Uma Nagarajan,IBS Guragon

 Offer and Acceptance

 Lawful consideration:
 Intention to create a legal relationship
 Capacity or competency of parties
 Free and genuine consent(Consensus ad idem)
 Lawful object
 Not expressly declared void
 Legal formalities

Uma Nagarajan,IBS Guragon

 Acceptance
 Unconditional
 Cannot be implied by silence
 Must be communicated to the offeror
 Within reasonable time

 Offer
 Unconditional
 Cannot be implied by silence
 Communication- express(s) or implied
 Mere announcement, display or declaration of intention
is not an offer.

Uma Nagarajan,IBS Guragon

 Types of contracts based on validity

 Voidable contract
 Void Agreement
 Void Contract
 Illegal agreement:
 Unenforceable contract

Uma Nagarajan,IBS Guragon

 Rescission of the contract
 Suit upon quantum merit
 Suit for specific performance
 Suit for injunction
 Suit for damages

Uma Nagarajan,IBS Guragon

 A person who has the capacity to enter into a
contract with another person may do so by
 Himself or Through another person

 An agent is a person employed to do an act for

another or represent another person.
 The person for whom such an act is done is
principal.
 The agent is merely a connecting link between the
principal and third parties

Uma Nagarajan,IBS Guragon

 Who can be an agent?
 Even a minor/person of unsound mind can be an
agent.The principal is liable.

 Who can be a principal?

 Major of sound mind

 No consideration necessary

Uma Nagarajan,IBS Guragon

 Depends on principal agent agreement(not
contract)
 Agency arises when a person intends to act
on behalf of another
 House broker,stock broker,partner,

Uma Nagarajan,IBS Guragon

 Express agreement
 Implied agreement
 Ratification
 Operation of Law

Uma Nagarajan,IBS Guragon

 Express agreement
 Appointed by word of mouth or writing (POA)
 -Suhana and Aryan Khan at KKR auction
filling in for SRK

Uma Nagarajan,IBS Guragon

 Implied authority:
 Estoppel :by conduct or gestures and actions
 Holding out:
 Necessity /Emergency:

Uma Nagarajan,IBS Guragon

Implied Authority: Estoppel
Make a third party believe that X is an agent by
conduct or gestures and actions.

A gets to know that B is dealing on his behalf with C

and does not take any steps to clarify his position, A
would be liable for the transaction performed by B
on his behalf.

A is an agent of P and collects rent on P’s behalf.

One day P terminates his agency.But no notice of this
was given to the tenants.If A collects rent from the
tenants ,P is responsible.

Uma Nagarajan,IBS Guragon

 Cullen v. BMW of North America(1980)

 Warden vs Orlandi

Uma Nagarajan,IBS Guragon

 BMW had sent a letter to Bavarian as follows:
“If you are interested in continuing as a BMW dealer, please
contact us by January 5, 1979 to discuss with you in greater
detail the deficiencies cited above and the action which would
have to be taken by you in order to rectify such deficiencies. If
we can reach a satisfactory understanding with respect to
these matters, we will send you a written confirmation of our
intention to offer you a 1979 dealer agreement”

Uma Nagarajan,IBS Guragon

 Implied Authority :Agency by holding out
 Based on prior action
 Master always allowed his servant to buy goods on
credit from a shopkeeper,One day master gives
cash to the servant and the servant misuses the
money and buys goods on credit.Master is still
responsible to shopkeeper.

Uma Nagarajan,IBS Guragon

 Implied Authority :Necessity or Emergency

 Necessity :
 Necessity: husband and wife

 Emergency:
 The captain of a ship found that the cargo of his ship was
rapidly perishing.He is entitled to pull into the nearest port
and sell the goods for the best price obtainable.

 Great Northern Railway Co v Swaffield.

Uma Nagarajan,IBS Guragon

 Agency by necessity:
 A husband is bound to pay for necessities of his wife and if he
doesn’t make enough provision for her maintenance she can
pledge his credit. Necessities refer to such goods and
services required for their current lifestyle.
 But husband won’t be liable if he has expressly forbidden his
wife to pledge credit or informedthe trader not to give credit or
goods bought are not necessities. A wife who is deserted is
also eligible for credit but if she lives apart of her own will she
is not eligible.

Uma Nagarajan,IBS Guragon

 By operation of law
 CEO,Promoters,partner

 Agency by ratification
 When A acts on behalf of P without his knowledge and
consent,
 but P accepts the act
 later. Ratification may be
 expressed or
 implied by conduct

Uma Nagarajan,IBS Guragon

 Example:Agency by ratification

 Indian cricket team skipper Virat Kohli's Rs 100-

crore endorsement deal with sportswear
manufacturer Puma-Bunty Sajdeh(Agent) CEO of
athlete management firm Cornerstone Sport.

Uma Nagarajan,IBS Guragon

 Based on authority
1. Special Agent
2. General Agent
3. Universal Agent

 Nature of work
1. Commercial/Mercantile agent
2. Banker
3. Non Mercantile agent

Uma Nagarajan,IBS Guragon

Special Agent
Only for a special purpose/work (Aryan and Suhana
Khan-KKR)

General Agent
All work in a particular department(property agent;Kohli
Sajdeh)

Universal Agent
All legal matters-Mallya

Uma Nagarajan,IBS Guragon

 Based on nature of work
 Commercial or mercantile agent
 (Auctioneer, Broker, factor,del-credere agent)
 Banker
 Non mercantile agents
 (stock broker,lawyer,wife)

Uma Nagarajan,IBS Guragon

 Factor
 Has possession of goods with the purpose of
selling them

 Del credere agent

 An agent for the sale of goods who,in
consideration of a higher reward guarantees the
due payment of the price of all goods sold by him

Uma Nagarajan,IBS Guragon

Rights of an Agent Duties of a Principal
Right to receive remuneration To pay remuneration
Right of retainer (deduct his
expenses and commission
before paying the principal)
Right of lien (retain goods
,property and papers until his
payment is received)
Right of indemnification for all To indemnify the agent
lawful acts
Right of compensation for To compensate agent for injury
injuries due to neglect of
principal

Uma Nagarajan,IBS Guragon

Duties of an Agent Rights of a Principal
To carry out the work properly To ensure that work is
carried out with care

Give proper accounts to the To recover damages due to

principal negligence by agent

To protect the interest of the

principal

Not make secret profit To recover secret profits

made

Not delegate authority To sue/recover damages of

further(Except in special cases and further delegation is done
with the principal’s authority)

Uma Nagarajan,IBS Guragon

 Termination by act of parties
 Termination by Operation of Law

Uma Nagarajan,IBS Guragon

 Termination by act of parties
 Mutual agreement
 Revocation by principal
 Revocation by agent

 Reasonable notice must be given

 Compensation if contract was time bound
 Revocation may be express or implied

Uma Nagarajan,IBS Guragon

 Termination by operation of Law
 On completion of business
 Expiry of time (fixed time)
 Destruction of subject matter
 Death and insanity
 Insolvency of principal/dissolution of
company
 Principal becoming an alien enemy(Ukraine
and Russia)

Uma Nagarajan,IBS Guragon

 When an agency cannot be terminated

 Agent has incurred personal liability

 Agent has partly exercised the authority
 Agency coupled with interest

Uma Nagarajan,IBS Guragon

 Agent has incurred personal liability
 The agent has paid an advance on behalf of
the principal on purchase of a house

 Agent has partly exercised the authority

 Agent has accepted advance from seller for
purchase of a house.

Uma Nagarajan,IBS Guragon

 A gave some money to B for investment in an
FD.B ,without the knowledge of A, used this
money for investment in his own business .B
continued to pay the bank interest rate(7%) to
A but earned profits from his business at a
much higher rate(12%).What are the rights of
A against B?

 A can recover the entire 12% return from B

Uma Nagarajan,IBS Guragon

 A owes Rs 20,000 to B.He appoints B as his
agent for selling his property at Delhi and
asks him to hand over the sale proceeds after
taking his dues.Is this agency revocable by
A?Is it revocable if A dies or becomes insane?

 No
 No,this an agency coupled with interest and
is irrevocable

Uma Nagarajan,IBS Guragon

 D is carrying a consignment of tomatoes
belonging to E in his truck.The consignment
has to reach Mumbai,but the truck breaks
down halfway through and the tomatoes start
rotting.D sells the tomatoes at ½ the price.E
sues D for damages.Advise.

 D was acting as an agent of

necessity/emergency and is not liable.

Uma Nagarajan,IBS Guragon

 A enters into an agreement to sell B’s piano
without B’s knowledge.B is very angry but
when A gives him the advance consideration
received from the purchaser for the piano,B
accepts it.Discuss the rights of A and B.

 B has to now honour the contract since his

acceptance of the consideration amounts to
implied ratification.

Uma Nagarajan,IBS Guragon

 A engaged B as an auctioneer on the
condition that B would receive his due
commission of Rs 5,000.B however secretly
received Rs 2,000 as commission from the
purchaser.Discuss the rights of A and B.

 A can recover the 2,000 extra commission

from B and the original commission of Rs
5,000 even though he got B’s services

Uma Nagarajan,IBS Guragon

 SPECIAL CONTRACTS
 Indemnity
 Guarantee
 Letter of Credit
 Bailment
 Pledge
 Set Off
 Lien

Uma Nagarajan,IBS Guragon

 INDEMNITY

 The term Indemnity literally means “Security

against loss”.

 A contract of indemnity is a contract whereby

one party( Indemnifier) promises to save the
other(Indemnified) from loss caused to him .

Uma Nagarajan,IBS Guragon

 Contract of Indemnity

Indemnified or
Indemnifier
Uma Nagarajan,IBS Guragon Indemnity Holder
 Indemnifier is someone or something
which protects against loss or
compensates for the loss or damage.
 The person whose losses the indemnifier
promises to compensate is called
Indemnity Holder or Indemnified

 This is a part of the Indian Contract

Act,1872,so all elements of an essential
contract apply to indemnity.
Uma Nagarajan,IBS Guragon
 Example

 Himani buys a car and get the insurance done for her car
and pays her premiums timely. After few months her car
gets damaged due to an accident then she goes to the
insurance company to compensate for the loss.
 Her car gets repaired
 by the insurance money.

 The Insurance Company

 is the Indemnifier
 Himani is the Indemnified

Uma Nagarajan,IBS Guragon

 Campbell v Conoco (UK) Ltd

Uma Nagarajan,IBS Guragon

 Osman Jamal & Sons v. Gopal Purushotham
 Amount can be recovered even before discharging liability by
indemnified.

Uma Nagarajan,IBS Guragon

Rights of an Indemnified Rights of an Indemnifier
(Indemnity holder)

Right to recover damages (anything Indemnifier is not liable until

he was compelled to pay to a third the indemnified has suffered
party) the loss. (Contingent Contract)

Right to recover costs (incurred in

defending his case)
Indemnified can compel the
indemnifier to make good his loss
although he has not discharged his
liability (does not hold for insurance)

Uma Nagarajan,IBS Guragon

 GUARANTEE
 A “contract of guarantee ” is a contract to perform
the promise, or discharge the liability, of a third
person in case of his default.
 The person who gives the guarantee is called the ”
surety/guarantor.
 The person in respect of whose default the
guarantee is given is called the ” principal debtor “,
 The person to whom the guarantee is given is called
the ” creditor “.
 A guarantee may be either oral or written.

Uma Nagarajan,IBS Guragon

 Contract of
Guarantee

Surety

Debtor Creditor
Uma Nagarajan,IBS Guragon
 Eg) A walks into a shop with B and asks the
shopkeeper to deliver certain goods to B. He
says ,”if B is unable to pay,I will make the
payment”

 Bank guarantee :A buyer in Poland obtains

goods from a seller in Gujarat .Later the buyer
runs into cash flow difficulties and can't pay
the seller. A bank guarantee would pay an
agreed upon sum to the seller in Gujarat.
Uma Nagarajan,IBS Guragon
 Tripartite Agreement: Agreement involving three people with
concurrence of all three.(three contracts)
 Primary liability is that of debtor
 All elements of a valid contract hold.(but the surety does not
get any consideration)
 Oral or written
 Guarantee can be for a single transaction(special guarantee)
or series of transactions(continuing guarantee)
 A contract of guarantee is not a contract of Uberrimae Fidei–
i.e. one requiring full disclosure of all material facts to the
surety.


Uma Nagarajan,IBS Guragon

 National Provincial Bank of England v Brackenbury

 Brackenbury signed a guarantee which was intended to be a joint

and several guarantees of three other persons with him. One of
them did not sign. The court held that there is no agreement
between the bank and the guarantors because Brackenbury had
agreed to sign the document only as co guarantor if the others
also signed.Since one of the guarantors did not sign, Brackenbury
was held not liable

Uma Nagarajan,IBS Guragon

Indemnity Guarantee
Two parties Three parties
Liability of indemnifier is Liability of surety is secondary.
primary Liability of Debtor is primary

No such requirement Guarantee is always given at

the request of the debtor

Only one contract Effectively three contracts

(debtor and creditor;surety
and creditor;surety and
debtor)

Uma Nagarajan,IBS Guragon

 Examples
 A took a loan for bee-keeping from a co-operative
society .On A’s request, B promised to pay the society
if A could not repay the loan. Due to viral infection the
bee died and the business failed which led to failure
of A to pay the loan. B argued that the contract was
void and he isn’t liable to pay.

 The court held that the surety isn’t discharged and is

liable to pay off the installment, as he agreed if the
principal debtor fails, he would be liable. (Florence
Mabel R.J. v. State of Kerala)

Uma Nagarajan,IBS Guragon

 Adamson is an auctioneer. Jarvis represented himself as
the real owner of some furniture and asked Adamson to
auction it. Jarvis had no right to sell the furniture, but
Adamson did not know this. The real owner of the
furniture sued Adamson and Adamson had to repay the
cost of the furniture to the real owner. Can Adamson
recover the money from Jarvis?

 Yes, Adamson can recover the money by suing

Jarvis.This is a voidable contract on account of
misrepresentation. Since Jarvis was responsible for the
misrepresentation, Jarvis has to repay Adamson.

Uma Nagarajan,IBS Guragon

 A gives an amount of Rs 10,000 to B on the
guarantee of C.B is a minor.Three months
later B refuses to repay the money.Can A
recover it from C?

 Yes he can

Uma Nagarajan,IBS Guragon

 L was appointed by bank for collecting money on their
behalf. H ,a relative of the L acted as a surety for L. H was
unaware of the fact that L had previously had
misappropriated money and L did not disclose this fact to
him. After finding out about the misappropriation the bank
continued to employ L. Later L ran away with the bank’s
money and the bank sued H for recovery. Is H liable?
 The court held that the guarantee could not be enforced
due to nondisclosure of facts. Any guarantee which the
creditor has obtained by keeping silent as to the material
circumstances is invalid.

Uma Nagarajan,IBS Guragon

 Letter of Credit
 A letter of credit is an obligation taken on by a bank
to make a payment once certain criteria are met.
Once these terms are completed and confirmed, the
bank will transfer the funds.

Uma Nagarajan,IBS Guragon

 A United States customer Charles, desires to purchase a
shipment of wine from French seller Zoe. Zoe, is unsure
of Charles's creditworthiness. So he requires Charles
either to pay cash in advance of shipment or to
establish a letter of credit. Charles, not willing to pay
for the wine until he knows it has been shipped, opts
for payment by a letter of credit.

Uma Nagarajan,IBS Guragon

1. Charles goes to his HSBC bank and asks it to issue a
letter of credit for Zoe's benefit.
2. The HSBC bank is authorized to make the payment to
Zoe upon presentation of a bill of lading.
3. Zoe ships the wine and obtains a bill of lading from
the shipper.
4. Upon shipment of the wine, B or his collecting
bank(Citibank) presents the letter of credit and the
bill of lading to the issuing bank(HSBC) for payment.
5. The issuing bank(HSBC) pays the collecting bank(Citi)
6. The collecting bank (Citi) then pays B .

Uma Nagarajan,IBS Guragon

 Bank Guarantee

 A buyer in Poland obtains goods from a

seller in Gujarat .The buyer’s bank
guarantees the seller that they will make
the payment to the sleer is the buyer is
unable to do so.Later the buyer runs into
cash flow difficulties and can't pay the
seller. A bank guarantee would pay an
agreed upon sum to the seller in Gujarat.

Uma Nagarajan,IBS Guragon

 A FEW OTHER TERMS

 REPRESENTATION
 WARRANTY
 COVENANT

Uma Nagarajan,IBS Guragon

 What is Representation?

 A representation is basically an assertion of a past

or existing fact, true on the date that it is made. It
is generally given to induce another party to enter
into a contract. Affected party can terminate the
contract and sue for damages
 A seller of an app represents that no notice of
patent infringement had been received.
 An employee states that he has never been
convicted.
Uma Nagarajan,IBS Guragon
 What is Warranty?

 Warranties are promises that appear on

the face of the contract. Warranties mean
that a proposition is true at the time of the
contract and will be true in the future.

 Affected party can sue for breach of

warranty

Uma Nagarajan,IBS Guragon

 What is a Covenant?

 An undertaking to do or not do something

in the future; for example, that certain
conditions will be maintained between the
signing of a contract and the closing of the
transaction.

 Eg)Jassi jaisi koi nahin

Uma Nagarajan,IBS Guragon