The Indian Contract Act Summary

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THE INDIAN CONTRACT ACT, 1872
The Indian Contract Act 1872
Act No. Act No. 9 of 1872
Date 25th April 1872
Came into force 1st September 1872
In other states In Sikkim – 01-09-1984

In Dadra & Nagar Haveli – 01-07-1965
In Pondichery – 1968
In Laccadive, Minicoy and Amindivi – 01-10-1967
Extent It extends to the whole of India
Exception Jammu & Kashmir
Proposal When one person signifies to another his willingness to do or to

abstain from doing anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal
Promise When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise [Proposal accepted= Promise]
Promisor A person making a proposal is called promisor
Promisee The person accepting the proposal is called promise
Consideration for promise When a promisee acts on a proposal/promise at the desire of the
promisor, it is called consideration for the promise
Miscellaneous Act Transfer of Property Act, 1882 (Act 4 of 1882)

Indian Evidence Act, 1872
Indian Sale of Goods Act, 1930
Indian Limitation Act, 1908
Agreement Every promise and every set of promises forming consideration for
each other, is an agreement [Set of promises = Agreement]
Reciprocal promise Promises, which form the consideration or part of the

consideration for each other are called reciprocal promises
Contract An agreement enforceable by law is a contract
Void An agreement not enforceable by law is said to be void

Materials prepared by :
Utpal Kumar Ghosh, AO
O/o the AG(E&RSA),WB[Type text] Page 1
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Voidable contract An agreement which is enforceable by law at the option of one or
more of the parties, but not at the option of the other or others, is a
voidable contract
Bailee A person to whom anything is kept with a purpose is known as bailee

(Custodian)
Bailer The person who gives the good to be to be kept is known as bailer
Chapter – I (Communication, Acceptance & Revocation of proposals

Communication when complete The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made
Communication of acceptance is As against proposer : when it is put in a course of transmission to

complete him, so as to be out of the power of the acceptor
As against acceptor : when it comes to the knowledge of the proposer
Communication of revocation is As against person who makes it : When it is put into a course of
complete transmission to the person to whom it is made, so as “ to be out of
the power of the person who makes it”
As against the person to whom it is made : When it comes to his
knowledge
Illustration of the above (a) A proposes, by letter, to sell a house to B at a certain price. The
communication of the proposal is complete when B receives the
letter
(b) B accepts A’s proposal by a letter sent by post. The
communication of the acceptance is complete, (i) As against A,
when the letter is posted (ii) As against B, when the letter is receive
by A
(c) A revokes his proposal by telegram. The revocation is complete
as against A when the telegram is dispatched. It is complete as
against B when B receives it.
(d) B revokes his acceptance by telegram.. B’s revocation is
complete as against B when the telegram is dispatched, and as
against A when it reaches him
Revocation of proposals and A’s proposal may be revoked at any time before the communication
acceptance as its acceptance is complete as against the proposer, but not afterwards
An acceptance may be revoked at any time before the

communication of the acceptance is complete as against the
acceptor, but not afterwards
Illustration of the above A proposes, by a letter sent by post, to sell his house to B. B
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accepts the proposal by a letter sent by post
A may revoke his proposal at any time before or at the moment
when B posts his letter of acceptance, but not afterwards.
B may revoke his acceptance at any time before or at the moment
when the letter communicating it reaches A, but not afterwards
Revocation - how made i) by the communication of notice of revocation by the proposer to

the other party
ii) by lapse of the time, prescribed
iii) by the failure of the acceptor to fulfil a condition precedent
prescribed to acceptance
(iv) by the dealt or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance
Promises, Express and Implied In so far as the proposal or acceptance of any promise is made in
words, the promise is said to be express.
In so far as such proposal or acceptance is made otherwise than in
words, the promise is said to be implied
Chapter –II (Contracts, Voidable Contracts and Void Agreements)

What agreements are contracts All agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby declared to be void
Who are competent to contract Every person is competent to contract who is of the age of
majority according to the law to which he is subject and who is of
sound mind(capable of understanding it and of forming a rational
judgement), and is not disqualified from contracting by any law.
A person who is usually of unsound mind, but occasionally of sound
mind, may make a contract when he is of sound mind
A person who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound mind
Coercion It is the committing or threatening to commit, any act forbidden by

the Indian Penal Code or the unlawful detaining, or threatening to
detain, any property, to the prejudice of any person whatever, with
the intention of causing any person to enter into an agreement
Fraud Means and includes any of the following acts committed by a party
to a contract or with his connivance or his agent with the intent to
deceive another party thereto of his agent, or to induce him to enter
into the contract :
i) Which is not true
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ii) Active concealment
iii) A promise made without any intention of performing it
iv) Any other act fitted to deceive
v) any such act or omission as the law specially declares to be
fraudulent
Illustration A and B, being traders, enter upon a contract. A has private

information of a change in prices which would affect B’s
willingness to proceed with the contract. A is not bound to inform
B.
Misrepresentation Means and includes :Any breach of duty which, without an intent to
deceive, gains an advantage to the person committing it, or any one
claiming under him, by misleading another to his prejudice or to the
prejudice of any one claiming under him
Voidability of agreements without When consent to an agreement is caused by coercion, fraud or

free consent misrepresentation, the agreement is a contract voidable at the option
of the party whose consent was so caused
Illustration A, intending to deceive B, falsely represents that five hundred

maunds of indigo are made annually at A’s factory, and thereby
induces B to buy the factory. The contract is voidable at the option
of B.
Power to set aside contract When consent of an agreement is cause by undue influence, the
induced by undue influence agreement is a contract voidable at the option of the party whose
consent was so cased
Illustration A’s son has forged B’s name to a promissory note. B, under threat
of prosecuting A’s son, obtains a bond from A for the amount of the
forged note. If B sue on this bond, the Court may set the bond
aside.
Agreement void where both Where both the parties to an agreement are under a mistake as to a
parties are under mistake as to matter of fact essential to the agreement, the agreement is void
matter of fact
Illustration A agrees to buy from B a certain horse. It turns out that the horse
was dead at the time of the bargain, though neither party was aware
of the fact. The agreement is void.
Effect of mistakes as to law A contract is not voidable because it was caused by a mistake as to
any law in force in India, but a mistake as to a law not in force in
India has the same effect as a mistake of fact.
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Illustration A and B make a contract grounded on the erroneous belief that a
particular debt is barred by the Indian Law of Limitation; the
contract is not voidable
Contract caused by mistake of one A contract is not voidable merely because it was caused by one of
party as to matter of fact the parties to it being under a mistake as to a matter of fact
What considerations and objects The consideration or object of an agreement is lawful, unless :
are lawful and what not i) It is forbidden by law
ii) Is of such a nature that, if permitted, it would defect the
provisions of any law
iii)is fraudulent
iv) involves or implies injury to the person or property of another
v) the Court regards it as immoral, or opposed to public policy
In each of these cases, the consideration or object of an agreement
is said to be unlawful. Every agreement of which the object or
consideration is unlawful is void
Illustration 1) A promises B to drop a prosecution which he has instituted

against B for robbery, and B promises to restore the value of the
things taken. The agreement is void, as its object is lawful
2) A promises to maintain B’s child and B promises to pay A Rs.
1000 yearly for the purpose. Here the promise of each party is the
consideration for the promise of the other party. They are lawful
consideration
Agreements void, if If any part of a single consideration for one or more objects, or any
considerations and objects one or any part of any one of several considerations for a single
unlawful in part object, is unlawful, the agreement is void
Illustration A promises to superintend, on behalf of B (a legal manufacture of

indigo and an illegal traffic in other articles). B promises to pay A
a salary of Rs. 10,000 per year. The agreement is void, the object of
A’s promise and the consideration for B’s promise, being in part
unlawful
Agreement without consideration An agreement made without consideration is void, unless :

void i)it is expressed in writing and registered under the law for the time
being in force
Illustration i) A promises, for no consideration, to give to B Rs. 10,000. this is

a void agreement
ii) A, for natural love and affection, promises to give his son, B, Rs.
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100. A puts his promise to B into writing and registers it. This is a
contract
Agreement in restraint of Every agreement in restraint of the marriage of any person, other
marriage void than a minor, is void
Agreement in restraint of trade Every agreement by which any one is restrained from exercising a
void lawful profession, trade or business of any kind, is that extent void
Agreement in restraint of legal Every agreement :

proceedings void i) by which any party thereto is restricted absolutely from enforcing
his rights under or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within
which he may thus enforce his rights
ii) which extinguishes the rights of any party thereto, or discharges
any party thereto from any liability under any contract
is void to that extent
Agreements void for uncertainty Agreements , the meaning of which is not certain, or capable of
being made certain, are void
Illustration A agrees to sell to B a hundred tones of oil. There is nothing

whatever to show what kind of oil was intended. The agreement is
void for uncertainty
A agrees to sell to B one hundred tones of oil of a specified
description known as an article of commerce. There is no
uncertainty here to make the agreement void
Agreements by way of wager Agreements by way of wager are void, and no suit shall be brought
void for recovering anything alleged to be won on any wager, or
entrusted to any person to abide the result of any game or other
uncertain event on which any wager is made
Section 294A of the Indian Penal Nothing in this section shall be deemed to legalise any transaction
Code not affected connected with horse-racing, to which the provisions of section
294A of the Indian Penal Code apply.
Chapter –III (Contingent Contracts)

A contingent contract is a contract to do or not to do something, if
Contingent Contract
some event, collateral to such contract, does or does not happen
Illustration A contracts to pay B Rs. 10,000, if B’s house is burnt. This is a

contingent contract
Contingent contracts to do or not to do anything if an uncertain

Enforcement of contracts
future event happens cannot be enforced by law unless and until that
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event has happened
contingent on an event happening
Illustration A makes a contract with B to buy B’s horse if A survives C. this

contract cannot be enforced by law unless and until C dies in A’s
lifetime.
Contingent agreements to do or not to do anything, if an impossible

Agreement contingent on
event happens, are void, whether the impossibility of the event is
impossible events void
known or not to the parties to the agreement at the time when it is
made.
Illustration i) A agrees to pay B Rs. 1000 if two straight lines should enclose a
space.
ii) A agrees to pay B, Rs. 1000 if B will marry A’s daughter C. C
was dead at the time of the agreement. The agreement is void.
Chapter – IV (Performance of Contracts)

Obligations of parties to contracts The parties to a contract must either perform or offer to perform
their respective promises, unless such performance is dispensed with
or excused under the provisions of this Act, or of any other law.
Illustration A promises to deliver goods to B on a certain day on payment of

Rs. 1,000. A dies before that day. A’s representatives are bound to
deliver the goods to B, and B is bound to pay the Rs. 1000 to A’s
representatives.
Effects of refusal of party to When a party to a contract has refused to perform, or disabled
perform promise wholly himself from performing, his promise in its entirety, the promise
may put an end to the contract, unless he has signified, by words or
conduct, his acquiescence in its continuance
Illustration A , a singer, enters into a contract with B, the manager of a theatre,

to sing at his theatre two nights in every week during the next two
months, and B engages to pay her Rs. 100 for each night’s
performance. On the sixth night A willfully absents herself from the
theatre. B is at liberty to put an end to the contract.
Person by whom promise is to be If it appears from the nature of the case that it was the intention of
performed the parties to any contract that any promise contained in it should be
performed by the promisor himself, such promise must be performed
by the promisor. In other cases, the promisor or his representatives
may employ a competent person to perform it
Illustration A promises to pay B a sum of money. A may peform this promise,

either by personally paying the money to B or by causing it to be
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paid to B by another and if A dies before the time appointed for
payment, his representatives must perform the promise, or emply
some proper person to do so
Effect of accepting performance When a promisee accepts performance of the promise from a third
from third person person, he cannot afterwards enforce it against the promisor
Any one of the joint promisors When two or more persons make a joint promise, the promise may,
may be compelled to perform in the absence of express agreement to the contrary, compel any of
such joint promisors, to perform the whole of the promise
Each promisor may compel Each of two or more joint promisors may compel every other joint
contribution promisor to contribute equally with himself to the performance of
the promise, unless a contrary intention appears from the contract
Sharing of loss by default in If any one of two or more joint promisors makes default in such
contribution contribution, the remaining joint promisors must bear the loss
arising from such default in equal shares
Illustration i) A, B and C are under a joint promise to pay D Rs. 3000. C is

unable to pay anything and A is compelled to pay the whole. A is
entitled to receive Rs. 1500 from B
ii) A, B and C are under a joint promise to pay Rs 3000. A and B
being only sureties for C. C fails to pay. A and B are compelled
to pay the whole sum. They are entitled to recover it from C
Devolution of joint rights When a person has made a promise to two or more persons jointly,
then, unless a contrary intention appears from the contract, the right
to claim performance rests, as between him and them, with them
during their joint lives, and, after the death of any of them, with the
representative of such deceased person. Jointly with the survivor or
survivors, and after the death of the last survivor, with the
representatives of all jointly
Illustration A, in consideration of Rs. 5000, lent to him by B and C, promises

B and C jointly to repay them that sum with interest on a day
specified. B dies. The right to claim performance rests with B’s
representative jointly with C during C’s life, and after the death of
C with the representatives of B and C jointly.
Time for performance of promise, Where, by the contract, a promisor is to perform his promise without
when no application is to be made application by the promise, and no time for performance is specified,
and no time is specified the engagement must be performed within a reasonable time
Time and place for performance of When promise is to be performed on a certain day, and the promisor
promise, where time is specified and has undertaken to perform it without application by the promise, the
no application to be made
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promisor may perform it at any time during the usual hours of
business on such day and at the place at which the promise ought to
be performed
Illustration A promises to deliver goods at B’s warehouse on the first January.

On that day A brings the goods to B’s warehouse, but after the
usual hour for closing it, and they are not received. A has not
performed his promise
Reciprocal Promise When a contract consists of reciprocal promises to be

Promisor not bound to perform, simultaneously performed, no promisor need perform his promise
unless reciprocal promise ready and unless the promissee is ready and willing to perform his reciprocal
willing to perform promise
Illustration A and B contract that A shall deliver goods to B to be paid for by

B on delivery. A need not deliver the goods, unless B is ready and
willing to pay for the goods on deliver. B need not pay for the
goods, unless A is ready and willing to deliver them on payment
Liability of party preventing event When a contract contains reciprocal promises, and one party to the
on which the contract is to take contract prevents the other from performing his promise, the contract
effect becomes voidable at the option of the party so prevented, and he is entitled
to compensation from the other party for any loss which may sustain in
consequence of the non-performance of the contract
Effect of failure to perform at When a party to a contract promises to do a certain thing at or before a
fixed time, in contract in which specified time, or certain things at or before specified times, and fails to do
time is essential any such thing at or before the specified time, the contract or so much of it
as has not been performed, becomes voidable at the option of the promise,
it the intention of the parties was that time should be of the essence of the
contract
At fixed time Promisee cannot claim compensation from promisor at any time other than
fixed time
Agreement to do impossible act An agreement to do an act impossible in itself is void
Compensation for loss through non- Where one person has promised to do something which he knew, and
performance of act known to be which the promisee did not know, to be impossible or unlawful, such
impossible or unlawful promisor must make compensation to such promise for any loss which
such promise sustains through the non-performance of the promise
Illustration i) A agrees with B to discover treasure by magic. The agreement is

void
ii) A contracts to marry B, being already married to C, and being
forbidden by the law to which he is subject to practice polygamy, A
must make compensation to B for the loss caused to her by the non-
performance of his promise
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Reciprocal promise to do things Where persons reciprocally promise, firstly, to do certain things
legal, and also other things illegal which are legal, and, secondly, under specified circumstances to do
certain other things which are illegal, the first set of promises is a
contract, but the second is a void agreement
Illustration A and B agree that A shall sell B a house for Rs. 10,000, but that, if
B uses it as a gambling house, he shall pay A Rs. 50,000 for it.
The first set of reciprocal promises, namely, to sell the house and to
pay Rs. 10000 for it, is a contract
Alternative promise, one branch In the case of an alternative promise, one branch of which is legal
being illegal and the other illegal, the legal branch alone can be enforced
Illustration A and B agree that A shall pay B Rs. 1000 for which B shall
afterwards deliver to A either rice or smuggled opium. This is a
valid contract to deliver rice, and a void agreement as to the opium
Effect of novation, rescission, an If the parties to a contract agree to substitute a new contract for it, or
alteration of contract to rescind or alter it, the original contract need not be performed
Illustration A owes money to B under a contract. It is agreed between A, B

and C that b shall henceforth accept C as his debtor, instead of A.
the old debt of A to B is at an end, and a new debt from C to B has
been contracted
Promisee may dispense with or Every promisee may dispense with or remit, wholly or in part, the
remit performance or promise performance of the promise made to him, or may extend the time for
such performance, or may accept instead of it any satisfaction which
he thinks fit
Illustration A owes B Rs. 5000. A pays to B and B accepts, in satisfaction of

the whole debt, Rs. 2000 paid at the time and place at which the Rs.
5000 were payable. The whole debt is discharged.
Obligation of person who has When an agreement is discovered to be void, or when a contract
received advantage under void becomes void, any person who has received any advantage under
agreement, or contract that such agreement or contract is bound to restore it or to make
becomes void compensation for it to the person from who he received it
Illustration A pays B Rs. 1000 in consideration of B’s promising to marry C,

A’s daughter. C is dead the time of the promise. The agreement is
void, but B must repay A Rs. 1000
Effect of neglect of promise to If any promise neglects or refuses to afford the promisor reasonable
afford promisor reasonable facilities for the performance of his promise, the promisor is excused
facilities for performance by such neglect or refusal as to any non-performance caused thereby
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Illustration A contracts with to repair B’s house. B neglects or refused to point
out to A the places in which his house requires repair. A is excused
for the non-performance of the contract it is caused by such
neglector refusal
Chapter – V (Certain Relations Resembling Those Created by Contract

Claim for necessaries supplied to If a person, incapable of entering into a contract, or any one whom he is
person incapable of contracting, legally bound to support, is supplied by another, person with necessaries
or on his account suited to his condition in life, the person who has furnished such supplies
is entitled to be reimbursed from the property of such incapable person
Illustration A supplies B, a lunatic with necessaries suitable to his condition in

life. A is entitled to be reimbursed from B’s property.
A supplies the wife and children of B, a lunatic, with necessaries
suitable to their condition in life. A is entitled to be reimbursed
from B’s property
Voluntary and non-voluntary i) Person helping another person non-voluntarily will have to be paid
ii) Person helping another voluntarily will not be paid
Illustration i) A, a tradesman, leaves goods at B’s house by mistake. B treats

the goods as his own. He is bound to pay A for them.
ii) A saves B’s property from fire. A is not entitled to
compensation from B, if the circumstances show that he intended to
act gratuitously
Responsibility for finder of goods A person who finds goods belonging to another, and takes them into
his custody, is subject to the same responsibility as a bailee.
Liability of person to whom money A person to whom money has been paid, or anything delivered by
is paid or thing delivered by mistake mistake or under coercion, must repay or return it
or under coercion
Illustration A and B jointly own Rs. 100 to C. A alone pays the amount to C, and B,
not knowing this fact, pays Rs. 100 over again to C. C is bound to repay
the amount to B.
Chapter – VI (The Consequence of Breach of Contract)

Compensation for loss or damage When contract has been broken, the party who suffers by such breach is
cause by breach of contract entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which
naturally arose in the usual course of things from such breach, or which the
parties knew, when they made the contract, to be likely to result from the
breach of it
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Such compensation is not be given for any remote and indirect loss or
damage sustained by reason of the breach
Compensation for failure to If a contract is breached, the promisor would pay the promisee, any
discharge obligation amount that he had to pay in consequential loss
Illustration A contracts to sell and deliver 50 packets of salt to B, at a certain price to

be paid on delivery. A breaks his promise, B is entitled to receive from
A, by way of compensation, the sum, if any, by which the contract price
falls short of the price for which B might have obtained 50 packets of salt
of like quantity at the time when the salt ought to have been delivered
Compensation for breach of contract If a contract is breached and no actual loss has occurred, penalty will
where penalty stipulated for have to be paid, if penalty clause is there
Illustration A contracts with B to pay B Rs. 1000, if he fails to pay B, Rs. 500
on a given day. A fails to pay B, Rs. 500 on that day. B is entitled
to recover from A such compensation, not exceeding Rs. 1000 as the
courts considers reasonable
Party rightfully rescinding A person who rightfully rescinds a contract is entitled to

contract entitled to compensation compensation for any damage which he has sustained through the
non-fulfillment of the contract
Illustration A, a singer, contracts with B to sing at his bar for two nights in every
week during the next months and B engages to pay her Rs. 100 for each
night. On the 6th night, A willfully absents herself and B, in consequence,
rescinds the contract. B is entitled to claim compensation for the damage
which he has sustained through the non-fulfillment of the contract
Chapter – VII (Indemnity and Guarantee) [Indian Sale of Goods Act, 1930]
Contract of indemnity A contract by which one party promises to save the another from
loss caused to him by the conduct of the promisor himself, or any
the conduct o any other person, is called a ‘contract of indemnity’
Illustration One person/body = Treasury Buildings Institute

Surety Bond = Another person acting as surety
Contract of ‘guarantee’,‘ surety’, Eg. : Subrata, a temporary employee taking loan from TBI
‘principal debtor’, ‘creditor’ a) Contract of guarantee : It is a contract to perform promise or
discharge liability (Loan)
b) Surety : A person who gives the guarantee is called surety (e.g.
Biplab)
c) Principal Debtor : Person who is taking the loan or in whose
respect guarantee is given (Subrata)
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d) Creditor : person to whom guarantee is given (TBI)
A guarantee may be either oral or written
Consideration for guarantee Anything done, or any promise made, for the benefit of the
principal debtor, may be a sufficient consideration to the surety for
giving the guarantee
Illustration A sells and delivers goods to B. C afterwards, without

consideration, agrees to pay for them in default of B. The
agreement is void.
Surety’s liability The liability of the surety is co-extensive with that of the principal
debtor, unless it is otherwise provided by the contract
Illustration A guarantees to B the payment of a bill of exchange by C, the

acceptor. The bill is dishonoured by C. A is liable not only for the
amount of the bill but also for any interest and charges which may
have become due on it
Continuing guarantee A guarantee which extends to a series of transactions is called a

continuing guarantee
Illustration A, in consideration that B will employ C in collecting the rent of

B’s zamindari, promises B to be responsible, to the amount of Rs.
5000, for the due collection and payment by C of those rents. This
is a continuing guarantee
Revocation of continuing A continuing guarantee may at any time be revoked by the surety, as
guarantee to future transactions, by notice to the creditor
Revocation of continuing The death of the surety operates, in the absence of any contract to
guarantee by surety’s death the contrary, as a revocation of a continuing guarantee, so far as
regards future transactions
Liability of two persons, primarily liable, A and B make a joint and several promissory note to C. A makes, it, in
not affected by arrangement between
them that one shall be surety on other’s
fact, as surety for B, and C knows this at the time when the note is made.
default The fact that A, to the knowledge of C, made the note as surety for B, is
no answer to a suit by C against A upon the note
Terms & conditions changed in a C agrees to appoint B as his clerk at a yearly salary and A is the surety
contract between principal debtor & for B to C. Afterwards without A’s knowledge or consent, C and B agree
creditor without the knowledge of
that B should be paid by a commission. A is not liable for subsequent
surety
misconduct of B
Pr. Debtor or creditor not acting as A contracts with B to grow a crop of indigo in A’s land and to deliver it
per contract; surety cannot be held to B at a fixed rate, and C guarantees A’s performance of this contract.
liable
B diverts a stream of water which is necessary for irrigation of A’s land
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and thereby prevents his from raising the indigo. C is no longer liable on
his guarantee
Creditor’s forbearance to sue does If creditor does not sue debtor even after time, surety is not over
not discharge surety
Illustration B owes to C a debt, guaranteed by A. The debt becomes payable.

C does not sue B for a year after the debt has become payable. A is
not discharged from his suretyship
Release of one co-surety does not Where there are co-sureties, a release by the creditor of one of them
discharge others does not discharge the others, neither does it free the surety so
released from his responsibility to the other sureties
Rights of surety on payment of When a guaranteed debt has become due, or default of the principal
performance debtor to perform a guaranteed duty has taken place, the surety,
upon payment or performance of all that he is liable for, is invested
with all the rights which the creditor had against the principal debtor
Surety’s right to benefit of C, a creditor, whose advance to B is secured by a decree, receives

creditor’s securities also a guarantee for that advance from A. C afterwards takes B’s
goods in execution under the decree, and then, without the
knowledge of A, withdraws the execution. A is discharged
Guarantee obtained by Any guarantee which has been obtained by means of

misrepresentation invalid misrepresentation made by the creditor, or with his knowledge and
assent, is invalid
Guarantee obtained by Any guarantee which the creditor has obtained by means of keeping
concealment invalid silence as to material circumstances is invalid
Co-sureties liable to contribute A, B and C are sureties to D for the sum of Rs. 3000 lent to E. E
equally makes default in payment. A, B and C are liable, as between
themselves, to pay Rs. 1000 each.
Liability of co-sureties bound in A, B and C, as sureties for D, enter into three several bonds, each
different sums in a different penalty, namely, A in the penalty of Rs. 10,000, B in
that of Rs. 20,000 and C in that of Rs. 40,000 conditioned for D’s
duly accounting to E. D makes default to the extent of Rs. 30,000.
a, B and C are liable to pay Rs. 10,000
Chapter – IX (Bailment)
Bailment Bailment is the delivery of goods by one person to another for some
(Section 148) purpose, upon a contract, that it will be returned or disposed of
according to the directions of the person delivering them
Bailor (Section 148) The person delivering the goods is called the bailor
15
Bailee (Section 148) The person to whom they are delivered is called the bailee
Delivery to bailee how made The delivery to the bailee may be made by doing anything
Bailor’s duty to disclose faults in The bailor is bound to disclose to the bailee faults in the goods
goods bailed (Section 150) bailed of which the bailor is aware
Hire of goods (Section 150) If the goods are bailed for hire, the bailor is responsible for such
damage, whether he was or was not aware of the fault in the goods
Illustration A lends a horse, which he knows to be vicious, to B. He does not

disclose the fact that the horse is vicious. The horse runs away. B is
thrown and injured. A is responsible to B for damage sustained
Care to be taken by bailee In all cases of bailment the bailee is bound to take as much care of
(Section 151) the goods bailed to him as a man of ordinary prudence would
Bailee when not liable for loss, The bailee, in the absence of any special contract, is not responsible
etc., of thing bailed for the loss, destruction or deterioration of the thing bailed, if he has
(Section 152) taken the amount of care of it described in Section 151
Termination of bailment by Bailor may terminate contract with bailee, if bailee’s act is
bailee’s act inconsistent with inconsistent with the conditions of bailment i.e. contract
conditions (Section 153)
Illustration A lets to B, for hire, a horse for his own riding. B drives the horse
in his carriage. This is, at the ‘option of A, a termination of bailment
Liability of bailee making If the bailee makes any use of the goods bailed, which is not as per
unauthorized use of goods bailed contract, bailee is liable to make compensation to the bailor any
(Section 154) damage arising to the goods from or during use of the goods
Illustration A hires a horse in Calcutta from B expressly to march to Benaras. A rises

with due care, but marches to Cuttack. The horse accidentally falls and is
injured. A is liable to make compensation to B for the injury of the horse
Effect of mixture, with bailor’s If bailee with bailor’s consent mixes the bailor’s goods, both bailor
consent, of his goods with and bailee shall have an interest, in proportion to their respective
bailee’s (Section 155) shares, in the mixture thus produced
Effect of mixture, without In case of separable goods, if bailee mixes the goods without
bailor’s consent, when the goods bailor’s consent, separation/division of goods is to be done at
can be separated bailee’s expense
(Section 156)
Effect of mixture, without In case of inseparable goods, if bailee mixes the goods without
bailor’s consent, when the goods bailor’s consent, bailee will be responsible for the loss of goods and
cannot be separated will have to compensate the bailor
16
(Section 157)
Repayment, by bailor, of Where, by the conditions of bailment, the goods are to, be kept or to be
necessary expenses (Section carried, and bailee to receive no remuneration, the bailor shall repay to the
158) baille the necessary expenses incurred by him for such bailment
Restoration of goods lent If a loan is given gratuitously, for a specific time and purpose, and if that loan is
gratuitously (Section 159) taken back before time and if as a result of such taken back, the person to whom
loan lent suffers a loss, the loanee may indemnify the loaner
Return of goods bailed on It is the duty of the bailee to return the goods to bailor, as soon as the
expiration of time (Section 160) time for which they were bailed has expired
Bailee’s responsibility when If bailee does not return the goods bailed in time, bailee will be
goods are not duly returned responsible for the damage, loss, etc
(Section 161)
Termination of gratuitous A gratuitous bailment is terminated by death either of the bailor or

bailment by death (Section 162) of the bailee
Bailor entitled to increase or In the absence of any contract to the contrary, the bailee is bound to
profit from goods bailed deliver to the bailor, any increase or profit which may be accrued
(Section 163) from the goods bailed
Illustration A leaves a cow in the custody of B to be taken care of. The cow
has a calf. B is bound to deliver the calf as well as the cow to A
Bailor’s responsibility to bailee Where bailee is not entitled for bailment, he is responsible for the
(Section 164) loss that bailee sustains
Bailment by several joint owners If there is no agreement, bailee may return the goods to one joint
(Section 165) owner without consent of others
Bailee not responsible on re- If the bailor has to title to the goods bailed, and the bailee in good
delivery to bailor without title faith, delivers them back to the bailor, the bailee is not responsible to
(Section 166) the owner in respect of such delivery
Right of third person claiming If a person, other than the bailor, claims good bailed, he may apply
goods bailed (Section 167) to the Court to stop the delivery of the goods to the bailor, and to
decide the title to the goods
Right of finder of goods; may sue Finder of goods cannot sue the owner for specific reward for
for specific reward offered preservation of goods voluntarily, but may retain the goods until he
(Section 168) receives compensation for preservation of goods found and for
search of owner and also may claim reward, if announced by the
owner and retain goods till reward is received
When finder of thing commonly When a thing which is commonly the subject of sale is lost, if the
on sale may sell it (Section 169) owner cannot with reasonable diligence be found, or if he refuses,
17
upon demand, to pay the lawful charges of the finder, the finder may
sell it
i) when the thing is in danger of perishing or of losing the greater
part its value or
ii) when the lawful charge of the finder, in respect of the thing
found, amount to two-thirds of its value
Bailee’s particular line If there is no agreement, bailee may retain the goods, if he has put
(Section 170) labour, skill to preserve goods, till he receives remuneration for
such skill, labour
Illustration A delivers a rough diamond to B, a jeweler, to be cut and polished,

which is accordingly done. B is entitled to retain the stone till he is
paid for the services he has rendered
Not entitled to retain, if there is A gives, cloth to B, to prepare a coat and A would make payment
agreement in three months. B agrees. B cannot retain the coat till full
payment is made by A
General line of bankders, factors, Bankers, factors, attorneys of a High Court , in absence of a contract
attorneys, policy brokers, etc. to the contrary, retain as a security for a general balance of account,
(Section 171) any goods bailed to them, no other persons have a right to retain
Pledge (Section 172) The bailment of goods as security for payment of a debt or
performance of a promise is called ‘Pledge’
Pawnor (Section 172) The bailor in this case is called the ‘Pawnor’
Pawnee (Section 172) The bailee here is called the ‘Pledge’
Pawnee’s right of retainer Pawnee may retain the goods pledged, not only for payment of the
(Section 173) debt, but also for the interest of the debt, and all necessary
expenses incurred by him in respect of the possession or for the
preservation of the goods pledged
Pawnee’s right to extraordinary Pawnee may charge from pawnor extraordinary charges in
expenses incurred (Section 174) connection with preservation of goods pledged
Pawnee’s right where pawnor If pawnor makes default in payment of debt/performance at the
makes default (Section 176) stipulated time, pawnee may :
i) Bring a suit and retain goods as collateral security
ii) Sale the goods with reasonable notice of sale to pawnor
If sold :
i) At less price : Pawnor is liable to pay the pawnee the balance
ii) At greater price : Pawnee will pay extra amount to pawnor
18
Suits by bailor or bailee against If a third person wrongtully depreives the bailee of the use or
wrong-doer (Section 180) possession of the goods bailed, or does them any injury, the baille is
entitled to use such remedies as the bailor would take, had the goods
not been bailed and either the bailor or the bailee may file suit
against the third person
Apportionment of relief or Compensation or relief received from suit, will be apportioned

compensation obtained by such between the bailor and bailee as per respective interest
suit
Chapter –X (Appointment and authority of agents)

Agent (Section 182) An ‘agent’ is a person employed to do any act for another or to
represent another in dealings with third persons
Principal (Section 182 The person for whom such act is done, or who is so represented is
called the Principal
Who may employ agent Any person who is of the age of majority and is of sound mind
Who may be an agent Any person who is of the age of majority and is of sound mind
Express An authority is said to be express when it is given by words spoken

or written
Implied An authority is said to be implied when it is to be inferred from the

circumstances of the case and things spoken or written, or the
ordinary course of dealing, may be accounted circumstances of the
case
Extent of agent’s authority An agent has the authority to do every lawful thing for a purpose.
(Section 188) E.g. running a business
Agent’s authority in an To do every lawful act to protect the principal. e.g. An agent for
emergency (Section 189) sale may have goods repaired if it is necessary
Sub-agents Can be employed in ordinary course of trade. He works on the

control of the original agent
When agent cannot delegate An agent cannot lawfully employ another to perform acts which he
(Section 190) has expressly or impliedly undertaken to perform personally
Sub-agent (Section 191) Sub-agent : A sub agent acts on the control of the original agent
Representation of principal by If properly appointed, a sub-agent can represent a principal

sub-agent properly appointed
( Section 192)
19
Agent’s responsibility for sub- The agent is responsible to the principal for the acts of the sub-
agent agent
Sub-agents responsibility The sub-agent is responsible for his acts to the agent, but not to, the
principal, except in case of fraud or willful wrong
Agent’s responsibility for sub- Agent is responsible to principal and third parties for acts of suba-
agent appointed without gent
authority (Section 193) Principal is not responsible for acts of such sub-agents
Sub-agent is not responsible to principal
Relation between principal and When agent has authority to name another person for principal to act is
person duly appointed by agent to business, he is not a sub-agent, but an agent for that part of business
in business of agency
(Section 194)
Illustration A directs B, his solicitor, to sell his estate by auction and to employ an
auctioneer for the purpose. B names C, an auctioneer, to conduct the sale.
C is not a sub-agent, but is A’s agent for that part of business
Agent’s duty in naming such In the process of naming of another agent, if agent exercises
person (Section 195) discretion as an ordinary men would do, he will not be responsible to
principal for any act of such agent
Illustration A instructs B, a merchant, to buy a ship for him. B employs a ship

surveyor of good reputation to choose a ship for A. The surveyor
makes the choice negligently and the ship turns out to be
unseaworthy and is lost. B is not, but the surveyor is, responsible to
A.
Ratification (Sanction) When acts by one person (A), on behalf of another person (B),
Right of person as to acts done for without B’s knowledge or authority, B may elect to ratify or to
him without his authority. Effect disown such acts. If B ratify them, the same effects will follow as if
of ratification (Section 196) they had been performed by his authority
Knowledge requisite for valid No valid ratification can be made by a person whose knowledge of
ratification (Section 198) the facts of the case is materially defective
Effect of ratifying unauthorized If any unauthorized portion of act is ratified, then the whole
act forming part of a transaction transaction is ratified
(Section 199)
Ratification of unauthorized act Principal cannot ratify unauthorized act of a person which may
cannot injure third person cause damage to another person
(Section 200)
20
Illustration A not being authorized thereto by B, demands, on behalf of B, the
delivery of a chattel, the property of B, from C, who is in
possession of it. This demand cannot be ratified by B, so as to make
C liable for damages for his refusal to deliver
Revocation of authority An agency is terminated when principal revokes authority or agent
recoursing business or principal/agent dies or becomes unsound
Termination of agency
mind or principal becomes insolvent
Section 201)
Termination of agency where Where the agent has himself an interest in the property which forms
agent has an interest in subject the subject matter an interest in the property which forms the
matter (Section 202) subject-matter of the agency, the agency cannot, in the absence of an
express contract, be terminated to the prejudice of such interest
Illustration A gives authority to B to sell A’s land, and to pay himself, out of
the proceeds, the debts due to him from A. A cannot revoke this
authority, nor can it be terminated by his insanity or death
When principal may revoke Principal can revoke authority before the authority has been
agent’s authority exercised
(Sanction 203)
Revocation where authority has Where partly exercised, authority cannot be revoked, if agent has
been partly exercised already taken liability.
(Section 204) If liability is not taken, authority can be revoked
Compensation for revocation by If there is an express contract, principal/agent has to compensate

principal, or renunciation by for revocation /renunciation without sufficient cause
agent (Section 205)
Notice of revocation or Reasonable notice should be given for revocation/renunciation

renunciation (Section 206)
Revocation and renunciation may Revocation or renunciation may be expressed or implied

be expressed or implied
(Section 207)
Illustration A empowers B to let A’s house. Afterwards A lets it himself. This

is an implied revocation of B’s authority
When termination of agent’s Termination of authority of agent/3rd person does not take effect
authority takes effect as to agent, before it is known to them
and as to third persons (Section
208)
Agent’s duty on termination of In case of principal’s death/insanity, agent is bound to take steps on
21
agency by principal’s death or behalf of representatives of late principal for protection and
insanity (Section 209) preservation of interests entrusted to him
Agent’s duty in conducting Agent acts on the discretion of principal and in the absence of such
principal’s business (Section 211) direction as per custom of business
Skill and diligence required from Agent should be skillful/diligent . for direct negligence/misconduct
agent (Section 212) he has to compensate principal. For indirect/remote effect of low
skill/diligence no compensation
Agent’s accounts (Section 213) On principal’s demand, agent to render proper account
Agent’s duty to communicate Agent must communicate principal during difficulty and obtain his
with principal (Section 214) instruction
Right of principal when agent deals, Principal may repudiate, if agent conducts business in his own
on his own account, in business of account without prior intimation/dishonestly
agency without principal’s consent
(Section 215)
Principal’s right to benefit gained Principal may demand any benefit from agent, if business is done
by agent dealing on his own in agent’s account without permission of the principal
account in business of agency
(Section 216)
Agent’s right of retainer out of Agent may retain money in principal’s account, as for advances,
sums received on principal’s remunerating to be received by agent
account (Section 217)
Agent’s duty to pay sums After deducting remuneration/advance by agent, agent has to return
received for principal the remaining amount to participate
(Section 218)
When agent’s remuneration If not fully sold, agent will gent remuneration for part selling.
becomes due (Section 219) If not fully sold, principal’s money can be retained by agent.
Agent not entitled to Agent will not get remuneration for misconducted part of business.
remuneration for business Further, agent will have to make good any amount, which principal
misconduct (Section 22o) lost due to misconduct of agents
Illustration A employees B to recover, Rs. 1000 from c and to lay it out on

security. B recovers Rs. 1000 and lays out Rs. 900/=
Agent’s line on principal’s In the absence of any contract, agent may retain goods/property of
property (Section 221) principal, unless he receives his commission.
Principal duty to agent Agent is to be indemnified against consequences of lawful acts

Agent to be indemnified against
22
consequences of lawful acts
(Section 222)
Agent to be indemnified against Agent to be compensated for acts done by him in good faith
consequences of acts done in
good faith (Section 223)
Non-ability of employer of agent Principal engages agent for criminal activities. Principal is not liable
to do a criminal act (Section 224) to compensate agent, if agent is fixed or jailed
Principal how far bound, when Principal has contract with agent to do a certain job. Agent does
agent exceeds authority extra. Principal is bound to pay for the contract work only
[Where work done is separable]
(Section 227)
Principal not bound when excess of When agent done extra job outside contract and such portion cannot
agent’s authority is not separable be separated, principal is not bound to recognize such contract
(Section 228)
Consequences of notice given to Notice received by agent in course of business on behalf of principal
agent (Section 229) has same legal effect if it would have been received by principal
Agent cannot personally enforce, Agent cannot enforce any contract in which he has entered on behalf
nor be bound by, contracts on of principal, nor is he personally bound by them
behalf of principal (Section 230) Presumption of contract to contrary : such contract shall be
presumed to exist in the following cases :
i) where contract is made by an agent for the sale or purchase of
goods for a merchant resident abroad
ii)where the agent does not disclose the name of his principal
Rights of parties to a contract Agent, if disguised, third party may cancel contract if disclosed that
made by agent not disclosed he is agent and not principal
(Section 231)
Performance of contract with

agent supposed to be principal
(Section 232)
Right of person dealing with In cases where agent is personally liable, a person dealing with him,
agent personally liable (Section may personally held him or principal or both liable
233)
Consequences of inducing agent When a person who has made a contract with an agent, induces the
or principal to act on behalf agent to act upon the belief that the principal only to act upon the
(Section 234) belief that the agent only be held liable, he cannot afterwards hold
laible the agent or principal; respectively
Liability of pretended agent An unauthorized agent is liable to make good damage caused due to
23
(Section 235) his false claim, if principal does ratify his act.
Liability of principal inducing When agent claims of false authority and principal induces such
belief that agent’s unauthorized claim, principal is bound by such acts/obligations
acts were authorized (Section
237)
Effect, on agreement, or
misrepresentation of fraud by
agent (Section 238)

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1

THE INDIAN CONTRACT ACT, 1872

The Indian Contract Act 1872

Act No. Act No. 9 of 1872

Date 25th April 1872

Came into force 1st September 1872

In other states In Sikkim – 01-09-1984

Extent It extends to the whole of India

Exception Jammu & Kashmir

Proposal When one person signifies to another his willingness to do or to

Promisor A person making a proposal is called promisor

Promisee The person accepting the proposal is called promise

Miscellaneous Act Transfer of Property Act, 1882 (Act 4 of 1882)

Reciprocal promise Promises, which form the consideration or part of the

Contract An agreement enforceable by law is a contract

Void An agreement not enforceable by law is said to be void

Bailee A person to whom anything is kept with a purpose is known as bailee

Chapter – I (Communication, Acceptance & Revocation of proposals

Communication of acceptance is As against proposer : when it is put in a course of transmission to

An acceptance may be revoked at any time before the

Revocation - how made i) by the communication of notice of revocation by the proposer to

Chapter –II (Contracts, Voidable Contracts and Void Agreements)

Coercion It is the committing or threatening to commit, any act forbidden by

Illustration A and B, being traders, enter upon a contract. A has private

Voidability of agreements without When consent to an agreement is caused by coercion, fraud or

Illustration A, intending to deceive B, falsely represents that five hundred

Illustration 1) A promises B to drop a prosecution which he has instituted

Illustration A promises to superintend, on behalf of B (a legal manufacture of

Agreement without consideration An agreement made without consideration is void, unless :

Illustration i) A promises, for no consideration, to give to B Rs. 10,000. this is

Agreement in restraint of legal Every agreement :

Illustration A agrees to sell to B a hundred tones of oil. There is nothing

Chapter –III (Contingent Contracts)

Illustration A contracts to pay B Rs. 10,000, if B’s house is burnt. This is a

Contingent contracts to do or not to do anything if an uncertain

Illustration A makes a contract with B to buy B’s horse if A survives C. this

Contingent agreements to do or not to do anything, if an impossible

Chapter – IV (Performance of Contracts)

Illustration A promises to deliver goods to B on a certain day on payment of

Illustration A , a singer, enters into a contract with B, the manager of a theatre,

Illustration A promises to pay B a sum of money. A may peform this promise,

Illustration i) A, B and C are under a joint promise to pay D Rs. 3000. C is

Illustration A, in consideration of Rs. 5000, lent to him by B and C, promises

Illustration A promises to deliver goods at B’s warehouse on the first January.

Reciprocal Promise When a contract consists of reciprocal promises to be

Illustration A and B contract that A shall deliver goods to B to be paid for by

Agreement to do impossible act An agreement to do an act impossible in itself is void

Illustration i) A agrees with B to discover treasure by magic. The agreement is

Illustration A owes money to B under a contract. It is agreed between A, B

Illustration A owes B Rs. 5000. A pays to B and B accepts, in satisfaction of

Illustration A pays B Rs. 1000 in consideration of B’s promising to marry C,

Chapter – V (Certain Relations Resembling Those Created by Contract

Illustration A supplies B, a lunatic with necessaries suitable to his condition in

Illustration i) A, a tradesman, leaves goods at B’s house by mistake. B treats

Chapter – VI (The Consequence of Breach of Contract)

Illustration A contracts to sell and deliver 50 packets of salt to B, at a certain price to

Party rightfully rescinding A person who rightfully rescinds a contract is entitled to

Illustration One person/body = Treasury Buildings Institute

Illustration A sells and delivers goods to B. C afterwards, without

Illustration A guarantees to B the payment of a bill of exchange by C, the

Continuing guarantee A guarantee which extends to a series of transactions is called a

Illustration A, in consideration that B will employ C in collecting the rent of