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Contract – Sec.2 (h) – an agreement enforceable by law – give rise to legal
obligation. Social obligation, no contract.
Agreement – Sec.2 (e) - every promise and set of promises, forming consideration for
each other. Proposal – assent thereto – proposal accepted - promise – agreement.
Consensus ad idem: meeting of minds in full and final agreement – agree upon the
subject matter of the agreement in same sense and at the same time. No consensus ad
idem - no contract.
Example: A offers to sell his old Fiat car to B. B thinks that he is purchasing A’s new
Scoda car. There is no consensus ad idem and consequently no contract.
Essential characteristics of a valid contract:
1. Offer and acceptance – two parties, one making the offer and other accepting
it – offer must be definite – acceptance must be absolute and unconditional –
acceptance must be communicated to the offeror.
2. Intention to create legal relationship – intention of parties to the agreement to
create legal relationship must – no such intention, no contract – social or
domestic agreements do not contemplate legal relationship, as such no
Balfour v Balfour – husband promises to pay household allowance to wife –
separated – wife sues for allowance – domestic agreement – no contract.
V.Rao Vs. A. Rao – old widow asked her niece to move in with her - promised
to will some property in exchange – niece moved in and stayed till widow’s
death – Held, intention to create a legal relationship – niece entitled to share in
Rose & Frank Co. v Crompton Bros. – agency agreement between R and C clause in agreement stated that agreement not entered into as formal or legal –
not subject matter of legal jurisdiction – no intention to create legal
relationship - no contract.
3. Lawful consideration - both parties give and get something in return – no
consideration, no contract - consideration may be past, present or future – in
cash or in kind – must be real and lawful.
4. Competent parties – must have attained age of majority – of sound mind – not
disqualified by any law – so, minor, lunatic, idiot, drunkard, etc not competent
to contract.
5. Free and genuine consent – parties are of same mind when they agree about
the subject matter in same sense and at the same time – if induced by coercion,
undue influence, fraud, misrepresentation, etc, there is no free consent - no
6. Lawful object – object must not be illegal, immoral or opposed to public
policy – if any legal flaw, not enforceable by law.

7. Agreement not declared void – must not have been declared void by any law
in force.
8. Certainty and possibility of performance – terms must be certain and not
vague – not possible to ascertain the meaning, it cannot be enforced – must be
capable of being performed – agreement to do impossible act, no contract.
Example : (a) A agrees to sell “100 bales of cloth” to B. There is nothing to
indicate the kind of cloth intended to be sold. The agreement is
void for uncertainty.
Scammel v Ouston – purchase of motor van on hire purchase –
hire purchase price payable over two years - no rate of interest
or mode of payment indicated – Held, the word ‘hire purchase’
has not been precisely defined – no contract.
9. Legal formalities – essential to complete legal formalities to make the
agreement binding – e.g. agreement may require payment of stamp duty,
require registration, etc.
Types of contracts :
1. Void contract – a contract ceases to be enforceable by law, becomes void –
originally valid when entered into – by change of law, may subsequently
become void – e.g. contract to deal with a foreign country will become void
when war breaks out between the importing and exporting country.
Void agreement – agreement which does not create legal rights or obligations
– a nullity – void ab initio – e.g. agreement without consideration.
2. Voidable contract - enforceable at the option of one party and not the other –
free consent is missing – party whose consent is not free may repudiate/
rescind/avoid/cancel the contract, if so elects – remains valid till it is
Contract voidable also in following circumstances –
prevent promisor to fulfil his part of promise – voidable at the
option of promisor.
Promisor fails to perform his part of obligation – voidable at the
option of other party/promise.
3. Illegal contract – which is against public policy, is criminal in nature, is
immoral – collateral transaction/agreement also becomes illegal – all illegal
agreements are void but all void agreements are not illegal.
Example : A enters into an agreement with B to manufacture prohibited goods
– A takes loan for the purpose from C who knows about the purpose of the
loan – agreement between A and C is collateral to the main agreement between
A and B, which is illegal – collateral agreement is also illegal.


4. Unenforceable contract – cannot be enforced in a Court of law due to technical
defect - may be carried out by the parties, but no legal remedies in case of
breach by either party - e.g. non-registration, non-payment of stamp duty, etc
makes the contract unenforceable.
5. Express contract – terms agreed upon at the time of formation - may be written
or oral.
6. Implied contract – contract inferred from the act or conduct of the parties –
proposal or acceptance made otherwise than by words – e.g. when a person
gets into bus, lets a porter carry his luggage at the railway station, takes food
at a restaurant, there is an implied contract.
Upton Rural District Council v Powell - P’s farm did not come under the free
service zone of the fire department - fire at P’s farm – P called up Upton Fire
Brigade which arrived and put out the fire – Held, P was liable to pay for the
service rendered as implied promise to pay.
7. Quasi contract – resembles a contract – however, no express offer or
acceptance - legal obligation on a party who is required to perform it –
Example : A leaves his goods at B’s place by mistake – B consumes the goods
as his own – B is bound to pay for the goods to A as there was a quasi contract
under which B was under a legal obligation to return A’s goods.
8. Executed contract – both the parties have performed their respective
9. Executory contract – may be partly or wholly executory – either or both
parties have yet to fulfil his/their part of obligation.
10. Unilateral contract – one-sided contract – one party has to fulfil his part of
obligation – other party has already fulfilled his obligation before or at the
time of formation of the contract – also known as contracts with executed
Example : A permits a porter to carry his luggage to the railway carriage –
contracts comes into existence when the porter places the luggage in the
carriage – at that time porter has already fulfilled his obligation – A yet to
fulfil his obligation.
11. Bilateral contract- both the parties have yet to fulfil their obligations –
contract with executory consideration.


Display of goods in showcase. no offer and hence no contract. Foley Vs. Gould Vs. Carbolic Smoke Ball Co. Essentials of offer : 1. Wilkie Vs. 2.a social invitation is not offer as no intention of legal relationship. Express – spoken words or written Implied – by conduct of the parties or circumstances of the case.Sec. Classique Coaches Ltd. Gould . Offer may be express words or implied. catalogues.the seller may or may not accept the offer. _____________________________________________________________________ .g. . advertisement of auction sale is not an manufactured smoke balls – company advertised in newspapers a reward of £ 100 to anyone who contracted influenza after using the smoke balls as per printed instructions – Carlill used smoke balls as per directions – contracted influenza – Held. clear avenue for determining reasonable price by arbitration – valid contract. advertisements are invitation to offer and not offer itself – the potential customers to make the offer which will then be accepted . – F sold land to C – agreement that C should buy petrol from F at agreed price – disputes to be referred to arbitration – No price agreed upon – C refused to buy – Held. Different from declaration of intention or invitation to offer : Mere declaration of intention or announcement or advertisement does not constitute offer – E. Calill Vs.acceptance complete when passenger boards the bus. Terms must be definite. Offer may be made to – (i) definite person or class of persons – specific offer – may be accepted by only the person(s) to whom the offer is made.4 Offer . offer is valid. quotations. E. unambiguous and certain : must not be vague and indefinite. But where provision available for ascertaining the meaning of the vague term. 3.husband promises to pay maintenance to wife on separation ‘so long as I can manage it’ – on separation husband and wife could enter into legal relationship – However terms of agreement were vague and discretionary – Held.2(a) – a proposal by one party to another to enter into a legally binding agreement with him – willingness to do or to abstain from doing something – intention of obtaining the assent of other. (ii) the world at large – general offer – may be accepted by anyone having notice of the offer. Must be capable of being accepted and constitute legal relationship – must be such as would constitute a valid contract when it is accepted . London Passenger Transport Board – transport company runs bus service – fare charged – implied offer by the transport company .g. general offer – Calill had accepted the offer by using the smoke balls – entitled to recover the reward.

g. Harvey Vs.” Held. A writes to B offering his horse for Rs. F not entitled to reward. Special terms to contract must be communicated in offer : must be communicated at the time of proposal – cannot be inserted in contract later on unilaterally – must be decipherable (understandable) in reasonable manner. I shall assume you have accepted the offer” – in case of B’s silence. Lalman Vs. no specific acceptance – no contract.g. invalid notice not affecting the contract. F only quoted the price and did not answer to first question of H’s first telegram – hence no offer by F to sell. 4.G sends servant L to trace lost nephew – later announces reward to finder – L finds the nephew – Held. – Notice placed in hotel bed room exempting the proprietor from liability for loss – contract entered into when client takes key to room . E.” – F replies “Lowest price for Bumper Hall Pen £ 900. Snedaker – S offered reward for lost dog – F ignorant of offer of S – finds the dog – Held. 5. Non-compliance of condition not deemed to be acceptance : Must not contain a term the non-compliance of which may be assumed to be acceptance – E. adding “if you do not reply. 7. 8. ignorant of offer – hence. _____________________________________________________________________ .special term intimated later on – Held. an advertisement to pay a reward for finding missing son – general offer to any one performs the required act acceptor must have knowledge of the offer .5 Pharmaceutical Society of Great Britain Vs. Malborough Court Ltd. Facey .constitutes a contract.goods sold under ‘self service’ system – customer chooses the desired goods – makes payment to cashier – display of goods only an invitation to offer – actual offer made by the customer when he offers to make the payment – acceptance by cashier constitutes a contract. no acceptance . Declaration of price not an offer : mere statement of price is not an offer to sell.” H telegraphs to F “We agree to buy Bumper Hall Pen for the sum of £ 900 asked by you. Gauri Dutt . Olley Vs. 6. Intention to obtain the assent : Offer must be made with intention to obtain assent of other party . Fitch Vs.L not entitled to reward.constitutes valid contract. Newspaper advertisement are not offers – an exception is a general offer of reward to public – anyone can accept the general offer by fulfilling the condition .H sends telegram to F asking “Will you sell us Bumper Hall Pen? Telegraph lowest cash price. Offer must be communicated : Unless communicated. Boots Cash Chemists . no acceptance – mere act of acceptance without knowledge of the offer does not constitute acceptance.must not be declaration of intention to make an offer.500.

. Railway Co.P deposited baggage in cloak room – ticket issued – printed on face “See back” – Condition printed on back limited the liability in case of loss – baggage lost and P filed claim – Held.6 Rajpur Transport Company Vs. 2. where there is nothing to indicate that there are additional terms to the offer.H purchased ticket from carriage company – Term printed on back of ticket absolved the company from liability for losses of any kind – Nothing on face of the ticket to indicate the terms on reverse – Held. agrees to carry passengers.earlier offer cannot be revived. acceptance of an offer implies unconditional and absolute acceptance of all the terms and conditions contained in the offer. T bound by the conditions – no damages. When the notice of terms is insufficient. Barry Urban District Council – C hired deck chair from Municipal Council – issued ticket containing condition “The Council will not be liable for any accident or damage arising from hire of chair” – C did not read it – chair broke and C injured – Held. in ignorance of each other’s offers – one cannot be construed as offer nor the other as acceptance – no valid contract. H not bound by these terms and conditions.R accepted goods for transportation without any condition – later issued circular limiting its liability for damage or loss in transit – Held. Wrench .W offered to sell farm at £1000 – H rejected it – instead offered to buy it for £950 – turned down by W – subsequently H agreed to pay £1000 – contract. & S. Even conditions printed on voucher or receipt for payment (which do not normally contain the conditions of contract) are not binding. Railway Co. Thompson Vs. this is subject to following exceptions – 1. However. Stevenson . Council liable for damages as the ticket issued is a mere receipt and different from a railway ticket which contains the terms upon which a railway co. _____________________________________________________________________ . Ordinarily. Counter Offer – when acceptance with variation of terms offered by offeror – not valid acceptance – no contract .E. special condition communicated after the contract has been entered into – client not bound by them.M. H gave counter offer. Henderson Vs. L. there is misrepresentation or fraud. S. Parker Vs. Cross offers : When two parties when identical offers. When the words “For conditions see back” printed on a receipt – valid – immaterial whether person reads them or not or is even unable to read. Hyde Vs. 3. If no words on front of a receipt to draw attention regarding conditions printed on its reverse – not binding. Ghanshyam . Chapleton Vs. – T illiterate – On face of ticket written “For conditions see back” – One of the conditions on back absolves the company’s liability for personal injuries to passengers – T injured in railway accident – Held. rejecting the previous offer – earlier offer cannot be revived by giving acceptance to it . – T bought a ticket from railway co. P bound by condition on the back of the ticket even if not read by him.

g. Essentials of Acceptance : 1. However.must conform to all the terms of the offer – if no ad idem on all terms. Felthouse Vs. Rao . when accepted.niece entitled to property. as offer not made to B – no contract. I shall consider the horse is mine” – nephew did not respond – told his auctioneer not to sell the horse as sold to his uncle – auctioneer inadvertently sold the horse – Acceptance of F’s offer not communicated to him – held no contract – F cannot claim damages from auctioneer.Bindley . Jones – B purchased goods from H – H owed debt to J – J placed order on H – B supplied the goods intending to set off his debt against H – Invalid acceptance. it is express – it is implied by he conduct of the parties or circumstances.old widow asked her niece to move in with her . Granti – offer by R to G .to purchase house with possession on specific date – G accepted the offer. becomes a promise.When the person to whom the proposal is made signifies his assent thereto. the proposal is said to be accepted. – manager wrote ‘approved’ over it – kept it in his drawer – not communicated to the offeror – Held. Acceptance of offer results in contract – must be communicated to the offeror may be express or implied – when communicated by words (spoken or written) or some specific act. Acceptance of general offer – when made to world at large – can be accepted by any person. E. Example : (a) Strike of the hammer on the table by the auctioneer – implied acceptance. no contract _____________________________________________________________________ .Rao Vs. A. Boulton Vs. Acceptance of particular offer .2(b) . B can recover the goods from J under quasi-contract. Carlill vs. Must be absolute and unqualified . suggesting possession on another date – not valid acceptance. no contract Routledge Vs. Neale Vs. – draft agreement for supply of coal sent to railway co.promised to will some property in exchange – niece moved in and stayed till widow’s death – express acceptance by act – valid contract . A proposal. Merret – M offered to sell land to N at ₤280 – N accepted – enclosed ₤80 with promise to pay balance in instalments of ₤50 – qualified acceptance – no contract. 2. Communicated to offeror – external manifestation in perceptible (understandable) form – mental resolve is no acceptance.F offered to his nephew to buy his horse – wrote “If I her no more about it. not valid. (b) V.offer made to particular person – can be accepted by that specific person alone – if accepted by any other party. Carbolic Smoke Ball Co. Brogden Vs.7 Acceptance : Sec. Metropolitan Rail Co.

However, in cases where acceptance is by conduct – it is implied acceptance –
need not be specifically communicated to the offeror – E.g. Carlill Vs. Carbolic
Smoke Ball Co.

Made in prescribed or reasonable mode - If acceptance not in prescribed or
reasonable mode – offeror must intimate acceptor insisting acceptance in
prescribed mode – if acceptor not informed, deemed acceptance.
Example : A makes offer to B – writes “If you accept the offer, reply by wire” – B
replies by post – If A does not insist on acceptance by proper mode, it is valid


Given within a reasonable time – if time limit prescribed – must be within that
time – if no time limit – must be within reasonable time.
Ramsgate Victoria Hotel Co. Vs. Montefiore - Offer made by M on June 8 - to
take shares in R – Acceptance received on Nov 23 – beyond reasonable time – no
valid acceptance.


Cannot precede an offer – if precedes the offer – invalid acceptance
Example : Company allots shares without application – ignorant of the allotment,
allottee applies for shares – allotment is invalid, as precedes the offer.


Must indicate intention of acceptor to fulfil terms of promise- where
acceptance by some specific act – that act must be done – e.g. Carlill Vs. Carbolic
Smoke Ball Co.


Must be communicated by person to whom offer has been made – acceptance
by other person or unauthorised person is invalid
Boulton Vs. Jones – B purchased goods from H – H owed debt to J – J placed
order on H – B supplied the goods intending to set off his debt against H – Invalid
acceptance, as offer not made to B – no contract.


Must be given before offer lapses or is withdrawn
Cannot be implied by silence :
Felthouse Vs.Bindley - F offered to his nephew to buy his horse – wrote “If I her
no more about it, I shall consider the horse is mine” – nephew did not respond –
told his auctioneer not to sell the horse as sold to his uncle – auctioneer
inadvertently sold the horse – Acceptance of F’s offer not communicated to him –
held no contract – F cannot claim damages from auctioneer.

Acceptance made subject to contract – no valid acceptance until contract signed.
Agreement to agree in future – no valid contract – merely intention
Loftus Vs. Roberts - actress engaged for certain period – agreement includes a clause
– if show in London, payment of salary to be mutually agreed upon – no contract.
Communication of Offer, acceptance and revocation :


Mode of communication - by act or omission – must have the effect of
communicating such offer, acceptance or revocation – may be communicated by
words (written or spoken) or by conduct.
Example : Installation of weighting machine at railway station is an offer – putting of
coin in the slot of the machine is acceptance – switching off the machine is revocation
of the offer.
When is communication complete : Sec.4
Communication of the offer - complete when comes to knowledge
of the offeree.
Example - A posts a letter of offer for sale of house to B on 1 st June – received
by B on 5th June – communication of offer completes on 5th June.

Communication of the acceptance –
as against the offeror – when put into course of transmission
by offeree/ acceptor so as to be out of his power of recall.
As against the acceptor - when it comes to the knowledge of
the offeror.

Example : A sends an offer by post on 1 st June - received by B on 5th June – B
sends his acceptance on 10th June – reaches A on 14th June - The acceptance is
complete –

as against A – when B posted the letter on 10th June.

As against B – when A received the letter on 14th June.

Communication of revocation - means withdrawal of offer or
acceptance – revocation is complete –
 As against the person making it – when put into course of transmission
so as to be out of his power of recall.
 As against the person to whom it is made – when it comes to his
Example – A posts his offer to sell goods to B on 11th February – reaches B on
14th February – A revokes his offer by telegram on 13th February - telegram
received by B on 16th February –
Revocation is complete as against A – when the telegram is sent
despatched on 13th February.
Revocation is complete as against B – when telegram is received by
him on 16th February.
Byrne & Co. Vs. Van Tienhoven - T offered to sell goods to B by post on 1 st
October – received by B on 11th October – B telegraphs his acceptance on same
day – On 18th October, T sent a letter revoking his offer – letter of revocation
received by B on 20th October – Held, the contract made on 11th October when B
gave his acceptance – revocation not communicated before the contract – hence
revocation invalid.



Time of revocation of offer and acceptance : Sec.5
Revocation of offer - at any time before the communication of acceptance is
complete as against the offeror, but not afterwards.
Revocation of acceptance - at any time before communication of acceptance
is complete as against the acceptor, but not afterwards.
Example : A sends his letter of offer by post on 1 st July – received by B on 3rd July –
B posts his acceptance on 6th July – acceptance letter received by A on 8th July.
 A can revoke his offer at any time before B posts his acceptance on 6 th
July, but not afterwards.
 B can revoke his acceptance at any time before his letter of acceptance
reaches A, i.e. before 8th July, but not afterwards.
# In India the acceptor does not become bound merely by posting his acceptance.
He becomes bound only when his acceptance comes to the knowledge of the proposer.
The gap of time between the posting and the delivery of acceptance can be utilised by
the acceptor for revoking his acceptance by a speedier communication which will
overtake the acceptance.
The peculiarity is that after an acceptance is posted and before it comes to the
knowledge of the offeror, only one party, i.e. the offeror, is bound. The acceptor has
still the right to repudiate the contract by revoking his acceptance.
Loss of letter of acceptance in postal transit : acceptance is complete as against the
offeror when letter posted by acceptor – even is the letter gets lost, it is valid
acceptance so long as it is correctly addressed, sufficiently stamped and posted.
Contracts over telephone, telex or oral communication : - telephone and telex have
same effect as oral communication – but proper receipt of communication is must –
otherwise invalid. Contract deemed to be made at the place where communication of
acceptance is received.
Example : A shouts his offer to B across a river or courtyard - B shouts back his
acceptance – A cannot hear B’s reply as aircraft flying overhead – No communication
of acceptance – no contract.
Entores Vs. Miles Far East Corpn. – Offer made from London by telex to party in
Holland – acceptance sent by telex – telex is a method of instantaneous
communication – different from the rule about the post - Held, contract made at the
place where the acceptance is received.
Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottamdas & Co. – offer made
from Ahmedabad to party at Khamgaon – acceptance given – Held, conversation
resulted in a contract when acceptance of offer is intimated to the offeror – hence
contract entered at Ahmedabad.


_____________________________________________________________________ . Head Vs. 1. Eliason Vs. Wrench .to take shares in R – Acceptance received on Nov 23 – beyond reasonable time – no valid acceptance. 2. Vs.W offered to sell farm at £1000 – H rejected it – instead offered to buy it for £950 – turned down by W – subsequently H agreed to pay £1000 – Held. revocation must be communicated to the offeree. Tinn Vs.11 Revocation of offer : must be at any time before its acceptance is complete as against the offeror. Diggon .offer accepted with modification of terms of offer. Counter offer .no contract. By communication of notice of revocation . offer had any time before the acceptance of offer is complete as against the offeror.acceptance not as per prescribed mode – no contract. Hoffman – offeree agreed to buy half the quantity of goods offered on the same terms and conditions as applicable to the full contract – Held. rejecting the previous offer – earlier offer cannot be revived by giving acceptance to it . Montefiore . Ramsgate Victoria Hotel Co. acceptance is valid. the offer stands revoked. or some new condition – qualified acceptance. 6. 5. 3. Non-fulfilment of condition precedent : Example : A offered to sell goods to B – condition that agreed price to be paid before a certain date – B fails to pay by specified date – Held.Offer made by M on June 8 . By lapse of time : revokes if not accepted within prescribed time period – if no time prescribed. there was a counter offer – no contract. H gave counter offer. In the above case.offeree sent acceptance on Monday – Held. Death or insanity of offeror – offeree must have knowledge of it before giving acceptance – if acceptance given in ignorance of offeror’s death/insanity. lapses after reasonable time. Hyde Vs. Henshaw – A offered to buy flour from B – specified that acceptance should be sent by the wagon which brought the offer – B sent acceptance by post thinking it would reach offeror more speedily – letter reached later than the wagon. if the mail had reached earlier than the wagon – offeror would have been bound unless had an exclusive preference for reply by wagon – minor departure from the prescribed mode of communication not to affect the fact of acceptance provided communication is made in equally expeditious way.offer to sale of wool made on Thursday – three days’ time limit for acceptance. If not accepted according to prescribed or usual mode – provided offeror gives notice to offeree about the lacunae – if offeror keeps quiet – deemed to have accepted the acceptance. 4.

Rejection of offer – once rejected cannot subsequently be accepted. Law is changed – if contemplated contract becomes illegal or incapable of performance.  Express – by words. contract. Hoffman – offeree agreed to buy half the quantity of goods offered on the same terms and conditions as applicable to the full contract – Held. Wrench . May be express or implied. there was a counter offer – no contract. H gave counter offer. Hyde Vs. rejecting the previous offer – earlier offer cannot be revived by giving acceptance to it . ***** _____________________________________________________________________ .W offered to sell farm at £1000 – H rejected it – instead offered to buy it for £950 – turned down by W – subsequently H agreed to pay £1000 – Held.12 7.  Implied .where counter offer made – or conditional acceptance given. Tinn Vs. written or oral.

On the order of the Collector. Essentials features of consideration : 1. Durga Prasad Vs. construction by plaintiff not done at the desire of the defendants so as to constitute consideration – it was done at the orders of the Collector.13 Consideration : Sec. Must move at desire of promisor – if done at instance of third party or without desire of promisor – not good consideration. L allowed one month’s time to pay – Held. _____________________________________________________________________ . 2. Appasahib . plaintiff entered into a contract with a contractor – defendant did not pay the promised amount – Held.On the order of the Collector.100 – on the faith of promised subscriptions. Kedar Nath Vs.Suit filed by landlord L against tenant T for possession of premises and arrears of rent – suit decreed in favour – in execution. the promise no enforceable as no consideration in the sense of benefit for the promisor – the secretary of the committee suffered no detriment as nothing has been done to carry out the repairs – no contract.500 for re-building a mosque – not fulfilled – secretary of mosque committee filed a suit for enforcement of promise – Held.but stranger to consideration can sue if party to the contract (privity to contract). It means price for which the promise of the other is bought .” Gousmohoddin Vs. Baldeo . valid consideration – valid agreement. plaintiff built shops at own expense – defendants occupied the shops – promised to pay him commission on sales – default by defendents – plaint rejected . the act of the plaintiff in entering into contract with contractor was done at the desire of the defendant so as to constitute consideration – the promise was “In consideration of your agreeing to enter into a contract to erect.Commissioner of Howrah Municipality started collection of funds by public subscription – to erect town hall – defendant a subscriber – signed his name in subscription book for Rs.Held. Abdul Aziz Vs. May move from promisee or any other person .Held. Gauri Mohamed . Baldeo . the promisee or any other person has done/abstained from doing or promises to do or abstain from doing something . Masum Ali – a promise to subscribe Rs. I undertake to supply money for it.a valuable consideration as a price of the promise – some of value received by the promisee as an inducement of the promise quid pro quo ( something in return) – may be of some benefit to the plaintiff or some detriment to the defendant. plaintiff built shops at own expense – defendants occupied the shops – promised to pay him commission on sales – default by defendents – plaint rejected .consideration may move even from a stranger – contract cannot be enforced by stranger to contract even if made for his benefit . construction by plaintiff not done at the desire of the defendants so as to constitute consideration. attachment order of movable property of T – In consideration of T agreeing not to appeal against the decree. Durga Prasad Vs.such act or abstinence or promise is called consideration for the promise.2(d) – when at the desire of the promisor.

wife’s forbearance to sue is valid consideration for husband. :Powell . A saves B from drowning – B later promises reward to A – valid consideration – enforceable. Ram Dass – wife D ready to sue husband for maintenance –husband agreed to pay monthly allowance – wife forborne to sue – Held. present or future – may be voluntary or at request. Examples : 1. May be past. Compromise of pending suit – good consideration for agreement of compromise – essential that dispute is bona fide. B received what he asked for – although guarantee for smaller value than expected. Fanindra Narain Roy Vs.P’s farm did not come under the free service zone of the fire department . 2. May be an act or abstinence/forbearance or a return promise – act must not be a legal duty to perform – abstaining is consideration in negative form – may be past. A finds B’s purse – returns it to him – B promises to give A Rs.daughter D executed an Iqrarnama (agreement) with P promising to pay the annuity – default by D – P sued for recovery – Held. Debi Radha Rani Vs. compromise of a disputed claim. 3.agreement to accept a new mortgage in substitution of earlier executed one – consideration of not enforcing the earlier mortgage – even though original executed by one person and substitute by four persons.50 – this is contract. valid consideration. Ramayya – old lady A gifted landed property to her daughter – gift deed registered – included condition of payment of annuity of Rs.B promised to pay certain bills to H if he hand over a guarantee to him – H handed over guarantee – later found to be unenforceable – Held. and not for the court when it is sought to be enforced. Kacheman Bibi .14 Chinnaya Vs. Abraham – services rendered to a minor at his request – continued after majority at the same request – good consideration for promise to pay. _____________________________________________________________________ . Upton Rural District Council at P’s farm – P called up Upton Fire Brigade which arrived and put out the fire – implied promise to pay for past act.held to be valid consideration. 5. inadequacy of consideration does not make the contract void – adequacy of consideration is for the parties to consider at the time of making the agreement. composition with creditors are valid consideration.653 per yer to the plaintiff P (old lady’s sister) . 4. consideration had moved from A – also concluded that deed of gift and Iqrarnama executed simultaneously – regarded as one transaction – sufficient consideration for that transaction. Brooks . present or future one – may also be a return promise (executory consideration) Forbearance to sue. Haigh Vs. Need not be adequate – where consent of the promisor is freely given. Sindha Shri Ganpat Singh Vs.

Two crew members of ship deserted mid-way – captain promised to divide salary of deserters among rest of the crew if they worked the vessel home – given to married woman to obtain divorce from her husband – lender intended to marry the woman – Held. Gibbons . immoral or opposed to public policy – must not be unlawful Napier Vs. _____________________________________________________________________ . agreement void. Must be something which promisor not already bound to do : should not under pre-existing legal or contractual obligation – performance of public duty by public servant is not consideration.A received summon for appearance before a trial court – B promised to pay to A compensation for loss of time during attendance in court – Held. Myrick . Stilk Vs. they were already under obligation to bring the vessel home – the consideration was illusionary – no contract. consideration is physically impossible. Nandlal Vs. Vakil under pre-existing contractual to render the best of his services – the promise for additional sum is devoid of consideration.A licensed under Excise Act to run liquor shop – Act forbade sale. 8. Ramchandra Chintaman Vs. Godefroy . A under a duty imposed by law to appear and give evidence – B’s promise was without consideration. Collins Vs. agreement was immoral.weekly wages of £13 and weekly expense allowance of £6 – Held. Person undertakes to do more than contractual or legal duty – valid consideration for promise.that date already expired when contract entered into – Held. Thomas . who is B’s servant – C promises to discharge A from debt – Legally impossible as C not competent to give valid discharge for a debt due to his master.500 to C.promise to pay Vakil an additional sum if suit successful – Held.A owes Rs. Nansa Nagar . A engages B for certain work – promises to pay ‘reasonable sum’ – promise unenforceable as consideration uncertain. the expense allowance a device to evade tax – agreement unlawful. Must not be illegal.1000 to B – promises to pay Rs.15 6. Cazenove . Baivijli Vs. Kalu Raju .charter party contract – contained clause that particular ship to sail on specified date . Harvey Vs. 7. – company employed N . Must be real and not illusionary . transfer or sub-lease of licence or creation of partnership in running of shop – A took B into partnership . National Business Agency Ltd.also must be competent and of value Hall Vs.

Ltd. 3.husband separated from wife – executed separation deed – promised to pay to the trustees all expenses for maintenance of wife – Held. Gandy . mother entitled to require her sons to make the investment. Assignment of contract – assignee of rights and benefits under contract not involving personal skills can enforce the contract – subject to equities between original parties – e. Daropti Vs.A admits the receipt to C – C can recover the amount from A who will be considered as agent of B. is entitled to enforce it for recovery of allowance. stranger to contract – cannot recover anything.500 per month in perpetuity – created charge on certain properties for payment – conferred power on D to enforce it – Held. Selfridge & Co. Subramaniyam . although D not a party to agreement. Acknowledgement or estoppel . Hussaini Begum – A agreed for marriage of his son S with B’s daughter D – in consideration of marriage A agreed to pay to D an allowance of Rs.g. Exceptions to the rule “stranger to a contract cannot sue” : 1. Khwaja Mohd. _____________________________________________________________________ . A trust or charge : Beneficiary of a trust or holder of other interest in specific immovable property can enforce it.where by conduct. 4. Shuppu Ammal Vs. Khan Vs. Vs. – S bought tyres from Dunlop Rubber Co. – sold them to D. Dunlop Pneumatic Tyre Co.binding obligation towards third party. holder in due course of a negotiable instrument can recover the amount even though no contract between him and payer. Ltd. promisor acknowledges himself as agent of third party – estopped from denying it later.16 Doctrine of privity of contract – Only parties to contract can sue and be sued on the contract – stranger to contract cannot sue even if contract is for his benefit and he provided consideration – stranger has no right or obligation – cannot enforce it.D undersold two tyres – Dunlop Rubber sued for breach – Held. Example : A receives some money from B to be paid over to C . partition or other family arrangements : beneficiary can sue for enforcement. Jaspat Rai – J’s wife deserted him because of ill treatment – J entered into agreement with his father-in-law to treat her properly or else pay monthly maintenance – subsequently ill-treated and driven out of house – held. wife entitled to enforce the promise made by J to her father. 2. Marriage settlement. a sub-dealer – D agreed not to sell below Dunlop Rubber’s list price – to pay Dunlop Rubber £5 for every tyre undersold . Gandy Vs. agreement created a trust in favour of wife – can be enforced by her.Partition of joint property – brothers agreed to invest certain sum of money in equal shares for maintenance of their mother – Held.

a family settlement between cousin brother and sister – to resolve disputes regarding family property – on account of natural love and affection – Held. of any gift actually made. Explanation : 1. 6. Smith & Snipes Hall Farm Ltd. or something which the promisor was legally compellable to do. and is made on account of natural love and affection between parties standing in near relation to each other. 2. an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate. V promises to discharge R’s debt to B – registered agreement – V fails to discharge the debt – R discharges it and sue V to recover the amount – Held. Venkataswamy Vs.25 – Agreement made without consideration is void. the whole arrangement for the benefit of land-owners whoever they might be and not merely the parties to the agreement – plaintiff capable to sue the Board. but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent to the promise was freely given. a person who has already voluntarily done something for the promisor. Contract entered through agent : Principal gets rights and obligations under contracts entered through agent – provided agent acts within authority and on behalf of principal. unless (1) it is expressed in writing and registered under the law for the time being in force. Covenants running with land : purchaser of immovable property with notice of covenants (conditions) created by another agreement affecting the property – bound by the covenants although not a party to original agreement.25. made in writing and signed by the person so charged or his agent. Contract without consideration is void – Exceptions thereto : Sec. valid agreement covered under Sec. wholly or in part. Love and affection . Nothing in this section shall affect the validity. binding as cousin brother a near relative. or unless (3) it is a promise. or unless (2) it is promise to compensate. Rangaswamy . Krishan Dev . as between the donor and donee. to pay wholly or in part a debt which cannot be enforced for payment under the law for the limitation of suits. Vs. _____________________________________________________________________ .agreement has to be in writing – registered under law – out of natural love and affection – parties standing in near relation to each other. River Douglas Catchment Board . 1.Out of natural love and affection for his brother R. Ram Dass Vs.17 5.The Board agreed with certain land-owners adjoining a stream to improve and maintain the banks – landlords paid proportionate costs – one landlord sold land to first plaintiff and he to second plaintiff – negligence on part of Board in maintenance of banks – banks burst and land flooded – Held.

no trace of love and affection between the parties whose quarrels had compelled them to separate – Held. Kedar Nath Vs. E. Gauri Mohamed ***** _____________________________________________________________________ .No consideration is necessary to create an agency.18 However. 6. Bhootnath. 3. A take over of the assets and liabilities of a business house does not amount to a promise to pay a time-barred debt. 2. Husband promised to pay a fixed sum of money to wife every month for her separate residence and maintenance – registered document – document referred to certain quarrels and disagreements between the two – Held. Bhagwati Prasad – acknowledgement of debt – promise to pay with interest – Held. 4.g.promise made after attaining majority to pay for the supplies – Held. Basant Kaur . Compensation for past voluntary service : a promise to wholly or partly compensate a person – who has already voluntarily done something for promisor – enforceable Karam Chand Vs. Charitable subscription – where promisee on the strength of the promise makes commitments. agreement void for want of consideration.goods supplied to minor . Promise to pay a time-barred debt – must be in writing – signed by the debtor or his specially or generally authorised agent – for payment of whole or part of the debt – the debt must have been recoverable but for the law of limitation – not necessary that new promise should expressly mention the time-barred debt.25. Debi Prasad Vs. nearness of relation does not necessarily mean natural love and affection. Completed gift – Sec. enforceable. in Rajlukhy Dabee Vs. 5. Agency . 25 shall not affect the validity of any gift actually made. agreement with promise to pay within the meaning of Sec.

endorsee or promisee) – such contracts enforceable at the option of the minor Sharafat Ali Vs. On attaining majority.minor mortgaged his property to moneylender to secure loan of Rs. 3. Anthiappa Chettiar . His agreement cannot be ratified by him on attaining age of majority – ratification relates back to date of making of contract – therefore.such agreement is inoperative. Subsequently. (b) is of sound mind. 1875 – Sec. Indran Ramaswamy Vs. or (b) where superintendence of minor’s property is under Court of Wards. (2) In following cases. the drawer refused to honour the note on the ground that it being drawn in favour of a minor.10500 paid to the minor – Subsequently. – A promissory note executed in favour of a minor. a minor. 2.20. Minor can be promisee or beneficiary . was void. Sec. Dharmodas Ghose . speculated in stock exchange and became liable to the stockbrokers for £547. a person attains majority on completion of 21 years of age : (a) where guardian appointed for person or property of minor under the Guardians and Wards Act. minor sued for setting aside the mortgage. Competence to contract is defined in Sec. Held.3 specifies that – (1) a minor is a person who has not completed 18 years of age. Mohiri Bibi Vs.19 Capacity to contract : Sec. Agreement with or by minor is void ab initio : minor cannot bind himself by contract . Minors : Indian Majority Act. Rules regarding agreements with minors : 1.can be beneficiary (payee. contract which was then void cannot be made valid by subsequent ratification . Rs. Noor Mohd.10 : Parties must be competent to contract. 1890. executed another promissory note in settlement of first note .000 – Out of it. and (c) is not disqualified from contracting by any law.11.Minor borrows money and executes promissory note – after attaining majority. the mortgage was entered into with a minor and hence void – Request for repayment of the amount advanced to the minor as part of consideration also turned down.The second note is void for want of consideration. Smith Vs. that the contract was for the benefit of the minor and he can enforce it.Consideration given during minority is not valid – if fresh contract entered into after majority. Held. fresh consideration to be paid.11 : Every person is competent to contract who – (a) is of the age of majority. he gave two bills of £50 each in _____________________________________________________________________ . King – K.

so long as the same is traceable in his possession .minor mortgaged his property to moneylender to secure loan of Rs. Ajudhia Prasad Vs. minor son and his mother sold a piece of land to the holders of the promissory note and to pay off mortgage debt. he cannot be sued. Chandan Lal . However. 5.two minors borrowed money under a mortgage deed. the mortgage was entered into with a minor and hence void – Request for repayment of the amount advanced to the minor as part of consideration also turned down. no specific performance as void ab initio – However. minor sued for setting aside the mortgage. Srikakulam Subrahmanyam Vs. Held. there was no consideration for the bills and K was not liable on them.If the goods sold or converted into money. such contract is enforceable. 4.Minor can always plead minority – Even if minor mis-represents his age. where property is not traceable.20 satisfaction of the original debt. Mohiri Bibi Vs. Question was whether the lender could get a decree for the principal amount or sale of mortgaged property. Leslie Vs. They were over 18 but less than 21 years of age. Dharmodas Ghose . the money lenders sued him for money. He paid off the _____________________________________________________________________ . Kurra Sabba Rao – to pay off promissory note and mortgage of his debt. where the infant has sold the goods or converted them. not applicable to agreements with minor. he cannot be made to pay. Held. minor not liable to pay . where services rendered at desire of minor during minority and continued after majority on same request .20. Held.The doctrine of restitution not applicable. On his refusal to pay. if contract entered into by parent/guardian/manager within scope of authority and for benefit of minor. Rs. granting a money decree would tantamount to enforcing minor’s pecuniary (monetary) liability under a void contract – no decree under cloak of restitution. No estoppel against minor .000 – Out of it. No specific performance of agreement – if entered into by minor.forms good consideration for subsequent express promise to pay. where infant has obtained cash instead of goods. 6. Sec. Minor receives any benefit under a void agreement. which is absolutely void – even no relief allowed under Specific Relief Act. Shiell – A minor succeeded in deceiving some money-lenders by lying about his age and got them to lend him £ 400 on the faith of his being adult. Held. Abraham – services rendered to a minor at his request – continued after majority at the same request – good consideration for promise to pay.65 which provides for restitution in case of rescission of voidable agreements. Sindha Shri Ganpat Singh Vs.10500 paid to the minor – Subsequently. he cannot be asked to compensate/pay for it – if minor mis-represented his age . but fraudulently concealed the fact that a guardian had been appointed for them. 1877.can be compelled to restore it.

he was held not liable as the plaintiff could not prove that the articles were specially necessary for the minor. Minor can be an agent – minor binds the principal by his acts without incurring any personal liability. Minor is liable in tort (civil wrong) – but where tort arises out of a contract. To render minor’s estate liable. Gray . _____________________________________________________________________ .minor was supplied a pair of jewelled solitaires and an antique goblet and though he moved in a high society. Held. loans incurred by minor to obtain the necessaries binds the minor and is recoverable. the supplier has to prove that the goods supplied are necessary for the minor. instruction and employment and was reasonable and for the benefit of the minor. Wombwell . 10. 8.Minor not personally liable – Only his estate liable for ‘necessaries’ supplied or necessary services rendered to him Things necessary are those without which an individual cannot reasonably exist – articles of luxury are always excluded though luxurious articles of utility are in some cases allowed considering the fortune and circumstances of the particular minor – liability not on account of contract but out of quasi-contract. to pay him certain sum of money to learn the game and play matches with him during his world tour. and (ii) he must not have already a sufficient supply of these necessaries. Cannot enter into partnership – but can become a partner in an existing partnership for a share in the profits only – cannot be liable for liabilities of the firm. was supplied by the plaintiff with number of dresses. Also. Roberts Vs.21 mortgage accordingly and possession of land was given over by undergraduate in the Cambridge University. Minor cannot be adjudged insolvent – As minor incapable of contracting debts. Inman . 7. Afterwards the minor brought an action to recover back the land. 11. including eleven fancy waistcoats. the transaction was for the benefit of the minor and the guardian had the capacity to contract on his behalf – binding upon the minor.G. a minor. Nash Vs. the waistcoats were not necessaries and hence the price was irrecoverable. Ryder Vs. 9. minor is not liable. he cannot be held liable for any – so cannot be adjudged insolvent. R spent time and money in making arrangements for the matches. who was amply supplied with proper clothes according to his position. as it would indirectly tantamount to enforcing an invalid contract. Held. Held. entered into a contract with R. Two conditions must be satisfied – (i) the contract must be for goods reasonably necessary for his support in his station in life. a renowned billiard player. G was liable to pay as the arrangement was for necessaries as it was in effect for teaching. Liable for ‘necessaries’ supplied .

no personal liability. he is capable of understanding it and forming a rational judgement as to its effect upon his interest. ***** _____________________________________________________________________ . contracts made before stand suspended or dissolved – no new contracts during the ward. Sane man – delirious from fever or drunk – incapable of forming a rational judgement as to its effects on his interest – cannot contract whilst such delirium (fever or restlessness) or drunkenness lasts.may contract during intervals of soundness of mind. 2. but he may be incapable of forming a judgement of his own as to the effects of the act on his interest – in present case. 5.000 – seller’s mother proved that he was congenital (hereditary) idiot and mostly wandered about – incapable of understanding the transaction – Held. may enter into contract when of sound mind – but person usually of sound mind. Corporations : authority regulated by memorandum and articles – cannot enter into contracts of strictly personal nature. Sec. person may to all appearances behave in a normal fashion. at the time when he makes it. There is a presumption in favour of sanity. Alien enemies : During war. diplomatic staff and accredited representatives : require prior permission of Central Government 3. Example : 1. in capable of exercising own judgement. Insolvents : Property vests in Official Receiver or Official Assignee . Convicts : cannot enter into contract during imprisonment – gets power to deal only on discharge or completion of sentence or pardon – Limitation held in abeyance during period of sentence. Patient in lunatic asylum . 4. and (b) ability to form a rational judgement as to its effects on own interest. Persons debarred by law : 1. Inder Singh Vs. 2. Soundness of mind depends on – (a) capacity to understand the contents of business concerned.deprived of power to deal in that property – may contract on discharge by Court. Parmeshwardhari Singh . Foreign sovereigns.7. may not make a contract when of unsound worth Rs.25.000 agreed to be sold for Rs. Person usually of unsound mind.22 ***** Persons of unsound mind : Sec.68 – estate of persons of unsound mind liable for necessities supplied to them – however.12 – Person said to be of sound mind for the purpose of making a contract if.

as defined in Sec. or misrepresentation. S. (3) Ranganayakamma Vs. the consent was not free but was induced by coercion – adoption set aside. Majumdar – illiterate woman – executed deed of gift in favour of nephew – under impression that it was deed authorising nephew to manage the lands – Evidence adduced that woman never intended to execute such deed – nor deed read or explained to her – Held. or undue influence. _____________________________________________________________________ .17. or mistake. the contract was induced by coercion.15 – coercion is committing or threatening to commit .16. son of B liable for fine – Government gave threat of attachment of property to B for recovery of fine from T – B paid the fine – Held. When consent to an agreement caused by coercion. Example : (1) A threatens to shoot B if B does not release him (A) from debt which A owes to B . a Hindu induced his wife and son to execute a release in favour of his brother in respect of certain properties which they claimed as their own – Held.she consented – Held.any act forbidden by IPC .principal gave the release deed as demanded – Held. (5) Bansraj Vs. Coercion : Sec. voidable at the option of the party whose consent was so caused (Sec.23 Free consent : Sec 14 – consent said to be free when not caused by – (1) (2) (3) (4) (5) coercion as defined in Sec. fraud or misrepresentation – agreement is contract. Where consent caused by mistake – agreement is void. as defined in Sec. It is immaterial whether IPC (Indian Penal Code) is or is not in force in the place where the coercion is employed. deed void and inoperative. Bala Devi Vs. Muthu Karuppa – an agent refused to hand over the account books of a business to the new agent unless the principal released him from all liabilities . as defined in Sec. release deed given under coercion – voidable at the option of the principal. contract is binding on both parties.or unlawfully detaining or threatening to detain any property .20-22. Alwar .to the prejudice of any person – with intention to causing such person to enter into an agreement.18.The release brought about by coercion. (2) Chikham Amiraju Vs.19) – If he confirms it. Chikham Seshamma – By threat of suicide. undue influence. or fraud.B releases A under the threat . subject to provisions of Sec. Secretary of State – T. the threat of suicide amounted to coercion – release deed was voidable.Husband of a young girl of 13 died – relatives of husband prevented the removal of his body for cremation unless she adopts a boy to inherit the properties of her husband . (4) Muthia Vs.15.

The principle applies to every case where influence is acquired and abused. A advanced money to him .g.24 Sec. Examples : (1) During minority of his son (B). (4) Inche Nariah Vs. A employs undue influence. (5) Niko Devi Vs.g.16 (1): A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. the consent of the devotee was given under undue influence. (c) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by age. parent or child) with a view to obtain consent to the agreement – coercion is much wider than duress and includes the unlawful detention of property also. (2) Mannu Singh Vs.72 – a person to whom money has been paid or anything delivered by mistake or under coercion. solicitor and client. consent obtained by undue influence and the Court reduced the rate of interest to 24%. Umadat Pandey – spiritual guru induced his devotee to gift him the whole of his property in return for promise of salvation (nirvana) – Held. (3) Ranee Annapurni Vs. between father and son. master and servant. is called ‘duress’ or ‘menace’ in English Law – duress involves actual or threatened violence or imprisonment of contracting party (or his wife. Swaminath – poor Hindu widow was persuaded by moneylender to agree to pay 100% rate of interest on money borrowed – She needed the money to establish her right to maintenance – Held. Kripa .g. relationship between doctor and patient. (b) where he stands in a fiduciary relation (relation of trust and confidence) to the other – e. relationship between medical attendant and his patient. _____________________________________________________________________ .upon B’s coming of age. must repay or return it. Contracts entered into by undue influence are voidable at the option of the person whose consent is so obtained. What Indian Law calls ‘coercion’. the gift should be set aside on ground of undue influence. where confidence is reposed and betrayed. misuses parental influence – obtains a bond from B for a greater amount than the sum due in respect of the advance – Held. A person is deemed to be in a position to dominate the will of another – (a) where he holds a real or apparent authority over the other – e. Person who wants to relieve himself of the consequences of the contract – onus lies on him to prove that his consent caused by coercion – has also to prove that he would not have entered into it had coercion not been employed.Illiterate elderly woman made gift of practically whole of her property to her nephew who managed her affairs – Held. trustee and beneficiary and promoter and company. illness or mental or bodily distress – e. Sheikh Ali Bin Omar . Undue Influence : Sec. there was undue influence.A minor female child who had lost her parents was living with her cousin brother who was in position of loco-parents (in the place of parents) – Deed executed by her in favour of latter – Held.

However. (b) The other party actually used his influence to obtain the plaintiff’s consent to the contract. Raghunath Vs. the negotiation proceeded upon an understanding that the agreement to give security for the promissory notes would relieve the son from the consequences of the criminal act – fears of father were stimulated and operated on to an extent to deprive him of free agency and to exhort an agreement for the benefit of bankers – Held voidable at the option of the father. Trustee and beneficiary iv. father agreed to give an equitable mortgage to the bank on his property in return for the promissory notes – Held.defendant failed to prove that the lender was in a position to dominate his will – Borrower got no relief. Bayley .A accepts the loan on these terms – This is a transaction in ordinary course of business and contract is not induced by undue influence. Sarju Prasad – Father and son equal owners of a vast joint family property – both quarrelled over it – Father instituted criminal proceedings against the son – In order to defend himself. the manger of the bank threatened prosecution of the son and imprisonment – to avert this threat.son forged his father’s signature on several promissory notes and paid them into his banking account – When truth came to light. Husband and wife (wife should not be pardanashin otherwise the presumption will arise) Rebuttal of presumption – the presumption of undue influence can be rebutted on following grounds – _____________________________________________________________________ . Landlord and tenant ii. and vii. Creditor and debtor iii. In order to avoid a contract on ground of undue influence. Parent and child ii. Religious adviser and disciple v. (7) William Vs. Doctor and patient vi. no presumption of undue influence in following cases and burden of proof lies on the party claiming as such i. and (c) The transaction is unconscionable (unreasonable so as to shock the conscience) Relationships which raise presumption of undue influence : i. Solicitor and client. Guardian and ward iii. the son borrowed money from the plaintiff at 24% compound interest and mortgaged his properties – In eleven years. the amount payable magnified more than eleven fold – Defendant contended that plaintiff/lender taking unconscionable advantage of his mental distress and exercised undue influence .25 (6) A applies to banker for a loan at a time when there is stringency in the money market – Banker declines to make the loan except at an unusually high rate of interest . the plaintiff has to establish that – (a) the other party was in a position to dominate his will. Fiancé and fiancée.

communicates in matters of business with men other than members of her family. (b) The price is adequate – inadequacy of consideration is only an evidence of undue influence. Ram Gopal Singh – about two months before her death. who was also the manager of her estate – Held. 2. caused by his desire to help his son. 4. Amir Bibi). Contract with pardanashin woman is presumed to be induced by indue influence – a woman who observes complete seclusion because of custom of particular community to which she belongs. Bundy – contractor borrowed money from bank – he could not pay it in time and bank pressed for payment or security – Borrower suggested that his father might mortgage the family’s only residential house – bank visited the father and obtained his signatures upon ready-made papers – contractor still could not pay – bank sought to enforce the mortgage – Held. Consent is given by a person who is so an offence (i. 4. It involves a criminal act. where a woman goes to Court to give evidence. 3. However. No criminal act is involved. The consent is given under the threat of 1. Coercion is mainly of physical nature.e. settles rents with tenants and collects rents.26 (a) full disclosure of facts is made by the influencing party to the party alleged to have been influenced. committing or placed in relation to another that the threatening to commit an act other person is in a position to forbidden by IPC or detaining or dominate his will. she had no independent advice. bank exploited the vulnerability of the father. It involves moral force or mental pressure. Difference between coercion and undue influence – Coercion Undue Influence 1. _____________________________________________________________________ . The influencing party must use his any person to enter into a contract. (c) The weaker party was in receipt of independent advice. before making the promise – the advise must be shown to be competent and based on knowledge of all relevant facts Lloyds Bank Vs. Kalibaksh Singh Vs. a Hindu widow (who was a pardanashin woman) gifted half of her landed properties to the son of her paramour. threatening to detain the property unlawfully) 2. she is not a pardanashin woman (Shaikh Ismail Vs. There must be an intention of causing 3. Undue influence is of moral character. It involves physical or violent force. position to obtain unfair advantage over the other party. and gift was the result of the influence the manager had over the lady – Gift voidable at her option. to such an extent that he charged his house to his ruin for a very short moratorium (suspension/freeze/halt) which was a highly inadequate consideration for the mortgage.

no mention was made of this– directors honestly believed that permission would be granted permission was refused – consequently company later wound up – plaintiff who had bought some shares. A offers to sell his horse to B telling him that the horse is sound. R. A genuinely believes the horse to be sound though he has no sufficient ground for the belief.actually bridegroom over 60 years – Held.wrongly made by one party to the contract .18 . (ii) Intentionally or deliberately or wilfully with intention to deceive or defraud the other party – called fraud Misrepresentation – Sec. consent was vitiated/ obtained by misrepresentation and fraud. _____________________________________________________________________ . (iv) Made with intention that it is acted upon by other party. (iii) Must be made before conclusion of contract – made to induce other party to enter into the contract. May be made either – (i) innocently or unintentionally – called misrepresentation. directors guilty of misrepresentation not fraud as they honestly believed that one the Parliament had authorised the use of steam. Requirements of misrepresentation – (i) Must relate to material fact – mere expression of opinion is not misrepresentation.Held. Consequences of misrepresentation – The aggrieved party can – (a) avoid or rescind the contract. Later. Babul Vs.with a view to induce the other party to enter into a contract – is called misrepresentation. 2.false statement – made honestly – believing it to be true or not knowing it to be false – includes non-disclosure of material fact without intent to deceive the other party. Singh – A tells his wife that bridegroom proposed for their daughter was young man . (ii) Must be wrong – but honestly believed to be true by the person making it.during the course of negotiations . sued the directors for fraud .within hearing of the daughter – daughter gave consent to marry believing the statement of her father . (vi) Need not be made directly to the plaintiff – made to third party with the intention of communicating it to the other party to the contract is also misrepresentation. Derry Vs. Example : 1. the consent of the Board was practically concluded. The statement made by A is misrepresentation. B finds the horse to be unsound. or (b) accept the contract but insist that he shall be placed in the position in which he would have been if the representation had been true.27 Any statement . (v) Must be actually acted upon by other party – must have induced him to enter into the contract.A. Peek – Directors of a company issued a prospectus – made a statement that company had been authorised by a special Act of Parliament to run tramways by steam or mechanical power – actually authority to use steam was subject to consent of Board of Trade – however.

it cannot be rescinded at all. (2) concealment of a material fact or partial statement of fact. Fraud – Sec. If a third party has acquired rights in the subject matter of the contract in good faith and for value. the consent of the Board was practically concluded.28 However. sued the directors for fraud Held. Long Vs. (5) any act or omission specially declared to be fraudulent.17 Fraud exists when (1) a false representation made – (a) knowingly. the aggrieved party loses the right to rescind the contract for misrepresentation if – (i) he takes a benefit under the contract or affirms it in some other way . if contract cannot be rescinded in toto (in whole). subject matter either consumed or destroyed. Derry Vs.even after becoming aware of misrepresentation or fraud. Peek – Directors of a company issued a prospectus – made a statement that company had been authorised by a special Act of Parliament to run tramways by steam or mechanical power – actually authority to use steam was subject to consent of Board of Trade – however. (ii) (iii) (iv) where restitution to the original position is not possible – e. no mention was made of this– directors honestly believed that permission would be granted .permission was refused – consequently company later wound up – plaintiff who had bought some shares. in few cases even silence or non-disclosure constitutes fraud. or (c) Recklessly careless whether it be true or false.g. directors guilty of misrepresentation not fraud as they honestly believed that one the Parliament had authorised the use of steam. or (b) without belief in its truth. so that the withholding of fact makes the statement made false (3) promise is made without any intention of performing it. A false statement must have been made intentionally with an intention to deceive the other party or to induce him to enter into a contract. (4) any other act to deceive. _____________________________________________________________________ . Requirements of fraud : (1) there must be false representation – however. acceptance of A’s offer to bear half the cost of repairs. Lloyd – A induced B to buy lorry – false representation that lorry was in excellent condition – when B used it and discovered it to be in bad shape – B wanted to return it – A agreed to bear half the cost of repairs and B agreed to it – Later lorry broke down completely – B wanted to rescind the contract – Held. implies B’s final acceptance of the sale – contact cannot be rescinded.

failure to disclose the fall in takings is fraud – contract would be rescinded. it is valid – the defrauded party has following remedies : (1) he can rescind the contract – must be within reasonable time – if in the meanwhile. Wilkinson .can be made by the party to the contract or with his connivance or his agent. (4) Representation must have been made with knowledge of its falsity or without belief in its truth or recklessly. non-disclosure amounted to fraud and investors who had relied upon the prospectus could rescind the allotment. Thomas – T bought a cannon from H – cannon was defective but plugged by H – T did not examine the cannon – On use. not caring for its truth or otherwise . If any statement made is true on the date when it is made – but becomes untrue before the contract is actually entered into – must be corrected – non-correction is fraud – contract can be rescinded. Horsefull Vs. (6) Other party must have relied upon the representation and must have been deceived. on acting upon the representation. the cannon burst – Held. (3) Representation must be made before conclusion of contract – made with intention to inducing the other party to act upon it.A bought shares in a company on faith of prospectus – a false statement contained in prospectus that B was a director in the company – B had never heard of B and therefore statement was immaterial to him – Held. Example – A purchases land from B by wilfully making false representation – A sells the goods to C before B rescinds the contract – B has lost the right to avoid the contract as a third party (C) has acquired interest in it. _____________________________________________________________________ . contract cannot be rescinded. the untrue statement had not induced A to buy the shares – A cannot claim damages on ground of fraud. O’Flanagan – Negotiations for sale of medical practice started in January – representation made that practice was worth £2. Gurney – Prospectus did not refer to existence of liabilities – gave impression that company was prosperous – Held. Smith Vs. must have suffered some loss – fraud without damage does not give rise to action on deceit/cheating. mere opinion.29 Peek Vs. (5) The other party must have been induced to act upon the representation. Consequences of fraud : Contract induced by fraud is voidable at the option of the party deceived – until rescinded.Vendor told prospective buyer that in his opinion the land had carrying capacity of 2. contract not vitiated by fraud. (2) Representation must relate to material fact commentary or hearsay is not representation of fact. a third party has acquired an interest in the subject matter for value and good faith. With Vs. there was no misrepresentation as the statement was one of opinion which was honestly held.000 sheep – land turned out to be unsuitable for sheep farming – Held. (7) Other party. Bisset Vs. Chadwick .Certain land sold – vendor aware that land required for sheep farming . the plug had not deceived T – Hence.000 a year – contract concluded in May when earnings fell to £5 per week due to defendant’s serious illness – Held.

Long Vs. its is not fraud. confidence – also arises where one party is utterly _____________________________________________________________________ . implies B’s final acceptance of the sale – contact cannot be rescinded. (5) Where rescission not made within reasonable time – example . Lord Cadogan – Before letting a house. However. contract is not voidable on account of misrepresentation by A. Mere silence is no fraud : A contracting party is under no obligation to disclose the material facts to the other party – but he must not make active concealment (like concealing a crack in a machine by filling it and repainting it) – Keates Vs. (4) He can sue for damages. Lloyd – A induced B to buy lorry – false representation that lorry was in excellent condition – when B used it and discovered it to be in bad shape – B wanted to return it – A agreed to bear half the cost of repairs and B agreed to it – Later lorry broke down completely – B wanted to rescind the contract – Held. there are statutory exceptions to the above rule : (1) where under given circumstances. in following cases. Example – A father selling a horse to his son must tell him if the horse is unsound. However.19).30 (2) He can insist on the performance of contract on the condition that he be put in the position in which he would have been if the (3) representation had been true. third party acquires interest in subject matter of contract for value and bona fide. Kurukshetra University – candidate had full knowledge of fact that he was short of attendance – did not mention this fact in his examination form – Held. contract voidable at the option of party whose consent is so caused (Sec. landlord nor liable for fraud – tenant should have inspected the house. Shri Krishan Vs. (4) Where the party after becoming aware of his right to rescind.thus where shares allotted on basis of misleading prospectus in July and move to rescind the contract made in December – plaintiff precluded from obtaining the relief on account of unexplained delay of five months. (3) Where before the rescission. The duty to disclose the truth will arise in all cases where one party reposes and other party accepts. the person keeping silence is under duty to speak.When consent caused by coercion. (2) where plaintiff is ignorant of mis-representation or fraud. as the son is likely to rely upon his father. affirms the contract. the contract is not voidable – (1) where consent caused by mis-representation or fraud but that party could discover the truth by ordinary diligence. Contract not necessarily voidable . it is duty of University to scrutinise forms and to call for verification or information in case of doubts – University failed to do so – estopped from cancelling the examination of the candidate. landlord did not inform the tenant that house in ruinous condition – Held. acceptance of A’s offer to bear half the cost of repairs. Example : A mis-represented to B to believe 500 tonnes of indigo made at A’s factory – B inspected the factory – found it could produce 400 tonnes only – B buys the factory – Held. fraud or misrepresentation.

but having undertaken or professed to mention them. R. but if he speaks. silence amounts to fraud. representations contained in tender were fraudulent – no defence that plaintiff could have discovered the true costs by reasonable efforts.plaintiff spent a sum of money to mark engagement of his son – later discovered the girl to be epileptic – broke off engagement – sued other party for compensation for loss suffered due to deliberate suppression of vital fact – Held. he could not fairly stop halfway – plaintiff had right to rescission. Haji Ahmad Yarkhan Vs. failure to disclose the fall in takings is fraud – contract would be rescinded.” – If B says nothing. but becomes false on account of change in circumstances – actually acted upon by other party – duty of the person making the representation to communicate the change of circumstances. (2) Where silence is equivalent to speech Example – A says to B. Gujarat Housing Board – false estimates of costs of construction given in a tender – contractor agreed to some reduction on the belief that the estimate was correct – Held. With Vs.C.31 without any means of discovering the truth and has to depend on the good sense of the other party – in absence of any such relationship. Abdul Gani Khan . Cohen – plaintiff purchased a tract of land – contract of sale stated that land subject to the right of Borough (local government in a small town) to open two streets within the area – actually the Borough had the right to open three streets – Held. _____________________________________________________________________ . (4) Half-truths – even where person is under no duty to disclose a fact. Thakkar Vs. Vs. I shall presume that the horse that you are selling me is sound. he may be guilty of fraud by non-disclosure if he voluntarily discloses something and then stops half way – a person may keep silence. his silence is equivalent to speech. law imposes no general duty on any one to broadcast the blemished of his female relations – not even to those who are contemplating matrimony with them – no fiduciary relation between parties .where representation true when made.000 a year – contract concluded in May when earnings fell to £5 per week due to defendant’s serious illness – Held. Junius Construction Corpn.voidable due to mis-representation – no compensation as no fraud. though seller was under no duty to mention the projected streets at all. “If you do not deny it. there is no duty to speak. O’Flanagan – Negotiations for sale of medical practice started in January – representation made that practice was worth £2. a duty arises to disclose the whole truth. (5) If seller fails to inform the buyer as to a latent defect (a defect known to the seller but not apparent on an ordinary inspection). (3) Change of circumstances .

It is deliberate or wilful. damages. damages. The aggrieved party can rescind The aggrieved party can rescind the contract or sue for restitution. The person making the representation believes to be true. Fraud There is an intention to deceive the other party. The person making the representation does not believe it to be true or makes it recklessly without caring as to whether it is true or false. contract is voidable means to discover the truth by even though aggrieved party had ordinary diligence. Simple misrepresentation is no It is a cause of action in tort for tort.32 (6) If trustee does not make full disclosure of facts to the beneficiary while entering into a contract with him as to the property of which he is a trustee his silence as to material facts amount to fraud. the contract and also sue for However. Distinction between fraud and misrepresentation – Basis Intention Belief Tort Rescission and damages Discovery of truth Misrepresentation There is no intention to deceive the other party. there can be no suit for damages. It is innocently made. ***** _____________________________________________________________________ . The aggrieved party cannot Where there is active avoid the contract if he had the concealment. the means to discover the truth with ordinary diligence.

mutual mistake on a point of fact which was material to the existence of agreement – void agreement. i. an erroneous view as to value of a thing which forms the subject matter of agreement is not deemed as mistake of fact Example – A buys an old painting for Rs. (1) The mistake must be mutual. Sec.500 – Mistake as to value of the subject matter – not voidable.20 will come into play when – (1) both the parties to an agreement are mistaken. Galloway Vs. _____________________________________________________________________ . But where person enters into a contract by making a mistake of law through inducement of another (whether innocent or otherwise). (2) Mistake must relate to matter of fact essential to the agreement – as to what facts are essential to the agreement depends upon the nature of the promise in each case.may be mistake of law or a mistake of fact. Mistake of fact – may be bilateral or unilateral. ignorance of law is not excuse) – contract cannot be avoided. Bilateral Mistake – both the parties are mistaken as to a matter of fact essential to the agreement – agreement is and woman entered into separation agreement under which man to pay weekly allowance to woman – both mistakenly believe themselves to the lawfully married – Held.21 – a contract is not voidable because it was caused by mistake of law of the country. Example : A and B enter into a contract . However. However. Example – A agreed to purchase B’s motor car lying in B’s garage – Unknown to both.22 – a contract is not voidable merely because it was caused by mistake of one party as to matter of fact. Sec.treated as mistake of fact – contract is void. (b) Mistake of law of a foreign country . Sec.e. Mistake of law (a) Mistake of law of the country – (ignorantia juris non excusat . Galloway . mistake as to law of a foreign country is treated as mistake of fact and makes the contract void. Sec. (3) the fact about which they are mistaken is essential to the agreement. (2) their mistake is as to a matter of fact.5000 – mistakenly assumed it to be an antique – actually it was new one and worth only Rs.33 Mistake : an erroneous belief about something .on the erroneous belief that a particular debt is barred by the Indian Law of Limitation – contract is not voidable.20 – where both parties are under mistake as to matter of fact essential to the agreement – the agreement is void. the contract is voidable. the garage and car destroyed by fire a day earlier – void agreement.

Cox Vs.actually two ships by that name sailing from Bombay. the corn became fermented in transit and already sold by the master of the ship at an intermediate port – buyer repudiated the contract and H was sued for the price (being del credere agent) – Held.table napkins sold at auction . Raffles Vs. Prentice – Silver bar sold under a mistake as to its weight – Held agreement is void (5) Mistake as to title of subject matter – if seller intends to sell something which he is not entitled to sell – agreement is void. Even if mistake caused by negligence of third party – contract void. Henkel Vs. wired to B “send three rifles” – by mistake of telegraph office. as goods had already been totally lost before the contract was made. (6) Mistake as to price of subject matter – where mutual mistake as to price – agreement is void. the contract void ab initio . the message transmitted as “send the rifles” – B sent fifty rifles – A accepted three rifles and sent back the rest – Held. A liable to pay for three rifles on basis of an implied contract. that he (uncle) was entitled to a fishery – after uncle’s death. there was no contract on account of mutual mistake as to identity of subject matter – however.uncle had told his nephew. nephew entered into agreement with uncle’s daughter to rent the fishery – actually fishery belonged to nephew himself – Held the lease was void. Smith Marriot .H not liable. (4) Mistake as to quantity of subject matter – if mutual mistake as to quantity of subject matter – agreement void. mutual mistake and hence no contract. _____________________________________________________________________ . Phibbs . Cooper Vs. one in October and another in December – W meant the former while R meant the latter – Held.Unknown to both. Nicholson & Venn Vs. (3) Mistake as to quality of subject matter – if the subject matter is qualitatively different from what the parties thought it to be – agreement is void. Hastie – H employed by C as del credere agent to sell C’s cargo of corn which was in transit – H sold the cargo to a third person . Wichelhaus – W agreed to buy a cargo of Surat Cotton from R ‘to arrive ex-Peerless from Bombay’ .34 Bilateral mistakes can be of following types – (1) Mistake as to the subject matter – agreement is void Example – A agreed to buy B’s horse – unknown to both. not intending to misrepresent anything but being in fact in error. Pape – A inspected fifty rifles in B’s shop – Later. the horse was dead at the time of bargain – agreement is void. Couturier Vs. (2) Mistake as to identity of subject-matter – happens when one party intends to deal in one thing and the other intends to deal in another. mistake as to quality of the subject matter – agreement description “with the crest of Charles I and authentic property of that monarch” – actually napkins belonged to King George – Held.

the procession had already been cancelled – Held. (7) Mistake as to possibility of performance . though two minds were not ad idem as to age of the oats. the agreement void for impossibility of performance. Hughes – H wanted to buy old oats for his horses – S showed him sample of oats which he had – W mistakenly thought that oats were old when they were actually new – Held.Blenkarn ordered goods from Lindsay – signed the offer letter in such a way that L believed it came from well-known firm of Blenkiron & Co. W knew that offer was a mistake – contract void. Even in cases where A makes an offer to B.35 Webster Vs. Example – A intends to contract with B – mistakes C to be B and enters into contract with him (C) – no agreement if B was a material element of contract. Exceptions – In certain cases. Brymer . Unilateral Mistake . when unilateral mistake goes to the root of the agreement.22 – agreement not voidable merely because it was caused by unilateral mistake as to matter of fact – however. there is mistake as to the identity of the person contracted with. Jones – B purchased goods from H – H owed debt to J – J placed order on H – J accepted goods from B thinking that they were supplied by H – B had supplied the same intending to set off his debt against H – Mistaken identity of the acceptor – no contract.contract for hiring of a room for witnessing the coronation procession of King Edward VII – unknown to the parties. knowing that this offer price was a mistake which should have been for £2250 – Held.Sec. Cecil – W offered to buy C’s property for £2000 – C declined – thereafter C offered to sell the same property for £1250 . having heard of him – no contract. L never intended to deal with Blenkarn. (ii) Legal impossibility – if subject matter of contract cannot be done as per law – agreement is void. However. Smith Vs. This exception holds good only when identity of contracting party is important. Lindsay . it can be allowed as defence where mistake brought about by other party’s misrepresentation or fraud.impossibility may be due to (i) Physical impossibility Griffith Vs. Boulton Vs. contract is void. – Held. B can recover the goods from J under quasi-contract. (1) Mistake as to identity of person contracted with – if one party represents himself to be some other person. Cundy Vs. C cannot give get any rights under the contract by accepting the offer – if he does so. _____________________________________________________________________ . they certainly were ad idem as to the sale and purchase of them – H cannot avoid the contract. agreement is void.W accepted the offer.

***** _____________________________________________________________________ . Brooks – N bought jewellery from a jeweller’s shop – presented himself as Sir George Bullough – gave a cheque which bounced – jeweller sued for annulment (cancellation) of contract .Held. Mackinnon – M. (2) Mistake as to nature of contract .36 Said Vs. Butt – S wanted to go to first night of play – B. jeweller contracted to sell and deliver jewellery to person who came to his shop – here mistake not as to identity but to attribute of the buyer – valid contract. endorsed a bill of exchange – had mistakenly thought it to be a guarantee – Held. an old man of poor sight. no contract as theatre never intended to contract with S.void contract. Philips Vs. the mind of the signer did not accompany the signature – no contract. the managing director of theatre. Foster Vs.if document signed under mistaken belief that they are of different class and character altogether . Where the identity of a party is immaterial to the contract – contract is not void – attribute of a party does not affect the contract. gave instructions that ticket be not sold to S – because in past S had published virulent (strong) criticism of its production – S got his friend to buy a ticket – theatre manager refused admission to S – Held.

(b) A promises to drop prosecution instituted against B for robbery – B promises to restore the value of things taken – unlawful object – void agreement.A licensed under Excise Act to run liquor shop – Act forbade sale. Rayson – A leased flat to R at rent of £1200 a year – two separate agreements entered into.weekly wages of £13 and weekly expense allowance of £6 – Held. Thomas .Held. that he would not bid against the defendant and defendant would pay him off – property sold to defendant at very low price – Held. the plaintiff. Example : A. Alexander Vs. B and C enter into agreement – for division of profits to be acquired by them by fraud – object is unlawful – void agreement. – company employed N .5000 for his good behaviour – he deposits sum with defendant and persuades him to become surety – after period of suretyship is over.1000 to A – unlawful consideration – void agreement.R entitled to remain in possession of flat for remainder of term of lease. transfer or sub-lease of licence or creation of partnership in running of shop – A took B into partnership . (2) It defeats the provision of any law – though not directly forbidden by law. Fateh Singh Vs. unless it – (1) is forbidden by law – any act punishable under criminal law or any special legislation or regulations. a prospective buyer. one for lease at £450 and other for services connected with flat at £750 – A sued R for recovery of instalment of £750 – Held.23 The consideration and objects of a contract are lawful. the intention in requiring a surety is that the surety shall at his own risk see to the appearance of the accused – the purpose of agreement defeated by agreement of above sort – agreement void. _____________________________________________________________________ . National Business Agency Ltd. the object of the arrangement was fraudulent as it deprived the other decree-holder of his claim amount which he could have got had the sale been competitive – plaintiff could not recover anything from defendant. agreement void as it would defeat the policy of the law if unapproved persons could find their way into working liquor shops. Napier Vs. Rajendranath Sanyal . Ram Nath Misra Vs.37 Legality of Object : Sec. Nandlal Vs. got debtor’s property attached and brought to sale – agreed with defendant .two decree-holders against the debtor – one of them. Sanwal Singh – accused required under Criminal Procedure Code to furnish surety of Rs. accused sued defendant for the amount – Held. agreement void as object was to deceive the municipal authorities – A could not recover . (3) It is fraudulent. Example : (a) A promises to obtain for B employment in public service – B promises to pay Rs. the expense allowance a device to evade tax – agreement unlawful.

Mahadeo Dass – agreement between some persons to purchase shares in a company – intended to deceit to induce other persons to believe that there was bona fide market for the shares – Held. W. void agreement as restricting personal freedom. (i) Agreement of trading with enemy (ii) Agreement to commit a crime. (5) Involves immorality Baivijli Vs. contract void as it was indistinguishable from slavery which involved injury to person of B. agreement was immoral.R paid Rs. Horwood Vs. (iii) Agreement which interferes with administration of justice – it is opposed to public policy – Examples – agreement to use improper influence of any kind with the judges and officers of justice – agreement not to prosecute an offender is for stifling (oppressing) prosecution. is void. MM Roy .Example prohibiting any party from enforcing his rights under a contract – curtailing (restricting) the period of limitation prescribed by Law of Limitation – however agreement to refer a dispute to arbitration is valid.A promises to indemnify a firm of printers and publishers of newspapers against consequences of any libel which it might publish in the newspaper – Held.buys the house for himself – against professional duty – A can compel B to sell it to him at the price B paid for it. B to pay principal plus exorbitant interest at once – Held. (ix) Agreement in restraint of given to married woman to obtain divorce from her husband – lender intended to marry the woman – Held. Gherulal Parakh Vs. _____________________________________________________________________ . (iv) Agreement in restraint of legal proceedings . – A debtor agreed with moneylender not to leave his job or borrow money or dispose of his property or change his residence without lender’s written consent – held. Smith & Sons Vs.A’s promise could not be enforced and the firm liable to pay damages for published libel. agreement against public policy – void agreement. (6) Opposed to public policy – harmful to public welfare. for monetary consideration. Ram Swaroop Vs. other than a minor. Bansi Mandar – B borrowed Rs.100 from R – executed bond promising to work for L without pay for two years – in case of default.H. Millar’s Timber & Trading Co.38 (4) It involves or implies injury to person or property of another – property includes both movable and immovable property. Example – A directs his agent B to buy particular house for him – B tells A that it cannot be bought for specific reason . agreement void. Nansa Nagar . Clinton . (vi) Agreement tending to create interest opposed to duty – anything against public or professional duty.15. (v) Trafficking in public offices and titles or for procurement of public recognition like Padma Vibhushan etc. it was an agreement to commit a crime and indemnity against it .000 to N who agreed to obtain a medical seat for R’s son – N failed to get the seat – R filed a suit for refund – Held. (vii) Agreement in restraint of parental rights – (viii) Agreement restricting personal liberty. NVP Pandian Vs.

the agreement restrained from exercising profession – void. (xii) Agreement to defraud creditors or revenue authorities. a restriction limited to some place.carrying on similar business . (xiii) Agreement in restraint of trade – which interferes with liberty to engage in any lawful trade.000 to L if he married someone else – P married X . Shaikh Kalu Vs Ram Saran Bhagat . Fraser & Co.Held.M and R rival shopkeepers in a locality in Calcutta – R agreed to pay a sum of money to M if he would close his business in consideration – M closed down his business – R refused to pay and M filed a suit for recovery – Held. (c) Trade combinations – regulations as to opening and closing of business in a market. – agreement between ice manufacturers – fixed the minimum price for sale of ice. (xi) Agreements interfering with marital status.B.out of 30 comb-makers in Patna city. Madhav Chander Vs.27. partners may restrain each other from carrying on similar business within specified period or within specified local limits. Lachmi Narain – rules of an association of traders and weighmen restrained members from dealing with outsiders – penalty for breach being fine and expulsion – Held. the agreement was void even though the restriction was a partial restriction. L could not recover the agreed sum as agreement in restraint of marriage (x) Marriage brokerage agreement. long as buyer or any other person deriving title from him carries on like business. Co. Bombay Ice Mfg.within a specified local limits . (iii) in anticipation of dissolution. licensing of traders. S. Raj Coomar .2. _____________________________________________________________________ . proportion of manufacture which each was to bear and of profits each was to receive – some of them restrained from selling at Poona and some others at steamers – Held. even though in restraint of trade. Bhola Nath Shankar Das Vs. profession or vocation – Sec. (ii) outgoing partner not to carry on similar business within a specified period or within specified local limits. 29 agreed to sell their output to R only and none else – R free to reject the goods if no market found for them – Held. whole object to regulate business and not to restrain it – valid. Peers – P promised to marry L only and none else –to pay £. Exceptions to the rule that “an agreement in restraint of trade is void” : (a) Sale of goodwill – seller of goodwill may be reasonably restrained from . supervisions and control of dealers and mode of dealing are valid. such restriction not disadvantageous to public nor opposed to public policy – valid. (b) Partnership – four provisions which validate agreements in restraint of trade – (i) partner not to carry on any business other than that of the firm.39 Lowe Vs.

Co.40 However. Kores Mfg. without the written consent of the other – Held.contract to sell all the salt manufactured to a firm for five years – Held valid as seller encouraged to exercise his business because he is assured of a certain market for the products of his labour. Hivac Ltd. where a combination tends to create monopoly and is against public interest is void. Ltd. MacDonald .B agreed to become A’s assistant for three years – appointment subject to clause against practising – B left service within a year and began to practise there on his own account – Held. restriction on similar engagement after termination of service is void. agreement to service preventing persons to serve anyone other during the term of employment is valid. Park Royal . Vs. However. Brahamaputra Tea Company Vs.Held to be void. A worked for P on similar work in competition with H – Held. Charlesworth Vs. Illegal agreement – void ab initio – taints the collateral agreements with illegality void not only as between immediate parties but also makes collateral agreements void. Scarth – employees restrained from taking service or engaging in any similar business for period of 5 years after termination of service . _____________________________________________________________________ . (d) Exclusive dealing agreements – reasonable restriction valid negative stipulation nothing but an ordinary incident of or ancillary to the positive covenant. Where restriction imposed to protect employer against employee making use of trade secrets learned in course of employment . A in breach of duty – could be restrained from working for R. Ltd. (e) Service contracts – restriction from accepting any other engagement during his employment is valid. Co. Unlawful and illegal agreements : Unlawful agreement – a void ab initio – not enforceable by law – affects only the immediate parties but does not affect the collateral agreements. – both companies engaged in manufacturing similar products involving processes in which employees likely to acquire knowledge of trade secrets and confidential information – agreed that neither would employer any person who had been the employee of the other anytime during previous five years.A was a physician and surgeon practising in Zanzibar . Mackenzie Vs.such restriction is valid. ban was applicable as much to an unskilled manual labourers who might have been employed even for a single day as to a highly skilled and long-term employee who might have acquired confidential knowledge.H employed A on a highly skilled work – with access to manufacturing data – in his spare time. Kulok Mfg. Striramiah . V.

Example : A enters into an agreement with B to manufacture prohibited goods – A
takes loan for the purpose from C who knows about the purpose of the loan –
agreement between A and C is collateral to the main agreement between A and B,
which is illegal – collateral agreement is also illegal.
An illegal agreement is actually forbidden by law – but every void agreement may not
be forbidden – Thus, every illegal agreement is void, but every void agreement is not
necessarily illegal.
Illegal agreements include acts opposed to public morals – e.g. agreement for illicit
cohabitation, agreement to defraud the revenue, agreement to commit a crime or
agreement to do something which endangers public safety – No action allowed on
illegal agreement – depends on two maxims :
(i) Ex turpi causa non oritur action – means ‘no action arises from a base cause’
– law does not approve of any action arising from base action which is illegal.
(ii) In part delicto, potior est condition defendentis – means ‘in cases of equal
guilt, the defendant is in a better position’.
Example : A promises to pay B Rs.1000 if he kills T - If B actually kills T, he
cannot recover the amount from A – if A has already paid the amount and B
does not kill T, A cannot recover the amount.
The effects of illegality are –
(i) collateral agreements also becomes tainted with illegality – treated as illegal
even though they might be lawful by themselves.
(ii) No action can be taken for
(a) recovery of money paid or property transferred under an illegal agreement.
(b) Breach of illegal contract.
In case of equal guilt, defendant is in better position than plaintiff.
However, the plaintiff can sue for recovery of money paid or property transferred in
following cases –
(a) where he is not in part delicto (equal guilt) with the defendant – e.g. where he
is induced to enter into agreement by fraud, undue influence or coercion.
Fakir Chand Seth Vs. Dambarudhar Bania - payment made in advance for
purchasing a paddy crop not knowing that a control order was being violated –
consideration paid allowed to be recovered.
Mistry Amar Singh Vs. Kulubya - land given to an non-African under a lease
in violation of a law for the protection of Africans in Uganda – action brought
about by African party for recovery of rent and possession – the other party
pleaded illegality – Held, the parties are not in pari delicto, the person injured
may bring his action and defeat the contract.
(b) Where he does not have to rely on the illegal transaction.
(c) Where the agreement is still executory - and he is truly and genuinely
Taylor Vs. Bowers – debtor executed a transfer to deceive his creditors – after
executing the transfer, he summoned meeting of his creditors to effect a


compromise – no creditor turned up – debtor repented his action and sought to
recover back the property – allowed to do so.
(d) where the non-illegal part is severable from the rest of the agreement – the
Court will enforce the legal part and reject the illegal one – if inseparable, the
whole contract is declared illegal.
Aition Vs. Spickermann – house leased on rent - subject to condition that
lessee would also purchase certain chattels at premium – lessee occupied the
premises but offered to pay only the natural price – lessor sought eviction on
ground that the whole agreement unlawful - Held, the two agreements had two
aspects namely, the agreement of lease and the promise to pay a premium –
the latter part was unlawful and being severable from the rest, the lease was
Unlawful agreement involves non-criminal breach of law – do not affect public
morals – disproved on grounds of public policy – e.g. agreements in restraint of trade,
marriage or legal proceedings.
Gherulal Parekh Vs. Mahadeo Das - partner entered into agreement to indemnify his
co-partner for proportionate of the losses suffered by him in entering into wagering
transactions on behalf of firm – Held, wagering being only void, the collateral
agreement of indemnity is fully enforceable.


Void agreements
Sec.2(g) : An agreement which is not enforceable by law is called a void agreement.
The following agreements are void ab initio –
1. Agreements by incompetent parties (Sec.11)
2. Agreements made under mutual mistake (Sec.29)
3. Agreements with unlawful consideration or object (Sec.23 and 24)
4. Agreements without consideration (Sec.25)
5. Agreements in restraint of marriage (Sec.26)
6. Agreements in restraint of trade (Sec.27)
7. Agreements in restraint of legal proceedings (Sec.28)
8. Agreements the meaning of which is uncertain (Sec.29)
9. Wagering agreements (Sec.30)
10. Agreements contingent on impossible events (Sec.36)
11. Agreements to do impossible acts (Sec.56)
12. In case of reciprocal promises to do things legal and other things illegal, the
second set of reciprocal promises is void agreement (Sec.57)
Agreements the meaning of which is uncertain (Sec.29) :
Uncertainty may be as to –
existence of, or
quality of, or
quantity of, or
price of, or
title to,
the subject matter.
Example :
(a). A agrees to sell to B ‘100 tons of oil’ - There is uncertainty about the kind of oil
intended - The agreements is void.
(b) A, who deals in turpentine oil only, agrees to sell to B ‘100 tons of oil’ - The
nature of A’s trade clarifies the nature of oil intended to be sold – agreement is
(c) A agrees to sell to B ‘all the grain in my granary at Ramnagar’ – the quantity is
capable of being determined – agreement is valid.
(d) Guthyng Vs. Lynn - L promised to pay an extra £5 to G if the horse he purchased
from G proved lucky – the promise is too vague to be enforced.
(e) A agreed to pay a certain sum to B when he was able to pay – the agreement is
void for uncertainty.
Wagering Agreements/ Wager (Sec.30) – a to give money or money’s worth upon
the happening of an uncertain event – it is essential that each party under it may either
win or lose – whether he will win or lose been dependent upon the issue of the event –
if either of the parties may win but cannot lose, it is not a wagering contract.
No suit shall be brought for recovering anything alleged to be won on any wager.
Badrinath Kothari Vs. Meghraj Kothari – two persons entered into speculative
transactions into shares – one becomes indebted to other – promissory note executed
for the payment of that debt – Held, wager in nature – note is not enforceable.


in present case neither side stood to lose according to result of wrestling match – stakes did not come out of pockets of parties. Narayana Ayyangar Vs. but none of them stands to lose as getting back of actual amount contributed is assured.Vallachami Ambalam . No other interest in the event – it forms the difference between wager and contract of insurance . Carlill any chance of losing – not in nature of wager.500 – Held. neither party is running any risk of loss except that which is created by the agreement itself. 3. K. the company had no chance of winning. Crossword competitions involving a good measure of skill for its successful solution – however. neither Mrs. wagering being only void. Neither party has control over the event. which is a game of chance. where prizes depend upon a chance. the interval of time. the collateral agreement of indemnity is fully enforceable. 2.Every contract of insurance requires for its validity the existence of insurable interest. in wagering agreement. that a lottery (a wager).A chit fund does not come within the scope of ‘wager’ – some members stand a chance to gain. Carbolic Smoke Ball Co. which means the risk of loss to which the assured is likely to be exposed by the happening of the event assured against . Promise to pay money or money’s worth.however. is a wagering agreement.. transactions collateral to the main transaction are enforceable. _____________________________________________________________________ . Mahadeo Das . Gherulal Parekh Vs. A principal cannot sue his agent for breach of a wagering agreement or recover any amount paid on its basis.Two wrestlers agreed to play a wrestling match – condition that party failing to appear on the day fixed was to forfeit Rs. but out of gate money provided by public – wagering agreement. it is not forbidden by law – Hence. Exceptions – the following agreements are not wager : 1. In Carlill Vs. Lottery.defendant failed to appear in ring – plaintiff sued him for Rs. Uncertain event – generally contemplates a future event – but may also relate to past even provided the parties are not aware of its result or the time of its happening. 5. However.500 to opposite party. wagering agreement is not unlawful – therefore. however long it may be. 4. Mutual chances of gain or loss Babasaheb Vs.44 Though wager is void and unenforceable. Essential of a wagering agreement : 1. Rajaram . and winner to receive Rs.1125 out of gate money .partner entered into agreement to indemnify his co-partner for proportionate of the losses suffered by him in entering into wagering transactions on behalf of firm – Held. the principal can recover the winnings received by his agent on successful bets made on his behalf. is immaterial.

Only one of the parties is interested in the protection of the subject matter. Horse races where the value of plate. 4. No.65 is not applicable to contracts void ab initio or to contracts by incompetent parties. all insurances are contract of indemnity (whose value is unknown). prize or sum of money is Rs.g. the party rescinding it must restore any benefit which he has received under it to the person from whom it was received. A contract of insurance. It benefits the public.64) . 3 Interest in protection of subject matter Value of contract 4 Benefit 5 Basis of agreement 2 Except life insurance. Share market transactions in which delivery of stocks and shares is intended to be given and taken.(Sec. 3. 3.65 . Sec.500 or upwards.When a contract becomes void.45 2. It is a gamble or game of chance. It does not benefit anyone except the winner. the party who has received any benefit under it. 5. Difference between insurance and wagering agreements : Sl. Restitution . 1 Basis Contracts of Insurance Insurable interest The Assured has an insurable interest in the subject matter. Sec. Both the parties have such interest matter. Games of skill – e.32. Wagering agreements. The amount of the contract is fixed. A contingent contract becomes void when the event collateral to it becomes impossible (Sec. _____________________________________________________________________ . There is no interest in the subject matter. Void Contracts 1. must restore it to the other party or compensate the other by the value of the benefit. A voidable contract becomes void when the party whose consent is not free repudiates the contract. It is based upon scientific and actuarial calculation of risks.) 2.When voidable contract is rescinded. A contract becomes void by supervening impossibility or illegality. other than that created by the agreement itself. picture puzzles or athletic competitions.

i. Example: A contract to pay a sum of money on the destruction of a premises by fire is contingent contract. the event shall become impossible when such person does anything which makes it impossible for him to do the ‘act’ within a definite time or otherwise than under further contingencies. though his marriage is a contingency exclusively within his control. incidental. performance of the contract can be enforced when the event becomes impossible. 5. if some event which is collateral to such contract. government could recover the amount advanced. contingent upon a specified event happening within a definite time. Essentials of contingent contracts : 1.godown hired for twelve months – whole rent paid in advance – after seven months. 3. A agrees to pay B a sum of money if B marries C – C marries D – marriage of B to C is now impossible although it is possible that D may die and C may afterwards marry B.agreement between government and contractor to construct a godown – advance payment made to contractor – work not completed by contractor – government terminated contract – Held. the event must be collateral. becomes void if such specified event does not happen or becomes impossible before the expiry of that time.46 Dharmasey Vs. Contingent Contracts : Sec. to the contract. State of Orissa Vs. Example : 1. Rules regarding contingent contracts : 1. entitled to refund of rent for remaining five months. In case contingent contract dependent upon happening of collateral event. Rajballav . contract to pay a sum of money on the expiry of a term or on the death of a person is not a contingent contract because these events are of a certain nature. a contract the performance of which depends upon the promisee’s marriage is a contingent contract. such contract become void when such event becomes impossible.31: A contract to do or not to do something. indemnity and guarantee. the event must be uncertain. 3. 2.g. Where contract contingent upon an ‘act’ of a person. does not happen – conditional one – condition is of uncertain nature – e. _____________________________________________________________________ . contracts of insurance. Contingent contract cannot be enforced until the collateral event has happened. Contract. Performance depends on happening or non-happening in future of an event. 4.e. Contingent event includes happening or non-happening of a contingency depending upon the will of a party – example. 2. Ahmedbhai . the godown destroyed by fire without anyone’s fault – tenant claimed refund of proportionate rent– Held. If contingent contract dependent upon non-happening of collateral event. – however.

Contracts contingent upon happening of impossible event are void. _____________________________________________________________________ .47 6.

* * * * * * * * * * * * * * * ** * * * * * * ** * * * * * * ** * * * * * * ** * * * * * * _____________________________________________________________________ . It is void. It is not a game of chance. It may not be of wagering nature. though is dependent upon happening or nonhappening of a certain event.48 Difference between wagering agreement and contingent contract : Sl. It is valid. It is essentially of contingent nature. The parties have other interest also in the subject matter. No. 1 Basis 2 Reciprocal promises Nature 3 Void or not 4 Interest in subject matter. 5 Game of chance 6 Future event Wagering agreement Contingent Contract It consist of reciprocal promises. Parties have no other interest in subject matter other than to win or lose. It is purely a game of chance. It does not contain reciprocal promises. It is the sole determining factor. It is only collateral to the contract.

defendant could accept delivery before midnight.100 per performance – A wilfully absents herself on sixth night – B entitled to repudiate the contract – but if B allows A to sing on seventh night. enters into contract with B. Must be made for whole quantity contracted for or for whole obligation – if negligible deviation from terms of contract. Example : A. May be made to one of several promisees – deemed to have effect as if tender to all of them. Contracts of which performance not necessary : 1. 3. 8. may be allowed keeping in view practical aspect. In case of tender of money. _____________________________________________________________________ . must be in legal tender – if creditor refuses to accept it. Macdonald – contract to sell 10 tons of linseed oil – to be delivered ‘within last 14 days of March’ .30 pm – defendant refused to accept goods owing to lateness of hour – Held. 7.49 Performance of contract Performance complete when parties fulfil their respective obligations arising under the contract – within time and manner prescribed in the contract – actual performance or offer to perform must unless such performance dispensed with or excused. it becomes conditional. Startup Vs. Promisor must be in position and be willing to perform his promise. a singer. Offer to Perform : Sec. – contract to deliver 4950 tons of wheat – seller delivered 4950 tons 55 lbs. Shipton. he has signified tacit continuance – barred from repudiating the contract – but entitled to sue for damages. – tendered on 31st March at 8. contract duly performed by seller. 6. 5. Essentials of valid tender : 1. when its performance becomes impossible – contract unlawful and void. Anderson & Co. debtor not discharged from debt – can be set up as defence by the debtor. 2. he cannot repudiate the contract. 4. though hours unreasonable. Refusal to perform promise wholly : Sec. a theatre manager – A to sing at B’s theatre two nights every week for next two months for Rs. Must be unconditional – when not in accordance with terms of contract.39 : When promisor refuses to perform his promise wholly – promisee entitled to repudiate the contract – deemed to have rescinded a voidable contract – bound to restore all benefits received by him under the contract – but if promisee gives tacit (implied) assent in continuance of contract. must give reasonable opportunity for inspection of goods. Must be made by promisor or his duly authorised agent. Must be made at proper time and place – tender of goods after business hours or before due date is not valid tender.38 : tender to performance equivalent to actual performance – promisor excused from further performance – entitled to sue promisee for breach of contract. In case of tender of goods. V Weil Bros & Co.

g. When promisee dispenses with the performance of promise. When promisee neglects or refuses to afford the promisor reasonable facilities for performance of his promise. 5. 4. remaining joint promisors must bear the loss arising from such default. 3. Example : A. 2. 6.liability limited to value of the property inherited. any one of joint promisor may be compelled to perform – means liability is joint and several. 3. either wholly or in part – or extends the time of such performance – or accepts any satisfaction for it. Sharing of loss arising from default – in case of any joint promisor committing a default in contribution. 1. Persons entitled to perform the promise : 1. Promisor himself – contracts involving exercise of personal skill. all joint promisors must jointly fulfil the promise – if any promisor dies. Unless express agreement to the contrary. B and C jointly promise to pay Rs. Legal representatives – contracts other than those involving personal consideration . 5. he is debarred from afterwards enforcing it against the promisor. Joint promisors – any or all of the joint promisors can fulfil the promise – valid discharge. or founded on personal confidence between the parties. Taylor Vs. Third persons – when promisee accepts performance of the promise from third person. volition or diligence of the promisor.3. 3.g. Example : A contracts B for repair of B’s house – B neglects or refuses to point out the places at which his house requires repairs – A excused for nonperformance of contract due to such neglect or refusal. when it is illegal. Agent – duly authorised – only when personal consideration is not the foundation of the contract. contract to marry. e.50 Example : A contracts to take in cargo for B at a foreign port – A’s government afterwards declares war against country in which the foreign port situated – contract becomes void when war is declared. Contracts involving personal skill of promisor comes to end on death of the promisor. 2. his legal representatives liable jointly. performance depended upon the continued existence of hall – performance becomes impossible on perishing of hall without default of the contractor – void. when parties agree to substitute a new contract for it or to rescind or alter it. Rules regarding devolution of joint liabilities : Unless specified to the contrary. When voidable contract rescinded by person entitled to rescind it. hall destroyed by fire without fault of either party – plaintiff sued defendant for their loss – Held. contract to paint a picture or sing. 2. Joint promisor compelled to perform may claim contribution from other joint promisors. e.000 to D – C compelled to pay the whole sum – A becomes insolvent – A’s assets sufficient to pay off _____________________________________________________________________ . 4. Caldwell – defendant agreed to let plaintiff use of their music hall between certain dates for concert – before the first day of concert.

Time and place of performance : As specified in the agreement. Order of performance – where order expressly specified in contract – performance must be in the specified order – if no order specified – then in the order which nature of transaction requires. 3.g.where performance of one set of promise is dependent upon prior performance of the other set.2500) from B. 4. Types are 1. Application by promisor to promisee – when no place fixed. 2.500 (one-half of Rs. beneficiary of marriage or family settlement. duty of promisor to apply to promisee to appoint a reasonable place for performance of promise. Release of one joint promisor does not discharge other joint promisors – released joint promisor continues to be liable to the other joint promisors. third party – e. Rules regarding devolution of joint rights : Unless specified to the contrary. Promisee only. Reciprocal promises – promises which form consideration or part of consideration for each other. beneficiary of a trust.1000) from A’s estate and Rs. 5. promisor to perform without application by promisee – during business hours – at place and on day as specified. Example : A agrees to pay the price of goods to B on 1 st January. _____________________________________________________________________ . 1. When time is specified and no application to be made – if date or day specified. right to claim performance lies with all joint promisees – if any one joint promisee dies. 2. 2. A need not perform his promise. 3.1250 (one-half of remaining Rs. principal etc. Simultaneous performance – promisor need not perform his promise unless promisee ready and willing to perform his promise. 3. Mutual and independent – each party must perform independently. When application for performance on certain day and place – duty of promisee to apply for performance at proper place and within business hours. In few cases. When no application to be made and no time specified – promisor to perform without application by promisee – within reasonable time. sale of goods for cash. Legal representatives – in case of death of promisee. Rules regarding performance of reciprocal promises : 1. Conditional and dependent .51 one-half of his debts – C entitled to recover Rs. Persons entitled to demand performance : 1.g. right rests with his legal representatives to claim jointly with other promisees – suit for enforcement must be instituted by all the joint promisees. Mutual and concurrent – both set of promises to be performed simultaneously – e. Example – A promises to supply goods to B if B gives him payment in advance – if B does not give the advance. 4. Performance in manner and at time specified by promisee. B promises to supply the goods on 20th January – promises are mutual and independent. 2.

Construction contracts – being construction a commercial service. 4. Time as essence of contract : Performance of contract within specified time is essential – breach entitles the other party to consider it as repudiation – Time is essence or not in following types of contracts – 1. Reciprocal promises to do things legal and also other things illegal – if severable. 5. Bihari lal Ramchandra Cotton Mills Ltd. then both set of promises are illegal and void. Sale transactions – courts to determine whether time factor essential or not depending on facts of each case. – appellants carried on import business – contracted to supply quantity of Italian staple fibre cotton to respondent mill – shipment to take place in October or November – contract included remark “this contract is subject to import licence and therefore the shipment date is not guaranteed’ – part of goods supplied and accepted – rest not supplied – Held. the legal part is valid while the illegal part is void . In non-commercial transactions. Commercial transactions – time is important factor Mahabir Prasad Rungta V Durga Datt – transporter contracted to transport coal from colliery to railway station – colliery owner to keep the road in repair and arrange for petrol – colliery owner to pay for work done by 10 th of next month – transporter rescinded contract on allegation of non performance of promises by colliery owner – Held. in commercial transactions time is ordinarily of the essence of the contract. time is essence of contract. 6. Sale of shares – time is important factor being such transaction of commercial nature. in spite of shipment date being not guaranteed.if not severable. possibility of price fluctuation etc. Effect of default of promise to be performed first – cannot claim performance of promise from the other party – other party can sue for compensation. ordinarily presumed that time is not of the essence of contract. supply within October/November. 1950 was guaranteed – time was essence of contract – buyer entitled to avoid the contract. 2. time is not essence of the contract – intention to be ascertained from other factors like nature of property. 5. 4.52 3. Effect of one party preventing another from performing his promise – contract voidable at the option of the party so prevented – also entitled to sue for compensation. China Cotton Exporters V. 3. Land and property dealings – normally in transactions of immovable property. _____________________________________________________________________ .

assignment revocable by assignor – third party to have same right of rescission against assignee as he had against assignor – notice to debtor must – if no notice given to debtor. Example : If A owes Rs. 500 to B and B owes similar amount to C – B has right to receive from A and is under liability to pay C – B can ask A to pay directly to C – if A accepts. payment to be first applied to the interest .by wilful assignment.unless specified to the contrary. payment made by debtor to assignor himself will constitute good discharge. in order of time – if debts are of equal standing. the following rules regarding appropriation of the payment made – (i) Where the debtor intimates – if express intimation at time of actual payment that payment to be applied towards discharge of particular debt – creditor must do so – if no express intimation. creditor can also alter the appropriation.53 Appropriation of payments by creditor : When a debtor owes several debts to a creditor and makes payment insufficient to satisfy the whole of his indebtedness. appropriation towards the principal. that will be assignment of B’s right to C. (iii) Where debtor does not intimate and creditor fails to appropriate – appropriation in chronological order. Assignment by operation of law – by either of following two ways – (i) Death – upon death of a party – his rights and liabilities devolve on his heirs and legal representatives (except contracts requiring personal skill or services) (ii) Insolvency – on insolvency. rights and liabilities incurred prior to adjudication pass to Official Receiver or Assignee. Assignment by act of parties . and circumstances are not indicative appropriation according to discretion of creditor – can also apply to a time barred debt – however. cannot apply to payment of a disputed or unlawful debt – until declaration of appropriation to debtor.transfer of contractual rights and liabilities to third party – with or without concurrence of the other party to the contract – assignment requires consideration between assignor and assignee – if no consideration.e. Rulia Devi V Raghunath Prasad . appropriation in order of date – first item on debit side to be discharged by first item on credit side. Assignment of contractual obligations subject to following rules – (i) Contractual obligations involving personal skill cannot be assigned. i.after interest fully paid off. circumstances to be looked into for appropriation. Assignment of contracts . payment to be applied in discharge of each debt proportionately. (ii) if no express intimation by debtor. _____________________________________________________________________ . Rule in Clayton’s Case : applicability where parties have several distinct debts between them and not to a single debt payable by instalments – unless there is a contrary intention.

S retired from business after three years – R.54 (ii) Promisor cannot assign his liabilities under a contract – promisee cannot be compelled to accept any other person as the person liable to him on the promise. Assignment of contractual rights : Subject to following rules – (i) Rights and benefits under contract not involving personal skill may be assigned – subject to all equities between original parties. a partner of S. (ii) Actionable claim (e.g. money debt. substitution of old contract by a new contract novation takes place only by tripartite agreement between parties. original party remains liable under the contract. D entitled to do so. (iii) Contractual obligations can be performed through agent. * * * * * * * * * * * * * * * * * * * ** * * * * * * * * * * * * * * * * * * * * * * * * _____________________________________________________________________ . informed D that he would maintain the carriage and receive payment – D refused to deal with R and returned the carriage Held. unless personal skill involved – however. (iv) Promisor may transfer his liability under consent of promisee and transferee – in such cases. shares held in a company) can be assigned – must be through an instrument in writing – notice to debtor must.D hired carriage from S at yearly rent for five years – S undertook to paint the carriage every and keep it under repair – contract with S alone . Robson Sharpe V Drummond .

1. _____________________________________________________________________ . (b) Attempted or tender performance – an offer to perform – where promisor offers to perform. Discharge by performance – both parties fulfil their contractual obligations within time . (ii) Shanker Lal Damodar V A. but promisee refuses to accept performance. 2. parties could fall back upon the original mortgage. Example : (i) A owes money to B – enters into agreement with B and gives him mortgage of his (A’s) estate – new contract replaces the old one. Rescission may be (i) either total. tender is equivalent to actual prescribed manner – if only party fulfils its obligations. Discharge by agreement or consent – “a thing may be destroyed in the same manner in which it is constituted Various methods are – (a) Novation – new contract substitutes existing one – either between same parties or between one of the existing parties and a third party – must take place before expiry of old contract – in case new contract enforceable. (b) Rescission – when all or some terms of contract are cancelled – may be by mutual consent or on failure to perform by one party – party rescinding a voidable contract has to restore benefits received by him under the contract. or (ii) partial  Rescinding some terms of contract  Substituting new terms for old ones. parties can fall back upon the old contract.  Adding new terms without modifying any old terms.existing mortgage discharged by substitution of new agreement of mortgage – new agreement not enforceable for want of registration – Held. May be – (a) Actual performance – when both parties discharge their obligations.55 Discharge of contract Discharge/termination of contract – all rights and obligations under contract cease – may be discharged by – (i) By performance (ii) By agreement or consent (iii) By impossibility of performance (iv) By lapse of time (v) By operation of law (vi) By breach of contract. only that party discharged – gets right of action against other party for breach. Ajaipal . except in case of tender of money – tenderer discharged without prejudice to his rights.

what is impossible does not create an obligation – may be known or unknown to parties. Couturier Vs. contract discharged. the contract void ab initio due to impossibility of performance . hall destroyed by fire without fault of either party – plaintiff sued defendant for their loss – Held.g.e. Example : P holds a property under a lease agreement – later P buys the said property under a different agreement – P’s rights as lessee merge into his rights as an owner 3. (f) Merger – when inferior right accruing to a party under contract merges with superior right accruing to same party under same or other contract. law does not recognise what is impossible.e. _____________________________________________________________________ . – cargo of cotton seed to be shipped by particular ship – before shipping. (e) Waiver – mutual abandonment of rights by parties to the contract – no consideration necessary for waiver. acceptance of lesser amount than due in discharge of the whole debt – consideration not necessary for remission. ship damaged by stranding – loading of cargo impossible – Held.may fall into two categories – (a) Impossibility existing at time of agreement – void ab initio – based on maxims – (i) lexion cogit ad impossibilia. Nickoll & Knight V Ashton. if caused by circumstances beyond their control. (b) Impossibility arising subsequent to formation of contract – also known as post contractual or supervening impossibility – contract becomes void such act becomes impossible or unlawful – normally parties not discharged by supervening impossibility and are liable for damages – however. Hastie – H employed by C as del credere agent to sell C’s cargo of corn which was in transit – H sold the cargo to a third person . Edridge & Co. Discharge by impossibility of performance – also called pre-contractual or initial impossibility . the corn became fermented in transit and already sold by the master of the ship at an intermediate port – buyer repudiated the contract and H was sued for the price (being del credere agent) – Held.Unknown to both. (d) Remission – acceptance of lesser fulfilment of promise made – e. Taylor Vs. i.H not liable. as goods had already been totally lost before the contract was made.56 (c) Alteration – modification of one or more terms of old contract by mutual consent – old contract deemed to be discharged. and (ii) impossibilium nulla obligato est. Caldwell – defendant agreed to let plaintiff use of their music hall between certain dates for concert – before the first day of concert. parties discharged from further performance – may be due to following reasons – (i) Destruction of subject matter – without fault of parties – contract discharged. i. performance depended upon the continued existence of hall – performance becomes impossible on perishing of hall without default of the contractor – void.

she was taken seriously ill – Held. A goes mad – contract becomes void. 1956 – reopened only in following April – A refused to ship goods via Cape of Good Hope – pleaded contract frustrated by reason of closing of Suez Canal – Held. cancellation discharged the contract – H excused from paying the rent of the flat. 1902 for witnessing coronation procession of Kind Edward VII – K knew of H’s purpose – coronation procession cancelled due to illness of King – Held. _____________________________________________________________________ . (iii) Death or incapacity for personal service – Robinson V Davison – R undertook to perform at concert for certain price – before she could perform. are suspended during war and may be revived after the war is over. – A agreed to sell 300 tons of Sudan groundnuts to B c. Hamburg – usual route via Suez Canal – Shipment to be made in November/December. war breaks out in August – transport disorganised – A unable to deliver – Held.57 (ii) Non-existence or non-occurrence of particular state of things – also called ‘frustration of contract’. she was discharged due to illness. (iv) Change of law Baily V De Crespigny . Ltd. V Noblee Thori G. Krell V Henry – H hired flat from K for June 26 and 27. Example – A and B contract to marry each other – before date fixed for marriage. (b) Commercial impossibility – contract not discharged on non-realisation of expected high profits or increase in cost of acquisition because of outbreak of war or inflation or sudden depreciation of money. the adjoining land acquired by railway company under statutory authority – Held.D leased land to B – agreed to erect a building on adjoining land – subsequently. 1956 – canal closed on November be delivered between July and September – Before actual delivery. A not discharged.f. V Allen & Sons – A sold Finland timber to B . Noor Bux V Kalyan . D excused from performance of contract.A agreed to transport B’s goods – subsequently.H. A’s trucks requisitioned by government under statutory power – Held. Tsakiroglou & Co. In following cases. contract not discharged on grounds of supervening impossibility – (a) Difficulty of performance – may be due to unforeseen events or delays Blackburn Bobbin Co.b.m.i. contract not frustrated as A could have transported goods via Cape of Good Hope. contract discharged (v) Outbreak of war – contract entered into with alien enemy during war is unlawful and void – contracts entered into before outbreak of war.

ship-owners entitled to damages. Harnandrai Fulchand V Pragdas – A entered into contract with B for sale of certain type of cloth to be produced by C – C did not manufacture that cloth.A could not fulfil his agreement with B – Held. (iv) By unauthorised alteration of terms of the written agreement – where a party makes any material alteration without consent of other _____________________________________________________________________ . Ganga Saran V Ram Charan – A agreed to sell to B specified quantity of cotton goods to be manufactured by a particular mill – time schedule agreed upon for delivery – mill failed to produce goods . – A promised to send goods from Bombay to Antwerp in September – before shipment. 5. Discharge by operation of law(i) by death – contracts involving personal skill or ability terminated on death of promisor – in other contracts. (c) Impossibility due to failure of third person – where non-performance due to default of third person on whose work the promisor relied – contract not discharged.58 Karl Ettlinger V Chagandas & Co. V Hutton – HB agreed to let out boat to H for viewing a naval review on occasion of coronation of Edward VII and for sailing around the fleet – naval review cancelled due to king’s illness – but fleet assembled – boat could be used to sail around the fleet – Held. rights and liabilities devolve on legal representatives (ii) by merger . there was no excuse for non-performance of contract. Example : P holds a property under a lease agreement – later P buys the said property under a different agreement – P’s rights as lessee merge into his rights as an owner (iii) by insolvency – person adjudged insolvent discharged from all liabilities incurred prior to such adjudication. lock-outs or civil disturbances – Budget V Binnington – Unloading of ship delayed beyond date – due to strike by dock workers – Held. (d) Strikes. 4. (e) Failure of one of the objects – where contract entered into with several objects. Jacobs V Credit Lyonnais – A agreed to supply to B certain goods procured from Algeria – goods not produced due to riots and civil disturbance in Algeria – Held. failure of one of them does not discharge the contract. 1963.when inferior right accruing to a party under contract merges with superior right accruing to same party under same or other contract. A liable for damages. war breaks out – sharp increase in shipping rates – Held. Herne Bay Steamboat Co. the impossibility of performance being no excuse. contract not discharged.Held. B entitled to recover damages from A. contract not discharged. Discharge by lapse of time – due to the performance becoming time barred on applicability of the Limitation Act.

railway company asked C to stop further delivery – Held. – C contracted with railway company to supply 300 tons of railway chairs at specified price – to be delivered in instalments – after delivery of 1. before date of actual delivery. Armstrong – P. O’Neil V.may be by –  Express repudiation – either by word or act. a British subject. parties may opt to carry out the common intention. supplier intimates the buyer that he is not going to supply the goods. Cort V Ambergate etc. unless the promisee so chooses. he was entitled to recover the wages agreed upon.A promised to assign to B within seven years.59 party – voidable at the option of other party – if however alteration is not material. (b) During the performance of contract – non performance by one party – other party entitled to sue for breach of contract . Rly. A assigned his interest to another person – Held. Co. Hochster V.  (ii) Implied repudiation – impossibility created by act of a party to contract – tantamounts to breach of contract – other party discharged from further performance. 6. Anticipatory breach of contract – in executory contract (performance still due). Anticipatory breach does not necessarily discharge the contract. one party repudiates his obligation under the contract before the time for performance arrives – other party absolved from performance of his obligation under the contract – may also sue for breach of contract May be done by –  Express renunciation – e. De La Tour – D engaged H on 12th April to enter into his services as courier – to accompany him upon a tour – employment to _____________________________________________________________________ . all his interest in a lease for a sum of £.140 – before expiry of seven years. the other party may accept delayed performance subject to payment of compensation. this was anticipatory breach of contract by implied repudiation.787 tons completed.g.  Some act so that performance becomes impossible Lovestock V Franklyn . Discharge by breach of contract – non-fulfilment of contractual obligation may be either – (i) Actual breach of contract – may take place (a) at the time when performance due – one party fails or refuses to perform his obligation under the contract – if time is not essence of contract. railway company liable for breach of contract. engaged by Captain of a warship owned by Japanese government to act as fireman – Japanese government declared war on China – P was informed that the performance of contract would bring him under penalties of Foreign Enlistment Act – P left the ship – Held.

60 commence on 1st June – on 11th May. a supervening impossibility may discharge the contract – promisee loses his right to sue for damages. the consequences may be – (i) promisor may perform his promise when the time for performance arrives and promisee is bound to accept the performance. war breaks out rendering performance of contract impossible – Held. If promisee refuses to accept repudiation by promisor and treats it as alive. Avery V. B unable to supply the cargo – A did not accept refusal and continued to demand cargo – before expiry of 45 days. contract discharged and A could not sue for damages. Measure of damages in anticipatory breach of contract (i) if contract ended by promisee at once – damages will be measured by difference between price prevailing on the date of breach and the contract price. * * * * * ** * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * _____________________________________________________________________ . suit of H tenable – entitled to damages. (ii) while the contract is still alive. D wrote to H telling him that his services were no longer required – H brought a suit for damages although time for performance had not yet arrived – Held. Bowden – B chartered A’s ship – agreed to load it with cargo within 45 days at Odessa – when ship reached Odessa. (ii) If contract kept alive till the date of performance – measure of damages will be difference between price prevailing on the date of performance and the contract price.

_____________________________________________________________________ .entitled to recover from the indemnifier : (i) all damages which he may be compelled to pay in any suit in respect of any matter to which promise to indemnify applies. May be express or implied – implied contract of indemnity may be inferred from the circumstances of the case or relationship of the parties. the principal debtor. 2.61 Law of indemnity and guarantee Contract of indemnity : contract whereby one party promises to save the other party from loss caused to him by the conduct of the promisor himself or any other person – a class of contingent contracts . Example : T instructs A to sell certain cattle belonging to O – O held A liable and recovered damages from him – Held. Essential features of contract of guarantee : 1. In following cases guarantee of void debt is enforceable : (a) guarantee given by directors of a company securing payment of their company’s loan which was void as being ultra vires .enforceable against directors. Surety . surety and the creditor. (ii) All costs which he may be compelled to pay in bringing or defending any such suit – but must have acted prudently. Principal Debt – guarantee secures payment of a recoverable debt – of no principal debt. (iii) All sums which he may have paid under the terms of any compromise of any such suit – compromise should not be contrary to the orders of the indemnifier – should be prudent or authorised by the indemnifier. Example : A and B claim certain goods from a railway company as rival owners .primarily liability is that of principal debtor – liability of surety is secondary which arises when there is default by principal debtor. there can be no valid guarantee . Rights of indemnity-holder when sued .Person giving the guarantee or the guarantor Principal Debtor – person in respect of whose default the guarantee is given.promisor is called indemnifier – promisee is called indemnity-holder or indemnified. Creditor – person to whom the guarantee is given. Concurrence – requires concurrence of all the three parties.A takes delivery of the goods by agreeing to compensate the railway company against loss in case B turns to be the true owner – contract of indemnity between A and railway company. contract of indemnity implied from T’s conduct in asking A to sell the cattle – A entitled to recover the loss from T. viz. Rights of indemnifier – Similar to rights of surety (printed later) Contract of guarantee : contract to perform the promise or discharge the liability of a third person in case of his default – may be written or oral – may be express or implied – can also be inferred from the course of conduct of the parties.

Sec 142 : a guarantee obtained by means of misrepresentation made by creditor or with his knowledge and assent.143 : a guarantee obtained by a creditor by means of keeping silence as to material circumstances is invalid. no obligation lies on banker to inform the intending surety of circumstances affecting the credit of the principal debtor. Sec. C promises to pay for them in default of payment by B – A agrees to forbear as requested – this is sufficient consideration for promise. bank under no obligation to disclose to the surety – guarantee not discharged. Guarantee of minor’s debt . the contract of the surety is not collateral but a principal contract . Writing not necessary – contract of guarantee may be oral or written – may also be express or implied from the circumstances of the case. Example : A sells and delivers goods to B – afterwards C. P drew on this account and paid off an overdraft he had with another bank – Bank suspicious that P was defrauding S but did not communicate its suspicions to S – Held. However.consideration received by principal debtor is sufficient for the surety – benefit to the surety himself is not necessary. National Provincial Bank of England V Glanusk – S guaranteed P’s account with bank – afterwards. Fraud or misrepresentation on the part of principal debtor is not enough to set aside the contract unless the creditor is a party to it or had knowledge about it – in case of guarantee given to a banker. concerning a material party of the transaction.if debt is void. is invalid. _____________________________________________________________________ . Guarantee is not a contract of uberrimae fides or one of absolute faith – it does not require full disclosure of all material facts by principal debtor or creditor to the surety before the contract is entered into. without consideration.surety liable as principal debtor himself Fulfilment of all essentials of a valid contract . Example : B requests A to sell and deliver to him goods on credit – A agrees to do so provided C will guarantee the payment of the price of the goods – C promises to guarantee the payment in consideration of A’s promise to deliver the goods – this is sufficient consideration for C’s promise. Example : A sells and delivers goods to B – afterwards C requests A to forbear to sue B for the debt for a year – in return. 4. all material facts must be disclosed – otherwise voidable at option of surety.62 (b) 3. if guarantee is of nature of an insurance (as in fidelity guarantee). agrees to pay for them in default of B – the agreement is void being without consideration.

Co-operative Commission Shop Ltd V. indemnified. the second between the creditor and the surety (guarantee) and the third between the surety and the principal debtor ((indemnity). of parties There are two parties – the There are three parties. No.e. _____________________________________________________________________ . i. Right to Indemnifier cannot sue a third On discharging the debt of the sue party for loss in his own name principal debtor. not for a known thief – owning to non-disclosure by L. the principal debtor indemnified/indemnity-holder and the surety.the indemnifier (promisor) and the creditor. sureties not liable for further defalcation. creditor and can sue the principal debtor in his own right. No. Udham Singh – fresh guarantees obtained for the fidelity of a manager of bank without disclosing his previous defalcations (misappropriation/embezzlement) – Held. the surety unless there is assignment in steps into the shoes of the his favour. and independent. the primary liability being of the principal debtor. existing debt. the liability of surety arises only on default by the principal debtor.63 London General Omnibus Co.L agreed to retain P in service on having a fidelity guarantee – H gave his guarantee – L did not made disclosure of P’s previous dishonesty Held. between There are three contracts : one contract(s) the indemnified between the principal debtor and the creditor. Distinction between a contract of indemnity and a contract of guarantee Sl. guarantee could not be enforced against H. of Only one contract. the surety believed he was making himself answerable for a presumably honest man. Arising of Liability of indemnifier arises The liability of principal liability only on happening of debtor is already there on an contingency. 1 2 3 4 5 6 Basis Contract of indemnity Contract of guarantee No. (promisee) Type of The liability of the indemnifier The liability of the surety to liability to the indemnified is primary creditor is collateral/secondary. Request to Not necessary for indemnifier Surety gives the guarantee at contract to act at request of the the request of the surety. V Holloway – L employed P as clerk to collect money – P misappropriated some receipts – L threatened to dismiss P – loss made good by P’s relations .

payable in one month” – five sacks actually supplied – T paid for them further supplies made during the same month for which T failed to pay – Held. _____________________________________________________________________ . surety’s liability may be for a part of the entire debt or for the entire debt subject to a limit. Offord V Davies – S stands surety for P for any amounts which C may lend to P from time to time in the next 12 months upto a maximum of Rs. S revokes the guarantee when C had lent Rs. Example : S guarantees payment to C to the amount of Rs.000 to P – S discharged from all liability to C for subsequent loans but remains liable for Rs. Extent of surety’s liability : 1. Revocation of continuing guarantee .G provides guarantee in following terms “I hereby agree to be answerable to K for the amount of five sacks of flour to be delivered to T.64 Kinds of guarantee .3.20.000 – P pays for it – afterwards C supplies goods to the value of Rs.000 – P fails to pay – guarantee of S is a continuing one and he is liable to C to the extent of Rs.3. compounding with principal debtor. (ii) By death of surety – however. May be a continuing guarantee . variation of terms of contract. 3.000 for any goods he supplies to P from time to time – C supplies P with goods to the value of above Rs.000 – after 3 months.000.10. Kay V Groves . Can also be differentiated as (a) Specific guarantee – extends to a single transaction or debt – comes to end when the guaranteed debt is discharged or the promise is performed. (b) Continuing guarantee : extends to series of transactions – liability of surety extends to all transactions contemplated unless revocation of guarantee – may also cover continuing transactions for a fixed period. liability for previous transactions remain.May be – (i) for repayment of a debt – existing or future.10.revocation can be as to future transactions only – modes : (i) By notice of revocation by surety to the creditor. unless specified to the contrary – it may be made less than that of principal debtor but never greater – creditor can sue surety without suing the principal debtor. creditor’s act or omission impairing surety’s eventual remedy or loss of security.10. (iii) By other modes – novation. or (iii) for good conduct or honesty of a person employed in a particular office (known as fidelity guarantee).000 on default of P. (ii) for payment of the price of goods sold on credit.10. 2.may be unlimited or upto a specified limit. it was not a continuing guarantee to cover subsequent deliveries though not exceeding in the whole five sacks – G not liable for various subsequent parcels. release/ discharge of principal debtor. Surety’s liability co-extensive with that of principal debtor.

Where original agreement is void or voidable . Death of principal debtor or his discharge by law does not release the surety from his obligations. (iv) Right to equities which creditor could have enforced against the principal debtor or persons claiming through him. right to claim from creditor all the securities which he holds. surety’s liability is principal one and not collateral 5.2. Against the creditor (i) Right to require creditor to sue principal debtor first – liable to indemnify creditor for any expense or loss therefrom – in case of fidelity guarantee. surety steps into shoes of creditor – gets right to sue principal debtor for recovery. (iii) On payment of the guaranteed debt. (v) Right of subrogation – after payment of guaranteed debt by surety.000 on guarantee of S – C also takes further security for Rs. Against co-sureties (i) Right of contribution – each liable to contribute equally – liability may be limited to a maximum amount by each one – if any one makes payment to creditor.2. _____________________________________________________________________ . Example : P indebted to C – S is surety – C sues S for recovery of debt – S defends suit having reasonable grounds to do so – S compelled to pay C amount of debt with costs – S entitled to recover from P amount of debt as well as costs paid by him. 2. (ii) Right on release of co-surety – even though creditor may release any of the co-sureties from his liability. If creditor does not sue the principal debtor within period of limitation – surety is not discharged.000 by way of pledge of P’s furniture – C cancels pledge – P becomes insolvent – S is discharged from liability to the amount of the value of furniture. (ii) Right to indemnity – after payment made by surety to creditor. Rights of surety : 1. surety entitled to recover that amount alongwith any damage sustained from the principal debtor. the released co-surety will remain liable to others for contribution in event of default.surety liable as principal debtor – in such cases. (ii) Right to set-off or counter-claim which debtor has against the creditor. 3. he is entitled to claim contribution from other cosureties. Against the principal-debtor (i) Right to be relieved from liability – before payment becomes due – debt must be ascertained – surety can compel principal debtor to relieve him from guarantee by paying off the debt. he can ask the creditor to dismiss the principal debtor in case of proven dishonesty. 6.65 4. Example : C advances to P Rs.

Example : P contracts with C to build a house for C within a stipulated time – C has to supply the timber – S guarantees performance by P – C omits to supply the timber – S discharged from suretyship. Discharge by revocation : (i) Revocation by surety by giving notice – continuing guarantee can be revoked as to future transactions by giving notice – specific guarantee cannot be revoked after liability has accrued. (ii) Discharge of principal debtor by creditor – wilful act or omission by creditor . 2. V Rolt – P contracted to built ship for C – contract money payable in instalments as work reached certain stages of completion – S became surety for due performance by P – C allowed P to draw large portion of last two instalments before they were due – Held. (iii) Compounding by creditor with principal debtor – contract by which creditor makes composition with or promises to give time to. _____________________________________________________________________ . General Steam Navigation Co. (iii) Revocation by novation – substitution of new contract for the old one – either between same parties or between any one of old parties and a new one – mutual discharge of old contract forms consideration for the new one. Discharge by conduct of the creditor – (i) Variance in terms of contract – without the consent of surety – immaterial whether variation prejudicial to surety or not .C let goods to P under hire-purchase agreement – S guaranteed the payment of instalments – On instalments being in arrears.66 Discharge of surety : 1. or not to sue the principal debtor – surety is discharged unless he assents to such contract. as C had determined the contract. C seized the goods and determined the contract – then sued S on his guarantee – Held. variance in nature of one will not discharge the rest.surety is also released – but surety is not discharged by operation of law – omission of creditor to sue within the period of limitation does not discharge the surety. Hewison V Rickets . Example : C employs P at one place – S stood surety for P – this employment terminated – P employed by C at a different place – C takes security bond from another person – S is discharged.discharged as to future transactions – where guarantee to perform several obligations. (ii) Revocation by death – continuing guarantee revoked as to future transactions on death of surety – estate not liable for transactions after death even if creditor has no notice of death. Example : S guaranteed payment for goods supplied by C to P – condition that 18 months’ credit to be given – C gives only 12 months’ credit – S is discharged. he could not recover from S. S discharged from liability.

V Holloway – L employed P as clerk to collect money – P misappropriated some receipts – L threatened to dismiss P – loss made good by P’s relations .67 Midland Motor Showrooms Ltd V Newman . Example : C advances to P Rs. (iv) Creditor’s act or omission impairing surety’s eventual remedy against principal debtor.2. 3. (i) (ii) Discharge by invalidation Guarantee obtained by misrepresentation concerning a material fact – with knowledge or consent of creditor – guarantee invalid.P purchased motor car from C under hire-purchase agreement – S guarantees performance of the contract – for valuable consideration. General Steam Navigation Co. V Rolt – P contracted to built ship for C – contract money payable in instalments as work reached certain stages of completion – S became surety for due performance by P – C allowed P to draw large portion of last two instalments before they were due – Held. P discharged from any further liability.000 on guarantee of S – C also takes further security for Rs. But in the following cases the surety is not discharged : (a) where contract to give time to principal debtor is made by creditor with a third person and not with the principal debtor. (b) Mere forbearance on part of creditor to sue the principal or to enforce any other remedy against him. surety is discharged to the extent of value of security – if separate debts secured by separate securities.2. London General Omnibus Co.L agreed to retain P in service on having a fidelity guarantee – H gave his guarantee – L did not made disclosure of P’s previous dishonesty - _____________________________________________________________________ . S discharged from liability.000 by way of pledge of P’s furniture – C cancels pledge – P becomes insolvent – S is discharged from liability to the amount of the value of furniture. C gives further time to P for payment of one of the instalments – Held. loss of one security does not discharge the other debts. or parts with it without consent of surety. in the absence of anything to the contrary in the guarantee. Guarantee obtained by concealment of a material fact is invalid. (c) Release of one of the co-surety by the creditor does not discharge the other co-sureties – the surety so released is not discharged from his liability to the other sureties. Example : S gives guarantee for fidelity of a manager of bank – manager indulges in malpractices – directors wilfully ignore it – S stands discharged from obligation by conduct of the directors (v) Loss of security – if creditor loses any security given to him at the time of contract of guarantee.

the surety believed he was making himself answerable for a presumably honest man. (iv) Failure of consideration discharges the surety. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * ** * * * * * * _____________________________________________________________________ . S2.68 Held. S3 and S4 – S4 died without signing – bank did not agree with S1. not for a known thief – owning to non-disclosure by L. Example : S2 signed a guarantee given to bank though it was intended to be joint and several guarantee of S 1. guarantee could not be enforced against H. S2 and S3 to dispense with signature of S4 – Held. Example : P agrees to pay maintenance to C if C marries A – S guarantees performance of contract – A dies – S is discharged from surety. S2 not liable on guarantee. (iii) Guarantee on contract that creditor shall not act on it until a co-surety joins – guarantee invalid if that other person does not join.

The Court may refuse to grant rescission in following cases : (i) where plaintiff has expressly or impliedly ratified the contract. parties cannot be restored to their original positions. However.B agrees to pay the price after receipt of the goods – A fails to supply the goods by the specified date – B is discharged from liability to pay the price. Example : A promises to supply goods to B by a specified date . or (iii) where third parties have acquired rights in the subject matter of the contract in good faith and for value. (b) Damages which the parties knew. the other may treat contract as rescinded – refuse further performance – injured party absolved of all his obligations under the contract – however liable to restore any benefits he has received under the contract – also entitled to compensation for any damages sustained by him. _____________________________________________________________________ . Rescission : when contract broken by one party. The Court may grant rescission – (i) where contract is voidable at the option of the plaintiff. the injured party has following remedies : 1. 2. a common carrier. (c) Damages for breach of quasi contract same as for any other contract. or (ii) where owing to changed circumstances (not due to any act of defendant). or (ii) where the contract is unlawful for causes not apparent on its face and defendant is more to blame than the plaintiff. to be taken to manufacturer for repairs – A did not inform B that delay would cause loss in profits – due to B’s negligence.69 Remedies for breach of contract – remedy is the means given by law for the enforcement of a right – when contract is broken. B not liable for loss of profits during the period of delay as B not intimated that delay in delivery of the shaft would entail loss of profits. damages not given for any indirect or remote loss or damage. to be likely to result from the breach – special damages. Hadley V Baxendale – A’s mill stopped by breakdown of a shaft – A delivered shaft to B. at the time of entering into contract. Damages – monetary/pecuniary compensation allowed to injured party by Court for loss or injury suffered by him . delivery of shaft delayed beyond reasonable time – Held. Rules relating to damages -  Ordinary damages – arises naturally and directly from breach in usual course of things. or (iv) Where only a part of contract is sought to be rescinded and such part is not severable from the rest of the contract.injured party entitled to – (a) damages which arise in usual course of things for such breach – ordinary damages.

20 per quintal. goods arrived late for the show – Held. G could not recover the loss of profit.  Nominal damages – where injured party has not suffered any loss due to breach. the price of the goods is the measure of damages.70 In contract for sale of goods. only nominal damages are awarded – only to acknowledge that the plaintiff has proved his case and won.950 per quintal – no time fixed for delivery – later A informs that he will not buy from B – market price on that day was Rs. Brace V Calder – A firm consisting of four partners employed B for a period of 2 years – after six months.930 per quintal – B entitled to receive compensation from A at the rate of Rs.  Special damages : such damages may reasonably be supposed to have been in contemplation of both parties as probable result of the breach – however. promisor is excused from performance. two partners retired – continuing partners refused to employ B – Held. Simpson v London & N. If promisee neglects or refuses to afford the promisor reasonable facilities for performance of his promise. B is unable to repay his debts and is totally ruined – A is not liable to make good to B anything more than principal sum he contract to pay together with interest upto day of payment.  Damages for loss of reputation – normally not recoverable – exception. Example : A contracts to pay a sum of money to B on a specified day – A does not pay on specified day – as a consequence.W. wrongful dishonour of customer’s cheque by banker inspite of sufficient funds to the credit of the customer – general rule is : smaller the amount of the cheque _____________________________________________________________________ . – S sent specimen of his goods for exhibition at agricultural show – after show. V Govind Rau . he was only entitled to nominal damages as he had suffered no loss.  Vindictive or exemplary damages – vindictive/punitive by nature – normally awarded in breach of promise to marry and wrongful dishonour or cheque by banker.G. a tailor. Co. Madras Rail Co. he entrusted his goods to an agent of railway company for carriage to another show grounds at New Castle – on consignment he wrote “must be at New Castle Monday certain” – due to negligence of railway company. measure of damages on breach is the difference between the contract price and the market price on the date of the breach – where goods specially made to order and not marketable. Rail. Example : A contracts to buy rice from B at Rs. S could claim damages for loss of profit at show. cannot be claimed as matter of right. delivered a sewing machine and some cloth to railway company to be delivered at a place where a festival was to be held – expected exceptional profits at festival – did not bring it to notice of railway company – goods delivered after conclusion of festival – Held.

_____________________________________________________________________ . he can recover nominal damages only.71 dishonoured. the larger is the amount of damages awarded – if customer is not a tradesman.

took ticket for midnight train for particular place where he lived – wrongfully transported to a wrong place – had to walk several miles on a drizzling wet night – his wife caught cold – Held. Hobbs V London & S. failure to fulfil the conditions may entail payment of higher (i. Ltd. – sold them to D. – A wrongfully dismissed in harsh and humiliating manner by G from employment – Held.H advertised a beauty competition – readers of certain newspapers to select 50 ladies – then H was to select 12 out of those 50 – selected 12 to be provided theatrical engagements – C was one of the 50 selected – however. in addition to damages – allowed at discretion of the Court.W.  Damages agreed upon in advance in case of breach – if contract contains a stipulation that a certain sum to be paid by way of penalty for failure to perform the obligations . injured party duty bound to take all reasonable steps to mitigate the loss caused by the breach – cannot claim damages for loss which reasonably could have been avoided.aggrieved party entitled to receive a reasonable compensation not exceeding the amount so named. Chaplin V. Selfridge & Co. normal) rate of interest. Dunlop Pneumatic Tyre Co. alongwith his wife and children. C was entitled to damages although it was difficult to assess them. Ltd. C was not present at the time of final selection due to H’s breach of contract – Held.  Payment of interest – stipulation regarding payment of interest in case of default – not in the nature of penalty – allowed if reasonable – higher rate of interest may be allowed from the date of default if not penal in nature – higher rate never allowed from the date of the contract – compound interest at the same rate as simple interest may be allowed as not penal in nature – where lower rate is charged if certain conditions satisfied. – H. Rail Co.  Mitigation of damages . H entitled to recover £ 8 to compensate him for inconvenience but nothing for medical expenses of his wife as her catching cold was too remote a consequence. Hicks .  Cost of decree – aggrieved party entitled to the cost of getting the decree. a sub-dealer – D agreed not to sell below Dunlop Rubber’s list price – to pay Dunlop Rubber £5 for every tyre undersold D undersold two tyres – Dunlop Rubber sued for breach – Held. Vs. Addis V Gramophone Co. the sum fixed was a genuine pre-estimate of damage and not a breach. A could recover wages for the period of notice and the commission which he would have earned during that period – but not entitled to 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. _____________________________________________________________________ .72  Damages for physical inconvenience and discomfort – measure of damage not affected by the motive or the manner of breach.  Difficulty of assessment – no bar to recovery of damages – Court to estimate the loss and may take into account a contingency. May be ‘liquidated damages’ or a ‘penalty’ – liquidated damages represent a sum (fixed or to be ascertained) which is fair and genuine pre-estimate of the probable loss caused by breach – penalty is disproportionate to the damage and is fixed only with a view to secure performance of the contract. – S bought tyres from Dunlop Rubber Co. Ltd.e.

Injunction – where a party is in breach of a negative term of contract. Court may direct for specific performance – also enforced where no standard for ascertaining the actual damage caused.W agreed to sing at L’s theatre – agreed not to sing anywhere else during that period – later. found that directors were not qualified to appoint him – Held. A could recover from B £750 less £204. Colburn .fire at P’s farm – P called up U pton Fire Brigade which arrived and put out the fire – Held. 4. Issacs – A agreed to decorate B’s flat for a lump sum of quantum £750 – certain requirements laid down – A completed the work but B complained of faulty workmanship – it cost B £204 to remedy that defect – Held. Court may restrain him from doing what he promised not to do.C engaged P to write book on ancient armoury to be published in instalments in periodical called ‘The Juvenile Library’ for fee of £100 – after few issues. W could be restrained by injunction from singing by injunction from singing for Z. Craven-Ellis V. Cannon Ltd. (iv) When completion of contract prevented by the act of the other party – Planche V. _____________________________________________________________________ .P’s farm did not come under the free service zone of the fire department . CE could recover remuneration for the services rendered by him on quantum meruit. (ii) When something done without intention to do so gratuitously. 5.P was liable to pay reasonable remuneration for the service rendered. (iii) When there is express or implied contract to render service. publication of periodical stopped – Held. A could recover quantum meruit for the work done by him and the expenses incurred by him in course of his duties. (v) When contract is divisible – where party not in default has enjoyed the benefit of part performance. Wagner . P could recover on quantum meruit for the work done by him. De Bernady V Harding – P wrongfully revoked his agent A’s authority before A could complete his duties – Held. but no agreement as to remuneration Upton Rural District Council v Powell .73 3. there was implied agreement between P and fire brigade for the service of the brigade . Specific Performance – in cases where damages are not adequate remedy. Quantum Meruit – means ‘as much as earned’ or ‘as much as merited’ – arises when contract partly performed by one party and then becomes discharged due to breach by other party – party who has performed the work can claim remuneration for the work done – it is claim on quasi-contractual obligation Arises in following cases – (i) when agreement discovered to be void – person who has received advantage under the contract is bound to restore it or to make compensation for it. Lumley Vs. – CE employed as managing director in a company – after three months. the party in default can sue on quantum meruit (vi) When indivisible contract performed completely but badly Hoenig V. W made contract with Z to sing at another theatre and refused to perform the contract with L – Held.

148 – delivery of goods by one person (bailor) to another person (bailee) for some purpose – contract that upon completion of the purpose.D. 3) For specified purpose – if goods delivered by mistake. (b) Hire purchase agreement involves two aspects – initially it is a contract of bailment – on payment of all the instalments.goods handed over to servant to hand over to a third party does not involve delivery of possession – delivery of railway receipt amounts to constructive delivery of goods. ownership remains with bailor.  For finder of goods belonging to another. Requisites of bailment – 1) Contract – usually created by agreement – express or implied . 4) Return of specific goods – or disposal as per directions of bailor . (c) Goods seized by police or other government authorities. there was no bailment as the goldsmith had returned the jewellery bailed to him by her. Visalakasmi – goldsmith employed by lady to melt her old jewellery and make new ones out of it – every evening she received the unfinished jewellery and put it in a box kept at goldsmith’s premises – lady kept the key to box with herself – jewellery stolen from box – Held. Examples of bailment – (a) Money deposited in bank safe exceptional cases. relationship of bailee and bailee automatically created between finder and owner. bailment is implied by law as between finder and owner of goods. _____________________________________________________________________ . (d) Acceptance of goods by transport or railway company for carriage. Kaliperumal V. Basavva K. State was liable.  Goods mean movable property other than money and actionable claims – though possession handed over. e. (e) Acceptance of articles by post office as Value Payable Parcel (VPP). there is no bailment. there is no bailment – however. the contract of bailment having been implied. the goods be returned or otherwise disposed of according to directions of the bailor. 2) Delivery of possession – control and intention to exclude others necessary – may be actual or constructive .74 Bailment and pledge Bailment – Sec. piece of cloth stitched into a suit. alteration in form is soon as purpose is achieved – if not returned. it becomes a contract of sale. Example : A sells certain goods to B who leaves them in the possession of A – relationship between B and A is that of bailor and bailee. Patil Vs.  Money deposited in bank account (not safe vault) creates relationship of creditor and debtor – no bailment – bank not liable to return the very same money when asked for. State of Mysore – A’s ornaments stolen – recovered by the police – ornaments disappeared from police custody – Held.

lending of car to a fried for his use. To bear extraordinary expenses of bailment – bailee only bound to pay reasonable and ordinary expenses of bailment. To indemnify bailee for loss in case of premature termination of gratuitous bailment – if loss accruing to bailee exceeds the benefit derived by him out of bailment. Dean – A hires motor launch from B for holiday on river Thames – launch caught fire – fire fighting equipment out of order – A unable to extinguish fire – A got injured and suffered loss – Held. consideration not necessary to support the promise of bailee to return the goods – detriment suffered by bailor in parting with possession of goods is sufficient consideration in support of contract of bailment.75  In contract of bailment.leaves his dog with B – B incurred expenses on feeding the dog – A liable to repay B the necessary expenses incurred by him. B was liable. 3. For the exclusive benefit of bailor – e. To disclose known faults about the goods – in case of default. Read V. Example : A lends his horse to B. his friend. A will have to repay the medical expenses incurred by B. 2. Example : A goes out on holiday .g. hiring of car or giving it to a mechanic for repairs – both involve consideration. without charge. consideration is generally in form of money payable either by bailor or bailee – however. delivery of valuables to neighbour for safe custody. For exclusive benefit of bailee – e.  In gratuitous bailment.terminable by bailor at any time even though for specified time or purpose  3 above is non-gratuitous bailment. For mutual benefit of bailor and bailee – e. 3.  In case of gratuitous bailment. bailor responsible only for the known faults which are not disclosed. without charge.g.g.  In case of goods bailed for consideration.  1 & 2 above are gratuitous bailment – as no consideration passes between bailor and bailee . bailor is responsible for any damage suffered by bailee directly from such faults. the bailor has to indemnify him. for two days – feeding charges to be paid by B – but if horse meets with an accident. 2. Example : A lends his old discarded bicycle to B gratuitously for 3 months – B incurs Rs. as it involves payment of consideration. bailor is responsible even for faults unknown to him.100 on its repairs – A asks for return of bicycle after one month – A liable to compensate B for expenses incurred by him in excess of benefit derived by him. Duties of bailor – 1. _____________________________________________________________________ . the bailor has to pay all necessary expenses. Classification of bailments : 1.

4. Coldman Vs.76 4. 5. in case bailee suffers some loss exceeding the benefit derived by him. 4. 3. he is not responsible to the owner in respect of such delivery 3. Bailee’s lien – where lawful charges of the bailee are not paid. he may retain the goods (particular lien). Return of goods lent gratuitously – bailor can demand return at any time even though bailment for specified time or purpose – however. hospital officials were bailees for reward and failed to exercise care which the nature and quality of the article required . Compensation from a wrong-doer – if any third person deprives bailee use or possession of goods bailed or does them any injury. Hill – A gives his cattle to B for feeding grass against payment – without any negligence on B’s part. Rights of bailor 1. bailor can terminate the bailment. _____________________________________________________________________ . Martin Vs. Return of goods to one of several joint bailors – in the absence of any contract to the contrary. bailor (also the bailee) entitled to bring a suit against such third person for such deprivation or injury. Right to apply to Court to stop delivery – if any third person claims the goods bailed. bailee is entitled to receive compensation from bailor for necessary expenses of custody. 2.liable for loss. Avoidance of contract – in case of any act by bailee inconsistent with the terms of bailment. 2. Right of action against trespassers 5. bailee may apply to Court to stop the delivery of goods and to decide the title to the goods. Delivery of Goods to bailor without title – if bailee acts in good faith. onus of proof is on bailee to show that there had been no negligence on his part. Enforcement of rights – bailor can enforce by suit all the liabilities and duties of bailee. as his rights. cattle were stolen – B did not inform the owner or the police – did not even make any effort to recover them thinking it to be useless – Held. London County Council – N admitted to hospital – her jewellery handed over to hospital officials for safe custody – jewellery was stolen – Held. Rights of bailee – duties of bailor are the rights of bailee – his additional rights are : 1. To take reasonable care of goods bailed – should take care as man of ordinary prudence would under similar circumstances – in case of no return of goods or their return in damaged condition. To indemnify bailee – in case bailor has defective title to goods and not entitled to make bailment or receive back the goods or give directions in relation to them and bailee suffers some loss as consequence – bailor liable to indemnify the bailee. Duties of bailee : 1. bailor has to indemnify the bailee. To receive back the goods – if bailor refuses to receive back goods. B was liable for the loss.

bailee bound to deliver to bailor any increase or profit accrued from the goods bailed. B is liable to make compensation to A for injury caused to his horse.  Without bailor’s consent and – (i) such goods are separable – bailee to bear the expenses of separation as wells as damage arising from mixture.  Extinguished or lost by (i) abandonment (ii) payment or tender of the amount case of a contract to the contrary. as soon as purpose of bailment is achieved Shaw & Co.77 2. To return the goods – bailee duty bound to return the goods bailed. To return any accretion to the goods . 5. but B neglects – more than reasonable time elapsed – accidental fire at B’s premises – books were burnt – Held. 3. Example : A lends horse to B for his riding only – B allows C to ride the horse – C rides with care but horse accidentally falls and is injured – Held. Particular lien –  available to the bailee only against those goods in respect of which he has rendered some service involving exercise of labour or skill. without demand. or (iii) general course of dealings between the parties in a particular trade.if bailee mixes the goods :  With bailor’s consent – both shall have proportionate interest in the mixture thus produced. Types of lien – 1.right of a person to retain possession of goods belonging to another until some debt or claim of the person in possession is satisfied. (ii) Such goods are inseparable – bailor entitled to compensation for the loss of goods. Not to mix the goods bailed with his own goods . Not to set up an adverse title : bailee cannot deny the right of bailor to bail the goods and receive them back – if bailee delivers them to a third person. or (iii) loss or surrender of possession of goods. 6. (ii) not for specific purpose and (iii) continuous. Symmons & Sons – A delivered some books to B to be bound – A presses for their return. Example : A leaves his cow in custody of B to be taken care of – cow gives birth to a calf – B is bound to deliver the calf as well as the cow to A. (ii) express or implied contract. Lien . 4. If goods get mixed up by inadvertence or by accident or by act of God or by unauthorised act of a third party – both bailor and bailee have proportionate interest in the mixture – bailee will have to bear the cost of separation. _____________________________________________________________________ . Not to make any unauthorised use of goods : if uses goods in a manner inconsistent with the terms of contract – bailee liable even if not guilty of negligence and the damage is result of an accident.  Right of lien may arise by (a) statute. B was liable for the loss even though he was not negligent as failure on his part to return the books within reasonable time. V.  Possession must be (i) rightful. he has to prove that such person had a right to them as against the bailor.

to stitch into a suit – B is entitled to retain the coat till he is paid for. General lien – a right to retain all the goods or any property (which is in possession of the holder) of another until all the claims of the holder are satisfied. he becomes a bailee _____________________________________________________________________ . 2. a tailor. 2.  Normally available to bankers. If bailee permits credit to bailor – cannot exercise right of lien. proportionate share of bailor and bailee as per respective interests.person who comes by an article but not entitled to its possession – if he picks it up. wharfingers. Suit against wrong doer : when third party wrongfully deprives the bailee of use or possession of goods bailed or causes injury to the goods – bailee or bailor may bring a suit against the wrong-doer. Apportionment of relief – whatever received by way of relief or compensation in any suit against wrong-doer. If bailee defaults in completion of work within the agreed time or reasonable time – not entitled to right of lien. If bailee permits the bailor to regain right of possession without payment of charges – cannot exercise right of lien. to sew into a coat – B promises to deliver the coat as soon as it is finished – allows to give A three month’s credit – B not entitled to retain the coat. 2.78     Example : A gives a piece of cloth to B. Example : T wo securities handed over by A to banker for safe-keeping – A takes loan against only one of them – banker entitled to retain both the securities until his claim is satisfied.  This is right to retain property of other for general balance of account. Right of bailor and bailee against wrong-doer : 1. Finder of goods . Difference between particular lien and general lien Basis 1. For a general balance of account. a tailor. in respect of any payment lawfully due to him. General lien Available in respect of any property belonging to other party and in possession of the person exercising the right. Availability of right Particular lien Available only against those goods in respect of which skill and labour has been expended by the bailee. attorneys and policy brokers. If goods destroyed or stolen without any fault on part of bailee – bailee is entitled to be paid for services performed upon the goods before their destruction or theft. Reason of lien For recovery of charge for labour employed or expenses incurred upon the goods. Example : A gives a cloth to B.

On achievement of object – if bailment is for specific purpose. Must not mix the goods with his own. 2. Death of bailor or bailee – in case of gratuitous bailment. On expiry of the period – if bailment is for specific period. finder not responsible for such loss. Inconsistent use of goods – if used in manner inconsistent with the terms of contract. agreement was not pledge. Must not use the goods for own purpose. if goods are destroyed. he is liable as a trespasser. Obligations of finder of goods – 1. 3. Pledge – bailment of goods as security for payment of a debt or performance of a promise – bailor is called ‘pledger/pawnor’ – bailee is called ‘pledgee/pawnee’  Any movable property can be pledged . 4. 4.79 Rights of finder of goods :  Right of lien – has right of lien for expenses incurred on the preservation and for finding out the owner – but has not right to sue the owner for its recovery. 3. refuses to pay the lawful charges of finder. Bailee may either retain the goods pawnee may sell the goods or sue for his charges. Must try to find out the owner – if fails to do so. 6. Destruction of subject matter or incapable of use for the purpose of bailment. Purpose 2. Remedy on default Pledge Bailment As security for performance For any purpose.  Delivery is necessary – may be actual or constructive or symbolic (like handing over of keys of bank vault) Revenue Authority V Sudarshan Pictures . or (ii) if found. Difference between pledge and bailment : Basis 1. as incurred by him voluntarily. like repayment of a debt After giving notice to pawnor.  Right to sue for reward – finder can sue for specific reward offered by owner for return of goods – may retain the goods until reward received  Right of sale – finder can sell the goods if – (i) owner cannot be found with reasonable diligence. Gratuitous bailment – at any time as per wishes of bailor. Must take reasonable care of goods – if despite such care.producer of film borrowed money from financier-distributor – agreed to deliver the final prints of film when ready – Held. 2. 5. of a specific promise. pledged. Termination of bailment – 1. or (iii) if goods are in danger of perishing or losing the major part of its value. or (iv) if lawful charges of finder exceeds two-third of value of goods. _____________________________________________________________________ .even a saving bank pass book may be pledged. there being no actual transfer of possession.

pawnee may (a) file suit for specific performance and retain goods as collateral security.  Pledge by seller or buyer in possession after sale – seller left in possession after sale or buyer in possession before sale with consent of other party – valid only pledgee acts in good faith and without notice of defect of pawnor’s title. but anytime before sale of goods pledged by pawnee. Right of retainer for subsequent advances – if pawnee lends money to same pawnor after date of original pledge – gets right of retainer over goods for subsequent advances also. Use for own purpose Pawnee has no right to use the Bailee may use the goods bailed goods pledged with him. Rights of pawnee – 1. person having lien over the goods or a finder of goods may pledge them to the extent of his interest. 3. (b) Sell the goods after giving reasonable notice to pawnor (c) Recover any deficiency arising on sale of goods from the pawnor – also liable to hand over the surplus realised.g. Right to redeem debt – if default made in fulfilment of promise. ordinary course of business of mercantile agent – if in possession of goods with consent of owner – valid only if pledgee acts in good faith and without notice of defect of agent’s title. Right against true owner. for own purpose if terms of bailment so provide. _____________________________________________________________________ . when pawnor’s title is defective – when pawnor got possession of goods pawned under a voidable contract. Right of an ordinary debtor – has right given under various statutes for protection of debtors.may retain the goods pledged until his dues repaid – also for interest due and all necessary expenses incurred by him for possession and preservation of goods – has particular lien. 2. Right to extraordinary expenses – can only sue for their recovery – no right of retainer 4. Preservation and maintenance of goods – can ask pawnee to preserve and maintain the goods pledged. pawnor can redeem the goods pledged and also make payment of interest and expenses. Right to get back goods – after performance of promise or repayment of loan and interest and necessary expenses. Pawnee’s right where pawnor makes default – when pawnor defaults in redeeming the pledge. but contract not rescinded at time of pledge – pawnee gets good title if he acts in good faith and without notice of such defective title. Pledge by non-owners –  Pledge by mercantile agent . 2.  Pledge by co-owner in possession – one of several co-owners in actual possession with consent of others – can create valid pledge. Rights of pawnor 1. Right of retainer . 4.  Pledge by pawnor having limited interest . if any. 3.e. if any.80 3. if any.

81  Pledge by person in possession under a voidable contract – pledge valid if made before rescission of the voidable contract and if pledgee acts in good faith and without notice of defect in pledgor’s title. *********************************************** _____________________________________________________________________ .

Legal relationship 2. Liability of employer Agent Agent can bring the principal into legal relations with third persons.any person who is of the age of majority according to the law to which he is subject. Difference between agent and servant Basis 1. _____________________________________________________________________ . or who is so represented .(qui facit peralium facit per se) – acts and contracts of agent have effect as if done personally by principal. Control 3. Agreement between principal and agent – contract not necessary– no consideration necessary to create agency 2. or to represent another in dealing with third persons – intention to bring his principal into contractual relations with third persons. Agent not under direct control and supervision of principal – but bound to follow all lawful instructions of principal. “Principal” . Rules of agency – 1. of principals/ employers 4. and who is of sound mind. Servant Servant ordinarily does not create legal relations between his employer and third persons. He who does an act through another does it by himself .No consideration is necessary to create an minor person or of unsound mind can become an agent . Whatever a person can do personally. any person may become an agent . he can do through an agent – subject to exceptions in case of contract which are personal in character (like marriage) or annexed to a public office (like magistrate( 2. Principal liable for wrong-doings Master is liable for wrongs of of agent done within the scope of his servant if committed in his authority. if a person intends to act on behalf of another. No. Servant can serve only one master at a time. Essentials of agency relationship 1. An agent can work for several principals at the same time. Servant acts under direct control and supervision of principal and bound to follow all reasonable instructions of his employer.The person for whom such act is done. may employ an agent.  Who may be an agent . Intention of agent to act on behalf of principal – even without a contract between the parties. agency is created.As between the principal and third persons.a person employed to do any act for another. course of his employment.82 Contract of agency "Agent" .

but not to the principal. and acting undue the control of. having an authority to do an act. in an emergency. Agency by implied agreement – arises from conduct. has authority to do every lawful thing necessary for the purpose. by or responsible for the acts of the person so employed. the principal be inferred from the circumstances of the case. unless by the ordinary custom of trade a sub-agent may. has appointed a person to act as a sub-agent. Agent's authority in an emergency An agent has authority. to do all such acts for the purpose of protecting his principal from loss and would be done by a person or ordinary prudence. under similar circumstances.Sub-agent's responsibility: The sub-agent is responsible for his acts to the agent. or. has named another person _____________________________________________________________________ . so far as regards third persons. nor is that person responsible to the principal. Agency by express agreement . represented by the sub-agent. When agent cannot delegate An agent cannot lawful employ another to perform acts which he has expressly or impliedly undertaken to perform personally. and is responsible for his acts both to the principal and to third person. as if he were an agent originally appointed by the principal. be employed. Representation of principal by sub-agent properly appointed Where a sub-agent is properly appointed. and is bound by and responsible for his acts. holding an express or implied authority to name another person to act for the principal in the business of the agency. or usually done in the course.83 Creation of agency 1. from the nature or agency.oral or written contract – usually written in form of power of attorney. 2.Agent's responsibility for sub-agents: The agent is responsible to the principal for the acts of the sub-agent. has authority do every lawful thing which is necessary in order to do so such act. Agent's responsibility for sub-agent appointed without authority Where an agent. "Sub-agent" defined A "sub-agent" is a person employed by. a sub-agent must. the agent stands towards such person in the relation of a principal to an agent. situation or relationship of parties .An agent having an authority to carry on a business. and things spoken or written. Extent of agent's authority An agent. in his own case. the principal is not represented. except in case of fraud or wilful wrong. the original agent in the business of the agency. or the ordinary course of dealing. of conducting such business. without having authority to do so. Relation between principal and person duly appointed by agent to act in business of agency When an agent.

If he ratifies them. C is not a sub-agent. buys goods. 2. for sale.  Illustrations 1. responsible to A. but is a solicitor for A. A. Effect of ratifying unauthorised act forming part of a transaction _____________________________________________________________________ . B is not responsible to A for the proceeds. he may elect to ratify or to disown such acts. Agent's duty in naming such person In selecting such agent for his principal. a solicitor. and. an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case. an auctioneer. for B. B instructs D.but without his knowledge or authority. to sell his estate by auction. in due course. but the surveyor is. D is not a sub-agent. Illustrations 1. A. his solicitor. a merchant. B employs a ship-surveyor of good reputation to choose a ship for A. B. employes an auctioneer in good credit to sell the goods of A. but is A's agent for the conduct of the sale. A authorises B. 2. B's conduct implies a ratification of the purchase made for him by A. A instructs B. without authority. such person is not a sub-agent. The auctioneer afterwards becomes insolvent without having accounted for the proceeds. Ratification may be expressed or implied Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done. Afterwards B sells them to C on his own account. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is lost. B is not. to buy a ship for him. B's conduct implies a ratification of the loan. a merchant. if he does this. lends B's money to C. Afterwards B accepts interest on the money from C.84 accordingly. B names C. but an agent of the principal for such part of the business of the agency as is entrusted to him. For the recovery of the money. to conduct the sale. and allows the auctioneer to receive the proceeds of the sale. Right of person as to acts done for him without his authority-effect of ratification Where acts are done by one person on behalf of another. to recover the moneys due to A from C & Co. A directs B. the same effects will follow as if they had been performed by his authority. A consigns goods to B. and to employ an auctioneer for the purpose. he is not responsible to the principal for the acts of negligence of the agent so selected.  Illustrations 1. 2. Knowledge requisite for valid ratification No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective. without B's authority. a merchant in Calcutta. to take legal proceedings against C & Co.

and desires B to sell the cotton. Ratification of unauthorised act cannot injure third person An act done by one person on behalf of another. an unauthorised person. The notice cannot be ratified by B. and to pay himself. not is it terminated by his insanity or death. 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. or by the business of the agency being completed. if done with authority would have the effect of subjecting a third person to damages. 2. A cannot revoke this authority. from C who is in possession of it. terminable on three months' notice. so as to bind the principal. without such other person's authority. the debts due to him from A. be made to have such effect. A. be terminated to the prejudice of such interest. in the absence of an express contract.  Illustrations 1. not being authorised thereto by B. the delivery of a chattel.85 A person ratifying any unauthorised act done on his behalf ratifies the whole of the transaction of which such act formed a part. or by the agent renouncing the business of the agency. so as to make C liable for damages for his refusal to deliver. C. out of the proceeds. revoke the authority given to his agent at any time before the authority has been exercised. gives notice of termination to A. 2. When principal may revoke agent's authority The principal may. or of terminating any right to interest of a third person cannot. Revocation of authority Termination of agency An agency is terminated by the principal revoking his authority. Termination of agency. on behalf of B. which. or by either the principal or agent dying or becoming of unsound mind. by ratification. the property of B.  Illustrations _____________________________________________________________________ . gives authority to B to sell A's land. where agent has an interest in subject-matter Where the agent has himself an interest in the property which forms the subjectmatter of the agency. so as to be binding on A.  Illustrations 1. This demand cannot be ratified by B.nor can it be terminated by his insanity or death.A cannot revoke this authority. A. who has made advances to him on such cotton. save as is otherwise provided by the last preceding section. so far as regards such acts and obligations as arise from acts already done in the agency. A holds a lease from B.000 bales of cotton to be. A consigns 1. Revocation where authority has been partly exercised The principal cannot revoke the authority given to his agent after the authority has been partly exercised. demands. and to repay himself out of the price the amount of his own advances. the agency cannot.

or. B. so far as regards third persons.000 bales of cotton in his own name. A can revoke B's authority to pay for the cotton. revokes B's authority. pays the money to C. but before he receives it. A dies. so far as regards the agent. Agent's duty on termination of agency by principal's death or insanity When an agency is terminated by the principal dying or becoming of unsound mind.000 bales of cotton on account of A and to pay for it out of A's money remaining in B's hands. otherwise the damage thereby resulting to the principal or the agent. revokes. the agent is bound to take on behalf of the representative. A afterwards by letter. A cannot revoke B's authority so far as regards payment for the cotton. B after receiving the second letter. for any previous revocation or renunciation of the agency without sufficient cause. but not o the second. and directs B to send the cotton to Madras. the executor. When termination of agent's authority takes effect as to agent. after A's death. A directs B.and B is entitled to five rupees as his commission. and as to third persons The termination of the authority of an agent does not. A authorises B to buy 1. for the sale to him of the cotton. Compensation for revocation by principal. who knows of the first letter. the principal must make compensation to the agent. take effect before it becomes known to him. his agent. and so as not to render himself personally liable for the price.000 bales of cotton on account of A. and D takes out probate to his will. as the case may be. or renunciation by agent Where there is an express or implied contract that the agency should be continued for any period of time. C pays B the money. but before hearing of it.  Illustrations 1. by letter directs B to sell for him some cotton lying in a warehouse in Bombay. 2. A authorises B to buy.sells the goods for 100rupees. all reasonable _____________________________________________________________________ . as the case may be. A directs B to sell goods for him. and agrees to give B five per cent commission on the price fetched by the goods. to pay certain money to C. so as to make himself personally liable for the price. Afterwards A lets it himself. A. B buys 1. Notice of revocation or renunciation Reasonable notice must be given of such revocation or renunciation. of his late principal. 2. his authority to sell. The payment is good as against D. enters into a contract with C. Revocation and renunciation may be expressed or implied Revocation or renunciation may be expressed or may be implied in the conduct of that principal or agent respectively. and to pay for it out of A's money remaining in B' s hands. The sale is binding on A. must be made good to the one by the other. 1.  Illustration  A empowers B to let A's house. before it becomes known to them.86 1. 1. 3.000 bales of cotton in A' s name. B after the letter is sent. by letter. and afterwards. This is an implied revocation of B's authority. B buys. at Madras. C's payment is good as against A. or the agent to the principal. with which B absconds.

a merchant in Calcutta. B. according to the usual rate. to whom a sum of money is paid on A's account. has an agent. at interest. directs B. A must make compensation to his principal in respect of any loss thereby sustained. to send him 100 bales of cotton by a certain ship. having authority to sell on credit. if any loss be sustained. When the agent acts otherwise. A. The agent is always bound to act with reasonable diligence. 3. or misconduct. The ship arrives safely in England. B. or in the absence of any such directions according to the customs which prevails in doing business of the same kind at the place where the agent conducts such business. Termination of sub-agent's authority The termination of the authority of an agent causes the termination (subject to the rules herein contained regarding the termination of an agent's authority) of the authority of all sub-agents appointed by him. 4. he must make it good to his principal and if any profit accrues. C. in which it is the custom to invest from time to time. his agent at Bombay.  Illustrations 1. B at the time of such sale. merchant in England. The ship is afterwards lost. but not in respect of loss or damage which are indirectly or remotely caused by such neglect. from the day on which it ought to have been paid.  Illustrations 1. and to use such skill as he possesses.. who accepts the agency.87 steps for the protection and reservation of the interests entrusted to him. A. A. having it in his power to send the cotton. Skill and diligence required from agent An agent is bound to conduct the business of the agency with as much skill as is generally possessed by person engaged in similar business unless the principal has notice of his want of skill. Agent's duty to principal Agent's duty in conducting principal's business An agent is bound to conduct the business of his principal according to the directions given by the principal. becomes insolvent. 2. A. the moneys which may be in hand. an agent for the sale of goods. In consequence of the omission of the clauses nothing can be recovered from the underwriters.g. in consequence of not receiving the money. in London. sells goods of A on credit to C. without making the proper and usual enquiries as to the solvency of B. and for any further direct loss as. B retains the money for considerable time. omits to do so. is insolvent. Soon after her arrival the price of cotton rises. becomes insolvent. on its to make such investment. sells to B in credit. an insurance-broker employed by B to effect an insurance on a ship. whose credit at the time was very high. A. A. want of skill. want of skill. and to make compensation to his principal in respect of the direct consequences of his own neglect. B. B is _____________________________________________________________________ . e. before payment. he must account for it. with order to remit. B must make good the loss to A. by variation of rate of exchange-but not further. A is bound to make good the loss to B. B is liable for the money and interest. or misconduct. 2. A must make good to B the interest usually obtained by such investments. an agent engaged in carrying on for B a business. omits to see that the usual clauses are inserted in the policy. a broker in whose business it is not the custom to sell on credit.

the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.88 bound to make good to A the profit which he might have made by the 100 bales of cotton at the time the ship arrived. without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject. When agent's remuneration becomes due In the absence of any special contract. Right of principal when agent deals. may repudiate the sale. in business of agency without principal's consent If an agent deals on his own account in the business of the agency. or that the seals has been disadvantageous to him. A allows B to buy. his agent. or that the dealings of the agent have been disadvantageous to him. if he can show that B has dishonestly concealed any material fact. and in seeking to obtain his instructions. may either repudiate or adopt the sale at his option. on his own account. either that any material fact has been dishonestly concealed from him by the agent. A.  Illustration  A directs B. deals in the business of the agency on his own account instead of on account to his principal.  Illustrations 1. Principal's right to benefit gained by agent dealing on his own account in business of agency If an agent. on discovering that B has bought the estate for himself. 2. Agent's right of retainer out of sums received on principal's account An agent may retain. A may. payment for the performance of any act is not due to the agent until the completion of such act. B tells A it cannot be bought. compels him to sell it to A at the price he gave for it. on discovering that B knew of the mine at the time he bought the estate. B informs A that he wished to buy the estate for himself but conceals the discovery of the mine. A direct B to sell A's estate. but not any profit he might have made by the subsequent rise. Agent's duty to pay sums received for principal Subject to such deductions. to buy a certain house for him. and buys the house for himself. all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business. to use all reasonable diligence in communicating with his principal. in ignorance of the existence of the mine. A. and also such remuneration as may be payable to him for acting as agent. but an agent may detain moneys _____________________________________________________________________ . out of any sums received on account of the principal in the business of the agency. B buys the estate for himself in the name of C. the agent is bound to pay to his principal all sums received on his account. Agent's. on discovering that B has bought the house. finds a mine on the estate which is unknown to A. duty to communicate with principal It is the duty of an agent in case of difficulty. if the case shows. Agent's accounts An agent is bound to render proper accounts to his principal on demand. the principal may repudiate the transaction. without the knowledge of his principal. on looking over the estate before selling it. A directs B to sell A's estate. B.

2.000 rupees and lays out 90. whether movable or immovable of the principal received by him. who repudiates the contract altogether. costs and expenses. a broker at Calcutta. B is entitled to no remuneration for his services and must make good the loss.000 rupees to B. or although the sale may not be actually complete. a merchant there. but lays out 10. Afterwards A refuses to receive the oil. whereby A loses 2. 00. contracts with C for the purchase of 10 caskes of oil for A. A is liable to B for such damages. until the amount due to himself for commission. B recovers the 1.89 received by him on account of goods sold. Agent's lien on principal's property In the absence of any contract to the contrary.000 rupees and for investing the 90. contracts with C to deliver certain goods to him. B defends.000 rupees on good security. Through B's misconduct the money is not recovered. A employs B to recover 1. papers. and the agent does the act in good faith.000 rupees. and has to pay damages and costs and incurs expenses. Principal's duty to agent Agent to be indemnified against consequences of lawful acts The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. _____________________________________________________________________ . the employer is liable to indemnify the agent against the consequences of that act. and other property. and to lay it out on good security. B is entitled to remuneration for recovering the 1. He is not entitled to any remuneration for investing the 10. is not entitled to any remuneration in respect of that part of the business which he has misconducted. but unsuccessfully. and C sues B.000 rupees from C. and incurs expenses. and A authorises him to defend the suit. B informs A of the suit. and C sues B for breach of contract. B informs A. costs and expenses. and he must make good the 2. A does not send the goods to B. although the whole of the goods consigned to him for sale may not have been sold.000 rupees from C. at Singapore under instructions from A of Calcutta. though it may cause an injury to the rights of third persons. B. by the orders of A.  Illustrations 1. Agent to be indemnified against consequences of acts done in good faith Where one person employs another to do an act. and is compelled to pay damages and costs. disbursements and services in respect of the same has been paid or accounted for to him. A employs B to recover 1. Agent not entitled to remuneration for business misconducted An agent who is guilty of misconduct in the business of the agency.00.  Illustrations 1. A is liable to B for such damages. an agent is entitled to retain goods.000 rupees.000 rupees.00. B. B defends the suit. 2.000 rupees on security which he ought to have known to be bad.

B does not know this. at the request of A. and is sued by C. in a suit by the principal. Afterwards C. and B is in consequence hurt. but not knowing who is the principal. a libel upon C in the paper. a decree-holder and entitled to execution of B's goods requires the officer of the court to seize certain goods. knowing that he is an agent for their sale. The officer seizes the goods. Effect of agency on contracts with third persons Enforcement and consequences of agent's contract Contracts entered into through an agent. A. the true owner of the goods. sells goods in the possession of A. A is liable to indemnify the officer for the sum which he is compelled to pay to C. may be enforced in the same manner.90  Illustrations 1. but which A had no right to dispose of. at A's request. publishes. representing them to be the goods of B.  Illustrations 1. 2.  Illustration  A employs B as a bricklayer in building a house. B's principal is the person entitled to claim from A the price of the goods. set-off against that claim a debt due to himself from B. either upon an express or an implied promise to indemnify him against the consequences of that Act. A employs B to beat C. 2. and all costs and damages of any action in respect thereof. A is not liable to indemnify B for those damages. _____________________________________________________________________ . and also incurs expenses. the true owner of the goods. the proprietor of a newspaper. B is sued by C and has to pay damages. and for B's own expenses. and hands over the proceeds of the sale to A. and has to pay damages to C for so doing. A is liable to indemnify B for what he has been compelled to pay to C. and put up the scaffolding himself. A is not liable to B upon the indemnity. and A cannot. A buys goods from B. B thereupon beats C. sues B and recovers the value of the goods and costs. Non-liability of employer of agent to do a criminal act Where one person employees another to do an act which is criminal. and obligations arising from acts done by an agent. B. and agrees to indemnify him against all consequences of the act. B. the employer is not liable to the agent.  Illustrations 1. The scaffolding is unskillfully put up. and A agrees to indemnify B against the consequences of the publication. A must make compensation to B. Compensation to agent for injury caused by principal's neglect The principal must make compensation to his agent in respect of injury caused to such agent by the principal's neglect or want of skill. in consequence of obeying A's directions. and will have the same legal consequences as if the contracts had been entered into the acts done by the principal in person.

have the same legal consequences as if it had been given to or obtained by the principal. with authority to receive money on his behalf. which is within his authority. but not the premium for the policy on the cargo. Principal how far bound. In the course of the treaty for the sale. A is bound to pay the premium for the policy on the ship.  Illustration  A. A is employed by B to buy from C goods of which C is the apparent owner. C is discharged of his obligation to pay the sum in question to B. as between the principal and third parties. but B is ignorant of that fact B is not entitled to set-off a debt owing to him from C against the price of goods. authorises B to procure an insurance for 4. B may set-off against the price of the goods a debt owing to him from C. shall. so much only of what he does as is within his authority is binding as between him and his principal. receives from C a sum of money due to B.000 rupees on the ship. A learns that the goods really belonged to D. and then learnt that the goods really belonged to D.  Illustration  A authorises B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for a sum of 6. and another for the like sum on the cargo.  Illustrations 1. and what he does beyond the scope of his authority cannot be separated from what is within it. before he was so employed a servant of C. A. In spite of the knowledge of his agent.000 rupees. being B's agent. of which C is the apparent owner. A was. A may repudiate the whole transaction. provided it be given or obtained in the course of the business transacted by him for the principal. and buys them accordingly. B procures a policy for 4. but B is ignorant of that fact.91 2. Consequences of notice given to agent Any notice given to or information obtained by the agent. and when the part of what he does. A is employed by B to buy from C certain goods. Principal not bound when excess of agent's authority is not separable Where an agent does more than he is authorised to do. can be separated from the part which is beyond his authority.000 rupees on the ship. the principal is not bound to recognise the transaction. _____________________________________________________________________ . being owner of a ship and cargo. when agent exceeds authority When an agent does more than he is authorised to do. 2.

Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad. 3. the other contracting party may refuse to fulfil the contract. and afterwards. but the other contracting party has. for the price of the cotton. 2. who owes 500 rupees to B. though disclosed. Performance of contract with agent supposed to be principal Where one man makes a contract with another.000 rupees worth of rice to B. cannot be sued. or both of them liable. as against the principal. Consequence of inducing agent or principal to act on belief that principal or agent will be held exclusively liable When a person who has made a contract with an agent induce the agent to act upon the belief that the principal only will be held liable. discovers that B was acting as agent for C.92 Agent cannot personally enforce. A is acting as agent for C in the transaction. if he can show that.If the principal discloses himself before the contract is completed. he would not have entered into the contract. Right of parties to a contract made by agent not disclosed If an agent makes a contract with a person who neither. that he is an agent. knows nor has reason to suspect. a person dealing with him may hold either him or his principal. contracts on behalf of principal In the absence of any contract to that effect an agent cannot personally enforce contracts entered into by him on behalf of his principal. nor is he personally bound by them. Right of person dealing with agent personally liable In cases where the agent is personally liable. sells. but B has no knowledge nor reasonable ground of suspicion that such is the case. the principal. can only obtain such performance subject to the right and obligations subsisting between the agent and the other party of the contract. or both. the same right as he would have had as against if the agent had been the principal. A may sue either B or C. Where the principal. C cannot compel B to take the rice without allowing him to set-off A's debt. or induces the principal to act _____________________________________________________________________ . if he requires the performance of the contract.  Presumption of contract to the contrary: Such a contract shall be presumed to exit in the following cases1.  Illustration  A. or if he had known that the agent was not a principal. nor be bound by. his principal may require the performance of the contract. Where agent does not disclose the name of his principal.  Illustration  A enters into a contract with B to sell him 100 bales of cotton. 1. if he had known who was the principal in the contract. neither knowing nor having reasonable ground to suspect that the other is an agent.

in matters which do not affect their authority. but on his own account. if he was in reality acting. Liability of pretended agent A person untruly representing himself to be the authorised agent of another. and thereby including a third person to deal with him as such agent. Person falsely contracting as agent. being B's agent for the sale of goods. A. if his alleged employer does not ratify his acts. A is bound by the contract 2.93 upon the belief that the agent only will be held liable. The bills of lading are void as between B and the pretended consignor. Effect. at the option of C. done acts or incurred obligations to third person on behalf of his principal. to make compensation to the other in respect of any loss or damage which he has incurred by so dealing. induces C to buy them by a misrepresentation. not entitled to performance A person with whom a contract has been entered into in the character of agent. by agent acting in the course of their business for their principals. Liability of principal inducing belief that agent's unauthorised acts were authorised When an agent has. as between B and C. A. The contract is voidable. not as agent. have the same effect on agreements made by such agents as if such misrepresentations of frauds had been made or committed by the principals. ********************************************** _____________________________________________________________________ . which he was not authorised by B to make. without authority. the principal is bound by such acts or obligations. signs bills of lading without having received on board the goods mentioned therein.  Illustrations 1. The sale is good. do not affect their principals  Illustrations 1. 2. of misrepresentation or fraud by agent Misrepresentation made or fraud committed. C. on agreement. he cannot afterwards hold liable that agent or principal respectively. the captain of B's ship. by agents. if he has by his word or conduct induced such third person to believe that such acts and obligations were within the scope of the agent's authority. is liable. is not entitled to require the performance of it. being ignorant of B's instruction. A consigns goods to B for sale. or frauds committed. but misrepresentations made. enters into a contract with B to buy the goods at a price lower than the reserved price. and gives him instructions not to sell under a fixed price. B sells them to C in violation of private order from A. A entrusts B with negotiable instruments endorsed in blank.