Definition of Contract
Section 2 (a) defines proposal as follows. "When one person
According to section 2(h) a contract is defined as "an agreement
enforceable by law". This makes it clear that a contract should
have two elements. There should be (1) an agreement, and (2)
the agreement should be enforceable by law.
Essentials of Valid Contract
1. Agreement. Agreement is fundamental to a contract. When
one person makes a valid proposal and the other person accepts
it we can say that there is an agreement.
2. Consensus ad idem. The Latin expression consensus ad idem
means identity of minds between the parties. Both the parties to
an agreement must agree about the subject matter of the
agreement in the same sense and at the same time
3. Lawful consideration. Consideration means 'something in
return'. Consideration has been defined as the price paid by one
party for the promise of the other. An agreement is legally
enforceable only if one party gives something in return for the
other person's promise. An agreement without consideration is
void from the very beginning. Another condition is that the
consideration should be lawful.
4. Capacity of parties. The parties to an agreement must be
competent to contract. The contracting parties must be of the
age of majority and of sound mind and must not be disqualified
by any law to which they are subject. (Sec. 11). Generally, if
any of the parties are minors, or suffering from lunacy, idiocy
or drunkenness then the agreement will be void.
5. Free Consent. The parties to an agreement must give their
consent with a free mind. Consent can be said to be free when
it is not caused by (i) coercion, (ii) undue influence, (ii)
misrepresentation, (iv) fraud or (v) mistake. If the consent is
not free the agreement may become either void or voidable,
depending on the nature of the flaw in consent.
6. Lawful object. The object of the agreement must be lawful.
The object for which the agreement has been entered into must
not be fraudulent, illegal, immoral or opposed to public policy.
If the object is unlawful the agreement shall become void.
7. Not expressly declared void. The agreement must not have
been expressly declared to be void under the Act. The contract
act itself specifies certain types of agreements as void.
8. Certainty and possibility of performance. In order to give rise
to a valid contract, the terms of the agreement must not be
vague or uncertain. Section 29 of the Contract Act expressly
provides that "agreements the meaning of which is not certain
or capable of being made certain are void." Similarly, the terms
of the agreement must be capable of performance. Section 56
provides that an agreement to do an act impossible in itself is
void.
9. Legal formalities. An agreement may be oral or in writing.
Sometimes an agreement may be even implied from the
conduct of the parties. However there are certain special types
of agreements which need to comply with some formalities.
Certain types of agreements should be in writing and should be
registered. Few types of agreements are valid only if sufficient
stamps are affixed on the agreements.
10. Intention to create legal relationship. If the agreement
entered into by two persons is only a social agreement or a
domestic arrangement, then that agreement cannot be termed as
a contract. Only if the parties had an intention to create a legal
relationship, the agreement could be termed as a contract. The
case law given below illustrates the principle.
Doctrine of Privity of Contract
The Indian Contract Act. 1872, allows the ‘Consideration‘ for
an agreement to proceed from a third-party. However, a
stranger (third-party) to consideration is different from a
stranger to a contract. The law does not allow a stranger to file
a suit on the contract. This right is available only to a person
who is a party to the contract and is called Doctrine of Privity
of Contract.
Classification of contracts
Contracts may be classified on the basis of their (a) validity,
formation, or (c) performance.
1. Classification on the basis of validity
Void agreement; Section 2 (g) defines it as "an agreement not
enforceable by law". If the agreement could not be enforced
through the court, then the agreement is void. Such agreements
are void ab initio I.e., they are void from the very beginning.
Examples are agreements entered into with minors or
agreements entered into without consideration.
Valid contract; An agreement enforceable at law is a valid
contract. An agreement becomes a contract when it satisfies all
the essential features required for a contract.
Void contract. Section 2 (j) provides that "a contract which
ceases to be enforceable by law becomes void when it ceases to
be enforceable This refers to a situation where a contract which
was originally valid later becomes invalid.
Voidable contract; According to Section 2 (1). "An agreement
which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of other or others, is a
voidable contract". These types of contracts give an option to
one of the parties to the contract. He can either enforce the
contract or decide to treat the contract as cancelled This right is
granted only to the party who is innocent in the contract
Unenforceable contract; An unenforceable contract is one
which cannot be enforced in a court of law because of its
technical defects. For example, certain types of contracts can
be produced in a court of law as evidence only if it is affixed
with sufficient stamps or registered according to the provisions
of the Registration Act. However, these contracts cannot be
treated as void because there may be options available in law to
cure these defects by paying penalties etc. If such defects are
cured, such contracts will become valid and may be
enforceable.
Illegal agreement; An agreement which is criminal in nature or
which is immoral or opposed to public policy is an illegal
agreement. All illegal agreements are void agreements. But, all
void agreements are not illegal. This is because illegality is only
one of the causes that make an agreement void.
II. Classification on the basis of formation
Express contract: Express contract is one where the terms are
communicated in words spoken or written in the case of express
contracts it is easy to identify the rights and obligations of the
parties
Implied contract: When the terms of the contract are to be
understood from the conduct of the parties or course of dealing
between them it can be termed as an implied contract
Quasi contract: This is not a contract in the strict legal sense. In
certain circumstances law itself creates certain relationships
which resembles those created by contracts. Such types of
relationships are termed as quasi contracts. Such contracts are
based on the equitable principle that no one shall be allowed to
enrich himself unjustly at the expense of another.
III. Classification on the basis of performance
Executed contract; When both the parties have performed their
respective obligations under a contract, then it can be termed as
an executed contract.
Executory contract; A contract in which something remains to
be done by the parties is termed as an executory contract.
Unilateral contract; An agreement in which only one party
makes a promise is called a unilateral contract. A typical
example is an offer for reward. A promises to reward any
person who finds his missing dog. In this case there is no
obligation on any one. But if B finds it A will be obliged to pay
the reward to B.
Bilateral contract; It is an agreement in which each of the
parties to the contract makes a promise or promises to the other
party. This is the most prevalent kind of contract.
Offer-
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".
Essentials of a valid offer
An offer may give rise to a valid contract only if the following
conditions are satisfied:
1. It must intend to create legal relations. An offer may be capable
of creating a legal relationship only if the parties intended to enter
into a legal relationship. If the offer is only a social invitation or a
domestic arrangement, it cannot be treated as a valid offer. For
example, if a person is invited to attend a dinner but he fails to attend
it, there is no legal right to claim compensation for the failure
because it is not a valid offer.
2. The terms of the offer must be definite and certain. If the terms of
the offer is vague or lacks clarity, it cannot be treated as a valid offer.
Only if the offer is clear the parties could identify the legal
requirement of the contract. Similarly courts can also monitor the
performance of a contract only if the terms are clear.
3. Offer must be communicated to the offeree. An offer is valid only
if it is communicated to the offeree. If a person prepare a letter
containing an offer but fails to send it, there will not be any legal
offer. Similarly an acceptance is possible only if an offer is
communicated.
4. An offer is different from a statement of intention or invitation to
offer. When a merchant exhibits his goods in a shop window it is not
an offer. It is only an invitation to the public to make an offer.
Similarly, price lists, catalogues, advertisements, etc. are also not
offers. They are only invitation to offer. Another situation which
may appear to be an offer is any declaration of intention by a person.
An advertisement for conducting a programme or an announcement
to conduct an auction sale is all examples of declaration of intention.
Similarly quoting the lowest price is also not an offer.
5. Special conditions attached to an offer must be communicated. If
there are some special conditions in a contract, like a clause which
may limit the liability of a party to the contract, such conditions
should be brought to the notice of the other party at the time of the
offer itself. If the offeree is not given information regarding the
special terms at the time of the offer he is not bound by such
conditions.
6. An offer may be general or specific. A specific offer is made to a
specific individual or a definite group of individuals. When the offer
is made to the world at large it is said to be general. This means that
an offer need not be given to a definite offeree alone. Sometimes it
may be given to the world at large and any person could accept it.
7. Offer must be made with a view to obtaining the assent of the
other party. An offer must be distinguishes from mere expression
intention. When an offer is made me intention of me party should be
to get the consent of the party for the proposal
8. An offer may be conditional, an offer is made subject to a
condition it can be accepted only if the condition is satisfied. If the
condition is not accepted the offer lapses
9. Offer should not contain a term, the non-compliance of which
would amount to acceptance. An offeror cannot say that if no
response is given before a due date it will be presumed to have been
accepted
Acceptance is defined in Section 2 (b) of the Contract Act. "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".
Express and implied acceptance
-Acceptance may be express or implied. It is express when it is
communicated by words, spoken or written or by doing some
required act.
-Acceptance is implied when it is to be gathered from the
surrounding circumstances or the conduct of the parties.
Essentials of a valid acceptance
1. Acceptance must be absolute and unqualified. Acceptance must
correspond with all the terms of the offer. If there is any variation
from the terms of the contract then it is only a counter offer and it
cannot be termed as an acceptance.
2. Acceptance must be communicated to the offeror. Only if the
offeree does something to communicate his acceptance to the offeror
the acceptance would become valid. Even if the offeree mentally
resolves to enter into a contract, if he remains silent, there cannot be
a contract.
3. Acceptance must be made within a reasonable time. Acceptance
must be made within the time allowed by the offeror. If no time is
prescribed, it must be made within a reasonable time.
4. It must be according to the mode prescribed. If the offeror has
specified any mode of acceptance, it should be exactly according to
that mode. If the offeree adopts any mode other than what is
prescribed by the offeror, he can insist that the specified mode
should be adopted. However if the offeror does not insist again on
the acceptance in the mode prescribed, it may be assumed that be
the offer is accepted.
5. The acceptor must be aware of the proposal at the time of the
acceptance. If the acceptor is unaware of the offer there could not a
legal acceptance.
6. Acceptance must be given before the offer lapses. An acceptance
will result in a contract only if it is given when the offer is valid.
7. Acceptance cannot be implied from silence
CONSIDERATION
Indian Contract Act defines consideration in section 2 (d) as
follows: When at the desire of the promisor, the promisee or
any other person has 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".
Essentials of valid consideration
1. Consideration must be provided at the desire of the promisor.
Consideration can be an act, abstinence or a promise. However
the act, abstinence or promise should be done by the promisee
at the request of the promisor. If the promisee does something
at the desire of a third person it cannot be treated as contract.
2. Consideration may move from the promisee or any other
person. Section 2 (d) makes it clear that consideration may
move from "the promisee or any other person". Therefore as
long as there is consideration for a promise, it is immaterial who
has furnished it.
3. Consideration may be an act, abstinence or forbearance or
return promise. Forbearance to file a case or a compromise of a
disputed claim can also be a valid consideration.
4. Consideration may be past, present or future. The words "has
done or abstained from doing or does or abstains from doing;
or promises to do or to abstain from doing used in the definition
of the term consideration indicate that consideration may be
past present or even future.
5. Consideration need not be adequate. Though law requires
that every promise in a contract should be supported by
consideration, it insist that consideration should be adequate.
6. Consideration must be real and not illusory. Although
consideration need not be adequate, it must be real, and of some
value in the eyes of law. If the promised consideration is
physically or legally impossible, or uncertain or illusory, then
it is not good consideration.
7. Consideration must be something which the promisor is not
already bound to do. A promise to do what one is already bound
to do, either by law, or under an existing contract, is not a good
consideration for a new promise.
8. Consideration must not be illegal, immoral or opposed to
public policy. Section 23 provides that consideration given for
an agreement must not be illegal. This section is dealt with in
the chapter on 'legality of object' in greater detail.
Stranger to consideration
Section 2 (d) provides that a consideration may move from "the
promisee or any other person". It means that as long as there is
a consideration for a promise, it is immaterial who has
furnished it
Stranger to contract
Contracts create only personal rights between the parties and
therefore only parties to a contract may sue and be sued on the
contract. This prevents third parties from having any rights or
obligations in a contract. Third parties are prevented from suing
upon it even if the contract is for their benefit. This principle is
called privity of contract, or stranger to contract.
However, there are few exceptions to this general rule. This
means that even a stranger may sue under a contract in few
limited situations The following are those exceptional
situations.
1. In the case of trust. Sometimes a person may create a trust
for the benefit of another person. The creator is called the
author of the trust and the person for whose benefit the
agreement is created is called the beneficiary. The beneficiary
has got a right to file a case against the person who administers
the trust (trustee), even though he is not a party to the agreement
between the trustee and the author of the trust.
2. Marriage settlement, partition or other family arrangements.
Where an agreement is made in connection with marriage,
partition or other family settlement, and a provision is made for
the benefit of a third person, he may file a case to avail that
benefit though he himself is not a party to the deal.
3. Acknowledgement or estoppel. By the terms of a contract if
a party is required to make a payment to a third person and he
acknowledges it to that third person, a binding obligation is
created.
4. Covenants running with the land. In this case the court held
that a person who purchases a land with notice that the owner
of the land is bound by certain duties created by an agreement
affecting the land shall be bound by them although he was not
a party to the agreement.
No consideration no contract
Section 25 of the contract Act makes it clear that an agreement made
without consideration is void". Though this is the general rule there
are a few exceptional situations where an agreement without
consideration may still be enforceable. The following are those
exceptional situations.
1. Natural love and affection. Section 25 (1)
An agreement entered into on the basis of love and affection and
without receiving any valid consideration may be enforceable if the
following conditions are satisfied.
a. the agreement should be in writing;
b. it should be registered according to the law relating to registration;
c. it should be between parties standing in near relation to one
another; and
d. it should be made on account of natural love and affection.
2. Compensation for voluntary services. Section 25 (2)
When a promise is given to compensate a voluntary service done,
the promise may be enforceable even though it is not supported by
consideration.
3. Time barred debt
Section 25 (3). A promise in writing to pay a time barred debt signed
by the promisor is enforceable even though it is not supported by
consideration
4. Completed gifts
Explanation 1 to Section 25 provides that even in the absence of
consideration any gift between two persons actually executed would
be valid.
5. Contracts of agency
Section 185 provides that no consideration is required to create an
agency
The parties to an agreement must have the legal capacity to create a
contract. Section 11 of the Act provides that 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 a sound mind, and is not
disqualified by any law to which he is subject".
Thus the following persons are incompetent to contract;
1. minors;
2. persons of unsound mind; and
3. persons disqualified from contracting by any law.
Minors
A minor is a person who is not a major.
a person who has not completed 18 years of age is a minor. A
person attains majority when he completes the age of 18 years.
However, in the following two cases a person continues to be a
minor until he completes the age of 21 years.
1. Where a guardian is appointed by the court under the
Guardians and Wards Act, 1890 for the purpose of
administering the minor's person or property; or
2. Where the superintendence of a minor's property is assumed
by Court of Wards.
Rules regarding minors agreements
The important rules regarding minor's agreements are discussed
under the following heads;
1. An agreement with or by a minor is void. Section 10 requires that
the parties to a contract must be competent and section 11 declares
that a minor is not competent. But both these doesn't make it clear
the consequences of a contract entered into by a minor.
2. A minor can be a promisee or a beneficiary. If a contract is
beneficial to a minor it can be enforced by him. Such contracts are
enforceable at the option of the minor and not at the option of the
other or others.
3. No ratification. An agreement with a minor is void from the very
beginning. Therefore a minor cannot ratify an agreement even on
attaining majority. However on attaining majority if the minor enter
into a new contract with fresh consideration it may be enforceable.
4. No restitution. If the minor has received any benefit under a void
agreement, he cannot be asked to pay for the same. However if the
minor misrepresents his age and thereby gains an unfair advantage
the court may ask the minor to give back the benefit.
5. No specific performance. The minor's agreement being void from
the very beginning is not capable of specific performance. A
guardian of a minor also cannot bind a minor by an agreement.
6. No estoppel. Even if a minor misrepresents his age and
fraudulently induces another to contract with him, he cannot be
estopped from pleading infancy as a defence.
Persons of unsound mind
An agreement entered into by a person of unsound mind is void.
Section 12 explains the concept of sound mind. "A person is said to
be of sound mind for the purpose of making a contract, if at the time
when he makes it, he is capable of understanding it and of forming
a rational judgment as to its effects upon his interests."
The expression unsoundness may be used in several situations.
Some of the situations are described below:
1. Idiocy: An idiot is a person whose mental faculties are not fully
developed. He is a person of arrested mental growth. Such persons
could never enter into contracts.
2. Lunacy; When a person loses his mental balance and faculties due
to reasons like mental strains, diseases etc., they may become
incapable of contracting.
3. Drunkenness. A person who is under the heavy influence of
intoxicants is incapable of entering into contracts and such persons
are also treated as persons of unsound mind for the purpose of
contract law.
Persons disqualified by any other law
1. Alien enemies
2. Insolvent
3. Foreign sovereigns and ambassadors
4. Corporations 5. Convicts
Free Consent
In the Indian Contract Act, the definition of Consent is given in
Section 13, which states that “it is when two or more persons agree
upon the same thing and in the same sense”. So the two people must
agree to something in the same sense as well.
Now Free Consent has been defined in Section 14 of the Act. The
section says that consent is considered free consent when it is not
caused or affected by the following,
*Coercion
*Undue Influence
*Fraud
*Misrepresentation
*Mistake
1] Coercion (Section 15)
Coercion means using force to compel a person to enter into a
contract. So force or threats are used to obtain the consent of the
party under coercion, i.e it is not free consent. Section 15 of the Act
describes coercion as committing or threatening to commit any act
forbidden by the law in the IPC unlawfully detaining or threatening
to detain any property with the intention of causing any person to
enter into a contract
2] Undue Influence (Section 16)
Section 16 of the Act contains the definition of undue influence. It
states that when the relations between the two parties are such that
one party is in a position to dominate the other party, and uses such
influence to obtain an unfair advantage of the other party it will be
undue influence.
The section also further describes how the person can abuse his
authority in the following two ways,
*When a person holds real or even apparent authority over the other
person. Or if he is in a fiduciary relationship with the other person
*He makes a contract with a person whose mental capacity is
affected by age, illness or distress. The unsoundness of mind can be
temporary or permanent
3] Fraud means deceit by one of the parties, i.e. when one of the
parties deliberately makes false statements. So the misrepresentation
is done with full knowledge that it is not true, or recklessly without
checking for the trueness, this is said to be fraudulent. It absolutely
impairs free consent.
4] Misrepresentation
Misrepresentation is a false statement which the person making it
honestly believes to be true or which he does not know to be false.
It also includes non-disclosure of a material fact or facts without any
intent to deceive the other party.
Section 18 defines misrepresentation as follows: "Mis-
representation means and includes;
I. The positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true, though
he believes it to be true;
II. Any breach of duty which, without any intent to deceive, gains
an advantage to the person committing it, or anyone claiming under
him, by misleading another to his prejudice, or the prejudice of any
one claiming under him;
III. Causing, however innocently, a party to an agreement, to make
a mistake as to the substance of the thing, which is the subject of the
agreement
5] Mistake
Mistake may be defined as an erroneous belief about something.
Mistake usually has serious consequences in a contract. The topic
has several subdivisions and it is explained below in appropriate sub
topics,
The area of mistake is divided into two categories (1) mistake of
law, and (ii) mistake of fact
Mistake of law
Mistake of law is further divided into two categories. (i) mistake as
to foreign law and (ii) mistake as to Indian law.
a) Mistake as to Indian law. A contract cannot be avoided even if the
parties were under a mistake about a provision of the Indian law.
The presumption is that everyone is aware of the law of the
nation he belongs to.
b) Mistake as to foreign law. Such mistakes are treated as mistake
of fact. The contract may be void under some situations.
Mistake of fact
Mistake of fact may be either (i) bilateral mistake, or (ii) unilateral
mistake. The detailed rules are discussed below;
a) Bilateral mistake. Section 20 of the Act provides that "where both
the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void". From this
definition it is clear that two requirements should be met, namely:
a) There must be a common or mutual mistake; i.e., the mistake
should be shared by both the parties, and
b. The mistake must relate to a matter of fact essential to the
agreement.
b) Unilateral Mistake
A unilateral mistake is when only one party to the contract is under
a mistake. In such a case the contract will not be void. So the Section
22 of the Act states that just because one party was under a mistake
of fact the contract will not be void or voidable. So if only one party
has made a mistake of fact the contract remains a valid contract.
Attempted performance or tender
Sometimes the promisor may be ready to perform the
obligation under the contract at the proper time and place but
the promisee may refuse to accept the performance. When the
promisor expresses his willingness to perform the obligation,
but the promisee refuses to accept, it is termed as "attempted
performance" or "tender".
Where the promisor has made a valid tender, he ceases to be
responsible for the non-performance of the contract. At the
same time the promisor continues to enjoy his rights under the
contract. Thus, a tender of performance is equivalent to actual
performance.
Time and place of performance
Guidelines regarding time and place of performance;
1) Where no application is to be made and no time is specified.
If a promisor has to perform his promise without application by
the promisee, and no time for performance is specified, it has
to be performed within a reasonable time. What is reasonable
time is a question of fact, which could be decided only on the
basis of facts of each case. (Section 46)
2) Where time is specified but no application is to be made.
Where a promise is to be performed on a certain day, and the
promisor has undertaken to perform it without application by
the promisee, the 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. (Section 47)
3) Application for performance on a certain day and at a proper
time and place. When a promise is to be performed on a certain
day, the promisor may undertake to perform it after application
by the promisee to that effect. In such a case, it is the duty of
the promisee, to apply for performance at a proper place and
within the usual hours of business (Section 48)
4) Place of performance where neither application is required
nor a place of performance fixed. When a promise is to be
performed without application by the promisee and no time is
fixed for its performance, it is the duty of the promisor to apply
to the promisee to appoint a reasonable place for the
performance of the promise and to perform it at such place.
(Section 49)
5) Performance as prescribed by the promisee. The
performance of a promise may be made in any manner or at any
time which the promisee prescribes or sanctions. (Section 50).
Discharge of contract means the termination of contractual Remedies for Breach of Contract
relationship between the parties. When a contract is discharged the
rights and obligations created by it comes to an end. The Indian Contract Act lays out all the provisions for the
A contract may be discharged by the following modes. performance of a contract. It also contains the provisions in
1. By performance
case of breach of contract by either party. Let us take a detailed
2. By agreement
3. By impossibility look at the available remedies for breach of contract.
4. By lapse of time
5. By operation of law Remedies for Breach of Contract
6. By breach of contract.
When a promise or agreement is broken by any of the parties
1] Discharge by performance we call it a breach of contract. So when either of the parties
When the parties to a contract fulfil their respective obligations the
does not keep their end of the agreement or does not fulfil their
contract gets discharged by performance. When the contract is
obligation as per the terms of the contract, it is a breach of
performed fully the contract ceases and the parties are discharged
from any further liability. contract. There are a few remedies for breach of contract
available to the wronged party. Let us take a look.
Performance of contract may be (i) actual performance, or (ii)
attempted performance. 1] Recession of Contract
1. Actual performance. When both the parties perform their
obligations exactly as per the terms of the contracts, the contract is When one of the parties to a contract does not fulfil his
discharged by actual performance. obligations, then the other party can rescind the contract and
2. Attempted performance or tender. When the promisor offers to refuse the performance of his obligations.
perform the contractual obligation and the promisee is not willing to
accept the performance the contract is deemed to be discharged by As per section 65 of the Indian Contract Act, the party that
attempted performance. A valid tender is equivalent to performance rescinds the contract must restore any benefits he got under the
except in the case of tender of money.
said agreement. And section 75 states that the party that
2] Discharge by agreement
rescinds the contract is entitled to receive damages and/or
A contract is created by agreement. Therefore it may be terminated
by the same method. There are various modes by which a contract
compensation for such a recession.
may be discharged by agreement. They are as follows
1. Novation. 'Novation" means substituting a new contract in the 2] Sue for Damages
place of an old contract. Sometimes the same parties may adopt a
new contract in the place of an old one, or there could be a change Section 73 clearly states that the party who has suffered, since
of parties. The essential requirement of novation is that this new the other party has broken promises, can claim compensation
agreement is entered into consideration for the old agreement. for loss or damages caused to them in the normal course of
2. Rescission. Parties to a contract may decide to cancel a contract business.
on the basis of mutual consent and consideration. When such a
rescission happens the original contract gets discharged. Such damages will not be payable if the loss is abnormal in
3. Alteration. Alteration of a contract takes place when one or more nature, i.e. not in the ordinary course of business. There are two
of the terms of the contract is/are altered by mutual consent of the
types of damages according to the Act,
parties to the contract. The old contract is discharged and the parties
become bound by a new contract.
4. Remission. It means acceptance of a lesser performance than what
Liquidated Damages: Sometimes the parties to a contract will
was due under the original contract. An example for remission agree to the amount payable in case of a breach. This is known
would be acceptance of a lesser sum than what was contracted for, as liquidated damages.
in discharge of the whole of the debt.
5. Waiver. It is a deliberate abandonment of the rights which parties Unliquidated Damages: Here the amount payable due to the
to the contract mutually have against each other. No consideration breach of contract is assessed by the courts or any appropriate
is necessary for waiver. authorities.
6. Merger. Merger takes place when an inferior right accruing to a
party under a contract merges into a superior right accruing to the 3] Sue for Specific Performance
same party under same or some other contract.
This means the party in breach will actually have to carry out
3] Discharge by the Impossibility of Performance
his duties according to the contract. In certain cases, the courts
If it is impossible for any of the parties to the contract to perform
may insist that the party carry out the agreement.
their obligations, then the impossibility of performance leads to a
discharge of the contract. If the impossibility exists from the start,
then it is impossibility ab-initio. However, the impossibility might So if any of the parties fails to perform the contract, the court
also arise later due to: may order them to do so. This is a decree of specific
*An unforeseen change in the law performance and is granted instead of damages
*Destruction of the subject-matter essential to the performance
*The non-existence or non-occurrence of a particular state of things 4] Injunction
which was considered a given for the performance of the contract
*A declaration of war An injunction is basically like a decree for specific performance
but for a negative contract. An injunction is a court order
4] Discharge of a Contract by Lapse of Time restraining a person from doing a particular act.
The Limitation Act, 1963 prescribes a specified period for
performance of a contract. If the promisor fails to perform and the
So a court may grant an injunction to stop a party of a contract
promisee fails to take action within this specified period, then the
from doing something he promised not to do. In a prohibitory
latter cannot seek remedy through law. It discharges the contract due
to the lapse of time.
injunction, the court stops the commission of an act and in a
5] Discharge by operation of law mandatory injunction, it will stop the continuance of an act that
A contract may be discharged by operation of law also. The is unlawful.
following are the situations;
a) By death. In case of contracts involving personal skill or ability, 5] Quantum Meruit
the contract is terminated on the death of the promisor.
b) By insolvency. When a person is declared as insolvent and an Quantum meruit literally translates to “as much is earned”. At
order of discharge is passed against him he is released from all past times when one party of the contract is prevented from finishing
liabilities. his performance of the contract by the other party, he can claim
c) Unauthorized alteration. Any material alteration of a written quantum meruit.
contract made without the consent of the other party has the
effect of discharging the contract. So he must be paid a reasonable remuneration for the part of
6] Discharge by Breach of Contract the contract he has already performed. This could be the
If a party to a contract fails to perform his obligation according remuneration of the services he has provided or the value of the
to the time and place specified, then he is said to have work he has already done.
committed a breach of contract.
Also, if a party repudiates a contract before the agreed time of
performance of a contract, then he is said to have committed an
anticipatory breach of contract.
In both cases, the breach discharges the contract. In the case of:
*an actual breach, the promisee retains his right of action for
damages
*an anticipatory breach of contract, the promisee cannot file a
suit for damages. It also discharges the promisor from
performing his part of the contract.
Bailment
Section 148 defines 'bailment' as "the delivery of goods by one
person to another for some purpose, upon a contract that they
shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the person
delivering them".
Essentials of bailment
1. Delivery of possession. The most important feature of a
contract d bailment is the delivery of possession from the bailar
to the bailee. Delivery involves only change of possession and
not transfer of ownership. Delivery may be either (i) actual, or
(ii) constructive. Actual delivery may be made by handing over
the possession of the goods to the bailee. Constructive delivery
may be made by doing something which has the effect of
putting the goods in the possession of the intended bailee or any
person authorized to hold them on his behalf. (Sec. 149).
2. Contract. A bailment is usually created by agreement
between the bailor and the bailee. The agreement may be
express or implied.
3. Delivery must be for some purpose. The delivery of goods
from the bailor to the bailee must be for some purpose. If goods
are delivered by mistake to some person there is no bailment.
4. Return of goods. Bailment is made for some purpose and
after the purpose is accomplished, the goods are to be returned
or otherwise disposed of according to the directions of the
bailor. There is no bailment if the bailee is not bound to return
it.
5. Movable goods. Only goods can be the subject matter of a
contract of bailment. Immovable property cannot be bailed.
Rights and duties of bailor
Duties of bailor
1. To disclose known faults. The most important duty of the
bailor to the bailee is to disclose faults in the goods bailed.
Regarding the degree of responsibility to disclose faults on
bailed goods, there is a distinction between gratuitous and non-
gratuitous bailment. In the case of gratuitous bailment the bailor
should disclose those faults in the goods of which the bailor is
aware and which expose the bailee to extraordinary risks.
However he is not liable for those defects which are not within
his knowledge.
The duty of a non-gratuitous bailor (bailor for reward) is even
higher. He must ensure that the goods bailed are reasonably
safe and he cannot plead that he was not aware of the faults. He
must examine the goods and remove such defects as reasonable
examination would have disclosed
2. To bear extra-ordinary expenses of bailment. The bailor must
reimburse the bailee for any extraordinary expenses provided
these were not incurred due to the default of the bailee.
3. To indemnify bailee. Where the title of the bailor to the goods
is defective and the bailee suffers as a consequence, the bailor
is responsible to the bailee for any loss. (Section 164).
4. To indemnify bailee in case of premature termination of
gratuitous bailment. A gratuitous bailment can be terminated
by the bailor at any time. It can be terminated even if it was
entered into for a specific duration or a particular purpose.
However if there is a premature termination of bailment, any
loss accruing to the bailee from such termination should be
indemnified by the bailor.
5. To receive back the goods. It is the duty of the bailor to take
back the goods when the bailee returns them after the expiry of
period of bailment, or the accomplishment of the purpose for
which goods were bailed.
Rights of bailor
1. Enforcement of bailee's duties. Rights and duties are always
correlative. The right of a person is the duty of the other and
vice versa. Therefore the duties of bailee are the rights the
bailor. A bailor can enforce such duties of the bailee in a court
of law through appropriate proceedings.
2. Termination of bailment. If there is any inconsistent or
unauthorized use of bailed goods by the bailee, the bailor can
terminate the contract of bailment.
3. To get back goods lent gratuitously. When goods are lent
gratuitously, the bailor can demand their return whenever he
pleases even though he lent them for a specified time or
purpose.
4. Right to file suit against any wrong doer. If a third party does
some wrongful act and deprives the bailee from the use of
goods bailed or does some injury to the goods bailed, the bailor
has a right to file a suit against the wrong-doer and claim
compensation from him. (Section 180).
Rights and duties of bailee Pledge
Duties of bailee Pledge is a special kind of bailment. The bailment of goods as
1. To take reasonable care of the goods bailed. The bailee is security for payment of a debt or performance of a promise is
bound to take as much care of the goods bailed to him as a man called pledge. The bailor in this case is called the "pledgor" or
of ordinary prudence would, under similar circumstances take "pawnor" and the bailee is called the "pledgee" or "pawnee".
of his own goods of the same bulk, quality and value as the (Section 172). In other words, pledge can be termed as bailment
goods bailed. (Section 151). Where a bailee had taken the for security.
required extend of care, he is not responsible for the loss,
destruction or deterioration of the thing bailed. However, if the
goods are damaged, it is the duty of the bailee to prove that he Rights of the pawnee
has taken reasonable care of the goods and the loss was in spite
of due care. 1. Right of retainer. The pawnee can exercise lien on the goods
2. Not to make any unauthorized use of goods bailed. If the pledged not only for payment of debt or performance of
bailee uses the goods bailed in a manner which is inconsistent promise but for interest and all other necessary expenses in
with the terms of the contract, he shall be liable for any loss connection with preservation of the goods pledged.
even though he is not guilty of negligence, and even if the 2. Right to extraordinary expenses. The pawnee has a right to
damage is the result of an accident. recover from the pawnor extraordinary expenses incurred for
3. Not to mix goods of bailor with his own goods. A bailee is the preservation of goods pledged. But he has no right of lien
under a duty not to mix the goods bailed with his own goods. If over the goods for extraordinary expenses.
he mixes up his own goods with those of the bailor, following 3. Right of retainer for subsequent advances also. When the
rules shall apply: pawnee lends money to the same pawnor after the date of the
a. Mixes with the bailer's consent. If the goods are mixed with pledge, it is presumed that the right of retainer over the pledged
the bailors consent, both shall have a proportionate interest in goods extends to subsequent advances also.
the mixture produced. (Section 155). 4. Rights where pawnor makes default. Where the pawnor of a
b. Without the bailor's consent, and separable. If the goods are goods makes default in the performance of the promise or
mixed without the bailor's consent and if the goods can be payment of a debt at the stipulated time, the following rights
separated, the bailee should bear the expenses of separation as are available to the pawnee,
well as damage arising from the mixture. (Section 156)
c. Without the bailor's consent and not separable. If the mixing a. He may file a case against the pawnor upon the debt or
is without consent and the mixture could not be separated, the promise and may retain the goods pledged as a collateral
bailor is entitled to compensation from the bailee for the loss of security.
goods. (Section 157) b. He may sell the goods pledged after giving reasonable notice
4. Not to set up an adverse title. Section 117 of the Evidence to the pawnor
Act stops a bailee from denying the bailor's authority to make c. The pawnee can recover from the pawnor any deficiency
the bailment and to receive back the goods. The bailee should arising on the sale of the goods on default. However he is also
not plead that the goods belong to a third person. Even if a third bound to hand over the surplus, if any, on the sale
person has a better title, the bailee may return the goods to the
bailor and he will not be liable for any tort.
5. To return any accretion to the goods. In the absence of any
contract to the contrary, the bailee is bound to deliver to the
bailor, or according to his directions, any increase or profit
which may have accrued from the goods bailed. (Section 163).
6. To return the goods. The bailee must return the pods as soon
as the time for which they were bailed has expired or the
purpose for which they were bailed has been accomplished. He
should not wait for a demand. If there is any default to return
the goods at the proper time, he becomes liable for any loss or
damage to the goods although the bailor may have exercised
reasonable care.
Rights of the bailee
1. Enforcement of duties of bailor. The bailee can file a case to
enforce the duties of the bailor.
2. Bailment by several joint owners. If several joint owners of
goods bail them, the bailee may deliver them back to, or
according to directions of one joint owner, without the consent
of all, in the absence of any contract to the contrary. (Section
165).
3. Delivery of goods to bailor without title. If the bailor has no
title to the goods, and the bailee in good faith delivers them
back to, or according to the directions of the bailor, the bailee
is not responsible to the owner in respect of such delivery. (Sec.
166).
4. Right to file case against trespassers. If a third person
wrongfully deprives the bailee of the use or possession of the
goods bailed to him, he has the right to bring an action against
that party. The bailor can also file a case in such situations.
5. Right to implead. Where a person other than the bailor claims
the goods bailed, bailee may apply to the court to stop delivery
of the goods to the bailor and to decide the title to the goods.
6. Bailee's lien. Where the lawful charges of the bailee in
respect of the goods bailed are not paid, he may retain the
goods. This right of the bailee to retain the goods is discussed
in the next segment.
Termination of bailment
A contract of bailment is terminated in the following modes:
1. On the expiry of the period. If the bailment is for a specific
period, it terminates on the expiry of that period.
2. On the achievement of the object. When the bailment is for
a specific purpose, it terminates as soon as the purpose is
achieved.
3. Inconsistent use of the goods. The bailment terminates when
the bailee uses the goods in an unauthorized way.
4. Destruction of the subject matter. A bailment is terminated
when the subject matter of the bailment is destroyed.
5. Gratuitous bailment. Bailment can be terminated at any time
in case of gratuitous bailment.
6. Death of the bailor or bailee. A gratuitous bailment is
terminated by the death of either of the bailor or the bailee.
Section 182 of the Act, defines an agent as a person employed
to do any act for another or to represent another in dealings with
third persons The person for whom such act is done, or who is
so represented is called the "principal".
The contract which creates the relationship of an agent and
principal is called 'agency'.
Essentials of agency
1. Agreement between the principal and the agent Agency is
created on the basis of an agreement between the principal and
the agent. The agreement may be express or implied.
2. Principal should be competent. Only a person who is
competent to contract may appoint an agent. Section 183 of the
Act provides that "any person who is of the age of majority
according to the law to which he is subject and who is of sound
mind, may employ an agent".
3. The agent need not be competent. An agent need not be
competent to contract. Even a minor can bring about a
contractual relationship between a principal and a third party.
4. No consideration is required to create agency. Section 185 of
the Act expressly provides that there need not be any
consideration to create an agency.
Commercial or mercantile agents. The term 'mercantile agent'
is defined in section 2(9) of the Sale of Goods Act, 1930. "A
mercantile agent is one having in the customary course of
business as such agent, authority either to sell goods, or to
consign goods for the purposes of sale, or to buy goods, or to
raise money on the security of goods". Mercantile agents, as the
definition suggests, engage in a variety of activities.
Scope and extent of agent's authority
The expression authority of an agent' means his capacity to bind
the principal. If the agent acts within the scope of his authority,
it will be binding on the principal. This raises the issue of what
decides the authority of the agent. The authority of the agent to
bind the principal may be of the following types;
1. Actual or real authority. It is the authority conferred on him
by the principal. It may be expressed or implied. (Section 186).
An authority is said to be express when it is given by words
spoken or written. 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. (Section
187).
2. Ostensible or apparent authority. It is the authority of an
agent which appears to others. When a person is appointed as
an agent for a particular business, persons dealing with him can
presume that he has authority to do all such acts as are
necessary or incidental to such business
Such authority is called ostensible authority of an agent. If the
act of an agent is in excess of his actual authority, but is within
the scope of his ostensible authority, the principal will be bound
by the act of the agent.
3. Agent's authority in an emergency. Section 189 provides that
an agent has authority in an emergency to do all such acts, for
the purpose of protecting his principal from loss as would be
done by a person of ordinary prudence, in his own case, under
similar circumstances.
Delegation of authority by an agent
A principal when he appoints an agent is entering into a
contract which involves trust. He will be appointing the agent
only after assessing the skill, competence and integrity of the
agent. Therefore, the principal has got the right to ensure that
the agent does not delegate his authority further to any other
person without his consent.
It provides that an agent cannot lawfully employ another to
perform acts which he has expressly or impliedly undertaken to
perform personally. However there are exceptional situations
where an agent may appoint another agent. Such a person is
termed as a 'sub-agent'.
Personal liability of agent
An agent is a person who acts for the principal. He facilitates
contracts between principal and third parties. Section 230
provides that an agent cannot personally enforce the contracts
made by him on behalf of his principal nor can he be held
personally liable for such contracts. However, there are
exceptional situations where an agent may become personally
liable.
1. Where the contract expressly provides; At the time when the
third person enters into contract with an agent, he may stipulate
that the agent should be personally liable. If that is accepted by
the agent he can be made personally liable.
2. Where the agent acts for a foreign principal. The agent will
be personally liable if he acts for a merchant who is resident
abroad. However there can be a contract to the contrary.
[Section 230 (1)
3. Where the agent acts for an undisclosed principal. An agent
who is acting for an undisclosed principal is personally liable.
However, if the third party discovers the principal, he can make
the principal also liable [Section 230 Para 2]
4. When the agent acts for a principal who cannot be sued.
Where the principal is incompetent to contract, i.e., where he is
a minor or a person of unsound mind, the agent is personally
liable.
5. Where the agent signs a contract in his own name. If an agent
puts signature on a negotiable instrument, without making it
clear that he is signing on behalf of the principal, the agent will
be personally liable,
6. Where the agent acts for a principal not in existence. No
agent can bind a principal who was not in existence at the time
of making of the contract.
7. Where the agent exceeds his authority. If an agent exceeds
his authority, or represents to have some kind of authority
which he does not have, he commits breach of warranty of
authority and is personally liable to third parties who have acted
under such false representation
8. Where the agent receives money by mistake or fraud. An
agent has a right to sue for money paid by him under mistake
or fraud. Similarly, where a third party pays to an agent under
a mistake, he can make the agent personally liable.
9. Where his authority is coupled with interest. If the agent has
an interest in the subject matter of contract, he is personally
liable on that contract to the extent of his interest.
10. Where there is a trade usage or custom. Where there is a
trade usage or a custom making the agent personally liable, he
is liable unless there is a contract to the contrary.
Termination of agency
Section 201 to 210 deals with various modes of termination of
agency. An agency may be terminated either (i) by the act of
the parties, or (ii) by operation of law. The detailed rules are
given below;
1) Termination of agency by act of the parties
a) Agreement. An agency like any other contract can be
terminated by mutual consent of the parties.
b) Revocation by the principal. Subject to few exceptions, the
principal has got a right to terminate the authority of the agent
by revocation. The authority of the agent cannot be revoked in
the following situations;
i) Where the agent has exercised his authority, or,
ii) Where he has partly exercised his authority.
c) Revocation by the agent. The agent can terminate agency by
expressly renouncing it. He has to give a reasonable notice to
the principal regarding such revocation.
2) Termination of agency by operation of law
a) Performance of the contract. The agency comes to an end by
performing what the agent has undertaken to do. (Section 201).
b) Expiry of time. Where the agency is for a fixed period, it
terminates when that period lapses, even if the work undertaken
is not completed.
c) Death or insanity. When the agent or the principal dies or
becomes of unsound mind, the agency is terminated. (Section
201)
d) Insolvency. When the principal becomes insolvent the
agency gets terminated.
e) Destruction of the subject matter. If a contract of agency is
created to deal with a particular subject matter, it gets
terminated when there is a destruction of that subject matter.
f) Principal becoming an alien enemy. If the principal becomes
an alien enemy the agency becomes invalid.
g) Dissolution of a company. If a company has the role of either
a principal or an agent, agency gets terminated when it is
dissolved.
h) Termination of sub-agents authority. When the authority of
an agent is terminated, the authority of all sub-agents appointed
by him also ceases.
Contract of sale
According to section 4 of the Act, a contract of sale means, a
contract whereby the seller transfers or agrees to transfer the
property in the goods to the buyer for a price. A close analysis
reveals that a contract of sale may be a (i) sale or. (ii) an
agreement to sell.
Sale. Where the property in the goods is immediately
transferred from the seller to the buyer there is a sale.
Agreement to sell. Where the transfer of the property in the
goods is to take place at a future time or subject to some
conditions thereafter to be fulfilled, the contract is called an
agreement to sell.
Condition
A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives rise to a right to treat the
contract as repudiated. [Section 12 (2)]. Only when a
stipulation goes to the root of the contract, it is termed as a
condition. If this stipulation is not found correct or fulfilled no
purpose would be served by the contract. In such critical
situation the remedy provided by law is also obviously
effective. The aggrieved party can treat the contract as
repudiated.
Warranty
A warranty is a stipulation which is collateral to the main
purpose of the contract. [Section 12 (3)]. Warranty visualizes a
situation where the stipulation is important but it is not
fundamental to the contract. The contracting party may suffer
an injury if there is a breach of warranty. But it is not as deep
as to give rise to a right to treat the contract as repudiated. His
right is limited to claim damages.
Whether a stipulation in a contract of sale is a condition or a
warranty depends, in each case, on the construction of the
contract. A stipulation may be a condition, though called a
warranty in the contract. [Section 12 (4)].
Difference between a condition and warranty
Following are the main points of difference between a
condition and warranty.
1. Importance in contract. Condition is a stipulation which is
essential to the main purpose of the contract, whereas warranty
is a stipulation which is collateral to the main purpose of the
contract
2. Effect of breach. If there is a breach of condition the party
not at fault can repudiate the contract. In case of breach of
warranty the aggrieved party can claim damages only.
3. Difference as to treatment. A breach of condition may be
treated as a breach of warranty. A breach of warranty cannot be
treated as a breach of condition.
Transfer of property in the goods. Property in goods means
ownership in goods. There are detailed rules relating to transfer
of ownership and they are discussed in this segment
Rights and duties of the buyer
Rights of the buyer. The following are the rights of a buyer;
1. Right to have delivery as per contract. This right to have
delivery of goods as per the terms of the contract is the first
right of the buyer.
2. Right to reject the goods. If the seller sends to the buyer a
larger or smaller quantity of goods than he ordered, the buyer
may (a) reject the whole, (b) accept the whole, or (c) accept the
quantity he ordered and reject the rest
3. Right to repudiate. Unless otherwise agree, the buyer of
goods has a right not to accept delivery thereof by instalments.
4. Right to notice of insurance. Unless otherwise agreed, where
goods are sent by the seller to the buyer by a sea route, the buyer
has a right to be informed by the seller so that he may get the
goods insured.
5. Right to examine. The buyer has a right to examine the goods
which he has not previously examined before he accepts them.
6. Right against the seller for breach of contract.
Duties of the buyer Essential features of a contract of guarantee Nature and extent of surety's liability

1. Duty to accept the goods and pay for them in exchange of
possession.
It is the duty of the buyer to accept the goods and pay for them,
in accordance with the terms of the contract of sale. The buyer
must also be ready and willing to pay the price in exchange for
the possession of the goods.
2. Duty to apply for delivery. Apart from any express contract,
it is the duty of the buyer to apply for delivery.
3. Duty to demand delivery at a reasonable hour. It is the duty
of the buyer to demand the delivery at a reasonable hour.
4. Duty to accept instalment delivery.
5. Duty to take risk of deterioration in the course of transit.
Where the seller of goods agrees to deliver them at his own risk
at a place other than where they are sold, the buyer shall take
any risk of deterioration in the goods necessarily incident to the
course of transit.
6. Duty to intimate the seller where he rejects the goods. Unless
otherwise agreed, it is the duty of the buyer to inform the seller
in case he refuses to accept the goods.
7. Duty to take delivery. It is the duty of the buyer to take
delivery of the goods within a reasonable time after the tender
of delivery. If there is any neglect or refusal on his part to take
delivery, he will be liable to the seller for any loss.
8. Duty to pay price. Where property in the goods has passed to
the buyer, it is his duty to pay the price according to the terms
of the contract
9. Duty to pay damages for non-acceptance. Where the buyer
wrongfully neglects or refuses to accept and pay for the goods,
he will have to compensate the seller, in a suit by him, for
damages for non-acceptance.
Rights of an unpaid seller
1. Concurrence. A contract of guarantee requires the
concurrence of all the three parties to the agreement. The
creditor, the principal debtor and the surety should come
together and enter into the agreement.
2. Existence of a primary liability. A contract of guarantee
presupposes the existence of a primary liability on some person
other than the surety. If the primary liability does not exist,
there cannot be a contract of guarantee. However, when the
principal debtor is a minor, the guarantor may be made liable.
3. Writing not compulsory. A contract of guarantee can be
express or implied. A contract of guarantee can be implied even
from the conduct of the parties. But in English law, guarantee
should be writing and should be signed by the parties.
4. Essentials of a valid contract. A contract of guarantee should
satisfy all the essential features of a valid contract. However
there are few exceptions provided which are narrated below:
a. Competency. A contract of guarantee may be treated as valid
even if the principal debtor is incompetent to contract. In such
cases the sure is liable even though the principal debtor is not
liable.
b. Consideration. Usually the surety may not get any material
benefit for entering into a contract of guarantee. On that ground
the contract cannot be cancelled because any benefit received
by the principal debtor from the creditor is treated as sufficient
consideration to the surety for giving the guarantee
Rights of surety
The surety has rights against the creditor, (ii) the principal
debtor, and (in) the co-sureties. The following are the rights.
1. Nature of surety's liability. Section 128 of the Contract Act
defines the nature and extent of surety's liability. It provides
that the liability of the surety is coextensive with that of the
principal debtor. In other words the quantum of obligation of a
surety is the same as that of the principal debtor. The surety's
liability is neither more nor less than that of the principal
debtor. However the surety may limit his liability at the time of
entering into contract. In the absence of such an express
contract to the contrary the surety's liability will be to the same
extent as that of the principal debtor.
2. Surety may limit his liability. As a general rule it is true that
the liability of the surety and the principal debtor may be co-
extensive. However the surety can enter into a separate contract
and he can limit his liability
3. Secondary liability. The liability of the surety is secondary
and contingent arising only on default of the principal debtor.
But once the liability arises he is in the same position as that of
the principal debtor.

Meaning of unpaid seller 1. Rights against the principal debtor

A seller of goods is deemed to be an unpaid seller when;
1. the whole of the price has not been paid or tendered; or,
2. a bill of exchange or other negotiable instrument has been
received as a conditional payment, and the condition on which
it was received has not been fulfilled by reason of the dishonour
of the instrument or otherwise.
Rights of an unpaid seller
An unpaid seller has two broad categories of rights:
A. Right against goods; and,
B. Rights against the buyer personally.
A. Rights against good;
The following are the rights available against the goods;
1. Right of lien
(Sections 47, 48 and 49); Lien is the right to retain possession
of the goods until payment of the price. An unpaid seller has a
right of lien if he is having possession of the goods and the
ownership is transferred to the buyer.
2. Right of stoppage in transit
The right of stoppage in transit is an extension of the right of
lien. This right enables the seller to stop the transit of goods and
to regain possession of the goods. The purpose of this right of
stoppage is to prevent the goods from getting to the hands of an
insolvent buyer.
3. Right of resale
An unpaid seller, who has exercised his right of lien or stoppage
in transit, can effect a resale of the goods.
4. Right of withholding property
The right of withholding property can be exercised by the seller
where the ownership of goods has not been transferred to the
buyer.
B. Rights of an unpaid seller against the buyer personally
1. Suit for price
The seller can sue for price if the property in the goods has
passed to the buyer and he wrongfully neglects or refuses to pay
for the goods. The unpaid seller can sue the buyer for price even
before the ownership in the goods has not passed to the buyer,
provided the buyer has undertaken to pay the price on a
specified day.
2. Suit for damages for non-acceptance
If the buyer wrongfully refuses or neglects to accept and pay
for the goods, the seller can sue him for non-acceptance and
claim damages.
3. Suit for interest
Where there is an agreement between the seller and the buyer
as to interest on the price of the goods from the date on which
payment becomes due, the seller may recover interest from the
buyer.
4. Anticipatory breach of contract
Where the buyer repudiates the contract before the date of
delivery, the seller may either;
a. Treat the contract as subsisting and wait till the date of delivery,
b. He may treat the contract as rescinded and sue for damages
for the breach.
a. Right to indemnity. In every contract of guarantee there is an
implied promise by the principal debtor to indemnify the surety,
and the surety is entitled to recover from the principal debtor
all payments properly made. (Section 145).
b. Right of subrogation. On the default of the principal debtor,
the surety can, after paying off the creditor, claim all those
rights which the creditor had against the principal debtor. The
surety who pays off the debt is entitled to all the remedies which
the creditor could have enforced not merely against the
principal debtor but also against all persons claiming under
him. Thus if the creditor has the right to stop goods in transit or
has a seller's lien, the surety, on payment of all he is liable for,
would be entitled to exercise these rights.
c. Right to be relieved of liability. Before making the payments,
the surety can compel the principal debtor to relieve him from
liabilities by paying off the debt.
2. Rights against the creditor
a. Before payment of the guaranteed debt. A surety may, after
the guaranteed debt has become due and before he is called
upon to pay, require the creditor to sue the principal debtor.
However the surety will have to indemnify the creditor for any
expenses or loss resulting there from
b. Right of set off. On being sued by the creditor, the surety can
rely on any set off or counterclaim which the debtor has against
the creditor
c. Subrogation. Where a guaranteed debt has become due and
the surety has paid all that he is liable for, he is invested with
all the rights which the creditor had against the principal debtor
(Section 140). This means that on payment of the guaranteed
debt, the surety steps into the shoes of the creditor. It may also
be noted that subrogation is a right both against the principal
debtor and the creditor.
d. Right to equities. After paying off the guaranteed debt, the
surety is entitled to all equities which the creditor could have
enforced not only against the principal debtor himself but also
against the person claiming through him.
e. Right to securities. The surety is entitled to the benefit of
every security held by the creditor at the time of making the
contract whether the existence of the security is, or is not,
known to him. If any such security is lost without the consent
of the surety, the liability of the surety will be reduced to that
extent.
3. Rights against co-sureties
When a debt is guaranteed by two or more sureties, they are
called co-sureties.
a. Co-sureties liable to contribute equally.
b. Liability of co-sureties bound in different sums.
c. Release of a co surety,