ALGAPPA UNIVERSITY KARAIKUDI – 630 003 TAMILNADU DIRECTORATE OF DISTANCE EDUCATION BBA (II YEAR

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PAPER 2.4 BUSINESS LAW

Paper 2.2 Commercial Law : Business Law

Indian Contract Act 1872 : Meaning and essentials of a valid contract Formation of contract – Performance of contract – Termination and discharge of contract – Remedies for breach of contract – Quast contract

Special Contracts : Indemnity of guarantee – Bailment – Agency Sale of Goods Act, 1930 : Contract of sale – Conditions and warranties – Transfer of property – Performance of the sale Rights of an unpaid seller Negotiable Instruments Act, 1881 : Negotiable instruments – Parties to a negotiable instrument – Material alteration – Crossing of cheques – Endorsement Payment and collection of cheques

Indian Partnership Act, 1932 : Meaning and test of partnership – Registration of firms – Relations of partners – dissolution of firms Arbitration Act, 1940 : Arbitration – Arbitration without intervention of court – Arbitration in suits Carriage of Goods : Classification of Common Carriers – Rights duties and liabilities of common carrier – Carriage by rail – Contract of affreightment – Charter Party – Bill of Lading – Carriage by air – Documents relating thereto – Liability of the air Carrier

Contract of Insurance : Basic elements – Kinds of Insurance – Fire Insurance – Marine Insurance

Books for reference 1. Kapoor, N D 2. Sen and Mitra 3. Shukla, M. C. 4. Relevant bare acts

Elements of Mercantile Law Commercial Law Mercantile Law

Course Material prepared by – Dr. S. Sudalaimuthu, Reader in Department of Corporate Secretaryship Algappa University, Karaikudi.

Lesson No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10

Title Indian Contract Act. 1972 Special Contracts Contract of Indemnity and Guarantee Contract of Bailments Contract of Agency Sale of Goods Act. 1930 Negotiable Instruments Act, 1881 Partnership Act. 1932 Arbitration Act. 1940 Common Carriers Act Contract of Insurance

1 the of the Indian Contract Act defines it as “An agreement enforceable by law” Sec 10 lays down that “All agreements are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object and are not hereby – expressly declared to be void. 3. Offer and acceptance: There must be an offer and acceptance One party has to make an offer and the other party has to accept it. Illustration: A has two houses. It is of particular importance to people engaged in trade. ESSENTIALS OF A VALID CONTRACTS A valid contact must have the following essentials 1. There is no Consensus-as-idem. . one at Chennai and another at Coimbatore. has in his mind to dispose of house at Chennai. while A. B accepts thinking to purchase the house at Coimbatore. 1872. there must be two parties 2. the different modes of discharging the contract and the remedies available to the aggrieved parts in the case of breach on contract.LESSON 1 INDIAN CONTRACT ACT. A contract is an agreement made between two or more parties which the law will enforce Sec. It is the most important branch of business law. Two parties : for a valid contract. Consensus-ad-idem or Identity of Minds: The parties to the contract must have agreed about the subject matter of the contract at the same time and in the same sense. commerce and industry as bulk of their business transactions are based on contracts. He has offered to sell one to B. It is that branch of law which lays down the essentials of a valid contract. when he offers. 1872 MEANING The law relating to the contracts is contained in the Indian Contract Act.

The consideration is illegal. Free Consent: The consent of the parties must be free from any flow – it must not be caused by a mistake or coercion or undue influence 7. The objects of the contact must be lawful Illustration: A promises to pay Rs. the contract is void. the contract is a valid contract. Sec. Voidable Contract An agreement which is enforceable by law at the option of one or more of the arties thereto. An agreement becomes a contract when all the essential elements referred to above are present. illegal or unenforceable. Consideration: It means “Something in return” Every contract must be supported by consideration. 500 – for letting B’s house for running a brothel. formation or performance. Illustration: An offers to sell his watch for Rs. Hence.4. In such a case. 500 – to B. in consideration of B murdering C. If one or more of these elements are missing. void. Capacity. 500 is the consideration for the watch and vice-versa. Thus. the contract is either voidable. I.2(i). The parties to the contract must be competent to contract. 500 to B and B accepts the offer. Thus Rs. 8. For example a contract by a minor is void 6. but not at the option of the other or others. “the essence of legal contract is that there shall be an agreement between two persons that one of them shall do something either for the benefit of the other or for his own detriment and that these persons intend that the agreement shall be enforceable at law” CLASSIFICATION OF CONTRACTS Contracts may be classified according to their validity. . 5. The object is illegal. Classification According to validity A contract is based on an agreement. is a voidable contract. Lawful consideration: The consideration to a contract must be lawful Illustration: A promises to pay Rs.

00. Such an agreement is a void contract. Illegal Agreement An illegal agreement is one which is criminal is nature or which is immoral. Void Contract A contract which is at enforceable by law is a void contract. 2. All illegal agreements are void but all more agreements or contracts are not necessarily illegal.Example : A promises to sell his house to B for Rs. It is an implied contract that he has to pay the cost of lunch after taking it. Example : A contract enter4ed into by a minor is void. The contract is voidable at the option of A. His consent is obtained by use or force.000. It is not the result of any express promise or promises by the parties but of their particular act. Example: A enters into a hotel and takes lunch. Implied Contract An implied contract is one which is inferred from the acts or conduct of the parties or course of dealings between them. the contract is said to be an express contract. He may avoid the contract. . such as absence of writing or where the remeds has been barred by lapse of time. II CLASSIFICATIONS ACCORDING TO FORMATION Contracts may be classified according to the mode of their formation as follows: Express Contract If the terms of a contract are expressly agreed upon whether by words spoken or written at the time of the formation of the contract. Unenforceable Contract An unenforceable contract is one which cannot be enforced in a Court of aw because of some technical defect.

the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence. With a view to obtaining the assent of that other to such act or abstinence. Bilateral Contract A bilateral contract is one in which the obligations on the part of both the parties to the contract are outstanding at the time of the formation of the contract.III CLASSIFICATION ACCORDING TO PERFORMANCE These may be classified as Executed contracts or Executory contracts. OFFER AND ACCEPTANCE OFFER An offer is also called a proposal. Example: A agrees to supply a watch to B for Rs. Sec. Unilateral Contract A unilateral or one-sided contract is one in which only one party has to fulfil his obligation at the time of the formation of the contract.” The person making the proposal is called the “prosper” or “offerer” and the person to whom the proposal is made is called “offeree” . When A supplies the watch and B pays the price. :When one person signifies to another his willingness to do or to abstain from doing anything. he is said to make a proposal. In this sense. bilateral contracts are similar to executor contracts. the contracts is said to be executed. Unilateral contracts or Bilateral contracts. Executory Contracts An executory contract is one in which both the parties have yet to perform their obligations. Executed Contracts An executed contract as one in which both the parties have performed have performed their respective obligations. 2 (a) of the Indian Contract Act defines a proposal as. Thus in the above example. 500. the contract is executor if A has not yet supplied the watch and B has not paid the price.

It must be distinguished from a quotation or an invitation to offer Ghdkjdfkgjdkgjdgdfgkj : P offered to buy D’s property for Rs. D replied. Gdfgdfgdfgdfgdf fgdfgd dfgd dfg: The company has offered by advertisement. It was held that he was not entitled to the reward as he was ignorant of the offer. 3. she sued for the award of £ 100. It was held that she was entitled to the award since an offer made at large. If this offer is accepted by B. “Won’t accept less than 10. An offer must be communicated to the offeree Gdfg dfgdf dfg dfg dfg : A’s nephew was missing is who was an employee of A. it is called a tender. Held that the promise was never intended to b e enforced in law. 4. A had announced a reward to anybody who could trace the boy. that a clause to favourate consider the applies that renewal is ambinguous and not binding the compans 2. Mrs. It was held that mere statement of price by D contained no implied contract to sell it at that price. So. Montreal dfgdfgdfghgdh : It was held in this case. Meanwhile. 5. Carlill used it as directed but still had an attack of influenza. But D sold it to another person. It must intend to give use to legal consequences Gdfgjdfkgjdflkgd : A husband promised to pay Rs.000” P agreed to pay Rs. 6000.per month to his wife.000. An offer is different from a tender A offers to supply goods at a particular rate for a particular period from a certai9n trade. It must contain either definite terms or capable of being made definite. It found the boy and brought him back to home and sued for the reward. 6. a reward of £ 100 to anybody contracting influenza after using their smoke ball according to their direction. It becomes an acceptance only when B places an order for a part of the goods. An offer is called a specific offer when it is made to a particular person. An offer may be made to an individual or addressed to the worlds at large. 10.LEGAL RULES RELATING TO OFFER 1. staying away from him. volunteered his services to search for the boy. A catalogue or price list or tenders invited for the supplier to goods are not proposals. . 1000/. can ripen itself into a contract with anybody who performs the terms of the offer.

ACCEPTANCE Section 2 the of the Indian Contract Act defines acceptances as. So an offer binds the offeror only when the offeree has the knowledge of an offer. Brogden Vs Metropolitan Railway Co. mere mental assent without expressing it and communicating it may means of word or an act. Acceptance should be made before the offer lapses or is revoked or is received . the new owner receives the order and supplies. An offer can be accepted only by the persons to whom the offer is made. This sale is not known to V’s customers. Acceptance must be communicated in usual and reasonable manner. It was held that the acceptance was not communicated and hence there was no contract. A by name B. By oversight it was not communicated. So Jones who is a usual customer of the vendor places an order for goods with the vendor. An offer when accepted becomes a contract. It was held that the price could not be recovered as the contract was not entered into with him. Communication of acceptance may be warved by the offeror : This rule is established in the case of Carill V’s gdfg gdfg ng gdf where the advertisement never wanted the communication apart from fulfilling the conditions of offer. Hence. Essentials of Valid Acceptance 1. 2. When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. is not sufficient. A proposal when accepted becomes a promise. the goods without disclosing the fact of sale of business to him. Boulton Vs Jones A sold his business to B. 3.Section 4 lays down that the communication of an offer is complete only when it reaches the offeree. It may be made by express words. The Manager of a railway company simply wrote on the proposal “approved” and kept it in a drawer. by doing an act which amounts to acceptance according to the terms of the offer or by the offeree accepting the benefit offered by the offeror. But silence can never be prescribed as a method of communication. i. spoken or written or by conduct of the parties.e. Any method can be prescribed for the communication of acceptance.

i. or does or abstains from doing. a stranger to consideration can sue on the contract.000.4. Durga Prasad Vs Baldev : A built a market at the request of the Collector of the place B promised to pay.e. Has done or abstained from doing or does or abstain from doing a) Consideration may be executed. Something .e. It is not an acceptance but a counter offer only. 1 lakh B asks for Rs. an act or forbearance already taken place before the contract was entered into 4. Otherwise. or c) Consideration may be past. such act or abstinence or promise is called a consideration for the promise. Consideration at the Desire of the Promisor Consideration must proceed at the request of the promisor. or b) Consideration may be executor. A offeror to sell his car for S. or promises to do or abstain from doing something. It was held that B’s promise to pay commission did not constitute a valid consideration because A did not build the market at the request of B. 70. Acceptance once made.e. 2. For example. Hence. an act or forbearance made or suffered for the promise given. concludes the contract CONSIDERATION Consideration means “something in return for something”. i. i. 5.” 1. A commission on the articles sold in the market. 3. The Promisee or any other Person Consideration may move from the promise or any third party. Section 2 of the Indian Contract Act defined consideration thus “When at the desire of the promisor. a promise to act or abstain from doing in future. Hence acts done voluntarily or at the request of third parties do not constitute a valid consideration. Acceptance must be absolute and unconditional and should correspond with the terms of the offeror. the promise or any other person has done or abstained from doing. it amount to counter offer which may be accepted or rejected by the offeror.

its performance will be suspended during the . but not by his nationality. 10. Alien Enemy The enemy’s status is to be determined by the place at residence of the individual. 11 declares the following person to be incompetent to contract. He has given his consent freely. But they cannot be sued except with the permission of the Central Government and certified by the Secretary. (2) A promise to compensate a person who has already voluntarily done something for the promisor. CAPACITY TO CONTRACT The parties who enter into a contract must have the capacity to do so ‘Capacity’ means competence of the parties to enter into a valid contract.Consideration may not be adequate. According to Sec. Thus Sec. Foreign Sovereigns and Ambassadors They may enter into contracts. (1) An agreement expressed in writing and registered and made on account of natural love and affection between parties standing in neat relation to each other. (i) (ii) (iii) Minors Persons of unsound mind. But it must be real and lawful. But the following are exceptions. If a contract is already entered into into before the declaration of war. An agreement made without consideration is void. Incapacity to contract Mental deficiency Incapacity arising of 1. Example : A agrees to sell a cow worth Rs. 10. The agreement is a contract though consideration is inadequate. and Persons disqualified by any law to which they are subject. 1200 for Rs. 2. or (3) A promise to discharge a time-barred debt. an agreement becomes a contract if it is entered into between the parties who are competent to contract.

4. (B) INCAPACITY ARISING FROM MENTAL DEFICIENCY A person is sand to be mentally deficient when (a) he does not attain majority. A person who is usually of unsound mind. sue and be sued on such contracts. A minor cannot enter into a valid contract. but occasionally of sound mind may mase a contract when he is of sound mind. He attain majority on completion of his 21 year in England and 18 year in India. Illustration: a patient in a lunatic asylum.g. he is capable of understanding it and of forming a rational judgement as to tis effect upon his interests. the contract becomes void on the ground of impossibility of perticugdfgdf contract. it cannot enter into contract to marry or which is ultra vires its powers. When he does not attain majority: Minor A minor is a person who has not completed 18 years of age. When he is of Unsound Mind Section 12 lays down that : A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it. E. who is at intervals of sound mind may contract during those intervals. Its contractual capacity is limited. Artificial Person : Corporation It is a person in the eye of law. It is a legal entity.period of war and in case the war continues to where period. 2. Bankrupt He cannot enter into contract and bind his property as his property shall be vested in the official receiver when he is adjudged an insolvent. It can purchase properties enter into contracts. 3. Convict He is no competent to contract during the period of sentence. For example. 1. . a minor or (b) he is of unsound mind. 5.

if a minor receives goods on credit while payment cannot be enforced goods can be recovered. 16. 1. A contract by a guardian on behalf of the minor is enforceable by or against the minor. 3 of the Indian Partnership Act a minor may be admitted to the benefits of partnership with the consent of all the partners. 4. 3. 20. While a sale or mortgage by a minor is void. But he cannot purchase immovable property without obtaining the consent of the court. or (3) Fraud as defined in Sed. 13) Free Consent: Consent is said to be free when it is not caused by (1) Consent as defined in Sed. It cannot be even ratified by him after attaining majority. or (5) Mistake. A contract entered into by a minor by fraudulently misrepresenting his age is void. Even here. 7. Even in India he attains majority on completion of 21 years when his property is managed by a court of wards or a guardian. The property of the minor is liable for the necessaries supplied to him. so that people may not exploit their tender age. he is not personally liable. He attains majority on completion of 21 years in England and 18 years in India. but his estate only is liable. 15 or (2) Undue influence as defined in Sec. provided the guardian is competent to contract and the contract is beneficial to the minor. if restitution is possible. or (4) Misrepresentation as defined in Sec. 21. a sale or mortgage in favour of a minor is enforceable by him. a contract by a minor is void. (Sec. 2.MINOR IN INDIAN LAW A minor is a person who is not a major. 14) . In Indian law. CONSENT AND FREE CONSENT Consent: It means acquiescence or act of assenting to an offer. though law protects them. He cannot be stopped from setting up the plea of minority. So. “Minors can have no privilege to cheat men”. provided the goods are suitable tot eh condition of his life and status. 18. 5. subject to the provisions of Secs. 17. “Two or more persons are said to consent when they agree upon the same thing in the same sense”. and 22 (Sec. Under Sec. 6.

15) Undue influence Misrepresentation (Sec. 17) Innocent or unintentional (Sec. with the intention of causing any person to enter into an agreement.When there is no consent. there is no contract Example : A is forced to sign a promissory note at the point of pistol. A threat to commit suicide also amounts to coercion. FLOW IN CONSENT Coercion (Sec. . 18) Mistake of law (Sec. Coercion is the committing. or threatening to commit. 20) COERCION When a person is compelled to enter into a contract by the use of force by the other party or under a threat. “coercion” is said to be employed. or threatening to detain. any act forbidden by the Indian Penal Code 1860 or the unlawful detaining. to the prejudice of any person whatever. The contract in this case is voidable at this option. 21) Mistake of fact (Sec. any property. B agrees to lend the amount to C. Example: A threatens to kill B if he does lend Rs. The agreement is entered into under coercion. A knows what he is signing but his consent is not free. 1000 to C. 16) Mistake Fraudulent or Willful (Sed.

(i) (ii) (iii) (iv) (v) (vi) Parent and child Guardian and ward Trustee and beneficiary Doctors and patient Solicitor and client. 19-A) . Any such contract may be set aside either absolutely or if the party who is entitled to avoid it has received any benefit there under. This happens when a special kind of relationship exists between the parties such that one party is in a dominant position to exercise undue influence over the other. the agreement is a contract voidable at the option of the party whose consent was so caused (Sec. Sec. able to take unfair advantage over the other. The following relationships usually raise a presumption of undue influence viz. the agreement is a contract voidable at the option of the party whose consent was so obtained. 16(1) defines: undue influence” as follows A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.EFFECT OF COERCION When consent to an agreement is caused by coercion. fraud or misrepresentation. upon such terms and conditions as to the Court may seem just and equitable (Sec. EFFECT OF UNDUE INFLUENCE When consent to an agreement is obtained by undue influence. and Finance and fiancée The presumption of undue influence applies whenever the relationship between the parties is such that one of them is by reason of confidence reposed in him by the other. 19) UNDUE INFLUENCE Sometimes a party is compelled to enter into an agreement against his will as a result of unfair persuasion by the other party.

3. (2) When there is any breach of duty by a person which brings an advantage to the person committing it by misleading another to his prejudice. 1. There must be intention of Here the influencing party uses its causing any person to enter into position to obtain an unfair an agreement advantage over the other party It involves a criminal act No criminal act is involved 2.DIFFERENCE BETWEENS COERCION AND UNDUE INFLUENCE S. force or mental pressure. (3) When a party causes. It involves mostly use character. 18 defines “misrepresentation” According to it. though he believes is to be true. Coercion Undue Influence The consent is given under the The consent is given by a person threat of an offence who is so situated in relation to another that the other person is in a position to dominate his will Coercion is mainly of a physical Undue influence is of moral character. MISREPRESENTATION AND FRAUD 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. No. 4. there is misrepresentation (1) When a person positively asserts that a fact is true when his information does not warrant it to be so. the other party to the agreement to make a mistake as to the substance of the thing which is the subject of the agreement. . It also includes non-disclosure of a material fact or facts without any intent to deceive the other party. however innocently. It involves use of moral of physical or violent force. Sec.

20). A party cannot be allowed to get any relief on the ground that it had done a particular act in ignorance of law. 1. (i) The mistake must be mutual i. both the parties should misunderstand each other and should be at a cross-purposes. The following two conditions have to be fauced for the application of Sec. A mistake of law is. Bilateral Mistake Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement. or (b) without belief in its truth. and the maker intended the other party to act upon it.e. 20. or (2) a unilateral mistake 1. The agreement is void (ii) The mistake must relate to a matter of fact essential to the agreement. and the contract cannot be avoided. not caring whether it is true or false. MISTAKE OF LAW Mistake of law be (1) mistake of law of the country or (2) mistake of law of a foreign country. Ignorice of laws is no exclause : is a well settled rule of law. 2. This contract may be voidable. In such a case the agreement is void (sec. therefore. there is a bilateral mistake. no excuse. 21) MISTAKE OF FACT Mistake of fact may be (1) a bilateral mistake. Mistake of law of a foreign country: Such a mistake is treated as mistake of fact and the agreement in such a case is void. Mistake of law of the country: Ignorantta juris non exerts Ex. Example: A and B enter into a contract on the erroneous belief that a particular debt is barred by the Indian Law of Limitation. As to what facts are essential in an agreement will depend upon the nature of the promise in each case. or (c) recklessly. Example: A agreed to purchase B’s motor-car which was lying in B’s garage.FRAUD Fraud exists when it is shown that a false representation has been made (a) knowingly. . Unknown to either party. the car and garage where completely destroyed by fire a day earlier. (Sec.

There were two ships of that name sailing from Bombay. (1) Mistake as to the existence of the subject-matter: If both the parties believes the subject-matter of the contract to be in existence. Held. which in fact at the time of the contract is non-existent. The various cases which fail under bilateral mistake are as follows: Mistake as to the Subject – Matter: Where both the parties to an agreement are working under a mistake relating to the subject-matter. Example: W agreed to buy from R a cargo on cotton to arrive ex-peerless from Bombay”. Example: A sells to B a prece of silk B thinks that it is foreign silk.Example: A man and a woman entered into a separation agreement under which the man agreed to pay a weekly allowance to the woman mistakenly believing themselves lawfully married leld the agreement was void as there was mutual mistake on a point of fact which was material to the existence of the agreement. Mistake as to the subject-matter covers the following cases. (2) Mistake as to the identity of the subject-matter: It usually arises where one party intends to deal in one thing and the other intends to deal in another. W meant the former ship R meant the latter. Example: A agrees to buy from B a certain goat. the agreement is void. A knows that B thinks so but knows that it is Indian silk only. though neither parts was aware of the fact. The agreement is void. . the contract is void. (3) Mistake as to the quality of the subject-matter: If the subject matter is something essentially different from what the parties thought it to be the agreement is void. It turns out that the goat was dead at the time of the bargain. there was a mutual or a bilateral mistake and there was no contract. one sailing in October and the other in December.

immediately accepted the offer. D who knew that his offer of Rs. 15. He had earlier declined an offer from D to buy the same property for Rs. There was a difference in value between the weight of the bar as it was and as it was supposed to be Held the agreement was void. Held.000. D knew perfectly well that the offer was made by mistake and hence the contract could not be enforced. . (5) Mistake as to the title to the subject-matter: If the seller as selling a thing which he is not entitled to sell and both the parties are acting under a mistake. Held. is void on the ground of impossibility. The agreement. 20. Example: A silver bar was sold under a mistake as to its weight.000 was a mistake for Rs.000.000. 25. unknown to either party already belonged to him. Impossibility may be— (i) Physical Impossibility Example: A contract for the hire of a room for witnessing the coronation procession of Edward VII was held to be void because unknown to the parties the procession had already been cancelled. Example: A person took a lease of a fishery which. (6) Mistake as to the price of the subject-matter: if there is a mutual mistake as to the price of the subject-matter. Example: C wrote to D offering to sell certain property for Rs. as a matter of law be done. the agreement is void. the lease was void. in such a case. 15. (ii) Legal Impossibility: A contract is void if it provides that something shall be done which cannot.(4) Mistake as to the quantity of the subject-matter: If both the parties are working under a mistake as to the quantity of the subject-matter the agreement is void. Mistake as to the Possibility of Performing the Contract Consent is nullified if both the parties believe that in agreement is capable of being performed when in fact this is not the case. the agreement is void.

If the Court regards the object as immoral . The word object means purpose of design. 25. If the object is permitted. As such both the object and the consideration of an agreement must be lawful otherwise the agreement is void.000.000 to A. A unilateral mistake is not allowed as a defence in avoiding a contract unless the mistake is brought about by the other party’s fraud or misrepresentation. He cannot plead mistake as a defence. 22.000. If the object is forbidden by law Example: A promise to obtain for B an employment in the public service and 18 promises to pay Rs. In such cases the agreement is void. The consideration or object of an agreement is unlawful 1. the agreement is void. 4. Thus an agreement in fraud of creditors with a view to defeating their rights is void.00. 2.2. Both the parties knew that the expense allowance was a device to evade tax. By mistake he makes an offer in writing of Rs. it would defeat the provisions of any law Example: N agreed to enter a company’s service in consideration of a weekly wage of Rs. a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. Held the agreement was unlawful. 3. 44. According to Sec. 40. LEGALITY OF OBJECT A contract must have a lawful object. 1. In some cases consideration for an agreement may be lawful but the purpose for which the agreement is entered into may be unlawful. Example: A offers to sell his house to B for an intended sum of Rs. as the consideration is unlawful. 75 and a weekly expense allowance of Rs. Unilateral Mistake When in a contract only one of the parties is mistaken regarding the subject matter or in expressing or understanding the terms or the legal effect of the agreement the mistake is a unilateral mistake. If the object is fraudulent: An agreement which is made for a fraudulent purpose is void.

3. therefore. Agreements which interfere with administration of police: An agreement. the agreement will be illegal and the agreement between B and T shall also become illegal. UNLAWFUL AND ILLEGAL AGREEMENTS An unlawful agreement is one which. the agreement is opposed to public policy. T cannot. The Court will not enforce such an agreement. (a) Interference with the course of justice: An agreement which obstructs the ordinary process of justice is unlawful. to another to enable him to bring or defend .Example: A agrees to let her daughter to B for concubinage (state of living together as man and wife without being married. 2. It may take any of the following forms. (b) Stifling prosecution: It is in public interest that if a person has committed a crime. (c) Maintenance and champerty: Maintenance’ is an agreement to give assistance.000 to B to help him to purchase some prohibited goods from T. an alien enemy. If B enters into an agreement with T. the object of which is to interfere with the administration of justice is unlawful. AGREEMENTS OPPOSED TO PUBLIC POLICY An agreement is said to be opposed to public policy when it is harmful to the public welfare. 1. recover the amount. being immoral. Agreement to commit a crime: Where the consideration in an agreement is to commit a crime. like a void agreement. he must be prosecuted and punished. Example: T lends Rs. Some of the agreements which are opposed to public policy and are unlawful are as follows. being opposed to public policy. 5. financial or otherwise. because it is collateral to the main transaction. An illegal agreement is not only. The agreement is unlawful. void as between the immediate parties but has further effect that the collateral transactions to it also become tainted with illegality. Where the Court regards it as opposed to public policy. Agreements of trading with enemy: An agreement made with an alien enemy in time of war is illegal on the ground of public policy. 50. is not enforceable by law.

Agreements in restraint of legal proceedings : Sec. Agreements in restraint of marriage: Every agreement in restraint of the marriage of any person. Example: R paid a sum of Rs. (b) Agreements curtailing period of limitation: Agreements which curtail the period of limitation prescribed by the Law of Limitation are void because their object is to defeat the provisions of law. . is the legal guardian of his/her minor child.legal proceedings when the person giving assistance has got no legal interest of his own in the subject-matter. is void (Sec. 4. promises in return to procure the marriage of another is void being opposed to public policy.50. This rights of guardianship cannot be bartered away by any agreement. 6. 5. 2.000 to A who agreed to obtain a seat for R’s son in a Medical College. 26). 28 which deals with these agreements. and in his absence the mother. 8. Held. Agreements in restraint of paternal rights: A father. the agreement is void on the ground of public property. R filed a suit for the refund of Rs. Marriage brokerage or brocage agreements: An agreements by which a person for a monetary consideration. 2. 9.000. 10. On A’s failure to get the seat. Trafficking in public offices and rules: Agreements for the sale or transfer of public offices and titles or for the procurement of a public recognition like Padma Vibhushan or Param Veer Chakra for monetary consideration are unlawful being opposed to public policy. Agreements tending to create interest opposed to duty: If a person enters into an agreement whereby he is bound to do something which is against his public or professional duty the agreement is void on the ground of public property. This is because the law regards marriage and married status as the right of every individual. Agreements restricting personal liberty: Agreements which unduly restrict the personal freedom of the parties to it are void as being against public policy.00. 7. (a) Agreements restricting enforcement of rights: An agreement which wholly or partially prohibits any party from enforcing his rights under or in respect of any contract is void to that extent. other than a minor.

12. 29) 10)Agreements by way of wager (Sec. Such agreements have been held to include the following. 25) 6) Agreements in restraint of marriage (Sec. 2 ] Such an agreement does not give rise to any legal consequences and exaused ab initio. 28) 9) Agreements the meaning of which is uncertain (Sec. The following agreements have been expressly deciared to be void by the Contract Act. 11) 2) Agreements made under a mutual mistake of fact [Sec. 23) 4) Agreements the consideration or object of which is unlawful in part (Sec. VOID AGREEMENTS A void agreement is one which is not enforceable by law [Sec. 26). 30) . Agreements in restraint of trade: An agreement which interferes with the liberty of a person to engage himself in any lawful trade profession or vocation is called an agreement in restraint of trade. 20]. 1) Agreements by incompetent parties (Sec. (b) An agreement in contemplation of divorce e. 24) 5) Agreements made without consideration (Sec.11. (a) A promise by a married person to marry during the lifetime or after the death of spouse. 3) Agreements the consideration or object of which is unlawful (Sec. Agreements interfering with marital duties: Any agreement which interferes with the performance of marital duties is void being opposed to public policy. 7) Agreements in restraint of trade (Sec. Agreements to defraud creditors or revenues authorities: An agreement the object of which is to defraud the creditors or the revenue authorities is not enforceable being opposed to public policy. 13.g. an agreement to lend money to a woman in consideration of her getting a divorce and marrying the lender. 27) 8) Agreements in restraint of legal proceedings (Sec. (c) An agreement that the husband and wife will always stay at the wife’s parents’ house and that the wife will never leave her parental house.

. each party should stand to win or lose. does or does not happen (Sec. For example. 36) 12)Agreements to do impossible acts (Sec. (3) Each party must stand to win or lose: Upon the determination of the contemplated event. goods are sent on approval the contract is a contingent contract depending on the act of the buyer to accept or reject the goods.11)Agreements contingent on impossible events (Sec. (4) No control over the event: Neither party should have control over the happening of the event one way or the other (5) No other interest on the event: Neither party should have nay interest in the happening or non-happening of the event other gdfgjdg sum or stake he will with or lose CONTINGENT CONTRACTS ‘Contingent’ means that which is dependent on something else. There are three essential characteristics of a contingent contract. 57) WAGERING AGREEMENTS OR WAGER A wager is an agreement is an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay if the event does not happen. 100 if it rains on Monday. 31). A Contingent Contract is a contract to do or not to do something. it is a wagering agreement. Thus if A and b enter into an agreement that A shall pay B Rs. (2) Uncertain event: The promise must be conditional on an event happening or not happening. 56) 13)In case of reciprocal promises to do things legal and also other things illegal. and that B shall pay A the same amount if it does not rain. if some event collateral to such contract. the second set of reciprocal promises is a void agreement (Sec. Essentials of Wagering Agreement: (1) Promise to pay money or money’s worth: The wagering agreement must contain a promise to pay money or money’s worth.

if a specified uncertain event happens within a fixed time. 32) Example: A contracts to pay B a sum of money when B marries C. Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. The event must be collateral. (Sec. Where a contingent contract is to be performed if a particular event does not happen. The contract becomes void. If a contract is contingent upon how a person will act at an unspecified time. The contract can be enforced when the ship sinks. If the event if bound to happen. indemnity and guarantee are the commonest instances of a contingent contract. 2.1. 4. The ship is sunk. . Example: A promises to pay B a sum of money if a certain ship returns within a year. although it is possible that D may die and that C may afterwards marry B. C marries D. 3. It is this dependence on a future event which distinguishes a contingent contract from other contracts. the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time. i. become void if the event does not happen or its happening becomes impossible before the expiry of that time. of otherwise than under further contingencies (Sec. Contingent contracts to do r onto to do anything. its performance can be enforced when the happening of that event becomes impossible. Its performance depends upon the happening or non-happening in future of some event. 34) Example: A agrees to pay B a sum of money if B marries C. RULES REGARDING CONTINGENT CONTRACTS 1. If the event becomes impossible. such contracts become void (Sec.e. if a certain ship does not return. incidental to the contract Contracts of insurance. and the contract has got to be performed in any case it is not a contingent contract 3. The contract may be enforced if the ship returns within the year and becomes void if the ship is burnt within the year. 33) Example: A agrees to pay B a sum of money. The marriage of B to C must not be considered impossible. The event must be uncertain. 2. C dies without being married to B.

5. Contingent agreements to do or not to do anything, if an impossible event happens are void, whether or not the fact is known to the parties (Sec. 36).

PERFORMANCE OF CONTRACT Performance of a contract takes place when the parties to the contract fulfil their obligations arising under the contract within the time and in the manner presented.

OFFER TO PERFORM Sometimes it so happens that the promisor offers to perform him obligation under the contract at the proper time and place but the promise does not accept the performance. This is known as “attempted performance” or “tender”.

REQUISITES OF A VALID TENDER 1. It must be unconditional. It becomes conditional when it is not in accordance with the terms of the contract. 2. It must be of the whole quantity contracted for or of the whole obligation. A tender of an installment when the contract stipulates payment in full is not a valid tender. 3. It must be by a person who is in a position, and is willing, to perform the promise. 4. It must be made at the proper time and place. A tender of goods after the business hours or of goods or money before the due date is not a valid tender. 5. It must be made to proper person, i.e. the promise or his duly authorized agent. It must also be in proper form. 6. It may be made to one of the several joint promises. In such a case it has the same effect as a tender to all of them. 7. In case of tender of goods, it must give a reasonable opportunity to the promise for inspection of goods. 8. In case of tender of money, the debtor must make a valid tender in the legal tender money.

RECIPROCAL PROMISES Promises which form the consideration or part of the consideration for each other are called: reciprocal promises” [Sec. 2(f)]. Where, for example: A promises to do or not to

do something and consideration of B is promise to do or not to do something the promises are reciprocal.

These promises have been classified is follows:

(1) Mutual and Independent: Where each party must perform his promise independently and irrespective of the fact whether the other party has performed or is willing to perform his promise or not the promises are mutual and independent. Example: In a contact of sale, B agrees to pay the price of goods on of instant. S promises to supply the goods on 2nd instant. The promises are mutual and independent.

(2) Conditional and Dependent: Where the performance of the promise by one party depends on the prior performance of the promise by the other party the promises are conditional and dependent.

Example: A promises to remover certain debris lying in front of B’s house provided B supplies him with the cart. The promises in this case are conditional and dependent. A need not perform his promise if B fails to provide him with the cart.

(3) Mutual and Consent: Where the promises of both the parties are to be performed simultaneously they are said to be mutual and concurrent. The example of such promises may be sale of goods for cash.

Rules Regarding Performance of Reciprocal Promises 1) Simultaneous performance of reciprocal promises 2) Order of performance of reciprocal promises 3) Effect of one party preventing another from performing promise 4) Effect of default as to promise to be performed first. 5) Reciprocal promise to do things legal and also other things illegal

If. the time of delivery and payment are considered to be of the essence of the contract. but the promise is entitled to compensation for any loss occasioned to him by such failure (Sed. in which time is not of the essence of the contract. This is so because businessmen want certainty. If the contract includes clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of time provided in the contract. The contract (or so much of it as remains unperformed becomes voidable at the option of the promise (Sec. failure on the part of the promisor to perform his obligation within the fixed time does not make the contract voidable. if expressed in writing. 55 para 1). 55 para 2) Intention to make time as the essence of the contract. When time is not of the essence: In a contract. he can do so (Sec. must be in a language which is unambiguous and unmistakable.TIME AS THE ESSENCE OF THE CONTRACT The expression “time is of the essence of the contract “ means that a breach of the condition as to the time for performance will entitle the innocent party to consider the breach as a repudiation of the contract. The mere fact that a certain time is specified in a contract for the performance of a promise does not necessarily make time as the essence of the contract. in such a case the promise accepts performance of the promise after the fixed time. When time is of the essence: In a contract. 1. 55 para 3) In commercial or mercantile contracts which provide for performance within a specified time. if there is a failure on the part of the promisor to perform his obligation within the fixed time. time is ordinarily of the essence of the contract. But if at the time of accepting the delayed performance he gives notice to the promisor of his intention to claim compensation. 2. 55 deals with the question of “time as the essence of the contract” and provides. . in which time if of the essence of the contract. such clauses are construed as rendering ineffective the express provision relating to the time being of the essence of the contract. Example: In a contract for the sale or purchase of goods the prices of which fluctuate rapidly in the market. Sec. he cannot claim compensation for nay loss occasioned by the nonperformance of the promise at the agreed time.

By Performance 2. Discharge by agreement or consent (a) Sec. It may be (1) Actual Performance: When both the parties perform their promises the contract is discharged. Performance of a contract is the most usual mode of its discharge. A contract may be discharged 1. By Lapse of Time 5. . The various cases of discharge of contract by mutual agreement are dealt with in Sec. A contract is said to be discharged when it ceases to operate. 62 and 63 are given below. By operation of Law 6. Performance should be complete precise and according to the terms of the agreement.e. Discharge by Performance Performance means the doing of that which is required by a contract. By Agreement or Consent 3. i. 62 lays down that if the parties to a contract agree to substitute a new contract for it or to rescind or to alter it the original contract is discharged and need not be performed. (2) Attempted Performance or Perfer: Tender is not actual performance but is only an after to perform the obligation under the contract. when the rights and obligations created by it come to an end. By impossibility 4. 2. Discharge by performance takes place when the parties to the contract fulfill then obligations arising under the contract within the time and in the manner prescribed. By Breach of Contract 1.TERMINATION AND DISCHARGE OF CONTRACT Discharge of contract means termination of the contractual relationship between the parties.

20. instead of A. The whole debt is discharged. It may occur (i) (ii) By mutual consent of the parties or Where one party fails in the performance of his obligation in such a case the other party may rescind the contract without prejudice to his right to claim compensation for the breach of contract. . Rs. i. 50. (f) Merger: Merger tales place when an inferior right accuring to a party under a contract merger into a superior right accruing to the same party under the same on some other contract. 50. By that time. This amounts to a mutual thandonment at rights by the parties to the contract. (e) Waver: Waver takes place when the parties to a contract agree that gdfsg shall no longer be bound by the contract. Example: A promises to supply certain goods to B six months after date. A and B may after the terms of the contract by mutual consent.000 paid at the time and place at which Rs. (b) Rescission Sec. Example: A enters into a contract with B for the supply of 100 bales or cotton at his Godown No. 62: Novation takes place when a new contract is substituted for an existing one between the same parties. It is agreed between A. A pays to B and B accepts in satisfaction of the whole debt.000. (c) Alteration (Sec 62): Alteration of a contract may take place when one or more of the terms of the contract is are altered by the mutual consent of the parties to the contract. the old debt of A to B is at an end and a new debt from C to B has been contracted.Rescission Sec. In such a case. 62: Rescission of a contract takes place when all or some of the terms of the contract are cancelled. B and C that B shall henceforth accept C as his debtor. A and B may rescind the contract. acceptance of a lesser sum than what was contracted for the discharge of the whole of the debt. the old contract is discharged. (d) Remission Sec.000 were payable. 1 by the first of the next month. Example: A owes money to B under a contract. 63) Remission means acceptance of a lesser fulfilment or the promise made. the goods go out of fashion. Example: A owes B Rs.e.

it is void ab initio. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE If an agreement contains an undertaking to perform an impossibility.Example: P holds a property under a lease. A goes mad. Before the time fixed for the marriage. Destruction of subject-matter of contract: When the subject-matter of a contract. He later buys the property. This is known as precontractual or initial impossibility. 2. Impossibility arising subsequent to the formation of contract: Impossibility which arises subsequent to the formation of a contract (which could be performed at the time when the contract was entered into) is called postcontractual or supervening impossibility. Impossibility existing of the time of agreement: Sec. His rights as a lessee merge into his rights as an owner. The contract becomes void. Non-existence or Non-occurrence of a particular state of things: Sometimes. subsequent to its formation. Discharge by Supervening Impossibility A contract is discharged by supervising impossibility in the following cases 1. 2. 56 lays down that can agreement to do an impossible act itself is void”. Example: C let a music hall to T for a series of concerts on certain days. If there is any change in the state of things which ought to have occurred does not occur. 3. the contract is discharged. a contract is entered into between two parties on the basis of a continued existence or occurrence of a particular state of things. is destroyed without any fault of the parties to the contract. contract is discharged . Held the contract was void. the contract is discharged. The hall was accidentally burnt down before the date of the first concert. 3. Death or Incapacity for personal service: Where the performance of a contract depends on the personal skill or qualification of a party. This rule is based on the following maxims: 1. Example: A and B contract to marry each other.

the contract is terminated on death of the promissory. Before she could do so. If it is not performed and if no action is taken by the promise within the period of limitation he is deprived of his remedy at law. Change of law: When subsequent to the formation of a contract change of law takes place. If the price is not paid and creditor does not file a suit against the buyer for the recovery of price within three years the debt becomes time-barred and hence irrecoverable. Example: D enters into a contract with P on 1 st March for supply of ghdkjfg imported goods in the month of September of the same year in June gdfg fgdf Parliament the import of such goods is banned. Example: An artist undertook to perform at a concert for a certain price.on the illness or incapacity or death of that party. Held she was discharged due to illness. 5. In other contracts the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person. DISCHARGE BY OPERATION OF LAW A contract may be discharged by operation of law. For example the price of goods sold without any stipulation as to credit should be paid within three years of the delivery of the goods. This includes discharge (a) By Death: In contracts involving personal skill or ability. Contracts entered into before the outbreak of war are suspended during the war and may be revived after the war is over. 5. 4. Outbreak of war : A contract entered into with an after enems during war is unlawful and therefore impossible for performance. DISCHARGE BY LAPSE OF TIME The Limitation Act 1963 laws down that a contract should be performed within a specific period called period of limitation. 4. and the performance of the comerge becomes impossible the contract discharged. she was taken seriously ill. The man’s life is an implied condition of the contract. The contract is discharged. .

It occurs when a party to the contract without lawful excuse does not fulfil his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. 6. DISCHARGE BY BREACH OF CONTRACT Breach of contract means a breaking of the obligation which a contract imposes. the other parts can avoid the contract. (d) By Authorised Alteration of the terms of a written agreement: Where a party to a contract makes any material alteration in the contract without the consent of the other parts. Suit for injunction 1. It confers a right of action for damages on the injured party.(b) By Merger: When an inferior right accruing to a party merges into a superior rights accruing to the same party under the same or some other contract the inferior right accruing to the party is said to be discharged. Suit for damages 3. REMEDIES FOR BREACH OF CONTRACT When a contract is broken. Suit for specific performance of the contract 5. A material alteration is one which changes in a significant manner the legal identity or character of the contract or the rights and liabilities of the parties to the contract. (c) By Insolvency: When a person is adjudged insolvent. the injured party has one or more of the following remedies: 1. RESCISSION . (e) B y Rights and Liabilities becoming visited of the dfgdfg Person: Where the rights and liabilities under a contract vested in the same person for example when a bill gets into the hands of the acceptor. he is discharged from all liabilities incurred prior to his adjudication. the other parties are discharged. Rescission of the contract 2. Suit upon quantum meruit 4.

But if a person rightfully rescinds a contract he is entitled to compersation for any damage which he has sustained through non-fulfilment of the contract by the other party. the other party may sue to treat the contract as rescinded and refuse further performance. A does not supply the goods. The Court may grant rescission. In such a case. DAMAGES Damages are a moctars compensation allowed to the injured party by the Court for the loss or injurs suffered by him by the breach of a contract. B is discharged from liability to pay the price. so far as money am the it. be is absolved of all his obligations under the contract. Example: A contracts to sell and deliver 50 quintals of Farm Wheat to B at Rs. the injured party can recover from the other party such damages as naturally and directly arose in the usual course of things from the breach. B agrees to pay the price after the receipt of the goods. 1000 per quintal. This means that the damages must be the proximate consequence of the breach of contract. (a) Where the contract is voidable by the plamtiff of (b) Where contract is unlawful to fgdfg but apparent off its face and the defendant is more to blame thatn the gdfgdf When a party treats the contracts as rescinded be makes himself liable to restgdf any benefits he has fgdfg of under the contract to the party from whom such benefits were received. the price to be paid at the time of delivery the price of wheat . These damages are known as ordinary damages. i.When a contract is broken by one party. This is called the doctrine of restitution. as if he had not been injured. in the position in which he would have been had there been performance and not breach.e. Example: a promises B to supply 10 bags of cement on a certain day. The rules relating to damages may be considered as under 1. Damages arising naturally – Ordinary damanges When a contract has been broken. The object of awarding damages for the search of a contract is to put the injured party in the same position. 2.

Example: A. 5.rises to Rs. 4. Held. Example: A firm consisting of four partners employed B for a period of two years. Such damages knows as special damages cannot be claimed as a matter of right. 200 per quintal. Damages for loss of reputation . the Court may award exemplary damages. A builds the house so badly that before the 1st January. After six months two partners rebred the business being carried on by the other two B declined to be employed under the continuing partners. These damages merels acknowledge that the plaintiff has proved his case and won. and for the compensation made to. Hence vindictive or exemplary’ damages have no place in the law of contract because they are punitive involving punishment by nature. A is informed of the contract between B and C. it falls down and has to be rebuilt by B fgdfg vonsequence loses the rent which be was to have received from C. a builder. 1200 per quintal and A refuses to sell the wheat B can claim damages at the rate of Rs. contracts to erect a house for B by the 1 st of January. and gdfgdfgdf to make compensation to C fvor the breach of the contract. Damages in contemplation of the parties – Special damages Special damages can be claimed only under the special circumstances which would result in a special loss in case of breach of a contract. A must make cgdfgdfgd to gdfg for the cost of rebuilding the house for the rent lost. The order that B may give possession of it at that time to C to whom B has contracted to hfdg it. and not by way of punishement for wrong inflicted. Nominal damages Where the injured party has not in fact suffered any loss by reason of the breach of a contract. 3. he was only entitled to nominal damages as he had suffered no loss. 2. But in case of (a) breach of a promise to marry and the dishonor of a cheque by a banker wrongfully when he possesses sufficient funds by the credit of the customer. Vindictive or Exemplary damages Damages for the breach of a contract are given by way of compensation for loss suffered. the damages recoverable by him are nominal.

But if the customer is not a tradesman be can recover only nominal damages.Damages for loss of reputation on case of breach of a contract are generally not recoverable. Example: A was wrongfully dismissed in a harsh and humiliating manner by from his employment. The general rule in this connection is that the measure of damages is not affected by the motive or the manner of the breach. That is he cannot claim compensation for loss which is really due not to the breach. he can recover damages in respect of any loss to his trade reputation byh the breach. The Court must do its best estimate the loss and a contingences may be taken into account. 6. Difficulty of Assessment Although damages which are incapable of assessment cannot be recovered the fact that they are difficult to assess with certainty or precision does not prevent the aggrieved party from recovering them. but due to his own neglect to mitigate the loss after the breach. Example: H advertised a beauty competition by which gfdgfk of certain newspapers were to select fifty ladies. Held C was entitled to damages although it was difficult to assess them. Held (a) A could recover a sum representing his wages for the period of notice and the commission which he would have earned during that period but (b) he could not recover anything for his injured feelings or for the loss sustained from the fact that his dismissal made it more difficult for him to obtain employment. He himself was to select twelve out of these fifty. C was one of the fifty and by H’s breach of contract she was not present when the final section was made. Damages for inconvenience and discomfort Damages can be recovered for physical inconvenience and discomfort. 7. Mitigation of damages It is the duty of the injured party to take all reasonable steps to mitigate the loss caused by the breach. The selected twelve were to be provided theatrical encagements. If the customer happens to be a tradesman. 8. . An exempuon to this rule exists in the case of a banker who wrongfully refuses to honour a customer’s cheque. He cannot claim to be compensated by the party in default for loss which the ought reasonably to have avoided. And the rule of law is the smaller the amount of the cheque dishonoured the larger the amount of damages awarded.

1000 if he fails to pay gdfgdf g given day. and b. 10. 1. Payment of interest in case of default. 74 relate to stipulation if a contract providing for payment of interest. Liquidated damages represent a sum fixedc or ascertained by the parties in the contract which is a fair and genuine pre-estimate of the probable loss that gdfg fgd fg as a result of the breach. Example: A contracts with B to pay Rs. Such a sum may amount to either liquidated damages or a penalty. Payment of Interest The largest number of cases decided under Sec. which is dispropoetionate to the damages likely to fdgdfgd as a result of the breach. Dfgd as the Court considers reasonable. Damages agreed upon in advance in case of breach If a sum is specified in a contract as the amount to be paid in case of its gdfgdf or if the contract contains any other stipulation by way of gdfgdfg dfg failure to perform the obligations the aggrieved party is entiled to gfdgd from the gdfgd has broken the contract a reasonable compensation not exceeding the fgdfg named. B is entitled to recover from A such compensation not exceeding Rs. From the date of default 3. Payment of interest at higher rate a. The cost of suit for damages is in the discretion of the Court. It is fixed up with a view to securing the performance of the contract. From the date of the bond.9. The following rules are observed with regard to payment of interest. Liquidated Damages and Penalty Sometimes parties to a contract stipulate at the time of its formation that on the breach of the contract by either of them a certain specified sum gdfgd be payable as damages. Payment of compound interest on default . 2. If it takes place. A penalty is a sum named in the contract at the time of its formation. Cost of Decree The aggrieved party is entitled in addition to damages to get the cost of getting the decree for damages.

(c) When it is probable that the compensation in money cannot be got for the non-performance of the act agreed to be done. SPECIFIC PERFORMANCE In certain cases of breach of contract damages are not an adequate remedy. Held. A right to sue on a quantum meruit arises where a ggdfg performed by one party has become discharged to the breach of the contract dghdfghdf party. Such an order of the Court is known as injunction’. 3. the Court may be issuing an order restrain him from doing what he promised not to do. The Court may.a. and during a certain period to sing nowhere else. QUANTUM MERUIT The phrase quantum meruit ghdfgfdgh much as earned. in such cases direct the party in breach to carry out his promise according to the terms of the contract. Example: W agreed to sing at L’s theatre. Afterwards W made contract with Z to sing at another theatre and refused to perform the contract with L. At the same rate as simple interest and b. Payment of interest at a lower rate. INJUNCTION Where a party is in breach of a negativbe term of a contract the where gdfg is doing something which he promised not to do. W could be restrained by injunction from singing for Z. if interest paid on due date. 4. . 5. At the rate higher than simple interest 4. Some of the cases in which specific performance of a contract may in discretion of the Court be enforced are as follows: (a) When the act agreed to be done is such that compensation in money for its non performance is not an adequate relief. (b) When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done.

a lunatic. The principle of unjust enrichment requires:  That the defendant has been ‘enriched’ by the receipt of a ‘benefit’  That this enrichment is at the expense of the plaintiff. or for which the law considers he should pay to the other person. A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another. A contract is intentionally entered into. KINDS OF QUASI-CONTRACTS 1. or anyone whom he is legally bound to support. incapable of entering into a contract. D’s landlord seized the carriage as distress for rent. on the other hand. is entitled to be reimbursed by the other. is supplied by another with necessaries suited to his condition in life. and  That the retention of the enrichment is unjust. A quasicontract. the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. Law of quasi-contracts is also known as the law of restitution. although there is no contract or agreement between the parties. Held. is created by law. with necessaries suitable to his condition in life. Example: A supplies B. Such relationships are termed quasi-contracts. Example: P left his carriage on D’s premises. even though there is no contract between the parties. . they are put in the same position as if there were a contract between them. Strictly speaking. 68) If a person.QUASI CONTRACTS Under certain circumstances. The essential requirements are as follows: (a) The payment made should be bonafide for the protection of one’s interest. SUPPLY OF NECESSARIES (Sec. P paid the rent to obtain the release of his carriage. 69) A person who is interested in the payment of money which another is bound by law to pay. A is entitled to be reimbursed from B’s property. because. PAYMENT OF INTERESTED PERSON (Sec. and who therefore pays it. a person may receive a benefit to which the law regards another person as better entitled. P could recover the amount from D. 2. a quasi-contract is not a contract at all.

Before any right of action under Sec. take of his own goods of the same bulk. quality and value. the property in goods will vest in the finder and he can retain the goods as his own against the whole world (except the owner). S is bound to return the diamond to F who is entitled to retain the diamond against the whole world except the true owner. RESPONSIBILITY OF FINDER OF GOODS (sec. No one appears to claim it for quite some weeks in spite of the wide advertisements in the newspapers. (c) The payment must be such as the other party was bound by law to pay. the thing so done or delivered. 71) A person. He is bound to pay for them to A. Till the owner is found out. OBLIGATION TO PAY FOR NON-GRATUITOUS ACTS (Sec. Example: a. the latter is bound to make compensation to the former in respect of. a tradesman. (a) The thing must have been done lawfully. (b) The person doing the act should not have intended to do it gratuitously (c) The person for whom the acts is done must have enjoyed the benefit of the act. 3. He hands it over to S to keep it till true owner is found out. he must also take all necessary measures to trace its owner. The finder can sell the goods in the following cases: • When the thing found is in danger of perishing. and such other person enjoys the benefit thereof. who finds goods belonging to another and takes them into his custody. If he does not. B treats the goods as his own. 70 arises. 4. under similar circumstances. he will be guilty of wrongful conversion of the property. not intending to do so gratuitously.(b) The payment should not be voluntary one. He is bound to take as much care of the goods as a man of ordinary prudence would. leaves goods at B’s house by mistake. 70) When a person lawfully does anything for another person or delivers anything to him. is subject to the same responsibility as a bailee. . Example: F picks up a diamond on the floor of S’s shop. three conditions must be satisfied. or to restore. F claims the diamond for S who refuses to return.

or some event happens which makes the further performance of the contract impossible.e. 169) 5. Further the claim for quantum meruit can be brought only by the party who is not in default. 65) . the party not in default cannot have quantum meruit remedy. and the other party repudiates the contract. When the owner is found out. 72 in its general sense and not as defined in Sec. be found out. them the party who has performed the work can claim remuneration for the work he has already done. it is a claim on the quasi-contractual obligation which the law implies in the circumstances. The word ‘coercion’ is used in Sec. A alone pays the amount to C and B. 100 over again to C. so much as the party rendering the service deserves. 100 to C. When a person has done some work under a contract. (Sec. If the original contract exists. Likewise. C is bound to pay the amount to B. The right to claim quantum meruit does not arise out of contract as the right to damages does. i. or anything delivered.• • • When the owner cannot. in respect of the thing found amount to two-thirds of the value of the thing found. The claim for quantum meruit arises only when the original contract is discharged. 15. with reasonable diligence. he has to take resort to remedy in damages. but the circumstances of the request imply that the service is to be paid for. MISTAKE OR COERCION (Sec. by mistake or under coercion. and When the lawful charges of the finder. The claim for quantum meruit arises in the following cases (a) When an agreement is discovered to be void (Sec. must repay or return it to the person who paid it by mistake or under coercion. 72) A person to whom money has been paid. pays Rs. QUANTUM MERUIT ‘Quantum meruit’ literally means ‘as much as earned’ or as much as it merited’. but he refuse to pay the lawful charges of the finder. Example: A and B jointly owe Rs. where one person has expressly or impliedly requested another to render him a service without specifying any remuneration. not knowing this fact. there is implied a promise to pay quantum meruit.

What are the different modes of discharging the contract? 6. 70) (c) When there is an express or implied contract to render services but there is no agreement as to remuneration (d) When the completion of the contract has been prevented by the act of the other party to the contract (e) When a contract is divisible (f) When an indivisible contract is completely performed but badly. Review Questions 1. What are the rules relating to consideration? 4. . Define contract.(b) When something is done without any intention to do so gratuitously (Sec. What are quasi-contracts? Enumerate the instances of quasi-contracts laid down under the Act. What are legal rules relating to offer? 3. What are the remedies for breach of contract? 7. What are the essentials of a valid contract? 2. 5. Discuss the nature of contract entered into with minors.

such compromise was not contrary to the orders of the promisor and was prudent or the promisor authorizes him to compromise the suit. CONTRACT OF GUARANTEE Section 126 of Indian Contract Act defines it as “a contract to perform the promise. RIGHTS OF AN INDEMNITY HOLDER He is entitled to recover—  All damages  All costs which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnity applies. . A contract of insurance is also a contract of indemnity. and the person to whom the guarantee is given is called the “creditor”. The person who promises is called the Indemnifier and the person to whom the promise is made is called the Indemnified or Indemnity Holder. or discharge the liability. the person in respect of whose default. of a third person in case of his default”.SPECIAL CONTRACTS LESSON – 2 INDEMNITY AND GUARANTEE DEFINITION Section 124 of the Indian Contract Act defines it as “a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person”. Illustration: A promises not to construct buildings on a particular site so as to prevent light and air to B’s house and in case of breach of such promise. and  All sums which he may have paid under the terms of any compromise of any such suit provided. to indemnify for the consequent loss. This is a contract of indemnity. the guarantee is given is called the “principal debtor”. The person who gives the guarantee is called the “surety”.

the creditor and the surety The liability of the surety is subsidiary The liability of the surety is subsisting The surety can sue the principal debtor in his own name after paying the creditor 2 3 4 RIGHTS OF SURETY Rights against the Principal Debtor 1) After discharging the liability of the principal debtor. B is the creditor and C is the surety or guarantee.Illustration: A purchases goods from B on credit. This right of the surety is called “subrogation”. having reasonable grounds for doing so but is compelled to pay the amount of the debt with . The liability of the Indemnifier is primary The liability of the Indemnifier is contingent The Indemnifier cannot sue the third party in his name even after making good the loss unless there is an assignment in his favour from the indemnified. Contract of Guarantee There are three parties. 3) The surety is entitled to be indemnified for all payments rightfully made by him. which the creditor himself can proceed against. and on his refusal sues him for the amount. viz the principal debtor. 2) The surety can proceed against all those securities of the principal debtor. Here. and A is surety for the debt. namely Indemnifier and the Indemnified. Distinction between Contract of Indemnity and Contract of Guarantee Contract of Indemnity 1 There are two parties. C demands payment form A. C agrees to stand as a surety which means that if A does not pay the price of the goods. Illustration: B is indebted to C. the surety is entitled to all those rights which the creditor himself exercises against the principal debtor. A is the principal debator. A defends the suit. he will pay. Illustration: The right of the creditor to receive dividends from the official assignee when the principal debtor becomes bankrupt. can be exercised by the surety.

4) On payment of the guaranteed debt. 3) He can claim set off or counter-claim which the principal debtor could have obtained against the creditor. 2) In the case of fidelity contracts. proportionately.B and C would contribute in the ratio of 1 : 2 : 4. 2) Where the co-sureties agreed to become liable in different sums. 2000 on the guarantee of A. Illustration: A. A is discharged from liability to the amount of the value of the furniture.000 each. 10. Illustration: C advances to B. SURETY DISCHARGED FROM LIABILITY . A. So. the surety is discharged to the extent of the value of the security. A. If the creditor loses or parts with such securities without the consent of the surety. But he cannot compel the creditor to do so.000 and 40. But according to Indian Law they shall bear such loss equally but not exceeding the sums which they have agreed to pay. Rights against the Creditor 1) The surety may require the creditor to sue the debtor. He can recover from B the amount paid by him for costs as well as the principal debt. 30. 20.000. 2000 by mortgage of B’s furniture. C has also a further security for the sum of Rs. 10. B becomes insolvent and C sues A on his guarantee.000 respectively. C cancels the mortgage. Rs. B and C have agreed to become liable for Rs. according to English Law. his tenant. he can insist upon the creditor to dispense with the services of the principal debtor when his dishonesty is established. D’s indebtedness was Rs. ha can require the creditor to assign to him all the securities held by the creditor in respect of the debt.000. B and C will have to pay Rs. Rights against the Co-Sureties 1) All the sureties shall bear equally. as sureties for D’s liability. If one of them bears the entire loss in the first instance he can claim contribution from other co-sureties. the loss caused by the insolvency of the principal debtor. they should contribute.costs.

2. C guarantees A’s performance of the contract. The surety is discharged by revocation as to future transaction in case of continuing guarantee. 5000 to B on the 1st of January. A is discharged from his liability. Illustration: C. 5000 on the 1st of March. By release or discharge of principal debtor: The surety is discharged by any contract between the principal debtor and the creditor by which the principal debtor is discharged or by any act or omission of the creditor. A does not acquaint C with B’s previous conduct. The surety is discharged a. on the ground of misrepresentation by the creditor with regard to a material circumstance. B fails to account for some of his receipts and A in consequence. C is discharged from his surety ship. Illustration: A engages B as clerk to collect money for him. B afterwards makes default. A guarantees repayment.1. the legal consequence of which is the discharge of the principal debtor. B supplying the necessary timber. 3. B omits to supply the timber. The guarantee is invalid. Illustration: A. b. By composition with debtor: The surety is discharged when the principal debtor and creditor enter into a contract by which the creditor (1) composition with or (2) promises to give time or (3) promises not to sue the principal debtor. C gives his guarantee for B’s accounting. c. The surety is discharged from liability if the contract of guarantee becomes void or voidable. or on the ground that the guarantee was given on condition that another person will join as a co-surety and that such other person has not joined as such. C pays Rs. By act or omission impairing surety’s remedy: The surety is discharged if the creditor does any act inconsistent with the rights of . By variance of contract: Any variance in the terms of the contract between the principal debtor and the creditor without the surety’s consent discharges the surety. contracts to lend B Rs. contracts with B for a fixed price to build a house for B within a stipulated time. as the contract has been varied in as much as C might sue B for the money before the 1st of March. calls upon him to furnish security for his accounting. d.

a debt guaranteed by A. A is not discharged.the surety or omits to do any act which his duty to surely requires him to do. Illustration: A puts M as apprentice to B. and gives a guarantee in B for M’s fidelity. The surety is not discharged in the following cases: 1. without the consent of the surety. Loss of security: the surety is discharged if the creditor losses or parts with the securities belonging to the principal debtor. A surety is not discharged when a contract to give time to the principal debtor is made by the creditor with a third person and not with the principal debtor. The debt becomes payable C does not sue B for a year after the debt has become payable. 2. Illustration: C. Release of one co-surety does not discharge the other. at least once a month. e. contracts with M to give time to B. B promises on his part that he will. and accepted by B. 3. Mere forbearance on the part of the creditor to sue the principal debtor does not discharge the surety. the holder of an overdue bill of exchange drawn by A as surety for B. A is not discharged from his liability. see M make up the cash. B omits to see this done as promised and M embezzles. . Illustration: B owes C. A is not liable to B on his guarantee.

Illustration: A gives to B. Examples: Delivery of a radio for repair. Not to make unauthorized use of goods bailed The bailee should not make use of goods for purposes inconsistent with the terms of the contract. . if he has taken the amount of care described above. Section 152 lays down that the bailee is not responsible. if any. for the loss. 3. If he does so.” The person delivering the goods is called the “bailor”. B is not liable if the goods are lose by him. 4. destruction or deterioration of the thing bailed. The delivery must be made for some specific purpose.LESSON – 3 CONTRACTS OF BAILMENTS Section 148 of the Indian Contract Act defines that “a bailment is the delivery of goods by one person to another for some purpose. 2. B keeps them in a safe where he usually keeps his own valuables. 2. in the absence of any special contract. Only possession but not the ownership of the goods is transferred. upon a contract that they shall when the purpose is accomplished. There must be delivery of goods: Such delivery may be actual or constructive. or disposed of according to the direction of the bailor. be returned or otherwise disposed of according to the directions of the person delivering them. The person to whom they are delivered is called the “bailee”. Essentials of Bailments 1. the bailor is entitled to terminate the contract and claim damages. DUTIES OF A BAILEE 1. The delivery must be made on condition that the goods shall be returned in specific when the purpose is over. to be made into an ornament. To take reasonable care of the goods bailed to him Section 151 lays down that in all cases of bailment the bailee should take that much of care which an ordinary prudent man would take of his own goods under similar circumstances.

Illustration: A bails a barrel of Cape flour worth Rs. Not to mix the goods of the bailor with his own goods a) If a bailee mixes the goods of the bailor with his own goods with the consent of the bailor.Illustration: A lends a horse to B for his own riding only. both the bailor and the bailee shall have proportionate interest in the mixture. to the bailor when the fixed period is over or when the purpose is accomplished. B without A’s consent. 5. Illustration: A leaves a cow in the custody of B to be taken care of The cow has a calf B is bound to deliver the calf as well as the cow to A. He should not set up his own title or that of a third party. The bailee should also deliver any increase or profit which may have accrued from the goods bailed. If he does not disclose. B is liable to compensate A for the injury caused to the horse. 4. mixes the flour with country flour of his own. faults in the goods bailed. the bailee is bound to bear the expenses of separation and pay damages if any. Not to set up adverse title The bailee should not deny the bailor’s title. the bailee should compensate the bailor for the loss of goods. C rides carefully but the horse accidentally falls and is injured. c) If the goods are mixed by the bailee without the consent of the bailor and the goods are inseparable. B allows C. he will be liable for the loss resulting therefrom. b) If the goods mixed by the bailee without the consent of the bailor and the goods are separable. . of which he is aware. worth only Rs. To disclose the faults in the goods bailed The bailor should disclose to the bailee. DUTIES OF A BAILOR 1. 3. B must compensate A for the loss of his flour. To return the goods bailed The bailee should return goods bailed. 45 to B. 25 a barrel. to ride the horse.

RIGHTS OF BAILOR 1. Particular lien. 3. the bailee shall bear the expenses of feeding the horse. that the bailor was not entitled to make the bailment or to receive back the goods or to give directions respecting them. 2. Illustration: A gives a horse to B for hire for his own riding. the bailor shall have to bear the necessary expenses for its recover. This right is called a “Possessory lien”. extra-ordinary expenses shall be borne by the bailor. But if such a request causes loss to the bailee exceeding the benefit he derives. The bailment can be terminated at the option of A. General lien . To bear extra-ordinary expenses While the ordinary expenses are payable by the bailee. The horse runs away. to return such possession until a debt due to him has been discharged. Lien is of two kinds: 1. B drives the horse in his carriage. In the case of gratuitous loan. Illustration: Where a horse is lent for a journey. Responsibility for want of title The bailor is responsible to the bailee for any loss sustained by he latter by the reason. LIEN Lien is a right of a person. who has possession of goods of another. 3. The bailor is entitled to terminate the contract when the bailee does any act inconsistent with the terms of bailment.Illustration: A lends a horse which he knows to be vicious to B. But in case of the horse becoming sick. B is thrown down and injured. He does not disclose this fact. He is entitled to the increase or profit from goods bailed 2. and 2. A is responsible to B for damages sustained. even though he lent it for a fixed period for specific purpose. the lender may require the goods to be returned. the bailor should indemnify the borrower.

Illustration: A delivers a watch for repairs to B. He must take as much care of the goods as an ordinary prudent man would. The duties and rights of A finder of lost goods A person who finds an article need not take charge of it. he can sue for such reward. 3. a repairer. A Particular Lien is one which is available only against that property in respect of which the skill and labour are exercised or any expenses are incurred. Bankers. A General Lien is the right to retain the property of another for a general balance of accounts. He may exercise particular lien against the goods for such remuneration. take of his own goods. When lawful charges amount to two-thirds of their value PLEDGE A pledge is a “bailment of goods as security for payment of a debt or performance of a promise”.1. The bailees. B has a right to retain the watch till he is paid for the services rendered. repairers and unpaid vendors of goods are entitled to particular lein. 2. as in . But if he takes them into his possession. He cannot sue for remuneration for trouble and expense incurred by him to preserve the goods or to find out the owner of the goods. Duties and Rights 1. When the goods are about to perish or b. be becomes a bailee. 5. it is different from mortgage. Only possession of the goods is transferred. there is no transfer of property in goods. Pawn is also different from lien. 2. In the case of pawn. a. If a reward has been offered for the return of the goods. The bailor is called the “pawnor” and the bailee is called the “pawnee”. the finder may sell the goods. When they lose the greater part of their value of c. can exercise this right for any debt due to them. 4. If the goods are the subject of the sale and if the owner is not found or when found refuses to pay the lawful charges. Hence. under similar circumstances.

4. the pawnee shall pay over the balance to the pawnor. If the pawnor makes a default. He can retain the goods pledged until he recovers the debt. If the proceeds of such are less than the amount due in respect of the debt or promise. Rights of Pawnor Even after the expiry of a stipulated period. interest and other expenses incidental to possession or preservation of the goods.the case of lien. He is entitled to receive extra-ordinary expenses incurred for the preservation of goods. 3. subject to some conditions. there is not power to sell the article while a pawnee can sell. Bring a suit upon the debt or promise and b. . But he must pay expenses which may have arisen from his default. Sell the goods by giving a reasonable notice of sale to the pawnor. 2. Rights of Pawnee 1. he may redeem the goods pledged at any subsequent time before the actual sale of the goods pledged. If the proceeds of the sale are greater than the amount so due. the pawnee may a. He cannot retain the goods for debts other than those for which pawn is made. Retain the goods pledged or c. the pawnor is still liable to pay the balance.

P cannot make him liable while he is bound by the sale. For example. By Implied Authority: The authority of an agent can be interred from the circumstances of the case.LESSON – 4 CONTRACT OF AGENCY Section 182 of the Indian Contract Act defines an agent as person employed to do any act for another or to represent another in dealings with third persons. Consideration is not essential. Illustration: A living in Bombay. 400. CREATION OF AGENCY An agency may be created in the following ways: 1. 500. B is managing the shop and is in the habit of ordering goods from C in the name of A for the purpose of the shop and of paying to them out of A’s funds with A’s knowledge. . But the principal cannot make the minor agent liable for misconduct or negligence.. a jewel worth Rs. 2. By Express Authority: The authority of any agency may be expressed in words spoken or written. a contract of agency can be written by means of power of attorney. The person for whom such act is done. 100 and instructs fgdgdf to sell it on credit or for less than Rs. a minor. Example: P. owns a shop in Madras and he occasionally visits it. or who is so represented is called the “principal”. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop. That the principal gives his consent to be represented by the agent is sufficient consideration for the agent gdg dfgd dfgd. M sells the jewel on credit for Rs. a principal gives M. ESSENTIALS OF A CONTRACT OF AGENCY 1. The principal and third parties must be competent into contracts An agent may be even a minor who can effectively bind his principal.

subsequently enters into a contract with A. By Ratification or Expost Eacto Agency : Section 196 of the Indian Contract Act lays down that where acts are done by one person on behalf of another. When the object of the contract becomes unlawful . When the period of agency expires or 2. TERMINATION OF CONTRACT OF AGENCY A contract of agency is terminated in the following ways: 1. It was held that the station master had become an agent by necessity and was therefore entitled to recover the charges incurred by him. but without his knowledge of authority. When the subject matter of the contract is destroyed 6. By Holding Out: Where a master usually sends his servant to pledge his credit for certain mangdfgfd he is bound by the acts of the servant for similar purposes though done without his consent. By Necessity: Sometimes. So. he would be stopped from denying the authority of that another person to act on his behalf. When the purpose of the agency is accomplished or 3. If he ratifies them the same effects will follow as if they had been performed by his authority. he may elect to ratify or to disown such acts. though not appointed as such. The owner had not taken delivery of the same at the destination. When the principal becomes insolvent 5. 5. Thus ratification relates back to the date of the original contract and binds the principal as if he has expressly authorized it. By Estoppel: When one man by words or conduct causes another to believe that some other person is his agent and that another person had acted on that belief. P is bound by that contract. exigencies of circumstances require a man to act for another as an agent. Illustration: a tells B in the presence and within the hearing of P that he (A) is P’s agent and P does not contradict this statement B. the station master had to feed it. 4. 6. Illustration: A horse was sent by rail.3. on the faith of this statement. When the principal or agent dies or becomes of unsound mind 4. taking him to be P’s agent.

When the principal revokes his authority The termination that takes effect so far as regards the agent. he is not entitled to receive the remuneration. the moment. it becomes know to him and so far as regards third persons. Illustration: B at Singapore under instructions from A of Calcutta. the moment it becomes know to them. But if he is guilty of misconduct. A does not send the goods to B and C sues B breach of contract.7. if an agent knowing the termination of agency. papers and other property. A is liable to B for such damages etc. out of the proceeds. contracts with C to deliver goods. contracts with third persons who are not aware of the termination. Illustration: A employs B to recover Rs. coupled with interest. A cannot revoke this authority nor can it be terminated by his insanity or death. 1000 from C. An Agency cannot be terminated in the following cases: (a) When the agency is one. gives authority to B to sell A’s land and to pay himself. He is entitled to retain the goods. Through B’s misconduct. 2. He is entitled to remuneration and other expenses properly incurred by him in the agency. B informs A of the suit and A authorizes him to defend the suit. the money is not recovered. B is entitled to no remuneration for his services and must make good the loss. B defends and is compelled to pay damages etc. . 3. movable on immovable. the becomes liable to the principal for damages while the contract binds the principal and third persons. A. When the agent renounces the authority 8. RIGHTS OF AN AGENT 1. of the principal for his claims. (b) When the agent has incurred personal liability and (c) When the authority ahs been partly exercised by the agent. So. The agent has a right to be indemnified by the principal for all lawful acts. the debts sue to him (B) from A.

omits to make such investment. . He should not set up his own title or title of third parties to the goods of the principal in hi hands. through it causes an injury to the rights of third parties. He should act according to the directions of the principal and in default. to invest from time to time. sells goods to B without enquiring about his solvency. 5. He must deliver all monies including secret commission. He must conduct the business of agency with as much skill as is generally possessed by persons engaged in similar business. hurt. the employer must indemnify him for the consequence of that act. but which A had no right to dispose of B does not know this and hands over the sale proceeds to A. he must act according to the trade custom. in which it is the custom. 5. to the principal. A must make good the loss. 6. Illustration: A. He must render proper accounts on demand. having authority to sell on credit. 8. sells goods in the possession of A. a business. DUTIES OF AN AGENT 1. He must not delegate his authority without the consent of the principal. In case of difficulty. if any 2. at interest the monies which may be in hand. he must be diligent in communicating with the principal and obtaining his instruction. afterwards C the true owner sues A and recovers the value of goods and costs. must make good to B the interest usually obtained by such investment. Illustration: B. A must compensate B. unless the principal has notice of want of skill. In the absence of instructions. Illustration: A employs B as a brick-layer in building in a house and puts a scaffolding himself unskillfully and B is in consequence. indemnify the principal for the loss. He can deduct his remuneration and other lawful expenses spent by him. A must indemnify B for what he has paid and for B’s own expenses. 7. at the request of A. When an agent acts in good faith. A. is bankrupt. Illustration: A. 3. The agent is entitled to be indemnified for the injury caused to him by the principal’s neglect or want of skill. 4.4. an agent engaged in carrying on for B. B at the time of sale.

11. An agent is liable for breach of warranty of authority. When the principal cannot be sued as he is a minor or a foreign sovereign etc. He becomes liable to pay damages to the principal. 10. (ii) Creditor and (iii) Co-Sureties 3. He is liable to third parties when he exceeds his ostensible authority. When the trade usage makes him liable. Illustration: A solicitor. by the nature of profession. who started the proceedings under a wrong section or field a suit in a court having no jurisdiction. If. When he does not sign the negotiable instrument as agent c. he must exercise that degree of skill ordinarily expected from the members of the profession. and g. When the Surety is discharged from his liabilities? 4. an agent is purported to have special skill. What are the rights of the Surety against (i) Principal debtor. 3. is liable.9. When the contract expressly provides b. When he acts for a foreign principal d. Define bailment. 2. Define Contract of Indemnity and Contract of Guarantee and bring out differences between them. What are the rights and duties of bailor and bailee? 5. When he acts for an undisclosed principal e. An agent cannot claim performance of a contract entered into by him apparently on behalf of the principal but really on his own account. REVIEW OF QUESTIONS 1. He should not disclose confidential information. when he exceeds his actual authority but acts within the ostensible authority and enters into contracts with third parties who are not aware of the curtailment of his authority. When the agency is coupled with interest f. An agent is personally liable a. His interest should not conflict with his duty. CONDITIONS UNDER WHICH THE AGENT IS PERSONALLY LIABLE 1. 2. What are the duties of finder of lost goods? .

What are the different methods of creation of agency? 7. 5. when the time lapses or such condition is fulfilled. when the transfer of property is take place at a future time or subject to fulfilment of some condition. It remains with the seller. It is an executor contract It creates rights in personam The seller can sue for the damages if the buyer refuses to take delivery and pay the price In case of re-sale the buyer can only claim damages. In such cases. What are the rights and duties of an agent? LESSON – 5 SALE OF GOODS ACT. 2. 3. When the property in the goods is transferred. It may be absolute or conditional. Ownership is transferred to the buyer It is an executed contract It creates rights in rem. The term “contract of Sale” includes an actual sale as an agreement to sell. the buyer has to bear Agreement to Sell Ownership does not pass to the buyer. the contract is called a sale. 4. The seller can sue for the price though the goods are in the his possession If the seller re-sells the goods. the buyer can claim damages for conversion and exercise right of recovery of goods from third parties who are aware of the prior sale If the goods are destroyed by accident. 6.6. 1930 Section 4 of the Sale of Goods Act defines a contract of sale as “a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price”. The contract called an agreement to sell. the seller has to bear the loss. even if the goods are in the . Differences between a sale and an agreement to sell may be summarized as follows: Sale 1. An agreement to sell becomes a sale.

if any. The effect of a breach of condition is that it gives the right to the aggrieved party to treat the contract as void and also to claim damages. If the buyer becomes insolvent. must deliver the goods to the official receiver and claim only ratable dividend for the price due If the seller becomes insolvent. The breach of warranty does not give right to the aggrieved party to treat the contract as void but entitles him to claim damages only. 8. the breach of a condition will be treated as breach of warranty only. In the following cases. the buyer who has paid the price can only claim retable dividend. in the absence of a lien. the seller may refuse to deliver the goods unless paid for since ownership rests with the seller In such cases. they are called express conditions and warranties. A condition is a term which is essential to main purpose of the contract and hence is the foundation of the contract. (i) (ii) (iii) (iv) When the buyer waives the condition or When the buyer treats the breach of condition as a breach warranty and does not treat the contract as void or Where the contract of sale is inseparable and the buyer has accepted the goods or part thereof or Where the contract is for specific goods. A warranty is a term which is collateral to the main purpose of the contract and hence is only a subsidiary promise.the loss. the property in which has passed to the buyer. possession of the buyer If the buyer becomes bankrupt before payment of price. as warranty. the buyer can recover the goods from the official receiver since the ownership has passed to him. They are called implied . CONDITION AND WARRANTY A term or a stipulation in a contract of sale with reference to goods may be either a condition or a warranty. When they are definitely written in the contract. time of delivery of goods is treated as condition and for payment of price. though the goods are in the possession of the seller 7. the seller. In the absence of contract to the contrary. Condition and warranties may be express or implied.

which would not be apparent on reasonable examination of the sample. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample and c. let the buyer beware. it was held that the buyer was entitled to reject the machine. Drummond & Sons Vs Van Ingen & Co.e. It was held that A could recover the full price paid to B.conditions and warranties. was found to be an old and repaired one. That the goods delivered shall correspond with the sample b. Rowland Vs Divall: A purchased a car from B for a certain price and used it for some period. it was held that the buyer was entitled to reject the goods. he will have the right to sell the goods at the time when the property is to pass. As to title to goods: There is an implied condition that the seller has a right to sell in case of sale and that in the case of agreement to sell. That the goods shall be free from any defect rendering them unmerchantable. So. 3. Sale by sample as well as description: In the case of sale of goods by sample as well as description. Sale by description: The implied condition is that the goods delivered must correspond with the description Example: Where a machine was described as almost new and used very little but when delivered. A had returned back the car to the true owner. IMPLIED CONDITIONS 1. it was found that the car was stolen by B and therefore. there is an implied condition as to quality or fitness of goods for any particular purpose. Subsequently. when they are not written in the contract and applied to the contract either by operation of law or by trade custom. As to quality or fitness: The general rule is “Caveat Emptor”. 2. 4. i.: Where worsted coating was supplied corresponding with the sample but not suitable for stitching due to a latent defect. But in the following cases. the seller need not disclose the faults in the goods he sells nor need he guarantee that the goods are fit for the purposes of the buyer. the buyer takes them as they come. . the goods delivered must correspond with both sample as well as description. 5. So. Sale by sample: The implied condition as --a.

As to wholesomeness: In the case of sale of vision. Warranty against Encumbrances: There is an implied warranty that the goods shall be free from encumbrance or charges in favour of any third party not declared or known to the buyer before or at the time of contract. purchased a bun from B and injured his teeth by biting a stone in the bun. 7. 2. B was held liable. Held. Evans V’s Stella Benjamin: Where a refrigerator was sold.a. 6. there is not implied condition as to quality of goods as regards defects which such examination must have revealed. But there is not implied condition as to fitness or quality of goods when they are sold under the patent or trade name. that the buyer was entitled to damages. . c. Brant Vs Australian Knitting Mills Ltd. the seller knew the purpose. Where the seller makes a statement and the buyer relies upon it. Exception: If the buyer has examined the goods. who is ordinarily dealing with sale of goods of that description and the buyer relies on the judgement of the seller. it was held that the name of the article itself implies that it is fit for a particular purpose. The car turned out to be unfit for the purpose. B. there is an implied condition that they are fit for immediate use. there is an implied condition that the goods shall correspond with the description and also that they shall be of merchantable quality. A the buyer could repudiate the contract. Where the buyer makes known the purpose to the seller. Where the seller does not disclose the faults in his goods and such faults cannot be detected on reasonable examination. b. Held. A. E.W. The buyer wore them for sometime and contracted a skin disease. As to Merchantability: In case of sale of good by description. Warranty of Quiet Possession: There is an implied warranty that the buyer shall have and enjoy quiet possession.: The buyer was supplied wollen underpants by the manufacturers. Baldry V’s Marshall: A purchased a motor car from B for using it as a tourist car. IMPLIED WARRANTIES 1.

He has the following rights when the property in goods has passed to the buyer. Right of stoppage of goods in transit . 1. This right of lien extends to the whole of goods in the possession of the unpaid vendor and can be exercised only for the recovery of the price of goods but not the amounts like godown rent. When the buyer or his agent lawfully obtains the possession of goods When the unpaid vendor has given up his right of lien 2. Rights of Lien The unpaid vendor who is in possession of the goods. but the term of credit has expired and the price remains unpaid. the an exercise this right on the remaining goods except when such part delivery amounts to show that he has give up the right of lien.RIGHTS OF AN UNPAID SELLER The seller of goods is deemed to be an “unpaid-seller” where— a) The whole of the price has not been paid or tendered or b) When a bill of exchange or any other negotiable instrument has been given as conditional payment but the same has been dishonoured. Where the buyer becomes bankrupt This right of lien is lost— When the goods are delivered by him to a carrier. He can exercise the right of lien – • • • • • • Where the goods have been sold without any stipulation as to credit Where the goods have been sold on credit. And if the goods are partly delivered. An unpaid vendor has the right of withholding the delivery of goods when the property in goods has not passed to the buyer. incurred in storing the goods in exercise of lien for the practice. or other bailee for the purpose of transmission without reserving the right of disposal. can retain such possession until the price is paid or rendered.

When the seller has parted with the possession of goods. d) The goods are in transit. He can retain the profit resulting form such re-sale and claim damages from the original buyer for loss if any. The seller shall have to bear the expenses of such redelivery. This right is available (1) when the goods are in transit and (2) when the buyer becomes bankrupt. e) The transit is at an end if the carrier or other bailee wrongfully refuses to deliver the goods to the buyer. Right of Re-Sale The unpaid vendor can re-sell the goods— 1) without notice to the buyer if the goods are perishable goods and 2) With notice to the buyer of his intention to re-sell. from being delivered to the buyer. in order to exercise this right of stoppage. he may regain and retain such possession by stopping the goods in transit. when the buyer or his agent obtains delivery before the arrival of the goods at their destination c) The transit is at an end. But if he does not give notice to the buyer of his intention to re-sell the goods where necessary. if the carrier or other bailee acknowledges to the buyer after the arrival of the goods at the destination the he holds the possession of goods as a bailee for the buyer. he must pay back the surplus or profit to the original buyer and bear the loss. Such notice takes effect when it reaches the carrier or his agent who is in actual possession of goods. REVIEW QUESTIONS . Following are the rules regarding duration of transit a) Goods are deemed to be in transit so long as the buyer or his agent does not take delivery of the goods b) The transit is at an end. who is in possession of the goods. the carrier must re-deliver the goods to or according to the directions of the seller. if any. On receipt of notice of the stoppage. if the buyer or his agent rejects the goods. The unpaid vendor must give notice of his claim to the carrier or other bailee. 3. If the goods are not perishable.

What are the rights of an unpaid seller? . Distinguish between sale and agreement to sell 2.1. What are the implied conditions and warranties laid down under the Sale of Goods Act’ 3.

and (9) Acceptor for honour. It is convenient method of discharging payments The Act does not stipulate that only bills of exchange. Railway Bonds. (4) Payee. payable either to order or bearer. promissory notes and cheques are only the negotiable instruments. (7) Indorsee. Consideration is presumed to have passed 6. 3. a negotiable instrument is an ordinary chattel for chose-in-action clothed with the feature of negotiability. Port Trust or Improvement Trust Debentures. He need not give notice to the debtor that he has become the holder. Parties to a Promissory Note: (1) Maker. (6) Indorser. • • They are transferable by mere delivery and The holder in due course can sue in his own name Hence. So. The property in it passes either by mere delivery or by endorsement and delivery 2. (2) Drawee. other instruments may also be added to the list of negotiable instruments provided. He is not affected by certain defects like fraud to which he is not a partly 5. can sue in his own name. FEATURES 1.LESSON – 6 NEGOTIABLE INSTRUMENTS ACT. (8) Drawee in case of need. The holder in due course is not affected by the defect in the title of his transferor or any previous party. PARTIES TO NEGOTIABLE INSTRUMENTS The parties to a bill of exchanges. 4. bill of exchange or cheque. The holder in due course. payable to bearer or Railway Receipts having the feature of negotiability are all negotiable instruments. 1881 Section 13 of the Negotiable Instruments Act defines that a negotiable instrument means a promissory note. Dividend Warrants. (2) Payee (3) Holder. (3) Acceptor. (4) Indorser and (5) Indorsee . a promissory note and a cheque are as follows: Parties to a Bill of Exchanges: (1) Drawer. So. (5) Holder.

to whom or to whose order the money is to be paid.Meker. it renders the cheque invalid. Drawee. . Acceptor: The person on whom the bill of exchange or cheque is drawn and who is directed to pay is called the “drawee”. Payee: The person named in the bill.e. In other words. In case of a bill of exchange. for all legal purposes from what it spoke originally” would constitute a material alteration. Drawer: The person who makes a promissory note is called the “maker”. Indorsee: The person to whom the bill. note or cheque to another is called the “indorser”. note or cheque is endorsed is called the “Indorsee”. In case of a cheque. Examples of Material Alteration There is material alteration when  The date of the instrument is altered  The time of payment is altered  The amount is altered  The rate of interests altered  The place of payment is altered  The name of payee is altered  A new party is added etc. the drawee becomes the “acceptor” when he accepts the bill. i. signs his accent upon the bill and delivers the same or gives notice of such signing to the holder or to some person on his behalf A cheque does not require acceptance as it is intended for immediate payment. Indorser: The person who endorses the bill. The person who makes or draws a bill of exchange or cheque is called the “drawer”. “any change in any instrument which makes it speak a different language. the drawer may himself be the payee. Where the payee named in a bill is a fictious or nonexisting person. the drawee is always a banker. the bill is treated as payable to bearer. If the alteration is material. In a bill or cheque. note or cheque. MATERIAL ALTERATION Material alteration refers to changes introduced on a cheque which affects its fundamental character. is called the “payee”.

There is no material alteration when • • • • • A mistake corrected Alteration is made with the consent of all the parties Alteration is made to carry out the common intention of the parties Blank indorsement is converted into full indorsement An inchoate instrument is completed etc.

EFFECT OF MATERIAL ALTERATION According to Sec. 87 of the Negotiable Instruments Act, if a cheque is materially altered it canot be regarded as a cheque at all. Therefore material alteration renders the cheque void. CROSSING OF CHEQUES Crossing means drawing two parallel transverse lines across the face of the cheque with or without the words “and company” in between the lines. It is a direction to the drawee bank not to pay the amount at the counter, but only through a bank. It is made to guard payment against forgery by unscrupulous persons.

KINDS OF CROSSING Is is of two kinds (1) General Crossing and (2) Special Crossing

1. General Crossing Sec. 123 of the Negotiable Instruments Act defines General Crossing as, “where a cheque bears across its, face an addition of the words “And Company” or any abbreviation thereof between two parallel transverse lines or of two parallel transverse lines simply, either with or without the words ‘not negotiable’, that addition shall be deemed to be a crossing and the cheque shall be deemed to be crossed generally”. Two parallel transverse lines across the face of the cheque with or without the words, “& Co.”, “Account Payee only”, “Not Negotiable”, constitute general crossing. The cheque which is crossed generally, is payable only to banker.

Specimens of General Crossing

2. Special Crossing Sec. 124 of the Negotiable Instruments Act defines Special Crossing as, “where a cheque bears across its face an addition of the name of a banker, with or without the words “not negotiable”, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker”. When a cheque is crossed specially, the amount is payable by the drawee only, only to the bank named in the crossing.

Specimens of Special Crossing

“Account Payee Crossing”

When the words “Amount Payee”, “Account Payee only” are added to the general or special crossing, it is called account Payee Crossing. The collecting banker must collect the amount of the cheque for the account of the payee only and none else.

Otherwise, it is not a collection in due course and the banker is liable if the title of the person for whom the bank collects, turns out to be defective.

“Not Negotiable” Crossing

When the words “not negotiable” are added either in general or special crossing, the person taking the cheque cannot have and cannot give a better title than what his transferor has. So, a ‘not negotiable’ cheque is transferable. But the transferee gets no better title than what the transferor has.

RULES OF CROSSING 1. An uncrossed cheque may be crossed generally or specially by the drawer or the holder. 2. A cheque crossed generally, may be crossed specially by the holder. 3. The holder may add the words “not negotiable”. 4. The banker to whom the cheque is crossed specially, may re-cross it, but only to another bank as his agent for collection. 5. Where an uncrossed cheque or a cheque crossed generally is sent to a banker for collection, he may cross it specially to himself. But he cannot enjoy Statutory protection against being sued for conversion.

INDORSEMENTS It means the writing of a person’s name (otherwise than as maker) on the face or back of a netgotiable instrument or on a slip of paper (called alloonge) annexed thereto, for the purpose of negotiation (Sec. 15). The person who signs the instrument is called the “indorser’. The person to whom the instrument is indorsed is called the ‘indorsee’.

KINDS OF INDORSEMENTS 1. Bank Indorsement or General Indorsement When the indorser signs his name only, it is called blank indorsement. An instrument endorsed in blank is payable to bearer. The holder of an instrument may write above the indorser’s signature, a direction to pay the amount to or to the another person. When the holder does so, he does not become liable as an endorser on the instrument, as he had not signed it.

it is called partial indorsement. 800 A endorses thus “Pay Rs. Examples: (1) “Pay A or order . Special or Full Indorsement If the indorser signs his name and adds a direction to pay the amount to or to the order of a certain person. Restrictive Indorsement It is one which prohibits or restricts further negotiation or which constitute the indorsee an agent to receive its contents for his indorser. Partial Indorsement When a part of the amount of the instrument is endorsed. being unpaid residue of the bill”. Illustration : A bill made payable to Smith. the unpaid balance may be endorsed thus. 400. It is void: Example: A holds a bill for Rs. 400 and to C or order Rs. Conditional or Qualified Indorsement This is one which negotiates or limits the indorser’s liability. in the following ways: (a) By Sans Recourse Indorsement: The indorser excludes his liability by express words in indorsement. “Pay B or order Rs.] Smith An instrument having been endorsed in blank is indorsed in full the indorser in full is liable to the person to whom it is indorsed in full or to others who derive title through such person. 4. Example: (1) “Pay C only” (2) “Pay D for my use” (3) “Pay D on account of E” (4) “Pay E or order for collection. 3. it is called full indorsement. 400” But if the part of the amount of the instrument is already paid. [Sd.2. may be endorsed in full by him as “Pay A or order”. 5. 400 to B or order” (or) “Pay B or order Rs.

) B PAYMENT AND COLLECTION OF CHEQUE The paying banker should use reasonable care and diligence in paying a cheque so as to abstain from any action likely to damage his customer’s credit. Example: “Pay A or order Notice of dishonor waived” (Sd. Example : “Pay A or order on his marrying B” (c) By making the right of the indorsee to receive the amount. It can be found out by noting the following factors. PRECAUTIONS BEFORE HONOURING A CHEQUE In order to safeguard his position. (1) Presentation of Cheque First of all a paying banker should note whether the presentation of the cheque is correct. though it may never happen.Sans Recourse” (Sd) B (2) “Pay A at his own risk” (Sd) B (3) “Pay A without recourse to me” (Sd) B (b) By making his liability depend upon the happening of a specified event. though such event may never happen. . depend upon the happening of a specified event. the paying banker has to observe the following precautions before honouring a cheque. (d) By Facultative Indorsement: This is one which extents the liability of the indorser.

(i) Legal Bar: The existence of legal bar like Garnishee order limits the duty of the banker to pay a cheque. From of the Cheque Before honouring a cheque. 3. a banker shold see the form of cheque and find out whether it is regular or not. (e) Material Alteration: If there is any material alteration the banker should return it with a memorandum “Alteration requires drawer’s confirmation”. the paying banker must see whether there is a date on the instrument. then the paying banker should not honour it. If a cheque is post dated. the payment may be paid at the counter. (d) Multination: If the cheque is from into pieces or cancelled or mutilated. (c) Banking Hours: The paying banker should also note whether the cheque is presented during the banking hours on a business day. (b) Enconditional Order: The cheque should not contain any condition (c) Date: Before honouring a cheque. If it is crossed.(a) Type of Cheque: Cheques may generally be of two types – open or crossed. . the payment must be made only to a fellow banker. it may be paid if it has not exceeded six months from the date of its issue otherwise it will become stale one. (f) Sufficient Balance: If the funds available are not sufficient to honour a cheque. he should honour it only on its due date. (b) Branch: The paying banker should see whether the cheque is drawn on the branch where the account is kept. (a) Printed Form: The customer should draw cheques only on the printed leaves supplied by the bankers failing which the banker may refuse to honour it. the paying banker is justified in returning it. If it is open one. if a cheque is ante dated. (h) Endorsement: The banker must verify the regularity of endorsement. that appears on the instrument. (g) Signature of the Drawer: It is the duty of the paying banker to compare the signature of his customer found on the cheque with that of his specimen signature. if any. (d) Amount: The paying banker should see whether the amount stated in the cheque both in words and figures agree with each other.

the banker should refuse to honour the cheque presented by him. When such an order is received. the customer) in the hands of a third party (i. d) Upon the receipt of notice of insanity: Where a banker receives notice of a customer’s insanity. a) Countermanding: Countermanding is the instruction given by the customer of a bank requesting the bank not to honour a particular cheque issued by him. However. In such a case. A wrongful dishonor will have. f) Upon the receipt of notice of assignment: The bank balance of a customer constitutes an asset and it can be assigned to any person by giving a letter of assignment to the banker. g) When a breach of trust is intended: In the case of trust account. the payment of a cheque may be refused. drawn on an ordinary piece of paper.CIRCUMSTANCES UNDER WHICH A CHEQUE MAY BE DISHONOURED A paying banker is under a legal obligation to honour his customer’s mandate. .e. b) Upon receipt of notice of death of a customer: When a banker receives written information from an authoritative source. under the following circumstances. i) Other Grounds: A banker is justified in dishonouring a cheque under the following circumstances also: • • a conditional one. In such case also the banker may refuse payment. regarding the death of a particular customer. h) Defective Title: If the person who brings a cheque for payment has no title or his title is defective. mere knowledge of the customers intention to use the trust funds for his personal use is a sufficient reason to dishonor his cheque. He is bound to do so under his contractual relationship with his customer. the banker). he should not honour any cheque drawn by that deceased customer. c) Upon the receipt of notice of insolvency: Once a banker has knowledge of the insolvency of a customer he must refuse to pay cheques drawn by him. the banker may refuse payment.e. the banker must refuse to pay the cheque. he is justified in refusing payment of the cheque drawn by him. e) Upon the receipt of notice of Garnishee order: Garnishee order refers to the order issued by a court attaching the funds of the judgement debtor (i. the worse effect on the banker.

post-dated one. If the endorsement is irregular and. . he should exercise reasonable care. the customer may suffer losses due to the insolvency of the drawer or insufficiency of funds in the account of the drawee or insolvency of the banker himself. he should inform him customer without any delay. Present the cheque for collection without any delay: If there is any delay in presenting the cheque for presentment by the banker. If the signature of the customer is forged. Notice to customer in case of dishonor of cheque: If the cheque he collects has been dishonoured. Hence the collecting banker has to present the cheque for collection without any delay. He should observe utmost care when presenting a cheque. COLLECTING BANKER A collecting banker is one who undertakes to collect the amount of a cheque for his customer from the paying banker. Exercise reasonable care and diligence in his collection work: As an agent. drawn on another branch where the account is not kept. mutilated. 2. If there is no sufficient funds. If a crossed cheque is presented at the counter.• • • • • • • • • • a stale one. If the words and figures differ. diligence and skill in collection work. DUTIES OF COLLECTING BANKER 1. 3. presented during non-banking hours.

Define Negotiable Instruments. What are the different kinds of crossing? 3. What are the characteristics of negotiable instruments? 2. What are the duties of a collecting banker? . What are the precautions to be taken by a banker while honouring a cheque? 5. What is indorsements? What are the kinds of indorsements? 4.Review Questions 1.

also called as deed. and the name under which their business is carried on. vocation. 1932 Section 4 of the Indian Partnership Act defines it as ‘the relation between persons who have agreed to share the profits of a business cancelation by gfdg any of them acting for all” Persons who have entered into partnership with one of other are called individually “partners” and collectively “a firm”. Profit Sharing: Sharing of profits is essential though it does not mean that all those who participate in profits are necessarily partners. accounts arbitration etc. trading or calling. may be express or implied from the conduct of the parties. It may be oral or written. there must be at least two persons. is called the “firm name”. profession. capital and banking account. It contains details relating to— • • • • • • • • name of the firm and the names of the partners. Such agreement. . e. the date of commencement and the duration of partnership. Agreement or Deed: Partnership arises out of an agreement but not out of status. Such business must be lawful. Business: The object of the partnership is to carry on any business. co-ownership. 3. 5. management.g. The maximum number of members is 10 for a partnership carrying on banking business and 20 for a partnership carrying on any other business. Two or More Persons: As no one can be a partner with himself. Mere holding of property in common is not partnership. ESSENTIALS OF PARTNERSHIP 1. 4.LESSON – 7 INDIAN PARTNERSHIP ACT. nature and place of business. Relationship: Partnership is the abstract relationship between partners 2. sharing of profits and losses.

For example. while sharing of profits is evidence. for the duration of partnership or for the termination of partnership. he can be called an agent. an active participation in the conduct of business is evidenced that a partnership exists. Thus. done in the course of conduct of the business. As such. Section 6 lays down that the receipt of a share of profit. but whether the relationship of agency exists or not. make the recipient a partner. by giving a notice to other partners. Partnership at will: Where the partners have not provided in their deed. or a payment contingent or varying with the profits does not of itself. Therefore. Each one can act in the course of business and bind the other partners by his acts. In the same way. Likewise. he can be called the principal. that a partnership exists. The joint use of property in common in business for sharing of profits is evidence that a partnership exists. TEST OF PARTNERSHIP In determining whether a partnership exists or not. A partner may retire to dissolve the partnership at his will. must be taken into consideration. But this is not conclusive evidence to show that a partnership exists. Carried on by all or any of them acting for all: Each partner acts as an agent as well as a principal. the law of partnership is a branch of the general law of agency as every partner has implied power to bind other partners for the acts of the firm. the partnership is called “partnership at will”. it is no conclusive evidence to establish the fact of existence of partnership. Since he is also bound by the acts of the other partners. or whether a person is a partner or not the real relation between the parties as shown by all relevant facts. So. But again. 2. though no conclusive. it is called a partnership for a fixed term. KINDS OF PARTNERS . Yet he is not a partner. the true test of partnership is no sharing of the profit. of his intention to do so. a joint venture having no object of profit sharing is not a partnership.6. 3. a servant may manage the affairs of a firm. KINDS OF PARTNERSHIP 1. Partnership for a fixed term: Where the partners fix the definite period or duration of partnership. Particular partnership: A person may become a partner with another person in particular adventures or undertakings.

X. A does not contradict this representation. 3. on faith of that representation. The application for registration of a firm shall be accompanied by the prescribed fee. third parties can sue him on discovering that he is a partner. Example: X. represents himself as a partner of a particular firm. on the faith of such representation. 5000 to the firm. 2. A becomes liable. giving the necessary information. It shall state: . lent Rs. it has made the registration of firms compulsory. Partner by Estoppel: Where a person causes. A. in the presence and within the hearing of A. another to believe him to be a partner and on that belief such other person gives credit to the firm. he becomes liable to all those who act and lend money to the firm. with the Registrar of Firms of the area. Y and Z are partners of a firm. lends credit to the firm. he is estopped from denying that he is a partner. But indirectly. While he has access to accounts and examine and verify them. PROCEDURE FOR REGISTRATION The registration of a firm may be effected at any time by filling an application in the form of a statement. 4. Dormant or Sleeping Partner: He is a partner who is not known to third parties as such. D on the faith of the representation. He does nto take active part in the conduct of business. REGISTRATION OF FIRMS The Partnership Act does not provide for the compulsory registration of firms. he has not duties to perform. represents to D that A is a partner of their firm. A. Hence no notice of his retirement to the public is necessary nor the firm is dissolved when he becomes insane. He occupies the position of an undisclosed principal. is liable as a partner. Example: A. Hence. Partner by Holding Out : Where a person represents himself or allows others to represent him as a partner of a particular firm. Actual or Ostensible Partner: An actual partner is one who actively participates in the conduct of the business of the partnership. by his conduct. It has left it to the option of the firms to get themselves registered. by creating certain disabilities from which an unregistered from suffers.Following are different kinds of partners 1.

69(2)] 3. he shall record an entry of the statement in the Registrar of Firms (maintained by Registrar of Firms in respect of each registered firm for recording the necessary information relating to that firm) and file the statement (Sec. It shall also be verified by them in the prescribed manner [Sec. Registration is effective from the date when the Registrar files the statement and makes entries in the Register of Firms. 69) 1. The statement shall be signed by all the partners or by their agents specially authorized in this behalf [Sec. 59). 69(3)] RELATIONS OF PARTNERS The relations of the partners of a firm to one another are usually governed by the agreement among them. Suits between partners and firm: A person suiting as a partner of an unregistered firm cannot sue the firm or any partners of the firm to enforce a right from a contract or conferred by the Partnership Act. 58(2)]. Such agreement may be express or implied. . When the Registrar is satisfied that the above provisions have been duly compiled with. and the names of the persons suing appear as partners in the Register of Firms [Sec. Suits between firm and third parties: An unregistered firm cannot sue a third party to enforce a right arising from a contract until – • • the firm is registered. Clain of set-off: An unregistered firm or any partner thereof cannot claim a set-off in a proceeding instituted against the firm by a third party to enforce a right arising from a contract. 2.(a) the name of the firm (b) the place or principal place of business of the firm (c) the names of other places where the firm carries on business (d) the date when each partner joined the firm (e) the names in full and permanent address of the partners (f) the duration of the firm. 58(1)]. EFFECTS OF NON-REGISTRATION (SEC. until the registration of the firm is effected [Sec. He shall then issue under his hand a certificate of registration.

every partner has a right to take part in the conduct of business [Sec. he has a right to be indemnified. to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence. . Such acts of the partner bind the firm. every partner has a right to have access to and inspect and copy any of the books of the firm. Such interest. Right to be Indemnified A partner has authority. Subject to pay such agreement between the partners. Right to be Consulted Every partner has an inherent right to be consulted in all matters affecting the business of the partnership and express his views before any decision is taken by the partners. acting under similar circumstances. Right to Interest on Advances Where a partner makes. the partner incurs any liability or makes any payment. This is based on the general principal that partnership business is the common business of all the partners. in his own case. if any. 6. is payable only out of profits. 12(a)]. earned by the firm. Right to Interest on Capital The partnership agreement may contain a clause as to the right of the partners to claim interest on capital at a certain rate. subject to contract between the partners. Such interest is not only payable out of the profits of the business but also out of the assets of the firm. any advance beyond the amount of capital. in an emergency. 3. 7. for the purposes of the business of the firm. he is entitled to interest on such advance at the rate of six per cent annum. Right to take part in Business The partnership agreement usually provides the mode of the conduct of the business. Right to Share in Profit In the absence of any agreement.RIGHTS OF A PARTNER 1. the partners are entitled to share equally in the profits earned and are liable to contribute equally to the losses sustained by the firm. 5. If as a consequence of any such act. 2. 4. Right of Access to Accounts Subject to contract between the partners.

which deals with the general duties of partners. insolvency. the property of the firm must be held and used by the partners exclusively for the purposes of the business of the firm. According to Sec. or (b) in accordance with an express agreement between the partners. If a partner uses the property of the firm directly or indirectly for his private purpose. DUTIES OF A PARTNER Partnership is a contract of uberrimae fide. 13. 11. partners are bound – . No New Partner to be Introduced Every partner has a right to prevent the introduction of a new partner unless he consents to that or unless there is an express term in the contract permitting such introduction. In such a case. The partners must act with utmost good faith as the very basis of partnership is mutual trust and confidence. No Liability before Joining A person who is introduced as a partner into a firm is not liable for any act of the firm done before he became a partner. This is because partnership is founded on mutual trust and confidence. 9. or any other cause. 12. Right of Partner as Agent of the Firm Every partner for the purposes of the business of the firm is the agent of the firm. Right to Retire A partner has a right to retire (a) with the consent of all other partners. 10. expulsion. or has ceased to be a partner by retirement. or (c) where the partnership is at will. 9. Right to the Use of Partnership Property Subject to contract between the partners. the surviving or continuing partners may carry on the business with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate. he must account to the firm for the profits which he may have earned by the use of that property. legal representative of the deceased partner or the outgoing partner is entitled to such share of the profits as is proportionate to his share in the property of the firm. Right of Outgoing Partner to Share in the Subsequent Profits Where a partner has died.8. by giving notice to all the other partners of his intention to retire. No partner has a right to treat it as his individual property.

He is bound. usual to allow some remuneration to the working partners provided there is a specific agreement to that effect. 2. To indemnify for willful neglect Every partner is bound to indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. the partners are bound to contribute equally to the losses sustained by the firm.(a) to carry on the business of the firm to the greatest common advantage. and to use his knowledge and skill to the common advantage of all the partners. 3. To observe faith Partnership is a fiduciary relation. To attend diligently It is the duty of every partner to attend diligently to his duties in the conduct of the business of the firm [Sec. 12b]. . to do his best in the common interest of the firm. The other duties are spread over the Partnership Act. and (c) to render true accounts and full information of all things affecting the firm to any partner or his legal representative. An agreement to share profits implies an agreement to share losses also. To share losses It is the duty of every partner to contribute to the losses of the firm. 6. (b) to be just and faithful to each other. Every partner must be just and faithful and observe utmost good faith towards every other partner of the firm. in all transactions affecting the partnership. To carry on business to the greatest common advantage Every partner is bound to carry on the business of the firm to the greatest common advantage. Not to claim remuneration A Partner is not entitled to receive any remuneration in any form for taking part in the conduct of the business of the firm. 4. 5. To indemnify for fraud Every partner is bound to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. In the absence of an agreement to the contrary. These duties are summed as under: 1. 7. It is however.

He can.8. To act within authority Every partner is bound to act within the scope of his actual or implied authority. assign his share of the profit and his share in the assets of the firm. from partnership transactions. To account for personal profits If a partner derives any benefit. This new firm of A. To hold and use property of the firm exclusively for the firm It is the duty of every partner of the firm to hold and use the property of the firm exclusively for the purposes of the business of the firm 9. But dissolution of firm involves dissolution of partnership. This is because the relationship between partners is a fiduciary relationship and no partner is entitled to make any personal profit. B and C. A partnership may be dissolved without dissolution the firm. however. 12. Dissolution of Partnership on the happening of certain contingencies . 11. B and D is called the new or reconstituted firm. for all the acts of the firm done while he is a partner. But A and B may take in D and continue doing the business. DISSOLUTION OF FIRMS Section 39 of the Indian Partnership Act lays down that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. To be liable jointly and severally Every partner is liable. he shall have to compensate the firm for any such loss. If he does that he is bound to account for and pay to the firm all profits made by him in that business. if C dies or retires. In the firm of A. Where he exceeds the authority conferred on him and the firm suffers a loss. To account for profit in competing business A partner must not carry on any business of the same nature as competing with that of the firm. This is different from the dissolution of partnership. jointly with all the other partners and also severally. he must account for it and pay it to the firm. without the consent of the other partners. Not to assign his rights A partner cannot assign his rights and interest in the firm to an outsider so as to make him the partner of the firm. the firm will be dissolved. 10. 13.

At the suit of a partner. or (b) by the business of the partnership becoming illegal or unlawful by subsequent events. 3) Dissolution of Partnership at Will: The firm may be dissolved by any partner giving a notice to the other partners of his intention to dissolve the firm. the remaining partners. a firm may be dissolved on any of the following grounds: (a) that a partner has become of unsound mind. dissolution of partnership does not necessarily involve dissolution of the firm. Once given. and  The retirement of a partner In all these cases. 4) Dissolution through Court: A partnership for a fixed period will be dissolved by a court where it is not dissolved for the reasons mentioned above.A partnership is dissolved by -- The death of the partner  The completion of the adventure of partnership  The insolvency of a partner. Hence. . Dissolution of Firm A partnership between all the partners is dissolved in the following ways 1) Dissolution by Agreement: (a) By mutual consent of all the partners. the firm is dissolved automatically. from the date of communication of the notice. The firm is dissolved from the date mentioned in the notice. or if the date is not mentioned. (d) that a partner persistently commits breach of agreement. a firm is dissolved when: (i) a partner commits breach of trust. it cannot be withdrawn. (c) that a partner is guilty of conduct which is likely to affect prejudicially. (b) that a partner has become permanently incapable of performing his duties. If they do not continue. may constitute the firm. For instance. or (ii takes away the partnership books etc. or (b) in accordance with the contract entered into by them. 2) Compulsory Dissolution: (a) by the insolvency of al the partners except one. the carrying on of the business. But the notice must be in writing and unambiguous.

REVIEW QUESTIONS 1. What are the modes of dissolution of firm? . What are the different kinds of partnership? 2. save at a loss. What is the procedure for registration of partnership firm? What is the effect of non-registration? 4. or (g) on any other ground which renders it just and equitable that the firm should be dissolved. define Partnership.(e) that a partner has transferred his interest to a third party or allowed his share to be charged or sold in the recovery of arrears of land revenue (f) that the business of the firm cannot be carried on. What are the rights and duties of partners? 3.

MATTERS REFERRED TO ARBITRATION 1. In Union of India Vs D. But the following matters cannot be referred to arbitration:(a) A suit for divorce of restitution of conjugal rights (b) Right arising out of an illegal transaction (c) Insolvency proceedings (d) Matters relating to public charities (e) Matters of criminal nature. The person appointed to adjudicate upon the difference is called an arbitrator. 5. It is a forum other than a Court of law for determination of disputes and differences. etc. Matters of questions of law and fact. whether an arbitrator is named therein or not”. Section 2(a) defines that an “Arbitration Agreement means a written agreement to submit. A. The law relating to arbitration is contained in the Arbitration Act. 10. (1977) Bom. present or future differences to arbitration. All disputes of civil and quasi-civil nature 2. 1940. 1940 Arbitration is one of the oldest methods of settling civil disputes between two or more persons by reference to the dispute to an independent and impartial third person instead of litigating the matter in the usual way through the Courts.R.I. in a judicial manner”.LESSON – 8 ARBITRATION OF ACT. Wadia & Sons. after hearing both the sides. (f) Proceedings with regard to lunacy.P. All matters connected with the personal rights of the parties such as marriage. A time-barred debt. e. theft etc. 4. (g) Testamentary matters (h) Appointment of a guardian to a minor . it was observed that “arbitration is a domestic forum.g. All matters affecting the private rights of the parties which can be the subjectmatter of a civil suit 3. murder. maintenance or conditions on which husband and wife may separate etc.

from any party to the arbitration agreement or within such extended time as the court may allow. to any of the parties to the agreement or umpire. d) When the arbitrators have either allowed time to expire without making an award or expressed in writing.Who can refer A person who is competent to contract. or a minor cannot refer matters to arbitration.  The manager or partner of a Joint Hindu Family  An agent duly authorize by the principal  The official receiver by the leave of court  Trustees acting together. after entering on the reference or after having been called upon to act. But an insolvent or a partner in a firm or an executor or administrator. the umpire shall forthwith enter on the reference in lieu of the arbitrators. may refer matters to arbitration because a reference or submission is an agreement. that they cannot agree. following provisions shall be implied in an arbitration agreement. e) The umpire shall make his award within two months of entering on the reference or within such extended time as the court may allow . c) The arbitrators shall make their award within four months. the reference shall be to a sole arbitrator. KINDS OF ARBITRATION ARBITRATION WITHOUT INTERVENTION OF A COURT Unless the intention of the parties is otherwise expressed. a) Except when it is provided otherwise. and  A company may refer a dispute. by notice in writing. the arbitrators shall appoint an umpire not later than one month from the latest date of their respective appointments. b) If the reference is to an even number of arbitrators.

he is appointed by the parties to the dispute at their own choice. and if such vacancy is not duly filled within 15 days of the notice by any party on the other parties to fill such a vacancy. ARBITRATOR An arbitrator is one. Arbitration through the Intervention of the Court where a Suit is Pending On receiving an application from the parties to the suit. anybody. as the arbitrators. of all the parties to the agreement. The court having heard the objections. all the rules applicable in the case of arbitration without intervention of the court. Such an application must be in writing. on receiving an . h) Costs of references and the award shall be borne by the parties. may appoint an arbitrator or arbitrators. Since. may direct. Where some of the parties to the suit apply to the court for reference to arbitration. for determination within a specified time. g) The award shall be final and binding on the parties. one of the parties may apply to the court for the filling up of the agreement with it. shall apply. the court. The interested parties shall be made as plaintiffs and disinterested as defendants. on the application of the party who gave notice to other parties for filling the vacancy. if any. numbered and registered as a suit. Thereafter. which continues so far as it relates to those parties. at their discretion. the other parties who were not applicants shall be bound by the suit only. who is appointed by the contending parties for negotiation and settlement of a dispute referred to him.f) The arbitrators may examine all the parties to the agreement and other persons claiming under them and all documents and papers relating to the dispute and do all other necessary things. issues an order of reference to an arbitrator appointed by the parties or by the court itself. The court. including a minor or one of themselves may be appointed as an arbitrator. But when the parties cannot appoint any arbitrator or if an appointed arbitrator neglects or refuses to act or is incapable of acting or dies. ARBITRATION IN SUITS Arbitration through the Intervention of Court where no Suit is Pending Though the parties have entered into an arbitration agreement before a suit in respect of any matter relating to the agreement is field in a court. the court may refer the matter in difference to an arbitrator appointed by it.

He must act as an impartial judge. 4. He must be impartial and act fairly to both the parties. 7. 8. He can administer oath to the parties and witnesses 2. He must decide on all matters relating to the dispute and make an award 6. . he must not exceed his authority.application from any of the parties can remove an arbitrator when he fails to proceed with the reference or when he has misconducted himself of the proceedings. He can make the award conditional or in the negative 5. he must fix the time and place for hearing and grant adjournments as may be necessary to do justice. He must not investigate into matters which are outside the scope of terms of reference to arbitration. He can administer necessary interrogatories to any party to arbitration 6. He may however. He must make an award within four months from the date on which reference is made or within such extended time as the court may allow. So. He may not strictly follow the technical rules of procedure. So. but he must give his own decision. He must not act as an agent or advocate of a party. 2. He can administer necessary interrogatories to any party to arbitration. POWERS OF ARBITRATOR 1. He can state the award in the form of a special case for the opinion of the court 4. He must act judicially as he is an extra-judicial court at the choice of the parties. But he should not disregard the substance of justice. He can state a special case for the opinion of the court on any matter of law 3. He must observe the fundamental principles of justice. take the assistance of experts like a Chartered Accountant etc. 3. He must not delegate his authority to someone else except when the delegation involves ministerial acts. DUTIES 1. 5.

He may fix the amount of costs and the persons who shall bear such costs. gives notice to the parties of the award. The court may remit an award for reconsideration: 1) When certain matters referred to arbitration are not determined or 2) When the award determines the matters not referred to arbitrations or 3) When the award is incapable of execution or . When the award is imperfect in form or contains obvious error or 3. When a part of the award is on matters not referred to arbitration and such part can be separated without affecting decision or 2. AWARD An award is the final decision of the arbitrators or an umpire in respect of a dispute referred to arbitration. namely. The court may modify an award: 1. shall be added to and forms part of the award. when he fails to proceed with arbitration or when he misconducts himself or the proceedings. the matter in dispute shall be referred to the decision of a third person. When the award contains clerical mistake or an accidental omission.POWERS AND DUTIES OF AN UMPIRE Where two or more even numbers of arbitrators are appointed and the reference provides that in the event of their disagreement. It may be filed in the court which thereupon. Unless a contrary intention appears. an award is binding on the parties to the arbitration agreements and persons claiming under them. The opinion of the court. his other rights and duties are the same as those of an arbitrator. He has to make an award within two months or such extended period as the court may allow. an umpire may be appointed by the arbitrators within one month from the latest date of their respective appointments. It must be in writing and signed by the arbitrators or an umpire. So. He may be appointed by the court (1) when the arbitrators do not appoint him or (2) when the parties fail to appoint arbitrators. The court may remove him on same grounds on which an arbitrator is removed. on matters which the arbitrators stated a special case for the opinion of the court. such third person is called an umpire.

the award becomes void. or such extended time as the court may allow. Otherwise.4) When the legality of the award is objected to and such objection is apparent on the face of it. the arbitrators or umpire shall give their decision within the fixed time. . 2) When the award is improperly procured or is otherwise invalid. 3) When the award is made after the arbitration has become invalid or has been superseded by an order of the court. When the award is remitted for reconsideration. The court may set aside the award: 1) When the arbitrator or umpire misconducts himself or the proceedings.

He is entitled to prescribe the hire for the carriage of goods by him. 5. He has a right to have the goods delivered to him. he is not bound to follow the shortest route. RIGHTS OF COMMON CARRIER 1. a common carrier is different from a private carrier who carries goods of particular persons of his own choice either for hire or gratuitously in a casual occupation or under a special contract. . other than the government. 2. except when the consignee instructs him to deliver the goods at a particular place. Further. He is bound to carry goods for all persons indiscriminately. DUTIES OF COMMON CARRIER 1. 3. 2. He is bound to carry goods which he professes to carry. He is bound to carry goods by his ordinary route to the usual destination or destinations in his customary manner without unnecessary delay or deviation. property from place to place.” But the government or a carrier of passengers or a carrier by a sea or air cannot be regarded as a carrier. He is entitled to exercise a lien on the goods in his possession for hire and other expenses or charges. Section 2 of the Carriers Act 1865. He is bound to carry the goods safely 4. but not those which he does not profess to carry 3. defines that “Common Carrier denotes a person. He must deliver the goods at the place stated by the consignor of the goods. 6. by land or inland navigation for all persons indiscriminately. If the consignee does not take delivery of the goods when they reach the destination.LESSON – 9 COMMON CARRIES ACT A Common Carrier is one whose business is to transport properly or goods of all persons from place to place for hire. he must warehouse them for a reasonable time so that the consignee can take delivery thereof. So. engaged in the business of transporting for hire.

2. He has a right to be reimbursed for the expenses incurred by him in the protection of the goods when the consignee refuses to take delivery of them. such as cyclone lighting etc. he can sell away the goods when the consignee has not taken delivery of them and the goods are about to perish or if the goods get spoiled in transit. 5. Liability in respect of Non-Scheduled Goods The liability of the carrier in respect of loss of these goods can be limited by a special contract signed by the consignor or owner of the goods. musical instruments etc. he is liable as a bailee and hence should take much care of the goods as a man of ordinary prudence would take care of his own goods. . At common law. He is liable as an insurer for any loss or damage caused to the goods whether by his negligence or not. he is not liable for the loss of goods if the value of goods exceeds Rs. d) Consignor’s Fault: He is not liable for the loss or damage of goods due to consignor’s fault such as bad packing etc. except when such loss is caused by the criminal acts of negligence of the carrier himself or his agents or servants. Liability in respect of Scheduled Goods In case of unusually valuable goods like gold and silver and unusually perishable goods such as glass.4. c) “Inherent Fire” in the Goods: He is not liable for inherent defect in the goods such as deterioration of perishable goods like fruits. ivory articles. vegetables etc. unless the consignor or his agent expressly declares their value and their description to the carrier. LIABILITIES OF COMMON CARRIERS 1. b) Alien Enemies: He is not liable for the loss of goods caused by the foreign enemies during wars. If the goods are perishable. 100. But the following are the exceptions: a) Act of Nature: He is not liable if the loss of goods is caused by unforeseen circumstances beyond his control and contemplation.

72). d. Articles of a perishable nature c. he would be answerable. the consignor would be answerable. Articles mentioned in the Second Scheduled (which includes articles of special value which are to be declared and insured). The sender or his agent shall give the required particulars in the forwarding note in respect of the animals or goods delivered to the railway administration where: (a) The animals or goods are to be carried by a train intended solely for the carriage of goods. Articles carried at owner’s risk rate b. On the other hand. Explosives and other dangerous goods. Liability in respect of dangerous goods In case of dangerous goods like explosives. or (b) The goods are to be carried by any other train and consist of articles of any of the following categories namely – a. Any person derivering to a railway administration any animals or goods to be carried by railway shall execute a forwarding note. Articles in a defective condition or defectively packed. e. the consignor is not responsible for any consequent loss. . within six months from the date on which the plaintiff has the knowledge of the loss of goods. if the carrier is aware of the dangerous character of the goods carried.In order to sue the carrier for loss of goods. But even if the consignor is unaware of the dangerous character of goods. 1890 Responsibility of Railway Administration as Carriers Execution of forwarding note (Sec. acids etc the consignor must sufficiently inform the carrier of the dangerous character of the goods. CARRIAGE BY RAIL Carriage by rail in India is regulated by the Indian Railways Act. notice in writing of the loss of goods must be given to the carrier. If not. The forwarding note shall be in a form prescribed by the railway administration and approved by the Central Government.

Bill of Lading CHARTER-PARTY It is an agreement by which the ship owner agrees to let an entire ship or substantial part of it to a shipper for the conveyance of goods on a certain voyage. to a definite place or for a specific period in consideration of “freight”. damage. . CONTRACT OF AFFREIGHTMENT A contract for the carriage of goods by sea is called a contract of affreightment. 1. deterioration or non-delivery has occurred as a result of one or more of the cause given above.As per the amended Sec. the railway administration shall be responsible unless it satisfactorily proves that it had exercised reasonable care and prudence in the carriage of goods or animals. 73. restraint or seizure under legal process Orders or restrictions imposed by or on behalf of the Central or a State Government Natural deterioration or wastage in weight due to some inherent defect or vice in the goods Latent defects Fire. explosion or any unforeseen risk The railway administration is responsible for the non-delivery of animals or goods delivered to be carried by railway arising from any cause except the above. Charter-Party and 2. a railway administration is responsible for the loss destruction or deterioration in transit of animals or goods received by it for carriage by rail from all causes except losses arising from – • • • • • • • • Act of God Act of war Act of public enemies Arrest. A contract of affreightment is of two kind. When any loss destruction. It is an agreement whereby the ship owner undertakes either to carry the goods by water or to supply a ship for the carriage of goods by water in consideration of a price called “freight”.

Marks for the identification of goods. it is not a negotiable instrument though it is deliverable to a particular person or his order. CARRIAGE BY AIR The law relating to carriage of goods and passengers across inter-national borders is regulated in India by the Carriage by Air Act. the carrier must deliver a passenger ticket which must contain the following particulars. It also makes provisions for applying the rules contained in the Warsaw Convention and the Hague Protocol (subject to certain exceptions. the destination and the route 5. the number of packages and the order and condition of the goods 4. Expected perils and other terms of carriage of goods. therefore. or his agent and stating the terms on which the goods were delivered to and received by the ship”. (1) The place and date of issue (2) The place of departure and of destination (3) The agreed stopping places. . 1972. The port of loading. A statement that it is subject to the rules laid down by the Act 3. DOCUMENTS OF CARRIAGE When passengers and goods are carried by air. The transfer of bill of lading serves as the symbolic delivery of goods. A Bill of Lading is a document to title of goods and can be sold while the goods are still in transit. signed by the person who contracts to carry them. the following documents are issued: Passenger Tickets: For carriage of passengers. The amount of freight 6. adaptations and modifications) to non-international carriage by air. it is sometimes described a “quasi-negotiable” or “as good as negotiable”.BILL OF LADING “A bill of lading is a receipt for the goods shipped on board a ship. The name of the ship and its national character. but the carrier may reserve the right to alter the stopping places in case of necessity and the exercise of this right would not deprive the carriage of its international character. But strictly speaking. 2. A bill of lading contains the following particulars 1.

(4) The name and address of the carrier or carriers. . (5) A statement that the carriage is subject to the rules relating to liability contained in the First Schedule [Rule 3(1)] The passenger ticket shall constitute prima facie evidence of the conclusion and conditions of the contract of carriage.

LESSON – 10 CONTRACT OF INSURANCE The Contract of Insurance is a contract whereby a ‘person undertakes to indemnify another against a loss arising on the happening of an event or by pay a sum of money on the happening of an event. He does not pay the specified amount unless this amount is the actual loss to the insured. The insured must take reasonable precautions to save the property. A contract of insurance is a contract uberrimae fider. ion the event of some mishap to the insured property. Following are the general principles of contracts of insurance: 1. 4. So. . The rule is “causa proxima non remota spectalur”. the consideration for which the premium is paid. If he does not run the risk. i. 6. He must act as a prudent uninsured person would act in his own case under similar circumstances to mitigate or minimize losses. Failure to disclose material facts renders the contract voidable at the option of the insurer. Every contract of insurance such as life insurance and personal accident and sickness insurance.e. the insurer pays the actual loss suffered by the insured. i. “He must be so situated with regard to the thing insured that he would have benefit from its existence. every contract of insurance comes to an end of the expiry of every year. The person who insures is called “Insurer”. So. the loss must be proximately caused in order that the insurer is to become liable. The price for the risk undertaken by the insurer and paid by the insured to the insurer is called “Premium” and the document which contains the contract of insurance is called “Policy”. Except in the case of life insurance. all material facts which are likely to influence the insurer in deciding the amount of premium payable by the insured must be disclosed by the insured. fails and consequently. the proximate but not the remote cause is to be looked to.e. 5. is a contact of indemnity. So. 2. The insurer is liable for loss which is proximately caused by the risk insured against. a contract requiring utmost good faith of the parties. The assured must have. 3. loss from its destruction”. he must return the premium paid by the insured. The person who effects the insurance is called the “Insured” or “Assured”. that is called “insurable interest” in the subject matter of the contract of insurance. 7. unless the insured continues the same and pays the premium before the expiry of the year. The insurer must run the risk of indemnifying the insured.

there are different kinds of insurance. But in the case of the latter type. the premiums have to be paid either for a specified number of years or till the death of the assured. But he has to pay more premium in this case than that is payable in respect of “without profits” policy. The contract specified the maximum amount which the assured can claim in case of loss. . A life insurance policy is mainly to two types. This amount is fixed by the parties at the time of the contract. (1) the whole life policy and (2) the endowment policy. the assured gets not only the sum assured but also a share in the profits of the underwriter in the form of bonus. (1) Life (2) Fire (3) Marine (4) Accident and (5) Guarantee insurance etc. the insurer shall have to make good such loss and them have a right to step into the shoes of the insured and bring an action against such third party who caused the loss to the insured. in consideration of the premium paid. It also grants disability and accident benefits annuities and superannuation allowances. The loss can be ascertained only after the fire has occurred. FIRE INSURANCE A contract of fire. According to the rule of subrogation when the loss is caused to the insured by the conduct of third party. In this case. however. a life insurance policy may be either. the assured is not entitled to any share in the profits. The insurer is liable to make good the actual amount of loss nor exceeding the maximum amount fixed by the parties. insurance is a contract whereby the insurer undertakes. The policy matures on the death of the assured. LIFE INSURANCE CONTRACT Life insurance is popularly referred to as life assurance. This right of subrogation is enforceable only when there is an assignment of cause of action by the insured in favour of the insurer. the amount assured is payable either on the death of the assured or on the expiry of a specified number of years whichever is earlier. to make good any loss or damage caused by fire during a specific period. (1) with profits or (2) without profits. In the former one. It is. In the case of the former policy. The doctrine of subrogation does not apply to life insurance. not the measure of the loss. But in the case of “without profits” policy. a certain sum of money on death or on the happening of an event dependent upon human life in consideration of premiums paid by the assured. the underwriter agrees to pay the assured or his heirs. Again.8.

theft. A valued policy can be legally challenged because it is not a contract of indemnity. however. Specific policy is a case of underinsurance to check under-insurance. 5. The assured must have insurable interest in the subject-matter both at the time of insurance and at the time of loss. Comprehensive Policy It is a policy which covers losses against fire. It comes to an end after the expiry of the year. such a policy is also known as “all-in-one” policy. . the fixed amount is payable irrespective of the actual amount of loss. It can. TYPES OF FIRE POLICIES 1. etc. 3. The assured can. This is subject to the maximum amount for which the subject-matter is insured. It is a contract of indemnity. the insurers usually insert average clause in the policy in which case the policy is known as average policy. It is subject to the principles of subrogation and contribution 6. In the event of loss. The insurable interest must be capable of valuation in terms of money.CHARACTERISTICS OF FIRE INSURANCE CONTRACT 1. Valued Policy It is a policy in which the amount payable in case of loss is fixed at the time the policy is taken. The assured and the insurer have to disclose everything which is in their knowledge and which will affect the contract of insurance. in the event of loss. The risk covered by a fire insurance contract is the loss resulting from fire or some cause which is the proximate cause of the loss. It is contract from year to year. 2. Specific Policy It is policy which covers the loss of the assured up to a specific amount which is less than the real value of the property. 4. burglary. be renewed if the assured pays the premium during the days of grace. third party risks. 3. It is a contract of uberrinate fider. 2. recover the actual amount of loss from the insurer. It may also cover loss of profits during the period the business remains closed due to fire.

leaving other particulars such as the name of the ship etc. Time Policy: It insures the subject matter for a certain specified period. KINDS OF MARINE POLICIES 1. Replacement or Reinstatement Policy In order to prevent fraudulent devices by the assured. Voyage Policy: It insures the subject-matter for a certain voyage only i. It is a contract ‘uberrimae fider”. Floating Policy It is a policy which covers property at different places against loss by fire. 2. It is a contract of indemnity. the insurers usually insert a clause in the policy. The doctrine of subrogation applies to it.4. Valued Policy: It specified the agreed value of the subject-manner insured. It must have insurable interest. In this case. The value is to be ascertained subsequently at the time of actual loss. 3. It is always subject to average clause 5. Unvalued or Open Policy: It does not specify the value of the subjectmatter. a company policy also may be issued. 7. whereby the insurer undertakes to pay the cost of the replacement of the property damaged or destroyed by fire. It might. cover goods lying in two warehouses at two different places. Insurers are liable only for the loss not exceeding the value mentioned in the policy. against marine losses. Mixed Policy: It insures the subject-matter for a specified voyage and for a particular period. Wagering or Honour Policy: It is also known as “policy proof of interest” or “Interest or no interest policy”.e. to be declared subsequently. 5. the insurer does not have . Lloyds are a registere body of several members and a broker is always employed in the case of this policy. 6. 4. Floating Policy: It describes the general terms of insurance. called the re-instatement clause. in consideration of a premium paid by the insured. journey from one fixed port to another fixed port. for example. The usual form of the policy is what is called “Lloyd’s Policy”. MARINE INSURANCE A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the insured. in manner and to the extent thereby agreed. not exceeding twelve months. Sometimes.

8. 6. “Free from particular average” or “Free from all average” clause whereby the insurer is exempted from his liability for any particular average loss or for all average loss caused to the subject-matter of the contract. Name of the ship 2. “Free from capture and seizure” clause which exonerates the insurer from has liability for the loss arising out of the capture and seizure of the ship. “Touch and Stay” clause which mentions the various parts which the ship touches and the period of its stay at these parts. 10. 7. “Lost or not lost” clause whereby the insurer is made liable whether the goods were in existence or not at the time when the insurance was effected. 12. “Collision or running down” clause whereby the owner of an insured ship shall indemnify the owner of another ship if the former ship collides negligently with the latter. Labour and Travel” clause which entitles the insured to minimize the loss and claim for expenses from insurer and to recover the goods lost by falling overboard accidentally. 11. Accepted perils for which the insurer undertakes to be liable. “Expected Perils” insurance policy. clause which specified the risks not covered by the . 13. It resembles a wages and hence void Losses are indemnified depending on the honour of the insurer. Name of the parties 3. except when the insured knew that the goods were destroyed already. The time of commencement and duration of the risk 4.insurable interest in the subject-matter of the contract. “Sue. A marine insurance policy contains the following particulars: 1. 9. “Barratry” clause relates to the liability of the insurer for the loss arising out of the wrongful act of the master or any of the crew of the ship. 5. “Inchmaree” clause which protects the insured against any latent defect in the machinery of the ship.

D. Kapoor. What is an “arbitration”. 3. M.A marine policy is thus a formal document signed by the insurer. It is an actionable claim and can be transferred by means of an assignment. Define common carriers. N. What is marine insurance? What are the kinds of marine policies? BOOKS REFERRED 1. duties and liabilities of common carriers? 3. What are the kinds of arbitration? 2. It contains the terms of the insurance as explained above. Shukla. It must be stamped. What are right. Subba Rao Elements of Mercantile Law Mercantile Law Mercantile Law .C. 2. REVIEW QUESTIONS: 1. What are the general principles of contract of insurance? 4.

Who is a minor? Discuss the nature of contract entered into with minors. What are the different kinds of arbitration? . What are legal rules relating to valid offer? 2. Define contract. What are the duties of finder of lost goods? 7. What are the rights and duties of an agent? 14. What are the principles of contract of insurance? 8. What are the rights of an unpaid vendor? PART – B Answer any Four of the following All questions carry equal marks (4 x 15 = 60) 9. What are the implied conditions and warranties laid down under the Sale of Goods Act? 13. 6. When the surety is discharged from his liabilities? 12. What are the rights.2 : COMMERCIAL LAW Time 3 hours Part .MODEL QUESTION PAPER BACHELOR OF COMMERCE PAPER 2. Distinguish between contract of indemnity and contract of guarantee. What are the remedies for breach of contract? 5. What are the essentials of a valid contract? 10.A Answer any five of the following All questions carry equal marks Maximum Marks : 100 (5 X 8 = 40) 1. What are the agreements opposed to public policy? 4. 3. Define offer. What are the different methods of discharging a contract? 11. duties and liabilities of common carriers? 15.