and deals wlLh lssues
of boLh prlvaLe law and publlc lawŦ
8uslness law ls Lhe general fleld of law relaLlng Lo buslness organlzaLlonsţ buslness sLrucLuresţ
and buslness LransacLlonsŦ Also lncluded ln Lhe buslness law fleld are lssues relaLed Lo real
esLaLeţ Laxţ and Lhe envlronmenLŦ
'A |ega||y o|rd|rg agreererl oelWeer lWo or rore persors oy Wr|cr r|grls are acqu|red oy ore
or rore lo acls ol loroeararce (Aosla|r|rg lror do|rg sorelr|rg) or lre parl ol lre olrers¨
'Ar agreererl oelWeer lWo or rore persors Wr|cr |s |rlerded lo oe erlorceao|e al |aW ard |s
corsl|luled oy lre acceplarce oy ore parly ol ar oller rade lo r|r oy lre olrer parly lo do or
aosla|r lror do|rg sore acl¨

IMÞCk1ANCL
@ buslness law sLudles are very lmporLanL as lL helps Lhe managemenL
professlonals ln reallzlng Lhe buslness eLhlcsţ he or she musL follow ln order Lo run
a proper Ǝ auLhenLlcaLed buslnessŦ @hls musL be ln accordance wlLh Lhe law Ǝ
regulaLlons prevalllng ln Lhe socleLyŦ @he buslness law sLudles are necessary for
every managemenL graduaLe wheLher he wanL Lo seLup a proper buslnessţ or
wllllng Lo [oln a servlce as a managerŦ
uolng a proper buslness wlLh an auLhenLlcaLed buslness llcense and reglsLraLlon
glves confldenceŦ @hey makes buslness case laws sLudles very lmporLanL Ŧ lL has
been provenţ LhaL mosL cllenLs are comforLable ln dolng buslnessesţ provlded
Lhey have a govLŦ llcense ln handţƎ an approval sLamp for Lhelr buslnessŦ lL glves
lmmense confldence ln handllng day Lo day buslness requlremenLs Lo Lhose who
know Lhe legal aspecL of buslnessŦ


INDIAN CCN1kAC1 AC1
A contract |s a |ega||y enforceab|e agreement between two or more part|es w|th mutua|
ob||gat|onsŦ 1he remedy at |aw for breach of contract |s ƍdamagesƍ or monetary
compensat|onŦ In equ|tyţ the remedy can be spec|f|c performance of the contract or an
|n[unct|onŦ 8oth remed|es award the damaged party the ƍbenef|t of the barga|nƍ or
expectat|on damagesţ wh|ch are greater than mere re||ance damagesţ as |n prom|ssory
estoppe|s
An agreement b]w 2 or more person wh|ch |s |ntended to be enforceab|e at |aw Ǝ |s
const|tuted by the acceptance by one party of an offer made to h|m by the other party to do
or absta|n from do|ng some actŦ
NA1UkL CI CCN1kAC1
,@ l,9@An@ 8AnC LAW
ClCu,@AnC CA@u 8? 9A@l ALL 8 LALL? 8lnuln n @,Ŧ
WA@ A ,An A 8n Lu @ O9C@ ALL C, @ 9A
ALlZA@ln @ AnA8L ln Cu@ LAW
l@ ln 9nu, A AAln@ l@ ln ,
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THE INDIAN CONTRACT ACT 1872
1. General Principles oI Law oI Contract (Secs. 1 - 75)
3pec|a| Corlracls (3ecs 1 - )
- lrderr|ly ard 0uararlee
- 8a||rerl ard P|edge
- Agency




ESSENTIAL ELEMENTS OF A VALID CONTRACT
Sec. 10
-
'A|| agreererl are corlracls |l lrey are rade oy 'FREE C0N3ENT' ol Parl|es 'C0VPETANT
T0 C0NTRACT', lor a 'LAwFuL C0N3l0ERATl0N' ard W|lr 'A LAwFuL 08JECT' ard are
'N0T 0ECLARE0 T0 8E v0l0¨
%ereIore 'All agreements are not contracts but all contract are agreements¨
Contracts do not include Iuture agreements:
1. OIIer and Acceptance
2. Intention to create a legal relationsip
3. LawIul consideration
4. Capacity oI Parties
5. Free and Genuine Consent
6. LawIul Object:
- Forbidden by law
- DeIeats te provisions oI law
- Fraudulent
- Involves injury to person and property
- lrrora| ard opposed lo puo||c po||cy
Z Agreererl rol dec|ared vo|d
Cerla|r|ly ard poss|o|||ly ol perlorrarce
9. Legal Iormalities
10. Consensus Ad-Idem
Offer and its acceptance
Free consent of both parties
Mutual and lawful consideration for agreement
Ìt should be enforceable by law. Hence, intention should be to create legal relationship.
Agreements of social or domestic nature are not contracts
Parties should be competent to contract
Object should be lawful
Certainty and possibility of performance
Contract should not have been declared as void under Contract Act or any other law

CLASSIFICATION OF CONTRACTS
'ALIDI%
'alid Contracts
'oid Contract & 'oid Agreement
'oidable Contract
Illegal agreement
UnenIorceable
Agreement
FORMA%ION
Express Contract
Implied Contract
Constructive or quosi
PERFORMANCE
Executed Contract
Electuary Contract
Unilateral Contract
Bilateral contract
2. 'oid Contract :- 'OID CON%RAC% - A contract wic ceases to be enIorceable by law becomes
void wen it ceases to be enIorceable. |section 2(j)|. - - %us, initially a contract cannot be void, i.e. a
contract cannot be void ab initio. %e simple reason is tat in suc a case, it is not a contract at all to
begin wit. Hence, only a valid contract can become void contract due to some subsequent events. e.g. te
person dies or property is destroyed or Government imposes a ban etc. - - A void agreement is void ab
initio. It never becomes a contract. It is nullity and cannot create any legal rigts.

3. 'oidable Contract :- 'OIDABLE CON%RAC% - An agreement wic is enIorceable by law at
te option oI one or more oI te parties tereto, but not at te option oI te oter or oters, is a voidable
contract. |section 2(i)|. - - (a) Wen consent is obtained by coercion, undue inIluence, misrepresentation
or Iraud is voidable at te option oI aggrieved party i.e. party wose consent was obtained by
coercion/Iraud etc. However, oter party cannot avoid te contract. (b) Wen a contract contains
reciprocal promises and one party to contract prevents te oter Irom perIorming is promise, te contract
becomes voidable at te option oI te party to prevented. (section 53). Obvious principle is tat a person
cannot take advantage oI is own wrong (c) Wen time is essence oI contract and party Iails to perIorm in
time, it is voidable at te option oI oter party (section 55). A person wo imselI delayed te contract
cannot avoid te contract on account oI (is own) delay.

3.Quasi Contract :- Quasi means 'almost or 'apparently but not really or 'as if it were. This
term is used when one subject resembles another in certain characteristics but there are
intrinsic differences between the two. 'Quasi contract is not a 'contract. Ìt is an obligation which
law created in absence of any agreement. Ìt is based on equity. There are certain relations
resembling those created by contract. These are termed as 'quasi contracts. These are ÷ (a)
Supply of necessaries (section 68) (b) Payment of lawful dues by interested person (section 69)
(c) Person enjoying benefit of a gratuitous act (section 70) (d) Finder of goods (section 71) (d)
Goods or anything delivered by mistake or coercion (section 72).
OFFER AND ACCEP%ANCE
OFFER -
Inception oI every Contract -
DeIinite Proposal -
UnqualiIied Acceptance -
Concluded Contract

DEFINI%ION
3ec (a) : A persor |s sa|d lo rave rade a proposa|, Wrer re 's|gr|l|es lo arolrer r|s W||||rgress lo do or lo
aosla|r lror do|rg arylr|rg W|lr a v|eW lo oola|r|rg lre asserl ol lre lral olrer lo sucr Acl or
Aosl|rerce¨
Eg.: A` says to B` 'Will you purcase my car Ior Rs.1 Lak¨
OIIerer, Proposer or Promisor
OIIeree, Proposee / Acceptor or Promisee

HOW AN OFFER IS MADE
1. Express Order
2. Implied Order
TO WHOM AN OFFER CAN BE MADE
1. SpeciIic OIIer
2. General OIIer
LEGAL RULES AS TO OFFER
1. OIIer must be suc tat it is capable oI being accepted and giving
rise to a legal relationsip
2. OIIer must be deIinite, unambiguous, certain and not loose and vague
- Cord|l|ors lor ascerla|r|rg
3. OIIer must be communicated
4. OIIer must be made wit a view to obtain assent
5. OIIer must not contain a term te non-compliance oI wic amounts
to acceptance
6. A mere statement oI price is not an oIIer
7. OIIer to be distinguised Irom :
- A declaration oI intention and an announcement
Eg. : Auction Sale
- An invitation to make an oIIer to do business
- Catalogues
OIIer and Acceptance
For an agreement
%ere as to be a clear and
deIinite oIIer by one person and,
lls unconditional acceptance
oy lre persor lo Wror lre oller |s
rade
OIIer
An oIIer is a proposal by one
parly lo arolrer lo erler |r
lo a |ega||y o|rd|rg
agreererl W|lr r|r
OIIer may be express(spoken or
written words) or
implied.(inIerred Irom conduct)
Constituents oI an oIIer(essential
elements)
%e oIIer must sow te obvious intention
on part oI te oIIerer to be bound by it.
%e oIIerer must make te oIIer wit te
view to obtain te assent oI te oIIeree.
It must be deIinite.
It must be communicated to te oIIeree.
OIIer may be conditional
Rules oI legal oIIer
OIIer must be suc tat as in law it
is capable oI being accepted and
giving rise to a legal relationsip.

%erms oI oIIer must be deIinite,
clear and certain.
%e oIIer must not trust a burden
oI acceptance on te oIIeree.
Invitation to oIIer, a Iew possibilities
Display oI goods Ior sale
Price lists, catalogues
Advertisements
Declaration oI intention
Auctions
%enders
OIIer oI public issue oI sares
%ermination oI oIIer

Sec.6 oI te Act deals wit termination
oI oIIer.
2.Revocation-oIIer may be revoked at any
time beIore its acceptance is complete.
3.Lapse oI time.(speciIied time or
reasonable time.)
4.Failure oI te acceptor to IulIill te
condition precedent to acceptance.
5.Deat or insanity oI proposer.
Oter instances oI termination oI oIIer
As per sec.6 oI te Act.
Rejection
Counter oIIer
Failure to accept according to te
mode prescribed.
Subsequent illegality or destruction
oI subject matter.
Acceptance
Acceptance is te act oI assenting by te
oIIeree to an oIIer.
It indicates tat te person making it is
willing to be bound by te terms oI te
oIIer.
Acceptance may be express or implied.
Sec.2(b)`wen te person to wom
proposa|(oller) |s rade s|gr|l|es r|s
asserl lrerelo, lre proposa| |s sa|d lo oe
accepled A proposa| Wrer accepled
oecores a pror|se(|ea corlracl)
Legal rules as to acceptance
It must be absolute and unqualiIied.
It must be made by te party to wom
te oIIer is made.
%e acceptance must be expressed in
usual or reasonable manner.
It must be given in reasonable time.
It cannot be made in ignorance oI oIIer.
It must be given beIore te oIIer lapses.
It must be communicated to te oIIerer.
Mere mental acceptance is no acceptance.
(possible cases oI acceptance by silence)
Communication oI oIIer, wen
complete
(te spirit oI te law is tat te
message reaces te concerned party.)
Sec.4 provides tat te communication
ol proposa| |s corp|ele Wrer |l cores
lo lre |roW|edge ol lre persor lor
Wror |l |s rade
Communication oI acceptance, wen
complete
Sec.4 %e communication oI
acceptance is complete
as against proposer: wen it is put in a
course oI transmission to im, so as to
be out oI power oI te acceptor.
as against te acceptor: wen it comers
to te knowledge oI te proposer.



Consideration
Consideration is someting oI value given by a promissor to a promisee in
excange Ior someting oI value given by a promisee to a promissor. %ypically,
te ting oI value is an act, suc as making a payment, or a Iorbearance to act
wen one is privileged to do so, suc as an adult reIraining Irom smoking.
Consideration consists oI a legal detriment and a bargain. A legal detriment is a
promise to do someting or reIrain Irom doing someting tat you ave te legal
rigt to do, or actually doing or reIraining Irom doing someting tat you don't
ave to do. A bargain is someting te promisor (te party making promise or
oIIer) wants, usually being one oI te legal detriments. %e legal detriment and
bargain principles come togeter in consideration and create an excange
relationsip, were bot parties agree to excange someting tat te oter wises
to ave.
%e purpose oI consideration is to ensure tat tere is a present bargain, tat te
promises oI te parties are reciprocally induced. %e classic teory oI
consideration required tat a promise be oI detriment to te promissor or beneIit to
te promisee. %is is no longer te case.
Consequences of Breach of Contract
- Compensation is payable for breach of contract. Penalty is also payable if provided in
contract. Breach of contract may be actual or anticipatory.
$ummary of principles of compensation and damages - Following points are important - *
Compensation for loss or damage is payable. Since the word used is 'compensation, punitive
damages cannot be awarded. * These should be in usual course or known to parties i.e. both
parties must be aware * No compensation for remote and indirect loss or damage * Same
principle applies to quasi contract also.
GENERAL DAMAGES ÷ General damages are those which result from 'direct and proximate
consequences from breach of contract. Normally, what can be awarded is compensation for
loss or damage which can be directly or proximately attributed to the breach of contract. One
way of assessing damages is the difference between the contract price and the market price on
date of breach of contract, plus reasonable expenses incurred by him on account of the breach
plus cost of suit in court of law.
CONSEQUENTÌAL LOSS OR SPECÌAL DAMAGE ÷ Special damages or consequential
damages arise due to existence of special circumstances. Such damages can be awarded only
in cases where the special circumstances were foreseeable by the party committing the breach
or were specifically known to the party. Consequential losses like loss of profit due to breach,
which may occur indirectly due to breach cannot be normally awarded unless there are special
circumstances which parties were aware. Loss of profit can be awarded only in cases where
seller could have foreseen those losses and arose directly as result of breach.
PROMÌSEE SHOULD TAKE STEPS TO MÌTÌGATE THE LOSS OR DAMAGE ÷ Explanation to
section 73 specifically provides that in estimating loss or damage, the means available for
remedying the inconvenience caused by breach of contract shall be taken into account. Thus,
promisee should take all reasonable steps to mitigate the losses e.g. if promisor does not supply
goods, he should make efforts to procure from alternate sources may be even at higher price, to
reduce his losses arising out of breach of contract.
VÌNDÌCTÌVE OR EXEMPLARY DAMAGES ÷ Vindictive or exemplary damages cannot be
awarded under Contract Act. However, these may be awarded by Court under tort under special
circumstances e.g. * Dishonour of cheque by Bank when there was balance in account, as it
causes loss of reputation of credit worthiness of person issuing cheque * Breach of contract to
marry, as it hurts both feelings and reputation.
Quantum Meruit ":ant:2 207:it` means as muc as earned`. A contract may come to end by *
breac oI contract * contract becoming void or * 'oidable contract avoided by party. In suc case, iI a
party as executed part oI contract, e is entitled to get a proportionate amount i.e. as muc as earned by
im`. %is is not by way oI damages` or compensation Ior loss`. - - %e principle is tat even wen
contract comes to a premature end, te party sould get amount proportional to te work done/services
provided/goods supplied by one party. One party sould not get enriced at te cost oI oter.
4ntract 41 indemnity - A contract by wic one party promises to save te oter Irom loss caused to im
by te conduct oI te promisor imselI, or by te conduct oI any oter person, is called a contract oI
indemnity`. - - :8t7ation - A contracts to indemniIy B against te consequences oI any proceedings
wic C may take against B in respect oI a certain sum oI 200 rupees. %is is a contract oI indemnity.
|section 124|.
4ntract 41 guarantee - A 'contract oI guarantee¨ is a contract to perIorm te promise, or discarge te
liability, oI a tird person in case oI is deIault. %e person wo gives te guarantee is called te 'surety¨;
te person in respect oI wose deIault te guarantee is given is called te 'principal debtor¨, and te
person to wom te guarantee is given is called te 'creditor¨. A guarantee may be eiter oral or written.
|section 126|. - - |Person giving guarantee is also called as guarantor`. However, Contract Act uses te
word surety` wic is same as guarantor`|. - - %ree parties are involved in contract oI guarantee.
Contract between any two oI tem is not a contract oI guarantee`. It may be contract oI indemnity.
Primary liability is oI te principal debtor. Liability oI surety is secondary and arises wen Principal
Debtor Iails to IulIill is commitments. However, tis is so wen surety gives guarantee at te request oI
principal debtor. II te surety gives guarantee on is own, ten it will be contract oI indemnity. In suc
case, surety as all primary liabilities.
CONSIDERA%ION FOR GUARAN%EE - Anyting done, or any promise made, Ior te beneIit oI te
principal debtor, may be suIIicient consideration to te surety Ior giving te guarantee. - - :8t7ation8 -
(a) B requests A to sell and deliver to im goods on credit. A agrees to do so, provided C will guarantee
te payment oI te price oI te goods. C promises to guarantee te payment in consideration oI A`s
promise to deliver te goods. %is is suIIicient consideration Ior C`s promise. (b) A 8028 and d0iv078
good8 to B. C aft07a7d8 706:08t8 A to go7b0a7 to 8:0 B fo7 th0 d0bt fo7 a y0a7 and p7o2i808 that if x0
do08 8o+C i pay fo7 th02 in d0fa:t of pay20nt by B. A ag7008 to fo7b0a7 a8 706:08t0d. Thi8 i8 a
8:ffici0nt con8id07ation fo7 C8 p7o2i80. (c) A 808 and d0iv078 good8 to B. C aft07a7d8 itho:t
con8id07ation ag7008 to pay fo7 th02 in d0fa:t of B. Th0 ag70020nt i8 void. [80ction 127].
ailment - Bai20nt i8 anoth07 typ0 of 8p0cia cont7act. Sinc0 it i8 a cont7act nat:7ay a ba8ic
706:i7020nt8 of cont7act a70 appicab0. - - Bai20nt 20an8 act of d0iv07ing good8 fo7 a 8p0cifi0d
p:7po80 on t7:8t. Th0 good8 a70 to b0 70t:7n0d aft07 th0 p:7po80 i8 ov07. n bai20nt po88088ion of good8
i8 t7an8f0770d b:t p7op07ty i.0. on078hip i8 not t7an8f0770d. A 'bai20nt` i8 th0 d0iv07y of good8 by
on0 p078on to anoth07 fo7 8o20 p:7po80 :pon a cont7act that th0y 8ha h0n th0 p:7po80 i8
acco2pi8h0d b0 70t:7n0d o7 oth07i80 di8po80d of acco7ding to th0 di70ction8 of th0 p078on d0iv07ing
th02. Th0 p078on d0iv07ing th0 good8 i8 ca0d th0 'baio7`. Th0 p078on to ho2 th0y a70 d0iv070d i8
ca0d th0 'bai00`. - - Expanation . f a p078on a70ady in po88088ion of th0 good8 of anoth07 cont7act8
to hod th02 a8 a bai00 h0 th070by b0co208 th0 bai00 and on07 b0co208 th0 baio7 of 8:ch good8
atho:gh th0y 2ay not hav0 b00n d0iv070d by ay of bai20nt. [80ction 148]. [Th:8 initia po88088ion of
good8 2ay b0 fo7 oth07 p:7po80 and 8:b806:0nty it 2ay b0 conv07t0d into a cont7act of bai20nt 0.g.
8007 of good8 i b0co20 bai00 if good8 contin:0 in hi8 po88088ion aft07 8a0 i8 co2p0t0].
Bai20nt can b0 ony of good8. A8 p07 80ction 2(7) of Sa0 of Good8 Act good8 20an8 0v07y kind of
2ovab0 p7op07ty oth07 than 2on0y and actionab0 cai2. - - Th:8 k00ping 2on0y in bank acco:nt i8 not
bai20nt. A8king a p078on to ook aft07 yo:7 ho:80 o7 fa72 d:7ing yo:7 ab80nc0 i8 not bai20nt a8
ho:80 o7 fa72 i8 not a 2ovab0 p7op07ty.
ailment 41 pledges - P0dg0 i8 8p0cia kind of bai20nt h070 d0iv07y of good8 i8 fo7 p:7po80 of
80c:7ity fo7 pay20nt of a d0bt o7 p07fo72anc0 of a p7o2i80. P0dg0 i8 bai20nt fo7 80c:7ity. Co22on
0xa2p0 i8 k00ping god ith bank/2on0y 0nd07 to obtain oan. Sinc0 p0dg0 i8 bai20nt a p7ovi8ion8
appicab0 to bai20nt appy to p0dg0 a8o. n addition 8o20 8p0cific p7ovi8ion8 appy to p0dg0. Th0
bai20nt of good8 a8 80c:7ity fo7 pay20nt of a d0bt o7 p07fo72anc0 of a p7o2i80 i8 ca0d 'p0dg0`. Th0
baio7 i8 in thi8 ca80 ca0d th0 'pano7`. Th0 bai00 i8 ca0d th0 'pan00`. [80ction 172].
Contract of Agency - Agency is a special type of contract. The concept of agency was
developed as one man cannot possibly do every transaction himself. Hence, he should have
opportunity or facility to transact business through others like an agent. The principles of
contract of agency are ÷ (a) Excepting matters of a personal nature, what a person can do
himself, he can also do it through agent (e.g. a person cannot marry through an agent, as it is a
matter of personal nature) (b) A person acting through an agent is acting himself, i.e. act of
agent is act of Principal. - - $ince agency is a contract, all usual requirements of a valid contract
are applicable to agency contract also, except to the extent excluded in the Act. One important
distinction is that as per section 185, no consideration is necessary to create an agency.
AGENT AND PRNCPAL DEFNED - An 'ag0nt` i8 a p078on 02poy0d to do any act fo7 anoth07 o7 to
70p7080nt anoth07 in d0aing8 ith thi7d p078on8. Th0 p078on fo7 ho2 8:ch act i8 don0 o7 ho i8 8o
70p7080nt0d i8 ca0d th0 'p7incipa` [80ction 182].
WHO MAY EMPLOY AGENT - Any p078on ho i8 of th0 ag0 of 2afo7ity acco7ding to th0 a to hich h0
i8 8:bf0ct and ho i8 of 8o:nd 2ind 2ay 02poy an ag0nt. [80ction 183]. - - Th:8 any p078on co2p0t0nt
to cont7act can appoint an ag0nt.
WHO MAY BE AN AGENT - A8 b0t00n th0 p7incipa and thi7d p078on8 any p078on 2ay b0co20 an
ag0nt b:t no p078on ho i8 not of th0 ag0 of 2afo7ity and of 8o:nd 2ind can b0co20 an ag0nt 8o a8 to
b0 708pon8ib0 to hi8 p7incipa acco7ding to th0 p7ovi8ion8 in that b0haf h070in contain0d. [80ction 184].
- - Th0 8ignificanc0 i8 that a P7incipa can appoint a 2ino7 o7 p078on of :n8o:nd 2ind a8 ag0nt. n 8:ch
ca80 th0 P7incipa i b0 708pon8ib0 to thi7d pa7ti08. Ho0v07 th0 ag0nt ho i8 a 2ino7 o7 of :n8o:nd
2ind cannot b0 708pon8ib0 to P7incipa. Th:8 P7incipa i b0 iab0 to thi7d pa7ti08 fo7 act8 don0 by
Ag0nt b:t ag0nt i not b0 708pon8ib0 to P7incipa fo7 hi8 (i.0. Ag0nt8) act8.
CONSDERATON NOT NECESSARY - No con8id07ation i8 n0c088a7y to c70at0 an ag0ncy. [80ction
185]. Th:8 pay20nt of ag0ncy co22i88ion i8 not 0880ntia to hod appoint20nt of Ag0nt a8 vaid.
Auth4rity 41 agent An ag0nt can act on b0haf of P7incipa and can bind th0 P7incipa.
AGENTS DUTY TO PRNCPAL - An ag0nt ha8 fooing d:ti08 toa7d8 p7incipa. * Cond:cting
p7incipa8 b:8in088 a8 p07 hi8 di70ction8 * Ca77y o:t o7k ith no72a 8ki and diig0nc0 * R0nd07
p7op07 acco:nt8 [80ction 213]. * Ag0nt8 d:ty to co22:nicat0 ith p7incipa [80ction 214] * Not to d0a
on hi8 on acco:nt in b:8in088 of ag0ncy [80ction 215]. * Ag0nt8 d:ty to pay 8:28 70c0iv0d fo7
p7incipa [80ction 218] * Ag0nt8 d:ty on t072ination of ag0ncy by p7incipa8 d0ath o7 in8anity -
[80ction 209].
#EMUNE#ATION TO AGENT - Consideration is not necessary for creation of agency.
However, if there is an agreement, an agent is entitled to get remuneration as per contract.
RGHTS OF PRNCPAL - * R0cov07 da2ag08 f7o2 ag0nt if h0 di870ga7d8 di70ction8 of P7incipa *
Obtain acco:nt8 f7o2 Ag0nt * R0cov07 2on0y8 co0ct0d by Ag0nt on b0haf of P7incipa * Obtain d0tai8
of 80c70t p7ofit 2ad0 by ag0nt and 70cov07 it f7o2 hi2 * Fo7f0it 702:n07ation of Ag0nt if h0 2i8cond:ct8
th0 b:8in088.
DUTES OF PRNCPAL - * Pay 702:n07ation to ag0nt a8 ag700d * nd02nify ag0nt fo7 af: act8 don0
by hi2 a8 ag0nt * nd02nify Ag0nt fo7 a act8 don0 by hi2 in good faith * nd02nify ag0nt if h0 8:ff078
o88 d:0 to n0g0ct o7 ack of 8ki of P7incipa.
TE#MINATION OF AGENCY - An agency is terminated by the principal revoking his authority;
or by the agent renouncing the business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of unsound mind; or by the
principal being adjudicated an insolvent under the provisions of any Act for the time being in
force for the relief of insolvent debtors. [section 201]. - - In following cases, an agency cannot be
revoked ÷ * Agency coupled with interest (section 202) * Agent has already exercised his
authority (section 203) * Agent has incurred personal liability.
Un|t 3
4ntract 41 indemnity - A contract by wic one party promises to save te oter Irom loss caused
to im by te conduct oI te promisor imselI, or by te conduct oI any oter person, is called a contract
oI indemnity`. - - :8t7ation - A contracts to indemniIy B against te consequences oI any proceedings
wic C may take against B in respect oI a certain sum oI 200 rupees. %is is a contract oI indemnity.
|section 124|.
4ntract 41 guarantee - A 'contract oI guarantee¨ is a contract to perIorm te promise, or
discarge te liability, oI a tird person in case oI is deIault. %e person wo gives te guarantee is
called te 'surety¨; te person in respect oI wose deIault te guarantee is given is called te 'principal
debtor¨, and te person to wom te guarantee is given is called te 'creditor¨. A guarantee may be eiter
oral or written. |section 126|. - - |Person giving guarantee is also called as guarantor`. However, Contract
Act uses te word surety` wic is same as guarantor`|. - - %ree parties are involved in contract oI
guarantee. Contract between any two oI tem is not a contract oI guarantee`. It may be contract oI
indemnity. Primary liability is oI te principal debtor. Liability oI surety is secondary and arises wen
Principal Debtor Iails to IulIill is commitments. However, tis is so wen surety gives guarantee at te
request oI principal debtor. II te surety gives guarantee on is own, ten it will be contract oI indemnity.
In suc case, surety as all primary liabilities.
CONSIDERA%ION FOR GUARAN%EE - Anyting done, or any promise made, Ior te beneIit oI te
principal debtor, may be suIIicient consideration to te surety Ior giving te guarantee. - - :8t7ation8 -
(a) B requests A to sell and deliver to im goods on credit. A agrees to do so, provided C will guarantee
te payment oI te price oI te goods. C promises to guarantee te payment in consideration oI A`s
promise to deliver te goods. %is is suIIicient consideration Ior C`s promise. (b) A 8028 and d0iv078
good8 to B. C aft07a7d8 706:08t8 A to go7b0a7 to 8:0 B fo7 th0 d0bt fo7 a y0a7 and p7o2i808 that if x0
do08 8o+C i pay fo7 th02 in d0fa:t of pay20nt by B. A ag7008 to fo7b0a7 a8 706:08t0d. Thi8 i8 a
8:ffici0nt con8id07ation fo7 C8 p7o2i80. (c) A 808 and d0iv078 good8 to B. C aft07a7d8 itho:t
con8id07ation ag7008 to pay fo7 th02 in d0fa:t of B. Th0 ag70020nt i8 void. [80ction 127].
ailment - Bai20nt i8 anoth07 typ0 of 8p0cia cont7act. Sinc0 it i8 a cont7act nat:7ay a ba8ic
706:i7020nt8 of cont7act a70 appicab0. - - Bai20nt 20an8 act of d0iv07ing good8 fo7 a 8p0cifi0d
p:7po80 on t7:8t. Th0 good8 a70 to b0 70t:7n0d aft07 th0 p:7po80 i8 ov07. n bai20nt po88088ion of good8
i8 t7an8f0770d b:t p7op07ty i.0. on078hip i8 not t7an8f0770d. A 'bai20nt` i8 th0 d0iv07y of good8 by
on0 p078on to anoth07 fo7 8o20 p:7po80 :pon a cont7act that th0y 8ha h0n th0 p:7po80 i8
acco2pi8h0d b0 70t:7n0d o7 oth07i80 di8po80d of acco7ding to th0 di70ction8 of th0 p078on d0iv07ing
th02. Th0 p078on d0iv07ing th0 good8 i8 ca0d th0 'baio7`. Th0 p078on to ho2 th0y a70 d0iv070d i8
ca0d th0 'bai00`. - - Expanation . f a p078on a70ady in po88088ion of th0 good8 of anoth07 cont7act8
to hod th02 a8 a bai00 h0 th070by b0co208 th0 bai00 and on07 b0co208 th0 baio7 of 8:ch good8
atho:gh th0y 2ay not hav0 b00n d0iv070d by ay of bai20nt. [80ction 148]. [Th:8 initia po88088ion of
good8 2ay b0 fo7 oth07 p:7po80 and 8:b806:0nty it 2ay b0 conv07t0d into a cont7act of bai20nt 0.g.
8007 of good8 i b0co20 bai00 if good8 contin:0 in hi8 po88088ion aft07 8a0 i8 co2p0t0].
Bai20nt can b0 ony of good8. A8 p07 80ction 2(7) of Sa0 of Good8 Act good8 20an8 0v07y kind of
2ovab0 p7op07ty oth07 than 2on0y and actionab0 cai2. - - Th:8 k00ping 2on0y in bank acco:nt i8 not
bai20nt. A8king a p078on to ook aft07 yo:7 ho:80 o7 fa72 d:7ing yo:7 ab80nc0 i8 not bai20nt a8
ho:80 o7 fa72 i8 not a 2ovab0 p7op07ty.
ailment 41 pledges - P0dg0 i8 8p0cia kind of bai20nt h070 d0iv07y of good8 i8 fo7 p:7po80 of
80c:7ity fo7 pay20nt of a d0bt o7 p07fo72anc0 of a p7o2i80. P0dg0 i8 bai20nt fo7 80c:7ity. Co22on
0xa2p0 i8 k00ping god ith bank/2on0y 0nd07 to obtain oan. Sinc0 p0dg0 i8 bai20nt a p7ovi8ion8
appicab0 to bai20nt appy to p0dg0 a8o. n addition 8o20 8p0cific p7ovi8ion8 appy to p0dg0. Th0
bai20nt of good8 a8 80c:7ity fo7 pay20nt of a d0bt o7 p07fo72anc0 of a p7o2i80 i8 ca0d 'p0dg0`. Th0
baio7 i8 in thi8 ca80 ca0d th0 'pano7`. Th0 bai00 i8 ca0d th0 'pan00`. [80ction 172].
Contract of Agency - Agency is a special type of contract. The concept of agency was
developed as one man cannot possibly do every transaction himself. Hence, he should have
opportunity or facility to transact business through others like an agent.
The principles of contract of agency are ÷
(a) Excepting matters of a personal nature, what a person can do himself, he can also do it
through agent (e.g. a person cannot marry through an agent, as it is a matter of personal
nature)
(b) A person acting through an agent is acting himself, i.e. act of agent is act of Principal. - -
$ince agency is a contract, all usual requirements of a valid contract are applicable to agency
contract also, except to the extent excluded in the Act. One important distinction is that as per
section 185, no consideration is necessary to create an agency.
AGENT AND PRNCPAL DEFNED - An 'ag0nt` i8 a p078on 02poy0d to do any act fo7 anoth07 o7 to
70p7080nt anoth07 in d0aing8 ith thi7d p078on8. Th0 p078on fo7 ho2 8:ch act i8 don0 o7 ho i8 8o
70p7080nt0d i8 ca0d th0 'p7incipa` [80ction 182].
WHO MAY EMPLOY AGENT - Any p078on ho i8 of th0 ag0 of 2afo7ity acco7ding to th0 a to hich h0
i8 8:bf0ct and ho i8 of 8o:nd 2ind 2ay 02poy an ag0nt. [80ction 183]. - - Th:8 any p078on co2p0t0nt
to cont7act can appoint an ag0nt.
WHO MAY BE AN AGENT - A8 b0t00n th0 p7incipa and thi7d p078on8 any p078on 2ay b0co20 an
ag0nt b:t no p078on ho i8 not of th0 ag0 of 2afo7ity and of 8o:nd 2ind can b0co20 an ag0nt 8o a8 to
b0 708pon8ib0 to hi8 p7incipa acco7ding to th0 p7ovi8ion8 in that b0haf h070in contain0d. [80ction 184].
- - Th0 8ignificanc0 i8 that a P7incipa can appoint a 2ino7 o7 p078on of :n8o:nd 2ind a8 ag0nt. n 8:ch
ca80 th0 P7incipa i b0 708pon8ib0 to thi7d pa7ti08. Ho0v07 th0 ag0nt ho i8 a 2ino7 o7 of :n8o:nd
2ind cannot b0 708pon8ib0 to P7incipa. Th:8 P7incipa i b0 iab0 to thi7d pa7ti08 fo7 act8 don0 by
Ag0nt b:t ag0nt i not b0 708pon8ib0 to P7incipa fo7 hi8 (i.0. Ag0nt8) act8.
CONSDERATON NOT NECESSARY - No con8id07ation i8 n0c088a7y to c70at0 an ag0ncy. [80ction
185]. Th:8 pay20nt of ag0ncy co22i88ion i8 not 0880ntia to hod appoint20nt of Ag0nt a8 vaid.
Auth4rity 41 agent An ag0nt can act on b0haf of P7incipa and can bind th0 P7incipa.
AGENTS DUTY TO PRNCPAL - An ag0nt ha8 fooing d:ti08 toa7d8 p7incipa. * Cond:cting
p7incipa8 b:8in088 a8 p07 hi8 di70ction8 * Ca77y o:t o7k ith no72a 8ki and diig0nc0 * R0nd07
p7op07 acco:nt8 [80ction 213]. * Ag0nt8 d:ty to co22:nicat0 ith p7incipa [80ction 214] * Not to d0a
on hi8 on acco:nt in b:8in088 of ag0ncy [80ction 215]. * Ag0nt8 d:ty to pay 8:28 70c0iv0d fo7
p7incipa [80ction 218] * Ag0nt8 d:ty on t072ination of ag0ncy by p7incipa8 d0ath o7 in8anity -
[80ction 209].
#EMUNE#ATION TO AGENT - Consideration is not necessary for creation of agency.
However, if there is an agreement, an agent is entitled to get remuneration as per contract.
RGHTS OF PRNCPAL - * R0cov07 da2ag08 f7o2 ag0nt if h0 di870ga7d8 di70ction8 of P7incipa *
Obtain acco:nt8 f7o2 Ag0nt * R0cov07 2on0y8 co0ct0d by Ag0nt on b0haf of P7incipa * Obtain d0tai8
of 80c70t p7ofit 2ad0 by ag0nt and 70cov07 it f7o2 hi2 * Fo7f0it 702:n07ation of Ag0nt if h0 2i8cond:ct8
th0 b:8in088.
DUTES OF PRNCPAL - * Pay 702:n07ation to ag0nt a8 ag700d * nd02nify ag0nt fo7 af: act8 don0
by hi2 a8 ag0nt * nd02nify Ag0nt fo7 a act8 don0 by hi2 in good faith * nd02nify ag0nt if h0 8:ff078
o88 d:0 to n0g0ct o7 ack of 8ki of P7incipa.
TE#MINATION OF AGENCY - An agency is terminated by the principal revoking his authority;
or by the agent renouncing the business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of unsound mind; or by the
principal being adjudicated an insolvent under the provisions of any Act for the time being in
force for the relief of insolvent debtors. [section 201]. - - In following cases, an agency cannot be
revoked ÷ * Agency coupled with interest
Contingent contract - A "contingent contract¨ is a contract to do or not to do something, if
some event, collateral to such contract, does or does not happen. Illustration - A contracts to
pay B Rs. 10,000 if Bs house is burnt. This is a contingent contract.
OF CON%INGEN% CON%RAC%S
31. 'Contingent contract¨ deIined
A 'contingent contract¨ is a contract to do or not to do someting, iI some event, collateral to suc
contract, does or does not appen.
32. EnIorcement oI Contracts contingent on an event appening
Corl|rgerl corlracls lo do or rol lo do arylr|rg |r ar urcerla|r lulure everl rappers, carrol oe erlorced oy |aW ur|ess ard url||
lral everl ras rappered ll lre everl oecores |rposs|o|e, sucr corlracls oecore vo|d
33. EnIorcement oI contract contingent on an event not appening
Contingent contracts to do or not to do anyting iI an uncertain Iuture event does not appen, can be
enIorced wen te appening oI tat event becomes impossible, and not beIore.
34. Wen event on wic contract is contingent to be deemed impossible, iI it is te Iuture
conduct oI a living person
ll lre lulure everl or Wr|cr a corlracl |s corl|rgerl |s lre Way |r Wr|cr a persor W||| acl al ar urspec|l|ed l|re, lre everl sra|| oe
cors|dered lo oecore |rposs|o|e Wrer sucr persor does arylr|rg Wr|cr rerders |l |rposs|o|e lral lre srou|d so acl W|lr|r ary
del|r|le l|re, or olrerW|se lrar urder lurlrer corl|rgerc|es
35. Wen contracts become void, wic are contingent on appening oI speciIied event witin
Iixed time
Corl|rgerl corlracls lo do or rol lo do arylr|rg, |l a spec|l|ed urcerla|r everl rappers W|lr|r a l|xed l|re, oecore vo|d, |l, al lre
exp|ral|or ol lre l|re l|xed, sucr everl ras rol rappered, or |l, oelore lre l|re l|xed, sucr everl oecores |rposs|o|e
wrer corlracls ray oe erlorced, Wr|cr are corl|rgerl or spec|l|ed everl rol rapper|rg W|lr|r l|xed l|re : Corl|rgerl corlracl
lulu or rol lo do arylr|rg, |l a spec|l|ed urcerla|r everl does rol rapper W|lr|r a l|xed l|re, ray oe erlorced oy |aW Wrer lre
l|re l|xed ras exp|red ard sucr everl ras rol rappered, or oelore lre l|re l|xed ras exp|red, |l |l oecore cerla|r lral sucr
everl W||| rol rapper
36. Agreements contingent on impossible event void
Corl|rgerl agreererls lo do or rol lo do arylr|rg, |l ar |rposs|o|e everl rappers, are vo|d, Wrelrer lre |rposs|o|||ly ol lre
everl |s |roWr or rol lo lre parl|es lo agreererl al lre l|re Wrer |l |s rade


OF INDEMNI% AND GUARAN%EE
124. 'Contract oI indemnity¨ deIined
A contract by wic one party promises to save te oter Irom loss caused to im by te contract oI
te promisor imselI, or by te conduct oI any oter person, is called a 'contract oI indemnity¨.
125. Rigt oI indemnity-older wen sued
%e promisee in a contract oI indemnity, acting witin te scope oI is autority, is entitled to
recover Irom te promisor-
(1) all damages wic e may be compelled to pay in any suit in respect oI any matter to wic te
promise to indemniIy applies;
() a|| cosls Wr|cr re ray oe corpe||ed lo pay |r ary sucr su|l, |l |r or|rg|rg ol delerd|rg |l, re d|d rol corlravere lre orders ol
lre pror|sor, ard acled as |l Wou|d rave oeer pruderl lor r|r lo acl |r lre aoserce ol ary corlracl ol |rderr|ly, or |l lre
pror|sor aulror|sed r|r lo or|rg or delerd lre su|l;
() a|| surs Wr|cr re ray rave pa|d urder lre lerrs ol ary corpror|se ol ary sucr su|l, |l lre corpror|se Was rol corlracl lo
lre orders ol lre pror|sor, ard Was ore Wr|cr |l Wou|d rave oeer pruderl lor lre pror|se lo ra|e |r lre aoserce ol ary
corlracl ol |rderr|ly, or |l lre pror|sor aulror|sed r|r lo corpror|se lre su|l
126. 'Contract oI guarantee¨, 'surety¨, 'principal debtor¨ and 'creditor¨
A 'corlracl ol guararlee¨ |s a corlracl lo perlorr lre pror|se, or d|scrarge lre ||ao|||ly, ol a lr|rd persor |r case ol r|s delau|l
Tre persor Wro g|ves lre guararlee |s ca||ed lre 'surely¨, lre persor |r respecl ol Wrose delau|l lre guararlee |s g|ver |s ca||ed
lre 'pr|rc|pa| deolor¨, ard lre persor lo Wror lre guararlee |s g|ver |s ca||ed lre 'cred|lor¨ A guararlee ray oe e|lrer ora| or
Wr|ller
127. Consideration Ior guarantee
Anyting done, or any promise made, Ior te beneIit oI te principal debtor, may be a suIIicient
consideration to te surety Ior giving te guarantee.
128. Surety`s liability
%e liability oI te surety is co-extensive wit tat oI te principal debtor, unless it is oterwise
provided by te contract.
129. Continuing guarantee
A guarantee wic extends to a series oI transaction, is called, a 'continuing guarantee¨.
130. Revocation oI continuing guarantee
A continuing guarantee may at any time be revoked by te surety, as to Iuture transactions, by
notice to te creditor.
131. Revocation oI continuing guarantee by surety` deat
%e deat oI te surety operates, in te absence oI any contract to te contrary, as a revocation oI ma
continuing guarantee, so Iar as regards Iuture transactions.
132. Liability oI two persons, primarily liable, not aIIected by arrangement between tem
tat one sall be surety on oter`s deIault
wrere lWo persors corlracl W|lr lr|rd persor lo urderla|e a cerla|r ||ao|||ly, ard a|so corlracl W|lr eacr olrer lral ore ol lrer
sra|| oe ||ao|e or|y or lre delau|l ol lre olrer, lre lr|rd persor rol oe|rg a parly lo sucr corlracl lre ||ao|||ly ol eacr ol sucr lWo
persors lo lre lr|rd persor urder lre l|rsl corlracl |s rol allecled oy lre ex|slerce ol lre secord corlracl, a|lrougr sucr lr|rd
persor ray rave oeer aWare ol |ls ex|slerce



Negotiable instrument
A negotiable instrument is a document guaranteeing te payment oI a speciIic amount oI
money, eiter on demand, or at a set time. According to te Negotiable Instruments Act, 1881 in
India tere are just tree types oI negotiable instruments i.e., promissory note, bill oI excange
and ceque.
More speciIically, it is a document contemplated by a contract, wic
(1) warrants te payment oI money, te promise oI or order Ior conveyance oI wic is
unconditional;
(2) speciIies or describes te payee, wo is designated on and memorialized by te instrument;
and
(3) is capable oI cange troug transIer by valid negotiation oI te instrument.
Types of negotiable instrument
¡edit] Promissory note
A negotiable promissory note is an unconditional promise in writing made by one person to
anoter, signed by te maker, engaging to pay on demand to te pay00, or at Iixed or
determinable Iuture time, sum certain in money, to order or to bearer. (see Sec.194) Bank note is
Irequently reIerred to as a promissory note, a promissory note made by a bank and payable to
bearer on demand.
¡edit] Bill of exchange
A bill oI excange or "draIt" is a written order by te d7a07 to te d7a00 to pay money to te
pay00. A common type oI bill oI excange is te ceque (ch0ck in American Englis), deIined as
a bill oI excange drawn on a banker and payable on demand. Bills oI excange are used
primarily in international trade, and are written orders by one person to is bank to pay te bearer
a speciIic sum on a speciIic date. Prior to te advent oI paper currency, bills oI excange were a
common means oI excange. %ey are not used as oIten today

DRAWER, DRAWEE AND PAEE - %e maker oI a bill oI excange or ceque is called te 'drawer¨; te person
tereby directed to pay is called te 'drawee¨ |section 7 para 1|. - - %e person named in te instrument, to wom,
or to wose order te money is by te instrument directed to be paid, is called te 'payee¨ |section 7 para 5|. - -
However, a drawer and payee can be one person as e can order to pay te amount to imselI.
A% SIGH%, ON PRESEN%MEN%, AF%ER SIGH% - In a promissory note or bill oI excange te expressions 'at
sigt¨ and 'on presentment¨ mean on demand`. %e expression 'aIter sigt¨ means, in a promissory note, aIter
presentment Ior sigt, and, in a bill oI excange, aIter acceptance, or noting Ior non-acceptance, or protest Ior non-
acceptance. |section 21|. - - %us, in case oI document aIter sigt`, te countdown starts only aIter document is
sigted` by te concerned party.
undi - a local instrument ÷ Hundi is an indigenous instrument similar to Negotiable Ìnstrument. The
term is derived from Sanskrit word 'hund which means 'to collect. Ìf it is drawn in local language, it is
governed by local usage and customs
heques - A 'ceque¨ is a bill oI excange drawn on a speciIied banker and not expressed to be payable oterwise
tan on demand. Ceque` includes electronic image oI a truncated ceque and a ceque in electronic Iorm. |section
6|. %e deIinition is amended by Amendment Act, 2002, making provision Ior electronic submission and clearance
oI ceque. %e ceque is one Iorm oI Bill oI Excange. It is addressed to Banker. It cannot be made payable aIter
some days. It must be made payable on demand`.


Un|t 4
Sale of Goods Act is one oI very old mercantile law. Sale oI Goods is one oI te special types oI Contract.
Initially, tis was part oI Indian Contract Act itselI in capter 'II (sections 76 to 123). Later tese sections in
Contract Act were deleted, and separate Sale oI Goods Act was passed in 1930.
%e Sale oI Goods Act is complimentary to Contract Act. Basic provisions oI Contract Act apply to contract oI Sale
oI Goods also. Basic requirements oI contract i.e. oIIer and acceptance, legally enIorceable agreement, mutual
consent, parties competent to contract, Iree consent, lawIul object, consideration etc. apply to contract oI Sale oI
Goods also.
4ntract 41 Sale - A contract oI sale oI goods is a contract wereby te seller transIers or agrees to transIer te
property in goods to te buyer Ior a price. %ere may be a contract oI sale between one part-owner and anoter.
|section 4(1)|. A contract oI sale may be absolute or conditional. |section 4(2)|.
%us, Iollowing are essentials oI contract oI sale
* It is contract, i.e. all requirements oI contract` must be IulIilled
* It is oI goods`
* %ransIer oI property is required
* Contract is between buyer and seller
* Sale sould be Ior price`
* A part owner can sale is part to anoter part-owner
* Contract may be absolute or conditional.
4 4ntract 41 sale is made - A contract oI sale is made by an oIIer to buy or sell goods Ior a price and te
acceptance oI suc oIIer. %e contract may provide Ior te immediate delivery oI te goods or immediate payment
oI te price or bot, or Ior te delivery or payment by instalments, or tat te delivery or payment or bot sall be
postponed. |section 5(1)|. Subject to te provisions oI any law Ior te time being in Iorce, a contract oI sale may be
made in writing or by word oI mout, or partly in writing and partly by word oI mout or may be implied Irom te
conduct oI te parties. |section 5(2)|. %us, credit sale is also a sale`. - - A verbal contract or contract by conduct oI
parties is valid. e.g. putting goods in basket in super market or taking Iood in a otel.
%4 parties t4 c4ntract - %wo parties are required Ior contract. - - 'Buyer¨ means a person wo buys or agrees to
buy goods. |section 2(1)|. 'Seller¨ means a person wo sells or agrees to sell goods. |section 2(13)|. A part owner
can sale is part to anoter part-owner. However, iI joint owners distribute property among temselves as per mutual
agreement, it is not sale` as tere are no two parties.
4ntract 41 Sale includes agreement t4 sale - Were under a contract oI sale te property in te goods is transIerred
Irom te seller to te buyer, te contract is called a sale, but were te transIer oI te property in te goods is to take
place at a Iuture time or subject to some condition tereaIter to be IulIilled, te contract is called an agreement to
sell. |section 4(3)|. An agreement to sell becomes a sale wen te time elapses or te conditions are IulIilled subject
to wic te property in te goods is to be transIerred. |section 4(4)|. %e provision tat contract oI sale includes
agreement to sale is only Ior te purposes oI rigts and liabilities under Sale oI Goods Act and not to determine
liability oI sales tax, wic arises only wen actual sale takes place.
%rans1er 41 pr4perty - 'Property¨ means te general property in goods, and not merely a special property. |section
2(11)|. In layman`s terms property` means ownersip`. General Property` means Iull ownersip`. %us, transIer
oI general property` is required to constitute a sale. II goods are given Ior ire, lease, ire purcase or pledge,
general property` is not transIerred and ence it is not a sale`.
POSSESSION AND PROPER% - Note tat property` and possession` are not synonymous. %ransIer oI
possession does not mean transIer oI property. e.g. - iI goods are anded over to transporter or godown keeper,
possession is transIerred but property` remains wit owner. Similarly, iI goods remain in possession oI seller aIter
sale transaction is over, te possession` is wit seller, but property` is wit buyer.
44ds - 'Goods¨ means every kind oI movable property oter tan actionable claims and money; and includes stock
and sares, growing crops, grass, and tings attaced to or Iorming part oI te land wic are agreed to be severed
beIore sale or under te contract oI sale. |section 2(7)|.
!rice - "Price¨ means the money consideration for a sale of goods. [section 2(10)]. Consideration is
required for any contract. However, in case of contract of sale of goods, the consideration should be
'price i.e. money consideration.
A8c07tain20nt of p7ic0 - %e price in a contract oI sale may be Iixed by te contract or may be leIt to be Iixed in
manner tereby agreed or may be determined by te course oI dealing between te parties. |section 9(1)|. Were te
price is not determined in accordance wit te Ioregoing provisions, te buyer sall pay te seller a reasonable price.
Wat is a reasonable price is a question oI Iact dependent on te circumstances oI eac particular case. |section
9(2)|.
Conditions and Warranties - Opening para of section 16 makes it clear that there is no implied warranty
or condition as to quality of fitness of goods for any particular purpose, except those specified in Sale of
Goods Act or any other law. - - This is the basic principle of caveat emptor i.e. buyer be aware. However,
there are certain stipulations which are essential for main purpose of the contract of sale of goods. These
go the root of contract and non-fulfilment will mean loss of foundation of contract. These are termed as
'conditions. Other stipulations, which are not essential are termed as 'warranty. These are collateral to
contract of sale of goods. Contract cannot be avoided for breach of warranty, but aggrieved party can
claim damages. - - A breach of condition can be treated as breach of warranty, but vice versa is not
permissible.
A stipulation in a contract of sale with reference to goods which are the subject thereof may be a
condition or a warranty. [section 12(1)]. A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives rise to a right to treat the contract as repudiated. [section 12(2)]. A
warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a
claim for damages but not to a right to reject the goods and treat the contract as repudiated. [section
12(3)]. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on
the construction of the contract. A stipulation may be a condition, though called a warranty in the contract.
[section 12(4)].
Were a particular stipulation in contract is a condition or warranty depends on te interpretation oI terms oI
contract. Mere stating Conditions oI Contract` in agreement does not mean all stipulations mentioned are
conditions` witin meaning oI section 12(2).
Wh0n condition to b0 t70at0d a8 a77anty - Were a contract oI sale is subject to any condition to be IulIilled by te
seller, te buyer may waive te condition or elect to treat te breac oI te condition as a breac oI warranty and not
as a ground Ior treating te contract as repudiated. |section 13(1)|. Were a contract oI sale is not severable and te
buyer as accepted te goods or part tereoI, te breac oI any condition to be IulIilled by te seller can only be
treated as a breac oI warranty and not as a ground Ior rejecting te goods and treating te contract as repudiated,
unless tere is a term oI te contract, express or implied, to tat eIIect. |section 13(2)|. Noting in tis section sall
aIIect te case oI any condition or warranty IulIillment oI wic is excused by law by reason oI impossibility or
oterwise. |section 13(3)|.
Ti20 of pay20nt i8 not 0880nc0 of cont7act b:t ti20 of d0iv07y of good8 i8 :n088 8p0cifi0d oth07i80 - Unless a
diIIerent intention appears Irom te terms oI te contract, stipulations as to time oI payment are not deemed to be oI
te essence oI a contract oI sale. Weter any oter stipulation as to time is oI te essence oI te contract or not
depends on te terms oI te contract. |section 11|. As a general rule, time oI payment is not essence oI contract,
unless tere is speciIic diIIerent provision in Contract. In oter words, time oI payment speciIied is warranty`. II
payment is not made in time, te seller can claim damages but cannot repudiate te contract.
aveat Empt4r - %e principle termed as cav0at 02pto7 means buyer be aware`. Generally, buyer is expected to
be careIul wile purcasing te goods and seller is not liable Ior any deIects in goods sold by im. %is principle in
basic Iorm is embodied in section 16 tat subject to provisions oI Sale oI Goods Act and any oter law, tere is no
implied condition or warranty as to quality or Iitness oI goods Ior any particular purpose. As per section 2(12),
'Quality oI goods¨ includes teir state or condition.
%ransfer of property as between seller and buyer - Transfer of general property is required in a sale.
'Property means legal ownership. Ìt is necessary to decide whether property in goods has transferred to
buyer to determine rights and liabilities of buyer and seller. Generally, risk accompanies property in goods
i.e. when property in goods passes, risk also passes. Ìf property in goods has already passed on to buyer,
seller cannot stop delivery of goods even if in the meanwhile buyer has become insolvent. - - - Where
there is a contract for the sale of unascertained goods, no property in the goods is transferred to the
buyer unless and until the goods are ascertained. [section 18].
P7op07ty pa8808 h0n int0nd0d to pa88 - Were tere is a contract Ior te sale oI speciIic or ascertained goods te
property in tem is transIerred to te buyer at suc time as te parties to te contract intend it to be transIerred.
|section 19(1)|. For te purpose oI ascertaining te intention oI te parties regard sall be ad to te terms oI te
contract, te conduct oI te parties and te circumstances oI te case. |section 19(2)|. Unless a diIIerent intention
appears, te rules contained in sections 20 to 24 are rules Ior ascertaining te intention oI te parties as to te time at
wic te property in te goods is to pass to te buyer. |section 19(3)|.
Sp0cific good8 in a d0iv07ab0 8tat0 - Were tere is an unconditional contract Ior te sale oI speciIic goods in a
deliverable state, te property in te goods passes to te buyer wen te contract is made, and it is immaterial
weter te time oI payment oI te price or te time oI delivery oI te goods, or bot, is postponed. |section 20|.
Aucti4n sale - Auction sale is special mode oI sale. %e sale is made in open aIter making public announcement.
Buyers assemble and make oIIers on te spot. Person oIIering to pay igest price gets te goods. Usually,
auctioneer is appointed to conduct auction. Higer and iger bids are oIIered and sale is complete wen auctioneer
accepts a bid.- - - In te case oI a sale by auction (1) were goods are put up Ior sale in lots, eac lot is p7i2a faci0
deemed to be te subject oI a separate contract oI sale; (2) te sale is complete wen te auctioneer announces its
completion by te Iall oI te ammer or in oter customary manner; and, until suc announcement is made, any
bidder may retract is bid; (3) a rigt to bid may be reserved expressly by or on bealI oI te seller and, were suc
rigt is expressly so reserved, but not oterwise, te seller or any one person on is bealI may, subject to te
provisions ereinaIter contained, bid at te auction; (4) were te sale is not notiIied to be subject to a rigt to bid
on bealI oI te seller, it sall not be lawIul Ior te seller to bid imselI or to employ any person to bid at suc sale,
or Ior te auctioneer knowingly to take any bid Irom te seller or any suc person; and any sale contravening tis
rule may be treated as Iraudulent by te buyer; (5) te sale may be notiIied to be subject to a reserved or upset price;
(6) iI te seller makes use oI pretended bidding to raise te price, te sale is voidable at te option oI te buyer.
|section 64|.
elivery 41 g44ds t4 buyer - %e Act makes elaborate provisions regarding delivery oI goods to buyer. It is te duty
oI te seller to deliver te goods and oI te buyer to accept and pay Ior tem, in accordance wit te terms oI te
contract oI sale. |section 31|. Unless oterwise agreed, delivery oI te goods and payment oI te price are concurrent
conditions, tat is to say, te seller sall be ready and willing to give possession oI te goods to te buyer in
excange Ior te price, and te buyer sall be ready and willing to pay te price in excange Ior possession oI te
goods. |section 32|. - - Note tat tis is :n088 oth07i80 ag700d`, i.e. buyer and seller can agree to diIIerent
provisions in respect oI payment and delivery.
Acceptance of goods by buyer - Contract of Sale is completed not by mere delivery of goods but by
acceptance of goods by buyer. 'Acceptance does not mean mere receipt of goods. Ìt means checking the
goods to ascertain whether they are as per contract. - - - Where goods are delivered to the buyer which
he has not previously examined, he is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity
with the contract. [section 41(1)]. - - Unless otherwise agreed, when the seller tenders delivery of goods
to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the
goods for the purpose of ascertaining whether they are in conformity with the contract. [section 41(2)].
Buyer's and Seller's duties - The Act casts various duties and grants certain rights on both buyer and
seller.
Rights of unpaid seller against the goodsfter goods are sold and property is transferred to buyer,
the only remedy with seller is to approach Court, if the buyer does not pay. Seller has no right to take
forceful possession of goods from buyer, once property in goods is transferred to him. However, the Act
gives some rights to seller if his dues are not paid.
Suits for breach of the contractUnpaid seller can exercise his rights to the extent explained above. Ìn
addition, seller can exercise following rights in case of breach of contract. Buyer has also rights in case of
breach of contract.
Measure 14r c4mpensati4n and damages %e Sale oI Goods Act does not speciIy ow to measure damages.
However, since te Act is complimentary to Contract Act, measure oI compensation and damages will be as
provided in sections 73 and 74 oI Contract Act.