Contract

How does the Indian Contract Act differ from English Law?

The Indian Contract Act is based upon English Law. However, English Law on the subject is not codified. Thus, even though the Courts rely upon English Judgments in certain cases, the statute (Indian Contract Act) reigns supreme in India and, is the final authority. The following points of difference exist between the two laws, regarding contracts: (1) Minors cannot enter into a contract. Under the English Law, a contract entered into by a minor, is voidable at the option of the minor. This means that a minor can, on attaining majority, ratify a contract entered into by him when he was a minor. Under the Indian Contract Act, however, the position is different. A minor is considered absolutely incapable of entering into a contract. This means that the agreement is void ab initio i.e. void right from the start. Such a contract cannot be ratified. Also, it cannot bind the minor even after he attains the age of majority. (2) Contracts without consideration are valid in some cases. The English Law recognizes contracts without consideration. The formal contracts of English Law are binding by their form alone and are older than the doctrine of consideration. Thus, although ingenious attempts have been made to treat consideration, itself, as a matter of form, this is paradoxical because the essence of consideration is exchange of value, regardless of any particular form. Under the Indian Contract Act, a contract without consideration is void and cannot be legally binding or enforceable. This is, however, subject to an exception made under Section 25, which mentions instances of contracts which are valid even without consideration. (3) Past consideration is good. Under the English Law, past consideration is not valid. Under the Indian Contract Act, it is valid. (4) Consideration need not be adequate but must be deemed adequate by the law. (5) Contracts must be in writing, if required by law.

What are the damages in the case of a breach of contract?

Damages follow the law as laid down in Hadley vs. Baxendale. When a contract has been broken, if a sum is named in the contract, as an amount to be paid in case of such breach, then the party, that is complaining of the breach, is entitled to a reasonable compensation, not exceeding the amount named, therein, even though no actual damage or loss is proved. This puts forth three important points:
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That if a certain amount is stipulated as damages to be paid, in case of breach of contract, then the maximum amount that can be awarded by the Court, as damages, will be the stipulated amount. That the party claiming damages will only be entitled to reasonable compensation. The Contract Act, specifically, provides that any amount stipulated to be paid as penalty will not be awarded. The above mentioned case highlighted these two points when stating that damages for breach of contract are intended to compensate and not to penalize. The party claiming damages for breach of contract can do so even where no loss or actual damage is proved.

How do agreements differ from contracts?

Most people use the two terms synonymously but, from a legal standpoint, there is an important difference. All contracts are agreements but all agreements are not contracts. Analytically put, this would mean, that agreements are the genus of which contracts are the specie. What, exactly, is an agreement?

An agreement needs the following essentials: 1. 2. 3. 4. A proposal/offer An acceptance A promise A consideration for the promise

What is the difference between a proposal and an offer?

When one person signifies to another his willingness to do or, not to do something, this would be called a proposal or an offer. However, the person making the proposal must intend to obtain the other persons assent. A proposal must be definite. The slightest ambiguity that might render it vague or uncertain will invalidate it as no acceptance of such a proposal is possible. Also, a proposal may be expressed or implied. An express proposal will be plainly laid out in specific terms. An implied proposal is a proposal that may be inferred from the actions or conduct of the person. Thus, when you buy a railway or bus ticket, you are making an implied proposal to be transported to a certain place. Another important feature is the distinction between a proposal or offer and an invitation to an offer. An invitation to offer is merely that an invitation. It is a stage of preliminary negotiation and does not constitute a valid proposal. Thus, when a shop owner displays certain goods in his shop window or, advertises in a magazine, he is, merely, making an invitation to offer. It is only after the prospective customer enters the shop and, asks to buy a certain item that an offer is made for the first time by the buyer.

What is a promise?

When the person to whom the proposal is made agrees to the proposal, the proposal is said to be accepted. When a proposal is accepted, it becomes a promise. Like a proposal, an acceptance may also be express or implied. Continuing with the example of the railway ticket, once the passenger is allowed to board the train, this is an expression of acceptance on the part of the railways to transport the passenger to the relevant destination. An acceptance must be made in full. This means that the person who makes the acceptance must accept it in its entirety. He cannot accept the proposal in part. If the acceptor agrees to certain parts and, modifies certain other terms and sends it back to the person making the proposal, this is not an acceptance. In fact, a part acceptance of this kind becomes an entirely new proposal.

It is important to note that before a proposal is accepted, the person making it may revoke it. However, after the communication of the acceptance is complete, the proposal becomes a promise and cannot be revoked.

How is the completion of a proposal, acceptance and revocation determined under the law?

Proposal: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. Acceptance: Where acceptance is concerned, there are two separate points of completion for the person making the proposal and the person accepting it. Where the former is concerned, it would be complete when it is put in the course of transmission to him so as to be out of the power of the acceptor. Where the latter is concerned, it is complete when it comes to the knowledge of the proposing person. The result of the above provisions is that the acceptor can revoke the acceptance at any time before the proposer knows about it. However, the proposer's rights of revocation are limited to the time at which the acceptor puts the acceptance in a course of transmission to him. To simplify this, here is an example: ''A writes to B proposing to buy his car for the sum of Rs. Three lakhs. B writes back, accepting this offer. Now, B can revoke his acceptance at any time before A comes to know of it. However, A can only revoke his proposal before B actually posts the letter of acceptance. Thus, as far as B is concerned, the agreement is complete as soon as A posts the letter.'' Mr. A offers to take his client out to dinner and the client agrees. Subsequently, on the appointed date Mr. A does not turn up. Does this mean that Mr. A has broken an agreement?

The answer is no. This was merely a promise on his part. A promise lacks a very important ingredient i.e. 'consideration'. The offer of dinner is a valid one and so is the acceptance of the girl. Thus, there was a valid promise made. However, Mr. A did not receive anything in return and this is what

is missing. This 'something', which he should have received, is known as consideration. Under the Indian Contract Act 'consideration' is defined as: 'When, at the desire of the promisor, the promisee or, any other person, had done or abstained from doing, or does or abstains from doing, or promises to do or, to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.' Although this sounds complicated, it's actually very simple. The following things could be said to be the essential elements of this definition:
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Consideration is nothing but the price paid by one party for the promise of the other. It can be in the nature of a positive act or the forbearance of a certain act It can be past, present or future.

Thus, consideration forms an essential part of an agreement without which the agreement is void. This is because, in absence of consideration, there is no legal obligation formed between the parties and, therefore, in such a scenario, they are not bound by the terms of the agreement. Consideration forms an essential part of the contract. Are there any exceptions to this rule?

Yes, there are three exceptions to this rule: Mutual love and affection- Any agreement, made without consideration, is valid if it is made on account of natural love and affection between the parties standing in near relation to each other, provided it is expressed in writing and, it is registered under the law. P. for natural love and affection promises to give his son V, Rs. 50, 000. P. puts this promise in writing and registers it. This is a contract. Promise to compensate for something done - Any agreement, made without consideration, is valid if it is a promise to compensate a person who has already voluntarily done something for the person making the promise. S. undertook to pay for the education of R. while the latter was a minor. When R. attained the age of 25, he promised to give S. Rs. 25000/- out of gratitude. This promise is binding on R.

Promise to pay a debt, barred by Limitation law - Any promise, made in writing and signed, to pay a debt, is binding on the person signing it even though; it may be barred by the law of limitation. S. owes N. Rs.10, 000/-, but debt is barred by the Limitation Act. However, S. signs a written promise to pay N. Rs 5000/- towards this debt. This is a contract. It is important to note, firstly, that an agreement is not void merely because the consideration is not adequate, provided that the consent of the party is given freely. In case of a dispute, the courts will not decide whether the consideration is adequate or not. Secondly, this rule will not affect any law relating to gifts. Thus, an agreement, to be valid, must satisfy the above mentioned requirements. However, this still does not make it a contract. A contract is an agreement, enforceable by law, and this is the real test. As long as an agreement does not involve the law, it would fall outside the purview of a contract. However, once the law can be called upon to play a role in some capacity, the agreement, immediately, becomes a contract. What determines whether an agreement is enforceable by law?

The simple answer to this is that the parties must intend to create legal relations. This would, in itself involve certain requirements which the law prescribes. Requirements of a contract

Section 10 of the Act states: 'All agreements are contracts if they are made by free consent of parties competent to contract, for lawful consideration, with a lawful object and, are not, hereby, expressly declared to be void'. Here, it is important to note the difference between a "void" contract, as provided above, and a "voidable" contract. Actually, a void contract is a contradiction in terms because the very meaning of void is that it does not exist at all in the eyes of the law. However, a voidable contract is one that does take place but, it can be avoided at the option of one or either party. Thus, the following can be said to be the essential requirements for an agreement to qualify it as a contract: 1. Competency of persons

2. Free consent 3. Lawful object. When is a person competent to contract?

The law prescribes the following requirements for a person to be able to contract:
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The person must be a major (above the age of 18-Indian Majority Act 1875) The person must be of sound mind i.e. he must not be a lunatic under the Indian Lunacy Act. The person should not be disqualified from contracting under the law.

Your 17 year old son sells your house and he himself signs on the dotted line. Can the buyer, now, force you to part with your home?

No. An agreement by a minor is a void agreement, which means the law does not recognise it at all. Even if your son decides, after he becomes 18, to ratify this agreement, it will not be a valid contract. Minority lasts upto the age of 18, except in the case of a minor under the care of a guardian, where it lasts till the age of 21. But what if you enter into a contract for the benefit of your son?

Here, the position changes and the law will allow a contract if it is made by the guardian for the benefit of a minor or his estate. You are entering into an agreement with a person and you suspect him to be insane. Should you still go ahead with the agreement? Will it be valid?

NO. The law, as mentioned above, says that any agreement entered into by a person who is not of sound mind will be an invalid agreement and, just as in the case of a minor, the law considers it to be void. The statutory test of soundness of mind is that the person should, at the time of making the contract, be capable of understanding it and forming a rational judgment as to its effect upon his interests.

A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract during such lucid intervals, and vice-versa. The law, also, provides that where a person is so drunk that he cannot understand the terms of the contract, or, have a rational judgment as to its effect on his interest, he cannot contract whilst such drunkenness lasts. However, the other contracting party must know the state of mind of the drunken person. What is a free consent?

The law requires that the persons contracting must enter into the contract of their own free will. Section 13 of the Act says: Two or more persons are said to consent when they agree upon the same thing in the same sense. Here, the law further explains this by saying that there should be a meeting of minds of the parties. Therefore, if for some reason the parties have differing ideas, it will not be free consent. Consent is said to be free when it is not caused by: 1. 2. 3. 4. 5. 6. Coercion Undue Influence Fraud Misrepresentation Mistake of fact Mistake of law

If you were made to sign an agreement under the threat of a knife or, any other form of assault, could you, then, be sued for breach of contract if you did not keep your end of the bargain?

No. This would amount to what is known as 'coercion'. Coercion means any act or, the threat of any act, which would prejudice a person with the intention of causing him to enter into an agreement. However, it is also provided that such act or threat should be an offence under the Indian Penal Code and, also, includes the unlawful detention of any person for this purpose. Thus, the law provides that if you are forced into any agreement, you will not be bound by it.

At the age of 18, a person is mostly dependent on his parents for his expenses etc. If, at this point, his father causes him to sign over his personal share in certain ancestral property, would the son be bound by such an agreement?

The answer is no. Here, the father has exercised undue influence on his son. Undue influence is that influence which is exercised by a person who is in a position to dominate the will of another. Moreover, he uses such position to obtain an unfair advantage over the other. A person is said to be in a position to dominate the will of another; 1. where he holds a certain authority over the other 2. where he is in a fiduciary relation with the other. 3. when a person makes a contract with another whose mental capacity is affected because of age, illness or mental or bodily distress. If a person projects himself to be a director of a company when, actually, he is not and thus, induces another to enter into an agreement with him, such an agreement would not be valid.

Fraud is said to take place when a person commits any act with the intention of deceiving another or, to induce another person to enter into a contract and includes the following: 1. 2. 3. 4. 5. Positively suggesting something which is not true. Actively concealing a fact of which he has knowledge. A promise made without any intention of performing it. Any other act fitted to deceive. Any act declared to be fraudulent under law.

Here the test is intention to deceive. The law also includes facts which the person making the statement believes to be true. A farmer, while selling his land, represents it to be 50 acres in size to the buyer and, the buyer, then, purchases the land on the strength of this statement. At the time of making the statement, the farmer estimates the land to be of approximately 50 acres, though, he is not absolutely positive of this fact. Afterwards, the buyer finds the land to be only 45 acres in size. Is A guilty of misrepresentation?

A's first statement would be a misrepresentation.

The key test here is that there is an absence of intention to deceive. This is really the major (if not only) difference with respect to 'fraud.' The law recognizes the following as acts of misrepresentation: 1. A positive statement of something, which is not true but, which, the person, making it, believes to be true. 2. A breach of duty which is committed without an intention to deceive, by which, the person committing it, gets an advantage. 3. Any act which causes, although innocently, a party to the agreement to make a mistake as to the substance of the agreement. Thus, as can be seen, misrepresentation refers to what can be called as reckless statements or a failure to execute a duty. Two people entered into an agreement for the purchase of a Maruti 800, but, at the time of making the agreement, the car had, actually, been destroyed in a fire. Neither party was aware of this fact at the time of making the agreement. What are the consequences?

This would amount to a mistake of fact because both parties were under false impressions and, therefore, the agreement would be void. Thus, where both the parties to an agreement are under a mistake as to a matter of fact or identity, essential to the agreement, the agreement is void. The reasoning behind this provision is based on a bona fide mistake on both the sides where certain things are presumed to exist but, in reality, they do not exist. Therefore, the parties must agree on the same thing in the same sense However, it must be borne in mind that if one party makes a mistake of fact, such an agreement will not be invalid, merely, because of this mistake. What is the consequence of an agreement entered into due to 'Mistake of Law'?

It is a settled principle of law that any mistake, done in respect of the law, is not an excuse. The same holds good for contracts and any contract, made under the erroneous assumption of the presence or absence of any law, is neither void nor voidable. What considerations or objects are considered to be lawful?

The Contract Act provides statutory force to preserve the sanctity of an agreement. However, this, obviously, excludes any agreement which is contrary to law. Thus, when the consideration or the object of any agreement is something which is forbidden by law, it will not be a valid agreement. The following examples will help us to understand this provision more clearly:
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Bholelal, a prominent businessman, enters into an agreement with Kallubhai, a paid killer, to assassinate Shankarseth, a business rival for the sum of Rs. Two lakhs. Kallubhai finishes the job but Bholelal refuses to pay the money. Can Kallu then go to court and claim breach of contract? The answer is no. Murder is an offence under the Indian Penal Code and is, therefore, forbidden by law. Here, the object of the agreement is unlawful and hence it would be invalid. The Payment of Minimum Wages Act stipulates the minimum amount that a worker must be paid. Any agreement, between an employer and his employee, stating that the employee agrees to receive less than the statutory minimum, would be invalid. This is because such an agreement would defeat the purpose of a law, in force. Two confidence men formulate a plan to, fraudulently, acquire a sum of money from a certain Mr. Gandhi. They agree amongst themselves to split up, equally, whatever they obtain in this manner. Again, this agreement would not be valid because the consideration is fraudulent. A trustee enters into an agreement with a person to sell the property held in trust, which he is not authorised to do. Such an agreement would be invalid because it would involve injury or harm to the beneficiary''s right to property. Thus, an agreement is void when it involves or implies injury to a third person or his property. A certain man (who shall remain unnamed) agrees with his mistress that he will pay her an allowance every month. Thereafter, he refuses to do so. The mistress would then, not be able to claim a breach of contract because the court would not recognise any agreement which is immoral or opposed to public policy.

The above illustrations make it clear that any agreement, which is in any way tainted with illegality, immorality or, is opposed to public policy, will not be recognised and, therefore is not enforceable under the law. As far as public policy is concerned, it is interesting to note that any agreement made, which is opposed to the policy of any friendly foreign state, is, also, not recognised under the law. What if the consideration or object is only partly unlawful?

In this regard the law provides for two situations:

When the agreement is such that it can be severed into two parts, i.e. the lawful and unlawful parts can be separated, then the lawful part will bind the parties and, the unlawful part will be considered illegal. However, when the agreement is such that it cannot be separated, then the entire agreement will be considered to be void. A married couple decided to separate and entered into an agreement in execution of this separation. One clause of the agreement stipulated that the wife was to receive an annuity from the husband. However, another clause stated that the wife had agreed not to seek the redressal of the court for the purpose of obtaining maintenance. This second clause was unlawful because it restricted the wife's legal rights. However, the court held that the agreement would not be entirely void as the two clauses could be separated. Thus, the first clause would be binding on the parties, while the second would be void. Gayatri entered into an agreement with Sunil, under which he offered to pay her Rs. 50, 000/-, if she agreed not to get married at all. Is such an agreement valid?

The Indian Contract Act, specifically, provides that, any agreement which restrains a person from exercising his right of marriage will be void. This provision is based on the general principle that marriage ought to be free. Any restraint or restriction, in this regard would be contrary to the true spirit of the marriage relationship. This is, obviously, an undesirable situation. However, it must be borne in mind that this provision only includes a permanent restriction. Thus, any agreement, which restrains a person from getting married temporarily, will be a valid agreement as long as it is for the benefit of the person who is restrained. Kishan had procured a job with a well-known multinational company. Six months after he began work, he got married. The company dismissed him saying that one of the clauses in the contract of employment was that he would not get married for the duration of the contract. Was the company''s action valid? Can Kishan challenge such a dismissal in a court of law?

This restriction is a temporary one for the duration of the contract and, therefore, would be valid. It is, now, widely acknowledged that contracts of employment may contain clauses which restrain the employees right of marriage as long as it is a temporary restraint. In many situations, many employers find it necessary to restrain their employees for a certain period, especially during training.

The validity of an agreement, where the restraint it imposes is only against marrying a particular person or persons of a particular class or, within a specified time limit, will depend upon how reasonable this restriction is. Thus, where these conditions are imposed, the courts are conferred with the discretion of determining when a particular clause would be considered "unreasonable" under the law. Generally, if a restriction is unnecessary, unfair or affecting the fundamental freedom of a person, it will be struck down and declared to be void. What if an agreement restrained your capacity to trade freely?

New Wave Industries Pvt. Ltd. entered into an agreement with Carter Hardware manufacturers, which stated that the latter were to only sell their products to the former. Such an agreement would, necessarily, affect the right of free trade of Carter Hardware. Would this agreement be valid? As with marriage, the Indian Contract Act, specifically, declares that agreements that are in restraint of trade are void. The idea behind this is to make sure that no agreement restricts the capacity of a person to freely utilize his skills in the pursuit of any trade. The other objective of this provision is to ensure that the interests of free trade are preserved and monopolistic practices are restricted, in the interest of the general public policy. So what is restraint of trade?

An agreement is in restraint of trade, if it restrains a person from exercising a lawful profession, trade or business of any kind. However the law also recognizes that competition under a free market economy makes it necessary that certain restrictions be allowed. Thus, employers are allowed to impose those reasonable restrictions which they consider necessary for the protection of their businesses. Leena entered into an apprenticeship agreement with Mehta & Mehta Co. for a period of two years. One of the clauses of the agreement provided that during this period and, also for two years after, she would not seek employment with any competitor of Mehta & Mehta or, begin any business which was in direct rivalry with the firm' s business. Is such a clause valid?

Yes. Often employers have a need to protect certain trade secrets which cannot be divulged to their competitors. If such agreements were not allowed under the law, then, it

would not be possible to protect such strategies or manufacturing processes which the employer had developed himself. The employer has a right to protect his competitive interests and restricting his employees from working for his competitors or from competing with him. This is one way of doing so. As mentioned above though, this clause must be reasonable and, only, extend as far as it may be required. What would be considered reasonable?

Here, again, this aspect is left to the discretion of the courts that will decide the matter based on the facts and circumstances of each case. Besides the test of reasonableness, the Contract Act also, specifically, makes one exception--an agreement, which restrains a person from carrying on business, the goodwill of which has been sold. The very concept of goodwill is that the person, purchasing it, gets the right to carry on the business in the earlier name and, thus, enjoys the reputation and clientele of the previous owner. Thus, once a person has sold his goodwill, it would be ridiculous to allow him to continue to carry on the same business as it would defeat the very purpose of buying the goodwill in the first place. Restraint of legal proceedings

Once you contract with an airline company for transporting goods by air freight, they are liable for any subsequent damage or loss of the goods. Even if there is a clause, inserted in such a contract stating that the company would not be liable for any such loss or damage, this would not be a valid clause. This is because such a clause would restrict your right to legal remedy. The Contract Act, specifically, provides that any agreement, by which any party is restricted from enforcing his rights through the usual legal proceedings, is void to that extent. However, the Act provides for two exceptions in this regard: Arbitration: An agreement may provide that, in case of any dispute relating to the contract, it shall be referred to arbitration. In this case, such agreement will not be void, according to the above provision of the Act. Questions already arisen: As in the above exception, the parties may, also, subsequently, refer to an arbitration dispute, which has already arisen between them. Again, such an agreement would not be void.

In the above exceptions, the parties can also provide that the order obtained will be in final settlement of the dispute. The Constitution provides that the right of legal remedy is a very important and necessary right. It is essential to the functioning of the democratic system. Therefore, this provision of the Contract Act seeks to ensure that the sanctity of this right is maintained. Mr. P agrees to sell his Maruti car for the sum of Rs. 2 lakhs or Rs. 2.5 lakhs to Mr. M. Is such an agreement valid?

No. This is because the agreement does not specify which amount is to be paid. There is a certain amount of ambiguity in the agreement. This uncertainty makes the agreement void. Thus, if parties fail to express their intention by using clear, meaningful and unambiguous language, the court has no choice but to say that there is no contract at all. The court will not create a contract for the parties. The following are examples of an agreement being uncertain;
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When something is left reserved for future determination; The promise is not certain; A supporting promise is uncertain; The subject matter of the contract is uncertain; The time of performance is indefinite; The consideration is indefinite; The terms are vague and indefinite.

However, every factor in an agreement is not a fundamental factor. Only if a fundamental factor is uncertain, can the agreement be considered void. A fundamental factor is one which gives right to the other side to cancel the contract if it is broken. What are the laws governing wagering agreements? For example, Vinod used to gamble a lot but would always loose. However, one day, while playing a hand of cards, he won Rs. 50, 000/-. Later, his debtors refused to pay him. Can Vinod, now, go to court to claim the money?

No. This is because the Contract Act, specifically, provides that any contract by way of a wager is void. Thus, any agreement, the subject matter of which is anything obtained by a wager will be void.

So what is a wager?

A wager means a promise to give money or monies worth upon the determination of an uncertain event. An essential feature of a wagering contract is that one party is to win and the other is to lose upon the determination of the event. There must also be two persons, either of whom is capable of winning or losing. Some wagering bargains are lawful and enforceable; some others are void and unenforceable while some are illegal. The final category is composed of gambling agreements, which are forbidden by law. However, it must be borne in mind that, other than those agreements which are expressly forbidden by law, all other wagering agreements are totally unenforceable. The result is that you can enter into a wagering agreement but will not be able to enforce it under the law. Agreements, that are collateral to a wagering agreement, will be held valid even though the object of such collateral agreement is only for the purpose of the wagering agreement. Thus, if a person contracts with his agent that the agent will enter into a wagering agreement on behalf of the principal, the agreement between the principal and his agent will be valid, even though the wagering agreement will be void. Would an insurance contract be a wagering agreement?

An insurance agreement seems to satisfy the description of a wager. It is an agreement, the object of which may or may not take place. However an insurance agreement is not really a wager. This is because an insurance agreement transfers an existing risk and does not create a wholly new risk. Thus, actually, an insurance agreement comes under the purview of a contingent contract. What is a contingent contract?

Mr. Vivek Paswan enters into an agreement with Life Insurance Corporation, whereby, L.I.C. undertakes to pay his family members the sum of Rs. Two lakhs if he dies of natural causes. This is a contingent contract. A contingent contract is a contract, the happening of which, depends upon some other collateral event. Thus, in the above example, the death of Vivek would be the collateral event. L.I.C. would have to pay the specified sum, only if this event were to happen. Therefore, the contract between L.I.C. and Mr. Paswan would be contingent/conditional on the happening of a future event

The Contract Act defines a contingent contract to mean a contract to do or, not to do something, on the condition that some event, collateral (running parallel) to such contract, does or does not happen.

What if the happening of the contingent event becomes impossible?

John contracts to pay Michael the sum of Rs. 10, 000/- if Michael marries Julia. However, Julia dies before she could get married. Thus, the contract becomes void. In a contingent contract, it is necessary that the event specified must take place before the contract can be enforced. However if it is apparent that such an event can not take place, then, the contract will be void. In the above example, Julia's death makes it impossible for her to get married to Michael. Therefore, the contract between John and Michael for the payment of Rs.10, 000/- would become void. But, what if the contract is dependent on the non-happening of a certain event?

Regal Shipping Ltd. entered into an insurance agreement with General Insurance Corporation. Under this agreement, it was mentioned that if a certain ship The Titanic-2 did not return then General Insurance would pay Regal the sum of Rs. 50, 00, 000/-. The ship sinks. Thus, it becomes impossible for the ship to return and hence, the contract will now be enforceable. So, when would such a contract lapse, that is to say when the contract would be considered impossible to perform?

To continue with the above example, if the ship were to return, obviously the contract would lapse and, therefore, General Insurance would not have to perform their part of the contract. Kunal agrees to pay Prakash Rs. 50, 000 if Prakash gets married within 2 years. What are the implications of such an agreement?

Here, there is not only a condition to be fulfilled but there is also a fixed time period provided, within which this condition must take place. Before Prakash can claim the money from Kunal, he will, not only, have to get married but do so within the period, prescribed i.e. two years.

These types of contracts are, not only, contingent contracts but are, also, time bound. An underlying condition of such contracts is that if the specified condition does not happen within the time provided, the contract will automatically be considered void. Thus, if in the above example Prakash does not get married within 2 years, the contract will automatically lapse, and Kunal will be discharged. Contingent contracts on an impossible event.

A enters into a contract, promising to give B a motorbike if he can walk at 80 miles per hour. This, of course, is not humanly possible. Therefore, it is void as a contract, which is enforceable only on the happening of an impossible event, is a void contract. It is not legally enforceable. Any contingent contract that is based on an impossible event is void. E.g. A, a singer, enters into an agreement with B, a theatre manager, saying that she will sing at B's theatre, three nights a week. On the sixth night, A does not appear and so does not perform. However, on the seventh night, A does come and performs and B allows him to do so. Can B now rescind the contract on the basis that A defaulted on his end of the bargain? No. B was entitled to rescind the contract when A did not appear on the sixth night. However, once B allowed A to perform on the seventh night, he lost this right of cancellation of the contract. Now, B can only claim damages for the loss he suffered for A's non-performance on the seventh night. The principle behind this provision is that where the performance of a contract is to be done in different stages, if a person defaults at one of these stages, the contract can be cancelled by the other person, at that time. However, if the other person allows the performance of the next stage then, it is implied that he has excused the earlier non-performance and cannot rescind the contract. Continuing with the same example, A agrees with B that he will perform only on some definite, future date. However, 10 days before the agreed date, A informs B that he will not perform. Now, B has two options open to him: 1) He can either sue A for breach of contract, as soon as B informs him of his imminent non-performance, or, B can wait till the assigned date and then sue him. A has committed what is known as an anticipatory breach of contract. As can be seen from the example, this occurs when one party of the contract shows its inability to fulfill the contract, before date of the performance of the contract. In such case, if one party decides to wait till the date of the performance of the contract, if the other party to the contract performs his part of contract, before or, on the date of the performance, the former cannot sue for damages on account of breach of the contract. Performance of a Contract

Generally, a person may perform his part of the contract, either by himself o, through his representative. However, Section 40 provides that certain special contracts must be performed by the contracting party. A agrees to paint a picture for B. This is a contract of a personal nature and must be performed by A, himself. A and B, jointly, agreed to pay C Rs. 20, 000/- for services rendered. Both A and B are, jointly, liable to pay C the money. However, C can claim money from any one of them, if he so chooses. If either, A or B, were to die, the responsibility to execute the contract would pass on to their legal heirs. 'A' contracts with 'B' to buy certain goods. No time period for performance is specified. It is assumed, under the Contract Act, that the delivery of goods must take place within a reasonable amount of time. B brings the goods to A's place of business but after the usual hour of closing. Afterwards B claims that A was not present to receive delivery of the goods and demands that the contract be cancelled. Is B right in doing so?

The Contract Act, specifically, provides that delivery of goods for the performance of the contract should be made on a normal business day and during normal business hours. This is, of course, in case the parties do not provide for a specific time and place. Section 50 of the Act prescribes that the performance of any promise may be made in any manner or, at any time, which the promisee (to whom promise is made) prescribes or allows. A, who owes B Rs.1000/-, desires B to send him a note for Rs.1000/- by post. The debt is discharged as soon as B puts into the post, a letter, containing the note, properly addressed to A. Section 51: A and B contract with each other that A shall deliver goods to B and payment will be made, by B, only, on the delivery of goods. Here, A need not deliver the goods, unless B is ready and willing to pay for the goods on delivery. B need not pay for the goods, unless A is ready and willing to deliver the goods on payment. This section of the Act prescribes a condition when there is a reciprocal promise (where the promisee is also a promisor, in a particular contract).It says, when a contract consists of reciprocal promises to be simultaneously performed, no party to the contract need perform his promise unless, the other party is ready and willing to perform his promise.

When there is an order, in which the promise, prescribed in the contract, is to be performed, they shall be performed in that order. Where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires. 'A' and 'B' contract that A shall build a house for B at a fixed price. A's promise to build the house must be performed before B's promise to pay for it. A and B contract that B shall execute certain work for the payment of a thousand rupees, B is ready and willing to do the work, accordingly, but A prevents him from doing so. The contract can be avoided at the option of B, and, if he has elected to avoid the contract, he is entitled to recover from ''A'', compensation for any loss which he has incurred by its non-performance. Thus, when one party prevents the other from performing the latter's part of the contract, the person, who is prevented, can assume that the contract is cancelled and, he can sue the person, who is preventing, for any loss he may have sustained because of such prevention. When time is of the essence.

As already stated, contracts have to be performed within a reasonable time. However, sometimes, the parties to a contract agree that certain parts of the contract must be performed at or, within a specified time. In these contracts, time is said to be of the essence of the contract. 'A' contracts to hire out a room in B''s house. This room overlooked a major road of the town. A procession of the king was scheduled to pass on that particular road. However, two days before the date of the procession, it was announced that the king had taken ill and hence, the procession had to be cancelled. Due to this occurrence, A sought to cancel his contract with B. Here, the only reason that A sought to hire out the room was because of the procession. Thus, it logically followed that, once the procession was cancelled, the contract would also fail. Time was, therefore, of the essence of this contract. However, it must be borne in mind that where time is of the essence of the contract, and, one party fails to complete his part, within the specified time, and if the other party accepts such a late performance, he cannot, then, avoid the contract because of late performance. A agrees with B to discover treasure, by magic. Will this agreement be valid?

What A has contracted to do with B is what can be called 'an impossible act'. The Act, specifically, provides that, where a contract is made, where the purpose of it is to do an

impossible act, such a contract will not be valid. Such a contract can be avoided on the grounds of 'frustration'. The person, who has to perform the impossible act, is said to be frustrated because of his inability to perform the act. The same situation would apply when an act is possible at the time of making the contract but, subsequently, becomes impossible: 'A' contracts with B to renovate B's office for a fee. However, before the date of renovation, the building, in which B's office is situated, collapses. Thus, the purpose of the contract becomes impossible and, hence, the contract will become void. What if the entire contract was not illegal but part of it was?

'A' and 'B' agree that 'A' shall sell 'B' a house for Rs. 5, 00, 000. However, they, also, agree that if B uses the house as a gambling place, B will pay A an additional amount of Rs.2, 00, 000. Now, the second part of the contract is an illegal contract but, the first part of the contract is valid. Therefore, the first part of the contract will be held to be valid while, the second part will be void. B will have to pay A Rs.5, 00, 000 for the house but, A will not be able to claim the extra Rs.2, 00, 000. This provision relates to the severability of the contract. Thus, if one part of the contract is illegal and, this part can be separated from the other legal part, only that much of the contract, which is illegal, will be void. The legal part will be enforceable. In the same way, if an alternate promise is made, of which, one of the choices is illegal, this illegal choice will be void while, the other legal choice will be valid. A agrees to sell his house to B. B agrees, in return, to, either pay A the sum of Rs.5, 00, 000 or, allow A to have sexual intercourse with his wife. The second alternative is illegal but the first is valid. Thus, A can obtain the payment of Rs.5, 00, 000 but, cannot exercise a choice as far as the second alternative is concerned. A person may owe another person various debts. If the debtor gives the creditor a certain sum in payment, to which debt will the amount be credited?

A owes B three debts of Rs.50, 000 each, incurred in 1994, 1998 and 1999. In 2000, A pays B a sum of Rs.50, 000. A, specifically, mentions that this amount must be appropriated to the debt of 1999. Now, B must appropriate this amount to the1999 debt, only, and to no other. This provision becomes very important from the point of view of the bar of limitation for recovery of debts. Thus, in the above example, the debt, incurred by A in 1994, is barred

by the law of limitation (3 yrs) and, hence, A tells B to appropriate his current payment to the 1999 debt. However, if A had not made any specific statement as to which debt the payment was to be appropriated for, then B was free to appropriate it even to the 1994 debt, though, it is barred by limitation. This would then give him the power to sue for the 1998 and 1999 debts, separately. The same provisions, as above, would also apply to the interest due on many different debts. Can a contract be, subsequently, altered? What are the effects of such an alteration?

'A' owes 'B' Rs. 5000 under a contract. 'A', 'B' and 'C' contract among themselves that, instead of 'A', 'C' will now, be indebted to 'B' This new contract will, now, supercede the old one and, the old contract will be considered as cancelled. This provision provides that if a new contract is formed, which involves the same object, this new contract will take the place of the old one and, the effect will be as if the old contract has been substituted with the new one. There are three processes by which this can be done: 1. When an entirely new contract has been entered into in place of the old one, the new contract will replace the old one. 2. When the contract has been entirely cancelled or rescinded, the agreement of cancellation will take over and, the contract will cease to exist. 3. Certain parts of the contract may be altered, subsequently. The altered contract will, now, be substituted for the old contract. What happens when a contract is, subsequently discovered to be void? What if one party receives some advantage from the other, before a contract is found to be void?

'A' pays 'B' Rs. 1000, anticipating that 'B' will marry 'C', 'A's daughter. However, C is dead at the time of making this agreement though this fact is unknown to either A or B. Is B allowed to keep this money? The word, 'void' is that the contract never existed at all. Thus, any advantage gained by one of the parties would be wrong. The money paid to ''B'' is returnable to 'A', as soon as he knows that the contract is void. A contracts to repair B's house. However, when A turns up at B's house to repair it, B refuses to show him the areas that need repairing. Then, can B say that A has not performed his part of the contract?

The question here is whether 'A' was able to carry out his part of the contract when 'B' refused to co-operate with him. The answer is no. Therefore, 'A' will be excused from keeping his end of the bargain because ''B'' refuses to give him information which is vital to his performance. This provision, obviously, intends to protect the innocent party that is not allowed to perform his part of the contract, due to the non-cooperation of the other party. What are quasi-contracts?

Above, we have been talking about contracts but, there are certain types of contracts which do not fall under the categories of usual contracts, as discussed above. Under Act, such contracts recognized certain relations, resembling those created by contract. The quasi contract is not a contract in its true sense. It creates the same rights and obligations as a normal contract would, even though there is no actual agreement between the parties. These obligations are created, by law, where it is thought that it is necessary for a just decision to be reached. Rashna supplies Trupti, a minor, with certain items, necessary and suitable to her condition in life. Can Rashna claim reimbursement for such items?

Normally, a person is not allowed to contract with a minor and a minor will not be liable for any such agreement. However, the law makes an exception for necessaries, supplied to a minor. Thus, Rashna can be reimbursed from Trupti's estate. These types of agreements, though, not actually contracts, are given the status of contracts to ensure that justice is done. R owns a piece of land. He leases out this land to S & Associates. R owes a certain amount of money to the Government as revenue and he is unable to pay it. The Government serves notice on R for confiscation of his land. This would mean that S lease would be cancelled. To avoid this, S pays R''s dues. Can S, later, claim this amount from R?

Strictly speaking, there is no contract between S. and R. for the amount paid as dues. However, the Act provides that such circumstances would fall under quasi-contracts. Hence, S will be able to claim back the amount from R.

Mr. B leaves goods at H's house by mistake. H's then uses these goods for himself. Is it H's responsibility to pay Mr. B for these goods?

A person, who enjoys the benefit of an act of another, is under an obligation to compensate such other person for it. What if a person finds certain goods belonging to another?

Here, the position is similar. Such a finder would have the responsibility to take care of the goods as if they were his own and attempt to return them to the actual owner. These obligations of the finder are created by allowing such a relationship to be dealt with as a contract. G. and A. owe Rs.10, 000 to S. G. pays the entire amount to S. The next day, A., not knowing this fact, also pays S. the full sum of Rs.10, 000. Will S. have to return this second amount to A.? Yes. S. obtained this amount through a genuine mistake from A. and, hence, S will have to return this amount. The same applies to a case where any amount is obtained through coercion of another person. What is Breach of Contract?

When two people agree to do certain things in pursuance of a contract, they are expected to carry out these things. Common sense dictates that if a person is not held accountable for his actions, he will not be able to have any sort of commercial transactions, which would have any degree of credibility. The law accepts and recognizes this necessity and, the Contract Act, specifically, provides that, if one of the parties breaks a contract, the party aggrieved by such a break, is entitled to receive from the other party, compensation for any loss or damage caused to him because of such action. Obviously, the amount of compensation which can be obtained would depend upon the facts and circumstances of each case and, the amount of damage suffered. Bill contracts to buy a Mitsubishi Lancer from Jack for Rs. 6 lakhs. However, Bill, subsequently, refuses to go through with the purchase. At the time of refusal, the car is only worth Rs.5, 50,000.. Jack has, therefore, suffered a loss, due to this refusal by Bill. Can Jack, now, claim any amount as damages from Bill? Of course, he can. Jack suffered some sort of damage which directly resulted in Bill breaking the contract. This being the case, Jack can claim this difference in price between

the price contracted with Bill and, the price which he was forced to, finally, sell the car for. When determining whether or not a person can claim damages, it must be borne in mind that the damage suffered, must be a direct result of the breach of contract. Bill contracted to pay Jack a certain sum of money on a certain day and then failed to do so. As a result of this, Jack was unable to pay his own debts and was financially ruined. Will Bill be liable for these damages as well? Bill will only be liable for the amount he owes to Jack and the interest on this amount. The fact that Jack was financially ruined is too remote a cause. The test here is that the damage must be reasonably foreseeable as a direct result of the breach of contract of the other party. If, in the first example, the contract between Bill and Jack contained a clause which stated that, if Bill was not to purchase the car then he would have to pay Jack Rs.75, 000/- would this clause be valid? Here, the contract already stipulates that upon breach, the sum of Rs. 75, 000/- would be payable. The parties are free to introduce such a clause in their contracts. Therefore, not only would the clause be valid, but the money would be payable immediately upon breach and, no loss or damage has to be proved by Jack. The court will be free to settle upon the amount of compensation within this amount of Rs 75, 000/. Indemnity: Can a person promise to save another from any loss to such other person?

S contracts with H. that B. will not sue H. in respect of Rs.50, 000/-, which H. owes to B. Thus, if B. sues H. now, any consequences of such a suit will be borne by S., according to the contract. Is such a contract allowed? The Contract Act,, specifically, provides that the above kind of contract can be maintained. These are known as contracts of indemnity. Here, Subhash is said to indemnify Huma for a certain loss which she may suffer. What are the rights of the indemnity-holder?

Rights of Indemnity-holder are:

y y

Any damages which indemnity-holder may have to pay as a result of the suit. Any costs which indemnity-holder may have incurred in defending the suit.

All sums of money, which indemnity may have to pay under any compromise reached, as far as the suit is concerned

All insurance contracts are examples of contracts of indemnity because all insurance contracts are contracts, which indemnify a person from certain losses, which he may suffer. What is Guarantee?

A wants to take a loan of Rs. 2 lakhs from P, but P. does not know A. very well and is apprehensive that P may not see his money again. Now, B. is a good friend of A''s. B. tells P. that he thinks A. is an honest person and says that, if P. does not get his money back, he B will personally, pay it to P. Under this assurance, P. lends the money to A. After the decided time has lapsed, A. fails to pay back the 2 lakhs. Can P. now, demand this money from B.? Yes, he can. The contract, described above is called a contract of guarantee. This contract involves three persons. One person guarantees another against the actions of a third. If the third does, in fact, default then the person to whom the guarantee is made can claim the performance of the contract from the person who makes the guarantee. Therefore, in the above scenario, Irfan will in fact have to pay the sum of Rs. 2, 00, 000 to Prakash. However, it is important to note that the contract does not end here. B. can, after he has paid the amount to P., claim the same amount from A. This is the unique feature of a contract of guarantee. There are actually two separate agreements each between two of the parties. The first is an express contract between the person standing guarantee (surety) and the person to whom the guarantee is made (creditor). The second agreement is between the person who is guaranteed (principal debtor) and the surety and this is an implied contract. All the principles and rules which apply to other contracts, like what can form consideration or, what would be a valid contract will also apply to a contract of guarantee. What are the positions of the three parties?

The liability of the surety is said to be 'co-extensive with the principal debtor.' This means that once it is established, if the principal debtor is unable to pay the debt, the surety, actually, takes the place of the principal debtor. Therefore, any sum of money owed by the principal debtor will, now, be payable by the surety- -this includes, even, the interest that the principal debtor may owe to the creditor.

Again, once the surety has paid the debt, he, then, occupies the place of the original creditor. He can, then, claim from the principal debtor, that entire he has paid to the original creditor. Continuing guarantee

Any guarantee, which extends to a series of transactions, is a 'continuing guarantee.' Thus, here the guarantee is not limited to only one transaction but to many transactions. Mr.Prabhakar contracts with Mr. Mehta, a shopkeeper, to allow Mrs. Prabhakar to take whatever goods she may need from his shop up to the amount of Rs. 20,000/-. Mr. Prabhakar will be liable for the debts incurred by Mrs. Prabhakar up to the given amount. How can such continuing guarantee be revoked?

Taking the same example, assuming Mr. Prabhakar and his wife have a falling out and, are now living separately, Mr. Prabhakar only, has to inform Mr. Mehta that the guarantee stands revoked from that point on. Thus, any debts incurred by Mrs. Prabhakar after such a revocation would not be payable by Mr. Prabhakar. What happens if the surety dies?

Normally, when the surety dies, the guarantee dies with him. However, this is not true in all cases. It depends upon the terms of the contract and the intention of the parties. Again in a contract of guarantee, it is important to understand that the surety has given his guarantee on his own terms. Thus, if the principal debtor and the creditor change the terms of the guarantee without the consent of the surety, obviously, this would not be fair to the surety. Therefore, if there is any variance in the terms of the guarantee, the surety will be discharged from liability for any future debts, incurred after this variance. Let us assume that in the above example, the surety, Mr. Prabhakar, had given strict instructions not to allow his wife to buy any cosmetics on credit. If the shopkeeper, then, allows Mrs. Prabhakar to buy these items, the terms of the guarantee would have changed and, therefore, the husband would not be liable for any future transactions from that point onwards. The surety, only, becomes indebted when the principal debtor is unable to pay his debts. Thus, it is obvious that if the principal debtor were to be discharged from the debt, the surety would also be, automatically, discharged.

These are some instances of when a surety is discharged. However, there are certain instances when the surety is not discharged, even though the creditor may do something without his consent:
y y y

If, on the instance of a third person, the creditor extends the time- limit of the principal-debtor for paying the debt. If the creditor, merely, forbears to sue the principal-debtor for a certain amount of time. If the creditor discharges one of the principal-debtors-where there is more than one debtor-it does not discharge the others. However, after the others have paid the debts, they can, themselves, claim the share of the discharged debtor.

Leena wants a loan of Rs. 20,000 from Gauri. However, Gauri approaches Michael and asks him whether he will stand guarantee for Leena. Michael agrees to stand guarantee for Leena but, says that he will do so only if Manoj, also, agrees to join him as a co-surety. The question is when does the guarantee commence?

Normally, the guarantee would commence as soon as the surety gives his consent. However, in this case, the guarantee is dependent on whether or not Manoj joins as cosurety. Thus, the guarantee, in this case will only commence when Manoj gives his consent for the guarantee as well. How do we know how much each of the co-sureties would have to contribute towards the debt?

The normal rule is that the debt is to be shared equally between the co-sureties. However, if the co-sureties guarantee unequal amounts of the debt, they will each be proportionately liable to the extent of their guarantees. What is Bailment?

Bailment is nothing but a contract with certain peculiarities. However, the Contract Act, specifically, deals with Bailment as a separate topic because of the wide usage of this type of contract. But what does this term mean, exactly?

When one person delivers to another, certain goods to be used for a certain purpose, this contract will be known as a contract of bailment. Here, the contract will specify the time

for which the goods will remain with the person taking them. Also, the person who gives the goods can either directs the other to return the goods after the requisite time has expired or, direct him to dispose of the goods in a particular manner, at this time. The person, who delivers the goods is known as the 'bailor' and, the person who takes the goods is known as the 'bailee'.

Is this similar to a normal sale of goods?

There is actually a big difference between the two. The basic test to differentiate between a sale and a bailment is to see whether the bailor is entitled to get the goods back from the bailee. The Act, then, deals with the various questions which would naturally arise when dealing with a contract of bailment. How is the delivery of these goods made?

The delivery of the goods will be said to be complete, when the bailor does anything, which puts the goods in the possession of the bailee. This would also include any person who has been authorized to hold the goods on behalf of the bailee. N. lends a horse to M. under a contract of bailment. However, the horse is, actually, very vicious by nature. Now, N. is aware of this characteristic of the horse but does not disclose it to the bailee, M. Later when M. is out riding the horse, the animal turns violent and he is thrown to the ground. Is N. liable to M. for any damages he has suffered through this fall?

Yes. In a contract of bailment, if the bailor knows of any faults which exist in the goods, it is his responsibility to inform the bailee of these defects. If he does not do so, he will be personally responsible for any damages caused to the bailee, as a result of this omission to inform. It is also, specifically provided that the bailee should take proper care of the goods in his possession. But then, what is proper care?

The bailee must take as much care of the said goods as he, normally, would his own goods. If he takes proper care and, yet, something does happen to the goods, the bailee will not be liable. On the other hand, if the bailee does anything different or inconsistent with what was supposed to be done with the goods, the bailor can demand that the bailee pay the damage suffered as a result of these acts. Shantanu hires a horse from Calvin. Only Shantanu was supposed to ride it. However, Shantanu allows his cousin, Mukesh, to ride the horse and during this ride the horse, though, for no apparent fault of the rider, trips and breaks his leg. Aside from the SPCA, Shantanu will, also have to make good the loss suffered by Calvin. As can be seen from this, though the rider may not have been at fault, the bailee did something which he was not supposed to do. This is enough to make him liable for the damages. Maruti leaves a cow in the custody of Mr. Gai, so that it would be taken care of. While in the custody of Mr. Gai, the cow has a calf. Who will be entitled to the ownership of the calf?

Maruti will be entitled to the calf because the cow was, in fact, his. The rule is that any profits or increase which has taken place, while the goods are in the possession of the bailee, has to be returned to the bailor. Kailash delivers a piece of cloth to Vinod, a tailor to be made into a coat for the sum of Rs. 2000. Vinod completes the job but Kailash has not yet paid him his fees. Can Vinod keep the coat in his possession until he receives his dues?

A contract of bailment can be for the purpose of exercising some skill or labour on it. In such a case, the artisan or labourer, who expends this skill or labour, will, obviously, be entitled to a certain amount of remuneration from the bailor, which will be decided beforehand. If the bailor fails to pay the bailee, this remuneration, the bailee can retain the goods in his possession even though the time for their return may have expired. This retaining of the goods, for the purpose of receiving his dues, is perfectly legal and, can be done by certain professionals like attorneys, bankers, factors and policy-brokers. What is a 'Pledge'?

Just as a bailment is a specific kind of contract, a Pledge is a specific kind of bailment.

The bailment of goods, as security for a debt or, performance of a promise, is called a 'pledge'. The bailor is, in this case, called the 'pawnor' and the bailee is called the 'pawnee'. Thus, Mr. Louis takes a loan of Rs. 20, 000 from Mr. D' Souza. As an assurance that he will pay this money back, Mr. Louis keeps his car, as security, with Mr. D' Souza. Thus, if after the fixed date, Mr. Louis is unable to pay the money back to Mr. D' Souza, the latter can, either bring a suit for this purpose while he retains the car or, he can sell the car for the purpose of recovering his dues. If Mr. D' Souza chooses to sell the car, the two possibilities are as follows: He may receive less than the amount due, in which case, Louis will still have to pay him the balance, or, he may receive more than the amount due, in which case he must return the excess amount to the pawnor-Louis. The above is an example of a contract of pledge. Aside from the rights made clear from this illustration, the pawnee (Mr. Louis) also has the right to claim from the pawnee, any other expenses which he might have incurred for the purposes of maintaining the goods while they were in his possession. It is important to note that in all contracts of bailment, the bailee, while he is in possession of the goods, steps into the shoes of the owner for the purpose of legal remedy. Thus, if any person were to deprive the other of the goods - by way of theft etc.the bailee, himself, would have the right to file a suit against such other person. If, any damages were received from such a suit, it would be split between the bailor and the bailee, according to the proportion of their losses or damages. What is an Agency?

To understand contracts of agency, it is first necessary to understand what the terms 'agent' and 'principal' mean. An agent is a person employed to do any act for another or, to represent another, in dealings with a third person. The person for whom such act is done, or, who is so represented, is called the principal. Test for agency The actual test of agency is as follows: The person should be authorised to do an act for a third person, in such a manner, as to bind this third person i.e. to make him answerable for such acts done on his behalf. Here, the agent creates contractual relations between two separate persons where he enters into the contract on behalf of one of the parties.

The contract between the principal and his agent is a contract in itself and this, too, would be governed by the normal rules of contract.